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PROSPECTUS
MARCH 1, 1999
Morgan Stanley Dean Witter Real Estate Fund (the "Fund") is
an open-end, non-diversified management investment company whose investment
objective is to provide high current income and long-term capital appreciation
through investments primarily in companies in the real estate industry. The Fund
seeks to achieve this objective by investing primarily in equity securities of
companies that are principally engaged in the U.S. real estate industry,
including real estate investment trusts.
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 March 25, 1999 through
April 23, 1999.
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 April 28, 1999. 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 March 1, 1999, 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/7
Investment Objective and Policies/8
Risk Considerations and Investment Practices/9
Investment Restrictions/21
Underwriting/21
Purchase of Fund Shares/22
Shareholder Services/33
Redemptions and Repurchases/36
Dividends, Distributions and Taxes/37
Performance Information/38
Additional Information/39
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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Morgan Stanley Dean Witter Real Estate 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,
non-diversified management investment company investing
primarily in equity securities of companies that are
principally engaged in the U.S. real estate industry,
including real estate investment trusts.
Shares Offered Shares of beneficial interest with $0.01 par value (see page
39). The Fund offers four Classes of shares, each with a
different combination of sales charges, ongoing fees and
other features (see pages 22-31).
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 March 25, 1999 through April 23,
1999. The closing will take place on April 28, 1999 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.
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 employee benefit 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 and Class D 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 page 22).
Investment The investment objective of the Fund is high current income
Objective and long-term capital appreciation through investments
primarily in companies in the real estate industry. (see
page 8).
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 100 investment companies and
other portfolios with net assets under management of
approximately $127.1 billion at January 31, 1999. Morgan
Stanley Dean Witter Investment Management Inc. ("MSDW
Investment Management"), an affiliate of the Investment
Manager, has been retained by the Investment Manager as
Sub-Advisor to provide investment advice and manage the
Fund's portfolio. MSDW Investment Management conducts a
worldwide investment advisory business. As of December 31,
1998, MSDW Investment Management, together with its
institutional investment management affiliates, managed
assets of approximately $163.4 billion (see page 7).
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 7).
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Underwriter and Morgan Stanley Dean Witter Distributors Inc. (the "Distributor") is the Distributor of the Fund's
Distributor and shares. The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the Investment Company
Distribution Fee Act (the "12b-1 Plan") with respect to the distribution fees paid by the Class A, 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 22 and 31).
Alternative Four classes of shares are offered:
Purchase - Class A shares are offered with a front-end sales charge, starting at 5.25% and reduced for larger
Arrangements 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 22, 26 and 31).
- 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. 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
22, 28 and 31).
- 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 22, 30 and 31).
- Class D shares are offered only to investors meeting an initial investment minimum of $5 million
($25 million for certain employee benefit 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 22, 30 and 31).
Dividends and Dividends from net investment income are paid quarterly and distributions from net capital gains, if
Capital Gains any, are paid at least once each year. The Fund may, however, determine to retain all or part of any
Distributions 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 33 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. Because the
Fund invests primarily in securities of companies
principally engaged in the real estate industry and because
a substantial portion of the Fund's investments may be
comprised of real estate investment trusts ("REITs"), the
Fund's investments will be subject to risks and costs
associated with direct investments in real estate. Risks
commonly associated with the direct ownership of real estate
include fluctuations in the value of underlying properties
and defaults by borrowers or tenants. In addition to these
risks, REITs are dependent on specialized management skills
and some REITs may have limited diversification, subjecting
them to risks inherent in investments in a limited number of
properties, in a narrow geographic area, or in a single
property type. The Fund is a non-diversified investment
company and, as a result, a relatively high percentage of
the Fund's shares may be invested in a limited number of
issuers. The Fund may invest in foreign securities and
markets which may pose different and greater risks than
those customarily associated with domestic securities and
markets, 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 9-20 under "Risk Considerations and
Investment Practices".
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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 estimated other expenses anticipated for the fiscal year ending
November 30, 1999 as annualized.
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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....................................... 0.35% 0.35% 0.35% 0.35%
Total Fund Operating Expenses* (7)................... 1.60% 2.35% 2.35% 1.35%
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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. The fees and expenses 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 1.00% 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
reimbursement 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."
5
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Examples 1 Year 3 Years
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You would pay the following expenses on a $10,000 investment
assuming (1) a 5% annual return and (2) redemption at the
end of each time period:
Class A................................................ $679 $1,003
Class B................................................ $738 $1,033
Class C................................................ $338 $ 733
Class D................................................ $137 $ 428
You would pay the following expenses on the same $10,000
investment assuming no redemption at the end of the period:
Class A................................................ $679 $1,003
Class B................................................ $238 $ 733
Class C................................................ $238 $ 733
Class D................................................ $137 $ 428
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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.
6
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THE FUND AND ITS MANAGEMENT
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Morgan Stanley Dean Witter Real Estate Fund (the "Fund") is an open-end,
non-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 November 23, 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. ("MSDW"), a preeminent global financial services firm that
maintains leading market positions in each of its three primary
businesses--securities, asset management and credit services.
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 100 investment companies
(the "Morgan Stanley Dean Witter Funds"), 28 of which are listed on the New York
Stock Exchange, with combined assets of approximately $122.4 billion at January
31, 1999. The Investment Manager also manages and advises portfolios of pension
plans, other institutions and individuals which aggregated approximately $4.7
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 MSDW Services to perform the aforementioned
administrative services for the Fund.
Under a Sub-Advisory Agreement between Morgan Stanley Dean Witter
Investment Management Inc. ("MSDW Investment Management" or the "Sub-Advisor")
and the Investment Manager, the Sub-Advisor provides the Fund with investment
advice and portfolio management relating to the Fund's investments. The Fund's
Trustees review the various services provided by or under the direction of 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 1221 Avenue of the Americas, New York,
New York 10020, together with its institutional investment management affiliates
manages, as of December 31, 1998, assets of approximately $163.4 billion
primarily for U.S. corporate and public employee benefit plans, investment
companies, endowments, foundations and wealthy individuals. The Sub-Advisor,
like MSDW Advisors, is a wholly-owned subsidiary of MSDW.
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 the Investment Management 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.
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INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is to provide high current income and
long-term capital appreciation through investments primarily in companies in the
real estate industry. 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 primarily
in equity securities of companies that are principally engaged in the U.S. real
estate industry, including real estate investment trusts. Under normal
circumstances, the Fund will invest at least 65% of its total assets in income
producing equity securities of U.S. and non-U.S. companies that are principally
engaged in the U.S. real estate industry. An issuer or company is considered
"principally engaged" in the U.S. real estate industry if, as determined by the
Investment Manager or the Sub-Advisor, (i) it derives at least 50% of its
revenues or profits from the ownership, leasing, construction, management,
development, financing or sale of residential, commercial and industrial real
estate or real estate interests therein or (ii) it has at least 50% of the value
of its assets invested in U.S. residential, commercial or industrial real
estate. By investing in income producing equity securities of companies in the
real estate industry, the Fund seeks to attain a higher level of current income
than that which is generally available from many other equity investments.
Companies or issuers in the U.S. real estate industry in which the Fund may
invest include among others: real estate investment trusts ("REITs"), master
limited partnerships that invest in interests in real estate, real estate
developers and brokers, real estate operating companies, companies with
substantial real estate holdings (such as hotel companies, and land-holding
companies), as well as companies whose products and services are significantly
related to the real estate industry such as building supply manufacturers,
mortgage lenders and mortgage servicing companies. A substantial portion of the
Fund's portfolio at any given time may be invested in REITs.
The equity securities in which the Fund may invest include common stocks,
preferred stocks, shares or units of REITs, convertible securities and rights
and warrants. The Fund may invest up to 10% of its total assets in convertible
securities which may be rated below investment grade or which may be unrated.
The Fund may invest up to 25% of its total assets in foreign equity or
fixed-income securities including securities of foreign issuers denominated in a
foreign currency and traded primarily in non-U.S. markets or in the form of
depository receipts.
Up to 35% of the Fund's total assets may be invested in (1) equity
securities of issuers or companies which are not principally engaged in the U.S.
real estate industry or which are not income producing equity securities of
issuers or companies principally engaged in the U.S. real estate industry; (2)
debt securities issued or guaranteed by issuers or companies principally engaged
in the U.S. real estate industry or which are secured by real estate assets (not
including mortgage-backed securities) and which are rated investment grade by a
national recognized statistical rating organization ("NRSRO") at the time of
purchase or, if unrated, are deemed to be of comparable quality by the
Investment Manager or the Sub-Advisor; (3) debt securities of corporate issuers
not in the real estate industry which are rated in one of the two highest
ratings categories by an NRSRO or if unrated are deemed to be of comparable
quality by the Investment Manager or Sub Advisor; (4) U.S. Government
securities, including zero coupon securities; and (5) 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 may consist of various other financial instruments such
as forward foreign exchange contracts, futures contracts and options as set
forth below.
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Investments in securities rated within the four highest rating categories
by an NRSRO are considered "investment grade." However, such securities rated
within the fourth highest rating category by an NRSRO (e.g. Baa by Moody's
Investors Service Inc. ("Moody's") or BBB by Standard & Poor's Corporation
("S&P")) 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 an NRSRO, the Investment Manager or the Sub-Advisor
will make a determination of its creditworthiness and may deem it to be
investment grade. If a fixed-income security other than a 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, in the
opinion of the Investment Manager or Sub-Advisor, undue market or tax
consequences to the Fund. With respect to the Fund's investments in convertible
securities, all or a portion of such investments may be rated below investment
grade or may be unrated. Securities rated below investment grade (e.g. Ba or BB
or lower by Moody's or S&P, respectively) are considered to be speculative
investments and such securities are the equivalent of high yield, high risk
bonds commonly known as "junk bonds." 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 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. 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 and listed and
over-the-counter options contracts on securities, currencies and indices, may
enter into repurchase agreements, purchase private placements, zero coupon
securities 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
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<PAGE> 10
Fund's portfolio securities will increase or decrease due to a variety of
economic, market or political factors which cannot be predicted.
Risks of Real Estate Investments and Real Estate Investment
Trusts. Because the Fund concentrates its investments in securities of issuers
that are principally engaged in the real estate industry, the Fund may be
subject to certain risks associated with the direct ownership of real estate and
with the real estate industry in general. These risks include, among others:
fluctuations and possible declines in the value of real estate; risks related to
general and local economic conditions; possible lack of availability of mortgage
funds or other limitations on access to capital; overbuilding; risks associated
with leverage; market illiquidity; extended vacancies of properties; increases
in competition, property taxes, capital expenditures, and operating expenses;
changes in zoning laws or other government regulation; costs resulting from the
clean-up of, and liability to third parties for damages resulting from,
environmental problems; tenant bankruptcies or other credit problems; casualty
or condemnation losses; uninsured damages from floods, earthquakes or other
natural disasters; limitations on and variations in rents, including decreases
in market rates for rents; investment in developments that are not completed or
that are subject to delays in completion; and changes in interest rates. To the
extent that assets underlying the Fund's investments are concentrated
geographically, by property type or in certain other respects, the Fund may be
subject to certain of the foregoing risks to a greater extent. Investments by
the Fund in securities of companies providing mortgage servicing will be subject
to the risks associated with refinancings and their impact on servicing rights.
In addition, if the Fund receives rental income or income from the
disposition of real property acquired as a result of a default on securities the
Fund owns, the receipt of such income may adversely affect the Fund's ability to
retain its tax status as a regulated investment company ("RIC") because of
certain income source requirements applicable to RICs under the Internal Revenue
Code of 1986, as amended (the "Code").
A substantial portion of the Fund's assets, at any given time, may be
invested in REITs. REITs pool investors' funds for investment primarily in
income producing real estate or real estate related loans or interests. REITs
can generally be classified as Equity REITs, Mortgage REITs and Hybrid REITs.
The Fund may invest a substantial portion of its assets in Equity REITs, which
invest the majority of their assets directly in real property and derive their
income primarily from rents. Equity REITs can also realize capital gains by
selling properties that have appreciated in value. Equity REITs can be further
categorized according to the types of real estate securities they own such as
apartment properties, shopping centers, health care facilities, office and
industrial properties and hotels. Mortgage REITs, which invest the majority of
their assets in real estate mortgages, derive their income primarily from
interest payments. Hybrid REITs combine the characteristics of both Equity REITs
and Mortgage REITs.
Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. Equity REITs
may be affected by changes in the value of the underlying property owned by the
REITs, while mortgage REITs may be affected by the quality of any credit
extended. REITs are dependent upon specialized management skills, may not be
diversified geographically or by property type, and are subject to heavy cash
flow dependency, default by borrowers and self-liquidation. A REIT is not taxed
at the federal level on income distributed to shareholders or unitholders if it
complies with several regulatory requirements relating to its organization,
ownership, assets, and income and with a regulatory requirement that it
distribute to its shareholders or unitholders at least 95% of its taxable income
(other than net capital gains) for each taxable year. REITs that meet certain
requirements under the Code referred to above are able to avoid entity level tax
and are able to pass-through the character of their income to shareholders.
REITs, therefore, are
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subject to the risk of failing to meet these requirements for favorable tax
treatment and failing to maintain their exemptions from registration under the
Investment Company Act of 1940, as amended (the "1940 Act"). REITs are also
subject to changes in the Code, including changes involving their tax status.
Additionally, by investing in REITs indirectly through an investment in the
Fund, a shareholder of the Fund will bear not only his proportionate share of
the expenses of the Fund, but also indirectly, the management expenses of the
underlying REITs.
REITs (especially Mortgage REITs) are also subject to interest rate risks.
When interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT's investments in such loans will gradually
align themselves to reflect changes in market interest rates, causing the value
of such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
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
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
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<PAGE> 12
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 have adopted or are in the process of adopting 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 American Depository Receipts ("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).
Because of the Fund's permitted investments in lower rated or unrated
convertible securities, the Investment Manager and the 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
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<PAGE> 13
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 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
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<PAGE> 14
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
will not do so unless deemed appropriate by the Investment Manager and/or the
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
qualifications 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 further its
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<PAGE> 15
investment objectives. 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 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 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
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<PAGE> 16
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.
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 the 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 the 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, 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%.
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<PAGE> 17
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.
Non-Diversified Status. The Fund is classified as a non-diversified
investment company under the Investment Company Act of 1940, as amended (the
"Act"), and as such is not limited by the Act in the proportion of its assets
that it may invest in the obligations of a single issuer. However, the Fund
intends to conduct its operations so as to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code. See "Dividends,
Distributions and Taxes." To the extent that
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<PAGE> 18
a relatively high percentage of the Fund's assets may be invested in the
securities of a limited number of issuers, the Fund's portfolio securities may
be more susceptible to any single economic, political or regulatory occurrence
than the portfolio securities of a diversified investment company. The
limitations described in this paragraph are not fundamental policies and may be
revised to the extent applicable Federal income tax requirements are revised.
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 or the Sub-Advisor, 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.
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 permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager or the
Sub-Advisor, 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
18
<PAGE> 19
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 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
19
<PAGE> 20
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. Theodore
R. Bigman, a Principal of the Sub-Advisor and Morgan Stanley Dean Witter & Co.,
and Douglas A. Funke, a Vice President of the Sub-Advisor and Morgan Stanley
Dean Witter & Co., are the primary portfolio managers of the Fund. Mr. Bigman
has been a Portfolio Manager with the Sub-Advisor since 1995. Prior to joining
the Sub-Advisor, he was a Director at CS First Boston, where he established and
managed the REIT effort in the Real Estate Group including primary
responsibility for $2.5 billion of initial public offerings by real estate
investment trusts. Mr. Funke has been affiliated with either the Sub-Advisor or
Morgan Stanley Dean Witter & Co., or its predecessor company, since 1993 and
currently is responsible for providing research and analytical support for the
Sub-Advisor's real estate securities investment business and prior thereto he
was a member of Morgan Stanley Dean Witter & Co.'s Interest Rate and Foreign
Exchange Risk Management Group, where he assisted in the execution of more than
$3 billion of structured financings and firm-related risk management projects.
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 own analysis of factors they deem relevant.
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
20
<PAGE> 21
Investment Manager and 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 MSDW Advisors.
The Fund generally does not invest for short-term trading purposes,
however, when circumstances warrant, the Fund may sell investment securities
without regard to the length of time they have been held. Market conditions in a
given year could result in a higher or lower portfolio turnover rate than
expected and the Fund will not consider portfolio turnover rate a limiting
factor in making investment decisions consistent with its respective objective
and policies. It is not anticipated that the portfolio trading engaged in by the
Fund will result in its portfolio turnover rate exceeding 150% in any one year.
A higher portfolio turnover (e.g., over 100%) necessarily will cause the Fund to
pay correspondingly increased brokerage and trading costs. In addition to higher
transaction costs, short-term gains and losses taxable at ordinary income rates
may result from increased portfolio transactions. See "Dividends, Distributions
and Taxes" for a full discussion of the tax implications of such portfolio
trading. 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. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry except that the Fund will invest 25% or more of its
assets in securities of issuers in the real estate industry. This restriction
does not apply to obligations issued or guaranteed by the United States
Government or its agencies or instrumentalities.
2. Borrow money, except that the Fund may borrow from a bank for temporary
or emergency purposes in amounts not exceeding 5% (taken at the lower of cost or
current value) of its total assets (not including the amount borrowed).
Notwithstanding any other investment policy or restriction, 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.
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 March 25, 1999 through April 23, 1999. 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
21
<PAGE> 22
shares on April 28, 1999, or such other date as may be agreed upon by the
Underwriter 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. 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 Portfolio on the Closing Date without any
further action by the investor. Any investor may cancel his or her purchase of
Portfolio 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
Within approximately two weeks after the Closing Date for the underwriting,
the Fund will offer 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. (the "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 which is expected to incorporate the brand name of "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 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 to
22
<PAGE> 23
investors meeting an initial investment minimum of $5 million ($25 million for
certain employee benefit 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 employee benefit 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 and Class D 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 Real Estate 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-
23
<PAGE> 24
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
24
<PAGE> 25
Class A or Class D shares. See "Level Load Alternative--Class C Shares."
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 Shares."
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 and Class D
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.
25
<PAGE> 26
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
<C> <S> <C> <C>
CONVERSION
CLASS SALES CHARGE 12b-1 FEE FEATURE
<CAPTION>
<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>
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
------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF 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
26
<PAGE> 27
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 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 employee benefit 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,
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<PAGE> 28
Class A shares also may be purchased at net asset value by the following:
(1) trusts for which MSDW Trust (which is 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'
aggreements, and restrictions on transferability of Fund shares);
(3) employer-sponsored employee benefit plans whether or not qualified
under the Internal Revenue Code for which MSDW Trust serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement ("MSDW Eligible Plans") which have at least 200
eligible employees.
(4) MSDW Eligible Plans 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 the
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 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.
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
28
<PAGE> 29
upon how long the shares have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE CDSC AS A
PURCHASE PERCENTAGE OF
PAYMENT MADE 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>
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
preceding the redemption; (ii) the current net asset value of shares purchased
more than six 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 other investment companies for
which MSDW Advisors serve as investment manager (collectively, with the Fund,
the "Morgan Stanley Dean Witter Funds") sold with a front-end sales charge 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, no CDSC will be imposed on redemptions of shares purchased
by MSDW Eligible Plans.
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; and
(3) 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.
Conversion to Class A Shares. Class B shares of the Fund 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
29
<PAGE> 30
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 MSDW Eligible Plan, the plan is treated as a single
investor and all Class B shares will convert to Class A shares on the conversion
date of the 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 applicable 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
MSDW Eligible Plans) and the following categories of investors: (i) investors
participating in the MSDW 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' agree-
30
<PAGE> 31
ments, and restrictions on transferability of Fund shares); (iii) employee
benefit plans maintained by Morgan Stanley Dean Witter & Co. or any of its
subsidiaries for the benefit of certain employees of Morgan Stanley Dean Witter
& Co. and its subsidiaries; (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 and Class D 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 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 distribution 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
31
<PAGE> 32
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 and 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 or
Sub-Adviser 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
32
<PAGE> 33
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 the Withdrawal Plan.
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, with-
33
<PAGE> 34
out 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.
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"). Exchanges may be made after
the shares of 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 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 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, 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 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 (see "Purchase of
Fund Shares"). In the case
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<PAGE> 35
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 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. Shareholders
maintaining margin accounts with DWR or another Selected Broker-Dealer are
referred to their Morgan Stanley Dean Witter Financial Advisor 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 Morgan Stanley Dean
Witter Financial Advisor or other Selected Broker-Dealer representative (no
Exchange Privilege Authorization Form is required). Other shareholders (and
those shareholders who are clients of DWR or another Selected
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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 Advisor
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 Advisor or other
Selected Broker-Dealer representative or the Transfer Agent.
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 gov-
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ernment, 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 Advisor 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 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
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Dividends and Distributions. The Fund declares quarterly dividends
separately for each Class of shares and intends to distribute substantially all
of the Fund's 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 pur-
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poses 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 only a small portion, if
any, 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. Shareholders
will also be notified of their proportionate share of long-term capital gains
distributions that are eligible for a reduced rate of tax under the Taxpayer
Relief Act of 1997.
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. If it qualifies for
and has made the appropriate election with the Internal Revenue Service, the
Fund will report annually to its shareholders the amount per share of such
taxes, to enable shareholders to deduct their pro rata portion of such taxes
from their taxable income or claim United States foreign tax credits with
respect to such taxes. In the absence of such an election, the Fund would deduct
foreign tax in computing the amount of its distributable income.
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 adviser.
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 share-
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holders, 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 Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Fund,
requires that notice of such Fund obligations include such disclaimer, and
provides for indemnification out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, the possibility of the Fund
being unable to meet its obligations is remote and thus, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
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
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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 at 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 February 9, 1999. 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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Morgan Stanley
Dean Witter Real Estate 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
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
Morgan Stanley Dean Witter Investment
Management Inc.
MORGAN STANLEY
DEAN WITTER
REAL ESTATE FUND [GRAPHIC]
PROSPECTUS -- MARCH 1, 1999
