<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS TWO WORLD TRADE CENTER,
LETTER TO THE SHAREHOLDERS SEPTEMBER 30, 2000 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, 2000.
INTERNATIONAL PORTFOLIO
International markets exhibited strong performance through the end of 1999 and
in the first quarter of 2000. Emerging and developing markets alike remained
impressively solid through the potential Y2K crisis and have reported steadily
improving economic data in 2000. In the second half of the period, investors
became concerned about corporate profits against a backdrop of slowing global
economic growth, causing some problems for global equity markets.
PERFORMANCE AND PORTFOLIO STRATEGY
For the 12-month period ended September 30, 2000, Morgan Stanley Dean Witter
Fund of Funds International Portfolio's Class A, B, C and D shares returned 6.19
percent, 5.48 percent, 5.46 percent and 6.56 percent, respectively. During the
same period, the Morgan Stanley Capital International Europe, Australia, Far
East (MSCI EAFE) Index returned 3.18 percent. The performance of the Portfolio's
four share classes varies because each has different expenses. The total return
figures given assume the reinvestment of all distributions but do not reflect
the deduction of any applicable sales charges. The accompanying chart compares
the Portfolio's performance to that of the MSCI EAFE Index.
The Portfolio invests its assets among five Morgan Stanley Dean Witter
international funds: European Growth Fund, International SmallCap Fund, Japan
Fund, Pacific Growth Fund and Latin American Growth Fund. Through the first
three quarters of 2000, the underlying funds based in Asia and Europe continued
to perform admirably relative to their peers. The international funds the
Portfolio may invest in were
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
LETTER TO THE SHAREHOLDERS SEPTEMBER 30, 2000, CONTINUED
some of the primary beneficiaries of the global healing that occurred in 1999,
which the Portfolio was positioned to benefit from. At the end of the Fund's
last fiscal year, its managers established a defensive position that cushioned
the Portfolio from some volatile swings caused by anxiety over U.S. Federal
Reserve Board actions, Y2K and a weak U.S. dollar. However, positions were
rebuilt going into 1999's calendar-year end that coincided more closely with our
improved outlook for the foreign markets. Domestically, investors seemed
comfortable that the Fed's monetary policy decisions would remain gradual and
that the U.S. equity markets would not cause too much discomfort to their
international counterparts. Furthermore, the U.S. dollar gained strength versus
the euro and yen continuing this pattern well into 2000. At year-end 1999, the
Fund was weighted heavily in Europe, moderately in Japan and marginally in
small-cap and emerging-market underlying funds. By the end of September, the
Fund's European position was skimmed to increase its exposure to Asia.
LOOKING AHEAD
We anticipate maintaining the Portfolio's current allocations of an
overweighted-to-neutral weighting in Asian-exposed funds, particularly Japan,
and a neutral to underweighted stance in European-exposed funds. This decision
is heavily rooted in the currency relationship between the yen and the euro. We
believe that the Asian countries have been experiencing a genuine recovery that
goes beyond trading rallies. The commodities markets are a grave concern at the
moment, though the still relatively benign inflationary environments being
strictly monitored in the United States and abroad have helped foreign and
domestic investors alike gain confidence in the international markets. The
economic outlook for countries worldwide remains largely encouraging for this
year and next.
DOMESTIC PORTFOLIO
Concerns over potentially higher inflation caused by an overheating U.S. economy
prompted the Fed to continue instituting gradual rate hikes into the second
quarter of 2000. Although initially the soaring tech stocks seemed invincible,
they showed some signs of cracking by the end of the first quarter as
old-economy stocks began reemerging as leaders. Leadership of the market changed
hands frequently in the second and third quarters, with the end of September
finding both the Dow and the Nasdaq in negative territory. The volatility early
in the year, caused largely by speculation surrounding the Fed's
inflationary-biased monetary policy, died down as the summer went on and
inflation fears faded, but continuing turmoil in the market was spurred by
negative earnings reports in all sectors.
2
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
LETTER TO THE SHAREHOLDERS SEPTEMBER 30, 2000, CONTINUED
PERFORMANCE AND PORTFOLIO STRATEGY
For the 12-month period ended September 30, 2000, Morgan Stanley Dean Witter
Fund of Funds Domestic Portfolio's Class A, B, C and D shares returned 20.16
percent, 19.29 percent, 19.23 percent and 20.39 percent, respectively. During
the same period, the Standard & Poor's 500 Index returned 13.27 percent, while
the Lehman Brothers U.S. Government/Credit Index returned 6.74 percent. The
performance of the Portfolio's four share classes varies because each has
different expenses. The total return figures given assume the reinvestment of
all distributions but do not reflect the deduction of any applicable sales
charges. The accompanying chart compares the Portfolio's performance to that of
the S&P and Lehman indexes.
In keeping with its investment strategy, the Domestic Portfolio continues to
diversify its portfolio across a fairly large cross-section of Morgan Stanley
Dean Witter funds. Retaining that essential diversity, the structure of the
Portfolio was shifted in the second half of 1999 away from a relatively large
position in equity funds and took advantage of the greater stability offered by
cash and fixed-income funds. Once the Y2K concerns disappeared, the Portfolio
increased its equity exposure, reallocating assets across the majority of the
equity funds. The weightings from the start of the year into the summer months
reflected a barbell, with equal allocations to both aggressive growth and deep
value. By the end of the third quarter, the Fund had lessened considerably its
aggressive growth exposure yet remained heavily invested in the underlying
sector funds and value-style funds.
In the months ahead, we anticipate maintaining the Portfolio's current asset
mix, although the mix of funds held may change as conditions warrant. The
Portfolio will attempt to maintain a cushion for investors against short-term
volatility in particular markets and sectors, by careful diversification across
investment styles, market caps and asset classes.
LOOKING AHEAD
We believe that several factors will continue to support a strong domestic
economy. The Fed can be expected to maintain a gradual and conservative approach
to monetary policy in this election year, as it has so far. Once 2001 begins,
however, that may no longer be the case. For the markets as a whole, we expect
to see ongoing volatility but overall improvement as the outlook for the global
economy strengthens and prospects for the domestic fixed-income markets in the
coming months continuing to look positive.
3
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
LETTER TO THE SHAREHOLDERS SEPTEMBER 30, 2000, CONTINUED
We appreciate your ongoing support of Morgan Stanley Dean Witter Fund of Funds
and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ Charles A. Fiumefreddo /s/ Mitchell M. Merin
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
CHAIRMAN OF THE BOARD PRESIDENT
4
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS --
INTERNATIONAL
FUND PERFORMANCE SEPTEMBER 30, 2000
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
GROWTH OF $10,000
($ in Thousands)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D MSCI(4)
<S> <C> <C> <C> <C> <C>
November 1997 $9,475 $10,000 $10,000 $10,000 $10,000
September 1998 $8,683 $9,113 $9,113 $9,174 $10,151
September 1999 $12,183 $12,676 $12,727 $12,898 $13,293
September 2000 $12,937(3) $13,070(3) $13,422(3) $13,745(3) $13,716
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS A, CLASS B, CLASS C,
AND CLASS D SHARES WILL VARY DUE TO DIFFERENCES IN SALES CHARGES AND
EXPENSES.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES* CLASS B SHARES**
-------------------------------------------------------- ------------------------------------------------------------
PERIOD ENDED 9/30/00 PERIOD ENDED 9/30/00
------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 6.19%(1) 0.62%(2) 1 Year 5.48%(1) 0.56%(2)
Since Inception (11/25/97) 11.56%(1) 9.47%(2) Since Inception (11/25/97) 10.74%(1) 9.86%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES+ CLASS D SHARES#
---------------------------------------------------------- --------------------------------------------------------------
PERIOD ENDED 9/30/00 PERIOD ENDED 9/30/00
------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 5.46%(1) 4.48%(2) 1 Year 6.56%(1)
Since Inception (11/25/97) 10.89%(1) 10.89%(2) Since Inception (11/25/97) 11.82%(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, 2000.
(4) The Morgan Stanley Capital International EAFE Index ("MSCI EAFE Index")
measures the performance for a diverse range of global stock markets within
Europe, Australasia, and the Far East. The performance of the Index is
listed in U.S. dollars and assumes reinvestment of net dividends. "Net
dividends" reflects a reduction in dividends after taking into account
withholding of taxes by certain foreign countries represented in the Index.
The Index does not include any expenses, fees or charges. The Index is
unmanaged and should not be considered an investment.
* The maximum front-end sales charge for Class A is 5.25%.
** The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%.
The CDSC declines to 0% after six years.
+ The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of purchase.
# Class D shares have no sales charge.
5
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS -- DOMESTIC
FUND PERFORMANCE SEPTEMBER 30, 2000
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
GROWTH OF $10,000
($ in Thousands)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D LEHMAN(4) S&P 500(5)
<S> <C> <C> <C> <C> <C> <C>
November 1997 $9,475 $10,000 $10,000 $10,000 $10,000 $10,000
September 1998 $9,254 $9,717 $9,717 $9,787 $11,060 $10,853
September 1999 $11,567 $12,045 $12,102 $12,262 $10,881 $13,869
September 2000 $13,899(3) $14,068(3) $14,430(3) $14,762(3) $11,614 $15,710
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS A, CLASS B, CLASS C,
AND CLASS D SHARES WILL VARY DUE TO DIFFERENCES IN SALES CHARGES AND
EXPENSES.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
------------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES* CLASS B SHARES**
---------------------------------------------------------- ---------------------------------------------------------------
PERIOD ENDED 9/30/00 PERIOD ENDED 9/30/00
------------------------------ -----------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 20.16%(1) 13.85%(2) 1 Year 19.29%(1) 14.29%(2)
Since Inception (11/25/97) 14.40%(1) 12.26%(2) Since Inception (11/25/97) 13.57%(1) 12.73%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES+ CLASS D SHARES#
------------------------------------------------------ -------------------------------------------------------------------
PERIOD ENDED 9/30/00 PERIOD ENDED 9/30/00
-------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 19.23%(1) 18.23%(2) 1 Year 20.39%(1)
Since Inception (11/25/97) 13.75%(1) 13.75%(2) Since Inception (11/25/97) 14.66%(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, 2000.
(4) The Lehman Brothers U.S. Government/Credit Index (formerly Lehman Brothers
Government/Corporate Index) tracks the performance of government and
corporate obligations, including U.S. government agency and Treasury
securities and corporate and Yankee bonds. The Index does not include any
expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(5) The Standard and Poor's 500 Index (S&P 500-Registered Trademark-)is a
broad-based index, the performance of which is based on the performance of
500 widely-held common stocks chosen for market size, liquidity and
industry group representation. The Index does not include any expenses,
fees or charges. The Index is unmanaged and should not be considered an
investment.
* The maximum front-end sales charge for Class A is 5.25%.
** The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%.
The CDSC declines to 0% after six years.
+ The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of purchase.
# Class D shares have no sales charge.
6
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS -- INTERNATIONAL
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (98.2%)
2,506,635 Morgan Stanley Dean Witter European Growth Fund Inc.................................... $51,812,138
177,087 Morgan Stanley Dean Witter International SmallCap Fund................................. 1,928,483
2,892,309 Morgan Stanley Dean Witter Japan Fund.................................................. 28,691,700
683,875 Morgan Stanley Dean Witter Latin American Growth Fund.................................. 7,953,472
198,785 Morgan Stanley Dean Witter Pacific Growth Fund Inc..................................... 2,886,352
-----------
TOTAL COMMON STOCKS
(Cost $98,425,944)..................................................................... 93,272,145
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
----------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (6.8%)
U.S. GOVERNMENT AGENCY
$ 6,400 Federal National Mortgage Assoc. 6.32% due 10/02/00
(COST $6,398,876).................................................................... 6,398,876
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS (COST $104,824,820) (b).................................................. 105.0% 99,671,021
LIABILITIES IN EXCESS OF OTHER ASSETS...................................................... (5.0) (4,717,235)
----- ------------
NET ASSETS................................................................................. 100.0% $ 94,953,786
----- ------------
----- ------------
</TABLE>
---------------------
(a) 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 the
aggregate cost for book purposes. The aggregate gross and net unrealized
depreciation is $5,153,799.
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS -- DOMESTIC
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
-----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (92.1%)
161,075 Morgan Stanley Dean Witter Aggressive Equity Fund........................................ $ 2,738,277
61,124 Morgan Stanley Dean Witter American Opportunities Fund................................... 2,718,195
68,091 Morgan Stanley Dean Witter Capital Growth Securities..................................... 1,147,328
179,056 Morgan Stanley Dean Witter Convertible Securities Trust.................................. 3,085,138
502 Morgan Stanley Dean Witter Developing Growth Securities Trust............................ 19,141
61,166 Morgan Stanley Dean Witter Dividend Growth Securities Inc................................ 3,261,966
249,121 Morgan Stanley Dean Witter Financial Services Trust...................................... 3,246,040
358 Morgan Stanley Dean Witter Growth Fund................................................... 6,926
153,533 Morgan Stanley Dean Witter Health Sciences Trust......................................... 3,618,772
517 Morgan Stanley Dean Witter High Yield Securities Inc..................................... 2,113
1,372 Morgan Stanley Dean Witter Income Builder Fund........................................... 14,215
90,600 Morgan Stanley Dean Witter Market Leader Trust........................................... 1,840,993
215,388 Morgan Stanley Dean Witter Natural Resource Development Securities Inc................... 3,196,351
114,548 Morgan Stanley Dean Witter Special Value Fund............................................ 1,415,812
423 Morgan Stanley Dean Witter U.S. Government Securities Trust.............................. 3,689
165 Morgan Stanley Dean Witter Utilities Fund................................................ 3,475
342,423 Morgan Stanley Dean Witter Value Fund.................................................... 3,557,771
6 Morgan Stanley Dean Witter Value-Added Market Series/Equity Portfolio.................... 222
-----------
TOTAL COMMON STOCKS
(COST $26,713,453)....................................................................... 29,876,424
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
---------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (4.9%)
U.S. GOVERNMENT AGENCY
$ 1,600 Federal National Mortgage Assoc. 6.32% due 10/02/00
(COST $1,599,719)...................................................................... 1,599,719
-----------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(COST $28,313,172) (b)..................................................................... 97.0% 31,476,143
OTHER ASSETS IN EXCESS OF LIABILITIES...................................................... 3.0 982,163
----- ------------
NET ASSETS................................................................................. 100.0% $ 32,458,306
----- ------------
----- ------------
</TABLE>
---------------------
(a) 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 the
aggregate cost for book purposes. The aggregate gross unrealized
appreciation is $3,224,680 and the aggregate gross unrealized depreciation
is $61,709, resulting in net unrealized appreciation of $3,162,971.
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
INTERNATIONAL DOMESTIC
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments in securities, at value
(cost $104,824,820 and $28,313,172, respectively)............................. $ 99,671,021 $31,476,143
Cash............................................................................ 79,761 88,557
Receivable for:
Investments sold............................................................ -- 880,544
Shares of beneficial interest sold.......................................... 1,036,667 38,585
Receivable from affiliate....................................................... 27,092 10,606
Prepaid expenses and other assets............................................... 22,921 10,812
Deferred organizational expenses................................................ 10,756 10,756
------------ -----------
TOTAL ASSETS............................................................... 100,848,218 32,516,003
------------ -----------
LIABILITIES:
Payable for:
Investments purchased....................................................... 3,734,548 --
Shares of beneficial interest repurchased................................... 2,059,521 --
Plan of distribution fee.................................................... 40,794 25,527
Organizational expenses......................................................... 10,756 10,756
Accrued expenses and other payables............................................. 48,813 21,414
------------ -----------
TOTAL LIABILITIES.......................................................... 5,894,432 57,697
------------ -----------
NET ASSETS................................................................. $ 94,953,786 $32,458,306
============ ===========
COMPOSITION OF NET ASSETS:
Paid-in-capital................................................................. $101,213,896 $26,620,164
Net unrealized appreciation (depreciation)...................................... (5,153,799) 3,162,971
Accumulated undistributed net investment income................................. -- 708,139
Accumulated undistributed net realized gain (loss).............................. (1,106,311) 1,967,032
------------ -----------
NET ASSETS................................................................. $ 94,953,786 $32,458,306
============ ===========
CLASS A SHARES:
Net Assets...................................................................... $3,366,025 $1,492,674
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)....................... 267,336 120,715
NET ASSET VALUE PER SHARE.................................................. $12.59 $12.37
============ ===========
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE).......................... $13.29 $13.05
============ ===========
CLASS B SHARES:
Net Assets...................................................................... $43,697,135 $28,974,488
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)....................... 3,541,158 2,360,325
NET ASSET VALUE PER SHARE.................................................. $12.34 $12.28
============ ===========
CLASS C SHARES:
Net Assets...................................................................... $4,245,659 $1,953,741
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)....................... 343,224 159,014
NET ASSET VALUE PER SHARE.................................................. $12.37 $12.29
============ ===========
CLASS D SHARES:
Net Assets...................................................................... $43,644,967 $37,403
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)....................... 3,448,456 3,019
NET ASSET VALUE PER SHARE.................................................. $12.66 $12.39
============ ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
INTERNATIONAL DOMESTIC
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INVESTMENT INCOME (LOSS):
INCOME
Dividends........................................................................ $ 8,675 $1,006,201
Interest......................................................................... 169,608 105,861
----------- ----------
TOTAL INCOME................................................................ 178,283 1,112,062
----------- ----------
EXPENSES
Plan of distribution fee (Class A shares)........................................ 6,548 3,061
Plan of distribution fee (Class B shares)........................................ 264,437 280,597
Plan of distribution fee (Class C shares)........................................ 22,906 16,426
Shareholder reports and notices.................................................. 37,040 46,463
Transfer agent fees and expenses................................................. 46,507 31,032
Professional fees................................................................ 27,150 27,150
Custodian fees................................................................... 11,573 11,539
Organizational expenses.......................................................... 5,007 5,007
Registration fees................................................................ 38,727 2,969
Other............................................................................ 8,471 8,207
----------- ----------
TOTAL EXPENSES.............................................................. 468,366 432,451
Less: amounts waived/reimbursed.................................................. (174,475) (132,367)
----------- ----------
NET EXPENSES................................................................ 293,891 300,084
----------- ----------
NET INVESTMENT INCOME (LOSS)................................................ (115,608) 811,978
----------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments.......................................... (2,145,621) 1,494,456
Capital gain distributions received.............................................. 1,087,329 473,450
----------- ----------
NET REALIZED GAIN (LOSS).................................................... (1,058,292) 1,967,906
Net change in unrealized appreciation............................................ (5,520,627) 2,612,027
----------- ----------
NET GAIN (LOSS)............................................................. (6,578,919) 4,579,933
----------- ----------
NET INCREASE (DECREASE).......................................................... $(6,694,527) $5,391,911
=========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INTERNATIONAL DOMESTIC
-------------------------------------- --------------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income
(loss).................... $ (115,608) $ 18,007 $ 811,978 $ 945,796
Net realized gain (loss).... (1,058,292) 996,778 1,967,906 2,757,235
Net change in unrealized
appreciation/depreciation.. (5,520,627) 730,380 2,612,027 2,572,316
----------- ----------- ----------- -----------
NET INCREASE
(DECREASE)............. (6,694,527) 1,745,165 5,391,911 6,275,347
----------- ----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS
TO SHAREHOLDERS FROM:
Net investment income
Class A shares.......... (3,349) -- (28,024) (47,405)
Class B shares.......... (6,945) -- (455,908) (697,012)
Class C shares.......... (1,794) -- (30,653) (45,091)
Class D shares.......... (5,919) -- (417) (493)
Net realized gain
Class A shares.......... (88,353) -- (106,057) (27,008)
Class B shares.......... (722,204) -- (2,514,503) (499,329)
Class C shares.......... (53,378) -- (134,131) (32,843)
Class D shares.......... (102,450) -- (1,443) (259)
----------- ----------- ----------- -----------
TOTAL DIVIDENDS AND
DISTRIBUTIONS.......... (984,392) -- (3,271,136) (1,349,440)
----------- ----------- ----------- -----------
Net increase (decrease) from
transactions in shares of
beneficial interest....... 93,937,521 2,996,421 1,853,886 (3,853,481)
----------- ----------- ----------- -----------
NET INCREASE........... 86,258,602 4,741,586 3,974,661 1,072,426
NET ASSETS:
Beginning of period......... 8,695,184 3,953,598 28,483,645 27,411,219
----------- ----------- ----------- -----------
END OF PERIOD.......... $94,953,786 $ 8,695,184 $32,458,306 $28,483,645
=========== =========== =========== ===========
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS)............. $ -- $ 18,007 $ 708,139 $ 411,163
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000
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 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.
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
12
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000, CONTINUED
(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 tax purposes are reported as distributions of paid-in-capital.
F. ORGANIZATIONAL 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 $28,488 ($14,244 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.
13
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000, CONTINUED
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.
The Investment Manager has agreed to assume all operating expenses (except for
plan of distribution fees) until December 31, 2001. At September 30, 2000,
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 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
totaled $2,313,477 and $3,177,169, respectively, at September 30, 2000.
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
14
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000, CONTINUED
the year ended September 30, 2000, the distribution fee was accrued for
International and Domestic Class A shares and Class C shares at the annual rate
of 0.24% and 1.0%, and 0.24% and 1.0%, respectively.
The Distributor has informed International and Domestic that for the year ended
September 30, 2000, it received contingent deferred sales charges from certain
redemptions of the Fund's shares as follows: Class B shares -- $38,235 and
$106,602, respectively; and Class C shares -- $1,101 and $1,356, respectively;
and received $29,002 and $2,724, 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, 2000 aggregated
$135,401,166 and $38,777,046, respectively, for International and $129,583,982
and $124,304,094, respectively, for Domestic.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent.
5. FEDERAL INCOME TAX STATUS
As of September 30, 2000 International and Domestic had temporary book/tax
differences attributable to capital loss deferrals on wash sales and
International had permanent book/tax differences attributable to a net operating
loss. To reflect reclassifications arising from the permanent differences,
paid-in-capital was charged and net investment loss was credited $115,608.
15
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2000, CONTINUED
6. SHARES OF BENEFICIAL INTEREST
Transaction in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
INTERNATIONAL DOMESTIC
------------------------------------------------------ ---------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
--------------------------- ------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Sold............................... 3,095,873 $ 41,748,112 550,112 $ 6,239,334 42,018 $ 489,776
Reinvestment of dividends and
distributions..................... 6,664 91,630 -- -- 10,569 120,168
Redeemed........................... (2,919,531) (39,511,352) (531,386) (6,100,329) (26,968) (310,994)
---------- ------------- ---------- ----------- ---------- -------------
Net increase (decrease) -
Class A........................... 183,006 2,328,390 18,726 139,005 25,619 298,950
---------- ------------- ---------- ----------- ---------- -------------
CLASS B
Sold............................... 4,382,892 59,248,295 500,948 5,944,141 648,235 7,552,780
Reinvestment of dividends and
distributions..................... 49,809 675,406 -- -- 218,230 2,476,913
Redeemed........................... (1,418,103) (19,045,315) (333,419) (3,893,728) (775,429) (8,965,556)
---------- ------------- ---------- ----------- ---------- -------------
Net increase (decrease) -
Class B........................... 3,014,598 40,878,386 167,529 2,050,413 91,036 1,064,137
---------- ------------- ---------- ----------- ---------- -------------
CLASS C
Sold............................... 447,797 6,019,444 33,776 404,327 75,312 873,909
Reinvestment of dividends and
distributions..................... 3,771 51,282 -- -- 13,457 152,870
Redeemed........................... (143,358) (1,897,302) (10,432) (120,636) (48,211) (555,144)
---------- ------------- ---------- ----------- ---------- -------------
Net increase (decrease) -
Class C........................... 308,210 4,173,424 23,344 283,691 40,558 471,635
---------- ------------- ---------- ----------- ---------- -------------
CLASS D
Sold............................... 3,480,368 47,574,594 44,401 542,528 1,528 17,304
Reinvestment of dividends and
distributions..................... 5,418 74,762 -- -- 164 1,860
Redeemed........................... (81,491) (1,092,035) (1,503) (19,216) -- --
---------- ------------- ---------- ----------- ---------- -------------
Net increase - Class D............. 3,404,295 46,557,321 42,898 523,312 1,692 19,164
---------- ------------- ---------- ----------- ---------- -------------
Net increase (decrease) in Fund.... 6,910,109 $ 93,937,521 252,497 $ 2,996,421 158,905 $ 1,853,886
========== ============= ========== =========== ========== =============
<CAPTION>
DOMESTIC
-------------------------
FOR THE YEAR
ENDED
SEPTEMBER 30, 1999
-------------------------
SHARES AMOUNT
----------- ------------
<S> <C> <C>
CLASS A
Sold............................... 14,034 $ 155,913
Reinvestment of dividends and
distributions..................... 6,260 67,433
Redeemed........................... (64,979) (708,891)
---------- -----------
Net increase (decrease) -
Class A........................... (44,685) (485,545)
---------- -----------
CLASS B
Sold............................... 398,969 4,424,123
Reinvestment of dividends and
distributions..................... 94,800 1,020,047
Redeemed........................... (742,013) (8,165,648)
---------- -----------
Net increase (decrease) -
Class B........................... (248,244) (2,721,478)
---------- -----------
CLASS C
Sold............................... 22,129 249,660
Reinvestment of dividends and
distributions..................... 6,918 74,495
Redeemed........................... (86,673) (971,366)
---------- -----------
Net increase (decrease) -
Class C........................... (57,626) (647,211)
---------- -----------
CLASS D
Sold............................... -- --
Reinvestment of dividends and
distributions..................... 70 753
Redeemed........................... -- --
---------- -----------
Net increase - Class D............. 70 753
---------- -----------
Net increase (decrease) in Fund.... (350,485) $(3,853,481)
========== ===========
</TABLE>
16
<PAGE>
(This page has been left blank intentionally.)
17
<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>
NET ASSET NET TOTAL
VALUE INVESTMENT NET REALIZED TOTAL FROM DISTRIBUTIONS DIVIDENDS
YEAR ENDED BEGINNING INCOME AND UNREALIZED INVESTMENT DIVIDENDS TO TO AND
SEPTEMBER 30 OF PERIOD (LOSS) GAIN (LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTERNATIONAL++
CLASS A
1998* $10.00 $0.05 $(0.88) $(0.83) $(0.09) -- $(0.09)
1999 9.08 0.10 3.56 3.66 -- -- --
2000 12.74 0.03 0.85 0.88 (0.04) $(0.99) (1.03)
CLASS B
1998* 10.00 0.03 (0.91) (0.88) (0.09) -- (0.09)
1999 9.03 0.02 3.51 3.53 -- -- --
2000 12.56 (0.08) 0.86 0.78 (0.01) (0.99) (1.00)
CLASS C
1998* 10.00 0.04 (0.92) (0.88) (0.09) -- (0.09)
1999 9.03 0.07 3.51 3.58 -- -- --
2000 12.61 (0.08) 0.86 0.78 (0.03) (0.99) (1.02)
CLASS D
1998* 10.00 0.14 (0.96) (0.82) (0.09) -- (0.09)
1999 9.09 0.23 3.46 3.69 -- -- --
2000 12.78 0.04 0.89 0.93 (0.06) (0.99) (1.05)
</TABLE>
<TABLE>
<C> <S>
--------------------------------------------------------------------------------
* 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) Does not include any expenses incurred as a result of investment in the
Underlying Funds.
(4) Reflects overall Fund ratios for investment income and non-class specific
expenses.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS
(AFTER EXPENSES WERE ASSUMED) (3)(4)
------------------------------------
NET ASSET NET ASSETS NET
VALUE END OF INVESTMENT
END OF TOTAL PERIOD INCOME
PERIOD RETURN+ (000'S) EXPENSES (LOSS)
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTERNATIONAL++
CLASS A
1998* $ 9.08 (8.36)%(1) $ 596 0.25%(2) 1.01%(2)
1999 12.74 40.31 1,074 0.24 0.91
2000 12.59 6.19 3,366 0.24 0.12
CLASS B
1998* 9.03 (8.87)(1) 3,241 0.94(2) 0.32(2)
1999 12.56 39.09 6,615 1.00 0.15
2000 12.34 5.48 43,697 1.00 (0.64)
CLASS C
1998* 9.03 (8.87)(1) 105 0.92(2) 0.34(2)
1999 12.61 39.65 442 0.77 0.38
2000 12.37 5.46 4,246 1.00 (0.64)
CLASS D
1998* 9.09 (8.26)(1) 11 -- 1.26(2)
1999 12.78 40.59 564 -- 1.15
2000 12.66 6.56 43,645 -- 0.36
<CAPTION>
RATIOS TO AVERAGE NET ASSETS
(BEFORE EXPENSES WERE ASSUMED) (3)(4)
--------------------------------------
NET
INVESTMENT PORTFOLIO
INCOME TURNOVER
EXPENSES (LOSS) RATE
------------------------- ---------------------------------------------------
<S> <C> <C> <C>
INTERNATIONAL++
CLASS A
1998* 6.16%(2) (4.90)%(2) 135%(1)
1999 1.34 (0.19) 154
2000 0.60 (0.24) 85
CLASS B
1998* 6.91(2) (5.65)(2) 135(1)
1999 2.10 (0.95) 154
2000 1.36 (1.00) 85
CLASS C
1998* 6.91(2) (5.65)(2) 135(1)
1999 1.87 (0.72) 154
2000 1.36 (1.00) 85
CLASS D
1998* 5.91(2) (4.65)(2) 135(1)
1999 1.10 0.05 154
2000 0.36 0.00 85
</TABLE>
<TABLE>
<C> <S>
--------------------------------------------------------------------------------
* For the period November 25, 1997 (commencement of
++ The per share amounts were computed using an average
+ Does not reflect the deduction of sales charge. Calculated
(1) Not annualized.
(2) Annualized.
(3) Does not include any expenses incurred as a result of
(4) Reflects overall Fund ratios for investment income and non-class
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
NET ASSET TOTAL
VALUE NET NET REALIZED TOTAL FROM DISTRIBUTIONS DIVIDENDS
YEAR ENDED BEGINNING INVESTMENT AND UNREALIZED INVESTMENT DIVIDENDS TO TO AND
SEPTEMBER 30 OF PERIOD INCOME GAIN(LOSS) OPERATIONS SHAREHOLDERS SHAREHOLDERS DISTRIBUTIONS
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DOMESTIC ++
CLASS A
1998* $10.00 $0.21 $(0.44) $(0.23) $ (0.05) -- $ (0.05)
1999 9.72 0.46 1.93 2.39 (0.36) $ (0.21) (0.57)
2000 11.54 0.38 1.83 2.21 (0.29) (1.09) (1.38)
CLASS B
1998* 10.00 0.14 (0.42) (0.28) (0.05) -- (0.05)
1999 9.67 0.35 1.94 2.29 (0.29) (0.21) (0.50)
2000 11.46 0.30 1.81 2.11 (0.20) (1.09) (1.29)
CLASS C
1998* 10.00 0.13 (0.41) (0.28) (0.05) -- (0.05)
1999 9.67 0.40 1.94 2.34 (0.28) (0.21) (0.49)
2000 11.52 0.31 1.80 2.11 (0.25) (1.09) (1.34)
CLASS D
1998* 10.00 0.22 (0.43) (0.21) (0.05) -- (0.05)
1999 9.74 0.46 1.96 2.42 (0.39) (0.21) (0.60)
2000 11.56 0.48 1.75 2.23 (0.31) (1.09) (1.40)
</TABLE>
<TABLE>
<C> <S>
--------------------------------------------------------------------------------
* 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) Does not include any expenses incurred as a result of investment in the
Underlying Funds.
(4) Reflects overall Fund ratios for investment income and non-class specific
expenses.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS (AFTER
EXPENSES WERE ASSUMED) (3)(4)
NET ASSET NET ASSETS ------------------------------------
VALUE END OF NET
END OF TOTAL PERIOD INVESTMENT
PERIOD RETURN+ (000'S) EXPENSES INCOME
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DOMESTIC ++
CLASS A
1998* $ 9.72 (2.33)%(1) $ 1,359 0.22%(2) 2.21%(2)
1999 11.54 25.00 1,097 0.23 3.92
2000 12.37 20.16 1,493 0.24 3.35
CLASS B
1998* 9.67 (2.83)(1) 24,338 0.92(2) 1.51(2)
1999 11.46 23.96 26,007 1.00 3.15
2000 12.28 19.29 28,974 1.00 2.59
CLASS C
1998* 9.67 (2.83)(1) 1,702 0.92(2) 1.51(2)
1999 11.52 24.55 1,364 0.54 3.61
2000 12.29 19.23 1,954 1.00 2.59
CLASS D
1998* 9.74 (2.13)(1) 12 -- 2.43(2)
1999 11.56 25.28 15 -- 4.15
2000 12.39 20.39 37 -- 3.59
<CAPTION>
RATIOS TO AVERAGE NET ASSETS (BEFORE
EXPENSES WERE ASSUMED) (3)(4)
------------------------------------
NET PORTFOLIO
INVESTMENT TURNOVER
EXPENSES INCOME RATE
------------------------- ----------------------------------------------------
<S> <C> <C> <C>
DOMESTIC ++
CLASS A
1998* 1.15%(2) 1.28%(2) 227%(1)
1999 0.67 3.48 295
2000 0.67 2.92 434
CLASS B
1998* 1.90(2) 0.53(2) 227(1)
1999 1.44 2.71 295
2000 1.43 2.16 434
CLASS C
1998* 1.90(2) 0.53(2) 227(1)
1999 0.98 3.17 295
2000 1.43 2.16 434
CLASS D
1998* 0.90(2) 1.53(2) 227(1)
1999 0.44 3.71 295
2000 0.43 3.16 434
</TABLE>
21
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
MORGAN STANLEY DEAN WITTER FUND OF FUNDS:
We have audited the accompanying statements of assets and liabilities of Morgan
Stanley Dean Witter Fund of Funds (the "Fund"), comprising, respectively, the
International Portfolio and the Domestic Portfolio (the "Portfolios"), including
the portfolios of investments, as of September 30, 2000, and the related
statements of operations and of changes in net assets, and the financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The statements of changes in net assets for the year ended
September 30, 1999 and the financial highlights for each of the respective
stated periods ended September 30, 1999 were audited by other independent
accountants whose report, dated November 8, 1999, expressed an unqualified
opinion on those statements and financial highlights.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 2000 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Portfolios constituting Morgan Stanley Dean Witter Fund of
Funds as of September 30, 2000, the results of their operations, the changes in
their net assets, and the financial highlights for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.
Deloitte & Touche LLP
NEW YORK, NEW YORK
NOVEMBER 9, 2000
22
<PAGE>
MORGAN STANLEY DEAN WITTER FUND OF FUNDS
CHANGE IN INDEPENDENT ACCOUNTANTS
On July 1, 2000 PricewaterhouseCoopers LLP resigned as independent accountants
of the Fund.
The reports of PricewaterhouseCoopers LLP on the financial statements of the
Fund for the past two fiscal years contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle.
In connection with its audits for the two most recent fiscal years and through
July 1, 2000, there have been no disagreements with PricewaterhouseCoopers LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of PricewaterhouseCoopers LLP would have caused them to make
reference thereto in their report on the financial statements for such years.
The Fund, with the approval of its Board of Trustees and its Audit Committee,
engaged Deloitte & Touche LLP as its new independent accountants as of July 1,
2000.
----------------------------------------------------------------
2000 FEDERAL TAX NOTICE (UNAUDITED)
During the fiscal year ended September 30, 2000, Morgan Stanley
Dean Witter Fund of Funds (the "Fund") paid the following per
share amounts from long- term capital gains: $0.34 to Domestic
Portfolio shareholders and $0.19 to International Portfolio
shareholders. For such period, 3.54% of the income dividends paid
to Domestic Portfolio shareholders qualified for the dividends
received deduction available to corporations.
Of the Fund's ordinary income dividends paid during the fiscal
year ended September 30, 2000, the following percentages were
attributable to qualifying Federal obligations: 2.49% for Domestic
Portfolio shareholders and 3.85% for International Portfolio
shareholders. Please consult your tax advisor to determine if any
portion of the dividends received is exempt from state income tax.
------------------------------------------------------------------
23
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn MORGAN STANLEY
Wayne E. Hedien DEAN WITTER
James F. Higgins FUND OF FUNDS
Dr. Manuel H. 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 [PHOTO - DESCRIPION TO COME]
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
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 Distributors Inc., member NASD.
ANNUAL REPORT
SEPTEMBER 30, 2000
