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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 29, 1999
FILE NOS.: 333-30765
811-8283
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 4 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 5 /X/
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MORGAN STANLEY DEAN WITTER FUND OF FUNDS
(A MASSACHUSETTS BUSINESS TRUST)
(FORMERLY NAMED DEAN WITTER FUND OF FUNDS)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)
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COPY TO:
STUART M. STRAUSS, ESQ.
MAYER, BROWN & PLATT
1675 BROADWAY
NEW YORK, NEW YORK 10019
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Post-Effective Amendment becomes effective.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
___ immediately upon filing pursuant to paragraph (b)
_X_ on November 29, 1999 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
___ on (date) pursuant to paragraph (a) of rule 485.
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
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PROSPECTUS - NOVEMBER 29, 1999
Morgan Stanley Dean Witter
FUND OF FUNDS
DOMESTIC PORTFOLIO AND INTERNATIONAL PORTFOLIO [COVER PHOTO]
A MUTUAL FUND THAT CONSISTS OF TWO SEPARATE PORTFOLIOS
THE DOMESTIC PORTFOLIO SEEKS TO MAXIMIZE TOTAL INVESTMENT RETURN
THE INTERNATIONAL PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION
The Securities and Exchange Commission has not approved or disapproved these
securities or passed uponthe adequacy of this PROSPECTUS. Any representation to
the contrary is a criminal offense.
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CONTENTS
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The Fund Overview.............................................. 1
The Domestic Portfolio................................ 2
Investment Objective................................ 2
Principal Investment Strategies..................... 2
Principal Risks..................................... 13
Past Performance.................................... 17
Fees and Expenses................................... 19
Additional Risk Information......................... 21
The International Portfolio........................... 24
Investment Objective................................ 24
Principal Investment Strategies..................... 24
Principal Risks..................................... 27
Past Performance.................................... 31
Fees and Expenses................................... 32
Additional Risk Information......................... 33
Fund Management....................................... 36
Shareholder Information Pricing Portfolio Shares.............................. 38
How to Buy Shares..................................... 38
How to Exchange Shares................................ 40
How to Sell Shares.................................... 42
Distributions......................................... 43
Tax Consequences...................................... 44
Share Class Arrangements.............................. 45
Financial Highlights ...................................................... 53
Our Family of Funds ...................................................... Inside Back Cover
THIS PROSPECTUS CONTAINS IMPORTANT INFORMATION ABOUT THE FUND.
PLEASE READ IT CAREFULLY AND KEEP IT FOR FUTURE REFERENCE.
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OVERVIEW
Morgan Stanley Dean Witter Fund of Funds (the "Fund") is an open-end,
non-diversified mutual fund that consists of two separate portfolios
(each, a "Portfolio") --
Domestic Portfolio
International Portfolio
Each Portfolio invests primarily in shares of other Morgan Stanley
Dean Witter Funds (the "Underlying Funds"). Beginning on the next
page is a summary of each Portfolio.
1
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[Sidebar]
TOTAL RETURN
AN INVESTMENT OBJECTIVE HAVING THE GOAL OF SELECTING SECURITIES WITH THE
POTENTIAL TO RISE IN PRICE AND PAY OUT INCOME.
[End Sidebar]
THE DOMESTIC PORTFOLIO
[ICON] INVESTMENT OBJECTIVE
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The Domestic Portfolio seeks to maximize total investment return.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
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The Domestic Portfolio normally invests at least 65% of its total
assets in shares of the Underlying Funds described below. These
Underlying Funds are intended to give the Portfolio broad exposure to
the U.S. equity and fixed-income markets. At any time the Portfolio's
"Investment Manager," Morgan Stanley Dean Witter Advisors Inc., may
add or substitute Underlying Funds in which the Portfolio may invest.
In deciding how to allocate the Portfolio's assets among the selected
Underlying Funds, the Investment Manager considers its outlook for
the U.S. economy and financial markets, and the relative market
valuations of the Underlying Funds. The Portfolio normally expects to
invest between 50%-100% of its assets in Underlying Funds which
invest primarily in equity securities and between 0%-50% of its
assets in Underlying Funds which invest primarily in fixed-income
securities. There are no minimum or maximum percentages in which the
Portfolio must invest in any Underlying Fund.
THE UNDERLYING MORGAN STANLEY DEAN WITTER FUNDS
The following is a brief summary of the investment objectives and
principal investment strategies of the Underlying Funds that the
Investment Manager presently considers for investment. The
Portfolio's Investment Manager also serves as the Investment Manager
to each of the Underlying Funds. For a complete description of an
Underlying Fund, please see its prospectus, which is available free
of charge by calling (877) 937-MSDW (toll-free).
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AGGRESSIVE EQUITY FUND
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INVESTMENT OBJECTIVE Capital growth.
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2
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PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
common stocks and other equity securities (which may
include convertible securities) of U.S. or foreign
companies that (i) are covered by Morgan Stanley Dean
Witter Equity Research and (ii) offer the potential
for superior earnings growth in the opinion of the
fund's Investment Manager. The Investment Manager
utilizes a process, known as sector rotation, that
emphasizes industry selection over individual company
selection. In addition, the fund may invest in foreign
securities, equity securities that are not covered by
Equity Research, fixed-income securities, and options
and futures.
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AMERICAN OPPORTUNITIES FUND
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INVESTMENT OBJECTIVE Long-term capital growth consistent with an effort to
reduce volatility.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in a
diversified portfolio of common stocks. The fund's
Investment Manager invests in companies that it
believes have earnings growth potential. The
Investment Manager utilizes a process, known as sector
rotation, that emphasizes industry selection over
individual company selection. In addition, the fund
may invest in convertible debt and preferred
securities, fixed-income securities such as U.S.
government securities and investment grade corporate
debt securities, and foreign securities.
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CAPITAL GROWTH SECURITIES
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INVESTMENT OBJECTIVE Long-term capital growth.
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3
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PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
common stocks. The fund's Investment Manager currently
utilizes a two-stage computerized screening process
designed to find companies that have demonstrated a
history of consistent growth in earnings and revenues
over the past several years, and that have solid
future earnings growth characteristics and attractive
valuations. In addition, the fund may invest in U.S.
government securities, investment grade fixed-income
securities, preferred securities, convertible
securities, real estate investment trusts known as
"REITs" and foreign securities.
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COMPETITIVE EDGE FUND -- "BEST IDEAS" PORTFOLIO
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INVESTMENT OBJECTIVE Long-term capital growth.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 80% of its assets in common
stock including depository receipts of companies
included in the "Best Ideas" subgroup of "Global
Investing: The Competitive Edge List," a research
compilation assembled by Morgan Stanley Dean Witter
Equity Research -- or such supplemental companies as
selected by the fund's Investment Manager. This
subgroup consists of approximately 40 companies
(including foreign companies) that Equity Research
believes have a long-term sustainable competitive
advantage in the global arena. In addition, the fund
may at times purchase securities that are not included
on the Competitive Edge "Best Ideas" List.
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CONVERTIBLE SECURITIES TRUST
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INVESTMENT OBJECTIVE High total return through a combination of current
income and capital appreciation.
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4
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PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
convertible securities. The fund's convertible
securities may include lower rated fixed-income
securities commonly known as "junk bonds," and
"enhanced" and "synthetic" convertible securities. In
selecting fund investments, the fund's Investment
Manager considers market, economic and political
conditions. In addition, the fund may invest in common
stocks directly, non-convertible fixed-income
securities and foreign securities.
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DEVELOPING GROWTH SECURITIES TRUST
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INVESTMENT OBJECTIVE Long-term capital growth.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
common stocks and other equity securities of companies
that the fund's Investment Manager believes have the
potential to grow much more rapidly than the economy.
The fund will invest primarily in smaller and
medium-sized companies. In addition, the fund may
invest in fixed-income securities issued or guaranteed
by the United States government, its agencies or
instrumentalities, investment grade debt securities,
and foreign securities.
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DIVIDEND GROWTH SECURITIES INC.
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INVESTMENT OBJECTIVE Reasonable current income and long-term growth of
income and capital.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 70% of its total assets in
common stocks of companies with a record of paying
dividends and the potential for increasing dividends.
The fund's Investment Manager initially employs a
quantitative screening process in an attempt to
identify a number of common stocks which are
undervalued and which have a record of paying
dividends. The Investment Manager then applies a
qualitative analysis to determine which stocks it
believes have the potential to increase dividends. In
addition, the fund may invest in fixed-income,
convertible and foreign securities.
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5
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FINANCIAL SERVICES TRUST
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INVESTMENT OBJECTIVE Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in a
diversified portfolio of common stocks and other
equity securities of companies engaged in financial
services and related industries. The fund's Investment
Manager seeks to identify companies which it believes
show good appreciation prospects and value. In
addition, the fund may invest in common stock and
other equity securities of companies not in the
financial services or related industries,
fixed-income, convertible, U.S. government and foreign
securities.
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GROWTH FUND
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INVESTMENT OBJECTIVE Long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
common stocks and convertible securities primarily of
companies having stock market values or
capitalizations of at least $1 billion. The fund's
"Sub-Advisor," Morgan Stanley Dean Witter Investment
Management Inc., invests the fund's assets by pursuing
an "equity growth" philosophy. That strategy involves
a process that seeks to identify companies that
exhibit strong or accelerating earnings growth. In
addition, the fund may invest in foreign securities.
</TABLE>
6
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HEALTH SCIENCES TRUST
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INVESTMENT OBJECTIVE Capital appreciation.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
common stocks of health sciences companies that are
located throughout the world. In deciding which
securities to buy, hold or sell, the fund's Investment
Manager invests in companies based on its view of
business, economic and political conditions. In
addition, the fund may invest in common stocks of
non-health sciences companies, preferred stock and
investment grade fixed-income securities.
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HIGH YIELD SECURITIES INC.
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INVESTMENT OBJECTIVES High current income and, secondarily, capital
appreciation.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
fixed-income securities (including zero coupon
securities) rated lower than investment grade,
commonly known as "junk bonds," or in non-rated
securities considered by the fund's Investment Manager
to be appropriate investments for the fund. In
deciding which securities to buy, hold or sell, the
Investment Manager considers an issuer's
creditworthiness, economic developments, interest rate
trends and other factors it deems relevant. In
addition, the fund may invest in securities rated
investment grade or higher (or, if not rated,
determined to be of comparable quality) when the
Investment Manager believes that such securities may
produce attractive yields.
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INCOME BUILDER FUND
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INVESTMENT OBJECTIVES Reasonable income and, secondarily, growth of capital.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
income-producing equity securities, including common
stock, preferred stock and convertible securities. The
fund's Investment Manager uses a value-oriented style
in the selection of securities. In addition, the fund
may invest in fixed-income
</TABLE>
7
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securities (which may include U.S. government
securities, junk bonds and zero coupon securities),
REITs and foreign securities.
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INFORMATION FUND
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INVESTMENT OBJECTIVE Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
common stocks and investment grade convertible
securities of companies engaged in the communications
and information industry that are located throughout
the world. In addition, the fund may invest in
investment grade fixed-income securities.
</TABLE>
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INTERMEDIATE INCOME SECURITIES
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INVESTMENT OBJECTIVE High current income consistent with safety of
principal.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
intermediate term, investment grade fixed-income
securities, including mortgage-backed and zero coupon
securities. These securities may include corporate
debt securities, preferred stocks, U.S. government
securities, and U.S. dollar-denominated securities
issued by foreign governments or corporations. In
deciding which securities to buy, hold or sell, the
fund's Investment Manager considers domestic and
international economic developments, interest rate
trends and other factors. The fund will normally
maintain an average weighted maturity of between three
to seven years. In addition, the fund may invest in
fixed-income securities rated lower than investment
grade.
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MARKET LEADER TRUST
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INVESTMENT OBJECTIVE Long-term growth of capital.
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8
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PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
common stocks and other equity securities (which may
include foreign or convertible securities) of
companies that the fund's Investment Manager believes
are established market leaders in growing industries.
The Investment Manager considers companies to be
"market leaders" if they are nationally-known and have
established a strong reputation for quality
management, products and services in the United States
and/or globally. In addition, the fund may invest in
equity securities of other companies, corporate debt
and U.S. government securities.
</TABLE>
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MID-CAP DIVIDEND GROWTH SECURITIES
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INVESTMENT OBJECTIVE Total return.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in a
diversified portfolio of common stocks and other
equity securities of companies whose capitalization
falls within the range of companies comprising the
Standard & Poor's Mid-Cap 400 Index, that currently
pay dividends and that have the potential for
increasing dividends. In addition, the fund may invest
in certain other common stocks, and fixed-income,
convertible and foreign securities.
</TABLE>
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MID-CAP EQUITY TRUST
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INVESTMENT OBJECTIVE Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
common stocks and convertible securities of
medium-sized companies with market capitalizations
within the capitalization range of companies
comprising the Standard & Poor's Mid-Cap 400 Index.
The fund's "Sub-Advisor," TCW Funds Management, Inc.,
invests the fund's assets in companies that it
believes exhibit superior earnings growth prospects
and attractive stock market valuations. In addition,
the fund may invest in equity securities of small
capitalization and large capitalization companies,
foreign securities and fixed-income securities.
</TABLE>
9
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NATURAL RESOURCE DEVELOPMENT SECURITIES INC.
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INVESTMENT OBJECTIVE Capital growth.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
common stocks of domestic and foreign companies
engaged in natural resource and related businesses. In
addition, the fund may invest in common stocks of
companies not in the natural resource areas,
investment grade corporate debt securities and U.S.
government securities.
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PRECIOUS METALS AND MINERALS TRUST
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INVESTMENT OBJECTIVE Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
common stocks and other securities of foreign and
domestic companies principally engaged in the precious
metals and minerals business. The fund also may invest
a portion of its assets in gold, silver, platinum and
palladium bullion and coins. In addition, the fund may
invest in common stocks of companies that are not
primarily engaged in the precious metals and minerals
business and long-term U.S. government securities.
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S&P 500 INDEX FUND
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INVESTMENT OBJECTIVE To provide investment results that, before expenses,
correspond to the total return of the Standard &
Poor's-Registered Trademark- 500 Composite Stock Price
Index.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 80% of its total assets in
common stocks of companies included in the S&P 500
Index. The Investment Manager "passively" manages the
fund's assets by investing in common stocks in
approximately the same proportion as they are
represented in the Index. In addition, the fund may
invest in stock index futures on the S&P 500 Index and
Standard & Poor's Depository Receipts.
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SHORT-TERM BOND FUND
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INVESTMENT OBJECTIVE High current income consistent with the preservation
of capital.
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10
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PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
bonds issued or guaranteed as to principal and
interest by the U.S. government, its agencies or
instrumentalities (which may include mortgage-backed
and zero coupon securities), and investment grade
corporate and other types of bonds. In selecting fund
investments, the Investment Manager considers both
domestic and international economic developments,
interest rate trends and other factors and seeks to
maintain an overall weighted average maturity for the
fund of three years or less. In addition, the fund may
invest in foreign, asset-backed and restricted
securities, and junk bonds.
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SPECIAL VALUE FUND
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INVESTMENT OBJECTIVE Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
common stocks of small capitalization companies
(generally between $100 million and $1 billion) that
the fund's Investment Manager believes are undervalued
relative to the marketplace or similar companies. In
addition, the fund may invest in common stocks of
companies which have medium or large market
capitalizations, convertible and non-convertible
fixed-income securities, and foreign securities
(including depository receipts).
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U.S. GOVERNMENT SECURITIES TRUST
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INVESTMENT OBJECTIVE High current income consistent with safety of
principal.
PRINCIPAL INVESTMENT STRATEGY Invests all of its assets in U.S. government
securities (which may include mortgage-backed or zero
coupon securities). In making investment decisions,
the fund's Investment Manager considers economic
developments, interest rate trends and other factors.
The fund is not limited as to the maturities of the
U.S. government securities in which it may invest.
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UTILITIES FUND
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INVESTMENT OBJECTIVE Capital appreciation and current income.
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11
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PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
common stock, other equity and investment grade
fixed-income securities of companies that are engaged
in the utilities industry. The fund's Investment
Manager will shift the fund's assets between different
types of utilities and between equity and fixed-income
securities, based on prevailing market, economic and
financial conditions. In addition, the fund may invest
in foreign securities.
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VALUE FUND
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INVESTMENT OBJECTIVE Total return.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
common stock and other equity securities that the
fund's "Sub-Advisor," Miller Anderson &
Sherrerd, LLP, believes are undervalued based
primarily on price/earnings ratios, as well as price/
book ratios and various other value measures. In
addition, the fund may invest in foreign, convertible
and fixed-income securities.
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VALUE-ADDED MARKET SERIES -- EQUITY PORTFOLIO
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INVESTMENT OBJECTIVE High total return through capital appreciation and
current income.
PRINCIPAL INVESTMENT STRATEGY Invests in a diversified portfolio of common stocks
represented in the Standard &
Poor's-Registered Trademark- 500 Composite Stock Price
Index. The fund generally invests in each stock
included in the S&P 500 in equal proportion. In
addition, the fund may purchase and sell stock index
futures to simulate investment in the S&P 500.
</TABLE>
In addition to the principal investment strategies of the Underlying
Funds described above, the Portfolio may use the following investment
strategies:
DEFENSIVE INVESTING. The Portfolio may take temporary "defensive"
positions in attempting to respond to adverse market conditions. The
Portfolio may invest any amount of its assets in cash or money market
instruments in a defensive posture when the Investment Manager
believes it is advisable to do so. Although taking a defensive
posture is designed to protect the Portfolio from an anticipated
market downturn, it could have the effect of reducing the benefit
from any upswing in the market. When the Portfolio takes a defensive
position, it may not achieve its investment objective.
12
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PORTFOLIO TURNOVER. The Portfolio may engage in active and frequent
trading of Underlying Funds to achieve its principal investment
strategies. The portfolio turnover rate is not expected to exceed
300% annually under normal circumstances. A high turnover rate, such
as 300%, may increase the Portfolio's capital gains, which are passed
along to shareholders of the Portfolio as distributions. This, in
turn, may increase your tax liability as a shareholder of the
Portfolio. See the sections on "Distributions" and "Tax
Consequences." A high turnover rate would not result in the Portfolio
incurring higher sales charges/brokerage commissions because the
Portfolio would be trading Class D shares of the Underlying Funds
which are sold without any sales charges.
The percentage limitations relating to the composition of the
Portfolio apply at the time the Portfolio acquires an investment and
refer to the Portfolio's net assets, unless otherwise noted.
Subsequent percentage changes that result from market fluctuations
will not require the Portfolio to sell any security. The Portfolio
may change its principal investment strategies without shareholder
approval; however, you would be notified of any changes.
[ICON] PRINCIPAL RISKS
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There is no assurance that the Portfolio will achieve its investment
objective. The Portfolio's share price will fluctuate with changes in
the market value of the Portfolio's investments in Underlying Funds.
When you sell Portfolio shares, they may be worth less than what you
paid for them and, accordingly, you can lose money investing in this
Portfolio. In addition, the performance of the Portfolio may be
adversely affected because in allocating Portfolio assets among the
Underlying Funds the Investment Manager may consider the impact of
the allocation decision on the Underlying Funds.
Set forth below are the principal risks associated with investing in
the Underlying Funds described above. For more information about the
risks of investing in the Underlying Funds, please see their
prospectuses, which are available free of charge by calling
(877) 937-MSDW (toll-free).
COMMON STOCKS. A principal risk of investing in certain Underlying
Funds is associated with common stock investments. In general, stock
values fluctuate in response to activities specific to the company as
well as general market, economic and political conditions. Stock
prices can fluctuate widely in response to these factors.
Certain Underlying Funds may invest in stocks of small and
medium-sized companies. Investing in securities of these companies
involves greater risk than is customarily associated with investing
in more established companies. These companies' stocks may be more
volatile and less liquid than the stocks of more established
companies. These stocks may have returns that vary, sometimes
significantly, from the overall stock market.
13
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FOREIGN SECURITIES. Certain Underlying Funds invest in foreign
securities (including depository receipts) which involve risks in
addition to the risks associated with domestic securities. One
additional risk is currency risk. While the price of Underlying
Fund shares is quoted in U.S. dollars, Underlying Funds generally
convert U.S. dollars to a foreign market's local currency to purchase
a security in that market. If the value of that local currency falls
relative to the U.S. dollar, the U.S. dollar value of the foreign
security will decrease. This is true even if the foreign sercurity's
local price remains unchanged.
Foreign securities also have risks related to economic and political
developments abroad, including expropriations, confiscatory taxation,
exchange control regulation, limitations on the use or transfer of
Underlying Fund assets and any effects of foreign social, economic or
political instability. Foreign companies, in general, are not subject
to the regulatory requirements of U.S. companies. Moreover, foreign
accounting, auditing and financial reporting standards generally are
different from those applicable to U.S. companies. Finally, in the
event of a default of any foreign debt obligations, it may be more
difficult for an Underlying Fund to obtain or enforce a judgement
against the issuers of the securities.
Securities of foreign issuers may be less liquid than comparable
securities of U.S. issuers and, as such, their price changes may be
more volatile. Furthermore, foreign exchanges and broker-dealers are
generally subject to less government and exchange scrutiny and
regulation than their U.S. counterparts. In addition, differences in
clearance and settlement procedures in foreign markets may occasion
delays in settlements of an Underlying Fund's trades effected in
those markets. Delays in purchasing securities may result in the
Underlying Fund losing investment opportunities. The inability to
dispose of foreign securities due to settlement delays could result
in losses to the Underlying Fund due to subsequent declines in the
value of the securities.
Many European countries have adopted or are in the process of
adopting a single European currency, referred to as the "euro." The
long-term consequences of the euro conversion for foreign exchange
rates, interest rates and the value of European securities that an
Underlying Fund may purchase are unclear. The consequences may
adversely affect the value and/or increase the volatility of
securities held by an Underlying Fund.
FIXED-INCOME SECURITIES. Certain Underlying Funds invest in
fixed-income securities (which may include zero coupon securities).
All fixed-income securities are subject to two types of risk: credit
risk and interest rate risk. Credit risk refers to the possibility
that the issuer of a security will be unable to make interest
payments and/or repay the principal on its debt.
Interest rate risk refers to fluctuations in the value of a
fixed-income security resulting from changes in the general level of
interest rates. When the general level of interest rates goes up, the
prices of most fixed-income securities go down. When the general
level of interest rates goes down, the prices of most fixed-income
securities go up. The
14
<PAGE>
Fund's fixed-income investments may include zero coupon securities,
which are purchased at a discount and either (i) pay no interest, or
(ii) accrue interest, but make no payments until maturity. As merely
illustrative of the relationship between fixed-income securities and
interest rates, the following table shows how interest rates affect
bond prices.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------
1 year N/A $ 1,000 $ 1,000 $ 1,000 $ 1,000
- ----------------------------------------------------------------------------------
5 years 4.25% $ 967 $ 934 $ 1,038 $ 1,076
- ----------------------------------------------------------------------------------
10 years 4.75% $ 930 $ 867 $ 1,074 $ 1,155
- ----------------------------------------------------------------------------------
30 years 5.25% $ 865 $ 756 $ 1,166 $ 1,376
- ----------------------------------------------------------------------------------
</TABLE>
Coupons reflect yields on Treasury securities as of December 31,
1998. The table is an illustration and does not represent expected
yields or share price changes of any Morgan Stanley Dean Witter
mutual fund.
CONVERTIBLE SECURITIES. Certain Underlying Funds may invest in
convertible securities, which are securities that generally pay
dividends or interest and may be converted into common stock. These
securities may carry risks associated with both fixed-income
securities and common stocks. To the extent that a convertible
security's investment value is greater than its conversion value, its
price will be likely to increase when interest rates fall and
decrease when interest rates rise, as with a fixed-income security.
If the conversion value exceeds the investment value, the price of
the convertible security will tend to fluctuate directly with the
price of the underlying equity security.
With respect to certain Underlying Funds, there are no minimum rating
or quality requirements as to their convertible securities
investments and, thus, all or some of such securities may be rated
below investment grade. These "junk bonds" have speculative risk
characteristics which are described below.
There are also special risks associated with Convertible Securities
Trust's investments in "enhanced" and "synthetic" convertible
securities. These securities may be more volatile and less liquid
than traditional convertible securities.
JUNK BONDS. Certain Underlying Funds may invest in junk bonds, i.e.,
fixed-income securities rated lower than investment grade or, if not
rated, determined to be of comparable quality. Junk bonds are subject
to greater risk of loss of income and principal than higher rated
securities. The prices of junk bonds are likely to be more sensitive
to adverse economic changes or individual corporate developments than
higher rated securities. During an economic downturn or substantial
period of rising interest rates, junk bond issuers and, in
particular, highly leveraged issuers may experience financial stress
that would adversely affect their ability to service their principal
and interest payment obligations, to meet their projected business
goals or to obtain additional financing. In the event of a default,
an Underlying Fund may incur additional expenses to seek recovery.
The secondary market for junk bonds may be less liquid than the
markets for higher quality securities and, as such, may have an
adverse effect on the market prices of certain securities. The
illiquidity of the market may also adversely affect the ability of an
Underlying Fund's directors/trustees to arrive at a fair
15
<PAGE>
value for certain junk bonds at certain times and could make it
difficult for the Underlying Fund to sell certain securities. In
addition, periods of economic uncertainty and change probably would
result in an increased volatility of market prices of high yield
securities and a corresponding volatility in an Underlying Fund's net
asset value.
MORTGAGE-BACKED SECURITIES. Certain Underlying Funds may invest in
mortgage-backed securities, which have different risk characteristics
than traditional debt securities. Although the value of fixed-income
securities generally increases during periods of falling interest
rates and decreases during periods of rising interest rates, this is
not always the case with mortgage-backed securities. This is due to
the fact that the principal on underlying mortgages may be prepaid at
any time as well as other factors. Generally, prepayments will
increase during a period of falling interest rates and decrease
during a period of rising interest rates. The rate of prepayments
also may be influenced by economic and other factors. Prepayment risk
includes the possibility that, as interest rates fall, securities
with stated interest rates may have the principal prepaid earlier
than expected, requiring the Underlying Fund to invest the proceeds
at generally lower interest rates.
Investments in mortgage-backed securities are made based upon, among
other things, expectations regarding the rate of prepayments on
underlying mortgage pools. Rates of prepayment, faster or slower than
expected by the Investment Manager and/or Sub-Advisor, could reduce
an Underlying Fund's yield, increase the volatility of the Underlying
Fund and/or cause a decline in net asset value. Certain
mortgage-backed securities may be more volatile and less liquid than
other traditional types of debt securities.
CONCENTRATION POLICY. Unlike most industry diversified mutual funds,
certain Underlying Funds are subject to risks associated with
concentrating their assets in a particular industry. These Underlying
Funds' portfolios may decline in value due to developments specific
to the industry in which the Underlying Funds concentrate their
assets. As a result, these Underlying Funds may be more volatile than
mutual funds that do not similarly concentrate their investments.
OTHER RISKS. The performance of each Underlying Fund also will depend
on whether the Investment Manager and/or Sub-Advisor is successful in
pursuing the Underlying Fund's investment strategy. The Underlying
Funds are also subject to other risks from their permissible
investments, including the risks associated with investments in
options and futures, REITs, SPDRs and asset-backed securities. For
more information about these risks, see the "Additional Risk
Information" section.
In addition to the principal risks associated with the Underlying
Funds, the Portfolio also will be subject to the following risks:
NON-DIVERSIFIED STATUS. The Portfolio is a "non-diversified" mutual
fund and, as such, its investments are not required to meet certain
diversification requirements under federal law. Compared with
"diversified" funds, the Portfolio may invest a greater
16
<PAGE>
[SIDEBAR]
ANNUAL TOTAL RETURN
THIS CHART SHOWS HOW THE PERFORMANCE OF THE PORTFOLIO'S CLASS B SHARES OVER THE
PAST CALENDAR YEAR.
[End Sidebar]
percentage of its assets in the securities of an individual issuer,
in this case any Underlying Fund. Thus, the Portfolio's assets may be
concentrated in fewer securities than other funds. A decline in the
value of those investments would cause the Portfolio's overall value
to decline to a greater degree.
The performance of the Portfolio also will depend on whether the
Investment Manager is successful in pursuing the Portfolio's
investment strategy.
Shares of the Portfolio are not bank deposits and are not guaranteed
or insured by the FDIC or any other government agency.
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the risks of
investing in the Domestic Portfolio. The Portfolio's past performance
does not indicate how the Portfolio will perform in the future.
ANNUAL TOTAL RETURN - CALENDAR YEAR
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1998 11.21%
</TABLE>
The bar chart reflects the performance of Class B shares; the performance of the
other Classes will differ because the Classes have different ongoing fees. The
performance information in the bar chart does not reflect the deduction of sales
charges; if these amounts were reflected, the return would be less than shown.
Year-to-date total return as of September 30, 1999 was 6.51%.
During the period shown in the bar chart, the highest return for a
calendar quarter was 16.39% (quarter ended December 31, 1998) and
the lowest return for a calendar quarter was -11.45% (quarter ended
September 30, 1998).
17
<PAGE>
[Sidebar]
AVERAGE ANNUAL
TOTAL RETURNS
THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL RETURNS WITH THOSE OF BROAD
MEASURES OF MARKET PERFORMANCE OVER TIME, AS WELL AS WITH AN INDEX OF FUNDS WITH
SIMILAR INVESTMENT OBJECTIVES. THE PORTFOLIO'S RETURNS INCLUDE THE MAXIMUM
APPLICABLE SALES CHARGE FOR EACH CLASS AND ASSUME YOU SOLD YOUR SHARES AT THE
END OF EACH PERIOD.
[End Sidebar]
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- ------------------------------------------------------------------------------
PAST 1 YEAR LIFE OF PORTFOLIO
(SINCE 11/25/97)
<S> <C> <C>
- ------------------------------------------------------------------------------
Class A 6.16% 7.22%
- ------------------------------------------------------------------------------
Class B 6.21% 8.25%
- ------------------------------------------------------------------------------
Class C 10.26% 11.90%
- ------------------------------------------------------------------------------
Class D 12.34% 12.89%
- ------------------------------------------------------------------------------
S&P 500 Index(1) 28.58% 28.44%
- ------------------------------------------------------------------------------
Lehman Brothers Government/Corporate
Bond
Index(2) 9.47% 9.75%
- ------------------------------------------------------------------------------
Lipper Flexible Portfolio Funds
Index(3) 16.52% 16.77%
- ------------------------------------------------------------------------------
</TABLE>
1 The Standard & Poor's 500 Stock Index is a broad-based index, the
performance of which is based on the average performance of 500 widely held
common stocks. The performance of the Index does not include any expenses,
fees or charges. The Index is unmanaged and should not be considered an
investment.
2 The Lehman Brothers Government/Corporate Bond Index tracks the performance
of government and corporate obligations, including U.S. government agency
and U.S. treasury securities and corporate and yankee bonds with maturities
of one to ten years. The Index is unmanaged and should not be considered an
investment.
3 The Lipper Flexible Portfolio Funds Index is an equally-weighted
performance index of the largest qualifying funds (based on net assets) in
the Lipper Flexible Portfolio Funds objective. The Index, which is adjusted
for capital gains distributions and income dividends, is unmanaged and
should not be considered an investment. There are currently 30 funds
represented in this Index.
18
<PAGE>
[Sidebar]
SHAREHOLDER FEES
THESE FEES ARE PAID DIRECTLY FROM YOUR INVESTMENT.
ANNUAL PORTFOLIO
OPERATING EXPENSES
THESE EXPENSES ARE DEDUCTED FROM THE PORTFOLIO'S ASSETS AND ARE BASED ON
EXPENSES PAID FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999.
[End Sidebar]
[ICON] FEES AND EXPENSES
- --------------------------------------------------------------------------------
The table below briefly describes the fees and expenses that you may
pay if you buy and hold shares of the Domestic Portfolio. The
Portfolio offers four Classes of shares: Classes A, B, C and D. Each
Class has a different combination of fees, expenses and other
features. The Portfolio does not charge account or exchange fees. See
the "Share Class Arrangements" section for further fee and expense
information.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
- -------------------------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
purchases (as a percentage of offering
price) 5.25%(1) None None None
- -------------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) (as a
percentage based on the lesser of the
offering price or net asset value at
redemption) None(2) 5.00%(3) 1.00%(4) None
- -------------------------------------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
- -------------------------------------------------------------------------------------------------------------
Management fee None None None None
- -------------------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.23% 1.00% 0.54% None
- -------------------------------------------------------------------------------------------------------------
Other expenses(5) 0.44% 0.44% 0.44% 0.44%
- -------------------------------------------------------------------------------------------------------------
Total annual Portfolio operating expenses(5) 0.67% 1.44% 0.98% 0.44%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
1 Reduced for purchases of $25,000 and over.
2 Investments that are not subject to any sales charge at the time of
purchase are subject to a contingent deferred sales charge ("CDSC") of
1.00% that will be imposed if you sell your shares within one year after
purchase, except for certain specific circumstances.
3 The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter. See "Share Class Arrangements" for a complete discussion of the
CDSC.
4 Only applicable if you sell your shares within one year after purchase.
5 The Investment Manager has agreed to assume all operating expenses (except
for brokerage and 12b-1 fees) for the Portfolio until such time as the
Portfolio has $50 million of net assets or until November 30, 2000,
whichever occurs first. The Investment Manager had agreed to assume all
operating expenses (except for brokerage and 12b-1 fees) for each Portfolio
until such time as the respective Portfolio had $50 million of net assets
or until six months from commencement of the Fund's operations, whichever
occurred first, and has agreed to extend such expense assumption through
November 30, 2000. As a result of such assumption of other expenses, for
the fiscal period ended September 30, 1999, the actual "Other Expenses"
amounted to 0.00% for each Class of the Domestic Portfolio and "Total Fund
Operating Expenses" amounted to 0.23%, 1.00%, 0.54% and 0.00% for Class A,
B, C and D respectively of the Domestic Portfolio.
19
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in
the Portfolio with the cost of investing in other mutual funds.
This example shows what expenses you could pay over time. The example
assumes that you invest $10,000 in the Portfolio, your investment has
a 5% return each year, and the Portfolio's operating expenses remain
the same. Although your actual costs may be higher or lower, the
tables below show your costs at the end of each period based on these
assumptions depending upon whether or not you sell your shares at the
end of each period.
<TABLE>
<CAPTION>
IF YOU SOLD YOUR SHARES: IF YOU HELD YOUR SHARES:
----------------------------------------- -----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------- -----------------------------------------
CLASS A $590 $728 $ 879 $1,316 $590 $728 $ 879 $1,316
- ---------------------------------------------------------- -----------------------------------------
CLASS B $647 $756 $ 987 $1,724 $147 $456 $ 787 $1,724
- ---------------------------------------------------------- -----------------------------------------
CLASS C $200 $312 $ 542 $1,201 $100 $312 $ 542 $1,201
- ---------------------------------------------------------- -----------------------------------------
CLASS D $ 45 $141 $ 246 $ 555 $ 45 $141 $ 246 $ 555
- ---------------------------------------------------------- -----------------------------------------
</TABLE>
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.
20
<PAGE>
UNDERLYING FUND EXPENSES
The Portfolio will not pay any sales load or 12b-1 fee in connection
with its investments in shares of Underlying Funds. However, the
Portfolio will indirectly bear its pro rata share of the expenses
incurred by the Underlying Funds that are borne by Class D
shareholders of the Underlying Funds. These expenses are set forth in
the table below (as of each Underlying Fund's most recent fiscal year
end).
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL
FEES EXPENSES EXPENSES
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Aggressive Equity Fund 0.75% 0.31% 1.06%
- --------------------------------------------------------------------------------
American Opportunities Fund 0.49% 0.12% 0.61%
- --------------------------------------------------------------------------------
Capital Growth Securities 0.64% 0.20% 0.84%
- --------------------------------------------------------------------------------
Competitive Edge Fund -- "Best Ideas"
Portfolio 0.64% 0.22% 0.86%
- --------------------------------------------------------------------------------
Convertible Securities Trust 0.60% 0.21% 0.81%
- --------------------------------------------------------------------------------
Developing Growth Securities Trust 0.49% 0.20% 0.69%
- --------------------------------------------------------------------------------
Dividend Growth Securities 0.35% 0.08% 0.43%
- --------------------------------------------------------------------------------
Financial Services Trust 0.75% 0.22% 0.97%
- --------------------------------------------------------------------------------
Growth Fund 0.79% 0.15% 0.94%
- --------------------------------------------------------------------------------
Health Sciences Trust 1.00% 0.27% 1.27%
- --------------------------------------------------------------------------------
High Yield Securities 0.39% 0.10% 0.49%
- --------------------------------------------------------------------------------
Income Builder Fund 0.75% 0.17% 0.92%
- --------------------------------------------------------------------------------
Information Fund 0.75% 0.26% 1.01%
- --------------------------------------------------------------------------------
Intermediate Income Securities 0.60% 0.30% 0.90%
- --------------------------------------------------------------------------------
Market Leader Trust 0.75% 0.24% 0.99%
- --------------------------------------------------------------------------------
Mid-Cap Dividend Growth Securities 0.75% 0.30% 1.05%
- --------------------------------------------------------------------------------
Mid-Cap Equity Trust 0.75% 0.30% 1.05%
- --------------------------------------------------------------------------------
Natural Resource Development Securities 0.62% 0.28% 0.90%
- --------------------------------------------------------------------------------
Precious Metals and Minerals Trust 0.80% 0.98% 1.78%
- --------------------------------------------------------------------------------
S&P 500 Index Fund 0.31% 0.19% 0.50%
- --------------------------------------------------------------------------------
Short-Term Bond Fund 0.70% 0.18% 0.88%
- --------------------------------------------------------------------------------
Special Value Fund 0.75% 0.24% 0.99%
- --------------------------------------------------------------------------------
U.S. Government Securities Trust 0.43% 0.09% 0.52%
- --------------------------------------------------------------------------------
Utilities Fund 0.54% 0.11% 0.65%
- --------------------------------------------------------------------------------
Value Fund 1.00% 0.30% 1.30%
- --------------------------------------------------------------------------------
Value-Added Market Series -- Equity
Portfolio 0.46% 0.13% 0.59%
- --------------------------------------------------------------------------------
</TABLE>
[ICON] ADDITIONAL RISK INFORMATION
- --------------------------------------------------------------------------------
This section provides additional information relating to the
principal risks of investing in the Underlying Funds described above.
21
<PAGE>
OPTIONS AND FUTURES. If an Underlying Fund invests in options and/or
futures (including stock index futures or options on stock indexes or
on stock index futures), its participation in these markets would
subject the Underlying Fund's portfolio to certain risks. If the
Investment Manager's and/or Sub-Advisor's predictions of movements in
the direction of the stock, currency or interest rate markets are
inaccurate, the adverse consequences to the Underlying Fund (e.g., a
reduction in the Underlying Fund's net asset value or a reduction in
the amount of income available for distribution) may leave the
Underlying Fund in a worse position than if these strategies were not
used. Other risks inherent in the use of options and futures include,
for example, the possible imperfect correlation between the price of
options and futures contracts and movements in the prices of the
securities or indexes being hedged, and the possible absence of a
liquid secondary market for any particular instrument. Certain
options may be over-the-counter options, which are options negotiated
with dealers; there is no secondary market for these investments.
REITS. Real estate investment trusts, known as "REITs," pool
investors' funds for investments primarily in commercial real estate
properties. Like mutual funds, REITs have expenses, including
advisory and administration fees, that are paid by their
shareholders. As a result, the Underlying Fund would absorb duplicate
levels of fees when it invests in REITs. The performance of any REIT
holdings ultimately depends on the types of real property in which
the REIT invests and how well the property is managed. A general
downturn in real estate values also can hurt REIT performance.
SPDRS. S&P 500 Index Fund may invest in Standard & Poor's Depository
Receipts, securities referred to as SPDRs (known as "Spiders"), that
are designed to track the S&P 500 Index. SPDRs represent an ownership
interest in the SPDR Trust, which holds a portfolio of common stocks
that closely tracks the price performance and dividend yield of the
S&P 500 Index. SPDRs trade on the American Stock Exchange like shares
of common stock and have many of the same risks as direct investments
in common stocks. The market value of SPDRs is expected to rise and
fall as the S&P 500 Index rises and falls. If the Underlying Fund
invests in SPDRs, it would, in addition to its own expenses,
indirectly bear its ratable share of the SPDR's expenses.
ASSET-BACKED SECURITIES. Asset-backed securities have risk
characteristics similar to mortgage-backed securities. Like
mortgage-backed securities, they generally decrease in value as a
result of interest rate increases, but may benefit less than other
fixed-income securities from declining interest rates, principally
because of prepayments. Also, as in the case of mortgage-backed
securities, prepayments generally increase during a period of
declining interest rates although other factors, such as changes in
credit use and payment patterns, may also influence prepayment rates.
Asset-backed securities also involve the risk that various federal
and state consumer laws and other legal and economic factors may
result in the collateral backing the securities being insufficient to
support payment on the securities.
22
<PAGE>
YEAR 2000. The Portfolio could be adversely affected if the computer
systems necessary for the efficient operation of the Investment
Manager, the Portfolio's other service providers and the Underlying
Funds (and their respective portfolio securities) in which the
Portfolio invests do not properly process and calculate date-related
information from and after January 1, 2000. While year 2000-related
computer problems could have a negative effect on the Portfolio and
an Underlying Fund, the Investment Manager and its affiliates are
working hard to avoid any problems and to obtain assurances from
their service providers that they are taking similar steps.
In addition, it is possible that the markets for securities in which
the Underlying Funds and/or Portfolio invest 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, governmental data processing errors also may result in
overall economic uncertainties. Earnings of individual issuers will
be affected by remediation costs, which may be substantial.
Accordingly, the Portfolio's investments may be adversely affected.
23
<PAGE>
[Sidebar]
CAPITAL APPRECIATION
AN INVESTMENT OBJECTIVE HAVING THE GOAL OF SELECTING SECURITIES WITH THE
POTENTIAL TO RISE IN PRICE RATHER THAN PAY OUT INCOME.
[End Sidebar]
THE INTERNATIONAL PORTFOLIO
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
The International Portfolio seeks long-term capital appreciation.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The International Portfolio normally invests at least 65% of its
total assets in shares of the Underlying Funds described below. These
Underlying Funds are intended to give the Portfolio broad
international exposure. At any time the Portfolio's "Investment
Manager," Morgan Stanley Dean Witter Advisors Inc., may add or
substitute Underlying Funds in which the Portfolio may invest. In
deciding how to allocate the Portfolio's assets among the selected
Underlying Funds, the Investment Manager considers its outlook for
the various economies and financial markets worldwide, and the
relative market valuations of the Underlying Funds. There are no
minimum or maximum percentages in which the Portfolio must invest in
any Underlying Fund.
THE UNDERLYING MORGAN STANLEY DEAN WITTER FUNDS
The following is a brief summary of the investment objectives and
principal investment strategies of the Underlying Funds that the
Investment Manager presently considers for investment. The
Portfolio's Investment Manager also serves as the Investment Manager
to each of the Underlying Funds. For a complete description of an
Underlying Fund, please see its prospectus, which is available free
of charge by calling (877) 937-MSDW (toll-free).
---------------------------------------------------------------------
EUROPEAN GROWTH FUND INC.
---------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE Capital appreciation.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
securities of issuers located in European countries.
The principal countries in which the fund invests are
France, the United Kingdom, Germany, the Netherlands,
Spain, Sweden, Switzerland and Italy. The fund
generally invests in equity securities but may also
invest without limitation in fixed-income securities
issued or guaranteed by European governments. The
fund's Investment Manager and/or "Sub-Advisor," Morgan
Stanley Dean Witter Investment Management Inc.,
generally invest fund assets in companies they believe
have a high rate of earnings growth potential. In
addition, the fund may invest in equity securities of
non-European issuers,
</TABLE>
24
<PAGE>
<TABLE>
<S> <C>
government and convertible securities issued by non-
European governmental or private issuers, forward
currency contracts, options on currencies and
warrants.
</TABLE>
---------------------------------------------------------------------
INTERNATIONAL SMALLCAP FUND
---------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE Long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
common stocks and other equity securities of small
capitalization companies located outside the United
States. The fund may invest more than 25% of its total
assets in securities of companies located in each of
the United Kingdom and Japan. The fund's "Sub-
Advisor," Morgan Stanley Dean Witter Investment
Management Inc., seeks securities of companies with
long-term growth prospects, attractive valuation
comparisons and adequate market liquidity. In
addition, the fund may invest in equity securities of
companies which have medium or large market
capitalizations, fixed-income securities issued or
guaranteed by foreign governments, lower-rated
convertible securities and forward currency contracts.
</TABLE>
---------------------------------------------------------------------
JAPAN FUND
---------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
common or preferred stocks of companies which are
located in Japan. The fund's "Sub-Advisor," Morgan
Stanley Dean Witter Investment Management Inc.,
generally invests fund assets in companies it believes
have earnings growth potential and are attractively
priced. The fund also may invest in convertible
securities and fixed-income securities of companies
located in Japan or guaranteed by the Japanese
government, and in equity or fixed-income securities
of companies located in, or governments of, developed
countries in Asia, Europe or North America (including
the U.S.). In addition, the fund may invest in forward
currency contracts and options on foreign currencies.
</TABLE>
25
<PAGE>
---------------------------------------------------------------------
LATIN AMERICAN GROWTH FUND
---------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
common stocks and other equity securities of Latin
American companies. In determining which securities to
buy, hold or sell, the fund's "Sub-Advisor," TCW Funds
Management, Inc., selects securities based on its view
of their potential for capital appreciation. The fund
will normally invest in at least three Latin American
countries. In addition, the fund may invest in Latin
American convertible and debt securities (including
junk bonds), other investment companies, options and
futures, and forward currency contracts.
</TABLE>
---------------------------------------------------------------------
PACIFIC GROWTH FUND
---------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE Capital appreciation.
PRINCIPAL INVESTMENT STRATEGY Normally invests at least 65% of its total assets in
common stocks and other securities of companies which
have a principal place of business in, or which derive
a majority of their revenues from business in, Asia,
Australia and New Zealand. The principal Asian
countries include: Japan, Malaysia, Singapore, Hong
Kong, Thailand, the Philippines, India, Indonesia,
Taiwan and South Korea. The fund may invest more than
25% of its assets in each of Japan, Hong Kong,
Malaysia, South Korea and/or Taiwan. The fund's
Investment Manager and/or "Sub-Advisor," Morgan
Stanley Dean Witter Investment Management Inc.,
generally invest fund assets in companies they believe
have a high rate of earnings growth potential. In
addition, the fund may invest in securities of other
investment companies, forward currency contracts, and
options and futures.
</TABLE>
In addition to the principal investment strategies of the Underlying
Funds described above, the Portfolio may use the following investment
strategies:
DEFENSIVE INVESTING. The Portfolio may take temporary "defensive"
positions in attempting to respond to adverse market conditions. The
Portfolio may invest any amount of its assets in cash or money market
instruments in a defensive posture when the Investment Manager
believes it is advisable to do so. Although taking a defensive
26
<PAGE>
posture is designed to protect the Portfolio from an anticipated
market downturn, it could have the effect of reducing the benefit
from any upswing in the market. When the Portfolio takes a defensive
position, it may not achieve its investment objective.
PORTFOLIO TURNOVER. The Portfolio may engage in active and frequent
trading of Underlying Funds to achieve its principal investment
strategies. The portfolio turnover rate is not expected to exceed
300% annually under normal circumstances. A high turnover rate, such
as 300%, may increase the Portfolio's capital gains, which are passed
along to shareholders of the Portfolio as distributions. This, in
turn, may increase your tax liability as a shareholder of the
Portfolio. See the sections on "Distributions" and "Tax
Consequences." A high turnover rate would not result in the Portfolio
incurring higher sales charges/brokerage commissions because the
Portfolio would be trading Class D shares of the Underlying Funds
which are sold without any sales charges.
The percentage limitations relating to the composition of the
Portfolio apply at the time the Portfolio acquires an investment and
refer to the Portfolio's net assets, unless otherwise noted.
Subsequent percentage changes that result from market fluctuations
will not require the Portfolio to sell any security. The Portfolio
may change its principal investment strategies without shareholder
approval; however, you would be notified of any changes.
[ICON] PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Portfolio will achieve its investment
objective. The Portfolio's share price will fluctuate with changes in
the market value of the Portfolio's investments in Underlying Funds.
When you sell Portfolio shares, they may be worth less than what you
paid for them and, accordingly, you can lose money investing in this
Portfolio. In addition, the performance of the Portfolio may be
adversely affected because in allocating Portfolio assets among the
Underlying Funds the Investment Manager may consider the impact of
the allocation decision on the Underlying Funds.
Set forth below are the principal risks associated with investing in
the Underlying Funds described above. For more information about the
risks of investing in the Underlying Funds, please see their
prospectuses, which are available free of charge by calling
(877) 937-MSDW (toll-free).
FOREIGN SECURITIES. A principal risk of investing in each of the
Underlying Funds is associated with foreign stock investments. In
general, stock values fluctuate in response to activities specific to
the company as well as general market, economic and political
conditions. Stock prices can fluctuate widely in response to these
factors.
The Underlying Funds' investments in foreign securities (including
depository receipts) involve risks in addition to the risks
associated with domestic securities. One additional risk is currency
risk. While the price of Underlying Fund shares is quoted in U.S.
dollars, the Underlying Funds generally convert U.S. dollars to a
foreign market's local
27
<PAGE>
currency to purchase a security in that market. If the value of that
local currency falls relative to the U.S. dollar, the U.S. dollar
value of the foreign security will decrease. This is true even if the
foreign security's local price remains unchanged.
Foreign securities also have risks related to economic and political
developments abroad, including expropriations, confiscatory taxation,
exchange control regulation, limitations on the use or transfer of
Underlying Fund assets and any effects of foreign social, economic or
political instability. In particular, adverse political or economic
developments in a geographic region or a particular country in which
an Underlying Fund invests could cause a substantial decline in the
value of the Underlying Fund's portfolio. Foreign companies, in
general, are not subject to the regulatory requirements of U.S.
companies and, as such, there may be less publicly available
information about these companies. Moreover, foreign accounting,
auditing and financial reporting standards generally are different
from those applicable to U.S. companies. Finally, in the event of a
default of any foreign debt obligations, it may be more difficult for
an Underlying Fund to obtain or enforce a judgment against the
issuers of the securities.
Securities of foreign issuers may be less liquid than comparable
securities of U.S. issuers and, as such, their price changes may be
more volatile. Furthermore, foreign exchanges and broker-dealers are
generally subject to less government and exchange scrutiny and
regulation than their U.S. counterparts. In addition, differences in
clearance and settlement procedures in foreign markets may occasion
delays in settlements of an Underlying Fund's trades effected in
those markets. Delays in purchasing securities may result in the
Underlying Fund losing investment opportunities. The inability to
dispose of foreign securities due to settlement delays could result
in losses to the Underlying Fund due to subsequent declines in the
value of the securities.
Many European countries have adopted or are in the process of
adopting a single European currency, referred to as the "euro." The
long-term consequences of the euro conversion for foreign exchange
rates, interest rates and the value of European securities that an
Underlying Fund may purchase are unclear. The consequences may
adversely affect the value and/or increase the volatility of
securities held by an Underlying Fund.
Certain Underlying Funds may invest in foreign securities issued by
companies located in developing or emerging countries. Compared to
the United States and other developed countries, developing or
emerging countries may have relatively unstable governments,
economies based on only a few industries and securities markets that
trade a small number of securities. Prices of these securities tend
to be especially volatile and, in the past, securities in these
countries have been characterized by greater potential loss (as well
as gain) than securities of companies located in developed countries.
Certain Underlying Funds may invest in foreign small capitalization
securities. Investing in lesser-known, smaller capitalized companies
may involve greater risk of volatility of the fund's share price than
is customarily associated with investing in larger, more established
companies. There is typically less publicly available
28
<PAGE>
information concerning smaller companies than for larger, more
established companies. Some small companies have limited product
lines, distribution channels and financial and managerial resources
and tend to concentrate on fewer geographical markets than do larger
companies. Also, because smaller companies normally have fewer shares
outstanding than larger companies and trade less frequently, it may
be more difficult for the fund to buy and sell significant amounts of
shares without an unfavorable impact on prevailing market prices.
Some of the companies in which the fund may invest may distribute,
sell or produce products which have recently been brought to market
and may be dependent on key personnel with varying degrees of
experience.
LATIN AMERICAN SECURITIES. Latin American Growth Fund concentrates
its investments in the common stock of Latin American companies.
Consequently, the fund's share price may be more volatile than that
of mutual funds not sharing this geographic concentration. Economic
and political developments in Latin America may have profound effects
upon the value of the fund's portfolio. In the event of
expropriation, nationalization or other complications, the fund could
lose its entire investment in any one country. In addition,
individual Latin American countries may place restrictions on the
ability of foreign entities such as the fund to invest in particular
segments of the local economies.
The securities markets of Latin American countries are substantially
smaller, less developed, less liquid and more volatile than the major
securities markets in the United States. The limited size of many
Latin American securities markets and limited trading volume in
issuers compared to volume of trading in U.S. securities could cause
prices to be erratic for reasons apart from factors that affect the
quality of the securities. For example, limited market size may cause
prices to be unduly influenced by traders who control large
positions. Adverse publicity and investors' perceptions, whether or
not based on fundamental analysis, may decrease the value and
liquidity of securities, especially in these markets.
In addition, many of the currencies of Latin American countries have
experienced steady devaluations relative to the U.S. dollar, and
major devaluations have historically occurred in certain countries.
Any devaluations in the currencies in which the fund's portfolio
securities are denominated may have a detrimental impact on the fund.
There is also a risk that certain Latin American countries may
restrict the free conversion of their currencies into other
currencies. Further, certain Latin American currencies may not be
internationally traded.
Most Latin American countries have experienced substantial, and in
some periods extremely high, rates of inflation for many years.
Inflation and rapid fluctuations in inflation rates have had and may
continue to have very negative effects on the economies and
securities markets of certain Latin American countries.
Latin American securities are also subject to the more general risks
associated with foreign securities which are discussed above.
29
<PAGE>
JAPANESE SECURITIES. Japan Fund concentrates its investments in the
common stock (including depository receipts) of Japanese companies.
Consequently, the fund's share price may be more volatile than that
of mutual funds not sharing this geographic concentration. The value
of the fund's shares may vary widely in response to political and
economic factors affecting companies in Japan. Securities in Japan
are denominated and quoted in yen. As a result, the value of the
fund's Japanese securities, as measured in U.S. dollars, may be
affected by fluctuations in the value of the Japanese yen relative to
the U.S. dollar. Securities traded on Japanese stock exchanges have
exhibited significant volatility in recent years. In addition,
Japanese securities that are not traded on the first sections of the
three main Japanese exchanges may be more volatile and less liquid
than those traded on the first sections. The decline in the Japanese
markets since 1989 has contributed to a weakness in the Japanese
economy. Continued economic weakness could result in further declines
in the Japanese securities markets. Japan's economy may be
significantly affected by any strains in its trade relations,
particularly with the U.S.
Japanese securities are also subject to the more general risks
associated with foreign securities which are discussed above.
PACIFIC BASIN SECURITIES. Pacific Growth Fund concentrates its
investments in the common stock of companies located in Asia,
Australia and New Zealand. Consequently, the fund's share price may
be more volatile than that of mutual funds not sharing this
geographic concentration. Economic and political developments in the
Pacific Basin region of the world may have profound effects upon the
value of the fund's portfolio.
OTHER RISKS. The performance of each Underlying Fund also will depend
on whether the Investment Manager and/or Sub-Advisor is successful in
pursuing the Underlying Fund's investment strategy. The Underlying
Funds are also subject to other risks from their permissible
investments, including the risks associated with investments in
fixed-income securities, convertible securities, junk bonds,
securities of other investment companies, options and futures, and
forward currency contracts. For more information about these risks,
see the "Additional Risk Information" section.
In addition to the principal risks associated with the Underlying
Funds, the Portfolio also will be subject to the following risks:
NON-DIVERSIFIED STATUS. The Portfolio is a "non-diversified" mutual
fund and, as such, its investments are not required to meet certain
diversification requirements under federal law. Compared with
"diversified" funds, the Portfolio may invest a greater percentage of
its assets in the securities of an individual issuer, in this case
any Underlying Fund. Thus, the Portfolio's assets may be concentrated
in fewer securities than other funds. A decline in the value of those
investments would cause the Portfolio's overall value to decline to a
greater degree.
The performance of the Portfolio also will depend on whether the
Investment Manager is successful in pursuing the Portfolio's
investment strategy.
Shares of the Portfolio are not bank deposits and are not guaranteed
or insured by the FDIC or any other government agency.
30
<PAGE>
[SIDEBAR]
ANNUAL TOTAL RETURN
THIS CHART SHOWS HOW THE PERFORMANCE OF THE PORTFOLIO'S CLASS B SHARES OVER THE
PAST CALENDAR YEAR.
AVERAGE ANNUAL
TOTAL RETURNS
THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL RETURNS WITH THOSE OF A BROAD
MEASURE OF MARKET PERFORMANCE OVER TIME, AS WELL AS WITH AN INDEX OF FUNDS WITH
SIMILAR INVESTMENT OBJECTIVES. THE PORTFOLIO'S RETURNS INCLUDE THE MAXIMUM
APPLICABLE SALES CHARGE FOR EACH CLASS AND ASSUME YOU SOLD YOUR SHARES AT THE
END OF EACH PERIOD.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the risks of
investing in the International Portfolio. The Portfolio's past
performance does not indicate how the Portfolio will perform in the
future.
ANNUAL TOTAL RETURN - CALENDAR YEAR
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1998 7.92%
</TABLE>
The bar chart reflects the performance of Class B shares; the performance of the
other Classes will differ because the Classes have different ongoing fees. The
performance information in the bar chart does not reflect the deduction of sales
charges; if these amounts were reflected, returns would be less than shown.
Year-to-date total return as of September 30, 1999 was 18.16%.
During the period shown in the bar chart, the highest return for a
calendar quarter was 17.72% (quarter ended December 31, 1998) and
the lowest return for a calendar quarter was -11.38% (quarter ended
September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- ------------------------------------------------------------------------
PAST 1 YEAR LIFE OF
PORTFOLIO
(SINCE 11/25/97)
<S> <C> <C>
- ------------------------------------------------------------------------
Class A 3.12% 2.28%
- ------------------------------------------------------------------------
Class B 2.92% 2.99%
- ------------------------------------------------------------------------
Class C 6.92% 6.61%
- ------------------------------------------------------------------------
Class D 9.04% 7.62%
- ------------------------------------------------------------------------
Morgan Stanley Capital International
EAFE Index(1) 20.33% 20.62%
- ------------------------------------------------------------------------
Lipper International Funds Index(2) 12.66% 13.09%
- ------------------------------------------------------------------------
</TABLE>
1 The Morgan Stanley Capital International Europe, Australia, Far East Index
measures the performance for a diverse range of global stock markets within
Europe, Australia, and the Far East. The Index does not include any
expenses, fees, charges or reinvestment of dividends. The Index is
unmanaged and should not be considered an investment.
2 The Lipper International Funds Index is an equally-weighted performance
index of the largest qualifying funds (based on net assets) in the Lipper
International Funds objective. The Index, which is adjusted for capital
gains distributions and income dividends is unmanaged and should not be
considered an investment. There are currently 30 funds represented in this
Index.
31
<PAGE>
[Sidebar]
SHAREHOLDER FEES
THESE FEES ARE PAID DIRECTLY FROM YOUR INVESTMENT.
ANNUAL PORTFOLIO
OPERATING EXPENSES
THESE EXPENSES ARE DEDUCTED FROM THE PORTFOLIO'S ASSETS AND
ARE BASED ON EXPENSES PAID
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999.
[End Sidebar]
[ICON] FEES AND EXPENSES
- --------------------------------------------------------------------------------
The table below briefly describes the fees and expenses that you may
pay if you buy and hold shares of the International Portfolio. The
Portfolio offers four Classes of shares: Classes A, B, C and D. Each
Class has a different combination of fees, expenses and other
features. The Portfolio does not charge account or exchange fees. See
the "Share Class Arrangements" section for further fee and expense
information.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
SHAREHOLDER FEES
- ---------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
purchases (as a percentage of offering
price) 5.25%(1) None None None
- ---------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) (as a
percentage based on the lesser of the
offering price or net asset value at
redemption) None(2) 5.00%(3) 1.00%(4) None
- ---------------------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
- ---------------------------------------------------------------------------------------------
Management fee None None None None
- ---------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.24% 1.00% 0.77% None
- ---------------------------------------------------------------------------------------------
Other expenses(5) 1.10% 1.10% 1.10% 1.10%
- ---------------------------------------------------------------------------------------------
Total annual Portfolio operating expenses(5) 1.34% 2.10% 1.87% 1.10%
- ---------------------------------------------------------------------------------------------
</TABLE>
1 Reduced for purchases of $25,000 and over.
2 Investments that are not subject to any sales charge at the time of
purchase are subject to a contingent deferred sales charge ("CDSC") of
1.00% that will be imposed if you sell your shares within one year after
purchase, except for certain specific circumstances.
3 The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter. See "Share Class Arrangements" for a complete discussion of the
CDSC.
4 Only applicable if you sell your shares within one year after purchase.
5 The Investment Manager has agreed to assume all operating expenses (except
for brokerage and 12b-1 fees) for the Portfolio until such time as the
Portfolio has $50 million of net assets or until November 30, 2000,
whichever occurs first. The Investment Manager had agreed to assume all
operating expenses (except for brokerage and 12b-1 fees) for each Portfolio
until such time as the respective Portfolio had $50 million of net assets
or until six months from commencement of the Fund's operations, whichever
occurred first and has agreed to extend such expense assumption through
November 30, 2000. As a result of such assumption of other expenses, for
the fiscal period ended September 30, 1999, the actual "Other Expenses"
amounted to 0.00% for each Class of the International Portfolio and "Total
Fund Operating Expenses" amounted to 0.24%, 1.00%, 0.77% and 0.00% for
Class A, B, C and D respectively of the International Portfolio.
EXAMPLE
This example is intended to help you compare the cost of investing in
the Portfolio with the cost of investing in other mutual funds.
This example shows what expenses you could pay over time. The example
assumes that you invest $10,000 in the Portfolio, your investment has
a 5% return each year, and the Portfolio's operating expenses remain
the same. Although your actual costs may be
32
<PAGE>
higher or lower, the tables below show your costs at the end of each
period based on these assumptions depending upon whether or not you
sell your shares at the end of each period.
<TABLE>
<CAPTION>
IF YOU SOLD YOUR SHARES: IF YOU HELD YOUR SHARES:
----------------------------------------- -----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------- -----------------------------------------
CLASS A $654 $927 $1,221 $2,053 $654 $927 $1,221 $2,053
- ---------------------------------------------------------- -----------------------------------------
CLASS B $713 $958 $1,329 $2,431 $213 $658 $1,129 $2,431
- ---------------------------------------------------------- -----------------------------------------
CLASS C $290 $588 $1,011 $2,190 $190 $588 $1,011 $2,190
- ---------------------------------------------------------- -----------------------------------------
CLASS D $112 $350 $ 606 $1,340 $112 $350 $ 606 $1,340
- ---------------------------------------------------------- -----------------------------------------
</TABLE>
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.
UNDERLYING FUND EXPENSES
The Portfolio will not pay any sales load or 12b-1 fee in connection
with its investments in shares of Underlying Funds. However, the
Portfolio will indirectly bear its pro rata share of the expenses
incurred by the Underlying Funds that are borne by Class D
shareholders of the Underlying Funds. These expenses are set forth in
the table below (as of each Underlying Fund's most recent fiscal year
end).
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL
FEES EXPENSES EXPENSES
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
European Growth Fund 0.91% 0.23% 1.14%
- --------------------------------------------------------------------------------
International SmallCap Fund 1.15% 0.97% 2.12%
- --------------------------------------------------------------------------------
Japan Fund 0.95% 0.63% 1.58%
- --------------------------------------------------------------------------------
Latin America Growth Fund 1.25% 0.73% 1.98%
- --------------------------------------------------------------------------------
Pacific Growth Fund 0.95% 0.65% 1.60%
- --------------------------------------------------------------------------------
</TABLE>
[ICON] ADDITIONAL RISK INFORMATION
- --------------------------------------------------------------------------------
This section provides additional information relating to the
principal risks of investing in the Underlying Funds described above.
FIXED-INCOME SECURITIES. Certain Underlying Funds invest in
fixed-income securities (which may include zero coupon securities).
All fixed-income securities are subject to two types of risk: credit
risk and interest rate risk. Credit risk refers to the possibility
that the issuer of a security will be unable to make interest
payments and/or repay the principal on its debt.
Interest rate risk refers to fluctuations in the value of a
fixed-income security resulting from changes in the general level of
interest rates. When the general
33
<PAGE>
level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes
down, the prices of most fixed-income securities go up. (Zero coupon
securities are typically subject to greater price fluctuations than
comparable securities that pay interest.)
CONVERTIBLE SECURITIES. Certain Underlying Funds may invest in
convertible securities, which are securities that generally pay
dividends or interest and may be converted into common stock. These
securities may carry risks associated with both fixed-income
securities and common stocks. To the extent that a convertible
security's investment value is greater than its conversion value, its
price will be likely to increase when interest rates fall and
decrease when interest rates rise, as with a fixed-income security.
If the conversion value exceeds the investment value, the price of
the convertible security will tend to fluctuate directly with the
price of the underlying equity security.
With respect to certain Underlying Funds, there are no minimum rating
or quality requirements as to their convertible securities
investments and, thus, all or some of such securities may be rated
below investment grade. These "junk bonds" have speculative risk
characteristics which are described below.
JUNK BONDS. Certain Underlying Funds may invest in junk bonds, i.e.,
fixed-income securities rated lower than investment grade or, if not
rated, determined to be of comparable quality. Junk bonds are subject
to greater risk of loss of income and principal than higher rated
securities. The prices of junk bonds are likely to be more sensitive
to adverse economic changes or individual corporate developments than
higher rated securities. During an economic downturn or substantial
period of rising interest rates, junk bond issuers and, in
particular, highly leveraged issuers may experience financial stress
that would adversely affect their ability to service their principal
and interest payment obligations, to meet their projected business
goals or to obtain additional financing. In the event of a default,
an Underlying Fund may incur additional expenses to seek recovery.
The secondary market for junk bonds may be less liquid than the
markets for higher quality securities and, as such, may have an
adverse effect on the market prices of certain securities. The
illiquidity of the market may also adversely affect the ability of an
Underlying Fund's directors/trustees to arrive at a fair value for
certain junk bonds at certain times and could make it difficult for
the Underlying Fund to sell certain securities. In addition, periods
of economic uncertainty and change probably would result in an
increased volatility of market prices of high yield securities and a
corresponding volatility in an Underlying Fund's net asset value.
LATIN AMERICAN SOVEREIGN DEBT SECURITIES. Latin American Growth
Fund's investments in Latin American sovereign debt are subject to
unique credit risks. Certain Latin American countries are among the
largest debtors to commercial banks and foreign governments. At
times, certain Latin American countries have declared a moratorium on
the payment of principal and/or interest on external debt. The
governmental entities that control the repayment also may not be
willing or able to repay the principal and/or interest on the debt
when it becomes due. Latin American governments may default on their
sovereign debt, which may require holders of that
34
<PAGE>
debt to participate in debt rescheduling or additional lending to
defaulting governments. There is no bankruptcy proceeding by which
defaulted sovereign debt may be collected. These risks could have a
severely negative impact on the fund's sovereign debt holdings and
cause the value of the fund's shares to decline drastically.
INVESTMENT COMPANIES. Any Underlying Fund investment in an investment
company is subject to the underlying risk of that investment
company's portfolio securities. For example, if the investment
company held common stocks, the Underlying Fund also would be exposed
to the risk of investing in common stocks. In addition to the
Underlying Fund's fees and expenses, the Underlying Fund would bear
its share of the investment company's fees and expenses.
OPTIONS AND FUTURES. If an Underlying Fund invests in options and/or
futures (including options on currencies), its participation in these
markets would subject the Underlying Fund's portfolio to certain
risks. The Investment Manager's and/or Sub-Advisor's predictions of
movements in the direction of the stock, currency or interest rate
markets may be inaccurate, and the adverse consequences to the
Underlying Fund (e.g., a reduction in the Underlying Fund's net asset
value or a reduction in the amount of income available for
distribution) may leave the Underlying Fund in a worse position than
if these strategies were not used. Other risks inherent in the use of
options and futures include, for example, the possible imperfect
correlation between the price of options and futures contracts and
movements in the prices of the securities or currencies being hedged,
and the possible absence of a liquid secondary market for any
particular instrument. Certain options may be over-the-counter
options, which are options negotiated with dealers; there is no
secondary market for these investments.
FORWARD CURRENCY CONTRACTS. An Underlying Fund's participation in
forward currency contracts also involves risks. If the Investment
Manager and/or Sub-Advisor employ a strategy that does not correlate
well with the Underlying Fund's investments or the currencies in
which the investments are denominated, currency contracts could
result in a loss. The contracts also may increase the Underlying
Fund's volatility and may involve a significant risk.
YEAR 2000. The Portfolio could be adversely affected if the computer
systems necessary for the efficient operation of the Investment
Manager, the Portfolio's other service providers and the Underlying
Funds (and their respective portfolio securities) in which the
Portfolio invests do not properly process and calculate date-related
information from and after January 1, 2000. While year 2000-related
computer problems could have a negative effect on the Portfolio and
an Underlying Fund, the Investment Manager and its affiliates are
working hard to avoid any problems and to obtain assurances from
their service providers that they are taking similar steps.
35
<PAGE>
[Sidebar]
MORGAN STANLEY DEAN WITTER ADVISORS INC.
THE INVESTMENT MANAGER IS WIDELY RECOGNIZED AS A LEADER IN THE MUTUAL FUND
INDUSTRY AND TOGETHER WITH MORGAN STANLEY DEAN WITTER SERVICES COMPANY INC., ITS
WHOLLY-OWNED SUBSIDIARY, HAS MORE THAN $138 BILLION IN ASSETS UNDER MANAGEMENT
OR ADMINISTRATION AS OF OCTOBER 31, 1999.
[End Sidebar]
In addition, it is possible that the markets for securities in which
the Underlying Funds and/or Portfolio invest 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.
Corporate and governmental data processing errors also 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 Portfolio's investments may be adversely affected.
[ICON] FUND MANAGEMENT
- --------------------------------------------------------------------------------
Each Portfolio has retained the Investment Manager -- Morgan Stanley
Dean Witter Advisors Inc. -- to provide administrative services,
manage its business affairs and invest its assets, including the
placing of orders for the purchase and sale of portfolio securities.
The Investment Manager also serves as the Investment Manager to each
of the Underlying Funds described above. In addition, with respect to
certain Underlying Funds, the Investment Manager has retained a
Sub-Advisor to invest Underlying Fund assets. Morgan Stanley Dean
Witter Investment Management Inc. ("MSDW Investment Management")
serves as Sub-Advisor to the following Underlying Funds: Growth Fund,
European Growth Fund, International SmallCap Fund, Japan Fund and
Pacific Growth Fund. TCW Funds Management, Inc. ("TCW") serves as
Sub-Advisor to Latin American Growth Fund and Mid-Cap Equity Trust.
Miller Anderson & Sherrerd, LLP ("MAS") serves as Sub-Advisor to
Value Fund. 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. Its
main business office is located at Two World Trade Center, New York,
NY 10048.
MSDW Investment Management, together with its institutional
investment management affiliates, manages more than $137 billion, as
of July 31, 1999, primarily for employee benefit plans, investment
companies, endowments, foundations and wealthy individuals. MSDW
Investment Management also is a subsidiary of Morgan Stanley Dean
Witter & Co. Its main business office is located at 1221 Avenue of
the Americas, New York, NY 10020.
TCW is a wholly-owned subsidiary of TCW Group, Inc., whose direct and
indirect subsidiaries provide a variety of trust, investment
management and investment advisory services. TCW's main business
office is located at 865 South Figueroa Street, Suite 1800,
36
<PAGE>
Los Angeles, CA 90017. As of September 30, 1999, TCW Funds
Management, Inc. and its affiliates had approximately $57 billion
under management or committed to management.
MAS manages assets of approximately $62.4 billion, as of March 31,
1999, for investment companies, employee benefit plans, endowments,
foundations and other institutional investors. MAS is an indirect
subsidiary of Morgan Stanley Dean Witter & Co. Its main business
office is located at One Tower Bridge, West Conshohocken, PA 19428.
Joseph McAlinden, Executive Vice President and Chief Investment
Officer (since April 1996) of the Investment Manager, has been the
primary portfolio manager of the Domestic Portfolio and the
International Portfolio since the Fund's inception in November 1997.
Mr. McAlinden was formerly a Senior Vice President with the
Investment Manager (June 1995 - April 1996) and prior thereto was a
Managing Director of Dillon Read.
The Investment Manager does not receive a management fee from either
Portfolio or the Fund for the services and facilities furnished to
the Portfolio or the Fund. However, each Portfolio, through its
investments in the Underlying Funds, will pay its pro rata share of
the management fees and certain other expenses that are borne by
Class D shareholders of the Underlying Funds. Each Underlying Fund
pays the Investment Manager a monthly management fee as full
compensation for the services and facilities furnished to the
Underlying Fund, and for expenses assumed by the Investment Manager.
The management fees paid by each Underlying Fund for its most recent
fiscal year are set forth in the "Fees and Expenses" section for each
of the Domestic Portfolio and the International Portfolio.
37
<PAGE>
[Sidebar]
CONTACTING A FINANCIAL ADVISOR
IF YOU ARE NEW TO THE MORGAN STANLEY DEAN WITTER FAMILY OF FUNDS AND WOULD LIKE
TO CONTACT A FINANCIAL ADVISOR, CALL (877) 937-MSDW (TOLL-FREE) FOR THE
TELEPHONE NUMBER OF THE MORGAN STANLEY DEAN WITTER OFFICE NEAREST YOU. YOU MAY
ALSO ACCESS OUR OFFICE LOCATOR ON OUR INTERNET SITE AT:
www.msdw.com/individual/funds
[End Sidebar]
SHAREHOLDER INFORMATION
[ICON] PRICING PORTFOLIO SHARES
- --------------------------------------------------------------------------------
The price of each Portfolio's shares (excluding sales charges),
called "net asset value," is based on the value of the Portfolio's
securities. While the assets of each Class are invested in a single
portfolio of securities, the net asset value of each Class will
differ because the Classes have different ongoing distribution fees.
The net asset value per share of each Portfolio is determined once
daily at 4:00 p.m. Eastern 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). Shares will not be priced
on days that the New York Stock Exchange is closed.
The assets of each Portfolio consist primarily of the Underlying
Funds, which are valued at their respective net asset values. The net
asset value of each Underlying Fund's securities is based on the
securities' market price when available. When a market price is not
readily available, including circumstances under which the Investment
Manager determines that a security's market price is not accurate, a
portfolio security is valued at its fair value, as determined under
procedures established by the Underlying Fund's Board of Trustees. In
these cases, an Underlying Fund's net asset value will reflect
certain portfolio securities' fair value rather than their market
price. In addition, if an Underlying Fund holds securities that are
primarily listed on foreign exchanges, the value of the Underlying
Fund's securities may change on days when you will not be able to
purchase or sell your shares. The Portfolio's other securities are
valued in the same manner as the Underlying Funds' securities.
A Portfolio's short-term debt securities with remaining maturities of
sixty days or less at the time of purchase are valued at amortized
cost. However, if the cost does not reflect the securities' market
value, these securities will be valued at their fair value.
[ICON] HOW TO BUY SHARES
- --------------------------------------------------------------------------------
You may open a new account to buy Portfolio shares or buy additional
Portfolio shares for an existing account by contacting your Morgan
Stanley Dean Witter Financial Advisor or other authorized financial
representative. Your Financial Advisor will assist you, step-by-step,
with the procedures to invest in the Portfolio. You may also purchase
shares directly by calling the Fund's transfer agent and requesting
an application.
Because every investor has different immediate financial needs and
long-term investment goals, each Portfolio offers investors four
Classes of shares: Classes A, B, C and D. Class D shares are only
offered to a limited group of investors. Each Class of shares offers
a distinct structure of sales charges, distribution and service fees,
and other features that are designed to address a variety of needs.
Your Financial Advisor or other authorized financial representative
can
38
<PAGE>
[Sidebar]
EASYINVEST-SM-
A PURCHASE PLAN THAT ALLOWS YOU TO TRANSFER MONEY AUTOMATICALLY FROM YOUR
CHECKING OR SAVINGS ACCOUNT OR FROM A MONEY MARKET FUND ON A SEMI-MONTHLY,
MONTHLY OR QUARTERLY BASIS. CONTACT YOUR MORGAN STANLEY DEAN WITTER FINANCIAL
ADVISOR FOR FURTHER INFORMATION ABOUT THIS SERVICE.
[End Sidebar]
help you decide which Class may be most appropriate for you. When
purchasing Portfolio shares, you must specify which Class of shares
you wish to purchase.
When you buy Portfolio shares, the shares are purchased at the next
share price calculated (less any applicable front-end sales charge
for Class A shares) after we receive your purchase order. Your
payment is due on the third business day after you place your
purchase order. We reserve the right to reject any order for the
purchase of Portfolio shares.
<TABLE>
<CAPTION>
MINIMUM INVESTMENT AMOUNTS
- ------------------------------------------------------------------------------------------------
MINIMUM INVESTMENT
----------------------
INVESTMENT OPTIONS INITIAL ADDITIONAL
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Regular Accounts $1,000 $ 100
- ------------------------------------------------------------------------------------------------
Individual Retirement Accounts: Regular IRAs $1,000 $ 100
Education IRAs $500 $ 100
- ------------------------------------------------------------------------------------------------
EASYINVEST-SM-
(Automatically from your checking
or savings account or Money Market
Fund) $100* $ 100*
- ------------------------------------------------------------------------------------------------
</TABLE>
* Provided your schedule of investments totals $1,000 in twelve months.
There is no minimum investment amount if you purchase Portfolio
shares through: (1) the Investment Manager's mutual fund asset
allocation plan, (2) a program, approved by the Fund's distributor,
in which you pay an asset-based fee for advisory, administrative
and/or brokerage services, or (3) employer-sponsored employee benefit
plan accounts.
INVESTMENT OPTIONS FOR CERTAIN INSTITUTIONAL AND OTHER
INVESTORS/CLASS D SHARES. To be eligible to purchase Class D shares,
you must qualify under one of the investor categories specified in
the "Share Class Arrangements" section of this PROSPECTUS.
SUBSEQUENT INVESTMENTS SENT DIRECTLY TO THE FUND. In addition to
buying additional Portfolio shares for an existing account by
contacting your Morgan Stanley Dean Witter Financial Advisor, you may
send a check directly to a Portfolio. To buy additional shares in
this manner:
- Write a "letter of instruction" to the Fund specifying the name(s)
on the account, the account number, the social security or tax
identification number, the name of the Portfolio, the Class of
shares you wish to purchase and the investment amount (which would
include any applicable front-end sales charge). The letter must be
signed by the account owner(s).
- Make out a check for the total amount payable to: Morgan Stanley
Dean Witter Fund of Funds--Domestic Portfolio or Morgan Stanley
Dean Witter Fund of Funds--International Portfolio.
39
<PAGE>
- Mail the letter and check to Morgan Stanley Dean Witter Trust FSB
at P.O. Box 1040, Jersey City, NJ 07303.
[ICON] HOW TO EXCHANGE SHARES
- --------------------------------------------------------------------------------
PERMISSIBLE FUND EXCHANGES. You may exchange shares of any Class of a
Portfolio for the same Class of any other continuously offered
Multi-Class Fund, or for shares of a No-Load Fund, a Money Market
Fund, North American Government Income Trust or Short-Term U.S.
Treasury Trust, without the imposition of an exchange fee. See the
inside back cover of this PROSPECTUS for each Morgan Stanley Dean
Witter Fund's designation as a Multi-Class Fund, No-Load Fund or
Money Market Fund. If a Morgan Stanley Dean Witter Fund is not
listed, consult the inside back cover of that Fund's PROSPECTUS for
its designation. For purposes of exchanges, shares of FSC Funds
(subject to a front-end sales charge) are treated as Class A shares
of a Multi-Class Fund.
Exchanges may be made after shares of a Portfolio acquired by
purchase have been held for thirty days. There is no waiting period
for exchanges of shares acquired by exchange or dividend
reinvestment. The current PROSPECTUS for each Fund describes its
investment objective(s), policies and investment minimums, and should
be read before investment. Since exchanges are available only into
continuously offered Morgan Stanley Dean Witter Funds, exchanges are
not available into any new Morgan Stanley Dean Witter Fund during its
initial offering period, or when shares of a particular Morgan
Stanley Dean Witter Fund are not being offered for purchase.
EXCHANGE PROCEDURES. You can process an exchange by contacting your
Morgan Stanley Dean Witter Financial Advisor or other authorized
financial representative. Otherwise, you must forward an exchange
privilege authorization form to the Fund's transfer agent -- Morgan
Stanley Dean Witter Trust FSB -- and then write the transfer agent or
call (800) 869-NEWS to place an exchange order. You can obtain an
exchange privilege authorization form by contacting your Financial
Advisor or other authorized financial representative or by calling
(800) 869-NEWS. If you hold share certificates, no exchanges may be
processed until we have received all applicable share certificates.
An exchange to any Morgan Stanley Dean Witter Fund (except a Money
Market Fund) is made on the basis of the next calculated net asset
values of the Funds involved after the exchange instructions are
accepted. When exchanging into a Money Market Fund, a Portfolio's
shares are sold at their next calculated net asset value and the
Money Market Fund's shares are purchased at their net asset value on
the following business day.
The Fund may terminate or revise the exchange privilege upon required
notice. The check writing privilege is not available for Money Market
Fund shares you acquire in an exchange.
TELEPHONE EXCHANGES. For your protection when calling Morgan Stanley
Dean Witter Trust FSB, we will employ reasonable procedures to
confirm that exchange instructions
40
<PAGE>
communicated over the telephone are genuine. These procedures may
include requiring various forms of personal identification such as
name, mailing address, social security or other tax identification
number. Telephone instructions also may be recorded.
Telephone instructions will be accepted if received by the Fund's
transfer agent between 9:00 a.m. and 4:00 p.m. Eastern time on any
day the New York Stock Exchange is open for business. During periods
of drastic economic or market changes, it is possible that the
telephone exchange procedures may be difficult to implement, although
this has not been the case with the Fund in the past.
MARGIN ACCOUNTS. If you have pledged your Portfolio shares in a
margin account, contact your Morgan Stanley Dean Witter Financial
Advisor or other authorized financial representative regarding
restrictions on the exchange of such shares.
TAX CONSIDERATIONS OF EXCHANGES. If you exchange shares of a
Portfolio for shares of another Morgan Stanley Dean Witter Fund there
are important tax considerations. For tax purposes, the exchange out
of a Portfolio is considered a sale of Portfolio shares -- and the
exchange into the other Fund is considered a purchase. As a result,
you may realize a capital gain or loss.
You should review the "Tax Consequences" section and consult your own
tax professional about the tax consequences of an exchange.
LIMITATIONS ON EXCHANGES. Certain patterns of exchanges may result in
the Fund limiting or prohibiting, at its discretion, additional
purchases and/or exchanges. Determinations in this regard may be made
based on the frequency or dollar amount of previous exchanges. The
Fund will notify you in advance of limiting your exchange privileges.
CDSC CALCULATIONS ON EXCHANGES. See the "Share Class Arrangements"
section of this PROSPECTUS for a discussion of how applicable
contingent deferred sales charges (CDSCs) are calculated for shares
of one Morgan Stanley Dean Witter Fund that are exchanged for shares
of another.
For further information regarding exchange privileges, you should
contact your Morgan Stanley Dean Witter Financial Advisor or call
(800) 869-NEWS.
41
<PAGE>
[ICON] HOW TO SELL SHARES
- --------------------------------------------------------------------------------
You can sell some or all of your Portfolio shares at any time. If you
sell Class A, Class B or Class C shares, your net sale proceeds are
reduced by the amount of any applicable CDSC. Your shares will be
sold at the next share price calculated after we receive your order
to sell as described below.
<TABLE>
<CAPTION>
OPTIONS PROCEDURES
<S> <C>
- --------------------------------------------------------------------------------
Contact your To sell your shares, simply call your Morgan Stanley Dean
Financial Advisor Witter Financial Advisor or other authorized financial
representative.
------------------------------------------------------------
[ICON] Payment will be sent to the address to which the account is
registered or deposited in your brokerage account.
- --------------------------------------------------------------------------------
<CAPTION>
OPTIONS PROCEDURES
<S> <C>
- --------------------------------------------------------------------------------
By Letter You can also sell your shares by writing a "letter of
instruction" that includes:
[ICON] - your account number;
- the dollar amount or the number of shares you wish to
sell;
- the name of the Portfolio;
- the Class of shares you wish to sell; and
- the signature of each owner as it appears on the account.
------------------------------------------------------------
If you are requesting payment to anyone other than the
registered owner(s) or that payment be sent to any address
other than the address of the registered owner(s) or
pre-designated bank account, you will need a signature
guarantee. You can obtain a signature guarantee from an
eligible guarantor acceptable to Morgan Stanley Dean Witter
Trust FSB. (You should contact Morgan Stanley Dean Witter
Trust FSB at (800) 869-NEWS for a determination as to
whether a particular institution is an eligible guarantor.)
A notary public CANNOT provide a signature guarantee.
Additional documentation may be required for shares held by
a corporation, partnership, trustee or executor.
------------------------------------------------------------
Mail the letter to Morgan Stanley Dean Witter Trust FSB at
P.O. Box 983, Jersey City, NJ 07303. If you hold share
certificates, you must return the certificates, along with
the letter and any required additional documentation.
------------------------------------------------------------
A check will be mailed to the name(s) and address in which
the account is registered, or otherwise according to your
instructions.
- --------------------------------------------------------------------------------
Systematic If your investment in all of the Morgan Stanley Dean Witter
Withdrawal Plan Family of Funds has a total market value of at least
[ICON] $10,000, you may elect to withdraw amounts of $25 or more,
or in any whole percentage of a Fund's balance (provided the
amount is at least $25), on a monthly, quarterly,
semi-annual or annual basis, from any Fund with a balance of
at least $1,000. Each time you add a Fund to the plan, you
must meet the plan requirements.
------------------------------------------------------------
Amounts withdrawn are subject to any applicable CDSC. A CDSC
may be waived under certain circumstances. See the Class B
waiver categories listed in the "Share Class Arrangements"
section of this PROSPECTUS.
------------------------------------------------------------
To sign up for the Systematic Withdrawal Plan, contact your
Morgan Stanley Dean Witter Financial Advisor or call
(800) 869-NEWS. You may terminate or suspend your plan at
any time. Please remember that withdrawals from the plan are
sales of shares, not Fund "distributions," and ultimately
may exhaust your account balance. The Fund may terminate or
revise the plan at any time.
- --------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
PAYMENT FOR SOLD SHARES. After we receive your complete instructions
to sell, as described above, a check will be mailed to you within
seven days, although we will attempt to make payment within one
business day. Payment may also be sent to your brokerage account.
Payment may be postponed or the right to sell your shares suspended
under unusual circumstances. If you request to sell shares that were
recently purchased by check, your sale will not be effected until it
has been verified that the check has been honored.
TAX CONSIDERATIONS. Normally, your sale of Portfolio shares is
subject to federal and state income tax. You should review the "Tax
Consequences" section of this PROSPECTUS and consult your own tax
professional about the tax consequences of a sale.
REINSTATEMENT PRIVILEGE. If you sell Portfolio shares and have not
previously exercised the reinstatement privilege, you may, within 35
days after the date of sale, invest any portion of the proceeds in
the same Class of Portfolio shares at their net asset value and
receive a pro rata credit for any CDSC paid in connection with the
sale.
INVOLUNTARY SALES. The Fund reserves the right, on sixty days'
notice, to sell the shares of any shareholder (other than shares held
in an IRA or 403(b) Custodial Account) whose shares, due to sales by
the shareholder, have a value below $100, or in the case of an
account opened through EASYINVEST -SM-, if after 12 months the
shareholder has invested less than $1,000 in the account.
However, before the Fund sells your shares in this manner, we will
notify you and allow you sixty days to make an additional investment
in an amount that will increase the value of your account to at least
the required amount before the sale is processed. No CDSC will be
imposed on any involuntary sale.
MARGIN ACCOUNTS. If you have pledged your Portfolio shares in a
margin account, contact your Morgan Stanley Dean Witter Financial
Advisor or other authorized financial representative regarding
restrictions on the sale of such shares.
[ICON] DISTRIBUTIONS
- --------------------------------------------------------------------------------
Each Portfolio passes substantially all of its earnings from income
and capital gains along to its investors as "distributions." Each
Portfolio earns income from its Underlying Fund investments and
interest from fixed-income investments. These amounts are passed
along to Portfolio shareholders as "income dividend distributions."
Each Portfolio realizes capital gains whenever it sells securities
for a higher price than it paid for them. These amounts may be passed
along as "capital gain distributions."
43
<PAGE>
[Sidebar]
TARGETED DIVIDENDS-SM-
YOU MAY SELECT TO HAVE YOUR PORTFOLIO DISTRIBUTIONS AUTOMATICALLY INVESTED IN
OTHER CLASSES OF PORTFOLIO SHARES OR CLASSES OF ANOTHER MORGAN STANLEY DEAN
WITTER FUND THAT YOU OWN. CONTACT YOUR MORGAN STANLEY DEAN WITTER FINANCIAL
ADVISOR FOR FURTHER INFORMATION ABOUT THIS SERVICE.
[End Sidebar]
Each Portfolio declares income dividends separately for each Class.
Distributions paid on Class A and Class D shares will usually be
higher than for Class B and Class C because distribution fees that
Class B and Class C pay are higher. Normally, income dividends are
distributed to shareholders annually. Capital gains, if any, are
usually distributed in December. Each Portfolio, however, may retain
and reinvest any long-term capital gains. Each Portfolio may at times
make payments from sources other than income or capital gains that
represent a return of a portion of your investment.
Distributions are reinvested automatically in additional shares of
the same Class and automatically credited to your account, unless you
request in writing that all distributions be paid in cash. If you
elect the cash option, the Fund will mail a check to you no later
than seven business days after the distribution is declared. No
interest will accrue on uncashed checks. If you wish to change how
your distributions are paid, your request should be received by the
Fund's transfer agent, Morgan Stanley Dean Witter Trust FSB, at least
five business days prior to the record date of the distributions.
[ICON] TAX CONSEQUENCES
- --------------------------------------------------------------------------------
As with any investment, you should consider how your Portfolio
investment will be taxed. The tax information in this PROSPECTUS is
provided as general information. You should consult your own tax
professional about the tax consequences of an investment in a
Portfolio in the Fund.
Unless your investment in a Portfolio is through a tax-deferred
retirement account, such as a 401(k) plan or IRA, you need to be
aware of the possible tax consequences when:
- The Portfolio makes distributions; and
- You sell Portfolio shares, including an exchange to another Morgan
Stanley Dean Witter Fund.
TAXES ON DISTRIBUTIONS. Your distributions are normally subject to
federal and state income tax when they are paid, whether you take
them in cash or reinvest them in Portfolio shares. A distribution
also may be subject to local income tax. Any income dividend
distributions and any short-term capital gain distributions are
taxable to you as ordinary income. Any long-term capital gain
distributions are taxable as long-term capital gains, no matter how
long you have owned shares in the Portfolio.
Every January, you will be sent a statement (IRS Form 1099-DIV)
showing the taxable distributions paid to you in the previous year.
The statement provides full information on your dividends and capital
gains for tax purposes.
TAXES ON SALES. Your sale of Portfolio shares normally is subject to
federal and state income tax and may result in a taxable gain or loss
to you. A sale also may be subject to
44
<PAGE>
local income tax. Your exchange of Portfolio shares for shares of
another Morgan Stanley Dean Witter Fund is treated for tax purposes
like a sale of your original shares and a purchase of your new
shares. Thus, the exchange may, like a sale, result in a taxable gain
or loss to you and will give you a new tax basis for your new shares.
When you open your Fund account, you should provide your social
security or tax identification number on your investment application.
By providing this information, you will avoid being subject to a
federal backup withholding tax of 31% on taxable distributions and
redemption proceeds. Any withheld amount would be sent to the IRS as
an advance tax payment.
[ICON] SHARE CLASS ARRANGEMENTS
- --------------------------------------------------------------------------------
Each Portfolio offers several Classes of shares having different
distribution arrangements designed to provide you with different
purchase options according to your investment needs. Your Morgan
Stanley Dean Witter Financial Advisor or other authorized financial
representative can help you decide which Class may be appropriate for
you.
The general public is offered three Classes: Class A shares, Class B
shares and Class C shares, which differ principally in terms of sales
charges and ongoing expenses. A fourth Class, Class D shares, is
offered only to a limited category of investors. Shares that you
acquire through reinvested distributions will not be subject to any
front-end sales charge or CDSC -- contingent deferred sales charge.
Sales personnel may receive different compensation for selling each
Class of shares. The sales charges applicable to each Class provide
for the distribution financing of shares of that Class.
The chart below compares the sales charge and maximum annual 12b-1
fee applicable to each Class of a Portfolio:
<TABLE>
<CAPTION>
CLASS SALES CHARGE MAXIMUM ANNUAL 12B-1 FEE
<S> <C> <C>
--------------------------------------------------------------------------------------
A Maximum 5.25% initial sales charge reduced for
purchase of $25,000 or more; shares sold without
an initial sales charge are generally subject to a
1.0% CDSC during the first year 0.25%
--------------------------------------------------------------------------------------
B Maximum 5.0% CDSC during the first year decreasing
to 0% after six years 1.00%
--------------------------------------------------------------------------------------
C 1.0% CDSC during the first year 1.00%
--------------------------------------------------------------------------------------
D None None
--------------------------------------------------------------------------------------
</TABLE>
CLASS A SHARES Class A shares of each Portfolio are sold at net asset
value plus an initial sales charge of up to 5.25%. The initial sales
charge is reduced for purchases of $25,000 or more according to the
schedule below. Investments of $1 million or more are not subject to an
initial sales charge, but are generally subject to a contingent
deferred sales charge, or CDSC, of 1.0% on sales made within one year
after the last day of the
45
<PAGE>
[SIDEBAR]
FRONT-END SALES CHARGE
OR FSC
AN INITIAL SALES CHARGE YOU PAY WHEN PURCHASING CLASS A SHARES THAT IS BASED ON
A PERCENTAGE OF THE OFFERING PRICE. THE PERCENTAGE DECLINES BASED UPON THE
DOLLAR VALUE OF CLASS A SHARES YOU PURCHASE. WE OFFER THREE WAYS TO REDUCE YOUR
CLASS A SALES CHARGES - THE COMBINED PURCHASE PRIVILEGE, RIGHT OF ACCUMULATION
AND LETTER OF INTENT.
[END SIDEBAR]
month of purchase. The CDSC will be assessed in the same manner and
with the same CDSC waivers as with Class B shares. Class A shares are
also subject to a distribution (12b-1) fee of up to 0.25% of the
average daily net assets of the Class.
The offering price of Class A shares includes a sales charge
(expressed as a percentage of the offering price) on a single
transaction as shown in the following table:
<TABLE>
<CAPTION>
FRONT-END SALES CHARGE
------------------------------------------------
AMOUNT OF SINGLE PERCENTAGE OF APPROXIMATE PERCENTAGE OF
TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED
<S> <C> <C>
- ------------------------------------------------------------------------------------------
Less than $25,000 5.25% 5.54%
- ------------------------------------------------------------------------------------------
$25,000 but less than $50,000 4.75% 4.99%
- ------------------------------------------------------------------------------------------
$50,000 but less than $100,000 4.00% 4.17%
- ------------------------------------------------------------------------------------------
$100,000 but less than $250,000 3.00% 3.09%
- ------------------------------------------------------------------------------------------
$250,000 but less than $1 million 2.00% 2.04%
- ------------------------------------------------------------------------------------------
$1 million and over 0 0
- ------------------------------------------------------------------------------------------
</TABLE>
The reduced sales charge schedule is applicable to purchases of Class A shares
in a single transaction by:
- - A single account (including an individual, trust or fiduciary account).
- Family member accounts (limited to husband, wife and children under
the age of 21).
- Pension, profit sharing or other employee benefit plans of
companies and their affiliates.
- Tax-exempt organizations.
- Groups organized for a purpose other than to buy mutual fund
shares.
COMBINED PURCHASE PRIVILEGE. You also will have the benefit of
reduced sales charges by combining purchases of Class A shares of a
Portfolio in a single transaction with purchases of Class A shares of
other Multi-Class Funds and shares of FSC Funds.
RIGHT OF ACCUMULATION. You also may benefit from a reduction of sales
charges if the cumulative net asset value of Class A shares of the
Portfolio purchased in a single transaction, together with shares of
other Funds you currently own which were previously purchased at a
price including a front-end sales charge (including shares acquired
through reinvestment of distributions), amounts to $25,000 or more.
Also, if you have a cumulative net asset value of all your Class A
and Class D shares equal to at least $5 million (or $25 million for
certain employee benefit plans), you are eligible to purchase
Class D shares of any Fund subject to the Fund's minimum initial
investment requirement.
46
<PAGE>
You must notify your Morgan Stanley Dean Witter Financial Advisor or
other authorized financial representative (or Morgan Stanley Dean
Witter Trust FSB if you purchase directly through a Portfolio), 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 when an order is placed by mail.
The reduced sales charge will not be granted if: (i) notification is
not furnished at the time of the order; or (ii) a review of the
records of Dean Witter Reynolds or other authorized dealer of Fund
shares or the Fund's transfer agent does not confirm your represented
holdings.
LETTER OF INTENT. The schedule of reduced sales charges for larger
purchases also will be available to you if you enter into a written
"letter of intent." A letter of intent provides for the purchase of
Class A shares of a Portfolio or other Multi-Class Funds or shares of
FSC Funds within a thirteen-month period. The initial purchase under
a letter of intent must be at least 5% of the stated investment goal.
To determine the applicable sales charge reduction, you may also
include: (1) the cost of 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
distributor receiving the letter of intent, and (2) the cost of
shares of other Funds you currently own acquired in exchange for
shares of Funds purchased during that period at a price including a
front-end sales charge. You can obtain a letter of intent by
contacting your Morgan Stanley Dean Witter Financial Advisor or other
authorized financial representative or by calling (800) 869-NEWS. If
you do not achieve the stated investment goal within the
thirteen-month period, you are required to pay the difference between
the sales charges otherwise applicable and sales charges actually
paid, which may be deducted from your investment.
OTHER SALES CHARGE WAIVERS. In addition to investments of $1 million
or more, your purchase of Class A shares is not subject to a
front-end sales charge (or CDSC upon sale) if your account qualifies
under one of the following categories:
- A trust for which Morgan Stanley Dean Witter Trust FSB provides
discretionary trustee services.
- Persons participating in a fee-based investment program (subject to
all of its terms and conditions, including termination fees,
mandatory sale or transfer restrictions on termination) approved by
the Fund's distributor pursuant to which they pay an asset-based
fee for investment advisory, administrative and/or brokerage
services.
- Employer-sponsored employee benefit plans, whether or not qualified
under the Internal Revenue Code, for which Morgan Stanley Dean
Witter Trust FSB serves as trustee or Dean Witter Reynolds'
Retirement Plan Services serves as recordkeeper under a written
Recordkeeping Services Agreement ("MSDW Eligible Plans") which have
at least 200 eligible employees.
- An MSDW Eligible Plan whose Class B shares have converted to
Class A shares, regardless of the plan's asset size or number of
eligible employees.
47
<PAGE>
[Sidebar]
CONTINGENT DEFERRED SALES
CHARGE OR CDSC
A FEE YOU PAY WHEN YOU SELL SHARES OF CERTAIN MORGAN STANLEY DEAN WITTER FUNDS
PURCHASED WITHOUT AN INITIAL SALES CHARGE. THIS FEE DECLINES THE LONGER YOU HOLD
YOUR SHARES AS SET FORTH IN THE TABLE.
[End Sidebar]
- A client of a Morgan Stanley Dean Witter Financial Advisor who
joined us from another investment firm within six months prior to
the date of purchase of Portfolio shares, and you used the proceeds
from the sale of shares of a proprietary mutual fund of that
Financial Advisor's previous firm that imposed either a front-end
or deferred sales charge to purchase Class A shares, provided that:
(1) you sold the shares not more than 60 days prior to the purchase
of Portfolio shares, and (2) the sale proceeds were maintained in
the interim in cash or a money market fund.
- Current or retired Directors/Trustees of the Morgan Stanley Dean
Witter Funds, such persons' spouses and children under the age of
21, and trust accounts for which any of such persons is a
beneficiary.
- Current or retired directors, officers and employees of Morgan
Stanley Dean Witter & Co. and any of its subsidiaries, such
persons' spouses and children under the age of 21, and trust
accounts for which any of such persons is a beneficiary.
CLASS B SHARES Class B shares of each Portfolio are offered at net
asset value with no initial sales charge but are subject to a
contingent deferred sales charge, or CDSC, as set forth in the table
below. For the purpose of calculating the CDSC, shares are deemed to
have been purchased on the last day of the month during which they were
purchased.
<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE
YEAR SINCE PURCHASE 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>
Each time you place an order to sell or exchange shares, shares with
no CDSC will be sold or exchanged first, then shares with the lowest
CDSC will be sold or exchanged next. For any shares subject to a
CDSC, the CDSC will be assessed on an amount equal to the lesser of
the current market value or the cost of the shares being sold.
CDSC WAIVERS. A CDSC, if otherwise applicable, will be waived in the
case of:
- Sales of shares held at the time you die or become disabled (within
the definition in Section 72(m)(7) of the Internal Revenue Code
which relates to the ability to engage in gainful employment), if
the shares are: (i) registered either in your name (not a trust) or
in the names of you and your spouse as joint tenants with right of
survivorship; or
48
<PAGE>
(ii) held in a qualified corporate or self-employed retirement
plan, IRA or 403(b) Custodial Account, provided in either case that
the sale is requested within one year of your death or initial
determination of disability.
- Sales in connection with the following retirement plan
"distributions": (i) 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); (ii) distributions from
an IRA or 403(b) Custodial Account following attainment of age
59 1/2; or (iii) a tax-free return of an excess IRA contribution (a
"distribution" does not include a direct transfer of IRA,
403(b) Custodial Account or retirement plan assets to a successor
custodian or trustee).
- Sales of shares held for you as a participant in an MSDW Eligible
Plan.
- Sales of shares in connection with the Systematic Withdrawal Plan
of up to 12% annually of the value of each Fund from which plan
sales are made. The percentage is determined on the date you
establish the Systematic Withdrawal Plan and based on the next
calculated share price. You may have this CDSC waiver applied in
amounts up to 1% per month, 3% per quarter, 6% semi-annually or 12%
annually. Shares with no CDSC will be sold first, followed by those
with the lowest CDSC. As such, the waiver benefit will be reduced
by the amount of your shares that are not subject to a CDSC. If you
suspend your participation in the plan, you may later resume plan
payments without requiring a new determination of the account value
for the 12% CDSC waiver.
- Sales of shares if you simultaneously invest the proceeds in the
Investment Manager's mutual fund asset allocation program, pursuant
to which investors pay an asset-based fee. Any shares you acquire
in connection with the Investment Manager's mutual fund asset
allocation program are subject to all of the terms and conditions
of that program, including termination fees, mandatory sale or
transfer restrictions on termination.
All waivers will be granted only following the Fund's distributor
receiving confirmation of your entitlement. If you believe you are
eligible for a CDSC waiver, please contact your Financial Advisor or
call (800) 869-NEWS.
DISTRIBUTION FEE. Class B shares are subject to an annual 12b-1 fee
of 1.0% of the average daily net assets of Class B shares.
CONVERSION FEATURE. After ten (10) years, Class B shares will convert
automatically to Class A shares of a Portfolio with no initial sales
charge. The ten year period runs 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, from the last day of the month in which
the original Class B shares were purchased; the shares will convert
to Class A shares based on their relative net asset values in the
month following the ten year period. At the same time, an equal
proportion of Class B shares acquired through automatically
reinvested
49
<PAGE>
distributions will convert to Class A shares on the same basis.
(Class B shares acquired in exchange for shares of another Morgan
Stanley Dean Witter Fund originally purchased before May 1, 1997,
however, will convert to Class A shares in May 2007.)
In the case of Class B shares held in an MSDW Eligible Plan, 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 Class B shares of a
Morgan Stanley Dean Witter Fund purchased by that plan.
Currently, the Class B share conversion is not a taxable event; the
conversion feature may be cancelled if it is deemed a taxable event
in the future by the Internal Revenue Service.
If you exchange your Class B shares for shares of a Money Market
Fund, a No-Load Fund, North American Government Income Trust or
Short-Term U.S. Treasury Trust, the holding period for conversion is
frozen as of the last day of the month of the exchange and resumes on
the last day of the month you exchange back into Class B shares.
EXCHANGING SHARES SUBJECT TO A CDSC. There are special considerations
when you exchange Portfolio shares that are subject to a CDSC. When
determining the length of time you held the shares and the
corresponding CDSC rate, any period (starting at the end of the
month) during which you held shares of a Fund that does NOT charge a
CDSC WILL NOT BE COUNTED. Thus, in effect the "holding period" for
purposes of calculating the CDSC is frozen upon exchanging into a
Fund that does not charge a CDSC.
For example, if you held Class B shares of a Portfolio for one year,
exchanged to Class B of another Morgan Stanley Dean Witter
Multi-Class Fund for another year, then sold your shares, a CDSC rate
of 4% would be imposed on the shares based on a two year holding
period -- one year for each fund. However, if you had exchanged the
shares of the Portfolio for a Money Market Fund (which does not
charge a CDSC) instead of the Multi-Class Fund, then sold your
shares, a CDSC rate of 5% would be imposed on the shares based on a
one year holding period. The one year in the Money Market Fund would
not be counted. Nevertheless, if shares subject to a CDSC are
exchanged for a Fund that does not charge a CDSC, you will receive a
credit when you sell the shares equal to the distribution (12b-1)
fees, if any, you paid on those shares while in that Fund up to the
amount of any applicable CDSC.
In addition, shares that are exchanged into or from a Morgan Stanley
Dean Witter Fund subject to a higher CDSC rate will be subject to the
higher rate, even if the shares are re-exchanged into a Fund with a
lower CDSC rate.
CLASS C SHARES Class C shares of each Portfolio are sold at net asset
value with no initial sales charge but are subject to a CDSC of 1.0% on
sales made within one year after the last day of the month of purchase.
The CDSC will be assessed in the same manner and with the same CDSC
waivers as with Class B shares.
50
<PAGE>
DISTRIBUTION FEE. Class C shares are subject to an annual
distribution (12b-1) fee of up to 1.0% of the average daily net
assets of that Class. 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. Unlike Class B shares, Class C shares have
no conversion feature and, accordingly, an investor that purchases
Class C shares may be subject to distribution (12b-1) fees applicable
to Class C shares for an indefinite period.
CLASS D SHARES Class D shares of each Portfolio are offered without
any sales charge on purchases or sales and without any distribution
(12b-1) fee. Class D shares are offered only to investors meeting an
initial investment minimum of $5 million ($25 million for MSDW Eligible
Plans) and the following investor categories:
- Investors participating in the Investment Manager's mutual fund
asset allocation program (subject to all of its terms and
conditions, including termination fees, mandatory sale or transfer
restrictions on termination) pursuant to which they pay an
asset-based fee.
- Persons participating in a fee-based investment program (subject to
all of its terms and conditions, including termination fees,
mandatory sale or transfer restrictions on termination) approved by
the Fund's distributor pursuant to which they pay an asset-based
fee for investment advisory, administrative and/or brokerage
services.
- 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.
- Certain unit investment trusts sponsored by Dean Witter Reynolds.
- Certain other open-end investment companies whose shares are
distributed by the Fund's distributor.
- Investors who were shareholders of the Dean Witter Retirement
Series on September 11, 1998 for additional purchases for their
former Dean Witter Retirement Series accounts.
MEETING CLASS D ELIGIBILITY MINIMUMS. To meet the $5 million
($25 million for certain MSDW Eligible Plans) initial investment to
qualify to purchase Class D shares you may combine: (1) purchases in
a single transaction of Class D shares of a Portfolio and other
Morgan Stanley Dean Witter Multi-Class Funds and/or (2) previous
purchases of Class A and Class D shares of Multi-Class Funds and
shares of FSC Funds you currently own, along with shares of Morgan
Stanley Dean Witter Funds you currently own that you acquired in
exchange for those shares.
51
<PAGE>
NO SALES CHARGES FOR REINVESTED CASH DISTRIBUTIONS If you receive a
cash payment representing an income dividend or capital gain and you
reinvest that amount in the applicable Class of shares by returning the
check within 30 days of the payment date, the purchased shares would
not be subject to an initial sales charge or CDSC.
PLAN OF DISTRIBUTION (RULE 12B-1 FEES) The Fund has adopted a Plan of
Distribution in accordance with Rule 12b-1 under the Investment Company
Act of 1940 with respect to the distribution of Class A, Class B and
Class C shares of each Portfolio. The Plan allows each Portfolio to pay
distribution fees for the sale and distribution of these shares. It
also allows each Portfolio to pay for services to shareholders of
Class A, Class B and Class C shares. Because these fees are paid out of
each Portfolio's assets on an ongoing basis, over time these fees will
increase the cost of your investment in these Classes and may cost you
more than paying other types of sales charges.
52
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each
Portfolio's financial performance over the life of each Portfolio. Certain
information reflects financial results for a single Portfolio share. The total
returns in the table represent the rate an investor would have earned or lost on
an investment in a Portfolio (assuming reinvestment of all dividends and
distributions).
This information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the annual report, which is available upon request.
<TABLE>
<CAPTION>
DOMESTIC PORTFOLIO
---------------------
FOR THE
PERIOD
FOR THE NOVEMBER
YEAR 25, 1997*
ENDED THROUGH
SEPTEMBER SEPTEMBER
30, 1999 30, 1998
<S> <C> <C>
- ----------------------------------------------------------------------------------------
CLASS A SHARES++
- ----------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
- ----------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.72 $10.00
- ----------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.46 0.21
Net realized and unrealized gain (loss) 1.93 (0.44)
------ ------
Total income (loss) from investment operations 2.39 (0.23)
- ----------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.36) (0.05)
Net realized gain (0.21) --
------ ------
Total dividends and distributions (0.57) (0.05)
- ----------------------------------------------------------------------------------------
Net asset value, end of period $11.54 $ 9.72
- ----------------------------------------------------------------------------------------
TOTAL RETURN+ 25.00% (2.33)%(1)
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:(3)(4)(5)
- ----------------------------------------------------------------------------------------
Expenses 0.23% 0.22%(2)
- ----------------------------------------------------------------------------------------
Net investment income (loss) 3.92% 2.21%(2)
- ----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------
Net assets, end of period, in thousands $1,097 $1,359
- ----------------------------------------------------------------------------------------
Portfolio turnover rate 295% 227%(1)
- ----------------------------------------------------------------------------------------
</TABLE>
* For the period November 25, 1997 (commencement of operations) through
September 30, 1998.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all of its expenses that were reimbursed or waived by
the Investment Manager, the annualized expense and net investment income
ratios would have been 0.67% and 3.48%, respectively, for the year ended
September 30, 1999 and 1.15% and 1.28%, respectively, for the period ended
September 30, 1998, for Class A shares; 1.44% and 2.71%, respectively, for
the year ended September 30, 1999 and 1.90% and 0.53%, respectively, for the
period ended September 30, 1998, for Class B shares; 0.98% and 3.17%,
respectively, for the year ended September 30, 1999 and 1.90% and 0.53%,
respectively, for the period ended September 30, 1998, for Class C shares;
and 0.44% and 3.71%, respectively, for the year ended September 30, 1999 and
0.90% and 1.53%, respectively, for the period ended September 30, 1998, for
Class D shares.
(4) Does not include any expenses incurred as a result of investment in the
Underlying Funds.
(5) Reflects overall Fund ratios for investment income and non-class specific
expenses.
53
<PAGE>
<TABLE>
<CAPTION>
DOMESTIC PORTFOLIO
---------------------
FOR THE
PERIOD
NOVEMBER 25,
FOR THE 1997*
YEAR THROUGH
ENDED SEPTEMBER 30,
SEPTEMBER 30, 1999 1998
<S> <C> <C>
- ----------------------------------------------------------------------------------------
CLASS B SHARES++
- ----------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
- ----------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.67 $10.00
- ----------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.35 0.14
Net realized and unrealized gain (loss) 1.94 (0.42)
------ ------
Total income (loss) from investment operations 2.29 (0.28)
- ----------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.29) (0.05)
Net realized gain (0.21) --
------ ------
Total dividends and distributions (0.50) (0.05)
- ----------------------------------------------------------------------------------------
Net asset value, end of period $11.46 $ 9.67
- ----------------------------------------------------------------------------------------
TOTAL RETURN+ 23.96% (2.83)%(1)
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:(3)(4)(5)
- ----------------------------------------------------------------------------------------
Expenses 1.00% 0.92%(2)
- ----------------------------------------------------------------------------------------
Net investment income (loss) 3.15% 1.51%(2)
- ----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------
Net assets, end of period, in millions $26,007 $24,338
- ----------------------------------------------------------------------------------------
Portfolio turnover rate $ 295 227%(1)
- ----------------------------------------------------------------------------------------
</TABLE>
* For the period November 25, 1997 (commencement of operations) through
September 30, 1998.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all of its expenses that were reimbursed or waived by
the Investment Manager, the annualized expense and net investment income
ratios would have been 0.67% and 3.48%, respectively, for the year ended
September 30, 1999 and 1.15% and 1.28%, respectively, for the period ended
September 30, 1998, for Class A shares; 1.44% and 2.71%, respectively, for
the year ended September 30, 1999 and 1.90% and 0.53%, respectively, for the
period ended September 30, 1998, for Class B shares; 0.98% and 3.17%,
respectively, for the year ended September 30, 1999 and 1.90% and 0.53%,
respectively, for the period ended September 30, 1998, for Class C shares;
and 0.44% and 3.71%, respectively, for the year ended September 30, 1999 and
0.90% and 1.53%, respectively, for the period ended September 30, 1998, for
Class D shares.
(4) Does not include any expenses incurred as a result of investment in the
Underlying Funds.
(5) Reflects overall Fund ratios for investment income and non-class specific
expenses.
54
<PAGE>
<TABLE>
<CAPTION>
DOMESTIC PORTFOLIO
---------------------
FOR THE
PERIOD
FOR THE NOVEMBER
YEAR 25, 1997*
ENDED THROUGH
SEPTEMBER SEPTEMBER
30, 1999 30, 1998
<S> <C> <C>
- ----------------------------------------------------------------------------------------
CLASS C SHARES++
- ----------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
- ----------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.67 $10.00
- ----------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.40 0.13
Net realized and unrealized gain (loss) 1.94 (0.41)
------ ------
Total income (loss) from investment operations 2.34 (0.28)
- ----------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.28) (0.05)
Net realized gain (0.21) --
------ ------
Total dividends and distributions (0.49) (0.05)
- ----------------------------------------------------------------------------------------
Net asset value, end of period $11.52 $ 9.67
- ----------------------------------------------------------------------------------------
TOTAL RETURN+ 24.55% (2.83)%(1)
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:(3)(4)(5)
- ----------------------------------------------------------------------------------------
Expenses 0.54% 0.92%(2)
- ----------------------------------------------------------------------------------------
Net investment income (loss) 3.61% 1.51%(2)
- ----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------
Net assets, end of period, in thousands $1,364 $1,702
- ----------------------------------------------------------------------------------------
Portfolio turnover rate 295% 227%(1)
- ----------------------------------------------------------------------------------------
</TABLE>
* For the period November 25, 1997 (commencement of operations) through
September 30, 1998.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all of its expenses that were reimbursed or waived by
the Investment Manager, the annualized expense and net investment income
ratios would have been 0.67% and 3.48%, respectively, for the year ended
September 30, 1999 and 1.15% and 1.28%, respectively, for the period ended
September 30, 1998, for Class A shares; 1.44% and 2.71%, respectively, for
the year ended September 30, 1999 and 1.90% and 0.53%, respectively, for the
period ended September 30, 1998, for Class B shares; 0.98% and 3.17%,
respectively, for the year ended September 30, 1999 and 1.90% and 0.53%,
respectively, for the period ended September 30, 1998, for Class C shares;
and 0.44% and 3.71%, respectively, for the year ended September 30, 1999 and
0.90% and 1.53%, respectively, for the period ended September 30, 1998, for
Class D shares.
(4) Does not include any expenses incurred as a result of investment in the
Underlying Funds.
(5) Reflects overall Fund ratios for investment income and non-class specific
expenses.
55
<PAGE>
<TABLE>
<CAPTION>
DOMESTIC PORTFOLIO
---------------------
FOR THE
PERIOD
FOR THE NOVEMBER
YEAR 25, 1997*
ENDED THROUGH
SEPTEMBER SEPTEMBER
30, 1999 30, 1998
<S> <C> <C>
- ----------------------------------------------------------------------------------------
CLASS D SHARES++
- ----------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
- ----------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.74 $10.00
- ----------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.46 0.22
Net realized and unrealized gain (loss) 1.96 (0.43)
------ ------
Total income (loss) from investment operations 2.42 (0.21)
- ----------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.39) (0.05)
Net realized gain (0.21) --
------ ------
Total dividends and distributions (0.60) (0.05)
- ----------------------------------------------------------------------------------------
Net asset value, end of period $11.56 $ 9.74
- ----------------------------------------------------------------------------------------
TOTAL RETURN+ 25.28% (2.13)%(1)
- ----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:(3)(4)(5)
- ----------------------------------------------------------------------------------------
Expenses -- --
- ----------------------------------------------------------------------------------------
Net investment income (loss) 4.15% 2.43%(2)
- ----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------
Net assets, end of period, in thousands $ 15 $ 12
- ----------------------------------------------------------------------------------------
Portfolio turnover rate 295% 227%(1)
- ----------------------------------------------------------------------------------------
</TABLE>
* For the period November 25, 1997 (commencement of operations) through
September 30, 1998.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all of its expenses that were reimbursed or waived by
the Investment Manager, the annualized expense and net investment income
ratios would have been 0.67% and 3.48%, respectively, for the year ended
September 30, 1999 and 1.15% and 1.28%, respectively, for the period ended
September 30, 1998, for Class A shares; 1.44% and 2.71%, respectively, for
the year ended September 30, 1999 and 1.90% and 0.53%, respectively, for the
period ended September 30, 1998, for Class B shares; 0.98% and 3.17%,
respectively, for the year ended September 30, 1999 and 1.90% and 0.53%,
respectively, for the period ended September 30, 1998, for Class C shares;
and 0.44% and 3.71%, respectively, for the year ended September 30, 1999 and
0.90% and 1.53%, respectively, for the period ended September 30, 1998, for
Class D shares.
(4) Does not include any expenses incurred as a result of investment in the
Underlying Funds.
(5) Reflects overall Fund ratios for investment income and non-class specific
expenses.
56
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each
Portfolio's financial performance over the life of each Portfolio. Certain
information reflects financial results for a single Portfolio share. The total
returns in the table represent the rate an investor would have earned or lost on
an investment in a Portfolio (assuming reinvestment of all dividends and
distributions).
This information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the annual report, which is available upon request.
<TABLE>
<CAPTION>
INTERNATIONAL PORTFOLIO
-------------------------------
FOR THE PERIOD
NOVEMBER 25,
FOR THE YEAR 1997*
ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
CLASS A SHARES++
- ---------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.08 $ 10.00
- ---------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.10 0.05
Net realized and unrealized gain (loss) 3.56 (0.88)
-------------- --------------
Total income (loss) from investment operations 3.66 (0.83)
- ---------------------------------------------------------------------------------------------------
Less dividends from net investment income -- (0.09)
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.74 $ 9.08
- ---------------------------------------------------------------------------------------------------
Total Return+ 40.31% (8.36)%(1)
- ---------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:(3)(4)(5)
- ---------------------------------------------------------------------------------------------------
Expenses 0.24% 0.25%(2)
- ---------------------------------------------------------------------------------------------------
Net investment income (loss) 0.91% 1.01%(2)
- ---------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $1,074 $596
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate 154% 135%(1)
- ---------------------------------------------------------------------------------------------------
</TABLE>
* For the period November 25, 1997 (commencement of operations) through
September 30, 1998.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all of its expenses that were reimbursed or waived by
the Investment Manager, the annualized expense and net investment income
(loss) ratios would have been 1.34% and (0.19)%, respectively, for the year
ended September 30, 1999 and 6.16% and (4.90)%, respectively, for the period
ended September 30, 1998, for Class A shares; 2.10% and (0.95)%,
respectively, for the year ended September 30, 1999 and 6.91% and (5.65)%,
respectively, for the period ended September 30, 1998, for Class B shares;
1.87% and (0.72)%, respectively, for the year ended September 30, 1999 and
6.91% and (5.65)%, respectively, for the period ended September 30, 1998,
for Class C shares; and 1.10% and 0.05%, respectively, for the year ended
September 30, 1999 and 5.91% and (4.65)%, respectively, for the period ended
September 30, 1998, for Class D shares.
(4) Does not include any expenses incurred as a result of investment in the
Underlying Funds.
(5) Reflects overall Fund ratios for investment income and non-class specific
expenses.
57
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL PORTFOLIO
-------------------------------
FOR THE PERIOD
NOVEMBER 25,
FOR THE YEAR 1997*
ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
CLASS B SHARES++
- ---------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.03 $ 10.00
- ---------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.02 0.03
Net realized and unrealized gain (loss) 3.51 (0.91)
-------------- --------------
Total income (loss) from investment operations 3.53 (0.88)
- ---------------------------------------------------------------------------------------------------
Less dividends from net investment income -- (0.09)
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.56 $ 9.03
- ---------------------------------------------------------------------------------------------------
Total Return+ 39.09% (8.87)%(1)
- ---------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:(3)(4)(5)
- ---------------------------------------------------------------------------------------------------
Expenses 1.00% 0.94%(2)
- ---------------------------------------------------------------------------------------------------
Net investment income (loss) 0.15% 0.32%(2)
- ---------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------
Net assets, end of period, in millions $ 6,615 $ 3,241
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate 154% 135%(1)
- ---------------------------------------------------------------------------------------------------
</TABLE>
* For the period November 25, 1997 (commencement of operations) through
September 30, 1998.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all of its expenses that were reimbursed or waived by
the Investment Manager, the annualized expense and net investment income
(loss) ratios would have been 1.34% and (0.19)%, respectively, for the year
ended September 30, 1999 and 6.16% and (4.90)%, respectively, for the period
ended September 30, 1998, for Class A shares; 2.10% and (0.95)%,
respectively, for the year ended September 30, 1999 and 6.91% and (5.65)%,
respectively, for the period ended September 30, 1998, for Class B shares;
1.87% and (0.72)%, respectively, for the year ended September 30, 1999 and
6.91% and (5.65)%, respectively, for the period ended September 30, 1998,
for Class C shares; and 1.10% and 0.05%, respectively, for the year ended
September 30, 1999 and 5.91% and (4.65)%, respectively, for the period ended
September 30, 1998, for Class D shares.
(4) Does not include any expenses incurred as a result of investment in the
Underlying Funds.
(5) Reflects overall Fund ratios for investment income and non-class specific
expenses.
58
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL
PORTFOLIO
------------------
FOR THE
PERIOD
FOR THE NOVEMBER
YEAR 25, 1997*
ENDED THROUGH
SEPTEMBER SEPTEMBER
30, 1999 30, 1998
<S> <C> <C>
- --------------------------------------------------------------------------------------
CLASS C SHARES++
- --------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
- --------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.03 $10.00
- --------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.07 0.04
Net realized and unrealized gain (loss) 3.51 (0.92)
------ ------
Total income (loss) from investment operations 3.58 (0.88)
- --------------------------------------------------------------------------------------
Less dividends from net investment income -- (0.09)
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Net asset value, end of period $12.61 $ 9.03
- --------------------------------------------------------------------------------------
Total Return+ 39.65% (8.87)%(1)
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:(3)(4)(5)
- --------------------------------------------------------------------------------------
Expenses 0.77% 0.92%(2)
- --------------------------------------------------------------------------------------
Net investment income (loss) 0.38% 0.34%(2)
- --------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------
Net assets, end of period, in thousands $442 $105
- --------------------------------------------------------------------------------------
Portfolio turnover rate 154% 135%(1)
- --------------------------------------------------------------------------------------
</TABLE>
* For the period November 25, 1997 (commencement of operations) through
September 30, 1998.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all of its expenses that were reimbursed or waived by
the Investment Manager, the annualized expense and net investment income
(loss) ratios would have been 1.34% and (0.19)%, respectively, for the year
ended September 30, 1999 and 6.16% and (4.90)%, respectively, for the period
ended September 30, 1998, for Class A shares; 2.10% and (0.95)%,
respectively, for the year ended September 30, 1999 and 6.91% and (5.65)%,
respectively, for the period ended September 30, 1998, for Class B shares;
1.87% and (0.72)%, respectively, for the year ended September 30, 1999 and
6.91% and (5.65)%, respectively, for the period ended September 30, 1998,
for Class C shares; and 1.10% and 0.05%, respectively, for the year ended
September 30, 1999 and 5.91% and (4.65)%, respectively, for the period ended
September 30, 1998, for Class D shares.
(4) Does not include any expenses incurred as a result of investment in the
Underlying Funds.
(5) Reflects overall Fund ratios for investment income and non-class specific
expenses.
59
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL
PORTFOLIO
------------------
FOR THE
PERIOD
FOR THE NOVEMBER
YEAR 25, 1997*
ENDED THROUGH
SEPTEMBER SEPTEMBER
30, 1999 30, 1998
<S> <C> <C>
- --------------------------------------------------------------------------------------
CLASS D SHARES++
- --------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
- --------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.09 $10.00
- --------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.23 0.14
Net realized and unrealized gain (loss) 3.46 (0.96)
------ ------
Total income (loss) from investment operations 3.69 (0.82)
- --------------------------------------------------------------------------------------
Less dividends from net investment income -- (0.09)
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Net asset value, end of period $12.78 $ 9.09
- --------------------------------------------------------------------------------------
Total Return+ 40.59% (8.26)%(1)
- --------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:(3)(4)(5)
- --------------------------------------------------------------------------------------
Expenses -- --
- --------------------------------------------------------------------------------------
Net investment income (loss) 1.15% 1.26%(2)
- --------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------
Net assets, end of period, in thousands $ 564 $ 11
- --------------------------------------------------------------------------------------
Portfolio turnover rate 154% 135%(1)
- --------------------------------------------------------------------------------------
</TABLE>
* For the period November 25, 1997 (commencement of operations) through
September 30, 1998.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all of its expenses that were reimbursed or waived by
the Investment Manager, the annualized expense and net investment income
(loss) ratios would have been 1.34% and (0.19)%, respectively, for the year
ended September 30, 1999 and 6.16% and (4.90)%, respectively, for the period
ended September 30, 1998, for Class A shares; 2.10% and (0.95)%,
respectively, for the year ended September 30, 1999 and 6.91% and (5.65)%,
respectively, for the period ended September 30, 1998, for Class B shares;
1.87% and (0.72)%, respectively, for the year ended September 30, 1999 and
6.91% and (5.65)%, respectively, for the period ended September 30, 1998,
for Class C shares; and 1.10% and 0.05%, respectively, for the year ended
September 30, 1999 and 5.91% and (4.65)%, respectively, for the period ended
September 30, 1998, for Class D shares.
(4) Does not include any expenses incurred as a result of investment in the
Underlying Funds.
(5) Reflects overall Fund ratios for investment income and non-class specific
expenses.
60
<PAGE>
MORGAN STANLEY DEAN WITTER
FAMILY OF FUNDS
The Morgan Stanley Dean Witter Family of Funds offers investors a wide
range of investment choices. Come on in and meet the family!
- --------------------------------------------------------------------------------
GROWTH FUNDS
- ---------------------------------
GROWTH FUNDS
Aggressive Equity Fund
American Opportunities Fund
Capital Growth Securities
Developing Growth Securities
Growth Fund
Market Leader Trust
Mid-Cap Equity Trust
Next Generation Trust
Small Cap Growth Fund
Special Value Fund
THEME FUNDS
Financial Services Trust
Health Sciences Trust
Information Fund
Natural Resource Development Securities
Precious Metals and Minerals Trust
GLOBAL/INTERNATIONAL FUNDS
Competitive Edge Fund - "Best Ideas" Portfolio
European Growth Fund
Fund of Funds - International Portfolio
International Fund
International SmallCap Fund
Japan Fund
Latin American Growth Fund
Pacific Growth Fund
Strategic Fund
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUNDS
- ---------------------------------
Balanced Growth Fund
Balanced Income Fund
Convertible Securities Trust
Dividend Growth Securities
Equity Fund
Fund of Funds - Domestic Portfolio
Income Builder Fund
Mid-Cap Dividend Growth Securities
S&P 500 Index Fund
S&P 500 Select Fund
Strategist Fund
Total Market Index Fund
Total Return Trust
Value Fund
Value-Added Market Series/Equity Portfolio
THEME FUNDS
Global Utilities Fund
Real Estate Fund
Utilities Fund
GLOBAL FUNDS
Global Dividend Growth Securities
- --------------------------------------------------------------------------------
INCOME FUNDS
- ---------------------------------
GOVERNMENT INCOME FUNDS
Federal Securities Trust
Short-Term U.S. Treasury Trust
U.S. Government Securities Trust
DIVERSIFIED INCOME FUNDS
Diversified Income Trust
CORPORATE INCOME FUNDS
High Yield Securities
Intermediate Income Securities
Short-Term Bond Fund (NL)
GLOBAL INCOME FUNDS
North American Government Income Trust
World Wide Income Trust
TAX-FREE INCOME FUNDS
California Tax-Free Income Fund
Hawaii Municipal Trust (FSC)
Limited Term Municipal Trust (NL)
Multi-State Municipal Series Trust (FSC)
New York Tax-Free Income Fund
Tax-Exempt Securities Trust
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS
- ---------------------------------
TAXABLE MONEY MARKET FUNDS
Liquid Asset Fund (MM)
U.S. Government Money Market Trust (MM)
TAX-FREE MONEY MARKET FUNDS
California Tax-Free Daily Income Trust (MM)
N.Y. Municipal Money Market Trust (MM)
Tax-Free Daily Income Trust (MM)
There may be Funds created after this PROSPECTUS was published. Please consult
the inside back cover of a new Fund's prospectus for its designation, e.g.,
Multi-Class Fund or Money Market Fund.
Unless otherwise noted, each listed Morgan Stanley Dean Witter Fund, except for
North American Government Income Trust and Short-Term U.S. Treasury Trust, is a
Multi-Class Fund. A Multi-Class Fund is a mutual fund offering multiple Classes
of shares. The other types of funds are: NL - No-Load (Mutual) Fund; MM - Money
Market Fund; FSC - A mutual fund sold with a front-end sales charge and a
distribution (12b-1) fee.
<PAGE>
PROSPECTUS - NOVEMBER 29, 1999
Additional information about each Portfolio's investments is available in the
Fund's ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS. In the Fund's ANNUAL
REPORT, you will find a discussion of the market conditions and investment
strategies that significantly affected each Portfolio's performance during its
last fiscal year. The Fund's STATEMENT OF ADDITIONAL INFORMATION also provides
additional information about each Portfolio and the Fund. The STATEMENT OF
ADDITIONAL INFORMATION is incorporated herein by reference (legally is part of
this PROSPECTUS). For a free copy of any of these documents, to request other
information about the Fund, or to make shareholder inquiries, please call:
(800) 869-NEWS
You also may obtain information about the Fund by calling your Morgan Stanley
Dean Witter Financial Advisor or by visiting our Internet site at:
www.msdw.com/individual/funds
Information about the Fund (including the STATEMENT OF ADDITIONAL INFORMATION)
can be viewed and copied at the Securities and Exchange Commission's Public
Reference Room in Washington, DC. Information about the Reference Room's
operations may be obtained by calling the SEC at (202) 942-8090. Reports and
other information about the Fund are available on the EDGAR database on the
SEC's Internet site (www.sec.gov), and copies of this information may be
obtained, after paying a duplicating fee, by electronic request at the following
email address: [email protected] or by writing the Public Reference Section of
the SEC, Washington, DC 20549-0102.
(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-8283)
Morgan Stanley Dean Witter
FUND OF FUNDS
DOMESTIC PORTFOLIO AND
INTERNATIONAL PORTFOLIO
[BACK COVER PHOTO]
A MUTUAL FUND THAT CONSISTS OF
TWO SEPARATE PORTFOLIOS
THE DOMESTIC PORTFOLIO SEEKS TO
MAXIMIZE TOTAL INVESTMENT RETURN
THE INTERNATIONAL PORTFOLIO SEEKS
LONG-TERM CAPITAL APPRECIATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION MORGAN STANLEY DEAN WITTER
NOVEMBER 29, 1999 FUND OF FUNDS
- ----------------------------------------------------------------------
This STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. The PROSPECTUS
(dated November 29, 1999) for the Morgan Stanley Dean Witter Fund of Funds may
be obtained without charge from the Fund at its address or telephone number
listed below or from Dean Witter Reynolds at any of its branch offices. The Fund
consists of two separate portfolios: the Domestic Portfolio and the
International Portfolio.
Morgan Stanley Dean Witter
Fund of Funds
Two World Trade Center
New York, New York 10048
(800) 869-NEWS
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
I. Fund History........................................... 4
II. Description of the Fund and the Investments and Risks
of the Portfolios...................................... 4
A. Classification...................................... 4
B. Investment Strategies and Risks..................... 4
C. Fund Policies/Investment Restrictions............... 13
III. Management of the Fund................................. 15
A. Board of Trustees................................... 15
B. Management Information.............................. 15
C. Compensation........................................ 19
IV. Control Persons and Principal Holders of Securities.... 21
V. Investment Management and Other Services............... 22
A. Investment Manager.................................. 22
B. Principal Underwriter............................... 22
C. Services Provided by the Investment Manager......... 23
D. Dealer Reallowances................................. 24
E. Rule 12b-1 Plan..................................... 24
F. Other Service Providers............................. 29
VI. Brokerage Allocation and Other Practices............... 29
A. Brokerage Transactions.............................. 29
B. Commissions......................................... 30
C. Brokerage Selection................................. 30
D. Directed Brokerage.................................. 30
E. Regular Broker-Dealers.............................. 30
VII. Capital Stock and Other Securities..................... 31
VIII. Purchase, Redemption and Pricing of Shares............. 31
A. Purchase/Redemption of Shares....................... 31
B. Offering Price...................................... 32
IX. Taxation of the Fund and Shareholders.................. 32
X. Underwriters........................................... 34
XI. Calculation of Performance Data........................ 34
XII. Financial Statements................................... 36
2
<PAGE>
GLOSSARY OF SELECTED DEFINED TERMS
- --------------------------------------------------------------------------------
The terms defined in this glossary are frequently used in this STATEMENT OF
ADDITIONAL INFORMATION (other terms used occasionally are defined in the text of
the document).
"CUSTODIAN"--The Bank of New York.
"DEAN WITTER REYNOLDS"--Dean Witter Reynolds Inc., a wholly-owned broker-dealer
subsidiary of MSDW.
"DISTRIBUTOR"--Morgan Stanley Dean Witter Distributors Inc., a wholly-owned
broker-dealer subsidiary of MSDW.
"FINANCIAL ADVISORS"--Morgan Stanley Dean Witter authorized financial services
representatives.
"FUND"--Morgan Stanley Dean Witter Fund of Funds, a registered open-end
investment company.
"INVESTMENT MANAGER"--Morgan Stanley Dean Witter Advisors Inc., a wholly-owned
investment advisor subsidiary of MSDW.
"INDEPENDENT TRUSTEES"--Trustees who are not "interested persons" (as defined by
the Investment Company Act) of the Fund.
"MORGAN STANLEY & CO."--Morgan Stanley & Co. Incorporated, a wholly-owned
broker-dealer subsidiary of MSDW.
"MORGAN STANLEY DEAN WITTER FUNDS"--Registered investment companies (i) for
which the Investment Manager serves as the investment advisor and (ii) that hold
themselves out to investors as related companies for investment and investor
services.
"MSDW"--Morgan Stanley Dean Witter & Co., a preeminent global financial services
firm.
"MSDW SERVICES COMPANY"--Morgan Stanley Dean Witter Services Company Inc., a
wholly-owned fund services subsidiary of the Investment Manager.
"PORTFOLIO"--Each of two separate investment portfolios of the Fund: the
Domestic Portfolio and the International Portfolio.
"TRANSFER AGENT"--Morgan Stanley Dean Witter Trust FSB, a wholly-owned transfer
agent subsidiary of MSDW.
"TRUSTEES"--The Board of Trustees of the Fund.
"UNDERLYING FUNDS"--Morgan Stanley Dean Witter Funds.
3
<PAGE>
I. FUND HISTORY
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust under the laws of
the Commonwealth of Massachusetts on July 3, 1997 under the name Dean Witter
Fund of Funds. Effective June 22, 1998, the Fund's name was changed to Morgan
Stanley Dean Witter Fund of Funds.
II. DESCRIPTION OF THE FUND AND THE INVESTMENTS AND RISKS OF THE PORTFOLIOS
- --------------------------------------------------------------------------------
A. CLASSIFICATION
The Fund is an open-end, non-diversified management investment company. The
Fund consists of two separate portfolios: the Domestic Portfolio and the
International Portfolio. The Domestic Portfolio seeks to maximize total
investment return; the International Portfolio seeks long-term capital
appreciation.
B. INVESTMENT STRATEGIES AND RISKS
The following discussion supplements discussion of the Portfolios' and/or
Underlying Funds' investment strategies and risks in the PROSPECTUS and should
be read with the sections of the Fund's PROSPECTUS titled "Principal Investment
Strategies," "Principal Risks," "Additional Investment Strategy Information" and
"Additional Risk Information." Unless otherwise indicated, references to "fund"
in the following discussion refer to an Underlying Fund. For a complete
description of an Underlying Fund, please see its prospectus and Statement of
Additional Information, which are available free of charge by calling (877)
937-MSDW (toll-free).
MONEY MARKET SECURITIES. Each Portfolio may invest in various money market
securities for cash management purposes or when assuming a temporary defensive
position, which among others may include commercial paper, bank acceptances,
bank obligations, corporate debt securities certificates of deposit, U.S.
Government securities, obligations of savings institutions and repurchase
agreements. Such securities are limited to:
U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as the
Federal Home Loan Bank), including Treasury bills, notes and bonds;
BANK OBLIGATIONS. Obligations (including certificates of deposit, time
deposits and bankers' acceptances) of banks subject to regulation by the U.S.
Government and having total assets of $1 billion or more, and instruments
secured by such obligations, not including obligations of foreign branches of
domestic banks except to the extent below;
EURODOLLAR CERTIFICATES OF DEPOSIT. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of $1 billion
or more;
OBLIGATIONS OF SAVINGS INSTITUTIONS. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion or
more;
FULLY INSURED CERTIFICATES OF DEPOSIT. Certificates of deposit of banks and
savings institutions, having total assets of less than $1 billion, if the
principal amount of the obligation is federally insured by the Bank Insurance
Fund or the Savings Association Insurance Fund (each of which is administered by
the FDIC), limited to $100,000 principal amount per certificate and to 10% or
less of each Portfolio's total assets in all such obligations and in all
illiquid assets, in the aggregate;
COMMERCIAL PAPER. Commercial paper rated within the two highest grades by
Standard & Poor's Corporation ("S&P") or the two highest grades by Moody's
Investors Service, Inc. ("Moody's") or, if not rated, issued by a company having
an outstanding debt issue rated at least AA by S&P or Aa by Moody's; and
4
<PAGE>
REPURCHASE AGREEMENTS. Each Portfolio may invest in repurchase agreements.
When cash may be available for only a few days, it may be invested by the
Portfolio in repurchase agreements until such time as it may otherwise be
invested or used for payments of obligations of the Portfolio. These agreements,
which may be viewed as a type of secured lending by the Portfolio, typically
involve the acquisition by the Portfolio of debt securities from a selling
financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Portfolio will sell back to the
institution, and that the institution will repurchase, the underlying security
serving as 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 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 Portfolio will accrue interest from the institution until
the time when the repurchase is to occur. Although this date is deemed by the
Portfolio to be the maturity date of a repurchase agreement, the maturities of
securities subject to repurchase agreements are not subject to any limits.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, each Portfolio 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 Trustees. 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 Portfolio will seek to liquidate such
collateral. However, the exercising of the Portfolio'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 Portfolio could suffer a loss.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Certain funds may enter into
forward foreign currency exchange contracts ("FORWARD CONTRACTS") as a hedge
against fluctuations in future foreign exchange rates. A fund may conduct its
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward contracts to purchase or sell foreign currencies. A forward
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are traded in the interbank market conducted directly between currency
traders (usually large, commercial and investment banks) and their customers.
Forward contracts only will be entered into with United States banks and their
foreign branches or foreign banks, insurance companies and other dealers whose
assets total $1 billion or more. A forward contract generally has no deposit
requirement, and no commissions are charged at any stage for trades.
A fund may enter into forward contracts under various circumstances. The
typical use of a forward contract is to "lock in" the price of a security in
U.S. dollars or some other foreign currency which the fund is holding in its
portfolio. By entering into a forward contract for the purchase or sale, for a
fixed amount of dollars or other currency, of the amount of foreign currency
involved in the underlying security transactions, the fund may be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar or other currency which is being used for
the security purchase and the foreign currency in which the security is
denominated during the period between the date on which the security is
purchased or sold and the date on which payment is made or received.
The Investment Manager also may from time to time utilize forward contracts
for other purposes. For example, they may be used to hedge a foreign security
held in the portfolio or a security which pays out principal tied to an exchange
rate between the U.S. dollar and a foreign currency, against a decline in value
of the applicable foreign currency. They also may be used to lock in the current
exchange rate of
5
<PAGE>
the currency in which those securities anticipated to be purchased are
denominated. At times, the fund may enter into "cross-currency" hedging
transactions involving currencies other than those in which securities are held
or proposed to be purchased are denominated.
A fund will not enter into forward currency contracts or maintain a net
exposure to these contracts where the consummation of the contracts would
obligate the fund to deliver an amount of currency in excess of the value of the
fund's portfolio securities.
Although a fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will, however, do so from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the spread
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the fund at one rate,
while offering a lesser rate of exchange should the fund desire to resell that
currency to the dealer.
A fund may be limited in its ability to enter into hedging transactions
involving forward contracts by the Internal Revenue Code requirements relating
to qualification as a regulated investment company.
Forward currency contracts may limit gains on portfolio securities that
could otherwise be realized had they not been utilized and could result in
losses. The contracts also may increase the fund's volatility and may involve a
significant amount of risk relative to the investment of cash.
OPTION AND FUTURES TRANSACTIONS. Certain funds may engage in transactions
in listed and OTC options on eligible portfolio securities and stock indexes.
Listed options are issued or guaranteed by the exchange on which they are traded
or by a clearing corporation such as the Options Clearing Corporation ("OCC").
Ownership of a listed call option gives a fund the right to buy from the OCC (in
the U.S.) or other clearing corporation or exchange, the underlying security or
currency covered by the option at the stated exercise price (the price per unit
of the underlying security) by filing an exercise notice prior to the expiration
date of the option. The writer (seller) of the option would then have the
obligation to sell to the OCC (in the U.S.) or other clearing corporation or
exchange, the underlying security or currency at that exercise price prior to
the expiration date of the option, regardless of its then current market price.
Ownership of a listed put option would give a fund the right to sell the
underlying security or currency to the OCC (in the U.S.) or other clearing
corporation or exchange, at the stated exercise price. Upon notice of exercise
of the put option, the writer of the put would have the obligation to purchase
the underlying security or currency from the OCC (in the U.S.) or other clearing
corporation or exchange, at the exercise price.
COVERED CALL WRITING. Certain funds are permitted to write covered call
options on portfolio securities and/or on the U.S. dollar or foreign currencies,
without limit.
A fund will receive from the purchaser, in return for a call it has written,
a "premium;" i.e., the price of the option. Receipt of these premiums may better
enable the fund to earn a higher level of current income than it would earn from
holding the underlying securities (or currencies) alone. Moreover, the premium
received will offset a portion of the potential loss incurred by the fund if the
securities underlying the option decline in value.
A fund may be required, at any time during the option period, to deliver the
underlying security (or currency) against payment of the exercise price on any
calls it has written. This obligation is terminated upon the expiration of the
option period or at such earlier time when the writer effects a closing purchase
transaction. A closing purchase transaction is accomplished by purchasing an
option of the same series as the option previously written. However, once a fund
has been assigned an exercise notice, the fund will be unable to effect a
closing purchase transaction.
A call option is "covered" if the fund owns the underlying security subject
to the option or has an absolute and immediate right to acquire that security
without additional cash consideration (or for additional consideration (in cash,
Treasury bills or other liquid portfolio securities) held in a segregated
account on the fund's books) upon conversion or exchange of other securities
held in its portfolio. A call
6
<PAGE>
option is also covered if the fund holds a call on the same security as the call
written where the exercise price of the call held is (i) equal to or less than
the exercise price of the call written or (ii) greater than the exercise price
of the call written if the difference is maintained by the fund in cash,
Treasury bills or other liquid portfolio securities in a segregated account on
the fund's books.
Options written by a fund normally have expiration dates of from up to
eighteen months from the date written. The exercise price of a call option may
be below, equal to or above the current market value of the underlying security
(or currency) at the time the option is written.
COVERED PUT WRITING. A writer of a covered put option incurs an obligation
to buy the security underlying the option from the purchaser of the put, at the
option's exercise price at any time during the option period, at the purchaser's
election. Through the writing of a put option, a fund would receive income from
the premium paid by purchasers. The potential gain on a covered put option is
limited to the premium received on the option (less the commissions paid on the
transaction). During the option period, the fund may be required, at any time,
to make payment of the exercise price against delivery of the underlying
security. A put option is "covered" if the fund maintains cash, Treasury bills
or other liquid portfolio securities with a value equal to the exercise price in
a segregated account on the fund's books, or holds a put on the same security as
the put written where the exercise price of the put held is equal to or greater
than the exercise price of the put written. The operation of and limitations on
covered put options in other respects are substantially identical to those of
call options.
PURCHASING CALL AND PUT OPTIONS. Certain funds may purchase listed and OTC
call and put options. The purchase of a call option would enable the fund, in
return for the premium paid to lock in a purchase price for a security or
currency during the term of the option. The purchase of a put option would
enable the fund, in return for a premium paid, to lock in a price at which it
may sell a security or currency during the term of the option.
OPTIONS ON FOREIGN CURRENCIES. Certain funds may purchase and write options
on foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts.
OTC OPTIONS. OTC options are purchased from or sold (written) to dealers or
financial institutions which have entered into direct agreements with a fund.
With OTC options, such variables as expiration date, exercise price and premium
will be agreed upon between the fund and the transacting dealer, without the
intermediation of a third party such as the OCC. The fund will engage in OTC
option transactions only with member banks of the Federal Reserve Bank System or
primary dealers in U.S. Government securities or with affiliates of such banks
or dealers.
RISKS OF OPTIONS TRANSACTIONS. The successful use of options depends on the
ability to forecast correctly interest rates and/or market movements. If the
market value of the portfolio securities (or currencies) upon which call options
have been written increases, the fund may receive a lower total return from the
portion of its portfolio upon which calls have been written than it would have
had such calls not been written. During the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of the
underlying security (or currency) increase, but has retained the risk of loss
should the price of the underlying security (or currency) decline. The covered
put writer also retains the risk of loss should the market value of the
underlying security (or currency) decline below the exercise price of the option
less the premium received on the sale of the option. In both cases, the writer
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Prior to exercise or expiration, an option position
can only be terminated by entering into a closing purchase or sale transaction.
Once an option writer has received an exercise notice, it cannot effect a
closing purchase transaction in order to terminate its obligation under the
option and must deliver or receive the underlying securities (or currencies) at
the exercise price.
A fund's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on option exchanges.
There is no assurance that such a market will exist, particularly in the case of
OTC options.
7
<PAGE>
In the event of the bankruptcy of a broker through which the fund engages in
transactions in options, the fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker. In the case of OTC
options, if the transacting dealer fails to make or take delivery of the
securities (or currencies) underlying an option it has written, in accordance
with the terms of that option, due to insolvency or otherwise, the fund would
lose the premium paid for the option as well as any anticipated benefit of the
transaction.
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security which may be
written by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different
exchanges or are held or written on one or more accounts or through one or more
brokers). An exchange may order the liquidation of positions found to be in
violation of these limits and it may impose other sanctions or restrictions.
These position limits may restrict the number of listed options which a fund may
write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
The markets in foreign currency options are relatively new and a fund's
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. There can be no assurance that a
liquid secondary market will exist for a particular option at any specific time.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
STOCK INDEX OPTIONS. Certain funds may invest in options on broadly based
indexes. Options on stock indexes are similar to options on stock except that,
rather than the right to take or make delivery of stock at a specified price, an
option on a stock index gives the holder the right to receive, upon exercise of
the option, an amount of cash if the closing level of the stock index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. This amount of cash is equal to
such difference between the closing price of the index and the exercise price of
the option expressed in dollars times a specified multiple. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount.
RISKS OF OPTIONS ON INDEXES. Because exercises of stock index options are
settled in cash, a fund could not, if it wrote a call option, provide in advance
for its potential settlement obligations by acquiring and holding the underlying
securities. A call writer can offset some of the risk of its writing position by
holding a diversified portfolio of stocks similar to those on which the
underlying index is based. However, most investors cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same stocks as the
underlying index, and, as a result, bear a risk that the value of the securities
held will vary
8
<PAGE>
from the value of the index. Even if an index call writer could assemble a stock
portfolio that exactly reproduced the composition of the underlying index, the
writer still would not be fully covered from a risk standpoint because of the
"timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. As with
other kinds of options, the writer will not learn that it had been assigned
until the next business day, at the earliest. The time lag between exercise and
notice of assignment poses no risk for the writer of a covered call on a
specific underlying security, such as a common stock, because there the writer's
obligation is to deliver the underlying security, not to pay its value as of a
fixed time in the past. So long as the writer already owns the underlying
security, it can satisfy its settlement obligations by simply delivering it, and
the risk that its value may have declined since the exercise date is borne by
the exercising holder. In contrast, even if the writer of an index call holds
stocks that exactly match the composition of the underlying index, it will not
be able to satisfy its assignment obligations by delivering those stocks against
payment of the exercise price. Instead, it will be required to pay cash in an
amount based on the closing index value on the exercise date; and by the time it
learns that it has been assigned, the index may have declined, with a
corresponding decrease in the value of its stock portfolio. This "timing risk"
is an inherent limitation on the ability of index call writers to cover their
risk exposure by holding stock positions.
A holder of an index option who exercises it before the closing index value
for that day is available runs the risk that the level of the underlying index
may subsequently change. If a change causes the exercised option to fall
out-of-the-money, the exercising holder will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
If dissemination of the current level of an underlying index is interrupted,
or if trading is interrupted in stocks accounting for a substantial portion of
the value of an index, the trading of options on that index will ordinarily be
halted. If the trading of options on an underlying index is halted, an exchange
may impose restrictions prohibiting the exercise of such options.
FUTURES CONTRACTS. Certain funds may purchase and sell futures contracts
that are traded on U.S. and foreign commodity exchanges on such underlying
securities as U.S. Treasury bonds, notes, bills and GNMA Certificates and/or any
foreign government fixed-income security, or on the U.S. dollar or foreign
currencies, and/or on such indexes of U.S. and foreign securities as may exist
or come into existence.
A futures contract purchaser 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. A seller of a futures contract incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price. The purchase of a futures
contract enables a fund, during the term of the contract, to lock in a price at
which it may purchase a security and protect against a rise in prices pending
purchase of portfolio securities. The sale of a futures contract enables a fund
to lock in a price at which it may sell a security and protect against declines
in the value of portfolio securities.
Although most futures contracts call for actual delivery or acceptance of
securities, the contracts usually are closed out before the settlement date
without the making or taking of delivery. Index futures contracts provide for
the delivery of an amount of cash equal to a specified dollar amount times the
difference between the 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 security (currency) and the same delivery date.
If the sale price exceeds the offsetting purchase price, the seller would be
paid the difference and would realize a gain. If the offsetting purchase price
exceeds the sale price, the seller would pay the difference and would realize a
loss. Similarly, a futures contract purchase is closed out by effecting a
futures contract sale for the same aggregate amount of the specific type of
security (currency) and the same
9
<PAGE>
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.
MARGIN. If a fund enters into a futures contract, it is initially required
to deposit an "initial margin" of cash or U.S. Government securities or other
liquid portfolio securities ranging from approximately 3% to 10% of the contract
amount. Initial margin requirements are established by the exchanges on which
futures contracts trade and may, from time to time, change. In addition, brokers
may establish margin deposit requirements in excess of those required by the
exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve borrowing by a
broker's client but is, rather, a good faith deposit on the futures contract
which will be returned to the fund upon the proper termination of the futures
contract. The margin deposits made are marked to market daily and the fund may
be required to make subsequent deposits of cash or U.S. Government securities,
called "variation margin," which are reflective of price fluctuations in the
futures contract.
OPTIONS ON FUTURES CONTRACTS. Certain funds may purchase and write call and
put options on futures contracts and enter into closing transactions with
respect to such options to terminate an existing position. An option on a
futures contract gives the purchaser the right (in return for the premium paid),
and the writer the obligation, to assume a position in a futures contract (a
long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the term of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option is accompanied by delivery of the
accumulated balance in the writer's futures margin account, which represents the
amount by which the market price of the futures contract at the time of exercise
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract.
The writer of an option on a futures contract is required to deposit initial
and variation margin pursuant to requirements similar to those applicable to
futures contracts. Premiums received from the writing of an option on a futures
contract are included in initial margin deposits.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. A fund may not
enter into futures contracts or purchase related options thereon if, immediately
thereafter, the amount committed to margin plus the amount paid for premiums for
unexpired options on futures contracts exceeds 5% of the value of the fund's
total assets, after taking into account unrealized gains and unrealized losses
on such contracts it has entered into, provided, however, that in the case of an
option that is in-the-money (the exercise price of the call (put) option is less
(more) than the market price of the underlying security) at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%.
However, there is no overall limitation on the percentage of the fund's net
assets which may be subject to a hedge position.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. The prices
of securities and indexes subject to futures contracts (and thereby the futures
contract prices) may correlate imperfectly with the behavior of the cash prices
of a fund's portfolio securities. Also, prices of futures contracts may not move
in tandem with the changes in prevailing interest rates and/or market movements
against which a fund seeks a hedge. A correlation may also be distorted (a)
temporarily, by short-term traders' seeking to profit from the difference
between a contract or security price objective and their cost of borrowed funds;
(b) by investors in futures contracts electing to close out their contracts
through offsetting transactions rather than meet margin deposit requirements;
(c) by investors in futures contracts opting to make or take delivery of
underlying securities rather than engage in closing transactions, thereby
reducing liquidity of the futures market; and (d) temporarily, by speculators
who view the deposit requirements in the futures markets as less onerous than
margin requirements in the cash market. Due to the possibility of price
distortion in the futures market and because of the possible imperfect
correlation between movements in the prices of securities and movements in the
prices of futures contracts, a correct forecast of interest rate, currency
exchange rate and/or market movement trends may still not result in a successful
hedging transaction.
10
<PAGE>
There is no assurance that a liquid secondary market will exist for futures
contracts and related options in which a 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. 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.
Exchanges also 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, a fund would
continue to be required to make daily cash payments of variation margin on open
futures positions. In these 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, a
fund may be required to take or make delivery of the instruments underlying
interest rate futures contracts it holds at a time when it is disadvantageous to
do so. The inability to close out options and futures positions could also have
an adverse impact on the fund's ability to effectively hedge its portfolio.
Futures contracts and options thereon which are purchased or sold on foreign
commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges. Brokerage commissions,
clearing costs and other transaction costs may be higher on foreign exchanges.
Greater margin requirements may limit a fund's ability to enter into certain
commodity transactions on foreign exchanges. Moreover, differences in clearance
and delivery requirements on foreign exchanges may occasion delays in the
settlement of the fund's transactions effected on foreign exchanges.
In the event of the bankruptcy of a broker through which a fund engages in
transactions in futures or options thereon, the fund could experience delays
and/or losses in liquidating open positions purchased or sold through the broker
and/or incur a loss of all or part of its margin deposits with the broker.
If the Fund maintains a short position in a futures contract or has sold a
call option in a futures contract, it will cover this position by holding, in a
segregated account maintained on the books of the Fund, 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 stock index futures contract a portfolio of
securities substantially replicating the relevant index), or by holding a call
option permitting the Fund to purchase the same contract at a price no higher
than the price at which the short position was established.
In addition, if the Fund holds a long position in a futures contract or has
sold a put option on a futures contract, it will hold cash, U.S. government
securities or other 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 on the books
of the Fund. 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.
ZERO COUPON SECURITIES. A portion of the fixed-income securities purchased
by a fund may be "zero coupon" securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive their
full value at maturity. A zero coupon security pays no interest to its holder
during its life. Its value to an investor consists of the difference between its
face value at the time of maturity and the price for which it was acquired,
which is generally an amount significantly less than its face value (sometimes
referred to as a "deep discount" price).
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 if
prevailing interest rates
11
<PAGE>
rise. For this reason, zero coupon securities are subject to substantially
greater market price fluctuations during periods of changing prevailing interest
rates than are comparable debt securities which make current distributions of
interest. Current federal tax law requires that a holder (such as a 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 PORTFOLIO SECURITIES. A fund may lend its portfolio securities to
brokers, dealers and other financial institutions, provided that the loans are
callable at any time by the fund, 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 100% of the market value, determined
daily, of the loaned securities. The advantage of these 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.
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 a fund's management to be creditworthy and when
the income which can be earned from such loans justifies the attendant risks.
Upon termination of the loan, the borrower is required to return the securities
to the fund. Any gain or loss in the market price during the loan period would
inure to the fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, a fund will follow the policy of calling the loaned securities, to be
delivered within one day after notice, to permit the exercise of the rights if
the matters involved would have a material effect on the fund's investment in
the loaned securities. The fund will pay reasonable finder's, administrative and
custodial fees in connection with a loan of its securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. Certain
funds may purchase securities on a when-issued or delayed delivery basis or may
purchase or sell securities on a forward commitment basis. When these
transactions are negotiated, the price is fixed at the time of the commitment,
but delivery and payment can take place a month or more after the date of
commitment. While the fund will only purchase securities on a when-issued,
delayed delivery or forward commitment basis with the intention of acquiring the
securities, the fund may sell the securities before the settlement date, if it
is deemed advisable. The securities so purchased or sold are subject to market
fluctuation and no interest or dividends accrue to the purchaser prior to the
settlement date.
At the time a fund makes the commitment to purchase or sell securities on a
when-issued, delayed delivery or forward commitment basis, it will record the
transaction and thereafter reflect the value, each day, of such security
purchased, or if a sale, the proceeds to be received, in determining its net
asset value. At the time of delivery of the securities, their value may be more
or less than the purchase or sale price. An increase in the percentage of the
fund's assets committed to the purchase of securities on a when-issued, delayed
delivery or forward commitment basis may increase the volatility of its net
asset value. The fund will also establish a segregated account on the fund's
books in which it will continually maintain cash or cash equivalents or other
liquid portfolio securities equal in value to commitments to purchase securities
on a when-issued, delayed delivery or forward commitment basis.
WHEN, AS AND IF ISSUED SECURITIES. Certain funds may purchase securities on
a "when, as and if issued" basis under which the issuance of the security
depends upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization or debt restructuring. The commitment for the purchase
of any such security will not be recognized in the portfolio of the fund until
the Investment Manager and/or Sub-Advisor determines that issuance of the
security is probable. At that time, the fund will record the transaction and, in
determining its net asset value, will reflect the value of the security daily.
At that time, the fund will also establish a segregated account on the fund's
books in which it will maintain cash or cash equivalents or other liquid
portfolio securities equal in value to recognized commitments for such
securities.
The value of a fund's commitments to purchase the securities of any one
issuer, together with the value of all securities of such issuer owned by the
fund, may not exceed 5% of the value of the fund's total
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<PAGE>
assets at the time the initial commitment to purchase such securities is made.
An increase in the percentage of the fund's assets committed to the purchase of
securities on a "when, as and if issued" basis may increase the volatility of
its net asset value. A fund may also sell securities on a "when, as and if
issued" basis provided that the issuance of the security will result
automatically from the exchange or conversion of a security owned by the fund at
the time of sale.
PRIVATE PLACEMENTS. Certain funds may invest in securities which are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933 (the "SECURITIES ACT"), or which are otherwise not
readily marketable. (Securities eligible for resale pursuant to Rule 144A under
the Securities Act, and determined to be liquid pursuant to the procedures
discussed in the following paragraph, are not subject to the foregoing
restriction.) These securities are generally referred to as private placements
or restricted securities. Limitations on the resale of these securities may have
an adverse effect on their marketability, and may prevent a fund from disposing
of them promptly at reasonable prices. The fund may have to bear the expense of
registering the securities for resale and the risk of substantial delays in
effecting the registration.
Rule 144A permits a fund to sell restricted securities to qualified
institutional buyers without limitation. The Investment Manager and/or
Sub-Advisor, pursuant to procedures adopted by the Trustees, will make a
determination as to the liquidity of each restricted security purchased by the
fund. If a restricted security is determined to be "liquid," the security will
not be included within the category "illiquid securities," which may not exceed
15% of a fund's net assets. However, investing in Rule 144A securities could
have the effect of increasing the level of fund illiquidity to the extent the
fund, at a particular point in time, may be unable to find qualified
institutional buyers interested in purchasing such securities.
WARRANTS AND SUBSCRIPTION RIGHTS. Certain funds may acquire warrants and
subscription rights. A warrant is, in effect, an option to purchase equity
securities at a specific price, generally valid for a specific period of time,
and has no voting rights, pays no dividends and has no rights with respect to
the corporation issuing it.
A subscription right is a privilege granted to existing shareholders of a
corporation to subscribe to shares of a new issue of common stock before it is
offered to the public. A subscription right normally has a life of two to four
weeks and a subscription price lower than the current market value of the common
stock.
YEAR 2000. The investment management services provided to each Portfolio
and Underlying Fund by the Investment Manager and/or Sub-Advisor and the
services provided to shareholders by the Distributor and the Transfer Agent
depend on the smooth functioning of their computer systems. Many computer
software systems in use today cannot recognize the year 2000, but revert to 1900
or some other date, due to the manner in which dates were encoded and
calculated. That failure could have a negative impact on the handling of
securities trades, pricing and account services. The Investment Manager and/or
Sub-Advisor, the Distributor and the Transfer Agent have been actively working
on necessary changes to their own computer systems to prepare for the year 2000
and expect that their systems will be adapted before that date, but there can be
no assurance that they will be successful, or that interaction with other
non-complying computer systems will not impair their services at that time.
In addition, it is possible that the markets for securities in which a
Portfolio or Underlying 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. 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, each Portfolio's investments may be
adversely affected.
C. FUND POLICIES/INVESTMENT RESTRICTIONS
The investment objective, policies and restrictions listed below have been
adopted by the Fund as fundamental policies. Under the Investment Company Act of
1940 (the "INVESTMENT COMPANY ACT"), a fundamental policy may not be changed
without the vote of a majority of the outstanding voting
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<PAGE>
securities of the Fund. The Investment Company Act defines a majority 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.
Each Portfolio MAY NOT:
1. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry except that each Portfolio will concentrate its
investments in the mutual fund industry. This restriction does not apply to a
Portfolio's investments in the mutual fund industry by virtue of its investments
in the Underlying Funds. This restriction also does not apply to obligations
issued or guaranteed by the United States Government, its agencies or
instrumentalities.
2. Borrow money except from a bank for temporary or emergency purposes,
including the meeting of redemption requests in an amount not exceeding 33 1/3%
of the value of each Portfolio's total assets (including the amount borrowed)
valued at market less liabilities (not including the amount borrowed) at the
time the borrowing is made.
3. Purchase or sell real estate or interests therein, although each
Portfolio may purchase Underlying Funds which purchase securities of issuers
which engage in real estate operations and securities secured by real estate or
interests therein.
4. Issue senior securities as defined in the Investment Company Act, except
as a result of permitted borrowings and except insofar as each Portfolio may be
deemed to have issued a senior security by reason of entering into repurchase
agreements.
5. Make short sales of securities.
6. Engage in the underwriting of securities, except insofar as a Portfolio
or an Underlying Fund may be deemed an underwriter under the Securities Act in
disposing of a portfolio security.
7. Invest for the purpose of exercising control or management of any other
issuer.
8. Purchase or sell commodities or commodities contracts except that each
Portfolio may invest in Underlying Funds which may purchase or write interest
rate, currency and stock and bond index futures contracts and related options
thereon.
9. Pledge its assets or assign or otherwise encumber them except to secure
permitted borrowings. (For the purpose of this restriction, collateral
arrangements with respect to the writing of options by the Underlying Funds and
collateral arrangements with respect to initial or variation margin for futures
by the Underlying Funds are not deemed to be pledges of assets.)
10. Purchase securities on margin (but a Portfolio may obtain short-term
loans as are necessary for the clearance of transactions). The deposit or
payment by an Underlying Fund of initial or variation margin in connection with
futures contracts or related options thereon is not considered the purchase of a
security on margin.
11. Make loans of money or securities, except by investment in repurchase
agreements. (For the purpose of this restriction, lending of Portfolio
securities by the Underlying Funds are not deemed to be loans).
Notwithstanding any other investment policy or restriction, each Portfolio
may seek to achieve its investment objectives by investing all or substantially
all of its assets in another investment company having substantially the same
investment objectives and policies as the respective Portfolio.
Notwithstanding the foregoing investment restrictions, the Underlying Funds
in which the Portfolios may invest have adopted certain investment restrictions
which may be more or less restrictive than those
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<PAGE>
listed above, which may permit a Portfolio to engage in investment strategies
indirectly that are prohibited under the investment restrictions listed above.
The investment restrictions of an Underlying Fund are located in the STATEMENT
OF ADDITIONAL INFORMATION of that Underlying Fund.
III. MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
A. BOARD OF TRUSTEES
The Board of Trustees of the Fund oversees the management of the Fund but
does not itself manage the Fund. The Trustees review various services provided
by or under the direction of the Investment Manager to ensure that the Fund's
general investment policies and programs are properly carried out. The Trustees
also conduct their review to ensure that administrative services are provided to
the Fund in a satisfactory manner.
Under state law, the duties of the Trustees are generally characterized as a
duty of loyalty and a duty of care. The duty of loyalty requires a Trustee to
exercise his or her powers in the interest of the Fund and not the Trustee's own
interest or the interest of another person or organization. A Trustee satisfies
his or her duty of care by acting in good faith with the care of an ordinarily
prudent person and in a manner the Trustee reasonably believes to be in the best
interest of the Fund and its shareholders.
B. MANAGEMENT INFORMATION
TRUSTEES AND OFFICERS. The Board of the Fund consists of eight (8)
Trustees. These same individuals also serve as directors or trustees for all of
the Morgan Stanley Dean Witter Funds. Six Trustees (75% of the total number)
have no affiliation or business connection with the Investment Manager or any of
its affiliated persons and do not own any stock or other securities issued by
the Investment Manager's parent company, MSDW. These are the "non-interested" or
"independent" Trustees. The other two Trustees (the "MANAGEMENT TRUSTEES") are
affiliated with the Investment Manager.
The Trustees and executive officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with the
Investment Manager, and with the 92 Morgan Stanley Dean Witter Funds, are shown
below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Michael Bozic (58) ................................... Vice Chairman of Kmart Corporation (since December 1998);
Trustee Director or Trustee of the Morgan Stanley Dean Witter
c/o Kmart Corporation Funds; formerly Chairman and Chief Executive Officer of
3100 West Big Beaver Road Levitz Furniture Corporation (November 1995-November 1998)
Troy, Michigan and President and Chief Executive Officer of 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.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Charles A. Fiumefreddo* (66) .............. Chairman, Director or Trustee and Chief
Chairman of the Board, Executive Officer of the Morgan Stanley Dean
Chief Executive Officer and Trustee Witter Funds; formerly Chairman, Chief
Two World Trade Center Executive Officer and Director of the
New York, New York Investment Manager, the Distributor and MSDW
Services Company; Executive Vice President and
Director of Dean Witter Reynolds; Chairman and
Director of the Transfer Agent; formerly
Director and/or officer of various MSDW
subsidiaries (until June 1998).
Edwin J. Garn (67) ........................ 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 (1971-1974); formerly
Astronaut, Space Shuttle Discovery
(April 12-19, 1985); Vice Chairman, Huntsman
Corporation (chemical company); Director of
Franklin Covey (time management systems), BMW
Bank of North America, Inc. (industrial loan
corporation), 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.
Wayne E. Hedien (65) ...................... Retired; Director or Trustee of the Morgan
Trustee Stanley Dean Witter Funds; Director of The PMI
c/o Mayer, Brown & Platt Group, Inc. (private mortgage insurance);
Counsel to the Independent Trustees Trustee and Vice Chairman of The Field Museum
1675 Broadway of Natural History; formerly associated with
New York, New York the Allstate Companies (1966-1994), most
recently as 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 (50) ................ Senior Partner, Johnson Smick
Trustee International, Inc., a consulting firm;
c/o Johnson Smick International, Inc. Co-Chairman and a founder of the Group of Seven
1133 Connecticut Avenue, N.W. Council (G7C), an international economic
Washington, D.C. commission; Chairman of the Audit Committee and
Director or Trustee of the Morgan Stanley Dean
Witter Funds; Director of Greenwich Capital
Markets, Inc. (broker-dealer) and NVR, Inc.
(home construction); Chairman and Trustee of
the Financial Accounting Foundation (oversight
organization of the Financial Accounting
Standards Board); formerly Vice Chairman of the
Board of Governors of the Federal Reserve
System (1986-1990) and Assistant Secretary of
the U.S. Treasury.
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
Michael E. Nugent (63) .................... General Partner, Triumph Capital, L.P., a
Trustee private investment partnership; Chairman of the
c/o Triumph Capital, L.P. Insurance Committee and Director or Trustee of
237 Park Avenue the Morgan Stanley Dean Witter Funds; formerly
New York, New York Vice President, Bankers Trust Company and BT
Capital Corporation (1984-1988); director of
various business organizations.
Philip J. Purcell* (56) ................... Chairman of the Board of Directors and Chief
Trustee Executive Officer of MSDW, Dean Witter Reynolds
1585 Broadway and Novus Credit Services Inc.; Director of the
New York, New York Distributor; Director or Trustee of the Morgan
Stanley Dean Witter Funds; Director and/or
officer of various MSDW subsidiaries.
John L. Schroeder (69) .................... Retired; Chairman of the Derivatives Committee
Trustee and Director or Trustee of the Morgan Stanley
c/o Mayer, Brown & Platt Dean Witter Funds; Director of Citizens
Counsel to the Independent Trustees Utilities Company (telecommunications, gas,
1675 Broadway electric and water utilities company); formerly
New York, New York Executive Vice President and Chief Investment
Officer of the Home Insurance Company (August
1991-September 1995).
Mitchell M. Merin (46) .................... President and Chief Operating Officer of Asset
President Management of MSDW (since December 1998);
Two World Trade Center President and Director (since April 1997) and
New York, New York Chief Executive Officer (since June 1998) of
the Investment Manager and MSDW Services
Company; Chairman, Chief Executive Officer and
Director of the Distributor (since June 1998);
Chairman and Chief Executive Officer (since
June 1998) and Director (since January 1998) of
the Transfer Agent; Director of various MSDW
subsidiaries; President of the Morgan Stanley
Dean Witter Funds (since May 1999); previously
Chief Strategic Officer of the Investment
Manager and MSDW Services Company and Executive
Vice President of the Distributor (April
1997-June 1998), Vice President of the Morgan
Stanley Dean Witter Funds (May 1997-April
1999), and Executive Vice President of Dean
Witter, Discover & Co.
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
Barry Fink (44) ........................... Senior Vice President (since March 1997) and
Vice President, Secretary and General Counsel (since February
Secretary and General Counsel 1997) and Director (since July 1998) of the
Two World Trade Center Investment Manager and MSDW Services Company;
New York, New York Senior Vice President (since March 1997) and
Assistant Secretary and Assistant General
Counsel (since February 1997) of the Dis-
tributor; Assistant Secretary of Dean Witter
Reynolds (since August 1996); Vice President,
Secretary and General Counsel of the Morgan
Stanley Dean Witter Funds (since February
1997); previously First Vice President (June
1993-February 1997), Vice President and
Assistant Secretary and Assistant General Coun-
sel of the Investment Manager and MSDW Services
Company and Assistant Secretary of the Morgan
Stanley Dean Witter Funds.
Joseph McAlinden (56) ..................... Executive Vice President and Chief Investment
Vice President Officer of the Investment Manager; Director of
Two World Trade Center the Transfer Agent; Vice President of the
New York, New York Morgan Stanley Dean Witter Fund.
Thomas F. Caloia (53) ..................... First Vice President and Assistant Treasurer of
Treasurer the Investment Manager, the Distributor and
Two World Trade Center MSDW Services Company; Treasurer of the Morgan
New York, New York Stanley Dean Witter Funds.
</TABLE>
- ------------------------
* Denotes Trustees who are "interested persons" of the Fund as defined in the
Investment Company Act.
In addition, RONALD E. ROBISON, Executive Vice President, Chief
Administrative Officer and Director of the Investment Manager and MSDW Services
Company, ROBERT S. GIAMBRONE, Senior Vice President of the Investment Manager,
MSDW Services Company, the Distributor and the Transfer Agent and Director of
the Transfer Agent, and PAUL D. VANCE, Senior Vice President of the Investment
Manager and Director of the Growth and Income Group of the Investment Manager,
and GUY G. RUTHERFORD JR., Senior Vice President of the Investment Manager and
Director of the Growth Group of the Investment Manager, are Vice Presidents of
the Fund.
In addition, MARILYN K. CRANNEY, LOU ANNE D. McINNIS, CARSTEN OTTO and RUTH
ROSSI, First Vice Presidents and Assistant General Counsels of the Investment
Manager and MSDW Services Company, TODD LEBO, Vice President and Assistant
General Counsel of the Investment Manager and MSDW Services Company, and NATASHA
KASSIAN, a Staff Attorney with the Investment Manager, are Assistant Secretaries
of the Fund.
INDEPENDENT DIRECTORS/TRUSTEES AND THE COMMITTEES. Law and regulation
establish both general guidelines and specific duties for the independent
directors/trustees. The Morgan Stanley Dean Witter Funds seek as independent
directors/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.
All of the independent directors/trustees serve as members of the Audit
Committee. In addition, three of the directors/trustees, including two
independent directors/trustees, serve as members of the Derivatives Committee
and the Insurance Committee.
The independent directors/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
18
<PAGE>
complex; and approving fidelity bond and related insurance coverage and
allocations, as well as other matters that arise from time to time. The
independent directors/trustees are required to select and nominate individuals
to fill any independent directors 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 a Rule 12b-1 plan.
The Audit Committee is charged with recommending to the full board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of the services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
board.
The board of each Fund has 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 DIRECTORS/TRUSTEES FOR
ALL MORGAN STANLEY DEAN WITTER FUNDS. The independent directors/trustees and
the Funds' management believe that having the same independent
directors/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 directors/trustees for each of the Funds or
even of sub-groups of Funds. They believe that having the same individuals serve
as independent directors/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 directors/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
directors/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
directors/trustees, of the caliber, experience and business acumen of the
individuals who serve as independent directors/trustees of the Morgan Stanley
Dean Witter Funds.
TRUSTEE AND OFFICER INDEMNIFICATION. The Fund's Declaration of Trust
provides that no Trustee, officer, employee or agent of the Fund is liable to
the Fund or to a shareholder, nor is any Trustee, officer, employee or agent
liable to any third persons in connection with the affairs of the Fund, except
as such liability may arise from his/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.
C. COMPENSATION
The Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees, the Independent
Trustees or Committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an additional annual fee of $750,
and the Chairmen of the Derivatives and Insurance Committees additional annual
fees of $500). If a Board meeting and a meeting of the Independent Trustees or a
Committee meeting, or a meeting of the Independent Trustees and/or more than one
Committee meeting, take place on a single day, the Trustees are paid a single
meeting fee by the Fund. The Fund also reimburses such Trustees for travel and
other out-of-pocket expenses incurred by them in connection with attending such
meetings. Trustees and officers of the Fund who are or have been employed by the
Investment Manager or an affiliated company receive no compensation or expense
reimbursement from the Fund for their services as Trustee.
19
<PAGE>
The Fund commenced operations on November 25, 1997 and paid no compensation
to the Independent Trustees for the fiscal period ended September 30, 1998 and
for the fiscal year ended September 30, 1999. Payments will commence as of the
time the Fund begins paying expenses, which, pursuant to an undertaking by the
Investment Manager, will commence on December 1, 2000.
At such time as the Fund 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 Board and committee meetings as were held by the other Dean
Witter Funds during the calendar year ended December 31, 1998, 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................................................. $1,650
Edwin J. Garn................................................. 1,650
Wayne E. Hedien............................................... 1,650
Dr. Manuel H. Johnson......................................... 2,400
Michael E. Nugent............................................. 2,150
John L. Schroeder............................................. 2,150
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1998 for services
to the 90 Morgan Stanley Dean Witter Funds that were in operation at
December 31, 1998.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
TOTAL CASH
COMPENSATION FOR
SERVICES TO 90
MORGAN STANLEY
NAME OF INDEPENDENT TRUSTEE DEAN WITTER FUNDS
- -------------------------------------------------------------- -----------------
<S> <C>
Michael Bozic................................................. $120,150
Edwin J. Garn................................................. 132,450
Wayne E. Hedien............................................... 132,350
Dr. Manuel H. Johnson......................................... 155,681
Michael E. Nugent............................................. 159,731
John L. Schroeder............................................. 160,731
</TABLE>
As of the date of this STATEMENT OF ADDITIONAL INFORMATION, 55 of the Morgan
Stanley Dean Witter Funds, not including the Fund, have adopted a retirement
program under which an independent director/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/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 director/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 30.22% of his or her Eligible Compensation plus
0.5036667% of such Eligible Compensation for each full month of service as an
independent director/ trustee of any Adopting Fund in excess of five years up to
a maximum of 60.44% after ten years of
20
<PAGE>
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 accrued as expenses on the books of the Adopting Funds. Such benefits are
not secured or funded by the Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the 55 Morgan Stanley Dean Witter Funds (not
including the Fund) for the calendar year ended December 31, 1998, and the
estimated retirement benefits for the Independent Trustees, to commence upon
their retirement, from the 55 Morgan Stanley Dean Witter Funds as of the
calendar year ended December 31, 1998.
RETIREMENT BENEFITS FROM
ALL MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
ESTIMATED
RETIREMENT ANNUAL
BENEFITS BENEFITS
ESTIMATED ACCRUED UPON
CREDITED AS RETIREMENT
YEARS OF ESTIMATED EXPENSES FROM
SERVICE AT PERCENTAGE OF BY ALL ALL
RETIREMENT ELIGIBLE ADOPTING ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUNDS FUNDS(2)
- ----------------------------------- ------------ -------------- --------- -------
<S> <C> <C> <C> <C>
Michael Bozic...................... 10 60.44% $22,377 $52,250
Edwin J. Garn...................... 10 60.44 35,225 52,250
Wayne E. Hedien.................... 9 51.37 41,979 44,413
Dr. Manuel H. Johnson.............. 10 60.44 14,047 52,250
Michael E. Nugent.................. 10 60.44 25,336 52,250
John L. Schroeder.................. 8 50.37 45,117 44,343
</TABLE>
- ------------------------------
1 An Eligible Trustee may elect alternative payments of his or her retirement
benefits based upon the combined life expectancy of the Eligible Trustee and
his or her spouse on the date of such Eligible Trustee's retirement. In
addition, the Eligible Trustee may elect that the surviving spouse's
periodic payment of benefits will be equal to a lower percentage of the
periodic amount when both spouses were alive. The amount estimated to be
payable under this method, through the remainder of the later of the lives
of the Eligible Trustee and spouse, will be the actuarial equivalent of the
Regular Benefit.
2 Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote 1 on
page 20.
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- --------------------------------------------------------------------------------
The following persons owned 5% or more of the outstanding Class A shares of
the Domestic Portfolio as of November 8, 1999: Nancy H. Jarvis, 265 Ann Street,
Plymouth, MI 48170-1215--22.134%; Rebecca Volchko, 106 NW Curtis St., Port St.
Lucie, FL 34983-1629--22.134%; Novus Financial Corporation FBO, Douglas D. &
Monica L. Duvall, As Collateral, 10409 NE 81st St., Vancouver, WA
98662-3086--6.434%; William T. Powers, Trustee of the Mary E. Catlin Trust A,
Dated 01/01/97, 8006 SE 17th Ave., Portland, OR 97202-6717--5.073%; William T.
Powers, Trustee of the Mary E. Catlin GSTT Exempt Trust B, Dated 01/01/97, 8006
SE 17th Ave., Portland, OR 97202-6717--5.020%. The following owned 5% or more of
the outstanding Class C shares of the Domestic Portfolio as of November 8, 1999:
K. L. Whittington, P.O. Box 81164, Albuquerque, NM 87198-1164--5.759%. The
following owned 5% or more of the outstanding Class D shares of the Domestic
Portfolio as of November 8, 1999: Morgan Stanley Dean Witter Advisors Inc.,
Attn: Maurice Bendrihem, 2 World Trade Center, 70th Floor, New York, NY
10048-0203--99.920%.
The following persons owned 5% or more of the outstanding Class A shares of
the International Portfolio as of November 8, 1999: James P. Rogers, 172 Torrey
Pines Terrace, Del Mar, CA 92014-3335--54.015%; Dean Witter Reynolds Inc.
("DWR"), Custodian for Adrienne Casanova, IRA Standard Dated 02/07/94, 21416
West Prescott Court, Kildeer, IL 60047-8859--8.606%; DWR, Custodian For
W. Blaine Burton, IRA Rollover Dated 02/02/98, 433 Parkway Circle, Idaho Falls,
ID 83401-4256--6.062%. The following persons owned 5% or more of the outstanding
Class C shares of the International Portfolio as
21
<PAGE>
of November 8, 1999: Willard Spencer Johnston Jr., Trustee, F/T Rev Living Tr of
Beatrice T. Johnston Dated 11/01/90, 37 Chestnut Place, Danville, CA
94506-4542--11.197%; Lewis David Diprima & Ruth A. Diprima, JTTEN, 101 Gateside
Courts, Marietta, GA 30067-4088--10.648%; K. L. Whittington, P.O. Box 81164,
Albuquerque, NM 87198-1164--6.091%. The following persons owned 5% or more of
the outstanding Class D shares of the International Portfolio as of November 8,
1999: DWR, Custodian for Sandra D. Haney - Caltex, IRA Rollover Dated 03/19/99,
607 Mission Circle, Irving, TX 75063-4578--9.372%; DWR, Custodian for Jesse J.
Nunez, IRA Rollover Dated 05/03/99, 935 Chalk Hill Court, Lawrence, KS
66049-3004--9.034%; DWR, Custodian for Raul Chavez, IRA Rollover Dated 06/21/93,
24 E. Adams Ave., Alhambra, CA 91801-4801--8.479%; DWR, Custodian for Edward J.
Mattie, IRA Rollover Dated 05/29/98, 8 Arlington Drive, Marlboro, NJ
07746-2204--7.003%; DWR, Custodian for Tracy B. Berry, IRA Standard Dated
11/25/96, 5842 Willow Lane, Dallas, TX 75230-2152--5.468%.
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% of the Fund's shares of beneficial
interest outstanding.
V. INVESTMENT MANAGEMENT AND OTHER SERVICES
- --------------------------------------------------------------------------------
A. INVESTMENT MANAGER
The Investment Manager to each Portfolio of the Fund is Morgan Stanley Dean
Witter Advisors Inc., a Delaware corporation, whose address is Two World Trade
Center, New York, NY 10048. The Investment Manager is a wholly-owned subsidiary
of MSDW, a Delaware corporation. MSDW is a preeminent global financial services
firm that maintains leading market positions in each of its three primary
businesses: securities, asset management and credit services.
Pursuant to an Investment Management Agreement (the "MANAGEMENT AGREEMENT")
with the Investment Manager, the Fund has retained the Investment Manager to
provide administrative services and manage the investment of each Portfolio's
assets, including the placing of orders for the purchase and sale of securities.
The Portfolios do not pay a management fee to the Investment Manager. However,
each Portfolio, through its investments in an Underlying Fund, will pay its pro
rata share of the investment management fees paid to the Investment Manager of
the Underlying Fund.
Each Underlying Fund has entered into an investment management agreement
with the Investment Manager. The Underlying Funds pay to the Investment Manager
monthly compensation calculated daily according to the annual rates set forth in
each Underlying Fund's investment management agreement. In addition, with
respect to certain Underlying Funds, the Investment Manager retains a
Sub-Advisor, to manage Underlying Fund assets pursuant to a sub-advisory
agreement. Morgan Stanley Dean Witter Investment Management Inc. serves as
Sub-Advisor to the following Underlying Funds: Growth Fund, European Growth
Fund, International SmallCap Fund, Japan Fund and Pacific Growth Fund. TCW Funds
Management, Inc. serves as Sub-Advisor to Latin American Growth Fund and Mid-Cap
Equity Trust. Miller Anderson & Sherrerd, LLP serves as Sub-Advisor to Value
Fund. The Investment Manager pays each Sub-Advisor compensation as provided in
the applicable sub-advisory agreement. For information about the fee rates and
compensation paid under an Underlying Fund's management agreement and, if
applicable, sub-advisory agreement, please refer to the Underlying Fund's
Statement of Additional Information, which is available free of charge by
calling (800) 869-NEWS (toll-free).
The Investment Manager has retained its wholly-owned subsidiary, MSDW
Services Company, to perform administrative services for each Portfolio.
B. PRINCIPAL UNDERWRITER
The Fund's principal underwriter is the Distributor (which has the same
address as the Investment Manager). In this capacity, each Portfolio's shares
are distributed by the Distributor. The Distributor has entered into a selected
dealer agreement with Dean Witter Reynolds, which through its own sales
22
<PAGE>
organization sells shares of each Portfolio. In addition, the Distributor may
enter into similar agreements with other selected broker-dealers. The
Distributor, a Delaware corporation, is a wholly-owned subsidiary of MSDW.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. These expenses include the payment of commissions
for sales of Portfolio shares and incentive compensation to Financial Advisors,
the costs of educational and/or business-related trips, and reimbursement of
educational and/or promotional and business-related expenses. The Distributor
also pays certain expenses in connection with the distribution of the shares of
each Portfolio, 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 Portfolio 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 each
Portfolio's shares under federal and state 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. 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, a Portfolio or its shareholders.
C. SERVICES PROVIDED BY THE INVESTMENT MANAGER
The Investment Manager manages the investment of each Portfolio's assets,
including the placing of orders for the purchase and sale of securities. The
Investment Manager obtains and evaluates the information and advice relating to
the economy, securities markets, and specific securities as it considers
necessary or useful to continuously oversee the management of the assets of each
Portfolio in a manner consistent with its investment objectives.
Under the terms of the Management Agreement, in addition to managing each
Portfolio's investments, the Investment Manager maintains certain of the Fund's
books and records and furnishes, at its own expense, the office space,
facilities, equipment, clerical help, bookkeeping and certain legal services as
the Fund may reasonably require in the conduct of its business, including the
preparation of prospectuses, 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.
Expenses not expressly assumed by the Investment Manager under the
Management Agreement or by the Distributor, will be paid by the Fund or each
Portfolio depending on the nature of the expense. These expenses will be
allocated among the four Classes of shares of each Portfolio pro rata based on
the net assets of the Portfolio 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; charges and expenses of any registrar,
custodian, stock transfer and dividend disbursing agent; brokerage commissions;
taxes; engraving and printing share certificates; registration costs of the Fund
and Portfolio shares under federal and state securities laws; the cost and
expense of printing, including typesetting, and distributing prospectuses of the
Fund and supplements thereto to the shareholders of each Portfolio; all expenses
of shareholders' and Trustees' meetings and of preparing, printing and mailing
of proxy statements and reports to shareholders; fees and travel expenses of
Trustees or members of any advisory board or committee who are not employees of
the Investment Manager or any corporate affiliate of the Investment Manager; all
expenses incident to any dividend, withdrawal or redemption options; charges and
expenses of any outside service used for pricing of Portfolio shares; fees and
23
<PAGE>
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); fees and expenses of the Fund's independent accountants; membership
dues of industry associations; interest on Portfolio 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.
The Management 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, each
Portfolio or any of its investors for any act or omission by the Investment
Manager or for any losses sustained by the Fund or its investors.
The Management Agreement as to each Portfolio will remain in effect from
year to year provided continuance of the Management Agreement is approved at
least annually by the vote of the holders of a majority, as defined in the
Investment Company Act, of the outstanding shares of that Portfolio, or by the
Trustees, including a majority of the Independent Trustees; provided that in
either event such continuance is approved annually by the vote of a majority of
the Trustees, including a majority of the Independent Trustees.
D. DEALER REALLOWANCES
Upon notice to selected broker-dealers, the Distributor may reallow up to
the full applicable front-end sales charge 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.
E. RULE 12b-1 PLAN
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act (the "PLAN") pursuant to which each Class of a Portfolio,
other than Class D, pays the Distributor compensation accrued daily and payable
monthly at the following annual rates: 0.25%, 1.0% and 1.0% of the average daily
net assets of Class A, Class B and Class C, respectively.
The Distributor also receives the proceeds of front-end sales charges
("FSCs") and of contingent deferred sales charges ("CDSCs") imposed on certain
redemptions of shares, which are separate and apart from payments made pursuant
to the Plan. The Distributor has informed the Fund that, with respect to each
Portfolio, it and/or Dean Witter Reynolds received the proceeds of CDSCs and
FSCs, for the
24
<PAGE>
fiscal year ended September 30, 1999, and for the period November 25, 1997
(commencement of operations) through September 30,1998, in approximate amounts
as provided in the tables below (the Distributor did not retain any of these
amounts).
<TABLE>
<CAPTION>
FOR THE PERIOD NOVEMBER 25, 1997
DOMESTIC PORTFOLIO 1999 THROUGH SEPTEMBER 30, 1998
- ----------------------------------- ------------------------ --------------------------------
<S> <C> <C> <C> <C>
Class A............................ FSCs:(1) $ 5,726 FSCs: $ 19,992
CDSCs: $ 0 CDSCs: $ 0
Class B............................ CDSCs: $ 92,477 CDSCs: $ 32,706
Class C............................ CDSCs: $ 1,611 CDSCs: $ 1,153
</TABLE>
- ------------------------------
1 FSCs apply to Class A only.
<TABLE>
<CAPTION>
FOR THE PERIOD NOVEMBER 25, 1997
INTERNATIONAL PORTFOLIO 1999 THROUGH SEPTEMBER 30, 1998
- ----------------------------------- ------------------------ --------------------------------
<S> <C> <C> <C> <C>
Class A............................ FSCs:(1) $ 7,924 FSCs: $ 5,645
CDSCs: $ 1 CDSCs: $ 0
Class B............................ CDSCs: $ 10,440 CDSCs: $ 3,623
Class C............................ CDSCs: $ 198 CDSCs: $ 79
</TABLE>
- ------------------------------
1 FSCs apply to Class A only.
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' average daily net assets are
currently each characterized as a "service fee" under the Rules 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 Rules of the Association.
Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each calendar quarter a written report provided
by the Distributor of the amounts expended under the Plan and the purpose for
which such expenditures were made. Class B shares of the Domestic Portfolio and
the International Portfolio accrued amounts payable to the Distributor under the
Plan, during the fiscal year ended September 30, 1999, of $266,308 and $43,656,
respectively. These amounts are equal to 1.00% of the average daily net assets
of Class B shares of each Portfolio for the fiscal year. Class A shares of the
Domestic Portfolio and the International Portfolio accrued amounts payable to
the Distributor under the Plan during the fiscal year ended September 30, 1999,
amounting to $2,770 and $2,336, respectively. These amounts were equal to 0.23%
and 0.24%, respectively, of the average daily net assets of Class A shares of
the Domestic Portfolio and the International Portfolio for the fiscal year. With
respect to Class C shares, the Domestic Portfolio and the International
Portfolio accrued payments under the Plan amounting to $8,908 and $1,580,
respectively, during the fiscal year ended September 30, 1999. These amounts
were equal to 0.54% and 0.77%, respectively, of the average daily net assets of
Class C shares of the Domestic Portfolio and the International Portfolio for the
fiscal year.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method each Portfolio offers
four Classes, each with a different distribution arrangement.
With respect to Class A shares of each Portfolio, Dean Witter Reynolds
compensates its Financial Advisors by paying them, from proceeds of the FSC,
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
25
<PAGE>
employer-sponsored employee benefit plans, whether or not qualified under the
Internal Revenue Code, for which the Transfer Agent serves as Trustee or Dean
Witter Reynolds Retirement Plan Services serves as recordkeeper pursuant to a
written Recordkeeping Services Agreement ("MSDW ELIGIBLE PLANS"), the Investment
Manager compensates 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 of each Portfolio, Dean Witter Reynolds
compensates its Financial Advisors by paying them, from its own funds,
commissions for the sale of Class B shares, currently a gross sales credit of up
to 5.0% of the amount sold (except as provided in the following sentence) and an
annual residual commission, currently a residual of up to 0.25% of the current
value (not including reinvested dividends or distributions) of the amount sold
in all cases. In the case of Class B shares purchased by MSDW Eligible Plans,
Dean Witter Reynolds 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 of each Portfolio, Dean Witter Reynolds
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 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 of each Portfolio other than shares held by
participants in the Investment Manager's mutual fund asset allocation program,
the Investment Manager compensates Dean Witter Reynolds'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 Dean Witter Reynolds's Financial Advisors by paying them, from its
own funds, an annual residual commission, currently 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 Investment Manager's
mutual fund asset allocation program).
The gross sales credit is a charge which reflects commissions paid by Dean
Witter Reynolds to its Financial Advisors and Dean Witter Reynolds's
Fund-associated distribution-related expenses, including sales compensation, and
overhead and other branch office distribution-related expenses including
(a) the expenses of operating Dean Witter Reynolds's branch offices in
connection with the sale of Portfolio 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 Portfolio shares; and (d) other expenses
relating to branch promotion of Portfolio sales.
The distribution fee that the Distributor receives from the Fund under the
Plan, in effect, offsets distribution expenses incurred under the Plan on behalf
of each Portfolio and, in the case of Class B shares, opportunity costs, such as
the gross sales credit and an assumed interest charge thereon ("CARRYING
CHARGE"). These expenses may include the cost of Fund-related educational and/or
business-related trips or payment of Fund-related educational and/or promotional
and business-related expenses of Financial Advisors. In the Distributor's
reporting of the distribution expenses to the Fund, in the case of Class B
shares, such assumed interest (computed at the "BROKER'S CALL RATE") has been
calculated on the gross credit as it is reduced by amounts received by the
Distributor under the Plan and any contingent deferred sales charges received by
the Distributor upon redemption of shares of each Portfolio 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 each Portfolio'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,
26
<PAGE>
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 Financial Advisors and other authorized financial
representatives, such amounts shall be determined at the beginning of each
calendar quarter by the Trustees, including, a majority of the Independent
Trustees. Expenses representing the service fee (for Class A) or a gross sales
credit or a residual to Financial Advisors and other authorized financial
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 each Portfolio, the Distributor will provide and the
Trustees will review a quarterly budget of projected distribution expenses to be
incurred on behalf of each Portfolio, 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 each Portfolio, and in making such a determination shall consider the scope
of the Distributor's commitment to promoting the distribution of each
Portfolio's Class A and Class C shares.
Each Class of the Domestic Portfolio paid 100% of the amounts accrued under
the Plan with respect to that Class for the fiscal year ended September 30, 1999
to the Distributor. The Distributor and Dean Witter Reynolds estimate that they
have spent, pursuant to the Plan, $2,741,889 on behalf of Class B shares of the
Domestic Portfolio since the inception of the Plan. It is estimated that this
amount was spent in approximately the following ways: (i) 35.46%
($972,383)--advertising and promotional expenses; (ii) 3.79%
($103,914)--printing of prospectuses for distribution to other than current
shareholders; and (iii) 60.75% ($1,665,592)--other expenses, including the gross
sales credit and the carrying charge, of which 6.25% ($104,140) represents
carrying charges, 38.81% ($646,441) represents commission credits to Dean Witter
Reynolds branch offices and other selected broker-dealers for payments of
commissions to Financial Advisors and other selected broker-dealer
representatives, and 54.94% ($915,011) represents overhead and other branch
office distribution-related expenses. The amounts accrued by Class A and a
portion of the amounts accrued by Class C under the Plan during the fiscal year
ended September 30, 1999 were service fees. The remainder of the amounts accrued
by Class C were for expenses which relate to compensation of sales personnel and
associated overhead expenses.
Each Class of the International Portfolio paid 100% of the amounts accrued
under the Plan with respect to that Class for the fiscal year ended September
30, 1999 to the Distributor. The Distributor and Dean Witter Reynolds estimate
that they have spent, pursuant to the Plan, $1,278,620 on behalf of Class B
shares of the International Portfolio since the inception of the Plan. It is
estimated that this amount was spent in approximately the following ways: (i)
68.82% ($879,960)--advertising and promotional expenses; (ii) 7.26%
($92,801)--printing of prospectuses for distribution to other than current
shareholders; and (iii) 23.92% ($305,860)--other expenses, including the gross
sales credit and the carrying charge, of which 4.22% ($12,907) represents
carrying charges, 39.65% ($121,283) represents commission credits to Dean Witter
Reynolds branch offices and other selected broker-dealers for payments of
commissions to Financial Advisors and other selected broker-dealer
representatives, and 56.13% ($171,670) represents overhead and other branch
office distribution-related expenses. The amounts accrued by Class A and a
portion of the amounts accrued by Class C under the Plan during the fiscal year
ended September 30, 1999 were service fees. The remainder of the amounts accrued
by Class C were for expenses which relate to compensation of sales personnel and
associated overhead expenses.
In the case of Class B shares, at any given time, the expenses of
distributing shares of each Portfolio 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
CDSCs paid by investors upon redemption of shares. For example, if $1 million in
expenses in distributing Class B shares of the Portfolios had been incurred and
$750,000 had been received as described in (i) and (ii) above, the excess
expense would amount to $250,000. With respect to Class B
27
<PAGE>
shares of the Domestic Portfolio and the International Portfolio, the
Distributor has advised the Fund that the excess distribution expenses,
including the carrying charge designed to approximate the opportunity costs
incurred by Dean Witter Reynolds which arise from it having advanced monies
without having received the amount of any sales charges imposed at the time of
sale of each Portfolio's Class B shares, totaled $2,145,788 and $1,195,523,
respectively, as of September 30, 1999 (the end of the Fund's fiscal year).
These amounts were equal to 8.25% and 18.07%, respectively, of the net assets of
Class B shares of the Domestic Portfolio and the International Portfolio on such
date. Because there is no requirement under the Plan that the Distributor be
reimbursed for all distribution expenses with respect to Class B shares or any
requirement that the Plan be continued from year to year, this excess amount
does not constitute a liability of the Fund. Although there is no legal
obligation for the Fund to pay expenses incurred in excess of payments made to
the Distributor under the Plan and the proceeds of 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 each Portfolio's 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 authorized broker-dealer representatives at
the time of sale may be reimbursed in the subsequent calendar year. With respect
to Class C shares of the Domestic Portfolio and the International Portfolio, the
Distributor has advised the Fund that there were no unreimbursed expenses
representing a gross sales commission to Morgan Stanley Dean Witter Financial
Advisors and other authorized broker-dealer representatives at December 31, 1998
(end of the calendar year). No interest or other financing charges will be
incurred on any Class A or Class C distribution expenses incurred by the
Distributor under the Plan or on any unreimbursed expenses due to the
Distributor pursuant to the Plan.
No interested person of the Fund nor any Independent Trustee has any direct
financial interest in the operation of the Plan except to the extent that the
Distributor, the Investment Manager, Dean Witter Reynolds, MSDW Services Company
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.
On an annual basis, the Trustees, including a majority of the Independent
Trustees, consider whether the Plan should be continued as to each Portfolio.
Prior to approving the last continuation of the Plan as to each Portfolio, the
Trustees requested and received from the Distributor and reviewed all the
information which they deemed necessary to arrive at an informed determination.
In making their determination to continue the Plan, the Trustees considered:
(1) each Portfolio's experience under the Plan and whether such experience
indicates that the Plan is operating as anticipated; (2) the benefits each
Portfolio had obtained, was obtaining and would be likely to obtain under the
Plan, including that: (a) the Plan is essential in order to give Portfolio
investors a choice of alternatives for payment of distribution and service
charges and to enable each Portfolio to continue to grow and avoid a pattern of
net redemptions which, in turn, are essential for effective investment
management; and (b) without the compensation to individual brokers and the
reimbursement of distribution and account maintenance expenses of Dean Witter
Reynolds's branch offices made possible by the 12b-1 fees, Dean Witter Reynolds
could not establish and maintain an effective system for distribution, servicing
of Portfolio shareholders and maintenance of shareholder accounts; and (3) what
services had been provided and were continuing to be provided under the Plan to
each Portfolio and its shareholders. Based upon their review, the Trustees,
including each of the Independent Trustees, determined that continuation of the
Plan would be in the best interest of each Portfolio and would have a reasonable
likelihood of continuing to benefit each Portfolio and its shareholders. In the
Trustees' quarterly review of the Plan, they will consider its continued
appropriateness and the level of compensation provided therein.
28
<PAGE>
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval by the shareholders of the
affected Class or Classes of each Portfolio, and all material amendments to 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 Trustees or by a vote of a majority of the
outstanding voting securities of each Portfolio (as defined in the Investment
Company Act) on not more than thirty days' written notice to any other party to
the Plan. So long as the Plan is in effect, the election and nomination of
Independent Trustees shall be committed to the discretion of the Independent
Trustees.
F. OTHER SERVICE PROVIDERS
(1) TRANSFER AGENT/DIVIDEND-PAYING AGENT
Morgan Stanley Dean Witter Trust FSB is the Transfer Agent for each
Portfolio's shares and the Dividend Disbursing Agent for payment of dividends
and distributions on Portfolio shares and Agent for shareholders under various
investment plans. The principal business address of the Transfer Agent is
Harborside Financial Center, Plaza Two, Jersey City, NJ 07311.
(2) CUSTODIAN AND INDEPENDENT ACCOUNTANTS
The Bank of New York, 100 Church Street, New York, NY 10007 is the Custodian
of each Portfolio's assets. A Portfolio's cash balances with the Custodian in
excess of $100,000 are unprotected by federal deposit insurance. These balances
may, at times, be substantial.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, NY 10036
serves as the independent accountants of the Fund. The independent accountants
are responsible for auditing the annual financial statements of the Fund.
(3) AFFILIATED PERSONS
The Transfer Agent is an affiliate of the Investment Manager, and of the
Distributor. As Transfer Agent and Dividend Disbursing Agent, the Transfer
Agent'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,
the Transfer Agent receives a per shareholder account fee from the Fund and is
reimbursed for its out-of-pocket expenses in connection with such services.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
- --------------------------------------------------------------------------------
A. BROKERAGE TRANSACTIONS
Subject to the general supervision of the Trustees, the Investment Manager
is responsible for decisions to buy and sell securities for the Portfolios and
arranges for the execution of portfolio security transactions on behalf of the
Portfolios. Purchases of portfolio securities are made from dealers,
underwriters and issuers; sales, if any, prior to maturity, are made to dealers
and issuers. The Portfolios do not normally incur any brokerage commission
expenses. Money market instruments 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.
Securities purchased in underwritten offerings include a fixed amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. When securities are purchased or sold directly from or
to an issuer, no commissions or discounts are paid.
For the fiscal year ended September 30, 1999 and for the period
November 25,1997 (commencement of operations) through September 30, 1998, the
Domestic Portfolio and the International Portfolio paid no brokerage
commissions.
29
<PAGE>
B. COMMISSIONS
Pursuant to an order of the SEC, the Portfolios may effect principal
transactions in certain money market instruments with Dean Witter Reynolds. The
Portfolios will limit their transactions with Dean Witter Reynolds to U.S.
Government and government agency securities, bank money instruments (i.e.,
certificates of deposit and bankers' acceptances) and commercial paper. The
transactions will be effected with Dean Witter Reynolds only when the price
available from Dean Witter Reynolds is better than that available from other
dealers.
During the fiscal year ended September 30, 1999 and the fiscal period
November 25, 1997 (commencement of operations) through September 30, 1998, the
Portfolios did not effect any principal transactions with Dean Witter Reynolds.
While the Portfolios do not anticipate that they will incur any brokerage
commissions, brokerage transactions in securities listed on exchanges or
admitted to unlisted trading privileges may be effected through Dean Witter
Reynolds, Morgan Stanley & Co. and other affiliated brokers and dealers. In
order for an affiliated broker or dealer to effect any portfolio transactions on
an exchange for a Portfolio, 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 Trustees, including
the Independent Trustees, 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 Portfolios did not pay any brokerage commissions to any affiliated
brokers or dealers during the fiscal year ended September 30, 1999 and the
period November 25, 1997 (commencement of operations) through September 30,
1998.
C. BROKERAGE SELECTION
The policy of the Fund regarding purchases and sales of securities for each
of its Portfolios is that primary consideration will be given to obtaining the
most favorable prices and efficient executions of 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 the prices and executions are obtainable from more
than one dealer, it may give consideration to placing portfolio transactions
with those dealers who also furnish research and other services to the
Portfolios or the Investment Manager. The services may include, but are not
limited to, any one or more of the following: information as to the availability
of securities for purchase or sale; statistical or factual information or
opinions pertaining to investment; wire services; and appraisals or evaluations
of portfolio securities. The information and services received by the Investment
Manager from brokers and dealers may be of benefit to the Investment Manager in
the management of accounts of some of its other clients and may not in all cases
benefit the Portfolios directly.
D. DIRECTED BROKERAGE
For the fiscal year ended September 30, 1999, the Portfolios did not pay any
brokerage commissions to brokers because of research services provided.
E. REGULAR BROKER-DEALERS
During the fiscal year ended September 30, 1999, the Portfolios did not
purchase securities issued by brokers or dealers that were among the ten brokers
or the ten dealers that executed transactions for or with the Portfolios in the
largest dollar amounts during the year.
At September 30, 1999, the Portfolios did not own any securities issued by
any of these issuers.
30
<PAGE>
VII. CAPITAL STOCK AND OTHER SECURITIES
- --------------------------------------------------------------------------------
The shareholders of each Portfolio 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 of each Portfolio. All shares of
beneficial interest of each Portfolio are of $0.01 par value and are equal as to
earnings, assets and 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, Class A, Class B and Class C bear
expenses related to the distribution of their respective shares.
The Fund's 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 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 Investment Company Act or the Declaration of
Trust. Under certain circumstances the Trustees may be removed by action of the
Trustees. In addition, under certain circumstances, the shareholders may call a
meeting to remove Trustees and the Fund is required to provide assistance in
communicating with shareholders about such a meeting. 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.
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.
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.
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
- --------------------------------------------------------------------------------
A. PURCHASE/REDEMPTION OF SHARES
Information concerning how the shares of each Portfolio are offered to the
public (and how they are redeemed and exchanged) is provided in the Fund's
PROSPECTUS.
TRANSFER AGENT AS AGENT. With respect to the redemption or repurchase of
Portfolio shares, the application of proceeds to the purchase of new shares in a
Portfolio or any other Morgan Stanley Dean Witter Fund and the general
administration of the exchange privilege, the Transfer Agent acts as agent for
the Distributor and for the shareholder's authorized broker-dealer, if any, in
the performance of such functions. With respect to exchanges, redemptions or
repurchases, the Transfer Agent shall be liable for
31
<PAGE>
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 authorized
broker-dealer.
The Distributor and any authorized broker-dealer have appointed the Transfer
Agent to act as their agent in connection with the application of proceeds of
any redemption of Portfolio shares to the purchase of shares of any other Morgan
Stanley Dean Witter Fund and the general administration of the exchange
privilege. No commission or discounts will be paid to the Distributor or any
authorized broker-dealer for any transaction pursuant to the exchange privilege.
TRANSFERS OF SHARES. In the event a shareholder requests a transfer of
Portfolio shares to a new registration, the shares will be transferred without
sales charge at the time of transfer. With regard to the status of shares which
are either subject to the CDSC or free of such charge (and with regard to the
length of time shares subject to the charge have been held), any transfer
involving less than all of the shares in an account will be made on a pro rata
basis (that is, by transferring shares in the same proportion that the
transferred shares bear to the total shares in the account immediately prior to
the transfer). The transferred shares will continue to be subject to any
applicable CDSC as if they had not been so transferred.
B. OFFERING PRICE
Each Portfolio's Class B, Class C and Class D shares are offered at net
asset value per share and the Class A shares are offered at net asset value per
share plus any applicable FSC which is distributed among the Fund's Distributor,
Dean Witter Reynolds, and other authorized dealers as described in Section "V.
Investment Management and Other Services -- E. Rule 12b-1 Plan."
The price of each Portfolio's shares, called "NET ASSET VALUE," is based on
the value of each Portfolio's securities. Net asset value per share of each
Class is calculated by dividing the value of the portion of a Portfolio's
securities and other assets attributable to that Class, less the liabilities
attributable to that Class, by the number of shares of that Class outstanding.
The assets of each Class of shares are invested in a single portfolio. The net
asset value of each Class, however, will differ because the Classes have
different ongoing fees. For more information on how the net asset value of an
Underlying Fund is calculated please see the "Pricing Portfolio Shares" section
of the Fund's PROSPECTUS and the "Pricing Fund Shares" section of the Underlying
Funds' propectuses.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Directors.
IX. TAXATION OF THE FUND AND SHAREHOLDERS
- --------------------------------------------------------------------------------
The Portfolios generally will make two basic types of distributions:
ordinary dividends and long-term capital gain distributions. These two types of
distributions are reported differently on a shareholder's income tax return and
they are also subject to different rates of tax. The tax treatment of the
investment activities of the Portfolios will affect the amount and timing and
character of the distributions made by the Portfolios. Tax issues relating to
the Portfolios are not generally a consideration for shareholders such as tax
exempt entities and tax-advantaged retirement vehicles such as an IRA or 401(k)
plan. Shareholders are urged to consult their own tax professionals regarding
specific questions as to federal, state or local taxes.
INVESTMENT COMPANY TAXATION. Each Portfolio intends to remain qualified as
a regulated investment company under Subchapter M of the Internal Revenue Code
of 1986. As such, the Portfolios will not be subject to federal income tax on
its net investment income and capital gains, if any, to the extent that it
distributes such income and capital gains to its shareholders.
Each Portfolio generally intends to distribute sufficient income and gains
so that the Portfolio will not pay corporate income tax on its earnings. Each
Portfolio also generally intends to distribute to its
32
<PAGE>
shareholders in each calendar year a sufficient amount of ordinary income and
capital gains to avoid the imposition of a 4% excise tax. However, a Portfolio
may instead determine to retain all or part of any net long-term capital gains
in any year for reinvestment. In such event, such Portfolio will pay federal
income tax (and possibly excise tax) on such retained gains.
Gains or losses on sales of securities by a Portfolio will be long-term
capital gains or losses if the securities have a tax holding period of more than
one year. Gains or losses on the sale of securities with a tax holding period of
one year or less will be short-term gains or losses.
Under certain tax rules, a Portfolio may be required to accrue a portion of
any discount at which certain securities are purchased as income each year even
though the Portfolio receives no payments in cash on the security during the
year. To the extent that a Portfolio invests in such securities, it would be
required to pay out such accrued discount as an income distribution in each year
in order to avoid taxation at the Portfolio level. Such distributions will be
made from the available cash of the Portfolio 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. A Portfolio may realize a gain or loss from such sales. In the event a
Portfolio 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.
TAXATION OF DIVIDENDS AND DISTRIBUTIONS. Shareholders normally will have to
pay federal income taxes, and any state and/or local income taxes, on the
dividends and other distributions they receive from each Portfolio of the Fund.
Such dividends and distributions, to the extent that they are derived from net
investment income or short-term capital gains, are taxable to the shareholder as
ordinary income regardless of whether the shareholder receives such payments in
additional shares or in cash.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held a Portfolio's shares and regardless of whether the distribution is received
in additional shares or in cash. The maximum tax on long-term capital gains
applicable to individuals is 20%.
Shareholders are generally taxed on any ordinary dividend or capital gain
distributions from each Portfolio of the Fund in the year they are actually
distributed. However, if any such dividends or distributions are declared in
October, November or December and paid in January then such amounts will be
treated for tax purposes as received by the shareholders on December 31, to
shareholders of record of such month.
Shareholders who are not citizens or residents of the United States and
certain foreign entities may be subject to withholding of United States tax on
distributions made by a Portfolio of investment income and short term capital
gains.
After the end of each calendar year, shareholders will be sent full
information on their dividends and capital gain distributions for tax purposes,
including the portion taxable as ordinary income, the portion taxable as
long-term capital gains and the amount of any dividends eligible for the federal
dividends received deduction for corporations.
PURCHASES AND REDEMPTIONS AND EXCHANGES OF PORTFOLIO SHARES. 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, such dividends and capital gains
distributions 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 the shareholder's
investment but nonetheless would be taxable to the shareholder. Therefore, an
investor should consider the tax implications of purchasing shares of a
Portfolio immediately prior to a distribution record date.
33
<PAGE>
In general, a sale of shares results in capital gain or loss, and for
individual shareholders, is taxable at a federal rate dependent upon the length
of time the shares were held. A redemption of a shareholder's Portfolio shares
is normally treated as a sale for tax purposes. Shares of a Portfolio held for a
period of one year or less will, for tax purposes, generally result in
short-term gains or losses and those held for more than one year generally
result in long-term gain or loss. Under current law, the maximum tax rate on
long-term capital gains is 20%. Any loss realized by shareholders upon a sale or
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 with respect to such shares during the six-month period.
Gain or loss on the sale or redemption of shares in a Portfolio is measured
by the difference between the amount received and the tax basis of the shares.
Shareholders should keep records of investments made (including shares acquired
through reinvestment of dividends and distributions) so they can compute the tax
basis of their shares. Under certain circumstances a shareholder may compute and
use an average cost basis in determining the gain or loss on the sale or
redemption of shares.
Exchanges of Portfolio shares for shares of another Portfolio or fund,
including shares of other Morgan Stanley Dean Witter Funds, are also subject to
similar tax treatment. Such an exchange is treated for tax purposes as a sale of
the original shares in the first Portfolio, followed by the purchase of shares
in the second Portfolio or fund.
If a shareholder realizes a loss on the redemption or exchange of shares of
a Portfolio and reinvests in shares of such Portfolio within 30 days before or
after the redemption or exchange, the transactions may be subject to the "wash
sale" rules, resulting in a postponement of the recognition of such loss for tax
purposes.
X. UNDERWRITERS
- --------------------------------------------------------------------------------
The shares of each Portfolio are offered to the public on a continuous
basis. The Distributor, as the principal underwriter of the shares, has certain
obligations under the Distribution Agreement concerning the distribution of the
shares. These obligations and the compensation the Distributor receives are
described above in the sections titled "Principal Underwriter" and "Rule 12b-1
Plans."
XI. CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------
From time to time, each Portfolio 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 "average annual total return"
of each Portfolio represents an annualization of each Portfolio's total return
over a particular period and is computed by finding the annual percentage rate
which will result in the ending redeemable value of a hypothetical $1,000
investment made at the beginning of a one, five or ten year period, or for the
period from the date of commencement of operations, if shorter than any of the
foregoing. The ending redeemable value is reduced by any contingent deferred
sales charge ("CDSC") at the end of the one, five, ten year or other period. For
the purpose of this calculation, it is assumed that all dividends and
distributions are reinvested. The formula for computing the average annual total
return involves a percentage obtained by dividing the ending redeemable value by
the amount of the initial investment (which in the case of Class A shares is
reduced by the Class A initial sales charge), taking a root of the quotient
(where the root is equivalent to the number of years in the period) and
subtracting 1 from the result. Based on this calculation, the average annual
total returns of Class A, Class B, Class C and Class D shares of the Domestic
Portfolio for the fiscal year ended September 30, 1999 and for the period
November 25, 1997 (commencement of operations) through September 30, 1999 were:
Class A: 18.43% and 8.21%, respectively; Class B: 18.96% and 8.60%,
respectively; Class C: 23.55% and 10.89%, respectively; and Class D: 25.28% and
11.68%, respectively. Based on this calculation, the average annual total
returns of Class A, Class B, Class C and Class D shares of the International
Portfolio for the fiscal year ended September 30, 1999 and for the period
November 25, 1997 (commencement of
34
<PAGE>
operations) through September 30, 1999 were: Class A: 32.94% and 11.29%,
respectively; Class B: 34.09% and 11.75%, respectively; Class C: 38.65% and
13.96%, respectively; and Class D: 40.59% and 14.79%, respectively.
In addition, each Portfolio 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. These calculations may or
may not reflect the imposition of the maximum front-end sales charge for
Class A or the deduction of the CDSC for each of Class B and Class C which, if
reflected, would reduce the performance quoted. For example, the average annual
total return of each Portfolio may be calculated in the manner described above,
but without deduction for any applicable sales charge. Based on this
calculation, the average annual total returns of Class A, Class B, Class C and
Class D shares of the Domestic Portfolio for the fiscal year ended
September 30, 1999 and for the period November 25, 1997 (commencement of
operations) through September 30, 1999 were: Class A: 25.00% and 11.42%,
respectively; Class B: 23.96% and 10.61%, respectively; Class C: 24.55% and
10.89%, respectively; and Class D: 25.28% and 22.62%, respectively. Based on
this calculation, the average annual total returns of Class A, Class B, Class C
and Class D shares of the International Portfolio for the fiscal year ended
September 30, 1999 and for the period November 25, 1997 (commencement of
operations) through September 30, 1999 were: Class A: 40.31% and 14.59%,
respectively; Class B: 39.09% and 13.71%, respectively; Class C: 39.65% and
13.96%, respectively; and Class D: 40.59% and 14.79%, respectively.
Without the waiver of fees and assumption of expenses by the Investment
Manager, the average annual total return of Class A, Class B, Class C and Class
D shares of the Domestic Portfolio for the fiscal year ended September 30, 1999
and for the period November 25, 1997 (commencement of operations) through
September 30, 1999 were: Class A: 17.82% and 7.04%, respectively; Class B:
18.42% and 7.86%, respectively; Class C: 22.90% and 9.95%, respectively; Class
D: 24.74% and 10.84%, respectively. Without the waiver of fees and assumption of
expenses by the Investment Manager, the average annual total return of Class A,
Class B, Class C and Class D shares of the International Portfolio for the
fiscal year ended September 30, 1999 and for the period November 25, 1997
(commencement of operations) through September 30, 1999 were: Class A: 31.59%
and 9.53%, respectively; Class B: 33.10% and 9.85%, respectively; Class C:
37.98% and 12.93%, respectively; Class D: 40.26% and 14.54%, respectively.
In addition, each Portfolio may compute its aggregate total return for each
Class for specified periods by determining the aggregate percentage rate which
will result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed that
all dividends and distributions are reinvested. The formula for computing
aggregate total return involves a percentage obtained by dividing the ending
value (without reduction for any sales charge) by the initial $1,000 investment
and subtracting 1 from the result. Based on this calculation, the total returns
of Class A, Class B, Class C and Class D shares of the Domestic Portfolio for
the fiscal year ended September 30, 1999 and for the period November 25, 1997
(commencement of operations) through September 30, 1999 were: Class A: 25.00%
and 22.08%, respectively; Class B: 23.96% and 20.45%, respectively; Class C:
24.55% and 21.02%, respectively; and Class D: 25.28% and 22.62%, respectively.
Based on this calculation, the total returns of Class A, Class B, Class C and
Class D shares of the International Portfolio for the fiscal year ended
September 30, 1999 and for the period November 25, 1997 (commencement of
operations) through September 30, 1999 were: Class A: 40.31% and 28.58%,
respectively; Class B: 39.09% and 26.76%, respectively; Class C: 39.65% and
27.27%, respectively; and Class D: 40.59% and 28.98%, respectively.
The Portfolios may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of each Portfolio by
adding 1 to each Portfolio's aggregate total return to date (expressed as a
decimal and without taking into account the effect of any applicable CDSC) and
multiplying by $9,475, $48,000 and $97,000 in the case of Class A (investments
of $10,000, $50,000 and $100,000 adjusted for the initial sales charge) or by
$10,000, $50,000 and $100,000 in the case of each
35
<PAGE>
of Class B, Class C and Class D, as the case may be. Investments of $10,000,
$50,000 and $100,000 in each Class of the respective Portfolios at inception of
the Class would have grown to the following amounts at September 30, 1999:
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
INCEPTION --------------------------------
DOMESTIC PORTFOLIO DATE: $10,000 $50,000 $100,000
- ----------------------------------- -------- ------- ------- --------
<S> <C> <C> <C> <C>
Class A............................ 11/25/97 $11,567 $58,598 $118,418
Class B............................ 11/25/97 12,045 60,225 120,450
Class C............................ 11/25/97 12,102 60,510 121,020
Class D............................ 11/25/97 12,262 61,310 122,620
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
INCEPTION --------------------------------
INTERNATIONAL PORTFOLIO DATE: $10,000 $50,000 $100,000
- ----------------------------------- -------- ------- ------- --------
<S> <C> <C> <C> <C>
Class A............................ 11/25/97 $12,183 $61,718 $124,723
Class B............................ 11/25/97 12,676 63,380 126,760
Class C............................ 11/25/97 12,727 63,635 127,270
Class D............................ 11/25/97 12,898 64,490 128,980
</TABLE>
Each Portfolio from time to time may also advertise its performance relative
to certain performance rankings and indexes compiled by recognized
organizations.
XII. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EXPERTS. The financial statements of the Fund for the fiscal year ended
September 30, 1999 included in this STATEMENT OF ADDITIONAL INFORMATION and
incorporated by reference in the PROSPECTUS have been so included and
incorporated herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of such firm as experts in
auditing and accounting.
*****
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 SEC. The complete REGISTRATION STATEMENT may be obtained from the
SEC.
36
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS - INTERNATIONAL
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999
<TABLE>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (49.6%)
134,849 Morgan Stanley Dean Witter European Growth Fund Inc...................................... $2,737,442
13,956 Morgan Stanley Dean Witter International SmallCap Fund................................... 160,488
86,775 Morgan Stanley Dean Witter Japan Fund.................................................... 840,849
39,689 Morgan Stanley Dean Witter Pacific Growth Fund Inc....................................... 575,495
----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $3,947,446)............................................................. 4,314,274
----------
</TABLE>
<TABLE>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (48.9%)
U.S. GOVERNMENT AGENCY
$ 4,250 Federal Home Loan Mortgage Corp. 5.20% due 10/01/99 (AMORTIZED COST $4,250,000)........ 4,250,000
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $8,197,446) (b)............................................................ 98.5% 8,564,274
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.............................................. 1.5 130,910
----- -----------
NET ASSETS.................................................................................. 100.0% $ 8,695,184
----- -----------
----- -----------
</TABLE>
- ---------------------
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $437,809 and the
aggregate gross unrealized depreciation is $70,981, resulting in net
unrealized appreciation of $366,828.
SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS - DOMESTIC
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999
<TABLE>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (71.9%)
23,937 Morgan Stanley Dean Witter American Opportunities Fund.................................. $ 843,054
58,358 Morgan Stanley Dean Witter Competitive Edge Fund -
"Best Ideas" Portfolio................................................................ 665,860
32,970 Morgan Stanley Dean Witter Dividend Growth Securities Inc............................... 1,937,987
315,177 Morgan Stanley Dean Witter Intermediate Income Securities............................... 2,946,902
28,471 Morgan Stanley Dean Witter Market Leader Trust.......................................... 441,010
211,414 Morgan Stanley Dean Witter Natural Resource Development Securities Inc.................. 2,780,097
192,700 Morgan Stanley Dean Witter Precious Metals & Minerals Trust............................. 1,057,921
126,481 Morgan Stanley Dean Witter Short-Term Bond Fund......................................... 1,183,859
54,911 Morgan Stanley Dean Witter Special Value Fund........................................... 579,313
824,858 Morgan Stanley Dean Witter U.S. Government Securities Trust............................. 7,209,255
22,832 Morgan Stanley Dean Witter Value-Added Market Series - Equity Portfolio................. 844,796
-----------
TOTAL COMMON STOCKS
(IDENTIFIED COST $19,939,110)........................................................... 20,490,054
-----------
</TABLE>
<TABLE>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (28.8%)
U.S. GOVERNMENT AGENCY
$ 8,200 Federal Home Loan Mortgage Corp. 5.20% due 10/01/99 (AMORTIZED COST $8,200,000)........ 8,200,000
----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $28,139,110) (b).......................................................... 100.7% 28,690,054
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................................. (0.7) (206,409)
----- ------------
NET ASSETS................................................................................. 100.0% $ 28,483,645
----- ------------
----- ------------
</TABLE>
- ---------------------
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $554,095 and the
aggregate gross unrealized depreciation is $3,151, resulting in net
unrealized appreciation of $550,944.
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
<TABLE>
INTERNATIONAL DOMESTIC
- ---------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments in securities, at value
(identified cost $8,197,446 and
$28,139,110, respectively)........................ $8,564,274 $28,690,054
Cash................................................ 50,655 72,953
Receivable for:
Dividends....................................... -- 3,907
Shares of beneficial interest sold.............. 86,077 821
Receivable from affiliate........................... 22,268 17,148
Prepaid expenses and other assets................... 6,780 10,903
Deferred organizational expenses.................... 15,763 15,764
---------- -----------
TOTAL ASSETS................................... 8,745,817 28,811,550
---------- -----------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased....... -- 261,562
Plan of distribution fee........................ 5,830 23,586
Organizational expenses............................. 15,763 15,764
Accrued expenses and other payables................. 29,040 26,993
---------- -----------
TOTAL LIABILITIES.............................. 50,633 327,905
---------- -----------
NET ASSETS..................................... $8,695,184 $28,483,645
========== ===========
COMPOSITION OF NET ASSETS:
Paid-in-capital..................................... $7,391,983 $24,766,278
Net unrealized appreciation......................... 366,828 550,944
Accumulated undistributed net investment income..... 18,007 411,163
Accumulated undistributed net realized gain......... 918,366 2,755,260
---------- -----------
NET ASSETS..................................... $8,695,184 $28,483,645
========== ===========
CLASS A SHARES:
Net Assets.......................................... $1,074,100 $1,097,086
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR
VALUE)............................................ 84,330 95,096
NET ASSET VALUE PER SHARE...................... $12.74 $11.54
========== ===========
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET
VALUE).............................................. $13.45 $12.18
========== ===========
CLASS B SHARES:
Net Assets.......................................... $6,615,087 $26,007,050
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR
VALUE)............................................ 526,560 2,269,289
NET ASSET VALUE PER SHARE...................... $12.56 $11.46
========== ===========
CLASS C SHARES:
Net Assets.......................................... $441,520 $1,364,175
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR
VALUE)............................................ 35,014 118,456
NET ASSET VALUE PER SHARE...................... $12.61 $11.52
========== ===========
CLASS D SHARES:
Net Assets.......................................... $564,477 $15,334
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR
VALUE)............................................ 44,161 1,327
NET ASSET VALUE PER SHARE...................... $12.78 $11.56
========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
<TABLE>
INTERNATIONAL DOMESTIC
- ---------------------------------------------------------------------------------
<S> <C> <C>
NET INVESTMENT INCOME:
INCOME
Dividends............................................ $ -- $1,026,713
Interest............................................. 65,579 197,069
---------- ----------
TOTAL INCOME.................................... 65,579 1,223,782
---------- ----------
EXPENSES
Plan of distribution fee (Class A shares)............ 2,336 2,770
Plan of distribution fee (Class B shares)............ 43,656 266,308
Plan of distribution fee (Class C shares)............ 1,580 8,908
Shareholder reports and notices...................... 17,156 44,141
Professional fees.................................... 23,287 23,636
Transfer agent fees and expenses..................... 7,577 35,737
Custodian fees....................................... 6,089 12,665
Organizational expenses.............................. 4,993 4,993
Other................................................ 3,230 7,945
---------- ----------
TOTAL EXPENSES.................................. 109,904 407,103
Less: amounts waived/reimbursed...................... (62,332) (129,117)
---------- ----------
NET EXPENSES.................................... 47,572 277,986
---------- ----------
NET INVESTMENT INCOME........................... 18,007 945,796
---------- ----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain on investments..................... 838,002 1,621,000
Capital gain distributions received.................. 158,776 1,136,235
---------- ----------
NET REALIZED GAIN............................... 996,778 2,757,235
Net change in unrealized depreciation................ 730,380 2,572,316
---------- ----------
NET GAIN........................................ 1,727,158 5,329,551
---------- ----------
NET INCREASE......................................... $1,745,165 $6,275,347
========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
INTERNATIONAL DOMESTIC
------------------------------- -------------------------------
FOR THE PERIOD FOR THE PERIOD
NOVEMBER 25, NOVEMBER 25,
FOR THE YEAR 1997* FOR THE YEAR 1997*
ENDED THROUGH ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................. $ 18,007 $ 12,159 $ 945,796 $ 358,368
Net realized gain (loss).......................... 996,778 (78,412) 2,757,235 563,900
Net change in unrealized depreciation............. 730,380 (363,552) 2,572,316 (2,021,372)
---------- ---------- ----------- -----------
NET INCREASE (DECREASE)...................... 1,745,165 (429,805) 6,275,347 (1,099,104)
---------- ---------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares................................ -- (444) (47,405) (7,838)
Class B shares................................ -- (18,372) (697,012) (89,059)
Class C shares................................ -- (670) (45,091) (6,042)
Class D shares................................ -- (114) (493) (61)
Net realized gain
Class A shares................................ -- -- (27,008) --
Class B shares................................ -- -- (499,329) --
Class C shares................................ -- -- (32,843) --
Class D shares................................ -- -- (259) --
---------- ---------- ----------- -----------
TOTAL DIVIDENDS AND DISTRIBUTIONS............ -- (19,600) (1,349,440) (103,000)
---------- ---------- ----------- -----------
Net increase (decrease) from transactions in
shares of beneficial interest................... 2,996,421 4,353,003 (3,853,481) 28,563,323
---------- ---------- ----------- -----------
NET INCREASE................................. 4,741,586 3,903,598 1,072,426 27,361,219
NET ASSETS:
Beginning of period............................... 3,953,598 50,000 27,411,219 50,000
---------- ---------- ----------- -----------
END OF PERIOD................................ $8,695,184 $3,953,598 $28,483,645 $27,411,219
========== ========== =========== ===========
Undistributed net investment income............... $ 18,007 -- $ 411,163 $ 255,368
========== ========== =========== ===========
</TABLE>
- ---------------------
<TABLE>
<C> <S>
* Commencement of operations.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Fund of Funds (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a non-diversified,
open-end management investment company. The Fund will invest in Class D shares
of other open-end management investment companies that are either members of the
Morgan Stanley Dean Witter Family of Funds or managed by an investment advisor
that is an affiliate of Morgan Stanley Dean Witter Advisors Inc. (the
"Investment Manager") (individually, an "Underlying Fund" and collectively, the
"Underlying Funds").
The Fund, which consists of two separate portfolios ("Portfolios"),
International and Domestic, was organized as a Massachusetts business trust on
July 3, 1997 and had no operations other than those relating to organizational
matters and the issuance of 10,000 shares of beneficial interest for $100,000 to
the Investment Manager to effect the Fund's initial capitalization. Each
Portfolio issued 5,000 shares (1,250 per class) of beneficial interest for
$50,000 ($12,500 per class). The Fund commenced operations on November 25, 1997.
The investment objectives of each Portfolio are as follows:
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVE
<S> <C>
International Seeks long-term capital appreciation by investing in a selection
of Underlying Funds which invest their assets primarily in the
international equity markets.
Domestic Seeks to maximize total investment return through capital growth
and income by investing in a selection of Underlying Funds which
invest their assets primarily in the U.S. equity and fixed-
income markets.
</TABLE>
Each Portfolio offers Class A shares, Class B shares, Class C shares and
Class D shares. The four classes are substantially the same except that most
Class A shares are subject to a sales charge imposed at the time of purchase and
some Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
42
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1999, CONTINUED
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) Investments are valued at the net asset value
per share of each Underlying Fund determined as of the close of the New York
Stock Exchange on valuation date; and (2) short-term debt securities having a
maturity date of more than sixty days at time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
43
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1999, CONTINUED
F. ORGANIZATIONAL AND PREPAID EXPENSES -- The Investment Manager incurred the
organizational expenses of the Fund in the amount of approximately $50,000
($25,000 per Portfolio) which will be reimbursed for the full amount thereof,
exclusive of amounts waived of $18,472 ($9,236 per Portfolio). 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 no investment
management fee. However, the Fund, through its investments in the Underlying
Funds, will pay its pro rata share of the management or advisory or sub-advisory
fees to the Investment Manager and /or Sub-Advisors or Advisor of the Underlying
Funds.
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) until such time as the respective Portfolio has $50
million in net assets or November 30, 2000, whichever occurs first. At
September 30, 1999, included in the Statements of Assets and Liabilities are
receivables from an affiliate which represent expense reimbursements due to the
Portfolios.
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 (iii) Class C -- up to 1.0% of the
average daily net assets of Class C. In the case of Class A shares, amounts paid
under the Plan are paid to the Distributor for services provided. In the case of
Class B and Class C shares, amounts paid under the Plan are paid to the
Distributor for (1) services provided and the expenses borne by it and others in
the distribution of
44
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1999, CONTINUED
the shares of these Classes, including the payment of commissions for sales of
these Classes and incentive compensation to, and expenses of, Morgan Stanley
Dean Witter Financial Advisors and others who engage in or support distribution
of the shares or who service shareholder accounts, including overhead and
telephone expenses; (2) printing and distribution of prospectuses and reports
used in connection with the offering of these shares to other than current
shareholders; and (3) preparation, printing and distribution of sales literature
and advertising materials. In addition, the Distributor may utilize fees paid
pursuant to the Plan, in the case of Class B shares, to compensate Dean Witter
Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and Distributor,
and other selected broker-dealers for their opportunity costs in advancing such
amounts, which compensation would be in the form of a carrying charge on any
unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised International and Domestic that such excess amounts,
including carrying charges, totaled $1,195,523 and $2,145,788, respectively, at
September 30, 1999.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the year ended September 30, 1999, the distribution fee was
accrued for International and Domestic Class A shares and Class C shares at the
annual rate of 0.24% and 0.77%, and 0.23% and 0.54%, respectively.
The Distributor has informed International and Domestic that for the year ended
September 30, 1999, it received contingent deferred sales charges from certain
redemptions of the Fund's shares as follows: Class B shares -- $10,440 and
$92,477, respectively; and Class C shares -- $198 and
45
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1999, CONTINUED
$1,611, respectively; and received $7,924 and $5,726, respectively, in front-end
sales charges from sales of the Fund's Class A shares. The respective
shareholders pay such charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended September 30, 1999 aggregated
$6,413,244 and $7,018,067, respectively, for International and $73,372,252 and
$79,070,173, respectively, for Domestic.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Funds transfer agent.
5. FEDERAL INCOME TAX STATUS
As of September 30, 1999, International had temporary book/tax differences
attributable to capital loss deferrals on wash sales. Domestic had permanent
book/tax differences attributable to capital gains retained by the Portfolio. To
reflect reclassifications arising from the permanent differences, accumulated
undistributed net realized gain was charged and paid-in-capital was credited
$6,436.
46
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1999, CONTINUED
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
INTERNATIONAL DOMESTIC
------------------------------------------------------ ---------------------------
FOR THE PERIOD
FOR THE YEAR NOVEMBER 25, 1997* FOR THE YEAR
ENDED THROUGH ENDED
SEPTEMBER 31, 1999 SEPTEMBER 30, 1998 SEPTEMBER 31, 1999
--------------------------- ------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Sold............................... 550,112 $ 6,239,334 67,277 $ 699,140 14,034 $ 155,913
Reinvestment of dividends and
distributions..................... -- -- 45 444 6,260 67,433
Redeemed........................... (531,386) (6,100,329) (2,968) (29,427) (64,979) (708,891)
---------- ------------- ---------- ----------- ---------- -------------
Net increase (decrease) -
Class A........................... 18,726 139,005 64,354 670,157 (44,685) (485,545)
---------- ------------- ---------- ----------- ---------- -------------
CLASS B
Sold............................... 500,948 5,944,141 397,997 3,985,486 398,969 4,424,123
Reinvestment of dividends and
distributions..................... -- -- 1,770 17,435 94,800 1,020,047
Redeemed........................... (333,419) (3,893,728) (41,986) (424,650) (742,013) (8,165,648)
---------- ------------- ---------- ----------- ---------- -------------
Net increase (decrease) -
Class B........................... 167,529 2,050,413 357,781 3,578,271 (248,244) (2,721,478)
---------- ------------- ---------- ----------- ---------- -------------
CLASS C
Sold............................... 33,776 404,327 11,806 118,681 22,129 249,660
Reinvestment of dividends and
distributions..................... -- -- 68 670 6,918 74,495
Redeemed........................... (10,432) (120,636) (1,454) (14,900) (86,673) (971,366)
---------- ------------- ---------- ----------- ---------- -------------
Net increase (decrease) -
Class C........................... 23,344 283,691 10,420 104,451 (57,626) (647,211)
---------- ------------- ---------- ----------- ---------- -------------
CLASS D
Sold............................... 44,401 542,528 1 10 -- --
Reinvestment of dividends and
distributions..................... -- -- 12 114 70 753
Redeemed........................... (1,503) (19,216) -- -- -- --
---------- ------------- ---------- ----------- ---------- -------------
Net increase - Class D............. 42,898 523,312 13 124 70 753
---------- ------------- ---------- ----------- ---------- -------------
Net increase (decrease) in Fund.... 252,497 $ 2,996,421 432,568 $ 4,353,003 (350,485) $ (3,853,481)
========== ============= ========== =========== ========== =============
<CAPTION>
DOMESTIC
-------------------------
FOR THE PERIOD
NOVEMBER 25, 1997*
THROUGH
SEPTEMBER 30, 1998
-------------------------
SHARES AMOUNT
----------- ------------
<S> <C> <C>
CLASS A
Sold............................... 195,957 $ 1,986,330
Reinvestment of dividends and
distributions..................... 724 7,325
Redeemed........................... (58,150) (627,694)
---------- -----------
Net increase (decrease) -
Class A........................... 138,531 1,365,961
---------- -----------
CLASS B
Sold............................... 2,941,410 29,850,040
Reinvestment of dividends and
distributions..................... 7,843 79,375
Redeemed........................... (432,970) (4,524,346)
---------- -----------
Net increase (decrease) -
Class B........................... 2,516,283 25,405,069
---------- -----------
CLASS C
Sold............................... 208,500 2,140,619
Reinvestment of dividends and
distributions..................... 564 5,713
Redeemed........................... (34,232) (354,110)
---------- -----------
Net increase (decrease) -
Class C........................... 174,832 1,792,222
---------- -----------
CLASS D
Sold............................... 1 10
Reinvestment of dividends and
distributions..................... 6 61
Redeemed........................... -- --
---------- -----------
Net increase - Class D............. 7 71
---------- -----------
Net increase (decrease) in Fund.... 2,829,653 $28,563,323
========== ===========
</TABLE>
- ---------------------
* Commencement of operations.
47
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
INTERNATIONAL
-------------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS D SHARES
------------------------- ---------------------- ------------------------- -------------------------
1999** 1998* 1999** 1998* 1999** 1998* 1999** 1998*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:++
Net asset value,
beginning of
period............ $ 9.08 $10.00 $ 9.03 $ 10.00 $ 9.03 $10.00 $ 9.09 $10.00
------- ------ ------- --------- ------- ------ ------- ------
Income (loss) from
investment
operations:
Net investment
income......... 0.10 0.05 0.02 0.03 0.07 0.04 0.23 0.14
Net realized
and unrealized
gain (loss).... 3.56 (0.88) 3.51 (0.91) 3.51 (0.92) 3.46 (0.96)
------- ------ ------- --------- ------- ------ ------- ------
Total income
(loss) from
investment
operations........ 3.66 (0.83) 3.53 (0.88) 3.58 (0.88) 3.69 (0.82)
------- ------ ------- --------- ------- ------ ------- ------
Less dividends
from net
investment
income............ -- (0.09) -- (0.09) -- (0.09) -- (0.09)
------- ------ ------- --------- ------- ------ ------- ------
Net asset value,
end of period..... $ 12.74 $ 9.08 $ 12.56 $ 9.03 $ 12.61 $ 9.03 $ 12.78 $ 9.09
======= ====== ======= ========= ======= ====== ======= ======
TOTAL RETURN+..... 40.31% (8.36)%(1) 39.09% (8.87)%(1) 39.65% (8.87)%(1) 40.59% (8.26)%(1)
RATIOS TO
AVERAGE NET ASSETS
(3)(4)(5):
Expenses.......... 0.24% 0.25%(2) 1.00% 0.94%(2) 0.77% 0.92%(2) -- --
Net investment
income............ 0.91% 1.01%(2) 0.15% 0.32%(2) 0.38% 0.34%(2) 1.15% 1.26%(2)
SUPPLEMENTAL DATA:
Net assets, end of
period,
in thousands...... $ 1,074 $ 596 $ 6,615 $ 3,241 $ 442 $ 105 $ 564 $ 11
Portfolio turnover
rate.............. 154% 135%(1) 154% 135%(1) 154% 135%(1) 154% 135%(1)
</TABLE>
- ---------------------
* For the period November 25, 1997 (commencement of operations) through
September 30, 1998.
** For the year ended September 30, 1999.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all of its expenses that were reimbursed or waived by
the Investment Manager, the annualized expense and net investment income
(loss) ratios would have been 1.34% and (0.19)%, respectively, for the year
ended September 30, 1999 and 6.16% and (4.90)%, respectively, for the
period ended September 30, 1998, for Class A shares; 2.10% and (0.95)%,
respectively, for the year ended September 30, 1999 and 6.91% and (5.65)%,
respectively, for the period ended September 30, 1998, for Class B shares;
1.87% and (0.72)%, respectively, for the year ended September 30, 1999 and
6.91% and (5.65)%, respectively, for the period ended September 30, 1998,
for Class C shares; and 1.10% and 0.05%, respectively, for the year ended
September 30, 1999 and 5.91% and (4.65)%, respectively, for the period
ended September 30, 1998, for Class D shares.
(4) Does not include any expenses incurred as a result of investment in the
Underlying Funds.
(5) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
DOMESTIC
-----------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS D SHARES
------------------------- ---------------------- ------------------------ ------------------------
1999** 1998* 1999** 1998* 1999** 1998* 1999** 1998*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:++
Net asset value,
beginning of
period.............. $ 9.72 $10.00 $ 9.67 $ 10.00 $ 9.67 $10.00 $ 9.74 $10.00
------ ------ ------- --------- ------ ------ ------ ------
Income (loss) from
investment
operations:
Net investment
income........... 0.46 0.21 0.35 0.14 0.40 0.13 0.46 0.22
Net realized and
unrealized gain
(loss)........... 1.93 (0.44) 1.94 (0.42) 1.94 (0.41) 1.96 (0.43)
------ ------ ------- --------- ------ ------ ------ ------
Total income (loss)
from investment
operations.......... 2.39 (0.23) 2.29 (0.28) 2.34 (0.28) 2.42 (0.21)
------ ------ ------- --------- ------ ------ ------ ------
Less dividends and
distributions from:
Net investment
income........... (0.36) (0.05) (0.29) (0.05) (0.28) (0.05) (0.39) (0.05)
Net realized
gain............. (0.21) -- (0.21) -- (0.21) -- (0.21) --
------ ------ ------- --------- ------ ------ ------ ------
Total dividends and
distributions....... (0.57) (0.05) (0.50) (0.05) (0.49) (0.05) (0.60) (0.05)
------ ------ ------- --------- ------ ------ ------ ------
Net asset value, end
of period........... $11.54 $ 9.72 $ 11.46 $ 9.67 $11.52 $ 9.67 $11.56 $ 9.74
====== ====== ======= ========= ====== ====== ====== ======
TOTAL RETURN+....... 25.00% (2.33)%(1) 23.96% (2.83)%(1) 24.55% (2.83)%(1) 25.28% (2.13)%(1)
RATIOS TO AVERAGE
NET ASSETS
(3)(4)(5):
Expenses............ 0.23% 0.22%(2) 1.00% 0.92%(2) 0.54% 0.92%(2) -- --
Net investment
income.............. 3.92% 2.21%(2) 3.15% 1.51%(2) 3.61% 1.51%(2) 4.15% 2.43%(2)
SUPPLEMENTAL DATA:
Net assets, end of
period, in
thousands........... $1,097 $1,359 $26,007 $ 24,338 $1,364 $1,702 $ 15 $ 12
Portfolio turnover
rate................ 295% 227%(1) 295% 227%(1) 295% 227%(1) 295% 227%(1)
</TABLE>
- ---------------------
* For the period November 25, 1997 (commencement of operations) through
September 30, 1998.
** For the year ended September 30, 1999.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all of its expenses that were reimbursed or waived by
the Investment Manager, the annualized expense and net investment income
ratios would have been 0.67% and 3.48%, respectively, for the year ended
September 30, 1999 and 1.15% and 1.28%, respectively, for the period ended
September 30, 1998, for Class A shares; 1.44% and 2.71%, respectively, for
the year ended September 30, 1999 and 1.90% and 0.53%, respectively, for
the period ended September 30, 1998, for Class B shares; 0.98% and 3.17%,
respectively, for the year ended September 30, 1999 and 1.90% and 0.53%,
respectively, for the period ended September 30, 1998, for Class C shares;
and 0.44% and 3.71%, respectively, for the year ended September 30, 1999
and 0.90% and 1.53%, respectively, for the period ended September 30, 1998,
for Class D shares.
(4) Does not include any expenses incurred as a result of investment in the
Underlying Funds.
(5) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER FUND OF FUNDS
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios 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 the International Portfolio and the
Domestic Portfolio (constituting Morgan Stanley Dean Witter Fund of Funds,
hereafter referred to as the "Fund") at September 30, 1999, the results of their
operations for the year then ended, and the changes in their net assets and the
financial highlights for the year then ended and for the period November 25,
1997 (commencement of operations) through September 30, 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 audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
NOVEMBER 8, 1999
1999 FEDERAL TAX NOTICE (UNAUDITED)
During the fiscal year ended September 30, 1999, 8.45% of the
income dividends paid by Morgan Stanley Dean Witter Fund of Funds
-- Domestic Portfolio qualified for the dividends received
deduction available to corporations. For such period, the Domestic
Portfolio paid to its shareholders $0.0134 per share from
long-term capital gains.
50
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
PART C OTHER INFORMATION
Item 23. Exhibits
- -------- --------------------------------------------------------------------
1(a). Declaration of Trust of the Registrant, dated July 3, 1997, is
incorporated by reference to Exhibit 1 of the Initial Registration
Statement on Form N-1A, filed on July 3, 1997.
1(b). Amendment to the Declaration of Trust of the Registrant, dated
July 3, 1997, is incorporated by reference to Exhibit 1 of
Post-Effective Amendment No. 2 to the Registration Statement on
Form N-1A, filed on November 30, 1998.
2. Amended and Restated By-Laws of the Registrant, dated May 1, 1999,
is incorporated by reference to Exhibit 2 of Post-Effective
Amendment No. 3 to the Registration Statement on Form N-1A, filed on
September 28, 1999.
3. Not Applicable.
4. Amended Investment Management Agreement between the Registrant and
Morgan Stanley Dean Witter Advisors Inc., dated April 30, 1998, is
incorporated by reference to Exhibit 5 of Post-Effective Amendment
No. 2 to the Registration Statement on Form N-1A, filed on
November 30, 1998.
5(a). Amended Distribution Agreement, dated June 22, 1998, is incorporated
by reference to Exhibit 6(a) of Post-Effective Amendment No. 2 to
the Registration Statement on Form N-1A, filed on November 30, 1998.
5(b). Selected Dealer Agreement between Morgan Stanley Dean Witter
Distributors Inc. and Dean Witter Reynolds Inc., is incorporated by
reference to Exhibit 6(b) of the Initial Registration Statement on
Form N-1A, filed on July 3, 1997.
5(c). Omnibus Selected Dealer Agreement between Morgan Stanley Dean Witter
Distributors Inc. and National Financial Services Corporation, dated
October 17, 1998, is incorporated by reference to Exhibit 6(b) of
Post-Effective Amendment No. 2 to the Registration Statement on Form
N-1A, filed on November 30, 1998.
6. Not Applicable.
7. Custody Agreement between The Bank of New York and the Registrant is
incorporated by reference to Exhibit 8(a) of Pre-Effective Amendment
No. 1 to the Registration Statement on Form N-1A, filed on
September 17, 1997.
8(a). Amended and Restated Transfer Agency and Service Agreement, dated
June 22, 1998, is incorporated by reference to Exhibit 8 of
Post-Effective Amendment No. 2 to the Registration Statement on Form
N-1A, filed on November 30, 1998.
8(b). Amended Services Agreement, dated June 22, 1998, is incorporated by
reference to Exhibit 9 of Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A, filed on November 30, 1998.
1
<PAGE>
9(a). Opinion of Barry Fink, Esq., dated September 17, 1997, is
incorporated by reference to Exhibit 10(a) of Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A, filed on
September 17, 1997.
9(b). Opinion of Lane, Altman & Owens LLP, Massachusetts Counsel, dated
September 15, 1997, is incorporated by reference to Exhibit 10(b) of
Pre-Effective Amendment No. 1 to the Registration Statement on Form
N-1A, filed on September 17, 1997.
10. Consent of Independent Accountants, filed herein.
11. Not Applicable.
12. Not Applicable.
13. Plan of Distribution pursuant to Rule 12b-1, dated July 28, 1997, is
incorporated by reference to Exhibit 15 of Pre-Effective Amendment
No. 1 to the Registration Statement on Form N-1A, filed on
September 17, 1997.
14. Amended Multi-Class Plan pursuant to Rule 18f-3, dated June 22,
1998, is incorporated by reference to Exhibit 18 of Post-Effective
Amendment No. 2 to the Registration Statement on Form N-1A, filed on
November 30, 1998.
Other Powers of Attorney are incorporated by reference to Exhibit (Other)
of Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A, filed on September 17, 1997, and in the case of Wayne E.
Hedien, is incorporated by reference to Exhibit (Other) of
Post-Effective Amendment No. 1 to the Registration Statement on Form
N-1A, filed on May 5, 1998.
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND.
None
Item 25. INDEMNIFICATION.
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and
under Section 4.8 of the Registrant's By-Laws, the indemnification of the
Registrant's trustees, officers, employees and agents is permitted if it is
determined that they acted under the belief that their actions were in or not
opposed to the best interest of the Registrant, and, with respect to any
criminal proceeding, they had reasonable cause to believe their conduct was not
unlawful. In addition, indemnification is permitted only if it is determined
that the actions in question did not render them liable by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties or
by reason of reckless disregard of their obligations and duties to the
Registrant. Trustees, officers, employees and agents will be indemnified for the
expense of litigation if it is determined that they are entitled to
indemnification against any liability established in such litigation. The
Registrant may also advance money for these expenses provided that they give
their undertakings to repay the Registrant unless their conduct is later
determined to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any
2
<PAGE>
trustee, officer, employee or agent of the Registrant shall be liable for any
action or failure to act, except in the case of bad faith, willful
misfeasance, gross negligence or reckless disregard of duties to the
Registrant.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer, or controlling person of the Registrant
in connection with the successful defense of any action, suit or proceeding) is
asserted against the Registrant by such trustee, officer or controlling person
in connection with the shares being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act, and will
be governed by the final adjudication of such issue.
The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with Release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940, so
long as the interpretation of Sections 17(h) and 17(i) of such Act remains in
effect.
Registrant, in conjunction with the Investment Manager, Registrant's
Trustees, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was a
Trustee, officer, employee, or agent of Registrant, or who is or was serving at
the request of Registrant as a trustee, director, officer, employee or agent of
another trust or corporation, against any liability asserted against him and
incurred by him or arising out of his position. However, in no event will
Registrant maintain insurance to indemnify any such person for any act for which
Registrant itself is not permitted to indemnify him.
Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
See "The Fund and Its Management" in the Prospectus regarding the
business of the investment advisor. The following information is given regarding
officers of Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"). MSDW
Advisors is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co.
The term "Morgan Stanley Dean Witter Funds" refers to the following
registered investment companies:
Closed-End Investment Companies
- -------------------------------
(1) Morgan Stanley Dean Witter California Insured Municipal Income Trust
(2) Morgan Stanley Dean Witter California Quality Municipal Securities
(3) Morgan Stanley Dean Witter Government Income Trust
(4) Morgan Stanley Dean Witter High Income Advantage Trust
(5) Morgan Stanley Dean Witter High Income Advantage Trust II
(6) Morgan Stanley Dean Witter High Income Advantage Trust III
(7) Morgan Stanley Dean Witter Income Securities Inc.
(8) Morgan Stanley Dean Witter Insured California Municipal Securities
3
<PAGE>
(9) Morgan Stanley Dean Witter Insured Municipal Bond Trust
(10) Morgan Stanley Dean Witter Insured Municipal Income Trust
(11) Morgan Stanley Dean Witter Insured Municipal Securities
(12) Morgan Stanley Dean Witter Insured Municipal Trust
(13) Morgan Stanley Dean Witter Municipal Income Opportunities Trust
(14) Morgan Stanley Dean Witter Municipal Income Opportunities Trust II
(15) Morgan Stanley Dean Witter Municipal Income Opportunities Trust III
(16) Morgan Stanley Dean Witter Municipal Income Trust
(17) Morgan Stanley Dean Witter Municipal Income Trust II
(18) Morgan Stanley Dean Witter Municipal Income Trust III
(19) Morgan Stanley Dean Witter Municipal Premium Income Trust
(20) Morgan Stanley Dean Witter New York Quality Municipal Securities
(21) Morgan Stanley Dean Witter Prime Income Trust
(22) Morgan Stanley Dean Witter Quality Municipal Income Trust
(23) Morgan Stanley Dean Witter Quality Municipal Investment Trust
(24) Morgan Stanley Dean Witter Quality Municipal Securities
Open-end Investment Companies
- -----------------------------
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Money Trust
(4) Active Assets Tax-Free Trust
(5) Morgan Stanley Dean Witter Aggressive Equity Fund
(6) Morgan Stanley Dean Witter American Opportunities Fund
(7) Morgan Stanley Dean Witter Balanced Growth Fund
(8) Morgan Stanley Dean Witter Balanced Income Fund
(9) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(10) Morgan Stanley Dean Witter California Tax-Free Income Fund
(11) Morgan Stanley Dean Witter Capital 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 Utilities Fund
(24) Morgan Stanley Dean Witter Growth Fund
(25) Morgan Stanley Dean Witter Hawaii Municipal Trust
(26) Morgan Stanley Dean Witter Health Sciences Trust
(27) Morgan Stanley Dean Witter High Yield Securities Inc.
(28) Morgan Stanley Dean Witter Income Builder Fund
(29) Morgan Stanley Dean Witter Information Fund
(30) Morgan Stanley Dean Witter Intermediate Income Securities
(31) Morgan Stanley Dean Witter International Fund
(32) Morgan Stanley Dean Witter International SmallCap Fund
(33) Morgan Stanley Dean Witter Japan Fund
4
<PAGE>
(34) Morgan Stanley Dean Witter Latin American Growth Fund
(35) Morgan Stanley Dean Witter Limited Term Municipal Trust
(36) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(37) Morgan Stanley Dean Witter Market Leader Trust
(38) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(39) Morgan Stanley Dean Witter Mid-Cap Equity Trust
(40) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(41) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(42) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(43) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(44) Morgan Stanley Dean Witter Next Generation Trust
(45) Morgan Stanley Dean Witter North American Government Income Trust
(46) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(47) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(48) Morgan Stanley Dean Witter Real Estate Fund
(49) Morgan Stanley Dean Witter S&P 500 Index Fund
(50) Morgan Stanley Dean Witter S&P 500 Select Fund
(51) Morgan Stanley Dean Witter Select Dimensions Investment Series
(52) Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
(53) Morgan Stanley Dean Witter Short-Term Bond Fund
(54) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(55) Morgan Stanley Dean Witter Small Cap Growth Fund
(56) Morgan Stanley Dean Witter Special Value Fund
(57) Morgan Stanley Dean Witter Strategist Fund
(58) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(59) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(60) Morgan Stanley Dean Witter Total Market Index Fund
(61) Morgan Stanley Dean Witter Total Return Trust
(62) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(63) Morgan Stanley Dean Witter U.S. Government Securities Trust
(64) Morgan Stanley Dean Witter Utilities Fund
(65) Morgan Stanley Dean Witter Value-Added Market Series
(66) Morgan Stanley Dean Witter Value Fund
(67) Morgan Stanley Dean Witter Variable Investment Series
(68) Morgan Stanley Dean Witter World Wide Income Trust
5
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------------------
<S> <C>
Mitchell M. Merin President and Chief Operating Officer of Asset
President, Chief Management of Morgan Stanley Dean Witter & Co.
Executive Officer and ("MSDW); Chairman, Chief Executive Officer and Director
Director of Morgan Stanley Dean Witter Distributors Inc. ("MSDW
Distributors") and Morgan Stanley Dean Witter Trust FSB
("MSDW Trust"); President, Chief Executive Officer and
Director of Morgan Stanley Dean Witter Services Company
Inc. ("MSDW Services"); President of the Morgan Stanley
Dean Witter Funds; Executive Vice President and Director
of Dean Witter Reynolds Inc. ("DWR"); Director of various
MSDW subsidiaries.
Joseph J. McAlinden Vice President of the Morgan Stanley Dean Witter Funds;
Executive Vice President Director of MSDW Trust.
and Chief Investment
Officer
Ronald E. Robison President MSDW Trust; Executive Vice President, Chief
Executive Vice President, Administrative Officer and Director of MSDW Services;
Chief Administrative Vice President of the Morgan Stanley Dean Witter Funds.
Officer and Director
Edward C. Oelsner, III
Executive Vice President
Barry Fink Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary, General Counsel and Director of MSDW
Secretary, General Services; Senior Vice President, Assistant Secretary and
Counsel and Director Assistant General Counsel of MSDW Distributors; Vice
President, Secretary and General Counsel of the Morgan
Stanley Dean Witter Funds.
Peter M. Avelar Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the High
Yield Group
Mark Bavoso Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Douglas Brown
Senior Vice President
Rosalie Clough
Senior Vice President
and Director of Marketing
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------------------
<S> <C>
Richard Felegy
Senior Vice President
Edward F. Gaylor Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Robert S. Giambrone Senior Vice President of MSDW Services, MSDW
Senior Vice President Distributors and MSDW Trust and Director of MSDW Trust;
Vice President of the Morgan Stanley Dean Witter Funds.
Rajesh K. Gupta Vice President of various Morgan Stanley Dean Witter
Senior Vice President, Funds.
Director of the Taxable
Fixed Income Group and
Chief Administrative Officer -
Investments
Kenton J. Hinchliffe Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Kevin Hurley Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Jenny Beth Jones Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Michelle Kaufman Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
John B. Kemp, III President of MSDW Distributors.
Senior Vice President
Anita H. Kolleeny Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of Sector
Rotation
Ira N. Ross Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
Guy G. Rutherfurd, Jr. Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the Growth
Group
Rochelle G. Siegel Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------------------
<S> <C>
James Solloway
Senior Vice President
Paul D. Vance Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the Growth
and Income Group
Elizabeth A. Vetell
Senior Vice President
and Director of Shareholder
Communication
James F. Willison Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the
Tax-Exempt Fixed
Income Group
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President MSDW Services; Assistant Treasurer of MSDW
and Assistant Distributors; Treasurer and Chief Financial and Accounting
Treasurer Officer of the Morgan Stanley Dean Witter Funds.
Thomas Chronert
First Vice President
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President and
First Vice President Assistant Secretary of MSDW Services; Assistant
and Assistant Secretary Secretary of MSDW Distributors and the Morgan Stanley
Dean Witter Funds.
Salvatore DeSteno First Vice President of MSDW Services.
First Vice President
Peter W. Gurman
First Vice President
Michael Interrante First Vice President and Controller of MSDW Services;
First Vice President Assistant Treasurer of MSDW Distributors; First Vice
and Controller President and Treasurer of MSDW Trust.
David Johnson
First Vice President
Stanley Kapica
First Vice President
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------------------
<S> <C>
Lou Anne D. McInnis First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors and
Assistant Secretary the Morgan Stanley Dean Witter Funds.
Carsten Otto First Vice President and Assistant Secretary of MSDW
First Vice President Services; Assistant Secretary of MSDW Distributors and
and Assistant Secretary the Morgan Stanley Dean Witter Funds.
Ruth Rossi First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors and
Assistant Secretary the Morgan Stanley Dean Witter Funds.
James P. Wallin
First Vice President
Robert Abreu
Vice President
Dale Albright
Vice President
Joan G. Allman
Vice President
Andrew Arbenz
Vice President
Joseph Arcieri Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Armon Bar-Tur Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Raymond Basile
Vice President
Nancy Belza
Vice President
Maurice Bendrihem
Vice President and
Assistant Controller
Dale Boettcher
Vice President
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------------------
<S> <C>
Ronald Caldwell
Vice President
Joseph Cardwell
Vice President
Liam Carroll
Vice President
Philip Casparius
Vice President
Aaron Clark
Vice President
William Connerly
Vice President
David Dineen
Vice President
Sheila Finnerty Vice President of Morgan Stanley Dean Witter Prime
Vice President Income Trust.
Jeffrey D. Geffen
Vice President
Sandra Gelpieryn
Vice President
Charmaine George
Vice President
Michael Geringer
Vice President
Gail Gerrity
Vice President
Ellen Gold
Vice President
Stephen Greenhut
Vice President
Trey Hancock
Vice President
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------------------
<S> <C>
Matthew Haynes Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Peter Hermann Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
David T. Hoffman
Vice President
Kevin Jung Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Carol Espejo-Kane
Vice President
Nancy Karole-Kennedy
Vice President
Doug Ketterer
Vice President
Paula LaCosta Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Kimberly LaHart
Vice President
Thomas Lawlor
Vice President
Todd Lebo Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of MSDW Distributors and
Assistant Secretary the Morgan Stanley Dean Witter Funds.
Gerard J. Lian Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Nancy Login
Vice President
Sharon Loguercio
Vice President
Steven MacNamara
Vice President
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------------------
<S> <C>
Catherine Maniscalco Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Albert McGarity
Vice President
Teresa McRoberts Vice President of Morgan Stanley Dean Witter S&P 500
Vice President Select Fund.
Mark Mitchell
Vice President
Julie Morrone Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Mary Beth Mueller
Vice President
David Myers Vice President of Morgan Stanley Dean Witter Natural
Vice President Resource Development Securities Inc.
James Nash
Vice President
Richard Norris
Vice President
Anne Pickrell
Vice President
Dawn Rorke
Vice President
John Roscoe Vice President of Morgan Stanley Dean Witter
Vice President Real Estate Fund.
Hugh Rose
Vice President
Robert Rossetti Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Carl F. Sadler
Vice President
Deborah Santaniello
Vice President
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ------------------------------------------------------------
<S> <C>
Patrice Saunders
Vice President
Howard A. Schloss Vice President of Morgan Stanley Dean Witter Federal
Vice President Securities Trust.
Peter J. Seeley Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Robert Stearns
Vice President
Naomi Stein
Vice President
Michael Strayhorn
Vice President
Kathleen H. Stromberg Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
Marybeth Swisher
Vice President
Michael Thayer
Vice President
Robert Vanden Assem
Vice President
David Walsh
Vice President
Alice Weiss Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
John Wong
Vice President
</TABLE>
The principal address of MSDW Advisors, MSDW Services, MSDW
Distributors, DWR, and the Morgan Stanley Dean Witter Funds is Two World Trade
Center, New York, New York 10048. The principal address of MSDW is 1585
Broadway, New York, New York 10036. The principal address of MSDW Trust is 2
Harborside Financial Center, Jersey City, New Jersey 07311.
13
<PAGE>
Item 27. PRINCIPAL UNDERWRITERS
(a) Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors"), a
Delaware corporation, is the principal underwriter of the Registrant. MSDW
Distributors is also the principal underwriter of the following investment
companies:
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Money Trust
(4) Active Assets Tax-Free Trust
(5) Morgan Stanley Dean Witter Aggressive Equity Fund
(6) Morgan Stanley Dean Witter American Opportunities Fund
(7) Morgan Stanley Dean Witter Balanced Growth Fund
(8) Morgan Stanley Dean Witter Balanced Income Fund
(9) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(10) Morgan Stanley Dean Witter California Tax-Free Income Fund
(11) Morgan Stanley Dean Witter Capital 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 Utilities Fund
(24) Morgan Stanley Dean Witter Growth Fund
(25) Morgan Stanley Dean Witter Hawaii Municipal Trust
(26) Morgan Stanley Dean Witter Health Sciences Trust
(27) Morgan Stanley Dean Witter High Yield Securities Inc.
(28) Morgan Stanley Dean Witter Income Builder Fund
(29) Morgan Stanley Dean Witter Information Fund
(30) Morgan Stanley Dean Witter Intermediate Income Securities
(31) Morgan Stanley Dean Witter International Fund
(32) Morgan Stanley Dean Witter International SmallCap Fund
(33) Morgan Stanley Dean Witter Japan Fund
(34) Morgan Stanley Dean Witter Latin American Growth Fund
(35) Morgan Stanley Dean Witter Limited Term Municipal Trust
(36) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(37) Morgan Stanley Dean Witter Market Leader Trust
(38) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(39) Morgan Stanley Dean Witter Mid-Cap Equity Trust
(40) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(41) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(42) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(43) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(44) Morgan Stanley Dean Witter Next Generation Trust
(45) Morgan Stanley Dean Witter North American Government Income Trust
14
<PAGE>
(46) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(47) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(48) Morgan Stanley Dean Witter Prime Income Trust
(49) Morgan Stanley Dean Witter Real Estate 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 Short-Term Bond Fund
(53) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(54) Morgan Stanley Dean Witter Small Cap Growth Fund
(55) Morgan Stanley Dean Witter Special Value Fund
(56) Morgan Stanley Dean Witter Strategist Fund
(57) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(58) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(59) Morgan Stanley Dean Witter Total Market Index Fund
(60) Morgan Stanley Dean Witter Total Return Trust
(61) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(62) Morgan Stanley Dean Witter U.S. Government Securities Trust
(63) Morgan Stanley Dean Witter Utilities Fund
(64) Morgan Stanley Dean Witter Value-Added Market Series
(65) Morgan Stanley Dean Witter Value Fund
(66) Morgan Stanley Dean Witter Variable Investment Series
(67) Morgan Stanley Dean Witter World Wide Income Trust
(b) The following information is given regarding directors and officers of MSDW
Distributors not listed in Item 26 above. The principal address of MSDW
Distributors is Two World Trade Center, New York, New York 10048. Other than Mr.
Purcell, who is a Trustee of the Registrant, none of the following persons has
any position or office with the Registrant.
Name Positions and Office with MSDW Distributors
- ---- -------------------------------------------
Michael T. Gregg Vice President and Assistant Secretary.
James F. Higgins Director
Fredrick K. Kubler Senior Vice President, Assistant Secretary and Chief
Compliance Officer.
Philip J. Purcell Director
John Schaeffer Director
Charles Vadala Senior Vice President and Financial Principal.
Item 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Investment Manager at its offices, except records relating to
holders of shares issued by the Registrant, which are maintained by the
Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
15
<PAGE>
Item 29. MANAGEMENT SERVICES
Registrant is not a party to any such management-related service contract.
Item 30. UNDERTAKINGS
Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York on the 29th day of November, 1999.
MORGAN STANLEY DEAN WITTER
FUND OF FUNDS
By: /s/ Barry Fink
---------------------------------
Barry Fink
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 4 has been signed below by the following persons in
the capacities and on the dates indicated.
Signatures Title Date
--------- ----- ----
(1) Principal Executive Officer Chairman, Chief Executive
Officer and Trustee
By: /s/ Charles A. Fiumefreddo 11/29/99
--------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By: /s/ Thomas F. Caloia 11/29/99
--------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By: /s/ Barry Fink 11/29/99
--------------------------
Barry Fink
Attorney-in-Fact
Michael Bozic Manuel H. Johnson
Edwin J. Garn Michael E. Nugent
Wayne E. Hedien John L. Schroeder
By: /s/David M. Butowsky 11/29/99
--------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
EXHIBIT INDEX
10. Consent of Independent Accountants.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 4 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
November 8, 1999, relating to the financial statements and financial
highlights of Morgan Stanley Dean Witter Fund of Funds, which appears in such
Statement of Additional Information, and to the incorporation by reference of
our report into the Prospectus which constitutes part of this Registration
Statement. We also consent to the references to us under the headings
"Custodian and Independent Accountants" and "Experts" in such Statement of
Additional Information and to the reference to us under the heading
"Financial Highlights" in such Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
November 29, 1999
