<PAGE>
As Filed With the Securities and Exchange Commission on April 26, 1999
File No. 33-23166
811-5624
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 42 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 43 /X/
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
----------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
1221 Avenue of the Americas
New York, New York 10020
------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (800) 548-7786
--------------
Harold J. Schaaff, Jr., Esq.
Morgan Stanley Dean Witter Investment Management Inc.
1221 Avenue of the Americas, New York, New York 10020
-----------------------------------------------------------------
(Name and Address of Agent for Service)
Copy to:
<TABLE>
<CAPTION>
<S> <C>
Michael F. Klein, Esq. Richard W. Grant, Esq.
Morgan Stanley Dean Witter Investment Management Inc. Morgan, Lewis & Bockius LLP
1221 Avenue of the Americas 1701 Market Street
New York, NY 10020 Philadelphia, PA 19103
</TABLE>
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b)
----
X on May 1, 1999 pursuant to paragraph (b)
----
60 days after filing pursuant to paragraph (a)(1)
----
75 days after filing pursuant to paragraph (a)(2)
----
on [ date] pursuant to paragraph (a) of Rule 485.
----
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<PAGE>
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PROSPECTUS MAY 1, 1999
- -------------------------------------------------------------------------------
PORTFOLIOS OF [LOGO] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
EQUITY GROWTH PORTFOLIO
THE EQUITY GROWTH PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN GROWTH-ORIENTED EQUITY SECURITIES OF MEDIUM AND LARGE
CAPITALIZATION COMPANIES.
AGGRESSIVE EQUITY PORTFOLIO
THE AGGRESSIVE EQUITY PORTFOLIO SEEKS CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN
CORPORATE EQUITY AND EQUITY-LINKED SECURITIES.
EMERGING GROWTH PORTFOLIO
THE EMERGING GROWTH PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN GROWTH-ORIENTED EQUITY SECURITIES OF SMALL- TO MEDIUM-SIZED
CORPORATIONS.
VALUE EQUITY PORTFOLIO
THE VALUE EQUITY PORTFOLIO SEEKS HIGH TOTAL RETURN BY INVESTING PRIMARILY IN
EQUITY SECURITIES WHICH THE INVESTMENT ADVISER BELIEVES TO BE UNDERVALUED
RELATIVE TO THE STOCK MARKET IN GENERAL AT THE TIME OF PURCHASE.
TECHNOLOGY PORTFOLIO
THE TECHNOLOGY PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN EQUITY SECURITIES OF COMPANIES THAT THE INVESTMENT ADVISER EXPECTS
TO BENEFIT FROM THEIR INVOLVEMENT IN TECHNOLOGY AND TECHNOLOGY-RELATED
INDUSTRIES.
INVESTMENT ADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
DISTRIBUTOR
MORGAN STANLEY & CO. INCORPORATED
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC. (THE "FUND") IS A NO-LOAD
MUTUAL FUND THAT IS DESIGNED TO MEET THE INVESTMENT NEEDS OF DISCERNING
INVESTORS WHO PLACE A PREMIUM ON QUALITY AND PERSONAL SERVICE. THE FUND MAKES
AVAILABLE TO INSTITUTIONAL INVESTORS A SERIES OF PORTFOLIOS WHICH BENEFIT FROM
THE INVESTMENT EXPERTISE AND COMMITMENT TO EXCELLENCE ASSOCIATED WITH MORGAN
STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC. ("MSDW INVESTMENT MANAGEMENT")
AND ITS AFFILIATES. THIS PROSPECTUS OFFERS CLASS A AND CLASS B SHARES OF THE
PORTFOLIOS LISTED ABOVE (EACH A "PORTFOLIO" AND COLLECTIVELY THE "PORTFOLIOS").
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT SUMMARY
EQUITY GROWTH PORTFOLIO 1
AGGRESSIVE EQUITY PORTFOLIO 2
EMERGING GROWTH PORTFOLIO 3
VALUE EQUITY PORTFOLIO 4
TECHNOLOGY PORTFOLIO 5
ADDITIONAL RISK FACTORS AND INFORMATION 6
FEES AND EXPENSES OF THE PORTFOLIOS 8
INVESTMENT ADVISER 9
MANAGEMENT FEES 9
PORTFOLIO MANAGERS 10
DISTRIBUTION OF PORTFOLIO SHARES 12
SHAREHOLDER INFORMATION 12
FINANCIAL HIGHLIGHTS 14
EQUITY GROWTH PORTFOLIO 15
AGGRESSIVE EQUITY PORTFOLIO 16
EMERGING GROWTH PORTFOLIO 17
VALUE EQUITY PORTFOLIO 18
TECHNOLOGY PORTFOLIO 19
ACCOUNT REGISTRATION FORM
</TABLE>
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO
- -------------------------------------------------------------------------------
THE EQUITY GROWTH PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN GROWTH-ORIENTED EQUITY SECURITIES OF MEDIUM AND LARGE
CAPITALIZATION COMPANIES.
APPROACH
MSDW Investment Management seeks to maximize long-term capital appreciation by
investing primarily in the equity securities of U.S. and, to a limited extent,
foreign companies that exhibit strong or accelerating earnings growth. The
universe of eligible companies generally includes those with market
capitalizations of $1 billion or more. MSDW Investment Management emphasizes
individual security selection and may focus the Portfolio's holdings within the
limits permissible for a diversified fund.
PROCESS
MSDW Investment Management follows a flexible investment program in looking for
companies with above average capital appreciation potential. MSDW Investment
Management focuses on companies with consistent or rising earnings growth
records and compelling business strategies. MSDW Investment Management
continually and rigorously studies company developments, including business
strategy, management focus and financial results, to identify companies with
earnings growth and business momentum. In addition, MSDW Investment Management
closely monitors analysts' expectations to identify issuers that have the
potential for positive earnings surprises versus consensus expectations.
Valuation is of secondary importance and is viewed in the context of prospects
for sustainable earnings growth and the potential for positive earnings
surprises in relation to consensus expectations. The Portfolio considers selling
securities of issuers that no longer meet MSDW Investment Management's criteria.
RISK
Investing in the Equity Growth Portfolio may be appropriate for you if you are
willing to accept the risks and uncertainties of investing in equity securities
in the hope of earning superior returns. In general, prices of equity securities
are more volatile than those of fixed income securities. The prices of equity
securities will rise and fall in response to a number of different factors. In
particular, prices of equity securities will respond to events that affect
entire financial markets or industries (changes in inflation or consumer demand,
for example) and to events that affect particular issuers (news about the
success or failure of a new product, for example). In addition, at times the
Portfolio's market sector, mid- to large-capitalization growth-oriented equity
securities, may underperform relative to other sectors.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE (CLASS A SHARES)
<S> <C> <C>
COMMENCED OPERATIONS ON APRIL 2, 1991
1992 7.13%
1993 4.33%
1994 3.26%
1995 45.02%
1996 30.97%
1997 31.32%
1998 19.04%
HIGH (QUARTER)
10/98 - 12/98
22.67%
LOW (QUARTER)
7/98 - 9/98
- -16.09%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A
(COMMENCED CLASS B
OPERATIONS ON (COMMENCED
APRIL 2, OPERATIONS ON S&P 500 INDEX*
1991) JANUARY 2, 1996) CLASS A CLASS B
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
PAST ONE YEAR 19.04% 18.71% 28.57% 28.57%
- ----------------------------------------------------------------------------------------------
PAST FIVE YEARS 25.12% N/A 24.06% N/A
- ----------------------------------------------------------------------------------------------
SINCE INCEPTION 19.09% 26.47% 19.13% 27.95%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. THE TABLE SEPARATELY COMPARES CLASS A AND
CLASS B SHARES TO THE INDEX SO THAT YOU CAN COMPARE PERFORMANCE FOR EACH CLASS
FROM ITS COMMENCEMENT DATE. THE INDEX ITSELF DOES NOT ACTUALLY HAVE TWO CLASSES.
HOW THE PORTFOLIO HAS PERFORMED IN THE PAST DOES NOT NECESSARILY INDICATE HOW
THE PORTFOLIO WILL PERFORM IN THE FUTURE.
*THE S&P 500 IS A STOCK INDEX COMPRISED OF 500 LARGE-CAP U.S. COMPANIES WITH
MARKET CAPITALIZATION OF $1 BILLION OR MORE. THESE 500 COMPANIES ARE A
REPRESENTATIVE SAMPLE OF SOME 100 INDUSTRIES, CHOSEN MAINLY FOR MARKET SIZE,
LIQUIDITY AND INDUSTRY GROUP REPRESENTATION. THE S&P IS A MARKET-VALUE WEIGHTED
INDEX (STOCK PRICE TIMES NUMBER OF SHARES OUTSTANDING), WITH EACH STOCK'S
WEIGHT IN THE INDEX PROPORTIONATE TO ITS MARKET VALUE.
1
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
AGGRESSIVE EQUITY PORTFOLIO
- -------------------------------------------------------------------------------
THE AGGRESSIVE EQUITY PORTFOLIO SEEKS CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN CORPORATE EQUITY AND EQUITY-LINKED SECURITIES.
APPROACH
MSDW Investment Management seeks to maximize capital appreciation by investing
in equity and equity-linked securities of U.S., and to a limited extent, foreign
companies that exhibit strong or accelerating earnings growth. The universe of
eligible companies mainly includes those with market capitalizations of $1
billion or more but may also include smaller companies. MSDW Investment
Management emphasizes individual security selection. The Portfolio generally
concentrates its holdings in a relatively small number of companies and may
invest up to 25% of its assets in a single issuer.
PROCESS
MSDW Investment Management follows a flexible investment program in looking for
companies with above average capital appreciation potential. Fundamental equity
research drives the process. MSDW Investment Management focuses on companies
with consistent or rising earnings growth records and compelling business
strategies. MSDW Investment Management continually and rigorously studies
company developments, including business strategy, management focus and
financial results, to identify companies with earnings growth and business
momentum. In addition, MSDW Investment Management closely monitors analysts'
expectations to identify issuers that have the potential for positive earnings
surprises versus consensus expectations. Valuation is of secondary importance
and is viewed in the context of prospects for sustainable earnings growth and
the potential for positive earnings surprises in relation to consensus
expectations. The Portfolio considers selling securities of issuers that no
longer meet MSDW Investment Management's criteria. MSDW Investment Management's
focus on individual security selection may lead to an emphasis on particular
industry sectors.
RISK
Investing in the Aggressive Equity Portfolio may be appropriate for you if you
are willing to accept the risks and uncertainties of investing in a
non-diversified portfolio of equity securities in the hope of earning superior
returns. In general, prices of equity securities are more volatile than those of
fixed income securities. The prices of equity securities will rise and fall in
response to a number of different factors. In particular, equity securities will
respond to events that affect entire financial markets or industries (changes in
inflation or consumer demand, for example) and to events that affect particular
issuers (news about the success or failure of a new product, for example). In
addition, at times the Portfolio's market sector, mid-
to large-capitalization growth-oriented equity securities, may underperform
relative to other sectors.
THE RISKS OF INVESTING IN THE PORTFOLIO MAY BE INTENSIFIED BECAUSE THE PORTFOLIO
IS NON-DIVERSIFIED, WHICH MEANS THAT IT MAY INVEST IN SECURITIES OF A LIMITED
NUMBER OF ISSUERS. AS A RESULT, THE PERFORMANCE OF A PARTICULAR INVESTMENT OR A
SMALL GROUP OF INVESTMENTS MAY AFFECT THE PORTFOLIO'S PERFORMANCE MORE THAN IF
THE PORTFOLIO WERE DIVERSIFIED. IN ADDITION, THE PORTFOLIO MAY SELL SHORT. IN A
SHORT SALE TRANSACTION, THE PORTFOLIO SELLS A BORROWED SECURITY IN ANTICIPATION
OF A DECLINE IN THE MARKET VALUE OF THAT SECURITY, HOPING TO PROFIT FROM THE
DIFFERENCE BETWEEN THE AMOUNT RECEIVED FROM THE SALE AND THE COST OF REPLACING
THE BORROWED SECURITY. IF MSDW INVESTMENT MANAGEMENT INCORRECTLY PREDICTS THAT
THE PRICE OF THE BORROWED SECURITY WILL DECLINE, THE PORTFOLIO MAY LOSE MONEY
BECAUSE THE AMOUNT NECESSARY TO REPLACE THE BORROWED SECURITY WILL BE GREATER
THAN THE AMOUNT RECEIVED FROM THE SALE.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE (CLASS A SHARES)
<S> <C>
COMMENCED OPERATIONS ON MARCH 8, 1995
1996 40.90%
1997 33.31%
1998 15.35%
HIGH (QUARTER)
10/98 - 12/98
26.17%
LOW (QUARTER)
7/98 - 9/98
- -19.22%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A CLASS B
(COMMENCED (COMMENCED
OPERATIONS ON OPERATIONS ON S&P 500 INDEX*
MARCH 8, 1995) JANUARY 2, 1996) CLASS A CLASS B
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
PAST ONE YEAR 15.35% 15.15% 28.57% 28.57%
- -----------------------------------------------------------------------------------------------
PAST FIVE YEARS N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------
SINCE INCEPTION 34.03% 28.86% 30.29% 27.95%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. THE TABLE SEPARATELY COMPARES CLASS A AND
CLASS B SHARES TO THE INDEX SO THAT YOU CAN COMPARE PERFORMANCE FOR EACH CLASS
FROM ITS COMMENCEMENT DATE. THE INDEX ITSELF DOES NOT ACTUALLY HAVE TWO CLASSES.
HOW THE PORTFOLIO HAS PERFORMED IN THE PAST DOES NOT NECESSARILY INDICATE HOW
THE PORTFOLIO WILL PERFORM IN THE FUTURE.
*THE S&P 500 IS A STOCK INDEX COMPRISED OF 500 LARGE-CAP U.S. COMPANIES WITH
MARKET CAPITALIZATION OF $1 BILLION OR MORE. THESE 500 COMPANIES ARE A
REPRESENTATIVE SAMPLE OF SOME 100 INDUSTRIES, CHOSEN MAINLY FOR MARKET SIZE,
LIQUIDITY AND INDUSTRY GROUP REPRESENTATION. THE S&P IS A MARKET-VALUE WEIGHTED
INDEX (STOCK PRICE TIMES NUMBER OF SHARES OUTSTANDING), WITH EACH STOCK'S
WEIGHT IN THE INDEX PROPORTIONATE TO ITS MARKET VALUE.
2
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO
- -------------------------------------------------------------------------------
THE EMERGING GROWTH PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN GROWTH-ORIENTED EQUITY SECURITIES OF SMALL- TO MEDIUM-SIZED
CORPORATIONS.
APPROACH
MSDW Investment Management seeks to maximize long-term capital appreciation by
investing primarily in the equity securities of U.S. and, to a limited extent,
foreign companies that are early in their life cycles but have the potential to
become major enterprises. The Portfolio will invest in small-to medium-sized
companies, generally those with market capitalizations ranging from $200 million
to $3 billion.
PROCESS
MSDW Investment Management follows a flexible investment program in looking for
companies with above average prospects for capital appreciation. The process is
driven by fundamental research. MSDW Investment Management relies on its
judgment and research capabilities to assess economic, industry, market and
company developments, including business strategy, management focus and
financial results. MSDW Investment Management focuses on companies with strong
business models and high revenue visibility, dominance in a niche or market, and
shareholder oriented management. MSDW Investment Management's financial analysis
of each company focuses on its earnings and cash flow growth, return on equity,
price/earnings ratio, profit margins and price/revenue ratio. MSDW Investment
Management's focus on individual security selection may lead to an emphasis on
particular industry sectors.
RISK
Investing in the Emerging Growth Portfolio may be appropriate for you if you are
willing to accept the risks and uncertainties of investing in the equity
securities of emerging growth companies in the hope of earning superior returns.
In general, prices of equity securities are more volatile than those of fixed
income securities. The prices of equity securities will rise and fall in
response to a number of different factors. In particular, equity securities will
respond to events that affect entire financial markets or industries (changes in
inflation or consumer demand, for example) and to events that affect particular
issuers (news about the success or failure of a new product, for example).
THE RISK OF INVESTING IN EQUITY SECURITIES IS INTENSIFIED IN THE CASE OF THE
SMALL- TO MEDIUM-SIZED COMPANIES IN WHICH THE PORTFOLIO WILL INVEST. MARKET
PRICES FOR SUCH COMPANIES' EQUITY SECURITIES TEND TO BE MORE VOLATILE THAN THOSE
OF LARGER, MORE ESTABLISHED COMPANIES. SUCH COMPANIES MAY THEMSELVES BE MORE
VULNERABLE TO ECONOMIC OR COMPANY SPECIFIC PROBLEMS. BECAUSE OF HIGH VALUATIONS
PLACED ON COMPANIES WITH GROWTH PROSPECTS WITHIN CERTAIN SECTORS, SUCH AS
TECHNOLOGY, BIOTECHNOLOGY AND INTERNET, THE PORTFOLIO MAY OWN SECURITIES OF
COMPANIES THAT HAVE SIGNIFICANT MARKET CAPITALIZATIONS DESPITE A GENERAL LACK OF
OPERATING HISTORY AND/OR POSITIVE EARNINGS. IN ADDITION, AT TIMES THE
PORTFOLIO'S MARKET SECTOR, GROWTH-ORIENTED EQUITY SECURITIES OF SMALL- TO
MEDIUM-SIZED CORPORATIONS, MAY UNDERPERFORM RELATIVE TO OTHER SECTORS.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE (CLASS A SHARES)
<S> <C> <C>
COMMENCED OPERATIONS ON NOVEMBER 1, 1989
1990 3.78%
1991 66.79%
1992 -11.03%
1993 0.00%
1994 -0.62%
1995 33.31%
1996 3.72%
1997 11.36%
1998 27.54%
HIGH (QUARTER)
1/91 - 3/91
27.36%
LOW (QUARTER)
7/90 - 9/90
- -22.43%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A CLASS B
(COMMENCED (COMMENCED RUSSELL 2000 INDEX*
OPERATIONS ON OPERATIONS ON
NOVEMBER 1, 1989) JANUARY 2, 1996) CLASS A CLASS B
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
PAST ONE YEAR 27.54% 26.86% -2.55% -2.55%
- -----------------------------------------------------------------------------------------------------------------------------
PAST FIVE YEARS 14.31% N/A 11.87% N/A
- -----------------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION 13.49% 13.46% 12.42% 11.51%
<CAPTION>
NASDAQ COMPOSITE INDEX**
CLASS A CLASS B
<S> <C> <C>
- -------------------------
PAST ONE YEAR 39.63% 39.63%
- -------------------------
PAST FIVE YEARS 23.06% N/A
- -------------------------
SINCE INCEPTION 18.70% 27.53%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. THE TABLE SEPARATELY COMPARES CLASS A AND
CLASS B SHARES TO THE INDEX SO THAT YOU CAN COMPARE PERFORMANCE FOR EACH CLASS
FROM ITS COMMENCEMENT DATE. THE INDEX ITSELF DOES NOT ACTUALLY HAVE TWO CLASSES.
HOW THE PORTFOLIO HAS PERFORMED IN THE PAST DOES NOT NECESSARILY INDICATE HOW
THE PORTFOLIO WILL PERFORM IN THE FUTURE.
*RUSSELL 2000 INDEX IS AN UNMANAGED INDEX COMPRISED OF 2000 OF THE SMALLEST
COMPANIES IN THE RUSSELL 3000 INDEX AND REPRESENTS APPROXIMATELY 11% OF THE
APPROXIMATELY 98% OF THE INVESTIBLE U.S. EQUITY MARKET.
**THE NASDAQ COMPOSITE INDEX IS AN UNMANAGED INDEX OF COMMON STOCKS.
3
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO
- -------------------------------------------------------------------------------
THE VALUE EQUITY PORTFOLIO SEEKS HIGH TOTAL RETURN BY INVESTING PRIMARILY IN
EQUITY SECURITIES WHICH MSDW INVESTMENT MANAGEMENT BELIEVES TO BE UNDERVALUED
RELATIVE TO THE STOCK MARKET IN GENERAL AT THE TIME OF PURCHASE.
APPROACH
MSDW Investment Management seeks to construct a diversified portfolio of equity
securities of U.S. and, to a limited extent, foreign issuers that will
outperform the market over the long term. MSDW Investment Management emphasizes
a bottom-up approach to investing that seeks to identify securities of
undervalued issuers.
PROCESS
MSDW Investment Management selects securities from a universe comprised of the
500 largest companies in the U.S. market. The selection process focuses on
companies with distinctively below average price-to-earnings and price-to-book
value ratios and high dividend yields. MSDW Investment Management conducts
additional fundamental analysis to ascertain financial soundness. The Portfolio
then purchases securities of companies that research indicates sell below their
estimated value. The Portfolio will typically sell securities when prices revert
to MSDW Investment Management's estimated value.
RISK
Investing in the Value Equity Portfolio may be appropriate for you if you are
willing to accept the risks and uncertainties of investing in equity securities
of U.S. issuers in the hope of earning superior returns. In general, prices of
equity securities are more volatile than those of fixed income securities. The
prices of equity securities will rise and fall in response to a number of
different factors. In particular, prices of equity securities will respond to
events which affect entire financial markets or industries (changes in inflation
or consumer demand, for example) and to events that affect particular issuers
(news about the success or failure of a new product, for example). In addition,
at times the Portfolio's market sector, undervalued equity securities of
large-capitalization companies, may underperform relative to other sectors.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE (CLASS A SHARES)
<S> <C> <C>
COMMENCED OPERATIONS ON JANUARY 31, 1990
1991 23.60%
1992 10.17%
1993 15.14%
1994 -1.29%
1995 33.69%
1996 19.73%
1997 29.20%
1998 8.79%
HIGH (QUARTER)
10/98 - 12/98
18.45%
LOW (QUARTER)
7/98 - 9/98
- -17.09%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A CLASS B
(COMMENCED (COMMENCED
OPERATIONS ON OPERATIONS ON S&P 500 INDEX*
JANUARY 31, 1990) JANUARY 2, 1996) CLASS A CLASS B
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
PAST ONE YEAR 8.79% 8.59% 28.57% 28.57%
- --------------------------------------------------------------------------------------------------
PAST FIVE YEARS 17.30% N/A 24.06% N/A
- --------------------------------------------------------------------------------------------------
SINCE INCEPTION 14.19% 18.35% 19.01% 27.95%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. THE TABLE SEPARATELY COMPARES CLASS A AND
CLASS B SHARES TO THE INDEX SO THAT YOU CAN COMPARE PERFORMANCE FOR EACH CLASS
FROM ITS COMMENCEMENT DATE. THE INDEX ITSELF DOES NOT ACTUALLY HAVE TWO CLASSES.
HOW THE PORTFOLIO HAS PERFORMED IN THE PAST DOES NOT NECESSARILY INDICATE HOW
THE PORTFOLIO WILL PERFORM IN THE FUTURE.
*THE S&P 500 IS A STOCK INDEX COMPRISED OF 500 LARGE-CAP U.S. COMPANIES WITH
MARKET CAPITALIZATION OF $1 BILLION OR MORE. THESE 500 COMPANIES ARE A
REPRESENTATIVE SAMPLE OF SOME 100 INDUSTRIES, CHOSEN MAINLY FOR MARKET SIZE,
LIQUIDITY AND INDUSTRY GROUP REPRESENTATION. THE S&P IS A MARKET-VALUE WEIGHTED
INDEX (STOCK PRICE TIMES NUMBER OF SHARES OUTSTANDING), WITH EACH STOCK'S
WEIGHT IN THE INDEX PROPORTIONATE TO ITS MARKET VALUE.
4
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
TECHNOLOGY PORTFOLIO
- -------------------------------------------------------------------------------
THE TECHNOLOGY PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN EQUITY SECURITIES OF COMPANIES THAT MSDW INVESTMENT MANAGEMENT
EXPECTS TO BENEFIT FROM THEIR INVOLVEMENT IN TECHNOLOGY AND TECHNOLOGY-RELATED
INDUSTRIES.
APPROACH
MSDW Investment Management seeks to maximize long-term capital appreciation by
identifying significant long-term technology trends and by investing primarily
in companies MSDW Investment Management believes are positioned to benefit
materially from these trends.
PROCESS
MSDW Investment Management extensively researches technology trends in order to
identify industry sectors and issuers with strong prospects and leading market
share. The Portfolio invests in a broad range of technology-related industries,
including: computers; software and peripheral products; electronics;
communications equipment and services; entertainment; multimedia; and
information services. The Portfolio seeks to overweight investment in the
best-positioned sectors, while underweighting the sectors exposed to the
greatest risk in comparison to potential return. MSDW Investment Management
looks to invest in issuers with strong management teams, reasonable valuation
relative to growth prospects and whose competitors face sustainable barriers to
market entry. The Portfolio may participate in the global technology market by
investing up to 35% of its total assets in the equity or fixed income securities
of foreign issuers, including those located in emerging markets.
RISK
Investing in the Technology Portfolio may be appropriate for you if you are
willing to accept the risks and uncertainties of investing in equity securities
of companies in the technology sector in the hope of earning superior returns
and diversifying your investment portfolio. Because the Portfolio invests
primarily in technology-related issuers, there is an additional risk that
economic events may affect a substantial portion of the Portfolio's investments.
Historically, the price of securities in this sector have tended to be volatile.
In general, prices of equity securities are more volatile than those of fixed
income securities. The prices of equity securities will rise and fall in
response to a number of different factors. In particular, prices of equity
securities will respond to events which affect entire financial markets or
industries (changes in inflation or consumer demand, for example) and to events
that affect a particular issuer (news about the success or failure of a new
product, for example). In addition, at times the Portfolio's market sector,
equity securities of technology-related issuers, may underperform relative to
other sectors.
THE PORTFOLIO MAY INVEST IN THE EQUITY SECURITIES OF BOTH LARGE AND SMALL
COMPANIES. WHILE MSDW INVESTMENT MANAGEMENT BELIEVES THAT SMALLER COMPANIES MAY
PROVIDE GREATER GROWTH POTENTIAL THAN LARGER, MORE ESTABLISHED FIRMS, INVESTING
IN THE SECURITIES OF SMALLER COMPANIES ALSO INVOLVES GREATER RISK AND PRICE
VOLATILITY.
THE RISKS OF INVESTING IN THE PORTFOLIO MAY BE INTENSIFIED BECAUSE THE PORTFOLIO
IS NON-DIVERSIFIED, WHICH MEANS THAT IT MAY INVEST IN SECURITIES OF A LIMITED
NUMBER OF ISSUERS. AS A RESULT, THE PERFORMANCE OF A PARTICULAR INVESTMENT OR A
SMALL GROUP OF INVESTMENTS MAY AFFECT THE PORTFOLIO'S PERFORMANCE MORE THAN IF
THE PORTFOLIO WERE DIVERSIFIED. IN ADDITION, THE PORTFOLIO MAY SELL SHORT. IN A
SHORT SALE TRANSACTION, THE PORTFOLIO SELLS A BORROWED SECURITY IN ANTICIPATION
OF A DECLINE IN THE MARKET VALUE OF THAT SECURITY, HOPING TO PROFIT FROM THE
DIFFERENCE BETWEEN THE AMOUNT RECEIVED FROM THE SALE AND THE COST OF REPLACING
THE BORROWED SECURITY. IF MSDW INVESTMENT MANAGEMENT INCORRECTLY PREDICTS THAT
THE PRICE OF THE BORROWED SECURITY WILL DECLINE, THE PORTFOLIO MAY LOSE MONEY
BECAUSE THE AMOUNT NECESSARY TO REPLACE THE BORROWED SECURITY WILL BE GREATER
THAN THE AMOUNT RECEIVED FROM THE SALE.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE (CLASS A SHARES)
<S> <C>
COMMENCED OPERATIONS ON SEPTEMBER 16, 1996
1997 37.27%
1998 53.90%
HIGH (QUARTER)
10/98 - 12/98
44.76%
LOW (QUARTER)
7/98 - 9/98
- -12.37%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A CLASS B
(COMMENCED (COMMENCED
OPERATIONS ON OPERATIONS ON
SEPTEMBER 16, 1996) SEPTEMBER 16, 1996) S&P 500 INDEX*
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
PAST ONE YEAR 53.90% 53.52% 28.57%
- -----------------------------------------------------------------------------------------------
PAST FIVE YEARS N/A N/A N/A
- -----------------------------------------------------------------------------------------------
SINCE INCEPTION 42.83% 42.51% 31.38%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. HOW THE PORTFOLIO HAS PERFORMED IN THE PAST
DOES NOT NECESSARILY INDICATE HOW THE PORTFOLIO WILL PERFORM IN THE FUTURE.
*THE S&P 500 IS A STOCK INDEX COMPRISED OF 500 LARGE-CAP U.S. COMPANIES WITH
MARKET CAPITALIZATION OF $1 BILLION OR MORE. THESE 500 COMPANIES ARE A
REPRESENTATIVE SAMPLE OF SOME 100 INDUSTRIES, CHOSEN MAINLY FOR MARKET SIZE,
LIQUIDITY AND INDUSTRY GROUP REPRESENTATION. THE S&P IS A MARKET-VALUE WEIGHTED
INDEX (STOCK PRICE TIMES NUMBER OF SHARES OUTSTANDING), WITH EACH STOCK'S
WEIGHT IN THE INDEX PROPORTIONATE TO ITS MARKET VALUE.
5
<PAGE>
- --------------------------
INVESTMENT SUMMARY
- --------------------------------------------------------------------------------
ADDITIONAL RISK FACTORS AND INFORMATION
- -------------------------------------------------------------------------------
THIS SECTION DISCUSSES ADDITIONAL RISK FACTORS AND INFORMATION RELATED TO THE
PORTFOLIOS. THE PORTFOLIOS' INVESTMENT PRACTICES AND LIMITATIONS ARE DESCRIBED
IN MORE DETAIL IN THE STATEMENT OF ADDITIONAL INFORMATION ("SAI"), WHICH LEGALLY
IS A PART OF THIS PROSPECTUS. FOR DETAILS ABOUT HOW TO OBTAIN A COPY OF THE SAI
AND OTHER REPORTS AND INFORMATION, SEE THE BACK COVER OF THIS PROSPECTUS.
PRICE VOLATILITY
The value of your investment in a Portfolio is based on the market prices of the
securities the Portfolio holds. These prices change daily due to economic and
other events that affect markets generally, as well as those that affect
particular industries and companies. These price movements, sometimes called
volatility, may be greater or lesser depending on the types of securities the
Portfolio owns and the markets in which the securities trade. Over time, equity
securities have generally shown superior gains, although they tended to be more
volatile in the short term. Fixed income securities, regardless of credit
quality, also experience price volatility, especially in response to interest
rate changes. As a result of price volatility, there is a risk that you may lose
money by investing in a Portfolio.
DERIVATIVES
The Portfolios may use various instruments that derive their values from those
of specified securities, indices, currencies or other points of reference for
both hedging and non-hedging purposes. Derivatives include futures, options,
forward contracts, swaps, and structured notes. These derivatives, including
those used to manage risk, are themselves subject to risks of the different
markets in which they trade and, therefore, may not serve their intended
purposes.
The primary risks of derivatives are: (i) changes in the market value of
securities held by a Portfolio, and of derivatives relating to those securities,
may not be proportionate, (ii) there may not be a liquid market for a Portfolio
to sell a derivative, which could result in difficulty closing a position and
(iii) certain derivatives can magnify the extent of losses incurred due to
changes in the market value of the securities to which they relate. In addition,
derivatives are subject to counter party risk. To minimize this risk, a
Portfolio may enter into derivatives transactions with counter parties that meet
certain requirements for credit quality and collateral. Also, a Portfolio may
invest in certain derivatives that require the Portfolio to segregate some or
all of its cash or liquid securities to cover its obligations under those
instruments. At certain levels, this can cause the Portfolio to lose flexibility
in managing its investments properly, responding to shareholder redemption
requests, or meeting other obligations. If the Portfolio is in that position, it
could be forced to sell other securities that it wanted to retain.
A Portfolio will limit its use of derivatives for non-hedging purposes to
33 1/3% of its total assets measured by the aggregate notional amount of
outstanding derivatives. While the use of derivatives may be advantageous to a
Portfolio, if MSDW Investment Management is not successful in employing them,
the Portfolio's performance may be worse than if it did not make such
investments. See the Statement of Additional Information for more about the
risks of different types of derivatives.
FOREIGN INVESTING
To the extent that a Portfolio invests in foreign countries, there is the risk
that news and events unique to a country or region will affect those markets and
their issuers. These same events will not necessarily have an effect on the U.S.
economy or similar issuers located in the United States. In addition, a
Portfolio's investments in foreign countries generally will be denominated in
foreign currencies. As a result, changes in the value of a country's currency
compared to the U.S. dollar may affect the value of a Portfolio's investments.
These changes may happen separately from and in response to events that do not
otherwise affect the value of the security in the issuer's home country. These
risks may be intensified for the Technology Portfolio's investments in emerging
markets countries. MSDW Investment Management may invest in certain instruments,
6
<PAGE>
such as derivatives, and may use certain techniques, such as hedging, to manage
these risks. However, MSDW Investment Management cannot guarantee that it will
be practical to hedge these risks in certain markets or under particular
conditions or that it will succeed in doing so.
BANK INVESTORS
An investment in a Portfolio is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
YEAR 2000 RISK
The advisory and distribution services that MSDW Investment Management and
Morgan Stanley & Co. Incorporated ("Morgan Stanley") provide to the Fund depend
on the smooth operation of their computer systems. Many computer and 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. MSDW Investment Management and Morgan Stanley have
been actively working on necessary changes to their own computer systems to deal
with the year 2000 problem and expect that their systems will be adapted before
that date. There can be no assurance, however, that they will be successful. In
addition, other unaffiliated service providers may be faced with similar
problems. MSDW Investment Management and Morgan Stanley are monitoring their
remedial efforts, but there can be no assurance that they and the services they
provide will not be adversely affected.
In addition, it is possible that the markets for securities in which the
Portfolios invest 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 Portfolios' investments may be
adversely affected.
TEMPORARY DEFENSIVE
INVESTMENTS
When MSDW Investment Management believes that changes in economic, financial or
political conditions warrant, each Portfolio may invest without limit in certain
short- and medium-term fixed income securities for temporary defensive purposes.
If MSDW Investment Management incorrectly predicts the effects of these changes,
such defensive investments may adversely affect a Portfolio's performance and
the Portfolio may not achieve its investment objective.
PORTFOLIO TURNOVER
Consistent with its investment policies, a Portfolio will purchase and sell
securities without regard to the effect on portfolio turnover. Higher portfolio
turnover (e.g. over 100% per year) will cause a Portfolio to incur additional
transaction costs and may result in taxable gains being passed through to
shareholders.
7
<PAGE>
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE PORTFOLIOS
- -------------------------------------------------------------------------------
The Securities and Exchange Commission (the "Commission") requires that the Fund
disclose in the table below the fees and expenses that you may pay if you buy
and hold shares of the Portfolios. The Portfolios do not charge any sales loads
or similar fees when you purchase or redeem shares. The Annual Fund Operating
Expenses in the table below do not reflect voluntary fee waivers and/or expense
reimbursements from MSDW Investment Management.
1998 ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)*
<TABLE>
<CAPTION>
EQUITY AGGRESSIVE
GROWTH EQUITY EMERGING GROWTH VALUE EQUITY TECHNOLOGY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------
MANAGEMENT FEES
- --------------------------------------------------------------------------------------------------------------------------------
CLASS A 0.60% 0.80% 1.00% 0.50% 1.00%
- --------------------------------------------------------------------------------------------------------------------------------
CLASS B 0.60% 0.80% 1.00% 0.50% 1.00%
12b-1 FEE
- --------------------------------------------------------------------------------------------------------------------------------
CLASS A NONE NONE NONE NONE NONE
- --------------------------------------------------------------------------------------------------------------------------------
CLASS B 0.25% 0.25% 0.25% 0.25% 0.25%
OTHER EXPENSES
- --------------------------------------------------------------------------------------------------------------------------------
CLASS A 0.20% 0.23% 0.35% 0.32% 0.82%
- --------------------------------------------------------------------------------------------------------------------------------
CLASS B 0.20% 0.23% 0.35% 0.32% 0.83%
TOTAL ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------------------------------------------------------
CLASS A 0.80% 1.03% 1.35% 0.82% 1.82%
- --------------------------------------------------------------------------------------------------------------------------------
CLASS B 1.05% 1.28% 1.60% 1.07% 2.08%
</TABLE>
*The Management Fees for the Portfolios shown in the table above are the highest
that could be charged. This table does not show the effects of MSDW Investment
Management's voluntary fee waivers and/or expense reimbursements.
IN DETERMINING THE ACTUAL AMOUNT OF VOLUNTARY MANAGEMENT FEE WAIVER AND/OR
EXPENSE REIMBURSEMENT FOR A PORTFOLIO, IF ANY, MSDW INVESTMENT MANAGEMENT
EXCLUDES FROM ANNUAL OPERATING EXPENSES CERTAIN INVESTMENT RELATED EXPENSES,
SUCH AS FOREIGN COUNTRY TAX EXPENSE AND INTEREST EXPENSE ON BORROWING. INCLUDING
THESE EXPENSES, THE AGGRESSIVE EQUITY AND TECHNOLOGY PORTFOLIOS' TOTAL OPERATING
EXPENSES AFTER VOLUNTARY FEE WAIVERS AND/OR REIMBURSEMENTS FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1998 WERE: AGGRESSIVE EQUITY PORTFOLIO CLASS A--1.01%, CLASS
B--1.26% AND TECHNOLOGY PORTFOLIO CLASS A--1.29%, CLASS B--1.55%.
EXCLUDING THESE INVESTMENT RELATED EXPENSES, THE OPERATING EXPENSES AFTER FEE
WAIVERS/EXPENSE REIMBURSEMENTS WERE 0.80% FOR CLASS A SHARES AND 1.05% FOR CLASS
B SHARES OF THE EQUITY GROWTH PORTFOLIO; 1.00% FOR CLASS A SHARES AND 1.25% FOR
CLASS B SHARES OF THE AGGRESSIVE EQUITY PORTFOLIO; 1.25% FOR CLASS A SHARES AND
1.50% FOR CLASS B SHARES OF THE EMERGING GROWTH AND TECHNOLOGY PORTFOLIOS; AND
0.70% FOR CLASS A SHARES AND 0.95% FOR CLASS B SHARES OF THE VALUE EQUITY
PORTFOLIO.
FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS ARE VOLUNTARY AND MSDW INVESTMENT
MANAGEMENT RESERVES THE RIGHT TO TERMINATE ANY WAIVER AND/OR REIMBURSEMENT AT
ANY TIME AND WITHOUT NOTICE.
8
<PAGE>
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN EACH
PORTFOLIO WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS HAVING SIMILAR
INVESTMENT OBJECTIVES.
The example assumes that you invest $10,000 in each Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example assumes that your investment has a 5% return each year and
that each Portfolio's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
EQUITY GROWTH PORTFOLIO
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------
CLASS A $82 $255 $444 $990
- ----------------------------------------------------------------------
CLASS B $107 $334 $579 $1,283
AGGRESSIVE EQUITY PORTFOLIO
- ----------------------------------------------------------------------
CLASS A $105 $328 $569 $1,259
- ----------------------------------------------------------------------
CLASS B $130 $406 $702 $1,545
EMERGING GROWTH PORTFOLIO
- ----------------------------------------------------------------------
CLASS A $137 $428 $739 $1,624
- ----------------------------------------------------------------------
CLASS B $163 $505 $871 $1,900
VALUE EQUITY PORTFOLIO
- ----------------------------------------------------------------------
CLASS A $84 $262 $455 $1,014
- ----------------------------------------------------------------------
CLASS B $109 $340 $590 $1,306
TECHNOLOGY PORTFOLIO
- ----------------------------------------------------------------------
CLASS A $185 $573 $985 $2,137
- ----------------------------------------------------------------------
CLASS B $211 $652 $1,119 $2,410
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
- -------------------------------------------------------------------------------
Morgan Stanley Dean Witter Investment Management Inc. ("MSDW Investment
Management"), with principal offices at 1221 Avenue of the Americas, New York,
New York 10020, conducts a worldwide portfolio management business and provides
a broad range of portfolio management services to customers in the United States
and abroad. Morgan Stanley Dean Witter & Co. ("MSDW") is the direct parent of
MSDW Investment Management and Morgan Stanley. MSDW is a preeminent global
financial services firm that maintains leading market positions in each of its
three primary businesses -- securities, asset management and credit services. At
December 31, 1998, MSDW Investment Management, together with its affiliated
institutional asset management companies, managed assets of approximately $163.4
billion, including assets under fiduciary advice.
- -------------------------------------------------------------------------------
MANAGEMENT FEES
- -------------------------------------------------------------------------------
For the year ended December 31, 1998, MSDW Investment Management received from
each Portfolio the management fee set forth in the table below:
<TABLE>
<CAPTION>
EQUITY GROWTH AGGRESSIVE EQUITY EMERGING GROWTH VALUE EQUITY TECHNOLOGY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------
MANAGEMENT FEE CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
-------------------------------------------------------------------------------------------------
PAID IN FISCAL YEAR
ENDED DECEMBER 31, 1998 0.60% 0.60% 0.78% 0.78% 0.90% 0.90% 0.39% 0.39% 0.48% 0.48%
(NET OF WAIVERS AND AS A
PERCENTAGE OF AVERAGE
NET ASSETS)
</TABLE>
9
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
- -------------------------------------------------------------------------------
THE FOLLOWING INDIVIDUALS HAVE PRIMARY DAY-TO-DAY PORTFOLIO MANAGEMENT
RESPONSIBILITY FOR THE PORTFOLIOS:
EQUITY GROWTH PORTFOLIO
PHILIP W. FRIEDMAN, MARGARET K. JOHNSON AND WILLIAM S. AUSLANDER
Philip W. Friedman is a Managing Director of MSDW Investment Management and
Morgan Stanley and is head of the Institutional Equity Group of MSDW Investment
Management. In addition to portfolio management, his equity research
responsibilities include capital goods, consumer durables, multi-industry and
transportation. Prior to joining MSDW Investment Management in 1997, he was the
North American Director of Equity Research at Morgan Stanley. From 1990 to 1995,
he was a member of Morgan Stanley's Equity Research team. Mr. Friedman graduated
from Rutgers University with a B.A. (PHI BETA KAPPA AND SUMMA CUM LAUDE) in
Economics. He also holds a Masters of Management from the J.L. Kellogg School of
Management at Northwestern University. Margaret K. Johnson is a Principal of
MSDW Investment Management and Morgan Stanley and a Portfolio Manager in the
Institutional Equity Group. She joined MSDW Investment Management in 1984. She
holds a B.A. degree from Yale College and is a Chartered Financial Analyst.
William S. Auslander is a Principal of MSDW Investment Management and Morgan
Stanley and a Portfolio Manager in the Institutional Equity Group. He joined
MSDW Investment Management in 1995 as an equity analyst in the Institutional
Equity Group. Prior to joining MSDW Investment Management, he worked at Icahn &
Co. for nine years as an equity analyst. He graduated from the University of
Wisconsin at Madison with a B.A. in Economics and received an M.B.A. from
Columbia University. Margaret K. Johnson has shared primary responsibility for
managing the Portfolio's assets since its inception. Messrs. Friedman and
Auslander have shared primary responsibility for managing the Portfolio's assets
since September 1998.
AGGRESSIVE EQUITY PORTFOLIO
PHILIP W. FRIEDMAN AND WILLIAM S. AUSLANDER
Information about Philip W. Friedman and William S. Auslander is included under
the Equity Growth Portfolio above. Messrs. Friedman and Auslander have shared
primary responsibility for managing the Portfolio's assets since September 1998.
EMERGING GROWTH PORTFOLIO
ALEXANDER L. UMANSKY AND DENNIS P. LYNCH
Alexander L. Umansky is a Vice President of MSDW Investment Management and
Morgan Stanley and a Portfolio Manager in the Institutional Equity Group. He
joined MSDW Investment Management in 1994 as a Compliance Analyst and in 1996,
he became a research analyst in the Institutional Equity Group focusing
primarily on technology. Prior to joining MSDW Investment Management, Mr.
Umansky was a financial analyst in Morgan Stanley's Global Risk Management
department. He graduated from New York University's Stern School of Business
with a B.S. in Computer Science and Finance. Dennis P. Lynch joined MSDW
Investment Management in 1998 as a Research Analyst. Prior to joining MSDW
Investment Management, Mr. Lynch worked as a research analyst for JP Morgan
Securities from 1994 to 1996. He earned a B.A. from Hamilton College in 1993 and
an M.B.A. with honors from Columbia University in 1998. Messrs. Umansky and
Lynch have shared primary responsibility for managing the Portfolio's assets
since January 1999.
10
<PAGE>
VALUE EQUITY PORTFOLIO
STEPHEN C. SEXAUER
Stephen C. Sexauer is a Principal of MSDW Investment Management and Morgan
Stanley and is a Portfolio Manager in the Institutional Equity Group of MSDW
Investment Management. In addition to portfolio management, his equity research
responsibilities include telecommunications, technology, finance and utilities.
Mr. Sexauer joined MSDW Investment Management in 1989 after three years as Vice
President at Salomon Brothers. Previously, he was with Merrill Lynch Economics
and Wharton Econometrics. Mr. Sexauer received a B.S. in Economics from the
University of Illinois and an M.B.A. in Economics and Statistics from the
University of Chicago. Mr. Sexauer has had primary responsibility for managing
the Portfolio's assets since January 1992.
TECHNOLOGY PORTFOLIO
ALEXANDER L. UMANSKY AND STEPHEN C. SEXAUER
Information about Alexander L. Umansky is included under the Emerging Growth
Portfolio above. Information about Stephen C. Sexauer is included under the
Value Equity Portfolio above. Messrs. Umansky and Sexauer have had primary
responsibility for managing the Portfolio's assets since September 1998 and
January 1998, respectively.
11
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTION OF PORTFOLIO SHARES
- -------------------------------------------------------------------------------
Morgan Stanley is the exclusive Distributor of Class A shares and Class B shares
of each Portfolio. Morgan Stanley receives no compensation for distributing
Class A shares of the Portfolios. The Fund has adopted a Plan of Distribution
with respect to the Class B shares of each Portfolio pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended, (the "Plan"). Under the
Plan, each Portfolio pays the Distributor a distribution fee of 0.25% of the
Class B shares' average daily net assets on an annualized basis. The
distribution fee compensates the Distributor for marketing and selling Class B
shares. The Distributor may pay others for providing distribution-related and
other services, including account maintenance services. Over time the
distribution fees will increase the cost of your investment and may cost you
more than paying other types of sales charges.
- -------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------
ABOUT NET ASSET VALUE
The net asset value ("NAV") per share of a class of shares of a Portfolio is
determined by dividing the total market value of the Portfolio's investments and
other assets attributable to the class, less any liabilities attributable to the
class, by the total number of outstanding shares of that class of the Portfolio.
In making this calculation, the Portfolio generally values securities at market
price. If market prices are unavailable or may be unreliable because of events
occurring after the close of trading, fair value prices may be determined in
good faith using methods approved by the Board of Directors. The Portfolios may
hold portfolio securities that are listed on foreign exchanges. These securities
may trade on weekends or other days when the Portfolios do not calculate NAV. As
a result, the value of these investments may change on days when you cannot
purchase or sell shares.
PRICING OF PORTFOLIO SHARES
You may buy or sell (redeem) Class A and Class B shares of each Portfolio at the
net asset value next determined for the class after receipt of your order. The
Fund determines net asset value as of the close of the New York Stock Exchange
("NYSE") (normally 4:00 p.m. Eastern Time) on each day that the NYSE is open for
business (the "Pricing Time").
HOW TO PURCHASE SHARES
You may purchase Class A shares and Class B shares of each Portfolio directly
from the Fund, from the Distributor or through certain third parties ("Financial
Intermediaries") on each day that the NYSE is open.
The minimum initial investment generally is $500,000 for Class A shares and
$100,000 for Class B shares of each Portfolio, except that the minimum initial
investment is $250,000 for Class A shares and $50,000 for Class B shares of the
Technology Portfolio. The minimum additional investment generally is $1,000 for
each account that you have. If the value of your account falls below the minimum
initial investment amount for Class A shares or Class B shares as a result of
share redemptions, the Fund will notify you. Your account may be subject to
involuntary conversion from Class A shares to Class B shares or involuntary
redemption in the case of Class B shares if the value of your account remains
below the minimum initial investment amount for 60 consecutive days. MSDW
Investment Management may waive the minimum initial investment and involuntary
conversion or redemption features for certain investors, including individuals
purchasing through a Financial Intermediary.
You may arrange to purchase shares directly from the Fund by calling
1-800-548-7786 or by returning a completed Account Registration Form with
payment for your purchase. The price you pay will be the net asset value
calculated at the Pricing Time following receipt of your purchase order and
payment.
12
<PAGE>
To purchase shares through the Distributor or a Financial Intermediary, you
should contact the Distributor or your Financial Intermediary for details.
Generally, the price of shares purchased through the Distributor or a Financial
Intermediary is the price calculated at the next Pricing Time after the Fund
receives your order from the Distributor or your Financial Intermediary. Certain
Financial Intermediaries have made arrangements with the Fund so that you may
purchase shares at the price calculated at the next Pricing Time after your
Financial Intermediary receives your purchase order. Your Financial Intermediary
may charge an additional service or transaction fee.
HOW TO REDEEM SHARES
You may redeem Portfolio shares directly from the Fund, through the Distributor
or through your Financial Intermediary, each as described above under Purchase
of Shares. The redemption price will be the net asset value per share calculated
at the next Pricing Time, which may be more or less than the purchase price of
your shares. The Fund will ordinarily distribute redemption proceeds in cash
within one business day of your redemption request, but it may take up to seven
business days. However, if you purchased shares by check, the Fund will not
distribute redemption proceeds until it has collected your purchase payment,
which may take up to eight days. In certain circumstances, for example, if
payment of redemption proceeds in cash would be detrimental to the remaining
shareholders, a Portfolio may pay redemption proceeds by a distribution-in-kind
of readily marketable portfolio securities.
EXCHANGE FEATURES
You may exchange Portfolio shares for shares of the other available portfolios
of the Fund. To obtain a prospectus for another portfolio, call the Fund at
1-800-548-7786 or contact your Financial Intermediary. If you purchased
Portfolio shares through a Financial Intermediary, certain portfolios may be
unavailable for exchange. Contact your Financial Intermediary to determine which
portfolios are available for exchange. The Fund currently consists of the
following portfolios:
<TABLE>
<S> <C>
U.S. EQUITY GLOBAL AND INTERNATIONAL EQUITY
Aggressive Equity Portfolio Active International Allocation
Emerging Growth Portfolio Portfolio
Equity Growth Portfolio Asian Real Estate Portfolio
MicroCap Portfolio+ Asian Equity Portfolio
Technology Portfolio China Growth Portfolio+
U.S. Equity Plus Portfolio Emerging Markets Portfolio
U.S. Real Estate Portfolio European Equity Portfolio
Value Equity Portfolio European Real Estate Portfolio
FIXED INCOME Global Equity Portfolio
Emerging Markets Debt Portfolio Gold Portfolio*
Fixed Income Portfolio International Equity Portfolio*
Global Fixed Income Portfolio International Magnum Portfolio
High Yield Portfolio International Small Cap Portfolio
Mortgage-Backed Securities Portfolio+ Japanese Equity Portfolio
Municipal Bond Portfolio Latin American Portfolio
MONEY MARKET
Money Market Portfolio
Municipal Money Market Portfolio
</TABLE>
*PORTFOLIO IS CURRENTLY CLOSED TO NEW INVESTORS
+PORTFOLIO HAS NOT YET COMMENCED OPERATIONS
When you exchange for shares of another portfolio, your transaction will be
treated the same as an initial purchase. You will be subject to the same minimum
initial investment and account size as an initial purchase. Accordingly, you
will not necessarily receive the same class of shares that you tendered for
exchange. Your exchange price will be the price calculated at the next Pricing
13
<PAGE>
Time after the Fund receives your exchange order. Frequent trades in your
account(s) can disrupt management of a Portfolio and raise its expenses.
Therefore, the Fund may bar a shareholder who trades excessively from making
further exchanges or purchases.
DIVIDENDS AND DISTRIBUTIONS
It is the policy of each of the Equity Growth, Aggressive Equity and Value
Equity Portfolios to distribute to shareholders substantially all of its taxable
net investment income in the form of a quarterly dividend. It is the policy of
each of the Emerging Growth and Technology Portfolios to distribute to
shareholders substantially all of its taxable net investment income in the form
of an annual dividend. Each Portfolio's policy is to distribute to shareholders
net capital gains on an annual basis.
The Fund automatically reinvests all dividends and distributions in additional
shares. However, you may elect to receive distributions in cash by giving
written notice to the Fund or your Financial Intermediary or by checking the
appropriate box in the Distribution Option section on the Account Registration
Form.
TAXES
The dividends and distributions you receive from a Portfolio may be subject to
Federal, state and local taxation, depending on your tax situation. The tax
treatment of dividends and distributions is the same whether or not you reinvest
them. Dividends are taxed as ordinary income, long-term capital gains
distributions are taxed at a maximum rate of 20%, and short-term capital gains
distributions are taxed at ordinary rates. The Fund will tell you annually how
to treat dividends and distributions.
If you redeem shares of a Portfolio, you will be subject to tax on any gains you
earn based on your holding period for the shares. An exchange of shares of a
Portfolio for shares of another portfolio is a sale of Portfolio shares for tax
purposes. Conversions of shares between classes will not result in taxation.
Because each investor's tax circumstances are unique and the tax laws may
change, you should consult your tax advisor about your investment.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The following financial highlights tables are intended to help you understand
the financial performance of the Class A shares and Class B shares of each
Portfolio for the past five years or, if less than five years, the life of the
Portfolio or Class. Certain information reflects financial results for a single
Portfolio share. The total returns in the tables represent the rate that an
investor would have earned (or lost) on an investment in each Portfolio
(assuming reinvestment of all dividends and distributions). This information has
been audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, are incorporated by reference into the Fund's Statement of
Additional Information and are included in the Fund's December 31, 1998 Annual
Report to Shareholders. The Annual Report and the financial statements therein,
as well as the Statement of Additional Information, are available at no cost
from the Fund at the toll free number noted on the back cover to this
Prospectus.
14
<PAGE>
- ----------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
EQUITY GROWTH PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.93 $ 14.94 $ 14.14 $ 12.02 $ 12.14
--------- --------- --------- --------- --------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (1) 0.04 0.06 0.17 0.22 0.17
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 3.17 4.48 4.07 4.93 0.21
--------- --------- --------- --------- --------
TOTAL FROM INVESTMENT OPERATIONS 3.21 4.54 4.24 5.15 0.38
--------- --------- --------- --------- --------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.03) (0.06) (0.17) (0.28) (0.13)
IN EXCESS OF NET INVESTMENT INCOME -- (0.00)+ -- -- --
NET REALIZED GAIN (0.64) (2.49) (3.27) (2.75) (0.37)
IN EXCESS OF NET REALIZED GAIN (0.43) -- -- -- --
--------- --------- --------- --------- --------
TOTAL DISTRIBUTIONS (1.10) (2.55) (3.44) (3.03) (0.50)
--------- --------- --------- --------- --------
NET ASSET VALUE, END OF PERIOD $ 19.04 $ 16.93 $ 14.94 $ 14.14 $ 12.02
--------- --------- --------- --------- --------
--------- --------- --------- --------- --------
TOTAL RETURN 19.04% 31.32% 30.97% 45.02% 3.26%
--------- --------- --------- --------- --------
--------- --------- --------- --------- --------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $784,565 $591,789 $352,703 $158,112 $97,259
RATIO OF EXPENSES TO AVERAGE NET ASSETS
(1) 0.80% 0.80% 0.80% 0.80% 0.80%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET
ASSETS (1) 0.22% 0.35% 1.12% 1.57% 1.44%
PORTFOLIO TURNOVER RATE 156% 177% 186% 186% 146%
- -----------------
(1) EFFECT OF VOLUNTARY EXPENSE
LIMITATION DURING
THE PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT
INCOME $0.00+ $0.00+ $0.01 $0.01 $0.01
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 0.80% 0.82% 0.88% 0.88% 0.89%
NET INVESTMENT INCOME TO AVERAGE
NET
ASSETS 0.22% 0.33% 1.04% 1.49% 1.35%
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
------------------------------------------
PERIOD FROM
YEAR ENDED DECEMBER JANUARY 2,
31, 1996*** TO
------------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.91 $ 14.92 $ 14.22
-------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (2) 0.00+ 0.04 0.13
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 3.15 4.46 3.99
-------- -------- -------
TOTAL FROM INVESTMENT OPERATIONS 3.15 4.50 4.12
-------- -------- -------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.02) (0.02) (0.15)
NET REALIZED GAIN (0.64) (2.49) (3.27)
IN EXCESS OF NET REALIZED GAIN (0.43) -- --
-------- -------- -------
TOTAL DISTRIBUTIONS (1.09) (2.51) (3.42)
-------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 18.97 $ 16.91 $ 14.92
-------- -------- -------
-------- -------- -------
TOTAL RETURN 18.71% 31.05% 29.92%
-------- -------- -------
-------- -------- -------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $83,330 $27,879 $5,498
RATIO OF EXPENSES TO AVERAGE NET ASSETS
(2) 1.05% 1.05% 1.05%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS (2) (0.02)% 0.10% 0.91%**
PORTFOLIO TURNOVER RATE 156% 177% 186%
- -----------------
(2) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT
INCOME $0.00+ $0.01 $0.01
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.05% 1.07% 1.12%**
NET INVESTMENT INCOME TO AVERAGE
NET ASSETS (0.02)% 0.08% 0.84%**
- ------------------------------------------------------------------------------------
</TABLE>
**ANNUALIZED
***THE PORTFOLIO BEGAN OFFERING CLASS B SHARES ON JANUARY 2, 1996.
+AMOUNT IS LESS THAN $0.01 PER SHARE.
15
<PAGE>
- ----------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
AGGRESSIVE EQUITY PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------
PERIOD FROM
MARCH 8,
YEAR ENDED DECEMBER 31, 1995* TO
-------------------------------- DECEMBER 31,
SELECTED PER SHARE DATA AND RATIOS 1998 1997 1996 1995
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.78 $ 14.43 $ 12.17 $10.00
--------- --------- -------- --------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (1) 0.00+ 0.01 0.18 0.15
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 2.42 4.58 4.73 3.95
--------- --------- -------- --------------
TOTAL FROM INVESTMENT OPERATIONS 2.42 4.59 4.91 4.10
--------- --------- -------- --------------
DISTRIBUTIONS
NET INVESTMENT INCOME -- (0.01) (0.17) (0.15)
IN EXCESS OF NET INVESTMENT INCOME -- (0.00)+ -- --
NET REALIZED GAIN (0.38) (3.23) (2.48) (1.78)
IN EXCESS OF NET REALIZED GAIN (0.32) -- -- --
--------- --------- -------- --------------
TOTAL DISTRIBUTIONS (0.70) (3.24) (2.65) (1.93)
--------- --------- -------- --------------
NET ASSET VALUE, END OF PERIOD $ 17.50 $ 15.78 $ 14.43 $12.17
--------- --------- -------- --------------
--------- --------- -------- --------------
TOTAL RETURN 15.35% 33.31% 40.90% 41.25%
--------- --------- -------- --------------
--------- --------- -------- --------------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $130,734 $155,087 $68,480 $28,548
RATIO OF EXPENSES TO AVERAGE NET ASSETS
(1) 1.01% 1.02% 1.00% 1.00%**
RATIO OF EXPENSES TO AVERAGE NET ASSETS
EXCLUDING
DIVIDEND EXPENSE ON SECURITIES SOLD
SHORT 1.00% 1.00% N/A N/A
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET
ASSETS (1) 0.01% 0.08% 1.26% 1.64%**
PORTFOLIO TURNOVER RATE 373% 302% 380% 309%
- -----------------
(1) EFFECT OF VOLUNTARY EXPENSE
LIMITATION DURING THE
PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT
INCOME $0.01 $0.01 $0.03 $0.06
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.03% 1.08% 1.24% 1.59%**
NET INVESTMENT INCOME TO AVERAGE
NET ASSETS (0.01)% 0.02% 1.02% 1.05%**
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
------------------------------------
PERIOD FROM
YEAR ENDED DECEMBER JANUARY 2,
31, 1996*** TO
------------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.72 $ 14.42 $ 12.25
-------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (LOSS) (2) (0.06) (0.01) 0.13
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 2.44 4.55 4.67
-------- -------- -------
TOTAL FROM INVESTMENT OPERATIONS 2.38 4.54 4.80
-------- -------- -------
DISTRIBUTIONS
NET INVESTMENT INCOME -- (0.01) (0.15)
IN EXCESS OF NET INVESTMENT INCOME -- (0.00)+ --
NET REALIZED GAIN (0.38) (3.23) (2.48)
IN EXCESS OF NET REALIZED GAIN (0.32) -- --
-------- -------- -------
TOTAL DISTRIBUTIONS (0.70) (3.24) (2.63)
-------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 17.40 $ 15.72 $ 14.42
-------- -------- -------
-------- -------- -------
TOTAL RETURN 15.15% 32.90% 39.72%
-------- -------- -------
-------- -------- -------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $16,682 $18,277 $8,805
RATIO OF EXPENSES TO AVERAGE NET ASSETS
(2) 1.26% 1.27% 1.25%**
RATIO OF EXPENSES TO AVERAGE NET ASSETS
EXCLUDING DIVIDEND EXPENSE
ON SECURITIES SOLD SHORT 1.25% 1.25% N/A
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (2) (0.26)% (0.18)% 0.95%**
PORTFOLIO TURNOVER RATE 373% 302% 380%
- -----------------
(2) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT
INCOME (LOSS) $0.00+ $0.00+ $0.03
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.28% 1.33% 1.47%**
NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (0.28)% (0.24)% 0.73%**
- ------------------------------------------------------------------------------
</TABLE>
*COMMENCEMENT OF OPERATIONS
**ANNUALIZED
***THE PORTFOLIO BEGAN OFFERING CLASS B SHARES ON JANUARY 2, 1996.
+AMOUNT IS LESS THAN $0.01 PER SHARE.
16
<PAGE>
- ----------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
EMERGING GROWTH PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.72 $ 13.50 $ 21.49 $ 16.12 $ 16.22
-------- -------- -------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (LOSS) (1) 0.09 (0.07) (0.19) (0.18) (0.09)
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON
INVESTMENTS 1.97 1.09 0.89 5.55 (0.01)
-------- -------- -------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 2.06 1.02 0.70 5.37 (0.10)
-------- -------- -------- --------- ---------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.09) -- -- -- --
NET REALIZED GAIN (1.62) (6.80) (8.69) -- --
-------- -------- -------- --------- ---------
TOTAL DISTRIBUTIONS (1.71) (6.80) (8.69) -- --
-------- -------- -------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 8.07 $ 7.72 $ 13.50 $ 21.49 $ 16.12
-------- -------- -------- --------- ---------
-------- -------- -------- --------- ---------
TOTAL RETURN 27.54% 11.36% 3.72% 33.31% (0.62)%
-------- -------- -------- --------- ---------
-------- -------- -------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $73,276 $57,777 $62,793 $119,378 $117,669
RATIO OF EXPENSES TO AVERAGE NET ASSETS
(1) 1.25% 1.25% 1.25% 1.25% 1.25%
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE
NET ASSETS (1) 1.06% (0.87)% (0.88)% (0.76)% (0.61)%
PORTFOLIO TURNOVER RATE 331% 228% 33% 25% 24%
- -----------------
(1) EFFECT OF VOLUNTARY EXPENSE
LIMITATION DURING
THE PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT
LOSS $0.01 $0.01 $0.01 $0.003 $0.002
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.35% 1.34% 1.30% 1.26% 1.26%
NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET
ASSETS 0.96% (0.95)% (0.92)% (0.77)% (0.62)%
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------
PERIOD FROM
YEAR ENDED JANUARY 2,
DECEMBER 31, 1996*** TO
----------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.63 $ 13.45 $ 21.47
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (LOSS) (2) 0.09 (0.06) (0.15)
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 1.90 1.04 0.82
------- ------- -------
TOTAL FROM OPERATIONS 1.99 0.98 0.67
------- ------- -------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.07) -- --
NET REALIZED GAIN (1.62) (6.80) (8.69)
------- ------- -------
TOTAL DISTRIBUTIONS (1.69) (6.80) (8.69)
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 7.93 $ 7.63 $ 13.45
------- ------- -------
------- ------- -------
TOTAL RETURN 26.86% 11.13% 3.58%
------- ------- -------
------- ------- -------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $1,282 $1,313 $3,997
RATIO OF EXPENSES TO AVERAGE NET ASSETS
(2) 1.50% 1.50% 1.50%**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (2) 0.88% (1.12)% (1.09)%**
PORTFOLIO TURNOVER RATE 331% 228% 33%
- -----------------
(2) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE
PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT
LOSS $0.01 $0.00+ $0.01
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.60% 1.58% 1.54%**
NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS 0.78% (1.21)% (1.14)%**
- ----------------------------------------------------------------------------
</TABLE>
**ANNUALIZED
***THE PORTFOLIO BEGAN OFFERING CLASS B SHARES ON JANUARY 2, 1996.
+AMOUNT IS LESS THAN $0.01 PER SHARE.
17
<PAGE>
- ----------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
VALUE EQUITY PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.62 $ 13.89 $ 13.94 $ 11.50 $ 12.63
-------- -------- --------- --------- --------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (1) 0.20 0.35 0.41 0.38 0.40
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 0.98 3.51 2.27 3.30 (0.55)
-------- -------- --------- --------- --------
TOTAL FROM INVESTMENT OPERATIONS 1.18 3.86 2.68 3.68 (0.15)
-------- -------- --------- --------- --------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.21) (0.35) (0.41) (0.47) (0.40)
NET REALIZED GAIN (3.81) (3.78) (2.32) (0.77) (0.58)
-------- -------- --------- --------- --------
TOTAL DISTRIBUTIONS (4.02) (4.13) (2.73) (1.24) (0.98)
-------- -------- --------- --------- --------
NET ASSET VALUE, END OF PERIOD $ 10.78 $ 13.62 $ 13.89 $ 13.94 $ 11.50
-------- -------- --------- --------- --------
-------- -------- --------- --------- --------
TOTAL RETURN 8.79% 29.20% 19.73% 33.69% (1.29)%
-------- -------- --------- --------- --------
-------- -------- --------- --------- --------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $57,543 $86,054 $106,128 $147,365 $73,406
RATIO OF EXPENSES TO AVERAGE NET ASSETS
(1) 0.70% 0.70% 0.70% 0.70% 0.70%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS (1) 1.36% 2.15% 2.62% 3.01% 3.37%
PORTFOLIO TURNOVER RATE 153% 36% 42% 43% 33%
- -----------------
(1) EFFECT OF VOLUNTARY EXPENSE
LIMITATION DURING THE PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT
INCOME $0.02 $0.02 $0.01 $0.01 $0.01
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 0.82% 0.80% 0.78% 0.77% 0.80%
NET INVESTMENT INCOME TO AVERAGE
NET ASSETS 1.25% 2.06% 2.55% 2.94% 3.27%
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
------------------------------------
PERIOD FROM
YEAR ENDED JANUARY 2,
DECEMBER 31, 1996*** TO
----------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.59 $ 13.89 $ 14.06
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (2) 0.07 0.28 0.29
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 1.08 3.51 2.25
------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS 1.15 3.79 2.54
------- ------- -------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.17) (0.31) (0.39)
NET REALIZED GAIN (3.81) (3.78) (2.32)
------- ------- -------
TOTAL DISTRIBUTIONS (3.98) (4.09) (2.71)
------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 10.76 $ 13.59 $ 13.89
------- ------- -------
------- ------- -------
TOTAL RETURN 8.59% 28.70% 18.57%
------- ------- -------
------- ------- -------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $1,045 $2,246 $2,555
RATIO OF EXPENSES TO AVERAGE NET ASSETS
(2) 0.95% 0.95% 0.95%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS (2) 1.12% 1.86% 2.33%**
PORTFOLIO TURNOVER RATE 153% 36% 42%
- -----------------
(2) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE
PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT
INCOME $0.02 $0.01 $0.01
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.07% 1.04% 1.03%**
NET INVESTMENT INCOME TO AVERAGE
NET ASSETS 1.01% 1.77% 2.26%**
- ------------------------------------------------------------------------------
</TABLE>
**ANNUALIZED
***THE PORTFOLIO BEGAN OFFERING CLASS B SHARES ON JANUARY 2, 1996.
18
<PAGE>
- ----------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
TECHNOLOGY PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------
PERIOD FROM
YEAR ENDED DECEMBER SEPTEMBER 16,
31, 1996* TO
------------------- DECEMBER 31,
SELECTED PER SHARE DATA AND RATIOS 1998++ 1997 1996
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.73 $ 10.71 $ 10.00
-------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (LOSS) (1) (0.13) 0.07 (0.02)
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 6.45 3.75 0.73
-------- -------- -------
TOTAL FROM INVESTMENT OPERATIONS 6.32 3.82 0.71
DISTRIBUTIONS
NET INVESTMENT INCOME -- (0.26) --
NET REALIZED GAIN (0.07) (1.28) --
IN EXCESS OF NET REALIZED GAIN -- (1.00) --
RETURN OF CAPITAL -- (0.26) --
-------- -------- -------
TOTAL DISTRIBUTIONS (0.07) (2.80) --
-------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 17.98 $ 11.73 $ 10.71
-------- -------- -------
-------- -------- -------
TOTAL RETURN 53.90% 37.27% 7.10%
-------- -------- -------
-------- -------- -------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $27,506 $31,788 $3,595
RATIO OF EXPENSES TO AVERAGE NET ASSETS
(1) 1.29% 1.25% 1.25%**
RATIO OF EXPENSES TO AVERAGE NET ASSETS
EXCLUDING INTEREST EXPENSE 1.25% N/A N/A
RATIO OF NET INVESTMENT LOSS TO AVERAGE
NET ASSETS (1) (0.95)% (1.07)% (0.70)%**
PORTFOLIO TURNOVER RATE 265% 622% 77%
- -----------------
(1) EFFECT OF VOLUNTARY EXPENSE
LIMITATION DURING THE PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT
LOSS $0.07 $0.08 $0.22
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.82% 2.47% 8.51%**
NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (1.47)% (2.30)% (7.96)%**
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------------
PERIOD FROM
YEAR ENDED SEPTEMBER 16
DECEMBER 31, 1996* TO
----------------- DECEMBER 31,
1998++ 1997 1996
<S> <C> <C> <C>
- -----------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $11.72 $ 10.71 $ 10.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (LOSS) (2) (0.16) 0.04 (0.02)
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 6.43 3.74 0.73
------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS 6.27 3.78 0.71
------- ------- -------
DISTRIBUTIONS
NET INVESTMENT INCOME -- (0.25) --
NET REALIZED GAIN (0.07) (1.28) --
IN EXCESS OF NET REALIZED GAIN -- (1.00) --
RETURN OF CAPITAL -- (0.24) --
------- ------- -------
TOTAL DISTRIBUTIONS (0.07) (2.77) --
------- ------- -------
NET ASSET VALUE, END OF PERIOD $17.92 $ 11.72 $ 10.71
------- ------- -------
------- ------- -------
TOTAL RETURN 53.52% 36.90% 7.10%
------- ------- -------
------- ------- -------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $ 850 $ 2,394 $ 1,487
RATIO OF EXPENSES TO AVERAGE NET ASSETS
(2) 1.55% 1.50% 1.50%**
RATIO OF EXPENSES TO AVERAGE NET ASSETS
EXCLUDING INTEREST EXPENSE 1.50% N/A N/A
RATIO OF NET INVESTMENT LOSS TO AVERAGE
NET ASSETS (2) (1.32)% (1.41)% (1.00)%**
PORTFOLIO TURNOVER RATE 265% 622% 77%
- -----------------
(2) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE
PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT
LOSS $0.07 $0.04 $0.19
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 2.08% 2.72% 9.14%**
NET INVESTMENT LOSS TO AVERAGE NET
ASSETS (1.84)% (2.63)% (8.65)%**
- -----------------------------------------------------------------------------
</TABLE>
*COMMENCEMENT OF OPERATIONS
**ANNUALIZED
++PER SHARE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 1998 ARE BASED ON AVERAGE
SHARES OUTSTANDING.
19
<PAGE>
<TABLE>
<S> <C>
EQUITY GROWTH PORTFOLIO
AGGRESSIVE EQUITY PORTFOLIO
PORTFOLIOS OF [ICON] MORGAN STANLEY DEAN WITTER EMERGING GROWTH PORTFOLIO
INSTITUTIONAL FUND, INC. VALUE EQUITY PORTFOLIO
TECHNOLOGY PORTFOLIO
</TABLE>
ACCOUNT REGISTRATION FORM
ACCOUNT INFORMATION
If you need assistance in filling out this form for
the Morgan Stanley Dean Witter Institutional Fund,
Inc., please contact your Morgan Stanley
representative or call us toll free 1-800-548-7786.
Please print all items except signature, and mail to
the Fund at the address on the back cover. Fill in
where appropriate below.
REGISTRATION
/ / INDIVIDUAL
-----------------------------------------------------
FIRST NAME INITIAL LAST NAME
/ / JOINT TENANTS (RIGHTS OF SURVIVORSHIP PRESUMED
UNLESS TENANCY IN COMMON IS INDICATED)
-----------------------------------------------------
FIRST NAME INITIAL LAST NAME
/ / CORPORATIONS, TRUSTS AND OTHERS Please call the
Fund for additional documents that may be required
to set up account and to authorize transactions.
<TABLE>
<S> <C>
--------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Type of Registration: / / Incorporated/ / Unincorporated Association/ / Partnership
/ / Uniform Gift/Transfer to Minor
(ONLY ONE CUSTODIAN AND MINOR PERMITTED)
/ / Trust -------------------- / / Other (SPECIFY) --------------------
</TABLE>
MAILING ADDRESS
Please fill in completely, including telephone
number(s).
/ / UNITED STATES CITIZEN / / RESIDENT ALIEN
-----------------------------------------------------
STREET OR P.O. BOX
-----------------------------------------------------
CITY STATE ZIP CODE
-----------------------------------------------------
HOME TELEPHONE NUMBER BUSINESS TELEPHONE NUMBER
/ / NON-RESIDENT ALIEN
Permanent Address (WHERE YOU RESIDE PERMANENTLY FOR
TAX PURPOSES)
-----------------------------------------------------
STREET OR P.O. BOX
-----------------------------------------------------
CITY COUNTRY POSTAL CODE
-----------------------------------------------------
HOME TELEPHONE NUMBER BUSINESS TELEPHONE NUMBER
Current Mailing Address (IF DIFFERENT FROM PERMANENT
ADDRESS)
-----------------------------------------------------
STREET OR P.O. BOX
-----------------------------------------------------
CITY COUNTRY POSTAL CODE
-----------------------------------------------------
HOME TELEPHONE NUMBER BUSINESS TELEPHONE NUMBER
TAXPAYER IDENTIFICATION NUMBER
Enter your Taxpayer Identification Number. For most
individual taxpayers, this is your Social Security
Number.
/ / INDIVIDUAL
----------------------------------------------- OR
-----------------------------------------------
TAXPAYER IDENTIFICATION NUMBER ("TIN")
SOCIAL SECURITY NUMBER ("SSN")
/ / JOINT TENANTS (RIGHTS OF SURVIVORSHIP PRESUMED
UNLESS TENANCY IN COMMON IS INDICATED)
----------------------------------------------- OR
-----------------------------------------------
TAXPAYER IDENTIFICATION NUMBER ("TIN")
SOCIAL SECURITY NUMBER ("SSN")
----------------------------------------------- OR
-----------------------------------------------
TAXPAYER IDENTIFICATION NUMBER ("TIN")
SOCIAL SECURITY NUMBER ("SSN")
For Custodian account of a minor (Uniform
Gifts/Transfers to Minor Acts), give the Social
Security Number of the minor.
IMPORTANT TAX INFORMATION
You (as a payee) are required by law to provide us (as
payer) with your correct TIN(s) or SSN(s). Accounts
that have a missing or incorrect TIN(s) or SSN(s) will
be subject to backup withholding at a 31% rate on
dividends, distributions and
other payments. If you have not provided us with your
correct TIN(s) or SSN(s), you may be subject to a $50
penalty imposed by the Internal Revenue Service.
Backup withholding is not an additional tax; the tax
liability of persons subject to backup withholding
will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a
refund may be obtained.
You may be notified that you are subject to backup
withholding under Section 3406(a)(1)(C) of the
Internal Revenue Code because you have underreported
interest or dividends or you were required to, but
failed to, file a return which would have included a
reportable interest or dividend payment.
<PAGE>
PORTFOLIO AND CLASS SECTION
(Class A shares minimum $500,000 for each Portfolio
and Class B shares minimum $100,000 for each
Portfolio.)
Please indicate Portfolio, class and amount for
Purchase of the following Portfolio(s):
<TABLE>
<C> <S> <C>
EQUITY GROWTH PORTFOLIO / / Class A Shares (071) $
AGGRESSIVE EQUITY PORTFOLIO / / Class A Shares (078) $
EMERGING GROWTH PORTFOLIO / / Class A Shares (083) $
VALUE EQUITY PORTFOLIO / / Class A Shares $
TECHNOLOGY PORTFOLIO / / Class A Shares $
Total Initial Investment $
<CAPTION>
EQUITY GROWTH PORTFOLIO / / Class B Shares (044) $ --------------------
<C> <C>
AGGRESSIVE EQUITY PORTFOLIO / / Class B Shares (049) $ --------------------
EMERGING GROWTH PORTFOLIO / / Class B Shares (087) $ --------------------
VALUE EQUITY PORTFOLIO / / Class B Shares $ --------------------
TECHNOLOGY PORTFOLIO / / Class B Shares $ --------------------
</TABLE>
METHOD OF INVESTMENT
Please indicate portfolio and manner of payment.
/ / Check (MAKE CHECK PAYABLE TO MORGAN STANLEY DEAN
WITTER INSTITUTIONAL FUND, INC.--PORTFOLIO NAME)
/ / Exchange $
---------------------------------------
From
---------------------------------------
---------------------------------------
NAME OF PORTFOLIO ACCOUNT NUMBER
Account previously established by:
/ / Phone exchange / / Wire on
---------------------------------------
---------------------------------------
DATE ACCOUNT NUMBER
(PREVIOUSLY ASSIGNED BY THE FUND)
DISTRIBUTION OPTION
Income dividends and capital gains distributions (if
any) to be reinvested in additional shares unless
either box below is checked.
/ / Income dividends to be paid in cash, capital gains
distributions (if any) in shares.
/ / Income dividends and capital gains distributions
(if any) to be paid in cash.
TELEPHONE REDEMPTION
Please select at time of initial application if you
wish to redeem or exchange shares by telephone. A
SIGNATURE GUARANTEE IS REQUIRED IF BANK ACCOUNT IS NOT
REGISTERED IDENTICALLY TO YOUR FUND ACCOUNT.
TELEPHONE REQUESTS FOR REDEMPTIONS OR EXCHANGE WILL
NOT BE HONORED UNLESS THE BOX IS CHECKED.
<TABLE>
<S> <C> <C>
/ / I/we hereby authorize the Fund and its agents to honor any
telephone requests to wire redemption proceeds to the
commercial bank indicated at right and/or mail redemption ------------------------
proceeds to the name and address in which my/our fund account NAME OF COMMERCIAL BANK (NOT SAVINGS
is registered if such requests are believed to be authentic. BANK)
The Fund and the Fund's Transfer Agent will employ reasonable ------------------------
procedures to confirm that instructions communicated by BANK ACCOUNT NUMBER
telephone are genuine. These procedures include requiring the ------------------------
investor to provide certain personal identification BANK ABA NUMBER
information at the time an account is opened and prior to ------------------------
effecting each transaction requested by telephone. In NAME(S) IN WHICH YOUR BANK ACCOUNT IS
addition, all telephone transaction requests will be recorded ESTABLISHED
and investors may be required to provide additional telecopied ------------------------
written instructions of transaction requests. Neither the Fund BANK'S STREET ADDRESS
nor the Transfer Agent will be responsible for any loss, ------------------------
liability, cost or expense for following instructions received CITY STATE ZIP CODE
by telephone that it reasonably believes to be genuine.
</TABLE>
INTERESTED PARTY OPTION
/ / In addition to the account statement sent to
my/our registered address, I/we hereby authorize
the Fund to mail duplicate statements to the name
and address provided below.
-----------------------------------------------------
NAME STREET OR P.O. BOX
-----------------------------------------------------
CITY STATE ZIP CODE
DEALER INFORMATION
__ ______________________________ ______________________________
REPRESENTATIVE NAME REPRESENTATIVE NUMBER BRANCH
NUMBER
SIGNATURE OF ALL HOLDERS
AND TAXPAYER CERTICATION
The undersigned certify that I/we have full authority
and legal capacity to purchase and redeem shares of
the Fund and affirm that I/we have received a current
Prospectus of the Morgan Stanley Dean Witter
Institutional Fund, Inc. and agree to be bound by its
terms. By signing this application, I/we hereby
certify under penalties of perjury that the
information on this application is complete and
correct and that as required by federal law (please
check applicable boxes below):
U.S. CITIZEN(S)/TAXPAYER(S):
/ / I/We certify that (1) the number(s) shown above on
this form is/are the correct SSN(s) or TIN(s) and
(2) I/we are not subject to any backup withholding
either because (a) I/we are exempt from backup
withholding; (b) I/we have not been notified by
the Internal Revenue Service ("IRS") that I/we are
subject to backup withholding as a result of a
failure to report all interest or dividends; or
(c) the IRS has notified me/us that I am/we are no
longer subject to backup withholding.
/ / If no TIN(s) or SSN(s) has/have been provided
above, I/we have applied, or intend to apply, to
the IRS or the Social Security Administration for
a TIN or a SSN and I/we understand that if I/we do
not provide either number to Chase Global Funds
Services Company ("CGFSC") within 60 days of the
date of this application or if I/we fail to
furnish my/ our correct SSN(s) or TIN(s), I/we may
be subject to a penalty and a 31% backup
withholding on distributions and redemption
proceeds. (Please provide either number on IRS
Form W-9). You may request such form by calling
CGFSC at 800-282-4404.
NON-U.S. CITIZEN(S)/TAXPAYER(S):
/ / Under penalties of perjury, I/we certify that I/we
are not U.S. citizens or residents and I/we are
exempt foreign persons as defined by the Internal
Revenue Service.
The Internal Revenue Service does not require your
consent to any provision of this document other than
the certifications required to avoid backup
withholding.
SIGN HERE -->
---------------------------------------
---------------------------------------
SIGNATURE DATE
SIGNATURE (IF JOINT ACCOUNT, BOTH MUST
SIGN) DATE
<PAGE>
- -------------------------------------------------------------------------------
WHERE TO FIND ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
In addition to this Prospectus, the Fund has a Statement of Additional
Information ("SAI"), dated May 1, 1999, which contains additional, more detailed
information about the Fund and the Portfolios. The SAI is incorporated by
reference into this Prospectus and, therefore, legally forms a part of this
Prospectus.
SHAREHOLDER REPORTS
The Fund publishes annual and semi-annual reports containing financial
statements, and quarterly reports. These reports contain additional information
about each Portfolio's investments. In the Fund's shareholder reports, you will
find a discussion of the market conditions and the investment strategies that
significantly affected each Portfolio's performance during that period.
For additional Fund information, including information regarding the investments
comprising the Fund's Portfolios, please call 1-800-548-7786.
You may obtain the SAI and shareholder reports without charge by contacting the
Fund at the toll-free number above. If you purchased shares through a Financial
Intermediary, you may also obtain these documents, without charge, by contacting
your Financial Intermediary.
Information about the Fund, including the SAI, and the annual and semi-annual
reports, may be obtained from the Securities and Exchange Commission in any of
the following ways: (1) In person: you may review and copy documents in the
Commission's Public Reference Room in Washington D.C. (for information call
1-800-SEC-0330); (2) On-line: you may retrieve information from the Commission's
web site at "http://www.sec.gov"; or (3) By mail: you may request documents,
upon payment of a duplicating fee, by writing to Securities and Exchange
Commission, Public Reference Section, Washington, D.C. 20549-6009. To aid you in
obtaining this information, the Fund's Investment Company Act registration
number is 811-05624.
[LOGO] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
P.O. Box 2798
Boston, Massachusetts 02208-2798
FOR INFORMATION CALL 1-800-548-7786
<PAGE>
- -------------------------------------------------------------------------------
PROSPECTUS MAY 1, 1999
- -------------------------------------------------------------------------------
PORTFOLIOS OF [ICON] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
FIXED INCOME PORTFOLIO
THE FIXED INCOME PORTFOLIO SEEKS TO PRODUCE A HIGH TOTAL RETURN CONSISTENT WITH
THE PRESERVATION OF CAPITAL BY INVESTING PRIMARILY IN A DIVERSIFIED PORTFOLIO OF
FIXED INCOME SECURITIES.
MUNICIPAL BOND PORTFOLIO
THE MUNICIPAL BOND PORTFOLIO SEEKS TO PRODUCE A HIGH LEVEL OF CURRENT INCOME
CONSISTENT WITH PRESERVATION OF PRINCIPAL BY INVESTING PRIMARILY IN MUNICIPAL
OBLIGATIONS, THE INTEREST ON WHICH IS EXEMPT FROM FEDERAL INCOME TAX.
MONEY MARKET PORTFOLIO
THE MONEY MARKET PORTFOLIO SEEKS TO MAXIMIZE CURRENT INCOME AND PRESERVE CAPITAL
WHILE MAINTAINING HIGH LEVELS OF LIQUIDITY.
MUNICIPAL MONEY MARKET PORTFOLIO
THE MUNICIPAL MONEY MARKET PORTFOLIO SEEKS TO MAXIMIZE CURRENT TAX-EXEMPT INCOME
AND PRESERVE CAPITAL.
INVESTMENT ADVISER
Morgan Stanley Dean Witter Investment Management Inc.
DISTRIBUTOR
Morgan Stanley & Co. Incorporated
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC. (THE "FUND") IS A NO-LOAD
MUTUAL FUND THAT IS DESIGNED TO MEET THE INVESTMENT NEEDS OF DISCERNING
INVESTORS WHO PLACE A PREMIUM ON QUALITY AND PERSONAL SERVICE. THE FUND MAKES
AVAILABLE TO INSTITUTIONAL INVESTORS A SERIES OF PORTFOLIOS WHICH BENEFIT FROM
THE INVESTMENT EXPERTISE AND COMMITMENT TO EXCELLENCE ASSOCIATED WITH MORGAN
STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC. ("MSDW INVESTMENT MANAGEMENT")
AND ITS AFFILIATES. THIS PROSPECTUS OFFERS CLASS A AND CLASS B SHARES OF THE
PORTFOLIOS LISTED ABOVE (EACH A "PORTFOLIO" AND COLLECTIVELY THE "PORTFOLIOS"),
EXCEPT THAT THE MUNICIPAL MONEY MARKET PORTFOLIO OFFERS ONLY CLASS A SHARES.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT SUMMARY
FIXED INCOME PORTFOLIO 1
MUNICIPAL BOND PORTFOLIO 2
MONEY MARKET PORTFOLIO 3
MUNICIPAL MONEY MARKET PORTFOLIO 4
ADDITIONAL RISK FACTORS AND INFORMATION 5
FEES AND EXPENSES OF THE PORTFOLIOS 7
INVESTMENT ADVISER AND SUB-ADVISER 8
MANAGEMENT FEES 8
PORTFOLIO MANAGERS 9
DISTRIBUTION OF PORTFOLIO SHARES 10
SHAREHOLDER INFORMATION 10
FINANCIAL HIGHLIGHTS 12
FIXED INCOME PORTFOLIO 13
MUNICIPAL BOND PORTFOLIO 14
MONEY MARKET PORTFOLIO 15
MUNICIPAL MONEY MARKET PORTFOLIO 15
ACCOUNT REGISTRATION FORM
[TO BE ATTACHED]
</TABLE>
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO
- -------------------------------------------------------------------------------
THE FIXED INCOME PORTFOLIO SEEKS TO PRODUCE A HIGH TOTAL RETURN CONSISTENT WITH
THE PRESERVATION OF CAPITAL BY INVESTING PRIMARILY IN A DIVERSIFIED PORTFOLIO OF
FIXED INCOME SECURITIES.
APPROACH
MSDW Investment Management seeks to preserve capital and produce an attractive
real rate of return by emphasizing investment in intermediate-term fixed income
securities. MSDW Investment Management sets an annual target rate of return at
the beginning of the year and manages the Portfolio by using adjustments to the
Portfolio's average maturity.
PROCESS
MSDW Investment Management's fixed income team analyzes the fixed income market,
including the yield curve, maturity and duration, spreads and the level of
interest rates. Investments in U.S. Government, mortgage-backed and U.S.
corporate securities and form the core of the Portfolio. The Portfolio will
typically invest between 50% and 75% of its total assets in U.S. Government and
mortgage-backed securities. Corporate fixed income securities will be rated at
least investment grade at the time of investment. MSDW Investment Management
usually purchases long-term bonds on a short-term opportunistic basis when
market analysis indicates that they will enhance return without significantly
increasing risk. The Portfolio may invest up to 15% of its assets in fixed
income securities denominated in foreign currencies when MSDW Investment
Management believes that they will add value to the Portfolio.
RISK
Investing in the Fixed Income Portfolio may be appropriate for you if you are
willing to accept the risks and uncertainties of investing in fixed income
securities in the hope of earning an attractive rate of return while generally
preserving capital. Although the Portfolio invests primarily in fixed income
securities that are rated in the two highest rating categories, or believed by
MSDW Investment Management to be of equivalent quality, credit risk and market
risk, particularly changes in interest rates, will still affect the prices of
fixed income securities. To the extent that the Portfolio invests in securities
denominated in a foreign currency, changes in the value of that country's
currency compared to the U.S. dollar will affect the value of the Portfolio's
investments. In addition, at times the Portfolio's market sector, U.S. fixed
income securities, may underperform relative to other sectors.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE (CLASS A SHARES)
<S> <C> <C>
COMMENCED OPERATIONS ON MAY 15, 1991
1992 6.82%
1993 9.07%
1994 -3.10%
1995 18.76%
1996 4.61%
1997 9.54%
1998 7.93%
HIGH (QUARTER)
4/95 - 6/95
6.30%
LOW (QUARTER)
1/94 - 3/94
- -3.13%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A CLASS B LEHMAN
(COMMENCED (COMMENCED AGGREGATE
OPERATIONS ON OPERATIONS ON BOND INDEX*
MAY 15, 1991) JANUARY 2, 1996) CLASS A CLASS B
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------
PAST ONE YEAR 7.93% 7.85% 8.69% 8.69%
- ------------------------------------------------------------------------------------
PAST FIVE YEARS 7.31% N/A 7.27% N/A
- ------------------------------------------------------------------------------------
SINCE INCEPTION 8.45% 7.21% 8.54% 7.31%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. THE TABLE SEPARATELY COMPARES CLASS A AND
CLASS B SHARES TO THE INDEX SO THAT YOU CAN COMPARE PERFORMANCE FOR EACH CLASS
FROM ITS COMMENCEMENT DATE. THE INDEX ITSELF DOES NOT ACTUALLY HAVE TWO CLASSES.
HOW THE PORTFOLIO HAS PERFORMED IN THE PAST DOES NOT NECESSARILY INDICATE HOW
THE PORTFOLIO WILL PERFORM IN THE FUTURE.
*THE LEHMAN AGGREGATE BOND INDEX IS AN UNMANAGED INDEX COMPRISED OF THE
GOVERNMENT/CORPORATE INDEX, THE MORTGAGE-BACKED SECURITIES INDEX AND THE
ASSET-BACKED SECURITIES INDEX.
1
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
MUNICIPAL BOND PORTFOLIO
- -------------------------------------------------------------------------------
THE MUNICIPAL BOND PORTFOLIO SEEKS TO PRODUCE A HIGH LEVEL OF CURRENT INCOME
CONSISTENT WITH PRESERVATION OF PRINCIPAL BY INVESTING PRIMARILY IN MUNICIPAL
OBLIGATIONS, THE INTEREST ON WHICH IS EXEMPT FROM FEDERAL INCOME TAX.
APPROACH
MSDW Investment Management seeks to preserve capital and produce an attractive
real rate of return by emphasizing investment in investment grade (i.e., those
rated in the four highest rating categories or believed to be of equivalent
quality) intermediate- and long-term obligations that pay interest that is
exempt from federal income tax and in certain instances from state and local
taxes. The investment process is designed to capture value in the municipal
market through credit analysis, recognition of relative value and trade
execution.
PROCESS
MSDW Investment Management assesses the relative yields available on securities
of different maturities and its expectations of future changes in interest
rates. Based on evolving economic and credit market conditions, MSDW Investment
Management adjusts the Portfolio's average maturity, usually in a range between
7 and 10 years. Individual portfolio securities are municipal obligations issued
by various states, territories and possessions of the United States and the
District of Columbia, and their political subdivisions, agencies and
instrumentalities with an emphasis on general obligation and essential purpose
revenue bonds. The Portfolio has a fundamental policy of investing, under normal
circumstances, at least 80% of its assets in municipal obligations rated
investment grade at the time of investment, or futures and options on futures
relating to these municipal obligations. The Portfolio will not invest more than
20% of its assets in municipal obligations that pay interest subject to the
alternative minimum tax. The Portfolio may invest up to 20% of its assets in
cash, cash equivalents, U.S. Government securities and investment grade
corporate fixed income securities. Typically, at least 65% of the Portfolio's
assets will be invested in municipal obligations having an initial maturity of
more than a year.
RISK
Investing in the Municipal Bond Portfolio may be appropriate for you if you are
willing to accept the risks and uncertainties of investing in municipal fixed
income securities. Although the Portfolio's investments in municipal obligations
are rated investment grade, or of equivalent quality, market risks, particularly
changes in interest rates, will still affect the prices of fixed income
securities. In addition, at times the Portfolio's market sector, municipal
bonds, may underperform relative to other sectors.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE (CLASS A SHARES)
<S> <C>
COMMENCED OPERATIONS ON JANUARY 18, 1995
1996 3.67%
1997 7.25%
1998 5.52%
HIGH (QUARTER)
7/98 - 9/98
3.07%
LOW (QUARTER)
1/97 - 3/97
- -0.05%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A CLASS B** LEHMAN 7-YEAR
(COMMENCED (COMMENCED MUNICIPAL
OPERATIONS ON OPERATIONS ON BOND INDEX*
JANUARY 18, 1995) JANUARY 2, 1996) CLASS A CLASS B**
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
PAST ONE YEAR 5.52% N/A 6.22% N/A
- ----------------------------------------------------------------------------------------------
PAST FIVE YEARS N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------
SINCE INCEPTION 6.37% N/A 7.64% N/A
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. THE TABLE SEPARATELY COMPARES CLASS A AND
CLASS B SHARES TO THE INDEX SO THAT YOU CAN COMPARE PERFORMANCE FOR EACH CLASS
FROM ITS COMMENCEMENT DATE. THE INDEX ITSELF DOES NOT ACTUALLY HAVE TWO CLASSES.
HOW THE PORTFOLIO HAS PERFORMED IN THE PAST DOES NOT NECESSARILY INDICATE HOW
THE PORTFOLIO WILL PERFORM IN THE FUTURE.
*THE LEHMAN 7-YEAR MUNICIPAL BOND INDEX CONSISTS OF INVESTMENT GRADE BONDS WITH
MATURITIES BETWEEN 6-8 YEARS, RATED BAA OR BETTER. ALL BONDS HAVE BEEN TAKEN
FROM ISSUES OF AT LEAST $50 MILLION IN SIZE SOLD WITHIN THE LAST FIVE YEARS.
**NO PAST PERFORMANCE INFORMATION IS PROVIDED FOR CLASS B SHARES BECAUSE THERE
CURRENTLY ARE NO CLASS B SHAREHOLDERS.
2
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
- -------------------------------------------------------------------------------
THE MONEY MARKET PORTFOLIO SEEKS TO MAXIMIZE CURRENT INCOME AND PRESERVE CAPITAL
WHILE MAINTAINING HIGH LEVELS OF LIQUIDITY.
APPROACH
MSDW Investment Management and Morgan Stanley Dean Witter Advisors Inc. ("MSDW
Advisors") as investment sub-adviser, seek to maximize current income and
preserve capital while maintaining liquidity by investing in money market
instruments with effective maturities of 397 days or less. In selecting
investments, MSDW Advisors seeks to maintain a share price of $1.00 per share.
PROCESS
MSDW Advisors assesses current and projected market and economic conditions,
particularly interest rates. Based on this analysis, MSDW Advisors uses gradual
shifts in average maturity to manage the Portfolio conservatively. MSDW Advisors
selects particular money market securities that it believes offer the most
attractive risk/return trade-off. Portfolio investments are primarily U.S.
government and agency obligations, corporate debt and bank obligations that pay
fixed or variable rates of interest.
RISK
Investing in the Money Market Portfolio may be appropriate for you if you want
to minimize the risk of loss of principal and maintain liquidity of your
investment, and at the same time receive a return on your investment. The
Portfolio invests only in money market instruments that MSDW Advisors believes
present minimal credit risk. However, an investment in the Portfolio is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Portfolio seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Portfolio.
THE PORTFOLIO WILL INVEST IN A DIVERSIFIED PORTFOLIO OF HIGH QUALITY, SHORT-TERM
MONEY MARKET INSTRUMENTS. MONEY MARKET INSTRUMENTS MAY INCLUDE CERTIFICATES OF
DEPOSITS, BANKERS' ACCEPTANCES, COMMERCIAL PAPER, U.S. TREASURY SECURITIES, AND
SOME MUNICIPAL SECURITIES AND REPURCHASE AGREEMENTS. IN SELECTING THESE
INVESTMENTS, MSDW ADVISORS FOLLOWS STRICT RULES ABOUT CREDIT RISK, MATURITY AND
DIVERSIFICATION OF THE PORTFOLIO'S INVESTMENTS. FOR EXAMPLE, THE PORTFOLIO'S
MONEY MARKET INSTRUMENTS WILL BE RATED WITHIN THE TWO HIGHEST CATEGORIES
ASSIGNED BY A RECOGNIZED RATING ORGANIZATION OR, IF NOT RATED, ARE OF COMPARABLE
QUALITY AS DETERMINED BY MSDW INVESTMENT MANAGEMENT. IN ADDITION, THESE
INSTRUMENTS WILL HAVE A MAXIMUM REMAINING MATURITY OF 397 DAYS OR LESS.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE (CLASS A SHARES)
<S> <C> <C>
COMMENCED OPERATIONS ON NOVEMBER 15, 1988
1989 9.12%
1990 8.03%
1991 5.89%
1992 3.46%
1993 2.76%
1994 3.84%
1995 5.51%
1996 5.03%
1997 5.20%
1998 5.20%
HIGH (QUARTER)
4/89 - 6/89
2.34%
LOW (QUARTER)
4/93 - 6/93
0.67%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A
(COMMENCED CLASS B
OPERATIONS ON (HAVE NOT YET
NOVEMBER 15, 1988) COMMENCED OPERATIONS)
<S> <C> <C>
- ------------------------------------------------------------------------------------
PAST ONE YEAR 5.20% N/A
- ------------------------------------------------------------------------------------
PAST FIVE YEARS 4.95% N/A
- ------------------------------------------------------------------------------------
SINCE INCEPTION 5.43% N/A
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. HOW THE PORTFOLIO HAS
PERFORMED IN THE PAST DOES NOT NECESSARILY INDICATE HOW THE PORTFOLIO WILL
PERFORM IN THE FUTURE.
YOU MAY OBTAIN THE CURRENT 7-DAY YIELD OF THE MONEY MARKET PORTFOLIO BY CALLING
1-800-548-7786.
3
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
- -------------------------------------------------------------------------------
THE MUNICIPAL MONEY MARKET PORTFOLIO SEEKS TO MAXIMIZE CURRENT TAX-EXEMPT INCOME
AND PRESERVE CAPITAL.
APPROACH
MSDW Investment Management and MSDW Advisors as investment sub-adviser, seek to
maximize current income and preserve capital while maintaining liquidity by
investing in money market instruments, with effective maturities of 397 days or
less, that pay interest that is exempt from federal taxation. In selecting
investments, MSDW Advisors seeks to maintain a share price of $1.00 per share.
PROCESS
MSDW Advisors assesses current and projected market and economic conditions,
particularly interest rates. Based on this analysis, MSDW Advisors uses gradual
shifts in average maturity to manage the Portfolio conservatively. MSDW Advisors
selects particular municipal money market securities that it believes offer the
most attractive risk/return trade-off. Individual portfolio securities are money
market obligations issued by various states, territories and possessions of the
United States and the District of Columbia, and their political subdivisions,
agencies and instrumentalities. Typically, the Portfolio will invest at least
80% of its assets in tax-exempt municipal obligations. The Portfolio will not
invest in municipal obligations that pay interest subject to the alternative
minimum tax.
RISK
Investing in the Municipal Money Market Portfolio may be appropriate for you if
you want to minimize the risk of loss of principal and maintain liquidity of
your investment, and at the same time receive a return on your investment that
is exempt from federal income tax. The Portfolio invests only in municipal money
market instruments that MSDW Advisors believes present minimal credit risk.
However, an investment in the Portfolio is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
the Portfolio seeks to preserve the value of your investment at $1.00 per share,
it is possible to lose money by investing in the Portfolio.
THE PORTFOLIO WILL INVEST IN A PORTFOLIO OF HIGH QUALITY, SHORT-TERM MUNICIPAL
SECURITIES AND REPURCHASE AGREEMENTS. IN SELECTING THESE INVESTMENTS, MSDW
ADVISORS FOLLOWS STRICT RULES ABOUT CREDIT RISK, MATURITY AND DIVERSIFICATION OF
THE PORTFOLIO'S INVESTMENTS. FOR EXAMPLE, THE PORTFOLIO'S MONEY MARKET
INSTRUMENTS WILL BE RATED WITHIN THE TWO HIGHEST CATEGORIES ASSIGNED BY A
RECOGNIZED RATING ORGANIZATION OR, IF NOT RATED, ARE OF COMPARABLE QUALITY AS
DETERMINED BY MSDW INVESTMENT MANAGEMENT. IN ADDITION, THESE INSTRUMENTS WILL
HAVE A MAXIMUM REMAINING MATURITY OF 397 DAYS OR LESS.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE (CLASS A SHARES)
<S> <C> <C>
COMMENCED OPERATIONS ON FEBRUARY 10, 1989
1990 5.39%
1991 4.06%
1992 2.48%
1993 1.91%
1994 2.44%
1995 3.44%
1996 3.02%
1997 3.17%
1998 3.00%
HIGH (QUARTER)
10/89 - 12/89
1.52%
LOW (QUARTER)
1/94 - 3/94
0.46%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A
(COMMENCED
OPERATIONS ON
FEBRUARY 10, 1989)
<S> <C>
- ----------------------------------------------------------------------
PAST ONE YEAR 3.00%
- ----------------------------------------------------------------------
PAST FIVE YEARS 3.02%
- ----------------------------------------------------------------------
SINCE INCEPTION 3.46%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. HOW THE PORTFOLIO HAS
PERFORMED IN THE PAST DOES NOT NECESSARILY INDICATE HOW THE PORTFOLIO WILL
PERFORM IN THE FUTURE.
YOU MAY OBTAIN THE CURRENT 7-DAY YIELD OF THE MUNICIPAL MONEY MARKET PORTFOLIO
BY CALLING 1-800-548-7786.
4
<PAGE>
INVESTMENT SUMMARY
- --------------------------------------------------------------------------------
ADDITIONAL RISK FACTORS AND INFORMATION
- -------------------------------------------------------------------------------
THIS SECTION DISCUSSES ADDITIONAL RISK FACTORS AND INFORMATION RELATED TO THE
PORTFOLIOS. THE PORTFOLIOS' INVESTMENT PRACTICES AND LIMITATIONS ARE DESCRIBED
IN MORE DETAIL IN THE STATEMENT OF ADDITIONAL INFORMATION ("SAI"), WHICH LEGALLY
IS A PART OF THIS PROSPECTUS. FOR DETAILS ABOUT HOW TO OBTAIN A COPY OF THE SAI
AND OTHER REPORTS AND INFORMATION, SEE THE BACK COVER OF THIS PROSPECTUS.
PRICE VOLATILITY
The value of your investment in the Fixed Income and Municipal Bond Portfolios
is based on the market prices of the securities the Portfolio holds. These
prices change daily due to economic and other events that affect markets
generally, as well as those that affect particular industries and companies.
These price movements, sometimes called volatility, may be greater or lesser
depending on the types of securities the Portfolio owns and the markets in which
the securities trade. Fixed income securities, regardless of credit quality,
experience price volatility, especially in response to interest rate changes. As
a result of price volatility, there is a risk that you may lose money by
investing in any of these Portfolios.
FIXED INCOME SECURITIES
Investments in fixed income securities are subject to credit risk and market
risk. Credit risk is the possibility that an issuer may be unable to meet its
scheduled principal and interest payments. Market risk is the possibility that a
change in interest rates or the market's perception of an issuer's prospects may
adversely affect the value of a fixed income security. Generally, fixed income
securities decrease in value as interest rates rise and vice versa. Prices of
longer term securities also are generally more volatile, so the average maturity
of portfolio securities affects risk.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are fixed-income securities representing an interest
in a pool of underlying mortgage loans. They are sensitive to changes in
interest rates, but may respond to these changes differently from other fixed
income securities due to the possibility of prepayment of the underlying
mortgage loans. As a result, it may not be possible to determine in advance the
actual maturity date or average life of a mortgage-backed security. Rising
interest rates tend to discourage refinancings, with the result that the average
life and volatility of the security will increase and its market price will
decrease. When interest rates fall, however, mortgage-backed securities may not
gain as much in market value because additional mortgage prepayments must be
reinvested at lower interest rates. Prepayment risk may make it difficult to
calculate the average maturity of a portfolio of mortgage-backed securities and,
therefore, to assess the volatility risk of that portfolio.
DERIVATIVES
Each Portfolio, except the Money Market and Municipal Money Market Portfolios,
may use various instruments that derive their values from those of specified
securities, indices, currencies or other points of reference for both hedging
and non-hedging purposes. Derivatives include futures, options, forward
contracts, swaps, and structured notes. These derivatives, including those used
to manage risk, are themselves subject to risks of the different markets in
which they trade and, therefore, may not serve their intended purposes.
The primary risks of derivatives are: (i) changes in the market value of
securities held by a Portfolio, and of derivatives relating to those securities,
may not be proportionate, (ii) there may not be a liquid market for a Portfolio
to sell a derivative, which could result in difficulty closing a position and
(iii) certain derivatives can magnify the extent of losses incurred due to
changes in the market value of the securities to which they relate. In addition,
derivatives are subject to counter party risk. To minimize this risk, a
Portfolio may enter into derivatives transactions with counter parties that meet
certain requirements for credit quality and collateral. Also, a Portfolio may
invest in certain derivatives that require the Portfolio to segregate some or
all of its cash or liquid securities to cover its obligations under those
instruments. At certain levels, this can cause
5
<PAGE>
the Portfolio to lose flexibility in managing its investments properly,
responding to shareholder redemption requests, or meeting other obligations. If
the Portfolio is in that position, it could be forced to sell other securities
that it wanted to retain.
A Portfolio will limit its use of derivatives for non-hedging purposes to
33 1/3% of its total assets measured by the aggregate notional amount of
outstanding derivatives. While the use of derivatives may be advantageous to a
Portfolio, if MSDW Investment Management is not successful in employing them,
the Portfolio's performance may be worse than if it did not make such
investments. See the Statement of Additional Information for more about the
risks of different types of derivatives.
BANK INVESTORS
An investment in a Portfolio is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
YEAR 2000 RISK
The advisory and distribution services that MSDW Investment, MSDW Advisors and
Morgan Stanley & Co. Incorporated ("Morgan Stanley") provide to the Fund depend
on the smooth operation of their computer systems. Many computer and 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. MSDW Investment Management, MSDW Advisors and
Morgan Stanley have been actively working on necessary changes to their own
computer systems to deal with the year 2000 problem and expect that their
systems will be adapted before that date. There can be no assurance, however,
that they will be successful. In addition, other unaffiliated service providers
may be faced with similar problems. MSDW Investment Management, MSDW Advisors
and Morgan Stanley are monitoring their remedial efforts, but there can be no
assurance that they and the services they provide will not be adversely
affected.
In addition, it is possible that the markets for securities in which the
Portfolios invest 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 Portfolios' investments may be
adversely affected.
TEMPORARY DEFENSIVE
INVESTMENTS
When MSDW Investment Management or MSDW Advisors believes that changes in
economic, financial or political conditions warrant, each Portfolio may invest
without limit in certain short-and medium-term fixed income securities for
temporary defensive purposes. If MSDW Investment Management or MSDW Advisors
incorrectly predicts the effects of these changes, such defensive investments
may adversely affect a Portfolio's performance and the Portfolio may not achieve
its investment objective.
PORTFOLIO TURNOVER
Consistent with its investment policies, a Portfolio will purchase and sell
securities without regard to the effect on portfolio turnover. Higher portfolio
turnover (e.g. over 100% per year) will cause a Portfolio to incur additional
transaction costs and may result in taxable gains being passed through to
shareholders.
6
<PAGE>
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE PORTFOLIOS
- -------------------------------------------------------------------------------
The Securities and Exchange Commission (the "Commission") requires that the Fund
disclose in the table below the fees and expenses that you may pay if you buy
and hold shares of the Portfolios. The Portfolios do not charge any sales loads
or similar fees when you purchase or redeem shares. The Annual Fund Operating
Expenses in the table below do not reflect voluntary fee waivers and/or expense
reimbursements from MSDW Investment Management. No fee waivers are in effect for
the Money Market and Municipal Money Market Portfolios.
1998 ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)*
<TABLE>
<CAPTION>
MUNICIPAL
FIXED INCOME MUNICIPAL BOND MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
-------------------------------------------------------------
MANAGEMENT FEES
- ---------------------------------------------------------------------------------------------------
CLASS A 0.35% 0.35% 0.30% 0.30%
- ---------------------------------------------------------------------------------------------------
CLASS B 0.35% 0.35% 0.30% N/A
12b-1 FEE
- ---------------------------------------------------------------------------------------------------
CLASS A NONE NONE NONE NONE
- ---------------------------------------------------------------------------------------------------
CLASS B 0.25%+ 0.25% 0.25% N/A
OTHER EXPENSES
- ---------------------------------------------------------------------------------------------------
CLASS A 0.23% 0.34% 0.19% 0.20%
- ---------------------------------------------------------------------------------------------------
CLASS B++ 0.12% 0.34% 0.19% N/A
TOTAL ANNUAL FUND OPERATING EXPENSES
- ---------------------------------------------------------------------------------------------------
CLASS A 0.58% 0.69% 0.49% 0.50%
- ---------------------------------------------------------------------------------------------------
CLASS B++ 0.72% 0.94% 0.74% N/A
+THE ACTUAL 12B-1 FEE PAID BY THE PORTFOLIO FOR THE LAST FISCAL YEAR WAS 0.15% BECAUSE MORGAN
STANLEY HAS VOLUNTARILY AGREED TO WAIVE 0.10% OF THE 0.25% DISTRIBUTION FEE IT IS ENTITLED TO
RECEIVE.
++ESTIMATED.
</TABLE>
* The Management Fees for the Portfolios shown in the table above are the
highest that could be charged. This table does not show the effects of MSDW
Investment Management's voluntary fee waivers and/or expense reimbursements.
MSDW Investment Management has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolios so that total annual operating expenses will
not exceed 0.45% for Class A shares and 0.60% for Class B shares of the Fixed
Income Portfolio; 0.45% for Class A shares and 0.70% for Class B shares of the
Municipal Bond Portfolio; 0.55% for Class A shares and 0.80% for Class B
shares of the Money Market Portfolio; and 0.57% for Class A shares of the
Municipal Money Market Portfolio. No fee waivers are in effect for the Money
Market and Municipal Money Market Portfolios.
IN DETERMINING THE ACTUAL AMOUNT OF VOLUNTARY MANAGEMENT FEE WAIVER AND/OR
EXPENSE REIMBURSEMENT FOR A PORTFOLIO, IF ANY, MSDW INVESTMENT MANAGEMENT
EXCLUDES FROM ANNUAL OPERATING EXPENSES CERTAIN INVESTMENT RELATED EXPENSES,
SUCH AS FOREIGN COUNTRY TAX EXPENSE AND INTEREST EXPENSE ON BORROWING. IF THESE
EXPENSES WERE INCURRED, THE PORTFOLIOS' TOTAL OPERATING EXPENSES AFTER VOLUNTARY
FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS WOULD EXCEED THE EXPENSE RATIO SHOWN
ABOVE.
FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS ARE VOLUNTARY AND MSDW INVESTMENT
MANAGEMENT RESERVES THE RIGHT TO TERMINATE ANY WAIVER AND/OR REIMBURSEMENT AT
ANY TIME AND WITHOUT NOTICE.
7
<PAGE>
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN EACH
PORTFOLIO WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS HAVING SIMILAR
INVESTMENT OBJECTIVES.
The example assumes that you invest $10,000 in each Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example assumes that your investment has a 5% return each year and
that each Portfolio's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
FIXED INCOME PORTFOLIO
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------
CLASS A $59 $186 $324 $726
- ----------------------------------------------------------------------
CLASS B $74 $230 $401 $894
MUNICIPAL BOND PORTFOLIO
- ----------------------------------------------------------------------
CLASS A $70 $221 $384 $859
- ----------------------------------------------------------------------
CLASS B+ $96 $300 N/A N/A
MONEY MARKET PORTFOLIO
- ----------------------------------------------------------------------
CLASS A $50 $157 $274 $616
- ----------------------------------------------------------------------
CLASS B+ $76 $237 N/A N/A
MUNICIPAL MONEY MARKET PORTFOLIO
- ----------------------------------------------------------------------
CLASS A $51 $160 $280 $628
</TABLE>
+THE FUND HAS NOT PROJECTED EXPENSES BEYOND THE THREE YEAR PERIOD SHOWN BECAUSE
THE CLASS B SHARES OF THE MUNICIPAL BOND AND MONEY MARKET PORTFOLIOS WERE NOT
OPERATIONAL AS OF DECEMBER 31, 1998.
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND SUB-ADVISER
- -------------------------------------------------------------------------------
Morgan Stanley Dean Witter Investment Management Inc. ("MSDW Investment
Management"), with principal offices at 1221 Avenue of the Americas, New York,
New York 10020, conducts a worldwide portfolio management business and provides
a broad range of portfolio management services to customers in the United States
and abroad. Morgan Stanley Dean Witter & Co. ("MSDW") is the direct parent of
MSDW Investment Management and Morgan Stanley. MSDW is a preeminent global
financial services firm that maintains leading market positions in each of its
three primary businesses -- securities, asset management and credit services. At
December 31, 1998, MSDW Investment Management, together with its affiliated
institutional asset management companies, managed assets of approximately $163.4
billion, including assets under fiduciary advice.
Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"), located at Two World
Trade Center, New York, New York 10048, serves as investment sub-adviser and
manager for the Money Market and Municipal Money Market Portfolios on a
day-to-day basis. MSDW Advisors selects, buys and sells securities for these
Portfolios under the supervision of MSDW Investment Management and the Board of
Directors.
- -------------------------------------------------------------------------------
MANAGEMENT FEES
- -------------------------------------------------------------------------------
For the year ended December 31, 1998, MSDW Investment Management received from
each Portfolio the management fee set forth in the table below:
<TABLE>
<CAPTION>
FIXED INCOME MUNICIPAL BOND MONEY MARKET MUNICIPAL MONEY
PORTFOLIO MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MANAGEMENT FEE CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------------------------------------------------------------------------------------
PAID IN FISCAL YEAR ENDED
DECEMBER 31, 1998 0.23% 0.23% 0.11% N/A 0.30% N/A 0.30% N/A
(NET OF WAIVER AND AS A
PERCENTAGE OF AVERAGE NET
ASSETS)
</TABLE>
8
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
- -------------------------------------------------------------------------------
THE FOLLOWING INDIVIDUALS HAVE PRIMARY DAY-TO-DAY PORTFOLIO MANAGEMENT
RESPONSIBILITY FOR THE PORTFOLIOS:
FIXED INCOME PORTFOLIO
WARREN ACKERMAN, III
Warren Ackerman is a Principal of MSDW Investment Management and Morgan Stanley.
Prior to joining MSDW Investment Management in December 1993, Mr. Ackerman spent
over 14 years with Bankers Trust Company as a Managing Director responsible for
institutional active fixed income management. Mr. Ackerman is a graduate of
Monmouth College with a B.S. in Economics. Mr. Ackerman has had primary
responsibility for managing the Portfolio's assets since March 1994.
MUNICIPAL BOND PORTFOLIO
LORI A. COHANE
Lori A. Cohane is a Principal of MSDW Investment Management and Morgan Stanley.
Prior to joining MSDW Investment Management in 1994, Ms. Cohane spent eight
years with Salomon Brothers Asset Management as a Vice President, Portfolio
Manager and Senior Credit Analyst of municipal bond accounts, managing
portfolios for high net worth individuals, open- and closed-end bond funds and
institutional accounts. Ms. Cohane is a MAGNA CUM LAUDE graduate of the State
University of New York at Albany with a B.S. degree in Finance and Economics.
Ms. Cohane has had primary responsibility for managing the Portfolio's assets
since its inception.
9
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTION OF PORTFOLIO SHARES
- -------------------------------------------------------------------------------
Morgan Stanley is the exclusive Distributor of Class A shares and Class B shares
of each Portfolio. Morgan Stanley receives no compensation for distributing
Class A shares of the Portfolios. The Fund has adopted a Plan of Distribution
with respect to the Class B shares of each Portfolio pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended, (the "Plan"). Under the
Plan, each Portfolio pays the Distributor a distribution fee of 0.25% of the
Class B shares' average daily net assets on an annualized basis. Morgan Stanley
has agreed to waive 0.10% of the 0.25% distribution fee it is entitled to
receive from the Fixed Income Portfolio. The distribution fee compensates the
Distributor for marketing and selling Class B shares. The Distributor may pay
others for providing distribution-related and other services, including account
maintenance services. Over time the distribution fees will increase the cost of
your investment and may cost you more than paying other types of sales charges.
- -------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------
ABOUT NET ASSET VALUE
The net asset value ("NAV") per share of a class of shares of a Portfolio is
determined by dividing the total market value of the Portfolio's investments and
other assets attributable to the class, less any liabilities attributable to the
class, by the total number of outstanding shares of that class of the Portfolio.
In calculating net asset value, the Fixed Income and Municipal Bond Portfolios
generally value securities at market price. If market prices are unavailable or
may be unreliable because of events occurring after the close of trading, fair
value prices may be determined in good faith using methods approved by the Board
of Directors. The Portfolios may hold portfolio securities that are listed on
foreign exchanges. These securities may trade on weekends or other days when the
Portfolios do not calculate NAV. As a result, the value of these investments may
change on days when you cannot purchase or sell shares.
The Money Market and Municipal Money Market Portfolios seek to maintain a stable
net asset value per share of $1.00 by valuing portfolio securities using
"amortized cost." Amortized cost involves valuing a portfolio security at cost
and, thereafter, assuming a constant amortization to maturity of any discount or
premium. This method of valuation does not take into account any unrealized
gains or losses or the impact of fluctuating interest rates on the market value
of portfolio securities. While using amortized cost provides certainty in
valuation, it may result in periods during which the value as determined by
amortized cost is higher or lower than the price the Portfolio would receive if
it sold the security.
PRICING OF PORTFOLIO SHARES
You may buy or sell (redeem) Class A and Class B shares of each Portfolio at the
net asset value next determined for the class after receipt of your order. The
Fund determines net asset value for the Fixed Income and Municipal Bond
Portfolios as of the close of the New York Stock Exchange ("NYSE") (normally
4:00 p.m. Eastern Time) and for the Money Market and Municipal Money Market
Portfolios as of 12:00 noon Eastern Time and 11:00 a.m. Eastern Time,
respectively, on each day that the NYSE is open for business (the "Pricing
Time").
HOW TO PURCHASE SHARES
You may purchase Class A shares and Class B shares of each Portfolio directly
from the Fund, from the Distributor or through certain third parties ("Financial
Intermediaries"), except for Class B shares of the Money Market Portfolio, which
may be purchased only through a Financial Intermediary. You may purchase shares
of the Portfolios, except the Money Market and Municipal Money Market
Portfolios, on each day that the NYSE is open. The Money Market and Municipal
Money Market Portfolios are closed on any day that banks are closed, but will
continue to price shares.
The minimum initial investment generally is $500,000 for Class A shares and
$100,000 for Class B shares of the Fixed Income and Municipal Bond Portfolios
and $100,000 for Class A shares of the Money Market and Municipal Money Market
Portfolios. There is no minimum initial investment for Class B shares of the
Money Market Portfolio. The minimum additional investment generally is $1,000
for each account that you have. If the value of your account falls below the
minimum initial investment amount for Class A shares or Class B shares as a
result of share redemptions, the Fund will notify you. Your account may be
subject to involuntary conversion from Class A shares to Class B shares or
involuntary redemption in the case of Class B shares if the value of your
account remains below the minimum initial investment amount for
10
<PAGE>
60 consecutive days. MSDW Investment Management may waive the minimum initial
investment and involuntary conversion or redemption features for certain
investors, including individuals purchasing through a Financial Intermediary.
You may arrange to purchase shares directly from the Fund by calling
1-800-548-7786 or by returning a completed Account Registration Form with
payment for your purchase. The price you pay will be the net asset value
calculated at the Pricing Time following receipt of your purchase order and
payment.
To purchase shares through the Distributor or a Financial Intermediary, you
should contact the Distributor or your Financial Intermediary for details.
Generally, the price of shares purchased through the Distributor or a Financial
Intermediary is the price calculated at the next Pricing Time after the Fund
receives your order from the Distributor or your Financial Intermediary. Certain
Financial Intermediaries have made arrangements with the Fund so that you may
purchase shares at the price calculated at the next Pricing Time after your
Financial Intermediary receives your purchase order. Your Financial Intermediary
may charge an additional service or transaction fee.
HOW TO REDEEM SHARES
You may redeem Portfolio shares directly from the Fund, through the Distributor
or through your Financial Intermediary, each as described above under Purchase
of Shares. The redemption price will be the net asset value per share calculated
at the next Pricing Time, which may be more or less than the purchase price of
your shares. The Fund will ordinarily distribute redemption proceeds in cash
within one business day of your redemption request, but it may take up to seven
business days. However, if you purchased shares by check, the Fund will not
distribute redemption proceeds until it has collected your purchase payment,
which may take up to eight days. The Money Market and Municipal Money Market
Portfolios are closed, but will continue to price shares, on any day that banks
are closed. In certain circumstances, for example, if payment of redemption
proceeds in cash would be detrimental to the remaining shareholders, a Portfolio
may pay redemption proceeds by a distribution-in-kind of readily marketable
portfolio securities.
EXCHANGE FEATURES
You may exchange Portfolio shares for shares of the other available portfolios
of the Fund. To obtain a prospectus for another portfolio, call the Fund at
1-800-548-7786 or contact your Financial Intermediary. If you purchased
Portfolio shares through a Financial Intermediary, certain portfolios may be
unavailable for exchange. Contact your Financial Intermediary to determine which
portfolios are available for exchange. The Fund currently consists of the
following portfolios:
<TABLE>
<S> <C>
U.S. EQUITY GLOBAL AND INTERNATIONAL EQUITY
Aggressive Equity Portfolio Active International Allocation
Emerging Growth Portfolio Portfolio
Equity Growth Portfolio Asian Real Estate Portfolio
MicroCap Portfolio+ Asian Equity Portfolio
Technology Portfolio China Growth Portfolio+
U.S. Equity Plus Portfolio Emerging Markets Portfolio
U.S. Real Estate Portfolio European Equity Portfolio
Value Equity Portfolio European Real Estate Portfolio
FIXED INCOME Global Equity Portfolio
Emerging Markets Debt Portfolio Gold Portfolio*
Fixed Income Portfolio International Equity Portfolio*
Global Fixed Income Portfolio International Magnum Portfolio
High Yield Portfolio International Small Cap Portfolio
Mortgage-Backed Securities Portfolio+ Japanese Equity Portfolio
Municipal Bond Portfolio Latin American Portfolio
MONEY MARKET
Money Market Portfolio
Municipal Money Market Portfolio
</TABLE>
*PORTFOLIO IS CURRENTLY CLOSED TO NEW INVESTORS
+PORTFOLIO HAS NOT YET COMMENCED OPERATIONS
11
<PAGE>
When you exchange for shares of another portfolio, your transaction will be
treated the same as an initial purchase. You will be subject to the same minimum
initial investment and account size as an initial purchase. Accordingly, you
will not necessarily receive the same class of shares that you tendered for
exchange. Your exchange price will be the price calculated at the next Pricing
Time after the Fund receives your exchange order. Frequent trades in your
account(s) can disrupt management of a Portfolio and raise its expenses.
Therefore, the Fund may bar a shareholder who trades excessively from making
further exchanges or purchases.
DIVIDENDS AND DISTRIBUTIONS
The policy of each of the Fixed Income and Municipal Bond Portfolios is to
distribute to shareholders substantially all of its taxable net investment
income in the form of a monthly dividend and to distribute net capital gains on
an annual basis.
Each of the Money Market and Municipal Money Market Portfolios computes net
investment income and declares a dividend as of 1:00 p.m. Eastern Time on each
day. These dividends accrue daily and are distributed on the 15th day of each
month, or the next business day if the 15th is a holiday or weekend. The Money
Market and Municipal Money Market Portfolios will distribute capital gains, if
any, at least annually.
The Fund automatically reinvests all dividends and distributions in additional
shares. However, you may elect to receive distributions in cash by giving
written notice to the Fund or your Financial Intermediary or by checking the
appropriate box in the Distribution Option section on the Account Registration
Form.
TAXES
The dividends and distributions you receive from a Portfolio may be subject to
Federal, state and local taxation, depending on your tax situation. The tax
treatment of dividends and distributions is the same whether or not you reinvest
them. Dividends are taxed as ordinary income, long-term capital gains
distributions are taxed at a maximum rate of 20%, and short-term capital gains
distributions are taxed at ordinary rates. The Fund will tell you annually how
to treat dividends and distributions.
The Municipal Bond and Municipal Money Market Portfolios generally distribute
income that is exempt from federal taxation, however, these Portfolios may
invest in securities that generate taxable income. Income exempt from federal
tax may be subject to state and local taxes.
If you redeem shares of a Portfolio, you will be subject to tax on any gains you
earn based on your holding period for the shares. An exchange of shares of a
Portfolio for shares of another portfolio is a sale of Portfolio shares for tax
purposes. Conversions of shares between classes will not result in taxation.
Because each investor's tax circumstances are unique and the tax laws may
change, you should consult your tax advisor about your investment.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The following financial highlights tables are intended to help you understand
the financial performance of the Class A shares and Class B shares of each
Portfolio for the past five years or, if less than five years, the life of the
Portfolio or Class. Certain information reflects financial results for a single
Portfolio share. The total returns in the tables represent the rate that an
investor would have earned (or lost) on an investment in each Portfolio
(assuming reinvestment of all dividends and distributions). This information has
been audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, are incorporated by reference into the Fund's Statement of
Additional Information and are included in the Fund's December 31, 1998 Annual
Report to Shareholders. The Annual Report and the financial statements therein,
as well as the Statement of Additional Information, are available at no cost
from the Fund at the toll free number noted on the back cover to this
Prospectus.
12
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FIXED INCOME PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------
YEAR ENDED DECEMBER 31,
SELECTED PER SHARE DATA ------------------------------------------------
AND RATIOS 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.88 $ 10.58 $ 10.81 $ 9.82 $ 11.05
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME
(1) 0.62 0.65 0.67 0.72 0.59
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON
INVESTMENTS 0.22 0.33 (0.20) 1.06 (0.92)
-------- -------- -------- -------- --------
TOTAL FROM INVESTMENT
OPERATIONS 0.84 0.98 0.47 1.78 (0.33)
-------- -------- -------- -------- --------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.61) (0.68) (0.70) (0.79) (0.53)
IN EXCESS OF NET
INVESTMENT INCOME -- (0.00)+ (0.00)+ -- --
NET REALIZED GAIN (0.03) -- -- -- (0.37)
IN EXCESS OF NET
REALIZED GAIN -- -- -- -- (0.00)+
-------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS (0.64) (0.68) (0.70) (0.79) (0.90)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 11.08 $ 10.88 $ 10.58 $ 10.81 $ 9.82
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN 7.93% 9.54% 4.61% 18.76% (3.10)%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(THOUSANDS) $212,718 $183,192 $130,733 $165,527 $209,331
RATIO OF EXPENSES TO
AVERAGE NET ASSETS (1) 0.45% 0.45% 0.45% 0.45% 0.45%
RATIO OF NET INVESTMENT
INCOME TO AVERAGE NET
ASSETS (1) 5.63% 6.11% 6.30% 6.85% 5.73%
PORTFOLIO TURNOVER RATE 176% 163% 183% 172% 388%
- -----------------
(1) EFFECT OF VOLUNTARY
EXPENSE LIMITATION
DURING
THE PERIOD:
PER SHARE BENEFIT TO
NET INVESTMENT
INCOME $0.01 $0.02 $0.02 $0.01 $0.01
RATIOS BEFORE EXPENSE
LIMITATION:
EXPENSES TO AVERAGE
NET ASSETS 0.58% 0.60% 0.60% 0.59% 0.58%
NET INVESTMENT
INCOME TO AVERAGE
NET
ASSETS 5.51% 5.97% 6.15% 6.71% 5.60%
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
------------------------------
PERIOD FROM
YEAR ENDED JANUARY 2,
DECEMBER 31, 1996*** TO
--------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $10.89 $10.58 $ 10.81
------ ------ ------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (2) 0.61 0.64 0.64
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS 0.22 0.33 (0.19)
------ ------ ------------
TOTAL FROM INVESTMENT
OPERATIONS 0.83 0.97 0.45
------ ------ ------------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.59) (0.66) (0.68)
NET REALIZED GAIN (0.03) -- --
------ ------ ------------
TOTAL DISTRIBUTIONS (0.62) (0.66) (0.68)
------ ------ ------------
NET ASSET VALUE, END OF PERIOD $11.10 $10.89 $ 10.58
------ ------ ------------
------ ------ ------------
TOTAL RETURN 7.85% 9.48% 4.35%
------ ------ ------------
------ ------ ------------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(THOUSANDS) $3,649 $4,834 $1,462
RATIO OF EXPENSES TO AVERAGE
NET ASSETS (2) 0.60% 0.60% 0.60%**
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS (2) 5.50% 5.93% 6.15%**
PORTFOLIO TURNOVER RATE 176% 163% 183%
- -----------------
(2) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE PERIOD:
PER SHARE BENEFIT TO NET
INVESTMENT INCOME $0.01 $0.02 $0.01
RATIOS BEFORE EXPENSE
LIMITATION:
EXPENSES TO AVERAGE NET
ASSETS 0.72% 0.74% 0.74%**
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 5.38% 5.78% 6.01%**
- --------------------------------------------------------------
</TABLE>
**ANNUALIZED
***THE PORTFOLIO BEGAN OFFERING CLASS B SHARES ON JANUARY 2, 1996.
+AMOUNT IS LESS THAN $0.01 PER SHARE.
13
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
MUNICIPAL BOND PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
----------------------------------------
PERIOD FROM
JANUARY 18,
YEAR ENDED DECEMBER 31, 1995* TO
SELECTED PER SHARE DATA AND ------------------------- DECEMBER 31,
RATIOS 1998 1997++ 1996 1995
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.51 $ 10.25 $ 10.37 $ 10.00
------- ------- ------- -------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (1) 0.50 0.47 0.49 0.44
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS 0.07 0.25 (0.12) 0.42
------- ------- ------- -------------
TOTAL FROM INVESTMENT
OPERATIONS 0.57 0.72 0.37 0.86
------- ------- ------- -------------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.51) (0.46) (0.49) (0.45)
IN EXCESS OF NET INVESTMENT
INCOME -- (0.00)+ -- (0.00)+
NET REALIZED GAIN (0.17) (0.00)+ -- (0.04)
IN EXCESS OF NET REALIZED
GAIN -- (0.00)+ -- --
------- ------- ------- -------------
TOTAL DISTRIBUTIONS (0.68) (0.46) (0.49) (0.49)
------- ------- ------- -------------
NET ASSET VALUE, END OF PERIOD $ 10.40 $ 10.51 $ 10.25 $ 10.37
------- ------- ------- -------------
------- ------- ------- -------------
TOTAL RETURN 5.52% 7.25% 3.67% 8.80%
------- ------- ------- -------------
------- ------- ------- -------------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(THOUSANDS) $34,807 $60,541 $40,227 $45,869
RATIO OF EXPENSES TO AVERAGE
NET ASSETS (1) 0.45% 0.45% 0.45% 0.45%**
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS (1) 4.60% 4.55% 4.77% 4.61%**
PORTFOLIO TURNOVER RATE 44% 80% 45% 180%
- -----------------
(1) EFFECT OF VOLUNTARY
EXPENSE LIMITATION DURING
THE PERIOD:
PER SHARE BENEFIT TO NET
INVESTMENT INCOME $0.03 $0.02 $0.03 $0.03
RATIOS BEFORE EXPENSE
LIMITATION:
EXPENSES TO AVERAGE NET
ASSETS 0.69% 0.68% 0.73% 0.73%**
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.36% 4.33% 4.50% 4.33%**
- ------------------------------------------------------------------------
</TABLE>
*COMMENCEMENT OF OPERATIONS
**ANNUALIZED
+AMOUNT IS LESS THAN $0.01 PER SHARE.
++PER SHARE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 1997 ARE BASED ON AVERAGE
SHARES OUTSTANDING.
14
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SELECTED PER SHARE DATA ------------------------------------------------------
AND RATIOS 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- ---------- ---------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME 0.051 0.051 0.049 0.054 0.040
---------- ---------- ---------- -------- --------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.051) (0.051) (0.049) (0.054) (0.040)
---------- ---------- ---------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
---------- ---------- ---------- -------- --------
---------- ---------- ---------- -------- --------
TOTAL RETURN 5.20% 5.20% 5.03% 5.51% 3.84%
---------- ---------- ---------- -------- --------
---------- ---------- ---------- -------- --------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(THOUSANDS) $1,958,177 $1,506,210 $1,284,633 $836,693 $690,503
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.49% 0.49% 0.52% 0.51% 0.49%
RATIO OF NET INVESTMENT
INCOME TO AVERAGE
NET ASSETS 5.07% 5.12% 4.92% 5.37% 3.77%
- ---------------------------------------------------------------------------------
</TABLE>
- ----------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SELECTED PER SHARE DATA ------------------------------------------------
AND RATIOS 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME 0.030 0.031 0.030 0.034 0.020
-------- -------- -------- -------- --------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.030) (0.031) (0.030) (0.034) (0.020)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN 3.00% 3.17% 3.02% 3.44% 2.44%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(THOUSANDS) $990,579 $804,607 $721,410 $451,519 $359,444
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.50% 0.50% 0.53% 0.52% 0.51%
RATIO OF NET INVESTMENT
INCOME TO AVERAGE
NET ASSETS 2.96% 3.14% 2.98% 3.38% 2.42%
- ---------------------------------------------------------------------------
</TABLE>
15
<PAGE>
- -------------------------------------------------------------------------------
WHERE TO FIND ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
In addition to this Prospectus, the Fund has a Statement of Additional
Information ("SAI"), dated May 1, 1999, which contains additional, more detailed
information about the Fund and the Portfolios. The SAI is incorporated by
reference into this Prospectus and, therefore, legally forms a part of this
Prospectus.
SHAREHOLDER REPORTS
The Fund publishes annual and semi-annual reports containing financial
statements, and quarterly reports. These reports contain additional information
about each Portfolio's investments. In the Fund's shareholder reports, you will
find a discussion of the market conditions and the investment strategies that
significantly affected each Portfolio's performance during that period.
For additional Fund information, including information regarding the investments
comprising the Fund's Portfolios, please call 1-800-548-7786.
You may obtain the SAI and shareholder reports without charge by contacting the
Fund at the toll-free number above. If you purchased shares through a Financial
Intermediary, you may also obtain these documents, without charge, by contacting
your Financial Intermediary.
Information about the Fund, including the SAI, and the annual and semi-annual
reports, may be obtained from the Securities and Exchange Commission in any of
the following ways: (1) In person: you may review and copy documents in the
Commission's Public Reference Room in Washington D.C. (for information call
1-800-SEC-0330); (2) On-line: you may retrieve information from the Commission's
web site at "http://www.sec.gov"; or (3) By mail: you may request documents,
upon payment of a duplicating fee, by writing to Securities and Exchange
Commission, Public Reference Section, Washington, D.C. 20549-6009. To aid you in
obtaining this information, the Fund's Investment Company Act registration
number is 811-05624.
[ICON] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
P.O. Box 2798
Boston, Massachusetts 02208-2798
FOR INFORMATION CALL 1-800-548-7786
<PAGE>
- -------------------------------------------------------------------------------
PROSPECTUS MAY 1, 1999
- -------------------------------------------------------------------------------
PORTFOLIOS OF [LOGO] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
EMERGING MARKETS PORTFOLIO
THE EMERGING MARKETS PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN EQUITY SECURITIES OF ISSUERS IN EMERGING MARKET COUNTRIES.
EMERGING MARKETS DEBT PORTFOLIO
THE EMERGING MARKETS DEBT PORTFOLIO SEEKS HIGH TOTAL RETURN BY INVESTING
PRIMARILY IN FIXED INCOME SECURITIES OF GOVERNMENT AND GOVERNMENT-RELATED
ISSUERS AND, TO A LESSER EXTENT, OF CORPORATE ISSUERS IN EMERGING MARKET
COUNTRIES.
LATIN AMERICAN PORTFOLIO
THE LATIN AMERICAN PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN EQUITY SECURITIES OF LATIN AMERICAN ISSUERS.
INVESTMENT ADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
DISTRIBUTOR
MORGAN STANLEY & CO. INCORPORATED
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC. (THE "FUND") IS A NO-LOAD
MUTUAL FUND THAT IS DESIGNED TO MEET THE INVESTMENT NEEDS OF DISCERNING
INVESTORS WHO PLACE A PREMIUM ON QUALITY AND PERSONAL SERVICE. THE FUND MAKES
AVAILABLE TO INSTITUTIONAL INVESTORS A SERIES OF PORTFOLIOS WHICH BENEFIT FROM
THE INVESTMENT EXPERTISE AND COMMITMENT TO EXCELLENCE ASSOCIATED WITH MORGAN
STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC. ("MSDW INVESTMENT MANAGEMENT")
AND ITS AFFILIATES. THIS PROSPECTUS OFFERS CLASS A AND CLASS B SHARES OF THE
PORTFOLIOS LISTED ABOVE (EACH A "PORTFOLIO" AND COLLECTIVELY THE "PORTFOLIOS").
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT SUMMARY
EMERGING MARKETS PORTFOLIO 1
EMERGING MARKETS DEBT PORTFOLIO 2
LATIN AMERICAN PORTFOLIO 3
ADDITIONAL RISK FACTORS AND INFORMATION 4
FEES AND EXPENSES OF THE PORTFOLIOS 6
INVESTMENT ADVISER 7
MANAGEMENT FEES 7
PORTFOLIO MANAGERS 8
DISTRIBUTION OF PORTFOLIO SHARES 9
SHAREHOLDER INFORMATION 9
FINANCIAL HIGHLIGHTS 11
EMERGING MARKETS PORTFOLIO 12
EMERGING MARKETS DEBT PORTFOLIO 13
LATIN AMERICAN PORTFOLIO 14
ACCOUNT REGISTRATION FORM
[TO BE ATTACHED]
</TABLE>
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
- -------------------------------------------------------------------------------
THE EMERGING MARKETS PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN EQUITY SECURITIES OF ISSUERS IN EMERGING MARKET COUNTRIES.
APPROACH
MSDW Investment Management seeks to maximize returns by investing in
growth-oriented equity securities in emerging markets. MSDW Investment
Management's investment approach combines top-down country allocation with
bottom-up stock selection. Investment selection criteria include attractive
growth characteristics, reasonable valuations and managements with a strong
shareholder value orientation.
PROCESS
MSDW Investment Management's global allocation team analyzes the global economic
environment, particularly its impact on emerging markets and allocates the
Portfolio's assets among emerging markets based on relative economic, political
and social fundamentals, stock valuations and investor sentiment. MSDW
Investment Management invests within countries based on the work of country
specialists who conduct extensive fundamental analysis of issuers within these
markets and seek to identify issuers with strong earnings growth prospects. To
manage risk, MSDW Investment Management emphasizes thorough macroeconomic and
fundamental research.
RISK
Investing in the Emerging Markets Portfolio may be appropriate for you if you
are willing to accept the risks and uncertainties of investing in the equity
securities of issuers in emerging markets in the hope of earning superior
returns and diversifying your investment portfolio. In general, prices of equity
securities are more volatile than those of fixed income securities. The prices
of equity securities will rise and fall in response to a number of different
factors. In particular, prices of equity securities will respond to events which
affect entire financial markets or industries (changes in inflation or consumer
demand, for example) and to events that affect particular issuers (news about
the success or failure of a new product, for example). In addition, at times the
Portfolio's market sector, emerging markets equity securities, may underperform
relative to other sectors.
<TABLE>
<CAPTION>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE (CLASS A SHARES)
<S> <C>
COMMENCED OPERATIONS ON SEPTEMBER 25, 1992
1993 85.91%
1994 -9.63%
1995 -12.77%
1996 12.19%
1997 -1.03%
1998 -25.42%
HIGH (QUARTER)
10/93 - 12/93
35.26%
LOW (QUARTER)
7/98 - 9/98
- -23.90%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
IFC GLOBAL TOTAL RETURN
CLASS A CLASS B MSCI EMERGING
(COMMENCED (COMMENCED COMPOSITE INDEX* MARKETS FREE INDEX**
OPERATIONS ON OPERATIONS ON
SEPTEMBER 25, 1992) JANUARY 2, 1996) CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
PAST ONE YEAR -25.42% -25.65% -21.08% -21.08% -25.34% -25.34%
- -------------------------------------------------------------------------------------------------------------------------
PAST FIVE YEARS -8.17% N/A -8.69% N/A -9.27% N/A
- -------------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION 3.49% -6.61% 1.93% -10.88% 2.41% -11.44%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO INDICES OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDICES DO NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDICES' PERFORMANCE. THE TABLE SEPARATELY COMPARES CLASS A AND
CLASS B SHARES TO THE INDICES SO THAT YOU CAN COMPARE PERFORMANCE FOR EACH CLASS
FROM ITS COMMENCEMENT DATE. THE INDICES THEMSELVES DO NOT ACTUALLY HAVE TWO
CLASSES. HOW THE PORTFOLIO HAS PERFORMED IN THE PAST DOES NOT NECESSARILY
INDICATE HOW THE PORTFOLIO WILL PERFORM IN THE FUTURE.
* THE IFC GLOBAL TOTAL RETURN COMPOSITE INDEX IS AN UNMANAGED INDEX OF COMMON
STOCKS AND INCLUDES DEVELOPING COUNTRIES IN LATIN AMERICA, EAST AND SOUTH
ASIA, EUROPE, THE MIDDLE EAST AND AFRICA (INCLUDES DIVIDENDS).
** THE MSCI EMERGING MARKETS FREE INDEX IS A MARKET CAPITALIZATION WEIGHTED
INDEX COMPOSED OF COMPANIES THAT ARE REPRESENTATIVE OF THE MARKET STRUCTURE
OF DEVELOPING COUNTRIES IN LATIN AMERICA, ASIA, EASTERN EUROPE, THE MIDDLE
EAST AND AFRICA.
1
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO
- -------------------------------------------------------------------------------
THE EMERGING MARKETS DEBT PORTFOLIO SEEKS HIGH TOTAL RETURN BY INVESTING
PRIMARILY IN FIXED INCOME SECURITIES OF GOVERNMENT AND GOVERNMENT-RELATED
ISSUERS AND, TO A LESSER EXTENT, OF CORPORATE ISSUERS IN EMERGING MARKET
COUNTRIES.
APPROACH
MSDW Investment Management seeks high total return by investing in a portfolio
of emerging market debt that offers low correlation to many other asset classes.
Using macroeconomic and fundamental analysis, MSDW Investment Management seeks
to identify developing countries that are undervalued and have attractive or
improving fundamentals. After the country allocation is determined, the sector
and security selection is made within each country.
PROCESS
MSDW Investment Management's global allocation team analyzes the global economic
environment and its impact on emerging markets. MSDW Investment Management
focuses on investing in countries that show signs of positive fundamental
change. This analysis considers macroeconomic factors, such as GDP growth,
inflation, monetary policy, fiscal policy and interest rates and sociopolitical
factors, such as political risk, leadership, social stability and commitment to
reform. In selecting securities, MSDW Investment Management first examines yield
curves with respect to a country and then considers instrument-specific
criteria, including (i) spread duration; (ii) real interest rates; and (iii)
liquidity. The Portfolio's holdings may range in maturity from overnight to 30
years or more and will not be subject to any minimum credit rating standard.
MSDW Investment Management may, when or if available, use hedging strategies,
including the use of derivatives to protect the Portfolio from overvalued
currencies or to take advantage of undervalued currencies.
RISK
Investing in the Emerging Markets Debt Portfolio may be appropriate for you if
you are willing to accept the risks and uncertainties of investing in
lower-rated and unrated fixed income securities in emerging markets in the hope
of earning superior total return and diversifying your investment portfolio.
Market prices of fixed income securities respond to economic developments as
well as to perceptions of the creditworthiness of individual issuers, including
governments. Generally, fixed income securities decrease in value as interest
rates rise and vice versa. Investing in emerging markets intensifies risk,
because lower quality fixed income securities are more volatile in price. The
Portfolio invests in many fixed income securities that are rated below
"investment grade" or are not rated, but are of equivalent quality. These fixed
income securities are often referred to as "high yield securities" or "junk
bonds". High yield securities range from those for which the prospect for
repayment of principal and interest is predominantly speculative to those which
are currently in default on principal or interest payments. When the Portfolio
invests in high yield securities, it generally seeks to receive a
correspondingly higher return on the securities it holds to compensate it for
the additional credit risk and market risk it has assumed. Prices of longer term
fixed income securities also are generally more volatile, so the average
maturity of the securities in the Portfolio affects risk. At times the
Portfolio's market sector, emerging markets debt securities, may underperform
relative to other sectors. In addition, the Portfolio may borrow money for
investment purposes. Borrowing for investment purposes is a speculative activity
that creates leverage. Leverage will magnify the effect of increases and
decreases in prices of portfolio securities.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE (CLASS A SHARES)
<S> <C>
COMMENCED OPERATIONS ON FEBRUARY 1, 1994
1995 28.23%
1996 50.52%
1997 18.29%
1998 -35.95%
HIGH (QUARTER)
4/95 - 6/95
29.97%
LOW (QUARTER)
7/98 - 9/98
- -39.82%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
J.P. MORGAN EMERGING
CLASS A CLASS B
(COMMENCED (COMMENCED MARKETS BOND PLUS INDEX*
OPERATIONS ON OPERATIONS ON
FEBRUARY 1, 1994) JANUARY 2, 1996) CLASS A CLASS B
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
PAST ONE YEAR -35.95% -35.37% -14.35% -14.35%
- ------------------------------------------------------------------------------------------------
PAST FIVE YEARS N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------
SINCE INCEPTION 4.75% 4.26% 6.94% 10.07%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. THE TABLE SEPARATELY COMPARES CLASS A AND
CLASS B SHARES TO THE INDEX SO THAT YOU CAN COMPARE PERFORMANCE FOR EACH CLASS
FROM ITS COMMENCEMENT DATE. THE INDEX ITSELF DOES NOT ACTUALLY HAVE TWO CLASSES.
HOW THE PORTFOLIO HAS PERFORMED IN THE PAST DOES NOT NECESSARILY INDICATE HOW
THE PORTFOLIO WILL PERFORM IN THE FUTURE.
* THE J.P. MORGAN EMERGING MARKETS BOND PLUS INDEX IS A MARKET WEIGHTED INDEX
COMPOSED OF BRADY BONDS, OUTSTANDING LOANS AND EUROBONDS, AS WELL AS U.S.
DOLLAR LOCAL MARKET INSTRUMENTS OF ARGENTINA, BRAZIL, BULGARIA, MEXICO,
MOROCCO, RUSSIA, NIGERIA, THE PHILIPPINES, POLAND AND VENEZUELA.
2
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO
- -------------------------------------------------------------------------------
THE LATIN AMERICAN PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN EQUITY SECURITIES OF LATIN AMERICAN ISSUERS.
APPROACH
MSDW Investment Management seeks to maximize returns and manage the risks of
investing in Latin American markets by investing in growth oriented securities
in Latin American markets. MSDW Investment Management's investment approach
combines top-down country allocation with bottom-up stock selection. Investment
selection criteria include attractive growth characteristics, reasonable
valuations and managements that have strong shareholder value orientation.
PROCESS
MSDW Investment Management allocates the Portfolio's assets among Latin American
countries based on relative economic, political and social fundamentals, stock
valuations and investor sentiment. MSDW Investment Management invests within
countries based on fundamental analysis of Latin American issuers and seeks to
identify issuers with strong earnings growth potential. The Portfolio may
concentrate in the Latin American telecommunications or financial services
industries because of the relatively small number of Latin American issuers and
the possibility that one or more Latin American markets may become dominated by
issuers engaged in these industries.
RISK
Investing in the Latin American Portfolio may be appropriate for you if you are
willing to accept the risks and uncertainties of investing in the equity
securities of issuers in Latin America in the hope of achieving superior returns
and diversifying your investment portfolio. In general, prices of equity
securities are more volatile than those of fixed income securities. The prices
of equity securities will rise and fall in response to a number of different
factors. In particular, prices of equity securities will respond to events which
affect entire financial markets or industries (changes in inflation or consumer
demand, for example) and to events that affect particular issuers (news about
the success or failure of a new product, for example). In addition, at times the
Portfolio's market sector, equity securities of Latin American issuers, may
underperform relative to other sectors.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE (CLASS A SHARES)
<S> <C>
COMMENCED OPERATIONS ON JANUARY 18, 1995
1996 48.77%
1997 41.28%
1998 -37.10%
HIGH (QUARTER)
4/97 - 6/97
24.11%
LOW (QUARTER)
7/98 - 9/98
- -31.43%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
MSCI EMERGING
CLASS A CLASS B MARKETS GLOBAL
(COMMENCED (COMMENCED LATIN AMERICA
OPERATIONS ON OPERATIONS ON INDEX*
JANUARY 18, 1995) JANUARY 2, 1996) CLASS A CLASS B
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
PAST ONE YEAR -37.10% -36.86% -35.29% -35.29%
- ------------------------------------------------------------------------------------------------
PAST FIVE YEARS N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------
SINCE INCEPTION 4.88% 8.09% -1.15% 0.49%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. THE TABLE SEPARATELY COMPARES CLASS A AND
CLASS B SHARES TO THE INDEX SO THAT YOU CAN COMPARE PERFORMANCE FOR EACH CLASS
FROM ITS COMMENCEMENT DATE. THE INDEX ITSELF DOES NOT ACTUALLY HAVE TWO CLASSES.
HOW THE PORTFOLIO HAS PERFORMED IN THE PAST DOES NOT NECESSARILY INDICATE HOW
THE PORTFOLIO WILL PERFORM IN THE FUTURE.
* THE MSCI EMERGING MARKETS GLOBAL LATIN AMERICA INDEX IS A BROAD BASED MARKET
CAP WEIGHTED COMPOSITE INDEX COVERING AT LEAST 60% OF MARKETS IN ARGENTINA,
BRAZIL, CHILE, COLOMBIA, PERU, MEXICO AND VENEZUELA (INCLUDES DIVIDENDS).
3
<PAGE>
INVESTMENT SUMMARY
- --------------------------------------------------------------------------------
ADDITIONAL RISK FACTORS AND INFORMATION
- -------------------------------------------------------------------------------
THIS SECTION DISCUSSES ADDITIONAL RISK FACTORS AND INFORMATION RELATED TO THE
PORTFOLIOS. THE PORTFOLIOS' INVESTMENT PRACTICES AND LIMITATIONS ARE DESCRIBED
IN MORE DETAIL IN THE STATEMENT OF ADDITIONAL INFORMATION ("SAI"), WHICH LEGALLY
IS A PART OF THIS PROSPECTUS. FOR DETAILS ABOUT HOW TO OBTAIN A COPY OF THE SAI
AND OTHER REPORTS AND INFORMATION, SEE THE BACK COVER OF THIS PROSPECTUS.
PRICE VOLATILITY
The value of your investment in a Portfolio is based on the market prices of the
securities the Portfolio holds. These prices change daily due to economic and
other events that affect markets generally, as well as those that affect
particular companies or governments. These price movements, sometimes called
volatility, may be greater or lesser depending on the types of securities the
Portfolio owns and the markets in which the securities trade. Over time, equity
securities have generally shown superior gains, although they have tended to be
more volatile in the short term. Fixed income securities, regardless of credit
quality, also experience price volatility, especially in response to interest
rate changes. As a result of price volatility, there is a risk that you may lose
money by investing in a Portfolio.
FOREIGN INVESTING
Investing in foreign countries, particularly emerging markets, entails the risk
that news and events unique to a country or region will affect those markets and
their issuers. These same events will not necessarily have an effect on the U.S.
economy or similar issuers located in the United States. In addition, a
Portfolio's investments in foreign countries generally will be denominated in
foreign currencies. As a result, changes in the value of a country's currency
compared to the U.S. dollar may affect the value of a Portfolio's investments.
These changes may occur separately from and in response to events that do not
otherwise affect the value of the security in the issuer's home country. MSDW
Investment Management may invest in certain instruments, such as derivatives,
and may use certain techniques, such as hedging, to manage these risks. However,
MSDW Investment Management cannot guarantee that it will be practical to hedge
these risks in certain markets or under particular conditions or that it will
succeed in doing so. The risks of investing in a Portfolio may be intensified
because the Portfolios are non-diversified, which means that they may invest in
securities of a limited number of issuers. As a result, the performance of a
particular investment or a small group of investments may affect the Portfolios'
performance more than if the Portfolios were diversified.
EMERGING MARKET RISKS
Emerging market countries are countries that major international financial
institutions, such as the World Bank, generally consider to be less economically
mature than developed nations, such as the United States or most nations in
Western Europe. Emerging market countries can include every nation in the world
except the United States, Canada, Japan, Australia, New Zealand and most
countries located in Western Europe. Emerging market countries may be more
likely to experience political turmoil or rapid changes in economic conditions
than more developed countries, and the financial condition of issuers in
emerging market countries may be more precarious than in other countries. These
characteristics result in greater risk of price volatility in emerging market
countries, which may be heightened by currency fluctuations relative to the U.S.
dollar.
DERIVATIVES
The Portfolios may use various instruments that derive their values from those
of specified securities, indices, currencies or other points of reference for
both hedging and non-hedging purposes. Derivatives include futures, options,
forward contracts, swaps, and structured notes. These derivatives, including
those used to manage risk, are themselves subject to risks of the different
markets in which they trade and, therefore, may not serve their intended
purposes.
The primary risks of derivatives are: (i) changes in the market value of
securities held by a Portfolio, and of derivatives relating to those securities,
may not be proportionate, (ii) there may not be a liquid market for a Portfolio
to sell a derivative, which could result in difficulty closing a position and
(iii) certain derivatives can magnify the extent of losses incurred due to
changes in the market value of the securities to which they relate. In addition,
derivatives are subject to counter party risk. To minimize this risk, a
Portfolio may enter into derivatives transactions with counter parties that meet
certain requirements for credit quality and collateral. Also, a Portfolio may
invest in certain derivatives that require the Portfolio to segregate some or
all of its cash or liquid securities to cover its obligations under those
instruments. At certain levels, this can cause the Portfolio to lose flexibility
in managing its investments properly, responding to shareholder redemption
requests, or meeting other obligations. If the Portfolio is in that position, it
could be forced to sell other securities that it wanted to retain.
4
<PAGE>
A Portfolio will limit its use of derivatives for non-hedging purposes to
33 1/3% of its total assets measured by the aggregate notional amount of
outstanding derivatives. While the use of derivatives may be advantageous to a
Portfolio, if MSDW Investment Management is not successful in employing them,
the Portfolio's performance may be worse than if it did not make such
investments. See the Statement of Additional Information for more about the
risks of different types of derivatives.
BANK INVESTORS
An investment in a Portfolio is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
YEAR 2000 RISK
The advisory and distribution services that MSDW Investment Management and
Morgan Stanley & Co. Incorporated ("Morgan Stanley") provide to the Fund depend
on the smooth operation of their computer systems. Many computer and 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. MSDW Investment Management and Morgan Stanley have
been actively working on necessary changes to their own computer systems to deal
with the year 2000 problem and expect that their systems will be adapted before
that date. There can be no assurance, however, that they will be successful. In
addition, other unaffiliated service providers may be faced with similar
problems. MSDW Investment Management and Morgan Stanley are monitoring their
remedial efforts, but there can be no assurance that they and the services they
provide will not be adversely affected.
In addition, it is possible that the markets for securities in which the
Portfolios invest 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 Portfolios' investments may be
adversely affected.
TEMPORARY DEFENSIVE
INVESTMENTS
When MSDW Investment Management believes that changes in economic, financial or
political conditions warrant, each Portfolio may invest without limit in certain
short- and medium-term fixed income securities for temporary defensive purposes.
If MSDW Investment Management incorrectly predicts the effects of these changes,
such defensive investments may adversely affect a Portfolio's performance and
the Portfolio may not achieve its investment objective.
PORTFOLIO TURNOVER
Consistent with its investment policies, a Portfolio will purchase and sell
securities without regard to the effect on portfolio turnover. Higher portfolio
turnover (e.g. over 100% per year) will cause a Portfolio to incur additional
transaction costs and may result in taxable gains being passed through to
shareholders.
5
<PAGE>
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE PORTFOLIOS
- -------------------------------------------------------------------------------
The Securities and Exchange Commission (the "Commission") requires that the Fund
disclose in the table below the fees and expenses that you may pay if you buy
and hold shares of the Portfolios. The Portfolios do not charge any sales loads
or similar fees when you purchase or redeem shares. The Annual Fund Operating
Expenses in the table below do not reflect voluntary fee waivers and/or expense
reimbursements from MSDW Investment Management.
1998 ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)*
<TABLE>
<CAPTION>
EMERGING MARKETS EMERGING MARKETS LATIN AMERICAN
PORTFOLIO DEBT PORTFOLIO PORTFOLIO
MANAGEMENT FEES
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
CLASS A 1.25% 1.00% 1.10%
- -----------------------------------------------------------------------------------------
CLASS B 1.25% 1.00% 1.10%
12b-1 FEE
- -----------------------------------------------------------------------------------------
CLASS A NONE NONE NONE
- -----------------------------------------------------------------------------------------
CLASS B 0.25% 0.25% 0.25%
OTHER EXPENSES
- -----------------------------------------------------------------------------------------
CLASS A 0.56% 1.38% 0.71%
- -----------------------------------------------------------------------------------------
CLASS B 0.56% 1.37% 0.66%
TOTAL ANNUAL FUND OPERATING EXPENSES
- -----------------------------------------------------------------------------------------
CLASS A 1.81% 2.38% 1.81%
- -----------------------------------------------------------------------------------------
CLASS B 2.06% 2.62% 2.01%
</TABLE>
*The Management Fees for the Portfolios shown in the table above are the highest
that could be charged. This table does not show the effects of MSDW Investment
Management's voluntary fee waivers and/or expense reimbursements.
IN DETERMINING THE ACTUAL AMOUNT OF VOLUNTARY MANAGEMENT FEE WAIVER AND/OR
EXPENSE REIMBURSEMENT FOR A PORTFOLIO, IF ANY, MSDW INVESTMENT MANAGEMENT
EXCLUDES FROM ANNUAL OPERATING EXPENSES CERTAIN INVESTMENT RELATED EXPENSES,
SUCH AS FOREIGN COUNTRY TAX EXPENSE AND INTEREST EXPENSE ON BORROWING. INCLUDING
THESE EXPENSES, THE PORTFOLIOS' TOTAL OPERATING EXPENSES AFTER VOLUNTARY FEE
WAIVERS AND/OR REIMBURSEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 WERE:
EMERGING MARKETS PORTFOLIO CLASS A-1.81%, CLASS B-2.06%; EMERGING MARKETS DEBT
PORTFOLIO CLASS A-2.38%, CLASS B-2.62%; LATIN AMERICAN PORTFOLIO CLASS A-1.81%,
CLASS B-2.01%.
EXCLUDING THESE INVESTMENT RELATED EXPENSES, THE OPERATING EXPENSES AFTER FEE
WAIVERS/EXPENSE REIMBURSEMENTS WERE 1.75% FOR CLASS A SHARES AND 2.00% FOR CLASS
B SHARES OF THE EMERGING MARKETS AND EMERGING MARKETS DEBT PORTFOLIOS AND 1.70%
FOR CLASS A SHARES AND 1.95% FOR CLASS B SHARES OF THE LATIN AMERICAN PORTFOLIO.
FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS ARE VOLUNTARY AND MSDW INVESTMENT
MANAGEMENT RESERVES THE RIGHT TO TERMINATE ANY WAIVER AND/OR REIMBURSEMENT AT
ANY TIME AND WITHOUT NOTICE.
6
<PAGE>
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN EACH
PORTFOLIO WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS HAVING SIMILAR
INVESTMENT OBJECTIVES.
The example assumes that you invest $10,000 in each Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example assumes that your investment has a 5% return each year and
that each Portfolio's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
EMERGING MARKETS PORTFOLIO
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------
CLASS A $184 $569 $980 $2,127
- ----------------------------------------------------------------------
CLASS B $209 $646 $1,108 $2,390
EMERGING MARKETS DEBT PORTFOLIO
- ----------------------------------------------------------------------
CLASS A $241 $742 $1,270 $2,716
- ----------------------------------------------------------------------
CLASS B $265 $814 $1,390 $2,954
LATIN AMERICAN PORTFOLIO
- ----------------------------------------------------------------------
CLASS A $184 $569 $980 $2,127
- ----------------------------------------------------------------------
CLASS B $204 $630 $1,083 $2,338
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
- -------------------------------------------------------------------------------
Morgan Stanley Dean Witter Investment Management Inc. ("MSDW Investment
Management"), with principal offices at 1221 Avenue of the Americas, New York,
New York 10020, conducts a worldwide portfolio management business and provides
a broad range of portfolio management services to customers in the United States
and abroad. Morgan Stanley Dean Witter & Co. ("MSDW") is the direct parent of
MSDW Investment Management and Morgan Stanley. MSDW is a preeminent global
financial services firm that maintains leading market positions in each of its
three primary businesses -- securities, asset management and credit services. At
December 31, 1998, MSDW Investment Management, together with its affiliated
institutional asset management companies, managed assets of approximately $163.4
billion, including assets under fiduciary advice.
- -------------------------------------------------------------------------------
MANAGEMENT FEES
- -------------------------------------------------------------------------------
For the year ended December 31, 1998, MSDW Investment Management received from
each Portfolio the management fee set forth in the table below:
<TABLE>
<CAPTION>
EMERGING EMERGING LATIN
MARKETS MARKETS DEBT AMERICAN
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
---------------------------------------------------------
MANAGEMENT FEE PAID IN
FISCAL YEAR ENDED
DECEMBER 31, 1998 1.25% 1.25% 1.00% 1.00% 1.10% 1.10%
(NET OF WAIVERS AND AS A
PERCENTAGE OF AVERAGE
NET ASSETS)
</TABLE>
7
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
- -------------------------------------------------------------------------------
THE FOLLOWING INDIVIDUALS HAVE PRIMARY DAY-TO-DAY PORTFOLIO MANAGEMENT
RESPONSIBILITY FOR THE PORTFOLIOS:
EMERGING MARKETS PORTFOLIO
ROBERT L. MEYER AND ANDY SKOV
Robert L. Meyer joined MSDW Investment Management in 1989 and is a Managing
Director of MSDW Investment Management and Morgan Stanley. He is head of and a
Portfolio Manager in the Emerging Markets Equity Group. He was born in Argentina
and graduated from Yale University with a B.A. in Economics and Political
Science. He received a J.D. from Harvard Law School. In addition, he is also a
Chartered Financial Analyst. Andy Skov joined MSDW Investment Management in
1994. He is a Principal of MSDW Investment Management and Morgan Stanley and a
Portfolio Manager in the Emerging Markets Equity Group. Prior to joining MSDW
Investment Management, he worked in the Latin America group at Bankers Trust
Company in corporate finance, research and sales; two of those years he spent in
Argentina. He graduated from the University of California at Berkeley with a
B.A. (PHI BETA KAPPA) in Political Science and Economic Development. Mr. Meyer
has assisted in managing the Portfolio's assets since its inception and assumed
primary responsibility for managing the Portfolio's assets in September 1997.
Mr. Skov has shared primary responsibility for managing the Portfolio's assets
since October 1998.
EMERGING MARKETS DEBT PORTFOLIO
THOMAS L. BENNETT, STEPHEN F. ESSER AND ABIGAIL L. MCKENNA
Thomas L. Bennett, a Managing Director of Morgan Stanley, joined MSDW Investment
Management in 1996 and has been a Portfolio Manager with MSDW Investment
Management's affiliated institutional investment management company, Miller
Anderson & Sherrerd, LLP ("MAS") since 1984. Mr. Bennett is the Chairman of the
MAS Funds and holds a B.S. in Chemistry and an M.B.A. from the University of
Cincinnati. Stephen F. Esser, a Managing Director of Morgan Stanley, joined MSDW
Investment Management in 1996 and has been a Portfolio Manager with MAS since
1988. Mr. Esser is a member of the New York Society of Security Analysts and
holds a B.S. degree (SUMMA CUM LAUDE AND PHI BETA KAPPA) from the University of
Delaware. Abigail L. McKenna is a Principal of MSDW Investment Management and
Morgan Stanley. Ms. McKenna focuses primarily on the trading and management of
the emerging markets debt portfolios. Prior to joining MSDW Investment
Management, she was a Senior Portfolio Manager at MIMCO from 1995 to 1996 and a
Limited Partner at Weiss Peck & Greer from 1991 to 1995, where she was
responsible for the trading and management of Corporate Bond Portfolios. Ms.
McKenna holds a B.A. in International Relations from Georgetown University and
is a Chartered Financial Analyst. Messrs. Bennett and Esser and Ms. McKenna have
shared primary responsibility for managing the Portfolio's assets since October
1998.
LATIN AMERICAN PORTFOLIO
ROBERT L. MEYER, ANDY SKOV AND MICHAEL PERL
Information about Robert L. Meyer and Andy Skov is included under the Emerging
Markets Portfolio above. Michael Perl joined MSDW Investment Management in 1998.
He is a Vice President and Portfolio Manager in the Emerging Markets Equity
Group. Prior to joining MSDW Investment Management, he worked as a Latin
American Portfolio Manager at Bankers Trust Australia from 1992 to 1998. Mr.
Perl graduated from the University of New South Wales with a Bachelor of
Commerce (HONORS), majoring in Finance, Accounting and Taxation. Mr. Meyer has
had primary responsibility for managing the Portfolio's assets since its
inception. Mr. Skov has assisted Mr. Meyer in managing the Portfolio's assets
since its inception and assumed shared primary responsibility for managing the
Portfolio's assets since May 1997. Mr. Perl has shared primary responsibility
for managing the Portfolio's assets since November 1998.
8
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTION OF PORTFOLIO SHARES
- -------------------------------------------------------------------------------
Morgan Stanley is the exclusive Distributor of Class A shares and Class B shares
of each Portfolio. Morgan Stanley receives no compensation for distributing
Class A shares of the Portfolios. The Fund has adopted a Plan of Distribution
with respect to the Class B shares of each Portfolio pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended, (the "Plan"). Under the
Plan, each Portfolio pays the Distributor a distribution fee of 0.25% of the
Class B shares' average daily net assets on an annualized basis. The
distribution fee compensates the Distributor for marketing and selling Class B
shares. The Distributor may pay others for providing distribution-related and
other services, including account maintenance services. Over time the
distribution fees will increase the cost of your investment and may cost you
more than paying other types of sales charges.
- -------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------
ABOUT NET ASSET VALUE
The net asset value ("NAV") per share of a class of shares of a Portfolio is
determined by dividing the total market value of the Portfolio's investments and
other assets attributable to the class, less any liabilities attributable to the
class, by the total number of outstanding shares of that class of the Portfolio.
In making this calculation, the Portfolio generally values securities at market
price. If market prices are unavailable or may be unreliable because of events
occurring after the close of trading, fair value prices may be determined in
good faith using methods approved by the Board of Directors. The Portfolios may
hold portfolio securities that are listed on foreign exchanges. These securities
may trade on weekends or other days when the Portfolios do not calculate NAV. As
a result, the value of these investments may change on days when you cannot
purchase or sell shares.
PRICING OF PORTFOLIO SHARES
You may buy or sell (redeem) Class A and Class B shares of each Portfolio at the
net asset value next determined for the class after receipt of your order. The
Fund determines net asset value as of the close of the New York Stock Exchange
("NYSE") (normally 4:00 p.m. Eastern Time) on each day that the NYSE is open for
business (the "Pricing Time").
HOW TO PURCHASE SHARES
You may purchase Class A shares and Class B shares of each Portfolio directly
from the Fund, from the Distributor or through certain third parties ("Financial
Intermediaries") on each day that the NYSE is open.
The minimum initial investment generally is $500,000 for Class A shares and
$100,000 for Class B shares of each Portfolio. The minimum additional investment
generally is $1,000 for each account that you have. If the value of your account
falls below the minimum initial investment amount for Class A shares or Class B
shares as a result of share redemptions, the Fund will notify you. Your account
may be subject to involuntary conversion from Class A shares to Class B shares
or involuntary redemption in the case of Class B shares if the value of your
account remains below the minimum initial investment amount for 60 consecutive
days. MSDW Investment Management may waive the minimum initial investment and
involuntary conversion or redemption features for certain investors, including
individuals purchasing through a Financial Intermediary.
You may arrange to purchase shares directly from the Fund by calling
1-800-548-7786 or by returning a completed Account Registration Form with
payment for your purchase. The price you pay will be the net asset value
calculated at the Pricing Time following receipt of your purchase order and
payment.
To purchase shares through the Distributor or a Financial Intermediary, you
should contact the Distributor or your Financial Intermediary for details.
Generally, the price of shares purchased
9
<PAGE>
through the Distributor or a Financial Intermediary is the price calculated at
the next Pricing Time after the Fund receives your order from the Distributor or
your Financial Intermediary. Certain Financial Intermediaries have made
arrangements with the Fund so that you may purchase shares at the price
calculated at the next Pricing Time after your Financial Intermediary receives
your purchase order. Your Financial Intermediary may charge an additional
service or transaction fee.
HOW TO REDEEM SHARES
You may redeem Portfolio shares directly from the Fund, through the Distributor
or through your Financial Intermediary, each as described above under Purchase
of Shares. The redemption price will be the net asset value per share calculated
at the next Pricing Time, which may be more or less than the purchase price of
your shares. The Fund will ordinarily distribute redemption proceeds in cash
within one business day of your redemption request, but it may take up to seven
business days. However, if you purchased shares by check, the Fund will not
distribute redemption proceeds until it has collected your purchase payment,
which may take up to eight days. In certain circumstances, for example, if
payment of redemption proceeds in cash would be detrimental to the remaining
shareholders, a Portfolio may pay redemption proceeds by a distribution-in-kind
of readily marketable portfolio securities.
EXCHANGE FEATURES
You may exchange Portfolio shares for shares of the other available portfolios
of the Fund. To obtain a prospectus for another portfolio, call the Fund at
1-800-548-7786 or contact your Financial Intermediary. If you purchased
Portfolio shares through a Financial Intermediary, certain portfolios may be
unavailable for exchange. Contact your Financial Intermediary to determine which
portfolios are available for exchange. The Fund currently consists of the
following portfolios:
<TABLE>
<S> <C>
U.S. EQUITY GLOBAL AND INTERNATIONAL EQUITY
Aggressive Equity Portfolio Active International Allocation
Emerging Growth Portfolio Portfolio
Equity Growth Portfolio Asian Real Estate Portfolio
MicroCap Portfolio+ Asian Equity Portfolio
Technology Portfolio China Growth Portfolio+
U.S. Equity Plus Portfolio Emerging Markets Portfolio
U.S. Real Estate Portfolio European Equity Portfolio
Value Equity Portfolio European Real Estate Portfolio
FIXED INCOME Global Equity Portfolio
Emerging Markets Debt Portfolio Gold Portfolio*
Fixed Income Portfolio International Equity Portfolio*
Global Fixed Income Portfolio International Magnum Portfolio
High Yield Portfolio International Small Cap Portfolio
Mortgage-Backed Securities Portfolio+ Japanese Equity Portfolio
Municipal Bond Portfolio Latin American Portfolio
MONEY MARKET
Money Market Portfolio
Municipal Money Market Portfolio
</TABLE>
*PORTFOLIO IS CURRENTLY CLOSED TO NEW INVESTORS
+PORTFOLIO HAS NOT YET COMMENCED OPERATIONS
When you exchange for shares of another portfolio, your transaction will be
treated the same as an initial purchase. You will be subject to the same minimum
initial investment and account size as an initial purchase. Accordingly, you
will not necessarily receive the same class of shares that you tendered for
exchange. Your exchange price will be the price calculated at the next Pricing
Time after the Fund receives your exchange order. Frequent trades in your
account(s) can disrupt management of a Portfolio and raise its expenses.
Therefore, the Fund may bar a shareholder who trades excessively from making
further exchanges or purchases.
10
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Each Portfolio's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of an annual dividend and to
distribute net capital gains on an annual basis.
The Fund automatically reinvests all dividends and distributions in additional
shares. However, you may elect to receive distributions in cash by giving
written notice to the Fund or your Financial Intermediary or by checking the
appropriate box in the Distribution Option section on the Account Registration
Form.
TAXES
The dividends and distributions you receive from a Portfolio may be subject to
Federal, state and local taxation, depending on your tax situation. The tax
treatment of dividends and distributions is the same whether or not you reinvest
them. Dividends are taxed as ordinary income, long-term capital gains
distributions are taxed at a maximum rate of 20%, and short-term capital gains
distributions are taxed at ordinary rates. A Portfolio may be able to pass
through to you a credit for foreign income taxes it pays. The Fund will tell you
annually how to treat dividends and distributions.
If you redeem shares of a Portfolio, you will be subject to tax on any gains you
earn based on your holding period for the shares. An exchange of shares of a
Portfolio for shares of another portfolio is a sale of Portfolio shares for tax
purposes. Conversions of shares between classes will not result in taxation.
Because each investor's tax circumstances are unique and the tax laws may
change, you should consult your tax advisor about your investment.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The following financial highlights tables are intended to help you understand
the financial performance of the Class A shares and Class B shares of each
Portfolio for the past five years or, if less than five years, the life of the
Portfolio or Class. Certain information reflects financial results for a single
Portfolio share. The total returns in the tables represent the rate that an
investor would have earned (or lost) on an investment in each Portfolio
(assuming reinvestment of all dividends and distributions). This information has
been audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, are incorporated by reference into the Fund's Statement
of Additional Information and are included in the Fund's December 31, 1998
Annual Report to Shareholders. The Annual Report and the financial statements
therein, as well as the Statement of Additional Information, are available at
no cost from the Fund at the toll free number noted on the back cover to this
Prospectus.
11
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
EMERGING MARKETS PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.97 $ 14.66 $ 13.14 $ 16.30 $ 19.00
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (LOSS) 0.16 0.07 0.09 0.08 (0.04)
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (3.46) (0.29) 1.51 (2.05) (1.69)
TOTAL FROM INVESTMENT OPERATIONS (3.30) (0.22) 1.60 (1.97) (1.73)
--------- ----------- ----------- --------- ---------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.12) (0.07) (0.08) (0.06) --
IN EXCESS OF NET INVESTMENT INCOME -- (0.07) -- -- --
NET REALIZED GAIN -- (0.69) -- (1.13) (0.97)
IN EXCESS OF NET REALIZED GAIN -- (0.64) -- -- --
TOTAL DISTRIBUTIONS (0.12) (1.47) (0.08) (1.19) (0.97)
--------- ----------- ----------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.55 $ 12.97 $ 14.66 $ 13.14 $ 16.30
TOTAL RETURN (25.42)% (1.03)% 12.19% (12.77)% (9.63)%
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $772,115 $1,501,386 $1,304,006 $876,591 $929,638
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.81% 1.75% 1.74% 1.72% 1.75%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
EXCLUDING INTEREST EXPENSE AND COUNTRY
TAX EXPENSE 1.70% N/A N/A N/A N/A
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS 1.04% 0.40% 0.69% 0.60% (0.26)%
PORTFOLIO TURNOVER RATE 98% 90% 55% 54% 32%
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
----------------------------------
PERIOD FROM
YEAR ENDED JANUARY 2,
DECEMBER 31, 1996*** TO
----------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.98 $ 14.66 $13.25
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME 0.10 0.02 0.04
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (3.43) (0.28) 1.42
------- ------- --------------
TOTAL FROM INVESTMENT OPERATIONS (3.33) (0.26) 1.46
------- ------- --------------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.09) (0.05) (0.05)
IN EXCESS OF NET INVESTMENT INCOME -- (0.04) --
NET REALIZED GAIN -- (0.69) --
IN EXCESS OF NET REALIZED GAIN -- (0.64) --
------- ------- --------------
TOTAL DISTRIBUTIONS (0.09) (1.42) (0.05)
NET ASSET VALUE, END OF PERIOD $ 9.56 $ 12.98 $14.66
TOTAL RETURN (25.65)% (1.31)% 11.04%
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $7,199 $9,666 $14,213
RATIO OF EXPENSES TO AVERAGE NET ASSETS 2.06% 2.00% 1.99%**
RATIO OF EXPENSES TO AVERAGE NET ASSETS
EXCLUDING INTEREST EXPENSE
AND COUNTRY TAX EXPENSE 1.95% N/A N/A
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 0.80% 0.11% 0.33%**
PORTFOLIO TURNOVER RATE 98% 90% 55%
- ----------------------------------------------------------------------------
</TABLE>
**ANNUALIZED
***THE PORTFOLIO BEGAN OFFERING CLASS B SHARES ON JANUARY 2, 1996.
12
<PAGE>
- ----------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
EMERGING MARKETS DEBT PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------
PERIOD FROM
FEBRUARY 1,
YEAR ENDED DECEMBER 31, 1994* TO
SELECTED PER SHARE DATA AND ------------------------------------ DECEMBER 31,
RATIOS 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 5.77 $ 7.54 $ 8.59 $ 8.59 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME 1.13 0.74 1.54 1.36 0.50
NET REALIZED AND UNREALIZED
GAIN (LOSS)
ON INVESTMENTS (3.19) 0.55 2.79 0.91 (1.91)
------ ------- ------- ------- -------------
TOTAL FROM INVESTMENT
OPERATIONS (2.06) 1.29 4.33 2.27 (1.41)
------ ------- ------- ------- -------------
DISTRIBUTIONS
NET INVESTMENT INCOME (1.08) (0.71) (1.17) (1.86) --
IN EXCESS OF NET INVESTMENT
INCOME (0.02) -- (0.01) -- --
NET REALIZED GAIN -- (2.17) (4.20) (0.41) --
IN EXCESS OF NET REALIZED
GAIN (0.08) -- -- --
RETURN OF CAPITAL (0.10) -- -- --
------ ------- ------- ------- -------------
TOTAL DISTRIBUTIONS (1.10) (3.06) (5.38) (2.27) --
------ ------- ------- ------- -------------
NET ASSET VALUE, END OF PERIOD $ 2.61 $ 5.77 $ 7.54 $ 8.59 $ 8.59
TOTAL RETURN (35.95)% 18.29% 50.52% 28.23% (14.10)%
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(THOUSANDS) $46,234 $142,382 $152,142 $181,878 $144,949
RATIO OF EXPENSES TO AVERAGE
NET ASSETS 2.38% 1.60% 2.70% 1.75% 1.49%**
RATIO OF EXPENSES TO AVERAGE
NET ASSETS
EXCLUDING COUNTRY TAX
EXPENSE, INTEREST
EXPENSE AND OVERDRAFT
EXPENSE 1.34% N/A N/A N/A N/A
RATIO OF NET INVESTMENT INCOME
TO
AVERAGE NET ASSETS 11.61% 8.06% 11.66% 14.70% 9.97%**
PORTFOLIO TURNOVER RATE 457% 417% 560% 406% 273%
- ------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------
PERIOD FROM
YEAR ENDED JANUARY 2,
DECEMBER 31, 1996*** TO
-------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- ------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 5.77 $ 7.53 $ 8.68
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME 1.13 0.69 1.01
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (3.17) 0.59 3.20
------ ------ -------------
TOTAL FROM INVESTMENT
OPERATIONS (2.04) 1.28 4.21
------ ------ -------------
DISTRIBUTIONS
NET INVESTMENT INCOME (1.05) (0.69) (1.15)
IN EXCESS OF NET INVESTMENT INCOME (0.02) -- (0.01)
NET REALIZED GAIN -- (2.17) (4.20)
IN EXCESS OF NET REALIZED GAIN -- (0.08) --
RETURN OF CAPITAL -- (0.10) --
------ ------ -------------
TOTAL DISTRIBUTIONS (1.07) (3.04) (5.36)
NET ASSET VALUE, END OF PERIOD $ 2.66 $ 5.77 $ 7.53
TOTAL RETURN (35.37)% 18.05% 48.52%
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(THOUSANDS) $1,187 $2,281 $4,253
RATIO OF EXPENSES TO AVERAGE NET
ASSETS 2.62% 1.91% 2.81%**
RATIO OF EXPENSES TO AVERAGE NET
ASSETS EXCLUDING COUNTRY TAX
EXPENSE, INTEREST EXPENSE AND
OVERDRAFT EXPENSE 1.60% N/A N/A
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 11.09% 7.87% 11.09%**
PORTFOLIO TURNOVER RATE 457% 417% 560%
- ------------------------------------------------------------------
</TABLE>
*COMMENCEMENT OF OPERATIONS
**ANNUALIZED
***THE PORTFOLIO BEGAN OFFERING CLASS B SHARES ON JANUARY 2, 1996.
13
<PAGE>
- ----------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
LATIN AMERICAN PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------
PERIOD FROM
JANUARY 18,
YEAR ENDED DECEMBER 31, 1995* TO
SELECTED PER SHARE DATA AND ------------------------ DECEMBER 31,
RATIOS 1998++ 1997 1996 1995
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $10.91 $11.32 $ 9.06 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (LOSS)
(1) 0.13 (0.01) 0.14 0.05
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (4.16) 4.32 4.27 (0.92)
------ ------ ------ ------------
TOTAL FROM INVESTMENT
OPERATIONS (4.03) 4.31 4.41 (0.87)
------ ------ ------ ------------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.09) -- (0.13) (0.04)
NET REALIZED GAIN (0.05) (4.04) (2.02) --
IN EXCESS OF NET REALIZED
GAIN -- (0.68) -- --
RETURN OF CAPITAL -- -- -- (0.03)
------ ------ ------ ------------
TOTAL DISTRIBUTIONS (0.14) (4.72) (2.15) (0.07)
------ ------ ------ ------------
NET ASSET VALUE, END OF PERIOD $ 6.74 $10.91 $11.32 $ 9.06
TOTAL RETURN (37.10)% 41.28% 48.77% (8.68)%
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(THOUSANDS) $15,012 $73,196 $30,409 $15,376
RATIO OF EXPENSES TO AVERAGE
NET ASSETS (1) 1.81% 1.89% 1.70% 1.70%**
RATIO OF EXPENSE TO AVERAGE
NET ASSETS EXCLUDING COUNTRY
TAX EXPENSE AND INTEREST
EXPENSE 1.64% 1.70% 1.70% 1.70%**
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS (1) 1.40% (0.14)% 1.21% 1.62%**
PORTFOLIO TURNOVER RATE 196% 286% 192% 137%
- -----------------
(1) EFFECT OF VOLUNTARY EXPENSE LIMITATION
DURING THE PERIOD:
PER SHARE BENEFIT TO NET
INVESTMENT INCOME N/A $0.01 $0.05 $0.09
RATIOS BEFORE EXPENSE
LIMITATION:
EXPENSES TO AVERAGE NET
ASSETS N/A 1.96% 2.18% 3.13%**
NET INVESTMENT INCOME
(LOSS) TO AVERAGE NET
ASSETS N/A (0.21)% 0.75% (0.48)%**
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
------------------------------
PERIOD FROM
YEAR ENDED JANUARY 2,
DECEMBER 31, 1996*** TO
--------------- DECEMBER 31,
1998++ 1997 1996
<S> <C> <C> <C>
- -------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.80 $11.31 $ 9.44
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (2) 0.12 -- 0.09
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (4.09) 4.21 3.90
------- ------ -------------
TOTAL FROM INVESTMENT
OPERATIONS (3.97) 4.21 3.99
------- ------ -------------
DISTRIBUTIONS
NET INVESTMENT INCOME -- -- (0.10)
NET REALIZED GAIN (0.05) (4.04) (2.02)
IN EXCESS OF NET REALIZED GAIN -- (0.68) --
------- ------ -------------
TOTAL DISTRIBUTIONS (0.05) (4.72) (2.12)
NET ASSET VALUE, END OF PERIOD $ 6.78 $10.80 $11.31
TOTAL RETURN (36.86)% 40.37% 42.44%
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(THOUSANDS) $1,148 $6,709 $1,333
RATIO OF EXPENSES TO AVERAGE NET
ASSETS (2) 2.01% 2.14% 1.95%**
RATIO OF EXPENSE TO AVERAGE NET
ASSETS EXCLUDING COUNTRY TAX
EXPENSE AND INTEREST EXPENSE 1.85% 1.95% 1.95%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS (2) 1.24% (0.34)% 0.89%**
PORTFOLIO TURNOVER RATE 196% 286% 192%
------------------
(2) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING
THE PERIOD:
PER SHARE BENEFIT TO NET
INVESTMENT INCOME N/A $ 0.00+ $ 0.05
RATIOS BEFORE EXPENSE
LIMITATION:
EXPENSES TO AVERAGE NET ASSETS N/A 2.21% 2.43%**
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS N/A (0.41)% 0.42%**
- -------------------------------------------------------------------
</TABLE>
*COMMENCEMENT OF OPERATIONS
**ANNUALIZED
***THE PORTFOLIO BEGAN OFFERING CLASS B SHARES ON JANUARY 2, 1996.
+AMOUNT IS LESS THAN $0.01 PER SHARE
++PER SHARE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 1998 ARE BASED ON AVERAGE
SHARES OUTSTANDING.
14
<PAGE>
- -------------------------------------------------------------------------------
WHERE TO FIND ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
In addition to this Prospectus, the Fund has a Statement of Additional
Information ("SAI"), dated May 1, 1999, which contains additional, more detailed
information about the Fund and the Portfolios. The SAI is incorporated by
reference into this Prospectus and, therefore, legally forms a part of this
Prospectus.
SHAREHOLDER REPORTS
The Fund publishes annual and semi-annual reports containing financial
statements, and quarterly reports. These reports contain additional information
about each Portfolio's investments. In the Fund's shareholder reports, you will
find a discussion of the market conditions and the investment strategies that
significantly affected each Portfolio's performance during that period.
For additional Fund information, including information regarding the investments
comprising the Fund's Portfolios, please call 1-800-548-7786.
You may obtain the SAI and shareholder reports without charge by contacting the
Fund at the toll-free number above. If you purchased shares through a Financial
Intermediary, you may also obtain these documents, without charge, by contacting
your Financial Intermediary.
Information about the Fund, including the SAI, and the annual and semi-annual
reports, may be obtained from the Securities and Exchange Commission in any of
the following ways: (1) In person: you may review and copy documents in the
Commission's Public Reference Room in Washington D.C. (for information call
1-800-SEC-0330); (2) On-line: you may retrieve information from the Commission's
web site at "http://www.sec.gov"; or (3) By mail: you may request documents,
upon payment of a duplicating fee, by writing to Securities and Exchange
Commission, Public Reference Section, Washington, D.C. 20549-6009. To aid you in
obtaining this information, the Fund's Investment Company Act registration
number is 811-05624.
[LOGO] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
P.O. Box 2798
Boston, Massachusetts 02208-2798
FOR INFORMATION CALL 1-800-548-7786
<PAGE>
- -------------------------------------------------------------------------------
PROSPECTUS MAY 1, 1999
- -------------------------------------------------------------------------------
PORTFOLIOS OF [ICON] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
GLOBAL FIXED INCOME PORTFOLIO
THE GLOBAL FIXED INCOME PORTFOLIO SEEKS TO PRODUCE AN ATTRACTIVE REAL RATE OF
RETURN WHILE PRESERVING CAPITAL BY INVESTING PRIMARILY IN HIGH QUALITY FIXED
INCOME SECURITIES OF ISSUERS THROUGHOUT THE WORLD, INCLUDING U.S. ISSUERS.
HIGH YIELD PORTFOLIO
THE HIGH YIELD PORTFOLIO SEEKS TO MAXIMIZE TOTAL RETURN BY INVESTING PRIMARILY
IN A DIVERSIFIED PORTFOLIO OF HIGH YIELD FIXED INCOME SECURITIES THAT OFFER A
YIELD ABOVE THAT GENERALLY AVAILABLE ON DEBT SECURITIES IN THE FOUR HIGHEST
RATING CATEGORIES OF THE RECOGNIZED RATING SERVICES.
INVESTMENT ADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
DISTRIBUTOR
MORGAN STANLEY & CO. INCORPORATED
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC. (THE "FUND") IS A NO-LOAD
MUTUAL FUND THAT IS DESIGNED TO MEET THE INVESTMENT NEEDS OF DISCERNING
INVESTORS WHO PLACE A PREMIUM ON QUALITY AND PERSONAL SERVICE. THE FUND MAKES
AVAILABLE TO INSTITUTIONAL INVESTORS A SERIES OF PORTFOLIOS WHICH BENEFIT FROM
THE INVESTMENT EXPERTISE AND COMMITMENT TO EXCELLENCE ASSOCIATED WITH MORGAN
STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC. ("MSDW INVESTMENT MANAGEMENT")
AND ITS AFFILIATES. THIS PROSPECTUS OFFERS CLASS A AND CLASS B SHARES OF THE
PORTFOLIOS LISTED ABOVE (EACH A "PORTFOLIO" AND COLLECTIVELY THE "PORTFOLIOS").
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT SUMMARY
GLOBAL FIXED INCOME PORTFOLIO 1
HIGH YIELD PORTFOLIO 2
ADDITIONAL RISK FACTORS AND INFORMATION 3
FEES AND EXPENSES OF THE PORTFOLIOS 5
INVESTMENT ADVISER 6
MANAGEMENT FEES 6
PORTFOLIO MANAGERS 7
DISTRIBUTION OF PORTFOLIO SHARES 8
SHAREHOLDER INFORMATION 8
FINANCIAL HIGHLIGHTS 10
GLOBAL FIXED INCOME PORTFOLIO 11
HIGH YIELD PORTFOLIO 12
ACCOUNT REGISTRATION FORM
[TO BE ATTACHED]
</TABLE>
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO
- -------------------------------------------------------------------------------
THE GLOBAL FIXED INCOME PORTFOLIO SEEKS TO PRODUCE AN ATTRACTIVE REAL RATE OF
RETURN WHILE PRESERVING CAPITAL BY INVESTING PRIMARILY IN HIGH QUALITY FIXED
INCOME SECURITIES OF ISSUERS THROUGHOUT THE WORLD, INCLUDING U.S. ISSUERS.
APPROACH
MSDW Investment Management seeks to produce an attractive return by constructing
a portfolio of fixed income securities from throughout the world. MSDW
Investment Management manages interest rate, country, and currency exposures by
a strategic, value-based approach that favors securities with high real interest
rates and sizable incremental yield at longer maturities. MSDW Investment
Management seeks to preserve capital by investing in high quality (i.e., those
rated in the three highest rating categories or believed to be of equivalent
quality) fixed income securities. The Portfolio may, however, be exposed to
currency risk with respect to its non-U.S. investments.
PROCESS
MSDW Investment Management assesses real interest rates, inflationary trends and
yield curves in the global fixed income markets and combines this with a
separate currency analysis that focuses on relative interest rate differentials
and economic competitiveness. MSDW Investment Management then seeks to establish
overweight positions in markets that offer the most attractive yield curves and
the highest yields over and above future inflation. The Portfolio generally
invests in fixed income securities having intermediate maturities (remaining
maturities between 3 and 7 years) as a starting point, then shifts to longer
maturities where real yields are attractive and shorter maturities where they
are less attractive. The Portfolio generally emphasizes investment in securities
of U.S. and foreign governments and their agencies and instrumentalities, but
may invest in other fixed income securities rated in the three highest rating
categories of a nationally recognized statistical rating organization or that
MSDW Investment Management believes to be of equivalent quality.
RISK
Investing in the Global Fixed Income Portfolio may be appropriate for you if you
are willing to accept the risks and uncertainties of investing in fixed income
securities of U.S. and foreign issuers, many of which may be denominated in
foreign currencies, in the hope of earning an attractive rate of return. Market
prices of fixed income securities respond to economic developments, especially
changes in interest rates, as well as to perceptions of the creditworthiness of
individual issuers, including governments. Generally, fixed income securities
decrease in value as interest rates rise and vice versa. Prices of longer term
fixed income securities also are generally more volatile, so the average
maturity of the securities in the Portfolio affects risk. In addition, at times
the Portfolio's market sector, global fixed income securities, may underperform
relative to other sectors.
TO THE EXTENT THAT THE PORTFOLIO INVESTS IN FOREIGN COUNTRIES, THERE IS THE RISK
THAT NEWS AND EVENTS UNIQUE TO A COUNTRY OR REGION WILL AFFECT THOSE MARKETS AND
THEIR ISSUERS. THESE SAME EVENTS WILL NOT NECESSARILY HAVE AN EFFECT ON THE U.S.
ECONOMY OR SIMILAR ISSUERS LOCATED IN THE UNITED STATES. IN ADDITION, THE
PORTFOLIO'S INVESTMENTS IN FOREIGN COUNTRIES GENERALLY WILL BE DENOMINATED IN
FOREIGN CURRENCIES. AS A RESULT, CHANGES IN THE VALUE OF A COUNTRY'S CURRENCY
COMPARED TO THE U.S. DOLLAR MAY AFFECT THE VALUE OF THE PORTFOLIO'S INVESTMENTS.
THESE CHANGES MAY OCCUR SEPARATELY FROM AND IN RESPONSE TO EVENTS THAT DO NOT
OTHERWISE AFFECT THE VALUE OF THE SECURITY IN THE ISSUER'S HOME COUNTRY. MSDW
INVESTMENT MANAGEMENT MAY INVEST IN CERTAIN INSTRUMENTS, SUCH AS DERIVATIVES,
AND MAY USE CERTAIN TECHNIQUES, SUCH AS HEDGING, TO MANAGE THESE RISKS. HOWEVER,
MSDW INVESTMENT MANAGEMENT CANNOT GUARANTEE THAT IT WILL BE PRACTICAL TO HEDGE
THESE RISKS IN CERTAIN MARKETS OR UNDER PARTICULAR CONDITIONS OR THAT IT WILL
SUCCEED IN DOING SO. THE RISKS OF INVESTING IN THE PORTFOLIO MAY BE INTENSIFIED
BECAUSE THE PORTFOLIO IS NON-DIVERSIFIED, WHICH MEANS THAT IT MAY INVEST IN
SECURITIES OF A LIMITED NUMBER OF ISSUERS. AS A RESULT, THE PERFORMANCE OF A
PARTICULAR INVESTMENT OR A SMALL GROUP OF INVESTMENTS MAY AFFECT THE PORTFOLIO'S
PERFORMANCE MORE THAN IF THE PORTFOLIO WERE DIVERSIFIED.
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
PERFORMANCE (CLASS A SHARES)
<TABLE>
<S> <C>
COMMENCED OPERATIONS ON MAY 1, 1991
1992 2.74%
1993 15.34%
1994 -6.08%
1995 19.32%
1996 6.44%
1997 1.50%
1998 13.84%
HIGH (QUARTER) LOW (QUARTER)
7/98 - 9/98 1/97 - 3/97
8.07% -3.72%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A CLASS B J.P. MORGAN TRADED
(COMMENCED (COMMENCED GLOBAL BOND INDEX*
OPERATIONS ON OPERATIONS ON
MAY 1, 1991) JANUARY 2, 1996) CLASS A CLASS B
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
PAST ONE YEAR 13.84% 13.68% 15.31% 15.31%
- --------------------------------------------------------------------------------------------
PAST FIVE YEARS 6.63% N/A 8.08% N/A
- --------------------------------------------------------------------------------------------
SINCE INCEPTION 8.24% 6.91% 9.40% 6.89%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. THE TABLE SEPARATELY COMPARES CLASS A AND
CLASS B SHARES TO THE INDEX SO THAT YOU CAN COMPARE PERFORMANCE FOR EACH CLASS
FROM ITS COMMENCEMENT DATE. THE INDEX ITSELF DOES NOT ACTUALLY HAVE TWO CLASSES.
HOW THE PORTFOLIO HAS PERFORMED IN THE PAST DOES NOT NECESSARILY INDICATE HOW
THE PORTFOLIO WILL PERFORM IN THE FUTURE.
*THE J.P. MORGAN TRADED GLOBAL BOND INDEX IS AN UNMANAGED INDEX OF SECURITIES
AND INCLUDES AUSTRALIA, BELGIUM, CANADA, DENMARK, FRANCE, GERMANY, ITALY,
JAPAN, THE NETHERLANDS, SPAIN, SWEDEN, THE UNITED KINGDOM AND THE UNITED
STATES.
1
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
- -------------------------------------------------------------------------------
THE HIGH YIELD PORTFOLIO SEEKS TO MAXIMIZE TOTAL RETURN BY INVESTING PRIMARILY
IN A DIVERSIFIED PORTFOLIO OF HIGH YIELD FIXED INCOME SECURITIES THAT OFFER A
YIELD ABOVE THAT GENERALLY AVAILABLE ON DEBT SECURITIES IN THE FOUR HIGHEST
RATING CATEGORIES OF THE RECOGNIZED RATING SERVICES.
APPROACH
The Portfolio invests primarily in high yield securities (commonly referred to
as "junk bonds"). The Portfolio also may invest in other fixed income
securities, including U.S. Government securities, mortgage-backed securities,
and investment grade corporate bonds. The Portfolio may also invest in foreign
fixed income securities, including emerging market securities. MSDW Investment
Management will generally use futures, swaps and other derivatives in managing
the Portfolio.
PROCESS
MSDW Investment Management uses equity and fixed income valuation techniques,
together with analyses of economic and industry trends, to determine the
Portfolio's overall structure, sector allocation and desired maturity. MSDW
Investment Management emphasizes securities of companies that have strong
industry positions and favorable outlooks for cash flow and asset values. MSDW
Investment Management conducts a credit analysis for each security considered
for investment to evaluate its attractiveness relative to the level of risk it
presents. The Portfolio maintains a high level of diversification to minimize
its exposure to the risks associated with any particular issuer.
RISK
Investing in the High Yield Portfolio may be appropriate for you if you are
willing to accept the risks and uncertainties of investing in non-investment
grade fixed income securities of U.S. and foreign issuers in the hope of earning
a return that is superior to that available from investment grade fixed income
securities. Market prices of fixed income securities respond to economic
developments, especially changes in interest rates, as well as to perceptions of
the creditworthiness of individual issuers, including governments. Generally,
fixed income securities decrease in value as interest rates rise and vice versa.
The Portfolio invests in fixed income securities that are rated below
"investment grade" or are not rated, but are of equivalent quality. These fixed
income securities are often referred to as "high yield securities" or "junk
bonds." High yield securities range from those for which the prospect for
repayment of principal and interest is predominantly speculative to those which
are currently in default on principal or interest payments. When the Portfolio
invests in high yield securities, it generally seeks to receive a
correspondingly higher return on the securities it holds to compensate it for
the additional credit risk and market risk it has assumed, however, prices of
high yield securities generally are more volatile than prices of investment
grade fixed income securities. Prices of longer term fixed income securities
also are generally more volatile, so the average maturity of the securities in
the Portfolio affects risk. In addition, at times the Portfolio's market sector,
high yield securities, may underperform relative to other sectors.
TO THE EXTENT THAT THE PORTFOLIO INVESTS IN FOREIGN COUNTRIES, PARTICULARLY
EMERGING MARKETS, THERE IS THE RISK THAT NEWS AND EVENTS UNIQUE TO A COUNTRY OR
REGION WILL AFFECT THOSE MARKETS AND THEIR ISSUERS. THESE SAME EVENTS WILL NOT
NECESSARILY HAVE AN EFFECT ON THE U.S. ECONOMY OR SIMILAR ISSUERS LOCATED IN THE
UNITED STATES. IN ADDITION, THE PORTFOLIO'S INVESTMENTS IN FOREIGN COUNTRIES
GENERALLY WILL BE DENOMINATED IN FOREIGN CURRENCIES. AS A RESULT, CHANGES IN THE
VALUE OF A COUNTRY'S CURRENCY COMPARED TO THE U.S. DOLLAR MAY AFFECT THE VALUE
OF THE PORTFOLIO'S INVESTMENTS. THESE CHANGES MAY OCCUR SEPARATELY FROM AND IN
RESPONSE TO EVENTS THAT DO NOT OTHERWISE AFFECT THE VALUE OF THE SECURITY IN THE
ISSUER'S HOME COUNTRY. MSDW INVESTMENT MANAGEMENT MAY INVEST IN CERTAIN
INSTRUMENTS, SUCH AS DERIVATIVES, AND MAY USE CERTAIN TECHNIQUES, SUCH AS
HEDGING, TO MANAGE THESE RISKS. HOWEVER, MSDW INVESTMENT MANAGEMENT CANNOT
GUARANTEE THAT IT WILL BE PRACTICAL TO HEDGE THESE RISKS IN CERTAIN MARKETS OR
UNDER PARTICULAR CONDITIONS OR THAT IT WILL SUCCEED IN DOING SO.
EMERGING MARKET COUNTRIES ARE COUNTRIES THAT MAJOR INTERNATIONAL FINANCIAL
INSTITUTIONS, SUCH AS THE WORLD BANK, GENERALLY CONSIDER TO BE LESS ECONOMICALLY
MATURE THAN DEVELOPED NATIONS, SUCH AS THE UNITED STATES OR MOST NATIONS IN
WESTERN EUROPE. EMERGING MARKET COUNTRIES CAN INCLUDE EVERY NATION IN THE WORLD
EXCEPT THE UNITED STATES, CANADA, JAPAN, AUSTRALIA, NEW ZEALAND, AND MOST
COUNTRIES LOCATED IN WESTERN EUROPE. EMERGING MARKET COUNTRIES MAY BE MORE
LIKELY TO EXPERIENCE POLITICAL TURMOIL OR RAPID CHANGES IN ECONOMIC CONDITIONS
THAN MORE DEVELOPED COUNTRIES, AND THE FINANCIAL CONDITION OF ISSUERS IN
EMERGING MARKET COUNTRIES MAY BE MORE PRECARIOUS THAN IN OTHER COUNTRIES. THESE
CHARACTERISTICS RESULT IN GREATER RISK OF PRICE VOLATILITY IN EMERGING MARKET
COUNTRIES, WHICH MAY BE HEIGHTENED BY CURRENCY FLUCTUATIONS RELATIVE TO THE U.S.
DOLLAR.
<TABLE>
<CAPTION>
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
PERFORMANCE (CLASS A SHARES)
<S> <C> <C>
COMMENCED OPERATIONS ON SEPTEMBER 28, 1992
1993 22.11%
1994 -4.18%
1995 23.35%
1996 15.01%
1997 15.87%
1998 3.03%
HIGH (QUARTER)
1/93 - 3/93
7.74%
LOW (QUARTER)
7/98 - 9/98
- -6.16%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A
(COMMENCED CLASS B
OPERATIONS ON (COMMENCED CS FIRST BOSTON
SEPTEMBER 28, OPERATIONS ON HIGH YIELD INDEX*
1992) JANUARY 2, 1996) CLASS A CLASS B
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
PAST ONE YEAR 3.03% 2.79% 0.58% 0.58%
- --------------------------------------------------------------------------------------------
PAST FIVE YEARS 10.17% N/A 8.16% N/A
- --------------------------------------------------------------------------------------------
SINCE INCEPTION 11.73% 10.74% 9.73% 8.37%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. THE TABLE SEPARATELY COMPARES CLASS A AND
CLASS B SHARES TO THE INDEX SO THAT YOU CAN COMPARE PERFORMANCE FOR EACH CLASS
FROM ITS COMMENCEMENT DATE. THE INDEX ITSELF DOES NOT ACTUALLY HAVE TWO CLASSES.
HOW THE PORTFOLIO HAS PERFORMED IN THE PAST DOES NOT NECESSARILY INDICATE HOW
THE PORTFOLIO WILL PERFORM IN THE FUTURE.
*THE CS FIRST BOSTON HIGH YIELD INDEX IS AN UNMANAGED INDEX OF HIGH YIELD
CORPORATE BONDS.
2
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
ADDITIONAL RISK FACTORS AND INFORMATION
- -------------------------------------------------------------------------------
THIS SECTION DISCUSSES ADDITIONAL RISK FACTORS AND INFORMATION RELATED TO THE
PORTFOLIOS. THE PORTFOLIOS' INVESTMENT PRACTICES AND LIMITATIONS ARE DESCRIBED
IN MORE DETAIL IN THE STATEMENT OF ADDITIONAL INFORMATION ("SAI"), WHICH LEGALLY
IS A PART OF THIS PROSPECTUS. FOR DETAILS ABOUT HOW TO OBTAIN A COPY OF THE SAI
AND OTHER REPORTS AND INFORMATION, SEE THE BACK COVER OF THIS PROSPECTUS.
PRICE VOLATILITY
The value of your investment in a Portfolio is based on the market prices of the
securities the Portfolio holds. These prices change daily due to economic and
other events that affect markets generally, as well as those that affect
particular regions, countries, industries and companies. These price movements,
sometimes called volatility, may be greater or lesser depending on the types of
securities the Portfolio owns and the markets in which the securities trade.
Fixed income securities, regardless of credit quality, experience price
volatility, especially in response to interest rate changes. As a result of
price volatility, there is a risk that you may lose money by investing in a
Portfolio.
DERIVATIVES
The Portfolios may use various instruments that derive their values from those
of specified securities, indices, currencies or other points of reference for
both hedging and non-hedging purposes. Derivatives include futures, options,
forward contracts, swaps, and structured notes. These derivatives, including
those used to manage risk, are themselves subject to risks of the different
markets in which they trade and, therefore, may not serve their intended
purposes.
The primary risks of derivatives are: (i) changes in the market value of
securities held by a Portfolio, and of derivatives relating to those securities,
may not be proportionate, (ii) there may not be a liquid market for a Portfolio
to sell a derivative, which could result in difficulty closing a position and
(iii) certain derivatives can magnify the extent of losses incurred due to
changes in the market value of the securities to which they relate. In addition,
derivatives are subject to counter party risk. To minimize this risk, a
Portfolio may enter into derivatives transactions with counter parties that meet
certain requirements for credit quality and collateral. Also, a Portfolio may
invest in certain derivatives that require the Portfolio to segregate some or
all of its cash or liquid securities to cover its obligations under those
instruments. At certain levels, this can cause the Portfolio to lose flexibility
in managing its investments properly, responding to shareholder redemption
requests, or meeting other obligations. If the Portfolio is in that position, it
could be forced to sell other securities that it wanted to retain.
A Portfolio will limit its use of derivatives for non-hedging purposes to
33 1/3% of its total assets measured by the aggregate notional amount of
outstanding derivatives. While the use of derivatives may be advantageous to a
Portfolio, if MSDW Investment Management is not successful in employing them,
the Portfolio's performance may be worse than if it did not make such
investments. See the Statement of Additional Information for more about the
risks of different types of derivatives.
BANK INVESTORS
An investment in a Portfolio is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
YEAR 2000 RISK
The advisory and distribution services that MSDW Investment Management and
Morgan Stanley & Co. Incorporated ("Morgan Stanley") provide to the Fund depend
on the smooth operation of their computer systems. Many computer and 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. MSDW Investment Management and Morgan Stanley have
been actively working on necessary changes to their own computer systems to deal
with the year 2000 problem and expect that their systems will be adapted before
that date. There can be no assurance, however, that they will be successful. In
addition, other unaffiliated service
3
<PAGE>
providers may be faced with similar problems. MSDW Investment Management and
Morgan Stanley are monitoring their remedial efforts, but there can be no
assurance that they and the services they provide will not be adversely
affected.
In addition, it is possible that the markets for securities in which the
Portfolios invest 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 Portfolios' investments may be
adversely affected.
TEMPORARY DEFENSIVE
INVESTMENTS
When MSDW Investment Management believes that changes in economic, financial or
political conditions warrant, each Portfolio may invest without limit in certain
short- and medium-term fixed income securities for temporary defensive purposes.
If MSDW Investment Management incorrectly predicts the effects of these changes,
such defensive investments may adversely affect a Portfolio's performance and
the Portfolio may not achieve its investment objective.
PORTFOLIO TURNOVER
Consistent with its investment policies, a Portfolio will purchase and sell
securities without regard to the effect on portfolio turnover. Higher portfolio
turnover (e.g. over 100% per year) will cause a Portfolio to incur additional
transaction costs and may result in taxable gains being passed through to
shareholders.
4
<PAGE>
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE PORTFOLIOS
- -------------------------------------------------------------------------------
The Securities and Exchange Commission (the "Commission") requires that the Fund
disclose in the table below the fees and expenses that you may pay if you buy
and hold shares of the Portfolios. The Portfolios do not charge any sales loads
or similar fees when you purchase or redeem shares. The Annual Fund Operating
Expenses in the table below do not reflect voluntary fee waivers and/or expense
reimbursements from MSDW Investment Management.
1998 ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)*
<TABLE>
<CAPTION>
GLOBAL HIGH
FIXED INCOME YIELD
PORTFOLIO PORTFOLIO
<S> <C> <C>
------------------------------
MANAGEMENT FEES
- -----------------------------------------------------------------
CLASS A 0.40% 0.375%
- -----------------------------------------------------------------
CLASS B 0.40% 0.375%
12b-1 FEE
- -----------------------------------------------------------------
CLASS A NONE NONE
- -----------------------------------------------------------------
CLASS B 0.25%+ 0.25%
OTHER EXPENSES
- -----------------------------------------------------------------
CLASS A 0.41% 0.295%
- -----------------------------------------------------------------
CLASS B 0.34% 0.325%
TOTAL ANNUAL FUND OPERATING EXPENSES
- -----------------------------------------------------------------
CLASS A 0.81% 0.67%
- -----------------------------------------------------------------
CLASS B 0.99% 0.95%
</TABLE>
+THE ACTUAL 12b-1 FEE PAID BY THE PORTFOLIO FOR THE LAST FISCAL YEAR WAS 0.15%
BECAUSE MORGAN STANLEY HAS VOLUNTARILY AGREED TO WAIVE 0.10% OF THE 0.25%
DISTRIBUTION FEE IT IS ENTITLED TO RECEIVE.
*The Management Fees for the Portfolios shown in the table above are the highest
that could be charged. This table does not show the effects of MSDW Investment
Management's voluntary fee waivers and/or expense reimbursements. MSDW
Investment Management has voluntarily agreed to reduce its management fee and/or
reimburse the Portfolios so that total annual operating expenses, excluding
certain investment related expenses described below, will not exceed 0.50% for
Class A shares and 0.65% for Class B shares of the Global Fixed Income Portfolio
and 0.695% for Class A shares and 0.945% for Class B shares of the High Yield
Portfolio.
IN DETERMINING THE ACTUAL AMOUNT OF VOLUNTARY MANAGEMENT FEE WAIVER AND/OR
EXPENSE REIMBURSEMENT FOR A PORTFOLIO, IF ANY, MSDW INVESTMENT MANAGEMENT
EXCLUDES FROM ANNUAL OPERATING EXPENSES CERTAIN INVESTMENT RELATED EXPENSES,
SUCH AS FOREIGN COUNTRY TAX EXPENSE AND INTEREST EXPENSE ON BORROWING. IF THESE
EXPENSES WERE INCURRED, THE PORTFOLIOS' TOTAL OPERATING EXPENSES AFTER VOLUNTARY
FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS WOULD EXCEED THE EXPENSE RATIO SHOWN
ABOVE.
FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS ARE VOLUNTARY AND MSDW INVESTMENT
MANAGEMENT RESERVES THE RIGHT TO TERMINATE ANY WAIVER AND/OR REIMBURSEMENT AT
ANY TIME AND WITHOUT NOTICE.
5
<PAGE>
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN EACH
PORTFOLIO WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS HAVING SIMILAR
INVESTMENT OBJECTIVES.
The example assumes that you invest $10,000 in each Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example assumes that your investment has a 5% return each year and
that each Portfolio's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
GLOBAL FIXED INCOME PORTFOLIO
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------
CLASS A $83 $259 $450 $1,002
- ----------------------------------------------------------------------
CLASS B $101 $315 $547 $1,213
HIGH YIELD PORTFOLIO
- ----------------------------------------------------------------------
CLASS A $68 $214 $373 $835
- ----------------------------------------------------------------------
CLASS B $97 $303 $525 $1,166
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
- -------------------------------------------------------------------------------
Morgan Stanley Dean Witter Investment Management Inc. ("MSDW Investment
Management"), with principal offices at 1221 Avenue of the Americas, New York,
New York 10020, conducts a worldwide portfolio management business and provides
a broad range of portfolio management services to customers in the United States
and abroad. Morgan Stanley Dean Witter & Co. ("MSDW") is the direct parent of
MSDW Investment Management and Morgan Stanley. MSDW is a preeminent global
financial services firm that maintains leading market positions in each of its
three primary businesses -- securities, asset management and credit services. At
December 31, 1998, MSDW Investment Management, together with its affiliated
institutional asset management companies, managed assets of approximately $163.4
billion, including assets under fiduciary advice.
- -------------------------------------------------------------------------------
MANAGEMENT FEES
- -------------------------------------------------------------------------------
For the year ended December 31, 1998, MSDW Investment Management received from
each Portfolio the management fee set forth in the table below:
<TABLE>
<CAPTION>
GLOBAL HIGH
FIXED INCOME YIELD
PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
-----------------------------------
MANAGEMENT FEE CLASS A CLASS B CLASS A CLASS B
-------------------------------------
PAID IN FISCAL YEAR
ENDED
DECEMBER 31, 1998 0.13% 0.13% 0.375% 0.375%
(NET OF WAIVERS AND AS A
PERCENTAGE OF AVERAGE
NET ASSETS)
</TABLE>
6
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
- -------------------------------------------------------------------------------
THE FOLLOWING INDIVIDUALS HAVE PRIMARY DAY-TO-DAY PORTFOLIO MANAGEMENT
RESPONSIBILITY FOR THE PORTFOLIOS:
GLOBAL FIXED INCOME PORTFOLIO
J. DAVID GERMANY, MICHAEL B. KUSHMA, PAUL F. O'BRIEN AND RAM WILLNER
J. David Germany joined MSDW Investment Management in 1996 and is a Managing
Director of Morgan Stanley. He has been a portfolio manager with MSDW Investment
Management's affiliated institutional investment management company, Miller
Anderson & Sherrerd, LLP ("MAS") since 1991. He was a Vice President and Senior
Economist for Morgan Stanley from 1989 to 1991. He holds an A.B. degree
(VALEDICTORIAN) from Princeton University and a Ph.D. in Economics from the
Massachusetts Institute of Technology. Michael B. Kushma, a Principal of Morgan
Stanley, joined MSDW Investment Management in 1987. He was a member of Morgan
Stanley's Global Fixed Income Strategy Group in the fixed income division from
1987 to 1995, where he became the division's senior government bond strategist.
He joined MSDW Investment Management in 1995, where he took responsibility for
global fixed income bond strategy. He advised MAS Funds Global Fixed Income and
International Fixed Income Portfolios in 1996. Mr. Kushma received an A.B. in
Economics from Princeton University in 1979, a Masters in Economics from the
London School of Economics in 1981 and a Masters of Philosophy from Columbia
University in 1983. Paul F. O'Brien joined MSDW Investment Management and MAS in
1996 and is a Principal of Morgan Stanley. He was head of European Economics
from 1993 through 1995 for JP Morgan and a Principal Administrator from 1991
through 1992 for the Organization for Economic Cooperation and Development. Mr.
O'Brien attended the United States Naval Academy and holds a B.S. degree from
the Massachusetts Institute of Technology and a Ph.D. in Economics from the
University of Minnesota. Ram Willner, a Principal of Morgan Stanley, has been a
Portfolio Manager with MAS since April 1998. From 1994 to 1998 he was a Market
Strategist/Risk Control Manager and Director of International Bond Research with
Pacific Investment Management Company and from 1992 to 1994 he was a Senior
Quantitative Analyst for Sanford C. Bernstein & Co. Prior to that he was a Vice
President of Citibank, NA. Mr. Willner holds a B.A. from Brandeis University, an
M.S.I.A. from Carnegie-Mellon University and a D.B.A. from Harvard University.
Messrs. Germany, Kushma and O'Brien have shared primary responsibility for
managing the Portfolio's assets since September 1997 and Mr. Willner has shared
that responsibility since April 1998.
HIGH YIELD PORTFOLIO
ROBERT ANGEVINE, THOMAS L. BENNETT AND STEPHEN F. ESSER
Robert Angevine is a Principal of MSDW Investment Management and Morgan Stanley
and the Portfolio Manager for high yield investments. Prior to joining MSDW
Investment Management in October 1988, he spent over eight years at Prudential
Insurance where he was responsible for one of the largest open-end high yield
mutual funds in the country. Mr. Angevine also manages high yield assets for one
of the largest corporate pension funds in the country. His other experience
includes international treasury operations at a major pharmaceutical company and
commercial banking. Mr. Angevine received a B.A. in Economics from Lafayette
College and an M.B.A. from Fairleigh Dickinson University. He served two years
as a Lieutenant in the U.S. Army. Thomas L. Bennett joined MSDW Investment
Management in 1996, is a Managing Director of Morgan Stanley, and has been a
Portfolio Manager with MAS since 1984. Mr. Bennett is Chairman of the Board of
Trustees of MAS Funds, a member of the Executive Committee of MAS and a Director
of MAS Fund Distributors, Inc. Mr. Bennett holds a B.S. in Chemistry and an
M.B.A. from the University of Cincinnati. Stephen F. Esser joined MSDW
Investment Management in 1996, is a Managing Director of Morgan Stanley, and has
been a Portfolio Manager with MAS since 1988. Mr. Esser is a member of the New
York Society of Security Analysts and holds a B.S. degree (SUMMA CUM LAUDE AND
PHI BETA KAPPA) from the University of Delaware. Mr. Angevine has had primary
responsibility for managing the Portfolio's assets since its inception. Mr.
Bennett and Mr. Esser have had primary responsibility for managing the
Portfolio's assets since April 1996.
7
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTION OF PORTFOLIO SHARES
- -------------------------------------------------------------------------------
Morgan Stanley is the exclusive Distributor of Class A shares and Class B shares
of each Portfolio. Morgan Stanley receives no compensation for distributing
Class A shares of the Portfolios. The Fund has adopted a Plan of Distribution
with respect to the Class B shares of each Portfolio pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended, (the "Plan"). Under the
Plan, each Portfolio pays the Distributor a distribution fee of 0.25% of the
Class B shares' average daily net assets on an annualized basis. The
distribution fee compensates the Distributor for marketing and selling Class B
shares. The Distributor may pay others for providing distribution-related and
other services, including account maintenance services. Over time the
distribution fees will increase the cost of your investment and may cost you
more than paying other types of sales charges.
- -------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------
ABOUT NET ASSET VALUE
The net asset value ("NAV") per share of a class of shares of a Portfolio is
determined by dividing the total market value of the Portfolio's investments and
other assets attributable to the class, less any liabilities attributable to the
class, by the total number of outstanding shares of that class of the Portfolio.
In making this calculation, the Portfolio generally values securities at market
price. If market prices are unavailable or may be unreliable because of events
occurring after the close of trading, fair value prices may be determined in
good faith using methods approved by the Board of Directors. The Portfolios may
hold portfolio securities that are listed on foreign exchanges. These securities
may trade on weekends or other days when the Portfolios do not calculate NAV. As
a result, the value of these investments may change on days when you cannot
purchase or sell shares.
PRICING OF PORTFOLIO SHARES
You may buy or sell (redeem) Class A and Class B shares of each Portfolio at the
net asset value next determined for the class after receipt of your order. The
Fund determines net asset value as of the close of the New York Stock Exchange
("NYSE") (normally 4:00 p.m. Eastern Time) on each day that the NYSE is open for
business (the "Pricing Time").
HOW TO PURCHASE SHARES
You may purchase Class A shares and Class B shares of each Portfolio directly
from the Fund, from the Distributor or through certain third parties ("Financial
Intermediaries") on each day that the NYSE is open.
The minimum initial investment generally is $500,000 for Class A shares and
$100,000 for Class B shares of each Portfolio. The minimum additional investment
generally is $1,000 for each account that you have. If the value of your account
falls below the minimum initial investment amount for Class A shares or Class B
shares as a result of share redemptions, the Fund will notify you. Your account
may be subject to involuntary conversion from Class A shares to Class B shares
or involuntary redemption in the case of Class B shares if the value of your
account remains below the minimum initial investment amount for 60 consecutive
days. MSDW Investment Management may waive the minimum initial investment and
involuntary conversion or redemption features for certain investors, including
individuals purchasing through a Financial Intermediary.
You may arrange to purchase shares directly from the Fund by calling
1-800-548-7786 or by returning a completed Account Registration Form with
payment for your purchase. The price you pay will be the net asset value
calculated at the Pricing Time following receipt of your purchase order and
payment.
To purchase shares through the Distributor or a Financial Intermediary, you
should contact the Distributor or your Financial Intermediary for details.
Generally, the price of shares purchased through the Distributor or a Financial
Intermediary is the price calculated at the next Pricing
8
<PAGE>
Time after the Fund receives your order from the Distributor or your Financial
Intermediary. Certain Financial Intermediaries have made arrangements with the
Fund so that you may purchase shares at the price calculated at the next Pricing
Time after your Financial Intermediary receives your purchase order. Your
Financial Intermediary may charge an additional service or transaction fee.
HOW TO REDEEM SHARES
You may redeem Portfolio shares directly from the Fund, through the Distributor
or through your Financial Intermediary, each as described above under Purchase
of Shares. The redemption price will be the net asset value per share calculated
at the next Pricing Time, which may be more or less than the purchase price of
your shares. The Fund will ordinarily distribute redemption proceeds in cash
within one business day of your redemption request, but it may take up to seven
business days. However, if you purchased shares by check, the Fund will not
distribute redemption proceeds until it has collected your purchase payment,
which may take up to eight days. In certain circumstances, for example, if
payment of redemption proceeds in cash would be detrimental to the remaining
shareholders, a Portfolio may pay redemption proceeds by a distribution-in-kind
of readily marketable portfolio securities.
EXCHANGE FEATURES
You may exchange Portfolio shares for shares of the other available portfolios
of the Fund. To obtain a prospectus for another portfolio, call the Fund at
1-800-548-7786 or contact your Financial Intermediary. If you purchased
Portfolio shares through a Financial Intermediary, certain portfolios may be
unavailable for exchange. Contact your Financial Intermediary to determine which
portfolios are available for exchange. The Fund currently consists of the
following portfolios:
<TABLE>
<S> <C>
U.S. EQUITY GLOBAL AND INTERNATIONAL EQUITY
Aggressive Equity Portfolio Active International Allocation
Emerging Growth Portfolio Portfolio
Equity Growth Portfolio Asian Real Estate Portfolio
MicroCap Portfolio+ Asian Equity Portfolio
Technology Portfolio China Growth Portfolio+
U.S. Equity Plus Portfolio Emerging Markets Portfolio
U.S. Real Estate Portfolio European Equity Portfolio
Value Equity Portfolio European Real Estate Portfolio
FIXED INCOME Global Equity Portfolio
Emerging Markets Debt Portfolio Gold Portfolio*
Fixed Income Portfolio International Equity Portfolio*
Global Fixed Income Portfolio International Magnum Portfolio
High Yield Portfolio International Small Cap Portfolio
Mortgage-Backed Securities Portfolio+ Japanese Equity Portfolio
Municipal Bond Portfolio Latin American Portfolio
MONEY MARKET
Money Market Portfolio
Municipal Money Market Portfolio
</TABLE>
*PORTFOLIO IS CURRENTLY CLOSED TO NEW INVESTORS
+PORTFOLIO HAS NOT YET COMMENCED OPERATIONS
When you exchange for shares of another portfolio, your transaction will be
treated the same as an initial purchase. You will be subject to the same minimum
initial investment and account size as an initial purchase. Accordingly, you
will not necessarily receive the same class of shares that you tendered for
exchange. Your exchange price will be the price calculated at the next Pricing
Time after the Fund receives your exchange order. Frequent trades in your
account(s) can disrupt management of a Portfolio and raise its expenses.
Therefore, the Fund may bar a shareholder who trades excessively from making
further exchanges or purchases.
9
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Each Portfolio's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of a quarterly dividend and to
distribute net capital gains on an annual basis.
The Fund automatically reinvests all dividends and distributions in additional
shares. However, you may elect to receive distributions in cash by giving
written notice to the Fund or your Financial Intermediary or by checking the
appropriate box in the Distribution Option section on the Account Registration
Form.
TAXES
The dividends and distributions you receive from a Portfolio may be subject to
Federal, state and local taxation, depending on your tax situation. The tax
treatment of dividends and distributions is the same whether or not you reinvest
them. Dividends are taxed as ordinary income, long-term capital gains
distributions are taxed at a maximum rate of 20%, and short-term capital gains
distributions are taxed at ordinary rates. A Portfolio may be able to pass
through to you a credit for foreign income taxes it pays. The Fund will tell you
annually how to treat dividends and distributions.
If you redeem shares of a Portfolio, you will be subject to tax on any gains you
earn based on your holding period for the shares. An exchange of shares of a
Portfolio for shares of another portfolio is a sale of Portfolio shares for tax
purposes. Conversions of shares between classes will not result in taxation.
Because each investor's tax circumstances are unique and the tax laws may
change, you should consult your tax advisor about your investment.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The following financial highlights tables are intended to help you understand
the financial performance of the Class A shares and Class B shares of each
Portfolio for the past five years or, if less than five years, the life of the
Portfolio or Class. Certain information reflects financial results for a single
Portfolio share. The total returns in the tables represent the rate that an
investor would have earned (or lost) on an investment in each Portfolio
(assuming reinvestment of all dividends and distributions). This information has
been audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, are incorporated by reference into the Fund's Statement of
Additional Information and are included in the Fund's December 31, 1998 Annual
Report to Shareholders. The Annual Report and the financial statements therein,
as well as the Statement of Additional Information, are available at no cost
from the Fund at the toll free number noted on the back cover to this
Prospectus.
10
<PAGE>
- ----------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
GLOBAL FIXED INCOME PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------
YEAR ENDED DECEMBER 31,
SELECTED PER SHARE DATA ----------------------------------------------
AND RATIOS 1998++ 1997++ 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 11.15 $ 11.30 $ 11.22 $ 10.29 $ 11.68
------- ------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME
(1) 0.55 0.56 0.61 0.76 0.70
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON
INVESTMENTS 0.98 (0.40) 0.08 1.15 (1.38)
------- ------- -------- -------- --------
TOTAL FROM INVESTMENT
OPERATIONS 1.53 0.16 0.69 1.91 (0.68)
------- ------- -------- -------- --------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.17) (0.31) (0.61) (0.98) (0.40)
NET REALIZED GAIN -- -- -- -- (0.31)
------- ------- -------- -------- --------
TOTAL DISTRIBUTIONS (0.17) (0.31) (0.61) (0.98) (0.71)
------- ------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 12.51 $ 11.15 $ 11.30 $ 11.22 $ 10.29
------- ------- -------- -------- --------
------- ------- -------- -------- --------
TOTAL RETURN 13.84% 1.50% 6.44% 19.32% (6.08)%
------- ------- -------- -------- --------
------- ------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(THOUSANDS) $45,884 $84,635 $112,888 $102,852 $130,675
RATIO OF EXPENSES TO
AVERAGE NET ASSETS (1) 0.50% 0.50% 0.50% 0.50% 0.50%
RATIO OF NET INVESTMENT
INCOME TO AVERAGE NET
ASSETS (1) 4.76% 5.05% 5.50% 6.79% 6.34%
PORTFOLIO TURNOVER RATE 110% 116% 258% 207% 171%
- -----------------
(1) EFFECT OF VOLUNTARY
EXPENSE LIMITATION
DURING
THE PERIOD:
PER SHARE BENEFIT TO
NET INVESTMENT
INCOME $0.03 $0.02 $0.02 $0.02 $0.02
RATIOS BEFORE EXPENSE
LIMITATION:
EXPENSES TO AVERAGE
NET ASSETS 0.81% 0.71% 0.72% 0.71% 0.66%
NET INVESTMENT
INCOME TO AVERAGE
NET
ASSETS 4.48% 4.84% 5.29% 6.58% 6.18%
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------
PERIOD FROM
YEAR ENDED JANUARY 2,
DECEMBER 31, 1996*** TO
------------------- DECEMBER 31,
1998++ 1997++ 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $11.13 $11.29 $ 11.23
------- ------- -------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (2) 0.53 0.54 0.48
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS 0.98 (0.40) 0.18
------- ------- -------------
TOTAL FROM INVESTMENT OPERATIONS 1.51 0.14 0.66
------- ------- -------------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.16) (0.30) (0.60)
------- ------- -------------
TOTAL DISTRIBUTIONS (0.16) (0.30) (0.60)
------- ------- -------------
NET ASSET VALUE, END OF PERIOD $12.48 $11.13 $ 11.29
------- ------- -------------
------- ------- -------------
TOTAL RETURN 13.68% 1.29% 6.12%
------- ------- -------------
------- ------- -------------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $362 $366 $1,559
RATIO OF EXPENSES TO AVERAGE NET ASSETS
(2) 0.65% 0.65% 0.65%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS (2) 4.54% 4.88% 5.28%**
PORTFOLIO TURNOVER RATE 110% 116% 258%
- -----------------
(2) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE PERIOD:
PER SHARE BENEFIT TO NET
INVESTMENT INCOME $0.03 $0.02 $0.02
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 0.99% 0.86% 0.86%**
NET INVESTMENT INCOME TO AVERAGE
NET ASSETS 4.26% 4.68% 5.08%**
- --------------------------------------------------------------------------------
</TABLE>
**ANNUALIZED
***THE PORTFOLIO BEGAN OFFERING CLASS B SHARES ON JANUARY 2, 1996.
++PER SHARE AMOUNTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
ARE BASED ON AVERAGE SHARES OUTSTANDING.
11
<PAGE>
- ----------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
HIGH YIELD PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------
YEAR ENDED DECEMBER 31,
SELECTED PER SHARE DATA ---------------------------------------------
AND RATIOS 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 11.58 $ 10.91 $ 10.46 $ 9.55 $ 11.16
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME
(1) 1.00 1.00 1.03 1.14 0.97
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON
INVESTMENTS (0.66) 0.67 0.47 0.97 (1.40)
-------- -------- ------- ------- -------
TOTAL FROM INVESTMENT
OPERATIONS 0.34 1.67 1.50 2.11 (0.43)
-------- -------- ------- ------- -------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.98) (1.00) (1.05) (1.20) (0.97)
IN EXCESS OF NET
INVESTMENT INCOME (0.00)+ -- (0.00)+ -- --
NET REALIZED GAIN (0.14) -- -- -- (0.21)
IN EXCESS OF NET
REALIZED GAIN (0.04) -- -- -- --
RETURN OF CAPITAL (0.01) -- -- -- --
-------- -------- ------- ------- -------
TOTAL DISTRIBUTIONS (1.17) (1.00) (1.05) (1.20) (1.18)
-------- -------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD $ 10.75 $ 11.58 $ 10.91 $ 10.46 $ 9.55
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------
TOTAL RETURN 3.03% 15.87% 15.01% 23.35% (4.18)%
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(THOUSANDS) $128,237 $113,006 $95,663 $62,245 $97,223
RATIO OF EXPENSES TO
AVERAGE NET ASSETS (1) 0.67% 0.69% 0.75% 0.75% 0.75%
RATIO OF NET INVESTMENT
INCOME TO AVERAGE NET
ASSETS (1) 8.70% 8.70% 9.78% 11.09% 9.42%
PORTFOLIO TURNOVER RATE 93% 111% 117% 90% 74%
- -----------------
(1) EFFECT OF VOLUNTARY
EXPENSE LIMITATION
DURING THE PERIOD:
PER SHARE BENEFIT TO
NET INVESTMENT
INCOME N/A N/A $0.01 $0.01 $0.001
RATIOS BEFORE EXPENSE
LIMITATION:
EXPENSES TO AVERAGE
NET ASSETS N/A N/A 0.82% 0.83% 0.76%
NET INVESTMENT
INCOME TO AVERAGE
NET ASSETS N/A N/A 9.71% 11.01% 9.41%
- ------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
------------------------------
PERIOD FROM
YEAR ENDED JANUARY 2,
DECEMBER 31, 1996*** TO
--------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- -------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 11.56 $10.90 $10.49
------- ------ -------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (2) 0.90 0.97 0.98
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (0.59) 0.65 0.45
------- ------ -------------
TOTAL FROM INVESTMENT
OPERATIONS 0.31 1.62 1.43
------- ------ -------------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.95) (0.96) (1.02)
IN EXCESS OF NET INVESTMENT INCOME (0.00)+ -- --
REALIZED NET GAIN (0.14) -- --
IN EXCESS OF NET REALIZED GAIN (0.04) -- --
RETURN OF CAPITAL (0.01) -- --
------- ------ -------------
TOTAL DISTRIBUTIONS (1.14) (0.96) (1.02)
------- ------ -------------
NET ASSET VALUE, END OF PERIOD $ 10.73 $11.56 $10.90
------- ------ -------------
------- ------ -------------
TOTAL RETURN 2.79% 15.48% 14.37%
------- ------ -------------
------- ------ -------------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(THOUSANDS) $56,804 $7,213 $5,665
RATIO OF EXPENSES TO AVERAGE NET
ASSETS (2) 0.95% 0.93% 1.00%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS (2) 8.73% 8.48% 9.49%**
PORTFOLIO TURNOVER RATE 93% 111% 117%
- -----------------
(2) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING
THE PERIOD:
PER SHARE BENEFIT TO NET
INVESTMENT INCOME N/A N/A $0.01
RATIOS BEFORE EXPENSE
LIMITATION:
EXPENSES TO AVERAGE NET ASSETS N/A N/A 1.05%**
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS N/A N/A 9.44%**
- -------------------------------------------------------------------
</TABLE>
**ANNUALIZED
***THE PORTFOLIO BEGAN OFFERING CLASS B SHARES ON JANUARY 2, 1996.
+AMOUNT IS LESS THAN $0.01 PER SHARE.
12
<PAGE>
- -------------------------------------------------------------------------------
WHERE TO FIND ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
In addition to this Prospectus, the Fund has a Statement of Additional
Information ("SAI"), dated May 1, 1999, which contains additional, more detailed
information about the Fund and the Portfolios. The SAI is incorporated by
reference into this Prospectus and, therefore, legally forms a part of this
Prospectus.
SHAREHOLDER REPORTS
The Fund publishes annual and semi-annual reports containing financial
statements, and quarterly reports. These reports contain additional information
about each Portfolio's investments. In the Fund's shareholder reports, you will
find a discussion of the market conditions and the investment strategies that
significantly affected each Portfolio's performance during that period.
For additional Fund information, including information regarding the investments
comprising the Fund's Portfolios, please call 1-800-548-7786.
You may obtain the SAI and shareholder reports without charge by contacting the
Fund at the toll-free number above. If you purchased shares through a Financial
Intermediary, you may also obtain these documents, without charge, by contacting
your Financial Intermediary.
Information about the Fund, including the SAI, and the annual and semi-annual
reports, may be obtained from the Securities and Exchange Commission in any of
the following ways: (1) In person: you may review and copy documents in the
Commission's Public Reference Room in Washington D.C. (for information call
1-800-SEC-0330); (2) On-line: you may retrieve information from the Commission's
web site at "http://www.sec.gov"; or (3) By mail: you may request documents,
upon payment of a duplicating fee, by writing to Securities and Exchange
Commission, Public Reference Section, Washington, D.C. 20549-6009. To aid you in
obtaining this information, the Fund's Investment Company Act registration
number is 811-05624.
[ICON] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
P.O. Box 2798
Boston, Massachusetts 02208-2798
FOR INFORMATION CALL 1-800-548-7786
<PAGE>
- -------------------------------------------------------------------------------
PROSPECTUS MAY 1, 1999
- -------------------------------------------------------------------------------
PORTFOLIOS OF [ICON] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
GLOBAL EQUITY PORTFOLIO
THE GLOBAL EQUITY PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN EQUITY SECURITIES OF ISSUERS THROUGHOUT THE WORLD, INCLUDING U.S.
ISSUERS.
INTERNATIONAL EQUITY PORTFOLIO
THE INTERNATIONAL EQUITY PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY
INVESTING PRIMARILY IN EQUITY SECURITIES OF NON-U.S. ISSUERS.
INTERNATIONAL SMALL CAP PORTFOLIO
THE INTERNATIONAL SMALL CAP PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY
INVESTING PRIMARILY IN EQUITY SECURITIES OF NON-U.S. ISSUERS WITH EQUITY MARKET
CAPITALIZATION OF LESS THAN $1 BILLION.
EUROPEAN EQUITY PORTFOLIO
THE EUROPEAN EQUITY PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN EQUITY SECURITIES OF EUROPEAN ISSUERS.
INVESTMENT ADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
DISTRIBUTOR
MORGAN STANLEY & CO. INCORPORATED
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC. (THE "FUND") IS A NO-LOAD
MUTUAL FUND THAT IS DESIGNED TO MEET THE INVESTMENT NEEDS OF DISCERNING
INVESTORS WHO PLACE A PREMIUM ON QUALITY AND PERSONAL SERVICE. THE FUND MAKES
AVAILABLE TO INSTITUTIONAL INVESTORS A SERIES OF PORTFOLIOS WHICH BENEFIT FROM
THE INVESTMENT EXPERTISE AND COMMITMENT TO EXCELLENCE ASSOCIATED WITH MORGAN
STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC. ("MSDW INVESTMENT MANAGEMENT")
AND ITS AFFILIATES. THIS PROSPECTUS OFFERS CLASS A AND CLASS B SHARES OF THE
PORTFOLIOS LISTED ABOVE (EACH A "PORTFOLIO" AND COLLECTIVELY THE "PORTFOLIOS"),
EXCEPT THAT THE INTERNATIONAL SMALL CAP PORTFOLIO OFFERS ONLY CLASS A SHARES.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT SUMMARY
GLOBAL EQUITY PORTFOLIO 1
INTERNATIONAL EQUITY PORTFOLIO 2
INTERNATIONAL SMALL CAP PORTFOLIO 3
EUROPEAN EQUITY PORTFOLIO 4
ADDITIONAL RISK FACTORS AND INFORMATION 5
FEES AND EXPENSES OF THE PORTFOLIOS 7
INVESTMENT ADVISER 8
MANAGEMENT FEES 8
PORTFOLIO MANAGERS 9
DISTRIBUTION OF PORTFOLIO SHARES 10
SHAREHOLDER INFORMATION 10
FINANCIAL HIGHLIGHTS 13
GLOBAL EQUITY PORTFOLIO 14
INTERNATIONAL EQUITY PORTFOLIO 15
INTERNATIONAL SMALL CAP PORTFOLIO 16
EUROPEAN EQUITY PORTFOLIO 17
ACCOUNT REGISTRATION FORM
[TO BE ATTACHED]
</TABLE>
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO
- -------------------------------------------------------------------------------
THE GLOBAL EQUITY PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN EQUITY SECURITIES OF ISSUERS THROUGHOUT THE WORLD, INCLUDING U.S.
ISSUERS.
APPROACH
MSDW Investment Management seeks to maintain a diversified portfolio of global
equity securities based on individual stock selection and emphasizes a bottom-up
approach to investing that seeks to identify securities of undervalued issuers.
PROCESS
MSDW Investment Management selects securities for investment from a universe of
eligible issuers consisting of approximately 3,200 companies in the Morgan
Stanley Capital International (MSCI) World Index. MSDW Investment Management
expects to invest at least 20% of the Portfolio's total assets in the common
stocks of U.S. issuers. The investment process is value driven and based on
individual stock selection. In assessing investment opportunities, MSDW
Investment Management considers value criteria with an emphasis on cash flow and
the intrinsic value of company assets. Securities which appear undervalued
according to these criteria are then subjected to in-depth fundamental analysis.
MSDW Investment Management conducts a thorough investigation of the issuer's
balance sheet, cash flow and income statement and assesses the company's
business franchise, including product competitiveness, market positioning and
industry structure. Meetings with senior company management are integral to the
investment process.
RISK
Investing in the Global Equity Portfolio may be appropriate for you if you are
willing to accept the risks and uncertainties of investing in a portfolio of
equity securities of issuers throughout the world. In general, prices of equity
securities are more volatile than those of fixed income securities. The prices
of equity securities will rise and fall in response to a number of different
factors. In particular, prices of equity securities will respond to events that
affect entire financial markets or industries (changes in inflation or consumer
demand, for example) and to events that affect particular issuers (news about
the success or failure of a new product, for example). In addition, at times the
Portfolio's market sector, foreign and domestic equity securities, may
underperform relative to other sectors.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE (CLASS A SHARES)
<S> <C> <C>
COMMENCED OPERATIONS ON JULY 15, 1992
1993 44.24%
1994 6.95%
1995 18.66%
1996 22.83%
1997 23.75%
1998 14.60%
HIGH (QUARTER)
1/98 - 3/98
16.31%
LOW (QUARTER)
7/98 - 9/98
- -12.70%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A
(COMMENCED CLASS B
OPERATIONS ON (COMMENCED MSCI WORLD
JULY 15, OPERATIONS ON INDEX*
1992) JANUARY 2, 1996) CLASS A CLASS B
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
PAST ONE YEAR 14.60% 14.15% 24.34% 24.34%
- --------------------------------------------------------------------------------------------
PAST FIVE YEARS 17.20% N/A 15.68% N/A
- --------------------------------------------------------------------------------------------
SINCE INCEPTION 19.18% 19.80% 15.27% 17.63%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. THE TABLE SEPARATELY COMPARES CLASS A AND
CLASS B SHARES TO THE INDEX SO THAT YOU CAN COMPARE PERFORMANCE FOR EACH CLASS
FROM ITS COMMENCEMENT DATE. THE INDEX ITSELF DOES NOT ACTUALLY HAVE TWO CLASSES.
HOW THE PORTFOLIO HAS PERFORMED IN THE PAST DOES NOT NECESSARILY INDICATE HOW
THE PORTFOLIO WILL PERFORM IN THE FUTURE.
*THE MSCI WORLD INDEX IS AN UNMANAGED INDEX OF COMMON STOCKS AND INCLUDES
SECURITIES REPRESENTATIVE OF THE MARKET STRUCTURE OF 22 DEVELOPED MARKET
COUNTRIES IN NORTH AMERICA, EUROPE, AND THE ASIA/PACIFIC REGION, INCLUDING
DIVIDENDS.
1
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
- -------------------------------------------------------------------------------
THE INTERNATIONAL EQUITY PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY
INVESTING PRIMARILY IN EQUITY SECURITIES OF NON-U.S. ISSUERS.
APPROACH
MSDW Investment Management seeks to maintain a diversified portfolio of equity
securities of non-U.S. issuers based on individual stock selection. MSDW
Investment Management emphasizes a bottom-up approach to investing that seeks to
identify securities of undervalued issuers.
PROCESS
MSDW Investment Management selects issuers from a universe comprised of
approximately 1,900 companies in non-U.S. markets. The investment process is
value driven and based on individual stock selection. In assessing investment
opportunities, MSDW Investment Management considers value criteria with an
emphasis on cash flow and the intrinsic value of company assets. Securities
which appear undervalued according to these criteria are then subjected to
in-depth fundamental analysis. MSDW Investment Management conducts a thorough
investigation of the issuer's balance sheet, cash flow and income statement and
assesses the company's business franchise, including product competitiveness,
market positioning and industry structure. Meetings with senior company
management are integral to the investment process.
RISK
Investing in the International Equity Portfolio may be appropriate for you if
you are willing to accept the risks and uncertainties of investing in the equity
securities of non-U.S. issuers in the hope of earning superior returns and
diversifying your investment portfolio. In general, prices of equity securities
are more volatile than those of fixed income securities. The prices of equity
securities will rise and fall in response to a number of different factors. In
particular, prices of equity securities will respond to events which affect
entire financial markets or industries (changes in inflation or consumer demand,
for example) and to events that affect particular issuers (news about the
success or failure of a new product, for example). In addition, at times the
Portfolio's market sector, equity securities of foreign issuers, may
underperform relative to other sectors.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE (CLASS A SHARES)
<S> <C> <C>
COMMENCED OPERATIONS ON AUGUST 4, 1989
1990 -5.73%
1991 8.92%
1992 -2.92%
1993 46.50%
1994 12.39%
1995 11.77%
1996 19.64%
1997 13.91%
1998 18.30%
HIGH (QUARTER)
1/98 - 3/98
16.49%
LOW (QUARTER)
7/90 - 9/90
- -18.85%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A CLASS B
(COMMENCED (COMMENCED MSCI EAFE
OPERATIONS ON OPERATIONS ON INDEX*
AUGUST 4, 1989) JANUARY 2, 1996) CLASS A CLASS B
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
PAST ONE YEAR 18.30% 18.13% 20.00% 20.00%
- ----------------------------------------------------------------------------------------------
PAST FIVE YEARS 15.14% N/A 9.19% N/A
- ----------------------------------------------------------------------------------------------
SINCE INCEPTION 12.83% 16.76% 5.45% 9.00%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. THE TABLE SEPARATELY COMPARES CLASS A AND
CLASS B SHARES TO THE INDEX SO THAT YOU CAN COMPARE PERFORMANCE FOR EACH CLASS
FROM ITS COMMENCEMENT DATE. THE INDEX ITSELF DOES NOT ACTUALLY HAVE TWO CLASSES.
HOW THE PORTFOLIO HAS PERFORMED IN THE PAST DOES NOT NECESSARILY INDICATE HOW
THE PORTFOLIO WILL PERFORM IN THE FUTURE.
*THE MSCI EAFE INDEX IS AN UNMANAGED INDEX OF COMMON STOCKS AND INCLUDES EUROPE,
AUSTRALASIA AND THE FAR EAST, INCLUDING DIVIDENDS NET OF WITHHOLDING TAXES.
2
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO
- -------------------------------------------------------------------------------
THE INTERNATIONAL SMALL CAP PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY
INVESTING PRIMARILY IN EQUITY SECURITIES OF NON-U.S. ISSUERS WITH EQUITY MARKET
CAPITALIZATIONS OF LESS THAN $1 BILLION.
APPROACH
MSDW Investment Management seeks to maintain a diversified portfolio of equity
securities of small cap non-U.S. issuers based on individual stock selection.
MSDW Investment Management emphasizes a bottom-up approach to investing that
seeks to identify securities of undervalued issuers.
PROCESS
MSDW Investment Management selects issuers from a universe comprised of
approximately 3,000 small cap companies in non-U.S. markets, most with market
capitalizations of less than $1 billion. The investment process is value driven
and based on individual stock selection. In assessing investment opportunities,
MSDW Investment Management considers value criteria with an emphasis on cash
flow and the intrinsic value of company assets. Securities which appear
undervalued according to these criteria are then subjected to in-depth
fundamental analysis. MSDW Investment Management conducts a thorough
investigation of the issuer's balance sheet, cash flow and income statement and
assesses the company's business franchise, including product competitiveness,
market positioning and industry structure. Meetings with senior company
management are integral to the investment process.
RISK
Investing in the International Small Cap Portfolio may be appropriate for you if
you are willing to accept the risks and uncertainties of investing in the equity
securities of small cap non-U.S. issuers in the hope of earning superior returns
and diversifying your investment portfolio. In general, prices of equity
securities are more volatile than those of fixed income securities. The prices
of equity securities will rise and fall in response to a number of different
factors. In particular, prices of equity securities will respond to events which
affect entire financial markets or industries (changes in inflation or consumer
demand, for example) and to events that affect particular issuers (news about
the success or failure of a new product, for example).
THE RISK OF INVESTING IN EQUITY SECURITIES IS INTENSIFIED IN THE CASE OF THE
SMALL CAP COMPANIES IN WHICH THE PORTFOLIO INVESTS. MARKET PRICES FOR SUCH
COMPANIES' EQUITY SECURITIES TEND TO BE MORE VOLATILE THAN THOSE OF LARGER, MORE
ESTABLISHED COMPANIES. SMALL CAP COMPANIES MAY THEMSELVES BE MORE VULNERABLE TO
ECONOMIC OR COMPANY SPECIFIC PROBLEMS. IN ADDITION, AT TIMES THE PORTFOLIO'S
MARKET SECTOR, EQUITY SECURITIES OF SMALLER FOREIGN ISSUERS, MAY UNDERPERFORM
RELATIVE TO OTHER SECTORS.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE (CLASS A SHARES)
<S> <C>
COMMENCED OPERATIONS ON DECEMBER 15, 1992
1993 45.34%
1994 5.25%
1995 2.60%
1996 16.82%
1997 -0.55%
1998 4.25%
HIGH (QUARTER)
1/93 - 3/93
17.46%
LOW (QUARTER)
7/98 - 9/98
- -18.68%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A
(COMMENCED MSCI EAFE
OPERATIONS ON SMALL CAP
DECEMBER 15, 1992) INDEX*
<S> <C> <C>
- ------------------------------------------------------------------------
PAST ONE YEAR 4.25% 5.44%
- ------------------------------------------------------------------------
PAST FIVE YEARS 5.51% -3.38%
- ------------------------------------------------------------------------
SINCE INCEPTION 11.37% 2.42%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. HOW THE PORTFOLIO HAS PERFORMED IN THE PAST
DOES NOT NECESSARILY INDICATE HOW THE PORTFOLIO WILL PERFORM IN THE FUTURE.
*THE MSCI EAFE SMALL CAP INDEX IS AN ARITHMETIC, UNMANAGED, MARKET
VALUE-WEIGHTED AVERAGE OF THE PERFORMANCE OF OVER 900 SECURITIES OF COMPANIES
LISTED ON THE STOCK EXCHANGE OF COUNTRIES IN EUROPE, AUSTRALASIA AND THE FAR
EAST WITH A FIXED MARKET CAPITALIZATION CUT OFF OF U.S. $200-$800 MILLION (THIS
INDEX IS A PRICE ONLY INDEX AND DOES NOT INCLUDE DIVIDENDS).
3
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO
- -------------------------------------------------------------------------------
THE EUROPEAN EQUITY PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN EQUITY SECURITIES OF EUROPEAN ISSUERS.
APPROACH
MSDW Investment Management seeks to maintain a diversified portfolio of equity
securities of European issuers based on individual stock selection. MSDW
Investment Management emphasizes a bottom-up approach to investing that seeks to
identify securities of undervalued European issuers.
PROCESS
MSDW Investment Management selects issuers from a universe of approximately
1,200 companies in the Morgan Stanley Capital International (MSCI) Europe Index.
The investment process is value driven and based on individual stock selection.
In assessing investment opportunities, MSDW Investment Management considers
value criteria with an emphasis on cash flow and the intrinsic value of company
assets. Securities which appear undervalued according to these criteria are then
subjected to in-depth fundamental analysis. MSDW Investment Management conducts
a thorough investigation of the issuer's balance sheet, cash flow and income
statement and assesses the company's business franchise, including product
competitiveness, market positioning and industry structure. Meetings with senior
company management are integral to the investment process.
RISK
Investing in the European Equity Portfolio may be appropriate for you if you are
willing to accept the risks and uncertainties of investing in the equity
securities of European issuers in the hope of earning superior returns and
diversifying your investment portfolio. In general, prices of equity securities
are more volatile than those of fixed income securities. The prices of equity
securities will rise and fall in response to a number of different factors. In
particular, prices of equity securities will respond to events which affect
entire financial markets or industries (changes in inflation or consumer demand,
for example) and to events that affect particular issuers (news about the
success or failure of a new product, for example). In addition, at times the
Portfolio's market sector, equity securities of European issuers, may
underperform relative to other sectors.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE (CLASS A SHARES)
<S> <C> <C>
COMMENCED OPERATIONS ON APRIL 2, 1993
1994 10.88%
1995 11.85%
1996 22.29%
1997 17.88%
1998 8.09%
HIGH (QUARTER)
1/98 - 3/98
18.37%
LOW (QUARTER)
7/98 - 9/98
- -21.00%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A
(COMMENCED CLASS B
OPERATIONS ON (COMMENCED MSCI EUROPE
APRIL 2, OPERATIONS ON INDEX*
1993) JANUARY 2, 1996) CLASS A CLASS B
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
PAST ONE YEAR 8.09% 7.80% 28.53% 28.53%
- --------------------------------------------------------------------------------------------
PAST FIVE YEARS 14.09% N/A 19.10% N/A
- --------------------------------------------------------------------------------------------
SINCE INCEPTION 17.24% 15.31% 20.23% 24.22%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. THE TABLE SEPARATELY COMPARES CLASS A AND
CLASS B SHARES TO THE INDEX SO THAT YOU CAN COMPARE PERFORMANCE FOR EACH CLASS
FROM ITS COMMENCEMENT DATE. THE INDEX ITSELF DOES NOT ACTUALLY HAVE TWO CLASSES.
HOW THE PORTFOLIO HAS PERFORMED IN THE PAST DOES NOT NECESSARILY INDICATE HOW
THE PORTFOLIO WILL PERFORM IN THE FUTURE.
*THE MSCI EUROPE INDEX IS AN UNMANAGED MARKET VALUE WEIGHTED INDEX OF COMMON
STOCKS LISTED ON THE STOCK EXCHANGE OF COUNTRIES IN EUROPE, INCLUDING
DIVIDENDS.
4
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL RISK FACTORS AND INFORMATION
- -------------------------------------------------------------------------------
- ------------------------
INVESTMENT SUMMARY
THIS SECTION DISCUSSES ADDITIONAL RISK FACTORS AND INFORMATION RELATED TO THE
PORTFOLIOS. THE PORTFOLIOS' INVESTMENT PRACTICES AND LIMITATIONS ARE DESCRIBED
IN MORE DETAIL IN THE STATEMENT OF ADDITIONAL INFORMATION ("SAI"), WHICH LEGALLY
IS A PART OF THIS PROSPECTUS. FOR DETAILS ABOUT HOW TO OBTAIN A COPY OF THE SAI
AND OTHER REPORTS AND INFORMATION, SEE THE BACK COVER OF THIS PROSPECTUS.
PRICE VOLATILITY
The value of your investment in a Portfolio is based on the market prices of the
securities the Portfolio holds. These prices change daily due to economic and
other events that affect markets generally, as well as those that affect
particular regions, countries, industries and companies. These price movements,
sometimes called volatility, may be greater or lesser depending on the types of
securities the Portfolio owns and the markets in which the securities trade.
Over time, equity securities have generally shown superior gains, although they
have tended to be more volatile in the short term. Fixed income securities,
regardless of credit quality, also experience price volatility, especially in
response to interest rate changes. As a result of price volatility, there is a
risk that you may lose money by investing in a Portfolio.
FOREIGN INVESTING
Investing in foreign countries entails the risk that news and events unique to a
country or region will affect those markets and their isssuers. These same
events will not necessarily have an effect on the U.S. economy or similar
issuers located in the United States. In addition, a Portfolio's investments in
foreign countries generally will be denominated in foreign currencies. As a
result, changes in the value of a country's currency compared to the U.S. dollar
may affect the value of a Portfolio's investments. These changes may occur
separately from and in response to events that do not otherwise affect the value
of the security in the issuer's home country. MSDW Investment Management may
invest in certain instruments, such as derivatives, and may use certain
techniques, such as hedging, to manage these risks. However, MSDW Investment
Management cannot guarantee that it will be practical to hedge these risks in
certain markets or under particular conditions or that it will succeed in doing
so.
EMERGING MARKET RISKS
The Portfolios may invest in emerging market countries, which are countries that
major international financial institutions, such as the World Bank, generally
consider to be less economically mature than developed nations, such as the
United States or most nations in Western Europe. Emerging market countries can
include every nation in the world except the United States, Canada, Japan,
Australia, New Zealand, and most countries located in Western Europe. Emerging
market countries may be more likely to experience political turmoil or rapid
changes in economic conditions than more developed countries, and the financial
condition of issuers in emerging market countries may be more precarious than in
other countries. These characteristics result in greater risk of price
volatility in emerging market countries, which may be heightened by currency
fluctuations relative to the U.S. dollar.
DERIVATIVES
The Portfolios may use various instruments that derive their values from those
of specified securities, indices, currencies or other points of reference for
both hedging and non-hedging purposes. Derivatives include futures, options,
forward contracts, swaps, and structured notes. These derivatives, including
those used to manage risk, are themselves subject to risks of the different
markets in which they trade and, therefore, may not serve their intended
purposes.
The primary risks of derivatives are: (i) changes in the market value of
securities held by a Portfolio, and of derivatives relating to those securities,
may not be proportionate, (ii) there may not be a liquid market for a Portfolio
to sell a derivative, which could result in difficulty closing a position and
(iii) certain derivatives can magnify the extent of losses incurred due to
changes in the market value of the securities to which they relate. In addition,
derivatives are subject to counter party risk. To minimize this risk, a
Portfolio may enter into derivatives transactions with counter parties that meet
certain requirements for credit quality and collateral. Also, a Portfolio may
invest in certain derivatives that require the Portfolio to segregate some or
all of its cash or liquid securities to cover its obligations under those
instruments. At certain levels, this can cause
5
<PAGE>
the Portfolio to lose flexibility in managing its investments properly,
responding to shareholder redemption requests, or meeting other obligations. If
the Portfolio is in that position, it could be forced to sell other securities
that it wanted to retain.
A Portfolio will limit its use of derivatives for non-hedging purposes to
33 1/3% of its total assets measured by the aggregate notional amount of
outstanding derivatives. While the use of derivatives may be advantageous to a
Portfolio, if MSDW Investment Management is not successful in employing them,
the Portfolio's performance may be worse than if it did not make such
investments. See the Statement of Additional Information for more about the
risks of different types of derivatives.
BANK INVESTORS
An investment in a Portfolio is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
YEAR 2000 RISK
The advisory and distribution services that MSDW Investment Management and
Morgan Stanley & Co. Incorporated ("Morgan Stanley") provide to the Fund depend
on the smooth operation of their computer systems. Many computer and 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. MSDW Investment Management and Morgan Stanley have
been actively working on necessary changes to their own computer systems to deal
with the year 2000 problem and expect that their systems will be adapted before
that date. There can be no assurance, however, that they will be successful. In
addition, other unaffiliated service providers may be faced with similar
problems. MSDW Investment Management and Morgan Stanley are monitoring their
remedial efforts, but there can be no assurance that they and the services they
provide will not be adversely affected.
In addition, it is possible that the markets for securities in which the
Portfolios invest 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 Portfolios' investments may be
adversely affected.
TEMPORARY DEFENSIVE
INVESTMENTS
When MSDW Investment Management believes that changes in economic, financial or
political conditions warrant, each Portfolio may invest without limit in certain
short- and medium-term fixed income securities for temporary defensive purposes.
If MSDW Investment Management incorrectly predicts the effects of these changes,
such defensive investments may adversely affect a Portfolio's performance and
the Portfolio may not achieve its investment objective.
PORTFOLIO TURNOVER
Consistent with its investment policies, a Portfolio will purchase and sell
securities without regard to the effect on portfolio turnover. Higher portfolio
turnover (e.g. over 100% per year) will cause a Portfolio to incur additional
transaction costs and may result in taxable gains being passed through to
shareholders.
6
<PAGE>
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE PORTFOLIOS
- -------------------------------------------------------------------------------
The Securities and Exchange Commission (the "Commission") requires that the Fund
disclose in the table below the fees and expenses that you may pay if you buy
and hold shares of the Portfolios. The Portfolios do not charge any sales loads
or similar fees when you purchase or redeem shares, with the exception of the
International Small Cap Portfolio which may charge a 1.00% transaction fee,
payable to the Portfolio, in connection with each purchase and redemption. The
transaction fee is intended to allocate transaction costs associated with
purchases and redemptions of shares of the Portfolio to investors actually
making such purchases and redemptions rather than to the Portfolio's other
shareholders. The 1.00% fee represents MSDW Investment Management's estimate of
the cost of acquiring and disposing of Portfolio securities. The fee will not be
charged with respect to purchases and redemptions that do not result in actual
transaction costs to the Portfolio. The Annual Fund Operating Expenses in the
table below do not reflect voluntary fee waivers and/or expense reimbursements
from MSDW Investment Management.
1998 ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)*
<TABLE>
<CAPTION>
GLOBAL INTERNATIONAL INTERNATIONAL
EQUITY EQUITY SMALL CAP EUROPEAN EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
--------------------------------------------------------------------
MANAGEMENT FEES
- -----------------------------------------------------------------------------------------------
CLASS A 0.80% 0.80% 0.95% 0.80%
- -----------------------------------------------------------------------------------------------
CLASS B 0.80% 0.80% N/A 0.80%
12b-1 FEE
- -----------------------------------------------------------------------------------------------
CLASS A NONE NONE NONE NONE
- -----------------------------------------------------------------------------------------------
CLASS B 0.25% 0.25% N/A 0.25%
OTHER EXPENSES
- -----------------------------------------------------------------------------------------------
CLASS A 0.27% 0.22% 0.26% 0.28%
- -----------------------------------------------------------------------------------------------
CLASS B 0.27% 0.23% N/A 0.29%
TOTAL ANNUAL FUND OPERATING EXPENSES
- -----------------------------------------------------------------------------------------------
CLASS A 1.07% 1.02% 1.21% 1.08%
- -----------------------------------------------------------------------------------------------
CLASS B 1.32% 1.28% N/A 1.34%
</TABLE>
* The Management Fees for the Portfolios shown in the table above are the
highest that could be charged. This table does not show the effects of MSDW
Investment Management's voluntary fee waivers and/or expense reimbursements.
MSDW Investment Management has voluntarily agreed to reduce its management
fee and/or reimburse the Portfolios so that total annual operating expenses,
excluding certain investment related expenses described below, will not
exceed 1.00% for Class A shares and 1.25% for Class B shares of the Global
Equity, International Equity and European Equity Portfolios and 1.15% for
Class A shares of the International Small Cap Portfolio.
IN DETERMINING THE ACTUAL AMOUNT OF VOLUNTARY MANAGEMENT FEE WAIVER AND/OR
EXPENSE REIMBURSEMENT FOR A PORTFOLIO, IF ANY, MSDW INVESTMENT MANAGEMENT
EXCLUDES FROM ANNUAL OPERATING EXPENSES CERTAIN INVESTMENT RELATED EXPENSES,
SUCH AS FOREIGN COUNTRY TAX EXPENSE AND INTEREST EXPENSE ON BORROWING. IF THESE
EXPENSES WERE INCURRED, THE PORTFOLIOS' TOTAL OPERATING EXPENSES AFTER VOLUNTARY
FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS WOULD EXCEED THE EXPENSE RATIO SHOWN
ABOVE.
FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS ARE VOLUNTARY AND MSDW INVESTMENT
MANAGEMENT RESERVES THE RIGHT TO TERMINATE ANY WAIVER AND/OR REIMBURSEMENT AT
ANY TIME AND WITHOUT NOTICE.
7
<PAGE>
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN EACH
PORTFOLIO WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS HAVING SIMILAR
INVESTMENT OBJECTIVES.
The example assumes that you invest $10,000 in each Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example assumes that your investment has a 5% return each year and
that each Portfolio's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
GLOBAL EQUITY PORTFOLIO
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------
CLASS A $109 $340 $590 $1,306
- ----------------------------------------------------------------------
CLASS B $134 $418 $723 $1,590
INTERNATIONAL EQUITY PORTFOLIO
- ----------------------------------------------------------------------
CLASS A $104 $325 $563 $1,248
- ----------------------------------------------------------------------
CLASS B $130 $406 $702 $1,545
INTERNATIONAL SMALL CAP PORTFOLIO
- ----------------------------------------------------------------------
CLASS A $123 $384 $665 $1,466
EUROPEAN EQUITY PORTFOLIO
- ----------------------------------------------------------------------
CLASS A $110 $343 $595 $1,317
- ----------------------------------------------------------------------
CLASS B $136 $425 $734 $1,613
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
- -------------------------------------------------------------------------------
Morgan Stanley Dean Witter Investment Management Inc. ("MSDW Investment
Management"), with principal offices at 1221 Avenue of the Americas, New York,
New York 10020, conducts a worldwide portfolio management business and provides
a broad range of portfolio management services to customers in the United States
and abroad. Morgan Stanley Dean Witter & Co. ("MSDW") is the direct parent of
MSDW Investment Management and Morgan Stanley. MSDW is a preeminent global
financial services firm that maintains leading market positions in each of its
three primary businesses -- securities, asset management and credit services. At
December 31, 1998, MSDW Investment Management, together with its affiliated
institutional asset management companies, managed assets of approximately $163.4
billion, including assets under fiduciary advice.
- -------------------------------------------------------------------------------
MANAGEMENT FEES
- -------------------------------------------------------------------------------
For the year ended December 31, 1998, MSDW Investment Management received from
each Portfolio the management fee set forth in the table below:
<TABLE>
<CAPTION>
GLOBAL INTERNATIONAL INTERNATIONAL EUROPEAN EQUITY
EQUITY EQUITY SMALL CAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------
MANAGEMENT FEE CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
-----------------------------------------------------------------------------
PAID IN FISCAL YEAR
ENDED DECEMBER 31, 1998 0.74% 0.74% 0.79% 0.79% 0.90% N/A 0.73% 0.73%
(NET OF WAIVERS AND AS A
PERCENTAGE OF AVERAGE
NET ASSETS)
</TABLE>
8
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
- -------------------------------------------------------------------------------
THE FOLLOWING INDIVIDUALS HAVE PRIMARY DAY-TO-DAY PORTFOLIO MANAGEMENT
RESPONSIBILITY FOR THE PORTFOLIOS:
GLOBAL EQUITY PORTFOLIO
FRANCES CAMPION, RICHARD BOON AND PAUL BOYNE
Frances Campion joined MSDW Investment Management in 1990 as a Global Equity
Fund Manager and is now a Managing Director of MSDW Investment Management and
Morgan Stanley. Her responsibilities include day-to-day management of the Global
Equity product. Ms. Campion has ten years' global investment experience. She is
a graduate of University College, Dublin. Ms. Campion has had primary
responsibility for managing the Portfolio's assets since . Mr. Boon
joined the MSDW Investment Management Global Equity team in September 1995 and
became a Principal in December 1998. In addition to portfolio management, his
responsibilities include security analysis on North American, Australasian and
Irish equities. Prior to joining MSDW Investment Management, he worked at
Deutsche Bank as a member of their Equity Capital Markets Group and advised the
UK Post Office in its proposed privatization. He is a graduate of both
Canterbury and Victoria Universities, New Zealand. Mr. Boon has assisted in
managing the Portfolio's assets since September 1995 and has shared primary
responsibility for managing the Portfolio's assets since . Mr. Boyne joined
MSDW Investment Management in 1993 and became a Principal in December 1998. At
MSDW Investment Management, he assists in the implementation of the Global
Equity Program and the analysis of North American, Australasian and Irish
equities. Prior to joining MSDW Investment Management, he was a Chartered
Accountant with Grant Thornton International in Dublin. Mr. Boyne has assisted
in managing the Portfolio's assets since 1993 and has shared primary
responsibility for managing the Portfolio's assets since .
INTERNATIONAL EQUITY PORTFOLIO
DOMINIC CALDECOTT, PETER WRIGHT, WILLIAM LOCK, KATE CORNISH-BOWDEN AND WALTER
RIDDELL
Dominic Caldecott is a Managing Director of MSDW Investment Management and
Morgan Stanley and has had primary responsibility for managing the Portfolio's
assets since its inception. He has ten years' professional experience, primarily
in Tokyo, Hong Kong, and Seoul. Prior to joining Morgan Stanley, he worked with
GT Management Group in Tokyo and Hong Kong, specializing in Pacific Basin
investment management. Mr. Caldecott is a graduate of New College, Oxford,
England. Peter Wright joined MSDW Investment Management in December 1996 as a
Portfolio Manager with the Core International Equity Program. He became a
Principal of MSDW Investment Management in 1997. He has eleven years' investment
experience, most recently with the State of Wisconsin Investment Board, where he
was an Investment Director and Portfolio Manager responsible for managing the
agency's $2.5 billion International Equity portfolio. He is a graduate of
Victoria University of Wellington, New Zealand. Mr. Wright has assisted in
managing the Portfolio's assets since December 1996 and has shared primary
responsibility for managing the Portfolio's assets since . William Lock
joined MSDW Investment Management in March 1994 as an Equity Analyst with
principal responsibility for UK Equity Research. He became a Principal of MSDW
Investment Management in 1997. Prior to joining MSDW Investment Management, he
was a member of CS First Boston's Corporate Finance Group and a Management
Consultant with Arthur D. Little. He graduated from Keble College, Oxford. Mr.
Lock has assisted in managing the Portfolio's assets since March 1994 and has
shared primary responsibility for managing the Portfolio's assets since .
Kate Cornish-Bowden joined MSDW Investment Management in April 1992 as an Equity
Analyst after working as a Research Analyst for M&G Investment Management. She
became a Principal of MSDW Investment Management in 1998. Her responsibilities
include fundamental International Equity research and selection. She is an
associate member of the Institute of Investment Management and Research. She
graduated from Leicester University with an Economics degree and holds an M.B.A.
from the University of Nottingham. Ms. Cornish-Bowden has assisted in managing
the Portfolio's assets since April 1992 and has shared primary responsibility
for managing the Portfolio's assets since . Walter Riddell joined MSDW
Investment Management in October 1995 and became a Research Analyst in October
1996. He graduated from
9
<PAGE>
Oxford in 1995 with a history degree. Mr. Riddell has assisted in managing the
Portfolio's assets since October 1995 and has shared primary responsibility for
managing the Portfolio's assets since .
INTERNATIONAL SMALL CAP PORTFOLIO
MARGARET NAYLOR, WILLEM VINKE AND NATHALIE DEGANS
Margaret Naylor is a Managing Director of MSDW Investment Management and Morgan
Stanley. She has overall responsibility for investment strategy and stock
selection for the International Small Cap program. She has had primary
responsibility for managing the Portfolio's assets since December 1992. Prior to
joining MSDW Investment Management in 1987, she spent three years at the Trade
Policy Research Centre, an independent research unit. Ms. Naylor is a graduate
of the University of York. Willem Vinke joined MSDW Investment Management in
September 1995 and became a Vice President in 1997. Prior to joining MSDW
Investment Management, he worked for Morgan Stanley's Investment Banking and
Fixed Income Divisions. He is a graduate of the University of Manchester and the
London School of Economics. Mr. Vinke has assisted in managing the Portfolio's
assets since September 1995 and has shared primary responsibility for managing
the Portfolio's assets since . Nathalie Degans joined MSDW Investment
Management in March 1996 as an Equity Analyst, focusing primarily on UK and
Continental European smaller company research. She became a Vice President of
MSDW Investment Management in 1997. Prior to joining MSDW Investment Management,
Ms. Degans worked in Morgan Stanley's Corporate Treasury Division and prior to
that, she was with Banque Indosuez New York. She is a graduate of ISG, France
and INSEAD, France. Ms. Degans has assisted in managing the Portfolio's assets
since March 1996 and has shared primary responsibility for managing the
Portfolio's assets since .
EUROPEAN EQUITY PORTFOLIO
MARGARET NAYLOR AND ALASTAIR ANDERSON
Information about Margaret Naylor is included under the International Small Cap
Portfolio above. Ms. Naylor has had primary responsibility for managing the
Portfolio's assets since April 1999. Alastair Anderson joined MSDW Investment
Management in June 1994 and became a Vice President in December 1996. Prior to
joining MSDW Investment Management, he worked for Deloitte & Touche LLP. Mr.
Anderson is a commerce graduate of the University of Cape Town, South Africa.
Mr. Anderson has assisted in managing the Portfolio's assets since May 1995 and
has shared primary responsibility for managing the Portfolio's assets since
January 1998.
- -------------------------------------------------------------------------------
DISTRIBUTION OF PORTFOLIO SHARES
- -------------------------------------------------------------------------------
Morgan Stanley is the exclusive Distributor of Class A shares and Class B shares
of each Portfolio. Morgan Stanley receives no compensation for distributing
Class A shares of the Portfolios. The Fund has adopted a Plan of Distribution
with respect to the Class B shares of each Portfolio pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended, (the "Plan"). Under the
Plan, each Portfolio pays the Distributor a distribution fee of 0.25% of the
Class B shares' average daily net assets on an annualized basis. The
distribution fee compensates the Distributor for marketing and selling Class B
shares. The Distributor may pay others for providing distribution-related and
other services, including account maintenance services. Over time the
distribution fees will increase the cost of your investment and may cost you
more than paying other types of sales charges.
- -------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------
ABOUT NET ASSET VALUE
The net asset value ("NAV") per share of a class of shares of the Portfolio is
determined by dividing the total market value of the Portfolio's investments and
other assets attributable to the class, less any
10
<PAGE>
liabilities attributable to the class, by the total number of outstanding shares
of that class of the Portfolio. In making this calculation, the Portfolio
generally values securities at market price. If market prices are unavailable or
may be unreliable because of events occurring after the close of trading, fair
value prices may be determined in good faith using methods approved by the Board
of Directors. The Portfolios may hold portfolio securities that are listed on
foreign exchanges. These securities may trade on weekends or other days when the
Portfolios do not calculate NAV. As a result, the value of these investments may
change on days when you cannot purchase or sell shares.
PRICING OF PORTFOLIO SHARES
You may buy or sell (redeem) Class A and Class B shares of each Portfolio at the
net asset value next determined for the class after receipt of your order. The
Fund determines net asset value as of the close of the New York Stock Exchange
("NYSE") (normally 4:00 p.m. Eastern Time) on each day that the NYSE is open for
business (the "Pricing Time").
HOW TO PURCHASE SHARES
You may purchase Class A shares and Class B shares of each Portfolio directly
from the Fund, from the Distributor or through certain third parties ("Financial
Intermediaries") on each day that the NYSE is open.
The Portfolios do not charge any sales loads or similar fees when you purchase
or redeem shares, with the exception of the International Small Cap Portfolio
which may charge a 1.00% transaction fee, payable to the Portfolio, in
connection with each purchase and redemption. The minimum initial investment
generally is $500,000 for Class A shares and $100,000 for Class B shares of each
Portfolio. The minimum additional investment generally is $1,000 for each
account that you have. If the value of your account falls below the minimum
initial investment amount for Class A shares or Class B shares as a result of
share redemptions, the Fund will notify you. Your account may be subject to
involuntary conversion from Class A shares to Class B shares or involuntary
redemption in the case of Class B shares if the value of your account remains
below the minimum initial investment amount for 60 consecutive days. MSDW
Investment Management may waive the minimum initial investment and involuntary
conversion or redemption features for certain investors, including individuals
purchasing through a Financial Intermediary.
You may arrange to purchase shares directly from the Fund by calling
1-800-548-7786 or by returning a completed Account Registration Form with
payment for your purchase. The price you pay will be the net asset value
calculated at the Pricing Time following receipt of your purchase order and
payment.
To purchase shares through the Distributor or a Financial Intermediary, you
should contact the Distributor or your Financial Intermediary for details.
Generally, the price of shares purchased through the Distributor or a Financial
Intermediary is the price calculated at the next Pricing Time after the Fund
receives your order from the Distributor or your Financial Intermediary. Certain
Financial Intermediaries have made arrangements with the Fund so that you may
purchase shares at the price calculated at the next Pricing Time after your
Financial Intermediary receives your purchase order. Your Financial Intermediary
may charge an additional service or transaction fee.
HOW TO REDEEM SHARES
You may redeem Portfolio shares directly from the Fund, through the Distributor
or through your Financial Intermediary, each as described above under Purchase
of Shares. The redemption price will be the net asset value per share calculated
at the next Pricing Time, which may be more or less than the purchase price of
your shares. The Fund will ordinarily distribute redemption proceeds in cash
within one business day of your redemption request, but it may take up to seven
business days. However, if you purchased shares by check, the Fund will not
distribute redemption proceeds until it has collected your purchase payment,
which may take up to eight days. In
11
<PAGE>
certain circumstances, for example, if payment of redemption proceeds in cash
would be detrimental to the remaining shareholders, a Portfolio may pay
redemption proceeds by a distribution-in-kind of readily marketable portfolio
securities.
EXCHANGE FEATURES
You may exchange Portfolio shares for shares of the other available portfolios
of the Fund. To obtain a prospectus for another portfolio, call the Fund at
1-800-548-7786 or contact your Financial Intermediary. If you purchased
Portfolio shares through a Financial Intermediary, certain portfolios may be
unavailable for exchange. Contact your Financial Intermediary to determine which
portfolios are available for exchange. The Fund currently consists of the
following portfolios:
<TABLE>
<S> <C>
U.S. EQUITY GLOBAL AND INTERNATIONAL EQUITY
Aggressive Equity Portfolio Active International Allocation
Emerging Growth Portfolio Portfolio
Equity Growth Portfolio Asian Real Estate Portfolio
MicroCap Portfolio+ Asian Equity Portfolio
Technology Portfolio China Growth Portfolio+
U.S. Equity Plus Portfolio Emerging Markets Portfolio
U.S. Real Estate Portfolio European Equity Portfolio
Value Equity Portfolio European Real Estate Portfolio
FIXED INCOME Global Equity Portfolio
Emerging Markets Debt Portfolio Gold Portfolio*
Fixed Income Portfolio International Equity Portfolio*
Global Fixed Income Portfolio International Magnum Portfolio
High Yield Portfolio International Small Cap Portfolio
Mortgage-Backed Securities Portfolio+ Japanese Equity Portfolio
Municipal Bond Portfolio Latin American Portfolio
MONEY MARKET
Money Market Portfolio
Municipal Money Market Portfolio
</TABLE>
*PORTFOLIO IS CURRENTLY CLOSED TO NEW INVESTORS
+PORTFOLIO HAS NOT YET COMMENCED OPERATIONS
When you exchange for shares of another portfolio, your transaction will be
treated the same as an initial purchase. You will be subject to the same minimum
initial investment and account size as an initial purchase. Accordingly, you
will not necessarily receive the same class of shares that you tendered for
exchange. Your exchange price will be the price calculated at the next Pricing
Time after the Fund receives your exchange order. Frequent trades in your
account(s) can disrupt management of a Portfolio and raise its expenses.
Therefore, the Fund may bar a shareholder who trades excessively from making
further exchanges or purchases.
DIVIDENDS AND DISTRIBUTIONS
Each Portfolio's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of an annual dividend and to
distribute net capital gains on an annual basis.
The Fund automatically reinvests all dividends and distributions in additional
shares. However, you may elect to receive distributions in cash by giving
written notice to the Fund or your Financial Intermediary or by checking the
appropriate box in the Distribution Option section on the Account Registration
Form.
TAXES
The dividends and distributions you receive from a Portfolio may be subject to
Federal, state and local taxation, depending on your tax situation. The tax
treatment of dividends and distributions is the same whether or not you reinvest
them. Dividends are taxed as ordinary income, long-term capital gains
distributions are taxed at a maximum rate of 20%, and short-term capital gains
12
<PAGE>
distributions are taxed at ordinary rates. A Portfolio may be able to pass
through to you a credit for foreign income taxes it pays. The Fund will tell you
annually how to treat dividends and distributions.
If you redeem shares of a Portfolio, you will be subject to tax on any gains you
earn based on your holding period for the shares. An exchange of shares of a
Portfolio for shares of another portfolio is a sale of Portfolio shares for tax
purposes. Conversions of shares between classes will not result in taxation.
Because each investor's tax circumstances are unique and the tax laws may
change, you should consult your tax advisor about your investment.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The following financial highlights tables are intended to help you understand
the financial performance of the Class A shares and Class B shares of each
Portfolio for the past five years or, if less than five years, the life of the
Portfolio or Class. Certain information reflects financial results for a single
Portfolio share. The total returns in the tables represent the rate that an
investor would have earned (or lost) on an investment in each Portfolio
(assuming reinvestment of all dividends and distributions). This information has
been audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, are incorporated by reference into the Fund's Statement of
Additional Information and are included in the Fund's December 31, 1998 Annual
Report to Shareholders. The Annual Report and the financial statements therein,
as well as the Statement of Additional Information, are available at no cost
from the Fund at the toll free number noted on the back cover to this
Prospectus.
13
<PAGE>
- ----------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
GLOBAL EQUITY PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------
YEAR ENDED DECEMBER 31,
SELECTED PER SHARE DATA AND ---------------------------------------------------
RATIOS 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 18.52 $ 16.24 $ 14.31 $ 13.40 $ 13.87
---------- ---------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (1) 0.15 0.21 0.23 0.18 0.08
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 2.55 3.61 3.02 2.26 0.79
---------- ---------- ------- ------- -------
TOTAL FROM INVESTMENT
OPERATIONS 2.70 3.82 3.25 2.44 0.87
---------- ---------- ------- ------- -------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.17) (0.40) (0.23) (0.22) (0.12)
NET REALIZED GAIN (0.31) (1.14) (1.09) (1.31) (1.22)
---------- ---------- ------- ------- -------
TOTAL DISTRIBUTIONS (0.48) (1.54) (1.32) (1.53) (1.34)
---------- ---------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 20.74 $ 18.52 $ 16.24 $ 14.31 $ 13.40
---------- ---------- ------- ------- -------
---------- ---------- ------- ------- -------
TOTAL RETURN 14.60% 23.75% 22.83% 18.66% 6.95%
---------- ---------- ------- ------- -------
---------- ---------- ------- ------- -------
RATIO AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(THOUSANDS) $ 228,748 $ 108,074 $80,297 $91,675 $78,935
RATIO OF EXPENSES TO AVERAGE
NET ASSETS (1) 1.00% 1.00% 1.00% 1.00% 1.00%
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET
ASSETS (1) 0.96% 1.07% 1.38% 1.17% 0.87%
PORTFOLIO TURNOVER RATE 39% 30% 26% 28% 12%
- -----------------
(1) EFFECT OF VOLUNTARY
EXPENSE LIMITATION DURING
THE PERIOD:
PER SHARE BENEFIT TO NET
INVESTMENT INCOME $0.01 $0.02 $0.03 $0.02 $0.02
RATIOS BEFORE EXPENSE
LIMITATION:
EXPENSES TO AVERAGE NET
ASSETS 1.07% 1.11% 1.15% 1.13% 1.24%
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 0.90% 0.96% 1.23% 1.04% 0.63%
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------
PERIOD FROM
YEAR ENDED JANUARY 2,
DECEMBER 31, 1996*** TO
-------------------------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.46 $ 16.21 $ 14.36
-------------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (2) 0.15 0.16 0.13
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 2.46 3.60 3.02
-------------- ------------- -------------
TOTAL FROM INVESTMENT OPERATIONS 2.61 3.76 3.15
-------------- ------------- -------------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.13) (0.37) (0.21)
NET REALIZED GAIN (0.31) (1.14) (1.09)
-------------- ------------- -------------
TOTAL DISTRIBUTIONS (0.44) (1.51) (1.30)
-------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD $ 20.63 $ 18.46 $ 16.21
-------------- ------------- -------------
-------------- ------------- -------------
TOTAL RETURN 14.15% 23.37% 22.04%
-------------- ------------- -------------
-------------- ------------- -------------
RATIO AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $ 13,123 $ 5,910 $ 3,928
RATIO OF EXPENSES TO AVERAGE NET ASSETS (2) 1.25% 1.25% 1.25%**
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET
ASSETS (2) 0.68% 0.80% 1.29%**
PORTFOLIO TURNOVER RATE 39% 30% 26%
- -----------------
(2) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT INCOME $0.01 $0.02 $0.01
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.32% 1.36% 1.39%**
NET INVESTMENT INCOME TO AVERAGE NET ASSETS 0.62% 0.69% 1.15%**
- ----------------------------------------------------------------------------------------------------
</TABLE>
**ANNUALIZED
***THE PORTFOLIO BEGAN OFFERING CLASS B SHARES ON JANUARY 2, 1996.
14
<PAGE>
- ----------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
SELECTED PER SHARE DATA AND RATIO 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.16 $ 16.95 $ 15.15 $ 15.34 $ 14.09
----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (1) 0.27 0.30 0.25 0.16 0.16
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 2.86 2.01 2.71 1.55 1.54
----------- ----------- ----------- ----------- -----------
TOTAL FROM INVESTMENT OPERATIONS 3.13 2.31 2.96 1.71 1.70
----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.38) (0.48) (0.36) (0.06) (0.18)
NET REALIZED GAIN (1.66) (1.62) (0.80) (1.84) (0.27)
----------- ----------- ----------- ----------- -----------
TOTAL DISTRIBUTIONS (2.04) (2.10) (1.16) (1.90) (0.45)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 18.25 $ 17.16 $ 16.95 $ 15.15 $ 15.34
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
TOTAL RETURN 18.30% 13.91% 19.64% 11.77% 12.39%
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $3,400,498 $2,822,900 $2,264,424 $1,598,530 $1,304,770
RATIO OF EXPENSES TO AVERAGE NET ASSETS (1) 1.00% 1.00% 1.00% 1.00% 1.00%
RATIO OF NET INVESTMENT INCOME TO AVERAGE
NET ASSETS (1) 1.33% 1.49% 1.64% 1.38% 1.12%
PORTFOLIO TURNOVER RATE 33% 33% 18% 27% 16%
- -----------------
(1) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE
PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT
INCOME $0.00+ $0.00+ $0.00 $0.003 $0.004
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.02% 1.02% 1.02% 1.03% 1.03%
NET INVESTMENT INCOME TO AVERAGE NET
ASSETS 1.32% 1.47% 1.61% 1.35% 1.09%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------
PERIOD FROM
YEAR ENDED DECEMBER 31, JANUARY 2,
1996*** TO
----------------------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.13 $ 16.93 $ 15.24
------------- ------------- -------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (2) 0.24 0.23 0.23
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 2.85 2.02 2.59
------------- ------------- -------------
TOTAL FROM INVESTMENT OPERATIONS 3.09 2.25 2.82
------------- ------------- -------------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.34) (0.43) (0.33)
NET REALIZED GAIN (1.66) (1.62) (0.80)
------------- ------------- -------------
TOTAL DISTRIBUTIONS (2.00) (2.05) (1.13)
------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD $ 18.22 $ 17.13 $ 16.93
------------- ------------- -------------
------------- ------------- -------------
TOTAL RETURN 18.13% 13.57% 18.58%
------------- ------------- -------------
------------- ------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $17,076 $3,074 $5,393
RATIO OF EXPENSES TO AVERAGE NET ASSETS (2) 1.25% 1.25% 1.25%**
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS (2) 0.96% 1.21% 1.68%**
PORTFOLIO TURNOVER RATE 33% 33% 18%
- -----------------
(2) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT INCOME $0.00+ $0.00+ $0.00
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.28% 1.27% 1.27%**
NET INVESTMENT INCOME TO AVERAGE NET ASSETS 0.95% 1.19% 1.66%**
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
**ANNUALIZED
***THE PORTFOLIO BEGAN OFFERING CLASS B SHARES ON JANUARY 2, 1996.
+AMOUNT IS LESS THAN $0.01 PER SHARE.
15
<PAGE>
- ----------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SELECTED PER SHARE DATA ------------------------------------------------
AND RATIOS 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 15.61 $ 16.83 $ 14.94 $ 15.15 $ 14.64
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME
(1) 0.22 0.25 0.21 0.24 0.14
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON
INVESTMENTS+ 0.39 (0.42) 2.29* 0.15* 0.62*
-------- -------- -------- -------- --------
TOTAL FROM INVESTMENT
OPERATIONS 0.61 (0.17) 2.50 0.39 0.76
-------- -------- -------- -------- --------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.24) (0.31) (0.22) (0.23) (0.03)
IN EXCESS OF NET
INVESTMENT INCOME -- (0.05) -- -- --
NET REALIZED GAIN (0.79) (0.77) (0.39) (0.37) (0.22)
-------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS (1.03) (1.13) (0.61) (0.60) (0.25)
-------- -------- -------- -------- --------
TRANSACTION FEES 0.06 0.08 -- -- --
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $ 15.25 $ 15.61 $ 16.83 $ 14.94 $ 15.15
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN 4.25% (0.55)% 16.82% 2.60% 5.25%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
RATIO AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(THOUSANDS) $252,642 $230,095 $234,743 $198,669 $160,101
RATIO OF EXPENSES TO
AVERAGE NET ASSETS (1) 1.15% 1.15% 1.15% 1.15% 1.15%
RATIO OF NET INVESTMENT
INCOME TO AVERAGE NET
ASSETS (1) 1.23% 1.37% 1.29% 1.72% 1.18%
PORTFOLIO TURNOVER RATE 39% 31% 35% 24% 8%
- -----------------
(1) EFFECT OF VOLUNTARY
EXPENSE LIMITATION
DURING THE PERIOD:
PER SHARE BENEFIT TO
NET INVESTMENT
INCOME $0.01 $0.01 $0.01 $0.01 $0.02
RATIOS BEFORE EXPENSE
LIMITATION:
EXPENSES TO AVERAGE
NET ASSETS 1.21% 1.22% 1.23% 1.24% 1.29%
NET INVESTMENT
INCOME TO AVERAGE
NET ASSETS 1.18% 1.30% 1.20% 1.63% 1.04%
- ---------------------------------------------------------------------------
</TABLE>
*REFLECTS A 1% TRANSACTION FEE ON PURCHASES AND REDEMPTIONS OF CAPITAL SHARES.
+THE AMOUNT SHOWN FOR THE YEAR ENDED DECEMBER 31, 1998 FOR A SHARE OUTSTANDING
THROUGHOUT THE YEAR DOES NOT AGREE WITH THE AMOUNT OF AGGREGATE NET GAINS ON
INVESTMENTS FOR THE YEAR BECAUSE OF THE TIMING OF SALES AND REPURCHASES OF THE
PORTFOLIO SHARES IN RELATION TO FLUCTUATING MARKET VALUE OF THE INVESTMENTS IN
THE PORTFOLIO.
16
<PAGE>
- ----------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
EUROPEAN EQUITY PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------
SELECTED PER SHARE DATA AND RATIOS 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.96 $ 16.70 $ 13.92 $ 13.94 $ 12.91
-------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (1) 0.43 0.39 0.24 0.14 0.08
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 1.08 2.58 2.85 1.37 1.29
-------- -------- -------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS 1.51 2.97 3.09 1.51 1.37
-------- -------- -------- ------- -------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.42) (0.37) (0.25) (0.15) (0.09)
IN EXCESS OF NET INVESTMENT INCOME -- -- (0.02) -- --
NET REALIZED GAIN (3.30) (1.34) (0.04) (1.38) (0.25)
-------- -------- -------- ------- -------
TOTAL DISTRIBUTIONS (3.72) (1.71) (0.31) (1.53) (0.34)
-------- -------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 15.75 $ 17.96 $ 16.70 $ 13.92 $ 13.94
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
TOTAL RETURN 8.09% 17.88% 22.29% 11.85% 10.88%
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $168,712 $242,868 $178,356 $69,583 $27,634
RATIO OF EXPENSES TO AVERAGE NET ASSETS (1) 1.00% 1.00% 1.00% 1.00% 1.00%
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET
ASSETS (1) 1.47% 1.96% 1.83% 1.37% 0.87%
PORTFOLIO TURNOVER RATE 52% 43% 24% 13% 79%
- -----------------
(1) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING
THE PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT INCOME $0.02 $0.02 $0.02 $0.03 $0.06
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.08% 1.09% 1.16% 1.25% 1.62%
NET INVESTMENT INCOME TO AVERAGE NET
ASSETS 1.40% 1.87% 1.67% 1.12% 0.25%
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
------------------------------
PERIOD
FROM
JANUARY
2,
YEAR ENDED DECEMBER 1996***
31, TO
------------------- DECEMBER
1998 1997 31, 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.94 $ 16.67 $ 14.05
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (2) 0.33 0.28 0.18
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 1.13 2.66 2.73
-------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 1.46 2.94 2.91
-------- -------- --------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.36) (0.33) (0.23)
IN EXCESS OF NET INVESTMENT INCOME -- -- (0.02)
NET REALIZED GAIN (3.30) (1.34) (0.04)
TOTAL DISTRIBUTIONS (3.66) (1.67) (0.29)
NET ASSET VALUE, END OF PERIOD $ 15.74 $ 17.94 $ 16.67
-------- -------- --------
-------- -------- --------
TOTAL RETURN 7.80% 17.73% 20.76%
-------- -------- --------
-------- -------- --------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $ 5,181 $ 4,654 $ 2,654
RATIO OF EXPENSES TO AVERAGE NET ASSETS (2) 1.25% 1.25% 1.25%**
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS
(2) 1.15% 1.55% 1.67%**
PORTFOLIO TURNOVER RATE 52% 43% 24%
- -----------------
(2) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE
PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT INCOME $0.02 $0.02 $0.02
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.34% 1.34% 1.40%**
NET INVESTMENT INCOME TO AVERAGE NET ASSETS 1.08% 1.46% 1.52%**
- ---------------------------------------------------------------------------------------
</TABLE>
**ANNUALIZED
***THE PORTFOLIO BEGAN OFFERING CLASS B SHARES ON JANUARY 2, 1996.
17
<PAGE>
- -------------------------------------------------------------------------------
WHERE TO FIND ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
In addition to this Prospectus, the Fund has a Statement of Additional
Information ("SAI"), dated May 1, 1999, which contains additional, more detailed
information about the Fund and the Portfolios. The SAI is incorporated by
reference into this Prospectus and, therefore, legally forms a part of this
Prospectus.
SHAREHOLDER REPORTS
The Fund publishes annual and semi-annual reports containing financial
statements, and quarterly reports. These reports contain additional information
about each Portfolio's investments. In the Fund's shareholder reports, you will
find a discussion of the market conditions and the investment strategies that
significantly affected each Portfolio's performance during that period.
For additional Fund information, including information regarding the investments
comprising the Fund's Portfolios, please call 1-800-548-7786.
You may obtain the SAI and shareholder reports without charge by contacting the
Fund at the toll-free number above. If you purchased shares through a Financial
Intermediary, you may also obtain these documents, without charge, by contacting
your Financial Intermediary.
Information about the Fund, including the SAI, and the annual and semi-annual
reports, may be obtained from the Securities and Exchange Commission in any of
the following ways: (1) In person: you may review and copy documents in the
Commission's Public Reference Room in Washington D.C. (for information call
1-800-SEC-0330); (2) On-line: you may retrieve information from the Commission's
web site at "http://www.sec.gov"; or (3) By mail: you may request documents,
upon payment of a duplicating fee, by writing to Securities and Exchange
Commission, Public Reference Section, Washington, D.C. 20549-6009. To aid you in
obtaining this information, the Fund's Investment Company Act registration
number is 811-05624.
[ICON] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
P.O. Box 2798
Boston, Massachusetts 02208-2798
FOR INFORMATION CALL 1-800-548-7786
<PAGE>
- -------------------------------------------------------------------------------
PROSPECTUS MAY 1, 1999
- -------------------------------------------------------------------------------
A PORTFOLIO OF [LOGO] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
U.S. EQUITY PLUS PORTFOLIO
THE U.S. EQUITY PLUS PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN EQUITY SECURITIES OF ISSUERS INCLUDED IN THE STANDARD & POOR'S 500
INDEX ("S&P 500").
INVESTMENT ADVISER
Morgan Stanley Dean Witter Investment Management Inc.
DISTRIBUTOR
Morgan Stanley & Co. Incorporated
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC. (THE "FUND") IS A NO-LOAD
MUTUAL FUND THAT IS DESIGNED TO MEET THE INVESTMENT NEEDS OF DISCERNING
INVESTORS WHO PLACE A PREMIUM ON QUALITY AND PERSONAL SERVICE. THE FUND MAKES
AVAILABLE TO INSTITUTIONAL INVESTORS A SERIES OF PORTFOLIOS WHICH BENEFIT FROM
THE INVESTMENT EXPERTISE AND COMMITMENT TO EXCELLENCE ASSOCIATED WITH MORGAN
STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC. ("MSDW INVESTMENT MANAGEMENT")
AND ITS AFFILIATES. THIS PROSPECTUS OFFERS CLASS A AND CLASS B SHARES OF THE
U.S. EQUITY PLUS PORTFOLIO (THE "PORTFOLIO").
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT SUMMARY
U.S. EQUITY PLUS PORTFOLIO 1
ADDITIONAL RISK FACTORS AND INFORMATION 2
FEES AND EXPENSES OF THE PORTFOLIO 4
INVESTMENT ADVISER 5
MANAGEMENT FEES 5
PORTFOLIO MANAGERS 6
DISTRIBUTION OF PORTFOLIO SHARES 7
SHAREHOLDER INFORMATION 7
FINANCIAL HIGHLIGHTS 9
U.S. EQUITY PLUS PORTFOLIO 10
ACCOUNT REGISTRATION FORM
[TO BE ATTACHED]
</TABLE>
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO
- -------------------------------------------------------------------------------
THE U.S. EQUITY PLUS PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN EQUITY SECURITIES OF ISSUERS INCLUDED IN THE S&P 500.
APPROACH
MSDW Investment Management seeks to maintain an investment portfolio that
consistently exceeds the performance of the S&P 500 Index while maintaining
comparable price volatility. MSDW Investment Management's investment approach
combines an active and systematic security selection process with the
application of a rigorous risk control process.
PROCESS
MSDW Investment Management seeks to purchase equity securities of the most
attractive issuers in the S&P 500 based upon a disciplined, analytical
investment strategy that combines both quantitative and qualitative analysis.
MSDW Investment Management first considers historical stock prices, earnings,
cash flow, dividend yield information, consensus earnings and earnings growth
forecasts in order to identify and rank the attractiveness of all securities in
the investment universe. Following this quantitative analysis, MSDW Investment
Management purchases securities from the remaining pool of issuers based on
qualitative recommendations from Morgan Stanley & Co.'s team of research
analysts. MSDW Investment Management also uses a proprietary market conditions
model to adapt Portfolio investments to changing market environments.
RISK
Investing in the U.S. Equity Plus Portfolio may be appropriate for you if you
are willing to accept the risks and uncertainties of investing in equity
securities in the hope of earning superior returns and diversifying your
investment portfolio. In general, prices of equity securities are more volatile
than those of fixed income securities. The prices of equity securities will rise
and fall in response to a number of different factors. In particular, prices of
equity securities will respond to events which affect entire financial markets
or industries (changes in inflation or consumer demand, for example) and to
events that affect particular issuers (news about the success or failure of a
new product, for example). In addition, at times the Portfolio's market sector,
equity securities of larger U.S. issuers, may underperform relative to other
sectors.
<TABLE>
<CAPTION>
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
PERFORMANCE (CLASS A SHARES)
<S> <C>
COMMENCED OPERATIONS ON JULY 31, 1997
1998 21.26%
HIGH (QUARTER)
10/98 - 12/98
20.33%
LOW (QUARTER)
7/98 - 9/98
- -12.25%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A CLASS B
(COMMENCED (COMMENCED
OPERATIONS ON OPERATIONS ON
JULY 31, JULY 31, S&P 500
1997) 1997) INDEX*
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
PAST ONE YEAR 21.26% 20.95% 28.57%
- -------------------------------------------------------------------------------
PAST FIVE YEARS N/A N/A N/A
- -------------------------------------------------------------------------------
SINCE INCEPTION 17.71% 17.49% 21.41%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO OVER THE
LAST YEAR AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR
CHART AND TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE
AN INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. HOW THE PORTFOLIO HAS PERFORMED IN THE PAST
DOES NOT NECESSARILY INDICATE HOW THE PORTFOLIO WILL PERFORM IN THE FUTURE.
*THE S&P 500 IS A STOCK INDEX COMPRISED OF 500 LARGE-CAP U.S. COMPANIES WITH
MARKET CAPITALIZATION OF $1 BILLION OR MORE. THESE 500 COMPANIES ARE A
REPRESENTATIVE SAMPLE OF SOME 100 INDUSTRIES, CHOSEN MAINLY FOR MARKET SIZE,
LIQUIDITY AND INDUSTRY GROUP REPRESENTATION. THE S&P IS A MARKET-VALUE WEIGHTED
INDEX (STOCK PRICE TIMES NUMBER OF SHARES OUTSTANDING), WITH EACH STOCK'S
WEIGHT IN THE INDEX PROPORTIONATE TO ITS MARKET VALUE.
1
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
ADDITIONAL RISK FACTORS AND INFORMATION
- -------------------------------------------------------------------------------
THIS SECTION DISCUSSES ADDITIONAL RISK FACTORS AND INFORMATION RELATED TO THE
PORTFOLIO. THE PORTFOLIO'S INVESTMENT PRACTICES AND LIMITATIONS ARE DESCRIBED IN
MORE DETAIL IN THE STATEMENT OF ADDITIONAL INFORMATION ("SAI"), WHICH LEGALLY IS
A PART OF THIS PROSPECTUS. FOR DETAILS ABOUT HOW TO OBTAIN A COPY OF THE SAI AND
OTHER REPORTS AND INFORMATION, SEE THE BACK COVER OF THIS PROSPECTUS.
PRICE VOLATILITY
The value of your investment in the Portfolio is based on the market prices of
the securities the Portfolio holds. These prices change daily due to economic
and other events that affect markets generally, as well as those that affect
particular companies or governments. These price movements, sometimes called
volatility, may be greater or lesser depending on the types of securities the
Portfolio owns and the markets in which the securities trade. Over time, equity
securities have generally shown superior gains, although they have tended to be
more volatile than fixed income securities in the short term. Fixed income
securities, regardless of credit quality, also experience price volatility,
especially in response to interest rate changes. As a result of price
volatility, there is a risk that you may lose money by investing in the
Portfolio.
DERIVATIVES
The Portfolio may use various instruments that derive their values from those of
specified securities, indices, currencies or other points of reference for both
hedging and non-hedging purposes. Derivatives include futures, options, forward
contracts, swaps, and structured notes. These derivatives, including those used
to manage risk, are themselves subject to risks of the different markets in
which they trade and, therefore, may not serve their intended purposes.
The primary risks of derivatives are: (i) changes in the market value of
securities held by the Portfolio, and of derivatives relating to those
securities, may not be proportionate, (ii) there may not be a liquid market for
the Portfolio to sell a derivative, which could result in difficulty closing a
position and (iii) certain derivatives can magnify the extent of losses incurred
due to changes in the market value of the securities to which they relate. In
addition, derivatives are subject to counter party risk. To minimize this risk,
the Portfolio may enter into derivatives transactions with counter parties that
meet certain requirements for credit quality and collateral. Also, the Portfolio
may invest in certain derivatives that require the Portfolio to segregate some
or all of its cash or liquid securities to cover its obligations under those
instruments. At certain levels, this can cause the Portfolio to lose flexibility
in managing its investments properly, responding to shareholder redemption
requests, or meeting other obligations. If the Portfolio is in that position, it
could be forced to sell other securities that it wanted to retain.
The Portfolio will limit its use of derivatives for non-hedging purposes to
33 1/3% of its total assets measured by the aggregate notional amount of
outstanding derivatives. While the use of derivatives may be advantageous to the
Portfolio, if MSDW Investment Management is not successful in employing them,
the Portfolio's performance may be worse than if it did not make such
investments. See the Statement of Additional Information for more about the
risks of different types of derivatives.
BANK INVESTORS
An investment in the Portfolio is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
YEAR 2000 RISK
The advisory and distribution services that MSDW Investment Management and
Morgan Stanley & Co. Incorporated ("Morgan Stanley") provide to the Fund depend
on the smooth operation of their computer systems. Many computer and 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. MSDW Investment Management and Morgan Stanley have
been actively working on necessary changes to their own computer systems to deal
with the year 2000 problem and expect that their systems will be adapted before
that date. There can be no assurance, however, that they will be successful. In
addition, other unaffiliated service
2
<PAGE>
providers may be faced with similar problems. MSDW Investment Management and
Morgan Stanley are monitoring their remedial efforts, but there can be no
assurance that they and the services they provide will not be adversely
affected.
In addition, it is possible that the markets for securities in which the
Portfolio 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 Portfolio's investments may be
adversely affected.
TEMPORARY DEFENSIVE
INVESTMENTS
When MSDW Investment Management believes that changes in economic, financial or
political conditions warrant, the Portfolio may invest without limit in certain
short- and medium-term fixed income securities for temporary defensive purposes.
If MSDW Investment Management incorrectly predicts the effects of these changes,
such defensive investments may adversely affect the Portfolio's performance and
the Portfolio may not achieve its investment objective.
PORTFOLIO TURNOVER
Consistent with its investment policies, the Portfolio will purchase and sell
securities without regard to the effect on portfolio turnover. Higher portfolio
turnover (e.g. over 100% per year) will cause the Portfolio to incur additional
transaction costs and may result in taxable gains being passed through to
shareholders.
3
<PAGE>
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE PORTFOLIO
- -------------------------------------------------------------------------------
The Securities and Exchange Commission (the "Commission") requires that the Fund
disclose in the table below the fees and expenses that you may pay if you buy
and hold shares of the Portfolio. The Portfolio does not charge any sales loads
or similar fees when you purchase or redeem shares. The Annual Fund Operating
Expenses in the table below do not reflect voluntary fee waivers and/or expense
reimbursements from MSDW Investment Management.
1998 ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)*
<TABLE>
<CAPTION>
U.S. EQUITY PLUS
PORTFOLIO
<S> <C>
MANAGEMENT FEES
- --------------------------------------------------------------------
CLASS A 0.45%
- --------------------------------------------------------------------
CLASS B 0.45%
12b-1 FEE
- --------------------------------------------------------------------
CLASS A NONE
- --------------------------------------------------------------------
CLASS B 0.25%
OTHER EXPENSES
- --------------------------------------------------------------------
CLASS A .60%+
- --------------------------------------------------------------------
CLASS B .64%+
TOTAL ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------
CLASS A 1.05%
- --------------------------------------------------------------------
CLASS B 1.34%
</TABLE>
+ESTIMATED.
* The Management Fees for the Portfolio shown in the table above are the highest
that could be charged. This table does not show the effects of MSDW Investment
Management's voluntary fee waivers and/or expense reimbursements. MSDW
Investment Management has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolio so that total annual operating expenses,
excluding certain investment related expenses described below, will not exceed
0.80% for Class A shares and 1.05% for Class B shares.
IN DETERMINING THE ACTUAL AMOUNT OF VOLUNTARY MANAGEMENT FEE WAIVER AND/OR
EXPENSE REIMBURSEMENT FOR THE PORTFOLIO, IF ANY, MSDW INVESTMENT MANAGEMENT
EXCLUDES FROM ANNUAL OPERATING EXPENSES CERTAIN INVESTMENT RELATED EXPENSES,
SUCH AS FOREIGN COUNTRY TAX EXPENSE AND INTEREST EXPENSE ON BORROWING. IF THESE
EXPENSES WERE INCURRED, THE PORTFOLIO'S TOTAL OPERATING EXPENSES AFTER VOLUNTARY
FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS WOULD EXCEED THE EXPENSE RATIO SHOWN
ABOVE.
FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS ARE VOLUNTARY AND MSDW INVESTMENT
MANAGEMENT RESERVES THE RIGHT TO TERMINATE ANY WAIVER AND/OR REIMBURSEMENT AT
ANY TIME AND WITHOUT NOTICE.
4
<PAGE>
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
PORTFOLIO WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS HAVING SIMILAR
INVESTMENT OBJECTIVES.
The example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example assumes that your investment has a 5% return each year and
that the Portfolio's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
U.S. EQUITY PLUS PORTFOLIO
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------
CLASS A $107 $334 $579 $1,283
- ----------------------------------------------------------------------
CLASS B $136 $425 $734 $1,613
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
- -------------------------------------------------------------------------------
Morgan Stanley Dean Witter Investment Management Inc. ("MSDW Investment
Management"), with principal offices at 1221 Avenue of the Americas, New York,
New York 10020, conducts a worldwide portfolio management business and provides
a broad range of portfolio management services to customers in the United States
and abroad. Morgan Stanley Dean Witter & Co. ("MSDW") is the direct parent of
MSDW Investment Management and Morgan Stanley. MSDW is a preeminent global
financial services firm that maintains leading market positions in each of its
three primary businesses -- securities, asset management and credit services. At
December 31, 1998, MSDW Investment Management, together with its affiliated
institutional asset management companies, managed assets of approximately $163.4
billion, including assets under fiduciary advice.
- -------------------------------------------------------------------------------
MANAGEMENT FEES
- -------------------------------------------------------------------------------
For the year ended December 31, 1998, MSDW Investment Management received from
the Portfolio the management fee set forth in the table below:
<TABLE>
<CAPTION>
U.S. EQUITY PLUS
PORTFOLIO
-----------------
<S> <C> <C>
MANAGEMENT FEE CLASS A CLASS B
-----------------
PAID IN FISCAL YEAR ENDED
DECEMBER 31, 1998 0.21% 0.21%
(NET OF WAIVERS AND AS A
PERCENTAGE OF AVERAGE NET
ASSETS)
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
- -------------------------------------------------------------------------------
THE FOLLOWING INDIVIDUALS HAVE PRIMARY DAY-TO-DAY PORTFOLIO MANAGEMENT
RESPONSIBILITY FOR THE PORTFOLIO:
U.S. EQUITY PLUS PORTFOLIO
NARAYAN RAMACHANDRAN AND EUGENE FLOOD, JR.
Narayan Ramachandran is a Managing Director of MSDW Investment Management and
Morgan Stanley and is a Portfolio Manager and head of the Structured Asset
Management business at MSDW Investment Management. Prior to joining MSDW
Investment Management in 1996, he was Managing Director of RogersCasey
Associates, Inc. ("RogersCasey"), an investment consulting and special assets
advisory firm based in Darien, Connecticut. As President of RogersCasey's
investment advisory subsidiary, he was responsible for leading the special
assets advisory business with $2 billion in assets under management. Prior to
that, he was Director of Research for RogersCasey, with his research efforts
focused on quantitative investment models. He holds a B.S. in Chemical
Engineering from the Indian Institute of Technology in Bombay and an M.B.A. from
the University of Michigan at Ann Arbor. He is also a Chartered Financial
Analyst. Eugene Flood joined Morgan Stanley in 1987. He is a Principal of MSDW
Investment Management and Morgan Stanley and a Senior Portfolio Manager in MSDW
Investment Management's Structured Asset Management business. He has traded a
broad spectrum of instruments including equities, fixed income, foreign exchange
and commodities. Additionally, he has consulted for a variety of private sector
companies and government agencies. Dr. Flood received an A.B. in Economics from
Harvard University and a Ph.D. in Economics from the Massachusetts Institute of
Technology. Mr. Ramachandran and Dr. Flood have shared primary responsibility
for managing the Portfolio's assets since its inception.
6
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTION OF PORTFOLIO SHARES
- -------------------------------------------------------------------------------
Morgan Stanley is the exclusive Distributor of Class A shares and Class B shares
of the Portfolio. Morgan Stanley receives no compensation for distributing Class
A shares of the Portfolio. The Fund has adopted a Plan of Distribution with
respect to the Class B shares of the Portfolio pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, (the "Plan"). Under the Plan, the
Portfolio pays the Distributor a distribution fee of 0.25% of the Class B
shares' average daily net assets on an annualized basis. The distribution fee
compensates the Distributor for marketing and selling Class B shares. The
Distributor may pay others for providing distribution-related and other
services, including account maintenance services. Over time the distribution
fees will increase the cost of your investment and may cost you more than paying
other types of sales charges.
- -------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------
ABOUT NET ASSET VALUE
The net asset value ("NAV") per share of a class of shares of the Portfolio is
determined by dividing the total market value of the Portfolio's investments and
other assets attributable to the class, less any liabilities attributable to the
class, by the total number of outstanding shares of that class of the Portfolio.
In making this calculation, the Portfolio generally values securities at market
price. If market prices are unavailable or may be unreliable because of events
occurring after the close of trading, fair value prices may be determined in
good faith using methods approved by the Board of Directors. The Portfolio may
hold portfolio securities that are listed on foreign exchanges. These securities
may trade on weekends or other days when the Portfolio does not calculate NAV.
As a result, the value of these investments may change on days when you cannot
purchase or sell shares.
PRICING OF PORTFOLIO SHARES
You may buy or sell (redeem) Class A and Class B shares of the Portfolio at the
net asset value next determined for the class after receipt of your order. The
Fund determines net asset value as of the close of the New York Stock Exchange
("NYSE") (normally 4:00 p.m. Eastern Time) on each day that the NYSE is open for
business (the "Pricing Time").
HOW TO PURCHASE SHARES
You may purchase Class A shares and Class B shares of the Portfolio directly
from the Fund, from the Distributor or through certain third parties ("Financial
Intermediaries") on each day that the NYSE is open.
The minimum initial investment generally is $500,000 for Class A shares and
$100,000 for Class B shares. The minimum additional investment generally is
$1,000 for each account that you have. If the value of your account falls below
the minimum initial investment amount for Class A shares or Class B shares as a
result of share redemptions, the Fund will notify you. Your account may be
subject to involuntary conversion from Class A shares to Class B shares or
involuntary redemption in the case of Class B shares if the value of your
account remains below the minimum initial investment amount for 60 consecutive
days. MSDW Investment Management may waive the minimum initial investment and
involuntary conversion or redemption features for certain investors, including
individuals purchasing through a Financial Intermediary.
You may arrange to purchase shares directly from the Fund by calling
1-800-548-7786 or by returning a completed Account Registration Form with
payment for your purchase. The price you pay will be the net asset value
calculated at the Pricing Time following receipt of your purchase order and
payment.
To purchase shares through the Distributor or a Financial Intermediary, you
should contact the Distributor or your Financial Intermediary for details.
Generally, the price of shares purchased through the Distributor or a Financial
Intermediary is the price calculated at the next Pricing Time after the Fund
receives your order from the Distributor or your Financial Intermediary. Certain
Financial Intermediaries have made arrangements with the Fund so that you may
7
<PAGE>
purchase shares at the price calculated at the next Pricing Time after your
Financial Intermediary receives your purchase order. Your Financial Intermediary
may charge an additional service or transaction fee.
HOW TO REDEEM SHARES
You may redeem Portfolio shares directly from the Fund, through the Distributor
or through your Financial Intermediary, each as described above under Purchase
of Shares. The redemption price will be the net asset value per share calculated
at the next Pricing Time, which may be more or less than the purchase price of
your shares. The Fund will ordinarily distribute redemption proceeds in cash
within one business day of your redemption request, but it may take up to seven
business days. However, if you purchased shares by check, the Fund will not
distribute redemption proceeds until it has collected your purchase payment,
which may take up to eight days. In certain circumstances, for example, if
payment of redemption proceeds in cash would be detrimental to the remaining
shareholders, the Portfolio may pay redemption proceeds by a
distribution-in-kind of readily marketable portfolio securities.
EXCHANGE FEATURES
You may exchange Portfolio shares for shares of the other available portfolios
of the Fund. To obtain a prospectus for another portfolio, call the Fund at
1-800-548-7786 or contact your Financial Intermediary. If you purchased
Portfolio shares through a Financial Intermediary, certain portfolios may be
unavailable for exchange. Contact your Financial Intermediary to determine which
portfolios are available for exchange. The Fund currently consists of the
following portfolios:
<TABLE>
<S> <C>
U.S. EQUITY GLOBAL AND INTERNATIONAL EQUITY
Aggressive Equity Portfolio Active International Allocation
Emerging Growth Portfolio Portfolio
Equity Growth Portfolio Asian Real Estate Portfolio
MicroCap Portfolio+ Asian Equity Portfolio
Technology Portfolio China Growth Portfolio+
U.S. Equity Plus Portfolio Emerging Markets Portfolio
U.S. Real Estate Portfolio European Equity Portfolio
Value Equity Portfolio European Real Estate Portfolio
FIXED INCOME Global Equity Portfolio
Emerging Markets Debt Portfolio Gold Portfolio*
Fixed Income Portfolio International Equity Portfolio*
Global Fixed Income Portfolio International Magnum Portfolio
High Yield Portfolio International Small Cap Portfolio
Mortgage-Backed Securities Portfolio+ Japanese Equity Portfolio
Municipal Bond Portfolio Latin American Portfolio
MONEY MARKET
Money Market Portfolio
Municipal Money Market Portfolio
</TABLE>
*PORTFOLIO IS CURRENTLY CLOSED TO NEW INVESTORS
+PORTFOLIO HAS NOT YET COMMENCED OPERATIONS
When you exchange for shares of another portfolio, your transaction will be
treated the same as an initial purchase. You will be subject to the same minimum
initial investment and account size as an initial purchase. Accordingly, you
will not necessarily receive the same class of shares that you tendered for
exchange. Your exchange price will be the price calculated at the next Pricing
Time after the Fund receives your exchange order. Frequent trades in your
account(s) can disrupt management of the Portfolio and raise its expenses.
Therefore, the Fund may bar a shareholder who trades excessively from making
further exchanges or purchases.
8
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The Portfolio's policy is to distribute to shareholders substantially all of its
taxable net investment income in the form of an annual dividend and to
distribute net capital gains on an annual basis.
The Fund automatically reinvests all dividends and distributions in additional
shares. However, you may elect to receive distributions in cash by giving
written notice to the Fund or your Financial Intermediary or by checking the
appropriate box in the Distribution Option section on the Account Registration
Form.
TAXES
The dividends and distributions you receive from the Portfolio may be subject to
Federal, state and local taxation, depending on your tax situation. The tax
treatment of dividends and distributions is the same whether or not you reinvest
them. Dividends are taxed as ordinary income, long-term capital gains
distributions are taxed at a maximum rate of 20%, and short-term capital gains
distributions are taxed at ordinary rates. The Fund will tell you annually how
to treat dividends and distributions.
If you redeem shares of the Portfolio, you will be subject to tax on any gains
you earn based on your holding period for the shares. An exchange of shares of
the Portfolio for shares of another portfolio is a sale of Portfolio shares for
tax purposes. Conversions of shares between classes will not result in taxation.
Because each investor's tax circumstances are unique and the tax laws may
change, you should consult your tax advisor about your investment.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The following financial highlights table is intended to help you understand the
financial performance of the Class A shares and Class B shares of the Portfolio
for the past five years or, if less than five years, the life of the Portfolio
or Class. Certain information reflects financial results for a single Portfolio
share. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the Portfolio (assuming reinvestment
of all dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the Fund's financial
statements, are incorporated by reference into the Fund's Statement of
Additional Information and are included in the Fund's December 31, 1998 Annual
Report to Shareholders. The Annual Report and the financial statements therein,
as well as the Statement of Additional Information, are available at no cost
from the Fund at the toll free number noted on the back cover to this
Prospectus.
9
<PAGE>
- ----------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
U.S. EQUITY PLUS PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-----------------------------
PERIOD FROM
JULY 31,
YEAR ENDED 1997* TO
DECEMBER 31, DECEMBER 31,
SELECTED PER SHARE DATA AND RATIOS 1998++ 1997++
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.31 $ 10.00
------------- -------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (1) 0.09 0.06
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 2.10 0.33
------------- -------------
TOTAL FROM INVESTMENT OPERATIONS 2.19 0.39
------------- -------------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.05) (0.05)
NET REALIZED GAIN -- (0.03)
IN EXCESS OF NET REALIZED GAIN (0.02) --
------------- -------------
TOTAL DISTRIBUTIONS (0.07) (0.08)
------------- -------------
NET ASSET VALUE, END OF PERIOD $ 12.43 $ 10.31
------------- -------------
------------- -------------
TOTAL RETURN 21.26% 3.94%
------------- -------------
------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $66,640 $20,914
RATIO OF EXPENSES TO AVERAGE NET ASSETS (1) 0.80% 0.80%**
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS (1) 0.87% 1.32%**
PORTFOLIO TURNOVER RATE 228% 15%
- -----------------
(1) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT INCOME $0.03 $0.07
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.05% 2.37%**
NET INVESTMENT INCOME TO AVERAGE NET ASSETS 0.59% (0.25)%**
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------
PERIOD FROM
JULY 31,
YEAR ENDED 1997* TO
DECEMBER 31, DECEMBER 31,
1998++ 1997++
<S> <C> <C>
- -----------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.31 $10.00
------------- -------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (2) 0.06 0.02
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 2.10 0.37
------------- -------------
TOTAL FROM INVESTMENT OPERATIONS 2.16 0.39
------------- -------------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.03) (0.05)
NET REALIZED GAIN -- (0.03)
IN EXCESS OF NET REALIZED GAIN (0.02) --
------------- -------------
TOTAL DISTRIBUTIONS (0.05) (0.08)
------------- -------------
NET ASSET VALUE, END OF PERIOD $12.42 $10.31
------------- -------------
------------- -------------
TOTAL RETURN 20.95% 3.93%
------------- -------------
------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $1,431 $102
RATIO OF EXPENSES TO AVERAGE NET ASSETS
(2) 1.05% 1.05%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS (2) 0.52% 0.48%**
PORTFOLIO TURNOVER RATE 228% 15%
- -----------------
(2) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT
INCOME $0.03 $0.00+
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.34% 2.63%**
NET INVESTMENT INCOME TO AVERAGE
NET ASSETS 0.24% (0.32)%**
- -----------------------------------------------------------------------
</TABLE>
*COMMENCEMENT OF OPERATIONS
**ANNUALIZED
+AMOUNT IS LESS THAN $0.01 PER SHARE.
++PER SHARE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 1998 AND PERIOD ENDED
DECEMBER 31, 1997 ARE BASED ON AVERAGE SHARES OUTSTANDING.
10
<PAGE>
- -------------------------------------------------------------------------------
WHERE TO FIND ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
In addition to this Prospectus, the Fund has a Statement of Additional
Information ("SAI"), dated May 1, 1999, which contains additional, more detailed
information about the Fund and the Portfolio. The SAI is incorporated by
reference into this Prospectus and, therefore, legally forms a part of this
Prospectus.
SHAREHOLDER REPORTS
The Fund publishes annual and semi-annual reports containing financial
statements, and quarterly reports. These reports contain additional information
about the Portfolio's investments. In the Fund's shareholder reports, you will
find a discussion of the market conditions and the investment strategies that
significantly affected the Portfolio's performance during that period.
For additional Fund information, including information regarding the investments
comprising the Fund's Portfolios, please call 1-800-548-7786.
You may obtain the SAI and shareholder reports without charge by contacting the
Fund at the toll-free number above. If you purchased shares through a Financial
Intermediary, you may also obtain these documents, without charge, by contacting
your Financial Intermediary.
Information about the Fund, including the SAI, and the annual and semi-annual
reports, may be obtained from the Securities and Exchange Commission in any of
the following ways: (1) In person: you may review and copy documents in the
Commission's Public Reference Room in Washington D.C. (for information call
1-800-SEC-0330); (2) On-line: you may retrieve information from the Commission's
web site at "http://www.sec.gov"; or (3) By mail: you may request documents,
upon payment of a duplicating fee, by writing to Securities and Exchange
Commission, Public Reference Section, Washington, D.C. 20549-6009. To aid you in
obtaining this information, the Fund's Investment Company Act registration
number is 811-05624.
[ICON] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
P.O. Box 2798
Boston, Massachusetts 02208-2798
FOR INFORMATION CALL 1-800-548-7786
<PAGE>
- -------------------------------------------------------------------------------
PROSPECTUS MAY 1, 1999
- -------------------------------------------------------------------------------
PORTFOLIOS OF [LOGO] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
EUROPEAN REAL ESTATE PORTFOLIO
THE EUROPEAN REAL ESTATE PORTFOLIO SEEKS TO PROVIDE CURRENT INCOME AND LONG-TERM
CAPITAL APPRECIATION BY INVESTING PRIMARILY IN EQUITY SECURITIES OF COMPANIES IN
THE EUROPEAN REAL ESTATE INDUSTRY.
ASIAN REAL ESTATE PORTFOLIO
THE ASIAN REAL ESTATE PORTFOLIO SEEKS TO PROVIDE LONG-TERM CAPITAL APPRECIATION
BY INVESTING PRIMARILY IN EQUITY SECURITIES OF COMPANIES IN THE ASIAN REAL
ESTATE INDUSTRY.
U.S. REAL ESTATE PORTFOLIO
THE U.S. REAL ESTATE PORTFOLIO SEEKS TO PROVIDE ABOVE AVERAGE CURRENT INCOME AND
LONG-TERM CAPITAL APPRECIATION BY INVESTING PRIMARILY IN EQUITY SECURITIES OF
COMPANIES IN THE U.S. REAL ESTATE INDUSTRY, INCLUDING REAL ESTATE INVESTMENT
TRUSTS ("REITS).
INVESTMENT ADVISER
Morgan Stanley Dean Witter Investment Management Inc.
DISTRIBUTOR
Morgan Stanley & Co. Incorporated
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC. (THE "FUND") IS A NO-LOAD
MUTUAL FUND THAT IS DESIGNED TO MEET THE INVESTMENT NEEDS OF DISCERNING
INVESTORS WHO PLACE A PREMIUM ON QUALITY AND PERSONAL SERVICE. THE FUND MAKES
AVAILABLE TO INSTITUTIONAL INVESTORS A SERIES OF PORTFOLIOS WHICH BENEFIT FROM
THE INVESTMENT EXPERTISE AND COMMITMENT TO EXCELLENCE ASSOCIATED WITH MORGAN
STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC. ("MSDW INVESTMENT MANAGEMENT")
AND ITS AFFILIATES. THIS PROSPECTUS OFFERS CLASS A AND CLASS B SHARES OF THE
PORTFOLIOS LISTED ABOVE (EACH A "PORTFOLIO" AND COLLECTIVELY THE "PORTFOLIOS").
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT SUMMARY
EUROPEAN REAL ESTATE PORTFOLIO 1
ASIAN REAL ESTATE PORTFOLIO 2
U.S. REAL ESTATE PORTFOLIO 3
ADDITIONAL RISK FACTORS AND INFORMATION 4
FEES AND EXPENSES OF THE PORTFOLIOS 6
INVESTMENT ADVISER 7
MANAGEMENT FEES 7
PORTFOLIO MANAGERS 8
DISTRIBUTION OF PORTFOLIO SHARES 9
SHAREHOLDER INFORMATION 9
FINANCIAL HIGHLIGHTS 11
EUROPEAN REAL ESTATE PORTFOLIO 12
ASIAN REAL ESTATE PORTFOLIO 13
U.S. REAL ESTATE PORTFOLIO 14
ACCOUNT REGISTRATION FORM
[TO BE ATTACHED]
</TABLE>
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO
- -------------------------------------------------------------------------------
THE EUROPEAN REAL ESTATE PORTFOLIO SEEKS TO PROVIDE CURRENT INCOME AND LONG-TERM
CAPITAL APPRECIATION BY INVESTING PRIMARILY IN EQUITY SECURITIES OF COMPANIES IN
THE EUROPEAN REAL ESTATE INDUSTRY.
APPROACH
MSDW Investment Management seeks a combination of current income and capital
appreciation by constructing a portfolio of equity securities of European real
estate companies. MSDW Investment Management considers a company to be European
if its securities are traded on a recognized stock exchange in Europe or if it
is organized in a European country and operates primarily in Europe. The
Portfolio will invest primarily in companies located in Germany, France,
Switzerland, Belgium, Italy, Spain, Portugal, Finland, Sweden, Denmark, Norway,
Ireland and the United Kingdom but may also invest in the emerging markets of
Europe. MSDW Investment Management's approach emphasizes bottom-up stock
selection with a top-down country allocation overlay.
PROCESS
MSDW Investment Management's dedicated real estate team focuses on valuation,
including underlying asset values, values per square foot and property yields as
well as property portfolio composition, lease expiration, capital structure and
management. MSDW Investment Management employees typically visit with each
company, as well as selected properties, before investing, seeking companies
with attractive fundamental valuations relative to underlying real estate
values. In seeking an optimal matrix of country and property market exposure,
MSDW Investment Management considers broad demographic and macroeconomic factors
as well as criteria such as space demand, new construction and rental patterns.
RISK
Investing in the European Real Estate Portfolio may be appropriate for you if
you are willing to accept the risks and uncertainties of the European real
estate market in the hope of earning current income and long-term gain while
diversifying your investment portfolio. In general, prices of equity securities
are more volatile than those of fixed income securities. The prices of equity
securities will rise and fall in response to a number of different factors. In
particular, prices of equity securities will respond to events which affect
entire financial markets or industries (changes in inflation or consumer demand,
for example) and to events that affect particular issuers (news about the
success or failure of a new product, for example). Investing in real estate
companies entails the risks of the real estate business generally, including
sensitivity to economic and business cycles, changing demographic patterns and
government actions. In addition, at times the Portfolio's market, European real
estate securities, may underperform relative to other sectors.
INVESTING IN FOREIGN COUNTRIES, PARTICULARLY EMERGING MARKETS, ENTAILS THE RISK
THAT NEWS AND EVENTS UNIQUE TO A COUNTRY OR REGION WILL AFFECT THOSE MARKETS AND
THEIR ISSUERS. THESE SAME EVENTS WILL NOT NECESSARILY HAVE AN EFFECT ON THE U.S.
ECONOMY OR SIMILAR ISSUERS LOCATED IN THE UNITED STATES. IN ADDITION, THE
PORTFOLIO'S INVESTMENTS IN FOREIGN COUNTRIES GENERALLY WILL BE DENOMINATED IN
FOREIGN CURRENCIES. AS A RESULT, CHANGES IN THE VALUE OF A COUNTRY'S CURRENCY
COMPARED TO THE U.S. DOLLAR MAY AFFECT THE VALUE OF THE PORTFOLIO'S INVESTMENTS.
THESE CHANGES MAY OCCUR SEPARATELY FROM AND IN RESPONSE TO EVENTS THAT DO NOT
OTHERWISE AFFECT THE VALUE OF THE SECURITY IN THE ISSUER'S HOME COUNTRY. MSDW
INVESTMENT MANAGEMENT MAY INVEST IN CERTAIN INSTRUMENTS, SUCH AS DERIVATIVES,
AND MAY USE CERTAIN TECHNIQUES, SUCH AS HEDGING, TO MANAGE THESE RISKS. HOWEVER,
MSDW INVESTMENT MANAGEMENT CANNOT GUARANTEE THAT IT WILL BE PRACTICAL TO HEDGE
THESE RISKS IN CERTAIN MARKETS OR UNDER PARTICULAR CONDITIONS OR THAT IT WILL
SUCCEED IN DOING SO. THE RISKS OF INVESTING IN THE PORTFOLIO MAY BE INTENSIFIED
BECAUSE THE PORTFOLIO IS NON-DIVERSIFIED, WHICH MEANS THAT IT MAY INVEST IN
SECURITIES OF A LIMITED NUMBER OF ISSUERS. AS A RESULT, THE PERFORMANCE OF A
PARTICULAR INVESTMENT OR A SMALL GROUP OF INVESTMENTS MAY AFFECT THE PORTFOLIO'S
PERFORMANCE MORE THAN IF THE PORTFOLIO WERE DIVERSIFIED.
<TABLE>
<CAPTION>
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
PERFORMANCE (CLASS A SHARES)
<S> <C>
COMMENCED OPERATIONS ON OCTOBER 1, 1997
1998 4.75%
HIGH (QUARTER)
1/98 - 3/98
16.28%
LOW (QUARTER)
7/98 - 9/98
- -9.11%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A CLASS B GPR LIFE
(COMMENCED (COMMENCED EUROPEAN
OPERATIONS ON OPERATIONS ON REAL ESTATE T.R.
OCTOBER 1, 1997) OCTOBER 1, 1997) INDEX*
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
PAST ONE YEAR 4.75% 4.60% -0.40%
- ----------------------------------------------------------------------------------------------
PAST FIVE YEARS N/A N/A N/A
- ----------------------------------------------------------------------------------------------
SINCE INCEPTION -0.16% -0.30% -0.30%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO OVER THE
LAST YEAR AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR
CHART AND TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE
AN INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. HOW THE PORTFOLIO HAS PERFORMED IN THE PAST
DOES NOT NECESSARILY INDICATE HOW THE PORTFOLIO WILL PERFORM IN THE FUTURE.
*THE GPR LIFE EUROPEAN REAL ESTATE T.R. INDEX IS A EUROPEAN MARKET
CAPITALIZATION WEIGHTED INDEX OF LISTED PROPERTY/ REAL ESTATE SECURITIES
MEASURING TOTAL RETURN.
1
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO
- -------------------------------------------------------------------------------
THE ASIAN REAL ESTATE PORTFOLIO SEEKS TO PROVIDE LONG-TERM CAPITAL APPRECIATION
BY INVESTING PRIMARILY IN EQUITY SECURITIES OF COMPANIES IN THE ASIAN REAL
ESTATE INDUSTRY.
APPROACH
MSDW Investment Management seeks capital appreciation by constructing a
portfolio of equity securities of Asian real estate companies. MSDW Investment
Management considers a company to be Asian if its securities are traded on a
recognized stock exchange in Asia or if it is organized in an Asian country and
operates primarily in Asia. The Portfolio will invest primarily in the more
established Asian markets, including Singapore, Malaysia, Hong Kong and
Thailand, but may also invest in emerging markets and in Japan, Australia and
New Zealand. MSDW Investment Management's approach emphasizes bottom-up stock
selection with a top-down country allocation overlay.
PROCESS
MSDW Investment Management's dedicated real estate team focuses on valuation,
including underlying asset values, values per square foot and property yields as
well as property portfolio composition, lease expiration, capital structure and
management. MSDW Investment Management employees typically visit with each
company, as well as selected properties, before investing, seeking companies
with attractive fundamental valuations relative to underlying real estate
values. In seeking an optimal matrix of country and property market exposure,
MSDW Investment Management considers broad demographic and macroeconomic factors
as well as criteria such as space demand, new construction and rental patterns.
RISK
Investing in the Asian Real Estate Portfolio may be appropriate for you if you
are willing to accept the risks and uncertainties of the Asian real estate
market in the hope of earning long-term gain while diversifying your investment
portfolio. In general, prices of equity securities are more volatile than those
of fixed income securities. The prices of equity securities will rise and fall
in response to a number of different factors. In particular, prices of equity
securities will respond to events which affect entire financial markets or
industries (changes in inflation or consumer demand, for example) and to events
that affect particular issuers (news about the success or failure of a new
product, for example). Investing in real estate companies entails the risks of
the real estate business generally, including sensitivity to economic and
business cycles, changing demographic patterns and government actions. In
addition, at times the Portfolio's market sector, Asian real estate securities,
may underperform relative to other sectors.
INVESTING IN FOREIGN COUNTRIES, PARTICULARLY EMERGING MARKETS, ENTAILS THE RISK
THAT NEWS AND EVENTS UNIQUE TO A COUNTRY OR REGION WILL AFFECT THOSE MARKETS AND
THEIR ISSUERS. THESE SAME EVENTS WILL NOT NECESSARILY HAVE AN EFFECT ON THE U.S.
ECONOMY OR SIMILAR ISSUERS LOCATED IN THE UNITED STATES. IN ADDITION, THE
PORTFOLIO'S INVESTMENTS IN FOREIGN COUNTRIES GENERALLY WILL BE DENOMINATED IN
FOREIGN CURRENCIES. AS A RESULT, CHANGES IN THE VALUE OF A COUNTRY'S CURRENCY
COMPARED TO THE U.S. DOLLAR MAY AFFECT THE VALUE OF THE PORTFOLIO'S INVESTMENTS.
THESE CHANGES MAY OCCUR SEPARATELY FROM AND IN RESPONSE TO EVENTS THAT DO NOT
OTHERWISE AFFECT THE VALUE OF THE SECURITY IN THE ISSUER'S HOME COUNTRY. MSDW
INVESTMENT MANAGEMENT MAY INVEST IN CERTAIN INSTRUMENTS, SUCH AS DERIVATIVES,
AND MAY USE CERTAIN TECHNIQUES, SUCH AS HEDGING, TO MANAGE THESE RISKS. HOWEVER,
MSDW INVESTMENT MANAGEMENT CANNOT GUARANTEE THAT IT WILL BE PRACTICAL TO HEDGE
THESE RISKS IN CERTAIN MARKETS OR UNDER PARTICULAR CONDITIONS OR THAT IT WILL
SUCCEED IN DOING SO. THE RISKS OF INVESTING IN THE PORTFOLIO MAY BE INTENSIFIED
BECAUSE THE PORTFOLIO IS NON-DIVERSIFIED, WHICH MEANS THAT IT MAY INVEST IN
SECURITIES OF A LIMITED NUMBER OF ISSUERS. AS A RESULT, THE PERFORMANCE OF A
PARTICULAR INVESTMENT OR A SMALL GROUP OF INVESTMENTS MAY AFFECT THE PORTFOLIO'S
PERFORMANCE MORE THAN IF THE PORTFOLIO WERE DIVERSIFIED.
<TABLE>
<CAPTION>
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
PERFORMANCE (CLASS A SHARES)
<S> <C>
COMMENCED OPERATIONS ON OCTOBER 1, 1997
1998 -11.82%
HIGH (QUARTER)
10/98 - 12/98
50.92%
LOW (QUARTER)
4/98 - 6/98
- -30.06%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A CLASS B GPR LIFE
(COMMENCED (COMMENCED FAR EAST ASIA
OPERATIONS ON OPERATIONS ON REAL ESTATE T.R.
OCTOBER 1, 1997) OCTOBER 1, 1997) INDEX*
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
PAST ONE YEAR -11.82% -12.53% -10.21%
- ----------------------------------------------------------------------------------------------
PAST FIVE YEARS N/A N/A N/A
- ----------------------------------------------------------------------------------------------
SINCE INCEPTION -24.30% -24.63% -34.15%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO OVER THE
LAST YEAR AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR
CHART AND TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE
AN INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. HOW THE PORTFOLIO HAS PERFORMED IN THE PAST
DOES NOT NECESSARILY INDICATE HOW THE PORTFOLIO WILL PERFORM IN THE FUTURE.
*THE GPR LIFE FAR EAST ASIA REAL ESTATE T.R. INDEX IS A FAR EAST MARKET
CAPITALIZATION WEIGHTED INDEX OF LISTED PROPERTY/ REAL ESTATE SECURITIES
MEASURING TOTAL RETURN.
2
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO
- -------------------------------------------------------------------------------
THE U.S. REAL ESTATE PORTFOLIO SEEKS TO PROVIDE ABOVE AVERAGE CURRENT INCOME AND
LONG-TERM CAPITAL APPRECIATION BY INVESTING PRIMARILY IN EQUITY SECURITIES OF
COMPANIES IN THE U.S. REAL ESTATE INDUSTRY, INCLUDING REAL ESTATE INVESTMENT
TRUSTS ("REITS").
APPROACH
MSDW Investment Management seeks a combination of current income and long-term
gain by constructing a portfolio of equity securities of companies that are in
the U.S. real estate business. The Portfolio focuses on REITs as well as real
estate operating companies and diversifies its investments as to issuers,
property types and region. MSDW Investment Management's approach emphasizes
bottom-up stock selection with a top-down asset allocation overlay.
PROCESS
MSDW Investment Management actively manages the Portfolio using a combination of
top-down and bottom-up methodologies. The top-down asset allocation overlay is
determined by focusing on key regional criteria, which include demographic and
macroeconomic considerations (for example, population, employment, household
formation and income). MSDW Investment Management employs a value-driven
approach to bottom-up security selection which emphasizes underlying asset
values, values per square foot and property yields. In seeking an optimal matrix
of regional and property market exposure, MSDW Investment Management considers
broad demographic and macroeconomic factors as well as criteria such as space
demand, new construction and rental patterns.
RISK
Investing in the U.S. Real Estate Portfolio may be appropriate for you if you
are willing to accept the risks and uncertainties of the U.S. real estate market
in the hope of earning current income and long-term gain while diversifying your
investment portfolio. In general, prices of equity securities are more volatile
than those of fixed income securities. The prices of equity securities will rise
and fall in response to a number of different factors. In particular, prices of
equity securities will respond to events which affect entire financial markets
or industries (changes in inflation or consumer demand, for example) and to
events that affect particular issuers (news about the success or failure of a
new product, for example). Investing in real estate companies entails the risks
of the real estate business generally, including sensitivity to economic and
business cycles, changing demographic patterns and government actions. These
risks may be intensified because the Portfolio is non-diversified, which means
that it may invest in securities of a limited number of issuers. As a result,
the performance of a particular investment or a small group of investments may
affect the Portfolio's performance more than if the Portfolio were diversified.
In addition, at times the Portfolio's market sector, U.S. real estate
securities, may underperform relative to other sectors.
INVESTING IN REITS EXPOSES INVESTORS TO THE RISKS OF OWNING REAL ESTATE DIRECTLY
AS WELL AS TO RISKS THAT RELATE SPECIFICALLY TO THE WAY IN WHICH REITS ARE
ORGANIZED AND OPERATED. REITS GENERALLY INVEST DIRECTLY IN REAL ESTATE (EQUITY
REITS), IN MORTGAGES (MORTGAGE REITS) OR IN SOME COMBINATION OF THE TWO (HYBRID
REITS). THE PORTFOLIO WILL INVEST PRIMARILY IN EQUITY REITS. OPERATING REITS
REQUIRES SPECIALIZED MANAGEMENT SKILLS AND THE PORTFOLIO INDIRECTLY BEARS REIT
MANAGEMENT EXPENSES ALONG WITH THE DIRECT EXPENSES OF THE PORTFOLIO. INDIVIDUAL
REITS MAY OWN A LIMITED NUMBER OF PROPERTIES AND MAY CONCENTRATE IN A PARTICULAR
REGION OR PROPERTY TYPE. REITS ALSO MUST SATISFY SPECIFIC INTERNAL REVENUE CODE
REQUIREMENTS IN ORDER TO QUALIFY FOR THE TAX-FREE PASS THROUGH OF INCOME.
<TABLE>
<CAPTION>
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
PERFORMANCE (CLASS A SHARES)
<S> <C>
COMMENCED OPERATIONS ON FEBRUARY 24, 1995
1996 39.56%
1997 27.62%
1998 -12.29%
HIGH (QUARTER)
10/96 - 12/96
16.71%
LOW (QUARTER)
7/98 - 9/98
- -9.45%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A CLASS B NAREIT
(COMMENCED (COMMENCED EQUITY
OPERATIONS ON OPERATIONS ON INDEX*
FEBRUARY 24, 1995) JANUARY 2, 1996) CLASS A CLASS B
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
PAST ONE YEAR -12.29% -12.52% -17.50% -17.50%
- -------------------------------------------------------------------------------------------------
PAST FIVE YEARS N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------
SINCE INCEPTION 17.99% 15.45% 11.93% 10.33%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. THE TABLE SEPARATELY COMPARES CLASS A AND
CLASS B SHARES TO THE INDEX SO THAT YOU CAN COMPARE PERFORMANCE FOR EACH CLASS
FROM ITS COMMENCEMENT DATE. THE INDEX ITSELF DOES NOT ACTUALLY HAVE TWO CLASSES.
HOW THE PORTFOLIO HAS PERFORMED IN THE PAST DOES NOT NECESSARILY INDICATE HOW
THE PORTFOLIO WILL PERFORM IN THE FUTURE.
*THE NAREIT EQUITY INDEX IS AN UNMANAGED MARKET WEIGHTED INDEX OF TAX QUALIFIED
REITS LISTED ON THE NEW YORK STOCK EXCHANGE, AMERICAN STOCK EXCHANGE AND THE
NASDAQ NATIONAL MARKET SYSTEM, INCLUDING DIVIDENDS.
3
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
ADDITIONAL RISK FACTORS AND INFORMATION
- -------------------------------------------------------------------------------
THIS SECTION DISCUSSES ADDITIONAL RISK FACTORS AND INFORMATION RELATED TO THE
PORTFOLIOS. THE PORTFOLIOS' INVESTMENT PRACTICES AND LIMITATIONS ARE DESCRIBED
IN MORE DETAIL IN THE STATEMENT OF ADDITIONAL INFORMATION ("SAI"), WHICH LEGALLY
IS A PART OF THIS PROSPECTUS. FOR DETAILS ABOUT HOW TO OBTAIN A COPY OF THE SAI
AND OTHER REPORTS AND INFORMATION, SEE THE BACK COVER OF THIS PROSPECTUS.
PRICE VOLATILITY
The value of your investment in a Portfolio is based on the market prices of the
securities the Portfolio holds. These prices change daily due to economic and
other events that affect markets generally, as well as those that affect
particular companies or governments. These price movements, sometimes called
volatility, may be greater or lesser depending on the types of securities the
Portfolio owns and the markets in which the securities trade. Over time, equity
securities have generally shown superior gains, although they have tended to be
more volatile in the short term. Fixed income securities, regardless of credit
quality, also experience price volatility, especially in response to interest
rate changes. As a result of price volatility, there is a risk that you may lose
money by investing in a Portfolio.
REAL ESTATE INVESTING
Each of the Portfolios invests in companies that are mainly in the real estate
business (that is, they either (i) derived at least 50% of their revenues or
profits from the ownership, construction, management, financing or sale of
residential, commercial or industrial real estate, or (ii) have at least 50% of
the fair market value of their assets invested residential, commercial or
industrial real estate). As a result, these companies (and, therefore, the
Portfolios) will experience the risks of investing in real estate directly. Real
estate is a cyclical business, highly sensitive to general and local economic
developments and characterized by intense competition and periodic overbuilding.
Real estate income and values may also be greatly affected by demographic
trends, such as population shifts or changing tastes on values. Government
actions, such as tax increases, zoning law changes or environmental regulations,
may also have a major impact on real estate. Changing interest rates and credit
quality requirements will also affect the cash flow of real estate companies and
their ability to meet capital needs.
EMERGING MARKET RISKS
The European Real Estate and Asian Real Estate Portfolios may invest in emerging
market countries, which are countries that major international financial
institutions, such as the World Bank, generally consider to be less economically
mature than developed nations, such as the United States or most nations in
Western Europe. Emerging market countries can include every nation in the world
except the United States, Canada, Japan, Australia, New Zealand, and most
countries located in Western Europe. Emerging market countries may be more
likely to experience political turmoil or rapid changes in economic conditions
than more developed countries, and the financial condition of issuers in
emerging market countries may be more precarious than in other countries. These
characteristics result in greater risk of price volatility in emerging market
countries, which may be heightened by currency fluctuations relative to the U.S.
dollar.
DERIVATIVES
The Portfolios may use various instruments that derive their values from those
of specified securities, indices, currencies or other points of reference for
both hedging and non-hedging purposes. Derivatives include futures, options,
forward contracts, swaps, and structured notes. These derivatives, including
those used to manage risk, are themselves subject to risks of the different
markets in which they trade and, therefore, may not serve their intended
purposes.
The primary risks of derivatives are: (i) changes in the market value of
securities held by a Portfolio, and of derivatives relating to those securities,
may not be proportionate, (ii) there may not be a liquid market for a Portfolio
to sell a derivative, which could result in difficulty closing a position and
(iii) certain derivatives can magnify the extent of losses incurred due to
changes in the market value of the securities to which they relate. In addition,
derivatives are subject to counter party risk. To minimize this risk, a
Portfolio may enter into derivatives transactions with counter parties that meet
certain requirements for credit quality and collateral. Also, a Portfolio may
invest in certain derivatives that require the Portfolio to segregate some or
all of its cash or
4
<PAGE>
liquid securities to cover its obligations under those instruments. At certain
levels, this can cause the Portfolio to lose flexibility in managing its
investments properly, responding to shareholder redemption requests, or meeting
other obligations. If the Portfolio is in that position, it could be forced to
sell other securities that it wanted to retain.
A Portfolio will limit its use of derivatives for non-hedging purposes to
33 1/3% of its total assets measured by the aggregate notional amount of
outstanding derivatives. While the use of derivatives may be advantageous to a
Portfolio, if MSDW Investment Management is not successful in employing them,
the Portfolio's performance may be worse than if it did not make such
investments. See the Statement of Additional Information for more about the
risks of different types of derivatives.
BANK INVESTORS
An investment in a Portfolio is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
YEAR 2000 RISK
The advisory and distribution services that MSDW Investment Management and
Morgan Stanley & Co. Incorporated ("Morgan Stanley") provide to the Fund depend
on the smooth operation of their computer systems. Many computer and 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. MSDW Investment Management and Morgan Stanley have
been actively working on necessary changes to their own computer systems to deal
with the year 2000 problem and expect that their systems will be adapted before
that date. There can be no assurance, however, that they will be successful. In
addition, other unaffiliated service providers may be faced with similar
problems. MSDW Investment Management and Morgan Stanley are monitoring their
remedial efforts, but there can be no assurance that they and the services they
provide will not be adversely affected.
In addition, it is possible that the markets for securities in which the
Portfolios invest 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 Portfolios' investments may be
adversely affected.
TEMPORARY DEFENSIVE
INVESTMENTS
When MSDW Investment Management believes that changes in economic, financial or
political conditions warrant, each Portfolio may invest without limit in certain
short- and medium-term fixed income securities for temporary defensive purposes.
If MSDW Investment Management incorrectly predicts the effects of these changes,
such defensive investments may adversely affect a Portfolio's performance and
the Portfolio may not achieve its investment objective.
PORTFOLIO TURNOVER
Consistent with its investment policies, a Portfolio will purchase and sell
securities without regard to the effect on portfolio turnover. Higher portfolio
turnover (e.g. over 100% per year) will cause a Portfolio to incur additional
transaction costs and may result in taxable gains being passed through to
shareholders.
5
<PAGE>
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE PORTFOLIOS
- -------------------------------------------------------------------------------
The Securities and Exchange Commission (the "Commission") requires that the Fund
disclose in the table below the fees and expenses that you may pay if you buy
and hold shares of the Portfolios. The Portfolios do not charge any sales loads
or similar fees when you purchase or redeem shares. The Annual Fund Operating
Expenses in the table below do not reflect voluntary fee waivers and/or expense
reimbursements from MSDW Investment Management.
1998 ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)*
<TABLE>
<CAPTION>
EUROPEAN REAL ESTATE ASIAN REAL ESTATE U.S. REAL ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO
MANAGEMENT FEES
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
CLASS A 0.80% 0.80% 0.80%
- ------------------------------------------------------------------------------------------------
CLASS B 0.80% 0.80% 0.80%
12B-1 FEE
- ------------------------------------------------------------------------------------------------
CLASS A NONE NONE NONE
- ------------------------------------------------------------------------------------------------
CLASS B 0.25% 0.25% 0.25%
OTHER EXPENSES
- ------------------------------------------------------------------------------------------------
CLASS A .63% 3.72% .24%
- ------------------------------------------------------------------------------------------------
CLASS B .63% 3.98% .24%
TOTAL ANNUAL FUND OPERATING EXPENSES
- ------------------------------------------------------------------------------------------------
CLASS A 1.43% 4.52% 1.04%
- ------------------------------------------------------------------------------------------------
CLASS B 1.68% 5.03% 1.29%
</TABLE>
* The Management Fees for the Portfolios shown in the table above are the
highest that could be charged. This table does not show the effects of MSDW
Investment Management's voluntary fee waivers and/or expense reimbursements.
IN DETERMINING THE ACTUAL AMOUNT OF VOLUNTARY MANAGEMENT FEE WAIVER AND/OR
EXPENSE REIMBURSEMENT FOR A PORTFOLIO, IF ANY, MSDW INVESTMENT MANAGEMENT
EXCLUDES FROM ANNUAL OPERATING EXPENSES CERTAIN INVESTMENT RELATED EXPENSES,
SUCH AS FOREIGN COUNTRY TAX EXPENSE AND INTEREST EXPENSE ON BORROWING. INCLUDING
THESE EXPENSES, THE PORTFOLIOS' TOTAL OPERATING EXPENSES AFTER VOLUNTARY FEE
WAIVERS AND/OR REIMBURSEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 WERE:
EUROPEAN REAL ESTATE PORTFOLIO CLASS A--1.03%, CLASS B--1.28% AND ASIAN REAL
ESTATE PORTFOLIO CLASS A-- 1.05%, CLASS B--1.38%.
EXCLUDING THESE INVESTMENT RELATED EXPENSES, THE OPERATING EXPENSES AFTER FEE
WAIVERS/EXPENSE REIMBURSEMENTS WERE 1.00% FOR CLASS A SHARES AND 1.25% FOR CLASS
B SHARES OF EACH PORTFOLIO.
FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS ARE VOLUNTARY AND MSDW INVESTMENT
MANAGEMENT RESERVES THE RIGHT TO TERMINATE ANY WAIVER AND/OR REIMBURSEMENT AT
ANY TIME AND WITHOUT NOTICE.
6
<PAGE>
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN EACH
PORTFOLIO WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS HAVING SIMILAR
INVESTMENT OBJECTIVES.
The example assumes that you invest $10,000 in each Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example assumes that your investment has a 5% return each year and
that each Portfolio's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
EUROPEAN REAL ESTATE PORTFOLIO
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------
CLASS A $146 $452 $782 $1,713
- -------------------------------------------------------------------------
CLASS B $171 $530 $913 $1,987
ASIAN REAL ESTATE PORTFOLIO
- -------------------------------------------------------------------------
CLASS A $453 $1,366 $2,287 $4,630
- -------------------------------------------------------------------------
CLASS B $503 $1,508 $2,513 $5,022
U.S. REAL ESTATE PORTFOLIO
- -------------------------------------------------------------------------
CLASS A $106 $331 $574 $1,271
- -------------------------------------------------------------------------
CLASS B $131 $409 $708 $1,556
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
- -------------------------------------------------------------------------------
Morgan Stanley Dean Witter Investment Management Inc. ("MSDW Investment
Management"), with principal offices at 1221 Avenue of the Americas, New York,
New York 10020, conducts a worldwide portfolio management business and provides
a broad range of portfolio management services to customers in the United States
and abroad. Morgan Stanley Dean Witter & Co. ("MSDW") is the direct parent of
MSDW Investment Management and Morgan Stanley. MSDW is a preeminent global
financial services firm that maintains leading market positions in each of its
three primary businesses -- securities, asset management and credit services. At
December 31, 1998, MSDW Investment Management, together with its affiliated
institutional asset management companies, managed assets of approximately $163.4
billion, including assets under fiduciary advice.
- -------------------------------------------------------------------------------
MANAGEMENT FEES
- -------------------------------------------------------------------------------
For the year ended December 31, 1998, MSDW Investment Management received from
each Portfolio the management fee set forth in the table below:
<TABLE>
<CAPTION>
EUROPEAN REAL ASIAN REAL ESTATE U.S. REAL ESTATE
ESTATE PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
---------------------------------------------------------
MANAGEMENT FEE PAID IN
FISCAL YEAR ENDED
DECEMBER 31, 1998 0.40% 0.40% 0.00% 0.00% 0.76% 0.76%
(NET OF WAIVERS AND AS A
PERCENTAGE OF AVERAGE
NET ASSETS)
</TABLE>
7
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
- -------------------------------------------------------------------------------
THE FOLLOWING INDIVIDUALS HAVE PRIMARY DAY-TO-DAY PORTFOLIO MANAGEMENT
RESPONSIBILITY FOR THE PORTFOLIOS:
EUROPEAN REAL ESTATE PORTFOLIO
THEODORE R. BIGMAN AND DANIEL A. POLICY
Theodore R. Bigman joined Morgan Stanley in 1995 and currently is a Principal of
MSDW Investment Management and Morgan Stanley. He has primary responsibility for
managing MSDW Investment Management's global real estate securities business.
Prior to joining MSDW Investment Management, he was a Director at CS First
Boston, where he worked for eight years in the Real Estate Group. While at CS
First Boston, Mr. Bigman established and managed that firm's REIT effort,
including primary responsibility for $2.5 billion of initial public offerings by
REITs. Mr. Bigman graduated from Brandeis University in 1983 with a B.A. in
Economics and received his M.B.A. from Harvard University in 1987. Daniel A.
Policy joined MSDW Investment Management in 1995 as a Research Analyst in New
York and moved to MSDW Investment Management's Amsterdam office in 1997 to
establish and support the European Real Estate Portfolio. Mr. Policy graduated
from the University of Notre Dame in 1992 with a B.B.A. in Accounting, and
received his J.D. from the University of California, Hastings College of Law in
1995. Messrs. Bigman and Policy have shared primary responsibility for managing
the Portfolio's assets since January 1999.
ASIAN REAL ESTATE PORTFOLIO
KIAT SENG SEAH
Kiat Seng Seah joined MSDW Investment Management's Singapore office in 1990 as a
Portfolio Manager/Analyst specializing in the Asian equity markets. He is
currently a Principal of MSDW Investment Management and Morgan Stanley and is
responsible for the Asian real estate securities investment business. He has had
primary responsibility for managing the Portfolio's assets since its inception.
Kiat Seng is a Chartered Financial Analyst and a qualified real estate valuer
who spent a total of four years as a real estate appraiser, first for the New
Zealand Government and then for the Singapore Ministry of Finance. He was a
Colombo Plan Scholar at the University of Auckland, New Zealand and graduated
with a degree in Property Administration.
U.S. REAL ESTATE PORTFOLIO
THEODORE R. BIGMAN AND DOUGLAS A. FUNKE
Information about Theodore R. Bigman is included under the European Real Estate
Portfolio above. Douglas A. Funke joined Morgan Stanley in 1993 as a Financial
Analyst. Currently, he is Vice President of MSDW Investment Management and
Morgan Stanley and is responsible for providing research and analytical support
for the group's real estate securities investment business. Prior to joining
MSDW Investment Management, he was a member of Morgan Stanley's Interest Rate
and Foreign Exchange Risk Management Group, where he assisted in the execution
of more than $3 billion of structured financings and firm-related risk
management projects. Mr. Funke graduated from the University of Chicago in 1993
with a B.A. in Economics and Political Science. He is a member of the National
Association of Real Estate Investment Trusts and the New York Society of
Securities Analysts. Mr. Bigman has shared primary responsibility for managing
the Portfolio's assets since March 1995. Mr. Funke has shared primary
responsibility for managing the Portfolio's assets since January 1999.
8
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTION OF PORTFOLIO SHARES
- -------------------------------------------------------------------------------
Morgan Stanley is the exclusive Distributor of Class A shares and Class B shares
of each Portfolio. Morgan Stanley receives no compensation for distributing
Class A shares of the Portfolios. The Fund has adopted a Plan of Distribution
with respect to the Class B shares of each Portfolio pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended, (the "Plan"). Under the
Plan, each Portfolio pays the Distributor a distribution fee of 0.25% of the
Class B shares' average daily net assets on an annualized basis. The
distribution fee compensates the Distributor for marketing and selling Class B
shares. The Distributor may pay others for providing distribution-related and
other services, including account maintenance services. Over time the
distribution fees will increase the cost of your investment and may cost you
more than paying other types of sales charges.
- -------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------
ABOUT NET ASSET VALUE
The net asset value ("NAV") per share of a class of shares of a Portfolio is
determined by dividing the total market value of the Portfolio's investments and
other assets attributable to the class, less any liabilities attributable to the
class, by the total number of outstanding shares of that class of the Portfolio.
In making this calculation, the Portfolio generally values securities at market
price. If market prices are unavailable or may be unreliable because of events
occurring after the close of trading, fair value prices may be determined in
good faith using methods approved by the Board of Directors. The Portfolios may
hold portfolio securities that are listed on foreign exchanges. These securities
may trade on weekends or other days when the Portfolios do not calculate NAV. As
a result, the value of these investments may change on days when you cannot
purchase or sell shares.
PRICING OF PORTFOLIO SHARES
You may buy or sell (redeem) Class A and Class B shares of each Portfolio at the
net asset value next determined for the class after receipt of your order. The
Fund determines net asset value as of the close of the New York Stock Exchange
("NYSE") (normally 4:00 p.m. Eastern Time) on each day that the NYSE is open for
business (the "Pricing Time").
HOW TO PURCHASE SHARES
You may purchase Class A shares and Class B shares of each Portfolio directly
from the Fund, from the Distributor or through certain third parties ("Financial
Intermediaries") on each day that the NYSE is open.
The minimum initial investment generally is $500,000 for Class A shares and
$100,000 for Class B shares of each Portfolio. The minimum additional investment
generally is $1,000 for each account that you have. If the value of your account
falls below the minimum initial investment amount for Class A shares or Class B
shares as a result of share redemptions, the Fund will notify you. Your account
may be subject to involuntary conversion from Class A shares to Class B shares
or involuntary redemption in the case of Class B shares if the value of your
account remains below the minimum initial investment amount for 60 consecutive
days. MSDW Investment Management may waive the minimum initial investment and
involuntary conversion or redemption features for certain investors, including
individuals purchasing through a Financial Intermediary.
You may arrange to purchase shares directly from the Fund by calling
1-800-548-7786 or by returning a completed Account Registration Form with
payment for your purchase. The price you pay will be the net asset value
calculated at the Pricing Time following receipt of your purchase order and
payment.
To purchase shares through the Distributor or a Financial Intermediary, you
should contact the Distributor or your Financial Intermediary for details.
Generally, the price of shares purchased through the Distributor or a Financial
Intermediary is the price calculated at the next Pricing Time after the Fund
receives your order from the Distributor or your Financial Intermediary. Certain
Financial Intermediaries have made arrangements with the Fund so that you may
purchase shares at the price calculated at the next Pricing Time after your
Financial Intermediary receives your purchase order. Your Financial Intermediary
may charge an additional service or transaction fee.
9
<PAGE>
HOW TO REDEEM SHARES
You may redeem Portfolio shares directly from the Fund, through the Distributor
or through your Financial Intermediary, each as described above under Purchase
of Shares. The redemption price will be the net asset value per share calculated
at the next Pricing Time, which may be more or less than the purchase price of
your shares. The Fund will ordinarily distribute redemption proceeds in cash
within one business day of your redemption request, but may take up to seven
business days. However, if you purchased shares by check, the Fund will not
distribute redemption proceeds until it has collected your purchase payment,
which may take up to eight days. In certain circumstances, for example, if
payment of redemption proceeds in cash would be detrimental to the remaining
shareholders, a Portfolio may pay redemption proceeds by a distribution-in-kind
of readily marketable portfolio securities.
EXCHANGE FEATURES
You may exchange Portfolio shares for shares of the other available portfolios
of the Fund. To obtain a prospectus for another portfolio, call the Fund at
1-800-548-7786 or contact your Financial Intermediary. If you purchased
Portfolio shares through a Financial Intermediary, certain portfolios may be
unavailable for exchange. Contact your Financial Intermediary to determine which
portfolios are available for exchange. The Fund currently consists of the
following portfolios:
<TABLE>
<S> <C>
U.S. EQUITY GLOBAL AND INTERNATIONAL EQUITY
Aggressive Equity Portfolio Active International Allocation
Emerging Growth Portfolio Portfolio
Equity Growth Portfolio Asian Real Estate Portfolio
MicroCap Portfolio+ Asian Equity Portfolio
Technology Portfolio China Growth Portfolio+
U.S. Equity Plus Portfolio Emerging Markets Portfolio
U.S. Real Estate Portfolio European Equity Portfolio
Value Equity Portfolio European Real Estate Portfolio
FIXED INCOME Global Equity Portfolio
Emerging Markets Debt Portfolio Gold Portfolio*
Fixed Income Portfolio International Equity Portfolio*
Global Fixed Income Portfolio International Magnum Portfolio
High Yield Portfolio International Small Cap Portfolio
Mortgage-Backed Securities Portfolio+ Japanese Equity Portfolio
Municipal Bond Portfolio Latin American Portfolio
MONEY MARKET
Money Market Portfolio
Municipal Money Market Portfolio
</TABLE>
*PORTFOLIO IS CURRENTLY CLOSED TO NEW INVESTORS
+PORTFOLIO HAS NOT YET COMMENCED OPERATIONS
When you exchange for shares of another portfolio, your transaction will be
treated the same as an initial purchase. You will be subject to the same minimum
initial investment and account size as an initial purchase. Accordingly, you
will not necessarily receive the same class of shares that you tendered for
exchange. Your exchange price will be the price calculated at the next Pricing
Time after the Fund receives your exchange order. Frequent trades in your
account(s) can disrupt management of a Portfolio and raise its expenses.
Therefore, the Fund may bar a shareholder who trades excessively from making
further exchanges or purchases.
10
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Each Portfolio's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of quarterly dividends and to
distribute net capital gains on an annual basis.
The Fund automatically reinvests all dividends and distributions in additional
shares. However, you may elect to receive distributions in cash by giving
written notice to the Fund or your Financial Intermediary or by checking the
appropriate box in the Distribution Option section on the Account Registration
Form.
TAXES
The dividends and distributions you receive from a Portfolio may be subject to
Federal, state and local taxation, depending on your tax situation. The tax
treatment of dividends and distributions is the same whether or not you reinvest
them. Dividends are taxed as ordinary income, long-term capital gains
distributions are taxed at a maximum rate of 20% and short-term capital gains
distributions are taxed at ordinary rates. A Portfolio may be able to pass
through to you a credit for foreign income taxes it pays. The Fund will tell you
annually how to treat dividends and distributions.
If you redeem shares of a Portfolio, you will be subject to tax on any gains you
earn based on your holding period for the shares. An exchange of shares of a
Portfolio for shares of another portfolio is a sale of Portfolio shares for tax
purposes. Conversions of shares between classes will not result in taxation.
Because each investor's tax circumstances are unique and the tax laws may
change, you should consult your tax advisor about your investment.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The following financial highlights tables are intended to help you understand
the financial performance of the Class A shares and Class B shares of each
Portfolio for the past five years or, if less than five years, the life of the
Portfolio or Class. Certain information reflects financial results for a single
Portfolio share. The total returns in the tables represent the rate that an
investor would have earned (or lost) on an investment in each Portfolio
(assuming reinvestment of all dividends and distributions). This information has
been audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, are incorporated by reference into the Fund's Statement of
Additional Information and are included in the Fund's December 31, 1998 Annual
Report to Shareholders. The Annual Report and the financial statements therein,
as well as the Statement of Additional Information, are available at no cost
from the Fund at the toll free number noted on the back cover to this
Prospectus.
11
<PAGE>
- ----------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
EUROPEAN REAL ESTATE PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-----------------------------
PERIOD FROM
OCTOBER 1,
YEAR ENDED 1997* TO
DECEMBER 31, DECEMBER 31,
SELECTED PER SHARE DATA AND RATIOS 1998 1997
<S> <C> <C>
- ----------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.52 $ 10.00
------------- -------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (1) 0.12 0.05
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS 0.33 (0.52)
------------- -------------
TOTAL FROM INVESTMENT OPERATIONS 0.45 (0.47)
------------- -------------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.25) (0.01)
IN EXCESS OF NET INVESTMENT INCOME (0.14) --
------------- -------------
TOTAL DISTRIBUTIONS (0.39) (0.01)
------------- -------------
NET ASSET VALUE, END OF PERIOD $ 9.58 $ 9.52
------------- -------------
------------- -------------
TOTAL RETURN 4.75% (4.72)%
------------- -------------
------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $33,422 $15,177
RATIO OF EXPENSES TO AVERAGE NET ASSETS
(1) 1.03% 1.00%**
RATIO OF EXPENSES TO AVERAGE NET ASSETS
EXCLUDING INTEREST EXPENSE 1.00% N/A
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS (1) 1.33% 2.08%**
PORTFOLIO TURNOVER RATE 119% 47%
- -----------------
(1) EFFECT OF VOLUNTARY EXPENSE
LIMITATION DURING THE PERIOD:
PER SHARE BENEFIT TO NET
INVESTMENT INCOME $0.03 $0.05
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.43% 3.05%**
NET INVESTMENT INCOME TO AVERAGE
NET ASSETS 0.95% 0.03%**
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-----------------------------
PERIOD FROM
OCTOBER 1,
YEAR ENDED 1997* TO
DECEMBER 31, DECEMBER 31,
1998 1997
<S> <C> <C>
- -------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 9.52 $10.00
------------- -------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (2) 0.11 0.02
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS 0.33 (0.50)
------------- -------------
TOTAL FROM INVESTMENT
OPERATIONS 0.44 (0.48)
------------- -------------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.22) --
IN EXCESS OF NET INVESTMENT
INCOME (0.13) --
------------- -------------
TOTAL DISTRIBUTIONS (0.35) --
------------- -------------
NET ASSET VALUE, END OF PERIOD $ 9.61 $ 9.52
------------- -------------
------------- -------------
TOTAL RETURN 4.60% (4.76)%
------------- -------------
------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(THOUSANDS) $2,531 $789
RATIO OF EXPENSES TO AVERAGE
NET ASSETS (2) 1.28% 1.25%**
RATIO OF EXPENSES TO AVERAGE
NET ASSETS EXCLUDING INTEREST
EXPENSE 1.25% N/A
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS (2) 1.15% 1.51%**
PORTFOLIO TURNOVER RATE 119% 47%
- -----------------
(2) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE PERIOD:
PER SHARE BENEFIT TO NET
INVESTMENT INCOME $0.04 $0.03
RATIOS BEFORE EXPENSE
LIMITATION:
EXPENSES TO AVERAGE NET
ASSETS 1.68% 3.12%**
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 0.77% (0.36)%**
- -------------------------------------------------------------
</TABLE>
*COMMENCEMENT OF OPERATIONS
**ANNUALIZED
12
<PAGE>
- ----------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
ASIAN REAL ESTATE PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
PERIOD FROM
OCTOBER 1,
YEAR ENDED 1997* TO
DECEMBER 31, DECEMBER 31,
SELECTED PER SHARE DATA AND RATIOS 1998 1997
<S> <C> <C>
- -----------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.94 $10.00
------------- -------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (1) 0.26 0.11
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS (1.24) (2.10)
------------- -------------
TOTAL FROM INVESTMENT OPERATIONS (0.98) (1.99)
------------- -------------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.33) (0.07)
------------- -------------
TOTAL DISTRIBUTIONS (0.33) (0.07)
------------- -------------
NET ASSET VALUE, END OF PERIOD $ 6.63 $ 7.94
------------- -------------
------------- -------------
TOTAL RETURN (11.82)% (19.92)%
------------- -------------
------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $2,447 $2,385
RATIO OF EXPENSES TO AVERAGE NET ASSETS
(1) 1.05% 1.08%**
RATIO OF EXPENSES TO AVERAGE NET ASSETS
EXCLUDING INTEREST EXPENSE 1.00% 1.00%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS (1) 2.47% 5.21%**
PORTFOLIO TURNOVER RATE 261% 38%
- -----------------
(1) EFFECT OF VOLUNTARY EXPENSE
LIMITATION DURING THE PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT
INCOME $0.36 $0.25
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 4.52% 12.95%**
NET INVESTMENT LOSS TO AVERAGE NET
ASSETS (1.00)% (6.66)%**
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
PERIOD FROM
OCTOBER 1,
YEAR ENDED 1997* TO
DECEMBER 31, DECEMBER 31,
1998 1997
<S> <C> <C>
- -----------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.03 $10.00
------------- -------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (2) 0.12 --
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS (1.16) (1.97)
------------- -------------
TOTAL FROM INVESTMENT OPERATIONS (1.04) (1.97)
------------- -------------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.33) --
------------- -------------
TOTAL DISTRIBUTIONS (0.33) --
------------- -------------
NET ASSET VALUE, END OF PERIOD $ 6.66 $ 8.03
------------- -------------
------------- -------------
TOTAL RETURN (12.53)% (19.70)%
------------- -------------
------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $ 761 $ 0+
RATIO OF EXPENSES TO AVERAGE NET ASSETS
(2) 1.38% 1.18%**
RATIO OF EXPENSES TO AVERAGE NET ASSETS
EXCLUDING INTEREST EXPENSE 1.25% N/A
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS (2) 2.39% 4.24%**
PORTFOLIO TURNOVER RATE 261% 38%
- -----------------
(2) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT
INCOME $ 0.18 N/A
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 5.03% N/A
NET INVESTMENT LOSS TO AVERAGE NET
ASSETS (1.27)% N/A
- -----------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** ANNUALIZED
+ AMOUNT IS LESS THAN $500.
13
<PAGE>
- ----------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
U.S. REAL ESTATE PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A PERIOD FROM
FEBRUARY 24,
1995* TO
SELECTED PER SHARE DATA AND YEAR ENDED DECEMBER 31, DECEMBER 31,
RATIOS 1998 1997 1996 1995
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 15.38 $ 14.41 $ 11.42 $ 10.00
-------- -------- -------- -------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (1) 0.47 0.42 0.37 0.26
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (2.32) 3.40 4.02 1.84
-------- -------- -------- -------------
TOTAL FROM INVESTMENT
OPERATIONS (1.85) 3.82 4.39 2.10
-------- -------- -------- -------------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.49) (0.43) (0.39) (0.24)
NET REALIZED GAIN (0.10) (2.16) (1.01) (0.44)
IN EXCESS OF NET REALIZED
GAIN (0.23) (0.26) -- --
-------- -------- -------- -------------
TOTAL DISTRIBUTIONS (0.82) (2.85) (1.40) (0.68)
-------- -------- -------- -------------
NET ASSET VALUE, END OF PERIOD $ 12.71 $ 15.38 $ 14.41 $ 11.42
-------- -------- -------- -------------
-------- -------- -------- -------------
TOTAL RETURN (12.29)% 27.62% 39.56% 21.07%
-------- -------- -------- -------------
-------- -------- -------- -------------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(THOUSANDS) $259,589 $361,549 $210,368 $69,509
RATIO OF EXPENSES TO AVERAGE
NET ASSETS (1) 1.00% 1.00% 1.00% 1.00%**
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS (1) 3.33% 2.72% 3.08% 4.04%**
PORTFOLIO TURNOVER RATE 117% 135% 171% 158%
------------------
(1) EFFECT OF VOLUNTARY
EXPENSE LIMITATION
DURING THE PERIOD:
PER SHARE BENEFIT TO NET
INVESTMENT INCOME $0.00+ $0.01 $0.02 $0.02
RATIOS BEFORE EXPENSE
LIMITATION:
EXPENSES TO AVERAGE NET
ASSETS 1.04% 1.04% 1.14% 1.33%**
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 3.30% 2.68% 2.93% 3.71%**
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B PERIOD FROM
JANUARY 2,
YEAR ENDED DECEMBER 1996*** TO
31, DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- -------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 15.34 $ 14.39 $11.50
------- --------- -------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (2) 0.47 0.47 0.35
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (2.35) 3.29 3.92
------- --------- -------------
TOTAL FROM INVESTMENT
OPERATIONS (1.88) 3.76 4.27
------- --------- -------------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.46) (0.39) (0.37)
NET REALIZED GAIN (0.10) (2.16) (1.01)
IN EXCESS OF NET REALIZED GAIN (0.23) (0.26) --
------- --------- -------------
TOTAL DISTRIBUTIONS (0.79) (2.81) (1.38)
NET ASSET VALUE, END OF PERIOD $ 12.67 $ 15.34 $14.39
------- --------- -------------
------- --------- -------------
TOTAL RETURN (12.52)% 27.21% 38.23%
------- --------- -------------
------- --------- -------------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(THOUSANDS) $13,523 $21,231 $8,734
RATIO OF EXPENSES TO AVERAGE NET
ASSETS (2) 1.25% 1.25% 1.25%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS (2) 3.23% 3.49% 2.91%**
PORTFOLIO TURNOVER RATE 117% 135% 171%
------------------
(2) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE
PERIOD:
PER SHARE BENEFIT TO NET
INVESTMENT INCOME $0.01 $0.00+ $0.02
RATIOS BEFORE EXPENSE
LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.29% 1.28% 1.37%**
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 3.20% 3.46% 2.79%**
</TABLE>
* COMMENCEMENT OF OPERATIONS
** ANNUALIZED
*** THE PORTFOLIO BEGAN OFFERING CLASS B SHARES ON JANUARY 2, 1996.
+ AMOUNT IS LESS THAN $0.01 PER SHARE.
14
<PAGE>
- -------------------------------------------------------------------------------
WHERE TO FIND ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
In addition to this Prospectus, the Fund has a Statement of Additional
Information ("SAI"), dated May 1, 1999, which contains additional, more detailed
information about the Fund and the Portfolios. The SAI is incorporated by
reference into this Prospectus and, therefore, legally forms a part of this
Prospectus.
SHAREHOLDER REPORTS
The Fund publishes annual and semi-annual reports containing financial
statements, and quarterly reports. These reports contain additional information
about each Portfolio's investments. In the Fund's shareholder reports, you will
find a discussion of the market conditions and the investment strategies that
significantly affected each Portfolio's performance during that period.
For additional Fund information, including information regarding the investments
comprising the Fund's Portfolios, please call 1-800-548-7786.
You may obtain the SAI and shareholder reports without charge by contacting the
Fund at the toll-free number above. If you purchased shares through a Financial
Intermediary, you may also obtain these documents, without charge, by contacting
your Financial Intermediary.
Information about the Fund, including the SAI, and the annual and semi-annual
reports, may be obtained from the Securities and Exchange Commission in any of
the following ways: (1) In person: you may review and copy documents in the
Commission's Public Reference Room in Washington D.C. (for information call
1-800-SEC-0330); (2) On-line: you may retrieve information from the Commission's
web site at "http://www.sec.gov"; or (3) By mail: you may request documents,
upon payment of a duplicating fee, by writing to Securities and Exchange
Commission, Public Reference Section, Washington, D.C. 20549-6009. To aid you in
obtaining this information, the Fund's Investment Company Act registration
number is 811-05624.
[LOGO] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
P.O. Box 2798
Boston, Massachusetts 02208-2798
FOR INFORMATION CALL 1-800-548-7786
<PAGE>
- -------------------------------------------------------------------------------
PROSPECTUS MAY 1, 1999
- -------------------------------------------------------------------------------
A PORTFOLIO OF [LOGO] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
INTERNATIONAL MAGNUM PORTFOLIO
THE INTERNATIONAL MAGNUM PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY
INVESTING PRIMARILY IN EQUITY SECURITIES OF NON-U.S. ISSUERS DOMICILED IN EAFE
COUNTRIES.
INVESTMENT ADVISER
Morgan Stanley Dean Witter Investment Management Inc.
DISTRIBUTOR
Morgan Stanley & Co. Incorporated
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC. (THE "FUND") IS A NO-LOAD
MUTUAL FUND THAT IS DESIGNED TO MEET THE INVESTMENT NEEDS OF DISCERNING
INVESTORS WHO PLACE A PREMIUM ON QUALITY AND PERSONAL SERVICE. THE FUND MAKES
AVAILABLE TO INSTITUTIONAL INVESTORS A SERIES OF PORTFOLIOS WHICH BENEFIT FROM
THE INVESTMENT EXPERTISE AND COMMITMENT TO EXCELLENCE ASSOCIATED WITH MORGAN
STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC. ("MSDW INVESTMENT MANAGEMENT")
AND ITS AFFILIATES. THIS PROSPECTUS OFFERS CLASS A AND CLASS B SHARES OF THE
INTERNATIONAL MAGNUM PORTFOLIO (THE "PORTFOLIO").
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT SUMMARY
INTERNATIONAL MAGNUM PORTFOLIO 1
ADDITIONAL RISK FACTORS AND INFORMATION 2
FEES AND EXPENSES OF THE PORTFOLIO 4
INVESTMENT ADVISER 5
MANAGEMENT FEE 5
PORTFOLIO MANAGER 6
DISTRIBUTION OF PORTFOLIO SHARES 7
SHAREHOLDER INFORMATION 7
FINANCIAL HIGHLIGHTS 9
INTERNATIONAL MAGNUM PORTFOLIO 10
ACCOUNT REGISTRATION FORM
[TO BE ATTACHED]
</TABLE>
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO
- -------------------------------------------------------------------------------
THE INTERNATIONAL MAGNUM PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY
INVESTING PRIMARILY IN EQUITY SECURITIES OF NON-U.S. ISSUERS DOMICILED IN EAFE
COUNTRIES.
APPROACH
MSDW Investment Management seeks to achieve superior long-term returns by
creating a diversified portfolio of undervalued international equity securities.
To achieve this goal, MSDW Investment Management uses a combination of strategic
geographic asset allocation and fundamental, value oriented stock selection.
PROCESS
The Portfolio is managed using a two-part process combining the expertise of
investment teams based in New York, London, Tokyo and Singapore. The New
York-based portfolio management team decides upon the appropriate allocation of
the Portfolio's assets among Europe, Japan and developed Asia, including
Australia and New Zealand. Regional allocation decisions are based on a variety
of factors, including relative valuations, earnings expectations, macroeconomic
factors, as well as input from the regional stock selection teams and from MSDW
Investment Management's Asset Allocation Committee, which is made up of several
of MSDW Investment Management's most senior investment officers. Once the
allocations to Europe, Asia and Japan have been determined, three overseas
investment teams in London (for European stocks), Tokyo (for Japanese stocks)
and Singapore (for Asian stocks) decide which stocks to purchase for their
respective geographic regions. The regional portfolio management teams look for
stocks that they believe to be undervalued by the market. The regional
specialists analyze each company's finances, products and management, typically
meeting with each company's management before a stock is purchased for the
Portfolio. The Portfolio invests primarily in countries comprising the MSCI
Europe, Australasia, Far East (EAFE) Index (the "EAFE Index"). EAFE countries
include Japan, most nations in Western Europe, Australia, New Zealand, Hong Kong
and Singapore. However, the Portfolio also may invest up to 5% of its assets in
countries not included in the EAFE Index.
RISK
Investing in the International Magnum Portfolio may be appropriate for you if
you are willing to accept the risks and uncertainties of investing in the equity
securities of non-U.S. issuers in the hope of earning superior returns and
diversifying your investment portfolio. In general, prices of equity securities
are more volatile than those of fixed income securities. The prices of equity
securities will rise and fall in response to a number of different factors. In
particular, prices of equity securities will respond to events which affect
entire financial markets or industries (changes in inflation or consumer demand,
for example) and to events that affect particular issuers (news about the
success or failure of a new product, for example). In addition, at times the
Portfolio's market sector, foreign equity securities, may underperform relative
to other sectors. The risks of investing in the Portfolio may be intensified
because the Portfolio is non-diversified, which means that it may invest in
securities of a limited number of issuers. As a result, the performance of a
particular investment or a small group of investments may affect the Portfolio's
performance more than if the Portfolio were diversified.
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
PERFORMANCE (CLASS A SHARES)
<TABLE>
<S> <C>
COMMENCED OPERATIONS ON MARCH 15, 1996
1997 6.58%
1998 7.33%
HIGH (QUARTER) LOW (QUARTER)
1/98 - 3/98 7/98 - 9/98
14.26% -17.57%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A CLASS B
(COMMENCED (COMMENCED
OPERATIONS ON OPERATIONS ON MSCI EAFE
MARCH 15, 1996) MARCH 15, 1996) INDEX*
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------
PAST ONE YEAR 7.33% 7.13% 20.00%
- ----------------------------------------------------------------------------------
PAST FIVE YEARS N/A N/A N/A
- ----------------------------------------------------------------------------------
SINCE INCEPTION 7.94% 7.65% 9.81%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. HOW THE PORTFOLIO HAS PERFORMED IN THE PAST
DOES NOT NECESSARILY INDICATE HOW THE PORTFOLIO WILL PERFORM IN THE FUTURE.
*THE MSCI EAFE INDEX IS AN UNMANAGED INDEX OF COMMON STOCKS AND INCLUDES EUROPE,
AUSTRALASIA AND THE FAR EAST (INCLUDES DIVIDENDS NET OF WITHHOLDING TAXES).
1
<PAGE>
- --------------------------
INVESTMENT SUMMARY
- --------------------------------------------------------------------------------
ADDITIONAL RISK FACTORS AND INFORMATION
- -------------------------------------------------------------------------------
THIS SECTION DISCUSSES ADDITIONAL RISK FACTORS AND INFORMATION RELATED TO THE
PORTFOLIO. THE PORTFOLIO'S INVESTMENT PRACTICES AND LIMITATIONS ARE DESCRIBED IN
MORE DETAIL IN THE STATEMENT OF ADDITIONAL INFORMATION ("SAI"), WHICH LEGALLY IS
A PART OF THIS PROSPECTUS. FOR DETAILS ABOUT HOW TO OBTAIN A COPY OF THE SAI AND
OTHER REPORTS AND INFORMATION, SEE THE BACK COVER OF THIS PROSPECTUS.
PRICE VOLATILITY
The value of your investment in the Portfolio is based on the market prices of
the securities the Portfolio holds. These prices change daily due to economic
and other events that affect markets generally, as well as those that affect
particular regions, countries, industries and companies. These price movements,
sometimes called volatility, may be greater or lesser depending on the types of
securities the Portfolio owns and the markets in which the securities trade.
Over time, equity securities have generally shown superior gains, although they
have tended to be more volatile than fixed income securities in the short term.
Fixed income securities, regardless of credit quality, also experience price
volatility, especially in response to interest rate changes. As a result of
price volatility, there is a risk that you may lose money by investing in the
Portfolio.
FOREIGN INVESTING
Investing in foreign countries entails the risk that news and events unique to a
country or region will affect those markets and their issuers. These same events
will not necessarily have an effect on the U.S. economy or similar issuers
located in the United States. In addition, the Portfolio's investments in
foreign countries generally will be denominated in foreign currencies. As a
result, changes in the value of a country's currency compared to the U.S. dollar
may affect the value of the Portfolio's investments. These changes may occur
separately from and in response to events that do not otherwise affect the value
of the security in the issuer's home country. MSDW Investment Management may
invest in certain instruments, such as derivatives, and may use certain
techniques, such as hedging, to manage these risks. However, MSDW Investment
Management cannot guarantee that it will be practical to hedge these risks in
certain markets or under particular conditions or that it will succeed in doing
so.
EMERGING MARKET RISKS
Emerging market countries are countries that major international financial
institutions, such as the World Bank, generally consider to be less economically
mature than developed nations, such as the United States or most nations in
Western Europe. Emerging market countries can include every nation in the world
except the United States, Canada, Japan, Australia, New Zealand, and most
countries located in Western Europe. Emerging market countries may be more
likely to experience political turmoil or rapid changes in economic conditions
than more developed countries, and the financial condition of issuers in
emerging market countries may be more precarious than in other countries. These
characteristics result in greater risk of price volatility in emerging market
countries, which may be heightened by currency fluctuations relative to the U.S.
dollar.
DERIVATIVES
The Portfolio may use various instruments that derive their values from those of
specified securities, indices, currencies or other points of reference for both
hedging and non-hedging purposes. Derivatives include futures, options, forward
contracts, swaps, and structured notes. These derivatives, including those used
to manage risk, are themselves subject to risks of the different markets in
which they trade and, therefore, may not serve their intended purposes.
The primary risks of derivatives are: (i) changes in the market value of
securities held by the Portfolio, and of derivatives relating to those
securities, may not be proportionate, (ii) there may not be a liquid market for
the Portfolio to sell a derivative, which could result in difficulty closing a
position and (iii) certain derivatives can magnify the extent of losses incurred
due to changes in the market value of the securities to which they relate. In
addition, derivatives are subject to counter party risk. To minimize this risk,
the Portfolio may enter into derivatives transactions with counter parties that
meet certain requirements for credit quality and collateral. Also, the Portfolio
may invest in certain derivatives that require the Portfolio to segregate some
or all of its cash or liquid securities to cover its obligations under those
instruments. At certain levels, this can cause the Portfolio to lose flexibility
in managing its investments properly, responding to shareholder redemption
requests, or meeting other obligations. If the Portfolio is in that position, it
could be forced to sell other securities that it wanted to retain.
The Portfolio will limit its use of derivatives for non-hedging purposes to
33 1/3% of its total assets measured by the aggregate notional amount of
outstanding derivatives. While the use of derivatives may be advantageous to the
Portfolio, if MSDW Investment Management is not
2
<PAGE>
successful in employing them, the Portfolio's performance may be worse than if
it did not make such investments. See the Statement of Additional Information
for more about the risks of different types of derivatives.
BANK INVESTORS
An investment in the Portfolio is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
YEAR 2000 RISK
The advisory and distribution services that MSDW Investment Management and
Morgan Stanley & Co. Incorporated ("Morgan Stanley") provide to the Fund depend
on the smooth operation of their computer systems. Many computer and 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. MSDW Investment Management and Morgan Stanley have
been actively working on necessary changes to their own computer systems to deal
with the year 2000 problem and expect that their systems will be adapted before
that date. There can be no assurance, however, that they will be successful. In
addition, other unaffiliated service providers may be faced with similar
problems. MSDW Investment Management and Morgan Stanley are monitoring their
remedial efforts, but there can be no assurance that they and the services they
provide will not be adversely affected.
In addition, it is possible that the markets for securities in which the
Portfolios invest 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 Portfolio's investments may be
adversely affected.
TEMPORARY DEFENSIVE
INVESTMENTS
When MSDW Investment Management believes that changes in economic, financial or
political conditions warrant, the Portfolio may invest without limit in certain
short- and medium-term fixed income securities for temporary defensive purposes.
If MSDW Investment Management incorrectly predicts the effects of these changes,
such defensive investments may adversely affect the Portfolio's performance and
the Portfolio may not achieve its investment objective.
PORTFOLIO TURNOVER
Consistent with its investment policies, the Portfolio will purchase and sell
securities without regard to the effect on portfolio turnover. Higher portfolio
turnover (e.g. over 100% per year) will cause the Portfolio to incur additional
transaction costs and may result in taxable gains being passed through to
shareholders.
3
<PAGE>
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE PORTFOLIO
- -------------------------------------------------------------------------------
The Securities and Exchange Commission (the "Commission") requires that the Fund
disclose in the table below the fees and expenses that you may pay if you buy
and hold shares of the Portfolio. The Portfolio does not charge any sales loads
or similar fees when you purchase or redeem shares. The Annual Fund Operating
Expenses in the table below do not reflect voluntary fee waivers and/or expense
reimbursements from MSDW Investment Management.
1998 ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)*
<TABLE>
<CAPTION>
INTERNATIONAL
MAGNUM PORTFOLIO
<S> <C>
MANAGEMENT FEES
- --------------------------------------------------------------------
CLASS A 0.80%
- --------------------------------------------------------------------
CLASS B 0.80%
12b-1 FEE
- --------------------------------------------------------------------
CLASS A NONE
- --------------------------------------------------------------------
CLASS B 0.25%
OTHER EXPENSES
- --------------------------------------------------------------------
CLASS A 0.33%
- --------------------------------------------------------------------
CLASS B 0.32%
TOTAL ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------
CLASS A 1.13%
- --------------------------------------------------------------------
CLASS B 1.37%
</TABLE>
* The Management Fees for the Portfolio shown in the table above are the highest
that could be charged. This table does not show the effects of MSDW Investment
Management's voluntary fee waivers and/or expense reimbursements. MSDW
Investment Management has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolio so that total annual operating expenses,
excluding certain investment related expenses described below, will not exceed
1.00% for Class A shares and 1.25% for Class B shares.
IN DETERMINING THE ACTUAL AMOUNT OF VOLUNTARY MANAGEMENT FEE WAIVER AND/OR
EXPENSE REIMBURSEMENT FOR THE PORTFOLIO, IF ANY, MSDW INVESTMENT MANAGEMENT
EXCLUDES FROM ANNUAL OPERATING EXPENSES CERTAIN INVESTMENT RELATED EXPENSES,
SUCH AS FOREIGN COUNTRY TAX EXPENSE AND INTEREST EXPENSE ON BORROWING. IF THESE
EXPENSES WERE INCURRED, THE PORTFOLIO'S TOTAL OPERATING EXPENSES AFTER VOLUNTARY
FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS WOULD EXCEED THE EXPENSE RATIO SHOWN
ABOVE.
FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS ARE VOLUNTARY AND MSDW INVESTMENT
MANAGEMENT RESERVES THE RIGHT TO TERMINATE ANY WAIVER AND/OR REIMBURSEMENT AT
ANY TIME AND WITHOUT NOTICE.
4
<PAGE>
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
PORTFOLIO WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS HAVING SIMILAR
INVESTMENT OBJECTIVES.
The example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example assumes that your investment has a 5% return each year and
that the Portfolio's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
INTERNATIONAL MAGNUM PORTFOLIO
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------
CLASS A $115 $359 $622 $1,375
- ----------------------------------------------------------------------
CLASS B $139 $434 $750 $1,646
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
- -------------------------------------------------------------------------------
Morgan Stanley Dean Witter Investment Management Inc. ("MSDW Investment
Management"), with principal offices at 1221 Avenue of the Americas, New York,
New York 10020, conducts a worldwide portfolio management business and provides
a broad range of portfolio management services to customers in the United States
and abroad. Morgan Stanley Dean Witter & Co. ("MSDW") is the direct parent of
MSDW Investment Management and Morgan Stanley. MSDW is a preeminent global
financial services firm that maintains leading market positions in each of its
three primary businesses -- securities, asset management and credit services. At
December 31, 1998, MSDW Investment Management, together with its affiliated
institutional asset management companies, managed assets of approximately $163.4
billion, including assets under fiduciary advice.
- -------------------------------------------------------------------------------
MANAGEMENT FEE
- -------------------------------------------------------------------------------
For the year ended December 31, 1998, MSDW Investment Management received from
the Portfolio the management fee set forth in the table below:
<TABLE>
<CAPTION>
INTERNATIONAL
MAGNUM
PORTFOLIO
-----------------
<S> <C> <C>
MANAGEMENT FEE CLASS A CLASS B
-----------------
PAID IN FISCAL YEAR ENDED
DECEMBER 31, 1998 0.69% 0.69%
(NET OF WAIVERS AND AS A
PERCENTAGE OF AVERAGE NET
ASSETS)
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER
- -------------------------------------------------------------------------------
THE FOLLOWING INDIVIDUAL HAS PRIMARY DAY-TO-DAY PORTFOLIO MANAGEMENT
RESPONSIBILITY FOR THE PORTFOLIO:
INTERNATIONAL MAGNUM PORTFOLIO
FRANCINE J. BOVICH
Francine J. Bovich, a Managing Director of MSDW Investment Management and Morgan
Stanley, joined MSDW Investment Management in 1993. Prior to joining MSDW
Investment Management, she was a Principal and Executive Vice President of
Westwood Management Corp., a registered investment adviser. She began her
investment career at Bankers Trust Company. She was also a Managing Director of
Citicorp Investment Management, Inc., where she had responsibility for the
Institutional Investment Management Group. Ms. Bovich was appointed and serves
as the U.S. Representative to the United Nations Investment Committee.
Additionally, she serves as an Emeritus Trustee and Chair of the Investment
Sub-Committee for Connecticut College. She is a former board member of the YWCA
Retirement Fund. She graduated from Connecticut College with a B.A. in Economics
and received her M.B.A. in Finance from New York University. Ms. Bovich has had
primary responsibility for managing the Portfolio's assets since its inception.
6
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTION OF PORTFOLIO SHARES
- -------------------------------------------------------------------------------
Morgan Stanley is the exclusive Distributor of Class A shares and Class B shares
of the Portfolio. Morgan Stanley receives no compensation for distributing Class
A shares of the Portfolio. The Fund has adopted a Plan of Distribution with
respect to the Class B shares of the Portfolio pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, (the "Plan"). Under the Plan, the
Portfolio pays the Distributor a distribution fee of 0.25% of the Class B
shares' average daily net assets on an annualized basis. The distribution fee
compensates the Distributor for marketing and selling Class B shares. The
Distributor may pay others for providing distribution-related and other
services, including account maintenance services. Over time the distribution
fees will increase the cost of your investment and may cost you more than paying
other types of sales charges.
- -------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------
ABOUT NET ASSET VALUE
The net asset value ("NAV") per share of a class of shares of the Portfolio is
determined by dividing the total market value of the Portfolio's investments and
other assets attributable to the class, less any liabilities attributable to the
class, by the total number of outstanding shares of that class of the Portfolio.
In making this calculation, the Portfolio generally values securities at market
price. If market prices are unavailable or may be unreliable because of events
occurring after the close of trading, fair value prices may be determined in
good faith using methods approved by the Board of Directors. The Portfolio may
hold portfolio securities that are listed on foreign exchanges. These securities
may trade on weekends or other days when the Portfolio does not calculate NAV.
As a result, the value of these investments may change on days when you cannot
purchase or sell shares.
PRICING OF PORTFOLIO SHARES
You may buy or sell (redeem) Class A and Class B shares of the Portfolio at the
net asset value next determined for the class after receipt of your order. The
Fund determines net asset value as of the close of the New York Stock Exchange
("NYSE") (normally 4:00 p.m. Eastern Time) on each day that the NYSE is open for
business (the "Pricing Time").
HOW TO PURCHASE SHARES
You may purchase Class A shares and Class B shares of the Portfolio directly
from the Fund, from the Distributor or through certain third parties ("Financial
Intermediaries") on each day that the NYSE is open.
The minimum initial investment generally is $500,000 for Class A shares and
$100,000 for Class B shares. The minimum additional investment generally is
$1,000 for each account that you have. If the value of your account falls below
the minimum initial investment amount for Class A shares or Class B shares as a
result of share redemptions, the Fund will notify you. Your account may be
subject to involuntary conversion from Class A shares to Class B shares or
involuntary redemption in the case of Class B shares if the value of your
account remains below the minimum initial investment amount for 60 consecutive
days. MSDW Investment Management may waive the minimum initial investment and
involuntary conversion or redemption features for certain investors, including
individuals purchasing through a Financial Intermediary.
You may arrange to purchase shares directly from the Fund by calling
1-800-548-7786 or by returning a completed Account Registration Form with
payment for your purchase. The price you pay will be the net asset value
calculated at the Pricing Time following receipt of your purchase order and
payment.
To purchase shares through the Distributor or a Financial Intermediary, you
should contact the Distributor or your Financial Intermediary for details.
Generally, the price of shares purchased through the Distributor or a Financial
Intermediary is the price calculated at the next Pricing Time after the Fund
receives your order from the Distributor or your Financial Intermediary. Certain
Financial Intermediaries have made arrangements with the Fund so that you may
7
<PAGE>
purchase shares at the price calculated at the next Pricing Time after your
Financial Intermediary receives your purchase order. Your Financial Intermediary
may charge an additional service or transaction fee.
HOW TO REDEEM SHARES
You may redeem Portfolio shares directly from the Fund, through the Distributor
or through your Financial Intermediary, each as described above under Purchase
of Shares. The redemption price will be the net asset value per share calculated
at the next Pricing Time, which may be more or less than the purchase price of
your shares. The Fund will ordinarily distribute redemption proceeds in cash
within one business day of your redemption request, but it may take up to seven
business days. However, if you purchased shares by check, the Fund will not
distribute redemption proceeds until it has collected your purchase payment,
which may take up to eight days. In certain circumstances, for example, if
payment of redemption proceeds in cash would be detrimental to the remaining
shareholders, the Portfolio may pay redemption proceeds by a
distribution-in-kind of readily marketable portfolio securities.
EXCHANGE FEATURES
You may exchange Portfolio shares for shares of the other available portfolios
of the Fund. To obtain a prospectus for another portfolio, call the Fund at
1-800-548-7786 or contact your Financial Intermediary. If you purchased
Portfolio shares through a Financial Intermediary, certain portfolios may be
unavailable for exchange. Contact your Financial Intermediary to determine which
portfolios are available for exchange. The Fund currently consists of the
following portfolios:
<TABLE>
<S> <C>
U.S. EQUITY GLOBAL AND INTERNATIONAL EQUITY
Aggressive Equity Portfolio Active International Allocation
Emerging Growth Portfolio Portfolio
Equity Growth Portfolio Asian Real Estate Portfolio
MicroCap Portfolio+ Asian Equity Portfolio
Technology Portfolio China Growth Portfolio+
U.S. Equity Plus Portfolio Emerging Markets Portfolio
U.S. Real Estate Portfolio European Equity Portfolio
Value Equity Portfolio European Real Estate Portfolio
FIXED INCOME Global Equity Portfolio
Emerging Markets Debt Portfolio Gold Portfolio*
Fixed Income Portfolio International Equity Portfolio*
Global Fixed Income Portfolio International Magnum Portfolio
High Yield Portfolio International Small Cap Portfolio
Mortgage-Backed Securities Portfolio+ Japanese Equity Portfolio
Municipal Bond Portfolio Latin American Portfolio
MONEY MARKET
Money Market Portfolio
Municipal Money Market Portfolio
</TABLE>
*PORTFOLIO IS CURRENTLY CLOSED TO NEW INVESTORS
+PORTFOLIO HAS NOT YET COMMENCED OPERATIONS
When you exchange for shares of another portfolio, your transaction will be
treated the same as an initial purchase. You will be subject to the same minimum
initial investment and account size as an initial purchase. Accordingly, you
will not necessarily receive the same class of shares that you tendered for
exchange. Your exchange price will be the price calculated at the next Pricing
Time after the Fund receives your exchange order. Frequent trades in your
account(s) can disrupt management of the Portfolio and raise its expenses.
Therefore, the Fund may bar a shareholder who trades excessively from making
further exchanges or purchases.
8
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The Portfolio's policy is to distribute to shareholders substantially all of its
taxable net investment income in the form of an annual dividend and to
distribute net capital gains on an annual basis.
The Fund automatically reinvests all dividends and distributions in additional
shares. However, you may elect to receive distributions in cash by giving
written notice to the Fund or your Financial Intermediary or by checking the
appropriate box in the Distribution Option section on the Account Registration
Form.
TAXES
The dividends and distributions you receive from the Portfolio may be subject to
Federal, state and local taxation, depending on your tax situation. The tax
treatment of dividends and distributions is the same whether or not you reinvest
them. Dividends are taxed as ordinary income, long-term capital gains
distributions are taxed at a maximum rate of 20%, and short-term capital gains
distributions are taxed at ordinary rates. The Portfolio may be able to pass
through to you a credit for foreign income taxes it pays. The Fund will tell you
annually how to treat dividends and distributions.
If you redeem shares of the Portfolio, you will be subject to tax on any gains
you earn based on your holding period for the shares. An exchange of shares of
the Portfolio for shares of another portfolio is a sale of Portfolio shares for
tax purposes. Conversions of shares between classes will not result in taxation.
Because each investor's tax circumstances are unique and the tax laws may
change, you should consult your tax advisor about your investment.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The following financial highlights table is intended to help you understand the
financial performance of the Class A shares and Class B shares of the Portfolio
for the past five years or, if less than five years, the life of the Portfolio
or Class. Certain information reflects financial results for a single Portfolio
share. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the Portfolio (assuming reinvestment
of all dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the Fund's financial
statements, are incorporated by reference into the Fund's Statement of
Additional Information and are included in the Fund's December 31, 1998 Annual
Report to Shareholders. The Annual Report and the financial statements therein,
as well as the Statement of Additional Information, are available at no cost
from the Fund at the toll free number noted on the back cover to this
Prospectus.
9
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL MAGNUM PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------
PERIOD FROM
YEAR ENDED MARCH 15,
DECEMBER 31, 1996* TO
------------------ DECEMBER 31,
SELECTED PER SHARE DATA AND RATIOS 1998 1997 1996
<S> <C> <C> <C>
- ----------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.87 $ 10.66 $ 10.00
-------- -------- -------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (1) 0.14 0.17 0.06
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 0.66 0.54 0.76
-------- -------- -------------
TOTAL FROM INVESTMENT
OPERATIONS 0.80 0.71 0.82
-------- -------- -------------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.10) (0.41) (0.13)
IN EXCESS OF NET INVESTMENT INCOME -- -- (0.02)
NET REALIZED GAIN -- (0.09) (0.01)
-------- -------- -------------
TOTAL DISTRIBUTIONS (0.10) (0.50) (0.16)
-------- -------- -------------
NET ASSET VALUE, END OF PERIOD $ 11.57 $ 10.87 $ 10.66
-------- -------- -------------
-------- -------- -------------
TOTAL RETURN 7.33% 6.58% 8.25%
-------- -------- -------------
-------- -------- -------------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(THOUSANDS) $269,814 $159,096 $85,316
RATIO OF EXPENSES TO AVERAGE NET
ASSETS (1) 1.00% 1.00% 1.00%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS (1) 1.34% 1.44% 0.99%**
PORTFOLIO TURNOVER RATE 39% 41% 18%
- -----------------
(1) EFFECT OF VOLUNTARY EXPENSE
LIMITATION DURING THE PERIOD:
PER SHARE BENEFIT TO NET
INVESTMENT INCOME $0.01 $0.02 $0.03
RATIOS BEFORE EXPENSE
LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.13% 1.19% 1.54%**
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 1.24% 1.25% 0.44%**
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------
PERIOD FROM
YEAR ENDED MARCH 15,
DECEMBER 31, 1996* TO
---------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.84 $ 10.63 $ 10.00
------- ------- -------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (2) 0.14 0.16 0.01
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 0.64 0.52 0.78
------- ------- -------------
TOTAL FROM INVESTMENT
OPERATIONS 0.78 0.68 0.79
------- ------- -------------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.08) (0.38) (0.13)
IN EXCESS OF NET INVESTMENT INCOME -- -- (0.02)
NET REALIZED GAIN -- (0.09) (0.01)
------- ------- -------------
TOTAL DISTRIBUTIONS (0.08) (0.47) (0.16)
------- ------- -------------
NET ASSET VALUE, END OF PERIOD $ 11.54 $ 10.84 $ 10.63
------- ------- -------------
------- ------- -------------
TOTAL RETURN 7.13% 6.33% 7.90%
------- ------- -------------
------- ------- -------------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD
(THOUSANDS) $26,151 $28,217 $23,173
RATIO OF EXPENSES TO AVERAGE NET
ASSETS (2) 1.25% 1.25% 1.25%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS (2) 1.24% 1.19% 0.60%**
PORTFOLIO TURNOVER RATE 39% 41% 18%
- -----------------
(2) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE
PERIOD:
PER SHARE BENEFIT TO NET
INVESTMENT INCOME $0.01 $0.02 $0.01
RATIOS BEFORE EXPENSE
LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.37% 1.44% 1.69%**
NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 1.14% 1.00% 0.15%**
- --------------------------------------------------------------------
</TABLE>
*COMMENCEMENT OF OPERATIONS
**ANNUALIZED
10
<PAGE>
- -------------------------------------------------------------------------------
WHERE TO FIND ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
In addition to this Prospectus, the Fund has a Statement of Additional
Information ("SAI"), dated May 1, 1999, which contains additional, more detailed
information about the Fund and the Portfolio. The SAI is incorporated by
reference into this Prospectus and, therefore, legally forms a part of this
Prospectus.
SHAREHOLDER REPORTS
The Fund publishes annual and semi-annual reports containing financial
statements, and quarterly reports. These reports contain additional information
about the Portfolio's investments. In the Fund's shareholder reports, you will
find a discussion of the market conditions and the investment strategies that
significantly affected the Portfolio's performance during that period.
For additional Fund information, including information regarding investments
comprising the Fund's Portfolios, please call 1-800-548-7786.
You may obtain the SAI and shareholder reports without charge by contacting the
Fund at the toll-free number above. If you purchased shares through a Financial
Intermediary, you may also obtain these documents, without charge, by contacting
your Financial Intermediary.
Information about the Fund, including the SAI, and the annual and semi-annual
reports, may be obtained from the Securities and Exchange Commission in any of
the following ways: (1) In person: you may review and copy documents in the
Commission's Public Reference Room in Washington D.C. (for information call
1-800-SEC-0330); (2) On-line: you may retrieve information from the Commission's
web site at "http://www.sec.gov"; or (3) By mail: you may request documents,
upon payment of a duplicating fee, by writing to Securities and Exchange
Commission, Public Reference Section, Washington, D.C. 20549-6009. To aid you in
obtaining this information, the Fund's Investment Company Act registration
number is 811-05624.
[ICON] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
P.O. Box 2798
Boston, Massachusetts 02208-2798
FOR INFORMATION CALL 1-800-548-7786
<PAGE>
- -------------------------------------------------------------------------------
PROSPECTUS MAY 1, 1999
- -------------------------------------------------------------------------------
PORTFOLIOS OF [LOGO] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
ASIAN EQUITY PORTFOLIO
THE ASIAN EQUITY PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN EQUITY SECURITIES OF ASIAN ISSUERS.
JAPANESE EQUITY PORTFOLIO
THE JAPANESE EQUITY PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN EQUITY SECURITIES OF JAPANESE ISSUERS.
INVESTMENT ADVISER
Morgan Stanley Dean Witter Investment Management Inc.
DISTRIBUTOR
Morgan Stanley & Co. Incorporated
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC. (THE "FUND") IS A NO-LOAD
MUTUAL FUND THAT IS DESIGNED TO MEET THE INVESTMENT NEEDS OF DISCERNING
INVESTORS WHO PLACE A PREMIUM ON QUALITY AND PERSONAL SERVICE. THE FUND MAKES
AVAILABLE TO INSTITUTIONAL INVESTORS A SERIES OF PORTFOLIOS WHICH BENEFIT FROM
THE INVESTMENT EXPERTISE AND COMMITMENT TO EXCELLENCE ASSOCIATED WITH MORGAN
STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC. ("MSDW INVESTMENT MANAGMENT") AND
ITS AFFILIATES. THIS PROSPECTUS OFFERS CLASS A AND CLASS B SHARES OF THE
PORTFOLIOS LISTED ABOVE (EACH A "PORTFOLIO" AND COLLECTIVELY THE "PORTFOLIOS").
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT SUMMARY
ASIAN EQUITY PORTFOLIO 1
JAPANESE EQUITY PORTFOLIO 2
ADDITIONAL RISK FACTORS AND INFORMATION 3
FEES AND EXPENSES OF THE PORTFOLIOS 5
INVESTMENT ADVISER 6
MANAGEMENT FEES 6
PORTFOLIO MANAGERS 7
DISTRIBUTION OF PORTFOLIO SHARES 8
SHAREHOLDER INFORMATION 8
FINANCIAL HIGHLIGHTS 10
ASIAN EQUITY PORTFOLIO 11
JAPANESE EQUITY PORTFOLIO 12
ACCOUNT REGISTRATION FORM
[TO BE ATTACHED]
</TABLE>
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO
- -------------------------------------------------------------------------------
THE ASIAN EQUITY PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN EQUITY SECURITIES OF ASIAN ISSUERS.
APPROACH
MSDW Investment Management seeks to achieve long-term capital appreciation by
investing in a diversified portfolio of equity securities of issuers in Asian
countries, excluding Japan. MSDW Investment Management employs a disciplined,
value-oriented approach to security selection, focusing on larger companies with
strong management teams. MSDW Investment Management evaluates top-down country
risk factors and opportunities when determining position sizes and overall
exposure to individual markets.
PROCESS
MSDW Investment Management emphasizes internal research of the leading companies
as the basis for stock selection. This research process encompasses analysis of
historical financial statements, identification of the potential for future
earnings and cash flows, valuation of key assets, discussions with analysts to
determine consensus expectations and an evaluation of the strength and depth of
management. Visits with management are central to this process. Depending on the
type of company, factors considered in selecting securities include price to
sales, price to earnings, price to cash flow, price to book value and price to
replacement value of assets. MSDW Investment Management considers valuation on
an absolute basis and relative to market average and comparable companies in the
region and emphasizes stocks where a catalyst can be identified which will
correct undervaluation. MSDW Investment Management tempers bottom-up stock
evaluation with a thorough analysis of risk factors and opportunities within
individual Asian countries. The team evaluates macroeconomic and political
factors when determining overall exposures within individual countries.
RISK
Investing in the Asian Equity Portfolio may be appropriate for you if you are
willing to accept the risks and uncertainties of investing in the equity
securities of issuers in emerging markets in the hope of earning superior
returns and diversifying your investment portfolio. In general, prices of equity
securities are more volatile than those of fixed income securities. The prices
of equity securities will rise and fall in response to a number of different
factors. In particular, prices of equity securities will respond to events which
affect entire financial markets or industries (changes in inflation or consumer
demand, for example) and to events that affect particular issuers (news about
the success or failure of a new product, for example). In addition, at times the
Portfolio's market sector, equity securities of Asian issuers, may underperform
relative to other sectors.
THE PORTFOLIO INVESTS PRIMARILY IN EMERGING MARKET COUNTRIES. EMERGING MARKET
COUNTRIES ARE COUNTRIES THAT MAJOR INTERNATIONAL FINANCIAL INSTITUTIONS, SUCH AS
THE WORLD BANK, GENERALLY CONSIDER TO BE LESS ECONOMICALLY MATURE THAN DEVELOPED
NATIONS, SUCH AS THE UNITED STATES OR MOST NATIONS IN WESTERN EUROPE. EMERGING
MARKET COUNTRIES CAN INCLUDE EVERY NATION IN THE WORLD EXCEPT THE UNITED STATES,
CANADA, JAPAN, AUSTRALIA, NEW ZEALAND, AND MOST COUNTRIES LOCATED IN WESTERN
EUROPE. EMERGING MARKET COUNTRIES MAY BE MORE LIKELY TO EXPERIENCE POLITICAL
TURMOIL OR RAPID CHANGES IN ECONOMIC CONDITIONS THAN MORE DEVELOPED COUNTRIES,
AND THE FINANCIAL CONDITION OF ISSUERS IN EMERGING MARKET COUNTRIES MAY BE MORE
PRECARIOUS THAN IN OTHER COUNTRIES. THESE CHARACTERISTICS RESULT IN GREATER RISK
OF PRICE VOLATILITY IN EMERGING MARKET COUNTRIES, WHICH MAY BE HEIGHTENED BY
<TABLE>
<CAPTION>
CURRENCY FLUCTUATIONS RELATIVE TO THE U.S. DOLLAR.
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
PERFORMANCE (CLASS A SHARES)
<S> <C>
COMMENCED OPERATIONS ON JULY 1, 1991
1992 26.42%
1993 105.71%
1994 -15.81%
1995 6.87%
1996 3.49%
1997 -48.29%
1998 -11.38%
HIGH (QUARTER)
10/93 - 12/93
49.56%
LOW (QUARTER)
10/97 - 12/97
- -37.43%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A CLASS B MSCI ALL-COUNTRY FAR EAST
(COMMENCED (COMMENCED FREE
OPERATIONS ON OPERATIONS ON EX-JAPAN INDEX*
JULY 1, 1991) JANUARY 2, 1996) CLASS A CLASS B
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
PAST ONE YEAR -11.38% -11.53% -7.39% -7.39%
- --------------------------------------------------------------------------------------------
PAST FIVE YEARS -15.66% N/A -13.77% N/A
- --------------------------------------------------------------------------------------------
SINCE INCEPTION 1.94% -22.32% 2.32% -18.11%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. THE TABLE SEPARATELY COMPARES CLASS A AND
CLASS B SHARES TO THE INDEX SO THAT YOU CAN COMPARE PERFORMANCE FOR EACH CLASS
FROM ITS COMMENCEMENT DATE. THE INDEX ITSELF DOES NOT ACTUALLY HAVE TWO CLASSES.
HOW THE PORTFOLIO HAS PERFORMED IN THE PAST DOES NOT NECESSARILY INDICATE HOW
THE PORTFOLIO WILL PERFORM IN THE FUTURE.
*THE MSCI ALL-COUNTRY FAR EAST FREE EX-JAPAN INDEX IS AN UNMANAGED INDEX OF
COMMON STOCKS AND INCLUDES INDONESIA, HONG KONG, MALAYSIA, THE PHILIPPINES,
KOREA, SINGAPORE, TAIWAN AND THAILAND (INCLUDES DIVIDENDS).
1
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO
- -------------------------------------------------------------------------------
THE JAPANESE EQUITY PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN EQUITY SECURITIES OF JAPANESE ISSUERS.
APPROACH
MSDW Investment Management seeks to achieve long-term capital appreciation by
investing in a diversified portfolio of equity securities of Japanese issuers
that are undervalued relative to their intrinsic assets, cash flow and earnings
potential.
PROCESS
MSDW Investment Management conducts a quantitative screening of Japanese
companies, including both large-cap and small-cap issuers. The screening is
designed to identify undervalued issuers, based on price-to-book value,
price-to-cash flow and other value-oriented criteria. MSDW Investment Management
analysts conduct fundamental analysis on the 25% of companies that quantitative
screening indicate are most undervalued, with an emphasis on financial
structure, strategic value of assets, business franchise, product line and
management quality and focus. Company visits also are a normal part of the
investment process. The Portfolio closely monitors securities which are no
longer among the 25% most undervalued and sells the securities following a
material fundamental disappointment in earnings or when they are no longer among
the one-third most undervalued securities.
RISK
Investing in the Japanese Equity Portfolio may be appropriate for you if you are
willing to accept the risks and uncertainties of investing in the equity
securities of issuers in Japan in the hope of achieving superior returns and
diversifying your investment portfolio. In general, prices of equity securities
are more volatile than those of fixed income securities. The prices of equity
securities will rise and fall in response to a number of different factors. In
particular, prices of equity securities will respond to events which affect
entire financial markets or industries (changes in inflation or consumer demand,
for example) and to events that affect particular issuers (news about the
success or failure of a new product, for example). In addition, at times the
Portfolio's market sector, equity securities of Japanese issuers, may
underperform relative to other sectors.
<TABLE>
<CAPTION>
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
PERFORMANCE (CLASS A SHARES)
<S> <C>
COMMENCED OPERATIONS ON APRIL 25, 1994
1995 -3.64%
1996 -1.40%
1997 -9.23%
1998 8.82%
HIGH (QUARTER)
4/97 - 6/97
25.45%
LOW (QUARTER)
10/97 - 12/97
- -20.29%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A CLASS B
(COMMENCED (COMMENCED
OPERATIONS ON OPERATIONS ON MSCI JAPAN INDEX*
APRIL 25, 1994) JANUARY 2, 1996) CLASS A CLASS B
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
PAST ONE YEAR 8.82% 8.33% 5.05% 5.05%
- ----------------------------------------------------------------------------------------------
PAST FIVE YEARS N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------
SINCE INCEPTION -1.71% -1.26% -7.46% -11.96%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. THE TABLE SEPARATELY COMPARES CLASS A AND
CLASS B SHARES TO THE INDEX SO THAT YOU CAN COMPARE PERFORMANCE FOR EACH CLASS
FROM ITS COMMENCEMENT DATE. THE INDEX ITSELF DOES NOT ACTUALLY HAVE TWO CLASSES.
HOW THE PORTFOLIO HAS PERFORMED IN THE PAST DOES NOT NECESSARILY INDICATE HOW
THE PORTFOLIO WILL PERFORM IN THE FUTURE.
*THE MSCI JAPAN INDEX IS AN UNMANAGED INDEX OF COMMON STOCKS (INCLUDES
DIVIDENDS).
2
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
ADDITIONAL RISK FACTORS AND INFORMATION
- -------------------------------------------------------------------------------
THIS SECTION DISCUSSES ADDITIONAL RISK FACTORS AND INFORMATION RELATED TO THE
PORTFOLIOS. THE PORTFOLIOS' INVESTMENT PRACTICES AND LIMITATIONS ARE DESCRIBED
IN MORE DETAIL IN THE STATEMENT OF ADDITIONAL INFORMATION ("SAI"), WHICH LEGALLY
IS A PART OF THIS PROSPECTUS. FOR DETAILS ABOUT HOW TO OBTAIN A COPY OF THE SAI
AND OTHER REPORTS AND INFORMATION, SEE THE BACK COVER OF THIS PROSPECTUS.
PRICE VOLATILITY
The value of your investment in a Portfolio is based on the market prices of the
securities the Portfolio holds. These prices change daily due to economic and
other events that affect markets generally, as well as those that affect
particular regions, countries, industries, companies or governments. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities the Portfolio owns and the markets in which the
securities trade. Over time, equity securities have generally shown superior
gains, although they have tended to be more volatile in the short term. Fixed
income securities, regardless of credit quality, also experience price
volatility, especially in response to interest rate changes. As a result of
market volatility, there is a risk that you might lose money by investing in a
Portfolio.
FOREIGN INVESTING
Investing in foreign countries entails the risk that news and events unique to a
country or region will affect those markets and their issuers. These same events
will not necessarily have an effect on the U.S. economy or similar issuers
located in the United States. In addition, a Portfolio's investments generally
will be denominated in foreign currencies. As a result, changes in the value of
a country's currency compared to the U.S. dollar may affect the value of a
Portfolio's investments. These changes may occur separately from and in response
to events that do not otherwise affect the value of the security in the issuer's
home country. MSDW Investment Management may invest in certain instruments, such
as derivatives, and may use certain techniques, such as hedging, to manage these
risks. However, MSDW Investment Management cannot guarantee that it will be
practical to hedge these risks in certain markets or under particular conditions
or that it will succeed in doing so.
DERIVATIVES
The Portfolios may use various instruments that derive their values from those
of specified securities, indices, currencies or other points of reference for
both hedging and non-hedging purposes. Derivatives include futures, options,
forward contracts, swaps, and structured notes. These derivatives, including
those used to manage risk, are themselves subject to risks of the different
markets in which they trade and, therefore, may not serve their intended
purposes.
The primary risks of derivatives are: (i) changes in the market value of
securities held by a Portfolio, and of derivatives relating to those securities,
may not be proportionate, (ii) there may not be a liquid market for a Portfolio
to sell a derivative, which could result in difficulty closing a position and
(iii) certain derivatives can magnify the extent of losses incurred due to
changes in the market value of the securities to which they relate. In addition,
derivatives are subject to counter party risk. To minimize this risk, a
Portfolio may enter into derivatives transactions with counter parties that meet
certain requirements for credit quality and collateral. Also, a Portfolio may
invest in certain derivatives that require the Portfolio to segregate some or
all of its cash or liquid securities to cover its obligations under those
instruments. At certain levels, this can cause the Portfolio to lose flexibility
in managing its investments properly, responding to shareholder redemption
requests, or meeting other obligations. If the Portfolio is in that position, it
could be forced to sell other securities that it wanted to retain.
A Portfolio will limit its use of derivatives for non-hedging purposes to
33 1/3% of its total assets measured by the aggregate notional amount of
outstanding derivatives. While the use of derivatives may be advantageous to a
Portfolio, if MSDW Investment Management is not successful in employing them,
the Portfolio's performance may be worse than if it did not make such
investments. See the Statement of Additional Information for more about the
risks of different types of derivatives.
3
<PAGE>
BANK INVESTORS
An investment in a Portfolio is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
YEAR 2000 RISK
The advisory and distribution services that MSDW Investment Management and
Morgan Stanley & Co. Incorporated ("Morgan Stanley") provide to the Fund depend
on the smooth operation of their computer systems. Many computer and 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. MSDW Investment Management and Morgan Stanley have
been actively working on necessary changes to their own computer systems to deal
with the year 2000 problem and expect that their systems will be adapted before
that date. There can be no assurance, however, that they will be successful. In
addition, other unaffiliated service providers may be faced with similar
problems. MSDW Investment Management and Morgan Stanley are monitoring their
remedial efforts, but there can be no assurance that they and the services they
provide will not be adversely affected.
In addition, it is possible that the markets for securities in which the
Portfolios invest 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 Portfolios' investments may be
adversely affected.
TEMPORARY DEFENSIVE
INVESTMENTS
When MSDW Investment Management believes that changes in economic, financial or
political conditions warrant, each Portfolio may invest without limit in certain
short- and medium-term fixed income securities for temporary defensive purposes.
If MSDW Investment Management incorrectly predicts the effects of these changes,
such defensive investments may adversely affect a Portfolio's performance and
the Portfolio may not achieve its investment objective.
PORTFOLIO TURNOVER
Consistent with its investment policies, a Portfolio will purchase and sell
securities without regard to the effect on portfolio turnover. Higher portfolio
turnover (e.g. over 100% per year) will cause a Portfolio to incur additional
transaction costs and may result in taxable gains being passed through to
shareholders.
4
<PAGE>
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE PORTFOLIOS
- -------------------------------------------------------------------------------
The Securities and Exchange Commission (the "Commission") requires that the Fund
disclose in the table below the fees and expenses that you may pay if you buy
and hold shares of the Portfolios. The Portfolios do not charge any sales loads
or similar fees when you purchase or redeem shares. The Annual Fund Operating
Expenses in the table below do not reflect voluntary fee waivers and/or expense
reimbursements from MSDW Investment Management.
1998 ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)*
<TABLE>
<CAPTION>
ASIAN EQUITY JAPANESE EQUITY
PORTFOLIO PORTFOLIO
MANAGEMENT FEES
<S> <C> <C>
- -------------------------------------------------------------------------
CLASS A 0.80% 0.80%
- -------------------------------------------------------------------------
CLASS B 0.80% 0.80%
12b-1 FEE
- -------------------------------------------------------------------------
CLASS A NONE NONE
- -------------------------------------------------------------------------
CLASS B 0.25% 0.25%
OTHER EXPENSES
- -------------------------------------------------------------------------
CLASS A 0.99% 0.50%
- -------------------------------------------------------------------------
CLASS B 1.02% 0.50%
TOTAL ANNUAL FUND OPERATING EXPENSES
- -------------------------------------------------------------------------
CLASS A 1.79% 1.30%
- -------------------------------------------------------------------------
CLASS B 2.07% 1.55%
</TABLE>
* The Management Fees for the Portfolios shown in the table above are the
highest that could be charged. This table does not show the effects of MSDW
Investment Management's voluntary fee waivers and/or expense reimbursements.
IN DETERMINING THE ACTUAL AMOUNT OF VOLUNTARY MANAGEMENT FEE WAIVER AND/OR
EXPENSE REIMBURSEMENT FOR A PORTFOLIO, IF ANY, MSDW INVESTMENT MANAGEMENT
EXCLUDES FROM ANNUAL OPERATING EXPENSES CERTAIN INVESTMENT RELATED EXPENSES,
SUCH AS FOREIGN COUNTRY TAX EXPENSE AND INTEREST EXPENSE ON BORROWING. INCLUDING
THESE EXPENSES, THE PORTFOLIOS' TOTAL OPERATING EXPENSES AFTER VOLUNTARY FEE
WAIVERS AND/OR REIMBURSEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 WERE:
ASIAN EQUITY PORTFOLIO CLASS A--1.19%, CLASS B--1.47% AND JAPANESE EQUITY
PORTFOLIO CLASS A--1.11%, CLASS B--1.36%.
EXCLUDING THESE INVESTMENT RELATED EXPENSES, THE OPERATING EXPENSES AFTER FEE
WAIVERS/EXPENSE REIMBURSEMENTS WERE 1.00% FOR CLASS A SHARES AND 1.25% FOR CLASS
B SHARES OF EACH PORTFOLIO.
FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS ARE VOLUNTARY AND MSDW INVESTMENT
MANAGEMENT RESERVES THE RIGHT TO TERMINATE ANY WAIVER AND/OR REIMBURSEMENT AT
ANY TIME AND WITHOUT NOTICE.
5
<PAGE>
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN EACH
PORTFOLIO WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS HAVING SIMILAR
INVESTMENT OBJECTIVES.
The example assumes that you invest $10,000 in each Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example assumes that your investment has a 5% return each year and
that each Portfolio's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
ASIAN EQUITY PORTFOLIO
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------
CLASS A $182 $563 $970 $2,105
- -------------------------------------------------------------------------
CLASS B $210 $649 $1,114 $2,400
JAPANESE EQUITY PORTFOLIO
- -------------------------------------------------------------------------
CLASS A $132 $412 $713 $1,568
- -------------------------------------------------------------------------
CLASS B $158 $490 $845 $1,845
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
- -------------------------------------------------------------------------------
Morgan Stanley Dean Witter Investment Management Inc. ("MSDW Investment
Management"), with principal offices at 1221 Avenue of the Americas, New York,
New York 10020, conducts a worldwide portfolio management business and provides
a broad range of portfolio management services to customers in the United States
and abroad. Morgan Stanley Dean Witter & Co. ("MSDW") is the direct parent of
MSDW Investment Management and Morgan Stanley. MSDW is a preeminent global
financial services firm that maintains leading market positions in each of its
three primary businesses -- securities, asset management and credit services. At
December 31, 1998, MSDW Investment Management, together with its affiliated
institutional asset management companies, managed assets of approximately $163.4
billion, including assets under fiduciary advice.
- -------------------------------------------------------------------------------
MANAGEMENT FEES
- -------------------------------------------------------------------------------
For the year ended December 31, 1998, MSDW Investment Management received from
each Portfolio the management fee set forth in the table below:
<TABLE>
<CAPTION>
ASIAN
EQUITY JAPANESE
PORTFOLIO EQUITY
PORTFOLIO
-------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEE CLASS A CLASS B CLASS A CLASS B
-------------------------------------
PAID IN FISCAL YEAR ENDED
DECEMBER 31, 1998 0.14% 0.12% 0.61% 0.61%
(NET OF WAIVERS AND AS A
PERCENTAGE OF AVERAGE NET
ASSETS)
</TABLE>
6
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
- -------------------------------------------------------------------------------
THE FOLLOWING INDIVIDUALS HAVE PRIMARY DAY-TO-DAY PORTFOLIO MANAGEMENT
RESPONSIBILITY FOR THE PORTFOLIOS:
ASIAN EQUITY PORTFOLIO
TIMOTHY JENSEN AND ASHUTOSH SINHA
Timothy Jensen joined MSDW Investment Management in 1998. He is a Principal of
MSDW Investment Management and Morgan Stanley and a senior member of MSDW
Investment Management's Emerging Markets Equity Group, focusing primarily on
Asian markets other than Japan. Prior to joining MSDW Investment Management, he
was a Partner at Ardsley Partners, where he managed a portion of the emerging
markets assets. Prior to that, he was a Vice President at Bankers Trust Company
where he was responsible for a Latin American equity portfolio. He graduated
from Harvard College with a B.A. in History and received an M.B.A. in Finance
from UCLA. Ashutosh Sinha joined MSDW Investment Management in 1995. He is a
Vice President of MSDW Investment Management and Morgan Stanley and a member of
MSDW Investment Management's Emerging Markets Equity Group, focusing primarily
on Asian markets other than Japan. Prior to joining MSDW Investment Management,
he spent two years at SBI Funds Management Ltd., where he was an analyst for the
India Magnum Fund. Previous to that, he worked for three years as a consultant
for Citicorp Overseas Software Ltd. He graduated from the Indian Institute of
Technology, Kanpur, with a degree in Electrical Engineering and received an
M.B.A. from the Indian Institute of Management, Calcutta. Messrs. Jensen and
Sinha have shared primary responsibility for managing the Portfolio's assets
since August 1998.
JAPANESE EQUITY PORTFOLIO
JOHN R. ALKIRE AND KUNIHIKO SUGIO
John R. Alkire is a Managing Director of MSDW Investment Management and Morgan
Stanley. He has had primary responsibility for managing the Portfolio's assets
since June 1997. Mr. Alkire joined MSDW Investment Management in 1981 to
initiate foreign equity sales and trading to Pacific basin institutions. He was
appointed President of Morgan Stanley Investment Advisory, Japan in October
1993. Prior to 1993, he specialized in Japanese warrants and cash equity sales
and trading to Japanese financial institutions in the Tokyo office. Mr. Alkire
is a graduate of the University of Victoria, Canada. Kunihiko Sugio, a Principal
of MSDW Investment Management and Morgan Stanley, joined MSDW Investment
Management in December 1993 and manages dedicated Japanese equity portfolios. He
has had primary responsibility for managing the Portfolio's assets since its
inception in 1995. Prior to joining MSDW Investment Management, he worked with
Baring International Investment Management, Tokyo, where he was a Director and
fund manager. He graduated from Wakayama Kokuritsu University.
7
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTION OF PORTFOLIO SHARES
- -------------------------------------------------------------------------------
Morgan Stanley is the exclusive Distributor of Class A shares and Class B shares
of each Portfolio. Morgan Stanley receives no compensation for distributing
Class A shares of the Portfolios. The Fund has adopted a Plan of Distribution
with respect to the Class B shares of each Portfolio pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended, (the "Plan"). Under the
Plan, each Portfolio pays the Distributor a distribution fee of 0.25% of the
Class B shares' average daily net assets on an annualized basis. The
distribution fee compensates the Distributor for marketing and selling Class B
shares. The Distributor may pay others for providing distribution-related and
other services, including account maintenance services. Over time the
distribution fees will increase the cost of your investment and may cost you
more than paying other types of sales charges.
- -------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------
ABOUT NET ASSET VALUE
The net asset value ("NAV") per share of a class of shares of the Portfolio is
determined by dividing the total market value of the Portfolio's investments and
other assets attributable to the class, less any liabilities attributable to the
class, by the total number of outstanding shares of that class of the Portfolio.
In making this calculation, the Portfolio generally values securities at market
price. If market prices are unavailable or may be unreliable because of events
occurring after the close of trading, fair value prices may be determined in
good faith using methods approved by the Board of Directors. The Portfolios may
hold portfolio securities that are listed on foreign exchanges. These securities
may trade on weekends or other days when the Portfolios do not calculate NAV. As
a result, the value of these investments may change on days when you cannot
purchase or sell shares.
PRICING OF PORTFOLIO SHARES
You may buy or sell (redeem) Class A and Class B shares of each Portfolio at the
net asset value next determined for the class after receipt of your order. The
Fund determines net asset value as of the close of the New York Stock Exchange
("NYSE") (normally 4:00 p.m. Eastern Time) on each day that the NYSE is open for
business (the "Pricing Time").
HOW TO PURCHASE SHARES
You may purchase Class A shares and Class B shares of each Portfolio directly
from the Fund, from the Distributor or through certain third parties ("Financial
Intermediaries") on each day that the NYSE is open.
The minimum initial investment generally is $500,000 for Class A shares and
$100,000 for Class B shares of each Portfolio. The minimum additional investment
generally is $1,000 for each account that you have. If the value of your account
falls below the minimum initial investment amount for Class A shares or Class B
shares as a result of share redemptions, the Fund will notify you. Your account
may be subject to involuntary conversion from Class A shares to Class B shares
or involuntary redemption in the case of Class B shares if the value of your
account remains below the minimum initial investment amount for 60 consecutive
days. MSDW Investment Management may waive the minimum initial investment and
involuntary conversion or redemption features for certain investors, including
individuals purchasing through a Financial Intermediary.
You may arrange to purchase shares directly from the Fund by calling
1-800-548-7786 or by returning a completed Account Registration Form with
payment for your purchase. The price you pay will be the net asset value
calculated at the Pricing Time following receipt of your purchase order and
payment.
To purchase shares through the Distributor or a Financial Intermediary, you
should contact the Distributor or your Financial Intermediary for details.
Generally, the price of shares purchased through the Distributor or a Financial
Intermediary is the price calculated at the next Pricing Time after the Fund
receives your order from the Distributor or your Financial Intermediary. Certain
Financial Intermediaries have made arrangements with the Fund so that you may
8
<PAGE>
purchase shares at the price calculated at the next Pricing Time after your
Financial Intermediary receives your purchase order. Your Financial Intermediary
may charge an additional service or transaction fee.
HOW TO REDEEM SHARES
You may redeem Portfolio shares directly from the Fund, through the Distributor
or through your Financial Intermediary, each as described above under Purchase
of Shares. The redemption price will be the net asset value per share calculated
at the next Pricing Time, which may be more or less than the purchase price of
your shares. The Fund will ordinarily distribute redemption proceeds in cash
within one business day of your redemption request, but it may take up to seven
business days. However, if you purchased shares by check, the Fund will not
distribute redemption proceeds until it has collected your purchase payment,
which may take up to eight days. In certain circumstances, for example, if
payment of redemption proceeds in cash would be detrimental to the remaining
shareholders, a Portfolio may pay redemption proceeds by a distribution-in-kind
of readily marketable portfolio securities.
EXCHANGE FEATURES
You may exchange Portfolio shares for shares of the other available portfolios
of the Fund. To obtain a prospectus for another portfolio, call the Fund at
1-800-548-7786 or contact your Financial Intermediary. If you purchased
Portfolio shares through a Financial Intermediary, certain portfolios may be
unavailable for exchange. Contact your Financial Intermediary to determine which
portfolios are available for exchange. The Fund currently consists of the
following portfolios:
<TABLE>
<S> <C>
U.S. EQUITY GLOBAL AND INTERNATIONAL EQUITY
Aggressive Equity Portfolio Active International Allocation
Emerging Growth Portfolio Portfolio
Equity Growth Portfolio Asian Real Estate Portfolio
MicroCap Portfolio+ Asian Equity Portfolio
Technology Portfolio China Growth Portfolio+
U.S. Equity Plus Portfolio Emerging Markets Portfolio
U.S. Real Estate Portfolio European Equity Portfolio
Value Equity Portfolio European Real Estate Portfolio
FIXED INCOME Global Equity Portfolio
Emerging Markets Debt Portfolio Gold Portfolio*
Fixed Income Portfolio International Equity Portfolio*
Global Fixed Income Portfolio International Magnum Portfolio
High Yield Portfolio International Small Cap Portfolio
Mortgage-Backed Securities Portfolio+ Japanese Equity Portfolio
Municipal Bond Portfolio Latin American Portfolio
MONEY MARKET
Money Market Portfolio
Municipal Money Market Portfolio
</TABLE>
*PORTFOLIO IS CURRENTLY CLOSED TO NEW INVESTORS
+PORTFOLIO HAS NOT YET COMMENCED OPERATIONS
When you exchange for shares of another portfolio, your transaction will be
treated the same as an initial purchase. You will be subject to the same minimum
initial investment and account size as an initial purchase. Accordingly, you
will not necessarily receive the same class of shares that you tendered for
exchange. Your exchange price will be the price calculated at the next Pricing
Time after the Fund receives your exchange order. Frequent trades in your
account(s) can disrupt management of a Portfolio and raise its expenses.
Therefore, the Fund may bar a shareholder who trades excessively from making
further exchanges or purchases.
9
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Each Portfolio's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of an annual dividend and to
distribute net capital gains on an annual basis.
The Fund automatically reinvests all dividends and distributions in additional
shares. However, you may elect to receive distributions in cash by giving
written notice to the Fund or your Financial Intermediary or by checking the
appropriate box in the Distribution Option section on the Account Registration
Form.
TAXES
The dividends and distributions you receive from a Portfolio may be subject to
Federal, state and local taxation, depending on your tax situation. The tax
treatment of dividends and distributions is the same whether or not you reinvest
them. Dividends are taxed as ordinary income, long-term capital gains
distributions are taxed at a maximum rate of 20%, and short-term capital gains
distributions are taxed at ordinary rates. A Portfolio may be able to pass
through to you a credit for foreign income taxes it pays. The Fund will tell you
annually how to treat dividends and distributions.
If you redeem shares of a Portfolio, you will be subject to tax on any gains you
earn based on your holding period for the shares. An exchange of shares of a
Portfolio for shares of another portfolio is a sale of Portfolio shares for tax
purposes. Conversions of shares between classes will not result in taxation.
Because each investor's tax circumstances are unique and the tax laws may
change, you should consult your tax advisor about your investment.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The following financial highlights tables are intended to help you understand
the financial performance of the Class A shares and Class B shares of each
Portfolio for the past five years or, if less than five years, the life of the
Portfolio or Class. Certain information reflects financial results for a single
Portfolio share. The total returns in the tables represent the rate that an
investor would have earned (or lost) on an investment in each Portfolio
(assuming reinvestment of all dividends and distributions). This information has
been audited by PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, are incorporated by reference into the Fund's Statement of
Additional Information and are included in the Fund's December 31, 1998 Annual
Report to Shareholders. The Annual Report and the financial statements therein,
as well as the Statement of Additional Information, are available at no cost
from the Fund at the toll free number noted on the back cover to this
Prospectus.
10
<PAGE>
- ----------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
ASIAN EQUITY PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.43 $ 18.73 $ 19.48 $ 21.54 $ 26.20
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (1) 0.12 0.14 0.17 0.18 0.11
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (1.24) (8.93) 0.50 1.11 (4.15)
--------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS (1.12) (8.79) 0.67 1.29 (4.04)
--------- --------- --------- --------- ---------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.30) (0.00)+ (0.15) (0.34) (0.09)
IN EXCESS OF NET INVESTMENT INCOME -- -- (0.00)+ (0.00)+ --
NET REALIZED GAIN -- -- (1.27) (3.01) (0.53)
IN EXCESS OF NET REALIZED GAIN -- (0.51) -- -- --
--------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (0.30) (0.51) (1.42) (3.35) (0.62)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 8.01 $ 9.43 $ 18.73 $ 19.48 $ 21.54
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL RETURN (11.38)% (48.29)% 3.49% 6.87% (15.81)%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $51,334 $85,503 $363,498 $314,884 $276,906
RATIO OF EXPENSES TO AVERAGE NET ASSETS (1) 1.19% 1.12% 1.00% 1.00% 1.00%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
EXCLUDING
COUNTRY TAX EXPENSE AND INTEREST EXPENSE 1.00% 1.00% N/A N/A N/A
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET
ASSETS (1) 1.36% 0.47% 0.74% 0.97% 0.52%
PORTFOLIO TURNOVER RATE 151% 107% 69% 42% 47%
- -----------------
(1) EFFECT OF VOLUNTARY EXPENSE LIMITATION
DURING
THE PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT
INCOME $0.05 $0.05 $0.05 $0.03 $0.04
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.79% 1.31% 1.25% 1.18% 1.20%
NET INVESTMENT INCOME TO AVERAGE NET
ASSETS 0.76% 0.29% 0.54% 0.79% 0.32%
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
--------------------------------------
PERIOD FROM
YEAR ENDED DECEMBER JANUARY 2,
31, 1996*** TO
--------------------- DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.40 $ 18.74 $ 19.55
--------- --------- --------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (2) 0.07 0.03 0.11
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (1.20) (8.86) 0.46
--------- --------- --------------
TOTAL FROM INVESTMENT OPERATIONS (1.13) (8.83) 0.57
--------- --------- --------------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.30) (0.00)+ (0.11)
NET REALIZED GAIN -- -- (1.27)
IN EXCESS OF NET REALIZED GAIN -- (0.51) --
--------- --------- --------------
TOTAL DISTRIBUTIONS (0.30) (0.51) (1.38)
--------- --------- --------------
NET ASSET VALUE, END OF PERIOD $ 7.97 $ 9.40 $ 18.74
--------- --------- --------------
--------- --------- --------------
TOTAL RETURN (11.53)% (48.48)% 2.92%
--------- --------- --------------
--------- --------- --------------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $ 1,487 $ 1,468 $ 11,002
RATIO OF EXPENSES TO AVERAGE NET ASSETS (2) 1.47% 1.37% 1.25%**
RATIO OF EXPENSES TO AVERAGE NET ASSETS
EXCLUDING COUNTRY TAX EXPENSE
AND INTEREST EXPENSE 1.25% 1.25% N/A
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET
ASSETS (2) 1.06% 0.18% 0.58%**
PORTFOLIO TURNOVER RATE 151% 107% 69%
- -----------------
(2) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT
INCOME $0.04 $0.04 $0.04
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 2.07% 1.56% 1.52%**
NET INVESTMENT INCOME (LOSS) TO AVERAGE
NET ASSETS 0.46% (0.01)% 0.37%**
- -------------------------------------------------------------------------------------
</TABLE>
**ANNUALIZED
***THE PORTFOLIO BEGAN OFFERING CLASS B SHARES ON JANUARY 2, 1996.
+AMOUNT IS LESS THAN $0.01 PER SHARE.
11
<PAGE>
- ----------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
JAPANESE EQUITY PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------
PERIOD FROM
APRIL 25,
YEAR ENDED DECEMBER 31, 1994* TO
--------------------------------------------- DECEMBER 31,
SELECTED PER SHARE DATA AND RATIOS 1998 1997 1996++ 1995 1994
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 5.89 $ 7.96 $ 9.27 $ 9.83 $ 10.00
--------- --------- --------- --------- -------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (LOSS) (1) 0.04 0.17 -- 0.04 (0.01)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS+ 0.48 (0.94) (0.13) (0.40) (0.16)
--------- --------- --------- --------- -------------
TOTAL FROM INVESTMENT OPERATIONS 0.52 (0.77) (0.13) (0.36) (0.17)
--------- --------- --------- --------- -------------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.23) (1.30) (0.66) -- --
IN EXCESS OF NET INVESTMENT INCOME -- -- (0.52) (0.20) --
--------- --------- --------- --------- -------------
TOTAL DISTRIBUTIONS (0.23) (1.30) (1.18) (0.20) --
--------- --------- --------- --------- -------------
NET ASSET VALUE, END OF PERIOD $ 6.18 $ 5.89 $ 7.96 $ 9.27 $ 9.83
--------- --------- --------- --------- -------------
--------- --------- --------- --------- -------------
TOTAL RETURN 8.82% (9.23)% (1.40)% (3.64)% (1.70)%
--------- --------- --------- --------- -------------
--------- --------- --------- --------- -------------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $57,755 $77,086 $152,229 $119,278 $50,332
RATIO OF EXPENSES TO AVERAGE NET ASSETS (1) 1.11% 1.06% 1.00% 1.00% 1.00%**
RATIO OF EXPENSES TO AVERAGE NET ASSETS
EXCLUDING INTEREST EXPENSE 1.00% 1.00% N/A N/A N/A
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (1) 0.03% (0.21)% (0.04)% 0.15% (0.10)%**
PORTFOLIO TURNOVER RATE 66% 40% 38% 52% 1%
- -----------------
(1) EFFECT OF VOLUNTARY EXPENSE LIMITATION
DURING THE PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT
INCOME (LOSS) $0.01 $0.01 $0.01 $0.06 $0.02
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.30% 1.14% 1.07% 1.20% 1.27%**
NET INVESTMENT LOSS TO AVERAGE NET
ASSETS (0.14)% (0.28)% (0.11)% (0.05)% (0.37)%**
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------
PERIOD FROM
YEAR ENDED JANUARY 2,
DECEMBER 31, 1996*** TO
----------------- DECEMBER 31,
1998 1997 1996++
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 5.87 $ 7.94 $ 9.25
------- ------- -------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (LOSS) (2) (0.09) 0.09 (0.02)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS 0.58 (0.89) (0.14)
------- ------- -------------
TOTAL FROM INVESTMENT OPERATIONS 0.49 (0.80) (0.16)
------- ------- -------------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.23) (1.27) (0.64)
IN EXCESS OF NET INVESTMENT INCOME -- -- (0.51)
------- ------- -------------
TOTAL DISTRIBUTIONS (0.23) (1.27) (1.15)
------- ------- -------------
NET ASSET VALUE, END OF PERIOD $ 6.13 $ 5.87 $ 7.94
------- ------- -------------
------- ------- -------------
TOTAL RETURN 8.33% (9.64)% (1.67)%
------- ------- -------------
------- ------- -------------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $ 1,083 $ 1,703 $ 3,431
RATIO OF EXPENSES TO AVERAGE NET ASSETS (2) 1.36% 1.31% 1.25%**
RATIO OF EXPENSES TO AVERAGE NET ASSETS
EXCLUDING INTEREST EXPENSE 1.25% 1.25% N/A
RATIO OF NET INVESTMENT LOSS TO AVERAGE NET
ASSETS (2) (0.25)% (0.53)% (0.26)%**
PORTFOLIO TURNOVER RATE 66% 40% 38%
- -----------------
(2) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT
INCOME (LOSS) $0.02 $0.01 $0.01
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.55% 1.38% 1.31%**
NET INVESTMENT LOSS TO AVERAGE NET
ASSETS (0.42)% (0.60)% (0.32)%**
- --------------------------------------------------------------------------------
</TABLE>
*COMMENCEMENT OF OPERATIONS
**ANNUALIZED
***THE PORTFOLIO BEGAN OFFERING CLASS B SHARES ON JANUARY 2, 1996.
+THE AMOUNT SHOWN FOR THE YEAR ENDED DECEMBER 31, 1995 FOR A SHARE OUTSTANDING
THROUGHOUT THE YEAR DOES NOT AGREE WITH THE AMOUNT OF AGGREGATE NET GAINS ON
INVESTMENTS FOR THE YEAR BECAUSE OF THE TIMING OF SALES AND REPURCHASES OF THE
PORTFOLIO SHARES IN RELATION TO FLUCTUATING MARKET VALUE OF THE INVESTMENTS IN
THE PORTFOLIO.
++PER SHARE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 1996 ARE BASED ON AVERAGE
SHARES OUTSTANDING.
12
<PAGE>
- -------------------------------------------------------------------------------
WHERE TO FIND ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
In addition to this Prospectus, the Fund has a Statement of Additional
Information ("SAI"), dated May 1, 1999, which contains additional, more detailed
information about the Fund and the Portfolios. The SAI is incorporated by
reference into this Prospectus and, therefore, legally forms a part of this
Prospectus.
SHAREHOLDER REPORTS
The Fund publishes annual and semi-annual reports containing financial
statements, and quarterly reports. These reports contain additional information
about each Portfolio's investments. In the Fund's shareholder reports, you will
find a discussion of the market conditions and the investment strategies that
significantly affected each Portfolio's performance during that period.
For additional Fund information, including information regarding the investments
comprising the Fund's Portfolios, please call 1-800-548-7786.
You may obtain the SAI and shareholder reports without charge by contacting the
Fund at the toll-free number above. If you purchased shares through a Financial
Intermediary, you may also obtain these documents, without charge, by contacting
your Financial Intermediary.
Information about the Fund, including the SAI, and the annual and semi-annual
reports, may be obtained from the Securities and Exchange Commission in any of
the following ways: (1) In person: you may review and copy documents in the
Commission's Public Reference Room in Washington D.C. (for information call
1-800-SEC-0330); (2) On-line: you may retrieve information from the Commission's
web site at "http://www.sec.gov"; or (3) By mail: you may request documents,
upon payment of a duplicating fee, by writing to Securities and Exchange
Commission, Public Reference Section, Washington, D.C. 20549-6009. To aid you in
obtaining this information, the Fund's Investment Company Act registration
number is 811-05624.
[LOGO] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
P.O. Box 2798
Boston, Massachusetts 02208-2798
FOR INFORMATION CALL 1-800-548-7786
<PAGE>
- -------------------------------------------------------------------------------
PROSPECTUS MAY 1, 1999
- -------------------------------------------------------------------------------
PORTFOLIOS OF [LOGO] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
CHINA GROWTH PORTFOLIO
THE CHINA GROWTH PORTFOLIO SEEKS TO PROVIDE LONG-TERM CAPITAL APPRECIATION BY
INVESTING PRIMARILY IN EQUITY SECURITIES OF ISSUERS IN THE PEOPLE'S REPUBLIC OF
CHINA, HONG KONG AND TAIWAN.
GOLD PORTFOLIO
THE GOLD PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING PRIMARILY
IN THE EQUITY SECURITIES OF FOREIGN AND DOMESTIC ISSUERS ENGAGED IN GOLD-RELATED
ACTIVITIES.
MICROCAP PORTFOLIO
THE MICROCAP PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN GROWTH ORIENTED EQUITY SECURITIES OF SMALL CORPORATIONS.
MORTGAGE-BACKED SECURITIES PORTFOLIO
THE MORTGAGE-BACKED SECURITIES PORTFOLIO SEEKS TO PRODUCE AS HIGH A LEVEL OF
CURRENT INCOME AS IS CONSISTENT WITH THE PRESERVATION OF CAPITAL BY INVESTING
PRIMARILY IN A VARIETY OF INVESTMENT GRADE MORTGAGE-BACKED SECURITIES.
INVESTMENT ADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
DISTRIBUTOR
MORGAN STANLEY & CO. INCORPORATED
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC. (THE "FUND") IS A NO-LOAD
MUTUAL FUND THAT IS DESIGNED TO MEET THE INVESTMENT NEEDS OF DISCERNING
INVESTORS WHO PLACE A PREMIUM ON QUALITY AND PERSONAL SERVICE. THE FUND MAKES
AVAILABLE TO INSTITUTIONAL INVESTORS A SERIES OF PORTFOLIOS WHICH BENEFIT FROM
THE INVESTMENT EXPERTISE AND COMMITMENT TO EXCELLENCE ASSOCIATED WITH MORGAN
STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC. ("MSDW INVESTMENT MANAGEMENT")
AND ITS AFFILIATES. THIS PROSPECTUS OFFERS CLASS A AND CLASS B SHARES OF THE
PORTFOLIOS LISTED ABOVE (EACH A "PORTFOLIO" AND COLLECTIVELY THE "PORTFOLIOS").
THE CHINA GROWTH, MICROCAP AND MORTGAGE-BACKED SECURITES PORTFOLIOS CURRENTLY
ARE NOT BEING OFFERED. THE GOLD PORTFOLIO IS CURRENTLY CLOSED TO NEW INVESTORS
WITH THE EXCEPTION OF CERTAIN MORGAN STANLEY EMPLOYEES AND CUSTOMERS, CERTAIN
TAX-QUALIFIED RETIREMENT PLANS AND OTHER INVESTMENT COMPANIES ADVISED BY MSDW
INVESTMENT MANAGEMENT.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT SUMMARY
CHINA GROWTH PORTFOLIO 1
GOLD PORTFOLIO 2
MICROCAP PORTFOLIO 3
MORTGAGE-BACKED SECURITIES PORTFOLIO 4
ADDITIONAL RISK FACTORS AND INFORMATION 5
FEES AND EXPENSES OF THE PORTFOLIOS 7
INVESTMENT ADVISER AND SUB-ADVISER 8
MANAGEMENT FEES 8
PORTFOLIO MANAGERS 9
DISTRIBUTION OF PORTFOLIO SHARES 10
SHAREHOLDER INFORMATION 10
</TABLE>
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
CHINA GROWTH PORTFOLIO
- -------------------------------------------------------------------------------
THE CHINA GROWTH PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN EQUITY SECURITIES OF ISSUERS IN THE PEOPLE'S REPUBLIC OF CHINA,
HONG KONG AND TAIWAN.
APPROACH
MSDW Investment Management seeks to maximize long-term capital appreciation by
investing in the equity securities of issuers located in The People's Republic
of China, Hong Kong and Taiwan that exhibit strong or accelerating earnings
growth. In addition, the Portfolio may also invest in securities of issuers
located in other Asian countries, such as Singapore, Malaysia, the Philippines,
Indonesia, Korea, Vietnam and Thailand.
PROCESS
MSDW Investment Management relies on its research capabilities, analytical
resources and experience to identify well established companies with consistent
or rising earnings growth records and that present accelerating growth
prospects. MSDW Investment Management rigorously studies company developments,
including changes in strategy, management focus and results, and closely
monitors analysts' expectations to ascertain issuers that have the potential for
positive earnings surprises versus consensus expectations.
RISK
Investing in the China Growth Portfolio may be appropriate for you if you are
willing to accept the risks and uncertainties of investing in the equity
securities of issuers in China and other foreign countries in the hope of
earning superior returns. In general, prices of equity securities are more
volatile than those of fixed income securities. The prices of equity securities
will rise and fall in response to a number of different factors. In particular,
prices of equity securities will respond to events that affect entire financial
markets or industries (changes in inflation or consumer demand, for example) and
to events that affect particular issuers (news about the success or failure of a
new product, for example). In addition, at times the Portfolio's market sector,
equity securities of Chinese issuers, may underperform relative to other
sectors.
INVESTING IN FOREIGN COUNTRIES, PARTICULARLY EMERGING MARKETS,
ENTAILS THE RISK THAT NEWS AND EVENTS UNIQUE TO A COUNTRY OR REGION
WILL AFFECT THOSE MARKETS AND THEIR ISSUERS. THESE SAME EVENTS WILL
NOT NECESSARILY HAVE AN EFFECT ON THE U.S. ECONOMY OR SIMILAR ISSUERS
LOCATED IN THE UNITED STATES. IN ADDITION, THE PORTFOLIO'S
INVESTMENTS IN FOREIGN COUNTRIES GENERALLY WILL BE DENOMINATED IN
FOREIGN CURRENCIES. AS A RESULT, CHANGES IN THE VALUE OF A COUNTRY'S
CURRENCY COMPARED TO THE U.S. DOLLAR MAY AFFECT THE VALUE OF THE
PORTFOLIO'S INVESTMENTS. THESE CHANGES MAY OCCUR SEPARATELY FROM AND
IN RESPONSE TO EVENTS THAT DO NOT OTHERWISE AFFECT THE VALUE OF THE
SECURITY IN THE ISSUER'S HOME COUNTRY. MSDW INVESTMENT MANAGEMENT MAY
INVEST IN CERTAIN INSTRUMENTS, SUCH AS DERIVATIVES, AND MAY USE
CERTAIN TECHNIQUES, SUCH AS HEDGING, TO MANAGE THESE RISKS. HOWEVER,
MSDW INVESTMENT MANAGEMENT CANNOT GUARANTEE THAT IT WILL BE PRACTICAL
TO HEDGE THESE RISKS IN CERTAIN MARKETS OR UNDER PARTICULAR
CONDITIONS OR THAT IT WILL SUCCEED IN DOING SO. THE RISKS OF
INVESTING IN THE PORTFOLIO MAY BE INTENSIFIED BECAUSE THE PORTFOLIO
IS NON-DIVERSIFIED, WHICH MEANS THAT IT MAY INVEST IN SECURITIES OF A
LIMITED NUMBER OF ISSUERS. AS A RESULT, THE PERFORMANCE OF A
PARTICULAR INVESTMENT OR A SMALL GROUP OF INVESTMENTS MAY AFFECT THE
PORTFOLIO'S PERFORMANCE MORE THAN IF THE PORTFOLIO WERE DIVERSIFIED.
A BAR CHART AND TABLE SHOWING THE PERFORMANCE OF THE PORTFOLIO IS NOT PROVIDED
BECAUSE, AS OF DECEMBER 31, 1998, THE CHINA GROWTH PORTFOLIO HAD NOT COMMENCED
OPERATIONS.
1
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
GOLD PORTFOLIO
- -------------------------------------------------------------------------------
THE GOLD PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING PRIMARILY
IN EQUITY SECURITIES OF ISSUERS ENGAGED IN GOLD-RELATED ACTIVITIES.
APPROACH
MSDW Investment Management and Sun Valley Gold Company ("Sun Valley Gold") as
investment sub-adviser, seek to maximize long-term capital appreciation by
investing in domestic and foreign companies engaged in the exploration, mining,
fabrication, processing, distribution or trading of gold and, to a lesser
extent, other precious metals.
PROCESS
Sun Valley Gold employs a flexible investment program in an attempt to identify
securities of issuers engaged in gold-related activities that offer the
potential for capital appreciation. Sun Valley Gold evaluates various countries
and regions based on factors such as political stability and economic outlook.
Based on this evaluation, they select particular countries and issuers for
investment by the Portfolio. Because most of the world's gold production is
outside of the United States, the Portfolio frequently invests in securities of
foreign issuers, particularly those located in Canada, Australia and South
Africa.
RISK
Investing in the Gold Portfolio may be appropriate for you if you are willing to
accept the risks and uncertainties of investing in a portfolio of equity
securities of foreign and domestic issuers engaged in gold-related activities.
In general, prices of equity securities are more volatile than those of fixed
income securities. The prices of equity securities will rise and fall in
response to a number of different factors. In particular, prices of equity
securities will respond to events that affect entire financial markets or
industries (changes in inflation or consumer demand, for example) and to events
that affect particular issuers (news about the success or failure of a new
product, for example). The Portfolio's concentration in investments in
gold-related issuers may expose it to risks unique to that industry. In
addition, at times the Portfolio's market sector, securities of gold-related
related issuers, may underperform relative to other sectors.
TO THE EXTENT THAT THE PORTFOLIO INVESTS IN SECURITIES OF FOREIGN ISSUERS, THERE
IS THE RISK THAT NEWS AND EVENTS UNIQUE TO A COUNTRY OR REGION WILL AFFECT THOSE
MARKETS AND THEIR ISSUERS. THESE SAME EVENTS WILL NOT NECESSARILY HAVE AN EFFECT
ON THE U.S. ECONOMY OR SIMILAR ISSUERS LOCATED IN THE UNITED STATES. IN
ADDITION, THE PORTFOLIO'S INVESTMENTS IN FOREIGN COUNTRIES GENERALLY WILL BE
DENOMINATED IN FOREIGN CURRENCIES. AS A RESULT, CHANGES IN THE VALUE OF A
COUNTRY'S CURRENCY COMPARED TO THE U.S. DOLLAR MAY AFFECT THE VALUE OF A
PORTFOLIO'S INVESTMENTS. THESE CHANGES MAY OCCUR SEPARATELY FROM AND IN RESPONSE
TO EVENTS THAT DO NOT OTHERWISE AFFECT THE VALUE OF THE SECURITY IN THE ISSUER'S
HOME COUNTRY. SUN VALLEY GOLD MAY INVEST IN CERTAIN INSTRUMENTS, SUCH AS
DERIVATIVES, AND MAY USE CERTAIN TECHNIQUES, SUCH AS HEDGING, TO MANAGE THESE
RISKS. HOWEVER, SUN VALLEY GOLD CANNOT GUARANTEE THAT IT WILL BE PRACTICAL TO
HEDGE THESE RISKS IN CERTAIN MARKETS OR UNDER PARTICULAR CONDITIONS OR THAT IT
WILL SUCCEED IN DOING SO.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE (CLASS A SHARES)
<S> <C>
Commenced operations on February 1, 1994
1995 13.21%
1996 16.94%
1997 -55.64%
HIGH (QUARTER)
1/96--3/96
34.50%
LOW (QUARTER)
10/97--12/97
- -34.99%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A CLASS B PHILADELPHIA
(COMMENCED (COMMENCED GOLD AND SILVER
OPERATIONS ON OPERATIONS ON INDEX*
FEBRUARY 1, 1994) JANUARY 2, 1996) CLASS A CLASS B
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
PAST ONE YEAR % % % %
- ------------------------------------------------------------------------------------------------
PAST FIVE YEARS N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------
SINCE INCEPTION % % % %
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. THE TABLE SEPARATELY COMPARES CLASS A AND
CLASS B SHARES TO THE INDEX SO THAT YOU CAN COMPARE PERFORMANCE FOR EACH CLASS
FROM ITS COMMENCEMENT DATE. THE INDEX ITSELF DOES NOT ACTUALLY HAVE TWO CLASSES.
HOW THE PORTFOLIO HAS PERFORMED IN THE PAST DOES NOT NECESSARILY INDICATE HOW
THE PORTFOLIO WILL PERFORM IN THE FUTURE.
*THE PHILADELPHIA GOLD AND SILVER INDEX IS AN UNMANAGED INDEX COMPRISED OF THE
LEADING COMPANIES INVOLVED IN THE MINING OF GOLD AND SILVER.
2
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
MICROCAP PORTFOLIO
- -------------------------------------------------------------------------------
THE MICROCAP PORTFOLIO SEEKS LONG-TERM CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN GROWTH-ORIENTED EQUITY SECURITIES OF SMALL COMPANIES.
APPROACH
MSDW Investment Management seeks to maximize long-term capital appreciation by
investing in small, growth-oriented domestic and, to a limited extent, foreign
companies. The universe of eligible companies generally includes those with
annual gross revenues of $150 million or less or market capitalizations of $250
million or less.
PROCESS
MSDW Investment Management employs a flexible investment program in an attempt
to identify issuers early in their life cycle with the potential for long-term
growth. MSDW Investment Management uses its judgment and research capabilities
to assess economic, industry, market and company developments to identify
promising companies that are expected to benefit from new technology or new
products or services. In addition, MSDW Investment Management looks for special
developments, such as research discoveries, changes in customer demand,
rejuvenated management or basic changes in the economic environment.
RISK
Investing in the MicroCap Portfolio may be appropriate for you if you are
willing to accept the risks and uncertainties of investing in a portfolio of
equity securities of small issuers. In general, prices of equity securities are
more volatile than those of fixed income securities. The prices of equity
securities will rise and fall in response to a number of different factors. In
particular, prices of equity securities will respond to events that affect
entire financial markets or industries (changes in inflation or consumer demand,
for example) and to events that affect particular issuers (news about the
success or failure of a new product, for example).
THE RISK OF INVESTING IN EQUITY SECURITIES IS INTENSIFIED IN THE CASE
OF THE SMALL COMPANIES IN WHICH THE PORTFOLIO INVESTS. MARKET PRICES
FOR SUCH COMPANIES' EQUITY SECURITIES TEND TO BE MORE VOLATILE THAN
THOSE OF LARGER, MORE ESTABLISHED COMPANIES. SMALL COMPANIES MAY
THEMSELVES BE MORE VULNERABLE TO ECONOMIC OR COMPANY SPECIFIC
PROBLEMS. IN ADDITION, AT TIMES THE PORTFOLIO'S MARKET SECTOR, EQUITY
SECURITIES OF SMALLER ISSUERS, MAY UNDER PERFORM RELATIVE TO OTHER
SECTORS.
TO THE EXTENT THAT THE PORTFOLIO INVESTS IN SECURITIES OF FOREIGN
ISSUERS, THERE IS THE RISK THAT NEWS AND EVENTS UNIQUE TO A COUNTRY OR
REGION WILL AFFECT THOSE MARKETS AND THEIR ISSUERS. THESE SAME EVENTS
WILL NOT NECESSARILY HAVE AN EFFECT ON THE U.S. ECONOMY OR SIMILAR
ISSUERS LOCATED IN THE UNITED STATES. IN ADDITION, THE PORTFOLIO'S
INVESTMENTS IN FOREIGN COUNTRIES GENERALLY WILL BE DENOMINATED IN
FOREIGN CURRENCIES. AS A RESULT, CHANGES IN THE VALUE OF A COUNTRY'S
CURRENCY COMPARED TO THE U.S. DOLLAR MAY AFFECT THE VALUE OF THE
PORTFOLIO'S INVESTMENTS. THESE CHANGES MAY OCCUR SEPARATELY FROM AND
IN RESPONSE TO EVENTS THAT DO NOT OTHERWISE AFFECT THE VALUE OF THE
SECURITY IN THE ISSUER'S HOME COUNTRY. MSDW INVESTMENT MANAGEMENT MAY
INVEST IN CERTAIN INSTRUMENTS, SUCH AS DERIVATIVES, AND MAY USE
CERTAIN TECHNIQUES, SUCH AS HEDGING, TO MANAGE THESE RISKS. HOWEVER,
MSDW INVESTMENT MANAGEMENT CANNOT GUARANTEE THAT IT WILL BE PRACTICAL
TO HEDGE THESE RISKS IN CERTAIN MARKETS OR UNDER PARTICULAR CONDITIONS
OR THAT IT WILL SUCCEED IN DOING SO. THE RISKS OF INVESTING IN THE
PORTFOLIO MAY BE INTENSIFIED BECAUSE THE PORTFOLIO IS NON-DIVERSIFIED,
WHICH MEANS THAT IT MAY INVEST IN SECURITIES OF A LIMITED NUMBER OF
ISSUERS. AS A RESULT, THE PERFORMANCE OF A PARTICULAR INVESTMENT OR A
SMALL GROUP OF INVESTMENTS MAY AFFECT THE PORTFOLIO'S PERFORMANCE MORE
THAN IF THE PORTFOLIO WERE DIVERSIFIED.
A BAR CHART AND TABLE SHOWING THE PERFORMANCE OF THE PORTFOLIO IS NOT PROVIDED
BECAUSE, AS OF DECEMBER 31, 1998, THE MICROCAP PORTFOLIO HAD NOT COMMENCED
OPERATIONS.
3
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES PORTFOLIO
- -------------------------------------------------------------------------------
THE MORTGAGE-BACKED SECURITIES PORTFOLIO SEEKS TO PRODUCE AS HIGH A LEVEL OF
CURRENT INCOME AS IS CONSISTENT WITH THE PRESERVATION OF CAPITAL BY INVESTING
PRIMARILY IN A VARIETY OF INVESTMENT GRADE MORTGAGE-BACKED SECURITIES.
APPROACH
MSDW Investment Management seeks to preserve capital and produce an attractive
real rate of return by emphasizing investment in high quality (i.e., those rated
in the three highest rating categories or believed to be of equivalent quality)
short- and intermediate-term mortgage-backed securities. The investment process
is designed to achieve an attractive return through gradual shifts in portfolio
maturity.
PROCESS
MSDW Investment Management assesses current and projected market and economic
conditions and, based on its evaluation, sets an annual target rate of return
for the Portfolio. MSDW Investment Management manages the Portfolio primarily
using gradual shifts in maturities to achieve the target rate of return. Short-
and intermediate-term mortgage-backed securities form the core of the Portfolio.
The Portfolio may hold long-term securities (i.e., securities with maturities
over 10 years) when MSDW Investment Management believes that they will enhance
return without significantly increasing risk. Typically, the Portfolio expects
to invest at least 75% of its assets in mortgage-backed securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or rated in
the highest rating category. However, the Portfolio may invest up to 15% in
mortgage-backed securities rated in the third highest rating category or, if
unrated, believed by MSDW Investment Management to be of equivalent quality.
RISK
Investing in the Mortgage-Backed Securities Portfolio may be appropriate for you
if you are willing to accept the risks and uncertainties of investing in fixed
income securities, and mortgage-backed securities in particular. Although most
of the Portfolio's investments are issued or guaranteed by the U.S. Government
or its instrumentalities or rated in the top three rating categories, or of
equivalent quality, market risks, particularly changes in interest rates, will
still affect the prices of fixed income securities. Moreover, mortgage-backed
securities are subject to prepayment risk. In addition, at times the Portfolio's
market sector, mortgage-backed securities, may underperform relative to other
sectors.
MORTGAGE-BACKED SECURITIES ARE FIXED-INCOME SECURITIES REPRESENTING AN INTEREST
IN A POOL OF UNDERLYING MORTGAGE LOANS. THEY ARE SENSITIVE TO CHANGES IN
INTEREST RATES, BUT MAY RESPOND TO THESE CHANGES DIFFERENTLY FROM OTHER FIXED
INCOME SECURITIES DUE TO THE POSSIBILITY OF PREPAYMENT OF THE UNDERLYING
MORTGAGE LOANS. AS A RESULT, IT MAY NOT BE POSSIBLE TO DETERMINE IN ADVANCE THE
ACTUAL MATURITY DATE OR AVERAGE LIFE OF A MORTGAGE-BACKED SECURITY. RISING
INTEREST RATES TEND TO DISCOURAGE REFINANCINGS, WITH THE RESULT THAT THE AVERAGE
LIFE AND VOLATILITY OF THE SECURITY WILL INCREASE AND ITS MARKET PRICE WILL
DECREASE. WHEN INTEREST RATES FALL, HOWEVER, MORTGAGE-BACKED SECURITIES MAY NOT
GAIN AS MUCH IN MARKET VALUE BECAUSE ADDITIONAL MORTGAGE PREPAYMENTS MUST BE
REINVESTED AT LOWER INTEREST RATES. PREPAYMENT RISK MAY MAKE IT DIFFICULT TO
CALCULATE THE AVERAGE MATURITY OF A PORTFOLIO OF MORTGAGE-BACKED SECURITIES AND,
THEREFORE, TO ASSESS THE VOLATILITY RISK OF THAT PORTFOLIO.
A BAR CHART AND TABLE SHOWING THE PERFORMANCE OF THE PORTFOLIO IS NOT PROVIDED
BECAUSE, AS OF DECEMBER 31, 1998, THE MORTGAGE-BACKED SECURITIES PORTFOLIO HAD
NOT COMMENCED OPERATIONS.
4
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
ADDITIONAL RISK FACTORS AND INFORMATION
- -------------------------------------------------------------------------------
THIS SECTION DISCUSSES ADDITIONAL RISK FACTORS AND INFORMATION RELATED TO THE
PORTFOLIOS. THE PORTFOLIOS' INVESTMENT PRACTICES AND LIMITATIONS ARE DESCRIBED
IN MORE DETAIL IN THE STATEMENT OF ADDITIONAL INFORMATION ("SAI"), WHICH LEGALLY
IS A PART OF THIS PROSPECTUS. FOR DETAILS ABOUT HOW TO OBTAIN A COPY OF THE SAI
AND OTHER REPORTS AND INFORMATION, SEE THE BACK COVER OF THIS PROSPECTUS.
PRICE VOLATILITY
The value of your investment in a Portfolio is based on the market prices of the
securities the Portfolio holds. These prices change daily due to economic and
other events that affect markets generally, as well as those that affect
particular regions, countries, industries or companies. These price movements,
sometimes called volatility, may be greater or lesser depending on the types of
securities the Portfolio owns and the markets in which the securities trade.
Over time, equity securities have generally shown superior gains, although they
have tended to be more volatile than fixed income securities in the short term.
Fixed income securities, regardless of credit quality, also experience price
volatility, especially in response to interest rate changes. As a result of
price volatility, there is a risk that you may lose money by investing in a
Portfolio.
FIXED INCOME SECURITIES
Investments in fixed income securities are subject to credit risk and market
risk. Credit risk is the possibility that an issuer may be unable to meet its
scheduled principal and interest payments. Market risk is the possibility that a
change in interest rates or the market's perception of an issuer's prospects may
adversely affect the value of a fixed income security. Generally, fixed income
securities decrease in value as interest rates rise and vice versa. Prices of
longer term securities also are generally more volatile, so the average maturity
of portfolio securities affects risk.
EMERGING MARKET RISKS
Emerging market countries are countries that major international financial
institutions, such as the World Bank, generally consider to be less economically
mature than developed nations, such as the United States or most nations in
Western Europe. Emerging market countries can include every nation in the world
except the United States, Canada, Japan, Australia, New Zealand, and most
countries located in Western Europe. Emerging market countries may be more
likely to experience political turmoil or rapid changes in economic conditions
than more developed countries, and the financial condition of issuers in
emerging market countries may be more precarious than in other countries. These
characteristics result in greater risk of price volatility in emerging market
countries, which may be heightened by currency fluctuations relative to the U.S.
dollar.
DERIVATIVES
The Portfolios may use various instruments that derive their values from those
of specified securities, indices, currencies or other points of reference for
both hedging and non-hedging purposes. Derivatives include futures, options,
forward contracts, swaps, and structured notes. These derivatives, including
those used to manage risk, are themselves subject to risks of the different
markets in which they trade and, therefore, may not serve their intended
purposes.
The primary risks of derivatives are: (i) changes in the market value of
securities held by a Portfolio, and of derivatives relating to those securities,
may not be proportionate, (ii) there may not be a liquid market for a Portfolio
to sell a derivative, which could result in difficulty closing a position and
(iii) certain derivatives can magnify the extent of losses incurred due to
changes in the market value of the securities to which they relate. In addition,
derivatives are subject to counter party risk. To minimize this risk, a
Portfolio may enter into derivatives transactions with counter parties that meet
certain requirements for credit quality and collateral. Also, a Portfolio may
invest in certain derivatives that require the Portfolio to segregate some or
all of its cash or liquid securities to cover its obligations under those
instruments. At certain levels, this can cause
5
<PAGE>
the Portfolio to lose flexibility in managing its investments properly,
responding to shareholder redemption requests, or meeting other obligations. If
the Portfolio is in that position, it could be forced to sell other securities
that it wanted to retain.
A Portfolio will limit its use of derivatives for non-hedging purposes to
33 1/3% of its total assets measured by the aggregate notional amount of
outstanding derivatives. While the use of derivatives may be advantageous to a
Portfolio, if MSDW Investment Management is not successful in employing them,
the Portfolio's performance may be worse than if it did not make such
investments. See the Statement of Additional Information for more about the
risks of different types of derivatives.
BANK INVESTORS
An investment in a Portfolio is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
YEAR 2000 RISK
The advisory and distribution services that MSDW Investment Management, Sun
Valley Gold and Morgan Stanley & Co. Incorporated ("Morgan Stanley") provide to
the Fund depend on the smooth operation of their computer systems. Many computer
and 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. MSDW Investment Management, Sun
Valley Gold and Morgan Stanley have been actively working on necessary changes
to their own computer systems to deal with the year 2000 problem and expect that
their systems will be adapted before that date. There can be no assurance,
however, that they will be successful. In addition, other unaffiliated service
providers may be faced with similar problems. MSDW Investment Management, Sun
Valley Gold and Morgan Stanley are monitoring their remedial efforts, but there
can be no assurance that they and the services they provide will not be
adversely affected.
In addition, it is possible that the markets for securities in which the
Portfolios invest 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 Portfolios' investments may be
adversely affected.
TEMPORARY DEFENSIVE
INVESTMENTS
When MSDW Investment Management or Sun Valley Gold believes that changes in
economic, financial or political conditions warrant, each Portfolio may invest
without limit in certain short-and medium-term fixed income securities for
temporary defensive purposes. If MSDW Investment Management or Sun Valley Gold
incorrectly predicts the effects of these changes, such defensive investments
may adversely affect a Portfolio's performance and the Portfolio may not achieve
its investment objective.
PORTFOLIO TURNOVER
Consistent with its investment policies, a Portfolio will purchase and sell
securities without regard to the effect on portfolio turnover. Higher portfolio
turnover (e.g. over 100% per year) will cause a Portfolio to incur additional
transaction costs and may result in taxable gains being passed through to
shareholders.
6
<PAGE>
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE PORTFOLIOS
- -------------------------------------------------------------------------------
The Securities and Exchange Commission (the "Commission") requires that the Fund
disclose in the table below the fees and expenses that you may pay if you buy
and hold shares of the Portfolios. The Portfolios do not charge any sales loads
or similar fees when you purchase or redeem shares. The Annual Fund Operating
Expenses in the table below do not reflect voluntary fee waivers and/or expense
reimbursements from MSDW Investment Management.
1998 ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)*
<TABLE>
<CAPTION>
CHINA GROWTH GOLD MICROCAP MORTGAGE-BACKED
PORTFOLIO+ PORTFOLIO+ PORTFOLIO+ SECURITIES PORTFOLIO+
--------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES
- --------------------------------------------------------------------------------------------------------
CLASS A 1.25% 1.00% 1.00% 0.35%
- --------------------------------------------------------------------------------------------------------
CLASS B 1.25% 1.00% 1.00% 0.35%
12B-1 FEE
- --------------------------------------------------------------------------------------------------------
CLASS A NONE NONE NONE NONE
- --------------------------------------------------------------------------------------------------------
CLASS B 0.25% 0.25% 0.25% 0.25%
OTHER EXPENSES
- --------------------------------------------------------------------------------------------------------
CLASS A 0.77% 0.62% 0.57% 0.25%
- --------------------------------------------------------------------------------------------------------
CLASS B 0.77% 0.62% 0.57% 0.25%
TOTAL ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------------------------------
CLASS A 2.02% 1.62% 1.57% 0.60%
- --------------------------------------------------------------------------------------------------------
CLASS B 2.27% 1.87% 1.82% 0.85%
</TABLE>
+ ESTIMATED. AS OF THE DATE OF THIS PROSPECTUS, NONE OF THE PORTFOLIOS WERE
OPERATIONAL.
*The Management Fees for the Portfolios shown in the table above are the highest
that could be charged. This table does not show the effects of MSDW Investment
Management's voluntary fee waivers and/or expense reimbursements. MSDW
Investment Management has voluntarily agreed to reduce its management fee and/or
reimburse the Portfolios so that total annual operating expenses, excluding
certain investment related expenses described below, will not exceed 1.75% for
Class A shares and 2.00% for Class B shares of the China Growth Portfolio; 1.25%
for Class A shares and 1.50% for Class B shares of the Gold Portfolio; and 1.50%
for Class A shares and 1.75% for Class B shares of the MicroCap Portfolio.
IN DETERMINING THE ACTUAL AMOUNT OF VOLUNTARY MANAGEMENT FEE WAIVER AND/OR
EXPENSE REIMBURSEMENT FOR A PORTFOLIO, IF ANY, MSDW INVESTMENT MANAGEMENT
EXCLUDES FROM ANNUAL OPERATING EXPENSES CERTAIN INVESTMENT RELATED EXPENSES,
SUCH AS FOREIGN COUNTRY TAX EXPENSE AND INTEREST EXPENSE ON BORROWING. IF THESE
EXPENSES WERE INCURRED, THE PORTFOLIOS' TOTAL OPERATING EXPENSES AFTER VOLUNTARY
FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS WOULD EXCEED THE EXPENSE RATIO SHOWN
ABOVE.
FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS ARE VOLUNTARY AND MSDW INVESTMENT
MANAGEMENT RESERVES THE RIGHT TO TERMINATE ANY WAIVER AND/OR REIMBURSEMENT AT
ANY TIME AND WITHOUT NOTICE.
7
<PAGE>
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN EACH
PORTFOLIO WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS HAVING SIMILAR
INVESTMENT OBJECTIVES.
The example assumes that you invest $10,000 in each Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example assumes that your investment has a 5% return each year and
that each Portfolio's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
CHINA GROWTH PORTFOLIO
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------
CLASS A $205 $634 $1,088 $2,348
- ----------------------------------------------------------------------
CLASS B $230 $709 $1,215 $2,605
GOLD PORTFOLIO
- ----------------------------------------------------------------------
CLASS A $165 $511 $881 $1,922
- ----------------------------------------------------------------------
CLASS B $190 $588 $1,011 $2,190
MICROCAP PORTFOLIO
- ----------------------------------------------------------------------
CLASS A $160 $496 $855 $1,867
- ----------------------------------------------------------------------
CLASS B $185 $573 $985 $2,137
MORTGAGE-BACKED SECURITIES PORTFOLIO
- ----------------------------------------------------------------------
CLASS A $61 $192 $335 $750
- ----------------------------------------------------------------------
CLASS B $87 $271 $471 $1,049
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND SUB-ADVISER
- -------------------------------------------------------------------------------
Morgan Stanley Dean Witter Investment Management Inc. ("MSDW Investment
Management"), with principal offices at 1221 Avenue of the Americas, New York,
New York 10020, conducts a worldwide portfolio management business and provides
a broad range of portfolio management services to customers in the United States
and abroad. Morgan Stanley Dean Witter & Co. ("MSDW") is the direct parent of
MSDW Investment Management and Morgan Stanley. MSDW is a preeminent global
financial services firm that maintains leading market positions in each of its
three primary businesses -- securities, asset management and credit services. At
December 31, 1998, MSDW Investment Management, together with its affiliated
institutional asset management companies, managed assets of approximately $163.4
billion, including assets under fiduciary advice.
Sun Valley Gold Company ("Sun Valley Gold"), located at 620 Sun Valley Road, Sun
Valley, Idaho 83340, serves as investment sub-adviser and manager for the Gold
Portfolio on a day-to-day basis. Sun Valley Gold selects, buys and sells
securities for the Gold Portfolio under the supervision of MSDW Investment
Management and the Board of Directors.
- -------------------------------------------------------------------------------
MANAGEMENT FEES
- -------------------------------------------------------------------------------
For the year ended December 31, 1998, MSDW Investment Management received from
each Portfolio the management fee set forth in the table below:
<TABLE>
<CAPTION>
CHINA MORTGAGE- BACKED
GROWTH GOLD MICROCAP SECURITIES
PORTFOLIO+ PORTFOLIO+ PORTFOLIO+ PORTFOLIO+
<S> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------
MANAGEMENT FEE CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
-----------------------------------------------------------------------------
PAID IN FISCAL YEAR ENDED
DECEMBER 31, 1998 0.90% 0.90% 0.65% 0.65% 1.05% 1.05% 0.20% 0.20%
(NET OF WAIVERS AND AS A PERCENTAGE OF
AVERAGE NET ASSETS)
</TABLE>
+ESTIMATED. AS OF THE DATE OF THIS PROSPECTUS, NONE OF THE PORTFOLIOS WERE
OPERATIONAL.
8
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
- -------------------------------------------------------------------------------
THE FOLLOWING INDIVIDUALS HAVE PRIMARY DAY-TO-DAY PORTFOLIO MANAGEMENT
RESPONSIBILITY FOR THE PORTFOLIOS:
CHINA GROWTH PORTFOLIO
[TO BE PROVIDED]
GOLD PORTFOLIO
[TO BE PROVIDED]
MICROCAP PORTFOLIO
[TO BE PROVIDED]
MORTGAGE-BACKED SECURITIES PORTFOLIO
[TO BE PROVIDED]
9
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTION OF PORTFOLIO SHARES
- -------------------------------------------------------------------------------
Morgan Stanley is the exclusive Distributor of Class A shares and Class B shares
of each Portfolio. Morgan Stanley receives no compensation for distributing
Class A shares of the Portfolios. The Fund has adopted a Plan of Distribution
with respect to the Class B shares of each Portfolio pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended, (the "Plan"). Under the
Plan, each Portfolio pays the Distributor a distribution fee of 0.25% of the
Class B shares' average daily net assets on an annualized basis. The
distribution fee compensates the Distributor for marketing and selling Class B
shares. The Distributor may pay others for providing distribution-related and
other services, including account maintenance services. Over time the
distribution fees will increase the cost of your investment and may cost you
more than paying other types of sales charges.
- -------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------
ABOUT NET ASSET VALUE
The net asset value ("NAV") per share of a class of shares of the Portfolio is
determined by dividing the total market value of the Portfolio's investments and
other assets attributable to the class, less any liabilities attributable to the
class, by the total number of outstanding shares of that class of the Portfolio.
In making this calculation, the Portfolio generally values securities at market
price. If market prices are unavailable or may be unreliable because of events
occurring after the close of trading, fair value prices may be determined in
good faith using methods approved by the Board of Directors. The Portfolios may
hold portfolio securities that are listed on foreign exchanges. These securities
may trade on weekends or other days when the Portfolios do not calculate NAV. As
a result, the value of these investments may change on days when you cannot
purchase or sell shares.
PRICING OF PORTFOLIO SHARES
You may buy or sell (redeem) Class A and Class B shares of each Portfolio at the
net asset value next determined for the class after receipt of your order. The
Fund determines net asset value as of the close of the New York Stock Exchange
("NYSE") (normally 4:00 p.m. Eastern Time) on each day that the NYSE is open for
business (the "Pricing Time").
HOW TO PURCHASE SHARES
You may purchase Class A shares and Class B shares of each Portfolio directly
from the Fund, from the Distributor or through certain third parties ("Financial
Intermediaries") on each day that the NYSE is open.
The minimum initial investment generally is $500,000 for Class A shares and
$100,000 for Class B shares of each Portfolio. The minimum additional investment
generally is $1,000 for each account that you have. If the value of your account
falls below the minimum initial investment amount for Class A shares or Class B
shares as a result of share redemptions, the Fund will notify you. Your account
may be subject to involuntary conversion from Class A shares to Class B shares
or involuntary redemption in the case of Class B shares if the value of your
account remains below the minimum initial investment amount for 60 consecutive
days. MSDW Investment Management may waive the minimum initial investment and
involuntary conversion or redemption features for certain investors, including
individuals purchasing through a Financial Intermediary.
You may arrange to purchase shares directly from the Fund by calling
1-800-548-7786 or by returning a completed Account Registration Form with
payment for your purchase. The price you pay will be the net asset value
calculated at the Pricing Time following receipt of your purchase order and
payment.
To purchase shares through the Distributor or a Financial Intermediary, you
should contact the Distributor or your Financial Intermediary for details.
Generally, the price of shares purchased through the Distributor or a Financial
Intermediary is the price calculated at the next Pricing Time after the Fund
receives your order from the Distributor or your Financial Intermediary.
10
<PAGE>
Certain Financial Intermediaries have made arrangements with the Fund so that
you may purchase shares at the price calculated at the next Pricing Time after
your Financial Intermediary receives your purchase order. Your Financial
Intermediary may charge an additional service or transaction fee.
HOW TO REDEEM SHARES
You may redeem Portfolio shares directly from the Fund, through the Distributor
or through your Financial Intermediary, each as described above under Purchase
of Shares. The redemption price will be the net asset value per share calculated
at the next Pricing Time, which may be more or less than the purchase price of
your shares. The Fund will ordinarily distribute redemption proceeds in cash
within one business day of your redemption request, but it may take up to seven
business days. However, if you purchased shares by check, the Fund will not
distribute redemption proceeds until it has collected your purchase payment,
which may take up to eight days. In certain circumstances, for example, if
payment of redemption proceeds in cash would be detrimental to the remaining
shareholders, the Portfolio may pay redemption proceeds by a
distribution-in-kind of readily marketable portfolio securities.
EXCHANGE FEATURES
You may exchange Portfolio shares for shares of the other available portfolios
of the Fund. To obtain a prospectus for another portfolio, call the Fund at
1-800-548-7786 or contact your Financial Intermediary. If you purchased
Portfolio shares through a Financial Intermediary, certain portfolios may be
unavailable for exchange. Contact your Financial Intermediary to determine which
portfolios are available for exchange. The Fund currently consists of the
following portfolios:
<TABLE>
<S> <C>
U.S. EQUITY GLOBAL AND INTERNATIONAL EQUITY
Aggressive Equity Portfolio Active International Allocation
Emerging Growth Portfolio Portfolio
Equity Growth Portfolio Asian Real Estate Portfolio
MicroCap Portfolio+ Asian Equity Portfolio
Technology Portfolio China Growth Portfolio+
U.S. Equity Plus Portfolio Emerging Markets Portfolio
U.S. Real Estate Portfolio European Equity Portfolio
Value Equity Portfolio European Real Estate Portfolio
FIXED INCOME Global Equity Portfolio
Emerging Markets Debt Portfolio Gold Portfolio*
Fixed Income Portfolio International Equity Portfolio*
Global Fixed Income Portfolio International Magnum Portfolio
High Yield Portfolio International Small Cap Portfolio
Mortgage-Backed Securities Portfolio+ Japanese Equity Portfolio
Municipal Bond Portfolio Latin American Portfolio
MONEY MARKET
Money Market Portfolio
Municipal Money Market Portfolio
</TABLE>
*PORTFOLIO IS CURRENTLY CLOSED TO NEW INVESTORS
+PORTFOLIO HAS NOT YET COMMENCED OPERATIONS
When you exchange for shares of another portfolio, your transaction will be
treated the same as an initial purchase. You will be subject to the same minimum
initial investment and account size as an initial purchase. Accordingly, you
will not necessarily receive the same class of shares that you tendered for
exchange. Your exchange price will be the price calculated at the next Pricing
Time after the Fund receives your exchange order. Frequent trades in your
account(s) can disrupt management of a Portfolio and raise its expenses.
Therefore, the Fund may bar a shareholder who trades excessively from making
further exchanges or purchases.
11
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
It is the policy of each of the China Growth and MicroCap Portfolio's to
distribute to shareholders substantially all of its taxable net investment
income in the form of an annual dividend. The Gold Portfolio's policy is to
distribute to shareholders substantially all of its taxable net investment
income in the form of quarterly dividends. The Mortgage-Backed Securities
Portfolio's policy is to distribute to shareholders substantially all of its
taxable net investment income in the form of monthly dividends. Each Portfolio's
policy is to distribute to shareholders net capital gains on an annual basis.
The Fund automatically reinvests all distributions in additional shares.
However, you may elect to receive distributions in cash by giving written notice
to the Fund or your Financial Intermediary or by checking the appropriate box in
the Distribution Option section on the Account Registration Form.
TAXES
The dividends and distributions you receive from a Portfolio may be subject to
Federal, state and local taxation, depending on your tax situation. The tax
treatment of dividends and distributions is the same whether or not you reinvest
them. Dividends are taxed as ordinary income, long-term capital gains
distributions are taxed at a maximum rate of 20%, and short-term capital gains
distributions are taxed at ordinary rates. A Portfolio may be able to pass
through to you a credit for foreign income taxes it pays. The Fund will tell you
annually how to treat dividends and distributions.
If you redeem shares of a Portfolio, you will be subject to tax on any gains you
earn based on your holding period for the shares. An exchange of shares of a
Portfolio for shares of another portfolio is a sale of Portfolio shares for tax
purposes. Conversions of shares between classes will not result in taxation.
Because each investor's tax circumstances are unique and the tax laws may
change, you should consult your tax advisor about your investment.
12
<PAGE>
- -------------------------------------------------------------------------------
WHERE TO FIND ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
In addition to this Prospectus, the Fund has a Statement of Additional
Information ("SAI"), dated May 1, 1999, which contains additional, more detailed
information about the Fund and the Portfolio. The SAI is incorporated by
reference into this Prospectus and, therefore, legally forms a part of this
Prospectus.
SHAREHOLDER REPORTS
The Fund publishes annual and semi-annual reports containing financial
statements, and quarterly reports. These reports contain additional information
about the Portfolio's investments. In the Fund's shareholder reports, you will
find a discussion of the market conditions and the investment strategies that
significantly affected the Portfolio's performance during that period.
For additional Fund information, including information regarding the investments
comprising the Fund's Portfolios, please call 1-800-548-7786.
You may obtain the SAI and shareholder reports without charge by contacting the
Fund at the toll-free number above. If you purchased shares through a Financial
Intermediary, you may also obtain these documents, without charge, by contacting
your Financial Intermediary.
Information about the Fund, including the SAI, and the annual and semi-annual
reports, may be obtained from the Securities and Exchange Commission in any of
the following ways: (1) In person: you may review and copy documents in the
Commission's Public Reference Room in Washington D.C. (for information call
1-800-SEC-0330); (2) On-line: you may retrieve information from the Commission's
web site at "http://www.sec.gov"; or (3) By mail: you may request documents,
upon payment of a duplicating fee, by writing to Securities and Exchange
Commission, Public Reference Section, Washington, D.C. 20549-6009. To aid you in
obtaining this information, the Fund's Investment Company Act registration
number is 811-05624.
[LOGO] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
P.O. Box 2798
Boston, Massachusetts 02208-2798
FOR INFORMATION CALL 1-800-548-7786
<PAGE>
- -------------------------------------------------------------------------------
PROSPECTUS MAY 1, 1999
- -------------------------------------------------------------------------------
A PORTFOLIO OF [LOGO] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
THE ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO SEEKS LONG-TERM CAPITAL
APPRECIATION BY INVESTING PRIMARILY IN ACCORDANCE WITH COUNTRY AND SECTOR
WEIGHTINGS DETERMINED BY THE INVESTMENT ADVISER IN EQUITY SECURITIES OF NON-U.S.
ISSUERS WHICH, IN THE AGGREGATE, REPLICATE BROAD MARKET INDICES.
INVESTMENT ADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
DISTRIBUTOR
MORGAN STANLEY & CO. INCORPORATED
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC. (THE "FUND") IS A NO-LOAD
MUTUAL FUND THAT IS DESIGNED TO MEET THE INVESTMENT NEEDS OF DISCERNING
INVESTORS WHO PLACE A PREMIUM ON QUALITY AND PERSONAL SERVICE. THE FUND MAKES
AVAILABLE TO INSTITUTIONAL INVESTORS A SERIES OF PORTFOLIOS WHICH BENEFIT FROM
THE INVESTMENT EXPERTISE AND COMMITMENT TO EXCELLENCE ASSOCIATED WITH MORGAN
STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC. ("MSDW INVESTMENT MANAGEMENT")
AND ITS AFFILIATES. THIS PROSPECTUS OFFERS CLASS A AND CLASS B SHARES OF THE
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO (THE "PORTFOLIO").
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT SUMMARY
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO 1
ADDITIONAL RISK FACTORS AND INFORMATION 2
FEES AND EXPENSES OF THE PORTFOLIO 4
INVESTMENT ADVISER 5
MANAGEMENT FEES 5
PORTFOLIO MANAGERS 6
DISTRIBUTION OF PORTFOLIO SHARES 7
SHAREHOLDER INFORMATION 7
FINANCIAL HIGHLIGHTS 9
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO 10
ACCOUNT REGISTRATION FORM
[TO BE ATTACHED]
</TABLE>
<PAGE>
- ----------------------------
INVESTMENT SUMMARY
- -------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
- -------------------------------------------------------------------------------
THE ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO SEEKS LONG-TERM CAPITAL
APPRECIATION BY INVESTING PRIMARILY IN ACCORDANCE WITH COUNTRY AND SECTOR
WEIGHTINGS DETERMINED BY MSDW INVESTMENT MANAGEMENT IN EQUITY SECURITIES OF
NON-U.S. ISSUERS WHICH, IN THE AGGREGATE, REPLICATE BROAD MARKET INDICES.
APPROACH
MSDW Investment Management seeks to maintain a diversified portfolio of
international equity securities based on a top-down approach that emphasizes
country and sector selection and weighting rather than individual stock
selection. MSDW Investment Management capitalizes on the significance of country
and sector selection in international equity portfolio returns by over and
underweighting countries based on three factors: (i) valuation; (ii) fundamental
change; and (iii) short-term market momentum/technicals.
PROCESS
MSDW Investment Management's Active International Allocation team analyzes both
the global economic environment and the economies of the industrialized
countries comprising the MSCI Europe, Australasia, Far East (EAFE) Index. EAFE
countries include Japan, most nations in Western Europe, Australia, New Zealand,
Hong Kong and Singapore. MSDW Investment Management views each EAFE country and
major sectors as unique investment opportunities and evaluates prospects for
value, growth, inflation, interest rates, corporate earnings, liquidity and risk
characteristics, investor sentiment and currency outlook. After determining to
invest in an EAFE country, MSDW Investment Management establishes overweight,
underweight or neutral positions relative to the EAFE Index. Within the EAFE
countries or sectors selected for investment, MSDW Investment Management
purchases optimized baskets of equity securities designed to track the local
market index within a specified tolerance. The Portfolio does not invest in
securities of U.S. issuers. MSDW Investment Management considers an issuer to be
from a particular EAFE country if (i) its principal securities trading market is
in that country; (ii) alone or on a consolidated basis it derives 50% or more of
its annual revenue from either goods produced, sales made or services performed
in that country; or (iii) it is organized under the laws of, and has a principal
office in, that country.
RISK
Investing in the Active International Allocation Portfolio may be appropriate
for you if you are willing to accept the risks and uncertainties of investing in
the equity securities of issuers in foreign countries, on a very diversified
basis, in the hope of earning superior returns and to diversify your portfolio.
In general, prices of equity securities are more volatile than those of fixed
income securities. The prices of equity securities will rise and fall in
response to a number of different factors. In particular, prices of equity
securities will respond to events which affect entire financial markets or
industries (changes in inflation or consumer demand, for example) and to events
that affect particular issuers (news about the success or failure of a new
product, for example). In addition, at times the Portfolio's market sector,
foreign equity securities, may underperform relative to other sectors.
<TABLE>
<CAPTION>
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
PERFORMANCE (CLASS A SHARES)
<S> <C>
Commenced operations on January 17, 1992
1993 30.72%
1994 -0.52%
1995 10.57%
1996 9.71%
1997 8.61%
1998 20.12%
HIGH (QUARTER)
1/98 - 3/98
15.69%
LOW (QUARTER)
7/98 - 9/98
- -11.55%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR THE YEAR ENDED DECEMBER 31, 1998)
<TABLE>
<CAPTION>
CLASS A CLASS B
(COMMENCED (COMMENCED
OPERATIONS ON OPERATIONS ON MSCI EAFE INDEX*
JANUARY 17, 1992) JANUARY 2, 1996) CLASS A CLASS B
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
PAST ONE YEAR 20.12% 20.71% 20.00% 20.00%
- ------------------------------------------------------------------------------------------------
PAST FIVE YEARS 9.50% N/A 9.19% N/A
- ------------------------------------------------------------------------------------------------
SINCE INCEPTION 10.26% 12.63% 9.62% 9.00%
</TABLE>
THE BAR CHART AND TABLE ABOVE SHOW THE PERFORMANCE OF THE PORTFOLIO YEAR-BY-YEAR
AND AS AN AVERAGE OVER DIFFERENT PERIODS OF TIME. TOGETHER, THE BAR CHART AND
TABLE DEMONSTRATE THE VARIABILITY OF PERFORMANCE OVER TIME AND PROVIDE AN
INDICATION OF THE RISKS OF INVESTING IN THE PORTFOLIO. IN ADDITION, THE TABLE
COMPARES THE PERFORMANCE OF THE PORTFOLIO TO AN INDEX OF SIMILAR SECURITIES. AN
INDEX IS A HYPOTHETICAL MEASURE OF PERFORMANCE BASED ON THE UPS AND DOWNS OF
SECURITIES THAT MAKE UP A PARTICULAR MARKET. THE INDEX DOES NOT SHOW ACTUAL
INVESTMENT RETURNS OR REFLECT PAYMENT OF MANAGEMENT OR BROKERAGE FEES, WHICH
WOULD LOWER THE INDEX'S PERFORMANCE. THE TABLE SEPARATELY COMPARES CLASS A AND
CLASS B SHARES TO THE INDEX SO THAT YOU CAN COMPARE PERFORMANCE FOR EACH CLASS
FROM ITS COMMENCEMENT DATE. THE INDEX ITSELF DOES NOT ACTUALLY HAVE TWO CLASSES.
HOW THE PORTFOLIO HAS PERFORMED IN THE PAST DOES NOT NECESSARILY INDICATE HOW
THE PORTFOLIO WILL PERFORM IN THE FUTURE.
*THE MSCI EAFE INDEX IS AN UNMANAGED INDEX OF COMMON STOCKS AND INCLUDES EUROPE,
AUSTRALASIA AND THE FAR EAST (INCLUDES DIVIDENDS NET OF WITHOLDING TAXES).
1
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL RISK FACTORS AND INFORMATION
- -------------------------------------------------------------------------------
THIS SECTION DISCUSSES ADDITIONAL RISK FACTORS AND INFORMATION RELATED TO THE
PORTFOLIO. THE PORTFOLIO'S INVESTMENT PRACTICES AND LIMITATIONS ARE DESCRIBED IN
MORE DETAIL IN THE STATEMENT OF ADDITIONAL INFORMATION ("SAI"), WHICH LEGALLY IS
A PART OF THIS PROSPECTUS. FOR DETAILS ABOUT HOW TO OBTAIN A COPY OF THE SAI AND
OTHER REPORTS AND INFORMATION, SEE THE BACK COVER OF THIS PROSPECTUS.
PRICE VOLATILITY
The value of your investment in the Portfolio is based on the market prices of
the securities the Portfolio holds. These prices change daily due to economic
and other events that affect markets generally, as well as those that affect
particular regions, countries, industires and companies. These price movements,
sometimes called volatility, may be greater or lesser depending on the types of
securities the Portfolio owns and the markets in which the securities trade.
Over time, equity securities have generally shown superior gains, although they
have tended to be more volatile than fixed income securities in the short term.
Fixed income securities, regardless of credit quality, also experience price
volatility, especially in response to interest rate changes. As a result of
price volatility, there is a risk that you may lose money by investing in the
Portfolio.
FOREIGN INVESTING
Investing in foreign countries entails the risk that news and events unique to a
country or region will affect those markets and their issuers. These same events
will not necessarily have an effect on the U.S. economy or similar issuers
located in the United States. In addition, the Portfolio's investments in
foreign countries generally will be denominated in foreign currencies. As a
result, changes in the value of a country's currency compared to the U.S. dollar
may affect the value of the Portfolio's investments. These changes may occur
separately from and in response to events that do not otherwise affect the value
of the security in the issuer's home country. MSDW Investment Management may
invest in certain instruments, such as derivatives, and may use certain
techniques, such as hedging, to manage these risks. However, MSDW Investment
Management cannot guarantee that it will be practical to hedge these risks in
certain markets or under particular conditions or that it will succeed in doing
so. MSDW Investment Management may use derivatives for other purposes such as
gaining exposure to foreign markets.
EMERGING MARKET RISKS
Emerging market countries are countries that major international financial
institutions, such as the World Bank, generally consider to be less economically
mature than developed nations, such as the United States or most nations in
Western Europe. Emerging market countries can include every nation in the world
except the United States, Canada, Japan, Australia, New Zealand, and most
countries located in Western Europe. Emerging market countries may be more
likely to experience political turmoil or rapid changes in economic conditions
than more developed countries, and the financial condition of issuers in
emerging market countries may be more precarious than in other countries. These
characteristics result in greater risk of price volatility in emerging market
countries, which may be heightened by currency fluctuations relative to the U.S.
dollar.
DERIVATIVES
The Portfolio may use various instruments that derive their values from those of
specified securities, indices, currencies or other points of reference for both
hedging and non-hedging purposes. Derivatives include futures, options, forward
contracts, swaps, and structured notes. These derivatives, including those used
to manage risk, are themselves subject to risks of the different markets in
which they trade and, therefore, may not serve their intended purposes.
The primary risks of derivatives are: (i) changes in the market value of
securities held by the Portfolio, and of derivatives relating to those
securities, may not be proportionate, (ii) there may not be a liquid market for
the Portfolio to sell a derivative, which could result in difficulty closing a
position and (iii) certain derivatives can magnify the extent of losses incurred
due to changes in the market value of the securities to which they relate. In
addition, derivatives are subject to counter party risk. To minimize this risk,
the Portfolio may enter into derivatives transactions with counter parties that
meet certain requirements for credit quality and collateral. Also, the Portfolio
may invest in certain derivatives that require the Portfolio to segregate some
or all of its cash or liquid securities to cover its obligations under those
instruments. At certain
2
<PAGE>
levels, this can cause the Portfolio to lose flexibility in managing its
investments properly, responding to shareholder redemption requests, or meeting
other obligations. If the Portfolio is in that position, it could be forced to
sell other securities that it wanted to retain.
The Portfolio will limit its use of derivatives for non-hedging purposes to
33 1/3% of its total assets measured by the aggregate notional amount of
outstanding derivatives. While the use of derivatives may be advantageous to the
Portfolio, if MSDW Investment Management is not successful in employing them,
the Portfolio's performance may be worse than if it did not make such
investments. See the Statement of Additional Information for more about the
risks of different types of derivatives.
BANK INVESTORS
An investment in the Portfolio is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
YEAR 2000 RISK
The advisory and distribution services that MSDW Investment Management and
Morgan Stanley & Co. Incorporated ("Morgan Stanley") provide to the Fund depend
on the smooth operation of their computer systems. Many computer and 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. MSDW Investment Management and Morgan Stanley have
been actively working on necessary changes to their own computer systems to deal
with the year 2000 problem and expect that their systems will be adapted before
that date. There can be no assurance, however, that they will be successful. In
addition, other unaffiliated service providers may be faced with similar
problems. MSDW Investment Management and Morgan Stanley are monitoring their
remedial efforts, but there can be no assurance that they and the services they
provide will not be adversely affected.
In addition, it is possible that the markets for securities in which the
Portfolio 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 Portfolio's investments may be
adversely affected.
TEMPORARY DEFENSIVE
INVESTMENTS
When MSDW Investment Management believes that changes in economic, financial or
political conditions warrant, the Portfolio may invest without limit in certain
short- and medium-term fixed income securities for temporary defensive purposes.
If MSDW Investment Management incorrectly predicts the effects of these changes,
such defensive investments may adversely affect the Portfolio's performance and
the Portfolio may not achieve its investment objective.
PORTFOLIO TURNOVER
Consistent with its investment policies, a Portfolio will purchase and sell
securities without regard to the effect on portfolio turnover. Higher portfolio
turnover (e.g. over 100% per year) will cause the Portfolio to incur additional
transaction costs and may result in taxable gains being passed through to
shareholders.
3
<PAGE>
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE PORTFOLIO
- -------------------------------------------------------------------------------
The Securities and Exchange Commission (the "Commission") requires that the Fund
disclose in the table below the fees and expenses that you may pay if you buy
and hold shares of the Portfolio. The Portfolio does not charge any sales loads
or similar fees when you purchase or redeem shares. The Annual Fund Operating
Expenses in the table below do not reflect voluntary fee waivers and/or expense
reimbursements from MSDW Investment Management.
1998 ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)*
<TABLE>
<CAPTION>
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
<S> <C>
MANAGEMENT FEES
- ---------------------------------------------------------------------------------------------
CLASS A 0.65%
- ---------------------------------------------------------------------------------------------
CLASS B 0.65%
12b-1 FEE
- ---------------------------------------------------------------------------------------------
CLASS A NONE
- ---------------------------------------------------------------------------------------------
CLASS B 0.25%
OTHER EXPENSES
- ---------------------------------------------------------------------------------------------
CLASS A 0.38%
- ---------------------------------------------------------------------------------------------
CLASS B 0.37%
TOTAL ANNUAL FUND OPERATING EXPENSES
- ---------------------------------------------------------------------------------------------
CLASS A 1.03%
- ---------------------------------------------------------------------------------------------
CLASS B 1.27%
</TABLE>
* The Management Fees for the Portfolio shown in the table above are the highest
that could be charged. This table does not show the effects of MSDW Investment
Management's voluntary fee waivers and/or expense reimbursements. MSDW
Investment Management has voluntarily agreed to reduce its management fee
and/or reimburse the Portfolio so that total annual operating expenses,
excluding certain investment related expenses described below, will not exceed
0.80% for Class A shares and 1.05% for Class B shares.
IN DETERMINING THE ACTUAL AMOUNT OF VOLUNTARY MANAGEMENT FEE WAIVER AND/OR
EXPENSE REIMBURSEMENT FOR THE PORTFOLIO, IF ANY, MSDW INVESTMENT MANAGEMENT
EXCLUDES FROM ANNUAL OPERATING EXPENSES CERTAIN INVESTMENT RELATED EXPENSES,
SUCH AS FOREIGN COUNTRY TAX EXPENSE AND INTEREST EXPENSE ON BORROWING. IF THESE
EXPENSES WERE INCURRED, THE PORTFOLIO'S TOTAL OPERATING EXPENSES AFTER VOLUNTARY
FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS WOULD EXCEED THE EXPENSE RATIO SHOWN
ABOVE.
FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS ARE VOLUNTARY AND MSDW INVESTMENT
MANAGEMENT RESERVES THE RIGHT TO TERMINATE ANY WAIVER AND/OR REIMBURSEMENT AT
ANY TIME AND WITHOUT NOTICE.
4
<PAGE>
EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
PORTFOLIO WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS HAVING SIMILAR
INVESTMENT OBJECTIVES.
The example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example assumes that your investment has a 5% return each year and
that the Portfolio's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------
CLASS A $105 $328 $569 $1,259
- ----------------------------------------------------------------------
CLASS B $129 $403 $697 $1,534
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
- -------------------------------------------------------------------------------
Morgan Stanley Dean Witter Investment Management Inc. ("MSDW Investment
Management"), with principal offices at 1221 Avenue of the Americas, New York,
New York 10020, conducts a worldwide portfolio management business and provides
a broad range of portfolio management services to customers in the United States
and abroad. Morgan Stanley Dean Witter & Co. ("MSDW") is the direct parent of
MSDW Investment Management and Morgan Stanley. MSDW is a preeminent global
financial services firm that maintains leading market positions in each of its
three primary businesses -- securities, asset management and credit services. At
December 31, 1998, MSDW Investment Management, together with its affiliated
institutional asset management companies, managed assets of approximately $163.4
billion, including assets under fiduciary advice.
- -------------------------------------------------------------------------------
MANAGEMENT FEES
- -------------------------------------------------------------------------------
For the year ended December 31, 1998, MSDW Investment Management received from
the Portfolio the management fee set forth in the table below:
<TABLE>
<CAPTION>
ACTIVE
INTERNATIONAL
ALLOCATION
PORTFOLIO
-----------------
<S> <C> <C>
MANAGEMENT FEE CLASS A CLASS B
-----------------
PAID IN FISCAL YEAR ENDED
DECEMBER 31, 1998 0.44% 0.44%
(NET OF WAIVERS AND AS A
PERCENTAGE OF AVERAGE NET
ASSETS)
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
- -------------------------------------------------------------------------------
THE FOLLOWING INDIVIDUAL HAS PRIMARY DAY-TO-DAY PORTFOLIO MANAGEMENT
RESPONSIBILITY FOR THE PORTFOLIO:
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
ANN D. THIVIERGE AND BARTON M. BIGGS
Ann D. Thivierge is a Managing Director of MSDW Investment Management and Morgan
Stanley and is a member of MSDW Investment Management's asset allocation
committee. Ms. Thivierge joined MSDW Investment Management in 1986 and holds a
B.A. in International Relations from James Madison College, Michigan State
University, and an M.B.A. in Finance from New York University. Barton M. Biggs
has been Chairman and a director of MSDW Investment Management since 1980 and a
Managing Director of Morgan Stanley since 1975. He is also a director and
chairman of various registered investment companies to which MSDW Investment
Management and certain of its affiliates provide investment advisory services.
Mr. Biggs holds a B.A. from Yale University and an M.B.A. from New York
University. Ms. Thivierge and Mr. Biggs have shared primary responsibility for
managing the Portfolio's assets since June 1995.
6
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTION OF PORTFOLIO SHARES
- -------------------------------------------------------------------------------
Morgan Stanley is the exclusive Distributor of Class A shares and Class B shares
of the Portfolio. Morgan Stanley receives no compensation for distributing Class
A shares of the Portfolio. The Fund has adopted a Plan of Distribution with
respect to the Class B shares of the Portfolio pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, (the "Plan"). Under the Plan, the
Portfolio pays the Distributor a distribution fee of 0.25% of the Class B
shares' average daily net assets on an annualized basis. The distribution fee
compensates the Distributor for marketing and selling Class B shares. The
Distributor may pay others for providing distribution-related and other
services, including account maintenance services. Over time the distribution
fees will increase the cost of your investment and may cost you more than paying
other types of sales charges.
- -------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------
ABOUT NET ASSET VALUE
The net asset value ("NAV") per share of a class of shares of the Portfolio is
determined by dividing the total market value of the Portfolio's investments and
other assets attributable to the class, less any liabilities attributable to the
class, by the total number of outstanding shares of that class of the Portfolio.
In making this calculation, the Portfolio generally values securities at market
price. If market prices are unavailable or may be unreliable because of events
occurring after the close of trading, fair value prices may be determined in
good faith using methods approved by the Board of Directors. The Portfolio may
hold portfolio securities that are listed on foreign exchanges. These securities
may trade on weekends or other days when the Portfolio does not calculate NAV.
As a result, the value of these investments may change on days when you cannot
purchase or sell shares.
PRICING OF PORTFOLIO SHARES
You may buy or sell (redeem) Class A and Class B shares of the Portfolio at the
net asset value next determined for the class after receipt of your order. The
Fund determines net asset value as of the close of the New York Stock Exchange
("NYSE") (normally 4:00 p.m. Eastern Time) on each day that the NYSE is open for
business (the "Pricing Time").
HOW TO PURCHASE SHARES
You may purchase Class A shares and Class B shares of the Portfolio directly
from the Fund, from the Distributor or through certain third parties ("Financial
Intermediaries") on each day that the NYSE is open.
The minimum initial investment generally is $500,000 for Class A shares and
$100,000 for Class B shares. The minimum additional investment generally is
$1,000 for each account that you have. If the value of your account falls below
the minimum initial investment amount for Class A shares or Class B shares as a
result of share redemptions, the Fund will notify you. Your account may be
subject to involuntary conversion from Class A shares to Class B shares or
involuntary redemption in the case of Class B shares if the value of your
account remains below the minimum initial investment amount for 60 consecutive
days. MSDW Investment Management may waive the minimum initial investment and
involuntary conversion or redemption features for certain investors, including
individuals purchasing through a Financial Intermediary.
You may arrange to purchase shares directly from the Fund by calling
1-800-548-7786 or by returning a completed Account Registration Form with
payment for your purchase. The price you pay will be the net asset value
calculated at the Pricing Time following receipt of your purchase order and
payment.
To purchase shares through the Distributor or a Financial Intermediary, you
should contact the Distributor or your Financial Intermediary for details.
Generally, the price of shares purchased through the Distributor or a Financial
Intermediary is the price calculated at the next Pricing Time after the Fund
receives your order from the Distributor or your Financial Intermediary. Certain
Financial Intermediaries have made arrangements with the Fund so that you may
purchase shares at the price calculated at the next Pricing Time after your
Financial Intermediary receives your purchase order. Your Financial Intermediary
may charge an additional service or transaction fee.
7
<PAGE>
HOW TO REDEEM SHARES
You may redeem Portfolio shares directly from the Fund, through the Distributor
or through your Financial Intermediary, each as described above under Purchase
of Shares. The redemption price will be the net asset value per share calculated
at the next Pricing Time, which may be more or less than the purchase price of
your shares. The Fund will ordinarily distribute redemption proceeds in cash
within one business day of your redemption request, but it may take up to seven
business days. However, if you purchased shares by check, the Fund will not
distribute redemption proceeds until it has collected your purchase payment,
which may take up to eight days. In certain circumstances, for example, if
payment of redemption proceeds in cash would be detrimental to the remaining
shareholders, the Portfolio may pay redemption proceeds by a
distribution-in-kind of readily marketable portfolio securities.
EXCHANGE FEATURES
You may exchange Portfolio shares for shares of the other available portfolios
of the Fund. To obtain a prospectus for another portfolio, call the Fund at
1-800-548-7786 or contact your Financial Intermediary. If you purchased
Portfolio shares through a Financial Intermediary, certain portfolios may be
unavailable for exchange. Contact your Financial Intermediary to determine which
portfolios are available for exchange. The Fund currently consists of the
following portfolios:
<TABLE>
<S> <C>
U.S. EQUITY GLOBAL AND INTERNATIONAL EQUITY
Aggressive Equity Portfolio Active International Allocation
Emerging Growth Portfolio Portfolio
Equity Growth Portfolio Asian Real Estate Portfolio
MicroCap Portfolio+ Asian Equity Portfolio
Technology Portfolio China Growth Portfolio+
U.S. Equity Plus Portfolio Emerging Markets Portfolio
U.S. Real Estate Portfolio European Equity Portfolio
Value Equity Portfolio European Real Estate Portfolio
FIXED INCOME Global Equity Portfolio
Emerging Markets Debt Portfolio Gold Portfolio*
Fixed Income Portfolio International Equity Portfolio*
Global Fixed Income Portfolio International Magnum Portfolio
High Yield Portfolio International Small Cap Portfolio
Mortgage-Backed Securities Portfolio+ Japanese Equity Portfolio
Municipal Bond Portfolio Latin American Portfolio
MONEY MARKET
Money Market Portfolio
Municipal Money Market Portfolio
</TABLE>
*PORTFOLIO IS CURRENTLY CLOSED TO NEW INVESTORS
+PORTFOLIO HAS NOT YET COMMENCED OPERATIONS
When you exchange for shares of another portfolio, your transaction will be
treated the same as an initial purchase. You will be subject to the same minimum
initial investment and account size as an initial purchase. Accordingly, you
will not necessarily receive the same class of shares that you tendered for
exchange. Your exchange price will be the price calculated at the next Pricing
Time after the Fund receives your exchange order. Frequent trades in your
account(s) can disrupt management of the Portfolio and raise its expenses.
Therefore, the Fund may bar a shareholder who trades excessively from making
further exchanges or purchases.
8
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The Portfolio's policy is to distribute to shareholders substantially all of its
taxable net investment income in the form of an annual dividend and to
distribute net capital gains on an annual basis.
The Fund automatically reinvests all dividends and distributions in additional
shares. However, you may elect to receive distributions in cash by giving
written notice to the Fund or your Financial Intermediary or by checking the
appropriate box in the Distribution Option section on the Account Registration
Form.
TAXES
The dividends and distributions you receive from the Portfolio may be subject to
Federal, state and local taxation, depending on your tax situation. The tax
treatment of dividends and distributions is the same whether or not you reinvest
them. Dividends are taxed as ordinary income, long-term capital gains
distributions are taxed at a maximum rate of 20%, and short-term capital gains
distributions are taxed at ordinary rates. The Portfolio may be able to pass
through to you a credit for foreign income taxes it pays. The Fund will tell you
annually how to treat dividends and distributions.
If you redeem shares of the Portfolio, you will be subject to tax on any gains
you earn based on your holding period for the shares. An exchange of shares of
the Portfolio for shares of another portfolio is a sale of Portfolio shares for
tax purposes. Conversions of shares between classes will not result in taxation.
Because each investor's tax circumstances are unique and the tax laws may
change, you should consult your tax advisor about your investment.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The following financial highlights table is intended to help you understand the
financial performance of the Class A shares and Class B shares of the Portfolio
for the past five years or, if less than five years, the life of the Portfolio
or Class. Certain information reflects financial results for a single Portfolio
share. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the Portfolio (assuming reinvestment
of all dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the Fund's financial
statements, are incorporated by reference into the Fund's Statement of
Additional Information and are included in the Fund's December 31, 1998 Annual
Report to Shareholders. The Annual Report and the financial statements therein,
as well as the Statement of Additional Information, are available at no cost
from the Fund at the toll free number noted on the back cover to this
Prospectus.
9
<PAGE>
- ----------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
ACTIVE INTERNATIONAL ALLOCATION PORTFOLIO
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------
SELECTED PER SHARE DATA AND RATIOS 1998++ 1997++ 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.39 $ 11.44 $ 11.63 $ 11.65 $ 12.21
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (1) 0.22 0.18 0.24 0.17 0.19
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS 1.86 0.80 0.88 1.00 (0.25)
-------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 2.08 0.98 1.12 1.17 (0.06)
-------- -------- -------- -------- --------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.30) (0.83) (0.81) (0.25) (0.14)
IN EXCESS OF NET INVESTMENT INCOME (0.04) (0.02) (0.02) (0.10) --
NET REALIZED GAIN (0.23) (1.18) (0.48) (0.84) (0.36)
-------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS (0.57) (2.03) (1.31) (1.19) (0.50)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 11.90 $ 10.39 $ 11.44 $ 11.63 $ 11.65
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN 20.12% 8.61% 9.71% 10.57% (0.52)%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $266,832 $138,667 $183,193 $170,663 $182,977
RATIO OF EXPENSES TO AVERAGE NET ASSETS (1) 0.80% 0.80% 0.80% 0.80% 0.80%
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET
ASSETS (1) 1.91% 1.47% 1.22% 1.26% 1.43%
PORTFOLIO TURNOVER RATE 49% 49% 65% 72% 51%
- -----------------
(1) EFFECT OF VOLUNTARY EXPENSE LIMITATION
DURING THE PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT
INCOME $0.02 $0.03 $0.03 $0.05 $0.03
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.03% 1.10% 1.09% 1.18% 1.00%
NET INVESTMENT INCOME TO AVERAGE NET
ASSETS 1.70% 1.18% 0.94% 0.88% 1.23%
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------
PERIOD FROM
YEAR ENDED DECEMBER JANUARY 2,
31, 1996*** TO
--------------------- DECEMBER 31,
1998++ 1997++ 1996
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.48 $11.44 $11.66
------ ------------- -------------
INCOME FROM INVESTMENT OPERATIONS
NET INVESTMENT INCOME (2) 0.22 0.08 0.06
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 1.94 0.87 1.00
------ ------------- -------------
TOTAL FROM INVESTMENT OPERATIONS 2.16 0.95 1.06
------ ------------- -------------
DISTRIBUTIONS
NET INVESTMENT INCOME (0.23 ) (0.71) (0.78)
IN EXCESS OF NET INVESTMENT INCOME (0.06 ) (0.02) (0.02)
NET REALIZED GAIN (0.23 ) (1.18) (0.48)
------ ------------- -------------
TOTAL DISTRIBUTIONS (0.52 ) (1.91) (1.28)
------ ------------- -------------
NET ASSET VALUE, END OF PERIOD $12.12 $10.48 $11.44
------ ------------- -------------
------ ------------- -------------
TOTAL RETURN 20.71% 8.35% 9.22%
------ ------------- -------------
------ ------------- -------------
RATIOS AND SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (THOUSANDS) $96 $14 $633
RATIO OF EXPENSES TO AVERAGE NET ASSETS (2) 1.05% 1.05% 1.05%**
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET
ASSETS (2) 1.80% 0.71% 1.09%**
PORTFOLIO TURNOVER RATE 49% 49% 65%
- -----------------
(2) EFFECT OF VOLUNTARY EXPENSE LIMITATION DURING THE PERIOD:
PER SHARE BENEFIT TO NET INVESTMENT
INCOME $0.03 $0.03 $0.02
RATIOS BEFORE EXPENSE LIMITATION:
EXPENSES TO AVERAGE NET ASSETS 1.27% 1.32% 1.33%**
NET INVESTMENT INCOME TO AVERAGE NET
ASSETS 1.58% 0.45% 0.82%**
- ------------------------------------------------------------------------------------
</TABLE>
**ANNUALIZED
***THE PORTFOLIO BEGAN OFFERING CLASS B SHARES ON JANUARY 2, 1996.
++PER SHARE AMOUNTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
ARE BASED ON AVERAGE SHARES OUTSTANDING.
10
<PAGE>
- -------------------------------------------------------------------------------
WHERE TO FIND ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
In addition to this Prospectus, the Fund has a Statement of Additional
Information ("SAI"), dated May 1, 1999, which contains additional, more detailed
information about the Fund and the Portfolio. The SAI is incorporated by
reference into this Prospectus and, therefore, legally forms a part of this
Prospectus.
SHAREHOLDER REPORTS
The Fund publishes annual and semi-annual reports containing financial
statements, and quarterly reports. These reports contain additional information
about the Portfolio's investments. In the Fund's shareholder reports, you will
find a discussion of the market conditions and the investment strategies that
significantly affected the Portfolio's performance during that period.
For additional Fund information, including information regarding investments
comprising the Fund's Portfolios, please call 1-800-548-7786.
You may obtain the SAI, and Shareholder Reports without charge by contacting the
Fund at the toll-free number above. If you purchased shares through a Financial
Intermediary, you may also obtain these documents, without charge, by contacting
your Financial Intermediary.
Information about the Fund, including the SAI, and the annual and semi-annual
reports, may be obtained from the Securities and Exchange Commission in any of
the following ways. (1) In person: you may review and copy documents in the
Commission's Public Reference Room in Washington D.C. (for information call
1-800-SEC-0330); (2) On-line: you may retrieve information from the Commission's
web site at "http://www.sec.gov"; or (3) By mail: you may request documents,
upon payment of a duplicating fee, by writing to Securities and Exchange
Commission, Public Reference Section, Washington, D.C. 20549-6009. To aid you in
obtaining this information, the Fund's Investment Company Act registration
number is 811-05624.
[LOGO] MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
P.O. Box 2798
Boston, Massachusetts 02208-2798
FOR INFORMATION CALL 1-800-548-7786
<PAGE>
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
This statement of additional information is not a prospectus. It should be read
in conjunction with a prospectus for the applicable portfolio, which may be
obtained by calling the Morgan Stanley Dean Witter Institutional Fund, Inc. (the
"Fund") Services Group at 1-800-548-7786.
--------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
-----
INVESTMENT OBJECTIVES AND POLICIES...... 2
INVESTMENT LIMITATIONS.................. 23
PURCHASE OF SHARES...................... 25
REDEMPTION OF SHARES.................... 27
ACCOUNT POLICIES AND FEATURES........... 28
MANAGEMENT OF THE FUND.................. 30
INVESTMENT ADVISORY AND OTHER
SERVICES.............................. 33
DISTRIBUTIONS OF SHARES................. 35
BROKERAGE PRACTICES..................... 36
GENERAL INFORMATION..................... 39
TAXES................................... 40
CONTROL PERSONS AND PRINCIPAL HOLDERS OF
SECURITIES............................ 44
PERFORMANCE INFORMATION................. 45
DESCRIPTION OF RATINGS.................. 49
</TABLE>
The Fund's audited financial statements for the fiscal year ended December 31,
1998, including notes thereto and the report of PricewaterhouseCoopers LLP are
incorporated by reference herein from the Fund's Annual Report. A copy of the
Fund's Annual Report to Shareholders must accompany the delivery of this
Statement of Additional Information. The China Growth, Mortgage-Backed
Securities and MicroCap Portfolios had not commenced operations at December 31,
1998. You may obtain the Fund's most recent Annual Report by calling the Morgan
Stanley Dean Witter Institutional Fund, Inc. Services Group at 1-800-548-7786.
STATEMENT OF ADDITIONAL INFORMATION, DATED MAY 1, 1999
- Prospectus for the European Real Estate Portfolio, Asian Real Estate
Portfolio and U.S. Real Estate Portfolio, dated May 1, 1999
- Prospectus for the Asian Equity Portfolio and Japanese Equity Portfolio,
dated May 1, 1999
- Prospectus for the Emerging Markets Portfolio, Emerging Markets Debt
Portfolio and Latin American Portfolio, dated May 1, 1999
- Prospectus for the Global Equity Portfolio, International Equity
Portfolio, International Small Cap Portfolio and European Equity
Portfolio, dated May 1, 1999
- Prospectus for the U.S. Equity Plus Portfolio, dated May 1, 1999
- Prospectus for the International Magnum Portfolio, dated May 1, 1999
- Prospectus for the Fixed Income Portfolio, Municipal Bond Portfolio, Money
Market Portfolio and Municipal Money Market Portfolio, dated May 1, 1999
- Prospectus for the Equity Growth Portfolio, Aggressive Equity Portfolio,
Emerging Growth Portfolio, Value Equity Portfolio and Technology
Portfolio, dated May 1, 1999
- Prospectus for the Global Fixed Income Portfolio and High Yield Portfolio,
dated May 1, 1999
- Prospectus for the Active International Allocation Portfolio, dated May 1,
1999
- Prospectus for the Technology Portfolio, dated May 1, 1999
- Prospectus for the China Growth Portfolio, Gold Portfolio, MicroCap
Portfolio and Mortgage Backed Securities Portfolio, dated May 1, 1999
1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
This Statement of Additional Information provides additional information about
the investment policies and operations of the Fund and its investment portfolios
(each a "Portfolio"). Morgan Stanley Dean Witter Investment Management Inc.
("MSDW Investment Management") acts as investment adviser to each Portfolio.
Under the supervision of MSDW Investment Management, Morgan Stanley Dean Witter
Advisors Inc. ("MSDW Advisors") acts as investment sub-adviser to the Money
Market and Municipal Money Market Portfolios and Sun Valley Gold Company ("Sun
Valley" and, together with MSDW Advisors, the "Sub-Advisers") acts as investment
sub-adviser to the Gold Portfolio. References to MSDW Investment Management,
when used in connection with its activities as investment adviser, include the
Sub-Advisers acting under its supervision.
GLOBAL AND INTERNATIONAL EQUITY PORTFOLIOS
<TABLE>
<CAPTION>
ACTIVE
INTER-
NATIONAL ASIAN EUROPEAN
ALLO- ASIAN REAL CHINA EMERGING EUROPEAN REAL
CATION EQUITY ESTATE GROWTH MARKETS EQUITY ESTATE
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------
EQUITY SECURITIES:
Common Stocks................................... X X X X X X X
Depositary Receipts............................. X X X X X X X
Preferred Stocks................................ X X X X X X X
Rights.......................................... X X X X X X X
Warrants........................................ X X X X X X X
Convertible Securities.......................... X X X X X X X
Partnerships....................................
Investment Company Securities................... X X X X X X X
Real Estate Investing........................... X X
--REITS......................................... X X
--Specialized Ownership Vehicles................ X X
FIXED INCOME SECURITIES:
High Yield Securities........................... X
U.S. Government Securities...................... X X X X X * X
Agencies........................................ X X X X X * X
Corporate Debt.................................. X X X X X * X
Money Market Instruments........................ X X X X X X X
Mortgage Related Securities.....................
--MBSs..........................................
--CMOs..........................................
--SMBSs.........................................
Repurchase Agreements........................... X X X X X X X
Municipals......................................
Asset-Backeds...................................
Loan Participations and Assignments............. X
Temporary Investments........................... X X X X X X X
Zero Coupons, Pay-In-Kind Securities or Deferred
Payment Securities............................. X X X X X X
Floaters........................................
Inverse Floaters................................
FOREIGN INVESTMENT:
Foreign Equity Securities....................... X X X X X X X
Foreign Government Fixed Income Securities...... X X X X X X
Foreign Corporate Fixed Income Securities....... X X X X X X
Emerging Market Country Securities.............. X X X X X X X
Russian Equity Securities....................... X
Foreign Currency Transactions................... X X X X X X X
Brady Bonds..................................... X X X X X X
Investment Funds................................ X X X X X X X
<CAPTION>
INTER-
INTER- INTER- NATIONAL
GLOBAL NATIONAL NATIONAL SMALL JAPANESE LATIN
EQUITY GOLD EQUITY MAGNUM CAP EQUITY AMERICAN
<S> <C> <C> <C> <C> <C> <C> <C>
EQUITY SECURITIES:
Common Stocks................................... X X X X X X X
Depositary Receipts............................. X X X X X X X
Preferred Stocks................................ X X X X X X X
Rights.......................................... X X X X X X X
Warrants........................................ X X X X X X X
Convertible Securities.......................... X X X X X X X
Partnerships....................................
Investment Company Securities................... X X X X X X X
Real Estate Investing...........................
--REITS.........................................
--Specialized Ownership Vehicles................
FIXED INCOME SECURITIES:
High Yield Securities........................... X
U.S. Government Securities...................... * X * X * X X
Agencies........................................ * X * X * X X
Corporate Debt.................................. * X * X * X X
Money Market Instruments........................ X X X X X X X
Mortgage Related Securities.....................
--MBSs..........................................
--CMOs..........................................
--SMBSs.........................................
Repurchase Agreements........................... X X X X X X X
Municipals......................................
Asset-Backeds...................................
Loan Participations and Assignments............. X
Temporary Investments........................... X X X X X X X
Zero Coupons, Pay-In-Kind Securities or Deferred
Payment Securities............................. X X X X
Floaters........................................
Inverse Floaters................................
FOREIGN INVESTMENT:
Foreign Equity Securities....................... X X X X X X X
Foreign Government Fixed Income Securities...... X X X X
Foreign Corporate Fixed Income Securities....... X X X X
Emerging Market Country Securities.............. X X X X X X
Russian Equity Securities.......................
Foreign Currency Transactions................... X X X X X X X
Brady Bonds..................................... X X X X X X
Investment Funds................................ X X X X X X X
</TABLE>
2
<PAGE>
GLOBAL AND INTERNATIONAL EQUITY PORTFOLIOS (CONTINUED)
<TABLE>
<CAPTION>
ACTIVE
INTER-
NATIONAL ASIAN EUROPEAN
ALLO- ASIAN REAL CHINA EMERGING EUROPEAN REAL
CATION EQUITY ESTATE GROWTH MARKETS EQUITY ESTATE
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------
OTHER SECURITIES AND INVESTMENT TECHNIQUES:
Loans of Portfolio Securities................... X X X X X X X
Non-Publicly Traded Securities, Private
Placements and Restricted Securities........... X X X X X X X
When-Issued and Delayed Delivery Securities..... X X X X X X X
Borrowing for Investment Purposes...............
Reverse Repurchase Agreements...................
Short Sales.....................................
Structured Investments.......................... X X X X X X X
DERIVATIVE PRODUCTS:
Futures Contracts............................... X X X X X X X
Forward Contracts............................... X X X X X X X
Option Transactions............................. X X X X X X X
Swaps........................................... X X X X X X X
<CAPTION>
INTER-
INTER- INTER- NATIONAL
GLOBAL NATIONAL NATIONAL SMALL JAPANESE LATIN
EQUITY GOLD EQUITY MAGNUM CAP EQUITY AMERICAN
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER SECURITIES AND INVESTMENT TECHNIQUES:
Loans of Portfolio Securities................... X X X X X X X
Non-Publicly Traded Securities, Private
Placements and Restricted Securities........... X X X X X X X
When-Issued and Delayed Delivery Securities..... X X X X X X X
Borrowing for Investment Purposes............... X
Reverse Repurchase Agreements...................
Short Sales..................................... X
Structured Investments.......................... X X X X X X X
DERIVATIVE PRODUCTS:
Futures Contracts............................... X X X X X X X
Forward Contracts............................... X X X X X X X
Option Transactions............................. X X X X X X X
Swaps........................................... X X X X X X X
</TABLE>
- --------------
* A Portfolio may invest in certain U.S. Government Securities, Agencies and
Corporate Debt Money Market Instruments and Temporary Investments.
U.S. EQUITY PORTFOLIOS
<TABLE>
<CAPTION>
U.S. U.S.
AGGRESSIVE EMERGING EQUITY EQUITY REAL VALUE
EQUITY GROWTH GROWTH MICROCAP TECHNOLOGY PLUS ESTATE EQUITY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------
EQUITY SECURITIES:
Common Stocks.............................. X X X X X X X X
Depositary Receipts........................ X X X X X X X
Preferred Stocks........................... X X X X X X X X
Rights..................................... X X X X X X X X
Warrants................................... X X X X X X X X
Convertible Securities..................... X X X X X X X X
Partnerships...............................
Investment Company Securities.............. X X X X X X X X
Real Estate Investing...................... X
--REITS.................................... X
--Specialized Ownership Vehicles........... X
FIXED INCOME SECURITIES:
High Yield Securities...................... X
U.S. Government Securities................. X X X X X X X X
Agencies................................... X X X X X X X X
Corporate Bonds............................ X X X X X X X X
Money Market Instruments................... X X X X X X X X
</TABLE>
3
<PAGE>
U.S. EQUITY PORTFOLIOS (CONTINUED)
<TABLE>
<CAPTION>
U.S. U.S.
AGGRESSIVE EMERGING EQUITY EQUITY REAL VALUE
EQUITY GROWTH GROWTH MICROCAP TECHNOLOGY PLUS ESTATE EQUITY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------
FIXED INCOME SECURITIES: (CONTINUED)
Mortgage Related Securities................
--MBSs.....................................
--CMOs.....................................
--SMBSs....................................
Repurchase Agreements...................... X X X X X X X X
Municipals.................................
Asset-Backeds..............................
Loan Participations and Assignments........
Temporary Investments...................... X X X X X X X X
Zero Coupons, Pay-In-Kind Securities or
Deferred Payment Securities............... X X X X X X X X
Floaters...................................
Inverse Floaters...........................
FOREIGN INVESTMENT:
Foreign Equity Securities.................. X X X X X X X X
Foreign Bonds.............................. X X
Emerging Market Country Securities......... X X
Russian Equity Securities..................
Foreign Currency Transactions.............. X X X X X X X X
Brady Bonds................................
Investment Funds........................... X X
OTHER SECURITIES AND INVESTMENT TECHNIQUES:
Loans of Portfolio Securities.............. X X X X X X X X
Non-Publicly Traded Securities, Private
Placements and Restricted Securities...... X X X X X X X X
When-Issued and Delayed Delivery
Securities................................ X X X X X X X X
Borrowing for Investment Purposes.......... X X
Reverse Repurchase Agreements..............
Short Sales................................ X X
Structured Investments..................... X X X X X X X X
DERIVATIVE PRODUCTS:
Futures Contracts.......................... X X X X X X X X
Forward Contracts.......................... X X X X X X X X
Option Transactional....................... X X X X X X X X
Swaps...................................... X X X X X X X X
</TABLE>
4
<PAGE>
FIXED INCOME AND MONEY MARKET PORTFOLIOS
<TABLE>
<CAPTION>
EMERGING GLOBAL MORTGAGE- MUNICIPAL
MARKETS FIXED FIXED HIGH BACKED MUNICIPAL MONEY MONEY
DEBT INCOME INCOME YIELD SECURITIES BOND MARKET MARKET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------
EQUITY SECURITIES:
Common Stocks......................... X
Depositary Receipts................... X
Preferred Stocks...................... X
Rights................................ X
Warrants.............................. X
Convertible Securities................ X X X X
Partnerships.......................... X
Investment Company Securities......... X X X X X X X X
Real Estate Investing.................
--REITs............................... +
--Specialized Ownership Vehicles......
FIXED INCOME SECURITIES:
High Yield Securities................. X X
U.S. Government Securities............ X X X X X X X X
Agencies.............................. X X X X X X X X
Corporate Debt........................ X X X X * X X *
Money Market Instruments.............. X X X X X X X X
Mortgage Related Securities........... X X X X X X X
--MBSs................................ X X X X X X
--CMOs................................ X X X X X
--SMBSs............................... X X X
Repurchase Agreements................. X X X X X X X X
Municipals............................ X X X X X X X
Asset-Backeds......................... X X X X X
Loan Participations and Assignments... X X
Temporary Investments................. X X X X X X X X
Zero Coupons, Pay-In-Kind Securities
or Deferred Payment Securities....... X X X X X X X X
Floaters.............................. X X X X X X X X
Inverse Floaters...................... X X X X X X
FOREIGN INVESTMENT:
Foreign Equity Securities............. X X X X
Foreign Bonds......................... X X X X
Emerging Market Country Securities.... X X X
Russian Equity Securities.............
Foreign Currency Transactions......... X X X X
Brady Bonds........................... X X
Investment Funds...................... X
</TABLE>
5
<PAGE>
FIXED INCOME AND MONEY MARKET PORTFOLIOS (CONTINUED)
<TABLE>
<CAPTION>
EMERGING GLOBAL MORTGAGE- MUNICIPAL
MARKETS FIXED FIXED HIGH BACKED MUNICIPAL MONEY MONEY
DEBT INCOME INCOME YIELD SECURITIES BOND MARKET MARKET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------
OTHER SECURITIES AND INVESTMENT TECHNIQUES:
Loans of Portfolio Securities.............. X X X X X X
Non-Publicly Traded Securities, Private
Placements and Restricted Securities...... X X X X X X X X
When-Issued and Delayed Delivery
Securities................................ X X X X X X X X
Borrowing for Investment Purposes.......... X
Reverse Repurchase Agreements.............. X X X
Short Sales................................ X
Structured Investments..................... X X X X X X X
DERIVATIVE PRODUCTS:
Futures Contracts.......................... X X X X X X
Forward Contracts.......................... X X X X X X
Option Transactions........................ X X X X X X
Swaps...................................... X X X X X X
</TABLE>
- --------------
* A Portfolio may invest in certain Corporate Debt as described under Money
Market Instruments and Temporary Investments.
+ The High Yield Portfolio may invest in certain fixed income securities issued
by REITs.
6
<PAGE>
EQUITY SECURITIES
Equity Securities generally represent an ownership interest in an issuer, or may
be convertible into or represent a right to acquire an ownership interest in an
issuer. While there are many types of Equity Securities, prices of all equity
securities will fluctuate. Economic, political and other events may affect the
prices of broad equity markets. For example, changes in inflation or consumer
demand may affect the prices of all Equity Securities in the United States.
Similar events also may affect the prices of particular equity securities. For
example, news about the success or failure of a new product may affect the price
of a particular issuer's Equity Securities.
COMMON STOCKS. Common Stocks represent an ownership interest in a corporation,
entitling the stockholder to voting rights and receipt of dividends paid based
on proportionate ownership.
DEPOSITARY RECEIPTS. Depositary Receipts represent an ownership interest in
securities of foreign companies (an "underlying issuer") that are deposited with
a depositary. Depositary Receipts are not necessarily denominated in the same
currency as the underlying securities. Depositary Receipts include American
Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs") and other
types of Depositary Receipts (which, together with ADRs and GDRs, are
hereinafter collectively referred to as "Depositary Receipts"). ADRs are
dollar-denominated Depositary Receipts typically issued by a U.S. financial
institution which evidence an ownership interest in a security or pool of
securities issued by a foreign issuer. ADRs are listed and traded in the United
States. GDRs and other types of Depositary Receipts are typically issued by
foreign banks or trust companies, although they also may be issued by U.S.
financial institutions, and evidence ownership interests in a security or pool
of securities issued by either a foreign or a U.S. corporation. Generally,
Depositary Receipts in registered form are designed for use in the U.S.
securities market and Depositary Receipts in bearer form are designed for use in
securities markets outside the United States.
Depositary Receipts may be "sponsored" or "unsponsored." Sponsored Depositary
Receipts are established jointly by a depositary and the underlying issuer,
whereas unsponsored Depositary Receipts may be established by a depositary
without participation by the underlying issuer. Holders of unsponsored
Depositary Receipts generally bear all the costs associated with establishing
unsponsored Depositary Receipts. In addition, the issuers of the securities
underlying unsponsored Depository Receipts are not obligated to disclose
material information in the United States and, therefore, there may be less
information available regarding such issuers and there may not be a correlation
between such information and the market value of the Depositary Receipts. For
purposes of a Portfolio's investment policies, the Portfolio's investments in
Depositary Receipts will be deemed to be an investment in the underlying
securities, except that ADRs may be deemed to be issued by a U.S. issuer.
PREFERRED STOCKS. Preferred Stocks are securities that evidence ownership in a
corporation and pay a fixed or variable stream of dividends. Preferred Stocks
have a preference over Common Stocks in the event of the liquidation of an
issuer and usually do not carry voting rights. Because Preferred Stocks pay a
fixed or variable stream of dividends they have many of the characteristics of a
Fixed Income Security and are, therefore, included in both the definition of
Equity Security and Fixed Income Security.
RIGHTS. Rights represent the right, but not the obligation, for a fixed period
of time to purchase additional shares of an issuer's Common Stock at the time of
a new issuance, usually at a price below the initial offering price of the
Common Stock and before the Common Stock is offered to the general public.
Rights are usually freely transferrable. The risk of investing in a Right is
that the Right may expire prior to the market value of the Common Stock
exceeding the price fixed by the Right.
WARRANTS. Warrants give holders the right, but not the obligation, to buy
Common Stock of an issuer at a given price, usually higher than the market price
at the time of issuance, during a specified period. Warrants are usually freely
transferrable. The risk of investing in a Warrant is that the Warrant may expire
prior to the market value of the Common Stock exceeding the price fixed by the
Warrant.
CONVERTIBLE SECURITIES. Convertible Securities are securities that may be
exchanged under certain circumstances for a fixed number of shares of Common
Stock or other Equity Securities. Convertible Securities generally represent a
feature of some other type of security, such as a Fixed Income Security or
Preferred Stock, so that, for example, a Convertible Fixed Income Security would
be a Fixed Income Security that is convertible into Common Stock. Convertible
Securities may be viewed as an investment in the current security or the
security into which the Convertible Securities may be exchanged and, therefore,
are included in both the definition of Equity Security and Fixed Income
Security.
INVESTMENT COMPANY SECURITIES. Investment Company Securities are securities of
other open-end or closed-end investment companies. The Investment Company Act of
1940, as amended (the "1940 Act"), generally prohibits an Underlying Fund from
acquiring more than 3% of the outstanding voting shares of an investment company
and limits such investments to no more than 5% of the Portfolio's total assets
in any one investment company and no more than 10% in any combination of
investment companies. To the extent a Portfolio invests a portion of its assets
in Investment Company Securities, those assets will be subject to the risks of
the purchased investment company's portfolio securities. The Portfolio also will
bear it's proportionate share of the expenses of the purchased investment
company in addition to its own expenses.
REAL ESTATE INVESTING. Investments in securities of issuers engaged in the real
estate industry entail special risks and considerations. In particular,
securities of such issuers may be subject to risks associated with the direct
ownership of real estate. These
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risks include: the cyclical nature of real estate values, risks related to
general and local economic conditions, overbuilding and increased competition,
increases in property taxes and operating expenses, demographic trends and
variations in rental income, changes in zoning laws, casualty or condemnation
losses, environmental risks, regulatory limitations on rents, changes in
neighborhood values, changes in the appeal of properties to tenants, increases
in interest rates and other real estate capital market influences. Generally,
increases in interest rates will increase the costs of obtaining financing,
which could directly and indirectly decrease the value of the Portfolios'
investments.
REITS. Real Estate Investment Trusts ("REITs") pool investors' funds for
investment primarily in income producing real estate or real estate related
loans or interests. A REIT is not taxed on income distributed to its
shareholders or unitholders if it complies with regulatory requirements relating
to its organization, ownership, assets and income, and with a regulatory
requirement that it distribute to its shareholders or unitholders at least 95%
of its taxable income for each taxable year. Generally, REITs can be classified
as Equity REITs, Mortgage REITs or Hybrid REITs. Equity REITs invest the
majority of their assets directly in real property and derive their income
primarily from rents and capital gains from appreciation realized through
property sales. Equity REITs are further categorized according to the types of
real estate securities they own, e.g., apartment properties, retail shopping
centers, office and industrial properties, hotels, health-care facilities,
manufactured housing and mixed-property types. Mortgage REITs invest the
majority of their assets in real estate mortgages and derive their income
primarily from interest payments. Hybrid REITs combine the characteristics of
both Equity and Mortgage REITs.
A shareholder in any of the Portfolios, by investing in REITs indirectly through
the Portfolio, will bear not only his proportionate share of the expenses of the
Portfolio, but also, indirectly, the management expenses of underlying REITs.
REITs may be affected by changes in the value of their underlying properties and
by defaults by borrowers or tenants. Mortgage REITs may be affected by the
quality of the credit extended. Furthermore, REITs are dependent on specialized
management skills. Some REITs may have limited diversification and may be
subject to risks inherent in investments in a limited number of properties, in a
narrow geographic area, or in a single property type. REITs depend generally on
their ability to generate cash flow to make distributions to shareholders or
unitholders, and may be subject to defaults by borrowers and to
self-liquidations. In addition, the performance of a REIT may be affected by its
failure to qualify for tax-free pass-through of income, or its failure to
maintain exemption from registration under the 1940 Act.
SPECIALIZED OWNERSHIP VEHICLES. Specialized ownership vehicles pool investors'
funds for investment primarily in income-producing real estate or real estate
related loans or interests. Such specialized ownership vehicles in which the
Portfolios may invest include property unit trusts, REITs and other similar
specialized investment vehicles. Investments in such specialized ownership
vehicles may have favorable or unfavorable legal, regulatory or tax implications
for a Portfolio and, to the extent such vehicles are structured similarly to
investment funds, may cause the Portfolios' shareholders to indirectly bear
certain additional operating expenses.
FIXED INCOME SECURITIES
Fixed Income Securities generally represent an issuer's obligation to repay
money that it has borrowed together with interest on the amount borrowed. Fixed
Income Securities come in many varieties and may differ in the way that interest
is calculated, the amount and frequency of payments, the type of collateral, if
any, and some Fixed Income Securities may have other novel features such as
conversion rights. Prices of Fixed Income Securities fluctuate and, in
particular, are subject to credit risk and market risk. Credit risk is the
possibility that an issuer may be unable to meet scheduled interest and
principal payments. Market risk is the possibility that a change in interest
rates or the market's perception of the issuer's prospects may adversely affect
the value of a fixed income security. Economic, political and other events also
may affect the prices of broad fixed income markets. Generally, the values of
Fixed Income Securities vary inversely with changes in interest rates. During
periods of falling interest rates, the values of outstanding Fixed Income
Securities generally rise and during periods of rising interest rates, the
values of such securities generally decline. Prepayments also will affect the
maturity and value of Fixed Income Securities. Prepayments generally rise in
response to a decline in interest rates as debtors take advantage of the
opportunity to refinance their obligations. When this happens, a Portfolio may
be forced to reinvest in lower yielding Fixed Income Securities.
The length of time to the final payment, or maturity, of a Fixed Income Security
also affects its price volatility. While securities with longer maturities tend
to produce higher yields, the prices of longer maturity securities are subject
to greater market fluctuation, especially as a result of changes in interest
rates. Traditionally, term to maturity has been used as a barometer of a Fixed
Income Security's sensitivity to interest rate changes. However, this measure
considers only the time until final payment and takes no account of the pattern
of payments prior to maturity. Duration is a more precise measure of the
expected life of a Fixed Income Security that combines consideration of yield,
coupon, interest payments, final maturity and call features and measures the
expected life of a Fixed Income Security on a present value basis. The duration
of a Fixed Income Security ordinarily is shorter than its maturity.
INVESTMENT GRADE SECURITIES. Investment Grade Securities are Fixed Income
Securities rated by one or more of the rating agencies in one of the four
highest rating categories at the time of purchase (e.g., AAA, AA, A or BBB by
Standard & Poor's Ratings Group ("S&P") or Fitch Investors Service, Inc.
("Fitch"), or Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's"))
or determined to be of equivalent quality by Morgan Stanley Dean Witter
Investment Management Inc. ("MSDW Investment Management"). Securities rated BBB
or Baa represent the lowest of four levels of Investment Grade Securities and
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are regarded as borderline between definitely sound obligations and those in
which the speculative element begins to predominate. Ratings assigned to Fixed
Income Securities represent only the opinion of the rating agency assigning the
rating and are not dispositive of the credit risk associated with the purchase
of a particular Fixed Income Security. Moreover, market risk also will affect
the prices of even the highest rated Fixed Income Securities so that their
prices may rise or fall even if the issuer's capacity to repay its obligations
remains unchanged.
HIGH YIELD SECURITIES. High Yield Securities are generally considered to
include Fixed Income Securities rated below the four highest rating categories
at the time of purchase (e.g., Ba through C by Moody's or BB through D by S&P)
and unrated securities considered by MSDW Investment Management to be of
equivalent quality. High Yield Securities are not considered investment grade
and are commonly referred to as junk bonds or high yield, high risk securities.
While High Yield Securities offer higher yields, they carry a high degree of
credit risk and are considered speculative by the major credit rating agencies.
High Yield Securities are often issued by smaller, less credit worthy issuers,
or by highly leveraged (indebted) issuers that are generally less able than more
established or less leveraged issuers to make scheduled payments of interest and
principal. In comparison to Investment Grade Securities, the price movement of
these securities is influenced less by changes in interest rates and more by the
financial and business position of the issuer. The values of High Yield
Securities are more volatile and may react with greater sensitivity to market
changes.
U.S. GOVERNMENT SECURITIES. U.S. Government Securities are Fixed Income
Securities that are backed by the full faith and credit of the U.S. Government
as to the payment of both principal and interest. U.S. Government Securities may
include securities issued by the U.S. Treasury and securities issued by federal
agencies and U.S. Government sponsored instrumentalities.
AGENCIES. Agencies are Fixed Income Securities which are not guaranteed by, or
backed by the full faith and credit of the U.S. Government, but which are
issued, sponsored or guaranteed by a federal agency or federally sponsored
agency such as the Student Loan Marketing Association, or any of several other
agencies.
CORPORATES. Corporates are Fixed Income Securities issued by private
businesses. Holders, as creditors, have a prior legal claim over holders of
Equity Securities of the issuer as to both income and assets for the principal
and interest due the holder.
MONEY MARKET INSTRUMENTS. Money Market Instruments are high quality short-term
Fixed Income Securities. Money Market Instruments may include obligations of
governments, government agencies, banks, corporations and special purpose
entities and Repurchase Agreements relating to these obligations. Certain Money
Market Instruments may be denominated in a foreign currency.
MORTGAGE RELATED SECURITIES. Mortgage related securities are securities that,
directly or indirectly, represent a participation in, or are secured by and
payable from, mortgage loans on real property. Mortgage related securities
include collateralized mortgage obligations and mortgage-backed securities
issued or guaranteed by agencies or instrumentalities of the U.S. Government or
by private sector entities.
MORTGAGE-BACKED SECURITIES. With mortgage-backed securities ("MBSs"), many
mortgagees' obligations to make monthly payments to their lending institution
are pooled together and passed through to investors. The pools are assembled by
various governmental, Government-related and private organizations. A Portfolio
may invest in securities issued or guaranteed by Government National Mortgage
Association ("GNMA" or "Ginnie Mae"), Federal Home Loan Mortgage Corporation
("FHLMC" or "Freddie Mac"), Fannie Mae, private issuers and other government
agencies. MBSs issued by non-agency issuers, whether or not such securities are
subject to guarantees, may entail greater risk, since private issuers may not be
able to meet their obligations under the policies. If there is no guarantee
provided by the issuer, a Portfolio will purchase only MBSs which at the time of
purchase are rated investment grade by one or more NRSROs or, if unrated, are
deemed by MSDW Investment Management to be of comparable quality.
MBSs are issued or guaranteed by private sector originators of or investors in
mortgage loans and structured similarly to governmental pass-through securities.
Because private pass-throughs typically lack a guarantee by an entity having the
credit status of a governmental agency or instrumentality, however, they are
generally structured with one or more of the types of credit enhancement
described below. Fannie Mae and FHLMC obligations are not backed by the full
faith and credit of the U.S. Government as GNMA certificates are. FHLMC
securities are supported by its right to borrow from the U.S. Treasury. Each of
GNMA, Fannie Mae and FHLMC guarantees timely distributions of interest to
certificate holders. Each of GNMA and Fannie Mae also guarantees timely
distributions of scheduled principal. Although FHLMC has in the past guaranteed
only the ultimate collection of principal of the underlying mortgage loan, FHLMC
now issues MBSs (FHLMC Gold PCS) which also guarantee timely payment of monthly
principal reductions. Resolution Funding Corporation ("REFCORP) obligations are
backed, as to principal payments, by zero coupon U.S. Treasury bonds, and as to
interest payment, ultimately by the U.S. Treasury.
There are two methods of trading MBSs. A specified pool transaction is a trade
in which the pool number of the security to be delivered on the settlement date
is known at the time the trade is made. This is in contrast with the typical MBS
transaction, called a TBA (to be announced) transaction, in which the type of
MBS to be delivered is specified at the time of trade but the
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actual pool numbers of the securities that will be delivered are not known at
the time of the trade. The pool numbers of the pools to be delivered at
settlement are announced shortly before settlement takes place. The terms of the
TBA trade may be made more specific if desired. Generally, agency pass-through
MBSs are traded on a TBA basis.
Like fixed income securities in general, MBSs will generally decline in price
when interest rates rise. Rising interest rates also tend to discourage
refinancings of home mortgages, with the result that the average life of MBSs
held by a Portfolio may be lengthened. As average life extends, price volatility
generally increases. This extension of average life causes the market price of
the MBSs to decrease further when interest rates rise than if their average
lives were fixed. However, when interest rates fall, mortgages may not enjoy as
large a gain in market value due to prepayment risk because additional mortgage
prepayments must be reinvested at lower interest rates. Faster prepayment will
shorten the average life and slower prepayments will lengthen it. However, it is
possible to determine what the range of the average life movement could be and
to calculate the effect that it will have on the price of the MBS. In selecting
MBSs, MSDW Investment Management looks for those that offer a higher yield to
compensate for any variation in average maturity. If the underlying mortgage
assets experience greater than anticipated prepayments of principal, a Portfolio
may fail to fully recoup its initial investment in these securities, even if the
security is in one of the highest rating categories. A Portfolio may invest,
without limit, in MBSs issued by private issuers when MSDW Investment Management
deems that the quality of the investment, the quality of the issuer, and market
conditions warrant such investments. The Portfolios will purchase securities
issued by private issuers which are rated investment grade at the time of
purchase by Moody's or S&P or be deemed by MSDW Investment Management to be of
comparable investment quality.
FANNIE MAE CERTIFICATES. Fannie Mae is a federally chartered and privately
owned corporation organized and existing under the Federal National Mortgage
Association Charter Act of 1938. The obligations of Fannie Mae are not backed by
the full faith and credit of the U.S. Government.
Each Fannie Mae certificate represents a pro rata interest in one or more pools
of mortgage loans insured by the Federal Housing Administration under the
Housing Act, or Title V of the Housing Act of 1949 ("FHA Loans"), or guaranteed
by the Department of Veteran Affairs under the Servicemen's Readjustment Act of
1944, as amended ("VA Loans") or conventional mortgage loans (i.e., mortgage
loans that are not insured or guaranteed by any governmental agency) of the
following types: (i) fixed rate level payment mortgage loans; (ii) fixed rate
growing equity mortgage loans; (iii) fixed rate graduated payment mortgage
loans; (iv) variable rate California mortgage loans; (v) other adjustable rate
mortgage loans; and (vi) fixed rate and adjustable mortgage loans secured by
multi-family projects.
FREDDIE MAC CERTIFICATES. Freddie Mac is a corporate instrumentality of the
United States created pursuant to the Emergency Home Finance Act of 1970, as
amended (the "FHLMC Act"). The obligations of Freddie Mac are obligations solely
of Freddie Mac and are not backed by the full faith and credit of the U.S.
Government.
Freddie Mac certificates represent a pro rata interest in a group of mortgage
loans (a "Freddie Mac Certificate group") purchased by Freddie Mac. The mortgage
loans underlying the Freddie Mac Certificates consist of fixed rate or
adjustable rate mortgage loans with original terms to maturity of between ten
and thirty years, substantially all of which are secured by first liens on
one-to-four-family residential properties or multi-family projects. Each
mortgage loan must meet the applicable standards set forth in the FHLMC Act. A
Freddie Mac Certificate group may include whole loans, participation interests
in whole loans and undivided interests in whole loans and participations
comprising another Freddie Mac Certificate group.
GINNIE MAE CERTIFICATES. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States within the Department of Housing and Urban
Development. The National Housing Act of 1934, as amended (the "Housing Act"),
authorizes Ginnie Mae to guarantee the timely payment of the principal and
interest on certificates that are based on and backed by a pool of FHA Loans, VA
Loans or by pools of other eligible mortgage loans. The Housing Act provides
that the full faith and credit of the U.S. Government is pledged to the payment
of all amounts that may be required to be paid under any guaranty. In order to
meet its obligations under such guaranty, Ginnie Mae is authorized to borrow
from the U.S. Treasury with no limitations as to amount.
Each Ginnie Mae certificate represents a pro rata interest in one or more of the
following types of mortgage loans: (i) fixed rate level payment mortgage loans;
(ii) fixed rate graduated payment mortgage loans; (iii) fixed rate growing
equity mortgage loans; (iv) fixed rate mortgage loans secured by manufactured
(mobile) homes; (v) mortgage loans on multi-family residential properties under
construction; (vi) mortgage loans on completed multi-family projects; (vii)
fixed rate mortgage loans as to which escrowed funds are used to reduce the
borrower's monthly payments during the early years of the mortgage loans
("buydown" mortgage loans); (viii) mortgage loans that provide for adjustments
in payments based on periodic changes in interest rates or in other payment
terms of the mortgage loans; and (ix) mortgage-backed serial notes. All of these
mortgage loans will be FHA Loans or VA loans and, except as otherwise specified
above, will be fully-amortizing loans secured by first liens on one-
to-four-family housing units.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
("CMOs") are debt obligations or multiclass pass-through certificates issued by
agencies or instrumentalities of the U.S. Government or by private originators
or investors in mortgage loans. They are backed by mortgage-backed securities
(discussed below) or whole loans (all such assets, the "Mortgage Assets") and
are evidenced by a series of bonds or certificates issued in multiple classes.
Each class of a CMO, often referred to
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as a "tranche," may be issued with a specific fixed or floating coupon rate and
has a stated maturity or final scheduled distribution date. The principal and
interest on the underlying Mortgage Assets may be allocated among the several
classes of a series of CMOs in many ways. Interest is paid or accrues on CMOs on
a monthly, quarterly or semi-annual basis.
CMOs may be issued by agencies or instrumentalities of the U.S. Government, or
by private originators of, or investors in, mortgage loans, including savings
and loan associations, mortgage bankers, commercial banks, investment banks and
special purpose subsidiaries of the foregoing. CMOs that are issued by private
sector entities and are backed by assets lacking a guarantee of an entity having
the credit status of a governmental agency or instrumentality are generally
structured with one or more types of credit enhancement as described below. An
issuer of CMOs may elect to be treated for federal income tax purposes as a Real
Estate Mortgage Investment Conduit (a "REMIC"). An issuer of CMOs issued after
1991 must elect to be treated as a REMIC or it will be taxable as a corporation
under rules regarding taxable mortgage pools.
The principal and interest on the Mortgage Assets may be allocated among the
several classes of a CMO in many ways. The general goal in allocating cash flows
on Mortgage Assets to the various classes of a CMO is to create certain tranches
on which the expected cash flows have a higher degree of predictability than do
the underlying Mortgage Assets. As a general matter, the more predictable the
cash flow is on a particular CMO tranche, the lower the anticipated yield on
that tranche at the time of issue will be relative to prevailing market yields
on Mortgage Assets. As part of the process of creating more predictable cash
flows on certain tranches of a CMO, one or more tranches generally must be
created that absorb most of the changes in the cash flows on the underlying
Mortgage Assets. The yields on these tranches are generally higher than
prevailing market yields on other mortgage related securities with similar
average lives. Principal prepayments on the underlying Mortgage Assets may cause
the CMOs to be retired substantially earlier than their stated maturities or
final scheduled distribution dates. Because of the uncertainty of the cash flows
on these tranches, the market prices and yields of these tranches are more
volatile. In addition, some inverse floating rate obligation CMOs exhibit
extreme sensitivity to changes in prepayments. As a result, the yield to
maturity of these CMOs is sensitive not only to changes in interest rates, but
also to changes in prepayment rates on the related underlying Mortgage Assets.
Included within the category of CMOs are PAC Bonds. PAC Bonds are a type of CMO
tranche or series designed to provide relatively predictable payments, provided
that, among other things, the actual prepayment experience on the underlying
Mortgage Assets falls within a predefined range. If the actual prepayment
experience on the underlying Mortgage Assets is faster or slower than the
predefined range or if deviations from other assumptions occur, payments on the
PAC Bond may be earlier or later than predicted and the yield may rise or fall.
The magnitude of the predefined range varies from one PAC Bond to another; a
narrower range increases the risk that prepayments on the PAC Bond will be
greater or smaller than predicted. Because of these features, PAC Bonds
generally are less subject to the risk of prepayment than are other types of
mortgage related securities.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped Mortgage-Backed Securities
("SMBSs") are multi-class mortgage securities issued by agencies or
instrumentalities of the U.S. Government and private originators of, or
investors in, mortgage loans. SMBSs are usually structured with two classes that
receive different proportions of the interest and principal distributions on a
pool of Mortgage Assets. In some cases, one class will receive all of the
interest ("interest-only" or "IO class"), while the other class will receive all
of the principal ("principal-only" or "PO class"). The yield to maturity on IO
classes and PO classes is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying Mortgage Assets, and
significant changes in the rate of principal repayments will have a
corresponding effect on the SMBSs' yield to maturity.
CREDIT ENHANCEMENT. Mortgage related securities are often backed by a pool
of assets representing the obligations of a number of parties. To lessen the
effect of failure by obligors on underlying assets to make payments, these
securities may have various types of credit support. Credit support falls into
two primary categories: (i) liquidity protection, and (ii) protection against
losses resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection generally refers to the provision of advances, typically by
the entity administering the pool of assets, to ensure that the pass-through of
payments due on the underlying pool occurs in a timely fashion. Protection
against losses resulting from ultimate default enhances the likelihood of
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties (referred
to herein as "third party credit support"), through various means of structuring
the transaction or through a combination of such approaches.
The ratings of mortgage related securities for which third party credit
enhancement provides liquidity protection or protection against losses from
default are generally dependent upon the continued creditworthiness of the
provider of the credit enhancement. The ratings of such securities could decline
in the event of deterioration in the creditworthiness of the credit enhancement
provider even in cases where the delinquency and loss experience on the
underlying pool of assets is better than expected.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal and
interest thereon, with defaults on the underlying assets being borne first by
the holders of the most subordinated class), creation of "reserve funds" (where
cash or investments, sometimes funded from a portion of the payments on the
underlying assets, are held in reserve against future losses) and
"over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceed those required to make payment of the
securities and pay any servicing or other fees). The degree of credit support
provided for
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each security is generally based on historical information with respect to the
level of credit risk associated with the underlying assets. Delinquency or loss
in excess of that which is anticipated could adversely affect the return on an
investment in such a security.
REPURCHASE AGREEMENTS. Repurchase Agreements are transactions in which a
Portfolio purchases a security or basket of securities and simultaneously
commits to resell that security or basket to the seller (a bank, broker or
dealer) at a mutually agreed upon date and price. The resale price reflects the
purchase price plus an agreed upon market rate of interest which is unrelated to
the coupon rate or date of maturity of the purchased security. Repurchase
Agreements may be viewed as a fully collateralized loan of money by the
Portfolio to the seller at a mutually agreed upon rate and price. The term of
these agreements is usually from overnight to one week, and never exceeds one
year. Repurchase Agreements with a term of over seven days are considered
illiquid.
In these transactions, the Portfolio receives as collateral securities that have
a market value at least equal to the purchase price (including accrued interest)
of the Repurchase Agreement, and this value is maintained during the term of the
agreement. These securities are held by the Portfolio's Custodian or an approved
third party for the benefit of the Portfolio until repurchased. Repurchase
Agreements permit a Portfolio to remain fully invested while retaining overnight
flexibility to pursue investments of a longer-term nature. If the seller
defaults and the collateral value declines, the Portfolio might incur a loss. If
bankruptcy proceedings are commenced with respect to the seller, the Portfolio's
realization upon the collateral may be delayed or limited.
Pursuant to an order expected to be issued by the Securities and Exchange
Commission (the "SEC"), the Portfolios may pool their daily uninvested cash
balances in order to invest in Repurchase Agreements on a joint basis with other
investment companies advised by MSDW Investment Management. By entering into
Repurchase Agreements on a joint basis, the Portfolios expect to incur lower
transaction costs and potentially obtain higher rates of interest on such
Repurchase Agreements. Each Portfolio's participation in the income from jointly
purchased Repurchase Agreements will be based on that Portfolio's percentage
share in the total Repurchase Agreement. The Portfolios' ability to invest in
Repurchase Agreements on a joint basis will be contingent upon issuance of the
order by the SEC described above.
MUNICIPALS. Municipal securities ("Municipals") are debt obligations issued by
local, state and regional governments that provide interest income that is
exempt from federal income taxes and in certain instances, from state and local
taxes. Municipals include both municipal bonds (those securities with maturities
of five years or more) and municipal notes (those securities with maturities of
less than five years). Municipal bonds are issued for a wide variety of reasons:
to construct public facilities, such as airports, highways, bridges, schools,
hospitals, mass transportation, streets, water and sewer works; to obtain funds
for operating expenses; to refund outstanding municipal obligations; and to loan
funds to various public institutions and facilities. Certain industrial
development bonds are also considered municipal bonds if their interest is
exempt from federal income taxes. Industrial development bonds are issued by or
on behalf of public authorities to obtain funds for various privately-operated
manufacturing facilities, housing, sports arenas, convention centers, airports,
mass transportation systems and water, gas or sewer works. Industrial
development bonds are ordinarily dependent on the credit quality of a private
user, not the public issuer.
ASSET-BACKED SECURITIES. Asset-Backed Securities ("Asset-Backeds") are
securities collateralized by shorter-term loans such as automobile loans, home
equity loans, equipment or computer leases or credit card receivables. The
payments from the collateral are passed through to the security holder. The
collateral underlying Asset-Backeds tends to have prepayment rates that usually
do not vary with interest rates. In addition, the short-term nature of the loans
reduces the impact of any change in prepayment level. However, it is possible
that prepayments (on automobile loans and other collateral) will alter the cash
flow on Asset-Backeds and it is not possible to determine in advance the actual
final maturity date or average life. Faster prepayment will shorten the average
life and slower prepayment will lengthen it. However, it is possible to
determine what the range of that movement could be and to calculate the effect
that it will have on the price of the security. The maturity of Asset-Backeds
will be based on the expected average life of the instrument. In selecting these
securities, MSDW Investment Management will look for those securities that offer
a higher yield to compensate for any variation in average maturity.
PREFERRED STOCKS. Preferred Stocks are securities that evidence ownership in a
corporation and pay a fixed or variable stream of dividends. Preferred Stocks
have a preference over Common Stocks in the event of the liquidation of an
issuer and usually do not carry voting rights. Because Preferred Stocks
represent an ownership interest in the issuer they have many of the
characteristics of an Equity Security and are, therefore, included in both the
definition of Fixed Income Security and Equity Security.
CONVERTIBLE SECURITIES. Convertible Securities are securities that may be
exchanged under certain circumstances for a fixed number of shares of Common
Stock or other Equity Securities. Convertible Securities generally represent a
feature of some other type of security, such as a Fixed Income Security or
Preferred Stock, so that, for example, a Convertible Fixed Income Security would
be a Fixed Income Security that is convertible into Common Stock. Prices of
Convertible Fixed Income Securities frequently are more volatile than
non-Convertible Fixed Income Securities. Convertible Securities may be viewed as
an investment in the current security or the security into which the Convertible
Security may be exchanged and, therefore, are included in both the definition of
Fixed Income Security or Equity Security.
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LOAN PARTICIPATIONS AND ASSIGNMENTS. Loan Participations are interests in loans
or other direct debt instruments ("Loans") relating to amounts owed by a
corporate, governmental or other borrower to another party. Loans may represent
amounts owed to lenders or lending syndicates, to suppliers of goods or services
(trade claims or other receivables), or to other parties ("Lenders") and may be
fixed rate or floating rate. Loans also may be arranged through private
negotiations between an issuer of sovereign debt obligations and Lenders.
A Portfolio's investments in Loans are expected in most instances to be in the
form of a participation in Loans ("Participations") and assignments of all or a
portion of Loans ("Assignments") from third parties. In the case of a
Participation, a Portfolio will have the right to receive payments of principal,
interest and any fees to which it is entitled only from the Lender selling the
Participation and only upon receipt by the Lender of the payments from the
borrower. In the event of an insolvency of the Lender selling a Participation, a
Portfolio may be treated as a general creditor of the Lender and may not benefit
from any set-off between the Lender and the borrower. Certain Participations may
be structured in a manner designed to avoid purchasers of Participations being
subject to the credit risk of the Lender with respect to the Participation. Even
under such a structure, in the event of a Lender's insolvency, the Lender's
servicing of the Participation may be delayed and the assignability of the
Participation may be impaired. A Portfolio will acquire Participations only if
the Lender interpositioned between a Portfolio and the borrower is determined by
MSDW Investment Management to be creditworthy.
When a Portfolio purchases Assignments from Lenders it will acquire direct
rights against the borrower on the Loan. However, because Assignments are
arranged through private negotiations between potential assignees and potential
assignors, the rights and obligations acquired by a Portfolio as the purchaser
of an Assignment may differ from, and be more limited than, those held by the
assigning Lender. Because there is no liquid market for such securities, it is
likely that such securities could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market may have an
adverse impact on the value of such securities and a Portfolio's ability to
dispose of particular Assignments or Participations when necessary to meet a
Portfolio's liquidity needs or in response to a specific economic event, such as
a deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for Assignments and Participations also may make it more
difficult for a Portfolio to assign a value to these securities for purposes of
valuing a Portfolio's securities and calculating its NAV.
Loan Participations and Assignments involve a risk of loss in case of default or
insolvency of the borrower. In addition, they may offer less legal protection to
a Portfolio in the event of fraud or misrepresentation and may involve a risk of
insolvency of the Lender. Certain Loan Participations and Assignments may also
include standby financing commitments that obligate the investing Portfolio to
supply additional cash to the borrower on demand. Participations involving
emerging market country issuers may relate to Loans as to which there has been
or currently exists an event of default or other failure to make payment when
due, and may represent amounts owed to Lenders that are themselves subject to
political and economic risks, including the risk of currency devaluation,
expropriation, or failure. Such Loan Participations and Assignments present
additional risk of default or loss.
TEMPORARY INVESTMENTS. When MSDW Investment Management believes that changes in
economic, financial or political conditions make it advisable, each Portfolio
may invest up to 100% of its assets in cash and certain short- and medium-term
Fixed Income Securities for temporary defensive purposes. These Temporary
Investments may consist of obligations of the U.S. or foreign governments, their
agencies or instrumentalities; Money Market Instruments; and instruments issued
by international development agencies.
ZERO COUPONS, PAY-IN-KIND SECURITIES OR DEFERRED PAYMENT SECURITIES. Zero
Coupon, Pay-In-Kind and Deferred Payment Securities are all types of Fixed
Income Securities on which the holder does not receive periodic cash payments of
interest or principal. Generally, these securities are subject to greater price
volatility and lesser liquidity in the event of adverse market conditions than
comparably rated securities paying cash interest at regular intervals. Although
a Portfolio will not receive cash periodic coupon payments on these securities,
the Portfolio may be deemed to have received interest income, or "phantom
income" during the life of the obligation. The Portfolio may have to pay taxes
on this phantom income, although it has not received any cash payment.
ZERO COUPONS. Zero Coupons are fixed income securities that do not make
regular interest payments. Instead, Zero Coupons are sold at a discount from
their face value. The difference between a Zero Coupon's issue or purchase price
and its face value represents the imputed interest an investor will earn if the
obligation is held until maturity. Zero Coupons may offer investors the
opportunity to earn a higher yield than that available on ordinary
interest-paying obligations of similar credit quality and maturity.
PAY-IN-KIND SECURITIES. Pay-In-Kind Securities are securities that have
interest payable by delivery of additional securities. Upon maturity, the holder
is entitled to receive the aggregate par value of the securities.
DEFERRED PAYMENT SECURITIES. Deferred Payment Securities are securities
that remain Zero Coupons until a predetermined date, at which time the stated
coupon rate becomes effective and interest becomes payable at regular intervals.
FLOATERS. Floaters are Fixed Income Securities with a rate of interest that
varies with changes in specified market rates or indices, such as the prime
rate, or at specified intervals. Certain Floaters may carry a demand feature
that permits the holder to
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tender them back to the issuer of the underlying instrument, or to a third
party, at par value prior to maturity. When the demand feature of certain
Floaters represents an obligation of a foreign entity, the demand feature will
be subject to certain risks discussed under "Foreign Investment."
INVERSE FLOATERS. Inverse floating rate obligations ("Inverse Floaters") are
Fixed Income Securities that have coupon rates that vary inversely at a multiple
of a designated floating rate, such as LIBOR (London Inter-Bank Offered Rate).
Any rise in the reference rate of an Inverse Floater (as a consequence of an
increase in interest rates) causes a drop in the coupon rate while any drop in
the reference rate of an Inverse Floater causes an increase in the coupon rate.
Inverse Floaters may exhibit substantially greater price volatility than fixed
rate obligations having similar credit quality, redemption provisions and
maturity, and Inverse Floater CMOs exhibit greater price volatility than the
majority of other mortgage-related securities.
EURODOLLAR AND YANKEE DOLLAR OBLIGATIONS. The Portfolios may invest in
Eurodollar and Yankee dollar obligations. Eurodollar bank obligations are
dollar-denominated certificates of deposit and time deposits issued outside the
U.S. capital markets by foreign branches of U.S. banks and by foreign banks.
Yankee dollar bank obligations are dollar-denominated obligations issued in the
U.S. capital markets by foreign banks.
Eurodollar and Yankee dollar obligations are subject to the same risks as
domestic issues but Eurodollar (and to a limited extent, Yankee dollar)
obligations are also subject to certain sovereign risks. One such risk is the
possibility that a sovereign country might prevent capital, in the form of
dollars, from flowing across its borders. Other risks include adverse political
and economic developments; the extent and quality of government regulations of
financial markets and institutions; the imposition of foreign withholding taxes;
and the expropriation or nationalization of foreign issuers.
FOREIGN INVESTMENT
Investing in foreign securities involves certain special considerations which
are not typically associated with investing in the Equity Securities or Fixed
Income Securities of U.S. issuers. Foreign issuers are not generally subject to
uniform accounting, auditing and financial reporting standards and may have
policies that are not comparable to those of domestic issuers. As a result,
there may be less information available about foreign issuers than about
domestic issuers. Securities of some foreign issuers are generally less liquid
and more volatile than securities of comparable domestic issuers. There is
generally less government supervision and regulation of stock exchanges, brokers
and listed issuers than in the United States. In addition, with respect to
certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, political and social instability, or diplomatic
developments which could affect U.S. investments in those countries. The costs
of investing in foreign countries frequently is higher than the costs of
investing in the United States. Although MSDW Investment Management endeavors to
achieve the most favorable execution costs in portfolio transactions, fixed
commissions on many foreign stock exchanges are generally higher than negotiated
commissions on U.S. exchanges.
Investments in securities of foreign issuers generally are denominated in
foreign currencies. Accordingly, the value of a Portfolio's assets, as measured
in U.S. dollars may be affected favorably or unfavorably by changes in currency
exchange rates and in exchange control regulations. A Portfolio may incur costs
in connection with conversions between various currencies.
Certain foreign governments levy withholding or other taxes on dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from investments in such countries. The Portfolios may be
able to claim a credit for U.S. tax purposes with respect to any such foreign
taxes.
FOREIGN EQUITY SECURITIES. Foreign Equity Securities are Equity Securities of
an issuer in a foreign country.
FOREIGN BONDS. Foreign Bonds are Fixed Income Securities issued by a foreign
government, government-related or a private issuer in a foreign country.
RUSSIAN EQUITY SECURITIES. The registration, clearing and settlement of
securities transactions involving Russian issuers are subject to significant
risks not normally associated with securities transactions in the United States
and other more developed markets. Ownership of Equity Securities in Russian
companies is evidenced by entries in a company's share register (except where
shares are held through depositories that meet the requirements of the 1940 Act)
and the issuance of extracts from the register or, in certain limited cases, by
formal share certificates. However, Russian share registers are frequently
unreliable and a Portfolio could possibly lose its registration through
oversight, negligence or fraud. Moreover, Russia lacks a centralized registry to
record securities transactions and registrars located throughout Russia or the
companies themselves maintain share registers. Registrars are under no
obligation to provide extracts to potential purchasers in a timely manner or at
all and are not necessarily subject to effective state supervision. In addition,
while registrars are liable under law for losses resulting from their errors, it
may be difficult for a Portfolio to enforce any rights it may have against the
registrar or issuer of the securities in the event of loss of share
registration. Although Russian companies with more than 1,000 shareholders are
required by Russian law to employ an independent registrar, in practice, such
companies have not always followed this law. Because of this lack of
independence of registrars, management of a Russian company may be able to exert
considerable influence over who can purchase and sell the company's shares by
illegally instructing the registrar to refuse to record transactions on the
share register. Furthermore, these
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practices may prevent a Portfolio from investing in the securities of certain
Russian companies deemed suitable by the Adviser and could cause a delay in the
sale of Russian Securities by the Portfolio if the company deems a purchaser
unsuitable, which may expose the Portfolio to potential loss on its investment.
In light of the risks described above, the Board Directors of the Fund has
approved certain procedures concerning the Fund's investments in Russian
Securities. Among these procedures is a requirement that a Portfolio will not
invest in the Equity Securities of a Russian company unless that issuer's
registrar has entered into a contract with the Fund's sub-custodian containing
certain protective conditions, including, among other things, the
sub-custodian's right to conduct regular share confirmations on behalf of the
Portfolio. This requirement will likely have the effect of precluding
investments in certain Russian companies that a Portfolio would otherwise make.
FOREIGN CURRENCY TRANSACTIONS. The U.S. dollar value of the assets of the
Portfolios, to the extent they invest in securities denominated in foreign
currencies, may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations, and the Portfolios may
incur costs in connection with conversions between various currencies. The
Portfolios may conduct their foreign currency exchange transactions either on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or may enter into forward contracts to purchase or sell foreign
currencies. A foreign currency forward contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for such
trades.
The Portfolios may enter into foreign currency forward contracts in many
circumstances. For example, when a Portfolio enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when a
Portfolio anticipates the receipt in a foreign currency of dividends or interest
payments on a security which it holds, the Portfolio may desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of such dividend
or interest payment, as the case may be. By entering into a forward contract for
a fixed amount of dollars, for the purchase or sale of the amount of foreign
currency involved in the underlying transactions, the Portfolio will be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date on which the security is purchased or sold, or on which
the dividend or interest payment is declared, and the date on which such
payments are made or received. Additionally, when any of the Portfolios
anticipates that the currency of a particular foreign country may suffer a
substantial decline against the U.S. dollar, it may enter into a forward
contract for a fixed amount of dollars, to sell the amount of foreign currency
approximating the value of some or all of such Portfolio's securities
denominated in such foreign currency. However, it may not be practicable to
hedge currency in all markets, particularly emerging markets.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date on which the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the successful execution of
a short-term hedging strategy is highly uncertain. None of the Portfolios intend
to enter into such forward contracts to protect the value of portfolio
securities on a continuous basis.
Under normal circumstances, consideration of the prospect for changes in the
values of currency will be incorporated into the long-term investment decisions
made with regard to overall diversification strategies. However, the management
of the Fund believes that it is important to have the flexibility to enter into
such forward contracts when it determines that it is in the best interests of
the Portfolio. Except under circumstances where a segregated account is not
required under the 1940 Act or the rules adopted thereunder, the Fund's
Custodian will place cash or liquid securities into a segregated account of a
Portfolio in an amount equal to the value of such Portfolio's total assets
committed to the consummation of forward currency exchange contracts. If the
value of the securities placed in the segregated account declines, additional
cash or securities will be placed in the account on a daily basis so that the
value of the account will be equal to the amount of such Portfolio's commitments
with respect to such contracts.
The Portfolios generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, a Portfolio may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate its contractual obligation to deliver
the foreign currency by purchasing an "offsetting" contract with the same
currency trader obligating it to purchase, on the same maturity date, the same
amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of a
particular portfolio security at the expiration of the contract. Accordingly, it
may be necessary for a Portfolio to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that such Portfolio is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency.
If a Portfolio retains the portfolio security and engages in an offsetting
transaction, such Portfolio will incur a gain or a loss (as described below) to
the extent that there has been movement in forward contract prices. Should
forward prices decline during the period between a Portfolio entering into a
forward contract for the sale of a foreign currency and the date it enters into
an
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offsetting contract for the purchase of the foreign currency, such Portfolio
will realize a gain to the extent that the price of the currency it has agreed
to sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, such Portfolio would suffer a loss to the extent that
the price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
The Portfolios are not required to enter into such transactions with regard to
their foreign currency-denominated securities. It also should be realized that
this method of protecting the value of portfolio securities against a decline in
the value of a currency does not eliminate fluctuations in the underlying prices
of the securities. It simply establishes a rate of exchange which one can
achieve at some future point in time. Additionally, although such contracts tend
to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time, they tend to limit any potential gain which might
result should the value of such currency increase.
FOREIGN CURRENCY WARRANTS. Portfolios may invest in foreign currency
warrants, which entitle the holder to receive from the issuer an amount of cash
(generally, for warrants issued in the U.S., in U.S. dollars) which is
calculated pursuant to a predetermined formula and based on the exchange rate
between a specified foreign currency and the U.S. dollar as of the exercise date
of the warrant. Foreign currency warrants generally are exercisable upon their
issuance and expire as of a specified date and time.
Foreign currency warrants have been issued in connection with U.S.
dollar-denominated debt offerings by major corporate issuers in an attempt to
reduce the foreign currency exchange risk which, from the point of view of
prospective purchasers of the securities, is inherent in the international
fixed-income marketplace. Foreign currency warrants may attempt to reduce the
foreign exchange risk assumed by purchasers of a security by, for example,
providing for a supplemental payment in the event that the U.S. dollar
depreciates against the value of a major foreign currency such as the Japanese
Yen or German Deutschmark. The formula used to determine the amount payable upon
exercise of a foreign currency warrant may make the warrant worthless unless the
applicable foreign currency exchange rate moves in a particular direction (E.G.,
unless the U.S. dollar appreciates or depreciates against the particular foreign
currency to which the warrant is linked or indexed). Foreign currency warrants
are severable from the debt obligations with which they may be offered, and may
be listed on exchanges.
Foreign currency warrants may be exercisable only in certain minimum amounts,
and an investor wishing to exercise warrants who possesses less than the minimum
number required for exercise may be required either to sell the warrants or to
purchase additional warrants, thereby incurring additional transaction costs. In
the case of any exercise of warrants, there may be a delay between the time a
holder of warrants gives instructions to exercise and the time the exchange rate
relating to exercise is determined, during which time the exchange rate could
change significantly, thereby affecting both the market and cash settlement
values of the warrants being exercised. The expiration date of the warrants may
be accelerated if the warrants should be delisted from an exchange or if their
trading should be suspended permanently, which would result in the loss of any
remaining "time value" of the warrants (I.E., the difference between the current
market value and the exercise value of the warrants), and, in the case where the
warrants were "out-of-the-money," in a total loss of the purchase price of the
warrants.
Foreign currency warrants are generally unsecured obligations of their issuers
and are not standardized foreign currency options issued by the OCC. Unlike
foreign currency options issued by the OCC, the terms of foreign exchange
warrants generally will not be amended in the event of governmental or
regulatory actions affecting exchange rates or in the event of the imposition of
other regulatory controls affecting the international currency markets. The
initial public offering price of foreign currency warrants is generally
considerably in excess of the price that a commercial user of foreign currencies
might pay in the interbank market for a comparable option involving
significantly larger amounts of foreign currencies. Foreign currency warrants
are subject to complex political or economic factors.
PRINCIPAL EXCHANGE RATE LINKED SECURITIES. Principal exchange rate linked
securities are debt obligations the principal on which is payable at maturity in
an amount that may vary based on the exchange rate between the U.S. dollar and a
particular foreign currency at or about that time. The return on "standard"
principal exchange rate linked securities is enhanced if the foreign currency to
which the security is linked appreciates against the U.S. dollar, and is
adversely affected by increases in the foreign exchange value of the U.S.
dollar; "reverse" principal exchange rate linked securities are like the
"standard" securities, except that their return is enhanced by increases in the
value of the U.S. dollar and adversely impacted by increases in the value of
foreign currency. Interest payments on the securities are generally made in U.S.
dollars at rates that reflect the degree of foreign currency risk assumed or
given up by the purchaser of the notes (I.E., at relatively higher interest
rates if the purchaser has assumed some foreign currency risk).
EMERGING MARKET COUNTRY SECURITIES. An emerging market country security is one
issued by a foreign government or private issuer that has one or more of the
following characteristics: (i) its principal securities trading market is in an
emerging market country, (ii) alone or on a consolidated basis it derives 50% or
more of its annual revenue from either goods produced, sales made or services
performed in emerging markets, or (iii) it is organized under the laws of, and
has a principal office in, an emerging market country.
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Emerging market describes any country which is generally considered to be an
emerging or developing country by major organizations in the international
financial community, such as the International Bank for Reconstruction and
Development (more commonly known as the World Bank) and the International
Finance Corporation. Emerging markets can include every nation in the world
except the United States, Canada, Japan, Australia, New Zealand and most nations
located in Western Europe.
The economies of individual emerging market countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, currency depreciation, capital reinvestment,
resource self-sufficiency and balance of payments position. Further, the
economies of developing countries generally are heavily dependent upon
international trade and, accordingly, have been, and may continue to be,
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures. These economies also
have been, and may continue to be, adversely affected by economic conditions in
the countries with which they trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some emerging market countries, and the extent of
foreign investment in certain fixed income securities and domestic companies may
be subject to limitation in other emerging market countries. Foreign ownership
limitations also may be imposed by the charters of individual companies in
emerging market countries to prevent, among other concerns, violation of foreign
investment limitations. Repatriation of investment income, capital and the
proceeds of sales by foreign investors may require governmental registration
and/or approval in some emerging countries. A Portfolio could be adversely
affected by delays in, or a refusal to grant, any required governmental
registration of approval for such repatriation. Any investment subject to such
repatriation controls will be considered illiquid if it appears reasonably
likely that this process will take more than seven days.
Investing in emerging market countries may entail purchasing securities issued
by or on behalf of entities that are insolvent, bankrupt, in default or
otherwise engaged in an attempt to reorganize or reschedule their obligations,
and in entities that have little or no proven credit rating or credit history.
In any such case, the issuer's poor or deteriorating financial condition may
increase the likelihood that the investing Portfolio will experience losses or
diminution in available gains due to bankruptcy, insolvency or fraud. Emerging
market countries also pose the risk of nationalization, expropriation or
confiscatory taxation, political changes, government regulation, social
instability or diplomatic developments (including war) that could affect
adversely the economies of such countries or the value of a Portfolio's
investments in those countries. In addition, it may be difficult to obtain and
enforce a judgment in a court outside the United States.
Portfolios that invest in emerging markets may also be exposed to an extra
degree of custodial and/or market risk, especially where the securities
purchased are not traded on an official exchange or where ownership records
regarding the securities are maintained by an unregulated entity (or even the
issuer itself).
BRADY BONDS. Brady Bonds are Fixed Income Securities that are created through
the exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructuring under a plan introduced by
Nicholas F. Brady when he was the U.S. Secretary of the Treasury. Brady Bonds
have only been issued in recent years, and, accordingly, do not have a long
payment history. They may be collateralized or uncollateralized and issued in
various currencies (although most are U.S. dollar-denominated) and they are
actively traded in the over-the-counter secondary market. The Portfolios will
invest in Brady Bonds only if they are consistent with the Portfolio's quality
specifications. However, Brady Bonds should be viewed as speculative in light of
the history of defaults with respect to commercial bank loans by public and
private entities of countries issuing Brady Bonds.
INVESTMENT FUNDS. Some emerging market countries have laws and regulations that
currently preclude direct investment in the securities of their companies.
However, indirect investment in the securities of companies listed and traded on
the stock exchanges in these countries is permitted by certain emerging market
countries through Investment Funds that have been specifically authorized. A
Portfolio may invest in these Investment Funds subject to the provisions of the
1940 Act, as applicable, and other applicable laws.
EUROPEAN CURRENCY TRANSITION. On January 1, 1999, the European Monetary Union
(EMU) implemented a new currency unit, the Euro, which is expected to reshape
financial markets, banking systems and monetary policies in Europe and other
parts of the world. Implementation of this plan will mean that financial
transactions and market information, including share quotations and company
accounts, in participating countries will be denominated in Euros. Monetary
policy for participating countries will be uniformly managed by a new central
bank, the European Central Bank (ECB).
The transition to the Euro may change the economic environment and behavior of
investors, particularly in European markets. For example, the process of
implementing the Euro may adversely affect financial markets world-wide and may
result in changes in the relative strength and value of the U.S. dollar or other
major currencies, as well as possible adverse tax consequences. The transition
to the Euro is likely to have a significant impact on fiscal and monetary policy
in the participating countries and may produce unpredictable effects on trade
and commerce generally. These resulting uncertainties could create increased
volatility in financial markets world-wide.
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OTHER SECURITIES
LOANS OF PORTFOLIO SECURITIES. Each Portfolio may lend its investment
securities to qualified institutional investors that need to borrow securities
in order to complete certain transactions, such as covering short sales,
avoiding failures to deliver securities or completing arbitrage operations. By
lending its investment securities, a Portfolio attempts to increase its net
investment income through the receipt of interest of the loan. Any gain or loss
in the market price of the securities loaned that might occur during the term of
the loan would be for the account of the Portfolio. Each Portfolio may lend its
investment securities to qualified brokers, dealers, domestic and foreign banks
or other financial institutions, so long as the terms, structure and the
aggregate amount of such loans are not inconsistent with the 1940 Act or the
Rules and Regulations or interpretations of the SEC thereunder, which currently
require that (i) the borrower pledge and maintain with the Portfolio collateral
consisting of liquid, unencumbered assets having a value at all times not less
than 100% of the value of the securities loaned; (ii) the borrower add to such
collateral whenever the price of the securities loaned rises (i.e., the borrower
"marks to market" on a daily basis); (iii) the loan be made subject to
termination by the Portfolio at any time; and (iv) the Portfolio receive
reasonable interest on the loan (which may include the Portfolio investing any
cash collateral in interest bearing short-term investments), any distributions
on the loaned securities and any increase in their market value. There may be
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
loans will be made only to borrowers deemed by MSDW Investment Management to be
of good standing and when, in the judgment of MSDW Investment Management, the
consideration which can be earned currently from such securities loans justifies
the attendant risk. All relevant facts and circumstances, including the
creditworthiness of the broker, dealer or institution, will be considered in
making decisions with respect to the lending of securities, subject to review by
the Board of Directors.
At the present time, the staff of the SEC does not object if an investment
company pays reasonable negotiated fees in connection with loaned securities, so
long as such fees are set forth in a written contract and approved by the
investment company's Board of Directors. In addition, voting rights may pass
with the loaned securities, but if a material event will occur affecting an
investment on loan, the loan must be called and the securities voted.
NON-PUBLICLY TRADED SECURITIES, PRIVATE PLACEMENTS AND RESTRICTED
SECURITIES. The Portfolios may invest in securities that are neither listed on
a stock exchange nor traded over-the-counter, including privately placed and
restricted securities. Such unlisted securities may involve a higher degree of
business and financial risk that can result in substantial losses. As a result
of the absence of a public trading market for these securities, they may be less
liquid than publicly traded securities. Although these securities may be resold
in privately negotiated transactions, the prices realized from these sales could
be less that those originally paid by the Portfolio or less than what may be
considered the fair value of such securities. Furthermore, companies whose
securities are not publicly traded may not be subject to the disclosure and
other investor protection requirements which might be applicable if their
securities were publicly traded. If such securities are required to be
registered under the securities laws of one or more jurisdictions before being
sold, the Portfolio may be required to bear the expenses of registration.
As a general matter, a Portfolio may not invest more than 15% of its net assets
in illiquid securities, such as securities for which there is not a readily
available secondary market or securities that are restricted from sale to the
public without registration. However, certain Restricted Securities can be
offered and sold to qualified institutional buyers under Rule 144A under the
1933 Act ("Rule 144A Securities") and may be deemed to be liquid under
guidelines adopted by the Fund's Board of Directors. The Portfolios may invest
without limit in liquid Rule 144A Securities. Rule 144A Securities may become
illiquid if qualified institutional buyers are not interested in acquiring the
securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. When-Issued and Delayed Delivery
Securities are securities purchased with payment and delivery taking place in
the future in order to secure what is considered to be an advantageous yield or
price at the time of the transaction. Delivery of and payment for these
securities may take as long as a month or more after the date of the purchase
commitment, but will take place no more than 120 days after the trade date. The
payment obligation and the interest rates that will be received are each fixed
at the time a Portfolio enters into the commitment and no interest accrues to
the Portfolio until settlement. Thus, it is possible that the market value at
the time of settlement could be higher or lower than the purchase price if the
general level of interest rates has changed. When a Portfolio agrees to purchase
When-Issued or delayed delivery securities, its custodian will earmark or
segregate cash or liquid securities in an amount equal to the Portfolio's
commitment to purchase these securities.
BORROWING FOR INVESTMENT PURPOSES. Borrowing for investment purposes creates
leverage which is a speculative characteristic. Portfolios authorized to borrow
will do so only when MSDW Investment Management believes that borrowing will
benefit the Portfolio after taking into account considerations such as the costs
of borrowing and the likely investment returns on securities purchased with
borrowed funds. Borrowing by a Portfolio will create the opportunity for
increased net income but, at the same time, will involve special risk
considerations. Leverage that results from borrowing will magnify declines as
well as increases in a Portfolio's net asset value per share and net yield. Each
Portfolio that engages in borrowing expects that all of its borrowing will be
made on a secured basis. The Portfolio's Custodian will either segregate the
assets securing the borrowing for the benefit of the lenders or arrangements
will be made with a suitable sub-custodian. If assets used to secure the
borrowing decrease in value, a Portfolio may be required to pledge additional
collateral to the lender in the form of cash or securities to avoid liquidation
of those assets.
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REVERSE REPURCHASE AGREEMENTS. Under a Reverse Repurchase Agreement, a
Portfolio sells a security and promises to repurchase that security at an agreed
upon future date and price. The price paid to repurchase the security reflects
interest accrued during the term of the agreement. The Portfolio will establish
a separate custodial account holding cash and other liquid assets in an amount
not less than the purchase obligations of the agreement. Reverse Repurchase
Agreements may be viewed as a speculative form of borrowing called leveraging. A
Portfolio may invest in reverse repurchase agreements if (i) interest earned
from leveraging exceeds the interest expense of the original reverse repurchase
transaction and (ii) proceeds from the transaction are not invested for longer
than the term of the Reverse Repurchase Agreement.
SHORT SALES. A short sale is a transaction in which the Portfolio sells
securities it owns or has the right to acquire at no added cost (i.e., "against
the box") or does not own (but has borrowed) in anticipation of a decline in the
market price of the securities. To deliver the securities to the buyer, the
Portfolio arranges through a broker to borrow the securities and, in so doing,
the Portfolio becomes obligated to replace the securities borrowed at their
market price at the time of replacement. When selling short, the Portfolio
intends to replace the securities at a lower price and therefore, profit from
the difference between the cost to replace the securities and the proceeds
received from the sale of the securities. When the Portfolio makes a short sale,
the proceeds it receives from the sale will be held on behalf of a broker until
the Portfolio replaces the borrowed securities. The Portfolio may have to pay a
premium to borrow the securities and must pay any dividends or interest payable
on the securities until they are replaced.
The Portfolio's obligation to replace the securities borrowed in connection with
a short sale will be secured by collateral deposited with the broker that
consists of cash or other liquid securities. In addition, the Portfolio will
place in a segregated account with its Custodian an amount of cash or other
liquid securities equal to the difference, if any, between (i) the market value
of the securities sold at the time they were sold short, and (ii) any cash or
other liquid securities deposited as collateral with the broker in connection
with the short sale. Short sales by the Portfolio involve certain risk and
special considerations. If MSDW Investment Management incorrectly predicts that
the price of the borrowed security will decline, the Portfolio will have to
replace the securities with securities with a greater value than the amount
received from the sale. As a result, losses from short sales differ from losses
that could be incurred from a purchase of a security, because losses from short
sales may be unlimited, whereas losses from purchases can equal only the total
amount invested.
STRUCTURED INVESTMENTS. Structured Investments are securities that are
convertible into, or the value of which is based upon the value of, other fixed
income or equity securities or indices upon certain terms and conditions. The
amount a Portfolio receives when it sells a Structured Investment or at maturity
of a Structured Investment is not fixed, but is based on the price of the
underlying security or index. Particular Structured Investments may be designed
so that they move in conjunction with or differently from their underlying
security or index in terms of price and volatility. It is impossible to predict
whether the underlying index or price of the underlying security will rise or
fall, but prices of the underlying indices and securities (and, therefore, the
prices of Structured Investments) will be influenced by the same types of
political and economic events that affect particular issuers of fixed income and
equity securities and capital markets generally. Structured Investments also may
trade differently from their underlying securities. Structured Investments
generally trade on the secondary market, which is fairly developed and liquid.
However, the market for such securities may be shallow compared to the market
for the underlying securities or the underlying index. Accordingly, periods of
high market volatility may affect the liquidity of Structured Investments,
making high volume trades possible only with discounting.
Structured Investments are a relatively new innovation and may be designed to
have various combinations of equity and fixed income characteristics. The
following sections describe four of the more common types of Structured
Investments. The Portfolios may invest in other Structured Investments,
including those that may be developed in the future, to the extent that the
Structured Investments are otherwise consistent with a Portfolio's investment
objective and policies.
PERCS. Preferred Equity Redemption Cumulative Stock ("PERCS") technically
is preferred stock with some characteristics of common stock. PERCS are
mandatorily convertible into common stock after a period of time, usually three
years, during which the investors' capital gains are capped, usually at 30%.
Commonly, PERCS may be redeemed by the issuer at any time or if the issuer's
common stock is trading at a specified price level or better. The redemption
price starts at the beginning of the PERCS duration period at a price that is
above the cap by the amount of the extra dividends the PERCS holder is entitled
to receive relative to the common stock over the duration of the PERCS and
declines to the cap price shortly before maturity of the PERCS. In exchange for
having the cap on capital gains and giving the issuer the option to redeem the
PERCS at any time or at the specified common stock price level, a Portfolio may
be compensated with a substantially higher dividend yield than that on the
underlying common stock. Investors that seek current income find PERCS
attractive because PERCS provide a high dividend income than that paid with
respect to a company's common stock.
ELKS. Equity-Linked Securities ("ELKS") differ from ordinary debt
securities, in that the principal amount received at maturity is not fixed but
is based on the price of the issuer's common stock. ELKS are debt securities
commonly issued in fully registered form for a term of three years under an
indenture trust. At maturity, the holder of ELKS will be entitled to receive a
principal amount equal to the lesser of a cap amount, commonly in the range of
30% to 55% greater than the current price of the issuer's common stock, or the
average closing price per share of the issuer's common stock , subject to
adjustment as a result of certain dilution events, for the 10 trading days
immediately prior to maturity. Unlike PERCS, ELKS are commonly not subject to
redemption prior to maturity. ELKS usually bear interest during the three-year
term at a substantially higher rate than the
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dividend yield on the underlying common stock. In exchange for having the cap on
the return that might have been received as capital gains on the underlying
common stock, a Portfolio may be compensated with the higher yield, contingent
on how well the underlying common stock does. Investors that seek current
income, find ELKS attractive because ELKS provide a higher dividend income than
that paid with respect to a company's common stock. The return on ELKS depends
on the creditworthiness of the issuer of the securities, which may be the issuer
of the underlying securities or a third party investment banker or other lender.
The creditworthiness of such third party issuer of ELKS may, and often does,
exceed the creditworthiness of the issuer of the underlying securities. The
advantage of using ELKS over traditional equity and debt securities is that the
former are income producing vehicles that may provide a higher income than the
dividend income on the underlying equity securities while allowing some
participation in the capital appreciation of the underlying equity securities.
Another advantage of using ELKS is that they may be used for hedging to reduce
the risk of investing in the generally more volatile underlying equity
securities.
LYONS. Liquid Yield Option Notes ("LYONs") differ from ordinary debt
securities, in that the amount received prior to maturity is not fixed but is
based on the price of the issuer's common stock. LYONs are zero-coupon notes
that sell at a large discount from face value. For an investment in LYONs, the
Portfolio will not receive any interest payments until the notes mature,
typically in 15 to 20 years, when the notes are redeemed at face, or par, value.
The yield on LYONs, typically, is lower-than-market rate for debt securities of
the same maturity, due in part to the fact that the LYONs are convertible into
common stock of the issuer at any time at the option of the holder of the LYONs.
Commonly, the LYONs are redeemable by the issuer at any time after an initial
period or if the issuer's common stock is trading at a specified price level or
better or, at the option of the holder, upon certain fixed dates. The redemption
price typically is the purchase price of the LYONs plus accrued original issue
discount to the date of redemption, which amounts to the lower-than-market
yield. A Portfolio will receive only the lower-than-market yield unless the
underlying common stock increases in value at a substantial rate. LYONs are
attractive to investors when it appears that they will increase in value due to
the rise in value of the underlying common stock.
STRUCTURED NOTES. Structured Notes are derivative securities for which the
amount of principal repayment and/or interest payments is based upon the
movement of one or more "factors." These factors include, but are not limited
to, currency exchange rates, interest rates (such as the prime lending rate and
LIBOR) and stock indices, such as the S&P 500. In some cases, the impact of the
movements of these factors may increase or decrease through the use of
multipliers or deflators. Structured Notes may be designed to have particular
quality and maturity characteristics and may vary from money market quality to
below investment grade. Depending on the factor used and the use of multipliers
or deflators, however, changes in interest rates and movement of the factor may
cause significant price fluctuations or may cause particular Structured Notes to
become illiquid. The Portfolios will use Structured Notes to tailor their
investments to the specific risks and returns the Adviser wishes to accept while
avoiding or reducing certain other risks.
DERIVATIVES
The Portfolios are permitted to utilize various exchange-traded and
over-the-counter derivative instruments and derivative securities, both for
hedging and non-hedging purposes. Permitted derivative products include, but are
not limited to futures contracts ("futures"); forward contracts ("forwards");
options; swaps, caps, collars and floors; structured notes; and other derivative
products yet to be developed, so long as these new products are used in a manner
consistent with the objectives of the Portfolios. These derivative products may
be based upon a wide variety of underlying rates, indices, instruments,
securities and other products, such as interest rates, foreign currencies,
foreign and domestic fixed income and equity securities, groups or "baskets" of
securities and securities indices (for each derivative product, the
"underlying"). Each Portfolio will limit its use of forward foreign currency
contracts and other derivative products to 33 1/3% of its total assets, measured
by the aggregate notional amount of outstanding derivative products.
The term hedging, generally, means that a Portfolio is using a derivative
product as a way to reduce or limit risk. For example, a Portfolio may hedge in
order to limit the effects of a change in the value of a particular foreign
currency versus the U.S. dollar or a Portfolio could use a portion of its cash
to buy securities futures in order to hedge the risk of not being fully
invested. The Portfolios also may use certain complex hedging techniques. For
example, a Portfolio may use a type of hedge known as a cross hedge or a proxy
hedge, where the Portfolio hedges the risk associated with one underlying by
purchasing or selling a derivative product with an underlying that is different.
There is no limit on the use of forward foreign currency contracts or other
derivative products for hedging purposes.
The Portfolios may use derivative products under a number of different
circumstances to further their investment objectives. For example, a Portfolio
may purchase derivatives to gain exposure to a market quickly in response to
changes in the Portfolio's investment strategy, upon the inflow of investable
cash or when the derivative provides greater liquidity than the underlying
market. A Portfolio may also use derivatives when it is restricted from directly
owning the "underlying" or when derivatives provide a pricing advantage or lower
transaction costs. The Portfolios also may purchase combinations of derivatives
in order to gain exposure to an investment in lieu of actually purchasing such
investment. Derivatives may also be used by a Portfolio for hedging or risk
management purposes and in other circumstances when MSDW Investment Management
believes it advantageous to do so consistent with the Portfolio's investment
objectives and policies. The Portfolios will not use derivatives in a manner
that creates leverage, except to the extent that the use of leverage is
expressly permitted by a particular Portfolio's investment policies, and then
only in a manner consistent with such policies.
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The use of derivative products is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If MSDW Investment Management is incorrect in
forecasts of market values, interest rates, and currency exchange rates, the
investment performance of the Portfolios will be less favorable than it would
have been if these investment techniques had not been used.
Some of the derivative products in which the Portfolios may invest and some of
the risks related thereto are described in further detail below.
FUTURES CONTRACTS (FUTURES) AND FORWARD CONTRACTS (FORWARDS). The Portfolios
may purchase and sell futures contracts, including futures on securities
indices, baskets of securities, foreign currencies and interest rates of the
type generally known as financial futures. These are standardized contracts that
are bought and sold on organized exchanges. A futures contract obligates a party
to buy or sell a specific amount of the "underlying," such as a particular
foreign currency, on a specified future date at a specified price or to settle
the value in cash.
The Portfolios may also purchase and sell forward contracts, such as forward
rate agreements and other financial forward contracts. The Portfolios may also
use foreign currency forward contracts which are separately discussed under
"Foreign Currency Transactions." These forward contracts are privately
negotiated and are bought and sold in the over-the-counter market. Like a
future, a forward contract obligates a party to buy or sell a specific amount of
the underlying on a specified future date at a specified price. The terms of the
forward contract are customized. Forward contracts, like other over-the-counter
contracts that are negotiated directly with an individual counterparty, subject
the Portfolio to the risk of counterparty default.
In some cases, the Portfolios may be able to use either futures contracts,
forward contracts or exchange-traded or over-the-counter options to accomplish
similar purposes. In all cases, the Portfolios will uses these products only as
permitted by applicable laws and regulations. Some of the ways in which the
Portfolios may use futures contracts, forward contracts and related options are
as follows:
The Portfolios may sell securities index futures contracts and/or options
thereon in anticipation of or during a market decline to attempt to offset the
decrease in market value of investments in its portfolio, or may purchase
securities index futures or options in order to gain market exposure. There
currently are limited securities index futures and options on such futures in
many countries, particularly emerging markets. The nature of the strategies
adopted by MSDW Investment Management, and the extent to which those strategies
are used, may depend on the development of such markets. The Portfolios may also
purchase and sell foreign currency futures to lock in rates or to adjust their
exposure to a particular currency.
The Portfolio may engage in transactions in interest rate futures and related
products. The value of these contracts rises and falls inversely with change in
interest rates. The Portfolios may engage in such transactions to hedge their
holdings of debt instruments against future changes in interest rates or for
other purposes.
Gains and losses on futures contracts, forward contracts and related options
depend on MSDW Investment Management's ability to predict correctly the
direction of movement of securities prices, interest rates and other economic
factors. Other risks associated with the use of these instruments include (i)
imperfect correlation between the changes in market value of investments held by
a Portfolio and the prices of derivative products relating to investments
purchased or sold by the Portfolio, and (ii) possible lack of a liquid secondary
market for a derivative product and the resulting inability to close out a
position. A Portfolio will seek to minimize the risk by only entering into
transactions for which there appears to be a liquid exchange or secondary
market. In some strategies, the risk of loss in trading on futures and related
transactions can be substantial, due both to the low margin deposits required
and the extremely high degree of leverage involved in pricing.
Under rules adopted by the Commodity Futures Trading Commission (the "CFTC"),
each Portfolio may, without registering with the CFTC as a Commodity Pool
Operator, enter into futures contracts and options thereon for both hedging and
non-hedging purposes, provided that not more than 5% of such Portfolio's total
assets at the time of entering the transaction are required as margin and option
premiums to secure obligations under such contracts relating to non-bona fide
hedging activities.
OPTIONS. The Portfolios may seek to increase their returns or may hedge their
portfolio investments through options transactions with respect to individual
securities, indices or baskets in which such Portfolios may invest; other
financial instruments; and foreign currency. Various options may be purchased
and sold on exchanges or over-the-counter markets.
Each Portfolio may purchase put and call options. Purchasing a put option gives
a Portfolio the right, but not the obligation, to sell the underlying (such as a
securities index or a particular foreign currency) at the exercise price either
on a specific date or during a specified exercise period. The purchaser pays a
premium to the seller (also known as the writer) of the option.
Each Portfolio also may write put and call options on investments held in its
portfolio, as well as foreign currency options. A Portfolio that has written an
option receives a premium that increases the Portfolio's return on the
underlying in the event the option expires unexercised or is closed out at a
profit. However, by writing a call option, a Portfolio will limit its
opportunity to profit from an increase in the market value of the underlying
above the exercise price of the option. By writing a put option, a Portfolio
will be exposed to the amount by which the price of the underlying is less than
the strike price.
By writing an option, a Portfolio incurs an obligation either to buy (in the
case of a put option) or sell (in the case of a call option) the underlying from
the purchaser of the option at the option's exercise price, upon exercise by the
purchaser. Pursuant to
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guidelines established by the Board of Directors, the Portfolios may only write
options that are "covered." A covered call option means that until the
expiration of the option, the Portfolio will either earmark or segregate
sufficient liquid assets to cover its obligations under the option or will
continue to own (i) the underlying; (ii) securities or instruments convertible
or exchangeable without the payment of any consideration into the underlying; or
(iii) a call option on the same underlying with a strike price no higher than
the price at which the underlying was sold pursuant to a short option position.
In the case of a put option, the Portfolio will either earmark or segregate
sufficient liquid assets to cover its obligations under the option or will own
another put option on the same underlying with an equal or higher strike price.
There currently are limited options markets in many countries, particularly
emerging market countries, and the nature of the strategies adopted by MSDW
Investment Management and the extent to which those strategies are used will
depend on the development of these options markets. The primary risks associated
with the Portfolios' use of options as described include (i) imperfect
correlation between the change in market value of investments held, purchased or
sold by a Portfolio and the prices of options relating to such investments, and
(ii) possible lack of a liquid secondary market for an option.
SWAPS, CAPS, COLLARS AND FLOORS. Swaps are privately negotiated
over-the-counter derivative products in which two parties agree to exchange
payment streams calculated in relation to a rate, index, instrument or certain
securities and a particular "notional amount." As with many of the other
derivative products available to the Portfolios, the underlying may include an
interest rate (fixed or floating), a currency exchange rate, a commodity price
index, and a security, securities index or a combination thereof. A great deal
of flexibility is possible in the way the products may be structured, with the
effect being that the parties may have exchanged amounts equal to the return on
one rate, index or group of securities for another. For example, in a simple
fixed-to-floating interest rate swap, one party makes payments equivalent to a
fixed interest rate, and the other make payments equivalent to a specified
interest rate index. A Portfolio may engage in simple or more complex swap
transactions involving a wide variety of underlyings. The currency swaps that
the Portfolios may enter will generally involve an agreement to pay interest
streams in one currency based on a specified index in exchange for receiving
interest streams denominated in another currency. Such swaps may involve initial
and final exchanges that correspond to the agreed upon notional amount.
Caps, collars and floors are privately-negotiated option-based derivative
products. A Portfolio may use one or more of these products in addition to or in
lieu of a swap involving a similar rate or index. As in the case of a put or
call option, the buyer of a cap or floor pays a premium to the writer. In
exchange for that premium, the buyer receives the right to a payment equal to
the differential if the specified index or rate rises above (in the case of a
cap) or falls below (in the case of a floor) a pre-determined strike level. As
in the case of swaps, obligations under caps and floors are calculated based
upon an agreed notional amount, and like most swaps (other than foreign currency
swaps), the entire notional amount is not exchanged and thus is not at risk. A
collar is a combination product in which the same party, such as the Portfolio,
buys a cap from and sells a floor to the other party. As with put and call
options, the amount at risk is limited for the buyer, but, if the cap or floor
in not hedged or covered, may be unlimited for the seller. Under current market
practice, caps, collars and floors between the same two parties are generally
documented under the same "master agreement." In some cases, options and forward
agreements may also be governed by the same master agreement. In the event of a
default, amounts owed under all transactions entered into under, or covered by,
the same master agreement would be netted and only a single payment would be
made.
Swaps, caps, collars and floors are credit-intensive products. A Portfolio that
enters into a swap transaction bears the risk of default, i.e. nonpayment, by
the other party. The guidelines under which each Portfolio enters derivative
transactions, along with some features of the transactions themselves, are
intended to reduce these risks to the extent reasonably practicable, although
they cannot eliminate the risks entirely. Under guidelines established by the
Board of Directors, a Portfolio may enter into swaps only with parties that meet
certain credit rating guidelines. Consistent with current market practices, a
Portfolio will generally enter into swap transactions on a net basis, and all
swap transactions with the same party will be documented under a single master
agreement to provide for net payment upon default. In addition, a Portfolio's
obligations under an agreement will be accrued daily (offset against any amounts
owing to the Portfolio) and any accrued, but unpaid, net amounts owed to the
other party to a master agreement will be covered by the maintenance of a
segregated account consisting of cash or liquid securities.
Interest rate and total rate of return (fixed income or equity) swaps generally
do not involve the delivery of securities, other underlying assets, or
principal. In such case, if the other party to an interest rate or total rate of
return swap defaults, a Portfolio's risk of loss will consist of the payments
that a Portfolio is contractually entitled to receive from the other party. This
may not be true for currency swaps that require the delivery of the entire
notional amount of one designated currency in exchange for the other. If there
is a default by the other party, a Portfolio may have contractual remedies under
the agreements related to the transaction.
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INVESTMENT LIMITATIONS
FUNDAMENTAL LIMITATIONS
Each current Portfolio has adopted the following restrictions which are
fundamental policies and may not be changed without the approval of the lesser
of: (i) at least 67% of the voting securities of the Portfolio present at a
meeting if the holders of more than 50% of the outstanding voting securities of
the Portfolio are present or represented by proxy; or (ii) more than 50% of the
outstanding voting securities of the Portfolio. Each Portfolio of the Fund will
not:
(1) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (except this shall not prevent the
Portfolio from purchasing or selling options or futures contracts or from
investing in securities or other instruments backed by physical commodities),
and except that the Gold Portfolio may invest in gold bullion in accordance with
its investment objectives and policies;
(2) purchase or sell real estate, although it may purchase and sell
securities of companies that deal in real estate and may purchase and sell
securities that are secured by interests in real estate;
(3) lend any security or make any other loan if, as a result, more than
33 1/3% of its total assets would be lent to other parties, but this limitation
does not apply to purchases of debt securities or repurchase agreements;
(4) except with respect to the Global Fixed Income, Emerging Markets,
Emerging Markets Debt, China Growth, International Magnum, Latin American,
MicroCap, Aggressive Equity, European Real Estate, Asian Real Estate, Technology
and U.S. Real Estate Portfolios (i) purchase more than 10% of any class of the
outstanding voting securities of any issuer and (ii) purchase securities of an
issuer (except obligations of the U.S. Government and its agencies and
instrumentalities) if as a result, with respect to 75% of its total assets, more
than 5% of the Portfolio's total assets, at market value, would be invested in
the securities of such issuer;
(5) issue senior securities and will not borrow, except from banks and as a
temporary measure for extraordinary or emergency purposes and then, in no event,
in excess of 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings), except that each of the Emerging Markets
Debt and Latin American Portfolios may borrow from banks and other entities, and
the Technology Portfolio may borrow from banks, in an amount not in excess of
33 1/3% of its total assets (including the amount borrowed) less liabilities in
accordance with its investment objectives and policies;
(6) underwrite securities issued by others, except to the extent that the
Portfolio may be considered an underwriter within the meaning of the 1933 Act in
the disposition of restricted securities;
(7) acquire any securities of companies within one industry if, as a result
of such acquisition, more than 25% of the value of the Portfolio's total assets
would be invested in securities of companies within such industry; provided,
however, that there shall be no limitation on the purchase of obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, or (in
the case of the Money Market Portfolio or the Municipal Money Market Portfolio)
instruments issued by U.S. Banks, except that (i) the Latin American Portfolio
may invest more than 25% of its total assets in companies involved in the
telecommunications industry or financial services industry; (ii) the Gold
Portfolio will invest more than 25% of its total assets in securities of
companies in the group of industries involved in gold-related or
precious-metals-related activities, as described in its prospectus, and may
invest more than 25% of its total assets in one or more of the industries that
are a part of such group of industries, as described in its prospectus; (iii)
each of the Asian Real Estate, European Real Estate and U.S. Real Estate
Portfolios will invest more than 25% of its total assets in the Asian, European
and U.S. real estate industries, respectively, as described in their
prospectuses; and (iv) the Technology Portfolio will invest more than 25% of its
assets in securities of companies in the technology or technology-related
industries; and
(8) write or acquire options or interests in oil, gas or other mineral
exploration or development programs.
NON-FUNDAMENTAL LIMITATIONS
In addition, each current Portfolio of the Fund has adopted non-fundamental
investment limitations as stated below and in their respective Prospectuses.
Such limitations may be changed without shareholder approval. Each current
Portfolio of the Fund will not:
(1) purchase on margin or sell short, except (i) that the Emerging Markets
Debt, Latin American, Aggressive Equity and Technology Portfolios may from time
to time sell securities short without limitation but consistent with applicable
legal requirements as stated in its Prospectus; (ii) that each Portfolio, except
the Money Market and Municipal Money Market Portfolios, may enter into option
transactions and futures contracts as described in its Prospectus; and (iii) as
specified above in fundamental investment limitation number (1) above;
(2) except for the High Yield Portfolio, purchase or retain securities of an
issuer if those officers and Directors of the Fund or its investment adviser
owning more than 1/2 of 1% of such securities together own more than 5% of such
securities;
23
<PAGE>
(3) pledge, mortgage, or hypothecate any of its assets to an extent greater
than 10% of its total assets at fair market value, except that the High Yield
Portfolio may pledge, mortgage or hypothecate a maximum of 50% of its assets,
not counting assets segregated to comply with coverage requirements under
Section 18(f) of the 1940 Act, and the SEC's rules, regulations, orders, and
interpretations thereunder;
(4) invest for the purpose of exercising control over management of any
company;
(5) except for the U.S. Real Estate, European Real Estate and Asian Real
Estate Portfolios, invest in real estate limited partnership interests, and the
U.S. Real Estate, European Real Estate and Asian Real Estate Portfolios may not
invest in such interests that are not publicly traded;
(6) make loans except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements, subject to the limitations as
described in the respective Prospectuses) that are publicly distributed, except
that the High Yield Portfolio also may purchase such securities that are not
publicly distributed; (ii) by lending its portfolio securities to banks,
brokers, dealers and other financial institutions so long as such loans are not
inconsistent with the 1940 Act or the Rules and Regulations or interpretations
of the SEC thereunder; and (iii) the High Yield Portfolio may lend securities to
institutional investors in addition to entities described in (ii);
(7) borrow money, except from banks for extraordinary or emergency purposes,
and then only in amounts up to 10% of the value of the Portfolio's total assets,
or purchase securities while borrowings exceed 5% of its total assets, except
that (i) the Emerging Markets Debt and Technology Portfolios may borrow in
accordance with fundamental investment limitation number (5) above; and (ii) the
High Yield Portfolio may borrow up to 33 1/3% of its total assets in the
aggregate, including reverse repurchase agreements; and
The Fixed Income and Value Equity Portfolios will only issue shares for
securities or assets other than cash in a bona fide reorganization, statutory
merger, or in other acquisitions of portfolio securities (except for municipal
debt securities issued by state political subdivisions or their agencies or
instrumentalities) which (i) meet their respective investment objectives; and
(ii) are acquired for investment and not for resale.
Each of the Global Fixed Income, Emerging Markets, Emerging Markets Debt, China
Growth, Latin American, Aggressive Equity, European Real Estate, Asian Real
Estate and U.S. Real Estate Portfolios will diversify its holdings so that, at
the close of each quarter of its taxable year, (i) at least 50% of the market
value of the Portfolio's total assets is represented by cash (including cash
items and receivables), U.S. Government securities, and other securities, with
such other securities limited, in respect of any one issuer, for purposes of
this calculation to an amount not greater than 5% of the value of the
Portfolio's total assets and 10% of the outstanding voting securities of such
issuer; and (ii) not more than 25% of the value of its total assets is invested
in the securities of any one issuer (other than U.S. Government securities).
With respect to fundamental investment limitation number (7), the Fund will
determine industry concentration in accordance with the classifications of
industries based on the Industry Numbers from the Standard Industrial
Classification Manual as prepared by the Office of Management and Budget, except
that (i) with respect to the Money Market, Municipal Money Market and High Yield
Portfolios, (a) financial service companies will be classified according to the
end users of their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry and (b) asset-
backed securities will be classified according to the underlying assets securing
such securities; and (ii) with respect to the High Yield Portfolio, utility
companies will be classified according to their services, for example, electric,
gas, gas transmission, and telephone will be treated as separate industries.
In accordance with fundamental investment limitation number (7), the Latin
American Portfolio will only invest more than 25% of its total assets in
companies involved in the telecommunications industry or financial services
industry if the Board of Directors determines that the Latin American markets
are dominated by securities of issuers in such industries and that, in light of
the anticipated return, investment quality, availability and liquidity of the
issuers in such industries, the Portfolio's ability to achieve its investment
objective would, in light of the investment policies and limitations, be
materially adversely affected if the Portfolio was not able to invest greater
than 25% of its total assets in such industries. As stated in the Prospectus,
the Board of Directors has made the foregoing determination and, accordingly,
the Latin American Portfolio will invest between 25% and 40% of its assets in
securities of issuers engaged in the telecommunications industry.
The percentage limitations contained in these restrictions apply at the time of
purchase of securities. Future Portfolios of the Fund may adopt different
limitations.
24
<PAGE>
PURCHASE OF SHARES
You may purchase shares of each Portfolio on any day the New York Stock Exchange
("NYSE") is open. Each Portfolio reserves the right in its sole discretion (i)
to suspend the offering of its shares; (ii) to reject purchase orders when in
the judgment of management such rejection is in the best interest of the Fund;
and (iii) to reduce or waive the minimum for initial and subsequent investments
for certain accounts such as employee benefit plans or under circumstances where
certain economies can be achieved in sales of a Portfolio's shares. The
International Equity Portfolio is currently closed to new investors with the
exception of certain Morgan Stanley & Co. Incorporated ("Morgan Stanley")
customers, employees of Morgan Stanley, certain tax-qualified retirement plans
and other investment companies advised by MSDW Investment Management and its
affiliates. The China Growth, Gold, MicroCap and Mortgage-Backed Securities
Portfolios currently are not operational.
Class A shares and Class B shares of each Portfolio, except the Municipal Money
Market and International Small Cap Portfolios, may be purchased at the net asset
value per share next determined after receipt by the Fund of a purchase order as
described under "Methods of Purchase." The International Small Cap Portfolio may
impose a 1% transaction fee. CLASS B SHARES OF MONEY MARKET PORTFOLIO ARE
AVAILABLE FOR PURCHASE ONLY THROUGH FINANCIAL INTERMEDIARIES (AS DISCUSSED
BELOW) THAT HAVE MADE ARRANGEMENTS WITH THE FUND. The net asset value per share
of each Portfolio is calculated on days that the NYSE is open for business. Net
asset value per share is determined (i) for each non-money market Portfolio, as
of the close of trading of the NYSE (normally 4:00 p.m. Eastern Time); (ii) for
the Money Market Portfolio, as of 12:00 noon Eastern Time; and (ii) for the
Municipal Money Market Portfolio, as of 11:00 a.m. Eastern Time (for each
Portfolio, the "Pricing Time").
MINIMUM INVESTMENT
The minimum initial investment is $500,000 for Class A shares and $100,000 for
Class B shares of each non-money market Portfolio, except that the minimum
initial investment is $250,000 for Class A shares and $50,000 for Class B shares
of the Technology Portfolio. The minimum initial investment is $100,000 for
Class A shares of each money market Portfolio. There is no minimum initial
investment for Class B shares of the Money Market Portfolio. These minimums may
be waived at MSDW Investment Management's discretion for certain types of
investors, including trust departments, brokers, dealers, agents, financial
planners, financial services firms, investment advisers or various retirement
and deferred compensation plans ("Financial Intermediaries"); certain accounts
managed by MSDW Investment Management and its affiliates ("Managed Accounts");
and certain employees and customers of Morgan Stanley and its affiliates. The
Fund's determination of an investor's eligibility to purchase shares of a given
class will take precedence over the investor's selection of a class.
METHODS OF PURCHASE
You may purchase shares directly from the Fund by Federal Funds wire, by bank
wire or by check, however, on days that the NYSE is open but the custodian bank
is closed, you may only purchase shares by check. Investors may also invest in
the Portfolios by purchasing shares through Financial Intermediaries that have
made arrangements with Morgan Stanley. Class B shares of the Money Market
Portfolio may only be purchased through Financial Intermediaries. Some Financial
Intermediaries may charge an additional service or transaction fee. If a
purchase is canceled due to nonpayment or because your check does not clear, you
will be responsible for any loss the Fund or its agents incur. If you are
already a shareholder, the Fund may redeem shares from your account(s) to
reimburse the Fund or its agents for any loss. In addition, you may be
prohibited or restricted from making future investments in the Fund.
FEDERAL FUNDS WIRE. Purchases may be made by having your bank wire Federal
Funds to the Fund's bank account. Federal Funds purchase orders will be accepted
only on a day on which the Fund and The Chase Manhattan Bank ("Chase Bank") are
open for business. Your bank may charge a service fee for wiring Federal Funds.
In order to ensure proper handling of your purchase by Federal Funds wire,
please follow these steps.
1. Place your order by telephoning the Fund at 1-800-548-7786. A Fund
representative will request certain purchase information and provide you
with a confirmation number.
2. Instruct your bank to wire the specified amount to the Fund's Wire
Concentration Bank Account as follows:
The Chase Manhattan Bank
One Manhattan Plaza
New York, NY 10081-1000
ABA# 021000021
DDA# 910-2-733293
Attn: Morgan Stanley Dean Witter Institutional Fund, Inc.
Ref: (Portfolio name, your account number, your account name)
Please call the Fund at 1-800-548-7786 prior to wiring funds.
3. Complete and sign an Account Registration Form and mail it to the
address shown thereon.
25
<PAGE>
When a purchase order is received prior to the Pricing Time and Federal Funds
are received prior to the regular close of the Federal Funds Wire Control Center
("FFWCC") (normally 6:00 p.m. Eastern Time) the purchase will be executed at the
net asset value computed on the date of receipt. Purchases for which an order is
received after the Pricing Time or for which Federal Funds are received after
the regular close of the FFWCC will be executed at the net asset value next
determined. Certain institutional investors and financial institutions have
entered into an agreement with Morgan Stanley pursuant to which they may place
orders prior to the Pricing Time, but make payment in Federal Funds for those
shares the following business day.
BANK WIRE. A purchase of shares by bank wire must follow the same procedure as
for a Federal Funds wire, described above. However, depending on the time the
bank wire is sent and the bank handling the wire, money transferred by bank wire
may or may not be converted into Federal Funds prior to the close of the FFWCC.
Prior to conversion to Federal Funds and receipt by the Fund, an investor's
money will not be invested.
CHECK. An account may be opened by completing and signing an Account
Registration Form and mailing it, together with a check payable to "Morgan
Stanley Dean Witter Institutional Fund, Inc. -- [Portfolio name]" to:
Morgan Stanley Dean Witter Institutional Fund, Inc.
P.O. Box 2798
Boston, Massachusetts 02208-2798
The Fund ordinarily is credited with Federal Funds within one business day of
deposit of a check. Thus, a purchase of shares by check ordinarily will be
credited to your account at the net asset value per share of each of the
Portfolios determined on the next business day after receipt. An investor's
money will not be invested prior to crediting of Federal Funds.
INVESTMENT THROUGH FINANCIAL INTERMEDIARIES. Certain Financial Intermediaries
have made arrangements with the Fund to receive purchase and redemption orders
from underlying beneficial owners, such as retirement plan participants,
generally on each business day. Each business evening, the Financial
Intermediary aggregates all orders received from underlying beneficial owners
prior to the Pricing Time on that business day, and places a net purchase and/or
redemption order(s) by the morning of the next business day. These orders
normally are executed at the net asset value that was computed for each
Portfolio as of the close of the previous business day.
ADDITIONAL INVESTMENTS. You may purchase additional shares for your account at
any time by purchasing shares at net asset value by any of the methods described
above. The minimum additional investment generally is $1,000 per Portfolio,
except that there is no minimum for Class B shares of the Money Market
Portfolio. The minimum additional investment may be lower for certain accounts
described above under "Minimum Investment." For purchases directly from the
Fund, your account name, the Portfolio name and the class selected must be
specified in the letter or wire to assure proper crediting to your account.
INVOLUNTARY CONVERSION AND REDEMPTION OF NEW ACCOUNT SHARES
Class A and Class B shares of each non-money market Portfolio may be subject to
the involuntary conversion and redemption features described below. Shares of
the money market Portfolios are not subject to involuntary conversion or
redemption. The conversion and redemption features may be waived at MSDW
Investment Management's discretion for shares held in a Managed Account and
shares purchased through a Financial Intermediary. Accounts that were open prior
to January 2, 1996 are not subject to involuntary conversion or redemption. The
Fund reserves the right to modify or terminate the conversion or redemption
features of the shares at any time upon 60 days notice to shareholders.
CONVERSION FROM CLASS A TO CLASS B SHARES. If the value of an account
containing Class A shares of a non-money market Portfolio falls below $500,000
(but remains at or above $100,000) because of shareholder redemption(s), the
Fund will notify the shareholder, and if the account value remains below
$500,000 (but remains at or above $100,000) for a continuous 60-day period, the
Class A shares in such account will convert to Class B shares and will be
subject to the distribution fee and other features applicable to Class B shares.
The Fund will not convert Class A shares to Class B shares based solely upon
changes in the market that reduce the net asset value of shares. Under current
tax law, conversion between share classes is not a taxable event to the
shareholder.
CONVERSION FROM CLASS B TO CLASS A SHARES. If the value of an account
containing Class B shares of a non-money market Portfolio increases to $500,000
or more, whether due to shareholder purchases or market activity, the Class B
shares will convert to Class A shares. Class B shares purchased through a
Financial Intermediary that has entered into an arrangement with the Fund for
the purchase of such shares may not be converted. Under current tax law, such
conversion is not a taxable event to the shareholder. Class A shares converted
from Class B shares are subject to the same minimum account size requirements as
are applicable to accounts containing Class A shares described above.
INVOLUNTARY REDEMPTION OF SHARES. If the value of an account falls below
$100,000 because of shareholder redemption(s), the Fund will notify the
shareholder, and if the account value remains below $100,000 for a continuous
60-day period, the shares in such account will be subject to redemption by the
Fund. The Fund will not redeem shares based solely upon changes in the market
that reduce the net asset value of shares. If redeemed, redemption proceeds will
be promptly paid to the shareholder.
26
<PAGE>
REDEMPTION OF SHARES
The Fund normally makes payment for all shares redeemed within one business day
of receipt of the request, and in no event more than seven days after receipt of
a redemption request in good order. However, payments to investors redeeming
shares which were purchased by check will not be made until payment for the
purchase has been collected, which may take up to eight days after the date of
purchase. The Fund may suspend the right of redemption or postpone the date of
payment (i) during any period that the NYSE is closed, or trading on the NYSE is
restricted as determined by the SEC; (ii) during any period when an emergency
exists as defined by the rules of the SEC as a result of which it is not
practicable for a Portfolio to dispose of securities it owns, or fairly to
determine the value of its assets; and (iii) for such other periods as the SEC
may permit.
Class A shares of each Portfolio and Class B shares of each Portfolio, except
the International Small Cap and Municipal Money Market Portfolios, may be
redeemed at any time and without charge at the net asset value per share next
determined after receipt by the Fund of a redemption order as described under
"Methods of Redemption," except that the International Small Cap Portfolio may
impose a 1% transaction fee. Redemption proceeds may be more or less than the
purchase price of your shares depending on, among other factors, the market
value of the investment securities held by a Portfolio.
METHODS OF REDEMPTION
You may redeem shares directly from the Fund by mail or by telephone. HOWEVER,
SHARES PURCHASED THROUGH A FINANCIAL INTERMEDIARY MUST BE REDEEMED THROUGH A
FINANCIAL INTERMEDIARY. Certain Financial Intermediaries may charge an
additional service or transaction fee.
BY MAIL. Each Portfolio will redeem shares upon receipt of a redemption request
in "good order." Redemption requests may be sent by regular mail to Morgan
Stanley Dean Witter Institutional Fund, Inc., P.O. Box 2798, Boston,
Massachusetts 02208-2798 or, by overnight courier, to Morgan Stanley Dean Witter
Institutional Fund, Inc., c/o Chase Global Funds Services Company, 73 Tremont
Street, Boston, Massachusetts 02108-3913.
"Good order" means that the request to redeem shares must include the following:
1. A letter of instruction or a stock assignment specifying the class and
number of shares or dollar amount to be redeemed, signed by all
registered owners of the shares in the exact names in which they are
registered;
2. Any required signature guarantees; and
3. Other supporting legal documents, if required, in the case of estates,
trusts, guardianships, custodianships, corporations, pension and
profit-sharing plans and other organizations.
Redemption requests received in "good order" prior to the Pricing Time will be
executed at the net asset value computed on the date of receipt. Redemption
requests received after the Pricing Time will be executed at the next determined
net asset value. Shareholders who are uncertain of requirements for redemption
by mail should consult with a Fund representative.
BY TELEPHONE. If you have previously elected the Telephone Redemption Option on
the Account Registration Form, you can redeem Portfolio shares by calling the
Fund and requesting that the redemption proceeds be mailed to you or wired to
your bank. Please contact one of the Fund's representatives for further details.
To change the commercial bank or account designated to receive redemption
proceeds, send a written request to the Fund at the address above. Requests to
change the bank or account must be signed by each shareholder and each signature
must be guaranteed. The telephone redemption option may be difficult to
implement at times, particularly during volatile market conditions. If you
experience difficulty in making a telephone redemption, you may redeem shares by
mail as described above.
The Fund and the Transfer Agent will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. These procedures
include requiring the investor to provide certain personal identification
information at the time an account is opened and prior to effecting each
telephone transaction. In addition, all telephone transaction requests will be
recorded and investors may be required to provide additional telecopied written
instructions regarding transactions requests. Neither the Fund nor the Transfer
Agent will be responsible for any loss, liability, cost or expense for following
instructions received by telephone that either of them reasonably believes to be
genuine.
REDEMPTION THROUGH FINANCIAL INTERMEDIARIES. Certain Financial Intermediaries
have made arrangements with the Fund to accept redemption request from
underlying beneficial owners. These redemptions may be processed in the same way
as purchases made through Financial Intermediaries, as described above.
FURTHER REDEMPTION INFORMATION
If the Board of Directors determines that it would be detrimental to the best
interests of the remaining shareholders of a Portfolio to make payment in cash,
the Fund may pay redemption proceeds in whole or in part by a
distribution-in-kind of readily marketable portfolio securities in accordance
with applicable SEC rules. Shareholders may incur brokerage charges on the sale
of securities received from a distribution-in-kind.
27
<PAGE>
No charge is made by any Portfolio for redemptions, except for the 1%
transaction fee that may be assessed upon redemption by the International Small
Cap Portfolio. Any redemption may be more or less than the shareholder's cost
depending on the market value of the securities held by the Portfolio.
To protect your account and the Fund from fraud, signature guarantees are
required for certain redemptions. Signature guarantees enable the Fund to verify
the identity of the person who has authorized a redemption from your account.
Signature guarantees are required in connection with: (i) all redemptions,
regardless of the amount involved, when the proceeds are to be paid to someone
other than the registered owner(s) and/or registered address; and (ii) share
transfer requests. An "eligible guarantor institution" may include a bank, a
trust company, a credit union or savings and loan association, a member firm of
a domestic stock exchange, or a foreign branch of any of the foregoing. Notaries
public are not acceptable guarantors. The signature guarantees must appear
either: (i) on the written request for redemption; (ii) on a separate instrument
for assignment ("stock power") which should specify the total number of shares
to be redeemed; or (iii) on all stock certificates tendered for redemption and,
if shares held by the Fund are also being redeemed, on the letter or stock
power.
The Fund has made an election with the SEC pursuant to Rule 18f-1 under the 1940
Act to pay in cash all redemptions requested by any shareholder of record
limited in amount during any 90-day period to the lesser of $250,000 or 1% of
the net assets of a Portfolio at the beginning of such period. Such commitment
is irrevocable without the prior approval of the SEC. Redemptions in excess of
the above limits may be paid in whole or in part in portfolio securities or in
cash, as the Board of Directors may deem advisable as being in the best
interests of the Fund. If redemptions are paid in portfolio securities, such
securities will be valued as set forth under "Valuation of Shares." A redeeming
shareholder normally will incur brokerage expenses in converting these
securities to cash.
ACCOUNT POLICIES AND FEATURES
EXCHANGE FEATURES
You may exchange shares of each Portfolio that you own for shares of any other
available Portfolio(s) of the Fund, subject to certain limitations. Any such
exchange will be based on the respective net asset values of the shares
involved. There is no sales commission or sales charge of any kind. You cannot
exchange for shares of the International Equity Portfolio because it is
currently closed to new investors. In addition, certain Portfolios are not
operational or may be unavailable to shareholders who purchased Portfolio shares
through a Financial Intermediary. Contact your Financial Intermediary to
determine which Portfolios are available for exchange.
Before you make an exchange, you should read the prospectus of the Portfolio(s)
in which you seek to invest. The class of shares you receive in exchange will be
determined in the same manner as any other purchase of shares, including minimum
initial investment and account size requirements, and will not be based on the
class of shares you surrender for the exchange. Exchange transactions are
treated as a redemption followed by a purchase. Therefore, an exchange will be
considered a taxable event for shareholders subject to tax. Exchange
transactions will be processed at the net asset value per share next determined
after receipt of the request.
Exchange requests may be made either by mail or telephone. Exchange requests by
mail should be sent to Morgan Stanley Dean Witter Institutional Fund, Inc., P.O.
Box 2798, Boston, Massachusetts 02208-2798. Telephone exchanges will be accepted
only if the certificates for the shares to be exchanged are held by the Fund for
the account of the shareholder and the registration of the two accounts will be
identical. The telephone exchange privilege is automatic and made available
without shareholder election. Exchanges may be subject to limitations as to
amounts or frequency, and to other restrictions established by the Board of
Directors to assure that such exchanges do not disadvantage the Fund and its
shareholders. The exchange privilege may be modified or terminated by the Fund
at any time upon 60-days notice to shareholders.
TRANSFER OF SHARES
Shareholders may transfer Portfolio shares to another person by making a written
request to the Fund. The request should clearly identify the account and number
of shares to be transferred, and include the signature of all registered owners
and all stock certificates, if any, which are subject to the transfer. It may
not be possible to transfer shares purchased through a Financial Intermediary.
The signature on the letter of request, the stock certificate or any stock power
must be guaranteed in the same manner as described under "Redemption of Shares."
As in the case of redemptions, the written request must be received in good
order before any transfer can be made. Transferring shares may affect the
eligibility of an account for a given class of the Portfolio's shares and may
result in involuntary conversion or redemption of such shares.
VALUATION OF SHARES
The net asset value per share of a class of shares of each of the non-money
market Portfolios is determined by dividing the total market value of the
Portfolio's investments and other assets attributable to such class, less all
liabilities attributable to such class, by the total number of outstanding
shares of such class of the Portfolio. Net asset value is calculated separately
for each class of a Portfolio. Net asset value per share of the non-money market
Portfolios is determined as of the close of the NYSE (normally 4:00 p.m. Eastern
Time) on each day that the NYSE is open for business. The NYSE will be closed on
the following days: New
28
<PAGE>
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Price
information on listed securities is taken from the exchange where the security
is primarily traded. Portfolio securities generally are valued at their market
value. Securities listed on a U.S. securities exchange for which market
quotations are available generally are valued at the last quoted sale price on
the day the valuation is made. Securities listed on a foreign exchange generally
are valued at their closing price. Unlisted securities and listed securities not
traded on the valuation date and for which market quotations are not readily
available generally are valued at a price within a range not exceeding the
current asked price nor less than the current bid price. The current bid and
asked prices are determined based on the average of the bid and asked prices
quoted on such valuation date by reputable brokers.
Bonds and other fixed income securities are valued according to the broadest and
most representative market, which will ordinarily be the over-the-counter
market. Net asset value includes interest on fixed income securities, which is
accrued daily unless collection is in doubt. In addition, bonds and other fixed
income securities may be valued on the basis of prices provided by a pricing
service when such prices are believed to reflect the fair market value of such
securities. The prices provided by a pricing service are determined without
regard to bid or last sale prices, but take into account institutional-size
trading in similar groups of securities and any developments related to the
specific securities. Securities not priced in this manner are valued at the most
recently quoted bid price or, when securities exchange valuations are used, at
the latest quoted sale price on the day of valuation. If there is no such
reported sale, the latest quoted bid price will be used. Securities purchased
with remaining maturities of 60 days or less are valued at amortized cost, if it
approximates market value. In the event that amortized cost does not approximate
market value, market prices as determined above will be used.
The value of other assets and securities for which quotations are not readily
available (including certain restricted and unlisted securities) and those
securities for which it is inappropriate to determine prices in accordance with
the above-stated procedures are determined in good faith at fair value using
methods determined by the Board of Directors. For purposes of calculating net
asset value per share, all assets and liabilities initially expressed in foreign
currencies generally will be converted into U.S. dollars at the mean of the bid
and asked price of such currencies against the U.S. dollar as quoted by a major
bank.
Although the legal rights of Class A and Class B shares will be identical, the
different expenses borne by each class will result in different net asset values
and dividends for the class. Dividends will differ by approximately the amount
of the distribution expense accrual differential among the classes. The net
asset value of Class B shares will generally be lower than the net asset value
of Class A shares as a result of the distribution expense charged to Class B
shares.
The net asset value per share of each of the Money Market and Municipal Money
Market Portfolios is determined by subtracting the Portfolio's liabilities
(including accrued expenses and dividends payable) from the total value of the
Portfolio's investments and other assets and dividing the result by the total
number of outstanding shares of the Portfolio. The net asset value per share of
the Municipal Money Market Portfolio and the Money Market Portfolio are
determined as of 11:00 a.m. and 12:00 noon (Eastern Time), respectively, on the
days on which the NYSE is open. For purposes of calculating each money market
Portfolio's net asset value per share, securities are valued by the "amortized
cost" method of valuation, which does not take into account unrealized gains or
losses. This involves valuing an instrument at its cost and thereafter assuming
a constant amortization to maturity of any discount or premium, regardless of
the impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which the value, as determined by the amortized cost, is higher or lower
than the price the Portfolio would receive if it sold the instrument.
29
<PAGE>
MANAGEMENT OF THE FUND
OFFICERS AND DIRECTORS
The Fund's officers, under the supervision of the Board of Directors, manage the
day-to-day operations of the Fund. The Directors set broad policies for the Fund
and choose its officers. Two Directors and all of the officers of the Fund are
directors, officers or employees of MSDW Investment Management, Morgan Stanley
or Chase Global Funds Services Company ("Chase Global"). Directors and officers
of the Fund are also directors and officers of some or all of the other
investment companies managed, administered, advised or distributed by MSDW
Investment Management or its affiliates. The other Directors have no affiliation
with MSDW Investment Management, Morgan Stanley or Chase Global. A list of the
Directors and officers of the Fund and a brief statement of their present
positions and principal occupations during the past five years is set forth
below:
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- --------------------------------------- ---------------------- --------------------------------------------------
<S> <C> <C>
Barton M. Biggs (66)* Chairman and Director Chairman, Director and Managing Director of Morgan
Morgan Stanley Dean Witter Investment Stanley Dean Witter Investment Management Inc.
Management Inc. and Morgan Stanley Dean Witter Investment
1221 Avenue of the Americas Management Limited; Managing Director of Morgan
New York, NY 10020 Stanley & Co. Incorporated; Director of Rand
McNally Company; Member of the Yale Development
Board; Chairman and Director of various U.S.
registered investment companies managed by
Morgan Stanley Dean Witter Investment Management
Inc.
Michael F. Klein (40)* Director and President Principal of Morgan Stanley & Co. Incorporated and
Morgan Stanley Dean Witter Investment Morgan Stanley Dean Witter Investment Management
Management Inc. Inc; President and Director of various U.S.
1221 Avenue of the Americas registered investment companies managed by
New York, NY 10020 Morgan Stanley Dean Witter Investment Management
Inc.; Previously practiced law with the New York
firm of Rogers & Wells.
John D. Barrett, II (63) Director Chairman and Director of Barrett Associates, Inc.
Barrett Associates Inc. (investment counseling); Director of the
521 Fifth Avenue Ashforth Company (real estate); Director of
New York, NY 10135 Morgan Stanley Dean Witter Universal Funds, Inc.
and Morgan Stanley Dean Witter Strategic Adviser
Fund, Inc.
Gerard E. Jones (62) Director Partner in Richards & O'Neil LLP (law firm);
Richards & O'Neil LLP Director of Morgan Stanley Dean Witter Universal
43 Arch Street Funds, Inc. and Morgan Stanley Dean Witter
Greenwich, CT 06830 Strategic Adviser Fund, Inc.
Andrew McNally IV (59) Director Director of Mercury Finance (consumer finance);
8255 North Central Park Avenue Zenith Electronics, Hubbell, Inc. (industrial
Skokie, IL 60076 electronics); Director of Morgan Stanley Dean
Witter Universal Funds, Inc. and Morgan Stanley
Dean Witter Strategic Adviser Fund, Inc.;
Formerly, Chairman and Chief Executive Officer
of Rand McNally & Company (publishing).
Samuel T. Reeves (64) Director President, Pinnacle L.L.C. (investments); Director
8211 North Fresno Street of Morgan Stanley Dean Witter Universal Funds,
Fresno, CA 93720 Inc. and Morgan Stanley Dean Witter Strategic
Adviser Fund, Inc. and Morgan Stanley India
Investment Fund, Inc.
Fergus Reid (66) Director Chairman and Chief Executive Officer of LumeLite
85 Charles Colman Blvd Plastics Corporation (injection molding);
Pawling, NY 12564 Trustee and Director of Vista Mutual Fund Group;
Director of Morgan Stanley Dean Witter Universal
Funds, Inc. and Morgan Stanley Dean Witter
Strategic Adviser Fund, Inc.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- --------------------------------------- ---------------------- --------------------------------------------------
<S> <C> <C>
Frederick O. Robertshaw (65) Director Of Counsel, Copple, Chamberlin and Boehm, P.C.
2025 North Third Street Formerly of Counsel, Bryan, Cave LLP; (law
Suite 300 firms). Director of Morgan Stanley Dean Witter
Phoenix, AZ 85004 Universal Funds, Inc. and Morgan Stanley Dean
Witter Strategic Adviser Fund, Inc.
Harold J. Schaaff, Jr. (38)* Vice President Principal of Morgan Stanley & Co. Incorporated and
Morgan Stanley Dean Witter Investment of Morgan Stanley Dean Witter Investment
Management Inc. Management Inc.; General Counsel and Secretary
1221 Avenue of the Americas of Morgan Stanley Dean Witter Investment
New York, NY 10020 Management Inc.; Vice President of various U.S.
registered investment companies managed by
Morgan Stanley Dean Witter Investment Management
Inc.
Joseph P. Stadler (44)* Vice President Principal of Morgan Stanley & Co. Incorporated and
Morgan Stanley Dean Witter Investment Morgan Stanley Dean Witter Investment Management
Management Inc. Inc.; Previously with Price Waterhouse LLP (now
1221 Avenue of the Americas PricewaterhouseCoopers LLP) (accounting); Vice
New York, NY 10020 President of various U.S. registered investment
companies managed by Morgan Stanley Dean Witter
Investment Management Inc.
Stefanie V. Chang (32)* Vice President and Vice President of Morgan Stanley & Co.
Morgan Stanley Dean Witter Investment Acting Secretary Incorporated and Morgan Stanley Dean Witter
Management Inc. Investment Management Inc.; Vice President of
1221 Avenue of the Americas various U.S. registered investment companies
New York, NY 10020 managed by Morgan Stanley Dean Witter Investment
Management Inc. Previously practiced law with
the New York law firm of Rogers & Wells.
Karl O. Hartmann (44) Assistant Secretary Senior Vice President, Secretary and General
Chase Global Funds Counsel of Chase Global Funds Services Company;
Services Company Previously, President, Secretary and General
73 Tremont Street Counsel, Leland, O'Brien, Rubinstein Associates,
Boston, MA 02108-3913 Inc. (investments).
Joanna Haigney (32) Treasurer Assistant Vice President, Senior Manager of Fund
Chase Global Funds Administration and Compliance Services of Chase
Services Company Global Funds Services Company; Treasurer of
73 Tremont Street various U.S. registered investment companies
Boston, MA 02108-3913 managed by Morgan Stanley Dean Witter Investment
Management Inc. Previously with Coopers &
Lybrand LLP (now PricewaterhouseCoopers LLP).
Belinda A. Brady (31) Assistant Treasurer Fund Administration Manager, Chase Global Funds
Chase Global Funds Services Company; Assistant Treasurer of various
Services Company U.S. registered investment companies managed by
73 Tremont Street Morgan Stanley Dean Witter Investment Management
Boston, MA 02108-3913 Inc. Previously was senior auditor at Price
Waterhouse LLP (now PricewaterhouseCoopers LLP).
</TABLE>
- --------------
* "Interested Person" within the meaning of the 1940 Act.
COMPENSATION OF DIRECTORS AND OFFICERS
Effective June 28, 1995, the Fund and other funds managed by MSDW Investment
Management (the "Fund Complex") will pay each of the Directors who is not an
"interested person" an annual aggregate fee of $65,000, plus out-of-pocket
expenses. The Fund Complex will pay each of the members of the Fund's Audit
Committee, which consists of the Fund's Directors who are not "interested
persons," an additional annual aggregate fee of $10,000 for serving on such
committee. Directors' fees will be allocated among the funds in the Fund Complex
in proportion to their respective average net assets. For the fiscal year ended
December 31, 1998, the Fund paid approximately $442,000 in Directors' fees and
expenses. Directors who are also officers or affiliated persons receive no
remuneration from the Fund for their services as Directors. The Fund's officers
and employees are
31
<PAGE>
paid by MSDW Investment Management or its agents. As of December 31, 1998, to
Fund management's knowledge, the Directors and officers of the Fund, as a group,
owned more than 1% of the outstanding common stock of the following portfolio of
the Fund: 2.2% Latin American Portfolio -- Class A Shares.
The Fund maintains an unfunded Deferred Compensation Plan which allows each
independent Director to defer payment of all, or a portion, of the fees he or
she receives for attending meetings of the Board of Directors throughout the
year. Each eligible Director generally may elect to have the deferred amounts
credited with a return equal to either of the following: (i) a rate equal to the
prevailing rate for 90-day U.S. Treasury Bills, or (ii) a rate equal to the
total return on one or more portfolios of the Fund or other funds in the Fund
Complex selected by the Director. Distributions generally are in the form of
equal annual installments over a period of five years beginning on the first day
of the year following the year in which the Director's service terminates,
except that the Board of Directors, in its sole discretion, may accelerate or
extend such distribution schedule. The Fund intends that the Deferred
Compensation Plan shall be maintained at all times on an unfunded basis for
federal income tax purposes under the Internal Revenue Code of 1986, as amended
(the "Code"). The rights of an eligible Director and the beneficiaries to the
amounts held under the Deferred Compensation Plan are unsecured and such amounts
are subject to the claims of the creditors of the Fund.
The following table shows aggregate compensation paid to each of the Fund's
Directors by the Fund and the Fund Complex, respectively, in the fiscal year
ended December 31, 1998.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE FROM FUND
COMPENSATION AND FUND COMPLEX
NAME OF PERSON, POSITION FROM FUND PAYABLE TO DIRECTORS
- -------------------------------------------------- ------------- ---------------------
<S> <C> <C>
Barton M. Biggs,
Director and Chairman of the Board............... None None
Michael F. Klein,
Director and President........................... None None
John D. Barrett, II $65,000 for service
Director......................................... $ 63,660 on three Boards
Gerard E. Jones, $72,100 for service
Director......................................... $ 63,660 on four Boards
Andrew McNally, IV+ $75,000 for service
Director......................................... $ 73,455 on three Boards
Samuel T. Reeves,+ $82,100 for service
Director......................................... $ 73,455 on four Boards
Fergus Reid,+ $72,100 for service
Director......................................... $ 63,660 on four Boards
Frederick O. Robertshaw,+ $75,000 for service
Director......................................... $ 73,455 on three Boards
</TABLE>
- ------------------
+ Messrs. McNally, Reeves, Reid and Robertshaw have elected, pursuant to the
deferred compensation plan, to defer all, or a portion, of their compensation
received from the Fund for the fiscal year ended December 31, 1998.
32
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
MSDW Investment Management is a wholly-owned subsidiary of Morgan Stanley Dean
Witter & Co. ("MSDW"). The principal offices of MSDW are located at 1585
Broadway, New York, NY 10036, and the principal offices of MSDW Investment
Management are located at 1221 Avenue of the Americas, New York, NY 10020. MSDW
Investment Management provides investment advice and portfolio management
services pursuant to an Investment Advisory Agreement and, subject to the
supervision of the Fund's Board of Directors, makes each of the Portfolio's
day-to-day investment decisions, arranges for the execution of portfolio
transactions and generally manages each of the Portfolio's investments. Pursuant
to the Investment Advisory Agreement, MSDW Investment Management is entitled to
receive from the Class A and Class B shares of each Portfolio an annual
management fee, payable quarterly, equal to the percentage of average daily net
assets set forth in the table below. MSDW Investment Management has voluntarily
agreed to a reduction in the fees payable to it and to reimburse the Portfolios,
if necessary, if such fees would cause the total annual operating expenses of
each Portfolio to exceed the percentage of average daily net assets set forth in
the table below. MSDW Investment Management reserves the right to terminate any
of its fee waivers and/or expense reimbursements at any time in its sole
discretion.
The following table shows, for each of the Class A and Class B shares of each
Portfolio, (i) the contractual advisory fee as a percentage of average daily net
assets; (ii) the advisory fee paid for each of the past three fiscal years; and
(iii) the maximum total operating expenses after voluntary fee waivers.
<TABLE>
<CAPTION>
TOTAL
OPERATING
EXPENSES
AFTER
VOLUNTARY
FEE WAIVERS
(AS A
CONTRACTUAL ADVISORY FEE PAID PERCENTAGE
ADVISORY FEE (AFTER VOLUNTARY FEE WAIVERS) OF AVERAGE
(AS A ------------------------------------------------------- DAILY NET
PERCENTAGE OF YEAR ENDED YEAR ENDED ASSETS)
AVERAGE DAILY DECEMBER 31, 1998 DECEMBER 31, 1997 YEAR ENDED -----------
PORTFOLIO NET ASSETS) (000) (000) DECEMBER 31, 1996 CLASS A
- -------------------------------------------- --------------- ----------------- ----------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
Emerging Markets Portfolio.................. 1.25% $ 16,181* $ 21,203* $ 15,368* 1.81%
Emerging Markets Debt Portfolio............. 1.00 1,410* 1,623* 1,887* 2.38
Latin American Portfolio.................... 1.10 636* 718 166 1.81
Active International Allocation Portfolio... 0.65 1,017 588 668 0.80
Asian Equity Portfolio...................... 0.80 88 1,674 2,530 1.19
Asian Real Estate Portfolio................. 0.80 0 0 -- 1.05
China Growth Portfolio...................... 1.25 -- -- -- --
European Equity Portfolio................... 0.80 2,015 1,696 832 1.00
European Real Estate Portfolio.............. 0.80 178 0 -- 1.03
Global Equity Portfolio..................... 0.80 1,409 673 512 1.00
Gold Portfolio.............................. 1.00 -- 150 145 --
International Equity Portfolio.............. 0.80 25,948 21,159 15,387 1.00
International Magnum Portfolio.............. 0.80 1,728 984 125 1.00
International Small Cap Portfolio........... 0.95 2,462 2,268 1,914 1.15
Japanese Equity Portfolio................... 0.80 440 1,139 1,513 1.11
Aggressive Equity Portfolio................. 0.80 1,535 1,067 280 1.01
Emerging Growth Portfolio................... 1.00 616 558 978 1.25
Equity Growth Portfolio..................... 0.60 4,635 2,961 1,043 0.80
MicroCap Portfolio.......................... 1.00 -- -- -- --
Technology Portfolio........................ 1.00 135 0 0 1.29
U.S. Equity Plus Portfolio.................. 0.45 85 0 -- 0.80
U.S. Real Estate Portfolio.................. 0.80 2,423 2,313 834 1.00
Value Equity Portfolio...................... 0.50 342 415 562 0.70
Fixed Income Portfolio...................... 0.35 473 294 323 0.45
Global Fixed Income Portfolio............... 0.40 77 182 210 0.50
High Yield Portfolio........................ 0.375 711* 489* 382 0.67
Mortgage-Backed Securities Portfolio........ 0.35 -- -- -- --
Municipal Bond Portfolio.................... 0.35 51 67 30 0.45
Money Market Portfolio...................... 0.30 5,176* 4,066* 3,343* 0.49
Municipal Money Market Portfolio............ 0.30 2,881* 2,213* 1,932* 0.50
<CAPTION>
PORTFOLIO CLASS B
- -------------------------------------------- -----------
<S> <C>
Emerging Markets Portfolio.................. 2.06%
Emerging Markets Debt Portfolio............. 2.62
Latin American Portfolio.................... 2.01
Active International Allocation Portfolio... 1.05
Asian Equity Portfolio...................... 1.47
Asian Real Estate Portfolio................. 1.38
China Growth Portfolio...................... --
European Equity Portfolio................... 1.25
European Real Estate Portfolio.............. 1.28
Global Equity Portfolio..................... 1.25
Gold Portfolio.............................. --
International Equity Portfolio.............. 1.25
International Magnum Portfolio.............. 1.25
International Small Cap Portfolio........... --
Japanese Equity Portfolio................... 1.36
Aggressive Equity Portfolio................. 1.26
Emerging Growth Portfolio................... 1.50
Equity Growth Portfolio..................... 1.05
MicroCap Portfolio.......................... --
Technology Portfolio........................ 1.55
U.S. Equity Plus Portfolio.................. 1.05
U.S. Real Estate Portfolio.................. 1.25
Value Equity Portfolio...................... 0.95
Fixed Income Portfolio...................... 0.60
Global Fixed Income Portfolio............... 0.65
High Yield Portfolio........................ 0.95
Mortgage-Backed Securities Portfolio........ --
Municipal Bond Portfolio.................... --
Money Market Portfolio...................... --
Municipal Money Market Portfolio............ --
</TABLE>
- ----------------
* No fee waivers were necessary for this portfolio because total operating
expenses did not exceed the expense limitation.
INVESTMENT SUB-ADVISERS
Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"), with principal
offices at Two World Trade Center, New York, New York 10048, serves as the
investment sub-adviser to the Money Market and Municipal Money Market Portfolios
pursuant to an investment sub-advisory agreement with MSDW Investment
Management. As compensation for managing the day-to-day investments of the Money
Market and Municipal Money Market Portfolios, MSDW Investment Management pays
MSDW Advisors 40% of the investment advisory fee that MSDW Investment Management
receives from each of those Portfolios.
33
<PAGE>
Sun Valley Gold Company ("Sun Valley"), with principal offices at 620 Sun Valley
Road, Sun Valley, Idaho, serves as the investment sub-adviser of the Gold
Portfolio, pursuant to a sub-advisory agreement among the Fund, MSDW Investment
Management and Sun Valley (the "Sub-Advisory Agreement"). MSDW Investment
Management and Sun Valley have entered into an indemnification agreement under
which, generally, Sun Valley has agreed to indemnify MSDW Investment Management
and the Fund for claims or losses in connection with any failure by Sun Valley
to comply with its obligations under the Sub-Advisory Agreement or related
agreements or any act or omission that amounts to negligence, misfeasance or bad
faith, and MSDW Investment Management has agreed to indemnify Sun Valley for
claims or losses in connection with any failure by MSDW Investment Management to
comply with its obligations under the Sub-Advisory Agreement or related
agreements. As compensation for sub-advisory services for the fiscal years ended
December 31, 1998, December 31, 1997 and December 31, 1996, Sun Valley earned
fees of approximately $ , $106,000 and $110,000, respectively, and from such
fees voluntarily waived fees of $ , $46,000 and $52,000, respectively.
PRINCIPAL UNDERWRITER
Morgan Stanley serves as principal underwriter to the Fund. For information
relating to the services provided by Morgan Stanley see "Distribution of
Shares."
FUND ADMINISTRATION
MSDW Investment Management also provides administrative services to the Fund
pursuant to an Administration Agreement. The services provided under the
Administration Agreement are subject to the supervision of the officers and the
Board of Directors of the Fund and include day-to-day administration of matters
related to the corporate existence of the Fund, maintenance of records,
preparation of reports, supervision of the Fund's arrangements with its
custodian, and assistance in the preparation of the Fund's registration
statement under federal laws. The Administration Agreement also provides that
MSDW Investment Management, through its agents, will provide dividend disbursing
and transfer agent services to the Fund. For its services under the
Administration Agreement, the Fund pays MSDW Investment Management a monthly fee
which on an annual basis equals 0.15% of the average daily net assets of each
Portfolio.
SUB-ADMINISTRATOR. Under an agreement between MSDW Investment Management and
Chase Bank, Chase Global, a corporate affiliate of Chase Bank, provides certain
administrative services to the Fund. MSDW Investment Management supervises and
monitors the administrative services provided by Chase Global. Their services
are also subject to the supervision of the officers and Board of Directors of
the Fund. Chase Global provides operational and administrative services to
investment companies with approximately $176 billion in assets and having
approximately 731,617 shareholder accounts as of December 31, 1998. Chase
Global's business address is 73 Tremont Street, Boston, Massachusetts
02108-3913.
CUSTODIAN
Chase Bank, located at 73 Tremont Street, Boston, MA 02108-3913, acts as the
Fund's custodian.
DIVIDEND DISBURSING AND TRANSFER AGENT
Chase Global, 73 Tremont Street, Boston, MA 02108-3913, provides dividend
disbursing and transfer agency for the Fund pursuant to the Sub-Administration
Agreement.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, located at 1177 Avenue of the Americas, New York,
NY, serves as independent accountants for the Fund and audits the annual
financial statements of each Portfolio.
FUND COUNSEL
Morgan, Lewis & Bockius LLP, located at 1701 Market Street, Philadelphia, PA
19103, acts as the Fund's legal counsel.
YEAR 2000
The management and distribution services provided to the Fund by MSDW Investment
Management, the Sub-Advisers and Morgan Stanley 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. MSDW Investment Management, the Sub-Advisers and Morgan Stanley have
been actively working on necessary changes to their own computer systems to deal
with the year 2000 problem and expect that their systems will be adapted before
that date. There can be no assurance, however, that they will be successful. In
addition, other unaffiliated service providers may be faced with similar
problems. MSDW Investment Management, the Sub-Advisers and Morgan Stanley are
monitoring their remedial efforts, however, there can be no assurance that they
and the services they provide will not be adversely affected.
In addition, it is possible that the markets for securities in which the
Portfolios invest 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 Portfolios' investments may be
adversely affected.
34
<PAGE>
DISTRIBUTION OF SHARES
Morgan Stanley, a wholly-owned subsidiary of MSDW, serves as the Fund's
exclusive distributor of Portfolio shares pursuant to a Distribution Agreement.
In addition, to promote the sale of Fund shares, the Fund has adopted a Plan of
Distribution with respect to the Class B shares of each Portfolio (except the
Municipal Money Market and International Small Cap Portfolios which do not offer
Class B shares) under Rule 12b-1 of the 1940 Act (each, a "Plan"). Under each
Plan Morgan Stanley is entitled to receive as compensation from each Portfolio a
fee, which is accrued daily and paid quarterly, at an annual rate of 0.25% of
the average daily net assets of the Class B shares. Each Plan is designed to
compensate Morgan Stanley for its services in connection with distributing
shares of all Portfolios. Morgan Stanley may retain any portion of the fees it
does not expend in meeting its obligations to the Fund. Morgan Stanley may
compensate financial intermediaries, plan fiduciaries and administrators for
providing distribution-related services, including account maintenance services,
to shareholders (including, where applicable, underlying beneficial owners) of
Class B shares.
The Plans for the Class B shares were most recently approved by the Fund's Board
of Directors, including those directors who are not "interested persons" of the
Fund and who have no direct or indirect financial interest in the operation of a
Plan or in any agreements related thereto, on June 25, 1998.
The following table describes the 12b-1 fees paid by each Portfolio pursuant to
the Plan and the distribution-related expenses for each Portfolio for the fiscal
year ended December 31, 1998. To the extent that expenditures on
distribution-related activities exceed the fees paid by a Portfolio, the excess
amounts were paid by MSDW Investment Management or Morgan Stanley out of their
own resources.
<TABLE>
<CAPTION>
12B-1
PRINTING FEES
AND RETAINED
MAILING BY
OF MORGAN
TOTAL PROSPECTUSES STANLEY/
DISTRIBUTION TO (EXPENDITURES
(12B-1) OTHER COMPENSATION IN
FEES THAN TO EXCESS
PAID BY CURRENT SHAREHOLDER SUB- SALES OF 12B-1
PORTFOLIO SHAREHOLDERS SERVICING DISTRIBUTION PERSONNEL FEES)
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Emerging Markets Portfolio.............. $24,638 $ 61 $ 0 $ 3,282 $4,601 $16,694
Emerging Markets Debt Portfolio......... 7,687 18 0 0 2,171 5,498
Latin American Portfolio................ 14,726 88 0 0 4,246 10,392
Active International Allocation
Portfolio............................. 270 4 0 3,171 44 (2,949)
Asian Equity Portfolio.................. 3,550 62 0 0 791 2,697
Asian Real Estate Portfolio............. 657 61 0 0 228 368
European Equity Portfolio............... 17,905 220 0 0 6,507 11,178
European Real Estate Portfolio.......... 6,949 563 0 0 2,659 3,726
Global Equity Portfolio................. 25,617 298 107 14,945 5,385 4,881
Gold Portfolio.......................... 353 11,112 0 0 0 (10,759)
International Equity Portfolio.......... 23,384 3 0 17,476 395 5,510
International Magnum Portfolio.......... 74,482 1,143 348 130,116 7,842 (64,967)
Japanese Equity Portfolio............... 3,874 19 0 0 1,386 2,468
Aggressive Equity Portfolio............. 49,909 85 309 28 18,336 31,151
Emerging Growth Portfolio............... 3,317 17 0 3,143 695 (538)
Equity Growth Portfolio................. 136,313 705 455 112,568 5,844 16,741
Technology Portfolio.................... 2,696 399 0 0 483 1,815
U.S. Equity Plus Portfolio.............. 2,475 52 0 1,724 442 257
U.S. Real Estate Portfolio.............. 44,738 49 0 0 8,543 36,146
Value Equity Portfolio.................. 5,179 20 0 0 1,654 3,505
Fixed Income Portfolio.................. 6,409 201 309 0 1,981 3,918
Global Fixed Income Portfolio........... 519 5 0 0 16 498
High Yield Portfolio.................... 87,978 181 0 0 34,480 53,318
</TABLE>
35
<PAGE>
BROKERAGE PRACTICES
PORTFOLIO TRANSACTIONS
MSDW Investment Management, as each Portfolio's investment adviser, is
responsible for decisions to buy and sell securities for each Portfolio, for
broker-dealer selection and for negotiation of commission rates. Purchases and
sales of securities on a stock exchange are effected through brokers who charge
a commission for their services. In the over-the-counter market, securities are
generally traded on a "net" basis with dealers acting as principal for their own
accounts without a stated commission, although the price of the security usually
includes profit to the dealer. In underwritten offerings, securities are
purchased at a fixed price which includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
When securities are purchased or sold directly from or to an issuer, no
commissions or discounts are paid.
On occassion, a Portfolio may purchase certain money market instruments directly
from an issuer without payment of a commission or concession. Money market
instruments are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer.
The Fund anticipates that certain of its transactions involving foreign
securities will be effected on securities exchanges. Fixed commissions on such
transactions are generally higher than negotiated commissions on domestic
transactions. There is also generally less government supervision and regulation
of foreign securities exchanges and brokers than in the United States.
MSDW Investment Management serves as investment adviser to a number of clients,
including other investment companies. MSDW Investment Management attempts to
equitably allocate purchase and sale transactions among the Portfolios of the
Fund and other client accounts. To that end, MSDW Investment Management
considers various factors, including respective investment objectives, relative
size of portfolio holdings of the same or comparable securities, availability of
cash for investment, size of investment commitments generally held and the
opinions of the persons responsible for managing the Portfolios of the Fund and
other client accounts.
MSDW Investment Management selects the brokers or dealers that will execute the
purchases and sales of investment securities for each Portfolio. MSDW Investment
Management seeks the best execution for all portfolio transactions. A Portfolio
may pay higher commission rates than the lowest available when MSDW Investment
Management believes it is reasonable to do so in light of the value of the
research, statistical, and pricing services provided by the broker effecting the
transaction. In seeking to determine the reasonableness of brokerage commissions
paid in any transaction, MSDW Investment Management relies upon its experience
and knowledge regarding commissions generally charged by various brokers and on
its judgement in evaluating the brokerage and research services received from
the broker effecting the transaction. MSDW Investment Management is unable to
ascertain the value of these services due to the subjective nature of their
determinations.
In cases where suitable price and execution are obtainable from more than one
broker or dealer, MSDW Investment Management may place portfolio transactions
with those who also furnish research and other services to the Fund and MSDW
Investment Management. Such services may include information as to the
availability of securities for purchase or sale, statistical or factual
information or opinions pertaining to investment, wire services, and appraisals
or evaluations of portfolio securities. MSDW Investment Management may use these
research services to service all of its accounts and may not use all of these
services in connection with providing investment advice to the Portfolios. While
the receipt of such information and services would generally reduce the amount
of research or services otherwise performed by MSDW Investment Management and
thus reduce its expenses, the value of such reduction is indeterminable and
therefore will not reduce the fees paid to MSDW Investment Management.
It is not the Fund's practice to direct brokerage or principal business on the
basis of sales of Portfolio shares which may be made through intermediary
brokers or dealers. However, MSDW Investment Management may, consistent with
NASD rules, place portfolio orders with qualified broker-dealers who recommend
the applicable Portfolio to their clients or who act as agents in the purchase
of shares of the Portfolio for their clients.
Subject to the overriding objective of obtaining the best execution of orders,
the Fund may use broker-dealer affiliates of MSDW Investment Management to
effect Portfolio brokerage transactions under procedures adopted by the Fund's
Board of Directors. Pursuant to these procedures, MSDW Investment Management
uses two broker-dealer affiliates, Morgan Stanley (including Morgan Stanley
International Limited) and Dean Witter Reynolds ("DWR"), each of which is wholly
owned by MSDW for such transactions, the commission rates and other remuneration
paid to Morgan Stanley or DWR must be fair and reasonable in comparison to those
of other broker-dealers for comparable transactions involving similar securities
being purchased or sold during a comparable time period. This standard would
allow the affiliated broker or dealer to receive no more than the remuneration
which would be expected to be received by an unaffiliated broker.
For the fiscal years ended December 31, 1996, 1997 and 1998, the Fund paid
brokerage commissions of approximately $16,908,169, $25,893,432 and $23,357,888,
respectively. For the fiscal years ended December 31, 1996, 1997 and 1998, the
Fund paid in the aggregate $826,686, $1,060,894 and $755,255, respectively, as
brokerage commissions to Morgan Stanley, an affiliated broker-dealer, which
represented 5%, 4.10% and 3.23% of the total amount of brokerage commissions
paid in each respective period. For the fiscal years ended December 31, 1996,
1997 and 1998, the Fund paid in the aggregate $38,877, $7,010 and $0,
respectively, as brokerage commissions to Dean Witter Reynolds, Inc. ("DWR"), an
affiliated broker-dealer which represented
36
<PAGE>
0.23%, 0.03% and 0% of the total amount of brokerage commissions paid in the
period. For the fiscal years ended December 31, 1996, 1997 and 1998, the Fund
paid $0, $0 and $0, respectively, as brokerage commissions to Sun Valley Gold
Trading, Inc., a broker-dealer affiliated with the Sub-Adviser.
<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS PAID DURING FISCAL YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------------------------------------
COMMISSIONS PAID TO MORGAN STANLEY COMMISSIONS PAID TO DWR
------------------------------------- --------------------------------------
PERCENT OF PERCENT OF
TOTAL PERCENT OF TOTAL PERCENT OF TOTAL
COMMISSIONS TOTAL TOTAL BROKERED TOTAL TOTAL BROKERED
PORTFOLIO PAID COMMISSIONS COMMISSIONS TRANSACTIONS COMMISSIONS COMMISSIONS TRANSACTIONS
- ---------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Emerging Markets........................ $7,405,604 $ 427,280 5.77% 3.54% $ 0 0% 0%
Emerging Markets Debt................... 11,600 0 0 0 0 0 0
Latin American.......................... 612,986 16,187 2.64 3.79 0 0 0
Active International Allocation......... 271,986 1,858 0.68 0.29 0 0 0
Asian Equity............................ 893,159 63,049 7.06 7.37 0 0 0
Asian Real Estate....................... 89,878 13,591 15.12 12.27 0 0 0
China Growth............................ -- -- -- -- -- -- --
European Equity......................... 701,142 23,472 3.35 2.98 0 0 0
European Real Estate.................... 262,099 18,479 7.05 7.79 0 0 0
Global Equity........................... 428,439 33,841 7.90 7.62 0 0 0
Gold.................................... -- -- -- -- -- -- --
International Equity.................... 4,447,250 36,072 0.81 0.63 0 0 0
International Magnum.................... 505,962 39,045 7.72 5.98 0 0 0
International Small Cap................. 613,660 11,066 1.80 1.71 0 0 0
Japanese Equity......................... 345,321 71,315 20.65 21.77 0 0 0
Aggressive Equity....................... 1,412,028 0 0 0 0 0 0
Emerging Growth......................... 646,865 0 0 0 0 0 0
Equity Growth........................... 2,460,784 0 0 0 0 0 0
MicroCap................................ -- -- -- -- -- -- --
Technology.............................. 80,839 0 0 0 0 0 0
U.S. Equity Plus........................ 125,983 0 0 0 0 0 0
U.S. Real Estate........................ 1,677,239 0 0 0 0 0 0
Value Equity............................ 361,047 0 0 0 0 0 0
Fixed Income............................ 0 0 0 0 0 0 0
Global Fixed Income..................... 4,017 0 0 0 0 0 0
High Yield.............................. 0 0 0 0 0 0 0
Mortgage-Backed Securities.............. -- -- -- -- -- -- --
Municipal Bond.......................... 0 0 0 0 0 0 0
Money Market............................ 0 0 0 0 0 0 0
Municipal Money Market.................. 0 0 0 0 0 0 0
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
BROKERAGE COMMISSION PAID DURING FISCAL YEARS ENDED DECEMBER 31, 1997
AND 1996
------------------------------------------------------------------------
FISCAL YEAR ENDED DECEMBER 31, 1997 FISCAL YEAR ENDED DECEMBER 31, 1996
----------------------------------- -----------------------------------
MORGAN MORGAN
PORTFOLIO TOTAL STANLEY DWR TOTAL STANLEY DWR
- -------------------------------------------------- --------- ------------- --------- --------- ------------- ---------
Emerging Markets.................................. $9,553,152 $ 508,656 $ 0 $6,039,656 $ 289,626 $ 0
<S> <C> <C> <C> <C> <C> <C>
Emerging Markets Debt............................. 0 0 0 0 0 0
Latin American.................................... 934,181 48,639 0 249,467 2,877 0
Active International Allocation................... 221,850 8 0 188,552 0 0
Asian Equity...................................... 3,340,107 269,475 0 3,175,674 353,698 0
Asian Real Estate................................. 17,777 1,663 0 0 0 0
China Growth...................................... -- -- -- -- -- --
European Equity................................... 428,978 893 0 275,043 12,233 0
European Real Estate.............................. 57,604 760 0 0 0 0
Global Equity..................................... 146,658 7,724 0 81,495 5,317 0
Gold.............................................. 182,258 0 0 233,038 0 0
International Equity.............................. 4,108,858 34,331 0 2,367,148 47,399 0
International Magnum.............................. 478,263 3,816 0 165,305 2,824 0
International Small Cap........................... 534,567 4,183 0 393,734 0 0
Japanese Equity................................... 687,376 133,968 0 867,664 105,167 0
Aggressive Equity................................. 914,888 0 0 372,406 0 5,136
Emerging Growth................................... 237,105 0 0 124,901 0 0
Equity Growth..................................... 1,911,995 108 1,988 883,032 0 15,596
MicroCap.......................................... -- -- -- -- -- --
Technology........................................ 138,077 0 0 7,481 0 0
U.S. Equity Plus.................................. 7,886 18 0 0 0 0
U.S. Real Estate.................................. 1,886,276 46,652 5,022 1,299,319 7,545 18,145
Value Equity...................................... 105,576 0 0 182,049 0 0
Fixed Income...................................... 0 0 0 195 0 0
Global Fixed Income............................... 0 0 0 2,010 0 0
High Yield........................................ 0 0 0 0 0 0
Mortgage-Backed Securities........................ -- -- -- -- -- --
Municipal Bond.................................... 0 0 0 0 0 0
Money Market...................................... 0 0 0 0 0 0
Municipal Money Market............................ 0 0 0 0 0 0
</TABLE>
DIRECTED BROKERAGE. During the fiscal year ended December 31, 1998, the
Portfolios paid brokerage commissions to brokers because of research services
provided as follows:
<TABLE>
<CAPTION>
AGGREGATE DOLLAR
AMOUNT OF
BROKERAGE COMMISSIONS TRANSACTIONS FOR
DIRECTED IN CONNECTION WHICH SUCH
WITH RESEARCH SERVICES COMMISSIONS WERE
PROVIDED FOR PAID FOR FISCAL YEAR
FISCAL YEAR ENDED ENDED DECEMBER 31,
PORTFOLIO DECEMBER 31, 1998 1998
- ------------------------------ -------------------------- --------------------
<S> <C> <C>
Emerging Markets Portfolio.... $ 7,359,378 $ 2,227,440,925
Emerging Markets Debt
Portfolio................... 0 0
Latin American Portfolio...... 612,986 230,160,264
Active International
Allocation Portfolio........ 255,092 224,941,791
Asian Equity Portfolio........ 270,320 61,540,933
Asian Real Estate Portfolio... 58,809 14,161,736
China Growth Portfolio........ N/A N/A
European Equity Portfolio..... 739,258 347,577,655
European Real Estate
Portfolio................... 263,789 108,874,551
Global Equity Portfolio....... 456,706 175,432,477
Gold Portfolio................ 0 0
International Equity
Portfolio................... 4,586,374 1,995,907,557
International Magnum
Portfolio................... 516,796 246,447,717
International Small Cap
Portfolio................... 613,660 204,510,589
Japanese Equity Portfolio..... 345,321 104,278,294
Aggressive Equity Portfolio... 1,289,435 1,098,897,090
Emerging Growth Portfolio..... 550,811 226,180,414
Equity Growth Portfolio....... 2,261,341 1,908,412,584
MicroCap Portfolio............ N/A N/A
Technology Portfolio.......... 34,661 19,544,710
U.S. Equity Plus Portfolio.... 125,983 209,002,634
U.S. Real Estate Portfolio.... 1,599,199 665,867,048
Value Equity Portfolio........ 290,224 220,036,989
Fixed Income Portfolio........ 0 0
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE DOLLAR
AMOUNT OF
BROKERAGE COMMISSIONS TRANSACTIONS FOR
DIRECTED IN CONNECTION WHICH SUCH
WITH RESEARCH SERVICES COMMISSIONS WERE
PROVIDED FOR PAID FOR FISCAL YEAR
FISCAL YEAR ENDED ENDED DECEMBER 31,
PORTFOLIO DECEMBER 31, 1998 1998
- ------------------------------ -------------------------- --------------------
Global Fixed Income
Portfolio................... 4,017 1,917,535
<S> <C> <C>
High Yield Portfolio.......... 0 0
Mortgage-Backed Securities
Portfolio................... N/A N/A
Municipal Bond Portfolio...... 0 0
Money Market Portfolio........ 0 0
Municipal Money Market
Portfolio................... 0 0
</TABLE>
REGULAR BROKER-DEALERS. The Fund's regular broker-dealers are (i) the ten
broker-dealers that received the greatest dollar amount of brokerage commissions
from the Fund; (ii) the ten broker-dealers that engaged as principal in the
largest dollar amount of portfolio transactions; and (iii) the ten
broker-dealers that sold the largest dollar amount of Portfolio shares. During
the fiscal year ended December 31, 1998, the following Portfolios purchased
securities issued by the Fund's regular broker-dealers:
<TABLE>
<CAPTION>
VALUE OF PORTFOLIO
HOLDING
PORTFOLIO REGULAR BROKER-DEALER AS OF DECEMBER 31, 1998
- ----------------------------------------------------------------- ------------------------------------ -----------------------
<S> <C> <C>
Equity Growth Portfolio.......................................... Merrill Lynch & Co. $ 5,280,000
U.S. Equity Plus Portfolio....................................... Bear Stearns & Co. $ 348,000
Lehman Brothers Holdings, Inc. $ 383,000
Value Equity Portfolio .......................................... Bear Stearns & Co. $ 301,000
</TABLE>
PORTFOLIO TURNOVER. The Portfolios generally do not invest for short-term
trading purposes, however, when circumstances warrant, each Portfolio may sell
investment securities without regard to the length of time they have been held.
Market conditions in a given year could result in a higher or lower portfolio
turnover rate than expected and the Portfolios will not consider portfolio
turnover rate a limiting factor in making investment decisions consistent with
their investment objectives and policies. Higher portfolio turnover (e.g., over
100%) necessarily will cause the Portfolios to pay correspondingly increased
brokerage and trading costs. In addition to transaction costs, higher portfolio
turnover may result in the realization of capital gains. As discussed under
"Taxes," to the extent net short-term capital gains are realized, any
distributions resulting from such gains are considered ordinary income for
federal income tax purposes.
GENERAL INFORMATION
FUND HISTORY
The Fund was incorporated pursuant to the laws of the State of Maryland on June
16, 1988 under the name Morgan Stanley Institutional Fund, Inc. The Fund filed a
registration statement with the SEC registering itself as an open-end management
investment company offering diversified and non-diversified series under the
1940 Act and its shares under the Securities Act of 1933, as amended, and
commenced operations on November 15, 1988. Effective December 1, 1998, the Fund
changed its name to Morgan Stanley Dean Witter Institutional Fund, Inc.
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Fund's Amended and Restated Articles of Incorporation permit the Directors
to issue 40 billion shares of common stock, par value $.001 per share, from an
unlimited number of classes or series of shares. The Fund currently consists of
shares of thirty Portfolios. Each Portfolio offers Class A and Class B shares
except that the Municipal Money Market and International Small Cap Portfolios
offer only Class A shares.
The shares of each Portfolio of the Fund are fully paid and nonassessable, and
have no preference as to conversion, exchange, dividends, retirement or other
features. Portfolio shares have no pre-emptive rights. The shares of the Fund
have non-cumulative voting rights, which means that the holders of more than 50%
of the shares voting for the election of Directors can elect 100% of the
Directors if they choose to do so. Shareholders are entitled to one vote for
each full share held (and a fractional vote for each fractional share held),
then standing in their name on the books of the Fund.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund's policy is to distribute substantially all of each Portfolio's net
investment income, if any. The Fund may also distribute any net realized capital
gains in the amount and at the times that will avoid both income (including
taxable gains) taxes on it and the imposition of the federal excise tax on
income and capital gains (see "Taxes"). However, the Fund may also choose to
retain net realized capital gains and pay taxes on such gains. The amounts of
any income dividends or capital gains distributions cannot be predicted.
39
<PAGE>
Any dividend or distribution paid shortly after the purchase of shares of a
Portfolio by an investor may have the effect of reducing the per share net asset
value of that Portfolio by the per share amount of the dividend or distribution.
Furthermore, such dividends or distributions, although in effect a return of
capital, are subject to income taxes for shareholders subject to tax as set
forth herein and in the applicable Prospectus.
As set forth in the Prospectuses, unless you elect otherwise in writing, all
dividends and capital gains distributions for a class of shares are
automatically reinvested in additional shares of the same class of the Portfolio
at net asset value (as of the business day following the record date). This
automatic reinvestment of dividends and distributions will remain in effect
until you notify the Fund in writing at least three days prior to the record
date that either the Income Option (income dividends in cash and capital gains
distributions reinvested in shares at net asset value) or the Cash Option (both
income dividends and capital gains distributions in cash) has been elected.
TAXES
The following is only a summary of certain additional federal income tax
considerations generally affecting the Fund, Portfolios and their shareholders
that are not described in the Prospectuses. No attempt is made to present a
detailed explanation of the federal, state or local tax treatment of the Fund,
Portfolios or shareholders, and the discussion here and in the Prospectuses is
not intended to be a substitute for careful tax planning.
The following general discussion of certain federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
Each Portfolio within the Fund is generally treated as a separate corporation
for federal income tax purposes. Thus, the provisions of the Code generally will
be applied to each Portfolio separately, rather than to the Fund as a whole.
REGULATED INVESTMENT COMPANY QUALIFICATION
Each Portfolio intends to qualify and elect to be treated for each taxable year
as a regulated investment company ("RIC") under Subchapter M of the Code. In
order to so qualify, each Portfolio must, among other things, (i) derive at
least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies, and certain other
related income, including, generally, certain gains from options, futures and
forward contracts; and (ii) diversify its holdings so that, at the end of each
fiscal quarter of the Portfolio's taxable year, (a) at least 50% of the market
value of the Portfolio's total assets is represented by cash and cash items,
U.S. Government securities, securities of other RICs, and other securities, with
such other securities limited, in respect to any one issuer, to an amount not
greater than 5% of the value of the Portfolio's total assets or 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the
value of its total assets are invested in the securities (other than U.S.
Government securities or securities of other RICs) of any one issuer or two or
more issuers which the Portfolio controls and which are engaged in the same,
similar, or related trades or business. For purposes of the 90% of gross income
requirement described above, foreign currency gains which are not directly
related to a Portfolio's principal business of investing in stock or securities
(or options or futures with respect to stock or securities) may be excluded from
income that qualifies under the 90% requirement.
In addition to the requirements described above, in order to qualify as a RIC, a
Portfolio must distribute at least 90% of its net investment income (which
generally includes dividends, taxable interest, and the excess of net short-term
capital gains over net long-term capital losses less operating expenses) and at
least 90% of its net tax-exempt interest income, for each tax year, if any, to
its shareholders. If a Portfolio meets all of the RIC requirements, it will not
be subject to federal income tax on any of its net investment income or capital
gains that it distributes to shareholders.
If a Portfolio fails to qualify as a RIC for any taxable year, all of its income
will be subject to tax at regular corporate rates, and its distributions
(including capital gains distributions) will be taxable as ordinary income
dividends to its shareholders to the extent of the Portfolio's current and
accumulated earnings and profits, and will be eligible for the corporate
dividends-received deduction for corporate shareholders.
GENERAL TAX TREATMENT OF QUALIFYING RICS AND SHAREHOLDERS
Each Portfolio intends to distribute substantially all of its taxable net
investment income (including, for this purpose, net short-term capital gain) to
shareholders. Dividends from a Portfolio's net investment income are taxable to
shareholders as ordinary income, whether received in cash or in additional
shares. Such dividends paid by a Portfolio generally will not qualify for the
dividends-received deduction for corporate shareholders. Each Portfolio will
report annually to its shareholders the amount of dividend income qualifying for
such treatment.
Each Portfolio will decide whether to distribute or to retain all or part of any
net capital gains (the excess of net long-term capital gains over net short-term
capital losses) in any year for reinvestment. Distributions of net capital gain
are taxable to shareholders as a long-term capital gain regardless of how long
shareholders have held their shares. Each Portfolio will send reports annually
40
<PAGE>
to shareholders regarding the federal income tax status of all distributions
made during the preceding year. If any such gains are retained, the Portfolio
will pay federal income tax thereon, and, if the Portfolio makes an election,
the shareholders will include such undistributed gains in their income, will
increase their tax basis in Portfolio shares by 65% of the amount included in
their income and will be able to claim their share of the tax paid by the
Portfolio as a refundable credit.
Dividends and other distributions declared by a Portfolio in October, November
or December of any year and payable to shareholders of record on a date in such
month will be deemed to have been paid by the Portfolio and received by
shareholders on December 31 of that year if the distributions are paid by the
Portfolio at any time during the following January.
A gain or loss realized by a shareholder on the sale, exchange or redemption of
shares of a Portfolio held as a capital asset will be capital gain or loss, and
such gain or loss will be long-term if the holding period for the shares exceeds
12 months and otherwise will be short-term. Any loss realized on a sale,
exchange or redemption of shares of a Portfolio will be disallowed to the extent
the shares disposed of are replaced within the 61-day period beginning 30 days
before and ending 30 days after the shares are disposed of. Any loss realized by
a shareholder on the disposition of shares held 6 months or less is treated as a
long-term capital loss to the extent of any distributions of net long-term
capital gains received by the shareholder with respect to such shares or any
inclusion of undistributed capital gain with respect to such shares.
The conversion of Class A shares to Class B shares will not be a taxable event
to the shareholder.
Each Portfolio will generally be subject to a nondeductible 4% federal excise
tax to the extent it fails to distribute by the end of any calendar year at
least 98% of its ordinary income for that year and 98% of its capital gain net
income (the excess of short- and long-term capital gains over short- and
long-term capital losses) for the one-year period ending on October 31 of that
year, plus certain other amounts. Each Portfolio intends to make sufficient
distributions or deemed distributions of its ordinary income and capital gain
net income (the excess of short-term and long-term capital gain over short-term
and long-term capital losses, including any available capital loss
carryforwards), prior to the end of each calendar year to avoid liability for
federal excise tax.
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
dividends, capital gains distributions and redemption proceeds paid to any
individual or certain other non-corporate shareholder (i) who has failed to
provide a correct taxpayer identification number (generally an individual's
social security number or non-individual's employer identification number) on
the Account Registration Form; (ii) who is subject to backup withholding by the
Internal Revenue Service; or (iii) who has not certified to the Fund that such
shareholder is not subject to backup withholding. This backup withholding is not
an additional tax, and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.
A Section 1256 position held by a Portfolio will generally be marked-to-market
(i.e. treated as if it were sold for fair market value) on the last business day
of the Fund's fiscal year, and all gain or loss associated with fiscal year
transactions and mark-to-market positions at fiscal year end (except certain
currency gain or loss covered by Section 988 of the Code) will generally be
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. The effect of Section 1256 mark-to-market rules may be to accelerate
income or to convert what otherwise would have been long-term capital gains into
short-term capital gains or short-term capital losses into long-term capital
losses within a Portfolio. The acceleration of income on Section 1256 positions
may require a Portfolio to accrue taxable income without the corresponding
receipt of cash. In order to generate cash to satisfy the distribution
requirements of the Code, a Portfolio may be required to dispose of portfolio
securities that it otherwise would have continued to hold or to use cash flows
from other sources. Any or all of these rules may, therefore, affect the amount,
character and timing of income earned and, in turn, distributed to shareholders
by a Portfolio.
As discussed above, in order for each Portfolio to continue to qualify for
federal income tax treatment as a RIC, at least 90% of its gross income for a
taxable year must be derived from certain qualifying income, including
dividends, interest, income derived from loans of securities, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
related income, including gains from options, futures and forward contracts,
derived with respect to its business of investing in stock, securities or
currencies. Any net gain realized from the closing out of futures contracts will
therefore generally be qualifying income for purposes of the 90% requirement.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY AND DERIVATIVES TRANSACTIONS. In
general, gains from foreign currencies and from foreign currency options,
foreign currency futures and forward foreign exchange contracts relating to
investments in stock, securities or foreign currencies are currently considered
to be qualifying income for purposes of determining whether the Portfolio
qualifies as a RIC. It is unclear, however, who will be treated as the issuer of
certain foreign currency instruments or how foreign currency options, futures,
or forward foreign currency contracts will be valued for purposes of the
regulated investment company diversification requirements applicable to the
Portfolio. The Portfolio may request a private letter ruling from the Internal
Revenue Service on some or all of these issues.
41
<PAGE>
Under Code Section 988, special rules are provided for certain transactions in a
foreign currency other than the taxpayer's functional currency (i.e., unless
certain special rules apply, currencies other than the U.S. dollar). In general,
foreign currency gains or losses from forward contracts, from futures contracts
that are not "regulated futures contracts", and from unlisted options will be
treated as ordinary income or loss under Code Section 988. Also, certain foreign
exchange gains or losses derived with respect to foreign fixed-income securities
are also subject to Section 988 treatment. In general, therefore, Code Section
988 gains or losses will increase or decrease the amount of the Portfolio's
investment company taxable income available to be distributed to shareholders as
ordinary income, rather than increasing or decreasing the amount of the
Portfolio's net capital gain.
A Portfolio's investment in options, swaps and related transactions, futures
contracts and forward contracts, options on futures contracts and stock indices
and certain other securities, including transactions involving actual or deemed
short sales or foreign exchange gains or losses are subject to many complex and
special tax rules. For example, over-the-counter options on debt securities and
equity options, including options on stock and on narrow-based stock indexes,
will be subject to tax under Section 1234 of the Code, generally producing a
long-term or short-term capital gain or loss upon exercise, lapse or closing out
of the option or sale of the underlying stock or security. By contrast, a
Portfolio's treatment of certain other options, futures and forward contracts
entered into by a Portfolio is generally governed by Section 1256 of the Code.
These "Section 1256" positions generally include listed options on debt
securities, options on broad-based stock indexes, options on securities indexes,
options on futures contracts, regulated futures contracts and certain foreign
currency contracts and options thereon.
When a Portfolio holds options or futures contracts which substantially diminish
their risk of loss with respect to other positions (as might occur in some
hedging transactions), this combination of positions could be treated as a
"straddle" for tax purposes, resulting in possible deferral of losses,
adjustments in the holding periods of Portfolio securities and conversion of
short-term capital losses into long-term capital losses. Certain tax elections
exist for mixed straddles (i.e., straddles comprised of at least one Section
1256 position and at least one non-Section 1256 position) which may reduce or
eliminate the operation of these straddle rules.
SPECIAL TAX CONSIDERATIONS RELATING TO MUNICIPAL BOND AND MUNICIPAL MONEY MARKET
PORTFOLIOS
Each of the Municipal Bond Portfolio and the Municipal Money Market Portfolio
will qualify to pay "exempt interest dividends" to its shareholders, provided
that, at the close of each quarter of its taxable year, at least 50% of the
value of its total assets consist of obligations the interest on which is exempt
from federal income tax. Current federal tax law limits the types and volume of
bonds qualifying for federal income tax exemption of interest, which may have an
effect on the ability of these Portfolios to purchase sufficient amounts of
tax-exempt securities to satisfy this requirement. Any loss on the sale or
exchange of shares of the Municipal Bond Portfolio or the Municipal Money Market
Portfolio held for six months or less will be disallowed to the extent of any
exempt-interest dividends received by the selling shareholder with respect to
such shares.
In addition, for the Municipal Bond Portfolio and the Municipal Money Market
Portfolio, exempt-interest dividends are excludable from a shareholder's gross
income for regular Federal income tax purposes. Exempt-interest dividends may,
nevertheless, be subject to the alternative minimum tax imposed by Section 55 of
the Code (the "Alternative Minimum Tax"). The Alternative Minimum Tax is imposed
at the rate of up to 28% in the case of non-corporate taxpayers and at the rate
of 20% in the case of corporate taxpayers, to the extent it exceeds the
taxpayer's regular tax liability. The Alternative Minimum Tax may be affected by
the receipt of exempt-interest dividends in two circumstances. First,
exempt-interest dividends derived from certain "private activity bonds" issued
after August 7, 1986, will generally be an item of tax preference and therefore
potentially subject to the Alternative Minimum Tax. The Portfolios intend, when
possible, to avoid investing in private activity bonds. Second, in the case of
exempt-interest dividends received by corporate shareholders, all
exempt-interest dividends, regardless of when the bonds from which they are
derived were issued or whether they are derived from private activity bonds,
will be included in the corporation's "adjusted current earnings," as defined in
Section 56(g) of the Code, in calculating the corporation's alternative minimum
taxable income for purposes of determining the Alternative Minimum Tax.
The percentage of income that constitutes "exempt-interest dividends" will be
determined for each year for the Municipal Bond Portfolio and the Municipal
Money Market Portfolio and will be applied uniformly to all dividends declared
with respect to the Portfolios during that year. This percentage may differ from
the actual percentage for any particular day.
Interest on indebtedness incurred or continued by shareholders to purchase or
carry shares of the Municipal Bond Portfolio or the Municipal Money Market
Portfolio will not be deductible for federal income tax purposes. The deduction
otherwise allowable to property and casualty insurance companies for "losses
incurred" will be reduced by an amount equal to a portion of exempt-interest
dividends received or accrued during any taxable year. Foreign corporations
engaged in a trade or business in the United States will be subject to a "branch
profits tax" on their "dividend equivalent amount" for the taxable year, which
will include exempt-interest dividends. Certain Subchapter S corporations may
also be subject to taxes on their "passive investment income," which could
include exempt-interest dividends. Up to 85% of the Social Security benefits or
railroad retirement benefits received by an individual during any taxable year
will be included in the gross income of such individual if the individual's
"modified adjusted gross income" (which includes exempt-interest dividends) plus
one-half of the Social Security benefits or railroad retirement benefits
received by such individual during that taxable year exceeds the base amount
described in Section 86 of the Code.
42
<PAGE>
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by industrial development bonds or
private activity bonds should consult their tax advisors before purchasing
shares of the Municipal Bond Portfolio or the Municipal Money Market Portfolio.
"Substantial user" is defined generally for these purposes as including a
"non-exempt person" who regularly uses in trade or business a part of a facility
financed from the proceeds of such bonds.
Issuers of bonds purchased by the Municipal Bond Portfolio (or the beneficiary
of such bonds) may have made certain representations or covenants in connection
with the issuance of such bonds to satisfy certain requirements of the Code that
must be satisfied subsequent to the issuance of such bonds. Investors should be
aware that exempt-interest dividends derived from such bonds may become subject
to federal income taxation retroactively to the date thereof if such
representations are determined to have been inaccurate or if the issuer of such
bonds (or the beneficiary of such bonds) fails to comply with such covenants.
The state and local tax consequences of an investment in either the Municipal
Bond or Municipal Money Market Portfolios may differ from the federal
consequences described above and shareholders are urged to consult their tax
advisers with respect to such aspects.
SPECIAL TAX CONSIDERATIONS RELATING TO FOREIGN INVESTMENTS
Gains or losses attributable to foreign currency contracts, or to fluctuations
in exchange rates that occur between the time a Portfolio accrues interest or
other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time the Portfolio actually collects such receivables
or pays such liabilities are treated as ordinary income or ordinary loss to the
Portfolio. Similarly, gains or losses on disposition of debt securities
denominated in a foreign currency attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the security and the
date of disposition also are treated as ordinary gain or loss to the Portfolio.
These gains or losses increase or decrease the amount of a Portfolio's net
investment income available to be distributed to its shareholders as ordinary
income.
It is expected that each Portfolio will be subject to foreign withholding taxes
with respect to its dividend and interest income from foreign countries, and a
Portfolio may be subject to foreign income taxes with respect to other income.
So long as more than 50% in value of a Portfolio's total assets at the close of
the taxable year consists of stock or securities of foreign corporations, the
Portfolio may elect to treat certain foreign income taxes imposed on it for U.S.
federal income tax purposes as paid directly by its shareholders. A Portfolio
will make such an election only if it deems it to be in the best interest of its
shareholders and will notify shareholders in writing each year if it makes an
election and of the amount of foreign income taxes, if any, to be treated as
paid by the shareholders. If a Portfolio makes the election, shareholders will
be required to include in income their proportionate share of the amount of
foreign income taxes treated as imposed on the Portfolio and will be entitled to
claim either a credit (subject to the limitations discussed below) or, if they
itemize deductions, a deduction, for their shares of the foreign income taxes in
computing their federal income tax liability.
Certain foreign governments levy withholding or other taxes on dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from investments in such countries. Except in the case of
the International Equity, Global Equity, European Equity, Japanese Equity, Asian
Equity, Global Fixed Income, International Fixed Income, International Magnum,
International Small Cap, Latin American and China Growth Portfolios, it is not
expected that a Portfolio or its shareholders would be able to claim a credit
for U.S. tax purposes with respect to any such foreign taxes. However, these
foreign withholding taxes may not have a significant impact on such Portfolios,
because each Portfolio's investment objective is to seek long-term capital
appreciation and any dividend or interest income should be considered
incidental.
Shareholders who choose to utilize a credit (rather than a deduction) for
foreign taxes will be subject to a number of complex limitations regarding the
availability and utilization of the credit. Because of these limitations,
shareholders may be unable to claim a credit for the full amount of their
proportionate shares of the foreign income taxes paid by a Portfolio.
Shareholders are urged to consult their tax advisors regarding the application
of these rules to their particular circumstances.
TAXES AND FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident alien
individual, a foreign trust or estate, a foreign corporation, or a foreign
partnership ("Foreign Shareholder") depends on whether the income from the
Portfolio is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from a Portfolio is not effectively connected with a U.S. trade or
business carried on by a Foreign Shareholder, distributions of net investment
income plus the excess of net short-term capital gains over net long-term
capital losses will be subject to U.S. withholding tax at the rate of 30% (or
such lower treaty rate as may be applicable) upon the gross amount of the
dividend. Furthermore, Foreign Shareholders will generally be exempt from U.S.
federal income tax on gains realized on the sale of shares of a Portfolio,
distributions of net long-term capital gains, and amounts retained by the Fund
that are designated as undistributed capital gains.
43
<PAGE>
If the income from a Portfolio is effectively connected with a U.S. trade or
business carried on by a Foreign Shareholder, then distributions from the
Portfolio and any gains realized upon the sale of shares of the Portfolio, will
be subject to U.S. federal income tax at the rates applicable to U.S. citizens
and residents or domestic corporations.
A Portfolio may be required to withhold U.S. federal income tax on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless the Foreign Shareholder complies with Internal Revenue Service
certification requirements.
The tax consequences to a Foreign Shareholder entitled to claim the benefits of
an applicable tax treaty may differ from those described here. Furthermore,
Foreign Shareholders are strongly urged to consult their own tax advisors with
respect to the particular tax consequences to them of an investment in a
Portfolio, including the potential application of the provisions of the Foreign
Investment in Real Estate Property Tax Act of 1980, as amended.
STATE AND LOCAL TAX CONSIDERATIONS
Rules of U.S. state and local taxation of dividend and capital gains from
regulated investment companies often differ from the rules for U.S. federal
income taxation described above. Shareholders are urged to consult their tax
advisors as to the consequences of these and other U.S. state and local tax
rules regarding an investment in the Fund.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
CONTROL PERSONS
The following shareholders may be deemed to control the following Portfolios
because they are record owners of 25% or more of the outstanding shares of that
Portfolio of the Fund as of April 5, 1999. For each control person, the
following table provides the name, address and percentage of outstanding shares
of such Portfolio owned.
ASIAN REAL ESTATE PORTFOLIO: Morgan Stanley Asset Management Inc., Attn: Elisa
Divito, 1221 Avenue of the Americas, New York, New York 10020 owned 58.42% of
such Portfolio's total outstanding shares.
U.S. EQUITY PLUS PORTFOLIO: Morgan Stanley Dean Witter Foundation, Attn:
Kathleen Toohill 27th Floor, 1221 Avenue of the Americas, New York, New York
10020 owned 27.28% of such Portfolio's total outstanding shares.
The Flinn Foundation, Northern Trust Co., Master Trust Dept., 7th Floor, P.O.
Box 92984, Chicago, Il 60675 owned 35.24% of such Portfolio's total outstanding
shares.
EMERGING GROWTH PORTFOLIO: Allendale Mutual Insurance Co., Attn: Thomas H.
Clark, P.O. Box 7500, Johnston, RI 0219-0750 owned 44.80% of such Portfolio's
total outstanding shares.
FIXED INCOME PORTFOLIO: Morgan Stanley & Co. 401(k) Pension Plan, Cust c/o
Northern Trust Co. Cust, 770 Broadway, New York, NY 10003 owned 29.02% of such
Portfolio's total outstanding shares.
GLOBAL FIXED INCOME PORTFOLIO: Northern Trust Co. as Custodian FBO The Lund
Foundation, P.O. Box 92956, Chicago, IL 60675 owned 40.69% of such Portfolio's
total outstanding shares.
GLOBAL EQUITY PORTFOLIO: Ministers & Missionaries Benefit, 475 Riverside Drive,
New York, NY 10115-0049 owned 30.64% of such Portfolio's total outstanding
shares.
ASIAN EQUITY PORTFOLIO: Association De Biefsaissance et de Retraite des
Pollciers de la Communaue, 480 Gilford Street, Suite 200, Montreal, Quebec
Canada owned 28.37% of such Portfolio's total outstanding shares.
Morgan Stanley & Co 401(k) Pension Plan, Cust c/o Northern Trust Co. Cust, 770
Broadway, New York, NY 10003 owned 29.28% of such Portfolio's total outstanding
shares.
LATIN AMERICAN PORTFOLIO: The Hostetter Foundation, The Pilot House, Lewis
Wharf, Boston, MA 02110 owned 30.50% of such Portfolio's total outstanding
shares.
AGGRESSIVE EQUITY PORTFOLIO: Morgan Stanley & Co 401(k) Pension Plan, Cust c/o
Northern Trust Co. Cust, 770 Broadway, New York, NY 10003 owned 27.76% of such
Portfolio's total outstanding shares.
INTERNATIONAL MAGNUM PORTFOLIO: Bankers Trust TTEE, Harris Corporation Union
Retirement Plan, 1025 W. NASA Blvd., Boston, MA 02110.
PRINCIPAL HOLDERS
The following shareholders are record owners of 5% or more of the outstanding
shares of any class of Portfolio shares as of April 5, 1999. For each principal
holder, the following table provides the name, address and percentage of
outstanding shares of such classes owned.
EUROPEAN EQUITY PORTFOLIO: Trustees of Dartmouth College, One Rope Ferry Road,
Hanover, NH 03755, owned 13.11% of such Portfolio's total outstanding Class A
shares.
Alan Gerry, c/o Granite Associates LP, 1 Cablevision Center, Liberty, NY 12754,
owned 8.99% of such Portfolio's total outstanding Class A shares.
44
<PAGE>
EQUITY GROWTH PORTFOLIO: Fidelity Investments Institutional Operations Co. FIIOC
as Benefit Plans, 100 Magellan Way KW1C, Covington, KY 41015, owned 44.80% of
such Portfolio's total outstanding Class B shares.
Fidelity Investments Institutional Operations Co., IIOC as Benefit Plans, 100
Magellan Way KW1C, Covington, KY 41015, owned 73.67% of such Portfolio's total
outstanding Class B shares.
Morgan Stanley & Co 401(k) Pension Plan, Cust c/o Northern Trust Co. Cust, 770
Broadway, New York, NY 10003, owned 95.47% of such Portfolio's total outstanding
Class B shares.
Fidelity Management Trust Company, as Trustee for GTE Master Mail, Zone M3, 82
Devonshire Street, Boston, MA 02109, owned 106.66% of such Portfolio's total
outstanding Class B shares.
ASIAN REAL ESTATE PORTFOLIO: Barry Bergman and Lisa H. Bergman 42 Overlook Road,
Great Neck, NY 11020-1109, owned 7.20% of such Portfolio's total outstanding
Class A shares.
Theodore R. and Vivian M. Johnson, Scholarship Foundation 1320 Solano Avenue,
Suite 102, Albany, CA 94706 owned 16.61% of such Portfolio's total outstanding
Class A shares.
Morgan Stanley Asset Management Inc., Attn: Elisa Divito, 1221 Avenue of the
Americas, New York, NY 10020, owned 75.02% of such Portfolio's total outstanding
Class A shares.
University of Illinois Foundation, 1305 West Green Street, Urbana, IL 61801,
owned 5.14% of such Portfolio's total outstanding Class A shares.
Key Trust Company of Ohio NA, Attn: Meg H. Hallorran OH-01-27-1401, 127 Public
Square, Cleveland, OH 44114, owned 5.64% of such Portfolio's total outstanding
Class A shares.
Hugheson Limited, c/o Morgan Stanley Asset Management, 1221 Avenue of the
Americas, New York, NY 10020, owned 5.78% of such Portfolio's total outstanding
Class A shares.
The Trustees of Columbia University, In the City of New York, 475 Riverside
Drive, Suite 400, New York, NY 10115, owned 9.56% of such Portfolio's total
outstanding Class A shares.
ASIAN REAL ESTATE PORTFOLIO: Michael H. Fleisher Rev Trust, DTD 2096, 11957
Colliers Reserve Drive, Naples, FL 34110-0909; owned 39.75% of such Portfolio's
total outstanding Class B shares.
ASIAN EQUITY PORTFOLIO: Morgan Stanley & Co 401(k) Pension Plan, Cust c/o
Northern Trust Co. Cust, 770 Broadway, New York, NY 10003, owned 28.55% of such
Portfolio's total outstanding Class A shares.
Association de Biefsaissance et de, Retraite des Pollciers de la Communaue, 480
Gilford Street, Suite 200, Montreal, Quebec Canada, owned 29.52% of such
Portfolio's total outstanding Class A shares.
MONEY MARKET PORTFOLIO: Bruce R. McCaw, P. O. Box 1717, Bellevue, WA 98009-1717,
owned 7.17% of such Portfolio's total outstanding Class A shares.
EMERGING GROWTH PORTFOLIO: Morgan Stanley Asset Management for The Account of
Hubbell Inc. Attn: John Lam, 22nd Floor, 1221 Avenue of the Americas, New York,
NY 10020, owned 14.58% of such Portfolio's total outstanding Class A shares.
Allendale Mutual Insurance Co., Attn: Thomas H. Clark, P. O. Box 7500, Johnston,
RI 02919-0750, owned 46.44% of such Portfolio's total outstanding Class A
shares.
VALUE EQUITY PORTFOLIO: Strafe & Co FBO FAO MPD Morgan Stanley Val EQ FD 12, P.
O. Box 160, Westerville, OH 43081-0160, owned 6.24% of such Portfolio's total
outstanding Class A shares.
San Diego Museum of Art, P. O. Box 2107, San Diego, CA 92110-2107, owned 6.99%
of such Portfolio's total outstanding Class A shares.
San Diego Museum of Art, Endowment Fund 2, P. O. Box 2107, San Diego, CA
92112-2107, owned 8.69% of such Portfolio's total outstanding Class A shares.
Morgan Stanley Asset Management for the Account of Hubbell Inc., Attn: John Lam,
22nd Floor 1221 Avenue of the Americas, New York, NY 10020, owned 23.17% of such
Portfolio's total outstanding Class A shares.
FIXED INCOME PORTFOLIO: Fleet National Bank, Attn: 0001396250, P. O. Box 92800,
Rochester, NY 14692-8900, owned 9.41% of such Portfolio's total outstanding
Class A shares.
Morgan Stanley & Co 401(k) Pension Plan, Cust c/o Northern Trust Co. Cust, 770
Broadway, New York, NY 10003, owned 29.42% of such Portfolio's total outstanding
Class A shares.
GLOBAL FIXED INCOME PORTFOLIO: State Street Bank & Trust Co, Custodian for the
Feinstein Family Fund, M/S JQB7S, Attn: Steve Pinto, N. Quincy, MA 02171, owned
6.01% of such Portfolio's total outstanding Class A shares.
Two Ten International Footwear Foundation Inc., 56 Main Street, Watertown, MA
02172 owned, 7.04% of such Portfolio's total outstanding Class A shares.
Marshall Field V, Suite 150, 225 West Wacker Drive, Chicago, IL 60606, owned
7.73% of such Portfolio's total outstanding Class A shares.
45
<PAGE>
National Bulk Carriers, Attn: John H. Lee, 1345 Avenue of the Americas, New
York, NY 10105, owned 10.20% of such Portfolio's total outstanding Class A
shares.
National Bank of Commerce Trustee, FBO National Bank of Commerce Pension, c/o
NBC Trust Dept., One Commerce Square, Memphis, TN 38150, owned 11.44% of such
Portfolio's total outstanding Class A shares.
Northern Trust Company as Custodian, FBO The LBD Foundation, P. O. Box 92956,
Chicago, Il 60675, owned 15.67% of such Portfolio's total outstanding Class A
shares.
Northern Trust Company as Custodian, FBO The Lund Foundation, P. O. Box 92956,
Chicago, IL 60675, owned 41.08% of such Portfolio's total outstanding Class A
shares.
GLOBAL EQUITY PORTFOLIO: J M Kaplan Fund, Inc., Attn: Clare Lazard, 880 Third
Avenue, 3rd Floor, New York, NY 10022-1902, owned 7.55% of such Portfolio's
total outstanding Class A shares.
Robert College of Instanbul Turkey, c/o Morgan Stanley Asset Management, 1221
Avenue of the Americas, New York, NY 10020, owned 24.07% of such Portfolio's
total outstanding Class A shares.
Ministers & Missionaries Benefit, 475 Riverside Drive, New York, NY 10115-0049,
owned 33.64% of such Portfolio's total outstanding Class A shares.
GLOBAL EQUITY PORTFOLIO: Fidelity Investments Institutional Operations Co. FIIOC
as Benefit Plans, 100 Magellan Way KW1C, Covington, KY 41015, owned 61.39% of
such Portfolio's total outstanding Class B shares.
EMERGING MARKETS PORTFOLIO: Charles Schwab & Co., Inc. Attn: Mutual Funds, 101
Montgomery Street, San Francisco CA 94104, owned 4.88% of such Portfolio's total
outstanding Class A shares.
Ministers and Missionaries Benefit, 475 Riverside Drive, New York, NY
10115-0049, owned 8.29% of such Portfolio's total outstanding Class A shares.
HIGH YIELD PORTFOLIO: Granite Preferred Invest LP, c/o Keith Suehnholz Secy LP,
Granite Associates L P, One Cablevision Center, Liberty, NY 12754, owned 9.07%
of such Portfolio's total outstanding Class A shares.
Morgan Stanley & Co. 401(k) Pension Plan Cust c/o Northern Trust Co. Cust, 770
Broadway, New York, NY 10003, owned 21.59% of such Portfolio's total outstanding
Class A shares.
INTERNATIONAL SMALL CAP PORTFOLIO: Cornell University, Morgan Stanley Asset
Management c/o Gail Reeke, 1221 Avenue of the Americas, New York, NY 10020,
owned 5.78% of such Portfolio's total outstanding Class A shares.
General Mills Inc., One General Mills Boulevard, Minneapolis, MN 55426, owned
6.68% of such Portfolio's total outstanding Class A shares.
Trustees of Boston College, Attn: Paul Haran Assoc Treasurer, St. Thomas More
Hall 310, Chestnut Hill, MA 02167-3819, owned 7.01% of such Portfolio's total
outstanding Class A shares.
Charles Schwab & Co., Inc. Attn: Mutual Funds, 101 Montgomery Street, San
Francisco, CA 94104, owned 9.96% of such Portfolio's total outstanding Class A
shares.
The Skillman Foundation, 600 Renaissance Center, Suite 1700, Attn: Jean E.
Gregory, Detroit, MI 48243, owned 9.97% of such Portfolio's total outstanding
Class A shares.
EMERGING MARKETS DEBT PORTFOLIO: Trustees of Boston University, c/o Treasurer,
881 Commonwealth Avenue, Boston, MA 02215, owned 5.65% of such Portfolio's total
outstanding Class A shares.
College of The Holy Cross, Attn: Mr. William Durgin, 1 College Street,
Worcester, MA 01610-2395, owned 9.07% of such Portfolio's total outstanding
Class A shares.
Morgan Stanley & Co. 401(k) Pension Plan, Cust c/o Northern Trust Co., Cust, 770
Broadway, New York, NY 10003, owned 12.94% of such Portfolio's total outstanding
Class A shares.
Wellesley College, Attn: Robert Bower, 139 Green Hall, Wellesley, MA 02481,
owned 13.41% of such Portfolio's total outstanding Class A shares.
Charles Schwab & Co., Inc., Attn: Mutual Funds, 101 Montgomery Street, San
Francisco, CA 94104, owned 15.06% of such Portfolio's total outstanding Class A
shares.
MUNICIPAL BOND PORTFOLIO: William E. Noyes and Colleen A. Noyes, 260 Otis Road,
Barrington, IL 60010-5124, owned 7.11% of such Portfolio's total outstanding
Class A Shares.
James M. Allwin, Morgan Stanley & Co., Inc., 1251 Avenue of the Americas, Fl 5,
New York, NY 10020-1001, owned 9.24% of such Portfolio's total outstanding Class
A shares.
Cushman Trust, c/o Cambrian Services, 1114 Avenue of the Americas, Suite 2702,
New York, NY 10036, owned 10.14% of such Portfolio's total outstanding Class A
shares.
Frank R. Mori, 935 Park Avenue, Apt 16A, New York, NY 10028-0212, owned 22.23%
of such Portfolio's total outstanding Class A shares.
46
<PAGE>
JAPANESE EQUITY PORTFOLIO: FTC & Co., Attn: DATALYNX, P. O. Box 173736, Denver,
CO 80217-3736, owned 5.99% of such Portfolio's total outstanding Class A shares.
Charles Schwab & Co., Inc., Attn: Mutual Funds, 101 Montgomery Street, San
Francisco, CA 94104, owned 7.17% of such Portfolio's total outstanding Class A
shares.
Donaldson Lufkin & Jeanrette, Pershing Division, P. O. Box 2052, Jersey City, NJ
07303, owned 7.72% of such Portfolio's total outstanding Class A shares.
LATIN AMERICA PORTFOLIO: MHCH Ltd International Discretionary Only Equity A/C,
301 Little John Lane, Houston, TX 77024-5715, owned 4.82% of such Portfolio's
total outstanding Class A shares.
Batrus & Co., P.O. Box 9005, New York, NY 10008, owned 6.42% of such Portfolio's
total outstanding Class A shares.
The Hostetter Foundation, The Pilot House, Lewis Wharf, Boston, MA 02110, owned
32.49% of such Portfolio's total outstanding Class A shares.
AGGRESSIVE EQUITY PORTFOLIO: Ministers and Missionaries Benefit, Board of the
American Baptist Churches, Morgan Stanley Asset Management, 1221 Avenue of the
Americas, New York, NY 10020; owned 30.23% of such Portfolio's total outstanding
Class A shares.
Morgan Stanley & Co. 401(k) Pension Plan, Cust c/o Northern Trust Co. Cust, 770
Broadway, New York, NY 10003; owned 32.04% of such Portfolio's total outstanding
Class A shares.
U.S. REAL ESTATE PORTFOLIO: Donaldson Lufkin & Jeanrette, Pershing Division,
P.O. Box 2052, Jersey City, NJ 07303; owned 4.99% of such Portfolio's total
outstanding Class A shares.
Northwestern University, Attn: Investment Dept. 1-209 Crown, 633 Clark Street,
Evanston, IL 60208-1122; owned 8.35% of such Portfolio's total outstanding Class
A shares.
Commonwealth of Pennsylvania, Public School Employees Retirement, 5 North 5th
Street, Harrisburg, PA 17101, owned 9.25% of such Portfolio's total outstanding
Class A shares.
Charles Schwab & Co. Inc., Attn: Mutual Funds, 101 Montgomery St., San
Francisco, CA 94104; owned 12.39% of such Portfolio's total outstanding Class A
shares.
INTERNATIONAL MAGNUM PORTFOLIO: Sun Trust Bank as Trustee for Service,
Corporation International, PO Box 105870, Atlanta, GA 30348-5870; owned 6.85% of
such Portfolio's total outstanding Class A shares.
Lutheran Brotherhood, 625 Fourth Avenue, MS 1010, Minneapolis, MN 55415; owned
10.17% of such Portfolio's total outstanding Class A shares.
Bankers Trust TTEE, Harris Corporation Union Retirement Plan, 1025 W. NASA
Blvd., Boston, MA 02110; owned 31.02% of such Portfolio's total outstanding
Class A shares.
INTERNATIONAL MAGNUM PORTFOLIO: Fidelity Investments Institutional Operations
Co. FIIOC as Benefit Plans, 100 Magellan Way KW1C, Covington, KY 41015, owned
73.11% of such Portfolio's total outstanding Class B shares.
TECHNOLOGY PORTFOLIO: Wallace Genetic Foundation, c/o Leo Bruette BDO Seidman
LLP, 1129 20th St., NW, Washington, DC 20036-3403; owned 5.94% of such
Portfolio's total outstanding Class A shares.
Wallace Global Fund, Ste. 250, 1990 M Street, Washington, DC 20036; 5.94% of
such Portfolio's total outstanding Class A shares.
The Wallace Research Foundation, Unit 56, 30600 N. Pima Road, Scottsdale, AZ
85262; owned 5.94% of such Portfolio's total outstanding Class A shares.
Valassis Enterprises - Equity, c/o Franklin Enterprises, 520 Lake Cook Road,
Suite 380, Deerfield, IL 60015; owned 12.22% of such Portfolio's total
outstanding Class A shares.
Bruce W. Bastian & McKay S., Matthews TTEES FBO Bruce W, 51 West Center 755,
Bonnie, UT 84057-4605; owned 24.27% of such Portfolio's total outstanding Class
A shares.
U. S. EQUITY PLUS PORTFOLIO: Merchants National Bank of Aurora, Attn: Terrence
Kothe SR VP, PO Box 289, Aurora, IL 60507-0289; owned 16.70% of such Portfolio's
total outstanding Class A shares.
Morgan Stanley Dean Witter Foundation, Kathleen Toohill 27th Floor, 1221 Avenue
of the Americas, New York, NY 10020-1001; owned 28.80% of such Portfolio's total
outstanding Class A shares.
The Flinn Foundation, Northern Trust Co., Master Trust Dept. 7th Floor, PO Box
92984, Chicago, IL 60675; owned 37.20% of such Portfolio's total outstanding
Class A shares.
47
<PAGE>
PERFORMANCE INFORMATION
The Fund may from time to time quote various performance figures to illustrate
the Portfolios' past performance.
Performance quotations by investment companies are subject to rules adopted by
the SEC, which require the use of standardized performance quotations. In the
case of total return, non-standardized performance quotations may be furnished
by the Fund but must be accompanied by certain standardized performance
information computed as required by the SEC. Current yield and average annual
compounded total return quotations used by the Fund are based on the
standardized methods of computing performance mandated by the SEC. An
explanation of those and other methods used by the Fund to compute or express
performance follows.
TOTAL RETURN
From time to time each Portfolio, except the Money Market and Municipal Money
Market Portfolios, may advertise total return for each class of shares of the
Portfolio. Total return figures are based on historical earnings and are not
intended to indicate future performance. The average annual total return is
determined by finding the average annual compounded rates of return over 1-, 5-,
and 10-year periods (or over the life of the Portfolio) that would equate an
initial hypothetical $1,000 investment to its ending redeemable value. The
calculation assumes that all dividends and distributions are reinvested when
paid. The quotation assumes the amount was completely redeemed at the end of
each 1-, 5-, and 10-year period (or over the life of the Portfolio) and the
deduction of all applicable Fund expenses on an annual basis.
The average annual compounded rates of return (unless otherwise noted) for the
Fund's Portfolios for the one year and five year periods ended December 31, 1998
and for the period from inception through December 31, 1998 are as follows:
<TABLE>
<CAPTION>
AVERAGE
AVERAGE ANNUAL
INCEPTION ONE ANNUAL SINCE
NAME OF PORTFOLIO+ DATE YEAR FIVE YEARS INCEPTION
- ------------------------------------------------------------ ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Active International Allocation
Class A................................................... 1/17/92 20.12% 9.50% 10.26%
Class B................................................... 1/02/96 20.71% N/A 12.63%
Aggressive Equity
Class A................................................... 3/08/95 15.35% N/A 34.03%
Class B................................................... 1/02/96 15.15% N/A 28.86%
Asian Equity
Class A................................................... 7/01/91 -11.38% -15.66% 1.94%
Class B................................................... 1/02/96 -11.53% N/A -22.32%
Asian Real Estate
Class A................................................... 10/01/97 -11.82% N/A -24.30%
Class B................................................... 10/01/97 -12.53% N/A -24.63%
Emerging Growth
Class A................................................... 11/01/89 27.54% 14.31% 13.49%
Class B................................................... 1/02/96 26.86% N/A 13.46%
Emerging Markets
Class A................................................... 9/25/92 -25.42% -8.17% 3.49%
Class B................................................... 1/02/96 -25.65% N/A -6.61%
Emerging Markets Debt
Class A................................................... 2/01/94 -35.95% N/A 4.75%
Class B................................................... 1/02/96 -35.37% N/A 4.26%
Equity Growth
Class A................................................... 4/02/91 19.04% 25.12% 19.09%
Class B................................................... 1/02/96 18.71% N/A 26.47%
European Equity
Class A................................................... 4/02/93 8.09% 14.09% 17.24%
Class B................................................... 1/02/96 7.80% N/A 15.31%
European Real Estate
Class A................................................... 10/01/97 4.75% N/A -0.16%
Class B................................................... 10/01/97 4.60% N/A -0.30%
Fixed Income
Class A................................................... 5/15/91 7.93% 7.31% 8.45%
Class B................................................... 1/02/96 7.85% N/A 7.21%
Global Equity
Class A................................................... 7/15/92 14.60% 17.20% 19.18%
Class B................................................... 1/02/96 14.15% N/A 19.80%
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
AVERAGE
AVERAGE ANNUAL
INCEPTION ONE ANNUAL SINCE
NAME OF PORTFOLIO+ DATE YEAR FIVE YEARS INCEPTION
- ------------------------------------------------------------ ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Global Fixed Income
Class A................................................... 5/01/91 13.84% 6.63% 8.24%
Class B................................................... 1/02/96 13.68% N/A 6.91%
High Yield
Class A................................................... 9/28/92 3.03% 10.17% 11.73%
Class B................................................... 1/02/96 2.79% N/A 10.74%
International Equity
Class A................................................... 8/04/89 18.30% 15.14% 12.83%
Class B................................................... 1/02/96 18.13% N/A 16.76%
International Magnum
Class A................................................... 3/15/96 7.33% N/A 7.94%
Class B................................................... 3/15/96 7.13% N/A 7.65%
International Small Cap
Class A................................................... 12/15/92 4.25% 5.51% 11.37%
Japanese Equity
Class A................................................... 4/25/94 8.82% N/A -1.71%
Class B................................................... 1/02/96 8.33% N/A -1.26%
Latin American
Class A................................................... 1/18/95 -37.10% N/A 4.88%
Class B................................................... 1/02/96 -36.86% N/A 8.09%
Money Market
Class A................................................... 11/15/88 5.20% 4.95% 5.43%
Class B................................................... N/A N/A N/A N/A
Municipal Bond
Class A................................................... 1/18/95 5.52% N/A 6.37%
Class B*.................................................. 1/02/96 N/A N/A N/A
Municipal Money Market
Class A................................................... 2/10/98 3.00% 3.02% 3.46%
Class B................................................... N/A N/A N/A N/A
Technology
Class A................................................... 9/16/96 53.90% N/A 42.83%
Class B................................................... 9/16/96 53.52% N/A 42.51%
U.S. Equity Plus
Class A................................................... 7/31/97 21.26% N/A 17.71%
Class B................................................... 7/31/97 20.95% N/A 17.49%
U.S. Real Estate
Class A................................................... 2/24/95 -12.29% N/A 17.99%
Class B................................................... 1/02/96 -12.52% N/A 15.45%
Value Equity
Class A................................................... 1/31/90 8.79% 17.30% 14.19%
Class B................................................... 1/02/96 8.59% N/A 18.35%
</TABLE>
- ------------------
+ The China Growth, Mortgage-Backed Securities and MicroCap Portfolios had not
commenced operations as of December 31, 1998. The Gold Portfolio ceased
operations effective .
* As of the date of this Statement of Additional Information, there were no
outstanding Class B shares of the Municipal Bond Portfolio.
These figures were calculated according to the following formula:
<TABLE>
<C> <C> <S>
P(1+T)n = ERV
</TABLE>
where:
<TABLE>
<C> <C> <S>
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of hypothetical $1,000 payment made at the beginning
of the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year
periods (or fractional portion thereof).
</TABLE>
CALCULATION OF YIELD FOR NON-MONEY MARKET PORTFOLIOS
From time to time certain of the Fund's Portfolios may advertise yield.
Current yield reflects the income per share earned by a Portfolio's investments.
49
<PAGE>
Current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders during the base period.
The respective current yields for certain of the Fund's Portfolios for the
30-day period ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
CLASS A
PORTFOLIO NAME SHARES
- ------------------------------------------------------------------------------------------------------------ ---------
<S> <C> <C>
Emerging Markets Debt....................................................................................... 18.70%
Fixed Income................................................................................................ 5.32%
Global Fixed Income......................................................................................... 3.82%
High Yield.................................................................................................. 9.76%
Municipal Bond.............................................................................................. 4.10%
<CAPTION>
PORTFOLIO NAME CLASS B SHARES
- ------------------------------------------------------------------------------------------------------------ --------------
<S> <C>
Emerging Markets Debt....................................................................................... 18.10%
Fixed Income................................................................................................ 5.17%
Global Fixed Income......................................................................................... 3.67%
High Yield.................................................................................................. 9.49%
Municipal Bond.............................................................................................. --%
</TABLE>
These figures were obtained using the following formula:
<TABLE>
<S> <C> <C>
Yield = 2[(a - b + 1)(6) -
1]
-------------------
cd
</TABLE>
CALCULATION OF YIELD FOR MONEY MARKET PORTFOLIOS
The current yield of the Money Market and Municipal Money Market Portfolios is
calculated daily on a base period return for a hypothetical account having a
beginning balance of one share for a particular period of time (generally 7
days). The return is determined by dividing the net change (exclusive of any
capital changes in such account) by its average net asset value for the period,
and then multiplying it by 365/7 to determine the annualized current yield. The
calculation of net change reflects the value of additional shares purchased with
the dividends by the Portfolio, including dividends on both the original share
and on such additional shares. The current yields of the Money Market and
Municipal Money Market Portfolios for the 7-day period ended December 31, 1998
were 4.74% and 3.10%, respectively. An effective yield, which reflects the
effects of compounding and represents an annualization of the current yield with
all dividends reinvested, may also be calculated for each Portfolio by dividing
the base period return by 7, adding 1 to the quotient, raising the sum to the
365th power, and subtracting 1 from the result. The effective yields of the
Money Market and Municipal Money Market Portfolios for the 7-day period ended
December 31, 1998 were 4.85% and 3.15%, respectively.
The yield of a Portfolio will fluctuate. The annualization of a week's dividend
is not a representation by the Portfolio as to what an investment in the
Portfolio will actually yield in the future. Actual yields will depend on such
variables as investment quality, average maturity, the type of instruments the
Portfolio invests in, changes in interest rates on instruments, changes in the
expenses of the Fund and other factors. Yields are one basis investors may use
to analyze the Portfolios of the Fund, and other investment vehicles; however,
yields of other investment vehicles may not be comparable because of the factors
set forth in the preceding sentence, differences in the time periods compared,
and differences in the methods used in valuing portfolio instruments, computing
net asset value and calculating yield.
TAXABLE EQUIVALENT YIELDS FOR THE MUNICIPAL BOND AND MUNICIPAL MONEY MARKET
PORTFOLIOS
It is easy to calculate your own taxable equivalent yield if you know your tax
bracket. The formula is:
<TABLE>
<S> <C> <C>
Tax Free Yield = Your Taxable Equivalent Yield
1 - Your Tax Bracket
</TABLE>
For example, if you are in the 28% tax bracket and can earn a tax-free yield of
7.5%, the taxable equivalent yield would be 10.42%.
The table below indicates the advantages of investments in Municipal Bonds for
certain investors. Tax-exempt rates of interest payable on a Municipal Bond
(shown at the top of each column) are equivalent to the taxable yields set forth
opposite the respective income tax levels, based on income tax rates effective
for the tax year 1998 under the Internal Revenue Code. There can, of course, be
no guarantee that the Municipal Bond Portfolio or Municipal Money Market
Portfolio will achieve a specific yield. Also, it is possible that some portion
of the Portfolio's dividends may be subject to Federal income taxes. A
substantial portion, if not all, of such dividends may be subject to state and
local taxes.
TAXABLE EQUIVALENT YIELD TABLE
<TABLE>
<CAPTION>
SAMPLE LEVEL OF FEDERAL
TAXABLE INCOME INCOME TAXABLE EQUIVALENT RATES BASED ON TAX-EXEMPT YIELD OF:
- ------------------------------------ TAX ------------------------------------------------------------------
JOINT RETURN SINGLE RETURN BRACKETS 3% 4% 5% 6% 7% 8% 9% 10% 11%
- ----------------- ----------------- ----- ----- ----- ----- ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-42,350 $0-25,350 15.0 % 3.5 % 4.7 % 5.9 % 7.1 % 8.2 % 9.4 % 10.6 % 11.8 % 12.9 %
42,350-102,300 25,350-61,400 28.0 4.2 5.6 6.9 8.3 9.7 11.1 10.6 % 13.9 15.3
102,300-155,950 61,400-128,100 31.0 4.3 5.8 7.2 8.7 10.1 11.6 12.5 14.5 15.9
155,950-278,450 128,100-278,450 36.0 4.7 6.3 7.8 9.4 10.9 12.5 13.0 15.6 17.2
over 278,450 over 278,450 39.6 5.0 6.6 8.3 9.9 11.6 13.2 14.1 16.6 18.2
</TABLE>
- ------------------
* Net amount subject to 1998 Federal Income Tax after deductions and exemptions,
not indexed for 1997 income tax rates.
50
<PAGE>
The taxable equivalent yields for the Municipal Money Market and Municipal Bond
Portfolios for the seven days ended December 31, 1998 assuming a Federal income
tax rate of 39.6% (maximum rate), were 5.60% and 6.16%, respectively. The
taxable equivalent effective yields for the Municipal Money Market and Municipal
Bond Portfolios for the seven days ended December 31, 1998, assuming the same
tax rate, were 5.68% and 6.27%, respectively.
GENERAL PERFORMANCE INFORMATION
Each Portfolio's performance will fluctuate, unlike bank deposits or other
investments which pay a fixed yield for a stated period of time. Past
performance is not necessarily indicative of future return. Actual performance
will depend on such variables as portfolio quality, average portfolio maturity,
the type of portfolio instruments acquired, changes in interest rates, portfolio
expenses and other factors. Performance is one basis investors may use to
analyze a Portfolio as compared to other funds and other investment vehicles.
However, performance of other funds and other investment vehicles may not be
comparable because of the foregoing variables, and differences in the methods
used in valuing their portfolio instruments, computing net asset value and
determining performance.
From time to time, a Portfolio's performance may be compared to other mutual
funds tracked by financial or business publications and periodicals. For
example, Morningstar, Inc. may be quoted in advertising materials. Morningstar,
Inc. is a mutual fund rating service that rates mutual funds on the basis of
risk-adjusted performance. Rankings that compare the performance of funds to one
another in appropriate categories over specific periods of time may also be
quoted in advertising.
Portfolio advertising may include data on historical returns of the capital
markets in the United States compiled or published by Ibbotson Associates of
Chicago, Illinois ("Ibbotson"), including returns on common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, Treasury bills, the U.S. rate of inflation
(based on the Consumer Price Index), and combinations of various capital
markets. The performance of these capital markets is based on the returns of
different indices. The Portfolios may use the performance of these capital
markets in order to demonstrate general risk-versus-reward investment scenarios.
Performance comparisons may also include the value of a hypothetical investment
in any of these capital markets. The risks associated with the security types in
any capital market may or may not correspond directly to those of the
Portfolios. The Portfolios may also compare their performance to that of other
compilations or indices that may be developed and made available in the future.
The Portfolios may include in advertisements, charts, graphs or drawings which
illustrate the potential risks and rewards of investment in various investment
vehicles, including but not limited to, foreign securities, stocks, bonds,
treasury bills and shares of a Portfolio. In addition, advertisements may
include a discussion of certain attributes or benefits to be derived by an
investment in a Portfolio and/or other mutual funds, shareholder profiles and
hypothetical investor scenarios, timely information on financial management, tax
and retirement planning and various investment alternatives. Advertisements may
include lists of representative Morgan Stanley clients. The Portfolios may also
from time to time include discussions or illustrations of the effects of
compounding in advertisements. "Compounding" refers to the fact that, if
dividends or other distributions on a Portfolio investment are reinvested by
being paid in additional Portfolio shares, any future income or capital
appreciation of a Portfolio would increase the value, not only of the original
investment in the Portfolio, but also of the additional Portfolio shares
received through reinvestment.
The Portfolios may include in their advertisements, discussions or illustrations
of the potential investment goals of a prospective investor (including materials
that describe general principles of investing, such as asset allocation,
diversification, risk tolerance, goal setting, questionnaires designed to help
create a personal financial profile, worksheets used to project savings needs
based on assumed rates of inflation and hypothetical rates of return and action
plans offering investment alternatives), investment management techniques,
policies or investment suitability of a Portfolio (such as value investing,
market timing, dollar cost averaging, asset allocation, constant ratio transfer,
automatic account rebalancing, the advantages and disadvantages of investing in
tax-deferred and taxable investments). Advertisements and sales materials
relating to a Portfolio may include information regarding the background and
experience of its portfolio managers; the resources, expertise and support made
available to the portfolio managers by Morgan Stanley; and the portfolio
manager's goals, strategies and investment techniques.
The Portfolios' advertisements may discuss economic and political conditions of
the United States and foreign countries, the relationship between sectors of the
U.S., a foreign, or the global economy and the U.S., a foreign, or the global
economy as a whole and the effects of inflation. The Portfolios' advertisements
may include discussions and illustrations of the growth potential of various
global markets including, but not limited to, Africa, Asia, Europe, Latin
America, North America, South America, Emerging Markets and individual
countries. These discussions may include the past performance of the various
markets or market sectors; forecasts of population, gross national product and
market performance; and the underlying data which supports such forecasts. From
time to time, advertisements, sales literature, communications to shareholders
or other materials may summarize the substance of information contained in the
Portfolios' shareholder reports (including the investment composition of a
Portfolio), as well as the views of Morgan Stanley as to current market,
economic, trade and interest rate trends, legislative, regulatory and monetary
developments, investment strategies and related matters believed to be of
relevance to a Portfolio.
The Portfolios may quote various measures of volatility and benchmark
correlation in advertising. The Portfolios may compare these measures to those
of other funds. Measures of volatility seek to compare the historical share
price fluctuations or total
51
<PAGE>
returns to those of a benchmark. Measures of benchmark correlation indicate how
valid a comparative benchmark may be. Measures of volatility and correlation may
be calculated using averages of historical data. A Portfolio may also advertise
its current interest rate sensitivity, duration, weighted average maturity or
similar maturity characteristics.
The Portfolios may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, an
investor invests a fixed dollar amount in a Portfolio at periodic intervals,
thereby purchasing fewer shares when prices are high and more shares when prices
are low. While such a strategy does not assure a profit or guard against loss in
a declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals. In evaluating such
a plan, investors should consider their ability to continue purchasing shares
during periods of low price levels.
ADVISER'S USE OF COMPANIES COMPRISING THE S&P 500 INDEX
MSDW Investment Management uses the 500 companies included in the S&P 500 Index
as the universe of potential investments for the U.S. Equity Plus Portfolio. The
U.S. Equity Plus Portfolio is not sponsored, endorsed, sold or promoted by S&P,
a division of The McGraw-Hill Companies, Inc. S&P makes no representation or
warranty, express or implied, to investors in the U.S. Equity Plus Portfolio or
any member of the public regarding the advisability of investing in the U.S.
Equity Plus Portfolio or the ability of the S&P 500 Index to track general stock
market performance. S&P's only relationship to MSDW Investment Management is the
licensing of certain trademarks and trade names of S&P and of the S&P 500 Index
which is determined, composed and calculated by S&P without regard to MSDW
Investment Management or the U.S. Equity Plus Portfolio. S&P has no obligation
to take the needs of MSDW Investment Management or the investors in the U.S.
Equity Plus Portfolio into consideration in determining, composing or
calculating the S&P 500 Index. S&P is not responsible for, does not participate
in and has no obligation or liability in connection with the management,
administration or marketing of the U.S. Equity Plus Portfolio.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR COMPLETENESS OF THE S&P 500 INDEX OR
ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO THE PERFORMANCE OF THE ADVISER OR THE U.S. EQUITY PLUS PORTFOLIO, AND
EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY
LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS) ARISING OUT OF ANY USE OF THE S&P 500 INDEX OR ANY DATA
INCLUDED THEREIN, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
DESCRIPTION OF RATINGS
DESCRIPTION OF COMMERCIAL PAPER AND BOND RATINGS
EXCERPTS FROM MOODY'S DESCRIPTION OF BOND RATINGS: 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-edged." 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 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 some time 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. 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
thereby 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 the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small. Moody's applies numerical modifiers
1, 2 and 3 in each generic voting classification from Aa through B. The modifier
1 indicates that the security ranks at a higher end of the rating category;
modifier 2 indicates a mid-range rating; and the modifier 3 indicates that the
issue ranks at the lower end of the rating category. 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
52
<PAGE>
represent 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.
EXCERPTS FROM S&P'S DESCRIPTION OF BOND RATINGS: AAA -- Bonds rated AAA have
the highest rating assigned by Standard & Poor's to a debt obligation and
indicate an extremely strong capacity to pay principal and interest. AA -- Bonds
rated AA have a very strong capacity to pay interest and repay principal and
differ from the highest rated issues only to a small degree. A -- Bonds rated A
have 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 bonds in higher rated categories. BBB -- Bonds rated
BBB are regarded as having an adequate capacity to pay interest and repay
principal. Whereas they normally exhibit 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. BB, B, CCC, CC -- Debt rated BB, B,
CCC, CC and C is regarded, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance with the terms of
the obligation. BB indicates the lowest 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. C -- The rating C may be used to cover a
situation where a bankruptcy petition has been filed or similar action has been
taken, but payments on this obligation are being continued. D -- Debt rated D is
in default, and payment of interest and/or repayment of principal is in arrears.
DESCRIPTION OF MOODY'S RATINGS OF STATE AND MUNICIPAL NOTES: Moody's ratings
for state and municipal notes and other short-term obligations are designated
Moody's Investment Grade ("MIG"). Symbols used are as follows: MIG-1 -- best
quality, enjoying strong protection from established cash flows of funds for
their servicing or from established broad-based access to the market for
refinancing, or both; MIG-2 -- high quality with margins of protection ample
although not so large as in the preceding group; MIG-3 -- favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades.
DESCRIPTION OF MOODY'S HIGHEST COMMERCIAL PAPER RATING: Prime-1 ("Pl") --
Judged to be of the best quality. Their short-term debt obligations carry the
smallest degree of investment risk.
EXCERPT FROM S&P'S RATING OF MUNICIPAL NOTE ISSUES: SP-l+ -- very strong
capacity to pay principal and interest; SP-2-- strong capacity to pay principal
and interest.
DESCRIPTION OF S&P'S HIGHEST COMMERCIAL PAPER RATINGS: A-l+ -- this designation
indicates the degree of safety regarding timely payment is extremely strong. A-1
- -- this designation indicates the degree of safety regarding timely payment is
strong.
FINANCIAL STATEMENTS
The Fund's audited financial statements for the fiscal year ended December 31,
1998, including notes thereto and the report of PricewaterhouseCoopers LLP are
herein incorporated by reference from the Fund's Annual Report. A copy of the
Fund's Annual Report to Shareholders must accompany the delivery of this
Statement of Additional Information. The China Growth, Mortgage-Backed
Securities and MicroCap Portfolios had not commenced operations at December 31,
1998.
53
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
(a)(1) Registrant's Articles of Amendment and Restatement,
incorporated by reference to Exhibit 1(a) to Post-Effective
Amendment No. 26 to the Registrant's Registration Statement
on Form N-1A (Registration No. 33-23166), filed with the
Securities and Exchange Commission via EDGAR (Accession No.
0000912057-95-008594) on October 13, 1995.
(a)(2) Registrant's Articles Supplementary to Registrant's Articles
of Amendment and Restatement (reclassifying shares),
incorporated by reference to Exhibit 1(b) to Post-Effective
Amendment No. 30 to Registrant's Registration Statement on
Form N-1A (Registration No. 33-23166), filed with the
Securities and Exchange Commission via EDGAR (Accession No.
0000912057-96-010828) on May 24, 1996.
(a)(3) Registrant's Articles Supplementary to Registrant's Articles
of Amendment and Restatement (adding new Technology
Portfolio), incorporated by reference to Exhibit 1(c) to
Post-Effective Amendment No. 30 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-23166), filed
with the Securities and Exchange Commission via EDGAR
(Accession No. 0000912057-96-010828) on May 24, 1996.
(a)(4) Registrant's Articles Supplementary to Registrant's Articles
of Amendment and Restatement (adding U.S. Equity Plus
Portfolio), incorporated by reference to Exhibit 1(d) to
Post-Effective Amendment No. 38 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-23166), filed
with the Securities and Exchange Commission via EDGAR
(Accession No. 0001047469-98-008051)on February 27, 1998.
(a)(5) Registrant's Articles Supplementary to Registrant's Articles
of Amendment and Restatement (adding European Real Estate
and Asian Real Estate Portfolios), incorporated by reference
to Exhibit 1(e) to Post-Effective Amendment No. 38 to
Registrant's Registration Statement on Form N-1A
(Registration No. 33-23166), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
00001047469-98-008051) on February 27, 1998.
(a)(6) Registrant's Articles Supplementary to Registrant's Articles
of Amendment and Restatement (adding Class B shares to the
Money Market Portfolio), incorporated by reference to
Exhibit 1(f) to Post-Effective Amendment No. 38 to
Registrant's Registration Statement on Form N-1A
(Registration No. 33-23166), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
00001047469-98-008051) on February 27, 1998.
(a)(7) Articles of Amendment to Registrant's Articles of Amendment
and Restatement (Active Country Allocation Portfolio name
changed to Active International Portfolio), incorporated by
reference to Exhibit (a)(7) to Post-Effective Amendment No.
40 to the Registrant's Registration Statement on Form N-1A
(Registration No. 33-23166), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
0001047469-99-002378) on January 27, 1999.
(a)(8) Articles of Amendment to Registrant's Articles of Amendment
and Restatement (Active International Portfolio name changed
to Active International Allocation Portfolio), incorporated
by reference to Exhibit (a)(8) to Post-Effective Amendment
No. 40 to the Registrant's Registration Statement on Form
N-1A
<PAGE>
(Registration No. 33-23166), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
0001047469-99-002378) on January 27, 1999.
(a)(9) Articles of Amendment to Registrant's Articles of Amendment
and Restatement (changing corporate name to Morgan Stanley
Dean Witter Institutional Fund, Inc.), incorporated by
reference to Exhibit (a)(9) to Post-Effective Amendment No.
40 to the Registrant's Registration Statement on Form N-1A
(Registration No. 33-23166), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
0001047469-99-002378) on January 27, 1999.
(b) Amended and Restated By-Laws, incorporated by reference to
Exhibit 2 to Post-Effective Amendment No. 33 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-23166), filed with the Securities and Exchange Commission
via EDGAR (Accession No. 0000912057-97-007488) on
February 28, 1997.
(c)(1) Specimen Security with respect to Morgan Stanley
Institutional Fund, Inc. Class A shares incorporated by
reference to Exhibit 1(a) (Amended and Restated Articles of
Incorporation), as amended to date to Post-Effective
Amendment No. 26 to Registrant's Registration Statement
(Registration No. 33-23166), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
0000912057-95-008594) on October 13, 1995 and Exhibit 2
(Amended and Restated By-Laws), as amended to date to
Post-Effective Amendment No. 33 to Registrant's Registration
Statement, filed with the Securities and Exchange Commission
via EDGAR (Accession No. 0000912057-97-007488) on
February 28, 1997.
(c)(2) Specimen Security with respect to Morgan Stanley
Institutional Fund, Inc. Class B shares incorporated by
reference to Exhibit 1(a) (Amended and Restated Articles of
Incorporation), as amended to date to Post-Effective
Amendment No. 26 to Registrant's Registration Statement
(Registration No. 33-23166), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
0000912057-95-008594) on October 13, 1995 and Exhibit 2
(Amended and Restated By-Laws), as amended to date to
Post-Effective Amendment No. 33 to Registrant's Registration
Statement, filed with the Securities and Exchange Commission
via EDGAR (Accession No. 0000912057-97-007488) on
February 28, 1997.
(d)(1) Investment Advisory Agreement between Registrant and Morgan
Stanley Asset Management Inc., incorporated by reference to
Exhibit (d)(1) to Post-Effective Amendment No. 40 to the
Registrant's Registration Statement on Form N-1A
(Registration No. 33-23166), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
0001047469-99-002378) on January 27, 1999.
(d)(2) Investment Sub-Advisory Agreement among Registrant, Morgan
Stanley Asset Management Inc. and Sun Valley Gold Company
(with respect to the Gold Portfolio) is incorporated by
reference to Exhibit 5(i) to Post-Effective Amendment No. 25
to Registrant's Registration Statement on Form N-1A
(Registration No. 33-23166), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
0000912057-95-005830) on August 1, 1995.
-2-
<PAGE>
(d)(3) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the U.S. Equity Plus Portfolio), is incorporated by
reference to Exhibit 5(q) to Post-Effective Amendment No. 38
to Registrant's Registration Statement on Form N-1A
(Registration No. 33-23166), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
0001047469-98-008051) on February 27, 1998.
(d)(4) Supplement to Investment Advisory Agreement between
Registrant and Morgan Stanley Asset Management Inc. (adding
the Asian and European Real Estate Portfolios), is
incorporated by reference to Exhibit 5(r) to Post-Effective
Amendment No. 38 to Registrant's Registration Statement on
Form N-1A (Registration No. 33-23166), filed with the
Securities and Exchange Commission via EDGAR (Accession No.
0001047469-98-008051) on February 27, 1998.
(d)(5) Form of Sub-Advisory agreement between Registrant and
Morgan Stanley Dean Witter Advisors Inc., filed herewith.
(e)(1) Distribution Agreement between Registrant and Morgan Stanley
& Co. Incorporated., incorporated by reference to Exhibit
6(a) to Post-Effective Amendment No. 25 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-23166), filed with the Securities and Exchange Commission
via EDGAR (Accession No. 0000912057-95-005830) on August 1,
1995.
(e)(2) Supplement to Distribution Agreement between Registrant and
Morgan Stanley & Co. Incorporated, incorporated by reference
to Exhibit 6(b) to Post-Effective Amendment No. 29 to
Registrant's Registration Statement on Form N-1A
(Registration No. 33-23166), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
0000912057-96-007390) on April 30, 1996.
(f) Not applicable.
(g)(1) Mutual Fund Domestic Custody Agreement between Registrant
and United States Trust Company, incorporated by reference
to Exhibit 8(a) to Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A
(Registration No. 33-23166), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
0000912057-95-005830) August 1, 1995.
(g)(2) International Custody Agreement between Registrant and
Morgan Stanley Trust Company, incorporated by reference to
Exhibit 8(b) to Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A
(Registration No. 33-23166), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
0000912057-95-005830) on August 1, 1995.
(g)(3) Amendment to International Custody Agreement between
Registrant and Morgan Stanley Trust Company, incorporated by
reference to Exhibit 8(c) to Post-Effective Amendment No. 30
to Registrant's Registration Statement on Form N-1A
(Registration No. 33-23166), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
0000912057-96-010828) on May 24, 1996.
(h)(1) Administration Agreement between Registrant and Morgan
Stanley Asset Management Inc., incorporated by reference to
Exhibit 9(a) to Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A
-3-
<PAGE>
(Registration No. 33-23166), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
0000912057-95-005830) on August 1, 1995.
(h)(2) Administration Agreement between Registrant and United
States Trust Company, incorporated by reference to Exhibit
9(b) to Post-Effective Amendment No. 25 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-23166), filed with the Securities and Exchange Commission
via EDGAR (Accession No. 0000912057-95-005830) on August 1,
1995.
(i) Opinion of Counsel, filed herewith.
(j) Consent of Accountant, filed herewith.
(k) None.
(l) Purchase Agreement, incorporated by reference to Exhibit 13
to Post-Effective Amendment No. 25 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-23166), filed with the Securities and Exchange Commission
via EDGAR (Accession No. 0000912057-95-005830) on August 1,
1995.
(m)(1) Distribution Plan with respect to the Class B shares (the
"Class B Plan") of the Active Country Allocation Portfolio,
incorporated by reference to Exhibit 15 to Post-Effective
Amendment No. 33 to Registrant's Registration Statement on
Form N-1A (Registration No. 33-23166), filed with Securities
and Exchange Commission via EDGAR (Accession No.
0000912057-97-007488) on February 28, 1997. The following
Class B Plans have been omitted because they are
substantially identical to the one incorporated by reference
herein. The omitted Class B Plans differ from the Class B
Plan incorporated by reference herein only with respect to
the portfolio to which the Class B Plan relates: Fixed
Income, Global Fixed Income, Municipal Bond, Mortgage-Backed
Securities, High Yield, Value Equity, Gold, Global Equity,
International Equity, Asian Equity, European Equity,
Japanese Equity, Latin American, Emerging Markets, Emerging
Markets Debt, China Growth, Equity Growth, Emerging Growth,
MicroCap, Aggressive Equity, U.S. Real Estate, International
Magnum, Technology, U.S. Equity Plus, European Real Estate,
Asian Real Estate and Money Market Portfolios.
(n) Financial Data Schedules, filed herewith.
(o) 18f-3 Plan, incorporated by reference to Exhibit 19 to
Post-Effective Amendment No. 33 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-23166), filed
with the Securities and Exchange Commission via EDGAR
(Accession No. 0000912057-97-007488) on February 28, 1997.
(p) Powers of Attorney, filed herewith.
-4-
<PAGE>
Item 24. Persons Controlled by or under Common Control with Registrant
Provide a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant. For any person
controlled by another person, disclose the percentage of voting securities owned
by the immediately controlling person or other basis of that person's control.
For each company, also provide the state or other sovereign power under the laws
of which the company is organized.
None.
Item 25. Indemnification
State the general effect of any contract, arrangements or statute
under which any director, officer, underwriter or affiliated person of the
Registrant is insured or indemnified against any liability incurred in their
official capacity, other than insurance provided by any director, officer,
affiliated person, or underwriter for their own protection.
Reference is made to Article SEVENTH of the Registrant's Articles of
Incorporation. Insofar as indemnification for liability may be permitted to
trustees, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a trustee,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Item 26. Business and Other Connections of the Investment Adviser
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment adviser and each director, officer or
partner of the investment adviser, is or has been, engaged within the last two
fiscal years for his or her own account or in the capacity of director, officer,
employee, partner or trustee. (Disclose the name and principal business address
of any company for which a person listed above serves in the capacity of
director, officer, employee, partner or trustee, and the nature of the
relationship.)
<TABLE>
<CAPTION>
NAME AND POSITION WITH
MSDW INVESTMENT POSITION WITH OTHER
MANAGEMENT INC. NAME OF OTHER COMPANY COMPANY
------------------------ --------------------- -------------------
<S> <C> <C>
Barton M. Biggs Morgan Stanley & Co. Managing Director
Chairman, Director Incorporated
and Managing
Director
Dennis G. Sherva Morgan Stanley & Co. Managing Director
Director and Incorporated
Managing Director
-5-
<PAGE>
<CAPTION>
<S> <C> <C>
Harold J. Schaaff, Jr. Morgan Stanley & Co. Principal
General Counsel, Incorporated
Secretary and
Principal
Donald P. Ryan Morgan Stanley & Co. Principal
Compliance Officer Incorporated
and Principal
Alexander C. Frank Morgan Stanley & Co. Managing Director
Treasurer Incorporated
Marna C. Whittington Miller Anderson & Executive Committee
Chief Operating Sherrerd, LLP Member
Officer, Managing
Director and Member
of Executive
Committee
Richard B. Worley Miller Anderson & Portfolio Manager and
President, Director, Sherrerd, LLP Executive Committee
Portfolio Manager Member
and Member of
Executive Committee MAS Fund Distribution, Registered Representative
Inc.
Morgan Stanley & Co. Managing Director
Incorporated
Peter D. Caldecott Morgan Stanley Dean Managing Director
Managing Director Witter Investment
and Member of Management Limited
Executive Committee
Thomas L. Bennett Morgan Stanley & Co. Managing Director
Member of Executive Incorporated
Committee and
Portfolio MAS Fund Distribution, Director
Manager Inc.
Miller Anderson & Portfolio Manager and
Sherrerd, LLP Executive Committee
Member
Frank P. L. Minard Morgan Stanley & Co. Managing Director
Managing Director Incorporated
and Member of
Executive Committee
Alan E. Goldberg Morgan Stanley & Co. Managing Director
Member of Executive Incorporated
Committee
</TABLE>
In addition, MSDW Investment Management acts as investment adviser or
sub-adviser to the following registered investment companies: American Advantage
International Equity Fund; Fountain Square International Equity Fund; The Latin
American Discovery Fund, Inc.; The Malaysia Fund, Inc.; Morgan Stanley Africa
Investment Fund, Inc.; Morgan Stanley Asia-Pacific Fund, Inc.; Morgan Stanley
-6-
<PAGE>
Emerging Markets Debt Fund, Inc.; Morgan Stanley Emerging Markets Fund, Inc.;
Morgan Stanley Global Opportunity Bond Fund, Inc.; Morgan Stanley High Yield
Fund, Inc.; Morgan Stanley Russia and New Europe Fund, Inc.; Morgan Stanley
India Investment Fund, Inc.; certain portfolios of Morgan Stanley Dean Witter
Universal Funds, Inc.; Morgan Stanley Dean Witter Strategic Adviser Fund, Inc.;
The Pakistan Investment Fund, Inc.; The Thai Fund, Inc.; The Turkish Investment
Fund, Inc.; Aggressive Growth and Asset Allocation Fund, Inc.; Accounts of
Principal Variable Contracts Fund, Inc.; certain portfolios of the SunAmerica
Series Trust; Fortis Series Fund, Inc. - Global Asset Allocation Series; Morgan
Stanley Dean Witter International Fund; Morgan Stanley Dean Witter International
SmallCap Fund; Morgan Stanley Dean Witter Pacific Growth Fund, Inc.; Morgan
Stanley Dean Witter Real Estate Fund; Morgan Stanley Dean Witter Variable
Investment Series - Pacific Growth Portfolio; Morgan Stanley Dean Witter Japan
Fund, Inc.; Morgan Stanley Dean Witter European Growth Fund Inc.; Morgan Stanley
Dean Witter Variable Investment Series - European Growth Portfolio; Morgan
Stanley Dean Witter Growth Fund; Morgan Stanley Dean Witter Select Dimensions
Investment Series -- The Growth Portfolio; Morgan Stanley Dean Witter Worldwide
High Income Fund; Endeavor Series Trust - Endeavor Money Market Portfolio;
Endeavor Series Trust - Endeavor Asset Allocation Portfolio; EQ Advisors Trust -
Morgan Stanley Emerging Markets Equity Portfolio; Frank Russell Investment
Company - Diversified Equity Fund; Frank Russell Investment Company - Equity I
Fund; NASL Series Trust - Global Equity Trust; New England Zenith Fund - Morgan
Stanley International Magnum Equity Series; North American Funds - Global
Equity Fund; Pacific Select Fund - The International Portfolio; Pacific Select
Fund - Real Estate Investment Trust ("REIT") Portfolio; SEI Institutional
Investments Trust - Emerging Markets Equity Fund; SEI Institutional
International Trust - Emerging Markets Equity Portfolio; Style Select Series
Inc. - Large Cap Blend Portfolio; TCW/DW Emerging Markets Opportunities Trust;
Van Kampen World Portfolio Series Trust - Global Government Securities Fund; Van
Kampen Life Investment Trust - Global Equity Fund; Van Kampen Life Investment
Trust - Real Estate Securities Fund; Van Kampen Global Managed Assets Fund; Van
Kampen Real Estate Securities Fund; certain portfolios of the Van Kampen Series
Fund, Inc.
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment sub-adviser, and each director,
officer or partner of the investment sub-adviser, is or has been, engaged within
the last two fiscal years, for his or her own account or in the capacity of
director, officer, employee, partner or trustee. (Disclose the name and
principal business address of any company for which a person listed above serves
in the capacity of director, officer, employee, partner or trustee, and the
nature of the relationship.)
During the last two fiscal years, no director or officer of Sun Valley
Gold Company , the Registrant's investment sub-adviser, has engaged in any other
business, profession, vocation or employment of a substantial nature other than
that of the business of investment management and, through affiliates,
investment banking.
Item 27. Principal Underwriters
(a) State the name of each investment company (other than the
Registrant) for which each principal underwriter currently distributing
securities of the Registrant also acts as a principal underwriter, depositor or
investment adviser.
Morgan Stanley & Co. Incorporated acts as distributor for Morgan
Stanley Dean Witter Institutional Fund, Inc., Morgan Stanley Dean
Witter Universal Funds, Inc. and Morgan Stanley Dean Witter Strategic
Adviser Fund, Inc., all registered open-end management investment
companies.
-7-
<PAGE>
(b) Provide the information with respect to each director, officer or
partner of each principal underwriter named in answer to item 20.
<TABLE>
<CAPTION>
POSITION AND
OFFICES WITH POSITION AND
NAME AND PRINCIPAL MORGAN STANLEY OFFICES WITH
BUSINESS ADDRESS* & CO. INCORPORATED REGISTRANT
------------------ ------------------ -------------
<S> <C> <C>
Barton M. Biggs Director Chairman and Director
Bruce D. Fiedorek Director and Vice Chairman
Richard B. Fisher Director and Chairman of
the Board
Takeo Kani Director
Peter F. Karches Director, President and
Chief Operating Officer
John J. Mack Director
Robert A. Metzler Director
Stephan F. Newhouse Director and Vice Chairman
Ralph L. Pellecchio Director, General Counsel and Secretary
Joseph R. Perella Director
Robert G. Scott Director and Chief Financial
Officer
John S. Wadswoth, Jr. Director
Sir David Alan Walker Director
J. Steven W. Ward Director
-----------------------
*1585 Broadway
New York, NY 10036
</TABLE>
(c) Not applicable.
Item 28. Location of Accounts and Records
State the name and address of each person maintaining principal
possession of each account, book or other document required to be maintained by
section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the rules under that
section.
-8-
<PAGE>
Chase Global Funds Services Company, Registrant's sub-transfer agent
and sub-dividend disbursing agent, P.O. Box 2798, Boston, Massachusetts,
02208-2798, maintains physical possession of each such account, book or other
document of the Fund.
In particular, with respect to the records required by Rule
31a-1(b)(1), Chase Global Funds Services Company maintains physical possession
of all journals containing itemized daily records of all purchases and sales of
securities, including sales and redemptions of Fund securities, and also
maintains physical possession all receipts and deliveries of securities
(including certificate numbers if such detail is not recorded by custodian or
transfer agent), all receipts and disbursements of cash, and all other debts and
credits.
In addition, Morgan Stanley Dean Witter Investment Management Inc.,
Registrant's investment adviser and administrator, 1221 Avenue of the Americas,
New York, New York 10020, maintains possession of the Fund's corporate
organizational records, in addition to certain other records required by Rule
31a-1(b).
Item 29. Management Services
Provide a summary of the substantive provisions of any
management-related service contract not discussed in part A or part B,
disclosing the parties to the contract and the total amount paid and by whom,
for the fund's last three fiscal years.
Not applicable.
Item 30. Undertakings
In initial registration statements filed under the Securities Act,
provide an undertaking to file an amendment to the registration statement with
certified financial statements showing the initial capital received before
accepting subscriptions from more than 25 persons if the Fund intends to raise
its initial capital under section 14(a)(3)[15U.S.C. 80a-14(a)(3)].
Not applicable.
-9-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940, as amended, the Registrant
certifies that it meets all of the requirements for effectiveness of this
Amendment pursuant to Rule 485(b) under the 1933 Act and has duly caused this
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, duly authorized, in the City of New York and State of New York on
April 23, 1999.
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
By: /s/ Michael F. Klein
------------------------
Michael F. Klein
President and Director
Pursuant to the requirements of the 1933 Act, this Amendment to the
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- ----------------------------- ---------
<S> <C> <C>
/s/ Michael F. Klein Director, President April 23, 1999
- ------------------------------- (Principal Executive
Michael F. Klein Officer)
*/s/ Barton M. Biggs Director (Chairman) April 23, 1999
- -------------------------------
Barton M. Biggs
*/s/ Fergus Reid Director April 23, 1999
- -------------------------------
Fergus Reid
*/s/ Frederick O. Robertshaw Director April 23, 1999
- -------------------------------
Frederick O. Robertshaw
*/s/ Andrew McNally IV Director April 23, 1999
- -------------------------------
Andrew McNally IV
*/s/ John D. Barrett II Director April 23, 1999
- -------------------------------
John D. Barrett II
*/s/ Gerard E. Jones Director April 23, 1999
- -------------------------------
Gerard E. Jones
*/s/ Samuel T. Reeves Director April 23, 1999
- -------------------------------
Samuel T. Reeves
/s/ Joanna M. Haigney Treasurer April 23, 1999
- -------------------------------
Joanna M. Haigney
</TABLE>
*By: /s/ Michael F. Klein
--------------------
Michael F. Klein
Attorney-In-Fact
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EDGAR
EXHIBIT
NUMBER DOCUMENT
------- ----------------------------------------------------------------------------------------------------------------
<S> <C>
(a)(1) Registrant's Articles of Amendment and Restatement, incorporated by reference to Exhibit 1(a) to Post-
Effective Amendment No. 26 to the Registrant's Registration Statement on Form N-1A (Registration No.
33-23166), filed with the Securities and Exchange Commission via EDGAR (Accession No. 0000912057-95-
008594) on October 13, 1995.
(a)(2) Registrant's Articles Supplementary to Registrant's Articles of Amendment and Restatement
(reclassifying shares), incorporated by reference to Exhibit 1(b) to Post-Effective Amendment No. 30
to Registrant's Registration Statement on Form N-1A (Registration No. 33-23166), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 0000912057-96-010828) on May 24, 1996.
(a)(3) Registrant's Articles Supplementary to Registrant's Articles of Amendment and Restatement (adding new
Technology Portfolio), incorporated by reference to Exhibit 1(c) to Post-Effective Amendment No. 30 to
Registrant's Registration Statement on Form N-1A (Registration No. 33-23166), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 0000912057-96-010828) on May 24, 1996.
(a)(4) Registrant's Articles Supplementary to Registrant's Articles of Amendment and Restatement (adding U.S.
Equity Plus Portfolio), incorporated by reference to Exhibit 1(d) to Post-Effective Amendment No. 38
to Registrant's Registration Statement on Form N-1A (Registration No. 33-23166), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 0001047469-98-008051)on February 27, 1998.
(a)(5) Registrant's Articles Supplementary to Registrant's Articles of Amendment and Restatement (adding
European Real Estate and Asian Real Estate Portfolios), incorporated by reference to Exhibit 1(e) to
Post-Effective Amendment No. 38 to Registrant's Registration Statement on Form N-1A (Registration No.
33-23166), filed with the Securities and Exchange Commission via EDGAR (Accession No. 00001047469-98-
008051) on February 27, 1998.
(a)(6) Registrant's Articles Supplementary to Registrant's Articles of Amendment and Restatement (adding
Class B shares to the Money Market Portfolio), incorporated by reference to Exhibit 1(f) to Post-
Effective Amendment No. 38 to Registrant's Registration Statement on Form N-1A (Registration No. 33-
23166), filed with the Securities and Exchange Commission via EDGAR (Accession No. 00001047469-98-
008051) on February 27, 1998.
(a)(7) Articles of Amendment to Registrant's Articles of Amendment and Restatement (Active Country Allocation
Portfolio name changed to Active International Portfolio), incorporated by reference to Exhibit (a)(7)
to Post-Effective Amendment No. 40 to the Registrant's Registration Statement on Form N-1A
(Registration No. 33-23166), filed with the Securities and Exchange Commission via EDGAR (Accession
No. 0001047469-99-002378) on January 27, 1999.
(a)(8) Articles of Amendment to Registrant's Articles of Amendment and Restatement (Active International
Portfolio name changed to Active International Allocation Portfolio), incorporated by reference to
Exhibit (a)(8) to Post-Effective Amendment No. 40 to the Registrant's Registration Statement on Form
N-1A (Registration No. 33-23166), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 0001047469-99-002378) on January 27, 1999.
<PAGE>
<CAPTION>
<S> <C>
(a)(9) Articles of Amendment to Registrant's Articles of Amendment and Restatement (changing corporate name
to Morgan Stanley Dean Witter Institutional Fund, Inc.), incorporated by reference to Exhibit (a)(9)
to Post-Effective Amendment No. 40 to the Registrant's Registration Statement on Form N-1A
(Registration No. 33-23166), filed with the Securities and Exchange Commission via EDGAR (Accession
No. 0001047469-99-002378) on January 27, 1999.
(b) Amended and Restated By-Laws, incorporated by reference to Exhibit 2 to Post-Effective Amendment
No. 33 to Registrant's Registration Statement on Form N-1A (Registration No. 33-23166), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 0000912057-97-007488) on February 28, 1997.
(c)(1) Specimen Security with respect to Morgan Stanley Institutional Fund, Inc. Class A shares incorporated
by reference to Exhibit 1(a) (Amended and Restated Articles of Incorporation), as amended to date to
Post-Effective Amendment No. 26 to Registrant's Registration Statement (Registration No. 33-23166),
filed with the Securities and Exchange Commission via EDGAR (Accession No. 0000912057-95-008594) on
October 13, 1995 and Exhibit 2 (Amended and Restated By-Laws), as amended to date to Post-Effective
Amendment No. 33 to Registrant's Registration Statement, filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000912057-97-007488) on February 28, 1997.
(c)(2) Specimen Security with respect to Morgan Stanley Institutional Fund, Inc. Class B shares incorporated
by reference to Exhibit 1(a) (Amended and Restated Articles of Incorporation), as amended to date to
Post-Effective Amendment No. 26 to Registrant's Registration Statement (Registration No. 33-23166),
filed with the Securities and Exchange Commission via EDGAR (Accession No. 0000912057-95-008594) on
October 13, 1995 and Exhibit 2 (Amended and Restated By-Laws), as amended to date to Post-Effective
Amendment No. 33 to Registrant's Registration Statement, filed with the Securities and Exchange
Commission via EDGAR (Accession No.0000912057-97-007488) on February 28, 1997.
(d)(1) Investment Advisory Agreement between Registrant and Morgan Stanley Asset Management Inc.,
incorporated by reference to Exhibit (d)(1) to Post-Effective Amendment No. 40 to the Registrant's
Registration Statement on Form N-1A (Registration No. 33-23166), filed with the Securities and
Exchange Commission via EDGAR (Accession No. 0001047469-99-002378) on January 27, 1999.
(d)(2) Investment Sub-Advisory Agreement among Registrant, Morgan Stanley Asset Management Inc. and Sun
Valley Gold Company (with respect to the Gold Portfolio) is incorporated by reference to Exhibit 5(i)
to Post-Effective Amendment No. 25 to Registrant's Registration Statement on Form N-1A (Registration
No. 33-23166), filed with the Securities and Exchange Commission via EDGAR (Accession No. 0000912057-
95-005830) on August 1, 1995.
(d)(3) Supplement to Investment Advisory Agreement between Registrant and Morgan Stanley Asset Management
Inc. (adding the U.S. Equity Plus Portfolio), is incorporated by reference to Exhibit 5(q) to Post-
Effective Amendment No. 38 to Registrant's Registration Statement on Form N-1A (Registration No. 33-
23166), filed with the Securities and Exchange Commission via EDGAR (Accession No. 0001047469-98-
008051) on February 27, 1998.
(d)(4) Supplement to Investment Advisory Agreement between Registrant and Morgan Stanley Asset Management
Inc. (adding the Asian and European Real Estate Portfolios), is incorporated by reference to Exhibit
5(r) to Post-Effective Amendment No. 38 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-23166), filed with the Securities and Exchange Commission on February 27, 1998.
EX-99. (d)(5) Form of Sub-Advisory agreement between Registrant and Morgan Stanley Dean Witter Advisors Inc.,
filed herewith.
<PAGE>
<CAPTION>
<S> <C>
(e)(1) Distribution Agreement between Registrant and Morgan Stanley & Co. Incorporated., incorporated by
reference to Exhibit 6(a) to Post-Effective Amendment No. 25 to Registrant's Registration Statement on
Form N-1A (Registration No. 33-23166), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 0000912057-95-005830) on August 1, 1995.
(e)(2) Supplement to Distribution Agreement between Registrant and Morgan Stanley & Co. Incorporated,
incorporated by reference to Exhibit 6(b) to Post-Effective Amendment No. 29 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-23166), filed with the Securities and
Exchange Commission via EDGAR (Accession No. 0000912057-96-007390) on April 30, 1996.
(f) Not applicable.
(g)(1) Mutual Fund Domestic Custody Agreement between Registrant and United States Trust Company,
incorporated by reference to Exhibit 8(a) to Post-Effective Amendment No. 25 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-23166), filed with the Securities and
Exchange Commission via EDGAR (Accession No. 0000912057-95-005830) August 1, 1995.
(g)(2) International Custody Agreement between Registrant and [Morgan Stanley Trust Company], incorporated by
reference to Exhibit 8(b) to Post-Effective Amendment No. 25 to Registrant's Registration Statement on
Form N-1A (Registration No. 33-23166), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 0000912057-95-005830) on August 1, 1995.
(g)(3) Amendment to International Custody Agreement between Registrant and [Morgan Stanley Trust Company],
incorporated by reference to Exhibit 8(c) to Post-Effective Amendment No. 30 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-23166), filed with the Securities and
Exchange Commission via EDGAR (Accession No. 0000912057-96-010828) on May 24, 1996.
(h)(1) Administration Agreement between Registrant and Morgan Stanley Asset Management Inc., incorporated by
reference to Exhibit 9(a) to Post-Effective Amendment No. 25 to Registrant's Registration Statement on
Form N-1A (Registration No. 33-23166), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 0000912057-95-005830) on August 1, 1995.
(h)(2) Administration Agreement between Registrant and United States Trust Company, incorporated by reference
to Exhibit 9(b) to Post-Effective Amendment No. 25 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-23166), filed with the Securities and Exchange Commission via EDGAR (Accession
No. 0000912057-95-005830) on August 1, 1995.
EX-99. (i) Opinion of Counsel, filed herewith.
EX-99. (j) Consent of Accountant, filed herewith.
(k) None.
<PAGE>
<CAPTION>
<S> <C>
(l) Purchase Agreement, incorporated by reference to Exhibit 13 to Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A (Registration No. 33-23166), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 0000912057-95-005830) on August 1, 1995.
(m)(1) Distribution Plan with respect to the Class B shares (the "Class B Plan") of the Active Country
Allocation Portfolio, incorporated by reference to Exhibit 15 to Post-Effective Amendment No. 33 to
Registrant's Registration Statement on Form N-1A (Registration No. 33-23166), filed with Securities
and Exchange Commission via EDGAR (Accession No. 0000912057-97-007488) on February 28, 1997. The
following Class B Plans have been omitted because they are substantially identical to the one
incorporated by reference herein. The omitted Class B Plans differ from the Class B Plan incorporated
by reference herein only with respect to the portfolio to which the Class B Plan relates: Fixed
Income, Global Fixed Income, Municipal Bond, Mortgage-Backed Securities, High Yield, Value Equity,
Gold, Global Equity, International Equity, Asian Equity, European Equity, Japanese Equity, Latin
American, Emerging Markets, Emerging Markets Debt, China Growth, Equity Growth, Emerging Growth,
MicroCap, Aggressive Equity, U.S. Real Estate, International Magnum, Technology, U.S. Equity Plus,
European Real Estate, Asian Real Estate and Money Market Portfolios.
EX-27. (n) Financial Data Schedules, filed herewith.
(o) 18f-3 Plan, incorporated by reference to Exhibit 19 to Post-Effective Amendment No. 33 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-23166), filed with the Securities and
Exchange Commission via EDGAR (Accession No. 0000912057-97-007488) on February 28, 1997.
EX-99. (p) Powers of Attorney, filed herewith.
</TABLE>
<PAGE>
FORM OF
SUB-ADVISORY AGREEMENT
AGREEMENT made as of the day of , 1999 by and between Morgan
Stanley Dean Witter Investment Management Inc., a Delaware corporation (herein
referred to as the "Investment Manager"), and Morgan Stanley Dean Witter
Advisors Inc., a Delaware corporation, (herein referred to as the
"Sub-Advisor").
WHEREAS, Morgan Stanley Dean Witter Institutional Fund, Inc. (herein
referred to as the "Fund") is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act"); and
WHEREAS, the Investment Manager has entered into an Investment Management
Agreement with the Fund (the "Investment Management Agreement") wherein the
Investment Manager has agreed to provide investment management services to the
various portfolios of the Fund; and
WHEREAS, the Sub-Advisor is registered as an investment adviser under the
Investment Advisers Act of 1940, and engages in the business of acting as an
investment adviser; and
WHEREAS, Investment Manager desires to retain the services of the
Sub-Advisor to render investment advisory services for the Money Market
Portfolio and the Municipal Money Market Portfolio of the Fund (each a
"Portfolio" and together the "Portfolios") in the manner and on the terms and
conditions hereinafter set forth; and
WHEREAS, the Sub-Advisor desires to be retained by the Investment Manager to
perform services on said terms and conditions:
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Subject to the supervision of the Fund, its officers and Directors, and the
Investment Manager, and in accordance with the investment objectives,
policies and restrictions set forth in the then-current Registration
Statement relating to the Fund, and such investment objectives, policies and
restrictions from time to time prescribed by the Directors of the Fund with
respect to the Portfolios and communicated by the Investment Manager to the
Sub-Advisor, the Sub-Advisor agrees to provide the Fund with investment
advisory services with respect to the Portfolios' investments to obtain and
evaluate such information and advice relating to the economy, securities
markets and securities as it deems necessary or useful to discharge its
duties hereunder; to continuously manage the assets of each Portfolio in a
manner consistent with the investment objective and policies of the
applicable Portfolio; to make decisions as to foreign currency matters and
make determinations as to forward foreign exchange contracts and options and
futures contracts in foreign currencies; shall determine the securities to
be purchased, sold or otherwise disposed of by the Fund and the timing of
such purchases, sales and dispositions; to take such further action,
including the placing of purchase and sale orders on behalf of the
Portfolios, as it shall deem necessary or appropriate; to furnish to or
place at the disposal of the Fund and Investment Manager such of the
information, evaluations, analyses and opinions formulated or obtained by it
in the discharge of its duties as the Fund and the Investment Manager may,
from time to time, reasonably request. The Investment Manager and the
Sub-Advisor shall each make its officers and employees available to the
other from time to time at reasonable times to review investment policies of
the Portfolios and to consult with each other.
2. The Sub-Advisor shall, at its own expense, maintain such staff and employ or
retain such personnel and consult with such other persons as it shall from
time to time determine to be necessary or useful to the performance of its
obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of the Sub-Advisor shall be deemed to
include persons employed or
A-1
<PAGE>
otherwise retained by the Sub-Advisor to furnish statistical and other
factual data, advice regarding economic factors and trends, information with
respect to technical and scientific developments, and such other
information, advice and assistance as the Investment Manager may desire. The
Sub-Advisor shall maintain whatever records as may be required to be
maintained by it under the Act. All such records so maintained shall be made
available to the Fund, upon the request of the Investment Manager or the
Fund.
3. The Fund will, from time to time, furnish or otherwise make available to the
Sub-Advisor such financial reports, proxy statements and other information
relating to the business and affairs of the Portfolios as the Sub-Advisor
may reasonably require in order to discharge its duties and obligations
hereunder or to comply with any applicable law and regulations and the
investment objectives, policies and restrictions from time to time
prescribed by the Directors of the Fund.
4. The Sub-Advisor shall bear the cost of rendering the investment advisory
services to be performed by it under this Agreement, and shall, at its own
expense, pay the compensation of the officers and employees, if any, of the
Fund, employed by the Sub-Advisor, and such clerical help and bookkeeping
services as the Sub-Advisor shall reasonably require in performing its
duties hereunder.
5. The Fund assumes and shall pay or cause to be paid all other expenses of the
Fund, including, without limitation: any fees paid to the Investment
Manager; fees pursuant to any plan of distribution that the Fund may adopt;
the charges and expenses of any registrar, any custodian, sub-custodian or
depository appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any stock transfer or dividend agent or
agents appointed by the Fund; brokers' commissions chargeable to the Fund in
connection with portfolio securities transactions to which the Fund is a
party; all taxes, including securities issuance and transfer taxes, and fees
payable by the Fund to federal, state or other governmental agencies or
pursuant to any foreign laws; the cost and expense of engraving or printing
certificates representing shares of the Fund; all costs and expenses in
connection with the registration and maintenance of registration of the Fund
and its shares with the Securities and Exchange Commission and various
states and other jurisdictions or pursuant to any foreign laws (including
filing fees and legal fees and disbursements of counsel); the cost and
expense of printing (including typesetting) and distributing prospectuses of
the Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Directors' meetings and of preparing, printing and mailing
proxy statements and reports to shareholders; fees and travel expenses of
Directors or members of any advisory board or committee who are not
employees of the Investment Manager or Sub-Advisor; all expenses incident to
the payment of any dividend, distribution, withdrawal or redemption whether
in shares or in cash; charges and expenses of any outside service used for
pricing of the Fund's shares; charges and expenses of legal counsel,
including counsel to the Directors of the Fund who are not interested
persons (as defined in the Act) of the Fund, the Investment Manager or the
Sub-Advisor, and of independent accountants, in connection with any matter
relating to the Fund; membership dues of industry associations; interest
payable on Fund borrowings; postage; insurance premiums on property or
personnel (including officers and Directors) of the Fund which inure to its
benefit; extraordinary expenses (including but not limited to legal claims
and liabilities and litigation costs and any indemnification related
thereto); and all other charges and costs of the Fund's operation unless
otherwise explicitly provided herein.
6. For the services to be rendered, the facilities furnished, and the expenses
assumed by the Sub-Advisor, the Investment Manager shall pay to the
Sub-Advisor monthly compensation equal to 40% of the fee that the Investment
Manager receives from each Portfolio pursuant to the Investment Management
Agreement. Any subsequent change in the Investment Management Agreement
which has the effect of raising or lowering the compensation of the
Investment Manager will have the concomitant effect of raising or lowering
the fee payable to the Sub-Advisor under this Agreement. In addition, if the
Investment Manager has undertaken in the Fund's Registration Statement as
filed under the Act (the "Registration Statement") or elsewhere to waive all
or part of its fee under the Investment
A-2
<PAGE>
Management Agreement, the Sub-Advisor's fee payable under this Agreement
will be proportionately waived in whole or in part. The calculation of the
fee payable to the Sub-Advisor pursuant to this Agreement will be made, each
month, at the time designated for the monthly calculation of the fee payable
to the Investment Manager pursuant to the Investment Management Agreement.
If this Agreement becomes effective subsequent to the first day of a month
or shall terminate before the last day of a month, compensation for the part
of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculation of the fee as set forth above.
7. The Sub-Advisor will use its best efforts in the performance of investment
activities on behalf of the Fund, but in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations
hereunder, the Sub-Advisor shall not be liable to the Investment Manager or
the Fund or any of its investors for any error of judgment or mistake of law
or for any act or omission by the Sub-Advisor or for any losses sustained by
the Fund or its investors.
8. It is understood that any of the shareholders, Directors, officers and
employees of the Fund may be a shareholder, director, officer or employee
of, or be otherwise interested in, the Sub-Advisor, and in any person
controlled by or under common control with the Sub-Advisor, and that the
Sub-Advisor and any person controlled by or under common control with the
Sub-Advisor may have an interest in the Fund. It is also understood that the
Sub-Advisor and any affiliated persons thereof or any persons controlled by
or under common control with the Sub-Advisor have and may have advisory,
management service or other contracts with other organizations and persons,
and may have other interests and businesses, and further may purchase, sell
or trade any securities or commodities for their own accounts or for the
account of others for whom they may be acting.
9. This Agreement shall remain in effect with respect to each Portfolio until
, 2001 and from year to year thereafter provided such continuance is
approved at least annually by the vote of holders of a majority, as defined
in the Act, of the outstanding voting securities of the applicable Portfolio
or by the Directors of the Fund, provided, that in either event such
continuance is also approved annually by the vote of a majority of the
Directors of the Fund who are not parties to this Agreement or "interested
persons" (as defined in the Act) of any such party, which vote must be cast
in person at a meeting called for the purpose of voting on such approval;
provided, however, that (a) the Fund may, at any time and without the
payment of any penalty, terminate this Agreement with respect to either
Portfolio or both Portfolios upon thirty days' written notice to the
Investment Manager and the Sub-Advisor, either by majority vote of the
Directors of the Fund or by the vote of a majority of the outstanding voting
securities of the applicable Portfolio(s); (b) this Agreement shall
immediately terminate in the event of its assignment (within the meaning of
the Act) unless such automatic termination shall be prevented by an
exemptive order of the Securities and Exchange Commission; (c) this
Agreement shall immediately terminate in the event of the termination of the
Investment Management Agreement; (d) the Investment Manager may terminate
this Agreement with respect to either Portfolio or both Portfolios without
payment of penalty on thirty days' written notice to the Fund and the
Sub-Advisor; and (e) the Sub-Advisor may terminate this Agreement with
respect to either Portfolio or both Portfolios without the payment of
penalty on thirty days' written notice to the Fund and the Investment
Manager. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed post-paid, to the other party at the
principal office of such party.
10. This Agreement may be amended by the parties without the vote or consent of
the shareholders of the Portfolios to supply any omission, to cure, correct
or supplement any ambiguous, defective or inconsistent provision hereof, or
if they deem it necessary to conform this Agreement to the requirements of
applicable federal laws or regulations, but neither the Fund, the Investment
Manager nor the Sub-Advisor shall be liable for failing to do so.
A-3
<PAGE>
11. This Agreement shall be construed in accordance with the law of the State of
New York and the applicable provisions of the Act. To the extent the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Act, the latter shall
control.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written in New York, New York.
MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC.
By:
------------------------------
Attest:
------------------------------
MORGAN STANLEY DEAN WITTER
ADVISORS INC.
By:
------------------------------
Attest:
------------------------------
Accepted and agreed to as of
the day and year first above written:
MORGAN STANLEY DEAN WITTER
INSTITUTIONAL FUND, INC.
By:
--------------------------------------
Attest:
--------------------------------------
A-4
<PAGE>
1701 Market Street MORGAN, LEWIS &
Philadelphia, PA 19103-2921 BOCKIUS LLP
215-963-5000 COUNSELORS AT LAW
Fax: 215-963-5299
April 23, 1999
Morgan Stanley Dean Witter Institutional Fund, Inc.
1221 Avenue of the Americas
New York, NY 10020
Re: OPINION OF COUNSEL REGARDING POST-EFFECTIVE AMENDMENT NO. 42 TO THE
REGISTRATION STATEMENT FILED ON FORM N-1A UNDER THE SECURITIES ACT OF 1933
(FILE NO. 33-23166).
Ladies and Gentlemen:
We have acted as counsel to Morgan Stanley Dean Witter Institutional Fund, Inc.,
a Maryland corporation (the "Fund"), in connection with the above-referenced
Registration Statement which relates to the Fund's shares of common stock, par
value $.001 per share (collectively, the "Shares"). This opinion is being
delivered to you in connection with the Fund's filing of Post-Effective
Amendment No. 42 to the Registration Statement (the "Amendment") to be filed
with the Securities and Exchange Commission pursuant to Rule 485(b) under the
Securities Act of 1933 (the "1933 Act"). With your permission, all assumptions
and statements of reliance herein have been made without any independent
investigation or verification on our part, except to the extent otherwise
expressly stated, and we express no opinion with respect to the subject matter
or accuracy of such assumptions or items relied upon.
In connection with this opinion, we have reviewed, among other things, executed
copies of the following documents:
(a) a certificate of the State of Maryland to the existence and good
standing of the Fund dated April 15, 1999;
(b) the Articles of Incorporation of the Fund and all amendments and
supplements thereto (the "Articles of Incorporation");
(c) a certificate executed by Stefanie V. Chang, the Acting Secretary of
the Fund, certifying as to the Fund's Articles of Incorporation and
Amended and Restated
<PAGE>
Morgan Stanley Dean Witter Institutional Fund, Inc.
April 23, 1999
Page 2
By-Laws (the "By-Laws"), and certain resolutions adopted by the Board of
Directors of the Fund authorizing the issuance of the Shares; and
(d) a printer's proof of the Amendment.
In our capacity as counsel to the Fund, we have examined the originals, or
certified, conformed or reproduced copies, of all records, agreements,
instruments and documents as we have deemed relevant or necessary as the basis
for the opinion hereinafter expressed. In all such examinations, we have assumed
the legal capacity of all natural persons executing documents, the genuineness
of all signatures, the authenticity of all original or certified copies, and the
conformity to original or certified copies of all copies submitted to us as
conformed or reproduced copies. As to various questions of fact relevant to such
opinion, we have relied upon, and assume the accuracy of, certificates and oral
or written statements of public officials and officers or representatives of the
Fund. We have assumed that the Amendment, as filed with the Securities and
Exchange Commission, will be in substantially the form of the printer's proof
referred to in paragraph (d) above.
Based upon, and subject to, the limitations set forth herein, we are of the
opinion that the Shares, when issued and sold in accordance with the Articles of
Incorporation and By-Laws, and for the consideration described in the
Registration Statement, will be legally issued, fully paid and nonassessable
under the laws of the State of Maryland.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not concede that we are in
the category of persons whose consent is required under Section 7 of the 1933
Act.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
Morgan, Lewis and Bockius LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Statement of
Additional Information constituting part of this Post-Effective Amendment No. 42
to the registration statement on Form N-1A (the "Registration Statement") of our
report dated February 8, 1999, relating to the financial statements and
financial highlights appearing in the December 31, 1998 Annual Report to
Shareholders of Morgan Stanley Dean Witter Institutional Fund, Inc. (formerly
Morgan Stanley Insitutional Fund, Inc.), which are also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the heading "Independent Accountants" and "Financial Statements" and
below the table of contents in such Statement of Additional Information and
under the heading "Financial Highlights" in the Prospectus, which also
constitutes part of the Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
April 23, 1999
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000836487
<NAME> MORGAN STANLEY INSTITUTIONAL FUND, INC.
<SERIES>
<NUMBER> 052
<NAME> VALUE EQUITY PORTFOLIO, CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 47,472
<INVESTMENTS-AT-VALUE> 57,663
<RECEIVABLES> 2,277
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<OTHER-ITEMS-ASSETS> 24
<TOTAL-ASSETS> 59,964
<PAYABLE-FOR-SECURITIES> 1,240
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<OTHER-ITEMS-LIABILITIES> 136
<TOTAL-LIABILITIES> 1,376
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47,006
<SHARES-COMMON-STOCK> 97
<SHARES-COMMON-PRIOR> 165
<ACCUMULATED-NII-CURRENT> 15
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<NUMBER-OF-SHARES-REDEEMED> (172)
<SHARES-REINVESTED> 33
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</TABLE>
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
POWER OF ATTORNEY
Frederick O. Robertshaw, whose signature appears below, does hereby
constitute and appoint Michael F. Klein, Harold J. Schaaff, Jr., Valerie Y.
Lewis and Stefanie V. Chang, his true and lawful attorneys and agents, each with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorneys and agents may deem
necessary or advisable or which may be required to enable Morgan Stanley
Institutional Fund, Inc. (the "Fund") to comply with the Securities Act of 1933,
as amended (the "1933 Act") and the Investment Company Act of 1940, as amended
(the "1940 Act"), and any rules, regulations or requirements of the Securities
and Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all amendments thereto, including within the foregoing,
the power and authority to sign in the name and on behalf of the undersigned as
a director of the Fund such Registration Statement and any and all such
amendments filed with the Securities and Exchange Commission under the 1933 Act
and the 1940 Act, and any other instruments or documents related thereto, and
the undersigned does hereby ratify and confirm all that said attorney and agents
shall do or cause to be done by virtue hereof.
/s/ Frederick O. Robertshaw
---------------------------------------
Frederick O. Robertshaw
Date: January 21, 1998
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
POWER OF ATTORNEY
Fergus Reid, whose signature appears below, does hereby constitute and
appoint Michael F. Klein, Harold J. Schaaff, Jr., Valerie Y. Lewis and Stefanie
V. Chang, his true and lawful attorneys and agents, each with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents may deem necessary or
advisable or which may be required to enable Morgan Stanley Institutional Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all amendments thereto, including within the foregoing, the power and
authority to sign in the name and on behalf of the undersigned as a director of
the Fund such Registration Statement and any and all such amendments filed with
the Securities and Exchange Commission under the 1933 Act and the 1940 Act, and
any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorney and agents shall do or cause to
be done by virtue hereof.
/s/ Fergus Reid
---------------------------------------
Fergus Reid
Date: January 22, 1998
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
POWER OF ATTORNEY
Samuel T. Reeves, whose signature appears below, does hereby constitute and
appoint Michael F. Klein, Harold J. Schaaff, Jr., Valerie Y. Lewis and Stefanie
V. Chang, his true and lawful attorneys and agents, each with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents may deem necessary or
advisable or which may be required to enable Morgan Stanley Institutional Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all amendments thereto, including within the foregoing, the power and
authority to sign in the name and on behalf of the undersigned as a director of
the Fund such Registration Statement and any and all such amendments filed with
the Securities and Exchange Commission under the 1933 Act and the 1940 Act, and
any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorney and agents shall do or cause to
be done by virtue hereof.
/s/ Samuel T. Reeves
---------------------------------------
Samuel T. Reeves
Date: January 14, 1998
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
POWER OF ATTORNEY
Andrew McNally, IV, whose signature appears below, does hereby constitute
and appoint Michael F. Klein, Harold J. Schaaff, Jr., Valerie Y. Lewis and
Stefanie V. Chang, his true and lawful attorneys and agents, each with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents may deem necessary or
advisable or which may be required to enable Morgan Stanley Institutional Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all amendments thereto, including within the foregoing, the power and
authority to sign in the name and on behalf of the undersigned as a director of
the Fund such Registration Statement and any and all such amendments filed with
the Securities and Exchange Commission under the 1933 Act and the 1940 Act, and
any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorney and agents shall do or cause to
be done by virtue hereof.
/s/ Andrew McNally, IV
---------------------------------------
Andrew McNally, IV
Date: January 16, 1998
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
POWER OF ATTORNEY
Gerard E. Jones, whose signature appears below, does hereby constitute and
appoint Michael F. Klein, Harold J. Schaaff, Jr., Valerie Y. Lewis and Stefanie
V. Chang, his true and lawful attorneys and agents, each with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents may deem necessary or
advisable or which may be required to enable Morgan Stanley Institutional Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all amendments thereto, including within the foregoing, the power and
authority to sign in the name and on behalf of the undersigned as a director of
the Fund such Registration Statement and any and all such amendments filed with
the Securities and Exchange Commission under the 1933 Act and the 1940 Act, and
any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorney and agents shall do or cause to
be done by virtue hereof.
/s/ Gerard E. Jones
---------------------------------------
Gerard E. Jones
Date: January 14, 1998
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
POWER OF ATTORNEY
John D. Barrett, II, whose signature appears below, does hereby constitute
and appoint Michael F. Klein, Harold J. Schaaff, Jr., Valerie Y. Lewis and
Stefanie V. Chang, his true and lawful attorneys and agents, each with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents may deem necessary or
advisable or which may be required to enable Morgan Stanley Institutional Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all amendments thereto, including within the foregoing, the power and
authority to sign in the name and on behalf of the undersigned as a director of
the Fund such Registration Statement and any and all such amendments filed with
the Securities and Exchange Commission under the 1933 Act and the 1940 Act, and
any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorney and agents shall do or cause to
be done by virtue hereof.
/s/ John D. Barrett, II
---------------------------------------
John D. Barrett, II
Date: January 15, 1998
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
POWER OF ATTORNEY
Michael F. Klein, whose signature appears below, does hereby constitute and
appoint Harold J. Schaaff, Jr., Valerie Y. Lewis and Stefanie V. Chang, his true
and lawful attorneys and agents, each with power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorneys and agents may deem necessary or advisable or
which may be required to enable Morgan Stanley Institutional Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all
amendments thereto, including within the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a President and a director
of the Fund such Registration Statement and any and all such amendments filed
with the Securities and Exchange Commission under the 1933 Act and the 1940 Act,
and any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorney and agents shall do or cause to
be done by virtue hereof.
/s/ Michael F. Klein
---------------------------------------
Michael F. Klein
Date: January 20, 1998
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
POWER OF ATTORNEY
Barton M. Biggs, whose signature appears below, does hereby constitute and
appoint Michael F. Klein, Harold J. Schaaff, Jr., Valerie Y. Lewis and Stefanie
V. Chang, his true and lawful attorneys and agents, each with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents may deem necessary or
advisable or which may be required to enable Morgan Stanley Institutional Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all amendments thereto, including within the foregoing, the power and
authority to sign in the name and on behalf of the undersigned as a director of
the Fund such Registration Statement and any and all such amendments filed with
the Securities and Exchange Commission under the 1933 Act and the 1940 Act, and
any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorney and agents shall do or cause to
be done by virtue hereof.
/s/ Barton M. Biggs
---------------------------------------
Barton M. Biggs
Date: January 14, 1998
<PAGE>
MORGAN STANLEY INSTITUTIONAL FUND, INC.
POWER OF ATTORNEY
Joanna M. Haigney, whose signature appears below, does hereby constitute
and appoint Michael F. Klein, Harold J. Schaaff, Jr., Valerie Y. Lewis and
Stefanie V. Chang, her true and lawful attorneys and agents, each with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents may deem necessary or
advisable or which may be required to enable Morgan Stanley Institutional Fund,
Inc. (the "Fund") to comply with the Securities Act of 1933, as amended (the
"1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act"),
and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all amendments thereto, including within the foregoing, the power and
authority to sign in the name and on behalf of the undersigned as the treasurer
of the Fund such Registration Statement and any and all such amendments filed
with the Securities and Exchange Commission under the 1933 Act and the 1940 Act,
and any other instruments or documents related thereto, and the undersigned does
hereby ratify and confirm all that said attorney and agents shall do or cause to
be done by virtue hereof.
/s/ Joanna M. Haigney
---------------------------------------
Joanna M. Haigney
Date: January 14, 1998
