<PAGE>
MORGAN STANLEY DEAN WITTER
CONVERTIBLE SECURITIES TRUST
PROSPECTUS--NOVEMBER 24, 1998
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MORGAN STANLEY DEAN WITTER CONVERTIBLE SECURITIES TRUST (THE "FUND") IS AN
OPEN-END DIVERSIFIED MANAGEMENT INVESTMENT COMPANY WHOSE INVESTMENT OBJECTIVE IS
TO SEEK A HIGH LEVEL OF TOTAL RETURN ON ITS ASSETS THROUGH A COMBINATION OF
CURRENT INCOME AND CAPITAL APPRECIATION. IT SEEKS TO ACHIEVE ITS INVESTMENT
OBJECTIVE BY INVESTING PRINCIPALLY IN "CONVERTIBLE SECURITIES," THAT IS, BONDS,
NOTES, DEBENTURES, PREFERRED STOCKS AND OTHER SECURITIES WHICH ARE CONVERTIBLE
INTO COMMON STOCK. INVESTORS SHOULD CAREFULLY CONSIDER THE RELATIVE RISKS OF
INVESTING IN HIGH YIELD SECURITIES, WHICH ARE COMMONLY KNOWN AS JUNK BONDS.
BONDS OF THIS TYPE ARE CONSIDERED TO BE SPECULATIVE WITH REGARD TO THE PAYMENT
OF INTEREST AND RETURN OF PRINCIPAL. INVESTORS SHOULD ALSO BE COGNIZANT OF THE
FACT THAT SUCH SECURITIES ARE NOT GENERALLY MEANT FOR SHORT-TERM INVESTING AND
SHOULD ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE FUND. (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 November 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.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Prospectus Summary................................ 2
Summary of Fund Expenses.......................... 4
Financial Highlights.............................. 5
The Fund and its Management....................... 8
Investment Objective and Policies................. 8
Risk Considerations............................. 9
Investment Restrictions........................... 13
Purchase of Fund Shares........................... 14
Shareholder Services.............................. 22
Redemptions and Repurchases....................... 24
Dividends, Distributions and Taxes................ 25
Performance Information........................... 26
Additional Information............................ 26
Appendix--Ratings of Investments.................. 28
</TABLE>
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.
MORGAN STANLEY DEAN WITTER
CONVERTIBLE SECURITIES TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550 or (800) 869-NEWS (toll-free)
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
MORGAN STANLEY DEAN WITTER DISTRIBUTORS INC., DISTRIBUTOR
<PAGE>
PROSPECTUS SUMMARY
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<TABLE>
<S> <C>
THE FUND The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and
is an open-end diversified management investment company investing principally in
corporate securities that can be converted into common stock.
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SHARES OFFERED Shares of beneficial interest with $0.01 par value (see page 26). The Fund offers four
Classes of shares, each with a different combination of sales charges, ongoing fees and
other features (see pages 14-21).
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MINIMUM The minimum initial investment for each Class is $1,000 ($100 if the account is opened
PURCHASE through EasyInvest-SM-). Class D shares are only available to persons investing $5
million ($25 million for certain qualified plans) or more and to certain other limited
categories of investors. For the purpose of meeting the minimum $5 million investment
for Class D shares, and subject to the $1,000 minimum initial investment for each Class
of the Fund, an investor's existing holdings of Class A and Class D shares and shares of
funds for which Morgan Stanley Dean Witter Advisors Inc. serves as investment manager
("Morgan Stanley Dean Witter Funds") that are sold with a front-end sales charge, and
concurrent investments in Class D shares of the Fund and other Morgan Stanley Dean
Witter Funds that are multiple class funds, will be aggregated. The minimum subsequent
investment is $100 (see page 14).
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INVESTMENT The investment objective of the Fund is to seek a high level of total return on its
OBJECTIVE assets through a combination of current income and capital appreciation. It seeks to
achieve this objective by investing principally in "convertible securities," that is
bonds, notes, debentures, preferred stocks and other securities which are convertible
into common stock (see page 8).
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INVESTMENT Morgan Stanley Dean Witter Advisors Inc., 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 100
investment companies and other portfolios with assets of approximately $117.3 billion at
October 31, 1998 (see page 8).
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MANAGEMENT FEE The Investment Manager receives a monthly fee at the annual rate of 0.60 of 1% of the
Fund's net assets not exceeding $750 million, scaled down at various asset levels to
0.425 of 1% of the Fund's daily net assets exceeding $3 billion, determined as of the
close of each business day (see page 8).
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DISTRIBUTOR Morgan Stanley Dean Witter Distributors Inc. is the Distributor of the Fund's shares.
AND The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the Investment
DISTRIBUTION Company Act (the "12b-1 Plan") with respect to the distribution fees paid by the Class
FEE 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 20).
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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, 16 and 20).
- 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 or (b) the
average daily net assets of Class B. All shares of the Fund held prior to July 28, 1997
have been designated Class B shares. Shares held before May 1, 1997 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, 18
and 20).
</TABLE>
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2
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<TABLE>
<S> <C>
- 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 and
20).
- 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 and 20).
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DIVIDENDS AND Income dividends are paid quarterly; capital gains, if any, are paid at least once per
CAPITAL GAINS year. The Fund may, however, determine to retain all or part of any net long-term
DISTRIBUTIONS capital gains in any year for reinvestment. Dividends and capital gains distributions
paid on shares of a Class are automatically reinvested in additional shares of the same
Class at net asset value unless the shareholder elects to receive cash. Shares acquired
by dividend and distribution reinvestment will not be subject to any sales charge or
CDSC (see pages 22 and 25).
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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 24).
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RISKS The net asset value of the Fund's shares will fluctuate with changes in the market value
of its portfolio securities. Emphasis on convertible securities will result in price
fluctuations of the Fund's portfolio securities with varying interest rates and with
changes in the prices of the common stocks associated with their conversion rights. In
addition, the investor is directed to the discussions of corporate fixed-income
securities (certain of which may be lower rated securities commonly known as "junk
bonds" or securities which are unrated by recognized rating agencies), "enhanced" and
"synthetic" convertible securities, when-issued and delayed delivery securities and
forward commitments, when, as and if issued securities, options, futures contracts,
foreign securities, repurchase agreements, and options on futures (see pages 9-13).
</TABLE>
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THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS AND IN THE STATEMENT OF
ADDITIONAL INFORMATION.
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 September 30, 1998.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
--------- ------- --------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)... 5.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments.................................. None None None None
Maximum Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds).................................................. None(2) 5.00%(3) 1.00%(4) None
Redemption Fees................................................................. None None None None
Exchange Fee.................................................................... None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees................................................................. 0.60% 0.60% 0.60% 0.60%
12b-1 Fees (5) (6).............................................................. 0.24% 1.00% 1.00% None
Other Expenses.................................................................. 0.21% 0.21% 0.21% 0.21%
Total Fund Operating Expenses................................................... 1.05% 1.81% 1.81% 0.81%
</TABLE>
- ---------------
(1) REDUCED FOR PURCHASES OF $25,000 AND OVER (SEE "PURCHASE OF FUND
SHARES--INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES").
(2) INVESTMENTS THAT ARE NOT SUBJECT TO ANY SALES CHARGE AT THE TIME OF PURCHASE
ARE SUBJECT TO A CDSC OF 1.00% THAT WILL BE IMPOSED ON REDEMPTIONS MADE
WITHIN ONE YEAR AFTER PURCHASE, EXCEPT FOR CERTAIN SPECIFIC CIRCUMSTANCES
(SEE "PURCHASE OF FUND SHARES--INITIAL SALES CHARGE ALTERNATIVE--CLASS A
SHARES").
(3) THE CDSC IS SCALED DOWN TO 1.00% DURING THE SIXTH YEAR, REACHING ZERO
THEREAFTER.
(4) ONLY APPLICABLE TO REDEMPTIONS MADE WITHIN ONE YEAR AFTER PURCHASE (SEE
"PURCHASE OF FUND SHARES--LEVEL LOAD ALTERNATIVE--CLASS C SHARES").
(5) THE 12b-1 FEE IS ACCRUED DAILY AND PAYABLE MONTHLY. THE ENTIRE 12b-1 FEE
PAYABLE BY CLASS A AND A PORTION OF THE 12b-1 FEE PAYABLE BY EACH OF CLASS B
AND CLASS C EQUAL TO 0.25% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS ARE
CURRENTLY EACH CHARACTERIZED AS A SERVICE FEE WITHIN THE MEANING OF NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. ("NASD") GUIDELINES AND ARE PAYMENTS
MADE FOR PERSONAL SERVICE AND/OR MAINTENANCE OF SHAREHOLDER ACCOUNTS. THE
REMAINDER OF THE 12b-1 FEE, IF ANY, IS AN ASSET-BASED SALES CHARGE, AND IS A
DISTRIBUTION FEE PAID TO THE DISTRIBUTOR TO COMPENSATE IT FOR THE SERVICES
PROVIDED AND THE EXPENSES BORNE BY THE DISTRIBUTOR AND OTHERS IN THE
DISTRIBUTION OF THE FUND'S SHARES (SEE "PURCHASE OF FUND SHARES--PLAN OF
DISTRIBUTION").
(6) UPON CONVERSION OF CLASS B SHARES TO CLASS A SHARES, SUCH SHARES WILL BE
SUBJECT TO THE LOWER 12b-1 FEE APPLICABLE TO CLASS A SHARES. NO SALES CHARGE
IS IMPOSED AT THE TIME OF CONVERSION OF CLASS B SHARES TO CLASS A SHARES.
CLASS C SHARES DO NOT HAVE A CONVERSION FEATURE AND, THEREFORE, ARE SUBJECT
TO AN ONGOING 1.00% DISTRIBUTION FEE (SEE "PURCHASE OF FUND
SHARES--ALTERNATIVE PURCHASE ARRANGEMENTS").
<TABLE>
<CAPTION>
EXAMPLES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) a 5% annual return and
(2) redemption at the end of each time period:
Class A....................................... $63 $84 $107 $174
Class B....................................... $68 $87 $118 $213
Class C....................................... $28 $57 $98 $213
Class D....................................... $ 8 $26 $45 $100
You would pay the following expenses on the same
$1,000 investment assuming no redemption at the
end of the period:
Class A....................................... $63 $84 $107 $174
Class B....................................... $18 $57 $98 $213
Class C....................................... $18 $57 $98 $213
Class D....................................... $ 8 $26 $45 $100
</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.
4
<PAGE>
FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by PricewaterhouseCoopers
LLP, independent accountants. The financial highlights should be read in
conjunction with the financial statements, the 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 Shareholders, which may be obtained
without charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------------------------------------------------
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.......... $ 15.07 $ 12.72 $ 11.67 $ 10.75 $ 10.62 $ 8.92 $ 8.67 $ 7.65 $ 9.68 $ 8.63
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net investment
income.......... 0.65 0.60 0.55 0.60 0.42 0.37 0.34 0.37 0.46 0.48
Net realized and
unrealized gain
(loss).......... (2.70) 2.31 1.12 0.82 0.11 1.67 0.15 1.05 (2.06) 1.20
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from
investment
operations...... (2.05) 2.91 1.67 1.42 0.53 2.04 0.49 1.42 (1.60) 1.68
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Less dividends
from net
investment
income.......... (0.57) (0.56) (0.62) (0.50) (0.40) (0.34) (0.24) (0.40) (0.43) (0.63)
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net asset value,
end of period... $ 12.45 $ 15.07 $ 12.72 $ 11.67 $ 10.75 $ 10.62 $ 8.92 $ 8.67 $ 7.65 $ 9.68
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT
RETURN+......... (14.01)% 23.38% 14.70% 13.68% 5.02% 23.22% 5.69% 18.93% (16.93)% 20.20%
RATIOS TO AVERAGE
NET ASSETS:
Expenses......... 1.81 (1) 1.84% 1.89% 1.96% 1.93% 1.93% 1.92% 1.92% 1.88% 1.76%
Net investment
income.......... 4.40 (1) 4.45% 4.78% 5.24% 3.68% 3.44% 3.43% 4.34% 4.96% 4.93%
SUPPLEMENTAL
DATA:
Net assets, end
of period, in
millions........ $263 $317 $234 $185 $190 $208 $218 $297 $413 $822
Portfolio
turnover rate... 95% 182% 171% 138% 184% 221% 145% 133% 92% 167%
</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 HAVE BEEN DESIGNATED CLASS B SHARES.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
5
<PAGE>
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<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30,
CLASS A SHARES 1998++ 1997++
---------------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 15.07 $ 14.31
------ ------
Net investment income....................................... 0.75 0.13
Net realized and unrealized gain (loss)..................... (2.68) 0.78
------ ------
Total from investment operations............................ (1.93) 0.91
------ ------
Less dividends from net investment income................... (0.69) (0.15)
------ ------
Net asset value, end of period.............................. $ 12.45 $ 15.07
------ ------
------ ------
TOTAL INVESTMENT RETURN+.................................... (13.38)% 6.40%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.05%(3) 1.15%(2)
Net investment income....................................... 5.16%(3) 5.03%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $963 $50
Portfolio turnover rate..................................... 95% 182%
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 15.06 $ 14.31
------ ------
Net investment income....................................... 0.64 0.12
Net realized and unrealized gain (loss)..................... (2.68) 0.77
------ ------
Total from investment operations............................ (2.04) 0.89
------ ------
Less dividends from net investment income................... (0.59) (0.14)
------ ------
Net asset value, end of period.............................. $ 12.43 $ 15.06
------ ------
------ ------
TOTAL INVESTMENT RETURN+.................................... (14.07)% 6.26%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.81%(3) 1.92%(2)
Net investment income....................................... 4.40%(3) 4.52%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $2,390 $620
Portfolio turnover rate..................................... 95% 182%
</TABLE>
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* THE DATE SHARES WERE FIRST ISSUED.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
6
<PAGE>
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<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30,
CLASS D SHARES 1998++ 1997++
---------------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 15.08 $ 14.31
------ ------
Net investment income................................................. 0.79 0.13
Net realized and unrealized gain (loss)............................... (2.71) 0.80
------ ------
Total from investment operations...................................... (1.92) 0.93
------ ------
Less dividends from net investment income............................. (0.72) (0.16)
------ ------
Net asset value, end of period........................................ $ 12.44 $ 15.08
------ ------
------ ------
TOTAL INVESTMENT RETURN+.............................................. (13.19)% 6.42%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.81%(3) 0.89%(2)
Net investment income................................................. 5.40%(3) 4.94%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $1,696 $21
Portfolio turnover rate............................................... 95% 182%
</TABLE>
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* THE DATE SHARES WERE FIRST ISSUED.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD.
+ CALCULATED BASED ON THE NET ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE
PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) REFLECTS OVERALL FUND RATIOS FOR INVESTMENT INCOME AND NON-CLASS SPECIFIC
EXPENSES.
7
<PAGE>
THE FUND AND ITS MANAGEMENT
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Morgan Stanley Dean Witter Convertible Securities Trust (formerly named Dean
Witter Convertible Securities Trust) (the "Fund") is an open-end diversified
management investment company. The Fund is a trust of the type commonly known as
a "Massachusetts business trust" and was organized under the laws of the
Commonwealth of Massachusetts on May 21, 1985.
Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors" or the "Investment
Manager"), whose address is Two World Trade Center, New York, New York 10048, is
the Fund's Investment Manager. The Investment Manager is a wholly-owned
subsidiary of Morgan Stanley Dean Witter & Co., a preeminent global financial
services firm that maintains leading market positions in each of its three
primary businesses--securities, asset management and credit services. The
Investment Manager, which was incorporated in July, 1992 under the name Dean
Witter InterCapital Inc., changed its name to Morgan Stanley Dean Witter
Advisors Inc. on June 22, 1998.
MSDW Advisors and its wholly-owned subsidiary, Morgan Stanley Dean Witter
Services Company Inc. ("MSDW Services"), serve in various investment management,
advisory, management and administrative capacities to 100 investment companies,
28 of which are listed on the New York Stock Exchange, with combined total net
assets of approximately $112.9 billion as of October 31, 1998. The Investment
Manager also manages and advises managers of portfolios of pension plans, other
institutions and individuals which aggregated approximately $4.4 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 Trustees review the various services provided by or under the
direction of the Investment Manager to ensure that the Fund's general investment
policies and programs are being properly carried out and that administrative
services are being provided 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 by applying the
following annual rates to the Fund's net assets determined as of the close of
each business day: 0.60% of the portion of the daily net assets not exceeding
$750 million, scaled down at various asset levels to 0.425% of the portion of
the daily net assets exceeding $3 billion. For the fiscal year ended September
30, 1998, the Fund accrued total compensation to the Investment Manager
amounting to 0.60% of the Fund's average daily net assets and the total expenses
of each Class amounted to 1.05%, 1.81%, 1.81% and 0.81% of the average daily net
assets of Class A, Class B, Class C and Class D, respectively.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is to seek a high level of total return on
its assets through a combination of current income and capital appreciation.
There is no assurance that this objective will be achieved. It is a fundamental
policy of the Fund and cannot be changed without shareholder approval. The
following policies may be changed by the Trustees of the Fund without
shareholder approval.
(1) The Fund will normally invest at least 65% of its total assets (taken at
current value) in "convertible securities," i.e., securities (bonds, debentures,
corporate notes, preferred stocks and other securities) which are convertible
into common stock. Securities received upon conversion may be retained in the
Fund's portfolio to permit orderly disposition or to establish long-term holding
periods for federal income tax purposes. The Fund is not required to sell these
securities for the purpose of assuring that 65% of its assets are invested in
convertible securities.
(2) The Fund may invest up to 35% of its total assets (taken at current
value and subject to any restrictions appearing elsewhere in this Prospectus) in
any combination and quantity of the following securities: (a) common stock; (b)
nonconvertible preferred stock; (c) nonconvertible corporate debt securities;
(d) options on debt and equity securities; (e) financial futures contracts and
related options thereon; and (f) money market instruments.
(3) Notwithstanding paragraphs (1) and (2) above, when market conditions
dictate a "defensive" investment strategy, the Fund may invest without limit in
money market instruments, including commercial paper, certificates of deposit,
bankers' acceptances and other obligations of domestic banks or domestic
branches of foreign banks, or foreign branches of domestic banks, in each case
having total assets of at least $500 million, and obligations issued or
guaranteed by the United States Government, or foreign governments or their
respective instrumentalities or agencies.
The Fund may invest in fixed-income securities rated Baa or lower by Moody's
Investors Service, Inc. ("Moody's"), or BBB or lower by Standard & Poor's
Corporation ("S&P"). Fixed-income securities rated Baa by
8
<PAGE>
Moody's or BBB by S&P have speculative characteristics greater than those of
more highly rated bonds, while fixed-income securities rated Ba or BB or lower
by Moody's and S&P, respectively, are considered to be speculative investments.
Furthermore, the Fund does not have any minimum quality rating standard for its
investments. As such, the Fund may invest in securities rated as low as Caa, Ca
or C by Moody's or CCC, CC, C or C1 by S&P. Fixed-income securities rated Caa or
Ca by Moody's may already be in default on payment of interest or principal,
while bonds rated C by Moody's, their lowest bond rating, can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Bonds rated C1 by S&P, their lowest bond rating, are no longer making interest
payments.
Non-rated securities are also considered for investment by the Fund when the
Investment Manager believes that the financial condition of the issuers of such
securities, or the protection afforded by the terms of the securities
themselves, makes them appropriate investments for the Fund.
A general description of Moody's and S&P's ratings is set forth in the
Appendix at the end of this Prospectus.
RISK CONSIDERATIONS
CONVERTIBLE SECURITIES. The Fund will seek to meet its investment objective by
investing primarily in convertible securities in accordance with the
above-stated policies. Investments in these securities can provide a high level
of total return by virtue of their affording current income through interest and
dividend payments and because of the opportunity they provide for capital
appreciation by virtue of their convertibility into common stock. The Fund may
invest in investment grade convertible securities which are rated within the
four highest categories by recognized rating agencies; i.e., S & P and Moody's,
as well as in such securities which are lower rated or which are not rated by
such agencies. See the Statement of Additional Information for a discussion of
S&P and Moody's ratings.
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. Convertible securities may be purchased by the Fund
at varying price levels above their investment values and/or their conversion
values in keeping with the Fund's objective.
The Fund may invest up to 25% of its total assets in "enhanced" convertible
securities. Enhanced convertible securities offer holders the opportunity to
obtain higher current income than would be available from a traditional equity
security issued by the same company, in return for reduced participation or a
cap on appreciation in the underlying common stock of the issuer which the
holder can realize. In addition, in many cases, enhanced convertible securities
are convertible into the underlying common stock of the issuer automatically at
maturity, unlike traditional convertible securities which are convertible only
at the option of the security holder. Enhanced convertible securities may be
more volatile than traditional convertible securities due to the mandatory
conversion feature.
The Fund also may invest up to 10% in "synthetic" convertible securities.
Unlike traditional convertible securities whose conversion values are based on
the common stock of the issuer of the convertible security, "synthetic"
convertible securities are preferred stocks or debt obligations of an issuer
which are combined with an equity component whose conversion value is based on
the value of the common stock of a different issuer or a particular benchmark
(which may include a foreign issuer or basket of foreign stocks, or a company
whose stock is not yet publicly traded). In many cases, "synthetic" convertible
securities are not convertible prior to maturity, at which time the value of the
security is paid in cash by the issuer.
"Synthetic" convertible securities may be less liquid than traditional
convertible securities and their price changes may be more volatile. Reduced
liquidity may have an adverse impact on the Fund's ability to sell particular
synthetic securities promptly at favorable prices and may also make it more
difficult for the Fund to obtain market quotations based on actual trades, for
purposes of valuing the Fund's portfolio securities.
The Fund may invest without limitation in "exchangeable" convertible bonds
and convertible preferred stock which are issued by one company, but convertible
into the common stock of a different publicly traded company. These securities
generally have liquidity trading and risk characteristics similar to traditional
convertible securities noted above.
9
<PAGE>
ZERO COUPON SECURITIES. A portion of the 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.
CORPORATE FIXED-INCOME SECURITIES. In order to generate the current income
needed to achieve its investment objective, the Fund may invest in investment
grade nonconvertible fixed-income securities as well as in such securities which
are in the lower rating categories of S & P and Moody's or which are not rated
by such agencies. Such investments may be deemed speculative in nature.
The ratings of fixed-income securities by Moody's and S & P are a generally
accepted barometer of credit risk. The Investment Manager will primarily rely
upon such ratings in assessing the creditworthiness of the issuers of the
securities it purchases. Nevertheless, the Investment Manager takes into account
in its security selection process the fact that credit ratings evaluate the
safety of a security's continuing payments of principal and interest, rather
than the risk of decline in its market value. Moreover, as credit rating
agencies may fail to make timely changes in their credit ratings to reflect
changing circumstances and events, the Investment Manager will continuously
monitor the issuers of the lower-rated securities held in the Fund's portfolio
to determine whether these issuers have sufficient cash flow and profits to meet
required principal and interest payments.
All fixed-income securities are subject to two types of risks: the credit
risk and the interest rate risk. The credit risk relates to the ability of the
issuer to meet interest or principal payments or both as they come due. The
interest rate risk refers to the fluctuations in net asset value of any
portfolio of fixed-income securities resulting from the inverse relationship
between price and yield of fixed-income securities; that is, when the general
level of interest rates rises, the prices of outstanding fixed-income securities
decline, and when interest rates fall, prices rise.
FOREIGN SECURITIES. The Fund may invest in securities of foreign companies.
However, the Fund will not invest more than 10% of the value of its total
assets, at the time of purchase, in foreign securities (other than securities of
Canadian issuers registered under the Securities Exchange Act of 1934 or
American Depository Receipts, on which there is no such limit). Foreign
securities investments may be affected by changes in currency rates or exchange
control regulations, changes in governmental administration or economic or
monetary policy (in the United States and abroad) or changed circumstances in
dealings between nations. Costs will be incurred in connection with conversions
between various currencies held by the Fund. Investments in foreign securities
will also occasion risks relating to political and economic developments abroad,
including the possibility of expropriations or confiscatory taxation,
limitations on the use or transfer of Fund assets and any effects of foreign
social, economic or political instability. When purchasing foreign securities,
the Fund may enter into foreign currency exchange transactions or forward
foreign exchange contracts to facilitate settlement. The Fund may utilize
forward foreign exchange contracts in these instances as an attempt to limit the
effect of changes in the relationship between the U.S. dollar and the foreign
currency during the period between the trade date and settlement date for the
transaction.
Many European countries are about to adopt a single European currency, the
euro (the "Euro Conversion"). The consequences of the Euro Conversion for
foreign exchange rates, interest rates and the value of European securities
eligible for purchase by the Fund are presently unclear. Such consequences may
adversely affect the value and/or increase the volatility of securities held by
the Fund.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From time
to time, in the ordinary course of business, the Fund may purchase securities on
a when-issued or delayed delivery basis or may purchase or sell securities on a
forward commitment basis. When such transactions are negotiated, the price is
fixed at the time of the commitment, but delivery and payment can take place a
month or more after the date of the commitment. 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 accrues
to the purchaser during this period.
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,
10
<PAGE>
corporate reorganization or debt restructuring. If the anticipated event does
not occur and the securities are not issued, the Fund will have lost an
investment opportunity. There is no overall limit on the percentage of the
Fund's assets which may be committed to the purchase of securities on a "when,
as and if issued" basis. An increase in the percentage of the Fund's assets
committed to the purchase of securities on a "when, as and if issued" basis may
increase the volatility of its net asset value.
PRIVATE PLACEMENTS. The Fund may invest up to 5% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible for
resale pursuant to Rule 144A under the Securities Act, and determined to be
liquid pursuant to the procedures discussed in the following paragraph, are not
subject to the foregoing restriction.) These securities are generally referred
to as private placements or restricted securities. Limitations on the resale of
such securities may have an adverse effect on their marketability, and may
prevent the Fund from disposing of them promptly at reasonable prices. The Fund
may have to bear the expense of registering such securities for resale and the
risk of substantial delays in effecting such registration.
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 Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by the
Fund. If a restricted security is determined to be "liquid," such security will
not be included within the category "illiquid securities," which under current
policy may not exceed 15% of the Fund's net assets. Investing in Rule 144A
securities could have the effect of increasing the level of Fund illiquidity to
the extent the Fund, at a particular time, may be unable to find qualified
institutional buyers interested in purchasing such securities.
INVESTMENT IN REAL ESTATE INVESTMENT TRUSTS. The Fund may invest in real estate
investment trusts, which pool investors' funds for investments primarily in
commercial real estate properties. Investment in real estate investment trusts
may be the most practical available means for the Fund to invest in the real
estate industry (the Fund is prohibited from investing in real estate directly).
As a shareholder in a real estate investment trust, the Fund would bear its
ratable share of the real estate investment trust's expenses, including its
advisory and administration fees. At the same time the Fund would continue to
pay its own investment management fees and other expenses, as a result of which
the Fund and its shareholders in effect will be absorbing duplicate levels of
fees with respect to investments in real estate investment trusts.
RIGHTS AND WARRANTS. The Fund may acquire rights and/or warrants which are
attached to other securities in its portfolio, or which are issued as a
distribution by the issuer of a security held in its portfolio. Rights and/or
warrants are, in effect, options to purchase equity securities at a specific
price, generally valid for a specific period of time, and have no voting rights,
pay no dividends and have no rights with respect to the corporation issuing
them.
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. While repurchase agreements involve
certain risks not associated with direct investments in debt securities,
including the risks of default or bankruptcy of the selling financial
institution, the Fund follows procedures to minimize such risks. These
procedures include effecting repurchase transactions only with large,
well-capitalized and well-established financial institutions and maintaining
adequate collateralization.
LOWER-RATED SECURITIES. Because of the special nature of the Fund's investments
in lower rated securities (certain lower rated securities in which the Fund may
invest are commonly known as junk bonds), the Investment Manager must take
account of certain special considerations in assessing the risks associated with
such investments. For example, as the lower rated securities market is
relatively new, its growth had paralleled a long economic expansion and, until
recently, it had not faced adverse economic and market conditions. Therefore, an
economic downturn or increase in interest rates is likely to have a negative
effect on this market and on the value of the lower rated securities held by the
Fund, as well as on the ability of the securities' issuers to repay principal
and interest on their borrowings.
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 effect their ability to service their principal and interest
payment obligations, to meet their projected business goals or to obtain
additional financing. If the issuer of a fixed-income security owned by the Fund
defaults, the Fund may incur additional expenses to seek recovery. In addition,
periods of economic uncertainty and change can be expected to result in an
increased volatility of market prices of lower rated securities and a
concomitant volatility
11
<PAGE>
in the net asset value of a share of the Fund. Moreover, the market prices of
certain of the Fund's portfolio securities which are structured as zero coupon
and payment-in-kind securities are affected to a greater extent by interest rate
changes and thereby tend to be more volatile than securities which pay interest
periodically and in cash (see "Dividends, Distributions and Taxes" for a
discussion of the tax ramifications of investments in such securities).
The secondary market for lower rated securities may be less liquid than the
markets for higher quality securities and, as such, may have an adverse affect
on the market prices of certain securities. The limited liquidity of the market
may also adversely affect the ability of the Fund's Trustees to arrive at a fair
value for certain lower rated securities at certain times and should make it
difficult for the Fund to sell certain securities. In addition, new laws and
proposed new laws may have an adverse effect upon the value of lower rated
securities and a concomitant negative impact upon the net asset value of a share
of the Fund.
During the fiscal year ended September 30, 1998, the monthly dollar weighted
average ratings of the debt obligations held by the Fund, expressed as a
percentage of the Fund's total investments were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
RATINGS TOTAL INVESTMENTS
- -------------------------------- ------------------
<S> <C>
AAA/Aaa......................... 5.8%
AA/Aa........................... 0.2%
A/A............................. 4.3%
BBB/Baa......................... 3.8%
BB/Ba........................... 7.3%
B/B............................. 24.2%
CCC/Caa......................... 0.6%
CC/Ca........................... 0.1%
C/C............................. 0.0%
Unrated......................... 15.7%
</TABLE>
OPTIONS AND FUTURES TRANSACTIONS. The Fund is permitted to enter into call and
put options on U.S. Treasury notes, bonds and bills and equity securities which
are listed on Exchanges and are written in over-the-counter transactions ("OTC
options"). Listed options are issued by the Options Clearing Corporation. OTC
options are purchased from or sold (written) to dealers or financial
institutions which have entered into direct agreements with the Fund. The Fund
is permitted to write covered call options on portfolio securities, in an amount
not exceeding 20% of the value of its total assets, in order to aid it in
achieving its investment objective.
The Fund may purchase listed and OTC call and put options in amounts
equalling up to 5% of its total assets. The Fund may purchase call options only
in order to close out a covered call position. The Fund may purchase put options
on securities which it holds (or has the right to acquire) in its portfolio only
to protect itself against a decline in the value of the security. The Fund may
also purchase put options to close out written put positions. There are no other
limits on the Fund's ability to purchase call and put options.
The Fund may purchase and sell financial futures contracts ("futures
contracts") that are traded on U.S. commodity exchanges on such underlying
securities as U.S. Treasury bonds, notes, and bills. The Fund may invest in
financial futures contracts only as a hedge against anticipated interest rate
changes.
The Fund may also purchase and write call and put options on futures
contracts which are traded on an Exchange and enter into closing transactions
with respect to such options to terminate an existing position. The Fund will
purchase and write options on futures contracts for identical purposes to those
set forth above for the purchase of a futures contract and the sale of a futures
contract or to close out a long or short position in futures contracts.
The Fund may not enter into futures contracts or purchase related options
thereon if, immediately thereafter, the amount committed to initial margin plus
the amount paid for premiums for unexpired options on futures contracts exceeds
5% of the value of the Fund's total assets, after taking into account unrealized
gains and unrealized losses on such contracts it has entered into, provided,
however, that in the case of an option that is in-the-money (the exercise price
of the call (put) option is less (more) than the market price of the underlying
security) at the time of purchase, the in-the-money amount may be excluded in
calculating the 5%. Moreover, the Fund may only buy and write options which are
listed on national securities exchanges and may not purchase options if, as a
result, the aggregate cost of all outstanding options exceeds 10% of the Fund's
total assets. In addition, the Fund may not purchase or sell futures contracts
or related options thereon if, immediately thereafter, more than one-third of
its net assets would be hedged.
RISKS OF OPTIONS AND FUTURES TRANSACTIONS. The Fund may close out its position
as writer of an option, or as a buyer or seller of a futures contract only if a
liquid secondary market exists for options or futures contracts of that series.
There is no assurance that such a market will exist particularly in the case of
OTC options, as such options generally will only be closed out by entering into
a closing purchase transaction with the purchasing dealer. Also, exchanges may
limit the amount by which the price of many futures contracts may move on any
day. If the price moves equal the daily limit on successive days, then it may
prove impossible to liquidate a futures position until the daily limit moves
have ceased.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk is that the Investment Manager could be incorrect in its
expectations as to the direction or extent of various interest rate or price
movements or the time span
12
<PAGE>
within which the movements take place. For example, if the Fund sold futures
contracts for the sale of securities in anticipation of an increase in interest
rates, and then interest rates went down instead, causing bond prices to rise,
the Fund would lose money on the sale. Another risk which may arise in employing
futures contracts to protect against the price volatility of portfolio
securities is that the prices of securities and indices subject to futures
contracts (and thereby the futures contract prices) may correlate imperfectly
with the behavior of the cash prices of the Fund's portfolio securities. See the
Statement of Additional Information for further discussion of such risks.
YEAR 2000. The investment management services provided to the Fund by the
Investment Manager and the services provided to shareholders by the Distributor
and the Transfer Agent depend on the smooth functioning of their computer
systems. Many computer software systems in use today cannot recognize the year
2000, but revert to 1900 or some other date, due to the manner in which dates
were encoded and calculated. That failure could have a negative impact on the
handling of securities trades, pricing and account services. The Investment
Manager, the Distributor and the Transfer Agent have been actively working on
necessary changes to their own computer systems to prepare for the year 2000 and
expect that their systems will be adapted before that date, but there can be no
assurance that they will be successful, or that interaction with other
non-complying computer systems will not impair their services at that time.
In addition, it is possible that the markets for securities in which the
Fund invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies and overall economic uncertainties.
Earnings of individual issuers will be affected by remediation costs, which may
be substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with a view
to achieving the Fund's investment objective. In determining which securities to
purchase for the Fund or hold in the Fund's portfolio, the Investment Manager
will rely on information from various sources, including rating agencies,
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 20 funds and fund
portfolios with approximately $32.9 billion in assets at October 31, 1998. Peter
M. Avelar, Senior Vice President of MSDW Advisors and a member of MSDW Advisors'
Growth and Income Group, has been the primary portfolio manager of the Fund
since January 1998 and has been assisted by Ellen Gold since November 1998. Mr.
Avelar has been a portfolio manager with MSDW Advisors for over five years. Ms.
Gold has been a Vice President of MSDW Advisors since May 1998 and prior thereto
was an Assistant Vice President and Junior Portfolio Manager with MSDW Advisors.
Orders for transactions in portfolio securities are placed for the Fund with
a number of brokers and dealers, including Dean Witter Reynolds Inc., Morgan
Stanley & Co. Incorporated and other brokers and dealers that are affiliates of
the Investment Manager. The Fund may incur brokerage commissions on transactions
conducted through such affiliates. Pursuant to an order of the Securities and
Exchange Commission, the Fund may effect principal transactions in certain money
market instruments with Dean Witter Reynolds Inc.
The portfolio trading engaged in by the Fund may result in its portfolio
turnover rate exceeding 100%. The Fund is expected to incur higher than normal
brokerage commission costs due to its portfolio turnover rate. Short-term gains
and losses taxable at ordinary income rates may result from such portfolio
transactions. See "Dividends, Distributions and Taxes" for a full discussion of
the tax implications of the Fund's trading policy. A more extensive discussion
of the Fund's portfolio brokerage policies is set forth in the Statement of
Additional Information.
Except as specifically noted, all investment objectives, policies and
practices discussed above are not fundamental policies of the Fund and, as such,
may be changed without shareholder approval.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions that 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.
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).
13
<PAGE>
2. Purchase more than 10% of all outstanding voting securities or any
class of securities of any one issuer. For purposes of compliance with this
restriction, the Fund will not invest in the convertible securities of any
one issuer if, upon conversion of such securities, the Fund would hold more
than 10% of the outstanding voting securities of that issuer.
3. Invest more than 25% of the value of its total assets in securities
of issuers in any one industry. This restriction does not apply to
obligations issued or guaranteed by the United States Government or its
agencies or instrumentalities.
4. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three
years of continuous operation. This restriction shall not apply to any
obligation of the United States Government, its agencies or
instrumentalities.
5. 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 the value of its total assets (not
including the amount borrowed).
6. Invest more than 5% of the value of its total 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.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially all
of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
GENERAL
The Fund offers each class of its shares for sale to the public on a continuous
basis. Pursuant to a Distribution Agreement between the Fund and Morgan Stanley
Dean Witter Distributors Inc. ("MSDW Distributors" or the "Distributor"), an
affiliate of the Investment Manager, shares of the Fund are distributed by the
Distributor and offered by Dean Witter Reynolds Inc. ("DWR"), a selected dealer
and subsidiary of Morgan Stanley Dean Witter & Co., and other dealers 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 shares purchased by certain qualified plans are subject
to a CDSC scaled down from 2.0% to 1.0% if redeemed within three years after
purchase.) Class C shares are sold without an initial sales charge but are
subject to a CDSC of 1.0% on most redemptions made within one year after
purchase. Class D shares are sold without an initial sales charge or CDSC and
are available only to investors meeting an initial investment minimum of $5
million ($25 million for certain qualified plans), and to certain other limited
categories of investors. At the discretion of the Board of Trustees of the Fund,
Class A shares may be sold to categories of investors in addition to those set
forth in this prospectus at net asset value without a front-end sales charge,
and Class D shares may be sold to certain other categories of investors, in each
case as may be described in the then current prospectus of the Fund. See
"Alternative Purchase Arrangements-- Selecting a Particular Class" for a
discussion of factors to consider in selecting which Class of shares to
purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million ($25 million
for certain qualified plans) or more and to certain other limited categories of
investors. For the purpose of meeting the minimum $5 million (or $25 million)
initial investment for Class D shares, and subject to the $1,000 minimum initial
investment for each Class of the Fund, an investor's existing holdings of Class
A and Class D shares of the Fund and other Morgan Stanley Dean Witter Funds that
are multiple class funds ("Morgan Stanley Dean Witter Multi-Class Funds") and
shares of Morgan Stanley Dean Witter Funds sold with a front-end sales charge
("FSC Funds") and concurrent investments in Class D shares of the Fund and other
Morgan Stanley Dean Witter Multi-Class Funds will be aggregated. Subsequent
purchases of $100 or more may be made by sending a check, payable to Morgan
Stanley Dean Witter Convertible Securities Trust, directly to Morgan Stanley
Dean Witter Trust FSB (the "Transfer Agent" or "MSDW Trust") at P.O. Box 1040,
Jersey City, NJ 07303
14
<PAGE>
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 investment in the account to $1,000 within three
years. In the case of investments pursuant to (i) Systematic Payroll Deduction
Plans (including Individual Retirement Plans), (ii) the MSDW Advisors mutual
fund asset allocation program and (iii) fee-based programs approved by the
Distributor, pursuant to which participants pay an asset based fee for services
in the nature of investment advisory, administrative and/or brokerage services,
the Fund, in its discretion, may accept investments without regard to any
minimum amounts which would otherwise be required, provided, in the case of
Systematic Payroll Deduction Plans, that the Distributor has reason to believe
that additional investments will increase the investment in all accounts under
such Plans to at least $1,000. Certificates for shares purchased will not be
issued unless requested by the shareholder in writing to the Transfer Agent.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business day
(settlement date) after the order is placed with the Distributor. Since DWR and
other Selected Broker-Dealers forward investors' funds on settlement date, they
will benefit from the temporary use of the funds if payment is made prior
thereto. As noted above, orders placed directly with the Transfer Agent must be
accompanied by payment. Investors will be entitled to receive income dividends
and capital gains distributions if their order is received by the close of
business on the day prior to the record date for such dividends and
distributions. Sales personnel of a Selected Broker-Dealer are compensated for
selling shares of the Fund 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 Fund (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 Fund's inception upon
which a CDSC has been imposed or waived, or (b) the average daily net assets of
Class B. The Class B shares' distribution fee will cause that Class to have
higher expenses and pay lower dividends than Class A or Class D shares.
15
<PAGE>
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition, a
certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time. See
"Contingent Deferred Sales Charge Alternative--Class B Shares."
CLASS C SHARES. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They are
subject to an annual 12b-1 fee of up to 1.0% of the average daily net assets of
the Class C shares. The Class C shares' distribution fee may cause that Class to
have higher expenses and pay lower dividends than Class A or Class D shares. See
"Level Load Alternative--Class C Shares."
CLASS D SHARES. Class D shares are available only to limited categories of
investors (see "No Load Alternative-- Class D Shares" below). Class D shares are
sold at net asset value with no initial sales charge or CDSC. They are not
subject to any 12b-1 fees. See "No Load Alternative-- Class D Shares."
SELECTING A PARTICULAR CLASS. In deciding which Class of Fund shares to
purchase, investors should consider the following factors, as well as any other
relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to an investor
depends on the amount and intended length of his or her investment. Investors
who prefer an initial sales charge alternative may elect to purchase Class A
shares. Investors qualifying for significantly reduced or, in the case of
purchases of $1 million or more, no initial sales charges may find Class A
shares particularly attractive because similar sales charge reductions 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 and Class D shares in
all Morgan Stanley Dean Witter Multi-Class Funds, shares of FSC Funds and shares
of Morgan Stanley Dean Witter Funds for which such shares have been exchanged
will be included together with the current investment amount.
Sales personnel may receive different compensation for selling each Class of
shares. Investors should understand that the purpose of a CDSC is the same as
that of the initial sales charge in that the sales charges applicable to each
Class provide for the financing of the distribution of shares of that Class.
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% initial 0.25% No
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 during 1.0% B shares
the first year decreasing convert to A
to 0 after six years shares
automatically
after
approximately
ten years
C 1.0% CDSC during first 1.0% No
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
16
<PAGE>
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
SINGLE TRANSACTION PRICE AMOUNT INVESTED
- --------------------------- ----------------- ------------------
<S> <C> <C>
Less than $25,000.......... 5.25% 5.44%
$25,000 but less
than $50,000............. 4.75% 4.99%
$50,000 but less
than $100,000............ 4.00% 4.17%
$100,000 but less
than $250,000............ 3.00% 3.09%
$250,000 but less
than $1 million.......... 2.00% 2.04%
$1 million and over........ 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods when 90% or more of the sales
charge is reallowed, such Selected Broker-Dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or her
spouse and their children under the age of 21 purchasing shares for his, her or
their own accounts; (c) a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account; (d) a pension, profit-sharing
or other employee benefit plan qualified or non-qualified under Section 401 of
the Internal Revenue Code; (e) tax-exempt organizations enumerated in Section
501(c)(3) or (13) of the Internal Revenue Code; (f) employee benefit plans
qualified under Section 401 of the Internal Revenue Code of a single employer or
of employers who are "affiliated persons" of each other within the meaning of
Section 2(a)(3)(c) of the Act; and for investments in Individual Retirement
Accounts of employees of a single employer through Systematic Payroll Deduction
plans; or (g) any other organized group of persons, whether incorporated or not,
provided the organization has been in existence for at least six months and has
some purpose other than the purchase of redeemable securities of a registered
investment company at a discount.
COMBINED PURCHASE PRIVILEGE. Investors may have the benefit of reduced sales
charges in accordance with the above schedule by combining purchases of Class A
shares of the Fund in single transactions with the purchase of Class A shares of
other Morgan Stanley Dean Witter Multi-Class Funds and shares of FSC Funds. The
sales charge payable on the purchase of the Class A shares of the Fund, the
Class A shares of the other Morgan Stanley Dean Witter Multi-Class Funds and the
shares of the FSC Funds will be at their respective rates applicable to the
total amount of the combined concurrent purchases of such shares.
RIGHT OF ACCUMULATION. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single transaction,
together with shares of the Fund and other Morgan Stanley Dean Witter Funds
previously purchased at a price including a front-end sales charge (including
shares of the Fund and other Morgan Stanley Dean Witter Funds acquired in
exchange for those shares, and including in each case shares acquired through
reinvestment of dividends and distributions), which are held at the time of such
transaction, amounts to $25,000 or more. If such investor has a cumulative 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
17
<PAGE>
the 90-day period prior to the date of receipt by the Distributor of the Letter
of Intent, or of Class A shares of the Fund or shares of other Morgan Stanley
Dean Witter Funds acquired in exchange for shares of such funds purchased during
such period at a price including a front-end sales charge, which are still owned
by the shareholder, may also be included in determining the applicable
reduction.
ADDITIONAL NET ASSET VALUE PURCHASE OPTIONS. In addition to investments of $1
million or more, Class A shares also may be purchased at net asset value by the
following:
(1) trusts for which MSDW Trust (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 serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement whose Class B shares have converted to Class A
shares, regardless of the plan's asset size or number of eligible employees;
(5) investors who are clients of a Morgan Stanley Dean Witter Financial
Advisor who joined Morgan Stanley Dean Witter from another investment firm
within six months prior to the date of purchase of Fund shares by such
investors, if the shares are being purchased with the proceeds from a redemption
of shares of an open-end proprietary mutual fund of the Financial Advisor's
previous firm which imposed either a front-end or deferred sales charge,
provided such purchase was made within sixty days after the redemption and the
proceeds of the redemption had been maintained in the interim in cash or a money
market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Selected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Fund. A CDSC, however, will be imposed on most Class
B shares redeemed within six years after purchase. The CDSC will be imposed on
any redemption of shares if after such redemption the aggregate current value of
a Class B account with the Fund falls below the aggregate amount of the
investor's purchase payments for Class B shares made during the six years (or,
in the case of shares held by certain Qualified Retirement Plans, three years)
preceding the redemption. In addition, Class B shares are subject to an annual
12b-1 fee of 1.0% of the lesser of: (a) the average daily aggregate gross sales
of the Fund's Class B shares since the inception of the Fund (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
Fund's inception upon which a CDSC has been imposed or waived, or (b) the
average daily net assets of Class B.
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in which
the shares were purchased) will not be subject to any CDSC upon redemption.
Shares redeemed earlier than six years after purchase may, however, be subject
to a CDSC which will be a percentage of the dollar amount of shares redeemed and
will be assessed on an amount equal to the lesser of the current market value or
the cost of the shares being redeemed. The size of this percentage will depend
upon how long the shares have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- ---------------------------------------- ---------------------
<S> <C>
First................................... 5.0%
Second.................................. 4.0%
Third................................... 3.0%
Fourth.................................. 2.0%
Fifth................................... 2.0%
Sixth................................... 1.0%
Seventh and thereafter.................. None
</TABLE>
In the case of Class B shares of the Fund purchased 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 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
18
<PAGE>
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;
(3) all redemptions of shares held for the benefit of a participant in a
401(k) plan or other Qualified Retirement Plan which offers investment companies
managed by the Investment Manager or its subsidiary, MSDW Services, as
self-directed investment alternatives and for which MSDW Trust serves as Trustee
or DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement ("Eligible Plan"), provided that either: (a)
the plan continues to be an Eligible Plan after the redemption; or (b) the
redemption is in connection with the complete termination of the plan involving
the distribution of all plan assets to participants; and
(4) certain redemptions pursuant to the Fund's Systematic Withdrawal Plan
(see "Shareholder Services--Systematic Withdrawal Plan").
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of IRA, 403(b) Custodial Account or retirement
plan assets to a successor custodian or trustee. All waivers will be granted
only following receipt by the Distributor of confirmation of the shareholder's
entitlement.
CONVERSION TO CLASS A SHARES. All shares of the Fund held prior to July 28,
1997 have been designated Class B shares. Shares held before May 1, 1997 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 a 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
19
<PAGE>
the last day of the month in which the Exchange Fund shares were acquired) is
excluded from the holding period for conversion. If those shares are
subsequently re-exchanged for Class B shares of a Morgan Stanley Dean Witter
Multi-Class Fund, the holding period resumes on the last day of the month in
which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior to
the date for conversion. Class B shares evidenced by share certificates that are
not received by the Transfer Agent at least one week prior to any conversion
date will be converted into Class A shares on the next scheduled conversion date
after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion will
have a basis equal to the shareholder's basis in the converted Class B shares
immediately prior to the conversion, and (iii) Class A shares received on
conversion will have a holding period that includes the holding period of the
converted Class B shares. The conversion feature may be suspended if the ruling
or opinion is no longer available. In such event, Class B shares would continue
to be subject to Class B 12b-1 fees.
LEVEL LOAD ALTERNATIVE-- CLASS C SHARES
Class C shares are sold at net asset value next determined without an initial
sales charge but are subject to a CDSC of 1.0% on most redemptions made within
one year after purchase (calculated from the last day of the month in which the
shares were purchased). The CDSC will be assessed on an amount equal to the
lesser of the current market value or the cost of the shares being redeemed. The
CDSC will not be imposed in the circumstances set forth above in the section
"Contingent Deferred Sales Charge Alternative-- Class B Shares--CDSC Waivers,"
except that the references to six years in the first paragraph of that section
shall mean one year in the case of Class C shares. Class C shares are subject to
an annual 12b-1 fee of up to 1.0% of the average daily net assets of the Class.
Unlike Class B shares, Class C shares have no conversion feature and,
accordingly, an investor that purchases Class C shares will be subject to 12b-1
fees applicable to Class C shares for an indefinite period subject to annual
approval by the Fund's Board of Trustees and regulatory limitations.
NO LOAD ALTERNATIVE-- CLASS D SHARES
Class D shares are offered without any sales charge on purchase or redemption
and without any 12b-1 fee. Class D shares are offered only to investors meeting
an initial investment minimum of $5 million ($25 million for Qualified
Retirement Plans for which MSDW Trust serves as Trustee or DWR's Retirement Plan
Services serves as recordkeeper pursuant to a written Recordkeeping Services
Agreement) and the following categories of investors: (i) investors
participating in the MSDW Advisors mutual fund asset allocation program pursuant
to which such persons pay an asset based fee; (ii) persons participating in a
fee-based program approved by the Distributor, pursuant to which such persons
pay an asset based fee for services in the nature of investment advisory,
administrative and/or brokerage services (subject to all of the terms and
conditions of such programs referred to in (i) and (ii) above, which may include
termination fees, mandatory redemption, and such other circumstances as
specified in the programs' agreements and restrictions on transferability of
Fund shares); (iii) employee benefit plans maintained by Morgan Stanley Dean
Witter & Co. or any of its subsidiaries for the benefit of certain employees of
Morgan Stanley Dean Witter & Co. and its subsidiaries; (iv) certain Unit
Investment Trusts sponsored by DWR; (v) certain other open-end investment
companies whose shares are distributed by the Distributor; (vi) investors who
were shareholders of Dean Witter Retirement Series on September 11, 1998 (with
respect to additional purchases for their former Dean Witter Retirement Series
accounts); and (vii) other categories of investors, at the discretion of the
Board, as disclosed in the then current prospectus of the Fund. Investors who
require a $5 million (or $25 million) minimum initial investment to qualify to
purchase Class D shares may satisfy that requirement by investing that amount in
a single transaction in Class D shares of the Fund and other Morgan Stanley Dean
Witter Multi-Class Funds, subject to the $1,000 minimum initial investment
required for that Class of the Fund. In addition, for the purpose of meeting the
$5 million (or $25 million) minimum investment amount, holdings of Class A and
Class D shares in all Morgan Stanley Dean Witter Multi-Class Funds, shares of
FSC Funds and shares of Morgan Stanley Dean Witter Funds for which such shares
have been exchanged will be included together with the current investment
amount. If a shareholder redeems Class A shares and purchases Class D shares,
such redemption may be a taxable event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the Act
with respect to the distribution of Class A, Class B and Class C shares of the
Fund. In the case of Class A and Class C shares, the Plan provides that the Fund
will reimburse the Distributor and others for the expenses of certain activities
and services incurred by them specifically on behalf of those shares.
Reimbursements for these expenses will be made in monthly payments by the Fund
to the Distributor, which will in no event exceed amounts equal to payments at
the annual rates of 0.25% and 1.0% of the average daily net assets of Class A
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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
Fund (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 Fund's inception upon which a CDSC has been imposed or
waived, or (b) the average daily net assets of Class B. The fee is treated by
the Fund as an expense in the year it is accrued. In the case of Class A shares,
the entire amount of the fee currently represents a service fee within the
meaning of the NASD guidelines. In the case of Class B and Class C shares, a
portion of the fee payable pursuant to the Plan, equal to 0.25% of the average
daily net assets of each of these Classes, respectively, 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 September 30, 1998, Class B shares of the Fund
accrued payments under the Plan amounting to $3,206,390, which amount is equal
to 1.0% of the average daily net assets of Class B for the fiscal year. These
payments were calculated pursuant to clause (b) of the compensation formula
under the Plan. For the fiscal year ended September 30, 1998, Class A and Class
C shares of the Fund accrued payments under the Plan amounting to $1,753 and
$20,751, respectively, which amounts are equal to 0.24% and 1.0% of the average
daily net assets of Class A and Class C, respectively, for the fiscal year.
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
$80,592,295 at September 30, 1998, which was equal to 30.59% of the net assets
of Class B on such date. Of this amount, $1,471,908 represents excess
distribution expenses of TCW/DW Global Convertible Trust, the net assets of
which were combined with those of the Fund on December 22, 1995 as pursuant to
an Agreement and Plan of Reorganization. Because there is no requirement under
the Plan that the Distributor be reimbursed for all distribution expenses or any
requirement that the Plan be continued from year to year, such excess amount
does not constitute a liability of the Fund. Although there is no legal
obligation for the Fund to pay expenses incurred in excess of payments made to
the Distributor under the Plan, and the proceeds of CDSCs paid by investors upon
redemption of shares, if for any reason the Plan is terminated the Trustees will
consider at that time the manner in which to treat such expenses. Any cumulative
expenses incurred, but not yet recovered through distribution fees or CDSCs, may
or may not be recovered through future distribution fees or CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to the
Plan in any calendar year in excess of 0.25% or 1.0% of the average daily net
assets of Class A or Class C, respectively, will not be reimbursed by the Fund
through payments in any subsequent year, except that expenses representing a
gross sales commission credited to Morgan Stanley Dean Witter Financial Advisors
and other Selected Broker-Dealer representatives at the time of sale may be
reimbursed in the subsequent calendar year. 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 $10,463 in the case of Class C at
December 31, 1997, which amount was equal to 0.77% of the net assets of Class C
on such date, and that there were no such expenses which 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, on each day that the New York Stock Exchange is open, or, on days when the
New York Stock Exchange closes prior to 4:00 p.m., at such earlier time, by
taking the net assets of the Fund, dividing by the number of shares outstanding
and adjusting to the nearest cent. The assets belonging to the Class A, Class B,
Class C
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and Class D shares will be invested together in a single portfolio. The net
asset value of each Class, however, will be determined separately by subtracting
each Class's accrued expenses and liabilities. The net asset value per share
will not be determined on Good Friday and on such other federal and non-federal
holidays as are observed by the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
domestic or foreign exchange is valued at its latest sale price on that exchange
prior to the time assets are valued; if there were no sales that day, the
security is valued at the latest bid price (in cases where a security is traded
on more than one exchange, the security is valued on the exchange designated as
the primary market pursuant to procedures adopted by the Trustees), and (2) all
other portfolio securities for which over-the-counter market quotations are
readily available are valued at the latest bid price. When market quotations are
not readily available, or when it is determined by the Investment Manager that
sale or bid prices are not reflective of a security's fair value, portfolio
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Fund's
Trustees.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may utilize
a matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff, including
review of broker-dealer market price quotations in determining what it believes
is the fair valuation of the portfolio securities valued by such pricing
service.
SHAREHOLDER SERVICES
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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").
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.")
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").
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders whose shares of Morgan Stanley Dean Witter
Funds have an aggregate value of $10,000 or more. Shares of any Fund from which
redemptions will be made pursuant to the Plan must have a value of $1,000 or
more (referred to as a "SWP Fund"). The required share values are determined on
the date the shareholder establishes the Withdrawal Plan. The Withdrawal Plan
provides for monthly, quarterly, semi-annual or annual payments in any amount
not less than $25, or in any whole percentage of the value of the SWP Funds'
shares, on an annualized basis. Any applicable CDSC will be imposed on shares
redeemed under the Withdrawal Plan (see "Purchase of Fund Shares"), except that
the CDSC, if any, will be waived on redemptions under the Withdrawal Plan of up
to 12% annually of the value of each SWP Fund account, based on the share values
next determined after the shareholder establishes the Withdrawal Plan.
Redemptions for which this CDSC waiver policy applies may be in amounts up to 1%
per month, 3% per quarter, 6% semi-annually or 12% annually. Under this CDSC
waiver policy, amounts withdrawn each period will be paid by first redeeming
shares not subject to a CDSC because the shares were purchased by the
reinvestment of dividends or capital gains distributions, the CDSC period has
elapsed or some other waiver of the CDSC applies. If shares subject to a CDSC
must be redeemed, shares held for the longest period of time will be redeemed
first and continuing with shares held the next longest period of time until
shares held the shortest period of time are redeemed. Any shareholder
participating in the Withdrawal Plan will have sufficient shares redeemed from
his or her account so that the proceeds (net of any applicable CDSC) to the
shareholder will be the designated monthly, quarterly, semi-annual or annual
amount.
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A shareholder may suspend or terminate participation in the Withdrawal Plan
at any time. A shareholder who has suspended participation may resume payment
under the Withdrawal Plan, without requiring a new determination of the account
value of the 12% CDSC waiver. The Withdrawal Plan may be terminated or revised
at any time by the Fund.
Prior to adding an additional SWP Fund to an existing Withdrawal Plan, the
required $10,000/$1,000 share values must be met, to be calculated on the date
the shareholder adds the additional SWP Fund. However, the addition of a new SWP
Fund will not change the account value for the 12% CDSC waiver for the SWP Funds
already participating in the Withdrawal Plan.
Withdrawal Plan payments should not be considered dividends, yields or
income. If periodic Withdrawal Plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted. Each withdrawal constitutes a
redemption of shares and any gain or loss realized must be recognized for
federal income tax purposes.
Shareholders should contact their Morgan Stanley Dean Witter Financial
Advisor or other Selected Broker-Dealer representive, or the Transfer Agent for
further information about any of the above services.
TAX-SHELTERED RETIREMENT PLANS. Retirement plans are available through the
Distributor for use by corporations, the self-employed, Individual Retirement
Accounts and Custodial Accounts under Section 403(b)(7) of the Internal Revenue
Code. Adoption of such plans should be on advice of legal counsel or tax
advisor.
For further information regarding plan administration, custodial fees and
other details, investors should contact their Morgan Stanley Dean Witter
Financial Advisor or other Selected Broker-Dealer representive or the Transfer
Agent.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of any other
Dean Witter Multi-Class Fund without the imposition of any exchange fee. Shares
may also be exchanged for shares of the following funds: Morgan Stanley Dean
Witter Short-Term U.S. Treasury Trust, Morgan Stanley Dean Witter Limited Term
Municipal Trust, Morgan Stanley Dean Witter Short-Term Bond Fund and five Morgan
Stanley Dean Witter funds which are money market funds (the "Exchange Funds").
Class A shares may also be exchanged for shares of Morgan Stanley Dean Witter
Multi-State Municipal Series Trust and Morgan Stanley Dean Witter Hawaii
Municipal Trust, which are Morgan Stanley Dean Witter Funds sold with a
front-end sales charge ("FSC Funds"). Exchanges may be made after the shares of
the Fund acquired by purchase (not by exchange or dividend reinvestment) have
been held for thirty days. There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment.
An exchange to another Morgan Stanley Dean Witter Multi-Class Fund, any FSC
Fund or any Exchange Fund that is not a money market fund is on the basis of the
next calculated net asset value per share of each fund after the exchange order
is received. When exchanging into a money market fund from the Fund, shares of
the Fund are redeemed out of the Fund at their next calculated net asset value
and the proceeds of the redemption are used to purchase shares of the money
market fund at their net asset value determined the following business day.
Subsequent exchanges between any of the money market funds and any of the Morgan
Stanley Dean Witter Multi-Class Funds, FSC Funds or any Exchange Fund that is
not a money market fund can be effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period of
time the shareholder remains in an Exchange Fund (calculated from the last day
of the month in which the Exchange Fund shares were acquired), the holding
period (for the purpose of determining the rate of the CDSC) is frozen. If those
shares are subsequently re-exchanged for shares of a Morgan Stanley Dean Witter
Multi-Class Fund, the holding period previously frozen when the first exchange
was made resumes on the last day of the month in which shares of a Morgan
Stanley Dean Witter Multi-Class Fund are reacquired. Thus, the CDSC is based
upon the time (calculated as described above) the shareholder was invested in
shares of a Morgan Stanley Dean Witter Multi-Class Fund (see "Purchase of Fund
Shares"). In the case of exchanges of Class A shares which are subject to a
CDSC, the holding period also includes the time (calculated as described above)
the shareholder was invested in shares of a FSC Fund. In the case of shares
exchanged into an Exchange Fund on or after April 23, 1990, upon a redemption of
shares which results in a CDSC being imposed, a credit (not to exceed the amount
of the CDSC) will be given in an amount equal to the Exchange Fund 12b-1
distribution fees incurred on or after that date which are attributable to those
shares. (Exchange Fund 12b-1 distribution fees are described in the prospectuses
for those funds.) Class B shares of the Fund acquired in exchange for 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
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<PAGE>
Fund's refusal to accept additional purchases and/or exchanges from the
investor. Although the Fund does not have any specific definition of what
constitutes a pattern of frequent exchanges, and will consider all relevant
factors in determining whether a particular situation is abusive and contrary to
the best interests of the Fund and its other shareholders, investors should be
aware that the Fund and each of the other Morgan Stanley Dean Witter Funds may
in their discretion limit or otherwise restrict the number of times this
Exchange Privilege may be exercised by any investor. Any such restriction will
be made by the Fund on a prospective basis only, upon notice to the shareholder
not later than ten days following such shareholder's most recent exchange. Also
the Exchange Privilege may be terminated or revised at any time by the Fund
and/or any of such Morgan Stanley Dean Witter Funds for which shares of the Fund
have been exchanged, upon such notice as may be required by applicable
regulatory agencies. Shareholders maintaining margin accounts with DWR or
another Selected Broker-Dealer are referred to their Morgan Stanley Dean Witter
Financial Advisor or other Selected Broker-Dealer representative regarding
restrictions on exchange of shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement of
each Class of shares and any other conditions imposed by each fund. In the case
of a shareholder holding a share certificate or certificates, no exchanges may
be made until all applicable share certificates have been received by the
Transfer Agent and deposited in the shareholder's account. 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 other Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Morgan
Stanley Dean Witter Funds (for which the Exchange Privilege is available)
pursuant to this Exchange Privilege by contacting their Morgan Stanley Dean
Witter Financial Advisor or other Selected Broker-Dealer representative (no
Exchange Privilege Authorization Form is required). Other shareholders (and
those shareholders who are clients of DWR or another Selected Broker-Dealer but
who wish to make exchanges directly by writing or telephoning the Transfer
Agent) must complete and forward to the Transfer Agent an Exchange Privilege
Authorization Form, copies of which may be obtained from the Transfer Agent, to
initiate an exchange. If the Authorization Form is used, exchanges may be made
in writing or by contacting the Transfer Agent at (800) 869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that exchange instructions
communicated over the telephone are genuine. Such procedures may include
requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number and DWR or other
Selected Broker-Dealer account number (if any). Telephone instructions may also
be recorded. If such procedures are not employed, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m. and 4:00 p.m., New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her Morgan Stanley Dean Witter
Financial Advisor or other Selected Broker-Dealer representative, if
appropriate, or make a written exchange request. Shareholders are advised that
during periods of drastic economic or market changes, it is possible that the
telephone exchange procedures may be difficult to implement, although this has
not been the case with the Morgan Stanley Dean Witter Funds in the past.
Shareholders should contact their Morgan Stanley Dean Witter Financial
Advisor or other Selected Broker-Dealer representative or the Transfer Agent for
further information about the Exchange Privilege.
REDEMPTIONS AND REPURCHASES
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REDEMPTION. Shares of each Class of the Fund can be redeemed for cash at any
time at the net asset value per share next determined; less the amount of any
applicable CDSC in the case of Class A, Class B or Class C shares (see "Purchase
of Fund Shares"). If shares are held in a shareholder's account without a share
certificate, a written request for redemption sent to the Fund's Transfer Agent
at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by
the shareholder(s), the shares may be redeemed by surrendering the
certificate(s) 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
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<PAGE>
Broker-Dealers upon the telephonic or telegraphic request of the shareholder.
The repurchase price is the net asset value next computed (see "Purchase of Fund
Shares") after such repurchase order is received by DWR or other Selected
Broker-Dealer, reduced by any applicable CDSC.
The CDSC, if any, will be the only fee imposed upon repurchase by the Fund
or the Distributor. The offer by DWR and other Selected Broker-Dealers to
repurchase shares may be suspended without notice by them at any time. In that
event, shareholders may redeem their shares through the Fund's Transfer Agent as
set forth above under "Redemption."
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. Payment for shares presented for
repurchase or redemption will be made by check within seven days after receipt
by the Transfer Agent of the certificate and/or written request in good order.
Such payment may be postponed or the right of redemption suspended under unusual
circumstances, 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 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 the net asset value next determined after a reinstatement request, together
with the proceeds, is received by the Transfer Agent and receive a pro rata
credit for any CDSC paid in connection with such redemption or repurchase.
INVOLUNTARY REDEMPTION. The Fund reserves the right, on sixty days' notice, to
redeem, at their net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement Account or Custodial Account under
Section 403(b)(7) of the Internal Revenue Code) whose shares, due to redemptions
by the shareholder, have a value of less than $100 or such lesser amount as may
be fixed by the Fund's Trustees or, in the case of an account opened through
EasyInvest, if after twelve months the Shareholder has invested less than $1,000
in the account. However, before the Fund redeems such shares and sends the
proceeds to the shareholder, it will notify the shareholder that the value of
the shares is less than the applicable amount and allow him or her sixty days to
make an additional investment in an amount which will increase the value of his
or her account to at least the applicable amount or more before the redemption
is processed. No CDSC will be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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DIVIDENDS AND DISTRIBUTIONS. The Fund declares dividends separately for each
Class of shares and intends to pay quarterly income dividends and to distribute
net short-term and net long-term 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 gains in any year for reinvestment.
All dividends and capital gains distributions will be paid in additional
shares of the same Class and automatically credited to the shareholder's account
without issuance of a share certificate unless the shareholder requests in
writing that all dividends and/or distributions be paid in cash. Shares acquired
by dividend and distribution reinvestments will not be subject to any front-end
sales charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. Distributions paid on Class A and Class D shares will be higher than
for Class B and Class C shares because distribution fees paid by Class B and
Class C shares are higher. (See "Shareholder Services--Automatic Investment of
Dividends and Distributions".)
TAXES. Because the Fund intends to distribute substantially all of its net
investment income and net capital gains to shareholders and otherwise remain
qualified as a regulated investment company under Subchapter M of the Internal
Revenue Code, it is not expected that the Fund will be required to pay any
federal income tax on such income and capital gains. Shareholders who are
required to pay taxes on their income will normally have to pay federal income
taxes, and any state and local income taxes, on the dividends and distributions
they receive from the Fund. Such dividends and distributions, to the extent 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 year prior to February 1 will be deemed, for tax purposes, to have
been received by the shareholder in the prior year.
Gains or losses on the Fund's transactions in listed non-equity options,
futures and options on futures generally are treated as 60% long-term and 40%
short-term.
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<PAGE>
When the Fund engages in options and futures transactions, various tax
regulations applicable to the Fund may have the effect of causing the Fund to
recognize a gain or loss for tax purposes before that gain or loss is realized,
or to defer recognition of a realized loss for tax purposes. Recognition, for
tax purposes, of an unrealized loss may result in a lesser amount of the Fund's
realized gains being available for annual distribution.
With respect to the Fund's investments in zero coupon and payment-in-kind
bonds, the Fund accrues income prior to any actual cash payments by their
issuers. In order to continue to comply with Subchapter M of the Code and remain
able to forego payment of Federal income tax on its income and capital gains,
the Fund must distribute all of its net investment income, including income
accrued from zero coupon and payment-in-kind bonds. As such, the Fund may be
required to dispose of some of its portfolio securities under disadvantageous
circumstances to generate the cash required for distribution.
The Fund may at times make payments from sources other than income or net
capital gains. Payments from such sources would, in effect, represent a return
of a portion of each shareholder's investment. All, or a portion, of such
payments would not be taxable to shareholders.
After the end of the calendar year, shareholders will receive full
information on their dividends and capital gains distributions for tax purposes.
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.
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.
Shareholders should consult their tax advisors as to the applicability of
the foregoing to their current situation.
PERFORMANCE INFORMATION
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From time to time the Fund may quote its "yield" and/or its "total return" in
advertisements and sales literature. These figures are computed separately for
Class A, Class B, Class C and Class D shares. Both the yield and the total
return of the Fund are based on historical earnings and are not intended to
indicate future performance. The yield of each Class of the Fund is computed by
dividing the Class's net investment income over a 30-day period by an average
value (using the average number of shares entitled to receive dividends and the
maximum offering price per share at the end of the period), all in accordance
with applicable regulatory requirements. Such amount is compounded for six
months and then annualized for a twelve-month period to derive the Fund's yield
for each Class.
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, as well as over the life of the Fund. Average annual total return
reflects all income earned by the Fund, any appreciation or depreciation of the
Fund's assets, all expenses incurred by the applicable Class and all sales
charges incurred by shareholders, for the stated periods. It also assumes
reinvestment of all dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the deduction of any sales charge which, if reflected, would
reduce the performance quoted. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in each Class of
shares of the Fund. The Fund from time to time may also advertise its
performance relative to certain performance rankings and indices compiled by
independent organizations (such as mutual fund performance rankings of Lipper
Analytical Services, Inc.).
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS. All shares of beneficial interest of the Fund are of $0.01 par
value and are equal as to earnings, assets and voting privileges except that
each Class will have exclusive voting privileges with respect to matters
relating to distribution expenses borne solely by such Class or any other matter
in which the interests of one Class differ from the interests of any other
Class. In addition, Class B shareholders will have the right to vote on any
proposed material increase in Class A's expenses, if such proposal is submitted
separately to Class A shareholders. Also, as discussed herein, Class A, Class B
and Class C bear the expenses related to the distribution of their respective
shares.
The Fund is not required to hold Annual Meetings of Shareholders and, in
ordinary circumstances, the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances the Trustees may be removed by action of the Trustees or by the
Shareholders.
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Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that Fund
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability and
the nature of the Fund's assets and operations, the possibility of the Fund's
being unable to meet its obligations is remote and, thus, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
CODE OF ETHICS. Directors, officers and employees of MSDW Advisors, MSDW
Services and MSDW Distributors are subject to a strict Code of Ethics adopted by
those companies. The Code of Ethics is intended to ensure that the interests of
shareholders and other clients are placed ahead of any personal interest, that
no undue personal benefit is obtained from person's employment activities and
that actual and potential conflicts of interest are avoided. To achieve these
goals and comply with regulatory requirements, the Code of Ethics requires,
among other things, that personal securities transactions by employees of the
companies be subject to an advance clearance process to monitor that no Morgan
Stanley Dean Witter Fund is engaged at the same time in a purchase or sale of
the same security. The Code of Ethics bans the purchase of securities in an
initial public offering, and also prohibits engaging in futures and options
transactions and profiting on short-term trading (that is, a purchase within
sixty days of a sale or a sale within sixty days of a purchase) of a security.
In addition, investment personnel may not purchase or sell a security for their
personal account within thirty days before or after any transaction in any
Morgan Stanley Dean Witter Fund managed by them. Any violations of the Code of
Ethics are subject to sanctions, including reprimand, demotion or suspension or
termination of employment. The Code of Ethics comports with regulatory
requirements and the recommendations in the 1994 report by the Investment
Company Institute Advisory Group on Personal Investing.
MASTER/FEEDER CONVERSION. The Fund reserves the right to seek to achieve its
investment objective by investing all of its investable assets in a diversified,
open-end management investment company having the same investment objective and
policies and substantially the same investment restrictions as those applicable
to the Fund.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed to
the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
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APPENDIX -- RATINGS OF INVESTMENTS
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MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
BOND RATINGS
<TABLE>
<S> <C>
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds. They
are rated lower than the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be of greater amplitude
or there may be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations; i.e., they are
neither highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative characteristics as
well.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
Ba Bonds which are rated Ba are judged to have speculative elements; their future cannot
be considered as well assured. Often the protection of interest and principal payments
may be very moderate, and therefore not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of desirable investments.
Assurance of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal or interest.
Ca Bonds which are rated Ca present obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so rated can
be regarded as having extremely poor prospects of ever attaining any real investment
standing.
</TABLE>
CONDITIONAL RATING: Municipal bonds for which the security depends upon
the completion of some act or the fulfillment of some condition are
rated conditionally. These are bonds secured by (a) earnings of projects
under construction, (b) earnings of projects unseasoned in operation
experience, (c) rentals which begin when facilities are completed, or
(d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2 and 3
in each generic rating classification from Aa through B in its corporate
and municipal bond rating system. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and a modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations,
all
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judged to be investment grade, to indicate the relative repayment
capacity of rated issuers: Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of
short-term promissory obligations. Issuers rated Prime-2 have a strong
capacity for repayment of short-term promissory obligations; and Issuers
rated Prime-3 have an acceptable capacity for repayment of short-term
promissory obligations. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
BOND RATINGS
A Standard & Poor's bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.
The ratings are based on current information furnished by the issuer
or obtained by Standard & Poor's from other sources it considers
reliable. The ratings are based, in varying degrees, on the following
considerations: (1) likelihood of default-capacity and willingness of
the obligor as to the timely payment of interest and repayment of
principal in accordance with the terms of the obligation; (2) nature of
and provisions of the obligation; and (3) protection afforded by, and
relative position of, the obligation in the event of bankruptcy,
reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information, or for other
reasons.
<TABLE>
<S> <C>
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the highest-rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal although they
are somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher-rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this category than for debt
in higher-rated categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds.
BB Debt rated BB has less near-term vulnerability to default than other speculative grade
debt. However, it faces major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to inadequate capacity to meet
timely interest and principal payment.
B Debt rated B has a greater vulnerability to default but presently has the capacity to
meet interest payments and principal repayments. Adverse business, financial or
economic conditions would likely impair capacity or willingness to pay interest and
repay principal.
CCC Debt rated CCC has a current identifiable vulnerability to default, and is dependent
upon favorable business, financial and economic conditions to meet timely payments of
interest and repayments of principal. In the event of adverse business, financial or
economic conditions, it is not likely to have the capacity to pay interest and repay
principal.
CC The rating CC is typically applied to debt subordinated to senior debt which is
assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to senior debt which is
assigned an actual or implied CCC- debt rating.
CI The rating CI is reserved for income bonds on which no interest is being paid.
NR Indicates that no rating has been requested, that there is insufficient information on
which to base a rating or that Standard & Poor's does not rate a particular type of
obligation as a matter of policy.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Bonds rated BB, B, CCC, CC and C are regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest degree of speculation.
While such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse conditions.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major ratings categories.
In the case of municipal bonds, the foregoing ratings are sometimes followed by a "p"
which indicates that the rating is provisional. A provisional rating assumes the
successful completion of the project being financed by the bonds being rated and
indicates that payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the project, makes no comment on
the likelihood or risk of default upon failure of such completion.
</TABLE>
COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of
no more than 365 days. The commercial paper rating is not a
recommendation to purchase or sell a security. The ratings are based
upon current information furnished by the issuer or obtained by Standard
and Poor's from other sources it considers reliable. The ratings may be
changed, suspended, or withdrawn as a result of changes in or
unavailability of such information. Ratings are graded into group
categories, ranging from "A" for the highest quality obligations to "D"
for the lowest. Ratings are applicable to both taxable and tax-exempt
commercial paper. The categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity
for timely payment. Issues in this category are further refined with the
designation 1, 2 and 3 to indicate the relative degree of safety.
<TABLE>
<S> <C>
A-1 indicates that the degree of safety regarding timely payment is very strong.
A-2 indicates capacity for timely payment on issues with this designation is strong. However,
the relative degree of safety is not as overwhelming as for issues designated "A-1".
A-3 indicates a satisfactory capacity for timely payment. Obligations carrying this
designation are, however, somewhat more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
</TABLE>
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<PAGE>
MORGAN STANLEY DEAN WITTER
CONVERTIBLE SECURITIES TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and
General Counsel
Peter M. Avelar
Vice President
Ellen Gold
Assistant Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
