<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS TWO WORLD TRADE CENTER,
LETTER TO THE SHAREHOLDERS SEPTEMBER 30, 1999 NEW YORK, NEW YORK 10048
DEAR SHAREHOLDER:
This annual report to shareholders of Morgan Stanley Dean Witter Fund of Funds
(International Portfolio and Domestic Portfolio) covers the 12-month period
ended September 30, 1999.
INTERNATIONAL PORTFOLIO
The international markets, which had been a tremendous source of investor
concern in 1997 and 1998, experienced a dramatic change in sentiment during the
first nine months of 1999. After the devaluation of the Thai baht in 1997, the
severe economic problems that spread throughout Asia and reverberated everywhere
from Europe to Latin America finally seemed to abate, and business activity in
the region began to recover. Equity markets in Asia, particularly in the Pacific
Rim, and Europe exhibited convincing momentum as corporate profits rebounded.
The economic data coming out of Europe turned positive, while a continued
stabilization in Japan and the emerging Asian markets encouraged investors to
look outside of the United States for investment opportunities.
PERFORMANCE AND PORTFOLIO
For the 12-month period ended September 30, 1999, Morgan Stanley Dean Witter
Fund of Funds International Portfolio's Class A, B, C and D shares returned
40.31 percent, 39.09 percent, 39.65 percent and 40.59 percent, respectively.
During the same period, the Morgan Stanley Capital International (MSCI) Europe,
Australia, Far East Index returned 31.32 percent and the Lipper International
Funds Index returned 27.64 percent. The performance of the Fund's four share
classes varies because of differing expenses. (Total return figures assume the
reinvestment of all distributions and do not reflect the deduction of any
applicable sales charges.) The accompanying chart compares the Fund's
performance to that of the Lipper and MSCI indexes.
The Portfolio took an active position in the international markets until the end
of the summer when these markets looked uncertain once again. Toward the end of
the fiscal year, a defensive position was established that cushioned the
Portfolio from some volatile swings caused by anxiety over U.S. Federal Reserve
Board actions, Y2K fears
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
LETTER TO THE SHAREHOLDERS SEPTEMBER 30, 1999, CONTINUED
and a weak U.S. dollar. On September 30, 1999, the Fund's largest holdings were
Morgan Stanley Dean Witter European Growth Fund (31.96 percent of investments),
Morgan Stanley Dean Witter Japan Fund (9.82 percent of investments), Morgan
Stanley Dean Witter Pacific Growth Fund (6.72 percent of investments) and Morgan
Stanley Dean Witter International Small Cap Fund (1.87 percent of investments).
OUTLOOK
Going forward, the Fund anticipates maintaining the current allocations of an
overweight-to-neutral weight in the Asian-exposed funds and a neutral stance in
the European-exposed funds. The Fund believes that the Asian countries are
experiencing a genuine recovery that goes beyond trading rallies and that they
will continue to improve going into the new millennium although there may be
additional volatility during the next six months. The clear signs of recovery in
the commodities markets and the moderate inflationary environments strictly
monitored in the U.S. and abroad have helped to gain confidence of investors and
will hopefully withstand the Y2K anxiety that is expected globally in the fourth
quarter of 1999. The GDP outlook for countries worldwide is encouraging in 2000.
DOMESTIC PORTFOLIO
As previously mentioned, much of 1998 was roiled by turmoil in the international
markets and the near-collapse of a large hedge fund. Nonetheless, the underlying
strength of the robust U.S. economy reasserted itself, with some help from a
liquidity boost from the Federal Reserve Board. By the close of the fourth
quarter of 1998, the domestic equity market rebounded sharply. As 1999
progressed, however, the Federal Reserve grew increasingly concerned about the
potential overheating of the U.S. economy and a pick-up in inflation. This
concern was manifested in the two Fed moves, in June and August, that raised the
federal-funds rate a total of 50 basis points. Although breadth of the market
initially improved, the equity markets continued to be narrow in 1999, as a
handful of hot-performing large stocks carried the indexes.
PERFORMANCE AND PORTFOLIO
For the 12-month period ended September 30, 1999, the Domestic Portfolio's Class
A, B, C and D shares returned 25.00 percent, 23.96 percent, 24.55 percent and
25.28 percent, respectively. During the same period, the Standard & Poor's 500
Composite Stock Price Index (S&P 500) returned 27.79 percent, the Lipper
Flexible Funds Index returned 15.44 percent and the Lehman Brothers
Government/Corporate Bond Index returned -1.62 percent. The performance of the
Fund's four
2
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
LETTER TO THE SHAREHOLDERS SEPTEMBER 30, 1999, CONTINUED
share classes varies because of differing expenses. (Total return figures assume
the reinvestment of all distributions and do not reflect the deduction of any
applicable sales charges.) The accompanying chart compares the Fund's
performance to that of the Lipper, S&P 500 and Lehman indexes.
During the period under review, the Portfolio continued to buy a fairly large
cross-section of Morgan Stanley Dean Witter mutual funds. The "fund-of-funds"
concept is to diversify across asset classes, market capitalization and
investment styles. Retaining that essential diversity, during the second half of
1999, the Portfolio reduced its exposure to equity funds in order to take
advantage of the greater stability offered by cash and fixed-income funds. On
September 30, 1999, the Domestic Portfolio's largest holdings were Morgan
Stanley Dean Witter U.S. Government Securities (25.13 percent of investments),
Morgan Stanley Dean Witter Intermediate Income Securities (10.27 percent of
investments), Morgan Stanley Dean Witter Natural Resource Development Securities
(9.69 percent of investments), Morgan Stanley Dean Witter Dividend Growth
Securities (6.75 percent of investments) and Morgan Stanley Dean Witter
Short-Term Bond Fund (4.11 percent of investments).
OUTLOOK
Looking ahead, we believe that a number of factors will support a strong
domestic economy: central banks across the globe have eased monetary policies
and the Goldilocks economy remains vibrant and healthy. As such we anticipate
continuing the Domestic Portfolio's current investment strategy in the months
ahead although the mix of funds held will change as conditions warrant. The
Portfolio will attempt to maintain a cushion for its investors against
short-term volatility in particular markets and sectors by carefully
diversifying across investment styles, market caps and asset classes.
We appreciate your ongoing support of the Morgan Stanley Dean Witter Fund of
Funds and look forward to continuing to serve your investment needs.
Very truly yours,
[SIGNATURE]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
[SIGNATURE]
MITCHELL M. MERIN
PRESIDENT
3
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS -
INTERNATIONAL
FUND PERFORMANCE SEPTEMBER 30, 1999
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000
<S> <C> <C> <C> <C> <C> <C>
($ in Thousands)
CLASS A CLASS B CLASS C CLASS D MSCI(4) LIPPER(5)
November 1997 $9,475 $10,000 $10,000 $10,000 $10,000 $10,000
September 1998 $8,683 $9,113 $9,113 $9,174 $10,174 $9,912
September 1999 $12,183(3) $12,276(3) $12,727(3) $12,898(3) $13,361 $12,652
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR THE
FUND'S FOUR SHARE CLASSES VARIES BECAUSE OF DIFFERENCES IN SALES CHARGES AND
EXPENSES.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
---------------------------------------------------------------------------------------------------------------------
CLASS A SHARES* CLASS B SHARES+
------------------------------------------------------- -------------------------------------------------------
PERIOD ENDED 9/30/99 PERIOD ENDED 9/30/99
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 40.31%(1) 32.94%(2) 1 Year 39.09%(1) 34.09%(2)
Since Inception (11/25/97) 14.59 (1) 11.29 (2) Since Inception (11/25/97) 13.71 (1) 11.75 (2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES++ CLASS D SHARES#
------------------------------------------------------- ----------------------------------------------------------------
PERIOD ENDED 9/30/99 PERIOD ENDED 9/30/99
----------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 39.65%(1) 38.65%(2) 1 Year 40.59%(1)
Since Inception (11/25/97) 13.96 (1) 13.96 (2) Since Inception (11/25/97) 14.79 (1)
</TABLE>
- ------------------------
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable sales charge. See the Fund's current prospectus for
complete details on fees and sales charges.
(3) Closing value assuming a complete redemption on September 30, 1999.
(4) The Morgan Stanley Capital International EAFE Index (MSCI) 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.
(5) 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.
* The maximum front-end sales charge for Class A is 5.25%.
+ The maximum CDSC for Class B is 5.0%. The contingent deferred sales charge
(CDSC) declines to 0% after six years.
++ The maximum CDSC for Class C shares is 1% for shares redeemed within one
year of purchase.
# Class D shares have no sales charge.
4
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS -
DOMESTIC
FUND PERFORMANCE SEPTEMBER 30, 1999
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000
<S> <C> <C> <C> <C> <C> <C> <C>
($ in Thousands)
CLASS A CLASS B CLASS C CLASS D S&P(4) LEHMAN(5) LIPPER(6)
November 1997 $9,475 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
September 1998 $9,254 $9,717 $9,717 $9,787 $10,853 $11,061 $10,457
September 1999 $11,567(3) $11,645(3) $11,569(3) $11,646(3) $13,869 $10,882 $12,072
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR THE
FUND'S FOUR SHARE CLASSES VARIES BECAUSE OF DIFFERENCES IN SALES CHARGES AND
EXPENSES.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
---------------------------------------------------------------------------------------------------------------------
CLASS A SHARES* CLASS B SHARES+
------------------------------------------------------- -------------------------------------------------------
PERIOD ENDED 9/30/99 PERIOD ENDED 9/30/99
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 25.00%(1) 18.43%(2) 1 Year 23.96%(1) 18.96%(2)
Since Inception (11/25/97) 11.42(1) 8.21(2) Since Inception (11/25/97) 10.61(1) 8.60(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES++ CLASS D SHARES#
------------------------------------------------------- -------------------------------------------------------
PERIOD ENDED 9/30/99 PERIOD ENDED 9/30/99
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 24.55%(1) 23.55%(2) 1 Year 25.28%(1)
Since Inception (11/25/97) 10.89(1) 10.89(2) Since Inception (11/25/97) 11.68(1)
</TABLE>
- ------------------------
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable sales charge. See the Fund's current prospectus for
complete details on fees and sales charges.
(3) Closing value assuming a complete redemption on September 30, 1999.
(4) The Standard & Poor's 500 Stock Index (S&P 500) 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.
(5) 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.
(6) 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.
* The maximum front-end sales charge for Class A is 5.25%.
+ The maximum CDSC for Class B is 5.0%. The contingent deferred sales charge
(CDSC) declines to 0% after six years.
++ The maximum CDSC for Class C shares is 1% for shares redeemed within one
year of purchase.
# Class D shares have no sales charge.
5
<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
6
<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
7
<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
8
<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
9
<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>
- ---------------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
10
<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.
11
<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.
12
<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
13
<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
14
<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.
15
<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.
16
<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
17
<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
18
<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.
19
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
Manuel N. Johnson
Michael E. Nugent
Philip J. Purcell
John L Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and
trustees, fees, expenses and other pertinent information, please see the
prospectus of the Fund.
This report is not authorized for distribution to prospective investors in
the Fund unless preceded or accompanied by an effective prospectus. Read the
prospectus carefully before investing.
MORGAN STANLEY
DEAN WITTER
FUND OF FUNDS
[graphic]
ANNUAL REPORT
SEPTEMBER 30, 1999
