<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 26, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
---------------------
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
---------------------
MORGAN STANLEY DEAN WITTER
GLOBAL UTILITIES FUND
(Exact Name of Registrant as Specified in Charter)
(formerly named Dean Witter Global Utilities Fund)
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(Address of Principal Executive Offices)
212-392-1600
(Registrant's Telephone Number)
BARRY FINK, ESQ.
Two World Trade Center
New York, New York 10048
(Name and Address of Agent for Service)
---------------------
COPY TO:
STUART M. STRAUSS, ESQ.
Gordon Altman Butowsky Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
The Exhibit Index is located on page [ ]
PURSUANT TO RULE 429, THIS REGISTRATION STATEMENT RELATES TO SHARES
PREVIOUSLY REGISTERED BY THE REGISTRANT ON FORM N-1A (REGISTRATION NOS.
33-50709; 811-7119).
- --------------------------------------------------------------------------------
<PAGE>
FORM N-14
MORGAN STANLEY DEAN WITTER GLOBAL UTILITIES FUND
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A) UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
PART A OF FORM N-14 ITEM NO. PROXY STATEMENT AND PROSPECTUS HEADING
- ------------------------------ -------------------------------------------------------
<S> <C>
1 (a) ........................ Cross Reference Sheet
(b) ........................ Front Cover Page
(c) ........................ *
2 (a) ........................ *
(b) ........................ Table of Contents
3 (a) ........................ Fee Table
(b) ........................ Synopsis
(c) ........................ Principal Risk Factors
4 (a) ........................ The Reorganization
(b) ........................ The Reorganization -- Capitalization Table (Unaudited)
5 (a) ........................ Registrant's Prospectus
(b) ........................ *
(c) ........................ *
(d) ........................ *
(e) ........................ Available Information
(f) ........................ Available Information
6 (a) ........................ Prospectus of TCW/DW Global Telecom Trust
(b) ........................ Available Information
(c) ........................ *
(d) ........................ *
7 (a) ........................ Introduction -- Proxies
(b) ........................ *
(c) ........................ Introduction; The Reorganization -- Appraisal Rights
8 (a) ........................ The Reorganization
(b) ........................ *
9 .......................... *
</TABLE>
<TABLE>
<CAPTION>
PART B OF FORM N-14 ITEM NO. STATEMENT OF ADDITIONAL INFORMATION HEADING
- ------------------------------ --------------------------------------------------------
<S> <C>
10(a) ........................ Cover Page
(b) ........................ *
11 .......................... Table of Contents
12(a) ........................ Additional Information about Morgan Stanley Dean Witter
Global Utilities Fund
(b) ........................ *
(c) ........................ *
13(a) ........................ Additional Information about TCW/DW Global Telecom
Trust
(b) ........................ *
(c) ........................ *
14 ........................ Registrant's Annual Report for the fiscal year ended
February 28, 1999. TCW/DW Global Telecom Trust's
Annual Report for the fiscal year ended May 31, 1998
and Semi-Annual Report for the six month period ended
November 30, 1998.
</TABLE>
<TABLE>
<CAPTION>
PART C OF FORM N-14 ITEM NO. OTHER INFORMATION HEADING
- ------------------------------ --------------------------
<S> <C>
15 .......................... Indemnification
16 .......................... Exhibits
17 .......................... Undertakings
</TABLE>
- ----------
* Not Applicable or negative answer
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(800) 869-NEWS
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 8, 1999
TO THE SHAREHOLDERS OF TCW/DW GLOBAL TELECOM TRUST:
Notice is hereby given of a Special Meeting of the Shareholders of TCW/DW
Global Telecom Trust ("Global Telecom") to be held in Conference Room A,
Forty-Fourth Floor, Two World Trade Center, New York, New York 10048, at 11:00
A.M., New York time, on June 8, 1999, and any adjournments thereof (the
"Meeting"), for the following purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization, dated
February 25, 1999 (the "Reorganization Agreement"), between Global Telecom
and Morgan Stanley Dean Witter Global Utilities Fund ("Global Utilities"),
pursuant to which substantially all of the assets of Global Telecom would
be combined with those of Global Utilities and shareholders of Global
Telecom would become shareholders of Global Utilities receiving shares of
Global Utilities with a value equal to the value of their holdings in
Global Telecom (the "Reorganization"); and
2. To act upon such other matters as may properly come before the Meeting.
The Reorganization is more fully described in the accompanying Proxy
Statement and Prospectus and a copy of the Reorganization Agreement is attached
as Exhibit A thereto. Shareholders of record at the close of business on March
, 1999 are entitled to notice of, and to vote at, the Meeting. Please read
the Proxy Statement and Prospectus carefully before telling us, through your
proxy or in person, how you wish your shares to be voted. THE BOARD OF TRUSTEES
OF GLOBAL TELECOM RECOMMENDS YOU VOTE IN FAVOR OF THE REORGANIZATION. WE URGE
YOU TO SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.
By Order of the Board of Trustees,
BARRY FINK,
Secretary
April , 1999
- -------------------------------------------------------------------------------
YOU CAN HELP AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP LETTERS TO
ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY. IF YOU ARE UNABLE
TO BE PRESENT IN PERSON, PLEASE FILL IN, SIGN AND RETURN THE ENCLOSED PROXY
IN ORDER THAT THE NECESSARY QUORUM BE REPRESENTED AT THE MEETING. THE
ENCLOSED ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
CERTAIN SHAREHOLDERS WILL BE ABLE TO VOTE TELEPHONICALLY BY TOUCHTONE
TELEPHONE OR ELECTRONICALLY ON THE INTERNET BY FOLLOWING INSTRUCTIONS ON
THEIR PROXY CARDS OR ON THE ENCLOSED VOTING INSTRUCTION FORM.
- -------------------------------------------------------------------------------
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL UTILITIES FUND
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(800) 869-NEWS
ACQUISITION OF THE ASSETS OF
TCW/DW GLOBAL TELECOM TRUST
BY AND IN EXCHANGE FOR SHARES OF
MORGAN STANLEY DEAN WITTER GLOBAL UTILITIES FUND
This Proxy Statement and Prospectus is being furnished to shareholders of
TCW/DW Global Telecom Trust ("Global Telecom") in connection with an Agreement
and Plan of Reorganization, dated February 25, 1999 (the "Reorganization
Agreement"), pursuant to which substantially all the assets of Global Telecom
will be combined with those of Morgan Stanley Dean Witter Global Utilities Fund
("Global Utilities") in exchange for shares of Global Utilities (the
"Reorganization"). As a result of this transaction, shareholders of Global
Telecom will become shareholders of Global Utilities and will receive shares of
Global Utilities with a value equal to the value of their holdings in Global
Telecom. The terms and conditions of this transaction are more fully described
in this Proxy Statement and Prospectus and in the Reorganization Agreement
between Global Telecom and Global Utilities, attached hereto as Exhibit A. The
address of Global Telecom is that of Global Utilities set forth above. This
Proxy Statement also constitutes a Prospectus of Global Utilities, which is
dated April , 1999, filed by Global Utilities with the Securities and
Exchange Commission (the "Commission") as part of its Registration Statement on
Form N-14 (the "Registration Statement").
Global Utilities is an open-end diversified management investment company
whose investment objective is to seek both capital appreciation and current
income. The fund seeks to achieve its objective by investing in equity and
fixed-income securities of issuers worldwide which are primarily engaged in the
utilities industry.
This Proxy Statement and Prospectus sets forth concisely information about
Global Utilities that shareholders of Global Telecom should know before voting
on the Reorganization Agreement. A copy of the Prospectus for Global Utilities
dated June 26, 1998, is attached as Exhibit B and incorporated herein by
reference. Also enclosed and incorporated herein by reference is Global
Utilities's Annual Report for the fiscal year ended February 28, 1999. A
Statement of Additional Information relating to the Reorganization, described
in this Proxy Statement and Prospectus (the "Additional Statement"), dated
April , 1999, has been filed with the Commission and is also incorporated
herein by reference. Also incorporated herein by reference are Global Telecom's
Prospectus, dated July 31, 1998, and Annual Report for its fiscal year ended
May 31, 1998 and the succeeding unaudited Semi-Annual Report for the six months
ended November 30, 1998. Such documents are available without charge by calling
(800) 869-NEWS (TOLL FREE).
Investors are advised to read and retain this Proxy Statement and Prospectus
for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THIS PROXY STATEMENT AND PROSPECTUS IS DATED APRIL , 1999.
<PAGE>
TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTRODUCTION ............................................................................. 1
General ................................................................................ 1
Record Date; Share Information ......................................................... 1
Proxies ................................................................................ 2
Expenses of Solicitation ............................................................... 2
Vote Required .......................................................................... 3
SYNOPSIS ................................................................................. 3
The Reorganization ..................................................................... 3
Fee Table .............................................................................. 4
Tax Consequences of the Reorganization ................................................. 8
Comparison of Global Telecom and Global Utilities ...................................... 8
PRINCIPAL RISK FACTORS ................................................................... 11
THE REORGANIZATION ....................................................................... 13
The Proposal ........................................................................... 13
The Board's Consideration .............................................................. 13
The Reorganization Agreement ........................................................... 14
Tax Aspects of the Reorganization ...................................................... 16
Description of Shares .................................................................. 17
Capitalization Table (unaudited) ....................................................... 17
Appraisal Rights ....................................................................... 18
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS ........................... 18
Investment Objectives and Policies ..................................................... 18
Investment Restrictions ................................................................ 20
ADDITIONAL INFORMATION ABOUT GLOBAL TELECOM AND GLOBAL
UTILITIES ............................................................................... 20
General ................................................................................ 20
Financial Information .................................................................. 20
Management ............................................................................. 20
Description of Securities and Shareholder Inquiries .................................... 20
Dividends, Distributions and Taxes ..................................................... 20
Purchases, Repurchases and Redemptions ................................................. 21
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE .............................................. 21
FINANCIAL STATEMENTS AND EXPERTS ......................................................... 21
LEGAL MATTERS ............................................................................ 21
AVAILABLE INFORMATION .................................................................... 21
OTHER BUSINESS ........................................................................... 22
Exhibit A - Agreement and Plan of Reorganization, dated February 25, 1999, by and between
Global Telecom and Global Utilities ..................................................... A-1
Exhibit B - Prospectus of Global Utilities dated June 26, 1998 ........................... B-1
</TABLE>
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(800) 869-NEWS
--------------------
PROXY STATEMENT AND PROSPECTUS
--------------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 8, 1999
INTRODUCTION
GENERAL
This Proxy Statement and Prospectus is being furnished to the shareholders
of TCW/DW Global Telecom Trust ("Global Telecom"), an open-end diversified
management investment company, in connection with the solicitation by the Board
of Trustees of Global Telecom (the "Board") of proxies to be used at the
Special Meeting of Shareholders of Global Telecom to be held in Conference Room
A, Forty-Fourth Floor, Two World Trade Center, New York, New York 10048 at
11:00 A.M., New York time, on June 8, 1999, and any adjournments thereof (the
"Meeting"). It is expected that the mailing of this Proxy Statement and
Prospectus will be made on or about April , 1999.
At the Meeting, Global Telecom shareholders ("Shareholders") will consider
and vote upon an Agreement and Plan of Reorganization, dated February 25, 1999
(the "Reorganization Agreement"), between Global Telecom and Morgan Stanley
Dean Witter Global Utilities Fund ("Global Utilities") pursuant to which
substantially all of the assets of Global Telecom will be combined with those
of Global Utilities in exchange for shares of Global Utilities. As a result of
this transaction, Shareholders will become shareholders of Global Utilities and
will receive shares of Global Utilities equal to the value of their holdings in
Global Telecom on the date of such transaction (the "Reorganization"). Pursuant
to the Reorganization, each Shareholder will receive the class of shares of
Global Utilities that corresponds to the class of shares of Global Telecom
currently held by that Shareholder. Accordingly, as a result of the
Reorganization, each Class A, Class B, Class C and Class D Shareholder of
Global Telecom will receive Class A, Class B, Class C and Class D shares of
Global Utilities, respectively. The shares to be issued by Global Utilities
pursuant to the Reorganization (the "Global Utilities Shares") will be issued
at net asset value without an initial sales charge. Further information
relating to Global Utilities is set forth herein and in Global Utilities'
current Prospectus, dated June 26, 1998 ("Global Utilities' Prospectus"),
attached to this Proxy Statement and Prospectus and incorporated herein by
reference.
The information concerning Global Telecom contained herein has been
supplied by Global Telecom and the information concerning Global Utilities
contained herein has been supplied by Global Utilities.
RECORD DATE; SHARE INFORMATION
The Board has fixed the close of business on March 26, 1999 as the record
date (the "Record Date") for the determination of the Shareholders entitled to
notice of, and to vote at, the Meeting. As of the Record Date, there were
shares of Global Telecom issued and outstanding. Shareholders on the
Record Date are entitled to one vote per share on each matter submitted to a
vote at the Meeting. A majority of the outstanding shares entitled to vote,
represented in person or by proxy, will constitute a quorum at the Meeting.
1
<PAGE>
The following persons were known to own of record or beneficially 5% or
more of the outstanding shares of a Class of Global Telecom as of the Record
Date: [ ] As of the Record Date, the trustees and officers of Global
Telecom, as a group, owned less than 1% of the outstanding shares of Global
Telecom.
The following persons were known to own of record or beneficially 5% or
more of the outstanding shares of a Class of Global Utilities as of the Record
Date: [ ] As of the Record Date, the trustees and officers of Global
Utilities, as a group, owned less than 1% of the outstanding shares of Global
Utilities.
PROXIES
The enclosed form of proxy, if properly executed and returned, will be
voted in accordance with the choice specified thereon. The proxy will be voted
in favor of the Reorganization Agreement unless a choice is indicated to vote
against or to abstain from voting on the Reorganization Agreement. The Board
knows of no business, other than that set forth in the Notice of Special
Meeting of Shareholders, to be presented for consideration at the Meeting.
However, the proxy confers discretionary authority upon the persons named
therein to vote as they determine on other business, not currently
contemplated, which may come before the Meeting. Abstentions and, if
applicable, broker "non-votes" will not count as votes in favor of the
Reorganization Agreement, and broker "non-votes" will not be deemed to be
present at the meeting for purposes of determining whether the Reorganization
Agreement has been approved. Broker "non-votes" are shares held in street name
for which the broker indicates that instructions have not been received from
the beneficial owners or other persons entitled to vote and for which the
broker does not have discretionary voting authority. If a Shareholder executes
and returns a proxy but fails to indicate how the votes should be cast, the
proxy will be voted in favor of the Reorganization Agreement. The proxy may be
revoked at any time prior to the voting thereof by: (i) delivering written
notice of revocation to the Secretary of Global Telecom at Two World Trade
Center, New York, New York 10048; (ii) attending the Meeting and voting in
person; or (iii) completing and returning a new proxy (if returned and received
in time to be voted). Attendance at the Meeting will not in and of itself
revoke a proxy.
In the event that the necessary quorum to transact business or the vote
required to approve or reject the Reorganization Agreement is not obtained at
the Meeting, the persons named as proxies may propose one or more adjournments
of the Meeting to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote of the holders of a majority of shares of
Global Telecom present in person or by proxy at the Meeting. The persons named
as proxies will vote in favor of such adjournment those proxies which they are
entitled to vote in favor of the Reorganization Agreement and will vote against
any such adjournment those proxies required to be voted against the
Reorganization Agreement.
EXPENSES OF SOLICITATION
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement and Prospectus, will be borne by Global Telecom
which expenses are expected to approximate $145,000. Global Telecom and Global
Utilities will bear all of their respective other expenses associated with the
Reorganization. In addition to the solicitation of proxies by mail, proxies may
be solicited by officers of Global Telecom, and officers and regular employees
of Morgan Stanley Dean Witter Services Company Inc. ("MSDW Services" or the
"Manager") or its parent company Morgan Stanley Dean Witter Advisors Inc.
("MSDW Advisors") and Morgan Stanley Dean Witter Trust FSB ("MSDW Trust"), an
affiliate of MSDW Advisors, personally or by mail, telephone, telegraph or
otherwise, without compensation therefor. Brokerage houses, banks and other
fiduciaries may be requested to forward soliciting material to the beneficial
owners of shares and to obtain authorization for the execution of proxies.
2
<PAGE>
Shareholders whose shares are registered with MSDW Trust will be able to
vote their shares by touchtone telephone or by Internet by following the
instructions on the proxy card or on the voting instruction form accompanying
this proxy statement. To vote by touchtone telephone, Shareholders can call the
toll-free number 1-800-869-NEWS. To vote by Internet, Shareholders can access
the websites www.msdwt.com or www.proxyvote.com. Telephonic and Internet voting
with MSDW Trust presently are not available to Shareholders whose shares are
held in street name.
In certain instances, MSDW Trust, an affiliate of MSDW Advisors, may call
Shareholders to ask if they would be willing to have their votes recorded by
telephone. The telephone voting procedure is designed to authenticate
Shareholders' identities, to allow Shareholders to authorize the voting of
their shares in accordance with their instructions and to confirm that their
instructions have been recorded properly. No recommendation will be made as to
how a Shareholder should vote on the Reorganization Agreement other than to
refer to the recommendation of the Board. Global Telecom has been advised by
counsel that these procedures are consistent with the requirements of
applicable law. Shareholders voting by telephone in this manner will be asked
for their social security number or other identifying information and will be
given an opportunity to authorize proxies to vote their shares in accordance
with their instructions. To ensure that the Shareholders' instructions have
been recorded correctly, they will receive a confirmation of their instructions
in the mail. A special toll-free number will be available in case the
information contained in the confirmation is incorrect. Although a
Shareholder's vote may be taken by telephone, each Shareholder will receive a
copy of this Proxy Statement and Prospectus and may vote by mail using the
enclosed proxy card or by touchtone telephone or the Internet, as set forth
above. The last proxy vote received in time to be voted, whether by proxy
card, touchtone telephone or Internet will be the vote that is counted and
will revoke all previous votes by the Shareholder.
VOTE REQUIRED
Approval of the Reorganization Agreement by the Shareholders requires the
affirmative vote of a majority (i.e., more than 50%) of the shares of Global
Telecom represented in person or by proxy and entitled to vote at the Meeting,
provided a quorum is present at the Meeting. If the Reorganization Agreement is
not approved by Shareholders, Global Telecom will continue in existence and the
Board will consider alternative actions.
SYNOPSIS
The following is a synopsis of certain information contained in or
incorporated by reference in this Proxy Statement and Prospectus. This synopsis
is only a summary and is qualified in its entirety by the more detailed
information contained or incorporated by reference in this Proxy Statement and
Prospectus and the Reorganization Agreement. Shareholders should carefully
review this Proxy Statement and Prospectus and Reorganization Agreement in
their entirety and, in particular, Global Utilities' Prospectus, which is
attached to this Proxy Statement and incorporated herein by reference.
THE REORGANIZATION
The Reorganization Agreement provides for the transfer of substantially
all the assets of Global Telecom, subject to stated liabilities, to Global
Utilities in exchange for the Global Utilities Shares. The aggregate net asset
value of the Global Utilities Shares issued in the exchange will equal the
aggregate value of the net assets of Global Telecom received by Global
Utilities. On or after the closing date scheduled for the Reorganization (the
"Closing Date"), Global Telecom will distribute the Global Utilities Shares
received by Global Telecom to Shareholders as of the Valuation Date (as defined
below under "The Reorganization Agreement") in complete liquidation of Global
Telecom and Global Telecom will thereafter be dissolved and deregistered under
the Investment Company Act of 1940, as amended (the "1940 Act"). As a result of
the Reorganization, each Shareholder will receive that number of full and
fractional Global Utilities Shares equal in value to such Shareholder's pro
rata interest in the net assets of Global Telecom transferred to Global
Utilities. Pursuant to
3
<PAGE>
the Reorganization, each Shareholder will receive the class of shares of Global
Utilities that corresponds to the class of shares of Global Telecom currently
held by that Shareholder. Accordingly, as a result of the Reorganization, each
Class A, Class B, Class C and Class D Shareholder of Global Telecom will become
holders of Class A, Class B, Class C and Class D shares of Global Utilities,
respectively. Shareholders holding their shares of Global Telecom in
certificate form will be asked to surrender their certificates in connection
with the Reorganization. Shareholders who do not surrender their certificates
prior to the Closing Date will still receive their shares of Global Utilities;
however, such Shareholders will not be able to redeem, transfer or exchange the
Global Utilities Shares received until the old certificates have been
surrendered. The Board has determined that the interests of Shareholders will
not be diluted as a result of the Reorganization.
FOR THE REASONS SET FORTH BELOW UNDER "THE REORGANIZATION -- THE BOARD'S
CONSIDERATION," THE BOARD, INCLUDING THE TRUSTEES WHO ARE NOT "INTERESTED
PERSONS" OF GLOBAL TELECOM ("INDEPENDENT TRUSTEES"), AS THAT TERM IS DEFINED IN
THE 1940 ACT, HAS CONCLUDED THAT THE REORGANIZATION IS IN THE BEST INTERESTS OF
GLOBAL TELECOM AND ITS SHAREHOLDERS AND RECOMMENDS APPROVAL OF THE
REORGANIZATION AGREEMENT.
FEE TABLE
Global Telecom and Global Utilities each pay expenses for management of
their assets, distribution of their shares and other services, and those
expenses are reflected in the net asset value per share of each fund. The
following table illustrates expenses and fees that each class of shares of
Global Telecom incurred during the fund's fiscal year ended May 31, 1998. With
respect to Global Utilities, the table sets forth expenses and fees based on
the fund's February 28, 1999 fiscal year end. The table also sets forth pro
forma fees for the surviving combined fund (Global Utilities) reflecting what
the fee schedule would have been on February 28, 1999, if the Reorganization
had been consummated twelve (12) months prior to that date.
4
<PAGE>
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
GLOBAL GLOBAL PRO FORMA
TELECOM UTILITIES COMBINED
--------------- --------------- ---------------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE IMPOSED ON PURCHASES
(AS A PERCENTAGE OF OFFERING PRICE)
Class A ............................................... 5.25%(1) 5.25%(1) 5.25%(1)
Class B ............................................... none none none
Class C ............................................... none none none
Class D ............................................... none none none
MAXIMUM SALES CHARGE IMPOSED ON REINVESTED DIVIDENDS
Class A ............................................... none none none
Class B ............................................... none none none
Class C ............................................... none none none
Class D ............................................... none none none
MAXIMUM CONTINGENT DEFERRED SALES CHARGE (AS A
PERCENTAGE OF THE LESSER OF ORIGINAL PURCHASE PRICE OR
REDEMPTION PROCEEDS)
Class A ............................................... none (2) none (2) none (2)
Class B ............................................... 5.00%(3) 5.00%(3) 5.00%(3)
Class C ............................................... 1.00%(4) 1.00%(4) 1.00%(4)
Class D ............................................... none none none
REDEMPTION FEES
Class A ............................................... none none none
Class B ............................................... none none none
Class C ............................................... none none none
Class D ............................................... none none none
EXCHANGE FEE
Class A ............................................... none none none
Class B ............................................... none none none
Class C ............................................... none none none
Class D ............................................... none none none
</TABLE>
Annual Fund Operating Expenses As a Percentage of Average Net Assets
<TABLE>
<CAPTION>
GLOBAL GLOBAL PRO FORMA
TELECOM UTILITIES COMBINED
--------- -------------- --------------
<S> <C> <C> <C>
MANAGEMENT AND ADVISORY FEE(5)
Class A ...................... 1.00% 0.65% %(6)
Class B ...................... 1.00% 0.65% %(6)
Class C ...................... 1.00% 0.65% %(6)
Class D ...................... 1.00% 0.65% %(6)
12B-1 FEES(5)(7)(8)(9)
Class A ...................... 0.24% 0.25% %
Class B ...................... 0.80% %(9) %(9)
Class C ...................... 1.00% 1.00% 1.00%
Class D ...................... none none none
OTHER EXPENSES(5)
Class A ...................... 0.32% % %
Class B ...................... 0.32% % %
Class C ...................... 0.32% % %
Class D ...................... 0.32% % %
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
GLOBAL GLOBAL PRO FORMA
TELECOM UTILITIES COMBINED
--------- ----------- -----------
<S> <C> <C> <C>
TOTAL FUND OPERATING EXPENSES
Class A ..................... 1.56% % %
Class B ..................... 2.12% % %
Class C ..................... 2.32% % %
Class D ..................... 1.32% % %
</TABLE>
- ----------
(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund Shares
-- Initial Sales Charge Alternative -- Class A Shares" in each fund's
Prospectus).
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a Contingent Deferred Sales Charge ("CDSC") of
1.00% that will be imposed on redemptions made within one year after
purchase, except for certain specific circumstances (see "Purchases,
Exchanges and Redemptions" below and "Purchase of Fund Shares -- Initial
Sales Charge Alternative -- Class A Shares" in each fund's Prospectus).
(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
"Purchases, Exchanges and Redemptions" below and "Purchase of Fund Shares
-- Level Load Alternative -- Class C Shares" in each fund's Prospectus).
(5) There were no outstanding shares of Class A, Class C or Class D of Global
Telecom prior to July 28, 1997. Accordingly, Global Telecom's operating
expenses for shares of Class A, Class C and Class D shown in the table
are annualized based upon actual expenses incurred by each of those
classes during the period July 28, 1997 through May 31, 1998.
(6) This rate reflects the anticipated lower advisory fee of Global Utilities
obtained by the effect of having additional assets at a lower breakpoint
in the advisory fee upon the combination of the two funds based upon
Global Telecom's average net assets for the fiscal year ended May 31,
1998 and Global Utilities' average net assets for the fiscal year ended
February 28, 1999, thus, a scaling down of the advisory fee to the
effective advisory fee rate shown.
(7) The 12b-1 fee is accrued daily and payable monthly. With respect to each
fund, 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 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
Morgan Stanley Dean Witter Distributors Inc. (the "Distributor") to
compensate it for the services provided and the expenses borne by the
Distributor and others in the distribution of each fund's shares (see
"Description of Shares" below and "Purchase of Fund Shares -- Plan of
Distribution" in each fund's Prospectus).
(8) 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% 12b-1 fee (see "Description of Shares"
below and "Purchase of Fund Shares -- Alternative Purchase Arrangements"
in each fund's Prospectus).
(9) Although the formula for calculating the 12b-1 fees for the Class B
shares is similar for both funds, the application of the formula (1.0% of
the lesser of average daily net sales or average daily net assets)
results in lower annual 12b-1 fees on the existing assets of the Class B
shares of Global Utilities. Upon the consummation of the Reorganization,
the assets of Global Telecom are treated under the formula as new sales
and a 1.0% rate is applied thereto. When combined with the existing
assets of Global Utilities, the effect initially is a slight increase in
the annual 12b-1 fees on the Class B shares of the combined fund.
6
<PAGE>
HYPOTHETICAL EXPENSES
To attempt to show the effect of these expenses on an investment over
time, the hypotheticals shown below have been created. Assuming that an
investor makes a $1,000 investment in either Global Telecom or Global Utilities
or the new combined fund (Global Utilities), that the annual return is 5% and
that the operating expenses for each fund are the ones shown in the chart
above, if the investment was redeemed at the end of each period shown below,
the investor would incur the following expenses by the end of each period
shown:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Global Telecom
Class A ......... $ $ $ $
Class B ......... $ $ $ $
Class C ......... $ $ $ $
Class D ......... $ $ $ $
Global Utilities
Class A ......... $ $ $ $
Class B ......... $ $ $ $
Class C ......... $ $ $ $
Class D ......... $ $ $ $
Pro Forma Combined
Class A ......... $ $ $ $
Class B ......... $ $ $ $
Class C ......... $ $ $ $
Class D ......... $ $ $ $
</TABLE>
If such investment was not redeemed, the investor would incur the
following expenses:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Global Telecom
Class A ......... $ $ $ $
Class B ......... $ $ $ $
Class C ......... $ $ $ $
Class D ......... $ $ $ $
Global Utilities
Class A ......... $ $ $ $
Class B ......... $ $ $ $
Class C ......... $ $ $ $
Class D ......... $ $ $ $
Pro Forma Combined
Class A ......... $ $ $ $
Class B ......... $ $ $ $
Class C ......... $ $ $ $
Class D ......... $ $ $ $
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL OPERATING EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. LONG-TERM SHAREHOLDERS OF CLASS A, CLASS B AND CLASS C
SHARES OF GLOBAL TELECOM AND GLOBAL UTILITIES MAY PAY MORE IN SALES CHARGES
INCLUDING DISTRIBUTION FEES THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM
FRONT-END SALES CHARGES PERMITTED BY THE NASD.
7
<PAGE>
The purpose of the foregoing fee table is to assist the investor or
shareholder in understanding the various costs and expenses that an investor or
shareholder in the fund will bear directly or indirectly. For a more complete
description of these costs and expenses, see "Comparison of Global Telecom and
Global Utilities -- Investment Management and Distribution Plan Fees, Other
Significant Fees, and Purchases, Exchanges and Redemptions" below.
TAX CONSEQUENCES OF THE REORGANIZATION
As a condition to the Reorganization, Global Telecom will receive an
opinion of Gordon Altman Butowsky Weitzen Shalov & Wein to the effect that the
Reorganization will constitute a tax-free reorganization for Federal income tax
purposes, and that no gain or loss will be recognized by Global Telecom or the
shareholders of Global Telecom for Federal income tax purposes as a result of
the transactions included in the Reorganization. For further information about
the tax consequences of the Reorganization, see "The Reorganization -- Tax
Aspects of the Reorganization" below.
COMPARISON OF GLOBAL TELECOM AND GLOBAL UTILITIES
INVESTMENT OBJECTIVES AND POLICIES. Global Telecom and Global Utilities
are funds which have similar although not identical investment objectives. The
investment objective of Global Telecom is long-term capital appreciation. The
investment objective of Global Utilities is capital appreciation and current
income.
Global Telecom seeks to achieve its investment objective by investing,
under normal circumstances, at least 65% of its total assets in common stocks
and securities convertible into common stocks of domestic and foreign companies
operating in all aspects of the telecommunications and information industries.
Companies considered to be in the communications and information industries are
those companies which derive at least 35% of their revenues or earnings from
these industries or devote at least 35% of their assets to activities in such
industries. Global Utilities seeks to achieve its investment objective by
investing at least 65% of its total assets in equity and fixed-income
securities of issuers worldwide which are primarily engaged in the utilities
industry. Companies considered to be in the utilities industry are those
companies which, during a most recent twelve month period, derived at least 50%
of their gross revenues, on a consolidated basis, from the utilities industry.
Global Telecom, under normal circumstances, maintains at least 25% of its
portfolio in securities issued by issuers located in the United States and
maintains at least 65% of its total assets in securities of issuers located in
at least three different countries (no country other than the United States may
represent more than 25% of the fund's total assets). Up to 35% of the assets of
Global Telecom may be invested in investment grade fixed-income securities
consisting of U.S. Government securities, corporate debt securities and money
market instruments. Global Telecom may invest up to 25% of its total assets in
convertible securities which may be rated below investment grade and considered
"junk bonds". Global Utilities, under normal circumstances, invests in both
equity securities (including convertible securities) and investment grade
fixed-income securities and shifts its asset allocation without restriction
between equity and fixed-income securities and types of utilities worldwide
based upon the Investment Manager's determination of how to achieve the fund's
investment objective in light of prevailing market, economic and financial
conditions. The fund's investment portfolio will be invested in at least three
separate countries. Both funds may invest greater than 35% of their assets in
various money market instruments or cash when market conditions warrant a
reduction of the funds' securities holdings in order to adopt a temporary
defensive posture. The processes by which each fund selects common stocks and
other investments may differ and are more fully described under "Comparison of
Investment Objectives, Policies and Restrictions" below.
The principal differences between the funds' investment policies, as well
as certain similarities, are more fully described under "Comparison of
Investment Objectives, Policies and Restrictions" below.
8
<PAGE>
The investment policies of both Global Telecom and Global Utilities are
not fundamental and may be changed by their respective Boards of Trustees.
INVESTMENT MANAGEMENT AND DISTRIBUTION PLAN FEES. Global Telecom obtains
management services from MSDW Services, a wholly-owned subsidiary of MSDW
Advisors, and investment advisory services from TCW Funds Management Inc.
("TCW"). As compensation for such services, Global Telecom pays (i) MSDW
Services a fee at an annual rate of 0.60% of the fund's average daily net
assets and (ii) TCW a fee at an annual rate of 0.40% of the fund's average
daily net assets; this combined fee is higher than the compensation paid by
Global Utilities for such services. The fees are paid monthly and calculated
daily. Global Utilities obtains investment management services from MSDW
Advisors. As compensation for such services, Global Utilities pays MSDW
Advisors monthly compensation calculated daily by applying the annual rate of
0.65% to the portion of the fund's average daily net assets not exceeding $500
million and 0.625% to the portion of such daily net assets exceeding $500
million. Each class of both funds' shares is subject to the same management fee
rates applicable to the respective fund.
Both Global Telecom and Global Utilities have adopted similar distribution
plans ("Plans") pursuant to Rule 12b-1 under the 1940 Act. In the case of Class
A and Class C shares, each fund's Plan provides that the fund will reimburse
the Distributor and others for the expenses of certain activities and services
incurred by them in connection with the distribution of the Class A and Class C
Shares of the fund. Reimbursement for these expenses is made in monthly
payments by each 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 shares, respectively. In the case of Class B
shares, Global Telecom's Plan and Global Utilities' Plan provide that each 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 net sales of the
fund's Class B shares or (b) the average daily net assets of Class B of the
fund. The fee is paid for the services provided and the expenses borne by the
Distributor and others in connection with the distribution of each fund's Class
B shares. There are no 12b-1 fees applicable to both funds' Class D shares. For
further information relating to the 12b-1 fees applicable to each class of
Global Utilities' shares, see the section entitled "Purchase of Fund Shares" in
Global Utilities' Prospectus, attached hereto. The Distributor also receives
the proceeds of any contingent deferred sales charge ("CDSC") paid by the
funds' shareholders at the time of redemption. The CDSC schedules applicable to
each of Global Telecom and Global Utilities are set forth below under
"Purchases, Exchanges and Redemptions."
OTHER SIGNIFICANT FEES. Both Global Telecom and Global Utilities pay
additional fees in connection with their operations, including legal, auditing,
transfer agent, trustees fees and custodial fees. See "Synopsis -- Fee Table"
above for the percentage of average net assets represented by such "Other
Expenses."
PURCHASES, EXCHANGES AND REDEMPTIONS. Class A shares of each fund 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 investment 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 fully described in each fund's Prospectus).
9
<PAGE>
Class B shares of each fund are offered at net asset value with no initial
sales charge, but are subject to the same CDSC schedule set forth below (Class
B shares of each fund purchased by certain qualified employer sponsored benefit
plans are subject to a reduced CDSC schedule):
<TABLE>
<CAPTION>
CLASS B SHARES OF GLOBAL TELECOM AND
YEAR SINCE PURCHASE PAYMENT MADE GLOBAL UTILITIES
- ------------------------------------- -------------------------------------
<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>
Class C shares of each fund 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. The CDSC may be waived for certain redemptions (which are
fully described in each fund's Prospectus).
Class D shares of each fund are available only to limited categories of
investors and are sold at net asset value with no initial sales charge or CDSC.
The CDSC charge is paid to the Distributor. Shares of Global Utilities and
Global Telecom are distributed by the Distributor and offered by Dean Witter
Reynolds Inc. and other dealers who have entered into selected dealer
agreements with the Distributor. For further information relating to the CDSC
schedules applicable to each of the classes of Global Utilities' shares, see
the section entitled "Purchase of Fund Shares" in Global Utilities' Prospectus.
Shares of each class of Global Utilities may be exchanged for shares of
the same class of any other Morgan Stanley Dean Witter Fund that offers its
shares in more than one class, without the imposition of an exchange fee.
Additionally, shares of each class of Global Utilities may be exchanged for
shares of 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 the five Morgan Stanley Dean Witter Funds that are
money market funds (the foregoing eight funds are collectively referred to as
the "Exchange Funds"), without the imposition of an exchange fee. Class A
shares of Global Utilities may also be exchanged for shares of Morgan Stanley
Dean Witter Multi-State Municipal Series Trust and Morgan Stanley Dean Witter
Hawaii Municipal Trust. Upon consummation of the Reorganization, the foregoing
exchange privileges will still be applicable to shareholders of the combined
fund (Global Utilities). Shares of each class of Global Telecom may currently
be exchanged for shares of the same class of any other TCW/DW Fund advised by
TCW and managed by MSDW Services that offers its shares in more than one class,
without the imposition of an exchange fee. Global Telecom shares may also be
exchanged for TCW/DW North American Government Income Trust or for any of the
five Morgan Stanley Dean Witter Funds that are money market funds (the
foregoing six funds are collectively referred to as the "Global Telecom
Exchange Funds"), without the imposition of an exchange fee. Upon consummation
of the Reorganization, Shareholders will no longer be able to exchange their
shares for shares of a TCW/DW Fund but will be able to exchange their shares
for shares of any Morgan Stanley Dean Witter Fund.
With respect to both funds, no CDSC is imposed at the time of any
exchange, although any applicable CDSC will be imposed upon ultimate
redemption. During the period of time an Global Utilities or Global Telecom
shareholder remains in an Exchange Fund, the holding period (for purposes of
determining the CDSC rate) is frozen. Both Global Telecom and Global Utilities
provide telephone exchange privileges to their shareholders. For greater
details relating to exchange privileges applicable to Global Utilities, see the
section entitled "Shareholder Services" in Global Utilities' Prospectus.
10
<PAGE>
Shareholders of Global Telecom and Global Utilities may redeem their
shares for cash at any time at the net asset value per share next determined;
however, such redemption proceeds may be reduced by the amount of any
applicable CDSC. Both Global Telecom and Global Utilities offer a reinstatement
privilege whereby a shareholder who has not previously exercised such privilege
whose shares have been redeemed or repurchased may, within thirty-five days
after the date of redemption or repurchase, reinstate any portion or all of the
proceeds thereof in shares of the same class from which such shares were
redeemed or repurchased and receive a pro rata credit for any CDSC paid in
connection with such redemption or repurchase. Global Telecom and Global
Utilities may redeem involuntarily, at net asset value, most accounts valued at
less than $100.
DIVIDENDS. Each fund declares dividends separately for each of its
classes. Global Telecom pays dividends from the net investment income of the
fund at least once each year. Global Utilities pays dividends from the net
investment income of the fund on a quarterly basis. Both funds distribute net
long-term capital gains, and in the case of Global Utilities, net short-term
capital gains, if any, at least annually. Each fund, however, may determine
either to distribute or to retain all or part of any net long-term capital
gains in any year for reinvestment. With respect to each fund, dividends and
capital gains distributions are automatically reinvested in additional shares
of the same class of shares of the fund at net asset value unless the
shareholder elects to receive cash.
PRINCIPAL RISK FACTORS
The net asset value of Global Utilities and Global Telecom will fluctuate
with changes in the market value of their respective portfolio securities. The
market value of the funds' portfolio securities will increase or decrease due
to a variety of economic, market and political factors, including movements in
interest rates, which cannot be predicted. All fixed-income securities are
subject to two types of risk: credit risk and interest rate risk. Credit risk
relates to the ability of the issuer to meet interest or principal payments or
both as they come due. Interest rate risk refers to the fluctuations in the net
asset value of any portfolio of fixed-income securities resulting from the
inverse relationship between price and yield of fixed-income securities; that
is, when the general level of interest rates rises, the prices of outstanding
fixed-income securities decline, and when interest rates fall, prices rise.
Both funds may invest their assets in foreign securities (up to 100% for
Global Utilities and up to 75% for Global Telecom) and, as such, are subject to
additional risks such as adverse 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. Additionally, 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 and brokerage commissions, dealer concessions and other
transaction costs may be higher on foreign markets than in the U.S.
Fluctuations in the relative rates of exchange between the currencies of
different countries will affect the value of a fund's investments. Changes in
foreign currency exchange rates relative to the U.S. dollar will affect the
U.S. dollar value of a fund's assets denominated in that currency and thereby
impact upon the fund's total return on such assets.
Because both funds concentrate their investments in particular industries,
both funds' shares may be more volatile than that of investment companies that
do not similarly concentrate their investments. The telecommunications and
information industries may be subject to greater changes in governmental
policies and
11
<PAGE>
governmental regulation than many other industries in the United States and
worldwide. Regulatory approval requirements, ownership restrictions and
restrictions on rates of return and types of services that may be offered may
materially affect the products and services of these and related industries.
Additionally, the products and services of companies in these industries may be
subject to faster obsolescence as a result of greater competition, advancing
technological developments, and changing market and consumer preferences. As a
result, the stocks of companies in these industries may exhibit greater price
volatility than those of companies in other industries. Among the risks
affecting the utilities industry are the following: risks of increases in fuel
and other operating costs; the high cost of borrowing to finance capital
construction during inflationary periods; restrictions on operations and
increased costs and delays associated with compliance with environmental and
nuclear safety regulations; the difficulties involved in obtaining natural gas
for resale or fuel for generating electricity at reasonable prices; the risks
in connection with the construction and operation of nuclear power plants; the
effects of energy conservation and the effects of regulatory changes, such as
the possible adverse effects on profits of recent increased competition among
telecommunications companies and the uncertainties resulting from such
companies' diversification into new domestic and international businesses, as
well as agreements by many such companies linking future rate increases to
inflation or other factors not directly related to the actual operating profits
of the enterprise.
Global Telecom and Global Utilities may enter into foreign currency
exchange contracts when purchasing foreign securities in order to facilitate
settlement and to limit the effect of changes in the relationship between the
U.S. dollar and the foreign currency during the period between trade date and
settlement date and may also engage in options and futures transactions which
involve certain risks. Additionally, Global Utilities may enter into reverse
repurchase agreements and dollar rolls and both funds may enter into repurchase
agreements, may purchase securities on a when-issued and delayed delivery
basis, or on a when, as and if issued basis, may lend their portfolio
securities, and may enter into options and futures transactions, all of which
involve certain special risks. Both Global Telecom and Global Utilities may
invest in or acquire convertible securities which are fixed-income securities
convertible into common stock. However, while Global Telecom may only invest up
to 25% of its total assets in convertible securities, such securities may be
rated below investment grade and therefore subject to certain risks not
associated with higher rated, investment grade debt securities. Global
Utilities does not invest in convertible or other debt securities rated below
investment grade; however, if an investment grade fixed-income security held by
the convertible or other fund is subsequently downgraded by a rating agency
below investment grade, the fund may retain the security in its portfolio until
the Investment Manager deems it practicable to sell the security without undue
market or tax consequences to the fund. In the event such downgraded securities
constitute 5% or more of Global Utilities' net assets, the Investment Manager
will sell such securities as soon as is practicable in sufficient amounts to
reduce the total to below 5%. 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, the convertible
security 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.
The foregoing discussion is a summary of the principal risk factors. For a
more complete discussion of the risks of each fund, see "Investment Objective
and Policies -- Risk Considerations and Investment Practices" in the Prospectus
of Global Telecom and in Global Utilities' Prospectus attached hereto and
incorporated herein by reference.
12
<PAGE>
THE REORGANIZATION
THE PROPOSAL
The Board of Trustees of Global Telecom, including the Independent
Trustees, having reviewed the financial position of Global Telecom and the
prospects for achieving economies of scale through the Reorganization and
having determined that the Reorganization is in the best interests of Global
Telecom and its Shareholders and that the interests of Shareholders will not be
diluted as a result thereof, recommends approval of the Reorganization by
Shareholders of Global Telecom.
THE BOARD'S CONSIDERATION
At a meeting held on February 25, 1999, the Board, including all of the
Independent Trustees, unanimously approved the Reorganization Agreement and
determined to recommend that Shareholders approve the Reorganization Agreement.
In reaching this decision, the Board made an extensive inquiry into a number of
factors, particularly the comparative expenses currently incurred in the
operations of Global Telecom and Global Utilities. The Board also considered
other factors, including, but not limited to: the general compatibility of the
investment objectives, policies, restrictions and portfolios of Global Telecom
and Global Utilities; the terms and conditions of the Reorganization which
would affect the price of shares to be issued in the Reorganization; the
tax-free nature of the Reorganization; the ability of MSDW Advisers to provide
investment advisory services to Global Utilities; and any direct or indirect
costs to be incurred by Global Telecom and Global Utilities in connection with
the Reorganization.
In recommending the Reorganization to Shareholders, the Board of Global
Telecom considered that the Reorganization would have the following benefits to
Shareholders:
1. Once the Reorganization is consummated, the expenses which would be
borne by shareholders of each class of the "combined fund" should be lower on a
percentage basis than the expenses per share of each corresponding class of
Global Telecom. In part, this is because the estimated current rate of the
investment management fee to be paid by the surviving Global Utilities ( %
of average daily net assets) would be lower than the rate of the investment
management fee currently paid by Global Telecom (1.0% of average daily net
assets). Furthermore, to the extent that the Reorganization would result in
Shareholders becoming shareholders of a combined larger fund, further economies
of scale could be achieved since various fixed expenses (e.g., auditing and
legal) can be spread over a larger number of shares. The Board noted that the
expense ratio for each class of Global Telecom was higher (for its fiscal year
ended May 31, 1998) than the expense ratio for each corresponding class of
Global Utilities (for its fiscal year ended February 28, 1998).
2. Shareholders would have a continued participation in a diversified
portfolio of worldwide issuers in the telecommunications industry, as well as,
through investment in Global Utilities, participation in the utilities
industry.
3. The Reorganization will constitute a tax-free reorganization for
Federal income tax purposes, and no gain or loss will be recognized by Global
Telecom or its Shareholders for Federal income tax purposes as a result of
transactions included in the Reorganization.
4. The Board also took into consideration that absent the Reorganization,
Global Utilities will continue to compete for investor funds with Global
Telecom. The Reorganization should allow for more concentrated selling efforts
to the benefit of both Global Telecom and Global Utilities shareholders and
avoid the inefficiencies associated with the operation and distribution of two
similar funds through the same sales organization.
13
<PAGE>
The Board of Trustees of Global Utilities, including a majority of the
Independent Trustees of Global Utilities, also have determined that the
Reorganization is in the best interests of Global Utilities and its
shareholders and that the interests of existing shareholders of Global
Utilities will not be diluted as a result thereof. The transaction will enable
Global Utilities to acquire investment securities which are consistent with
Global Utilities' investment objective, without the brokerage costs attendant
to the purchase of such securities in the market. Also, the addition of assets
to Global Utilities' portfolio may result in a further reduction in the
investment management fee resulting from the addition of more assets at a lower
breakpoint rate in the management fee schedule. Furthermore, like the
Shareholders of Global Telecom, the shareholders of Global Utilities may also
realize an intangible benefit in having the Morgan Stanley Dean Witter sales
organization concentrate its selling efforts on one rather than two similar
funds, which may result in further economies of scale. Finally, the Board
considered that even if the benefits enumerated above are not realized, the
costs to the Fund are sufficiently minor to warrant taking the opportunity to
realize those benefits. With respect to the Class B shares, the Board
recognized that, although the formula for calculating 12b-1 fees is similar for
both funds, the application of the formula results in lower annual fees for
Global Utilities than for Global Telecom and that combining the two funds
would, at least initially, result in somewhat higher 12b-1 fees for the
combined Fund than Global Utilities' current 12b-1 fee, as noted above under
"Synopsis -- Fee Table." The Board believes, however, that this relatively
minor disadvantage would be offset by the other benefits of the Reorganization.
THE REORGANIZATION AGREEMENT
The terms and conditions under which the Reorganization would be
consummated, as summarized below, are set forth in the Reorganization
Agreement. This summary is qualified in its entirety by reference to the
Reorganization Agreement, a copy of which is attached as Exhibit A to this
Proxy Statement and Prospectus.
The Reorganization Agreement provides that (i) Global Telecom will
transfer all of its assets, including portfolio securities, cash (other than
cash amounts retained by Global Telecom as a "Cash Reserve" in the amount
sufficient to discharge its liabilities not discharged prior to the Valuation
Date (as defined below) and for expenses of the dissolution), cash equivalents
and receivables to Global Utilities on the Closing Date in exchange for the
assumption by Global Utilities of stated liabilities of Global Telecom,
including all expenses, costs, charges and reserves, as reflected on an
unaudited statement of assets and liabilities of Global Telecom prepared by the
Treasurer of Global Telecom as of the Valuation Date (as defined below) in
accordance with generally accepted accounting principles consistently applied
from the prior audited period, and the delivery of the Global Utilities Shares;
(ii) such Global Utilities Shares would be distributed to Shareholders on the
Closing Date or as soon as practicable thereafter; (iii) Global Telecom would
be dissolved; and (iv) the outstanding shares of Global Telecom would be
canceled.
The number of Global Utilities Shares to be delivered to Global Telecom
will be determined by dividing the aggregate net asset value of each class of
shares of Global Telecom acquired by Global Utilities by the net asset value
per share of the corresponding class of shares of Global Utilities; these
values will be calculated as of the close of business of the New York Stock
Exchange on the third business day following the receipt of the requisite
approval by Shareholders of the Reorganization Agreement or at such other time
as Global Telecom and Global Utilities may agree (the "Valuation Date"). As an
illustration, assume that on the Valuation Date, Class B shares of Global
Telecom had an aggregate net asset value (not including any Cash Reserve of
Global Telecom) of $100,000. If the net asset value per Class B share of Global
Utilities were $10 per share at the close of business on the Valuation Date,
the number of Class B shares Global Utilities to be issued would be 10,000
($100,000 (divided by) $10). These 10,000 Class B shares of Global Utilities
would be distributed to the former Class B shareholders of Global Telecom. This
example is given for illustration purposes only and does not bear any
relationship to the dollar amounts or shares expected to be involved in the
Reorganization.
14
<PAGE>
On the Closing Date or as soon as practicable thereafter, Global Telecom
will distribute pro rata to its Shareholders of record as of the close of
business on the Valuation Date, the Global Utilities Shares it receives. Each
Shareholder will receive the class of shares of Global Utilities that
corresponds to the class of shares of Global Telecom currently held by that
Shareholder. Accordingly, the Global Utilities Shares will be distributed as
follows: each of the Class A, Class B, Class C and Class D shares of Global
Utilities will be distributed to holders of Class A, Class B, Class C and Class
D shares of Global Telecom, respectively. Global Utilities will cause its
transfer agent to credit and confirm an appropriate number of Global Utilities
Shares to each Shareholder. Certificates for Global Utilities Shares will be
issued only upon written request of a Shareholder and only for whole shares,
with fractional shares credited to the name of the Shareholder on the books of
Global Utilities. Shareholders who wish to receive certificates representing
their Global Utilities Shares must, after receipt of their confirmations, make
a written request to Global Utilities' transfer agent Morgan Stanley Dean
Witter Trust FSB, Harborside Financial Center, Jersey City, New Jersey 07311.
Shareholders of Global Telecom holding their shares in certificate form will be
asked to surrender such certificates in connection with the Reorganization.
Shareholders who do not surrender their certificates prior to the Closing Date
will still receive their shares of Global Utilities; however, such Shareholders
will not be able to redeem, transfer or exchange the Global Utilities Shares
received until the old certificates have been surrendered.
The Closing Date will be the next business day following the Valuation
Date. The consummation of the Reorganization is contingent upon the approval of
the Reorganization by the Shareholders and the receipt of the other opinions
and certificates set forth in Sections 6, 7 and 8 of the Reorganization
Agreement and the occurrence of the events described in those Sections, certain
of which may be waived by Global Telecom or Global Utilities. The
Reorganization Agreement may be amended in any mutually agreeable manner. All
expenses of this solicitation, including the cost of preparing and mailing this
Proxy Statement and Prospectus, will be borne by Global Telecom, which expenses
are expected to approximate $145,000. Global Telecom and Global Utilities will
bear all of their respective other expenses associated with the Reorganization.
The Reorganization Agreement may be terminated and the Reorganization
abandoned at any time, before or after approval by Shareholders or by mutual
consent of Global Telecom and Global Utilities. In addition, either party may
terminate the Reorganization Agreement upon the occurrence of a material breach
of the Reorganization Agreement by the other party or if, by September 30,
1999, any condition set forth in the Reorganization Agreement has not been
fulfilled or waived by the party entitled to its benefits.
Under the Reorganization Agreement, within one year after the Closing
Date, Global Telecom shall: either pay or make provision for all of its
liabilities and distribute any remaining amount of the Cash Reserve (after
paying or making provision for such liabilities and the estimated cost of
making the distribution) to former Shareholders of Global Telecom that received
Global Utilities Shares. Global Telecom shall be dissolved and deregistered as
an investment company promptly following the distributions of shares of Global
Utilities to Shareholders of record of Global Telecom.
The effect of the Reorganization is that Shareholders who vote their
shares in favor of the Reorganization Agreement are electing to sell their
shares of Global Telecom (at net asset value on the Valuation Date calculated
after subtracting any Cash Reserve) and reinvest the proceeds in Global
Utilities Shares at net asset value and without recognition of taxable gain or
loss for Federal income tax purposes. See "Tax Aspects of the Reorganization"
below. As noted in "Tax Aspects of the Reorganization" below, if Global Telecom
recognizes net gain from the sale of securities prior to the Closing Date, such
gain, to the extent not offset by capital loss carryforwards, will be
distributed to Shareholders prior to the Closing Date and will be taxable to
Shareholders as capital gain.
Shareholders will continue to be able to redeem their shares of Global
Telecom at net asset value next determined after receipt of the redemption
request (subject to any applicable CDSC) until the close of business
15
<PAGE>
on the business day next preceding the Closing Date. Redemption requests
received by Global Telecom thereafter will be treated as requests for
redemption of shares of Global Utilities.
TAX ASPECTS OF THE REORGANIZATION
At least one but not more than 20 business days prior to the Valuation
Date, Global Telecom will declare and pay a dividend or dividends which,
together with all previous such dividends, will have the effect of distributing
to Shareholders all of Global Telecom's investment company taxable income for
all periods since the inception of Global Telecom through and including the
Valuation Date (computed without regard to any dividends paid deduction), and
all of Global Telecom's net capital gain, if any, realized in such periods
(after reduction for any capital loss carryforward).
The Reorganization is intended to qualify for Federal income tax purposes
as a tax-free reorganization under Section 368(a)(1)(C) of the Internal Revenue
Code of 1986, as amended (the "Code"). Global Telecom and Global Utilities have
represented that, to their best knowledge, there is no plan or intention by
Shareholders to redeem, sell, exchange or otherwise dispose of a number of
Global Utilities Shares received in the transaction that would reduce
Shareholders' ownership of Global Utilities Shares to a number of shares having
a value, as of the Closing Date, of less than 50% of the value of all of the
formerly outstanding Global Telecom shares as of the same date. Global Telecom
and Global Utilities have each further represented that, as of the Closing
Date, Global Telecom and Global Utilities will qualify as regulated investment
companies.
As a condition to the Reorganization, Global Telecom and Global Utilities
will receive an opinion of Gordon Altman Butowsky Weitzen Shalov & Wein that,
based on certain assumptions, facts, the terms of the Reorganization Agreement
and additional representations set forth in the Reorganization Agreement or
provided by Global Telecom and Global Utilities:
1. The transfer of substantially all of Global Telecom's assets in
exchange for the Global Utilities Shares and the assumption by Global Utilities
of certain stated liabilities of Global Telecom followed by the distribution by
Global Telecom of the Global Utilities Shares to Shareholders in exchange for
their Global Telecom shares will constitute a "reorganization" within the
meaning of Section 368(a)(1)(C) of the Code, and Global Telecom and Global
Utilities will each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code;
2. No gain or loss will be recognized by Global Utilities upon the receipt
of the assets of Global Telecom solely in exchange for the Global Utilities
Shares and the assumption by Global Utilities of the stated liabilities of
Global Telecom;
3. No gain or loss will be recognized by Global Telecom upon the transfer
of the assets of Global Telecom to Global Utilities in exchange for the Global
Utilities Shares and the assumption by Global Utilities of the stated
liabilities or upon the distribution of Global Utilities Shares to Shareholders
in exchange for their Global Telecom shares;
4. No gain or loss will be recognized by Shareholders upon the exchange of
the shares of Global Telecom for the Global Utilities Shares;
5. The aggregate tax basis for the Global Utilities Shares received by
each of the Shareholders pursuant to the Reorganization will be the same as the
aggregate tax basis of the shares in Global Telecom held by each such
Shareholder immediately prior to the Reorganization;
6. The holding period of the Global Utilities Shares to be received by
each Shareholder will include the period during which the shares in Global
Telecom surrendered in exchange therefor were held (provided such shares in
Global Telecom were held as capital assets on the date of the Reorganization);
16
<PAGE>
7. The tax basis of the assets of Global Telecom acquired by Global
Utilities will be the same as the tax basis of such assets to Global Telecom
immediately prior to the Reorganization; and
8. The holding period of the assets of Global Telecom in the hands of
Global Utilities will include the period during which those assets were held by
Global Telecom.
SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE EFFECT, IF
ANY, OF THE PROPOSED TRANSACTION IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES.
BECAUSE THE FOREGOING DISCUSSION ONLY RELATES TO THE FEDERAL INCOME TAX
CONSEQUENCES OF THE PROPOSED TRANSACTION, SHAREHOLDERS SHOULD ALSO CONSULT
THEIR TAX ADVISORS AS TO STATE AND LOCAL TAX CONSEQUENCES, IF ANY, OF THE
PROPOSED TRANSACTION.
DESCRIPTION OF SHARES
Global Utilities shares to be issued pursuant to the Reorganization
Agreement will, when issued, be fully paid and non-assessable by Global
Utilities and transferable without restrictions and will have no preemptive
rights. Class B shares of Global Utilities, like Class B shares of Global
Telecom, have a conversion feature pursuant to which approximately ten (10)
years after the date of the original purchase of such shares, the shares will
convert automatically to Class A shares, based on the relative net asset values
of the two classes. For greater details regarding the conversion feature,
including the method by which the 10 year period is calculated and the
treatment of reinvested dividends, see "Purchase of Fund Shares" in each fund's
Prospectus.
CAPITALIZATION TABLE (UNAUDITED)
The following table sets forth the capitalization of Global Utilities and
Global Telecom as of February 28, 1999 and on a pro forma combined basis as if
the Reorganization had occurred on that date:
<TABLE>
<CAPTION>
NET ASSET
SHARES VALUE
NET ASSETS OUTSTANDING PER SHARE
-------------- ------------- ----------
<S> <C> <C> <C>
CLASS A
- -----------------------------------
Global Telecom .................... $ $
Global Utilities .................. $ $
Combined Fund (pro forma) ......... $ $
CLASS B
- ------------------------------------
Global Telecom .................... $ $
Global Utilities .................. $ $
Combined Fund (pro forma) ......... $ $
CLASS C
- ------------------------------------
Global Telecom .................... $ $
Global Utilities .................. $ $
Combined Fund (pro forma) ......... $ $
CLASS D
- ------------------------------------
Global Telecom .................... $ $
Global Utilities .................. $ $
Combined Fund (pro forma) ......... $ $
TOTAL CLASS A, B, C, D
- ------------------------------------
Global Telecom .................... $ --
Global Utilities .................. $ --
Combined Fund (pro forma) ......... $ --
</TABLE>
17
<PAGE>
APPRAISAL RIGHTS
Shareholders will have no appraisal rights in connection with the
Reorganization.
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES
Global Telecom and Global Utilities each are funds which have similar
although not identical investment objectives and policies. The investment
objective of Global Telecom is long-term capital appreciation. The investment
objective of Global Utilities is capital appreciation and current income. Both
funds concentrate a portion of their investments in a common industry, the
telecommunications industry, although Global Utilities concentrates its
investments in the utilities industry which is a broad industry group that
includes among others, the telecommunications industry. Both funds seek to
achieve their objectives by investing principally in a diversified portfolio of
securities in accordance with their respective investment strategies set forth
below.
Global Utilities invests at least 65% of its total assets in both equity
and fixed income securities of issuers worldwide and shifts its allocation
between the two without restriction. If, in the opinion of the Investment
Manager, favorable conditions for capital growth of equity securities are not
prevalent at a particular time, the fund may allocate its assets predominantly
or exclusively to debt securities with the aim of obtaining current income and
thus benefitting long-term growth of capital.
Global Utilities concentrates its investments in the utilities industry,
which in addition to companies engaged in the manufacture, production,
generation, transmission, sale and distribution of water, gas and electric
energy, or who manufacture or supply equipment for such companies, also
includes, as is the case of Global Telecom, companies engaged in the
communications field and the companies which manufacture or supply equipment
for such companies, including telephone, telegraph, satellite, cable,
microwave, radio-telephone, computer, mobile communication and cellular paging,
electronic mail, videotext and teletext and other new or emerging technology
companies.
In selecting equity securities for Global Utilities, the criteria used by
the Investment Manager include the following considerations: earnings and
dividend growth; book value; dividend discount; and price/earnings
relationships. In addition, the Investment Manager makes continuing assessments
of management, the prevailing regulatory framework and industry trends. The
Investment Manager may also utilize computer-based equity selection models. The
fixed-income securities in which the fund may invest are debt securities and
preferred stocks which are rated at the time of purchase Baa or better by
Moody's Investors Service, Inc. ("Moody's") or BBB or better by Standard &
Poor's Corporation ("S&P") or which, if unrated, are deemed to be of comparable
quality by the fund's Investment Manager. Greater than 35% of the fund's total
assets may be invested in money market instruments to maintain, temporarily, a
"defensive" posture when, in the opinion of the Investment Manager, it is
advisable to do so because of economic or market conditions.
Global Telecom invests at least 65% of its total assets in common stocks
and securities convertible into common stocks of domestic and foreign companies
operating in the telecommunications and information industries. Companies in
the telecommunications and information industries include information
transporters, content providers and providers of enabling technologies.
Information transporters are companies involved in developing and manufacturing
any portion of the so-called information superhighway, such as local/regional
telephone companies, long-distance carriers, cable television, personal
communications systems, wireless, cellular, paging, direct broadcast satellite
and the Internet. Content providers are companies providing some of the
information content that is transmitted via the information superhighway such
as movie studios, providers of transaction services, manufacturers of games and
educational programming, publishers and advertisers. Finally, providers of
enabling technologies are manufacturers of products such as
information-processing servers, consumer electronics, data and video
compression, software, storage and semiconductor products.
18
<PAGE>
Global Telecom may invest up to 35% of its total assets in U.S. Government
securities, corporate debt securities rated investment grade by Moody's or S&P
or if not rated, as deemed to be of comparable quality by the Adviser, and
money market instruments.
During periods in which, in the opinion of the Investment Manager, market
conditions warrant a reduction of some or all of the fund's securities
holdings, the fund may adopt a temporary "defensive" posture in which up to
100% of its total assets are invested in money market instruments or cash.
While both Global Utilities and Global Telecom may invest in convertible
securities, Global Utilities may only invest in investment grade convertible
securities while Global Telecom may invest in convertible securities rated
below investment grade by Moody's or S&P (Ba or BB or lower); Global Telecom
may not invest in convertible securities in an amount greater than 25% of its
total assets.
Both funds invest their assets in foreign securities, including securities
of foreign issuers denominated in foreign currencies or in the form of American
Depository Receipts ("ADRs") or European Depository Receipts ("EDRs"); however,
Global Telecom invests at least 25% of its total assets in securities of U.S.
issuers while Global Utilities has no such policy. Additionally, both funds may
enter into forward foreign currency exchange contracts in connection with its
foreign securities investments as a hedge against fluctuations in future
foreign exchange rates.
Both Global Telecom and Global Utilities may engage in options and futures
transactions. Both funds may purchase and sell (write) options on portfolio
securities denominated in U.S. dollars and foreign currencies and may purchase
and sell (write) options on the U.S. dollar and foreign currencies which are or
may be in the future listed on U.S. and foreign securities exchanges or are
written in over-the-counter transactions ("OTC options"). Both funds may write
covered call options on portfolio securities and currencies without limit, in
order to hedge against the decline in the value of a security or currency in
which such security is denominated and to close out long call option positions.
Both funds also may purchase listed and OTC call and put options in amounts
equaling up to 5% (Global Utilities) and 10% (Global Telecom) of their
respective total assets and Global Telecom may invest up to 5% of its total
assets in stock index options. Both funds may purchase call and put options to
close out covered call or written put positions, as applicable, or to protect
the value of the relevant security. Both funds may purchase and sell futures
contracts that are currently traded, or may in the future be traded, on U.S.
and foreign commodity exchanges on underlying portfolio securities, on any
currency ("currency" futures), as well as on U.S. and foreign fixed-income
securities ("interest rate" futures) and on such indexes of U.S. or foreign
equity or fixed-income securities as may exist or come into being ("index"
futures).
Both Global Utilities and Global Telecom may (i) purchase securities on a
when-issued or delayed delivery basis, (ii) purchase or sell securities on a
forward commitment basis, (iii) purchase securities on a "when, as and if
issued" basis, (iv) enter into repurchase agreements subject to certain
procedures designed to minimize risks associated with such agreements, (v)
purchase rights and warrants, (vi) invest in zero coupon securities and (vii)
invest up to 5% (Global Utilities) and 10% (Global Telecom) of their respective
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 not otherwise readily marketable (both funds do not include Rule 144A
securities in this limitation). Global Utilities may also enter into reverse
repurchase agreements and dollar rolls.
The investment policies of both Global Telecom and Global Utilities are
not fundamental and may be changed by their respective Boards. The foregoing
discussion is a summary of the principal differences and similarities between
the investment policies of the funds. For a more complete discussion of each
fund's policies, see "Investment Objective and Policies" in each fund's
Prospectus and "Investment Practices and Policies" in each fund's Statement of
Additional Information.
19
<PAGE>
INVESTMENT RESTRICTIONS
The investment restrictions adopted by Global Telecom and Global Utilities
as fundamental policies are substantially similar and are summarized under the
caption "Investment Restrictions" in their respective Prospectuses and
Statements of Additional Information. A fundamental investment restriction
cannot be changed without the vote of the majority of the outstanding voting
securities of a fund, as defined in the 1940 Act. The material differences are
as follows: (a) Global Utilities has a fundamental restriction that it may not
invest more than 5% of the value of its total assets in the securities of
issuers (other than obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities) having a record, together with predecessors,
of less than three years of continuous operation; Global Telecom has no such
fundamental investment restriction although the fund includes this restriction
as a non-fundamental policy; (b) Global Telecom may not purchase warrants if as
a result the fund would have more than 5% of its net assets invested in
warrants or more than 2% of its net assets invested in warrants not listed on
the New York or American Stock Exchange; Global Utilities has no such
restriction; (c) Global Telecom may not purchase securities of other investment
companies except in connection with a merger, consolidation, reorganization or
acquisition of assets; Global Utilities carves out an additional exception for
purchases complying with Section 12(d) of the 1940 Act; and (d) both funds are
prohibited from borrowing money except from a bank for temporary or emergency
purposes in amounts not exceeding 5% of their respective total assets; however,
Global Utilities carves out an additional exception for reverse repurchase
agreements and dollar rolls subject to this 5% limitation.
ADDITIONAL INFORMATION ABOUT GLOBAL TELECOM
AND GLOBAL UTILITIES
GENERAL
For a discussion of the organization and operation of Global Utilities and
Global Telecom, see "The Fund and its Management," "Investment Objective and
Policies," "Investment Restrictions" and "Prospectus Summary" in, and the cover
page of, their respective Prospectuses.
FINANCIAL INFORMATION
For certain financial information about Global Utilities and Global
Telecom, see "Financial Highlights" and "Performance Information" in their
respective Prospectuses.
MANAGEMENT
For information about the respective Board of Trustees, Investment
Manager, and the Distributor of Global Utilities and Global Telecom, see "The
Fund and its Management" and "Investment Objective and Policies" in, and on the
back cover of, their respective Prospectuses.
DESCRIPTION OF SECURITIES AND SHAREHOLDER INQUIRIES
For a description of the nature and most significant attributes of shares
of Global Telecom and Global Utilities, and information regarding shareholder
inquiries, see "Additional Information" in their respective Prospectuses.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of Global Utilities' and Global Telecom's policies with
respect to dividends, distributions and taxes, see "Dividends, Distributions
and Taxes" in their respective Prospectuses as well as the discussion herein
under "Synopsis -- Purchases, Exchanges and Redemptions."
20
<PAGE>
PURCHASES, REPURCHASES AND REDEMPTIONS
For a discussion of how Global Utilities' and Global Telecom's shares may
be purchased, repurchased and redeemed, see "Purchase of Fund Shares,"
"Shareholder Services" and "Redemptions and Repurchases" in their respective
Prospectuses.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
For a discussion of Global Utilities' performance, see management's letter
to shareholders in its Annual Report for its fiscal year ended February 28,
1999 accompanying this Proxy Statement and Prospectus. For a discussion of the
performance of Global Telecom, see its Annual Report for its fiscal year ended
May 31, 1998 and its unaudited Semi-Annual Report for the six months ended
November 30, 1998.
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of Global Utilities, for the year ended November
30, 1998, and Global Telecom, for the year ended May 31, 1998 that are
incorporated by reference in the Statement of Additional Information relating
to the Registration Statement on Form N-14 of which this Proxy Statement and
Prospectus forms a part, have been audited by PricewaterhouseCoopers LLP,
independent accountants. The financial statements have been incorporated by
reference in reliance upon such reports given upon the authority of
PricewaterhouseCoopers LLP as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Global
Utilities will be passed upon by Gordon Altman Butowsky Weitzen Shalov & Wein,
New York, New York. Such firm will rely on Lane Altman & Owens as to matters of
Massachusetts law.
AVAILABLE INFORMATION
Additional information about Global Telecom and Global Utilities is
available, as applicable, in the following documents which are incorporated
herein by reference: (i) Global Utilities' Prospectus dated June 26, 1998,
attached to this Proxy Statement and Prospectus, which Prospectus forms a part
of Post-Effective Amendment No. 6 to Global Utilities' Registration Statement
on Form N-1A (File Nos. 33-50709; 811-7119); (ii) Global Utilities' Annual
Report for its fiscal year ended February 28, 1999, accompanying this Proxy
Statement and Prospectus; (iii) Global Telecom's Prospectus dated July 31,
1998, which Prospectus forms a part of Post-Effective Amendment No. 4 to Global
Telecom's Registration Statement on Form N-1A (File Nos. 333-2419; 811-7591);
and (iv) Global Telecom's Annual Report for its fiscal year ended May 31, 1998
and its unaudited Semi-Annual Report for its six months ended November 30,
1998. The foregoing documents may be obtained without charge by calling (800)
869-NEWS (toll-free).
Global Telecom and Global Utilities are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith, file reports and other information with the Commission.
Proxy material, reports and other information about Global Telecom and Global
Utilities which are of public record can be inspected and copied at public
reference facilities maintained by the Commission at Room 1204, Judiciary
Plaza, 450 Fifth Street, NW, Washington, D.C. 20549 and certain of its regional
offices, and copies of such materials can be obtained at prescribed rates from
the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, Washington, D.C. 20549.
21
<PAGE>
OTHER BUSINESS
Management of Global Telecom knows of no business other than the matters
specified above which will be presented at the Meeting. Since matters not known
at the time of the solicitation may come before the Meeting, the proxy as
solicited confers discretionary authority with respect to such matters as
properly come before the Meeting, including any adjournment or adjournments
thereof, and it is the intention of the persons named as attorneys-in-fact in
the proxy to vote this proxy in accordance with their judgment on such matters.
By Order of the Board of Trustees
Barry Fink,
Secretary
April , 1999
22
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made as of this
25th day of February, 1999, by and between MORGAN STANLEY DEAN WITTER GLOBAL
UTILITIES FUND, a Massachusetts business trust ("Global Utilities") and TCW/DW
GLOBAL TELECOM TRUST, a Massachusetts business trust ("Global Telecom").
This Agreement is intended to be and is adopted as a "plan of
reorganization" within the meaning of Treas. Reg. 1.368-2(g), for a
reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization ("Reorganization") will consist of the
transfer to Global Utilities of substantially all of the assets of Global
Telecom in exchange for the assumption by Global Utilities of all stated
liabilities of Global Telecom and the issuance by Global Utilities of shares of
beneficial interest, par value $0.01 per share (the "Global Utilities Shares"),
to be distributed, after the Closing Date hereinafter referred to, to the
shareholders of Global Telecom in liquidation of Global Telecom as provided
herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. THE REORGANIZATION AND LIQUIDATION OF GLOBAL TELECOM
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, Global Telecom agrees
to assign, deliver and otherwise transfer the Global Telecom Assets (as defined
in paragraph 1.2) to Global Utilities and Global Utilities agrees in exchange
therefor to assume all of Global Telecom's stated liabilities on the Closing
Date as set forth in paragraph 1.3(a) and to deliver to Global Telecom the
number of Global Utilities Shares, including fractional Global Utilities
Shares, determined in the manner set forth in paragraph 2.3. Such transactions
shall take place at the closing provided for in paragraph 3.1 ("Closing").
1.2 (a) The "Global Telecom Assets" shall consist of all property,
including without limitation, all cash (other than the "Cash Reserve" (as
defined in paragraph 1.3(b)), cash equivalents, securities and dividend and
interest receivables owned by Global Telecom, and any deferred or prepaid
expenses shown as an asset on Global Telecom's books on the Valuation Date.
(b) On or prior to the Valuation Date, Global Telecom will provide Global
Utilities with a list of all of Global Telecom's assets to be assigned,
delivered and otherwise transferred to Global Utilities and of the stated
liabilities to be assumed by Global Utilities pursuant to this Agreement.
Global Telecom reserves the right to sell any of the securities on such list
but will not, without the prior approval of Global Utilities, acquire any
additional securities other than securities of the type in which Global
Utilities is permitted to invest and in amounts agreed to in writing by Global
Utilities. Global Utilities will, within a reasonable time prior to the
Valuation Date, furnish Global Telecom with a statement of Global Utilities's
investment objectives, policies and restrictions and a list of the securities,
if any, on the list referred to in the first sentence of this paragraph that do
not conform to Global Utilities' investment objective, policies and
restrictions. In the event that Global Telecom holds any investments that
Global Utilities is not permitted to hold, Global Telecom will dispose of such
securities on or prior to the Valuation Date. In addition, if it is determined
that the portfolios of Global Telecom and Global Utilities, when aggregated,
would contain investments exceeding certain percentage
A-1
<PAGE>
limitations imposed upon Global Utilities with respect to such investments,
Global Telecom if requested by Global Utilities will, on or prior to the
Valuation Date, dispose of and/or reinvest a sufficient amount of such
investments as may be necessary to avoid violating such limitations as of the
Closing Date (as defined in paragraph 3.1).
1.3 (a) Global Telecom will endeavor to discharge all of its liabilities
and obligations on or prior to the Valuation Date. Global Utilities will assume
all stated liabilities, which includes, without limitation, all expenses,
costs, charges and reserves reflected on an unaudited Statement of Assets and
Liabilities of Global Telecom prepared by the Treasurer of Global Telecom as of
the Valuation Date in accordance with generally accepted accounting principles
consistently applied from the prior audited period.
(b) On the Valuation Date, Global Telecom may establish a cash reserve,
which shall not exceed 5% of Global Telecom's net assets as of the close of
business on the Valuation Date ("Cash Reserve") to be retained by Global
Telecom and used for the payment of its liabilities not discharged prior to the
Valuation Date and for the expenses of dissolution.
1.4 In order for Global Telecom to comply with Section 852(a)(1) of the
Code and to avoid having any investment company taxable income or net capital
gain (as defined in Sections 852(b)(2) and 1222(11) of the Code, respectively)
in the short taxable year ending with its dissolution, Global Telecom will on
or before the Valuation Date (a) declare a dividend in an amount large enough
so that it will have declared dividends of all of its investment company
taxable income and net capital gain, if any, for such taxable year (determined
without regard to any deduction for dividends paid) and (b) distribute such
dividend.
1.5 On the Closing Date or as soon as practicable thereafter, Global
Telecom will distribute Global Utilities Shares received by Global Telecom
pursuant to paragraph 1.1 pro rata to its shareholders of record determined as
of the close of business on the Valuation Date ("Global Telecom Shareholders").
Each Global Telecom Shareholder will receive the class of shares of Global
Utilities that corresponds to the class of shares of Global Telecom currently
held by that Global Telecom Shareholder. Accordingly, the Global Utilities
Shares will be distributed as follows: each of the Class A, Class B, Class C
and Class D shares of Global Utilities will be distributed to holders of Class
A, Class B, Class C and Class D shares of Global Telecom, respectively. Such
distribution will be accomplished by an instruction, signed by Global Telecom's
Secretary, to transfer Global Utilities Shares then credited to Global
Telecom's account on the books of Global Utilities to open accounts on the
books of Global Utilities in the names of the Global Telecom Shareholders and
representing the respective pro rata number of Global Utilities Shares due such
Global Telecom Shareholders. All issued and outstanding shares of Global
Telecom simultaneously will be canceled on Global Telecom's books; however,
share certificates representing interests in Global Telecom will represent a
number of Global Utilities Shares after the Closing Date as determined in
accordance with paragraph 2.3. Global Utilities will issue certificates
representing Global Utilities Shares in connection with such exchange only upon
the written request of a Global Telecom Shareholder.
1.6 Ownership of Global Utilities Shares will be shown on the books of
Global Utilities' transfer agent. Global Utilities Shares will be issued in the
manner described in Global Utilities' current Prospectus and Statement of
Additional Information.
1.7 Any transfer taxes payable upon issuance of Global Utilities Shares in
a name other than the registered holder of Global Utilities Shares on Global
Telecom's books as of the close of business on the Valuation Date shall, as a
condition of such issuance and transfer, be paid by the person to whom Global
Utilities Shares are to be issued and transferred.
1.8 Any reporting responsibility of Global Telecom is and shall remain the
responsibility of Global Telecom up to and including the date on which Global
Telecom is dissolved and deregistered pursuant to paragraph 1.9.
A-2
<PAGE>
1.9 Within one year after the Closing Date, Global Telecom shall pay or
make provision for the payment of all its liabilities and taxes, and distribute
to the shareholders of Global Telecom as of the close of business on the
Valuation Date any remaining amount of the Cash Reserve (as reduced by the
estimated cost of distributing it to shareholders). Global Telecom shall be
dissolved as a Massachusetts business trust and deregistered as an investment
company under the Investment Company Act of 1940, as amended ("1940 Act"),
promptly following the making of all distributions pursuant to paragraph 1.5.
1.10 Copies of all books and records maintained on behalf of Global
Telecom in connection with its obligations under the 1940 Act, the Code, state
blue sky laws or otherwise in connection with this Agreement will promptly
after the Closing be delivered to officers of Global Utilities or their
designee and Global Utilities or its designee shall comply with applicable
record retention requirements to which Global Telecom is subject under the 1940
Act.
2. VALUATION
2.1 The value of the Global Telecom Assets shall be the value of such
assets computed as of 4:00 p.m. on the New York Stock Exchange on the third
business day following the receipt of the requisite approval by shareholders of
Global Telecom of this Agreement or at such time on such earlier or later date
after such approval as may be mutually agreed upon in writing (such time and
date being hereinafter called the "Valuation Date"), using the valuation
procedures set forth in Global Utilities' then current Prospectus and Statement
of Additional Information.
2.2 The net asset value of a Global Utilities Share shall be the net asset
value per share computed on the Valuation Date, using the valuation procedures
set forth in Global Utilities' then current Prospectus and Statement of
Additional Information.
2.3 The number of Global Utilities Shares (including fractional shares, if
any) to be issued hereunder shall be determined, with respect to each class, by
dividing the aggregate net asset value of each class of Global Telecom shares
(determined in accordance with paragraph 2.1) by the net asset value per share
of the corresponding class of shares of Global Utilities (determined in
accordance with paragraph 2.2). For purposes of this paragraph, the aggregate
net asset value of each class of shares of Global Telecom shall not include the
amount of the Cash Reserve.
2.4 All computations of value shall be made by Morgan Stanley Dean Witter
Services Company Inc. ("MSDW Services") in accordance with its regular practice
in pricing Global Utilities. Global Utilities shall cause MSDW Services to
deliver a copy of its valuation report at the Closing.
3. CLOSING AND CLOSING DATE
3.1 The Closing shall take place on the next business day following the
Valuation Date (the "Closing Date"). The Closing shall be held as of 9:00 a.m.
Eastern time, or at such other time as the parties may agree. The Closing shall
be held in a location mutually agreeable to the parties hereto. All acts taking
place at the Closing shall be deemed to take place simultaneously as of 9:00
a.m. Eastern time on the Closing Date unless otherwise provided.
3.2 Portfolio securities held by Global Telecom and represented by a
certificate or other written instrument shall be presented by it or on its
behalf to The Bank of New York (the "Custodian"), as custodian for Global
Utilities, for examination no later than five business days preceding the
Valuation Date. Such portfolio securities (together with any cash or other
assets) shall be delivered by Global Telecom to the Custodian for the account
of Global Utilities on or before the Closing Date in conformity with applicable
A-3
<PAGE>
custody provisions under the 1940 Act and duly endorsed in proper form for
transfer in such condition as to constitute good delivery thereof in accordance
with the custom of brokers. The portfolio securities shall be accompanied by
all necessary Federal and state stock transfer stamps or a check for the
appropriate purchase price of such stamps. Portfolio securities and instruments
deposited with a securities depository (as defined in Rule 17f-4 under the 1940
Act) shall be delivered on or before the Closing Date by book-entry in
accordance with customary practices of such depository and the Custodian. The
cash delivered shall be in the form of a Federal Funds wire, payable to the
order of "The Bank of New York, Custodian for Morgan Stanley Dean Witter Global
Utilities Fund."
3.3 In the event that on the Valuation Date, (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be restricted or
(b) trading or the reporting of trading on such Exchange or elsewhere shall be
disrupted so that, in the judgment of both Global Utilities and Global Telecom,
accurate appraisal of the value of the net assets of Global Utilities or the
Global Telecom Assets is impracticable, the Valuation Date shall be postponed
until the first business day after the day when trading shall have been fully
resumed without restriction or disruption and reporting shall have been
restored.
3.4 If requested, Global Telecom shall deliver to Global Utilities or its
designee (a) at the Closing, a list, certified by its Secretary, of the names,
addresses and taxpayer identification numbers of the Global Telecom
Shareholders and the number and percentage ownership of outstanding Global
Telecom shares owned by each such Global Telecom Shareholder, all as of the
Valuation Date, and (b) as soon as practicable after the Closing, all original
documentation (including Internal Revenue Service forms, certificates,
certifications and correspondence) relating to the Global Telecom Shareholders'
taxpayer identification numbers and their liability for or exemption from
back-up withholding. Global Utilities shall issue and deliver to such Secretary
a confirmation evidencing delivery of Global Utilities Shares to be credited on
the Closing Date to Global Telecom or provide evidence satisfactory to Global
Telecom that such Global Utilities Shares have been credited to Global
Telecom's account on the books of Global Utilities. At the Closing, each party
shall deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts or other documents as such other party or its
counsel may reasonably request.
4. COVENANTS OF GLOBAL UTILITIES AND GLOBAL TELECOM
4.1 Except as otherwise expressly provided herein with respect to Global
Telecom, Global Utilities and Global Telecom each will operate its business in
the ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include customary
dividends and other distributions.
4.2 Global Utilities will prepare and file with the Securities and
Exchange Commission ("Commission") a registration statement on Form N-14 under
the Securities Act of 1933, as amended ("1933 Act"), relating to Global
Utilities Shares ("Registration Statement"). Global Telecom will provide Global
Utilities with the Proxy Materials as described in paragraph 4.3 below, for
inclusion in the Registration Statement. Global Telecom will further provide
Global Utilities with such other information and documents relating to Global
Telecom as are reasonably necessary for the preparation of the Registration
Statement.
4.3 Global Telecom will call a meeting of its shareholders to consider and
act upon this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated herein. Global Telecom will prepare
the notice of meeting, form of proxy and proxy statement (collectively, "Proxy
Materials") to be used in connection with such meeting; provided that Global
Utilities will furnish Global Telecom with its currently effective prospectus
for inclusion in the Proxy Materials and with such other information relating
to Global Utilities as is reasonably necessary for the preparation of the Proxy
Materials.
A-4
<PAGE>
4.4 Global Telecom will assist Global Utilities in obtaining such
information as Global Utilities reasonably requests concerning the beneficial
ownership of Global Telecom shares.
4.5 Subject to the provisions of this Agreement, Global Utilities and
Global Telecom will each take, or cause to be taken, all action, and do or
cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.
4.6 Global Telecom shall furnish or cause to be furnished to Global
Utilities within 30 days after the Closing Date a statement of Global Telecom's
assets and liabilities as of the Closing Date, which statement shall be
certified by Global Telecom's Treasurer and shall be in accordance with
generally accepted accounting principles consistently applied. As promptly as
practicable, but in any case within 60 days after the Closing Date, Global
Telecom shall furnish Global Utilities, in such form as is reasonably
satisfactory to Global Utilities, a statement certified by Global Telecom's
Treasurer of Global Telecom's earnings and profits for Federal income tax
purposes that will be carried over to Global Utilities pursuant to Section 381
of the Code.
4.7 As soon after the Closing Date as is reasonably practicable, Global
Telecom (a) shall prepare and file all Federal and other tax returns and
reports of Global Telecom required by law to be filed with respect to all
periods ending on or before the Closing Date but not theretofore filed and (b)
shall pay all Federal and other taxes shown as due thereon and/or all Federal
and other taxes that were unpaid as of the Closing Date, including without
limitation, all taxes for which the provision for payment was made as of the
Closing Date (as represented in paragraph 5.2(k)).
4.8 Global Utilities agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act and the 1940 Act and to
make such filings required by the state Blue Sky and securities laws as it may
deem appropriate in order to continue its operations after the Closing Date.
5. REPRESENTATIONS AND WARRANTIES
5.1 Global Utilities represents and warrants to Global Telecom as follows:
(a) Global Utilities is a validly existing Massachusetts business trust
with full power to carry on its business as presently conducted;
(b) Global Utilities is a duly registered, open-end, management
investment company, and its registration with the Commission as an
investment company under the 1940 Act and the registration of its shares
under the 1933 Act are in full force and effect;
(c) All of the issued and outstanding shares of Global Utilities have
been offered and sold in compliance in all material respects with
applicable registration requirements of the 1933 Act and state securities
laws. Shares of Global Utilities are registered in all jurisdictions in
which they are required to be registered under state securities laws and
other laws, and said registrations, including any periodic reports or
supplemental filings, are complete and current, all fees required to be
paid have been paid, and Global Utilities is not subject to any stop order
and is fully qualified to sell its shares in each state in which its shares
have been registered;
(d) The current Prospectus and Statement of Additional Information of
Global Utilities conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the regulations
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
A-5
<PAGE>
(e) Global Utilities is not in, and the execution, delivery and
performance of this Agreement will not result in a, material violation of
any provision of Global Utilities' Declaration of Trust or By-Laws or of
any agreement, indenture, instrument, contract, lease or other undertaking
to which Global Utilities is a party or by which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its
knowledge, threatened against Global Utilities or any of its properties or
assets which, if adversely determined, would materially and adversely
affect its financial condition or the conduct of its business; and Global
Utilities knows of no facts that might form the basis for the institution
of such proceedings and is not a party to or subject to the provisions of
any order, decree or judgment of any court or governmental body which
materially and adversely affects, or is reasonably likely to materially and
adversely effect, its business or its ability to consummate the
transactions herein contemplated;
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights for the year
ended February 28, 1999, of Global Utilities certified by
PricewaterhouseCoopers LLP (copies of which have been furnished to Global
Telecom), fairly present, in all material respects, Global Utilities'
financial condition as of such date in accordance with generally accepted
accounting principles, and its results of such operations, changes in its
net assets and financial highlights for such period, and as of such date
there were no known liabilities of Global Utilities (contingent or
otherwise) not disclosed therein that would be required in accordance with
generally accepted accounting principles to be disclosed therein;
(h) All issued and outstanding Global Utilities Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and nonassessable with no personal liability attaching to the ownership
thereof, except as set forth under the caption "Additional Information" in
Global Utilities' current Prospectus incorporated by reference in the
Registration Statement. Global Utilities does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of its
shares;
(i) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of Global Utilities,
and this Agreement constitutes a valid and binding obligation of Global
Utilities enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors rights and to general equity
principles. No other consents, authorizations or approvals are necessary in
connection with Global Utilities' performance of this Agreement;
(j) Global Utilities Shares to be issued and delivered to Global Telecom,
for the account of the Global Telecom Shareholders, pursuant to the terms
of this Agreement will at the Closing Date have been duly authorized and,
when so issued and delivered, will be duly and validly issued Global
Utilities Shares, and will be fully paid and non-assessable with no
personal liability attaching to the ownership thereof, except as set forth
under the caption "Additional Information" in Global Utilities' current
Prospectus incorporated by reference in the Registration Statement;
(k) All material Federal and other tax returns and reports of Global
Utilities required by law to be filed on or before the Closing Date have
been filed and are correct, and all Federal and other taxes shown as due or
required to be shown as due on said returns and reports have been paid or
provision has been made for the payment thereof, and to the best of Global
Utilities' knowledge, no such return is currently under audit and no
assessment has been asserted with respect to any such return;
(l) For each taxable year since its inception, Global Utilities has met
the requirements of Subchapter M of the Code for qualification and
treatment as a "regulated investment company" and neither the
A-6
<PAGE>
execution or delivery of nor the performance of its obligations under this
Agreement will adversely affect, and no other events are reasonably likely
to occur which will adversely affect the ability of Global Utilities to
continue to meet the requirements of Subchapter M of the Code;
(m) Since February 28, 1999 there has been no change by Global Utilities
in accounting methods, principles, or practices, including those required
by generally accepted accounting principles;
(n) The information furnished or to be furnished by Global Utilities for
use in registration statements, proxy materials and other documents which
may be necessary in connection with the transactions contemplated hereby
shall be accurate and complete in all material respects and shall comply in
all material respects with Federal securities and other laws and
regulations applicable thereto; and
(o) The Proxy Materials to be included in the Registration Statement
(only insofar as they relate to Global Utilities) will, on the effective
date of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading.
5.2 Global Telecom represents and warrants to Global Utilities as follows:
(a) Global Telecom is a validly existing Massachusetts business trust
with full power to carry on its business as presently conducted;
(b) Global Telecom is a duly registered, open-end, management investment
company, and its registration with the Commission as an investment company
under the 1940 Act and the registration of its shares under the 1933 Act
are in full force and effect;
(c) All of the issued and outstanding shares of beneficial interest of
Global Telecom have been offered and sold in compliance in all material
respects with applicable requirements of the 1933 Act and state securities
laws. Shares of Global Telecom are registered in all jurisdictions in which
they are required to be registered and said registrations, including any
periodic reports or supplemental filings, are complete and current, all
fees required to be paid have been paid, and Global Telecom is not subject
to any stop order and is fully qualified to sell its shares in each state
in which its shares have been registered;
(d) The current Prospectus and Statement of Additional Information of
Global Telecom conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the regulations
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
(e) Global Telecom is not, and the execution, delivery and performance of
this Agreement will not result, in a material violation of any provision of
Global Telecom's Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which Global
Telecom is a party or by which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its
knowledge, threatened against Global Telecom or any of its properties or
assets which, if adversely determined, would materially and adversely
affect its financial condition or the conduct of its business; and Global
Telecom knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which
materially and adversely affects, or is reasonably likely to materially and
adversely effect, its business or its ability to consummate the
transactions herein contemplated;
A-7
<PAGE>
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights of Global
Telecom for the year ended May 31, 1998, certified by
PricewaterhouseCoopers LLP (copies of which have been or will be furnished
to Global Utilities) fairly present, in all material respects, Global
Telecom's financial condition as of such date, and its results of
operations, changes in its net assets and financial highlights for such
period in accordance with generally accepted accounting principles, and as
of such date there were no known liabilities of Global Telecom (contingent
or otherwise) not disclosed therein that would be required in accordance
with generally accepted accounting principles to be disclosed therein;
(h) Global Telecom has no material contracts or other commitments (other
than this Agreement) that will be terminated with liability to it prior to
the Closing Date;
(i) All issued and outstanding shares of Global Telecom are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and nonassessable with no personal liability attaching to the ownership
thereof, except as set forth under the caption "Additional Information" in
Global Telecom's current Prospectus incorporated by reference in the
Registration Statement. Global Telecom does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of its
shares, nor is there outstanding any security convertible to any of its
shares. All such shares will, at the time of Closing, be held by the
persons and in the amounts set forth in the list of shareholders submitted
to Global Utilities pursuant to paragraph 3.4;
(j) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of Global Telecom, and subject to the approval of Global Telecom's
shareholders, this Agreement constitutes a valid and binding obligation of
Global Telecom, enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors rights and to general equity
principles. No other consents, authorizations or approvals are necessary in
connection with Global Telecom's performance of this Agreement;
(k) All material Federal and other tax returns and reports of Global
Telecom required by law to be filed on or before the Closing Date shall
have been filed and are correct and all Federal and other taxes shown as
due or required to be shown as due on said returns and reports have been
paid or provision has been made for the payment thereof, and to the best of
Global Telecom's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to any such return;
(l) For each taxable year since its inception, Global Telecom has met all
the requirements of Subchapter M of the Code for qualification and
treatment as a "regulated investment company" and neither the execution or
delivery of nor the performance of its obligations under this Agreement
will adversely affect, and no other events are reasonably likely to occur
which will adversely affect the ability of Global Telecom to continue to
meet the requirements of Subchapter M of the Code;
(m) At the Closing Date, Global Telecom will have good and valid title to
the Global Telecom Assets, subject to no liens (other than the obligation,
if any, to pay the purchase price of portfolio securities purchased by
Global Telecom which have not settled prior to the Closing Date), security
interests or other encumbrances, and full right, power and authority to
assign, deliver and otherwise transfer such assets hereunder, and upon
delivery and payment for such assets, Global Utilities will acquire good
and marketable title thereto, subject to no restrictions on the full
transfer thereof, including any restrictions as might arise under the 1933
Act;
(n) On the effective date of the Registration Statement, at the time of
the meeting of Global Telecom's shareholders and on the Closing Date, the
Proxy Materials (exclusive of the currently effective
A-8
<PAGE>
Global Utilities Prospectus contained therein) will (i) comply in all
material respects with the provisions of the 1933 Act, the Securities
Exchange Act of 1934, as amended ("1934 Act") and the 1940 Act and the
regulations thereunder and (ii) not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. Any
other information furnished by Global Telecom for use in the Registration
Statement or in any other manner that may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete and
shall comply in all material respects with applicable Federal securities
and other laws and regulations thereunder;
(o) Global Telecom will, on or prior to the Valuation Date, declare one
or more dividends or other distributions to shareholders that, together
with all previous dividends and other distributions to shareholders, shall
have the effect of distributing to the shareholders all of its investment
company taxable income and net capital gain, if any, through the Valuation
Date (computed without regard to any deduction for dividends paid);
(p) Global Telecom has maintained or has caused to be maintained on its
behalf all books and accounts as required of a registered investment company
in compliance with the requirements of Section 31 of the 1940 Act and the
Rules thereunder; and
(q) Global Telecom is not acquiring Global Utilities Shares to be issued
hereunder for the purpose of making any distribution thereof other than in
accordance with the terms of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF GLOBAL TELECOM
The obligations of Global Telecom to consummate the transactions provided
for herein shall be subject, at its election, to the performance by Global
Utilities of all the obligations to be performed by it hereunder on or before
the Closing Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of Global Utilities contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date;
6.2 Global Utilities shall have delivered to Global Telecom a certificate
of its President and Treasurer, in a form reasonably satisfactory to Global
Telecom and dated as of the Closing Date, to the effect that the
representations and warranties of Global Utilities made in this Agreement are
true and correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other
matters as Global Telecom shall reasonably request;
6.3 Global Telecom shall have received a favorable opinion from Gordon
Altman Butowsky Weitzen Shalov & Wein, counsel to Global Utilities, dated as of
the Closing Date, to the effect that:
(a) Global Utilities is a validly existing Massachusetts business trust,
and has the power to own all of its properties and assets and to carry on
its business as presently conducted (Massachusetts counsel may be relied
upon in delivering such opinion); (b) Global Utilities is a duly
registered, open-end, management investment company, and its registration
with the Commission as an investment company under the 1940 Act is in full
force and effect; (c) this Agreement has been duly authorized, executed and
delivered by Global Utilities and, assuming that the Registration Statement
complies with the 1933 Act, the 1934 Act and the 1940 Act and regulations
thereunder and assuming due authorization, execution and delivery of this
Agreement by Global Telecom, is a valid and binding obligation of Global
Utilities enforceable against Global Utilities in accordance with its
terms, subject as to enforcement, to bankruptcy, insolvency,
A-9
<PAGE>
reorganization, moratorium and other laws relating to or affecting
creditors rights and to general equity principles; (d) Global Utilities
Shares to be issued to Global Telecom Shareholders as provided by this
Agreement are duly authorized and upon such delivery will be validly
issued, fully paid and non-assessable (except as set forth under the
caption "Additional Information" in Global Utilities' Prospectus), and no
shareholder of Global Utilities has any preemptive rights to subscription
or purchase in respect thereof (Massachusetts counsel may be relied upon in
delivering such opinion); (e) the execution and delivery of this Agreement
did not, and the consummation of the transactions contemplated hereby will
not, violate Global Utilities' Declaration of Trust or By-Laws; and (f) to
the knowledge of such counsel, no consent, approval, authorization or order
of any court or governmental authority of the United States or any state is
required for the consummation by Global Utilities of the transactions
contemplated herein, except such as have been obtained under the 1933 Act,
the 1934 Act and the 1940 Act and such as may be required under state
securities laws; and
6.4 As of the Closing Date, there shall have been no material change in
the investment objective, policies and restrictions nor any increase in the
investment management fees or annual fees pursuant to Global Utilities' 12b-1
plan of distribution from those described in Global Utilities' Prospectus dated
June 26, 1998 and Statement of Additional Information dated June 26, 1998.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF GLOBAL UTILITIES
The obligations of Global Utilities to complete the transactions provided
for herein shall be subject, at its election, to the performance by Global
Telecom of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of Global Telecom contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if
made on and as of the Closing Date;
7.2 Global Telecom shall have delivered to Global Utilities at the Closing
a certificate of its President and its Treasurer, in form and substance
satisfactory to Global Utilities and dated as of the Closing Date, to the
effect that the representations and warranties of Global Telecom made in this
Agreement are true and correct at and as of the Closing Date, except as they
may be affected by the transactions contemplated by this Agreement, and as to
such other matters as Global Utilities shall reasonably request;
7.3 Global Telecom shall have delivered to Global Utilities a statement of
the Global Telecom Assets and its liabilities, together with a list of Global
Telecom's portfolio securities and other assets showing the respective adjusted
bases and holding periods thereof for income tax purposes, as of the Closing
Date, certified by the Treasurer of Global Telecom;
7.4 Global Telecom shall have delivered to Global Utilities within three
business days after the Closing a letter from PricewaterhouseCoopers LLP dated
as of the Closing Date stating that (a) such firm has performed a limited
review of the Federal and state income tax returns of Global Telecom for each
of the last three taxable years and, based on such limited review, nothing came
to their attention that caused them to believe that such returns did not
properly reflect, in all material respects, the Federal and state income tax
liabilities of Global Telecom for the periods covered thereby, (b) for the
period from May 31, 1998 to and including the Closing Date, such firm has
performed a limited review (based on unaudited financial data) to ascertain the
amount of applicable Federal, state and local taxes and has determined that
same either have been paid or reserves have been established for payment of
such taxes, and, based on such limited review, nothing came to their attention
that caused them to believe that the taxes paid or reserves set aside for
payment of such
A-10
<PAGE>
taxes were not adequate in all material respects for the satisfaction of all
Federal, state and local tax liabilities for the period from May 31, 1998 to
and including the Closing Date and (c) based on such limited reviews, nothing
came to their attention that caused them to believe that Global Telecom would
not qualify as a regulated investment company for Federal income tax purposes
for any such year or period;
7.5 Global Utilities shall have received at the Closing a favorable
opinion from Gordon Altman Butowsky Weitzen Shalov & Wein, counsel to Global
Telecom, dated as of the Closing Date to the effect that:
(a) Global Telecom is a validly existing Massachusetts business trust and
has the power to own all of its properties and assets and to carry on its
business as presently conducted (Massachusetts counsel may be relied upon
in delivering such opinion); (b) Global Telecom is a duly registered,
open-end, management investment company under the 1940 Act, and its
registration with the Commission as an investment company under the 1940
Act is in full force and effect; (c) this Agreement has been duly
authorized, executed and delivered by Global Telecom and, assuming that the
Registration Statement complies with the 1933 Act, the 1934 Act and the
1940 Act and the regulations thereunder and assuming due authorization,
execution and delivery of this Agreement by Global Utilities, is a valid
and binding obligation of Global Telecom enforceable against Global Telecom
in accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors rights and to general equity principles; (d) the
execution and delivery of this Agreement did not, and the consummation of
the transactions contemplated hereby will not, violate Global Telecom's
Declaration of Trust or By-Laws; and (e) to the knowledge of such counsel,
no consent, approval, authorization or order of any court or governmental
authority of the United States or any state is required for the
consummation by Global Telecom of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934 Act and the
1940 Act and such as may be required under state securities laws; and
7.6 On the Closing Date, the Global Telecom Assets shall include no assets
that Global Utilities, by reason of limitations of the fund's Declaration of
Trust or otherwise, may not properly acquire.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF GLOBAL UTILITIES
AND GLOBAL TELECOM
The obligations of Global Telecom and Global Utilities hereunder are each
subject to the further conditions that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
Global Telecom in accordance with the provisions of Global Telecom's
Declaration of Trust, and certified copies of the resolutions evidencing such
approval shall have been delivered to Global Utilities;
8.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities, including
"no-action" positions of and exemptive orders from such Federal and state
authorities) deemed necessary by Global Utilities or Global Telecom to permit
consummation, in all material respects, of the transactions contemplated herein
shall have been obtained, except where failure to obtain any such consent,
order or permit would not involve risk of a material adverse effect on the
assets or properties of Global Utilities or Global Telecom;
A-11
<PAGE>
8.4 The Registration Statement shall have become effective under the 1933
Act, no stop orders suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act;
8.5 Global Telecom shall have declared and paid a dividend or dividends
and/or other distribution or distributions that, together with all previous
such dividends or distributions, shall have the effect of distributing to the
Global Telecom Shareholders all of Global Telecom's investment company taxable
income (computed without regard to any deduction for dividends paid) and all of
its net capital gain (after reduction for any capital loss carry-forward and
computed without regard to any deduction for dividends paid) for all taxable
years ending on or before the Closing Date; and
8.6 The parties shall have received a favorable opinion of the law firm of
Gordon Altman Butowsky Weitzen Shalov & Wein (based on such representations as
such law firm shall reasonably request), addressed to Global Utilities and
Global Telecom, which opinion may be relied upon by the shareholders of Global
Telecom, substantially to the effect that, for Federal income tax purposes:
(a) The transfer of substantially all of Global Telecom's assets in
exchange for Global Utilities Shares and the assumption by Global Utilities
of certain stated liabilities of Global Telecom followed by the
distribution by Global Telecom of Global Utilities Shares to the Global
Telecom Shareholders in exchange for their Global Telecom shares will
constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of
the Code, and Global Telecom and Global Utilities will each be a "party to
a reorganization" within the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by Global Utilities upon the
receipt of the assets of Global Telecom solely in exchange for Global
Utilities Shares and the assumption by Global Utilities of the stated
liabilities of Global Telecom;
(c) No gain or loss will be recognized by Global Telecom upon the
transfer of the assets of Global Telecom to Global Utilities in exchange
for Global Utilities Shares and the assumption by Global Utilities of the
stated liabilities or upon the distribution of Global Utilities Shares to
the Global Telecom Shareholders in exchange for their Global Telecom
shares;
(d) No gain or loss will be recognized by the Global Telecom Shareholders
upon the exchange of the Global Telecom shares for Global Utilities Shares;
(e) The aggregate tax basis for Global Utilities Shares received by each
Global Telecom Shareholder pursuant to the reorganization will be the same
as the aggregate tax basis of the Global Telecom Shares held by each such
Global Telecom Shareholder immediately prior to the Reorganization;
(f) The holding period of Global Utilities Shares to be received by each
Global Telecom Shareholder will include the period during which the Global
Telecom Shares surrendered in exchange therefor were held (provided such
Global Telecom Shares were held as capital assets on the date of the
Reorganization);
(g) The tax basis of the assets of Global Telecom acquired by Global
Utilities will be the same as the tax basis of such assets to Global
Telecom immediately prior to the Reorganization; and
(h) The holding period of the assets of Global Telecom in the hands of
Global Utilities will include the period during which those assets were
held by Global Telecom.
Notwithstanding anything herein to the contrary, neither Global Utilities
nor Global Telecom may waive the conditions set forth in this paragraph 8.6.
A-12
<PAGE>
9. FEES AND EXPENSES
9.1 (a) Global Utilities shall bear its expenses incurred in connection
with the entering into, and carrying out of, the provisions of this Agreement,
including legal, accounting, Commission registration fees and Blue Sky
expenses. Global Telecom shall bear its expenses incurred in connection with
the entering into and carrying out of the provisions of this Agreement,
including legal and accounting fees, printing, filing and proxy solicitation
expenses and portfolio transfer taxes (if any) incurred in connection with the
consummation of the transactions contemplated herein.
(b) In the event the transactions contemplated herein are not consummated
by reason of Global Telecom being either unwilling or unable to go forward
(other than by reason of the nonfulfillment or failure of any condition to
Global Telecom's obligations specified in this Agreement), Capital
Appreciation's only obligation hereunder shall be to reimburse Global Utilities
for all reasonable out-of-pocket fees and expenses incurred by Global Utilities
in connection with those transactions.
(c) In the event the transactions contemplated herein are not consummated
by reason of Global Utilities being either unwilling or unable to go forward
(other than by reason of the nonfulfillment or failure of any condition to
Global Utilities' obligations specified in this Agreement), Global Utilities'
only obligation hereunder shall be to reimburse Global Telecom for all
reasonable out-of-pocket fees and expenses incurred by Global Telecom in
connection with those transactions.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
herein, except that the representations, warranties and covenants of Global
Telecom hereunder shall not survive the dissolution and complete liquidation of
Global Telecom in accordance with Section 1.9.
11. TERMINATION
11.1 This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:
(a) by the mutual written consent of Global Telecom and Global
Utilities;
(b) by either Global Utilities or Global Telecom by notice to the other,
without liability to the terminating party on account of such termination
(providing the terminating party is not otherwise in material default or
breach of this Agreement) if the Closing shall not have occurred on or
before September 30, 1999; or
(c) by either Global Utilities or Global Telecom, in writing without
liability to the terminating party on account of such termination (provided
the terminating party is not otherwise in material default or breach of
this Agreement), if (i) the other party shall fail to perform in any
material respect its agreements contained herein required to be performed
on or prior to the Closing Date, (ii) the other party materially breaches
any of its representations, warranties or covenants contained herein, (iii)
the Global Telecom shareholders fail to approve this Agreement at any
meeting called for such purpose at which a quorum was present or (iv) any
other condition herein expressed to be precedent to the obligations of the
terminating party has not been met and it reasonably appears that it will
not or cannot be met.
A-13
<PAGE>
11.2 (a) Termination of this Agreement pursuant to paragraphs 11.1 (a) or
(b) shall terminate all obligations of the parties hereunder and there shall be
no liability for damages on the part of Global Utilities or Global Telecom, or
the trustees or officers of Global Utilities or Global Telecom, to any other
party or its trustees or officers.
(b) Termination of this Agreement pursuant to paragraph 11.1 (c) shall
terminate all obligations of the parties hereunder and there shall be no
liability for damages on the part of Global Utilities or Global Telecom, or
the trustees or officers of Global Utilities or Global Telecom, except that
any party in breach of this Agreement shall, upon demand, reimburse the
non-breaching party for all reasonable out-of-pocket fees and expenses
incurred in connection with the transactions contemplated by this
Agreement, including legal, accounting and filing fees.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the parties.
13. MISCELLANEOUS
13.1 The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
13.5 The obligations and liabilities of Global Utilities hereunder are
solely those of Global Utilities. It is expressly agreed that no shareholder,
nominee, trustee, officer, agent, or employee of Global Utilities shall be
personally liable hereunder. The execution and delivery of this Agreement have
been authorized by the trustees of Global Utilities and signed by authorized
officers of Global Utilities acting as such, and neither such authorization by
such trustees nor such execution and delivery by such officers shall be deemed
to have been made by any of them individually or to impose any liability on any
of them personally.
13.6 The obligations and liabilities of Global Telecom hereunder are
solely those of Global Telecom. It is expressly agreed that no shareholder,
nominee, trustee, officer, agent, or employee of Global Telecom shall be
personally liable hereunder. The execution and delivery of this Agreement have
been authorized by the trustees of Global Telecom and signed by authorized
officers of Global Telecom acting as such, and neither such authorization by
such trustees nor such execution and delivery by such officers shall be deemed
to have been made by any of them individually or to impose any liability on any
of them personally.
A-14
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by a duly authorized officer.
TCW/DW GLOBAL TELECOM TRUST
By: /s/ CHARLES A. FIUMEFREDDO
--------------------------------------------
Name: Charles A. Fiumefreddo
Title: President
MORGAN STANLEY DEAN WITTER GLOBAL
UTILITIES FUND
By: /s/ BARRY FINK
--------------------------------------------
Name: Barry Fink
Title: Vice President
A-15
<PAGE>
PROSPECTUS
JUNE 26, 1998
Morgan Stanley Dean Witter Global Utilities Fund (the "Fund") is
an open-end, diversified management investment company whose investment
objective is to seek both capital appreciation and current income. The Fund
seeks to meet its objective by investing in equity and fixed-income securities
of issuers worldwide, which are primarily engaged in the utilities industry.
(See "Investment Objective and Policies.")
The Fund offers four classes of shares (each, a "Class"), each
with a different combination of sales charges, ongoing fees and other features.
The different distribution arrangements permit an investor to choose the method
of purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. (See "Purchase of Fund
Shares--Alternative Purchase Arrangements.")
This Prospectus sets forth concisely the information you should
know before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the Statement
of Additional Information, dated June 26, 1998, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page. The
Statement of Additional Information is incorporated herein by reference.
MORGAN STANLEY DEAN WITTER DISTRIBUTORS INC.
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary/2
Summary of Fund Expenses/4
Financial Highlights/6
The Fund and its Management/9
Investment Objective and Policies/9
Risk Considerations and
Investment Practices/11
Investment Restrictions/18
Purchase of Fund Shares/18
Shareholder Services/30
Redemptions and Repurchases/33
Dividends, Distributions and Taxes/34
Performance Information/35
Additional Information/35
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Morgan Stanley Dean Witter
Global Utilities Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is an open-end,
Fund diversified management investment company. The Fund invests in equity and fixed-income securities of issuers
worldwide, which are primarily engaged in the utilities industry (see page 9).
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Offered Shares of beneficial interest with $0.01 par value (see page 35). The Fund offers four Classes of shares, each
with a different combination of sales charges, ongoing fees and other features (see pages 18-29).
- ------------------------------------------------------------------------------------------------------------------------------------
Minimum The minimum initial investment for each Class is $1,000 ($100 if the account is opened through EasyInvest-SM-).
Purchase Class D shares are only available to persons investing $5 million ($25 million for certain qualified plans) or
more and to certain other limited categories of investors. For the purpose of meeting the minimum $5 million (or
$25 million) investment for Class D shares, and subject to the $1,000 minimum initial investment for each Class
of the Fund, an investor's existing holdings of Class A shares and shares of funds for which Morgan Stanley Dean
Witter Advisors Inc. serves as investment manager ("Morgan Stanley Dean Witter Funds") that are sold with a
front-end sales charge, and concurrent investments in Class D shares of the Fund and other Morgan Stanley Dean
Witter Funds that are multiple class funds, will be aggregated. The minimum subsequent investment is $100 (see
page 18).
- ------------------------------------------------------------------------------------------------------------------------------------
Investment The investment objective of the Fund is to seek both capital appreciation and current income (see page 9).
Objective
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Morgan Stanley Dean Witter Advisors Inc., the Investment Manager of the Fund, and its wholly-owned subsidiary,
Manager Morgan Stanley Dean Witter Services Company Inc., serve in various investment management, advisory, management
and administrative capacities to 101 investment companies and other portfolios with assets of approximately $115
billion at May 31, 1998 (see page 9).
- ------------------------------------------------------------------------------------------------------------------------------------
Management The Investment Manager receives a monthly fee at the annual rate of 0.65% of daily net assets, scaled down on
Fee assets over $500 million (see page 9).
- ------------------------------------------------------------------------------------------------------------------------------------
Distributor and Morgan Stanley Dean Witter Distributors Inc. (the "Distributor"). The Fund has adopted a distribution plan
Distribution Fee pursuant to Rule 12b-1 under the Investment Company Act (the "12b-1 Plan") with respect to the distribution fees
paid by the Class A, Class B and Class C shares of the Fund to the Distributor. The entire 12b-1 fee payable by
Class A and a portion of the 12b-1 fee payable by each of Class B and Class C equal to 0.25% of the average
daily net assets of the Class are currently each characterized as a service fee within the meaning of the
National Association of Securities Dealers, Inc. guidelines. The remaining portion of the 12b-1 fee, if any, is
characterized as an asset-based sales charge (see pages 18 and 27).
- ------------------------------------------------------------------------------------------------------------------------------------
Alternative Four classes of shares are offered:
Purchase
Arrangements - Class A shares are offered with a front-end sales charge, starting at 5.25% and reduced for larger purchases.
Investments of $1 million or more (and investments by certain other limited categories of investors) are not
subject to any sales charge at the time of purchase but a contingent deferred sales charge ("CDSC") of 1.0% may
be imposed on redemptions within one year of purchase. The Fund is authorized to reimburse the Distributor for
specific expenses incurred in promoting the distribution of the Fund's Class A shares and servicing shareholder
accounts pursuant to the Fund's 12b-1 Plan. Reimbursement may in no event exceed an amount equal to payments at
an annual rate of 0.25% of average daily net assets of the Class (see pages 18, 22 and 27).
</TABLE>
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- 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 18, 24 and 27).
- 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 18 and 27).
- 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 18 and 27).
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends Dividends from net investment income are paid quarterly and distributions from net capital gains, if any, are
and paid at least once per year. The Fund may, however, determine to retain all or part of any net long-term capital
Capital Gains gains in any year for reinvestment. Dividends and capital gains distributions paid on shares of a Class are
Distributions automatically reinvested in additional shares of the same Class at net asset value unless the shareholder elects
to receive cash. Shares acquired by dividend and distribution reinvestment will not be subject to any sales
charge or CDSC (see pages 30 and 34).
- ------------------------------------------------------------------------------------------------------------------------------------
Redemption Shares are redeemable by the shareholder at net asset value less any applicable CDSC on Class A, Class B or
Class C shares. An account may be involuntarily redeemed if the total value of the account is less than $100 or,
if the account was opened through EasyInvest-SM-, if after twelve months the shareholder has invested less than
$1,000 in the account (see page 33).
- ------------------------------------------------------------------------------------------------------------------------------------
Risks The net asset value of the Fund's shares will fluctuate with changes in market value of portfolio securities.
The utilities industry has certain characteristics and risks, and developments within that industry will affect
the Fund's portfolio. The value of debt securities (and, to a lesser extent, equity securities) issued by
utilities industry issuers tends to have an inverse relationship to movement of interest rates. It should be
recognized that the foreign securities and markets in which the Fund will invest pose different and greater
risks than those customarily associated with domestic securities and their markets (see pages 11-17).
</TABLE>
- --------------------------------------------------------------------------------
THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THE PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL
INFORMATION.
3
<PAGE>
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are based on
the expenses and fees for the fiscal year ended February 28, 1998.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
--------- ------- --------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)... 5.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments.................................. None None None None
Maximum Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds)................................................. None(2) 5.00%(3) 1.00%(4) None
Redemption Fees................................................................. None None None None
Exchange Fee.................................................................... None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- --------------------------------------------------------------------------------
Management Fees................................................................. 0.65% 0.65% 0.65% 0.65%
12b-1 Fees (5) (6).............................................................. 0.25% 0.90% 1.00% None
Other Expenses.................................................................. 0.25% 0.25% 0.25% 0.25%
Total Fund Operating Expenses (7)............................................... 1.15% 1.80% 1.90% 0.90%
</TABLE>
- ------------
(1) REDUCED FOR PURCHASES OF $25,000 AND OVER (SEE "PURCHASE OF FUND
SHARES--INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES").
(2) INVESTMENTS THAT ARE NOT SUBJECT TO ANY SALES CHARGE AT THE TIME OF PURCHASE
ARE SUBJECT TO A CDSC OF 1.00% THAT WILL BE IMPOSED ON REDEMPTIONS MADE
WITHIN ONE YEAR AFTER PURCHASE, EXCEPT FOR CERTAIN SPECIFIC CIRCUMSTANCES
(SEE "PURCHASE OF FUND SHARES--INITIAL SALES CHARGE ALTERNATIVE--CLASS A
SHARES").
(3) THE CDSC IS SCALED DOWN TO 1.00% DURING THE SIXTH YEAR, REACHING ZERO
THEREAFTER.
(4) ONLY APPLICABLE TO REDEMPTIONS MADE WITHIN ONE YEAR AFTER PURCHASE (SEE
"PURCHASE OF FUND SHARES-- LEVEL LOAD ALTERNATIVE--CLASS C SHARES").
(5) THE 12b-1 FEE IS ACCRUED DAILY AND PAYABLE MONTHLY. THE ENTIRE 12b-1 FEE
PAYABLE BY CLASS A AND A PORTION OF THE 12b-1 FEE PAYABLE BY EACH OF CLASS B
AND CLASS C EQUAL TO 0.25% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS ARE
CURRENTLY EACH CHARACTERIZED AS A SERVICE FEE WITHIN THE MEANING OF NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. ("NASD") GUIDELINES AND ARE PAYMENTS
MADE FOR PERSONAL SERVICE AND/OR MAINTENANCE OF SHAREHOLDER ACCOUNTS. THE
REMAINDER OF THE 12b-1 FEE, IF ANY, IS AN ASSET-BASED SALES CHARGE, AND IS A
DISTRIBUTION FEE PAID TO THE DISTRIBUTOR TO COMPENSATE IT FOR THE SERVICES
PROVIDED AND THE EXPENSES BORNE BY THE DISTRIBUTOR AND OTHERS IN THE
DISTRIBUTION OF THE FUND'S SHARES (SEE "PURCHASE OF FUND SHARES--PLAN OF
DISTRIBUTION").
(6) UPON CONVERSION OF CLASS B SHARES TO CLASS A SHARES, SUCH SHARES WILL BE
SUBJECT TO THE LOWER 12b-1 FEE APPLICABLE TO CLASS A SHARES. NO SALES CHARGE
IS IMPOSED AT THE TIME OF CONVERSION OF CLASS B SHARES TO CLASS A SHARES.
CLASS C SHARES DO NOT HAVE A CONVERSION FEATURE AND, THEREFORE, ARE SUBJECT
TO AN ONGOING 1.00% DISTRIBUTION FEE (SEE "PURCHASE OF FUND
SHARES--ALTERNATIVE PURCHASE ARRANGEMENTS").
(7) THERE WERE NO OUTSTANDING SHARES OF CLASS A, CLASS C OR CLASS D PRIOR TO
JULY 28, 1997. ACCORDINGLY, "TOTAL FUND OPERATING EXPENSES," AS SHOWN ABOVE
WITH RESPECT TO THOSE CLASSES, ARE ESTIMATES BASED UPON THE SUM OF 12b-1
FEES, MANAGEMENT FEES AND ESTIMATED "OTHER EXPENSES."
4
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXAMPLES 1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) a 5% annual return and
(2) redemption at the end of each time period:
Class A....................................... $64 $87 $112 $185
Class B....................................... $68 $87 $117 $212
Class C....................................... $29 $60 $103 $222
Class D....................................... $ 9 $29 $50 $111
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 $112 $185
Class B....................................... $18 $57 $97 $212
Class C....................................... $19 $60 $103 $222
Class D....................................... $ 9 $29 $50 $111
</TABLE>
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Purchase of Fund Shares--Plan of Distribution"
and "Redemptions and Repurchases."
Long-term shareholders of Class B and Class C may pay more in sales charges,
including distribution fees, than the economic equivalent of the maximum
front-end sales charges permitted by the NASD.
5
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in conjunction
with the financial statements, the notes thereto and the unqualified report of
independent accountants which are contained in the Statement of Additional
Information. Further information about the performance of the Fund is contained
in the Fund's Annual Report to Shareholders, which may be obtained without
charge upon request to the Fund.
<TABLE>
<CAPTION>
FOR THE
PERIOD
MAY 31,
1994*
FOR THE YEAR ENDED FEBRUARY 28, THROUGH
------------------------------- FEBRUARY
CLASS B SHARES 1998++++ 1997 1996** 28, 1995
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period.............................. $ 12.66 $ 11.33 $ 9.80 $ 10.00
--------- --------- --------- ----------
Net investment income................ 0.15 0.10 0.18 0.13
Net realized and unrealized gain
(loss).............................. 3.05 1.35 1.64 (0.21)
--------- --------- --------- ----------
Total from investment operations..... 3.20 1.45 1.82 (0.08)
--------- --------- --------- ----------
Less dividends and distributions
from:
Net investment income............. (0.15) (0.12) (0.16) (0.12)
Net realized gain................. (0.62) -- (0.13) --
--------- --------- --------- ----------
Total dividends and distributions.... (0.77) (0.12) (0.29) (0.12)
--------- --------- --------- ----------
Net asset value, end of period....... $ 15.09 $ 12.66 $ 11.33 $ 9.80
--------- --------- --------- ----------
--------- --------- --------- ----------
TOTAL INVESTMENT RETURN+............. 26.06% 12.91% 18.76% (0.87)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses............................. 1.80% 1.82% 1.87% 1.97%(2)
Net investment income................ 1.08% 0.85% 1.66% 1.83%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands........................... $396,483 $352,240 $360,347 $337,600
Portfolio turnover rate.............. 14% 10% 16% 2%(1)
Average commission rate paid......... $0.0024 $0.0071 -- --
</TABLE>
- -------------
* COMMENCEMENT OF OPERATIONS.
** YEAR ENDED FEBRUARY 29.
++ PRIOR TO JULY 28, 1997, THE FUND ISSUED ONE CLASS OF SHARES. ALL SHARES 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.
6
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
FEBRUARY 28,
CLASS A SHARES 1998++
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 13.77
-------
Net investment income................................................. 0.07
Net realized and unrealized gain...................................... 1.76
-------
Total from investment operations...................................... 1.83
-------
Less dividends and distributions from:
Net investment income.............................................. (0.07)
Net realized gain.................................................. (0.43)
-------
Total dividends and distributions..................................... (0.50)
-------
Net asset value, end of period........................................ $ 15.10
-------
-------
TOTAL INVESTMENT RETURN+.............................................. 13.74%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.18%(2)
Net investment income................................................. 0.88%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $948
Portfolio turnover rate............................................... 14%
Average commission rate paid.......................................... $0.0024
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 13.77
-------
Net investment income................................................. 0.01
Net realized and unrealized gain...................................... 1.76
-------
Total from investment operations...................................... 1.77
-------
Less dividends and distributions from:
Net investment income.............................................. (0.04)
Net realized gain.................................................. (0.43)
-------
Total dividends and distributions..................................... (0.47)
-------
Net asset value, end of period........................................ $ 15.07
-------
-------
TOTAL INVESTMENT RETURN+.............................................. 13.24%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.93%(2)
Net investment income................................................. 0.06%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $161
Portfolio turnover rate............................................... 14%
Average commission rate paid.......................................... $0.0024
</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.
7
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
FEBRUARY 28,
CLASS D SHARES 1998++
----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 13.77
-------
Net investment income................................................. 0.09
Net realized and unrealized gain...................................... 1.76
-------
Total from investment operations...................................... 1.85
-------
Less dividends and distributions from:
Net investment income.............................................. (0.08)
Net realized gain.................................................. (0.43)
-------
Total dividends and distributions..................................... (0.51)
-------
Net asset value, end of period........................................ $ 15.11
-------
-------
TOTAL INVESTMENT RETURN+.............................................. 13.90%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.92%(2)
Net investment income................................................. 1.04%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $14
Portfolio turnover rate............................................... 14%
Average commission rate paid.......................................... $0.0024
</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.
8
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter Global Utilities Fund (the "Fund") (formerly
named Dean Witter Global Utilities Fund) is an open-end diversified management
investment company. The Fund is a trust of the type commonly known as a
"Massachusetts business trust" and was organized under the laws of The
Commonwealth of Massachusetts on October 22, 1993.
Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors" or the "Investment
Manager"), whose address is Two World Trade Center, New York, New York 10048, is
the Fund's Investment Manager. The Investment Manager is a wholly-owned
subsidiary of Morgan Stanley Dean Witter & Co., a preeminent global financial
services firm that maintains leading market positions in each of its three
primary businesses -- securities, asset management and credit services. The
Investment Manager, which was incorporated in July, 1992 under the name Dean
Witter InterCapital Inc., changed its name to Morgan Stanley Dean Witter
Advisors Inc. on June 22, 1998.
MSDW Advisors and its wholly-owned subsidiary, Morgan Stanley Dean Witter
Services Company Inc. ("MSDW Services"), serve in various investment management,
advisory, management and administrative capacities to 101 investment companies,
28 of which are listed on the New York Stock Exchange, with combined assets of
approximately $110.3 billion at May 31, 1998. The Investment Manager also
manages portfolios of pension plans, other institutions and individuals which
aggregated approximately $4.3 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. MSDW Advisors has retained MSDW Services to perform the
aforementioned administrative services for the Fund. The Fund's Board of
Trustees reviews the various services provided by the Investment Manager to
ensure that the Fund's general investment policies and programs are being
properly carried out and that administrative services are being provided to the
Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying a
percentage rate to the Fund's daily net assets which declines as net assets of
the Fund reach levels over $500 million. For the fiscal year ended February 28,
1998, the Fund accrued total compensation to the Investment Manager amounting to
0.65% of the Fund's average daily net assets and the total expenses of Class B
amounted to 1.80% 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
- --------------------------------------------------------------------------------
The investment objective of the Fund is to seek both capital appreciation
and current income. The objective is a fundamental policy of the Fund and may
not be changed without shareholder approval. There is no assurance that the
objective will be achieved.
The Fund will attempt to meet its investment objective by investing (at
least 65% of its total assets) in equity and fixed-income securities of issuers
worldwide, which are primarily engaged in the utilities industry. The Fund's
investment portfolio will be invested in at least three separate countries.
9
<PAGE>
The term "utilities industry" describes companies engaged in the
manufacture, production, generation, transmission, sale and distribution of
water, gas and electric energy, or who manufacture or supply equipment for such
companies, as well as companies engaged in the communications field and the
companies which manufacture or supply equipment for such companies, including
telephone, telegraph, satellite, cable, microwave, radio-telephone, computer,
mobile communication and cellular paging, electronic mail, videotext and
teletext and other new or emerging technology companies. A company will be
considered to be in the utilities industry if, during the most recent twelve
month period, at least 50% of the company's gross revenues, on a consolidated
basis, are derived from the utilities industry. Under ordinary circumstances, at
least 65% of the Fund's total assets will be invested in securities of companies
in the utilities industry.
The principal currencies in which securities held in the Fund's portfolio
will be denominated are: the U.S. dollar; Australian dollar; Deutsche mark;
Japanese yen; French franc; British pound; Canadian dollar; Mexican peso; Swiss
franc; Dutch guilder; Hong Kong dollar; New Zealand dollar; Spanish Peseta;
Swedish Krona; European Currency Unit and, beginning on January 1, 1999, the
euro.
The Investment Manager believes the Fund's investment policies are suited to
benefit from certain characteristics and historical performance of the
securities of utility companies. Many of these companies have historically set a
pattern of paying regular dividends over time, and the average common stock
dividend yield of utilities historically has substantially exceeded that of
industrial stocks. The Investment Manager believes that these factors may not
only provide current income but also generally tend to moderate risk and thus
may enhance the opportunity for appreciation of securities owned by the Fund,
although the potential for capital appreciation has historically been lower for
many utility stocks compared with most industrial stocks. There can be no
assurance that the historical investment performance of the utilities industry
will be indicative of future events and performance.
The Fund invests in both equity securities (common stock and securities
convertible into common stock) and fixed-income securities (bonds and preferred
stock) in the utilities industry. The Fund will shift its asset allocation
without restriction between types of utilities, among nationalities of issuers
and between equity and fixed-income securities, based upon the Investment
Manager's determination of how to achieve the Fund's investment objective in
light of prevailing market, economic and financial conditions.
Criteria utilized by the Investment Manager in the selection of equity
securities include the following considerations: earnings and dividend growth;
book value; dividend discount; and price/earnings relationships. In addition,
the Investment Manager makes continuing assessments of management, the
prevailing regulatory framework and industry trends. The Investment Manager may
also utilize computer-based equity selection models. In keeping with the Fund's
objective, if in the opinion of the Investment Manager favorable conditions for
capital growth of equity securities are not prevalent at a particular time, the
Fund may allocate its assets predominantly or exclusively to debt securities
with the aim of obtaining current income and thus benefitting long-term growth
of capital.
The Fund may purchase equity securities sold on the New York, American and
other domestic and foreign stock exchanges and in the over-the-counter market.
Fixed-income securities in which the Fund may invest are debt securities and
preferred stocks which are rated at the time of purchase Baa or better by
Moody's Investors Service, Inc. ("Moody's") or BBB or better by Standard &
Poor's Corporation ("S&P") or which, if unrated, are deemed to be of comparable
quality by the Fund's Investment Manager. Under normal circumstances, the
average weighted maturity of the fixed-income securities held by the Fund is
expected to be in excess of
10
<PAGE>
seven years. A description of corporate bond ratings is contained in the
Appendix to the Statement of Additional Information.
Investments in fixed-income securities rated either BBB by S&P or Baa by
Moody's (the lowest credit ratings designated "investment grade") have
speculative characteristics and, therefore, changes in economic conditions or
other circumstances are more likely to weaken their capacity to make principal
and interest payments than would be the case with investments in securities with
higher credit ratings. If a fixed-income security held by the Fund is rated BBB
or Baa and is subsequently downgraded by a rating agency, the Fund will retain
such security in its portfolio until the Investment Manager determines that it
is practicable to sell the security without undue market or tax consequences to
the Fund. In the event that such downgraded securities constitute 5% or more of
the Fund's net assets, the Investment Manager will sell such securities as soon
as is practicable, in sufficient amounts to reduce the total to below 5%.
The Fund may also invest in securities of foreign issuers in the form of
American Depository Receipts (ADRs), European Depository Receipts (EDRs) or
other similar securities convertible into securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a United States bank or trust company evidencing ownership of the underlying
securities. EDRs are European receipts evidencing a similar arrangement.
Generally, ADRs, in registered form, are designed for use in the United States
securities markets and EDRs, in bearer form, are designed for use in European
securities markets.
There may be periods during which, in the opinion of the Investment Manager,
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% of its net assets are invested in cash or
money market instruments. Money market instruments in which the Fund may invest
are securities issued or guaranteed by the U.S. Government (Treasury bills,
notes and bonds, including zero coupon securities); bank obligations (such as
certificates of deposit and bankers' acceptances); Yankee instruments;
Eurodollar certificates of deposit; obligations of savings institutions; fully
insured certificates of deposit; and commercial paper rated within the two
highest grades by Moody's or S&P or, if not rated, are issued by a company
having an outstanding debt issue rated at least AA by S&P or Aa by Moody's.
RISK CONSIDERATIONS AND INVESTMENT PRACTICES
UTILITIES INDUSTRY. The utilities industry as a whole has certain
characteristics and risks particular to that industry. Unlike industrial
companies, the rates which utility companies may charge their customers
generally are subject to review and limitation by governmental regulatory
commissions. Although rate changes of a utility usually fluctuate in approximate
correlation with financing costs due to political and regulatory factors, rate
changes ordinarily occur only following a delay after the changes in financing
costs. This factor will tend to favorably affect a utility company's earnings
and dividends in times of decreasing costs, but conversely will tend to
adversely affect earnings and dividends when costs are rising. In addition, the
value of utility debt securities (and, to a lesser extent, equity securities)
tends to have an inverse relationship to the movement of interest rates.
Among the risks affecting the utilities industry are the following: risks of
increases in fuel and other operating costs; the high cost of borrowing to
finance capital construction during inflationary periods; restrictions on
operations and increased costs and delays associated with compliance with
environmental and nuclear safety regulations; the difficulties involved in
obtaining natural gas for resale or fuel for generating electricity at
reasonable prices; the risks in connection with the construction and operation
of nuclear power plants; the effects of energy conservation and the effects of
regulatory
11
<PAGE>
changes, such as the possible adverse effects on profits of recent increased
competition among telecommunications companies and the uncertainties resulting
from such companies' diversification into new domestic and international
businesses, as well as agreements by many such companies linking future rate
increases to inflation or other factors not directly related to the actual
operating profits of the enterprise.
FOREIGN SECURITIES. 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 currencies 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.
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. The foreign currency transactions of
the Fund will be conducted on a spot basis or through forward foreign currency
exchange contracts (described below). The Fund will incur certain costs in
connection with these currency transactions.
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
settlement 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 deposit
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.
12
<PAGE>
Certain of the foreign markets in which the Fund may invest will be emerging
markets. These new and incompletely formed markets will have increased risk
levels above those occasioned by investing in foreign markets generally. The
types of these risks are set forth above. The Fund's management will take
cognizance of these risks in allocating any of the Fund's investments in either
fixed-income or equity securities issued by issuers in emerging market
countries.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may enter into forward
foreign currency exchange contracts ("forward contracts") in connection with its
foreign securities investments.
A forward contract involves an obligation to purchase or sell a currency at
a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
The Fund may enter into forward contracts as a hedge against fluctuations in
future foreign exchange rates.
The Fund will enter into forward contracts under various circumstances. When
the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in" the
price of the security in U.S. dollars or some other foreign currency which the
Fund is temporarily holding in its portfolio. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars or other
currency, of the amount of foreign currency involved in the underlying security
transactions, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar or
other currency which is being used for the security purchase (by the Fund or the
counterparty) and the foreign currency in which the security is denominated
during the period between the date on which the security is purchased or sold
and the date on which payment is made or received.
At other times, when, for example, the Fund's Investment Manager believes
that a currency may suffer a substantial decline against the U.S. dollar or some
other foreign currency, the Fund may enter into a forward contract to sell, for
a fixed amount of dollars or other currency, the amount of foreign currency
approximating the value of some or all of the Fund's securities holdings (or
securities which the Fund has purchased for its portfolio) denominated in such
foreign currency. Under identical circumstances, the Fund may enter into a
forward contract to sell, for a fixed amount of U.S. dollars or other currency,
an amount of foreign currency other than the currency in which the securities to
be hedged are denominated approximating the value of some or all of the
portfolio securities to be hedged. This method of hedging, called
"cross-hedging," will be selected by the Investment Manager when it is
determined that the foreign currency in which the portfolio securities are
denominated has insufficient liquidity or is trading at a discount as compared
with some other foreign currency with which it tends to move in tandem.
In addition, when the Fund's Investment Manager anticipates purchasing
securities at some time in the future, and wishes to lock in the current
exchange rate of the currency in which those securities are denominated against
the U.S. dollar or some other foreign currency, the Fund may enter into a
forward contract to purchase an amount of currency equal to some or all of the
value of the anticipated purchase, for a fixed amount of U.S. dollars or other
currency. The Fund may, however, close out the forward contract without
purchasing the security which was the subject of the "anticipatory" hedge.
In all of the above circumstances, if the currency in which the Fund's
securities holdings (or anticipated portfolio securities) are denominated rises
in value with respect to the currency which is being purchased (or sold), then
the Fund will have realized fewer gains than had the Fund not entered into the
forward contracts. Moreover, the precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible,
since the future value of such securities in
13
<PAGE>
foreign currencies will change as a consequence of market movements in the value
of those securities between the date the forward contract is entered into and
the date it matures. The Fund is not required to enter into such transactions
with regard to its foreign currency-denominated securities and will not do so
unless deemed appropriate by the Investment Manager. The Fund generally will not
enter into a forward contract with a term of greater than one year, although it
may enter into forward contracts for periods of up to five years. The Fund may
be limited in its ability to enter into hedging transactions involving forward
contracts by Internal Revenue Code requirements relating to qualification as a
regulated investment company (see "Dividends, Distributions and Taxes").
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements, which
may be viewed as a type of secured lending by the Fund, and which typically
involve the acquisition by the Fund of government securities or other securities
from a selling financial institution such as a bank, savings and loan
association or broker-dealer. The agreement provides that the Fund will sell
back to the institution, and that the institution will repurchase, the
underlying security at a specified price and at a fixed time in the future,
usually not more than seven days from the date of purchase. While repurchase
agreements involve certain risks not associated with direct investments in debt
securities, including the risks of default or bankruptcy of the selling
financial institution, the Fund follows procedures to minimize such risks. These
procedures include effecting repurchase transactions only with large,
well-capitalized and well-established financial institutions and maintaining
adequate collateralization.
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. There is no overall
limit on the percentage of the Fund's assets which may be committed to the
purchase of securities on a when-issued, delayed delivery or forward commitment
basis. 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 SECURITIES. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization, 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. There is no overall limit on the
percentage of the Fund's assets which may be committed to the purchase of
securities on a "when, as and if issued" basis. An increase in the percentage of
the Fund's assets committed to the purchase of securities on a "when, as and if
issued" basis may increase the volatility of its net asset value.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. The Fund may also use
reverse repurchase agreements and dollar rolls as part of its investment
strategy. Reverse repurchase agreements involve sales by the Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase the same assets
at a later date at a fixed price. The Fund may enter into dollar rolls in which
the Fund sells securities and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. Reverse repurchase agreements and dollar rolls involve the risk that the
market value of the securities the Fund is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, the Fund's use of proceeds of
14
<PAGE>
the agreement may be restricted pending a determination by the other party, or
its trustee or receiver, whether to enforce the Fund's obligation to repurchase
the securities. Reverse repurchase agreements and dollar rolls are speculative
techniques involving leverage (which may increase investment risk), and are
considered borrowings by the Fund.
PRIVATE PLACEMENTS. The Fund may invest up to 5% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible for
resale pursuant to Rule 144A under the Securities Act, and determined to be
liquid pursuant to the procedures discussed in the following paragraph, are not
subject to the foregoing restriction.) These securities are generally referred
to as private placements or restricted securities. Limitations on the resale of
such securities may have an adverse effect on their marketability, and may
prevent the Fund from disposing of them promptly at reasonable prices. The Fund
may have to bear the expense of registering such securities for resale and the
risk of substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by the
Fund. If a restricted security is determined to be "liquid," such security will
not be included within the category "illiquid securities," which under current
policy may not exceed 15% of the Fund's net assets. 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.
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.
YEAR 2000. The investment management services provided to the Fund by the
Investment Manager and the services provided to shareholders by the Distributor
and the Transfer Agent depend on the smooth functioning of their computer
systems. Many computer software systems in use today cannot recognize the year
2000, but revert to 1900 or some other date, due to the manner in which dates
were encoded and calculated. That failure could have a negative impact on the
handling of securities trades, pricing and account services. The Investment
Manager, the Distributor and the Transfer Agent have been actively working on
necessary changes to their own computer systems to prepare for the year 2000 and
expect that their systems will be adapted before that date, but there can be no
15
<PAGE>
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.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase and sell (write) call and put options on portfolio
securities which are denominated in either U.S. dollars or foreign currencies
and on the U.S. dollar and foreign currencies, which are or may in the future be
listed on several U.S. and foreign securities exchanges or are written in
over-the-counter transactions ("OTC options"). OTC options are purchased from or
sold (written) to dealers or financial institutions which have entered into
direct agreements with the Fund.
The Fund is permitted to write covered call options on portfolio securities
and the U.S. dollar and foreign currencies, without limit, in order to hedge
against the decline in the value of a security or currency in which such
security is denominated (although such hedge is limited to the value of the
premium received), to close out long call option positions and to generate
income. The Fund may write covered put options, under which the Fund incurs an
obligation to buy the security (or currency) underlying the option from the
purchaser of the put at the option's exercise price at any time during the
option period, at the purchaser's election.
The Fund may purchase listed and OTC call and put options in amounts
equalling up to 5% of its total assets. The Fund may purchase call options to
close out a covered call position or to protect against an increase in the price
of a security it anticipates purchasing or, in the case of call options on a
foreign currency, to hedge against an adverse exchange rate change of the
currency in which the security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated. The Fund may
purchase put options on securities which it holds in its portfolio only to
protect itself against a decline in the value of the security. The Fund may also
purchase put options to close out written put positions in a manner similar to
call option closing purchase transactions. There are no other limits on the
Fund's ability to purchase call and put options.
The Fund may purchase and sell futures contracts that are currently traded,
or may in the future be traded, on U.S. and foreign commodity exchanges on
underlying portfolio securities, on any currency ("currency" futures), on U.S.
and foreign fixed-income securities ("interest rate" futures) and on such
indexes of U.S. or foreign equity or fixed-income securities as may exist or
come into being ("index" futures). The Fund may purchase or sell interest rate
futures contracts for the purpose of hedging some or all of the value of its
portfolio securities (or anticipated portfolio securities) against changes in
prevailing interest rates. The Fund may purchase or sell index futures contracts
for the purpose of hedging some or all of its portfolio securities (or
anticipated portfolio securities) against changes in their prices (or the
currency in which they are denominated). As a futures contract purchaser, the
Fund incurs an obligation to take delivery of a specified amount of the
obligation underlying the contract at a specified time in the future for a
specified price. As a seller of a futures contract, the Fund incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price.
The Fund also may purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
16
<PAGE>
with respect to such options to terminate an existing position.
New futures contracts, options and other financial products and various
combinations thereof continue to be developed. The Fund may invest in any such
futures, options or products as may be developed, to the extent consistent with
its investment objective and applicable regulatory requirements.
RISKS OF OPTIONS AND FUTURES TRANSACTIONS. The Fund may close out its
position as writer of an option, or as a buyer or seller of a futures contract,
only if a liquid secondary market exists for options or futures contracts of
that series. There is no assurance that such a market will exist, particularly
in the case of OTC options, as such options may generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer. Also,
exchanges may limit the amount by which the price of many futures contracts may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased.
Futures contracts and options transactions may be considered speculative in
nature and may involve greater risks than those customarily assumed by other
investment companies which do not invest in such instruments. One such risk is
that the Investment Manager could be incorrect in its expectations as to the
direction or extent of various interest rate or price movements or the time span
within which the movements take place. For example, if the Fund sold futures
contracts for the sale of securities in anticipation of an increase in interest
rates, and then interest rates went down instead, causing bond prices to rise,
the Fund would lose money on the sale. Another risk which will arise in
employing futures contracts to protect against the price volatility of portfolio
securities is that the prices of securities, currencies and indexes subject to
futures contracts (and thereby the futures contract prices) may correlate
imperfectly with the behavior of the U.S. dollar cash prices of the Fund's
portfolio securities and their denominated currencies. See the Statement of
Additional Information for a further discussion of risks.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with a
view to achieving the Fund's investment objective. In determining which
securities to purchase for the Fund or hold in the Fund's portfolio, the
Investment Manager will rely on information from various sources, including
research, analysis and appraisals of brokers and dealers, including Dean Witter
Reynolds Inc., Morgan Stanley & Co. Incorporated and other broker-dealers that
are affiliates of the Investment Manager, and others regarding economic
developments and interest rate trends, and the Investment Manager's own analysis
of factors it deems relevant. The Fund's portfolio is managed within MSDW
Advisors' Income and Growth Group, which manages twenty-six funds and fund
portfolios with approximately $36 billion in assets as of May 31, 1998. Edward
F. Gaylor, Senior Vice President of MSDW Advisors and a member of MSDW Advisors'
Income and Growth Group, has been the primary portfolio manager of the Fund
since its inception. Mr. Gaylor has been managing portfolios comprised of equity
and fixed-income securities at MSDW Advisors for over five years.
Although the Fund does not engage in substantial short-term trading as a
means of achieving its investment objective, it may sell portfolio securities
without regard to the length of time they have been held, in accordance with the
investment policies described earlier. Pursuant to an order of the Securities
and Exchange Commission, the Fund may effect principal transactions in certain
money market instruments with Dean Witter Reynolds Inc. Orders for transactions
in portfolio securities and commodities are placed for the Fund with a number of
brokers and dealers including Dean Witter Reynolds Inc., Morgan Stanley & Co.
Incorporated and other brokers and dealers that are affiliates of the
17
<PAGE>
Investment Manager. The Fund may incur brokerage commissions on transactions
conducted through such affiliates. Under normal circumstances, it is not
anticipated that the portfolio trading will result in the Fund's portfolio
turnover rate exceeding 100% in any one year.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies. Under the Investment
Company Act of 1940, as amended (the "Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund, as defined in the Act. For purposes of the following limitations: (i)
all percentage limitations apply immediately after a purchase or initial
investment, and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets does
not require elimination of any security from the portfolio.
The Fund may not:
1. As to 75% of its total assets, invest more than 5% of the value of its
total assets in the securities of any one issuer (other than obligations issued
or guaranteed by the United States Government, its agencies or
instrumentalities).
2. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry, with the exception of the utilities industry. This
restriction does not apply to obligations issued or guaranteed by the United
States Government, its agencies or instrumentalities.
3. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than three years of
continuous operation. This restriction shall not apply to any obligation issued
or guaranteed by the United States Government, its agencies
or instrumentalities.
4. As to 75% of its total assets, purchase more than 10% of the voting
securities, or more than 10% of any class of securities, of any issuer.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objectives by investing all or substantially all
of its assets in another investment company having substantially the same
investment objectives and policies as the Fund.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
GENERAL
The Fund offers each class of its shares for sale to the public on a
continuous basis. Pursuant to a Distribution Agreement between the Fund and
Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors" or the
"Distributor"), an affiliate of the Investment Manager, shares of the Fund are
distributed by the Distributor and offered by Dean Witter Reynolds Inc. ("DWR"),
a selected dealer and subsidiary of Morgan Stanley Dean Witter & Co., and other
dealers who have entered into selected dealer agreements with the Distributor
("Selected Broker-Dealers"). It is anticipated that DWR will undergo a change of
corporate name which is expected to incorporate the brand name of "Morgan
Stanley Dean Witter," pending approval of various regulatory authorities. The
principal executive office of the Distributor is located at Two World Trade
Center, New York, New York 10048.
The Fund offers four classes of shares (each, a "Class"). Class A shares are
sold to investors with an initial sales charge that declines to zero for larger
purchases; however, Class A shares sold without an initial sales charge are
subject to a
18
<PAGE>
contingent deferred sales charge ("CDSC") of 1.0% if redeemed within one year of
purchase, except for certain specific circumstances. Class B shares are sold
without an initial sales charge but are subject to a CDSC (scaled down from 5.0%
to 1.0%) payable upon most redemptions within six years after purchase. (Class B
shares purchased by certain qualified plans are subject to a CDSC scaled down
from 2.0% to 1.0% if redeemed within three years after purchase.) Class C shares
are sold without an initial sales charge but are subject to a CDSC of 1.0% on
most redemptions made within one year after purchase. Class D shares are sold
without an initial sales charge or CDSC and are available only to investors
meeting an initial investment minimum of $5 million ($25 million for certain
qualified plans), and to certain other limited categories of investors. At the
discretion of the Board of Trustees of the Fund, Class A shares may be sold to
categories of investors in addition to those set forth in this prospectus at net
asset value without a front-end sales charge, and Class D shares may be sold to
certain other categories of investors, in each case as may be described in the
then current prospectus of the Fund. See "Alternative Purchase Arrangements--
Selecting a Particular Class" for a discussion of factors to consider in
selecting which Class of shares to purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million ($25 million
for certain qualified plans) or more and to certain other limited categories of
investors. For the purpose of meeting the minimum $5 million (or $25 million)
initial investment for Class D shares, and subject to the $1,000 minimum initial
investment for each Class of the Fund, an investor's existing holdings of Class
A 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 Global Utilities 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
EasyInvest-SM-, an automatic purchase plan (see "Shareholder Services"), is
$100, provided that the schedule of automatic investments will result in
investments totalling $1,000 within the first twelve months. The minimum initial
purchase in the case of an "Education IRA" is $500, if the Distributor has
reason to believe that additional investments will increase the investment in
the account to $1,000 within three years. In the case of purchases 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 such purchases without regard to any minimum amounts which would
otherwise be required, provided, in the case of Systematic Payroll Deduction
Plans, that the Distributor has reason to believe that additional investments
will increase the investment in all accounts under such Plans to at least
$1,000. Certificates for shares purchased will not be issued unless requested by
the shareholder in writing to the Transfer Agent.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business
19
<PAGE>
day 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 at the time of their sale 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 non-cash compensation as special sales
incentives, including trips, educational and/or business seminars and
merchandise. The Fund and the Distributor reserve the right to reject any
purchase orders.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers several Classes of shares to investors designed to provide
them with the flexibility of selecting an investment best suited to their needs.
The general public is offered three Classes of shares: Class A shares, Class B
shares and Class C shares, which differ principally in terms of sales charges
and rate of expenses to which they are subject. A fourth Class of shares, Class
D shares, is offered only to limited categories of investors (see "No Load
Alternative--Class D Shares" below).
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund except that Class A,
Class B and Class C shares bear the expenses of the ongoing shareholder service
fees, Class B and Class C shares bear the expenses of the ongoing distribution
fees and Class A, Class B and Class C shares which are redeemed subject to a
CDSC bear the expense of the additional incremental distribution costs resulting
from the CDSC applicable to shares of those Classes. The ongoing distribution
fees that are imposed on Class A, Class B and Class C shares will be imposed
directly against those Classes and not against all assets of the Fund and,
accordingly, such charges against one Class will not affect the net asset value
of any other Class or have any impact on investors choosing another sales charge
option. See "Plan of Distribution" and "Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and the
factors an investor should consider when selecting a particular Class. This
summary is qualified in its entirety by detailed discussion of each Class that
follows this summary.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investments by certain other
limited categories of investors) are not subject to any sales charges at the
time of purchase but are subject to a CDSC of 1.0% on redemptions made within
one year after purchase, except for certain specific circumstances. Class A
shares are also subject to a 12b-1 fee of up to 0.25% of the average daily net
assets of the Class. See "Initial Sales Charge Alternative--Class A Shares."
CLASS B SHARES. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to 1.0%)
if redeemed within six years of purchase. (Class B shares purchased by certain
qualified plans are subject to a CDSC scaled down from 2.0% to 1.0% if redeemed
within three years after purchase.) This CDSC may be waived for certain
redemptions. Class B shares are also subject to an annual 12b-1 fee of 1.0% of
the lesser of: (a) the average daily aggregate gross sales of the Fund's Class B
shares since the inception of the Fund (not including reinvestments of dividends
or capital gains distributions), less the average daily aggregate net asset
value of the Fund's Class B shares redeemed since the Fund's inception upon
which a CDSC has been imposed or waived, or (b) the average daily net assets of
Class B. The Class B shares' distribution
20
<PAGE>
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 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.
21
<PAGE>
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
CONVERSION
CLASS SALES CHARGE 12b-1 FEE FEATURE
<C> <S> <C> <C>
- -----------------------------------------------------------
A Maximum 5.25% 0.25% No
initial sales
charge reduced for
purchases of
$25,000 and over;
shares sold
without an initial
sales charge
generally subject
to a 1.0% CDSC
during first year.
- -----------------------------------------------------------
B Maximum 5.0% CDSC 1.0% B shares convert
during the first to A shares
year decreasing to automatically
0 after six years after
approximately
ten years
- -----------------------------------------------------------
C 1.0% CDSC during 1.0% No
first year
- -----------------------------------------------------------
D None None No
</TABLE>
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge. In
some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one year
after purchase (calculated from the last day of the month in which the shares
were purchased), except for certain specific circumstances. The CDSC will be
assessed on an amount equal to the lesser of the current market value or the
cost of the shares being redeemed. The CDSC will not be imposed (i) in the
circumstances set forth below in the section "Contingent Deferred Sales Charge
Alternative--Class B Shares--CDSC Waivers," except that the references to six
years in the first paragraph of that section shall mean one year in the case of
Class A shares, and (ii) in the circumstances identified in the section
"Additional Net Asset Value Purchase Options" below. Class A shares are also
subject to an annual 12b-1 fee of up to 0.25% of the average daily net assets of
the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net Asset
Value" below), plus a sales charge (expressed as a percentage of the offering
price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
------------------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF PUBLIC OFFERING PERCENTAGE OF AMOUNT
SINGLE TRANSACTION PRICE INVESTED
- ------------------------- ------------------- ---------------------
<S> <C> <C>
Less than $25,000........ 5.25% 5.54%
$25,000 but less
than $50,000........ 4.75% 4.99%
$50,000 but less
than $100,000....... 4.00% 4.17%
$100,000 but less
than $250,000....... 3.00% 3.09%
$250,000 but less
than $1 million..... 2.00% 2.04%
$1 million and over...... 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods when 90% or more of the sales
charge is reallowed, such Selected Broker-Dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or her
spouse and their children under the age of
22
<PAGE>
21 purchasing shares for his, her or their own accounts; (c) a trustee or other
fiduciary purchasing shares for a single trust estate or a single fiduciary
account; (d) a pension, profit-sharing or other employee benefit plan qualified
or non-qualified under Section 401 of the Internal Revenue Code; (e) tax-exempt
organizations enumerated in Section 501(c)(3) or (13) of the Internal Revenue
Code; (f) employee benefit plans qualified under Section 401 of the Internal
Revenue Code of a single employer or of employers who are "affiliated persons"
of each other within the meaning of Section 2(a)(3)(c) of the Act; and for
investments in Individual Retirement Accounts of employees of a single employer
through Systematic Payroll Deduction plans; or (g) any other organized group of
persons, whether incorporated or not, provided the organization has been in
existence for at least six months and has some purpose other than the purchase
of redeemable securities of a registered investment company at a discount.
COMBINED PURCHASE PRIVILEGE. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Fund in single transactions with the purchase of Class A
shares of other Morgan Stanley Dean Witter Multi-Class Funds and shares of FSC
Funds. The sales charge payable on the purchase of the Class A shares of the
Fund, the Class A shares of the other Morgan Stanley Dean Witter Multi-Class
Funds and the shares of the FSC Funds will be at their respective rates
applicable to the total amount of the combined concurrent purchases of such
shares.
RIGHT OF ACCUMULATION. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single transaction,
together with shares of the Fund and other Morgan Stanley Dean Witter Funds
previously purchased at a price including a front-end sales charge (including
shares of the Fund and other Morgan Stanley Dean Witter Funds acquired in
exchange for those shares, and including in each case shares acquired through
reinvestment of dividends and distributions), which are held at the time of such
transaction, amounts to $25,000 or more. If such investor has a cumulative net
asset value of shares of FSC Funds and Class A and Class D shares that, together
with the current investment amount, is equal to at least $5 million ($25 million
for certain qualified plans), such investor is eligible to purchase Class D
shares subject to the $1,000 minimum initial investment requirement of that
Class of the Fund. See "No Load Alternative--Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the dealer or shareholder when such an order is
placed by mail. The reduced sales charge will not be granted if: (a) such
notification is not furnished at the time of the order; or (b) a review of the
records of the Selected Broker-Dealer or the Transfer Agent fails to confirm the
investor's represented holdings.
LETTER OF INTENT. The foregoing schedule of reduced sales charges will also
be available to investors who enter into a written Letter of Intent providing
for the purchase, within a thirteen-month period, of Class A shares of the Fund
from DWR or other Selected Broker-Dealers. The cost of Class A shares of the
Fund or shares of other Morgan Stanley Dean Witter Funds which were previously
purchased at a price including a front-end sales charge during the 90-day period
prior to the date of receipt by the Distributor of the Letter of Intent, or of
Class A shares of the Fund or shares of other Morgan Stanley Dean Witter Funds
acquired in exchange for shares of such funds purchased during such period at a
price including a front-end sales charge, which are still owned by the
shareholder, may also be included in determining the applicable reduction.
ADDITIONAL NET ASSET VALUE PURCHASE OPTIONS. In addition to investments of
$1 million or more,
23
<PAGE>
Class A shares also may be purchased at net asset value by the following:
(1) trusts for which MSDW Trust (an affiliate of the Investment Manager)
provides discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for services
in the nature of investment advisory, administrative and/or brokerage services
(such investments are subject to all of the terms and conditions of such
programs, which may include termination fees, mandatory redemption upon
termination and such other circumstances as specified in the programs'
agreements, and restrictions on transferability of Fund shares);
(3) employer-sponsored 401(k) and other plans qualified under Section 401(a)
of the Internal Revenue Code ("Qualified Retirement Plans") with at least 200
eligible employees and for which MSDW Trust serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement;
(4) Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement whose Class B shares have converted to Class A
shares, regardless of the plan's asset size or number of eligible employees;
(5) investors who are clients of a Morgan Stanley Dean Witter Financial
Advisor who joined Morgan Stanley Dean Witter from another investment firm
within six months prior to the date of purchase of Fund shares by such
investors, if the shares are being purchased with the proceeds from a redemption
of shares of an open-end proprietary mutual fund of the Financial Advisor's
previous firm which imposed either a front-end or deferred sales charge,
provided such purchase was made within sixty days after the redemption and the
proceeds of the redemption had been maintained in the interim in cash or a money
market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares, contact
DWR or another Selected Broker-Dealer or consult the Statement of Additional
Information.
CONTINGENT DEFERRED SALES CHARGE
ALTERNATIVE--CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, will be imposed on
most Class B shares redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments for Class B shares made during the
six years (or, in the case of shares held by certain Qualified Retirement Plans,
three years) preceding the redemption. In addition, Class B shares are subject
to an annual 12b-1 fee of 1.0% of the lesser of: (a) the average daily aggregate
gross sales of the Fund's Class B shares since the inception of the Fund (not
including reinvestments of dividends or capital gains distributions), less the
average daily aggregate net asset value of the Fund's Class B shares redeemed
since the Fund's inception upon which a CDSC has been imposed or waived, or (b)
the average daily net assets of Class B.
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in which
the shares were purchased) will not be subject to any CDSC upon redemption.
Shares
24
<PAGE>
redeemed earlier than six years after purchase may, however, be subject to a
CDSC which will be a percentage of the dollar amount of shares redeemed and will
be assessed on an amount equal to the lesser of the current market value or the
cost of the shares being redeemed. The size of this percentage will depend upon
how long the shares have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------------------- ---------------------
<S> <C>
First................................. 5.0%
Second................................ 4.0%
Third................................. 3.0%
Fourth................................ 2.0%
Fifth................................. 2.0%
Sixth................................. 1.0%
Seventh and thereafter................ None
</TABLE>
In the case of Class B shares of the Fund purchased on or after July 28,
1997 by Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement, shares held for three years or more after
purchase (calculated as described in the paragraph above) will not be subject to
any CDSC upon redemption. However, shares redeemed earlier than three years
after purchase may be subject to a CDSC (calculated as described in the
paragraph above), the percentage of which will depend on how long the shares
have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------------------- ---------------------
<S> <C>
First................................. 2.0%
Second................................ 2.0%
Third................................. 1.0%
Fourth and thereafter................. None
</TABLE>
CDSC WAIVERS. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or, in
the case of shares held by certain Qualified Retirement Plans, three years)
preceding the redemption; (ii) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) prior to the redemption; and (iii) the current
net asset value of shares purchased through reinvestment of dividends or
distributions and/or shares acquired in exchange for shares of FSC Funds or of
other Morgan Stanley Dean Witter Funds acquired in exchange for such shares.
Moreover, in determining whether a CDSC is applicable it will be assumed that
amounts described in (i), (ii) and (iii) above (in that order) are redeemed
first.
In addition, 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
25
<PAGE>
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 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,
26
<PAGE>
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 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,
27
<PAGE>
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 February 28, 1998, Class B shares of the Fund
accrued payments under the Plan amounting to $3,262,820, which amount is equal
to 0.90% 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. All shares held prior to July 28, 1997 have been designated
Class B shares. For the fiscal period July 28, 1997 through February 28, 1998,
Class A and Class C shares of the Fund accrued payments under the Plan amounting
to $892 and $606, respectively, which amounts on an annualized basis are equal
to 0.24% and 1.00% of the average daily net assets of Class A and Class C,
respectively, for such period.
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Fund may be in excess of the total of (i) the
payments made by the Fund pursuant to the Plan, and (ii) the proceeds of CDSCs
paid by investors upon the redemption of Class B shares. For example, if $1
million in expenses in distributing Class B shares of the Fund had been incurred
and $750,000 had been received as described in (i) and (ii) above, the excess
expense would amount to $250,000. The Distributor has advised the Fund that such
excess amounts, including the carrying charge described above, totalled
$10,016,830 at February 28, 1998, which was equal to 2.53% 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.
28
<PAGE>
In the case of Class A and Class C shares, expenses incurred pursuant to the
Plan in any calendar year in excess of 0.25% or 1.0% of the average daily net
assets of Class A or Class C, respectively, will not be reimbursed by the Fund
through payments in any subsequent year, except that expenses representing a
gross sales commission credited to Morgan Stanley Dean Witter Financial Advisors
and other Selected Broker-Dealer representatives at the time of sale may be
reimbursed in the subsequent calendar year. The Distributor has advised the Fund
that there were no such expenses which may be reimbursed in the subsequent year
in the case of Class A and Class C at December 31, 1997. No interest or other
financing charges will be incurred on any Class A or Class C distribution
expenses incurred by the Distributor under the Plan or on any unreimbursed
expenses due to the Distributor pursuant to the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily at 4:00 p.m., New
York time (or, on days when the New York Stock Exchange closes prior to 4:00
p.m., at such earlier time), on each day that the New York Stock Exchange is
open by taking 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
domestic or foreign 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 that sale
and bid prices are not reflective of a security's market value, portfolio
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Board of
Trustees.
Generally, trading in foreign securities, as well as corporate bonds, United
States government securities and money market instruments, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value of
the Fund's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York Stock
Exchange. Occasionally, events which affect the values of such securities and
such exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange and will therefore not be reflected in
the computation of the Fund's net asset value. If events that may affect the
value of such securities occur during such period, then these securities may be
valued at their fair value as determined in good faith under procedures
established by and under the supervision of some Trustees.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by
29
<PAGE>
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
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the applicable Class of the Fund (or, if specified by the shareholder,
in shares of any other open-end Morgan Stanley Dean Witter Fund), unless the
shareholder requests that they be paid in cash. Shares so acquired are acquired
at net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Redemptions and Repurchases").
INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS RECEIVED IN CASH. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value per share next determined after receipt
by the Transfer Agent, by returning the check or the proceeds to the Transfer
Agent within thirty days after the payment date. Shares so acquired are acquired
at net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Redemptions and Repurchases").
EASYINVEST.-SM- Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account, or following
redemption of shares of a Morgan Stanley Dean Witter money market fund, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for investment
in shares of the Fund (see "Purchase of Fund Shares" and "Redemptions and
Repurchases--Involuntary Redemption").
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders 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 any gain or
loss realized must be recognized for federal income tax purposes.
Shareholders should contact their Morgan Stanley Dean Witter Financial
Advisor or other Selected Broker-Dealer representative or the Transfer Agent for
further information about any of the above services.
TAX-SHELTERED RETIREMENT PLANS. Retirement plans are available 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 adviser.
For further information regarding Plan Administration, custody fees and
other details, investors should contact their Morgan Stanley Dean Witter
30
<PAGE>
Financial Advisor or other Selected Broker-Dealer representative or the Transfer
Agent.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of any
other Morgan Stanley Dean Witter Multi-Class Fund without the imposition of any
exchange fee. Shares may also be exchanged for shares of the following funds:
Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust, Morgan Stanley Dean
Witter Limited Term Municipal Trust, Morgan Stanley Dean Witter Short-Term Bond
Fund, Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust and five
Morgan Stanley Dean Witter funds which are money market funds (the "Exchange
Funds"). Class A shares may also be exchanged for shares of Morgan Stanley Dean
Witter Multi-State Municipal Series Trust and Morgan Stanley Dean Witter Hawaii
Municipal Trust, which are Morgan Stanley Dean Witter Funds sold with a
front-end sales charge ("FSC Funds"). Class B shares may also be exchanged for
shares of Morgan Stanley Dean Witter Global Short-Term Income Fund Inc. ("Global
Short-Term"), which is a Morgan Stanley Dean Witter Fund offered with a CDSC.
Exchanges may be made after the shares of the Fund acquired by purchase (not by
exchange or dividend reinvestment) have been held for thirty days. There is no
waiting period for exchanges of shares acquired by exchange or dividend
reinvestment.
An exchange to another Morgan Stanley Dean Witter Multi-Class Fund, any FSC
Fund, Global Short-Term or any Exchange Fund that is not a money market fund is
on the basis of the next calculated net asset value per share of each fund after
the exchange order is received. When exchanging into a money market fund from
the Fund, shares of the Fund are redeemed out of the Fund at their next
calculated net asset value and the proceeds of the redemption are used to
purchase shares of the money market fund at their net asset value determined the
following business day. Subsequent exchanges between any of the money market
funds and any of the Morgan Stanley Dean Witter Multi-Class Funds, FSC Funds,
Global Short-Term or any Exchange Fund that is not a money market fund can be
effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period of
time the shareholder remains in an Exchange Fund (calculated from the last day
of the month in which the Exchange Fund shares were acquired), the holding
period (for the purpose of determining the rate of the CDSC) is frozen. If those
shares are subsequently re-exchanged for shares of a Morgan Stanley Dean Witter
Multi-Class Fund or shares of Global Short-Term, the holding period previously
frozen when the first exchange was made resumes on the last day of the month in
which shares of a Morgan Stanley Dean Witter Multi-Class Fund or shares of
Global Short-Term are reacquired. Thus, the CDSC is based upon the time
(calculated as described above) the shareholder was invested in shares of a
Morgan Stanley Dean Witter Multi-Class Fund or in shares of Global Short-Term
(see "Purchase of Fund Shares"). In the case of exchanges of Class A shares
which are subject to a CDSC, the holding period also includes the time
(calculated as described above) the shareholder was invested in shares of a FSC
Fund. In the case of shares exchanged into an Exchange Fund on or after April
23, 1990, upon a redemption of shares which results in a CDSC being imposed, a
credit (not to exceed the amount of the CDSC) will be given in an amount equal
to the Exchange Fund 12b-1 distribution fees incurred on or after that date
which are attributable to those shares. (Exchange Fund 12b-1 distribution fees
are described in the prospectuses for those funds.) Class B shares of the Fund
acquired in exchange for Class B shares of another Morgan Stanley Dean Witter
Multi-Class Fund or shares of Global Short-Term 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.
31
<PAGE>
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 of 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 Dealer are referred to
their Morgan Stanley Dean Witter Financial Advisor or other Selected
Broker-Dealer representative regarding restrictions on exchange of shares of the
Fund pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement of
each Class of shares and any other conditions imposed by each fund. In the case
of a shareholder holding a share certificate or certificates, no exchanges may
be made until all applicable share certificates have been received by the
Transfer Agent and deposited in the shareholder's account. An exchange will be
treated for federal income tax purposes the same as a repurchase or redemption
of shares, on which the shareholder may realize a capital gain or loss. However,
the ability to deduct capital losses on an exchange may be limited in situations
where there is an exchange of shares within ninety days after the shares are
purchased. The Exchange Privilege is only available in states where an exchange
may legally be made.
If DWR or 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-Dealers but
who wish to make exchanges directly by writing or telephoning the Transfer
Agent) must complete and forward to the Transfer Agent an Exchange Privilege
Authorization Form, copies of which may be obtained from the Transfer Agent, to
initiate an exchange. If the Authorization Form is used, exchanges may be made
in writing or by contacting the Transfer Agent at (800) 869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number and DWR or other
Selected Broker-Dealer account number (if any). Telephone instructions may also
be recorded. If such procedures are not employed, the Fund may be liable for any
losses due to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between
32
<PAGE>
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
experience 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 request of the shareholder. The repurchase price is the net
asset value next computed (see "Purchase of Fund Shares") after such repurchase
order is received by DWR or other Selected Broker-Dealer, reduced by any
applicable CDSC.
The CDSC, if any, will be the only fee imposed upon redemption by either the
Fund or the Distributor. The offer by DWR and other Selected Broker-Dealers to
repurchase shares may be suspended without notice by the Distributor at any
time. In that event, shareholders may redeem their shares through the Fund's
Transfer Agent as set forth above under "Redemption."
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in good
order. Such payment may be postponed or the right of redemption suspended under
unusual circumstances; E.G., when normal trading is not taking place on the New
York Stock Exchange. If the shares to be redeemed have recently been purchased
by check, payment of the redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of receipt of the check by the Transfer Agent).
Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their Morgan Stanley Dean Witter Financial Advisor
or other Selected Broker-Dealer representative regarding restrictions on
redemption of shares of the Fund pledged in the margin account.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 35 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase in
shares of the Fund in the same Class from which such shares were redeemed or
repurchased, at 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.
33
<PAGE>
INVOLUNTARY REDEMPTION. The Fund reserves the right to redeem, on sixty
days' notice and at net asset value, the shares of any shareholder (other than
shares held in an Individual Retirement Account or Custodial Account under
Section 403(b)(7) of the Internal Revenue Code) whose shares 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
EasyInvest-SM-, if after twelve months the shareholder has invested less than
$1,000 in the account. However, before the Fund redeems such shares and sends
the proceeds to the shareholder, it will notify the shareholder that the value
of the shares is less than the applicable amount and allow 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 separately for
each Class of shares and intends to pay quarterly income dividends and to
distribute net short-term and net long-term capital gains, if any, at least once
each year. The Fund may, however, determine 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 net short-term capital gains to shareholders and otherwise remain
qualified as a regulated investment company under Subchapter M of the Internal
Revenue Code, it is not expected that the Fund will be required to pay any
Federal income tax on any such income and capital gains. Shareholders will
normally have to pay Federal income taxes, and any state and local income taxes,
on the dividends and distributions they receive from the Fund. Some part of such
dividends and distributions may be eligible for the Federal dividends received
deduction available to the Fund's corporate shareholders.
Distributions of net investment income and net short-term capital gains are
taxable to the shareholder as ordinary dividend income regardless of whether the
shareholder receives such distributions in additional shares or in cash. Any
dividends declared in the last quarter of any calendar year which are paid in
the following year prior to February 1 will be deemed, for tax purposes, to have
been received by the shareholder in the prior year.
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 corporate 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.
34
<PAGE>
After the end of the calendar 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.
Dividends, interest and gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. If it qualifies for
and makes the appropriate election with the Internal Revenue Service, the Fund
will report annually to its shareholders the amount per share of such taxes to
enable shareholders to claim United States foreign tax credits or deductions
with respect to such taxes. In the absence of such an election, the Fund would
deduct foreign tax in computing the amount of its distributable income.
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 upon
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 Class 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 of the Fund 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 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,
35
<PAGE>
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 limitations on shareholder personal liability and
the nature of the Fund's assets and operations, the possibility of the Fund
being unable to meet its obligations is remote and, 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.
MASTER/FEEDER CONVERSION. The Fund reserves the right to seek to achieve
its investment objective by investing all of its investable assets in a
diversified, open-end management investment company having the same investment
objective and policies and substantially the same investment restrictions as
those applicable to the Fund.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed
to the Fund at the telephone numbers or address set forth on the front cover of
this Prospectus.
36
<PAGE>
Morgan Stanley Dean Witter
Global Utilities 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
Edward F. Gaylor
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center,
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
MORGAN STANLEY DEAN WITTER
GLOBAL UTILITIES
FUND
[PHOTO]
PROSPECTUS -- JUNE 26, 1998
<PAGE>
ANNUAL REPORT OF
GLOBAL UTILITIES FUND, 2/28/99
TO BE FILED BY AMENDMENT
<PAGE>
PROSPECTUS
JULY 31, 1998
TCW/DW Global Telecom Trust (the "Fund") is an open-end, diversified management
investment company, whose investment objective is long-term capital
appreciation. The Fund seeks to achieve its investment objective by investing
primarily in a portfolio consisting of securities of domestic and foreign
companies operating in all aspects of the telecommunications and information
industries. Such issuers are information transporters (such as local/regional
telephone companies, long-distance carriers and cable television), content
providers (such as movie studios, transaction services, publishers and
advertisers) and providers of enabling technologies (such as manufacturers of
information-processing servers, software and communications products). 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 31, 1998, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page.
The Statement of Additional Information is incorporated herein by reference.
TABLE 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/ 13
Investment Restrictions/ 20
Purchase of Fund Shares/ 20
Shareholder Services/ 31
Repurchases and Redemptions/ 34
Dividends, Distributions and Taxes/ 35
Performance Information/ 36
Additional Information/ 36
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
TCW/DW GLOBAL TELECOM TRUST
Two World Trade Center
New York, New York 10048
(212) 392-2550 or (800) 869-NEWS (toll-free)
Morgan Stanley Dean Witter Distributors Inc.,
Distributor
<PAGE>
PROSPECTUS SUMMARY
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
THE The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is
FUND an open-end, diversified management investment company investing primarily in a portfolio
consisting of securities of domestic and foreign companies operating in all aspects of the
telecommunications and information industries.
- ----------------------------------------------------------------------------------------------------------------------------
SHARES Shares of beneficial interest with $0.01 par value (see page 36). The Fund offers four Classes
OFFERED of shares, each with a different combination of sales charges, ongoing fees and other features
(see pages 20-29).
- ----------------------------------------------------------------------------------------------------------------------------
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 concurrent investments in Class D shares of
the Fund and other multiple class funds for which Morgan Stanley Dean Witter Services
Company Inc. serves as manager and TCW Funds Management, Inc. serves as investment
adviser will be aggregated. The minimum subsequent investment is $100 (see page 20).
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT The investment objective of the Fund is long-term capital appreciation.
OBJECTIVE
- ----------------------------------------------------------------------------------------------------------------------------
MANAGER Morgan Stanley Dean Witter Services Company Inc. (the "Manager"), a wholly-owned
subsidiary of Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"), is the Fund's
manager. The Manager also serves as manager to ten other investment companies advised by
TCW Funds Management, Inc. (the "TCW/DW Funds"). The Manager and MSDW
Advisors serve in various investment management, advisory, management and administrative
capacities to a total of 103 investment companies and other portfolios with assets of
approximately $115.2 billion at June 30, 1998 (see page 10).
ADVISER TCW Funds Management, Inc. (the "Adviser") is the Fund's investment adviser. In addition
to the Fund, the Adviser serves as investment adviser to 10 other TCW/DW Funds. As of June
30, 1998, the Adviser and its affiliates had approximately $50 billion under management or
committed to management in various fiduciary or advisory capacities, primarily to institutional
investors (see page 10).
- ----------------------------------------------------------------------------------------------------------------------------
MANAGEMENT The Manager receives a monthly fee at the annual rate of 0.60% of daily net assets. The
AND ADVISORY Adviser receives a monthly fee at an annual rate of 0.40% of daily net assets (see page 10).
FEES
- ----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTOR Morgan Stanley Dean Witter Distributors Inc. (the "Distributor"). The Fund has adopted a
AND distribution plan pursuant to Rule 12b-1 under the Investment Company Act (the "12b-1
DISTRIBUTION Plan") with respect to the distribution fees paid by the Class A, Class B and Class C shares of
FEE 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 20 and 29).
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------------
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 20, 24 and 29).
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 20, 26 and 29).
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 20, 28 and 29).
o Class D shares are offered only to investors meeting an initial investment minimum of $5
million 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 20, 28 and
29).
- ----------------------------------------------------------------------------------------------------------------------------
DIVIDENDS Dividends from net investment income and distributions from net capital gains, if any, are paid
AND at least once each year. The Fund may, however, determine to retain all or part of any net
CAPITAL long-term capital gains in any year for reinvestment. Dividends and capital gains distributions
GAINS paid on shares of a Class are automatically reinvested in additional shares of the same Class at
DISTRIBUTIONS net asset value unless the shareholder elects to receive cash. Shares acquired by dividend and
distribution reinvestment will not be subject to any sales charge or CDSC (see pages 31 and
35).
- ----------------------------------------------------------------------------------------------------------------------------
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 34).
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------------
RISK The net asset value of the Fund's shares will fluctuate with changes in the market value of the
CONSIDERATIONS Fund's portfolio securities. The market value of the Fund's portfolio securities will increase or
decrease due to a variety of economic, market or political factors affecting companies and/or
industries in which the Fund invests. In addition, the value of the Fund's fixed-income and
convertible securities generally increases or decreases due to economic and market factors, as
well as changes in prevailing interest rates. Generally, a rise in interest rates will result in a
decrease in value while a drop in interest rates will result in an increase in value. The Fund may
invest in lower rated or unrated convertible securities. There are also certain risks associated
with the Fund's investments in the telecommunications and information industries. The Fund
will invest in the securities of foreign issuers which entails certain additional risks. The Fund
may also invest in options and futures transactions which may be considered speculative in
nature and may involve greater risks than those customarily assumed by other investment
companies which do not invest in such instruments. In addition, the Fund may enter into
forward foreign currency exchange contracts in connection with its foreign securities
investments and may purchase securities on a when-issued, delayed delivery or "when, as and
if issued" basis, which involve certain special risks. An investment in shares of the Fund should
not be considered a complete investment program and is not appropriate for all investors.
Investors should carefully consider their ability to assume these risks and the risks outlined
under the heading "Risk Considerations and Investment Practices" before making an
investment in the Fund (see pages 13 - 19).
- ----------------------------------------------------------------------------------------------------------------------------
</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
<PAGE>
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
The following table illustrates all expenses and fees that a shareholder
of the Fund will incur. The annualized fees and expenses set forth in the table
are based on the expenses and fees for the fiscal year ended May 31, 1998.
<TABLE>
<CAPTION>
Class A Class B Class C Class D
--------------- --------------- --------------- ----------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
- --------------------------------
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price) ........................... 5.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments ........... None None None None
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase price or redemption
proceeds) ............................................... None(2) 5.00%(3) 1.00%(4) None
Redemption Fees .......................................... None None None None
Exchange Fee ............................................. None None None None
Annual Fund Operating Expenses (as a percentage of average net assets)
- ----------------------------------------------------------------------
Management and Advisory Fees (5) ......................... 1.00% 1.00% 1.00% 1.00%
12b-1 Fees (6) (7) ....................................... 0.24% 0.80% 1.00% None
Other Expenses (5) ....................................... 0.32% 0.32% 0.32% 0.32%
Total Fund Operating Expenses (8) ........................ 1.56% 2.12% 2.32% 1.32%
</TABLE>
- ----------
(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund
Shares--Initial Sales Charge Alternative--Class A Shares").
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a CDSC of 1.00% that will be imposed on
redemptions made within one year after purchase, except for certain
specific circumstances (see "Purchase of Fund Shares--Initial Sales
Charge Alternative--Class A Shares").
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter.
(4) Only applicable to redemptions made within one year after purchase (see
"Purchase of Fund Shares--Level Load Alternative--Class C Shares").
(5) Management fees and other expenses are based on the Fund's actual
aggregate expenses
(6) 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").
(7) 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").
(8) There were no outstanding shares of Class A, Class C or Class D prior to
July 28, 1997.
5
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Examples 1 year 3 years 5 years 10 years
- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming
(1) a 5% annual return and (2) redemption at the end of each time
period:
Class A .......................................................... $68 $99 $133 $228
Class B .......................................................... $72 $96 $134 $245
Class C .......................................................... $34 $72 $124 $266
Class D .......................................................... $13 $42 $ 72 $159
You would pay the following expenses on the same $1,000 investment
assuming no redemption at the end of the period:
Class A .......................................................... $68 $99 $133 $228
Class B .......................................................... $22 $66 $114 $245
Class C .......................................................... $24 $72 $124 $266
Class D .......................................................... $13 $42 $ 72 $159
</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 "Repurchases and Redemptions".
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
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
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 Period
For the Year August 28, 1996*
Ended through
May 31, 1998**++ May 31, 1997
------------------ -----------------------
<S> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $ 11.43 $ 10.00
----------- ----------------
Net investment loss ............................... (0.17) (0.09)
Net realized and unrealized gain .................. 3.20 1.52
----------- ----------------
Total from investment operations .................. 3.03 1.43
Less distributions from net realized gain ......... (0.49) --
----------- ----------------
Net asset value, end of period .................... $ 13.97 $ 11.43
=========== ================
TOTAL INVESTMENT RETURN+ .......................... 27.30% 14.30%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 2.12% 2.38%(2)
Net investment loss ............................... (1.30)% (1.27)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $165,284 $ 122,240
Portfolio turnover rate ........................... 116% 80%(1)
Average commission rate paid ...................... $ 0.0049 $ 0.0283
</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.
7
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
July 28, 1997*
through
May 31, 1998++
----------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $ 12.99
---------
Net investment loss ............................... (0.09)
Net realized and unrealized gain .................. 1.63
----------
Total from investment operations .................. 1.54
Less distributions from net realized gain ......... (0.49)
----------
Net asset value, end of period .................... $ 14.04
==========
TOTAL INVESTMENT RETURN+ .......................... 12.64%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.52%(2)
Net investment loss ............................... (0.76)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $ 966
Portfolio turnover rate ........................... 116%
Average commission rate paid ...................... $ 0.0049
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $ 12.99
--------------
Net investment loss ............................... (0.17)
Net realized and unrealized gain .................. 1.62
--------------
Total from investment operations .................. 1.45
Less distributions from net realized gain ......... ( 0.49)
--------------
Net asset value, end of period .................... $ 13.95
==============
TOTAL INVESTMENT RETURN+ .......................... 11.86%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 2.30%(2)
Net investment loss ............................... (1.52)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $ 559
Portfolio turnover rate ........................... 116%
Average commission rate paid ...................... $ 0.0049
</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.
8
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
July 28, 1997*
through
May 31, 1998++
------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $ 12.99
-------
Net investment loss ............................... (0.05)
Net realized and unrealized gain .................. 1.62
---------
Total from investment operations .................. 1.57
Less distributions from net realized gain ......... (0.49)
---------
Net asset value, end of period .................... $ 14.07
=========
TOTAL INVESTMENT RETURN+ .......................... 12.80%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.33%(2)
Net investment loss ............................... (0.46)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $ 11
Portfolio turnover rate ........................... 116%
Average commission rate paid ...................... $ 0.0049
</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.
9
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
TCW/DW Global Telecom Trust (the "Fund") is an open-end, diversified
management investment company. The Fund is a trust of the type commonly known
as a "Massachusetts business trust" and was organized under the laws of
Massachusetts on March 28, 1996.
Morgan Stanley Dean Witter Services Company Inc. ("MSDW Services" or the
"Manager"), whose address is Two World Trade Center, New York, New York 10048,
is the Fund's Manager. The Manager is a wholly-owned subsidiary of Morgan
Stanley Dean Witter Advisors Inc. ("MSDW Advisors"). MSDW Advisors is a
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co., a preeminent
global financial services firm that maintains leading market positions in each
of its three primary businesses--securities, asset management and credit
services.
The Manager acts as manager to ten other TCW/DW Funds. The Manager and
MSDW Advisors serve in various investment management, advisory, management and
administrative capacities to a total of 103 investment companies, 28 of which
are listed on the New York Stock Exchange, with combined assets of
approximately $110.8 billion as of June 30, 1998. MSDW Advisors also manages
and advises portfolios of pension plans, other institutions and individuals
which aggregated approximately $4.4 billion at such date.
The Fund has retained the Manager to manage its business affairs,
supervise its overall day-to-day operations (other than providing investment
advice) and provide all administrative services.
TCW Funds Management, Inc. (the "Adviser"), whose address is 865 South
Figueroa Street, Suite 1800, Los Angeles, California 90017, is the Fund's
investment adviser. The Adviser was organized in 1987 as a wholly-owned
subsidiary of The TCW Group, Inc. ("TCW"), whose subsidiaries, including Trust
Company of the West and TCW Asset Management Company, provide a variety of
trust, investment management and investment advisory services. Robert A. Day,
who is Chairman of the Board of Directors of TCW, may be deemed to be a control
person of the Adviser by virtue of the aggregate ownership by Mr. Day and his
family of more than 25% of the outstanding voting stock of TCW. The Adviser
serves as investment adviser to ten other TCW/DW Funds in addition to the Fund.
As of June 30, 1998, the Adviser and its affiliated companies had approximately
$50 billion under management or committed to management, primarily from
institutional investors.
The Fund has retained the Adviser to invest the Fund's assets.
The Fund's Trustees review the various services provided by the Manager
and the Adviser to ensure that the Fund's general investment policies and
programs are being properly carried out and that administrative services are
being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the
Fund and for expenses of the Fund assumed by the Manager, the Fund pays the
Manager monthly compensation calculated daily by applying the annual rate of
0.60% to the Fund's net assets. As compensation for its investment advisory
services, the Fund pays the Adviser monthly compensation calculated daily by
applying an annual rate of 0.40% to the Fund's net assets. The total fees paid
by the Fund to the Manager and the Adviser are higher than the fees paid by
most other investment companies for similar services.
For the fiscal year ended May 31, 1998, the Fund accrued total
compensation to the Manager and the Adviser amounting to 0.60% and 0.40%,
respectively, of the Fund's average daily net assets. During that period, the
total expenses of Class B amounted to 2.12% of the Fund's average daily net
assets. 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 Manager and the Adviser,
the fee pursuant to the Plan of Distribution (see "Purchase of Fund Shares");
taxes; transfer agent, custodian and auditing
10
<PAGE>
fees; certain legal fees; and printing and other expenses relating to the
Fund's operations which are not expressly assumed by the Manager and the
Adviser, under their respective Agreements with the Fund.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The investment objective of the Fund is long-term capital appreciation. This
objective is fundamental and may not be changed without shareholder approval.
There is no assurance that the objective will be achieved.
The Fund seeks to achieve its investment objective by investing under
normal circumstances at least 65% of its total assets in common stocks and
securities convertible into common stocks of domestic and foreign companies
operating in all aspects of the telecommunications and information industries
(the "Target Industries"). The Fund will not have more than 25% of its total
assets invested in convertible securities. All or some of the convertible
securities in which the Fund may invest may be below investment grade. See the
Appendix to the Statement of Additional Information for a discussion of ratings
of fixed-income securities.
The Target Industries are information transporters, content providers
and providers of enabling technologies. Information transporters are companies
involved in developing and manufacturing any portion of the so-called
information superhighway, such as local/regional telephone companies,
long-distance carriers, cable television, personal communications systems,
wireless, cellular, paging, direct broadcast satellite and the Internet.
Content providers are companies providing some of the information content that
is transmitted via the information superhighway such as movie studios,
providers of transaction services, manufacturers of games and educational
programming, publishers and advertisers. Finally, providers of enabling
technologies are manufacturers of products such as information-processing
servers, consumer electronics, data and video compression, software, storage
and semiconductor products.
Companies considered to be in the Target Industries will be those which
derive at least 35% of their revenues or earnings from the Target Industries,
or devote at least 35% of their assets to activities in the Target Industries.
Investments in securities of issuers in any one country, other than the United
States, will represent no more than 25% of the Fund's total assets. The Fund
will have at least 65% of its total assets invested in securities of issuers
located in at least three different countries.
Under normal market conditions, the Fund will maintain at least 25% of
its portfolio in securities issued by issuers located in the United States. As
such, the Fund will have a greater exposure than other "global" mutual funds to
economic and political events occurring in the U.S. Changes in prevailing U.S.
interest rates, federal tax rate increases, or adverse changes in federal or
state regulations or exchange rules may all have a disproportionate impact upon
the Fund as a result of its concentration policy. Moreover, the Fund's
concentration in securities of U.S. issuers will mean that the Fund's
investments are more likely to be responsive, both positively and negatively,
to declines or advances in the U.S. dollar with respect to foreign currencies.
The communication and use of information using existing and developing
technologies is becoming increasingly important to the global economy. There
are opportunities for continued growth in demand for components, products,
media and systems to collect, store, retrieve, transmit, process, distribute,
record, reproduce and put information to use. The telecommunications,
broadcasting, cable television, media, entertainment and computer industries
are involved in creating new ways of exchanging information and distributing
content as consumers and businesses seek to buy packages of services including
combinations of local and long distance telephone, wireless, cable television
and Internet services. While governmental regulation may impact the Target
Industries both positively and negatively (see "Risk Considerations
11
<PAGE>
and Investment Practices" below), the Adviser believes that the enactment by
the U.S. Congress of the Telecommunications Reform Act of 1996 may add to these
growth opportunities through increasing competition, mergers and other
transactions that could fundamentally change the way consumers and businesses
obtain communication services. All such factors are part of the Adviser's
overall investment selection process.
Up to 75% of the Fund's total assets may be invested in equity
securities of foreign issuers. Such foreign investments may be in the form of
direct investments in securities of foreign issuers or in the form of American
Depository Receipts (ADRs), European Depository Receipts (EDRs), Global
Depository Receipts (GDRs) or other similar securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by a United States bank or trust
company evidencing ownership of the underlying securities. EDRs are European
receipts evidencing a similar arrangement. Generally, ADRs, in registered form,
are designed for use in the United States securities markets and EDRs, in
bearer form, are designed for use in European securities markets. GDRs are
issued by a foreign bank or trust company and evidence ownership of the
underlying foreign securities. Generally, GDRs are in bearer form and are
designed for use in European and other foreign securities markets. 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. 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.
Up to 35% of the Fund's total assets may be invested in investment grade
fixed-income securities consisting of securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, corporate debt securities
and money market instruments. With respect to corporate debt securities, the
term "investment grade" means securities which are rated Baa or higher by
Moody's Investors Services, Inc. ("Moody's") or BBB or higher by Standard &
Poor's Corporation ("S&P") or, if not rated, are deemed by the Adviser to be of
comparable quality. See the Appendix to the Statement of Additional Information
for a discussion of ratings of fixed-income securities.
Investments in fixed-income securities rated either BBB by S&P or Baa by
Moody's (the lowest credit ratings designated "investment grade") have
speculative characteristics and, therefore, changes in economic conditions or
other circumstances are more likely to weaken their capacity to make principal
and interest payments than would be the case with investments in securities
with higher credit ratings. If a non-convertible fixed-income security held by
the Fund is rated BBB or Baa and is subsequently downgraded by a rating agency,
or otherwise falls below investment grade the Fund will sell such securities as
soon as is practicable without undue market or tax consequences to the Fund.
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 or 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 Adviser, 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 up to 100% of its total assets may be invested in money market
instruments or cash.
12
<PAGE>
RISK CONSIDERATIONS AND
INVESTMENT PRACTICES
Given the investment risks described below, an investment in shares of
the Fund should not be considered a complete investment program and is not
appropriate for all investors. Investors should carefully consider their
ability to assume these risks before making an investment in the Fund.
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 or political factors which cannot be predicted. Additionally,
the net asset value of the Fund's shares may increase or decrease due to
changes in prevailing interest rates. Generally, a rise in interest rates will
result in a decrease in the value of the Fund's fixed-income securities, while
a drop in interest rates will result in an increase in the value of those
securities.
Telecommunications and Information Industries. The Fund concentrates its
investments in the telecommunications and information industries. Certain
economic factors or specific events may exert a disproportionate impact upon
the prices of equity securities of companies within a particular industry
relative to their impact on the prices of securities of companies engaged in
other industries. Because of this concentration, the value of the Fund's shares
may be more volatile than that of investment companies that do not similarly
concentrate their investments. The communications and information industries
may be subject to greater changes in governmental policies and governmental
regulation than many other industries in the United States and worldwide.
Regulatory approval requirements, ownership restrictions and restrictions on
rates of return and types of services that may be offered may materially affect
the products and services of these and related industries. Additionally, the
products and services of companies in these industries may be subject to faster
obsolescence as a result of greater competition, advancing technological
developments, and changing market and consumer preferences. As a result, the
stocks of companies in these industries may exhibit greater price volatility
than those of companies in other industries.
Lower Rated or Unrated Convertible Securities. The Fund may acquire,
through purchase or a distribution by the issuer of a security held in its
portfolio, a fixed-income security which is convertible into common stock of
the issuer. 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, may 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.
A portion of the convertible securities in which the Fund may invest
will generally be rated below investment grade. Securities below investment
grade are the equivalent of high yield, high risk bonds, commonly known as
"junk bonds." Investment grade is generally considered to be debt securities
rated BBB or higher by Standard & Poor's Corporation ("S&P") or Baa or higher
by Moody's Investors Service, Inc. ("Moody's"). Fixed-income securities rated
Baa by Moody's or BBB by S&P have speculative characteristics greater than
those of more highly rated securities, while fixed-income securities rated Ba
or BB or lower by Moody's and S&P, respectively, are considered to be
speculative investments. The Fund will only
13
<PAGE>
invest in convertible and other fixed-income securities that are rated at least
B by either S&P or Moody's or, if not rated, determined to be of comparable
quality by the Adviser. The Fund will not invest in debt securities that are in
default in payment of principal or interest. The ratings of fixed-income
securities by Moody's and S&P are a generally accepted barometer of credit
risk. However, as the creditworthiness of issuers of lower-rated fixed-income
securities is more problematic than that of issuers of higher-rated fixed-income
securities, the achievement of the Fund's investment objective will be more
dependent upon the Adviser's own credit analysis than would be the case with a
mutual fund investing primarily in higher quality bonds. The Adviser will
utilize a security's credit rating as simply one indication of an issuer's
creditworthiness and will principally rely upon its own analysis of any
security currently held by the Fund or potentially purchasable by the Fund for
its portfolio. See the Appendix to the Statement of Additional Information for
a discussion of ratings of fixed-income securities.
Because of the special nature of the Fund's permitted investments in
lower rated or unrated convertible securities, the Adviser must take account of
certain special considerations in assessing the risks associated with such
investments. The prices of lower rated or unrated securities have been found to
be less sensitive to changes in prevailing interest rates than higher rated
investments, but are likely to be more sensitive to adverse economic changes or
individual corporate developments. During an economic downturn or substantial
period of rising interest rates, highly leveraged issuers may experience
financial stress which would adversely affect their ability to service their
principal and interest payment obligations, to meet their projected business
goals or to obtain additional financing. If the issuer of a 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
or unrated securities and a corresponding volatility in the net asset value of
a share of the Fund.
Foreign securities. 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.
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. The foreign currency transactions
of the Fund will be conducted on a spot basis or through forward foreign
currency exchange contracts (described below). The Fund will incur certain
costs in connection with these currency transactions.
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
14
<PAGE>
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 deposit 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.
Warrants and Stock Rights. 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. The Fund may also invest in
stock rights. 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 and stock rights
attached to other securities without reference to the foregoing limitations.
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, the
Fund follows procedures designed to minimize those risks. See the Statement of
Additional Information for a further discussion of such investments.
Private Placements. The Fund may invest up to 10% of its net assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise restricted. (Securities eligible for resale
pursuant to Rule 144A under the Securities Act, and determined to be liquid
pursuant to the procedures discussed in the following paragraph, are not
subject to the foregoing restriction.) These securities are generally referred
to as private placements or restricted securities. Limitations on the resale of
such securities may have an adverse effect on their marketability, and may
prevent the Fund from disposing of them promptly at reasonable prices. The Fund
may have to bear the expense of registering such securities for resale and the
risk of substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Adviser, pursuant to
procedures adopted by the Trustees of the Fund, will make a determination as to
the liquidity of each such restricted security purchased by the Fund. If such
Rule 144A 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
15
<PAGE>
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. See the
Statement of Additional Information for a further discussion of such
investments.
When, As and If Issued Securities. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization, 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. See the
Statement of Additional Information for a further discussion of such
investments.
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.
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 Adviser
to be creditworthy and when the income which can be earned from such loans
justifies the attendant risks. The Fund will not under any circumstances lend
more than 25% of the value of its total assets.
Options and Futures Transactions. The Fund may purchase and sell (write)
call and put options on (i) portfolio securities which are denominated in
either U.S. dollars or foreign currencies; (ii) stock indexes; and (iii) the
U.S. dollar and foreign currencies. Such options are or may in the future be
listed on several U.S. and foreign securities exchanges or may be traded in
over-the-counter transactions ("OTC options"). OTC options are purchased from
or sold (written) to dealers or financial institutions which have entered into
direct agreements with the Fund.
16
<PAGE>
The Fund is permitted to write covered call options on portfolio
securities and the U.S. dollar and foreign currencies, without limit, in order
to hedge against the decline in the value of a security or currency in which
such security is denominated (although such hedge is limited to the value of
the premium received) and to close out long call option positions. The Fund may
write covered put options, under which the Fund incurs an obligation to buy the
security (or currency) underlying the option from the purchaser of the put at
the option's exercise price at any time during the option period, at the
purchaser's election.
The Fund may purchase listed and OTC call and put options and options on
stock indexes in amounts equalling up to 10% of its total assets, with a
maximum of 5% of its total assets invested in the purchase of stock index
options. The Fund may purchase call options to close out a covered call
position or to protect against an increase in the price of a security it
anticipates purchasing or, in the case of call options on a foreign currency,
to hedge against an adverse exchange rate change of the currency in which the
security it anticipates purchasing is denominated vis-a-vis the currency in
which the exercise price is denominated. The Fund may purchase put options on
securities which it holds in its portfolio to protect itself against a decline
in the value of the security and to close out written put positions in a manner
similar to call option closing purchase transactions. There are no other limits
on the Fund's ability to purchase call and put options other than compliance
with the foregoing policies.
The Fund may purchase and sell futures contracts that are currently
traded, or may in the future be traded, on U.S. and foreign commodity exchanges
on underlying portfolio securities, on any currency ("currency" futures), on
U.S. and foreign fixed-income securities ("interest rate" futures) and on such
indexes of U.S. or foreign equity or fixed-income securities as may exist or
come into being ("index" futures). The Fund may purchase or sell interest rate
futures contracts for the purpose of hedging some or all of the value of its
portfolio securities (or anticipated portfolio securities) against changes in
prevailing interest rates. The Fund may purchase or sell index futures
contracts for the purpose of hedging some or all of its portfolio (or
anticipated portfolio) securities against changes in their prices. The Fund may
purchase or sell currency futures contracts to hedge against an anticipated
rise or decline in the value of the currency in which a portfolio security is
denominated vis-a-vis another currency. As a futures contract purchaser, the
Fund incurs an obligation to take delivery of a specified amount of the
obligation underlying the contract at a specified time in the future for a
specified price. As a seller of a futures contract, the Fund incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price.
The Fund also may purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
with respect to such options to terminate an existing position.
New futures contracts, options and other financial products and various
combinations thereof continue to be developed. The Fund may invest in any such
futures, options or products as may be developed, to the extent consistent with
its investment objective and applicable regulatory requirements.
Risks of Options and Futures Transactions. The Fund may close out its
position as writer of an option, or as a buyer or seller of a futures contract,
only if a liquid secondary market exists for options or futures contracts of
that series. There is no assurance that such a market will exist, particularly
in the case of OTC options, as such options may generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer. Also,
exchanges may limit the amount by which the price of many futures contracts may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased.
Futures contracts and options transactions may be considered speculative
in nature and may involve greater risks than those customarily assumed by other
investment companies which do not invest in such
17
<PAGE>
instruments. One such risk is that the Adviser could be incorrect in its
expectations as to the direction or extent of various interest rate or price
movements or the time span within which the movements take place. For example,
if the Fund sold futures contracts for the sale of securities in anticipation
of an increase in interest rates, and then interest rates went down instead,
causing bond prices to rise, the Fund would lose money on the sale. Another
risk which will arise in employing futures contracts to protect against the
price volatility of portfolio securities is that the prices of securities,
currencies and indexes subject to futures contracts (and thereby the futures
contract prices) may correlate imperfectly with the behavior of the U.S. dollar
cash prices of the Fund's portfolio securities and their denominated
currencies. See the Statement of Additional Information for a further
discussion of risks.
Forward Foreign Currency Exchange Contracts. The Fund may enter into
forward foreign currency exchange contracts ("forward contracts") in connection
with its foreign securities investments.
A forward contract involves an obligation to purchase or sell a currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the
contract. The Fund may enter into forward contracts as a hedge against
fluctuations in future foreign exchange rates.
The Fund will enter into forward contracts under various circumstances.
When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in" the
price of the security in U.S. dollars or some other foreign currency which the
Fund is temporarily holding in its portfolio. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars or other
currency, of the amount of foreign currency involved in the underlying security
transactions, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar or
other currency which is being used for the security purchase (by the Fund or
the counterparty) and the foreign currency in which the security is denominated
during the period between the date on which the security is purchased or sold
and the date on which payment is made or received.
At other times, when, for example, the Fund's Adviser believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar or some other foreign currency, the Fund may enter into
a forward contract to sell, for a fixed amount of dollars or other currency,
the amount of foreign currency approximating the value of some or all of the
Fund's securities holdings (or securities which the Fund has purchased for its
portfolio) denominated in such foreign currency. Under identical circumstances,
the Fund may enter into a forward contract to sell, for a fixed amount of U.S.
dollars or other currency, an amount of foreign currency other than the
currency in which the securities to be hedged are denominated approximating the
value of some or all of the portfolio securities to be hedged. This method of
hedging, called "cross-hedging," will be selected by the Adviser when it is
determined that the foreign currency in which the portfolio securities are
denominated has insufficient liquidity or is trading at a discount as compared
with some other foreign currency with which it tends to move in tandem.
In addition, when the Fund's Adviser anticipates purchasing securities
at some time in the future, and wishes to lock in the current exchange rate of
the currency in which those securities are denominated against the U.S. dollar
or some other foreign currency, the Fund may enter into a forward contract to
purchase an amount of currency equal to some or all of the value of the
anticipated purchase, for a fixed amount of U.S. dollars or other currency. The
Fund may, however, close out the forward contract without purchasing the
security which was the subject of the "anticipatory" hedge.
In all of the above circumstances, if the currency in which the Fund's
securities holdings (or anticipated portfolio securities) are denominated rises
in value with respect to the currency which is being purchased
18
<PAGE>
(or sold), then the Fund will have realized fewer gains than had the Fund not
entered into the forward contracts. Moreover, the precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible, since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures. The Fund is not required to enter into such transactions with
regard to its foreign currency-denominated securities and will not do so unless
deemed appropriate by the Adviser. The Fund generally will not enter into a
forward contract with a term of greater than one year, although it may enter
into forward contracts for periods of up to five years. The Fund may be limited
in its ability to enter into hedging transactions involving forward contracts
by the Internal Revenue Code requirements relating to qualification as a
regulated investment company (see "Dividends, Distributions and Taxes").
Year 2000. The management services provided to the Fund by the Manager,
the investment advisory services provided to the Fund by the Adviser and the
services provided to shareholders by the Distributor and the Transfer Agent
depend on the smooth functioning of their computer systems. Many computer
software systems in use today cannot recognize the year 2000, but revert to
1900 or some other date, due to the manner in which dates were encoded and
calculated. That failure could have a negative impact on the handling of
securities trades, pricing and account services. The Manager, the Adviser, 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 the Adviser with a view to
achieving the Fund's investment objective. Robert M. Hanisee and John A.
Healey, each a Managing Director of the Adviser, are the primary portfolio
managers of the Fund. Messrs. Hanisee and Healey have been primary portfolio
managers with affiliates of The TCW Group, Inc. since 1990 and 1995,
respectively. Prior to 1995, Mr. Healey served as an independent consultant
with Healey Partners.
In determining which securities to purchase for the Fund or hold in the
Fund's portfolio, the Adviser will rely on information from various sources,
including research, analysis and appraisals of brokers and dealers, including
Dean Witter Reynolds Inc., Morgan Stanley & Co. Incorporated and other brokers
and dealers that are affiliates of the Manager, and others regarding economic
developments and interest rate trends, and the Adviser's own analysis of
factors it deems relevant.
Orders for transactions in portfolio securities and commodities are
placed for the Fund with a number of brokers and dealers, including Dean Witter
Reynolds Inc., Morgan Stanley & Co. Incorporated and other brokers and dealers
that are affiliates of the Manager. The Fund may incur brokerage commissions on
transactions conducted through Dean Witter Reynolds Inc., Morgan Stanley & Co.
Incorporated and other brokers and dealers that are affiliates of the Manager.
The Fund intends to buy and hold securities for capital appreciation. Although
the Fund does not intend to
19
<PAGE>
engage in substantial short-term trading as a means of achieving its investment
objective, the Fund may sell portfolio securities without regard to the length
of time that they have been held, in order to take advantage of new investment
opportunities or yield differentials, or because the Fund desires to preserve
gains or limit losses due to changing economic conditions, interest rate
trends, or the financial condition of the issuer. It is not anticipated that
the Fund's portfolio turnover rate will exceed 150% in any one year. The Fund
will incur underwriting discount costs (on underwritten securities) and
brokerage costs commensurate with its portfolio turnover rate, and thus a
higher level (over 100%) of portfolio transactions will increase the Fund's
overall brokerage expenses. Short term gains and losses may result from such
portfolio transactions. See "Dividends, Distributions and Taxes" for a
discussion of the tax implications of the Fund's transactions.
The expenses of the Fund relating to its portfolio management are likely
to be greater than those incurred by other investment companies investing only
in securities issued by domestic issuers, as custodial costs, brokerage
commissions and other transaction charges related to investing on foreign
markets are generally higher than in the United States.
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
Investment Company Act of 1940, as amended (the "Act"), a fundamental policy
may not be changed without the vote of a majority of the outstanding voting
securities of the Fund, as defined in the Act. For purposes of the following
limitations: (i) all percentage limitations apply immediately after a purchase
or initial investment, and (ii) any subsequent change in any applicable
percentage resulting from market fluctuations or other changes in total or net
assets does not require elimination of any security from the portfolio.
The Fund may not:
1. As to 75% of its assets, invest more than 5% of the value of its
total assets in the securities of any one issuer (other than obligations
issued, or guaranteed by, the United States Government, its agencies or
instrumentalities).
2. As to 75% of its assets, purchase more than 10% of all
outstanding voting securities or more than 10% of any class of
securities of any one issuer.
3. Invest 25% or more of the value of its total assets in securities
of issuers in any one industry except that the Fund will invest at least
25% of its total assets in the telecommunications and information
industry. This restriction does not apply to obligations issued or
guaranteed by the United States Government, its agencies or
instrumentalities.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
GENERAL
The Fund offers each class of its shares for sale to the public on a
continuous basis. Pursuant to a Distribution Agreement between the Fund and
Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors" or the
"Distributor"), an affiliate of the Manager, shares of the Fund are distributed
by the Distributor and offered by Dean Witter Reynolds Inc. ("DWR"), a selected
dealer and subsidiary of Morgan-
20
<PAGE>
Stanley Dean Witter & Co., and other dealers (which may include TCW Brokerage
Services, an affiliate of the Adviser) who have entered into selected broker-
dealer agreements with the Distributor ("Selected Broker-Dealers"). It is
anticipated that DWR will undergo a change of corporate name which is expected
to incorporate the brand name of "Morgan Stanley Dean Witter," pending approval
of various regulatory authorities. The principal executive office of the
Distributor is located at Two World Trade Center, New York, New York 10048.
The Fund offers four classes of shares (each, a "Class"). Class A shares
are sold to investors with an initial sales charge that declines to zero for
larger purchases; however, Class A shares sold without an initial sales charge
are subject to a contingent deferred sales charge ("CDSC") of 1.0% if redeemed
within one year of purchase, except for certain specific circumstances. Class B
shares are sold without an initial sales charge but are subject to a CDSC
(scaled down from 5.0% to 1.0%) payable upon most redemptions within six years
after purchase. (Class B shares purchased by certain qualified plans are
subject to a CDSC scaled down from 2.0% to 1.0% if redeemed within three years
after purchase.) Class C shares are sold without an initial sales charge but
are subject to a CDSC of 1.0% on most redemptions made within one year after
purchase. Class D shares are sold without an initial sales charge or CDSC and
are available only to investors meeting an initial investment minimum of $5
million ($25 million for certain qualified plans), and to certain other limited
categories of investors. At the discretion of the Board of Trustees of the
Fund, Class A shares may be sold to categories of investors in addition to
those set forth in this prospectus at net asset value without a front-end sales
charge, and Class D shares may be sold to certain other categories of
investors, in each case as may be described in the then current prospectus of
the Fund. See "Alternative Purchase Arrangements--Selecting a Particular Class"
for a discussion of factors to consider in selecting which Class of shares to
purchase.
The minimum initial purchase is $1,000 for each Class of shares,
although Class D shares are only available to persons investing $5 million ($25
million for certain qualified plans) or more and to certain other limited
categories of investors. For the purpose of meeting the minimum $5 million (or
$25 million) initial investment for Class D shares, and subject to the $1,000
minimum initial investment for each Class of the Fund, an investor's existing
holdings of Class A shares and concurrent investments in Class D shares of the
Fund and other TCW/DW Funds which are multiple class funds ("TCW/DW Multi-Class
Funds") will be aggregated. Subsequent purchases of $100 or more may be made by
sending a check, payable to TCW/DW Global Telecom Trust, 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
investment 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
21
<PAGE>
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 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
"Repurchases and Redemptions."
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
22
<PAGE>
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 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 TCW/DW
Multi-Class Funds, and holdings of shares of "Exchange Funds" (see "Shareholder
Services--Exchange Privilege") for which Class A 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.
23
<PAGE>
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
CONVERSION
CLASS SALES CHARGE 12B-1 FEE FEATURE
- ------- ------------------------ ----------- ------------------
<S> <C> <C> <C>
A Maximum 5.25% 0.25% No
initial sales charge
reduced for
purchases of
$25,000 and over;
shares sold without
an initial sales
charge generally
subject to a 1.0%
CDSC during first
year.
- ----------------------------------------------------------------------
B Maximum 5.0% 1.0% B shares convert
CDSC during the first to A shares
year decreasing automatically
to 0 after six years after
approximately
ten years
- ----------------------------------------------------------------------
C 1.0% CDSC during 1.0% No
first year
- ----------------------------------------------------------------------
D None None No
- ----------------------------------------------------------------------
</TABLE>
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge.
In some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one year
after purchase (calculated from the last day of the month in which the shares
were purchased), except for certain specific circumstances. The CDSC will be
assessed on an amount equal to the lesser of the current market value or the
cost of the shares being redeemed. The CDSC will not be imposed (i) in the
circumstances set forth below in the section "Contingent Deferred Sales Charge
Alternative--Class B Shares--CDSC Waivers," except that the references to six
years in the first paragraph of that section shall mean one year in the case of
Class A shares, and (ii) in the circumstances identified in the section
"Additional Net Asset Value Purchase Options" below. Class A shares are also
subject to an annual 12b-1 fee of up to 0.25% of the average daily net assets
of the Class.
The offering price of Class A shares will be the net asset value per
share next determined following receipt of an order (see "Determination of Net
Asset Value" below), plus a sales charge (expressed as a percentage of the
offering price) on a single transaction as shown in the following table:
<TABLE>
<CAPTION>
Sales Charge
------------------------------------
Percentage of Approximate
Amount of 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 enumer-
24
<PAGE>
ated 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 TCW/DW Multi-Class Funds. The sales charge payable on the
purchase of the Class A shares of the Fund and the Class A shares of the other
TCW/DW Multi-Class 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 TCW/DW Multi-Class Funds previously
purchased at a price including a front-end sales charge (including shares of
the Fund, other TCW/DW Multi-Class Funds or "Exchange Funds" (see "Shareholder
Services--Exchange Privilege") acquired in exchange for those shares, and
including in each case shares acquired through reinvestment of dividends and
distributions), which are held at the time of such transaction, amounts to
$25,000 or more. If such investor has a cumulative net asset value of 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 Class A shares of other TCW/DW Multi-Class 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 other TCW/DW Multi-Class Funds
or shares of "Exchange Funds" (see "Shareholder Services--Exchange Privilege")
acquired in exchange for Class A 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 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
25
<PAGE>
upon termination and such other circumstances as specified in the programs'
agreements, and restrictions on transferability of Fund shares);
(3) employer-sponsored 401(k) and other plans qualified under Section
401(a) of the Internal Revenue Code ("Qualified Retirement Plans") with at
least 200 eligible employees and for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement;
(4) Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement whose Class B shares have converted to Class A
shares, regardless of the plan's asset size or number of eligible employees;
(5) investors who are clients of a Morgan Stanley Dean Witter Financial
Advisor who joined Morgan Stanley Dean Witter from another investment firm
within six months prior to the date of purchase of Fund shares by such
investors, if the shares are being purchased with the proceeds from a
redemption of shares of an open-end proprietary mutual fund of the Financial
Advisor's previous firm which imposed either a front-end or deferred sales
charge, provided such purchase was made within sixty days after the redemption
and the proceeds of the redemption had been maintained in the interim in cash
or a money market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares,
contact DWR or another Selected Broker-Dealer or consult the Statement of
Additional Information.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--
CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, will be imposed on
most Class B shares redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments for Class B shares made during the
six years (or, in the case of shares held by certain Qualified Retirement
Plans, three years) preceding the redemption. In addition, Class B shares are
subject to an annual 12b-1 fee of 1.0% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's Class B shares since the inception of the
Fund (not including reinvestments of dividends or capital gains distributions),
less the average daily aggregate net asset value of the Fund's Class B shares
redeemed since the Fund's inception upon which a CDSC has been imposed or
waived, or (b) the average daily net assets of Class B.
Except as noted below, Class B shares of the Fund which are held for six
years or more after purchase (calculated from the last day of the month in
which the shares were purchased) will not be subject to any CDSC upon
redemption. Shares redeemed earlier than six years after purchase may, however,
be subject to a CDSC which will be a percentage of the dollar amount of shares
redeemed and will be assessed on an amount equal to the lesser of the current
market value or the cost of the shares being redeemed. The size of this
percentage will depend upon how long the shares have been held, as set forth in
the following table:
<TABLE>
<CAPTION>
Year Since
Purchase CDSC as a Percentage
Payment Made of Amount Redeemed
- -------------------------------- ---------------------
<S> <C>
First .......................... 5.0%
Second ......................... 4.0%
Third .......................... 3.0%
Fourth ......................... 2.0%
Fifth .......................... 2.0%
Sixth .......................... 1.0%
Seventh and thereafter ......... None
</TABLE>
In the case of Class B shares of the Fund purchased on or after July 28,
1997 by Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as record-
26
<PAGE>
keeper 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. 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
Manager or its parent, Morgan Stanley Dean Witter Advisors Inc., 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
27
<PAGE>
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
TCW/DW 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 TCW/DW
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
28
<PAGE>
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) certain
Unit Investment Trusts sponsored by DWR; (iv) certain other open-end investment
companies whose shares are distributed by the Distributor; and (v) other
categories of investors, at the discretion of the Board, as disclosed in the
then current prospectus of the Fund. Investors who require a $5 million (or $25
million) minimum initial investment to qualify to purchase Class D shares may
satisfy that requirement by investing that amount in a single transaction in
Class D shares of the Fund and other TCW/DW 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 TCW/DW Multi-Class Funds,
and holdings of shares of "Exchange Funds" (see "Shareholder Services--Exchange
Privilege") for which Class A 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 May 31, 1998, Class B shares of the Fund
accrued payments under the Plan
29
<PAGE>
amounting to $1,206,683, which amount is equal to 0.80% of the average daily
net assets of Class B for the fiscal year. The payments accrued under the Plan
were calculated pursuant to clause (a) of the compensation formula under the
Plan. All shares held prior to July 28, 1997 have been designated Class B
shares. For the fiscal period July 28, 1997 through May 31, 1998, Class A and
Class C shares of the Fund accrued payments under the Plan amounting to $736
and $2,932, respectively, which amounts on an annualized basis are equal to
0.24% and 1.00% of the average daily net assets of Class A and Class C,
respectively, for such period.
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Fund may be in excess of the total of (i)
the payments made by the Fund pursuant to the Plan, and (ii) the proceeds of
CDSCs paid by investors upon the redemption of Class B shares. For example, if
$1 million in expenses in distributing Class B shares of the Fund had been
incurred and $750,000 had been received as described in (i) and (ii) above, the
excess expense would amount to $250,000. The Distributor has advised the Fund
that such excess amounts, including the carrying charge described above,
totalled $7,673,197 at May 31, 1998, which was equal to 4.64% 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 and other Selected Broker-Dealer representatives at the time of sale
may be reimbursed in the subsequent calendar year. The Distributor has advised
the Fund that unreimbursed expenses representing a gross sales commission
credited to Morgan Stanley Dean Witter Financial Advisors and other Selected
Broker-Dealer representatives at the time of sale totalled $2,395 in the case
of Class C at December 31, 1997, which was equal to 0.71% of the net assets of
Class C on such date, and that there were no such expenses which may be
reimbursed in the subsequent year in the case of Class A on such date. No
interest or other financing charges will be incurred on any Class A or Class C
distribution expenses incurred by the Distributor under the Plan or on any
unreimbursed expenses due to the Distributor pursuant to the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined once daily at 4:00 p.m., New
York time (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 domestic or foreign 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); and (2) all other portfolio securities for which
30
<PAGE>
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 Adviser 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. For
valuation purposes, quotations of foreign portfolio securities, other assets
and liabilities and forward contracts stated in foreign currency are translated
into U.S. dollar equivalents at the prevailing market rates prior to the close
of the New York Stock Exchange as of the morning of valuation. Dividends
receivable are accrued as of the ex-dividend date or as of the time that the
relevant ex-dividend date and amounts become known.
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
the pricing service believes is the fair valuation of such portfolio
securities.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Automatic Investment of Dividends and Distributions. All income
dividends and capital gains distributions are automatically paid in full and
fractional shares of the applicable Class of the Fund (or, if specified by the
shareholder, in shares of any other open-end TCW/DW 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 "Repurchases and Redemptions").
EasyInvestSM. 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
"Repurchases and Redemptions--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
31
<PAGE>
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 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 adviser.
For further information regarding plan administration, custodial fees
and other details, investors should contact their account executive or the
Transfer Agent.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of
any other TCW/DW Multi-Class Fund without the imposition of any exchange fee.
Shares may also be exchanged for shares of TCW/DW North American Government
Income Trust and for shares of five money market funds for which MSDW Advisors
serves as investment manager: Morgan Stanley Dean Witter Liquid Asset Fund
Inc., Morgan Stanley Dean Witter U.S. Government Money Market Trust, 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 (the foregoing six funds are hereinafter
collectively referred to as "Exchange Funds"). Exchanges may be made after the
shares of the Fund acquired by purchase (not by exchange or dividend
reinvestment) have been held for thirty days. There is no waiting period for
exchanges of shares acquired by exchange or dividend reinvestment.
An exchange to another TCW/DW Multi-Class Fund or any Exchange Fund that
is not a money market fund is on the basis of the next calculated net asset
value per share of each fund after the exchange order is received. When
exchanging into a money market fund from the Fund or any other TCW/DW 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 day.
Subsequent exchanges between any of the money market funds and any of the
TCW/DW Multi-Class Funds or any Exchange Fund that is not a money market fund
can be effected on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period of
time the shareholder remains in an Exchange Fund (calculated from the last day
of the month in which the Exchange Fund shares were acquired), the holding
period (for the purpose of determining the rate of the CDSC) is frozen. If
those shares are subsequently re-exchanged for shares of a TCW/DW Multi-Class
Fund, the holding period previously frozen when the first exchange was made
resumes on the last day of the month in which shares of a TCW/DW Multi-Class
Fund are reacquired. Thus, the CDSC is based upon the time (calculated as
described above) the shareholder was invested in shares of a TCW/DW Multi-Class
Fund (see "Purchase of Fund Shares"). However, in the case of shares exchanged
into an Exchange Fund, 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. (Exchange Fund 12b-1 distribution fees are
described in the prospectuses for those funds.)
32
<PAGE>
Additional Information Regarding Exchanges. Purchases and exchanges
should be made for investment purposes only. A pattern of frequent exchanges
may be deemed by the Manager to be abusive and contrary to the best interests
of the Fund's other shareholders and, at the 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, each of the other TCW/DW Funds and
each of the money market funds may in its 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 other TCW/DW
Funds or money market funds for which shares of the Fund have been exchanged,
upon such notice as may be required by applicable regulatory agencies.
Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their Morgan Stanley Dean Witter Financial
Advisor or other Selected Broker-Dealer representative regarding restrictions
on exchange of shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment
objective(s) and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement of each Class of Shares and any other conditions imposed by each
fund. In the case of a shareholder holding a share certificate or certificates,
no exchanges may be made until all applicable share certificates have been
received by the Transfer Agent and deposited in the shareholder's account. An
exchange will be treated for federal income tax purposes the same as a
repurchase or redemption of shares, on which the shareholder may realize a
capital gain or loss. However, the ability to deduct capital losses on an
exchange may be limited in situations where there is an exchange of shares
within ninety days after the shares are purchased. The Exchange Privilege is
only available in states where an exchange may legally be made.
If DWR or 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 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 include requiring various forms of personal
identification such as name, mailing address, social security or other tax
identification number and DWR or other Selected Broker-Dealer account number
(if any). Telephone instructions will also be recorded. If such procedures are
not employed, the Fund may be liable for any losses due to unauthorized or
fraudulent instructions.
Telephone exchange instructions will be accepted if received by the
Transfer Agent between 9:00 a.m. and 4:00 p.m. New York time, on any day the
New York Stock Exchange is open. Any shareholder wishing to make an exchange
who has previously filed an Exchange Privilege Authorization Form and who is
unable to reach the Fund by telephone should contact his or her Morgan Stanley
Dean Witter Financial Advisor or other Selected Broker-Dealer representative,
if appropriate, or make a written exchange request. Shareholders are advised
that during periods of
33
<PAGE>
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
in the past with other funds managed by the Manager.
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.
REPURCHASES AND REDEMPTIONS
- --------------------------------------------------------------------------------
Repurchases. DWR and other Selected 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 per share 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 offers 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 below under "Redemptions."
Redemptions. 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.
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 redemptionproceeds 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 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 repurchase or redemption
in shares of the Fund in the same Class from which such shares were redeemed or
repurchased, at net asset value next determined after a reinstatement request,
together with the proceeds, is received by the Transfer Agent and receive a
prorata credit for any CDSC paid in connection with such repurchase or
redemption.
Involuntary Redemption. The Fund reserves the right, on 60 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
34
<PAGE>
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 60 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 separately for
each Class of shares and intends to pay dividends and to distribute
substantially all of its net investment income and net short-term and net
long-term capital gains, if any, at least once each year. The Fund may,
however, determine 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 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 net 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 generally not be eligible for the federal dividends
reduced deduction.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. The Fund is subject to foreign
withholding taxes and the pass through of such taxes may not be available to
shareholders.
The Fund may at times make payments from sources other than income or
net capital gains. Payments from such sources would, in effect, represent a
return of a portion of each shareholder's investment. All, or a portion, of
such payments will not be taxable to shareholders.
After the end of the calendar 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 to the applicability of
the foregoing to their current situation.
35
<PAGE>
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 one, five
and ten years or 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 period.
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 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. The Adviser is subject to a Code of Ethics with respect
to investment transactions in
36
<PAGE>
which the Adviser's officers, directors and certain other persons have a
beneficial interest to avoid any actual or potential conflict or abuse of their
fiduciary position. The Code of Ethics, as it pertains to the TCW/DW Funds,
contains several restrictions and procedures designed to eliminate conflicts of
interest including: (a) pre-clearance of personal investment transactions to
ensure that personal transactions by employees are not being conducted at the
same time as the Adviser's clients; (b) quarterly reporting of personal
securities transactions; (c) a prohibition against personally acquiring
securities in an initial public offering, entering into uncovered short sales
and writing uncovered options; (d) a seven day "blackout period" prior or
subsequent to a TCW/DW Fund transaction during which portfolio managers are
prohibited from making certain transactions in securities which are being
purchased or sold by a TCW/DW Fund; (e) a prohibition, with respect to certain
investment personnel, from profiting in the purchase and sale, or sale and
purchase, of the same (or equivalent) securities within 60 calendar days; and
(f) a prohibition against acquiring any security which is subject to firm wide
or, if applicable, a department restriction of the Adviser. The Code of Ethics
provides that exemptive relief may be given from certain of its requirements,
upon application. The Adviser's Code of Ethics complies with regulatory
requirements and, insofar as it relates to persons associated with registered
investment companies, the 1994 Report of the Advisory Group on Personal
Investing of the Investment Company Institute.
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.
37
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
Two World Trade Center
New York, New York 10048
T C W / D W
TRUSTEES
John C. Argue
Richard M. DeMartini
Charles A. Fiumefreddo
John R. Haire G L O B A L
Dr. Manuel H. Johnson
Thomas E. Larkin, Jr. T E L E C O M T R U S T
Michael E. Nugent
John L. Schroeder
Marc I. Stern
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Thomas E. Larkin, Jr.
President
Barry Fink
Vice President, Secretary and
General Counsel
Robert M. Hanisee
Vice President
John A. Healey
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Chase Manhattan Bank
One Chase Plaza
New York, NY 10005
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
P R O S P E C T U S
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas J U L Y 3 1 , 1 9 9 8
New York, New York 10036
MANAGER
Morgan Stanley Dean Witter Services Company Inc.
ADVISER
TCW Funds Management, Inc.
<PAGE>
TCW/DW GLOBAL TELECOM TRUST TWO WORLD TRADE CENTER,
LETTER TO THE SHAREHOLDERS NOVEMBER 30, 1998 NEW YORK, NEW YORK 10048
DEAR SHAREHOLDER:
The six-month period ended November 30, 1998, was a tumultuous one for investing
in international and technology stocks. In August we experienced a dramatic
worldwide correction in the equity markets of a like not seen for several years.
The deterioration of global economies such as in Asia spilled over into Latin
America and Russia. However, quick-acting central banks throughout the world
eased interest rates to offset an impending slowdown. Prognostications that the
Asian flu would severely affect the U.S. economy by the third quarter were not
borne out. Simply put, the domestic economy was affected, but not to the extent
the market expected. The combination of a less draconian view of the U.S.
economy coupled with the worldwide monetary easing sent the equity markets
surging.
PERFORMANCE AND PORTFOLIO
Against this backdrop, TCW/DW Global Telecom Trust's Class B shares posted a
total return of -4.87 percent for the six-month period ended November 30, 1998.
During the same period, the broad-based Standard & Poor's 500 Index and the
Lipper Telecommunications Funds Average returned 7.48 percent and 4.44 percent,
respectively. The Fund's Class A, C and D shares had total returns of -4.63
percent, -4.87 percent and -4.48 percent, respectively. The performance of the
Fund's four share classes varies because of differing expenses.
The Fund's underperformance relative to its peer group is primarily attributed
to its concentration in small-capitalization stocks. Small-cap stocks were hit
particularly hard during the summer's market correction as investors fled to the
relative safety of larger, better-known names. During November and December,
however, the Fund's smaller-cap holdings bolstered performance as this segment
of the market rebounded sharply.
Following the market's sell-off, telecommunications turned into one of the
market's bigger bounce-backs. The Fund took full advantage of this trend by
adding several Internet stocks in October and November, which contributed
strongly to its performance during the final months of 1998. Non-U.S. holdings,
particularly those in Europe, contributed positively to the Fund's performance
while also adding a degree of stability to the portfolio.
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
LETTER TO THE SHAREHOLDERS NOVEMBER 30, 1998, CONTINUED
The Fund's portfolio was well diversified both by geographic region and by
industry throughout the six-month period under review. The United States, at
73.20 percent of assets, remained the Fund's single largest country allocation,
with Japan (5.11 percent), the United Kingdom (4.67 percent), Israel (3.55
percent) and China (2.52 percent) rounding out the Fund's five largest country
allocations. On November 30, 1998, the Fund's largest industry weightings were
major U.S. telecommunications companies (19.61 percent), electronics --
semiconductors and components (5.72 percent), computer software and services
(5.69 percent), electronic data processing (5.38 percent) and cellular telephone
holdings (5.21 percent).
Among the Fund's largest holdings on November 30, 1998, were At Home
Corporation, Cisco Systems, Nippon Telegraph and Telephone, Primus
Telecommunication and Airtouch Communications.
LOOKING AHEAD
TCW Funds Management Inc., the Fund's investment adviser, continues to believe
that stocks with the best fundamentals will, over time, outperform the broader
markets. Accordingly, TCW believes that market sentiment may vacillate between
the technology, financial and retail sectors, but over the long run the facts
remain the same in that the fastest-growing, most profitably sustainable
businesses are expected to outperform the market. The worldwide
telecommunications industry is benefiting from tremendous secular changes such
as deregulation, privatization and the explosion of the Internet. The long-term
growth prospects for the industry remain intact and TCW continues to believe
that this industry may offer greater profitability than others. TCW/DW Global
Telecom Trust currently owns what TCW believes to be some of the best
telecommunications companies with the most advanced technologies. Because of
this strategic advantage, TCW remains optimistic regarding the long-term
prospects for the Fund.
We appreciate your ongoing support of TCW/DW Global Telecom Trust and look
forward to continuing to serve your investment needs.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
2
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (96.6%)
CANADA (1.9%)
ELECTRONIC DATA PROCESSING
600,000 Sanga International
Inc.* **............................................................................. $ 3,000,000
------------
CHINA (2.5%)
CELLULAR TELEPHONE
100,000 China Telecom (Hong Kong) Ltd. (ADR)................................................... 3,956,250
------------
ISRAEL (3.5%)
TELECOMMUNICATIONS
70,000 ECI Telecommunications Limited Designs................................................. 2,502,500
60,000 Gilat Satellite Networks Ltd.*......................................................... 3,052,500
------------
TOTAL ISRAEL........................................................................... 5,555,000
------------
JAPAN (5.1%)
CELLULAR TELEPHONE
1,300 DDI Corp............................................................................... 4,222,493
------------
UTILITIES - TELECOMMUNICATIONS
100,000 Nippon Telegraph & Telephone Corp. (ADR)............................................... 3,787,500
------------
TOTAL JAPAN............................................................................ 8,009,993
------------
MEXICO (2.5%)
LEISURE TIME/EQUIPMENT
61,400 Grupo Televisa S.A. (GDR).............................................................. 1,561,862
------------
TELECOMMUNICATIONS
276,000 Grupo Iusacell S.A. (Series L) (ADR)*.................................................. 2,277,000
------------
TOTAL MEXICO........................................................................... 3,838,862
------------
NETHERLANDS (1.6%)
ELECTRONIC DATA PROCESSING
40,000 Philips Electronics N.V................................................................ 2,532,500
------------
POLAND (1.5%)
MISCELLANEOUS
500,000 Telekomunikacja Polska S.A. (GDR)*..................................................... 2,362,500
------------
<PAGE>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
SINGAPORE (0.1%)
TELECOMMUNICATION EQUIPMENT
30,000 Asia Pacific Wire & Cable Corp.*....................................................... $ 103,125
------------
UNITED KINGDOM (4.7%)
ELECTRIC UTILITIES: CENTRAL
500,000 Independent Energy Holdings PLC (ADR)*................................................. 4,562,500
------------
TELECOMMUNICATIONS
80,000 Esat Telecom Group PLC (ADR)*.......................................................... 2,760,000
------------
TOTAL UNITED KINGDOM................................................................... 7,322,500
------------
UNITED STATES (73.2%)
BOOKS/MAGAZINE
36,800 Time Warner Inc........................................................................ 3,891,600
------------
BROADCAST MEDIA
46,600 Cox Communications, Inc. (Class A)*.................................................... 2,455,237
64,900 Tele-Communications Liberty Media Group (Class A)*..................................... 2,616,281
------------
5,071,518
------------
CABLE & TELECOMMUNICATIONS
300,000 Primus Telecommunications Group, Inc.*................................................. 3,787,500
------------
CABLE TELEVISION
55,400 Viacom Inc. (Class A)*................................................................. 3,639,087
------------
COMMUNICATIONS - EQUIPMENT/MANUFACTURERS
84,700 American Tower Corp. (Class A)......................................................... 1,958,688
------------
COMMUNICATIONS - EQUIPMENT & SOFTWARE
61,950 Cisco Systems, Inc.*................................................................... 4,669,481
------------
COMPUTER SOFTWARE
40,800 Microsoft Corp.*....................................................................... 4,977,600
49,200 VeriSign, Inc.*........................................................................ 1,955,700
------------
6,933,300
------------
COMPUTER/VIDEO CHAINS
39,500 Dell Computer Corp.*................................................................... 2,399,625
------------
COMPUTERS COMMUNICATIONS
93,500 3Com Corp.*............................................................................ 3,617,281
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMPUTERS SOFTWARE & SERVICES
75,000 Rational Software Corp.*............................................................... $ 1,701,562
72,800 Siebel Systems, Inc.*.................................................................. 1,756,300
28,400 Yahoo! Inc.*........................................................................... 5,451,025
------------
8,908,887
------------
DIVERSIFIED COMMERCIAL SERVICES
49,000 America Online, Inc.*.................................................................. 4,290,562
43,000 Whittman-Hart, Inc.*................................................................... 946,000
------------
5,236,562
------------
ELECTRICAL PRODUCTS
134,300 FORE Systems, Inc.*.................................................................... 2,031,288
300,000 Jinpan International Ltd.*............................................................. 1,087,500
------------
3,118,788
------------
ELECTRONIC COMPONENTS
55,200 Xilinx, Inc.*.......................................................................... 2,801,400
------------
ELECTRONIC DATA PROCESSING
83,200 Microchip Technology, Inc.*............................................................ 2,896,400
------------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS
57,600 Altera Corp.*.......................................................................... 2,826,000
29,500 Intel Corp............................................................................. 3,173,094
47,800 Motorola, Inc.......................................................................... 2,963,600
------------
8,962,694
------------
INTERNET SERVICES
58,700 At Home Corp. (Series A)*.............................................................. 3,411,938
20,800 eBay Inc.*............................................................................. 4,108,000
51,000 GeoCities*............................................................................. 1,533,188
------------
9,053,126
------------
SEMICONDUCTORS
64,200 Maxim Integrated Products, Inc.*....................................................... 2,519,850
------------
TELECOMMUNICATION EQUIPMENT
50,000 Vertex Communications Corp.*........................................................... 875,000
------------
TELECOMMUNICATIONS
60,000 AirTouch Communications, Inc.*......................................................... 3,431,250
19,900 Amazon.com, Inc.*...................................................................... 3,820,800
30,800 Comcast Corp. (Class A Special)........................................................ 1,493,800
<PAGE>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
250,000 Euronet Services, Inc.*................................................................ $ 906,250
400,000 General DataComm Industries, Inc.*..................................................... 1,450,000
155,500 Global Crossing Ltd.*.................................................................. 5,889,563
85,000 Global Telesystems Group, Inc.*........................................................ 3,686,875
200,000 ICO Global Communications Holdings Ltd.*............................................... 1,875,000
32,600 Lucent Technologies, Inc............................................................... 2,805,638
50,000 Pacific Gateway Exchange, Inc.*........................................................ 2,237,500
100,000 RSL Communications, Ltd. (Class A)*.................................................... 2,262,500
160,000 Tricom, S.A. (ADR)*.................................................................... 840,000
------------
30,699,176
------------
UTILITIES - TELEPHONE
65,400 Ameritech Corp......................................................................... 3,539,775
------------
TOTAL UNITED STATES.................................................................... 114,579,738
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $127,310,261) (a)........................................................ 96.6 % 151,260,468
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............................................ 3.4 5,250,973
------ -------------
NET ASSETS................................................................................ 100.0 % $ 156,511,441
===== =============
</TABLE>
- ---------------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
(a) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $30,191,309 and the
aggregate gross unrealized depreciation is $6,241,102, resulting in net
unrealized appreciation of $23,950,207.
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
SUMMARY OF INVESTMENTS NOVEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Books/Magazine.................................................................... $ 3,891,600 2.5 %
Broadcast Media................................................................... 5,071,518 3.3
Cable & Telecommunications........................................................ 3,787,500 2.4
Cable Television.................................................................. 3,639,087 2.3
Cellular Telephone................................................................ 8,178,743 5.2
Communications - Equipment/Manufacturers.......................................... 1,958,688 1.2
Communications - Equipment & Software............................................. 4,669,481 3.0
Computer Software................................................................. 6,933,300 4.4
Computer/Video Chains............................................................. 2,399,625 1.5
Computers Communications.......................................................... 3,617,281 2.3
Computers Software & Services..................................................... 8,908,887 5.7
Diversified Commercial Services................................................... 5,236,562 3.4
Electric Utilities: Central....................................................... 4,562,500 2.9
Electrical Products............................................................... 3,118,788 2.0
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Electronic Components............................................................. $ 2,801,400 1.8 %
Electronic Data Processing........................................................ 8,428,900 5.4
Electronics - Semiconductors/
Components...................................................................... 8,962,694 5.7
Internet Services................................................................. 9,053,126 5.8
Leisure Time/Equipment............................................................ 1,561,862 1.0
Miscellaneous..................................................................... 2,362,500 1.5
Semiconductors.................................................................... 2,519,850 1.6
Telecommunication Equipment....................................................... 978,125 0.6
Telecommunications................................................................ 41,291,176 26.4
Utilities - Telecommunications.................................................... 3,787,500 2.4
Utilities - Telephone............................................................. 3,539,775 2.3
------------ ---
$151,260,468 96.6%
============ ====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $127,310,261).............................................................. $151,260,468
Cash.......................................................................................... 6,985,654
Receivable for:
Shares of beneficial interest sold........................................................ 113,485
Investments sold.......................................................................... 40,824
Interest.................................................................................. 26,727
Dividends................................................................................. 23,077
Foreign withholding taxes reclaimed....................................................... 16,077
Deferred organizational expenses.............................................................. 94,283
Prepaid expenses and other assets............................................................. 91,724
------------
TOTAL ASSETS............................................................................. 158,652,319
------------
LIABILITIES:
Payable for:
Investments purchased..................................................................... 1,599,587
Shares of beneficial interest repurchased................................................. 254,669
Plan of distribution fee.................................................................. 113,337
Management fee............................................................................ 76,424
Investment advisory fee................................................................... 50,949
Accrued expenses and other payables........................................................... 45,912
------------
TOTAL LIABILITIES........................................................................ 2,140,878
------------
NET ASSETS............................................................................... $156,511,441
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................... $123,488,585
Net unrealized appreciation................................................................... 23,950,835
Accumulated net investment loss............................................................... (1,356,175)
Accumulated undistributed net realized gain................................................... 10,428,196
------------
NET ASSETS............................................................................... $156,511,441
============
CLASS A SHARES:
Net Assets.................................................................................... $1,153,224
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 86,041
NET ASSET VALUE PER SHARE................................................................ $13.40
============
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE)........................................ $14.14
============
CLASS B SHARES:
Net Assets.................................................................................... $154,693,027
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 11,640,293
NET ASSET VALUE PER SHARE................................................................ $13.29
============
CLASS C SHARES:
Net Assets.................................................................................... $654,395
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 49,318
NET ASSET VALUE PER SHARE................................................................ $13.27
============
CLASS D SHARES:
Net Assets.................................................................................... $10,795
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 803
NET ASSET VALUE PER SHARE................................................................ $13.44
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1998 (UNAUDITED)
NET INVESTMENT LOSS:
<TABLE>
<CAPTION>
<S> <C>
INCOME
Dividends (net of $11,531 foreign withholding tax)............................................ $ 314,276
Interest...................................................................................... 80,579
------------
TOTAL INCOME............................................................................. 394,855
------------
EXPENSES
Plan of distribution fee (Class A shares)..................................................... 1,364
Plan of distribution fee (Class B shares)..................................................... 668,478
Plan of distribution fee (Class C shares)..................................................... 3,058
Management fee................................................................................ 457,367
Investment advisory fee....................................................................... 304,911
Transfer agent fees and expenses.............................................................. 121,221
Registration fees............................................................................. 53,315
Shareholder reports and notices............................................................... 24,582
Professional fees............................................................................. 24,556
Custodian fees................................................................................ 23,175
Organizational expenses....................................................................... 17,235
Trustees' fees and expenses................................................................... 16,149
Foreign exchange provisional tax.............................................................. 9,864
Other......................................................................................... 6,910
------------
TOTAL EXPENSES........................................................................... 1,732,185
------------
NET INVESTMENT LOSS...................................................................... (1,337,330)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss on:
Investments............................................................................... (10,825,408)
Foreign exchange transactions............................................................. (9,937)
------------
NET LOSS................................................................................. (10,835,345)
------------
Net change in unrealized appreciation/depreciation on:
Investments............................................................................... 2,732,164
Translation of other assets and liabilities denominated in foreign currencies............. 756
------------
NET APPRECIATION......................................................................... 2,732,920
------------
NET LOSS................................................................................. (8,102,425)
------------
NET DECREASE.................................................................................. $ (9,439,755)
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
NOVEMBER 30, 1998 MAY 31, 1998*
- ---------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss................................................... $ (1,337,330) $ (1,969,236)
Net realized gain (loss).............................................. (10,835,345) 28,180,765
Net change in unrealized appreciation................................. 2,732,920 7,811,784
------------ -------------
NET INCREASE (DECREASE).......................................... (9,439,755) 34,023,313
------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN:
Class A shares........................................................ -- (8,783)
Class B shares........................................................ -- (5,580,481)
Class C shares........................................................ -- (12,951)
Class D shares........................................................ -- (380)
------------ -------------
TOTAL DISTRIBUTIONS.............................................. -- (5,602,595)
------------ -------------
Net increase (decrease) from transactions in shares of beneficial
interest............................................................ (871,004) 16,161,166
------------ -------------
NET INCREASE (DECREASE).......................................... (10,310,759) 44,581,884
NET ASSETS:
Beginning of period................................................... 166,822,200 122,240,316
------------ -------------
END OF PERIOD
(INCLUDING ACCUMULATED NET INVESTMENT LOSSES OF $1,356,175 AND
$18,845, RESPECTIVELY)............................................ $156,511,441 $ 166,822,200
============ =============
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1998 (UNAUDITED)
1. ORGANIZATIONAL AND ACCOUNTING POLICIES
TCW/DW Global Telecom Trust (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a diversified, open-end
management investment company. The Fund's investment objective is long-term
capital appreciation. The Fund seeks to achieve its objective by investing
primarily in securities of domestic and foreign companies operating in all
aspects of the telecommunications and information industries. The Fund was
organized as a Massachusetts business trust on March 28, 1996 and commenced
operations on August 28, 1996. 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 and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (in
cases where securities are traded on more than one exchange; the securities are
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Trustees); (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 TCW Funds Management, Inc. (the "Adviser") 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
9
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1998 (UNAUDITED) CONTINUED
securities which are comparable in coupon, rating and maturity or an appropriate
matrix utilizing similar factors); and (4) certain portfolio securities may be
valued by an outside pricing service approved by the Trustees. The pricing
service may utilize a matrix system incorporating security quality, maturity and
coupon as the evaluation model parameters, and/or research and evaluations by
its staff, including review of broker-dealer market price quotations, if
available, in determining what it believes is the fair valuation of the
securities valued by such pricing service; (5) short-term debt securities having
a maturity date of more than sixty days at time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except for certain dividends on foreign securities which are recorded as soon as
the Fund is informed after 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. FOREIGN CURRENCY TRANSLATION -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward contracts are
translated at the exchange rates prevailing at the end of the period; and (2)
purchases, sales, income and expenses are translated at the exchange rates
prevailing on the respective dates of such transactions. The resultant exchange
gains and losses are included in the Statement of Operations as realized and
unrealized gain/loss on foreign exchange transactions. Pursuant to U.S. Federal
income tax regulations, certain foreign exchange gains/losses included in
realized and unrealized gain/loss are included in or are a reduction of ordinary
income for federal income tax purposes. The Fund does not isolate that portion
of the results of operations arising as a result of changes in the foreign
exchange rates from the changes in the market prices of the securities.
10
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1998 (UNAUDITED) CONTINUED
E. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund may enter into forward foreign
currency contracts which are valued daily at the appropriate exchange rates. The
resultant unrealized exchange gains and losses are included in the Statement of
Operations as unrealized foreign currency gain or loss and in the Statement of
Assets and Liabilities as part of the related foreign currency denominated asset
or liability. The Fund records realized gains or losses on delivery of the
currency or at the time the forward contract is extinguished (compensated) by
entering into a closing transaction prior to delivery.
F. 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.
G. 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.
H. ORGANIZATIONAL EXPENSES -- Morgan Stanley Dean Witter Advisors Inc., an
affiliate of Morgan Stanley Dean Witter Services Company Inc. (the "Manager"),
paid the organizational expenses in the amount of approximately $172,000 which
has been reimbursed for the full amount thereof. Such expenses have been
deferred and are being amortized on the straight-line method over a period not
to exceed five years from the commencement of operations.
2. MANAGEMENT AGREEMENT
Pursuant to a Management Agreement, the Fund pays the Manager a management fee,
accrued daily and payable monthly, by applying the annual rate of 0.60% to the
net assets of the Fund determined as of the close of each business day.
11
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1998 (UNAUDITED) CONTINUED
Under the terms of the Management Agreement, the Manager maintains certain of
the Fund's books and records and furnishes, at its own expense, office space,
facilities, equipment, clerical, bookkeeping and certain legal services and pays
the salaries of all personnel, including officers of the Fund who are employees
of the Manager. The Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement, the Fund pays the Adviser an
advisory fee, accrued daily and payable monthly, by applying the annual rate of
0.40% to the net assets of the Fund determined as of the close of each business
day.
Under the terms of the Investment Advisory Agreement, the Fund has retained the
Adviser to invest the Fund's assets, including placing orders for the purchase
and sale of portfolio securities. The Adviser 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. In addition,
the Adviser pays the salaries of all personnel, including officers of the Fund,
who are employees of the Adviser.
4. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the 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 (1) services
provided and the expenses borne by it and others in the distribution of the
shares of these Classes, including the payment of commissions for sales of these
Classes and incentive compensation to, and expenses of, the Morgan Stanley Dean
Witter Financial Advisors and others who engage in or support
12
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1998 (UNAUDITED) CONTINUED
distribution of the shares or who service shareholder accounts, including
overhead and telephone expenses; (2) printing and distribution of prospectuses
and reports used in connection with the offering of these shares to other than
current shareholders; and (3) preparation, printing and distribution of sales
literature and advertising materials. In addition, the Distributor may utilize
fees paid pursuant to the Plan, in the case of Class B shares, to compensate
Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Manager and Distributor
and other selected broker-dealers for their opportunity costs in advancing such
amounts, which compensation would be in the form of a carrying charge on any
unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $7,857,213 at November 30, 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 Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the six months ended November 30, 1998, the distribution fee
was accrued for Class A shares and Class C shares at the annual rate of 0.25%
and 1.0%, respectively.
The Distributor has informed the Fund that for the six months ended November 30,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B and Class C shares of $251,289 and $104, respectively and
received $3,865 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.
13
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1998 (UNAUDITED) CONTINUED
5. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended November 30, 1998 aggregated
$128,999,568 and $132,871,495, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Manager and
Distributor, is the Fund's transfer agent.
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
NOVEMBER 30, 1998 MAY 31, 1998*
--------------------------- ---------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold............................................................. 34,146 $ 471,885 70,641 $ 1,010,003
Reinvestment of distributions.................................... -- -- 687 8,164
Redeemed......................................................... (16,916) (210,384) (2,517) (35,654)
----------- ------------- ----------- -------------
Net increase - Class A........................................... 17,230 261,501 68,811 982,513
----------- ------------- ----------- -------------
CLASS B SHARES
Sold............................................................. 1,246,097 16,516,889 2,865,878 38,687,349
Reinvestment of distributions.................................... -- -- 444,412 5,270,720
Redeemed......................................................... (1,438,032) (17,793,473) (2,172,212) (29,334,428)
----------- ------------- ----------- -------------
Net increase (decrease) - Class B................................ (191,935) (1,276,584) 1,138,078 14,623,641
----------- ------------- ----------- -------------
CLASS C SHARES
Sold............................................................. 15,979 219,106 43,731 598,390
Reinvestment of distributions.................................... -- -- 1,064 12,611
Redeemed......................................................... (6,726) (75,027) (4,730) (66,384)
----------- ------------- ----------- -------------
Net increase - Class C........................................... 9,253 144,079 40,065 544,617
----------- ------------- ----------- -------------
CLASS D SHARES
Sold............................................................. -- -- 771 10,015
Reinvestment of distributions.................................... -- -- 32 380
----------- ------------- ----------- -------------
Net increase - Class D........................................... -- -- 803 10,395
----------- ------------- ----------- -------------
Net increase (decrease) in Fund.................................. (165,452) $ (871,004) 1,247,757 $ 16,161,166
=========== ============= ========= =============
</TABLE>
- ---------------------
* For Class A, C and D shares, for the period July 28, 1997 (issue date)
through May 31, 1998.
14
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1998 (UNAUDITED) CONTINUED
7. FEDERAL INCOME TAX STATUS
Foreign currency losses incurred after October 31 ("post-October losses") within
the taxable year are deemed to arise on the first business day of the Fund's
next taxable year. The Fund incurred and will elect to defer net foreign
currency losses of approximately $19,000 during fiscal 1998.
As of May 31, 1998, the Fund had temporary book/tax differences primarily
attributable to post-October losses and capital loss deferrals on wash sales.
8. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward contracts")
to facilitate settlement of foreign currency denominated portfolio transactions
or to manage foreign currency exposure associated with foreign currency
denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counter parties to meet the terms of their contracts.
At November 30, 1998, there were no outstanding forward contracts.
15
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED FOR THE YEAR AUGUST 28, 1996*
NOVEMBER 30, 1998++ ENDED THROUGH
(UNAUDITED) MAY 31, 1998**++ MAY 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period.............. $ 13.97 $ 11.43 $ 10.00
------ ------ ------
Income (loss) from investment operations:
Net investment loss............................ (0.11) (0.17) (0.09)
Net realized and unrealized gain (loss)........ (0.57) 3.20 1.52
------ ------ ------
Total income (loss) from investment operations.... (0.68) 3.03 1.43
------ ------ ------
Less distributions from net realized gain......... -- (0.49) --
------ ------ ------
Net asset value, end of period.................... $ 13.29 $ 13.97 $ 11.43
======= ======= =======
TOTAL RETURN+..................................... (4.87)%(1) 27.30% 14.30%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................................... 2.28%(2)(3) 2.12% 2.38%(2)
Net investment loss............................... (1.76)%(2)(3) (1.30)% (1.27)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........... $154,693 $165,284 $122,240
Portfolio turnover rate........................... 87%(1) 116% 80%(1)
</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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED JULY 28, 1997*
NOVEMBER 30, 1998 THROUGH
(UNAUDITED) MAY 31, 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period.................................. $ 14.04 $ 12.99
------ ------
Income (loss) from investment operations:
Net investment loss................................................ (0.13) (0.09)
Net realized and unrealized gain (loss)............................ (0.51) 1.63
------ ------
Total income (loss) from investment operations........................ (0.64) 1.54
------ ------
Less distributions from net realized gain............................. -- (0.49)
------ ------
Net asset value, end of period........................................ $ 13.40 $ 14.04
======= =======
TOTAL RETURN+......................................................... (4.63)%(1) 12.64%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.64%(2)(3) 1.52%(2)
Net investment loss................................................... (1.12)%(2)(3) (0.76)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $ 1,153 $ 966
Portfolio turnover rate............................................... 87%(1) 116%
CLASS C SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period.................................. $ 13.95 $ 12.99
------ ------
Income (loss) from investment operations:
Net investment loss................................................ (0.17) (0.17)
Net realized and unrealized gain (loss)............................ (0.51) 1.62
------ ------
Total income (loss) from investment operations........................ (0.68) 1.45
------ ------
Less distributions from net realized gain............................. -- (0.49)
------ ------
Net asset value, end of period........................................ $ 13.27 $ 13.95
======= =======
TOTAL RETURN+......................................................... (4.87)%(1) 11.86%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 2.39%(2)(3) 2.30%(2)
Net investment loss................................................... (1.87)%(2)(3) (1.52)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $654 $559
Portfolio turnover rate............................................... 87%(1) 116%
</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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED JULY 28, 1997*
NOVEMBER 30, 1998 THROUGH
(UNAUDITED) MAY 31, 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period.................................. $ 14.07 $ 12.99
------ ------
Income (loss) from investment operations:
Net investment loss................................................ (0.06) (0.05)
Net realized and unrealized gain (loss)............................ (0.57) 1.62
------ ------
Total income (loss) from investment operations........................ (0.63) 1.57
------ ------
Less distributions from net realized gain............................. -- (0.49)
------ ------
Net asset value, end of period........................................ $ 13.44 $ 14.07
======= =======
TOTAL RETURN+......................................................... (4.48)%(1) 12.80%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.39%(2)(3) 1.33%(2)
Net investment loss................................................... (0.87)%(2)(3) (0.46)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $11 $11
Portfolio turnover rate............................................... 87%(1) 116%
</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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
(This page has been left blank intentionally)
<PAGE>
TRUSTEES
John C. Argue
Richard M. DeMartini [GRAPHIC]
Charles A. Fiumefreddo GLOBAL
John R. Haire TELECOM TRUST
Dr. Manuel H. Johnson
Thomas E. Larkin, Jr.
Michael E. Nugent
John L. Schroeder
Marc I. Stern
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer [GRAPHIC]
Thomas E. Larkin, Jr.
President
Barry Fink
Vice President, Secretary and
General Counsel
Robert M. Hanisee SEMIANNUAL REPORT
Vice President NOVEMBER 30, 1998
John A. Healey
Vice President
Thomas F. Caloia
Treasurer
TRANSFER 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
MANAGER
Morgan Stanley Dean Witter Services Company Inc.
ADVISER
TCW Funds Management, Inc.
The financial statements included herein have been taken from the records of
the Fund without examination by the independent accountants and accordingly
they do not express an opinion thereon.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and
trustees, fees, expenses and other pertinent information, please see the
prospectus of the Fund.
This report is not authorized for distribution to prospective investors in
the Fund unless preceded or accompanied by an effective prospectus.
<PAGE>
TCW/DW GLOBAL TELECOM TRUST Two World Trade Center,
LETTER TO THE SHAREHOLDERS May 31, 1998 New York, New York 10048
DEAR SHAREHOLDER:
The fiscal year ended May 31, 1998, was quite a challenging period for
investors in international and technology stocks. During this period,
investor opinion vacillated regarding the extent and ramifications of the
Asian economic crisis. Companies outside the large-cap universe were the
first to be affected by the Asian turmoil as investors sought safety in more
liquid, better known companies. Technology stocks were hit particularly hard
during the year, since Asia accounts for a significant portion of technology
demand, increasing investor concerns regarding the performance of this
sector.
PERFORMANCE AND PORTFOLIO
For the twelve-month period ended May 31, 1998, TCW/DW Global Telecom Trust's
Class B shares produced a total return of 27.30 percent, compared to a return
of 30.67 percent for the S&P 500 Composite Stock Price Index (S&P 500) and
13.20 percent for the Lipper Science and Technology Funds Index (Lipper
Index). Since their inception on July 28, 1997, the Fund's Class A, C and D
shares had total returns of 12.64 percent, 11.86 percent and 12.80 percent,
respectively. During this period, the Fund's benchmarks, the Lipper Index and
the S&P 500, returned -1.64 percent and 18.22 percent, respectively. (Note:
the total return for the Lipper Index is for the period July 31, 1997 through
May 31, 1998.) The performance of the Fund's four share classes varies
because of differing expenses.
The Fund more than doubled the performance of its peer group during this
fiscal year, although it did underperform the broader S&P 500. Unlike the S&P
500, the Fund invests primarily in domestic and foreign companies operating
in all aspects of the telecommunications and information industries. As
mentioned, these sectors were negatively influenced by the Asian crisis and
thus underperformed the general market. Furthermore, the S&P 500, which is
capitalization weighted, benefited from the strong outperformance of
large-cap stocks relative to small-cap stocks, which include many
technology-related companies.
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
LETTER TO THE SHAREHOLDERS May 31, 1998
The accompanying chart illustrates the growth of a hypothetical $10,000
investment in the Fund's Class B shares from inception (August 28, 1996)
through May 31, 1998, versus a similar investment in the issues that comprise
the S&P 500 Index and the Lipper Science and Technology Funds Index.
The Fund's unique portfolio construction by market segment and geographical
location has provided an added degree of diversification. The Fund's North
American holdings (approximately 71 percent of net assets), dominated by
smaller niche companies, contributed significantly to its performance. The
Fund's foreign holdings (29 percent of net assets) also contributed
positively to the Fund's performance despite the tremendous volatility
experienced abroad.
Within the telecommunications and information industries, approximately 35
percent of the portfolio is invested in transporters of telecommunications
(e.g., voice, video and data), 23 percent in enabling technology (e.g.,
Cisco), 21 percent in content providers (e.g., Sterling Commerce) and 18
percent in infrastructure (e.g., Ericsson).
Over the past year, one of the major investment themes within the
telecommunications arena has been Internet commerce. Growth within this
sector is forecast at more than 75 percent this year, to almost $5 billion.
By the year 2000, this growth is expected to double to $10 billion. The
Fund's addition of Infoseek increased its exposure to this growing sector to
nearly 8 percent of the portfolio.
LOOKING AHEAD
While the telecommunications sector may continue to be negatively affected by
the Asian crisis over the short-term, TCW Funds Management, Inc., the Fund's
adviser, believes that the telecommunications area continues to offer
outstanding long-term investment opportunities. Supporting this view are
several positive long-term trends, including the worldwide infrastructure
expansion of existing communications networks, the growth of wireless
networks and the gradual shift from analog to digital technologies.
Furthermore, TCW believes that the various industries within the
telecommunications sector will continue to converge via mergers and strategic
acquisitions. Recent examples of this trend include the acquisitions of MCI
by WorldCom, TCI and Teleport by AT&T, and Tellabs by Ciena, as well as the
continuing consolidations among the regional telephone companies. TCW expects
the pace of acquisition to accelerate over the next few years and believes
that the Fund is well positioned to benefit from further convergence within
the telecommunications industry.
2
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
LETTER TO THE SHAREHOLDERS May 31, 1998
We appreciate your ongoing support of TCW/DW Global Telecom Trust and look
forward to continuing to serve your investment needs and objectives.
Very truly yours,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
Chairman of the Board
3
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
FUND PERFORMANCE May 31, 1998
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE
PURPOSE OF EDGAR FILING.]
GROWTH OF $10,000 Class--B
($ in thousands)
<TABLE>
<CAPTION>
Date TOTAL S&P 500(4) LIPPER(5)
- ---- ----- ------- ------
<S> <C> <C> <C>
August 28, 1996 $10,000 $10,000 $10,000
May 31, 1997 $11,430 $12,978 $12,233
May 31, 1998 $14,151(3) $16,958 $13,847
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR CLASS
A, CLASS C, AND CLASS D SHARES WILL VARY FROM THE PERFORMANCE OF CLASS B
SHARES SHOWN ABOVE DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
AVERAGE ANNUAL TOTAL RETURNS*
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES**
- --------------------------------------------------
PERIOD ENDED 5/31/98
- ------------------------
<S> <C> <C>
1 year 27.30%(1) 22.30%(2)
From Inception (8/28/96) 23.83%(1) 21.87%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES++
- --------------------------------------------------
PERIOD ENDED 5/31/98
- ------------------------
<S> <C> <C>
FROM INCEPTION (7/28/97) 11.86%(1) 10.86%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES+
- -------------------------------------------------
PERIOD ENDED 5/31/98
- ------------------------
<S> <C> <C>
From Inception (7/28/97) 12.64%(1) 6.73%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D SHARES#
- --------------------------------------------------
PERIOD ENDED 5/31/98
- ------------------------
<S> <C>
From Inception (7/28/97) 12.80%(1)
</TABLE>
- ------------
(1) Figure shown assumes reinvestment of all distributions and does not
reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction
of the maximum applicable sales charge. See the Fund's current
prospectus for complete details on fees and sales charges.
(3) Closing value after the deduction of a 4% CDSC, assuming a complete
redemption on May 31, 1998.
(4) The Standard & Poor's 500 Composite Stock Price Index (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The performance of the
Index does not include any expenses, fees or charges. The Index is
unmanaged and should not be considered an investment.
(5) The Lipper Science and Technology Funds Index is an equally-weighted
performance index of the largest qualifying funds (based on net assets)
in the Lipper Science and Technology Funds objective. The Index, which
is adjusted for capital gains distributions and income dividends, is
unmanaged and should not be considered an investment. There are
currently 10 funds represented in this Index.
* For periods of less than one year, the fund quotes its total return on a
non-annualized basis.
** The maximum contingent deferred sales charge (CDSC) for Class B is 5%.
The CDSC declines to 0% after six years.
+ The maximum front-end sales charge for Class A is 5.25%.
++ The maximum contingent deferred sales charge for Class C shares is 1%
for shares redeemed within one year of purchase.
# Class D shares have no sales charge.
4
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
PORTFOLIO OF INVESTMENTS May 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS
AND RIGHTS (99.1%)
BRAZIL (5.7%)
Telephones
1,600,000 Cia Riograndense Telecomunicacoes S.A. (Pref.) .................. $1,724,617
42,341 Cia Riograndense Telecomunicacoes S.A. (Rights)* ................ --
Telecomunicacoes Brasileiras
20,000 S.A.-Telebras (ADR) ............................................ 2,132,500
11,000,000 Telecomunicacoes de Minas Gerais-Telemig ........................ 1,109,179
11,000,000 Telecomunicacoes de Minas Gerais-Telemig (Pref.)* ............... 564,152
25,000,000 Telecomunicacoes do Rio de Janeiro S.A.-Telerj .................. 2,086,231
25,000,000 Telecomunicacoes do Rio de Janeiro S.A.-Telerj (Pref.)* ......... 1,825,452
--------------
TOTAL BRAZIL ................................................... 9,442,131
--------------
CANADA (4.7%)
Computer Software
95,300 Cognicase Inc. ................................................. 1,453,325
114,100 CrossKeys Systems Corp.* ....................................... 1,162,394
600,000 Sanga International Inc.* ** ................................... 3,000,000
--------------
5,615,719
--------------
Telecommunications
190,400 Clearnet Communications Inc. (Class A)* ........................ 2,165,800
--------------
TOTAL CANADA ................................................... 7,781,519
--------------
CHINA (0.8%)
Telephones
40,000 China Telecom (Hong Kong) Ltd. (ADR)* .......................... 1,425,000
--------------
FINLAND (2.4%)
Telecommunications
60,588 Nokia Corp. (ADR) .............................................. 3,934,433
--------------
HONG KONG (0.9%)
Telecommunications
160,000 APT Satellite Holdings Ltd. (ADR)* ............................. 1,520,000
--------------
INDIA (0.9%)
Telecommunications
125,000 Videsh Sanchar Nigam Ltd. (GDR)* ............................... $1,485,000
--------------
ISRAEL (2.4%)
Telecommunications
70,000 ECI Telecommunications Limited Designs .......................... 2,213,750
60,000 Gilat Satellite Networks Ltd. .................................. 1,860,000
--------------
TOTAL ISRAEL ................................................... 4,073,750
--------------
ITALY (2.7%)
Communications Equipment
800,000 Pirelli SpA .................................................... 2,636,693
--------------
Telecommunications
250,000 Telecom Italia SpA .............................................. 1,887,310
--------------
TOTAL ITALY .................................................... 4,524,003
--------------
JAPAN (3.8%)
Computers
130,000 Fujitsu Ltd. .................................................... 1,488,657
--------------
Electronic Components
17,700 Hitachi Ltd. (ADR) ............................................. 1,174,838
--------------
Telephones
1,300 DDI Corp. ...................................................... 3,726,323
--------------
TOTAL JAPAN .................................................... 6,389,818
--------------
MEXICO (1.3%)
Telephones
44,400 Telefonos de Mexico S.A. de C.V. (Series L)(ADR) ............... 2,106,225
--------------
NETHERLANDS (0.9%)
Electronics
15,000 Philips Electronics N.V. ....................................... 1,426,875
--------------
PERU (1.3%)
Telephones
100,000 Telefonica del Peru S.A. (ADR) ................................. 2,162,500
--------------
RUSSIA (0.6%)
Telephones
20,000 Vimpel-Communications (ADR)* ................................... 968,750
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
PORTFOLIO OF INVESTMENTS May 31, 1998, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
SINGAPORE (0.6%)
Wire & Cable
151,300 Asia Pacific Wire & Cable Corp.* ................................ $1,096,925
--------------
SWEDEN (2.5%)
Telecommunications
151,800 Ericsson (L.M.) Telephone Co. (Class B)(ADR) .................... 4,231,425
--------------
UNITED KINGDOM (1.7%)
Telecommunications
95,000 Esat Telecom Group PLC (ADR)* ................................... 2,850,000
--------------
UNITED STATES (64.8%)
Broadcast Media
Cox Communications, Inc.
46,600 (Class A)* ...................................................... 2,035,837
61,400 Sinclair Broadcast Group, Inc.* ................................. 1,561,862
--------------
3,597,699
--------------
Business Services
44,700 Cognizant Corp. ................................................. 2,380,275
109,800 LCC International, Inc. (Class A)* .............................. 1,756,800
69,000 Omnicom Group, Inc. ............................................ 3,230,062
--------------
7,367,137
--------------
Cable Television Equipment
42,000 CIENA Corp.* ................................................... 2,173,500
--------------
Cable/Cellular
57,200 Houston Industries, Inc. $3.22 (Conv. Pref.) .................... 3,982,550
--------------
Commercial & Consumer Services
100,800 Cendant Corp.* .................................................. 2,186,100
--------------
Communications-Equipment & Software
41,300 Cisco Systems, Inc.* ............................................ 3,118,150
117,600 Pairgain Technologies, Inc.* .................................... 1,837,500
35,100 Tellabs, Inc.* .................................................. 2,410,931
--------------
7,366,581
--------------
Communications-Equipment/
Manufacturers
51,300 3Com Corp.* .................................................... 1,301,737
68,200 Andrew Corp.* .................................................. 1,496,137
--------------
2,797,874
--------------
Communications-Equipment
45,000 ADC Telecommunications, Inc.* ................................... 1,254,375
134,300 FORE Systems, Inc.* ............................................. 2,929,419
55,800 MRV Communications, Inc.* ....................................... $1,297,350
96,000 Xircom, Inc.* ................................................... 1,500,000
--------------
6,981,144
--------------
Computer Software
158,000 Pervasive Software, Inc.* ....................................... 1,757,750
64,400 Security Dynamics Technologies, Inc.* ........................... 1,352,400
--------------
3,110,150
--------------
Computer Software & Services
95,800 Checkfree Holdings Corp.* ....................................... 2,167,475
56,500 Sterling Commerce, Inc.* ....................................... 2,242,344
--------------
4,409,819
--------------
Consumer Services
64,800 E*TRADE Group, Inc.* ............................................ 1,401,300
--------------
Electrical Equipment
300,000 Jinpan International Ltd.* ...................................... 1,875,000
--------------
Electronics & Electrical
69,700 Cymer, Inc.* .................................................... 1,324,300
32,500 Teradyne, Inc.* ................................................. 999,375
--------------
2,323,675
--------------
Electronics-Semiconductors/
Components
22,600 Intel Corp. .................................................... 1,613,075
64,200 Maxim Integrated Products, Inc.* ................................ 2,142,675
--------------
3,755,750
--------------
Home Entertainment
55,800 Electronic Arts, Inc.* .......................................... 2,413,350
134,400 T-HQ, Inc.* ..................................................... 3,192,000
--------------
5,605,350
--------------
Internet
87,500 At Home Corp. (Series A)* ....................................... 3,029,688
62,100 Infoseek Corp.* ................................................ 1,432,181
94,700 USWeb Corp.* ................................................... 1,994,619
--------------
6,456,488
--------------
Media
98,100 Tele-Communications Liberty Media Group (Class A)* ............. 3,225,038
204,400 VDI Media* ..................................................... 3,066,000
--------------
6,291,038
--------------
Publishing
50,100 Mecklermedia Corp.* ............................................ 1,039,575
129,800 Ziff-Davis Inc.* ............................................... 2,190,375
--------------
3,229,950
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
PORTFOLIO OF INVESTMENTS May 31, 1998, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Publishing-Newspaper
31,400 Tribune Co....................................................... $ 2,099,875
--------------
Telecommunications
43,100 Advanced Fibre Communications, Inc.* ............................ 1,594,700
176,200 Boston Communications Group, Inc.* .............................. 1,497,700
250,000 Euronet Services, Inc. ......................................... 1,468,750
400,000 General DataComm Industries, Inc.* .............................. 1,825,000
85,000 Global Telesystems Group, Inc.* ................................. 3,251,250
34,500 Iridium World Communications Ltd. .............................. 1,897,500
39,100 NEXTLINK Communications, Inc. (Class A)* ....................... 1,216,988
84,100 Premiere Technologies, Inc.* .................................... 2,007,888
107,000 Primus Telecommunications Group, Inc.* .......................... 1,952,750
RSL Communications, Ltd.
100,000 (Class A)* ..................................................... 2,475,000
103,600 SmarTalk Teleservices, Inc.* .................................... 1,897,175
44,700 Teleport Communications Group Inc. (Class A)* .................. 2,497,613
160,000 Tricom, S.A. (ADR)* ............................................. 1,350,000
--------------
24,932,314
--------------
Telecommunications-Cellular/
Wireless
40,000 Airtouch Communications, Inc.* .................................. 1,905,000
89,600 Nextel Communications, Inc. (Class A)* ......................... 2,105,600
--------------
4,010,600
--------------
Utilities-Telecommunications
29,400 Intermedia Communications, Inc.* ................................ 2,175,600
--------------
TOTAL UNITED STATES ............................................ 108,129,494
--------------
VENEZUELA (1.1%)
Telephones
Compania Anonima Nacional Telefonos de Venezuela
60,000 (ADR) * ......................................................... 1,848,750
--------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
- --------------------------------------------------------------------------------------------
TOTAL COMMON AND PREFERRED STOCKS AND RIGHTS
<S> <C> <C>
(Identified Cost $144,178,555)(a)....................... 99.1% $165,396,598
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .. 0.9 1,425,602
----- ------------
NET ASSETS ......................................... 100.0% $166,822,200
===== ============
</TABLE>
- ------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
* Non-income producing security.
** Restricted security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$34,887,310 and the aggregate gross unrealized depreciation is
$13,669,267, resulting in net unrealized appreciation of $21,218,043.
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
SUMMARY OF INVESTMENTS May 31, 1998
<TABLE>
<CAPTION>
PERCENT
OF NET
INDUSTRY VALUE ASSETS
- ----------------------------------------- ------------ -------
<S> <C> <C>
Broadcast Media .......................... $ 3,597,699 2.2%
Business Services ........................ 7,367,137 4.4
Cable Television Equipment ............... 2,173,500 1.3
Cable/Cellular ........................... 3,982,550 2.4
Commercial & Consumer Services ........... 2,186,100 1.3
Communications -Equipment & Software .... 7,366,581 4.4
Communications -Equipment/Manufacturers . 2,797,874 1.7
Communications Equipment ................. 9,617,837 5.8
Computer Software ........................ 8,725,869 5.2
Computer Software & Services ............. 4,409,819 2.6
Computers ................................ 1,488,657 0.9
Consumer Services ........................ 1,401,300 0.8
Electrical Equipment ..................... 1,875,000 1.1
Electronic Components .................... 1,174,838 0.7
Electronics .............................. 1,426,875 0.9
Electronics & Electrical ................. 2,323,675 1.4
Electronics -Semiconductors/Components .. 3,755,750 2.2
Home Entertainment ....................... 5,605,350 3.4
Internet ................................. 6,456,488 3.9
Media .................................... 6,291,038 3.8
Publishing ............................... 3,229,950 1.9
Publishing -Newspaper .................... 2,099,875 1.3
Telecommunications ....................... 47,080,032 28.2
Telecommunications -Cellular/Wireless ... 4,010,600 2.4
Telephones ............................... 21,679,679 13.0
Utilities -Telecommunications ............ 2,175,600 1.3
Wire & Cable ............................. 1,096,925 0.6
-------------- ------
$165,396,598 99.1%
============== ======
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- ----------------------------- -------------- ------------
<S> <C> <C>
Common Stocks ................ $157,299,827 94.3%
Convertible Preferred Stocks 3,982,550 2.4
Preferred Stocks ............. 4,114,221 2.4
-------------- ------------
$165,396,598 99.1%
============== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $144,178,555) ............ $165,396,598
Cash ....................................... 329,239
Receivable for:
Investments sold ......................... 3,621,891
Shares of beneficial interest sold ...... 385,028
Dividends ................................ 84,633
Interest ................................. 30,698
Deferred organizational expenses ........... 111,518
Prepaid expenses and other assets .......... 105,600
---------------
TOTAL ASSETS ............................. 170,065,205
---------------
LIABILITIES:
Payable for:
Investments purchased .................... 2,826,110
Shares of beneficial interest
repurchased ............................. 131,900
Plan of distribution fee ................. 110,143
Management fee ........................... 89,196
Investment advisory fee .................. 59,464
Accrued expenses and other payables ....... 26,192
---------------
TOTAL LIABILITIES ........................ 3,243,005
---------------
NET ASSETS ............................... $166,822,200
===============
COMPOSITION OF NET ASSETS:
Paid-in-capital ............................ $124,359,589
Net unrealized appreciation ................ 21,217,915
Net investment loss ........................ (18,845)
Accumulated undistributed net realized
gain....................................... 21,263,541
---------------
NET ASSETS ............................... $166,822,200
===============
CLASS A SHARES:
Net Assets ................................. $966,443
Shares Outstanding (unlimited authorized,
$.01 par value) ........................... 68,811
NET ASSET VALUE PER SHARE ................ $14.04
===============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net
asset value) ............................ $14.82
===============
CLASS B SHARES:
Net Assets ................................. $165,285,396
Shares Outstanding (unlimited authorized,
$.01 par value) ........................... 11,832,228
NET ASSET VALUE PER SHARE ................ $13.97
===============
CLASS C SHARES:
Net Assets ................................. $559,065
Shares Outstanding (unlimited authorized,
$.01 par value) ........................... 40,065
NET ASSET VALUE PER SHARE ................ $13.95
===============
CLASS D SHARES:
Net Assets ................................. $11,296
Shares Outstanding (unlimited authorized,
$.01 par value) ........................... 803
NET ASSET VALUE PER SHARE ................ $14.07
===============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended May 31, 1998*
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $73,845 foreign
withholding tax) ......................... $ 1,105,413
Interest .................................. 144,228
-------------
TOTAL INCOME ............................ 1,249,641
-------------
EXPENSES
Plan of distribution fee (Class A Shares) 736
Plan of distribution fee (Class B Shares) 1,206,683
Plan of distribution fee (Class C Shares) 2,932
Management fee ............................ 910,689
Investment advisory fee ................... 607,126
Transfer agent fees and expenses .......... 219,574
Registration fees ......................... 51,959
Custodian fees ............................ 43,110
Professional fees ......................... 42,538
Trustees' fees and expenses ............... 39,619
Organizational expenses ................... 34,925
Shareholder reports and notices ........... 26,134
Foreign exchange provisional tax .......... 20,095
Other ..................................... 12,757
-------------
TOTAL EXPENSES .......................... 3,218,877
-------------
NET INVESTMENT LOSS ..................... (1,969,236)
-------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain (loss) on:
Investments ............................. 28,200,756
Foreign exchange transactions ........... (19,991)
-------------
NET GAIN ................................ 28,180,765
-------------
Net change in unrealized appreciation on:
Investments ............................. 7,811,237
Translation of other assets and
liabilities denominated in foreign
currencies ............................. 547
-------------
NET APPRECIATION ........................ 7,811,784
-------------
NET GAIN ................................ 35,992,549
-------------
NET INCREASE .............................. $34,023,313
=============
</TABLE>
- ------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR AUGUST 28,
ENDED 1996*
MAY 31, THROUGH
1998** MAY 31, 1997
---------------------------------------------------- ------------ -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss ................................... $ (1,969,236) $ (1,003,201)
Net realized gain ..................................... 28,180,765 1,507,340
Net change in unrealized appreciation ................. 7,811,784 13,406,131
--------------- -------------
NET INCREASE ........................................ 34,023,313 13,910,270
--------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET
REALIZED GAIN:
Class A shares ........................................ (8,783) --
Class B shares ........................................ (5,580,481) --
Class C shares ........................................ (12,951) --
Class D shares ........................................ (380) --
--------------- -------------
TOTAL DISTRIBUTIONS ................................. (5,602,595) --
--------------- -------------
Net increase from transactions in shares of beneficial
interest ............................................. 16,161,166 108,230,046
--------------- -------------
NET INCREASE ........................................ 44,581,884 122,140,316
NET ASSETS:
Beginning of period ................................... 122,240,316 100,000
--------------- -------------
END OF PERIOD
(Including a net investment loss of $18,845
and $0, respectively) ............................... $166,822,200 $122,240,316
=============== =============
</TABLE>
- ------------
* Commencement of operations.
** Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1998
1. ORGANIZATIONAL AND ACCOUNTING POLICIES
TCW/DW Global Telecom Trust (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a diversified, open-end
management investment company. The Fund's investment objective is long-term
capital appreciation. The Fund seeks to achieve its objective by investing
primarily in securities of domestic and foreign companies operating in all
aspects of the telecommunications and information industries. The Fund was
organized as a Massachusetts business trust on March 28, 1996 and had no
other operations other than those relating to organizational matters and the
issuance of 10,000 shares of beneficial interest for $100,000 to Morgan
Stanley Dean Witter Advisors Inc. ("MSDWA"), an affiliate of Morgan Stanley
Dean Witter Services Company Inc. (the "Manager"), to effect the Fund's
initial capitalization. The Fund commenced operations on August 28, 1996. On
July 28, 1997, the Fund commenced offering three additional classes of
shares, with the then current shares designated as Class B shares.
Effective June 22, 1998, the following entities have changed their name:
<TABLE>
<CAPTION>
OLD NAME NEW NAME
------------------------------------- ---------------------------------------------------
<S> <C>
Dean Witter InterCapital Inc. Morgan Stanley Dean Witter Advisors Inc.
Dean Witter Distributors Inc. Morgan Stanley Dean Witter Distributors Inc.
Dean Witter Services Company Inc. Morgan Stanley Dean Witter Services Company Inc.
</TABLE>
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 (in cases where securities are traded on more than one exchange;
the securities are valued on the
exchange designated as the primary market pursuant to procedures adopted by
the Trustees); (2) all other
11
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
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 TCW Funds Management, Inc. (the
"Adviser") 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) certain portfolio securities may be
valued by an outside pricing service approved by the Trustees. The pricing
service may utilize a matrix system incorporating security quality, maturity
and coupon as the evaluation model parameters, and/or research and
evaluations by its staff, including review of broker-dealer market price
quotations, if available, in determining what it believes is the fair
valuation of the securities valued by such pricing service; (5) short-term
debt securities having a maturity date of more than sixty days at time of
purchase are valued on a mark-to-market basis until sixty days prior to
maturity and thereafter at amortized cost based on their value on the 61st
day. Short-term debt securities having a maturity date of sixty days or less
at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS--Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Dividend income and other distributions are recorded on the
ex-dividend date except for certain dividends on foreign securities which are
recorded as soon as the Fund is informed after 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. FOREIGN CURRENCY TRANSLATION--The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value
of investment securities, other assets and liabilities and forward contracts
are translated at the exchange rates prevailing at the end of the period; and
(2) purchases, sales, income and expenses are translated at the exchange
rates prevailing on the respective dates of such transactions. The resultant
exchange gains and losses are included in the Statement of Operations as
realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss
12
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
are included in or are a reduction of ordinary income for federal income tax
purposes. The Fund does not isolate that portion of the results of operations
arising as a result of changes in the foreign exchange rates from the changes
in the market prices of the securities.
E. FORWARD FOREIGN CURRENCY CONTRACTS--The Fund may enter into forward
foreign currency contracts which are valued daily at the appropriate exchange
rates. The resultant unrealized exchange gains and losses are included in the
Statement of Operations as unrealized foreign currency gain or loss and in
the Statement of Assets and Liabilities as part of the related foreign
currency denominated asset or liability. The Fund records realized gains or
losses on delivery of the currency or at the time the forward contract is
extinguished (compensated) by entering into a closing transaction prior to
delivery.
F. 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.
G. 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.
H. ORGANIZATIONAL EXPENSES--MSDWA paid the organizational expenses in the
amount of approximately $172,000 which has been reimbursed for the full
amount thereof. Such expenses have been deferred and are being amortized on
the straight-line method over a period not to exceed five years from the
commencement of operations.
2. MANAGEMENT AGREEMENT
Pursuant to a Management Agreement, the Fund pays the Manager a management
fee, accrued daily and payable monthly, by applying the annual rate of 0.60%
to the net assets of the Fund determined as of the close of each business
day.
13
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
Under the terms of the Management Agreement, the Manager maintains certain of
the Fund's books and records and furnishes, at its own expense, office space,
facilities, equipment, clerical, bookkeeping and certain legal services and
pays the salaries of all personnel, including officers of the Fund who are
employees of the Manager. The Manager also bears the cost of telephone
services, heat, light, power and other utilities provided to the Fund.
3. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement, the Fund pays the Adviser an
advisory fee, accrued daily and payable monthly, by applying the annual rate
of 0.40% to the net assets of the Fund determined as of the close of each
business day.
Under the terms of the Investment Advisory Agreement, the Fund has retained
the Adviser to invest the Fund's assets, including placing orders for the
purchase and sale of portfolio securities. The Adviser 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. In addition, the Adviser pays the salaries of all personnel,
including officers of the Fund, who are employees of the Adviser.
4. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund
has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under
the Act. The Plan provides that the Fund will pay the Distributor a fee which
is accrued daily and paid monthly at the following annual rates: (i) Class A
- -up to 0.25% of the average daily net assets of Class A; (ii) Class B -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, Morgan Stanley
Dean Witter Financial Advisors and others who engage in or support
distribution of the shares or who service shareholder accounts, including
overhead and
14
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
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 Dean
Witter Reynolds Inc. ("DWR"), an affiliate of the Manager and Distributor,
and other selected broker-dealers for their opportunity costs in advancing
such amounts, which compensation would be in the form of a carrying charge on
any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect,
any cumulative expenses incurred by the Distributor but not yet recovered may
be recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the
Distributor under the Plan and the proceeds of contingent deferred sales
charges paid by investors upon redemption of shares, if for any reason the
Plan is terminated, the Trustees will consider at that time the manner in
which to treat such expenses. The Distributor has advised the Fund that such
excess amounts, including carrying charges, totaled $7,673,197 at
May 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 Morgan Stanley Dean Witter Financial
Advisors or other selected broker-dealer representatives may be reimbursed in
the subsequent calendar year. For the period ended May 31, 1998, the
distribution fee was accrued for Class A shares and Class C shares at the
annual rate of 0.24% and 1.0%, respectively.
The Distributor has informed the Fund that for the period ended May 31, 1998,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C shares of $430,611, and $393, respectively,
and received $11,497 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 May 31, 1998 aggregated
$179,976,218 and $170,506,083, respectively.
For the year ended May 31, 1998, the Fund incurred brokerage commissions of
$3,460 with Morgan Stanley & Co., Inc., an affiliate of the Manager, for
portfolio transactions executed on behalf of the Fund.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Manager and
Distributor, is the Fund's transfer agent.
15
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR AUGUST 28, 1996*
ENDED THROUGH
MAY 31, 1998 MAY 31, 1997
----------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
CLASS A SHARES**
Sold........................... 70,641 $ 1,010,003 -- --
Reinvestment of distributions 687 8,164
Redeemed....................... (2,517) (35,654) -- --
------------- -------------- ------------ --------------
Net increase-Class A........... 68,811 982,513 -- --
------------- -------------- ------------ --------------
CLASS B SHARES
Sold........................... 2,865,878 38,687,349 11,662,388 $118,594,978
Reinvestment of distributions . 444,412 5,270,720 -- --
Redeemed....................... (2,172,212) (29,334,428) (978,238) (10,364,932)
------------- -------------- ------------ --------------
Net increase-Class B........... 1,138,078 14,623,641 10,684,150 108,230,046
------------- -------------- ------------ --------------
CLASS C SHARES**
Sold........................... 43,731 598,390 -- --
Reinvestment of distributions . 1,064 12,611 -- --
Redeemed....................... (4,730) (66,384) -- --
------------- -------------- ------------ --------------
Net increase-Class C .......... 40,065 544,617 -- --
------------- -------------- ------------ --------------
CLASS D SHARES**
Sold........................... 771 10,015 -- --
Reinvestment of distributions . 32 380 -- --
------------- -------------- ------------ --------------
Net increase-Class D........... 803 10,395 -- --
------------- -------------- ------------ --------------
Net increase in Fund........... 1,247,757 $ 16,161,166 10,684,150 $108,230,046
============= ============== ============ ==============
</TABLE>
- ------------
* Commencement of operations.
** For the period July 28, 1997 (issue date) through May 31, 1998.
16
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
7. FEDERAL INCOME TAX STATUS
Foreign currency losses incurred after October 31 ("post-October losses")
within the taxable year are deemed to arise on the first business day of the
Fund's next taxable year. The Fund incurred and will elect to defer net
foreign currency losses of approximately $19,000 during fiscal 1998.
As of May 31, 1998, the Fund had temporary book/tax differences primarily
attributable to post-October losses and capital loss deferrals on wash sales
and permanent book/tax differences primarily attributable to a net operating
loss. To reflect reclassifications arising from the permanent differences,
paid-in-capital was charged $107,536, accumulated undistributed net realized
gain was charged $1,842,855 and net investment loss was credited $1,950,391.
8. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward
contracts") to facilitate settlement of foreign currency denominated
portfolio transactions or to manage foreign currency exposure associated with
foreign currency denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk
of an unfavorable change in foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counter parties to meet the terms of their
contracts.
At May 31, 1998, there were no outstanding forward contracts.
17
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE PERIOD
ENDED AUGUST 28, 1996*
MAY 31, THROUGH
1998**++ MAY 31, 1997
- ------------------------------------------ --------------- ----------------
<S> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $ 11.43 $ 10.00
--------------- ----------------
Net investment loss........................ (0.17) (0.09)
Net realized and unrealized gain .......... 3.20 1.52
--------------- ----------------
Total from investment operations........... 3.03 1.43
Less distributions from net realized gain (0.49) --
--------------- ----------------
Net asset value, end of period ............ $ 13.97 $ 11.43
=============== ================
TOTAL INVESTMENT RETURN+................... 27.30 % 14.30 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 2.12 % 2.38 %(2)
Net investment loss........................ (1.30)% (1.27)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $165,284 $122,240
Portfolio turnover rate ................... 116 % 80 %(1)
Average commission rate paid............... $0.0049 $0.0283
</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
18
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
MAY 31, 1998++
- ------------------------------------------ --------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $ 12.99
--------------
Net investment loss ....................... (0.09)
Net realized and unrealized gain .......... 1.63
--------------
Total from investment operations .......... 1.54
Less distributions from net realized gain (0.49)
--------------
Net asset value, end of period ............ $ 14.04
==============
TOTAL INVESTMENT RETURN+ .................. 12.64 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 1.52 %(2)
Net investment loss ....................... (0.76)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $ 966
Portfolio turnover rate.................... 116 %
Average commission rate paid............... $0.0049
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $ 12.99
--------------
Net investment loss ....................... (0.17)
Net realized and unrealized gain .......... 1.62
--------------
Total from investment operations........... 1.45
Less distributions from net realized gain . (0.49)
--------------
Net asset value, end of period ............ $ 13.95
==============
TOTAL INVESTMENT RETURN+ .................. 11.86 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 2.30 %(2)
Net investment loss ....................... (1.52)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ... $ 559
Portfolio turnover rate ................... 116 %
Average commission rate paid............... $0.0049
</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
19
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
MAY 31, 1998++
- ----------------------------------------- --------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .... $ 12.99
--------------
Net investment loss ...................... (0.05)
Net realized and unrealized gain ........ 1.62
--------------
Total from investment operations ........ 1.57
Less distributions from net realized
gain..................................... (0.49)
--------------
Net asset value, end of period ........... $ 14.07
==============
TOTAL INVESTMENT RETURN+ ................. 12.80 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................. 1.33 %(2)
Net investment loss ...................... (0.46)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $ 11
Portfolio turnover rate................... 116 %
Average commission rate paid.............. $0.0049
</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
20
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF TCW/DW GLOBAL TELECOM TRUST
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 TCW/DW Global
Telecom Trust (the "Fund") at May 31, 1998, the results of its operations for
the year then ended, and the changes in its net assets 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 May 31, 1998 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
July 10, 1998
-----------------------------------------------------------------------
1998 FEDERAL TAX NOTICE (unaudited)
For the year ended May 31, 1998, the Fund paid to shareholders $0.05
per share from long-term capital gains. This $0.05 distribution is
taxable as 28% rate gain.
-----------------------------------------------------------------------
21
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
TRUSTEES
John C. Argue
Richard M. DeMartini
Charles A. Fiumefreddo
John R. Haire
Dr. Manuel H. Johnson
Thomas E. Larkin, Jr.
Michael E. Nugent
John L. Schroeder
Marc I. Stern
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Thomas E. Larkin, Jr.
President
Barry Fink
Vice President, Secretary and General Counsel
Robert M. Hanisee
Vice President
John A. Healey
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PrcewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
MANAGER
Morgan Stanley Dean Witter Services Company Inc.
ADVISER
TCW Funds Management, Inc.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of
the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
TCW/DW
GLOBAL TELECOM TRUST
[graphic]
ANNUAL REPORT
MAY 31, 1998
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL UTILITIES FUND
PART B
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the shares of Morgan
Stanley Dean Witter Global Utilities Fund ("Global Utilities") to be issued
pursuant to an Agreement and Plan of Reorganization, dated February 25, 1999,
between Global Utilities and TCW/DW Global Telecom Trust ("Global Telecom") in
connection with the acquisition by Global Utilities of substantially all of the
assets, subject to stated liabilities, of Global Telecom. This Statement of
Additional Information does not constitute a prospectus. This Statement of
Additional Information does not include all information that a shareholder
should consider before voting on the proposals contained in the Proxy Statement
and Prospectus, and, therefore, should be read in conjunction with the related
Proxy Statement and Prospectus, dated April , 1999. A copy of the Proxy
Statement and Prospectus may be obtained without charge by mailing a written
request to Global Utilities at Two World Trade Center, New York, New York 10048
or by calling (800) 869-NEWS (TOLL FREE). Please retain this document for
future reference.
The date of this Statement of Additional Information is April , 1999.
B-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTRODUCTION ........................................... B-3
ADDITIONAL INFORMATION ABOUT GLOBAL UTILITIES .......... B-3
FINANCIAL STATEMENTS ................................... B-4
</TABLE>
B-2
<PAGE>
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in the Proxy Statement and Prospectus dated April , 1999
(the "Proxy Statement and Prospectus"). The Proxy Statement and Prospectus has
been sent to Global Telecom shareholders in connection with the solicitation of
proxies by the Board of Trustees of Global Telecom to be voted at the Special
Meeting of shareholders of Global Telecom to be held on June 8, 1999. This
Statement of Additional Information incorporates by reference the Statement of
Additional Information of Global Utilities dated June 26, 1998 and the
Statement of Additional Information of Global Telecom dated July 31, 1998.
ADDITIONAL INFORMATION ABOUT GLOBAL UTILITIES
INVESTMENT OBJECTIVES AND POLICIES
For additional information about Global Utilities' investment objectives
and policies, see "Investment Practices and Policies" and "Investment
Restrictions" in Global Utilities' Statement of Additional Information.
MANAGEMENT
For additional information about the Board of Trustees, officers and
management personnel of Global Utilities, see "The Fund and its Management" and
"Trustees and Officers" in Global Utilities' Statement of Additional
Information.
INVESTMENT ADVISORY AND OTHER SERVICES
For additional information about Global Utilities' investment manager, see
"The Fund and its Management" in Global Utilities' Statement of Additional
Information. For additional information about Global Utilities' independent
auditors, see "Independent Accountants" in Global Utilities' Statement of
Additional Information. For additional information about other services
provided to Global Utilities, see "Custodian and Transfer Agent" and
"Shareholder Services" in Global Utilities' Statement of Additional
Information.
PORTFOLIO TRANSACTIONS AND BROKERAGE
For additional information about brokerage allocation practices, see
"Portfolio Transactions and Brokerage" in Global Utilities' Statement of
Additional Information.
DESCRIPTION OF FUND SHARES
For additional information about the voting rights and other
characteristics of the shares of Global Utilities, see "Description of Shares"
in Global Utilities' Statement of Additional Information.
PURCHASE, REDEMPTION AND PRICING OF SHARES
For additional information about the purchase and redemption of Global
Utilities' shares and the determination of net asset value, see "Purchase of
Fund Shares," "Redemptions and Repurchases," "Financial Statements -- February
28, 1998" and "Shareholder Services" in Global Utilities' Statement of
Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
For additional information about Global Utilities' policies regarding
dividends and distributions and tax matters affecting Global Utilities and its
shareholders, see "Dividends, Distributions and Taxes," and "Financial
Statements -- February 28, 1998" in Global Utilities' Statement of Additional
Information.
B-3
<PAGE>
DISTRIBUTION OF SHARES
For additional information about Global Utilities' distributor and the
distribution agreement between Global Utilities and its distributor, see
"Purchase of Fund Shares" in Global Utilities' Statement of Additional
Information.
PERFORMANCE DATA
For additional information about Global Utilities' performance, see
"Performance Information" in Global Utilities' Statement of Additional
Information.
FINANCIAL STATEMENTS
Global Utilities' most recent audited financial statements are set forth
in Global Utilities' Annual Report for the fiscal year ended February 28, 1999.
A copy of the Annual Report accompanies, and is incorporated by reference in,
the Proxy Statement and Prospectus. Global Telecom's most recent audited
financial statements are set forth in Global Telecom's Annual Report for the
fiscal year ended May 31, 1998, and Global Telecom's updated, unaudited
financial statements are set forth in its unaudited Semi-Annual Report for the
six month period ended November 30, 1998, which are incorporated by reference
in the Proxy Statement and Prospectus.
B-4
<PAGE>
PRO FORMA FINANCIAL STATEMENTS AS OF 2/28/99
[TO BE FILED BY AMENDMENT]
<PAGE>
STATEMENT OF ADDITIONAL MORGAN STANLEY DEAN WITTER
INFORMATION GLOBAL UTILITIES
JUNE 26, 1998 FUND
- -------------------------------------------------------------------------------
Morgan Stanley Dean Witter Global Utilities Fund (the "Fund") is an
open-end, diversified management investment company whose investment objective
is to seek both capital appreciation and current income. The Fund seeks to
achieve its objective by investing in equity and fixed-income securities of
issuers worldwide, which are primarily engaged in the utilities industry. (See
"Investment Objective and Policies").
A Prospectus for the Fund dated June 26, 1998, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at its address or telephone numbers listed below or
from the Fund's Distributor, Morgan Stanley Dean Witter Distributors Inc., or
from Dean Witter Reynolds Inc. at any of its branch offices. This Statement of
Additional Information is not a Prospectus. It contains information in addition
to and more detailed than that set forth in the Prospectus. It is intended to
provide additional information regarding the activities and operations of the
Fund, and should be read in conjunction with the Prospectus.
Morgan Stanley Dean Witter
Global Utilities Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550
or (800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- - --------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund and its Management............................................................ 3
Trustees and Officers.................................................................. 8
Investment Practices and Policies...................................................... 14
Investment Restrictions................................................................ 30
Portfolio Transactions and Brokerage................................................... 31
The Distributor........................................................................ 33
Determination of Net Asset Value....................................................... 37
Purchase of Fund Shares................................................................ 38
Shareholder Services................................................................... 40
Redemptions and Repurchases............................................................ 45
Dividends, Distributions and Taxes..................................................... 47
Performance Information................................................................ 48
Description of Shares.................................................................. 50
Custodian and Transfer Agent........................................................... 50
Independent Accountants................................................................ 50
Reports to Shareholders................................................................ 51
Legal Counsel.......................................................................... 51
Experts................................................................................ 51
Registration Statement................................................................. 51
Financial Statements -- February 28, 1998.............................................. 52
Report of Independent Accountants...................................................... 69
Appendix............................................................................... 71
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- - -------------------------------------------------------------------------
THE FUND
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
October 22, 1993 under the name Dean Witter Global Utilities Fund. On June 22,
1998, 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 Global
Utilities 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, 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":
<TABLE>
<CAPTION>
OPEN-END FUNDS
<C> <S>
1 Active Assets California Tax-Free Trust
2 Active Assets Government Securities Trust
3 Active Assets Money Trust
4 Active Assets Tax-Free Trust
5 Morgan Stanley Dean Witter American Value Fund
6 Morgan Stanley Dean Witter Balanced Growth Fund
7 Morgan Stanley Dean Witter Balanced Income Fund
8 Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
9 Morgan Stanley Dean Witter California Tax-Free Income Fund
10 Morgan Stanley Dean Witter Capital Appreciation Fund
11 Morgan Stanley Dean Witter Capital Growth Securities
12 Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS" Portfolio
13 Morgan Stanley Dean Witter Convertible Securities Trust
14 Morgan Stanley Dean Witter Developing Growth Securities Trust
15 Morgan Stanley Dean Witter Diversified Income Trust
16 Morgan Stanley Dean Witter Dividend Growth Securities Inc.
17 Morgan Stanley Dean Witter Equity Fund
18 Morgan Stanley Dean Witter European Growth Fund Inc.
19 Morgan Stanley Dean Witter Federal Securities Trust
20 Morgan Stanley Dean Witter Financial Services Trust
21 Morgan Stanley Dean Witter Fund of Funds
22 Dean Witter Global Asset Allocation Fund
23 Morgan Stanley Dean Witter Global Dividend Growth Securities
24 Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
25 Morgan Stanley Dean Witter Global Utilities Fund
26 Morgan Stanley Dean Witter Growth Fund
27 Morgan Stanley Dean Witter Hawaii Municipal Trust
28 Morgan Stanley Dean Witter Health Sciences Trust
29 Morgan Stanley Dean Witter High Yield Securities Inc.
30 Morgan Stanley Dean Witter Income Builder Fund
31 Morgan Stanley Dean Witter Information Fund
</TABLE>
3
<PAGE>
<TABLE>
<C> <S>
32 Morgan Stanley Dean Witter Intermediate Income Securities
33 Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
34 Morgan Stanley Dean Witter International SmallCap Fund
35 Morgan Stanley Dean Witter Japan Fund
36 Morgan Stanley Dean Witter Limited Term Municipal Trust
37 Morgan Stanley Dean Witter Liquid Asset Fund Inc.
38 Morgan Stanley Dean Witter Market Leader Trust
39 Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
40 Morgan Stanley Dean Witter Mid-Cap Growth Fund
41 Morgan Stanley Dean Witter Multi-State Municipal Series Trust
42 Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
43 Morgan Stanley Dean Witter New York Municipal Money Market Trust
44 Morgan Stanley Dean Witter New York Tax-Free Income Fund
45 Morgan Stanley Dean Witter Pacific Growth Fund Inc.
46 Morgan Stanley Dean Witter Precious Metals and Minerals Trust
47 Dean Witter Retirement Series
48 Morgan Stanley Dean Witter Select Dimensions Investment Series
49 Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
50 Morgan Stanley Dean Witter Short-Term Bond Fund
51 Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
52 Morgan Stanley Dean Witter Special Value Fund
53 Morgan Stanley Dean Witter S&P 500 Index Fund
54 Morgan Stanley Dean Witter Strategist Fund
55 Morgan Stanley Dean Witter Tax-Exempt Securities Trust
56 Morgan Stanley Dean Witter Tax-Free Daily Income Trust
57 Morgan Stanley Dean Witter U.S. Government Money Market Trust
58 Morgan Stanley Dean Witter U.S. Government Securities Trust
59 Morgan Stanley Dean Witter Utilities Fund
60 Morgan Stanley Dean Witter Value-Added Market Series
61 Morgan Stanley Dean Witter Variable Investment Series
62 Morgan Stanley Dean Witter World Wide Income Trust
<CAPTION>
CLOSED-END FUNDS
<C> <S>
1 InterCapital California Insured Municipal Income Trust
2 InterCapital California Quality Municipal Securities
3 Dean Witter Government Income Trust
4 High Income Advantage Trust
5 High Income Advantage Trust II
6 High Income Advantage Trust III
7 InterCapital Income Securities Inc.
8 InterCapital Insured California Municipal Securities
9 InterCapital Insured Municipal Bond Trust
10 InterCapital Insured Municipal Income Trust
11 InterCapital Insured Municipal Securities
12 InterCapital Insured Municipal Trust
13 Municipal Income Opportunities Trust
14 Municipal Income Opportunities Trust II
15 Municipal Income Opportunities Trust III
16 Municipal Income Trust
17 Municipal Income Trust II
18 Municipal Income Trust III
19 Municipal Premium Income Trust
</TABLE>
4
<PAGE>
<TABLE>
<C> <S>
20 InterCapital New York Quality Municipal Securities
21 Morgan Stanley Dean Witter Prime Income Trust
22 InterCapital Quality Municipal Income Trust
23 InterCapital Quality Municipal Investment Trust
24 InterCapital Quality Municipal Securities
</TABLE>
In addition, Morgan Stanley Dean Witter Services Company Inc. ("MSDW
Services"), a wholly-owned subsidiary of MSDW Advisors, serves as manager for
the following investment companies for which TCW Funds Management, Inc. is the
investment advisor (the "TCW/DW Funds"):
<TABLE>
<CAPTION>
OPEN-END FUNDS
<C> <S>
1 TCW/DW Emerging Markets Opportunities Trust
2 TCW/DW Global Telecom Trust
3 TCW/DW Income and Growth Fund
4 TCW/DW Latin American Growth Fund
5 TCW/DW Mid-Cap Equity Trust
6 TCW/DW North American Government Income Trust
7 TCW/DW Small Cap Growth Fund
8 TCW/DW Total Return Trust
<CAPTION>
CLOSED-END FUNDS
<C> <S>
1 TCW/DW Term Trust 2000
2 TCW/DW Term Trust 2002
3 TCW/DW Term Trust 2003
</TABLE>
MSDW Advisors also serves as: (i) administrator of The BlackRock Strategic
Term Trust Inc., a closed-end investment company; (ii) sub-administrator of
Templeton Global Governments Income Trust, a closed-end investment company; and
(iii) investment advisor of Offshore Dividend Growth Fund and Offshore Money
Market Fund, mutual funds established under the laws of the Cayman Islands and
available only to investors who are participants in the International Active
Assets Account program and are neither citizens nor residents of the United
States.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage the
investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets, and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help 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 Agreement
or by the distributor of the Fund's shares, Morgan Stanley Dean Witter
Distributors Inc. ("MSDW Distributors" or the "Distributor") (see "The
Distributor") will be paid by the Fund. These expenses will be allocated among
the four classes of shares of the Fund (each, a "Class") pro rata based on the
net assets of the
5
<PAGE>
Fund attributable to each Class, except as described below. Such expenses
include, but are not limited to: expenses of the Plan of Distribution pursuant
to Rule 12b-1 (the "12b-1 fee") (see "The Distributor"); charges and expenses of
any registrar; custodian, stock transfer and dividend disbursing agent;
brokerage commissions; taxes; engraving and printing 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 any corporate affiliate of the Investment Manager; all
expenses incident to any dividend, withdrawal or redemption options; charges and
expenses of any outside service used for pricing of the Fund's shares; fees and
expenses of legal counsel, including counsel to the trustees who are not
interested persons of the Fund or of the Investment Manager (not including
compensation or expenses of attorneys who are employees of the Investment
Manager) 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.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the
following annual rates to the daily net assets of the Fund: 0.65% of the portion
of daily net assets not exceeding $500 million and 0.625% on assets over $500
million. The management fee is allocated among the Classes pro rata based on the
net assets of the Fund attributable to each Class. The Fund accrued total
compensation to the Investment Manager of $2,282,675, $2,295,007 and $2,368,987,
during the fiscal years ended February 29, 1996, February 28, 1997 and 1998,
respectively.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder, the
Investment Manager is not liable to the Fund or any of its investors for any act
or omission by the Investment Manager or for any losses sustained by the Fund or
its investors. The Agreement in no way restricts the Investment Manager from
acting as investment manager or adviser to others.
The Investment Manager paid the organizational expenses of the Fund incurred
prior to the offering of the Fund's shares. The Fund has reimbursed the
Investment Manager for such expenses in accordance with the terms of the
Underwriting Agreement between the Fund and Distributors. The Fund will defer
and will amortize the reimbursed expenses on the straight line method over a
period not to exceed five years from the date of commencement of the Fund's
operations.
The Agreement was initially approved by the Trustees of the Fund on February
21, 1997 and by the shareholders of the Fund at a Special Meeting of
Shareholders held on May 21, 1997. The Agreement is substantially identical to a
prior investment management agreement which was initially approved by the Board
of Trustees on December 2, 1993 and by MSDW Advisors as the then sole
shareholder on February 24, 1994 and subsequently amended by the Trustees at
their meeting held on April 24, 1997 to provide a breakpoint in the management
fee that reduced the compensation received by the Investment Manager under the
agreement on assets exceeding $500 million. The Agreement took effect on May 31,
1997 upon the consummation of the merger of Dean Witter, Discover & Co. with
Morgan Stanley Group Inc. The Agreement may be terminated at any time, without
penalty, on thirty days' notice by the Trustees of the Fund, by the holders of a
majority of the outstanding shares of the Fund, as defined in the
6
<PAGE>
Investment Company Act of 1940, as amended (the "Act"), or by the Investment
Manager. The Agreement will automatically terminate in the event of its
assignment (as defined in the Act).
Under its terms, the Agreement has an initial term ending April 30, 1999,
and provides that it will continue from year to year thereafter, provided
continuance of the Agreement 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
February 28, 1998: Private Scavengers Health & Welfare Fund, Local Union #731,
I.B. of T., Attn: William Woldman, 1100 East 31st Street, P.O. Box 1407,
Lagrange Park, IL 60526--17.388%; Health & Welfare Fund, Local Union #731, I.B.
of T., Attn: William Woldman, 1100 East 31st Street, P.O. Box 1407, Lagrange
Park, IL 60526-- 10.963%; Morgan Stanley Dean Witter Trust FSB Trustee for the
benefit of Abe E. Namey Revocable Trust, P.O. Box 503, Jersey City, NJ
07311--9.559%; RPM000 Culligan Industrial Water Treatment Profit Sharing Trust
DTD 7/1/93, P.O. Box 24280, Ventura, CA 93002--7.592%; Dean Witter Reynolds Inc.
Custodian for Sandra H. Cooperman IRA Rollover DTD 10/5/82, 7 Eagle Hill
Terrace, Redwood City, CA 94062--7.432%; Beatus Pension Trust U/A DTD 3/1/71
B.L. Beatus, MD Trustee, 55 Humphreys Center, Suite 300, Memphis, TN
38120--7.124%; Garage Attendants Health & Welfare Fund, Local Union #731, I.B.
of T., Attn: William Woldman, 1100 East 31st Street, P.O. Box 1407, Lagrange
Park, IL 60526-- 6.643%; Insulation & Refractories SVC Inc. P/S/T U/A DTD
3/1/79, J.G. Whitsett, J.W. Whitsett, Freddie Veteto, Mary Harri and Carl W.
Lovell Trustees, 462 Decatur, Memphis, TN 38105--6.506%; Keith M. Vaughn &
Katherine A. Zartma Trustees of the Laurel Fine Furniture Profit Sharing Plan
DTD 4/1/90, 40 El Camino Real, San Carlos, CA 94070--6.458%; and W.B. Davis
Electric Supply Co., P/S/T DTD 1/1/76, 527 N. Hollywood, Memphis, TN
38112--5.726%. The following owned 5% or more of the outstanding shares of Class
C on February 28, 1998: Barbara Fry Birt Trust DTD 10/1/92 Barbara Fry Birt
Trustee, 4343 N. Jarboe Court, Kansas City, MO 64116--8.691%; and Dean Witter
Reynolds Inc. Custodian for Douglas Mallory IRA Rollover DTD 12/31/91, 1051
Heather Hills Lane, Lexington, KY 40511--5.893%. The following owned 5% or more
of the outstanding shares of Class D on February 28, 1998: Dean Witter
InterCapital Inc., Attn: Maurice Bendrihem, 2 World Trade Center 73rd Floor, New
York, NY 10048-- 36.203%; Faye Lambdin, 108 Clyde Street, West Sayville, NY
11796--32.715%; Morgan Stanley Dean Witter Trust FSB Custodian for IRA Regular
Gary A. Medvigy, 2133 Schaeffer Road, Sebastopol, CA-- 21.492%; Dean Witter
Reynolds Inc. Custodian for Shirley L. Petersen, IRA Standard DTD 8/30/85, 7940
Yates, Brooklyn Park, MN 55443--9.534%.
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.
7
<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 with the 86 Morgan Stanley Dean Witter Funds and the 11 TCW/DW
Funds are shown below:
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- - ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Michael Bozic (57) ................................... Chairman and Chief Executive Officer of Levitz Furniture
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
Boca Raton, Florida (May, 1991-July, 1995); formerly variously Chairman, Chief
Executive Officer, President and Chief Operating Officer
(1987-1991) of the Sears Merchandise Group of Sears,
Roebuck and Co.; Director of Eaglemark Financial Services,
Inc, and Weirton Steel Corporation.
Charles A. Fiumefreddo* (65) ......................... Chairman, Director or Trustee, President and Chief
Chairman, President, Executive Officer of the Morgan Stanley Dean Witter Funds;
Chief Executive Officer and Trustee Chairman, Chief Executive Officer and Trustee of the
Two World Trade Center TCW/DW Funds; formerly Chairman, Chief Executive Officer
New York, New York and Director of 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
c/o Huntsman Corporation (R - Utah) (1974-1992) and Chairman, Senate Banking
500 Huntsman Way Committee (1980-1986); formerly, Mayor of Salt Lake City,
Salt Lake City, Utah Utah (1971-1974); Astronaut, Space Shuttle Discovery
(April 12-19, 1985); Vice Chairman, Huntsman Corporation;
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 (multi-level
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; formerly
New York, New York 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 Adviser
(1964-1978).
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS 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,
New York, New York 1993-December, 1994) and Chairman and Chief Executive
Officer of its wholly-owned subsidiary, Allstate Insurance
Company (July, 1989-December, 1994); director of various
other business and charitable organizations.
Dr. Manuel H. Johnson (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, DC 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
(1988-1990) and Assistant Secretary of the U.S. Treasury
(1982-1986).
Michael E. Nugent (62) ............................... General Partner, Triumph Capital, L.P., a private
Trustee investment partnership; Director or Trustee of the Morgan
c/o Triumph Capital, L.P. Stanley Dean Witter Funds; Trustee of the TCW/DW Funds;
237 Park Avenue formerly, Vice President, Bankers Trust Company and BT
New York, New York Capital 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 Advisors, MSDW Services and MSDW
New York, New York Distributors; Director or Trustee of the Morgan Stanley
Dean Witter Funds; Director and/or officer of various MSDW
subsidiaries.
John L. Schroeder (67) ............................... Retired; Director of Citizens Utilities Company; Director
Trustee or Trustee of the Morgan Stanley Dean Witter Funds;
c/o Gordon Altman Butowsky formerly, Executive Vice President and Chief Investment
Weitzen Shalov & Wein Officer of the Home Insurance Company (August,
Counsel to the Independent Trustees 1991-September, 1995).
114 West 47th Street
New York, New York
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- - ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Barry Fink (43) ...................................... Senior Vice President (since March, 1997) and Secretary
Vice President, Secretary and General Counsel (since February, 1997) of MSDW
and General Counsel Advisors and MSDW Services; Senior Vice President (since
Two World Trade Center March, 1997) and Assistant Secretary and Assistant General
New York, New York 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.
Edward F. Gaylor (57) ................................ Senior Vice President of MSDW Advisors; Vice President of
Vice President various Morgan Stanley Dean Witter Funds.
Two World Trade Center
New York, New York
Thomas F. Caloia (52) ................................ First Vice President and Assistant Treasurer of MSDW
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 and Chief Operating Officer of MSDW Advisors and
MSDW Services, Executive Vice President of MSDW Distributors and MSDW Trust and
Director of MSDW Trust, Robert S. Giambrone, Senior Vice President of MSDW
Advisors, MSDW Services, MSDW Distributors and MSDW Trust and Director of MSDW
Trust, Joseph J. McAlinden, Executive Vice President and Chief Investment
Officer of MSDW Advisors and Director of MSDW Trust, and Kenton J. Hinchliffe,
Ira N. Ross, Paul D. Vance and Kevin Hurley, Senior Vice Presidents of MSDW
Advisors and Paula LaCosta, Vice President of MSDW Advisors, are Vice Presidents
of the Fund, and Marilyn K. Cranney and Carsten Otto, First Vice Presidents and
Assistant General Counsels of MSDW Advisors and MSDW Services, Frank
Bruttomesso, LouAnne D. McInnis and Ruth Rossi, Vice Presidents and Assistant
General Counsels of MSDW Advisors and MSDW Services, and Todd Lebo, a staff
attorney with MSDW Advisors, are Assistant Secretaries of the Fund.
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 130 portfolios. As of May 31, 1998, the Morgan
Stanley Dean Witter Funds had total net assets of approximately $106 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
10
<PAGE>
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.
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; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; and reviewing the adequacy of the Fund's system of internal
controls.
Finally, the Board of each Fund has formed a Derivatives Committee to
approve parameters for and monitor the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT 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
11
<PAGE>
$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.
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended February 28, 1998.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- - -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,650
Edwin J. Garn................................................. 1,750
John R. Haire................................................. 3,700
Wayne E. Hedien............................................... 832
Dr. Manuel H. Johnson......................................... 1,700
Michael E. Nugent............................................. 1,750
John L. Schroeder............................................. 1,750
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent 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 TOTAL CASH
CHAIRMAN OF FOR SERVICE COMPENSATION
FOR SERVICE INDEPENDENT AS FOR
AS DIRECTOR OR DIRECTORS/TRUSTEES CHAIRMAN OF SERVICES TO
TRUSTEE AND AND AUDIT INDEPENDENT 84
COMMITTEE FOR SERVICE AS COMMITTEES OF TRUSTEES MORGAN
MEMBER OF 84 TRUSTEE AND 84 AND AUDIT STANLEY
MORGAN STANLEY COMMITTEE MORGAN STANLEY COMMITTEES OF DEAN WITTER
NAME OF DEAN WITTER MEMBER OF 14 DEAN WITTER 14 FUNDS AND 14
INDEPENDENT TRUSTEE FUNDS TCW/DW FUNDS FUNDS TCW/DW FUNDS TCW/DW FUNDS
- - --------------------------- ---------------- ---------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Michael Bozic.............. $133,602 -- -- -- $133,602
Edwin J. Garn.............. 149,702 -- -- -- 149,702
John R. Haire.............. 149,702 $73,725 $157,463 $ 25,350 406,240
Wayne E. Hedien............ 39,010 -- -- -- 39,010
Dr. Manuel H. Johnson...... 145,702 71,125 -- -- 216,827
Michael E. Nugent.......... 149,702 73,725 -- -- 223,427
John L. Schroeder.......... 149,702 73,725 -- -- 223,427
</TABLE>
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
12
<PAGE>
(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 29.41% of his or her Eligible Compensation plus
0.4901667% of such Eligible Compensation for each full month of service as an
Independent Director or Trustee of any Adopting Fund in excess of five years up
to a maximum of 58.82% after ten years of service. The foregoing percentages may
be changed by the Board.(1) "Eligible Compensation" is one-fifth of the total
compensation earned by such Eligible 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.
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
BENEFITS BENEFITS
ESTIMATED ACCRUED AS UPON
CREDITED 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>
- - ------------------------
(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.
(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.
13
<PAGE>
INVESTMENT PRACTICES AND POLICIES
- -------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. As discussed in the
Prospectus, the Fund may enter into forward foreign currency exchange contracts
("forward contracts") as a hedge against fluctuations in future foreign exchange
rates. The Fund will conduct its foreign currency exchange transactions either
on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or through entering into forward contracts to purchase or sell
foreign currencies. A forward contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large, commercial and
investment banks) and their customers. Such forward contracts will only be
entered into with United States banks and their foreign branches or foreign
banks whose assets total $1 billion or more. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
When management of the Fund believes that a foreign currency may suffer a
substantial movement against the U.S. dollar, it may enter into a forward
contract to purchase or sell, for a fixed amount of dollars or other currency,
the amount of foreign currency approximating the value of some or all of the
Fund's portfolio securities denominated in such foreign currency. The Fund will
not enter into such forward contracts or maintain a net exposure to such
contracts where the consummation of the contracts would obligate the Fund to
deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with regard to
overall diversification strategies. However, the management of the Fund believes
that it is important to have the flexibility to enter into such forward
contracts when it determines that the best interests of the Fund will be served.
The Fund's custodian bank will place cash, U.S. Government securities or other
appropriate liquid portfolio securities in a segregated account of the Fund in
an amount equal to the value of the Fund's total assets committed to the
consummation of forward contracts entered into under the circumstances set forth
above. If the value of the securities placed in the segregated account declines,
additional cash or securities will be placed in the account on a daily basis so
that the value of the account will equal the amount of the Fund's commitments
with respect to such contracts.
Where, for example, the Fund is hedging a portfolio position consisting of
foreign securities denominated in a foreign currency against adverse exchange
rate moves vis-a-vis the U.S. dollar, at the maturity of the forward contract
for delivery by the Fund of a foreign currency, the Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency (however, the ability of the Fund to terminate a contract is
contingent upon the willingness of the currency trader with whom the contract
has been entered into to permit an offsetting transaction). It is impossible to
forecast the market value of portfolio securities at the expiration of the
contract. Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security is less than the amount of foreign currency the
Fund is obligated to deliver and if a decision is made to sell the security and
make delivery of the foreign currency. Conversely, it may be necessary to sell
on the spot market some of the foreign currency received upon the sale of the
portfolio securities if its market value exceeds the amount of foreign currency
the Fund is obligated to deliver.
If the Fund retains the portfolio securities and engages in an offsetting
transaction, the Fund will incur a gain or loss to the extent that there has
been movement in spot or forward contract prices. If the Fund engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the foreign currency. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale of a foreign
currency and the date it enters into an offsetting contract for the
14
<PAGE>
purchase of the foreign currency, the Fund will realize a gain to the extent the
price of the currency it has agreed to sell exceeds the price of the currency it
has agreed to purchase. Should forward prices increase, the Fund will suffer a
loss to the extent the price of the currency it has agreed to purchase exceeds
the price of the currency it has agreed to sell.
If the Fund purchases a fixed-income security which is denominated in U.S.
dollars but which will pay out its principal based upon a formula tied to the
exchange rate between the U.S. dollar and a foreign currency, it may hedge
against a decline in the principal value of the security by entering into a
forward contract to sell an amount of the relevant foreign currency equal to
some or all of the principal value of the security.
At times when the Fund has written a call option on a security or the
currency in which it is denominated, it may wish to enter into a forward
contract to purchase or sell the foreign currency in which the security is
denominated. A forward contract would, for example, hedge the risk of the
security on which a call option has been written declining in value to a greater
extent than the value of the premium received for the option. The Fund will
maintain with its Custodian at all times, cash, U.S. Government securities, or
other appropriate liquid portfolio securities in a segregated account equal in
value to all forward contract obligations and option contract obligations
entered into in hedge situations such as this.
Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will, however, do so from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the spread
between the prices at which they are buying and selling various currencies. Thus
a dealer may offer to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer.
REPURCHASE AGREEMENTS. As discussed in the Prospectus, 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.
While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such risks. These procedures include effecting repurchase transactions only with
large, well-capitalized and well-established financial institutions whose
financial condition will be continually monitored by the Investment Manager
subject to procedures established by the 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
15
<PAGE>
other illiquid assets held by the Fund, amounts to more than 15% of its net
assets. The Fund's investments in repurchase agreements may at times be
substantial when, in the view of the Investment Manager, liquidity, tax or other
considerations warrant.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. As discussed in the
Prospectus, the Fund may also use reverse repurchase agreements and dollar rolls
as part of its investment strategy. Reverse repurchase agreements involve sales
by the Fund of portfolio assets concurrently with an agreement by the Fund to
repurchase the same assets at a later date at a fixed price. Generally, the
effect of such a transaction is that the Fund can recover all or most of the
cash invested in the portfolio securities involved during the term of the
reverse repurchase agreement, while it will be able to keep the interest income
associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Fund of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
The Fund may enter into dollar rolls in which the Fund sells securities for
delivery in the current months and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Fund forgoes principal and interest paid on
the securities. The Fund is compensated by the difference between the current
sales price and the lower forward price for the future purchase (often referred
to as the "drop") as well as by the interest earned on the cash proceeds of the
initial sale.
The Fund will establish a segregated account with its custodian bank in
which it will maintain cash, U.S. Government Securities or other liquid
portfolio securities equal in value to its obligations in respect of reverse
repurchase agreements and dollar rolls. Reverse repurchase agreements and dollar
rolls involve the risk that the market value of the securities the Fund is
obligated to repurchase under the agreement may decline below the repurchase
price. In the event the buyer of securities under a reverse repurchase agreement
or dollar roll files for bankruptcy or becomes insolvent, the Fund's use of
proceeds of the agreement may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the Fund's obligation to
repurchase the securities. Reverse repurchase agreements and dollar rolls are
speculative techniques involving leverage, and are considered borrowings by the
Fund.
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 cash equivalents, 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 four business days'
notice. If the borrower fails to deliver the loaned securities within four days
after receipt of notice, the Fund could use the collateral to replace the
securities while holding the borrower liable for any excess of replacement cost
over collateral. As with any extensions of credit, there are risks of delay in
recovery and in some cases even loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans of portfolio
securities will only be made to firms deemed by the Fund's management to be
creditworthy and when the income which can be earned from such loans justifies
the attendant risks. Upon termination of the loan, the borrower is required to
return the securities to the Fund. Any gain or loss in the market price 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 Investment Manager pursuant to procedures adopted and reviewed, on an
ongoing basis, by the Board of Trustees of the Fund.
16
<PAGE>
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. However, the
Fund has not to date and has no intention of lending any of its portfolio
securities during its fiscal year ending February 28, 1998.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. As
discussed in the Prospectus, from time to time the Fund may purchase securities
on a when-issued or delayed delivery basis or may purchase or sell securities on
a forward commitment basis. When such transactions are negotiated, the price is
fixed at the time of the commitment, but delivery and payment can take place a
month or more after the date of commitment. While the Fund will only purchase
securities on a when-issued, delayed delivery or forward commitment basis with
the intention of acquiring the securities, the Fund may sell the securities
before the settlement date, if it is deemed advisable. The securities so
purchased or sold are subject to market fluctuation and no interest or dividends
accrue to the purchaser prior to the settlement date. At the time the Fund makes
the commitment to purchase or sell securities on a when-issued, delayed delivery
or forward commitment basis, it will record the transaction and thereafter
reflect the value, each day, of such security purchased, or if a sale, the
proceeds to be received, in determining its net asset value. At the time of
delivery of the securities, the value may be more or less than the purchase or
sale price. The Fund will also establish a segregated account with its custodian
bank in which it will continually maintain cash or cash equivalents or other
liquid portfolio securities equal in value to commitments to purchase securities
on a when-issued, delayed delivery or forward commitment basis. Subject to the
foregoing restrictions, the Fund may purchase securities on such basis without
limit.
WHEN, AS AND IF ISSUED SECURITIES. As discussed in the Prospectus, 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 determines
that issuance of the security is probable. At such time, the Fund will record
the transaction and, in determining its net asset value, will reflect the value
of the security daily. At such time, the Fund will also establish a segregated
account with its custodian bank in which it will maintain cash or cash
equivalents or other liquid portfolio securities equal in value to recognized
commitments for such securities. 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 value of the Fund's
commitments to purchase the securities of any one issuer, together with the
value of all securities of such issuer owned by the Fund, may not exceed 5% of
the value of the Fund's total assets at the time the initial commitment to
purchase such securities is made (see "Investment Restrictions"). Subject to the
foregoing restrictions, 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.
PRIVATE PLACEMENTS. As discussed in the Prospectus, 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 of the
Securities Act, and determined to be liquid pursuant to the procedures discussed
in the following paragraph, are not subject to the foregoing restriction.)
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.
17
<PAGE>
The Securities and Exchange Commission ("SEC") has adopted Rule 144A under
the Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by the
Fund. The procedures require that the following factors be taken into account in
making a liquidity determination: (1) the frequency of trades and price quotes
for the security; (2) the number of dealers and other potential purchasers who
have issued quotes on the security; (3) any dealer undertakings to make a market
in the security; and (4) the nature of the security and the nature of the
marketplace trades (the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer). If a restricted security is
determined to be "liquid," such security will not be included within the
category "illiquid securities," which under the SEC'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 may not posses 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.
OPTIONS AND FUTURES TRANSACTIONS
As stated in the Prospectus, the Fund may write covered call options against
securities held in its portfolio and covered put options on eligible portfolio
securities and stock indexes and purchase options of the same series to effect
closing transactions, and may hedge against potential changes in the market
value of investments (or anticipated investments) and facilitate the
reallocation of the Fund's assets into and out of equities and fixed-income
securities by purchasing put and call options on portfolio (or eligible
portfolio) securities and engaging in transactions involving futures contracts
and options on such contracts. The Fund may also hedge against potential changes
in the market value of the currencies in which its investments (or anticipated
investments) are denominated by purchasing put and call options on currencies
and engage in transactions involving currency futures contracts and options on
such contracts.
Call and put options on U.S. Treasury notes, bonds and bills and equity
securities are listed on Exchanges and are written in over-the-counter
transactions ("OTC options"). Listed options are issued by the Options Clearing
Corporation ("OCC") and other clearing entities including foreign exchanges.
Ownership of a listed call option gives the Fund the right to buy from the OCC
the underlying security covered by the option at the stated exercise price (the
price per unit of the underlying security) by filing an exercise notice prior to
the expiration date of the option. The writer (seller) of the option would then
have the obligation to sell to the OCC the underlying security at that exercise
price prior to the expiration date of the option, regardless of its then current
market price. Ownership of a listed put option would give the Fund the right to
sell the underlying security to the OCC at the stated exercise price. Upon
notice of exercise of the put option, the writer of the put would have the
obligation to purchase the underlying security from the OCC at the exercise
price.
OPTIONS ON TREASURY BONDS AND NOTES. Because trading in options written on
Treasury bonds and notes tends to center on the most recently auctioned issues,
the exchanges on which such securities trade will not continue indefinitely to
introduce options with new expirations to replace expiring options on particular
issues. Instead, the expirations introduced at the commencement of options
trading on a particular issue will be allowed to run their course, with the
possible addition of a limited number of new expirations as the original ones
expire. Options trading on each issue of bonds or notes will thus be phased out
as new options are listed on more recent issues, and options representing a full
range of expirations will not ordinarily be available for every issue on which
options are traded.
18
<PAGE>
OPTIONS ON TREASURY BILLS. Because a deliverable Treasury bill changes from
week to week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Fund holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Fund will hold
the Treasury bills in a segregated account with its Custodian, so that they will
be treated as being covered.
OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write options on
foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts. For example, in order to protect
against declines in the dollar value of portfolio securities which are
denominated in a foreign currency, the Fund may purchase put options on an
amount of such foreign currency equivalent to the current value of the portfolio
securities involved. As a result, the Fund would be enabled to sell the foreign
currency for a fixed amount of U.S. dollars, thereby "locking in" the dollar
value of the portfolio securities (less the amount of the premiums paid for the
options). Conversely, the Fund may purchase call options on foreign currencies
in which securities it anticipates purchasing are denominated to secure a set
U.S. dollar price for such securities and protect against a decline in the value
of the U.S. dollar against such foreign currency. The Fund may also purchase
call and put options to close out written option positions.
The Fund may also write call options on foreign currency to protect against
potential declines in its portfolio securities which are denominated in foreign
currencies. If the U.S. dollar value of the portfolio securities falls as a
result of a decline in the exchange rate between the foreign currency in which a
security is denominated and the U.S. dollar, then a loss to the Fund occasioned
by such value decline would be ameliorated by receipt of the premium on the
option sold. At the same time, however, the Fund gives up the benefit of any
rise in value of the relevant portfolio securities above the exercise price of
the option and, in fact, only receives a benefit from the writing of the option
to the extent that the value of the portfolio securities falls below the price
of the premium received. The Fund may also write options to close out long call
option positions.
The markets in foreign currency options are relatively new and the Fund's
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Although the Fund will not purchase or
write such options unless and until, in the opinion of the management of the
Fund, the market for them has developed sufficiently to ensure that the risks in
connection with such options are not greater than the risks in connection with
the underlying currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific time. In addition,
options on foreign currencies are affected by all of those factors which
influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security,
including foreign securities held in a "hedged" investment portfolio. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
19
<PAGE>
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.
OTC OPTIONS. Exchange-listed options are issued by the OCC which assures
that all transactions in such options are properly executed. OTC options are
purchased from or sold (written) to dealers or financial institutions which have
entered into direct agreements with the Fund. With OTC options, such variables
as expiration date, exercise price and premium will be agreed upon between the
Fund and the transacting dealer, without the intermediation of a third party
such as the OCC. If the transacting dealer fails to make or take delivery of the
securities underlying an option it has written, in accordance with the terms of
that option, the Fund would lose the premium paid for the option as well as any
anticipated benefit of the transaction. The Fund will engage in OTC option
transactions only with primary U.S. Government securities dealers recognized by
the Federal Reserve Bank of New York.
COVERED CALL WRITING. The Fund is permitted to write covered call options
on portfolio securities and the U.S. dollar and foreign currencies, without
limit, in order to aid in achieving its investment objective. Generally, a call
option is "covered" if the Fund owns, or has the right to acquire, without
additional cash consideration (or for additional cash consideration held for the
Fund by its Custodian in a segregated account) the underlying security
(currency) subject to the option except that in the case of call options on U.S.
Treasury Bills, the Fund might own U.S. Treasury Bills of a different series
from those underlying the call option, but with a principal amount and value
corresponding to the exercise price and a maturity date no later than that of
the securities (currency) deliverable under the call option. A call option is
also covered if the Fund holds a call on the same security (currency) as the
underlying security (currency) of the written option, where the exercise price
of the call used for coverage is equal to or less than the exercise price of the
call written or greater than the exercise price of the call written if the mark
to market difference is maintained by the Fund in cash, U.S. Government
securities or other liquid portfolio securities which the Fund holds in a
segregated account maintained with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable the Fund to achieve a greater total return than would be
realized from holding the underlying securities (currency) alone. Moreover, the
income received from the premium will offset a portion of the potential loss
incurred by the Fund if the securities (currency) underlying the option are
ultimately sold (exchanged) by the Fund at a loss. The premium received will
fluctuate with varying economic market conditions. If the market value of the
portfolio securities (or the currencies in which they are denominated) upon
which call options have been written increases, the Fund may receive less total
return from the portion of its portfolio upon which calls have been written than
it would have had such calls not been written.
As regards listed options and certain OTC options, during the option period,
the Fund may be required, at any time, to deliver the underlying security
(currency) against payment of the exercise price on any calls it has written
(exercise of certain listed and OTC options may be limited to specific
expiration dates). This obligation is terminated upon the expiration of the
option period or at such earlier time when the writer effects a closing purchase
transaction. A closing purchase transaction is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Fund has been assigned an exercise notice, the Fund will be unable to effect a
closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call option to prevent an underlying security (currency) from
being called, to permit the sale of an underlying security (or the exchange of
the underlying currency) or to enable the Fund to write another call option on
the underlying security (currency) with either a different exercise price or
expiration date or both. Also, effecting a closing purchase transaction will
permit the cash or proceeds from the concurrent sale of any securities subject
to the option to be used for other investments by the Fund. The Fund may realize
a net gain or loss from a closing purchase transaction depending upon whether
the amount of the premium received on the call option is more or less than the
cost of effecting the closing purchase transaction. Any loss incurred in a
closing purchase transaction may be wholly or partially offset by unrealized
appreciation in the market value of the underlying security (currency).
Conversely, a gain resulting from a
20
<PAGE>
closing purchase transaction could be offset in whole or in part or exceeded by
a decline in the market value of the underlying security (currency).
If a call option expires unexercised, the Fund realizes a gain in the amount
of the premium on the option less the commission paid. Such a gain, however, may
be offset by depreciation in the market value of the underlying security
(currency) during the option period. If a call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security (currency)
equal to the difference between the purchase price of the underlying security
(currency) and the proceeds of the sale of the security (currency) plus the
premium received for on the option less the commission paid.
Options written by a Fund normally have expiration dates of from up to nine
months (equity securities) to eighteen months (fixed-income securities) from the
date written. The exercise price of a call option may be below, equal to or
above the current market value of the underlying security (currency) at the time
the option is written. See "Risks of Options and Futures Transactions," below.
COVERED PUT WRITING. As a writer of a covered put option, the Fund incurs
an obligation to buy the security underlying the option from the purchaser of
the put, at the option's exercise price at any time during the option period, at
the purchaser's election (certain listed and OTC put options written by the Fund
will be exercisable by the purchaser only on a specific date). A put is
"covered" if, at all times, the Fund maintains, in a segregated account
maintained on its behalf at the Fund's Custodian, cash, U.S. Government
securities or other liquid portfolio securities in an amount equal to at least
the exercise price of the option, at all times during the option period.
Similarly, a short put position could be covered by the Fund by its purchase of
a put option on the same security as the underlying security of the written
option, where the exercise price of the purchased option is equal to or more
than the exercise price of the put written or less than the exercise price of
the put written if the mark to market difference is maintained by the Fund in
cash, U.S. Government securities or other liquid portfolio securities which the
Fund holds in a segregated account maintained at its Custodian. In writing puts,
the Fund assumes the risk of loss should the market value of the underlying
security decline below the exercise price of the option (any loss being
decreased by the receipt of the premium on the option written). In the case of
listed options, during the option period, the Fund may be required, at any time,
to make payment of the exercise price against delivery of the underlying
security. The operation of and limitations on covered put options in other
respects are substantially identical to those of call options.
The Fund will write put options for two purposes: (1) to receive the income
derived from the premiums paid by purchasers; and (2) when the Investment
Manager wishes to purchase the security underlying the option at a price lower
than its current market price, in which case it will write the covered put at an
exercise price reflecting the lower purchase price sought. The potential gain on
a covered put option is limited to the premium received on the option (less the
commissions paid on the transaction) while the potential loss equals the
difference between the exercise price of the option and the current market price
of the underlying securities when the put is exercised, offset by the premium
received (less the commissions paid on the transaction).
The Fund may also purchase put options to close out written put positions in
a manner similar to call options closing purchase transactions. In addition, the
Fund may sell a put option which it has previously purchased prior to the sale
of the securities (currency) underlying such option. Such a sale would result in
a net gain or loss depending on whether the amount received on the sale is more
or less than the premium and other transaction costs paid on the put option
sold. Any such gain or loss could be offset in whole or in part by a change in
the market value of the underlying security (currency). If a put option
purchased by the Fund expired without being sold or exercised the premium would
be lost.
PURCHASING CALL AND PUT OPTIONS. As stated in the Prospectus, the Fund may
purchase listed and OTC call and put options in amounts equalling up to 5% of
its total assets. The Fund may purchase call options in order to close out a
covered call position (see "Covered Call Writing" above) to protect against an
increase in price of a security it anticipates purchasing or, in the case of a
call option on foreign currency to hedge against an adverse exchange rate move
of the currency in which the security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated.
21
<PAGE>
The purchase of the call option to effect a closing transaction on a call
written over-the-counter may be a listed or an OTC option. In either case, the
call purchased is likely to be on the same securities (currencies) and have the
same terms as the written option. If purchased over-the-counter, the option
would generally be acquired from the dealer or financial institution which
purchased the call written by the Fund.
The Fund may purchase put options on securities and currencies (or related
currencies) which it holds (or has the right to acquire) in its portfolio only
to protect itself against a decline in the value of the security (currency). If
the value of the underlying security (currency) were to fall below the exercise
price of the put purchased in an amount greater than the premium paid for the
option, the Fund would incur no additional loss. The Fund may also purchase put
options to close out written put positions in a manner similar to call options
closing purchase transactions. In addition, the Fund may sell a put option which
it has previously purchased prior to the sale of the securities (currencies)
underlying such option. Such a sale would result in a net gain or loss depending
on whether the amount received on the sale is more or less than the premium and
other transaction costs paid on the put option which is sold. Any such gain or
loss could be offset in whole or in part by a change in the market value of the
underlying security (currency). If a put option purchased by the Fund expired
without being sold or exercised, the premium would be lost.
RISKS OF OPTIONS TRANSACTIONS. The successful use of options depends on the
ability of the Investment Manager to forecast correctly interest rates and
market movements. If the market value of the portfolio securities (or the
currencies in which they are denominated) upon which call options have been
written increases, the Fund may receive a lower total return from the portion of
its portfolio upon which calls have been written than it would have had such
calls not been written. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity for capital
appreciation above the exercise price should the market price of the underlying
security (or the currency in which it is denominated) increase, but has retained
the risk of loss should the price of the underlying security (currency) decline.
The covered put writer also retains the risk of loss should the market value of
the underlying security (currency) decline below the exercise price of the
option less the premium received on the sale of the option. In both cases, the
writer has no control over the time when it may be required to fulfill its
obligation as a writer of the option. Once an option writer has received an
exercise notice, it cannot effect a closing purchase transaction in order to
terminate its obligation under the option and must deliver or receive the
underlying securities (currency) at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to purchase
an offsetting over-the-counter option, it cannot sell the underlying security
until the option expires or the option is exercised. Accordingly, a covered call
option writer may not be able to sell (exchange) an underlying security
(currency) at a time when it might otherwise be advantageous to do so. A covered
put option writer who is unable to effect a closing purchase transaction or to
purchase an offsetting over-the-counter option would continue to bear the risk
of decline in the market price of the underlying security (currency) until the
option expires or is exercised. In addition, a covered put writer would be
unable to utilize the amount held in cash or U.S. Government or other liquid
portfolio securities as security for the put option for other investment
purposes until the exercise or expiration of the option.
The Fund's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on option Exchanges.
There is no assurance that such a market will exist, particularly in the case of
OTC options, as such options will generally only be closed out by entering into
a closing purchase transaction with the purchasing dealer. However, the Fund may
be able to purchase an offsetting option which does not close out its position
as a writer but constitutes an asset of equal value to the obligation under the
option written. If the Fund is not able to either enter into a closing purchase
transaction or purchase an offsetting position, it will be required to maintain
the securities subject to the call, or the collateral underlying the put, even
though it might not be advantageous to do so, until a closing transaction can be
entered into (or the option is exercised or expires).
22
<PAGE>
Among the possible reasons for the absence of a liquid secondary market on
an Exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an Exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an Exchange; (v) inadequacy of the facilities of an Exchange or
the Options Clearing Corporation ("OCC") to handle current trading volume; or
(vi) a decision by one or more Exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that Exchange (or in that class or series of options) would cease to
exist, although outstanding options on that Exchange that had been issued by the
OCC as a result of trades on that Exchange would generally continue to be
exercisable in accordance with their terms.
Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, the Fund would continue to
be required to make daily cash payments of variation margin on open futures
positions. In such situations, if the Fund has insufficient cash, it may have to
sell portfolio securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do so. In addition, the Fund may be required
to take or make delivery of the instruments underlying interest rate futures
contracts it holds at a time when it is disadvantageous to do so. The inability
to close out options and futures positions could also have an adverse impact on
the Fund's ability to effectively hedge its portfolio.
In the event of the bankruptcy of a broker through which the Fund engages in
transactions in options, futures or options thereon, the Fund could experience
delays and/or losses in liquidating open positions purchased or sold through the
broker and/or incur a loss of all or part of its margin deposits with the
broker. Similarly, in the event of the bankruptcy of the writer of an OTC option
purchased by the Fund, the Fund could experience a loss of all or part of the
value of the option. Transactions are entered into by the Fund only with brokers
or financial institutions deemed creditworthy by the Investment Manager.
Each of the Exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different Exchanges or are held or written on
one or more accounts or through one or more brokers). An Exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose other sanctions or restrictions. These position limits may restrict the
number of listed options which the Fund may write.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk which may arise in employing futures contracts to protect against
the price volatility of portfolio securities is that the prices of securities
and indexes subject to futures contracts (and thereby the futures contract
prices) may correlate imperfectly with the behavior of the cash prices of the
Fund's portfolio securities. Another such risk is that prices of interest rate
futures contracts may not move in tandem with the changes in prevailing interest
rates against which the Fund seeks a hedge. A correlation may also be distorted
by the fact that the futures market is dominated by short-term traders seeking
to profit from the difference between a contract or security price objective and
their cost of borrowed funds. Such distortions are generally minor and would
diminish as the contract approached maturity.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.
23
<PAGE>
STOCK INDEX OPTIONS. Options on stock indexes are similar to options on
stock except that, rather than the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the stock index upon which the option is based is greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the option. This
amount of cash is equal to such difference between the closing price of the
index and the exercise price of the option expressed in dollars times a
specified multiple (the "multiplier"). The multiplier for an index option
performs a function similar to the unit of trading for a stock option. It
determines the total dollar value per contract of each point in the difference
between the exercise price of an option and the current level of the underlying
index. A multiplier of 100 means that a one-point difference will yield $100.
Options on different indexes may have different multipliers. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. Unlike stock options, all settlements are in cash and a gain or
loss depends on price movements in the stock market generally (or in a
particular segment of the market) rather than the price movements in individual
stocks. Currently, options are traded on the S&P 100 Index and the S&P 500 Index
on the Chicago Board Options Exchange, the Major Market Index and the Computer
Technology Index, Oil Index and Institutional Index on the American Stock
Exchange and the NYSE Index and NYSE Beta Index on the New York Stock Exchange,
The Financial News Composite Index on the Pacific Stock Exchange and the Value
Line Index, National O-T-C Index and Utilities Index on the Philadelphia Stock
Exchange, each of which and any similar index on which options are traded in the
future which include stocks that are not limited to any particular industry or
segment of the market is referred to as a "broadly based stock market index."
Options on stock indexes provide the Fund with a means of protecting the Fund
against the risk of market wide price movements. If the Investment Manager
anticipates a market decline, the Fund could purchase a stock index put option.
If the expected market decline materialized, the resulting decrease in the value
of the Fund's portfolio would be offset to the extent of the increase in the
value of the put option. If the Investment Manager anticipates a market rise,
the Fund may purchase a stock index call option to enable the Fund to
participate in such rise until completion of anticipated common stock purchases
by the Fund. Purchases and sales of stock index options also enable the
Investment Manager to more speedily achieve changes in the Fund's equity
positions.
The Fund will write put options on stock indexes only if such positions are
covered by cash, U.S. Government securities or other liquid portfolio securities
equal to the aggregate exercise price of the puts, which cover is held for the
Fund in a segregated account maintained for it by the Fund's Custodian. All call
options on stock indexes written by the Fund will be covered either by a
portfolio of stocks substantially replicating the movement of the index
underlying the call option or by holding a separate call option on the same
stock index with a strike price no higher than the strike price of the call
option sold by the Fund.
RISKS OF OPTIONS ON INDEXES. Because exercises of stock index options are
settled in cash, call writers such as the Fund cannot provide in advance for
their potential settlement obligations by acquiring and holding the underlying
securities. A call writer can offset some of the risk of its writing position by
holding a diversified portfolio of stocks similar to those on which the
underlying index is based. However, most investors cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same stocks as the
underlying index, and, as a result, bear a risk that the value of the securities
held will vary from the value of the index. Even if an index call writer could
assemble a stock portfolio that exactly reproduced the composition of the
underlying index, the writer still would not be fully covered from a risk
standpoint because of the "timing risk" inherent in writing index options. When
an index option is exercised, the amount of cash that the holder is entitled to
receive is determined by the difference between the exercise price and the
closing index level on the date when the option is exercised. As with other
kinds of options, the writer will not learn that it has been assigned until the
next business day, at the earliest. The time lag between exercise and notice of
assignment poses no risk for the writer of a covered call on a specific
underlying security, such as a common stock, because there the writer's
obligation is to deliver the underlying security, not to pay its value as of a
fixed time in the past. So long as the writer already owns the underlying
security, it can satisfy its settlement obligations by simply delivering it, and
the risk that its value may have declined since the exercise date is borne by
the exercising holder. In
24
<PAGE>
contrast, even if the writer of an index call holds stocks that exactly match
the composition of the underlying index, it will not be able to satisfy its
assignment obligations by delivering those stocks against payment of the
exercise price. Instead, it will be required to pay cash in an amount based on
the closing index value on the exercise date; and by the time it learns that it
has been assigned, the index may have declined, with a corresponding decrease in
the value of its stock portfolio. This "timing risk" is an inherent limitation
on the ability of index call writers to cover their risk exposure by holding
stock positions.
A holder of an index option who exercises it before the closing index value
for that day is available runs the risk that the level of the underlying index
may subsequently change. If such a change causes the exercised option to fall
out-of-the-money, the exercising holder will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
If dissemination of the current level of an underlying index is interrupted,
or if trading is interrupted in stocks accounting for a substantial portion of
the value of an index, the trading of options on that index will ordinarily be
halted. If the trading of options on an underlying index is halted, an exchange
may impose restrictions prohibiting the exercise of such options.
FUTURES CONTRACTS. The Fund may purchase and sell interest rate and stock
index futures contracts ("futures contracts") that are traded on U.S. and
foreign commodity exchanges on such underlying securities as U.S. Treasury
bonds, notes and bills ("interest rate" futures), on the U.S. dollar and foreign
currencies, and such indexes as the S&P 500 Index, the Moody's Investment-Grade
Corporate Bond Index and the New York Stock Exchange Composite Index ("index"
futures).
As a futures contract purchaser, the Fund incurs an obligation to take
delivery of a specified amount of the obligation underlying the contract at a
specified time in the future for a specified price. As a seller of a futures
contract, the Fund incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon price.
The Fund will purchase or sell interest rate futures contracts and bond
index futures contracts for the purpose of hedging its fixed-income portfolio
(or anticipated portfolio) securities against changes in prevailing interest
rates. If the Investment Manager anticipates that interest rates may rise and,
concomitantly, the price of fixed-income securities fall, the Fund may sell an
interest rate futures contract or a bond index futures contract. If declining
interest rates are anticipated, the Fund may purchase an interest rate futures
contract to protect against a potential increase in the price of U.S. Government
securities the Fund intends to purchase. Subsequently, appropriate fixed-income
securities may be purchased by the Fund in an orderly fashion; as securities are
purchased, corresponding futures positions would be terminated by offsetting
sales of contracts.
The Fund will purchase or sell futures contracts on the U.S. dollar and on
foreign currencies to hedge against an anticipated rise or decline in the value
of the U.S. dollar or foreign currency in which a portfolio security of the Fund
is denominated vis-a-vis another currency.
The Fund will purchase or sell stock index futures contracts for the purpose
of hedging its equity portfolio (or anticipated portfolio) securities against
changes in their prices. If the Investment Manager anticipates that the prices
of stock held by the Fund may fall, the Fund may sell a stock index futures
contract. Conversely, if the Investment Manager wishes to hedge against
anticipated price rises in those stocks which the Fund intends to purchase, the
Fund may purchase stock index futures contracts. In addition, interest rate and
stock index futures contracts will be bought or sold in order to close out a
short or long position in a corresponding futures contract.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Index futures
contracts provide for the delivery of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the open or
close of the last trading day of the contract and the futures contract price. A
futures contract sale is closed out by effecting a futures
25
<PAGE>
contract purchase for the same aggregate amount of the specific type of equity
security and the same delivery date. If the sale price exceeds the offsetting
purchase price, the seller would be paid the difference and would realize a
gain. If the offsetting purchase price exceeds the sale price, the seller would
pay the difference and would realize a loss. Similarly, a futures contract
purchase is closed out by effecting a futures contract sale for the same
aggregate amount of the specific type of equity security and the same delivery
date. If the offsetting sale price exceeds the purchase price, the purchaser
would realize a gain, whereas if the purchase price exceeds the offsetting sale
price, the purchaser would realize a loss. There is no assurance that the Fund
will be able to enter into a closing transaction.
INTEREST RATE FUTURES CONTRACTS. When the Fund enters into an interest rate
futures contract, it is initially required to deposit with the Fund's Custodian,
in a segregated account in the name of the broker performing the transaction, an
"initial margin" of cash or U.S. Government securities or other liquid portfolio
securities equal to approximately 2% of the contract amount. Initial margin
requirements are established by the Exchanges on which futures contracts trade
and may, from time to time, change. In addition, brokers may establish margin
deposit requirements in excess of those required by the Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is, rather, a good faith deposit on the futures
contract which will be returned to the Fund upon the proper termination of the
futures contract. The margin deposits made are marked to market daily and the
Fund may be required to make subsequent deposits called "variation margin," with
the Fund's Custodian, in the account in the name of the broker, which are
reflective of price fluctuations in the futures contract. Currently, interest
rates futures contracts can be purchased on debt securities such as U.S.
Treasury Bills and Bonds, U.S. Treasury Notes with maturities between 6 1/2 and
10 years, GNMA Certificates and Bank Certificates of Deposit.
CURRENCY FUTURES. Generally, foreign currency futures provide for the
delivery of a specified amount of a given currency, on the exercise date, for a
set exercise price denominated in U.S. dollars or other currency. Foreign
currency futures contracts would be entered into for the same reason and under
the same circumstances as forward foreign currency exchange contracts. The
Investment Manager will assess such factors as cost spreads, liquidity and
transaction costs in determining whether to utilize futures contracts or forward
contracts in its foreign currency transactions and hedging strategy. Currently,
currency futures exist for, among other foreign currencies, the Japanese yen,
German mark, Canadian dollar, British pound, Swiss franc and European currency
unit.
Purchasers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the buying and selling of futures generally. In
addition, there are risks associated with foreign currency futures contracts and
their use as a hedging device similar to those associated with options of
foreign currencies described above. Further, settlement of a foreign currency
futures contract must occur within the country issuing the underlying currency.
Thus, the Fund must accept or make delivery of the underlying currency in
accordance with any U.S. or foreign restrictions or regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and may be
required to pay any fees, taxes or charges associated with such delivery which
are assessed in the issuing country.
Options on foreign currency futures contracts may involve certain additional
risks. Trading options on foreign currency futures contracts is relatively new.
The ability to establish and close out positions on such options is subject to
the maintenance of a liquid secondary market. To reduce this risk, the Fund will
not purchase or write options on foreign currency futures contracts unless and
until, in the Investment Manager's opinion, the market for such options has
developed sufficiently that the risks in connection with such options are not
greater than the risks in connection with transactions in the underlying foreign
currency.
INDEX FUTURES CONTRACTS. The Fund may invest in index futures contracts. An
index futures contract sale creates an obligation by the Fund, as seller, to
deliver cash at a specified future time. An index futures contract purchase
would create an obligation by the Fund, as purchaser, to take delivery of cash
26
<PAGE>
at a specified future time. Futures contracts on indexes do not require the
physical delivery of securities, but provide for a final cash settlement on the
expiration date which reflects accumulated profits and losses credited or
debited to each party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirement is approximately 5% of the contract amount for index futures.
In addition, due to current industry practice, daily variations in gains and
losses on open contracts are required to be reflected in cash in the form of
variation margin payments. The Fund may be required to make additional margin
payments during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may elect
to close the position by taking an opposite position which will operate to
terminate the Fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or a gain.
Currently, index futures contracts can be purchased or sold with respect to,
among others, the Standard & Poor's 500 Stock Price Index and the Standard &
Poor's 100 Stock Price Index on the Chicago Mercantile Exchange, the New York
Stock Exchange Composite Index on the New York Futures Exchange, the Major
Market Index on the American Stock Exchange, the Moody's Investment-Grade
Corporate Bond Index on the Chicago Board of Trade and the Value Line Stock
Index on the Kansas City Board of Trade.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts and enter into closing transactions with respect to
such options to terminate an existing position. An option on a futures contract
gives the purchaser the right (in return for the premium paid), and the writer
the obligation, to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put) at a specified
exercise price at any time during the term of the option. Upon exercise of the
option, the delivery of the futures position by the writer of the option to the
holder of the option is accompanied by delivery of the accumulated balance in
the writer's futures margin account, which represents the amount by which the
market price of the futures contract at the time of exercise exceeds, in the
case of a call, or is less than, in the case of a put, the exercise price of the
option on the futures contract.
The Fund will purchase and write options on futures contracts for identical
purposes to those set forth above for the purchase of a futures contract
(purchase of a call option or sale of a put option) and the sale of a futures
contract (purchase of a put option or sale of a call option), or to close out a
long or short position in futures contracts. If, for example, the Investment
Manager wished to protect against an increase in interest rates and the
resulting negative impact on the value of a portion of its fixed-income
portfolio, it might write a call option on an interest rate futures contract,
the underlying security of which correlates with the portion of the portfolio
the Investment Manager seeks to hedge. Any premiums received in the writing of
options on futures contracts may, of course, augment the total return of the
Fund and thereby provide a further hedge against losses resulting from price
declines in portions of the Fund's portfolio.
The writer of an option on a futures contract is required to deposit initial
and variation margin pursuant to requirements similar to those applicable to
futures contracts. Premiums received from the writing of an option on a futures
contract are included in initial margin deposits.
LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may not
enter into futures contracts or purchase related options thereon if, immediately
thereafter, the amount committed to margin plus the amount paid for premiums for
unexpired options on futures contracts exceeds 5% of the value of the Fund's
total assets, after taking into account unrealized gains and unrealized losses
on such contracts it has entered into, provided, however, that in the case of an
option that is in-the-money (the exercise price of the call (put) option is less
(more) than the market price of the underlying security) at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%.
However, there is no
27
<PAGE>
overall limitation on the percentage of the Fund's assets which may be subject
to a hedge position. In addition, in accordance with the regulations of the
Commodity Futures Trading Commission ("CFTC") under which the Fund is exempted
from registration as a commodity pool operator, the Fund may only enter into
futures contracts and options on futures contracts transactions in accordance
with the limitation described above. If the CFTC changes its regulations so that
the Fund would be permitted more latitude to write options on futures contracts
for purposes other than hedging the Fund's investments without CFTC
registration, the Fund may engage in such transactions for those purposes.
Except as described above, there are no other limitations on the use of futures
and options thereon by the Fund.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. The
successful use of futures and related options depends on the ability of the
Investment Manager to accurately predict market, interest rate and currency
movements. As stated in the Prospectus, the Fund may sell a futures contract to
protect against the decline in the value of securities or the currency in which
they are denominated held by the Fund. However, it is possible that the futures
market may advance and the value of securities or the currency in which they are
denominated held in the portfolio of the Fund may decline. If this occurred, the
Fund would lose money on the futures contract and also experience a decline in
value of its portfolio securities. However, while this could occur for a very
brief period or to a very small degree, over time the value of a diversified
portfolio will tend to move in the same direction as the futures contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy (or the currency in which they are
denominated), and the value of such securities decreases, then the Fund may
determine not to invest in the securities as planned and will realize a loss on
the futures contract that is not offset by a reduction in the price of the
securities.
In addition, if the Fund holds a long position in a futures contract or has
sold a put option on a futures contract, it will hold cash, U.S. Government
securities or other liquid portfolio securities equal to the purchase price of
the contract or the exercise price of the put option (less the amount of initial
or variation margin on deposit) in a segregated account maintained for the Fund
by its Custodian. Alternatively, the Fund could cover its long position by
purchasing a put option on the same futures contract with an exercise price as
high or higher than the price of the contract held by the Fund.
If the Fund maintains a short position in a futures contract or has sold a
call option on a futures contract, it will cover this position by holding, in a
segregated account maintained at its Custodian, cash, U.S. Government securities
or other liquid portfolio securities equal in value (when added to any initial
or variation margin on deposit) to the market value of the securities underlying
the futures contract or the exercise price of the option. Such a position may
also be covered by owning the securities underlying the futures contract (in the
case of a stock index futures contract a portfolio of securities substantially
replicating the relevant index), or by holding a call option permitting the Fund
to purchase the same contract at a price no higher than the price at which the
short position was established.
Exchanges may limit the amount by which the price of futures contracts may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, the Fund would
be required to make daily cash payments of variation margin on open futures
positions. In such situations, if the Fund has insufficient cash, it may have to
sell portfolio securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do so. In addition, the Fund may be required
to take delivery of the instruments underlying interest rate futures contracts
it holds at a time when it is disadvantageous to do so. The inability to close
out options and futures positions could also have an adverse impact on the
Fund's ability to effectively hedge its portfolio.
Futures contracts and options thereon which are purchased or sold on foreign
commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges. Brokerage commissions,
clearing costs and other transaction costs may be higher on foreign exchanges.
Greater margin requirements may limit the Fund's ability to enter into certain
commodity
28
<PAGE>
transactions on foreign exchanges. Moreover, differences in clearance and
delivery requirements on foreign exchanges may occasion delays in the settlement
of the Fund's transactions effected on foreign exchanges.
The extent to which the Fund may enter into transactions involving options
and futures contracts may be limited by the Internal Revenue Code's requirements
for qualification as a regulated investment company and the Fund's intention to
qualify as such. See "Dividends, Distributions and Taxes" in the Prospectus and
the Statement of Additional Information.
While the futures contracts and options transactions to be engaged in by the
Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk which may arise in employing futures contracts to protect against
the price volatility of portfolio securities (and the currencies in which they
are denominated) is that the prices of securities and indexes subject to futures
contracts (and thereby the futures contract prices) may correlate imperfectly
with the behavior of the cash prices of the Fund's portfolio securities (and the
currencies in which they are denominated). Another such risk is that prices of
interest rate futures contracts may not move in tandem with the changes in
prevailing interest rates against which the Fund seeks a hedge. A correlation
may also be distorted (a) temporarily, by short-term traders seeking to profit
from the difference between a contract or security price objective and their
cost of borrowed funds; (b) by investors in futures contracts electing to close
out their contracts through offsetting transactions rather than meet margin
deposit requirements; (c) by investors in futures contracts opting to make or
take delivery of underlying securities rather than engage in closing
transactions, thereby reducing liquidity of the futures market; and (d)
temporarily, by speculators who view the deposit requirements in the futures
markets as less onerous than margin requirements in the cash market. Due to the
possibility of price distortion in the futures market and because of the
imperfect correlation between movements in the prices of securities and
movements in the prices of futures contracts, a correct forecast of interest
rate trends may still not result in a successful hedging transaction.
There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Fund and the movements in the prices of the
securities which are the subject of the hedge. If participants in the futures
market elect to close out their contracts through offsetting transactions rather
than meet margin deposit requirements, distortions in the normal relationship
between the debt securities and futures markets could result. Price distortions
could also result if investors in futures contracts opt to make or take delivery
of underlying securities rather than engage in closing transactions due to the
resultant reduction in the liquidity of the futures market. In addition, due to
the fact that, from the point of view of speculators, the deposit requirements
in the futures markets are less onerous than margin requirements in the cash
market, increased participation by speculators in the futures market could cause
temporary price distortions. Due to the possibility of price distortions in the
futures market and because of the imperfect correlation between movements in the
prices of securities and movements in the prices of futures contracts, a correct
forecast of interest rate trends by the Investment Manager may still not result
in a successful hedging transaction.
As stated in the Prospectus, there is no assurance that a liquid secondary
market will exist for futures contracts and related options in which the Fund
may invest. In the event a liquid market does not exist, it may not be possible
to close out a futures position, and in the event of adverse price movements,
the Fund would continue to be required to make daily cash payments of variation
margin. In addition, limitations imposed by an exchange or board of trade on
which futures contracts are traded may compel or prevent the Fund from closing
out a contract which may result in reduced gain or increased loss to the Fund.
The absence of a liquid market in futures contracts might cause the Fund to make
or take delivery of the underlying securities at a time when it may be
disadvantageous to do so.
Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to the Fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to the Fund
notwithstanding that the
29
<PAGE>
purchase or sale of a futures contract would not result in a loss, as in the
instance where there is no movement in the prices of the futures contract or
underlying securities.
The Investment Manager has substantial experience in the use of the
investment techniques described above under the heading "Options and Futures
Transactions," which techniques require skills different from those needed to
select the portfolio securities underlying various options and futures
contracts.
NEW INSTRUMENTS. New futures contracts, options and other financial
products and various combinations thereof continue to be developed. The Fund may
invest in any such futures, options or products as may be developed, to the
extent consistent with its investment objective and applicable regulatory
requirements.
PORTFOLIO TURNOVER
It is anticipated that the Fund's portfolio turnover rate will not exceed
100%. 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.
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:
1. Purchase or sell real estate or interests therein, although the Fund
may purchase securities of issuers which engage in real estate operations
and securities secured by real estate or interests therein.
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. 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).
4. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(3). For the purpose of this restriction, collateral arrangements with
respect to the writing of options and collateral arrangements with respect
to initial or variation margin for futures are not deemed to be pledges of
assets.
5. 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 or reverse repurchase agreement; (b) purchasing
any securities on a when-issued or delayed delivery basis; (c) purchasing or
selling futures contracts, forward foreign exchange contracts or options;
(d) borrowing money in accordance with restrictions described above; or (e)
lending portfolio securities.
6. Make loans of money or securities, except: (a) by the purchase of
publicly distributed debt obligations in which the Fund may invest
consistent with its investment objective and policies; (b) by investment in
repurchase agreements; or (c) by lending its portfolio securities.
30
<PAGE>
7. Make short sales of securities.
8. 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 or related options thereon is not considered the purchase
of a security on margin.
9. 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.
10. Invest for the purpose of exercising control or management of any
other issuer.
11. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets or in accordance with the provisions of Section 12(d) of the Act and
any Rules promulgated thereunder.
12. Purchase or sell commodities or commodities contracts except that
the Fund may purchase or sell futures contracts or options on futures.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objectives by investing all or substantially all
of its assets in another investment company having substantially the same
investment objectives and policies as the Fund.
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
is responsible for decisions to buy and sell securities for the Fund, the
selection of brokers and dealers to effect the transactions, and the negotiation
of brokerage commissions, if any. Purchases and sales of securities on a stock
exchange are effected through brokers who charge a commission for their
services. In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. The Fund expects that securities will be purchased at times in
underwritten offerings where the price includes a fixed amount of compensation,
generally referred to as the underwriter's concession or discount. Options and
futures transactions will usually be effected through a broker and a commission
will be charged. On occasion, the Fund may also purchase certain money market
instruments directly from an issuer, in which case no commissions or discounts
are paid. During the fiscal years ended February 29, 1996, February 28, 1997 and
1998, the Fund paid $497,963, $242,887 and $387,058, respectively, in brokerage
commissions.
The Investment Manager currently serves as investment manager to a number of
clients, including other investment companies, and may in the future act as
investment manager or adviser to others. It is the practice of the Investment
Manager to cause purchase and sale transactions to be allocated among the Fund
and others whose assets it manages in such manner as it deems equitable. In
making such allocations among the Fund and other client accounts, various
factors may be considered, including the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and the opinions of the persons responsible for managing the
portfolios of the Fund and other client accounts. In the case of certain initial
and secondary public offerings, the Investment Manager utilizes a pro rata
allocation process based on the size of the Morgan Stanley Dean Witter Funds
involved and the number of shares available from the public offering.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of
transac-
31
<PAGE>
tions. Consistent with this policy, when securities transactions are effected on
a stock exchange, the Fund's policy is to pay commissions which are considered
fair and reasonable without necessarily determining that the lowest possible
commissions are paid in all circumstances. The Fund believes that a requirement
always to seek the lowest possible commission cost could impede effective
portfolio management and preclude the Fund and the Investment Manager from
obtaining a high quality of brokerage and research services. In seeking to
determine the reasonableness of brokerage commissions paid in any transaction,
the Investment Manager relies upon its experience and knowledge regarding
commissions generally charged by various brokers and on its judgment in
evaluating the brokerage and research services received from the broker
effecting the transaction. Such determinations are necessarily subjective and
imprecise, and in most cases an exact dollar value for those services is not
ascertainable.
The Fund anticipates that certain of its transactions involving foreign
securities will be effected on foreign securities exchanges. Fixed commissions
on such transactions are generally higher than negotiated commissions on
domestic transactions. There is also generally less government supervision and
regulation of foreign securities exchanges and brokers than in the United
States.
In seeking to implement the Fund's policies, the Investment Manager effects
transactions with those brokers and dealers who the Investment Manager believes
provide the most favorable prices and are capable of providing efficient
executions. If the Investment Manager believes such prices and executions are
obtainable from more than one broker or dealer, it may give consideration to
placing portfolio transactions with those brokers and dealers who also furnish
research and other services to the Fund or the Investment Manager. Such services
may include, but are not limited to, any one or more of the following:
information as to the availability of securities for purchase or sale;
statistical or factual information or opinions pertaining to investment; wire
services; and appraisals or evaluations of portfolio securities.
The information and services received by the Investment Manager from brokers
and dealers may be of benefit to the Investment Manager in the management of
accounts of some of its other clients and may not in all cases benefit the Fund
directly. While the receipt of such information and services is useful in
varying degrees and would generally reduce the amount of research or services
otherwise performed by the Investment Manager and thereby reduce its expenses,
it is of indeterminable value and the management 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 February 28, 1998, the Fund paid in
brokerage commissions in connection with transactions in the aggregate amount of
$314,380 to brokers because of research services provided.
Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR. The
Fund will limit its transactions with DWR to U.S. Government and Government
Agency Securities, Bank Money Instruments (i.e., Certificates of Deposit and
Bankers' Acceptances) and Commercial Paper. Such transactions will be effected
with DWR only when the price available from DWR is better than that available
from other dealers.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may be
effected through DWR, Morgan Stanley & Co. Incorporated ("MS & Co.") or other
affiliated brokers and dealers. In order for an affiliated broker or dealer to
effect any portfolio transactions for the Fund, the commissions, fees or other
remuneration received by the affiliated broker or dealer must be reasonable and
fair compared to the commissions, fees or other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on an exchange during a comparable period of time. This
standard would allow the affiliated broker or dealer to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker in
a commensurate arm's-length transaction. Furthermore, the 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
32
<PAGE>
designed to provide that any commissions, fees or other remuneration paid to the
affiliated broker or dealer are consistent with the foregoing standard. The Fund
does not reduce the management fee it pays to the Investment Manager by any
amount of the brokerage commissions it may pay to an affiliated broker or
dealer. During the fiscal years ended February 29, 1996, February 28, 1997 and
1998, the Fund paid a total of $28,405, $6,236 and $7,195, respectively, in
brokerage commissions to DWR. During the fiscal year ended February 28, 1998,
the brokerage commissions paid to DWR represented approximately 1.86% of the
total brokerage commissions paid by the Fund during the fiscal year and were
paid on account of transactions having an aggregate dollar value equal to
approximately 3.84% 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 February 28, 1998, the Fund paid a total of $79,146 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 20.45% 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 16.41% 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 dealer agreement with DWR, which through its own sales
organization sells shares of the Fund. In addition, the Distributor may enter
into similar agreements with other selected dealers ("Selected Broker-Dealers").
The Distributor, a Delaware corporation, is a wholly-owned subsidiary of MSDW.
The Trustees of the Fund, including a majority of 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 (the "Distribution Agreement")
appointing the Distributor exclusive distributor of the Fund's shares and
providing for the Distributor to bear distribution expenses not borne by the
Fund. By its terms, the Distribution Agreement had an initial term ending April
30, 1998, and provides that it will remain in effect from year to year
thereafter if approved by the Board. 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 or 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 and state securities laws and pays filing fees in
accordance with state securities laws. The Fund and the Distributor have agreed
to indemnify each other against certain liabilities, including liabilities under
the Securities Act 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.
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
33
<PAGE>
and Class C, respectively, and, with respect to Class B, 1.0% of the lesser of:
(a) the average daily aggregate gross sales of the Fund's Class B shares since
the inception of the 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 $1,102,431, $801,650 and $580,315 in contingent
deferred sales charges from Class B for the fiscal years ended February 29,
1996, February 28, 1997 and 1998, respectively, and (b) approximately $9,859 in
front-end sales charges from Class A for the fiscal year ended February 28,
1998, none of which was retained by the Distributor. No contingent deferred
sales charges were received from Class A or Class C for the fiscal year ended
February 28, 1998.
The Distributor has informed the Fund that the entire fee payable by Class A
and a portion of the fees payable by each of Class B and Class C each year
pursuant to the Plan equal to 0.25% of such Class's average daily net assets are
currently each characterized as a "service fee" under the Rules of the
Association of the National Association of Securities Dealers, Inc. (of which
the Distributor is a member). The "service fee" is a payment made for personal
service and/or the maintenance of shareholder accounts. The remaining portion of
the Plan fees payable by a Class, if any, is characterized as an "asset-based
sales charge" as such is defined by the aforementioned Rules of the Association.
The Plan was adopted by a vote of the Trustees of the Fund on December 2,
1993, at a meeting of the Trustees called for the purpose of voting on such
Plan. The vote included the vote of a majority 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"). In making their decision to adopt the Plan, the
Trustees requested from the Distributor and received such information as they
deemed necessary to make an informed determination as to whether or not adoption
of the Plan was in the best interests of the shareholders of the Fund. After due
consideration of the information received, the Trustees, including the
Independent 12b-1 Trustees, determined that adoption of the Plan would benefit
the shareholders of the Fund. MSDW Advisors, as sole shareholder of the Fund,
approved the Plan on February 24, 1994, whereupon the Plan went into effect.
Under its terms, the Plan will remain in effect from year to year, provided
such continuance is approved annually by a vote of the Trustees in the manner
described above. Under the Plan and as required by Rule 12b-1, the Trustees will
receive and review promptly after the end of each fiscal quarter a written
report provided by the Distributor of the amounts expended by the Distributor
under the Plan and the purpose for which such expenditures were made.
The most recent continuance of the Plan for one year, until April 30, 1999,
was approved by the Trustees of the Fund, including a majority of the
Independent 12b-1 Trustees, at their meeting held on April 30, 1998. Prior to
approving the continuation of the Plan, the Trustees requested and received from
the Distributor and reviewed all the information which they deemed necessary to
arrive at an informed determination. In making their determination to continue
the Plan, the Trustees considered: (1) the Fund's experience under the Plan and
whether such experience indicates that the Plan is operating as anticipated; (2)
the benefits the Fund had obtained, was obtaining and would be likely to obtain
under the Plan; and (3) what services had been provided and were continuing to
be provided under the Plan by the Distributor 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. 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.
34
<PAGE>
Under the Plan and as required by Rule 12b-1, the Trustees will receive and
review promptly after the end of each fiscal quarter a written report provided
by the Distributor of the amounts expended by the Distributor under the Plan and
the purpose for which such expenditures were made. Class B shares of the Fund
accrued $3,341,620, $3,227,912 and $3,262,820, respectively, payable to the
Distributor pursuant to the Plan, for the fiscal years ended February 29, 1996
and February 28, 1997 and 1998. This is an accrual at an annual rate of 0.95% of
the average daily aggregate gross sales of the Fund's 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
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or waived. This amount is treated by the Fund as
an expense in the year it is accrued. For the fiscal period July 28, 1997
through February 28, 1998, Class A and Class C shares of the Fund accrued
payments under the Plan amounting to $892 and $606, respectively, which amounts
are equal to 0.24% and 1.00% of the average daily net assets of Class A and
Class C, respectively, for such period.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes of shares, each with a different distribution arrangement as set forth
in the Prospectus.
With respect to Class A shares, DWR compensates its Financial Advisors by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.25% of the current value of
the respective accounts for which they are the Financial Advisors or dealers of
record in all cases. On orders of $1 million or more (for which no sales charge
was paid) or net asset value purchases by employer-sponsored 401(k) and other
plans qualified under Section 401(a) of the Internal Revenue Code ("Qualified
Retirement Plans") for which Morgan Stanley Dean Witter Trust FSB ("MSDW Trust")
serves as Trustee or DWR's Retirement Plan Services serves as recordkeeper
pursuant to a written Recordkeeping Services Agreement, the Investment Manager
compensates DWR's Financial Advisors by paying them, from its own funds, a gross
sales credit of 1.0% of the amount sold.
With respect to Class B shares, DWR compensates its Financial Advisors by
paying them, from its own funds, commissions for the sale of Class B shares,
currently a gross sales credit of up to 5.0% of the amount sold (except as
provided in the following sentence) and an annual residual commission, currently
a residual of up to 0.25% of the current value (not including reinvested
dividends or distributions) of the amount sold in all cases. In the case of
Class B shares purchased on or after July 28, 1997 by Qualified Retirement Plans
for which MSDW Trust serves as Trustee or DWR's Retirement Plan Services serves
as recordkeeper pursuant to a written Recordkeeping Services Agreement, DWR
compensates its Financial Advisors by paying them, from its own funds, a gross
sales credit of 3.0% of the amount sold.
With respect to Class C shares, DWR compensates its Financial Advisors by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 1.0% of the current value of
the respective accounts for which they are the Financial Advisors of record.
With respect to Class D shares other than shares held by participants in
InterCapital's mutual fund asset allocation program, the Investment Manager
compensates DWR's Financial Advisors by paying them, from its own funds,
commissions for the sale of Class D shares, currently a gross sales credit of up
to 1.0% of the amount sold. There is a chargeback of 100% of the amount paid if
the Class D shares are redeemed in the first year and a chargeback of 50% of the
amount paid if the Class D shares are redeemed in the second year after
purchase. The Investment Manager also compensates DWR's Financial Advisors by
paying them, from its own funds, an annual residual commission, currently a
residual of up to 0.10% of the current value of the respective accounts for
which they are the Financial Advisors of record (not including accounts of
participants in the MSDW Advisors mutual fund asset allocation program).
35
<PAGE>
The gross sales credit is a charge which reflects commissions paid by DWR to
its Financial Advisors and Fund associated distribution-related expenses,
including sales compensation and overhead. The distribution fee that the
Distributor receives from the Fund under the Plan, in effect, offsets
distribution expenses incurred 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 sales 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 term "overhead and other branch office distribution-related expenses"
represents (a) the expenses of operating DWR's branch offices in connection with
the sale of the Fund shares, including lease costs, the salaries and employee
benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies; (b) the costs of
client sales seminars; (c) travel expenses of mutual fund sales coordinators to
promote the sale of Fund shares; and (d) other expenses relating to branch
promotion of Fund share sales.
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 February 28, 1998 to the Distributor. The
Distributor and DWR estimate that they have spent, pursuant to the Plan,
$25,089,868 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)
7.80% ($1,956,401) -- advertising and promotional expenses; (ii) 0.98%
($246,779) -- printing of prospectuses for distribution to other than current
shareholders; and (iii) 91.22% ($22,886,688) -- other expenses, including the
gross sales credit and the carrying charge, of which 9.25% ($2,117,513)
represents carrying charges, 36.31% ($8,309,747) 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 54.44% ($12,459,428) 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
February 28, 1998 were for expenses which relate to compensation of sales
personnel and associated overhead expenses.
36
<PAGE>
In the case of Class B shares, at any given time, the expenses in
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan and (ii) the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares.
The Distributor has advised the Fund that, in the case of Class B shares, the
excess distribution expenses, including the carrying charge designed to
approximate the opportunity costs incurred by DWR which arise from it having
advanced monies without having received the amount of any sales charges imposed
at the time of sale of the Fund's Class B shares, totalled $10,016,830 as of
February 28, 1998, which amount constitutes 2.53% of the Fund's net assets on
such date. Because there is no requirement under the Plan that the Distributor
be reimbursed for all distribution expenses with respect to Class B shares or
any requirement that the Plan be continued from year to year, this excess amount
does not constitute a liability of the Fund. Although there is no legal
obligation for the Fund to pay distribution expenses in excess of payments made
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 the
Distributor, MSDW Advisors, DWR, MSDW Services 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.
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
- -------------------------------------------------------------------------------
As stated in the Prospectus, 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 4:00 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 and dividing by the number of shares outstanding and
adjusting to the nearest cent. The New York Stock Exchange currently observes
the following holidays: New Year's Day, Reverend Dr. Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
As stated in the Prospectus, short-term 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. Listed options on debt securities are valued at
the latest sale price on the exchange on which they are listed unless no sales
of such options have taken place that day, in which case they will be valued at
the mean between their latest bid and asked prices. Unlisted options on debt
securities and all options on equity securities are valued at the mean between
their latest bid and asked prices. Futures are valued at the latest sale price
on the commodities exchange on which they trade unless the Trustees determine
that such price
37
<PAGE>
does not reflect their market value, in which case they 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.
Generally, trading in foreign securities, as well as corporate bonds, United
States government securities and money market instruments, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value of
the Fund's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York Stock
Exchange. Occasionally, events which may affect the values of such securities
and such exchange rates may occur between the times at which they are determined
and the close of the New York Stock Exchange, and will therefore not be
reflected in the computation of the Fund's net asset value. If events that may
affect the value of such securities occur during such period, then these
securities may be valued at their fair value as determined in good faith under
procedures established by and under the supervision of the Trustees.
PURCHASE OF FUND SHARES
- -------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers four Classes of shares as
follows:
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold to investors with an initial sales charge that
declines to zero for larger purchases; however, Class A shares sold without an
initial sales charge are subject to a contingent deferred sales charge ("CDSC")
of 1.0% if redeemed within one year of purchase, except in the circumstances
discussed in the Prospectus.
RIGHT OF ACCUMULATION. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefitting from the reduced sales charges available for purchases
of shares of the Fund totalling at least $25,000 in net asset value. For
example, if any person or entity who qualifies for this privilege holds Class A
shares of the Fund and/or other Morgan Stanley Dean Witter Funds that are
multiple class funds ("Morgan Stanley Dean Witter Multi-Class Funds") or shares
of other Morgan Stanley Dean Witter Funds sold with a front-end sales charge
purchased at a price including a front-end sales charge having a current value
of $5,000, and purchases $20,000 of additional shares of the Fund, the sales
charge applicable to the $20,000 purchase would be 4.75% of the offering price.
The Distributor must be notified by the selected broker-dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the selected broker-dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if: (a)
such notification is not furnished at the time of the order; or (b) a review of
the records of the Distributor or Morgan Stanley Dean Witter Trust FSB (the
"Transfer Agent") fails to confirm the investor's represented holdings.
LETTER OF INTENT. As discussed in the Prospectus, reduced sales charges are
available to investors who enter into a written Letter of Intent providing for
the purchase, within a thirteen-month period, of Class A shares of the Fund from
the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment goal
to be achieved by any number of purchases over a thirteen-month period. Each
purchase of Class A shares made during the period will receive the reduced sales
commission applicable to the amount represented by the goal, as if it were a
single purchase. A number of shares equal in value to 5% of the dollar amount of
the Letter of Intent will be held in escrow by the Transfer Agent, in the name
of the shareholder. The initial purchase under a Letter of Intent must be equal
to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to pay
the difference between the sales charge otherwise applicable to the
38
<PAGE>
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 purchases at or above a sales charge level
which exceeds the stated goal of a Letter of Intent, the cumulative current net
asset value of any shares owned by the investor in any other Morgan Stanley Dean
Witter Funds held by the shareholder which were previously purchased at a price
including a front-end sales charge (including shares of the Fund and other
Morgan Stanley Dean Witter Funds acquired in exchange for those shares, and
including in each case shares acquired through reinvestment of dividends and
distributions) will be added to the cost or net asset value of shares of the
Fund owned by the investor. However, shares of "Exchange Funds" (see
"Shareholder Services--Exchange Privilege") and the purchase of shares of other
Morgan Stanley Dean Witter Funds will not be included in determining whether the
stated goal of a Letter of Intent has been reached.
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction. The
5% escrow and minimum purchase requirements will be applicable to the new stated
goal. Investors electing to purchase shares of the Fund pursuant to a Letter of
Intent should carefully read such Letter of Intent.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold without an initial sales charge but are subject to a
CDSC payable upon most redemptions within six years after purchase. As stated in
the Prospectus, a CDSC will be imposed on any redemption by an investor if after
such redemption the current value of the investor's Class B shares of the Fund
is less than the dollar amount of all payments by the shareholder for the
purchase of Class B shares during the preceding six years (or, in the case of
shares held by certain Qualified Retirement Plans, three years). However, no
CDSC will be imposed to the extent that the net asset value of the shares
redeemed does not exceed: (a) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) prior to the redemption, plus (b) the current net
asset value of shares purchased through reinvestment of dividends or
distributions of the Fund or another Morgan Stanley Dean Witter Fund (see
"Shareholder Services-- Targeted Dividends"), plus (c) the current net asset
value of shares acquired in exchange for (i) shares of Morgan Stanley Dean
Witter front-end sales charge funds, or (ii) shares of other Morgan Stanley Dean
Witter Funds for which shares of front-end sales charge funds have been
exchanged (see "Shareholder Services--Exchange Privilege"), plus (d) increases
in the net asset value of the investor's shares above the total amount of
payments for the purchase of Fund shares made during the preceding six (three)
years. The CDSC will be paid to the Distributor.
In 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
39
<PAGE>
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 and/or shares acquired in the above-described exchanges will be
subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Fund until
the time of redemption of such shares. For purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments made
during a month will be aggregated and deemed to have been made on the last day
of the month. The following table sets forth the rates of the CDSC applicable to
most Class B shares of the Fund:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- - ------------------------------------------------------------------------------------------ --------------------------
<S> <C>
First..................................................................................... 5.0%
Second.................................................................................... 4.0%
Third..................................................................................... 3.0%
Fourth.................................................................................... 2.0%
Fifth..................................................................................... 2.0%
Sixth..................................................................................... 1.0%
Seventh and thereafter.................................................................... None
</TABLE>
The following table sets forth the rates of the CDSC applicable to Class B
shares of the Fund purchased on or after July 28, 1997 by Qualified Retirement
Plans for which MSDW Trust serves as Trustee or DWR's Retirement Plan Services
serves as recordkeeper pursuant to a written Recordkeeping Services Agreement:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- - ------------------------------------------------------------------------------------------ --------------------------
<S> <C>
First..................................................................................... 2.0%
Second.................................................................................... 2.0%
Third..................................................................................... 1.0%
Fourth and thereafter..................................................................... None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption is
made of shares held by the investor for the longest period of time within the
applicable six-year or three-year period. This will result in any such CDSC
being imposed at the lowest possible rate. The CDSC will be imposed, in
accordance with the table shown above, on any redemptions within six years (or,
in the case of shares held by certain Qualified Retirement Plans, three years)
of purchase which are in excess of these amounts and which redemptions do not
qualify for waiver of the CDSC, as described in the Prospectus.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold without a sales charge but are subject to a CDSC of
1.0% on most redemptions made within one year after purchase, except in the
circumstances discussed in the Prospectus.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.
SHAREHOLDER SERVICES
- -------------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account is
opened for the investor on the books of the Fund and maintained by the Transfer
Agent. This is an open account in which shares owned by the investor are
credited by the Transfer Agent in lieu of issuance of a share certificate. If a
share
40
<PAGE>
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.
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 charge, 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 the Distributor, 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 Global Utilities Fund or in
another Class of Morgan Stanley Dean Witter Global Utilities 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 Morgan
Stanley Dean Witter Global Utilities 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 next determined after receipt by the
Transfer Agent, without the imposition of a CDSC upon redemption, by returning
the check or the proceeds to the Transfer Agent within thirty 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
41
<PAGE>
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 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 an 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 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 nomination to the Transfer Agent. In
addition, the party and/or the address to which the 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 Global Utilities 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.
42
<PAGE>
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its shareholders
an Exchange Privilege whereby shareholders of each Class of shares of the Fund
may exchange their shares for shares of the same Class of shares of any other
Morgan Stanley Dean Witter Multi-Class Fund without the imposition of any
exchange fee. Shares may also be exchanged for shares of any of the following
funds: Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust, Morgan Stanley
Dean Witter Limited Term Municipal Trust, Morgan Stanley Dean Witter Short-Term
Bond Fund, Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust and
five Morgan Stanley Dean Witter Funds which are money market funds (the
foregoing nine funds are hereinafter referred to as the "Exchange Funds"). Class
A shares may also be exchanged for shares of Morgan Stanley Dean Witter
Multi-State Municipal Series Trust and Morgan Stanley Dean Witter Hawaii
Municipal Trust, which are Morgan Stanley Dean Witter Funds sold with a
front-end sales charge ("FSC Funds"). Class B shares may also be exchanged for
shares of Morgan Stanley Dean Witter Global Short-Term Income Fund Inc. ("Global
Short-Term"), which is a 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 caption "Purchase of
Fund Shares," a CDSC may be imposed upon a redemption, depending on a number of
factors, including the number of years from the time of purchase until the time
of redemption or exchange ("holding period"). When shares of a Morgan Stanley
Dean Witter Multi-Class Fund or Global Short-Term are exchanged for shares of an
Exchange Fund, the exchange is executed at no charge to the shareholder, without
the imposition of the CDSC at the time of the exchange. During the period of
time the shareholder remains in the Exchange Fund (calculated from the last day
of the month in which the Exchange Fund shares were acquired), the holding
period or "year since purchase payment made" is frozen. When shares are redeemed
out of the Exchange Fund, they will be subject to a CDSC which would be based
upon the period of time the shareholder held shares in a Morgan Stanley Dean
Witter Multi-Class Fund or in Global Short-Term. However, in the case of shares
exchanged into an Exchange Fund on or after April 23, 1990, upon a redemption of
shares which results in a CDSC being imposed, a credit (not to exceed the amount
of the CDSC) will be given in an amount equal to the Exchange Fund 12b-1
distribution fees, if any, incurred on or after that date which are attributable
to those shares. Shareholders acquiring shares of an Exchange Fund pursuant to
this exchange privilege may exchange those shares back into a Morgan Stanley
Dean Witter Multi-Class Fund or Global Short-Term from the Exchange Fund, with
no CDSC being imposed on such exchange. The holding period previously frozen
when shares were first exchanged for shares of the Exchange Fund resumes on the
last day of the month in which shares of a Morgan Stanley Dean Witter
Multi-Class Fund or of Global Short-Term are reacquired. A CDSC is imposed only
upon an ultimate redemption, based upon the time (calculated as described above)
the shareholder was invested in a Morgan Stanley Dean Witter Multi-Class Fund or
in Global Short-Term. In the case of exchanges of Class A shares which are
subject to a CDSC, the holding period also includes the time (calculated as
described above) the shareholder was invested in a FSC Fund.
When shares initially purchased in a Morgan Stanley Dean Witter Multi-Class
Fund or in Global Short-Term are exchanged for shares of a Morgan Stanley Dean
Witter Multi-Class Fund, shares of
43
<PAGE>
Global Short-Term, shares of a FSC Fund, or for 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 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.
The Transfer Agent acts as agent for shareholders of the Fund in effecting
redemptions of Fund shares and in applying the proceeds to the purchase of other
fund shares. In the absence of negligence on its part, neither the Transfer
Agent nor the Fund shall be liable for any redemption of Fund shares caused by
unauthorized telephone instructions. Accordingly, in such an event the investor
shall bear the risk of loss. The staff of the Securities and Exchange Commission
is currently considering the propriety of such a policy.
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
44
<PAGE>
Stanley Dean Witter New York Municipal Money Market Trust, although those funds
may, at their discretion, accept initial investments of as low as $1,000. The
minimum 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 as low as $5,000. The
minimum initial investment for the Exchange Privilege account of each Class for
Morgan Stanley Dean Witter Special Value Fund is $5,000. The minimum initial
investment for the Exchange Privilege account of each Class for all other Morgan
Stanley Dean Witter Funds for which the Exchange Privilege is available is
$1,000.) Upon exchange into an Exchange Fund, the shares of that fund will be
held in a special Exchange Privilege Account separately from accounts of those
shareholders who have acquired their shares directly from that fund. As a
result, certain services normally available to shareholders of those funds,
including the check writing feature, will not be available for funds held in
that account.
The Fund and each of the other Morgan Stanley Dean Witter Funds may limit
the number of times this Exchange Privilege may be exercised by any investor
within a specified period of time. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of the Morgan Stanley
Dean Witter Funds for which shares of the Fund have been exchanged, upon such
notice as may be required by applicable regulatory agencies (presently sixty
days' prior written notice for termination or material revision), provided that
six months' prior written notice of termination will be given to the
shareholders who hold shares of Exchange Funds, pursuant to the Exchange
Privilege, and provided further that the Exchange Privilege may be terminated or
materially revised without notice at times (a) when the New York Stock Exchange
is closed for other than customary weekends and holidays, (b) when trading on
that Exchange is restricted, (c) when an emergency exists as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable or
it is not reasonably practicable for the Fund fairly to determine the value of
its net assets, (d) during any other period when the Securities and Exchange
Commission by order so permits (provided that applicable rules and regulations
of the Securities and Exchange Commission shall govern as to whether the
conditions prescribed in (b) or (c) exist) or (e) if the Fund would be unable to
invest amounts effectively in accordance with its investment objective, policies
and restrictions.
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. 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.
For further information regarding the Exchange Privilege, shareholders
should contact their Morgan Stanley Dean Witter Financial Advisor or other
selected broker-dealer representative or the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- -------------------------------------------------------------------------------
REDEMPTION. As stated in the Prospectus, shares of each Class of the Fund
can be redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds will be reduced by the amount of
any applicable CDSC. If shares are held in a shareholder's account without a
share certificate, a written request for redemption to the Fund's Transfer Agent
at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are held by
the shareholder, the shares may be redeemed by surrendering the certificates
with a written request for redemption. The share certificate, or an accompanying
stock power, and the request for redemption, must be signed by the shareholder
or shareholders exactly as the shares are registered. Each request for
redemption, whether or not accompanied by a share certificates, must be sent to
the Fund's Transfer Agent, which will redeem the shares at their net asset value
next computed (see "Purchase of Fund Shares" in the Prospectus) after it
receives the request, and certificate, if any, in good order. Any redemption
request received after such computa-
45
<PAGE>
tion 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
acceptance 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. 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 a means of a supplement to the prospectus
or a new prospectus.
REPURCHASE. As stated in the Prospectus, DWR and other selected
broker-dealers are authorized to repurchase shares represented by a share
certificate which is delivered to any of their offices. Shares held in a
shareholder's account without a share certificate may also be repurchased by DWR
and other selected broker-dealers upon the telephonic request of the
shareholder. The repurchase price is the net asset value next computed after
such purchase order is received by DWR or other selected broker-dealer reduced
by any applicable CDSC.
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. As discussed in the Prospectus,
payment for any Class of 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 at times (a) when the New York Stock
Exchange is closed for other than customary weekends and holidays, (b) when
trading on that Exchange is restricted, (c) when an emergency exists as a result
of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any period when the Securities and
Exchange Commission by order so permits; provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist. If the shares to be redeemed have
recently been purchased by check (including certified check or bank cashier
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 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 held by the shareholder at
the net
46
<PAGE>
asset value next determined after a reinstatement request, together with the
proceeds, is received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax and state 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 and state personal 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, if the Fund makes an election, the shareholders would include
such undistributed gains in their income and shareholders will be able to claim
their share of the tax paid by the Fund as a credit against their individual
federal income tax.
Any dividends declared in the last quarter of any calendar year which are
paid in the following calendar year prior to February 1 will be deemed received
by the shareholder in the prior calendar year.
Gains or losses on sales of securities by the Fund will generally 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 generally short-term capital 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 are subject to a reduced rate of tax under the Taxpayer Relief Act of 1997.
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"). If so qualified,
the Fund will not be subject to federal income tax on its net investment income
and capital gains, if any, realized during any fiscal year in which it
distributes such income and capital gains to its shareholders. In addition, the
Fund intends to distribute to its shareholders each calendar year a sufficient
amount of ordinary income and capital gains to avoid the imposition of a 4%
excise tax.
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. Therefore, an investor should consider the
tax implications of purchasing Fund shares immediately prior to a distribution
record date.
Any loss realized by shareholders upon a redemption of shares within six
months of the date of their purchase will be treated as a long-term capital loss
to the extent of any distributions of net long-term capital gains during the
six-month period.
Dividends, interest and capital gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. Investors may be entitled to claim United States foreign tax credits or
deductions with respect to such taxes, subject to certain provisions and
limitations contained in the Code. If more than 50% of the Fund's total assets
at the close of its fiscal year consist of securities of foreign corporations,
the Fund would be eligible and would determine whether or not to file an
election with the Internal Revenue Service pursuant to which shareholders of the
Fund will be required to include
47
<PAGE>
their respective pro rata portions of such withholding taxes in their United
States income tax returns as gross income, treat such respective pro rata
portions as taxes paid by them, and deduct such respective pro rata portions in
computing their taxable income or, alternatively, use them as foreign tax
credits against their United States income taxes. If the Fund does elect to file
the election with the Internal Revenue Service, the Fund will report annually to
its shareholders the amount per share of such withholding. The Taxpayer Relief
Act of 1997 mandates a holding period requirement for claiming a foreign tax
credit with respect to dividends. The foreign tax credit normally available with
respect to a dividend from a corporation (or a Fund that has made an election
under Section 853), is disallowed if the shareholder has not held the stock for,
in general, 16 days in the case of common stock (46 days in the case of
preferred stock) during the 30-day (90-day) period beginning 15 days (45 days)
before the ex-date of the dividend with respect to which the foreign tax is
paid. The holding period requirement applies to shareholders of the Fund as well
as the Fund itself.
SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS. In general, gains
from foreign currencies and from foreign currency options, foreign currency
futures and forward foreign exchange contracts relating to investments in stock,
securities or foreign currencies are currently considered to be qualifying
income for purposes of determining whether the Fund qualifies as a regulated
investment company. It is currently unclear, however, who will be treated as the
issuer of certain foreign currency instruments or how foreign currency options,
futures, or forward foreign currency contracts will be valued for purposes of
the regulated investment company diversification requirements applicable to the
Fund.
Under Code Section 988, special rules are provided for certain transactions
in a foreign currency other than the taxpayer's functional currency (I.E.,
unless certain special rules apply, currencies other than the U.S. dollar). In
general, foreign currency gains or losses from forward contracts, from futures
contracts that are not "regulated futures contracts," and from unlisted options
will be treated as ordinary income or loss under Code Section 988. Also, certain
foreign exchange gains or losses derived with respect to foreign fixed-income
securities are also subject to Section 988 treatment. In general, therefore,
Code Section 988 gains or losses will increase or decrease the amount of the
Fund's investment company taxable income available to be distributed to
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Additionally, if Code Section 988 losses exceed
other investment company taxable income during a taxable year, the Fund would
not be able to make any ordinary dividend distributions.
If the Fund invests in an entity which is classified as a "passive foreign
investment company" ("PFIC") for U.S. tax purposes, the application of certain
technical tax provisions applying to such companies could result in the
imposition of federal income tax with respect to such investments at the Fund
level. The Taxpayer Relief Act of 1997 established a mark-to-market regime which
allows taxpayers investing in PFICs to avoid most, if not all, of the
difficulties posed by the PFIC rules.
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 separately for Class A, Class B, Class C and Class D shares. The Fund's
"average annual total return" represents an annualization of the Fund's total
return over a particular period and is computed by finding the annual percentage
rate which will result in the ending redeemable value of a hypothetical $1,000
investment made at the beginning of a one, five or ten year period, or for the
period from the date of commencement of the Fund's operations, if shorter than
any of the foregoing. The ending redeemable value is reduced by any CDSC at the
end of the one, five or ten year or other period. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
The formula for computing the average annual total return involves a percentage
obtained by dividing the ending redeemable value by the amount of the initial
investment, taking a root of the quotient (where the root is equivalent to the
number of years in the period) and
48
<PAGE>
subtracting 1 from the result. The average annual total return of Class B for
the fiscal year ended February 28, 1998 and for the period from May 31, 1994
(commencement of the Fund's operations) through February 28, 1998 was 21.06% and
14.40%, respectively.
For periods of less than one year, the Fund quotes its total return on a
non-annualized basis. Accordingly, the Fund may compute its aggregate total
return for each of Class A, Class C and Class D for specified periods by
determining the aggregate percentage rate which will result in the ending value
of a hypothetical $1,000 investment made at the beginning of the period. For the
purpose of this calculation, it is assumed that all dividends and distributions
are reinvested. The formula for computing aggregate total return involves a
percentage obtained by dividing the ending value by the initial $1,000
investment and subtracting 1 from the result. The ending redeemable value is
reduced by any CDSC at the end of the period. Based on the foregoing
calculations, the total returns for the period July 28, 1997 through February
28, 1998 were 7.77%, 12.24% and 13.90% for Class A, Class C and Class D,
respectively.
In addition to the foregoing, the Fund may advertise its total return over
for each Class different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the imposition of the maximum front-end sales charge for Class A
or the deduction of the CDSC for each of Class B and Class C, which, if
reflected, would reduce the performance quoted. For example, the average annual
total returns of the Fund may be calculated in the manner described above, but
without deduction for any applicable contingent deferred sales charge. Based
upon this calculation, the average annual total return of the Fund for the
fiscal year ended February 28, 1998 and for the period May 31, 1994
(commencement of operations) through February 28, 1998 was 26.06% and 14.77%,
respectively.
In addition, the Fund may compute its aggregate total return for each Class
for specified periods by determining the aggregate percentage rate which will
result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed that
all dividends and distributions are reinvested. The formula for computing
aggregate total return involves a percentage obtained by dividing the ending
value (without the reduction for any sales charge) by the initial $1,000
investment and subtracting 1 from the result. Based upon the foregoing
calculation, the total return for Class B for the fiscal year ended February 28,
1998 and for the period May 31, 1994 (commencement of operations) through
February 28, 1998 was 26.06% and 67.57%, respectively. Based on the foregoing
calculations, the total returns for Class A, Class C and Class D for the period
July 28 through February 28, 1998 were 13.74%, 13.24% and 13.90%, 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 total aggregate total return to date (expressed as a decimal and
without taking into account the effect of applicable CDSC) and multiplying by
$9,475, $48,000 and $97,000 in the case of Class A (investments of $10,000,
$50,000 and $100,000 adjusted for the initial sales charge) or by $10,000,
$50,000 and $100,000 in the case of each of Class B, Class C and Class D, as the
case may be. Investments of $10,000, $50,000 and $100,000 in each Class at
inception of the Class would have grown to the following amounts at February 28,
1998:
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
INCEPTION ---------------------------------
CLASS DATE $10,000 $50,000 $100,000
- - ------------------------------------------------------------------ ----------- --------- --------- -----------
<S> <C> <C> <C> <C>
Class A 7/28/97 $ 10,777 $ 54,595 $ 110,328
Class B 5/31/94 16,757 83,785 167,570
Class C 7/28/97 11,324 56,620 113,240
Class D 7/28/97 11,390 56,950 113,900
</TABLE>
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
49
<PAGE>
DESCRIPTION OF SHARES
- -------------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full share
held. All of the Trustees have been elected by the shareholders of the Fund,
most recently at a Special Meeting of Shareholders held on May 21, 1997. The
Trustees themselves have the power to alter the number and the terms of office
of the Trustees, 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. 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 or her own bad
faith, willful misfeasance, gross negligence, or reckless disregard of his or
her 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.
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 in
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 10288 is the
Custodian of the Fund's assets. The Custodian has contracted with various
foreign banks and depositaries to hold portfolio securities of non-U.S. issuers
on behalf of the Fund. Any of the Fund's cash balances with the Custodian in
excess of $100,000 are unprotected by federal deposit insurance. Such balances
may, at times, be substantial.
Morgan Stanley Dean Witter Trust FSB ("MSDW Trust"), Harborside Financial
Center, Plaza Two, Jersey City, New Jersey 07311 is the Transfer Agent of the
Fund's shares and Dividend Disbursing Agent for payment of dividends and
distributions on Fund shares and Agent for shareholders under various investment
plans described herein. MSDW Trust is an affiliate of Morgan Stanley Dean Witter
Advisors Inc., the Fund's Investment Manager, and 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
- -------------------------------------------------------------------------------
Price Waterhouse LLP serves as the independent accountants of the Fund. The
independent accountants are responsible for auditing the annual financial
statements of the Fund.
50
<PAGE>
REPORTS TO SHAREHOLDERS
- ------------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports showing
the Fund's portfolio and other information. An annual report containing
financial statements audited by independent accountants will be sent to
shareholders each year.
The Fund's fiscal year ends on the last day of February. The financial
statements of the Fund must be audited at least once a year by independent
accountants whose selection is made annually by the Fund's Board of Trustees.
LEGAL COUNSEL
- ------------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- -----------------------------------------------------------------------------
The Financial Statements of the Fund for the fiscal year ended February 28,
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 Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
- ------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
51
<PAGE>
DEAN WITTER GLOBAL UTILITIES FUND
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- - ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (95.8%)
ARGENTINA (0.5%)
UTILITIES - TELECOMMUNICATIONS
$ 282,000 Telecom Argentina Stet - France Telecom S.A. (Class B)................................ $ 2,045,727
------------
AUSTRALIA (3.3%)
UTILITIES - NATURAL GAS
1,325,000 Australian Gas Light Company Ltd...................................................... 10,529,298
------------
UTILITIES - TELECOMMUNICATIONS
47,100 Telstra Corp. Ltd. (ADR)*............................................................. 2,561,062
------------
TOTAL AUSTRALIA....................................................................... 13,090,360
------------
AUSTRIA (0.7%)
TRANSPORTATION
71,000 Flughafen Wien AG..................................................................... 2,864,473
------------
BRAZIL (0.3%)
UTILITIES - ELECTRIC
29,000 Companhia Paranaense de Energia - Copel (Series B) (ADR).............................. 369,750
------------
UTILITIES - TELECOMMUNICATIONS
7,500 Telecomunicacoes Brasileiras S.A. (ADR)............................................... 918,281
------------
TOTAL BRAZIL.......................................................................... 1,288,031
------------
CANADA (5.3%)
TELECOMMUNICATION EQUIPMENT
160,000 Northern Telecom Ltd.................................................................. 8,518,050
------------
UTILITIES - NATURAL GAS
176,344 TransCanada Pipelines Ltd............................................................. 3,957,150
------------
UTILITIES - TELECOMMUNICATIONS
125,000 Metronet Communications Corp. (Class B) (ADR)*........................................ 2,953,125
228,000 Telus Corp............................................................................ 5,732,828
------------
8,685,953
------------
TOTAL CANADA.......................................................................... 21,161,153
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- - ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
CHILE (1.7%)
UTILITIES - ELECTRIC
$ 115,000 Enersis S.A. (ADR).................................................................... $ 3,349,375
------------
UTILITIES - TELECOMMUNICATIONS
122,000 Compania de Telecommunicaciones de Chile S.A. (ADR)................................... 3,339,750
------------
TOTAL CHILE........................................................................... 6,689,125
------------
DENMARK (3.5%)
TRANSPORTATION
42,800 Kobenhavns Lufthavne AS............................................................... 4,544,000
------------
UTILITIES - TELECOMMUNICATIONS
143,000 Tele Danmark AS (B Shares)............................................................ 9,263,024
------------
TOTAL DENMARK......................................................................... 13,807,024
------------
FINLAND (2.0%)
TELECOMMUNICATION EQUIPMENT
77,500 Nokia AB (Series K)................................................................... 7,742,258
------------
FRANCE (2.6%)
UTILITIES - TELECOMMUNICATIONS
57,600 France Telecom S.A. (ADR)*............................................................ 2,790,000
------------
UTILITIES - WATER
48,000 Compagnie Generale des Eaux........................................................... 7,554,460
------------
TOTAL FRANCE.......................................................................... 10,344,460
------------
GERMANY (7.1%)
TELECOMMUNICATION EQUIPMENT
112,400 Siemens AG............................................................................ 6,915,065
------------
UTILITIES - ELECTRIC
175,000 VEBA AG............................................................................... 11,740,275
------------
WIRELESS COMMUNICATION
15,700 Mannesmann AG......................................................................... 9,429,689
------------
TOTAL GERMANY......................................................................... 28,085,029
------------
ITALY (3.2%)
UTILITIES - TELECOMMUNICATIONS
1,015,000 Telecom Italia SpA.................................................................... 6,912,451
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
52
<PAGE>
DEAN WITTER GLOBAL UTILITIES FUND
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- - ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
WIRELESS COMMUNICATION
$1,220,000 Telecom Italia Mobile SpA............................................................. $ 5,587,969
------------
TOTAL ITALY........................................................................... 12,500,420
------------
JAPAN (0.6%)
TELECOMMUNICATION EQUIPMENT
12,900 Kyocera Corp.......................................................................... 695,914
------------
WIRELESS COMMUNICATION
685 DDI Corp.............................................................................. 1,787,902
------------
TOTAL JAPAN........................................................................... 2,483,816
------------
MEXICO (1.0%)
UTILITIES - TELECOMMUNICATIONS
79,000 Telefonos de Mexico S.A. de C.V. (Class L) (ADR)...................................... 4,004,312
------------
NETHERLANDS (2.9%)
UTILITIES - TELECOMMUNICATIONS
225,000 Koninklijke PTT Nederland NV.......................................................... 11,329,748
------------
NEW ZEALAND (2.0%)
UTILITIES - TELECOMMUNICATIONS
1,680,000 Telecom Corporation of New Zealand Ltd................................................ 8,052,072
------------
PORTUGAL (3.2%)
UTILITIES - TELECOMMUNICATIONS
132,000 Portugal Telecom S.A.................................................................. 6,926,803
------------
WIRELESS COMMUNICATION
44,000 Telecel-Comunicacoes Pessoais S.A.*................................................... 5,861,141
------------
TOTAL PORTUGAL........................................................................ 12,787,944
------------
SPAIN (5.6%)
UTILITIES - ELECTRIC
371,000 Empresa Nacional de Electricidad S.A.................................................. 8,205,829
428,000 Iberdrola S.A......................................................................... 6,195,030
------------
14,400,859
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- - ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES - TELECOMMUNICATIONS
$ 229,000 Telefonica de Espana.................................................................. $ 7,880,627
------------
TOTAL SPAIN........................................................................... 22,281,486
------------
SWEDEN (1.8%)
TELECOMMUNICATION EQUIPMENT
156,300 Ericsson (L.M.) Telephone Co. AB (Series "B" Free).................................... 7,112,984
------------
SWITZERLAND (1.9%)
ELECTRICAL EQUIPMENT
5,600 ABB AG - Bearer....................................................................... 7,652,887
------------
UNITED KINGDOM (6.4%)
CABLE & TELECOMMUNICATIONS
496,071 Cable & Wireless Communications PLC*.................................................. 2,870,703
1,058,000 Telewest PLC*......................................................................... 1,347,998
------------
4,218,701
------------
MEDIA GROUP
206,000 Carlton Communications PLC............................................................ 1,446,095
------------
UTILITIES - ELECTRIC
154,500 National Grid Group PLC............................................................... 868,675
------------
UTILITIES - TELECOMMUNICATIONS
50,000 COLT Telecom Group PLC (ADR)*......................................................... 4,175,000
------------
UTILITIES - WATER
150,000 United Utilities PLC.................................................................. 2,012,256
------------
WIRELESS COMMUNICATION
743,000 Orange PLC*........................................................................... 4,211,094
975,000 Vodafone Group PLC.................................................................... 8,655,660
------------
12,866,754
------------
TOTAL UNITED KINGDOM.................................................................. 25,587,481
------------
UNITED STATES (40.2%)
MEDIA GROUP
120,000 U.S. West Media Group*................................................................ 3,862,500
------------
TELECOMMUNICATION EQUIPMENT
70,408 Lucent Technologies, Inc.............................................................. 7,630,467
------------
UTILITIES - ELECTRIC
125,000 AES Corp.*............................................................................ 5,500,000
220,000 CMS Energy Corp....................................................................... 9,735,000
140,000 Duke Power Co......................................................................... 7,778,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
53
<PAGE>
DEAN WITTER GLOBAL UTILITIES FUND
PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- - ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
$ 210,000 Edison International.................................................................. $ 5,801,250
110,000 Houston Industries, Inc............................................................... 2,846,250
120,000 PG & E Corp........................................................................... 3,622,500
280,000 Southern Co........................................................................... 6,912,500
------------
42,196,250
------------
UTILITIES - NATURAL GAS
210,000 ENRON Corp............................................................................ 9,870,000
------------
UTILITIES - TELECOMMUNICATIONS
170,000 Ameritech Corp........................................................................ 7,086,875
100,000 AT&T Corp............................................................................. 6,087,500
114,480 Bell Atlantic Corp.................................................................... 10,274,580
190,000 BellSouth Corp........................................................................ 11,590,000
100,000 Cincinnati Bell, Inc.................................................................. 3,200,000
165,000 GTE Corp.............................................................................. 8,930,625
158,000 LCI International, Inc.*.............................................................. 5,214,000
128,000 MCI Communications Corp............................................................... 6,120,000
135,000 SBC Communications, Inc............................................................... 10,209,375
175,000 Sprint Corp........................................................................... 11,550,000
50,000 Teleport Communications Group Inc. (Class A)*......................................... 2,731,250
115,000 U.S. West Communications Group, Inc................................................... 5,987,188
150,000 WorldCom, Inc.*....................................................................... 5,728,125
------------
94,709,518
------------
WIRELESS COMMUNICATION
63,000 360 DEG. Communications Co.*.......................................................... 1,669,500
------------
TOTAL UNITED STATES................................................................... 159,938,235
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $226,808,302)........................................................ 380,849,025
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- - ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (4.5%)
U.S. GOVERNMENT AGENCY
$$17,900 Federal National Mortgage Assoc. 5.61% due 03/02/98
(AMORTIZED COST $17,897,211)......................................................... $ 17,897,211
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $244,705,513) (B)........................................................ 100.3 % 398,746,236
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................................ (0.3) (1,139,616)
------ -------------
NET ASSETS................................................................................ 100.0 % $ 397,606,620
------ -------------
------ -------------
</TABLE>
- - ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $159,211,339 and the
aggregate gross unrealized depreciation is $5,170,616, resulting in net
unrealized appreciation of $154,040,723.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT FEBRUARY 28, 1998:
<TABLE>
<CAPTION>
CONTRACTS TO IN DELIVERY UNREALIZED
DELIVER EXCHANGE FOR DATE DEPRECIATION
- - ----------------------------------------------------
<S> <C> <C> <C>
$ 1,005,539 CAD 1,428,368 03/02/98 ($2,330)
AUD 1,485,397 $ 996,702 03/04/98 (12,180)
AUD 1,416,137 $ 961,132 03/05/98 (708)
$ 952,944 FRF 5,763,122 03/31/98 (6,153)
--------------
Total unrealized depreciation..... (2$1,371)
--------------
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
54
<PAGE>
DEAN WITTER GLOBAL UTILITIES FUND
SUMMARY OF INVESTMENTS FEBRUARY 28, 1998
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- - ------------------------------------------------------------------------------------------------------------
Cable & Telecommunications........................................................ $ 4,218,701 1.1 %
Electrical Equipment.............................................................. 7,652,887 1.9
Media Group....................................................................... 5,308,595 1.3
Telecommunication Equipment....................................................... 38,614,738 9.7
Transportation.................................................................... 7,408,473 1.9
U.S. Government Agency............................................................ 17,897,211 4.5
Utilities - Electric.............................................................. 72,925,184 18.3
Utilities - Natural Gas........................................................... 24,356,448 6.1
Utilities - Telecommunications.................................................... 173,594,328 43.7
Utilities - Water................................................................. 9,566,716 2.4
Wireless Communication............................................................ 37,202,955 9.4
------------ -----
$398,746,236 100.3 %
------------ -----
------------ -----
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- - ------------------------------------------------------------------------------------------------------------
Common Stocks..................................................................... $380,849,025 95.8 %
Short-Term Investment............................................................. 17,897,211 4.5
------------ -----
$398,746,236 100.3 %
------------ -----
------------ -----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
55
<PAGE>
DEAN WITTER GLOBAL UTILITIES FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $244,705,513).............................................................. $398,746,236
Cash.......................................................................................... 983,196
Receivable for:
Investments sold.......................................................................... 1,957,833
Dividends................................................................................. 464,964
Shares of beneficial interest sold........................................................ 245,914
Foreign withholding taxes reclaimed....................................................... 201,268
Deferred organizational expenses.............................................................. 46,006
Prepaid expenses and other assets............................................................. 45,550
------------
TOTAL ASSETS............................................................................. 402,690,967
------------
LIABILITIES:
Payable for:
Investments purchased..................................................................... 4,207,137
Shares of beneficial interest repurchased................................................. 300,150
Plan of distribution fee.................................................................. 263,085
Investment management fee................................................................. 198,760
Accrued expenses and other payables........................................................... 115,215
------------
TOTAL LIABILITIES........................................................................ 5,084,347
------------
NET ASSETS............................................................................... $397,606,620
------------
------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................... $251,769,724
Net unrealized appreciation................................................................... 154,030,844
Accumulated undistributed net investment income............................................... 135,281
Distributions in excess of net realized gain.................................................. (8,329,229)
------------
NET ASSETS............................................................................... $397,606,620
------------
------------
CLASS A SHARES:
Net Assets.................................................................................... $947,894
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 62,773
NET ASSET VALUE PER SHARE................................................................ $15.10
------------
------------
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE)........................................ $15.94
------------
------------
CLASS B SHARES:
Net Assets.................................................................................... $396,483,338
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 26,269,587
NET ASSET VALUE PER SHARE................................................................ $15.09
------------
------------
CLASS C SHARES:
Net Assets.................................................................................... $160,984
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 10,684
NET ASSET VALUE PER SHARE................................................................ $15.07
------------
------------
CLASS D SHARES:
Net Assets.................................................................................... $14,404
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 953
NET ASSET VALUE PER SHARE................................................................ $15.11
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
56
<PAGE>
DEAN WITTER GLOBAL UTILITIES FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1998*
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $755,487 foreign withholding tax)............................................ $ 9,930,067
Interest....................................................................................... 552,834
-----------
TOTAL INCOME.............................................................................. 10,482,901
-----------
EXPENSES
Plan of distribution fee (Class A shares)...................................................... 892
Plan of distribution fee (Class B shares)...................................................... 3,262,820
Plan of distribution fee (Class C shares)...................................................... 606
Investment management fee...................................................................... 2,368,987
Transfer agent fees and expenses............................................................... 477,783
Custodian fees................................................................................. 174,398
Professional fees.............................................................................. 71,725
Shareholder reports and notices................................................................ 68,894
Registration fees.............................................................................. 47,917
Organizational expenses........................................................................ 34,018
Foreign exchange provisional tax............................................................... 21,805
Trustees' fees and expenses.................................................................... 15,430
Other.......................................................................................... 18,455
-----------
TOTAL EXPENSES............................................................................ 6,563,730
-----------
NET INVESTMENT INCOME..................................................................... 3,919,171
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain (loss) on:
Investments................................................................................ 2,951,676
Foreign exchange transactions.............................................................. (41,048)
-----------
NET GAIN.................................................................................. 2,910,628
-----------
Net change in unrealized appreciation/depreciation on:
Investments................................................................................ 78,620,451
Translation of forward foreign currency contracts, other assets and liabilities denominated
in foreign currencies.................................................................... (10,153)
-----------
NET APPRECIATION.......................................................................... 78,610,298
-----------
NET GAIN.................................................................................. 81,520,926
-----------
NET INCREASE................................................................................... $85,440,097
-----------
-----------
</TABLE>
- - ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
57
<PAGE>
DEAN WITTER GLOBAL UTILITIES FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 28, 1998* FEBRUARY 28, 1997
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................................ $ 3,919,171 $ 2,999,014
Net realized gain................................................ 2,910,628 6,159,318
Net change in unrealized appreciation............................ 78,610,298 33,486,202
---------------------- -----------------
NET INCREASE................................................ 85,440,097 42,644,534
---------------------- -----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares............................................... (3,553 ) --
Class B shares............................................... (3,902,063 ) (3,680,883 )
Class C shares............................................... (280 ) --
Class D shares............................................... (61 ) --
Net realized gain
Class A shares............................................... (24,201 ) --
Class B shares............................................... (16,373,274 ) --
Class C shares............................................... (4,095 ) --
Class D shares............................................... (315 ) --
---------------------- -----------------
TOTAL DIVIDENDS AND DISTRIBUTIONS........................... (20,307,842 ) (3,680,883 )
---------------------- -----------------
Net decrease from transactions in shares of beneficial
interest....................................................... (19,765,137 ) (47,071,634 )
---------------------- -----------------
NET INCREASE (DECREASE)..................................... 45,367,118 (8,107,983 )
NET ASSETS:
Beginning of period.............................................. 352,239,502 360,347,485
---------------------- -----------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $135,281
AND $163,204, RESPECTIVELY).................................. $ 397,606,620 $ 352,239,502
---------------------- -----------------
---------------------- -----------------
</TABLE>
- - ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
DEAN WITTER GLOBAL UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Global Utilities Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is to
seek both capital appreciation and current income. The Fund seeks to achieve its
objective by investing in equity and fixed income securities of companies,
issued by issuers worldwide, which are engaged in the utilities industry. The
Fund was organized as a Massachusetts business trust on October 22, 1993 and
commenced operations on May 31, 1994. 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 (in
cases where securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Trustees); (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (3) when market
quotations are not readily available, including circumstances under which it is
determined by Dean Witter InterCapital Inc. (the "Investment Manager") that sale
or bid prices are not reflective of a security's market value, portfolio
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Trustees; (4)
certain portfolio securities may be valued by an outside pricing service
approved by the Trustees. The pricing service may utilize a matrix system
incorporating security quality, maturity and coupon as the evaluation
59
<PAGE>
DEAN WITTER GLOBAL UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998, CONTINUED
model parameters, and/or research and evaluations by its staff, including review
of broker-dealer market price quotations, if available, in determining what it
believes is the fair valuation of the securities valued by such pricing service;
and (5) short-term debt securities having a maturity date of more than sixty
days at time of purchase are valued on a mark-to-market basis until sixty days
prior to maturity and thereafter at amortized cost based on their value on the
61st day. Short-term debt securities having a maturity date of sixty days or
less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except for certain dividends on foreign securities which are recorded as soon as
the Fund is informed after 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. FOREIGN CURRENCY TRANSLATION -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward foreign currency
contracts are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the
exchange rates prevailing on the respective dates of such transactions. The
resultant exchange gains and losses are included in the Statement of Operations
as realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a reduction
of ordinary income for federal income tax purposes. The Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the changes in the market prices of the securities.
E. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund may enter into forward foreign
currency contracts which are valued daily at the appropriate exchange rates. The
resultant unrealized exchange gains and losses are included in the Statement of
Operations as unrealized foreign currency gain or loss and in the Statement of
Assets and Liabilities as part of the related foreign currency
60
<PAGE>
DEAN WITTER GLOBAL UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998, CONTINUED
denominated asset or liability. The Fund records realized gains or losses on
delivery of the currency or at the time the forward contract is extinguished
(compensated) by entering into a closing transaction prior to delivery.
F. 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.
G. 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.
H. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $174,000 which have been
reimbursed for the full amount thereof. Such expenses have been deferred and are
being amortized on the straight-line method over a period not to exceed five
years from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate 0.65% to the net assets of the Fund determined as of the close of
each business day. Effective May 1, 1997, the Agreement was amended to reduce
the annual rate to 0.625% of the portion of daily net assets exceeding $500
million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of
61
<PAGE>
DEAN WITTER GLOBAL UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998, CONTINUED
all personnel, including officers of the Fund who are employees of the
Investment Manager. The Investment Manager also bears the cost of telephone
services, heat, light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A -- up to 0.25% of the
average daily net assets of Class A; (ii) Class B -- 1.0% of the lesser of: (a)
the average daily aggregate gross sales of the Class B shares since the
inception of the 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
62
<PAGE>
DEAN WITTER GLOBAL UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998, CONTINUED
reason the Plan is terminated, the Trustees will consider at that time the
manner in which to treat such expenses. The Distributor has advised the Fund
that such excess amounts, including carrying charges, totaled $10,016,830 at
February 28, 1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to account executives may be reimbursed in the subsequent
calendar year. For the period ended February 28, 1998, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.24% and
1.0%, respectively.
The Distributor has informed the Fund that for the period ended February 28,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares of $580,315 and received $9,859 in front-end sales
charges from sales of the Fund's Class A shares. The respective shareholders pay
such charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended February 28, 1998 aggregated
$49,156,691 and $97,075,866, respectively.
For the year ended February 28, 1998, the Fund incurred brokerage commissions of
$7,195 with DWR for portfolio transactions executed on behalf of the Fund. At
February 28, 1998, the Fund's payable for investments purchased included
unsettled trades with DWR of $131,500.
For the period May 31, 1997 through February 28, 1998, the Fund incurred
brokerage commissions with Morgan Stanley & Co., Inc., an affiliate of the
Investment Manager since May 31, 1997, of $79,146, for portfolio transactions
executed on behalf of the Fund. At February 28, 1998, the Fund's receivable for
investments sold included unsettled trades with Morgan Stanley & Co., Inc. of
$952,944.
Dean Witter Trust FSB, an affiliate of the Investment Manager and Distributor,
is the Fund's transfer agent. At February 28, 1998, the Fund had transfer agent
fees and expenses payable of approximately $3,000.
63
<PAGE>
DEAN WITTER GLOBAL UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998, CONTINUED
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 28, 1998 FEBRUARY 28, 1997
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold............................................................. 64,407 $ 867,738 -- --
Reinvestment of dividends and distributions...................... 1,974 26,818 -- --
Redeemed......................................................... (3,608) (51,558) -- --
----------- -------------- ----------- ------------
Net increase - Class A........................................... 62,773 842,998 -- --
----------- -------------- ----------- ------------
CLASS B SHARES
Sold............................................................. 5,287,804 71,906,678 4,354,550 $ 51,632,264
Reinvestment of dividends and distributions...................... 1,337,025 18,124,561 284,415 3,276,573
Redeemed......................................................... (8,174,924) (110,798,834) (8,631,939) (101,980,471)
----------- -------------- ----------- ------------
Net decrease - Class B........................................... (1,550,095) (20,767,595) (3,992,974) (47,071,634)
----------- -------------- ----------- ------------
CLASS C SHARES*
Sold............................................................. 10,598 145,286 -- --
Reinvestment of dividends and distributions...................... 311 4,213 -- --
Redeemed......................................................... (225) (3,358) -- --
----------- -------------- ----------- ------------
Net increase - Class C........................................... 10,684 146,141 -- --
----------- -------------- ----------- ------------
CLASS D SHARES*
Sold............................................................. 926 12,944 -- --
Reinvestment of dividends and distributions...................... 27 375 -- --
----------- -------------- ----------- ------------
Net increase - Class D........................................... 953 13,319 -- --
----------- -------------- ----------- ------------
Net decrease in Fund............................................. (1,475,685) $ (19,765,137) (3,992,974) $(47,071,634)
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
- - ---------------------
* For the period July 28, 1997 (issue date) through February 28, 1998.
6. FEDERAL INCOME TAX STATUS
Capital and foreign currency losses incurred after October 31 ("post-October
losses") within the taxable year are deemed to arise on the first business day
of the Fund's next taxable year. The Fund incurred and will elect to defer net
capital and foreign currency losses of approximately $8,166,000 and $11,000,
respectively, during fiscal 1998.
As of February 28, 1998, the Fund had temporary book/tax differences primarily
attributable to post-October losses and permanent book/tax differences
attributable to foreign currency losses. To reflect reclassifications arising
from the permanent differences, accumulated undistributed net investment income
was charged and distributions in excess of net realized gain was credited
$41,137.
64
<PAGE>
DEAN WITTER GLOBAL UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1998, CONTINUED
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward contracts")
to facilitate settlement of foreign currency denominated portfolio transactions
or to manage foreign currency exposure associated with foreign currency
denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
At February 28, 1998, there were outstanding forward contracts to facilitate
settlement of foreign currency denominated portfolio transactions.
65
<PAGE>
DEAN WITTER GLOBAL UTILITIES FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE
PERIOD
MAY 31,
1994*
FOR THE YEAR ENDED FEBRUARY 28, THROUGH
-------------------------------- FEBRUARY
1998++++ 1997 1996** 28, 1995
- - ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period.............................. $ 12.66 $ 11.33 $ 9.80 $ 10.00
---------- --------- --------- ----------
Net investment income................ 0.15 0.10 0.18 0.13
Net realized and unrealized gain
(loss).............................. 3.05 1.35 1.64 (0.21)
---------- --------- --------- ----------
Total from investment operations..... 3.20 1.45 1.82 (0.08)
---------- --------- --------- ----------
Less dividends and distributions
from:
Net investment income............. (0.15) (0.12) (0.16) (0.12)
Net realized gain................. (0.62) -- (0.13) --
---------- --------- --------- ----------
Total dividends and distributions.... (0.77) (0.12) (0.29) (0.12)
---------- --------- --------- ----------
Net asset value, end of period....... $ 15.09 $ 12.66 $ 11.33 $ 9.80
---------- --------- --------- ----------
---------- --------- --------- ----------
TOTAL INVESTMENT RETURN+............. 26.06% 12.91% 18.76% (0.87)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses............................. 1.80% 1.82% 1.87% 1.97%(2)
Net investment income................ 1.08% 0.85% 1.66% 1.83%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands........................... $396,483 $352,240 $360,347 $337,600
Portfolio turnover rate.............. 14% 10% 16% 2%(1)
Average commission rate paid......... $0.0024 $0.0071 -- --
</TABLE>
- - ---------------------
* Commencement of operations.
** Year ended February 29.
++ Prior to July 28, 1997, the Fund issued one class of shares. All shares
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
66
<PAGE>
DEAN WITTER GLOBAL UTILITIES FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
FEBRUARY 28,
1998++
- - ----------------------------------------------------------------------------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 13.77
------
Net investment income................................................. 0.07
Net realized and unrealized gain...................................... 1.76
------
Total from investment operations...................................... 1.83
------
Less dividends and distributions from:
Net investment income............................................... (0.07)
Net realized gain................................................... (0.43)
------
Total dividends and distributions..................................... (0.50)
------
Net asset value, end of period........................................ $ 15.10
------
------
TOTAL INVESTMENT RETURN+.............................................. 13.74%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.18%(2)
Net investment income................................................. 0.88%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $948
Portfolio turnover rate............................................... 14%
Average commission rate paid.......................................... $0.0024
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 13.77
------
Net investment income................................................. 0.01
Net realized and unrealized gain...................................... 1.76
------
Total from investment operations...................................... 1.77
------
Less dividends and distributions from:
Net investment income.............................................. (0.04)
Net realized gain.................................................. (0.43)
------
Total dividends and distributions..................................... (0.47)
------
Net asset value, end of period........................................ $ 15.07
------
------
TOTAL INVESTMENT RETURN+.............................................. 13.24%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.93%(2)
Net investment income................................................. 0.06%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $161
Portfolio turnover rate............................................... 14%
Average commission rate paid.......................................... $0.0024
</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
67
<PAGE>
DEAN WITTER GLOBAL UTILITIES FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
FEBRUARY 28,
1998++
- - ----------------------------------------------------------------------------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 13.77
------
Net investment income................................................. 0.09
Net realized and unrealized gain...................................... 1.76
------
Total from investment operations...................................... 1.85
------
Less dividends and distributions from:
Net investment income.............................................. (0.08)
Net realized gain.................................................. (0.43)
------
Total dividends and distributions..................................... (0.51)
------
Net asset value, end of period........................................ $ 15.11
------
------
TOTAL INVESTMENT RETURN+.............................................. 13.90%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.92%(2)
Net investment income................................................. 1.04%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $14
Portfolio turnover rate............................................... 14%
Average commission rate paid.......................................... $0.0024
</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
68
<PAGE>
DEAN WITTER GLOBAL UTILITIES FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER GLOBAL UTILITIES 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 Dean Witter Global Utilities Fund
(the "Fund") at February 28, 1998, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
February 28, 1998 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
APRIL 13, 1998
69
<PAGE>
DEAN WITTER GLOBAL UTILITIES FUND
FEDERAL TAX NOTICE (UNAUDITED)
1998 FEDERAL TAX NOTICE
For the year ended February 28, 1998, the Fund paid to shareholders the
following per share amounts from long-term capital gains. These distributions
are taxable as 28% rate gains or 20% rate gains, as indicated below:
<TABLE>
<CAPTION>
PER SHARE
----------
CLASS A
----------
<S> <C>
Portion of long-term capital gains taxable as:
28% rate gain......................................................................................................... --
20% rate gain......................................................................................................... $ 0.43
-----
Total................................................................................................................... $ 0.43
-----
-----
<CAPTION>
CLASS B
----------
<S> <C>
Portion of long-term capital gains taxable as:
28% rate gain......................................................................................................... $ 0.16
20% rate gain......................................................................................................... 0.43
-----
Total................................................................................................................... $ 0.59
-----
-----
<CAPTION>
CLASS C
----------
Portion of long-term capital gains taxable as:
28% rate gain......................................................................................................... --
20% rate gain......................................................................................................... $ 0.43
-----
Total................................................................................................................... $ 0.43
-----
-----
<CAPTION>
CLASS D
----------
Portion of long-term capital gains taxable as:
28% rate gain......................................................................................................... --
20% rate gain......................................................................................................... $ 0.43
-----
Total................................................................................................................... $ 0.43
-----
-----
</TABLE>
For the year ended February 28, 1998, 75.01% of the income dividends qualified
for the dividends received deduction available to corporations. In addition, the
Fund has elected, pursuant to Section 853 of the Internal Revenue Code, to pass
through foreign taxes of $0.03 per share to its shareholders, of which 100%
would be allowable as a credit. The Fund generated net foreign source income of
$0.11 per share with respect to this election.
70
<PAGE>
APPENDIX
- ------------------------------------------------------------------------------
RATINGS OF CORPORATE DEBT INSTRUMENTS INVESTMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")
FIXED-INCOME SECURITY RATINGS
<TABLE>
<S> <C>
Aaa Fixed-income securities 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 Fixed-income securities 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 fixed-income securities. They are rated lower than the best fixed-income
securities 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
other elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A Fixed-income securities 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 Fixed-income securities 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 fixed-income securities lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Fixed-income securities rated Aaa, Aa, A and Baa are considered investment grade.
Ba Fixed-income securities 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 Fixed-income securities which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa Fixed-income securities 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 Fixed-income securities 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 Fixed-income securities which are rated C are the lowest rated class of fixed
income securities, and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
</TABLE>
RATING REFINEMENTS: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its municipal
fixed-income security rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and a modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
71
<PAGE>
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 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")
FIXED-INCOME SECURITY RATINGS
A Standard & Poor's fixed-income security rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable. The
ratings are based, in varying degrees, on the following considerations: (1)
likelihood of default-capacity and willingness of the obligor as to the timely
payment of interest and repayment of principal in accordance with the terms of
the obligation; (2) nature of and provisions of the obligation; and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
Standard & Poor's does not perform an audit in connection with any rating
and may, on occasion, rely on unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other reasons.
<TABLE>
<S> <C>
AAA Fixed-income securities rated "AAA" have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA Fixed-income securities rated "AA" have a very strong capacity to pay interest and
repay principal and differs from the highest-rate issues only in small degree.
A Fixed-income securities rated "A" have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than fixed-income securities in
higher-rated categories.
BBB Fixed-income securities rated "BBB" are 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 fixed-income
securities in this category than for fixed-income securities in higher-rated
categories.
Fixed-income securities rated AAA, AA, A and BBB are considered investment grade.
BB Fixed-income securities rated "BB" have less near-term vulnerability to default
than other speculative grade fixed-income securities. However, it faces major
ongoing uncertainties or exposures to adverse business, financial or economic
conditions which could lead to inadequate capacity or willingness to pay interest
and repay principal.
B Fixed-income securities rated "B" have a greater vulnerability to default but
presently have 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.
</TABLE>
72
<PAGE>
<TABLE>
<S> <C>
CCC Fixed-income securities rated "CCC" have a current identifiable vulnerability to
default, and are 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, they are not likely to
have the capacity to pay interest and repay principal.
CC The rating "CC" is typically applied to fixed-income securities subordinated to
senior debt which is assigned an actual or implied "CCC" rating.
C The rating "C" is typically applied to fixed-income securities subordinated to
senior debt which is assigned an actual or implied "CCC-" rating.
CI The rating "CI" is reserved for fixed-income securities 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.
Fixed-income securities 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 fixed-income securities 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 with the major ratings
categories.
</TABLE>
COMMERCIAL PAPER RATINGS
Standard and Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based upon current information furnished by the
issuer or obtained by 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.
<TABLE>
<S> <C>
A-1 indicates that the degree of safety regarding timely payment is very strong.
A-2 indicates capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated "A-1."
A-3 indicates a satisfactory capacity for timely payment. Obligations carrying this
designation are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
</TABLE>
73
<PAGE>
TCW/DW GLOBAL TELECOM
TRUST
STATEMENT OF ADDITIONAL INFORMATION
July 31, 1998
- --------------------------------------------------------------------------------
TCW/DW Global Telecom Trust (the "Fund") is an open-end, diversified
management investment company, whose investment objective is long-term capital
appreciation. The Fund seeks to achieve its investment objective by investing
primarily in a portfolio consisting of securities of domestic and foreign
companies operating in all aspects of the telecommunications and information
industries (the "Target Industries"). See "Investment Objective and Policies"
in the Prospectus.
A Prospectus for the Fund dated July 31, 1998, which provides basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address or telephone numbers listed below
or from the Fund's Distributor, Morgan Stanley Dean Witter Distributors Inc.,
or from Dean Witter Reynolds Inc. at any of its branch offices. This Statement
of Additional Information is not a Prospectus. It contains information in
addition to and more detailed than that set forth in the Prospectus. It is
intended to provide additional information regarding the activities and
operations of the Fund, and should be read in conjunction with the Prospectus.
TCW/DW Global Telecom Trust
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund and its Management ............................................. 3
Trustees and Officers ................................................... 6
Investment Practices and Policies ....................................... 12
Investment Restrictions ................................................. 25
Portfolio Transactions and Brokerage .................................... 26
The Distributor ......................................................... 27
Purchase of Fund Shares ................................................. 32
Shareholder Services .................................................... 34
Repurchases and Redemptions ............................................. 38
Dividends, Distributions and Taxes ...................................... 39
Performance Information ................................................. 40
Description of Shares ................................................... 41
Custodian and Transfer Agent ............................................ 42
Independent Accountants ................................................. 42
Reports to Shareholders ................................................. 42
Legal Counsel ........................................................... 42
Experts ................................................................. 42
Registration Statement .................................................. 42
Financial Statements -- May 31, 1998 .................................... 43
Report of Independent Accountants ....................................... 59
Appendix ................................................................ 60
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
THE FUND
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 March 28, 1996. The Fund is one of the TCW/DW Funds, which
currently consist, in addition to the Fund, of TCW/DW Small Cap Growth Fund,
TCW/DW North American Government Income Trust, TCW/DW Latin American Growth
Fund, TCW/DW Term Trust 2002, TCW/DW Income and Growth Fund, TCW/DW Term Trust
2003, TCW/DW Term Trust 2000, TCW/DW Emerging Markets Opportunities Trust,
TCW/DW Total Return Trust and TCW/DW Mid-Cap Equity Trust.
THE MANAGER
Morgan Stanley Dean Witter Services Company Inc. (the "Manager"), a
Delaware corporation, whose address is Two World Trade Center, New York, New
York 10048, is the Fund's Manager. The Manager is a wholly-owned subsidiary of
Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"), a Delaware
corporation. MSDW Advisors is a wholly-owned subsidiary of Morgan Stanley Dean
Witter & Co. ("MSDW"), a Delaware corporation. The daily management of the Fund
is conducted by or under the direction of officers of the Fund and of the
Manager and Adviser (see below), subject to review by the Fund's Board of
Trustees. Information as to these Trustees and officers is contained under the
caption "Trustees and Officers."
Pursuant to a management agreement (the "Management Agreement") with the
Manager, the Fund has retained the Manager to manage the Fund's business
affairs, supervise the overall day-to-day operations of the Fund (other than
rendering investment advice) and provide all administrative services to the
Fund. Under the terms of the Management Agreement, the Manager also maintains
certain of the Fund's books and records and furnishes, at its own expense, such
office space, facilities, equipment, supplies, 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 Manager, necessary or desirable). In addition, the Manager pays the
salaries of all personnel, including officers of the Fund, who are employees of
the Manager. The Manager also bears the cost of the Fund's telephone service,
heat, light, power and other utilities.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Manager, the Fund pays the Manager
monthly compensation calculated daily by applying the annual rate of 0.60% to
the daily net assets of the Fund determined as of the close of each business
day. The management fee is allocated among the classes pro rata based on the
net assets of the Fund attributable to each Class. While the total fees payable
under the Management Agreement and the Advisory Agreement (described below) are
higher than that paid by most other investment companies for similar services,
the Board of Trustees determined that the total fees payable under the
Management Agreement and the Advisory Agreement (described below) are
reasonable in relation to the scope and quality of services to be provided
thereunder. In this regard, in evaluating the Management Agreement and the
Advisory Agreement, the Board of Trustees recognized that the Manager and the
Adviser had, pursuant to an agreement described under the section entitled "The
Adviser," agreed to a division as between themselves of the total fees
necessary for the management of the business affairs of and the furnishing of
investment advice to the Fund. Accordingly, in reviewing the Management
Agreement and Advisory Agreement, the Board viewed as most significant the
question as to whether the total fees payable under the Management and Advisory
Agreements were in the aggregate reasonable in relation to the services to be
provided thereunder.
For the period August 28, 1996 (commencement of operations) through May
31, 1997 and for the fiscal year ended May 31, 1998, the Fund accrued to the
Manager total compensation under the Management Agreement in the amount of
$474,078 and 910,689, respectively.
The Management Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Manager is not liable to the Fund or any of its
investors for any act or omission by the Manager or for any losses sustained by
the Fund or its investors. The Management Agreement in no way restricts the
Manager from acting as manager to others.
3
<PAGE>
MSDW Advisors paid the organizational expenses of the Fund (approximately
$158,225) incurred prior to the offering of the Fund's shares. The Fund has
agreed to reimburse MSDW Advisors such expenses. These expenses will be
deferred by the Fund and amortized on the straight line method over a period
not to exceed five years from the date of commencement of the Fund's
operations.
The Management Agreement was approved by the Trustees on April 17, 1996
and became effective on that date. It was approved by MSDW Advisors as the then
sole shareholder on April 18, 1996. The Management Agreement may be terminated
at any time, without penalty, on thirty days' notice by the Trustees of the
Fund, or by the Manager.
Under its terms, the Management Agreement had an initial term ending April
30, 1997, and provides that it will continue in effect from year to year
thereafter, provided continuance of the Agreement is approved at least annually
by the vote of the Trustees of the Fund, including the vote of a majority of
the Trustees of the Fund who are not parties to the Management or Advisory
Agreement or "interested persons" (as defined in the Investment Company Act of
1940, as amended (the "Act")) of any such party (the "Independent Trustees").
At a meeting held on April 30, 1998, the Board of Trustees, including a
majority of the Independent Trustees, approved continuation of the Management
Agreement until April 30, 1999.
THE ADVISER
TCW Funds Management, Inc. (the "Adviser") is a wholly-owned subsidiary of
The TCW Group, Inc. ("TCW"), whose direct and indirect subsidiaries, including
Trust Company of the West and TCW Asset Management Company, provide a variety
of trust, investment management and investment advisory services. As of June
30, 1998, the Adviser and its affiliates had $50 billion under management or
committed to management. Trust Company of the West and its affiliates have
managed equity securities portfolios for institutional investors since 1971.
The Adviser is headquartered at 865 South Figueroa Street, Suite 1800, Los
Angeles, California 90017 and is registered as an investment adviser under the
Investment Advisers Act of 1940. In addition to the Fund, the Adviser serves as
investment adviser or co-adviser to ten other TCW/DW Funds: TCW/DW Small Cap
Growth Fund, TCW/DW North American Government Income Trust, TCW/DW Latin
American Growth Fund, TCW/DW Term Trust 2002, TCW/DW Income and Growth Fund,
TCW/DW Term Trust 2003, TCW/DW Term Trust 2000, TCW/DW Emerging Markets
Opportunities Trust, TCW/DW Total Return Trust and TCW/DW Mid-Cap Equity Trust.
The Adviser also serves as investment adviser to TCW Convertible Securities
Fund, Inc., a closed-end investment company listed on the New York Stock
Exchange, and to TCW Galileo Funds, Inc., an open-end management investment
company, and acts as adviser or sub-adviser to other investment companies.
Robert A. Day, who is Chairman of the Board of Directors of TCW, may be
deemed to be a control person of the Adviser by virtue of the aggregate
ownership of Mr. Day and his family of more than 25% of the outstanding voting
stock of TCW.
Pursuant to an investment advisory agreement (the "Advisory Agreement")
with the Adviser, the Fund has retained the Adviser to invest the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. The Adviser 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. In addition, the Adviser
pays the salaries of all personnel, including officers of the Fund, who are
employees of the Adviser.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Adviser, the Fund pays the Adviser
monthly compensation calculated daily by applying the annual rate of 0.40% to
the daily net assets of the Fund determined as of the close of each business
day. Total compensation accrued to the Adviser for the period August 28, 1996
through May 31, 1997 and for the fiscal year ended May 31, 1998 amounted to
$316,052 and 607,126, respectively.
The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Adviser is not liable to the Fund or any of its
investors for any act or omission by the Adviser or for any losses sustained by
the Fund or its investors. The Advisory Agreement in no way restricts the
Adviser from acting as investment adviser to others.
4
<PAGE>
The Advisory Agreement was approved by the Trustees on April 17, 1996 and
by InterCapital as the then sole shareholder on April 18, 1996. The Advisory
Agreement may be terminated at any time, without penalty, on thirty days'
notice by the Trustees of the Fund, by the holders of a majority, as defined in
the Act, of the outstanding shares of the Fund, or by the Adviser. The
Agreement will automatically terminate in the event of its assignment (as
defined in the Act).
Under its terms, the Advisory Agreement had an initial term ending April
30, 1997, and will continue from year to year thereafter, provided continuance
of the Agreement is approved at least annually by the vote of the holders of a
majority, as defined in the Act, of the outstanding shares of the Fund, or by
the Trustees of the Fund; provided that in either event such continuance is
approved annually by the vote of a majority of the Independent Trustees of the
Fund, which vote must be cast in person at a meeting called for the purpose of
voting on such approval.
Expenses not expressly assumed by the Manager under the Management
Agreement, by the Adviser under the Advisory Agreement or by the Distributor of
the Fund's shares, Morgan Stanley Dean Witter Distributors Inc. ("MSDW
Distributors" or the "Distributor") (see "The Distributor"), will be paid by
the Fund. These expenses will be allocated among the four classes of shares of
the Fund (each, a "Class") pro rata based on the net assets of the 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 and securities transaction costs; 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 Manager or Adviser or any corporate affiliate of either; 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 Manager or the Adviser (not including
compensation or expenses of attorneys who are employees of the Manager or the
Adviser) and independent accountants; membership dues of industry associations;
interest on Fund borrowings; postage; insurance premiums on property or
personnel (including officers and trustees) of the Fund which inure to its
benefit; extraordinary expenses (including, but not limited to, legal claims
and liabilities and litigation costs and any indemnification relating thereto);
and all other costs of the Fund's operation. The 12b-1 fees relating to a
particular Class will be allocated directly to that Class. In addition, other
expenses associated with a particular Class (except advisory or custodial fees)
may be allocated directly to that Class, provided that such expenses are
reasonably identified as specifically attributable to that Class and the direct
allocation to that Class is approved by the Trustees.
The following owned 5% or more of the outstanding shares of Class A on
June 30, 1998: James P. Rogers, 4628 IDS Center, 80 South Eighth Street,
Minneapolis, MN 55402, K-Gam Limited Partnership, 6061 E. Broadway, Suite 130,
Tucson, AZ 85711. The following owned 5% or more of the outstanding shares of
Class C on June 30, 1998: Michael J. Griffin & Joyce A. Bertoldo JTTEJ, 28
Spring Hill Road, Cold Spring Harbor, NY 11724, Dorain Grusman & Ben Grusman &
Anna Grusman JTTEN, 7919 Oceanus Drive, Los Angeles, CA 90046, Dean Witter
Reynolds Cust for William T. Drobick, IRA Standard dated 4/28/97, 3233 Sutton
Court, Fremont, CA 94536. The following owned 5% or more of the outstanding
shares of Class D on June 30, 1998: Morgan Stanley Dean Witter Advisors, Inc.,
Attn: Maurice Bendrihem, 2 World Trade Center, 73rd Floor, New York, NY 10048.
The following owned 25% or more of the outstanding shares of Class A on June
30, 1998: James P. Rogers, 4628 IDS Center, 80 South Eighth Street,
Minneapolis, MN 55402. The following owned 25% or more of the outstanding
shares of Class D on June 30, 1998: Morgan Stanley Dean Witter Advisors, Inc.,
Attn: Maurice Bendrihem, 2 World Trade Center, 73rd Floor, New York, NY 10048.
The Fund has acknowledged that each of DWR and TCW owns its own name,
initials and logo. 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
Fund has agreed to change its name at the request of either the Manager or the
Adviser, if the Management Agreement between the Manager and the Fund or the
Advisory Agreement between the Adviser and the Fund is terminated.
5
<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 the
Manager or the Adviser, and the affiliated companies of either, and the 11
TCW/DW Funds and with the 86 investment companies of which MSDW Advisors serves
as investment manager or investment adviser (the "Morgan Stanley Dean Witter
Funds"), are shown below.
<TABLE>
<CAPTION>
Name, Age, Position with Fund and Address Principal Occupation During Last Five Years
- ------------------------------------------- ------------------------------------------------------------
<S> <C>
John C. Argue (66) Of Counsel, Argue Pearson Harbison & Myers (law firm);
Trustee Director, Avery Dennison Corporation (manufacturer of
c/o Argue Pearson Harbison & Myers self-adhesive products and office supplies), CalMat
801 South Flower Street Company (producer of aggregates, asphalt and ready
Los Angeles, California mixed concrete); Chairman, Director, Apex Mortgage
Capital, Inc. and Nationwide Health Properties, Inc. (each
real estate investment trusts); advisory director, LAACO
Ltd. (owner and operator of private clubs and real estate);
director or trustee of various business and not-for-profit
corporations; Director, TCW Galileo Funds, Inc.; Trustee
of the TCW/DW Funds.
Richard M. DeMartini* (45) President and Chief Operating Officer of Morgan
Trustee Stanley Dean Witter Individual Asset Management
Two World Trade Center Group, a division of DWR; Director of DWR, the
New York, New York Manager, MSDW Advisors, Morgan Stanley Dean
Witter Distributors and Morgan Stanley Dean Witter
Trust FSB ("MSDW Trust"); Executive Vice President
of Morgan Stanley Dean Witter & Co. ("MSDW");
Trustee of the TCW/DW Funds and the Van Kampen
American Capital Funds; Director and/or officer of
various MSDW subsidiaries; formerly Vice Chairman
of the Board of the National Association of Securities
Dealers, Inc.; and Chairman of the Board of Directors
of the Nasdaq Market, Inc.
Charles A. Fiumefreddo* (65) Chairman, Chief Executive Officer and Trustee of the
Chairman of the Board, Chief TCW/DW Funds; Chairman, Director or Trustee,
Executive Officer and Trustee President and Chief Executive Officer of the Morgan
Two World Trade Center Stanley Dean Witter Funds; formerly Chairman, Chief
New York, New York Executive Officer and Director of 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).
John R. Haire (73) Chairman of the Audit Committee and Director or
Trustee Trustee of the TCW/DW Funds; Chairman of the
Two World Trade Center Audit Committee and Director or Trustee of the
New York, New York Morgan Stanley Dean Witter Funds; formerly Chairman
of the Committee 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 Adviser (1964-1978).
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Name, Age, Position with Fund and Address Principal Occupation During Last Five Years
- ------------------------------------------- -------------------------------------------------------
<S> <C>
Dr. Manuel H. Johnson (49) Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm; Co-Chairman and a founder of the
c/o Johnson Smick International, Inc. Group of Seven Council (G7C), an international
1133 Connecticut Avenue, N.W. economic commission; Director or Trustee of the
Washington D.C. Morgan Stanley Dean Witter Funds; Trustee of
the TCW/DW Funds; Chairman and Trustee of
the Financial Accounting Foundation (oversight
organization for the Financial Accounting Standards
Board); Director of NASDAQ Market, Inc. (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).
Thomas E. Larkin, Jr.* (58) Executive Vice President and Director, The TCW
President and Trustee Group, Inc.; President and Director of Trust Company
865 South Figueroa Street of the West; Vice Chairman and Director of TCW
Los Angeles, California Asset Management Company; Chairman of the Adviser;
President and Director of TCW Galileo Funds, Inc.;
Senior Vice President of TCW Convertible Securities
Fund, Inc.; President and Trustee of the TCW/DW
Funds; Member of the Board of Trustees of the
University of Notre Dame; Director of Orthopaedic
Hospital of Los Angeles.
Michael E. Nugent (62) General Partner, Triumph Capital, L.P., a private
Trustee investment partnership; Trustee of the TCW/DW
c/o Triumph Capital, L.P. Funds; Director or Trustee of the Morgan Stanley
237 Park Avenue Dean Witter Funds; formerly Vice President, Bankers
New York, New York Trust Company and BT Capital Corporation (1984-
1988); Director of various business organizations.
John L. Schroeder (67) Retired; Director or Trustee of the Morgan Stanley
Trustee Dean Witter Funds; Trustee of the TCW/DW Funds;
c/o Gordon Altman Butowsky Director of Citizens Utilities Company; formerly
Weitzen Shalov & Wein Executive Vice President and Chief Investment Officer
Counsel to the Independent Trustees of the Home Insurance Company (August, 1991-
114 West 47th Street September, 1995).
New York, New York
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Name, Age, Position with Fund and Address Principal Occupation During Last Five Years
- ------------------------------------------- -----------------------------------------------------------
<S> <C>
Marc I. Stern* (54) President and Director, The TCW Group, Inc.;
Trustee President and Director of the Adviser; Vice Chairman
865 South Figueroa Street and Director of TCW Asset Management Company;
Los Angeles, California Executive Vice President and Director of Trust
Company of the West; Chairman and Director of
TCW Galileo Funds, Inc.; Trustee of the TCW/DW
Funds; Chairman of TCW Americas Development,
Inc.; Chairman of TCW Asia, Limited; Chairman of
TCW London International, Limited; Chairman, Apex
Mortgage Capital Inc. (a real estate investment trust);
formerly President of SunAmerica, Inc. (financial
services company); Director of Qualcomm, Incorporated
(wireless communications); director or trustee of various
not-for-profit organizations.
Barry Fink (43) Senior Vice President (since March, 1997); Secretary
Vice President, Secretary and General Counsel (since February, 1997) and
and General Counsel Director (since July, 1998) of the Manager and MSDW
Two World Trade Center Advisors; Senior Vice President (since March, 1997)
New York, New York and Assistant Secretary 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 the Manager and MSDW Advisors Assistant Secretary
of the Morgan Stanley Dean Witter Funds and the
TCW/DW Funds.
Robert M. Hanisee (60) Managing Director of the Adviser; Managing Director,
Vice President Director of Research and Chairman of the Equity
865 South Figueroa Street Policy Committee of Trust Company of the West and
Los Angeles, California TCW Asset Management Company; Vice President of
TCW/DW Income and Growth Fund and TCW/DW
Core Equity Trust.
John A. Healey (62) Managing Director of the Adviser (since April, 1996);
Vice President previously, Senior Advisor with the Adviser (since 1995);
865 South Figueroa Street formerly, independent consultant with Healey Partners
Los Angeles, California (financial services firm until 1995); formerly director of
Emerging Markets Country Investment Trust Plc.
Thomas F. Caloia (52) First Vice President and Assistant Treasurer of the
Treasurer Manager and MSDW Advisors; Treasurer of the
Two World Trade Center TCW/DW Funds and the Morgan Stanley Dean Witter
New York, New York Funds.
</TABLE>
- ----------
* Denotes Trustees who are "interested persons" of the Fund, as defined in
the Act.
8
<PAGE>
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 the
Manager and MSDW Advisors, Executive Vice President of MSDW Distributors and
MSDW Trust and Director of MSDW Trust, Robert S. Giambrone, Senior Vice
President of MSDW Advisors, MSDW Services, MSDW Distributors and MSDW Trust and
Director of MSDW Trust, are Vice Presidents of the Fund, and Marilyn K. Cranney
and Carsten Otto, First Vice Presidents and Assistant General Counsels of the
Manager and MSDW Advisors, Frank Bruttomesso, LouAnne D. McInnis and Ruth
Rossi, Vice Presidents and Assistant General Counsels of the Manager and MSDW
Advisors, 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 trustees for all of the TCW/DW Funds. As of the date
of this Statement of Additional Information, there are a total of 11 TCW/DW
Funds. As of May 31, 1998, the TCW/DW Funds had total net assets of
approximately $50 billion and approximately a quarter of a million
shareholders.
Five Trustees (56% of the total number) have no affiliation or business
connection with TCW Funds Management, Inc. or MSDW Services or any of their
affiliated persons and do not own any stock or other securities issued by MSDW
or TCW, the parent companies of MSDW Services and TCW Funds Management, Inc.,
respectively. These are the "disinterested" or "independent" Trustees. Four of
the five independent Trustees are also Independent Trustees of the Morgan
Stanley Dean Witter Funds.
Law and regulation establish both general guidelines and specific duties
for the Independent Trustees. The TCW/DW 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.
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 sixteen
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. Each of the open-end TCW/DW Funds has such a plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; and reviewing the adequacy of the Fund's system of internal
controls.
Finally, the Board of each Fund has formed a Derivatives Committee to
approve parameters for and monitor the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
9
<PAGE>
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL
TCW/DW FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the TCW/DW 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 TCW/DW Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $2,225 plus a per
meeting fee of $200 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 Manager or the Adviser or an affiliated company of either 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. The
Trustees of the TCW/DW Funds do not have retirement or deferred compensation
plans.
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended May 31, 1998.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- --------------------------- -------------
<S> <C>
John C. Argue ................. $5,569
John R. Haire ................. 7,419
Dr. Manuel H. Johnson ......... 5,369
Michael E. Nugent ............. 5,369
John L. Schroeder ............. 5,569
</TABLE>
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 14 TCW/DW Funds and, in the case of Messrs. Haire, Johnson, Nugent and
Schroeder, the 84 Morgan Stanley Dean Witter Funds that were in operation at
December 31, 1997, and, in the case of Mr. Argue, TCW Galileo Funds, Inc. and
TCW Convertible Securities Fund, Inc. Mr. Haire serves as Chairman of the Audit
Committee of each TCW/DW Fund and each Morgan Stanley Dean Witter 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 Morgan Stanley Dean Witter Funds are included solely because of
a limited exchange privilege between various TCW/DW Funds and five Morgan
Stanley Dean Witter Money Market Funds. With respect to Mr. Argue, TCW Galileo
Funds, Inc. and TCW Convertible Securities Fund, Inc. are included solely
because the Fund's Adviser, TCW Funds Management, Inc., also serves as Adviser
to those investment companies.
10
<PAGE>
CASH COMPENSATION FROM FUND GROUPS
<TABLE>
<CAPTION>
FOR SERVICE
AS DIRECTOR OR
FOR SERVICE AS TRUSTEE AND
TRUSTEE AND COMMITTEE FOR SERVICE AS
COMMITTEE MEMBER DIRECTOR OF
MEMBER OF 84 TCW GALILEO
OF 14 MORGAN STANLEY FUNDS, INC. AND
TCW/DW DEAN WITTER TCW CONVERTIBLE
NAME OF INDEPENDENT TRUSTEE FUNDS FUNDS SECURITIES FUND, INC.
- --------------------------- ----- ----- ---------------------
<S> <C> <C> <C>
John C. Argue ............... $71,125 -- $43,250
John R. Haire ............... 73,725 $149,702 --
Dr. Manuel H. Johnson........ 71,125 145,702 --
Michael E. Nugent ........... 73,725 149,702 --
John L. Schroeder ........... 73,725 149,702 --
<CAPTION>
FOR SERVICE AS
CHAIRMAN OF TOTAL
FOR SERVICES AS INDEPENDENT CASH COMPENSATION
CHAIRMAN OF DIRECTORS/ FOR SERVICES TO
INDEPENDENT TRUSTEES 84 MORGAN STANLEY
TRUSTEES AND AUDIT DEAN WITTER
AND AUDIT COMMITTEES FUNDS, 14
COMMITTEES OF 84 TCW/DW FUNDS,
OF 14 MORGAN STANLEY TCW GALILEO FUNDS, INC.
TCW/DW DEAN WITTER AND TCW CONVERTIBLE
NAME OF INDEPENDENT TRUSTEE FUNDS FUNDS SECURITIES FUND, INC.
- --------------------------- ----- ----- ---------------------
<S> <C> <C> <C>
John C. Argue ............... -- -- $114,375
John R. Haire ............... $25,350 $157,463 406,240
Dr. Manuel H. Johnson........ -- -- 216,827
Michael E. Nugent ........... -- -- 223,427
John L. Schroeder ........... -- -- 223,427
</TABLE>
As of the date of this Statement of Additional Information, 57 of the
Morgan Stanley Dean Witter Funds 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 29.41% of his or her Eligible Compensation plus 0.4901667%
of such Eligible Compensation for each full month of service as an Independent
Director or Trustee of any Adopting Fund in excess of five years up to a
maximumof 58.82% after ten years of service. The foregoing percentages may be
changed by the Board.(1) "Eligible Compensation" is one-fifth of the total
compensation earned by such Eligible 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.
The following table illustrates the retirement benefits accrued to Messrs.
Haire, Johnson, Nugent and Schroeder by the 57 Morgan Stanley Dean Witter Funds
for the year ended December 31, 1997, and the estimated retirement benefits for
Messrs. Haire, Johnson, Nugent and Schroeder, 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
CREDITED YEARS ESTIMATED RETIREMENT BENEFITS ESTIMATED ANNUAL BENEFITS
OF SERVICE AT PERCENTAGE OF ACCRUED AS EXPENSES UPON RETIREMENT
RETIREMENT ELIGIBLE BY ALL ADOPTING FROM ALL ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUNDS FUNDS(2)
- --------------------------- ------------ ------------ ----- --------
<S> <C> <C> <C> <C>
John R. Haire .................. 10 58.82% $ (19,823)(3) $132,002
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>
- ----------
(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.
(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.
11
<PAGE>
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
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES
As discussed in the Prospectus, the Fund may invest in, among other
securities, securities issued by the U.S. Government, its agencies or
instrumentalities. Such securities include:
(1) U.S. Treasury bills (maturities of one year or less), U.S.
Treasury notes (maturities of one to ten years) and U.S. Treasury bonds
(generally maturities of greater than ten years), all of which are direct
obligations of the U.S. Government and, as such, are backed by the "full
faith and credit" of the United States.
(2) Securities issued by agencies and instrumentalities of the U.S.
Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing such obligations
are the Federal Housing Administration, the Government National Mortgage
Association ("GNMA"), the Department of Housing and Urban Development, the
Export-Import Bank, the Farmers Home Administration, the General Services
Administration, the Maritime Administration and the Small Business
Administration. The maturities of such obligations range from three months
to 30 years.
(3) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but whose
issuing agency or instrumentality has the right to borrow, to meet its
obligations, from an existing line of credit with the U.S. Treasury. Among
the agencies and instrumentalities issuing such obligations are the
Tennessee Valley Authority, the Federal National Mortgage Association
("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") and the
U.S. Postal Service. The U.S. Treasury has no legal obligation to provide
such line of credit and may choose not to do so.
(4) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but which are
backed by the credit of the issuing agency or instrumentality. Among the
agencies and instrumentalities issuing such obligations are the Federal
Farm Credit System and the Federal Home Loan Banks.
Neither the value nor the yield of the U.S. Government securities which
may be invested in by the Fund are guaranteed by the U.S. Government. Such
values and yield will fluctuate with changes in prevailing interest rates and
other factors. Generally, as prevailing interest rates rise, the value of any
U.S. Government securities held by the Fund will fall. Such securities with
longer maturities generally tend to produce higher yields and are subject to
greater market fluctuation as a result of changes in interest rates than debt
securities with shorter maturities. The Fund is not limited as to the
maturities of the U.S. Government securities in which it may invest.
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;
12
<PAGE>
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);
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
Convertible Securities. The Fund will only invest in convertible and other
fixed income securities that are rated at least B by either S&P or Moody's or,
if not rated, determined to be of comparable quality by the Adviser.
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 Adviser 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
Adviser 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
13
<PAGE>
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.
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 Adviser 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 SECURITIES
The Fund may purchase securities on a "when, as and if issued" basis under
which the issuance of the security depends upon the occurrence of a subsequent
event, such as approval of a merger, corporate reorganization, 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 Adviser
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 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
14
<PAGE>
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.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may write covered call options against securities held in its
portfolio and covered put options on eligible portfolio securities and stock
indexes and purchase options of the same series to effect closing transactions,
and may hedge against potential changes in the market value of investments (or
anticipated investments) and facilitate the reallocation of the Fund's assets
into and out of equities and fixed-income securities by purchasing put and call
options on portfolio (or eligible portfolio) securities and engaging in
transactions involving futures contracts and options on such contracts. The
Fund may also hedge against potential changes in the market value of the
currencies in which its investments (or anticipated investments) are
denominated by purchasing put and call options on currencies and engage in
transactions involving currency futures contracts and options on such
contracts.
Call and put options on U.S. Treasury notes, bonds and bills and equity
securities are listed on Exchanges and are written in over-the-counter
transactions ("OTC options"). Listed options are issued by the Options Clearing
Corporation ("OCC") and other clearing utilities including foreign exchanges.
Ownership of a listed call option gives the Fund the right to buy from the OCC
the underlying security covered by the option at the stated exercise price (the
price per unit of the underlying security) by filing an exercise notice prior
to the expiration date of the option. The writer (seller) of the option would
then have the obligation to sell to the OCC the underlying security at that
exercise price prior to the expiration date of the option, regardless of its
then current market price. Ownership of a listed put option would give the Fund
the right to sell the underlying security to the OCC at the stated exercise
price. Upon notice of exercise of the put option, the writer of the put would
have the obligation to purchase the underlying security from the OCC at the
exercise price.
Options on Treasury Bonds and Notes. Because trading in options written on
Treasury bonds and notes tends to center on the most recently auctioned issues,
the exchanges on which such securities trade will not continue indefinitely to
introduce options with new expirations to replace expiring options on
particular issues. Instead, the expirations introduced at the commencement of
options trading on a particular issue will be allowed to run their course, with
the possible addition of a limited number of new expirations as the original
ones expire. Options trading on each issue of bonds or notes will thus be
phased out as new options are listed on more recent issues, and options
representing a full range of expirations will not ordinarily be available for
every issue on which options are traded.
Options on Treasury Bills. Because a deliverable Treasury bill changes
from week to week, writers of Treasury bill calls cannot provide in advance for
their potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Fund holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of
the option, the position may be hedged from a risk standpoint by the writing of
a call option. For so long as the call option is outstanding, the Fund will
hold the Treasury bills in a segregated account with its Custodian, so that
they will be treated as being covered.
Options on Foreign Currencies. The Fund may purchase and write options on
foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts. For example, in order to protect
against declines in the dollar value of portfolio securities which are
denominated in a foreign currency, the Fund may purchase put options on an
amount of such foreign currency equivalent to the current value of the
portfolio securities involved. As a result, the Fund would be enabled to sell
the foreign currency for a fixed amount of U.S. dollars, thereby "locking in"
the dollar value of the portfolio securities (less the amount of the premiums
paid for the options). Conversely, the Fund may purchase call options on
foreign currencies in which securities it anticipates purchasing are
denominated to secure a set U.S. dollar price for such securities and protect
against a decline in the value of the U.S. dollar against such foreign
currency. The Fund may also purchase call and put options to close out written
option positions.
The Fund may also write call options on foreign currency to protect
against potential declines in its portfolio securities which are denominated in
foreign currencies. If the U.S. dollar value of the portfolio securities falls
as a result of a decline in the exchange rate between the foreign currency in
which a security is denominated and the U.S. dollar, then a loss to the Fund
occasioned by such value decline would be ameliorated by receipt of the
15
<PAGE>
premium on the option sold. At the same time, however, the Fund gives up the
benefit of any rise in value of the relevant portfolio securities above the
exercise price of the option and, in fact, only receives a benefit from the
writing of the option to the extent that the value of the portfolio securities
falls below the price of the premium received. The Fund may also write options
to close out long call option positions.
The markets in foreign currency options are relatively new and the Fund's
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. Although the Fund will not purchase
or write such options unless and until, in the opinion of the management of the
Fund, the market for them has developed sufficiently to ensure that the risks
in connection with such options are not greater than the risks in connection
with the underlying currency, there can be no assurance that a liquid secondary
market will exist for a particular option at any specific time. In addition,
options on foreign currencies are affected by all of those factors which
influence foreign exchange rates and investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security,
including foreign securities held in a "hedged" investment portfolio. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in
an odd lot market (generally consisting of transactions of less than $1
million) for the underlying foreign currencies at prices that are less
favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the
extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may
take place in the underlying markets that are not reflected in the options
market.
OTC Options. Exchange-listed options are issued by the OCC which assures
that all transactions in such options are properly executed. OTC options are
purchased from or sold (written) to dealers or financial institutions which
have entered into direct agreements with the Fund. With OTC options, such
variables as expiration date, exercise price and premium will be agreed upon
between the Fund and the transacting dealer, without the intermediation of a
third party such as the OCC. If the transacting dealer fails to make or take
delivery of the securities underlying an option it has written, in accordance
with the terms of that option, the Fund would lose the premium paid for the
option as well as any anticipated benefit of the transaction. The Fund will
engage in OTC option transactions only with primary U.S. Government securities
dealers recognized by the Federal Reserve Bank of New York.
Covered Call Writing. The Fund is permitted to write covered call options
on portfolio securities and the U.S. dollar and foreign currencies, without
limit, in order to aid in achieving its investment objective. Generally, a call
option is "covered" if the Fund owns, or has the right to acquire, without
additional cash consideration (or for additional cash consideration held for
the Fund by its Custodian in a segregated account) the underlying security
subject to the option except that in the case of call options on U.S. Treasury
Bills, the Fund might own U.S. Treasury Bills of a different series from those
underlying the call option, but with a principal amount and value corresponding
to the exercise price and a maturity date not later than that of the securities
deliverable under the call option. A call option is also covered if the Fund
holds a call on the same security as the underlying security of the written
option, where the exercise price of the call used for coverage is equal to or
less than the exercise price of the call written or greater than the exercise
price of the call written if the mark to market difference is maintained by the
Fund in cash, U.S. Government securities or other liquid portfolio securities
which the Fund holds in a segregated account maintained with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable the Fund to achieve a greater total return than would be
realized from holding the underlying securities alone. Moreover, the premium
received will offset a portion of the potential loss incurred by the Fund if
the securities underlying the option are ultimately sold by the Fund at a loss.
16
<PAGE>
The premium received will fluctuate with varying economic market conditions. If
the market value of the portfolio securities upon which call options have been
written increases, the Fund may receive less total return from the portion of
its portfolio upon which calls have been written than it would have had such
call not been written.
As regards listed options and certain OTC options, during the option
period, the Fund may be required, at any time, to deliver the underlying
security against payment of the exercise price on any calls it has written
(exercise of certain listed options may be limited to specific expiration
dates). This obligation is terminated upon the expiration of the option period
or at such earlier time when the writer effects a closing purchase transaction.
A closing purchase transaction is accomplished by purchasing an option of the
same series as the option previously written. However, once the Fund has been
assigned an exercise notice, the Fund will be unable to effect a closing
purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit
on an outstanding call option to prevent an underlying security from being
called, to permit the sale of an underlying security or to enable the Fund to
write another call option on the underlying security with either a different
exercise price or expiration date or both. Also, effecting a closing purchase
transaction will permit the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other investments by the Fund.
The Fund may realize a net gain or loss from a closing purchase transaction
depending upon whether the amount of the premium received on the call option is
more or less than the cost of effecting the closing purchase transaction. Any
loss incurred in a closing purchase transaction may be wholly or partially
offset by unrealized appreciation in the market value of the underlying
security. Conversely, a gain resulting from a closing purchase transaction
could be offset in whole or in part or exceeded by a decline in the market
value of the underlying security.
If a call option expires unexercised, the Fund realizes a gain in the
amount of the premium on the option less the commission paid. Such a gain,
however, may be offset by depreciation in the market value of the underlying
security during the option period. If a call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security equal to the
difference between the purchase price of the underlying security and the
proceeds of the sale of the security plus the premium received on the option
less the commission paid.
Options written by the Fund normally have expiration dates of from up to
nine months (equity securities) to eighteen months (fixed-income securities)
from the date written. The exercise price of a call option may be below, equal
to or above the current market value of the underlying security at the time the
option is written. See "Risks of Options and Futures Transactions," below.
Covered Put Writing. As a writer of a covered put option, the Fund incurs
an obligation to buy the security underlying the option from the purchaser of
the put, at the option's exercise price at any time during the option period,
at the purchaser's election (certain listed put options written by the Fund
will be exercisable by the purchaser only on a specific date). A put is
"covered" if, at all times, the Fund maintains, in a segregated account
maintained on its behalf at the Fund's Custodian, cash, U.S. Government
securities or other liquid portfolio securities in an amount equal to at least
the exercise price of the option, at all times, during the option period.
Similary, a short put position could be covered by the Fund by its purchase of
a put option on the same security as the underlying security of the written
option, where the exercise price of the purchased option is equal to or more
than the exercise price of the put written or less than the exercise price of
the put written if the mark to market difference is maintained by the Fund in
cash, U.S. Government securities or other liquid portfolio securities which the
Fund holds in a segregated account maintained at its Custodian. In writing
puts, the Fund assumes the risk of loss should the market value of the
underlying security decline below the exercise price of the option (any loss
being decreased by the receipt of the premium on the option written). During
the option period, the Fund may be required, at any time, to make payment of
the exercise price against delivery of the underlying security. The operation
of and limitations on covered put options in other respects are substantially
identical to those of call options.
The Fund will write put options for two purposes: (1) to receive the
income derived from the premiums paid by purchasers; and (2) when the Adviser
wishes to purchase the security underlying the option at a price lower than its
current market price, in which case it will write the covered put at an
exercise price reflecting the lower purchase price sought. The potential gain
on a covered put option is limited to the premium received on the option (less
the commissions paid on the transaction) while the potential loss equals the
difference between the exercise price of the option and the current market
price of the underlying securities when the put is exercised, offset by the
premium received (less the commissions paid on the transaction).
17
<PAGE>
The Fund may also purchase put options to close out written put positions
in a manner similar to call options closing purchase transactions. In addition,
the Fund may sell a put option which it has previously purchased prior to the
sale of the securities (currency) underlying such option. Such a sale would
result in a net gain or loss depending on whether the amount received on the
sale is more or less than the premium and other transaction costs paid on the
put option sold. Any such gain or loss could be offset in whole or in part by a
change in the market value of the underlying security (currency). If a put
option purchased by the Fund expired without being sold or exercised the
premium would be lost.
Purchasing Call and Put Options. As stated in the Prospectus, the Fund may
purchase listed and OTC call and put options on securities and stock indexes in
amounts equalling up to 10% of its total assets, with a maximum of 5% of the
Fund's assets invested in stock index options. The Fund may purchase call
options only in order to close out a covered call position (see "Covered Call
Writing" above) to protect against an increase in price of a security it
anticipates purchasing or, in the case of a call option on foreign currency to
hedge against an adverse exchange rate move of the currency in which the
security it anticipates purchasing is denominated vis-a-vis the currency in
which the exercise price is denominated. The purchase of a call option to
effect a closing transaction on a call written over-the-counter may be a listed
or OTC option. In either case, the call purchased is likely to be on the same
securities and have the same terms as the written option. If purchased
over-the-counter, the option would generally be acquired from the dealer or
financial institution which purchased the call written by the Fund.
The Fund may purchase put options on securities which it holds (or has the
right to acquire) in its portfolio only to protect itself against a decline in
the value of the security. If the value of the underlying security were to fall
below the exercise price of the put purchased in an amount greater than the
premium paid for the option, the Fund would incur no additional loss. The Fund
may also purchase put options to close out written put positions in a manner
similar to call options closing purchase transactions. In addition, the Fund
may sell a put option which it has previously purchased prior to the sale of
the securities underlying such option. Such a sale would result in a net gain
or loss depending on whether the amount received on the sale is more or less
than the premium and other transaction costs paid on the put option which is
sold. And such gain or loss could be offset in whole or in part by a change in
the market value of the underlying security. If a put option purchased by the
Fund expired without being sold or exercised, the premium would be lost.
Risks of Options Transactions. The successful use of options depends on
the ability of the Adviser to forecast correctly interest rates and market
movements. If the market value of the portfolio securities (or the currencies
in which they are denominated) upon which call options have been written
increases, the Fund may receive a lower total return from the portion of its
portfolio upon which calls have been written than it would have had such calls
not been written. During the option period, the covered call writer has, in
return for the premium on the option, given up the opportunity for capital
appreciation above the exercise price should the market price of the underlying
security increase, but has retained the risk of loss should the price of the
underlying security decline. The secured put writer also retains the risk of
loss should the market value of the underlying security decline below the
exercise price of the option less the premium received on the sale of the
option. In both cases, the writer has no control over the time when it may be
required to fulfill its obligation as a writer of the option. Once an option
writer has received an exercise notice, it cannot effect a closing purchase
transaction in order to terminate its obligation under the option and must
deliver or receive the underlying securities at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction, it cannot
sell the underlying security until the option expires or the option is
exercised. Accordingly, a covered call option writer may not be able to sell an
underlying security at a time when it might otherwise be advantageous to do so.
A secured put option writer who is unable to effect a closing purchase
transaction would continue to bear the risk of decline in the market price of
the underlying security until the option expires or is exercised. In addition,
a secured put writer would be unable to utilize the amount held in cash or U.S.
government or other liquid portfolio securities as security for the put option
for other investment purposes until the exercise or expiration of the option.
The Fund's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on Option Exchanges.
There is no assurance that such a market will exist, particularly in the case
of OTC options. However, the Fund may be able to purchase an offsetting option
which does not close out its position as a writer but constitutes an asset of
equal value to the obligation under the option written. If the Fund
18
<PAGE>
is not able to either enter into a closing purchase transaction or purchase an
offsetting position, it will be required to maintain the securities subject to
the call, or the collateral underlying the put, even though it might not be
advantageous to do so, until a closing transaction can be entered into (or the
option is exercised or expires).
Among the possible reasons for the absence of a liquid secondary market on
an Exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an Exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an Exchange; (v) inadequacy of the facilities of an Exchange or
the OCC to handle current trading volume; or (vi) a decision by one or more
Exchanges to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that Exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the OCC as a result of trades
on that Exchange would generally continue to be exercisable in accordance with
their terms.
Exchanges limit the amount by which the price of a futures contract may
move on any day. If the price moves equal to the daily limit on successive
days, then it may prove impossible to liquidate a futures position until the
daily limit moves have ceased. In the event of adverse price movements, the
Fund would continue to be required to make daily cash payments of variation
margin on open futures positions. In such situations, if the Fund has
insufficient cash, it may have to sell portfolio securities to meet daily
variation margin requirements at a time when it may be disadvantageous to do
so. In addition, the Fund may be required to take or make delivery of the
instruments underlying interest rate futures contracts it holds at a time when
it is disadvantageous to do so. The inability to close out options and futures
positions could also have an adverse impact on the Fund's ability to
effectively hedge its portfolio.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker. Similarly, in the
event of the bankruptcy of the writer of an OTC option purchased by the Fund,
the Fund could experience a loss of all or part of the value of the option.
Transactions are entered into by the Fund only with brokers or financial
institutions deemed creditworthy by the Adviser.
Each of the Exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different Exchanges or are held or written
on one or more accounts or through one or more brokers). An Exchange may order
the liquidation of positions found to be in violation of these limits and it
may impose other sanctions or restrictions. These position limits may restrict
the number of listed options which the Fund may write.
While the futures contracts and options transactions to be engaged in by
the Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk which may arise in employing futures contracts to protect against
the price volatility of portfolio securities is that the prices of securities
and indexes subject to futures contracts (and thereby the futures contract
prices) may correlate imperfectly with the behavior of the cash prices of the
Fund's portfolio securities. Another such risk is that prices of interest rate
futures contracts may not move in tandem with the changes in prevailing
interest rates against which the Fund seeks a hedge. A correlation may also be
distorted by the fact that the futures market is dominated by short-term
traders seeking to profit from the difference between a contract or security
price objective and their cost of borrowed funds. Such distortions are
generally minor and would diminish as the contract approached maturity.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be
reflected in the option markets.
Stock Index Options. Options on stock indexes are similar to options on
stock except that, rather than the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the stock index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
This amount
19
<PAGE>
of cash is equal to such difference between the closing price of the index and
the exercise price of the option expressed in dollars times a specified
multiple (the "multiplier"). The multiplier for an index option performs a
function similar to the unit of trading for a stock option. It determines the
total dollar value per contract of each point in the difference between the
exercise price of an option and the current level of the underlying index. A
multiplier of 100 means that a one-point difference will yield $100. Options on
different indexes may have different multipliers. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Unlike stock options, all settlements are in cash and a gain or loss depends on
price movements in the stock market generally (or in a particular segment of
the market) rather than the price movements in individual stocks. Currently,
options are traded on the S&P 100 Index and the S&P 500 Index on the Chicago
Board Options Exchange, the Major Market Index and the Computer Technology
Index, Oil Index and Institutional Index on the American Stock Exchange and the
NYSE Index and NYSE Beta Index on the New York Stock Exchange, The Financial
News Composite Index on the Pacific Stock Exchange and the Value Line Index,
National O-T-C Index and Utilities Index on the Philadelphia Stock Exchange,
each of which and any similar index on which options are traded in the future
which include stocks that are not limited to any particular industry or segment
of the market is referred to as a "broadly based stock market index." The Fund
will invest only in broadly based indexes. Options on broad-based stock indexes
provide the Fund with a means of protecting the Fund against the risk of market
wide price movements. If the Investment Manager anticipates a market decline,
the Fund could purchase a stock index put option. If the expected market
decline materialized, the resulting decrease in the value of the Fund's
portfolio would be offset to the extent of the increase in the value of the put
option. If the Investment Manager anticipates a market rise, the Fund may
purchase a stock index call option to enable the Fund to participate in such
rise until completion of anticipated common stock purchases by the Fund.
Purchases and sales of stock index options also enable the Investment Manager
to more speedily achieve changes in the Fund's equity positions.
The Fund will be able to write put options on stock indexes only if such
positions are covered by cash, U.S. government securities or other liquid
portfolio securities equal to the aggregate exercise price of the puts, or by a
put option on the same stock index with a strike price no lower than the strike
price of the put option sold by the Fund, which cover is held for the Fund in a
segregated account maintained for it by the Fund's Custodian. All call options
on stock indexes written by the Fund will be covered either by a portfolio of
stocks substantially replicating the movement of the index underlying the call
option or by holding a separate call option on the same stock index with a
strike price no higher than the strike price of the call option sold by the
Fund.
Risks of Options on Indexes. Because exercises of stock index options are
settled in cash, call writers such as the Fund cannot provide in advance for
their potential settlement obligations by acquiring and holding the underlying
securities. A call writer can offset some of the risk of its writing position
by holding a diversified portfolio of stocks similar to those on which the
underlying index is based. However, most investors cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same stocks as the
underlying index, and, as a result, bear a risk that the value of the
securities held will vary from the value of the index. Even if an index call
writer could assemble a stock portfolio that exactly reproduced the composition
of the underlying index, the writer still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. As with
other kinds of options, the writer will not learn that it had been assigned
until the next business day, at the earliest. The time lag between exercise and
notice of assignment poses no risk for the writer of a covered call on a
specific underlying security, such as a common stock, because there the
writer's obligation is to deliver the underlying security, not to pay its value
as of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds stocks that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those stocks against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date; and by the time it learns that it has been assigned, the index
may have declined, with a corresponding decrease in the value of its stock
portfolio. This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure by holding stock positions.
A holder of an index option who exercises it before the closing index
value for that day is available runs the risk that the level of the underlying
index may subsequently change. If such a change causes the exercised option to
fall out-of-the-money, the exercising holder will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
20
<PAGE>
If dissemination of the current level of an underlying index is
interrupted, or if trading is interrupted in stocks accounting for a
substantial portion of the value of an index, the trading of options on that
index will ordinarily be halted. If the trading of options on an underlying
index is halted, an exchange may impose restrictions prohibiting the exercise
of such options.
Futures Contracts. As stated in the Prospectus, the Fund may purchase and
sell interest rate and stock index futures contracts ("futures contracts") that
are traded on U.S. and foreign commodity exchanges on such underlying
securities as U.S. Treasury bonds, notes, bills and GNMA Certificates
("interest rate" futures) and such indexes as the S&P 500 Index, the Moody's
Investment-Grade Corporate Bond Index and the New York Stock Exchange Composite
Index ("index" futures).
As a futures contract purchaser, the Fund incurs an obligation to take
delivery of a specified amount of the obligation underlying the contract at a
specified time in the future for a specified price. As a seller of a futures
contract, the Fund incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon price.
The Fund will purchase or sell interest rate futures contracts and bond
index futures contracts for the purpose of hedging its fixed-income portfolio
(or anticipated portfolio) securities against changes in prevailing interest
rates. If the Investment Manager anticipates that interest rates may rise and,
concomitantly, the price of fixed-income securities falls, the Fund may sell an
interest rate futures contract or a bond index futures contract. If declining
interest rates are anticipated, the Fund may purchase an interest rate futures
contract to protect against a potential increase in the price of U.S.
Government securities the Fund intends to purchase. Subsequently, appropriate
fixed-income securities may be purchased by the Fund in an orderly fashion; as
securities are purchased, corresponding futures positions would be terminated
by offsetting sales of contracts.
The Fund will purchase or sell futures contracts on the U.S. dollar and on
foreign currencies to hedge against an anticipated rise or decline in the value
of the U.S. dollar or foreign currency in which a portfolio security of the
Fund is denominated vis-a-vis another currency.
The Fund will purchase or sell stock index futures contracts for the
purpose of hedging its equity portfolio (or anticipated portfolio) securities
against changes in their prices. If the Investment Manager anticipates that the
prices of stock held by the Fund may fall, the Fund may sell a stock index
futures contract. Conversely, if the Investment Manager wishes to hedge against
anticipated price rises in those stocks which the Fund intends to purchase, the
Fund may purchase stock index and currency futures contracts. In addition,
interest rate and stock index futures contracts will be bought or sold in order
to close out a short or long position in a corresponding futures contract.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Stock index futures
contracts provide for the delivery of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the open or
close of the last trading day of the contract and the futures contract price. A
futures contract sale is closed out by effecting a futures contract purchase
for the same aggregate amount of the specific type of equity security and the
same delivery date. If the sales price exceeds the offsetting purchase price,
the seller would be paid the difference and would realize a gain. If the
offsetting purchase price exceeds the sale price, the seller would pay the
difference and would realize a loss. Similarly, a futures contract purchase is
closed out by effecting a futures contract sale for the same aggregate amount
of the specific type of security and the same delivery date. If the offsetting
sale price exceeds the purchase price, the purchaser would realize a gain,
whereas if the purchase price exceeds the offsetting sale price, the purchaser
would realize a loss. There is no assurance that the Fund will be able to enter
into a closing transaction.
Interest Rate Futures Contracts. When the Fund enters into an interest
rate futures contract, it is initially required to deposit with the Fund's
Custodian, in a segregated account in the name of the broker performing the
transaction, an "initial margin" of cash or U.S. Government securities or other
liquid portfolio securities equal to approximately 2% of the contract amount.
Initial margin requirements are established by the Exchanges on which futures
contracts trade and may, from time to time, change. In addition, brokers may
establish margin deposit requirements in excess of those required by the
Exchanges.
21
<PAGE>
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing
of funds by a broker's client but is, rather, a good faith deposit on the
futures contract which will be returned to the Fund upon the proper termination
of the futures contract. The margin deposits made are marked-to-market daily
and the Fund may be required to make subsequent deposits of cash or U.S.
Government securities called "variation margin", with the Fund's futures
contract clearing broker, which are reflective of price fluctuations in the
futures contract. Currently, interest rate futures contracts can be purchased
on debt securities such as U.S. Treasury Bills and Bonds, U.S. Treasury Notes
with Maturities between 6 1/2 and 10 years, GNMA Certificates and Bank
Certificates of Deposit.
Currency Futures. Generally, foreign currency futures provide for the
delivery of a specified amount of a given currency, on the exercise date, for a
set exercise price denominated in U.S. dollars or other currency. Foreign
currency futures contracts would be entered into for the same reason and under
the same circumstances as forward foreign currency exchange contracts. The
Adviser will assess such factors as cost spreads, liquidity and transaction
costs in determining whether to utilize futures contracts or forward contracts
in its foreign currency transactions and hedging strategy. Currently, currency
futures exist for, among other foreign currencies, the Japanese yen, German
mark, Canadian dollar, British pound, Swiss franc and European currency unit.
Purchasers and sellers of foreign currency futures contracts are subject
to the same risks that apply to the buying and selling of futures generally. In
addition, there are risks associated with foreign currency futures contracts
and their use as a hedging device similar to those associated with options on
foreign currencies described above. Further, settlement of a foreign currency
futures contract must occur within the country issuing the underlying currency.
Thus, the Fund must accept or make delivery of the underlying currency in
accordance with any U.S. or foreign restrictions or regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and may be
required to pay any fees, taxes or charges associated with such delivery which
are assessed in the issuing country.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such
options is subject to the maintenance of a liquid secondary market. To reduce
this risk, the Fund will not purchase or write options on foreign currency
futures contracts unless and until, in the Adviser's opinion, the market for
such options has developed sufficiently that the risks on connection with such
options are not greater than the risks in connection with transactions in the
underlying foreign currency.
Index Futures Contracts. As discussed in the Prospectus, the Fund may
invest in index futures contracts. An index futures contract sale creates an
obligation by the Fund, as seller, to deliver cash at a specified future time.
An index futures contract purchase would create an obligation by the Fund, as
purchaser, to take delivery of cash at a specified future time. Futures
contracts on indexes do not require the physical delivery of securities, but
provide for a final cash settlement on the expiration date which reflects
accumulated profits and losses credited or debited to each party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirements range from 3% to 10% of the contract amount for index
futures. In addition, due to current industry practice, daily variations in
gains and losses on open contracts are required to be reflected in cash in the
form of variation margin payments. The Fund may be required to make additional
margin payments during the term of the contract.
At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will operate
to terminate the Fund's position in the futures contract. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or a gain.
Currently, index futures contracts can be purchased or sold with respect
to, among others, the Standard & Poor's 500 Stock Price Index and the Standard
& Poor's 100 Stock Price Index on the Chicago Mercantile Exchange, the New York
Stock Exchange Composite Index on the New York Futures Exchange, the Major
Market Index on the American Stock Exchange, the Value Line Stock Index on the
Kansas City Board of Trade and the Moody's Investment-Grade Corporate Bond
Index on the Chicago Board of Trade.
22
<PAGE>
Options on Futures Contracts. The Fund may purchase and write call and put
options on futures contracts and enter into closing transactions with respect
to such options to terminate an existing position. An option on a futures
contract gives the purchaser the right (in return for the premium paid), and
the writer the obligation, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put)
at a specified exercise price at any time during the term of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option is accompanied by delivery of the
accumulated balance in the writer's futures margin account, which represents
the amount by which the market price of the futures contract at the time of
exercise exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract.
The Fund will purchase and write options on futures contracts for
identical purposes to those set forth above for the purchase of a futures
contract (purchase of a call option or sale of a put option) and the sale of a
futures contract (purchase of a put option or sale of a call option), or to
close out a long or short position in futures contracts. If, for example, the
Investment Manager wished to protect against an increase in interest rates and
the resulting negative impact on the value of a portion of its fixed-income
portfolio, it might write a call option on an interest rate futures contract,
the underlying security of which correlates with the portion of the portfolio
the Investment Manager seeks to hedge. Any premiums received in the writing of
options on futures contracts may, of course, augment the total return of the
Fund and thereby provide a further hedge against losses resulting from price
declines in portions of the Fund's portfolio.
The writer of an option on a futures contract is required to deposit
initial and variation margin pursuant to requirements similar to those
applicable to futures contracts. Premiums received from the writing of an
option on a futures contract are included in initial margin deposits.
Limitations on Futures Contracts and Options on Futures. The Fund may not
enter into futures contracts or purchase related options thereon if,
immediately thereafter, the amount committed to margin plus the amount paid for
premiums for unexpired options on futures contracts exceeds 5% of the value of
the Fund's total assets, after taking into account unrealized gains and
unrealized losses on such contracts it has entered into, provided, however,
that in the case of an option that is in-the-money (the exercise price of the
call (put) option is less (more) than the market price of the underlying
security) at the time of purchase, the in-the-money amount may be excluded in
calculating the 5%. However, there is no overall limitation on the percentage
of the Fund's assets which may be subject to a hedge position. In addition, in
accordance with the regulations of the Commodity Futures Trading Commission
("CFTC") under which the Fund is exempted from registration as a commodity pool
operator, the Fund may only enter into futures contracts and options on futures
contracts transactions in accordance with the limitation described above. If
the CFTC changes its regulations so that the Fund would be permitted more
latitude to write options on futures contracts for purposes other than hedging
the Fund's investments without CFTC registration, the Fund may engage in such
transactions for those purposes. Except as described above, there are no other
limitations on the use of futures and options thereon by the Fund.
Risks of Transactions in Futures Contracts and Related Options. The
successful use of futures and related options depends on the ability of the
Adviser to accurately predict market, interest rate and currency movements. As
stated in the Prospectus, the Fund may sell a futures contract to protect
against the decline in the value of securities (or the currency in which they
are denominated) held by the Fund. However, it is possible that the futures
market may advance and the value of securities (or the currency in which they
are denominated) held in the portfolio of the Fund may decline. If this
occurred, the Fund would lose money on the futures contract and also experience
a decline in value of its portfolio securities. However, while this could occur
for a very brief period or to a very small degree, over time the value of a
diversified portfolio will tend to move in the same direction as the futures
contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy, and the value of such securities
decreases, then the Adviser may determine not to invest in the securities as
planned and the Fund will realize a loss on the futures contract that is not
offset by a reduction in the price of the securities.
In addition, if the Fund holds a long position in a futures contract or
has sold a put option on a futures contract, it will hold cash, U.S. Government
securities or other liquid portfolio securities equal to the purchase price of
the contract or the exercise price of the put option (less the amount of
initial or variation margin on deposit) in a segregated account maintained for
the Fund by its Custodian. Alternatively, the Fund could cover its long
position by purchasing a put option on the same futures contract with an
exercise price as high or higher than the price of the contract held by the
Fund.
23
<PAGE>
If the Fund maintains a short position in a futures contract or has sold a
call option in a futures contract, it will cover this position by holding, in a
segregated account maintained at its Custodian, cash, U.S. Government
securities or other liquid portfolio securities equal in value (when added to
any initial or variation margin on deposit) to the market value of the
securities underlying the futures contract or the exercise price of the option.
Such a position may also be covered by owning the securities underlying the
futures contract (in the case of a stock index futures contract a portfolio of
securities substantially replicating the relevant index), or by holding a call
option permitting the Fund to purchase the same contract at a price no higher
than the price at which the short position was established.
Exchanges limit the amount by which the price of a futures contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin
on open futures positions. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. In addition,
the Fund may be required to take or make delivery of the instruments underlying
interest rate futures contracts it holds at a time when it is disadvantageous
to do so. The inability to close out options and futures positions could also
have an adverse impact on the Fund's ability to effectively hedge its
portfolio.
Futures contracts and options thereon which are purchased or sold on
foreign commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges. Brokerage
commissions, clearing costs and other transaction costs may be higher on
foreign exchanges. Greater margin requirements may limit the Fund's ability to
enter into certain commodity transactions on foreign exchanges. Moreover,
differences in clearance and delivery requirements on foreign exchanges may
occasion delays in the settlement of the Fund's transactions affected on
foreign exchanges.
The extent to which the Fund may enter into transactions involving options
and futures contracts may be limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company and the Fund's
intention to qualify as such. See "Dividends, Distributions and Taxes" in the
Prospectus and this Statement of Additional Information.
While the futures contracts and options transactions to be engaged in by
the Fund for the purpose of hedging the Fund's portfolio securities are not
speculative in nature, there are risks inherent in the use of such instruments.
One such risk which may arise in employing futures contracts to protect against
the price volitility of portfolio securities (and the currencies in which they
are denominated) is that the prices of securities and indexes subject to
futures contracts (and thereby the futures contract prices) may correlate
imperfectly with the behavior of the cash prices of the Fund's portfolio
securities (and the currencies in which they are denominated). Another such
risk is that prices of interest rate futures contracts may not move in tandem
with the changes in prevailing interest rates against which the Fund seeks a
hedge. A correlation may also be distorted (a) temporarily, by short-term
traders seeking to profit from the difference between a contract or security
price objective and their cost of borrowed funds; (b) by investors in futures
contracts electing to close out their contracts through offsetting transactions
rather than meet margin deposit requirements; (c) by investors in futures
contracts opting to make or take delivery of underlying securities rather than
engage in closing transactions, thereby reducing liquidity of the futures
market; and (d) temporarily, by speculators who view the deposit requirements
in the futures markets as less onerous than margin requirements in the cash
market. Due to the possibility of price distortion in the futures market and
because of the imperfect correlation between movements in the prices of
securities and movements in the prices of futures contracts, a correct forecast
of interest rate trends may still not result in a successful hedging
transaction.
As stated in the Prospectus, there is no assurance that a liquid secondary
market will exist for futures contracts and related options in which the Fund
may invest. In the event a liquid market does not exist, it may not be possible
to close out a futures position and, in the event of adverse price movements,
the Fund would continue to be required to make daily cash payments of variation
margin. In addition, limitations imposed by an exchange or board of trade on
which futures contracts are traded may compel or prevent the Fund from closing
out a contract which may result in reduced gain or increased loss to the Fund.
The absence of a liquid market in futures contracts might cause the Fund to
make or take delivery of the underlying securities at a time when it may be
disadvantageous to do so.
24
<PAGE>
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances when the purchase
of a call or put option on a futures contract would result in a loss to the
Fund notwithstanding that the purchase or sale of a futures contract would not
result in a loss, as in the instance where there is no movement in the prices
of the futures contract or underlying securities.
The Adviser has substantial experience in the use of the investment
techniques described above under the heading "Options and Futures
Transactions," which techniques require skills different from those needed to
select the portfolio securities underlying various options and futures
contracts.
New Instruments. New futures contracts, options and other financial
products and various combinations thereof continue to be developed. The Fund
may invest in any such futures, options or products as may be developed, to the
extent consistent with its investment objective and applicable regulatory
requirements.
PORTFOLIO TURNOVER
It is anticipated that the Fund's portfolio turnover rate generally will
not exceed 150%. 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.
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:
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.
25
<PAGE>
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.
13. Purchase warrants if as a result the Fund would then have either
more than 5% of its net assets invested in warrants or more than 2% of its
net assets invested in warrants not listed on the New York or American
Stock Exchange.
In addition, as a nonfundamental policy, the Fund may not invest more than
5% of the value of its total assets in securities of issuers (other than
obligations issued or guaranteed by the United States Government, its agencies
or instrumentalities having a record, together with predecessors, of less than
three years of continuous operation.
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 Adviser is
responsible for decisions to buy and sell securities for the Fund, the
selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. Purchases and sales of securities
on a stock exchange are effected through brokers who charge a commission for
their services. In the over-the-counter market, securities are generally traded
on a "net" basis with dealers acting as principal for their own accounts
without a stated commission, although the price of the security usually
includes a profit to the dealer. 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. Futures transactions will usually be effected through a broker and a
commission will be charged. On occasion, the Fund may also purchase certain
money market instruments directly from an issuer, in which case no commissions
or discounts are paid. During the period August 28, 1996 (commencement of
operations) through May 31, 1997, and for the fiscal year ended May 31, 1998,
the Fund paid a total of $359,466 and $398,984, respectively, in brokerage
commissions.
The Adviser currently serves as investment adviser 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 the Adviser to cause purchase and sale
transactions to be allocated among the Fund and others whose assets it manages
in such manner as it deems equitable. In making such allocations among the Fund
and other client accounts, the main factors considered are 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 Adviser from obtaining a high quality of brokerage
and research services. In seeking to determine the reasonableness of brokerage
commissions paid in any transaction, the Adviser relies upon its experience and
knowledge regarding
26
<PAGE>
commissions generally charged by various brokers and on its judgment in
evaluating the brokerage and research services received from the broker
effecting the transaction. Such determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
In seeking to implement the Fund's policies, the Adviser effects
transactions with those brokers and dealers who the Adviser believes provide
the most favorable prices and are capable of providing efficient executions. If
the Adviser believes such prices and executions are obtainable from more than
one broker or dealer, it may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Fund or the Adviser. 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. During the fiscal year ended May 31, 1998, the
Fund directed the payment of $335,918 in brokerage commissions in connection
with transactions in the aggregate amount of $135,328,384 to brokers because of
research services provided.
The information and services received by the Adviser from brokers and
dealers may be of benefit to the Adviser in the management of accounts of some
of its other clients and may not in all cases benefit the Fund directly. While
the receipt of such information and services is useful in varying degrees and
would generally reduce the amount of research or services otherwise performed
by the Adviser and thereby reduce its expenses, it is of indeterminable value
and the advisory fee paid to the Adviser is not reduced by any amount that may
be attributable to the value of such services.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may
be effected through DWR, Morgan Stanley & Co. Incorporated ("MS & Co."), and
other affiliated brokers and dealers. In order for an affiliated broker-dealer
to effect any portfolio transactions for the Fund, the commissions, fees or
other remuneration received by the affiliated broker or dealer must be
reasonable and fair compared to the commissions, fees or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on an exchange during a comparable
period of time. This standard would allow the affiliated broker or dealer to
receive no more than the remuneration which would be expected to be received by
an unaffiliated broker in a commensurate arm's-length transaction. Furthermore,
the 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 period August 28, 1996 (commencement of
operations) through May 31, 1997, and the fiscal year ended May 31, 1998, the
Fund did not pay any brokerage commissions to DWR. During the period June 1,
1997 through May 31, 1998, the Fund paid a total of $3,460 in brokerage
commissions to MS & Co., which broker-dealer became an affiliate of the
Distributor 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 0.87% 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 1.60% of the aggregate
dollar value of all portfolio transactions of the Fund during the period for
which commissions were paid. The Fund paid no brokerage commission to DWR
during the fiscal year ended May 31, 1998.
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
27
<PAGE>
wholly-owned subsidiary of MSDW. The Trustees of the Fund, including a majority
of 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 has 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.
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) $253,094 and $430,611 in contingent deferred sales
charges from Class B for the fiscal period August 28, 1996 (commencement of
operations) through May 31, 1997 and for the fiscal year ended May 31, 1998,
respectively, (b) $2 and $393 in contingent deferred sales charges from Class A
and Class C, respectively, for the fiscal year ended May 31, 1998, and (c)
$11,497 in front-end sales charges from Class A for the fiscal year ended May
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 portion
of the Plan fees payable by a Class, if any, is characterized as an
"asset-based sales charge" as such is defined by the aforementioned Rules of
the Association.
The Plan was adopted by a majority vote of the Board of 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 April
17, 1996. 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.
28
<PAGE>
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 May 31,
1998, of $1,206,683. This amount is equal to the annual rate of 0.80% of the
average daily net assets of Class B for the fiscal year and was calculated
pursuant to clause (b) of the compensation formula under the Plan. This amount
is treated by the Fund as an expense in the year it is accrued. For the fiscal
period July 28, 1997 through May 31, 1998, Class A and Class C shares of the
Fund accrued payments under the Plan amounting to $736 and $2,932,
respectively, which amounts are equal to 0.24% and 1.00% of the average daily
net assets of Class A and Class C, respectively, for such period. This amount
is equal to payments required to be paid monthly by the Fund which were
computed at the annual rate of 1.0% of the average daily aggregate gross sales
of the Fund's 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 shares redeemed since the Fund's
inception upon which a contingent deferred sales charge has been imposed or
waived. This amount is treated by the Fund as an expense in the year it is
accrued. This amount represents amounts paid by Class B only; there were no
Class A or Class C shares outstanding on such date.
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, MSDW Advisors
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 account executives of record (not including accounts of participants in
the MSDW Advisors mutual fund asset allocation program).
The gross sales credit is a charge which reflects commissions paid by DWR
to its Financial Advisors and DWR's Fund-associated distribution-related
expenses, including sales compensation, and overhead and other
29
<PAGE>
branch office distribution-related expenses including (a) the expenses of
operating DWR's branch offices in connection with the sale of Fund shares,
including lease costs, the salaries and employee benefits of operations and
sales support personnel, utility costs, communications costs and the costs of
stationery and supplies, (b) the costs of client sales seminars, (c) travel
expenses of mutual fund sales coordinators to promote the sale of Fund shares
and (d) other expenses relating to branch promotion of Fund sales. The
distribution fee that the Distributor receives from the Fund under the Plan, 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 account executives, 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 account executives (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 May 31, 1998 to the Distributor. The
Distributor and DWR estimate that they have spent, pursuant to the Plan,
$10,318,273 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)
20.68% ($2,133,419)--advertising and promotional expenses; (ii) 2.18%
($225,319)--printing of prospectuses for distribution to other than current
shareholders; and (iii) 77.14% ($7,959,535)--other expenses, including the
gross sales credit and the carrying charge, of which 5.88% ($468,197)
represents carrying charges, 38.16% ($3,036,988) represents commission credits
to DWR branch offices and other selected broker-dealers for payments of
commission to Morgan Stanley Dean Witter Financial Advisors and other selected
broker-dealer representatives and 55.96% ($4,454,350) 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 in
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan and (ii) the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares.
The Distributor has advised the Fund that in the case of Class B shares the
excess distribution expenses, including the carrying charge designed to
approximate the opportunity costs incurred by DWR which arise from it having
advanced monies without having received the amount of any sales charges imposed
at the time of sale of the Fund's Class B shares, totalled $7,673,197 as of May
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 distribution expenses in excess of payments made
under the Plan and the proceeds of contingent deferred sales
30
<PAGE>
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, the Distributor or the Manager 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, 1997, 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 12b-1 Trustees
shall be committed to the discretion of the Independent 12b-1 Trustees.
DETERMINATION OF NET ASSET VALUE
As stated in the Prospectus, short-term securities with remaining
maturities of sixty days or less at the time of purchase are valued at
amortized cost, unless the Trustees determine such does not reflect the
securities' market value, in which case these securities will be valued at
their fair value as determined by the Trustees. Other short-term debt
securities will be valued on a mark-to-market basis until such time as they
reach a remaining maturity of sixty days, whereupon they will be valued at
amortized cost using their value on the 61st day unless the 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.
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 4:00 p.m., at such earlier time), on each
day that the New York Stock Exchange is open by taking the value of all assets
of the Fund, subtracting its liabilities, dividing by the number of shares
outstanding and adjusting to the nearest cent. The New York Stock Exchange
currently observes the following holidays: New Year's Day, Reverend Dr. Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
31
<PAGE>
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 TCW/DW Funds which are multiple class funds
("TCW/DW Multi-Class Funds") 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 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 TCW/DW
Multi-Class Funds held by the shareholder which were previously purchased at a
price including a front-end sales charge (including shares of the Fund, other
TCW/DW Multi-Class Funds or "Exchange Funds" (see "Shareholder
Services--Exchange Privilege") 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 TCW/DW Funds will not be included in determining
whether the stated goal of a Letter of Intent has been reached.
32
<PAGE>
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 TCW/DW Fund (see "Shareholder
Services--Targeted Dividends"), plus (c) 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 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. 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, 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>
33
<PAGE>
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.
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 TCW/DW Fund other
than TCW/DW Global Telecom Trust or in another Class of TCW/DW Global Telecom
Trust. 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 TCW/DW 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 TCW/DW 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 TCW/DW Fund targeted to receive investments from dividends at the
time they enter the Targeted Dividends program. Investors should review the
prospectus of the targeted TCW/DW 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
34
<PAGE>
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
changes). 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 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 "Repurchases and
Redemptions" in the Prospectus) at any time. Shareholders wishing to enroll in
the Withdrawal Plan should contact their account executive or the Transfer
Agent.
35
<PAGE>
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 TCW/DW Global Telecom Trust, 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 TCW/DW Multi-Class Fund without the imposition of any exchange fee.
Shares may also be exchanged for TCW/DW North American Government Income Trust
and five money market funds for which MSDW Advisors serves as investment
manager (the foregoing six funds are hereinafter collectively referred to as
the "Exchange Funds"). Exchanges may be made after the shares of the fund
acquired by purchase (not by exchange or dividend reinvestment) have been held
for thirty days. There is no waiting period for exchanges of shares acquired by
exchange or dividend reinvestment. An exchange 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.
Shareholders utilizing the Fund's Exchange Privilege may subsequently
re-exchange such shares back to the Fund. However, no exchange privilege is
available between the Fund and any other fund managed by the Manager or MSDW
Advisors, except for other TCW/DW Funds and the five money market funds listed
in the Prospectus.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the
present account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed.)
As described below, and in the Prospectus under the caption "Purchase of
Fund Shares," a CDSC may be imposed upon a redemption, depending on a number of
factors, including the number of years from the time of purchase until the time
of redemption or exchange ("holding period"). When shares of a TCW/DW
Multi-Class Fund 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 TCW/DW Multi-Class Fund. However, in the case of
shares exchanged into an Exchange Fund, 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 TCW/DW Multi-Class Fund 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 TCW/DW Multi-Class Fund 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 TCW/DW
Multi-Class Fund.
When shares initially purchased in a TCW/DW Multi-Class Fund are exchanged
for shares of a TCW/DW Multi-Class 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 and (ii) originally acquired through
reinvestment of dividends or distributions (all such shares called "Free
Shares") will be exchanged first. After an exchange, all dividends earned on
shares in the Exchange Fund will be considered Free Shares. If the exchanged
amount exceeds the value of such Free Shares, an exchange is made, on a
36
<PAGE>
block-by-block basis, of non-Free Shares held for the longest period of time.
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 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 New York Municipal Money Market Trust and
Morgan Stanley Dean Witter California Tax-Free Daily Income Trust, although
those funds may, at their discretion, accept initial investments of as low as
$1,000. The minimum initial investment for the Exchange Privilege account of
each Class for Morgan Stanley Dean Witter U.S. Government Money Market Trust
and for all TCW/DW Funds 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, each of the other TCW/DW Funds and each of the money market
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 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 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.
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. An exchange will be treated for federal income tax
37
<PAGE>
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.
For further information regarding the Exchange Privilege, shareholders
should contact their Morgan Stanley Dean Witter Financial Advisor or other
selected broker-dealer representative or the Transfer Agent.
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 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.
38
<PAGE>
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. In addition, shareholders are entitled to increase their tax basis
of their investment by their pro rata share of the undistributed gain net of
the tax paid by the Fund on such gain.
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.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. The Treasury intends to issue
regulations to permit shareholders to take into account their proportionate
share of the Fund's capital gains distributions that will be subject to a
reduced rate under the Taxpayer Relief Act of 1997. The Taxpayer Relief Act
reduces the maximum tax 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 12 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%.
The Fund intends to remain qualified as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986. As such, the Fund will
not be subject to federal income tax on its net investment income and capital
gains, if any, realized during any fiscal year in which it distributes such
income and capital gains to its shareholders. In addition, the Fund intends to
distribute to its sharesholders each calendar year a sufficient amount of
ordinary income and capital gains to avoid the imposition of a 4% excise tax.
Shareholders will normally have to pay federal income taxes, and any state
and/or local 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 in the
last quarter of any calendar year which are paid in the following year prior to
February 1 will be deemed received by the shareholder in the prior year.
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
39
<PAGE>
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.
Any loss realized by shareholders upon a redemption of shares within six
months of the date of their purchase will be treated as a long-term capital
loss to the extent of any distributions of net long-term capital gains during
the six-month period.
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 shareholder claiming the dividends received deduction. The
amount of dividends paid by the Fund which may qualify for the dividends
received deduction is limited to the aggregate amount of qualifying dividends
which the Fund derives from its portfolio investments which the Fund has held
for a minimum period, usually 46 days within a 90-day period beginning 45 days
before the ex-dividend date of each qualifying dividend. Shareholders must meet
a similar holding period requirement with respect to their shares to claim the
dividends received deduction with respect to any distribution of qualifying
dividends. Any long-term capital gain distributions will also not be eligible
for the dividends received deduction. The ability to take the dividends
received deduction will also be limited in the case of a Fund shareholder which
incurs or continues indebtedness which is directly attributable to its
investment in the Fund.
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 separately for Class A, Class B, Class C and Class D shares. The
Fund's "average annual total return" represents an annualization of the Fund's
total return over a particular period and is computed by finding the annual
percentage rate which will result in the ending redeemable value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten year
period, or for the period from the date of commencement of the Fund's
operations, if shorter than any of the foregoing. For periods of less than one
year, the Fund quotes its total return on a non-annualized basis.
The Fund may compute its aggregate total return 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
calculation, the Fund's total return of Class B for the period August 28, 1996
(commencement of operations) through May 31, 1998 and for the fiscal year ended
May 31, 1998 was 41.51% and 22.30%, 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 May 31,
1998 were 6.73%, 10.86% and 12.80% for Class A, Class C and Class D,
respectively.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the imposition of the maximum front-end sales charge for Class
A or the deduction of the CDSC for each of Class B and Class C which, if
reflected, would reduce the performance quotes. For example, the total
40
<PAGE>
return of the Fund may be calculated in the manner described above, but without
deduction of any applicable contingent deferred sales charge. Based on this
calculation, the aggregate total returns of Class B for the period August 28,
1996 (commencement of operations) through May 31, 1998 and for the fiscal year
ended May 31, 1998 were 45.51% and 27.30%, respectively.
In addition, the Fund may compute its aggregate total return for each
Class for specified periods by determining the aggregate percentage rate which
will result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed
that all dividends and distributions are reinvested. The formula for computing
aggregate total return involves a percentage obtained by dividing the ending
value (without the reduction for any sales charge) by the initial $1,000
investment and subtracting 1 from the result. Based on the foregoing
calculation, the total returns of Class B for the fiscal year ended May 31,
1998 and the period from August 28, 1996 (commencement of operations) through
May 31, 1998 were 27.30% and 45.51%, respectively. Based on the foregoing
calculations, the total returns for Class A, Class C and Class D for the period
July 28, 1997 through May 31, 1998 were 12.64%, 11.86% and 12.80%,
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 May 31,
1998:
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
INCEPTION -----------------------------------
CLASS DATE $10,000 $50,000 $100,000
- ----- ---- ------- ------- --------
<S> <C> <C> <C> <C>
Class A ......... 7/28/97 $10,673 $54,067 $109,261
Class B ......... 8/28/96 14,551 72,755 145,510
Class C ......... 7/28/97 11,186 55,930 111,860
Class D ......... 7/28/97 11,280 56,400 112,800
</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. The Trustees were elected by MSDW Advisors as the then sole
shareholder of the Fund prior to the public offering of the Fund's shares. 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.
41
<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 Chase Manhattan Bank, One Chase Plaza, New York, New York 10005 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 Services Company 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 May 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 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.
42
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
PORTFOLIO OF INVESTMENTS May 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS
AND RIGHTS (99.1%)
BRAZIL (5.7%)
Telephones
1,600,000 Cia Riograndense Telecomunicacoes
S.A. (Pref.) ........................... $ 1,724,617
42,341 Cia Riograndense Telecomunicacoes
S.A. (Rights)* ......................... --
20,000 Telecomunicacoes Brasileiras
S.A. -- Telebras (ADR) ................. 2,132,500
11,000,000 Telecomunicacoes de Minas
Gerais -- Telemig ...................... 1,109,179
11,000,000 Telecomunicacoes de Minas
Gerais -- Telemig (Pref.)* ............. 564,152
25,000,000 Telecomunicacoes do Rio de
Janeiro S.A. -- Telerj ................. 2,086,231
25,000,000 Telecomunicacoes do Rio de
Janeiro S.A. -- Telerj (Pref.)* ........ 1,825,452
------------
TOTAL BRAZIL ............................. 9,442,131
------------
CANADA (4.7%)
Computer Software
95,300 Cognicase Inc. ........................... 1,453,325
114,100 CrossKeys Systems Corp.* ................. 1,162,394
600,000 Sanga International Inc.* ** ............. 3,000,000
------------
5,615,719
------------
Telecommunications
190,400 Clearnet Communications Inc.
(Class A)* ............................... 2,165,800
------------
TOTAL CANADA ............................. 7,781,519
------------
CHINA (0.8%)
Telephones
40,000 China Telecom (Hong Kong) Ltd.
(ADR)* ................................... 1,425,000
------------
FINLAND (2.4%)
Telecommunications
60,588 Nokia Corp. (ADR) ........................ 3,934,433
------------
HONG KONG (0.9%)
Telecommunications
160,000 APT Satellite Holdings Ltd.
(ADR)* ................................... 1,520,000
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
INDIA (0.9%)
Telecommunications
125,000 Videsh Sanchar Nigam Ltd.
(GDR)* ................................... $ 1,485,000
------------
ISRAEL (2.4%)
Telecommunications
70,000 ECI Telecommunications Limited
Designs ................................ 2,213,750
60,000 Gilat Satellite Networks Ltd. ............ 1,860,000
------------
TOTAL ISRAEL ............................. 4,073,750
------------
ITALY (2.7%)
Communications Equipment
800,000 Pirelli SpA .............................. 2,636,693
------------
Telecommunications
250,000 Telecom Italia SpA ....................... 1,887,310
------------
TOTAL ITALY .............................. 4,524,003
------------
JAPAN (3.8%)
Computers
130,000 Fujitsu Ltd. ............................. 1,488,657
------------
Electronic Components
17,700 Hitachi Ltd. (ADR) ....................... 1,174,838
------------
Telephones
1,300 DDI Corp. ................................ 3,726,323
------------
TOTAL JAPAN .............................. 6,389,818
------------
MEXICO (1.3%)
Telephones
44,400 Telefonos de Mexico S.A. de C.V.
(Series L) (ADR) ......................... 2,106,225
------------
NETHERLANDS (0.9%)
Electronics
15,000 Philips Electronics N.V. ................. 1,426,875
------------
PERU (1.3%)
Telephones
100,000 Telefonica del Peru S.A. (ADR) ........... 2,162,500
------------
RUSSIA (0.6%)
Telephones
20,000 Vimpel -- Communications (ADR)* 968,750
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
43
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
PORTFOLIO OF INVESTMENTS May 31, 1998, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
SINGAPORE (0.6%)
Wire & Cable
151,300 Asia Pacific Wire & Cable Corp.*........ $ 1,096,925
------------
SWEDEN (2.5%)
Telecommunications
151,800 Ericsson (L.M.) Telephone Co.
(Class B) (ADR) ........................ 4,231,425
------------
UNITED KINGDOM (1.7%)
Telecommunications
95,000 Esat Telecom Group PLC (ADR)*........... 2,850,000
------------
UNITED STATES (64.8%)
Broadcast Media
46,600 Cox Communications, Inc.
(Class A)* ............................. 2,035,837
61,400 Sinclair Broadcast Group, Inc.* ........ 1,561,862
------------
3,597,699
------------
Business Services
44,700 Cognizant Corp. ........................ 2,380,275
109,800 LCC International, Inc. (Class A)*...... 1,756,800
69,000 Omnicom Group, Inc. .................... 3,230,062
------------
7,367,137
------------
Cable Television Equipment
42,000 CIENA Corp.* ........................... 2,173,500
------------
Cable/Cellular
57,200 Houston Industries, Inc. $3.22
(Conv. Pref.) .......................... 3,982,550
------------
Commercial & Consumer Services
100,800 Cendant Corp.* ......................... 2,186,100
------------
Communications -- Equipment &
Software
41,300 Cisco Systems, Inc.* ................... 3,118,150
117,600 Pairgain Technologies, Inc.* ........... 1,837,500
35,100 Tellabs, Inc.* ......................... 2,410,931
------------
7,366,581
------------
Communications -- Equipment/
Manufacturers
51,300 3Com Corp.* ............................ 1,301,737
68,200 Andrew Corp.* .......................... 1,496,137
------------
2,797,874
------------
Communications Equipment
45,000 ADC Telecommunications, Inc.* .......... 1,254,375
134,300 FORE Systems, Inc.* .................... 2,929,419
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
55,800 MRV Communications, Inc.* .............. $ 1,297,350
96,000 Xircom, Inc.* .......................... 1,500,000
------------
6,981,144
------------
Computer Software
158,000 Pervasive Software, Inc.* .............. 1,757,750
64,400 Security Dynamics Technologies,
Inc.* .................................. 1,352,400
------------
3,110,150
------------
Computer Software & Services
95,800 Checkfree Holdings Corp.* .............. 2,167,475
56,500 Sterling Commerce, Inc.* ............... 2,242,344
------------
4,409,819
------------
Consumer Services
64,800 E*TRADE Group, Inc.* ................... 1,401,300
------------
Electrical Equipment
300,000 Jinpan International Ltd.* ............. 1,875,000
------------
Electronics & Electrical
69,700 Cymer, Inc.* ........................... 1,324,300
32,500 Teradyne, Inc.* ........................ 999,375
------------
2,323,675
------------
Electronics -- Semiconductors/
Components
22,600 Intel Corp. ............................ 1,613,075
64,200 Maxim Integrated Products, Inc.*........ 2,142,675
------------
3,755,750
------------
Home Entertainment
55,800 Electronic Arts, Inc.* ................. 2,413,350
134,400 T-HQ, Inc.* ............................ 3,192,000
------------
5,605,350
------------
Internet
87,500 At Home Corp. (Series A)* .............. 3,029,688
62,100 Infoseek Corp.* ........................ 1,432,181
94,700 USWeb Corp.* ........................... 1,994,619
------------
6,456,488
------------
Media
98,100 Tele-Communications Liberty
Media Group (Class A)* ................. 3,225,038
204,400 VDI Media* ............................. 3,066,000
------------
6,291,038
------------
Publishing
50,100 Mecklermedia Corp.* .................... 1,039,575
129,800 Ziff-Davis Inc.* ....................... 2,190,375
------------
3,229,950
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
PORTFOLIO OF INVESTMENTS May 31, 1998, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------
<S> <C> <C>
Publishing -- Newspaper
31,400 Tribune Co. .......................... $ 2,099,875
------------
Telecommunications
43,100 Advanced Fibre Communications,
Inc.* ................................ 1,594,700
176,200 Boston Communications Group,
Inc.* ................................ 1,497,700
250,000 Euronet Services, Inc. ............... 1,468,750
400,000 General DataComm Industries,
Inc.* ................................ 1,825,000
85,000 Global Telesystems Group, Inc.* ...... 3,251,250
34,500 Iridium World Communications
Ltd. ................................. 1,897,500
39,100 NEXTLINK Communications, Inc.
(Class A)* ........................... 1,216,988
84,100 Premiere Technologies, Inc.* ......... 2,007,888
107,000 Primus Telecommunications
Group, Inc.* ......................... 1,952,750
100,000 RSL Communications, Ltd.
(Class A)* ........................... 2,475,000
103,600 SmarTalk Teleservices, Inc.* ......... 1,897,175
44,700 Teleport Communications Group
Inc. (Class A)* ...................... 2,497,613
160,000 Tricom, S.A. (ADR)* .................. 1,350,000
------------
24,932,314
------------
Telecommunications -- Cellular/
Wireless
40,000 Airtouch Communications, Inc.* ....... 1,905,000
89,600 Nextel Communications, Inc.
(Class A)* ........................... 2,105,600
------------
4,010,600
------------
Utilities -- Telecommunications
29,400 Intermedia Communications, Inc.*...... 2,175,600
------------
TOTAL UNITED STATES .................. 108,129,494
------------
VENEZUELA (1.1%)
Telephones
60,000 Compania Anonima Nacional
Telefonos de Venezuela
(ADR) * .............................. 1,848,750
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
- -------------------------------------------------------------------
<S> <C> <C>
TOTAL COMMON AND PREFERRED
STOCKS AND RIGHTS
(Identified Cost $144,178,555) (a) 99.1% $165,396,598
CASH AND OTHER ASSETS IN
EXCESS OF LIABILITIES ............ 0.9 1,425,602
------------
NET ASSETS ....................... 100.0% $166,822,200
============
</TABLE>
- --------------------------------
ADR American Depository Receipt.
GDR Global Depository Receipt.
* Non-income producing security.
** Restricted security.
(a) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$34,887,310 and the aggregate gross unrealized depreciation is
$13,669,267, resulting in net unrealized appreciation of
$21,218,043.
SEE NOTES TO FINANCIAL STATEMENTS
45
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
SUMMARY OF INVESTMENTS May 31, 1998
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ----------------------------------------------------------------------------------
<S> <C> <C>
Broadcast Media .................................. $ 3,597,699 2.2%
Business Services ................................ 7,367,137 4.4
Cable Television Equipment ....................... 2,173,500 1.3
Cable/Cellular ................................... 3,982,550 2.4
Commercial & Consumer Services ................... 2,186,100 1.3
Communications - Equipment & Software ............ 7,366,581 4.4
Communications - Equipment/Manufacturers ......... 2,797,874 1.7
Communications Equipment ......................... 9,617,837 5.8
Computer Software ................................ 8,725,869 5.2
Computer Software & Services ..................... 4,409,819 2.6
Computers ........................................ 1,488,657 0.9
Consumer Services ................................ 1,401,300 0.8
Electrical Equipment ............................. 1,875,000 1.1
Electronic Components ............................ 1,174,838 0.7
Electronics ...................................... 1,426,875 0.9
Electronics & Electrical ......................... 2,323,675 1.4
Electronics - Semiconductors/Components .......... 3,755,750 2.2
Home Entertainment ............................... 5,605,350 3.4
Internet ......................................... 6,456,488 3.9
Media ............................................ 6,291,038 3.8
Publishing ....................................... 3,229,950 1.9
Publishing - Newspaper ........................... 2,099,875 1.3
Telecommunications ............................... 47,080,032 28.2
Telecommunications - Cellular/Wireless ........... 4,010,600 2.4
Telephones ....................................... 21,679,679 13.0
Utilities - Telecommunications ................... 2,175,600 1.3
Wire & Cable ..................................... 1,096,925 0.6
------------ ----
$165,396,598 99.1%
============ ====
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- ----------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks ........................ $157,299,827 94.3%
Convertible Preferred Stocks ......... 3,982,550 2.4
Preferred Stocks ..................... 4,114,221 2.4
------------ ----
$165,396,598 99.1%
============ ====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $144,178,555) ............ $165,396,598
Cash ......................................... 329,239
Receivable for:
Investments sold ........................... 3,621,891
Shares of beneficial interest sold ......... 385,028
Dividends .................................. 84,633
Interest ................................... 30,698
Deferred organizational expenses ............. 111,518
Prepaid expenses and other assets ............ 105,600
------------
TOTAL ASSETS ............................... 170,065,205
------------
LIABILITIES:
Payable for:
Investments purchased ...................... 2,826,110
Shares of beneficial interest
repurchased ............................. 131,900
Plan of distribution fee ................... 110,143
Management fee ............................. 89,196
Investment advisory fee .................... 59,464
Accrued expenses and other payables .......... 26,192
------------
TOTAL LIABILITIES .......................... 3,243,005
------------
NET ASSETS ................................. $166,822,200
============
COMPOSITION OF NET ASSETS:
Paid-in-capital ............................. $124,359,589
Net unrealized appreciation .................. 21,217,915
Net investment loss .......................... (18,845)
Accumulated undistributed net realized gain 21,263,541
------------
NET ASSETS ................................. $166,822,200
============
CLASS A SHARES:
Net Assets ................................... $966,443
Shares Outstanding (unlimited authorized,
$.01 par value) ........................... 68,811
NET ASSET VALUE PER SHARE .................. $14.04
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net
asset value) ............................ $14.82
======
CLASS B SHARES:
Net Assets ................................... $165,285,396
Shares Outstanding (unlimited authorized,
$.01 par value) ........................... 11,832,228
NET ASSET VALUE PER SHARE .................. $13.97
======
CLASS C SHARES:
Net Assets ................................... $559,065
Shares Outstanding (unlimited authorized,
$.01 par value) ........................... 40,065
NET ASSET VALUE PER SHARE .................. $13.95
======
CLASS D SHARES:
Net Assets ................................... $11,296
Shares Outstanding (unlimited authorized,
$.01 par value) ........................... 803
NET ASSET VALUE PER SHARE .................. $14.07
======
</TABLE>
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended May 31, 1998*
NET INVESTMENT INCOME:
INCOME
Dividends (net of $73,845 foreign
withholding tax) ............................... $ 1,105,413
Interest .......................................... 144,228
-----------
TOTAL INCOME .................................... 1,249,641
-----------
EXPENSES
Plan of distribution fee (Class A Shares) ......... 736
Plan of distribution fee (Class B Shares) ......... 1,206,683
Plan of distribution fee (Class C Shares) ......... 2,932
Management fee .................................... 910,689
Investment advisory fee ........................... 607,126
Transfer agent fees and expenses .................. 219,574
Registration fees ................................. 51,959
Custodian fees .................................... 43,110
Professional fees ................................. 42,538
Trustees' fees and expenses ....................... 39,619
Organizational expenses ........................... 34,925
Shareholder reports and notices ................... 26,134
Foreign exchange provisional tax .................. 20,095
Other ............................................. 12,757
-----------
TOTAL EXPENSES .................................. 3,218,877
-----------
NET INVESTMENT LOSS ............................. (1,969,236)
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain (loss) on:
Investments .................................. 28,200,756
Foreign exchange transactions ................ (19,991)
-----------
NET GAIN ........................................ 28,180,765
-----------
Net change in unrealized appreciation on:
Investments .................................. 7,811,237
Translation of other assets and
liabilities denominated in foreign
currencies ................................ 547
-----------
NET APPRECIATION ................................ 7,811,784
-----------
NET GAIN ........................................ 35,992,549
-----------
NET INCREASE ...................................... $34,023,313
===========
</TABLE>
- --------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR AUGUST 28, 1996*
ENDED THROUGH
MAY 31, 1998** MAY 31, 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss .................................. $ (1,969,236) $ (1,003,201)
Net realized gain .................................... 28,180,765 1,507,340
Net change in unrealized appreciation ................ 7,811,784 13,406,131
------------ ------------
NET INCREASE ....................................... 34,023,313 13,910,270
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET
REALIZED GAIN:
Class A shares ....................................... (8,783) --
Class B shares ....................................... (5,580,481) --
Class C shares ....................................... (12,951) --
Class D shares ....................................... (380) --
------------ ------------
TOTAL DISTRIBUTIONS ................................ (5,602,595) --
------------ ------------
Net increase from transactions in shares of beneficial
interest ........................................... 16,161,166 108,230,046
------------ ------------
NET INCREASE ....................................... 44,581,884 122,140,316
NET ASSETS:
Beginning of period .................................. 122,240,316 100,000
------------ ------------
END OF PERIOD
(Including a net investment loss of $18,845
and $0, respectively) ............................. $166,822,200 $122,240,316
============ ============
</TABLE>
- ---------------------
* Commencement of operations.
** Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1998
1. ORGANIZATIONAL AND ACCOUNTING POLICIES
TCW/DW Global Telecom Trust (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a diversified, open-end
management investment company. The Fund's investment objective is long-term
capital appreciation. The Fund seeks to achieve its objective by investing
primarily in securities of domestic and foreign companies operating in all
aspects of the telecommunications and information industries. The Fund was
organized as a Massachusetts business trust on March 28, 1996 and had no other
operations other than those relating to organizational matters and the issuance
of 10,000 shares of beneficial interest for $100,000 to Morgan Stanley Dean
Witter Advisors Inc. ("MSDWA"), an affiliate of Morgan Stanley Dean Witter
Services Company Inc. (the "Manager"), to effect the Fund's initial
capitalization. The Fund commenced operations on August 28, 1996. On July 28,
1997, the Fund commenced offering three additional classes of shares, with the
then current shares designated as Class B shares.
Effective June 22, 1998, the following entities have changed their name:
<TABLE>
<CAPTION>
OLD NAME NEW NAME
- -------- --------
<S> <C>
Dean Witter InterCapital Inc. Morgan Stanley Dean Witter Advisors Inc.
Dean Witter Distributors Inc. Morgan Stanley Dean Witter Distributors Inc.
Dean Witter Services Company Inc. Morgan Stanley Dean Witter Services Company Inc.
</TABLE>
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
(in cases where securities are traded on more than one exchange; the securities
are valued on the exchange designated as the primary market pursuant to
procedures adopted by the Trustees); (2) all other
49
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
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 TCW Funds Management, Inc. (the
"Adviser") 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) certain portfolio securities may be valued
by an outside pricing service approved by the Trustees. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon as
the evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, if available, in
determining what it believes is the fair valuation of the securities valued by
such pricing service; (5) short-term debt securities having a maturity date of
more than sixty days at time of purchase are valued on a mark-to-market basis
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity date
of sixty days or less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except for certain dividends on foreign securities which are recorded as soon
as the Fund is informed after 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. FOREIGN CURRENCY TRANSLATION -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward contracts are
translated at the exchange rates prevailing at the end of the period; and (2)
purchases, sales, income and expenses are translated at the exchange rates
prevailing on the respective dates of such transactions. The resultant exchange
gains and losses are included in the Statement of Operations as realized and
unrealized gain/loss on foreign exchange transactions. Pursuant to U.S. Federal
income tax regulations, certain foreign exchange gains/losses included in
realized and unrealized gain/loss
50
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
are included in or are a reduction of ordinary income for federal income tax
purposes. The Fund does not isolate that portion of the results of operations
arising as a result of changes in the foreign exchange rates from the changes
in the market prices of the securities.
E. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund may enter into forward
foreign currency contracts which are valued daily at the appropriate exchange
rates. The resultant unrealized exchange gains and losses are included in the
Statement of Operations as unrealized foreign currency gain or loss and in the
Statement of Assets and Liabilities as part of the related foreign currency
denominated asset or liability. The Fund records realized gains or losses on
delivery of the currency or at the time the forward contract is extinguished
(compensated) by entering into a closing transaction prior to delivery.
F. 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.
G. 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.
H. ORGANIZATIONAL EXPENSES -- MSDWA paid the organizational expenses in the
amount of approximately $172,000 which has been reimbursed for the full amount
thereof. Such expenses have been deferred and are being amortized on the
straight-line method over a period not to exceed five years from the
commencement of operations.
2. MANAGEMENT AGREEMENT
Pursuant to a Management Agreement, the Fund pays the Manager a management fee,
accrued daily and payable monthly, by applying the annual rate of 0.60% to the
net assets of the Fund determined as of the close of each business day.
51
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
Under the terms of the Management Agreement, the Manager maintains certain of
the Fund's books and records and furnishes, at its own expense, office space,
facilities, equipment, clerical, bookkeeping and certain legal services and
pays the salaries of all personnel, including officers of the Fund who are
employees of the Manager. The Manager also bears the cost of telephone
services, heat, light, power and other utilities provided to the Fund.
3. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement, the Fund pays the Adviser an
advisory fee, accrued daily and payable monthly, by applying the annual rate of
0.40% to the net assets of the Fund determined as of the close of each business
day.
Under the terms of the Investment Advisory Agreement, the Fund has retained the
Adviser to invest the Fund's assets, including placing orders for the purchase
and sale of portfolio securities. The Adviser 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. In
addition, the Adviser pays the salaries of all personnel, including officers of
the Fund, who are employees of the Adviser.
4. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has
adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A -- up
to 0.25% of the average daily net assets of Class A; (ii) Class B -- 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, Morgan Stanley Dean Witter Financial Advisors and others who
engage in or support distribution of the shares or who service shareholder
accounts, including overhead and
52
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
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 Dean Witter
Reynolds Inc. ("DWR"), an affiliate of the Manager and Distributor, and other
selected broker-dealers for their opportunity costs in advancing such amounts,
which compensation would be in the form of a carrying charge on any
unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the Distributor
under the Plan and the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares, if for any reason the Plan is terminated,
the Trustees will consider at that time the manner in which to treat such
expenses. The Distributor has advised the Fund that such excess amounts,
including carrying charges, totaled $7,673,197 at
May 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 Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the period ended May 31, 1998, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.24% and
1.0%, respectively.
The Distributor has informed the Fund that for the period ended May 31, 1998,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C shares of $430,611, and $393, respectively,
and received $11,497 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 May 31, 1998 aggregated
$179,976,218 and $170,506,083, respectively.
For the year ended May 31, 1998, the Fund incurred brokerage commissions of
$3,460 with Morgan Stanley & Co., Inc., an affiliate of the Manager, for
portfolio transactions executed on behalf of the Fund.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Manager and
Distributor, is the Fund's transfer agent.
53
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR AUGUST 28, 1996*
ENDED THROUGH
MAY 31, 1998 MAY 31, 1997
-------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
CLASS A SHARES**
Sold .................................. 70,641 $ 1,010,003 -- --
Reinvestment of distributions ......... 687 8,164
Redeemed .............................. (2,517) (35,654) -- --
---------- ------------- ---------- -------------
Net increase -- Class A ............... 68,811 982,513 -- --
---------- ------------- ---------- -------------
CLASS B SHARES
Sold .................................. 2,865,878 38,687,349 11,662,388 $ 118,594,978
Reinvestment of distributions ......... 444,412 5,270,720 -- --
Redeemed .............................. (2,172,212) (29,334,428) (978,238) (10,364,932)
---------- ------------- ---------- -------------
Net increase -- Class B ............... 1,138,078 14,623,641 10,684,150 108,230,046
---------- ------------- ---------- -------------
CLASS C SHARES**
Sold .................................. 43,731 598,390 -- --
Reinvestment of distributions ......... 1,064 12,611 -- --
Redeemed .............................. (4,730) (66,384) -- --
---------- ------------- ---------- -------------
Net increase -- Class C ............... 40,065 544,617 -- --
---------- ------------- ---------- -------------
CLASS D SHARES**
Sold .................................. 771 10,015 -- --
Reinvestment of distributions ......... 32 380 -- --
---------- ------------- ---------- -------------
Net increase -- Class D ............... 803 10,395 -- --
---------- ------------- ---------- -------------
Net increase in Fund .................. 1,247,757 $ 16,161,166 10,684,150 $ 108,230,046
========== ============= ========== =============
</TABLE>
- ---------------
* Commencement of operations.
** For the period July 28, 1997 (issue date) through May 31, 1998.
54
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
7. FEDERAL INCOME TAX STATUS
Foreign currency losses incurred after October 31 ("post-October losses")
within the taxable year are deemed to arise on the first business day of the
Fund's next taxable year. The Fund incurred and will elect to defer net foreign
currency losses of approximately $19,000 during fiscal 1998.
As of May 31, 1998, the Fund had temporary book/tax differences primarily
attributable to post-October losses and capital loss deferrals on wash sales
and permanent book/tax differences primarily attributable to a net operating
loss. To reflect reclassifications arising from the permanent differences,
paid-in-capital was charged $107,536, accumulated undistributed net realized
gain was charged $1,842,855 and net investment loss was credited $1,950,391.
8. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward
contracts") to facilitate settlement of foreign currency denominated portfolio
transactions or to manage foreign currency exposure associated with foreign
currency denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk
of an unfavorable change in foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counter parties to meet the terms of their
contracts.
At May 31, 1998, there were no outstanding forward contracts.
55
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR AUGUST 28, 1996*
ENDED THROUGH
MAY 31, 1998**++ MAY 31, 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $11.43 $10.00
------ ------
Net investment loss ............................... (0.17) (0.09)
Net realized and unrealized gain .................. 3.20 1.52
------ ------
Total from investment operations .................. 3.03 1.43
Less distributions from net realized gain......... (0.49) --
------ ------
Net asset value, end of period .................... $13.97 $11.43
====== ======
TOTAL INVESTMENT RETURN+ .......................... 27.30% 14.30%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 2.12% 2.38%(2)
Net investment loss ............................... (1.30)% (1.27)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $165,284 $122,240
Portfolio turnover rate ........................... 116% 80%(1)
Average commission rate paid ...................... $0.0049 $0.0283
</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
56
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
MAY 31, 1998++
- ----------------------------------------------------------------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $12.99
------
Net investment loss ............................... (0.09)
Net realized and unrealized gain .................. 1.63
------
Total from investment operations .................. 1.54
Less distributions from net realized gain......... (0.49)
------
Net asset value, end of period .................... $14.04
======
TOTAL INVESTMENT RETURN+ .......................... 12.64%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.52%(2)
Net investment loss ............................... (0.76)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $966
Portfolio turnover rate ........................... 116%
Average commission rate paid ...................... $0.0049
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $12.99
------
Net investment loss ............................... (0.17)
Net realized and unrealized gain .................. 1.62
------
Total from investment operations .................. 1.45
Less distributions from net realized gain ......... (0.49)
------
Net asset value, end of period .................... $13.95
======
TOTAL INVESTMENT RETURN+ .......................... 11.86%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 2.30%(2)
Net investment loss ............................... (1.52)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $559
Portfolio turnover rate ........................... 116%
Average commission rate paid ...................... $0.0049
</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
57
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
MAY 31, 1998++
- ------------------------------------------------------------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $12.99
------
Net investment loss ............................... (0.05)
Net realized and unrealized gain .................. 1.62
------
Total from investment operations .................. 1.57
Less distributions from net realized gain ......... (0.49)
------
Net asset value, end of period .................... $14.07
======
TOTAL INVESTMENT RETURN+ .......................... 12.80%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.33%(2)
Net investment loss ............................... (0.46)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $11
Portfolio turnover rate ........................... 116%
Average commission rate paid ...................... $0.0049
</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
58
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF TCW/DW GLOBAL TELECOM TRUST
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 TCW/DW Global Telecom Trust (the
"Fund") at May 31, 1998, the results of its operations for the year then ended,
and the changes in its net assets 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 May 31, 1998 by correspondence with the custodian and brokers and
the application of alternative auditing procedures where confirmations from
brokers were not received, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
July 10, 1998
- -------------------------------------------------------------------------------
1998 FEDERAL TAX NOTICE (unaudited)
For the year ended May 31, 1998, the Fund paid to shareholders $0.05 per share
from long-term capital gains. This $0.05 distribution is taxable as 28% rate
gain.
- -------------------------------------------------------------------------------
59
<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
security 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 Commercial Paper as well
60
<PAGE>
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.
CC The rating "CC" is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC" rating.
61
<PAGE>
C The rating "C" is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC" 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.
Debt 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.
62
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL UTILITIES FUND
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
The response to this item is incorporated herein by reference to Exhibits
1 and 2 under Item 16 below and by reference to Item 27 of, Post-Effective
Amendment No. 6 to Registrant's Registration Statement on Form N-1A, dated June
26, 1998, which was filed electronically pursuant to Regulation S-T on June 26,
1998 ("Post-Effective Amendment No. 6") as an amendment to Registrant's
Registration Statement on Form N-1A (File Nos. 811-7119 and 33-50709) (the
"Registration Statement").
ITEM 16. EXHIBITS
(1) Declaration of Trust dated October 21, 1993 ("Declaration of Trust")
(incorporated herein by reference to Exhibit 1 of Registrant's initial
Registration Statement filed on November 2, 1993); Amendment Establishing
and Designating Additional Classes of Shares to Declaration of Trust
(incorporated herein by reference to Exhibit 1 to Post-Effective Amendment
No. 5)
(2) Amended and Restated By-Laws of Registrant dated as of January 28, 1999
(3) Not Applicable
(4) Copy of Agreement and Plan of Reorganization (filed herewith as Exhibit A
to the Proxy Statement and Prospectus)
(5) Not Applicable
(6) Investment Management Agreement (incorporated herein by reference to
Exhibit 5 to Post-Effective Amendment No. 6)
(7) (a) Distribution Agreement between Registrant and Morgan Stanley Dean
Witter Distributors Inc. (incorporated herein by reference to Exhibit
6(a) to Post-Effective Amendment No. 5)
(b) Multiple Class Distribution Agreement between Registrant and Morgan
Stanley Dean Witter Distributors, Inc. (incorporated herein by
reference to Exhibit 6 of Post-Effective Amendment No. 6)
(c) Form of Selected Dealer Agreement (incorporated herein by reference to
Exhibit 6(b) to Registrant's Pre-Effective Amendment No. 1 filed on
March 21, 1994 ("Pre-Effective Amendment No. 1")
(8) Not Applicable
(9) (a) Custody Agreement dated February 24, 1994 (incorporated herein by
reference to Exhibit 8 to Pre-Effective Amendment No. 1)
(b) Amended and Restated Transfer Agency and Services Agreement between
Registrant and Morgan Stanley Dean Witter Trust FSB (incorporated
herein by reference to Exhibit 8 of Post-Effective Amendment No. 6)
(10) (a) Amended and Restated Plan of Distribution pursuant to Rule 12b-1,
dated July 28, 1997 (incorporated herein by reference to Exhibit 15 to
Post-Effective Amendment No. 5)
C-1
<PAGE>
(b) Morgan Stanley Dean Witter Funds Multiple Class Plan pursuant to Rule
18f-3 (incorporated herein by reference to Exhibit 18 to Post-Effective
Amendment No. 6)
(11)(a) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein
(b) Opinion and consent of Lane Altman & Owens
(12) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein
regarding tax matters
(13) Form of Services Agreement between Morgan Stanley Dean Witter Advisors
Inc. and Morgan Stanley Dean Witter Services Company Inc. (incorporated
herein by reference to Exhibit 9 to Post-Effective Amendment No. 6)
(14) Consent of Independent Accountants
(15) Not Applicable
(16) Powers of Attorney
(17) (a) Registrant's Rule 24f-2 Notice pursuant to Rule 24f-2 under the
Investment Company Act of 1940, for its fiscal year ended February 28,
1999 (incorporated herein by reference to Form 24f-2 filed with the
Securities and Exchange Commission on March 2, 1998)
(b) Form of Proxy
(c) Voting Information Card
ITEM 17. UNDERTAKINGS
1. The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of the prospectus which is a part
of this registration statement on Form N-14 by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the Securities
Act of 1933, the reoffering prospectus will contain the information called for
by the applicable registration form for reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
2. The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to this
registration statement on Form N-14 and will not be used until the amendment is
effective, and that, in determining any liability under the Securities Act of
1933, each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide offering of
them.
C-2
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this registration statement has
been signed on behalf of the registrant, in the City of New York and State of
New York, on the 25th day of February, 1999.
MORGAN STANLEY DEAN WITTER GLOBAL UTILITIES
FUND
By: /s/ Barry Fink
--------------
Barry Fink
Vice President and Secretary
As required by the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ------------------------------------ ------------------
<S> <C> <C>
1. Principal Executive Officer
/s/ Charles A. Fiumefreddo President, Chief Executive Officer,
........................... Trustee and Chairman February 25, 1999
2. Principal Financial Officer
/s/ Thomas F. Caloia Treasurer and Principal
........................... Accounting Officer February 25, 1999
3. Majority of Trustees
/s/ Michael Bozic Trustee February 25, 1999
...........................
/s/ Edwin J. Garn Trustee February 25, 1999
...........................
/s/ John R. Haire Trustee February 25, 1999
...........................
/s/ Wayne E. Hedien Trustee February 25, 1999
...........................
/s/ Manuel H. Johnson Trustee February 25, 1999
...........................
/s/ Michael E. Nugent Trustee February 25, 1999
...........................
/s/ John L. Schroeder Trustee February 25, 1999
...........................
/s/ Philip J. Purcell Trustee February 25, 1999
...........................
</TABLE>
C-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
- --------- ------------------------------------------------------------------------ -------
<S> <C> <C>
(2) Amended and Restated By-Laws dated as of January 28, 1999
(11) (a) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein
(b) Opinion and consent of Lane Altman & Owens
(12) Opinion and consent of Gordon Altman Butowsky Weitzen Shalov & Wein
regarding tax matters
(14) Consent of Independent Accountants
(16) Powers of Attorney
(17) (b) Form of Proxy
(c) Voting Information Card
</TABLE>
<PAGE>
BY-LAWS
OF
MORGAN STANLEY DEAN WITTER GLOBAL UTILITIES FUND
AMENDED AND RESTATED AS OF JANUARY 28, 1999
ARTICLE I
DEFINITIONS
The terms "Commission," "Declaration," "Distributor," "Investment
Adviser," "Majority Shareholder Vote," "1940 Act," "Shareholder," "Shares,"
"Transfer Agent," "Trust," "Trust Property," and "Trustees" have the respective
meanings given them in the Declaration of Trust of Morgan Stanley Dean Witter
Global Utilities Fund dated October 21, 1993, as amended from time to time.
ARTICLE II
OFFICES
SECTION 2.1. Principal Office. Until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be in
the City of Boston, County of Suffolk.
SECTION 2.2. Other Offices. In addition to its principal office in the
Commonwealth of Massachusetts, the Trust may have an office or offices in the
City of New York, State of New York, and at such other places within and
without the Commonwealth as the Trustees may from time to time designate or the
business of the Trust may require.
ARTICLE III
SHAREHOLDERS' MEETINGS
SECTION 3.1. Place of Meetings. Meetings of Shareholders shall be held at
such place, within or without the Commonwealth of Massachusetts, as may be
designated from time to time by the Trustees.
SECTION 3.2. Meetings. Meetings of Shareholders of the Trust shall be held
whenever called by the Trustees or the President of the Trust and whenever
election of a Trustee or Trustees by Shareholders is required by the provisions
of Section 16(a) of the 1940 Act, for that purpose. Meetings of Shareholders
shall also be called by the Secretary upon the written request of the holders
of Shares entitled to vote as otherwise required by Section 16(c) of the 1940
Act and to the extent required by the corporate or business statute of any
state in which the Shares of the Trust are sold, as made applicable to the
Trust by the provisions of Section 2.3 of the Declaration. Such request shall
state the purpose or purposes of such meeting and the matters proposed to be
acted on thereat. Except to the extent otherwise required by Section 16(c) of
the 1940 Act, as made applicable to the Trust by the provisions of Section 2.3
of the Declaration, the Secretary shall inform such Shareholders of the
reasonable estimated cost of preparing and mailing such notice of the meeting,
and upon payment to the Trust of such costs, the Secretary shall give notice
stating the purpose or purposes of the meeting to all entitled to vote at such
meeting. No meeting need be called upon the request of the holders of Shares
entitled to cast less than a majority of all votes entitled to be cast at such
meeting, to consider any matter which is substantially the same as a matter
voted upon at any meeting of Shareholders held during the preceding twelve
months.
SECTION 3.3. Notice of Meetings. Written or printed notice of every
Shareholders' meeting stating the place, date, and purpose or purposes thereof,
shall be given by the Secretary not less than ten (10) nor more than ninety
(90) days before such meeting to each Shareholder entitled to vote at such
meeting. Such notice shall be deemed to be given when deposited in the United
States mail, postage prepaid, directed to the Shareholder at his address as it
appears on the records of the Trust.
<PAGE>
SECTION 3.4 Quorum and Adjournment of Meetings. Except as otherwise
provided by law, by the Declaration or by these By-Laws, at all meetings of
Shareholders, the holders of a majority of the Shares issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
be requisite and shall constitute a quorum for the transaction of business. In
the absence of a quorum, the Shareholders present or represented by proxy and
entitled to vote thereat shall have the power to adjourn the meeting from time
to time. The Shareholders present in person or represented by proxy at any
meeting and entitled to vote thereat also shall have the power to adjourn the
meeting from time to time if the vote required to approve or reject any
proposal described in the original notice of such meeting is not obtained (with
proxies being voted for or against adjournment consistent with the votes for
and against the proposal for which the required vote has not been obtained).
The affirmative vote of the holders of a majority of the Shares then present in
person or represented by proxy shall be required to adjourn any meeting. Any
adjourned meeting may be reconvened without further notice or change in record
date. At any reconvened meeting at which a quorum shall be present, any
business may be transacted that might have been transacted at the meeting as
originally called.
SECTION 3.5. Voting Rights, Proxies. At each meeting of Shareholders,
each holder of record of Shares entitled to vote thereat shall be entitled to
one vote in person or by proxy for each Share of beneficial interest of the
Trust and for the fractional portion of one vote for each fractional Share
entitled to vote so registered in his or her name on the records of the Trust
on the date fixed as the record date for the determination of Shareholders
entitled to vote at such meeting. Without limiting the manner in which a
Shareholder may authorize another person or persons to act for such Shareholder
as proxy pursuant hereto, the following shall constitute a valid means by which
a Shareholder may grant such authority:
(i) A Shareholder may execute a writing authorizing another person or
persons to act for such Shareholder as proxy. Execution may be accomplished
by the Shareholder or such Shareholder's authorized officer, director,
employee, attorney-in-fact or another agent signing such writing or causing
such person's signature to be affixed to such writing by any reasonable
means including, but not limited to, by facsimile or telecopy signature. No
written evidence of authority of a Shareholder's authorized officer,
director, employee, attorney-in-fact or other agent shall be required; and
(ii) A Shareholder may authorize another person or persons to act for such
Shareholder as proxy by transmitting or authorizing the transmission of a
telegram or cablegram or by other means of telephonic, electronic or
computer transmission to the person who will be the holder of the proxy or
to a proxy solicitation firm, proxy support service organization or like
agent duly authorized by the person who will be the holder of the proxy to
receive such transmission, provided that any such telegram or cablegram or
other means of telephonic, electronic or computer transmission must either
set forth or be submitted with information from which it can be determined
that the telegram, cablegram or other transmission was authorized by the
Shareholder.
No proxy shall be valid after eleven months from its date, unless otherwise
provided in the proxy. At all meetings of Shareholders, unless the voting is
conducted by inspectors, all questions relating to the qualification of voters
and the validity of proxies and the acceptance or rejection of votes shall be
decided by the chairman of the meeting. In determining whether a telegram,
cablegram or other electronic transmission is valid, the chairman or inspector,
as the case may be, shall specify the information upon which he or she relied.
Pursuant to a resolution of a majority of the Trustees, proxies may be
solicited in the name of one or more Trustees or Officers of the Trust. Proxy
solicitations may be made in writing or by using telephonic or other electronic
solicitation procedures that include appropriate methods of verifying the
identity of the Shareholder and confirming any instructions given thereby.
SECTION 3.6. Vote Required. Except as otherwise provided by law, by the
Declaration of Trust, or by these By-Laws, at each meeting of Shareholders at
which a quorum is present, all matters shall be decided by Majority Shareholder
Vote.
SECTION 3.7. Inspectors of Election. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of Shareholders may, and on the request
of any
2
<PAGE>
Shareholder or his proxy shall, appoint Inspectors of Election of the meeting.
In case any person appointed as Inspector fails to appear or fails or refuses
to act, the vacancy may be filled by appointment made by the Trustees in
advance of the convening of the meeting or at the meeting by the person acting
as chairman. The Inspectors of Election shall determine the number of Shares
outstanding, the Shares represented at the meeting, the existence of a quorum,
the authenticity, validity and effect of proxies, shall receive votes, ballots
or consents, shall hear and determine all challenges and questions in any way
arising in connection with the right to vote, shall count and tabulate all
votes or consents, determine the results, and do such other acts as may be
proper to conduct the election or vote with fairness to all Shareholders. On
request of the chairman of the meeting, or of any Shareholder or his proxy, the
Inspectors of Election shall make a report in writing of any challenge or
question or matter determined by them and shall execute a certificate of any
facts found by them.
SECTION 3.8. Inspection of Books and Records. Shareholders shall have such
rights and procedures of inspection of the books and records of the Trust as
are granted to Shareholders under Section 32 of the Business Corporation Law of
the Commonwealth of Massachusetts.
SECTION 3.9. Action by Shareholders Without Meeting. Except as otherwise
provided by law, the provisions of these By-Laws relating to notices and
meetings to the contrary notwithstanding, any action required or permitted to
be taken at any meeting of Shareholders may be taken without a meeting if a
majority of the Shareholders entitled to vote upon the action consent to the
action in writing and such consents are filed with the records of the Trust.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
SECTION 3.10. Presence at Meetings. Presence at meetings of shareholders
requires physical attendance by the shareholder or his or her proxy at the
meeting site and does not encompass attendance by telephonic or other
electronic means.
ARTICLE IV
TRUSTEES
SECTION 4.1. Meetings of the Trustees. The Trustees may in their
discretion provide for regular or special meetings of the Trustees. Regular
meetings of the Trustees may be held at such time and place as shall be
determined from time to time by the Trustees without further notice. Special
meetings of the Trustees may be called at any time by the President and shall
be called by the President or the Secretary upon the written request of any two
(2) Trustees.
SECTION 4.2. Notice of Special Meetings. Written notice of special
meetings of the Trustees, stating the place, date and time thereof, shall be
given not less than two (2) days before such meeting to each Trustee,
personally, by telegram, by mail, or by leaving such notice at his place of
residence or usual place of business. If mailed, such notice shall be deemed to
be given when deposited in the United States mail, postage prepaid, directed to
the Trustee at his address as it appears on the records of the Trust. Subject
to the provisions of the 1940 Act, notice or waiver of notice need not specify
the purpose of any special meeting.
SECTION 4.3. Telephone Meetings. Subject to the provisions of the 1940
Act, any Trustee, or any member or members of any committee designated by the
Trustees, may participate in a meeting of the Trustees, or any such committee,
as the case may be, by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at the meeting.
SECTION 4.4. Quorum, Voting and Adjournment of Meetings. At all meetings
of the Trustees, a majority of the Trustees shall be requisite to and shall
constitute a quorum for the transaction of business. If a quorum is present,
the affirmative vote of a majority of the Trustees present shall be the act of
the Trustees, unless the concurrence of a greater proportion is expressly
required for such action by law, the Declaration or these By-Laws. If at any
meeting of the Trustees there be less than a quorum present, the Trustees
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall have been obtained.
3
<PAGE>
SECTION 4.5. Action by Trustees Without Meeting. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at any
meeting of the Trustees may be taken without a meeting if a consent in writing
setting forth the action shall be signed by all of the Trustees entitled to
vote upon the action and such written consent is filed with the minutes of
proceedings of the Trustees.
SECTION 4.6. Expenses and Fees. Each Trustee may be allowed expenses, if
any, for attendance at each regular or special meeting of the Trustees, and
each Trustee who is not an officer or employee of the Trust or of its
investment manager or underwriter or of any corporate affiliate of any of said
persons shall receive for services rendered as a Trustee of the Trust such
compensation as may be fixed by the Trustees. Nothing herein contained shall be
construed to preclude any Trustee from serving the Trust in any other capacity
and receiving compensation therefor.
SECTION 4.7. Execution of Instruments and Documents and Signing of Checks
and Other Obligations and Transfers. All instruments, documents and other
papers shall be executed in the name and on behalf of the Trust and all checks,
notes, drafts and other obligations for the payment of money by the Trust shall
be signed, and all transfer of securities standing in the name of the Trust
shall be executed, by the Chairman, the President, any Vice President or the
Treasurer or by any one or more officers or agents of the Trust as shall be
designated for that purpose by vote of the Trustees; notwithstanding the above,
nothing in this Section 4.7 shall be deemed to preclude the electronic
authorization, by designated persons, of the Trust's Custodian (as described
herein in Section 9.1) to transfer assets of the Trust, as provided for herein
in Section 9.1.
SECTION 4.8. Indemnification of Trustees, Officers, Employees and
Agents. (a) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Trust) by reason of the fact
that he is or was a Trustee, officer, employee, or agent of the Trust. The
indemnification shall be against expenses, including attorneys' fees,
judgments, fines, and amounts paid in settlement, actually and reasonably
incurred by him in connection with the action, suit, or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Trust, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Trust, and, with respect to any criminal action or proceeding,
had reasonable cause to believe that his conduct was unlawful.
(b) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or on behalf of the Trust to obtain a judgment or decree in its favor
by reason of the fact that he is or was a Trustee, officer, employee, or agent
of the Trust. The indemnification shall be against expenses, including
attorneys' fees actually and reasonably incurred by him in connection with the
defense or settlement of the action or suit, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Trust; except that no indemnification shall be made in respect of any
claim, issue, or matter as to which the person has been adjudged to be liable
for negligence or misconduct in the performance of his duty to the Trust,
except to the extent that the court in which the action or suit was brought, or
a court of equity in the county in which the Trust has its principal office,
determines upon application that, despite the adjudication of liability but in
view of all circumstances of the case, the person is fairly and reasonably
entitled to indemnity for those expenses which the court shall deem proper,
provided such Trustee, officer, employee or agent is not adjudged to be liable
by reason of his willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office.
(c) To the extent that a Trustee, officer, employee, or agent of the Trust
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in subsection (a) or (b) or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred by him in connection
therewith.
4
<PAGE>
(d) (1) Unless a court orders otherwise, any indemnification under
subsections (a) or (b) of this section may be made by the Trust only as
authorized in the specific case after a determination that indemnification of
the Trustee, officer, employee, or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in subsections (a) or
(b).
(2) The determination shall be made:
(i) By the Trustees, by a majority vote of a quorum which
consists of Trustees who were not parties to the action, suit or
proceeding; or
(ii) If the required quorum is not obtainable, or if a quorum of
disinterested Trustees so directs, by independent legal counsel in a
written opinion; or
(iii) By the Shareholders.
(3) Notwithstanding any provision of this Section 4.8, no person
shall be entitled to indemnification for any liability, whether or not
there is an adjudication of liability, arising by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of duties
as described in Section 17(h) and (i) of the Investment Company Act of
1940 ("disabling conduct"). A person shall be deemed not liable by reason
of disabling conduct if, either:
(i) a final decision on the merits is made by a court or other
body before whom the proceeding was brought that the person to be
indemnified ("indemnitee") was not liable by reason of disabling
conduct; or
(ii) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the indemnitee
was not liable by reason of disabling conduct, is made by either--
(A) a majority of a quorum of Trustees who are neither
"interested persons" of the Trust, as defined in Section
2(a)(19) of the Investment Company Act of 1940, nor parties to
the action, suit or proceeding, or
(B) an independent legal counsel in a written opinion.
(e) Expenses, including attorneys' fees, incurred by a Trustee, officer,
employee or agent of the Trust in defending a civil or criminal action, suit or
proceeding may be paid by the Trust in advance of the final disposition thereof
if:
(1) authorized in the specific case by the Trustees; and
(2) the Trust receives an undertaking by or on behalf of the Trustee,
officer, employee or agent of the Trust to repay the advance if it is not
ultimately determined that such person is entitled to be indemnified by
the Trust; and
(3) either, (i) such person provides a security for his undertaking,
or
(ii) the Trust is insured against losses by reason of any lawful
advances, or
(iii) a determination, based on a review of readily available
facts, that there is reason to believe that such person ultimately
will be found entitled to indemnification, is made by either--
(A) a majority of a quorum which consists of Trustees who
are neither "interested persons" of the Trust, as defined in
Section 2(a)(19) of the 1940 Act, nor parties to the action,
suit or proceeding, or
(B) an independent legal counsel in a written opinion.
(f) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which a person may be entitled under any
by-law, agreement, vote of Shareholders or disinterested Trustees or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding the office, and shall continue as to a person who has ceased to
be a Trustee, officer, employee, or agent and inure to the benefit of the
heirs, executors and administrators of such person; provided that no
5
<PAGE>
person may satisfy any right of indemnity or reimbursement granted herein or to
which he may be otherwise entitled except out of the property of the Trust, and
no Shareholder shall be personally liable with respect to any claim for
indemnity or reimbursement or otherwise.
(g) The Trust may purchase and maintain insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of the Trust, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such. However, in no event will the Trust purchase
insurance to indemnify any officer or Trustee against liability for any act for
which the Trust itself is not permitted to indemnify him.
(h) Nothing contained in this Section shall be construed to protect any
Trustee or officer of the Trust against any liability to the Trust or to its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE V
COMMITTEES
SECTION 5.1. Executive and Other Committees. The Trustees, by resolution
adopted by a majority of the Trustees, may designate an Executive Committee
and/or committees, each committee to consist of two (2) or more of the Trustees
of the Trust and may delegate to such committees, in the intervals between
meetings of the Trustees, any or all of the powers of the Trustees in the
management of the business and affairs of the Trust. In the absence of any
member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a Trustee to act in place
of such absent member. Each such committee shall keep a record of its
proceedings.
The Executive Committee and any other committee shall fix its own rules or
procedure, but the presence of at least fifty percent (50%) of the members of
the whole committee shall in each case be necessary to constitute a quorum of
the committee and the affirmative vote of the majority of the members of the
committee present at the meeting shall be necessary to take action.
All actions of the Executive Committee shall be reported to the Trustees
at the meeting thereof next succeeding to the taking of such action.
SECTION 5.2. Advisory Committee. The Trustees may appoint an advisory
committee which shall be composed of persons who do not serve the Trust in any
other capacity and which shall have advisory functions with respect to the
investments of the Trust but which shall have no power to determine that any
security or other investment shall be purchased, sold or otherwise disposed of
by the Trust. The number of persons constituting any such advisory committee
shall be determined from time to time by the Trustees. The members of any such
advisory committee may receive compensation for their services and may be
allowed such fees and expenses for the attendance at meetings as the Trustees
may from time to time determine to be appropriate.
SECTION 5.3. Committee Action Without Meeting. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at any
meeting of any Committee of the Trustees appointed pursuant to Section 5.1 of
these By-Laws may be taken without a meeting if a consent in writing setting
forth the action shall be signed by all members of the Committee entitled to
vote upon the action and such written consent is filed with the records of the
proceedings of the Committee.
ARTICLE VI
OFFICERS
SECTION 6.1. Executive Officers. The executive officers of the Trust shall
be a Chairman, a President, one or more Vice Presidents, a Secretary and a
Treasurer. The Chairman shall be selected from among the Trustees but none of
the other executive officers need be a Trustee. Two or more offices, except
those of President and any Vice President, may be held by the same person, but
no officer shall execute,
6
<PAGE>
acknowledge or verify any instrument in more than one capacity. The executive
officers of the Trust shall be elected annually by the Trustees and each
executive officer so elected shall hold office until his successor is elected
and has qualified.
SECTION 6.2. Other Officers and Agents. The Trustees may also elect one or
more Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers
and may elect, or may delegate to the President the power to appoint, such
other officers and agents as the Trustees shall at any time or from time to
time deem advisable.
SECTION 6.3. Term and Removal and Vacancies. Each officer of the Trust
shall hold office until his successor is elected and has qualified. Any officer
or agent of the Trust may be removed by the Trustees whenever, in their
judgment, the best interests of the Trust will be served thereby, but such
removal shall be without prejudice to the contractual rights, if any, of the
person so removed.
SECTION 6.4. Compensation of Officers. The compensation of officers and
agents of the Trust shall be fixed by the Trustees, or by the President to the
extent provided by the Trustees with respect to officers appointed by the
President.
SECTION 6.5. Power and Duties. All officers and agents of the Trust, as
between themselves and the Trust, shall have such authority and perform such
duties in the management of the Trust as may be provided in or pursuant to
these By-Laws, or to the extent not so provided, as may be prescribed by the
Trustees; provided, that no rights of any third party shall be affected or
impaired by any such By-Law or resolution of the Trustees unless he has
knowledge thereof.
SECTION 6.6. The Chairman. The Chairman shall preside at all meetings of
the Shareholders and of the Trustees, shall be a signatory on all Annual and
Semi-Annual Reports as may be sent to shareholders, and he shall perform such
other duties as the Trustees may from time to time prescribe.
SECTION 6.7. The President. (a) The President shall be the chief executive
officer of the Trust; he shall have general and active management of the
business of the Trust, shall see that all orders and resolutions of the
Trustees are carried into effect, and in connection therewith, shall be
authorized to delegate to one or more Vice Presidents such of his powers and
duties at such times and in such manner as he may deem advisable.
(b) In the absence of the Chairman, the President shall preside at all
meetings of the shareholders and the Board of Trustees; and he shall perform
such other duties as the Board of Trustees may from time to time prescribe.
SECTION 6.8. The Vice Presidents. The Vice Presidents shall be of such
number and shall have such titles as may be determined from time to time by the
Trustees. The Vice President, or, if there be more than one, the Vice
Presidents in the order of their seniority as may be determined from time to
time by the Trustees or the President, shall, in the absence or disability of
the President, exercise the powers and perform the duties of the President, and
he or they shall perform such other duties as the Trustees or the President may
from time to time prescribe.
SECTION 6.9. The Assistant Vice Presidents. The Assistant Vice President,
or, if there be more than one, the Assistant Vice Presidents, shall perform
such duties and have such powers as may be assigned them from time to time by
the Trustees or the President.
SECTION 6.10. The Secretary. The Secretary shall attend all meetings of
the Trustees and all meetings of the Shareholders and record all the
proceedings of the meetings of the Shareholders and of the Trustees in a book
to be kept for that purpose, and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the Shareholders and special meetings of the Trustees, and shall
perform such other duties and have such powers as the Trustees, or the
President, may from time to time prescribe. He shall keep in safe custody the
seal of the Trust and affix or cause the same to be affixed to any instrument
requiring it, and, when so affixed, it shall be attested by his signature or by
the signature of an Assistant Secretary.
7
<PAGE>
SECTION 6.11. The Assistant Secretaries. The Assistant Secretary, or, if
there be more than one, the Assistant Secretaries in the order determined by
the Trustees or the President, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and
shall perform such duties and have such other powers as the Trustees or the
President may from time to time prescribe.
SECTION 6.12. The Treasurer. The Treasurer shall be the chief financial
officer of the Trust. He shall keep or cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the Trust, and he
shall render to the Trustees and the President, whenever any of them require
it, an account of his transactions as Treasurer and of the financial condition
of the Trust; and he shall perform such other duties as the Trustees, or the
President, may from time to time prescribe.
SECTION 6.13. The Assistant Treasurers. The Assistant Treasurer, or, if
there shall be more than one, the Assistant Treasurers in the order determined
by the Trustees or the President, shall, in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as the Trustees, or
the President, may from time to time prescribe.
SECTION 6.14. Delegation of Duties. Whenever an officer is absent or
disabled, or whenever for any reason the Trustees may deem it desirable, the
Trustees may delegate the powers and duties of an officer or officers to any
other officer or officers or to any Trustee or Trustees.
ARTICLE VII
DIVIDENDS AND DISTRIBUTIONS
Subject to any applicable provisions of law and the Declaration, dividends
and distributions upon the Shares may be declared at such intervals as the
Trustees may determine, in cash, in securities or other property, or in Shares,
from any sources permitted by law, all as the Trustees shall from time to time
determine.
Inasmuch as the computation of net income and net profits from the sale of
securities or other properties for federal income tax purposes may vary from
the computation thereof on the records of the Trust, the Trustees shall have
power, in their discretion, to distribute as income dividends and as capital
gain distributions, respectively, amounts sufficient to enable the Trust to
avoid or reduce liability for federal income taxes.
ARTICLE VIII
CERTIFICATES OF SHARES
SECTION 8.1. Certificates of Shares. Certificates for Shares of each
series or class of Shares shall be in such form and of such design as the
Trustees shall approve, subject to the right of the Trustees to change such
form and design at any time or from time to time, and shall be entered in the
records of the Trust as they are issued. Each such certificate shall bear a
distinguishing number; shall exhibit the holder's name and certify the number
of full Shares owned by such holder; shall be signed by or in the name of the
Trust by the President, or a Vice President, and countersigned by the Secretary
or an Assistant Secretary or the Treasurer and an Assistant Treasurer of the
Trust; shall be sealed with the seal; and shall contain such recitals as may be
required by law. Where any certificate is signed by a Transfer Agent or by a
Registrar, the signature of such officers and the seal may be facsimile,
printed or engraved. The Trust may, at its option, determine not to issue a
certificate or certificates to evidence Shares owned of record by any
Shareholder.
In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall appear on, any such certificate or certificates
shall cease to be such officer or officers of the Trust, whether because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by the Trust, such certificate or certificates shall,
nevertheless, be adopted by the Trust and be issued and delivered as though the
person or persons who signed such certificate or certificates or whose
facsimile signature or signatures shall appear therein had not ceased to be
such officer or officers of the Trust.
8
<PAGE>
No certificate shall be issued for any share until such share is fully
paid.
SECTION 8.2. Lost, Stolen, Destroyed and Mutilated Certificates. The
Trustees may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Trust alleged to have
been lost, stolen or destroyed, upon satisfactory proof of such loss, theft, or
destruction; and the Trustees may, in their discretion, require the owner of
the lost, stolen or destroyed certificate, or his legal representative, to give
to the Trust and to such Registrar, Transfer Agent and/or Transfer Clerk as may
be authorized or required to countersign such new certificate or certificates,
a bond in such sum and of such type as they may direct, and with such surety or
sureties, as they may direct, as indemnity against any claim that may be
against them or any of them on account of or in connection with the alleged
loss, theft or destruction of any such certificate.
ARTICLE IX
CUSTODIAN
SECTION 9.1. Appointment and Duties. The Trust shall at times employ a
bank or trust company having capital, surplus and undivided profits of at least
five million dollars ($5,000,000) as custodian with authority as its agent, but
subject to such restrictions, limitations and other requirements, if any, as
may be contained in these By-Laws and the 1940 Act:
(1) to receive and hold the securities owned by the Trust and deliver
the same upon written or electronically transmitted order;
(2) to receive and receipt for any moneys due to the Trust and deposit
the same in its own banking department or elsewhere as the Trustees may
direct;
(3) to disburse such funds upon orders or vouchers;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a Majority Shareholder Vote, the custodian
shall deliver and pay over all property of the Trust held by it as specified in
such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of
the custodian and upon such terms and conditions as may be agreed upon between
the custodian and such sub-custodian and approved by the Trustees.
SECTION 9.2. Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice of the time, place or purpose of any meeting of
Shareholders, Trustees, or of any committee is required to be given in
accordance with law or under the provisions of the Declaration or these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to such notice and filed with the records of the meeting, whether before or
after the holding thereof, or actual attendance at the meeting of Shareholders,
Trustees or committee, as the case may be, in person, shall be deemed
equivalent to the giving of such notice to such person.
9
<PAGE>
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Location of Books and Records. The books and records of the
Trust may be kept outside the Commonwealth of Massachusetts at such place or
places as the Trustees may from time to time determine, except as otherwise
required by law.
SECTION 11.2 Record Date. The Trustees may fix in advance a date as the
record date for the purpose of determining the Shareholders entitled to (i)
receive notice of, or to vote at, any meeting of Shareholders, or (ii) receive
payment of any dividend or the allotment of any rights, or in order to make a
determination of Shareholders for any other proper purpose. The record date, in
any case, shall not be more than one hundred eighty (180) days, and in the case
of a meeting of Shareholders not less than ten (10) days, prior to the date on
which such meeting is to be held or the date on which such other particular
action requiring determination of Shareholders is to be taken, as the case may
be. In the case of a meeting of Shareholders, the meeting date set forth in the
notice to Shareholders accompanying the proxy statement shall be the date used
for purposes of calculating the 180 day or 10 day period, and any adjourned
meeting may be reconvened without a change in record date. In lieu of fixing a
record date, the Trustees may provide that the transfer books shall be closed
for a stated period but not to exceed, in any case, twenty (20) days. If the
transfer books are closed for the purpose of determining Shareholders entitled
to notice of a vote at a meeting of Shareholders, such books shall be closed
for at least ten (10) days immediately preceding the meeting.
SECTION 11.3. Seal. The Trustees shall adopt a seal, which shall be in
such form and shall have such inscription thereon as the Trustees may from time
to time provide. The seal of the Trust may be affixed to any document, and the
seal and its attestation may be lithographed, engraved or otherwise printed on
any document with the same force and effect as if it had been imprinted and
attested manually in the same manner and with the same effect as if done by a
Massachusetts business corporation under Massachusetts law.
SECTION 11.4. Fiscal Year. The fiscal year of the Trust shall end on such
date as the Trustees may by resolution specify, and the Trustees may by
resolution change such date for future fiscal years at any time and from time
to time.
SECTION 11.5. Orders for Payment of Money. All orders or instructions for
the payment of money of the Trust, and all notes or other evidences of
indebtedness issued in the name of the Trust, shall be signed by such officer
or officers or such other person or persons as the Trustees may from time to
time designate, or as may be specified in or pursuant to the agreement between
the Trust and the bank or trust company appointed as Custodian of the
securities and funds of the Trust.
ARTICLE XII
COMPLIANCE WITH FEDERAL REGULATIONS
The Trustees are hereby empowered to take such action as they may deem to
be necessary, desirable or appropriate so that the Trust is or shall be in
compliance with any federal or state statute, rule or regulation with which
compliance by the Trust is required.
ARTICLE XIII
AMENDMENTS
These By-Laws may be amended, altered, or repealed, or new By-Laws may be
adopted, (a) by a Majority Shareholder Vote, or (b) by the Trustees; provided,
however, that no By-Law may be amended, adopted or repealed by the Trustees if
such amendment, adoption or repeal requires, pursuant to law, the Declaration,
or these By-Laws, a vote of the Shareholders. The Trustees shall in no event
adopt By-Laws which are in conflict with the Declaration, and any apparent
inconsistency shall be construed in favor of the related provisions in the
Declaration.
10
<PAGE>
ARTICLE XIV
DECLARATION OF TRUST
The Declaration of Trust establishing Morgan Stanley Dean Witter Global
Utilities Fund, dated October 21, 1993, a copy of which, together with all
amendments thereto, is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name Morgan Stanley Dean
Witter Global Utilities Fund refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
Shareholder, officer, employee or agent of Morgan Stanley Dean Witter Global
Utilities Fund shall be held to any personal liability, nor shall resort be had
to their private property for the satisfaction of any obligation or claim or
otherwise, in connection with the affairs of said Morgan Stanley Dean Witter
Global Utilities Fund, but the Trust Estate only shall be liable.
11
<PAGE>
February 25, 1999
Morgan Stanley Dean Witter Global Utilities Fund
Two World Trade Center
New York, New York 10048
Ladies and Gentlemen:
This opinion is being furnished to Morgan Stanley Dean Witter
Global Utilities Fund, a Massachusetts business trust (the "Trust"), in
connection with the Registration Statement on Form N-14 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "1933 Act"), to
be filed by the Trust in connection with the acquisition by the Trust of
substantially all the assets of TCW/DW Global Telecom Trust ("Global Telecom"),
in exchange for shares of beneficial interest, par value $.01, of the Trust
("Shares") and the assumption by the Trust of certain stated liabilities of
Global Telecom pursuant to an Agreement and Plan of Reorganization dated as of
February 25, 1999, between the Trust and Global Telecom (the "Reorganization
Agreement"). We have examined such statutes, regulations, corporate records and
other documents and reviewed such questions of law as we deemed necessary or
appropriate for the purposes of this opinion.
As to matters of Massachusetts law contained in this opinion,
we have relied upon the opinion of Lane Altman & Owens LLP, dated February 25,
1999.
Based upon the foregoing, we are of the opinion that the
Shares when issued, as described in the Reorganization Agreement, will be duly
authorized and, assuming receipt of the consideration to be paid therefor, upon
delivery as provided in the Reorganization Agreement, will be legally issued,
fully paid and non-assessable (except for the potential liability of
shareholders described in the Trust's current Prospectus under the caption
"Additional Information").
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to us under the caption
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
We do not thereby admit that we are within the category of persons whose
consent is required under Section 7 of the 1933 Act or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Gordon Altman Butowsky Weitzen
Shalov & Wein
<PAGE>
<TABLE>
<S> <C> <C>
101 Federal Street Telephone
LANE ALTMAN & OWENS LLP
Counsellors at Law Boston, Massachusetts 02110 (617) 345-9800
Telefax
(617) 345-0400
</TABLE>
February 25, 1999
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, NY 10036
Dear Sirs:
We understand that the trustees of Morgan Stanley Dean Witter Global
Utilities Fund, a Massachusetts business trust (the "Trust"), intend, on or
about February 25, 1999, to cause to be filed on behalf of the Trust a
Registration Statement on Form N-14 (the "Registration Statement") in
connection with the acquisition (the "Acquisition") by the Trust of
substantially all the assets of TCW/DW Global Telecom Trust ("Global Telecom"),
in exchange for shares of beneficial interest of the Trust (the "Shares"), and
the assumption by the Trust of certain stated liabilities of Global Telecom
pursuant to an Agreement and Plan of Reorganization dated as of February 25,
1999 (the "Agreement"). We further understand that the Shares will be issued
pursuant to the Agreement.
You have requested that we act as special counsel to the Trust with
respect to the laws of the Commonwealth of Massachusetts on certain specified
matters, and in such capacity we are furnishing you with this opinion. You have
not asked for, and we do not offer, an opinion on any other matter or
transaction related to the Trust, Global Telecom, the Acquisition, the
Agreement or any matter related thereto, except as specifically set forthbelow.
The Trust is a business trust created under an Agreement and Declaration
of Trust finally executed, delivered and filed in Boston, Massachusetts on
October 22, 1993 (as amended from time to time, the "Trust Agreement"). The
Trustees of the Trust (as defined in the Trust Agreement) (the "Trustees") have
the powers set forth in the Trust Agreement, subject to the terms, provisions
and conditions provided therein.
In connection with our opinions delivered herein, we have examined the
following items some of which have been provided to us by, or on behalf of,
you: (i) a copy of the Agreement in the form to be executed by the Trust; (ii)
a copy of the Trust Agreement; (iii) a copy of the Amended and Restated By-laws
of the Trust effective as of January 28, 1999; (iv) a Certificate of Legal
Existence for the Trust provided by the Secretary of State of the Commonwealth
of Massachusetts dated February 24, 1999; and (v) copies of the Registration
Statement on Form N-14 to be filed by the Trust and the Trust's current
Prospectus and Statement of Additional Information.
In rendering this opinion we have assumed, without independent
verification, (i) the due authority of all individuals signing in
representative capacities and the genuineness of signatures, (ii) the
authenticity, completeness and continued effectiveness of all documents or
copies furnished to us, (iii) that resolutions approving the Registration
Statement, the Acquisition and the Agreement have been duly
<PAGE>
adopted by the Trustees, (iv) that no amendments, agreements, resolutions or
actions have been approved, executed or adopted which would limit, supersede or
modify the items described above, and (v) that the by-laws filed as an exhibit
to the Registration Statement have been duly adopted by the Trustees. We have
also examined such questions of law as we have concluded necessary or
appropriate for purposes of the opinions expressed below. Where documents are
referred to in resolutions approved by the Trustees, or in the Registration
Statement, we assume such documents are the same as in the most recent form
provided to us, whether as an exhibit to the Registration Statement, or
otherwise. When any opinion set forth below relates to the existence or
standing of the Trust, such opinion is based entirely upon and is limited by
the items referred to above. We understand that the foregoing assumptions,
limitations and qualifications are acceptable to you.
Based upon the foregoing, and with respect to Massachusetts law only
(except that no opinion is herein expressed with respect to compliance with the
Massachusetts Uniform Securities Act), to the extent that Massachusetts law may
be applicable, and without reference to the laws of any of the other several
states or of the United States of America, including State and Federal
securities laws, we are of the opinion that:
1. The Trust is a business trust with transferable shares, organized in
compliance with the requirements of The Commonwealth of Massachusetts, and the
Trust Agreement is legal and valid.
2. The Shares to be issued as described in the Registration Statement,
including any Exhibits thereto, have been duly authorized and, assuming receipt
of the consideration to be paid therefor, upon delivery as provided in the
Agreement, will be validly issued, fully paid and nonassessable (except for the
potential liability of shareholders described in the Trust's current Prospectus
under the caption "Additional Information").
We understand that you will rely on this opinion solely in connection with
your opinion to be filed with the Securities and Exchange Commission as an
Exhibit to the Registration Statement. We hereby consent to such use of this
opinion and we also consent to the filing of said opinion with the Securities
and Exchange Commission. In so consenting, we do not thereby admit to be within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
LANE ALTMAN & OWENS LLP
2
<PAGE>
February 25, 1999
Morgan Stanley Dean Witter Global Utilities Fund
Two World Trade Center
New York, New York 10048
TCW/DW Global Telecom Trust
Two World Trade Center
New York, New York 10048
Gentlemen:
You have requested our opinion as to the Federal income tax
consequences of the transaction (the "Reorganization") described below pursuant
to which (i) substantially all assets of TCW/DW Global Telecom Trust ("Global
Telecom"), a Massachusetts business trust, will be combined with those of
Morgan Stanley Dean Witter Global Utilities Fund, a Massachusetts business
trust (the "Trust"), in exchange for shares of the Trust ("Trust Shares"), and
the assumption by the Trust of certain liabilities of Global Telecom (the
"Liabilities"); (ii) Global Telecom will be liquidated; and (iii) the Trust
Shares will be distributed to the holders ("Global Telecom Shareholders") of
shares in Global Telecom ("Global Telecom Shares").
We have examined and are familiar with such documents, records and
other instruments as we have deemed appropriate for purposes of this opinion
letter, including the Registration Statement filed with the Securities and
Exchange Commission under the Securities Act of 1933 on Form N-14, relating to
the Trust Shares (the "Registration Statement") which includes, as a part
thereof, the proxy statement of Global Telecom (the "Global Telecom Proxy"),
which will be used to solicit proxies of Global Telecom Shareholders in
connection with the Special Meeting of Global Telecom Shareholders and the
Agreement and Plan of Reorganization by and between the Trust and Global
Telecom (the "Plan").
In rendering this opinion, we have assumed that such documents as yet
unexecuted will, when executed, conform to the proposed forms of such documents
that we have examined. We have further assumed that the Reorganization will be
carried out
<PAGE>
pursuant to the terms of the Plan, that factual statements and information
contained in the Registration Statement, the Global Telecom Proxy and other
documents, records and instruments supplied to us are correct and that there
will be no material change with respect to such facts or information prior to
the time of the Reorganization. In rendering our opinion, we have also relied
on the representations and facts discussed below which have been provided to us
by Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"), TCW Funds
Management Inc. ("TCW"), the Trust and Global Telecom, and we have assumed that
such representations and facts will remain correct at the time of the
Reorganization.
FACTS
The Trust is an open-end diversified management investment company
engaged in the continuous offering of its shares to the public. Since its
inception, the Trust has conducted its affairs so as to qualify, and has
elected to be taxed, as a regulated investment company under Section 851 of the
Internal Revenue Code of 1986, as amended (the "Code").
Global Telecom is an open-end diversified management investment
company engaged in the continuous offering of its shares to the public. Since
its inception, Global Telecom has conducted its affairs so as to qualify, and
has elected to be taxed, as a regulated investment company under Section 851 of
the Code.
The Board of Trustees of each of the Trust and Global Telecom have
determined, for valid business reasons, that it is advisable to combine the
assets of the Trust and Global Telecom into one fund.
In view of the above, the Board of Trustees of Global Telecom adopted
the Plan, subject to, among other things, approval by Global Telecom
Shareholders. Pursuant to the Plan, Global Telecom will transfer all of its
assets to the Trust in exchange for the Trust Shares (including fractional
Trust Shares) and the assumption by the Trust of the Liabilities. Immediately
thereafter, Global Telecom will distribute the Trust Shares to Global Telecom
Shareholders in exchange for and in cancellation of their Global Telecom Shares
and in complete liquidation of Global Telecom.
Each of the following representations, among other representations,
has been made to us in connection with the Reorganization by MSDW Advisors,
TCW, Global Telecom and by the Trust.
(1) To the best of the knowledge of the management of MSDW Advisors,
TCW, Global Telecom, the Trust, and their affiliates, there is no plan or
intention on the part of Global Telecom Shareholders, to redeem, sell, exchange
or otherwise dispose of a number of Trust Shares that would reduce Global
<PAGE>
Telecom Shareholders' ownership of Trust Shares to a number of Trust Shares
having a value, as of the date of the Reorganization, of less than fifty
percent of the value of all of the formerly outstanding Global Telecom Shares
as of such date;
(2) The Trust has no plan or intention to reacquire any of the Trust
Shares to be issued pursuant to the Reorganization except to the extent
necessary to comply with its legal obligation to redeem its own shares;
(3) The Liabilities to be assumed by or transferred to the Trust were
incurred by Global Telecom in the ordinary course of business and are
associated with the assets being transferred to the Trust;
(4) The amount of the Liabilities will not exceed the aggregate
adjusted basis of Global Telecom for its assets transferred to the Trust;
(5) The Trust has no plan or intention to sell or otherwise dispose of
more than fifty percent of the assets of Global Telecom acquired in the
Reorganization, except for dispositions made in the ordinary course of
business;
(6) There is no indebtedness between Global Telecom and the Trust that
was issued, acquired or will be settled at a discount;
(7) Global Telecom has been a regulated investment company within the
meaning of Section 851 of the Code since the date of its organization through
the end of its last complete taxable year and will qualify as a regulated
investment company for its taxable year ending on the date of the
Reorganization;
(8) The Trust has been a regulated investment company within the
meaning of Section 851 of the Code since the date of its organization through
the date hereof and will qualify as a regulated investment company for its
taxable year ending on February 28, 1999;
(9) Global Telecom will have no accumulated earnings and profits as of
the close of its taxable year ending on the date of the Reorganization.
OPINION
Based on the Code, Treasury Regulations issued thereunder, Internal
Revenue Service Rulings and the relevant case law, as of the date hereof, and
on the facts, representations and assumptions set forth above, and the
documents, records and other instruments we have reviewed, it is our opinion
that the Federal income tax consequences of the Reorganization to the Trust,
Global Telecom and the Global Telecom Shareholders will be as follows:
<PAGE>
(1) The transfer of substantially all of Global Telecom's assets in
exchange for the Trust Shares and the assumption by the Trust of certain stated
Liabilities of Global Telecom, followed by the distribution by Global Telecom
of the Trust Shares to the Global Telecom Shareholders in exchange for their
Global Telecom Shares, will constitute a "reorganization" within the meaning of
Section 368(a)(1)(C) the Code, and Global Telecom and the Trust will each be a
"party to a reorganization" within the meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by the Trust upon the receipt
of the assets of Global Telecom solely in exchange for the Trust Shares and the
assumption of the Liabilities by the Trust;
(3) No gain or loss will be recognized by Global Telecom upon the
transfer of the assets of Global Telecom to the Trust, in exchange for the
Trust Shares and the assumption of the Liabilities by the Trust, or upon the
distribution of the Trust Shares to Global Telecom Shareholders in exchange for
their Global Telecom Shares as provided in the Plan;
(4) No gain or loss will be recognized by Global Telecom Shareholders
upon the exchange of their Global Telecom Shares for the Trust Shares;
(5) The aggregate tax basis for the Trust Shares received by each
Global Telecom Shareholder pursuant to the Reorganization will be the same as
the aggregate tax basis of the Global Telecom Shares held by each such Global
Telecom Shareholder immediately prior to the Reorganization;
(6) The holding period of the Trust Shares to be received by each
Global Telecom Shareholder will include the period during which the Global
Telecom Shares surrendered in exchange therefor were held (provided such Global
Telecom Shares were held as capital assets on the date of the Reorganization);
(7) The tax basis of the assets of Global Telecom acquired by the
Trust will be the same as the tax basis of such assets to Global Telecom
immediately prior to the Reorganization; and
(8) The holding period of the assets of Global Telecom in the hands of
the Trust will include the period during which those assets were held by Global
Telecom.
We are not expressing an opinion as to any aspect of the
Reorganization other than those opinions expressly stated above.
As noted above, this opinion is based upon our analysis of the Code,
Treasury Regulations issued thereunder, Internal Revenue Service Rulings and
case law which we deem relevant as of the date hereof. No assurances can be
given that there will not
<PAGE>
be a change in the existing law or that the Internal Revenue Service will not
alter its present views, either prospectively or retroactively, or adopt new
views with regard to any of the matters upon which we are rendering this
opinion, nor can any assurances be given that the Internal Revenue Service will
not audit or question the treatment accorded to the Reorganization on the
Federal income tax returns of the Trust, Global Telecom or the Global Telecom
Shareholders.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and any reference to our firm
in the Registration Statement and the Global Telecom Proxy constituting a part
thereof.
Very truly yours,
/S/ GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy Statement and
Prospectus and the Statement of Additional Information constituting parts of
this registration statement on Form N-14 (the "Registration Statement") of our
report dated April 13, 1998 relating to the February 28, 1998 financial
statements and financial highlights of Morgan Stanley Dean Witter Global
Utilities Fund (the "Fund"), formerly Dean Witter Global Utilities Fund. We
also consent to the reference to us under the heading "Financial Statements and
Experts" in such Proxy Statement and Prospectus. We also consent to the
reference to us under the headings "Independent Accountants" and "Experts" in
that fund's Statement of Additional Information dated November 25, 1998 and to
the reference to us under the heading "Financial Highlights" in that fund's
Prospectus dated June 26, 1998, which is incorporated by reference into the
Registration Statement. We also consent to the incorporation by reference in
the Proxy Statement and Prospectus of our report dated June 10, 1998 relating
to May 31, 1998 financial statements and financial highlights of TCW/DW Global
Telecom Trust, appearing in the Annual Report to Shareholders of TCW/DW Global
Telecom Trust, which is also incorporated by reference into the Registration
Statement. We also consent to the reference to us under the headings
"Independent Accountants" and "Experts" in that fund's Statement of Additional
Information dated July 31, 1998 and to the reference to us under the heading
"Financial Highlights" in that fund's Prospectus dated July 31, 1998, which is
incorporated by reference into the Registration Statement.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 25, 1999
<PAGE>
POWER OF ATTORNEY
Know All Men by These Presents, that each person whose signature appears
below constitutes and appoints David M. Butowsky, Stuart M. Strauss and Ronald
M. Feiman and each and any one of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form N-14 of Morgan Stanley Dean Witter Global Utilities Fund, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitutes, may
lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------- --------- ------------------
<S> <C> <C>
/s/ MICHAEL BOZIC Trustee February 25, 1999
-------------------------------
MICHAEL BOZIC
/s/ EDWIN J. GARN Trustee February 25, 1999
-------------------------------
EDWIN J. GARN
/s/ JOHN R. HAIRE Trustee February 25, 1999
-------------------------------
JOHN R. HAIRE
/s/ WAYNE E. HEDIEN Trustee February 25, 1999
-------------------------------
WAYNE E. HEDIEN
/s/ MANUEL H. JOHNSON Trustee February 25, 1999
-------------------------------
MANUEL H. JOHNSON
/s/ MICHAEL E. NUGENT Trustee February 25, 1999
-------------------------------
MICHAEL E. NUGENT
/s/ JOHN L. SCHROEDER Trustee February 25, 1999
-------------------------------
JOHN L. SCHROEDER
</TABLE>
<PAGE>
POWER OF ATTORNEY
Know All Men by These Presents, that each person whose signature appears
below constitutes and appoints Barry Fink and Marilyn K. Cranney and each and
any one of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to the Registration Statement on Form N-14 of Morgan
Stanely Dean Witter Global Utilities Fund, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may lawfully do or cause
to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------- --------- ------------------
<S> <C> <C>
/s/ CHARLES A. FIUMEFREDDO Trustee February 25, 1999
-------------------------------
CHARLES A. FIUMEFREDDO
/s/ PHILIP J. PURCELL Trustee February 25, 1999
-------------------------------
PHILIP J. PURCELL
</TABLE>
<PAGE>
TCW/DW GLOBAL TELECOM TRUST
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 8, 1999
The undersigned shareholder of TCW/DW Global Telecom Trust does hereby
appoint BARRY FINK, RONALD E. ROBISON and ROBERT S. GIAMBRONE and each of them,
as attorneys-in-fact and proxies of the undersigned, each with the full power
of substitution, to attend the Special Meeting of Shareholders of TCW/DW Global
Telecom Trust to be held on June 8, 1999, in Conference Room A, Forty-Fourth
Floor, Two World Trade Center, New York, New York at 11:00 A.M., New York time,
and at all adjournments thereof and to vote the shares held in the name of the
undersigned on the record date for said meeting for the Proposal specified on
the reverse side hereof. Said attorneys-in-fact shall vote in accordance with
their best judgment as to any other matter.
(Continued on reverse side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE PROPOSAL SET FORTH ON THE REVERSE HEREOF AND AS RECOMMENDED BY
THE BOARD OF TRUSTEES.
IMPORTANT--THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
<PAGE>
12-DIGIT CONTROL NO.
TO VOTE BY MAIL, PLEASE
COMPLETE AND RETURN THIS CARD
You Also May Vote A Proxy By Touch-Tone Phone Or By Internet
(See enclosed Voting Information Card for further instructions)
To Vote A Proxy By Phone, call Toll-Free: 1-800-690-6903
To Vote A Proxy By Internet, visit our Website(s): WWW/MSDWT.COM or
WWW.PROXYVOTE.COM
[X] PLEASE MARK BOXES FOR AGAINST ABSTAIN
[ ] [ ] [ ]
The Proposal:
Approval of the Agreement and Plan of
Reorganization, dated as of February 25, 1999,
pursuant to which substantially all of the assets
of TCW/DW Global Telecom Trust would be combined with those of Morgan Stanley
Dean Witter Global Utilities Fund and shareholders of TCW/DW Global Telecom
Trust would become shareholders of Morgan Stanley Dean Witter Global Utilities
Fund receiving shares in Morgan Stanley Dean Witter Global Utilities Fund with
a value equal to the value of their holdings in TCW/DW Global Telecom Trust.
Please sign personally. If the shares are registered in more than one name,
each joint owner or each fiduciary
should sign personally. Only authorized officers should sign for corporations.
Date _____________________
Please make sure to sign and date this Proxy using black or blue ink.
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Shareholder sign in the box above
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Co-Owner (if any) sign in the box above
- - PLEASE DETACH AT PERFORATION - -
TCW/DW GLOBAL TELECOM TRUST
IMPORTANT
USE ONE OF THE THREE EASY WAYS TO VOTE YOUR PROXY
1. BY MAIL. PLEASE DATE, SIGN AND RETURN THE ABOVE PROXY CARD IN THE ENCLOSED
POSTAGE PAID ENVELOPE.
2. BY INTERNET. HAVE YOUR PROXY CARD AT HAND. GO TO THE "VOTE YOUR PROXY HERE"
LINK ON THE WEBSITE WWW.MSDWT.COM OR WWW.PROXYVOTE.COM. ENTER YOUR 12 DIGIT
CONTROL NUMBER LOCATED ON THE PROXY CARD AND FOLLOW THE SIMPLE INSTRUCTIONS.
3. BY TELEPHONE. HAVE YOUR PROXY CARD AT HAND. CALL 1-800-690-6903 ON A TOUCH-
TONE PHONE. ENTER YOUR 12-DIGIT CONTROL NUMBER LOCATED ON THE PROXY CARD AND
FOLLOW THE SIMPLE RECORDED INSTRUCTIONS.
<PAGE>
- -------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER FUNDS
- -------------------------------------------------------------------------------
OFFERS TWO NEW WAYS TO VOTE YOUR PROXY
24 HOURS A DAY, 7 DAYS A WEEK
You can now vote your proxy in a matter of minutes with the ease and
convenience of the Internet or the telephone. You may still vote by mail.
But remember, if you are voting by Internet or telephone, do not mail the
proxy.
TO VOTE BY INTERNET:
1. Read the enclosed Proxy Statement and have your Proxy Card available.
2. Go to the "Proxy Voting" link on www.msdwt.com or to website
www.proxyvote.com.
3. Enter the 12-digit Control Number found on your Proxy Card.
4. Follow the simple instructions.
TO VOTE BY TELEPHONE:
1. Read the enclosed Proxy Statement and have your Proxy Card available.
2. Call toll-free 1-800-690-6903.
3. Enter the 12-digit Control Number found on your Proxy Card.
4. Follow the simple recorded instructions.
Your Proxy Vote is Important!
Thank You for Submitting Your Proxy.
- -------------------------------------------------------------------------------
