<PAGE>
PROSPECTUS
JUNE 24, 1998
Morgan Stanley Dean Witter Dividend Growth Securities Inc. (the
"Fund") is an open-end, diversified management investment company whose
investment objective is to provide reasonable current income and long-term
growth of income and capital. The Fund invests primarily in common stock of
companies with a record of paying dividends and the potential for increasing
dividends. (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 June 24, 1998, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page. The
Statement of Additional Information is incorporated herein by reference.
MORGAN STANLEY DEAN WITTER
DISTRIBUTORS INC.
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary/2
Summary of Fund Expenses/4
Financial Highlights/6
The Fund and its Management/9
Investment Objective and Policies/9
Risk Considerations and
Investment Practices/10
Investment Restrictions/14
Purchase of Fund Shares/14
Shareholder Services/26
Redemptions and Repurchases/29
Dividends, Distributions and Taxes/30
Performance Information/31
Additional Information/31
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
Dividend Growth Securities Inc.
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
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PROSPECTUS SUMMARY
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The The Fund, a Maryland corporation, is an open-end, diversified management investment company investing primarily
Fund in common stock of companies with a record of paying dividends and the potential for increasing dividends (see
page 9).
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Shares Offered Shares of common stock with $0.01 par value (see page 31). The Fund offers four Classes of shares, each with a
different combination of sales charges, ongoing fees and other features (see pages 14-25).
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Minimum The minimum initial investment for each Class is $1,000 ($100 if the account is opened through EasyInvest-SM-).
Purchase 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 14).
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Investment The investment objective of the Fund is to provide reasonable current income and long-term growth of income and
Objective capital.
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Investment Morgan Stanley Dean Witter Advisors Inc., ("MSDW Advisors"), the Investment Manager of the Fund, and its
Manager wholly-owned subsidiary, Morgan Stanley Dean Witter Services Company Inc., serve in various investment
management, advisory, management and administrative capacities to 101 investment companies and other portfolios
with assets of approximately $114.6 billion at May 31, 1998 (see page 9).
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Management The Investment Manager receives a monthly fee at an annual rate of 0.625 of 1% of daily net assets, scaled down
Fee on assets over $250 million. The fee should not be compared with fees paid by other investment companies without
also considering applicable sales loads and distribution fees, including those noted below (see page 9).
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Distributor and Morgan Stanley Dean Witter Distributors Inc. (the "Distributor"). The Fund has adopted a distribution plan
Distribution Fee 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 14 and 24).
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Alternative Four classes of shares are offered:
Purchase
Arrangements - 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 14, 18 and 24).
</TABLE>
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2
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- 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 net sales of
the Fund's Class B shares since implementation of the 12b-1 Plan on July 2, 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 July 2, 1984 (and, with respect to
such shares, certain shares acquired through reinvestment of dividends and capital gains distributions) and the
shares held by certain employee benefit plans established by Dean Witter Reynolds Inc. and its affiliate, SPS
Transaction Services, Inc.) have been designated Class B shares. Shares which were purchased prior to July 2,
1984 (and, with respect to such shares, certain shares acquired through reinvestment of dividends and capital
gains distributions) and shares held by those employee benefit plans prior to July 28, 1997 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 14, 20 and 24).
- 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 14, 23 and 24).
- 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 14, 23 and 24).
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Dividends Dividends from net investment income are paid quarterly; and distributions from net capital gains, if any, are
and distributed at least annually. The Fund may, however, determine to retain all or part of any net long-term
Capital Gains capital gains in any year for reinvestment. Dividends and capital gains distributions paid on shares of a Class
Distributions 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 26 and 30).
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Redemption Shares are redeemable by the shareholder at net asset value less any applicable CDSC on Class A, Class B or
Class C shares. An account may be involuntarily redeemed if the total value of the account is less than $100 or,
if the account was opened through EasyInvest-SM-, if after twelve months the shareholder has invested less than
$1,000 in the account (see page 29).
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Risks The net asset value of the Fund's shares will fluctuate with changes in market value of portfolio securities.
Dividends payable by the Fund will vary in relation to the amounts of dividends and interest earned on portfolio
securities. Investors should review the investment objective and policies of the Fund carefully and consider
their ability to assume the risks involved in purchasing shares of the Fund (see pages 10-13).
</TABLE>
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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
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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 February 28, 1998.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
--------- ------- --------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
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Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)... 5.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments.................................. None None None None
Maximum Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds)................................................. None(2) 5.00%(3) 1.00%(4) None
Redemption Fees................................................................. None None None None
Exchange Fee.................................................................... None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- --------------------------------------------------------------------------------
Management Fees................................................................. 0.37% 0.37% 0.37% 0.37%
12b-1 Fees (5) (6).............................................................. 0.25% 0.69% 1.00% None
Other Expenses.................................................................. 0.08% 0.08% 0.08% 0.08%
Total Fund Operating Expenses (7)............................................... 0.70% 1.14% 1.45% 0.45%
</TABLE>
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(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>
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<TABLE>
<CAPTION>
3 5 10
EXAMPLES 1 Year Years Years 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....................................... $59 $74 $89 $135
Class B....................................... $62 $66 $83 $139
Class C....................................... $25 $46 $79 $174
Class D....................................... $ 5 $14 $25 $57
You would pay the following expenses on the same
$1,000 investment assuming no redemption at the
end of the period:
Class A....................................... $59 $74 $89 $135
Class B....................................... $12 $36 $63 $139
Class C....................................... $15 $46 $79 $174
Class D....................................... $ 5 $14 $25 $57
</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
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The following ratios and per share data for a share of capital stock
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in conjunction
with the financial statements and notes thereto and the unqualified report of
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 Stockholders, which may be obtained without
charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 28,
------------------------------------------------------------------------------------
CLASS B SHARES 1998*++ 1997 1996** 1995 1994 1993 1992** 1991 1990 1989
------- ------- ------- ------ ------ ------ ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $ 46.60 $ 39.65 $ 31.16 $30.86 $28.70 $27.01 $ 23.50 $22.47 $ 20.32 $ 19.28
------- ------- ------- ------ ------ ------ ------- ------ ------- -------
Net investment income... 0.84 0.81 0.75 0.72 0.68 0.70 0.71 0.79 0.72 0.68
Net realized and
unrealized gain........ 12.50 7.55 8.50 0.24 2.16 1.72 3.63 1.04 2.83 1.78
------- ------- ------- ------ ------ ------ ------- ------ ------- -------
Total from investment
operations............. 13.34 8.36 9.25 0.96 2.84 2.42 4.34 1.83 3.55 2.46
------- ------- ------- ------ ------ ------ ------- ------ ------- -------
Less dividends and
distributions from:
Net investment
income............... (0.83) (0.88) (0.67) (0.66) (0.68) (0.69) (0.76) (0.80) (0.76) (0.62)
Net realized gain..... (0.75) (0.53) (0.09) -- -- (0.04) (0.07) -- (0.64) (0.80)
------- ------- ------- ------ ------ ------ ------- ------ ------- -------
Total dividends and
distributions.......... (1.58) (1.41) (0.76) (0.66) (0.68) (0.73) (0.83) (0.80) (1.40) (1.42)
------- ------- ------- ------ ------ ------ ------- ------ ------- -------
Net asset value, end of
period................. $ 58.36 $ 46.60 $ 39.65 $31.16 $30.86 $28.70 $ 27.01 $23.50 $ 22.47 $ 20.32
------- ------- ------- ------ ------ ------ ------- ------ ------- -------
------- ------- ------- ------ ------ ------ ------- ------ ------- -------
TOTAL INVESTMENT
RETURN+.................. 29.10% 21.37% 30.01% 3.25% 9.98% 9.13% 18.82% 8.51% 17.85% 13.26%
RATIOS TO AVERAGE NET
ASSETS:
Expenses................ 1.14% 1.22% 1.31% 1.42% 1.37% 1.40% 1.42% 1.51% 1.41% 1.55%
Net investment income... 1.61% 1.95% 2.14% 2.42% 2.31% 2.67% 2.91% 3.62% 3.46% 3.44%
SUPPLEMENTAL DATA:
Net assets, end of
period, in millions.... $16,989 $12,907 $9,782 $7,101 $6,712 $5,386 $4,071 $3,015 $2,760 $1,860
Portfolio turnover
rate................... 4% 4% 10% 6% 13% 8% 5% 5% 3% 8%
Average commission rate
paid................... $0.0539 $0.0541 -- -- -- -- -- -- -- --
</TABLE>
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* 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 JULY 2, 1984 (AND WITH RESPECT TO SUCH SHARES, CERTAIN SHARES
ACQUIRED THROUGH REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
(COLLECTIVELY THE "OLD SHARES")) AND SHARES HELD BY CERTAIN EMPLOYEE BENEFIT
PLANS ESTABLISHED BY DEAN WITTER REYNOLDS INC. AND ITS AFFILIATE, SPS
TRANSACTION SERVICES, INC., HAVE BEEN DESIGNATED CLASS B SHARES. THE OLD
SHARES AND SHARES HELD BY THOSE EMPLOYEE BENEFIT PLANS PRIOR TO JULY 28, 1997
HAVE BEEN DESIGNATED CLASS D SHARES.
** YEAR ENDED FEBRUARY 29.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING.
+ 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
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<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
FEBRUARY 28,
CLASS A SHARES 1998++
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 53.43
-------
Net investment income................................................. 0.66
Net realized and unrealized gain...................................... 5.22
-------
Total from investment operations...................................... 5.88
-------
Less dividends and distributions from:
Net investment income............................................... (0.67)
Net realized gain................................................... (0.25)
-------
Total dividends and distributions..................................... (0.92)
-------
Net asset value, end of period........................................ $ 58.39
-------
-------
TOTAL INVESTMENT RETURN+.............................................. 11.15%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.70%(2)
Net investment income................................................. 2.09%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in millions................................ $85
Portfolio turnover rate............................................... 4%(1)
Average commission rate paid.......................................... $0.0539
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 53.43
-------
Net investment income................................................. 0.43
Net realized and unrealized gain...................................... 5.21
-------
Total from investment operations...................................... 5.64
-------
Less dividends and distributions from:
Net investment income............................................... (0.54)
Net realized gain................................................... (0.25)
-------
Total dividends and distributions..................................... (0.79)
-------
Net asset value, end of period........................................ $ 58.28
-------
-------
TOTAL INVESTMENT RETURN+.............................................. 10.68%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.45%(2)
Net investment income................................................. 1.37%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in millions................................ $51
Portfolio turnover rate............................................... 4%(1)
Average commission rate paid.......................................... $0.0539
</TABLE>
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* THE DATE SHARES WERE FIRST ISSUED.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING.
+ 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
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<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
FEBRUARY 28,
CLASS D SHARES 1998++
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 53.43
-------
Net investment income................................................. 0.76
Net realized and unrealized gain...................................... 5.20
-------
Total from investment operations...................................... 5.96
-------
Less dividends and distributions from:
Net investment income............................................... (0.71)
Net realized gain................................................... (0.25)
-------
Total dividends and distributions..................................... (0.96)
-------
Net asset value, end of period........................................ $ 58.43
-------
-------
TOTAL INVESTMENT RETURN+.............................................. 11.31%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.45%(2)
Net investment income................................................. 2.39%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in millions................................ $365
Portfolio turnover rate............................................... 4%(1)
Average commission rate paid.......................................... $0.0539
</TABLE>
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* THE DATE SHARES WERE FIRST ISSUED.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING.
+ 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
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Morgan Stanley Dean Witter Dividend Growth Securities Inc. (the "Fund")
(formerly named Dean Witter Dividend Growth Securities Inc.) is an open-end,
diversified management investment company incorporated in Maryland on December
22, 1980.
Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors" or the "Investment
Manager"), whose address is Two World Trade Center, New York, New York 10048, is
the Fund's investment manager. The Investment Manager, which was incorporated in
July, 1992, is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co., a
preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses--securities, asset management
and credit services. The Investment Manager, which was incorporated in July,
1992 under the name Dean Witter InterCapital Inc., changed its name to Morgan
Stanley Dean Witter Advisors Inc. on June 22, 1998.
MSDW Advisors and its wholly-owned subsidiary, Morgan Stanley Dean Witter
Services Company Inc. ("MSDW Services"), serve in various investment management,
advisory, management and administrative capacities to 101 investment companies,
28 of which are listed on the New York Stock Exchange, with combined total
assets of approximately $110.3 billion at May 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
Directors reviews the various services provided by 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 to the
Fund 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 at an annual rate
of 0.625% of the daily net assets of the Fund up to $250 million, scaled down at
various asset levels to 0.275% on assets over $15 billion. For the fiscal year
ended February 28, 1998, the Fund accrued total compensation to the Investment
Manager amounting to 0.37% of the Fund's average daily net assets and the total
expenses of Class B amounted to 1.14% of the 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.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is to provide reasonable current income
and long-term growth of income and capital. This objective is fundamental and
may not be changed without shareholder approval. There is no assurance that the
objective will be achieved. The Fund seeks to achieve its investment objective
primarily through investments in common stock of companies with a record of
paying dividends and the potential for increasing dividends. Net asset value of
the Fund's shares will fluctuate with changes in market values of portfolio
securities. The Fund will attempt to avoid
9
<PAGE>
speculative securities or those with speculative characteristics.
SPECIFIC INVESTMENT POLICIES
The Fund has adopted the following specific policies which are not
fundamental investment policies and which may be changed by the Fund's Board of
Directors:
(1) Up to 30% of the value of the Fund's total assets may be invested in: (a)
convertible debt securities, 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), investment grade corporate
debt securities and/or money market instruments 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 (for
purposes of this provision, the term "total return" means the difference between
the cost of a security and the aggregate of its market value and income earned);
or (b) in money market instruments under any one or more of the following
circumstances: (i) pending investment of proceeds of 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.
(2) Notwithstanding any of the foregoing limitations, the Fund may invest
more than 30% of its 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.
The foregoing limitations will apply at the time of acquisition based on the
last determined value of the Fund's assets. Any subsequent change in any
applicable percentage resulting from fluctuations in value or other change in
total assets will not require elimination of any security from the portfolio.
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.
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 government securities or other 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.
RISK CONSIDERATIONS AND INVESTMENT PRACTICES
AMERICAN DEPOSITORY RECEIPTS. The Fund may invest in ADRs. These securities
may not necessarily be denominated in the same currency as the securities into
which they may be converted. ADRs are receipts typically issued by a United
States bank or trust company evidencing ownership of the underlying securities.
INVESTMENTS IN SECURITIES RATED BAA BY MOODY'S OR BBB BY S&P. The Fund may
invest a portion of their assets in fixed-income securities rated at the time of
purchase Baa or better by Moody's Investors Service, Inc. ("Moody's") or BBB or
better by Standard & Poor's Corporation ("S&P"). Investments in fixed-income
securities rated either Baa by Moody's or BBB by S&P (the lowest credit ratings
designated "investment grade") may have speculative characteristics and,
therefore, changes in economic conditions or other circumstances are more likely
to weaken their capacity to make principal and interest payments than would be
the case with investments in securities with higher credit ratings. If a bond
held by the Fund is downgraded by a rating agency to a rating below Baa or BBB,
the Fund will retain such security in its portfolio until the Investment Manager
10
<PAGE>
determines that it is practicable to sell the security without undue market or
tax consequences to the Fund. In the event that such downgraded securities
constitute 5% or more of the Fund's assets, the Investment Manager will seek to
sell immediately sufficient securities to reduce the total to below 5%.
INVESTMENTS IN FIXED-INCOME SECURITIES. The Fund may invest a portion of
its assets in fixed-income securities. All fixed-income securities are subject
to two types of risks: the credit risk and the interest rate risk. The credit
risk relates to the ability of the issuer to meet interest or principal payments
or both as they come due. Generally, higher yielding fixed-income securities are
subject to a credit risk to a greater extent than lower yielding fixed-income
securities. The interest rate risk refers to the fluctuations in the net asset
value of any portfolio of fixed-income securities resulting from the inverse
relationship between price and yield of fixed-income securities; that is, when
the general level of interest rates rises, the prices of outstanding
fixed-income securities generally decline, and when interest rates fall, prices
generally rise.
CONVERTIBLE SECURITIES. The Fund may invest a portion of its assets in
convertible securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. Convertible
securities rank senior to common stocks in a corporation's capital structure
and, therefore, entail less risk than the corporation's common stock. The value
of a convertible security is a function of its "investment value" (its value as
if it did not have a conversion privilege), and its "conversion value" (the
security's worth if it were to be exchanged for the underlying security, at
market value, pursuant to its conversion privilege).
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, 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.
Because of the special nature of the Fund's permitted investments in lower
rated convertible securities, the Investment Manager must take account of
certain special considerations in assessing the risks associated with such
investments. The prices of lower rated securities have been found to be less
sensitive to changes in prevailing interest rates than higher rated investments,
but are likely to be more sensitive to adverse economic changes or individual
corporate developments. During an economic downturn or substantial period of
rising interest rates, highly leveraged issuers may experience financial stress
which would adversely affect their ability to service their principal and
interest payment obligations, to meet their projected business goals or to
obtain additional financing. If the issuer of a lower rated convertible security
owned by the Fund defaults, the Fund may incur additional expenses to seek
recovery. In addition, periods of economic uncertainty and change can be
expected to result in an increased volatility of market prices of lower rated
securities and a corresponding volatility in the net asset value of a share of
the Fund.
REPURCHASE AGREEMENTS. While repurchase agreements involve certain risks
not associated with direct investments in debt securities, the Fund follows
procedures designed to minimize such risks. These procedures include effecting
repurchase transactions only with large, well-capitalized and
11
<PAGE>
well-established financial institutions whose financial condition will be
continually monitored by the Investment Manager. In addition, the value of the
collateral underlying the repurchase agreement will be at least equal to the
repurchase price, including any accrued interest earned on the repurchase
agreement. In the event of a default or bankruptcy by a selling financial
institution, the Fund will seek to liquidate such collateral. However, the
exercising of the Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a
default of the obligation to repurchase were less than the repurchase price, the
Fund could suffer a loss. It is the current policy of the Fund not to invest in
repurchase agreements that do not mature within seven days if any such
investment, together with any other illiquid assets held by the Fund, amounts to
more than 15% of its net assets.
PRIVATE PLACEMENTS AND RESTRICTED SECURITIES. 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 restricted. (Securities
eligible for resale pursuant to Rule 144A under the Securities Act, and
determined to be liquid pursuant to the procedures discussed in the following
paragraph, are not subject to the foregoing restriction). These securities are
generally referred to as private placements or restricted securities.
Limitations on the resale of such securities may have an adverse effect on their
marketability, and may prevent the Fund from disposing of them promptly at
reasonable prices. The Fund may have to bear the expense of registering such
securities for resale and the risk of substantial delays in effecting such
registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Directors 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 10% 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 securities.
ZERO COUPON SECURITIES. A portion of the fixed-income securities purchased
by the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive their
full value at maturity. The interest earned on such securities is, implicitly,
automatically compounded and paid out at maturity. While such compounding at a
constant rate eliminates the risk of receiving lower yields upon reinvestment of
interest if prevailing interest rates decline, the owner of a zero coupon
security will be unable to participate in higher yields upon reinvestment of
interest received on interest-paying securities if prevailing interest rates
rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will not
receive current cash available for distribution to shareholders. In addition,
zero coupon securities are subject to substantially greater price fluctuations
during periods of changing prevailing interest rates than are comparable
securities which pay interest on a current basis. Current federal tax law
requires that a holder (such as the Fund) of a zero coupon security accrue a
portion of the discount at which the security was purchased as income each year
even though the Fund receives no interest payments in cash on the security
during the year.
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
12
<PAGE>
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 stockholders in effect will be absorbing duplicate levels of fees with
respect to investments in real estate investment trusts.
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 on 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. Accordingly, the Fund's investments may be adversely affected.
For additional risk disclosure, please refer to the "Investment Objective
and Policies" section of the Prospectus and to the "Investment Practices and
Policies" section of the Statement of Additional Information.
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-dealers that
are affiliates of the Investment Manager, and the Investment Manager's own
analysis of factors it deems relevant. The Fund's portfolio is managed within
MSDW Advisors' Growth and Income Group, which manages 26 equity funds and fund
portfolios with approximately $35.9 billion in assets as of May 31, 1998. Paul
D. Vance, Senior Vice President of MSDW Advisors and a member of the Growth and
Income Group, has been the primary portfolio manager of the Fund since its
inception and has been a portfolio manager at MSDW Advisors for over five years.
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. Pursuant to an order of the Securities
and Exchange Commission, the Fund may effect principal transactions in certain
money market instruments with Dean Witter Reynolds Inc. In addition, the Fund
may incur brokerage commissions on transactions conducted through Dean Witter
Reynolds Inc., Morgan Stanley & Co. Incorporated and other brokers and dealers
that are affiliates of the Investment Manager.
13
<PAGE>
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 bank obligations
or obligations issued or guaranteed by the United States Government or its
agencies or instrumentalities.
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 issued
or guaranteed by 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 others
who have entered into selected dealer agreements with the Distributor ("Selected
Broker-Dealers"). It is anticipated that DWR will undergo a change of corporate
name which is expected to incorporate the brand name of "Morgan Stanley Dean
Witter," pending approval of various regulatory authorities. The principal
executive office of the Distributor is located at Two World Trade Center, New
York, New York 10048.
The Fund offers four classes of shares (each, a "Class"). Class A shares are
sold to investors with an initial sales charge that declines to zero for larger
purchases; however, Class A shares sold without an initial sales charge are
subject to a contingent deferred sales charge ("CDSC") of 1.0% if redeemed
within one year of purchase, except for certain specific circumstances. Class B
shares are sold without an initial sales charge but are subject to a CDSC
(scaled down from 5.0% to 1.0%) payable upon most redemptions within six years
after purchase. (Class B
14
<PAGE>
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 Directors of the Fund, Class A shares may be sold to
categories of investors in addition to those set forth in this prospectus at net
asset value without a front-end sales charge, and Class D shares may be sold to
certain other categories of investors, in each case as may be described in the
then current prospectus of the Fund. See "Alternative Purchase
Arrangements--Selecting a Particular Class" for a discussion of factors to
consider in selecting which Class of shares to purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million ($25 million
for certain qualified plans) or more and to certain other limited categories of
investors. For the purpose of meeting the minimum $5 million (or $25 million)
initial investment for Class D shares, and subject to the $1,000 minimum initial
investment for each Class of the Fund, an investor's existing holdings of Class
A shares of the Fund and other Morgan Stanley Dean Witter Funds that are
multiple class funds ("Morgan Stanley Dean Witter Multi-Class Funds") and shares
of Morgan Stanley Dean Witter Funds sold with a front-end sales charge ("FSC
Funds") and concurrent investments in Class D shares of the Fund and other
Morgan Stanley Dean Witter Multi-Class Funds will be aggregated. Subsequent
purchases of $100 or more may be made by sending a check, payable to Morgan
Stanley Dean Witter Dividend Growth Securities Inc., directly to Morgan Stanley
Dean Witter Trust FSB (the "Transfer Agent" or "MSDW Trust") at P.O. Box 1040,
Jersey City, NJ 07303 or by contacting a Morgan Stanley Dean Witter Financial
Advisor or other Selected Broker-Dealer representative. When purchasing shares
of the Fund, investors must specify whether the purchase is for Class A, Class
B, Class C or Class D shares. If no Class is specified, the Transfer Agent will
not process the transaction until the proper Class is identified. The minimum
initial purchase in the case of investments through EasyInvest-SM-, an automatic
purchase plan (see "Shareholder Services"), is $100, provided that the schedule
of automatic investments will result in investments totalling $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 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
15
<PAGE>
capital gains distributions if their order is received by the close of business
on the day prior to the record date for such dividends and distributions. Sales
personnel of a Selected Broker-Dealer are compensated for selling shares of the
Trust 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 against those Classes and not against all assets of the Fund and,
accordingly, such charges against one Class will not affect the net asset value
of any other Class or have any impact on investors choosing another sales charge
option. See "Plan of Distribution" and "Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and the
factors an investor should consider when selecting a particular Class. This
summary is qualified in its entirety by detailed discussion of each Class that
follows this summary.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investments by certain other
limited categories of investors) are not subject to any sales charges at the
time of purchase but are subject to a CDSC of 1.0% on redemptions made within
one year after purchase, except for certain specific circumstances. Class A
shares are also subject to a 12b-1 fee of up to 0.25% of the average daily net
assets of the Class. See "Initial Sales Charge Alternative--Class A Shares."
CLASS B SHARES. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to 1.0%)
if redeemed within six years of purchase. (Class B shares purchased by certain
qualified plans are subject to a CDSC scaled down from 2.0% to 1.0% if redeemed
within three years after purchase.) This CDSC may be waived for certain
redemptions. Class B shares are also subject to an annual 12b-1 fee of 1.0% of
the 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 July 2, 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
16
<PAGE>
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 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.
17
<PAGE>
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
CONVERSION
CLASS SALES CHARGE 12b-1 FEE FEATURE
- -----------------------------------------------------------
<C> <S> <C> <C>
A Maximum 5.25% 0.25% No
initial sales
charge reduced for
purchases of
$25,000 and over;
shares sold
without an initial
sales charge
generally subject
to a 1.0% CDSC
during first year.
- -----------------------------------------------------------
B Maximum 5.0% CDSC 1.0% B shares convert
during the first to A shares
year decreasing to automatically
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 redeemed. The CDSC will not be imposed (i) in the
circumstances set forth below in the section "Contingent Deferred Sales Charge
Alternative--Class B Shares--CDSC Waivers," except that the references to six
years in the first paragraph of that section shall mean one year in the case of
Class A shares, and (ii) in the circumstances identified in the section
"Additional Net Asset Value Purchase Options" below. Class A shares are also
subject to an annual 12b-1 fee of up to 0.25% of the average daily net assets of
the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net Asset
Value" below), plus a sales charge (expressed as a percentage of the offering
price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
------------------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF PUBLIC OFFERING PERCENTAGE OF AMOUNT
SINGLE TRANSACTION PRICE 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
18
<PAGE>
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 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,
19
<PAGE>
Class A shares also may be purchased at net asset value by the following:
(1) trusts for which MSDW Trust (which is an affiliate of the Investment
Manager) provides discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for services
in the nature of investment advisory, administrative and/or brokerage services
(such investments are subject to all of the terms and conditions of such
programs, which may include termination fees, mandatory redemption upon
termination and such other circumstances as specified in the programs'
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 as recordkeeper pursuant to a written
Recordkeeping Services Agreement whose Class B shares have converted to Class A
shares, regardless of the plan's asset size or number of eligible employees;
(5) investors who are clients of a Morgan Stanley Dean Witter Financial
Advisor who joined Morgan Stanley Dean Witter from another investment firm
within six months prior to the date of purchase of Fund shares by such
investors, if the shares are being purchased with the proceeds from a redemption
of shares of an open-end proprietary mutual fund of the Financial Advisor's
previous firm which imposed either a front-end or deferred sales charge,
provided such purchase was made within sixty days after the redemption and the
proceeds of the redemption had been maintained in the interim in cash or a money
market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Selected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE
ALTERNATIVE--CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, will be imposed on
most Class B shares redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments for Class B shares made during the
six years (or, in the case of shares held by certain Qualified Retirement Plans,
three years) preceding the redemption. In addition, Class B shares are subject
to an annual 12b-1 fee of 1.0% of the lesser of: (a) the average daily aggregate
gross sales of the Fund's Class B shares since the inception of the Fund's 12b-1
Plan on July 2, 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 Plan's inception upon which a CDSC has been
imposed or waived, or (b) the average daily net assets of Class B attributable
to Class B shares issued, net of related shares redeemed, since inception of the
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
20
<PAGE>
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 exchange for such shares.
Moreover, in determining whether a CDSC is applicable it will be assumed that
amounts described in (i), (ii) and (iii) above (in that order) are redeemed
first. In addition, no CDSC will be imposed on redemptions of shares which are
attributable to reinvestment of dividends or distributions from, or the proceeds
of, certain Unit Investment Trusts.
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
21
<PAGE>
(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 July 2, 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 a shareholder (collectively, the "Old Shares")) and
shares held by certain employee benefit plans established by DWR and its
affiliate, SPS Transaction Services, Inc.) 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 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
22
<PAGE>
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 Directors 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 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
and shares held by the employee benefit plans referred to in clause (iii) above
prior to July 28, 1997 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,
23
<PAGE>
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 inception of the
Plan on July 2, 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 Plan's inception upon which a CDSC has been
imposed or waived, or (b) the average daily net assets of Class B attributable
to Class B shares issued, net of related shares redeemed, since inception of the
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 February 28, 1998, Class B shares of the Fund
accrued payments under the Plan amounting to $102,153,119, which amount is equal
to 0.69% of the Fund's average daily net assets for the fiscal year. These
payments were calculated pursuant to clause (a) of the compensation formula
under the Plan. All shares held prior to July 28, 1997 (other than the Old
Shares) have been designated Class B shares. For the period July 28, 1997
through February 28, 1998, Class A and Class C shares of the Fund accrued
payments under the Plan amounting to $61,937 and $146,126, respectively, which
amounts on an annualized basis are equal to 0.24% and 1.00% of the average daily
net assets of Class A and Class C, respectively, for such period.
24
<PAGE>
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
$250,796,590 at February 28, 1998, which was equal to 1.48% 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 Directors will consider at that time
the manner in which to treat such expenses. Any cumulative expenses incurred,
but not yet recovered through distribution fees or CDSCs, may or may not be
recovered through future distribution fees or CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to the
Plan in any calendar year in excess of 0.25% or 1.0% of the average daily net
assets of Class A or Class C, respectively, will not be reimbursed by the Fund
through payments in any subsequent year, except that expenses representing a
gross sales commission credited to Morgan Stanley Dean Witter Financial Advisors
or other Selected Broker-Dealer representatives at the time of sale may be
reimbursed in the subsequent calendar year. The Distributor has advised the Fund
that unreimbursed 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 totalled $249,288 in the case of Class C at
December 31 1997, which amount was equal to 0.75% 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), on each day that the New York Stock Exchange is
open by taking 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; 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 the primary market pursuant to procedures adopted by
the Directors); 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
25
<PAGE>
that sale and 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
Directors (valuation of debt securities for which market quotations are not
readily available may be based upon current market prices of securities which
are comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors).
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Directors
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
Directors.
Certain securities in the Fund's portfolio may be valued by an outside
pricing service approved by the Fund's Directors. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon as
the evaluation model parameters, and/or research evaluations by its staff,
including review of broker-dealer market price quotations, in determining what
it believes is the fair valuation of the portfolio securities valued by such
pricing service.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the applicable Class of the Fund (or, if specified by the shareholder,
in shares of any other open-end Morgan Stanley Dean Witter Fund), unless the
shareholder requests that they be paid in cash. Shares so acquired are acquired
at net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Redemptions and Repurchases").
EASYINVEST.-SM- Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, or following
redemption of shares of a Morgan Stanley Dean Witter money market fund, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for investment
in shares of the Fund (see "Purchase of Fund Shares" and "Redemptions and
Repurchases--Involuntary Redemption").
INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS RECEIVED IN CASH. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value per share next determined after receipt
by the Transfer Agent, by returning the check or the proceeds to the Transfer
Agent within thirty days after the payment date. Shares so acquired are acquired
at net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Redemptions and Repurchases.")
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders 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 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
26
<PAGE>
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 through DWR
for use by corporations, the self-employed, eligible 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
adviser.
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, Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust 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
(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
27
<PAGE>
(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.
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
may be exchanged, upon such notice as may be required by applicable regulatory
agencies. Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their Morgan Stanley Dean Witter Financial Advisor
or other Selected Broker-Dealer representative regarding restrictions on
exchange of shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain one 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 broker-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 Broker-Dealer but who wish
to make exchanges directly by writing or telephoning the Transfer Agent) must
complete and forward to the Transfer Agent an Exchange Privilege Authorization
Form,
28
<PAGE>
copies of which may be obtained from the Transfer Agent, to initiate an
exchange. If the Authorization Form is used, exchanges may be made 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
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 will 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 concerning 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
- --------------------------------------------------------------------------------
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 Investment Account without
a share certificate, a written request for redemption to the Fund's Transfer
Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are
held by the shareholder, the shares may be redeemed by surrendering the
certificates with a written request for redemption, along with any additional
information 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 or telegraphic request of the shareholder. The repurchase
price is the net asset value next determined (see "Purchase of Fund Shares")
after such repurchase order is received by DWR or other Selected Broker-Dealer,
reduced by any applicable CDSC.
The CDSC, if any, will be the only fee imposed by the Fund or the
Distributor. The 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; E.G., when normal trading is not taking place on the New
York Stock Exchange. If the shares to be redeemed have recently been purchased
by check, payment of the redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment
29
<PAGE>
has been honored (not more than fifteen days from the time of receipt of the
check by the Transfer Agent). Shareholders maintaining margin accounts with DWR
or another Selected Broker-Dealer are referred to their Morgan Stanley Dean
Witter Financial Advisor or other Selected Broker-Dealer representative
regarding restrictions on redemption of shares of the Fund pledged in the margin
account.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 35 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase in
shares of the Fund in the same Class from which such shares were redeemed or
repurchased at 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 to redeem, upon sixty
days' notice and at net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement Account or Custodial Account under
Section 403(b)(7) of the Internal Revenue Code) whose shares have a value of
less than $100, or such lesser amount as may be fixed by the Fund's Board of
Directors or, in the case of an account opened through EasyInvest-SM-, if after
twelve months the shareholder has invested less than $1,000 in the account.
However, before the Fund redeems such shares and sends the proceeds to the
shareholder, it will notify the shareholder that the value of the shares is less
than the applicable amount and allow the shareholder sixty days to make an
additional investment in an amount which will increase the value of the account
to at least the applicable amount before the redemption is processed. No CDSC
will be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Fund declares dividends separately for
each Class of shares and intends to pay quarterly income dividends and to
distribute net short-term and long-term capital gains, if any, at least once per
year. The Fund may, however, determine either to distribute or to retain all or
part of any long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in additional
shares of the same Class and will be 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 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
on such income and capital gains. Shareholders will normally have to pay Federal
income taxes, and any state income taxes, on the dividends and distributions
they receive from the Fund. Such dividends and distributions, to the extent that
they are derived from net investment income or net short-term capital gains, are
taxable to the shareholder as ordinary dividend income regardless of whether the
shareholder receives
such payments in additional shares or in cash. Any dividends declared in the
last quarter of any calendar year which are paid in the following calendar
30
<PAGE>
year prior to February 1 will be deemed, for tax purposes, to have been received
by the shareholder in the prior year. Dividend distributions will be eligible
for the Federal dividends received deduction available to the Fund's corporate
shareholders only to the extent the aggregate dividends received by the Fund
would be eligible for the deduction if the Fund were the shareholder claiming
the dividends received deduction. In this regard, a 46-day holding period
generally must be met.
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 will, in effect, represent a return of
a portion of each shareholder's investment. All, or a portion, of such payments
will not be taxable to shareholders.
After the end of the year, shareholders will be sent full information on
their dividends and capital gains distributions for tax purposes. Shareholders
will also be notified of the 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
- --------------------------------------------------------------------------------
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 would be incurred by shareholders,
for the stated periods. It also assumes reinvestment of all dividends and
distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
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 a
hypothetical investment of $10,000, $50,000 or $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.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS. All shares of common stock 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
31
<PAGE>
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.
Under ordinary circumstances, the Fund is not required, nor does it intend,
to hold Annual Meetings of Shareholders. The Directors may call Special Meetings
of Shareholders for action by shareholder vote as may be required by the Act or
the Fund's By-Laws.
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 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.
32
<PAGE>
Morgan Stanley Dean Witter
Dividend Growth Securities Inc.
Two World Trade Center
New York, New York 10048
BOARD OF DIRECTORS
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
Paul D. Vance
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
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
MORGAN STANLEY DEAN WITTER
DIVIDEND GROWTH
SECURITIES
[PHOTO]
PROSPECTUS -- JUNE 24, 1998
<PAGE>
<TABLE>
<S> <C>
STATEMENT OF ADDITIONAL INFORMATION MORGAN STANLEY
JUNE 24, 1998 DEAN WITTER
DIVIDEND
GROWTH
SECURITIES INC.
</TABLE>
- ------------------------------------------------------------
Morgan Stanley Dean Witter Dividend Growth Securities Inc. (the "Fund") is
an open-end, diversified management investment company whose investment
objective is to provide reasonable current income and long-term growth of income
and capital. The Fund invests primarily in common stock of companies with a
record of paying dividends and the potential for increasing dividends. (See
"Investment Practices and Policies".)
A Prospectus for the Fund dated June 24, 1998, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address or telephone numbers listed below or
from the Fund's Distributor, Morgan Stanley Dean Witter Distributors Inc., or
from Dean Witter Reynolds Inc., at any of its branch offices. This Statement of
Additional Information is not a Prospectus. It contains information in addition
to and more detailed than that set forth in the Prospectus. It is intended to
provide additional information regarding the activities and operations of the
Fund, and should be read in conjunction with the Prospectus.
Morgan Stanley Dean Witter
Dividend Growth Securities Inc.
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Fund and its Management...................................... 3
Directors and Officers........................................... 7
Investment Practices and Policies................................ 13
Investment Restrictions.......................................... 15
Portfolio Transactions and Brokerage............................. 16
The Distributor.................................................. 18
Purchase of Fund Shares.......................................... 23
Shareholder Services............................................. 25
Redemptions and Repurchases...................................... 30
Dividends, Distributions and Taxes............................... 32
Performance Information.......................................... 33
Shares of the Fund............................................... 34
Custodian and Transfer Agent..................................... 34
Independent Accountants.......................................... 34
Reports to Shareholders.......................................... 35
Legal Counsel.................................................... 35
Experts.......................................................... 35
Registration Statement........................................... 35
Financial Statements............................................. 36
Report of Independent Accountants................................ 51
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
THE FUND
The Fund was incorporated in the state of Maryland on December 22, 1980
under the name InterCapital Dividend Growth Securities Inc. On March 16, 1983
the Fund's shareholders approved a change in the Fund's name, effective March
21, 1983, to Dean Witter Dividend Growth Securities Inc. On June 22, 1998, the
name of the Fund was changed to Morgan Stanley Dean Witter Dividend Growth
Securities Inc.
THE INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc. (the "Investment Manager" or "MSDW
Advisors"), a Delaware corporation whose address is Two World Trade Center, New
York, New York 10048, is the Fund's investment manager. MSDW Advisors is a
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. ("MSDW"), a Delaware
corporation. The daily management of the Fund and research relating to the
Fund's portfolio is conducted by or under the direction of officers of the Fund
and of the Investment Manager, subject to review by the Fund's Board of
Directors. Information as to these Directors and Officers is contained under the
caption "Directors and Officers."
MSDW Advisors is the investment manager or investment advisor of the
following investment companies, which are collectively referred to as the
"Morgan Stanley Dean Witter Funds":
<TABLE>
<CAPTION>
OPEN-END FUNDS
<C> <S>
1 Active Assets California Tax-Free Trust
2 Active Assets Government Securities Trust
3 Active Assets Money Trust
4 Active Assets Tax-Free Trust
5 Morgan Stanley Dean Witter American Value Fund
6 Morgan Stanley Dean Witter Balanced Growth Fund
7 Morgan Stanley Dean Witter Balanced Income Fund
8 Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
9 Morgan Stanley Dean Witter California Tax-Free Income Fund
10 Morgan Stanley Dean Witter Capital Appreciation Fund
11 Morgan Stanley Dean Witter Capital Growth Securities
12 Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS" Portfolio
13 Morgan Stanley Dean Witter Convertible Securities Trust
14 Morgan Stanley Dean Witter Developing Growth Securities Trust
15 Morgan Stanley Dean Witter Diversified Income Trust
16 Morgan Stanley Dean Witter Dividend Growth Securities Inc.
17 Morgan Stanley Dean Witter Equity Fund
18 Morgan Stanley Dean Witter European Growth Fund Inc.
19 Morgan Stanley Dean Witter Federal Securities Trust
20 Morgan Stanley Dean Witter Financial Services Trust
21 Morgan Stanley Dean Witter Fund of Funds
22 Dean Witter Global Asset Allocation Fund
23 Morgan Stanley Dean Witter Global Dividend Growth Securities
24 Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
25 Morgan Stanley Dean Witter Global Utilities Fund
26 Morgan Stanley Dean Witter Growth Fund
27 Morgan Stanley Dean Witter Hawaii Municipal Trust
28 Morgan Stanley Dean Witter Health Sciences Trust
29 Morgan Stanley Dean Witter High Yield Securities Inc.
30 Morgan Stanley Dean Witter Income Builder Fund
31 Morgan Stanley Dean Witter Information Fund
</TABLE>
3
<PAGE>
<TABLE>
<C> <S>
32 Morgan Stanley Dean Witter Intermediate Income Securities
33 Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
34 Morgan Stanley Dean Witter International SmallCap Fund
35 Morgan Stanley Dean Witter Japan Fund
36 Morgan Stanley Dean Witter Limited Term Municipal Trust
37 Morgan Stanley Dean Witter Liquid Asset Fund Inc.
38 Morgan Stanley Dean Witter Market Leader Trust
39 Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
40 Morgan Stanley Dean Witter Mid-Cap Growth Fund
41 Morgan Stanley Dean Witter Multi-State Municipal Series Trust
42 Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
43 Morgan Stanley Dean Witter New York Municipal Money Market Trust
44 Morgan Stanley Dean Witter New York Tax-Free Income Fund
45 Morgan Stanley Dean Witter Pacific Growth Fund Inc.
46 Morgan Stanley Dean Witter Precious Metals and Minerals Trust
47 Dean Witter Retirement Series
48 Morgan Stanley Dean Witter Select Dimensions Investment Series
49 Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
50 Morgan Stanley Dean Witter Short-Term Bond Fund
51 Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
52 Morgan Stanley Dean Witter Special Value Fund
53 Morgan Stanley Dean Witter S&P 500 Index Fund
54 Morgan Stanley Dean Witter Strategist Fund
55 Morgan Stanley Dean Witter Tax-Exempt Securities Trust
56 Morgan Stanley Dean Witter Tax-Free Daily Income Trust
57 Morgan Stanley Dean Witter U.S. Government Money Market Trust
58 Morgan Stanley Dean Witter U.S. Government Securities Trust
59 Morgan Stanley Dean Witter Utilities Fund
60 Morgan Stanley Dean Witter Value-Added Market Series
61 Morgan Stanley Dean Witter Variable Investment Series
62 Morgan Stanley Dean Witter World Wide Income Trust
<CAPTION>
CLOSED-END FUNDS
<C> <S>
1 InterCapital California Insured Municipal Income Trust
2 InterCapital California Quality Municipal Securities
3 Dean Witter Government Income Trust
4 High Income Advantage Trust
5 High Income Advantage Trust II
6 High Income Advantage Trust III
7 InterCapital Income Securities Inc.
8 InterCapital Insured California Municipal Securities
9 InterCapital Insured Municipal Bond Trust
10 InterCapital Insured Municipal Income Trust
11 InterCapital Insured Municipal Securities
12 InterCapital Insured Municipal Trust
13 Municipal Income Opportunities Trust
14 Municipal Income Opportunities Trust II
15 Municipal Income Opportunities Trust III
16 Municipal Income Trust
17 Municipal Income Trust II
18 Municipal Income Trust III
19 Municipal Premium Income Trust
</TABLE>
4
<PAGE>
<TABLE>
<C> <S>
20 InterCapital New York Quality Municipal Securities
21 Morgan Stanley Dean Witter Prime Income Trust
22 InterCapital Quality Municipal Income Trust
23 InterCapital Quality Municipal Investment Trust
24 InterCapital Quality Municipal Securities
</TABLE>
In addition, Morgan Stanley Dean Witter Services Company Inc. ("MSDW
Services"), a wholly-owned subsidiary of MSDW Advisors, serves as manager for
the following investment companies for which TCW Funds Management, Inc. is the
investment advisor (the "TCW/DW Funds"):
<TABLE>
<CAPTION>
OPEN-END FUNDS
<C> <S>
1 TCW/DW Emerging Markets Opportunities Trust
2 TCW/DW Global Telecom Trust
3 TCW/DW Income and Growth Fund
4 TCW/DW Latin American Growth Fund
5 TCW/DW Mid-Cap Equity Trust
6 TCW/DW North American Government Income Trust
7 TCW/DW Small Cap Growth Fund
8 TCW/DW Total Return Trust
<CAPTION>
CLOSED-END FUNDS
<C> <S>
1 TCW/DW Term Trust 2000
2 TCW/DW Term Trust 2002
3 TCW/DW Term Trust 2003
</TABLE>
MSDW Advisors also serves as: (i) administrator of The BlackRock Strategic
Term Trust Inc., a closed-end investment company; (ii) sub-administrator of
Templeton Global Governments Income Trust, a closed-end investment company; and
(iii) investment advisor of Offshore Dividend Growth Fund and Offshore Money
Market Fund, mutual funds established under the laws of the Cayman Islands and
available only to investors who are participants in the International Active
Assets Account program and are neither citizens nor residents of the United
States.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage the
investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets, and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective and policies.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help, bookkeeping and certain legal services as the Fund may
reasonably require in the conduct of its business, including the preparation of
prospectuses, proxy statements and reports required to be filed with federal and
state securities commissions (except insofar as the participation or assistance
of independent accountants and attorneys is, in the opinion of the Investment
Manager, necessary or desirable). In addition, the Investment Manager pays the
salaries of all personnel, including officers of the Fund, who are employees of
the Investment Manager. The Investment Manager also bears the cost of telephone
service, heat, light, power and other utilities provided to the Fund. The
Investment Manager has retained MSDW Services to provide its administrative
services under the Agreement.
Expenses not expressly assumed by the Investment Manager under the Agreement
or by the Distributor of the Fund's shares, Morgan Stanley Dean Witter
Distributors Inc. ("MSDW Distributors" or the "Distributor") (see "The
Distributor"), will be paid by the Fund. These expenses will be allocated among
the four classes of shares of the Fund (each, a "Class") pro rata based on the
net assets of the
5
<PAGE>
Fund attributable to each Class, except as described below. Such expenses
include, but are not limited to: expenses of the Plan of Distribution pursuant
to Rule 12b-1 (the "12b-1 fee") (see "The Distributor"); charges and expenses of
any registrar, custodian, stock transfer and dividend disbursing agent;
brokerage commissions; taxes; engraving and printing stock certificates;
registration costs of the Fund and its shares under federal and state securities
laws; the cost and expense of printing, including typesetting, and distributing
Prospectuses and Statements of Additional Information of the Fund and
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and directors' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of directors or
members of any advisory board or committee who are not employees of the
Investment Manager or any corporate affiliate of the Investment Manager; all
expenses incident to any dividend, withdrawal or redemption options; charges and
expenses of any outside service used for pricing of the Fund's shares; fees and
expenses of legal counsel, including counsel to the directors who are not
interested persons of the Fund or of the Investment Manager (not including
compensation or expenses of attorneys who are employees of the Investment
Manager), and independent accountants; membership dues of industry associations;
interest on Fund borrowings; postage; insurance premiums on property or
personnel (including officers and directors) of the Fund which inure to its
benefit; extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification relating thereto); and
all other costs of the Fund's operation. The 12b-1 fees relating to a particular
Class will be allocated directly to that Class. In addition, other expenses
associated with a particular Class (except advisory or custodial fees) may be
allocated directly to that Class, provided that such expenses are reasonably
identified as specifically attributable to that Class and the direct allocation
to that Class is approved by the Directors.
As full compensation for the services and facilities furnished to the Fund
and 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 $1 billion; 0.475% of the portion of daily net assets
exceeding $1 billion but not exceeding $2 billion; 0.45% of the portion of daily
net assets exceeding $2 billion but not exceeding $3 billion; 0.425% of the
portion of daily net assets exceeding $3 billion but not exceeding $4 billion;
0.40% of the portion of daily net assets exceeding $4 billion but not exceeding
$5 billion; 0.375% of the portion of daily net assets exceeding $5 billion but
not exceeding $6 billion; 0.350% of the portion of daily net assets exceeding $6
billion but not exceeding $8 billion; 0.325% of the portion of daily net assets
exceeding $8 billion but not exceeding $10 billion; 0.30% of the portion of
daily net assets exceeding $10 billion but not exceeding $15 billion; and 0.275%
on the portion of daily net assets exceeding $15 billion. The management fee is
allocated among the Classes pro rata based on the net assets of the Fund
attributable to each Class. For the fiscal years ended February 29, 1996,
February 28, 1997 and February 28, 1998 the Fund accrued to the Investment
Manager total compensation of $34,849,553, $43,410,540 and $54,825,425,
respectively.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder, the
Investment Manager is not liable to the Fund or any of its investors for any act
or omission by the Investment Manager or for any losses sustained by the Fund or
its investors. The Agreement in no way restricts the Investment Manager from
acting as investment manager or advisor to others.
The Agreement was initially approved by the Board of Directors on February
21, 1997 and by the shareholders of the Fund at a Special Meeting of
Shareholders held on May 21, 1997. The Agreement is substantially identical to a
prior investment management agreement which was initially approved by the Board
of Directors on October 30, 1992 and by the shareholders of the Fund at a
Special Meeting of Shareholders held on January 12, 1993 as such agreement had
been amended by the Board of Directors at their meeting held on April 24, 1997
to provide a breakpoint in the management fee that reduced the compensation
received by the Investment Manager under the agreement on assets exceeding $10
billion. The Agreement took effect on May 31, 1997 upon the consummation of the
merger of
6
<PAGE>
Dean Witter, Discover & Co. with Morgan Stanley Group Inc. The Agreement may be
terminated at any time, without penalty, on thirty days' notice by the Board of
Directors of the Fund, by the holders of a majority, as defined in the
Investment Company Act of 1940 (the "Act"), of the outstanding shares of the
Fund, or by the Investment Manager. The Agreement will automatically terminate
in the event of its assignment (as defined in the Act).
Under its terms, the Agreement has an initial term ending April 30, 1999 and
will remain in effect from year to year thereafter, provided continuance of the
Agreement is approved at least annually by the vote of the holders of a
majority, as defined in the Act, of the outstanding shares of the Fund, or by
the Board of Directors of the Fund; provided that in either event such
continuance is approved annually by the vote of a majority of the Directors of
the Fund who are not parties to the Agreement or "interested persons" (as
defined in the Act) of any such party (the "Independent Directors"), which vote
must be cast in person at a meeting called for the purpose of voting on such
approval.
The following owned more than 5% of the outstanding shares of Class D of the
Fund on June 4, 1998: Pace & Co. A/C DWRF8523532, FBO DWR Employee Ret. Invest.,
C/O Mellon Bank, P.O. Box 3198 M/F Operations, Pittsburgh, PA
15230-3198--73.049%.
The Fund has acknowledged that the name "Morgan Stanley Dean Witter" is a
property right of MSDW. The Fund has agreed that MSDW, or any corporate
affiliate of MSDW, may use, or at any time permit others to use, the name
"Morgan Stanley Dean Witter." The Fund has also agreed that in the event the
Agreement is terminated, or if the affiliation between MSDW Advisors and its
parent company is terminated, the Fund will eliminate the name "Morgan Stanley
Dean Witter" from its name if MSDW, or any corporate affiliate of MSDW, shall so
request.
DIRECTORS AND OFFICERS
- --------------------------------------------------------------------------------
The Directors and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with the
86 Morgan Stanley Dean Witter Funds and the 11 TCW/DW Funds, are shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------ ----------------------------------------------------------------------
<S> <C>
Michael Bozic (57) Chairman and Chief Executive Officer of Levitz Furniture Corporation
Director (since November, 1995); Director or Trustee of the Dean Witter Funds;
c/o Levitz Furniture Corporation formerly President and Chief Executive Officer of Hills Department
7887 N. Federal Hwy. Stores (May, 1991-July, 1995); formerly variously Chairman, Chief
Boca Raton, Florida Executive Officer, President and Chief Operating Officer (1987-1991)
of the Sears Merchandise Group of Sears, Roebuck and Co.; Director of
Eaglemark Financial Services, Inc., and Weirton Steel Corporation.
Charles A. Fiumefreddo* (65) Chairman, Director or Trustee, President and Chief Executive Officer
Chairman, President, of the Morgan Stanley Dean Witter Funds; Chairman, Chief Executive
Chief Executive Officer and Director Officer and Trustee of the TCW/DW Funds; formerly Chairman, Chief
Two World Trade Center Executive Officer and Director of MSDW Advisors, MSDW Distributors and
New York, New York MSDW Services, Executive Vice President and Director of Dean Witter
Reynolds Inc. ("DWR"), Chairman and Director of Morgan Stanley Dean
Witter Trust FSB ("MSDW Trust"), and Director and/or officer of
various MSDW subsidiaries (until June, 1998).
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------ ----------------------------------------------------------------------
<S> <C>
Edwin J. Garn (65) Director or Trustee of the Morgan Stanley Dean Witter Funds; formerly
Director United States Senator (R-Utah) (1974-1992) and Chairman, Senate
c/o Huntsman Corporation Banking Committee (1980-1986); formerly Mayor of Salt Lake City, Utah
500 Huntsman Way (1971-1974); formerly Astronaut, Space Shuttle Discovery (April 12-19,
Salt Lake City, Utah 1985); Vice Chairman, Huntsman Corporation (since January, 1993);
Director of Franklin Covey (time management systems), John Alden
Financial Corp. (health insurance), United Space Alliance (joint
venture between Lockheed Martin and the Boeing Company) and Nuskin
Asia Pacific (multilevel marketing); member of the board of various
civic and charitable organizations.
John R. Haire (73) Chairman of the Audit Committee and Director or Trustee of the Morgan
Director Stanley Dean Witter Funds; Chairman of the Audit Committee and
Two World Trade Center Chairman of the Committee of the Independent Trustees and Trustee of
New York, New York the TCW/DW Funds; formerly President, Council for Aid to Education
(1978-1989) and Chairman and Chief Executive Officer of Anchor
Corporation, an Investment Adviser (1964-1978).
Wayne E. Hedien (64) Retired; Director or Trustee of the Morgan Stanley Dean Witter Funds;
Director Director of The PMI Group, Inc. (private mortgage insurance); Trustee
c/o Gordon Altman Butowsky and Vice Chairman of The Field Museum of Natural History; formerly
Weitzen Shalov & Wein associated with the Allstate Companies (1966-1994), most recently as
Counsel to the Independent Directors Chairman of The Allstate Corporation (March, 1993-December, 1994) and
114 West 47th Street Chairman and Chief Executive Officer of its wholly-owned subsidiary,
New York, New York Allstate Insurance Company (July, 1989-December, 1994); director of
various other business and charitable organizations.
Dr. Manuel H. Johnson (49) Senior Partner, Johnson Smick International, Inc., a consulting firm;
Director Co-Chairman and a founder of the Group of Seven Counsel (G7C), an
c/o Johnson Smick International, Inc. international economic commission; Director or Trustee of the Morgan
1133 Connecticut Avenue, N.W. Stanley Dean Witter Funds; Trustee of the TCW/DW Funds; Director of
Washington, DC NASDAQ (since June, 1995); Chairman and Trustee of the Financial
Accounting Foundation (oversight organization for the Financial
Accounting Standards Board); Director of Greenwich Capital Markets
Inc. (broker-dealer) and NVR, Inc. (home construction); formerly Vice
Chairman of the Board of Governors of the Federal Reserve System
(1986-1990) and Assistant Secretary of the U.S. Treasury.
Michael E. Nugent (62) General Partner, Triumph Capital, L.P., a private investment
Director partnership; Director or Trustee of the Morgan Stanley Dean Witter
c/o Triumph Capital, L.P. Funds; Trustee of the TCW/DW Funds; formerly Vice President, Bankers
237 Park Avenue Trust Company and BT Capital Corporation (1984-1988); director of
New York, New York various business organizations.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------ ----------------------------------------------------------------------
<S> <C>
Philip J. Purcell* (54) Chairman of the Board of Directors and Chief Executive Officer of
Director MSDW, DWR and Novus Credit Services Inc.; Director of MSDW Advisors,
1585 Broadway MSDW Services and MSDW Distributors; Director or Trustee of the Morgan
New York, New York Stanley Dean Witter Funds; Director and/or officer of various MSDW
subsidiaries.
John L. Schroeder (67) Retired; Director or Trustee of the Morgan Stanley Dean Witter Funds;
Director Trustee of the TCW/DW Funds; Director of Citizens Utilities Company;
c/o Gordon Altman Butowsky formerly Executive Vice President and Chief Investment Officer of the
Weitzen Shalov & Wein Home Insurance Company (August, 1991-September, 1995).
Counsel to the Independent Directors
114 West 47th Street
New York, New York
Barry Fink (43) Senior Vice President (since March, 1997) and Secretary and General
Vice President, Counsel (since February, 1997) of MSDW Advisors and MSDW Services;
Secretary and General Counsel Senior Vice President (since March, 1997) and Assistant Secretary and
Two World Trade Center Assistant General Counsel (since February, 1997) of MSDW Distributors;
New York, New York Assistant Secretary of DWR (since August, 1996); Vice President,
Secretary and General Counsel of the Morgan Stanley Dean Witter Funds
and the TCW/DW Funds (since February, 1997); previously First Vice
President (June, 1993-February, 1997), Vice President (until June,
1993) and Assistant Secretary and Assistant General Counsel of MSDW
Advisors and MSDW Services and Assistant Secretary of the Morgan
Stanley Dean Witter Funds and TCW/DW Funds.
Paul D. Vance (62) Senior Vice President of MSDW Advisors; Vice President of various
Vice President Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Thomas F. Caloia (52) First Vice President and Assistant Treasurer of MSDW Advisors and MSDW
Treasurer Services; Treasurer of the Morgan Stanley Dean Witter Funds and the
Two World Trade Center TCW/DW Funds.
New York, New York
</TABLE>
- ------------
*Denotes Directors who are "interested persons" of the Fund, as defined in the
Act.
In addition, Mitchell M. Merin, President, Chief Executive Officer and
Director of MSDW Advisors and MSDW Services, Chairman and Director of MSDW
Distributors and MSDW Trust, Executive Vice President and Director of DWR, and
Director of SPS Transaction Services, Inc. and various other MSDW subsidiaries,
Robert M. Scanlan, President and Chief Operating Officer of MSDW Advisors and
MSDW Services, Executive Vice President of MSDW Distributors and MSDW Trust and
Director of MSDW Trust, Robert S. Giambrone, Senior Vice President of MSDW
Advisors, MSDW Services, MSDW Distributors and MSDW Trust and Director of MSDW
Trust, Joseph J. McAlinden, Executive Vice President and Chief Investment
Officer of MSDW Advisors and Director of MSDW Trust, and Kenton J. Hinchliffe,
Mark Bavoso and Ira N. Ross, Senior Vice Presidents of MSDW Advisors, are Vice
Presidents of the Fund, and Marilyn K. Cranney and Carsten Otto, First Vice
Presidents and Assistant General Counsels of MSDW Advisors and MSDW Services,
Frank Bruttomesso, LouAnne D. McInnis and Ruth Rossi, Vice Presidents and
Assistant General Counsels of MSDW Advisors and MSDW Services, and Todd Lebo, a
staff attorney with MSDW Advisors, are Assistant Secretaries of the Fund.
9
<PAGE>
THE BOARD OF DIRECTORS, THE INDEPENDENT DIRECTORS, AND THE COMMITTEES
The Board of Directors consists of nine (9) directors. These same
individuals also serve as directors or trustees for all of the Morgan Stanley
Dean Witter Funds, and are referred to in this section as Directors. As of the
date of this Statement of Additional Information, there are a total of 86 Morgan
Stanley Dean Witter Funds, comprised of 130 portfolios. As of May 31, 1998, the
Morgan Stanley Dean Witter Funds had total net assets of approximately $110.3
billion and more than six million shareholders.
Seven Directors (77% of the total number) have no affiliation or business
connection with MSDW Advisors or any of its affiliated persons and do not own
any stock or other securities issued by MSDW Advisors' parent company, MSDW.
These are the "disinterested" or "independent" Directors. Four of the seven
independent Directors are also Independent Directors or Trustees of the TCW/DW
Funds.
Law and regulation establish both general guidelines and specific duties for
the Independent Directors. The Morgan Stanley Dean Witter Funds seek as
Independent Directors individuals of distinction and experience in business and
finance, government service or academia; these are people whose advice and
counsel are in demand by others and for whom there is often competition. To
accept a position on the Funds' Boards, such individuals may reject other
attractive assignments because the Funds make substantial demands on their time.
Indeed, by serving on the Funds' Boards, certain Directors who would otherwise
be qualified and in demand to serve on bank boards would be prohibited by law
from doing so.
All of the Independent Directors serve as members of the Audit Committee.
Three of them also serve as members of the Derivatives Committee. During the
calendar year ended December 31, 1997, the Audit Committee, the Derivatives
Committee and the Independent Directors held a combined total of seventeen
meetings.
The Independent Directors are charged with recommending to the full Board
approval of management, advisory and administration contracts, Rule 12b-1 plans
and distribution and underwriting agreements; continually reviewing Fund
performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among Funds in
the same complex; and approving fidelity bond and related insurance coverage and
allocations, as well as other matters that arise from time to time. The
Independent Directors are required to select and nominate individuals to fill
any Independent Director vacancy on the Board of any Fund that has a Rule 12b-1
plan of distribution. Most of the Morgan Stanley Dean Witter Funds have such a
plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; and reviewing the adequacy of the Fund's system of internal
controls.
Finally, the Board of each Fund has formed a Derivatives Committee to
approve parameters for and monitor the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT DIRECTORS FOR ALL MORGAN
STANLEY DEAN WITTER FUNDS
The Independent Directors and the Funds' management believe that having the
same Independent Directors for each of the Morgan Stanley Dean Witter Funds
avoids the duplication of effort that would arise from having different groups
of individuals serving as Independent Directors for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Directors of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and enhances
their ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the possibility of separate groups of
Independent Directors arriving at conflicting decisions regarding operations and
management of the Funds and avoids the cost and confusion that would likely
ensue. Finally, having the same Independent
10
<PAGE>
Directors serve on all Fund Boards enhances the ability of each Fund to obtain,
at modest cost to each separate Fund, the services of Independent Directors of
the caliber, experience and business acumen of the individuals who serve as
Independent Directors of the Morgan Stanley Dean Witter Funds.
COMPENSATION OF INDEPENDENT DIRECTORS
The Fund pays each Independent Director an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Directors, the Independent
Directors or Committees of the Board of Directors attended by the Director (the
Fund pays the Chairman of the Audit Committee an additional annual fee of $750).
If a Board meeting and a meeting of the Independent Directors or a Committee
meeting, or a meeting of the Independent Directors and/or more than one
Committee meeting, take place on a single day, the Directors are paid a single
meeting fee by the Fund. The Fund also reimburses such Directors for travel and
other out-of-pocket expenses incurred by them in connection with attending such
meetings. Directors and officers of the Fund who are or have been employed by
the Investment Manager or an affiliated company receive no compensation or
expense reimbursement from the Fund for their services as Director. Mr. Haire
currently serves as Chairman of the Audit Committee. Prior to June 1, 1998, Mr.
Haire also served as Chairman of the Independent Directors, for which services
the Fund paid him an additional annual fee of $1,200.
The following table illustrates the compensation paid to the Fund's
Independent Directors by the Fund for the fiscal year ended February 28, 1998.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT DIRECTOR FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,650
Edwin J. Garn................................................. 1,750
John R. Haire................................................. 3,700
Wayne E. Hedien............................................... 832
Dr. Manuel H. Johnson......................................... 1,700
Michael E. Nugent............................................. 1,750
John L. Schroeder............................................. 1,750
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Directors for the calendar year ended December 31, 1997 for services
to the 84 Morgan Stanley Dean Witter Funds and, in the case of Messrs. Haire,
Johnson, Nugent and Schroeder, the 14 TCW/DW Funds that were in operation at
December 31, 1997. Mr. Haire serves as Chairman of the Audit Committee of each
Morgan Stanley Dean Witter Fund and each TCW/DW Fund and, prior to June 1, 1998,
also served as Chairman of the Independent Directors or Trustees of those Funds.
With respect to Messrs. Haire, Johnson, Nugent and Schroeder, the TCW/DW Funds
are included solely because of a limited exchange privilege between those Funds
and five Morgan Stanley Dean Witter Money Market Funds. Mr. Hedien's term as
Director or Director of each Morgan Stanley Dean Witter Fund commenced on
September 1, 1997.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS TOTAL CASH
CHAIRMAN OF FOR SERVICE COMPENSATION
FOR SERVICE INDEPENDENT AS FOR
AS DIRECTOR OR DIRECTORS/TRUSTEES CHAIRMAN OF SERVICES TO
TRUSTEE AND AND AUDIT INDEPENDENT 84
COMMITTEE FOR SERVICE AS COMMITTEES OF TRUSTEES MORGAN
MEMBER OF 84 TRUSTEE AND 84 AND AUDIT STANLEY
MORGAN STANLEY COMMITTEE MORGAN STANLEY COMMITTEES OF DEAN WITTER
NAME OF DEAN WITTER MEMBER OF 14 DEAN WITTER 14 FUNDS AND 14
INDEPENDENT DIRECTOR FUNDS TCW/DW FUNDS FUNDS TCW/DW FUNDS TCW/DW FUNDS
- --------------------------- ---------------- ---------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Michael Bozic.............. $133,602 -- -- -- $133,602
Edwin J. Garn.............. 149,702 -- -- -- 149,702
John R. Haire.............. 149,702 $73,725 $157,463 $ 25,350 406,240
Wayne E. Hedien............ 39,010 -- -- -- 39,010
Dr. Manuel H. Johnson...... 145,702 71,125 -- -- 216,827
Michael E. Nugent.......... 149,702 73,725 -- -- 223,427
John L. Schroeder.......... 149,702 73,725 -- -- 223,427
</TABLE>
11
<PAGE>
As of the date of this Statement of Additional Information, 57 of the Morgan
Stanley Dean Witter Funds, including the Fund, have adopted a retirement program
under which an Independent Director who retires after serving for at least five
years (or such lesser period as may be determined by the Board) as an
Independent Director or Trustee of any Morgan Stanley Dean Witter Fund that has
adopted the retirement program (each such Fund referred to as an "Adopting Fund"
and each such Trustee referred to as an "Eligible Director") is entitled to
retirement payments upon reaching the eligible retirement age (normally, after
attaining age 72). Annual payments are based upon length of service. Currently,
upon retirement, each Eligible Director is entitled to receive from the Adopting
Fund, commencing as of his or her retirement date and continuing for the
remainder of his or her life, an annual retirement benefit (the "Regular
Benefit") equal to 29.41% of his or her Eligible Compensation plus 0.4901667% of
such Eligible Compensation for each full month of service as an Independent
Director or Trustee of any Adopting Fund in excess of five years up to a maximum
of 58.82% after ten years of service. The foregoing percentages may be changed
by the Board.(1) "Eligible Compensation" is one-fifth of the total compensation
earned by such Eligible Director for service to the Adopting Fund in the five
year period prior to the date of the Eligible Director's retirement. Benefits
under the retirement program are not secured or funded by the Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Directors by the Fund for the fiscal year ended February 28,
1998 and by the 57 Morgan Stanley Dean Witter Funds (including the Fund) for the
year ended December 31, 1997, and the estimated retirement benefits for the
Fund's Independent Directors, to commence upon their retirement, from the Fund
as of February 28, 1998 and from the 57 Morgan Stanley Dean Witter Funds as of
December 31, 1997.
RETIREMENT BENEFITS FROM THE FUND AND ALL MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS
---------------------------
ESTIMATED RETIREMENT BENEFITS ESTIMATED ANNUAL
CREDITED ACCRUED AS EXPENSES BENEFITS
YEARS ESTIMATED UPON RETIREMENT(2)
OF SERVICE PERCENTAGE ---------------------- ------------------
AT OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT DIRECTOR (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- ---------------------------- ------------ ------------ ------ ------------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic............... 10 58.82% $ 378 $ 20,499 $1,029 $ 55,026
Edwin J. Garn............... 10 58.82 549 30,878 1,029 55,026
John R. Haire............... 10 58.82 (715) (19,823)(3) 2,308 132,002
Wayne E. Hedien............. 9 50.00 131 0 875 46,772
Dr. Manuel H. Johnson....... 10 58.82 229 12,832 1,029 55,026
Michael E. Nugent........... 10 58.82 392 22,546 1,029 55,026
John L. Schroeder........... 8 49.02 733 39,350 861 46,123
</TABLE>
- ------------
(1) An Eligible Director may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Director
and his or her spouse on the date of such Eligible Director retirement. The
amount estimated to be payable under this method, through the remainder of
the later of the lives of such Eligible Director and spouse, will be the
actuarial equivalent of the Regular Benefit. In addition, the Eligible
Director may elect that the surviving spouse's periodic payment of benefits
will be equal to either 50% or 100% of the previous periodic amount, an
election that, respectively, increases or decreases the previous periodic
amount so that the resulting payments will be the actuarial equivalent of
the Regular Benefit.
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Director's elections described in Footnote (1)
above.
(3) This number reflects the effect of the extension of Mr. Haire's term as
Director or Director until May 1, 1999.
As of the date of this Statement of Additional Information, the aggregate
number of shares of common stock of the Fund owned by the Fund's officers and
Directors as a group was less than 1 percent of the Fund's shares of common
stock outstanding.
12
<PAGE>
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
PORTFOLIO TRADING
It is anticipated that the Fund's portfolio turnover rate will not exceed
90% in any one year. A 90% turnover rate would occur, for example, if 90% of the
securities held in the Fund's portfolio (excluding all securities whose
maturities at acquisition were one year or less) were sold and replaced within
one year.
SECURITY LOANS
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and other financial institutions,
provided that such loans are callable at any time by the Fund (subject to notice
provisions described below), and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to applicable
regulations and that are at least equal to the market value, determined daily,
of the loaned securities. The advantage of such loans is that the Fund continues
to receive the income on the loaned securities while at the same time earning
interest on the cash amounts deposited as collateral, which will be invested in
short-term obligations.
A loan may be terminated by the borrower on one business day's notice, or by
the Fund on four business days' notice. If the borrower fails to deliver the
loaned securities within four days after receipt of notice, the Fund could use
the collateral to replace the securities while holding the borrower liable for
any excess of replacement cost over collateral. As with any extensions of
credit, there are risks of delay in recovery and, in some cases, even loss of
rights in the collateral should the borrower of the securities fail financially.
However, these loans of portfolio securities will only be made to firms deemed
by the Fund's management to be creditworthy and when the income which can be
earned from such loans justifies the attendant risks. Upon termination of the
loan, the borrower is required to return the securities to the Fund. Any gain or
loss in the market price of the securities during the period of the loan would
inure to the Fund. The Fund will pay reasonable finder's, administrative and
custodial fees in connection with a loan of its securities. The creditworthiness
of firms to which the Fund lends its portfolio securities will be monitored on
an ongoing basis.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the Fund's investment in
such loaned securities. During its fiscal year ended February 28, 1998, the Fund
did not loan any of its portfolio securities and it has no intention of doing so
in the coming year.
BORROWING OF MONEY
The Fund did not borrow any money during its fiscal year ended February 28,
1998 and it has no intention of borrowing any money in the foreseeable future.
REPURCHASE AGREEMENTS
When cash may be available for only a few days, it may be invested by the
Fund in repurchase agreements until such time as it may otherwise be invested or
used for payments of obligations of the Fund. These agreements, which may be
viewed as a type of secured lending by the Fund, 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 ("collateral") at a
specified price and at a fixed time in the future, usually not more than seven
days from the date of purchase. The Fund will receive interest from the
institution until the time when the repurchase is to occur. Although such date
is deemed by the Fund to be the maturity date of a repurchase agreement, the
maturities of securities subject to repurchase agreements are not subject to any
limits and may exceed one year. The collateral will be maintained in a
segregated account and will be marked to market daily to determine that the
value of the collateral, as specified in
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<PAGE>
the agreement, does not decrease below the purchase price plus accrued interest.
If such decrease occurs, additional collateral will be requested and, when
received, added to the account to maintain full collateralization.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such risks. These procedures include effecting repurchase transactions only with
large, well capitalized and well established financial institutions under
guidelines established and monitored by the Board of Directors of the Fund. In
addition, the value of the collateral underlying the repurchase agreement will
always be at least equal to the repurchase price, including any accrued interest
earned on the repurchase agreement. In the event of a default or bankruptcy by a
selling financial institution, the Fund will seek to liquidate such collateral.
However, the exercising of the Fund's right to liquidate such collateral could
involve certain costs or delays and, to the extent that proceeds from any sale
upon a default of the obligation to repurchase were less than the repurchase
price, the Fund could suffer a loss. It is the current policy of the Fund not to
invest in repurchase agreements that do not mature within seven days if any such
investment, together with any other illiquid assets held by the Fund, amounts to
more than 10% of its total assets. The Fund's investments in repurchase
agreements may at times be substantial when, in the view of the Investment
Manager, liquidity or other considerations warrant.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
From time to time 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 commitment. While the Fund will only purchase securities
on a when-issued, delayed delivery or forward commitment basis with the
intention of acquiring the securities, the Fund may sell the securities before
the settlement date, if it is deemed advisable. The securities so purchased or
sold are subject to market fluctuation and no interest or dividends accrue to
the purchaser prior to the settlement date. At the time the Fund makes the
commitment to purchase or sell securities on a when-issued, delayed delivery or
forward commitment basis, it will record the transaction and thereafter reflect
the value, each day, of such security purchased, or if a sale, the proceeds to
be received, in determining its net asset value. At the time of delivery of the
securities, their value may be more or less than the purchase or sale price. The
Fund will also establish a segregated account with its custodian bank in which
it will continually maintain cash or cash equivalents or other liquid portfolio
securities equal in value to commitments to purchase securities on a
when-issued, delayed delivery or forward commitment basis.
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 or debt
restructuring. The commitment for the purchase of any such security will not be
recognized in the portfolio of the Fund until the Investment Manager determines
that issuance of the security is probable. At such time, the Fund will record
the transaction and, in determining its net asset value, will reflect the value
of the security daily. At such time, the Fund will also establish a segregated
account with its custodian bank in which it will maintain cash or cash
equivalents or other liquid portfolio securities equal in value to recognized
commitments for such securities. The value of the Fund's commitments to purchase
the securities of any one issuer, together with the value of all securities of
such issuer owned by the Fund, may not exceed 5% of the value of the Fund's
total assets at the time the initial commitment to purchase such securities is
made (see "Investment Restrictions"). An increase in the percentage of the
Fund's assets committed to the purchase of securities on a "when, as and if
issued" basis may increase the volatility of its net asset value. The Fund may
also sell securities on a "when, as and if issued" basis provided that the
issuance of the security will result automatically from the exchange or
conversion of a security owned by the Fund at the time of sale.
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<PAGE>
PRIVATE PLACEMENTS AND RESTRICTED SECURITIES
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act of 1933, which will permit the Fund to sell restricted securities
to qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Board of Directors 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 total assets. The Rule 144A marketplace
of sellers and qualified institutional buyers is new and still developing and
may take a period of time to develop into a mature liquid market. As such, the
market for certain private placements purchased pursuant to Rule 144A may be
initially small or may, subsequent to purchase, become illiquid. Furthermore,
the Investment Manager may not be possessed of all the information concerning an
issue of securities that it wishes to purchase in a private placement to which
it would normally have had access, had the registration statement necessitated
by a public offering been filed with the Securities and Exchange Commission.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus, the
investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under 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. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of shareholders of the Fund, if the holders of more than 50% of the
outstanding shares are present or represented by proxy; or (b) more than 50% of
the outstanding shares of the Fund. For purposes of the following restrictions:
(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 in securities of any issuer if, to the knowledge of the Fund,
any officer or director of the Fund or of the Investment Manager owns more
than 1/2 of 1% of the outstanding securities of such issuer, and such
officers and directors who own more than 1/2 of 1% own in the aggregate more
than 5% of the outstanding securities of such issuer.
2. Purchase or sell real estate or interests therein (including limited
partnership interests), although the Fund may purchase securities of issuers
which engage in real estate operations and securities which are secured by
real estate or interests therein.
3. Purchase or sell commodities or commodity futures contracts.
4. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the Fund may
invest in the securities of companies which operate, invest in, or sponsor
such programs.
5. Write, purchase or sell puts, calls, or combinations thereof.
6. Invest more than 5% of the value of its net assets in warrants,
including not more than 2% of such assets in warrants not listed on either
the New York or American Stock Exchange. However, the acquisition of
warrants attached to other securities is not subject to this restriction.
7. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
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<PAGE>
8. Borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% (taken at the
lower of cost or current value) of its total assets (not including the
amount borrowed).
9. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(8). To meet the requirements of regulations in certain states, the Fund, as
a matter of operating policy but not as a fundamental policy, will limit any
pledge of its assets to 4.5% of its net assets so long as shares of the Fund
are being sold in those states.
10. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of: (a)
entering into any repurchase agreement; (b) borrowing money in accordance
with restrictions described above; or (c) lending portfolio securities.
11. Make loans of money or securities, except: (a) by the purchase of
debt obligations in which the Fund may invest consistent with its investment
objective and policies; (b) by investment in repurchase agreements; or (c)
by lending its portfolio securities.
12. Make short sales of securities.
13. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of purchases of portfolio securities.
14. Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing
of a portfolio security and then only in an aggregate amount not to exceed
5% of the Fund's total assets.
15. Invest for the purpose of exercising control or management of any
other issuer.
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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
Subject to the general supervision of the Board of Directors, the Investment
Manager is responsible for decisions to buy and sell securities for the Fund,
the selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. Purchases and sales of securities
on a stock exchange are effected through brokers who charge a commission for
their services. In the over-the-counter market, securities are generally traded
on a "net" basis with dealers acting as principal for their own accounts without
a stated commission, although the price of the security usually includes a
profit to the dealer. The Fund also expects that securities will be purchased at
times in underwritten offerings where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or discount.
On occasion, the Fund may also purchase certain money market instruments
directly from an issuer, in which case no commissions or discounts are paid. For
the fiscal years ended February 29, 1996, February 28, 1997 and February 28,
1998, the Fund paid a total of $1,210,946, $1,915,909 and $1,999,471
respectively, in brokerage commissions.
The Investment Manager currently serves as investment manager or advisor to
a number of clients, including other investment companies, and may in the future
act as investment manager or adviser to others. It is the practice of the
Investment Manager to cause purchase and sale transactions to be allocated among
the Fund and others whose assets it manages in such manner as it deems
equitable. In making such allocations among the Fund and other client accounts,
various factors may be considered, including the respective investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held and the opinions of the persons responsible for
managing the portfolios of the Fund and
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<PAGE>
other client accounts. In the case of certain initial and secondary public
offerings, the Investment Manager utilizes a pro-rata allocation process based
on the size of the Morgan Stanley Dean Witter Funds involved and the number of
shares available from the public offering.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Investment Manager from obtaining a high quality of
brokerage and research services. In seeking to determine the reasonableness of
brokerage commissions paid in any transaction, the Investment Manager relies
upon its experience and knowledge regarding commissions generally charged by
various brokers and on its judgment in evaluating the brokerage and research
services received from the broker effecting the transaction. Such determinations
are necessarily subjective and imprecise, as in most cases an exact dollar value
for those services is not ascertainable.
In seeking to implement the Fund's policies, the Investment Manager effects
transactions with those brokers and dealers who the Investment Manager believes
provide the most favorable prices and are capable of providing efficient
executions. If the Investment Manager believes such price and execution are
obtainable from more than one broker or dealer, it may give consideration to
placing portfolio transactions with those brokers and dealers who also furnish
research and other services to the Fund or the Investment Manager. Such services
may include, but are not limited to, any one or more of the following:
information as to the availability of securities for purchase or sale;
statistical or factual information or opinions pertaining to investment; wire
services; and appraisals or evaluations of portfolio securities. During the
fiscal year ended February 28, 1998, the Fund paid $1,363,970 in brokerage
commissions in connection with transactions in the aggregate amount of
$1,052,756,770 to brokers because of research services provided.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may be
effected through DWR, Morgan Stanley & Co. Incorporated ("MS & Co.") and other
affiliated brokers and dealers. In order for an affiliated broker or dealer to
effect any portfolio transactions for the Fund, the commissions, fees or other
remuneration received by the affiliated broker or dealer must be reasonable and
fair compared to the commissions, fees or other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on an exchange during a comparable period of time. This
standard would allow the affiliated broker or dealer to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker in
a commensurate arm's-length transaction. Furthermore, the Directors of the Fund,
including a majority of the Directors who are not "interested" persons of the
Fund, as defined in the Act, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to an
affiliated broker or dealer are consistent with the foregoing standard. During
the fiscal years ended February 29, 1996, February 28, 1997 and February 28,
1998, the Fund paid a total of $402,635, $460,302 and $401,017, respectively, in
brokerage commissions to DWR. The Fund does not reduce the management fee it
pays to the Investment Manager by any amount of the brokerage commissions it may
pay to an affiliated broker or dealer. During the year ended February 28, 1998,
the brokerage commissions paid to DWR represented approximately 20.06% of the
total brokerage commissions paid by the Fund during the year and were paid on
account of transactions having a dollar value equal to approximately 19.50% of
the aggregate dollar value of all portfolio transactions of the Fund during the
year for which commissions were paid. During the period June 1, 1997 through
February 28, 1998, the Fund paid a total of $155,990 in brokerage commissions to
MS & Co., which broker-dealer became an affiliate of the Investment Manager on
May 31, 1997 upon consummation of the merger of Dean Witter, Discover & Co. with
Morgan Stanley Group Inc. The brokerage commissions paid to MS & Co. represented
approximately 7.80% of
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<PAGE>
the total brokerage commissions paid by the Fund for this period and were paid
on account of transactions having an aggregate dollar value equal to
approximately 8.1% of the aggregate dollar value of all portfolio transactions
of the Fund during the period for which commissions were paid.
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR. The
Fund will limit their transactions with DWR to U.S. Government and Government
Agency Securities, Bank Money Instruments (i.e. Certificates of Deposit and
Bankers' Acceptances) and Commercial Paper. Such transactions will be effected
with DWR only when the price available from DWR is better than that available
from other dealers. During its fiscal years ended February 29, 1996, February
28, 1997 and February 28, 1998, the Fund did not effect any principal
transactions with DWR.
The information and services received by the Investment Manager from brokers
and dealers may be of benefit to the Investment Manager in the management of
accounts of some of its other clients and may not in all cases benefit the Fund
directly. While the receipt of such information and services is useful in
varying degrees and would generally reduce the amount of research or services
otherwise performed by the Investment Manager and thereby reduce its expenses,
it is of indeterminable value and the Fund does not reduce the management fee it
pays to the Investment Manager by any amount that may be attributable to the
value of such services.
THE DISTRIBUTOR
- --------------------------------------------------------------------------------
As discussed in the Prospectus, shares of the Fund are distributed by Morgan
Stanley Dean Witter Distributors Inc. (the "Distributor"), on a continuous
basis. The Distributor has entered into a selected dealer agreement with DWR,
which through its own sales organization sells shares of the Fund. In addition,
the Distributor may enter into similar agreements with other selected
broker-dealers. The Distributor, a Delaware corporation, is a wholly-owned
subsidiary of MSDW. The Directors who are not, and were not at the time they
voted, interested persons of the Fund, as defined in the Act (the "Independent
Directors"), approved, at their meeting held on June 30, 1997, the current
Distribution Agreement appointing the Distributor as exclusive distributor of
the Fund's shares and providing for the Distributor to bear distribution
expenses not borne by the Fund. By its terms, the Distribution Agreement had an
initial term ending April 30, 1998, and provides that it will remain in effect
from year to year thereafter if approved by the Board.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to account executives. The
Distributor also pays certain expenses in connection with the distribution of
the Fund's shares, including the costs of preparing, printing and distributing
advertising or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto used in connection with the offering and
sale of the Fund's shares. The Fund bears the costs of initial typesetting,
printing and distribution of prospectuses and supplements thereto to
shareholders. The Fund also bears the costs of registering the Fund and its
shares under federal and state securities laws and pay filing fees in accordance
with state securities laws. The Fund and the Distributor have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. Under the Distribution Agreement, the
Distributor uses its best efforts in rendering services to the Fund, but in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations, the Distributor is not liable to the Fund or any
of its shareholders for any error of judgement or mistake of law or for any act
or omission or for any losses sustained by the Fund or its shareholders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act (the "Plan") pursuant to which each Class, other than Class D, pays the
Distributor compensation accrued daily and payable monthly at the following
annual rates: 0.25% and 1.0% of the average daily net assets of Class A
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<PAGE>
and Class C, respectively, and, with respect to Class B, 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 Plan on July 2, 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 Plan's inception
upon which a CDSC has been imposed or upon which such charge has been waived, or
(b) the average daily net assets of Class B attributable to Class B shares
issued, net of Class B shares redeemed, since the inception of the Plan. The
Distributor also receives the proceeds of front-end sales charges and of
contingent deferred sales charges imposed on certain redemptions of shares,
which are separate and apart from payments made pursuant to the Plan (see
"Purchase of Fund Shares" in the Prospectus). The Distributor has informed the
Fund that it and/or DWR received (a) approximately $9,444,839, $9,636,045 and
$12,358,935 in contingent deferred sales charges from Class B for the fiscal
years ended February 29, 1996, February 28,1997 and February 28, 1998,
respectively, (b) approximately $0.00 and $16,047 in contingent deferred sales
charges from Class A and Class C, respectively, for the fiscal year ended
February 28, 1998, and (c) approximately $805,310 in front-end sales charges
from Class A for the fiscal year ended February 28, 1998, none of which was
retained by the Distributor.
The Distributor has informed the Fund that the entire fee payable by Class A
and a portion of the fees payable by each of Class B and Class C each year
pursuant to the Plan equal to 0.25% of such Class's average daily net assets are
currently each characterized as a "service fee" under the Rules of the
Association of the National Association of Securities Dealers, Inc. (of which
the Distributor is a member). The "service fee" is a payment made for personal
service and/or the maintenance of shareholder accounts. The remaining portion of
the Plan fees payable by a Class, if any, is characterized as an "asset-based
sales charge" as such is defined by the aforementioned Rules of the Association.
The Plan was adopted by a majority vote of the Board of Directors, including
all of the Directors of the Fund who are not "interested persons" of the Fund
(as defined in the Act) and who have no direct or indirect financial interest in
the operation of the Plan (the "Independent 12b-1 Directors"), cast in person at
a meeting called for the purpose of voting on the Plan, on April 16, 1984 and by
the shareholders holding a majority, as defined in the Act, of the outstanding
voting securities of the Fund at the Annual Meeting of Shareholders of the Fund
held on June 22, 1984.
At their meeting held on October 30, 1992, the Directors of the Fund,
including all of the Independent 12b-1 Directors, approved certain amendments to
the Plan which took effect in January, 1993 and were designed to reflect the
fact that upon an internal reorganization the share distribution activities
theretofore performed for the Fund by DWR were assumed by the Distributor and
DWR's sales activities are now being performed pursuant to the terms of a
selected dealer agreement between the Distributor and DWR. The amendments
provide that payments under the Plan will be made to the Distributor rather than
to DWR as before the amendment, and that the Distributor in turn is authorized
to make payments to DWR, its affiliates or other selected broker-dealers (or
direct that the Fund pay such entities directly). The Distributor is also
authorized to retain part of such fee as compensation for its own distribution-
related expenses. At their meeting held on April 28, 1993, the Directors,
including a majority of the Independent 12b-1 Directors, approved certain
technical amendments to the Plan in connection with amendments adopted by the
National Association of Securities Dealers, Inc. to its Rules of the
Association. At their meeting held on October 26, 1995, the Directors of the
Fund, including all of the Independent 12b-1 Directors, approved an amendment to
the Plan to permit payments to be made under the Plan with respect to certain
distribution expenses incurred in connection with the distribution of shares,
including personal services to shareholders with respect to holdings of such
shares, of an investment company whose assets are acquired by the Fund in a
tax-free reorganization. At their meeting held on June 30, 1997, the Directors,
including a majority of the Independent 12b-1 Directors, approved amendments to
the Plan to reflect the multiple-class structure for the Fund, which took effect
on July 28, 1997.
Under the Plan and as required by Rule 12b-1, the Directors receive and
review promptly after the end of each calendar quarter a written report provided
by the Distributor of the amounts expended under the Plan and the purpose for
which such expenditures were made. Class B shares of the Fund accrued amounts
payable to the Distributor under the Plan, during the fiscal year ended February
28, 1998, of
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<PAGE>
$102,153,119. This amount is equal to 0.69% of the average daily net assets of
Class B for the fiscal year and was calculated pursuant to clause (a) of the
compensation formula under the Plan. For the period July 28 through February 28,
1998, Class A and Class C shares of the Fund accrued payments under the Plan
amounting to $61,937 and $146,126, respectively, which amounts are equal to
0.24% and 1.00% of the average daily net assets of Class A and Class C,
respectively, for such period.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes of shares, each with a different distribution arrangement as set forth
in the Prospectus.
With respect to Class A shares, DWR compensates its Financial Advisors by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.25% of the current value of
the respective accounts for which they are the Financial Advisors or dealers of
record in all cases. On orders of $1 million or more (for which no sales charge
was paid) or net asset value purchases by employer-sponsored 401(k) and other
plans qualified under Section 401(a) of the Internal Revenue Code ("Qualified
Retirement Plans") for which Morgan Stanley Dean Witter Trust FSB ("MSDW Trust")
serves as Trustee or DWR's Retirement Plan Services serves as recordkeeper
pursuant to a written Recordkeeping Services Agreement, the Investment Manager
compensates DWR's Financial Advisors by paying them, from its own funds, a gross
sales credit of 1.0% of the amount sold.
With respect to Class B shares, DWR compensates its Financial Advisors by
paying them, from its own funds, commissions for the sale of Class B shares,
currently a gross sales credit of up to 5.0% of the amount sold (except as
provided in the following sentence) and an annual residual commission, currently
a residual of up to 0.25% of the current value (not including reinvested
dividends or distributions) of the amount sold in all cases. In the case of
Class B shares 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, DWR
compensates its Financial Advisors by paying them, from its own funds, a gross
sales credit of 3.0% of the amount sold.
With respect to Class C shares, DWR compensates its Financial Advisors by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 1.0% of the current value of
the respective accounts for which they are the Financial Advisors of record.
With respect to Class D shares other than shares held by participants in
MSDW Advisors' mutual fund asset allocation program, the Investment Manager
compensates DWR's Financial Advisors by paying them, from its own funds,
commissions for the sale of Class D shares, currently a gross sales credit of up
to 1.0% of the amount sold. There is a chargeback of 100% of the amount paid if
the Class D shares are redeemed in the first year and a chargeback of 50% of the
amount paid if the Class D shares are redeemed in the second year after
purchase. The Investment Manager also compensates DWR's Financial Advisors by
paying them, from its own funds, an annual residual commission, currently a
residual of up to 0.10% of the current value of the respective accounts for
which they are the account executives of record (not including accounts of
participants in the MSDW Advisors mutual fund asset allocation program).
The gross sales credit is a charge which reflects commissions paid by DWR to
its Financial Advisors and DWR's Fund-associated distribution-related expenses,
including sales compensation, and overhead and other branch office
distribution-related expenses including (a) the expenses of operating DWR's
branch offices in connection with the sale of Fund shares, including lease
costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery and
supplies, (b) the costs of client sales seminars, (c) travel expenses of mutual
fund sales coordinators to promote the sale of Fund shares and (d) other
expenses relating to branch promotion of Fund sales. The distribution fee that
the Distributor receives from the Fund under the Plan,
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in effect, offsets distribution expenses incurred under the Plan on behalf of
the Fund and, in the case of Class B shares, opportunity costs, such as the
gross sales credit and an assumed interest charge thereon ("carrying charge").
In the Distributor's reporting of the distribution expenses to the Fund, in the
case of Class B shares, such assumed interest (computed at the "broker's call
rate") has been calculated on the gross credit as it is reduced by amounts
received by the Distributor under the Plan and any contingent deferred sales
charges received by the Distributor upon redemption of shares of the Fund. No
other interest charge is included as a distribution expense in the Distributor's
calculation of its distribution costs for this purpose. The broker's call rate
is the interest rate charged to securities brokers on loans secured by
exchange-listed securities.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments at
the end of each month. The amount of each monthly payment may in no event exceed
an amount equal to a payment at the annual rate of 0.25%, in the case of Class
A, and 1.0%, in the case of Class C, of the average net assets of the respective
Class during the month. No interest or other financing charges, if any, incurred
on any distribution expenses on behalf of Class A and Class C will be
reimbursable under the Plan. With respect to Class A, in the case of all
expenses other than expenses representing the service fee, and, with respect to
Class C, in the case of all expenses other than expenses representing a gross
sales credit or a residual to Morgan Stanley Dean Witter Financial Advisors and
other selected broker-dealer representatives, such amounts shall be determined
at the beginning of each calendar quarter by the Directors, including a majority
of the Independent 12b-1 Directors. Expenses representing the service fee (for
Class A) or a gross sales credit or a residual to Morgan Stanley Dean Witter
Financial Advisors and other selected broker-dealer representatives (for Class
C) may be reimbursed without prior determination. In the event that the
Distributor proposes that monies shall be reimbursed for other than such
expenses, then in making quarterly determinations of the amounts that may be
reimbursed by the Fund, the Distributor will provide and the Directors will
review a quarterly budget of projected distribution expenses to be incurred on
behalf of the Fund, together with a report explaining the purposes and
anticipated benefits of incurring such expenses. The Directors will determine
which particular expenses, and the portions thereof, that may be borne by the
Fund, and in making such a determination shall consider the scope of the
Distributor's commitment to promoting the distribution of the Fund's Class A and
Class C shares.
Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the fiscal year ended February 28, 1998 to the Distributor. DWR
and the Distributor estimate that they spent, pursuant to the Plan, $843,845,874
on behalf of Class B since the inception of the Plan through February 28, 1998.
It is estimated that this amount was spent in approximately the following ways:
(i) 1.68% ($14,186,168)--advertising and promotional expenses; (ii) 0.15%
($1,226,984)--printing of prospectuses for distribution to other than current
shareholders; and (iii) 98.17% ($828,432,722)--other expenses, including the
gross sales credit and the carrying charge, of which 9.94% ($82,336,412)
represents carrying charges, 36.27% ($300,452,984) represents commission credits
to DWR branch offices and other selected broker-dealers for payments of
commissions to Morgan Stanley Dean Witter Financial Advisors and other selected
broker-dealer representatives and 53.79% ($445,643,326) represents overhead and
other branch office distribution-related expenses. The amounts accrued by Class
A and Class C for distribution during the fiscal period July 28 through February
28, 1998 were for expenses which relate to compensation of sales personnel and
associated overhead expenses.
In the case of Class B shares, at any given time, the expenses of
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan and (ii) the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares.
The Distributor has advised the Fund that in the case of Class B shares the
excess distribution expenses, including the carrying charge designed to
approximate the opportunity costs incurred by DWR which arise from it having
advanced monies without having received the amount of any sales charges imposed
at the time of sale of the Fund's Class B shares, totalled $250,796,590 as of
February 28, 1998, which amount constitutes 1.48% of the Fund's net assets on
such date. Because there is no requirement under
21
<PAGE>
the Plan that the Distributor be reimbursed for all distribution expenses with
respect to Class B shares or any requirement that the Plan be continued from
year to year, this 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
contingent deferred sales charges paid by investors upon redemption of shares,
if for any reason the Plan is terminated, the Directors 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 contingent deferred
sales charges, may or may not be recovered through future distribution fees or
contingent deferred sales charges.
No interested person of the Fund nor any Director of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct financial
interest in the operation of the Plan except to the extent that the Distributor,
MSDW Advisors, MSDW Services, DWR or certain of their employees may be deemed to
have such an interest as a result of benefits derived from the successful
operation of the Plan or as a result of receiving a portion of the amounts
expended thereunder by the Fund.
Under its terms, the Plan had an initial term ending December 31, 1984 and
will continue from year to year thereafter, provided such continuance is
approved annually by a vote of the Directors in the manner described above. The
most recent continuance of the Plan for one year, until April 30, 1999, was
approved by the Board of Directors of the Fund, including a majority of the
Independent 12b-1 Directors, at a Board meeting held on April 30, 1998. Prior to
approving the continuation of the Plan, the Directors requested and received
from the Distributor and reviewed all the information which they deemed
necessary to arrive at an informed determination. In making their determination
to continue the Plan, the Directors considered: (1) the Fund's experience under
the Plan and whether such experience indicates that the Plan is operating as
anticipated; (2) the benefits the Fund had obtained, was obtaining and would be
likely to obtain under the Plan; and (3) what services had been provided and
were continuing to be provided under the Plan to the Fund and its shareholders.
Based upon their review, the Directors of the Fund, including each of the
Independent 12b-1 Directors, determined that continuation of the Plan would be
in the best interest of the Fund and would have a reasonable likelihood of
continuing to benefit the Fund and its shareholders. In the Directors' quarterly
review of the Plan, they will consider its continued appropriateness and the
level of compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval by the shareholders of the
affected Class or Classes of the Fund, and all material amendments to the Plan
must also be approved by the Directors in the manner described above. The Plan
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Independent 12b-1 Directors or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the Act) on not more
than thirty days' written notice to any other party to the Plan. So long as the
Plan is in effect, the election and nomination of Independent 12b-1 Directors
shall be committed to the discretion of the Independent 12b-1 Directors.
DETERMINATION OF NET ASSET VALUE
As stated in the Prospectus, short-term debt securities with remaining
maturities of 60 days or less at the time of purchase are valued at amortized
cost, unless the Board of Directors determines such does not reflect the
securities' market value, in which case these securities will be valued at their
fair value as determined by the Directors. Other short-term debt securities will
be valued on a mark-to-market basis until such time as they reach a remaining
maturity of sixty days, whereupon they will be valued at amortized cost using
their value on the 61st day unless the Directors 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 Directors. Listed options on debt
securities are valued at the latest sale price on the exchange on which they are
listed unless no sales of such options have taken place that day, in which case
they will be valued at the mean between their latest bid and asked prices.
Unlisted options on debt securities and all options on equity securities are
valued at the mean between their latest bid and asked prices. Futures are valued
at the latest sale price on the commodities exchange on which they trade unless
the Directors
22
<PAGE>
determine that such price does not reflect their market value, in which case
they will be valued at their fair value as determined by the Directors. All
other securities and other assets are valued at their fair value as determined
in good faith under procedures established by and under the supervision of the
Directors.
The net asset value per share for each Class of shares of the Fund 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 p.m., at such earlier time), on each day that
the New York Stock Exchange is open by taking the value of all assets of the
Fund, subtracting its liabilities, dividing by the number of shares outstanding
and adjusting to the nearest cent. The New York Stock Exchange currently
observes the following holidays: New Year's Day, President's Day, Reverend Dr.
Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers four Classes of shares as
follows:
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
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 in the circumstances
discussed in the Prospectus.
RIGHT OF ACCUMULATION. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefitting from the reduced sales charges available for purchases
of shares of the Fund totalling at least $25,000 in net asset value. For
example, if any person or entity who qualifies for this privilege holds Class A
shares of the Fund and/or other Morgan Stanley Dean Witter Funds that are
multiple class funds ("Morgan Stanley Dean Witter Multi-Class Funds") or shares
of other Morgan Stanley Dean Witter Funds sold with a front-end sales charge
purchased at a price including a front-end sales charge having a current value
of $5,000, and purchases $20,000 of additional shares of the Fund, the sales
charge applicable to the $20,000 purchase would be 4.75% of the offering price.
The Distributor must be notified by the 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 selected broker-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 Distributor or Morgan Stanley Dean Witter Trust FSB (the
"Transfer Agent") fails to confirm the investor's represented holdings.
LETTER OF INTENT. As discussed in the Prospectus, reduced sales charges are
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
the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment goal
to be achieved by any number of purchases over a thirteen-month period. Each
purchase of Class A shares made during the period will receive the reduced sales
commission applicable to the amount represented by the goal, as if it were a
single purchase. A number of shares equal in value to 5% of the dollar amount of
the Letter of Intent will be held in escrow by the Transfer Agent, in the name
of the shareholder. The initial purchase under a Letter of Intent must be equal
to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor is authorized
by the shareholder to liquidate a sufficient number of his or her escrowed
shares to obtain such difference.
23
<PAGE>
If the goal is exceeded and purchases pass the next sales charge level, the
sales charge on the entire amount of the purchase that results in passing that
level and on subsequent purchases will be subject to further reduced sales
charges in the same manner as set forth above under "Right of Accumulation," but
there will be no retroactive reduction of sales charges on previous purchases.
For the purpose of determining whether the investor is entitled to a further
reduced sales charge applicable to purchases at or above a sales charge level
which exceeds the stated goal of a Letter of Intent, the cumulative current net
asset value of any shares owned by the investor in any other Morgan Stanley Dean
Witter Funds held by the shareholder which were 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) will be added to the cost or net asset value of shares of the
Fund owned by the investor. However, shares of "Exchange Funds" (see
"Shareholder Services--Exchange Privilege") and the purchase of shares of other
Morgan Stanley Dean Witter Funds will not be included in determining whether the
stated goal of a Letter of Intent has been reached.
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction. The
5% escrow and minimum purchase requirements will be applicable to the new stated
goal. Investors electing to purchase shares of the Fund pursuant to a Letter of
Intent should carefully read such Letter of Intent.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold without an initial sales charge but are subject to a
CDSC payable upon most redemptions within six years after purchase. As stated in
the Prospectus, a CDSC will be imposed on any redemption by an investor if after
such redemption the current value of the investor's Class B shares of the Fund
is less than the dollar amount of all payments by the shareholder for the
purchase of Class B shares during the preceding six years (or, in the case of
shares held by certain Qualified Retirement Plans, three years). However, no
CDSC will be imposed to the extent that the net asset value of the shares
redeemed does not exceed: (a) 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, plus (b) the current net
asset value of shares purchased through reinvestment of dividends or
distributions of the Fund or another Morgan Stanley Dean Witter Fund (see
"Shareholder Services-- Targeted Dividends"), plus (c) the current net asset
value of shares acquired in exchange for (i) shares of Morgan Stanley Dean
Witter front-end sales charge funds, or (ii) shares of other Morgan Stanley Dean
Witter Funds for which shares of front-end sales charge funds have been
exchanged (see "Shareholder Services--Exchange Privilege"), plus (d) increases
in the net asset value of the investor's shares above the total amount of
payments for the purchase of Fund shares made during the preceding six (three)
years. The CDSC will be paid to the Distributor. In addition, no CDSC will be
imposed on redemptions of shares which are attributable to reinvestment of
dividends or distributions from, or the proceeds of, certain Unit Investment
Trusts.
In determining the applicability of the CDSC to each redemption, the amount
which represents an increase in the net asset value of the investor's shares
above the amount of the total payments for the purchase of shares within the
last six years (or, in the case of shares held by certain Qualified Retirement
Plans, three years) will be redeemed first. In the event the redemption amount
exceeds such increase in value, the next portion of the amount redeemed will be
the amount which represents the net asset value of the investor's shares
purchased more than six (three) years prior to the redemption and/or shares
purchased through reinvestment of dividends or distributions and/or shares
acquired in exchange for shares of Morgan Stanley Dean Witter front-end sales
charge funds, or for shares of other Morgan Stanley Dean Witter Funds for which
shares of front-end sales charge funds have been exchanged. A portion of the
amount redeemed which exceeds an amount which represents both such increase in
value and the value of shares purchased more than six years (or, in the case of
shares held by certain
24
<PAGE>
Qualified Retirement Plans, three years) prior to the redemption and/or shares
purchased through reinvestment of dividends or distributions and/or shares
acquired in the above-described exchanges will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Fund until
the time of redemption of such shares. For purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments made
during a month will be aggregated and deemed to have been made on the last day
of the month. The following table sets forth the rates of the CDSC applicable to
most Class B shares of the Fund:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- ------------------------------------------------------------------------------------------ --------------------------
<S> <C>
First..................................................................................... 5.0%
Second.................................................................................... 4.0%
Third..................................................................................... 3.0%
Fourth.................................................................................... 2.0%
Fifth..................................................................................... 2.0%
Sixth..................................................................................... 1.0%
Seventh and thereafter.................................................................... None
</TABLE>
The following table sets forth the rates of the CDSC applicable to 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:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- ------------------------------------------------------------------------------------------ --------------------------
<S> <C>
First..................................................................................... 2.0%
Second.................................................................................... 2.0%
Third..................................................................................... 1.0%
Fourth and thereafter..................................................................... None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption is
made of shares held by the investor for the longest period of time within the
applicable six-year or three-year period. This will result in any such CDSC
being imposed at the lowest possible rate. The CDSC will be imposed, in
accordance with the table shown above, on any redemptions within six years (or,
in the case of shares held by certain Qualified Retirement Plans, three years)
of purchase which are in excess of these amounts and which redemptions do not
qualify for waiver of the CDSC, as described in the Prospectus.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold without a sales charge but are subject to a CDSC of
1.0% on most redemptions made within one year after purchase, except in the
circumstances discussed in the Prospectus.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account is
opened for the investor on the books of the Fund and maintained by the Transfer
Agent. This is an open account in which shares owned by the investor are
credited by the Transfer Agent in lieu of issuance of a stock certificate. If a
stock certificate is desired, it must be requested in writing for each
transaction. Certificates
25
<PAGE>
are issued only for full shares and may be redeposited in the account at any
time. There is no charge to the investor for issuance of a certificate. Whenever
a shareholder instituted transaction takes place in the Shareholder Investment
Account, the shareholder will be mailed a written confirmation of the
transaction from the Fund or from DWR or another broker-dealer.
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the applicable Class of the
Fund, unless the shareholder requests that they be paid in cash. Each purchase
of shares of the Fund is made upon the condition that the Transfer Agent is
thereby automatically appointed as agent of the investor to receive all
dividends and capital gains distributions on shares owned by the investor. Such
dividends and distributions will be paid, at the net asset value per share, in
shares of the applicable Class of the Fund (or in cash if the shareholder so
requests) as of the close of business on the record date. At any time an
investor may request the Transfer Agent, in writing, to have subsequent
dividends and/or capital gains distributions paid to him or her in cash rather
than shares. To assure sufficient time to process the change, such request must
be received by the Transfer Agent at least five business days prior to the
record date of the dividend or distribution. In the case of recently purchased
shares for which registration instructions have not been received on the record
date, cash payments will be made to DWR or other selected broker-dealer, which
will be forwarded to the shareholder, upon the receipt of proper instructions.
It has been and remains the Fund's policy and practice that, if checks for
dividends or distributions paid in cash remain uncashed, no interest will accrue
on amounts represented by such uncashed checks.
TARGETED DIVIDENDS.-SM- In states where it is legally permissible,
shareholders may also have all income dividends and capital gains distributions
automatically invested in shares of any Class of an open-end Morgan Stanley Dean
Witter Fund other than Morgan Stanley Dean Witter Dividend Growth Securities
Inc. or in another Class of Morgan Stanley Dean Witter Dividend Growth Securites
Inc. Such investment will be made as described above for automatic investment in
shares of the applicable Class of the Fund, at the net asset value per share of
the selected Morgan Stanley Dean Witter Fund as of the close of business on the
payment date of the dividend or distribution and will begin to earn dividends,
if any, in the selected Morgan Stanley Dean Witter Fund the next business day.
To participate in the Targeted Dividends program, shareholders should contact
their Morgan Stanley Dean Witter Financial Advisor or other selected broker
dealer representative or the Transfer Agent. Shareholders of Morgan Stanley Dean
Witter Dividend Growth Securities Inc. must be shareholders of the selected
Class of the Morgan Stanley Dean Witter Fund targeted to receive investments
from dividends at the time they enter the Targeted Dividends program. Investors
should review the prospectus of the targeted Morgan Stanley Dean Witter Fund
before entering the program.
EASYINVEST.-SM- Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of shares of a Morgan Stanley Dean Witter money market fund, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for investment
in shares of the Fund. Shares purchased through EasyInvest will be added to the
shareholder's existing account at the net asset value calculated the same
business day the transfer of funds is effected (subject to any applicable sales
charges). Shares of the Dean Witter money market funds redeemed in connection
with EasyInvest are redeemed on the business day preceding the transfer of
funds. For further information or to subscribe to EasyInvest, shareholders
should contact their Morgan Stanley Dean Witter Financial Advisor or other
selected broker-dealer representative or the Transfer Agent.
INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. As discussed in
the Prospectus, 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 net asset value, without the imposition of
a CDSC upon redemption, by returning the check or the proceeds to the Transfer
Agent within 30 days after the payment date. If the shareholder returns the
proceeds of a dividend or
distribu-
26
<PAGE>
tion, such funds must be accompanied by a signed statement indicating that the
proceeds constitute a dividend or distribution to be invested. Such investment
will be made at the net asset value per share next determined after receipt of
the check or the proceeds by the Transfer Agent.
SYSTEMATIC WITHDRAWAL PLAN. As discussed in the Prospectus, 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" in the Prospectus). Therefore,
any shareholder participating in the Withdrawal Plan will have sufficient shares
redeemed from his or her account so that the proceeds (net of any applicable
CDSC) to the shareholder will be the designated monthly 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. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of the sales charges which may be applicable
to purchases or redemptions of shares (see "Purchase of Fund Shares").
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of the
relevant month or quarter and normally a check for the proceeds will be mailed
by the Transfer Agent, or amounts credited to a shareholder's DWR brokerage
account, within five business days after the date of redemption. The Withdrawal
Plan may be terminated at any time by the Fund.
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party, or sent to an address other than the one listed on the
account, must send complete written instructions to the Transfer Agent to enroll
in the Withdrawal Plan. The shareholder's signature on such instructions must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A shareholder
may, at any time, change the amount and interval of withdrawal payments through
his or her Morgan Stanley Dean Witter Financial Advisor or other selected
broker-dealer representative or by written notification to the Transfer Agent.
In addition, the party and/or the address to which checks are mailed may be
changed by written notification to the Transfer Agent, with signature guarantees
required in the manner described above. The shareholder may also terminate the
Withdrawal Plan at any time by written notice to the Transfer Agent. In the
event of such termination, the account will be continued as a regular
shareholder investment account. The shareholder may also redeem all or part of
the shares held in the Withdrawal Plan account (see "Redemptions and
Repurchases" in the Prospectus) at any time.
DIRECT INVESTMENTS THROUGH TRANSFER AGENT. As discussed in the Prospectus,
shareholders may make additional investments in any Class of shares of the Fund
for which they qualify at any time by sending a check in any amount, not less
than $100, payable to Morgan Stanley Dean Witter Dividend Growth Securities
Inc., and indicating the selected Class, directly to the Fund's Transfer Agent.
In the case of Class A shares, after deduction of any applicable sales charge,
the balance will be applied to the purchase of Fund shares, and, in the case of
shares of the other Classes, the entire amount will be applied to the purchase
of Fund shares, at the net asset value per share next computed after receipt of
the check or purchase payment by the Transfer Agent. The shares so purchased
will be credited to the investor's account.
27
<PAGE>
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its shareholders
an Exchange Privilege whereby shareholders of each Class of shares of the Fund
may exchange their shares for shares of the same Class of shares 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 any 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, Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust and
five Morgan Stanley Dean Witter Funds which are money market funds (the
foregoing nine funds are hereinafter referred to as 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 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 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.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the present
account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed.)
As described below, and in the Prospectus under the caption "Purchase of
Fund Shares," a CDSC may be imposed upon a redemption, depending on a number of
factors, including the number of years from the time of purchase until the time
of redemption or exchange ("holding period"). When shares of a Morgan Stanley
Dean Witter Multi-Class Fund or Global Short-Term are exchanged for shares of an
Exchange Fund, the exchange is executed at no charge to the shareholder, without
the imposition of the CDSC at the time of the exchange. During the period of
time the shareholder remains in the Exchange Fund (calculated from the last day
of the month in which the Exchange Fund shares were acquired), the holding
period or "year since purchase payment made" is frozen. When shares are redeemed
out of the Exchange Fund, they will be subject to a CDSC which would be based
upon the period of time the shareholder held shares in a Morgan Stanley Dean
Witter Multi-Class Fund or in Global Short-Term. However, 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. Shareholders acquiring shares of an Exchange Fund pursuant to this
exchange privilege may exchange those shares back into a Morgan Stanley Dean
Witter Multi-Class Fund or Global Short-Term from the Exchange Fund, with no
CDSC being imposed on such exchange. The holding period previously frozen when
shares were first exchanged for shares of the Exchange Fund resumes on the last
day of the month in which shares of a Morgan Stanley Dean Witter Multi-Class
Fund or of Global Short-Term are reacquired. A CDSC is imposed only upon an
ultimate redemption, based upon the time (calculated as described above) the
shareholder was invested in a Morgan Stanley Dean Witter Multi-Class Fund or in
Global Short-Term. 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 a FSC Fund.
When shares initially purchased in a Morgan Stanley Dean Witter Multi-Class
Fund or in Global Short-Term are exchanged for shares of a Morgan Stanley Dean
Witter Multi-Class Fund, shares of
28
<PAGE>
Global Short-Term, shares of a FSC Fund, or shares of an Exchange Fund, the date
of purchase of the shares of the fund exchanged into, for purposes of the CDSC
upon redemption, will be the last day of the month in which the shares being
exchanged were originally purchased. In allocating the purchase payments between
funds for purposes of the CDSC, the amount which represents the current net
asset value of shares at the time of the exchange which were (i) purchased more
than one, three or six years (depending on the CDSC schedule applicable to the
shares) prior to the exchange, (ii) originally acquired through reinvestment of
dividends or distributions and (iii) acquired in exchange for shares of FSC
Funds, or for shares of other Dean Witter Funds for which shares of FSC Funds
have been exchanged (all such shares called "Free Shares"), will be exchanged
first. After an exchange, all dividends earned on shares in an Exchange Fund
will be considered Free Shares. If the exchanged amount exceeds the value of
such Free Shares, an exchange is made, on a block-by-block basis, of non-Free
Shares held for the longest period of time (except that, with respect to Class B
shares, if shares held for identical periods of time but subject to different
CDSC schedules are held in the same Exchange Privilege account, the shares of
that block that are subject to a lower CDSC rate will be exchanged prior to the
shares of that block that are subject to a higher CDSC rate). Shares equal to
any appreciation in the value of non-Free Shares exchanged will be treated as
Free Shares, and the amount of the purchase payments for the non-Free Shares of
the fund exchanged into will be equal to the lesser of (a) the purchase payments
for, or (b) the current net asset value of, the exchanged non-Free Shares. If an
exchange between funds would result in exchange of only part of a particular
block of non-Free Shares, then shares equal to any appreciation in the value of
the block (up to the amount of the exchange) will be treated as Free Shares and
exchanged first, and the purchase payment for that block will be allocated on a
pro rata basis between the non-Free Shares of that block to be retained and the
non-Free Shares to be exchanged. The prorated amount of such purchase payment
attributable to the retained non-Free Shares will remain as the purchase payment
for such shares, and the amount of purchase payment for the exchanged non-Free
Shares will be equal to the lesser of (a) the prorated amount of the purchase
payment for, or (b) the current net asset value of, those exchanged non-Free
Shares. Based upon the procedures described in the Prospectus under the caption
"Purchase of Fund Shares," any applicable CDSC will be imposed upon the ultimate
redemption of shares of any fund, regardless of the number of exchanges since
those shares were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
selected broker-dealer, if any, in the performance of such functions. With
respect to exchanges, redemptions or repurchases, the Transfer Agent shall be
liable for its own negligence and not for the default or negligence of its
correspondents or for losses in transit. The Fund shall not be liable for any
default or negligence of the Transfer Agent, the Distributor or any selected
broker-dealer.
The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any other
fund and the general administration of the Exchange Privilege. No commission or
discounts will be paid to the Distributor or any selected broker-dealer for any
transactions pursuant to this Exchange Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege account of each Class is $5,000 for Morgan Stanley Dean
Witter Liquid Asset Fund Inc., Morgan Stanley Dean Witter Tax-Free Daily Income
Trust, Morgan Stanley Dean Witter California Tax-Free Daily Income Trust and
Morgan Stanley Dean Witter New York Municipal Money Market Trust, although those
funds may, in their discretion, accept initial investments of as low as $1,000.
The minimum initial investment for the Exchange Privilege account of each Class
is $10,000 for Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust,
although that fund, in its discretion, may accept initial purchases of as low as
$5,000. The minimum initial investment for the Exchange Privilege account of
each Class is $5,000 for Morgan Stanley Dean Witter Special Value Fund. The
minimum initial investment for the Exchange Privilege
29
<PAGE>
account of each Class of all other Morgan Stanley Dean Witter Funds for which
the Exchange Privilege is available is $1,000.) Upon exchange into an Exchange
Fund, the shares of that fund will be held in a special Exchange Privilege
Account separately from accounts of those shareholders who have acquired their
shares directly from that fund. As a result, certain services normally available
to shareholders of those funds, including the check writing feature, will not be
available for funds held in that account.
The Fund and each of the other Morgan Stanley Dean Witter Funds may limit
the number of times this Exchange Privilege may be exercised by any investor
within a specified period of time. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of the 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 (presently sixty
days' prior written notice for termination or material revision), provided that
six months' prior written notice of termination will be given to the
shareholders who hold shares of Exchange Funds pursuant to the Exchange
Privilege, and provided further that the Exchange Privilege may be terminated or
materially revised without notice at times (a) when the New York Stock Exchange
is closed for other than customary weekends and holidays, (b) when trading on
that Exchange is restricted, (c) when an emergency exists as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable or
it is not reasonably practicable for the Fund fairly to determine the value of
its net assets, (d) during any other period when the Securities and Exchange
Commission by order so permits (provided that applicable rules and regulations
of the Securities and Exchange Commission shall govern as to whether the
conditions prescribed in (b) or (c) exist) or (e) if the Fund would be unable to
invest amounts effectively in accordance with its investment objective, policies
and restrictions.
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
- --------------------------------------------------------------------------------
REDEMPTION. As stated in the Prospectus, shares of each Class of the Fund
can be redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds will be reduced by the amount of
any applicable CDSC. If shares are held in a shareholder's account without a
share certificate, a written request for redemption to the Fund's Transfer Agent
at P.O. Box 983, Jersey City, NJ 07303 is required. if certificates are held by
the shareholder, the shares may be redeemed by surrendering the certificates
with a written request for redemption. The share certificate, or an accompanying
stock power, and the request for redemption, must be signed by the shareholder
or shareholders exactly as the shares are registered. Each request for
redemption, whether or not accompanied by a share certificate, must be sent to
the Fund's Transfer Agent, which will redeem the shares at their net asset value
next computed (see "Purchase of Fund Shares" in the Prospectus) after it
receives the request, and certificate, if any, in good order. Any redemption
request received after such computation will be redeemed at the next determined
net asset value. The term "good order" means that the share certificate, if any,
and request for redemption are properly signed, accompanied by any documentation
required by the Transfer Agent, and bear signature guarantees when required by
the Fund or the Transfer Agent. If redemption is requested by a corporation,
partnership, trust or fiduciary, the Transfer Agent may require that written
evidence of authority acceptable to the Transfer Agent be submitted before such
request is accepted.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other than
the Distributor or a selected broker-dealer for the account of the shareholder),
partnership, trust or fiduciary, or sent to the shareholder at an address other
than the registered address, signatures must be guaranteed by an eligible
guarantor acceptable to the Transfer Agent (shareholders should contact the
Transfer Agent for a determination as to whether a particular institution is
such an
30
<PAGE>
eligible guarantor). A stock power may be obtained from any dealer or commercial
bank. The Fund may change the signature guarantee requirements from time to time
upon notice to shareholders, which may be by means of a new prospectus.
REPURCHASE. As stated in the Prospectus, DWR and other selected
broker-dealers are authorized to repurchase shares represented by a share
certificate which is delivered to any of their offices. Shares held in a
shareholder's account without a share certificate may also be repurchased by DWR
and other selected broker-dealers upon the telephonic request of the
shareholder. The repurchase price is the net asset value next computed after
such purchase order is received by DWR or other selected broker-dealer reduced
by any applicable CDSC.
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. As discussed in the Prospectus,
payment for shares of any Class 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 at times (a) when the New York Stock
Exchange is closed for other than customary weekends and holidays, (b) when
trading on that Exchange is restricted, (c) when an emergency exists as a result
of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the Securities
and Exchange Commission by order so permits; provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist. If the shares to be redeemed have
recently been purchased by check (including a certified or bank cashier's
check), payment of 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).
It has been and remains the Fund's policy and practice that, if checks for
redemption proceeds remain uncashed, no interest will accrue on amounts
represented by such uncashed checks. Shareholders maintaining margin accounts
with DWR or another selected broker-dealer are referred to their Morgan Stanley
Dean Witter Financial Advisor or other selected broker-dealer representative
regarding restrictions on redemption of shares of the Fund pledged in the margin
accounts.
TRANSFERS OF SHARES. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the length
of time shares subject to the charge have been held), any transfer involving
less than all the shares in an account will be made on a pro rata basis (that
is, by transferring shares in the same proportion that the transferred shares
bear to the total shares in the account immediately prior to the transfer). The
transferred shares will continue to be subject to any applicable CDSC as if they
had not been so transferred.
REINSTATEMENT PRIVILEGE. As discussed in the Prospectus, 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 at the net
asset value next determined after a reinstatement request, together with the
proceeds, is received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and reinstatement
is made in shares of the Fund, some or all of the loss, depending on the amount
reinstated, will not be allowed as a deduction for federal income tax purposes
but will be applied to adjust the cost basis of the shares acquired upon
reinstatement.
31
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As discussed in the Prospectus under "Dividends, Distributions and Taxes,"
the Fund will determine either to distribute or to retain all or part of any net
long-term capital gains in any year for reinvestment. If any such gains are
retained, the Fund will pay federal income tax thereon, and shareholders will be
able to claim their share of the tax paid by the Fund as a credit against their
individual federal income tax.
Gains or losses on sales of securities by the Fund will be long-term capital
gains or losses if the securities have been held by the Fund for more than one
year. Gains or losses on the sale of securities held for one year or less will
be short-term gains or losses.
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 Treasury intends to issue regulations to
permit shareholders to take into account their proportionate share of the Fund's
capital gains distributions that will be subject to a reduced rate under the
Taxpayer Relief Act of 1997. The Taxpayer Relief Act reduces the maximum tax on
long-term capital gains from 28% to 20%; however, it also lengthens the required
holding period to obtain the lower rate from more than 12 months to more than 18
months. The lower rates do not apply to collectibles and certain other assets.
Additionally, the maximum capital gain rate for assets that are held more than
five years and that are acquired after December 31, 2000 is 18%
The Fund has qualified and intends to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code. If so
qualified, the Fund will not be subject to federal income tax on its net
investment income and net short-term capital gains, if any, realized during any
fiscal year to the extent that it distributes such income and capital gains to
its shareholders. In addition, the Fund intends to distribute to its
shareholders each calendar year a sufficient amount of ordinary income and
capital gains to avoid the imposition of a 4% excise tax. Shareholders will
normally have to pay federal income taxes, and any state and/or local taxes, on
the dividends and distributions they receive from the Fund. Such dividends and
distributions, to the extent that they are derived from net investment income or
short-term capital gains, are taxable to the shareholder as ordinary income
regardless of whether the shareholder receives such payments 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
received by the shareholder in the prior year.
Dividends and interest received by the Fund with respect to foreign
securities in its portfolio may give rise to withholding and other taxes imposed
by foreign countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and some
portion of the dividends are subject to federal income taxes. If the net asset
value of the shares should be reduced below a shareholder's cost as a result of
the payment of dividends or the distribution of realized long-term capital
gains, such distribution would be in part a return of capital but nonetheless
would be taxable to the shareholder. Therefore, an investor should consider the
tax implications of purchasing Fund shares immediately prior to a distribution
record date.
Any loss realized by shareholders upon a redemption of shares within six
months of the date of their purchase will be treated as a long-term capital loss
to the extent of any distributions of net long-term capital gains during the
six-month period.
Shareholders are urged to consult their attorneys or tax advisors regarding
specific questions as to federal, state or local taxes.
32
<PAGE>
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
As discussed in the Prospectus, 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 Fund's
"average annual total return" represents an annualization of the Fund's total
return over a particular period and is computed by finding the annual percentage
rate which will result in the ending redeemable value of a hypothetical $1,000
investment made at the beginning of a one, five or ten year period, or for the
period from the date of commencement of the Fund's operations, if shorter than
any of the foregoing. The ending redeemable value is reduced by any CDSC at the
end of the one, five or ten year or other period. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
The formula for computing the average annual total return involves a percentage
obtained by dividing the ending redeemable value by the amount of the initial
investment, taking a root of the quotient (where the root is equivalent to the
number of years in the period) and subtracting 1 from the result. The average
annual total returns of Class B for the one, five and ten year periods ended
February 28, 1998, were 24.10%, 18.06% and 15.82%, respectively.
For periods of less than one year, the Fund quotes its total return on a
non-annualized basis. Accordingly, the Fund may compute its aggregate total
return for each of Class A, Class C and Class D for specified periods by
determining the aggregate percentage rate which will result in the ending value
of a hypothetical $1,000 investment made at the beginning of the period. For the
purpose of this calculation, it is assumed that all dividends and distributions
are reinvested. The formula for computing aggregate total return involves a
percentage obtained by dividing the ending value by the initial $1,000
investment and subtracting 1 from the result. The ending redeemable value is
reduced by any CDSC at the end of the period. Based on the foregoing
calculations, the total returns for the period July 28, 1997 through February
28, 1998 were 5.31%, 9.68% and 11.31% for Class A, Class C and Class D,
respectively.
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 imposition of the maximum front-end sales charge for Class A
or the deduction of the CDSC for each of Class B and Class C which, if
reflected, would reduce the performance quoted. For example, the average annual
total return of the Fund may be calculated in the manner described above, but
without deduction for any applicable sales charge. Based on this calculation,
the average annual total returns of Class B for the one, five and ten year
periods ended February 28, 1998, were 29.10%, 18.26% and 15.82%, respectively.
In addition, the Fund may compute its aggregate total return for each Class
for specified periods by determining the aggregate percentage rate which will
result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed that
all dividends and distributions are reinvested. The formula for computing
aggregate total return involves a percentage obtained by dividing the ending
value (without the reduction for any sales charge) by the initial $1,000
investment and subtracting 1 from the result. Based on the foregoing
calculation, the total returns for Class B for the one, five and ten year
periods ended February 28, 1998, were 29.10%, 131.32% and 334.43%, respectively.
Based on the foregoing calculations, the total returns for Class A, Class C and
Class D for the period July 28 through February 28, 1998 were 11.15%, 10.68% and
11.31%, respectively.
The Fund may also advertise the growth of a hypothetical investment of
$10,000, $50,000 and $100,000 in shares of the Fund by adding 1 to the Fund's
aggregate total return to date (expressed as a decimal and without taking into
account the effect of any applicable CDSC) and multiplying by $9,475, $48,000
and $97,000 in the case of Class A (investments of $10,000, $50,000 and $100,000
adjusted for
33
<PAGE>
the initial sales charge) or by $10,000, $50,000 and $100,000 in the case of
each of Class B, Class C and Class D, as the case may be. Investments of
$10,000, $50,000 and $100,000 in each class at inception of the Class would have
grown to the following amounts at February 28, 1998:
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
INCEPTION ---------------------------------------
CLASS DATE: $10,000 $50,000 $100,000
- ------------------------------------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Class A.............................. 7/28/97 $ 10,531 $ 53,352 $ 107,816
Class B.............................. 3/30/81 124,562 622,810 1,245,620
Class C.............................. 7/28/97 11,068 55,340 110,680
Class D.............................. 7/28/97 11,131 55,655 111,310
</TABLE>
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
SHARES OF THE FUND
- --------------------------------------------------------------------------------
The Fund is authorized to issue 500,000,000 shares of common stock of $0.01
par value for each Class. Shares of the Fund, when issued, are fully paid,
non-assessable, fully transferrable and redeemable at the option of the holder.
Except for agreements entered into by the Fund in its ordinary course of
business within the limitations of the Fund's fundamental investment policies
(which may be modified only by shareholder vote), the Fund will not issue any
securities other than common stock.
The shares of the Fund do not have cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
directors can elect 100% of the directors if they choose to do so, and in such
event, the holders of the remaining shares voting for the election of directors
will not be able to elect any person or persons to the Board of Directors.
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York 10286 is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
Morgan Stanley Dean Witter Trust FSB ("MSDW Trust"), Harborside Financial
Center, Plaza Two, Jersey City, New Jersey 07311 is the Transfer Agent of the
Fund's shares and Dividend Disbursing Agent for payment of dividends and
distributions on Fund shares and Agent for shareholders under various investment
plans described herein. MSDW Trust is an affiliate of Morgan Stanley Dean Witter
Advisors Inc., the Fund's Investment Manager and Morgan Stanley Dean Witter
Distributors Inc., the Fund's Distributor. As Transfer Agent and Dividend
Disbursing Agent, MSDW Trust's responsibilities include maintaining shareholder
accounts, disbursing cash dividends and reinvesting dividends, processing
account registration changes, handling purchase and redemption transactions,
mailing prospectuses and reports, mailing and tabulating proxies, processing
share certificate transactions, and maintaining shareholder records and lists.
For these services, MSDW Trust receives a per shareholder account fee from the
Fund.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036
serves as the independent accountants of the Fund. The independent accountants
are responsible for auditing the annual financial statements of the Fund.
34
<PAGE>
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports showing
the Fund's portfolio and other information. An annual report, containing
financial statements audited by the independent accountants, will be sent to
shareholders each year.
The Fund's fiscal year ends on the last day of February. The financial
statements of the Fund must be audited at least once a year by independent
accountants whose selection is made annually by the Fund's Board of Directors.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of the Fund included in the Statement of Additional
Information and incorporated by reference in the Prospectus, have been so
included and incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
35
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (87.7%)
AEROSPACE (3.8%)
1,800,000 Lockheed Martin Corp............................................................... $ 210,037,500
3,050,000 Raytheon Co. (Class B)............................................................. 179,378,125
3,100,000 United Technologies Corp........................................................... 276,868,750
---------------
666,284,375
---------------
ALUMINUM (1.6%)
2,500,000 Alcan Aluminium Ltd. (Canada)...................................................... 77,656,250
2,670,000 Aluminum Co. of America............................................................ 195,911,250
---------------
273,567,500
---------------
APPAREL (0.6%)
2,200,000 VF Corp............................................................................ 104,912,500
---------------
AUTO PARTS (1.4%)
2,000,000 Dana Corp.......................................................................... 109,125,000
2,300,000 TRW, Inc........................................................................... 126,068,750
---------------
235,193,750
---------------
AUTOMOTIVE (3.0%)
3,600,000 Chrysler Corp...................................................................... 140,175,000
3,850,000 Ford Motor Co...................................................................... 217,765,625
2,400,000 General Motors Corp................................................................ 165,450,000
---------------
523,390,625
---------------
BANKS (5.4%)
4,000,000 BankAmerica Corp................................................................... 310,000,000
2,600,000 KeyCorp............................................................................ 182,162,500
1,500,000 Morgan (J.P.) & Co., Inc........................................................... 179,250,000
3,850,000 NationsBank Corp................................................................... 263,725,000
---------------
935,137,500
---------------
BEVERAGES - SOFT DRINKS (2.6%)
3,900,000 Coca Cola Co....................................................................... 267,881,250
5,000,000 PepsiCo Inc........................................................................ 182,812,500
---------------
450,693,750
---------------
CHEMICALS (4.5%)
1,575,000 Dow Chemical Co.................................................................... 144,112,500
3,900,000 Du Pont (E.I.) de Nemours & Co., Inc............................................... 239,118,750
5,300,000 Monsanto Co........................................................................ 269,637,500
2,125,000 PPG Industries, Inc................................................................ 137,726,562
---------------
790,595,312
---------------
COMPUTERS - SYSTEMS (1.7%)
2,800,000 International Business Machines Corp............................................... 292,425,000
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CONGLOMERATES (1.6%)
1,950,000 Minnesota Mining & Manufacturing Co................................................ $ 166,359,375
2,800,000 Tenneco, Inc....................................................................... 115,150,000
---------------
281,509,375
---------------
CONTAINERS - METAL & GLASS (0.7%)
2,250,000 Crown Cork & Seal Co., Inc......................................................... 121,500,000
---------------
COSMETICS (3.5%)
3,000,000 Avon Products, Inc................................................................. 211,312,500
2,900,000 Gillette Co........................................................................ 312,837,500
1,700,000 International Flavors & Fragrances, Inc............................................ 78,200,000
---------------
602,350,000
---------------
DISTRIBUTORS - FOOD & HEALTH (0.4%)
1,550,000 Supervalu, Inc..................................................................... 73,818,750
---------------
DRUGS (8.0%)
3,225,000 American Home Products Corp........................................................ 302,343,750
3,350,000 Bristol-Myers Squibb Co............................................................ 335,628,125
5,450,000 Schering-Plough Corp............................................................... 414,540,625
5,600,000 Smithkline Beecham PLC (ADR) (United Kingdom)...................................... 346,500,000
---------------
1,399,012,500
---------------
DRUGS & HEALTHCARE (1.4%)
3,300,000 Abbott Laboratories................................................................ 246,881,250
---------------
ELECTRIC - MAJOR (1.7%)
3,800,000 General Electric Co................................................................ 295,450,000
---------------
ELECTRICAL EQUIPMENT (0.7%)
2,800,000 AMP, Inc........................................................................... 123,725,000
---------------
FINANCE (2.1%)
700,000 Beneficial Corp.................................................................... 82,600,000
1,360,000 Household International, Inc....................................................... 176,630,000
1,825,000 Providian Financial Corp........................................................... 103,568,750
---------------
362,798,750
---------------
FINANCIAL - MISCELLANEOUS (1.4%)
3,800,400 Fannie Mae......................................................................... 242,513,025
---------------
FOODS (0.9%)
3,000,000 Quaker Oats Company (The).......................................................... 161,625,000
---------------
HOUSEHOLD APPLIANCES (0.6%)
1,675,000 Whirlpool Corp..................................................................... 111,910,938
---------------
INSURANCE (2.9%)
1,850,000 Aetna Inc.......................................................................... 161,643,750
1,700,000 Jefferson-Pilot Corp............................................................... 142,587,500
2,350,000 Lincoln National Corp.............................................................. 196,812,500
---------------
501,043,750
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
LIFE INSURANCE (0.5%)
781,950 Aegon N.V. (ARS) (Netherlands)..................................................... $ 87,969,375
---------------
MACHINERY - AGRICULTURAL (1.3%)
4,150,000 Deere & Co......................................................................... 232,918,750
---------------
MACHINERY - CONSTRUCTION & MATERIALS (0.7%)
2,200,000 Caterpillar Inc.................................................................... 120,175,000
---------------
MACHINERY - DIVERSIFIED (0.6%)
2,000,000 Johnson Controls, Inc.............................................................. 111,125,000
---------------
MANUFACTURING - DIVERSIFIED (1.0%)
2,250,000 Honeywell, Inc..................................................................... 178,312,500
---------------
METALS & MINING (0.6%)
1,700,000 Phelps Dodge Corp.................................................................. 107,950,000
---------------
NATURAL GAS (1.9%)
2,550,000 Burlington Resources, Inc.......................................................... 114,112,500
1,100,000 El Paso Natural Gas Co............................................................. 73,012,500
3,200,000 Enron Corp......................................................................... 150,400,000
---------------
337,525,000
---------------
OFFICE EQUIPMENT (2.9%)
4,800,000 Pitney Bowes, Inc.................................................................. 225,000,000
3,100,000 Xerox Corp......................................................................... 274,931,250
---------------
499,931,250
---------------
OIL & GAS - EXPLORATION & PRODUCTION (1.5%)
1,600,000 Burlington Northern Santa Fe Corp.................................................. 159,400,000
1,450,000 Kerr-McGee Corp.................................................................... 98,056,250
---------------
257,456,250
---------------
OIL - DOMESTIC (2.7%)
1,750,000 Amoco Corp......................................................................... 148,750,000
2,000,000 Atlantic Richfield Co.............................................................. 155,500,000
5,100,000 USX-Marathon Group................................................................. 176,268,750
---------------
480,518,750
---------------
OIL INTEGRATED - INTERNATIONAL (3.5%)
3,350,000 Exxon Corp......................................................................... 213,981,250
2,600,000 Mobil Corp......................................................................... 188,337,500
3,900,000 Royal Dutch Petroleum Co. (ADR) (Netherlands)...................................... 211,818,750
---------------
614,137,500
---------------
PAPER & FOREST PRODUCTS (1.4%)
2,750,000 International Paper Co............................................................. 128,218,750
2,500,000 Weyerhaeuser Co.................................................................... 124,843,750
---------------
253,062,500
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PHOTOGRAPHY (0.8%)
2,250,000 Eastman Kodak Co................................................................... $ 147,656,250
---------------
RAILROADS (0.8%)
2,500,000 CSX Corp........................................................................... 139,843,750
---------------
RETAIL (1.9%)
4,350,000 Dayton-Hudson Corp................................................................. 336,309,375
---------------
RETAIL - DEPARTMENT STORES (0.9%)
2,550,000 May Department Stores Co........................................................... 154,912,500
---------------
RETAIL - MAIL ORDER/GENERAL MERCHANDISING (0.7%)
2,400,000 Sears, Roebuck & Co................................................................ 127,350,000
---------------
SOAP & HOUSEHOLD PRODUCTS (1.8%)
3,650,000 Procter & Gamble Co................................................................ 310,021,875
---------------
SUPERMARKETS (0.7%)
2,700,000 Albertson's, Inc................................................................... 126,393,750
---------------
TELECOMMUNICATIONS (1.1%)
3,550,000 U.S. West Communications Group..................................................... 184,821,875
---------------
TELEPHONES (3.3%)
1,800,000 Bell Atlantic Corp................................................................. 161,550,000
3,100,000 GTE Corp........................................................................... 167,787,500
3,700,000 Sprint Corp........................................................................ 244,200,000
---------------
573,537,500
---------------
TIRE & RUBBER GOODS (0.9%)
2,300,000 Goodyear Tire & Rubber Co.......................................................... 158,987,500
---------------
TOBACCO (0.8%)
3,950,000 UST, Inc........................................................................... 139,978,125
---------------
UTILITIES - ELECTRIC (3.7%)
2,425,000 FPL Group, Inc..................................................................... 140,801,562
3,200,000 GPU, Inc........................................................................... 128,600,000
4,700,000 Houston Industries, Inc............................................................ 121,612,500
3,600,000 PG & E Corp........................................................................ 108,675,000
4,450,000 Unicom Corp........................................................................ 142,678,125
---------------
642,367,187
---------------
UTILITIES - NATURAL GAS (1.2%)
1,950,000 Consolidated Natural Gas Co........................................................ 112,125,000
2,400,000 Sonat, Inc......................................................................... 103,500,000
---------------
215,625,000
---------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $6,612,697,192)................................................... 15,335,225,212
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS (7.5%)
$ 90,000 U.S. Treasury Bond
8.00% due 11/15/21............................................................... $ 112,514,400
725,000 U.S. Treasury Bond
6.25% due 08/15/23............................................................... 749,418,000
450,000 U.S. Treasury Bond
6.00% due 02/15/26............................................................... 450,832,500
---------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $1,233,585,375)................................................... 1,312,764,900
---------------
</TABLE>
<TABLE>
<C> <S> <C>
SHORT-TERM INVESTMENTS (4.5%)
COMMERCIAL PAPER (a) (3.7%)
AUTOMOTIVE - FINANCE (1.6%)
140,000 Ford Motor Credit Co.
5.48% due 03/19/98............................................................... 139,616,400
135,000 General Motors Acceptance Corp. 5.48% due 03/09/98................................. 134,835,600
---------------
274,452,000
---------------
BANK HOLDING COMPANIES (0.8%)
140,000 Morgan (J.P.) & Co., Inc. 5.48% due 03/13/98....................................... 139,744,268
---------------
BANKS - COMMERCIAL (0.6%)
110,000 Societe General N.A. Inc. 5.506% due 03/23/98...................................... 109,631,622
---------------
FINANCE - DIVERSIFIED (0.7%)
125,000 General Electric Capital Corp.
5.46% due 03/02/98............................................................... 124,981,042
---------------
TOTAL COMMERCIAL PAPER
(AMORTIZED COST $648,808,932)...................................................... 648,808,932
---------------
U.S. GOVERNMENT AGENCY (a) (0.8%)
145,000 Federal National Mortgage Association 5.613% due 03/02/98 (AMORTIZED COST
$144,977,404).................................................................... 144,977,404
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT (0.0%)
$ 4,031 The Bank of New York 5.438% due 03/02/98 (dated 02/27/98; proceeds $4,032,852) (b)
(IDENTIFIED COST $4,031,025)..................................................... $ 4,031,025
---------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $797,817,361)..................................................... 797,817,361
---------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $8,644,099,928) (C)................................................... 99.7 % 17,445,807,473
OTHER ASSETS IN EXCESS OF LIABILITIES.................................................. 0.3 44,472,488
------ ----------------
NET ASSETS............................................................................. 100.0 % $ 17,490,279,961
------ ----------------
------ ----------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
ARS American Registered Share.
(a) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $1,000,000 Federal National Mortgage Assoc. 7.19% due
11/06/06 valued at $1,059,589, $1,066,362 Federal National Mortgage Assoc.
6.01% due 01/18/05 valued at $1,058,896, $785,000 U.S. Treasury Bond 9.25%
due 02/15/16 valued at $1,064,610 and $882,377 U.S. Treasury Note 7.125%
due 09/30/99 valued at $928,551.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $8,831,022,110 and the
aggregate gross unrealized depreciation is $29,314,565, resulting in net
unrealized appreciation of $8,801,707,545.
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $8,644,099,928)......................................................... $17,445,807,473
Receivable for:
Dividends.............................................................................. 40,184,620
Capital stock sold..................................................................... 27,881,135
Interest............................................................................... 4,906,730
Investments sold....................................................................... 881,783
Prepaid expenses and other assets.......................................................... 207,161
---------------
TOTAL ASSETS.......................................................................... 17,519,868,902
---------------
LIABILITIES:
Payable for:
Capital stock repurchased.............................................................. 11,666,654
Plan of distribution fee............................................................... 9,188,336
Investment management fee.............................................................. 4,814,669
Investments purchased.................................................................. 1,528,055
Payable to bank............................................................................ 1,676,890
Accrued expenses and other payables........................................................ 714,337
---------------
TOTAL LIABILITIES..................................................................... 29,588,941
---------------
NET ASSETS............................................................................ $17,490,279,961
---------------
---------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................ $8,449,406,947
Net unrealized appreciation................................................................ 8,801,707,545
Accumulated undistributed net investment income............................................ 50,860,781
Accumulated undistributed net realized gain................................................ 188,304,688
---------------
NET ASSETS............................................................................ $17,490,279,961
---------------
---------------
CLASS A SHARES:
Net Assets................................................................................. $84,986,633
Shares Outstanding (500,000,000 SHARES AUTHORIZED, $.01 PAR VALUE)......................... 1,455,487
NET ASSET VALUE PER SHARE............................................................. $58.39
---------------
---------------
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE)..................................... $61.62
---------------
---------------
CLASS B SHARES:
Net Assets................................................................................. $16,989,452,766
Shares Outstanding (500,000,000 SHARES AUTHORIZED, $.01 PAR VALUE)......................... 291,093,157
NET ASSET VALUE PER SHARE............................................................. $58.36
---------------
---------------
CLASS C SHARES:
Net Assets................................................................................. $50,773,011
Shares Outstanding (500,000,000 SHARES AUTHORIZED, $.01 PAR VALUE)......................... 871,251
NET ASSET VALUE PER SHARE............................................................. $58.28
---------------
---------------
CLASS D SHARES:
Net Assets................................................................................. $365,067,551
Shares Outstanding (500,000,000 SHARES AUTHORIZED, $.01 PAR VALUE)......................... 6,247,921
NET ASSET VALUE PER SHARE............................................................. $58.43
---------------
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1998*
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $1,521,586 foreign withholding tax)....................................... $ 299,699,971
Interest.................................................................................... 112,873,482
--------------
TOTAL INCOME........................................................................... 412,573,453
--------------
EXPENSES
Plan of distribution fee (Class A shares)................................................... 61,937
Plan of distribution fee (Class B shares)................................................... 102,153,119
Plan of distribution fee (Class C shares)................................................... 146,126
Investment management fee................................................................... 54,825,425
Transfer agent fees and expenses............................................................ 10,647,110
Registration fees........................................................................... 716,964
Custodian fees.............................................................................. 588,989
Shareholder reports and notices............................................................. 534,844
Professional fees........................................................................... 71,379
Directors' fees and expenses................................................................ 12,741
Other....................................................................................... 93,331
--------------
TOTAL EXPENSES......................................................................... 169,851,965
--------------
NET INVESTMENT INCOME.................................................................. 242,721,488
--------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................................................................... 262,042,293
Net change in unrealized appreciation....................................................... 3,358,692,314
--------------
NET GAIN............................................................................... 3,620,734,607
--------------
NET INCREASE................................................................................ $3,863,456,095
--------------
--------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 28, 1998* FEBRUARY 28, 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................................ $ 242,721,488 $ 216,913,534
Net realized gain.................................................... 262,042,293 263,776,646
Net change in unrealized appreciation................................ 3,358,692,314 1,713,084,128
------------------ -----------------
NET INCREASE.................................................... 3,863,456,095 2,193,774,308
------------------ -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares................................................... (589,361) --
Class B shares................................................... (235,858,916) (229,873,261)
Class C shares................................................... (262,929) --
Class D shares................................................... (4,131,290) --
Net realized gain
Class A shares................................................... (252,349) --
Class B shares................................................... (212,169,081) (140,667,573)
Class C shares................................................... (142,422) --
Class D shares................................................... (1,469,529) --
------------------ -----------------
TOTAL DIVIDENDS AND DISTRIBUTIONS............................... (454,875,877) (370,540,834)
------------------ -----------------
Net increase from capital stock transactions......................... 1,174,921,008 1,301,439,284
------------------ -----------------
NET INCREASE.................................................... 4,583,501,226 3,124,672,758
NET ASSETS:
Beginning of period.................................................. 12,906,778,735 9,782,105,977
------------------ -----------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $50,860,781 AND
$48,981,789, RESPECTIVELY)....................................... $ 17,490,279,961 $ 12,906,778,735
------------------ -----------------
------------------ -----------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Dividend Growth Securities Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is to
provide reasonable current income and long-term growth of income and capital.
The Fund seeks to achieve its objective by investing primarily in common stock
of companies with a record of paying dividends and the potential for increasing
dividends. The Fund was incorporated in Maryland on December 22, 1980 and
commenced operations on March 30, 1981. On July 28, 1997, the Fund commenced
offering three additional classes of shares, with the then current shares, other
than shares which were purchased prior to July 2, 1984 (and with respect to such
shares, certain shares acquired through reinvestment of dividends and capital
gains distributions (collectively the "Old Shares")) and shares held by certain
employee benefit plans established by Dean Witter Reynolds Inc. and its
affiliate, SPS Transaction Services, Inc., designated as Class B shares. The Old
Shares and shares held by those employee benefit plans prior to July 28, 1997
have been designated Class D shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some Class
A shares, and most Class B shares and Class C shares are subject to a contingent
deferred sales charge imposed on shares redeemed within one year, six years and
one year, respectively. Class D shares are not subject to a sales charge.
Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York or American or other domestic or foreign stock exchange is valued at
its latest sale price on that exchange prior to the time when assets are valued;
if there were no sales that day, the security is valued at the latest bid price;
(2) all other portfolio securities for which over-the-counter market quotations
are readily available are valued at the latest available bid price prior to the
time of valuation; (3) when market quotations are not readily available,
including circumstances under which it is determined by Dean Witter InterCapital
Inc. (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
42
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998, CONTINUED
faith under procedures established by and under the general supervision of the
Directors (valuation of debt securities for which market quotations are not
readily available may be based upon current market prices of securities which
are comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors); and (4) short-term debt securities having a maturity date of
more than sixty days at time of purchase are valued on a mark-to-market basis
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity date
of sixty days or less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
43
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998, CONTINUED
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with the Investment Manager, the
Fund pays a management fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined at the close of
each business day: 0.625% to the portion of daily net assets not exceeding $250
million; 0.50% to the portion of daily net assets exceeding $250 million but not
exceeding $1 billion; 0.475% to the portion of daily net assets exceeding $1
billion but not exceeding $2 billion; 0.45% to the portion of daily net assets
exceeding $2 billion but not exceeding $3 billion; 0.425% to the portion of
daily net assets exceeding $3 billion but not exceeding $4 billion; 0.40% to the
portion of daily net assets exceeding $4 billion but not exceeding $5 billion;
0.375% to the portion of daily net assets exceeding $5 billion but not exceeding
$6 billion; 0.35% to the portion of daily net assets exceeding $6 billion but
not exceeding $8 billion; 0.325% to the portion of daily net assets exceeding $8
billion but not exceeding $10 billion; and 0.30% to the portion of daily net
assets exceeding $10 billion. Effective May 1, 1997, the Agreement was amended
to reduce the annual fee to 0.275% of the portion of daily net assets in excess
of $15 billion.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan"), pursuant to Rule 12b-1 under the Act. The
Plan provides that the Fund will pay the Distributor a fee which is accrued
daily and paid monthly at the following annual rates: (i) Class A -- up to 0.25%
of the average daily net assets of Class A; (ii) Class B -- 1.0% of the lesser
of: (a) the average daily aggregate gross sales of the Class B shares since the
inception of the Plan on July 2, 1984 (not including reinvestment of dividends
or capital gain distributions) less the average daily aggregate net asset value
of the Class B shares redeemed since the Plan's inception upon which a
contingent deferred sales charge 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 the Plan's inception; and (iii) Class C -- up to 1.0% of the
average daily net assets of Class C. In the case of Class A shares,
44
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998, CONTINUED
amounts paid under the Plan are paid to the Distributor for services provided.
In the case of Class B and Class C shares, amounts paid under the Plan are paid
to the Distributor for services provided and the expenses borne by it and others
in the distribution of the shares of these Classes, including the payment of
commissions for sales of these Classes and incentive compensation to, and
expenses of, the account executives of Dean Witter Reynolds Inc. ("DWR"), an
affiliate of the Investment Manager and Distributor, and others who engage in or
support distribution of the 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 these shares to
other than current shareholders; and preparation, printing and distribution of
sales literature and advertising materials. In addition, the Distributor may
utilize fees paid pursuant to the Plan, in the case of Class B shares, to
compensate DWR and other selected broker-dealers for their opportunity costs in
advancing such amounts, which compensation would be in the form of a carrying
charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $250,796,590 at February 28, 1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent calendar year, except that the expenses
representing a gross sales credit to account executives may be reimbursed in the
subsequent year. For the period ended February 28, 1998, the distribution fee
was accrued for Class A shares and Class C shares at the annual rate of 0.24%
and 1.0%, respectively.
The Distributor has informed the Fund that for the period ended February 28,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $12,358,935 and $16,047,
respectively and received $805,310 in front-end sales charges from sales of the
Fund's Class A shares. The respective shareholders pay such charges which are
not an expense of the Fund.
45
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998, CONTINUED
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended February 28, 1998 aggregated
$1,186,678,145 and $566,094,202, respectively. Included in the aforementioned
are sales of U.S. Government securities in the amount of $149,190,430.
For the year ended February 28, 1998, the Fund incurred $401,017 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the Fund.
At February 28, 1998, the Fund's receivable for investments sold included
unsettled trades with DWR of $881,783.
For the period May 31, 1997 through February 28, 1998, the Fund incurred
brokerage commissions of $155,990 with Morgan Stanley & Co., Inc., an affiliate
of the Investment Manager since May 31, 1997, for portfolio transactions
executed on behalf of the Fund.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Directors of the Fund who will have served as independent
Directors for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended February 28, 1998
included in Directors' fees and expenses in the Statement of Operations amounted
to $3,604. At February 28, 1998, the Fund had an accrued pension liability of
$51,621 which is included in accrued expenses in the Statement of Assets and
Liabilities.
Dean Witter Trust FSB, an affiliate of the Investment Manager and Distributor,
is the Fund's transfer agent. At February 28, 1998, the Fund had transfer agent
fees and expenses payable of approximately $15,000.
46
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998, CONTINUED
5. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 28, 1998+ FEBRUARY 28, 1997
----------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold......................................... 1,531,951 $ 82,190,159 -- --
Reinvestment of dividends and
distributions............................... 10,089 547,397 -- --
Redeemed..................................... (86,553) (4,728,188) -- --
---------------- ---------------- ---------------- ----------------
Net increase - Class A....................... 1,455,487 78,009,368 -- --
---------------- ---------------- ---------------- ----------------
CLASS B SHARES
Sold......................................... 51,834,503 2,670,318,255 57,912,895 $ 2,481,578,268
Reinvestment of dividends and
distributions............................... 7,994,489 416,521,197 7,903,656 344,605,406
Redeemed..................................... (39,948,415) (2,062,805,412) (35,552,864) (1,524,744,390)
---------------- ---------------- ---------------- ----------------
Net increase - Class B....................... 19,880,577 1,024,034,040 30,263,687 1,301,439,284
---------------- ---------------- ---------------- ----------------
CLASS C SHARES*
Sold......................................... 930,792 50,207,370 -- --
Reinvestment of dividends and
distributions............................... 6,914 374,891 -- --
Redeemed..................................... (66,455) (3,610,402) -- --
---------------- ---------------- ---------------- ----------------
Net increase - Class C....................... 871,251 46,971,859 -- --
---------------- ---------------- ---------------- ----------------
CLASS D SHARES*
Sold......................................... 841,753 45,989,589 -- --
Reinvestment of dividends and
distributions............................... 101,638 5,504,556 -- --
Redeemed..................................... (474,716) (25,588,404) -- --
---------------- ---------------- ---------------- ----------------
Net increase - Class D....................... 468,675 25,905,741 -- --
---------------- ---------------- ---------------- ----------------
Net increase in Fund......................... 22,675,990 $ 1,174,921,008 30,263,687 $ 1,301,439,284
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
</TABLE>
- ---------------------
+ On July 28, 1997, 5,779,246 shares representing $308,785,103 were
transferred to Class D.
* For the period July 28, 1997 (issue date) through February 28, 1998.
47
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 28,
-------------------------------------------------------------------------------------------------
1998*++ 1997 1996** 1995 1994 1993 1992** 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................. $ 46.60 $ 39.65 $ 31.16 $ 30.86 $ 28.70 $ 27.01 $ 23.50 $ 22.47 $ 20.32
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net investment income...... 0.84 0.81 0.75 0.72 0.68 0.70 0.71 0.79 0.72
Net realized and unrealized
gain...................... 12.50 7.55 8.50 0.24 2.16 1.72 3.63 1.04 2.83
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment
operations................ 13.34 8.36 9.25 0.96 2.84 2.42 4.34 1.83 3.55
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Less dividends and
distributions from:
Net investment income... (0.83) (0.88) (0.67) (0.66) (0.68) (0.69) (0.76) (0.80) (0.76)
Net realized gain....... (0.75) (0.53) (0.09) -- -- (0.04) (0.07) -- (0.64)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total dividends and
distributions............. (1.58) (1.41) (0.76) (0.66) (0.68) (0.73) (0.83) (0.80) (1.40)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net asset value, end of
period.................... $ 58.36 $ 46.60 $ 39.65 $ 31.16 $ 30.86 $ 28.70 $ 27.01 $ 23.50 $ 22.47
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN+... 29.10% 21.37% 30.01% 3.25% 9.98% 9.13% 18.82% 8.51% 17.85%
RATIOS TO AVERAGE NET
ASSETS:
Expenses................... 1.14% 1.22% 1.31% 1.42% 1.37% 1.40% 1.42% 1.51% 1.41%
Net investment income...... 1.61% 1.95% 2.14% 2.42% 2.31% 2.67% 2.91% 3.62% 3.46%
SUPPLEMENTAL DATA:
Net assets, end of period,
in millions............... $16,989 $12,907 $9,782 $7,101 $6,712 $5,386 $4,071 $3,015 $2,760
Portfolio turnover rate.... 4% 4% 10% 6% 13% 8% 5% 5% 3%
Average commission rate
paid...................... $0.0539 $0.0541 -- -- -- -- -- -- --
<CAPTION>
1989
- ------------------------------------------------
<S> <C>
CLASS B SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................. $ 19.28
---------
Net investment income...... 0.68
Net realized and unrealized
gain...................... 1.78
---------
Total from investment
operations................ 2.46
---------
Less dividends and
distributions from:
Net investment income... (0.62)
Net realized gain....... (0.80)
---------
Total dividends and
distributions............. (1.42)
---------
Net asset value, end of
period.................... $ 20.32
---------
---------
TOTAL INVESTMENT RETURN+... 13.26%
RATIOS TO AVERAGE NET
ASSETS:
Expenses................... 1.55%
Net investment income...... 3.44%
SUPPLEMENTAL DATA:
Net assets, end of period,
in millions............... $1,860
Portfolio turnover rate.... 8%
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 July 2, 1984 (and with respect to such shares, certain shares
acquired through reinvestment of dividends and capital gains distributions
(collectively the "Old Shares")) and shares held by certain employee
benefit plans established by Dean Witter Reynolds Inc. and its affiliate,
SPS Transaction Services, Inc., have been designated Class B shares. The
Old Shares and shares held by those employee benefit plans prior to July
28, 1997 have been designated Class D shares.
** Year ended February 29.
++ The per share amounts were computed using an average number of shares
outstanding.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
FEBRUARY 28,
1998++
- ----------------------------------------------------------------------------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 53.43
------
Net investment income................................................. 0.66
Net realized and unrealized gain...................................... 5.22
------
Total from investment operations...................................... 5.88
------
Less dividends and distributions from:
Net investment income.............................................. (0.67)
Net realized gain.................................................. (0.25)
------
Total dividends and distributions..................................... (0.92)
------
Net asset value, end of period........................................ $ 58.39
------
------
TOTAL INVESTMENT RETURN+.............................................. 11.15%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.70%(2)
Net investment income................................................. 2.09%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in millions................................ $85
Portfolio turnover rate............................................... 4%(1)
Average commission rate paid.......................................... $0.0539
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 53.43
------
Net investment income................................................. 0.43
Net realized and unrealized gain...................................... 5.21
------
Total from investment operations...................................... 5.64
------
Less dividends and distributions from:
Net investment income.............................................. (0.54)
Net realized gain.................................................. (0.25)
------
Total dividends and distributions..................................... (0.79)
------
Net asset value, end of period........................................ $ 58.28
------
------
TOTAL INVESTMENT RETURN+.............................................. 10.68%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.45%(2)
Net investment income................................................. 1.37%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in millions................................ $51
Portfolio turnover rate............................................... 4%(1)
Average commission rate paid.......................................... $0.0539
</TABLE>
- ---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding.
+ 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.
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
FEBRUARY 28,
1998++
- ----------------------------------------------------------------------------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 53.43
------
Net investment income................................................. 0.76
Net realized and unrealized gain...................................... 5.20
------
Total from investment operations...................................... 5.96
------
Less dividends and distributions from:
Net investment income.............................................. (0.71)
Net realized gain.................................................. (0.25)
------
Total dividends and distributions..................................... (0.96)
------
Net asset value, end of period........................................ $ 58.43
------
------
TOTAL INVESTMENT RETURN+.............................................. 11.31%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.45%(2)
Net investment income................................................. 2.39%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in millions................................ $365
Portfolio turnover rate............................................... 4%(1)
Average commission rate paid.......................................... $0.0539
</TABLE>
- ---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dean Witter Dividend Growth
Securities Inc. (the "Fund") at February 28, 1998, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 28, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
APRIL 13, 1998
51
<PAGE>
DEAN WITTER DIVIDEND GROWTH SECURITIES INC.
FEDERAL TAX NOTICE (UNAUDITED)
1998 FEDERAL TAX NOTICE
For the year ended February 28, 1998, the Fund paid to shareholders the
following per share amounts from long-term capital gains. These distributions
are taxable as 28% rate gains or 20% rate gains, as indicated below:
<TABLE>
<CAPTION>
PER SHARE
-------------------------------------
CLASS A CLASS B CLASS C CLASS D
------- ------- ------- -------
<S> <C> <C> <C> <C>
Portion of long-term capital gains taxable as:
28% rate gain........................................ -- $0.50 -- --
20% rate gain........................................ 0.25 0.25 0.25 0.25
------- ------- ------- -------
Total.................................................. $0.25 $0.75 $0.25 $0.25
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
For the year ended February 28, 1998, 100% of the income dividends qualified for
the dividends received deduction available to corporations.
52
