<PAGE>
Filed Pursuant to Rule 497(b)
Registration File No.: 333-66797
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 24, 1999
TO THE SHAREHOLDERS OF MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND:
Notice is hereby given of a Special Meeting of the Shareholders of Morgan
Stanley Dean Witter Capital Appreciation Fund ("Capital Appreciation") to be
held in Conference Room A, Forty-Fourth Floor, Two World Trade Center, New
York, New York 10048, at 10:00 A.M., New York time, on February 24, 1999, and
any adjournments thereof (the "Meeting"), for the following purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization, dated
October 28, 1998 (the "Reorganization Agreement"), between Capital
Appreciation and Morgan Stanley Dean Witter American Value Fund
("American Value"), pursuant to which substantially all of the assets of
Capital Appreciation would be combined with those of American Value and
shareholders of Capital Appreciation would become shareholders of
American Value receiving shares of American Value with a value equal to
the value of their holdings in Capital Appreciation (the
"Reorganization"); and
2. To act upon such other matters as may properly come before the Meeting.
The Reorganization is more fully described in the accompanying Proxy
Statement and Prospectus and a copy of the Reorganization Agreement is
attached as Exhibit A thereto. Shareholders of record at the close of
business on November 30, 1998 are entitled to notice of, and to vote at, the
Meeting. Please read the Proxy Statement and Prospectus carefully before
telling us, through your proxy or in person, how you wish your shares to be
voted. THE BOARD OF TRUSTEES OF CAPITAL APPRECIATION RECOMMENDS YOU VOTE IN
FAVOR OF THE REORGANIZATION. WE URGE YOU TO SIGN, DATE AND MAIL THE ENCLOSED
PROXY PROMPTLY.
By Order of the Board of
Trustees,
BARRY FINK,
Secretary
December 4, 1998
YOU CAN HELP AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP LETTERS TO
ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY. IF YOU ARE UNABLE
TO BE PRESENT IN PERSON, PLEASE FILL IN, SIGN AND RETURN THE ENCLOSED PROXY
IN ORDER THAT THE NECESSARY QUORUM BE REPRESENTED AT THE MEETING. THE
ENCLOSED ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(212) 392-2550
ACQUISITION OF THE ASSETS OF
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
BY AND IN EXCHANGE FOR SHARES OF
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
This Proxy Statement and Prospectus is being furnished to shareholders of
Morgan Stanley Dean Witter Capital Appreciation Fund ("Capital Appreciation")
in connection with an Agreement and Plan of Reorganization, dated October 28,
1998 (the "Reorganization Agreement"), pursuant to which substantially all
the assets of Capital Appreciation will be combined with those of Morgan
Stanley Dean Witter American Value Fund ("American Value") in exchange for
shares of American Value (the "Reorganization"). As a result of this
transaction, shareholders of Capital Appreciation will become shareholders of
American Value and will receive shares of American Value with a value equal
to the value of their holdings in Capital Appreciation. The terms and
conditions of this transaction are more fully described in this Proxy
Statement and Prospectus and in the Reorganization Agreement between Capital
Appreciation and American Value, attached hereto as Exhibit A. The address of
Capital Appreciation is that of American Value set forth above. This Proxy
Statement also constitutes a Prospectus of American Value, which is dated
December 4, 1998, filed by American Value with the Securities and Exchange
Commission (the "Commission") as part of its Registration Statement on Form
N-14 (the "Registration Statement").
American Value is an open-end diversified management investment company
whose investment objective is long-term capital growth consistent with an
effort to reduce volatility. The fund seeks to achieve its objective by
investing principally in the common stock of companies in industries which,
at the time of investment, are believed to be attractively valued given their
above average relative earnings growth potential at that time.
This Proxy Statement and Prospectus sets forth concisely information about
American Value that shareholders of Capital Appreciation should know before
voting on the Reorganization Agreement. A copy of the Prospectus for American
Value dated May 1, 1998, As Revised August 21, 1998, is attached as Exhibit B
and incorporated herein by reference. Also enclosed and incorporated herein
by reference is American Value's Annual Report for the fiscal year ended
December 31, 1997 and the succeeding unaudited Semi-Annual Report for the six
months ended June 30, 1998. A Statement of Additional Information relating to
the Reorganization, described in this Proxy Statement and Prospectus (the
"Additional Statement"), dated December 4, 1998, has been filed with the
Commission and is also incorporated herein by reference. Also incorporated
herein by reference are Capital Appreciation's Prospectus, dated January 29,
1998, and Annual Report for its fiscal year ended November 30, 1997 and the
succeeding unaudited Semi-Annual Report for the six months ended May 31,
1998. Such documents are available without charge by calling (212) 392-2550
or (800) 869-NEWS (TOLL FREE).
Investors are advised to read and retain this Proxy Statement and Prospectus
for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THIS PROXY STATEMENT AND PROSPECTUS IS DATED DECEMBER 4, 1998.
<PAGE>
TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION........................................................ 1
General........................................................... 1
Record Date; Share Information.................................... 1
Proxies........................................................... 2
Expenses of Solicitation.......................................... 3
Vote Required..................................................... 3
SYNOPSIS............................................................ 4
The Reorganization................................................ 4
Fee Table......................................................... 4
Tax Consequences of the Reorganization............................ 8
Comparison of Capital Appreciation and American Value............. 8
PRINCIPAL RISK FACTORS.............................................. 11
THE REORGANIZATION.................................................. 12
The Proposal...................................................... 12
The Board's Consideration......................................... 12
The Reorganization Agreement...................................... 13
Tax Aspects of the Reorganization................................. 15
Description of Shares............................................. 16
Capitalization Table (unaudited).................................. 16
Appraisal Rights.................................................. 17
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS...... 17
Investment Objectives and Policies................................ 17
Investment Restrictions........................................... 19
ADDITIONAL INFORMATION ABOUT CAPITAL APPRECIATION AND AMERICAN
VALUE.............................................................. 20
General........................................................... 20
Financial Information............................................. 20
Management........................................................ 20
Description of Securities and Shareholder Inquiries............... 20
Dividends, Distributions and Taxes................................ 20
Purchases, Repurchases and Redemptions............................ 20
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE......................... 21
FINANCIAL STATEMENTS AND EXPERTS.................................... 21
LEGAL MATTERS....................................................... 21
AVAILABLE INFORMATION............................................... 21
OTHER BUSINESS...................................................... 22
Exhibit A - Agreement and Plan of Reorganization, dated October 28,
1998, by and between Capital Appreciation and American Value....... A-1
Exhibit B - Prospectus of American Value dated May 1, 1998, As
Revised August 21, 1998............................................ B-1
</TABLE>
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550
PROXY STATEMENT AND PROSPECTUS
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 24, 1999
INTRODUCTION
GENERAL
This Proxy Statement and Prospectus is being furnished to the shareholders
of Morgan Stanley Dean Witter Capital Appreciation Fund ("Capital
Appreciation"), an open-end diversified management investment company, in
connection with the solicitation by the Board of Trustees of Capital
Appreciation (the "Board") of proxies to be used at the Special Meeting of
Shareholders of Capital Appreciation to be held in Conference Room A,
Forty-Fourth Floor, Two World Trade Center, New York, New York 10048 at 10:00
A.M., New York time, on February 24, 1999, and any adjournments thereof (the
"Meeting"). It is expected that the mailing of this Proxy Statement and
Prospectus will be made on or about December 9, 1998.
At the Meeting, Capital Appreciation shareholders ("Shareholders") will
consider and vote upon an Agreement and Plan of Reorganization, dated October
28, 1998 (the "Reorganization Agreement"), between Capital Appreciation and
Morgan Stanley Dean Witter American Value Fund ("American Value") pursuant to
which substantially all of the assets of Capital Appreciation will be
combined with those of American Value in exchange for shares of American
Value. As a result of this transaction, Shareholders will become shareholders
of American Value and will receive shares of American Value equal to the
value of their holdings in Capital Appreciation on the date of such
transaction (the "Reorganization"). Pursuant to the Reorganization, each
Shareholder will receive the class of shares of American Value that
corresponds to the class of shares of Capital Appreciation currently held by
that Shareholder. Accordingly, as a result of the Reorganization, each Class
A, Class B, Class C and Class D Shareholder of Capital Appreciation will
receive Class A, Class B, Class C and Class D shares of American Value,
respectively. The shares to be issued by American Value pursuant to the
Reorganization (the "American Value Shares") will be issued at net asset
value without an initial sales charge. Further information relating to
American Value is set forth herein and in American Value's current
Prospectus, dated May 1, 1998, As Revised August 21, 1998 ("American Value's
Prospectus"), attached to this Proxy Statement and Prospectus and
incorporated herein by reference.
The information concerning Capital Appreciation contained herein has been
supplied by Capital Appreciation and the information concerning American
Value contained herein has been supplied by American Value.
RECORD DATE; SHARE INFORMATION
The Board has fixed the close of business on November 30, 1998 as the
record date (the "Record Date") for the determination of the Shareholders
entitled to notice of, and to vote at, the Meeting. As of the Record
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Date, there were 18,784,761.65 shares of Capital Appreciation issued and
outstanding. Shareholders on the Record Date are entitled to one vote per
share on each matter submitted to a vote at the Meeting. A majority of the
outstanding shares entitled to vote, represented in person or by proxy, will
constitute a quorum at the Meeting.
The following persons were known to own of record or beneficially 5% or
more of the outstanding shares of a Class of Capital Appreciation as of the
Record Date: Class A -- Dean Witter Reynolds Cust for Robert M. Portnoff, IRA
Rollover Dated 09/16/96, 285 Francisco Street, Henderson, NV 89014-6027
(11.6%); FRY/MAC Inc. Prof. Shar Pln & Tr Dtd 2-14-86, Attn. John Fry, 164
Marco Way, South San Francisco, CA 94080-6916 (6.7%); DWR Cust for Equity Oil
Company, FBO Charlotte Auten-Richardson, VIP Plus PFT Sharing Dtd 10/29/97,
2695 Holly Street, Denver, CO 80207-3229 (9.5%); Insulation & Refractories
SVC, P/S/T U/A Dtd 3/1/79 JG Whitsett JW Whitsett Freddie Veteto Mary Harri
Carl W. Lovell Ttees, 462 Decator, Memphis, TN 38105 (9.2%); Jeffrey W.
Andrews, 2025 Wimbeldon Lane, Union, KY 41091-9542 (6.4%). Class C -- O. H.
Davison Jr & Philip Burton Trs Ulwt, Marie V. Brunschwiler, 55 Iroquois
Trail, Portola Valley, CA 94028-7607 (6.7%); DWR Cust for Nashboro Tire CEN
FBO Nashboro Tire Centers Inc., VIP Plus 401(K) Plan Dtd 01/04/93, 2337
Murfreesboro Pike, Nashville, TN 37217-3314 (5.3%); Richard Blyth & Italia
Mascagn, Ttees of the Leslie & Yolanda Blyth Survivors Trust Dtd 9-18-95,
1632 Victoria Avenue, Los Angeles, CA 90019-5928 (6.4%); Richard Blyth &
Italia Mascagn, Ttees FBO Leslie & Yolanda Blyth, Exemption Trust Dtd
9-18-95, 1632 Victoria Ave., Los Angeles, CA 90019-5928 (6.4%); Morgan
Stanley Dean Witter Tr, Ttee FBO Innovative Manufacturing Inc. 401K Plan,
Harborside Fin Ctr, Plaza II, 7th Fl., Blacklick, OH 43004 (5.9%). Class D --
SID P. Rueter & Paula S. Rueter JTWROS, 10127 S. Granite Ave., Tulsa, OK
74137-6045 (16.0%); Dean Witter Reynolds Cust for Baruch S. Blumberg IRA
STD/Rollover Dtd 10/17/97, 7701 Burholme Ave., Philadelphia, PA 19111-2412
(26.8%); Jill Vershum, 7446 Bush S. Run, Indianapolis, IN 46278-1762 (5.7%);
Dean Witter Reynolds Cust for Robert J. Quintin IRA STD/Rollover Dtd 08/04/98
3084 Birmingham Way El Dorado HLS CA 95762-6246 (6.1%). As of the Record
Date, the trustees and officers of Capital Appreciation, as a group, owned
less than 1% of the outstanding shares of Capital Appreciation.
The following persons were known to own of record or beneficially 5% or
more of the outstanding shares of a Class of American Value as of the Record
Date: Class A -- MSDW Trust as Trustee, VVP America, P.O. Box 957, Jersey
City, NJ 07303-0957 (8.4%); MSDW Trust FSB Trustee, Fairfield Communities
Inc., Savings/Profit Sharing Plan, P.O. Box 957, Jersey City, NJ 07303-0957
(7.4%). Class D -- MAC & Co A/C DWRF 8604862, Mellon Bank N.A., Mutual Funds
Operations, P.O. Box 3198, Pittsburgh, PA 15230-3198 (18.6%). As of the
Record Date, the trustees and officers of American Value, as a group, owned
less than 1% of the outstanding shares of American Value.
PROXIES
The enclosed form of proxy, if properly executed and returned, will be
voted in accordance with the choice specified thereon. The proxy will be
voted in favor of the Reorganization Agreement unless a choice is indicated
to vote against or to abstain from voting on the Reorganization Agreement.
The Board knows of no business, other than that set forth in the Notice of
Special Meeting of Shareholders, to be presented for consideration at the
Meeting. However, the proxy confers discretionary authority upon the persons
named therein to vote as they determine on other business, not currently
contemplated, which may come before the Meeting. Abstentions and, if
applicable, broker "non-votes" will not count as votes in favor of the
Reorganization Agreement, and broker "non-votes" will not be deemed to be
present at the meeting for purposes of determining whether the Reorganization
Agreement has been approved. Broker "non-votes" are shares held in street
name for which the broker indicates that instructions have not been received
from the beneficial owners or other persons entitled to vote and for which
the broker does not have discretionary voting authority. If a Shareholder
executes and returns a proxy but fails to indicate how the votes should be
cast, the
2
<PAGE>
proxy will be voted in favor of the Reorganization Agreement. The proxy may
be revoked at any time prior to the voting thereof by: (i) delivering written
notice of revocation to the Secretary of Capital Appreciation at Two World
Trade Center, New York, New York 10048; (ii) attending the Meeting and voting
in person; or (iii) signing and returning a new proxy (if returned and
received in time to be voted). Attendance at the Meeting will not in and of
itself revoke a proxy.
In the event that the necessary quorum to transact business or the vote
required to approve or reject the Reorganization Agreement is not obtained at
the Meeting, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies. Any
such adjournment will require the affirmative vote of the holders of a
majority of shares of Capital Appreciation present in person or by proxy at
the Meeting. The persons named as proxies will vote in favor of such
adjournment those proxies which they are entitled to vote in favor of the
Reorganization Agreement and will vote against any such adjournment those
proxies required to be voted against the Reorganization Agreement.
EXPENSES OF SOLICITATION
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement and Prospectus, will be borne by Capital
Appreciation which expenses are expected to approximate $182,000. Capital
Appreciation and American Value will bear all of their respective other
expenses associated with the Reorganization. In addition to the solicitation
of proxies by mail, proxies may be solicited by officers of Capital
Appreciation, and officers and regular employees of Morgan Stanley Dean
Witter Advisors Inc. ("MSDW Advisors" or the "Investment Manager") and Morgan
Stanley Dean Witter Trust FSB ("MSDW Trust"), personally or by mail,
telephone, telegraph or otherwise, without compensation therefor. Brokerage
houses, banks and other fiduciaries may be requested to forward soliciting
material to the beneficial owners of shares and to obtain authorization for
the execution of proxies.
MSDW Trust, an affiliate of MSDW Advisors, may call Shareholders to ask if
they would be willing to have their votes recorded by telephone. The
telephone voting procedure is designed to authenticate Shareholders'
identities, to allow Shareholders to authorize the voting of their shares in
accordance with their instructions and to confirm that their instructions
have been recorded properly. No recommendation will be made as to how a
Shareholder should vote on the Reorganization Agreement other than to refer
to the recommendation of the Board. Capital Appreciation has been advised by
counsel that these procedures are consistent with the requirements of
applicable law. Shareholders voting by telephone will be asked for their
social security number or other identifying information and will be given an
opportunity to authorize proxies to vote their shares in accordance with
their instructions. To ensure that the Shareholders' instructions have been
recorded correctly they will receive a confirmation of their instructions in
the mail. A special toll-free number will be available in case the
information contained in the confirmation is incorrect. Although a
Shareholder's vote may be taken by telephone, each Shareholder will receive a
copy of this Proxy Statement and Prospectus and may vote by mail using the
enclosed proxy card.
VOTE REQUIRED
Approval of the Reorganization Agreement by the Shareholders requires the
affirmative vote of a majority (i.e., more than 50%) of the shares of Capital
Appreciation represented in person or by proxy and entitled to vote at the
Meeting, provided a quorum is present at the Meeting. If the Reorganization
Agreement is not approved by Shareholders, Capital Appreciation will continue
in existence and the Board will consider alternative actions.
3
<PAGE>
SYNOPSIS
The following is a synopsis of certain information contained in or
incorporated by reference in this Proxy Statement and Prospectus. This
synopsis is only a summary and is qualified in its entirety by the more
detailed information contained or incorporated by reference in this Proxy
Statement and Prospectus and the Reorganization Agreement. Shareholders
should carefully review this Proxy Statement and Prospectus and The
Reorganization Agreement in their entirety and, in particular, American
Value's Prospectus, which is attached to this Proxy Statement and
incorporated herein by reference.
THE REORGANIZATION
The Reorganization Agreement provides for the transfer of substantially
all the assets of Capital Appreciation, subject to stated liabilities, to
American Value in exchange for the American Value Shares. The aggregate net
asset value of the American Value Shares issued in the exchange will equal
the aggregate value of the net assets of Capital Appreciation received by
American Value. On or after the closing date scheduled for the Reorganization
(the "Closing Date"), Capital Appreciation will distribute the American Value
Shares received by Capital Appreciation to Shareholders as of the Valuation
Date (as defined below under "The Reorganization Agreement") in complete
liquidation of Capital Appreciation and Capital Appreciation will thereafter
be dissolved and deregistered under the Investment Company Act of 1940, as
amended (the "1940 Act"). As a result of the Reorganization, each Shareholder
will receive that number of full and fractional American Value Shares equal
in value to such Shareholder's pro rata interest in the net assets of Capital
Appreciation transferred to American Value. Pursuant to the Reorganization,
each Shareholder will receive the class of shares of American Value that
corresponds to the class of shares of Capital Appreciation currently held by
that Shareholder. Accordingly, as a result of the Reorganization, each Class
A, Class B, Class C and Class D Shareholder of Capital Appreciation will
become holders of Class A, Class B, Class C and Class D shares of American
Value, respectively. Shareholders holding their shares of Capital
Appreciation in certificate form will be asked to surrender their
certificates in connection with the Reorganization. Shareholders who do not
surrender their certificates prior to the Closing Date will still receive
their shares of American Value; however, such Shareholders will not be able
to redeem, transfer or exchange the American Value Shares received until the
old certificates have been surrendered. The Board has determined that the
interests of Shareholders will not be diluted as a result of the
Reorganization.
FOR THE REASONS SET FORTH BELOW UNDER "THE REORGANIZATION --THE BOARD'S
CONSIDERATION," THE BOARD, INCLUDING THE TRUSTEES WHO ARE NOT "INTERESTED
PERSONS" OF CAPITAL APPRECIATION ("INDEPENDENT TRUSTEES"), AS THAT TERM IS
DEFINED IN THE 1940 ACT, HAS CONCLUDED THAT THE REORGANIZATION IS IN THE BEST
INTERESTS OF CAPITAL APPRECIATION AND ITS SHAREHOLDERS AND RECOMMENDS
APPROVAL OF THE REORGANIZATION AGREEMENT.
FEE TABLE
Capital Appreciation and American Value each pay expenses for management
of their assets, distribution of their shares and other services, and those
expenses are reflected in the net asset value per share of each fund. On July
28, 1997, each of Capital Appreciation and American Value began offering its
shares in multiple classes, each with a different combination of sales
charges, ongoing fees and other features. The following table illustrates
expenses and fees that each class of shares of Capital Appreciation incurred
during the fund's fiscal year ended November 30, 1997 adjusted, with respect
to Class A, Class C and Class D shares of the fund, for the shareholder
transaction expenses and 12b-1 fees in effect for such classes as of July 28,
1997. With respect to American Value, the table sets forth expenses and fees
based on the fund's December 31, 1997 fiscal year end, adjusted, with respect
to Class A, Class C and Class D shares of the fund, for the shareholder
transaction expenses and 12b-1 fees in effect for such classes as of July 28,
1997. The table also sets forth pro forma fees for the surviving combined
fund (American Value) reflecting what the fee schedule would have been on
December 31, 1997, if the Reorganization had been consummated twelve (12)
months prior to that date.
4
<PAGE>
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
CAPITAL AMERICAN PRO FORMA
APPRECIATION VALUE COMBINED
------------ ----- --------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE IMPOSED ON PURCHASES
(AS A PERCENTAGE OF OFFERING PRICE)
Class A ................................................... 5.25%(1) 5.25%(1) 5.25%(1)
Class B ................................................... none none none
Class C ................................................... none none none
Class D ................................................... none none none
MAXIMUM SALES CHARGE IMPOSED ON REINVESTED DIVIDENDS
Class A ................................................... none none none
Class B ................................................... none none none
Class C ................................................... none none none
Class D ................................................... none none none
MAXIMUM CONTINGENT DEFERRED SALES CHARGE (AS A PERCENTAGE
OF THE LESSER OF ORIGINAL PURCHASE PRICE OR REDEMPTION
PROCEEDS)
Class A ................................................... none(2) none(2) none(2)
Class B ................................................... 5.00%(3) 5.00%(3) 5.00%(3)
Class C ................................................... 1.00%(4) 1.00%(4) 1.00%(4)
Class D ................................................... none none none
REDEMPTION FEES
Class A ................................................... none none none
Class B ................................................... none none none
Class C ................................................... none none none
Class D ................................................... none none none
EXCHANGE FEE
Class A ................................................... none none none
Class B ................................................... none none none
Class C ................................................... none none none
Class D ................................................... none none none
</TABLE>
Annual Fund Operating Expenses As a Percentage of Average Net Assets
<TABLE>
<CAPTION>
CAPITAL AMERICAN PRO FORMA
APPRECIATION VALUE COMBINED
------------ ----- --------
<S> <C> <C> <C>
MANAGEMENT AND ADVISORY FEE
Class A .................... 0.75% 0.50% 0.49%(5)
Class B .................... 0.75% 0.50% 0.49%(5)
Class C .................... 0.75% 0.50% 0.49%(5)
Class D .................... 0.75% 0.50% 0.49%(5)
12B-1 FEES(6)(7)(8)
Class A .................... 0.25% 0.25% 0.25%
Class B .................... 1.00% 0.83%(8) 0.86%(8)
Class C .................... 1.00% 1.00% 1.00%
Class D .................... none none none
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
CAPITAL AMERICAN PRO FORMA
APPRECIATION VALUE COMBINED
-------------- ---------- -----------
<S> <C> <C> <C>
OTHER EXPENSES
Class A ......................... 0.25% 0.13% 0.14%
Class B ......................... 0.25% 0.13% 0.14%
Class C ......................... 0.25% 0.13% 0.14%
Class D ......................... 0.25% 0.13% 0.14%
TOTAL FUND OPERATING EXPENSES(9)
Class A ......................... 1.25% 0.88% 0.88%
Class B ......................... 2.00% 1.46% 1.49%
Class C ......................... 2.00% 1.63% 1.63%
Class D ......................... 1.00% 0.63% 0.63%
</TABLE>
(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund Shares
-- Initial Sales Charge Alternative -- Class A Shares" in each fund's
Prospectus).
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a Contingent Deferred Sales Charge ("CDSC") of
1.00% that will be imposed on redemptions made within one year after
purchase, except for certain specific circumstances (see "Purchases,
Exchanges and Redemptions" below and "Purchase of Fund Shares --
Initial Sales Charge Alternative -- Class A Shares" in each fund's
Prospectus).
(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
"Purchases, Exchanges and Redemptions" below and "Purchase of Fund
Shares -- Level Load Alternative -- Class C Shares" in each fund's
Prospectus).
(5) This rate reflects the anticipated lower advisory fee of American Value
obtained by the effect of having additional assets at a lower
breakpoint in the advisory fee upon the combination of the two funds
based upon Capital Appreciation's average net assets for the fiscal
year ended November 30, 1997 and American Value's average net assets
for the fiscal year ended December 31, 1997, thus, a scaling down of
the advisory fee to the effective advisory fee rate shown.
(6) The 12b-1 fee is accrued daily and payable monthly. With respect to
each fund, 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 characterized as a
service fee within the meaning of National Association of Securities
Dealers, Inc. ("NASD") guidelines and are payments made for personal
service and/ or maintenance of shareholder accounts. The remainder of
the 12b-1 fee, if any, is an asset-based sales charge, and is a
distribution fee paid to Morgan Stanley Dean Witter Distributors Inc.
(the "Distributor") to compensate it for the services provided and the
expenses borne by the Distributor and others in the distribution of
each fund's shares (see "Description of Shares" below and "Purchase of
Fund Shares -- Plan of Distribution" in each fund's Prospectus).
(7) 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% 12b-1 fee (see "Description
of Shares" below and "Purchase of Fund Shares -- Alternative Purchase
Arrangements" in each fund's Prospectus).
(8) Although the formula for calculating the 12b-1 fees for the Class B
shares is similar for both funds, the application of the formula (1.0%
of the lesser of average daily net sales or average daily net assets)
results in lower annual 12b-1 fees on the existing assets of the Class
B shares of American Value. Upon the consummation of the
Reorganization, the assets of Capital Appreciation are treated under
the formula as new sales and a 1.0% rate is applied thereto. When
combined with the existing assets of American Value, the effect
initially is a slight increase in the annual 12b-1 fees on the Class B
shares of the combined fund.
(9) There were no outstanding shares of Class A, Class C or Class D prior
to July 28, 1997. Accordingly, "Total Fund Operating Expenses" as shown
above with respect to those Classes, are estimates based upon the sum
of 12b-1 Fees, Management Fees and "Other Expenses."
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<PAGE>
HYPOTHETICAL EXPENSES
To attempt to show the effect of these expenses on an investment over
time, the hypotheticals shown below have been created. Assuming that an
investor makes a $1,000 investment in either Capital Appreciation or American
Value or the new combined fund (American Value), that the annual return is 5%
and that the operating expenses for each fund are the ones shown in the chart
above, if the investment was redeemed at the end of each period shown below,
the investor would incur the following expenses by the end of each period
shown:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
Capital Appreciation
Class A............. $65 $90 $118 $196
Class B ............ $70 $93 $128 $233
Class C ............ $30 $63 $108 $233
Class D............. $10 $32 $ 55 $123
American Value
Class A............. $61 $79 $ 99 $155
Class B ............ $65 $76 $100 $175
Class C ............ $27 $51 $ 89 $193
Class D............. $ 6 $20 $ 35 $ 79
Pro Forma Combined
Class A............. $61 $79 $ 99 $155
Class B ............ $65 $77 $101 $178
Class C ............ $27 $51 $ 89 $193
Class D............. $ 6 $20 $ 35 $ 79
</TABLE>
If such investment was not redeemed, the investor would incur the
following expenses:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
Capital Appreciation
Class A............. $65 $90 $118 $196
Class B............. $20 $63 $108 $233
Class C............. $20 $63 $108 $233
Class D............. $10 $32 $ 55 $123
American Value
Class A............. $61 $79 $ 99 $155
Class B ............ $15 $46 $ 80 $175
Class C ............ $17 $51 $ 89 $193
Class D............. $ 6 $20 $ 35 $ 79
Pro Forma Combined
Class A............. $61 $79 $ 99 $155
Class B............. $15 $47 $ 81 $178
Class C ............ $17 $51 $ 89 $193
Class D............. $ 6 $20 $ 35 $ 79
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL OPERATING EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. LONG-TERM SHAREHOLDERS OF CLASS A, CLASS B AND CLASS C
SHARES OF CAPITAL APPRECIATION AND AMERICAN VALUE MAY PAY MORE IN SALES
CHARGES INCLUDING DISTRIBUTION FEES THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGES PERMITTED BY THE NASD.
The purpose of the foregoing fee table is to assist the investor or
shareholder in understanding the various costs and expenses that an investor
or shareholder in the Fund will bear directly or indirectly. For a more
complete description of these costs and expenses, see "Comparison of Capital
Appreciation and American Value -- Investment Management and Distribution
Plan Fees, Other Significant Fees, and Purchases, Exchanges and Redemptions"
below.
7
<PAGE>
TAX CONSEQUENCES OF THE REORGANIZATION
As a condition to the Reorganization, Capital Appreciation will receive an
opinion of Gordon Altman Butowsky Weitzen Shalov & Wein to the effect that
the Reorganization will constitute a tax-free reorganization for Federal
income tax purposes, and that no gain or loss will be recognized by Capital
Appreciation or the shareholders of Capital Appreciation for Federal income
tax purposes as a result of the transactions included in the Reorganization.
For further information about the tax consequences of the Reorganization, see
"The Reorganization -- Tax Aspects of the Reorganization" below.
COMPARISON OF CAPITAL APPRECIATION AND AMERICAN VALUE
INVESTMENT OBJECTIVES AND POLICIES. Capital Appreciation and American
Value are funds which have similar investment objectives and policies. The
investment objective of Capital Appreciation is long-term capital
appreciation. The investment objective of American Value is long-term capital
growth consistent with an effort to reduce volatility.
Capital Appreciation seeks to achieve its investment objective by
investing, under normal circumstances, at least 65% of its total assets in
the common stocks of U.S. companies that, in the opinion of the Investment
Manager, offer the potential for either superior earnings growth and/or
appear to be undervalued. The fund's holdings are widely diversified by
industry and by companies of all asset sizes and there is no limitation on
the stock price of any particular investment. American Value seeks to achieve
its investment objective by investing in a diversified portfolio of
securities consisting principally of common stocks in those industries that,
at the time of investment, are attractively valued given their above average
relative earnings growth potential at the time. As a result, American Value
is typically over-weighted in those sectors deemed to be attractive given
their potential for above average earnings growth. Up to 35% of the assets of
Capital Appreciation may be invested in debt or preferred equity securities
convertible into or exchangeable for equity securities and rights and
warrants when considered by the Investment Manager to be consistent with the
Fund's investment objective; the fund may invest in debt securities without
regard to quality or rating, although the fund will not purchase a
non-investment grade debt security if immediately after such purchase, the
fund would have more than 5% of its total assets invested in such securities.
Additionally, Capital Appreciation may invest up to 10% of its assets in
foreign securities. With respect to American Value, the fund may invest up to
35% of its portfolio in common stocks of non-U.S. companies, in companies or
industries which have not been determined to be attractively valued or
moderately attractively valued by the Investment Manager, and in convertible
debt securities and warrants, convertible preferred securities, U.S.
Government securities (securities issued or guaranteed as to principal and
interest by the United States or its agencies and instrumentalities) and
investment grade corporate debt securities when, in the opinion of the
Investment Manager, the projected total return on such securities is equal to
or greater than the expected total return on common stocks, or when such
holdings might be expected to reduce the volatility of the portfolio, and in
money market instruments. The processes by which each fund selects common
stocks and other investments may differ and are more fully described under
"Comparison of Investment Objectives, Policies and Restrictions" below.
The principal differences between the funds' investment policies, as well
as certain similarities, are more fully described under "Comparison of
Investment Objectives, Policies and Restrictions" below.
The investment policies of both Capital Appreciation and American Value
are not fundamental and may be changed by their respective Boards of
Trustees.
8
<PAGE>
INVESTMENT MANAGEMENT AND DISTRIBUTION PLAN FEES. Capital Appreciation
and American Value obtain investment management services from MSDW Advisors.
With respect to Capital Appreciation, the fund pays MSDW Advisors monthly
compensation calculated daily by applying the annual rate of 0.75% to the
first $500 million of the fund's average daily net assets and 0.725% to the
fund's average net assets exceeding $500 million. With respect to American
Value, the fund pays MSDW Advisors monthly compensation calculated daily by
applying the annual rate of 0.625% to the portion of the fund's average daily
net assets not exceeding $250 million; 0.50% to the portion of such daily net
assets exceeding $250 million, but not exceeding $2.5 billion; 0.475% to the
portion of such daily net assets exceeding $2.5 billion, but not exceeding
$3.5 billion; 0.45% to the portion of such daily net assets exceeding $3.5
billion but not exceeding $4.5 billion; and 0.425% to the portion of such
daily net assets exceeding $4.5 billion. Each class of both funds' shares is
subject to the same management fee rates applicable to the respective fund.
Both Capital Appreciation and American Value have adopted similar
distribution plans ("Plans") pursuant to Rule 12b-1 under the 1940 Act. In
the case of Class A and Class C shares, each fund's Plan provides that the
fund will reimburse the Distributor and others for the expenses of certain
activities and services incurred by them in connection with the distribution
of the Class A and Class C Shares of the fund. Reimbursement for these
expenses is made in monthly payments by each 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 shares,
respectively. In the case of Class B shares, Capital Appreciation's 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 lesser of (a) the average
daily net sales of the fund's Class B shares or (b) the average daily net
assets of Class B of the fund. In the case of American Value's Class B
shares, American Value's Plan provides that the fund will pay the Distributor
a fee, which is accrued daily and paid monthly, at the annual rate of (i)
1.0% of the lesser of (a) the average daily net sales of the fund's Class B
shares since the implementation of the Plan on April 30, 1984 or (b) the
average daily net assets of Class B attributable to shares issued, net of
related shares redeemed, since implementation of the Plan. The fee is paid
for the services provided and the expenses borne by the Distributor and
others in connection with the distribution of each fund's Class B shares.
There are no 12b-1 fees applicable to both funds' Class D shares. For further
information relating to the 12b-1 fees applicable to each class of American
Value's shares, see the section entitled "Purchase of Fund Shares" in
American Value's Prospectus, attached hereto. The Distributor also receives
the proceeds of any contingent deferred sales charge ("CDSC") paid by the
funds' shareholders at the time of redemption. The CDSC schedules applicable
to each of Capital Appreciation and American Value are set forth below under
"Purchases, Exchanges and Redemptions."
OTHER SIGNIFICANT FEES. Both Capital Appreciation and American Value pay
additional fees in connection with their operations, including legal,
auditing, transfer agent, trustees fees and custodial fees. See "Synopsis --
Fee Table" above for the percentage of average net assets represented by such
"Other Expenses."
PURCHASES, EXCHANGES AND REDEMPTIONS. Class A shares of each fund 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 investment 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 fully described in each fund's Prospectus).
9
<PAGE>
Class B shares of each fund are offered at net asset value with no initial
sales charge, but are subject to the same CDSC schedule set forth below
(Class B shares of each fund purchased by certain qualified employer
sponsored benefit plans are subject to a reduced CDSC schedule):
<TABLE>
<CAPTION>
CLASS B SHARES OF CAPITAL APPRECIATION AND
YEAR SINCE PURCHASE PAYMENT MADE AMERICAN VALUE
-------------------------------- --------------
<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>
Class C shares of each fund 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. The CDSC may be waived for certain redemptions
(which are fully described in each fund's Prospectus).
Class D shares of each fund are available only to limited categories of
investors and are sold at net asset value with no initial sales charge or
CDSC.
The CDSC charge is paid to the Distributor. Shares of American Value and
Capital Appreciation are distributed by the Distributor and offered by Dean
Witter Reynolds Inc. and other dealers who have entered into selected dealer
agreements with the Distributor. For further information relating to the CDSC
schedules applicable to each of the classes of American Value's shares, see
the section entitled "Purchase of Fund Shares" in American Value's
Prospectus.
Shares of each class of Capital Appreciation and American Value may be
exchanged for shares of the same class of any other Morgan Stanley Dean
Witter Fund that offers its shares in more than one class, without the
imposition of an exchange fee. Additionally, shares of each class of Capital
Appreciation and American Value may be exchanged for shares of 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 the five Morgan Stanley Dean Witter Funds that are money market funds
(the foregoing eight funds are collectively referred to as the "Exchange
Funds"), without the imposition of an exchange fee. Class A shares of Capital
Appreciation and American Value may also be exchanged for shares of Morgan
Stanley Dean Witter Multi-State Municipal Series Trust and Morgan Stanley
Dean Witter Hawaii Municipal Trust. Upon consummation of the Reorganization,
the foregoing exchange privileges will still be applicable to shareholders of
the combined fund (American Value).
With respect to both funds, no CDSC is imposed at the time of any
exchange, although any applicable CDSC will be imposed upon ultimate
redemption. During the period of time an American Value or Capital
Appreciation shareholder remains in an Exchange Fund, the holding period (for
purposes of determining the CDSC rate) is frozen. Both Capital Appreciation
and American Value provide telephone exchange privileges to their
shareholders. For greater details relating to exchange privileges applicable
to American Value, see the section entitled "Shareholder Services" in
American Value's Prospectus.
Shareholders of Capital Appreciation and American Value may redeem their
shares for cash at any time at the net asset value per share next determined;
however, such redemption proceeds may be reduced by the amount of any
applicable CDSC. Both Capital Appreciation and American Value offer a
reinstatement privilege whereby a shareholder who has not previously
exercised such privilege whose shares have been
10
<PAGE>
redeemed or repurchased may, within thirty-five days after the date of
redemption or repurchase, reinstate any portion or all of the proceeds
thereof in shares of the same class from which such shares were redeemed or
repurchased and receive a pro rata credit for any CDSC paid in connection
with such redemption or repurchase. Capital Appreciation and American Value
may redeem involuntarily, at net asset value, most accounts valued at less
than $100.
DIVIDENDS. Each fund declares dividends separately for each of its
classes. Capital Appreciation pays quarterly dividends from the net
investment income of the fund. American Value intends to pay dividends from
the net investment income of the fund as well as net short-term capital
gains, if any, semi-annually. Both funds distribute net long-term capital
gains, and in the case of Capital Appreciation, net short-term capital gains,
if any, at least annually. Each fund, however, may determine either to
distribute or to retain all or part of any net long-term capital gains in any
year for reinvestment. With respect to each fund, dividends and capital gains
distributions are automatically reinvested in additional shares of the same
class of shares of the fund at net asset value unless the shareholder elects
to receive cash.
PRINCIPAL RISK FACTORS
The net asset value of American Value and Capital Appreciation will
fluctuate with changes in the market value of their respective portfolio
securities. The market value of the funds' portfolio securities will increase
or decrease due to a variety of economic, market and political factors,
including movements in interest rates, which cannot be predicted. All
fixed-income securities are subject to two types of risk: credit risk and
interest rate risk. Credit risk relates to the ability of the issuer to meet
interest or principal payments or both as they come due. 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.
Both funds may invest a portion (up to 35% for American Value and up to
10% for Capital Appreciation) of their assets in foreign securities and, as
such, are subject to additional risks such as adverse 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. Additionally, 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 and
brokerage commissions, dealer concessions and other transaction costs may be
higher on foreign markets than in the U.S. Fluctuations in the relative rates
of exchange between the currencies of different countries will affect the
value of a fund's investments. Changes in foreign currency exchange rates
relative to the U.S. dollar will affect the U.S. dollar value of a fund's
assets denominated in that currency and thereby impact upon the fund's total
return on such assets.
Capital Appreciation may invest up to 5% of its total assets in debt
securities rated below investment grade, which securities are subject to
certain special risks not associated with higher rated, investment grade debt
securities; whereas American Value does not invest in debt securities rated
below investment grade.
Capital Appreciation and American Value may enter into foreign currency
exchange contracts when purchasing foreign securities in order to facilitate
settlement and to limit the effect of changes in the relationship between the
U.S. dollar and the foreign currency during the period between trade date and
11
<PAGE>
settlement date. Capital Appreciation may enter into reverse repurchase
agreements and dollar rolls and both funds may enter into repurchase
agreements, may purchase securities on a when-issued and delayed delivery
basis, or on a when, as and if issued basis, may lend their portfolio
securities, and may enter into options and futures transactions, all of which
involve certain special risks. Both Capital Appreciation and American Value
may invest in or acquire convertible securities which are fixed-income
securities convertible into common stock. To the extent that a convertible
security's investment value is greater than its conversion value, its price
will be primarily a reflection of such investment value and its price will be
likely to increase when interest rates fall and decrease when interest rates
rise, as with a fixed-income security (the credit standing of the issuer and
other factors may also have an effect on the convertible security's value).
If the conversion value exceeds the investment value, the price of the
convertible security will rise above its investment value and, in addition,
the convertible security will sell at some premium over its conversion value.
(This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security.
The foregoing discussion is a summary of the principal risk factors. For a
more complete discussion of the risks of each fund, see "Investment Objective
and Policies -- Risk Considerations" in the Prospectus of Capital
Appreciation and in American Value's Prospectus attached hereto and
incorporated herein by reference.
THE REORGANIZATION
THE PROPOSAL
The Board of Trustees of Capital Appreciation, including the Independent
Trustees, having reviewed the financial position of Capital Appreciation and
the prospects for achieving economies of scale through the Reorganization and
having determined that the Reorganization is in the best interests of Capital
Appreciation and its Shareholders and that the interests of Shareholders will
not be diluted as a result thereof, recommends approval of the Reorganization
by Shareholders of Capital Appreciation.
THE BOARD'S CONSIDERATION
At a meeting held on October 28, 1998, the Board, including all of the
Independent Trustees, unanimously approved the Reorganization Agreement and
determined to recommend that Shareholders approve the Reorganization
Agreement. In reaching this decision, the Board made an extensive inquiry
into a number of factors, particularly the comparative expenses currently
incurred in the operations of Capital Appreciation and American Value. The
Board also considered other factors, including, but not limited to: the
general compatibility of the investment objectives, policies, restrictions
and portfolios of Capital Appreciation and American Value; the terms and
conditions of the Reorganization which would affect the price of shares to be
issued in the Reorganization; the tax-free nature of the Reorganization; and
any direct or indirect costs to be incurred by Capital Appreciation and
American Value in connection with the Reorganization.
In recommending the Reorganization to Shareholders, the Board of Capital
Appreciation considered that the Reorganization would have the following
benefits to Shareholders:
1. Once the Reorganization is consummated, the expenses which would be
borne by shareholders of each class of the "combined fund" should be lower on
a percentage basis than the expenses per share of each corresponding class of
Capital Appreciation. In part, this is because the estimated current rate of
the investment management fee to be paid by the surviving American Value
(0.49% of average daily net assets) would be lower than the rate of the
investment management fee currently paid by Capital Appreciation (0.75%
12
<PAGE>
of average daily net assets). Furthermore, to the extent that the
Reorganization would result in Shareholders becoming shareholders of a
combined larger fund, further economies of scale could be achieved since
various fixed expenses (e.g., auditing and legal) can be spread over a larger
number of shares. The Board noted that the expense ratio for each class of
Capital Appreciation was higher (for its fiscal year ended November 30, 1997)
than the expense ratio for each corresponding class of American Value (for
its fiscal year ended December 31, 1997).
2. Shareholders would have a continued participation in a diversified
portfolio of common stocks through investment in American Value.
3. The Reorganization will constitute a tax-free reorganization for
Federal income tax purposes, and no gain or loss will be recognized by
Capital Appreciation or its Shareholders for Federal income tax purposes as a
result of transactions included in the Reorganization.
4. The Board also took into consideration that absent the Reorganization,
American Value will continue to compete for investor funds directly with
Capital Appreciation. The Reorganization should allow for more concentrated
selling efforts to the benefit of both Capital Appreciation and American
Value shareholders and avoid the inefficiencies associated with the operation
and distribution of two similar funds through the same sales organization.
The Board of Trustees of American Value, including a majority of the
Independent Trustees of American Value, also have determined that the
Reorganization is in the best interests of American Value and its
shareholders and that the interests of existing shareholders of American
Value will not be diluted as a result thereof. The transaction will enable
American Value to acquire investment securities which are consistent with
American Value's investment objective, without the brokerage costs attendant
to the purchase of such securities in the market. Also, the addition of
assets to American Value's portfolio may result in a further reduction in the
investment management fee resulting from the addition of more assets at a
lower breakpoint rate in the management fee schedule. Furthermore, like the
shareholders of Capital Appreciation, the shareholders of American Value may
also realize an intangible benefit in having the Morgan Stanley Dean Witter
sales organization concentrate its selling efforts on one rather than two
similar funds, which may result in further economies of scale. Finally, the
Board considered that even if the benefits enumerated above are not realized,
the costs to the Fund are sufficiently minor to warrant taking the
opportunity to realize those benefits. With respect to the Class B shares,
the Board recognized that, although the formula for calculating 12b-1 fees is
similar for both funds, the application of the formula results in lower
annual fees for American Value than for Capital Appreciation and that
combining the two funds would, at least initially, result in somewhat higher
12b-1 fees for the combined Fund than American Value's current 12b-1 fee, as
noted above under "Synopsis -- Fee Table." The Board believes, however, that
this relatively minor disadvantage would be offset by the other benefits of
the Reorganization.
THE REORGANIZATION AGREEMENT
The terms and conditions under which the Reorganization would be
consummated, as summarized below, are set forth in the Reorganization
Agreement. This summary is qualified in its entirety by reference to the
Reorganization Agreement, a copy of which is attached as Exhibit A to this
Proxy Statement and Prospectus.
The Reorganization Agreement provides that (i) Capital Appreciation will
transfer all of its assets, including portfolio securities, cash (other than
cash amounts retained by Capital Appreciation as a "Cash Reserve" in the
amount sufficient to discharge its liabilities not discharged prior to the
Valuation Date (as defined below) and for expenses of the dissolution), cash
equivalents and receivables to American Value on the Closing Date in exchange
for the assumption by American Value of stated liabilities of Capital
Appreciation,
13
<PAGE>
including all expenses, costs, charges and reserves, as reflected on an
unaudited statement of assets and liabilities of Capital Appreciation
prepared by the Treasurer of Capital Appreciation as of the Valuation Date
(as defined below) in accordance with generally accepted accounting
principles consistently applied from the prior audited period, and the
delivery of the American Value Shares; (ii) such American Value Shares would
be distributed to Shareholders on the Closing Date or as soon as practicable
thereafter; (iii) Capital Appreciation would be dissolved; and (iv) the
outstanding shares of Capital Appreciation would be canceled.
The number of American Value Shares to be delivered to Capital
Appreciation will be determined by dividing the aggregate net asset value of
each class of shares of Capital Appreciation acquired by American Value by
the net asset value per share of the corresponding class of shares of
American Value; these values will be calculated as of the close of business
of the New York Stock Exchange on the third business day following the
receipt of the requisite approval by Shareholders of the Reorganization
Agreement or at such other time as Capital Appreciation and American Value
may agree (the "Valuation Date"). As an illustration, assume that on the
Valuation Date, Class B shares of Capital Appreciation had an aggregate net
asset value (not including any Cash Reserve of Capital Appreciation) of
$100,000. If the net asset value per Class B share of American Value were $10
per share at the close of business on the Valuation Date, the number of Class
B shares American Value to be issued would be 10,000 ($100,000 / $10). These
10,000 Class B shares of American Value would be distributed to the former
Class B shareholders of Capital Appreciation. This example is given for
illustration purposes only and does not bear any relationship to the dollar
amounts or shares expected to be involved in the Reorganization.
On the Closing Date or as soon as practicable thereafter, Capital
Appreciation will distribute pro rata to its Shareholders of record as of the
close of business on the Valuation Date, the American Value Shares it
receives. Each Shareholder will receive the class of shares of American Value
that corresponds to the class of shares of Capital Appreciation currently
held by that Shareholder. Accordingly, the American Value Shares will be
distributed as follows: each of the Class A, Class B, Class C and Class D
shares of American Value will be distributed to holders of Class A, Class B,
Class C and Class D shares of Capital Appreciation, respectively. American
Value will cause its transfer agent to credit and confirm an appropriate
number of American Value Shares to each Shareholder. Certificates for
American Value Shares will be issued only upon written request of a
Shareholder and only for whole shares, with fractional shares credited to the
name of the Shareholder on the books of American Value. Shareholders who wish
to receive certificates representing their American Value Shares must, after
receipt of their confirmations, make a written request to American Value's
transfer agent Morgan Stanley Dean Witter Trust FSB, Harborside Financial
Center, Jersey City, New Jersey 07311. Shareholders of Capital Appreciation
holding their shares in certificate form will be asked to surrender such
certificates in connection with the Reorganization. Shareholders who do not
surrender their certificates prior to the Closing Date will still receive
their shares of American Value; however, such Shareholders will not be able
to redeem, transfer or exchange the American Value Shares received until the
old certificates have been surrendered.
The Closing Date will be the next business day following the Valuation
Date. The consummation of the Reorganization is contingent upon the approval
of the Reorganization by the Shareholders and the receipt of the other
opinions and certificates set forth in Sections 6, 7 and 8 of the
Reorganization Agreement and the occurrence of the events described in those
Sections, certain of which may be waived by Capital Appreciation or American
Value. The Reorganization Agreement may be amended in any mutually agreeable
manner. All expenses of this solicitation, including the cost of preparing
and mailing this Proxy Statement and Prospectus, will be borne by Capital
Appreciation, which expenses are expected to approximate $182,000. Capital
Appreciation and American Value will bear all of their respective other
expenses associated with the Reorganization.
14
<PAGE>
The Reorganization Agreement may be terminated and the Reorganization
abandoned at any time, before or after approval by Shareholders or by mutual
consent of Capital Appreciation and American Value. In addition, either party
may terminate the Reorganization Agreement upon the occurrence of a material
breach of the Reorganization Agreement by the other party or if, by May 31,
1999, any condition set forth in the Reorganization Agreement has not been
fulfilled or waived by the party entitled to its benefits.
Under the Reorganization Agreement, within one year after the Closing
Date, Capital Appreciation shall: either pay or make provision for all of its
liabilities and distribute any remaining amount of the Cash Reserve (after
paying or making provision for such liabilities and the estimated cost of
making the distribution) to former shareholders of Capital Appreciation that
received American Value Shares. Capital Appreciation shall be dissolved and
deregistered as an investment company promptly following the distributions of
shares of American Value to Shareholders of record of Capital Appreciation.
The effect of the Reorganization is that Shareholders who vote their
shares in favor of the Reorganization Agreement are electing to sell their
shares of Capital Appreciation (at net asset value on the Valuation Date
calculated after subtracting any Cash Reserve) and reinvest the proceeds in
American Value Shares at net asset value and without recognition of taxable
gain or loss for Federal income tax purposes. See "Tax Aspects of the
Reorganization" below. As noted in "Tax Aspects of the Reorganization" below,
if Capital Appreciation recognizes net gain from the sale of securities prior
to the Closing Date, such gain, to the extent not offset by capital loss
carryforwards, will be distributed to Shareholders prior to the Closing Date
and will be taxable to Shareholders as capital gain.
Shareholders will continue to be able to redeem their shares of Capital
Appreciation at net asset value next determined after receipt of the
redemption request (subject to any applicable CDSC) until the close of
business on the business day next preceding the Closing Date. Redemption
requests received by Capital Appreciation thereafter will be treated as
requests for redemption of shares of American Value.
TAX ASPECTS OF THE REORGANIZATION
At least one but not more than 20 business days prior to the Valuation
Date, Capital Appreciation will declare and pay a dividend or dividends
which, together with all previous such dividends, will have the effect of
distributing to Shareholders all of Capital Appreciation's investment company
taxable income for all periods since the inception of Capital Appreciation
through and including the Valuation Date (computed without regard to any
dividends paid deduction), and all of Capital Appreciation's net capital
gain, if any, realized in such periods (after reduction for any capital loss
carryforward).
The Reorganization is intended to qualify for Federal income tax purposes
as a tax-free reorganization under Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the "Code"). Capital Appreciation and
American Value have represented that, to their best knowledge, there is no
plan or intention by Shareholders to redeem, sell, exchange or otherwise
dispose of a number of American Value Shares received in the transaction that
would reduce Shareholders' ownership of American Value Shares to a number of
shares having a value, as of the Closing Date, of less than 50% of the value
of all of the formerly outstanding Capital Appreciation shares as of the same
date. Capital Appreciation and American Value have each further represented
that, as of the Closing Date, Capital Appreciation and American Value will
qualify as regulated investment companies.
As a condition to the Reorganization, Capital Appreciation and American
Value will receive an opinion of Gordon Altman Butowsky Weitzen Shalov & Wein
that, based on certain assumptions, facts, the terms of the Reorganization
Agreement and additional representations set forth in the Reorganization
Agreement or provided by Capital Appreciation and American Value:
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<PAGE>
1. The transfer of substantially all of Capital Appreciation's assets in
exchange for the American Value Shares and the assumption by American Value
of certain stated liabilities of Capital Appreciation followed by the
distribution by Capital Appreciation of the American Value Shares to
Shareholders in exchange for their Capital Appreciation shares will
constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of
the Code, and Capital Appreciation and American Value will each be a "party
to a reorganization" within the meaning of Section 368(b) of the Code;
2. No gain or loss will be recognized by American Value upon the receipt
of the assets of Capital Appreciation solely in exchange for the American
Value Shares and the assumption by American Value of the stated liabilities
of Capital Appreciation;
3. No gain or loss will be recognized by Capital Appreciation upon the
transfer of the assets of Capital Appreciation to American Value in exchange
for the American Value Shares and the assumption by American Value of the
stated liabilities or upon the distribution of American Value Shares to
Shareholders in exchange for their Capital Appreciation shares;
4. No gain or loss will be recognized by Shareholders upon the exchange of
the shares of Capital Appreciation for the American Value Shares;
5. The aggregate tax basis for the American Value Shares received by each
of the Shareholders pursuant to the Reorganization will be the same as the
aggregate tax basis of the shares in Capital Appreciation held by each such
Shareholder immediately prior to the Reorganization;
6. The holding period of the American Value Shares to be received by each
Shareholder will include the period during which the shares in Capital
Appreciation surrendered in exchange therefor were held (provided such shares
in Capital Appreciation were held as capital assets on the date of the
Reorganization);
7. The tax basis of the assets of Capital Appreciation acquired by
American Value will be the same as the tax basis of such assets to Capital
Appreciation immediately prior to the Reorganization; and
8. The holding period of the assets of Capital Appreciation in the hands
of American Value will include the period during which those assets were held
by Capital Appreciation.
SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE EFFECT, IF
ANY, OF THE PROPOSED TRANSACTION IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES.
BECAUSE THE FOREGOING DISCUSSION ONLY RELATES TO THE FEDERAL INCOME TAX
CONSEQUENCES OF THE PROPOSED TRANSACTION, SHAREHOLDERS SHOULD ALSO CONSULT
THEIR TAX ADVISORS AS TO STATE AND LOCAL TAX CONSEQUENCES, IF ANY, OF THE
PROPOSED TRANSACTION.
DESCRIPTION OF SHARES
American Value shares to be issued pursuant to the Reorganization
Agreement will, when issued, be fully paid and non-assessable by American
Value and transferable without restrictions and will have no preemptive
rights. Class B shares of American Value, like Class B shares of Capital
Appreciation, have a conversion feature pursuant to which approximately ten
(10) years after the date of the original purchase of such shares, the shares
will convert automatically to Class A shares, based on the relative net asset
values of the two classes. For greater details regarding the conversion
feature, including the method by which the 10 year period is calculated and
the treatment of reinvested dividends, see "Purchase of Fund Shares" in each
fund's Prospectus.
CAPITALIZATION TABLE (UNAUDITED)
The following table sets forth the capitalization of American Value and
Capital Appreciation as of September 30, 1998 and on a pro forma combined
basis as if the Reorganization had occurred on that date:
16
<PAGE>
<TABLE>
<CAPTION>
NET ASSET
SHARES VALUE
NET ASSETS OUTSTANDING PER SHARE
-------------- ------------- -----------
<S> <C> <C> <C>
CLASS A
- --------------------------
Capital Appreciation ..... $728,646 66,844 $10.90
American Value ............ $76,168,332 2,389,336 $31.88
Combined Fund (pro forma) $76,896,978 2,412,192 $31.88
CLASS B
- --------------------------
Capital Appreciation....... $214,589,890 19,879,095 $10.79
American Value............. $4,722,895,303 149,184,537 $31.66
Combined Fund (pro forma) $4,937,485,193 155,962,487 $31.66
CLASS C
- --------------------------
Capital Appreciation ..... $1,332,961 123,472 $10.80
American Value ............ $38,710,697 1,225,890 $31.58
Combined Fund (pro forma) $40,043,658 1,268,099 $31.58
CLASS D
- --------------------------
Capital Appreciation ..... $193,368 17,658 $10.95
American Value ............ $110,067,180 3,441,655 $31.98
Combined Fund (pro forma) $110,260,548 3,447,702 $31.98
TOTAL CLASS A, B, C, D
- --------------------------
Capital Appreciation....... $216,844,865 20,087,069 --
American Value ............ $4,997,841,512 156,231,418 --
Combined Fund (pro forma) $5,164,686,377 163,090,480 --
</TABLE>
APPRAISAL RIGHTS
Shareholders will have no appraisal rights in connection with the
Reorganization.
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES
Capital Appreciation and American Value each are funds which have similar
although not identical investment objectives and policies. The investment
objective of Capital Appreciation is long-term capital appreciation. The
investment objective of American Value is long-term capital growth consistent
with an effort to reduce volatility. Both funds seek to achieve their
objectives by investing principally in a diversified portfolio of common
stocks in accordance with their respective investment strategies set forth
below.
American Value utilizes an investment process that places primary emphasis
on seeking to identify industries, rather than individual companies, as
prospects for capital appreciation. The Investment Manager seeks to invest
the assets of American Value in those industries that, at the time of
investment, are attractively valued given their above average relative
earnings growth potential at that time and, therefore, the fund is typically
over-weighted in those sectors deemed to be attractive given their potential
for above average earnings growth. After selection of the fund's target
industries, specific company investments are selected. In this process, the
Investment Manager seeks to identify companies whose prospects are deemed
attractive on the basis of an evaluation of valuation screens and prospective
company fundamentals. Following selection of the
17
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fund's specific investments, the Investment Manager will attempt to allocate
the assets of the fund so as to reduce the volatility of its portfolio. In
doing so, American Value may hold a portion of its portfolio in fixed-income
securities (including zero coupon securities) in an effort to moderate
extremes of price fluctuations. American Value may invest up to 35% of its
portfolio in common stocks of non-U.S. companies, in companies whose
industries have not been determined to be attractively valued or moderately
attractively valued by the Investment Manager, and in convertible debt
securities and warrants, convertible preferred securities, U.S. Government
securities (securities issued or guaranteed as to principal and interest by
the United States or its agencies and instrumentalities) and investment grade
corporate debt securities when, in the opinion of the Investment Manager, the
projected total return on such securities is equal to or greater than the
expected total return on common stocks, or when such holdings might be
expected to reduce the volatility of the portfolio, and in money market
instruments under any one or more of the following circumstances: (i) pending
investment of proceeds of the sale of fund shares or of portfolio securities;
(ii) pending settlement of purchases of portfolio securities; or (iii) to
maintain liquidity for the purpose of meeting anticipated redemptions.
Greater than 35% of the fund's total assets may be invested in money market
instruments to maintain, temporarily, a "defensive" posture when, in the
opinion of the Investment Manager, it is advisable to do so because of
economic or market conditions.
Capital Appreciation seeks to invest its assets in common stocks of
primarily U.S. companies that, in the opinion of the Investment Manager,
offer the potential for either superior earnings growth and/or appear to be
undervalued. The fund primarily looks for quality businesses with an
investment outlook based upon a mix of growth potential, financial strength
and fundamental value. The Investment Manager bases the selection of stocks
for the fund's portfolio on research and analysis, taking into account, among
other factors, a company's price/earnings ratio (that is whether the current
stock price appears undervalued in relation to earnings, projected cash flow,
or asset value per share; or the price-to-earnings ratio is attractive
relative to the company's underlying earnings growth rate), growth in sales,
market-to-book ratio, the quality of a company's balance sheet,
sales-per-share and profitability in order to determine whether the current
market valuation is less than the Investment Manager's view of a company's
intrinsic value. The Investment Manager also considers characteristics such
as capable management, attractive business niches, pricing flexibility, sound
financial and accounting practices and a demonstrated ability or prospects to
consistently grow revenues, earnings and cash flow as well as the possibility
of increased investor attention, asset sales, a new product/innovation, or a
change in management which may cause the stock's price to rise.
The Investment Manager has no general criteria as to asset size, earnings
or industry type and the fund's holdings are generally widely diversified by
industry and company and, under most circumstances, at the time of initial
purchase, the average position will be less than 1.5% of the fund's net
assets.
Up to 35% of Capital Appreciation's total assets may be invested in debt
or preferred equity securities convertible into or exchangeable for equity
securities, rights and warrants, and the fund may also invest in other debt
securities without regard to quality or rating, if in the opinion of the
Investment Manager such securities meet the investment criteria of the fund.
The fund will not purchase a non-investment grade debt security (or junk
bond) if, immediately after such purchase, the fund would have more than 5%
of its total assets invested in such securities. During periods which, in the
opinion of the Investment Manager, market conditions warrant a reduction of
some or all of the fund's securities holdings, the fund may adopt a temporary
"defensive" posture in which greater than 35% of its total assets are
invested in money market instruments or cash.
Both funds may invest their assets in foreign securities, including
securities of foreign issuers denominated in foreign currencies or in the
form of American Depository Receipts ("ADRs"); American Value may invest up
to 35% of its total assets in foreign securities while Capital Appreciation
may not invest more than 10% of its total assets in such foreign securities.
Additionally, both funds may enter into forward foreign currency exchange
contracts in connection with its foreign securities investments as a hedge
against fluctuations in future foreign exchange rates.
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<PAGE>
Both Capital Appreciation and American Value may engage in options and
futures transactions. Capital Appreciation may purchase and sell (write)
options on portfolio securities denominated in U.S. dollars and foreign
currencies and may purchase and sell (write) options on the U.S. dollar and
foreign currencies which are or may be in the future listed on U.S. and
foreign securities exchanges or are written in over-the-counter transactions
("OTC options"). Capital Appreciation may write covered call options on
portfolio securities and currencies without limit, in order to hedge against
the decline in the value of a security or currency in which such security is
denominated and to close out long call option positions. American Value may
purchase and sell (write) options on debt and equity securities which are
listed on Exchanges or which are OTC options and may only write covered call
options in an amount up to, but not exceeding in the aggregate, 25% of the
value of its total assets. Both funds also may purchase listed and OTC call
and put options in amounts equaling up to 5% (Capital Appreciation) and 10%
(American Value) of their respective total assets and American Value may
invest up to 5% of its total assets in stock index options. Both funds may
purchase call and put options to close out covered call or written put
positions, as applicable, or to protect the value of the relevant security.
Capital Appreciation 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 underlying portfolio securities, on any currency
("currency" futures), as well as on U.S. and foreign fixed-income securities
("interest rate" futures) and on such indexes of U.S. or foreign equity or
fixed-income securities as may exist or come into being ("index" futures).
American Value may purchase and sell interest rate and stock index futures
contracts that are traded on U.S. commodity exchanges on such underlying
securities as U.S. Treasury securities, GNMA Certificates, and indexes such
as the S&P 500 Index, the New York Stock Exchange Composite Index and the
Moody's Investment-Grade Corporate Bond Index.
Both American Value and Capital Appreciation may (i) purchase securities
on a when-issued or delayed delivery basis, (ii) purchase or sell securities
on a forward commitment basis, (iii) purchase securities on a "when, as and
if issued" basis, (iv) enter into repurchase agreements subject to certain
procedures designed to minimize risks associated with such agreements, (v)
purchase rights and warrants, (vi) invest in zero coupon securities and (vii)
invest up to 5% of their respective total assets in securities which are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933, as amended, or which are not otherwise readily
marketable (both funds do not include Rule 144A securities in this 5%
limitation). Capital Appreciation may also enter into reverse repurchase
agreements and dollar rolls.
Additionally, both American Value and Capital Appreciation may invest in
real estate investment trusts.
The investment policies of both Capital Appreciation and American Value
are not fundamental and may be changed by their respective Boards. The
foregoing discussion is a summary of the principal differences and
similarities between the investment policies of the funds. For a more
complete discussion of each fund's policies, see "Investment Objective and
Policies" in each fund's Prospectus and "Investment Practices and Policies"
in each fund's Statement of Additional Information.
INVESTMENT RESTRICTIONS
The investment restrictions adopted by Capital Appreciation and American
Value as fundamental policies are substantially similar and are summarized
under the caption "Investment Restrictions" in their respective Prospectuses
and Statements of Additional Information. A fundamental investment
restriction cannot be changed without the vote of the majority of the
outstanding voting securities of a fund, as defined in the 1940 Act. The
material differences are as follows: (a) Capital Appreciation has a
fundamental restriction that it may not invest more than 5% of the value of
its total assets in the securities of issuers (other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities)
having a record, together with predecessors, of less than three years of
continuous operation; American Value has no such restriction; (b)
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Capital Appreciation may not, as to 75% of its total assets purchase more
than 10% of all outstanding voting securities or any class of securities of
any one issuer; American Value has a similar restriction with respect to 100%
of its total assets; (c) American Value may not purchase securities of other
investment companies except in connection with a merger, consolidation,
reorganization or acquisition of assets; Capital Appreciation carves out an
additional exception for purchases complying with Section 12(d) of the 1940
Act; and (d) both funds are prohibited from borrowing money except from a
bank for temporary or emergency purposes in amounts not exceeding 5% of their
respective total assets; however, Capital Appreication carves out an
additional exception for reverse repurchase agreements and dollar rolls
subject to this 5% limitation.
In addition, American Value has a fundamental restriction that it may not
invest in securities of any issuer if, in the exercise of reasonable
diligence, the fund has determined that any officer or trustee of the fund or
of the fund's investment manager owns more than 1/2 of 1% of the outstanding
securities of such issuer, and such officers and trustees who own more than
1/2 of 1% own in the aggregate more than 5% of the outstanding securities of
such issuer; Capital Appreciation has no such limitation.
ADDITIONAL INFORMATION ABOUT CAPITAL APPRECIATION
AND AMERICAN VALUE
GENERAL
For a discussion of the organization and operation of American Value and
Capital Appreciation, see "The Fund and its Management," "Investment
Objective and Policies," "Investment Restrictions" and "Prospectus Summary"
in, and the cover page of, their respective Prospectuses.
FINANCIAL INFORMATION
For certain financial information about American Value and Capital
Appreciation, see "Financial Highlights" and "Performance Information" in
their respective Prospectuses.
MANAGEMENT
For information about the respective Board of Trustees, Investment
Manager, and the Distributor of American Value and Capital Appreciation, see
"The Fund and its Management" and "Investment Objective and Policies" in, and
on the back cover of, their respective Prospectuses.
DESCRIPTION OF SECURITIES AND SHAREHOLDER INQUIRIES
For a description of the nature and most significant attributes of shares
of Capital Appreciation and American Value, and information regarding
shareholder inquiries, see "Additional Information" in their respective
Prospectuses.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of American Value's and Capital Appreciation's policies
with respect to dividends, distributions and taxes, see "Dividends,
Distributions and Taxes" in their respective Prospectuses as well as the
discussion herein under "Synopsis -- Purchases, Exchanges and Redemptions."
PURCHASES, REPURCHASES AND REDEMPTIONS
For a discussion of how American Value's and Capital Appreciation's shares
may be purchased, repurchased and redeemed, see "Purchase of Fund Shares,"
"Shareholder Services" and "Redemptions and Repurchases" in their respective
Prospectuses.
20
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
For a discussion of American Value's performance, see management's letter
to shareholders in its Annual Report for its fiscal year ended December 31,
1997 and in its unaudited Semi-Annual Report for the six months ended June
30, 1998 accompanying this Proxy Statement and Prospectus. For a discussion
of the performance of Capital Appreciation, see its Annual Report for its
fiscal year ended November 30, 1997 and its unaudited Semi-Annual Report for
the six months ended May 31, 1998.
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of American Value, for the year ended December
31, 1997, and Capital Appreciation, for the year ended November 30, 1997 that
are incorporated by reference in the Statement of Additional Information
relating to the Registration Statement on Form N-14 of which this Proxy
Statement and Prospectus forms a part, have been audited by
PricewaterhouseCoopers LLP, independent accountants. The financial statements
have been incorporated by reference in reliance upon such reports given upon
the authority of PricewaterhouseCoopers LLP as experts in accounting and
auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of American Value
will be passed upon by Gordon Altman Butowsky Weitzen Shalov & Wein, New
York, New York. Such firm will rely on Lane Altman & Owens as to matters of
Massachusetts law.
AVAILABLE INFORMATION
Additional information about Capital Appreciation and American Value is
available, as applicable, in the following documents which are incorporated
herein by reference: (i) American Value's Prospectus dated May 1, 1998, As
Revised August 21, 1998, attached this Proxy Statement and Prospectus, which
Prospectus forms a part of Post-Effective Amendment No. 22 to American
Value's Registration Statement on Form N-1A (File Nos. 2-66269; 811-2978);
(ii) American Value's Annual Report for its fiscal year ended December 31,
1997 and its unaudited Semi-Annual Report for the six months ended June 30,
1998, accompanying this Proxy Statement and Prospectus; (iii) Capital
Appreciation's Prospectus dated January 29, 1998, which Prospectus forms a
part of Post-Effective Amendment No. 4 to Capital Appreciation's Registration
Statement on Form N-1A (File Nos. 33-61511; 811-7333); and (iv) Capital
Appreciation's Annual Report for its fiscal year ended November 30, 1997 and
its unaudited Semi-Annual Report for its six months ended May 31, 1997. The
foregoing documents may be obtained without charge by calling (212) 392-2550
or (800) 869-NEWS (toll-free).
Capital Appreciation and American Value are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith, file reports and other information with the Commission.
Proxy material, reports and other information about Capital Appreciation and
American Value which are of public record can be inspected and copied at
public reference facilities maintained by the Commission at Room 1204,
Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549 and certain of
its regional offices, and copies of such materials can be obtained at
prescribed rates from the Public Reference Branch, Office of Consumer Affairs
and Information Services, Securities and Exchange Commission, Washington,
D.C. 20549.
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OTHER BUSINESS
Management of Capital Appreciation knows of no business other than the
matters specified above which will be presented at the Meeting. Since matters
not known at the time of the solicitation may come before the Meeting, the
proxy as solicited confers discretionary authority with respect to such
matters as properly come before the Meeting, including any adjournment or
adjournments thereof, and it is the intention of the persons named as
attorneys-in-fact in the proxy to vote this proxy in accordance with their
judgment on such matters.
By Order of the Board of Trustees
Barry Fink,
Secretary
December 4, 1998
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made as of this
28th day of October, 1998, by and between MORGAN STANLEY DEAN WITTER AMERICAN
VALUE FUND, a Massachusetts business trust ("American Value") and MORGAN
STANLEY DEAN WITTER CAPITAL APPRECIATION FUND, a Massachusetts business trust
("Capital Appreciation").
This Agreement is intended to be and is adopted as a "plan of
reorganization" within the meaning of Treas. Reg. 1.368-2(g), for a
reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986,
as amended (the "Code"). The reorganization ("Reorganization") will consist
of the transfer to American Value of substantially all of the assets of
Capital Appreciation in exchange for the assumption by American Value of all
stated liabilities of Capital Appreciation and the issuance by American Value
of shares of beneficial interest, par value $0.01 per share (the "American
Value Shares"), to be distributed, after the Closing Date hereinafter
referred to, to the shareholders of Capital Appreciation in liquidation of
Capital Appreciation as provided herein, all upon the terms and conditions
hereinafter set forth in this Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. THE REORGANIZATION AND LIQUIDATION OF CAPITAL APPRECIATION
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, Capital Appreciation
agrees to assign, deliver and otherwise transfer the Capital Appreciation
Assets (as defined in paragraph 1.2) to American Value and American Value
agrees in exchange therefor to assume all of Capital Appreciation's stated
liabilities on the Closing Date as set forth in paragraph 1.3(a) and to
deliver to Capital Appreciation the number of American Value Shares,
including fractional American Value Shares, determined in the manner set
forth in paragraph 2.3. Such transactions shall take place at the closing
provided for in paragraph 3.1 ("Closing").
1.2 (a) The "Capital Appreciation Assets" shall consist of all property,
including without limitation, all cash (other than the "Cash Reserve" (as
defined in paragraph 1.3(b)), cash equivalents, securities and dividend and
interest receivables owned by Capital Appreciation, and any deferred or
prepaid expenses shown as an asset on Capital Appreciation's books on the
Valuation Date.
(b) On or prior to the Valuation Date, Capital Appreciation will provide
American Value with a list of all of Capital Appreciation's assets to be
assigned, delivered and otherwise transferred to American Value and of the
stated liabilities to be assumed by American Value pursuant to this
Agreement. Capital Appreciation reserves the right to sell any of the
securities on such list but will not, without the prior approval of American
Value, acquire any additional securities other than securities of the type in
which American Value is permitted to invest and in amounts agreed to in
writing by American Value. American Value will, within a reasonable time
prior to the Valuation Date, furnish Capital Appreciation with a statement of
American Value's investment objectives, policies and restrictions and a list
of the securities, if any, on the list referred to in the first sentence of
this paragraph that do not conform to American Value's investment objective,
policies and restrictions. In the event that Capital Appreciation holds any
investments that American Value is not permitted to hold, Capital
Appreciation will dispose of such securities on or prior to the Valuation
Date. In addition, if it is determined that the portfolios of Capital
Appreciation and American Value, when aggregated, would contain investments
exceeding certain percentage limitations imposed upon American Value with
respect to such investments, Capital Appreciation if requested by American
Value will, on or prior to the Valuation Date,
A-1
<PAGE>
dispose of and/or reinvest a sufficient amount of such investments as may be
necessary to avoid violating such limitations as of the Closing Date (as
defined in paragraph 3.1).
1.3 (a) Capital Appreciation will endeavor to discharge all of its
liabilities and obligations on or prior to the Valuation Date. American Value
will assume all stated liabilities, which includes, without limitation, all
expenses, costs, charges and reserves reflected on an unaudited Statement of
Assets and Liabilities of Capital Appreciation prepared by the Treasurer of
Capital Appreciation as of the Valuation Date in accordance with generally
accepted accounting principles consistently applied from the prior audited
period.
(b) On the Valuation Date, Capital Appreciation may establish a cash
reserve, which shall not exceed 5% of Capital Appreciation's net assets as of
the close of business on the Valuation Date ("Cash Reserve") to be retained
by Capital Appreciation and used for the payment of its liabilities not
discharged prior to the Valuation Date and for the expenses of dissolution.
1.4 In order for Capital Appreciation to comply with Section 852(a)(1) of
the Code and to avoid having any investment company taxable income or net
capital gain (as defined in Sections 852(b)(2) and 1222(11) of the Code,
respectively) in the short taxable year ending with its dissolution, Capital
Appreciation will on or before the Valuation Date (a) declare a dividend in
an amount large enough so that it will have declared dividends of all of its
investment company taxable income and net capital gain, if any, for such
taxable year (determined without regard to any deduction for dividends paid)
and (b) distribute such dividend.
1.5 On the Closing Date or as soon as practicable thereafter, Capital
Appreciation will distribute American Value Shares received by Capital
Appreciation pursuant to paragraph 1.1 pro rata to its shareholders of record
determined as of the close of business on the Valuation Date ("Capital
Appreciation Shareholders"). Each Capital Appreciation Shareholder will
receive the class of shares of American Value that corresponds to the class
of shares of Capital Appreciation currently held by that Capital Appreciation
Shareholder. Accordingly, the American Value Shares will be distributed as
follows: each of the Class A, Class B, Class C and Class D shares of American
Value will be distributed to holders of Class A, Class B, Class C and Class D
shares of Capital Appreciation, respectively. Such distribution will be
accomplished by an instruction, signed by Capital Appreciation's Secretary,
to transfer American Value Shares then credited to Capital Appreciation's
account on the books of American Value to open accounts on the books of
American Value in the names of the Capital Appreciation Shareholders and
representing the respective pro rata number of American Value Shares due such
Capital Appreciation Shareholders. All issued and outstanding shares of
Capital Appreciation simultaneously will be canceled on Capital
Appreciation's books; however, share certificates representing interests in
Capital Appreciation will represent a number of American Value Shares after
the Closing Date as determined in accordance with paragraph 2.3. American
Value will issue certificates representing American Value Shares in
connection with such exchange only upon the written request of a Capital
Appreciation Shareholder.
1.6 Ownership of American Value Shares will be shown on the books of
American Value's transfer agent. American Value Shares will be issued in the
manner described in American Value's current Prospectus and Statement of
Additional Information.
1.7 Any transfer taxes payable upon issuance of American Value Shares in a
name other than the registered holder of American Value Shares on Capital
Appreciation's books as of the close of business on the Valuation Date shall,
as a condition of such issuance and transfer, be paid by the person to whom
American Value Shares are to be issued and transferred.
1.8 Any reporting responsibility of Capital Appreciation is and shall
remain the responsibility of Capital Appreciation up to and including the
date on which Capital Appreciation is dissolved and deregistered pursuant to
paragraph 1.9.
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1.9 Within one year after the Closing Date, Capital Appreciation shall pay
or make provision for the payment of all its liabilities and taxes, and
distribute to the shareholders of Capital Appreciation as of the close of
business on the Valuation Date any remaining amount of the Cash Reserve (as
reduced by the estimated cost of distributing it to shareholders). Capital
Appreciation shall be dissolved as a Massachusetts business trust and
deregistered as an investment company under the Investment Company Act of
1940, as amended ("1940 Act"), promptly following the making of all
distributions pursuant to paragraph 1.5.
1.10 Copies of all books and records maintained on behalf of Capital
Appreciation in connection with its obligations under the 1940 Act, the Code,
state blue sky laws or otherwise in connection with this Agreement will
promptly after the Closing be delivered to officers of American Value or
their designee and American Value or its designee shall comply with
applicable record retention requirements to which Capital Appreciation is
subject under the 1940 Act.
2. VALUATION
2.1 The value of the Capital Appreciation Assets shall be the value of
such assets computed as of 4:00 p.m. on the New York Stock Exchange on the
third business day following the receipt of the requisite approval by
shareholders of Capital Appreciation of this Agreement or at such time on
such earlier or later date after such approval as may be mutually agreed upon
in writing (such time and date being hereinafter called the "Valuation
Date"), using the valuation procedures set forth in American Value's then
current Prospectus and Statement of Additional Information.
2.2 The net asset value of an American Value Share shall be the net asset
value per share computed on the Valuation Date, using the valuation
procedures set forth in American Value's then current Prospectus and
Statement of Additional Information.
2.3 The number of American Value Shares (including fractional shares, if
any) to be issued hereunder shall be determined, with respect to each class,
by dividing the aggregate net asset value of each class of Capital
Appreciation shares (determined in accordance with paragraph 2.1) by the net
asset value per share of the corresponding class of shares of American Value
(determined in accordance with paragraph 2.2). For purposes of this
paragraph, the aggregate net asset value of each class of shares of Capital
Appreciation shall not include the amount of the Cash Reserve.
2.4 All computations of value shall be made by Morgan Stanley Dean Witter
Services Company Inc. ("MSDW Services") in accordance with its regular
practice in pricing American Value. American Value shall cause MSDW Services
to deliver a copy of its valuation report at the Closing.
3. CLOSING AND CLOSING DATE
3.1 The Closing shall take place on the next business day following the
Valuation Date (the "Closing Date"). The Closing shall be held as of 9:00
a.m. Eastern time, or at such other time as the parties may agree. The
Closing shall be held in a location mutually agreeable to the parties hereto.
All acts taking place at the Closing shall be deemed to take place
simultaneously as of 9:00 a.m. Eastern time on the Closing Date unless
otherwise provided.
3.2 Portfolio securities held by Capital Appreciation and represented by a
certificate or other written instrument shall be presented by it or on its
behalf to The Bank of New York (the "Custodian"), as custodian for American
Value, for examination no later than five business days preceding the
Valuation Date. Such portfolio securities (together with any cash or other
assets) shall be delivered by Capital Appreciation to the Custodian for the
account of American Value on or before the Closing Date in conformity with
applicable
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custody provisions under the 1940 Act and duly endorsed in proper form for
transfer in such condition as to constitute good delivery thereof in
accordance with the custom of brokers. The portfolio securities shall be
accompanied by all necessary Federal and state stock transfer stamps or a
check for the appropriate purchase price of such stamps. Portfolio securities
and instruments deposited with a securities depository (as defined in Rule
17f-4 under the 1940 Act) shall be delivered on or before the Closing Date by
book-entry in accordance with customary practices of such depository and the
Custodian. The cash delivered shall be in the form of a Federal Funds wire,
payable to the order of "The Bank of New York, Custodian for Morgan Stanley
Dean Witter American Value Fund."
3.3 In the event that on the Valuation Date, (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be restricted or
(b) trading or the reporting of trading on such Exchange or elsewhere shall
be disrupted so that, in the judgment of both American Value and Capital
Appreciation, accurate appraisal of the value of the net assets of American
Value or the Capital Appreciation Assets is impracticable, the Valuation Date
shall be postponed until the first business day after the day when trading
shall have been fully resumed without restriction or disruption and reporting
shall have been restored.
3.4 If requested, Capital Appreciation shall deliver to American Value or
its designee (a) at the Closing, a list, certified by its Secretary, of the
names, addresses and taxpayer identification numbers of the Capital
Appreciation Shareholders and the number and percentage ownership of
outstanding Capital Appreciation shares owned by each such Capital
Appreciation Shareholder, all as of the Valuation Date, and (b) as soon as
practicable after the Closing, all original documentation (including Internal
Revenue Service forms, certificates, certifications and correspondence)
relating to the Capital Appreciation Shareholders' taxpayer identification
numbers and their liability for or exemption from back-up withholding.
American Value shall issue and deliver to such Secretary a confirmation
evidencing delivery of American Value Shares to be credited on the Closing
Date to Capital Appreciation or provide evidence satisfactory to Capital
Appreciation that such American Value Shares have been credited to Capital
Appreciation's account on the books of American Value. At the Closing, each
party shall deliver to the other such bills of sale, checks, assignments,
share certificates, if any, receipts or other documents as such other party
or its counsel may reasonably request.
4. COVENANTS OF AMERICAN VALUE AND CAPITAL APPRECIATION
4.1 Except as otherwise expressly provided herein with respect to Capital
Appreciation, American Value and Capital Appreciation each will operate its
business in the ordinary course between the date hereof and the Closing Date,
it being understood that such ordinary course of business will include
customary dividends and other distributions.
4.2 American Value will prepare and file with the Securities and Exchange
Commission ("Commission") a registration statement on Form N-14 under the
Securities Act of 1933, as amended ("1933 Act"), relating to American Value
Shares ("Registration Statement"). Capital Appreciation will provide American
Value with the Proxy Materials as described in paragraph 4.3 below, for
inclusion in the Registration Statement. Capital Appreciation will further
provide American Value with such other information and documents relating to
Capital Appreciation as are reasonably necessary for the preparation of the
Registration Statement.
4.3 Capital Appreciation will call a meeting of its shareholders to
consider and act upon this Agreement and to take all other action necessary
to obtain approval of the transactions contemplated herein. Capital
Appreciation will prepare the notice of meeting, form of proxy and proxy
statement (collectively, "Proxy Materials") to be used in connection with
such meeting; provided that American Value will furnish Capital Appreciation
with its currently effective prospectus for inclusion in the Proxy Materials
and with such other information relating to American Value as is reasonably
necessary for the preparation of the Proxy Materials.
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4.4 Capital Appreciation will assist American Value in obtaining such
information as American Value reasonably requests concerning the beneficial
ownership of Capital Appreciation shares.
4.5 Subject to the provisions of this Agreement, American Value and
Capital Appreciation will each take, or cause to be taken, all action, and do
or cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this
Agreement.
4.6 Capital Appreciation shall furnish or cause to be furnished to
American Value within 30 days after the Closing Date a statement of Capital
Appreciation's assets and liabilities as of the Closing Date, which statement
shall be certified by Capital Appreciation's Treasurer and shall be in
accordance with generally accepted accounting principles consistently
applied. As promptly as practicable, but in any case within 60 days after the
Closing Date, Capital Appreciation shall furnish American Value, in such form
as is reasonably satisfactory to American Value, a statement certified by
Capital Appreciation's Treasurer of Capital Appreciation's earnings and
profits for Federal income tax purposes that will be carried over to American
Value pursuant to Section 381 of the Code.
4.7 As soon after the Closing Date as is reasonably practicable, Capital
Appreciation (a) shall prepare and file all Federal and other tax returns and
reports of Capital Appreciation required by law to be filed with respect to
all periods ending on or before the Closing Date but not theretofore filed
and (b) shall pay all Federal and other taxes shown as due thereon and/or all
Federal and other taxes that were unpaid as of the Closing Date, including
without limitation, all taxes for which the provision for payment was made as
of the Closing Date (as represented in paragraph 5.2(k)).
4.8 American Value agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act and the 1940 Act and to
make such filings required by the state Blue Sky and securities laws as it
may deem appropriate in order to continue its operations after the Closing
Date.
5. REPRESENTATIONS AND WARRANTIES
5.1 American Value represents and warrants to Capital Appreciation as
follows:
(a) American Value is a validly existing Massachusetts business trust
with full power to carry on its business as presently conducted;
(b) American Value is a duly registered, open-end, management investment
company, and its registration with the Commission as an investment company
under the 1940 Act and the registration of its shares under the 1933 Act
are in full force and effect;
(c) All of the issued and outstanding shares of American Value have been
offered and sold in compliance in all material respects with applicable
registration requirements of the 1933 Act and state securities laws.
Shares of American Value are registered in all jurisdictions in which they
are required to be registered under state securities laws and other laws,
and said registrations, including any periodic reports or supplemental
filings, are complete and current, all fees required to be paid have been
paid, and American Value is not subject to any stop order and is fully
qualified to sell its shares in each state in which its shares have been
registered;
(d) The current Prospectus and Statement of Additional Information of
American Value conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the regulations
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
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(e) American Value is not in, and the execution, delivery and performance
of this Agreement will not result in a, material violation of any
provision of American Value's Declaration of Trust or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking to
which American Value is a party or by which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its
knowledge, threatened against American Value or any of its properties or
assets which, if adversely determined, would materially and adversely
affect its financial condition or the conduct of its business; and
American Value knows of no facts that might form the basis for the
institution of such proceedings and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects, or is reasonably likely to
materially and adversely effect, its business or its ability to consummate
the transactions herein contemplated;
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights for the year
ended December 31, 1997, of American Value certified by
PricewaterhouseCoopers LLP (copies of which have been furnished to Capital
Appreciation), fairly present, in all material respects, American Value's
financial condition as of such date in accordance with generally accepted
accounting principles, and its results of such operations, changes in its
net assets and financial highlights for such period, and as of such date
there were no known liabilities of American Value (contingent or
otherwise) not disclosed therein that would be required in accordance with
generally accepted accounting principles to be disclosed therein;
(h) All issued and outstanding American Value Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and nonassessable with no personal liability attaching to the ownership
thereof, except as set forth under the caption "Additional Information" in
American Value's current Prospectus incorporated by reference in the
Registration Statement. American Value does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of its
shares;
(i) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of American Value, and
this Agreement constitutes a valid and binding obligation of American
Value enforceable in accordance with its terms, subject as to enforcement,
to bankruptcy, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors rights and to general equity
principles. No other consents, authorizations or approvals are necessary
in connection with American Value's performance of this Agreement;
(j) American Value Shares to be issued and delivered to Capital
Appreciation, for the account of the Capital Appreciation Shareholders,
pursuant to the terms of this Agreement will at the Closing Date have been
duly authorized and, when so issued and delivered, will be duly and
validly issued American Value Shares, and will be fully paid and
non-assessable with no personal liability attaching to the ownership
thereof, except as set forth under the caption "Additional Information" in
American Value's current Prospectus incorporated by reference in the
Registration Statement;
(k) All material Federal and other tax returns and reports of American
Value required by law to be filed on or before the Closing Date have been
filed and are correct, and all Federal and other taxes shown as due or
required to be shown as due on said returns and reports have been paid or
provision has been made for the payment thereof, and to the best of
American Value's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to any such return;
(l) For each taxable year since its inception, American Value has met the
requirements of Subchapter M of the Code for qualification and treatment
as a "regulated investment company" and
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neither the execution or delivery of nor the performance of its
obligations under this Agreement will adversely affect, and no other
events are reasonably likely to occur which will adversely affect the
ability of American Value to continue to meet the requirements of
Subchapter M of the Code;
(m) Since December 31, 1997 there has been no change by American Value in
accounting methods, principles, or practices, including those required by
generally accepted accounting principles;
(n) The information furnished or to be furnished by American Value for
use in registration statements, proxy materials and other documents which
may be necessary in connection with the transactions contemplated hereby
shall be accurate and complete in all material respects and shall comply
in all material respects with Federal securities and other laws and
regulations applicable thereto; and
(o) The Proxy Materials to be included in the Registration Statement
(only insofar as they relate to American Value) will, on the effective
date of the Registration Statement and on the Closing Date, not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading.
5.2 Capital Appreciation represents and warrants to American Value as
follows:
(a) Capital Appreciation is a validly existing Massachusetts business
trust with full power to carry on its business as presently conducted;
(b) Capital Appreciation is a duly registered, open-end, management
investment company, and its registration with the Commission as an
investment company under the 1940 Act and the registration of its shares
under the 1933 Act are in full force and effect;
(c) All of the issued and outstanding shares of beneficial interest of
Capital Appreciation have been offered and sold in compliance in all
material respects with applicable requirements of the 1933 Act and state
securities laws. Shares of Capital Appreciation are registered in all
jurisdictions in which they are required to be registered and said
registrations, including any periodic reports or supplemental filings, are
complete and current, all fees required to be paid have been paid, and
Capital Appreciation is not subject to any stop order and is fully
qualified to sell its shares in each state in which its shares have been
registered;
(d) The current Prospectus and Statement of Additional Information of
Capital Appreciation conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the regulations
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
(e) Capital Appreciation is not, and the execution, delivery and
performance of this Agreement will not result, in a material violation of
any provision of Capital Appreciation's Declaration of Trust or By-Laws or
of any agreement, indenture, instrument, contract, lease or other
undertaking to which Capital Appreciation is a party or by which it is
bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its
knowledge, threatened against Capital Appreciation or any of its
properties or assets which, if adversely determined, would materially and
adversely affect its financial condition or the conduct of its business;
and Capital Appreciation knows of no facts that might form the basis for
the institution of such proceedings and is not a party to or subject to
the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects, or is reasonably
likely to materially and adversely effect, its business or its ability to
consummate the transactions herein contemplated;
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(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights of Capital
Appreciation for the year ended November 30, 1997, certified by
PricewaterhouseCoopers LLP (copies of which have been or will be furnished
to American Value) fairly present, in all material respects, Capital
Appreciation's financial condition as of such date, and its results of
operations, changes in its net assets and financial highlights for such
period in accordance with generally accepted accounting principles, and as
of such date there were no known liabilities of Capital Appreciation
(contingent or otherwise) not disclosed therein that would be required in
accordance with generally accepted accounting principles to be disclosed
therein;
(h) Capital Appreciation has no material contracts or other commitments
(other than this Agreement) that will be terminated with liability to it
prior to the Closing Date;
(i) All issued and outstanding shares of Capital Appreciation are, and at
the Closing Date will be, duly and validly issued and outstanding, fully
paid and nonassessable with no personal liability attaching to the
ownership thereof, except as set forth under the caption "Additional
Information" in Capital Appreciation's current Prospectus incorporated by
reference in the Registration Statement. Capital Appreciation does not
have outstanding any options, warrants or other rights to subscribe for or
purchase any of its shares, nor is there outstanding any security
convertible to any of its shares. All such shares will, at the time of
Closing, be held by the persons and in the amounts set forth in the list
of shareholders submitted to American Value pursuant to paragraph 3.4;
(j) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of Capital Appreciation, and subject to the approval of Capital
Appreciation's shareholders, this Agreement constitutes a valid and
binding obligation of Capital Appreciation, enforceable in accordance with
its terms, subject as to enforcement to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting
creditors rights and to general equity principles. No other consents,
authorizations or approvals are necessary in connection with Capital
Appreciation's performance of this Agreement;
(k) All material Federal and other tax returns and reports of Capital
Appreciation required by law to be filed on or before the Closing Date
shall have been filed and are correct and all Federal and other taxes
shown as due or required to be shown as due on said returns and reports
have been paid or provision has been made for the payment thereof, and to
the best of Capital Appreciation's knowledge, no such return is currently
under audit and no assessment has been asserted with respect to any such
return;
(l) For each taxable year since its inception, Capital Appreciation has
met all the requirements of Subchapter M of the Code for qualification and
treatment as a "regulated investment company" and neither the execution or
delivery of nor the performance of its obligations under this Agreement
will adversely affect, and no other events are reasonably likely to occur
which will adversely affect the ability of Capital Appreciation to
continue to meet the requirements of Subchapter M of the Code;
(m) At the Closing Date, Capital Appreciation will have good and valid
title to the Capital Appreciation Assets, subject to no liens (other than
the obligation, if any, to pay the purchase price of portfolio securities
purchased by Capital Appreciation which have not settled prior to the
Closing Date), security interests or other encumbrances, and full right,
power and authority to assign, deliver and otherwise transfer such assets
hereunder, and upon delivery and payment for such assets, American Value
will acquire good and marketable title thereto, subject to no restrictions
on the full transfer thereof, including any restrictions as might arise
under the 1933 Act;
(n) On the effective date of the Registration Statement, at the time of
the meeting of Capital Appreciation's shareholders and on the Closing
Date, the Proxy Materials (exclusive of the currently
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effective American Value Prospectus contained therein) will (i) comply in
all material respects with the provisions of the 1933 Act, the Securities
Exchange Act of 1934, as amended ("1934 Act") and the 1940 Act and the
regulations thereunder and (ii) not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. Any
other information furnished by Capital Appreciation for use in the
Registration Statement or in any other manner that may be necessary in
connection with the transactions contemplated hereby shall be accurate and
complete and shall comply in all material respects with applicable Federal
securities and other laws and regulations thereunder;
(o) Capital Appreciation will, on or prior to the Valuation Date, declare
one or more dividends or other distributions to shareholders that,
together with all previous dividends and other distributions to
shareholders, shall have the effect of distributing to the shareholders
all of its investment company taxable income and net capital gain, if any,
through the Valuation Date (computed without regard to any deduction for
dividends paid);
(p) Capital Appreciation has maintained or has caused to be maintained on
its behalf all books and accounts as required of a registered investment
company in compliance with the requirements of Section 31 of the 1940 Act
and the Rules thereunder; and
(q) Capital Appreciation is not acquiring American Value Shares to be
issued hereunder for the purpose of making any distribution thereof other
than in accordance with the terms of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF CAPITAL APPRECIATION
The obligations of Capital Appreciation to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
American Value of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of American Value contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
by this Agreement, as of the Closing Date with the same force and effect as
if made on and as of the Closing Date;
6.2 American Value shall have delivered to Capital Appreciation a
certificate of its President and Treasurer, in a form reasonably satisfactory
to Capital Appreciation and dated as of the Closing Date, to the effect that
the representations and warranties of American Value made in this Agreement
are true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and as to such
other matters as Capital Appreciation shall reasonably request;
6.3 Capital Appreciation shall have received a favorable opinion from
Gordon Altman Butowsky Weitzen Shalov & Wein, counsel to American Value,
dated as of the Closing Date, to the effect that:
(a) American Value is a validly existing Massachusetts business trust,
and has the power to own all of its properties and assets and to carry on
its business as presently conducted (Massachusetts counsel may be relied
upon in delivering such opinion); (b) American Value is a duly registered,
open-end, management investment company, and its registration with the
Commission as an investment company under the 1940 Act is in full force
and effect; (c) this Agreement has been duly authorized, executed and
delivered by American Value and, assuming that the Registration Statement
complies with the 1933 Act, the 1934 Act and the 1940 Act and regulations
thereunder and assuming due authorization, execution and delivery of this
Agreement by Capital Appreciation, is a valid and binding obligation of
American Value enforceable against American Value in accordance with its
terms, subject as to enforcement, to bankruptcy, insolvency,
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reorganization, moratorium and other laws relating to or affecting
creditors rights and to general equity principles; (d) American Value
Shares to be issued to Capital Appreciation Shareholders as provided by
this Agreement are duly authorized and upon such delivery will be validly
issued, fully paid and non-assessable (except as set forth under the
caption "Additional Information" in American Value's Prospectus), and no
shareholder of American Value has any preemptive rights to subscription or
purchase in respect thereof (Massachusetts counsel may be relied upon in
delivering such opinion); (e) the execution and delivery of this Agreement
did not, and the consummation of the transactions contemplated hereby will
not, violate American Value's Declaration of Trust or By-Laws; and (f) to
the knowledge of such counsel, no consent, approval, authorization or
order of any court or governmental authority of the United States or any
state is required for the consummation by American Value of the
transactions contemplated herein, except such as have been obtained under
the 1933 Act, the 1934 Act and the 1940 Act and such as may be required
under state securities laws; and
6.4 As of the Closing Date, there shall have been no material change in
the investment objective, policies and restrictions nor any increase in the
investment management fees or annual fees pursuant to American Value's 12b-1
plan of distribution from those described in American Value's Prospectus
dated May 1, 1998, As Revised, August 21, 1998 and Statement of Additional
Information dated May 1, 1998.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF AMERICAN VALUE
The obligations of American Value to complete the transactions provided
for herein shall be subject, at its election, to the performance by Capital
Appreciation of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of Capital Appreciation contained
in this Agreement shall be true and correct in all material respects as of
the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force
and effect as if made on and as of the Closing Date;
7.2 Capital Appreciation shall have delivered to American Value at the
Closing a certificate of its President and its Treasurer, in form and
substance satisfactory to American Value and dated as of the Closing Date, to
the effect that the representations and warranties of Capital Appreciation
made in this Agreement are true and correct at and as of the Closing Date,
except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as American Value shall reasonably
request;
7.3 Capital Appreciation shall have delivered to American Value a
statement of the Capital Appreciation Assets and its liabilities, together
with a list of Capital Appreciation's portfolio securities and other assets
showing the respective adjusted bases and holding periods thereof for income
tax purposes, as of the Closing Date, certified by the Treasurer of Capital
Appreciation;
7.4 Capital Appreciation shall have delivered to American Value within
three business days after the Closing a letter from PricewaterhouseCoopers
LLP dated as of the Closing Date stating that (a) such firm has performed a
limited review of the Federal and state income tax returns of Capital
Appreciation for each of the last three taxable years and, based on such
limited review, nothing came to their attention that caused them to believe
that such returns did not properly reflect, in all material respects, the
Federal and state income tax liabilities of Capital Appreciation for the
periods covered thereby, (b) for the period from November 30, 1997 to and
including the Closing Date, such firm has performed a limited review (based
on unaudited financial data) to ascertain the amount of applicable Federal,
state and local taxes and has determined that same either have been paid or
reserves have been established for payment of such taxes, and, based on such
limited review, nothing came to their attention that caused them to believe
that the taxes paid or reserves set aside for payment
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of such taxes were not adequate in all material respects for the satisfaction
of all Federal, state and local tax liabilities for the period from November
30, 1997 to and including the Closing Date and (c) based on such limited
reviews, nothing came to their attention that caused them to believe that
Capital Appreciation would not qualify as a regulated investment company for
Federal income tax purposes for any such year or period;
7.5 American Value shall have received at the Closing a favorable opinion
from Gordon Altman Butowsky Weitzen Shalov & Wein, counsel to Capital
Appreciation, dated as of the Closing Date to the effect that:
(a) Capital Appreciation is a validly existing Massachusetts business
trust and has the power to own all of its properties and assets and to
carry on its business as presently conducted (Massachusetts counsel may be
relied upon in delivering such opinion); (b) Capital Appreciation is a
duly registered, open-end, management investment company under the 1940
Act, and its registration with the Commission as an investment company
under the 1940 Act is in full force and effect; (c) this Agreement has
been duly authorized, executed and delivered by Capital Appreciation and,
assuming that the Registration Statement complies with the 1933 Act, the
1934 Act and the 1940 Act and the regulations thereunder and assuming due
authorization, execution and delivery of this Agreement by American Value,
is a valid and binding obligation of Capital Appreciation enforceable
against Capital Appreciation in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors rights and to general equity
principles; (d) the execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not, violate
Capital Appreciation's Declaration of Trust or By-Laws; and (e) to the
knowledge of such counsel, no consent, approval, authorization or order of
any court or governmental authority of the United States or any state is
required for the consummation by Capital Appreciation of the transactions
contemplated herein, except such as have been obtained under the 1933 Act,
the 1934 Act and the 1940 Act and such as may be required under state
securities laws; and
7.6 On the Closing Date, the Capital Appreciation Assets shall include no
assets that American Value, by reason of limitations of the fund's
Declaration of Trust or otherwise, may not properly acquire.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF AMERICAN VALUE
AND CAPITAL APPRECIATION
The obligations of Capital Appreciation and American Value hereunder are
each subject to the further conditions that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares
of Capital Appreciation in accordance with the provisions of Capital
Appreciation's Declaration of Trust, and certified copies of the resolutions
evidencing such approval shall have been delivered to American Value;
8.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities (including those
of the Commission and of state Blue Sky and securities authorities, including
"no-action" positions of and exemptive orders from such Federal and state
authorities) deemed necessary by American Value or Capital Appreciation to
permit consummation, in all material respects, of the transactions
contemplated herein shall have been obtained, except where failure to obtain
any such consent, order or permit would not involve risk of a material
adverse effect on the assets or properties of American Value or Capital
Appreciation;
A-11
<PAGE>
8.4 The Registration Statement shall have become effective under the 1933
Act, no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act;
8.5 Capital Appreciation shall have declared and paid a dividend or
dividends and/or other distribution or distributions that, together with all
previous such dividends or distributions, shall have the effect of
distributing to the Capital Appreciation Shareholders all of Capital
Appreciation's investment company taxable income (computed without regard to
any deduction for dividends paid) and all of its net capital gain (after
reduction for any capital loss carry-forward and computed without regard to
any deduction for dividends paid) for all taxable years ending on or before
the Closing Date; and
8.6 The parties shall have received a favorable opinion of the law firm of
Gordon Altman Butowsky Weitzen Shalov & Wein (based on such representations
as such law firm shall reasonably request), addressed to American Value and
Capital Appreciation, which opinion may be relied upon by the shareholders of
Capital Appreciation, substantially to the effect that, for Federal income
tax purposes:
(a) The transfer of substantially all of Capital Appreciation's assets in
exchange for American Value Shares and the assumption by American Value of
certain stated liabilities of Capital Appreciation followed by the
distribution by Capital Appreciation of American Value Shares to the
Capital Appreciation Shareholders in exchange for their Capital
Appreciation shares will constitute a "reorganization" within the meaning
of Section 368(a)(1)(C) of the Code, and Capital Appreciation and American
Value will each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code;
(b) No gain or loss will be recognized by American Value upon the receipt
of the assets of Capital Appreciation solely in exchange for American
Value Shares and the assumption by American Value of the stated
liabilities of Capital Appreciation;
(c) No gain or loss will be recognized by Capital Appreciation upon the
transfer of the assets of Capital Appreciation to American Value in
exchange for American Value Shares and the assumption by American Value of
the stated liabilities or upon the distribution of American Value Shares
to the Capital Appreciation Shareholders in exchange for their Capital
Appreciation shares;
(d) No gain or loss will be recognized by the Capital Appreciation
Shareholders upon the exchange of the Capital Appreciation shares for
American Value Shares;
(e) The aggregate tax basis for American Value Shares received by each
Capital Appreciation Shareholder pursuant to the reorganization will be
the same as the aggregate tax basis of the Capital Appreciation Shares
held by each such Capital Appreciation Shareholder immediately prior to
the Reorganization;
(f) The holding period of American Value Shares to be received by each
Capital Appreciation Shareholder will include the period during which the
Capital Appreciation Shares surrendered in exchange therefor were held
(provided such Capital Appreciation Shares were held as capital assets on
the date of the Reorganization);
(g) The tax basis of the assets of Capital Appreciation acquired by
American Value will be the same as the tax basis of such assets to Capital
Appreciation immediately prior to the Reorganization; and
(h) The holding period of the assets of Capital Appreciation in the hands
of American Value will include the period during which those assets were
held by Capital Appreciation.
A-12
<PAGE>
Notwithstanding anything herein to the contrary, neither American Value
nor Capital Appreciation may waive the conditions set forth in this paragraph
8.6.
9. FEES AND EXPENSES
9.1 (a) American Value shall bear its expenses incurred in connection with
the entering into, and carrying out of, the provisions of this Agreement,
including legal, accounting, Commission registration fees and Blue Sky
expenses. Capital Appreciation shall bear its expenses incurred in connection
with the entering into and carrying out of the provisions of this Agreement,
including legal and accounting fees, printing, filing and proxy solicitation
expenses and portfolio transfer taxes (if any) incurred in connection with
the consummation of the transactions contemplated herein.
(b) In the event the transactions contemplated herein are not consummated
by reason of Capital Appreciation being either unwilling or unable to go
forward (other than by reason of the nonfulfillment or failure of any
condition to Capital Appreciation's obligations specified in this Agreement),
Capital Appreciation's only obligation hereunder shall be to reimburse
American Value for all reasonable out-of-pocket fees and expenses incurred by
American Value in connection with those transactions.
(c) In the event the transactions contemplated herein are not consummated
by reason of American Value being either unwilling or unable to go forward
(other than by reason of the nonfulfillment or failure of any condition to
American Value's obligations specified in this Agreement), American Value's
only obligation hereunder shall be to reimburse Capital Appreciation for all
reasonable out-of-pocket fees and expenses incurred by Capital Appreciation
in connection with those transactions.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
herein, except that the representations, warranties and covenants of Capital
Appreciation hereunder shall not survive the dissolution and complete
liquidation of Capital Appreciation in accordance with Section 1.9.
11. TERMINATION
11.1 This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:
(a) by the mutual written consent of Capital Appreciation and American
Value;
(b) by either American Value or Capital Appreciation by notice to the
other, without liability to the terminating party on account of such
termination (providing the terminating party is not otherwise in material
default or breach of this Agreement) if the Closing shall not have
occurred on or before May 31, 1999; or
(c) by either American Value or Capital Appreciation, in writing without
liability to the terminating party on account of such termination
(provided the terminating party is not otherwise in material default or
breach of this Agreement), if (i) the other party shall fail to perform in
any material respect its agreements contained herein required to be
performed on or prior to the Closing Date, (ii) the other party materially
breaches any of its representations, warranties or covenants contained
herein, (iii) the Capital
A-13
<PAGE>
Appreciation shareholders fail to approve this Agreement at any meeting
called for such purpose at which a quorum was present or (iv) any other
condition herein expressed to be precedent to the obligations of the
terminating party has not been met and it reasonably appears that it will
not or cannot be met.
11.2 (a) Termination of this Agreement pursuant to paragraphs 11.1 (a) or
(b) shall terminate all obligations of the parties hereunder and there shall
be no liability for damages on the part of American Value or Capital
Appreciation, or the trustees or officers of American Value or Capital
Appreciation, to any other party or its trustees or officers.
(b) Termination of this Agreement pursuant to paragraph 11.1 (c) shall
terminate all obligations of the parties hereunder and there shall be no
liability for damages on the part of American Value or Capital
Appreciation, or the trustees or officers of American Value or Capital
Appreciation, except that any party in breach of this Agreement shall,
upon demand, reimburse the non-breaching party for all reasonable
out-of-pocket fees and expenses incurred in connection with the
transactions contemplated by this Agreement, including legal, accounting
and filing fees.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the parties.
13. MISCELLANEOUS
13.1 The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by
any party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or give
any person, firm or corporation, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or by reason
of this Agreement.
13.5 The obligations and liabilities of American Value hereunder are
solely those of American Value. It is expressly agreed that no shareholder,
nominee, trustee, officer, agent, or employee of American Value shall be
personally liable hereunder. The execution and delivery of this Agreement
have been authorized by the trustees of American Value and signed by
authorized officers of American Value acting as such, and neither such
authorization by such trustees nor such execution and delivery by such
officers shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally.
13.6 The obligations and liabilities of Capital Appreciation hereunder are
solely those of Capital Appreciation. It is expressly agreed that no
shareholder, nominee, trustee, officer, agent, or employee of Capital
Appreciation shall be personally liable hereunder. The execution and delivery
of this Agreement have been authorized by the trustees of Capital
Appreciation and signed by authorized officers of Capital Appreciation acting
as such, and neither such authorization by such trustees nor such execution
and delivery by such officers shall be deemed to have been made by any of
them individually or to impose any liability on any of them personally.
A-14
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by a duly authorized officer.
MORGAN STANLEY DEAN WITTER CAPITAL
APPRECIATION FUND
By: /s/ CHARLES A. FIUMEFREDDO
-------------------------------------
Name: Charles A. Fiumefreddo
Title: President
MORGAN STANLEY DEAN WITTER AMERICAN
VALUE FUND
By: /s/ BARRY FINK
-------------------------------------
Name: Barry Fink
Title: Vice President
A-15
<PAGE>
EXHIBIT B
DEAN WITTER
TAX-FREE DAILY
PROSPECTUS -- MAY 1, 1998, AS REVISED AUGUST 21, 1998
- ------------------------------------------------------------------------------
Morgan Stanley Dean Witter American Value Fund (the "Fund") is an open-end
diversified management investment company whose investment objective is
long-term capital growth consistent with an effort to reduce volatility. The
Fund invests principally in common stock of companies in industries which, at
the time of the investment, are believed to be attractively valued given
their above average relative earnings growth potential at that time. (See
"Investment Objective and Policies.")
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 May 1, 1998, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page.
The Statement of Additional Information is incorporated herein by reference.
MORGAN STANLEY DEAN WITTER
AMERICAN VALUE FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK
10048 (212) 392-2550 OR (800) 869-NEWS (TOLL-FREE)
TABLE OF CONTENTS
Prospectus Summary..................................................... 2
Summary of Fund Expenses............................................... 4
Financial Highlights................................................... 6
The Fund and its Management............................................ 9
Investment Objective and Policies...................................... 10
Risk Considerations................................................... 14
Investment Restrictions................................................ 17
Purchase of Fund Shares................................................ 18
Shareholder Services................................................... 29
Redemptions and Repurchases............................................ 32
Dividends, Distributions and Taxes..................................... 33
Performance Information................................................ 34
Additional Information................................................. 35
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Morgan Stanley Dean Witter
Distributors Inc.,
Distributor
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
PROSPECTUS SUMMARY
- ----------------------------------------------------------------------------------------
THE The Fund, a Massachusetts business trust, is an open-end
FUND diversified management investment company investing principally in
industries which, at the time of investment, are believed to be
attractively valued given their above average relative earnings
growth potential at that time (see page 9).
- ----------------------------------------------------------------------------------------
SHARES OFFERED Shares of beneficial interest with $0.01 par value (see page 35).
The Fund offers four Classes of shares, each with a different
combination of sales charges, ongoing fees and other features (see
pages 18-28).
- ----------------------------------------------------------------------------------------
MINIMUM The minimum initial investment for each Class is $1,000 ($100 if
PURCHASE the account is opened through EasyInvest (Service Mark) ). Class D
shares are only available to persons investing $5 million ($25
million for certain qualified plans) or more and to certain other
limited categories of investors. For the purpose of meeting the
minimum $5 million (or $25 million) investment for Class D shares,
and subject to the $1,000 minimum initial investment for each
Class of the Fund, an investor's existing holdings of Class A
shares and shares of funds for which Morgan Stanley Dean Witter
Advisors Inc. serves as investment manager ("Morgan Stanley Dean
Witter Funds") that are sold with a front-end sales charge, and
concurrent investments in Class D shares of the Fund and other
Morgan Stanley Dean Witter Funds that are multiple class funds,
will be aggregated. The minimum subsequent investment is $100 (see
page 18).
- ----------------------------------------------------------------------------------------
INVESTMENT The investment objective of the Fund is capital growth consistent
OBJECTIVE with an effort to reduce volatility.
- ----------------------------------------------------------------------------------------
INVESTMENT Morgan Stanley Dean Witter Advisors Inc., the Investment Manager
MANAGER of the Fund, and its wholly-owned subsidiary, Morgan Stanley Dean
Witter Services Company Inc., serve in various investment
management, advisory, management and administrative capacities to
102 investment companies and other portfolios with assets of
approximately $115.9 billion at July 31, 1998 (see page 9).
- ----------------------------------------------------------------------------------------
MANAGEMENT The Investment Manager receives a monthly fee at an annual rate of
FEE 0.625 of 1% of daily net assets up to $250 million in net assets;
0.50 of 1% of daily net assets over $250 million but not exceeding
$2.5 billion; 0.475 of 1% of daily net assets exceeding $2.5
billion but not exceeding $3.5 billion; 0.45 of 1% of daily net
assets exceeding $3.5 billion but not exceeding $4.5 billion; and
0.425 of 1% of the daily net assets exceeding $4.5 billion (see
page 9).
- ----------------------------------------------------------------------------------------
DISTRIBUTOR AND Morgan Stanley Dean Witter Distributors Inc. is the Distributor of
DISTRIBUTION FEE the Fund's shares. The Fund has adopted a distribution plan
pursuant to Rule 12b-1 under the Investment Company 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 18 and 27).
- ----------------------------------------------------------------------------------------
ALTERNATIVE Four classes of shares are offered:
PURCHASE
ARRANGEMENTS o Class A shares are offered with a front-end sales charge,
starting at 5.25% and reduced for larger purchases. Investments of
$1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charge at the
time of purchase but a contingent deferred sales charge ("CDSC") of
1.0% may be imposed on redemptions within one year of purchase. The
Fund is authorized to reimburse the Distributor for specific
expenses incurred in promoting the distribution of the Fund's Class
A shares and servicing shareholder accounts pursuant to the Fund's
12b-1 Plan. Reimbursement may in no event exceed an amount equal to
payments at an annual rate of 0.25% of average daily net assets of
the Class (see pages 18, 21 and 27).
- ----------------------------------------------------------------------------------------
2
<PAGE>
- ----------------------------------------------------------------------------------------
o Class B shares are offered without a front-end sales charge, but
will in most cases be subject to a CDSC (scaled down from 5.0% to
1.0%) if redeemed within six years after purchase. The CDSC will
be imposed on any redemption of shares if after such redemption
the aggregate current value of a Class B account with the Fund
falls below the aggregate amount of the investor's purchase
payments made during the six years preceding the redemption. A
different CDSC schedule applies to investments by certain
qualified plans. Class B shares are also subject to a 12b-1 fee
assessed at the annual rate of 1.0% of the lesser of: (a) the
average daily aggregate net sales of the Fund's Class B shares
since implementation of the 12b-1 Plan on April 30, 1984 or (b)
the average daily net assets of Class B attributable to shares
issued since implementation of the 12b-1 Plan. All shares of the
Fund held prior to July 28, 1997, other than shares which were
purchased prior to April 30, 1984 (and, with respect to such
shares, certain shares acquired through reinvestment of dividends
and capital gains distributions), have been designated Class B
shares. Shares which were purchased prior to April 30, 1984 (and,
with respect to such shares, certain shares acquired through
reinvestment of dividends and capital gains distributions) have
been designated Class D shares. Shares held before May 1, 1997
that have been designated Class B shares will convert to Class A
shares in May, 2007. In all other instances, Class B shares
convert to Class A shares approximately ten years after the date
of the original purchase (see pages 18, 24 and 27).
o 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 18, 26 and 27).
o Class D shares are offered only to investors meeting an initial
investment minimum of $5 million ($25 million for certain qualified
plans) and to certain other limited categories of investors. Class
D shares are offered without a front-end sales charge or CDSC and
are not subject to any 12b-1 fee (see pages 18, 26 and 27).
- ----------------------------------------------------------------------------------------
DIVIDENDS AND It is anticipated that distributions of income and net short-term
CAPITAL GAINS capital gains, if any, will be made semi-annually. Net long-term
DISTRIBUTIONS capital gains, if any, are distributed at least annually. The Fund
may, however, determine to retain all or part of any net long-term
capital gains in any year for reinvestment. Dividends and capital
gains distributions paid on shares of a Class are automatically
reinvested in additional shares of the same Class at net asset
value unless the shareholder elects to receive cash. Shares
acquired by dividend and distribution reinvestment will not be
subject to any sales charge or CDSC (see pages 29 and 33).
- ----------------------------------------------------------------------------------------
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 (Service Mark), if after twelve months the shareholder
has invested less than $1,000 in the account (see page 32).
- ----------------------------------------------------------------------------------------
RISKS The net asset value of the Fund's shares will fluctuate with
changes in the market value of its portfolio securities. Emphasis
on attractive industries may run contrary to general market
assessments and may involve risks associated with departure from
typical S&P 500 industry weightings. It should be recognized that
the Fund's investments in small and medium-capitalization
companies involve greater risk than is customarily associated with
investing in larger, more established companies. The Fund may
invest in the securities of foreign issuers which entails
additional risks.The Fund may also invest in futures and options
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
14-16).
- ----------------------------------------------------------------------------------------
</TABLE>
The above is qualified in its entirety by the detailed information appearing
elsewhere in the Prospectus and in the Statement of Additional Information.
3
<PAGE>
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 expenses and fees for the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
- --------------------------------
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 .................................... 0.50% 0.50% 0.50% 0.50%
12b-1 Fees (5)(6)................................... 0.25% 0.83% 1.00% None
Other Expenses ..................................... 0.13% 0.13% 0.13% 0.13%
Total Fund Operating Expenses (7)................... 0.88% 1.46% 1.63% 0.63%
</TABLE>
- ------------
(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 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) There were no outstanding shares of Class A, Class C or Class D prior
to July 28, 1997. Accordingly, "Total Fund Operating Expenses," as
shown above with respect to those Classes, are estimates based upon the
sum of 12b-1 Fees, Management Fees and estimated "Other Expenses."
4
<PAGE>
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXAMPLES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) a 5% annual return and (2) redemption at the end
of each time period:
Class A ...................................................... $61 $79 $ 99 $155
Class B ...................................................... $65 $76 $100 $175
Class C....................................................... $27 $51 $ 89 $193
Class D ...................................................... $ 6 $20 $ 35 $ 79
You would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A ...................................................... $61 $79 $ 99 $155
Class B ...................................................... $15 $46 $ 80 $175
Class C ...................................................... $17 $51 $ 89 $193
Class D ...................................................... $ 6 $20 $ 35 $ 79
</TABLE>
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
"The Fund and its Management," "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.
5
<PAGE>
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------
The following per share data and ratios for a share of beneficial interest
outstanding throughout each period have been audited by
PricewaterhouseCoopers LLP, independent accountants. The financial highlights
should be read in conjunction with the financial statements and notes thereto
and the unqualified report of the independent accountants which are contained
in the Statement of Additional Information. Further information about the
performance of the Fund is contained in the Fund's Annual Report to
Shareholders, which may be obtained without charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
1997*++ 1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period ................ $27.01 $27.16 $21.21 $23.10
------ ------ ------ ------
Net investment income
(loss) ................... (0.10) (0.08) 0.01 --
Net realized and
unrealized gain (loss) .. 8.34 2.86 8.87 (1.57)
------ ------ ------ ------
Total from investment
operations ............... 8.24 2.78 8.88 (1.57)
------ ------ ------ ------
Less dividends and
distributions from:
Net investment income .... -- (0.01) -- --
Net realized gain ........ (5.74) (2.92) (2.93) (0.32)
Paid-in-capital .......... -- -- -- --
------ ------ ------ ------
Total dividends and
distributions ............ (5.74) (2.93) (2.93) (0.32)
------ ------ ------ ------
Net asset value, end of
period ................... $29.51 $27.01 $27.16 $21.21
====== ====== ====== ======
TOTAL INVESTMENT RETURN+ . 31.55% 10.53% 42.20% (6.75)%
RATIOS TO AVERAGE NET
ASSETS:
Expenses................... 1.46% 1.53% 1.61% 1.71%
Net investment income
(loss) ................... (0.34)% (0.33)% 0.06% 0.01%
SUPPLEMENTAL DATA:
Net assets, end of period,
in millions............... $4,078 $3,099 $2,389 $1,490
Portfolio turnover rate .. 275% 279% 256% 295%
Average commission rate
paid ..................... $0.0563 $0.0590 -- --
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period ................ $20.93 $20.66 $14.39 $14.81 $13.19 $12.21
------ ------ ------ ------ ------ ------
Net investment income
(loss) ................... (0.09) 0.03 0.05 0.24 0.34 0.29
Net realized and
unrealized gain (loss) .. 3.94 0.71 7.90 (0.38) 2.99 1.03
------ ------ ------ ------ ------ ------
Total from investment
operations ............... 3.85 0.74 7.95 (0.14) 3.33 1.32
------ ------ ------ ------ ------ ------
Less dividends and
distributions from:
Net investment income .... (0.01) (0.03) (0.03) (0.28) (0.32) (0.33)
Net realized gain ........ (1.67) (0.44) (1.65) -- (1.39) --
Paid-in-capital .......... -- -- -- -- -- (0.01)
------ ------ ------ ------ ------ ------
Total dividends and
distributions ............ (1.68) (0.47) (1.68) (0.28) (1.71) (0.34)
------ ------ ------ ------ ------ ------
Net asset value, end of
period ................... $23.10 $20.93 $20.66 $14.39 $14.81 $13.19
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN+ . 18.70% 3.84% 56.26% (0.90)% 25.39% 10.84%
RATIOS TO AVERAGE NET
ASSETS:
Expenses................... 1.61% 1.72% 1.58% 1.70% 1.66% 1.78%
Net investment income
(loss) ................... (0.59)% 0.18% 0.29% 1.67% 2.23% 2.15%
SUPPLEMENTAL DATA:
Net assets, end of period,
in millions............... $1,218 $459 $227 $89 $100 $90
Portfolio turnover rate .. 276% 305% 264% 234% 196% 133%
Average commission rate
paid ..................... -- -- -- -- -- --
</TABLE>
- ------------
* Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date, other than shares
which were purchased prior to April 30, 1984 (and with respect to such
shares, certain shares acquired through reinvestment of
dividends and capital gains distributions (collectively the "Old
Shares")), have been designated Class B shares. The Old
Shares have been designated Class D shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
6
<PAGE>
FINANCIAL HIGHLIGHTS, continued
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
DECEMBER 31,
1997++
- --------------------------------------------------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $31.87
------
Net investment income ..................... 0.05
Net realized and unrealized gain .......... 2.32
------
Total from investment operations .......... 2.37
------
Less distributions from net realized gain (4.65)
------
Net asset value, end of period ............ $29.59
======
TOTAL INVESTMENT RETURN+ .................. 7.70%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 0.92%(2)
Net investment income ..................... 0.38%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $15,844
Portfolio turnover rate ................... 275%
Average commission rate paid .............. $0.0563
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $31.87
------
Net investment loss ....................... (0.05)
Net realized and unrealized gain .......... 2.32
------
Total from investment operations .......... 2.27
------
Less distributions from net realized gain . (4.65)
------
Net asset value, end of period ............ $29.49
======
TOTAL INVESTMENT RETURN+ .................. 7.39%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 1.66%(2)
Net investment loss ....................... (0.36)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $12,204
Portfolio turnover rate ................... 275%
Average commission rate paid .............. $0.0563
</TABLE>
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
7
<PAGE>
FINANCIAL HIGHLIGHTS, continued
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
DECEMBER 31,
1997++
- --------------------------------------------------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $31.87
------
Net investment income ..................... 0.07
Net realized and unrealized gain .......... 2.34
------
Total from investment operations .......... 2.41
------
Less distributions from net realized gain (4.65)
------
Net asset value, end of period ............ $29.63
======
TOTAL INVESTMENT RETURN+ .................. 7.83%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 0.64%(2)
Net investment income ..................... 0.50%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $49,772
Portfolio turnover rate ................... 275%
Average commission rate paid .............. $0.0563
</TABLE>
- ------------
* The date shares were first issued. Shareholders who held shares of the
Fund prior to July 28, 1997 (the date the Fund converted
to a multiple class share structure) should refer to the Financial
Highlights of Class B to obtain the historical per share data and ratio
information of their shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
8
<PAGE>
THE FUND AND ITS MANAGEMENT
- -----------------------------------------------------------------------------
Morgan Stanley Dean Witter American Value Fund (the "Fund") (formerly
named Dean Witter American Value Fund) is an open-end diversified management
investment company incorporated in Maryland on December 13, 1979. The Fund
was reorganized as a trust of the type commonly known as a "Massachusetts
business trust" on April 30, 1987, at which time its name was changed from
Dean Witter Industry-Valued Securities Inc. to Dean Witter American Value
Fund.
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 is a
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. a preeminent
global financial services firm that maintains leading market positions in
each of its three primary businesses -securities, asset management and
credit services. The Investment Manager, which was incorporated in July, 1992
under the name Dean Witter InterCapital Inc., changed its name to Morgan
Stanley Dean Witter Advisors Inc. on June 22, 1998.
MSDW Advisors and its wholly-owned subsidiary, Morgan Stanley Dean Witter
Services Company, Inc. ("MSDW Services"), serve in various investment
management, advisory, management and administrative capacities to a total of
102 investment companies, 28 of which are listed on the New York Stock
Exchange, with combined total assets of approximately $111.6 billion as of
July 31, 1998. The Investment Manager also manages portfolios of pension
plans, other institutions and individuals which aggregated approximately $4.3
billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of
portfolio securities. MSDW Advisors has retained MSDW Services to perform the
aforementioned administrative services for the Fund.
The Fund's Board of Trustees reviews the various services provided by or
under the direction of the Investment Manager to ensure that the Fund's
general investment policies and programs are being properly carried out and
that administrative services are being provided in a satisfactory manner.
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
following annual rates to the net assets of the Fund determined as of the
close of each business day: 0.625% of the portion of daily net assets not
exceeding $250 million; 0.50% of the portion of daily net assets exceeding
$250 million but not exceeding $2.5 billion; 0.475% of the portion of daily
net assets exceeding $2.5 billion but not exceeding $3.5 billion; 0.45% of
the portion of daily net assets exceeding $3.5 billion but not exceeding $4.5
billion; and 0.425% of the portion of daily net assets exceeding $4.5
billion. For the fiscal year ended December 31, 1997, the Fund accrued total
compensation to the Investment Manager amounting to 0.50% of the Fund's
average daily net assets and the total expenses of Class B amounted to 1.46%
of the Fund's average daily net assets of Class B. Shares of Class A, Class C
and Class D were first issued on July 28, 1997. The expenses of the Fund
include: the fee of the Investment Manager; the fee pursuant to the Plan of
Distribution (see "Purchase of Fund Shares"); taxes, transfer agent,
custodian and auditing fees; 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.
9
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- -----------------------------------------------------------------------------
The investment objective of the Fund is long-term capital growth
consistent with an effort to reduce volatility. There is no assurance that
the Fund's objective will be achieved. The investment objective may not be
changed without the approval of the shareholders of the Fund. The investment
policies discussed below may be changed without shareholder approval.
The Fund seeks to achieve its investment objective by investing in a
diversified portfolio of securities consisting principally of common stocks.
The Fund utilizes an investment process that places primary emphasis on
seeking to identify industries, rather than individual companies, as
prospects for capital appreciation. The Investment Manager seeks to invest
the assets of the Fund in those industries that, at the time of investment,
are attractively valued given their above average relative earnings growth
potential at that time. Therefore, the Fund is typically over-weighted in
those sectors deemed to be attractive given their potential for above average
earnings growth.
After selection of the Fund's target industries, specific company
investments are selected. In this process, the Investment Manager seeks to
identify companies whose prospects are deemed attractive on the basis of an
evaluation of valuation screens and prospective company fundamentals.
The Investment Manager seeks to identify what stage of the business cycle
the economy is in and which industry groups have historically outperformed
the overall market during that stage of the cycle, i.e., typically, groups
that tend to have the highest relative earnings growth at that point in the
cycle. The Investment Manager also analyzes secular trends such as
demographics, international trade, etc., that could cause the current cycle
to differ from prior cycles and attempts to weight the portfolio
appropriately, given those factors.
Following selection of the Fund's specific investments, the Investment
Manager will attempt to allocate the assets of the Fund so as to reduce the
volatility of its portfolio. In doing so, the Fund may hold a portion of its
portfolio in fixed-income securities (including zero coupon securities) in an
effort to moderate extremes of price fluctuations. The Fund may invest up to
35% of its portfolio in common stocks of non-U.S. companies, including
American Depository Receipts (which are custody receipts with respect to
foreign securities), in companies in industries which have not been
determined to be attractively valued or moderately attractively valued by the
Investment Manager, and in convertible debt securities and warrants,
convertible preferred securities, U.S. Government securities (securities
issued or guaranteed as to principal and interest by the United States or its
agencies and instrumentalities) and investment grade corporate debt
securities when, in the opinion of the Investment Manager, the projected
total return on such securities is equal to or greater than the expected
total return on common stocks, or when such holdings might be expected to
reduce the volatility of the portfolio, and in money market instruments under
any one or more of the following circumstances: (i) pending investment of
proceeds of the sale of Fund shares or of portfolio securities; (ii) pending
settlement of purchases of portfolio securities; or (iii) to maintain
liquidity for the purpose of meeting anticipated redemptions. Greater than
35% of the Fund's total assets may be invested in money market instruments to
maintain, temporarily, a "defensive" posture when, in the opinion of the
Investment Manager, it is advisable to do so because of economic or market
conditions.
Because prices of stocks fluctuate from day to day, the value of an
investment in the Fund will vary based upon the Fund's investment
performance. The Fund is intended for long-term investors who can accept the
risks involved in seeking long-term growth of capital through investment in
the securities of large, medium and small-capitalization companies. Emphasis
on attractive industries may run contrary to general market assessments and
may involve risks associated with departure from typical S&P 500 industry
weightings. It should be recog-
10
<PAGE>
nized that investing in small and medium-capitalization companies involves
greater risk than is customarily associated with investing in more
established companies.
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). For a
discussion of the risks of investing in convertible securities, see "Risk
Considerations" below.
The Fund may purchase securities on a when-issued or delayed delivery
basis, may purchase or sell securities on a forward commitment basis and may
purchase securities on a "when, as and if issued" basis as discussed under
"Risk Considerations" below.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase and sell (write) call and put options on debt and
equity securities which are listed on Exchanges or are written in
over-the-counter transactions ("OTC Options"). Listed options, which are
currently listed on several different Exchanges, are issued by the Options
Clearing Corporation ("OCC"). Ownership of a listed call option gives the
Fund the right to buy from the OCC the underlying security covered by the
option at the stated exercise price (the price per unit of the underlying
security) 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 to the OCC the underlying security 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 to the OCC at the stated exercise price. The Fund will
not write covered options on portfolio securities exceeding in the aggregate
25% of the value of its total assets.
OTC Options. 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. The Fund will
engage in OTC option transactions only with primary U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York.
Covered Call Writing. The Fund is permitted to write covered call options
on portfolio securities in order to aid it in achieving its investment
objective. As a writer of a call option, the Fund has the obligation, upon
notice of exercise of the option, to deliver the security underlying the
option (certain listed and OTC call options written by the Fund will be
exercisable by the purchaser only on a specific date).
Covered Put Writing. As a writer of covered put options, the Fund incurs
an obligation to buy the security underlying the option from the purchaser of
the put at the option's exercise price at any time during the option period.
The Fund will write put options for two purposes: (1) to receive the premiums
paid by purchasers; and (2) when the Investment Manager wishes to purchase
the security underlying the option at a price lower than its current market
price, in which case it will write the covered put at an exercise price
reflecting the lower purchase price sought.
Purchasing Call and Put Options. The Fund may invest up to 10% of its
total assets in the purchase of put and call options on securities and stock
indexes, with a maximum of 5% of the Fund's total assets invested in stock
index options. The Fund may purchase put options on securities which it holds
(or has the right to acquire) in its portfolio
11
<PAGE>
only to protect itself against a decline in the value of the security. The
Fund may also purchase put options to close out written put positions in a
manner similar to call option closing purchase transactions. There are no
other limits on the Fund's ability to purchase call and put options.
Stock Index Options. The Fund may purchase and write options on stock
indexes for hedging purposes. Options on stock indexes are similar to options
on stock except that, rather than the right to take or make delivery of stock
at a specified price, an option on a stock index gives the holder the right
to receive, upon exercise of the option, an amount of cash if the closing
level of the stock index upon which the option is based is greater than, in
the case of a call, or less than, in the case of a put, the exercise price of
the option. See "Risks of Options on Indexes" in the Statement of Additional
Information.
Futures Contracts. The Fund may purchase and sell interest rate and stock
index futures contracts ("futures contracts") that are traded on U.S.
commodity exchanges on such underlying securities as U.S. Treasury bonds,
notes, and bills and GNMA Certificates ("interest rate" futures) and such
indexes as the S&P 500 Index and the New York Stock Exchange Composite Index
("stock index" futures) and the Moody's Investment-Grade Corporate Bond Index
("bond 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 and bond index futures contracts for the purpose of
hedging its fixed-income portfolio securities (or anticipated portfolio
securities) against changes in prevailing interest rates. The Fund will
purchase or sell stock index futures contracts for the purpose of hedging its
equity portfolio securities (or anticipated portfolio securities) against
changes in their prices.
The Fund also may purchase and write call and put options on futures
contracts and enter into closing transactions with respect to such options to
terminate an existing position.
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. Also, 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 Internal Revenue 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 Investment Manager 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, causing bond prices to rise, the Fund would incur a loss 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 and indexes subject to futures contracts (and thereby the futures
contract prices) may correlate imperfectly with the behavior of the cash
prices of the Fund's portfolio securities. See the Statement of Additional
Information for a further discussion of risks.
New futures contracts, options and other financial products and various
combinations thereof con-
12
<PAGE>
tinue to be developed. The Fund may invest in any such futures, options or
products as may be developed, to the extent consistent with its investment
objective and applicable regulatory requirements.
Investment in Real Estate Investment Trusts. The Fund may invest in real
estate investment trusts, which pool investors' funds for investments
primarily in commercial real estate properties. Investment in real estate
investment trusts may be the most practical available means for the Fund to
invest in the real estate industry (the Fund is prohibited from investing in
real estate directly). As a shareholder in a real estate investment trust,
the Fund would bear its ratable share of the real estate investment trust's
expenses, including its advisory and administration fees. At the same time
the Fund would continue to pay its own investment management fees and other
expenses, as a result of which the Fund and its shareholders in effect will
be absorbing duplicate levels of fees with respect to investments in real
estate investment trusts.
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 designed to minimize those risks.
These procedures include effecting repurchase transactions only with large,
well-capitalized and well-established financial institutions whose financial
condition will be continually monitored by the Investment Manager subject to
procedures established by the Board of Trustees of the Fund.
Private Placements. The Fund may invest up to 5% of its total 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 not readily marketable. (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.
Rule 144A under the Securities Act permits the Fund to sell restricted
securities to qualified institutional buyers without limitation. The
Investment Manager, pursuant to procedures adopted by the Trustees of the
Fund, will make a determination as to the liquidity of each restricted
security purchased by the Fund. If a restricted security is determined to be
"liquid," such security will not be included within the category "illiquid
securities," which under current policy may not exceed 15% of the Fund's net
assets. However, investing in Rule 144A securities could have the effect of
increasing the level of Fund illiquidity to the extent the Fund, at a
particular point in time, may be unable to find qualified institutional
buyers interested in purchasing such securities.
Foreign Securities. The Fund may invest up to 35% of the value of its
total assets, at the time of purchase, in securities issued by foreign
issuers. 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. Costs may be
incurred in connection with conversions between various currencies held by
the Fund. For a discussion of the risks of investing in foreign securities,
see "Risk Considerations" below.
13
<PAGE>
SPECIFIC INVESTMENT POLICIES
The Fund has adopted the following specific policies which are not
fundamental investment policies and may be changed by the Board of Trustees.
1. At least 65% of the Fund's total assets will be invested in common
stocks of U.S. companies which, at the time of purchase, were in undervalued
or moderately valued industries as determined by the Investment Manager,
except as stated in Paragraph (3) below.
2. Up to 35% of the value of the Fund's total assets may be invested in:
(a) common stocks of non-U.S. companies, or companies in non-classified
industries, including American Depository Receipts (which are custody
receipts with respect to foreign securities) (the Fund's investments in
unlisted foreign securities are deemed to be illiquid securities, which under
the Fund's current investment policies may not in the aggregate amount to
more than 15% of the Fund's net assets); (b) convertible debt securities
(bonds, debentures, corporate notes, preferred stock and other securities)
which are convertible into common stock; (c) U.S. Government securities and
investment grade corporate debt securities when, in the opinion of the
Investment Manager, the projected total return on such securities is equal to
or greater than the expected total return on equity securities, or when such
holdings might be expected to reduce the volatility of the portfolio; and (d)
money market instruments under any one or more of the following
circumstances: (i) pending investment of proceeds of sale of shares of the
Fund or of portfolio securities; (ii) pending settlement of purchases of
portfolio securities; or (iii) to maintain liquidity for the purpose of
meeting anticipated redemptions.
3. Notwithstanding any of the foregoing limitations, the Fund may invest
more than 35% of the Fund's total assets in money market instruments to
maintain, temporarily, a "defensive" posture when, in the opinion of the
Investment Manager, it is advisable to do so because of economic or market
conditions, including, for example, times during which the Investment Manager
believes the risk, or volatility, relative to expected returns of the
securities it monitors, is excessive.
The foregoing limitations apply at the time of acquisition based on the
last determined market value of the Fund's assets, and any subsequent change
in any applicable percentage resulting from market fluctuations or other
changes in total assets will not require elimination of any security from the
portfolio.
RISK CONSIDERATIONS
The net asset value of the Fund's shares will fluctuate with changes in
the market value of its portfolio securities. The market value of the Fund's
portfolio securities will increase or decrease due to a variety of economic,
market or political factors which cannot be predicted. The Fund is intended
for long-term investors who can accept the risks involved in seeking
long-term growth of capital through investment primarily in the securities of
small and medium-sized growth companies. It should be recognized that
investing in such companies involves greater risk than is customarily
associated with investing in more established companies.
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 denominated
in foreign currency. 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.
14
<PAGE>
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 Fund will incur costs in
connection with conversions between various currencies.
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. Finally, in
the event of a default of any foreign debt obligations, it may be more
difficult for the Fund to obtain or enforce a judgment against the issuers of
such securities.
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 the Fund's trades effected in
such markets. As such, the inability to dispose of portfolio securities due
to settlement delays could result in losses to the Fund due to subsequent
declines in value of such securities and the inability of the Fund to make
intended security purchases due to settlement problems could result in a
failure of the Fund to make potentially advantageous investments. Investments
in certain issuers may be speculative due to certain political risks and may
be subject to substantial price fluctuations.
Convertible Securities. To the extent that a convertible security's
investment value is greater than its conversion value, its price will be
primarily a reflection of such investment value and its price will be likely
to increase when interest rates fall and decrease when interest rates rise,
as with a fixed-income security (the credit standing of the issuer and other
factors may also have an effect on the convertible security's value). If the
conversion value exceeds the investment value, the price of the convertible
security will rise above its investment value and, in addition, the
convertible security will sell at some premium over its conversion value.
(This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security.
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
15
<PAGE>
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 the Fund's net asset
value.
Year 2000. The investment management services provided to the Fund by the
Investment Manager 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 Distributor and the Transfer Agent have
been actively working on necessary changes to 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 with a
view to achieving the Fund's investment objective. In determining which
securities to purchase for the Fund or hold in the Fund's portfolio, the
Investment Manager 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-
16
<PAGE>
dealers that are affiliates of the Investment Manager, and others regarding
economic developments and interest rate trends, and the Investment Manager's
own analysis of factors it deems relevant. No particular emphasis is given to
investments in securities for the purpose of earning current income. The
Fund's portfolio is managed within MSDW Advisors' Sector Rotation Group,
which manages 5 equity funds and fund portfolios with approximately $6.9
billion in assets as of July 31, 1998. Anita H. Kolleeny, Senior Vice
President of MSDW Advisors and head of MSDW Advisors' Sector Rotation Group,
has been the primary portfolio manager of the Fund for over five years and is
assisted by Michelle Kaufman, Vice President of MSDW Advisors. Ms. Kolleeny
has been a portfolio manager at MSDW Advisors for over five years. Ms.
Kaufman is a member of MSDW Advisors' Sector Rotation Group and, prior to
joining MSDW Advisors in September 1993, was a securities analyst with
Woodward and Associates (March-August, 1993) and JRO and Associates
(December, 1992).
Although the Fund does not engage in substantial short-term trading as a
means of achieving its investment objective, it may sell portfolio securities
without regard to the length of time they have been held, in accordance with
the investment policies described earlier. It is anticipated that, under
normal circumstances, the Fund's portfolio turnover rate will not exceed 400%
in any one year. The Fund will incur brokerage costs commensurate with its
portfolio turnover rate. Short term gains and losses may result from such
portfolio transactions. See "Dividends, Distributions and Taxes" for a
discussion of the tax implications of the Fund's trading policy. A more
extensive discussion of the Fund's portfolio brokerage policies is set forth
in the Statement of Additional Information.
Orders for transactions in portfolio securities and commodities are placed
for the Fund with a number of brokers and dealers, including Dean Witter
Reynolds Inc., Morgan Stanley & Co. Incorporated and other brokers and
dealers that are affiliates of the Investment Manager. The Fund may incur
brokerage commissions on transactions conducted through such affiliates.
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.
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 more than 5% of the value of its total assets in the securities
of any one issuer (other than obligations issued, or guaranteed by, the
United States Government, its agencies or instrumentalities).
2. Purchase more than 10% of all outstanding voting securities or any
class of securities of any one issuer.
3. Invest more than 25% of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities or to cash equivalents.
17
<PAGE>
4. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years
of continuous operation. This restriction shall not apply to any obligation
of the United States Government, its agencies or instrumentalities.
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.
PURCHASE OF FUND SHARES
- -----------------------------------------------------------------------------
GENERAL
The Fund offers each class of its shares for sale to the public on a
continuous basis. Pursuant to a Distribution Agreement between the Fund and
Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors" or the
"Distributor"), an affiliate of the Investment Manager, shares of the Fund
are distributed by the Distributor and offered by Dean Witter Reynolds Inc.
("DWR"), a selected dealer and subsidiary of Morgan Stanley Dean Witter &
Co., and other brokers and dealers which have entered into 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 B shares purchased by
certain qualified plans are subject to a CDSC scaled down from 2.0% to 1.0%
if redeemed within three years after purchase.) Class C shares are sold
without an initial sales charge but are subject to a CDSC of 1.0% on most
redemptions made within one year after purchase. Class D shares are sold
without an initial sales charge or CDSC and are available only to investors
meeting an initial investment minimum of $5 million ($25 million for certain
qualified plans), and to certain other limited categories of investors. At
the discretion of the Board of Trustees of the Fund, Class A shares may be
sold to categories of investors in addition to those set forth in this
prospectus at net asset value without a front-end sales charge, and Class D
shares may be sold to certain other categories of investors, in each case as
may be described in the then current prospectus of the Fund. See "Alternative
Purchase Arrangements--Selecting a Particular Class" for a discussion of
factors to consider in selecting which Class of shares to purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million ($25
million for certain qualified plans) or more and to certain other limited
categories of investors. For the purpose of meeting the minimum $5 million
(or $25 million) initial investment for Class D shares, and subject to the
$1,000 minimum initial investment for each Class of the Fund, an investor's
existing holdings of Class A shares of the Fund and other Morgan Stanley Dean
Witter Funds that are multiple class funds ("Morgan Stanley Dean Witter
Multi-Class Funds") and shares of Morgan Stanley Dean Witter Funds sold with
a front-end sales charge ("FSC Funds") and concurrent investments in Class D
shares of the Fund and other Morgan Stanley Dean Witter Multi-Class Funds
will be aggregated. Subsequent purchases of $100 or more may be
18
<PAGE>
made by sending a check, payable to Morgan Stanley Dean Witter American Value
Fund, directly to Morgan Stanley Dean Witter Trust FSB (the "Transfer Agent"
or "MSDW Trust") at P.O. Box 1040, Jersey City, NJ 07303 or by contacting a
Morgan Stanley Dean Witter Financial Advisor or other Selected Broker-Dealer
representative of DWR or other Selected Broker-Dealer. 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
(Service Mark), an automatic purchase plan (see "Shareholder Services"), is
$100, provided that the schedule of automatic investments will result in
investments totalling $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 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 requested 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 gains distributions if their order is received
by the close of business on the day prior to the record date for such
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-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
19
<PAGE>
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 the 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 lesser of: (a) the average daily aggregate gross sales of the
Fund's Class B shares since the inception of the 12b-1 Plan on April 30, 1984
(not including reinvestments of dividends or capital gains distributions),
less the average daily aggregate net asset value of the Fund's Class B shares
redeemed since the inception of the 12b-1 Plan upon which a CDSC has been
imposed or waived, or (b) the average daily net assets of Class B
attributable to shares issued, net of related shares redeemed, since
inception of the 12b-1 Plan. The Class B shares' distribution fee will cause
that Class to have higher expenses and pay lower dividends than Class A or
Class D shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition,
a certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time.
See "Contingent Deferred Sales Charge Alternative--Class B Shares."
Class C Shares. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They
are subject to an annual 12b-1 fee of up to 1.0% of the average daily net
assets of the Class C shares. The Class C shares' distribution fee may cause
that Class to have higher expenses and pay lower dividends than Class A or
Class D shares. See "Level Load Alternative--Class C Shares."
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
20
<PAGE>
are not available with respect to Class B or Class C shares. Moreover, Class
A shares are subject to lower ongoing expenses than are Class B or Class C
shares over the term of the investment. As an alternative, Class B and Class
C shares are sold without any initial sales charge so the entire purchase
price is immediately invested in the Fund. Any investment return on these
additional investment amounts may partially or wholly offset the higher
annual expenses of these Classes. Because the Fund's future return cannot be
predicted, however, there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly
lower CDSC upon redemptions, they do not, unlike Class B shares, convert into
Class A shares after approximately ten years, and, therefore, are subject to
an ongoing 12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A
shares) for an indefinite period of time. Thus, Class B shares may be more
attractive than Class C shares to investors with longer term investment
outlooks. Other investors, however, may elect to purchase Class C shares if,
for example, they determine that they do not wish to be subject to a
front-end sales charge and they are uncertain as to the length of time they
intend to hold their shares.
For the purpose of meeting the $5 million (or $25 million) minimum
investment amount for Class D shares, holdings of Class A shares in all
Morgan Stanley Dean Witter Multi-Class Funds, shares of FSC Funds and shares
of Morgan Stanley Dean Witter Funds for which such shares have been exchanged
will be included together with the current investment amount.
Sales personnel may receive different compensation for selling each Class
of shares. Investors should understand that the purpose of a CDSC is the same
as that of the initial sales charge in that the sales charges applicable to
each Class provide for the financing of the distribution of shares of that
Class.
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
CONVERSION
CLASS SALES CHARGE 12B-1 FEE FEATURE
- --------- ------------------------- ------------- ----------------------
<S> <C> <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 first to A shares
year decreasing automatically
to 0 after six years after
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 re-
21
<PAGE>
deemed. 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 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
22
<PAGE>
net asset value of shares of FSC Funds and Class A and Class D shares that,
together with the current investment amount, is equal to at least $5 million
($25 million for certain qualified plans), such investor is eligible to
purchase Class D shares subject to the $1,000 minimum initial investment
requirement of that Class of the Fund. See "No Load Alternative--Class D
Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase
qualifies for the reduced charge under the Right of Accumulation. Similar
notification must be made in writing by the dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if:
(a) such notification is not furnished at the time of the order; or (b) a
review of the records of the Selected Broker-Dealer or the Transfer Agent
fails to confirm the investor's represented holdings.
Letter of Intent. The foregoing schedule of reduced sales charges will
also be available to investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of Class A shares
of the Fund from DWR or other Selected Broker-Dealers. The cost of Class A
shares of the Fund or shares of other Morgan Stanley Dean Witter Funds which
were previously purchased at a price including a front-end sales charge
during the 90-day period prior to the date of receipt by the Distributor of
the Letter of Intent, or of Class A shares of the Fund or shares of other
Morgan Stanley Dean Witter Funds acquired in exchange for shares of such
funds purchased during such period at a price including a front-end sales
charge, which are still owned by the shareholder, may also be included in
determining the applicable reduction.
Additional Net Asset Value Purchase Options. In addition to investments of
$1 million or more, Class A shares also may be purchased at net asset value
by the following:
(1) trusts for which MSDW Trust (an affiliate of the Investment Manager)
provides discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for
services in the nature of investment advisory, administrative and/or
brokerage services (such investments are subject to all of the terms and
conditions of such programs, which may include termination fees, mandatory
redemption upon termination and such other circumstances as specified in the
programs' agreements, and restrictions on transferability of Fund shares);
(3) employer-sponsored 401(k) and other plans qualified under Section
401(a) of the Internal Revenue Code ("Qualified Retirement Plans") with at
least 200 eligible employees and for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement;
(4) Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement whose Class B shares have converted to Class
A shares, regardless of the plan's asset size or number of eligible
employees;
(5) investors who are clients of a Morgan Stanley Dean Witter Financial
Advisor who joined Morgan Stanley Dean Witter from another investment firm
within six months prior to the date of purchase of Fund shares by such
investors, if the shares are being purchased with the proceeds from a
redemption of shares of an open-end proprietary mutual fund of the Financial
Advisor's previous firm which imposed either a front-end or deferred sales
charge, provided such purchase was made within sixty days after the
redemption and the proceeds of the redemption had been maintained in the
interim in cash or a money market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
23
<PAGE>
For further information concerning purchases of the Fund's shares, contact
DWR or another Se-lected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase
payment may be immediately invested in the Fund. A CDSC, however, will be
imposed on most Class B shares redeemed within six years after purchase. The
CDSC will be imposed on any redemption of shares if after such redemption the
aggregate current value of a Class B account with the Fund falls below the
aggregate amount of the investor's purchase payments for Class B shares made
during the six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) preceding the redemption. In addition, Class B
shares are subject to an annual 12b-1 fee of 1.0% of the lesser of: (a) the
average daily aggregate gross sales of the Fund's Class B shares since the
implementation of the 12b-1 Plan on April 30, 1984 (not including
reinvestments of dividends or capital gains distributions), less the average
daily aggregate net asset value of the Fund's Class B shares redeemed since
the implementation of the 12b-1 Plan upon which a CDSC has been imposed or
waived, or (b) the average daily net assets of Class B attributable to shares
issued, net of related shares redeemed, since implementation of the 12b-1
Plan.
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in
which the shares were purchased) will not be subject to any CDSC upon
redemption. Shares redeemed earlier than six years after purchase may,
however, be subject to a CDSC which will be a percentage of the dollar amount
of shares redeemed and will be assessed on an amount equal to the lesser of
the current market value or the cost of the shares being redeemed. The size
of this percentage will depend upon how long the shares have been held, as
set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------- ------------------------
<S> <C>
First...................... 5.0%
Second..................... 4.0%
Third...................... 3.0%
Fourth..................... 2.0%
Fifth...................... 2.0%
Sixth...................... 1.0%
Seventh and thereafter .... None
</TABLE>
In the case of Class B shares of the Fund purchased on or after July 28,
1997 by Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement, shares held for three years or more after
purchase (calculated as described in the paragraph above) will not be subject
to any CDSC upon redemption. However, shares redeemed earlier than three
years after purchase may be subject to a CDSC (calculated as described in the
paragraph above), the percentage of which will depend on how long the shares
have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------- ------------------------
<S> <C>
First ..................... 2.0%
Second .................... 2.0%
Third ..................... 1.0%
Fourth and thereafter .... None
</TABLE>
CDSC Waivers. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or,
in the case of shares held by certain Qualified Retirement Plans, three
years) preceding the redemption; (ii) the current net asset value of shares
purchased more than six years (or, in the case of shares held by certain
Qualified Retirement Plans, three years) prior to the redemption; and (iii)
the current net asset value of shares purchased through reinvestment of
dividends or distributions and/or shares acquired in exchange for shares of
FSC Funds or of other Morgan Stanley Dean Witter Funds acquired in
24
<PAGE>
exchange for such shares. Moreover, in determining whether a CDSC is
applicable it will be assumed that amounts described in (i), (ii) and (iii)
above (in that order) are redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (A) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (B) held
in a qualified corporate or self-employed retirement plan, Individual
Retirement Account ("IRA") or Custodial Account under Section 403(b)(7) of
the Internal Revenue Code ("403(b) Custodial Account"), provided in either
case that the redemption is requested within one year of the death or initial
determination of disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified
corporate or self-employed retirement plan following retirement (or, in the
case of a "key employee" of a "top heavy" plan, following attainment of age
59 1/2); (B) distributions from an IRA or 403(b) Custodial Account following
attainment of age 59 1/2; or (C) a tax-free return of an excess contribution
to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
Qualified Retirement Plan which offers investment companies managed by the
Investment Manager or its subsidiary, MSDW Services, as self-directed
investment alternatives and for which MSDW Trust serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement ("Eligible Plan"), provided that either: (A)
the plan continues to be an Eligible Plan after the redemption; or (B) the
redemption is in connection with the complete termination of the plan
involving the distribution of all plan assets to participants.
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. All shares of the Fund held prior to July
28, 1997, other than shares which were purchased prior to April 30, 1984
(and, with respect to such shares, including such proportion of shares
acquired through reinvestment of dividends and capital gains distributions as
the total number of shares acquired prior to such date bears to the total
number of Fund shares purchased and owned by the shareholder (collectively,
the "Old Shares"), have been designated Class B shares. Shares held before
May 1, 1997 that have been designated Class B shares will convert to Class A
shares in May, 2007. In all other instances Class B shares will convert
automatically to Class A shares, based on the relative net asset values of
the shares of the two Classes on the conversion date, which will be
approximately ten (10) years after the date of the original purchase. The ten
year period is calculated from the last day of the month in which the shares
were purchased or, in the case of Class B shares acquired through an exchange
or a series of exchanges, from the last day of the month in which the
original Class B shares were purchased, provided that shares originally
purchased before May 1, 1997 will convert to Class A shares in May, 2007. The
conversion of shares purchased on or after May 1, 1997 will take place in the
month following the tenth anniversary of the purchase. There will also be
converted at that time such proportion of Class B shares acquired through
automatic reinvestment of dividends and distributions owned by the
shareholder as the total number of his or her Class B shares converting at
the time bears to the total number of outstanding Class B shares purchased
and owned by the shareholder. In the case of Class B shares held by a
Qualified Retirement Plan for
25
<PAGE>
which MSDW Trust serves as Trustee or DWR's Retirement Plan Services serves
as recordkeeper pursuant to a written Recordkeeping Services Agreement, the
plan is treated as a single investor and all Class B shares will convert to
Class A shares on the conversion date of the first shares of a Morgan Stanley
Dean Witter Multi-Class Fund purchased by that plan. In the case of Class B
shares previously exchanged for shares of an "Exchange Fund" (see
"Shareholder Services--Exchange Privilege"), the period of time the shares
were held in the Exchange Fund (calculated from the last day of the month in
which the Exchange Fund shares were acquired) is excluded from the holding
period for conversion. If those shares are subsequently re-exchanged for
Class B shares of a Morgan Stanley Dean Witter Multi-Class Fund, the holding
period resumes on the last day of the month in which Class B shares are
reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior
to the date for conversion. Class B shares evidenced by share certificates
that are not received by the Transfer Agent at least one week prior to any
conversion date will be converted into Class A shares on the next scheduled
conversion date after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion
will have a basis equal to the shareholder's basis in the converted Class B
shares immediately prior to the conversion, and (iii) Class A shares received
on conversion will have a holding period that includes the holding period of
the converted Class B shares. The conversion feature may be suspended if the
ruling or opinion is no longer available. In such event, Class B shares would
continue to be subject to Class B 12b-1 fees.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold at net asset value next determined without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions
made within one year after purchase (calculated from the last day of the
month in which the shares were purchased). The CDSC will be assessed on an
amount equal to the lesser of the current market value or the cost of the
shares being redeemed. The CDSC will not be imposed in the circumstances set
forth above in the section "Contingent Deferred Sales Charge
Alternative--Class B Shares--CDSC Waivers," except that the references to six
years in the first paragraph of that section shall mean one year in the case
of Class C shares. Class C shares are subject to an annual 12b-1 fee of up to
1.0% of the average daily net assets of the Class. Unlike Class B shares,
Class C shares have no conversion feature and, accordingly, an investor that
purchases Class C shares will be subject to 12b-1 fees 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 Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement) and the following categories of investors:
(i) investors participating in the 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 redemption upon
termination and such other circumstances as specified in the programs'
agreements, and restrictions on transferability of Fund shares); (iii) 401(k)
plans established by DWR and SPS Transaction Services, Inc. (an affiliate of
DWR) for their employees; (iv) certain Unit Investment
26
<PAGE>
Trusts sponsored by DWR; (v) certain other open-end investment companies
whose shares are distributed by the Distributor; and (vi) other categories of
investors, at the discretion of the Board, as disclosed in the then current
prospectus of the Fund. The Old Shares have been designated Class D shares.
Investors who require a $5 million (or $25 million) minimum initial
investment to qualify to purchase Class D shares may satisfy that requirement
by investing that amount in a single transaction in Class D shares of the
Fund and other Morgan Stanley Dean Witter Multi-Class Funds, subject to the
$1,000 minimum initial investment required for that Class of the Fund. In
addition, for the purpose of meeting the $5 million (or $25 million) minimum
investment amount, holdings of Class A shares in all Morgan Stanley Dean
Witter Multi-Class Funds, shares of FSC Funds and shares of Morgan Stanley
Dean Witter Funds for which such shares have been exchanged will be included
together with the current investment amount. If a shareholder redeems Class A
shares and purchases Class D shares, such redemption may be a taxable event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act with respect to the distribution of Class A, Class B and Class C
shares of the Fund. In the case of Class A and Class C shares, the Plan
provides that the Fund will reimburse the Distributor and others for the
expenses of certain activities and services incurred by them specifically on
behalf of those shares. Reimbursements for these expenses will be made in
monthly payments by the Fund to the Distributor, which will in no event
exceed amounts equal to payments at the annual rates of 0.25% and 1.0% of the
average daily net assets of Class A and Class C, respectively. In the case of
Class B shares, the Plan provides that the Fund will pay the Distributor a
fee, which is accrued daily and paid monthly, at the annual rate of 1.0% of
the lesser of: (a) the average daily aggregate gross sales of the Fund's
Class B shares since the implementation of the 12b-1 Plan on April 30, 1984
(not including reinvestments of dividends or capital gains distributions),
less the average daily aggregate net asset value of the Fund's Class B shares
redeemed since that Plan's implementation upon which a CDSC has been imposed
or waived, or (b) the average daily net assets of Class B attributable to
shares issued, net of related shares redeemed, since implementation of the
Fund's 12b-1 Plan. 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.
For the fiscal year ended December 31, 1997, Class B shares of the Fund
accrued payments under the Plan amounting to $30,004,099, which amount is
equal to 0.83% of the average daily net assets of Class B for the fiscal
year. These payments were calculated pursuant to clause (a) of the
compensation formula under the Plan. All shares
27
<PAGE>
held prior to July 28, 1997 (other than the Old Shares) have been designated
Class B shares. For the fiscal period July 28 through December 31, 1997,
Class A and Class C shares of the Fund accrued payments under the Plan
amounting to $7,380 and $26,712, respectively, which amounts on an annualized
basis are equal to 0.25% and 1.00% of the average daily net assets of Class A
and Class C, respectively, for such period.
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Fund may be in excess of the total of (i)
the payments made by the Fund pursuant to the Plan, and (ii) the proceeds of
CDSCs paid by investors upon the redemption of Class B shares. For example,
if $1 million in expenses in distributing Class B shares of the Fund had been
incurred and $750,000 had been received as described in (i) and (ii) above,
the excess expense would amount to $250,000. The Distributor has advised the
Fund that such excess amounts, including the carrying charge described above,
totalled $72,540,376 at December 31, 1997, which was equal to 1.78% of the
net assets of Class B on such date. 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 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. The Distributor has advised the
Fund that unreimbursed expenses representing a gross sales commission
credited to Morgan Stanley Dean Witter Financial Advisor and other Selected
Broker-Dealer representatives at the time of sale totalled $92,652 in the
case of Class C at December 31, 1997, which amount was equal to 0.76% of the
net assets of Class C on such date, and that there were no such expenses that
may be reimbursed in the subsequent year in the case of Class A on such date.
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), 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
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 (in cases where a security is
traded on more than one exchange, the security is valued on the exchange
designated as
28
<PAGE>
the primary market pursuant to procedures adopted by the Trustees); and (2)
all other portfolio securities for which over-the-counter market quotations
are readily available are valued at the latest bid price. When market
quotations are not readily available, including circumstances under which it
is determined by the Investment Manager 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
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees.
Certain securities in the Fund's portfolio may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon
as the evaluation model parameters, and/or research evaluations by its staff,
including review of broker-dealer market price quotations, in determining
what it believes is the fair valuation of the portfolio securities valued by
such pricing service.
SHAREHOLDER SERVICES
- -----------------------------------------------------------------------------
Automatic Investment of Dividends and Distributions. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the applicable Class of the Fund (or, if specified by the
shareholder, in shares of any other open-end Morgan Stanley Dean Witter
Fund), unless the shareholder requests that they be paid in cash. Shares so
acquired are acquired at net asset value and are not subject to the
imposition of a front-end sales charge or CDSC (see "Redemptions and
Repurchases").
EasyInvest. (Service Mark) 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 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 who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset
value. The Withdrawal Plan provides for monthly or quarterly (March, June,
September and December) checks in any amount, not less than $25, or in any
whole percentage of the account balance, on an annualized basis. Any
applicable CDSC will be imposed on shares redeemed under the Withdrawal Plan
(see "Purchase of Fund Shares"). Therefore, any shareholder
29
<PAGE>
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 or quarterly amount.
Withdrawal plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net
investment income and net capital gains, the shareholder's original
investment will be correspondingly reduced and ultimately exhausted. Each
withdrawal constitutes a redemption of shares and any gain or loss realized
must be recognized for federal income tax purposes.
Shareholders should contact their Morgan Stanley Dean Witter Financial
Advisor or other Selected Broker-Dealer representative or the Transfer Agent
for further information about any of the above services.
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.
For further information regarding plan administration, custodial fees and
other details, investors should contact their Morgan Stanley Dean Witter
Financial Advisor or other Selected Broker-Dealer representative or the
Transfer Agent.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of any
other Morgan Stanley Dean Witter Multi-Class Fund without the imposition of
any exchange fee. Shares may also be exchanged for shares of the following
funds: Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust, Morgan
Stanley Dean Witter Limited Term Municipal Trust, Morgan Stanley Dean Witter
Short-Term Bond Fund and five Morgan Stanley Dean Witter funds which are
money market funds (the "Exchange Funds"). Class A shares may also be
exchanged for shares of Morgan Stanley Dean Witter Multi-State Municipal
Series Trust and Morgan Stanley Dean Witter Hawaii Municipal Trust, which are
Morgan Stanley Dean Witter Funds sold with a front-end sales charge ("FSC
Funds"). Class B shares may also be exchanged for shares of Morgan Stanley
Dean Witter Global Short-Term Income Fund Inc. ("Global Short-Term"), which
is a Morgan Stanley Dean Witter Fund offered with a CDSC. Exchanges may be
made after the shares of the Fund acquired by purchase (not by exchange or
dividend reinvestment) have been held for thirty days. There is no waiting
period for exchanges of shares acquired by exchange or dividend reinvestment.
An exchange to another Morgan Stanley Dean Witter Multi-Class Fund, any
FSC Fund, Global Short-Term or any Exchange Fund that is not a money market
fund is on the basis of the next calculated net asset value per share of each
fund after the exchange order is received. When exchanging into a money
market fund from the Fund, shares of the Fund are redeemed out of the Fund at
their next calculated net asset value and the proceeds of the redemption are
used to purchase shares of the money market fund at their net asset value
determined the following business day. Subsequent exchanges between any of
the money market funds and any of the Morgan Stanley Dean Witter Multi-Class
Funds, FSC Funds, Global Short-Term or any Exchange Fund that is not a money
market fund can be effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period
of time the shareholder remains in an Exchange Fund (calculated from the last
day of the month in which the Exchange Fund shares were acquired), the
holding period (for the purpose of determining the rate of the CDSC) is
frozen. If those shares are subsequently re-exchanged for shares of a Morgan
Stanley Dean Witter Multi-Class Fund or shares of Global Short-Term, the
holding period previously frozen when the first exchange was made resumes on
the last day of the month in which shares of a Morgan Stanley Dean Witter
Multi-Class Fund or shares of Global Short-Term are reacquired. Thus, the
CDSC is based upon the time
30
<PAGE>
(calculated as described above) the shareholder was invested in shares of a
Morgan Stanley Dean Witter Multi-Class Fund or in shares of Global Short-Term
(see "Purchase of Fund Shares"). In the case of exchanges of Class A shares
which are subject to a CDSC, the holding period also includes the time
(calculated as described above) the shareholder was invested in shares of a
FSC Fund. In the case of shares exchanged into an Exchange Fund on or after
April 23, 1990, upon a redemption of shares which results in a CDSC being
imposed, a credit (not to exceed the amount of the CDSC) will be given in an
amount equal to the Exchange Fund 12b-1 distribution fees incurred on or
after that date which are attributable to those shares. (Exchange Fund 12b-1
distribution fees are described in the prospectuses for those funds.) Class B
shares of the Fund acquired in exchange for shares of Global Short-Term or
Class B shares of another Morgan Stanley Dean Witter Multi-Class Fund 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 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. 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 Broker-Dealer
but who wish to make exchanges
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directly by 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 Transfer Agent, 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 sent 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 per share next determined (see "Purchase of Fund Shares")
after such purchase 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 upon repurchase by the Fund
or the Distributor. The offer 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. If the
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shares to be redeemed have recently been purchased by 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 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 their 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, on sixty days'
notice, to redeem, 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 Internal Revenue 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 Board of Trustees or, in the case of an account
opened through EasyInvest (Service Mark), 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 him or her sixty days to make an additional
investment in an amount which will increase the value of his or her 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 dividends separately for
each Class of shares and intends to pay semi-annual dividends and to
distribute substantially all of the Fund's net investment income and net
short-term and long-term capital gains, if there are any. The Fund intends to
distribute dividends from net long-term capital gains, if any, at least once
each year. The Fund may, however, determine 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 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 distribute all of its net investment
income and net short-term capital gains to shareholders and otherwise remain
qualified as a regulated investment company under Subchapter M of the
Internal Revenue Code, it is not expected that the Fund will be required to
pay any federal income tax. Shareholders who are required to pay taxes on
their income will normally have to pay federal income taxes, and any state
income taxes, on the dividends and distributions they re-
33
<PAGE>
ceive from the Fund. Such dividends and distributions, to the extent that
they are derived from net investment income or 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 year prior to February 1 will be deemed, for tax
purposes, to have been received by the shareholder in the 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. Capital gains distributions are not
eligible for the dividends received deduction.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources would, 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 be sent 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.
Shareholders should consult their tax advisors as to the applicability of
the foregoing to their current situation.
PERFORMANCE INFORMATION
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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 periods of one, five
and ten years. 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 will be incurred
by shareholders, for the stated periods. It also assumes reinvestment of all
dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the deduction of any sales charge which, if reflected, would
reduce the performance quoted. 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. 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., the S&P 500 Stock Index and the Dow Jones
Industrial Average).
34
<PAGE>
ADDITIONAL INFORMATION
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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. Directors, officers and employees of MSDW Advisors, MSDW
Services and MSDW Distributors are subject to a strict Code of Ethics adopted
by those companies. The Code of Ethics is intended to ensure that the
interests of shareholders and other clients are placed ahead of any personal
interest, that no undue personal benefit is obtained from a person's
employment activities and that actual and potential conflicts of interest are
avoided. To achieve these goals and comply with regulatory requirements, the
Code of Ethics requires, among other things, that personal securities
transactions by employees of the companies be subject to an advance clearance
process to monitor that no Morgan Stanley Dean Witter Fund is engaged at the
same time in a purchase or sale of the same security. The Code of Ethics bans
the purchase of securities in an initial public offering, and also prohibits
engaging in futures and options transactions and profiting on short-term
trading (that is, a purchase within sixty days of a sale or a sale within
sixty days of a purchase) of a security. In addition, investment personnel
may not purchase or sell a security for their personal account within thirty
days before or after any transaction in any Morgan Stanley Dean Witter Fund
managed by them. Any violations of the Code of Ethics are subject to
sanctions, including reprimand, demotion or suspension or termination of
employment. The Code of Ethics comports with regulatory requirements and the
recommendations in the 1994 report by the Investment Company Institute
Advisory Group on Personal Investing.
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.
35
<PAGE>
Morgan Stanley Dean Witter MORGAN STANLEY
American Value Fund DEAN WITTER
Two World Trade Center AMERICAN
New York, New York 10048 VALUE FUND
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and
General Counsel
Anita H. Kolleeny
Vice President
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 PROSPECTUS
MAY 1, 1998, AS REVISED
INVESTMENT MANAGER AUGUST 21, 1998
Morgan Stanley Dean Witter Advisors Inc.
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 24, 1999
The undersigned shareholder of Morgan Stanley Dean Witter Capital
Appreciation Fund does hereby appoint BARRY FINK, ROBERT M. SCANLAN and
JOSEPH MCALINDEN and each of them, as attorneys-in-fact and proxies of the
undersigned, each with the full power of substitution, to attend the Special
Meeting of Shareholders of Morgan Stanley Dean Witter Capital Appreciation
Fund to held on February 24, 1999, in Conference Room A, Forty-Fourth Floor,
Two World Trade Center, New York, New York at 10:00 A.M., New York time, and
at all adjournments thereof and to vote the shares held in the name of the
undersigned on the record date for said meeting for the Proposal specified on
the reverse side hereof. Said attorneys-in-fact shall vote in accordance with
their best judgment as to any other matter.
(Continued on reverse side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE PROPOSAL SET FORTH ON THE REVERSE HEREOF AND AS RECOMMENDED
BY THE BOARD OF TRUSTEES.
IMPORTANT--THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
<PAGE>
[X] PLEASE MARK BOXES
IN BLACK OR BLUE INK
The Proposal:
Approval of the Agreement and Plan of FOR AGAINST ABSTAIN
Reorganization, dates as of October 28, 1998, [ ] [ ] [ ]
pursuant to which substantially all of the assets
of Morgan Stanley Dean Witter Capital Appreciation Fund would be combined
with those of Morgan Stanley Dean Witter American Value Fund and shareholders
of Morgan Stanley Dean Witter Capital Appreciation Fund would become
shareholders of Morgan Stanley Dean Witter American Value Fund receiving
shares in Morgan Stanley Dean Witter American Value Fund with a value equal
to the value of their holdings in Morgan Stanley Dean Witter Capital
Appreciation Fund.
Please sign personally. If the shares are registered in more than one name,
each joint owner or each fiduciary
should sign personally. Only authorized officers should sign for
corporations.
Date
-----------------------
Please make sure to sign and date this Proxy using black or blue ink.
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Shareholder sign in the box above
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Co-Owner (if any) sign in the box above
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
[arrow up] [arrow up] PLEASE DETACH AT PERFORATION [arrow up] [arrow up]
MORGAN STANLEY DEAN WITTER
CAPITAL APPRECIATION FUND
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IMPORTANT
PLEASE SEND IN YOUR PROXY.........TODAY!
YOU ARE URGED TO DATE AND SIGN THE ATTACHED PROXY AND RETURN IT PROMPTLY IN
THE ENCLOSED ENVELOPE. THIS WILL HELP SAVE THE EXPENSE OF FOLLOW-UP LETTERS
TO SHAREHOLDERS WHO HAVE NOT RESPONDED.
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