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PROSPECTUS
SEPTEMBER 25, 1998
Morgan Stanley Dean Witter Value Fund (the "Fund") is an
open-end, diversified management investment company whose investment objective
is total return. The Fund seeks to achieve this objective by investing primarily
in a diversified portfolio of common stocks and other equity securities that are
believed by the Fund's Sub-Advisor to be relatively undervalued based primarily
on price/earnings ratios as well as on various other value measures such as
price/book ratios and price/sales ratios.
INITIAL OFFERING--Shares of the Fund are being offered in an
underwriting by Morgan Stanley Dean Witter Distributors Inc. at $10.00 per share
for Class B, Class C and Class D shares with all proceeds going to the Fund and
at $10.00 per share plus a sales charge for Class A shares with the sales charge
paid to the Underwriter and the net asset value of $10.00 per share going to the
Fund. The initial offering will run from approximately October 26, 1998 through
November 20, 1998.
CONTINUOUS OFFERING--A continuous offering of the shares of
the Fund will commence approximately two weeks after the closing date of the
initial offering which is anticipated for December 7, 1998. Class B, Class C and
Class D shares will be priced at the net asset value per share and Class A
shares will be priced at the net asset value per share plus a sales charge, in
each case as next determined following receipt of an order.
The Fund offers four classes of shares (each, a "Class"),
each with a different combination of sales charges, ongoing fees and other
features. The different distribution arrangements permit an investor to choose
the method of purchasing shares that the investor believes is most beneficial
given the amount of the purchase, the length of time the investor expects to
hold the shares and other relevant circumstances. (See "Purchase of Fund
Shares--Alternative Purchase Arrangements.")
This Prospectus sets forth concisely the information you
should know before investing in the Fund. It should be read and retained for
future reference. Additional information about the Fund is contained in the
Statement of Additional Information, dated September 25, 1998, which has been
filed with the Securities and Exchange Commission, and which is available at no
charge upon request of the Fund at the address or telephone numbers listed on
this page. The Statement of Additional Information is incorporated herein by
reference.
MORGAN STANLEY DEAN WITTER DISTRIBUTORS INC.
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary/2
Summary of Fund Expenses/5
The Fund and its Management/6
Investment Objective and Policies/7
Investment Restrictions/20
Underwriting/20
Purchase of Fund Shares/21
Shareholder Services/32
Redemptions and Repurchases/36
Dividends, Distributions and Taxes/37
Performance Information/38
Additional Information/38
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and the shares are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Morgan Stanley Dean Witter Value Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
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PROSPECTUS SUMMARY
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The The Fund is organized as a Trust commonly known as a
Fund Massachusetts business trust, and is an open-end,
diversified management investment company investing
primarily in a diversified portfolio of common stocks and
other equity securities that are believed by the Fund's
Sub-Advisor to be relatively undervalued based on various
measures such as price/earnings ratios and price/book
ratios.
Shares Offered Shares of beneficial interest with $0.01 par value (see page
38). The Fund offers four Classes of shares, each with a
different combination of sales charges, ongoing fees and
other features (see pages 21-31).
Initial Shares of the Fund are being offered in an underwriting by
Offering Morgan Stanley Dean Witter Distributors Inc. at $10.00 per
share for each of Class B, Class C and Class D and $10.00
per share plus a sales charge for Class A. The minimum
purchase for each Class is 100 shares; however, Class D
shares are only available to persons who are otherwise
qualified to purchase such shares. The initial offering will
run approximately from October 26, 1998 through November 20,
1998. The closing will take place on November 25, 1998 or
such other date as may be agreed upon by Morgan Stanley Dean
Witter Distributors Inc. and the Fund (the "Closing Date").
Shares will not be issued and dividends will not be declared
by the Fund until after the Closing Date. If any orders
received during the initial offering period are accompanied
by payment, such payment will be returned unless an
accompanying request for investment in a Morgan Stanley Dean
Witter money market fund is received at the time the payment
is made. Any purchase order may be cancelled at any time
prior to the Closing Date (see page 20).
Continuous A continuous offering of shares of the Fund will commence
Offering/ within approximately two weeks after the Closing Date. The
Minimum minimum initial investment for each Class is $1,000 ($100 if
Purchase the account is opened through EasyInvest (SM)). Class D
shares are only available to persons investing $5 million
($25 million for certain qualified plans) or more and to
certain other limited categories of investors. For the
purpose of meeting the minimum $5 million (or $25 million)
investment for Class D shares, and subject to the $1,000
minimum initial investment for each Class of the Fund, an
investor's existing holdings of Class A shares and shares of
funds for which Morgan Stanley Dean Witter Advisors Inc.
serves as investment manager ("Morgan Stanley Dean Witter
Funds") that are sold with a front-end sales charge, and
concurrent investments in Class D shares of the Fund and
other Morgan Stanley Dean Witter Funds that are multiple
class funds, will be aggregated. The minimum subsequent
investment is $100 (see pages 21-23).
Investment The investment objective of the Fund is total return (see
Objective page 7).
Investment Morgan Stanley Dean Witter Advisors Inc., the Investment
Manager and Manager of the Fund, and its wholly-owned subsidiary, Morgan
Sub-Advisor Stanley Dean Witter Services Company Inc., serve in various
investment management, advisory, management and
administrative capacities to 101 investment companies and
other portfolios with net assets under management of
approximately $110.1 billion at August 31, 1998. Miller
Anderson & Sherrerd, LLP has been retained by the Investment
Manager as Sub-Advisor to provide investment advice and
manage the Fund's portfolio. Miller Anderson & Sherrerd, LLP
currently provides investment services to investment
companies, employee benefit plans, endowment funds,
foundations and other institutional investors and as of June
30, 1998 had in excess of $67 billion in assets under
management (see page 6).
Management The Investment Manager receives a monthly fee from the Fund
Fee at the annual rate of 1.0% of daily net assets. The
Sub-Advisor receives a monthly fee from the Investment
Manager equal to 40% of the Investment Manager's monthly fee
(see page 6).
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Underwriter Morgan Stanley Dean Witter Distributors Inc. (the
and "Distributor") is the Fund's Underwriter and Distributor.
Distributor The Fund has adopted a distribution plan pursuant to Rule
and 12b-1 under the Investment Company Act (the "12b-1 Plan")
Distribution with respect to the distribution fees paid by the Class A,
Fee Class B and Class C shares of the Fund to the Distributor.
The entire 12b-1 fee payable by Class A and a portion of the
12b-1 fee payable by each of Class B and Class C equal to
0.25% of the average daily net assets of the Class are
currently each characterized as a service fee within the
meaning of the National Association of Securities Dealers,
Inc. guidelines. The remaining portion of the 12b-1 fee, if
any, is characterized as an asset-based sales charge (see
pages 21 and 30).
Alternative Four classes of shares are offered:
Purchase - Class A shares are offered with a front-end sales charge,
Arrangements starting at 5.25% and reduced for larger purchases.
Investments of $1 million or more (and investments by
certain other limited categories of investors) are not
subject to any sales charge at the time of purchase but a
contingent deferred sales charge ("CDSC") of 1.0% may be
imposed on redemptions within one year of purchase. The Fund
is authorized to reimburse the Distributor for specific
expenses incurred in promoting the distribution of the
Fund's Class A shares and servicing shareholder accounts
pursuant to the Fund's 12b-1 Plan. Reimbursement may in no
event exceed an amount equal to payments at an annual rate
of 0.25% of average daily net assets of the Class (see pages
21, 25 and 30).
- Class B shares are offered without a front-end sales
charge, but will in most cases be subject to a CDSC (scaled
down from 5.0% to 1.0%) if redeemed within six years after
purchase. The CDSC will be imposed on any redemption of
shares if after such redemption the aggregate current value
of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments made during the
six years preceding the redemption. A different CDSC
schedule applies to investments by certain qualified plans.
Class B shares are also subject to a 12b-1 fee assessed at
the annual rate of 1.0% of the average daily net assets of
Class B. Class B shares convert to Class A shares
approximately ten years after the date of the original
purchase (see pages 21, 27 and 30).
- Class C shares are offered without a front-end sales
charge, but will in most cases be subject to a CDSC of 1.0%
if redeemed within one year after purchase. The Fund is
authorized to reimburse the Distributor for specific
expenses incurred in promoting the distribution of the
Fund's Class C shares and servicing shareholder accounts
pursuant to the Fund's 12b-1 Plan. Reimbursement may in no
event exceed an amount equal to payments at an annual rate
of 1.0% of average daily net assets of the Class (see pages
21, 29 and 30).
- Class D shares are offered only to investors meeting an
initial investment minimum of $5 million ($25 million for
certain qualified plans) and to certain other limited
categories of investors. Class D shares are offered without
a front-end sales charge or CDSC and are not subject to any
12b-1 fee (see pages 21 and 30).
Dividends and Dividends from net investment income and distributions from
Capital Gains net capital gains, if any, are paid at least once each year.
Distributions The Fund may, however, determine to retain all or part of
any net long-term capital gains in any year for
reinvestment. Dividends and capital gains distributions paid
on shares of a Class are automatically reinvested in
additional shares of the same Class at net asset value
unless the shareholder elects to receive cash. Shares
acquired by dividend and distribution reinvestment will not
be subject to any sales charge or CDSC (see pages 32 and
37).
Redemption Shares are redeemable by the shareholder at net asset value
less any applicable CDSC on Class A, Class B or Class C
shares. An account may be involuntarily redeemed if the
total value of the account is less than $100 or, if the
account was opened through EasyInvest (SM), if after twelve
months the shareholder has invested less than $1,000 in the
account (see page 36).
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Risk The net asset value of the Fund's shares will fluctuate with
Considerations changes in the market value of its portfolio securities. The
market value of the Fund's portfolio securities and,
therefore, the Fund's net asset value per share, will
increase or decrease due to a variety of economic, market or
political factors which cannot be predicted. While the
Sub-Advisor's strategy is designed to preserve return while
reducing risk, there can be no assurance that the strategy
will be successful. Foreign securities and markets in which
the Fund may invest pose different and greater risks than
those customarily associated with domestic securities and
markets, including fluctuations in foreign currency exchange
rates, foreign securities exchange controls and foreign tax
rates as well as risks associated with transactions in
forward currency contracts. The Fund may invest in
lower-rated convertible fixed-income securities, may enter
into repurchase agreements, may purchase securities on a
when-issued, delayed delivery or forward commitment basis,
may purchase securities on a "when, as and if issued" basis,
may lend its portfolio securities and may utilize certain
investment techniques including options and futures
transactions and stock index futures which may be considered
speculative in nature and may involve greater risks than
those customarily assumed by other investment companies
which do not invest in such instruments. (see pages 9-19).
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The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus and in the Statement of Additional Information.
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SUMMARY OF FUND EXPENSES
The following table illustrates all expenses and fees that a shareholder of the
Fund will incur. The expenses and fees set forth in the table are based on the
fees and expected other expenses anticipated for the first complete fiscal year
of the Fund.
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Class A Class B Class C Class D
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Shareholder Transaction Expenses
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Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)................... 5.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments.......... None None None None
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase price
or redemption proceeds)............................... None(2) 5.00%(3) 1.00%(4) None
Redemption Fees......................................... None None None None
Exchange Fee............................................ None None None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
- --------------------------------------------------------
Management Fees *....................................... 1.00% 1.00% 1.00% 1.00%
12b-1 Fees (5) (6)...................................... 0.25% 1.00% 1.00% None
Other Expenses *........................................ 0.30% 0.30% 0.30% 0.30%
Total Fund Operating Expenses* (7)...................... 1.55% 2.30% 2.30% 1.30%
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* The Investment Manager has agreed to assume all operating expenses (except
for brokerage and 12b-1 fees) and waive the compensation provided in its
investment management agreement until such time as the Fund has $50 million
of net assets or until six months from the date of commencement of the
Fund's operations, whichever occurs first. Other expenses are estimated. The
expenses and fees disclosed above do not reflect the assumption of any
expenses or the waiver of any compensation by the Investment Manager.
(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund
Shares--Initial Sales Charge Alternative--Class A Shares").
(2) Investments that are not subject to any sales charge at the time of purchase
are subject to a CDSC of 1.0% that will be imposed on redemptions made
within one year after purchase, except for certain specific circumstances
(see "Purchase of Fund Shares--Initial Sales Charge Alternative--Class A
Shares").
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter.
(4) Only applicable to redemptions made within one year after purchase (see
"Purchase of Fund Shares--Level Load Alternative--Class C Shares").
(5) The 12b-1 fee is accrued daily and payable monthly. The entire 12b-1 fee
payable by Class A and a portion of the 12b-1 fee payable by each of Class B
and Class C equal to 0.25% of the average daily net assets of the Class are
currently each characterized as a service fee within the meaning of National
Association of Securities Dealers, Inc. ("NASD") guidelines and are payments
made for personal service and/or maintenance of shareholder accounts. The
remainder of the 12b-1 fee, if any, is an asset-based sales charge, and is a
distribution fee paid to the Distributor to compensate it for the services
provided and the expenses borne by the Distributor and others in the
distribution of the Fund's shares (see "Purchase of Fund Shares--Plan of
Distribution").
(6) Upon conversion of Class B shares to Class A shares, such shares will be
subject to the lower 12b-1 fee applicable to Class A shares. No sales charge
is imposed at the time of conversion of Class B shares to Class A shares.
Class C shares do not have a conversion feature and, therefore, are subject
to an ongoing 1.00% distribution fee (see "Purchase of Fund
Shares--Alternative Purchase Arrangements").
(7) "Total Fund Operating Expenses," as shown above, are based upon the sum of
12b-1 Fees, Management Fees and estimated "Other Expenses."
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Examples 1 Year 3 Years
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You would pay the following expenses on a $1,000 investment
assuming (1) a 5% annual return and (2) redemption at the
end of each time period:
Class A................................................ $67 $ 99
Class B................................................ $73 $102
Class C................................................ $33 $ 72
Class D................................................ $13 $ 41
You would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A................................................ $67 $ 99
Class B................................................ $23 $ 72
Class C................................................ $23 $ 72
Class D................................................ $13 $ 41
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THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"Purchase of Fund Shares--Plan of Distribution" and "Redemptions and
Repurchases."
Long-term shareholders of Class B and Class C may pay more in sales
charges, including distribution fees, than the economic equivalent of the
maximum front-end sales charges permitted by the NASD.
THE FUND AND ITS MANAGEMENT
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Morgan Stanley Dean Witter Value Fund (the "Fund") is an open-end,
diversified management investment company. The Fund is a trust of the type
commonly known as a "Massachusetts business trust" and was organized under the
laws of The Commonwealth of Massachusetts on June 9, 1998.
Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors" or the
"Investment Manager"), whose address is Two World Trade Center, New York, New
York 10048, is the Fund's Investment Manager. The Investment Manager, which was
incorporated in July, 1992, is a wholly-owned subsidiary of Morgan Stanley Dean
Witter & Co., a preeminent global financial services firm that maintains leading
market positions in each of its three primary businesses--securities, asset
management and credit services. The Investment Manager, which was incorporated
in July 1992 under the name Dean Witter InterCapital Inc., changed its name to
Morgan Stanley Dean Witter Advisors Inc. on June 22, 1998.
MSDW Advisors and its wholly-owned subsidiary, Morgan Stanley Dean Witter
Services Company Inc., ("MSDW Services"), serve in various investment
management, advisory, management and administrative capacities to 101 investment
companies, 28 of which are listed on the New York Stock Exchange, with combined
assets of approximately $106 billion at August 31, 1998. The Investment Manager
also manages and advises portfolios of pension plans, other institutions and
individuals which aggregated approximately $4.1 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and supervise the investment of the Fund's
assets. MSDW Advisors has retained
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MSDW Services to perform the aforementioned administrative services for the
Fund.
Under a Sub-Advisory Agreement between Miller Anderson & Sherrerd, LLP (the
"Sub-Advisor") and the Investment Manager, the Sub-Advisor provides the Fund
with investment advice and portfolio management subject to the overall
supervision of the Investment Manager. The Fund's Trustees review the various
services provided by the Investment Manager and the Sub-Advisor to ensure that
the Fund's general investment policies and programs are being properly carried
out and that administrative services are being provided to the Fund in a
satisfactory manner.
The Sub-Advisor, whose address is One Tower Bridge, West Conshohocken,
Pennsylvania, as of June 30, 1998, manages assets of approximately $67 billion
for investment companies, employee benefit plans, endowments, foundations and
other institutional investors. The Sub-Advisor is an indirect subsidiary of
Morgan Stanley Dean Witter & Co.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying the
annual rate of 1.0% to the Fund's daily net assets. As compensation for its
services provided pursuant to the Sub-Advisory Agreement, the Investment Manager
pays the Sub-Advisor monthly compensation equal to 40% of its monthly
compensation. The Fund's expenses include: the fee of the Investment Manager,
the fee pursuant to the Plan of Distribution (see "Purchase of Fund Shares");
taxes; transfer agent and custodian fees; auditing fees; and certain legal fees,
and printing and other expenses relating to the Fund's operations which are not
expressly assumed by the Investment Manager under its Investment Management
Agreement with the Fund. The Investment Manager has agreed to assume all
operating expenses (except for brokerage and 12b-1 fees) and waive the
compensation provided for in its investment management agreement until such time
as the Fund has $50 million of net assets or until six months from commencement
of the Fund's operations, whichever occurs first.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is total return. There is no assurance
that the objective will be achieved. This objective is fundamental and may not
be changed without shareholder approval. The following policies may be changed
by the Board of Trustees without shareholder approval.
The Fund seeks to achieve its investment objective by investing at least
65% of its total assets in common stocks and other equity securities that are
believed by the Fund's Sub-Advisor to be relatively undervalued based primarily
on price/earnings ratios, as well as on various other value measures such as
price/book ratios and price/sales ratios. The Sub-Advisor invests the Fund's
assets by pursuing an investing strategy that is a disciplined value approach,
backed by fundamental quantitative and qualitative analyses, and executed within
a multiple-manager, team system. Individual securities are selected based on a
sequence of objective, quantitative screens, focused fundamental research by in-
house industry analysts, and concluded with buy/sell decisions by individual
portfolio managers.
The portfolio managers, currently three in total, are part of a team. Each
manager works independently within the style of the team. The team has a team
leader who performs certain oversight functions with respect to overall
portfolio structure. Research is aligned to complement and support the value
style of the portfolio.
The Sub-Advisor's investment process is designed to identify companies
whose stock, in the Sub-Advisor's opinion, is believed to be undervalued
relative to the stock market in general as measured by the Standard and Poor's
500 Composite Stock Price Index ("S&P 500"), based primarily on price/book
ratios as well as other value measures
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such as price/earnings ratios and price/sales ratios as well as fundamental
research. While capital return will be emphasized somewhat more than income
return, the Fund's total return will consist of both capital and income returns.
Stocks which the Sub-Advisor believes to be undervalued in the marketplace have,
in general, under most market conditions, higher dividend income returns than
stocks that are believed to have long-term earnings growth potential, which
normally sell at higher price/earnings ratios, price/book ratios or price/sales
ratios. However, the Sub-Advisor may select non-dividend paying stocks for their
value characteristics.
The securities in which the Fund may invest include common stocks,
preferred stocks, rights and warrants and equity securities of foreign issuers.
The Fund may invest up to 25% of its total assets in foreign equity or
fixed-income securities denominated in a foreign currency and traded primarily
in non-U.S. markets.
Up to 35% of the Fund's total assets may be invested in (i) convertible
securities (which may or may not be rated below investment grade), (ii)
investment grade fixed-income securities of domestic companies, (iii) investment
grade fixed-income securities of foreign companies and governments and
international organizations, (iv) U.S. Government securities, and (v) money
market instruments. (For a discussion of the risks of investing in each of these
securities, see "Risk Considerations and Investment Practices" below.) In
addition, this portion of the Fund's portfolio will consist of various other
financial instruments such as forward foreign exchange contracts, futures
contracts and options as set forth below.
Fixed-income securities in which the Fund may invest include domestic and
foreign corporate notes and bonds, obligations issued or guaranteed by the
United States Government, its agencies and instrumentalities and obligations of
foreign governments and international organizations. The non-governmental debt
securities in which the Fund may invest may include: (a) domestic and foreign
corporate debt securities, including bonds, notes and commercial paper, rated in
the four highest categories by a nationally recognized statistical rating
organization ("NRSRO") including Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Corporation ("S&P"), Duff and Phelps, Inc. and Fitch Investors
Service, Inc., or, if unrated, of comparable quality as determined by the
Investment Manager and Sub-Advisor; and (b) bank obligations, including CDs,
banker's acceptances and time deposits, issued by banks with a long-term CD
rating in one of the four highest categories by a NRSRO. Investments in
securities rated within the four highest rating categories by a NRSRO are
considered "investment grade." However, such securities rated within the fourth
highest rating category by a NRSRO have speculative characteristics and,
therefore, changes in economic conditions or other circumstances are more likely
to weaken the capacity of their issuers to make principal and interest payments
than would be the case with investments in securities with higher credit
ratings. Where a fixed-income security is not rated by a NRSRO, the Investment
Manager and/or Sub-Advisor will make a determination of its creditworthiness and
may deem it to be investment grade. If a fixed-income non-convertible security
held by the Fund is subsequently downgraded by a rating agency below investment
grade, the Fund will sell such securities as soon as practicable without undue
market or tax consequences to the Fund. See the Appendix to the Statement of
Additional Information for a discussion of ratings of fixed-income securities.
The U.S. Government securities in which the Fund may invest include
securities which are direct obligations of the United States Government, such as
United States treasury bills, notes and bonds (including zero coupon bonds), and
which are backed by the full faith and credit of the United States; securities
which are backed by the full faith and credit of the United States but which are
obligations of a United States Government agency or instrumentality (e.g.,
obligations of the Government National Mortgage Association); securities issued
by a United States agency or instrumentality which has the right to borrow, to
meet its obligations, from
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an existing line of credit with the United States Treasury (e.g., obligations of
the Federal National Mortgage Association); and securities issued by a United
States Government agency or instrumentality which is backed by the credit of the
issuing agency or instrumentality (e.g., obligations of the Federal Farm Credit
System).
There may be periods during which market conditions warrant reduction of
some or all of the Fund's securities holdings. During such periods, the Fund may
adopt a temporary "defensive" posture in which greater than 35% of its net
assets are invested in cash or money market instruments. Under such
circumstances, the money market instruments in which the Fund may invest are
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities (Treasury bills, notes and bonds, including zero coupon
securities); bank obligations; Eurodollar certificates of deposit; obligations
of savings institutions; fully insured certificates of deposit; and commercial
paper rated within the two highest grades by Moody's or S&P or, if not rated,
issued by a company having an outstanding debt issue rated at least AA by S&P or
Aa by Moody's. Such securities may be used to invest uncommitted cash balances.
During such "defensive" periods, up to 100% of the Fund's total assets may be
invested in money market instruments or cash.
The Fund may also purchase or sell futures contracts or options thereon and
listed and over-the-counter options contracts on securities and indices, may
enter into repurchase agreements, purchase private placements, zero coupon
securities, forward futures contracts, and securities of other investment
companies, purchase securities on a when-issued, delayed delivery or forward
commitment basis, purchase securities on a "when, as and if issued" basis, and
lend its portfolio securities, as discussed under "Risk Considerations and
Investment Practices" below.
RISK CONSIDERATIONS AND INVESTMENT PRACTICES
The net asset value of the Fund's shares will fluctuate with changes in the
market value of the Fund's portfolio securities. The market value of the Fund's
portfolio securities will increase or decrease due to a variety of economic,
market or political factors which cannot be predicted.
Foreign Securities. Foreign securities investments may be affected by
changes in currency rates or exchange control regulations, changes in
governmental administration or economic or monetary policy (in the United States
and abroad) or changed circumstances in dealings between nations. Fluctuations
in the relative rates of exchange between the currencies of different nations
will affect the value of the Fund's investments. Changes in foreign currency
exchange rates relative to the U.S. dollar will affect the U.S. dollar value of
the Fund's assets denominated in that currency and thereby impact upon the
Fund's total return on such assets. When purchasing foreign securities, the Fund
will generally enter into foreign currency exchange transactions or forward
foreign exchange contracts to facilitate settlement. The Fund will utilize
forward foreign exchange contracts in these instances as an attempt to limit the
effect of changes in the relationship between the U.S. dollar and the foreign
currency during the period between the trade date and settlement date for the
transaction.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of the
exchanges on which the currencies trade. The foreign currency transactions of
the Fund will be conducted on a spot basis or through forward contracts or
futures contracts (see below). The Fund may incur certain costs in connection
with these currency transactions.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
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expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements of
U.S. companies and, as such, there may be less publicly available information
about such companies. Moreover, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of Fund trades effected in such markets. Inability to dispose of
portfolio securities due to settlement delays could result in losses to the Fund
due to subsequent declines in value of such securities and the inability of the
Fund to make intended security purchases due to settlement problems could result
in a failure of the Fund to make potentially advantageous investments.
Many European countries are about to adopt a single European Currency, the
euro ("the Euro Conversion"). The consequences of the Euro Conversion for
foreign exchange rates, interest rates and the value of European Securities
eligible for purchase by the Fund are presently unclear. Such consequences may
adversely affect the value and/or increase the volatility of Securities held by
the Fund.
Depository Receipts. The Fund may invest in securities of foreign issuers
in the form of ADRs, including ADRs sponsored by persons other than the
underlying issuers ("unsponsored ADRs"), European Depository Receipts ("EDRs"),
Global Depository Receipts ("GDRs") or other similar securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by a United States bank or trust
company evidencing ownership of the underlying securities. Generally, issuers of
the stock of unsponsored ADRs are not obligated to distribute material
information in the United States and, therefore, there may not be a correlation
between such information and the market value of such ADRs. EDRs are issued by a
European bank and GDRs are issued by a foreign bank or trust company and both
evidence ownership of the underlying foreign security. Generally, ADRs, in
registered form, are designated for use in the United States securities markets,
EDRs, in bearer form, are designated for use in European securities markets and
GDRs, in bearer form, are designated for use in European and other foreign
securities markets.
Convertible Securities. The Fund may invest in convertible securities. A
convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula. Convertible securities rank senior to
common stocks in a corporation's capital structure and, therefore, entail less
risk than the corporation's common stock. The value of a convertible security is
a function of its "investment value" (its value as if it did not have a
conversion privilege), and its "conversion value" (the security's worth if it
were to be exchanged for the underlying security, at market value, pursuant to
its conversion privilege).
Lower Rated or Unrated Convertible Securities. To the extent that a
convertible security's investment value is greater than its conversion value,
its price will be primarily a reflection of such investment value and its price
will be likely to increase when interest rates fall and decrease when interest
rates rise, as with a fixed-income security (the credit standing of the issuer
and other factors may also
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have an effect on the convertible security's value). If the conversion value
exceeds the investment value, the price of the convertible security will rise
above its investment value and, in addition, may sell at some premium over its
conversion value. (This premium represents the price investors are willing to
pay for the privilege of purchasing a fixed-income security with a possibility
of capital appreciation due to the conversion privilege.) At such times the
price of the convertible security will tend to fluctuate directly with the price
of the underlying equity security.
The convertible securities in which the Fund may invest may be rated below
investment grade. Securities below investment grade are the equivalent of high
yield, high risk bonds, commonly known as "junk bonds." Investment grade is
generally considered to be debt securities rated BBB or higher by S&P or Baa or
higher by Moody's. Fixed-income securities rated Baa by Moody's or BBB by S&P
have speculative characteristics greater than those of more highly rated
securities, while fixed-income securities rated Ba or BB or lower by Moody's and
S&P, respectively, are considered to be speculative investments. The Fund will
not invest in convertible securities that are rated lower than B by S&P or
Moody's or, if not rated, determined to be of comparable quality by the
Investment Manager and/or Sub-Advisor. The Fund will not invest in debt
securities that are in default in payment of principal or interest. The ratings
of fixed-income securities by Moody's and S&P are a generally accepted barometer
of credit risk. However, as the creditworthiness of issuers of lower-rated
fixed-income securities is more problematic than that of issuers of higher-rated
fixed-income securities, the achievement of the Fund's investment objective will
be more dependent upon the Sub-Advisor's own credit analysis than would be the
case with a mutual fund investing primarily in higher quality bonds. The
Sub-Advisor will utilize a security's credit rating as simply one indication of
an issuer's creditworthiness and will principally rely upon its own analysis of
any security currently held by the Fund or potentially purchasable by the Fund
for its portfolio. See the Appendix to the Statement of Additional Information
for a discussion of ratings of fixed-income securities.
Because of the special nature of the Fund's permitted investments in lower
rated or unrated convertible securities, the Investment Manager and Sub-Advisor
must take account of certain special considerations in assessing the risks
associated with such investments. The prices of lower rated or unrated
securities have been found to be less sensitive to changes in prevailing
interest rates than higher rated investments, but are likely to be more
sensitive to adverse economic changes or individual corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress which would adversely
affect their ability to service their principal and interest payment
obligations, to meet their projected business goals or to obtain additional
financing. If the issuer of a fixed-income security owned by the Fund defaults,
the Fund may incur additional expenses to seek recovery. In addition, periods of
economic uncertainty and change can be expected to result in an increased
volatility of market prices of lower rated or unrated securities and a
corresponding volatility in the net asset value of a share of the Fund.
Corporate Notes and Bonds. Values and yield of corporate bonds will
fluctuate with changes in prevailing interest rates and other factors.
Generally, as prevailing interest rates rise, the value of corporate notes and
bonds held by the Fund will fall. Securities with longer maturities generally
tend to produce higher yields and are subject to greater market fluctuation as a
result of changes in interest rates than debt securities with shorter
maturities. The Fund is not limited as to the maturities of the debt securities
in which it may invest.
All fixed-income securities are subject to two types of risks; the credit
risk and the interest rate risk. The credit risk relates to the ability of the
issuer to meet interest or principal payments or both as they come due. The
interest rate risk refers to the fluctuations in the net asset value of any
portfolio of fixed-income securities resulting from the inverse
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<PAGE> 12
relationship between price and yield of fixed-income securities; that is, when
the general level of interest rates rises, the prices of outstanding
fixed-income securities decline, and when interest rates fall, prices rise.
Forward Foreign Currency Exchange Contracts. A forward foreign currency
exchange contract ("forward contract") involves an obligation to purchase or
sell a currency at a future date, which may be any fixed number of days from the
date of the contract agreed upon by the parties, at a price set at the time of
the contract. The Fund may enter into forward contracts as a hedge against
fluctuations in future foreign exchange rates.
The Fund will enter into forward contracts under various circumstances.
When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in" the
price of the security in U.S. dollars or some other foreign currency which the
Fund is temporarily holding in its portfolio. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars or other
currency, of the amount of foreign currency involved in the underlying security
transactions, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar or
other currency which is being used for the security purchase and the foreign
currency in which the security is denominated during the period between the date
on which the security is purchased or sold and the date on which payment is made
or received.
At other times, when, for example, it is believed that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar or some other foreign currency, the Fund may enter into a forward
contract to sell, for a fixed amount of dollars or other currency, the amount of
foreign currency approximating the value of some or all of the Fund's portfolio
securities (or securities which the Fund has purchased for its portfolio)
denominated in such foreign currency. Under identical circumstances, the Fund
may enter into a forward contract to sell, for a fixed amount of U.S. dollars or
other currency, an amount of foreign currency other than the currency in which
the securities to be hedged are denominated approximating the value of some or
all of the portfolio securities to be hedged. This method of hedging, called
"cross-hedging," will be selected when it is determined that the foreign
currency in which the portfolio securities are denominated has insufficient
liquidity or is trading at a discount as compared with some other foreign
currency with which it tends to move in tandem.
In addition, when the Fund anticipates purchasing securities at some time
in the future, and wishes to lock in the current exchange rate of the currency
in which those securities are denominated against the U.S. dollar or some other
foreign currency, it may enter into a forward contract to purchase an amount of
currency equal to some or all of the value of the anticipated purchase, for a
fixed amount of U.S. dollars or other currency. The Fund may, however, close out
the forward contract without purchasing the security which was the subject of
the "anticipatory" hedge.
Lastly, the Fund is permitted to enter into forward contracts with respect
to currencies in which certain of its portfolio securities are denominated and
on which options have been written (see "Options and Futures Transactions").
In all of the above circumstances, if the currency in which the Fund's
portfolio securities (or anticipated portfolio securities) are denominated rises
in value with respect to the currency which is being purchased (or sold), then
the Fund will have realized fewer gains than had the Fund not entered into the
forward contracts. Moreover, the precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible,
since the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The Fund is
not required to enter into such transactions with regard to its foreign
currency-denominated securities and
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<PAGE> 13
will not do so unless deemed appropriate by the Investment Manager and/or
Sub-Advisor.
The Fund generally will not enter into a forward contract with a term of
greater than one year, although it may enter into forward contracts for periods
of up to five years. To the extent that the Fund enters into forward foreign
currency contracts to hedge against a decline in the value of portfolio holdings
denominated in a particular foreign currency resulting from currency
fluctuations, there is a risk that the Fund may nevertheless realize a gain or
loss as a result of currency fluctuations after such portfolio holdings are sold
if the Fund is unable to enter into an "offsetting" forward foreign currency
contract with the same party or another party. The Fund may be limited in its
ability to enter into hedging transactions involving forward contracts by the
Internal Revenue Code of 1986 (the "Code") requirements relating to
qualification as a regulated investment company (see "Dividends, Distributions
and Taxes").
Options and Futures Transactions. Call and put options on U.S. Treasury
notes, bonds and bills, on various foreign currencies and on equity securities
are listed on several U.S. and foreign securities exchanges and are written in
over-the-counter transactions ("OTC Options"). Listed options are issued or
guaranteed by the exchange on which they trade or by a clearing corporation such
as the Options Clearing Corporation ("OCC"). Ownership of a listed call option
gives the Fund the right to buy from the OCC (in the U.S.) or other clearing
corporation or exchange, the underlying security or currency covered by the
option at the stated exercise price (the price per unit of the underlying
security or currency) by filing an exercise notice prior to the expiration date
of the option. The writer (seller) of the option would then have the obligation
to sell, on the OCC (in the U.S.) or other clearing corporation or exchange, the
underlying security or currency at that exercise price prior to the expiration
date of the option, regardless of its then current market price. Ownership of a
listed put option would give the Fund the right to sell the underlying security
or currency to the OCC (in the U.S.) or other clearing corporation or exchange
at the stated exercise price. Upon notice of exercise of the put option, the
writer of the option would have the obligation to purchase the underlying
security or currency from the OCC (in the U.S.) or other clearing corporation or
exchange at the exercise price.
OTC Options. Exchange-listed options are issued by the OCC (in the U.S.)
or other clearing corporation or exchange which assures that all transactions in
such options are properly executed. OTC options are purchased from or sold
(written) to dealers or financial institutions which have entered into direct
agreements with the Fund. With OTC options, such variables as expiration date,
exercise price and premium will be agreed upon between the Fund and the
transacting dealer, without the intermediation of a third party such as the OCC.
If the transacting dealer fails to make or take delivery of the securities or
amount of foreign currency underlying an option it has written, in accordance
with the terms of that option, the Fund would lose the premium paid for the
option as well as any anticipated benefit of the transaction. The Fund will
engage in OTC option transactions only with member banks of the Federal Reserve
System or primary dealers in U.S. Government securities or with affiliates of
such banks or dealers which have capital of at least $50 million or whose
obligations are guaranteed by an entity having capital of at least $50 million.
Covered Call Writing. The Fund is permitted to write covered call options
on portfolio securities which are denominated in either U.S. dollars or foreign
currencies and on the U.S. dollar and foreign currencies, without limit, in
order to hedge against the decline in the value of a security or currency and to
close out long call option positions. Generally, a call option is "covered" if
the Fund owns the security or the currency underlying the option it has written,
holds a call option on the same underlying security or currency with a similar
exercise price or maintains a sufficient amount of cash, cash equivalents or
liquid securities to purchase the underlying security or to exchange for the
underlying currency. As a writer of a call option, the Fund has the obligation,
upon notice of exercise of the
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<PAGE> 14
option, to deliver the security or amount of currency underlying the option
(certain listed and OTC call options written by the Fund will be exercisable by
the purchaser only on a specific date).
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. The premium received will
offset a portion of the potential loss incurred by the Fund if the securities
underlying the option are ultimately sold by the Fund at a loss. Furthermore, a
premium received on a call written on a foreign currency will ameliorate any
potential loss of value on the portfolio security due to a decline in the value
of the currency. However, during the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity for capital
appreciation above the exercise price should the market price of the underlying
security (or the exchange rate of the currency in which it is denominated)
increase, but has retained the risk of loss should the price of the underlying
security (or the exchange rate of the currency in which it is denominated)
decline. The size of premiums will fluctuate with varying market conditions.
Purchasing Call and Put Options. The Fund may purchase listed and OTC call
and put options in amounts equalling up to 5% of its total assets. The Fund may
purchase call options to close out a covered call position or to protect against
an increase in the price of a security it anticipates purchasing or, in the case
of call options on a foreign currency, to hedge against an adverse exchange rate
change of the currency in which the security it anticipates purchasing is
denominated vis-a-vis the currency in which the exercise price is denominated.
The Fund may purchase put options on securities which it holds in its portfolio
only to protect itself against a decline in the value of the security. If the
value of the underlying security were to fall below the exercise price of the
put purchased in an amount greater than the premium paid for the option, the
Fund would incur no additional loss. Similarly, the Fund may purchase put
options on currencies in which securities which it holds are denominated only to
protect itself against a decline in value of such currency vis-a-vis the
currency in which the exercise price is denominated. If the value of the
currency underlying the option were to fall below the exercise price of the put
purchased in an amount greater than the premium paid for the option, the Fund
would incur no additional loss. There are no other limits on the Fund's ability
to purchase call and put options.
Futures Contracts. The Fund may purchase and sell futures contracts that
are currently traded, or may in the future be traded, on U.S. and foreign
commodity exchanges on common stocks, such underlying fixed-income securities as
U.S. Treasury bonds, notes, and bills and/or any foreign government fixed-income
security ("interest rate" futures), on various currencies ("currency" futures)
and on such indexes of U.S. or foreign equity and fixed-income securities as may
exist or come into being, such as the Standard & Poor's 500 Composite Stock
Price Index ("S&P 500") or the Financial Times Equity Index ("index" futures).
As a futures contract purchaser, the Fund incurs an obligation to take delivery
of a specified amount of the obligation underlying the contract at a specified
time in the future for a specified price. As a seller of a futures contract, the
Fund incurs an obligation to deliver the specified amount of the underlying
obligation at a specified time in return for an agreed upon price.
The Fund will purchase or sell interest rate futures contracts for the
purpose of hedging some or all of the value of its portfolio securities (or
anticipated portfolio securities) against changes in prevailing interest rates.
If it is anticipated that interest rates may rise and, concomitantly, the price
of certain of its portfolio securities fall, the Fund may sell an interest rate
futures contract. If declining interest rates are anticipated, the Fund may
purchase an interest rate futures contract to protect against a potential
increase in the price of securities the Fund intends to purchase. Subsequently,
appropriate securities may be purchased by the Fund in an orderly fashion; as
securities are purchased, corresponding futures positions would be terminated by
offsetting sales of contracts.
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Rather than actually purchasing a financial asset (e.g., a long- or
short-term treasury security) or all of the securities contained in a specific
index (e.g., the S&P 500), the Fund may choose to purchase a futures contract
which reflects the value of such securities or index. For example, an S&P 500
futures contract reflects the value of the underlying companies that comprise
the S&P 500. If the aggregate market value of the index securities increases or
decreases during the contract period of an S&P 500 futures contract, the amount
of cash to be paid to the contract holder at the end of the period would
correspondingly increase or decrease. As a result, the Fund is able to expose to
the market that is held by the Fund to meet anticipated redemptions or for
future investment opportunities. Because futures contracts generally settle more
quickly than their underlying securities, the Fund believes that the use of
futures and options thereon may allow the Fund to be fully invested while
maintaining the needed liquidity.
The Fund may purchase or sell index futures contracts for the purpose of
hedging some or all of its portfolio (or anticipated portfolio) against changes
in their prices. If it is anticipated that the prices of securities held by the
Fund may fall, the Fund may sell an index futures contract. Conversely, if the
Fund wishes to hedge against anticipated price rises in those securities which
the Fund intends to purchase, the Fund may purchase an index futures contract.
The Fund may purchase or sell currency futures on currencies in which its
portfolio securities (or anticipated portfolio securities) are denominated for
the purposes of hedging against anticipated changes in currency exchange rates.
The Fund will enter into currency futures contracts for the same reasons as set
forth above for entering into forward foreign currency contracts; namely, to
"lock-in" the value of a security purchased or sold in a given currency vis-a-
vis a different currency or to hedge against an adverse currency exchange rate
movement of a portfolio security's (or anticipated portfolio security's)
denominated currency vis-a-vis a different currency.
In addition to the above, interest rate, index and currency futures may be
bought or sold in order to close out a short or long position maintained by the
Fund in a corresponding futures contract.
Options on Futures Contracts. The Fund may purchase and write call and put
options on futures contracts which are traded on an exchange and enter into
closing transactions with respect to such options to terminate an existing
position. An option on a futures contract gives the purchaser the right (in
return for the premium paid) to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the term of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option is accompanied by delivery of the
accumulated balance in the writer's futures margin account, which represents the
amount by which the market price of the futures contract at the time of exercise
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract.
The Fund will purchase and write options on futures contracts for identical
purposes to those set forth above for the purchase of a futures contract
(purchase of a call option) and the sale of a futures contract (purchase of a
put option or sale of a call option), or to close out a long or short position
in futures contracts. If, for example, the Investment Manager or Sub-Advisor
wished to protect against an increase in interest rates and the resulting
negative impact on the value of a portion of its fixed-income portfolio, it
might write a call option on an interest rate futures contract, the underlying
security of which correlates with the portion of the portfolio the Investment
Manager or Sub-Advisor seeks to hedge. Any premiums received in the writing of
options on futures contracts may, of course, provide a further hedge against
losses resulting from price declines in portions of the Fund's portfolio.
Limitations on Futures Contracts and Options on Futures. The Fund may not
enter into futures contracts or purchase related options thereon if,
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<PAGE> 16
immediately thereafter, the amount committed to margin plus the amount paid for
premiums for unexpired options on futures contracts exceeds 5% of the value of
the Fund's total assets, after taking into account unrealized gains and
unrealized losses on such contracts it has entered into, provided, however, that
in the case of an option that is in-the-money (the exercise price of the call
(put) option is less (more) than the market price of the underlying security) at
the time of purchase, the in-the-money amount may be excluded in calculating the
5%. However, there is no overall limitation on the percentage of the Fund's
assets which may be committed to a hedge position. Except as described above,
there are no other limitations on the use of futures and options thereon by the
Fund.
Risks of Options and Futures Transactions. The Fund may close out its
position as writer of an option, or as a buyer or seller of a futures contract,
only if a liquid secondary market exists for options or futures contracts of
that series. There is no assurance that such a market will exist, particularly
in the case of OTC options, as such options will generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer.
Exchanges may limit the amount by which the price of many futures contracts
may move on any day. If the price moves equal the daily limit on successive
days, then it may prove impossible to liquidate a futures position until the
daily limit moves have ceased.
The extent to which the Fund may enter into transactions involving options
and futures contracts may be limited by the Code's requirements for
qualification as a regulated investment company and the Fund's intention to
qualify as such. See "Dividends, Distributions and Taxes."
While the futures contracts and options transactions to be engaged in by
the Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk is that the Fund's management could be incorrect in its
expectations as to the direction or extent of various interest rate or price
movements or the time span within which the movements take place. For example,
if the Fund sold futures contracts for the sale of securities in anticipation of
an increase in interest rates, and then interest rates went down instead,
causing bond prices to rise, the Fund would lose money on the sale.
Another risk which may arise in employing futures contracts to protect
against the price volatility of portfolio securities is that the prices of
securities, currencies and indexes subject to futures contracts (and thereby the
futures contract prices) may correlate imperfectly with the behavior of the U.S.
dollar cash prices of the Fund's portfolio securities and their denominated
currencies. Another such risk is that prices of interest rate futures contracts
may not move in tandem with the changes in prevailing interest rates against
which the Fund seeks a hedge. A correlation may also be distorted by the fact
that the futures market is dominated by short-term traders seeking to profit
from the difference between a contract or security price objective and their
cost of borrowed funds. Such distortions are generally minor and would diminish
as the contract approached maturity.
The Fund, by entering into transactions in foreign futures and options
markets, will also incur risks similar to those discussed above under the
section entitled "Foreign Securities."
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when a purchase of a
call or put option on a futures contract would result in a loss to the Fund when
the purchase or sale of a futures contract would not result in a loss, such as
when there is no movement in the prices of the underlying securities. The
writing of a put or call option on a futures contract involves risks similar to
those relating to transactions in futures contracts, as are described above.
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Investment in Other Investment Vehicles. Under the Investment Company Act
of 1940, as amended (the "Act"), the Fund generally may invest up to 10% of its
total assets in the aggregate in shares of other investment companies and up to
5% of its total assets in any one investment company, as long as that investment
does not represent more than 3% of the voting stock of the acquired investment
company at the time such shares are purchased. Notwithstanding the foregoing,
the Fund may invest all or substantially all of its assets in another registered
investment company having the same investment objective and policies and
substantially the same investment restrictions as the Fund. (See "Additional
Information--Master/Feeder Conversion.") Investment in other investment
companies or vehicles may be the sole or most practical means by which the Fund
can participate in certain foreign markets. Such investment may involve the
payment of substantial premiums above the value of such issuers' portfolio
securities, and is subject to limitations under the Act and market availability.
In addition, special tax considerations may apply. The Fund does not intend to
invest in such vehicles or funds unless, in the judgment of the Investment
Manager, the potential benefits of such investment justify the payment of any
applicable premium or sales charge. As a shareholder in an investment company,
the Fund would bear its ratable share of that investment company's expenses,
including its advisory and administration fees. At the same time the Fund would
continue to pay its own management fees and other expenses, as a result of which
the Fund and its shareholders in effect will be absorbing duplicate levels of
advisory fees with respect to investments in such other investment companies.
Standard & Poor's Depositary Receipts ("SPDRs"). The Fund may purchase
interests in a unit investment trust holding a portfolio of securities linked to
the S&P 500. SPDRs closely track the underlying portfolio of securities, trade
like a share of common stock and pay periodic dividends proportionate to those
paid by the portfolio of stocks that comprise the S&P 500. The Fund will not
invest in excess of 10% of its total assets in the aggregate in SPDRs and up to
5% of its total assets in SPDRs issued by a single unit investment trust. As a
holder of interests in a unit investment trust, the Fund would indirectly bear
its ratable share of that unit investment trust's expenses. At the same time the
Fund would continue to pay its own management and advisory fees and other
expenses, as a result of which the Fund and its shareholders in effect will be
absorbing duplicate levels of fees with respect to investments in such unit
investment trusts. The liquidity of small holdings of SPDRs will depend upon the
existence and liquidity of a secondary market. See the Statement of Additional
Information for a further discussion of SPDRs.
Rights and Warrants. The Fund may acquire rights and/or warrants which are
attached to other securities in its portfolio, or which are issued as a
distribution by the issuer of a security held in its portfolio. Rights and/or
warrants are, in effect, options to purchase equity securities at a specific
price, generally valid for a specific period of time, and have no voting rights,
pay no dividends and have no rights with respect to the corporation issuing
them.
Private Placements and Restricted Securities. The Fund may invest up to 15%
of its net assets in securities which are subject to restrictions on resale
because they have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or which are otherwise restricted. (Securities
eligible for resale pursuant to Rule 144A under the Securities Act, and
determined to be liquid pursuant to the procedures discussed in the following
paragraph, are not subject to the foregoing restriction.) These securities are
generally referred to as private placements or restricted securities.
Limitations on the resale of such securities may have an adverse effect on their
marketability, and may prevent the Fund from disposing of them promptly at
reasonable prices. The Fund may have to bear the expense of registering such
securities for resale and the risk of substantial delays in effecting such
registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which
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permits the Fund to sell restricted securities to qualified institutional buyers
without limitation. The Investment Manager, pursuant to procedures adopted by
the Trustees of the Fund, will make a determination as to the liquidity of each
restricted security purchased by the Fund. If a restricted security is
determined to be "liquid," such security will not be included within the
category "illiquid securities," which under current policy may not exceed 15% of
the Fund's net assets. However, investing in Rule 144A securities could have the
effect of increasing the level of Fund illiquidity to the extent the Fund, at a
particular point in time, may be unable to find qualified institutional buyers
interested in purchasing such securities.
Repurchase Agreements. The Fund may enter into repurchase agreements,
which may be viewed as a type of secured lending by the Fund, and which
typically involve the acquisition by the Fund of debt securities from a selling
financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Fund will sell back to the
institution, and that the institution will repurchase, the underlying security
at a specified price and at a fixed time in the future, usually not more than
seven days from the date of purchase. While repurchase agreements involve
certain risks not associated with direct investments in debt securities,
including the risks of default or bankruptcy of the selling financial
institution, the Fund follows procedures to minimize such risks. These
procedures include effecting repurchase transactions only with large,
well-capitalized and well-established financial institutions and maintaining
adequate collateralization.
Zero Coupon Securities. A portion of the fixed-income securities purchased
by the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive their
full value at maturity. The interest earned on such securities is, implicitly,
automatically compounded and paid out at maturity. While such compounding at a
constant rate eliminates the risk of receiving lower yields upon reinvestment of
interest if prevailing interest rates decline, the owner of a zero coupon
security will be unable to participate in higher yields upon reinvestment of
interest received on interest-paying securities if prevailing interest rates
rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will not
receive current cash available for distribution to shareholders. In addition,
zero coupon securities are subject to substantially greater price fluctuations
during periods of changing prevailing interest rates than are comparable
securities which pay interest on a current basis. Current federal tax law
requires that a holder (such as the Fund) of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year
even though the Fund receives no interest payments in cash on the security
during the year.
When-Issued and Delayed Delivery Securities and Forward Commitments. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are negotiated,
the price is fixed at the time of the commitment, but delivery and payment can
take place a month or more after the date of the commitment. There is no overall
limit on the percentage of the Fund's assets which may be committed to the
purchase of securities on a when-issued, delayed delivery or forward commitment
basis. An increase in the percentage of the Fund's assets committed to the
purchase of securities on a when-issued, delayed delivery or forward commitment
basis may increase the volatility of the Fund's net asset value.
When, As and If Issued Securities. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization, leveraged buyout or debt restructuring. If the
anticipated event does not occur and the securities are not issued, the Fund
will have lost an investment opportunity. There is no overall
18
<PAGE> 19
limit on the percentage of the Fund's assets which may be committed to the
purchase of securities on a "when, as and if issued" basis. An increase in the
percentage of the Fund's assets committed to the purchase of securities on a
"when, as and if issued" basis may increase the volatility of its net asset
value.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers and
other financial institutions, provided that such loans are callable at any time
by the Fund (subject to certain notice provisions described in the Statement of
Additional Information), and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to applicable
regulations and that are at least equal to the market value, determined daily,
of the loaned securities.
Except as specifically noted, all investment objectives, policies and
practices discussed above are not fundamental policies of the Fund and, as such,
may be changed without shareholder approval.
Year 2000. The investment management services provided to the Fund by the
Investment Manager and the Sub-Advisor and the services provided to shareholders
by the Distributor and the Transfer Agent depend on the smooth functioning of
their computer systems. Many computer software systems in use today cannot
recognize the year 2000, but revert to 1900 or some other date, due to the
manner in which dates were encoded and calculated. That failure could have a
negative impact on the handling of securities trades, pricing and account
services. The Investment Manager, the Sub-Advisor, the Distributor and the
Transfer Agent have been actively working on necessary changes in their own
computer systems to prepare for the year 2000 and expect that their systems will
be adapted before that date, but there can be no assurance that they will be
successful, or that interaction with other non-complying computer systems will
not impair their services at that time.
In addition, it is possible that the markets for securities in which the
Fund invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies and overall economic uncertainties.
Earnings of individual issuers will be affected by remediation costs, which may
be substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager and the
Sub-Advisor with a view to achieving the Fund's investment objective. In
determining which securities to purchase for the Fund or hold in the Fund's
portfolio, the Investment Manager and the Sub-Advisor will rely on information
from various sources, including research, analysis and appraisals of brokers and
dealers, including Dean Witter Reynolds Inc., Morgan Stanley & Co. Incorporated
and other broker-dealer affiliates of the Investment Manager, and the Investment
Manager's and Sub-Advisor's own analysis of factors they deem relevant.
The Sub-Advisor employs a multiple-manager, team system for the day-to-day
management of the Fund's portfolio. Currently, there are three portfolio
managers who are part of the team, although there is no strategic necessity that
there be a certain number of managers on the team. Each manager works
independently. The team has a designated team leader. Team leader administers
the portfolio. He also monitors the stock position limits and the
sector-representation weightings. The team is comprised of Nicholas J. Kovich,
Richard M. Behler and Robert J. Marcin with Mr. Marcin acting as team leader.
Mr. Kovich and Mr. Marcin are Managing Directors of the Sub-Advisor and have
been managing portfolios for the Sub-Advisor which have a similar investment
approach to that of the Fund for over five years. Mr. Behler, a Principal of the
Sub-Advisor, joined the Sub-Advisor in 1995. He served
19
<PAGE> 20
as a Portfolio Manager from 1992 through 1995 for Moore Capital Management.
Orders for transactions in portfolio securities and commodities may be
placed for the Fund with a number of brokers and dealers, including Dean Witter
Reynolds Inc., Morgan Stanley & Co. Incorporated and other broker-dealer
affiliates of the Investment Manager or the Sub-Advisor. Pursuant to an order of
the Securities and Exchange Commission, the Fund may effect principal
transactions in certain money market instruments with Dean Witter Reynolds Inc.
In addition, the Fund may incur brokerage commissions on transactions conducted
through Dean Witter Reynolds Inc., Morgan Stanley & Co. Incorporated and other
brokers and dealers that are affiliates of the Investment Manager or the
Sub-Advisor.
It is not anticipated that the portfolio trading engaged in by the Fund
will result in its portfolio turnover rate exceeding 200% in any one year. The
Fund is expected to incur higher than normal brokerage commission costs due to
its portfolio turnover rate. Short-term gains and losses taxable at ordinary
income rates may result from such portfolio transactions. See "Dividends,
Distributions and Taxes" for a full discussion of the tax implications of the
Fund's trading policy. A more extensive discussion of the Fund's portfolio
brokerage policies is set forth in the Statement of Additional Information.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Investment
Company Act of 1940, as amended (the "Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund, as defined in the Act. For purposes of the following limitations: (i)
all percentage limitations apply immediately after a purchase or initial
investment, and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets does
not require elimination of any security from the portfolio.
The Fund may not:
1. As to 75% of its total assets, invest more than 5% of the value of its
total assets in the securities of any one issuer (other than obligations issued,
or guaranteed by, the United States Government, its agencies or
instrumentalities) except that the Fund may seek to achieve its investment
objective by investing all or substantially all of its assets in another
investment company having substantially the same investment objective and
policies as the Fund (a "Qualifying Portfolio").
2. As to 75% of its total assets, purchase more than 10% of all outstanding
voting securities or any class of securities of any one issuer, except that the
Fund may invest all or substantially all of its assets in a Qualifying
Portfolio.
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities.
UNDERWRITING
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter Distributors Inc. (the "Underwriter") has agreed
to purchase up to 10,000,000 shares from the Fund, which number may be increased
or decreased in accordance with the Underwriting Agreement. The initial offering
will run approximately from October 26, 1998 through November 20, 1998. The
Underwriting Agreement provides that the obligation of the Underwriter is
subject to certain conditions precedent and that the Underwriter will be
obligated to purchase the shares on November 25, 1998, or such other date as may
be agreed upon by the Underwriter and the
20
<PAGE> 21
Fund (the "Closing Date"). Shares will not be issued and dividends will not be
declared by the Fund until after the Closing Date. For this reason, payment is
not required to be made prior to the Closing Date. If any orders received during
the initial offering period are accompanied by payment, such payment will be
returned unless an accompanying request for investment in a Morgan Stanley Dean
Witter money market fund is received at the time the payment is made.
Prospective investors in money market funds should request and read the money
market fund prospectus prior to investing. All such funds received and invested
in a Morgan Stanley Dean Witter money market fund will be automatically invested
in the Fund on the Closing Date without any further action by the investor. Any
investor may cancel his or her purchase of Fund shares without penalty at any
time prior to the Closing Date.
The Underwriter will purchase Class B, Class C and Class D shares from the
Fund at $10.00 per share with all proceeds going to the Fund and will purchase
Class A shares at $10.00 per share plus a sales charge with the sales charge
paid to the Underwriter and the net asset value of $10.00 per share going to the
Fund. The Underwriter may, however, receive contingent deferred sales charges
from future redemptions of Class A, Class B and Class C shares (see "Purchase of
Fund Shares--Continuous Offering").
The Underwriter shall, regardless of its expected underwriting commitment,
be entitled and obligated to purchase only the number of shares for which
purchase orders have been received by the Underwriter prior to 2:00 p.m., New
York time, on the third business day preceding the Closing Date, or such other
date as may be agreed to between the parties.
The minimum number of Fund shares which may be purchased by any shareholder
pursuant to this offering is 100 shares. Certificates for shares purchased will
not be issued unless requested by the shareholder in writing.
PURCHASE OF FUND SHARES--CONTINUOUS OFFERING
- --------------------------------------------------------------------------------
GENERAL
The Fund offers each class of its shares for sale to the public on a
continuous basis. Pursuant to a Distribution Agreement between the Fund and
Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors" or the
"Distributor"), an affiliate of the Investment Manager, shares of the Fund are
distributed by the Distributor and offered by Dean Witter Reynolds Inc. ("DWR"),
a selected dealer and subsidiary of Morgan Stanley Dean Witter & Co. and other
dealers which have entered into selected dealer agreements with the Distributor
("Selected Broker-Dealers"). It is anticipated that DWR will undergo a change of
corporate name that is expected to incorporate the brand name "Morgan Stanley
Dean Witter" pending approval of various regulatory authorities. The principal
executive office of the Distributor is located at Two World Trade Center, New
York, New York 10048.
The Fund offers four classes of shares (each, a "Class"). Class A shares
are sold to investors with an initial sales charge that declines to zero for
larger purchases; however, Class A shares sold without an initial sales charge
are subject to a contingent deferred sales charge ("CDSC") of 1.0% if redeemed
within one year of purchase, except for certain specific circumstances. Class B
shares are sold without an initial sales charge but are subject to a CDSC
(scaled down from 5.0% to 1.0%) payable upon most redemptions within six years
after purchase. (Class B shares purchased by certain qualified plans are subject
to a CDSC scaled down from 2.0% to 1.0% if redeemed within three years after
purchase.) Class C shares are sold without an initial sales charge but are
subject to a CDSC of 1.0% on most redemptions made within one year after
purchase. Class D shares are sold without an initial sales charge or CDSC and
are available only
21
<PAGE> 22
to investors meeting an initial investment minimum of $5 million ($25 million
for certain qualified plans), and to certain other limited categories of
investors. At the discretion of the Board of Trustees of the Fund, Class A
shares may be sold to categories of investors in addition to those set forth in
this prospectus at net asset value without a front-end sales charge, and Class D
shares may be sold to certain other categories of investors, in each case as may
be described in the then current prospectus of the Fund. See "Alternative
Purchase Arrangements--Selecting a Particular Class" for a discussion of factors
to consider in selecting which Class of shares to purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million ($25 million
for certain qualified plans) or more and to certain other limited categories of
investors. For the purpose of meeting the minimum $5 million (or $25 million)
initial investment for Class D shares, and subject to the $1,000 minimum initial
investment for each Class of the Fund, an investor's existing holdings of Class
A shares of the Fund and other Morgan Stanley Dean Witter Funds that are
multiple class funds ("Morgan Stanley Dean Witter Multi-Class Funds") and shares
of Morgan Stanley Dean Witter Funds sold with a front-end sales charge ("FSC
Funds") and concurrent investments in Class D shares of the Fund and other
Morgan Stanley Dean Witter Multi-Class Funds will be aggregated. Subsequent
purchases of $100 or more may be made by sending a check, payable to Morgan
Stanley Dean Witter Value Fund, directly to Morgan Stanley Dean Witter Trust FSB
(the "Transfer Agent" or "MSDW Trust") at P.O. Box 1040, Jersey City, NJ 07303
or by contacting a Morgan Stanley Dean Witter Financial Advisor or other
Selected Broker-Dealer representative. When purchasing shares of the Fund,
investors must specify whether the purchase is for Class A, Class B, Class C or
Class D shares. If no Class is specified, the Transfer Agent will not process
the transaction until the proper Class is identified. The minimum initial
purchase, in the case of investments through EasyInvest(SM), an automatic
purchase plan (see "Shareholder Services"), is $100, provided that the schedule
of automatic investments will result in investments totalling at least $1,000
within the first twelve months. The minimum initial purchase in the case of an
"Education IRA" is $500, if the Distributor has reason to believe that
additional investments will increase the investment in the account to $1,000
within three years. In the case of investments pursuant to (i) Systematic
Payroll Deduction Plans (including Individual Retirement Plans), (ii) the MSDW
Advisors mutual fund asset allocation program and (iii) fee-based programs
approved by the Distributor, pursuant to which participants pay an asset based
fee for services in the nature of investment advisory, administrative and/or
brokerage services, the Fund, in its discretion, may accept investments without
regard to any minimum amounts which would otherwise be required, provided, in
the case of Systematic Payroll Deduction Plans, that the Distributor if the Fund
has reason to believe that additional investments will increase the investment
in all accounts under such Plans to at least $1,000. Certificates for shares
purchased will not be issued unless a request is made by the shareholder in
writing to the Transfer Agent.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business day
(settlement date) after the order is placed with the Distributor. Since DWR and
other Selected Broker-Dealers forward investors' funds on settlement date they
will benefit from the temporary use of the funds if payment is made prior
thereto. As noted above, orders placed directly with the Transfer Agent must be
accompanied by payment. Investors will be entitled to receive income dividends
and capital gain distributions if their order is received by the close of
business on the day prior to the record date for such dividends and
distributions. Sales personnel of a Selected Broker-Dealer are compensated for
selling shares of the Fund at the time of their sale by the Distributor or any
of its affiliates and/or the Selected Broker-Dealer. In addition, some sales
personnel of the Selected Broker-
22
<PAGE> 23
Dealer will receive various types of non-cash compensation as special sales
incentives, including trips, educational and/or business seminars and
merchandise. The Fund and the Distributor reserve the right to reject any
purchase orders.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers several Classes of shares to investors designed to provide
them with the flexibility of selecting an investment best suited to their needs.
The general public is offered three Classes of shares: Class A shares, Class B
shares and Class C shares, which differ principally in terms of sales charges
and rate of expenses to which they are subject. A fourth Class of shares, Class
D shares, is offered only to limited categories of investors (see "No Load
Alternative--Class D Shares" below).
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund except that Class A,
Class B and Class C shares bear the expenses of the ongoing shareholder service
fees, Class B and Class C shares bear the expenses of the ongoing distribution
fees and Class A, Class B and Class C shares which are redeemed subject to a
CDSC bear the expense of the additional incremental distribution costs resulting
from the CDSC applicable to shares of those Classes. The ongoing distribution
fees that are imposed on Class A, Class B and Class C shares will be imposed
directly against those Classes and not against all assets of the Fund and,
accordingly, such charges against one Class will not affect the net asset value
of any other Class or have any impact on investors choosing another sales charge
option. See "Plan of Distribution" and "Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and the
factors an investor should consider when selecting a particular Class. This
summary is qualified in its entirety by detailed discussion of each Class that
follows this summary.
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investments by certain other
limited categories of investors) are not subject to any sales charges at the
time of purchase but are subject to a CDSC of 1.0% on redemptions made within
one year after purchase, except for certain specific circumstances. Class A
shares are also subject to a 12b-1 fee of up to 0.25% of the average daily net
assets of the Class. See "Initial Sales Charge Alternative--Class A Shares."
Class B Shares. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to 1.0%)
if redeemed within six years of purchase. (Class B shares purchased by certain
qualified plans are subject to a CDSC scaled down from 2.0% to 1.0% if redeemed
within three years after purchase.) This CDSC may be waived for certain
redemptions. Class B shares are also subject to an annual 12b-1 fee of 1.0% of
the average daily net assets of Class B. The Class B shares' distribution fee
will cause that Class to have higher expenses and pay lower dividends than Class
A or Class D shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition, a
certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time. See
"Contingent Deferred Sales Charge Alternative--Class B Shares."
Class C Shares. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They are
subject to an annual 12b-1 fee of up to 1.0% of the average daily net assets of
the Class C shares. The Class C shares' distribution fee may cause that Class to
have higher expenses and pay lower dividends than Class A or Class D shares. See
"Level Load Alternative--Class C Shares."
23
<PAGE> 24
Class D Shares. Class D shares are available only to limited categories of
investors (see "No Load Alternative--Class D Shares" below). Class D shares are
sold at net asset value with no initial sales charge or CDSC. They are not
subject to any 12b-1 fees. See "No Load Alternative--Class D Selecting a
Particular Class. In deciding which Class of Fund shares to purchase, investors
should consider the following factors, as well as any other relevant facts and
circumstances:
The decision as to which Class of shares is more beneficial to an investor
depends on the amount and intended length of his or her investment. Investors
who prefer an initial sales charge alternative may elect to purchase Class A
shares. Investors qualifying for significantly reduced or, in the case of
purchases of $1 million or more, no initial sales charges may find Class A
shares particularly attractive because similar sales charge reductions are not
available with respect to Class B or Class C shares. Moreover, Class A shares
are subject to lower ongoing expenses than are Class B or Class C shares over
the term of the investment. As an alternative, Class B and Class C shares are
sold without any initial sales charge so the entire purchase price is
immediately invested in the Fund. Any investment return on these additional
investment amounts may partially or wholly offset the higher annual expenses of
these Classes. Because the Fund's future return cannot be predicted, however,
there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly lower
CDSC upon redemptions, they do not, unlike Class B shares, convert into Class A
shares after approximately ten years, and, therefore, are subject to an ongoing
12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A shares) for
an indefinite period of time. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks. Other
investors, however, may elect to purchase Class C shares if, for example, they
determine that they do not wish to be subject to a front-end sales charge and
they are uncertain as to the length of time they intend to hold their shares.
For the purpose of meeting the $5 million (or $25 million) minimum
investment amount for Class D shares, holdings of Class A shares in all Morgan
Stanley Dean Witter Multi-Class Funds, shares of FSC Funds and shares of Morgan
Stanley Dean Witter Funds for which such shares have been exchanged will be
included together with the current investment amount.
Sales personnel may receive different compensation for selling each Class
of shares. Investors should understand that the purpose of a CDSC is the same as
that of the initial sales charge in that the sales charges applicable to each
Class provide for the financing of the distribution of shares of that Class.
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
CONVERSION
CLASS SALES CHARGE 12b-1 FEE FEATURE
<C> <S> <C> <C>
A Maximum 5.25% 0.25% No
initial sales
charge reduced
for purchases of
$25,000 and
over; shares
sold without an
initial sales
charge generally
subject to a
1.0% CDSC during
first year.
B Maximum 5.0% 1.0% B shares convert
CDSC during the to A shares
first year automatically
decreasing to 0 after
after six years approximately
ten years
C 1.0% CDSC during 1.0% No
first year
D None None No
</TABLE>
24
<PAGE> 25
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge. In
some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one year
after purchase (calculated from the last day of the month in which the shares
were purchased), except for certain specific circumstances. The CDSC will be
assessed on an amount equal to the lesser of the current market value or the
cost of the shares being redeemed. The CDSC will not be imposed (i) in the
circumstances set forth below in the section "Contingent Deferred Sales Charge
Alternative--Class B Shares--CDSC Waivers," except that the references to six
years in the first paragraph of that section shall mean one year in the case of
Class A shares, and (ii) in the circumstances identified in the section
"Additional Net Asset Value Purchase Options" below. Class A shares are also
subject to an annual 12b-1 fee of up to 0.25% of the average daily net assets of
the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net Asset
Value" below), plus a sales charge (expressed as a percentage of the offering
price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
------------
AMOUNT OF PERCENTAGE OF APPROXIMATE
SINGLE PUBLIC OFFERING PERCENTAGE OF
TRANSACTION PRICE AMOUNT INVESTED
----------- --------------- ---------------
<S> <C> <C>
Less than $25,000.... 5.25% 5.54%
$25,000 but less
than $50,000.... 4.75% 4.99%
$50,000 but less
than $100,000... 4.00% 4.17%
$100,000 but less
than $250,000... 3.00% 3.09%
$250,000 but less
than $1
million......... 2.00% 2.04%
$1 million and over.. 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods when 90% or more of the sales
charge is reallowed, such Selected Broker-Dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or her
spouse and their children under the age of 21 purchasing shares for his, her or
their own accounts; (c) a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account; (d) a pension, profit-sharing
or other employee benefit plan qualified or non-qualified under Section 401 of
the Internal Revenue Code; (e) tax-exempt organizations enumerated in Section
501(c)(3) or (13) of the Internal Revenue Code; (f) employee benefit plans
qualified under Section 401 of the Internal Revenue Code of a single employer or
of employers who are "affiliated persons" of each other within the meaning of
Section 2(a)(3)(c) of the Act; and for investments in Individual Retirement
Accounts of employees of a single employer through Systematic Payroll Deduction
plans; or (g) any other organized group of persons, whether incorporated or not,
provided the organization has been in existence for at least six
25
<PAGE> 26
months and has some purpose other than the purchase of redeemable securities of
a registered investment company at a discount.
Combined Purchase Privilege. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Fund in single transactions with the purchase of Class A
shares of other Morgan Stanley Dean Witter Multi-Class Funds and shares of FSC
Funds. The sales charge payable on the purchase of the Class A shares of the
Fund, the Class A shares of the other Morgan Stanley Dean Witter Multi-Class
Funds and the shares of the FSC Funds will be at their respective rates
applicable to the total amount of the combined concurrent purchases of such
shares.
Right of Accumulation. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single transaction,
together with shares of the Fund and other Morgan Stanley Dean Witter Funds
previously purchased at a price including a front-end sales charge (including
shares of the Fund and other Morgan Stanley Dean Witter Funds acquired in
exchange for those shares, and including in each case shares acquired through
reinvestment of dividends and distributions), which are held at the time of such
transaction, amounts to $25,000 or more. If such investor has a cumulative net
asset value of shares of FSC Funds and Class A and Class D shares that, together
with the current investment amount, is equal to at least $5 million ($25 million
for certain qualified plans), such investor is eligible to purchase Class D
shares subject to the $1,000 minimum initial investment requirement of that
Class of the Fund. See "No Load Alternative--Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the dealer or shareholder when such an order is
placed by mail. The reduced sales charge will not be granted if: (a) such
notification is not furnished at the time of the order; or (b) a review of the
records of the Selected Broker-Dealer or the Transfer Agent fails to confirm the
investor's represented holdings.
Letter of Intent. The foregoing schedule of reduced sales charges will
also be available to investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of Class A shares of
the Fund from DWR or other Selected Broker-Dealers. The cost of Class A shares
of the Fund or shares of other Morgan Stanley Dean Witter Funds which were
previously purchased at a price including a front-end sales charge during the
90-day period prior to the date of receipt by the Distributor of the Letter of
Intent, or of Class A shares of the Fund or shares of other Morgan Stanley Dean
Witter Funds acquired in exchange for shares of such funds purchased during such
period at a price including a front-end sales charge, which are still owned by
the shareholder, may also be included in determining the applicable reduction.
Additional Net Asset Value Purchase Options. In addition to investments of
$1 million or more, Class A shares also may be purchased at net asset value by
the following:
(1) trusts for which MSDW Trust (an affiliate of the Investment Manager)
provides discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for services
in the nature of investment advisory, administrative and/or brokerage services
(such investments are subject to all of the terms and conditions of such
programs, which may include termination fees mandatory redemption upon
termination and such other circumstances as specified in the programs'
agreements, and restrictions on transferability of Fund shares);
26
<PAGE> 27
(3) employer-sponsored 401(k) and other plans qualified under Section
401(a) of the Internal Revenue Code ("Qualified Retirement Plans") with at least
200 eligible employees and for which MSDW Trust serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement;
(4) Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement whose Class B shares have converted to Class A
shares, regardless of the plan's asset size or number of eligible employees;
(5) investors who are clients of a Morgan Stanley Dean Witter Financial
Advisor who joined Morgan Stanley Dean Witter from another investment firm
within six months prior to the date of purchase of Fund shares by such
investors, if the shares are being purchased with the proceeds from a redemption
of shares of an open-end proprietary mutual fund of the Financial Advisor's
previous firm which imposed either a front-end or deferred sales charge,
provided such purchase was made within sixty days after the redemption and the
proceeds of the redemption had been maintained in the interim in cash or a money
market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Selected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--
CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, will be imposed on
most Class B shares redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments for Class B shares made during the
six years (or, in the case of shares held by certain Qualified Retirement Plans,
three years) preceding the redemption. In addition, Class B shares are subject
to an annual 12b-1 fee of 1.0% of the average daily net assets of Class B.
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in which
the shares were purchased) will not be subject to any CDSC upon redemption.
Shares redeemed earlier than six years after purchase may, however, be subject
to a CDSC which will be a percentage of the dollar amount of shares redeemed and
will be assessed on an amount equal to the lesser of the current market value or
the cost of the shares being redeemed. The size of this percentage will depend
upon how long the shares have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
------------ --------------------
<S> <C>
First..................... 5.0%
Second.................... 4.0%
Third..................... 3.0%
Fourth.................... 2.0%
Fifth..................... 2.0%
Sixth..................... 1.0%
Seventh and thereafter.... None
</TABLE>
In the case of Class B shares of the Fund purchased by Qualified Retirement
Plans for which MSDW Trust serves as Trustee or DWR's Retirement Plan Services
serves as recordkeeper pursuant to a written Recordkeeping Services
27
<PAGE> 28
Agreement, shares held for three years or more after purchase (calculated as
described in the paragraph above) will not be subject to any CDSC upon
redemption. However, shares redeemed earlier than three years after purchase may
be subject to a CDSC (calculated as described in the paragraph above), the
percentage of which will depend on how long the shares have been held, as set
forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
------------ --------------------
<S> <C>
First..................... 2.0%
Second.................... 2.0%
Third..................... 1.0%
Fourth and thereafter..... None
</TABLE>
CDSC Waivers. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or, in
the case of shares held by certain Qualified Retirement Plans, three years)
preceding the redemption; (ii) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) prior to the redemption; and (iii) the current
net asset value of shares purchased through reinvestment of dividends or
distributions and/or shares acquired in exchange for shares of FSC Funds or of
other Morgan Stanley Dean Witter Funds acquired in exchange for such shares.
Moreover, in determining whether a CDSC is applicable it will be assumed that
amounts described in (i), (ii) and (iii) above (in that order) are redeemed
first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (a) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (b) held in a
qualified corporate or self-employed retirement plan, Individual Retirement
Account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination of
disability;
(2) redemptions in connection with the following retirement plan
distributions: (a) lump-sum or other distributions from a qualified corporate or
self-employed retirement plan following retirement (or, in the case of a "key
employee" of a "top heavy" plan, following attainment of age 59 1/2); (b)
distributions from an IRA or 403(b) Custodial Account following attainment of
age 59 1/2; or (c) a tax-free return of an excess contribution to an IRA;
(3) all redemptions of shares held for the benefit of a participant in a
Qualified Retirement Plan which offers investment companies managed by the
Investment Manager or its subsidiary, MSDW Services, as self-directed investment
alternatives and for which MSDW Trust serves as Trustee or DWR's Retirement Plan
Services serves as recordkeeper pursuant to a written Recordkeeping Services
Agreement ("Eligible Plan"), provided that either: (a) the plan continues to be
an Eligible Plan after the redemption; or (b) the redemption is in connection
with the complete termination of the plan involving the distribution of all plan
assets to participants; and
(4) certain redemptions pursuant to the Fund's Systematic Withdrawal Plan
(see "Shareholder Services--Systematic Withdrawal Plan").
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of IRA, 403(b) Custodial Account or retirement
plan assets to a successor custodian or trustee. All waivers will be granted
only following receipt by the Distributor of confirmation of the shareholder's
entitlement.
28
<PAGE> 29
Conversion to Class A Shares. Class B shares will convert automatically to
Class A shares, based on the relative net asset values of the shares of the two
Classes on the conversion date, which will be approximately ten (10) years after
the date of the original purchase. The ten year period is calculated from the
last day of the month in which the shares were purchased or, in the case of
Class B shares acquired through an exchange or a series of exchanges, from the
last day of the month in which the original Class B shares were purchased,
provided that shares acquired in exchange for shares of another fund originally
purchased before May 1, 1997 will convert to Class A shares in May, 2007. The
conversion of shares purchased on or after May 1, 1997 will take place in the
month following the tenth anniversary of the purchase. There will also be
converted at that time such proportion of Class B shares acquired through
automatic reinvestment of dividends and distributions owned by the shareholder
as the total number of his or her Class B shares converting at the time bears to
the total number of outstanding Class B shares purchased and owned by the
shareholder. In the case of Class B shares held by a Qualified Retirement Plan
for which MSDW Trust serves as Trustee or DWR's Retirement Plan Services serves
as recordkeeper pursuant to a written Recordkeeping Services Agreement, the plan
is treated as a single investor and all Class B shares will convert to Class A
shares on the conversion date of the first shares of a Morgan Stanley Dean
Witter Multi-Class Fund purchased by that plan. In the case of Class B shares
previously exchanged for shares of an "Exchange Fund" (see "Shareholder
Services--Exchange Privilege"), the period of time the shares were held in the
Exchange Fund (calculated from the last day of the month in which the Exchange
Fund shares were acquired) is excluded from the holding period for conversion.
If those shares are subsequently re-exchanged for Class B shares of a Morgan
Stanley Dean Witter Multi-Class Fund, the holding period resumes on the last day
of the month in which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior to
the date for conversion. Class B shares evidenced by share certificates that are
not received by the Transfer Agent at least one week prior to any conversion
date will be converted into Class A shares on the next scheduled conversion date
after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion will
have a basis equal to the shareholder's basis in the converted Class B shares
immediately prior to the conversion, and (iii) Class A shares received on
conversion will have a holding period that includes the holding period of the
converted Class B shares. The conversion feature may be suspended if the ruling
or opinion is no longer available. In such event, Class B shares would continue
to be subject to Class B 12b-1 fees.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold at net asset value next determined without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions made
within one year after purchase (calculated from the last day of the month in
which the shares were purchased). The CDSC will be assessed on an amount equal
to the lesser of the current market value or the cost of the shares being
redeemed. The CDSC will not be imposed in the circumstances set forth above in
the section "Contingent Deferred Sales Charge Alternative--Class B Shares--CDSC
Waivers," except that the references to six years in the first paragraph of that
section shall mean one year in the case of Class C shares. Class C shares are
subject to an annual 12b-1 fee of up to 1.0% of the average daily net assets of
the Class. Unlike Class B shares, Class C shares have no conversion feature and,
accordingly, an investor that purchases Class C shares will be subject to 12b-1
fees appli-
29
<PAGE> 30
cable to Class C shares for an indefinite period subject to annual approval by
the Fund's Board of Trustees and regulatory limitations.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption and without any 12b-1 fee. Class D shares are offered only to
investors meeting an initial investment minimum of $5 million ($25 million for
Qualified Retirement Plans for which MSDW Trust serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement) and the following categories of investors: (i)
investors participating in the MDSW Advisors mutual fund asset allocation
program pursuant to which such persons pay an asset based fee; (ii) persons
participating in a fee-based program approved by the Distributor, pursuant to
which such persons pay an asset based fee for services in the nature of
investment advisory, administrative and/or brokerage services (subject to all of
the terms and conditions of such programs referred to in (i) and (ii) above,
which may include termination fees mandatory redemptions upon termination and
such other circumstance as specified in the programs' agreements, and
restrictions on transferability of Fund shares); (iii) 401(k) plans established
by DWR and SPS Transaction Services, Inc. (an affiliate of DWR) for their
employees; (iv) certain Unit Investment Trusts sponsored by DWR; (v) certain
other open-end investment companies whose shares are distributed by the
Distributor; (vi) investors who were shareholders of Dean Witter Retirement
Series on September 11, 1998 (with respect to additional purchases for their
former Dean Witter Retirement Series accounts); and (vii) other categories of
investors, at the discretion of the Board, as disclosed in the then current
prospectus of the Fund. Investors who require a $5 million (or $25 million)
minimum initial investment to qualify to purchase Class D shares may satisfy
that requirement by investing that amount in a single transaction in Class D
shares of the Fund and other Morgan Stanley Dean Witter Multi-Class Funds,
subject to the $1,000 minimum initial investment required for that Class of the
Fund. In addition, for the purpose of meeting the $5 million (or $25 million)
minimum investment amount, holdings of Class A shares in all Morgan Stanley Dean
Witter Multi-Class Funds, shares of FSC Funds and shares of Morgan Stanley Dean
Witter Funds for which such shares have been exchanged will be included together
with the current investment amount. If a shareholder redeems Class A shares and
purchases Class D shares, such redemption may be a taxable event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act with respect to the distribution of Class A, Class B and Class C shares
of the Fund. In the case of Class A and Class C shares, the Plan provides that
the Fund will reimburse the Distributor and others for the expenses of certain
activities and services incurred by them specifically on behalf of those shares.
Reimbursements for these expenses will be made in monthly payments by the Fund
to the Distributor, which will in no event exceed amounts equal to payments at
the annual rates of 0.25% and 1.0% of the average daily net assets of Class A
and Class C, respectively. In the case of Class B shares, the Plan provides that
the Fund will pay the Distributor a fee, which is accrued daily and paid
monthly, at the annual rate of 1.0% of the average net assets of Class B. The
fee is treated by the Fund as an expense in the year it is accrued. In the case
of Class A shares, the entire amount of the fee currently represents a service
fee within the meaning of the NASD guidelines. In the case of Class B and Class
C shares, a portion of the fee payable pursuant to the Plan, equal to 0.25% of
the average daily net assets of each of these Classes, is currently
characterized as a service fee. A service fee is a payment made for personal
service and/or the maintenance of shareholder accounts.
Additional amounts paid under the Plan in the case of Class B and Class C
shares are paid to the Distributor for services provided and the expenses borne
by the Distributor and others in the distribu-
30
<PAGE> 31
tion of the shares of those Classes, including the payment of commissions for
sales of the shares of those Classes and incentive compensation to and expenses
of Morgan Stanley Dean Witter Financial Advisors and others who engage in or
support distribution of shares or who service shareholder accounts, including
overhead and telephone expenses; printing and distribution of prospectuses and
reports used in connection with the offering of the Fund's shares to other than
current shareholders; and preparation, printing and distribution of sales
literature and advertising materials. In addition, the Distributor may utilize
fees paid pursuant to the Plan in the case of Class B shares to compensate DWR
and other Selected Broker-Dealers for their opportunity costs in advancing such
amounts, which compensation would be in the form of a carrying charge on any
unreimbursed expenses.
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Fund may be in excess of the total of (i) the
payments made by the Fund pursuant to the Plan, and (ii) the proceeds of CDSCs
paid by investors upon the redemption of Class B shares. For example, if $1
million in expenses in distributing Class B shares of the Fund had been incurred
and $750,000 had been received as described in (i) and (ii) above, the excess
expense would amount to $250,000. Because there is no requirement under the Plan
that the Distributor be reimbursed for all distribution expenses or any
requirement that the Plan be continued from year to year, such excess amount
does not constitute a liability of the Fund. Although there is no legal
obligation for the Fund to pay expenses incurred in excess of payments made to
the Distributor under the Plan, and the proceeds of CDSCs paid by investors upon
redemption of shares, if for any reason the Plan is terminated the Trustees will
consider at that time the manner in which to treat such expenses. Any cumulative
expenses incurred, but not yet recovered through distribution fees or CDSCs, may
or may not be recovered through future distribution fees or CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales commission credited to Morgan Stanley Dean Witter Financial
Advisors or other Selected Broker-Dealer representatives at the time of sale may
be reimbursed in the subsequent calendar year. No interest or other financing
charges will be incurred on any Class A or Class C distribution expenses
incurred by the Distributor under the Plan or on any unreimbursed expenses due
to the Distributor pursuant to the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily at 4:00 p.m., New
York time (or, on days when the New York Stock Exchange closes prior to 4:00
p.m., at such earlier time), on each day that the New York Stock Exchange is
open by taking the net assets of the Fund, dividing by the number of shares
outstanding and adjusting to the nearest cent. The assets belonging to the Class
A, Class B, Class C and Class D shares will be invested together in a single
portfolio. The net asset value of each Class, however, will be determined
separately by subtracting each Class's accrued expenses and liabilities. The net
asset value per share will not be determined on Good Friday and on such other
federal and non-federal holidays as are observed by the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign stock exchange is valued at its latest sale price on that
exchange prior to the time when assets are valued (if there were no sales that
day, the security is valued at the latest bid price); and (2) all other
portfolio securities for which over-the-counter market quotations are readily
available are valued at the latest available bid price prior to the time of
valuation. When market quotations are not readily available, including
circumstances under which it is determined by the Investment Manager
31
<PAGE> 32
or Sub-Advisor that sale or bid prices are not reflective of a security's market
value, portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Fund's Trustees. For valuation purposes, quotations of foreign portfolio
securities, other assets and liabilities and forward contracts stated in foreign
currency are translated into U.S. dollar equivalents at the prevailing market
rates prior to the close of the New York Stock Exchange. Dividends receivable
are accrued as of the ex-dividend date or as of the time that the relevant
ex-dividend date and amounts become known.
Short-term debt securities with remaining maturities of sixty days or less
to maturity at the time of purchase are valued at amortized cost, unless the
Trustees determine such does not reflect the securities' market value, in which
case these securities will be valued at their fair value as determined by the
Trustees.
Certain securities in the Fund's portfolio may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may utilize
a matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff, including
review of broker-dealer market price quotations, in determining what it believes
is the fair valuation of the portfolio securities valued by such pricing
service.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Automatic Investment of Dividends and Distributions. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the applicable Class of the Fund (or, if specified by the shareholder,
in shares of any other open-end Morgan Stanley Dean Witter Fund), unless the
shareholder requests that they be paid in cash. Shares so acquired are acquired
at net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Redemption and Repurchases").
EasyInvest (SM). Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of shares of a Morgan Stanley Dean Witter money market fund, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for investment
in shares of the Fund (see "Purchase of Fund Shares" and "Redemptions and
Repurchases--Involuntary Redemption").
Investment of Dividends or Distributions Received in Cash. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value per share next determined after receipt
by the Transfer Agent, by returning the check or the proceeds to the Transfer
Agent within thirty days after the payment date. Shares so acquired are acquired
at net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Redemptions and Repurchases").
Systematic Withdrawal Plan. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders whose shares of Morgan Stanley Dean Witter
Funds have an aggregate value of $10,000 or more. Shares of any Fund from which
redemptions will be made pursuant to the Plan must have a value of $1,000 or
more (referred to as a "SWP Fund"). The required share values are determined on
the date the shareholder establishes the Withdrawal Plan. The Withdrawal Plan
provides for monthly, quarterly, semi-annual or annual payments in any amount
not less than $25, or in any whole percentage of the value of the SWP Funds'
shares, on an annualized basis. Any applicable CDSC will be imposed on shares
redeemed under the Withdrawal Plan (see "Purchase of Fund Shares"), except that
the CDSC, if any, will be waived on redemptions under the Withdrawal Plan of up
to 12% annually of the value of each SWP Fund account, based on the Share values
next determined after the shareholder establishes
32
<PAGE> 33
the Withdrawal Plan. (For shareholders who established the Withdrawal Plan prior
to October 1, 1998, the value of each SWP Fund account for the purpose of the
12% CDSC waiver will be determined at 4:00 p.m., New York time, on October 2,
1998.) Redemptions for which this CDSC waiver policy applies may be in amounts
up to 1% per month, 3% per quarter, 6% semi-annually or 12% annually. Under this
CDSC waiver policy, amounts withdrawn each period will be paid by first
redeeming shares not subject to a CDSC because the shares were purchased by the
reinvestment of dividends or capital gains distributions, the CDSC period has
elapsed or some other waiver of the CDSC applies. If shares subject to a CDSC
must be redeemed, shares held for the longest period of time will be redeemed
first and continuing with shares held the next longest period of time until
shares held the shortest period of time are redeemed. Any shareholder
participating in the Withdrawal Plan will have sufficient shares redeemed from
his or her account so that the proceeds (net of any applicable CDSC) to the
shareholder will be the designated monthly, quarterly, semi-annual or annual
amount.
A shareholder may suspend or terminate participation in the Withdrawal Plan
at any time. A shareholder who has suspended participation may resume payments
under the Withdrawal Plan, without requiring a new determination of the account
value for the 12% CDSC waiver. The Withdrawal Plan may be terminated or revised
at any time by the Fund.
Prior to adding an additional SWP Fund to an existing Withdrawal Plan, the
required $10,000/ $1,000 share values must be met, to be calculated on the date
the shareholder adds the additional SWP Fund. However, the addition of a new SWP
Fund will not change the account value for the 12% CDSC waiver for the SWP Funds
already participating in the Withdrawal Plan.
Withdrawal Plan payments should not be considered dividends, yields or
income. If periodic Withdrawal Plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted. Each withdrawal constitutes a
redemption of shares and any gain or loss realized must be recognized for
federal income tax purposes.
Shareholders should contact their Morgan Stanley Dean Witter Financial
Advisor or other Selected Broker-Dealer representative or the Transfer Agent for
further information about the Withdrawal Plan.
Tax-Sheltered Retirement Plans. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of such
plans should be on advice of legal counsel or tax advisor.
Shareholders should contact their Morgan Stanley Dean Witter Financial
Advisor or other selected Broker-Dealer representative or the Transfer Agent for
further information about any of the above services.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of any
other Morgan Stanley Dean Witter Multi-Class Fund without the imposition of any
exchange fee. Shares may also be exchanged for shares of the following funds:
Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust, Morgan Stanley Dean
Witter Limited Term Municipal Trust, Morgan Stanley Dean Witter Short-Term Bond
Fund and five Morgan Stanley Dean Witter funds which are money market funds (the
"Exchange Funds"). Class A shares may also be exchanged for shares of Morgan
Stanley Dean Witter Multi-State Municipal Series Trust and Morgan Stanley Dean
Witter Hawaii Municipal Trust, which are Morgan Stanley Dean Witter Funds sold
with a front-end sales charge ("FSC Funds"). Class B shares may also be
exchanged for shares of Morgan Stanley Dean Witter Global Short-Term Income Fund
Inc., ("Global Short-Term") which is a Morgan Stanley Dean Witter Fund offered
with a CDSC. Exchanges may be made after the shares of
33
<PAGE> 34
the Fund acquired by purchase (not by exchange or dividend reinvestment) have
been held for thirty days. There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment.
An exchange to another Morgan Stanley Dean Witter Multi-Class Fund, any FSC
Fund, Global Short-Term or any Exchange Fund that is not a money market fund is
on the basis of the next calculated net asset value per share of each fund after
the exchange order is received. When exchanging into a money market fund from
the Fund, shares of the Fund are redeemed out of the Fund at their next
calculated net asset value and the proceeds of the redemption are used to
purchase shares of the money market fund at their net asset value determined the
following business day. Subsequent exchanges between any of the money market
funds and any of the Morgan Stanley Dean Witter Multi-Class Funds, FSC Funds,
Global Short-Term or any Exchange Fund that is not a money market fund can be
effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period of
time the shareholder remains invested in an Exchange Fund (calculated from the
last day of the month in which the Exchange Fund shares were acquired), the
holding period (for the purpose of determining the rate of the CDSC) is frozen.
If those shares are subsequently re-exchanged for shares of a Morgan Stanley
Dean Witter Multi-Class Fund or shares of Global Short-Term, the holding period
previously frozen when the first exchange was made resumes on the last day of
the month in which shares of a Morgan Stanley Dean Witter Multi-Class Fund or
shares of Global Short-Term are reacquired. Thus, the CDSC is based upon the
time (calculated as described above) the shareholder was invested in shares of a
Morgan Stanley Dean Witter Multi-Class Fund or in shares of Global Short-Term
(see "Purchase of Fund Shares"). In the case of exchanges of Class A shares
which are subject to a CDSC, the holding period also includes the time
(calculated as described above) the shareholder was invested in shares of a FSC
Fund. In the case of shares exchanged for shares of an Exchange Fund on or after
April 23, 1990, upon a redemption of shares which results in a CDSC being
imposed, a credit (not to exceed the amount of the CDSC) will be given in an
amount equal to the Exchange Fund 12b-1 distribution fees incurred on or after
that date which are attributable to those shares. (Exchange Fund 12b-1
distribution fees are described in the prospectuses for those funds.) Class B
shares of the Fund acquired in exchange for shares of Global Short-Term or Class
B shares of another Morgan Stanley Dean Witter Multi-Class Fund or shares of a
CDSC Fund having a different CDSC schedule than that of this Fund will be
subject to the higher CDSC schedule, even if such shares are subsequently
re-exchanged for shares of the fund with the lower CDSC schedule.
Additional Information Regarding Exchanges. Purchases and exchanges should
be made for investment purposes only. A pattern of frequent exchanges may be
deemed by the Investment Manager to be abusive and contrary to the best
interests of the Fund's other shareholders and, at the Investment Manager's
discretion, may be limited by the Fund's refusal to accept additional purchases
and/or exchanges from the investor. Although the Fund does not have any specific
definition of what constitutes a pattern of frequent exchanges, and will
consider all relevant factors in determining whether a particular situation is
abusive and contrary to the best interests of the Fund and its other
shareholders, investors should be aware that the Fund and each of the other
Morgan Stanley Dean Witter Funds may in their discretion limit or otherwise
restrict the number of times this Exchange Privilege may be exercised by any
investor. Any such restriction will be made by the Fund on a prospective basis
only, upon notice to the shareholder not later than ten days following such
shareholder's most recent exchange. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of such Morgan Stanley
Dean Witter Funds for which shares of the Fund have been exchanged, upon such
notice as may be required by applicable regulatory agencies. Share-
34
<PAGE> 35
holders maintaining margin accounts with DWR or another Selected Broker-Dealer
are referred to their Morgan Stanley Dean Witter Financial Advisors or other
Selected Broker-Dealer representative regarding restrictions on exchange of
shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement of
each Class of shares and any other conditions imposed by each fund. In the case
of a shareholder holding a share certificate or certificates, no exchanges may
be made until all applicable share certificates have been received by the
Transfer Agent and deposited in the shareholder's account. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for federal income tax purposes the same as a repurchase or redemption of
shares, on which the shareholder may realize a capital gain or loss. However,
the ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within ninety days after the shares are
purchased. The Exchange Privilege is only available in states where an exchange
may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record
and its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Morgan
Stanley Dean Witter Funds (for which the Exchange Privilege is available)
pursuant to this Exchange Privilege by contacting their account executive (no
Exchange Privilege Authorization Form is required). Other shareholders (and
those shareholders who are clients of DWR or another Selected Broker-Dealer but
who wish to make exchanges directly by writing or telephoning the Transfer
Agent) must complete and forward to the Transfer Agent an Exchange Privilege
Authorization Form, copies of which may be obtained from the Distributor, to
initiate an exchange. If the Authorization Form is used, exchanges may be made
in writing or by contacting the Transfer Agent at (800) 869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number and DWR or other
Selected Broker-Dealer account number (if any). Telephone instructions may also
be recorded. If such procedures are not employed, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions. Telephone exchange
instructions will be accepted if received by the Transfer Agent between 9:00
a.m. and 4:00 p.m. New York time, on any day the New York Stock Exchange is
open. Any shareholder wishing to make an exchange who has previously filed an
Exchange Privilege Authorization Form and who is unable to reach the Fund by
telephone should contact his or her Morgan Stanley Dean Witter Financial
Advisors or other selected Broker-Dealer representative, if appropriate, or make
a written exchange request. Shareholders are advised that during periods of
drastic economic or market changes, it is possible that the telephone exchange
procedures may be difficult to implement, although this has not been the case
with the Morgan Stanley Dean Witter Funds in the past.
For further information regarding the Exchange Privilege, shareholders
should contact their Morgan Stanley Dean Witter Financial Advisors or other
selected Broker-Dealer representative or the Transfer Agent.
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REDEMPTIONS AND REPURCHASES
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Redemption. Shares of each Class of the Fund can be redeemed for cash at
any time at the net asset value per share next determined less the amount of any
applicable CDSC in the case of Class A, Class B or Class C shares (see "Purchase
of Fund Shares"). If shares are held in a shareholder's account without a share
certificate, a written request for redemption to the Fund's Transfer Agent at
P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by the
shareholder, the shares may be redeemed by surrendering the certificates with a
written request for redemption, along with any additional documentation required
by the Transfer Agent.
Repurchase. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to any
of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic request of the shareholder. The repurchase price is the net
asset value next computed (see "Purchase of Fund Shares") after such repurchase
order is received by DWR or other Selected Broker-Dealer reduced by any
applicable CDSC.
The CDSC, if any, will be the only fee imposed by the Fund or the
Distributor. The offers by DWR and other Selected Broker-Dealers to repurchase
shares may be suspended without notice by them at any time. In that event,
shareholders may redeem their shares through the Fund's Transfer Agent as set
forth above under "Redemption."
Payment for Shares Redeemed or Repurchased. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in good
order. Such payment may be postponed or the right of redemption suspended under
unusual circumstances, e.g., when normal trading is not taking place on the New
York Stock Exchange. If the shares to be redeemed have recently been purchased
by check (including a government, certified or bank cashier's check), payment of
the redemption proceeds may be delayed for the minimum time needed to verify
that the check used for investment has been honored (not more than fifteen days
from the time of receipt of the check by the Transfer Agent). Shareholders
maintaining margin accounts with DWR or another Selected Broker-Dealer are
referred to their Morgan Stanley Dean Witter Financial Advisors or other
selected Broker-Dealer representative regarding restrictions on redemption of
shares of the Fund pledged in the margin account.
Reinstatement Privilege. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 35 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase in
shares of the Fund in the same Class from which such shares were redeemed or
repurchased, at net asset value next determined after a reinstatement request,
together with the proceeds, is received by the Transfer Agent and receive a pro-
rata credit for any CDSC paid in connection with such redemption or repurchase.
Involuntary Redemption. The Fund reserves the right to redeem, on sixty
days' notice and at net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement Account or custodial account under
Section 403(b)(7) of the Code) whose shares due to redemptions by the
shareholder have a value of less than $100 or such lesser amount as may be fixed
by the Trustees or, in the case of an account opened through EasyInvest, if
after twelve months the shareholder has invested less than $1,000 in the
account. However, before the Fund redeems such shares and sends the proceeds to
the shareholder, it will notify the shareholder that the value of the shares is
less than the applicable amount and allow the shareholder sixty days to make an
additional investment in an amount which
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will increase the value of the account to at least the applicable amount before
the redemption is processed. No CDSC will be imposed on any involuntary
redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
Dividends and Distributions. The Fund declares dividends separately for
each Class of shares and intends to declare and pay dividends and to distribute
substantially all of the Fund's net investment income and net realized
short-term and long-term capital gains, if any, at least once each year. The
Fund may, however, determine either to distribute or to retain all or part of
any long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in
additional shares of the same Class and automatically credited to the
shareholder's account without issuance of a share certificate unless the
shareholder requests in writing that all dividends and/or distributions be paid
in cash. Shares acquired by dividend and distribution reinvestments will not be
subject to any front-end sales charge or CDSC. Class B shares acquired through
dividend and distribution reinvestments will become eligible for conversion to
Class A shares on a pro rata basis. Distributions paid on Class A and Class D
shares will be higher than for Class B and Class C shares because distribution
fees paid by Class B and Class C shares are higher. (See "Shareholder
Services--Automatic Investment of Dividends and Distributions.")
Taxes. Because the Fund intends to continue to distribute all of its net
investment income and any net short-term capital gains to shareholders and
otherwise qualify as a regulated investment company under Subchapter M of the
Code, it is not expected that the Fund will be required to pay any federal
income tax on such income and capital gains.
Gains or losses on the Fund's transactions in certain listed options on
securities and on futures and options on futures generally are treated as 60%
long-term gain or loss and 40% short-term gain or loss. When the Fund engages in
options and futures transactions, various tax regulations applicable to the Fund
may have the effect of causing the Fund to recognize a gain or loss for tax
purposes before that gain or loss is realized, or to defer recognition of a
realized loss for tax purposes. Recognition, for tax purposes, of an unrealized
loss may result in a lesser amount of the Fund's realized net gains being
available for distribution.
Shareholders will normally have to pay federal income taxes, and any
applicable state and/or local income taxes, on the dividends and distributions
they receive from the Fund. Such dividends and distributions, to the extent that
they are derived from net investment income and net short-term capital gains,
are taxable to the shareholder as ordinary dividend income regardless of whether
the shareholder receives such distributions in additional shares or in cash. Any
dividends declared in the last quarter of any calendar year which are paid in
the following calendar year prior to February 1, will be deemed, for tax
purposes, to have been received by the shareholder in the calendar prior year.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. It is anticipated that a portion, of the Fund's
distributions will be eligible for the dividends received deduction to corporate
shareholders.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources will, in effect, represent a return of
a portion of each shareholder's investment. All, or a portion, of such payments
will not be taxable to shareholders.
After the end of the year, shareholders will receive full information on
their dividends and capital gains distributions for tax purposes.
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<PAGE> 38
To avoid being subject to a 31% federal backup withholding tax on taxable
dividends, capital gains distributions and the proceeds of redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished and
certified as to their accuracy.
Dividends, interest and gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries.
The foregoing discussion relates solely to the federal income tax
consequences of an investment in the Fund. Distributions may also be subject to
state and local taxes; therefore, each shareholder is advised to consult his or
her own tax advisor.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "total return" in advertisements
and sales literature. These figures are computed separately for Class A, Class
B, Class C and Class D shares. The total return of the Fund is based on
historical earnings and is not intended to indicate future performance. The
"average annual total return" of the Fund refers to a figure reflecting the
average annualized percentage increase (or decrease) in the value of an initial
investment in a Class of the Fund of $1,000 over a period of one year and five
years, as well as over the life of the Fund. Average annual total return
reflects all income earned by the Fund, any appreciation or depreciation of the
Fund's assets, all expenses incurred by the applicable Class and all sales
charges which would be incurred by shareholders, for the stated periods. It also
assumes reinvestment of all dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average, and
year-by-year or other types of total return figures. The Fund may also advertise
the growth of hypothetical investments of $10,000, $50,000 and $100,000 in each
Class of shares of the Fund. Such calculations may or may not reflect the
deduction of any sales charge which, if reflected, would reduce the performance
quoted. The Fund from time to time may also advertise its performance relative
to certain performance rankings and indexes compiled by independent
organizations (such as mutual fund performance rankings of Lipper Analytical
Services, Inc.)
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Voting Rights. All shares of beneficial interest of the Fund are of $0.01
par value and are equal as to earnings, assets and voting privileges except that
each Class will have exclusive voting privileges with respect to matters
relating to distribution expenses borne solely by such Class or any other matter
in which the interests of one Class differ from the interests of any other
Class. In addition, Class B shareholders will have the right to vote on any
proposed material increase in Class A's expenses, if such proposal is submitted
separately to Class A shareholders. Also, as discussed herein, Class A, Class B
and Class C bear the expenses related to the distribution of their respective
shares.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances, the Trustees may be removed by action of the Trustees or by the
Shareholders.
Under Massachusetts law, shareholders of a business trust may, under
certain limited circumstances, be held personally liable as partners for the
obligations of the Fund. However, the Declara-
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<PAGE> 39
tion of Trust contains an express disclaimer of shareholder liability for acts
or obligations of the Fund, requires that notice of such Fund obligations
include such disclaimer, and provides for indemnification out of the Fund's
property for any shareholder held personally liable for the obligations of the
Fund. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund itself would
be unable to meet its obligations. Given the above limitations on shareholder
personal liability, and the nature of the Fund's assets and operations, the
possibility of the Fund being unable to meet its obligations is remote and thus,
in the opinion of Massachusetts counsel to the Fund, the risk to Fund
shareholders of personal liability is remote.
Code of Ethics. Trustees, officers and employees of MSDW Advisors, MSDW
Services and MSDW Distributors are subject to a strict Code of Ethics adopted by
those companies. The Code of Ethics is intended to ensure that the interests of
shareholders and other clients are placed ahead of any personal interest, that
no undue personal benefit is obtained from a person's employment activities and
that actual and potential conflicts of interest are avoided. To achieve these
goals and comply with regulatory requirements, the Code of Ethics requires,
among other things, that personal securities transactions by employees of the
companies be subject to an advance clearance process to monitor that no Morgan
Stanley Dean Witter Fund is engaged at the same time in a purchase or sale of
the same security. The Code of Ethics bans the purchase of securities in an
initial public offering, and also prohibits engaging in futures and options
transactions and profiting on short-term trading (that is, a purchase within
sixty days of a sale or a sale within sixty days of a purchase) of a security.
In addition, investment personnel may not purchase or sell a security for their
personal account within thirty days before or after any transaction in any
Morgan Stanley Dean Witter Fund managed by them. Any violations of the Code of
Ethics are subject to sanctions, including reprimand, demotion or suspension or
termination of employment. The Code of Ethics comports with regulatory
requirements and the recommendations in the 1994 report by the Investment
Company Institute Advisory Group on Personal Investing.
The Fund's Sub-Advisor also has a Code of Ethics which complies with
regulatory requirements and, insofar as it relates to persons associated with
the Fund, the 1994 report by the Investment Company Institute Advisory Group on
Personal Investing.
Master/Feeder Conversion. The Fund reserves the right to seek to achieve
its investment objective by investing all of its investable assets in a
diversified, open-end management investment company having the same investment
objective and policies and substantially the same investment restrictions as
those applicable to the Fund.
Shareholder Inquiries. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
The Investment Manager provided the initial capital for the Fund by
purchasing 2,500 shares each of Class A, Class B, Class C and Class D of the
Fund for $25,000, respectively, on July 22, 1998. As of the date of this
Prospectus, the Investment Manager owned 100% of the outstanding shares of the
Fund. The Investment Manager may be deemed to control the Fund until such time
as it owns less than 25% of the outstanding shares of the Fund.
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<PAGE> 40
Morgan Stanley
Dean Witter Value Fund
Two World Trade Center
New York, New York 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
SUB-ADVISOR
Miller Anderson & Sherrerd, LLP
MORGAN STANLEY
DEAN WITTER
VALUE FUND
PROSPECTUS -- SEPTEMBER 25, 1998
