<PAGE>
MORGAN STANLEY
DEAN WITTER
- --------------------------------------------------------------
<TABLE>
<S> <C>
DIRECTORS OFFICERS
Barton M. Biggs Stefanie V. Chang
CHAIRMAN OF THE BOARD VICE PRESIDENT
Director and Managing Director,
Morgan Stanley Dean Witter
Investment Management Inc. and
Morgan Stanley Dean Witter Harold J. Schaaff, Jr.
Investment Management Limited; VICE PRESIDENT
Managing Director, Morgan Stanley
& Co. Incorporated
Michael F. Klein
DIRECTOR AND PRESIDENT Joseph P. Stadler
Managing Director, Morgan Stanley VICE PRESIDENT
Dean Witter Investment Management
Inc. and Morgan Stanley & Co.
Incorporated
John D. Barrett II Mary E. Mullin
Chairman and Director, Barrett SECRETARY
Associates, Inc.
Gerard E. Jones
Partner, Richards & O'Neil LLP
Andrew McNally IV Karl O. Hartmann
River Road Partners ASSISTANT SECRETARY
Samuel T. Reeves
Chief Executive Officer,
Pinacle L.L.C.
Fergus Reid Belinda A. Brady
Chairman and Chief Executive TREASURER
Officer, LumeLite Plastics
Corporation
Frederick O. Robertshaw
Of Counsel, Copple, Chamberlin & Robin L. Conkey
Boehm, P.C. ASSISTANT TREASURER
INVESTMENT ADVISER AND
ADMINISTRATOR
Morgan Stanley Dean Witter
Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
DISTRIBUTOR
Morgan Stanley & Co., Incorporated
1221 Avenue of the Americas
New York, New York 10020
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, New York 11245
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
</TABLE>
FOR CURRENT PERFORMANCE, CURRENT NET ASSET VALUE, OR FOR ASSISTANCE
WITH YOUR ACCOUNT, PLEASE CONTACT THE FUND AT (800) 548-7786 OR
VISIT OUR WEBSITE AT WWW.MSDW.COM/INSTITUTIONAL/INVESTMENTMANAGEMENT.
MORGAN STANLEY DEAN WITTER
STRATEGIC ADVISER FUND, INC.
ANNUAL REPORT
DECEMBER 31, 1999
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
President's Letter................ 1
Managers' Reports and Portfolio of
Investments by Portfolio:
Conservative Portfolio.......... 3
Moderate Portfolio.............. 6
Aggressive Portfolio............ 9
Statement of Assets and
Liabilities....................... 12
Statement of Operations........... 13
Statement of Changes in Net
Assets............................ 14
Financial Highlights.............. 15
Notes to Financial Statements..... 18
Report of Independent
Accountants....................... 21
Federal Tax Information........... 22
</TABLE>
This report is authorized for distribution only when preceded or accompanied by
the prospectus of the Morgan Stanley Dean Witter Strategic Adviser Fund, Inc.
The prospectus describes in detail each of the Portfolio's investment policies
to the prospective investor. Please read the prospectus carefully before you
invest or send money.
- --------------------------------------------------------------------------------
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
- --------------------------------------------------------------------------------
PRESIDENT'S LETTER
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
We are pleased to present to you the Fund's Annual Report for the year ended
December 31, 1999. Our Fund offers three Portfolios that are intended to provide
investors a range of asset allocation strategies designed to accommodate
different investors' philosophies, goals and risk tolerances. Set forth below is
a general market review for 1999 and market outlook for 2000. Portfolio manager
commentary, performance statistics and other useful information for each of the
Fund's Portfolios are presented later in this Report.
MARKET REVIEW
Global equity markets finished 1999 with strong gains, as the global economy
began to heal after the Asian and Russian economic crises experienced in 1997
and 1998. The S&P 500 delivered its fifth year of double-digit returns rising
21.0% in calendar year 1999. MSCI EAFE returned 27.0%, beating the S&P 500 for
the first time in five years, despite weak currencies in Europe. Emerging
markets, which had been performance laggards since the Mexico devaluation of
1994, finally recovered. The MSCI Emerging Markets Free Index rose 66.4%,
overcoming the Brazilian devaluation of the first quarter. The most
disappointing asset class was fixed income. As global growth stabilized and
resumed, inflationary fears mounted driving bond yields higher in the U.S. and
Europe. The Lehman Aggregate Bond Index returned -0.8% during a volatile year.
Although the U.S. bull market in the first half of 1999 showed signs of
broadening, market leadership narrowed dramatically in the second half. Value
stocks, which began to outperform growth in February and March, stagnated later
in the year, as inflation fears moderated and economic growth surprised on the
upside. The year ended with growth stocks (+33.2%) again dominating value stocks
(+7.4%) by a wide margin. Although rising interest rates and inflation
expectations are usually bad for stocks, markets have shrugged off rising rates
as growth surprises outpaced inflation surprises throughout 1999. This growth
environment was also reflected in the bond market. As investor confidence
improved, risk tolerance rose to more normal levels, benefiting spread products,
which had suffered large losses in the flight to quality at the end of 1998.
Fixed income spreads narrowed, and investment grade governments and corporates
(-2.1%) underperformed mortgages (+2.0%), high yield debt (+1.7%), and emerging
market debt (+26.0%).
Non-U.S. stock market performance was strong, despite being held back by weaker
European currencies. The strongest performing regions were those which had
suffered the most over the past three years of currency crises and debt
deflation. Japan led the developed markets, rising 61.5% in 1999, as the
Japanese economy bottomed and began to recover. The combination of low
valuations, low interest rates, and a better earnings outlook was a powerful
contributor to the rise in the Japanese market and a strengthening of the yen.
Pacific region stock performance (+38.1%) was also strong, but was highly
differentiated, as the countries hardest hit by the emerging market debt crisis,
Hong Kong (+59.5%) and Singapore (+60.2%), outperformed the more stable
economies of Australia (+17.6%) and New Zealand (+12.9%). European stock
performance was mixed during the year. In the first half, Eurozone economic
performance disappointed on the downside, as Germany continued to lag
contributing to poor equity performance and a weaker currency. Although European
economic performance was more robust in the second half, the Euro continued to
weaken, closing the year 15% below its January 1 level. Europe returned 15.9% in
1999. Emerging markets benefited from a sharp economic rebound in 1999, coupled
with a return to a more normal risk environment, which attracted
- --------------------------------------------------------------------------------
1
<PAGE>
capital to emerging markets. Asian economies bottomed in the early part of the
year, and began a steep trajectory of recovery. The depegging of Asian
currencies from the U.S. Dollar enabled many countries to exercise more
flexibility in economic management, and to some extent, decreased their
vulnerability to rising U.S. interest rates. With the bottoming of Latin America
in the second half of 1999, the emerging market recovery from the Asian and
Russian crises was complete.
MARKET OUTLOOK
Whereas global healing was the theme of 1999, we expect synchronized global
growth to be the theme of 2000. This environment is bullish for corporate
profits, particularly in non-U.S. markets, where the growth cycle is in a much
earlier stage and substantial slack remains in the economy. Non-U.S. equity
markets have started to outperform the U.S. in the second half of 1999 and we
expect this trend to continue in 2000. As growth in the global economy continues
apace, a key concern for investors will be inflation and interest rates.
Although central banks have tightened enough over the past 12 months to
neutralize the liquidity injected after the Russian crisis of 1998, they have
acted cautiously in light of potential Y2K problems. With Y2K having passed
uneventfully, central banks are now free to respond more aggressively to
potential inflationary pressures. The Fed is expected to increase rates at the
February meeting, and the U.S. bond market has already priced in a total of 75
basis points of tightening. In Europe, growth has accelerated in the fourth
quarter, causing many forecasters to expect the European Central Bank to tighten
in the spring.
Despite our rosy outlook for economic growth, we remain cautious towards
equities. As the Fed acts to slow the U.S. economy, profitability could be
squeezed, pressuring U.S. equity valuations. Because the U.S. market continues
to behave as the bellwether market, a sharp fall in U.S. equity prices would
likely lead other markets to fall in sympathy. We approach the investment
environment in 2000 with caution in the U.S. markets, as bond yields continue to
rise, and overvaluation levels have reached those of July 1987. We are more
optimistic in the non-U.S., where inflationary pressures are more dormant, and
growth appears to be accelerating.
Sincerely,
/s/ Michael F. Klein
Michael F. Klein
PRESIDENT
February 2000
- --------------------------------------------------------------------------------
2
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
CONSERVATIVE PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- ----------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
U.S. Fixed Income 76.0%
U.S. Equity 19.4%
International Equity 2.9%
International Fixed Income 1.1%
Other 0.6%
</TABLE>
PERFORMANCE COMPARED TO THE LEHMAN 1-3 YEAR
GOVERNMENT BOND INDEX AND THE COMPOSITE INDEX(1)
- -----------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
--------------------------
ONE AVERAGE ANNUAL
YEAR SINCE INCEPTION
-------- ---------------
<S> <C> <C>
PORTFOLIO--CLASS A............... 8.69% 8.23%
PORTFOLIO--CLASS B............... 8.33 7.92
LEHMAN 1-3 YEAR GOVERNMENT
BOND INDEX..................... 2.97 4.95
COMPOSITE INDEX.................. 6.38 8.70
</TABLE>
1.The Lehman 1-3 Year Government Bond Index is comprised of government agency
and treasury securities with maturities of 1-3 years. The Composite Index for
the Conservative Portfolio is a composite comprised of 70% of the Lehman 1-3
Year Government Bond Index, 20% of the S&P 500 Index and 10% of the Salomon
High Yield Market Index.
2.Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different fees charged to that class.
- ----------------------------------------------------------
THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD
NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST
PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A
DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL
INVESTING.
COMPARISON OF THE CHANGE IN VALUE
OF A $10,000 INVESTMENT
----------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CONSERVATIVE CONSERVATIVE LEHMAN 1-3 YEAR COMPOSITE
PORTFOLIO - CLASS A PORTFOLIO - CLASS B GOVERNMENT BOND INDEX(1)
INDEX(1)
<S> <C> <C> <C> <C>
12/31/97* $10,000 $10,000 $10,000 $10,000
12/31/98 $10,776 $10,752 $10,696 $11,108
12/31/99 $11,712 $11,648 $11,014 $11,817
*Commencement of operations
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Conservative Portfolio seeks the highest level of long-term total return
that is consistent with a relatively conservative level of risk. The Portfolio
invests primarily in certain fixed income portfolios, and, to a lesser degree,
certain equity portfolios of the Morgan Stanley Dean Witter Institutional Fund,
Inc. and the MAS Funds. The Portfolio's assets are normally allocated within the
ranges of 75%-85% fixed income and 15%-25% equities. The allocations are
expected to be relatively static with subtle periodic adjustments in response to
market developments.
For the year ended December 31, 1999, the Portfolio had a total return of 8.69%
for the Class A shares and 8.33% for the Class B shares compared to 2.97% for
the Lehman 1-3 Year Government Bond Index (the "Lehman Index") and 6.38% for the
Composite Index. For the period from inception on December 31, 1997 through
December 31, 1999, the Portfolio had an average annual total return of 8.23% for
the Class A shares and 7.92% for the Class B shares compared to 4.95% for the
Lehman Index and 8.70% for the Composite Index.
Our asset allocation during 1999 modestly overweighted equities and high yield
debt while underweighting high
- --------------------------------------------------------------------------------
Conservative Portfolio
3
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
CONSERVATIVE PORTFOLIO (CONT.)
quality fixed income. As of December 31, our allocation to U.S. equity
portfolios was 19.4%, with a 2.9% allocation to non-U.S. equities. Our
allocation to high yield and emerging market debt was 10.2%, while our
allocation to high quality U.S. fixed income was 75.1%.
The outperformance of the Portfolio was due to both strong security selection
within the underlying mutual funds and to marginal allocation decisions. The
MSDWIF Equity Growth Portfolio was the largest contributor to outperformance,
returning 39.89% for the year, exceeding the 21.04% return for the S&P 500
(inclusive of dividends). The MAS High Yield Portfolio also outperformed,
returning 7.79% relative to 1.74% for the Salomon High Yield Market Index. The
MAS Limited Duration Portfolio returned 3.77%, in line with the 2.97% return for
the Lehman 1-3 Year Government Index. In 1999, the continued economic strength
provided a benign environment for growth oriented strategies.
Allocation decisions that contributed positively to results included our
decision to overweight High Yield Debt and underweight high quality debt. This
position was positively rewarded, as spreads narrowed to more normal levels. Our
decision to slightly overweight U.S. equities also added value, as equity prices
continued to rise despite a weak bond market. Many of our allocation changes
throughout the year also added value. The introduction of mid and small cap
strategies during the second and fourth quarters significantly enhanced results.
The MAS Mid Cap Growth Portfolio rose 58% since its addition in the second
quarter, and the MAS Small Cap Growth Portfolio rose 99.6% since its addition in
the fourth quarter. Our allocation to non-U.S. stocks in the second half also
added value, as non-U.S. stocks outperformed the S&P 500 during this period.
Our investment strategy continues to emphasize a growth orientation. Within
fixed income, we remain primarily short duration, with an emphasis on spread
products, such as high yield and emerging market debt, which should outperform
Treasuries as economic growth strengthens. Within U.S. equities, we are
emphasizing growth strategies, such as Equity Growth, Mid Cap Growth, and Small
Cap Growth. We maintain a small allocation to non-U.S. equity markets as we
expect these economies to surpass the U.S. in the year 2000.
Francine J. Bovich
PORTFOLIO MANAGER
January 2000
- --------------------------------------------------------------------------------
Conservative Portfolio
4
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
CONSERVATIVE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ---------------------------------------------------------------------------------
INVESTMENTS (99.4%)
U.S. FIXED INCOME FUNDS (76.0%)
4,583 MAS Fixed Income Portfolio, Institutional Class ............ $ 50
52,632 MAS High Yield Portfolio, Institutional Class .............. 456
327,292 MAS Limited Duration Portfolio, Institutional Class ........ 3,309
------
3,815
------
U.S. EQUITY FUNDS (19.4%)
4,242 MAS Mid Cap Growth Portfolio, Institutional Class .......... 133
617 MAS Small Cap Growth Portfolio, Institutional Class ........ 31
15,885 MSDWIF Equity Growth Portfolio, Class A..................... 398
27,513 MSDWIF U.S. Equity Plus Portfolio, Class A.................. 339
7,791 MSDWIF Value Equity Portfolio, Class A...................... 75
------
976
------
INTERNATIONAL EQUITY FUNDS (2.9%)
3,220 MSDWIF Active International Allocation Portfolio,
Class A................................................... 46
5,112 MSDWIF Emerging Markets Portfolio, Class A.................. 98
------
144
------
INTERNATIONAL FIXED INCOME FUNDS (1.1%)
17,800 MSDWIF Emerging Markets Debt Portfolio, Class A............. 53
------
TOTAL INVESTMENTS (99.4%) (Cost $5,009)................................ 4,988
OTHER ASSETS AND LIABILITIES -- NET (0.6%)............................. 28
------
NET ASSETS (100%)...................................................... $5,016
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Conservative Portfolio
5
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
MODERATE PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- ----------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
U.S. Fixed Income 44.6%
U.S. Equity 35.0%
International Equity 18.2%
International Fixed Income 1.0%
Other 1.2%
</TABLE>
PERFORMANCE COMPARED TO THE S&P 500 INDEX
AND THE COMPOSITE INDEX(1)
- -----------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
--------------------------
ONE AVERAGE ANNUAL
YEAR SINCE INCEPTION
-------- ---------------
<S> <C> <C>
PORTFOLIO-CLASS A............... 15.79% 12.82%
PORTFOLIO-CLASS B............... 15.54 12.51
S&P 500 INDEX................... 21.04 24.75
COMPOSITE INDEX................. 11.43 14.21
</TABLE>
1. The S&P 500 Index is a stock index comprised of 500 large-cap U.S. companies
with market capitalization of $1 billion or more. These 500 companies are a
representative sample of some 100 industries, chosen mainly for market size,
liquidity and industry group representation. The Composite Index for the
Moderate Portfolio is a composite comprised of 40% of the Lehman Intermediate
Government/Corporate Bond Index, 35% of the S&P 500 Index, 15% of the Morgan
Stanley Capital International (MSCI) Europe, Australasia and Far East (EAFE)
Index and 10% of the Salomon High Yield Market Index.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different fees charged to that class.
- ----------------------------------------------------------
THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD
NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST
PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A
DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL
INVESTING.
COMPARISON OF THE CHANGE IN VALUE
OF A $10,000 INVESTMENT
----------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MODERATE PORTFOLIO-- MODERATE PORTFOLIO-- S&P 500 COMPOSITE
CLASS A CLASS B INDEX(1) INDEX(1)
<S> <C> <C> <C> <C>
12/31/97* $10,000 $10,000 $10,000 $10,000
12/31/98 $10,993 $10,957 $12,867 $11,706
12/31/99 $12,729 $12,660 $15,562 $13,044
*Commencement of operations
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Moderate Portfolio seeks the highest level of long-term total return
consistent with a relatively moderate level of risk primarily through investment
in a mix of fixed income and equity portfolios of the Morgan Stanley Dean Witter
Institutional Fund, Inc. and the MAS Funds. The Portfolio's assets are normally
allocated within the range of 45%-55% equities and 45%-55% fixed income. The
allocations are expected to be relatively static with subtle periodic
adjustments in response to market developments.
For the year ended December 31, 1999, the Portfolio had a total return of 15.79%
for the Class A shares and 15.54% for the Class B shares compared to 21.04% for
the S&P 500 Index and 11.43% for the Composite Index. For the period from
inception on December 31, 1997 through December 31, 1999, the Portfolio had an
average annual total return of 12.82% for the Class A shares and 12.51% for the
Class B shares compared to 24.75% for the S&P 500 Index and 14.21% for the
Composite Index.
- --------------------------------------------------------------------------------
Moderate Portfolio
6
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
MODERATE PORTFOLIO (CONT.)
Our asset allocation during the year modestly overweight equities and high yield
debt while underweighting high quality fixed income. As of December 31, our
allocation to U.S. equity mutual funds was 35.0%, with a 18.2% allocation to
non-U.S. equity mutual funds. Our allocation to high yield and for emerging debt
was 9.7%, while our allocation to high quality U.S. fixed income was 35.9% of
net assets.
The outperformance of the Moderate Portfolio was due to both strong security
selection within the underlying mutual funds and marginal allocation decisions.
The MSDWIF Equity Growth Portfolio was the largest contributor to
outperformance, returning 39.89% for the year, exceeding the 21.04% return for
the S&P 500. The MAS High Yield Portfolio also outperformed, returning 7.79%
relative to 1.74% for the Salomon High Yield Market Index. The MAS Intermediate
Duration Portfolio returned 0.86%, outperforming the 0.39% return for the Lehman
Intermediate Government/Corporate Bond Index. The MSDWIF Active International
Allocation Portfolio also outperformed, rising 27.73% compared to 26.96% for
MSCI EAFE Index. The MSDWIF U.S. Equity Plus Portfolio performed in line with
the S&P 500, rising 20.25% for the year. In 1999, the continued economic
strength provided a favorable environment for growth oriented strategies.
Allocation decisions that contributed positively to results included positions
in emerging markets. We established this position in March, after the Brazilian
devaluation seemed to have little impact on global emerging markets. The
economic recovery and cheap valuations in emerging markets, particularly Latin
America at the time made these markets a compelling investment. Latin America
rose significantly from March through June (+20%). We then sold off our
investment in Latin America in favor of a more diversified approach to emerging
markets. From July until year end, the MSDWIF Emerging Markets Portfolio rose
51.9%. Our decision to overweight high yield debt and underweight high quality
debt was also positively rewarded, as spreads narrowed to more normal levels.
While we were underweighted to non-U.S. developed markets in the first half, we
increased the position to an overweight in the second half. This benefited the
Moderate Portfolio as non-U.S. economic growth surprised on the upside, and EAFE
markets ourperformed the U.S. in the second half. We also broadened our U.S.
equity exposure in the U.S. to incorporate a small cap stock strategy. We added
the MAS Small Cap Growth Portfolio in late March, seeking to capture the
benefits of attractive valuations and improved earnings outlook for small cap
stocks. The MAS Small Cap Growth Portfolio has risen over 200% since the
purchase.
Our investment strategy continues to emphasize a growth orientation. Within U.S.
fixed income, we remain primarily intermediate duration, with an emphasis on
spread products, such as high yield and emerging market debt. We expect spread
products to outperform Treasuries as economic growth strengthens. Within U.S.
equities, we are emphasizing growth strategies, such as Equity Growth, Mid Cap
Growth, and Small Cap Growth. We maintain an overweight to non-U.S. equity
markets as we expect these economies to surpass the U.S. in the year 2000.
Francine J. Bovich
PORTFOLIO MANAGER
January 2000
- --------------------------------------------------------------------------------
Moderate Portfolio
7
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
MODERATE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ---------------------------------------------------------------------------------
INVESTMENTS (98.8%)
U.S. FIXED INCOME FUNDS (44.6%)
6,416 MAS Fixed Income Portfolio, Institutional Class ............ $ 70
64,222 MAS High Yield Portfolio, Institutional Class .............. 557
230,101 MAS Intermediate Duration Portfolio, Institutional Class ... 2,220
------
2,847
------
U.S. EQUITY FUNDS (35.0%)
5,813 MAS Small Cap Growth Portfolio, Institutional Class ........ 289
32,565 MSDWIF Equity Growth Portfolio, Class A..................... 815
62,129 MSDWIF U.S. Equity Plus Portfolio, Class A.................. 767
37,142 MSDWIF Value Equity Portfolio, Class A...................... 358
------
2,229
------
INTERNATIONAL EQUITY FUNDS (18.2%)
41,648 MSDWIF Active International Allocation Portfolio,
Class A................................................... 594
8,856 MSDWIF Emerging Markets Portfolio, Class A.................. 170
29,075 MSDWIF International Magnum Portfolio, Class A.............. 396
------
1,160
------
INTERNATIONAL FIXED INCOME FUNDS (1.0%)
21,360 MSDWIF Emerging Markets Debt Portfolio, Class A............. 64
------
TOTAL INVESTMENTS (98.8%) (Cost $6,117)................................ 6,300
OTHER ASSETS AND LIABILITES -- NET (1.2%).............................. 74
------
NET ASSETS (100%)...................................................... $6,374
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Moderate Portfolio
8
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
AGGRESSIVE PORTFOLIO
COMPOSITION OF NET ASSETS (AT DECEMBER 31, 1999)
- ----------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
U.S. Equity 48.3%
International Equity 37.9%
U.S. Fixed Income 11.7%
International Fixed Income 0.9%
Other 1.2%
</TABLE>
PERFORMANCE COMPARED TO THE MSCI WORLD INDEX AND THE COMPOSITE INDEX(1)
- -----------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURNS(2)
--------------------------
ONE AVERAGE ANNUAL
YEAR SINCE INCEPTION
-------- ---------------
<S> <C> <C>
PORTFOLIO- CLASS A................ 34.31% 20.65%
PORTFOLIO- CLASS B................ 33.88 20.37
MSCI WORLD INDEX.................. 24.94 24.64
COMPOSITE INDEX................... 23.11 19.58
</TABLE>
1. The MSCI World Index is an unmanaged index of common stocks and includes
securities representative of the market structure of 22 developed market
countries in North America, Europe, and the Asia/ Pacific region, including
dividends. The Composite Index for the Aggressive Portfolio is a composite
comprised of 50% of the Russell 3000 Index, 25% of the Morgan Stanley Capital
International (MSCI) Europe, Australasia and Far East (EAFE) Index, 15% of
the Lehman Aggregate Bond Index and 10% of the IFC Investable Emerging
Markets Index.
2. Total returns for the Portfolio reflect expenses waived and reimbursed, if
applicable, by the Adviser. Without such waiver and reimbursement, total
returns would be lower.
In accordance with SEC regulations, Portfolio performance shown assumes that all
recurring fees (including management fees) were deducted and all dividends and
distributions were reinvested. The performance of Class B shares will vary based
upon the different fees charged to that class.
- ------------------------------------------------------------
THE PERFORMANCE RESULTS PROVIDED ARE FOR INFORMATIONAL PURPOSES ONLY AND SHOULD
NOT BE CONSTRUED AS A GUARANTEE OF THE PORTFOLIO'S FUTURE PERFORMANCE. PAST
PERFORMANCE SHOWN IS NOT PREDICTIVE OF FUTURE PERFORMANCE. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY
BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE SEE THE PROSPECTUS FOR A
DESCRIPTION OF CERTAIN RISK CONSIDERATIONS ASSOCIATED WITH INTERNATIONAL
INVESTING.
COMPARISON OF THE CHANGE IN VALUE
OF A $10,000 INVESTMENT
----------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AGGRESSIVE AGGRESSIVE MSCI WORLD COMPOSITE
PORTFOLIO- PORTFOLIO- INDEX(1) INDEX (1)
CLASS A CLASS B
<S> <C> <C> <C> <C>
12/31/97* $10,000 $10,000 $10,000 $10,000
12/31/1998 $10,838 $10,823 $12,434 $11,616
12/31/1999 $14,557 $14,490 $15,535 $14,300
*Commencement of operations
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Aggressive Portfolio seeks the highest level of long-term capital
appreciation that is consistent with a relatively high level of risk primarily
through investment in certain equity portfolios, and, to a lesser degree,
certain fixed income portfolios of the Morgan Stanley Dean Witter Institutional
Fund, Inc. and the MAS Funds. The Portfolio's assets are normally allocated
within the range of 80%-90% equities and 10%-20% fixed income. The allocations
are expected to be relatively static with subtle periodic adjustments in
response to market developments.
For the year ended December 31, 1999, the Portfolio had a total return of 34.31%
for the Class A shares and 33.88% for the Class B shares compared to 24.94% for
the MSCI World Index and 23.11% for the Composite Index. For the period from
inception on December 31, 1997 through December 31, 1999, the Portfolio had an
average annual total return of 20.65% for the Class A shares and 20.37% for the
Class B shares compared to 24.64% for the MSCI World Index and 19.58% for the
Composite Index.
Our asset allocation in the first half modestly overweight equities while
underweighting fixed income. As of
- --------------------------------------------------------------------------------
Aggressive Portfolio
9
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
- --------------------------------------------------------------------------------
OVERVIEW
- --------------------------------------------------------------------------------
AGGRESSIVE PORTFOLIO (CONT.)
December 31, our allocation to U.S. equity mutual funds was 48.3%, with a 37.9%
allocation to non-U.S. equities, including emerging markets. Our exposure to
U.S. fixed income and cash was 13.0% (inclusive of high yield and emerging
market debt).
The outperformance of the Aggressive Portfolio was due to both strong security
selection within the underlying mutual funds and successful marginal allocation
decisions. The MSDWIF Equity Growth Portfolio was the largest contributor to
outperformance, returning 39.89% for the year, exceeding the 21.04% return for
the S&P 500 (inclusive of dividends). The MAS Mid Cap Growth Portfolio continued
to deliver strong returns, rising 68.18%, far outpacing the S&P 400 Mid Cap
Index return of 14.72%. The MSDWIF Emerging Markets Portfolio also outperformed,
returning 101.89% for the year, compared to 67.10% for the IFC Investible Index.
In 1999, the continued economic strength provided a benign environment for
growth oriented strategies.
Allocation decisions that contributed positively to results included an
overweight to emerging markets. We established this position in March, after the
Brazilian devaluation seemed to have little impact on global emerging markets.
The economic recovery and cheap valuations in emerging markets, particularly
Latin America, at the time made these markets a compelling investment. Our
decision to overweight non-U.S. markets in the second half of the year was also
rewarded, as growth surprised on the upside in Europe, leading non-U.S. equities
to outperform U.S. equities. We broadened our U.S. equity exposure to include a
small cap strategy in an attempt to capture the benefits of attractive
valuations and improved earnings outlook for small cap stocks. The MAS Small Cap
Growth Portfolio has risen over 200% since its addition in March.
Our investment strategy continues to emphasize a growth orientation. Within U.S.
fixed income, we are emphasizing spread products, such as emerging market debt.
We expect spread products to outperform Treasuries as economic growth
strengthens. Within U.S. equities, we are emphasizing growth strategies, such as
Equity Growth, Mid Cap Growth, and Small Cap Growth. We maintain an overweight
to non-U.S. equity markets as we expect these economies to surpass the U.S. in
the year 2000.
Francine J. Bovich
PORTFOLIO MANAGER
January 2000
- --------------------------------------------------------------------------------
Aggressive Portfolio
10
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
AGGRESSIVE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SHARES (000)
<C> <S> <C>
- ---------------------------------------------------------------------------------
INVESTMENTS (98.8%)
U.S. EQUITY FUNDS (48.3%)
15,877 MAS Mid Cap Growth Portfolio, Institutional Class .......... $ 496
9,059 MAS Small Cap Growth Portfolio, Institutional Class ........ 451
43,442 MSDWIF Equity Growth Portfolio, Class A..................... 1,088
73,723 MSDWIF U.S. Equity Plus Portfolio, Class A.................. 910
42,807 MSDWIF Value Equity Portfolio, Class A...................... 412
------
3,357
------
INTERNATIONAL EQUITY FUNDS (37.9%)
76,424 MSDWIF Active International Allocation Portfolio,
Class A................................................... 1,089
46,440 MSDWIF Emerging Markets Portfolio, Class A.................. 891
47,644 MSDWIF International Magnum Portfolio, Class A.............. 649
------
2,629
------
U.S. FIXED INCOME FUNDS (11.7%)
74,840 MAS Fixed Income Portfolio, Institutional Class ............ 815
------
INTERNATIONAL FIXED INCOME FUNDS (0.9%)
21,360 MSDWIF Emerging Markets Debt Portfolio, Class A............. 64
------
TOTAL INVESTMENTS (98.8%) (Cost $6,007)................................ 6,865
OTHER ASSETS AND LIABILITIES -- NET (1.2%)............................. 83
------
NET ASSETS (100%)...................................................... $6,948
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Aggressive Portfolio
11
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSERVATIVE MODERATE AGGRESSIVE
PORTFOLIO PORTFOLIO PORTFOLIO
(000) (000) (000)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at Cost...................................... $5,009 $6,117 $6,007
==========================================================================================================================
Investments, at Value..................................... $4,988 $6,300 $6,865
Cash...................................................... 27 -- 55
Receivable for Investment Sold............................ -- 23 --
Receivable for Portfolio Shares Sold...................... -- 28 --
Deferred Organization Costs............................... 59 59 59
Receivable from Investment Adviser........................ 19 29 28
Other Assets.............................................. 1 -- 19
- --------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS................................................ 5,094 6,439 7,026
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for Investments Purchased......................... (44) -- (38)
Professional Fees Payable................................. (21) (23) (23)
Shareholder Reporting Fees Payable........................ (11) (15) (14)
Bank Overdraft Payable.................................... -- (24) --
Custodian Fees Payable.................................... (1) (2) (2)
Other Liabilities......................................... (1) (1) (1)
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES........................................... (78) (65) (78)
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS.................................................. $5,016 $6,374 $6,948
==========================================================================================================================
NET ASSETS CONSIST OF:
Paid in Capital........................................... $5,066 $6,219 $6,004
Undistributed Net Investment Income/Accumulated Net
Investment Loss......................................... (113) 2 3
Accumulated Net Realized Gain (Loss)...................... 84 (30) 83
Unrealized Appreciation (Depreciation) on Investments..... (21) 183 858
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS.................................................. $5,016 $6,374 $6,948
==========================================================================================================================
CLASS A:
- ------------------------------------------------------------
NET ASSETS.................................................. $4,414 $5,720 $6,200
SHARES ISSUED AND OUTSTANDING ($0.001 PAR VALUE)
(Authorized 1,500,000 shares)............................. 438 535 504
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE........................................... $10.09 $10.69 $12.30
==========================================================================================================================
CLASS B:
- ------------------------------------------------------------
NET ASSETS.................................................. $ 602 $ 654 $ 748
SHARES ISSUED AND OUTSTANDING ($0.001 PAR VALUE)
(Authorized 1,500,000 shares)............................. 60 61 61
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE........................................... $10.08 $10.68 $12.30
==========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
12
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSERVATIVE MODERATE AGGRESSIVE
PORTFOLIO PORTFOLIO PORTFOLIO
(000) (000) (000)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends from Underlying Funds........................... $ 247 $ 233 $ 92
Interest.................................................. 2 1 1
- --------------------------------------------------------------------------------------------------------------------------
Total Income............................................ 249 234 93
- --------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Administrative Fees:
Basic Fee............................................... 8 10 10
Less: Fees Waived....................................... (8) (10) (10)
----- ----- ------
Administrative Fees--Net.................................. -- -- --
Professional Fees......................................... 51 62 59
Shareholder Reporting..................................... 16 30 25
Filing and Registration Fees.............................. 23 23 24
Amortization of Organization Costs........................ 20 20 20
Custodian Fees............................................ 6 10 13
Distribution Fees on Class B Shares....................... 1 2 1
Other Expenses............................................ 3 3 3
Expenses Reimbursed by Adviser............................ (104) (134) (127)
- --------------------------------------------------------------------------------------------------------------------------
Total Net Expenses...................................... 16 16 18
- --------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME....................................... 233 218 75
- --------------------------------------------------------------------------------------------------------------------------
NET REALIZED GAIN:
Investments Sold.......................................... 41 174 400
Distributed From Underlying Funds......................... 115 323 484
- --------------------------------------------------------------------------------------------------------------------------
Total Realized Gain..................................... 156 497 884
- --------------------------------------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION):
Investments............................................... (9) 187 807
- --------------------------------------------------------------------------------------------------------------------------
TOTAL NET REALIZED GAIN AND CHANGE IN UNREALIZED
APPRECIATION (DEPRECIATION)............................... 147 684 1,691
- --------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations.... $ 380 $ 902 $1,766
==========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
13
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSERVATIVE MODERATE AGGRESSIVE
PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------- ----------------------------- -----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------- ----------------------------- -----------------------------
1999 1998 1999 1998 1999 1998
(000) (000) (000) (000) (000) (000)
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
OPERATIONS:
Net Investment Income............ $ 233 $ 131 $ 218 $ 138 $ 75 $ 59
Net Realized Gain................ 156 48 497 60 884 32
Change in Unrealized Appreciation
(Depreciation)................. (9) (12) 187 (4) 807 51
- ---------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations...... 380 167 902 194 1,766 142
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
CLASS A:
Net Investment Income............ (298) (138) (419) (182) (382) (96)
Net Realized Gain................ (54) (32) (220) (12) (382) (3)
In Excess of Net Realized Gain... (27) (7) (28) (18) -- (34)
CLASS B:
Net Investment Income............ (40) (23) (47) (21) (44) (12)
Net Realized Gain................ (7) (6) (26) (2) (46) (1)
In Excess of Net Realized Gain... (4) (1) (3) (2) -- (4)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions.............. (430) (207) (743) (237) (854) (150)
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:(1)
CLASS A:
Subscribed....................... 2,969 5,206 2,574 6,446 2,464 6,426
Distributions Reinvested......... 378 177 667 212 764 133
Redeemed......................... (2,029) (2,710) (2,248) (2,527) (2,035) (2,848)
CLASS B:
Distributions Reinvested......... 52 30 76 25 90 17
- ---------------------------------------------------------------------------------------------------------------------------------
Net Increase in Capital Share
Transactions................... 1,370 2,703 1,069 4,156 1,283 3,728
- ---------------------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets..... 1,320 2,663 1,228 4,113 2,195 3,720
NET ASSETS:
Beginning of Period.............. 3,696 1,033 5,146 1,033 4,753 1,033
- ---------------------------------------------------------------------------------------------------------------------------------
End of Period.................... $ 5,016 $ 3,696 $ 6,374 $ 5,146 $ 6,948 $ 4,753
=================================================================================================================================
Undistributed net investment
income/ accumulated net
investment loss included in end
of period net assets........... $ (113) $ -- $ 2 $ -- $ 3 --
- ---------------------------------------------------------------------------------------------------------------------------------
(1) CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares Subscribed............... 283 489 236 600 214 598
Shares Issued on Reinvesting
Distributions................. 38 17 64 20 65 13
Shares Redeemed................. (191) (250) (202) (235) (175) (263)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Increase in Class A Shares
Outstanding................... 130 256 98 385 104 348
=================================================================================================================================
CLASS B:
Shares Issued on Reinvesting
Distributions................. 5 3 7 2 8 1
- ---------------------------------------------------------------------------------------------------------------------------------
Net Increase in Class B Shares
Outstanding................... 5 3 7 2 8 1
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
14
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
CONSERVATIVE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------
YEAR ENDED YEAR ENDED ONE DAY ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997*
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.................... $10.18 $10.00 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................................. 0.56 0.35 --
Net Realized and Unrealized Gain...................... 0.31 0.42 -
- ---------------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations.................... 0.87 0.77 --
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income................................. (0.76) (0.46) --
Net Realized Gain..................................... (0.13) (0.11) --
In Excess of Net Realized Gain........................ (0.07) (0.02) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions................................. (0.96) (0.59) 0.00
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......................... $10.09 $10.18 $10.00
=================================================================================================================================
TOTAL RETURN............................................ 8.69% 7.76% 0.00%
=================================================================================================================================
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)................... $4,414 $3,141 $ 517
Ratio of Expenses to Average Net Assets (1)............. 0.31% 0.32% 0.00%(a)
Ratio of Net Investment Income to Average Net Assets
(1)................................................... 5.02% 5.31% 0.00%(a)
Portfolio Turnover...................................... 61% 129% 0%
- ---------------------------
(1) Effect of Voluntary Expense Limitation During the
Period:
Per Share Benefit to Net Investment Income.......... $ 0.27 $ 0.27 $ 0.00
Ratios Before Expense Limitation:
Expenses to Average Net Assets...................... 2.74% 4.45% 0.00%(a)
Net Investment Income to Average Net Assets......... 2.59% 1.21% 0.00%(a)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------------
YEAR ENDED YEAR ENDED ONE DAY ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997*
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.................... $10.18 $10.00 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................................. 0.50 0.52 --
Net Realized and Unrealized Gain...................... 0.33 0.23 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations.................... 0.83 0.75 --
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income................................. (0.73) (0.44) --
Net Realized Gain..................................... (0.13) (0.11) --
In Excess of Net Realized Gain........................ (0.07) (0.02) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions................................. (0.93) (0.57) --
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......................... $10.08 $10.18 $10.00
=================================================================================================================================
TOTAL RETURN............................................ 8.33% 7.52% 0.00%
=================================================================================================================================
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)................... $ 602 $ 555 $ 516
Ratio of Expenses to Average Net Assets (2)............. 0.56% 0.57% 0.00%(a)
Ratio of Net Investment Income to Average Net Assets
(2)................................................... 4.73% 5.06% 0.00%(a)
Portfolio Turnover...................................... 61% 129% 0%
- ---------------------------
(2) Effect of Voluntary Expense Limitation During the
Period:
Per Share Benefit to Net Investment Income.......... $ 0.25 $ 0.42 $ 0.00
Ratios Before Expense Limitiation:
Expenses to Average Net Assets...................... 2.90% 4.70% 0.00%(a)
Net Investment Income to Average Net Assets......... 2.39% 0.96% 0.00%(a)
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
(a) Annualized
The ratios of expenses to average net assets do not reflect the
expenses of the Underlying Funds attributable to the Portfolio.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
15
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
MODERATE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------
YEAR ENDED YEAR ENDED ONE DAY ENDED
DECEMBER 31, 1999+ DECEMBER 31, 1998 DECEMBER 31, 1997*
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD................ $10.49 $10.00 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income............................. 0.39 0.28 --
Net Realized and Unrealized Gain.................. 1.23 0.71 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations................ 1.62 0.99 --
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income............................. (0.89) (0.43) --
Net Realized Gain................................. (0.47) (0.03) --
In Excess of Net Realized Gain.................... (0.06) (0.04) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions............................. (1.42) (0.50) 0.00
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD...................... $10.69 $10.49 $10.00
=================================================================================================================================
TOTAL RETURN........................................ 15.79% 9.93% 0.00%
=================================================================================================================================
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)............... $5,720 $4,580 $ 517
Ratio of Expenses to Average Net Assets (1)......... 0.23% 0.25% 0.00%(a)
Ratio of Net Investment Income to Average Net Assets
(1)............................................... 3.59% 4.26% 0.00%(a)
Portfolio Turnover.................................. 87% 139% 0%
- ---------------------------
(1) Effect of Voluntary Expense Limitation During
the Period:
Per Share Benefit to Net Investment Income...... $ 0.26 $ 0.22 $ 0.00
Ratios Before Expense Limitation:
Expenses to Average Net Assets.................. 2.58% 3.63% 0.00%(a)
Net Investment Income to Average Net Assets..... 1.23% 0.88% 0.00%(a)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------------
YEAR ENDED YEAR ENDED ONE DAY ENDED
DECEMBER 31, 1999+ DECEMBER 31, 1998 DECEMBER 31, 1997*
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.................. $10.48 $10.00 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income............................... 0.37 0.42 --
Net Realized and Unrealized Gain.................... 1.23 0.53 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations.................. 1.60 0.95 --
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income............................... (0.87) (0.40) --
Net Realized Gain................................... (0.47) (0.03) --
In Excess of Net Realized Gain...................... (0.06) (0.04) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions............................... (1.40) (0.47) --
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD........................ $10.68 $10.48 $10.00
=================================================================================================================================
TOTAL RETURN.......................................... 15.54% 9.57% 0.00%
=================================================================================================================================
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)................. $ 654 $ 566 $ 516
Ratio of Expenses to Average Net Assets (2)........... 0.48% 0.50% 0.00%(a)
Ratio of Net Investment Income to Average Net Assets
(2)................................................. 3.35% 4.01% 0.00%(a)
Portfolio Turnover.................................... 87% 139% 0%
- ---------------------------
(2) Effect of Voluntary Expense Limitation During the
Period:
Per Share Benefit to Net Investment Income........ $ 0.26 $ 0.35 $ 0.00
Ratios Before Expense Limitation:
Expenses to Average Net Assets.................... 2.81% 3.88% 0.00%(a)
Net Investment Income to Average Net Assets....... 1.02% 0.63% 0.00%(a)
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
(a) Annualized
+ Per share amounts for the year ended December 31, 1999 are
based on average shares outstanding.
The ratios of expense to average net assets do not reflect the
expenses of the Underlying Funds attributable to the Portfolio.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
16
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS:
- --------------------------------------------------------------------------------
AGGRESSIVE PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------
YEAR ENDED YEAR ENDED ONE DAY ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997*
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.................... $10.49 $10.00 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................................. 0.24 0.13 --
Net Realized and Unrealized Gain...................... 3.29 0.70 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations.................... 3.53 0.83 --
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income................................. (0.86) (0.24) --
Net Realized Gain..................................... (0.86) (0.01) --
In Excess of Net Realized Gain........................ -- (0.09) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions................................. (1.72) (0.34) --
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......................... $12.30 $10.49 $10.00
=================================================================================================================================
TOTAL RETURN............................................ 34.31% 8.38% 0.00%
=================================================================================================================================
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)................... $6,200 $4,194 $ 517
Ratio of Expenses to Average Net Assets (1)............. 0.28% 0.31% 0.00%(a)
Ratio of Net Investment Income to Average Net Assets
(1)................................................... 1.36% 2.18% 0.00%(a)
Portfolio Turnover...................................... 106% 188% 0%
- ---------------------------
(1) Effect of Voluntary Expense Limitation During the
Period:
Per Share Benefit to Net Investment Income.......... $ 0.42 $ 0.23 $ 0.00
Ratios Before Expense Limitation:
Expenses to Average Net Assets...................... 2.66% 4.19% 0.00%(a)
Net Investment Income (Loss) to Average Net
Assets............................................ (1.03)% (1.69)% 0.00%(a)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------------
YEAR ENDED YEAR ENDED ONE DAY ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997*
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.................... $10.50 $10.00 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................................. 0.19 0.20 --
Net Realized and Unrealized Gain...................... 3.30 0.62 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total From Investment Operations.................... 3.49 0.82 --
- ---------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS
Net Investment Income................................. (0.83) (0.22) --
Net Realized Gain..................................... (0.86) (0.01) --
In Excess of Net Realized Gain........................ -- (0.09) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions................................. (1.69) (0.32) --
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD.......................... $12.30 $10.50 $10.00
=================================================================================================================================
TOTAL RETURN............................................ 33.88% 8.23% 0.00%
=================================================================================================================================
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Period (Thousands)................... $ 748 $ 559 $ 516
Ratio of Expenses to Average Net Assets (2)............. 0.53% 0.56% 0.00%(a)
Ratio of Net Investment Income to Average Net Assets
(2)................................................... 1.00% 1.93% 0.00%(a)
Portfolio Turnover...................................... 106% 188% 0%
- ---------------------------
(2) Effect of Voluntary Expense Limitation During the
Period:
Per Share Benefit to Net Investment Income.......... $ 0.46 $ 0.41 $ 0.00
Ratios Before Expense Limitation:
Expenses to Average Net Assets...................... 2.93% 4.44% 0.00%(a)
Net Investment Income (Loss) to Average Net
Assets............................................ (1.39)% (1.94)% 0.00%(a)
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
* Commencement of operations
(a) Annualized
The ratios of expenses to average net assets do not reflect the
expenses of the Underlying Funds attributable to the Portfolio.
</TABLE>
The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
17
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter Strategic Adviser Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Fund is a type of mutual fund often described
as a "fund of funds." The Fund consists of three separate investment portfolios:
Conservative Portfolio, Moderate Portfolio and Aggressive Portfolio, (each a
"Portfolio" and collectively, the "Portfolios") that invest primarily in
different combinations of the Class A shares of certain investment portfolios of
Morgan Stanley Dean Witter Institutional Fund, Inc. ("MSDWIF") and Institutional
Class shares of certain investment portfolios of MAS Funds (each an "Underlying
Fund" and collectively, the "Underlying Funds"). The MAS Funds are managed by an
affiliate of the Investment Adviser. The Fund currently offers two classes of
shares, Class A and Class B shares. Both classes have identical voting rights
(except shareholders of a Class have exclusive voting rights regarding any
matter relating solely to that Class of shares), dividend, liquidation and other
rights. The investment objective of the Conservative, Moderate and Aggressive
Portfolios is to seek the highest level of long-term total return that is
consistent with a relatively conservative level, moderate level and high level
of risk, respectively.
A. ACCOUNTING POLICIES: The following significant accounting policies are in
conformity with generally accepted accounting principles for investment
companies. Such policies are consistently followed by the Fund in the
preparation of the financial statements. Generally accepted accounting
principles may require management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual results
may differ from those estimates.
1. SECURITY VALUATION: Investments in the Underlying Funds are valued at the net
asset value per share of the Underlying Fund at the close of each valuation day.
Short-term securities with a maturity date of less than 60 days are valued at
amortized cost which approximates market value.
2. INCOME TAXES: It is each Portfolio's intention to qualify as a regulated
investment company and distribute all of its taxable and tax-exempt income.
Accordingly, no provision for Federal income taxes is required in the financial
statements.
3. REPURCHASE AGREEMENTS: The Portfolios of the Fund may enter into repurchase
agreements under which the Portfolio lends excess cash and takes possession of
securities with an agreement that the counterparty will repurchase such
securities. In connection with transactions in repurchase agreements, a bank as
custodian for the Fund takes possession of the underlying securities which are
held as collateral, with a market value at least equal to the amount of the
repurchase transaction, including principal and accrued interest. To the extent
that any repurchase transaction exceeds one business day, the value of the
collateral is marked-to-market on a daily basis to determine the adequacy of the
collateral. In the event of default on the obligation to repurchase, the Fund
has the right to liquidate the collateral and apply the proceeds in satisfaction
of the obligation. In the event of default or bankruptcy by the counterparty to
the agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
4. ORGANIZATIONAL COSTS: The Fund incurred organizational costs of approximately
$297,000 which have been capitalized and allocated equally to each Portfolio.
Such costs are being amortized on a straight line basis over a period of five
years beginning on December 31, 1997, the date the Fund commenced operations.
Morgan Stanley Dean Witter Investment Management Inc. has agreed that in the
event any of its initial shares which comprised the Fund at inception are
redeemed, the proceeds on redemption will be reduced by the pro-rata portion of
any unamortized organizational costs in the same proportion as the number of
shares redeemed bears to the initial shares held at time of redemption.
- --------------------------------------------------------------------------------
18
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
5. OTHER: Realized gains and losses from the sale of the Underlying Funds are
determined on the specific identified cost basis. Dividend income and capital
gain distributions from the Underlying Funds are recorded on the ex-dividend
date. Most expenses of the Fund can be directly attributed to a particular
Portfolio. Expenses which cannot be directly attributed are apportioned among
the Portfolios based upon relative net assets. Income, expenses (other than
class specific expenses) and realized and unrealized gains or losses are
allocated to each class of shares of a Portfolio based upon their relative net
assets. Distributions from the Portfolios are recorded on the ex-distribution
date.
The amount and character of income and capital gain distributions to be paid by
the Portfolios of the Fund are determined in accordance with Federal income tax
regulations, which may differ from generally accepted accounting principles. The
book/tax differences are either considered temporary or permanent in nature.
Temporary differences are attributable to differing book and tax treatments for
the timing of the recognition of gains and losses on certain investment
transactions and the timing of the deductibility of certain expenses.
Permanent book and tax basis differences result in reclassification among
undistributed net investment income (loss), accumulated net realized gain (loss)
and paid in capital. Listed below are the significant reclassifications as of
December 31, 1999, with offsetting entries to paid in capital:
<TABLE>
<CAPTION>
INCREASE (DECREASE) TO
ACCUMULATED NET INCREASE (DECREASE) TO
INVESTMENT INCOME ACCUMULATED NET
(LOSS) REALIZED GAIN (LOSS)
------ ----------------------
<S> <C> <C>
Conservative......... $107,533 $ (87,743)
Moderate............. 250,307 (230,517)
Aggressive........... 354,197 (334,407)
</TABLE>
These reclassifications are primarily due to differing book/tax treatment on
certain dividends received by the Funds from the Underlying Funds.
B. INVESTMENT ADVISER AND ADMINISTRATOR: Morgan Stanley Dean Witter Investment
Management Inc. ("MSDW Investment Management" or the "Adviser"), a wholly-owned
subsidiary of Morgan Stanley Dean Witter & Co., allocates the Portfolios'
investments in the Underlying Funds within the applicable ranges for each
Portfolio, at no charge, under the terms of an Investment Advisory and
Management Agreement (the "Agreement"). The Adviser also provides the Fund with
administrative services pursuant to an administrative agreement for a monthly
fee which on an annual basis equals 0.15% of the average daily net assets of
each Portfolio, plus reimbursement of out-of-pocket expenses. Under an agreement
between the Adviser and The Chase Manhattan Bank ("Chase"), Chase provides
certain administrative services to the Fund through its corporate affiliate
Chase Global Funds Services Company ("CGFSC"). For such services, the Adviser
pays CGFSC a portion of the fee the Adviser receives from the Fund. Certain
employees of CGFSC are officers of the Fund.
The Adviser has agreed to reduce fees payable to it and to reimburse the
Portfolios, if necessary, if the annual operating expenses of the Portfolios
plus the operating expenses of the Underlying Funds attributable to the shares
owned by the Portfolios, expressed as a percentage of average daily net assets,
exceed the maximum annual ratios indicated as follows:
<TABLE>
<CAPTION>
MAXIMUM
EXPENSE RATIO
-------------------
PORTFOLIO CLASS A CLASS B
- --------- -------- --------
<S> <C> <C>
Conservative Portfolio................. 0.80% 1.05%
Moderate Portfolio..................... 0.90% 1.15%
Aggressive Portfolio................... 1.10% 1.35%
</TABLE>
C. DISTRIBUTOR: Morgan Stanley & Co., Incorporated (the "Distributor"), a
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co., and an affiliate of
MSDW Investment Management, serves as the distributor of the Fund and provides
Class B shareholders of each applicable Portfolio with distribution services
pursuant to a Distribution Plan (the "Plan") in accordance with
- --------------------------------------------------------------------------------
19
<PAGE>
Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONT.)
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
Rule 12b-1 under the Investment Company Act of 1940, as amended. Under the Plan,
the Distributor is entitled to receive from each Portfolio, a distribution fee,
which is accrued daily and paid quarterly, at an annual rate of 0.25% of the
Class B shares' average daily net assets. The Distributor may voluntarily waive,
from time to time, all or a portion of its distribution fee.
D. CUSTODIAN: Chase serves as the custodian of the investments and cash of the
Portfolios.
E. PURCHASES AND SALES: For the year ended December 31, 1999, purchases and
sales of Underlying Funds were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
PORTFOLIO (000) (000)
- --------- ---------- --------
<S> <C> <C>
Conservative Portfolio................. $4,043 $2,769
Moderate Portfolio..................... 6,096 5,227
Aggressive Portfolio................... 6,983 5,979
</TABLE>
For the year ended December 31, 1999, the Fund had no purchases or sales of
long-term U.S. Government securities.
F. OTHER: At December 31, 1999, cost, unrealized appreciation, unrealized
depreciation, and net unrealized appreciation (depreciation) for U.S. Federal
income tax purposes of the investments of each Portfolio were:
<TABLE>
<CAPTION>
NET
UNREALIZED
UNREALIZED UNREALIZED APPREC.
COST APPREC. DEPREC. (DEPREC.)
PORTFOLIO (000) (000) (000) (000)
- --------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Conservative
Portfolio............ $5,050 $ 104 $(166) $(62)
Moderate Portfolio.... 6,197 427 (324) 103
Aggressive
Portfolio............ 6,050 1,013 (198) 815
</TABLE>
Certain Portfolios have investments in Underlying Funds which invest in
high-yield and/or foreign securities.
Investments in high-yield securities are accompanied by a greater degree of
credit risk and the risk tends to be more sensitive to economic conditions than
higher-rated securities. In addition, these investments tend to have thinner
trading markets which may result in less availability of price quotations and a
risk that amounts realized upon disposition of a security will differ from such
quotations.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated and
U.S. security market transactions as a result of, among other factors, the
possibility of lower levels of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.
At December 31, 1999, the Portfolios of the Fund have shareholders that hold a
significant portion of a Portfolio's outstanding shares. Investment activities
of these shareholders could have a material impact on those Portfolios.
- --------------------------------------------------------------------------------
20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Morgan Stanley Dean Witter Strategic Adviser Fund, Inc.
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 Conservative Portfolio, the
Moderate Portfolio, and the Aggressive Portfolio (constituting Morgan Stanley
Dean Witter Strategic Adviser Fund, Inc., hereafter referred to as the "Fund")
at December 31, 1999, the results of each of their operations for the year then
ended, the changes in each of their net assets for each of the two years in the
period then ended and the financial highlights for each of the two years in the
period then ended and for the one day period ended December 31, 1997
(commencement of operations), in conformity with accounting principles generally
accepted in the United States. 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 auditing standards
generally accepted in the United States, 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 investments at
December 31, 1999, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 8, 2000
- --------------------------------------------------------------------------------
21
<PAGE>
MORGAN STANLEY DEAN WITTER STRATEGIC ADVISER FUND, INC.
FEDERAL TAX INFORMATION (UNAUDITED)
For the year ended December 31, 1999, the following Portfolios intend to
distribute long-term capital gains totaling:
<TABLE>
<CAPTION>
LONG-TERM
CAPITAL GAINS
PORTFOLIO (000)
- --------- -------------
<S> <C>
Conservative Portfolio.......... $ 20
Moderate Portfolio.............. 94
Aggressive Portfolio............ 175
</TABLE>
For the year ended December 31, 1999, the percentage of dividends paid that
qualify for the 70% dividend received deduction for corporate shareholders for
the Conservative, Moderate and Aggressive Portfolios are 1.9%, 3.1% and 4.1%,
respectively.
- --------------------------------------------------------------------------------
22
