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Filed Pursuant to Rule 497(c)
Registration File No.: 33-45450
PROSPECTUS
JULY 29, 1998
Morgan Stanley Dean Witter Growth Fund (the "Fund") is an
open-end management investment company, whose investment objective is long-term
growth of capital. The Fund seeks to achieve its investment objective by
investing primarily in common stocks and securities convertible into common
stocks issued by domestic and foreign companies. (See "Investment Objective and
Policies.")
The Fund offers four classes of shares (each, a "Class"), each
with a different combination of sales charges, ongoing fees and other features.
The different distribution arrangements permit an investor to choose the method
of purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. (See "Purchase of Fund
Shares--Alternative Purchase Arrangements.")
This Prospectus sets forth concisely the information you should
know before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the Statement
of Additional Information, dated July 29, 1998, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page.
The Statement of Additional Information is incorporated herein by reference.
MORGAN STANLEY DEAN WITTER
DISTRIBUTORS INC.,
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary / 2
Summary of Fund Expenses / 5
Financial Highlights / 7
The Fund and its Management / 10
Investment Objective and Policies / 11
Risk Considerations and Investment
Practices / 12
Investment Restrictions / 16
Purchase of Fund Shares / 17
Shareholder Services / 28
Redemptions and Repurchases / 31
Dividends, Distributions and Taxes / 32
Performance Information / 33
Additional Information / 33
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other agency.
THESE SECURITIES HAVE NOT BEEN AP- PROVED OR DISAPPROVED BY THE SECURI-TIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Morgan Stanley Dean Witter
Growth Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
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PROSPECTUS SUMMARY
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<S> <C>
The The Fund is organized as a Trust, commonly known as a Massachusetts business trust,
Fund and is an open-end management investment company investing primarily in common
stocks and securities convertible into common stocks.
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Shares Offered Shares of beneficial interest with $0.01 par value (see page 33). The Fund offers four
Classes of shares, each with a different combination of sales charges, ongoing fees and
other features (see pages 17-27).
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Minimum The minimum initial investment for each Class is $1,000 ($100 if the account is opened
Purchase through EasyInvestSM). Class D shares are only available to persons investing $5 million
($25 million for certain qualified plans) or more and to certain other limited categories of
investors. For the purpose of meeting the minimum $5 million (or $25 million) investment
for Class D shares, and subject to the $1,000 minimum initial investment for each Class
of the Fund, an investor's existing holdings of Class A shares and shares of funds for
which Morgan Stanley Dean Witter Advisors Inc. serves as investment manager
("Morgan Stanley Dean Witter Funds") that are sold with a front-end sales charge, and
concurrent investments in Class D shares of the Fund and other Morgan Stanley Dean
Witter Funds that are multiple class funds will be aggregated. The minimum subsequent
investment is $100 (see page 17).
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Investment The investment objective of the Fund is long-term growth of capital (see page 11).
Objective
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Investment Morgan Stanley Dean Witter Advisors Inc., the Investment Manager of the Fund, and its
Manager and wholly-owned subsidiary, Morgan Stanley Dean Witter Services Company Inc., serve in
Sub-Advisor various investment management, advisory, management and administrative capacities to
101 investment companies and other portfolios with net assets under management of
approximately $115 billion at June 30, 1998. Morgan Stanley Asset Management Inc.
("MSAM"), an affiliate of the Investment Manager, has been retained by the Investment
Manager as Sub-Advisor to provide investment advice and manage the Fund's portfolio.
MSAM conducts a worldwide investment advisory business. As of June 30, 1998, MSAM,
together with its institutional investment management affiliates, had approximately $169
billion in assets under management as an investment manager or as a fiduciary advisor
(see page 10).
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Management The Investment Manager receives a monthly fee from the Fund at the annual rate of
Fee 0.80% of the Fund's net assets up to $750 million, scaled down at various levels on assets
over $1.5 billion. The Sub-Advisor receives a monthly fee from the Investment Manager
equal to 40% of the Investment Manager's monthly fee (see page 10).
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Distributor Morgan Stanley Dean Witter Distributors Inc. (the "Distributor"). The Fund has adopted
and Distribution a distribution plan pursuant to Rule 12b-1 under the Investment Company Act (the "12b-1
Fee Plan") with respect to the distribution fees paid by the Class A, Class B and Class C
shares of the Fund to the Distributor. The entire 12b-1 fee payable by Class A and a
portion of the 12b-1 fee payable by each of Class B and Class C equal to 0.25% of the
average daily net assets of the Class are currently each characterized as a service fee
within the meaning of the National Association of Securities Dealers, Inc. guidelines. The
remaining portion of the 12b-1 fee, if any, is characterized as an asset-based sales
charge (see pages 17 and 26).
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</TABLE>
2
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Alternative Four classes of shares are offered:
Purchase
Arrangements o Class A shares are offered with a front-end sales charge, starting at 5.25% and reduced for
larger purchases. Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charge at the time of purchase but a
contingent deferred sales charge ("CDSC") of 1.0% may be imposed on redemptions within one year
of purchase. The Fund is authorized to reimburse the Distributor for specific expenses incurred
in promoting the distribution of the Fund's Class A shares and servicing shareholder accounts
pursuant to the Fund's 12b-1 Plan. Reimbursement may in no event exceed an amount equal to
payments at an annual rate of 0.25% of average daily net assets of the Class (see pages 17, 20
and 26).
o Class B shares are offered without a front-end sales charge, but will in most cases be
subject to a CDSC (scaled down from 5.0% to 1.0%) if redeemed within six years after purchase.
The CDSC will be imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Fund falls below the aggregate amount of the
investor's purchase payments made during the six years preceding the redemption. A different
CDSC schedule applies to investments by certain qualified plans. Class B shares are also
subject to a 12b-1 fee assessed at the annual rate of 1.0% of the lesser of: (a) the average
daily net sales of the Fund's Class B shares or (b) the average daily net assets of Class B.
All shares of the Fund held prior to July 28, 1997 have been designated Class B shares. Shares
held before May 1, 1997 will convert to Class A shares in May, 2007. In all other instances,
Class B shares convert to Class A shares approximately ten years after the date of the original
purchase (see pages 17, 23 and 26).
o Class C shares are offered without a front-end sales charge, but will in most cases be
subject to a CDSC of 1.0% if redeemed within one year after purchase. The Fund is authorized to
reimburse the Distributor for specific expenses incurred in promoting the distribution of the
Fund's Class C shares and servicing shareholder accounts pursuant to the Fund's 12b-1 Plan.
Reimbursement may in no event exceed an amount equal to payments at an annual rate of 1.0% of
average daily net assets of the Class (see pages 17, 25 and 26).
o Class D shares are offered only to investors meeting an initial investment minimum of $5
million ($25 million for certain qualified plans) and to certain other limited categories of
investors. Class D shares are offered without a front-end sales charge or CDSC and are not
subject to any 12b-1 fee (see pages 17, 25 and 26).
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3
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Dividends and Dividends from net investment income and distributions from net capital gains, if any, are paid
Capital Gains at least once each year. Dividends and capital gains distributions are automatically reinvested
Distributions in additional shares of the same Class at net asset value unless the shareholder elects to
receive cash. The Fund may, however, determine to retain all or part of any net long-term
capital gains in any year for reinvestment. Shares acquired by dividend and distribution
reinvestment will not be subject to any sales charge or CDSC (see pages 28 and 32).
Redemption Shares are redeemable by the shareholder at net asset value less any applicable CDSC on Class
A, Class B or Class C shares. An account may be involuntarily redeemed if the total value of
the account is less than $100 or, if the account was opened through EasyInvestSM, if after
twelve months the shareholder has invested less than $1,000 in the account (see page 31).
Risk The net asset value of the Fund's shares will fluctuate with changes in the market value
Considerations of the Fund's portfolio securities. The Fund may purchase foreign securities, which involve
certain special risks. The Fund may invest in lower rated or unrated convertible securities,
may invest in foreign securities and may purchase securities on a when-issued, delayed delivery
or "when, as and if issued" basis, which may involve certain special risks (see pages 12-16).
</TABLE>
The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus and in the Statement of Additional Information.
4
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SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder
of the Fund will incur. The expenses and fees set forth in the table are based
on the expenses and fees for the fiscal year ended March 31, 1998.
<TABLE>
<CAPTION>
Class A Class B Class C Class D
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<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
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Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price) ......................... 5.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments ......... None None None None
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase price or
redemption proceeds) .................................. None(2) 5.00%(3) 1.00%(4) None
Redemption Fees ........................................ None None None None
Exchange Fee ........................................... None None None None
Annual Fund Operating Expenses (as a percentage of average net assets)
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Management Fees* ....................................... 0.79% 0.79% 0.79% 0.79%
12b-1 Fees (5) (6) ..................................... 0.23% 0.66% 1.00% None
Other Expenses ......................................... 0.14% 0.14% 0.14% 0.14%
Total Fund Operating Expenses (7)* ..................... 1.16% 1.59% 1.93% 0.93%
</TABLE>
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(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund
Shares--Initial Sales Charge Alternative--Class A Shares").
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a CDSC of 1.00% that will be imposed on
redemptions made within one year after purchase, except for certain
specific circumstances (see "Purchase of Fund Shares--Initial Sales
Charge Alternative--Class A Shares").
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter.
(4) Only applicable to redemptions made within one year after purchase (see
"Purchase of Fund Shares--Level Load Alternative--Class C Shares").
(5) The 12b-1 fee is accrued daily and payable monthly. The entire 12b-1 fee
payable by Class A and a portion of the 12b-1 fee payable by each of
Class B and Class C equal to 0.25% of the average daily net assets of the
Class are currently each characterized as a service fee within the
meaning of National Association of Securities Dealers, Inc. ("NASD")
guidelines and are payments made for personal service and/or maintenance
of shareholder accounts. The remainder of the 12b-1 fee, if any, is an
asset-based sales charge, and is a distribution fee paid to the
Distributor to compensate it for the services provided and the expenses
borne by the Distributor and others in the distribution of the Fund's
shares (see "Purchase of Fund Shares--Plan of Distribution").
(6) Upon conversion of Class B shares to Class A shares, such shares will be
subject to the lower 12b-1 fee applicable to Class A shares. No sales
charge is imposed at the time of conversion of Class B shares to Class A
shares. Class C shares do not have a conversion feature and, therefore,
are subject to an ongoing 1.00% distribution fee (see "Purchase of Fund
Shares--Alternative Purchase Arrangements").
(7) There were no outstanding shares of Class A, Class C or Class D prior to
July 28, 1997. Accordingly, "Total Fund Operating Expenses," as shown
above with respect to those Classes, are estimates based upon the sum of
12b-1 Fees, Management Fees and estimated "Other Expenses."
* Effective March 2, 1998, the management agreement between the Fund and
its former manager (the "Former Management Agreement") and the advisory
agreement between the Fund and its former advisor (the "Former Advisory
Agreement") were terminated and the Fund entered into an investment
management agreement with Morgan Stanley Dean Witter Advisors Inc. (the
"Investment Management Agreement"). (See "The Fund and its Management.")
The fee under the Investment Management Agreement is 0.05% lower than the
total aggregate fee previously paid by the Fund pursuant to the Former
Management Agreement and the Former Advisory Agreement combined.
"Management Fees" and "Total Fund Operating Expenses" above have been
restated to reflect the lower fee.
5
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<CAPTION>
Examples 1 year 3 years 5 years 10 years
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<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) a 5% annual return and (2) redemption at the end of
each time period:
Class A ....................................................... $64 $87 $113 $186
Class B ....................................................... $66 $80 $107 $189
Class C ....................................................... $30 $61 $104 $225
Class D ....................................................... $ 9 $30 $ 51 $114
You would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A ....................................................... $64 $87 $113 $186
Class B ....................................................... $16 $50 $ 87 $189
Class C ....................................................... $20 $61 $104 $225
Class D ....................................................... $ 9 $30 $ 51 $114
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Purchase of Fund Shares--Plan of Distribution"
and "Redemptions and Repurchases."
Long-term shareholders of Class B and Class C may pay more in sales
charges, including distribution fees, than the economic equivalent of the
maximum front-end sales charges permitted by the NASD.
6
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FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by PricewaterhouseCoopers
LLP, independent accountants. The financial highlights should be read in
conjunction with the financial statements, notes thereto and the unqualified
report of independent accountants, which are contained in the Statement of
Additional Information. Further information about the performance of the Fund
is contained in the Fund's Annual Report to Shareholders, which may be obtained
without charge upon request to the Fund.
<TABLE>
<CAPTION>
For the year ended March 31,
-------------------------------------------------------------------------------
1998**++ 1997 1996 1995 1994
-------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period ............................ $ 15.09 $ 15.09 $ 12.11 $ 12.10 $ 11.26
--------- --------- --------- --------- ----------
Net investment loss ................ (0.11) (0.12) (0.11) (0.06) (0.06)
Net realized and unrealized
gain .............................. 6.07 1.39 3.09 0.07 0.90
--------- --------- --------- --------- ----------
Total from investment
operations ........................ 5.96 1.27 2.98 0.01 0.84
--------- --------- --------- --------- ----------
Less distributions from net
realized gain ..................... (5.93) (1.27) -- -- --
--------- --------- --------- --------- ----------
Net asset value, end of period ..... $ 15.12 $ 15.09 $ 15.09 $ 12.11 $ 12.10
========= ========= ========= ========= ==========
TOTAL INVESTMENT RETURN+ ........... 42.61% 8.31% 24.69% 0.08% 7.46%
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................... 1.64% 1.73% 1.82% 1.96% 1.93%
Net investment loss ................ (0.64)% (0.75)% (0.72)% (0.48)% (0.59)%
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands ......................... $893,111 $727,528 $767,170 $697,350 $707,069
Portfolio turnover rate ............ 77% 45% 48% 38% 35%
Average commission rate paid ....... $0.0596 $0.0590 $0.0595 -- --
<CAPTION>
For the period
May 29, 1992*
through
March 31, 1993
------------------
<S> <C>
CLASS B SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period ............................ $ 10.00
---------
Net investment loss ................ (0.01)
Net realized and unrealized
gain .............................. 1.27
---------
Total from investment
operations ........................ 1.26
---------
Less distributions from net
realized gain ..................... --
---------
Net asset value, end of period ..... $ 11.26
=========
TOTAL INVESTMENT RETURN+ ........... 12.60%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................... 2.07%(2)
Net investment loss ................ (0.14)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands ......................... $486,829
Portfolio turnover rate ............ 26%(1)
Average commission rate paid .......
--
</TABLE>
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* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
7
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FINANCIAL HIGHLIGHTS, continued
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<TABLE>
<CAPTION>
For the period
July 28, 1997*
through
March 31, 1998++
-------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $17.58
------
Net investment loss ............................... (0.04)
Net realized and unrealized gain .................. 2.28
------
Total from investment operations .................. 2.24
------
Less distributions from net realized gain ......... (4.65)
------
Net asset value, end of period .................... $15.17
======
TOTAL INVESTMENT RETURN+ .......................... 13.84%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.33%(2)
Net investment loss ............................... (0.34)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $647
Portfolio turnover rate ........................... 77%(2)
Average commission rate paid ...................... $0.0596
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $17.58
------
Net investment loss ............................... (0.11)
Net realized and unrealized gain .................. 2.26
------
Total from investment operations .................. 2.15
------
Less distributions from net realized gain ......... (4.65)
------
Net asset value, end of period .................... $15.08
======
TOTAL INVESTMENT RETURN+ .......................... 13.33%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 2.02%(2)
Net investment loss ............................... (1.00)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $422
Portfolio turnover rate ........................... 77%(2)
Average commission rate paid ...................... $0.0596
</TABLE>
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* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
8
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FINANCIAL HIGHLIGHTS, continued
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<CAPTION>
For the period
July 28, 1997*
through
March 31, 1998++
-----------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $17.58
------
Net investment loss ............................... (0.08)
Net realized and unrealized gain .................. 2.36
------
Total from investment operations .................. 2.28
------
Less distributions from net realized gain ......... (4.65)
------
Net asset value, end of period .................... $15.21
======
TOTAL INVESTMENT RETURN+ .......................... 14.09%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.43%(2)
Net investment loss ............................... (0.78)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $11
Portfolio turnover rate ........................... 77%(2)
Average commission rate paid ...................... $0.0596
</TABLE>
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* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
9
<PAGE>
THE FUND AND ITS MANAGEMENT
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Morgan Stanley Dean Witter Growth Fund (the "Fund") is an open-end
management investment company. The Fund is a trust of the type commonly known
as a "Massachusetts business trust" and was organized under the laws of The
Commonwealth of Massachusetts on January 31, 1992.
Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors" or the
"Investment Manager"), whose address is Two World Trade Center, New York, New
York 10048, is the Fund's Investment Manager. The Investment Manager is a
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. ("MSDW"), a
preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses--securities, asset management
and credit services. The Investment Manager, which was incorporated in July,
1992 under the name Dean Witter InterCapital Inc., changed its name to Morgan
Stanley Dean Witter Advisors Inc. on June 22, 1998.
MSDW Advisors and its wholly-owned subsidiary, Morgan Stanley Dean
Witter Services Company Inc. ("MSDW Services"), serve in various investment
management, advisory, management and administrative capacities to 101
investment companies, 28 of which are listed on the New York Stock Exchange,
with combined assets of approximately $111 billion at June 30, 1998. The
Investment Manager also manages portfolios of pension plans, other institutions
and individuals which aggregated approximately $4 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and supervise the investment of the
Fund's assets. MSDW Advisors has retained MSDW Services to perform the
aforementioned administrative services for the Fund.
Under a Sub-Advisory Agreement between Morgan Stanley Asset Management
Inc. ("MSAM" or the "Sub-Advisor") and the Investment Manager, the Sub-Advisor
provides the Fund with investment advice and portfolio management relating to
the Fund's investments, subject to the overall supervision of the Investment
Manager. The Fund's Trus-tees review the various services provided by the
Investment Manager and the Sub-Advisor to ensure that the Fund's general
investment policies and programs are being properly carried out and that
administrative services are being provided to the Fund in a satisfactory
manner.
The Sub-Advisor, whose address is 1221 Avenue of the Americas, New York,
New York 10020, together with its institutional investment management
affiliates manages, as of June 30, 1998, assets of approximately $169 billion
primarily for U.S. corporate and public employee benefit plans, investment
companies, endowments, foundations and wealthy individuals. MSAM, like MSDW
Advisors, is a wholly-owned subsidiary of MSDW.
Prior to March, 1998, the Fund was named "TCW/DW Core Equity Trust" and
was managed by Morgan Stanley Dean Witter Services Company Inc. (the "Former
Manager") pursuant to a management agreement between the Fund and the Former
Manager (the "Former Management Agreement") and was advised by TCW Funds
Management, Inc. (the "Former Advisor") pursuant to an advisory agreement
between the Fund and the Former Advisor (the "Former Advisory Agreement"). The
Former Advisor had informed the Board of Trustees of the Fund that it planned
to resign as investment advisor to the Fund and on November 6, 1997, the Board
of Trustees recommended that a new investment management agreement between the
Fund and MSDW Advisors (the "Investment Management Agreement") be submitted to
shareholders for approval. At the same meeting the Trustees also recommended
that shareholders approve a new sub-advisory agreement between MSDW Advisors
and MSAM (the "Sub-Advisory Agreement"). The shareholders approved the
Investment Management Agreement and the Sub-Advisory Agreement on February 26,
1998 and the Investment Management Agreement and the Sub-Advisory Agreement
became effective on March 2, 1998.
10
<PAGE>
As full compensation for the services and facilities furnished to the
Fund and for expenses of the Fund assumed by the Investment Manager, the Fund
pays the Investment Manager monthly compensation calculated by applying the
annual rate of 0.80% of the Fund's net assets up to $750 million, scaled down
at various asset levels to 0.70% on assets over $1.5 billion. As compensation
for its services pursuant to the Sub-Advisory Agreement, the Investment Manager
pays the Sub-Advisor compensation equal to 40% of its compensation. The fee
rate under the Investment Management Agreement is 0.05% lower than the total
aggregate fee rate previously in effect under the Former Management Agreement
and the Former Advisory Agreement combined. For the period April 1, 1997
through March 1, 1998, the Fund accrued total compensation to the Former
Manager and the Former Advisor amounting to 0.51% and 0.34%, respectively, of
the Fund's average daily net assets and for the period March 2, 1998 through
March 31, 1998, the Fund accrued total compensation to the Investment Manager
amounting to 0.79% of the Fund's average daily net assets (of which 40% was
accrued to the Sub-Advisor by the Investment Manager). The total expenses of
Class B for the fiscal year ended March 31, 1998 amounted to 1.64% of the
average daily net assets of Class B. Shares of Class A, Class C, and Class D
were first issued on July 28, 1997. The expenses of the Fund include: the fee
of the Investment Manager; the fee pursuant to the Plan of Distribution (see
"Purchase of Fund Shares"); taxes; transfer agent, custodian and auditing fees;
certain legal fees; and printing and other expenses relating to the Fund's
operations which are not expressly assumed by the Investment Manager under its
Investment Management Agreement with the Fund.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is long-term growth of capital. This
objective is fundamental and may not be changed without shareholder approval.
There is no assurance that the objective will be achieved.
The Fund invests primarily in common stocks and securities convertible
into common stocks of companies which offer the prospect for growth of
earnings. The Fund seeks to achieve its investment objective by investing under
normal circumstances at least 65% of its total assets in common stocks and
convertible securities. There are no minimum rating or quality requirements
with respect to convertible securities in which the Fund may invest and, thus,
all or some of such securities may be below investment grade. See the Appendix
to the Statement of Additional Information for a discussion of ratings of
fixed-income securities.
The Sub-Advisor invests the Fund's assets by pursuing its "equity
growth" philosophy. That strategy involves a two-step process to achieve value
for the Fund's shareholders by taking advantage of unrecognized appreciation
potential created by changes in the economic, social and political
environments. Pursuant to its approach, the Sub-Advisor emphasizes individual
security selection. Individual companies are chosen for investment by the Fund,
based on factors including but not limited to: potential growth in earnings and
dividends; quality of management; new products and/or new markets; research and
development capabilities; historical rate of return on equity and invested
capital; cash flow and balance sheet strength; and forcing value through
company initiatives such as cost reduction or share repurchase. As a second
step, the Sub-Advisor considers the weightings that the selected companies and
industries will have in the portfolio.
The Fund intends to invest primarily, but not exclusively, in companies
having stock market capitalizations (calculated by multiplying the number of
outstanding shares of a company by the current market price) of at least $1
billion. The Sub-Advisor anticipates that the Fund will focus its investments
in fewer than 100 companies, although the Sub-Advisor continuously monitors up
to 250 companies
11
<PAGE>
for possible investment by the Fund. The Fund's holdings are changed by the
Sub-Advisor as warranted based on changes in the overall market or economic
environment, as well as factors specific to particular companies.
While the Fund invests primarily in common stocks and securities
convertible into common stock, under ordinary circumstances it may invest up to
35% of its total assets in money market instruments, which are short-term
(maturities of up to thirteen months) fixed-income securities issued by private
and governmental institutions. Money market instruments in which the Fund may
invest are securities issued or guaranteed by the U.S. Government or its
agencies (Treasury bills, notes and bonds); obligations of banks subject to
regulation by the U.S. Government and having total assets of $1 billion or
more; Eurodollar certificates of deposit; obligations of savings banks and
savings and loan associations having total assets of $1 billion or more; fully
insured certificates of deposit; and commercial paper rated within the two
highest grades by Moody's Investors Service Inc. ("Moody's") or Standard &
Poor's Corporation ("S&P") or, if not rated, issued by a company having an
outstanding debt issue rated AAA by S&P or Aaa by Moody's.
There may be periods during which, in the opinion of the Investment
Manager or Sub-Advisor, market conditions warrant reduction of some or all of
the Fund's securities holdings. During such periods, the Fund may adopt a
temporary "defensive" posture in which greater than 35% and, in some
circumstances up to 100%, of its assets is invested in money market instruments
or cash.
RISK CONSIDERATIONS AND INVESTMENT PRACTICES
The net asset value of the Fund's shares will fluctuate with changes in
the market value of the Fund's portfolio securities. The market value of the
Fund's portfolio securities will increase or decrease due to a variety of
economic, market and political factors which cannot be predicted.
Convertible Securities. A convertible security is a bond, debenture,
note, preferred stock or other security that may be converted into or exchanged
for a prescribed amount of common stock of the same or a different issuer
within a particular period of time at a specified price or formula. Convertible
securities rank senior to common stocks in a corporation's capital structure
and, therefore, entail less risk than the corporation's common stock. The value
of a convertible security is a function of its "investment value" (its value as
if it did not have a conversion privilege), and its "conversion value" (the
security's worth if it were to be exchanged for the underlying security, at
market value, pursuant to its conversion privilege).
To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security
(the credit standing of the issuer and other factors may also have an effect on
the convertible security's value). If the conversion value exceeds the
investment value, the price of the convertible security will rise above its
investment value and, in addition, will sell at some premium over its
conversion value. (This premium represents the price investors are willing to
pay for the privilege of purchasing a fixed-income security with a possibility
of capital appreciation due to the conversion privilege.) At such times the
price of the convertible security will tend to fluctuate directly with the
price of the underlying equity security.
Because of the special nature of the Fund's permitted investments in
lower rated convertible securities, the Investment Manager and the Sub-Advisor
must take account of certain special considerations in assessing the risks
associated with such investments. The prices of lower rated securities have
been found to be less sensitive to changes in prevailing interest rates than
higher rated investments, but are likely to be more sensitive to adverse
economic changes or individual corporate developments. During an economic
downturn or substantial period of rising interest rates, highly leveraged
issuers may experience financial stress which would adversely affect their
ability to service their principal
12
<PAGE>
and interest payment obligations, to meet their projected business goals or to
obtain additional financing. If the issuer of a fixed-income security owned by
the Fund defaults, the Fund may incur additional expenses to seek recovery. In
addition, periods of economic uncertainty and change can be expected to result
in an increased volatility of market prices of lower rated securities and a
corresponding volatility in the net asset value of a share of the Fund.
Foreign Securities. The Fund may invest in securities of foreign
companies. However, the Fund will not invest more than 25% of the value of its
total assets, at the time of purchase, in foreign securities (other than
securities of Canadian issuers registered under the Securities Exchange Act of
1934 or American Depository Receipts, on which there is no such limit). The
Fund's investments in unlisted foreign securities are subject to the Fund's
overall policy limiting its investment in illiquid securities to 15% or less of
its net assets. Investments in certain Canadian issuers may be speculative due
to certain political risks and may be subject to substantial price
fluctuations.
Foreign securities investments may be affected by changes in currency
rates or exchange control regulations, changes in governmental administration
or economic or monetary policy (in the United States and abroad) or changed
circumstances in dealings between nations. Fluctuations in the relative rates
of exchange between the currencies of different nations will affect the value
of the Fund's investments denominated in foreign currency. Changes in foreign
currency exchange rates relative to the U.S. dollar will affect the U.S. dollar
value of the Fund's assets denominated in that currency and thereby impact upon
the Fund's total return on such assets. When purchasing foreign securities, the
Fund will generally enter into foreign currency exchange transactions or
forward foreign exchange contracts to facilitate settlement. The Fund will
utilize forward foreign exchange contracts in these instances as an attempt to
limit the effect of changes in the relationship between the U.S. dollar and the
foreign currency during the period between the trade date and settlement date
for the transaction.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of
the exchanges on which the currencies trade. When purchasing foreign
securities, the Fund will generally enter into foreign currency exchange
transactions or forward foreign exchange contracts to facilitate settlement.
The Fund will utilize forward foreign exchange contracts in these instances as
an attempt to limit the effect of changes in the relationship between the U.S.
dollar and the foreign currency during the period between the trade date and
settlement date for the transaction.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Foreign companies are not subject to the regulatory requirements
of U.S. companies and, as such, there may be less publicly available
information about such companies. Moreover, foreign companies are not subject
to uniform accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies.
Securities of foreign issuers may be less liquid than comparable
securities of U.S. issuers and, as such, their price changes may be more
volatile. Furthermore, foreign exchanges and broker-dealers are generally
subject to less government and exchange scrutiny and regulation than their
American counterparts. Brokerage commissions, dealer concessions and other
transaction costs may be higher on foreign markets than in the U.S. In
addition, differences in clearance and settlement procedures on foreign markets
may occasion delays in settlements of the Fund's trades effected in such
markets. As such, the inability to dispose of portfolio securities due to
settlement delays could result in losses to the Fund due to subsequent declines
in value of such securities and the inability of the Fund to make intended
security purchases due to settlement problems could result in a failure of the
Fund to make potentially advantageous investments. To the extent the Fund
purchases Eurodollar certificates of de-
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<PAGE>
posit issued by foreign branches of domestic United States banks, consideration
will be given to their domestic marketability, the lower reserve requirements
normally mandated for overseas banking operations, the possible impact of
interruptions in the flow of international currency transactions and future
international political and economic developments which might adversely affect
the payment of principal or interest.
Many European countries are about to adopt a single European currency,
the euro (the "Euro Conversion"). The consequences of the Euro Conversion for
foreign exchange rates, interest rates and the value of European securities
eligible for purchase by the Fund are presently unclear. Such consequences may
adversely affect the value and/or increase the volatility of securities held by
the Fund.
Repurchase Agreements. The Fund may enter into repurchase agreements,
which may be viewed as a type of secured lending by the Fund, and which
typically involve the acquisition by the Fund of debt securities from a selling
financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Fund will sell back to the
institution, and that the institution will repurchase, the underlying security
at a specified price and at a fixed time in the future, usually not more than
seven days from the date of purchase. While repurchase agreements involve
certain risks not associated with direct investments in debt securities,
including the risks of default or bankruptcy of the selling financial
institution, the Fund follows procedures designed to minimize those risks.
These procedures include effecting repurchase transactions only with large,
well-capitalized and well-established financial institutions and maintaining
adequate collateralization.
Private Placements. The Fund may invest up to 5% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible for
resale pursuant to Rule 144A under the Securities Act, and determined to be
liquid pursuant to the procedures discussed in the following paragraph, are not
subject to the foregoing restriction.) These securities are generally referred
to as private placements or restricted securities. Limitations on the resale of
such securities may have an adverse effect on their marketability, and may
prevent the Fund from disposing of them promptly at reasonable prices. The Fund
may have to bear the expense of registering such securities for resale and the
risk of substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager
and/or the Sub-Advisor, pursuant to procedures adopted by the Trustees of the
Fund, will make a determination as to the liquidity of each restricted security
purchased by the Fund. If a restricted security is determined to be "liquid,"
such security will not be included within the category "illiquid securities,"
which under current policy may not exceed 15% of the Fund's net assets.
However, investing in Rule 144A securities could have the effect of increasing
the level of Fund illiquidity to the extent the Fund, at a particular point in
time, may be unable to find qualified institutional buyers interested in
purchasing such securities.
When-Issued and Delayed Delivery Securities and Forward
Commitments. From time to time, in the ordinary course of business, the Fund
may purchase securities on a when-issued or delayed delivery basis or may
purchase or sell securities on a forward commitment basis. When such
transactions are negotiated, the price is fixed at the time of the commitment,
but delivery and payment can take place a month or more after the date of the
commitment. An increase in the percentage of the Fund's assets committed to the
purchase of securities on a when-issued, delayed delivery or forward commitment
basis may increase the volatility of the Fund's net asset value.
When, As and If Issued Securities. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the
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<PAGE>
security depends upon the occurrence of a subsequent event, such as approval of
a merger, corporate reorganization, leveraged buyout or debt restructuring. If
the anticipated event does not occur and the securities are not issued, the
Fund will have lost an investment opportunity. 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.
Zero Coupon Securities. A portion of the fixed-income securities
purchased by the Fund may be zero coupon securities. Such securities are
purchased at a discount from their face amount, giving the purchaser the right
to receive their full value at maturity. The interest earned on such securities
is, implicitly, automatically compounded and paid out at maturity. While such
compounding at a constant rate eliminates the risk of receiving lower yields
upon reinvestment of interest if prevailing interest rates decline, the owner
of a zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received on interest-paying securities if prevailing
interest rates rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. In
addition, zero coupon securities are subject to substantially greater price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest on a current basis. Current federal
tax law requires that a holder (such as the Fund) of a zero coupon security
accrue a portion of the discount at which the security was purchased as income
each year even though the Fund receives no interest payments in cash on the
security during the year.
Investment in Real Estate Investment Trusts. The Fund may invest in real
estate investment trusts, which pool investors' funds for investments primarily
in commercial real estate properties. Investment in real estate investment
trusts may be the most practical available means for the Fund to invest in the
real estate industry (the Fund is prohibited from investing in real estate
directly). As a shareholder in a real estate investment trust, the Fund would
bear its ratable share of the real estate investment trust's expenses,
including its advisory and administration fees. At the same time the Fund would
continue to pay its own investment management fees and other expenses, as a
result of which the Fund and its shareholders in effect will be absorbing
duplicate levels of fees with respect to investments in real estate investment
trusts.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions, provided that such loans are callable at any
time by the Fund (subject to certain notice provisions described in the
Statement of Additional Information), and are at all times secured by cash or
money market instruments, which are maintained in a segregated account pursuant
to applicable regulations and that are equal to at least the market value,
determined daily, of the loaned securities. 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,
loans of portfolio securities will only be made to firms deemed by the
Investment Manager and/or the Sub-Advisor to be creditworthy and when the
income which can be earned from such loans justifies the attendant risks.
Futures and Options Transactions. The Fund is authorized to engage in
options and futures transactions, although it has no current intention to do so
during the coming year. The Fund will not engage in such options and futures
transactions unless and until the Fund's Prospectus has been revised to reflect
such a change following approval by the Fund's Board of Trustees.
Year 2000. The investment management services provided to the Fund by
the Investment Manager and the Sub-Advisor and the services provided to
shareholders by the Distributor and the Transfer Agent depend on the smooth
functioning of their computer systems. Many computer software sys-
15
<PAGE>
tems 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 Sub-Advisor, the
Distributor and the Transfer Agent have been actively working on necessary
changes to their own computer systems to prepare for the year 2000 and expect
that their systems will be adapted before that date, but there can be no
assurance that they will be successful, or that interaction with other
non-complying computer systems will not impair their services at that time. In
addition, it is possible that the markets for securities in which the Fund
invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies and overall economic
uncertainties. Earnings of individual issuers will be affected by remediation
costs, which may be substantial and may be reported inconsistently in U.S. and
foreign financial statements. Accordingly, the Fund's investments may be
adversely affected.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager and
the Sub-Advisor with a view to achieving the Fund's investment objective. Kurt
Feuerman, a Managing Director of MSAM in its Institutional Equity Group, and
Margaret Johnson, a Principal of MSAM and a portfolio manager in its
Institutional Equity Group, have been the primary portfolio co-managers of the
Fund since March, 1998. Both Mr. Feuerman and Ms. Johnson have been portfolio
managers with MSAM for over five years.
In determining which securities to purchase for the Fund or hold in the
Fund's portfolio, the Investment Manager and the Sub-Advisor rely on
information from various sources, including research, analysis and appraisals
of brokers and dealers, including Dean Witter Reynolds Inc. ("DWR"), Morgan
Stanley & Co. Incorporated and other broker-dealers that are affiliates of the
Investment Manager and the Sub-Advisor, and the Investment Manager's and the
Sub-Advisor's own analysis of factors they deem relevant.
Orders for transactions in portfolio securities and commodities are
placed for the Fund with a number of brokers and dealers, including DWR and
other broker-dealer affiliates of the Investment Manager and the Sub-Advisor.
The Fund may incur brokerage commissions on transactions conducted through DWR,
Morgan Stanley & Co. Incorporated and other brokers and dealers that are
affiliates of the Investment Manager and the Sub-Advisor. It is not anticipated
that the portfolio trading will result in the Fund's portfolio turnover rate
exceeding 200% in any one year. A portfolio turnover rate in excess of 100% may
be considered high and the Fund will incur correspondingly higher transaction
costs. In addition, high portfolio turnover may result in more capital gains
which would be taxable to the shareholders of the Fund. (See "Dividends,
Distributions and Taxes.")
Except as specifically noted, all investment policies and practices
discussed above are not fundamental policies of the Fund and thus may be
changed without shareholder approval.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions
which have been adopted by the Fund as fundamental policies. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. For purposes
of the following limitations: (i) all percentage limitations apply immediately
after a purchase or initial investment, and (ii) any subsequent change in any
applicable percentage resulting from market fluctua-
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<PAGE>
tions or other changes in total or net assets does not require elimination of
any security from the portfolio.
The Fund may not:
1. 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 Government, its agencies or instrumentalities.
2. 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 does not apply to obligations issued
or guaranteed by the United States Government, its agencies or
instrumentalities.
In addition, as a non-fundamental policy, the Fund may not, as to 75% of
its total assets, purchase more than 10% of the voting securities of any
issuer.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
GENERAL
The Fund offers each Class of its shares for sale to the public on a
continuous basis. Shares of the Fund are distributed by Morgan Stanley Dean
Witter Distributors Inc. ("MSDW Distributors" or the "Distributor"), an
affiliate of the Investment Manager, pursuant to a Distribution Agreement
between the Fund and the Distributor and offered by Dean Witter Reynolds Inc.
("DWR"), a selected dealer and subsidiary of Morgan Stanley Dean Witter & Co.,
and other dealers who have entered into selected dealer agreements with the
Distributor ("Selected Broker-Dealers"). It is anticipated that DWR will
undergo a change of corporate name which is expected to incorporate the brand
name of "Morgan Stanley Dean Witter," pending approval of various regulatory
authorities. The principal executive office of the Distributor is located at
Two World Trade Center, New York, New York 10048.
The Fund offers four classes of shares (each, a "Class"). Class A shares
are sold to investors with an initial sales charge that declines to zero for
larger purchases; however, Class A shares sold without an initial sales charge
are subject to a contingent deferred sales charge ("CDSC") of 1.0% if redeemed
within one year of purchase, except for certain specific circumstances. Class B
shares are sold without an initial sales charge but are subject to a CDSC
(scaled down from 5.0% to 1.0%) payable upon most redemptions within six years
after purchase. (Class B shares purchased by certain qualified plans are
subject to a CDSC scaled down from 2.0% to 1.0% if redeemed within three years
after purchase.) Class C shares are sold without an initial sales charge but
are subject to a CDSC of 1.0% on most redemptions made within one year after
purchase. Class D shares are sold without an initial sales charge or CDSC and
are available only to investors meeting an initial investment minimum of $5
million ($25 million for certain qualified plans), and to certain other limited
categories of investors. At the discretion of the Board of Trustees of the
Fund, Class A shares may be sold to categories of investors in addition to
those set forth in this prospectus at net asset value without a front-end sales
charge, and Class D shares may be sold to certain other categories of
investors, in each case as may be described in the then current prospectus of
the Fund. See "Alternative Purchase Arrangements--Selecting a Particular Class"
for a discussion of factors to consider in selecting which Class of shares to
purchase.
The minimum initial purchase is $1,000 for each Class of shares,
although Class D shares are only available to persons investing $5 million ($25
million for certain qualified plans) or more and to certain other limited
categories of investors. For the purpose of meeting the minimum $5 million (or
$25 million) initial investment for Class D shares, and subject to the $1,000
minimum initial investment for each Class of the Fund, an investor's
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<PAGE>
existing holdings of Class A shares of the Fund and other Morgan Stanley Dean
Witter Funds that are multiple class funds ("Morgan Stanley Dean Witter
Multi-Class Funds") and shares of Morgan Stanley Dean Witter Funds sold with a
front-end sales charge ("FSC Funds") and concurrent investments in Class D
shares of the Fund and other Morgan Stanley Dean Witter Multi-Class Funds will
be aggregated. Subsequent purchases of $100 or more may be made by sending a
check, payable to Morgan Stanley Dean Witter Growth Fund, directly to Morgan
Stanley Dean Witter Trust FSB (the "Transfer Agent" or "MSDW Trust") at P.O.
Box 1040, Jersey City, NJ 07303, or by contacting a Morgan Stanley Dean Witter
Financial Advisor or other Selected Broker-Dealer representative. When
purchasing shares of the Fund, investors must specify whether the purchase is
for Class A, Class B, Class C or Class D shares. If no Class is specified, the
Transfer Agent will not process the transaction until the proper Class is
identified. The minimum initial purchase in the case of investments through
EasyInvestSM, an automatic purchase plan (see "Shareholder Services"), is $100,
provided that the schedule of automatic investments will result in investments
totalling at least $1,000 within the first twelve months. The minimum initial
purchase in the case of an "Education IRA" is $500, if the Distributor has
reason to believe that additional investments will increase the investment in
the account to $1,000 within three years. In the case of investments pursuant
to (i) Systematic Payroll Deduction Plans (including Individual Retirement
Plans), (ii) the MSDW Advisors mutual fund asset allocation program, and (iii)
fee-based programs approved by the Distributor, pursuant to which participants
pay an asset based fee for services in the nature of investment advisory,
administrative and/or brokerage services, the Fund, in its discretion, may
accept investments without regard to any minimum amounts which would otherwise
be required, provided, in the case of Systematic Payroll Deduction Plans, that
the Distributor has reason to believe that additional investments will increase
the investment in all accounts under such Plans to at least $1,000.
Certificates for shares purchased will not be issued unless a request is made
by the shareholder in writing to the Transfer Agent.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business
day (settlement date) after the order is placed with the Distributor. Since DWR
and other Selected Broker-Dealers forward investors' funds on settlement date,
they will benefit from the temporary use of the funds if payment is made prior
thereto. As noted above, orders placed directly with the Transfer Agent must be
accompanied by payment. Investors will be entitled to receive income dividends
and capital gains distributions if their order is received by the close of
business on the day prior to the record date for such dividends and
distributions. Sales personnel of a Selected Broker-Dealer are compensated for
selling shares of the Fund by the Distributor or any of its affiliates and/or
the Selected Broker-Dealer. In addition, some sales personnel of the Selected
Broker-Dealer will receive various types of non-cash compensation as special
sales incentives, including trips, educational and/or business seminars and
merchandise. The Fund and the Distributor reserve the right to reject any
purchase orders.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers several Classes of shares to investors designed to
provide them with the flexibility of selecting an investment best suited to
their needs. The general public is offered three Classes of shares: Class A
shares, Class B shares and Class C shares, which differ principally in terms of
sales charges and rate of expenses to which they are subject. A fourth Class of
shares, Class D shares, is offered only to limited categories of investors (see
"No Load Alternative--Class D Shares" below).
Each Class A, Class B, Class C or Class D share of the Fund represents
an identical interest in the investment portfolio of the Fund except that Class
A, Class B and Class C shares bear the expenses of the ongoing shareholder
service fees, Class B and Class C shares bear the expenses of the ongoing
distribution fees and Class A, Class B and Class C shares which are redeemed
subject to a CDSC bear the expense of the additional incremental distribution
costs resulting from the CDSC
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<PAGE>
applicable to shares of those Classes. The ongoing distribution fees that are
imposed on Class A, Class B and Class C shares will be imposed directly against
those Classes and not against all assets of the Fund and, accordingly, such
charges against one Class will not affect the net asset value of any other
Class or have any impact on investors choosing another sales charge option. See
"Plan of Distribution" and "Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and
the factors an investor should consider when selecting a particular Class. This
summary is qualified in its entirety by detailed discussion of each Class that
follows this summary.
Class A Shares. Class A shares are sold at net asset value plus an
initial sales charge of up to 5.25%. The initial sales charge is reduced for
certain purchases. Investments of $1 million or more (and investments by
certain other limited categories of investors) are not subject to any sales
charges at the time of purchase but are subject to a CDSC of 1.0% on
redemptions made within one year after purchase, except for certain specific
circumstances. Class A shares are also subject to a 12b-1 fee of up to 0.25% of
the average daily net assets of the Class. See "Initial Sales Charge
Alternative--Class A Shares."
Class B Shares. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to 1.0%)
if redeemed within six years of purchase. (Class B shares purchased by certain
qualified plans are subject to a CDSC scaled down from 2.0% to 1.0% if redeemed
within three years after purchase.) This CDSC may be waived for certain
redemptions. Class B shares are also subject to an annual 12b-1 fee of 1.0% of
the lesser of: (a) the average daily aggregate gross sales of the Fund's Class
B shares since the inception of the Fund (not including reinvestments of
dividends or capital gains distributions), less the average daily aggregate net
asset value of the Fund's Class B shares redeemed since the Fund's inception
upon which a CDSC has been imposed or waived, or (b) the average daily net
assets of Class B. The Class B shares' distribution fee will cause that Class
to have higher expenses and pay lower dividends than Class A or Class D shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition, a
certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time. See
"Contingent Deferred Sales Charge Alternative--Class B Shares."
Class C Shares. Class C shares are sold at net asset value with no
initial sales charge but are subject to a CDSC of 1.0% on redemptions made
within one year after purchase. This CDSC may be waived for certain
redemptions. They are subject to an annual 12b-1 fee of up to 1.0% of the
average daily net assets of the Class C shares. The Class C shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A or Class D shares. See "Level Load Alternative--Class C
Shares."
Class D Shares. Class D shares are available only to limited categories
of investors (see "No Load Alternative--Class D Shares" below). Class D shares
are sold at net asset value with no initial sales charge or CDSC. They are not
subject to any 12b-1 fees. See "No Load Alternative--Class D Shares."
Selecting a Particular Class. In deciding which Class of Fund shares to
purchase, investors should consider the following factors, as well as any other
relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to an
investor depends on the amount and intended length of his or her investment.
Investors who prefer an initial sales charge alternative may elect to purchase
Class A shares. Investors qualifying for significantly reduced or, in the case
of purchases of $1 million or more, no initial sales charges may find Class A
shares particularly
19
<PAGE>
attractive because similar sales charge reductions are not available with
respect to Class B or Class C shares. Moreover, Class A shares are subject to
lower ongoing expenses than are Class B or Class C shares over the term of the
investment. As an alternative, Class B and Class C shares are sold without any
initial sales charge so the entire purchase price is immediately invested in
the Fund. Any investment return on these additional investment amounts may
partially or wholly offset the higher annual expenses of these Classes. Because
the Fund's future return cannot be predicted, however, there can be no
assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly
lower CDSC upon redemptions, they do not, unlike Class B shares, convert into
Class A shares after approximately ten years, and, therefore, are subject to an
ongoing 12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A
shares) for an indefinite period of time. Thus, Class B shares may be more
attractive than Class C shares to investors with longer term investment
outlooks. Other investors, however, may elect to purchase Class C shares if,
for example, they determine that they do not wish to be subject to a front-end
sales charge and they are uncertain as to the length of time they intend to
hold their shares.
For the purpose of meeting the $5 million (or $25 million) minimum
investment amount for Class D shares, holdings of Class A shares in all Morgan
Stanley Dean Witter Multi-Class Funds, shares of FSC Funds and shares of Morgan
Stanley Dean Witter Funds for which such shares have been exchanged will be
included together with the current investment amount.
Sales personnel may receive different compensation for selling each
Class of shares. Investors should understand that the purpose of a CDSC is the
same as that of the initial sales charge in that the sales charges applicable
to each Class provide for the financing of the distribution of shares of that
Class.
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
- -----------------------------------------------------------------------------
CONVERSION
CLASS SALES CHARGE 12b-1 FEE FEATURE
- -----------------------------------------------------------------------------
A Maximum 5.25% 0.25% No
initial sales charge
reduced for
purchases of
$25,000 and over;
shares sold without
an initial sales
charge generally
subject to a 1.0%
CDSC during first
year.
- -----------------------------------------------------------------------------
B Maximum 5.0% 1.0% B shares convert
CDSC during the first to A shares
year decreasing automatically after
to 0 after six years approximately
ten years
- -----------------------------------------------------------------------------
C 1.0% CDSC during 1.0% No
first year
- -----------------------------------------------------------------------------
D None None No
- -----------------------------------------------------------------------------
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge.
In some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one year
after purchase (calculated from the last day of the month in which the shares
were purchased), except for certain specific circumstances. The CDSC will be
assessed on an amount equal to the lesser of the current
20
<PAGE>
market value or the cost of the shares being redeemed. The CDSC will not be
imposed (i) in the circumstances set forth below in the section "Contingent
Deferred Sales Charge Alternative--Class B Shares--CDSC Waivers," except that
the references to six years in the first paragraph of that section shall mean
one year in the case of Class A shares, and (ii) in the circumstances
identified in the section "Additional Net Asset Value Purchase Options" below.
Class A shares are also subject to an annual 12b-1 fee of up to 0.25% of the
average daily net assets of the Class.
The offering price of Class A shares will be the net asset value per
share next determined following receipt of an order (see "Determination of Net
Asset Value" below), plus a sales charge (expressed as a percentage of the
offering price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF SINGLE PUBLIC OFFERING PERCENTAGE OF
TRANSACTION PRICE AMOUNT INVESTED
----------- ----- ---------------
<S> <C> <C>
Less than $25,000 ........... 5.25% 5.54%
$25,000 but less
than $50,000 ............. 4.75% 4.99%
$50,000 but less
than $100,000 ............ 4.00% 4.17%
$100,000 but less
than $250,000 ............ 3.00% 3.09%
$250,000 but less
than $1 million .......... 2.00% 2.04%
$1 million and over ......... 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow
up to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods when 90% or more of the sales
charge is reallowed, such Selected Broker-Dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a
single transaction by, among others: (a) an individual; (b) an individual, his
or her spouse and their children under the age of 21 purchasing shares for his,
her or their own accounts; (c) a trustee or other fiduciary purchasing shares
for a single trust estate or a single fiduciary account; (d) a pension,
profit-sharing or other employee benefit plan qualified or non-qualified under
Section 401 of the Internal Revenue Code; (e) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Internal Revenue Code; (f)
employee benefit plans qualified under Section 401 of the Internal Revenue Code
of a single employer or of employers who are "affiliated persons" of each other
within the meaning of Section 2(a)(3)(c) of the Act; and for investments in
Individual Retirement Accounts of employees of a single employer through
Systematic Payroll Deduction plans; or (g) any other organized group of
persons, whether incorporated or not, provided the organization has been in
existence for at least six months and has some purpose other than the purchase
of redeemable securities of a registered investment company at a discount.
Combined Purchase Privilege. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Fund in single transactions with the purchase of Class A
shares of other Morgan Stanley Dean Witter Multi-Class Funds and shares of FSC
Funds. The sales charge payable on the purchase of the Class A shares of the
Fund, the Class A shares of the other Morgan Stanley Dean Witter Multi-Class
Funds and shares of the FSC Funds will be at their respective rates applicable
to the total amount of the combined concurrent purchases of such shares.
Right of Accumulation. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single transaction,
together with shares of the Fund and other Morgan Stanley Dean Witter Funds
previously purchased at a price including a front-end sales charge (including
shares of the Fund and other Morgan Stanley Dean Witter Funds acquired in
exchange for those shares, and including in each case shares acquired through
reinvestment of dividends and distributions), which
21
<PAGE>
are held at the time of such transaction, amounts to $25,000 or more. If such
investor has a cumulative net asset value of shares of FSC Funds and Class A
and Class D shares that, together with the current investment amount, is equal
to at least $5 million ($25 million for certain qualified plans), such investor
is eligible to purchase Class D shares subject to the $1,000 minimum initial
investment requirement of that Class of the Fund. See "No Load Alternative--
Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or
the shareholder at the time a purchase order is placed that the purchase
qualifies for the reduced charge under the Right of Accumulation. Similar
notification must be made in writing by the dealer or shareholder when such an
order is placed by mail. The reduced sales charge will not be granted if: (a)
such notification is not furnished at the time of the order; or (b) a review of
the records of the Selected Broker-Dealer or the Transfer Agent fails to
confirm the investor's represented holdings.
Letter of Intent. The foregoing schedule of reduced sales charges will
also be available to investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of Class A shares
of the Fund from DWR or other Selected Broker-Dealers. The cost of Class A
shares of the Fund or shares of other Morgan Stanley Dean Witter Funds which
were previously purchased at a price including a front-end sales charge during
the 90-day period prior to the date of receipt by the Distributor of the Letter
of Intent, or of Class A shares of the Fund or shares of other Morgan Stanley
Dean Witter Funds acquired in exchange for shares of such funds purchased
during such period at a price including a front-end sales charge, which are
still owned by the shareholder, may also be included in determining the
applicable reduction.
Additional Net Asset Value Purchase Options. In addition to investments
of $1 million or more, Class A shares also may be purchased at net asset value
by the following:
(1) trusts for which MSDW Trust (which is an affiliate of the Investment
Manager) provides discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for services
in the nature of investment advisory, administrative and/or brokerage services
(such investments are subject to all of the terms and conditions of such
programs, which may include termination fees, mandatory redemption upon
termination and such other circumstances as specified in the programs'
agreements, and restrictions on transferability of Fund shares);
(3) employer-sponsored 401(k) and other plans qualified under Section
401(a) of the Internal Revenue Code ("Qualified Retirement Plans") with at
least 200 eligible employees and for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement;
(4) Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement whose Class B shares have converted to Class A
shares, regardless of the plan's asset size or number of eligible employees;
(5) investors who are clients of a Morgan Stanley Dean Witter Financial
Advisor who joined Morgan Stanley Dean Witter from another investment firm
within six months prior to the date of purchase of Fund shares by such
investors, if the shares are being purchased with the proceeds from a
redemption of shares of an open-end proprietary mutual fund of the Financial
Advisor's previous firm which imposed either a front-end or deferred sales
charge, provided such purchase was made within sixty days after the redemption
and the proceeds of the redemption had been maintained in the interim in cash
or a money market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
22
<PAGE>
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares,
contact DWR or another Selected Broker-Dealer or consult the Statement of
Additional Information.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--
CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, will be imposed on
most Class B shares redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments for Class B shares made during the
six years (or, in the case of shares held by certain Qualified Retirement
Plans, three years) preceding the redemption. In addition, Class B shares are
subject to an annual 12b-1 fee of 1.0% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's Class B shares since the inception of the
Fund (not including reinvestments of dividends or capital gains distributions),
less the average daily aggregate net asset value of the Fund's Class B shares
redeemed since the Fund's inception upon which a CDSC has been imposed or
waived, or (b) the average daily net assets of Class B.
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in
which the shares were purchased) will not be subject to any CDSC upon
redemption. Shares redeemed earlier than six years after purchase may, however,
be subject to a CDSC which will be a percentage of the dollar amount of shares
redeemed and will be assessed on an amount equal to the lesser of the current
market value or the cost of the shares being redeemed. The size of this
percentage will depend upon how long the shares have been held, as set forth in
the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
------------ ------------------
<S> <C>
First .......................... 5.0%
Second ......................... 4.0%
Third .......................... 3.0%
Fourth ......................... 2.0%
Fifth .......................... 2.0%
Sixth .......................... 1.0%
Seventh and thereafter ......... None
</TABLE>
In the case of Class B shares of the Fund purchased on or after July 28,
1997 by Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement, shares held for three years or more after
purchase (calculated as described in the paragraph above) will not be subject
to any CDSC upon redemption. However, shares redeemed earlier than three years
after purchase may be subject to a CDSC (calculated as described in the
paragraph above), the percentage of which will depend on how long the shares
have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
------------ ------------------
<S> <C>
First ......................... 2.0%
Second ........................ 2.0%
Third ......................... 1.0%
Fourth and thereafter ......... None
</TABLE>
CDSC Waivers. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or,
in the case of shares held by certain Qualified Retirement Plans, three years)
preceding the redemption; (ii) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) prior to the redemption; and (iii) the current
net asset value of shares purchased through reinvestment of dividends or
distributions and/or shares acquired in
23
<PAGE>
exchange for shares of FSC Funds or of other Morgan Stanley Dean Witter Funds
acquired in exchange for such shares. Moreover, in determining whether a CDSC
is applicable it will be assumed that amounts described in (i), (ii) and (iii)
above (in that order) are redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the
case of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (A) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (B) held in
a qualified corporate or self-employed retirement plan, Individual Retirement
Account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination
of disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified corporate
or self-employed retirement plan following retirement (or, in the case of a
"key employee" of a "top heavy" plan, following attainment of age 59 1/2); (B)
distributions from an IRA or 403(b) Custodial Account following attainment of
age 59 1/2; or (C) a tax-free return of an excess contribution to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
Qualified Retirement Plan which offers investment companies managed by the
Investment Manager or its subsidiary, MSDW Services, as self-directed
investment alternatives and for which MSDW Trust serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement ("Eligible Plan"), provided that either: (A)
the plan continues to be an Eligible Plan after the redemption; or (B) the
redemption is in connection with the complete termination of the plan involving
the distribution of all plan assets to participants.
With reference to (1) above, for the purpose of determining disability,
the Distributor utilizes the definition of disability contained in Section
72(m)(7) of the Internal Revenue Code, which relates to the inability to engage
in gainful employment. With reference to (2) above, the term "distribution"
does not encompass a direct transfer of IRA, 403(b) Custodial Account or
retirement plan assets to a successor custodian or trustee. All waivers will be
granted only following receipt by the Distributor of confirmation of the
shareholder's entitlement.
Conversion to Class A Shares. All shares of the Fund held prior to July
28, 1997 have been designated Class B shares. Shares held before May 1, 1997
will convert to Class A shares in May, 2007. In all other instances Class B
shares will convert automatically to Class A shares, based on the relative net
asset values of the shares of the two Classes on the conversion date, which
will be approximately ten (10) years after the date of the original purchase.
The ten year period is calculated from the last day of the month in which the
shares were purchased or, in the case of Class B shares acquired through an
exchange or a series of exchanges, from the last day of the month in which the
original Class B shares were purchased, provided that shares originally
purchased before May 1, 1997 will convert to Class A shares in May, 2007. The
conversion of shares purchased on or after May 1, 1997 will take place in the
month following the tenth anniversary of the purchase. There will also be
converted at that time such proportion of Class B shares acquired through
automatic reinvestment of dividends and distributions owned by the shareholder
as the total number of his or her Class B shares converting at the time bears
to the total number of outstanding Class B shares purchased and owned by the
shareholder. In the case of Class B shares held by a Qualified Retirement Plan
for which MSDW Trust serves as Trustee or DWR's Retirement Plan Services serves
as recordkeeper pursuant to a written Recordkeeping Services Agreement, the
plan is treated as a single investor and all Class B shares will convert to
Class A shares on the conversion date of the first shares of a Morgan
24
<PAGE>
Stanley Dean Witter Multi-Class Fund purchased by that plan. In the case of
Class B shares previously exchanged for shares of an "Exchange Fund" (see
"Shareholder Services--Exchange Privilege"), the period of time the shares were
held in the Exchange Fund (calculated from the last day of the month in which
the Exchange Fund shares were acquired) is excluded from the holding period for
conversion. If those shares are subsequently re-exchanged for Class B shares of
a Morgan Stanley Dean Witter Multi-Class Fund, the holding period resumes on
the last day of the month in which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares,
such certificates must be delivered to the Transfer Agent at least one week
prior to the date for conversion. Class B shares evidenced by share
certificates that are not received by the Transfer Agent at least one week
prior to any conversion date will be converted into Class A shares on the next
scheduled conversion date after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion
will have a basis equal to the shareholder's basis in the converted Class B
shares immediately prior to the conversion, and (iii) Class A shares received
on conversion will have a holding period that includes the holding period of
the converted Class B shares. The conversion feature may be suspended if the
ruling or opinion is no longer available. In such event, Class B shares would
continue to be subject to Class B 12b-1 fees.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold at net asset value next determined without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions made
within one year after purchase (calculated from the last day of the month in
which the shares were purchased). The CDSC will be assessed on an amount equal
to the lesser of the current market value or the cost of the shares being
redeemed. The CDSC will not be imposed in the circumstances set forth above in
the section "Contingent Deferred Sales Charge Alternative--Class B Shares--CDSC
Waivers," except that the references to six years in the first paragraph of
that section shall mean one year in the case of Class C shares. Class C shares
are subject to an annual 12b-1 fee of up to 1.0% of the average daily net
assets of the Class. Unlike Class B shares, Class C shares have no conversion
feature and, accordingly, an investor that purchases Class C shares will be
subject to 12b-1 fees applicable to Class C shares for an indefinite period
subject to annual approval by the Fund's Board of Trustees and regulatory
limitations.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption and without any 12b-1 fee. Class D shares are offered only to
investors meeting an initial investment minimum of $5 million ($25 million for
Qualified Retirement Plans for which MSDW Trust serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement) and the following categories of investors:
(i) investors participating in the MSDW Advisors mutual fund asset allocation
program pursuant to which such persons pay an asset based fee; (ii) persons
participating in a fee-based program approved by the Distributor, pursuant to
which such persons pay an asset based fee for services in the nature of
investment advisory, administrative and/or brokerage services (subject to all
of the terms and conditions of such programs referred to in (i) and (ii) above,
which may include termination fees, mandatory redemption upon termination and
such other circumstances as specified in the programs' agreements, and
restrictions on transferability of Fund shares); (iii) 401(k) plans established
by DWR and SPS Transaction Services, Inc. (an affiliate of DWR) for their
employees; (iv) certain Unit Investment Trusts sponsored by DWR; (v) certain
other open-end investment companies whose shares are distributed by the
Distributor; and (vi) other categories
25
<PAGE>
of investors, at the discretion of the Board, as disclosed in the then current
prospectus of the Fund. Investors who require a $5 million (or $25 million)
minimum initial investment to qualify to purchase Class D shares may satisfy
that requirement by investing that amount in a single transaction in Class D
shares of the Fund and other Morgan Stanley Dean Witter Multi-Class Funds,
subject to the $1,000 minimum initial investment required for that Class of the
Fund. In addition, for the purpose of meeting the $5 million (or $25 million)
minimum investment amount, holdings of Class A shares in all Morgan Stanley
Dean Witter Multi-Class Funds, shares of FSC Funds and shares of Morgan Stanley
Dean Witter Funds for which such shares have been exchanged, will be included
together with the current investment amount. If a shareholder redeems Class A
shares and purchases Class D shares, such redemption may be a taxable event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act with respect to the distribution of Class A, Class B and Class C shares
of the Fund. In the case of Class A and Class C shares, the Plan provides that
the Fund will reimburse the Distributor and others for the expenses of certain
activities and services incurred by them specifically on behalf of those
shares. Reimbursements for these expenses will be made in monthly payments by
the Fund to the Distributor, which will in no event exceed amounts equal to
payments at the annual rates of 0.25% and 1.0% of the average daily net assets
of Class A and Class C, respectively. In the case of Class B shares, the Plan
provides that the Fund will pay the Distributor a fee, which is accrued daily
and paid monthly, at the annual rate of 1.0% of the lesser of: (a) the average
daily aggregate gross sales of the Fund's Class B shares since the inception of
the Fund (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
Class B shares redeemed since the Fund's inception upon which a CDSC has been
imposed or waived, or (b) the average daily net assets of Class B. The fee is
treated by the Fund as an expense in the year it is accrued. In the case of
Class A shares, the entire amount of the fee currently represents a service fee
within the meaning of the NASD guidelines. In the case of Class B and Class C
shares, a portion of the fee payable pursuant to the Plan, equal to 0.25% of
the average daily net assets of each of these Classes, is currently
characterized as a service fee. A service fee is a payment made for personal
service and/or the maintenance of shareholder accounts.
Additional amounts paid under the Plan in the case of Class B and Class
C shares are paid to the Distributor for services provided and the expenses
borne by the Distributor and others in the distribution of the shares of those
Classes, including the payment of commissions for sales of the shares of those
Classes and incentive compensation to and expenses of Morgan Stanley Dean
Witter Financial Advisors and others who engage in or support distribution of
shares or who service shareholder accounts, including overhead and telephone
expenses; printing and distribution of prospectuses and reports used in
connection with the offering of the Fund's shares to other than current
shareholders; and preparation, printing and distribution of sales literature
and advertising materials. In addition, the Distributor may utilize fees paid
pursuant to the Plan in the case of Class B shares to compensate DWR and other
Selected Broker-Dealers for their opportunity costs in advancing such amounts,
which compensation would be in the form of a carrying charge on any
unreimbursed expenses.
For the fiscal year ended March 31, 1998, Class B shares of the Fund
accrued payments under the Plan amounting to $5,417,766, which amount is equal
to 0.66% of the average daily net assets of Class B for the fiscal year. These
payments were calculated pursuant to clause (a) of the compensation formula
under the Plan. For the fiscal period July 28, 1997 through March 31, 1998,
Class A and Class C shares of the Fund accrued payments under the Plan
amounting to $128 and $1,284, respectively, which amounts on an annualized
basis are equal to 0.23% and 1.00% of the average daily net assets of Class A
and Class C, respectively, for such period.
26
<PAGE>
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Fund may be in excess of the total of (i)
the payments made by the Fund pursuant to the Plan, and (ii) the proceeds of
CDSCs paid by investors upon the redemption of Class B shares (see "Redemptions
and Repurchases--Contingent Deferred Sales Charge"). For example, if $1 million
in expenses in distributing Class B shares of the Fund had been incurred and
$750,000 had been received as described in (i) and (ii) above, the excess
expense would amount to $250,000. The Distributor has advised the Fund that
such excess amounts, including the carrying charge described above, totalled
$18,878,312 at March 31, 1998, which was equal to 2.11% of the net assets of
Class B on such date. Because there is no requirement under the Plan that the
Distributor be reimbursed for all distribution expenses or any requirement that
the Plan be continued from year to year, such excess amount does not constitute
a liability of the Fund. Although there is no legal obligation for the Fund to
pay expenses incurred in excess of payments made to the Distributor under the
Plan, and the proceeds of CDSCs paid by investors upon redemption of shares, if
for any reason the Plan is terminated the Trustees will consider at that time
the manner in which to treat such expenses. Any cumulative expenses incurred,
but not yet recovered through distribution fees or CDSCs, may or may not be
recovered through future distribution fees or CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales commission credited to Morgan Stanley Dean Witter Financial
Advisors or other Selected Broker-Dealer representatives at the time of sale
may be reimbursed in the subsequent calendar year. The Distributor has advised
the Fund that unreimbursed expenses representing a gross sales commission
credited to Morgan Stanley Dean Witter Financial Advisors and other Selected
Broker-Dealer representatives at the time of sale totalled $2,287 in the case
of Class C at December 31, 1997, which was equal to 1.27% of the net assets of
Class C on such date, and that there were no such expenses which may be
reimbursed in the subsequent year in the case of Class A on such date.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily at 4:00 p.m., New
York time (or, on days when the New York Stock Exchange closes prior to 4:00
p.m., at such earlier time), on each day that the New York Stock Exchange is
open by taking the net assets of the Fund, dividing by the number of shares
outstanding and adjusting to the nearest cent. The assets belonging to the
Class A, Class B, Class C and Class D shares will be invested together in a
single portfolio. The net asset value of each Class, however, will be
determined separately by subtracting each Class's accrued expenses and
liabilities. The net asset value per share will not be determined on Good
Friday and on such other federal and non-federal holidays as are observed by
the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity
portfolio security listed or traded on the New York or American Stock Exchange
or other stock exchange is valued at its latest sale price on that exchange; 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 or
Sub-Advisor 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 Board of Trustees.
27
<PAGE>
Short-term debt securities with remaining maturities of 60 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. Other short-term debt securities will be valued on a mark-to-market
basis until such time as they reach a remaining maturity of 60 days, whereupon
they will be valued at amortized cost using their value on the 61st day 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. All other securities and other assets are valued at their fair
value as determined in good faith under procedures established by and under the
supervision of the Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon as
the evaluation model parameters, and/or research evaluations by its staff,
including review of broker-dealer market price quotations, in determining what
it believes is the fair valuation of the portfolio securities valued by such
pricing service.
SHAREHOLDER SERVICES
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Automatic Investment of Dividends and Distributions. All income
dividends and capital gains distributions are automatically paid in full and
fractional shares of the applicable Class of the Fund (or, if specified by the
shareholder, in shares of any other open-end Morgan Stanley Dean Witter Fund),
unless the shareholder requests that they be paid in cash. Shares so acquired
are acquired at net asset value and are not subject to the imposition of a
front-end sales charge or a CDSC (see "Repurchases and Redemptions").
Investment of Dividends or Distributions Received in Cash. Any
shareholder who receives a cash payment representing a dividend or capital
gains distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value per share next determined after receipt
by the Transfer Agent, by returning the check or the proceeds to the Transfer
Agent within 30 days after the payment date. Shares so acquired are acquired at
net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Redemptions and Repurchases").
EasyInvest SM. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of shares of a Morgan Stanley Dean Witter money market fund, on a
semi-monthly, monthly or quarterly basis, to the Fund's Transfer Agent for
investment in shares of the Fund (see "Purchase of Fund Shares" and
"Redemptions and Repurchases--Involuntary Redemption").
Systematic Withdrawal Plan. A systematic withdrawal plan (the
"Withdrawal Plan") is available for shareholders who own or purchase shares of
the Fund having a minimum value of $10,000 based upon the then current net
asset value. The Withdrawal Plan provides for monthly or quarterly (March,
June, September and December) checks in any dollar amount, not less than $25,
or in any whole percentage of the account balance, on an annualized basis. Any
applicable CDSC will be imposed on shares redeemed under the Withdrawal Plan
(see "Purchase of Fund Shares"). Therefore, any shareholder participating in
the Withdrawal Plan will have sufficient shares redeemed from his or her
account so that the proceeds (net of any applicable CDSC) to the shareholder
will be the designated monthly or quarterly amount. Withdrawal plan payments
should not be considered as dividends, yields or income. If periodic withdrawal
plan payments continuously exceed net investment income and net capital gains,
the shareholder's original investment will be correspondingly reduced and
ultimately exhausted. Each withdrawal constitutes a redemption of shares and
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any gain or loss realized must be recognized for federal income tax purposes.
Shareholders should contact their Morgan Stanley Dean Witter Financial
Advisor or other Selected Broker-Dealer representative or the Transfer Agent
for information about any of the above services.
Tax Sheltered Retirement Plans. Retirement plans are available for use
by corporations, the self-employed, Individual Retirement Accounts and
Custodial Accounts under Section 403(b)(7) of the Internal Revenue Code.
Adoption of such plans should be on advice of legal counsel or tax advisor.
For further information regarding plan administration, custodial fees
and other details, investors should contact their Morgan Stanley Dean Witter
Financial Advisor or other Selected Broker-Dealer representative or the
Transfer Agent.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of
any other Morgan Stanley Dean Witter Multi-Class Fund without the imposition of
any exchange fee. Shares may also be exchanged for shares of the following
funds: Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust, Morgan
Stanley Dean Witter Limited Term Municipal Trust, Morgan Stanley Dean Witter
Short-Term Bond Fund and five Morgan Stanley Dean Witter funds which are money
market funds (the "Exchange Funds"). Class A shares may also be exchanged for
shares of Morgan Stanley Dean Witter Multi-State Municipal Series Trust and
Morgan Stanley Dean Witter Hawaii Municipal Trust, which are Morgan Stanley
Dean Witter Funds sold with a front-end sales charge ("FSC Funds"). Class B
shares may also be exchanged for shares of Morgan Stanley Dean Witter Global
Short-Term Income Fund Inc. ("Global Short-Term") which is a Morgan Stanley
Dean Witter Fund offered with a CDSC. Exchanges may be made after the shares of
the Fund acquired by purchase (not by exchange or dividend reinvestment) have
been held for thirty days. There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment.
An exchange to another Morgan Stanley Dean Witter Multi-Class Fund, any
FSC Fund, Global Short-Term or any Exchange Fund that is not a money market
fund is on the basis of the next calculated net asset value per share of each
fund after the exchange order is received. When exchanging into a money market
fund from the Fund, shares of the Fund are redeemed out of the Fund at their
next calculated net asset value and the proceeds of the redemption are used to
purchase shares of the money market fund at their net asset value determined
the following business day. Subsequent exchanges between any of the money
market funds and any of the Morgan Stanley Dean Witter Multi-Class Funds, FSC
Funds, Global Short-Term or any Exchange Fund that is not a money market fund
can be effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period of
time the shareholder remains in an Exchange Fund (calculated from the last day
of the month in which the Exchange Fund shares were acquired), the holding
period (for the purpose of determining the rate of the CDSC) is frozen. If
those shares are subsequently re-exchanged for shares of a Morgan Stanley Dean
Witter Multi-Class Fund or shares of Global Short-Term, the holding period
previously frozen when the first exchange was made resumes on the last day of
the month in which shares of a Morgan Stanley Dean Witter Multi-Class Fund or
shares of Global Short-Term are reacquired. Thus, the CDSC is based upon the
time (calculated as described above) the shareholder was invested in shares of
a Morgan Stanley Dean Witter Multi-Class Fund or in shares of Global Short-Term
(see "Purchase of Fund Shares"). In the case of exchanges of Class A shares
which are subject to a CDSC, the holding period also includes the time
(calculated as described above) the shareholder was invested in shares of a FSC
Fund. In the case of shares exchanged into an Exchange Fund on or after April
23, 1990, upon a redemption of shares which results in a CDSC being imposed, a
credit (not to exceed the amount of the CDSC) will
29
<PAGE>
be given in an amount equal to the Exchange Fund 12b-1 distribution fees which
are attributable to those shares. (Exchange Fund 12b-1 distribution fees are
described in the prospectuses for those funds.) Class B shares of the Fund
acquired in exchange for shares of Global Short-Term or Class B shares of
another Morgan Stanley Dean Witter Multi-Class Fund having a different CDSC
schedule than that of this Fund will be subject to the higher CDSC schedule,
even if such shares are subsequently re-exchanged for shares of the fund with
the lower CDSC schedule.
Additional Information Regarding Exchanges. Purchases and exchanges
should be made for investment purposes only. A pattern of frequent exchanges
may be deemed by the Investment Manager to be abusive and contrary to the best
interests of the Fund's other shareholders and, at the Investment Manager's
discretion, may be limited by the Fund's refusal to accept additional purchases
and/or exchanges from the investor. Although the Fund does not have any
specific definition of what constitutes a pattern of frequent exchanges, and
will consider all relevant factors in determining whether a particular
situation is abusive and contrary to the best interests of the Fund and its
other shareholders, investors should be aware that the Fund and each of the
other Morgan Stanley Dean Witter Funds may in their discretion limit or
otherwise restrict the number of times this Exchange Privilege may be exercised
by any investor. Any such restriction will be made by the Fund on a prospective
basis only, upon notice to the shareholder not later than ten days following
such shareholder's most recent exchange. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of such Morgan Stanley
Dean Witter Funds for which shares of the Fund have been exchanged, upon such
notice as may be required by applicable regulatory agencies. Shareholders
maintaining margin accounts with DWR or another Selected Broker-Dealer are
referred to their Morgan Stanley Dean Witter Financial Advisor or other
Selected Broker-Dealer representative regarding restrictions on exchange of
shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment
objective(s) and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement of each Class of shares and any other conditions imposed by each
fund. In the case of a shareholder holding a share certificate or certificates,
no exchanges may be made until all appplicable share certificates have been
received by the Transfer Agent and deposited in the shareholder's account. An
exchange will be treated for federal income tax purposes the same as a
repurchase or redemption of shares, on which the shareholder may realize a
capital gain or loss. However, the ability to deduct capital losses on an
exchange may be limited in situations where there is an exchange of shares
within ninety days after the shares are purchased. The Exchange Privilege is
only available in states where an exchange may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record
and its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Morgan
Stanley Dean Witter Funds (for which the Exchange Privilege is available)
pursuant to this Exchange Privilege by contacting their Morgan Stanley Dean
Witter Financial Advisor or other Selected Broker-Dealer representative (no
Exchange Privilege Authorization Form is required). Other shareholders (and
those shareholders who are clients of DWR or another Selected Broker-Dealer but
who wish to make exchanges directly by writing or telephoning the Transfer
Agent) must complete and forward to the Transfer Agent an Exchange Privilege
Authorization Form, copies of which may be obtained from the Transfer Agent, to
initiate an exchange. If the Authorization Form is used, exchanges may be made
in writing or by contacting the Transfer Agent at (800) 869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal
30
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identification such as name, mailing address, social security or other tax
identification number and DWR or other Selected Broker-Dealer account number
(if any). Telephone instructions may also be recorded. If such procedures are
not employed, the Fund may be liable for any losses due to unauthorized or
fraudulent instructions.
Telephone exchange instructions will be accepted if received by the
Transfer Agent between 9:00 a.m. and 4:00 p.m. New York time, on any day the
New York Stock Exchange is open. Any shareholder wishing to make an exchange
who has previously filed an Exchange Privilege Authorization Form and who is
unable to reach the Fund by telephone should contact his or her Morgan Stanley
Dean Witter Financial Advisor or other Selected Broker-Dealer representative,
if appropriate, or make a written exchange request. Shareholders are advised
that during periods of drastic economic or market changes, it is possible that
the telephone exchange procedures may be difficult to implement, although this
has not been the case with the Morgan Stanley Dean Witter Funds in the past.
Shareholders should contact their Morgan Stanley Dean Witter Financial
Advisor or other Selected Broker-Dealer representative or the Transfer Agent
for further information about the Exchange Privilege.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
Redemption. Shares of each Class of the Fund can be redeemed for cash at
any time at the net asset value per share next determined less the amount of
any applicable CDSC in the case of Class A, Class B or Class C shares (see
"Purchase of Fund Shares"). If shares are held in a shareholder's account
without a share certificate, a written request for redemption to the Fund's
Transfer Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If
certificates are held by the shareholder, the shares may be redeemed by
surrendering the certificates with a written request for redemption, along with
any additional information required by the Transfer Agent.
Repurchase. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to
any of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic or telegraphic request of the shareholder. The repurchase
price is the net asset value next computed (see "Purchase of Fund Shares")
after such repurchase order is received by DWR or other Selected Broker-Dealer,
reduced by any applicable CDSC.
The CDSC, if any, will be the only fee imposed by the Fund or the
Distributor. The offer by DWR and other Selected Broker-Dealers to repurchase
shares may be suspended without notice by them at any time. In that event,
shareholders may redeem their shares through the Fund's Transfer Agent as set
forth above under "Redemption."
Payment for Shares Redeemed or Repurchased. Payment for shares
presented for repurchase or redemption will be made by check within seven days
after receipt by the Transfer Agent of the certificate and/or written request
in good order. Such payment may be postponed or the right of redemption
suspended under unusual circumstances e.g., when normal trading is not taking
place on the New York Stock Exchange. If the shares to be redeemed have
recently been purchased by check, payment of the redemption proceeds may be
delayed for the minimum time needed to verify that the check used for
investment has been honored (not more than fifteen days from the time of
receipt of the check by the Transfer Agent). Shareholders maintaining margin
accounts with DWR or another Selected Broker-Dealer are referred to their
Morgan Stanley Dean Witter Financial Advisor or other Selected Broker-Dealer
representative regarding restrictions on redemption of shares of the Fund
pledged in the margin account.
Reinstatement Privilege. A shareholder who has had his or her shares
repurchased or redeemed
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and has not previously exercised this reinstatement privilege may, within 35
days after the date of the repurchase or redemption, reinstate any portion or
all of the proceeds of such redemption or repurchase in shares of the Fund in
the same Class from which such shares were redeemed or repurchased, at their
net asset value next determined after a reinstatement request, together with
the proceeds, is received by the Transfer Agent and receive a pro rata credit
for any CDSC paid in connection with such redemption or repurchase.
Involuntary Redemption. The Fund reserves the right, on sixty days'
notice, to redeem, at their net asset value, the shares of any shareholder
(other than shares held in an Individual Retirement Account or custodial
account under Section 403(b)(7) of the Internal Revenue Code) whose shares due
to redemptions by the shareholder have a value of less than $100 or such lesser
amount as may be fixed by the Trustees or, in the case of an account opened
through EasyInvestSM, if after twelve months the shareholder has invested less
than $1,000 in the account. However, before the Fund redeems such shares and
sends the proceeds to the shareholder, it will notify the shareholder that the
value of the shares is less than the applicable amount and allow him or her
sixty days to make an additional investment in an amount which will increase
the value of his or her account to at least the applicable amount before the
redemption is processed. No CDSC will be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
Dividends and Distributions. The Fund declares dividends for each Class
of shares separately and intends to pay dividends and to distribute
substantially all of the Fund's net investment income and net short-term and
long-term capital gains, if any, at least once each year. The Fund may,
however, determine either to distribute or to retain all or part of any net
long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in
additional shares of the same Class and automatically credited to the
shareholder's account without issuance of a share certificate unless the
shareholder requests in writing that all dividends and/or distributions be paid
in cash. Shares acquired by dividend and distribution reinvestments will not be
subject to any front-end sales charge or CDSC. Class B shares acquired through
dividend and distribution reinvestments will become eligible for conversion to
Class A shares on a pro rata basis. Distributions paid on Class A and Class D
shares will be higher than for Class B and Class C shares because distribution
fees paid by Class B and Class C shares are higher. (See "Shareholder
Services--Automatic Investment of Dividends and Distributions.")
Taxes. Because the Fund intends to distribute all of its net investment
income and capital gains to shareholders and otherwise continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code,
it is not expected that the Fund will be required to pay any federal income
tax. Shareholders who are required to pay taxes on their income will normally
have to pay federal income taxes, and any state income taxes, on the dividends
and distributions they receive from the Fund. Such dividends and distributions,
to the extent that they are derived from net investment income or short-term
capital gains, are taxable to the shareholder as ordinary income regardless of
whether the shareholder receives such payments in additional shares or in cash.
Any dividends declared with a record date in the last quarter of any calendar
year which are paid in the following year prior to February 1 will be deemed,
for tax purposes, to have been received by the shareholder in the prior year.
Dividend payments will be eligible for the federal dividends received deduction
available to the Fund's corporate shareholders only to the extent the aggregate
dividends received by the Fund would be eligible for the deduction if the Fund
were the
32
<PAGE>
shareholder claiming the dividends received deduction. In this regard, a 46-day
holding period generally must be met.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. Capital gains distributions are not
eligible for the dividends received deduction.
The Fund may at times make payments from sources other than income or
net capital gains. Payments from such sources will, in effect, represent a
return of a portion of each shareholder's investment. All, or a portion, of
such payments will not be taxable to shareholders.
After the end of the year, shareholders will be sent full information on
their dividends and capital gains distributions for tax purposes. Shareholders
will also be notified of their proportionate share of long-term capital gains
distributions that are eligible for a reduced rate of tax under the Taxpayer
Relief Act of 1997. To avoid being subject to a 31% federal backup withholding
tax on taxable dividends, capital gains distributions and the proceeds of
redemptions and repurchases, shareholders' taxpayer identification numbers must
be furnished and certified as to their accuracy.
Shareholders should consult their tax advisors as to the applicability
of the foregoing to their current situation.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "total return" in
advertisements and sales literature. These figures are computed separately for
Class A, Class B, Class C and Class D shares. The total return of the Fund is
based on historical earnings and is not intended to indicate future
performance. The "average annual total return" of the Fund refers to a figure
reflecting the average annualized percentage increase (or decrease) in the
value of an initial investment in a Class of the Fund of $1,000 over periods of
one, five and ten years, as well as over the life of the Fund if less than any
of the foregoing. Average annual total return reflects all income earned by the
Fund, any appreciation or depreciation of the Fund's assets, all expenses
incurred by the applicable Class and all sales charges which would be incurred
by shareholders, for the stated periods. It also assumes reinvestment of all
dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return
for each Class over different periods of time by means of aggregate, average,
and year-by-year or other types of total return figures. Such calculations may
or may not reflect the deduction of any sales charge which, if reflected, would
reduce the performance quoted. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in each Class of
shares of the Fund. The Fund from time to time may also advertise its
performance relative to certain performance rankings and indexes compiled by
independent organizations (such as mutual fund performance rankings of Lipper
Analytical Services, Inc.).
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Voting Rights. All shares of beneficial interest of the Fund are of
$0.01 par value and are equal as to earnings, assets and voting privileges
except that each Class will have exclusive voting privileges with respect to
matters relating to distribution expenses borne solely by such Class or any
other matter in which the interests of one Class differ from the interests of
any other Class. In addition, Class B
33
<PAGE>
shareholders will have the right to vote on any proposed material increase in
Class A's expenses, if such proposal is submitted separately to Class A
shareholders. Also, as discussed herein, Class A, Class B and Class C bear the
expenses related to the distribution of their respective shares.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances, the Trustees may be removed by action of the Trustees or by the
shareholders.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for obligations of
the Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that Fund
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitation on shareholder personal liability, and
the nature of the Fund's assets and operations, the possibility of the Fund
being unable to meet its obligations is remote and thus, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
Code of Ethics. Directors, officers and employees of MSDW Advisors, MSDW
Services and MSDW Distributors are subject to a strict Code of Ethics adopted
by those companies. The Code of Ethics is intended to ensure that the interests
of shareholders and other clients are placed ahead of any personal interest,
that no undue personal benefit is obtained from a person's employment
activities and that actual and potential conflicts of interest are avoided. To
achieve these goals and comply with regulatory requirements, the Code of Ethics
requires, among other things, that personal securities transactions by
employees of the companies be subject to an advance clearance process to
monitor that no Morgan Stanley Dean Witter Fund is engaged at the same time in
a purchase or sale of the same security. The Code of Ethics bans the purchase
of securities in an initial public offering, and also prohibits engaging in
futures and options transactions and profiting on short-term trading (that is,
a purchase within sixty days of a sale or a sale within sixty days of a
purchase) of a security. In addition, investment personnel may not purchase or
sell a security for their personal account within thirty days before or after
any transaction in any Morgan Stanley Dean Witter Fund managed by them. Any
violations of the Code of Ethics are subject to sanctions, including reprimand,
demotion or suspension or termination of employment. The Code of Ethics
comports with regulatory requirements and the recommendations in the 1994
report by the Investment Company Institute Advisory Group on Personal
Investing.
The Fund's Sub-Advisor also has a code of ethics which complies with
regulatory requirements and, insofar as it relates to persons associated with
the Fund, the 1994 report by the Investment Company Institute Advisory Group on
Personal Investing.
Shareholder Inquiries. All inquiries regarding the Fund should be
directed to the Fund at the telephone numbers or address set forth on the front
cover of this Prospectus.
34
<PAGE>
Morgan Stanley Dean Witter
Growth Fund
Two World Trade Center
New York, New York 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and
General Counsel
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
SUB-ADVISOR
Morgan Stanley Asset Management Inc.
MORGAN STANLEY
DEAN WITTER
GROWTH FUND
PROSPECTUS
JULY 29, 1998
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION MORGAN STANLEY DEAN WITTER
JULY 29, 1998 GROWTH FUND
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter Growth Fund (the "Fund") is an open-end
management investment company, whose investment objective is long-term growth
of capital. The Fund seeks to achieve its investment objective by investing
primarily in common stocks and securities convertible into common stocks. See
"Investment Objective and Policies."
A Prospectus for the Fund dated July 29, 1998, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address or telephone number listed below or
from the Fund's Distributor, Morgan Stanley Dean Witter Distributors Inc., or
from Dean Witter Reynolds Inc. at any of its branch offices. This Statement of
Additional Information is not a Prospectus. It contains information in addition
to and more detailed than that set forth in the Prospectus. It is intended to
provide additional information regarding the activities and operations of the
Fund, and should be read in conjunction with the Prospectus.
Morgan Stanley Dean Witter Growth Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
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The Fund and its Management .............................................. 3
Trustees and Officers .................................................... 9
Investment Practices and Policies ........................................ 15
Investment Restrictions .................................................. 18
Portfolio Transactions and Brokerage ..................................... 19
The Distributor .......................................................... 21
Purchase of Fund Shares .................................................. 26
Shareholder Services ..................................................... 28
Repurchases and Redemptions .............................................. 33
Dividends, Distributions and Taxes ....................................... 34
Performance Information .................................................. 35
Description of Shares .................................................... 36
Custodian and Transfer Agent ............................................. 37
Independent Accountants .................................................. 37
Reports to Shareholders .................................................. 37
Legal Counsel ............................................................ 37
Experts .................................................................. 37
Registration Statement ................................................... 37
Financial Statements--March 31, 1998 ..................................... 38
Report of Independent Accountants ........................................ 51
Appendix--Ratings of Corporate Debt Instruments .......................... 53
2
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THE FUND AND ITS MANAGEMENT
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THE FUND
The Fund is a trust of the type commonly known as a "Massachusetts
business trust" and was organized under the name "TCW/DW Core Equity Trust"
under the laws of the Commonwealth of Massachusetts on January 31, 1992. On
November 6, 1997, the Trustees of the Fund adopted an Amendment to the
Declaration of Trust of the Fund changing the name of the Fund to Morgan
Stanley Dean Witter Growth Fund.
THE INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc. (the "Investment Manager" or
"MSDW Advisors"), a Delaware corporation, whose address is Two World Trade
Center, New York, New York 10048, is the Fund's investment manager. MSDW
Advisors is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co.
("MSDW"), a Delaware corporation. The daily management of the Fund and research
relating to the Fund's portfolio are conducted by or under the direction of
officers of the Fund and of the Investment Manager and Sub-Advisor, subject to
review by the Fund's Trustees. Information as to these Trustees and officers is
contained under the caption "Trustees and Officers."
MSDW Advisors is the investment manager or investment advisor of the
following investment companies, which are collectively referred to as the
"Morgan Stanley Dean Witter Funds":
OPEN-END FUNDS
1 Active Assets California Tax-Free Trust
2 Active Assets Government Securities Trust
3 Active Assets Money Trust
4 Active Assets Tax-Free Trust
5 Morgan Stanley Dean Witter American Value Fund
6 Morgan Stanley Dean Witter Balanced Growth Fund
7 Morgan Stanley Dean Witter Balanced Income Fund
8 Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
9 Morgan Stanley Dean Witter California Tax-Free Income Fund
10 Morgan Stanley Dean Witter Capital Appreciation Fund
11 Morgan Stanley Dean Witter Capital Growth Securities
12 Morgan Stanley Dean Witter Competitive Edge Fund, "Best Ideas" Portfolio
13 Morgan Stanley Dean Witter Convertible Securities Trust
14 Morgan Stanley Dean Witter Developing Growth Securities Trust
15 Morgan Stanley Dean Witter Diversified Income Trust
16 Morgan Stanley Dean Witter Dividend Growth Securities Inc.
17 Morgan Stanley Dean Witter Equity Fund
18 Morgan Stanley Dean Witter European Growth Fund Inc.
19 Morgan Stanley Dean Witter Federal Securities Trust
20 Morgan Stanley Dean Witter Financial Services Trust
21 Morgan Stanley Dean Witter Fund of Funds
22 Dean Witter Global Asset Allocation Fund
23 Morgan Stanley Dean Witter Global Dividend Growth Securities
24 Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
25 Morgan Stanley Dean Witter Global Utilities Fund
26 Morgan Stanley Dean Witter Growth Fund
3
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27 Morgan Stanley Dean Witter Hawaii Municipal Trust
28 Morgan Stanley Dean Witter Health Sciences Trust
29 Morgan Stanley Dean Witter High Yield Securities Inc.
30 Morgan Stanley Dean Witter Income Builder Fund
31 Morgan Stanley Dean Witter Information Fund
32 Morgan Stanley Dean Witter Intermediate Income Securities
33 Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
34 Morgan Stanley Dean Witter International SmallCap Fund
35 Morgan Stanley Dean Witter Japan Fund
36 Morgan Stanley Dean Witter Limited Term Municipal Trust
37 Morgan Stanley Dean Witter Liquid Asset Fund Inc.
38 Morgan Stanley Dean Witter Market Leader Trust
39 Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
40 Morgan Stanley Dean Witter Mid-Cap Growth Fund
41 Morgan Stanley Dean Witter Multi-State Municipal Series Trust
42 Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
43 Morgan Stanley Dean Witter New York Municipal Money Market Trust
44 Morgan Stanley Dean Witter New York Tax-Free Income Fund
45 Morgan Stanley Dean Witter Pacific Growth Fund Inc.
46 Morgan Stanley Dean Witter Precious Metals and Minerals Trust
47 Dean Witter Retirement Series
48 Morgan Stanley Dean Witter Select Dimensions Investment Series
49 Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
50 Morgan Stanley Dean Witter Short-Term Bond Fund
51 Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
52 Morgan Stanley Dean Witter Special Value Fund
53 Morgan Stanley Dean Witter S&P 500 Index Fund
54 Morgan Stanley Dean Witter Strategist Fund
55 Morgan Stanley Dean Witter Tax-Exempt Securities Trust
56 Morgan Stanley Dean Witter Tax-Free Daily Income Trust
57 Morgan Stanley Dean Witter U.S. Government Money Market Trust
58 Morgan Stanley Dean Witter U.S. Government Securities Trust
59 Morgan Stanley Dean Witter Utilities Fund
60 Morgan Stanley Dean Witter Value-Added Market Series
61 Morgan Stanley Dean Witter Variable Investment Series
62 Morgan Stanley Dean Witter World Wide Income Trust
CLOSED-END FUNDS
1 InterCapital California Insured Municipal Income Trust
2 InterCapital California Quality Municipal Securities
3 Dean Witter Government Income Trust
4 High Income Advantage Trust
5 High Income Advantage Trust II
6 High Income Advantage Trust III
7 InterCapital Income Securities Inc.
8 InterCapital Insured California Municipal Securities
4
<PAGE>
9 InterCapital Insured Municipal Bond Trust
10 InterCapital Insured Municipal Income Trust
11 InterCapital Insured Municipal Securities
12 InterCapital Insured Municipal Trust
13 Municipal Income Opportunities Trust
14 Municipal Income Opportunities Trust II
15 Municipal Income Opportunities Trust III
16 Municipal Income Trust
17 Municipal Income Trust II
18 Municipal Income Trust III
19 Municipal Premium Income Trust
20 InterCapital New York Quality Municipal Securities
21 Morgan Stanley Dean Witter Prime Income Trust
22 InterCapital Quality Municipal Income Trust
23 InterCapital Quality Municipal Investment Trust
24 InterCapital Quality Municipal Securities
In addition, Morgan Stanley Dean Witter Services Company Inc. ("MSDW
Services"), a wholly-owned subsidiary of MSDW Advisors, serves as manager for
the following investment companies for which TCW Funds Management, Inc. is the
investment advisor (the "TCW/DW Funds"):
OPEN-END FUNDS
1 TCW/DW Emerging Markets Opportunities Trust
2 TCW/DW Global Telecom Trust
3 TCW/DW Income and Growth Fund
4 TCW/DW Latin American Growth Fund
5 TCW/DW Mid-Cap Equity Trust
6 TCW/DW North American Government Income Trust
7 TCW/DW Small Cap Growth Fund
8 TCW/DW Total Return Trust
CLOSED-END FUNDS
1 TCW/DW Term Trust 2000
2 TCW/DW Term Trust 2002
3 TCW/DW Term Trust 2003
MSDW Advisors also serves as: (i) administrator of The BlackRock Strategic
Term Trust Inc., a closed-end investment company; (ii) sub-administrator of
Templeton Global Governments Income Trust, a closed-end investment company; and
(iii) investment advisor of Offshore Dividend Growth Fund and Offshore Money
Market Fund, mutual funds established under the laws of the Cayman Islands and
available only to investors who are participants in the International Active
Assets Account program and are neither citizens nor residents of the United
States.
Pursuant to an investment management agreement (the "Management
Agreement") with the Investment Manager, the Fund has retained the Investment
Manager to manage its business affairs and to supervise the investment of the
Fund's assets. The Investment Manager, in conjunction with Morgan Stanley Asset
Management Inc. (the "Sub-Advisor") and through its own portfolio management
staff, obtains and evaluates such information and advice relating to the
economy, securities markets, and specific securities as it considers necessary
or useful to continuously manage the assets of the Fund in a manner consistent
with its investment objective.
5
<PAGE>
Under the terms of the Management Agreement, the Investment Manager
maintains certain of the Fund's books and records and furnishes, at its own
expense, such office space, facilities, equipment, clerical help and
bookkeeping and certain legal services as the Fund may reasonably require in
the conduct of its business, including the preparation of prospectuses,
statements of additional information, proxy statements and reports required to
be filed with federal and state securities commissions (except insofar as the
participation or assistance of independent accountants and attorneys is, in the
opinion of the Investment Manager, necessary or desirable). In addition, the
Investment Manager pays the salaries of all personnel, including officers of
the Fund, who are employees of the Investment Manager. The Investment Manager
also bears the cost of telephone service, heat, light, power and other
utilities provided to the Fund. The Investment Manager has retained MSDW
Services to perform its administrative services under the Agreement.
Expenses not expressly assumed by the Investment Manager under the
Management Agreement, by the Sub-Advisor pursuant to the Sub-Advisory Agreement
(see below) or by the distributor of the Fund's shares, Morgan Stanley Dean
Witter Distributors Inc. ("MSDW Distributors" or the "Distributor") (see "The
Distributor") will be paid by the Fund. These expenses will be allocated among
the four classes of shares of the Fund (each, a "Class") pro rata based on the
net assets of the Fund attributable to each Class, except as described below.
Such expenses include, but are not limited to: expenses of the Plan of
Distribution pursuant to Rule 12b-1 (the "12b-1 fee") (see "The Distributor");
charges and expenses of any registrar, custodian, stock transfer and dividend
disbursing agent; brokerage commissions; taxes; engraving and printing of 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 and Statements of Additional Information 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 Sub-Advisor or any corporate affiliate of the
Investment Manager or Sub-Advisor; 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 or Sub-Advisor (not including compensation or
expenses of attorneys who are employees of the Investment Manager) and
independent accountants; membership dues of industry associations; interest on
the Fund's 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
(depending upon the nature of the legal claim, liability or lawsuit) and all
other costs of the Fund's operations properly payable by the Fund. 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
obligation 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 in no
way restricts the Investment Manager from acting as investment manager or
adviser to others.
Pursuant to a sub-advisory agreement between the Investment Manager and
Sub-Advisor (the "Sub-Advisory Agreement"), the Sub-Advisor has been retained,
subject to the overall supervision of the Investment Manager and the Trustees
of the Fund, to continuously furnish investment advice concerning individual
security selections, asset allocations and overall economic trends with respect
to issuers and to manage the Fund's portfolio.
Morgan Stanley Asset Management Inc. ("MSAM"), like MSDW, a subsidiary of
Morgan Stanley Dean Witter & Co. whose address is 1221 Avenue of the Americas,
New York, New York 10020, became the Fund's Sub-Advisor effective March 2,
1998. MSAM, together with its affiliated asset management
6
<PAGE>
companies, conducts a worldwide portfolio management business and provides a
broad range of portfolio management services to customers in the United States
and abroad. As of June 30, 1998 MSAM, together with its affiliated
institutional asset management companies, had approximately $169 billion in
assets under management as an investment manager or as a fiduciary adviser.
MSAM has been managing international securities since 1986.
Prior to March, 1998, the Fund was managed by Morgan Stanley Dean Witter
Services Company Inc. (the "Former Manager") pursuant to a management agreement
between the Fund and the Former Manager (the "Former Management Agreement") and
was advised by TCW Funds Management, Inc. (the "Former Advisor") pursuant to an
advisory agreement between the Fund and the Former Advisor (the "Former
Advisory Agreement"). The Former Advisor had informed the Board of Trustees of
the Fund that it planned to resign as investment advisor to the Fund and on
November 6, 1997, the Board of Trustees recommended that the Investment
Management Agreement between the Fund and MSDW Advisors (at that time named
"Dean Witter InterCapital Inc.") be submitted to shareholders for approval. At
the same meeting the Trustees also recommended that shareholders approve the
Sub-Advisory Agreement between MSDW Advisors and MSAM described above. The
shareholders approved the Investment Management Agreement and the Sub-Advisory
Agreement (together referred to herein as the "Agreements") on February 26,
1998 and the Agreements became effective on March 2, 1998.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated by applying the annual
rate of 0.80% of the Fund's net assets up to $750 million; 0.75% of the portion
of daily net assets exceeding $750 million but not exceeding $1.5 billion; and
0.70% of the portion of daily net assets exceeding $1.5 billion. The management
fee is allocated among the Classes pro rata based on the net assets of the Fund
attributable to each Class. As compensation for its services provided pursuant
to the Sub-Advisory Agreement, the Investment Manager pays the Sub-Advisor
compensation equal to 40% of its monthly compensation. The fee rate under the
Investment Management Agreement is 0.05% lower than the total aggregate fee
rate previously in effect under the Former Management Agreement and the Former
Advisory Agreement combined (the Former Manager was entitled to receive 0.51%
of the portion of daily net assets not exceeding $750 million; 0.48% of the
portion of daily net assets exceeding $750 million but not exceeding $1.5
billion; and 0.45% of the portion of daily net assets exceeding $1.5 billion;
the Former Advisor was entitled to receive 0.34% of the portion of daily net
assets not exceeding $750 million; 0.32% of the portion of daily net assets
exceeding $750 million but not exceeding $1.5 billion; and 0.30% of the portion
of daily net assets exceeding $1.5 billion). Total compensation accrued to the
Former Manager for the fiscal years ended March 31, 1996 and 1997 and for the
period April 1, 1997 through March 1, 1998 amounted to $3,854,301, $3,918,537
and $3,826,969, respectively. Total compensation accrued to the Former Advisor
for the fiscal years ended March 31, 1996 and 1997 and for the period April 1,
1997 through March 1, 1998 amounted to $2,569,533, $2,612,358 and $2,551,313,
respectively. For the period March 2, 1998 through March 31, 1998, the Fund
accrued total compensation to the Investment Manager of $582,460. The
Investment Manager has informed the Fund that for the period March 2, 1998
through March 31, 1998, it accrued total compensation to the Sub-Advisor of
$232,984.
MSDW Advisors paid the organizational expenses of the Fund incurred prior
to the offering of the Fund's shares. The Fund has reimbursed MSDW Advisors for
$200,000 of such expenses, in accordance with the terms of the Underwriting
Agreement between the Fund and Dean Witter Reynolds Inc. ("DWR").
The Former Management Agreement was initially approved by the Trustees on
June 1, 1994 and became effective on April 17, 1995. The Former Management
Agreement replaced a prior management agreement in effect between the Fund and
the Former Manager, which in turn had earlier replaced a prior management
agreement between the Fund and MSDW Advisors, the parent company of the Former
Manager. The nature and scope of services provided to the Fund, and the formula
to determine fees paid by the Fund under the Former Management Agreement, were
identical to those of the Fund's previous management agreements. The Former
Advisory Agreement was initially approved by the Trustees on March 9, 1992 and
by DWR as the then sole shareholder on March 16, 1992.
7
<PAGE>
Both the Investment Manager and the Sub-Advisor have authorized any of
their directors, officers and employees who have been elected as Trustees or
officers of the Fund to serve in the capacities in which they have been
elected. Services furnished by the Investment Manager and the Sub-Advisor may
be furnished by directors, officers and employees of the Investment Manager and
the Sub-Advisor. In connection with the services rendered by the Sub-Advisor,
the Sub-Advisor bears the following expenses: (a) the salaries and expenses of
its personnel; and (b) all expenses incurred by it in connection with
performing the services provided by it as Sub-Adviser, as described above.
Under their terms, the Agreements have an initial term ending April 30,
1999, and will remain in effect from year to year thereafter, provided
continuance of the Agreements is approved at least annually by the vote of the
holders of a majority of the outstanding shares of the Fund, as defined in the
Act, or by the Trustees of the Fund; provided that in either event such
continuance is approved annually by the vote of a majority of the Trustees of
the Fund who are not parties to the Agreement or "interested persons" (as
defined in the Act) of any such party (the "Independent Trustees"), which vote
must be cast in person at a meeting called for the purpose of voting on such
approval.
The following owned 5% or more of the outstanding shares of Class A on
July 7, 1998: Reed A. Larson & Joyce A. Larson JT WROS, N7766 Highway 26,
Watertown, WI 53094 - 15.478%; W.B. Davis Electric Supply Co. P/S/T Dated
1/1/76, 527 N. Hollywood, Memphis, TN 38112 - 6.178%; and Beatus Pension Trust
U/A Dated 3/1/71 B.L. Beatus, M.D. Trustee, 55 Humphreys Center Suite 300,
Memphis, TN 38120 - 5.594%. The following owned 5% or more of the outstanding
shares of Class C on July 7, 1998; Chiang Ching-Hsiu Chang, 5559 Ora Street,
San Jose, CA 95129-9.611%; and Sharon B. Freund & Deborah File JTTEN, 77
Seventh Avenue, New York, NY 10011 - 5.170%. The following owned 5% or more of
the outstanding shares of Class D on July 7, 1998: Morgan Stanley Dean Witter
Advisors Inc., Attn: Maurice Bendrihem, 2 World Trade Center, 73rd Floor, New
York, NY 10048-84.872%; and Thomas W. Mitchell & Timothy H. Mitchell Trustees
F/T Mitchell Unified Credit Trust Dated 8/14/90, 33654 Couser Canyon Road,
Valley Center, CA 92082-14.952%.
The Fund has acknowledged that the name "Morgan Stanley Dean Witter" is a
property right of MSDW. The Fund has agreed that MSDW, or any corporate
affiliate of MSDW, may use, or at any time permit others to use, the name
"Morgan Stanley Dean Witter." The Fund has also agreed that in the event the
Agreement is terminated, or if the affiliation between MSDW Advisors and its
parent company is terminated, the Fund will eliminate the name "Morgan Stanley
Dean Witter" from its name if MSDW, or any corporate affiliate of MSDW, shall
so request.
8
<PAGE>
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
MSDW Advisors and the Sub-Advisor, and affiliated companies thereof, and with
the 86 Morgan Stanley Dean Witter Funds and the 11 TCW/DW Funds, are shown
below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- -------------------------------------- --------------------------------------------------------------
<S> <C>
Michael Bozic (57) ................... Chairman and Chief Executive Officer of Levitz Furniture
Trustee Corporation (since November, 1995); Director or Trustee of
c/o Levitz Furniture Corporation the Morgan Stanley Dean Witter Funds; formerly President
7887 N. Federal Highway and Chief Executive Officer of Hills Department Stores (May,
Boca Raton, Florida 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* (65) ......... Chairman, Director or Trustee, President and Chief Executive
Chairman, President, Chief Officer of the Morgan Stanley Dean Witter Funds; Chairman,
Executive Officer and Trustee Chief Executive Officer and Trustee of the TCW/DW Funds;
Two World Trade Center formerly Chairman, Chief Executive Officer and Director of
New York, New York MSDW Advisors, MSDW Distributors and MSDW Services,
Executive Vice President and Director of Dean Witter
Reynolds Inc. ("DWR"), Chairman and Director of Morgan
Stanley Dean Witter Trust FSB ("MSDW Trust"), and Director
and/or officer of various MSDW subsidiaries (until June,
1998).
Edwin J. Garn (65) ................... Director or Trustee of the Morgan Stanley Dean Witter
Trustee Funds; formerly United States Senator (R-Utah) (1974-1992)
c/o Huntsman Corporation and Chairman, Senate Banking Committee (1980-1986);
500 Huntsman Way formerly Mayor of Salt Lake City, Utah (1971-1974); formerly
Salt Lake City, Utah Astronaut, Space Shuttle Discovery (April 12-19, 1985); Vice
Chairman, Huntsman Corporation (since January, 1993);
Director of Franklin Covey (time management systems),
John Alden Financial Corp. (health insurance), United Space
Alliance (joint venture between Lockheed Martin and the
Boeing Company) and Nuskin Asia Pacific (multilevel
marketing); member of the board of various civic and
charitable organizations.
John R. Haire (73) ................... Chairman of the Audit Committee and Director or Trustee of
Trustee the Morgan Stanley Dean Witter Funds; Chairman of the
Two World Trade Center Audit Committee and Trustee of the TCW/DW Funds;
New York, New York formerly Chairman of the Independent Directors or Trustees
of the Morgan Stanley Dean Witter Funds and the TCW/DW
Funds (until June, 1998); formerly President, Council for Aid
to Education (1978-1989) and Chairman and Chief Executive
Officer of Anchor Corporation, an Investment Advisor
(1964-1978).
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------- -------------------------------------------------------------
<S> <C>
Wayne E. Hedien (64) ................ Retired; Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds; Director of The PMI Group, Inc. (private
c/o Gordon Altman Butowsky mortgage insurance); Trustee and Vice Chairman of The
Weitzen Shalov & Wein Field Museum of Natural History; formerly associated with
Counsel to the Independent Trustees the Allstate Companies (1966-1994), most recently as
114 West 47th Street Chairman of The Allstate Corporation (March, 1993-
New York, New York 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 (49) .......... Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm; Co-Chairman and a founder of the Group of
c/o Johnson Smick International, Inc. Seven Council (G7C), an international economic commission;
1133 Connecticut Avenue, N.W. Director or Trustee of the Morgan Stanley Dean Witter
Washington D.C. Funds; Trustee of the TCW/DW Funds; Director of NASDAQ
(since June, 1995); Director of Greenwich Capital Markets,
Inc. (broker-dealer) and NVR, Inc. (home construction);
Chairman and Trustee of the Financial Accounting
Foundation (oversight organization for 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
(1982-1986).
Michael E. Nugent (62) .............. General Partner, Triumph Capital, L.P., a private investment
Trustee partnership; Director or Trustee of the Morgan Stanley Dean
c/o Triumph Capital, L.P. Witter Funds; Trustee of the TCW/DW Funds; formerly Vice
237 Park Avenue President, Bankers Trust Company and BT Capital
New York, New York Corporation (1984-1988); Director of various business
organizations.
Philip J. Purcell* (54) ............. Chairman of the Board of Directors and Chief Executive
Trustee Officer of MSDW, DWR and Novus Credit Services Inc.;
1585 Broadway Director of MSDW Distributors; Director or Trustee of the
New York, New York Morgan Stanley Dean Witter Funds; Director and/or officer of
various MSDW subsidiaries.
John L. Schroeder (67) .............. Retired; Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds; Trustee of the TCW/DW Funds; Director of
c/o Gordon Altman Butowsky Citizens Utilities Company formerly Executive Vice President
Weitzen Shalov & Wein and Chief Investment Officer of the Home Insurance
Counsel to the Independent Trustees Company (August, 1991-September, 1995).
114 West 47th Street
New York, New York
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND
AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------- -----------------------------------------------------------
<S> <C>
Barry Fink (43) ............... Senior Vice President (since March, 1997), Secretary and
Vice President, Secretary General Counsel (since February, 1997) and Director (since
and General Counsel July, 1998) of MSDW Advisors and MSDW Services; Senior
Two World Trade Center Vice President (since March, 1997) and Assistant Secretary
New York, New York and Assistant General Counsel (since February, 1997) of
MSDW Distributors; Assistant Secretary of DWR (since
August, 1996); Vice President, Secretary and General
Counsel of the Morgan Stanley Dean Witter Funds and the
TCW/DW Funds (since February, 1997); previously First
Vice President (June, 1993-February, 1997), Vice President
(until June, 1993) and Assistant Secretary and Assistant
General Counsel of MSDW Advisors and MSDW Services
and Assistant Secretary of the Morgan Stanley Dean Witter
Funds and the TCW/DW Funds.
Thomas F. Caloia (52) ......... First Vice President and Assistant Treasurer of MSDW
Treasurer Advisors and MSDW Services; Treasurer of the Morgan
Two World Trade Center Stanley Dean Witter Funds and the TCW/DW Funds.
New York, New York
</TABLE>
- ----------
* Denotes Trustees who are "interested persons" of the Fund, as defined
in the Act.
In addition, Mitchell M. Merin, President, Chief Executive Officer and
Director of MSDW Advisors and MSDW Services, Chairman and Director of MSDW
Distributors and MSDW Trust, Executive Vice President and Director of DWR, and
Director of SPS Transaction Services, Inc. and various other MSDW subsidiaries,
Robert M. Scanlan, President, Chief Operating Officer and Director of MSDW
Advisors and MSDW Services, Executive Vice President of MSDW Distributors and
MSDW Trust and Director of MSDW Trust, Joseph J. McAlinden, Executive Vice
President and Chief Investment Officer of MSDW Advisors and Director of MSDW
Trust, Robert S. Giambrone, Senior Vice President of MSDW Advisors, MSDW
Services, MSDW Distributors and MSDW Trust and Director of MSDW Trust, are Vice
Presidents of the Fund. Marilyn K. Cranney and Carsten Otto, First Vice
Presidents and Assistant General Counsels of MSDW Advisors and MSDW Services,
and Frank Bruttomesso, LouAnne D. McInnis and Ruth Rossi, Vice Presidents and
Assistant General Counsels of MSDW Advisors and MSDW Services, and Todd Lebo, a
staff attorney with MSDW Advisors, are Assistant Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of nine (9) trustees. These same
individuals also serve as directors or trustees for all of the Morgan Stanley
Dean Witter Funds and are referred to in this section as Trustees. As of the
date of this Statement of Additional Information, there are a total of 86
Morgan Stanley Dean Witter Funds, comprised of 132 portfolios. As of June 30,
1998, the Morgan Stanley Dean Witter Funds had total net assets of
approximately $107 billion and more than six million shareholders.
Seven Trustees (77% of the total number) have no affiliation or business
connection with MSDW Advisors or any of its affiliated persons and do not own
any stock or other securities issued by MSDW Advisors' parent company, MSDW.
These are the "disinterested" or "independent" Trustees. Four of the seven
Independent Trustees are also Independent Trustees of the TCW/DW Funds.
Law and regulation establish both general guidelines and specific duties
for the Independent Trustees. The Morgan Stanley Dean Witter Funds seek as
Independent 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. Indeed, by serving on the Funds' Boards, certain Trustees who would
otherwise be qualified and in demand to serve on bank boards would be
prohibited by law from doing so.
11
<PAGE>
All of the Independent Trustees serve as members of the Audit Committee.
Three of them also serve as members of the Derivatives Committee. During the
calendar year ended December 31, 1997, the Audit Committee, the Derivatives
Committee and the Independent Trustees held a combined total of seventeen
meetings.
The Independent 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 Trustees are required to select and nominate individuals to fill
any Independent 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 such a
plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; and 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.
Finally, the Board of each Fund has formed a Derivatives Committee to
approve parameters for and monitor the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL MORGAN
STANLEY DEAN WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent 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 Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and
enhances their ability to negotiate on behalf of each Fund with the Fund's
service providers. This arrangement also precludes the possibility of separate
groups of Independent 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 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 Trustees of the caliber, experience
and business acumen of the individuals who serve as Independent Trustees of the
Morgan Stanley Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
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). 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. Mr. Haire currently serves as Chairman of the Audit Committee. Prior
to June 1, 1998, Mr. Haire also served as Chairman of the Independent Trustees,
for which services the Fund paid him an additional annual fee of $1,200.
12
<PAGE>
At their February 26, 1998 meeting, shareholders elected or re-elected, as
appropriate, the following nine individuals to the Fund's Board of Trustees to
serve for indefinite terms: Michael Bozic, Charles A. Fiumefreddo, Edwin Jacob
(Jake) Garn, John R. Haire, Wayne E. Hedien, Dr. Manuel H. Johnson, Michael E.
Nugent, Philip J. Purcell and John L. Schroeder. Messrs. Fiumefreddo, Haire,
Johnson, Nugent and Schroeder previously served as Trustees of the Fund and,
with the exception of Mr. Schroeder, were previously elected by shareholders.
Messrs. Bozic, Garn, Hedien and Purcell previously held directorships or
trusteeships with the other Morgan Stanley Dean Witter Funds and were elected
to replace Messrs. Argue, DeMartini, Larkin and Stern who resigned as Trustees.
Messrs. Bozic, Garn, Hedien and Purcell commenced service at the time the
Investment Management Agreement took effect on March 2, 1998. Prior to the
February 26, 1998 election of Messrs. Bozic, Garn, Hedien and Purcell and the
resignation of Messrs. Argue, DeMartini, Larkin and Stern, the Fund paid each
Independent Trustee an annual fee of $2,225 plus a per meeting fee of $200 for
meetings of the Board of Trustees or committees of the Board attended by the
Trustee. The fee paid by the Fund to the Chairman of the Audit Committee and
the Chairman of the Independent Trustees remained unchanged after the February
26, 1998 election.
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended March 31, 1998.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- --------------------------- -------------
<S> <C>
Michael Bozic ................. $ 300
Edwin J. Garn ................. 300
John R. Haire ................. 6,819
Wayne E. Hedien ............... 300
Dr. Manuel H. Johnson ......... 4,769
Michael E. Nugent ............. 4,769
John L. Schroeder ............. 4,969
</TABLE>
At such time as the Fund has paid fees to the Independent Trustees for a
full fiscal year at the current compensation rates set forth above, and
assuming that during such fiscal year the Fund holds the same number of
meetings of the Board, the Independent Trustees and the Committees as were held
by the other Morgan Stanley Dean Witter Funds during the calendar year ended
December 31, 1997, it is estimated that the compensation paid to each
Independent Trustee during such fiscal year will be the amount shown in the
following table:
FUND COMPENSATION (ESTIMATED)
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- --------------------------- -------------
<S> <C>
Michael Bozic ................. $1,600
Edwin J. Garn ................. 1,600
John R. Haire ................. 2,350
Wayne E. Hedien ............... 1,600
Dr. Manuel H. Johnson ......... 1,600
Michael E. Nugent ............. 1,600
John L. Schroeder ............. 1,600
</TABLE>
13
<PAGE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1997 for services
to the 84 Morgan Stanley Dean Witter Funds and, in the case of Messrs. Haire,
Johnson, Nugent and Schroeder, the 14 TCW/DW Funds that were in operation at
December 31, 1997. Mr. Haire serves as Chairman of the Audit Committee of each
Morgan Stanley Dean Witter Fund and each TCW/DW Fund and, prior to June 1,
1998, also served as Chairman of the Independent Directors or Trustees of those
Funds. With respect to Messrs. Haire, Johnson, Nugent and Schroeder, the TCW/DW
Funds are included solely because of a limited exchange privilege between those
funds and five Morgan Stanley Dean Witter Money Market Funds. Mr. Hedien's term
as Director or Trustee of each Morgan Stanley Dean Witter Fund commenced on
September 1, 1997.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS
CHAIRMAN OF
FOR SERVICE INDEPENDENT FOR SERVICE AS TOTAL CASH
AS DIRECTOR OR DIRECTORS/ CHAIRMAN OF COMPENSATION
TRUSTEE AND FOR SERVICE TRUSTEES AND INDEPENDENT FOR SERVICES TO
COMMITTEE AS TRUSTEE AND AUDIT TRUSTEES 84 MORGAN STANLEY
MEMBER OF 84 COMMITTEE COMMITTEES OF 84 AND AUDIT DEAN WITTER
NAME OF MORGAN STANLEY MEMBER OF 14 MORGAN STANLEY COMMITTEES OF 14 FUNDS AND 14
INDEPENDENT TRUSTEE DEAN WITTER FUNDS TCW/DW FUNDS DEAN WITTER FUNDS TCW/DW FUNDS TCW/DW FUNDS
- ------------------- ----------------- ------------ ----------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Michael Bozic ............. $133,602 -- -- -- $133,602
Edwin J. Garn ............. 149,702 -- -- -- 149,702
John R. Haire ............. 149,702 $73,725 $157,463 $25,350 406,240
Wayne E. Hedien ........... 39,010 -- -- -- 39,010
Dr. Manuel H. Johnson 145,702 71,125 -- -- 216,827
Michael E. Nugent ......... 149,702 73,725 -- -- 223,427
John L. Schroeder ......... 149,702 73,725 -- -- 223,427
</TABLE>
As of the date of this Statement of Additional Information, 57 of the
Morgan Stanley Dean Witter Funds, not including the Fund, have adopted a
retirement program under which an Independent 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 or Trustee of any Morgan Stanley Dean Witter
Fund that has adopted the retirement program (each such Fund referred to as an
"Adopting Fund" and each such Trustee referred to as an "Eligible 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 25.0% of his or her Eligible Compensation plus
0.4166666% of such Eligible Compensation for each full month of service as an
Independent Director or Trustee of any Adopting Fund in excess of five years up
to a maximum of 50.0% 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 not secured or funded by the Adopting
Funds.
- ----------
(1) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such 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 such 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 amount so that the resulting payments will be the
actuarial equivalent of the Regular Benefit.
14
<PAGE>
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the 57 Morgan Stanley Dean Witter Funds (not
including the Fund) for the year ended December 31, 1997, and the estimated
retirement benefits for the Fund's Independent Trustees, to commence upon their
retirement, from the 57 Morgan Stanley Dean Witter Funds as of December 31,
1997.
RETIREMENT BENEFITS FROM ALL MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
ESTIMATED
RETIREMENT ANNUAL
ESTIMATED BENEFITS BENEFITS
CREDITED ACCRUED AS UPON
YEARS ESTIMATED EXPENSES RETIREMENT
OF SERVICE AT PERCENTAGE OF BY ALL FROM ALL
RETIREMENT ELIGIBLE ADOPTING ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUNDS FUNDS(2)
- --------------------------- ------------ ------------ ----- --------
<S> <C> <C> <C> <C>
Michael Bozic ................. 10 58.82% $ 20,499 $55,026
Edwin J. Garn ................. 10 58.82 30,878 55,026
John R. Haire ................. 10 58.82 (19,823) (3) 132,002
Wayne E. Hedien ............... 9 50.00 0 46,772
Dr. Manuel H. Johnson ......... 10 58.82 12,832 55,026
Michael E. Nugent ............. 10 58.82 22,546 55,026
John L. Schroeder ............. 8 49.02 39,350 46,123
</TABLE>
- ----------
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
(3) This number reflects the effect of the extension of Mr. Haire's term as
Director or Trustee until May 1, 1999.
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 percent of the Fund's shares
of beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
The Fund is currently managed as a diversified investment company.
MONEY MARKET SECURITIES
As stated in the Prospectus, the money market instruments which the Fund
may purchase include U.S. Government securities, bank obligations, Eurodollar
certificates of deposit, obligations of savings institutions, fully insured
certificates of deposit and commercial paper. 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, bankers'
acceptances, commercial paper (see below) and other debt obligations) 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 as permitted below;
Eurodollar Certificates of Deposit. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of $1 billion
or more (investments in Eurodollar certificates may be affected by changes in
currency rates or exchange control regulations, or changes in governmental
administration or economic or monetary policy in the United States and abroad);
Obligations of Savings Institutions. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion or
more (investments in savings institutions above $100,000 in principal amount
are not protected by Federal deposit insurance);
15
<PAGE>
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 insured by the Bank Insurance Fund or the
Savings Association Insurance Fund (each of which is administered by the
Federal Deposit Insurance Corporation), limited to $100,000 principal amount
per certificate and to 15% 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 highest grade by Moody's Investors
Service Inc. ("Moody's") or, if not rated, issued by a company having an
outstanding debt issue rated at least AAA by S&P or Aaa by Moody's.
LENDING OF PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and other financial institutions,
provided that such loans are callable at any time by the Fund (subject to
notice provisions described below), and are at all times secured by cash or
money market instruments, which are maintained in a segregated account pursuant
to applicable regulations and that are equal to at least the market value,
determined daily, of the loaned securities. The advantage of such loans is that
the Fund continues to receive the income on the loaned securities while at the
same time earning interest on the cash amounts deposited as collateral, which
will be invested in short-term obligations. The Fund will not lend its
portfolio securities if such loans are not permitted by the laws or regulations
of any state in which its shares are qualified for sale and will not lend more
than 25% of the value of its total assets. A loan may be terminated by the
borrower on one business day's notice, or by the Fund on two business days'
notice. If the borrower fails to deliver the loaned securities within two days
after receipt of notice, the Fund could use the collateral to replace the
securities while holding the borrower liable for any excess of replacement cost
over collateral. As with any extensions of credit, there are risks of delay in
recovery and in some cases even loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans of portfolio
securities will only be made to firms deemed by the Investment Manager and/or
the Sub-Advisor 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. The
creditworthiness of firms to which the Fund lends its portfolio securities will
be monitored on an ongoing basis by the Sub-Advisor pursuant to procedures
adopted and reviewed, on an ongoing basis, by the Board of Trustees of 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 such
rights if the matters involved would have a material effect on the Fund's
investment in such loaned securities. The Fund will pay reasonable finder's,
administrative and custodial fees in connection with a loan of its securities.
REPURCHASE AGREEMENTS
When cash may be available for only a few days, it may be invested by the
Fund in repurchase agreements until such time as it may otherwise be invested
or used for payments of obligations of the Fund. These agreements, which may be
viewed as a type of secured lending by the Fund, typically involve the
acquisition by the Fund of debt securities from a selling financial institution
such as a bank, savings and loan association or broker-dealer. The agreement
provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security ("collateral") at a
specified price and at a fixed time in the future, usually not more than seven
days from the date of purchase. The collateral will be maintained in a
segregated account and will be marked to market daily to determine that the
value of the collateral, as specified in 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 such date
is deemed by the Fund to be the maturity date of a repurchase agreement, the
maturities of securities subject to repurchase agreements are not subject to
any limits.
16
<PAGE>
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 and/or Sub-Advisor subject to procedures established by the Board of
Trustees of the Fund. 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. It is the current policy of the Fund not to
invest in repurchase agreements that do not mature within seven days if any
such investment, together with any other illiquid assets held by the Fund,
amounts to more than 15% of its net assets.
WARRANTS
The Fund may invest up to 5% of the value of its net assets in warrants,
including not more than 2% in warrants not listed on either the New York or
American Stock Exchange. Warrants are, in effect, an option to purchase equity
securities at a specific price, generally valid for a specific period of time,
and have no voting rights, pay no dividends and have no rights with respect to
the corporations issuing them. The Fund may acquire warrants attached to other
securities without reference to the foregoing limitations.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
From time to time, in the ordinary course of business, the Fund may
purchase securities on a when-issued or delayed delivery basis and may purchase
or sell securities on a forward commitment basis. When such transactions are
negotiated, the price is fixed at the time of the commitment, but delivery and
payment can take place a month or more after the date of the commitment. 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.
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. At the time the Fund makes the commitment to purchase or sell
securities on a when-issued, delayed delivery or forward commitment basis, the
Fund 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, the
value may be more or less than the purchase or sale price. The Fund will also
establish a segregated account with the Fund's custodian bank in which it will
continuously maintain cash or U.S. Government securities or other liquid
portfolio securities equal in value to commitments to purchase securities on a
when-issued, delayed delivery or forward commitment basis; subject to this
requirement, the Fund may purchase securities on such basis without limit. An
increase in the percentage of the Fund's assets committed to the purchase of
securities on a when-issued or delayed delivery basis may increase the
volatility of the Fund's net asset value.
WHEN, AS AND IF ISSUED SECURIITIES
The Fund may purchase securities on a "when, as and if issued" basis under
which the issuance of the security depends upon the occurrence of a subsequent
event, such as approval of a merger, corporate reorganization, leveraged buyout
or debt restructuring. The commitment for the purchase of any such security
will not be recognized in the portfolio of the Fund until the Investment
Manager and/or the Sub-Advisor determines that issuance of the security is
probable. At such time, the Fund will record the transaction and, in
determining its net asset value, will reflect the value of the security daily.
At such time, the Fund will also establish a segregated account with its
custodian bank in which it will continuously maintain cash or U.S. Government
securities or other liquid portfolio securities equal in
17
<PAGE>
value to recognized commitments for such securities. Settlement of the trade
will occur within five business days of the occurrence of the subsequent event.
Once a segregated account has been established, if the anticipated event does
not occur and the securities are not issued the Fund will have lost an
investment opportunity. The Fund may purchase securities on such basis without
limit. 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 the sale.
RESTRICTED SECURITIES
The Fund may invest up to 5% of its total assets in securities which are
subject to restrictions on resale because they have not been registered under
the Securities Act of 1933, as amended, or which are otherwise not readily
marketable. These securities are generally referred to as private placements or
restricted securities. Limitations on the resale of such securities may have an
adverse effect on their marketability, and may prevent the Fund from disposing
of them promptly at reasonable prices. The Fund may have to bear the expense of
registering such securities for resale and the risk of substantial delays in
effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act of 1933, which will permit the Fund to sell restricted
securities to qualified institutional buyers without limitation. The Investment
Manager and/or the Sub-Advisor, pursuant to procedures adopted by the Board of
Trustees of the Fund, will make a determination as to the liquidity of each
restricted security purchased by the Fund. If a restricted security is
determined to be "liquid," such security will not be included within the
category "illiquid securities," which under the Fund's current policies may not
exceed 15% of the Fund's net assets, and will not be subject to the 5%
limitation set out in the preceding paragraph. The Rule 144A marketplace of
sellers and qualified institutional buyers is new and still developing and may
take a period of time to develop into a mature liquid market. As such, the
market for certain private placements purchased pursuant to Rule 144A may be
initially small or may, subsequent to purchase, become illiquid. Furthermore,
the Investment Manager and/or the Sub-Advisor may not possess all the
information concerning an issue of securities that it wishes to purchase in a
private placement to which it would normally have had access, had the
registration statement necessitated by a public offering been filed with the
Securities and Exchange Commission.
PORTFOLIO TURNOVER
It is anticipated that the Fund's portfolio turnover rate generally will
not exceed 200%. A 100% turnover rate would occur, for example, if 100% of the
securities held in the Fund's portfolio (excluding all securities whose
maturities at acquisition were one year or less) were sold and replaced within
one year. A portfolio turnover rate in excess of 100% may be considered high
and the Fund will incur correspondingly higher transaction costs. In addition,
high portfolio turnover may result in more capital gains which would be taxable
to the shareholders of the Fund.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus,
the investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of shareholders, 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.
The Fund may not:
18
<PAGE>
1. Purchase or sell real estate or interests therein (including limited
partnership interests), although the Fund may purchase securities of
issuers which engage in real estate operations and securities secured by
real estate or interests therein.
2. 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.
3. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets.
4. Borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% (taken at the
lower of cost or current value) of its total assets (not including the
amount borrowed).
5. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(4). For the purpose of this restriction, collateral arrangements with
respect to initial or variation margin for futures are not deemed to be
pledges of assets.
6. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of (a)
entering into any repurchase agreement; (b) purchasing any securities on a
when-issued or delayed delivery basis; (c) purchasing or selling any
financial futures contracts; (d) borrowing money in accordance with
restrictions described above; or (e) lending portfolio securities.
7. Make loans of money or securities, except: (a) by the purchase of
portfolio securities in which the Fund may invest consistent with its
investment objective and policies; (b) by investment in repurchase
agreements; or (c) by lending its portfolio securities.
8. Purchase or sell commodities or commodities contracts except that the
Fund may purchase or sell financial or stock index futures contracts or
options thereon.
9. Make short sales of securities.
10. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts is not considered the purchase of a security on margin.
11. 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.
12. Invest for the purpose of exercising control or management of any
other issuer.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
Subject to the general supervision of the Trustees, the Investment Manager
and the Sub-Advisor are responsible for decisions to buy and sell securities
for the Fund, the selection of brokers and dealers to effect the transactions,
and the negotiation of brokerage commissions, if any. Purchases and sales of
securities on a stock exchange are effected through brokers who charge a
commission for their services. In the over-the-counter market, securities are
generally traded on a "net" basis with dealers acting as principal for their
own accounts without a stated commission, although the price of the security
usually includes a profit to the dealer. In addition, securities may 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. Any 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
19
<PAGE>
instruments directly from an issuer, in which case no commissions or discounts
are paid. During the fiscal years ended March 31, 1996, 1997 and 1998 the Fund
paid a total of $1,197,865, $863,405 and $1,212,964, respectively, in brokerage
commissions.
The Investment Manager and the Sub-Advisor currently each serve as
investment advisors to a number of clients, including other investment
companies, and may in the future act as investment adviser to others. It is the
practice of MSDW Advisors and the Sub-Advisor to cause purchase and sale
transactions to be allocated among the Fund and others whose assets they manage
in such manner as they deem 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 investments generally held and the opinions of the persons
responsible for managing the portfolios of the Fund and other client accounts.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid
in all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Investment Manager and/or Sub-Advisor from obtaining
a high quality of brokerage and research services. In seeking to determine the
reasonableness of brokerage commissions paid in any transaction, the Investment
Manager and/or Sub-Advisor rely upon their experience and knowledge regarding
commissions generally charged by various brokers and on their judgment in
evaluating the brokerage and research services received from the broker
effecting the transaction. Such determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
In seeking to implement the Fund's policies, the Investment Manager and/or
Sub-Advisor effect transactions with those brokers and dealers who the
Investment Manager and/or the Sub-Advisor believe provide the most favorable
prices and are capable of providing efficient executions. If the Investment
Manager and/or the Sub-Advisor believe such prices and executions are
obtainable from more than one broker or dealer, they 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 and/or the
Sub-Advisor. Such services may include, but are not limited to, any one or more
of the following: reports on industries and companies, economic analyses and
review of business conditions, portfolio strategy, analytic computer software,
account performance services, computer terminals and various trading and/or
quotation equipment. They also include advice from broker-dealers as to the
value of securities, availability of securities, availability of buyers, and
availability of sellers. In addition, they include recommendations as to
purchase and sale of individual securities and timing of such transactions. The
Fund will not purchase at a higher price or sell at a lower price in connection
with transactions effected with a dealer, acting as principal, who furnishes
research services to the Fund than would be the case if no weight were given by
the Fund to the dealer's furnishing of such services.
The information and services received by the Investment Manager and the
Sub-Advisor from brokers and dealers may be of benefit to them in the
management of accounts of some of their other clients and may not in all cases
benefit the Fund directly. While the receipt of such information and services
is useful in varying degrees and would generally reduce the amount of research
or services otherwise performed by the Investment Manager and/or the
Sub-Advisor and thereby reduce their expenses, it is of indeterminable value
and the advisory fee paid to the Investment Manager is not reduced by any
amount that may be attributable to the value of such services. During the
fiscal year ended March 31, 1998 the Fund paid $978,758 in brokerage
commissions in connection with transactions in the aggregate amount of
$874,697,558 to brokers because of research services provided.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may
be effected through DWR, Morgan Stanley and Co.
20
<PAGE>
Incorporated ("MS & Co.") and other affiliated brokers and dealers. In order
for an affiliated broker-dealer to effect any portfolio transactions for the
Fund, the commissions, fees or other remuneration received by an affiliated
broker-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-dealer to receive no more than the remuneration which would
be expected to be received by an unaffiliated broker in a commensurate
arm's-length transaction. Furthermore, the Board of Trustees of the Fund,
including a majority of the Trustees who are not "interested" persons of the
Fund, as defined in the Act, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to an
affiliated broker-dealer are consistent with the foregoing standard. During the
fiscal years ended March 31, 1996, 1997 and 1998 the Fund paid a total of
$63,490, $53,710 and $3,195, respectively, in brokerage commissions to DWR.
During the fiscal year ended March 31, 1998, the brokerage commissions paid to
DWR represented approximately 0.26% of the total brokerage commissions paid by
the Fund during the period and were paid on account of transactions having an
aggregate dollar value equal to approximately 0.36% of the aggregate dollar
value of all portfolio transactions of the Fund during the period for which
commissions were paid. During the period June 1, 1997 through March 31, 1998,
the Fund paid a total of $4,350 in brokerage commissions to MS & Co., which
broker-dealer became an affiliate of the Investment Manager on May 31, 1997
upon consummation of the merger of Dean Witter, Discover & Co. with Morgan
Stanley Group Inc. The brokerage commissions paid to MS & Co. represented
approximately 0.36% of the total brokerage commissions paid by the Fund during
the period and were paid on account of transactions having an aggregate dollar
value equal to approximately 0.38% of the aggregate dollar value of all
portfolio transactions of the Fund during the period for which commissions were
paid.
THE DISTRIBUTOR
- --------------------------------------------------------------------------------
As discussed in the Prospectus, shares of the Fund are distributed by
Morgan Stanley Dean Witter Distributors Inc. (the "Distributor"). The
Distributor has entered into a selected dealer agreement with DWR, which
through its own sales organization sells shares of the Fund. In addition, the
Distributor may enter into selected dealer agreements with other selected
broker-dealers. The Distributor, a Delaware corporation, is a wholly-owned
subsidiary of MSDW. The Trustees who are not, and were not at the time they
voted, interested persons of the Fund, as defined in the Act (the "Independent
Trustees"), approved, at their meeting held on June 30, 1997, the current
Distribution Agreement appointing the Distributor as exclusive distributor of
the Fund's shares and providing for the Distributor to bear distribution
expenses not borne by the Fund. By its terms, the Distribution Agreement had an
initial term ending April 30, 1998, and will remain in effect from year to year
thereafter if approved by the Board. At their meeting held on April 30, 1998,
the Trustees of the Fund, including a majority of the Independent Trustees,
approved the continuation of the Distribution Agreement until April 30, 1999.
The Distributor bears all expenses it may incur in providing services
under the Distribution Agreement. Such expenses include the payment of
commissions for sales of the Fund's shares and incentive compensation to Morgan
Stanley Dean Witter Financial Advisors and other selected broker-dealer
representatives. 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 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 of 1933, as amended. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to the Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for any losses sustained by the
Fund or its shareholders.
21
<PAGE>
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act (the "Plan") pursuant to which each Class, other than Class D, pays the
Distributor compensation accrued daily and payable monthly at the following
annual rates: 0.25% and 1.0% of the average daily net assets of Class A and
Class C, respectively, and, with respect to Class B, 1.0% of the lesser of: (a)
the average daily aggregate gross sales of the Fund's Class B shares since the
inception of the Fund (not including reinvestments of dividends or capital
gains distributions), less the average daily aggregate net asset value of the
Fund's Class B shares redeemed since the Fund's inception upon which a
contingent deferred sales charge has been imposed or upon which such charge has
been waived; or (b) the average daily net assets of Class B. The Distributor
also receives the proceeds of front-end sales charges and of contingent
deferred sales charges imposed on certain redemptions of shares, which are
separate and apart from payments made pursuant to the Plan (see "Purchase of
Fund Shares" in the Prospectus). The Distributor has informed the Fund that it
and/or DWR received (a) approximately $2,306,000, $1,579,138 and $1,270,906 in
contingent deferred sales charges from Class B for the fiscal years ended March
31, 1996, 1997 and 1998, respectively, (b) approximately $0 and $318 in
contingent deferred sales charges from Class A and Class C, respectively, for
the fiscal year ended March 31, 1998, and (c) approximately $4,630 in front-end
sales charges from Class A for the fiscal year ended March 31, 1998, none of
which was retained by the Distributor.
The Distributor has informed the Fund that the entire fee payable by Class
A and a portion of the fees payable by each of Class B and Class C each year
under the Plan equal to 0.25% of such Class's average daily net assets are
currently each characterized as a "service fee" under the Rules of the
Association of the National Association of Securities Dealers (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 portions
of the Plan of Distribution fee payments made by a Class, if any, are
characterized as "asset-based sales charges" as such is defined by the
aforementioned Rules of the Association.
The Plan was adopted by a majority vote of the Board of Trustees,
including all of the Trustees of the Fund who are not "interested persons" of
the Fund (as defined in the Act) and who have no direct or indirect financial
interest in the operation of the Plan (the "Independent 12b-1 Trustees"), cast
in person at a meeting called for the purpose of voting on the Plan, on March
9, 1992, and by MSDW Advisors as the then sole shareholder on March 9, 1992. At
their meeting held on October 26, 1995, the Trustees of the Fund, including all
the Independent 12b-1 Trustees, approved an amendment to the Plan to permit
payments to be made under the Plan with respect to certain distribution
expenses incurred in connection with the distribution of shares, including
personal services to shareholders with respect to holdings of such shares, of
an investment company whose assets are acquired by the Fund in a tax-free
reorganization. At their meeting held on June 30, 1997, the Trustees, including
a majority of the Independent 12b-1 Trustees, approved amendments to the Plan
to reflect the multiple-class structure for the Fund, which took effect on July
28, 1997.
Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each fiscal quarter a written report provided
by the Distributor of the amounts expended under the Plan and the purpose for
which such expenditures were made. In the Trustees' quarterly reviews of the
Plan, they will consider its continued appropriateness and the level of
compensation provided therein. Class B shares of the Fund accrued amounts
payable to the Distributor under the Plan, during the fiscal year ended March
31, 1998, of $5,417,766. This amount is equal to payments required to be paid
22
<PAGE>
monthly by the Fund which were computed at the annual rate of 0.66% of the
average daily net assets of Class B for the fiscal year and was calculated
pursuant to clause (a) of the compensation formula under the Plan. For the
fiscal period July 28, 1997 through March 31, 1998, Class A and Class C shares
of the Fund accrued payments under the Plan amounting to $128 and $1,284,
respectively, which amounts are equal to 0.23% and 1.00% of the average daily
net assets of Class A and Class C, respectively, for such period.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes of shares, each with a distribution arrangement as set forth in the
Prospectus.
With respect to Class A shares, DWR compensates its Financial Advisors by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.25% of the current value
of the respective accounts for which they are the Financial Advisors or dealers
of record in all cases. On orders of $1 million or more (for which no sales
charge was paid) or net asset value purchases by employer-sponsored 401(k) and
other plans qualified under Section 401(a) of the Internal Revenue Code
("Qualified Retirement Plans") for which Morgan Stanley Dean Witter Trust FSB
("MSDW Trust") serves as Trustee or DWR's Retirement Plan Services serves as
recordkeeper pursuant to a written Recordkeeping Services Agreement, MSDW
Advisors compensates DWR's Financial Advisors by paying them, from its own
funds, a gross sales credit of 1.0% of the amount sold.
With respect to Class B shares, DWR compensates its Financial Advisors by
paying them, from its own funds, commissions for the sale of Class B shares,
currently a gross sales credit of up to 5.0% of the amount sold (except as
provided in the following sentence) and an annual residual commission,
currently a residual of up to 0.25% of the current value (not including
reinvested dividends or distributions) of the amount sold in all cases. In the
case of Class B shares purchased on or after July 28, 1997 by Qualified
Retirement Plans for which MSDW Trust serves as Trustee or DWR's Retirement
Plan Services serves as recordkeeper pursuant to a written Recordkeeping
Services Agreement, DWR compensates its Financial Advisors by paying them, from
its own funds, a gross sales credit of 3.0% of the amount sold.
With respect to Class C shares, DWR compensates its Financial Advisors by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 1.0% of the current value of
the respective accounts for which they are the Financial Advisors of record.
With respect to Class D shares other than shares held by participants in
the MSDW Advisors mutual fund asset allocation program, InterCapital
compensates DWR's Financial Advisors by paying them, from its own funds,
commissions for the sale of Class D shares, currently a gross sales credit of
up to 1.0% of the amount sold. There is a chargeback of 100% of the amount paid
if the Class D shares are redeemed in the first year and a chargeback of 50% of
the amount paid if the Class D shares are redeemed in the second year after
purchase. MSDW Advisors also compensates DWR's Financial Advisors by paying
them, from its own funds, an annual residual commission, currently a residual
of up to 0.10% of the current value of the respective accounts for which they
are the Financial Advisors of record (not including accounts of participants in
the MSDW Advisors mutual fund asset allocation program).
The gross sales credit is a charge which reflects commissions paid by DWR
to its Financial Advisors and DWR's Fund-associated distribution-related
expenses, including sales compensation, and overhead and other branch office
distribution-related expenses including (a) the expenses of operating DWR's
branch offices in connection with the sale of Fund shares, including lease
costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery and
supplies, (b) the costs of client sales seminars, (c) travel expenses of mutual
23
<PAGE>
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"). In the Distributor's
reporting of the distribution expenses to the Fund, in the case of Class B
shares, such assumed interest (computed at the "broker's call rate") has been
calculated on the gross credit as it is reduced by amounts received by the
Distributor under the Plan and any contingent deferred sales charges received
by the Distributor upon redemption of shares of the Fund. No other interest
charge is included as a distribution expense in the Distributor's calculation
of its distribution costs for this purpose. The broker's call rate is the
interest rate charged to securities brokers on loans secured by exchange-listed
securities.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments at
the end of each month. The amount of each monthly payment may in no event
exceed an amount equal to a payment at the annual rate of 0.25%, in the case of
Class A, and 1.0%, in the case of Class C, of the average net assets of the
respective Class during the month. No interest or other financing charges, if
any, incurred on any distribution expenses on behalf of Class A and Class C
will be reimbursable under the Plan. With respect to Class A, in the case of
all expenses other than expenses representing the service fee, and, with
respect to Class C, in the case of all expenses other than expenses
representing a gross sales credit or a residual to Morgan Stanley Dean Witter
Financial Advisors and other selected broker-dealer representatives, such
amounts shall be determined at the beginning of each calendar quarter by the
Trustees, including, a majority of the Independent 12b-1 Trustees. Expenses
representing the service fee (for Class A) or a gross sales credit or a
residual to Morgan Stanley Dean Witter Financial Advisors and other selected
broker-dealer representatives (for Class C) may be reimbursed without prior
determination. In the event that the Distributor proposes that monies shall be
reimbursed for other than such expenses, then in making quarterly
determinations of the amounts that may be reimbursed by the Fund, the
Distributor will provide and the 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 March 31, 1998 to the Distributor. The
Distributor and DWR estimate that they have spent, pursuant to the Plan,
$61,168,795 on behalf of Class B since the inception of the Plan. It is
estimated that this amount was spent in approximately the following ways: (i)
4.38% ($2,677,995)--advertising and promotional expenses; (ii) 0.25%
($154,997)--printing of prospectuses for distribution to other than current
shareholders; and (iii) 95.37% ($58,335,803)--other expenses, including the
gross sales credit and the carrying charge, of which 10.23% ($5,969,782)
represents carrying charges, 35.93% ($20,962,118) represents commission credits
to DWR branch offices and other selected broker-dealers for payments of
commissions to Morgan Stanley Dean Witter Financial Advisors and other selected
broker-dealer representatives and 53.84% ($31,403,903) represents overhead and
other branch office distribution-related expenses. The amounts accrued by Class
A and Class C for distribution during the fiscal period July 28, 1997 through
May 31, 1998 were for expenses which relate to compensation of sales personnel
and associated overhead expenses.
In the case of Class B shares, at any given time, the expenses of
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan and (ii) the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares.
The Distributor has advised the Fund that in the case of Class B shares the
excess distribution expenses, including the carrying charge designed to
approximate the opportunity costs incurred by DWR which arise from it having
advanced monies without having received the amount of any sales charges imposed
24
<PAGE>
at the time of sale of the Fund's Class B shares, totalled $18,878,312 as of
March 31, 1998. 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 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. Any cumulative expenses incurred, but not yet
recovered through distribution fees or contingent deferred sales charges, may
or may not be recovered through future distribution fees or contingent deferred
sales charges.
No interested person of the Fund, nor any Trustee of the Fund who is not
an interested person of the Fund, as defined in the Act, has any direct or
indirect financial interest in the operation of the Plan except to the extent
that DWR, MSDW Advisors, MSDW Services, the Distributor or the Sub-Advisor or
certain of their employees, may be deemed to have such an interest as a result
of benefits derived from the successful operation of the Plan or as a result of
receiving a portion of the amounts expended thereunder by the Fund.
Under its terms, the Plan had an initial term ending April 30, 1993, and
provides that it will continue from year to year thereafter, provided such
continuance is approved annually by a vote of the Trustees in the manner
described above. The most recent continuance of the Plan for one year, until
April 30, 1999, was approved by the Board of Trustees of the Fund, including a
majority of the Independent 12b-1 Trustees, at a Board meeting held on April
30, 1998. Prior to approving the continuation of the Plan, the Board requested
and received from the Distributor and reviewed all the information which it
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; and (3) what services
had been provided and were continuing to be provided under the Plan by the
Distributor, DWR and other selected broker-dealers to the Fund and its
shareholders. Based upon their review, the Trustees of the Fund, including each
of the Independent 12b-1 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. This
determination was based upon the conclusion of the Trustees that the Plan
provides an effective means of stimulating sales of shares of the Fund and of
reducing or avoiding net redemptions and the potentially adverse effects that
may occur therefrom. 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 of the shareholders of the
affected Class or Classes of the Fund, and all material amendments of 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 12b-1 Trustees or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the Act) on not more
than thirty days written notice to any other party to the Plan. So long as the
Plan is in effect, the election and nomination of Independent Trustees shall be
committed to the discretion of the Independent Trustees.
DETERMINATION OF NET ASSET VALUE
The net asset value per share for each Class of shares of the Fund is
determined once daily at 4:00 p.m., New York time (or, on days when the New
York Stock Exchange closes prior to 4 p.m., at such earlier time) on each day
that the New York Stock Exchange is open by taking the value of all assets of
the Fund, subtracting its liabilities, dividing by the number of shares
outstanding and adjusting to the
25
<PAGE>
nearest cent. The New York Stock Exchange currently observes the following
holidays: New Year's Day, Reverend Dr. Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers four Classes of shares as
follows:
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold to investors with an initial sales charge that
declines to zero for larger purchases; however, Class A shares sold without an
initial sales charge are subject to a contingent deferred sales charge ("CDSC")
of 1.0% if redeemed within one year of purchase, except in the circumstances
discussed in the Prospectus.
Right of Accumulation. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefitting from the reduced sales charges available for purchases
of shares of the Fund totalling at least $25,000 in net asset value. For
example, if any person or entity who qualifies for this privilege holds Class A
shares of the Fund and/or other Morgan Stanley Dean Witter Funds which are
multiple class funds ("Morgan Stanley Dean Witter Multi-Class Funds") or shares
of other Morgan Stanley Dean Witter Funds sold with a front-end sales charge
purchased at a price including a front-end sales charge having a current value
of $5,000, and purchases $20,000 of additional shares of the Fund, the sales
charge applicable to the $20,000 purchase would be 4.75% of the offering price.
The Distributor must be notified by the selected broker-dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the selected broker-dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if:
(a) such notification is not furnished at the time of the order; or (b) a
review of the records of the Distributor or Morgan Stanley Dean Witter Trust
FSB (the "Transfer Agent") fails to confirm the investor's represented
holdings.
Letter of Intent. As discussed in the Prospectus, reduced sales charges
are available to investors who enter into a written Letter of Intent providing
for the purchase, within a thirteen-month period, of Class A shares of the Fund
from the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment
goal to be achieved by any number of purchases over a thirteen-month period.
Each purchase of Class A shares made during the period will receive the reduced
sales commission applicable to the amount represented by the goal, as if it
were a single purchase. A number of shares equal in value to 5% of the dollar
amount of the Letter of Intent will be held in escrow by the Transfer Agent, in
the name of the shareholder. The initial purchase under a Letter of Intent must
be equal to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor is authorized
by the shareholder to liquidate a sufficient number of his or her escrowed
shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level,
the sales charge on the entire amount of the purchase that results in passing
that level and on subsequent purchases will be subject to further reduced sales
charges in the same manner as set forth above under "Right of Accumulation,"
but there will be no retroactive reduction of sales charges on previous
purchases. For the purpose of determining whether the investor is entitled to a
further reduced sales charge applicable to
26
<PAGE>
purchases at or above a sales charge level which exceeds the stated goal of a
Letter of Intent, the cumulative current net asset value of any shares owned by
the investor in any other Morgan Stanley Dean Witter Funds held by the
shareholder which were previously purchased at a price including a front-end
sales charge (including shares of the Fund and other Morgan Stanley Dean Witter
Funds acquired in exchange for those shares, and including in each case shares
acquired through reinvestment of dividends and distributions) will be added to
the cost or net asset value of shares of the Fund owned by the investor.
However, shares of "Exchange Funds" and the purchase of shares of other Morgan
Stanley Dean Witter Funds will not be included in determining whether the
stated goal of a Letter of Intent has been reached.
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction.
The 5% escrow and minimum purchase requirements will be applicable to the new
stated goal. Investors electing to purchase shares of the Fund pursuant to a
Letter of Intent should carefully read such Letter of Intent.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold without an initial sales charge but are subject to
a CDSC payable upon most redemptions within six years after purchase. As stated
in the Prospectus, a CDSC will be imposed on any redemption by an investor if
after such redemption the current value of the investor's Class B shares of the
Fund is less than the dollar amount of all payments by the shareholder for the
purchase of Class B shares during the preceding six years (or, in the case of
shares held by certain Qualified Retirement Plans, three years). However, no
CDSC will be imposed to the extent that the net asset value of the shares
redeemed does not exceed: (a) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) prior to the redemption, plus (b) the current
net asset value of shares purchased through reinvestment of dividends or
distributions of the Fund or another Morgan Stanley Dean Witter Fund (see
"Shareholder Services--Targeted Dividends"), plus (c) the current net asset
value of shares acquired in exchange for (i) shares of Morgan Stanley Dean
Witter front-end sales charge funds, or (ii) shares of other Morgan Stanley
Dean Witter Funds for which shares of front-end sales charge funds have been
exchanged (see "Shareholder Services--Exchange Privilege"), plus (d) increases
in the net asset value of the investor's shares above the total amount of
payments for the purchase of Fund shares made during the preceding six (three)
years. The CDSC will be paid to the Distributor. In addition, no CDSC will be
imposed on redemptions of shares which are attributable to reinvestment of
dividends or distributions from, or the proceeds of, certain Unit Investment
Trusts.
In determining the applicability of the CDSC to each redemption, the
amount which represents an increase in the net asset value of the investor's
shares above the amount of the total payments for the purchase of shares within
the last six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) will be redeemed first. In the event the
redemption amount exceeds such increase in value, the next portion of the
amount redeemed will be the amount which represents the net asset value of the
investor's shares purchased more than six (three) years prior to the redemption
and/or shares purchased through reinvestment of dividends or distributions
and/or shares acquired in exchange for shares of Morgan Stanley Dean Witter
front-end sales charge funds, or for shares of other Morgan Stanley Dean Witter
funds for which shares of front-end sales charge funds have been exchanged. A
portion of the amount redeemed which exceeds an amount which represents both
such increase in value and the value of shares purchased more than six years
(or, in the case of shares held by certain Qualified Retirement Plans, three
years) prior to the redemption and/or shares purchased through reinvestment of
dividends or distributions will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Fund until
the time of redemption of such shares. For purposes of determining the number
of years from the time of any payment for the purchase of shares,
27
<PAGE>
all payments made during a month will be aggregated and deemed to have been
made on the last day of the month. The following table sets forth the rates of
the CDSC applicable to most Class B shares of the Fund:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
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>
The following table sets forth the rates of the CDSC applicable to Class B
shares of the Fund purchased on or after July 28, 1997 by Qualified Retirement
Plans for which MSDW Trust serves as Trustee or DWR's Retirement Plan Services
serves as recordkeeper pursuant to a written Recordkeeping Services Agreement.
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
------------ ------------------
<S> <C>
First ......................... 2.0%
Second ........................ 2.0%
Third ......................... 1.0%
Fourth and thereafter ......... None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption
is made of shares held by the investor for the longest period of time within
the applicable six-year or three-year period. This will result in any such CDSC
being imposed at the lowest possible rate. The CDSC will be imposed, in
accordance with the table shown above, on any redemptions within six years (or,
in the case of shares held by certain Qualified Retirement Plans, three years)
of purchase which are in excess of these amounts and which redemptions do not
qualify for waiver of the CDSC, as described in the Prospectus.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold without a sales charge but are subject to a CDSC
of 1.0% on most redemptions made within one year after purchase, except in the
circumstances discussed in the Prospectus.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account
is opened for the investor on the books of the Fund and maintained by the
Transfer Agent. This is an open account in which shares owned by the investor
are credited by the Transfer Agent in lieu of issuance of a share certificate.
If a share certificate is desired, it must be requested in writing for each
transaction. Certificates are issued only for full shares and may be
redeposited in the account at any time. There is no charge to the investor for
issuance of a certificate. Whenever a shareholder-instituted transaction takes
place in the Shareholder Investment Account, the shareholder will be mailed a
confirmation of the transaction from the Fund or from DWR or other selected
broker-dealer.
28
<PAGE>
Automatic Investment of Dividends and Distributions. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the applicable Class of the
Fund, unless the shareholder requests that they be paid in cash. Each purchase
of shares of the Fund is made upon the condition that the Transfer Agent is
thereby automatically appointed as agent of the investor to receive all
dividends and capital gains distributions on shares owned by the investor. Such
dividends and distributions will be paid, at the net asset value per share, in
shares of the applicable Class of the Fund (or in cash if the shareholder so
requests) as of the close of business on the record date. At any time an
investor may request the Transfer Agent, in writing, to have subsequent
dividends and/or capital gains distributions paid to him or her in cash rather
than shares. To assure sufficient time to process the change, such request
should be received by the Transfer Agent at least five business days prior to
the record date of the dividend or distribution. In the case of recently
purchased shares for which registration instructions have not been received on
the record date, cash payments will be made to DWR or the other selected
broker-dealer, and which will be forwarded to the shareholder, upon the receipt
of proper instructions. It has been and remains the Fund's policy and practice
that, if checks for dividends or distributions paid in cash remain uncashed, no
interest will accrue on amounts represented by such uncashed checks.
Targeted Dividends(SM). In states where it is legally permissible,
shareholders may also have all income dividends and capital gains distributions
automatically invested in shares of any Class of an open-end Morgan Stanley
Dean Witter Fund other than Morgan Stanley Dean Witter Growth Fund or in
another Class of Morgan Stanley Dean Witter Growth Fund. Such investment will
be made as described above for automatic investment in shares of the applicable
Class of the Fund, at the net asset value per share of the selected Morgan
Stanley Dean Witter Fund as of the close of business on the payment date of the
dividend or distribution and will begin to earn dividends, if any, in the
selected Morgan Stanley Dean Witter Fund the next business day. To participate
in the Targeted Dividends program, shareholders should contact their Morgan
Stanley Dean Witter Financial Advisor or other selected broker-dealer
representative or the Transfer Agent. Shareholders of the Fund must be
shareholders of the selected Class of the Morgan Stanley Dean Witter Fund
targeted to receive investments from dividends at the time they enter the
Targeted Dividends program. Investors should review the prospectus of the
targeted Morgan Stanley Dean Witter Fund before entering the program.
EasyInvest (SM). Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of shares of a Morgan Stanley Dean Witter money market fund, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for investment
in shares of the Fund. Shares purchased through EasyInvest will be added to the
shareholder's existing account at the net asset value calculated the same
business day the transfer of funds is effected (subject to any applicable sales
charges). Shares of the Morgan Stanley Dean Witter money market funds redeemed
in connection with EasyInvest are redeemed on the business day preceding the
transfer of funds. For further information or to subscribe to EasyInvest,
shareholders should contact their Morgan Stanley Dean Witter Financial Advisor
or other selected broker-dealer representative or the Transfer Agent.
Investment of Dividends or Distributions Received in Cash. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution in shares of
the applicable Class at the net asset value per share, without the imposition
of a CDSC upon redemption, by returning the check or the proceeds to the
Transfer Agent within 30 days after the payment date. If the shareholder
returns the proceeds of a dividend or distribution, such funds must be
accompanied by a signed statement indicating that the proceeds constitute a
dividend or distribution to be invested. Such investment will be made at the
net asset value per share next determined after receipt of the check or
proceeds by the Transfer Agent.
Systematic Withdrawal Plan. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders who own
or purchase shares of the Fund having a minimum value of $10,000 based upon the
then current net asset value. The Withdrawal Plan provides for monthly or
quarterly (March, June, September and December) checks in any dollar amount,
not less than $25, or in any whole percentage of the account balance, on an
annualized basis. Any applicable
29
<PAGE>
CDSC will be imposed on shares redeemed under the Withdrawal Plan (see
"Purchase of Fund Shares"). Therefore, any shareholder participating in the
Withdrawal Plan will have sufficient shares redeemed from his or her account so
that the proceeds (net of any applicable CDSC) to the shareholder will be the
designated monthly or quarterly amount.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of
the relevant month or quarter and normally a check for the proceeds will be
mailed by the Transfer Agent, or amounts credited to a shareholder's DWR or
other selected broker-dealer brokerage account, within five business days after
the date of redemption. The Withdrawal Plan may be terminated at any time by
the Fund.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of sales charges which may be applicable to
purchases or redemptions of shares (see "Purchase of Fund Shares").
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the account
must send complete written instructions to the Transfer Agent to enroll in the
Withdrawal Plan. The shareholder's signature on such instructions must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A shareholder
may, at any time, change the amount and interval of withdrawal payments through
his or her Morgan Stanley Dean Witter Financial Advisor or other selected
broker-dealer representative or by written notification to the Transfer Agent.
In addition, the party and/or the address to which checks are mailed may be
changed by written notification to the Transfer Agent, with signature
guarantees required in the manner described above. The shareholder may also
terminate the Withdrawal Plan at any time by written notice to the Transfer
Agent. In the event of such termination, the account will be continued as a
regular shareholder investment account. The shareholder may also redeem all or
part of the shares held in the Withdrawal Plan account (see "Redemptions and
Repurchases" in the Prospectus) at any time.
Direct Investments through Transfer Agent. As discussed in the Prospectus,
shareholders may make additional investments in any Class of shares of the Fund
for which they qualify at any time by sending a check in any amount, not less
than $100, payable to Morgan Stanley Dean Witter Growth Fund, and indicating
the selected Class, directly to the Fund's Transfer Agent. In the case of Class
A shares, after deduction of any applicable sales charge, the balance will be
applied to the purchase of Fund shares, and, in the case of shares of the other
Classes, the entire amount will be applied to the purchase of Fund shares, at
the net asset value per share next computed after receipt of the check or
purchase payment by the Transfer Agent. The shares so purchased will be
credited to the investor's account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its
shareholders an Exchange Privilege whereby shareholders of each Class of shares
of the Fund may exchange their shares for shares of the same Class of shares of
any other Morgan Stanley Dean Witter Multi-Class Fund without the imposition of
any exchange fee. Shares may also be exchanged for shares of any of the
following funds: Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust,
Morgan Stanley Dean Witter Short-Term Bond Fund, and five Morgan Stanley Dean
Witter Funds which are money market funds (the foregoing eight funds are
hereinafter referred to as the "Exchange Funds"). Class A shares may also be
30
<PAGE>
exchanged for shares of Morgan Stanley Dean Witter Multi-State Municipal Series
Trust and Morgan Stanley Dean Witter Hawaii Municipal Trust, which are Morgan
Stanley Dean Witter Funds sold with a front-end sales charge ("FSC Funds").
Class B shares may also be exchanged for shares of Morgan Stanley Dean Witter
Global Short-Term Income Fund Inc. ("Global Short-Term"), which is a Morgan
Stanley Dean Witter Fund offered with a CDSC. Exchanges may be made after the
shares of the fund acquired by purchase (not by exchange or dividend
reinvestment) have been held for thirty days. There is no waiting period for
exchanges of shares acquired by exchange or dividend reinvestment. An exchange
will be treated for federal income tax purposes the same as a repurchase or
redemption of shares, on which the shareholder may realize a capital gain or
loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the
present account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed.)
As described below, and in the Prospectus under the captions "Purchase of
Fund Shares," a CDSC may be imposed upon a redemption, depending on a number of
factors, including the number of years from the time of purchase until the time
of redemption or exchange ("holding period"). When shares of a Morgan Stanley
Dean Witter Multi-Class Fund or Global Short-Term are exchanged for shares of
an Exchange Fund, the exchange is executed at no charge to the shareholder,
without the imposition of the CDSC at the time of the exchange. During the
period of time the shareholder remains in the Exchange Fund (calculated from
the last day of the month in which the Exchange Fund shares were acquired), the
holding period or "year since purchase payment made" is frozen. When shares are
redeemed out of the Exchange Fund, they will be subject to a CDSC which would
be based upon the period of time the shareholder held shares in a Morgan
Stanley Dean Witter Multi-Class Fund or in Global Short-Term. However, in the
case of shares exchanged into an Exchange Fund on or after April 23, 1990, upon
a redemption of shares which results in a CDSC being imposed, a credit (not to
exceed the amount of the CDSC) will be given in an amount equal to the Exchange
Fund 12b-1 distribution fees which are attributable to those shares.
Shareholders acquiring shares of an Exchange Fund pursuant to this exchange
privilege may exchange those shares back into a Morgan Stanley Dean Witter
Multi-Class Fund or Global Short-Term from the Exchange Fund, with no charge
being imposed on such exchange. The holding period previously frozen when
shares were first exchanged for shares of an Exchange Fund resumes on the last
day of the month in which shares of a Morgan Stanley Dean Witter Multi-Class
Fund or of Global Short-Term are reacquired. A CDSC is imposed only upon an
ultimate redemption, based upon the time (calculated as described above) the
shareholder was invested in a Morgan Stanley Dean Witter Multi-Class Fund or in
Global Short-Term. In the case of exchanges of Class A shares which are subject
to a CDSC, the holding period also includes the time (calculated as described
above) the shareholder was invested in a FSC Fund.
When shares initially purchased in a Morgan Stanley Dean Witter
Multi-Class Fund or in Global Short-Term are exchanged for shares of a Morgan
Stanley Dean Witter Multi-Class Fund, shares of Global Short-Term, shares of a
FSC Fund, or shares of an Exchange Fund, the date of purchase of the shares of
the fund exchanged into, for purposes of the CDSC upon redemption, will be the
last day of the month in which the shares being exchanged were originally
purchased. In allocating the purchase payments between funds for purposes of
the CDSC, the amount which represents the current net asset value of shares at
the time of the exchange which were (i) purchased more than one, three or six
years (depending on the CDSC schedule applicable to the shares) prior to the
exchange, (ii) originally acquired through reinvestment of dividends or
distributions and (iii) acquired in exchange for shares of FSC Funds, or for
shares of other Morgan Stanley Dean Witter Funds for which shares of FSC Funds
have been exchanged (all such shares called "Free Shares"), will be exchanged
first. After an exchange, all dividends earned on shares in an Exchange Fund
will be considered Free Shares. If the exchanged amount exceeds the value of
such Free Shares, an exchange is made, on a block-by-block basis, of
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<PAGE>
non-Free Shares held for the longest period of time (except that, with respect
to Class B shares, if shares held for identical periods of time but subject to
different CDSC schedules are held in the same Exchange Privilege account, the
shares of that block that are subject to a lower CDSC rate will be exchanged
prior to the shares of that block that are subject to a higher CDSC rate).
Shares equal to any appreciation in the value of non-Free Shares exchanged will
be treated as Free Shares, and the amount of the purchase payments for the
non-Free Shares of the fund exchanged into will be equal to the lesser of (a)
the purchase payments for, or (b) the current net asset value of, the exchanged
non-Free Shares. If an exchange between funds would result in exchange of only
part of a particular block of non-Free Shares, then shares equal to any
appreciation in the value of the block (up to the amount of the exchange) will
be treated as Free Shares and exchanged first, and the purchase payment for
that block will be allocated on a pro rata basis between the non-Free Shares of
that block to be retained and the non-Free Shares to be exchanged. The prorated
amount of such purchase payment attributable to the retained non-Free Shares
will remain as the purchase payment for such shares, and the amount of purchase
payment for the exchanged non-Free Shares will be equal to the lesser of (a)
the prorated amount of the purchase payment for, or (b) the current net asset
value of, those exchanged non-Free Shares. Based upon the procedures described
in the Prospectus under the caption "Purchase of Fund Shares," any applicable
CDSC will be imposed upon the ultimate redemption of shares of any fund,
regardless of the number of exchanges since those shares were originally
purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
selected broker-dealer, if any, in the performance of such functions. With
respect to exchanges, redemptions or repurchases, the Transfer Agent shall be
liable for its own negligence and not for the default or negligence of its
correspondents or for losses in transit. The Fund shall not be liable for any
default or negligence of the Transfer Agent, the Distributor or any selected
broker-dealer.
The Distributor and any selected broker-dealer have authorized and
appointed the Transfer Agent to act as their agent in connection with the
application of proceeds of any redemption of Fund shares to the purchase of
shares of any other fund and the general administration of the Exchange
Privilege. No commission or discounts will be paid to the Distributor or any
selected broker-dealer for any transactions pursuant to this Exchange
Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege account of each Class is $5,000 for Morgan Stanley Dean
Witter Liquid Asset Fund Inc., Morgan Stanley Dean Witter Tax-Free Daily Income
Trust, Morgan Stanley Dean Witter California Tax-Free Daily Income Trust and
Morgan Stanley Dean Witter New York Municipal Money Market Trust, although
those funds may, in their discretion, accept initial investments of as low as
$1,000. The minimum initial investment for the Exchange Privilege account of
each Class is $10,000 for Morgan Stanley Dean Witter Short-Term U.S. Treasury
Trust, although that fund, in its discretion, may accept initial purchases of
as low as $5,000. The minimum initial investment for the Exchange Privilege
account of each Class is $5,000 for Morgan Stanley Dean Witter Special Value
Fund. The minimum initial investment for the Exchange Privilege account of each
Class of all other Morgan Stanley Dean Witter Funds for which the Exchange
Privilege is available is $1,000.) Upon exchange into an Exchange Fund, the
shares of that fund will be held in a special Exchange Privilege Account
separately from accounts of those shareholders who have acquired their shares
directly from that fund. As a result, certain services normally available to
shareholders of money market funds, including the check writing feature, will
not be available for funds held in that account.
The Fund and each of the other Morgan Stanley Dean Witter Funds may limit
the number of times this Exchange Privilege may be exercised by any investor
within a specified period of time. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of the Morgan Stanley
Dean Witter funds for which shares of the Fund have been exchanged, upon such
notice as may be required by applicable regulatory agencies (presently sixty
days for termination or material revision), provided that six months prior
written notice of termination will be given to the shareholders who hold
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<PAGE>
shares of Exchange Funds pursuant to this Exchange Privilege, and provided
further that the Exchange Privilege may be terminated or materially revised
without notice at times (a) when the New York Stock Exchange is closed for
other than customary weekends and holidays, (b) when trading on that Exchange
is restricted, (c) when an emergency exists as a result of which disposal by
the Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, (d) during any other period when the Securities and Exchange Commission
by order so permits (provided that applicable rules and regulations of the
Securities and Exchange Commission shall govern as to whether the conditions
prescribed in (b) or (c) exist) or (e) if the Fund would be unable to invest
amounts effectively in accordance with its investment objective, policies and
restrictions.
For further information regarding the Exchange Privilege, shareholders
should contact their Morgan Stanley Dean Witter Financial Advisors and other
selected broker-dealer representatives or the Transfer Agent.
REPURCHASES AND REDEMPTIONS
- --------------------------------------------------------------------------------
Redemption. As stated in the Prospectus, shares of each Class of the Fund
can be redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds will be reduced by the amount of
any applicable CDSC. If shares are held in a shareholder's account without a
share certificate, a written request for redemption to the Fund's Transfer
Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are
held by the shareholder, the shares may be redeemed by surrendering the
certificates with a written request for redemption. The share certificate, or
an accompanying stock power, and the request for redemption, must be signed by
the shareholder or shareholders exactly as the shares are registered. Each
request for redemption, whether or not accompanied by a share certificate, must
be sent to the Fund's Transfer Agent, which will redeem the shares at their net
asset value next computed (see "Purchase of Fund Shares") after it receives the
request, and certificate, if any, in good order. Any redemption request
received after such computation will be redeemed at the next determined net
asset value. The term "good order" means that the share certificate, if any,
and request for redemption are properly signed, accompanied by any
documentation required by the Transfer Agent, and bear signature guarantees
when required by the Fund or the Transfer Agent. If redemption is requested by
a corporation, partnership, trust or fiduciary, the Transfer Agent may require
that written evidence of authority acceptable to the Transfer Agent be
submitted before such request is accepted.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other
than the Distributor or a selected broker-dealer for the account of the
shareholder), partnership, trust or fiduciary, or sent to the shareholder at an
address other than the registered address, signatures must be guaranteed by an
eligible guarantor acceptable to the Transfer Agent (shareholders should
contact the Transfer Agent for a determination as to whether a particular
institution is such an eligible guarantor). A stock power may be obtained from
any dealer or commercial bank. The Fund may change the signature guarantee
requirements from time to time upon notice to shareholders, which may be by
means of a revised prospectus.
Repurchase. As stated in the Prospectus, DWR and other selected
broker-dealers are authorized to repurchase shares represented by a share
certificate which is delivered to any of their offices. Shares held in a
shareholder's account without a share certificate may also be repurchased by
DWR and other selected broker-dealers upon the telephonic request of the
shareholder. The repurchase price is the net asset value next computed after
such purchase order is received by DWR or other selected broker-dealer reduced
by any applicable CDSC.
Payment for Shares Repurchased or Redeemed. As discussed in the
Prospectus, payment for shares of any Class presented for repurchase or
redemption will be made by check within seven days after receipt by the
Transfer Agent of the certificate and/or written request in good order. Such
payment may be postponed or the right of redemption suspended at times (a) when
the New York Stock Exchange
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<PAGE>
is closed for other than customary weekends and holidays, (b) when trading on
that Exchange is restricted, (c) when an emergency exists as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable or
it is not reasonably practicable for the Fund fairly to determine the value of
its net assets, or (d) during any other period when the Securities and Exchange
Commission by order so permits; provided that applicable rules and regulations
of the Securities and Exchange Commission shall govern as to whether the
conditions prescribed in (b) or (c) exist. If the shares to be redeemed have
recently been purchased by check, payment of the redemption proceeds may be
delayed for the minimum time needed to verify that the check used for
investment has been honored (not more than fifteen days from the time of
receipt of the check by the Transfer Agent). It has been and remains the Fund's
policy and practice that, if checks for redemption proceeds remain uncashed, no
interest will accrue on amounts represented by such uncashed checks.
Shareholders maintaining margin accounts with DWR or another selected
broker-dealer are referred to their Morgan Stanley Dean Witter Financial
Advisor or other selected broker-dealer representative regarding restrictions
on redemption of shares of the Fund pledged in the margin account.
Transfers of Shares. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the
length of time shares subject to the charge have been held), any transfer
involving less than all 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.
Reinstatement Privilege. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may, within 35 days after the date of
redemption or repurchase reinstate any portion or all of the proceeds of such
redemption or repurchase in shares of the Fund in the same Class at the net
asset value next determined after a reinstatement request, together with such
proceeds, is received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and
reinstatement is made in shares of the Fund, some or all of the loss, depending
on the amount reinstated, will not be allowed as a deduction for federal income
tax purposes, but will be applied to adjust the cost basis of the shares
acquired upon reinstatement.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund will determine either to
distribute or to retain all or part of any net long-term capital gains in any
year for reinvestment. If any such gains are retained, the Fund will pay
federal income tax thereon, and shareholders will be required to include such
undistributed gains in their taxable income and will be able to claim their
share of the tax paid by the Fund as a credit against their individual federal
income tax.
Gains or losses on sales of securities by the Fund will be long-term
capital gains or losses if the securities have been held by the Fund for more
than twelve months. Gains or losses on the sale of securities held for twelve
months or less will be short-term gains or losses. The Treasury Department
intends to issue regulations to permit shareholders to take into account their
proportionate share of the Fund's capital gains distributions that will be
subject to a reduced rate under the Taxpayer Relief Act of 1997. The Taxpayer
Relief Act reduces the maximum tax rate on long-term capital gains from 28% to
20%. It also lengthens the required holding period to obtain the lower rate
from more than twelve months to more than eighteen months. However, the IRS
Restructuring and Reform Act of 1998 reduces the holding period requirement for
the lower capital gain rate to more than twelve months for transactions
occurring after January 1, 1998. The lower rates do not apply to collectibles
and certain other assets. Additionally, the maximum capital gain rate for
assets that are held more than five years and that are acquired after December
31, 2000 is 18%.
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<PAGE>
Any loss realized by shareholders upon a redemption of shares within six
months of the date of their purchase will be treated as a long-term loss to the
extent of any distributions of net long-term capital gains during the six month
period.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and
dividends are subject to federal income taxes. If the net asset value of the
shares should be reduced below a shareholder's cost as a result of the payment
of dividends or the distribution of realized net long-term capital gains, such
payment or distribution would be in part a return of the shareholder's
investment to the extent of such reduction below the shareholder's cost, but
nonetheless would be fully taxable at either ordinary or capital gain rates.
Therefore, an investor should consider the tax implications of purchasing Fund
shares immediately prior to a dividend or distribution record date.
Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"total return" in advertisements and sales literature. These figures are
computed for Class A, Class B, Class C and Class D shares. The Fund's "average
annual total return" represents an annualization of the Fund's total return
over a particular period and is computed by finding the annual percentage rate
which will result in the ending redeemable value of a hypothetical $1,000
investment made at the beginning of a one, five or ten year period, or for the
period from the date of commencement of the Fund's operations, if shorter than
any of the foregoing. The ending redeemable value is reduced by any CDSC at the
end of the one, five or ten year or other period. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
The formula for computing the average annual total return involves a percentage
obtained by dividing the ending redeemable value by the amount of the initial
investment, taking a root of the quotient (where the root is equivalent to the
number of years in the period) and subtracting 1 from the result. The average
annual total returns of Class B for the fiscal year ended March 31, 1998 and
for the period from May 29, 1992 (commencement of operations) through March 31,
1998 was 37.61% and 15.53%, respectively.
For periods of less than one year, the Fund quotes its total return on a
non-annualized basis. Accordingly, the Fund may compute its aggregate total
return for each of Class A, Class C and Class D for specified periods by
determining the aggregate percentage rate which will result in the ending value
of a hypothetical $1,000 investment made at the beginning of the period. For
the purpose of this calculation, it is assumed that all dividends and
distributions are reinvested. The formula for computing aggregate total return
involves a percentage obtained by dividing the ending value by the initial
$1,000 investment and subtracting 1 from the result. The ending redeemable
value is reduced by any CDSC at the end of the period. Based on the foregoing
calculations, the total returns for the period July 28, 1997 through March 31,
1998 were 7.86%, 12.47% and 14.09% for Class A, Class C and Class D,
respectively.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, year-by-year
or other types of total return figures. Such calculations may or may not
reflect the imposition of the maximum front-end sales charge for Class A or the
deduction of the CDSC for each of Class B and Class C which, if reflected,
would reduce the performance quoted. For example, the average annual total
return of the Fund may be calculated in the manner described above, but without
deduction for any applicable sales charge. Based on this calculation, the
average annual total returns of Class B for the fiscal year ended March 31,
1998 and for the period from May 29, 1992 through March 31, 1998 was 42.61% and
15.61%, 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
35
<PAGE>
investment made at the beginning of the period. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
The formula for computing aggregate total return involves a percentage obtained
by dividing the ending value (without the reduction for any sales charge) by
the initial $1,000 investment and subtracting 1 from the result. Based on the
foregoing calculation, the total returns for Class B for the fiscal year ended
March 31, 1998 and for the period from May 29, 1992 through March 31, 1998 were
42.61% and 133.22%, respectively. Based on the foregoing calculations, the
total returns for Class A, Class C and Class D for the period July 28, 1997
through March 31, 1998 were 13.84%, 13.33% and 14.09%, 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 (expressed as a decimal and
without taking into account the effect of any applicable CDSC) and multiplying
by $9,475, $48,000 and $97,000 in the case of Class A (investments of $10,000,
$50,000 or $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 March 31,
1998:
<TABLE>
<CAPTION>
INCEPTION
CLASS DATE: INVESTMENT AT INCEPTION OF:
- ----- ----- ---------------------------
$10,000 $50,000 $100,000
<S> <C> <C> <C> <C>
Class A ......... 7/28/97 $10,786 $54,643 $110,425
Class B ......... 5/29/92 23,322 116,610 233,220
Class C ......... 7/28/97 11,333 56,665 113,330
Class D ......... 7/28/97 11,409 57,045 114,090
</TABLE>
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full
share held. Trustees have been elected by the Fund's shareholders at a Special
Meeting of Shareholders on February 26, 1998. The Trustees themselves have the
power to alter the number and the terms of office of the Trustees, and they may
at any time lengthen 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. Under certain
circumstances the Trustees may be removed by action of the Trustees. The
shareholders also have the right to remove the Trustees following a meeting
called for that purpose requested in writing by the record holders of not less
than ten percent of the Fund's outstanding shares. 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.
The 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 (which would be used to distinguish among the rights of
different categories of shareholders, as might be required by future
regulations or other unforeseen circumstances). The Trustees have not presently
authorized any such additional series or classes of shares other than as set
forth in the Prospectus.
The 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 own
bad faith, willful misfeasance, gross negligence, or reckless disregard of his
duties. It also provides that all third persons shall look solely to the Fund's
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
liabilities in connection with the affairs of the Fund.
36
<PAGE>
The Fund is authorized to issue an unlimited number of shares of
beneficial interest. The Fund shall be of unlimited duration subject to the
provisions of the Declaration of Trust concerning termination by action of the
shareholders.
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Bank of New York, 90 Washington Street, New York, New York 10286 is
the Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
Morgan Stanley Dean Witter Trust FSB ("MSDW Trust"), Harborside Financial
Center, Plaza Two, Jersey City, New Jersey 07311 is the Transfer Agent of the
Fund's shares and Dividend Disbursing Agent for payment of dividends and
distributions on Fund shares and Agent for shareholders under various
investment plans described herein. MSDW Trust is an affiliate of Morgan Stanley
Dean Witter Advisors Inc., the Fund's Manager, and of Morgan Stanley Dean
Witter Distributors Inc., the Fund's Distributor. As Transfer Agent and
Dividend Disbursing Agent, MSDW Trust's responsibilities include maintaining
shareholder accounts, disbursing cash dividends and reinvesting dividends,
processing account registration changes, handling purchase and redemption
transactions, mailing prospectuses and reports, mailing and tabulating proxies,
processing share certificate transactions, and maintaining shareholder records
and lists. For these services MSDW Trust receives a per shareholder account
fee.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP serves as the independent accountants of the
Fund. The independent accountants are responsible for auditing the annual
financial statements of the Fund.
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports
showing the Fund's portfolio and other information. An annual report containing
financial statements audited by independent accountants will be sent to
shareholders each year.
The Fund's fiscal year ends on March 31. The financial statements of the
Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Board of Trustees.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the
Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of the Fund for the year ended March 31, 1998,
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.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
37
<PAGE>
MORGAN STANLEY DEAN WITTER GROWTH FUND
PORTFOLIO OF INVESTMENTS March 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (98.5%)
Aerospace & Defense (2.7%)
14,500 Litton Industries, Inc.* .................. $ 836,469
211,000 Lockheed Martin Corp. ..................... 23,737,500
------------
24,573,969
------------
Air Transport (12.1%)
64,300 AMR Corp.* ................................ 9,206,956
853,200 Continental Airlines, Inc. (Class B)*...... 50,178,825
251,600 Delta Air Lines, Inc. ..................... 29,751,700
205,900 UAL Corp.* ................................ 19,135,831
------------
108,273,312
------------
Aircraft & Aerospace (9.0%)
489,400 Boeing Co. ................................ 25,509,975
598,600 United Technologies Corp. ................. 55,258,262
------------
80,768,237
------------
Auto Parts -- Original
Equipment (1.1%)
130,300 Magna International Inc. (Class A)
(Canada) .................................. 10,155,256
------------
Automobiles (3.6%)
477,200 General Motors Corp. ...................... 32,181,175
------------
Banks -- Money Center (3.4%)
211,400 Citicorp .................................. 30,018,800
------------
Banks -- Regional (1.6%)
42,500 Wells Fargo & Co. ......................... 14,078,125
------------
Beverages -- Soft Drinks (2.2%)
458,600 PepsiCo, Inc. ............................. 19,576,487
------------
Broadcast Media (5.9%)
473,211 CBS Corp. ................................. 16,059,598
368,800 Clear Channel Communications,
Inc.* ..................................... 36,142,400
1,800 Pulitzer Publishing Co. ................... 143,775
------------
52,345,773
------------
Brokerage (2.8%)
304,300 Merrill Lynch & Co., Inc. ................. 25,256,900
------------
Commercial & Consumer
Services (5.2%)
1,163,300 Cendant Corp.* ............................ 46,095,762
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C>
Communications -- Equipment &
Software (2.8%)
51,000 3Com Corp.* ............................... $ 1,832,813
337,259 Cisco Systems, Inc.* ...................... 23,060,084
------------
24,892,897
------------
Computer Services (1.8%)
301,000 Computer Sciences Corp. * ................. 16,555,000
------------
Computer Software (6.0%)
104,300 Computer Associates
International, Inc. ....................... 6,023,325
531,800 Microsoft Corp.* .......................... 47,562,863
------------
53,586,188
------------
Electrical Equipment (0.9%)
101,500 Honeywell, Inc. ........................... 8,392,781
------------
Electronics -- Semiconductors/
Components (2.5%)
289,900 Intel Corp. ............................... 22,612,200
------------
Entertainment (0.1%)
37,700 Mirage Resorts, Inc. * .................... 916,581
------------
Financial (3.9%)
396,500 Fannie Mae ................................ 25,078,625
92,300 Golden West Financial Corp. ............... 8,843,494
41,000 Waddell & Reed Financial, Inc. ............ 1,066,000
------------
34,988,119
------------
Foods (0.4%)
86,500 Kellogg Co. ............................... 3,730,313
------------
Healthcare -- Diversified (6.2%)
196,100 Johnson & Johnson ......................... 14,376,581
154,900 United Healthcare Corp. ................... 10,029,775
184,700 Warner-Lambert Co. ........................ 31,456,719
------------
55,863,075
------------
Healthcare -- Drugs (2.7%)
399,900 Lilly (Eli) & Co. ......................... 23,844,038
------------
Manufacturing -- Diversified (1.1%)
175,400 Tyco International Ltd. ................... 9,581,225
------------
Multi-Line Insurance (2.3%)
196,600 Loews Corp. ............................... 20,495,550
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
MORGAN STANLEY DEAN WITTER GROWTH FUND
PORTFOLIO OF INVESTMENTS March 31, 1998, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------
<S> <C> <C>
Office Equipment & Supplies (0.1%)
34,800 Knoll, Inc.* ........................... $ 1,341,975
------------
Publishing (2.3%)
283,000 Time Warner, Inc. ...................... 20,376,000
------------
Restaurants (0.9%)
191,000 Cracker Barrell Old Country
Store, Inc. ............................ 7,640,000
------------
Retail -- Specialty (2.2%)
290,150 Home Depot, Inc. ....................... 19,566,991
------------
Soap & Household Products (3.7%)
389,200 Procter & Gamble Co. ................... 32,838,750
------------
Telecommunications (2.2%)
151,600 Lucent Technologies, Inc. .............. 19,385,850
------------
Telephones (4.4%)
108,300 AT&T Corp. ............................. 7,107,188
479,100 BellSouth Corp. ........................ 32,369,194
------------
39,476,382
------------
Tobacco (2.4%)
504,300 Philip Morris Companies, Inc. .......... 21,023,006
------------
TOTAL COMMON STOCKS
(Identified Cost $609,100,331).......... 880,430,717
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (1.8%)
REPURCHASE AGREEMENT
$ 16,012 The Bank of New York
5.375% due 04/01/98
(dated 03/31/98;
proceeds $16,012,026) (a)
(Identified Cost
$16,009,636)......................... $ 16,009,636
------------
TOTAL INVESTMENTS
(Identified Cost $625,109,967) (b)..... 100.3% 896,440,353
LIABILITIES IN EXCESS OF
OTHER ASSETS .......................... (0.3) (2,249,190)
----- -----------
NET ASSETS ............................ 100.0% $894,191,163
===== ============
</TABLE>
- --------------------------------
* Non-income producing security.
(a) Collateralized by $16,303,275 U.S. Treasury Note 5.50%
due 01/31/03 valued at $16,329,828.
(b) The aggregate cost for federal income tax purposes
approximates identified cost. The aggregate gross
unrealized appreciation is $273,603,558 and the aggregate
gross unrealized depreciation is $2,273,172, resulting in
net unrealized appreciation of $271,330,386.
SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
MORGAN STANLEY DEAN WITTER GROWTH FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $625,109,967) .................. $896,440,353
Receivable for:
Shares of beneficial interest sold ............ 1,097,242
Dividends ..................................... 323,537
Interest ...................................... 2,390
Prepaid expenses ................................... 232,566
------------
TOTAL ASSETS .................................. 898,096,088
------------
LIABILITIES:
Payable for:
Distributions to shareholders ................. 1,567,496
Shares of beneficial interest repurchased ..... 1,165,390
Management fee ................................ 582,460
Plan of distribution fee ...................... 482,281
Investment management fee ..................... 24,287
Investment advisory fee ....................... 16,191
Accrued expenses and other payables ................ 66,820
------------
TOTAL LIABILITIES ............................. 3,904,925
------------
NET ASSETS .................................... $894,191,163
============
COMPOSITION OF NET ASSETS:
Paid-in-capital .................................... $621,877,513
Net unrealized appreciation ........................ 271,330,386
Accumulated undistributed net realized gain ........ 983,264
------------
NET ASSETS .................................... $894,191,163
============
CLASS A SHARES:
Net Assets ......................................... $ 646,859
Shares Outstanding (unlimited authorized,
$.01 par value) ................................. 42,627
NET ASSET VALUE PER SHARE ..................... $ 15.17
============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset
value) ..................................... $ 16.01
============
CLASS B SHARES:
Net Assets ......................................... $893,110,581
Shares Outstanding (unlimited authorized,
$.01 par value) ................................. 59,062,079
NET ASSET VALUE PER SHARE ..................... $ 15.12
============
CLASS C SHARES:
Net Assets ......................................... $ 422,288
Shares Outstanding (unlimited authorized,
$.01 par value) ................................. 28,011
NET ASSET VALUE PER SHARE ..................... $ 15.08
============
CLASS D SHARES:
Net Assets ......................................... $ 11,435
Shares Outstanding (unlimited authorized,
$.01 par value) ................................. 752
NET ASSET VALUE PER SHARE ..................... $ 15.21
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended March 31, 1998*
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $31,286 foreign withholding
tax) ........................................... $ 7,663,193
Interest .......................................... 628,537
------------
TOTAL INCOME ................................. 8,291,730
------------
EXPENSES
Plan of distribution fee (Class A shares) ......... 128
Plan of distribution fee (Class B shares) ......... 5,417,766
Plan of distribution fee (Class C shares) ......... 1,284
Management fee .................................... 3,826,969
Investment advisory fee ........................... 2,551,313
Transfer agent fees and expenses .................. 777,289
Investment management fee ......................... 582,460
Shareholder reports and notices ................... 126,576
Professional fees ................................. 70,337
Registration fees ................................. 56,900
Custodian fees .................................... 49,282
Trustees' fees and expenses ....................... 42,967
Organizational expenses ........................... 6,681
Other ............................................. 52,800
------------
TOTAL EXPENSES ................................ 13,562,752
------------
NET INVESTMENT LOSS ........................... (5,271,022)
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ................................. 237,138,133
Net change in unrealized appreciation ............. 58,221,456
------------
NET GAIN ...................................... 295,359,589
------------
NET INCREASE ...................................... $290,088,567
============
</TABLE>
- --------------------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
MORGAN STANLEY DEAN WITTER GROWTH FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MARCH 31, 1998* MARCH 31, 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss .................................. $ (5,271,022) $ (5,793,842)
Net realized gain .................................... 237,138,133 90,999,031
Net change in unrealized appreciation ................ 58,221,456 (22,753,082)
-------------- -------------
NET INCREASE ...................................... 290,088,567 62,452,107
-------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED
GAIN:
Class A shares ....................................... (85,555) --
Class B shares ....................................... (285,764,089) (61,217,104)
Class C shares ....................................... (72,388) --
Class D shares ....................................... (4,322,077) --
-------------- -------------
TOTAL DISTRIBUTIONS ............................... (290,244,109) (61,217,104)
-------------- -------------
Net increase (decrease) from transactions in shares of
beneficial interest ................................ 166,818,675 (40,876,663)
-------------- -------------
NET INCREASE (DECREASE) ........................... 166,663,133 (39,641,660)
NET ASSETS:
Beginning of period .................................. 727,528,030 767,169,690
-------------- -------------
END OF PERIOD ..................................... $ 894,191,163 $ 727,528,030
============== =============
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
41
<PAGE>
MORGAN STANLEY DEAN WITTER GROWTH FUND
NOTES TO FINANCIAL STATEMENTS March 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Growth Fund (the "Fund"), formerly TCW/DW Core
Equity Trust, is registered under the Investment Company Act of 1940, as
amended, as a non-diversified, open-end management investment company. The
Fund's investment objective is long-term growth of capital. The Fund seeks to
achieve its objective by investing primarily in common stocks and securities
convertible into common stocks issued by domestic and foreign companies. The
Fund was organized as a Massachusetts business trust on January 31, 1992 and
commenced operations on May 29, 1992. On July 28, 1997, the Fund commenced
offering three additional classes of shares, with the then current shares
designated as Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price;
(2) all other portfolio securities for which over-the-counter market quotations
are readily available are valued at the latest available bid price prior to the
time of valuation; (3) when market quotations are not readily available,
including circumstances under which it is determined by Morgan Stanley Asset
Management Inc. (the "Sub-Advisor"), an affiliate of Dean Witter InterCapital
Inc. (the "Investment Manager"), that sale or bid prices are not reflective of
a security's market value, portfolio securities are valued at their fair value
as determined in good 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); and (4) short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis
42
<PAGE>
MORGAN STANLEY DEAN WITTER GROWTH FUND
NOTES TO FINANCIAL STATEMENTS March 31, 1998, continued
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity date
of sixty days or less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date
such items are recognized. Distribution fees are charged directly to the
respective class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which
may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
F. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of approximately $202,000 which have been reimbursed for the full
amount thereof, exclusive of $2,000 which has been absorbed by the Investment
Manager. Such expenses were fully amortized as of May 31, 1997.
43
<PAGE>
MORGAN STANLEY DEAN WITTER GROWTH FUND
NOTES TO FINANCIAL STATEMENTS March 31, 1998, continued
2. INVESTMENT MANAGEMENT / MANAGEMENT AGREEMENT
Pursuant to a Management Agreement in effect through March 1, 1998, the Fund
paid Dean Witter Services Company Inc. (the "Former Manager"), an affiliate of
the Investment Manager, a management fee, accrued daily and payable monthly, by
applying the following annual rates to the Fund's daily net assets determined
at the close of each business day: 0.51% to the portion of daily net assets not
exceeding $750 million; 0.48% to the portion of daily net assets exceeding $750
million but not exceeding $1.5 billion; and 0.45% to the portion of daily net
assets exceeding $1.5 billion.
Under the terms of the Management Agreement, the Former Manager maintained
certain of the Fund's books and records and furnished, at its own expense,
office space, facilities, equipment, clerical, bookkeeping and certain legal
services and paid the salaries of all personnel, including officers of the Fund
who were employees of the Former Manager. The Former Manager also bore the cost
of telephone services, heat, light, power and other utilities provided to the
Fund.
Effective March 2, 1998, pursuant to an Investment Management Agreement, the
Investment Manager took on all the responsibilities of the Former Manager and
TCW Funds Management, Inc. (the "Former Advisor"), and receives a management
fee, accrued daily and payable monthly, by applying the following annual rates
to the Fund's daily net assets determined at the close of each business day:
0.80% to the portion of daily net assets not exceeding $750 million; 0.75% to
the portion of daily net assets exceeding $750 million but not exceeding $1.5
billion; and 0.70% to the portion of daily net assets exceeding $1.5 billion.
3. INVESTMENT ADVISORY / SUB-ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement in effect through March 1, 1998,
the Fund paid the Former Advisor an advisory fee, accrued daily and payable
monthly, by applying the following annual rates to the Fund's daily net assets
determined at the close of each business day: 0.34% to the portion of daily net
assets not exceeding $750 million; 0.32% to the portion of daily net assets
exceeding $750 million but not exceeding $1.5 billion; and 0.30% to the portion
of daily net assets exceeding
$1.5 billion.
Under the terms of the Investment Advisory Agreement, the Fund retained the
Former Advisor to invest the Fund's assets, including placing orders for the
purchase and sale of portfolio securities. The Former Advisor obtained and
evaluated such information and gave advice relating to the economy, securities
markets, and specific securities as it considered necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective. In addition, the Former Advisor paid the salaries of all
personnel, including officers of the Fund, who were employees of the Former
Advisor.
44
<PAGE>
MORGAN STANLEY DEAN WITTER GROWTH FUND
NOTES TO FINANCIAL STATEMENTS March 31, 1998, continued
Effective March 2, 1998, the Sub-Advisor took on all the responsibilities of
the Former Advisor. As compensation for its services under a Sub-Advisory
Agreement between the Sub-Advisor and the Investment Manager, the Investment
Manager pays the Sub-Advisor 40% of its monthly compensation.
4. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The
Plan provides that the Fund will pay the Distributor a fee which is accrued
daily and paid monthly at the following annual rates: (i) Class A - up to 0.25%
of the average daily net assets of Class A; (ii) Class B - 1.0% of the lesser
of: (a) the average daily aggregate gross sales of the Class B shares since the
inception of the 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 has been imposed or waived; or (b) the average daily net assets of
Class B; and (iii) Class C - up to 1.0% 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 services
provided and the expenses borne by it and others in the distribution of the
shares of these Classes, including the payment of commissions for sales of
these Classes and incentive compensation to, and expenses of, the account
executives of Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment
Manager and Distributor, and others who engage in or support distribution of
the shares or who service shareholder accounts, including overhead and
telephone expenses; printing and distribution of prospectuses and reports used
in connection with the offering of these shares to other than current
shareholders; and preparation, printing and distribution of sales literature
and advertising materials. In addition, the Distributor may utilize fees paid
pursuant to the Plan, in the case of Class B shares, to compensate DWR and
other selected broker-dealers for their opportunity costs in advancing such
amounts, which compensation would be in the form of a carrying charge on any
unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the Distributor
under the Plan and the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares, if for any reason the Plan is terminated,
the
45
<PAGE>
MORGAN STANLEY DEAN WITTER GROWTH FUND
NOTES TO FINANCIAL STATEMENTS March 31, 1998, continued
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 $18,878,312 at March 31, 1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to account executives may be reimbursed in the subsequent
calendar year. For the period ended March 31, 1998, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.23% and
1.0%, respectively.
The Distributor has informed the Fund that for the period ended March 31, 1998,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C shares of $1,270,906 and $318, respectively
and received $4,630 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.
5. 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 March 31, 1998 aggregated
$611,012,119 and $751,615,090, respectively.
For the year ended March 31, 1998, the Fund incurred $3,195 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the Fund.
For the period May 31, 1997 through March 31, 1998, the Fund incurred brokerage
commissions of $4,350 with Morgan Stanley & Co. Inc., an affiliate of the
Investment Manager since May 31, 1997, for portfolio transactions executed on
behalf of the Fund.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager,
is the Fund's transfer agent.
46
<PAGE>
MORGAN STANLEY DEAN WITTER GROWTH FUND
NOTES TO FINANCIAL STATEMENTS March 31, 1998, continued
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997
------------------------------------ -----------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold ...................................... 37,956 $ 633,209 -- --
Reinvestment of distributions ............. 5,054 77,016 -- --
Redeemed .................................. (383) (6,771) -- --
---------- ------------ ---------- --------------
Net increase - Class A .................... 42,627 703,454 -- --
---------- ------------ ---------- --------------
CLASS B SHARES
Sold ...................................... 4,545,691 77,314,601 3,329,142 $ 52,606,423
Reinvestment of distributions ............. 16,919,027 264,591,495 3,693,581 57,173,675
Redeemed .................................. (10,620,556) (180,817,478) (9,631,148) (150,656,761)
---------- ------------ ---------- --------------
Net increase (decrease) - Class B ......... 10,844,162 161,088,618 (2,608,425) (40,876,663)
---------- ------------ ---------- --------------
CLASS C SHARES*
Sold ...................................... 32,145 541,605 -- --
Reinvestment of distributions ............. 4,683 71,691 -- --
Redeemed .................................. (8,817) (152,695) -- --
---------- ------------ ---------- --------------
Net increase - Class C .................... 28,011 460,601 -- --
---------- ------------ ---------- --------------
CLASS D SHARES*
Sold ...................................... 1,361,485 25,004,121 -- --
Reinvestment of distributions ............. 182 2,817 -- --
Redeemed .................................. (1,360,915) (20,440,936) -- --
---------- ------------ ---------- --------------
Net increase - Class D .................... 752 4,566,002 -- --
---------- ------------ ---------- --------------
Net increase (decrease) in Fund ........... 10,915,552 $166,818,675 (2,608,425) $ (40,876,663)
========== ============ ========== ==============
</TABLE>
- ---------------
* For the period July 28, 1997 (issue date) through March 31, 1998.
7. FEDERAL INCOME TAX STATUS
As of March 31, 1998, the Fund had temporary book/tax differences attributable
to capital loss deferrals on wash sales and permanent book/tax differences
attributable to a net operating loss. To reflect reclassifications arising from
the permanent differences, accumulated undistributed net realized gain was
charged and net investment loss was credited $5,271,022.
47
<PAGE>
MORGAN STANLEY DEAN WITTER GROWTH FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
-----------------------------------------------
1998**++ 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $ 15.09 $ 15.09 $ 12.11
--------- --------- ----------
Net investment loss ............................... (0.11) (0.12) (0.11)
Net realized and unrealized gain .................. 6.07 1.39 3.09
--------- --------- ----------
Total from investment operations .................. 5.96 1.27 2.98
--------- --------- ----------
Less distributions from net realized gain ......... (5.93) (1.27) --
--------- --------- ----------
Net asset value, end of period .................... $ 15.12 $ 15.09 $ 15.09
========= ========= ==========
TOTAL INVESTMENT RETURN+ .......................... 42.61% 8.31% 24.69%
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.64% 1.73% 1.82%
Net investment loss ............................... (0.64)% (0.75)% (0.72)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $893,111 $727,528 $767,170
Portfolio turnover rate ........................... 77% 45% 48%
Average commission rate paid ...................... $0.0596 $ 0.0590 $ 0.0595
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED MARCH 31, MAY 29, 1992*
------------------------------- THROUGH
1995 1994 MARCH 31, 1993
--------------- --------------- ------------------
<S> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $ 12.10 $ 11.26 $ 10.00
--------- --------- ----------
Net investment loss ............................... (0.06) (0.06) (0.01)
Net realized and unrealized gain .................. 0.07 0.90 1.27
--------- --------- ----------
Total from investment operations .................. 0.01 0.84 1.26
--------- --------- ----------
Less distributions from net realized gain ......... -- -- --
--------- --------- ----------
Net asset value, end of period .................... $ 12.11 $ 12.10 $ 11.26
========= ========= ==========
TOTAL INVESTMENT RETURN+ .......................... 0.08% 7.46% 12.60%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.96% 1.93% 2.07%(2)
Net investment loss ............................... (0.48)% (0.59)% (0.14)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $697,350 $707,069 $486,829
Portfolio turnover rate ........................... 38% 35% 26%(1)
Average commission rate paid ...................... -- -- --
</TABLE>
- -------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
MORGAN STANLEY DEAN WITTER GROWTH FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
MARCH 31, 1998++
-----------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $17.58
------
Net investment loss ............................... (0.04)
Net realized and unrealized gain .................. 2.28
-------
Total from investment operations .................. 2.24
-------
Less distributions from net realized gain ......... (4.65)
-------
Net asset value, end of period .................... $15.17
=======
TOTAL INVESTMENT RETURN+ .......................... 13.84%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.33%(2)
Net investment loss ............................... (0.34)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $647
Portfolio turnover rate ........................... 77%
Average commission rate paid ...................... $0.0596
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $17.58
------
Net investment loss ............................... (0.11)
Net realized and unrealized gain .................. 2.26
------
Total from investment operations .................. 2.15
------
Less distributions from net realized gain ......... (4.65)
------
Net asset value, end of period .................... $15.08
======
TOTAL INVESTMENT RETURN+ .......................... 13.33%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 2.02%(2)
Net investment loss ............................... (1.00)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $422
Portfolio turnover rate ........................... 77%
Average commission rate paid ...................... $0.0596
</TABLE>
- -------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
MORGAN STANLEY DEAN WITTER GROWTH FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
MARCH 31, 1998++
-----------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $17.58
-------
Net investment loss ............................... (0.08)
Net realized and unrealized gain .................. 2.36
-------
Total from investment operations .................. 2.28
-------
Less distributions from net realized gain.......... (4.65)
-------
Net asset value, end of period .................... $15.21
=======
TOTAL INVESTMENT RETURN+ .......................... 14.09%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.43%(2)
Net investment loss ............................... (0.78)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $11
Portfolio turnover rate ........................... 77%
Average commission rate paid ...................... $0.0596
</TABLE>
- -------------
* 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.
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
MORGAN STANLEY DEAN WITTER GROWTH FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER GROWTH FUND
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 Growth
Fund (the "Fund"), formerly TCW/DW Core Equity Trust, at March 31, 1998, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at March 31, 1998 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
May 8, 1998
51
<PAGE>
MORGAN STANLEY DEAN WITTER GROWTH FUND
FEDERAL TAX NOTICE (unaudited)
1998 FEDERAL TAX NOTICE
For the year ended March 31, 1998, the Fund paid to shareholders the following
per share amounts from long-term capital gains. These distributions are taxable
as 28% rate gains or 20% rate gains, as indicated below:
<TABLE>
<CAPTION>
PER SHARE
--------------------------------------------
CLASS A CLASS B CLASS C CLASS D
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Portion of long-term capital gains taxable as:
28% rate gain ............................... $0.36 $1.64 $0.36 $0.36
20% rate gain ............................... 4.21 4.21 4.21 4.21
----- ----- ----- -----
Total long-term capital gains ................ $4.57 $5.85 $4.57 $4.57
===== ===== ===== =====
</TABLE>
52
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
RATINGS OF CORPORATE DEBT INSTRUMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
BOND RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds rated Aaa, Aa, A and Baa are considered investment grade bonds.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate,
and therefore not well safeguarded during both good and bad times in
the future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of
time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca present obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its municipal bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and a modifier 3 indicates that the issue ranks in the lower end if
its generic rating category.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability to repay
punctually promissory obligations not having an original maturity in excess of
nine months. The ratings apply to Municipal
53
<PAGE>
Commercial Paper as well as taxable Commercial Paper. Moody's employs the
following three designations, all judged to be investment grade, to indicate
the relative repayment capacity of rated issuers: Prime-1, Prime-2, Prime-3.
Issuers rated Prime-1 have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations; and Issuers rated Prime-3 have
an acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")
BOND RATINGS
A Standard & Poor's bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers,
or lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other reasons.
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small
degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher-rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt
in higher-rated categories.
Bonds rated AAA, AA, A and BBB are considered investment grade bonds.
BB Debt rated "BB" has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties
or exposure to adverse business, financial or economic conditions
which could lead to inadequate capacity or willingness to pay interest
and repay principal.
B Debt rated "B" has a greater vulnerability to default but presently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions would likely impair
capacity or willingness to pay interest and repay principal.
CCC Debt rated "CCC" has a current identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic
conditions to meet timely payments of interest and repayments of
principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal.
54
<PAGE>
CC The rating "CC" is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC" rating.
C The rating "C" is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating.
Cl The rating "Cl" is reserved for income bonds on which no interest is
being paid.
NR Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.
Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded as having
predominantly speculative characteristics with respect to capacity to
pay interest and repay principal. "BB" indicates the least degree of
speculation and "C" the highest degree of speculation. While such debt
will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to
adverse conditions.
Plus (+) or minus (-): The rating from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing
within the major ratings categories.
COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. The commercial paper rating is not a recommendation to purchase
or sell a security. The ratings are based upon current information furnished by
the issuer or obtained by S&P from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information. Ratings are graded into group categories,
ranging from "A" for the highest quality obligations to "D" for the lowest.
Ratings are applicable to both taxable and tax-exempt commercial paper. The
categories are as follows:
Issues assigned A ratings are regarded as having the greatest capacity for
timely payment. Issues in this category are further refined with the
designation 1, 2, and 3 to indicate the relative degree of safety.
A-1 indicates that the degree of safety regarding timely payment is very
strong.
A-2 indicates capacity for timely payment on issues with this designation
is strong. However, the relative degree of safety is not as
overwhelming as for issues designated "A-1".
A-3 indicates a satisfactory capacity for timely payment. Obligations
carrying this designation are, however, somewhat more vulnerable to
the adverse effects of changes in circumstances than obligations
carrying the higher designations.
55
