<PAGE>
PROSPECTUS - OCTOBER 29, 1999
Morgan Stanley Dean Witter
INTERMEDIATE INCOME SECURITIES
[COVER PHOTO]
A MUTUAL FUND THAT SEEKS HIGH CURRENT
INCOME CONSISTENT WITH SAFETY OF PRINCIPAL
The Securities and Exchange Commission has not approved or disapproved these
securities or passed uponthe adequacy of this PROSPECTUS.
Any representation to the contrary is a criminal offense.
<PAGE>
CONTENTS
<TABLE>
<S> <C> <C>
The Fund Investment Objective......... 1
Principal Investment
Strategies................... 1
Principal Risks.............. 2
Past Performance............. 4
Fees and Expenses............ 5
Additional Investment
Strategy Information......... 6
Additional Risk
Information.................. 6
Fund Management.............. 8
Shareholder Information Pricing Fund Shares.......... 9
How to Buy Shares............ 9
How to Exchange Shares....... 11
How to Sell Shares........... 12
Distributions................ 14
Tax Consequences............. 15
Share Class Arrangements..... 15
Financial Highlights ............................. 23
Our Family of Funds ............................. Inside Back Cover
THIS PROSPECTUS CONTAINS IMPORTANT INFORMATION
ABOUT THE FUND.
PLEASE READ IT CAREFULLY AND KEEP IT FOR FUTURE
REFERENCE.
</TABLE>
<PAGE>
[Sidebar]
INCOME
AN INVESTMENT OBJECTIVE HAVING THE GOAL OF SELECTING SECURITIES WITH THE
POTENTIAL TO PAY OUT INCOME.
[End Sidebar]
THE FUND
[ICON] INVESTMENT OBJECTIVE
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter Intermediate Income Securities seeks high
current income consistent with safety of principal.
[ICON] PRINCIPAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
The Fund will normally invest at least 65% of its total assets in
intermediate term, investment grade fixed-income securities. These
securities may include corporate debt securities, preferred stocks,
U.S. government securities, including mortgage-backed and zero coupon
securities, and U.S. dollar-denominated securities issued by foreign
governments or corporations. In deciding which securities to buy,
hold or sell, the Fund's "Investment Manager," Morgan Stanley Dean
Witter Advisors Inc., considers domestic and international economic
developments, interest rate trends, bond ratings and other factors
relating to the issuers. The Fund anticipates that it will maintain
an average weighted maturity of between three to seven years; the
Fund will not invest in securities with remaining maturities greater
than twelve years.
Fixed-income securities are debt securities such as bonds and notes.
The issuer of the debt security borrows money from the investor who
buys the security. Most debt securities pay either fixed or
adjustable rates of interest at regular intervals until they mature,
at which point investors get their principal back.
The Fund also may invest in mortgage-backed securities which may
include "pass-through" securities. These securities represent a
participation interest in a pool of residential mortgage loans
originated by U.S. Governmental or private lenders such as banks.
They provide for monthly payments that are a "pass-through" of the
monthly interest (either fixed or adjustable rates) and principal
payments made by the individual borrowers on the pooled mortgage
loans.
In addition, the Fund may invest in fixed-income securities rated
lower than investment grade.
In pursuing the Fund's investment objective, the Investment Manager
has considerable leeway in deciding which investments it buys, holds
or sells on a day-to-day basis and which trading strategies it uses.
For example, the Investment Manager in its discretion may determine
to use some permitted trading strategies while not using others.
1
<PAGE>
[ICON] PRINCIPAL RISKS
- --------------------------------------------------------------------------------
There is no assurance that the Fund will achieve its investment
objective. The Fund's share price will fluctuate with changes in the
market value of the Fund's portfolio securities. When you sell Fund
shares, they may be worth less than what you paid for them and,
accordingly, you can lose money investing in this Fund.
FIXED-INCOME SECURITIES. A principal risk of investing in the Fund is
associated with its fixed-income investments. All fixed-income
securities are subject to two types of risk: credit risk and interest
rate risk. Credit risk refers to the possibility that the issuer of a
security will be unable to make interest payments and repay the
principal on its debt. Investment grade fixed-income securities that
the Fund may hold may have speculative characteristics.
Interest rate risk refers to fluctuations in the value of a
fixed-income security resulting from changes in the general level of
interest rates. When the general level of interest rates goes up, the
prices of most fixed-income securities go down. When the general
level of interest rates goes down, the prices of most fixed-income
securities go up. The Fund's fixed-income investments may include
zero coupon securities, which are purchased at a discount and either
(i) pay no interest, or (ii) accrue interest, but make no payments
until maturity.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities in which the
Fund may invest have different risk characteristics than traditional
debt securities. Although generally the value of fixed-income
securities increases during periods of falling interest rates and
decreases during periods of rising interest rates, this is not always
the case with mortgage-backed securities. This is due to the fact
that principal on underlying mortgages may be prepaid at any time as
well as other factors. Generally, prepayments will increase during a
period of falling interest rates and decrease during a period of
rising interest rates. The rate of prepayments also may be influenced
by economic and other factors. Prepayment risk includes the
possibility that, as interest rates fall, securities with stated
interest rates may have the principal prepaid earlier than expected,
requiring the Fund to invest the proceeds at generally lower interest
rates.
Investments in mortgage-backed securities are made based upon, among
other things, expectations regarding the rate of prepayments on
underlying mortgage pools. Rates of prepayment, faster or slower than
expected by the Investment Manager, could reduce the Fund's yield,
increase the volatility of the Fund and/or cause a decline in net
asset value. Certain mortgage-backed securities may be more volatile
and less liquid than other traditional types of debt securities.
2
<PAGE>
U.S. DOLLAR-DENOMINATED FOREIGN SECURITIES. The Fund's investments in
U.S. dollar-denominated foreign securities (including depository
receipts) involve risks that are in addition to the risks associated
with domestic securities. Foreign securities have risks related to
economic and political developments abroad, including expropriations,
confiscatory taxation, exchange control regulation, limitations on
the use or transfer of Fund assets and any effects of foreign,
social, economic or political instability. In particular, adverse
political or economic developments in a geographic region or a
particular country in which the Fund invests could cause a
substantial decline in value of the portfolio. Foreign companies, in
general, are not subject to the regulatory requirements of U.S.
companies and, as such, there may be less publicly available
information about these companies. Moreover, foreign accounting,
auditing and financial reporting standards generally are different
from those applicable to U.S. companies. Finally, in the event of a
default of any foreign debt obligations, it may be more difficult for
the Fund to obtain or enforce a judgment against the issuers of the
securities.
Securities of foreign issuers may be less liquid than comparable
securities of U.S. issuers and, as such, their price changes may be
more volatile. Furthermore, foreign exchanges and broker-dealers are
generally subject to less government and exchange scrutiny and
regulation than their U.S. counterparts.
OTHER RISKS. The performance of the Fund also will depend on whether
the Investment Manager is successful in pursuing the Fund's
investment strategy. The Fund is also subject to other risks from its
permissible investments including the risks associated with
investments in "junk bonds." For more information about these risks,
see the "Additional Risk Information" section.
Shares of the Fund are not bank deposits and are not guaranteed or
insured by the FDIC or any other government agency.
3
<PAGE>
[Sidebar]
ANNUAL TOTAL RETURNS
THIS CHART SHOWS HOW THE PERFORMANCE OF THE FUND'S CLASS B SHARES HAS VARIED
FROM YEAR TO YEAR OVER THE PAST 9 CALENDAR YEARS.
AVERAGE ANNUAL TOTAL RETURNS
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL RETURNS WITH THOSE OF A BROAD
MEASURE OF MARKET PERFORMANCE OVER TIME, AS WELL AS WITH AN INDEX OF FUNDS WITH
SIMILAR INVESTMENT OBJECTIVES. THE FUND'S RETURNS INCLUDE THE MAXIMUM APPLICABLE
SALES CHARGE FOR EACH CLASS AND ASSUME YOU SOLD YOUR SHARES AT THE END OF EACH
PERIOD.
[End Sidebar]
[ICON] PAST PERFORMANCE
- --------------------------------------------------------------------------------
The bar chart and table below provide some indication of the risks of
investing in the Fund. The Fund's past performance does not indicate
how the Fund will perform in the future.
ANNUAL TOTAL RETURNS - CALENDAR YEARS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 2.15%
91 16.56%
92 6.30%
93 8.75%
94 -3.09%
95 13.67%
96 3.07%
97 6.37%
98 6.93%
</TABLE>
The bar chart reflects the performance of Class B shares; the performance of the
other Classes will differ because the Classes have different ongoing fees. The
performance information in the bar chart does not reflect the deduction of sales
charges; if these amounts were reflected, returns would be less than shown.
Year-to-date total return as of September 30, 1999 was -1.03%.
During the periods shown in the bar chart, the highest return for a
calendar quarter was 4.76% (quarter ended June 30, 1995) and the
lowest return for a calendar quarter was -2.46% (quarter ended
March 31, 1994).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1998)
- ----------------------------------------------------------------- LIFE OF FUND
PAST 1 YEAR PAST 5 YEARS (SINCE 5/3/89)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------
Class A(1) 2.92% -- --
- -----------------------------------------------------------------------------------
Class B 1.93% 4.93% 6.62%
- -----------------------------------------------------------------------------------
Class C(1) 6.02% -- --
- -----------------------------------------------------------------------------------
Class D(1) 7.84% -- --
- -----------------------------------------------------------------------------------
Lehman Brothers Intermediate
Government/Corporate Bond
Index(2) 8.44% 6.60% 8.33%(4)
- -----------------------------------------------------------------------------------
Lipper Intermediate Investment
Grade Debt Funds Index(3) 7.87% 6.59% 8.13%(4)
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
1 Classes A, C and D commenced operations on July 28, 1997.
2 The Lehman Brothers Intermediate Government/Corporate Bond
Index tracks the performance of government and corporate
debt obligations, including U.S. government agency and U.S.
Treasury securities and corporate and yankee bonds, with
maturities of one to ten years. The Index is unmanaged and
should not be considered an investment.
3 The Lipper Intermediate Investment Grade Debt Funds Index is
an equally-weighted performance index of the largest
qualifying funds (based on net assets) in the Lipper
Intermediate Investment Grade Debt Funds objective. The
Index, which is adjusted for capital gains distributions and
income dividends, is unmanaged and should not be considered
an investment. There are currently 30 funds represented in
this Index.
4 For the Period May 31, 1989 to December 31, 1998.
</TABLE>
4
<PAGE>
[Sidebar]
SHAREHOLDER FEES
THESE FEES ARE PAID DIRECTLY FROM YOUR INVESTMENT.
ANNUAL FUND
OPERATING EXPENSES
THESE EXPENSES ARE DEDUCTED FROM THE FUND'S ASSETS AND ARE BASED ON EXPENSES
PAID FOR THE FISCAL YEAR ENDED AUGUST 31, 1999.
[End Sidebar]
[ICON] FEES AND EXPENSES
- --------------------------------------------------------------------------------
The table below briefly describes the fees and expenses that you may
pay if you buy and hold shares of the Fund. The Fund offers four
Classes of shares: Classes A, B, C and D. Each Class has a different
combination of fees, expenses and other features. The Fund does not
charge account or exchange fees. See the "Share Class Arrangements"
section for further fee and expense information.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
- --------------------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases (as a
percentage of offering price) 4.25%(1) None None None
- --------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load)
(as a percentage based on the lesser of
the offering price or net asset value at redemption) None(2) 5.00%(3) 1.00%(4) None
- --------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------------------------------
Management fee 0.60% 0.60% 0.60% 0.60%
- --------------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.18% 0.85% 0.85% None
- --------------------------------------------------------------------------------------------------------
Other expenses 0.30% 0.30% 0.30% 0.30%
- --------------------------------------------------------------------------------------------------------
Total annual Fund operating expenses 1.08% 1.75% 1.75% 0.90%
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
1 Reduced for purchases of $25,000 and over.
2 Investments that are not subject to any sales charge at the
time of purchase are subject to a contingent deferred sales
charge ("CDSC") of 1.00% that will be imposed if you sell
your shares within one year after purchase, except for
certain specific circumstances.
3 The CDSC is scaled down to 1.00% during the sixth year,
reaching zero thereafter. See "Share Class Arrangements" for
a complete discussion of the CDSC.
4 Only applicable if you sell your shares within one year
after purchase.
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
This example shows what expenses you could pay over time. The example
assumes that you invest $10,000 in the Fund, your investment has a 5%
return each year, and the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, the tables below
show your costs at the end of each period based on these assumptions
depending upon whether or not you sell your shares at the end of each
period.
<TABLE>
<CAPTION>
IF YOU SOLD YOUR SHARES: IF YOU HELD YOUR SHARES:
----------------------------------------- -----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------ -----------------------------------------
CLASS A $530 $754 $ 995 $1,686 $530 $754 $995 $1,686
------------------------------------------------------------------ -----------------------------------------
CLASS B $678 $851 $1,149 $2,062 $178 $551 $949 $2,062
------------------------------------------------------------------ -----------------------------------------
CLASS C $278 $551 $ 949 $2,062 $178 $551 $949 $2,062
------------------------------------------------------------------ -----------------------------------------
CLASS D $ 91 $285 $ 496 $1,102 $ 91 $285 $496 $1,102
------------------------------------------------------------------ -----------------------------------------
</TABLE>
Long-term shareholders of Class B and Class C may pay more in sales
charges, including distribution fees, than the economic equivalent of
the maximum front-end sales charges permitted by the NASD.
5
<PAGE>
[ICON] ADDITIONAL INVESTMENT STRATEGY INFORMATION
- --------------------------------------------------------------------------------
This section provides additional information relating to the Fund's
principal strategies.
JUNK BONDS. The Fund may invest up to 5% of its assets in
fixed-income securities rated lower than investment grade (commonly
known as "junk bonds").
DEFENSIVE INVESTING. The Fund may take temporary "defensive"
positions in attempting to respond to adverse market conditions. The
Fund may invest any amount of its assets in cash or money market
instruments in a defensive posture when the Investment Manager
believes it is advisable to do so. Although taking a defensive
posture is designed to protect the Fund from an anticipated market
downturn, it could have the effect of reducing the benefit from any
upswing in the market. When the Fund takes a defensive position, it
may not achieve its investment objective.
PORTFOLIO TURNOVER. The Fund may engage in active and frequent
trading of portfolio securities to achieve its principal investment
strategies. The portfolio turnover rate is not expected to exceed
200% annually under normal circumstances. A high turnover rate, such
as 200%, will increase Fund brokerage costs. It also may increase the
Fund's capital gains, which are passed along to Fund shareholders as
distributions. This, in turn, may increase your tax liability as a
Fund shareholder. See the section on "Distributions" and "Tax
Consequences."
The percentage limitations relating to the composition of the Fund's
portfolio apply at the time the Fund acquires an investment and refer
to the Fund's net assets, unless otherwise noted. Subsequent
percentage changes that result from market fluctuations will not
require the Fund to sell any portfolio security. The Fund may change
its principal investment strategies without shareholder approval;
however, you would be notified of any changes.
[ICON] ADDITIONAL RISK INFORMATION
- --------------------------------------------------------------------------------
This section provides additional information relating to the
principal risks of investing in the Fund.
FIXED-INCOME SECURITIES. As merely illustrative of the relationship
between fixed-income securities and interest rates, the following
table shows how interest rates affect bond prices.
<TABLE>
<CAPTION>
PRICE PER $1,000 OF A BOND IF
INTEREST RATES:
------------------------------------
HOW INTEREST RATES AFFECT BOND PRICES INCREASE DECREASE
-------------------------------------------------------------- ---------------- ----------------
BOND MATURITY COUPON 1% 2% 1% 2%
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------
1 year N/A $1,000 $1,000 $1,000 $1,000
------------------------------------------------------------------------------------------------------
5 years 4.25% $967 $934 $1,038 $1,076
------------------------------------------------------------------------------------------------------
10 years 4.75% $930 $867 $1,074 $1,155
------------------------------------------------------------------------------------------------------
30 years 5.25% $865 $756 $1,166 $1,376
------------------------------------------------------------------------------------------------------
</TABLE>
Coupons reflect yields on Treasury securities as of December 31,
1998. The table is not representative of price changes for
mortgage-backed securities principally because of prepayment risk
(discussed below). In addition, the table is an illustration and does
not represent expected yields or share price changes of any Morgan
Stanley Dean Witter mutual fund.
6
<PAGE>
JUNK BONDS. Fund investments in securities rated lower than
investment grade (commonly known as "junk bonds") pose significant
risks. The prices of junk bonds are likely to be more sensitive to
adverse economic changes or individual corporate developments than
higher rated securities. During an economic downturn or substantial
period of rising interest rates, junk bond issuers and, in
particular, highly leveraged issuers may experience financial stress
that would adversely affect their ability to service their principal
and interest payment obligations, to meet their projected business
goals or to obtain additional financing. In the event of a default,
the Fund may incur additional expenses to seek recovery. The
secondary market for junk bonds may be less liquid than the markets
for higher quality securities and, as such, may have an adverse
effect on the market prices of certain securities. Many junk bonds
are issued as Rule 144A securities. Rule 144A securities could have
the effect of increasing the level of Fund illiquidity to the extent
the Fund may be unable to find qualified institutional buyers
interested in purchasing the securities. The illiquidity of the
market may also adversely affect the ability of the Fund's Trustees
to arrive at a fair value for certain junk bonds at certain times and
could make it difficult for the Fund to sell certain securities. In
addition, periods of economic uncertainty and change probably would
result in an increased volatility of market prices of high yield
securities. This may result in a corresponding volatility in the
Fund's net asset value.
YEAR 2000. The Fund could be adversely affected if the computer
systems necessary for the efficient operation of the Investment
Manager, the Fund's other service providers and the markets and
corporate and governmental issuers in which the Fund invests do not
properly process and calculate date-related information from and
after January 1, 2000. While year 2000-related computer problems
could have a negative effect on the Fund, the Investment Manager and
its affiliates are working hard to avoid any problems and to obtain
assurances from their service providers that they are taking similar
steps.
In addition, it is possible that the markets for securities in which
the Fund invests may be detrimentally affected by computer failures
throughout the financial services industry beginning January 1, 2000.
Improperly functioning trading systems may result in settlement
problems and liquidity issues. Corporate and governmental data
processing errors also may result in production problems for
individual companies and overall economic uncertainties. Earnings of
individual issuers will be affected by remediation costs, which may
be substantial and may be reported inconsistently in U.S. and foreign
financial statements. Accordingly, the Fund's investments may be
adversely affected.
7
<PAGE>
[Sidebar]
MORGAN STANLEY DEAN WITTER ADVISORS INC.
THE INVESTMENT MANAGER IS WIDELY RECOGNIZED AS A LEADER IN THE MUTUAL FUND
INDUSTRY AND TOGETHER WITH MORGAN STANLEY DEAN WITTER SERVICES COMPANY INC., ITS
WHOLLY-OWNED SUBSIDIARY, HAS MORE THAN $134 BILLION IN ASSETS UNDER MANAGEMENT
OR ADMINISTRATION AS OF SEPTEMBER 30, 1999.
[End Sidebar]
[ICON] FUND MANAGEMENT
- --------------------------------------------------------------------------------
The Fund has retained the Investment Manager -- Morgan Stanley Dean
Witter Advisors Inc. -- to provide administrative services, manage
its business affairs and invest its assets, including the placing of
orders for the purchase and sale of portfolio securities. The
Investment Manager is a wholly-owned subsidiary of Morgan Stanley
Dean Witter & Co., a preeminent global financial services firm that
maintains leading market positions in each of its three primary
businesses: securities, asset management and credit services. Its
main business office is located at Two World Trade Center, New York,
New York 10048.
The Fund's portfolio is managed within the Investment Manager's
Taxable Income Group. Rochelle G. Siegel, a Senior Vice President of
the Investment Manager, has been the primary portfolio manager of the
Fund since its inception in May 1989 and a portfolio manager with the
Investment Manager for over five years.
The Fund pays the Investment Manager a monthly management fee as full
compensation for the services and facilities furnished to the Fund,
and for Fund expenses assumed by the Investment Manager. The fee is
based on the Fund's average daily net assets. For the fiscal year
ended August 31, 1999, the Fund accrued total compensation to the
Investment Manager amounting to 0.60% of the Fund's average daily net
assets.
8
<PAGE>
[Sidebar]
CONTACTING A FINANCIAL ADVISOR
IF YOU ARE NEW TO THE MORGAN STANLEY DEAN WITTER FAMILY OF FUNDS AND WOULD LIKE
TO CONTACT A FINANCIAL ADVISOR, CALL (800) THE-DEAN FOR THE TELEPHONE NUMBER OF
THE MORGAN STANLEY DEAN WITTER OFFICE NEAREST YOU. YOU MAY ALSO ACCESS OUR
OFFICE LOCATOR ON OUR INTERNET SITE AT:
www.msdw.com/individual/funds
[End Sidebar]
SHAREHOLDER INFORMATION
[ICON] PRICING FUND SHARES
- --------------------------------------------------------------------------------
The price of Fund shares (excluding sales charges), called "net asset
value," is based on the value of the Fund's portfolio securities.
While the assets of each Class are invested in a single portfolio of
securities, the net asset value of each Class will differ because the
Classes have different ongoing distribution fees.
The net asset value per share of the Fund is determined once daily at
4:00 p.m. Eastern time on each day that the New York Stock Exchange
is open (or, on days when the New York Stock Exchange closes prior to
4:00 p.m., at such earlier time). Shares will not be priced on days
that the New York Stock Exchange is closed.
The value of the Fund's portfolio securities is based on the
securities' market price when available. When a market price is not
readily available, including circumstances under which the Investment
Manager determines that a security's market price is not accurate, a
portfolio security is valued at its fair value, as determined under
procedures established by the Fund's Board of Trustees. In these
cases, the Fund's net asset value will reflect certain portfolio
securities' fair value rather than their market price. In addition,
if the Fund holds securities primarily listed on foreign exchanges,
the value of the Fund's portfolio securities may change on days when
you will not be able to purchase or sell your shares.
An exception to the Fund's general policy of using market prices
concerns its short-term debt portfolio securities. Debt securities
with remaining maturities of sixty days or less at the time of
purchase are valued at amortized cost. However, if the cost does not
reflect the securities' market value, these securities will be valued
at their fair value.
[ICON] HOW TO BUY SHARES
- --------------------------------------------------------------------------------
You may open a new account to buy Fund shares or buy additional Fund
shares for an existing account by contacting your Morgan Stanley Dean
Witter Financial Advisor or other authorized financial
representative. Your Financial Advisor will assist you, step-
by-step, with the procedures to invest in the Fund. You may also
purchase shares directly by calling the Fund's transfer agent and
requesting an application.
Because every investor has different immediate financial needs and
long-term investment goals, the Fund offers investors four Classes of
shares: Classes A, B, C and D. Class D shares are only offered to a
limited group of investors. Each Class of shares offers a distinct
structure of sales charges, distribution and service fees, and other
features that are designed to address a variety of needs. Your
Financial Advisor or other authorized financial representative can
help you decide which Class may be most appropriate for you. When
purchasing Fund shares, you must specify which Class of shares you
wish to purchase.
9
<PAGE>
[Sidebar]
EASYINVEST-SM-
A PURCHASE PLAN THAT ALLOWS YOU TO TRANSFER MONEY AUTOMATICALLY FROM YOUR
CHECKING OR SAVINGS ACCOUNT OR FROM A MONEY MARKET FUND ON A SEMI-MONTHLY,
MONTHLY OR QUARTERLY BASIS. CONTACT YOUR MORGAN STANLEY DEAN WITTER FINANCIAL
ADVISOR FOR FURTHER INFORMATION ABOUT THIS SERVICE.
[End Sidebar]
When you buy Fund shares, the shares are purchased at the next share
price calculated (less any applicable front-end sales charge for
Class A shares) after we receive your purchase order. Your payment is
due on the third business day after you place your purchase order. We
reserve the right to reject any order for the purchase of Fund
shares.
<TABLE>
<CAPTION>
MINIMUM INVESTMENT AMOUNTS
--------------------------------------------------------------------------------
MINIMUM INVESTMENT
------------------------
INVESTMENT OPTIONS INITIAL ADDITIONAL
<S> <C> <C> <C>
--------------------------------------------------------------------------------
Regular Accounts $1,000 $100
--------------------------------------------------------------------------------
Individual Retirement
Accounts: Regular IRAs $1,000 $100
Education IRAs $500 $100
--------------------------------------------------------------------------------
EASYINVEST-SM-
(Automatically from your
checking or savings
account or Money Market
Fund) $100* $100*
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
* Provided your schedule of investments totals $1,000 in
twelve months.
</TABLE>
There is no minimum investment amount if you purchase Fund shares
through: (1) the Investment Manager's mutual fund asset allocation
plan, (2) a program, approved by the Fund's distributor, in which you
pay an asset-based fee for advisory, administrative and/ or brokerage
services, or (3) employer-sponsored employee benefit plan accounts.
INVESTMENT OPTIONS FOR CERTAIN INSTITUTIONAL AND OTHER
INVESTORS/CLASS D SHARES. To be eligible to purchase Class D shares,
you must qualify under one of the investor categories specified in
the "Share Class Arrangements" section of this PROSPECTUS.
SUBSEQUENT INVESTMENTS SENT DIRECTLY TO THE FUND. In addition to
buying additional Fund shares for an existing account by contacting
your Morgan Stanley Dean Witter Financial Advisor, you may send a
check directly to the Fund. To buy additional shares in this manner:
- Write a "letter of instruction" to the Fund specifying the name(s)
on the account, the account number, the social security or tax
identification number, the Class of shares you wish to purchase and
the investment amount (which would include any applicable front-end
sales charge). The letter must be signed by the account owner(s).
- Make out a check for the total amount payable to: Morgan Stanley
Dean Witter Intermediate Income Securities.
- Mail the letter and check to Morgan Stanley Dean Witter Trust FSB
at P.O. Box 1040, Jersey City, NJ 07303.
10
<PAGE>
[ICON] HOW TO EXCHANGE SHARES
- --------------------------------------------------------------------------------
PERMISSIBLE FUND EXCHANGES. You may exchange shares of any Class of
the Fund for the same Class of any other continuously offered
Multi-Class Fund, or for shares of a No-Load Fund, a Money Market
Fund, North American Government Income Trust or Short-Term U.S.
Treasury Trust, without the imposition of an exchange fee. See the
inside back cover of this PROSPECTUS for each Morgan Stanley Dean
Witter Fund's designation as a Multi-Class Fund, No-Load Fund or
Money Market Fund. If a Morgan Stanley Dean Witter Fund is not
listed, consult the inside back cover of that Fund's PROSPECTUS for
its designation. For purposes of exchanges, shares of FSC Funds
(subject to a front-end sales charge) are treated as Class A shares
of a Multi-Class Fund.
Exchanges may be made after shares of the Fund acquired by purchase
have been held for thirty days. There is no waiting period for
exchanges of shares acquired by exchange or dividend reinvestment.
The current PROSPECTUS for each Fund describes its investment
objective(s), policies and investment minimums, and should be read
before investment. Since exchanges are available only into
continuously offered Morgan Stanley Dean Witter Funds, exchanges are
not available into any new Morgan Stanley Dean Witter Fund during its
initial offering period, or when shares of a particular Morgan
Stanley Dean Witter Fund are not being offered for purchase.
EXCHANGE PROCEDURES. You can process an exchange by contacting your
Morgan Stanley Dean Witter Financial Advisor or other authorized
financial representative. Otherwise, you must forward an exchange
privilege authorization form to the Fund's transfer agent -- Morgan
Stanley Dean Witter Trust FSB -- and then write the transfer agent or
call (800) 869-NEWS to place an exchange order. You can obtain an
exchange privilege authorization form by contacting your Financial
Advisor or other authorized financial representative or by calling
(800) 869-NEWS. If you hold share certificates, no exchanges may be
processed until we have received all applicable share certificates.
An exchange to any Morgan Stanley Dean Witter Fund (except a Money
Market Fund) is made on the basis of the next calculated net asset
values of the Funds involved after the exchange instructions are
accepted. When exchanging into a Money Market Fund, the Fund's shares
are sold at their next calculated net asset value and the Money
Market Fund's shares are purchased at their net asset value on the
following business day.
The Fund may terminate or revise the exchange privilege upon required
notice. The check writing privilege is not available for Money Market
Fund shares you acquire in an exchange.
TELEPHONE EXCHANGES. For your protection when calling Morgan Stanley
Dean Witter Trust FSB, we will employ reasonable procedures to
confirm that exchange instructions communicated over the telephone
are genuine. These procedures may include requiring various forms of
personal identification such as name, mailing address, social
security or other tax identification number. Telephone instructions
also may be recorded.
11
<PAGE>
Telephone instructions will be accepted if received by the Fund's
transfer agent between 9:00 a.m. and 4:00 p.m. Eastern time, on any
day the New York Stock Exchange is open for business. During periods
of drastic economic or market changes, it is possible that the
telephone exchange procedures may be difficult to implement, although
this has not been the case with the Fund in the past.
MARGIN ACCOUNTS. If you have pledged your Fund shares in a margin
account, contact your Morgan Stanley Dean Witter Financial Advisor or
other authorized financial representative regarding restrictions on
the exchange of such shares.
TAX CONSIDERATIONS OF EXCHANGES. If you exchange shares of the Fund
for shares of another Morgan Stanley Dean Witter Fund there are
important tax considerations. For tax purposes, the exchange out of
the Fund is considered a sale of Fund shares -- and the exchange into
the other Fund is considered a purchase. As a result, you may realize
a capital gain or loss.
You should review the "Tax Consequences" section and consult your own
tax professional about the tax consequences of an exchange.
FREQUENT EXCHANGES. A pattern of frequent exchanges may result in the
Fund limiting or prohibiting, at its discretion, additional purchases
and/or exchanges. The Fund will notify you in advance of limiting
your exchange privileges.
CDSC CALCULATIONS ON EXCHANGES. See the "Share Class Arrangements"
section of this PROSPECTUS for a discussion of how applicable
contingent deferred sales charges (CDSCs) are calculated for shares
of one Morgan Stanley Dean Witter Fund that are exchanged for shares
of another.
For further information regarding exchange privileges, you should
contact your Morgan Stanley Dean Witter Financial Advisor or call
(800) 869-NEWS.
[ICON] HOW TO SELL SHARES
- --------------------------------------------------------------------------------
You can sell some or all of your Fund shares at any time. If you sell
Class A, Class B or Class C shares, your net sale proceeds are
reduced by the amount of any applicable CDSC. Your shares will be
sold at the next share price calculated after we receive your order
to sell as described below.
<TABLE>
<CAPTION>
OPTIONS PROCEDURES
<S> <C>
------------------------------------------------------------------------------------
Contact your To sell your shares, simply call your Morgan Stanley Dean
Financial Advisor Witter Financial Advisor or other authorized financial
representative.
------------------------------------------------------------
[ICON] Payment will be sent to the address to which the account is
registered or deposited in your brokerage account.
------------------------------------------------------------------------------------
By Letter You can also sell your shares by writing a "letter of
instruction" that includes:
[ICON] - your account number;
- the dollar amount or the number of shares you wish to
sell;
- the Class of shares you wish to sell; and
- the signature of each owner as it appears on the account.
------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
OPTIONS PROCEDURES
------------------------------------------------------------------------------------
<S> <C>
By Letter, If you are requesting payment to anyone other than the
continued registered owner(s) or that payment be sent to any address
other than the address of the registered owner(s) or
pre-designated bank account, you will need a signature
guarantee. You can obtain a signature guarantee from an
eligible guarantor acceptable to Morgan Stanley Dean Witter
Trust FSB. (You should contact Morgan Stanley Dean Witter
Trust FSB at (800) 869-NEWS for a determination as to
whether a particular institution is an eligible guarantor.)
A notary public CANNOT provide a signature guarantee.
Additional documentation may be required for shares held by
a corporation, partnership, trustee or executor.
------------------------------------------------------------
Mail the letter to Morgan Stanley Dean Witter Trust FSB at
P.O. Box 983, Jersey City, NJ 07303. If you hold share
certificates, you must return the certificates, along with
the letter and any required additional documentation.
------------------------------------------------------------
A check will be mailed to the name(s) and address in which
the account is registered, or otherwise according to your
instructions.
------------------------------------------------------------------------------------
Systematic If your investment in all of the Morgan Stanley Dean Witter
Withdrawal Plan Family of Funds has a total market value of at least
[ICON] $10,000, you may elect to withdraw amounts of $25 or more,
or in any whole percentage of a Fund's balance (provided the
amount is at least $25), on a monthly, quarterly,
semi-annual or annual basis, from any Fund with a balance of
at least $1,000. Each time you add a Fund to the plan, you
must meet the plan requirements.
------------------------------------------------------------
Amounts withdrawn are subject to any applicable CDSC. A CDSC
may be waived under certain circumstances. See the Class B
waiver categories listed in the "Share Class Arrangements"
section of this PROSPECTUS.
------------------------------------------------------------
To sign up for the Systematic Withdrawal Plan, contact your
Morgan Stanley Dean Witter Financial Advisor or call
(800) 869-NEWS. You may terminate or suspend your plan at
any time. Please remember that withdrawals from the plan are
sales of shares, not Fund "distributions," and ultimately
may exhaust your account balance. The Fund may terminate or
revise the plan at any time.
------------------------------------------------------------------------------------
</TABLE>
PAYMENT FOR SOLD SHARES. After we receive your complete instructions
to sell, as described above, a check will be mailed to you within
seven days, although we will attempt to make payment within one
business day. Payment may also be sent to your brokerage account.
Payment may be postponed or the right to sell your shares suspended
under unusual circumstances. If you request to sell shares that were
recently purchased by check, your sale will not be effected until it
has been verified that the check has been honored.
TAX CONSIDERATIONS. Normally, your sale of Fund shares is subject to
federal and state income tax. You should review the "Tax
Consequences" section of this PROSPECTUS and consult your own tax
professional about the tax consequences of a sale.
REINSTATEMENT PRIVILEGE. If you sell Fund shares and have not
previously exercised the reinstatement privilege, you may, within 35
days after the date of sale, invest any portion of the proceeds in
the same Class of Fund shares at their net asset value and receive a
pro rata credit for any CDSC paid in connection with the sale.
13
<PAGE>
[Sidebar]
TARGETED DIVIDENDS-SM-
YOU MAY SELECT TO HAVE YOUR FUND DISTRIBUTIONS AUTOMATICALLY INVESTED IN OTHER
CLASSES OF FUND SHARES OR CLASSES OF ANOTHER MORGAN STANLEY DEAN WITTER FUND
THAT YOU OWN. CONTACT YOUR MORGAN STANLEY DEAN WITTER FINANCIAL ADVISOR FOR
FURTHER INFORMATION ABOUT THIS SERVICE.
[End Sidebar]
INVOLUNTARY SALES. The Fund reserves the right, on sixty days'
notice, to sell the shares of any shareholder (other than shares held
in an IRA or 403(b) Custodial Account) whose shares, due to sales by
the shareholder, have a value below $100, or in the case of an
account opened through EASYINVEST -SM-, if after 12 months the
shareholder has invested less than $1,000 in the account.
However, before the Fund sells your shares in this manner, we will
notify you and allow you sixty days to make an additional investment
in an amount that will increase the value of your account to at least
the required amount before the sale is processed. No CDSC will be
imposed on any involuntary sale.
MARGIN ACCOUNTS. If you have pledged your Fund shares in a margin
account, contact your Morgan Stanley Dean Witter Financial Advisor or
other authorized financial representative regarding restrictions on
the sale of such shares.
[ICON] DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund passes substantially all of its earnings from income and
capital gains along to its investors as "distributions." The Fund
earns income from stocks and interest from fixed-income investments.
These amounts are passed along to Fund shareholders as "income
dividend distributions." The Fund realizes capital gains whenever it
sells securities for a higher price than it paid for them. These
amounts may be passed along as "capital gain distributions."
The Fund declares income dividends separately for each Class.
Distributions paid on Class A and Class D shares will usually be
higher than for Class B and Class C because distribution fees that
Class B and Class C pay are higher. Normally, income dividends are
declared on each day the New York Stock Exchange is open for
business, and are distributed to shareholders monthly. Capital gains,
if any, are usually distributed in December. The Fund, however, may
retain and reinvest any long-term capital gains. The Fund may at
times make payments from sources other than income or capital gains
that represent a return of a portion of your investment.
Distributions are reinvested automatically in additional shares of
the same Class and automatically credited to your account, unless you
request in writing that all distributions be paid in cash. If you
elect the cash option, processing of your dividend checks begins
immediately following the monthly payment date, and the Fund will
mail a monthly dividend check to you normally during the first seven
days of the following month. No interest will accrue on uncashed
checks. If you wish to change how your distributions are paid, your
request should be received by the Fund's transfer agent, Morgan
Stanley Dean Witter Trust FSB, at least five business days prior to
the record date of the distributions.
14
<PAGE>
[ICON] TAX CONSEQUENCES
- --------------------------------------------------------------------------------
As with any investment, you should consider how your Fund investment
will be taxed. The tax information in this PROSPECTUS is provided as
general information. You should consult your own tax professional
about the tax consequences of an investment in the Fund.
Unless your investment in the Fund is through a tax-deferred
retirement account, such as a 401(k) plan or IRA, you need to be
aware of the possible tax consequences when:
- The Fund makes distributions; and
- You sell Fund shares, including an exchange to another Morgan
Stanley Dean Witter Fund.
TAXES ON DISTRIBUTIONS. Your distributions are normally subject to
federal and state income tax when they are paid, whether you take
them in cash or reinvest them in Fund shares. A distribution also may
be subject to local income tax. Any income dividend distributions and
any short-term capital gain distributions are taxable to you as
ordinary income. Any long-term capital gain distributions are taxable
as long-term capital gains, no matter how long you have owned shares
in the Fund.
Every January, you will be sent a statement (IRS Form 1099-DIV)
showing the taxable distributions paid to you in the previous year.
The statement provides full information on your dividends and capital
gains for tax purposes.
TAXES ON SALES. Your sale of Fund shares normally is subject to
federal and state income tax and may result in a taxable gain or loss
to you. A sale also may be subject to local income tax. Your exchange
of Fund shares for shares of another Morgan Stanley Dean Witter Fund
is treated for tax purposes like a sale of your original shares and a
purchase of your new shares. Thus, the exchange may, like a sale,
result in a taxable gain or loss to you and will give you a new tax
basis for your new shares.
When you open your Fund account, you should provide your social
security or tax identification number on your investment application.
By providing this information, you will avoid being subject to a
federal backup withholding tax of 31% on taxable distributions and
redemption proceeds. Any withheld amount would be sent to the IRS as
an advance tax payment.
[ICON] SHARE CLASS ARRANGEMENTS
- --------------------------------------------------------------------------------
The Fund offers several Classes of shares having different
distribution arrangements designed to provide you with different
purchase options according to your investment needs. Your Morgan
Stanley Dean Witter Financial Advisor or other authorized financial
representative can help you decide which Class may be appropriate for
you.
15
<PAGE>
[Sidebar]
FRONT-END SALES CHARGE OR FSC
AN INITIAL SALES CHARGE YOU PAY WHEN PURCHASING CLASS A SHARES THAT IS BASED ON
A PERCENTAGE OF THE OFFERING PRICE. THE PERCENTAGE DECLINES BASED UPON THE
DOLLAR VALUE OF CLASS A SHARES YOU PURCHASE. WE OFFER THREE WAYS TO REDUCE YOUR
CLASS A SALES CHARGES - THE COMBINED PURCHASE PRIVILEGE, RIGHT OF ACCUMULATION
AND LETTER OF INTENT.
[End Sidebar]
The general public is offered three Classes: Class A shares, Class B
shares and Class C shares, which differ principally in terms of sales
charges and ongoing expenses. A fourth Class, Class D shares, is
offered only to a limited category of investors. Shares that you
acquire through reinvested distributions will not be subject to any
front-end sales charge or CDSC -- contingent deferred sales charge.
Sales personnel may receive different compensation for selling each
Class of shares. The sales charges applicable to each Class provide
for the distribution financing of shares of that Class.
The chart below compares the sales charge and maximum annual 12b-1
fee applicable to each Class:
<TABLE>
<CAPTION>
MAXIMUM
CLASS SALES CHARGE ANNUAL 12B-1 FEE
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------
A Maximum 4.25% initial sales charge reduced for purchase of
$25,000 or more; shares sold without an initial sales charge
are generally subject to a 1.0% CDSC during the first year 0.25%
-------------------------------------------------------------------------------------------------------------
B Maximum 5.0% CDSC during the first year decreasing to 0%
after six years 0.85%
-------------------------------------------------------------------------------------------------------------
C 1.0% CDSC during the first year 0.85%
-------------------------------------------------------------------------------------------------------------
D None None
-------------------------------------------------------------------------------------------------------------
</TABLE>
CLASS A SHARES Class A shares are sold at net asset value plus an
initial sales charge of up to 4.25%. The initial sales charge is
reduced for purchases of $25,000 or more according to the schedule
below. Investments of $1 million or more are not subject to an initial
sales charge, but are generally subject to a contingent deferred sales
charge, or CDSC, of 1.0% on sales made within one year after the last
day of the month of purchase. The CDSC will be assessed in the same
manner and with the same CDSC waivers as with Class B shares. Class A
shares are also subject to a distribution (12b-1) fee of up to 0.25% of
the average daily net assets of the Class.
The offering price of Class A shares includes a sales charge (expressed as a
percentage of the offering price) on a single transaction as shown in the
following table:
<TABLE>
<CAPTION>
FRONT-END SALES CHARGE
-------------------------------------------------
AMOUNT OF SINGLE PERCENTAGE OF APPROXIMATE PERCENTAGE
TRANSACTION PUBLIC OFFERING PRICE OF NET AMOUNT INVESTED
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Less than $25,000 4.25% 4.44%
- -------------------------------------------------------------------------------------------------------------------
$25,000 but less than $50,000 4.00% 4.17%
- -------------------------------------------------------------------------------------------------------------------
$50,000 but less than $100,000 3.50% 3.63%
- -------------------------------------------------------------------------------------------------------------------
$100,000 but less than $250,000 2.75% 2.83%
- -------------------------------------------------------------------------------------------------------------------
$250,000 but less than $1 million 1.75% 1.78%
- -------------------------------------------------------------------------------------------------------------------
$1 million and over 0 0
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
The reduced sales charge schedule is applicable to purchases of
Class A shares in a single transaction by:
- A single account (including an individual, trust or fiduciary
account).
- Family member accounts (limited to husband, wife and children under
the age of 21).
- Pension, profit sharing or other employee benefit plans of
companies and their affiliates.
- Tax-exempt organizations.
- Groups organized for a purpose other than to buy mutual fund
shares.
COMBINED PURCHASE PRIVILEGE. You also will have the benefit of
reduced sales charges by combining purchases of Class A shares of the
Fund in a single transaction with purchases of Class A shares of
other Multi-Class Funds and shares of FSC Funds.
RIGHT OF ACCUMULATION. You also may benefit from a reduction of sales
charges if the cumulative net asset value of Class A shares of the
Fund purchased in a single transaction, together with shares of other
Funds you currently own which were previously purchased at a price
including a front-end sales charge (including shares acquired through
reinvestment of distributions), amounts to $25,000 or more. Also, if
you have a cumulative net asset value of all your Class A and
Class D shares equal to at least $5 million (or $25 million for
certain employee benefit plans), you are eligible to purchase
Class D shares of any Fund subject to the Fund's minimum initial
investment requirement.
You must notify your Morgan Stanley Dean Witter Financial Advisor or
other authorized financial representative (or Morgan Stanley Dean
Witter Trust FSB if you purchase directly through the Fund), at the
time a purchase order is placed, that the purchase qualifies for the
reduced charge under the Right of Accumulation. Similar notification
must be made in writing when an order is placed by mail. The reduced
sales charge will not be granted if: (i) notification is not
furnished at the time of the order; or (ii) a review of the records
of Dean Witter Reynolds or other authorized dealer of Fund shares or
the Fund's transfer agent does not confirm your represented holdings.
LETTER OF INTENT. The schedule of reduced sales charges for larger
purchases also will be available to you if you enter into a written
"letter of intent." A letter of intent provides for the purchase of
Class A shares of the Fund or other Multi-Class Funds or shares of
FSC Funds within a thirteen-month period. The initial purchase under
a letter of intent must be at least 5% of the stated investment goal.
To determine the applicable sales charge reduction, you may also
include: (1) the cost of shares of other Morgan Stanley Dean Witter
Funds which were previously purchased at a price including a
front-end sales charge during the 90-day period prior to the
distributor receiving the letter of intent, and (2) the cost of
shares of other Funds you currently own acquired in exchange for
shares of Funds purchased during that period at a price including a
front-end sales
17
<PAGE>
charge. You can obtain a letter of intent by contacting your Morgan
Stanley Dean Witter Financial Advisor or other authorized financial
representative or by calling (800) 869-NEWS. If you do not achieve
the stated investment goal within the thirteen-month period, you are
required to pay the difference between the sales charges otherwise
applicable and sales charges actually paid, which may be deducted
from your investment.
OTHER SALES CHARGE WAIVERS. In addition to investments of $1 million
or more, your purchase of Class A shares is not subject to a
front-end sales charge (or CDSC upon sale) if your account qualifies
under one of the following categories:
- A trust for which Morgan Stanley Dean Witter Trust FSB provides
discretionary trustee services.
- Persons participating in a fee-based investment program (subject to
all of its terms and conditions, including termination fees,
mandatory sale or transfer restrictions on termination) approved by
the Fund's distributor pursuant to which they pay an asset-based
fee for investment advisory, administrative and/or brokerage
services.
- Employer-sponsored employee benefit plans, whether or not qualified
under the Internal Revenue Code, for which Morgan Stanley Dean
Witter Trust FSB serves as trustee or Dean Witter Reynolds'
Retirement Plan Services serves as recordkeeper under a written
Recordkeeping Services Agreement ("MSDW Eligible Plans") which have
at least 200 eligible employees.
- A MSDW Eligible Plan whose Class B shares have converted to
Class A shares, regardless of the plan's asset size or number of
eligible employees.
- A client of a Morgan Stanley Dean Witter Financial Advisor who
joined us from another investment firm within six months prior to
the date of purchase of Fund shares, and you used the proceeds from
the sale of shares of a proprietary mutual fund of that Financial
Advisor's previous firm that imposed either a front-end or deferred
sales charge to purchase Class A shares, provided that: (1) you
sold the shares not more than 60 days prior to the purchase of Fund
shares, and (2) the sale proceeds were maintained in the interim in
cash or a money market fund.
- Current or retired Directors/Trustees of the Morgan Stanley Dean
Witter Funds, such persons' spouses and children under the age of
21, and trust accounts for which any of such persons is a
beneficiary.
- Current or retired directors, officers and employees of Morgan
Stanley Dean Witter & Co. and any of its subsidiaries, such
persons' spouses and children under the age of 21, and trust
accounts for which any of such persons is a beneficiary.
18
<PAGE>
[Sidebar]
CONTINGENT DEFERRED SALES CHARGE OR CDSC
A FEE YOU PAY WHEN YOU SELL SHARES OF CERTAIN MORGAN STANLEY DEAN WITTER FUNDS
PURCHASED WITHOUT AN INITIAL SALES CHARGE. THIS FEE DECLINES THE LONGER YOU HOLD
YOUR SHARES AS SET FORTH IN THE TABLE.
[End Sidebar]
CLASS B SHARES Class B shares are offered at net asset value with no
initial sales charge but are subject to a contingent deferred sales
charge, or CDSC, as set forth in the table below. For the purpose of
calculating the CDSC, shares are deemed to have been purchased on the
last day of the month during which they were purchased.
<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE
YEAR SINCE PURCHASE PAYMENT MADE OF AMOUNT REDEEMED
<S> <C>
----------------------------------------------------------------------------
First 5.0%
----------------------------------------------------------------------------
Second 4.0%
----------------------------------------------------------------------------
Third 3.0%
----------------------------------------------------------------------------
Fourth 2.0%
----------------------------------------------------------------------------
Fifth 2.0%
----------------------------------------------------------------------------
Sixth 1.0%
----------------------------------------------------------------------------
Seventh and thereafter None
----------------------------------------------------------------------------
</TABLE>
Each time you place an order to sell or exchange shares, shares with
no CDSC will be sold or exchanged first, then shares with the lowest
CDSC will be sold or exchanged next. For any shares subject to a
CDSC, the CDSC will be assessed on an amount equal to the lesser of
the current market value or the cost of the shares being sold.
CDSC WAIVERS. A CDSC, if otherwise applicable, will be waived in the
case of:
- Sales of shares held at the time you die or become disabled (within
the definition in Section 72(m)(7) of the Internal Revenue Code
which relates to the ability to engage in gainful employment), if
the shares are: (i) registered either in your name (not a trust) or
in the names of you and your spouse as joint tenants with right of
survivorship; or (ii) held in a qualified corporate or
self-employed retirement plan, IRA or 403(b) Custodial Account,
provided in either case that the sale is requested within one year
of your death or initial determination of disability.
- Sales in connection with the following retirement plan
"distributions": (i) lump-sum or other distributions from a
qualified corporate or self-employed retirement plan following
retirement (or, in the case of a "key employee" of a "top heavy"
plan, following attainment of age 59 1/2); (ii) distributions from
an IRA or 403(b) Custodial Account following attainment of age
59 1/2; or (iii) a tax-free return of an excess IRA contribution (a
"distribution" does not include a direct transfer of IRA,
403(b) Custodial Account or retirement plan assets to a successor
custodian or trustee).
- Sales of shares held for you as a participant in a MSDW Eligible
Plan.
19
<PAGE>
- Sales of shares in connection with the Systematic Withdrawal Plan
of up to 12% annually of the value of each Fund from which plan
sales are made. The percentage is determined on the date you
establish the Systematic Withdrawal Plan and based on the next
calculated share price. You may have this CDSC waiver applied in
amounts up to 1% per month, 3% per quarter, 6% semi-annually or 12%
annually. Shares with no CDSC will be sold first, followed by those
with the lowest CDSC. As such, the waiver benefit will be reduced
by the amount of your shares that are not subject to a CDSC. If you
suspend your participation in the plan, you may later resume plan
payments without requiring a new determination of the account value
for the 12% CDSC waiver.
- Sales of shares if you simultaneously invest the proceeds in the
Investment Manager's mutual fund asset allocation program, pursuant
to which investors pay an asset-based fee. Any shares you acquire
in connection with the Investment Manager's mutual fund asset
allocation program are subject to all of the terms and conditions
of that program, including termination fees, mandatory sale or
transfer restrictions on termination.
All waivers will be granted only following the Fund's distributor
receiving confirmation of your entitlement. If you believe you are
eligible for a CDSC waiver, please contact your Financial Advisor or
call (800) 869-NEWS.
DISTRIBUTION FEE. Class B shares are subject to an annual 12b-1 fee
of 0.85% of the lesser of: (a) the average daily aggregate gross
purchases by all shareholders of the Fund's Class B shares since the
inception of the Fund (not including investments of dividends or
capital gains distributions), less the average daily aggregate net
asset value of the Fund's Class B shares sold by all shareholders
since the Fund's inception upon which a CDSC has been imposed or
waived or (b) the average daily net assets of Class B.
CONVERSION FEATURE. After ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund with no initial sales
charge. The ten year period runs from the last day of the month in
which the shares were purchased, or in the case of Class B shares
acquired through an exchange, from the last day of the month in which
the original Class B shares were purchased; the shares will convert
to Class A shares based on their relative net asset values in the
month following the ten year period. At the same time, an equal
proportion of Class B shares acquired through automatically
reinvested distributions will convert to Class A shares on the same
basis. (Class B shares held before May 1, 1997, however, will convert
to Class A shares in May 2007.)
In the case of Class B shares held in a MSDW Eligible Plan, the plan
is treated as a single investor and all Class B shares will convert
to Class A shares on the conversion date of the Class B shares of a
Morgan Stanley Dean Witter Fund purchased by that plan.
Currently, the Class B share conversion is not a taxable event; the
conversion feature may be cancelled if it is deemed a taxable event
in the future by the Internal Revenue Service.
20
<PAGE>
If you exchange your Class B shares for shares of a Money Market
Fund, a No-Load Fund, North American Government Income Trust or
Short-Term U.S. Treasury Trust, the holding period for conversion is
frozen as of the last day of the month of the exchange and resumes on
the last day of the month you exchange back into Class B shares.
EXCHANGING SHARES SUBJECT TO A CDSC. There are special considerations
when you exchange Fund shares that are subject to a CDSC. When
determining the length of time you held the shares and the
corresponding CDSC rate, any period (starting at the end of the
month) during which you held shares of a fund that does NOT charge a
CDSC WILL NOT BE COUNTED. Thus, in effect the "holding period" for
purposes of calculating the CDSC is frozen upon exchanging into a
fund that does not charge a CDSC.
For example, if you held Class B shares of the Fund for one year,
exchanged to Class B of another Morgan Stanley Dean Witter
Multi-Class Fund for another year, then sold your shares, a CDSC rate
of 4% would be imposed on the shares based on a two year holding
period -- one year for each Fund. However, if you had exchanged the
shares of the Fund for a Money Market Fund (which does not charge a
CDSC) instead of the Multi-Class Fund, then sold your shares, a CDSC
rate of 5% would be imposed on the shares based on a one year holding
period. The one year in the Money Market Fund would not be counted.
Nevertheless, if shares subject to a CDSC are exchanged for a Fund
that does not charge a CDSC, you will receive a credit when you sell
the shares equal to the distribution (12b-1) fees, if any, you paid
on those shares while in that Fund up to the amount of any applicable
CDSC.
In addition, shares that are exchanged into or from a Morgan Stanley
Dean Witter Fund subject to a higher CDSC rate will be subject to the
higher rate, even if the shares are re-exchanged into a Fund with a
lower CDSC rate.
CLASS C SHARES Class C shares are sold at net asset value with no
initial sales charge but are subject to a CDSC of 1.0% on sales made
within one year after the last day of the month of purchase. The CDSC
will be assessed in the same manner and with the same CDSC waivers as
with Class B shares.
DISTRIBUTION FEE. Class C shares are subject to an annual
distribution (12b-1) fee of up to 0.85% of the average daily net
assets of that Class. The Class C shares' distribution fee may cause
that Class to have higher expenses and pay lower dividends than
Class A or Class D shares. Unlike Class B shares, Class C shares have
no conversion feature and, accordingly, an investor that purchases
Class C shares may be subject to distribution (12b-1) fees applicable
to Class C shares for an indefinite period.
CLASS D SHARES Class D shares are offered without any sales charge
on purchases or sales and without any distribution (12b-1) fee.
Class D shares are offered only to investors meeting an initial
investment minimum of $5 million ($25 million for MSDW Eligible
Plans) and the following investor categories:
21
<PAGE>
- Investors participating in the Investment Manager's mutual fund
asset allocation program (subject to all of its terms and
conditions, including termination fees, mandatory sale or transfer
restrictions on termination) pursuant to which they pay an
asset-based fee.
- Persons participating in a fee-based investment program (subject to
all of its terms and conditions, including termination fees,
mandatory sale or transfer restrictions on termination) approved by
the Fund's distributor pursuant to which they pay an asset-based
fee for investment advisory, administrative and/or brokerage
services.
- Employee benefit plans maintained by Morgan Stanley Dean Witter &
Co. or any of its subsidiaries for the benefit of certain employees
of Morgan Stanley Dean Witter & Co. and its subsidiaries.
- Certain unit investment trusts sponsored by Dean Witter Reynolds.
- Certain other open-end investment companies whose shares are
distributed by the Fund's distributor.
- Investors who were shareholders of the Dean Witter Retirement
Series on September 11, 1998 for additional purchases for their
former Dean Witter Retirement Series accounts.
MEETING CLASS D ELIGIBILITY MINIMUMS. To meet the $5 million
($25 million for certain MSDW Eligible Plans) initial investment to
qualify to purchase Class D shares you may combine: (1) purchases in
a single transaction of Class D shares of the Fund and other Morgan
Stanley Dean Witter Multi-Class Funds and/or (2) previous purchases
of Class A and Class D shares of Multi-Class Funds and shares of FSC
Funds you currently own, along with shares of Morgan Stanley Dean
Witter Funds you currently own that you acquired in exchange for
those shares.
NO SALES CHARGES FOR REINVESTED CASH DISTRIBUTIONS If you receive a
cash payment representing an income dividend or capital gain and you
reinvest that amount in the applicable Class of shares by returning
the check within 30 days of the payment date, the purchased shares
would not be subject to an initial sales charge or CDSC.
PLAN OF DISTRIBUTION (RULE 12b-1 FEES) The Fund has adopted a Plan
of Distribution in accordance with Rule 12b-1 under the Investment
Company Act of 1940 with respect to the distribution of Class A,
Class B and Class C shares. The Plan allows the Fund to pay
distribution fees for the sale and distribution of these shares. It
also allows the Fund to pay for services to shareholders of Class A,
Class B and Class C shares. Because these fees are paid out of the
Fund's assets on an ongoing basis, over time these fees will increase
the cost of your investment in these Classes and may cost you more
than paying other types of sales charges.
22
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 fiscal years of the Fund. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate an investor would have earned or lost on
an investment in the Fund (assuming reinvestment of all dividends and
distributions).
This information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the annual report, which is available upon request.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31,
-------------------------------------------------------------------
1999++ 1998++ 1997* 1996 1995
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES
- ------------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.70 $9.59 $9.39 $9.69 $9.51
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.49 0.51 0.53 0.55 0.59
Net realized and unrealized gain (loss) (0.39) 0.11 0.20 (0.30) 0.19
-------- -------- -------- -------- --------
Total income from investment operations 0.10 0.62 0.73 0.25 0.78
- ------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.49) (0.51) (0.53) (0.55) (0.59)
Net realized gain -- -- -- -- (0.01)
-------- -------- -------- -------- --------
Total dividends and distributions (0.49) (0.51) (0.53) (0.55) (0.60)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.31 $9.70 $9.59 $9.39 $9.69
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ 0.92% 6.53% 7.93% 2.58% 8.56%
- ------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- ------------------------------------------------------------------------------------------------------------------------
Expenses 1.75%(1) 1.71%(1) 1.65% 1.62% 1.63%
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 5.00%(1) 5.19%(1) 5.52% 5.69% 6.23%
- ------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $120,843 $151,515 $162,959 $208,911 $232,752
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 99% 98% 98% 115% 114%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
* Prior to July 28, 1997, the Fund issued one class of shares. All shares of the
Fund held prior to that date, other than shares held by certain employee benefit
plans established by Dean Witter Reynolds Inc. have been designated as Class B
shares. Shares held by those employee benefit plans prior to July 28, 1997 have
been designated Class D shares.
++ The per share amounts were computed using an average number of shares outstanding
during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net asset
value as of the last business day of the period.
(1) Reflects overall Fund ratios for investment income and non-class specific
expenses.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
AUGUST 31, 1999 AUGUST 31, 1998 AUGUST 31, 1997
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
CLASS A SHARES++
- ---------------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.71 $9.59 $9.68
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.55 0.56 0.06
Net realized and unrealized gain (loss) (0.41) 0.13 (0.10)
------ ------ ------
Total income (loss) from investment operations 0.14 0.69 (0.04)
- ---------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.55) (0.57) (0.05)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.30 $9.71 $9.59
- ---------------------------------------------------------------------------------------------------------------------------
Total Return+ 1.39% 7.30% (0.46)%(1)
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- ---------------------------------------------------------------------------------------------------------------------------
Expenses 1.08%(3) 1.10%(3) 2.18%(2)
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income 5.67%(3) 5.80%(3) 6.10%(2)
- ---------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $3,557 $3,457 $1,855
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 99% 98% 98%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares outstanding
during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net asset
value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
AUGUST 31, 1999 AUGUST 31, 1998 AUGUST 31, 1997
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
CLASS C SHARES++
- -------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.71 $9.61 $9.68
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.49 0.49 0.04
Net realized and unrealized gain (loss) (0.39) 0.11 (0.07)
------ ------ ------
Total income (loss) from investment operations 0.10 0.60 (0.03)
- -------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.49) (0.50) (0.04)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.32 $9.71 $9.61
- -------------------------------------------------------------------------------------------------------------------
Total Return+ 0.91% 6.39% (0.31)%(1)
- -------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- -------------------------------------------------------------------------------------------------------------------
Expenses 1.75%(3) 1.71%(3) 2.02%(2)
- -------------------------------------------------------------------------------------------------------------------
Net investment income 5.00%(3) 5.19%(3) 4.22%(2)
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $1,759 $457 $38
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 99% 98% 98%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares outstanding
during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net asset
value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
AUGUST 31, 1999 AUGUST 31, 1998 AUGUST 31, 1997
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
CLASS D SHARES++
- ------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.70 $9.59 $9.68
- ------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.57 0.59 0.05
Net realized and unrealized gain (loss) (0.39) 0.11 (0.09)
------ ------ ------
Total income (loss) from investment operations 0.18 0.70 (0.04)
- ------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.57) (0.59) (0.05)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.31 $9.70 $9.59
- ------------------------------------------------------------------------------------------------------------------
Total Return+ 1.79% 7.43% (0.44)%(1)
- ------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- ------------------------------------------------------------------------------------------------------------------
Expenses 0.90%(3) 0.86%(3) 1.11%(2)
- ------------------------------------------------------------------------------------------------------------------
Net investment income 5.85%(3) 6.04%(3) 5.91%(2)
- ------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $7,493 $5,726 $4,880
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 99% 98% 98%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares outstanding
during the period.
+ Calculated based on the net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
</TABLE>
26
<PAGE>
NOTES
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27
<PAGE>
NOTES
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28
<PAGE>
MORGAN STANLEY DEAN WITTER
FAMILY OF FUNDS
The Morgan Stanley Dean Witter Family of Funds offers investors a wide
range of investment choices. Come on in and meet the family!
- --------------------------------------------------------------------------------
GROWTH FUNDS
- ---------------------------------
GROWTH FUNDS
Aggressive Equity Fund
American Opportunities Fund
Capital Growth Securities
Developing Growth Securities
Growth Fund
Market Leader Trust
Mid-Cap Equity Trust
Next Generation Trust
Small Cap Growth Fund
Special Value Fund
THEME FUNDS
Financial Services Trust
Health Sciences Trust
Information Fund
Natural Resource Development Securities
Precious Metals and Minerals Trust
GLOBAL/INTERNATIONAL FUNDS
Competitive Edge Fund - "Best Ideas"
Portfolio
European Growth Fund
Fund of Funds - International Portfolio
International Fund
International SmallCap Fund
Japan Fund
Latin American Growth Fund
Pacific Growth Fund
- --------------------------------------------------------------------------------
GROWTH AND INCOME FUNDS
- ---------------------------------
Balanced Growth Fund
Balanced Income Fund
Convertible Securities Trust
Dividend Growth Securities
Equity Fund
Fund of Funds - Domestic Portfolio
Income Builder Fund
Mid-Cap Dividend Growth Securities
S&P 500 Index Fund
S&P 500 Select Fund
Strategist Fund
Total Market Index Fund
Total Return Trust
Value Fund
Value-Added Market Series/Equity Portfolio
THEME FUNDS
Global Utilities Fund
Real Estate Fund
Utilities Fund
GLOBAL FUNDS
Global Dividend Growth Securities
- --------------------------------------------------------------------------------
INCOME FUNDS
- ---------------------------------
GOVERNMENT INCOME FUNDS
Federal Securities Trust
Short-Term U.S. Treasury Trust
U.S. Government Securities Trust
DIVERSIFIED INCOME FUNDS
Diversified Income Trust
CORPORATE INCOME FUNDS
High Yield Securities
Intermediate Income Securities
Short-Term Bond Fund (NL)
GLOBAL INCOME FUNDS
North American Government Income Trust
World Wide Income Trust
TAX-FREE INCOME FUNDS
California Tax-Free Income Fund
Hawaii Municipal Trust (FSC)
Limited Term Municipal Trust (NL)
Multi-State Municipal Series Trust (FSC)
New York Tax-Free Income Fund
Tax-Exempt Securities Trust
- --------------------------------------------------------------------------------
MONEY MARKET FUNDS
- ---------------------------------
TAXABLE MONEY MARKET FUNDS
Liquid Asset Fund (MM)
U.S. Government Money Market Trust (MM)
TAX-FREE MONEY MARKET FUNDS
California Tax-Free Daily Income Trust (MM)
N.Y. Municipal Money Market Trust (MM)
Tax-Free Daily Income Trust (MM)
There may be Funds created after this PROSPECTUS was published. Please consult
the inside back cover of a new Fund's prospectus for its designation, e.g.,
Multi-Class Fund or Money Market Fund.
Unless otherwise noted, each listed Morgan Stanley Dean Witter Fund, except for
North American Government Income Trust and Short-Term U.S. Treasury Trust, is a
Multi-Class Fund. A Multi-Class Fund is a mutual fund offering multiple Classes
of shares. The other types of funds are: NL - No-Load (Mutual) Fund; MM - Money
Market Fund; FSC - A mutual fund sold with a front-end sales charge and a
distribution (12b-1) fee.
<PAGE>
PROSPECTUS - OCTOBER 29, 1999
Additional information about the Fund's investments is available in the Fund's
ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS. In the Fund's ANNUAL REPORT, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. The
Fund's STATEMENT OF ADDITIONAL INFORMATION also provides additional information
about the Fund. The STATEMENT OF ADDITIONAL INFORMATION is incorporated herein
by reference (legally is part of this PROSPECTUS). For a free copy of any of
these documents, to request other information about the Fund, or to make
shareholder inquiries, please call:
(800) 869-NEWS
You also may obtain information about the Fund by calling your Morgan Stanley
Dean Witter Financial Advisor or by visiting our Internet site at:
www.msdw.com/individual/funds
Information about the Fund (including the STATEMENT OF ADDITIONAL INFORMATION)
can be viewed and copied at the Securities and Exchange Commission's Public
Reference Room in Washington, DC. Information about the Reference Room's
operations may be obtained by calling the SEC at (800) SEC-0330. Reports and
other information about the Fund are available on the SEC's Internet site
(www.sec.gov), and copies of this information may be obtained, upon payment of a
duplicating fee, by writing the Public Reference Section of the SEC, Washington,
DC 20549-6009.
TICKER SYMBOLS:
<TABLE>
<S> <C>
CLASS A: IISAX CLASS C: IISCX
- --------------------- ---------------------
CLASS B: IISBX CLASS D: IISDX
- --------------------- ---------------------
</TABLE>
(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-5654)
Morgan Stanley Dean Witter
INTERMEDIATE INCOME SECURITIES
[BACK COVER PHOTO]
A MUTUAL FUND
THAT SEEKS HIGH CURRENT
INCOME CONSISTENT
WITH SAFETY OF PRINCIPAL
<PAGE>
<TABLE>
<S> <C>
STATEMENT OF ADDITIONAL INFORMATION MORGAN STANLEY
OCTOBER 29, 1999 DEAN WITTER
INTERMEDIATE INCOME
SECURITIES
</TABLE>
- ----------------------------------------------------------------------
This STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. The PROSPECTUS
(dated October 29, 1999) for the Morgan Stanley Dean Witter Intermediate Income
Securities may be obtained without charge from the Fund at its address or
telephone number listed below or from Dean Witter Reynolds at any of its branch
offices.
Morgan Stanley Dean Witter
Intermediate Income Securities
Two World Trade Center
New York, New York 10048
(800) 869-NEWS
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<C> <S> <C>
I. Fund History................................................ 4
II. Description of the Fund and Its Investments and Risks....... 4
A. Classification........................................... 4
B. Investment Strategies and Risks.......................... 4
C. Fund Policies/Investment Restrictions.................... 7
III. Management of the Fund...................................... 9
A. Board of Trustees........................................ 9
B. Management Information................................... 9
C. Compensation............................................. 13
IV. Control Persons and Principal Holders of Securities......... 15
V. Investment Management and Other Services.................... 15
A. Investment Manager....................................... 15
B. Principal Underwriter.................................... 16
C. Services Provided by the Investment Manager.............. 16
D. Dealer Reallowances...................................... 17
E. Rule 12b-1 Plan.......................................... 17
F. Other Service Providers.................................. 21
VI. Brokerage Allocation and Other Practices.................... 22
A. Brokerage Transactions................................... 22
B. Commissions.............................................. 22
C. Brokerage Selection...................................... 23
D. Directed Brokerage....................................... 23
E. Regular Broker-Dealers................................... 23
VII. Capital Stock and Other Securities.......................... 24
VIII. Purchase, Redemption and Pricing of Shares.................. 24
A. Purchase/Redemption of Shares............................ 24
B. Offering Price........................................... 25
IX. Taxation of the Fund and Shareholders....................... 25
X. Underwriters................................................ 27
XI. Calculation of Performance Data............................. 27
XII. Financial Statements........................................ 29
</TABLE>
2
<PAGE>
GLOSSARY OF SELECTED DEFINED TERMS
- --------------------------------------------------------------------------------
The terms defined in this glossary are frequently used in this STATEMENT OF
ADDITIONAL INFORMATION (other terms used occasionally are defined in the text of
the document).
"CUSTODIAN"--The Bank of New York.
"DEAN WITTER REYNOLDS"--Dean Witter Reynolds Inc., a wholly-owned broker-dealer
subsidiary of MSDW.
"DISTRIBUTOR"--Morgan Stanley Dean Witter Distributors Inc., a wholly-owned
broker-dealer subsidiary of MSDW.
"FINANCIAL ADVISORS"--Morgan Stanley Dean Witter authorized financial services
representatives.
"FUND"--Morgan Stanley Dean Witter Intermediate Income Securities, a registered
open-end investment company.
"INDEPENDENT TRUSTEES"--Trustees who are not "interested persons" (as defined by
the Investment Company Act) of the Fund.
"INVESTMENT MANAGER"--Morgan Stanley Dean Witter Advisors Inc., a wholly-owned
investment advisor subsidiary of MSDW.
"MORGAN STANLEY & CO."--Morgan Stanley & Co. Incorporated, a wholly-owned
broker-dealer subsidiary of MSDW.
"MORGAN STANLEY DEAN WITTER FUNDS"--Registered investment companies (i) for
which the Investment Manager serves as the investment advisor and (ii) that hold
themselves out to investors as related companies for investment and investor
services.
"MSDW"--Morgan Stanley Dean Witter & Co., a preeminent global financial services
firm.
"MSDW SERVICES COMPANY"--Morgan Stanley Dean Witter Services Company Inc., a
wholly-owned fund services subsidiary of the Investment Manager.
"TRANSFER AGENT"--Morgan Stanley Dean Witter Trust FSB, a wholly-owned transfer
agent subsidiary of MSDW.
"TRUSTEES"--The Board of Trustees of the Fund.
3
<PAGE>
I. FUND HISTORY
- --------------------------------------------------------------------------------
The Fund was organized as a "Massachusetts business trust" under a
Declaration of Trust on September 1, 1988 with the name Dean Witter Intermediate
Income Securities. On June 22, 1998, the Fund's name was changed to Morgan
Stanley Dean Witter Intermediate Income Securities.
II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
- --------------------------------------------------------------------------------
A. CLASSIFICATION
The Fund is an open-end, diversified management investment company whose
investment objective is to seek high current income consistent with safety of
principal.
B. INVESTMENT STRATEGIES AND RISKS
The following discussion of the Fund's investment strategies and risks
should be read with the sections of the Fund's PROSPECTUS titled "Principal
Investment Strategies," "Principal Risks," "Additional Investment Strategy
Information" and "Additional Risk Information."
MONEY MARKET SECURITIES. In addition to the fixed-income securities in
which the Fund may otherwise invest, the Fund may invest in various money market
securities for cash management purposes or when assuming a temporary defensive
position, which among others may include commercial paper, bank acceptances,
bank obligations, corporate debt securities certificates of deposit, U.S.
Government securities and obligations of savings institutions. Such securities
are limited to:
U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as the
Federal Home Loan Bank), including Treasury bills, notes and bonds;
BANK OBLIGATIONS. Obligations (including certificates of deposit, time
deposits and bankers' acceptances) of banks subject to regulation by the U.S.
Government and having total assets of $1 billion or more, and instruments
secured by such obligations, not including obligations of foreign branches of
domestic banks except to the extent below;
EURODOLLAR CERTIFICATES OF DEPOSIT. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of $1 billion
or more;
OBLIGATIONS OF SAVINGS INSTITUTIONS. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion or
more;
FULLY INSURED CERTIFICATES OF DEPOSIT. Certificates of deposit of banks and
savings institutions, having total assets of less than $1 billion. If the
principal amount of the obligation is federally insured by the Bank Insurance
Fund or the Savings Association Insurance Fund (each of which is administered by
the FDIC), limited to $100,000 principal amount per certificate and to 10% or
less of the Fund's total assets in all such obligations and in all illiquid
assets, in the aggregate; and
COMMERCIAL PAPER. Commercial paper rated within the two highest grades by
Standard & Poor's Corporation ("S&P") or the two highest grades by Moody's
Investors Service, Inc. ("Moody's") or, if not rated, issued by a company having
an outstanding debt issue rated at least AA by S&P or Aa by Moody's; and
REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements. When
cash may be available for only a few days, it may be invested by the Fund in
repurchase agreements until such time as it may otherwise be invested or used
for payments of obligations of the Fund. These agreements, which may be viewed
as a type of secured lending by the Fund, typically involve the acquisition by
the Fund of debt securities from a selling financial institution such as a bank,
savings and loan association or broker-dealer. The agreement provides that the
Fund will sell back to the institution, and that the institution will
repurchase, the underlying security serving as collateral at a specified price
and at a fixed time in the
4
<PAGE>
future, usually not more than seven days from the date of purchase. The
collateral will be marked-to-market daily to determine that the value of the
collateral, as specified in the agreement, does not decrease below the purchase
price plus accrued interest. If such decrease occurs, additional collateral will
be requested and, when received, added to the account to maintain full
collateralization. The Fund will accrue interest from the institution until the
time when the repurchase is to occur. Although this date is deemed by the Fund
to be the maturity date of a repurchase agreement, the maturities of securities
subject to repurchase agreements are not subject to any limits.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such risks. These procedures include effecting repurchase transactions only with
large, well-capitalized and well-established financial institutions whose
financial condition will be continually monitored by the Investment Manager
subject to procedures established by the Trustees. In addition, as described
above, the value of the collateral underlying the repurchase agreement will be
at least equal to the repurchase price, including any accrued interest earned on
the repurchase agreement. In the event of a default or bankruptcy by a selling
financial institution, the Fund will seek to liquidate such collateral. However,
the exercising of the Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a
default of the obligation to repurchase were less than the repurchase price, the
Fund could suffer a loss.
REVERSE REPURCHASE AGREEMENTS. The Fund may use reverse repurchase
agreements as part of its investment strategy. Reverse repurchase agreements are
speculative techniques involving leverage and are considered borrowings by the
Fund.
Reverse repurchase agreements involve sales by the Fund of assets
concurrently with an agreement by the Fund to repurchase the same assets at a
later date at a fixed price. Reverse repurchase agreements involve the risk that
the market value of the securities the Fund is obligated to purchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase agreement files for bankruptcy or becomes
insolvent, the Fund's use of the proceeds of the agreement may be restricted
pending a determination by the other party, or its trustee or receiver, whether
to enforce the Fund's obligation to repurchase the securities.
LENDING PORTFOLIO SECURITIES. The Fund may lend its portfolio securities to
brokers, dealers and other financial institutions, provided that the loans are
callable at any time by the Fund, and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to applicable
regulations and that are equal to at least 100% of the market value, determined
daily, of the loaned securities. The advantage of these loans is that the Fund
continues to receive the income on the loaned securities while at the same time
earning interest on the cash amounts deposited as collateral, which will be
invested in short-term obligations. The Fund will not lend more than 25% of the
value of its total assets.
As with any extensions of credit, there are risks of delay in recovery and,
in some cases, even loss of rights in the collateral should the borrower of the
securities fail financially. However, these loans of portfolio securities will
only be made to firms deemed by the Fund's management to be creditworthy and
when the income which can be earned from such loans justifies the attendant
risks. Upon termination of the loan, the borrower is required to return the
securities to the Fund. Any gain or loss in the market price during the loan
period would inure to the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of the rights
if the matters involved would have a material effect on the Fund's investment in
the loaned securities. The Fund will pay reasonable finder's, administrative and
custodial fees in connection with a loan of its securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. The
Fund may purchase securities on a when-issued or delayed delivery basis or may
purchase or sell securities on a
5
<PAGE>
forward commitment basis. When these transactions are negotiated, the price is
fixed at the time of the commitment, but delivery and payment can take place a
month or more after the date of commitment. While the Fund will only purchase
securities on a when-issued, delayed delivery or forward commitment basis with
the intention of acquiring the securities, the Fund may sell the securities
before the settlement date, if it is deemed advisable. The securities so
purchased or sold are subject to market fluctuation and no interest or dividends
accrue to the purchaser prior to the settlement date.
At the time the Fund makes the commitment to purchase or sell securities on
a when-issued, delayed delivery or forward commitment basis, it will record the
transaction and thereafter reflect the value, each day, of such security
purchased, or if a sale, the proceeds to be received, in determining its net
asset value. At the time of delivery of the securities, their value may be more
or less than the purchase or sale price. An increase in the percentage of the
Fund's assets committed to the purchase of securities on a when-issued, delayed
delivery or forward commitment basis may increase the volatility of its net
asset value. The Fund will also establish a segregated account on the Fund's
books in which it will continually maintain cash or cash equivalents or other
liquid portfolio securities equal in value to commitments to purchase securities
on a when-issued, delayed delivery or forward commitment basis.
WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization or debt restructuring. The commitment for the purchase
of any such security will not be recognized in the portfolio of the Fund until
the Investment Manager determines that issuance of the security is probable. At
that time, the Fund will record the transaction and, in determining its net
asset value, will reflect the value of the security daily. At that time, the
Fund will also establish a segregated account on the Fund's books in which it
will maintain cash or cash equivalents or other liquid portfolio securities
equal in value to recognized commitments for such securities.
The value of the Fund's commitments to purchase the securities of any one
issuer, together with the value of all securities of such issuer owned by the
Fund, may not exceed 5% of the value of the Fund's total assets at the time the
initial commitment to purchase such securities is made. An increase in the
percentage of the Fund's assets committed to the purchase of securities on a
"when, as and if issued" basis may increase the volatility of its net asset
value. The Fund may also sell securities on a "when, as and if issued" basis
provided that the issuance of the security will result automatically from the
exchange or conversion of a security owned by the Fund at the time of sale.
PRIVATE PLACEMENTS. The Fund may invest up to 10% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933 (the "SECURITIES ACT"), or
which are otherwise not readily marketable. (Securities eligible for resale
pursuant to Rule 144A under the Securities Act, and determined to be liquid
pursuant to the procedures discussed in the following paragraph, are not subject
to the foregoing restriction.) These securities are generally referred to as
private placements or restricted securities. Limitations on the resale of these
securities may have an adverse effect on their marketability, and may prevent
the Fund from disposing of them promptly at reasonable prices. The Fund may have
to bear the expense of registering the securities for resale and the risk of
substantial delays in effecting the registration. However, investing in Rule
144A securities could have the effect of increasing the level of Fund
illiquidity to the extent the Fund, at a particular point in time, may be unable
to find qualified institutional buyers interested in purchasing such securities.
Rule 144A permits the Fund to sell restricted securities to qualified
institutional buyers without limitation. The Investment Manager, pursuant to
procedures adopted by the Trustees, will make a determination as to the
liquidity of each restricted security purchased by the Fund. If a restricted
security is determined to be "liquid," the security will not be included within
the category "illiquid securities," which is limited by the Fund's investment
restrictions to 10% of the Fund's total assets.
YEAR 2000. The investment management services provided to the Fund by the
Investment Manager and the services provided to shareholders by the Distributor
and the Transfer Agent depend on the
6
<PAGE>
smooth functioning of their computer systems. Many computer software systems in
use today cannot recognize the year 2000, but revert to 1900 or some other date,
due to the manner in which dates were encoded and calculated. That failure could
have a negative impact on the handling of securities trades, pricing and account
services. The Investment Manager, the Distributor and the Transfer Agent have
been actively working on necessary changes to their own computer systems to
prepare for the year 2000 and expect that their systems will be adapted before
that date, but there can be no assurance that they will be successful, or that
interaction with other non-complying computer systems will not impair their
services at that time.
In addition, it is possible that the markets for securities in which the
Fund invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues.
Corporate and governmental data processing errors also may result in production
problems for individual companies and overall economic uncertainties. Earnings
of individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected.
C. FUND POLICIES/INVESTMENT RESTRICTIONS
The investment objective, policies and restrictions listed below have been
adopted by the Fund as fundamental policies. Under the Investment Company Act of
1940 (the "INVESTMENT COMPANY ACT"), a fundamental policy may not be changed
without the vote of a majority of the outstanding voting securities of the Fund.
The Investment Company Act defines a majority as the lesser of (a) 67% or more
of the shares present at a meeting of shareholders, if the holders of 50% of the
outstanding shares of the Fund are present or represented by proxy; or (b) more
than 50% of the outstanding shares of the Fund. For purposes of the following
restrictions: (i) all percentage limitations apply immediately after a purchase
or initial investment; and (ii) any subsequent change in any applicable
percentage resulting from market fluctuations or other changes in total or net
assets does not require elimination of any security from the portfolio.
The Fund will:
1. Seek high current income consistent with safety of principal.
The Fund may NOT:
1. Invest more than 5% of the value of its total assets in the securities
of any one issuer (other than obligations issued or guaranteed by the United
States Government, its agencies or instrumentalities);
2. Purchase more than 10% of all outstanding voting securities or any class
of securities of any one issuer;
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to obligations
issued or guaranteed by the United States or its agencies or instrumentalities;
4. Invest more than 10% of its total assets in "illiquid securities"
(securities for which market quotations are not readily available) and
repurchase agreements which have a maturity of longer than seven days;
5. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years of
continuous operation. This restriction shall not apply to any obligation issued
or guaranteed by the United States Government, its agencies or
instrumentalities;
6. Borrow money, except that the Fund may borrow from banks for temporary
or emergency purposes in an amount up to 5% (taken at the lower of cost or
current value) of its total assets (not including the amount borrowed), and may
enter into reverse repurchase agreements in an amount not exceeding 10% of the
Fund's total assets;
7
<PAGE>
7. Invest in securities of any issuer if, to the knowledge of the Fund, any
officer or trustee/director of the Fund or of the Investment Manager owns more
than 1/2 of 1% of the outstanding securities of such issuer, and such officers
and trustees/directors who own more than 1/2 of 1% own in the aggregate more
than 5% of the outstanding securities of such issuers;
8. Purchase or sell real estate or interests therein, although the Fund may
purchase securities of issuers which engage in real estate operations and
securities secured by real estate or interests therein;
9. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Fund may invest in the
securities of companies which operate, invest in, or sponsor such programs;
10. Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets;
11. Pledge its assets or assign or otherwise encumber them except to secure
permitted borrowings;
12. Issue senior securities as defined in the Investment Company Act except
insofar as the Fund may be deemed to have issued a senior security by reason of
borrowing money in accordance with restriction (6) above;
13. Make loans of money or securities, except: (a) by the purchase of
publicly distributed debt obligations; (b) by investment in repurchase
agreements; and (c) by lending its portfolio securities;
14. Make short sales of securities;
15. Purchase or sell commodities or commodity futures contracts;
16. Purchase securities on margin, except for such short-term loans as are
necessary for the clearance of portfolio securities;
17. Engage in the underwriting of securities, except insofar as the Fund may
be deemed an underwriter under the Securities Act of 1933 in disposing of a
portfolio security; and
18. Invest for the purpose of exercising control or management of any other
issuer.
In addition, the Fund, as a non-fundamental policy, will not invest in
warrants, although it may acquire warrants attached to other securities
purchased by the Fund.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially all
of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
8
<PAGE>
III. MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
A. BOARD OF TRUSTEES
The Board of Trustees of the Fund oversees the management of the Fund but
does not itself manage the Fund. The Trustees review various services provided
by or under the direction of the Investment Manager to ensure that the Fund's
general investment policies and programs are properly carried out. The Trustees
also conduct their review to ensure that administrative services are provided to
the Fund in a satisfactory manner.
Under state law, the duties of the Trustees are generally characterized as a
duty of loyalty and a duty of care. The duty of loyalty requires a Trustee to
exercise his or her powers in the interest of the Fund and not the Trustee's own
interest or the interest of another person or organization. A Trustee satisfies
his or her duty of care by acting in good faith with the care of an ordinarily
prudent person and in a manner the Trustee reasonably believes to be in the best
interest of the Fund and its shareholders.
B. MANAGEMENT INFORMATION
TRUSTEES AND OFFICERS. The Board of the Fund consists of eight (8)
Trustees. These same individuals also serve as directors or trustees for all of
the Morgan Stanley Dean Witter Funds. Six Trustees (75% of the total number)
have no affiliation or business connection with the Investment Manager or any of
its affiliated persons and do not own any stock or other securities issued by
the Investment Manager's parent company, MSDW. These are the "non-interested" or
"independent" Trustees. The other two Trustees (the "management Trustees") are
affiliated with the Investment Manager.
The Trustees and executive officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with the
Investment Manager, and with the 92 Morgan Stanley Dean Witter Funds, are shown
below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- --------------------------------------------- -----------------------------------------------
<S> <C>
Michael Bozic (58) .......................... Vice Chairman of Kmart Corporation (since
Trustee December 1998); Director or Trustee of the
c/o Kmart Corporation Morgan Stanley Dean Witter Funds; formerly
3100 West Big Beaver Road Chairman and Chief Executive Officer of Levitz
Troy, Michigan Furniture Corporation (November 1995-November
1998) and President and Chief Executive Officer
of Hills Department Stores (May 1991-July
1995); formerly variously Chairman, Chief
Executive Officer, President and Chief
Operating Officer (1987-1991) of the Sears
Merchandise Group of Sears, Roebuck and Co.;
Director of Eaglemark Financial Services, Inc.
and Weirton Steel Corporation.
Charles A. Fiumefreddo* (66) ................ Chairman, Director or Trustee and Chief
Chairman of the Board, Executive Officer of the Morgan Stanley Dean
Chief Executive Officer and Trustee Witter Funds; formerly Chairman, Chief
Two World Trade Center Executive Officer and Director of the
New York, New York Investment Manager, the Distributor and MSDW
Services Company; Executive Vice President and
Director of Dean Witter Reynolds; Chairman and
Director of the Transfer Agent; formerly
Director and/or officer of various MSDW
subsidiaries (until June 1998).
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- --------------------------------------------- -----------------------------------------------
<S> <C>
Edwin J. Garn (67) .......................... Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds; formerly United States Senator
c/o Huntsman Corporation (R- Utah)(1974-1992) and Chairman, Senate
500 Huntsman Way Banking Committee (1980-1986); formerly Mayor
Salt Lake City, Utah of Salt Lake City, Utah (1971-1974); formerly
Astronaut, Space Shuttle Discovery
(April 12-19, 1985); Vice Chairman, Huntsman
Corporation (chemical company); Director of
Franklin Covey (time management systems), BMW
Bank of North America, Inc. (industrial loan
corporation), United Space Alliance (joint ven-
ture between Lockheed Martin and the Boeing
Company) and Nuskin Asia Pacific (multilevel
marketing); member of the board of various
civic and charitable organizations.
Wayne E. Hedien (65) ........................ Retired; Director or Trustee of the Morgan
Trustee Stanley Dean Witter Funds; Director of The PMI
c/o Mayer, Brown & Platt Group, Inc. (private mortgage insurance);
Counsel to the Independent Trustees Trustee and Vice Chairman of The Field Museum
1675 Broadway of Natural History; formerly associated with
New York, New York the Allstate Companies (1966-1994), most
recently as Chairman of The Allstate
Corporation (March 1993-December 1994) and
Chairman and Chief Executive Officer of its
wholly-owned subsidiary, Allstate Insurance
Company (July 1989-December 1994); director of
various other business and charitable
organizations.
Dr. Manuel H. Johnson (50) .................. Senior Partner, Johnson Smick
Trustee International, Inc., a consulting firm;
c/o Johnson Smick International, Inc. Co-Chairman and a founder of the Group of Seven
1133 Connecticut Avenue, N.W. Council (G7C), an international economic
Washington, D.C. commission; Chairman of the Audit Committee and
Director or Trustee of the Morgan Stanley Dean
Witter Funds; Director of Greenwich Capital
Markets, Inc. (broker-dealer) and NVR, Inc.
(home construction); Chairman and Trustee of
the Financial Accounting Foundation (oversight
organization of the Financial Accounting
Standards Board); formerly Vice Chairman of the
Board of Governors of the Federal Reserve
System (1986-1990) and Assistant Secretary of
the U.S. Treasury.
Michael E. Nugent (63) ...................... General Partner, Triumph Capital, L.P., a
Trustee private investment partnership; Chairman of the
c/o Triumph Capital, L.P. Insurance Committee and Director or Trustee of
237 Park Avenue the Morgan Stanley Dean Witter Funds; formerly
New York, New York Vice President, Bankers Trust Company and BT
Capital Corporation (1984-1988); director of
various business organizations.
Philip J. Purcell* (56) ..................... Chairman of the Board of Directors and Chief
Trustee Executive Officer of MSDW, Dean Witter Reynolds
1585 Broadway and Novus Credit Services Inc.; Director of the
New York, New York Distributor; Director or Trustee of the Morgan
Stanley Dean Witter Funds; Director and/or
officer of various MSDW subsidiaries.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- --------------------------------------------- -----------------------------------------------
<S> <C>
John L. Schroeder (69) ...................... Retired; Chairman of the Derivatives Committee
Trustee and Director or Trustee of the Morgan Stanley
c/o Mayer, Brown & Platt Dean Witter Funds; Director of Citizens
Counsel to the Independent Trustees Utilities Company (telecommunications, gas,
1675 Broadway electric and water utilities company); formerly
New York, New York Executive Vice President and Chief Investment
Officer of the Home Insurance Company (August
1991-September 1995).
Mitchell M. Merin (46) ...................... President and Chief Operating Officer of Asset
President Management of MSDW (since December 1998);
Two World Trade Center President and Director (since April 1997) and
New York, New York Chief Executive Officer (since June 1998) of
the Investment Manager and MSDW Services
Company; Chairman, Chief Executive Officer and
Director of the Distributor (since June 1998);
Chairman and Chief Executive Officer (since
June 1998) and Director (since January 1998) of
the Transfer Agent; Director of various MSDW
subsidiaries; President of the Morgan Stanley
Dean Witter Funds (since May 1999); previously
Chief Strategic Officer of the Investment
Manager and MSDW Services Company and Executive
Vice President of the Distributor (April
1997-June 1998), Vice President of the Morgan
Stanley Dean Witter Funds (May 1997-April
1999), and Executive Vice President of Dean
Witter, Discover & Co.
Barry Fink (44) ............................. Senior Vice President (since March 1997) and
Vice President, Secretary and General Counsel (since February
Secretary and General Counsel 1997) and Director (since July 1998) of the
Two World Trade Center Investment Manager and MSDW Services Company;
New York, New York Senior Vice President (since March 1997) and
Assistant Secretary and Assistant General
Counsel (since February 1997) of the Dis-
tributor; Assistant Secretary of Dean Witter
Reynolds (since August 1996); Vice President,
Secretary and General Counsel of the Morgan
Stanley Dean Witter Funds (since February
1997); previously First Vice President (June
1993-February 1997), Vice President and
Assistant Secretary and Assistant General Coun-
sel of the Investment Manager and MSDW Services
Company and Assistant Secretary of the Morgan
Stanley Dean Witter Funds.
Rochelle G. Siegel (51) ..................... Senior Vice President of the Investment
Vice President Manager; Vice President of various Morgan
Two World Trade Center Stanley Dean Witter Funds.
New York, New York
Thomas F. Caloia (53) ....................... First Vice President and Assistant Treasurer of
Treasurer the Investment Manager, the Distributor and
Two World Trade Center MSDW Services Company; Treasurer of the Morgan
New York, New York Stanley Dean Witter Funds.
</TABLE>
- ------------------------
* Denotes Trustees who are "interested persons" of the Fund as defined in the
Investment Company Act.
11
<PAGE>
In addition, RONALD E. ROBISON, Executive Vice President, Chief
Administrative Officer and Director of the Investment Manager and MSDW Services
Company, ROBERT S. GIAMBRONE, Senior Vice President of the Investment Manager,
MSDW Services Company, the Distributor and the Transfer Agent and Director of
the Transfer Agent, and JOSEPH J. MCALINDEN, Executive Vice President and Chief
Investment Officer of the Investment Manager and Director of the Transfer Agent,
and KEVIN HURLEY, JAMES F. WILLISON, Director of the Tax-Exempt Fixed Income
Group of the Investment Manager, PETER M. AVELAR, Director of the High Yield
Group of the Investment Manager and JONATHAN R. PAGE, Director of the Money
Market Group of the Investment Manager, Senior Vice Presidents of the Investment
Manager and PAULA LA COSTA, a Vice President of the Investment Manager, are Vice
Presidents of the Fund.
In addition, MARILYN K. CRANNEY, LOU ANNE D. MCINNIS, CARSTEN OTTO and RUTH
ROSSI, First Vice Presidents and Assistant General Counsels of the Investment
Manager and MSDW Services Company, TODD LEBO, Vice President and Assistant
General Counsel of the Investment Manager and MSDW Services Company, and NATASHA
KASSIAN, a Staff Attorney with the Investment Manager, are Assistant Secretaries
of the Fund.
INDEPENDENT DIRECTORS/TRUSTEES AND THE COMMITTEES. Law and regulation
establish both general guidelines and specific duties for the independent
directors/trustees. The Morgan Stanley Dean Witter Funds seek as independent
directors/trustees individuals of distinction and experience in business and
finance, government service or academia; these are people whose advice and
counsel are in demand by others and for whom there is often competition. To
accept a position on the Funds' boards, such individuals may reject other
attractive assignments because the Funds make substantial demands on their time.
All of the independent directors/trustees serve as members of the Audit
Committee. In addition, three of the directors/trustees, including two
independent directors/trustees, serve as members of the Derivatives Committee
and the Insurance Committee.
The independent directors/trustees are charged with recommending to the full
board approval of management, advisory and administration contracts, Rule 12b-1
plans and distribution and underwriting agreements; continually reviewing Fund
performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among Funds in
the same complex; and approving fidelity bond and related insurance coverage and
allocations, as well as other matters that arise from time to time. The
independent directors/trustees are required to select and nominate individuals
to fill any independent director/trustee vacancy on the board of any Fund that
has a Rule 12b-1 plan of distribution. Most of the Morgan Stanley Dean Witter
Funds have a Rule 12b-1 plan.
The Audit Committee is charged with recommending to the full board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of the services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
board.
The board of each Fund has a Derivatives Committee to approve parameters for
and monitor the activities of the Fund with respect to derivative investments,
if any, made by the Fund.
Finally, the board of each Fund has formed an Insurance Committee to review
and monitor the insurance coverage maintained by the Fund.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT DIRECTORS/TRUSTEES FOR
ALL MORGAN STANLEY DEAN WITTER FUNDS. The independent directors/trustees and
the Funds' management believe that having the same independent
directors/trustees for each of the Morgan Stanley Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as independent directors/trustees for each of the Funds or
even of sub-groups of Funds. They believe that having the same individuals serve
as independent directors/trustees of all the Funds tends to increase their
knowledge and expertise regarding matters which affect the Fund complex
generally and enhances
12
<PAGE>
their ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the possibility of separate groups of
independent directors/trustees arriving at conflicting decisions regarding
operations and management of the Funds and avoids the cost and confusion that
would likely ensue. Finally, having the same independent directors/trustees
serve on all Fund Boards enhances the ability of each Fund to obtain, at modest
cost to each separate Fund, the services of independent directors/trustees, of
the caliber, experience and business acumen of the individuals who serve as
independent directors/trustees of the Morgan Stanley Dean Witter Funds.
TRUSTEE AND OFFICER INDEMNIFICATION. The Fund's Declaration of Trust
provides that no Trustee, officer, employee or agent of the Fund is liable to
the Fund or to a shareholder, nor is any Trustee, officer, employee or agent
liable to any third persons in connection with the affairs of the Fund, except
as such liability may arise from his/her or its own bad faith, willful
misfeasance, gross negligence or reckless disregard of his/her or its duties. It
also provides that all third persons shall look solely to the Fund property for
satisfaction of claims arising in connection with the affairs of the Fund. With
the exceptions stated, the Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Fund.
C. COMPENSATION
The Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees, the Independent
Trustees or Committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an additional annual fee of $750,
and the Chairmen of the Derivatives and Insurance Committees additional annual
fees of $500). If a Board meeting and a meeting of the Independent Trustees or a
Committee meeting, or a meeting of the Independent Trustees and/or more than one
Committee meeting, take place on a single day, the Trustees are paid a single
meeting fee by the Fund. The Fund also reimburses such Trustees for travel and
other out-of-pocket expenses incurred by them in connection with attending such
meetings. Trustees and officers of the Fund who are or have been employed by the
Investment Manager or an affiliated company receive no compensation or expense
reimbursement from the Fund for their services as Trustee.
The following table illustrates the compensation that the Fund paid to its
Independent Trustees for the fiscal year ended August 31, 1999.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- --------------------------- -------------
<S> <C>
Michael Bozic............................................... $1,450
Edwin J. Garn............................................... 1,600
Wayne E. Hedien............................................. 1,650
Dr. Manuel H. Johnson....................................... 1,913
Michael E. Nugent........................................... 1,808
John L. Schroeder........................................... 1,808
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1998 for services
to the 90 Morgan Stanley Dean Witter Funds that were in operation at
December 31, 1998.
13
<PAGE>
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
TOTAL CASH
COMPENSATION
FOR SERVICES TO
90 MORGAN
STANLEY DEAN
NAME OF INDEPENDENT TRUSTEE WITTER FUNDS
- --------------------------- ---------------
<S> <C>
Michael Bozic............................................... $120,150
Edwin J. Garn............................................... 132,450
Wayne E. Hedien............................................. 132,350
Dr. Manuel H. Johnson....................................... 155,681
Michael E. Nugent........................................... 159,731
John L. Schroeder........................................... 160,731
</TABLE>
As of the date of this STATEMENT OF ADDITIONAL INFORMATION, 55 of the Morgan
Stanley Dean Witter Funds, including the Fund, have adopted a retirement program
under which an independent director/ trustee who retires after serving for at
least five years (or such lesser period as may be determined by the Board) as an
independent director/trustee of any Morgan Stanley Dean Witter Fund that has
adopted the retirement program (each such Fund referred to as an "ADOPTING FUND"
and each such director/trustee referred to as an "ELIGIBLE TRUSTEE") is entitled
to retirement payments upon reaching the eligible retirement age (normally,
after attaining age 72). Annual payments are based upon length of service.
Currently, upon retirement, each Eligible Trustee is entitled to receive
from the Adopting Fund, commencing as of his or her retirement date and
continuing for the remainder of his or her life, an annual retirement benefit
(the "REGULAR BENEFIT") equal to 30.22% of his or her Eligible Compensation plus
0.5036667% of such Eligible Compensation for each full month of service as an
independent director/ trustee of any Adopting Fund in excess of five years up to
a maximum of 60.44% after ten years of service. The foregoing percentages may be
changed by the Board.(1) "ELIGIBLE COMPENSATION" is one-fifth of the total
compensation earned by such Eligible Trustee for service to the Adopting Fund in
the five year period prior to the date of the Eligible Trustee's retirement.
Benefits under the retirement program are accrued as expenses by the Adopting
Funds. Such benefits are not secured or funded by the Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the Fund for the fiscal year ended August 31,
1999 and by the 55 Morgan Stanley Dean Witter Funds (including the Fund) for the
calendar year ended December 31, 1998, and the estimated retirement benefits for
the Independent Trustees, to commence upon their retirement, from the Fund as of
fiscal year ended August 31, 1999 and from the 55 Morgan Stanley Dean Witter
Funds as of the calendar year ended December 31, 1998.
- ------------------------
1 An Eligible Trustee may elect alternative payments of his or her retirement
benefits based upon the combined life expectancy of the Eligible Trustee and
his or her spouse on the date of such Eligible Trustee's retirement. The
amount estimated to be payable under this method, through the remainder of
the later of the lives of the Eligible Trustee and spouse, will be the
actuarial equivalent of the Regular Benefit. In addition, the Eligible
Trustee may elect that the surviving spouse's periodic payment of benefits
will be equal to either 50% or 100% of the previous periodic amount, an
election that, respectively, increases or decreases the previous periodic
amounts so that the resulting payments will be the actuarial equivalent of
the Regular Benefit.
14
<PAGE>
RETIREMENT BENEFITS FROM THE FUND AND
ALL MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
RETIREMENT
BENEFITS ESTIMATED ANNUAL
FOR ALL ADOPTING FUNDS ACCRUED AS BENEFITS
------------------------------- EXPENSES UPON RETIREMENT
ESTIMATED BY ALL FROM ALL
CREDITED ADOPTING FUNDS ADOPTING FUNDS(2)
YEARS OF ESTIMATED ---------------------- ----------------------
SERVICE AT PERCENTAGE OF BY ALL FROM FROM ALL
RETIREMENT ELIGIBLE BY THE ADOPTING THE ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUND FUNDS FUND FUNDS
- --------------------------- ------------ ------------ ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Michael Bozic.................. 10 60.44% $388 $22,377 $937 $52,250
Edwin J. Garn.................. 10 60.44 564 35,225 937 52,250
Wayne E. Hedien................ 9 51.37 732 41,979 796 44,413
Dr. Manuel H. Johnson.......... 10 60.44 236 14,047 937 52,250
Michael E. Nugent.............. 10 60.44 406 25,336 937 52,250
John L. Schroeder.............. 8 50.37 771 45,117 801 44,343
</TABLE>
- ------------------------
2 Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote 1 on
page 14.
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- --------------------------------------------------------------------------------
The following persons owned 5% or more of the outstanding Class A shares of
the Fund as of October 6, 1999: Morgan Stanley Dean Witter Trust FSB Trustee,
West Coast Beauty Supply Co., Retirement Savings Plan, P.O. Box 957, Jersey
City, NJ 07303-0957--35.61%; Morgan Stanley Dean Witter Trust FSB Trustee,
Northeast Regional Medical Center, P.O. Box 957, Jersey City, NJ
07303-0957--11.81%; Morgan Stanley Dean Witter Trust Trustee, Morristown
Hamblen, 401(k) Plan, P.O. Box 957, Jersey City, NJ 07303-0957--10.91% and The
David Arno Hughey Revocable TR DTD 11/25/96, David Arno Hughey and Susan E.
Hughey TTEES, P.O. Box 501, Meredith, NH 03253-0501--8.81%. The following
persons owned 5% or more of the outstanding Class C shares of the Fund on
October 6, 1999: Barbara L. Strom, Gordon W. Strom & Kristine S. Erickson TTEES
of the Barbara L. Strom REV TST DTD 11/4/96, 95 Woodland Circle, Edina, MN
55424-1454--16.84%; Dean Witter Reynolds Custodian for Bert Carver, IRA Standard
Dated 12/02/98, 11412 Viers Mill Road, Silver Spring, MD 20902-2517--7.75%;
Lewis R. White Jr., 502 San Pedro Road, Perry, FL 32347--5.73%; Salomon Smith
Barney Inc., 333 West 34th Street, 3rd Floor, New York, NY 10001--5.39%. The
following person owned 5% or more of the outstanding Class D shares of the Fund
on October 6, 1999: Mellon Bank N.A., Mutual Funds, P.O. Box 3198, Pittsburgh,
PA 15230, as trustee of the Morgan Stanley Dean Witter START Plan, an employee
benefit plan established under Sections 401(a) and 401(k) of the Internal
Revenue Code for the benefit of certain employees of MSDW and its
subsidiaries--50.00%; Hare & Co., c/o The Bank of New York, P.O. Box 11203, New
York, NY 10286-1203--29.14%; IAM & AW Local Lodge PM#2848, MULTI-EMP WAGE REDUC
401(k) PSP, 3/6/86 TTEE J. Winterhalter, P.O. Box 3039, Birmingham, MI
48012-3039--6.80%.
As of the date of this STATEMENT OF ADDITIONAL INFORMATION, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's officers
and Trustees as a group was less than 1% of the Fund's shares of beneficial
interest outstanding.
V. INVESTMENT MANAGEMENT AND OTHER SERVICES
- --------------------------------------------------------------------------------
A. INVESTMENT MANAGER
The Investment Manager to the Fund is Morgan Stanley Dean Witter Advisors
Inc., a Delaware corporation, whose address is Two World Trade Center, New York,
New York 10048. The Investment
15
<PAGE>
Manager is a wholly-owned subsidiary of MSDW, a Delaware corporation. 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.
Pursuant to an Investment Management Agreement (the "MANAGEMENT AGREEMENT")
with the Investment Manager, the Fund has retained the Investment Manager to
provide administrative services, manage its business affairs and supervise the
investment of the Fund's assets. The Fund pays the Investment Manager monthly
compensation calculated daily by applying the following annual rates to the net
assets of the Fund determined as of the close of each business day: 0.60% to the
portion of such daily net assets not exceeding $500 million; 0.50% to the
portion of such daily net assets exceeding $500 million, but not exceeding
$750 million; 0.40% to the portion of such daily net assets exceeding
$750 million, but not exceeding $1 billion; and 0.30% to the portion of such
daily net assets exceeding $1 billion. The management fee is allocated among the
Classes pro rata based on the net assets of the Fund attributable to each Class.
The Fund accrued total compensation to the Investment Manager of $1,116,809,
$964,411 and $899,873, during the fiscal years ended August 31, 1997, 1998 and
1999, respectively.
The Investment Manager has retained its wholly-owned subsidiary, MSDW
Services Company, to perform administrative services for the Fund.
B. PRINCIPAL UNDERWRITER
The Fund's principal underwriter is the Distributor (which has the same
address as the Investment Manager). In this capacity, the Fund's shares are
distributed by the Distributor. The Distributor has entered into a selected
dealer agreement with Dean Witter Reynolds, which through its own sales
organization sells shares of the Fund. In addition, the Distributor may enter
into similar agreements with other selected broker-dealers. The Distributor, a
Delaware corporation, is a wholly-owned subsidiary of MSDW.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. These expenses include the payment of commissions
for sales of the Fund's shares and incentive compensation to Financial Advisors
which may include educational and/or business-related trips, and reimbursement
of educational and/or promotional and business-related expenses. The Distributor
also pays certain expenses in connection with the distribution of the Fund's
shares, including the costs of preparing, printing and distributing advertising
or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto used in connection with the offering and
sale of the Fund's shares. The Fund bears the costs of initial typesetting,
printing and distribution of prospectuses and supplements thereto to
shareholders. The Fund also bears the costs of registering the Fund and its
shares under federal and state securities laws and pays filing fees in
accordance with state securities laws.
The Fund and the Distributor have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to the Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for any losses sustained by the
Fund or its shareholders.
C. SERVICES PROVIDED BY THE INVESTMENT MANAGER
The Investment Manager supervises the investment of the Fund's assets. The
Investment Manager obtains and evaluates the information and advice relating to
the economy, securities markets, and specific securities as it considers
necessary or useful to continuously oversee the management of the assets of the
Fund in a manner consistent with its investment objective.
Under the terms of the Management Agreement, the Investment Manager also
maintains certain of the Fund's books and records and furnishes, at its own
expense, the office space, facilities, equipment, clerical help, bookkeeping and
certain legal services as the Fund may reasonably require in the conduct
16
<PAGE>
of its business, including the preparation of prospectuses, proxy statements and
reports required to be filed with federal and state securities commissions
(except insofar as the participation or assistance of independent accountants
and attorneys is, in the opinion of the Investment Manager, necessary or
desirable). In addition, the Investment Manager pays the salaries of all
personnel, including officers of the Fund, who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone service, heat,
light, power and other utilities provided to the Fund.
Expenses not expressly assumed by the Investment Manager under the
Management Agreement or by the Distributor, will be paid by the Fund. These
expenses will be allocated among the four Classes of shares pro rata based on
the net assets of the Fund attributable to each Class, except as described
below. Such expenses include, but are not limited to: expenses of the Plan of
Distribution pursuant to Rule 12b-1; charges and expenses of any registrar,
custodian, stock transfer and dividend disbursing agent; brokerage commissions;
taxes; engraving and printing share certificates; registration costs of the Fund
and its shares under federal and state securities laws; the cost and expense of
printing, including typesetting, and distributing prospectuses of the Fund and
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Trustees' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of Trustees or
members of any advisory board or committee who are not employees of the
Investment Manager or any corporate affiliate of the Investment Manager; all
expenses incident to any dividend, withdrawal or redemption options; charges and
expenses of any outside service used for pricing of the Fund's shares; fees and
expenses of legal counsel, including counsel to the Trustees who are not
interested persons of the Fund or of the Investment Manager (not including
compensation or expenses of attorneys who are employees of the Investment
Manager); fees and expenses of the Fund's independent accountants; membership
dues of industry associations; interest on Fund borrowings; postage; insurance
premiums on property or personnel (including officers and Trustees) of the Fund
which inure to its benefit; extraordinary expenses (including, but not limited
to, legal claims and liabilities and litigation costs and any indemnification
relating thereto); and all other costs of the Fund's operation. The 12b-1 fees
relating to a particular Class will be allocated directly to that Class. In
addition, other expenses associated with a particular Class (except advisory or
custodial fees) may be allocated directly to that Class, provided that such
expenses are reasonably identified as specifically attributable to that Class
and the direct allocation to that Class is approved by the Trustees.
The Management Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Investment Manager is not liable to the Fund or any
of its investors for any act or omission by the Investment Manager or for any
losses sustained by the Fund or its investors.
The Management Agreement will remain in effect from year to year provided
continuance of the Management Agreement is approved at least annually by the
vote of the holders of a majority, as defined in the Investment Company Act, of
the outstanding shares of the Fund, or by the Trustees; provided that in either
event such continuance is approved annually by the vote of a majority of the
Trustees including a majority of Independent Trustees ("Independent Trustees,")
which votes must be cast in person at a meeting called for the purpose of voting
on such approval.
D. DEALER REALLOWANCES
Upon notice to selected broker-dealers, the Distributor may reallow up to
the full applicable front-end sales charge during periods specified in such
notice. During periods when 90% or more of the sales charge is reallowed, such
selected broker-dealers may be deemed to be underwriters as that term is defined
in the Securities Act, including a majority of the Independent Trustees.
E. RULE 12b-1 PLAN
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act (the "PLAN") pursuant to which each Class, other than
Class D, pays the Distributor compensation accrued daily and payable monthly at
the following annual rates: 0.25% and 0.85% of the average daily net assets of
Class A and Class C, respectively, and, with respect to Class B, 0.85% of the
lesser of:
17
<PAGE>
(a) the average daily aggregate gross sales of the Fund's Class B shares since
the inception of the Fund (not including reinvestment of dividends or capital
gains distributions), less the average daily aggregate net asset value of the
Fund's Class B shares redeemed since the Fund's inception upon which a
contingent deferred sales charge has been imposed or upon which such charge has
been waived; or (b) the Fund's average daily net assets of Class B.
The Distributor also receives the proceeds of front-end sales charges
("FSCS") and of contingent deferred sales charges ("CDSCS") imposed on certain
redemptions of shares, which are separate and apart from payments made pursuant
to the Plan. The Distributor has informed the Fund that it and/or Dean Witter
Reynolds received the proceeds of CDSCs and FSCs, for the last three fiscal
years ended August 31, in approximate amounts as provided in the table below
(the Distributor did not retain any of these amounts).
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Class A(1)..................... FSCs:(1) $ 11,247 FSCs: $ 12,907 FSCs: 0(2)
CDSCs: $ 2,997 CDSCs: $ 0 CDSCs: 0(2)
Class B........................ CDSCs: $168,879 CDSCs: $191,024 CDSCs: $285,035
Class C........................ CDSCs: $ 670 CDSCs: $ 722 CDSCs: 0(2)
</TABLE>
- ------------------------------
1 FSCs apply to Class A only.
2 This Class commenced operations on July 28, 1997.
The Distributor has informed the Fund that the entire fee payable by Class A
and a portion of the fees payable by each of Class B and Class C each year
pursuant to the Plan equal to 0.20% of the average daily net assets of Class B
and 0.25% of the average daily net assets of Class C are currently each
characterized as a "service fee" under the Rules of the National Association of
Securities Dealers, Inc. (of which the Distributor is a member). The "service
fee" is a payment made for personal service and/or the maintenance of
shareholder accounts. The remaining portion of the Plan fees payable by a Class,
if any, is characterized as an "asset-based sales charge" as such is defined by
the Rules of the Association.
Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each calendar quarter a written report provided
by the Distributor of the amounts expended under the Plan and the purpose for
which such expenditures were made. Class B shares of the Fund accrued amounts
payable to the Distributor under the Plan, during the fiscal year ended August
31, 1999, of $1,161,944. This amount is equal to 0.85% of the average daily net
assets of Class B. For the fiscal year ended August 31, 1999, Class A and
Class C shares of the Fund accrued payments under the Plan amounting to $6,748
and $11,479, respectively, which amounts are equal to 0.18% and 0.85% of the
average daily net assets of Class A and Class C, respectively, for the fiscal
year.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes, each with a different distribution arrangement.
With respect to Class A shares, Dean Witter Reynolds compensates its
Financial Advisors by paying them, from proceeds of the FSC, commissions for the
sale of Class A shares, currently a gross sales credit of up to 4.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.20% of the current value of
the respective accounts for which they are the Financial Advisors or dealers of
record in all cases. On orders of $1 million or more (for which no sales charge
was paid) or net asset value purchases by employer-sponsored employee benefit
plans, whether or not qualified under the Internal Revenue Code, for which the
Transfer Agent serves as Trustee or Dean Witter Reynolds Retirement Plan
Services serves as recordkeeper pursuant to a written Recordkeeping Services
Agreement ("MSDW ELIGIBLE PLANS"), the Investment Manager compensates Financial
Advisors by paying them, from its own funds, a gross sales credit of 1.0% of the
amount sold.
18
<PAGE>
With respect to Class B shares, Dean Witter Reynolds compensates its
Financial Advisors by paying them, from its own funds, commissions for the sale
of Class B shares, currently a gross sales credit of up to 4.0% of the amount
sold (except as provided in the following sentence) and an annual residual
commission, currently a residual of up to 0.20% of the current value (not
including reinvested dividends or distributions) of the amount sold in all
cases. In the case of Class B shares purchased by MSDW Eligible Plans, Dean
Witter Reynolds compensates its Financial Advisors by paying them, from its own
funds, a gross sales credit of 3.0% of the amount sold.
With respect to Class C shares, Dean Witter Reynolds compensates its
Financial Advisors by paying them, from its own funds, commissions for the sale
of Class C shares, currently a gross sales credit of up to 1.0% of the amount
sold and an annual residual commission, currently up to 0.85% of the current
value of the respective accounts for which they are the Financial Advisors of
record.
With respect to Class D shares other than shares held by participants in the
Investment Manager's mutual fund asset allocation program, the Investment
Manager compensates Dean Witter Reynolds's Financial Advisors by paying them,
from its own funds, commissions for the sale of Class D shares, currently a
gross sales credit of up to 1.0% of the amount sold. There is a chargeback of
100% of the amount paid if the Class D shares are redeemed in the first year and
a chargeback of 50% of the amount paid if the Class D shares are redeemed in the
second year after purchase. The Investment Manager also compensates Dean Witter
Reynolds's Financial Advisors by paying them, from its own funds, an annual
residual commission, currently up to 0.10% of the current value of the
respective accounts for which they are the Financial Advisors of record (not
including accounts of participants in the Investment Manager's mutual fund asset
allocation program).
The gross sales credit is a charge which reflects commissions paid by Dean
Witter Reynolds to its Financial Advisors and Dean Witter Reynolds's
Fund-associated distribution-related expenses, including sales compensation, and
overhead and other branch office distribution-related expenses including
(a) the expenses of operating Dean Witter Reynolds's branch offices in
connection with the sale of Fund shares, including lease costs, the salaries and
employee benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies; (b) the costs of
client sales seminars; (c) travel expenses of mutual fund sales coordinators to
promote the sale of Fund shares; and (d) other expenses relating to branch
promotion of Fund sales.
The distribution fee that the Distributor receives from the Fund under the
Plan, in effect, offsets distribution expenses incurred under the Plan on behalf
of the Fund and, in the case of Class B shares, opportunity costs, such as the
gross sales credit and an assumed interest charge thereon ("CARRYING CHARGE").
These expenses may include compensation in the form of special sales incentives
for Financial Advisors such as receipt of educational and/or business-related
trips or reimbursement of educational and/or promotional and business-related
expenses. In the Distributor's reporting of the distribution expenses to the
Fund, in the case of Class B shares, such assumed interest (computed at the
"BROKER'S CALL RATE") has been calculated on the gross credit as it is reduced
by amounts received by the Distributor under the Plan and any contingent
deferred sales charges received by the Distributor upon redemption of shares of
the Fund. No other interest charge is included as a distribution expense in the
Distributor's calculation of its distribution costs for this purpose. The
broker's call rate is the interest rate charged to securities brokers on loans
secured by exchange-listed securities.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments at
the end of each month. The amount of each monthly payment may in no event exceed
an amount equal to a payment at the annual rate of 0.25%, in the case of
Class A, and 0.85%, in the case of Class C, of the average net assets of the
respective Class during the month. No interest or other financing charges, if
any, incurred on any distribution expenses on behalf of Class A and Class C will
be reimbursable under the Plan. With respect to Class A, in the case of all
expenses other than expenses representing the service fee, and, with respect to
Class C, in the case of all expenses other than expenses representing a gross
sales credit or a residual to Financial Advisors and other
19
<PAGE>
authorized financial representatives, such amounts shall be determined at the
beginning of each calendar quarter by the Trustees, including, a majority of the
Independent Trustees. Expenses representing the service fee (for Class A) or a
gross sales credit or a residual to Financial Advisors and other authorized
financial representatives (for Class C) may be reimbursed without prior
determination. In the event that the Distributor proposes that monies shall be
reimbursed for other than such expenses, then in making quarterly determinations
of the amounts that may be reimbursed by the Fund, the Distributor will provide
and the Trustees will review a quarterly budget of projected distribution
expenses to be incurred on behalf of the Fund, together with a report explaining
the purposes and anticipated benefits of incurring such expenses. The Trustees
will determine which particular expenses, and the portions thereof, that may be
borne by the Fund, and in making such a determination shall consider the scope
of the Distributor's commitment to promoting the distribution of the Fund's
Class A and Class C shares.
Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the fiscal year ended August 31, 1999 to the Distributor. The
Distributor and Dean Witter Reynolds estimate that they have spent, pursuant to
the Plan, $23,706,701 on behalf of Class B since the inception of the Fund. It
is estimated that this amount was spent in approximately the following ways: (i)
12.86% ($3,048,803)--advertising and promotional expenses; (ii) 0.83%
($195,894)--printing of prospectuses for distribution to other than current
shareholders; and (iii) 86.31% ($20,462,004)--other expenses, including the
gross sales credit and the carrying charge, of which 10.10% ($2,065,732)
represents carrying charges, 37.22% ($7,616,057) represents commission credits
to Dean Witter Reynolds branch offices and other selected broker-dealers for
payments of commissions to Financial Advisors and other selected broker-dealer
representatives, 52.68% ($10,780,215) represents overhead and other branch
office distribution-related expenses. The amounts accrued by Class A and a
portion of the amounts accrued by Class C under the Plan during the fiscal year
ended August 31, 1999 were service fees. The remainder of the amounts accrued by
Class C were for expenses which relate to compensation of sales personnel and
associated overhead expenses.
In the case of Class B shares, at any given time, the expenses of
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan; and (ii) the proceeds of CDSCs
paid by investors upon redemption of shares. For example, if $1 million in
expenses in distributing Class B shares of the Fund had been incurred and
$750,000 had been received as described in (i) and (ii) above, the excess
expense would amount to $250,000. The Distributor has advised the Fund that in
the case of Class B shares the excess distribution expenses, including the
carrying charge designed to approximate the opportunity costs incurred by Dean
Witter Reynolds which arise from it having advanced monies without having
received the amount of any sales charges imposed at the time of sale of the
Fund's Class B shares, totaled $5,006,773 as of August 31, 1999 (the end of the
Fund's fiscal year), which was equal to 4.14% of the net assets of Class B on
such date. Because there is no requirement under the Plan that the Distributor
be reimbursed for all distribution expenses with respect to Class B shares or
any requirement that the Plan be continued from year to year, this excess amount
does not constitute a liability of the Fund. Although there is no legal
obligation for the Fund to pay expenses incurred in excess of payments made to
the Distributor under the Plan and the proceeds of CDSCs paid by investors upon
redemption of shares, if for any reason the Plan is terminated, the Trustees
will consider at that time the manner in which to treat such expenses. Any
cumulative expenses incurred, but not yet recovered through distribution fees or
CDSCs, may or may not be recovered through future distribution fees or CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to the
Plan in any calendar year in excess of 0.25% or 0.85% of the average daily net
assets of Class A or Class C, respectively, will not be reimbursed by the Fund
through payments in any subsequent year, except that expenses representing a
gross sales commission credited to Morgan Stanley Dean Witter Financial Advisors
and other authorized broker-dealer representatives at the time of sale may be
reimbursed in the subsequent calendar year. The Distributor has advised the Fund
that unreimbursed expenses representing a gross sales commission credited to
Morgan Stanley Dean Witter Financial Advisors and other authorized financial
representatives at the time of sale totaled $4,840 in the case of Class C at
December 31, 1998
20
<PAGE>
(end of the calendar year), which amount was equal to 0.41% of the assets of
Class C on such date and that there were no such expenses which may be
reimbursed in the case of Class A on such date. No interest or other financing
charges will be incurred on any Class A or Class C distribution expenses
incurred by the Distributor under the Plan or on any unreimbursed expenses due
to the Distributor pursuant to the Plan.
No interested person of the Fund nor any Independent Trustee has any direct
financial interest in the operation of the Plan except to the extent that the
Distributor, the Investment Manager, Dean Witter Reynolds, MSDW Services Company
or certain of their employees may be deemed to have such an interest as a result
of benefits derived from the successful operation of the Plan or as a result of
receiving a portion of the amounts expended thereunder by the Fund.
On an annual basis, the Trustees, including a majority of the Independent
Trustees, consider whether the Plan should be continued. Prior to approving the
last continuation of the Plan, the Trustees requested and received from the
Distributor and reviewed all the information which they deemed necessary to
arrive at an informed determination. In making their determination to continue
the Plan, the Trustees considered: (1) the Fund's experience under the Plan and
whether such experience indicates that the Plan is operating as anticipated;
(2) the benefits the Fund had obtained, was obtaining and would be likely to
obtain under the Plan, including that: (a) the Plan is essential in order to
give Fund investors a choice of alternatives for payment of distribution and
service charges and to enable the Fund to continue to grow and avoid a pattern
of net redemptions which, in turn, are essential for effective investment
management; and (b) without the compensation to individual brokers and the
reimbursement of distribution and account maintenance expenses of Dean Witter
Reynolds's branch offices made possible by the 12b-1 fees, Dean Witter Reynolds
could not establish and maintain an effective system for distribution, servicing
of Fund shareholders and maintenance of shareholder accounts; and (3) what
services had been provided and were continuing to be provided under the Plan to
the Fund and its shareholders. Based upon their review, the Trustees, including
each of the Independent Trustees, determined that continuation of the Plan would
be in the best interest of the Fund and would have a reasonable likelihood of
continuing to benefit the Fund and its shareholders. In the Trustees' quarterly
review of the Plan, they will consider its continued appropriateness and the
level of compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval by the shareholders of the
affected Class or Classes of the Fund, and all material amendments to the Plan
must also be approved by the Trustees in the manner described above. The Plan
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Independent Trustees or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the Investment Company
Act) on not more than thirty days' written notice to any other party to the
Plan. So long as the Plan is in effect, the election and nomination of
Independent Trustees shall be committed to the discretion of the Independent
Trustees.
F. OTHER SERVICE PROVIDERS
(1) TRANSFER AGENT/DIVIDEND-PAYING AGENT
Morgan Stanley Dean Witter Trust FSB is the Transfer Agent for the Fund's
shares and the Dividend Disbursing Agent for payment of dividends and
distributions on Fund shares and Agent for shareholders under various investment
plans. The principal business address of the Transfer Agent is Harborside
Financial Center, Plaza Two, Jersey City, NJ 07311.
(2) CUSTODIAN AND INDEPENDENT ACCOUNTANTS
The Bank of New York, 100 Church Street, New York, New York 10286 is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
These balances may, at times, be substantial.
21
<PAGE>
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the independent accountants of the Fund. The independent
accountants are responsible for auditing the annual financial statements of the
Fund.
(3) AFFILIATED PERSONS
The Transfer Agent is an affiliate of the Investment Manager, and of the
Distributor. As Transfer Agent and Dividend Disbursing Agent, the Transfer
Agent's responsibilities include maintaining shareholder accounts, disbursing
cash dividends and reinvesting dividends, processing account registration
changes, handling purchase and redemption transactions, mailing prospectuses and
reports, mailing and tabulating proxies, processing share certificate
transactions, and maintaining shareholder records and lists. For these services,
the Transfer Agent receives a per shareholder account fee from the Fund and is
reimbursed for its out-of-pocket expenses in connection with such services.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
- --------------------------------------------------------------------------------
A. BROKERAGE TRANSACTIONS
Subject to the general supervision of the Trustees, the Investment Manager
is responsible for decisions to buy and sell securities for the Fund, the
selection of brokers and dealers to effect the transactions, and the negotiation
of brokerage commissions, if any. The Fund expects that the primary market for
the securities in which it invests will generally be the over-the-counter market
on a "net" basis with dealers acting as principal for their own accounts without
a stated commission, although the price of the security usually includes a
profit to the dealer. The Fund also expects that securities will be purchased at
times in underwritten offerings where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or discount.
Purchases and sales of securities on a stock exchange are effected through
brokers who charge a commission for their services. Options and futures
transactions will usually be effected through a broker and a commission will be
charged. On occasion, the Fund may also purchase certain money market
instruments directly from an issuer, in which case no commissions or discounts
are paid.
During the fiscal years ended August 31, 1997, 1998 and 1999, the Fund did
not pay any brokerage commissions.
B. COMMISSIONS
Pursuant to an order of the SEC, the Fund may effect principal transactions
in certain money market instruments with Dean Witter Reynolds. The Fund will
limit its transactions with Dean Witter Reynolds to U.S. Government and
government agency securities, bank money instruments (i.e., certificates of
deposit and bankers' acceptances) and commercial paper. The transactions will be
effected with Dean Witter Reynolds only when the price available from Dean
Witter Reynolds is better than that available from other dealers.
During the fiscal years ended August 31, 1997, 1998 and 1999, the Fund did
not effect any principal transactions with Dean Witter Reynolds.
Brokerage transactions in securities listed on exchanges or admitted to
unlisted trading privileges may be effected through Dean Witter Reynolds, Morgan
Stanley & Co. and other affiliated brokers and dealers. In order for an
affiliated broker or dealer to effect any portfolio transactions on an exchange
for the Fund, the commissions, fees or other remuneration received by the
affiliated broker or dealer must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
an exchange during a comparable period of time. This standard would allow the
affiliated broker or dealer to receive no more than the remuneration which would
be expected to be received by an unaffiliated
22
<PAGE>
broker in a commensurate arm's-length transaction. Furthermore, the Trustees,
including the Independent Trustees, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to an
affiliated broker or dealer are consistent with the foregoing standard. The Fund
does not reduce the management fee it pays to the Investment Manager by any
amount of the brokerage commissions it may pay to an affiliated broker or
dealer.
During the fiscal years ended August 31, 1997, 1998 and 1999, the Fund did
not effect any securities transactions with or through Dean Witter Reynolds.
During the period June 1, 1997 through August 31, 1997 and during the fiscal
years ended August 31, 1998 and 1999, the Fund did not effect any securities
transactions with or through Morgan Stanley & Co., which broker-dealer became an
affiliate of the Investment Manager on May 31, 1997 upon consummation of the
merger of Dean Witter, Discover & Co. with Morgan Stanley Group Inc.
C. BROKERAGE SELECTION
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions.
In seeking to implement the Fund's policies, the Investment Manager effects
transactions with those brokers and dealers who the Investment Manager believes
provide the most favorable prices and are capable of providing efficient
executions. If the Investment Manager believes the prices and executions are
obtainable from more than one broker or dealer, it may give consideration to
placing portfolio transactions with those brokers and dealers who also furnish
research and other services to the Fund or the Investment Manager. The services
may include, but are not limited to, any one or more of the following:
information as to the availability of securities for purchase or sale;
statistical or factual information or opinions pertaining to investment; wire
services; and appraisals or evaluations of portfolio securities. The information
and services received by the Investment Manager from brokers and dealers may be
of benefit to the Investment Manager in the management of accounts of some of
its other clients and may not in all cases benefit the Fund directly.
The Investment Manager currently serves as advisor to a number of clients,
including other investment companies, and may in the future act as investment
manager or advisor to others. It is the practice of the Investment Manager to
cause purchase and sale transactions to be allocated among the Fund and others
whose assets it manages in such manner as it deems equitable. In making such
allocations among the Fund and other client accounts, various factors may be
considered, including the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and the
opinions of the persons responsible for managing the portfolios of the Fund and
other client accounts. In the case of certain initial and secondary public
offerings, the Investment Manager utilizes a pro rata allocation process based
on the size of the Morgan Stanley Dean Witter Funds involved and the number of
shares available from the public offering.
D. DIRECTED BROKERAGE
During the fiscal year ended August 31, 1999, the Fund did not pay any
brokerage commissions in connection with transactions because of research
services provided.
E. REGULAR BROKER-DEALERS
During the fiscal year ended August 31, 1999, the Fund purchased bonds
issued by Bank of America, Lehman Brothers Inc. and PaineWebber Inc. that were
among the ten brokers or the ten dealers that executed transactions for or with
the Fund in the largest dollar amounts during the year. At August 31, 1999, the
Fund held bonds issued by Bank of America, Lehman Brothers and PaineWebber Inc.
with market values of $1,968,700, $986,460 and $959,550, respectively.
23
<PAGE>
VII. CAPITAL STOCK AND OTHER SECURITIES
- --------------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full share
of beneficial interest held. The Fund is authorized to issue an unlimited number
of shares of beneficial interest. All shares of beneficial interest of the Fund
are of $0.01 par value and are equal as to earnings, assets and voting
privileges.
The Fund's Declaration of Trust permits the Trustees to authorize the
creation of additional series of shares (the proceeds of which would be invested
in separate, independently managed portfolios) and additional Classes of shares
within any series. The Trustees have not presently authorized any such
additional series or Classes of shares other than as set forth in the
Prospectus.
The Fund is not required to hold annual meetings of shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call special meetings of shareholders for action by shareholder
vote as may be required by the Investment Company Act or the Declaration of
Trust. Under certain circumstances the Trustees may be removed by action of the
Trustees. In addition, under certain circumstances the shareholders may call a
meeting to remove Trustees and the Fund is required to provide assistance in
communicating with shareholders about such a meeting. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees.
Under Massachusetts law, shareholders of a business trust may, under certain
limited circumstances, be held personally liable as partners for the obligations
of the Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that notice
of such Fund obligations include such disclaimer, and provides for
indemnification out of the Fund's property for any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations.
Given the above limitations on shareholder personal liability, and the nature of
the Fund's assets and operations, the possibility of the Fund being unable to
meet its obligations is remote and thus, in the opinion of Massachusetts counsel
to the Fund, the risk to Fund shareholders of personal liability is remote.
All of the Trustees have been elected by the shareholders of the Fund, most
recently at a Special Meeting of Shareholders held on May 21, 1997. The Trustees
themselves have the power to alter the number and the terms of office of the
Trustees (as provided for in the Declaration of Trust), and they may at any time
lengthen or shorten their own terms or make their terms of unlimited duration
and appoint their own successors, provided that always at least a majority of
the Trustees has been elected by the shareholders of the Fund.
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
- --------------------------------------------------------------------------------
A. PURCHASE/REDEMPTION OF SHARES
Information concerning how Fund shares are offered to the public (and how
they are redeemed and exchanged) is provided in the Fund's PROSPECTUS.
TRANSFER AGENT AS AGENT. With respect to the redemption or repurchase of
Fund shares, the application of proceeds to the purchase of new shares in the
Fund or any other Morgan Stanley Dean Witter Funds and the general
administration of the exchange privilege, the Transfer Agent acts as agent for
the Distributor and for the shareholder's authorized broker-dealer, if any, in
the performance of such functions. With respect to exchanges, redemptions or
repurchases, the Transfer Agent shall be liable for its own negligence and not
for the default or negligence of its correspondents or for losses in transit.
The Fund shall not be liable for any default or negligence of the Transfer
Agent, the Distributor or any authorized broker-dealer.
24
<PAGE>
The Distributor and any authorized broker-dealer have appointed the Transfer
Agent to act as their agent in connection with the application of proceeds of
any redemption of Fund shares to the purchase of shares of any other Morgan
Stanley Dean Witter Fund and the general administration of the exchange
privilege. No commission or discounts will be paid to the Distributor or any
authorized broker-dealer for any transaction pursuant to the exchange privilege.
TRANSFERS OF SHARES. In the event a shareholder requests a transfer of Fund
shares to a new registration, the shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the length
of time shares subject to the charge have been held), any transfer involving
less than all of the shares in an account will be made on a pro rata basis (that
is, by transferring shares in the same proportion that the transferred shares
bear to the total shares in the account immediately prior to the transfer). The
transferred shares will continue to be subject to any applicable CDSC as if they
had not been so transferred.
B. OFFERING PRICE
The Fund's Class B, Class C and Class D shares are offered at net asset
value per share and the Class A shares are offered at net asset value per share
plus any applicable FSC which is distributed among the Fund's Distributor, Dean
Witter Reynolds, and other authorized dealers as described in Section "V.
Investment Management and Other Services--E. Rule 12b-1 Plan."
The price of Fund shares, called "NET ASSET VALUE," is based on the value of
the Fund's portfolio securities. Net asset value per share of each Class is
calculated by dividing the value of the portion of the Fund's securities and
other assets attributable to that Class, less the liabilities attributable to
that Class, by the number of shares of that Class outstanding. The assets of
each Class of shares are invested in a single portfolio. The net asset value of
each Class, however, will differ because the Classes have different ongoing
fees.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
stock exchange is valued at its latest sale price on that exchange, prior to the
time when assets are valued; if there were no sales that day, the security is
valued at the latest bid price (in cases where a security is traded on more than
one exchange, the security is valued on the exchange designated as the primary
market pursuant to procedures adopted by the Trustees); and (2) all other
portfolio securities for which over-the-counter market quotations are readily
available are valued at the latest bid price. When market quotations are not
readily available, including circumstances under which it is determined by the
Investment Manager that sale or bid prices are not reflective of a security's
market value, portfolio securities are valued at their fair value as determined
in good faith under procedures established by and under the general supervision
of the Fund's Trustees.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may utilize
a matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff, including
review of broker-dealer market price quotations in determining what it believes
is the fair valuation of the portfolio securities valued by such pricing
service.
IX. TAXATION OF THE FUND AND SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund generally will make two basic types of distributions: ordinary
dividends and long-term capital gain distributions. These two types of
distributions are reported differently on a shareholder's income tax return and
they are also subject to different rates of tax. The tax treatment of the
investment activities of the Fund will affect the amount and timing and
character of the distributions made by the Fund. Tax issues relating to the Fund
are not generally a consideration for shareholders such as tax
25
<PAGE>
exempt entities and tax-advantaged retirement vehicles such as an IRA or 401(k)
plan. Shareholders are urged to consult their own tax professionals regarding
specific questions as to federal, state or local taxes.
INVESTMENT COMPANY TAXATION. The Fund intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986. As such, the Fund will not be subject to federal income tax on its net
investment income and capital gains, if any, to the extent that it distributes
such income and capital gains to its shareholders.
The Fund generally intends to distribute sufficient income and gains so that
the Fund will not pay corporate income tax on its earnings. The Fund also
generally intends to distribute to its shareholders in each calendar year a
sufficient amount of ordinary income and capital gains to avoid the imposition
of a 4% excise tax. However, the Fund may instead determine to retain all or
part of any net long-term capital gains in any year for reinvestment. In such
event, the Fund will pay federal income tax (and possibly excise tax) on such
retained gains.
Gains or losses on sales of securities by the Fund will be long-term capital
gains or losses if the securities have a tax holding period of more than one
year. Gains or losses on the sale of securities with a tax holding period of one
year or less will be short-term gains or losses.
Gains or losses on the Fund's transactions in listed non-equity options,
futures and options on futures generally are treated as 60% long-term and 40%
short-term. When the Fund engages in options and futures transactions, various
tax rules may accelerate or defer recognition of certain gains and losses,
change the character of certain gains or losses, or alter the holding period of
other investments held by the Fund. The application of these rules would
therefore also affect the amount, timing and character of distributions made by
the Fund.
Under certain tax rules, the Fund may be required to accrue a portion of any
discount at which certain securities are purchased as income each year even
though the Fund receives no payments in cash on the security during the year. To
the extent that the Fund invests in such securities, it would be required to pay
out such accrued discount as an income distribution in each year in order to
avoid taxation at the Fund level. Such distributions will be made from the
available cash of the Fund or by liquidation of portfolio securities if
necessary. If a distribution of cash necessitates the liquidation of portfolio
securities, the Investment Manager will select which securities to sell. The
Fund may realize a gain or loss from such sales. In the event the Fund realizes
net capital gains from such transactions, its shareholders may receive a larger
capital gain distribution, if any, than they would in the absence of such
transactions.
TAXATION OF DIVIDENDS AND DISTRIBUTIONS. Shareholders normally will have to
pay federal income taxes, and any state and/or local income taxes, on the
dividends and other distributions they receive from the Fund. Such dividends and
distributions, to the extent that they are derived from net investment income or
short-term capital gains, are taxable to the shareholder as ordinary income
regardless of whether the shareholder receives such payments in additional
shares or in cash.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. The maximum tax on long-term capital gains
applicable to individuals is 20%.
Shareholders are generally taxed on any ordinary dividend or capital gain
distributions from the Fund in the year they are actually distributed. However,
if any such dividends or distributions are declared in October, November or
December and paid in January then such amounts will be treated for tax purposes
as received by the shareholders on December 31, to shareholders of record of
such month.
Shareholders who are not citizens or residents of the United States and
certain foreign entities may be subject to withholding of United States tax on
distributions made by the Fund of investment income and short term capital
gains.
26
<PAGE>
After the end of each calendar year, shareholders will be sent full
information on their dividends and capital gain distributions for tax purposes,
including the portion taxable as ordinary income, the portion taxable as
long-term capital gains and the amount of any dividends eligible for the federal
dividends received deduction for corporations.
PURCHASES AND REDEMPTIONS AND EXCHANGES OF FUND SHARES. Any dividend or
capital gains distribution received by a shareholder from any investment company
will have the effect of reducing the net asset value of the shareholder's stock
in that company by the exact amount of the dividend or capital gains
distribution. Furthermore, such dividends and capital gains distributions are
subject to federal income taxes. If the net asset value of the shares should be
reduced below a shareholder's cost as a result of the payment of dividends or
the distribution of realized long-term capital gains, such payment or
distribution would be in part a return of the shareholder's investment but
nonetheless would be taxable to the shareholder. Therefore, an investor should
consider the tax implications of purchasing Fund shares immediately prior to a
distribution record date.
In general, a sale of shares results in capital gain or loss, and for
individual shareholders, is taxable at a federal rate dependent upon the length
of time the shares were held. A redemption of a shareholder's Fund shares is
normally treated as a sale for tax purposes. Fund shares held for a period of
one year or less will, for tax purposes, generally result in short-term gains or
losses and those held for more than one year generally result in long-term gain
or loss under current law, the maximum tax on long-term capital gains is 20%.
Any loss realized by shareholders upon a sale or redemption of shares within six
months of the date of their purchase will be treated as a long-term capital loss
to the extent of any distributions of net long-term capital gains with respect
to such shares during the six-month period.
Gain or loss on the sale or redemption of shares in the Fund is measured by
the difference between the amount received and the tax basis of the shares.
Shareholders should keep records of investments made (including shares acquired
through reinvestment of dividends and distributions) so they can compute the tax
basis of their shares. Under certain circumstances a shareholder may compute and
use an average cost basis in determining the gain or loss on the sale or
redemption of shares.
Exchanges of Fund shares for shares of another fund, including shares of
other Morgan Stanley Dean Witter Funds, are also subject to similar tax
treatment. Such an exchange is treated for tax purposes as a sale of the
original shares in the first fund, followed by the purchase of shares in the
second fund.
If a shareholder realizes a loss on the redemption or exchange of a fund's
shares and reinvests in that fund's shares within 30 days before or after the
redemption or exchange, the transactions may be subject to the "wash sale"
rules, resulting in a postponement of the recognition of such loss for tax
purposes.
X. UNDERWRITERS
- --------------------------------------------------------------------------------
The Fund's shares are offered to the public on a continuous basis. The
Distributor, as the principal underwriter of the shares, has certain obligations
under the Distribution Agreement concerning the distribution of the shares.
These obligations and the compensation the Distributor receives are described
above in the sections titled "Principal Underwriter" and "Rule 12b-1 Plans."
XI. CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------
From time to time, the Fund may quote its "yield" and/or its "total return"
in advertisements and sales literature. These figures are computed separately
for Class A, Class B, Class C and Class D shares. Yield is calculated for any
30-day period as follows: the amount of interest income for each security in the
Fund's portfolio is determined in accordance with regulatory requirements; the
total for the entire portfolio constitutes the Fund's gross income for the
period. Expenses accrued during the period are subtracted to arrive at "net
investment income" of each Class. The resulting amount is divided by the product
of the maximum offering price per share on the last day of the period multiplied
by the average
27
<PAGE>
number of shares of the applicable Class outstanding during the period that were
entitled to dividends. This amount is added to 1 and raised to the sixth power.
1 is then subtracted from the result and the difference is multiplied by 2 to
arrive at the annualized yield. The yields for the 30-day period ended August
31,1999, calculated pursuant to this formula, were 5.98% for Class A, 5.64% for
Class B, 5.64% for Class C and 6.50% for Class D.
The Fund's "average annual total return" represents an annualization of the
Fund's total return over a particular period and is computed by finding the
annual percentage rate which will result in the ending redeemable value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten year
period, or for the period from the date of commencement of operations, if
shorter than any of the foregoing. The ending redeemable value is reduced by any
contingent deferred sales charge ("CDSC") at the end of the one, five, ten year
or other period. For the purpose of this calculation, it is assumed that all
dividends and distributions are reinvested. The formula for computing the
average annual total return involves a percentage obtained by dividing the
ending redeemable value by the amount of the initial investment (which in the
case of Class A shares is reduced by the Class A initial sales charge), taking a
root of the quotient (where the root is equivalent to the number of years in the
period) and subtracting 1 from the result. Based on this calculation, the
average annual total returns for Class B for the one year, five year and ten
year periods ended August 31, 1999 were -3.87%, 4.94% and 5.92%, respectively.
The average annual total returns of Class A for the fiscal year ended
August 31, 1999 and for the period July 28, 1997 (inception of the Class)
through August 31, 1999 were -2.92% and 1.74%, respectively. The average annual
total returns of Class C for the fiscal year ended August 31, 1999 and for the
period July 28, 1997 (inception of the Class) through August 31, 1999 were
- -0.05% and 3.30%, respectively. The average annual total returns of Class D for
the fiscal year ended August 31, 1999 and for the period July 28, 1997
(inception of the Class) through August 31, 1999 were 1.79% and 4.14%,
respectively.
In addition, the Fund may advertise its total return for each Class over
different periods of time by means of aggregate, average, year-by-year or other
types of total return figures. These calculations may or may not reflect the
imposition of the maximum front-end sales charge for Class A or the deduction of
the CDSC for each of Class B and Class C which, if reflected, would reduce the
performance quoted. For example, the average annual total return of the Fund may
be calculated in the manner described above, but without deduction for any
applicable sales charge. Based on this calculation, the average annual total
returns for Class B for the one year, five year and ten year periods ended
August 31, 1999 were 0.92%, 5.26% and 5.92%, respectively. The average annual
total returns of Class A for the fiscal year ended August 31, 1999 and for the
period July 28, 1997 (inception of the Class) through August 31, 1999 were 1.39%
and 3.88%, respectively. The average annual total returns of Class C for the
fiscal year ended August 31, 1999 and for the period July 28, 1997 (inception of
the Class) through August 31, 1999 were 0.91% and 3.30%, respectively. The
average annual total returns of Class D for the fiscal year ended August 31,
1999 and for the period July 28, 1997 (inception of the Class) through
August 31, 1999 were 1.79% and 4.14%, respectively.
In addition, the Fund may compute its aggregate total return for each Class
for specified periods by determining the aggregate percentage rate which will
result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed that
all dividends and distributions are reinvested. The formula for computing
aggregate total return involves a percentage obtained by dividing the ending
value (without reduction for any sales charge) by the initial $1,000 investment
and subtracting 1 from the result. Based on this calculation, the total returns
for Class B for the one year, five year and ten year periods ended August 31,
1999 were 0.92%, 29.22% and 77.66%, respectively. The total returns of Class A
for the fiscal year ended August 31, 1999 and for the period July 28, 1997
(inception of the Class) through August 31, 1999 were 1.39% and 8.29%,
respectively. The total returns of Class C for the fiscal year ended August 31,
1999 and for the period July 28, 1997 (inception of the Class) through
August 31, 1999 were 0.91% and 7.02%, respectively. The total returns of
Class D for the fiscal year ended August 31, 1999 and for the period July 28,
1997 (inception of the Class) through August 31, 1999 were 1.79% and 8.86%,
respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1 to
the Fund's aggregate total return to date
28
<PAGE>
(expressed as a decimal and without taking into account the effect of any
applicable CDSC) and multiplying by $9,575, $48,250 and $97,250 in the case of
Class A (investments of $10,000, $50,000 and $100,000 adjusted for the initial
sales charge) or by $10,000, $50,000 and $100,000 in the case of each of
Class B, Class C and Class D, as the case may be. Investments of $10,000,
$50,000 and $100,000 in each Class at inception of the Class would have grown to
the following amounts at August 31, 1999:
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
INCEPTION -------------------------------
CLASS DATE: $10,000 $50,000 $100,000
- ----- --------- ------- ------- --------
<S> <C> <C> <C> <C>
Class A............................................ 07/28/97 $10,368 $52,250 $105,312
Class B............................................ 05/03/89 18,223 91,115 182,230
Class C............................................ 07/28/97 10,702 53,510 107,020
Class D............................................ 07/28/97 10,886 54,430 108,860
</TABLE>
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by recognized organizations.
XII. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EXPERTS. The financial statements of the Fund for the fiscal year ended
August 31, 1999 are included in this Statement of Additional Information and
incorporated by reference in the PROSPECTUS have been so included and
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
*****
This STATEMENT OF ADDITIONAL INFORMATION and the PROSPECTUS do not contain
all of the information set forth in the REGISTRATION STATEMENT the Fund has
filed with the SEC. The complete REGISTRATION STATEMENT may be obtained from the
SEC.
29
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS AUGUST 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (82.5%)
ACCIDENT & HEALTH INSURANCE (1.4%)
$ 2,000 Aflac Inc.................................................................... 6.50% 04/15/09 $ 1,879,480
------------
CABLE TELEVISION (2.1%)
2,000 British Sky Broadcasting Ltd. (United Kingdom)............................... 7.30 10/15/06 1,882,140
1,000 Cox Enterprises Inc. - 144A*................................................. 6.625 06/14/02 990,280
------------
2,872,420
------------
CASINO/GAMBLING (2.0%)
3,000 Mirage Resorts, Inc.......................................................... 6.75 02/01/08 2,724,720
------------
CELLULAR TELEPHONE (1.1%)
1,475 AirTouch Communications, Inc................................................. 7.125 07/15/01 1,486,903
------------
CLOTHING/SHOE/ACCESSORY STORES (2.3%)
3,000 TJX Companies, Inc........................................................... 6.625 06/15/00 3,009,600
------------
COMPUTER SOFTWARE (1.4%)
2,000 Oracle Corp.................................................................. 6.91 02/15/07 1,914,300
------------
E.D.P. SERVICES (1.5%)
2,000 Ceridian Corp. - 144A*....................................................... 7.25 06/01/04 1,969,440
------------
ELECTRIC UTILITIES (11.9%)
2,500 Israel Electric Co., Ltd. - 144A*............................................ 7.75 03/01/09 2,429,175
1,000 Niagara Mohawk Power Corp.................................................... 7.25 10/01/02 998,250
2,000 Public Service Co. of Colorado............................................... 6.875 07/15/09 1,922,460
3,000 System Energy Resources, Inc................................................. 7.71 08/01/01 3,057,750
5,000 United Utilities Corp. (United Kingdom)...................................... 6.45 04/01/08 4,558,400
3,000 Western Resources, Inc....................................................... 6.875 08/01/04 2,951,250
------------
15,917,285
------------
ELECTRONIC DATA PROCESSING (0.7%)
1,000 Sun Microsystems Inc......................................................... 7.50 08/15/06 994,210
------------
ELECTRONIC PRODUCTION EQUIPMENT (3.0%)
4,185 Applied Materials, Inc....................................................... 6.75 10/15/07 3,999,981
------------
FINANCE COMPANIES (6.5%)
2,000 Ford Motor Credit Co......................................................... 6.70 07/16/04 1,970,360
1,000 General Motors Acceptance Corp............................................... 8.40 10/15/99 1,003,000
4,000 General Motors Acceptance Corp............................................... 5.75 11/10/03 3,812,040
2,000 Sears Roebuck Acceptance Corp................................................ 6.25 05/01/09 1,825,640
------------
8,611,040
------------
FOREST PRODUCTS (3.6%)
5,049 Noranda Forest, Inc. (Canada)................................................ 6.875 11/15/05 4,797,964
------------
HOME BUILDING (1.3%)
2,000 Oakwood Homes Corp........................................................... 8.125 03/01/09 1,684,500
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
30
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS AUGUST 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
INDUSTRIAL MACHINERY/COMPONENTS (2.1%)
$ 3,000 Atlas Copco (Sweden) - 144A*................................................. 6.50% 04/01/08 $ 2,833,290
------------
INVESTMENT BANKERS/BROKERS/SERVICES (3.3%)
2,500 Donaldson, Lufkin & Jenrette, Inc............................................ 6.11 05/15/01 2,473,000
1,000 Lehman Brothers Holdings, Inc................................................ 7.00 05/15/03 986,460
1,000 Paine Webber Group, Inc...................................................... 6.375 05/15/04 959,550
------------
4,419,010
------------
MAJOR BANKS (11.8%)
2,000 Bank of America Corp......................................................... 6.625 06/15/04 1,968,700
2,000 Bank One Texas N.A........................................................... 6.25 02/15/08 1,857,900
1,000 Bankers Trust Corp........................................................... 6.70 10/01/07 950,080
3,000 Citicorp..................................................................... 6.375 11/15/08 2,799,870
3,000 Morgan (J.P.) & Co., Inc. (Series A)......................................... 6.00 01/15/09 2,722,350
5,145 Shamut National Bank N.A..................................................... 8.625 02/15/05 5,436,258
------------
15,735,158
------------
MAJOR CHEMICALS (1.5%)
2,100 Millennium America, Inc...................................................... 7.00 11/15/06 1,960,875
------------
MAJOR U.S. TELECOMMUNICATIONS (2.1%)
2,000 AT&T Corp.................................................................... 6.00 03/15/09 1,847,480
1,000 Sprint Capital Corp.......................................................... 6.375 05/01/09 928,400
------------
2,775,880
------------
MID-SIZED BANKS (3.6%)
3,000 Capital One Bank............................................................. 6.375 02/15/03 2,901,870
2,000 Star Bank N.A................................................................ 6.375 03/01/04 1,940,320
------------
4,842,190
------------
MILITARY/GOV'T/TECHNICAL (2.1%)
2,850 Raytheon Co.................................................................. 6.30 08/15/00 2,848,946
------------
OIL & GAS PRODUCTION (1.4%)
2,000 Union Pacific Resource Group Inc............................................. 6.50 05/15/05 1,882,800
------------
OILFIELD SERVICES/EQUIPMENT (2.9%)
2,000 Columbia Energy Group (Series A)............................................. 6.39 11/28/00 2,001,500
2,000 Petro Geo-Services ASA (Norway).............................................. 6.625 03/30/08 1,856,700
------------
3,858,200
------------
OTHER CONSUMER SERVICES (2.1%)
3,000 Stewart Enterprises, Inc..................................................... 6.70 12/01/03 2,854,950
------------
OTHER TELECOMMUNICATIONS (4.9%)
2,000 Frontier Corp................................................................ 7.25 05/15/04 1,947,740
2,000 Teleglobe Inc. (Canadian).................................................... 7.20 07/20/09 1,877,660
3,000 US West Capital Funding Inc.................................................. 6.375 07/15/08 2,759,370
------------
6,584,770
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
31
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS AUGUST 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RENTAL/LEASING COMPANIES (2.4%)
$ 3,350 Hertz Corp................................................................... 6.00 01/15/03 $ 3,240,924
------------
TEXTILES (2.0%)
3,000 Burlington Industries, Inc................................................... 7.25 09/15/05 2,614,860
------------
WHOLESALE DISTRIBUTORS (1.5%)
2,000 IKON Capital Inc............................................................. 6.73 06/15/01 1,965,940
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $114,728,728)................................................................. 110,279,636
------------
FOREIGN GOVERNMENT OBLIGATION (3.1%)
4,000 Republic of Korea (South Korea)
(IDENTIFIED COST $4,206,000)................................................. 8.875 04/15/08 4,130,320
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (9.8%)
46 Federal Home Loan Mortgage Corp.............................................. 8.50 12/01/01 47,211
34 Federal Home Loan Mortgage Corp.............................................. 8.50 01/01/02 34,584
118 Federal Home Loan Mortgage Corp.............................................. 8.50 07/01/02 117,685
57 Federal Home Loan Mortgage Corp.............................................. 9.00 08/01/02 57,983
1,500 Federal National Mortgage Assoc.............................................. 5.90 06/18/01 1,487,115
20 Federal National Mortgage Assoc.............................................. 8.50 12/01/01 20,793
4,000 Federal National Mortgage Assoc.............................................. 5.125 02/13/04 3,773,720
1,800 Private Export Funding Corp.................................................. 6.86 04/30/04 1,826,550
2,300 U.S. Treasury Note........................................................... 6.25 05/31/00 2,312,627
1,450 U.S. Treasury Note........................................................... 6.25 01/31/02 1,464,340
1,000 U.S. Treasury Note........................................................... 5.25 08/15/03 976,760
1,000 U.S. Treasury Note........................................................... 5.625 02/15/06 974,810
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $13,267,074).................................................................. 13,094,178
------------
SHORT-TERM INVESTMENT (4.9%)
REPURCHASE AGREEMENT
6,496 The Bank of New York (dated 08/31/99; proceeds $6,496,882) (a) (IDENTIFIED
COST $6,495,890)........................................................... 5.50 09/01/99 6,495,890
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
32
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS AUGUST 31, 1999, CONTINUED
<TABLE>
<CAPTION>
VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $138,697,692) (b)........................................................ 100.3% $ 134,000,024
LIABILITIES IN EXCESS OF OTHER ASSETS..................................................... (0.3) (348,461)
----- -------------
NET ASSETS................................................................................ 100.0% $ 133,651,563
----- -------------
----- -------------
</TABLE>
- ---------------------
* Resale is restricted to qualified institutional investors.
(a) Collateralized by $3,018,277 U.S. Treasury Note 5.50% due 04/15/00 valued
at $3,082,283 and $3,437,778 U.S. Treasury Note 6.125% due 09/30/00 valued
at $3,543,525.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $283,241 and the
aggregate gross unrealized depreciation is $4,980,909, resulting in net
unrealized depreciation of $4,697,668.
SEE NOTES TO FINANCIAL STATEMENTS
33
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $138,697,692)............................ $134,000,024
Receivable for:
Interest................................................ 2,166,187
Shares of beneficial interest sold...................... 142,975
Principal paydowns...................................... 10,840
Prepaid expenses and other assets........................... 47,752
------------
TOTAL ASSETS........................................... 136,367,778
------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased............... 2,363,925
Plan of distribution fee................................ 93,108
Dividends and distributions to shareholders............. 75,976
Investment management fee............................... 71,326
Accrued expenses and other payables......................... 111,880
------------
TOTAL LIABILITIES...................................... 2,716,215
------------
NET ASSETS............................................. $133,651,563
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $148,143,089
Net unrealized depreciation................................. (4,697,668)
Accumulated undistributed net investment income............. 993
Accumulated net realized loss............................... (9,794,851)
------------
NET ASSETS............................................. $133,651,563
============
CLASS A SHARES:
Net Assets.................................................. $ 3,556,638
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 382,570
NET ASSET VALUE PER SHARE.............................. $9.30
============
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 4.44% OF NET ASSET VALUE)....... $9.71
============
CLASS B SHARES:
Net Assets.................................................. $120,843,469
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 12,983,135
NET ASSET VALUE PER SHARE.............................. $9.31
============
CLASS C SHARES:
Net Assets.................................................. $ 1,758,888
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 188,661
NET ASSET VALUE PER SHARE.............................. $9.32
============
CLASS D SHARES:
Net Assets.................................................. $ 7,492,568
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 805,019
NET ASSET VALUE PER SHARE.............................. $9.31
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
34
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1999
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $10,126,683
-----------
EXPENSES
Plan of distribution fee (Class A shares)................... 6,748
Plan of distribution fee (Class B shares)................... 1,161,944
Plan of distribution fee (Class C shares)................... 11,479
Investment management fee................................... 899,873
Transfer agent fees and expenses............................ 175,449
Registration fees........................................... 96,695
Professional fees........................................... 67,345
Shareholder reports and notices............................. 57,394
Trustees' fees and expenses................................. 17,900
Custodian fees.............................................. 15,886
Other....................................................... 11,954
-----------
TOTAL EXPENSES......................................... 2,522,667
-----------
NET INVESTMENT INCOME.................................. 7,604,016
-----------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss........................................... (274,339)
Net change in unrealized appreciation....................... (5,665,329)
-----------
NET LOSS............................................... (5,939,668)
-----------
NET INCREASE................................................ $ 1,664,348
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
35
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, AUGUST 31,
1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................. $ 7,604,016 $ 8,403,108
Net realized gain (loss).......................... (274,339) 1,768,354
Net change in unrealized appreciation............. (5,665,329) 134,510
------------ ------------
NET INCREASE................................. 1,664,348 10,305,972
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME:
Class A shares.................................... (218,762) (100,388)
Class B shares.................................... (6,857,509) (7,980,246)
Class C shares.................................... (67,287) (11,414)
Class D shares.................................... (474,780) (348,107)
------------ ------------
TOTAL DIVIDENDS.............................. (7,618,338) (8,440,155)
------------ ------------
Net decrease from transactions in shares of
beneficial interest............................. (21,549,707) (10,443,102)
------------ ------------
NET DECREASE................................. (27,503,697) (8,577,285)
NET ASSETS:
Beginning of period............................... 161,155,260 169,732,545
------------ ------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME
OF $993 AND $15,315, RESPECTIVELY)............ $133,651,563 $161,155,260
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Intermediate Income Securities (the "Fund") is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
a diversified, open-end management investment company. The Fund's investment
objective is high current income consistent with safety of principal. The Fund
was organized as a Massachusetts business trust on September 1, 1988 and
commenced operations on May 3, 1989. On July 28, 1997, the Fund converted to a
multiple class share structure.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price;
(2) all other portfolio securities for which over-the-counter market quotations
are readily available are valued at the latest available bid price; (3) when
market quotations are not readily available, including circumstances under which
it is determined by Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager") that sale and bid prices are not reflective of a security's market
value, portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Trustees (valuation of debt securities for which market quotations are not
readily available may be based upon current market prices of securities which
are comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors); (4) certain portfolio securities may be valued by an outside
pricing service approved by the Trustees. The pricing service may utilize a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and evaluations by
37
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1999, CONTINUED
its staff, including review of broker-dealer market price quotations, in
determining what it believes is the fair valuation of the portfolio securities
valued by such pricing service; and (5) short-term debt securities having a
maturity date of more than sixty days at time of purchase are valued on a mark-
to-market basis until sixty days prior to maturity and thereafter at amortized
cost based on their value on the 61st day. Short-term debt securities having a
maturity date of sixty days or less at the time of purchase are valued at
amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined on the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
38
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1999, CONTINUED
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, calculated daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 0.60% of the portion of daily net assets not exceeding
$500 million; 0.50% of the portion of daily net assets exceeding $500 million
but not exceeding $750 million; 0.40% of the portion of the daily net assets
exceeding $750 million but not exceeding $1 billion; and 0.30% of the portion of
the daily net asset exceeding $1 billion.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has
adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A - up
to 0.25% of the average daily net assets of Class A; (ii) Class B - 0.85% of the
lesser of: (a) the average daily aggregate gross sales of the Class B shares
since the inception of the Fund (not including reinvestment of dividend or
capital gain distributions) less the average daily aggregate net asset value of
the Class B shares redeemed since the Fund's inception upon which a contingent
deferred sales charge had been imposed or waived; or (b) the average daily net
assets of Class B; and (iii) Class C - up to 0.85% of the average daily net
assets of Class C. In the case of Class A shares, amounts paid under the Plan
are paid to the Distributor for services provided. In the case of Class B and
Class C shares, amounts paid under the plan are paid to the Distributor for (1)
services provided and the expenses borne by it and others in the distribution of
the shares of these Classes, including the payment of commissions for sales of
these Classes and incentive compensation to, and expenses of, Morgan Stanley
Dean Witter Financial Advisors and others who engage in or support distribution
of the shares or who service shareholder accounts, including overhead and
telephone expenses; (2) printing and distribution of prospectuses and reports
used in connection with the
39
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1999, CONTINUED
offering of these shares to other than current shareholders; and
(3) preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may utilize fees paid pursuant to the
Plan, in the case of Class B shares, to compensate Dean Witter Reynolds Inc.
("DWR"), an affiliate of the Investment Manager and Distributor, and other
selected broker-dealers for their opportunity costs in advancing such amounts,
which compensation would be in the form of a carrying charge on any unreimbursed
expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $5,006,773 at August 31, 1999.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 0.85% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the year ended August 31, 1999, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.18% and
0.85%, respectively.
The Distributor has informed the Fund that for the year ended August 31, 1999,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class A shares, Class B shares and Class C shares of $2,997, $168,879,
and $670, respectively and received $11,247, in front-end sales charges from
sales of the Fund's Class A shares. The respective shareholders pay such charges
which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended August 31, 1999, aggregated
$142,509,209 and $162,917,897, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $43,025,359 and
$49,802,980, respectively.
40
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1999, CONTINUED
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At August 31, 1999, the Fund had
transfer agent fees and expenses payable of approximately $5,100.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended August 31, 1999 included
in Trustees' fees and expenses in the Statement of Operations amounted to
$5,790. At August 31, 1999, the Fund had an accrued pension liability of $52,861
which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. FEDERAL INCOME TAX STATUS
During the year ended August 31, 1999, the Fund utilized approximately $553,000
of its net capital loss carryover. At August 31, 1999, the Fund had a net
capital loss carryover of approximately $8,967,000 which may be used to offset
future capital gains to the extent provided by regulations, which is available
through August 31 of the following years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
- ---------------------------------------
2003 2004 2005 2006
- ------ -------- -------- --------
<S> <C> <C> <C>
$6,103 $313 $2,351 $200
====== ==== ====== ====
</TABLE>
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $827,000 during fiscal 1999.
At August 31, 1999, the Fund had temporary book/tax differences primarily
attributable to post-October losses.
6. FUND ACQUISITION
As of the close of business on September 11, 1998, the Fund acquired all the net
assets of Dean Witter Retirement Series - Intermediate Income Securities Series
(" Retirement Intermediate") pursuant to a plan of reorganization approved by
the shareholders of Retirement Intermediate on August 19, 1998. The acquisition
was accomplished by a tax-free exchange of 250,724 Class D shares of the Fund at
a net asset value of $9.74 per share for 247,422 shares of Retirement
Intermediate. The net assets of the Fund and Retirement Intermediate immediately
before the acquisition were
41
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1999, CONTINUED
$159,153,039 and $2,441,399, respectively, including unrealized appreciation of
$62,584 for Retirement Intermediate. Immediately after the acquisition, the
combined net assets of the Fund amounted to $161,594,438.
7. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, 1999 AUGUST 31, 1998
-------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold............................................... 364,951 $ 3,556,044 432,771 $ 4,200,291
Reinvestment of dividends.......................... 20,532 197,937 6,280 60,968
Redeemed........................................... (358,928) (3,471,507) (276,388) (2,677,083)
----------- ------------ ------------ -------------
Net increase - Class A............................. 26,555 282,474 162,663 1,584,176
----------- ------------ ------------ -------------
CLASS B SHARES
Sold............................................... 20,031,737 194,361,889 19,728,435 191,353,800
Reinvestment of dividends.......................... 396,884 3,831,712 435,921 4,221,022
Redeemed........................................... (23,059,093) (223,519,294) (21,536,089) (208,796,829)
----------- ------------ ------------ -------------
Net decrease - Class B............................. (2,630,472) (25,325,693) (1,371,733) (13,222,007)
----------- ------------ ------------ -------------
CLASS C SHARES
Sold 175,120 1,695,278 57,617 558,111
Reinvestment of dividends.......................... 6,052 58,156 842 8,164
Redeemed........................................... (39,598) (379,949) (15,371) (148,714)
----------- ------------ ------------ -------------
Net increase - Class C............................. 141,574 1,373,485 43,088 417,561
----------- ------------ ------------ -------------
CLASS D SHARES
Sold............................................... 243,390 2,355,047 339,652 3,280,027
Reinvestment of dividends.......................... 48,914 471,734 34,184 331,043
Acquisition of Dean Witter Retirement Series --
Intermediate Income Securities Series............. 250,724 2,441,399 -- --
Redeemed........................................... (328,222) (3,148,153) (292,464) (2,833,902)
----------- ------------ ------------ -------------
Net increase - Class D............................. 214,806 2,120,027 81,372 777,168
----------- ------------ ------------ -------------
Net decrease in Fund............................... (2,247,537) $(21,549,707) (1,084,610) $ (10,443,102)
=========== ============ ============ =============
</TABLE>
42
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
AUGUST 31, 1999 AUGUST 31, 1998 AUGUST 31, 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $9.71 $9.59 $9.68
-------- -------- --------
Income (loss) from investment operations:
Net investment income.................................... 0.55 0.56 0.06
Net realized and unrealized gain (loss).................. (0.41) 0.13 (0.10)
-------- -------- --------
Total income (loss) from investment operations.............. 0.14 0.69 (0.04)
-------- -------- --------
Less dividends from net investment income................... (0.55) (0.57) (0.05)
-------- -------- --------
Net asset value, end of period.............................. $9.30 $9.71 $9.59
======== ======== ========
TOTAL RETURN+............................................... 1.39% 7.30% (0.46)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.08%(3) 1.10%(3) 2.18 %(2)
Net investment income....................................... 5.67%(3) 5.80%(3) 6.10 %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $3,557 $3,457 $1,855
Portfolio turnover rate..................................... 99% 98% 98%
</TABLE>
- ---------------------
<TABLE>
<C> <S>
* The date shares were first issued.
++ The per share amounts were computed using an average number
of shares outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated
based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and
non-class specific expenses.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
43
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31
----------------------------------------------------------------------------
1999++ 1998++ 1997*++ 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period... $9.70 $9.59 $9.39 $9.69 $9.51
-------- -------- -------- -------- --------
Income (loss) from investment
operations:
Net investment income............... 0.49 0.51 0.53 0.55 0.59
Net realized and unrealized gain
(loss).............................. (0.39) 0.11 0.20 (0.30) 0.19
-------- -------- -------- -------- --------
Total income from investment
operations............................ 0.10 0.62 0.73 0.25 0.78
-------- -------- -------- -------- --------
Less dividends and distributions from:
Net investment income............... (0.49) (0.51) (0.53) (0.55) (0.59)
Net realized gain................... -- -- -- -- (0.01)
-------- -------- -------- -------- --------
Total dividends and distributions...... (0.49) (0.51) (0.53) (0.55) (0.60)
-------- -------- -------- -------- --------
Net asset value, end of period......... $9.31 $9.70 $9.59 $9.39 $9.69
======== ======== ======== ======== ========
TOTAL RETURN+.......................... 0.92% 6.53% 7.93% 2.58% 8.56%
RATIOS TO AVERAGE NET ASSETS:
Expenses............................... 1.75%(1) 1.71%(1) 1.65% 1.62% 1.63%
Net investment income.................. 5.00%(1) 5.19%(1) 5.52% 5.69% 6.23%
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands............................. $120,843 $151,515 $162,959 $208,911 $232,752
Portfolio turnover rate................ 99% 98% 98% 115% 114%
</TABLE>
- ---------------------
<TABLE>
<C> <S>
* Prior to July 28, 1997, the Fund issued one class of shares.
All shares of the Fund held prior to that date, other than
shares held by certain employee benefit plans established by
Dean Witter Reynolds Inc. have been designated as Class B
shares. Shares held by those employee benefit plans prior to
July 28, 1997 have been designated Class D shares.
++ The per share amounts were computed using an average number
of shares outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated
based on the net asset value as of the last business day of
the period.
(1) Reflects overall Fund ratios for investment income and
non-class specific expenses.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
AUGUST 31, 1999 AUGUST 31, 1998 AUGUST 31, 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS C SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $9.71 $9.61 $9.68
------- ------- -------
Income (loss) from investment operations:
Net investment income.................................... 0.49 0.49 0.04
Net realized and unrealized gain (loss).................. (0.39) 0.11 (0.07)
------- ------- -------
Total income (loss) from investment operations.............. 0.10 0.60 (0.03)
------- ------- -------
Less dividends from net investment income................... (0.49) (0.50) (0.04)
------- ------- -------
Net asset value, end of period.............................. $9.32 $9.71 $9.61
======= ======= =======
TOTAL RETURN+............................................... 0.91% 6.39% (0.31)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.75%(3) 1.71%(3) 2.02 %(2)
Net investment income....................................... 5.00%(3) 5.19%(3) 4.22 %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $1,759 $457 $38
Portfolio turnover rate..................................... 99% 98% 98%
</TABLE>
- ---------------------
<TABLE>
<C> <S>
* The date shares were first issued.
++ The per share amounts were computed using an average number
of shares outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated
based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and
non-class specific expenses.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
45
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
AUGUST 31, 1999 AUGUST 31, 1998 AUGUST 31, 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $9.70 $9.59 $9.68
------- ------- -------
Income (loss) from investment operations:
Net investment income.................................... 0.57 0.59 0.05
Net realized and unrealized gain (loss).................. (0.39) 0.11 (0.09)
------- ------- -------
Total income (loss) from investment operations.............. 0.18 0.70 (0.04)
------- ------- -------
Less dividends from net investment income................... (0.57) (0.59) (0.05)
------- ------- -------
Net asset value, end of period.............................. $9.31 $9.70 $9.59
======= ======= =======
TOTAL RETURN+............................................... 1.79% 7.43% (0.44)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.90%(3) 0.86%(3) 1.11 %(2)
Net investment income....................................... 5.85%(3) 6.04%(3) 5.91 %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $7,493 $5,726 $4,880
Portfolio turnover rate..................................... 99% 98% 98%
</TABLE>
- ---------------------
<TABLE>
<C> <S>
* The date shares were first issued.
++ The per share amounts were computed using an average number
of shares outstanding during the period.
+ Calculated based on the net asset value as of the last
business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and
non-class specific expenses.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME
SECURITIES
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter
Intermediate Income Securities (the "Fund") at August 31, 1999, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at August 31, 1999 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
OCTOBER 8, 1999
47
