<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 2000
REGISTRATION NOS.: 33-56851
811-7243
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 8 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [X]
AMENDMENT NO. 9 [X]
----------------
MORGAN STANLEY DEAN WITTER BALANCED INCOME FUND
(A MASSACHUSETTS BUSINESS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600
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.
MAYER, BROWN & PLATT
1675 BROADWAY
NEW YORK, NEW YORK 10019
----------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after this Post-Effective Amendment becomes effective.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
immediately upon filing pursuant to paragraph (b)
---
X on March 31, 2000 pursuant to paragraph (b)
---
60 days after filing pursuant to paragraph (a)
---
on (date) pursuant to paragraph (a) of rule 485.
---
----------------
AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS
================================================================================
<PAGE>
PROSPECTUS o MARCH 31, 2000
Morgan Stanley Dean Witter
- --------------------------------------------------------------------------------
BALANCED INCOME FUND
A MUTUAL FUND THAT SEEKS TO PROVIDE CURRENT
INCOME AND MODERATE CAPITAL GROWTH
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
CONTENTS
<TABLE>
<S> <C>
The Fund Investment Objective ..........................................1
Principal Investment Strategies ...............................1
Principal Risks ...............................................3
Past Performance ..............................................5
Fees and Expenses .............................................6
Additional Investment Strategy Information ....................7
Additional Risk Information ...................................8
Fund Management ...............................................9
Shareholder Information Pricing Fund Shares ..........................................10
How to Buy Shares ............................................10
How to Exchange Shares .......................................12
How to Sell Shares ...........................................14
Distributions ................................................16
Tax Consequences .............................................16
Share Class Arrangements .....................................17
Financial Highlights .............................................................26
Our Family of Funds ..............................................Inside Back Cover
This Prospectus contains important information about the Fund.
Please read it carefully and keep it for future reference.
</TABLE>
<PAGE>
THE FUND
[GRAPHIC OMITTED]
INVESTMENT OBJECTIVE
- --------------------
Morgan Stanley Dean Witter Balanced Income Fund seeks to provide current income
and moderate capital growth.
[GRAPHIC OMITTED]
PRINCIPAL INVESTMENT STRATEGIES
- -------------------------------
(sidebar)
INCOME & GROWTH
An investment objective having the goal of selecting securities that pay out
income and have the potential to rise in price.
(end sidebar)
The Fund will normally invest at least 65% of its total assets in
income-producing securities, consisting of (1) fixed-income securities and (2)
dividend paying common stocks and securities convertible into common stocks.
Within the limitations detailed below, the Fund's "Investment Manager," Morgan
Stanley Dean Witter Advisors Inc., may purchase or sell securities in any
proportion it believes desirable based on its assessment of business, economic
and investment conditions.
The two groups of Fund investments in more detail are:
(1) Fixed-Income Securities. The Fund will normally invest at least 60% of
its total assets in fixed-income securities. The Fund's fixed-income securities
(including zero coupon securities) are limited to investment grade corporate
debt securities, bank obligations, investment grade mortgage-backed and
asset-backed securities, and U.S. Government securities. The U.S. Government
securities may include:
o U.S. Treasury bills, notes and bonds, all of which are direct obligations
of the U.S. Government.
o Securities (including mortgage-backed 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 these obligations are the Government National Mortgage Association
and the Federal Housing Administration.
o Securities (including mortgage-backed 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 the U.S. Treasury. Among these
agencies and instrumentalities are the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation.
o Securities issued by agencies and instrumentalities which are backed solely
by the credit of the issuing agency or instrumentality. Among these
agencies and instrumentalities is the Federal Home Loan Bank.
1
<PAGE>
One type of mortgage-backed security, in which the Fund may invest, is a
mortgage pass-through security. These securities represent a participation
interest in a pool of residential mortgage loans originated by U.S. governmental
or private lenders such as banks. They differ from conventional debt securities,
which provide for periodic payment of interest in fixed amounts and principal
payments at maturity or on specified call dates. Mortgage pass-through
securities provide for monthly payments that are a "pass-through" of the monthly
interest and principal payments made by the individual borrowers on the pooled
mortgage loans. Mortgage pass-through securities may be collateralized by
mortgages with fixed rates of interest or adjustable rates.
(2) Common Stocks/Convertible Securities. The Fund will normally invest at
least 25% of its total assets in dividend paying common stocks and securities
convertible into common stocks. The Fund invests in common stocks of companies
that have a record of paying dividends and, in the Investment Manager's opinion,
have the potential for increasing dividends. Investment grade securities
convertible into common stocks may also be Fund investments. These investments
may include foreign securities that are listed in the U.S. on a national
securities exchange and depository receipts. A depository receipt is generally
issued by a bank or financial institution and represents an ownership interest
in the common stock or other equity securities of a foreign company.
* * *
Fixed-income securities are debt securities such as bonds, notes or commercial
paper. The issuer of the debt security borrows money from the investor who buys
the security. Most debt securities pay either fixed or adjustable rates of
interest at regular intervals until they mature, at which point investors get
their principal back. The Fund's fixed- income investments may include zero
coupon securities, which are purchased at a discount and either (i) pay no
interest, or (ii) accrue interest, but make no payments until maturity.
Common stock is a share ownership or equity interest in a corporation. It may or
may not pay dividends, as some companies reinvest all of their profits back into
their businesses, while others pay out some of their profits to shareholders as
dividends.
In pursuing the Fund's investment objective, the Investment Manager has
considerable leeway in deciding which investments it buys, holds or sells on a
day-to-day basis -- and which trading strategies it uses. For example, the
Investment Manager in its discretion may determine to use some permitted trading
strategies while not using others.
2
<PAGE>
[GRAPHIC OMITTED]
PRINCIPAL RISKS
- ---------------
There is no assurance that the Fund will achieve its objective. The Fund's share
price and yield will fluctuate with changes in the market value of the Fund's
portfolio securities. When you sell Fund shares, they may be worth less than
what you paid for them and, accordingly, you can lose money investing in this
Fund.
Fixed-Income Securities. Principal risks of investing in the Fund are associated
with its fixed-income investments. All fixed-income securities, such as bonds,
bank obligations, corporate debt securities and U.S. government securities are
subject to two types of risk: credit risk and interest rate risk.
Credit risk refers to the possibility that the issuer of a security will be
unable to make interest payments and/or repay the principal on its debt. While
the Fund invests in investment grade securities, certain of these securities
have speculative characteristics.
Interest rate risk refers to fluctuations in the value of a fixed-income
security resulting from changes in the general level of interest rates. When the
general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the
prices of most fixed-income securities go up. (Zero coupon securities are
typically subject to greater price fluctuations than comparable securities that
pay interest.) As merely illustrative of the relationship between fixed-income
securities and interest rates, the following table shows how interest rates
affect bond prices.
<TABLE>
<CAPTION>
HOW INTEREST RATES AFFECT BOND PRICES
- --------------------------------------------------------------------------------
PRICE PER $1,000 OF A BOND IF INTEREST RATES:
------------------------------------------------
INCREASE DECREASE
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bond Maturity Coupon 1% 2% 1% 2%
- --------------------------------------------------------------------------------
1 year N/A $1,000 $1,000 $1,000 $1,000
- --------------------------------------------------------------------------------
5 years 5.875% $ 951 $ 920 $1,018 $1,054
- --------------------------------------------------------------------------------
10 years 6.00% $ 910 $ 853 $1,038 $1,110
- --------------------------------------------------------------------------------
30 years 6.125% $ 841 $ 748 $1,093 $1,264
- --------------------------------------------------------------------------------
</TABLE>
Coupons reflect yields on Treasury securities as of December 31, 1999. The table
is not representative of price changes for mortgage-backed securities
principally because of prepayments. In addition, the table is an illustration
and does not represent expected yields or share price changes of any Morgan
Stanley Dean Witter mutual fund.
The Fund is not limited as to the maturities of the securities in which it may
invest. Thus, a rise in the general level of interest rates may cause the price
of the Fund's fixed-income securities to fall substantially.
3
<PAGE>
Mortgage-Backed Securities. Mortgage-backed securities in which the Fund may
invest have different risk characteristics than traditional debt securities.
Although generally the value of fixed-income securities increases during periods
of falling interest rates and decreases during periods of rising rates, this is
not always the case with mortgage- backed securities. This is due to the fact
that principal on underlying mortgages may be prepaid at any time as well as
other factors. Generally, prepayments will increase during a period of falling
interest rates and decrease during a period of rising interest rates. The rate
of prepayments also may be influenced by economic and other factors. Prepayment
risk includes the possibility that, as interest rates fall, securities with
stated interest rates may have the principal prepaid earlier than expected,
requiring the Fund to invest the proceeds at generally lower interest rates.
Investments in mortgage-backed securities are made based upon, among other
things, expectations regarding the rate of prepayments on underlying mortgage
pools. Rates of prepayment, faster or slower than expected by the Investment
Manager, could reduce the Fund's yield, increase the volatility of the Fund
and/or cause a decline in net asset value. Certain mortgage-backed securities
may be more volatile and less liquid than other traditional types of debt
securities.
Common Stocks. A principal risk of investing in the Fund is associated with its
common stock investments. In general, stock values fluctuate in response to
activities specific to the company as well as general market, economic and
political conditions. Stock prices can fluctuate widely in response to these
factors.
.
Convertible Securities. The Fund's investments in convertible securities subject
the Fund to the risks associated with both fixed-income securities and common
stocks. To the extent that a convertible security's investment value is greater
than its conversion value, its price will likely increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security. If
the conversion value exceeds the investment value, the price of the convertible
security will tend to fluctuate directly with the price of the underlying equity
security.
Other Risks. The performance of the Fund also will depend on whether the
Investment Manager is successful in pursuing the Fund's investment strategy. The
Fund is also subject to other risks from its permissible investments including
the risks associated with its foreign investments and asset-backed securities.
Shares of the Fund are not bank deposits and are not guaranteed or insured by
the FDIC or any other governmental agency.
4
<PAGE>
[GRAPHIC OMITTED]
PAST PERFORMANCE
- ----------------
The bar chart and table below provide some indication of the risks of investing
in the Fund. The Fund's past performance does not indicate how the Fund will
perform in the future.
(sidebar)
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Fund's Class C shares has varied
from year to year over the past 4 calendar years.
(end sidebar)
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
1996 8.63%
'97 15.57%
'98 9.38%
'99 0.20%
The bar chart reflects the performance of Class C shares; the performance of the
other Classes will differ because the Classes have different ongoing fees. The
performance information in the bar chart does not reflect the deduction of sales
charges; if these amounts were reflected, returns would be less than shown.
During the periods shown in the bar chart, the highest return for a calendar
quarter was 8.34% (quarter ended June 30, 1997) and the lowest return for a
calendar quarter was -4.17% (quarter ended September 30, 1999).
(sidebar)
AVERAGE ANNUAL TOTAL RETURNS
This table compares the Fund's average annual returns with those of broad
measures of market performance over time. The Fund's returns include the
maximum applicable sales charge for each Class and assume you sold your shares
at the end of each period.
(end sidebar)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
- -------------------------------------------------------------------------------
LIFE OF FUND
PAST 1 YEAR (SINCE 3/28/95)
- -------------------------------------------------------------------------------
<S> <C> <C>
Class A(1) -4.23% --
- -------------------------------------------------------------------------------
Class B(1) -4.55% --
- -------------------------------------------------------------------------------
Class C -0.75% 9.97%
- -------------------------------------------------------------------------------
Class D(1) 1.30% --
- -------------------------------------------------------------------------------
S&P 500 Index(2) 21.04% 27.55%
- -------------------------------------------------------------------------------
Lehman Brothers Government/Corporate Bond Index(3) -2.15% 6.92%(4)
- -------------------------------------------------------------------------------
</TABLE>
(1) Classes A, B and D commenced operations on July 28, 1997.
(2) The Standard & Poor's (Registered Trademark) 500 Stock Index (S&P 500
Index) 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.
(3) The Lehman Brothers Government/Corporate Bond Index tracks the performance
of government and corporate obligations, including U.S. government agency
and U.S. Treasury securities and corporate and yankee bonds with maturities
of one to ten years. The performance of the Index does not include any
expenses or fees. The Index is unmanaged and should not be considered an
investment.
(4) For the period March 31, 1995 to December 31, 1999.
5
<PAGE>
[GRAPHIC OMITTED]
FEES AND EXPENSES
- -----------------
The table below briefly describes the fees and expenses that you may pay if you
buy and hold shares of the Fund. The Fund offers four Classes of shares: Classes
A, B, C and D. Each Class has a different combination of fees, expenses and
other features. The Fund does not charge account or exchange fees. See the
"Share Class Arrangements" section for further fee and expense information.
(sidebar)
SHAREHOLDER FEES
These fees are paid directly from your investment.
(end sidebar)
(sidebar)
ANNUAL FUND
OPERATING EXPENSES
These expenses are deducted from the Fund's assets and are based on expenses
paid for the fiscal year ended January 31, 2000.
(end sidebar)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
- ---------------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 5.25%(1) None None None
- ---------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) (as a
percentage based on the lesser of the offering
price or net asset value at redemption) None(2) 5.00%(3) 1.00%(4) None
- ---------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
- ---------------------------------------------------------------------------------------------------
Management Fee 0.60% 0.60% 0.60% 0.60%
- ---------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees 0.25% 1.00% 1.00% None
- ---------------------------------------------------------------------------------------------------
Other expenses 0.35% 0.35% 0.35% 0.35%
- ---------------------------------------------------------------------------------------------------
Total annual Fund operating expenses 1.20% 1.95% 1.95% 0.95%
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Reduced for purchases of $25,000 and over.
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a contingent deferred sales charge ("CDSC") of
1.00% that will be imposed if you sell your shares within one year after
purchase, except for certain specific circumstances.
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter. See "Share Class Arrangements" for a complete discussion of the
CDSC.
(4) Only applicable if you sell your shares within one year after purchase.
Shares of the Fund held prior to July 28, 1997 that have been designated
Class C shares are not subject to the 1.00% CDSC.
6
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund, your investment has a
5% return each year, and the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, the tables below show your costs at
the end of each period based on these assumptions depending upon whether or not
you sell your shares at the end of each period.
<TABLE>
<CAPTION>
IF YOU SOLD YOUR SHARES: IF YOU HELD YOUR SHARES:
- --------------------------------------------------- --------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A $641 $886 $1,150 $1,903 $641 $886 $1,150 $1,903
- --------------------------------------------------- --------------------------------------
CLASS B $698 $912 $1,252 $2,275 $198 $612 $1,052 $2,275
- --------------------------------------------------- --------------------------------------
CLASS C $298 $612 $1,052 $2,275 $198 $612 $1,052 $2,275
- --------------------------------------------------- --------------------------------------
CLASS D $ 97 $303 $ 525 $1,166 $ 97 $303 $ 525 $1,166
- --------------------------------------------------- --------------------------------------
</TABLE>
Long-term shareholders of Class B and Class C may pay more in sales charges,
including distribution fees, than the economic equivalent of the maximum
front-end sales charges permitted by the NASD.
[GRAPHIC OMITTED]
ADDITIONAL INVESTMENT STRATEGY INFORMATION
- ------------------------------------------
This section provides additional information relating to the Fund's principal
strategies.
Defensive Investing. The Fund may take temporary "defensive" positions in
attempting to respond to adverse market conditions. The Fund may invest any
amount of its assets in cash or money market instruments in a defensive posture
when the Investment Manager believes it is advisable to do so. Although taking a
defensive posture is designed to protect the Fund from an anticipated market
downturn, it could have the effect of reducing the benefit from any upswing in
the market. When the Fund takes a defensive position, it may not achieve its
investment objective.
The percentage limitations relating to the composition of the Fund's portfolio
apply at the time the Fund acquires an investment. Subsequent percentage changes
that result from market fluctuations will not require the Fund to sell any
portfolio security. The Fund may change its principal investment strategies
without shareholder approval; however, you would be notified of any changes.
7
<PAGE>
[GRAPHIC OMITTED]
ADDITIONAL RISK INFORMATION
- ---------------------------
This section provides additional information relating to the principal risks of
investing in the Fund.
Foreign Securities. The Fund's investments in foreign securities (including
depository receipts) involve risks that are in addition to the risks associated
with domestic securities. One additional risk is currency risk. If the value of
that local currency falls relative to the U.S. dollar, the U.S. dollar value of
the foreign security will decrease. This is true even if the foreign security's
local price remains unchanged.
Foreign securities also have risks related to economic and political
developments abroad, including expropriations, confiscatory taxation, exchange
control regulation, limitations on the use or transfer of Fund assets and any
effects of foreign social, economic or political instability. Foreign companies,
in general, are not subject to the regulatory requirements of U.S. companies
and, as such, there may be less publicly available information about these
companies. Moreover, foreign accounting, auditing and financial reporting
standards generally are different from those applicable to U.S. companies.
Finally, in the event of a default of any foreign debt obligations, it may be
more difficult for the Fund to obtain or enforce a judgment against the issuers
of the securities.
8
<PAGE>
[GRAPHIC OMITTED]
FUND MANAGEMENT
- ----------------------------
The Fund has retained the Investment Manager -- Morgan Stanley Dean Witter
Advisors Inc. -- to provide administrative services, manage its business affairs
and invest its assets, including the placing of orders for the purchase and sale
of portfolio securities. The Investment Manager is a wholly-owned subsidiary of
Morgan Stanley Dean Witter & Co., a preeminent global financial services firm
that maintains leading market positions in each of its three primary businesses:
securities, asset management and credit services. Its main business office is
located at Two World Trade Center, New York, New York 10048.
(sidebar)
MORGAN STANLEY DEAN WITTER ADVISORS INC.
The Investment Manager is widely recognized as a leader in the mutual fund
industry and together with Morgan Stanley Dean Witter Services Company Inc.,
its wholly-owned subsidiary, had approximately $155 billion in assets under
management as of February 29, 2000.
(end sidebar)
The fixed-income portion of the Fund's portfolio is managed within the
Investment Manager's Taxable Fixed-Income Group, and the equity portion is
managed within the Growth and Income Group. Rajesh K. Gupta, Senior Vice
President, Director of the Taxable Fixed-Income Group and Chief Administrative
Officer of Investments of the Investment Manager, and Paul D. Vance, Senior Vice
President and Director of the Growth and Income Group of the Investment Manager,
have been the primary portfolio managers of the Fund since its inception in
March, 1995. Mr. Gupta manages the Fund's fixed-income portion, and Mr. Vance
manages the equity portion. They have been portfolio managers with the
Investment Manager for over five years.
The Fund pays the Investment Manager a monthly management fee as full
compensation for the services and facilities furnished to the Fund, and for Fund
expenses assumed by the Investment Manager. The fee is based on the Fund's
average daily net assets. For the fiscal year ended January 31, 2000, the Fund
accrued total compensation to the Investment Manager amounting to 0.60% of the
Fund's average daily net assets.
9
<PAGE>
SHAREHOLDER INFORMATION
[GRAPHIC OMITTED]
PRICING FUND SHARES
- -------------------
The price of Fund shares (excluding sales charges), called "net asset value," is
based on the value of the Fund's portfolio securities. While the assets of each
Class are invested in a single portfolio of securities, the net asset value of
each Class will differ because the Classes have different ongoing distribution
fees.
The net asset value per share of the Fund is determined once daily at 4:00 p.m.
Eastern time on each day that the New York Stock Exchange is open (or, on days
when the New York Stock Exchange closes prior to 4:00 p.m., at such earlier
time). Shares will not be priced on days that the New York Stock Exchange is
closed.
The value of the Fund's portfolio securities is based on the securities' market
price when available. When a market price is not readily available, including
circumstances under which the Investment Manager determines that a security's
market price is not accurate, a portfolio security is valued at its fair value,
as determined under procedures established by the Fund's Board of Trustees. In
these cases, the Fund's net asset value will reflect certain portfolio
securities' fair value rather than their market price. With respect to
securities that are primarily listed on foreign exchanges, the value of the
Fund's portfolio securities may change on days when you will not be able to
purchase or sell your shares.
An exception to the Fund's general policy of using market prices concerns its
short-term debt portfolio securities. Debt securities with remaining maturities
of sixty days or less at the time of purchase are valued at amortized cost.
However, if the cost does not reflect the securities' market value, these
securities will be valued at their fair value.
[GRAPHIC OMITTED]
HOW TO BUY SHARES
- -----------------
You may open a new account to buy Fund shares or buy additional Fund shares for
an existing account by contacting your Morgan Stanley Dean Witter Financial
Advisor or other authorized financial representative. Your Financial Advisor
will assist you, step-by-step, with the procedures to invest in the Fund. You
may also purchase shares directly by calling the Fund's transfer agent and
requesting an application.
(sidebar)
CONTACTING A
FINANCIAL ADVISOR
If you are new to the Morgan Stanley Dean Witter Family of Funds and would like
to contact a Financial Advisor, call (877) 937-MSDW (toll-free) for the
telephone number of the Morgan Stanley Dean Witter office nearest you. You may
also access our office locator on our Internet site at:
www.msdw.com/individual/funds
(end sidebar)
Because every investor has different immediate financial needs and long-term
investment goals, the Fund offers investors four Classes of shares: Classes A,
B, C and D. Class D shares are only offered to a limited group of investors.
Each Class of shares offers a distinct structure of sales charges, distribution
and service fees, and other features that are designed to address a variety of
needs. Your Financial Advisor or other authorized financial representative can
10
<PAGE>
help you decide which Class may be most appropriate for you. When purchasing
Fund shares, you must specify which Class of shares you wish to purchase.
When you buy Fund shares, the shares are purchased at the next share price
calculated (less any applicable front-end sales charge for Class A shares) after
we receive your purchase order. Your payment is due on the third business day
after you place your purchase order. We reserve the right to reject any order
for the purchase of Fund shares.
(sidebar)
EASYINVEST(SM)
A purchase plan that allows you to transfer money automatically from your
checking or savings account or from a Money Market Fund on a semi-monthly,
monthly or quarterly basis. Contact your Morgan Stanley Dean Witter Financial
Advisor for further information about this service.
(end sidebar)
<TABLE>
<CAPTION>
MINIMUM INVESTMENT AMOUNTS
- ------------------------------------------------------------------------------------------------
MINIMUM INVESTMENT
--------------------------
INVESTMENT OPTIONS INITIAL ADDITIONAL
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Regular Accounts $1,000 $100
- ------------------------------------------------------------------------------------------------
Individual Retirement Accounts: Regular IRAs $1,000 $100
Education IRAs $500 $100
- ------------------------------------------------------------------------------------------------
EasyInvest(SM)
(Automatically from your checking or savings account
or Money Market Fund) $100* $100*
- ------------------------------------------------------------------------------------------------
</TABLE>
* Provided your schedule of investments totals $1,000 in twelve months.
There is no minimum investment amount if you purchase Fund shares through: (1)
the Investment Manager's mutual fund asset allocation plan, (2) a program,
approved by the Fund's distributor, in which you pay an asset-based fee for
advisory, administrative and/or brokerage services, or (3) employer-sponsored
employee benefit plan accounts.
Investment Options for Certain Institutional and Other Investors/Class D Shares.
To be eligible to purchase Class D shares, you must qualify under one of the
investor categories specified in the "Share Class Arrangements" section of this
Prospectus.
Subsequent Investments Sent Directly to the Fund. In addition to buying
additional Fund shares for an existing account by contacting your Morgan Stanley
Dean Witter Financial Advisor, you may send a check directly to the Fund. To buy
additional shares in this manner:
o Write a "letter of instruction" to the Fund specifying the name(s) on the
account, the account number, the social security or tax identification
number, the Class of shares you wish to purchase and the investment amount
(which would include any applicable front-end sales charge). The letter
must be signed by the account owner(s).
o Make out a check for the total amount payable to: Morgan Stanley Dean
Witter Balanced Income Fund.
o Mail the letter and check to Morgan Stanley Dean Witter Trust FSB at P.O.
Box 1040, Jersey City, NJ 07303.
11
<PAGE>
[GRAPHIC OMITTED]
HOW TO EXCHANGE SHARES
- ----------------------
Permissible Fund Exchanges. You may exchange shares of any Class of the Fund for
the same Class of any other continuously offered Multi-Class Fund, or for shares
of a No-Load Fund, a Money Market Fund, North American Government Income Trust
or Short-Term U.S. Treasury Trust, without the imposition of an exchange fee.
See the inside back cover of this Prospectus for each Morgan Stanley Dean Witter
Fund's designation as a Multi-Class Fund, No-Load Fund or Money Market Fund. If
a Morgan Stanley Dean Witter Fund is not listed, consult the inside back cover
of that Fund's prospectus for its designation. For purposes of exchanges, shares
of FSC Funds (subject to a front-end sales charge) are treated as Class A shares
of a Multi-Class Fund.
Exchanges may be made after shares of the Fund acquired by purchase have been
held for thirty days. There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment. The current prospectus for each
fund describes its investment objective(s), policies and investment minimums,
and should be read before investment. Since exchanges are available only into
continuously offered Morgan Stanley Dean Witter Funds, exchanges are not
available into any new Morgan Stanley Dean Witter Fund during its initial
offering period, or when shares of a particular Morgan Stanley Dean Witter Fund
are not being offered for purchase.
Exchange Procedures. You can process an exchange by contacting your Morgan
Stanley Dean Witter Financial Advisor or other authorized financial
representative. Otherwise, you must forward an exchange privilege authorization
form to the Fund's transfer agent -- Morgan Stanley Dean Witter Trust FSB -- and
then write the transfer agent or call (800) 869-NEWS to place an exchange order.
You can obtain an exchange privilege authorization form by contacting your
Financial Advisor or other authorized financial representative, or by calling
(800) 869-NEWS. If you hold share certificates, no exchanges may be processed
until we have received all applicable share certificates.
An exchange to any Morgan Stanley Dean Witter Fund (except a Money Market Fund)
is made on the basis of the next calculated net asset values of the Funds
involved after the exchange instructions are accepted. When exchanging into a
Money Market Fund, the Fund's shares are sold at their next calculated net asset
value and the Money Market Fund's shares are purchased at their net asset value
on the following business day.
The Fund may terminate or revise the exchange privilege upon required notice.
The check writing privilege is not available for Money Market Fund shares you
acquire in an exchange.
12
<PAGE>
Telephone Exchanges. For your protection when calling Morgan Stanley Dean Witter
Trust FSB, we will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. These procedures may
include requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number. Telephone
instructions also may be recorded.
Telephone instructions will be accepted if received by the Fund's transfer agent
between 9:00 a.m. and 4:00 p.m. Eastern time on any day the New York Stock
Exchange is open for business. During periods of drastic economic or market
changes, it is possible that the telephone exchange procedures may be difficult
to implement, although this has not been the case with the Fund in the past.
Margin Accounts. If you have pledged your Fund shares in a margin account,
contact your Morgan Stanley Dean Witter Financial Advisor or other authorized
financial representative regarding restrictions on the exchange of such shares.
Tax Considerations of Exchanges. If you exchange shares of the Fund for shares
of another Morgan Stanley Dean Witter Fund there are important tax
considerations. For tax purposes, the exchange out of the Fund is considered a
sale of Fund shares -- and the exchange into the other Fund is considered a
purchase. As a result, you may realize a capital gain or loss.
You should review the "Tax Consequences" section and consult your own tax
professional about the tax consequences of an exchange.
Limitations on Exchanges. Certain patterns of exchanges may result in the Fund
limiting or prohibiting, at its discretion, additional purchases and/or
exchanges. Determinations in this regard may be made based on the frequency or
dollar amount of previous exchanges. The Fund will notify you in advance of
limiting your exchange privileges.
CDSC Calculations on Exchanges. See the "Share Class Arrangements" section of
this Prospectus for a further discussion of how applicable contingent deferred
sales charges (CDSCs) are calculated for shares of one Morgan Stanley Dean
Witter Fund that are exchanged for shares of another.
For further information regarding exchange privileges, you should contact your
Morgan Stanley Dean Witter Financial Advisor or call (800) 869-NEWS.
13
<PAGE>
[GRAPHIC OMITTED]
HOW TO SELL SHARES
- ------------------
You can sell some or all of your Fund shares at any time. If you sell Class A,
Class B or Class C shares, your net sale proceeds are reduced by the amount of
any applicable CDSC. Your shares will be sold at the next price calculated after
we receive your order to sell as described below.
<TABLE>
<CAPTION>
OPTIONS PROCEDURES
- --------------------- -----------------------------------------------------------------------------------------------
<S> <C>
Contact your To sell your shares, simply call your Morgan Stanley Dean Witter Financial Advisor or other
Financial Advisor authorized financial representative.
-----------------------------------------------------------------------------------------------
[GRAPHIC OMITTED] Payment will be sent to the address to which the account is registered or deposited in your
brokerage account.
- ---------------------------------------------------------------------------------------------------------------------
By Letter You can also sell your shares by writing a "letter of instruction" that includes:
o your account number;
[GRAPHIC OMITTED] o the dollar amount or the number of shares you wish to sell;
o the Class of shares you wish to sell; and
o the signature of each owner as it appears on the account.
-----------------------------------------------------------------------------------------------
If you are requesting payment to anyone other than the registered owner(s) or that payment
be sent to any address other than the address of the registered owner(s) or pre-designated
bank account, you will need a signature guarantee. You can obtain a signature guarantee from
an eligible guarantor acceptable to Morgan Stanley Dean Witter Trust FSB. (You should
contact Morgan Stanley Dean Witter Trust FSB at (800) 869-NEWS for a determination as to
whether a particular institution is an eligible guarantor.) A notary public cannot provide a
signature guarantee. Additional documentation may be required for shares held by a
corporation, partnership, trustee or executor.
-----------------------------------------------------------------------------------------------
Mail the letter to Morgan Stanley Dean Witter Trust FSB at P.O. Box 983, Jersey City, NJ
07303. If you hold share certificates, you must return the certificates, along with the letter
and any required additional documentation.
-----------------------------------------------------------------------------------------------
A check will be mailed to the name(s) and address in which the account is registered, or
otherwise according to your instructions.
- ---------------------------------------------------------------------------------------------------------------------
Systematic If your investment in all of the Morgan Stanley Dean Witter Family of Funds has a total
Withdrawal Plan market value of at least $10,000, you may elect to withdraw amounts of $25 or more, or in
any whole percentage of a fund's balance (provided the amount is at least $25), on a monthly,
[GRAPHIC OMITTED] quarterly, semi-annual or annual basis, from any fund with a balance of at least $1,000. Each
time you add a fund to the plan, you must meet the plan requirements.
-----------------------------------------------------------------------------------------------
Amounts withdrawn are subject to any applicable CDSC. A CDSC may be waived under
certain circumstances. See the Class B waiver categories listed in the "Share Class
Arrangements" section of this Prospectus.
-----------------------------------------------------------------------------------------------
To sign up for the Systematic Withdrawal Plan, contact your Morgan Stanley Dean Witter
Financial Advisor or call (800) 869-NEWS. You may terminate or suspend your plan at any
time. Please remember that withdrawals from the plan are sales of shares, not Fund
"distributions," and ultimately may exhaust your account balance. The Fund may terminate or
revise the plan at any time.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Payment for Sold Shares. After we receive your complete instructions to sell as
described above, a check will be mailed to you within seven days, although we
will attempt to make payment within one business day. Payment may also be sent
to your brokerage account.
Payment may be postponed or the right to sell your shares suspended under
unusual circumstances. If you request to sell shares that were recently
purchased by check, your sale will not be effected until it has been verified
that the check has been honored.
Tax Considerations. Normally, your sale of Fund shares is subject to federal and
state income tax. You should review the "Tax Consequences" section of this
Prospectus and consult your own tax professional about the tax consequences of a
sale.
Reinstatement Privilege. If you sell Fund shares and have not previously
exercised the reinstatement privilege, you may, within 35 days after the date of
sale, invest any portion of the proceeds in the same Class of Fund shares at
their net asset value and receive a pro rata credit for any CDSC paid in
connection with the sale.
Involuntary Sales. The Fund reserves the right, on sixty days' notice, to sell
the shares of any shareholder (other than shares held in an IRA or 403(b)
Custodial Account) whose shares, due to sales by the shareholder, have a value
below $100, or in the case of an account opened through EasyInvestSM, if after
12 months the shareholder has invested less than $1,000 in the account.
However, before the Fund sells your shares in this manner, we will notify you
and allow you sixty days to make an additional investment in an amount that will
increase the value of your account to at least the required amount before the
sale is processed. No CDSC will be imposed on any involuntary sale.
Margin Accounts. If you have pledged your Fund shares in a margin account,
contact your Morgan Stanley Dean Witter Financial Advisor or other authorized
financial representative regarding restrictions on the sale of such shares.
15
<PAGE>
[GRAPHIC OMITTED]
DISTRIBUTIONS
- -------------
The Fund passes substantially all of its earnings from income and capital gains
along to its investors as "distributions." The Fund earns interest from
fixed-income investments. These amounts are passed along to Fund shareholders as
"income dividend distributions." The Fund realizes capital gains whenever it
sells securities for a higher price than it paid for them. These amounts may be
passed along as "capital gain distributions."
TARGETED DIVIDENDS(SM)
You may select to have your Fund distributions automatically invested in other
Classes of Fund shares or Classes of another Morgan Stanley Dean Witter Fund
that you own. Contact your Morgan Stanley Dean Witter Financial Advisor for
further information about this service.
The Fund declares income dividends separately for each Class. Distributions paid
on Class A and Class D shares usually will be higher than for Class B and Class
C because distribution fees that Class B and Class C pay are higher. Normally,
income dividends are distributed to shareholders quarterly. Capital gains, if
any, are usually distributed in June and December. The Fund, however, may retain
and reinvest any long-term capital gains. The Fund may at times make payments
from sources other than income or capital gains that represent a return of a
portion of your investment.
Distributions are reinvested automatically in additional shares of the same
Class and automatically credited to your account, unless you request in writing
that all distributions be paid in cash. If you elect the cash option, processing
of your dividend checks begins immediately following the monthly payment date,
and the Fund will mail a monthly dividend check to you normally during the first
seven days of the following month. No interest will accrue on uncashed checks.
If you wish to change how your distributions are paid, your request should be
received by the Fund's transfer agent, Morgan Stanley Dean Witter Trust FSB, at
least five business days prior to the record date of the distributions.
[GRAPHIC OMITTED]
TAX CONSEQUENCES
- ----------------
As with any investment, you should consider how your Fund investment will be
taxed. The tax information in this Prospectus is provided as general
information. You should consult your own tax professional about the tax
consequences of an investment in the Fund.
Unless your investment in the Fund is through a tax-deferred retirement account,
such as a 401(k) plan or IRA, you need to be aware of the possible tax
consequences when:
o The Fund makes distributions; and
o You sell Fund shares, including an exchange to another Morgan Stanley Dean
Witter Fund.
16
<PAGE>
Taxes on Distributions. Your distributions are normally subject to federal and
state income tax when they are paid, whether you take them in cash or reinvest
them in Fund shares. A distribution also may be subject to local income tax. Any
income dividend distributions and any short-term capital gain distributions are
taxable to you as ordinary income. Any long-term capital gain distributions are
taxable to you as long-term capital gains, no matter how long you have owned
shares in the Fund.
Every January, you will be sent a statement (IRS Form 1099-DIV) showing the
taxable distributions paid to you in the previous year. The statement provides
information on your dividends and capital gains for tax purposes.
Taxes on Sales. Your sale of Fund shares normally is subject to federal and
state income tax and may result in a taxable gain or loss to you. A sale also
may be subject to local income tax. Your exchange of Fund shares for shares of
another Morgan Stanley Dean Witter Fund is treated for tax purposes like a sale
of your original shares and a purchase of your new shares. Thus, the exchange
may, like a sale, result in a taxable gain or loss to you and will give you a
new tax basis for your new shares.
When you open your Fund account, you should provide your social security or tax
identification number on your investment application. By providing this
information, you will avoid being subject to a federal backup withholding tax of
31% on taxable distributions and redemption proceeds. Any withheld amount would
be sent to the IRS as an advance tax payment.
[GRAPHIC OMITTED]
SHARE CLASS ARRANGEMENTS
- ------------------------
The Fund offers several Classes of shares having different distribution
arrangements designed to provide you with different purchase options according
to your investment needs. Your Morgan Stanley Dean Witter Financial Advisor or
other authorized financial representative can help you decide which Class may be
appropriate for you.
The general public is offered three Classes: Class A shares, Class B shares and
Class C shares, which differ principally in terms of sales charges and ongoing
expenses. A fourth Class, Class D shares, is offered only to a limited category
of investors. Shares that you acquire through reinvested distributions will not
be subject to any front-end sales charge or CDSC -- contingent deferred sales
charge. Sales personnel may receive different compensation for selling each
Class of shares. The sales charges applicable to each Class provide for the
distribution financing of shares of that Class.
17
<PAGE>
The chart below compares the sales charge and maximum annual 12b-1 fee
applicable to each Class:
<TABLE>
<CAPTION>
MAXIMUM
CLASS SALES CHARGE ANNUAL 12B-1 FEE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
A Maximum 5.25% initial sales charge reduced for purchase of $25,000 or more;
shares sold without an initial sales charge are generally subject to a 1.0% CDSC
during the first year 0.25%
- -------------------------------------------------------------------------------------------------------------
B Maximum 5.0% CDSC during the first year decreasing to 0% after six years 1.0%
- -------------------------------------------------------------------------------------------------------------
C 1.0% CDSC during the first year 1.0%
- -------------------------------------------------------------------------------------------------------------
D None None
- -------------------------------------------------------------------------------------------------------------
</TABLE>
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 purchases of
$25,000 or more according to the schedule below. Investments of $1 million or
more are not subject to an initial sales charge, but are generally subject to a
contingent deferred sales charge, or CDSC, of 1.0% on sales made within one year
after the last day of the month of purchase. The CDSC will be assessed in the
same manner and with the same CDSC waivers as with Class B shares. Class A
shares are also subject to a distribution (12b-1) fee of up to 0.25% of the
average daily net assets of the Class.
The offering price of Class A shares includes a sales charge (expressed as a
percentage of the offering price) on a single transaction as shown in the
following table:
(sidebar)
FRONT-END SALES
CHARGE OR FSC
An initial sales charge you pay when purchasing Class A shares that is based on
a percentage of the offering price. The percentage declines based upon the
dollar value of Class A shares you purchase. We offer three ways to reduce your
Class A sales charges -- the Combined Purchase Privilege, Right of Accumulation
and Letter of Intent.
(end sidebar)
<TABLE>
<CAPTION>
FRONT-END SALES CHARGE
-------------------------------------------------
AMOUNT OF PERCENTAGE OF PUBLIC APPROXIMATE PERCENTAGE
SINGLE TRANSACTION OFFERING PRICE OF NET 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>
18
<PAGE>
The reduced sales charge schedule is applicable to purchases of Class A shares
in a single transaction by:
o A single account (including an individual, trust or fiduciary account).
o Family member accounts (limited to husband, wife and children under the age
of 21).
o Pension, profit sharing or other employee benefit plans of companies and
their affiliates.
o Tax-exempt organizations.
o Groups organized for a purpose other than to buy mutual fund shares.
Combined Purchase Privilege. You also will have the benefit of reduced sales
charges by combining purchases of Class A shares of the Fund in a single
transaction with purchases of Class A shares of other Multi-Class Funds and
shares of FSC Funds.
Right of Accumulation. You also may benefit from a reduction of sales charges if
the cumulative net asset value of Class A shares of the Fund purchased in a
single transaction, together with shares of other Funds you currently own which
were previously purchased at a price including a front-end sales charge
(including shares acquired through reinvestment of distributions), amounts to
$25,000 or more. Also, if you have a cumulative net asset value of all your
Class A and Class D shares equal to at least $5 million (or $25 million for
certain employee benefit plans), you are eligible to purchase Class D shares of
any Fund subject to the Fund's minimum initial investment requirement.
You must notify your Morgan Stanley Dean Witter Financial Advisor or other
authorized financial representative (or Morgan Stanley Dean Witter Trust FSB if
you purchase directly through the Fund), at the time a purchase order is placed,
that the purchase qualifies for the reduced charge under the Right of
Accumulation. Similar notification must be made in writing when an order is
placed by mail. The reduced sales charge will not be granted if: (i)
notification is not furnished at the time of the order; or (ii) a review of the
records of Dean Witter Reynolds or other authorized dealer of Fund shares or the
Fund's transfer agent does not confirm your represented holdings.
Letter of Intent. The schedule of reduced sales charges for larger purchases
also will be available to you if you enter into a written "letter of intent." A
letter of intent provides for the purchase of Class A shares of the Fund or
other Multi-Class Funds or shares of FSC Funds within a thirteen-month period.
The initial purchase under a letter of intent must be at least 5% of the stated
investment goal. To determine the applicable sales charge reduction, you may
also include: (1) the cost of shares of other Morgan Stanley Dean Witter Funds
which were previously purchased at a price including a front-end sales charge
during the 90-day period prior to the distributor receiving the letter of
intent, and (2) the cost of shares of other Funds you currently own acquired in
19
<PAGE>
exchange for shares of Funds purchased during that period at a price including a
front-end sales charge. You can obtain a letter of intent by contacting your
Morgan Stanley Dean Witter Financial Advisor or other authorized financial
representative, or by calling (800) 869-NEWS. If you do not achieve the stated
investment goal within the thirteen-month period, you are required to pay the
difference between the sales charges otherwise applicable and sales charges
actually paid, which may be deducted from your investment.
Other Sales Charge Waivers. In addition to investments of $1 million or more,
your purchase of Class A shares is not subject to a front-end sales charge (or a
CDSC upon sale) if your account qualifies under one of the following categories:
o A trust for which Morgan Stanley Dean Witter Trust FSB provides
discretionary trustee services.
o Persons participating in a fee-based investment program (subject to all of
its terms and conditions, including termination fees, mandatory sale or
transfer restrictions on termination) approved by the Fund's distributor
pursuant to which they pay an asset-based fee for investment advisory,
administrative and/or brokerage services.
o Employer-sponsored employee benefit plans, whether or not qualified under
the Internal Revenue Code, for which Morgan Stanley Dean Witter Trust FSB
serves as trustee or Dean Witter Reynolds' Retirement Plan Services serves
as recordkeeper under a written Recordkeeping Services Agreement ("MSDW
Eligible Plans") which have at least 200 eligible employees.
o A MSDW Eligible Plan whose Class B shares have converted to Class A shares,
regardless of the plan's asset size or number of eligible employees.
o A client of a Morgan Stanley Dean Witter Financial Advisor who joined us
from another investment firm within six months prior to the date of
purchase of Fund shares, and you used the proceeds from the sale of shares
of a proprietary mutual fund of that Financial Advisor's previous firm that
imposed either a front-end or deferred sales charge to purchase Class A
shares, provided that: (1) you sold the shares not more than 60 days prior
to the purchase of Fund shares, and (2) the sale proceeds were maintained
in the interim in cash or a money market fund.
o Current or retired Directors/Trustees of the Morgan Stanley Dean Witter
Funds, such persons' spouses and children under the age of 21, and trust
accounts for which any of such persons is a beneficiary.
o Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries, such persons' spouses and
children under the age of 21 and trust accounts for which any of such
persons is a beneficiary.
20
<PAGE>
CLASS B SHARES Class B shares are offered at net asset value with no initial
sales charge but are subject to a contingent deferred sales charge, or CDSC, as
set forth in the table below. For the purpose of calculating the CDSC, shares
are deemed to have been purchased on the last day of the month during which they
were purchased.
(sidebar)
CONTINGENT DEFERRED
SALES CHARGE OR CDSC
A fee you pay when you sell shares of certain Morgan Stanley Dean Witter Funds
purchased without an initial sales charge. This fee declines the longer you hold
your shares as set forth in the table.
(end sidebar)
<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE
YEAR SINCE PURCHASE PAYMENT MADE OF AMOUNT REDEEMED
- -----------------------------------------------------------
<S> <C>
First 5.0%
- -----------------------------------------------------------
Second 4.0%
- -----------------------------------------------------------
Third 3.0%
- -----------------------------------------------------------
Fourth 2.0%
- -----------------------------------------------------------
Fifth 2.0%
- -----------------------------------------------------------
Sixth 1.0%
- -----------------------------------------------------------
Seventh and thereafter None
- -----------------------------------------------------------
</TABLE>
Each time you place an order to sell or exchange shares, shares with no CDSC
will be sold or exchanged first, then shares with the lowest CDSC will be sold
or exchanged next. For any shares subject to a CDSC, the CDSC will be assessed
on an amount equal to the lesser of the current market value or the cost of the
shares being sold.
Special CDSC Considerations for Fund Shares Held Prior to July 28, 1997. If you
held Fund shares prior to July 28, 1997 that were acquired in exchange for
shares of Dean Witter Global Short-Term Income Fund, Dean Witter National
Municipal Trust or Dean Witter High Income Securities that have been designated
Class B shares, these Fund shares are subject to the other fund's lower CDSC
schedule, with two exceptions. First, if you subsequently exchange these Class B
shares for shares of a fund with a higher CDSC schedule, the higher CDSC
schedule will apply. Second, if you exchange the Class B shares for shares of a
Morgan Stanley Dean Witter Money Market Fund and re-exchange back into the Fund,
the CDSC schedule set forth in the above table will apply.
CDSC Waivers. A CDSC, if otherwise applicable, will be waived in the case of:
o Sales of shares held at the time you die or become disabled (within the
definition in Section 72(m)(7) of the Internal Revenue Code which relates
to the ability to engage in gainful employment), if the shares are: (i)
registered either in your name (not a trust) or in the names of you and
your spouse as joint tenants with right of survivorship; or (ii) held in a
qualified corporate or self-employed retirement plan, IRA or 403(b)
Custodial Account, provided in either case that the sale is requested
within one year of your death or initial determination of disability.
21
<PAGE>
o Sales in connection with the following retirement plan "distributions:" (i)
lump-sum or other distributions from a qualified corporate or self-employed
retirement plan following retirement (or, in the case of a "key employee"
of a "top heavy" plan, following attainment of age 59 1/2); (ii)
distributions from an IRA or 403(b) Custodial Account following attainment
of age 59 1/2; or (iii) a tax-free return of an excess IRA contribution (a
distribution does not include a direct transfer of IRA, 403(b) Custodial
Account or retirement plan assets to a successor custodian or trustee).
o Sales of shares held for you as a participant in a MSDW Eligible Plan.
o Sales of shares in connection with the Systematic Withdrawal Plan of up to
12% annually of the value of each Fund from which plan sales are made. The
percentage is determined on the date you establish the Systematic
Withdrawal Plan and based on the next calculated share price. You may have
this CDSC waiver applied in amounts up to 1% per month, 3% per quarter, 6%
semi-annually or 12% annually. Shares with no CDSC will be sold first,
followed by those with the lowest CDSC. As such, the waiver benefit will be
reduced by the amount of your shares that are not subject to a CDSC. If you
suspend your participation in the plan, you may later resume plan payments
without requiring a new determination of the account value for the 12% CDSC
waiver.
o Sales of shares if you simultaneously invest the proceeds in the Investment
Manager's mutual fund asset allocation program, pursuant to which investors
pay an asset-based fee. Any shares you acquire in connection with the
Investment Manager's mutual fund asset allocation program are subject to
all of the terms and conditions of that program, including termination
fees, mandatory sale or transfer restrictions on termination.
All waivers will be granted only following the Fund's distributor receiving
confirmation of your entitlement. If you believe you are eligible for a CDSC
waiver, please contact your Financial Advisor or call (800) 869-NEWS.
Distribution Fee. Class B shares also are subject to an annual 12b-1 fee of
1.00% of the average daily net asset of the Fund's Class B shares.
Conversion Feature. After ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund with no initial sales charge. The
ten year period runs from the last day of the month in which the shares were
purchased, or in the case of Class B shares acquired through an exchange, from
the last day of the month in which the original Class B shares were purchased;
the shares will convert to Class A shares based on their relative net asset
values in the month following the ten year period. At the same time, an equal
proportion of Class B shares acquired through automatically reinvested
distributions will convert to Class A shares on the same basis. (Class B shares
acquired in exchange for shares of another Morgan Stanley Dean Witter Fund
originally purchased before May 1, 1997, however, will convert to Class A shares
in May 2007.)
22
<PAGE>
In the case of Class B shares held in a MSDW Eligible Plan, the plan is treated
as a single investor and all Class B shares will convert to Class A shares on
the conversion date of the Class B shares of a Morgan Stanley Dean Witter Fund
purchased by that plan.
Currently, the Class B share conversion is not a taxable event; the conversion
feature may be cancelled if it is deemed a taxable event in the future by the
Internal Revenue Service.
If you exchange your Class B shares for shares of a Money Market Fund, a No-Load
Fund, North American Government Income Trust or Short-Term U.S. Treasury Trust,
the holding period for conversion is frozen as of the last day of the month of
the exchange and resumes on the last day of the month you exchange back into
Class B shares.
Exchanging Shares Subject to a CDSC. There are special considerations when you
exchange Fund shares that are subject to a CDSC. When determining the length of
time you held the shares and the corresponding CDSC rate, any period (starting
at the end of the month) during which you held shares of a fund that does not
charge a CDSC will not be counted. Thus, in effect the "holding period" for
purposes of calculating the CDSC is frozen upon exchanging into a fund that does
not charge a CDSC.
For example, if you held Class B shares of the Fund for one year, exchanged to
Class B of another Morgan Stanley Dean Witter Multi-Class Fund for another year,
then sold your shares, a CDSC rate of 4% would be imposed on the shares based on
a two year holding period -- one year for each Fund. However, if you had
exchanged the shares of the Fund for a Money Market Fund (which does not charge
a CDSC) instead of the Multi-Class Fund, then sold your shares, a CDSC rate of
5% would be imposed on the shares based on a one year holding period. The one
year in the Money Market Fund would not be counted. Nevertheless, if shares
subject to a CDSC are exchanged for a Fund that does not charge a CDSC, you will
receive a credit when you sell the shares equal to the distribution (12b-1)
fees, if any, you paid on those shares while in that Fund up to the amount of
any applicable CDSC.
In addition, shares that are exchanged into or from a Morgan Stanley Dean Witter
Fund subject to a higher CDSC rate will be subject to the higher rate, even if
the shares are re-exchanged into a Fund with a lower CDSC rate.
23
<PAGE>
CLASS C SHARES Class C shares are sold at net asset value with no initial sales
charge but are subject to a CDSC of up to 1.0% on sales made within one year
after the last day of the month of purchase. The CDSC will be assessed in the
same manner and with the same CDSC waivers as with Class B shares.
Distribution Fee. Class C shares are subject to an annual distribution (12b-1)
fee of 1.00% of the average daily net assets of that Class. The Class C shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A or Class D shares. Unlike Class B shares, Class C shares
have no conversion feature and, accordingly, an investor that purchases Class C
shares may be subject to distribution (12b-1) fees applicable to Class C shares
for an indefinite period.
CLASS D SHARES Class D shares are offered without any sales charge on purchases
or sales and without any distribution (12b-1) fee. Class D shares are offered
only to investors meeting an initial investment minimum of $5 million ($25
million for MSDW Eligible Plans) and the following investor categories:
o Investors participating in the Investment Manager's mutual fund asset
allocation program (subject to all of its terms and conditions, including
termination fees, mandatory sale or transfer restrictions on termination)
pursuant to which they pay an asset-based fee.
o Persons participating in a fee-based investment program (subject to all of
its terms and conditions, including termination fees, mandatory sale or
transfer restrictions on termination) approved by the Fund's distributor
pursuant to which they pay an asset-based fee for investment advisory,
administrative and/or brokerage services.
o Employee benefit plans maintained by Morgan Stanley Dean Witter & Co. or
any of its subsidiaries for the benefit of certain employees of Morgan
Stanley Dean Witter & Co. and its subsidiaries.
o Certain unit investment trusts sponsored by Dean Witter Reynolds.
o Certain other open-end investment companies whose shares are distributed by
the Fund's distributor.
o Investors who were shareholders of the Dean Witter Retirement Series on
September 11, 1998 for additional purchases for their former Dean Witter
Retirement Series accounts.
Meeting Class D Eligibility Minimums. To meet the $5 million ($25 million for
MSDW Eligible Plans) initial investment to qualify to purchase Class D shares
you may combine: (1) purchases in a single transaction of Class D shares of the
Fund and other Morgan Stanley Dean Witter Multi-Class Funds and/or (2) previous
purchases of Class A
24
<PAGE>
and Class D shares of Multi-Class Funds and shares of FSC Funds you currently
own, along with shares of Morgan Stanley Dean Witter Funds you currently own
that you acquired in exchange for those shares.
NO SALES CHARGES FOR REINVESTED CASH DISTRIBUTIONS If you receive a cash payment
representing an income dividend or capital gain and you reinvest that amount in
the applicable Class of shares by returning the check within 30 days of the
payment date, the purchased shares would not be subject to an initial sales
charge or CDSC.
PLAN OF DISTRIBUTION (RULE 12b-1 FEES) The Fund has adopted a Plan of
Distribution in accordance with Rule 12b-1 under the Investment Company Act of
1940 with respect to the distribution of Class A, Class B and Class C shares.
The Plan allows the Fund to pay distribution fees for the sale and distribution
of these shares. It also allows the Fund to pay for services to shareholders of
Class A, Class B and Class C shares. Because these fees are paid out of the
Fund's assets on an ongoing basis, over time these fees will increase the cost
of your investment in these Classes and may cost you more than paying other
types of sales charges.
25
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the life of the Fund. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate an investor would have earned or lost on an investment in
the Fund (assuming reinvestment of all dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the annual report, which is available upon request.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
JANUARY 31, JANUARY 31, JANUARY 31,
2000 1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A SHARES++
- -------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.75 $12.41 $12.42
- -------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.47 0.46 0.25
Net realized and unrealized gain (loss) (0.69) 0.87 0.32
------- -------- --------
Total income (loss) from investment operations (0.22) 1.33 0.57
- -------------------------------------------------------------------------------------------------------
Less dividends and distributions from:
Net investment income (0.47) (0.47) (0.26)
Net realized gain (0.26) (0.52) (0.32)
------- -------- --------
Total dividends and distributions (0.73) (0.99) (0.58)
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.80 $12.75 $12.41
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (1.84)% 11.11% 4.60%(1)
- -------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- -------------------------------------------------------------------------------------------------------
Expenses 1.20%(3) 1.23%(3) 1.43%(2)
- -------------------------------------------------------------------------------------------------------
Net investment income 3.82%(3) 3.73%(3) 3.92%(2)
- -------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $2,187 $5,448 $903
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate 35% 32% 21%
- -------------------------------------------------------------------------------------------------------
</TABLE>
* The date shares were first issued. Shareholders who held shares of the Fund
prior to July 28, 1997 (the date the Fund converted to a multiple class
share structure) should refer to the Financial Highlights of Class C to
obtain the historical per share data and ratio information of their 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.
26
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
JANUARY 31, JANUARY 31, JANUARY 31,
2000 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS B SHARES++
- --------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
Net asset value, beginning of period $12.74 $12.41 $12.42
- --------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.38 0.38 0.20
Net realized and unrealized gain (loss) (0.71) 0.85 0.33
--------- ------- -------
Total income (loss) from investment operations (0.33) 1.23 0.53
- --------------------------------------------------------------------------------------------------------
Less dividends and distributions from:
Net investment income (0.38) (0.38) (0.22)
Net realized gain (0.26) (0.52) (0.32)
--------- ------- -------
Total dividends and distributions (0.64) (0.90) (0.54)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.77 $12.74 $12.41
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (2.69)% 10.32% 4.19%(1)
- --------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- --------------------------------------------------------------------------------------------------------
Expenses 1.95%(3) 1.99%(3) 2.16%(2)
- --------------------------------------------------------------------------------------------------------
Net investment income 3.07%(3) 2.97%(3) 3.15%(2)
- --------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $56,827 $56,919 $34,021
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate 35% 32% 21%
- --------------------------------------------------------------------------------------------------------
</TABLE>
* The date shares were first issued. Shareholders who held shares of the
Fund prior to July 28, 1997 (the date the Fund converted to a multiple
class share structure) should refer to the Financial Highlights of Class
C to obtain the historical per share and ratio information of their
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.
27
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED JANUARY 31 MARCH 28, 1995*
----------------------------------------------------- THROUGH
2000++ 1999++ 1998**++ 1997 JANUARY 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS C SHARES
- -----------------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.74 $12.41 $11.57 $11.34 $10.00
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.38 0.38 0.42 0.36 0.38
Net realized and unrealized gain (loss) (0.70) 0.85 1.23 0.50 1.30
----- ---- ---- ---- ----
Total income (loss) from investment operations (0.32) 1.23 1.65 0.86 1.68
- -----------------------------------------------------------------------------------------------------------------------------
Less dividends and distributions from:
Net investment income (0.38) (0.38) (0.40) (0.38) (0.33)
Net realized gain (0.26) (0.52) (0.41) (0.25) (0.01)
----- ---- ---- ---- ----
Total dividends and distributions (0.64) (0.90) (0.81) (0.63) (0.34)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.78 $12.74 $12.41 $11.57 $11.34
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (2.62)% 10.32% 14.42% 7.82% 16.93%(1)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses 1.95%(4) 1.94%(4) 2.07% 1.88%(3) --%(2)(3)
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income 3.07%(4) 3.02%(4) 3.30% 3.49%(3) 5.27%(2)(3)
- -----------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $29,535 $35,291 $30,402 $48,284 $31,252
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 35% 32% 21% 21% 3%(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, other than shares which were
acquired in exchange for shares of Funds for which Morgan Stanley Dean
Witter Advisors Inc. serves as Investment Manager ("Morgan Stanley Dean
Witter Funds") offered with either a front-end sales charge or a
contingent deferred sales charge ("CDSC") and shares acquired through
reinvestment of dividends and distributions thereon, have been designated
Class C shares. Shares held prior to July 28, 1997 which were acquired in
exchange for shares of a Morgan Stanley Dean Witter Fund sold with a
front-end sales charge, including shares acquired through reinvestment of
dividends and distributions thereon, have been designated Class A shares
and shares held prior to July 28, 1997 which were acquired in exchange
for shares of a Morgan Stanley Dean Witter Fund sold with a CDSC,
including shares acquired through reinvestment of dividends and
distributions thereon, 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) If the Investment Manager had not reimbursed expenses and waived the
management fee, the annualized expense and net investment income ratios
would have been 2.19% and 3.18%, respectively, for the year ended January
31, 1997 and 2.69% and 2.58%, respectively, for the period ended January
31, 1996.
(4) Reflects overall Fund ratios for investment income and non-class specific
expenses.
28
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
JANUARY 31, JANUARY 31, JANUARY 31,
2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS D SHARES++
- ---------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.75 $12.42 $12.42
- ---------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.50 0.48 0.26
Net realized and unrealized gain (loss) (0.70) 0.87 0.33
----- ---- ----
Total income (loss) from investment operations (0.20) 1.35 0.59
- ---------------------------------------------------------------------------------------------------------------
Less dividends and distributions from:
Net investment income (0.50) (0.50) (0.27)
Net realized gain (0.26) (0.52) (0.32)
----- ---- ----
Total dividends and distributions (0.76) (1.02) (0.59)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.79 $12.75 $12.42
- ---------------------------------------------------------------------------------------------------------------
TOTAL RETURN+ (1.63)% 11.27% 4.79%(1)
- ---------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- ---------------------------------------------------------------------------------------------------------------
Expenses 0.95%(3) 0.99%(3) 1.16%(2)
- ---------------------------------------------------------------------------------------------------------------
Net investment income 4.07%(3) 3.97%(3) 4.15%(2)
- ---------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $1,546 $1,679 $10
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 35% 32% 21%
- ---------------------------------------------------------------------------------------------------------------
</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.
29
<PAGE>
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<PAGE>
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31
<PAGE>
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32
<PAGE>
MORGAN STANLEY DEAN WITTER
FAMILY OF FUNDS
The Morgan Stanley Dean Witter Family of Funds offers
investors a wide range of investment choices. Come on
in and meet the family!
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GROWTH FUNDS GROWTH FUNDS THEME FUNDS
Aggressive Equity Fund Financial Services Trust
American Opportunities Fund Health Sciences Trust
Capital Growth Securities Information Fund
Developing Growth Securities Natural Resource Development Securities
Growth Fund GLOBAL/INTERNATIONAL FUNDS
Market Leader Trust Competitive Edge Fund - "Best Ideas" Portfolio
Mid-Cap Equity Trust European Growth Fund
Next Generation Trust Fund of Funds - International Portfolio
Small Cap Growth Fund International Fund
Special Value Fund International SmallCap Fund
Tax-Managed Growth Fund Japan Fund
21st Century Trend Fund Latin American Growth Fund
Pacific Growth Fund
- ---------------------------------------------------------------------------------------------------------------------------------
GROWTH & INCOME FUNDS Balanced Growth Fund Total Market Index Fund
Balanced Income Fund Total Return Trust
Convertible Securities Trust Value Fund
Dividend Growth Securities Value-Added Market Series/Equity Portfolio
Equity Fund THEME FUNDS
Fund of Funds - Domestic Portfolio Real Estate Fund
Income Builder Fund Utilities Fund
Mid-Cap Dividend Growth Securities GLOBAL FUNDS
S&P 500 Index Fund Global Dividend Growth Securities
S&P 500 Select Fund Global Utilities Fund
Strategist Fund
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FUNDS GOVERNMENT INCOME FUNDS GLOBAL INCOME FUNDS
Federal Securities Trust North American Government Income Trust
Short-Term U.S. Treasury Trust World Wide Income Trust
U.S. Government Securities Trust TAX-FREE INCOME FUNDS
DIVERSIFIED INCOME FUNDS California Tax-Free Income Fund
Diversified Income Trust Hawaii Municipal Trust(FSC)
CORPORATE INCOME FUNDS Limited Term Municipal Trust(NL)
High Yield Securities Multi-State Municipal Series Trust(FSC)
Intermediate Income Securities New York Tax-Free Income Fund
Short-Term Bond Fund(NL) Tax-Exempt Securities Trust
- ---------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS TAXABLE MONEY MARKET FUNDS TAX-FREE MONEY MARKET FUNDS
Liquid Asset Fund(MM) California Tax-Free Daily Income Trust(MM)
U.S. Government Money Market Trust(MM) New York Municipal Money Market Trust(MM)
Tax-Free Daily Income Trust(MM)
</TABLE>
There may be Funds created after this Prospectus was published. Please consult
the inside back cover of a new Fund's prospectus for its designation, e.g.,
Multi-Class Fund or Money Market Fund.
Unless otherwise noted, each listed Morgan Stanley Dean Witter Fund, except for
North American Government Income Trust and Short-Term U.S. Treasury Trust, is a
Multi-Class Fund. A Multi-Class Fund is a mutual fund offering multiple Classes
of shares. The other types of Funds are: NL -- No-Load (Mutual) Fund; MM --
Money Market Fund; FSC -- A mutual fund sold with a front-end sales charge and
a distribution (12b-1) fee.
<PAGE>
PROSPECTUS - MARCH 31, 2000
Additional information about the Fund's investments is available in the Fund's
Annual and Semi-Annual Reports to Shareholders. In the Fund's Annual Report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. The
Fund's Statement of Additional Information also provides additional information
about the Fund. The Statement of Additional Information is incorporated herein
by reference (legally is part of this Prospectus). For a free copy of any of
these documents, to request other information about the Fund, or to make
shareholder inquiries, please call:
(800) 869-NEWS
You also may obtain information about the Fund by calling your Morgan Stanley
Dean Witter Financial Advisor or by visiting our Internet site at:
www.msdw.com/individual/funds
Information about the Fund (including the Statement of Additional Information)
can be viewed and copied at the Securities and Exchange Commission's Public
Reference Room in Washington, DC. Information about the Reference Room's
operations may be obtained by calling the SEC at (202) 942-8090. Reports and
other information about the Fund are available on the EDGAR Database on the
SEC's Internet site (www.sec.gov) and copies of this information may be
obtained, after paying a duplicating fee, by electronic request at the
following e-mail address: [email protected], or by writing the Public
Reference Section of the SEC, Washington, DC 20549-0102.
TICKER SYMBOLS:
Class A: BINAX
- ----------------------------
Class B: BINBX
- ----------------------------
Class C: BINCX
- ----------------------------
Class D: BINDX
- ----------------------------
(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7243)
Morgan Stanley Dean Witter
------------------------------------------------------------
BALANCED INCOME FUND
[GRAPHIC OMITTED]
A MUTUAL FUND THAT SEEKS TO
PROVIDE CURRENT INCOME AND
MODERATE CAPITAL GROWTH
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MORGAN STANLEY DEAN WITTER
BALANCED INCOME FUND
MARCH 31, 2000
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a Prospectus. The
Prospectus (dated March 31, 2000) for the Morgan Stanley Dean Witter Balanced
Income Fund may be obtained without charge from the Fund at its address or
telephone number listed below or from Dean Witter Reynolds at any of its branch
offices.
Morgan Stanley Dean Witter
Balanced Income Fund
Two World Trade Center
New York, New York 10048
(800) 869-NEWS
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
I. Fund History .......................................................4
II. Description of the Fund and Its Investments and Risks ..............4
A. Classification ..............................................4
B. Investment Strategies and Risks .............................4
C. Fund Policies/Investment Restrictions ......................11
III. Management of the Fund ............................................12
A. Board of Trustees ..........................................12
B. Management Information .....................................12
C. Compensation ...............................................16
IV. Control Persons and Principal Holders of Securities ...............18
V. Investment Management and Other Services ..........................18
A. Investment Manager .........................................18
B. Principal Underwriter ......................................19
C. Services Provided by the Investment Manager ................19
D. Dealer Reallowances ........................................20
E. Rule 12b-1 Plan ............................................20
F. Other Service Providers ..................................24
G. Code of Ethics ............................................25
VI. Brokerage Allocation and Other Practices ..........................25
A. Brokerage Transactions .....................................25
B. Commissions ................................................25
C. Brokerage Selection ........................................26
D. Directed Brokerage .........................................27
E. Regular Broker-Dealers .....................................27
VII. Capital Stock and Other Securities ................................27
VIII. Purchase, Redemption and Pricing of Shares ........................28
A. Purchase/Redemption of Shares ..............................28
B. Offering Price .............................................28
IX. Taxation of the Fund and Shareholders .............................29
X. Underwriters ......................................................31
XI. Calculation of Performance Data ...................................31
XII. Financial Statements ..............................................33
</TABLE>
2
<PAGE>
GLOSSARY OF SELECTED DEFINED TERMS
- --------------------------------------------------------------------------------
The terms defined in this glossary are frequently used in this Statement of
Additional Information (other terms used occasionally are defined in the text of
the document).
"Custodian" - The Bank of New York.
"Dean Witter Reynolds" - Dean Witter Reynolds Inc., a wholly-owned
broker-dealer subsidiary of MSDW.
"Distributor" - Morgan Stanley Dean Witter Distributors Inc., a
wholly-owned broker-dealer subsidiary of MSDW.
"Financial Advisors" - Morgan Stanley Dean Witter authorized financial
services representatives.
"Fund" - Morgan Stanley Dean Witter Balanced Income Fund, a registered
open-end investment company.
"Independent Trustees" - Trustees who are not "interested persons" (as
defined by the Investment Company Act) of the Fund.
"Investment Manager" - Morgan Stanley Dean Witter Advisors Inc., a
wholly-owned investment advisor subsidiary of MSDW.
"Morgan Stanley & Co." - Morgan Stanley & Co. Incorporated, a wholly-owned
broker-dealer subsidiary of MSDW.
"Morgan Stanley Dean Witter Funds" - Registered investment companies (i)
for which the Investment Manager serves as the investment advisor and (ii) that
hold themselves out to investors as related companies for investment and
investor services.
"MSDW" - Morgan Stanley Dean Witter & Co., a preeminent global financial
services firm.
"MSDW Services Company" - Morgan Stanley Dean Witter Services Company Inc.,
a wholly-owned fund services subsidiary of the Investment Manager.
"Transfer Agent" - Morgan Stanley Dean Witter Trust FSB, a wholly-owned
transfer agent subsidiary of MSDW.
"Trustees" - The Board of Trustees of the Fund.
3
<PAGE>
I. FUND HISTORY
- --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust, under a
Declaration of Trust, on November 23, 1994, with the name Dean Witter Balanced
Income Fund. Effective June 22, 1998, the Fund's name was changed to Morgan
Stanley Dean Witter Balanced Income Fund.
II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
- --------------------------------------------------------------------------------
A. CLASSIFICATION
The Fund is an open-end, diversified management investment company whose
investment objective is to provide current income and moderate capital growth.
B. INVESTMENT STRATEGIES AND RISKS
The following discussion of the Fund's investment strategies and risks
should be read with the sections of the Fund's Prospectus titled "Principal
Investment Strategies," "Principal Risks," "Additional Investment Strategy
Information," and "Additional Risk Information."
Options and Futures Transactions. The Fund may engage in transactions in
listed and OTC options on eligible portfolio securities and stock indexes.
Listed options are issued or guaranteed by the exchange on which they are traded
or by a clearing corporation such as the Options Clearing Corporation ("OCC").
Ownership of a listed call option gives the Fund the right to buy from the OCC
(in the U.S.) or other clearing corporation or exchange, 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 (in the U.S.) or other clearing corporation or exchange, 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
(in the U.S.) or other clearing corporation or exchange, 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 (in the
U.S.) or other clearing corporation or exchange, at the exercise price.
Covered Call Writing. The Fund is permitted to write covered call options
on portfolio securities. 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 earn a higher level of current
income than it would earn 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 decline in value.
The Fund may be required, at any time during the option period, to deliver
the underlying security against payment of the exercise price on any calls it
has written. 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.
A call option is "covered" if the Fund owns the underlying security subject
to the option or has an absolute and immediate right to acquire that security
without additional cash consideration (or for additional consideration (in cash,
Treasury bills or other liquid portfolio securities) held in a segregated
account on the Fund's books) upon conversion or exchange of other securities
held in its portfolio. A call option is also covered if the Fund holds a call on
the same security as the call written where the exercise price of the call held
is (i) equal to or less than the exercise price of the call written or (ii)
greater than the exercise price of the call written if the difference is
maintained by the Fund in cash, Treasury bills or other liquid portfolio
securities in a segregated account on the Fund's books.
Options written by the Fund normally have expiration dates of from up to
eighteen months 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.
4
<PAGE>
Covered Put Writing. A writer of a covered put option 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. Through the writing of a put option, the Fund would receive income
from the premium paid by purchasers. The potential gain on a covered put option
is limited to the premium received on the option (less the commissions paid on
the transaction). 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. A put option is "covered" if the Fund maintains cash, Treasury bills
or other liquid portfolio securities with a value equal to the exercise price in
a segregated account on the Fund's books, or holds a put on the same security as
the put written where the exercise price of the put held is equal to or greater
than the exercise price of the put written. The operation of and limitations on
covered put options in other respects are substantially identical to those of
call options.
Purchasing Call and Put Options. The Fund may purchase listed and OTC call
and put options on securities and stock indexes in amounts equaling up to 5% of
its total assets. The Fund may purchase put options on securities which it holds
(or has the right to acquire) in its portfolio only to protect itself against a
decline in the value of the security. The Fund may also purchase put options to
close out written put positions in a manner similar to call option closing
purchase transactions. The purchase of a call option would enable the Fund, in
return for the premium paid, to lock in a purchase price for a security during
the term of the option. The purchase of a put option would enable the Fund, in
return for a premium paid, to lock in a price at which it may sell a security
during the term of the option.
OTC Options. 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. The Fund will engage in OTC
option transactions only with member banks of the Federal Reserve Bank System or
primary dealers in U.S. Government securities or with affiliates of such banks
or dealers.
Risks of Options Transactions. The successful use of options depends on the
ability of the Investment Manager to forecast correctly interest rates and/or
market movements. If the market value of the portfolio securities 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 covered 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. Prior to
exercise or expiration, an option position can only be terminated by entering
into a closing purchase or sale transaction. 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.
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.
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. In the case of OTC
options, 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, due to insolvency or otherwise, the Fund would lose the premium
paid for the option as well as any anticipated benefit of the transaction.
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security which may be
written by a single investor, whether acting alone
5
<PAGE>
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.
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.
There can be no assurance that a liquid secondary market will exist for a
particular option at any specific time.
Futures Contracts. The Fund may purchase and sell interest rate and stock
index futures contracts that are traded on U.S. commodity exchanges on such
underlying securities as U.S. Treasury bonds, notes, bills and GNMA Certificates
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.
A futures contract purchaser 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. A seller of a futures contract incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price. The purchase of a futures
contract enables the Fund, during the term of the contract, to lock in a price
at which it may purchase a security and protect against a rise in prices pending
purchase of portfolio securities. The sale of a futures contract enables the
Fund to lock in a price at which it may sell a security and protect against
declines in the value of portfolio securities.
Although most 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 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 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 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.
Margin. If the Fund enters into a futures contract, it is initially
required to deposit an "initial margin" of cash or U.S. Government securities or
other liquid portfolio securities ranging from approximately 2% to 5% 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 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," which are reflective of price
fluctuations in the futures contract.
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
6
<PAGE>
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 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 enter
into futures contracts provided that not more than 5% of its total assets are
required as a futures contract deposit. In addition, the Fund may enter into
futures contracts and options transactions only to the extent that obligations
under such contracts or transactions represent not more than 30% of the Fund's
total assets.
Risks of Transactions in Futures Contracts and Related Options. 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. Also, prices of futures contracts may not
move in tandem with the changes in prevailing interest rates and/or market
movements 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 possible imperfect
correlation between movements in the prices of securities and movements in the
prices of futures contracts, a correct forecast of interest rate and/or market
movement trends by the Investment Manager may still not result in a successful
hedging transaction.
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. 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.
Exchanges also 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 these 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 effected on foreign exchanges.
7
<PAGE>
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in 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.
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 on the books of the Fund, 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.
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 on the books
of the Fund. 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.
MONEY MARKET SECURITIES. In addition to the short-term fixed-income
securities in which the Fund may otherwise invest, the Fund may invest in
various money market securities for cash management purposes or when assuming a
temporary defensive position, which among others may include commercial paper,
bank acceptances, bank obligations, corporate debt securities, certificates of
deposit, U.S. Government securities, obligations of savings institutions and
repurchase agreements. Such securities are limited to:
U.S. Government Securities. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States. Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as the
Federal Home Loan Bank), including Treasury bills, notes and bonds;
Bank Obligations. Obligations (including certificates of deposit, time
deposits and bankers' acceptances) of banks subject to regulation by the U.S.
Government and having total assets of $1 billion or more, and instruments
secured by such obligations, not including obligations of foreign branches of
domestic banks except to the extent below;
Eurodollar Certificates of Deposit. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of $1 billion
or more;
Obligations of Savings Institutions. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion or
more;
Fully Insured Certificates of Deposit. Certificates of deposit of banks and
savings institutions, having total assets of less than $1 billion, if the
principal amount of the obligation is federally insured by the Bank Insurance
Fund or the Savings Association Insurance Fund (each or which is administered by
the FDIC), limited to $100,000 principal amount per certificate and to 10% or
less of the Fund's total assets in all such obligations and in all illiquid
assets in the aggregate; and
Commercial Paper. Commercial paper rated within the two highest grades by
Standard & Poor's Corporation ("S&P") or the two highest grades by Moody's
Investors Service, Inc. ("Moody's") or, if not rated, issued by a company having
an outstanding debt issue rated at least AA by S&P or by Moody's.
Repurchase Agreements. The Fund may invest in repurchase agreements. When
cash may be available for only a few days, it may be invested by the Fund in
repurchase agreements until such time as it may otherwise be invested or used
for payments of obligations of the Fund. These agreements, which may be viewed
as a type of secured lending by the Fund, typically involve the acquisition by
the Fund of debt securities from a selling financial institution such as a bank,
savings and loan association
8
<PAGE>
or broker-dealer. The agreement provides that the Fund will sell back to the
institution, and that the institution will repurchase, the underlying security
serving as collateral at a specified price and at a fixed time in the future,
usually not more than seven days from the date of purchase. The collateral will
be marked-to-market daily to determine that the value of the collateral, as
specified in the agreement, does not decrease below the purchase price plus
accrued interest. If such decrease occurs, additional collateral will be
requested and, when received, added to the account to maintain full
collateralization. The Fund will accrue interest from the institution until the
time when the repurchase is to occur. Although this date is deemed by the Fund
to be the maturity date of a repurchase agreement, the maturities of securities
subject to repurchase agreements are not subject to any limits.
While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures designed to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions
whose financial condition will be continually monitored by the Investment
Manager subject to procedures established by the Trustees. In addition, as
described above, the value of the collateral underlying the repurchase agreement
will be at least equal to the repurchase price, including any accrued interest
earned on the repurchase agreement. In the event of a default or bankruptcy by a
selling financial institution, the Fund will seek to liquidate such collateral.
However, the exercising of the Fund's right to liquidate such collateral could
involve certain costs or delays and, to the extent that proceeds from any sale
upon a default of the obligation to repurchase were less than the repurchase
price, the Fund could suffer a loss.
ASSET-BACKED SECURITIES. The Fund may invest in asset-backed securities,
which apply the mortgage-backed securities structure to a broad range of other
assets. The cash flow of these securities depends on the cash flow from an
underlying pool of assets, such as credit card receivables, home equity loans or
automobile loans.
Any Fund investments in asset-back securities are subject to, among other
risks, those risks associated with fixed-income securities: credit risk and
interest rate risk. See the "Principal Risks" section in the Prospectus for a
discussion of credit and interest risks. While asset-backed securities also pose
many of the same risks as mortgage-backed securities, they may involve certain
unique risks because they are backed by different types of assets. For example,
credit card receivables generally are unsecured and debtors are protected by
consumer credit laws, which may reduce the value of the related securities.
INVESTMENT IN REAL ESTATE INVESTMENT TRUSTS. The Fund may invest in real
estate investment trusts, which pool investors' funds for investments primarily
in commercial real estate properties. Investment in real estate investment
trusts may be the most practical available means for the Fund to invest in the
real estate industry (the Fund is prohibited from investing in real estate
directly). As a shareholder in a real estate investment trust, the Fund would
bear its ratable share of the real estate investment trust's expenses, including
its advisory and administration fees. At the same time the Fund would continue
to pay its own investment management fees and other expenses, as a result of
which the Fund and its shareholders in effect will be absorbing duplicate levels
of fees with respect to investments in real estate investment trusts.
LENDING PORTFOLIO SECURITIES. The Fund will not lend its portfolio
securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. 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 these transactions are negotiated, the price is fixed at the time of the
commitment, but delivery and payment can take place a month or more after the
date of commitment. While the Fund will only purchase securities on a
when-issued, delayed delivery or forward commitment basis with the intention of
acquiring the securities, the Fund may sell the securities before the settlement
date, if it is deemed advisable. The securities so purchased or sold are subject
to market fluctuation and no interest or dividends accrue to the purchaser prior
to the settlement date.
At the time the Fund makes the commitment to purchase or sell securities on
a when-issued, delayed delivery or forward commitment basis, it will record the
transaction and thereafter reflect the
9
<PAGE>
value, each day, of such security purchased, or if a sale, the proceeds to be
received, in determining its net asset value. At the time of delivery of the
securities, their value may be more or less than the purchase or sale price. An
increase in the percentage of the Fund's assets committed to the purchase of
securities on a when-issued, delayed delivery or forward commitment basis may
increase the volatility of its net asset value. The Fund will also establish a
segregated account on the Fund's books in which it will continually maintain
cash or cash equivalents or other liquid portfolio securities equal in value to
commitments to purchase securities on a when-issued, delayed delivery or forward
commitment basis.
WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization or debt restructuring. The commitment for the purchase
of any such security will not be recognized in the portfolio of the Fund until
the Investment Manager determines that issuance of the security is probable. At
that time, the Fund will record the transaction and, in determining its net
asset value, will reflect the value of the security daily. At that time, the
Fund will also establish a segregated account on the Fund's books in which it
will maintain cash or cash equivalents or other liquid portfolio securities
equal in value to recognized commitments for such securities.
The value of the Fund's commitments to purchase the securities of any one
issuer, together with the value of all securities of such issuer owned by the
Fund, may not exceed 5% of the value of the Fund's net assets at the time the
initial commitment to purchase such securities is made. An increase in the
percentage of the Fund's assets committed to the purchase of securities on a
"when, as and if issued" basis may increase the volatility of its net asset
value. The Fund may also sell securities on a "when, as and if issued" basis
provided that the issuance of the security will result automatically from the
exchange or conversion of a security owned by the Fund at the time of sale.
PRIVATE PLACEMENTS. The Fund may invest up to 15% 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 (the "Securities Act"), or
which are otherwise not readily marketable. (Securities eligible for resale
pursuant to Rule 144A under the Securities Act, and determined to be liquid
pursuant to the procedures discussed in the following paragraph, are not subject
to the foregoing restriction.) These securities are generally referred to as
private placements or restricted securities. Limitations on the resale of these
securities may have an adverse effect on their marketability, and may prevent
the Fund from disposing of them promptly at reasonable prices. The Fund may have
to bear the expense of registering the securities for resale and the risk of
substantial delays in effecting the registration.
Rule 144A permits the Fund to sell restricted securities to qualified
institutional buyers without limitation. The Investment Manager, pursuant to
procedures adopted by the Trustees, will make a determination as to the
liquidity of each restricted security purchased by the Fund. If a restricted
security is determined to be "liquid," the security will not be included within
the category "illiquid securities," which 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.
WARRANTS AND SUBSCRIPTION RIGHTS. The Fund may acquire warrants and
subscription rights attached to other securities. A warrant is, in effect, an
option to purchase equity securities at a specific price, generally valid for a
specific period of time, and has no voting rights, pays no dividends and has no
rights with respect to the corporation issuing it.
A subscription right is a privilege granted to existing shareholders of a
corporation to subscribe to shares of a new issue of common stock before it is
offered to the public. A subscription right normally has a life of two to four
weeks and a subscription price lower than the current market value of the common
stock.
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 were
10
<PAGE>
designed in such a way that they may not be able to 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.
Improperly functioning trading systems may result in settlement problems
and liquidity issues. Corporate and governmental data processing errors could
result in production problems for individual issuers and overall economic
uncertainties. Operations ran smoothly from the last week in December through
the first weeks of January, but the year 2000 issue may yet have an adverse
impact on financial market participants and other entities, including the
issuers whose securities are contained in the Fund's portfolio.
C. FUND POLICIES/INVESTMENT RESTRICTIONS
The investment objective, policies and restrictions listed below have been
adopted by the Fund as fundamental policies. Under the Investment Company Act of
1940 (the "Investment Company Act"), a fundamental policy may not be changed
without the vote of a majority of the outstanding voting securities of the Fund.
The Investment Company Act defines a majority as the lesser of (a) 67% or more
of the shares present at a meeting of shareholders, if the holders of 50% of the
outstanding shares of the Fund are present or represented by proxy; or (b) more
than 50% of the outstanding shares of the Fund. For purposes of the following
restrictions: (i) all percentage limitations apply immediately after a purchase
or initial investment; and (ii) any subsequent change in any applicable
percentage resulting from market fluctuations or other changes in total or net
assets does not require elimination of any security from the portfolio.
The Fund will:
1. Seek to provide current income and moderate capital growth.
The Fund may not:
1. Invest more than 5% of the value of its total assets in the securities
of any one issuer (other than obligations issued, or guaranteed by, the
United States Government, its agencies or instrumentalities).
2. Purchase more than 10% of all outstanding voting securities or any
class of securities of any one issuer.
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to
obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities.
4. Invest in securities of any issuer if, in the exercise of reasonable
diligence, the Fund has determined that any officer or trustee of the
Fund or of the Investment Manager owns more than 1|M/2 of 1% of the
outstanding securities of the issuer, and the officers and trustees who
own more than 1|M/2 of 1% own in the aggregate more than 5% of the
outstanding securities of the issuer.
5. 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.
6. Purchase or sell commodities except that the Fund may purchase or sell
(write) futures contracts and related options thereon.
7. Borrow money, except from banks for investment purposes or as a
temporary measure for extraordinary or emergency purposes in an amount
up to 5% (taken at the lower of cost or current value) of the Fund's
total assets (not including the amount borrowed).
8. Pledge its assets or assign or otherwise encumber them, except to
secure permitted borrowings. 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.
11
<PAGE>
9. Issue senior securities as defined in the Investment Company Act,
except insofar as the Fund may be deemed to have issued a senior
security by reason of: (a) entering into any repurchase agreement; or
(b) borrowing money.
10. Make loans of money or securities, except: (a) by the purchase of debt
obligations; or (b) by investment in repurchase agreements.
11. Make short sales of securities.
12. Purchase securities on margin, except 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.
13. Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act in disposing of a
portfolio security.
14. Invest for the purpose of exercising control or management of any other
issuer.
15. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than 3
years of continuous operation. This restriction shall not apply to any
obligation of the United States Government, its agencies or
instrumentalities.
16. 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
these programs.
17. Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
In addition, the Fund, as a non-fundamental policy, will not invest more
than 5% of the value of its net assets in warrants, including not more than 2%
of such assets in warrants not listed on the New York or American Stock
Exchange. However, the acquisition of warrants attached to other securities is
not subject to this restriction.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially all
of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
III. MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
A. BOARD OF TRUSTEES
The Board of Trustees of the Fund oversees the management of the Fund but
does not itself manage the Fund. The Trustees review various services provided
by or under the direction of the Investment Manager to ensure that the Fund's
general investment policies and programs are properly carried out. The Trustees
also conduct their review to ensure that administrative services are provided to
the Fund in a satisfactory manner.
Under state law, the duties of the Trustees are generally characterized as
a duty of loyalty and a duty of care. The duty of loyalty requires a Trustee to
exercise his or her powers in the interest of the Fund and not the Trustee's own
interest or the interest of another person or organization. A Trustee satisfies
his or her duty of care by acting in good faith with the care of an ordinarily
prudent person and in a manner the Trustee reasonably believes to be in the best
interest of the Fund and its shareholders.
B. MANAGEMENT INFORMATION
TRUSTEES AND OFFICERS. The Board of the Fund consists of eight (8)
Trustees. These same individuals also serve as directors or trustees for all of
the Morgan Stanley Dean Witter Funds. Six Trustees (75% of the total number)
have no affiliation or business connection with the Investment
12
<PAGE>
Manager or any of its affiliated persons and do not own any stock or other
securities issued by the Investment Manager's parent company, MSDW. These are
the "non-interested" or "independent" Trustees. The other two Trustees (the
"management Trustees") are affiliated with the Investment Manager.
The Trustees and executive officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with the
Investment Manager, and with the Morgan Stanley Dean Witter Funds (there were 93
such Funds as of the calendar year ended December 31, 1999), are shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------- ------------------------------------------------------------
<S> <C>
Michael Bozic (59) ........................ Vice Chairman of Kmart Corporation (since December
Trustee 1998); Director or Trustee of the Morgan Stanley Dean
c/o Kmart Corporation Witter Funds; formerly Chairman and Chief Executive
3100 West Big Beaver Road Officer of Levitz Furniture Corporation (November 1995-
Troy, Michigan November 1998) and President and Chief Executive Officer
of Hills Department Stores (May 1991-July 1995); formerly
variously Chairman, Chief Executive Officer, President and
Chief Operating Officer (1987-1991) of the Sears
Merchandise Group of Sears, Roebuck and Co.; Director of
Weirton Steel Corporation.
Charles A. Fiumefreddo* (66) .............. Chairman, Director or Trustee and Chief Executive Officer
Chairman of the Board, of the Morgan Stanley Dean Witter Funds; formerly
Chief Executive Officer and Trustee Chairman, Chief Executive Officer and Director of the
Two World Trade Center Investment Manager, the Distributor and MSDW Services
New York, New York Company; Executive Vice President and Director of Dean
Witter Reynolds; Chairman and Director of the Transfer
Agent; formerly Director and/or officer of various MSDW
subsidiaries (until June 1998).
Edwin J. Garn (67) ........................ Director or Trustee of the Morgan Stanley Dean Witter
Trustee Funds; formerly United States Senator (R-Utah)(1974-
c/o Huntsman Corporation 1992) and Chairman, Senate Banking Committee (1980-
500 Huntsman Way 1986); formerly Mayor of Salt Lake City, Utah (1971-1974);
Salt Lake City, Utah formerly Astronaut, Space Shuttle Discovery (April 12-19,
1985); Vice Chairman, Huntsman Corporation (chemical
company); Director of Franklin Covey (time management
systems), BMW Bank of North America, Inc. (industrial loan
corporation), United Space Alliance (joint venture between
Lockheed Martin and the Boeing Company) and Nuskin Asia
Pacific (multilevel marketing); member of the board of
various civic and charitable organizations.
Wayne E. Hedien (66) ...................... Retired; Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds; Director of The PMI Group, Inc. (private
c/o Mayer, Brown & Platt mortgage insurance); Trustee and Vice Chairman of The
Counsel to the Independent Trustees Field Museum of Natural History; formerly associated with
1675 Broadway the Allstate Companies (1966-1994), most recently as New
York, New York Chairman of The Allstate Corporation (March
1993-December 1994) and Chairman and Chief Executive
Officer of its wholly-owned subsidiary, Allstate Insurance
Company (July 1989-December 1994); director of various
other business and charitable organizations.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------- ----------------------------------------------------------------
<S> <C>
Dr. Manuel H. Johnson (51) ................ Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm; Co-Chairman and a founder of the Group
c/o Johnson Smick International, Inc. of Seven Council (G7C), an international economic
1133 Connecticut Avenue, N.W. commission; Chairman of the Audit Committee and Director
Washington, D.C. or Trustee of the Morgan Stanley Dean Witter Funds;
Director of Greenwich Capital Markets, Inc. (broker-dealer)
and NVR, Inc. (home construction); Chairman and Trustee of
the Financial Accounting Foundation (oversight organization
of the Financial Accounting Standards Board); formerly Vice
Chairman of the Board of Governors of the Federal Reserve
System (1986-1990) and Assistant Secretary of the U.S.
Treasury.
Michael E. Nugent (63) .................... General Partner, Triumph Capital, L.P., a private investment
Trustee partnership; Chairman of the Insurance Committee and
c/o Triumph Capital, L.P. Director or Trustee of the Morgan Stanley Dean Witter
237 Park Avenue Funds; formerly Vice President, Bankers Trust Company
New York, New York and BT Capital Corporation (1984-1988); director of various
business organizations.
Philip J. Purcell* (56) ................... Chairman of the Board of Directors and Chief Executive
Trustee Officer of MSDW, Dean Witter Reynolds and Novus Credit
1585 Broadway Services Inc.; Director of the Distributor; Director or Trustee
New York, New York of the Morgan Stanley Dean Witter Funds; Director of
American Airlines, Inc. and its parent company, AMR
Corporation; Director and/or officer of various MSDW
subsidiaries.
John L. Schroeder (69) .................... Retired; Chairman of the Derivatives Committee and
Trustee Director or Trustee of the Morgan Stanley Dean Witter
c/o Mayer, Brown & Platt Funds; Director of Citizens Utilities Company
Counsel to the Independent Trustees (telecommunications, gas, electric and water utilities
1675 Broadway company); formerly Executive Vice President and Chief
New York, New York Investment Officer of the Home Insurance Company
(August 1991-September 1995).
Mitchell M. Merin (46) .................... President and Chief Operating Officer of Asset Management
President of MSDW (since December 1998); President and Director
Two World Trade Center (since April 1997) and Chief Executive Officer (since June
New York, New York 1998) of the Investment Manager and MSDW Services Company;
Chairman, Chief Executive Officer and Director of the
Distributor (since June 1998); Chairman and Chief Executive
Officer (since June 1998) and Director (since January 1998)
of the Transfer Agent; Director of various MSDW
subsidiaries; President of the Morgan Stanley Dean Witter
Funds (since May 1999); Trustee of various Van Kampen
investment companies (since December 1999); previously
Chief Strategic Officer of the Investment Manager and MSDW
Services Company and Executive Vice President of the
Distributor (April 1997-June 1998), Vice President of the
Morgan Stanley Dean Witter Funds (May 1997-April 1999), and
Executive Vice President of Dean Witter, Discover & Co.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------- ------------------------------------------------------------
<S> <C>
Barry Fink (45) ........................... Executive Vice President (since December 1999) and
Vice President, Secretary and General Counsel (since February 1997) and
Secretary and General Counsel Director (since July 1998) of the Investment Manager and
Two World Trade Center MSDW Services Company; Executive Vice President (since
New York, New York December 1999) and Assistant Secretary and Assistant
General Counsel (since February 1997) of the Distributor;
Assistant Secretary of Dean Witter Reynolds (since August
1996); Vice President, Secretary and General Counsel of the
Morgan Stanley Dean Witter Funds (since February 1997);
previously Senior Vice President (March 1997- December
1999), First Vice President (June 1993-February 1997), Vice
President and Assistant Secretary and Assistant General
Counsel of the Investment Manager and MSDW Services
Company, Senior Vice President of the Distributor (March
1997-December 1999) and Assistant Secretary of the Morgan
Stanley Dean Witter Funds.
Rajesh K. Gupta (39) ...................... Senior Vice President, Director of the Taxable Fixed-
Vice President Income Group and Chief Administrative Officer of
Two World Trade Center Investments of the Investment Manager; Vice President of
New York, New York various Morgan Stanley Dean Witter Funds.
Paul D. Vance (64) ........................ Senior Vice President and Director of the Growth and
Vice President Income Group of the Investment Manager; Vice President
Two World Trade Center of various Morgan Stanley Dean Witter Funds.
New York, New York
Thomas F. Caloia (54) ..................... First Vice President and Assistant Treasurer of the
Treasurer Investment Manager, the Distributor and MSDW Services
Two World Trade Center Company; Treasurer of the Morgan Stanley Dean Witter
New York, New York Funds.
</TABLE>
- ----------
* Denotes Trustees who are "interested persons" of the Fund as defined by
the Investment Company Act.
In addition, Ronald E. Robison, Executive Vice President, Chief
Administrative Officer and Director of the Investment Manager and MSDW Services
Company, Robert S. Giambrone, Senior Vice President of the Investment Manager,
MSDW Services Company, the Distributor and the Transfer Agent and Director of
the Transfer Agent, Joseph J. McAlinden, Executive Vice President and Chief
Investment Officer of the Investment Manager and Director of the Transfer Agent,
Peter M. Avelar, Senior Vice President and Director of the High Yield Group of
the Investment Manager, Jonathan R. Page, Senior Vice President and Director of
the Money Market Group of the Investment Manager, and Kenton J. Hinchliffe and
Mark Bavoso, Senior Vice Presidents of the Investment Manager, are Vice
Presidents of the Fund.
In addition, Marilyn K. Cranney, Todd Lebo, Lou Anne D. McInnis, Carsten
Otto and Ruth Rossi, First Vice Presidents and Assistant General Counsels of the
Investment Manager and MSDW Services Company, and Natasha Kassian, Assistant
Vice President and Assistant General Counsel of the Investment Manager and MSDW
Services Company, are Assistant Secretaries of the Fund.
INDEPENDENT DIRECTORS/TRUSTEES AND THE COMMITTEES. Law and regulation
establish both general guidelines and specific duties for the independent
directors/trustees. The Morgan Stanley Dean Witter Funds seek as independent
directors/trustees individuals of distinction and experience in business and
finance, government service or academia; these are people whose advice and
counsel are in demand by others and for whom there is often competition. To
accept a position on the Funds' boards, such individuals may reject other
attractive assignments because the Funds make substantial demands
15
<PAGE>
on their time. All of the independent directors/trustees serve as members of the
Audit Committee. In addition, three of the directors/trustees, including two
independent directors/trustees, serve as members of the Derivatives Committee
and the Insurance Committee.
The independent directors/trustees are charged with recommending to the
full board approval of management, advisory and administration contracts, Rule
12b-1 plans and distribution and underwriting agreements; continually reviewing
Fund performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among Funds in
the same complex; and approving fidelity bond and related insurance coverage and
allocations, as well as other matters that arise from time to time. The
independent directors/trustees are required to select and nominate individuals
to fill any independent directors/trustees vacancy on the board of any Fund that
has a Rule 12b-1 plan of distribution. Most of the Morgan Stanley Dean Witter
Funds have a Rule 12b-1 plan.
The Audit Committee is charged with recommending to the full board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; re-viewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of the services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
board.
The board of each Fund has a Derivatives Committee to approve parameters
for and monitor the activities of the Fund with respect to derivative
investments, if any, made by the Fund.
Finally, the board of each Fund has formed an Insurance Committee to review
and monitor the insurance coverage maintained by the Fund.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT DIRECTORS/TRUSTEES FOR
ALL MORGAN STANLEY DEAN WITTER FUNDS. The independent directors/trustees and the
Funds' management believe that having the same independent directors/trustees
for each of the Morgan Stanley Dean Witter Funds avoids the duplication of
effort that would arise from having different groups of individuals serving as
independent directors/trustees for each of the Funds or even of sub-groups of
Funds. They believe that having the same individuals serve as independent
directors/trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and enhances
their ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the possibility of separate groups of
independent directors/trustees arriving at conflicting decisions regarding
operations and management of the Funds and avoids the cost and confusion that
would likely ensue. Finally, having the same independent directors/trustees
serve on all Fund boards enhances the ability of each Fund to obtain, at modest
cost to each separate Fund, the services of independent directors/trustees, of
the caliber, experience and business acumen of the individuals who serve as
independent directors/trustees of the Morgan Stanley Dean Witter Funds.
TRUSTEE AND OFFICER INDEMNIFICATION. The Fund's Declaration of Trust
provides that no Trustee, officer, employee or agent of the Fund is liable to
the Fund or to a shareholder, nor is any Trustee, officer, employee or agent
liable to any third persons in connection with the affairs of the Fund, except
as such liability may arise from his/her or its own bad faith, willful
misfeasance, gross negligence or reckless disregard of his/her or its duties. It
also provides that all third persons shall look solely to the Fund property for
satisfaction of claims arising in connection with the affairs of the Fund. With
the exceptions stated, the Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Fund.
C. COMPENSATION
The Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees, the Independent
Trustees or Committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an additional annual fee of $750,
and the Chairman of the Derivatives and Insurance Committees additional annual
fees of $500).
16
<PAGE>
If a Board meeting and a meeting of the Independent Trustees or a Committee
meeting, or a meeting of the Independent Trustees and/or more than one Committee
meeting, take place on a single day, the Trustees are paid a single meeting fee
by the Fund. The Fund also reimburses such Trustees for travel and other
out-of-pocket expenses incurred by them in connection with attending such
meetings. Trustees and officers of the Fund who are or have been employed by the
Investment Manager or an affiliated company receive no compensation or expense
reimbursement from the Fund for their services as Trustee.
The following table illustrates the compensation that the Fund paid to its
Independent Trustees for the fiscal year ended January 31, 2000.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- ------------------------------- --------------
<S> <C>
Michael Bozic .............................................. $1,550
Edwin J. Garn .............................................. 1,600
Wayne E. Hedien ............................................ 1,600
Dr. Manuel H. Johnson ...................................... 2,288
Michael E. Nugent .......................................... 2,058
John L. Schroeder .......................................... 2,058
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1999 for services
to the 93 Morgan Stanley Dean Witter Funds that were in operation at December
31, 1999.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
TOTAL CASH
COMPENSATION
FOR SERVICES TO
93 MORGAN
NAME OF STANLEY DEAN
INDEPENDENT TRUSTEE WITTER FUNDS
- ------------------------------- ----------------
<S> <C>
Michael Bozic ............................................. $134,600
Edwin J. Garn ............................................. 138,700
Wayne E. Hedien ........................................... 138,700
Dr. Manuel H. Johnson ..................................... 208,638
Michael E. Nugent ......................................... 193,324
John L. Schroeder ......................................... 193,324
</TABLE>
As of the date of this Statement of Additional Information, 55 of the
Morgan Stanley Dean Witter Funds, not including the Fund, have adopted a
retirement program under which an independent director/trustee who retires after
serving for at least five years (or such lesser period as may be determined by
the Board) as an independent director/trustee of any Morgan Stanley Dean Witter
Fund that has adopted the retirement program (each such Fund referred to as an
"Adopting Fund" and each such director/trustee referred to as an "Eligible
Trustee") is entitled to retirement payments upon reaching the eligible
retirement age (normally, after attaining age 72). Annual payments are based
upon length of service.
Currently, upon retirement, each Eligible Trustee is entitled to receive
from the Adopting Fund, commencing as of his or her retirement date and
continuing for the remainder of his or her life, an annual retirement benefit
(the "Regular Benefit") equal to 30.22% of his or her Eligible Compensation plus
0.5036667% of such Eligible Compensation for each full month of service as an
independent director/trustee of any Adopting Fund in excess of five years up to
a maximum of 60.44% after ten years
17
<PAGE>
of service. The foregoing percentages may be changed by the Board(1). "Eligible
Compensation" is one-fifth of the total compensation earned by such Eligible
Trustee for service to the Adopting Fund in the five year period prior to the
date of the Eligible Trustee's retirement. Benefits under the retirement program
are accrued as expenses on the books of the Adopting Funds. Such benefits are
not secured or funded by the Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the 55 Morgan Stanley Dean Witter Funds (not
including the Fund) for the calendar year ended December 31, 1999, and the
estimated retirement benefits for the Independent Trustees, to commence upon
their retirement, from the 55 Morgan Stanley Dean Witter Funds as of December
31, 1999.
RETIREMENT BENEFITS FROM ALL MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS
----------------------------------
RETIREMENT ESTIMATED
BENEFITS ANNUAL 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 60.44% $20,933 $50,588
Edwin J. Garn ................. 10 60.44 31,737 50,675
Wayne E. Hedien ............... 9 51.37 39,566 43,000
Dr. Manuel H. Johnson ......... 10 60.44 13,129 75,520
Michael E. Nugent ............. 10 60.44 23,175 67,209
John L. Schroeder ............. 8 50.37 41,558 52,994
</TABLE>
- ----------
(1) An Eligible Trustee may elect alternative payments of his of her
retirement benefits based upon the combined life expectancy of the
Eligible Trustee and his or her spouse on the date of such Eligible
Trustee's retirement. In addition, the Eligible Trustee may elect that the
surviving spouse's periodic payment of benefits will be equal to a lower
percentage of the periodic amount when both spouses were alive. The amount
estimated to be payable under this method, through the remainder of the
later of the lives of the Eligible Trustee and spouse, will be the
actuarial equivalent of the Regular Benefit.
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- --------------------------------------------------------------------------------
The following owned 5% or more of the outstanding shares of Class A of the
Fund on March 9, 2000: Dean Witter Reynolds, custodian for Leo J. Tauber, IRA
Rollover dated 9/11/92, 317 Carol Drive, Ventura CA 93003-1710 - 15.544%;
Morgan Stanley Dean Witter Trust FSB ("MSDW Trust") Trustee for Warren
Properties Inc. Profit Sharing & Savings Plan, P.O. Box 957, Jersey City N.J.
07303-0957 - 15.510%; Mrs. Phyllis N. Hermont, 12811 Queens Forest, San Antonio
TX 78230-1526 - 11.112%; MSDW Trust, Trustee for Precision Custom Coating LLC,
P.O. Box 957, Jersey City N.J., 07303-0957 - 7.825%. The following owned 5% or
more of the outstanding shares of Class D of the Fund on March 9, 2000: MSDW
Trust, Trustee for Robbins Manufacturing, P.O. Box 957, Jersey City N.J.,
07303-0957 - 94.311%.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's officers
and Trustees as a group was less than 1% of the Fund's shares of beneficial
interest outstanding.
V. INVESTMENT MANAGEMENT AND OTHER SERVICES
- --------------------------------------------------------------------------------
A. INVESTMENT MANAGER
The Investment Manager to the Fund is Morgan Stanley Dean Witter Advisors
Inc., a Delaware corporation, whose address is Two World Trade Center, New
York, NY 10048. The Investment Manager
18
<PAGE>
is a wholly-owned subsidiary of MSDW, a Delaware corporation. MSDW is a
preeminent global financial services firm that maintains leading market
positions in each of its three primary businesses: securities, asset management
and credit services.
Pursuant to an Investment Management Agreement (the "Management Agreement")
with the Investment Manager, the Fund has retained the Investment Manager to
provide administrative services and manage the investment of the Fund's assets,
including the placing of orders for the purchase and sale of portfolio
securities. The Fund pays the Investment Manager monthly compensation calculated
daily by applying the annual rate of 0.60% to the Fund's daily net assets. The
management fee is allocated among the Classes pro rata based on the net assets
of the Fund attributable to each Class. For the fiscal years ended January 31,
1998, 1999 and 2000, the Investment Manager accrued total compensation under the
Management Agreement in the amounts of $338,530, $493,580 and $610,586,
respectively.
The Investment Manager has retained its wholly-owned subsidiary, MSDW
Services Company, to perform administrative services for the Fund.
B. PRINCIPAL UNDERWRITER
The Fund's principal underwriter is the Distributor (which has the same
address as the Investment Manager). In this capacity, the Fund's shares are
distributed by the Distributor. The Distributor has entered into a selected
dealer agreement with Dean Witter Reynolds, which through its own sales
organization sells shares of the Fund. In addition, the Distributor may enter
into similar agreements with other selected broker-dealers. The Distributor, a
Delaware corporation, is a wholly-owned subsidiary of MSDW.
The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. These expenses include the payment of commissions
for sales of the Fund's shares and incentive compensation to Financial Advisors,
the cost of educational and/or business-related trips, and educational and/or
business-related expenses. The Distributor also pays certain expenses in
connection with the distribution of the Fund's shares, including the costs of
preparing, printing and distributing advertising or promotional materials, and
the costs of printing and distributing prospectuses and supplements thereto used
in connection with the offering and sale of the Fund's shares. The Fund bears
the costs of initial typesetting, printing and distribution of prospectuses and
supplements thereto to shareholders. The Fund also bears the costs of
registering the Fund and its shares under federal and state securities laws and
pays filing fees in accordance with state securities laws.
The Fund and the Distributor have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to the Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for any losses sustained by the
Fund or its shareholders.
C. SERVICES PROVIDED BY THE INVESTMENT MANAGER
The Investment Manager manages 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 the 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 Management 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, the office space, facilities,
equipment, clerical help, bookkeeping and certain legal services as the Fund may
reasonably require in the conduct of its business, including the preparation of
prospectuses, proxy statements and reports required to be filed with federal and
state securities
19
<PAGE>
commissions (except insofar as the participation or assistance of independent
accountants and attorneys is, in the opinion of the Investment Manager,
necessary or desirable). In addition, the Investment Manager pays the salaries
of all personnel, including officers of the Fund, who are employees of the
Investment Manager. The Investment Manager also bears the cost of telephone
service, heat, light, power and other utilities provided to the Fund.
Expenses not expressly assumed by the Investment Manager under the
Management Agreement or by the Distributor, will be paid by the Fund. These
expenses will be allocated among the four Classes of shares pro rata based on
the net assets of the Fund attributable to each Class, except as described
below. Such expenses include, but are not limited to: expenses of the Plan of
Distribution pursuant to Rule 12b-1; charges and expenses of any registrar,
custodian, stock transfer and dividend disbursing agent; brokerage commissions;
taxes; engraving and printing share certificates; registration costs of the Fund
and its shares under federal and state securities laws; the cost and expense of
printing, including typesetting, and distributing prospectuses of the Fund and
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Trustees' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of Trustees or
members of any advisory board or committee who are not employees of the
Investment Manager or any corporate affiliate of the Investment Manager; all
expenses incident to any dividend, withdrawal or redemption options; charges and
expenses of any outside service used for pricing of the Fund's shares; fees and
expenses of legal counsel, including counsel to the Trustees who are not
interested persons of the Fund or of the Investment Manager (not including
compensation or expenses of attorneys who are employees of the Investment
Manager); fees and expenses of the Fund's independent accountants; membership
dues of industry associations; interest on Fund borrowings; postage; insurance
premiums on property or personnel (including officers and Trustees) of the Fund
which inure to its benefit; extraordinary expenses (including, but not limited
to, legal claims and liabilities and litigation costs and any indemnification
relating thereto); and all other costs of the Fund's operation. The 12b-1 fees
relating to a particular Class will be allocated directly to that Class. In
addition, other expenses associated with a particular Class (except advisory or
custodial fees) may be allocated directly to that Class, provided that such
expenses are reasonably identified as specifically attributable to that Class
and the direct allocation to that Class is approved by the Trustees.
The Management Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Investment Manager is not liable to the Fund or any
of its investors for any act or omission by the Investment Manager or for any
losses sustained by the Fund or its investors.
The Management Agreement will remain in effect from year to year, provided
continuance of the Management Agreement is approved at least annually by the
vote of the holders of a majority, as defined in the Investment Company Act, of
the outstanding shares of the Fund, or by the Trustees; provided that in either
event such continuance is approved annually by the vote of a majority of the
Trustees, including a majority of the Independent Trustees.
D. DEALER REALLOWANCES
Upon notice to selected broker-dealers, the Distributor may reallow up to
the full applicable front-end sales charge during periods specified in such
notice. During periods when 90% or more of the sales charge is reallowed, such
selected broker-dealers may be deemed to be underwriters as that term is defined
in the Securities Act.
E. RULE 12B-1 PLAN
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Investment Company Act (the "Plan") pursuant to which each Class, other than
Class D, pays the Distributor compensation accrued daily and payable monthly at
the following annual rates: up to 0.25%, 1.0% and up to 1.0% of the average
daily net assets of Class A, Class B, and Class C, respectively.
The Distributor also receives the proceeds of front-end sales charges
("FSCs") and of contingent deferred sales charges ("CDSCs") imposed on certain
redemptions of shares, which are separate and
20
<PAGE>
apart from payments made pursuant to the Plan. The Distributor has informed the
Fund that it and/or Dean Witter Reynolds received the proceeds of CDSCs and
FSCs, for the last three fiscal years ended January 31, in approximate amounts
as provided in the table below (the Distributor did not retain any of these
amounts).
<TABLE>
<CAPTION>
2000 1999 1998
--------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Class A .......... FSCs:(1) $ 21,746 FSCs:(1) $41,858 FSCs:(1) $14,036
CDSCs: $ 31,200 CDSCs: $ 0 CDSCs: $ 0
Class B .......... CDSCs: $160,587 CDSCs: $52,922 CDSCs: $20,147
Class C .......... CDSCs: $ 14,634 CDSCs: $19,482 CDSCs: $ 1,693
</TABLE>
- ----------
(1) FSCs apply to Class A only.
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 National
Association of Securities Dealers, Inc. (of which the Distributor is a member).
The "service fee" is a payment made for personal service and/or the maintenance
of shareholder accounts. The remaining portion of the Plan fees payable by a
Class, if any, is characterized as an "asset-based sales charge" as such is
defined by the Rules of the Association.
Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each calendar quarter a written report provided
by the Distributor of the amounts expended under the Plan and the purpose for
which such expenditures were made. For the fiscal year ended January 31, 2000,
Class A, Class B and Class C shares of the Fund accrued payments under the Plan
amounting to $7,480, $629,376 and $341,789, respectively, which amounts are
equal to 0.25%, 1.00% and 1.00% of the average daily net assets of Class A,
Class B and Class C, respectively, for the fiscal year.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes, each with a different distribution arrangement.
With respect to Class A shares, Dean Witter Reynolds compensates its
Financial Advisors by paying them, from proceeds of the FSC, commissions for the
sale of Class A shares, currently a gross sales credit of up to 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 employee benefit
plans, whether or not qualified under the Internal Revenue Code, for which the
Transfer Agent serves as Trustee or Dean Witter Reynolds Retirement Plan
Services serves as recordkeeper pursuant to a written Recordkeeping Services
Agreement ("MSDW Eligible Plans"), the Investment Manager compensates Financial
Advisors by paying them, from its own funds, a gross sales credit of 1.0% of the
amount sold.
With respect to Class B shares, Dean Witter Reynolds compensates its
Financial Advisors by paying them, from its own funds, commissions for the sale
of Class B shares, currently a gross sales credit of up to 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 by MSDW Eligible Plans, Dean
Witter Reynolds compensates its Financial Advisors by paying them, from its own
funds, a gross sales credit of 3.0% of the amount sold.
With respect to Class C shares, Dean Witter Reynolds compensates its
Financial Advisors by paying them, from its own funds, commissions for the sale
of Class C shares, currently a gross sales credit of up to 1.0% of the amount
sold and an annual residual commission, currently up to 1.0% of the current
value of the respective accounts for which they are the Financial Advisors of
record.
21
<PAGE>
With respect to Class D shares other than shares held by participants in
the Investment Manager's mutual fund asset allocation program, the Investment
Manager compensates Dean Witter Reynolds's Financial Advisors by paying them,
from its own funds, commissions for the sale of Class D shares, currently a
gross sales credit of up to 1.0% of the amount sold. There is a chargeback of
100% of the amount paid if the Class D shares are redeemed in the first year and
a chargeback of 50% of the amount paid if the Class D shares are redeemed in the
second year after purchase. The Investment Manager also compensates Dean Witter
Reynolds's Financial Advisors by paying them, from its own funds, an annual
residual commission, currently up to 0.10% of the current value of the
respective accounts for which they are the Financial Advisors of record (not
including accounts of participants in the Investment Manager's mutual fund asset
allocation program).
The gross sales credit is a charge which reflects commissions paid by Dean
Witter Reynolds to its Financial Advisors and Dean Witter Reynolds's
Fund-associated distribution-related expenses, including sales compensation, and
overhead and other branch office distribution-related expenses including (a) the
expenses of operating Dean Witter Reynolds's branch offices in connection with
the sale of Fund shares, including lease costs, the salaries and employee
benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies, (b) the costs of
client sales seminars, (c) travel expenses of mutual fund sales coordinators to
promote the sale of Fund shares and (d) other expenses relating to branch
promotion of Fund sales.
The Investment Manager pays a retention fee to Financial Advisors at an
annual rate of 0.05% of the value of shares of the Fund sold after January 1,
2000 and held for at least one year. Shares purchased through the reinvestment
of dividends will be eligible for a retention fee, provided that such dividends
were earned on shares otherwise eligible for a retention fee payment. Shares
owned in variable annuities, closed-end fund shares and shares held in 401(k)
plans where the Transfer Agent or Dean Witter Reynolds's Retirement Plan
Services is either recordkeeper or trustee are not eligible for a retention fee.
For the first year only, the retention fee is paid on any shares of the
Fund sold after January 1, 2000 and held by shareholders on December 31, 2000.
The retention fees are paid by the Investment Manager from its own assets,
which may include profits from investment management fees payable under the
Management Agreement, as well as from borrowed funds.
The distribution fee that the Distributor receives from the Fund under the
Plan, in effect, offsets distribution expenses incurred under the Plan on behalf
of the Fund and, in the case of Class B shares, opportunity costs, such as the
gross sales credit and an assumed interest charge thereon ("carrying charge").
These expenses may include the cost of Fund-related educational and/or
business-related trips or payment of Fund-related educational and/or promotional
expenses of Financial Advisors. 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 Financial Advisors
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and other authorized financial representatives, such amounts shall be determined
at the beginning of each calendar quarter by the Trustees, including, a majority
of the Independent Trustees. Expenses representing the service fee (for Class A)
or a gross sales credit or a residual to Financial Advisors and other authorized
financial representatives (for Class C) may be reimbursed without prior
determination. In the event that the Distributor proposes that monies shall be
reimbursed for other than such expenses, then in making quarterly determinations
of the amounts that may be reimbursed by the Fund, the Distributor will provide
and the Trustees will review a quarterly budget of projected distribution
expenses to be incurred on behalf of the Fund, together with a report explaining
the purposes and anticipated benefits of incurring such expenses. The Trustees
will determine which particular expenses, and the portions thereof, that may be
borne by the Fund, and in making such a determination shall consider the scope
of the Distributor's commitment to promoting the distribution of the Fund's
Class A and Class C shares.
Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the fiscal year ended January 31, 2000 to the Distributor. The
Distributor and Dean Witter Reynolds estimate that they have spent, pursuant to
the Plan, $4,146,424 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)
20.80% ($862,477)-advertising and promotional expenses; (ii) 0.88%
($36,675)-printing of prospectuses for distribution to other than current
shareholders; and (iii) 78.32% ($3,247,272)-other expenses, including the gross
sales credit and the carrying charge, of which 3.52% ($114,320) represents
carrying charges, 39.94% ($1,297,042) represents commission credits to Dean
Witter Reynolds branch offices and other selected broker-dealers for payments of
commissions to Financial Advisors and other authorized financial
representatives, and 56.53% ($1,835,910) represents overhead and other branch
office distribution-related expenses. The amounts accrued by Class A and a
portion of the amounts accrued by Class C under the Plan during the fiscal year
ended January 31, 2000 were service fees. The remainder of the amounts accrued
by Class C were for expenses which relate to compensation of sales personnel and
associated overhead expenses.
In the case of Class B shares, at any given time, the expenses of
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan; and (ii) the proceeds of CDSCs
paid by investors upon redemption of shares. For example, if $1 million in
expenses in distributing Class B shares of the Fund had been incurred and
$750,000 had been received as described in (i) and (ii) above, the excess
expense would amount to $250,000. The Distributor has advised the Fund that in
the case of Class B shares the excess distribution expenses, including the
carrying charge designed to approximate the opportunity costs incurred by Dean
Witter Reynolds which arise from it having advanced monies without having
received the amount of any sales charges imposed at the time of sale of the
Fund's Class B shares, totaled $2,673,321 as of January 31, 2000 (the end of the
Fund's fiscal year), which was equal to 4.70% of the net assets of Class B on
such date. Because there is no requirement under the Plan that the Distributor
be reimbursed for all distribution expenses with respect to Class B shares or
any requirement that the Plan be continued from year to year, this excess amount
does not constitute a liability of the Fund. Although there is no legal
obligation for the Fund to pay expenses incurred in excess of payments made to
the Distributor under the Plan and the proceeds of CDSCs paid by investors upon
redemption of shares, if for any reason the Plan is terminated, the Trustees
will consider at that time the manner in which to treat such expenses. Any
cumulative expenses incurred, but not yet recovered through distribution fees or
CDSCs, may or may not be recovered through future distribution fees or CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 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 authorized financial 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 that may be reimbursed in the subsequent
year in the case of Class A and Class C at December 31, 1999 (end of the
calendar year). 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.
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No interested person of the Fund nor any Independent Trustee has any direct
financial interest in the operation of the Plan except to the extent that the
Distributor, the Investment Manager, Dean Witter Reynolds, MSDW Services Company
or certain of their employees may be deemed to have such an interest as a result
of benefits derived from the successful operation of the Plan or as a result of
receiving a portion of the amounts expended thereunder by the Fund.
On an annual basis the Trustees, including a majority of the Independent
Trustees, consider whether the Plan should be continued. Prior to approving the
last continuation of the Plan, the Trustees requested and received from the
Distributor and reviewed all the information which they deemed necessary to
arrive at an informed determination. In making their determination to continue
the Plan, the Trustees considered: (1) the Fund's experience under the Plan and
whether such experience indicates that the Plan is operating as anticipated; (2)
the benefits the Fund had obtained, was obtaining and would be likely to obtain
under the Plan, including that: (a) the Plan is essential in order to give Fund
investors a choice of alternatives for payment of distribution and service
charges and to enable the Fund to continue to grow and avoid a pattern of net
redemptions which, in turn, are essential for effective investment management;
and (b) without the compensation to individual brokers and the reimbursement of
distribution and account maintenance expenses of Dean Witter Reynolds's branch
offices made possible by the 12b-1 fees, Dean Witter Reynolds could not
establish and maintain an effective system for distribution, servicing of Fund
shareholders and maintenance of shareholder accounts; and (3) what services had
been provided and were continuing to be provided under the Plan to the Fund and
its shareholders. Based upon their review, the Trustees, including each of the
Independent Trustees, determined that continuation of the Plan would be in the
best interest of the Fund and would have a reasonable likelihood of continuing
to benefit the Fund and its shareholders. In the Trustees' quarterly review of
the Plan, they will consider its continued appropriateness and the level of
compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval by the shareholders of the
affected Class or Classes of the Fund, and all material amendments to the Plan
must also be approved by the Trustees in the manner described above. The Plan
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Independent Trustees or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the Investment Company
Act) on not more than thirty days' written notice to any other party to the
Plan. So long as the Plan is in effect, the election and nomination of
Independent Trustees shall be committed to the discretion of the Independent
Trustees.
F. OTHER SERVICE PROVIDERS
(1) TRANSFER AGENT/DIVIDEND-PAYING AGENT
Morgan Stanley Dean Witter Trust FSB is the Transfer Agent for the Fund's
shares and the Dividend Disbursing Agent for payment of dividends and
distributions on Fund shares and Agent for shareholders under various investment
plans. The principal business address of the Transfer Agent is Harborside
Financial Center, Plaza Two, Jersey City, NJ 07311.
(2) CUSTODIAN AND INDEPENDENT ACCOUNTANTS
The Bank of New York, 100 Church Street, New York, NY 10007 is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
These balances may, at times, be substantial.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, NY
10036, serves as the independent accountants of the Fund. The independent
accountants are responsible for auditing the annual financial statements of the
Fund.
(3) AFFILIATED PERSONS
The Transfer Agent is an affiliate of the Investment Manager, and of the
Distributor. As Transfer Agent and Dividend Disbursing Agent, the Transfer
Agent's responsibilities include maintaining share-
24
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holder accounts, disbursing cash dividends and reinvesting dividends, processing
account registration changes, handling purchase and redemption transactions,
mailing prospectuses and reports, mailing and tabulating proxies, processing
share certificate transactions, and maintaining shareholder records and lists.
For these services, the Transfer Agent receives a per shareholder account fee
from the Fund and is reimbursed for its out-of-pocket expenses in connection
with such services.
G. CODES OF ETHICS
The Fund, the Investment Manager and the Distributor have each adopted a
Code of Ethics pursuant to Rule 17j-1 under the Investment Company Act. The
Codes of Ethics are designed to detect and prevent improper personal trading.
The Codes of Ethics permit personnel subject to the Codes to invest in
securities, including securities that may be purchased, sold or held by the
Fund, subject to a number of restrictions and controls including prohibitions
against purchases of securities in an Initial Public Offering and a preclearance
requirement with respect to personal securities transactions.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
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A. BROKERAGE TRANSACTIONS
Subject to the general supervision of the Trustees, the Investment Manager
is responsible for decisions to buy and sell securities for the Fund, the
selection of brokers and dealers to effect the transactions, and the negotiation
of brokerage commissions, if any. 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 also expects that securities will be purchased at times
in underwritten offerings where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or discount.
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.
For the fiscal years ended January 31, 1998, 1999 and 2000, the Fund paid a
total of $16,873, $34,675 and $50,782, respectively, in brokerage commissions.
B. COMMISSIONS
Pursuant to an order of the SEC, the Fund may effect principal transactions
in certain money market instruments with Dean Witter Reynolds. The Fund will
limit its transactions with Dean Witter Reynolds to U.S. Government and
government agency securities, bank money instruments (i.e., certificates of
deposit and bankers' acceptances) and commercial paper. The transactions will be
effected with Dean Witter Reynolds only when the price available from Dean
Witter Reynolds is better than that available from other dealers.
During the fiscal years ended January 31, 1998, 1999 and 2000, the Fund did
not effect any principal transactions with Dean Witter Reynolds.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may be
effected through Dean Witter Reynolds, Morgan Stanley & Co. and other affiliated
brokers and dealers. In order for an affiliated broker or dealer to effect any
portfolio transactions on an exchange for the Fund, the commissions, fees or
other remuneration received by the affiliated broker or dealer must be
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers in connection with comparable transactions involving similar
securities being purchased or sold on an exchange during a comparable period of
time. This standard would allow the affiliated broker or dealer to receive no
more than the remuneration which would be expected to be received by an
unaffiliated broker in a commensurate arm's-length transaction. Furthermore, the
Trustees, including the Independent Trustees, have adopted procedures which are
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<PAGE>
reasonably designed to provide that any commissions, fees or other remuneration
paid to an affiliated broker or dealer are consistent with the foregoing
standard. The Fund does not reduce the management fee it pays to the Investment
Manager by any amount of the brokerage commissions it may pay to an affiliated
broker or dealer.
During the fiscal years ended January 31, 1998, 1999 and 2000, the Fund
paid a total of $9,287, $15,309 and $18,588, respectively, in brokerage
commissions to Dean Witter Reynolds. During the fiscal year ended January 31,
2000, the brokerage commissions paid to Dean Witter Reynolds represented
approximately 36.60% of the total brokerage commissions paid by the Fund during
the year and were paid on account of transactions having an aggregate dollar
value equal to approximately 35.81% of the aggregate dollar value of all
portfolio transactions of the Fund during the year for which commissions were
paid.
During the period June 1, 1997 through January 31, 1998 and during the
fiscal years ended January 31, 1999 and 2000, the Fund paid a total of $195,
$3,315 and $4,285, respectively, in brokerage commissions to Morgan Stanley &
Co., which broker-dealer became an affiliate of the Investment Manager on May
31, 1997 upon consummation of the merger of Dean Witter, Discover & Co. with
Morgan Stanley Group Inc. During the fiscal year ended January 31, 2000, the
brokerage commissions paid to Morgan Stanley & Co. represented approximately
8.44% of the total brokerage commissions paid by the Fund for this period and
were paid on account of transactions having an aggregate dollar value equal to
approximately 4.37% of the aggregate dollar value of all portfolio transactions
of the Fund during the year for which commssions were paid.
C. BROKERAGE SELECTION
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. 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. These
determinations are necessarily subjective and imprecise, as in most cases an
exact dollar value for those services is not ascertainable.
In seeking to implement the Fund's policies, the Investment Manager effects
transactions with those brokers and dealers who the Investment Manager believes
provide the most favorable prices and are capable of providing efficient
executions. If the Investment Manager believes the prices and executions are
obtainable from more than one broker or dealer, it may give consideration to
placing portfolio transactions with those brokers and dealers who also furnish
research and other services to the Fund or the Investment Manager. The services
may include, but are not limited to, any one or more of the following:
information as to the availability of securities for purchase or sale;
statistical or factual information or opinions pertaining to investment; wire
services; and appraisals or evaluations of portfolio securities. The information
and services received by the Investment Manager from brokers and dealers may be
of benefit to the Investment Manager in the management of accounts of some of
its other clients and may not in all cases benefit the Fund directly.
The Investment Manager currently serves as investment manager to a number
of clients, including other investment companies, and may in the future act as
investment manager or advisor to others. It is the practice of the Investment
Manager to cause purchase and sale transactions to be allocated among the Fund
and others whose assets it manages in such manner as it deems equitable. In
making such allocations among the Fund and other client accounts, various
factors may be considered, including the respective investment objectives, the
relative size of portfolio holdings of the same or comparable
26
<PAGE>
securities, the availability of cash for investment, the size of investment
commitments generally held and the opinions of the persons responsible for
managing the portfolios of the Fund and other client accounts. In the case of
certain initial and secondary public offerings, the Investment Manager utilizes
a pro rata allocation process based on the size of the Morgan Stanley Dean
Witter Funds involved and the number of shares available from the public
offering.
D. DIRECTED BROKERAGE
During the fiscal year ended January 31, 2000, the Fund paid $27,282 in
brokerage commissions in connection with transactions in the aggregate amount of
$17,772,086 to brokers because of research services provided.
E. REGULAR BROKER-DEALERS
During the fiscal year ended January 31, 2000, the Fund did not purchase
securities issued by brokers or dealers that were among the ten brokers or the
ten dealers which executed transactions for or with the Fund in the largest
dollar amounts during the year. At January 31, 2000, the Fund did not own any
securities issued by any of such issuers.
VII. CAPITAL STOCK AND OTHER SECURITIES
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The shareholders of the Fund are entitled to a full vote for each full
share of beneficial interest held. The Fund is authorized to issue an unlimited
number of shares of beneficial interest. All shares of beneficial interest of
the Fund are of $0.01 par value and are equal as to earnings, assets and voting
privileges 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, Class A, Class B
and Class C bear expenses related to the distribution of their respective
shares.
The Fund's Declaration of Trust permits the Trustees to authorize the
creation of additional series of shares (the proceeds of which would be invested
in separate, independently managed portfolios) and additional Classes of shares
within any series. The Trustees have not presently authorized any such
additional series or Classes of shares other than as set forth in the
Prospectus.
The Fund is not required to hold annual meetings of shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call special meetings of shareholders for action by shareholder
vote as may be required by the Investment Company Act or the Declaration of
Trust. Under certain circumstances the Trustees may be removed by action of the
Trustees. In addition, under certain circumstances, the shareholders may call a
meeting to remove the Trustees and the Fund is required to provide assistance in
communicating with shareholders about such a meeting. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees.
Under Massachusetts law, shareholders of a business trust may, under
certain limited circumstances, be held personally liable as partners for the
obligations of the Fund. However, the Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Fund,
requires that notice of such Fund obligations include such disclaimer, and
provides for indemnification out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, the possibility of the Fund
being unable to meet its obligations is remote and thus, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
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<PAGE>
All of the Trustees have been elected by the shareholders of the Fund, most
recently at a Special Meeting of Shareholders held on May 21, 1997. The Trustees
themselves have the power to alter the number and the terms of office of the
Trustees (as provided for in the Declaration of Trust), and they may at any time
lengthen or shorten their own terms or make their terms of unlimited duration
and appoint their own successors, provided that always at least a majority of
the Trustees has been elected by the shareholders of the Fund.
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
- --------------------------------------------------------------------------------
A. PURCHASE/REDEMPTION OF SHARES
Information concerning how Fund shares are offered to the public (and how
they are redeemed and exchanged) is provided in the Fund's Prospectus.
TRANSFER AGENT AS AGENT. With respect to the redemption or repurchase of
Fund shares, the application of proceeds to the purchase of new shares in the
Fund or any other Morgan Stanley Dean Witter Funds and the general
administration of the exchange privilege, the Transfer Agent acts as agent for
the Distributor and for the shareholder's authorized broker-dealer, if any, in
the performance of such functions. With respect to exchanges, redemptions or
repurchases, the Transfer Agent shall be liable for its own negligence and not
for the default or negligence of its correspondents or for losses in transit.
The Fund shall not be liable for any default or negligence of the Transfer
Agent, the Distributor or any authorized broker-dealer.
The Distributor and any authorized broker-dealer have appointed the
Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any other
Morgan Stanley Dean Witter Fund and the general administration of the exchange
privilege. No commission or discounts will be paid to the Distributor or any
authorized broker-dealer for any transaction pursuant to the exchange privilege.
TRANSFERS OF SHARES. In the event a shareholder requests a transfer of Fund
shares to a new registration, the shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the length
of time shares subject to the charge have been held), any transfer involving
less than all of the shares in an account will be made on a pro rata basis (that
is, by transferring shares in the same proportion that the transferred shares
bear to the total shares in the account immediately prior to the transfer). The
transferred shares will continue to be subject to any applicable CDSC as if they
had not been so transferred.
B. OFFERING PRICE
The Fund's Class B, Class C and Class D shares are offered at net asset
value per share and the Class A shares are offered at net asset value per share
plus any applicable FSC which is distributed among the Fund's Distributor, Dean
Witter Reynolds and other authorized dealers as described in Section "V.
Investment Management and Other Services-E. Rule 12b-1 Plan." The price of Fund
shares, called "net asset value," is based on the value of the Fund's portfolio
securities. Net asset value per share of each Class is calculated by dividing
the value of the portion of the Fund's securities and other assets attributable
to that Class, less the liabilities attributable to that Class, by the number of
shares of that Class outstanding. The assets of each Class of shares are
invested in a single portfolio. The net asset value of each Class, however, will
differ because the Classes have different ongoing fees.
In the calculation of the Fund's net asset value: (1) all portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest bid price prior to the time of valuation, and (2) when
market quotations are not readily available, including circumstances under which
it is determined by the Investment Manager that sale or bid prices are not
reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision of the Fund's Trustees (valuation of securities
for which market quotations are not readily available may also be based upon
current market prices of securities which are comparable in coupon, rating and
maturity or an appropriate matrix utilizing similar factors).
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Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may utilize
a matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff, including
review of broker-dealer market price quotations in determining what it believes
is the fair valuation of the portfolio securities valued by such pricing
service.
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 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 such price does not reflect their market value, in which case
they will be 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, U.S.
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.
IX. TAXATION OF THE FUND AND SHAREHOLDERS
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The Fund generally will make two basic types of distributions: ordinary
dividends and long-term capital gain distributions. These two types of
distributions are reported differently on a shareholder's income tax return and
they are also subject to different rates of tax. The tax treatment of the
investment activities of the Fund will affect the amount and timing and
character of the distributions made by the Fund. The following discussion is
only a summary of certain tax considerations generally affecting the Fund and
Shareholders of the Fund, and is not intended as a substitute for careful tax
planning. Tax issues relating to the Fund are not generally a consideration for
shareholders such as tax exempt entities and tax-advantaged retirement vehicles
such as an IRA or 401(k) plan. Shareholders are urged to consult their own tax
professionals regarding specific questions as to federal, state or local taxes.
INVESTMENT COMPANY TAXATION. The Fund intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986. As such, the Fund will not be subject to federal income tax on its net
investment income and capital gains, if any, to the extent that it distributes
such income and capital gains to its shareholders.
The Fund generally intends to distribute sufficient income and gains so
that the Fund will not pay corporate income tax on its earnings. The Fund also
generally intends to distribute to its shareholders in each calendar year a
sufficient amount of ordinary income and capital gains to avoid the imposition
of a 4% excise tax. However, the Fund may instead determine to retain all or
part of any net long-term capital gains in any year for reinvestment. In such
event, the Fund will pay federal income tax (and possibly excise tax) on such
retained gains.
Gains or losses on sales of securities by the Fund will be long-term
capital gains or losses if the securities have a tax holding period of more than
one year. Gains or losses on the sale of securities with a tax holding period of
one year or less will be short-term gains or losses.
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<PAGE>
Gains or losses on the Fund's transactions in listed non-equity options,
futures and options on futures generally are treated as 60% long-term and 40%
short-term. When the Fund engages in options and futures transactions, various
tax rules may accelerate or defer recognition of certain gains and losses,
change the character of certain gains or losses, or alter the holding period of
other investments held by the Fund. The application of these rules would
therefore also affect the amount, timing and character of distributions made by
the Fund.
Under certain tax rules, the Fund may be required to accrue a portion of
any discount at which certain securities are purchased as income each year even
though the Fund receives no payments in cash on the security during the year. To
the extent that the Fund invests in such securities, it would be required to pay
out such accrued discount as an income distribution in each year in order to
avoid taxation at the Fund level. Such distributions will be made from the
available cash of the Fund or by liquidation of portfolio securities if
necessary. If a distribution of cash necessitates the liquidation of portfolio
securities, the Investment Manager will select which securities to sell. The
Fund may realize a gain or loss from such sales. In the event the Fund realizes
net capital gains from such transactions, its shareholders may receive a larger
capital gain distribution, if any, than they would in the absence of such
transactions.
TAXATION OF DIVIDENDS AND DISTRIBUTIONS. Shareholders normally will have to
pay federal income taxes, and any state and/or local income taxes, on the
dividends and other distributions they receive from the Fund. Such dividends and
distributions, to the extent that they are derived from net investment income or
short-term capital gains, are taxable to the shareholder as ordinary income
regardless of whether the shareholder receives such payments in additional
shares or in cash.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. The maximum tax rate on long-term capital gains
realized by non-corporate shareholders is 20%.
Shareholders are generally taxed on any ordinary dividend or capital gain
distributions from the Fund in the year they are actually distributed. However,
if any such dividends or distributions are declared in October, November or
December and paid in January then such amounts will be treated for tax purposes
as received by the shareholders on December 31, to shareholders of record of
such month.
Shareholders who are not citizens or residents of the United States and
certain foreign entities may be subject to withholding of United States tax on
distributions made by the Fund of investment income and short term capital
gains.
After the end of each calendar year, shareholders will be sent information
on their dividends and capital gain distributions for tax purposes, including
the portion taxable as ordinary income and the portion taxable as long-term
capital gains.
PURCHASES AND REDEMPTIONS AND EXCHANGES OF FUND SHARES. Any dividend or
capital gains distribution received by a shareholder from any investment company
will have the effect of reducing the net asset value of the shareholder's stock
in that company by the exact amount of the dividend or capital gains
distribution. Furthermore, such dividends and capital gains distributions are
subject to federal income taxes. If the net asset value of the shares should be
reduced below a shareholder's cost as a result of the payment of dividends or
the distribution of realized long-term capital gains, such payment or
distribution would be in part a return of the shareholder's investment but
nonetheless would be taxable to the shareholder. Therefore, an investor should
consider the tax implications of purchasing Fund shares immediately prior to a
distribution record date.
In general, a sale of shares results in capital gain or loss, and for
individual shareholders, is taxable at a federal rate dependent upon the length
of time the shares were held. A redemption of a shareholder's Fund shares is
normally treated as a sale for tax purposes. Fund shares held for a period of
one year or less will, for tax purposes, generally result in short-term gains or
losses and those held for more than one year generally result in long-term gain
or loss. Under current law, the maximum tax rate on long-term
30
<PAGE>
capital gains realized by non-corporate shareholders is 20%. Any loss realized
by shareholders upon a sale or redemption of shares within six months of the
date of their purchase will be treated as a long-term capital loss to the extent
of any distributions of net long-term capital gains with respect to such shares
during the six-month period.
Gain or loss on the sale or redemption of shares in the Fund is measured by
the difference between the amount received and the tax basis of the shares.
Shareholders should keep records of investments made (including shares acquired
through reinvestment of dividends and distributions) so they can compute the tax
basis of their shares. Under certain circumstances a shareholder may compute and
use an average cost basis in determining the gain or loss on the sale or
redemption of shares.
Exchanges of Fund shares for shares of another fund, including shares of
other Morgan Stanley Dean Witter Funds, are also subject to similar tax
treatment. Such an exchange is treated for tax purposes as a sale of the
original shares in the first fund, followed by the purchase of shares in the
second fund.
If a shareholder realizes a loss on the redemption or exchange of a fund's
shares and reinvests in that fund's shares within 30 days before or after the
redemption or exchange, the transactions may be subject to the "wash sale"
rules, resulting in a postponement of the recognition of such loss for tax
purposes.
X. UNDERWRITERS
- --------------------------------------------------------------------------------
The Fund's shares are offered to the public on a continuous basis. The
Distributor, as the principal underwriter of the shares, has certain obligations
under the Distribution Agreement concerning the distribution of the shares.
These obligations and the compensation the Distributor receives are described
above in the sections titled "Principal Underwriter" and "Rule 12b-1 Plans."
XI. CALCULATION OF PERFORMANCE DATA
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "yield" and/or its "total return"
in advertisements and sales literature. These figures are computed separately
for Class A, Class B, Class C and Class D shares. Yield is calculated for any
30-day period as follows: the amount of interest income for each security in the
Fund's portfolio is determined in accordance with regulatory requirements; the
total for the entire portfolio constitutes the Fund's gross income for the
period. Expenses accrued during the period are subtracted to arrive at "net
investment income" of each Class. The resulting amount is divided by the product
of the maximum offering price per share on the last day of the period,
multiplied by the average number of shares of the applicable Class outstanding
during the period that were entitled to dividends. This amount is added to 1 and
raised to the sixth power. 1 is then subtracted from the result and the
difference is multiplied by 2 to arrive at the annualized yield. For the 30-day
period ended January 31, 2000, the yield, calculated pursuant to the formula
described above, was approximately 4.03%, 3.48%, 3.48% and 4.49% for Class A,
Class B, Class C and Class D, respectively.
The Fund's "average annual total return" represents an annualization of
the Fund's total return over a particular period and is computed by finding the
annual percentage rate which will result in the ending redeemable value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten year
period, or for the period from the date of commencement of operations, if
shorter than any of the foregoing. The ending redeemable value is reduced by
any contingent deferred sales charge ("CDSC") at the end of the one, five, ten
year or other period. For the purpose of this calculation, it is assumed that
all dividends and distributions are reinvested. The formula for computing the
average annual total return involves a percentage obtained by dividing the
ending redeemable value by the amount of the initial investment (which in the
case of Class A shares is reduced by the Class A initial sales charge), taking
a root of the quotient (where the root is equivalent to the number of years in
the period) and subtracting 1 from the result. The average annual total returns
for Class C for the one year period ended January 31, 2000 and for the period
March 28, 1995 (commencement of operations) through January 31, 2000 were
- -3.55% and 9.46%, respectively. The average annual total returns of Class A for
the fiscal year ended January 31, 2000 and for the period July 28, 1997
(inception of the Class) through January 31, 2000
31
<PAGE>
were -6.99% and 3.15%, respectively. The average annual total returns of Class B
for the fiscal year ended January 31, 2000 and for the period July 28, 1997
through January 31, 2000 were -7.31% and 3.49%, respectively. The average annual
total returns of Class D for the fiscal year ended January 31, 2000 and for the
period July 28, 1997 through January 31, 2000 were -1.63% and 5.62%,
respectively.
In addition, the Fund may advertise its total return for each Class over
different periods of time by means of aggregate, average, year-by-year or other
types of total return figures. These calculations may or may not reflect the
imposition of the maximum front-end sales charge for Class A or the deduction of
the CDSC for each of Class B and Class C which, if reflected, would reduce the
performance quoted. For example, the average annual total return of the Fund may
be calculated in the manner described above, but without deduction for any
applicable sales charge. Based on this calculation, the average annual total
returns of Class C for the one year period ended January 31, 2000 and for the
period March 28, 1995 (commencement of operations) through January 31, 2000 were
- -2.62% and 9.46%, respectively. The average annual total returns of Class A for
the fiscal year ended January 31, 2000 and for the period July 28, 1997 through
January 31, 2000 were -1.84% and 5.39%, respectively. The average annual total
returns of Class B for the fiscal year ended January 31, 2000 and for the period
July 28, 1997 through January 31, 2000 were -2.69% and 4.56%, respectively. The
average annual total returns of Class D for the fiscal year ended January 31,
2000 and for the period July 28, 1997 through January 31, 2000 were -1.63% and
5.62%, respectively.
In addition, the Fund may compute its aggregate total return for each Class
for specified periods by determining the aggregate percentage rate which will
result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed that
all dividends and distributions are reinvested. The formula for computing
aggregate total return involves a percentage obtained by dividing the ending
value (without reduction for any sales charge) by the initial $1,000 investment
and subtracting 1 from the result. Based on the foregoing calculation, the total
returns for Class C for the one year period ended January 31, 2000 and for the
period March 28, 1995 (commencement of operations) through January 31, 2000 were
- -2.62% and 54.97%, respectively. The total returns of Class A for the fiscal
year ended January 31, 2000 and for the period July 28, 1997 through January 31,
2000 were -1.84% and 14.08%, respectively. The total returns of Class B for the
fiscal year ended January 31, 2000 and for the period July 28, 1997 through
January 31, 2000 were -2.69% and 11.85%, respectively. The total returns of
Class D for the fiscal year ended January 31, 2000 and for the period July 28,
1997 through January 31, 2000 were -1.63% and 14.71%, 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 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 January 31,
2000:
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
INCEPTION -----------------------------------
CLASS DATE: $10,000 $50,000 $100,000
- ----------------- ---------- --------- --------- -----------
<S> <C> <C> <C> <C>
Class A ......... 07/28/97 $10,809 $54,758 $110,658
Class B ......... 07/28/97 11,185 55,925 111,850
Class C ......... 03/28/95 15,497 77,485 154,970
Class D ......... 07/28/97 11,471 57,355 114,710
</TABLE>
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
32
<PAGE>
XII. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EXPERTS. The financial statements of the Fund for the fiscal year ended
January 31, 2000 included in this Statement of Additional Information and
incorporated by reference in the Prospectus have been so included and
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
* * * * *
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the SEC. The complete Registration Statement may be obtained from the
SEC.
33
<PAGE>
MORGAN STANLEY DEAN WITTER BALANCED INCOME FUND
PORTFOLIO OF INVESTMENTS JANUARY 31, 2000
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- ------------
<S> <C> <C>
COMMON STOCKS (34.4%)
Aerospace (1.2%)
20,500 United Technologies Corp. ........... $ 1,085,219
------------
Aluminum (1.2%)
15,200 Alcoa, Inc. ......................... 1,059,250
------------
Auto Parts: O.E.M. (1.3%)
66,500 Delphi Automotive Systems Corp....... 1,151,281
------------
Beverages - Non-Alcoholic (1.2%)
32,500 PepsiCo, Inc. ....................... 1,109,063
------------
Construction/Agricultural
Equipment/Trucks (1.3%)
26,000 Deere & Co. ......................... 1,135,875
------------
Department Stores (1.3%)
37,500 May Department Stores Co. ........... 1,167,188
------------
Discount Chains (1.3%)
17,000 Target Corp. ........................ 1,123,062
------------
Diversified Manufacturing (1.3%)
12,100 Minnesota Mining &
Manufacturing Co. ................. 1,132,862
------------
Electric Utilities (2.7%)
39,500 GPU, Inc. ........................... 1,145,500
33,000 Unicom Corp. ........................ 1,291,125
------------
2,436,625
------------
Electronic Data Processing (1.2%)
10,000 International Business Machines
Corp. ............................. 1,121,875
------------
Finance Companies (1.2%)
53,000 Associates First Capital Corp.
(Class A) ......................... 1,060,000
------------
Forest Products (1.2%)
19,000 Weyerhaeuser Co. .................... 1,090,125
------------
Major Banks (2.7%)
25,500 BankAmerica Corp. ................... 1,235,156
57,000 KeyCorp. ............................ 1,197,000
------------
2,432,156
------------
Major Chemicals (1.2%)
18,700 Du Pont (E.I.) de Nemours & Co.,
Inc. .............................. 1,103,300
------------
Major Pharmaceuticals (1.3%)
18,000 Bristol-Myers Squibb Co. ............ 1,188,000
------------
Major U.S. Telecommunications (1.3%)
22,500 AT&T Corp. .......................... 1,186,875
------------
Meat/Poultry/Fish (1.3%)
52,700 ConAgra, Inc. ....................... 1,126,463
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------- ------------
<S> <C> <C>
Motor Vehicles (2.6%)
23,000 Ford Motor Co. ...................... $ 1,144,250
15,000 General Motors Corp. ................ 1,206,562
------------
2,350,812
------------
Multi-Sector Companies (1.2%)
8,000 General Electric Co. ................ 1,067,000
------------
Oil/Gas Transmission (1.3%)
17,800 Enron Corp. ......................... 1,200,388
------------
Other Metals/Minerals (1.2%)
19,200 Phelps Dodge Corp. .................. 1,116,000
------------
Package Goods/Cosmetics (1.3%)
11,500 Procter & Gamble Co. ................ 1,160,063
------------
Railroads (1.2%)
37,800 CSX Corp. ........................... 1,105,650
------------
Semiconductors (1.4%)
12,500 Intel Corp. ......................... 1,235,937
------------
TOTAL COMMON STOCKS
(Identified Cost $28,470,413)........ 30,945,069
------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
<S> <C> <C>
CORPORATE BONDS (2.5%)
Finance Companies (2.1%)
$ 500 Associates Corp. of North America
6.01% due 02/07/03 ................... 479,250
500 Associates Corp. of North America
6.25% due 11/01/08 ................... 451,800
1,000 Ford Motor Credit Corp.
6.00% due 01/14/03 ................... 961,720
-------
1,892,770
---------
Major U.S. Telecommunications (0.4%)
400 MCI WorldCom, Inc.
6.40% due 08/15/05 ................... 379,040
---------
TOTAL CORPORATE BONDS
(Identified Cost $2,422,110).......... 2,271,810
---------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (17.1%)
Federal Farm Credit Banks
1,000 5.90% due 01/10/05 ................... 942,400
900 5.92% due 12/29/04 ................... 849,492
---------
1,791,892
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
34
<PAGE>
MORGAN STANLEY DEAN WITTER BALANCED INCOME FUND
PORTFOLIO OF INVESTMENTS January 31, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------ -----------
<S> <C> <C>
Federal Home Loan Banks
$ 1,000 0.00% due 02/25/04 .................. $ 743,630
2,000 0.00% due 07/02/12 .................. 725,120
1,000 5.88% due 11/25/08 .................. 898,880
1,200 5.96% due 02/05/08 .................. 1,090,308
-----------
3,457,938
-----------
Federal National Mortgage Assoc.
1,000 6.55% due 11/21/07 .................. 941,290
500 6.75% due 07/30/07 .................. 476,285
-----------
1,417,575
-----------
Resolution Funding Corp.
(Coupon Strips)
1,300 0.00% due 04/15/04 .................. 966,745
1,500 0.00% due 10/15/04 .................. 1,086,720
1,300 0.00% due 01/15/06 .................. 853,203
3,000 0.00% due 01/15/08+ ................. 1,737,000
-----------
4,643,668
-----------
Tennessee Valley Authority
740 0.00% due 10/15/04 .................. 527,694
-----------
U.S. Treasury Notes
1,500 5.625% due 02/15/06+ ................ 1,418,850
1,000 6.125% due 08/15/07 ................. 964,150
500 6.25% due 02/15/07 .................. 486,485
-----------
2,869,485
-----------
U.S. Treasury Strips
1,000 0.00% due 02/15/05 .................. 714,470
-----------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS
(Identified Cost $16,557,202).......... 15,422,722
-----------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES (45.8%)
Federal National Mortgage Assoc.
1,317 6.00% due 04/01/06 .................. 1,249,037
1,451 6.00% due 02/01/11-04/01/13 ......... 1,353,642
990 6.00% due 10/01/28 .................. 890,514
2,744 6.50% due 03/01/11-06/01/13 ......... 2,617,770
890 6.50% due 04/01/28-06/01/28 ......... 825,791
1,612 7.00% due 07/01/11-07/01/12 ......... 1,572,198
3,822 7.00% due 08/01/25-02/01/29 ......... 3,639,163
2,507 7.50% due 08/01/23-05/01/27 ......... 2,444,973
563 8.00% due 05/01/24-07/01/26 ......... 561,582
2,000 8.00%* .............................. 1,988,750
-----------
17,143,420
-----------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------------ -----------
<S> <C> <C>
Government National Mortgage
Assoc. I
$ 4,833 6.00% due 06/15/28-12/15/28 ......... $ 4,317,581
7,713 6.50% due 10/15/25-05/15/29 ......... 7,122,898
2,202 7.00% due 09/15/23-06/15/29 ......... 2,094,431
2,334 7.50% due 08/15/25-10/15/26 ......... 2,274,307
504 8.00% due 06/15/26-07/15/26 ......... 502,398
-----------
16,311,615
-----------
Government National Mortgage
Assoc. II
6,511 6.50% due 04/20/28-03/20/29 ......... 5,996,198
1,899 7.00% due 02/20/26-06/20/27 ......... 1,799,023
-----------
7,795,221
-----------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(Identified Cost $43,673,453).......... 41,250,256
-----------
SHORT-TERM INVESTMENT (2.2%)
REPURCHASE AGREEMENT
2,003 The Bank of New York 5.75%
due 02/01/00 (dated 01/31/00;
proceeds $2,003,557) (a)
(Identified Cost $2,003,237)......... 2,003,237
-----------
TOTAL INVESTMENTS
(Identified Cost $93,126,415) (b)................ 102.0 % 91,893,094
LIABILITIES IN EXCESS OF OTHER
ASSETS .......................................... (2.0) (1,797,085)
---- ----------
NET ASSETS ...................................... 100.0 % $90,096,009
===== ===========
</TABLE>
- --------------------------------
* Security was purchased on a forward commitment basis with an approximate
principal amount and no definite maturity date; the actual principal amount
and maturity date will be determined upon settlement.
+ Some or all of these securities are segregated in connection with
securities purchased on a forward commitment basis.
(a) Collateralized by $2,022,302 U.S. Treasury Note 6.50% due 05/31/01 valued
at $2,043,305.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $4,734,739 and the
aggregate gross unrealized depreciation is $5,968,060, resulting in net
unrealized depreciation of $1,233,321.
SEE NOTES TO FINANCIAL STATEMENTS
35
<PAGE>
MORGAN STANLEY DEAN WITTER BALANCED INCOME FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2000
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities, at value
(identified cost $93,126,415)................................ $91,893,094
Receivable for :
Interest ................................................... 418,840
Shares of beneficial interest sold ......................... 366,374
Dividends .................................................. 87,005
Deferred organizational expenses .............................. 5,169
Prepaid expenses .............................................. 39,897
------------
TOTAL ASSETS ............................................... 92,810,379
------------
LIABILITIES:
Payable for:
Investments purchased ...................................... 2,340,550
Shares of beneficial interest repurchased .................. 196,125
Plan of distribution fee ................................... 75,918
Investment management fee .................................. 47,249
Accrued expenses .............................................. 54,528
------------
TOTAL LIABILITIES .......................................... 2,714,370
------------
NET ASSETS ................................................. $90,096,009
============
COMPOSITION OF NET ASSETS:
Paid-in-capital ............................................... $89,257,282
Net unrealized depreciation ................................... (1,233,321)
Accumulated undistributed net investment income ............... 292,940
Accumulated undistributed net realized gain ................... 1,779,108
------------
NET ASSETS ................................................. $90,096,009
============
CLASS A SHARES:
Net Assets .................................................... $ 2,187,426
Shares Outstanding (unlimited authorized, $.01 par value)...... 185,412
NET ASSET VALUE PER SHARE .................................. $ 11.80
============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ............ $ 12.45
============
CLASS B SHARES:
Net Assets .................................................... $56,827,480
Shares Outstanding (unlimited authorized, $.01 par value)...... 4,827,802
NET ASSET VALUE PER SHARE .................................. $ 11.77
============
CLASS C SHARES:
Net Assets .................................................... $29,535,272
Shares Outstanding (unlimited authorized, $.01 par value)...... 2,507,597
NET ASSET VALUE PER SHARE .................................. $ 11.78
============
CLASS D SHARES:
Net Assets .................................................... $ 1,545,831
Shares Outstanding (unlimited authorized, $.01 par value)...... 131,156
NET ASSET VALUE PER SHARE .................................. $ 11.79
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
MORGAN STANLEY DEAN WITTER BALANCED INCOME FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended January 31, 2000
<TABLE>
<CAPTION>
NET INVESTMENT INCOME:
<S> <C>
INCOME
Interest .......................................... $ 4,282,349
Dividends ......................................... 825,197
------------
TOTAL INCOME ................................... 5,107,546
------------
EXPENSES
Plan of distribution fee (Class A shares) ......... 7,480
Plan of distribution fee (Class B shares) ......... 629,376
Plan of distribution fee (Class C shares) ......... 341,789
Investment management fee ......................... 610,586
Professional fees ................................. 87,953
Transfer agent fees and expenses .................. 84,184
Registration fees ................................. 69,386
Shareholder reports and notices ................... 45,086
Organizational expenses ........................... 34,000
Custodian fees .................................... 18,199
Trustees' fees and expenses ....................... 10,940
Other ............................................. 3,424
------------
TOTAL EXPENSES ................................. 1,942,403
------------
NET INVESTMENT INCOME .......................... 3,165,143
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain ................................. 2,544,939
Net change in unrealized appreciation ............. (8,301,536)
------------
NET LOSS ....................................... (5,756,597)
------------
NET DECREASE ...................................... $ (2,591,454)
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
MORGAN STANLEY DEAN WITTER BALANCED INCOME FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JANUARY 31, 2000 JANUARY 31, 1999
------------------ -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................ $ 3,165,143 $ 2,485,963
Net realized gain .................................... 2,544,939 4,548,195
Net change in unrealized appreciation ................ (8,301,536) 1,158,569
------------ ------------
NET INCREASE (DECREASE) ........................... (2,591,454) 8,192,727
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares .................................... (110,360) (90,042)
Class B shares .................................... (1,941,697) (1,360,747)
Class C shares .................................... (1,045,865) (991,558)
Class D shares .................................... (64,587) (34,394)
Net realized gain
Class A shares .................................... (43,576) (188,753)
Class B shares .................................... (1,326,124) (2,103,741)
Class C shares .................................... (704,451) (1,368,093)
Class D shares .................................... (32,473) (58,637)
------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS ................. (5,269,133) (6,195,965)
------------ ------------
Net increase (decrease) from transactions in shares of
beneficial interest ................................ (1,380,107) 32,003,023
------------ ------------
NET INCREASE (DECREASE) ........................... (9,240,694) 33,999,785
NET ASSETS:
Beginning of period .................................. 99,336,703 65,336,918
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$292,940 and $266,570, respectively)............... $ 90,096,009 $ 99,336,703
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
MORGAN STANLEY DEAN WITTER BALANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS January 31, 2000
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Balanced Income 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
provide current income and moderate capital growth. The Fund seeks to achieve
its objective by investing in investment grade fixed income securities and, to a
lesser extent, common stock of companies which have a record of paying dividends
and have the potential for increasing dividends and securities convertible into
common stock. The Fund was organized as a Massachusetts business trust on
November 23, 1994 and commenced operations on March 28, 1995. On July 28, 1997,
the Fund converted to a multiple class share structure.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS - (1) an equity security listed or traded on the New
York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (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 Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager") that sale or bid prices are not reflective of a security's market
value, portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Trustees (valuation of debt securities for which market quotations are not
readily available may be based upon current market prices of securities which
are comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors); (4) certain portfolio
39
<PAGE>
MORGAN STANLEY DEAN WITTER BALANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS January 31, 2000, continued
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; 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.
Discounts are accreted over the life of the respective securities. Dividend
income and other distributions are recorded on the ex-dividend date. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS - Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. FEDERAL INCOME TAX STATUS - It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
F. ORGANIZATIONAL EXPENSES - The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $170,000 of which
approximately $136,000 have been reimbursed. The
40
<PAGE>
MORGAN STANLEY DEAN WITTER BALANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS January 31, 2000, continued
balance has been absorbed by the Investment Manager. 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 of 0.60% to the net assets of the Fund determined as of the close of
each business day.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has
adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A - up
to 0.25% of the average daily net assets of Class A; (ii) Class B - 1.0% of 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, Morgan Stanley Dean Witter Financial Advisors and others who engage
in or support distribution of the shares or who service shareholder accounts,
including overhead and telephone expenses; (2) printing and distribution of
prospectuses and reports used in connection with the offering of these shares to
other than current shareholders; and (3) preparation, printing and distribution
of sales literature and advertising materials. In addition, the Distributor may
utilize fees paid pursuant to the Plan, in the case of Class B shares, to
compensate Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment
Manager and Distributor, and other selected broker-dealers for their opportunity
costs in advancing such amounts, which compensation would be in the form of a
carrying charge on any unreimbursed expenses.
41
<PAGE>
MORGAN STANLEY DEAN WITTER BALANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS January 31, 2000, continued
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 $2,673,321 at January 31, 2000.
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 year ended January 31, 2000, 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 year ended January 31, 2000,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class A shares, Class B shares and Class C shares of $31,200, $160,587
and $14,634, respectively and received $21,746 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/prepayments of portfolio
securities, excluding short-term investments, for the year ended January 31,
2000, aggregated $34,837,199 and $36,321,309, respectively. Included in the
aforementioned are purchases and sales/prepayments of U.S. Government securities
of $15,914,764 and $13,119,969, respectively.
For the year ended January 31, 2000, the Fund incurred brokerage commissions of
$18,588 with DWR for portfolio transactions executed on behalf of the Fund. At
January 31, 2000, in the payable for investments purchased was $211,999 for
unsettled trades with DWR.
For the year ended January 31, 2000, the Fund incurred brokerage commissions of
$4,285 with Morgan Stanley & Co., Inc., an affiliate of the Investment Manager
and Distributor, for portfolio transactions executed on behalf of the Fund.
42
<PAGE>
MORGAN STANLEY DEAN WITTER BALANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS January 31, 2000, continued
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At January 31, 2000, the Fund had
transfer agent fees and expenses payable of approximately $500.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JANUARY 31, 2000 JANUARY 31, 1999
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold ................................................ 107,231 $ 1,318,540 443,674 $ 5,539,418
Reinvestment of dividends and distributions ......... 7,646 93,149 7,895 98,394
Redeemed ............................................ (356,697) (4,549,197) (97,102) (1,234,884)
-------- ------------- ------- -------------
Net increase (decrease) - Class A ................... (241,820) (3,137,508) 354,467 4,402,928
-------- ------------- ------- -------------
CLASS B SHARES
Sold ................................................ 2,279,128 28,517,998 2,624,083 33,324,855
Reinvestment of dividends and distributions ......... 188,825 2,303,538 169,821 2,113,831
Redeemed ............................................ (2,108,952) (25,938,796) (1,067,595) (13,526,589)
---------- ------------- ---------- -------------
Net increase - Class B .............................. 359,001 4,882,740 1,726,309 21,912,097
---------- ------------- ---------- -------------
CLASS C SHARES
Sold ................................................ 550,764 6,896,497 929,718 11,808,519
Reinvestment of dividends and distributions ......... 127,098 1,552,569 169,885 2,120,074
Redeemed ............................................ (939,586) (11,563,893) (781,013) (9,857,608)
---------- ------------- ---------- -------------
Net increase (decrease) - Class C ................... (261,724) (3,114,827) 318,590 4,070,985
---------- ------------- ---------- -------------
CLASS D SHARES
Sold ................................................ 11,547 141,011 135,950 1,684,078
Reinvestment of dividends and distributions ......... 7,958 97,060 7,529 93,031
Redeemed ............................................ (20,008) (248,583) (12,665) (160,096)
---------- ------------- ---------- -------------
Net increase (decrease) - Class D ................... (503) (10,512) 130,814 1,617,013
---------- ------------- ---------- -------------
Net increase (decrease) in Fund ..................... (145,046) $ (1,380,107) 2,530,180 $ 32,003,023
========== ============= ========== =============
</TABLE>
6. FEDERAL INCOME TAX STATUS
As of January 31, 2000, the Fund had temporary book/tax differences attributable
to capital loss deferrals on wash sales and permanent book/tax differences
primarily attributable to nondeductible organizational expenses. To reflect
reclassifications arising from the permanent differences, paid-in-capital was
charged $34,000, accumulated undistributed net realized gain was credited
$10,264 and accumulated undistributed net investment income was credited
$23,736.
43
<PAGE>
MORGAN STANLEY DEAN WITTER BALANCED INCOME FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
JANUARY 31, 2000 JANUARY 31, 1999 JANUARY 31, 1998
-------------------- ------------------ -----------------
CLASS A SHARES++
<S> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $12.75 $12.41 $12.42
----------- --------- ----------
Income (loss) from investment operations:
Net investment income ................................. 0.47 0.46 0.25
Net realized and unrealized gain (loss) ............... (0.69) 0.87 0.32
----------- --------- ----------
Total income (loss) from investment operations ......... (0.22) 1.33 0.57
----------- --------- ----------
Less dividends and distributions from:
Net investment income ................................. (0.47) (0.47) (0.26)
Net realized gain ..................................... (0.26) (0.52) (0.32)
----------- --------- ----------
Total dividends and distributions ...................... (0.73) (0.99) (0.58)
----------- --------- ----------
Net asset value, end of period ......................... $11.80 $12.75 $12.41
=========== ========= ==========
TOTAL RETURN+ .......................................... (1.84)% 11.11% 4.60%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 1.20 %(3) 1.23%(3) 1.43%(2)
Net investment income .................................. 3.82 %(3) 3.73%(3) 3.92%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $2,187 $5,448 $903
Portfolio turnover rate ................................ 35 % 32% 21%
</TABLE>
- -------------
* The date shares were first issued. Shareholders who held shares of the
Fund prior to July 28, 1997 (the date the Fund converted to a multiple
class share structure) should refer to the Financial Highlights of Class
C to obtain the historical per share data and ratio information of their
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
44
<PAGE>
MORGAN STANLEY DEAN WITTER BALANCED INCOME FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
JANUARY 31, 2000 JANUARY 31, 1999 JANUARY 31, 1998
---------------------- ---------------------- --------------------
CLASS B SHARES++
<S> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $12.74 $12.41 $12.42
------------- ----------- ------------
Income (loss) from investment operations:
Net investment income ................................. 0.38 0.38 0.20
Net realized and unrealized gain (loss) ............... (0.71) 0.85 0.33
------------- ----------- ------------
Total income (loss) from investment operations ......... (0.33) 1.23 0.53
------------- ----------- ------------
Less dividends and distributions from:
Net investment income ................................. (0.38) (0.38) (0.22)
Net realized gain ..................................... (0.26) (0.52) (0.32)
------------- ----------- ------------
Total dividends and distributions ...................... (0.64) (0.90) (0.54)
------------- ----------- ------------
Net asset value, end of period ......................... $11.77 $12.74 $12.41
============= =========== ============
TOTAL RETURN+ .......................................... (2.69)% 10.32% 4.19%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 1.95 %(3) 1.99%(3) 2.16%(2)
Net investment income .................................. 3.07 %(3) 2.97%(3) 3.15%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $56,827 $56,919 $34,021
Portfolio turnover rate ................................ 35 % 32% 21%
</TABLE>
- -------------
* The date shares were first issued. Shareholders who held shares of the
Fund prior to July 28, 1997 (the date the Fund converted to a multiple
Class share structure) should refer to the Financial Highlights of Class
C to obtain the historical per share and ratio information of their
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
45
<PAGE>
MORGAN STANLEY DEAN WITTER BALANCED INCOME FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JANUARY 31
---------------------------------------
2000++ 1999++
-------------------- ------------------
<S> <C> <C>
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $12.74 $12.41
----------- -----------
Income (loss) from investment operations:
Net investment income ............................ 0.38 0.38
Net realized and unrealized gain (loss) .......... (0.70) 0.85
----------- -----------
Total income (loss) from investment operations .... (0.32) 1.23
----------- -----------
Less dividends and distributions from:
Net investment income ............................ (0.38) (0.38)
Net realized gain ................................ (0.26) (0.52)
----------- -----------
Total dividends and distributions ................. (0.64) (0.90)
----------- -----------
Net asset value, end of period .................... $11.78 $12.74
=========== ===========
TOTAL RETURN+ ..................................... (2.62)% 10.32%
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.95 %(4) 1.94%(4)
Net investment income ............................. 3.07 %(4) 3.02%(4)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $29,535 $35,291
Portfolio turnover rate ........................... 35 % 32%
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED JANUARY 31 MARCH 28, 1995*
----------------------------------------- THROUGH
1998**++ 1997 JANUARY 31, 1996
------------------ ---------------------- -------------------------
<S> <C> <C> <C>
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $11.57 $11.34 $10.00
---------- ------------ ------------
Income (loss) from investment operations:
Net investment income ............................ 0.42 0.36 0.38
Net realized and unrealized gain (loss) .......... 1.23 0.50 1.30
---------- ------------ ------------
Total income (loss) from investment operations .... 1.65 0.86 1.68
---------- ------------ ------------
Less dividends and distributions from:
Net investment income ............................ (0.40) (0.38) (0.33)
Net realized gain ................................ (0.41) (0.25) (0.01)
---------- ------------ ------------
Total dividends and distributions ................. (0.81) (0.63) (0.34)
---------- ------------ ------------
Net asset value, end of period .................... $12.41 $11.57 $11.34
========== ============ ============
TOTAL RETURN+ ..................................... 14.42% 7.82% 16.93%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 2.07% 1.88%(3) -%(2)(3)
Net investment income ............................. 3.30% 3.49%(3) 5.27%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $30,402 $48,284 $ 31,252
Portfolio turnover rate ........................... 21% 21% 3%(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, other than shares which were
acquired in exchange for shares of Funds for which Morgan Stanley Dean
Witter Advisors Inc. serves as Investment Manager ("Morgan Stanley Dean
Witter Funds") offered with either a front-end sales charge or a
contingent deferred sales charge ("CDSC") and shares acquired through
reinvestment of dividends and distributions thereon, have been designated
Class C shares. Shares held prior to July 28, 1997 which were acquired in
exchange for shares of a Morgan Stanley Dean Witter Fund sold with a
front-end sales charge, including shares acquired through reinvestment of
dividends and distributions thereon, have been designated Class A shares
and shares held prior to July 28, 1997 which were acquired in exchange
for shares of a Morgan Stanley Dean Witter Fund sold with a CDSC,
including shares acquired through reinvestment of dividends and
<PAGE>
distributions thereon, 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) If the Investment Manager had not reimbursed expenses and waived the
management fee, the annualized expense and net investment income ratios
would have been 2.19% and 3.18%, respectively, for the year ended January
31, 1997 and 2.69% and 2.58%, respectively, for the period ended January
31, 1996.
(4) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
MORGAN STANLEY DEAN WITTER BALANCED INCOME FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
JANUARY 31, 2000 JANUARY 31, 1999 JANUARY 31, 1998
------------------ ------------------ -----------------
CLASS D SHARES++
<S> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $12.75 $12.42 $12.42
-------- --------- --------
Income (loss) from investment operations:
Net investment income ................................. 0.50 0.48 0.26
Net realized and unrealized gain (loss) ............... (0.70) 0.87 0.33
-------- --------- --------
Total income (loss) from investment operations ......... (0.20) 1.35 0.59
-------- --------- --------
Less dividends and distributions from:
Net investment income ................................. (0.50) (0.50) (0.27)
Net realized gain ..................................... (0.26) (0.52) (0.32)
-------- --------- --------
Total dividends and distributions ...................... (0.76) (1.02) (0.59)
-------- --------- --------
Net asset value, end of period ......................... $11.79 $12.75 $12.42
======== ========= ========
TOTAL RETURN+ .......................................... (1.63)% 11.27% 4.79%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 0.95 %(3) 0.99%(3) 1.16%(2)
Net investment income .................................. 4.07 %(3) 3.97%(3) 4.15%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $1,546 $1,679 $10
Portfolio turnover rate ................................ 35 % 32% 21%
</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
47
<PAGE>
MORGAN STANLEY DEAN WITTER BALANCED INCOME FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER BALANCED INCOME FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter Balanced
Income Fund (the "Fund") at January 31, 2000, 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
indicated, in conformity with accounting principles generally accepted in the
United States. 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 auditing standards generally accepted in the
United States, 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 January 31, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
March 13, 2000
2000 FEDERAL TAX NOTICE (unaudited)
During the year ended January 31, 2000, the Fund paid to its shareholders
$0.24 per share from long-term capital gains. For such period, 23.65% of
the income paid qualified for the dividends received deduction available
to corporations.
48
<PAGE>
MORGAN STANLEY DEAN WITTER BALANCED INCOME FUND
PART C OTHER INFORMATION
Item 23. Exhibits
- ---- --------
1(a). Declaration of Trust of the Registrant, dated November 22, 1994, is
incorporated by reference to Exhibit 1 of the Initial Registration
Statement on Form N-1A, filed on December 14, 1994.
1(b). Instrument Establishing and Designating Additional Classes, dated
July 28, 1997, is incorporated by reference to Exhibit 1 of
Post-Effective Amendment No. 4 to the Registration Statement on Form
N-1A, filed on July 16, 1997.
1(c). Amendment, dated June 22, 1998, to the Declaration of Trust of the
Registrant, is incorporated by reference to Exhibit 1 of
Post-Effective Amendment No. 6 to the Registration Statement on Form
N-1A, filed on March 31, 1999.
2. Amended and Restated By-Laws of the Registrant, dated May 1, 1999,
is incorporated by reference to Exhibit 2 of Post-Effective
Amendment No. 7 to the Registration Statement on Form N-1A, filed on
May 27, 1999.
3. Not Applicable.
4. Amended Investment Management Agreement between the Registrant and
Morgan Stanley Dean Witter Advisors Inc., dated April 30, 1998, is
incorporated by reference to Exhibit 4 of Post-Effective Amendment
No. 6 to the Registration Statement on Form N-1A, filed on March 31,
1999.
5(a). Amended Distribution Agreement between the Registrant and Morgan
Stanley Dean Witter Distributors Inc., dated June 22, 1998, is
incorporated by reference to Exhibit 5(a) of Post-Effective
Amendment No. 6 to the Registration Statement on Form N-1A, filed on
March 31, 1999.
5(b). Form of Selected Dealers Agreement between Morgan Stanley Dean
Witter Distributors Inc. and Dean Witter Reynolds Inc., is
incorporated by reference to Exhibit 6(b) of Pre-Effective Amendment
No. 1 to the Registration Statement on Form N-1A, filed on February
23, 1995.
5(c). Omnibus Selected Dealer Agreement between Morgan Stanley Dean Witter
Distributors Inc. and National Financial Services Corporation, dated
October 17, 1998, is incorporated by reference to Exhibit 5(b) of
Post-Effective Amendment No. 6 to the Registration Statement of Form
N-1A, filed on March 31, 1999.
6. Not Applicable.
7(a). Custody Agreement between The Bank of New York and the Registrant,
dated January 25, 1995, is incorporated by reference to Exhibit 8(a)
of Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A, filed on February 23, 1995.
7(b). Amendment to the Custody Agreement, dated April 17, 1996, is
incorporated by reference to Exhibit 8 of Post-Effective Amendment
No. 3 to the Registration Statement on Form N-1A, filed on March 27,
1997.
8(a). Amended and Restated Transfer Agency and Service Agreement between
the Registrant and Morgan Stanley Dean Witter Trust FSB, dated June
22, 1998, is incorporated by reference to
1
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Exhibit 7 of Post-Effective Amendment No. 6 to the Registration
Statement on Form N-1A, filed on March 31, 1999.
8(b). Amended Services Agreement between Morgan Stanley Dean Witter
Advisors Inc. and Morgan Stanley Dean Witter Services Company Inc.,
dated June 22, 1998, is incorporated by reference to
Exhibit 8 of Post-Effective Amendment No. 6 to the Registration
Statement on Form N-1A, filed on March 31, 1999.
9(a). Opinion of Sheldon Curtis, Esq., dated February 23, 1995, is
incorporated by reference to Exhibit 10(a) of Pre-effective
Amendment No. 1 to the Registration Statement on Form N-1A, filed on
February 23, 1995.
9(b). Opinion of Lane Altman & Owens, LLP, Massachusetts Counsel, dated
February 22, 1995, is incorporated by reference to Exhibit 10(b) of
Pre-Effective Amendment No. 1 to the Registration Statement on Form
N-1A, filed on February 23, 1995.
10. Consent of Independent Accountants, filed herein.
11. Not Applicable.
12. Not Applicable.
13. Amended and Restated Plan of Distribution pursuant to Rule 12b-1
between the Registrant and Morgan Stanley Dean Witter Distributors
Inc., dated July 28, 1997, is incorporated by reference to Exhibit
15 of Post-Effective Amendment No. 4 to the Registration Statement
on Form N-1A, filed on July 16, 1997.
14. Amended Multi-Class Plan pursuant to Rule 18f-3 is incorporated by
reference to Exhibit 15 of Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A, filed on March 31, 1999.
15. Not Applicable.
16(a). Code of Ethics of Morgan Stanley Dean Witter Advisors Inc., Morgan
Stanley Dean Witter Services Company Inc. and Morgan Stanley Dean
Witter Distributors Inc., filed herein.
16(b). Code of Ethics of the Morgan Stanley Dean Witter Funds, filed
herein.
Other Powers of Attorney of Trustees are incorporated by reference to
Exhibit (Other) of Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A, filed on February 23, 1995 and Exhibit
(Other) of Post-Effective Amendment No. 5 to the Registration
Statement on Form N- 1A, filed on April 23, 1998.
2
<PAGE>
Item 24. Persons Controlled by or Under Common Control with the Fund.
None
Item 25. Indemnification.
Pursuant to Section 5.3 of the Registrant's Declaration of Trust and under
Section 4.8 of the Registrant's By-Laws, the indemnification of the Registrant's
trustees, officers, employees and agents is permitted if it is determined that
they acted under the belief that their actions were in or not opposed to the
best interest of the Registrant, and, with respect to any criminal proceeding,
they had reasonable cause to believe their conduct was not unlawful. In
addition, indemnification is permitted only if it is determined that the actions
in question did not render them liable by reason of willful misfeasance, bad
faith or gross negligence in the performance of their duties or by reason of
reckless disregard of their obligations and duties to the Registrant. Trustees,
officers, employees and agents will be indemnified for the expense of litigation
if it is determined that they are entitled to indemnification against any
liability established in such litigation. The Registrant may also advance money
for these expenses provided that they give their undertakings to repay the
Registrant unless their conduct is later determined to permit indemnification.
Pursuant to Section 5.2 of the Registrant's Declaration of Trust
and paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the Registrant
shall be liable for any action or failure to act, except in the case of bad
faith, willful misfeasance, gross negligence or reckless disregard of duties to
the Registrant.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such trustee,
officer or controlling person in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act, and will be governed by the final adjudication of such
issue.
The Registrant hereby undertakes that it will apply the
indemnification provision of its by-laws in a manner consistent with Release
11330 of the Securities and Exchange Commission under the Investment Company Act
of 1940, so long as the interpretation of Sections 17(h) and 17(i) of such Act
remains in effect.
Registrant, in conjunction with the Investment Manager,
Registrant's Trustees, and other registered investment management companies
managed by the Investment Manager, maintains insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of Registrant, or who is or
was serving at the request of Registrant as a trustee, director, officer,
employee or agent of another trust or corporation, against any liability
asserted against him and incurred by him or arising out of his position.
However, in no event will Registrant
3
<PAGE>
maintain insurance to indemnify any such person for any act for which Registrant
itself is not permitted to indemnify him.
Item 26. Business and Other Connections of Investment Advisor
See "The Fund and Its Management" in the Prospectus regarding the
business of the investment advisor. The following information is given regarding
officers of Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"). MSDW
Advisors is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co.
The term "Morgan Stanley Dean Witter Funds" refers to the following
registered investment companies:
Closed-End Investment Companies
- -------------------------------
(1) Morgan Stanley Dean Witter California Insured Municipal Income Trust
(2) Morgan Stanley Dean Witter California Quality Municipal Securities
(3) Morgan Stanley Dean Witter Government Income Trust
(4) Morgan Stanley Dean Witter High Income Advantage Trust
(5) Morgan Stanley Dean Witter High Income Advantage Trust II
(6) Morgan Stanley Dean Witter High Income Advantage Trust III
(7) Morgan Stanley Dean Witter Income Securities Inc.
(8) Morgan Stanley Dean Witter Insured California Municipal Securities
(9) Morgan Stanley Dean Witter Insured Municipal Bond Trust
(10) Morgan Stanley Dean Witter Insured Municipal Income Trust
(11) Morgan Stanley Dean Witter Insured Municipal Securities
(12) Morgan Stanley Dean Witter Insured Municipal Trust
(13) Morgan Stanley Dean Witter Municipal Income Opportunities Trust
(14) Morgan Stanley Dean Witter Municipal Income Opportunities Trust II
(15) Morgan Stanley Dean Witter Municipal Income Opportunities Trust III
(16) Morgan Stanley Dean Witter Municipal Income Trust
(17) Morgan Stanley Dean Witter Municipal Income Trust II
(18) Morgan Stanley Dean Witter Municipal Income Trust III
(19) Morgan Stanley Dean Witter Municipal Premium Income Trust
(20) Morgan Stanley Dean Witter New York Quality Municipal Securities
(21) Morgan Stanley Dean Witter Prime Income Trust
(22) Morgan Stanley Dean Witter Quality Municipal Income Trust
(23) Morgan Stanley Dean Witter Quality Municipal Investment Trust
(24) Morgan Stanley Dean Witter Quality Municipal Securities
Open-end Investment Companies
- -----------------------------
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Institutional Money Trust
(4) Active Assets Money Trust
(5) Active Assets Premier Money Trust
(6) Active Assets Tax-Free Trust
(7) Morgan Stanley Dean Witter 21st Century Trend Fund
(8) Morgan Stanley Dean Witter Aggressive Equity Fund
(9) Morgan Stanley Dean Witter American Opportunities Fund
(10) Morgan Stanley Dean Witter Balanced Growth Fund
(11) Morgan Stanley Dean Witter Balanced Income Fund
4
<PAGE>
(12) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(13) Morgan Stanley Dean Witter California Tax-Free Income Fund
(14) Morgan Stanley Dean Witter Capital Growth Securities
(15) Morgan Stanley Dean Witter Competitive Edge Fund, "Best Ideas Portfolio"
(16) Morgan Stanley Dean Witter Convertible Securities Trust
(17) Morgan Stanley Dean Witter Developing Growth Securities Trust
(18) Morgan Stanley Dean Witter Diversified Income Trust
(19) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(20) Morgan Stanley Dean Witter Equity Fund
(21) Morgan Stanley Dean Witter European Growth Fund Inc.
(22) Morgan Stanley Dean Witter Federal Securities Trust
(23) Morgan Stanley Dean Witter Financial Services Trust
(24) Morgan Stanley Dean Witter Fund of Funds
(25) Morgan Stanley Dean Witter Global Dividend Growth Securities
(26) Morgan Stanley Dean Witter Global Utilities Fund
(27) Morgan Stanley Dean Witter Growth Fund
(28) Morgan Stanley Dean Witter Hawaii Municipal Trust
(29) Morgan Stanley Dean Witter Health Sciences Trust
(30) Morgan Stanley Dean Witter High Yield Securities Inc.
(31) Morgan Stanley Dean Witter Income Builder Fund
(32) Morgan Stanley Dean Witter Information Fund
(33) Morgan Stanley Dean Witter Intermediate Income Securities
(34) Morgan Stanley Dean Witter International Fund
(35) Morgan Stanley Dean Witter International SmallCap Fund
(36) Morgan Stanley Dean Witter Japan Fund
(37) Morgan Stanley Dean Witter Latin American Growth Fund
(38) Morgan Stanley Dean Witter Limited Term Municipal Trust
(39) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(40) Morgan Stanley Dean Witter Market Leader Trust
(41) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(42) Morgan Stanley Dean Witter Mid-Cap Equity Trust
(43) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(44) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(45) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(46) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(47) Morgan Stanley Dean Witter Next Generation Trust
(48) Morgan Stanley Dean Witter North American Government Income Trust
(49) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(50) Morgan Stanley Dean Witter Real Estate Fund
(51) Morgan Stanley Dean Witter S&P 500 Index Fund
(52) Morgan Stanley Dean Witter S&P 500 Select Fund
(53) Morgan Stanley Dean Witter Select Dimensions Investment Series
(54) Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
(55) Morgan Stanley Dean Witter Short-Term Bond Fund
(56) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(57) Morgan Stanley Dean Witter Small Cap Growth Fund
(58) Morgan Stanley Dean Witter Special Value Fund
(59) Morgan Stanley Dean Witter Strategist Fund
(60) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(61) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(62) Morgan Stanley Dean Witter Tax-Managed Growth Fund
(63) Morgan Stanley Dean Witter Total Market Index Fund
5
<PAGE>
(64) Morgan Stanley Dean Witter Total Return Trust
(65) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(66) Morgan Stanley Dean Witter U.S. Government Securities Trust
(67) Morgan Stanley Dean Witter Utilities Fund
(68) Morgan Stanley Dean Witter Value-Added Market Series
(69) Morgan Stanley Dean Witter Value Fund
(70) Morgan Stanley Dean Witter Variable Investment Series
(71) Morgan Stanley Dean Witter World Wide Income Trust
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ---------------------- --------------------------------------------------
Mitchell M. Merin President and Chief Operating Officer of Asset
President, Chief Management of Morgan Stanley Dean Witter & Co.
Executive Officer and ("MSDW); Chairman, Chief Executive Officer and
Director Director of Morgan Stanley Dean Witter
Distributors Inc. ("MSDW Distributors") and Morgan
Stanley Dean Witter Trust FSB ("MSDW Trust");
President, Chief Executive Officer and Director of
Morgan Stanley Dean Witter Services Company Inc.
("MSDW Services"); President of the Morgan Stanley
Dean Witter Funds; Executive Vice President and
Director of Dean Witter Reynolds Inc. ("DWR");
Director of various MSDW subsidiaries; Trustee of
various Van Kampen investment companies.
Barry Fink Assistant Secretary of DWR; Executive Vice
Executive Vice President, President, Secretary, General Counsel and Director
Secretary, General of MSDW Services; Executive Vice President,
Counsel and Director Assistant Secretary and Assistant General Counsel
of MSDW Distributors; Vice President, Secretary
and General Counsel of the Morgan Stanley Dean
Witter Funds.
Joseph J. McAlinden Vice President of the Morgan Stanley Dean Witter
Executive Vice President Funds; Director of MSDW Trust.
and Chief Investment
Officer
Ronald E. Robison Executive Vice President, Chief Administrative
Executive Vice President, Officer and Director of MSDW Services; Vice
Chief Administrative President of the Morgan Stanley Dean Witter Funds.
Officer and Director
Edward C. Oelsner, III
Executive Vice President
Joseph R. Arcieri Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
6
<PAGE>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ---------------------- --------------------------------------------------
Peter M. Avelar Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
and Director of the High
Yield Group
Mark Bavoso Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Douglas Brown
Senior Vice President
Rosalie Clough
Senior Vice President
and Director of Marketing
Richard Felegy
Senior Vice President
Sheila A. Finnerty Vice President of Morgan Stanley Dean Witter Prime
Senior Vice President Income Trust.
Edward F. Gaylor Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Robert S. Giambrone Senior Vice President of MSDW Services, MSDW
Senior Vice President Distributors and MSDW Trust and Director of MSDW
Trust; Vice President of the Morgan Stanley Dean
Witter Funds.
Rajesh K. Gupta Vice President of various Morgan Stanley Dean
Senior Vice President, Witter Funds.
Director of the Taxable
Fixed Income Group and
Chief Administrative Officer-
Investments
Kenton J. Hinchliffe Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Kevin Hurley Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Jenny Beth Jones Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Michelle Kaufman Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
7
<PAGE>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ---------------------- --------------------------------------------------
John B. Kemp, III President of MSDW Distributors.
Senior Vice President
Anita H. Kolleeny Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
and Director of Sector
Rotation
Jonathan R. Page Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
and Director of the Money
Market Group
Ira N. Ross Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Guy G. Rutherfurd, Jr. Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
and Director of the Growth
Group
Rochelle G. Siegel Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
James Solloway
Senior Vice President
Katherine H. Stromberg Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
Paul D. Vance Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
and Director of the Growth
and Income Group
Elizabeth A. Vetell
Senior Vice President
and Director of Shareholder
Communication
James F. Willison Vice President of various Morgan Stanley Dean
Senior Vice President Witter Funds.
and Director of the
Tax-Exempt Fixed
Income Group
8
<PAGE>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ---------------------- --------------------------------------------------
Raymond A. Basile
First Vice President
Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President MSDW Services; Assistant Treasurer of MSDW
and Assistant Distributors; Treasurer and Chief Financial and
Treasurer Accounting Officer of the Morgan Stanley Dean
Witter Funds.
Thomas Chronert
First Vice President
Marilyn K. Cranney Assistant Secretary of DWR; First Vice President
First Vice President and Assistant Secretary of MSDW Services;
and Assistant Secretary Assistant Secretary of MSDW Distributors and the
Morgan Stanley Dean Witter Funds.
Salvatore DeSteno First Vice President of MSDW Services.
First Vice President
Peter W. Gurman
First Vice President
Michael Interrante First Vice President and Controller of MSDW
First Vice President Services; Assistant Treasurer of MSDW
and Controller Distributors; First Vice President and Treasurer
of MSDW Trust.
David Johnson
First Vice President
Stanley Kapica
First Vice President
Douglas J. Ketterer
First Vice President
Todd Lebo First Vice President and Assistant Secretary of
First Vice President and MSDW Services; Assistant Secretary of MSDW
Assistant Secretary Distributors and the Morgan Stanley Dean Witter
Funds.
Lou Anne D. McInnis First Vice President and Assistant Secretary of
First Vice President and MSDW Services; Assistant Secretary of MSDW
Assistant Secretary Distributors and the Morgan Stanley Dean Witter
Funds.
Carsten Otto First Vice President and Assistant Secretary of
First Vice President MSDW Services; Assistant Secretary of MSDW
and Assistant Secretary Distributors and the Morgan Stanley Dean Witter
Funds.
9
<PAGE>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ---------------------- --------------------------------------------------
Carl F. Sadler
First Vice President
Ruth Rossi First Vice President and Assistant Secretary of
First Vice President and MSDW Services; Assistant Secretary of MSDW
Assistant Secretary Distributors and the Morgan Stanley Dean Witter
Funds.
James P. Wallin
First Vice President
Robert Abreu
Vice President
Dale Albright
Vice President
Joan G. Allman
Vice President
Andrew Arbenz Vice President of Morgan Stanley Dean Witter
Vice President Global Utilities Fund.
Armon Bar-Tur Vice President of various Morgan Stanley Dean
Vice President Witter Funds.
Maurice Bendrihem
Vice President and
Assistant Controller
Thomas A. Bergeron
Vice President
Philip Bernstein
Vice President
Dale Boettcher
Vice President
Michelina Calandrella
Vice President
Ronald Caldwell
Vice President
Joseph Cardwell
Vice President
10
<PAGE>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ---------------------- --------------------------------------------------
Liam Carroll
Vice President
Philip Casparius
Vice President
Annette Celenza
Vice President
Aaron Clark
Vice President
William Connerly
Vice President
Michael J. Davey
Vice President
David Dineen Vice President of various Morgan Stanley Dean
Vice President Witter Funds.
Glen H. Frey Vice President of Morgan Stanley Dean Witter
Vice President Information Fund.
Jeffrey D. Geffen
Vice President
Sandra Gelpieryn
Vice President
Charmaine George
Vice President
Michael Geringer
Vice President
Gail Gerrity-Burke
Vice President
Peter Gewirtz
Vice President
Ellen Gold
Vice President
Stephen Greenhut
Vice President
11
<PAGE>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ---------------------- --------------------------------------------------
Trey Hancock
Vice President
Laury A. Haskamp
Vice President
Matthew T. Haynes Vice President of various Morgan Stanley Dean
Peter Hermann Vice President of various Morgan Stanley Dean
Vice President Witter Funds.
David T. Hoffman
Vice President
Thomas G. Hudson II
Vice President
Kevin Jung Vice President of various Morgan Stanley Dean
Vice President Witter Funds.
Carol Espejo-Kane
Vice President
Nancy Karole-Kennedy
Vice President
Paula LaCosta Vice President of various Morgan Stanley Dean
Vice President Witter Funds.
Kimberly LaHart
Vice President
Thomas Lawlor
Vice President
Gerard J. Lian Vice President of various Morgan Stanley Dean
Vice President Witter Funds.
Cameron J. Livingstone
Vice President
Nancy Login
Vice President
Sharon Loguercio
Vice President
12
<PAGE>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ---------------------- --------------------------------------------------
Steven MacNamara
Vice President
Catherine Maniscalco Vice President of various Morgan Stanley Dean
Vice President Witter Funds.
Peter R. McDowell
Vice President
Albert McGarity
Vice President
Teresa McRoberts Vice President of various Morgan Stanley Dean
Vice President Witter Funds.
Mark Mitchell
Vice President
Julie Morrone Vice President of various Morgan Stanley Dean
Vice President Witter Funds.
Mary Beth Mueller
Vice President
David Myers Vice President of Morgan Stanley Dean Witter
Vice President Natural Resource Development Securities Inc.
James Nash
Vice President
Richard Norris
Vice President
Hilary A. O'Neill
Vice President
Mori Paulson
Vice President
Anne Pickrell
Vice President
Frances Roman
Vice President
Dawn Rorke
Vice President
13
<PAGE>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ---------------------- --------------------------------------------------
John Roscoe Vice President of Morgan Stanley Dean Witter
Vice President Real Estate Fund.
Hugh Rose
Vice President
Robert Rossetti Vice President of Morgan Stanley Dean Witter
Vice President Competitive Edge Fund.
Sally Sancimino
Vice President
Deborah Santaniello
Vice President
Patrice Saunders
Vice President
Howard A. Schloss Vice President of Morgan Stanley Dean Witter
Vice President Federal Securities Trust.
Alison M. Sharkey
Vice President
Peter J. Seeley Vice President of various Morgan Stanley Dean
Vice President Witter Funds.
Ronald B. Silvestri Vice President of various Morgan Stanley Dean
Vice President Witter Funds.
Robert Stearns
Vice President
Naomi Stein
Vice President
William Stevens
Vice President
Michael Strayhorn
Vice President
Marybeth Swisher
Vice President
Michael Thayer
Vice President
14
<PAGE>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- ---------------------- --------------------------------------------------
Robert Vanden Assem
Vice President
David Walsh
Vice President
Alice Weiss Vice President of various Morgan Stanley Dean
Vice President Witter Funds.
John Wong
Vice President
The principal address of MSDW Advisors, MSDW Services, MSDW
Distributors, DWR, and the Morgan Stanley Dean Witter Funds is Two World Trade
Center, New York, New York 10048. The principal address of MSDW is 1585
Broadway, New York, New York 10036. The principal address of MSDW Trust is 2
Harborside Financial Center, Jersey City, New Jersey 07311.
Item 27. Principal Underwriters
(a) Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors"), a
Delaware corporation, is the principal underwriter of the Registrant. MSDW
Distributors is also the principal underwriter of the following investment
companies:
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Institutional Money Trust
(4) Active Assets Money Trust
(5) Active Assets Premier Money Trust
(6) Active Assets Tax-Free Trust
(7) Morgan Stanley Dean Witter 21st Century Trend Fund
(8) Morgan Stanley Dean Witter Aggressive Equity Fund
(9) Morgan Stanley Dean Witter American Opportunities Fund
(10) Morgan Stanley Dean Witter Balanced Growth Fund
(11) Morgan Stanley Dean Witter Balanced Income Fund
(12) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(13) Morgan Stanley Dean Witter California Tax-Free Income Fund
(14) Morgan Stanley Dean Witter Capital Growth Securities
(15) Morgan Stanley Dean Witter Competitive Edge Fund, "Best Ideas Portfolio"
(16) Morgan Stanley Dean Witter Convertible Securities Trust
(17) Morgan Stanley Dean Witter Developing Growth Securities Trust
(18) Morgan Stanley Dean Witter Diversified Income Trust
(19) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(20) Morgan Stanley Dean Witter Equity Fund
(21) Morgan Stanley Dean Witter European Growth Fund Inc.
(22) Morgan Stanley Dean Witter Federal Securities Trust
(23) Morgan Stanley Dean Witter Financial Services Trust
15
<PAGE>
(24) Morgan Stanley Dean Witter Fund of Funds
(25) Morgan Stanley Dean Witter Global Dividend Growth Securities
(26) Morgan Stanley Dean Witter Global Utilities Fund
(27) Morgan Stanley Dean Witter Growth Fund
(28) Morgan Stanley Dean Witter Hawaii Municipal Trust
(29) Morgan Stanley Dean Witter Health Sciences Trust
(30) Morgan Stanley Dean Witter High Yield Securities Inc.
(31) Morgan Stanley Dean Witter Income Builder Fund
(32) Morgan Stanley Dean Witter Information Fund
(33) Morgan Stanley Dean Witter Intermediate Income Securities
(34) Morgan Stanley Dean Witter International Fund
(35) Morgan Stanley Dean Witter International SmallCap Fund
(36) Morgan Stanley Dean Witter Japan Fund
(37) Morgan Stanley Dean Witter Latin American Growth Fund
(38) Morgan Stanley Dean Witter Limited Term Municipal Trust
(39) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(40) Morgan Stanley Dean Witter Market Leader Trust
(41) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(42) Morgan Stanley Dean Witter Mid-Cap Equity Trust
(43) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(44) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(45) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(46) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(47) Morgan Stanley Dean Witter Next Generation Trust
(48) Morgan Stanley Dean Witter North American Government Income Trust
(49) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(50) Morgan Stanley Dean Witter Prime Income Trust
(51) Morgan Stanley Dean Witter Real Estate Fund
(52) Morgan Stanley Dean Witter S&P 500 Index Fund
(53) Morgan Stanley Dean Witter S&P 500 Select Fund
(54) Morgan Stanley Dean Witter Short-Term Bond Fund
(55) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(56) Morgan Stanley Dean Witter Small Cap Growth Fund
(57) Morgan Stanley Dean Witter Special Value Fund
(58) Morgan Stanley Dean Witter Strategist Fund
(59) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(60) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(61) Morgan Stanley Dean Witter Tax-Managed Growth Fund
(62) Morgan Stanley Dean Witter Total Market Index Fund
(63) Morgan Stanley Dean Witter Total Return Trust
(64) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(65) Morgan Stanley Dean Witter U.S. Government Securities Trust
(66) Morgan Stanley Dean Witter Utilities Fund
(67) Morgan Stanley Dean Witter Value-Added Market Series
(68) Morgan Stanley Dean Witter Value Fund
(69) Morgan Stanley Dean Witter Variable Investment Series
(70) Morgan Stanley Dean Witter World Wide Income Trust
(b) The following information is given regarding directors and officers of MSDW
Distributors not listed in Item 26 above. The principal address of MSDW
Distributors is Two World Trade Center, New York, New York 10048. Other than Mr.
Purcell, who is a Trustee of the Registrant, none of the following persons has
any position or office with the Registrant.
16
<PAGE>
Name Positions and Office with MSDW Distributors
- ---- -------------------------------------------
Michael T. Gregg Vice President and Assistant Secretary.
James F. Higgins Director
Philip J. Purcell Director
John Schaeffer Director
Charles Vadala Senior Vice President and Financial Principal.
Item 28. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Investment Manager at its offices, except records relating to
holders of shares issued by the Registrant, which are maintained by the
Registrant's Transfer Agent, at its place of business as shown in the
prospectus.
Item 29. Management Services
Registrant is not a party to any such management-related service
contract.
Item 30. Undertakings
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York on the 29th day of March, 2000.
MORGAN STANLEY DEAN WITTER BALANCED INCOME FUND
By /s/ Barry Fink
-------------------------
Barry Fink
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 8 has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
(1) Principal Executive Officer Chairman, Chief Executive Officer,
and Trustee
By /s/ Charles A. Fiumefreddo 03/29/00
--------------------------
Charles A. Fiumefreddo
(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 03/29/00
------------------------------
Thomas F. Caloia
(3) Majority of the Trustees
Charles A. Fiumefreddo (Chairman)
Philip J. Purcell
By /s/ Barry Fink 03/29/00
------------------------------------
Barry Fink
Attorney-in-Fact
Michael Bozic Manuel H. Johnson
Edwin J. Garn Michael E. Nugent
Wayne E. Hedien John L. Schroeder
By /s/David M. Butowsky 03/29/00
--------------------
David M. Butowsky
Attorney-in-Fact
</TABLE>
<PAGE>
MORGAN STANLEY DEAN WITTER BALANCED INCOME FUND
EXHIBIT INDEX
10. Consent of Independent Accountants.
16(a). Code of Ethics of Morgan Stanley Dean Witter Advisors Inc., Morgan
Stanley Dean Witter Services Company Inc. and Morgan Stanley Dean
Witter Distributors Inc.
16(b). Code of Ethics of the Morgan Stanley Dean Witter Funds.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form N-1A of our
report dated March 13, 2000, relating to the financial statements and financial
highlights of Morgan Stanley Dean Witter Balanced Income Fund, which appears in
such Registration Statement. We also consent to the references to us under the
headings "Custodian and Independent Accountants," "Experts" and "Financial
Highlights" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
- ---------------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
March 27, 2000
<PAGE>
CODE OF ETHICS
- ------------------------
(Print Name)
MORGAN STANLEY DEAN WITTER ADVISORS INC.
MORGAN STANLEY DEAN WITTER SERVICES COMPANY INC.
MORGAN STANLEY DEAN WITTER DISTRIBUTORS INC.
Effective September 1, 1994 (as amended through March 1, 2000)
I. INTRODUCTION
Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"), a subsidiary of
Morgan Stanley Dean Witter & Co., is an investment adviser or manager of a
group of investment companies, referred to herein as the "Morgan Stanley
Dean Witter Funds." MSDW Advisors also serves as investment adviser to other
clients, including corporate pension funds, other institutions and
individuals ("MSDW Advisors Managed Accounts").
This Code of Ethics is adopted by MSDW Advisors in keeping with the general
principles and objectives set forth in Sections II and III below, and to
enforce the highest legal and ethical standards in light of its fiduciary
obligations to the Morgan Stanley Dean Witter Fund shareholders and to MSDW
Advisors' other clients. It has also been adopted by Morgan Stanley Dean
Witter Services Company Inc. ("Services"), a wholly owned subsidiary of MSDW
Advisors, and by Morgan Stanley Dean Witter Distributors Inc.
("Distributors"), a wholly-owned subsidiary of Morgan Stanley Dean Witter &
Co.), to apply to their Directors, officers and employees.
Employees, officers and Directors of MSDW Advisors, Services and
Distributors are also referred to the Morgan Stanley Dean Witter Policy
Statement on Insider Trading (attached), which is incorporated in this Code.
II. GENERAL PRINCIPLES
A. SHAREHOLDER AND CLIENT INTERESTS COME FIRST
Every officer, director or employee of MSDW Advisors, Services and
Distributors owes a fiduciary duty to the shareholders of the Morgan
Stanley Dean Witter Funds and to all other clients of MSDW Advisors. This
means that in every decision relating to investments, employees and
affiliates must recognize the needs and interests of the Morgan Stanley
Dean Witter Fund shareholders and other MSDW Advisors clients, and be
certain that at all times the interests of the shareholders and other
clients are placed ahead of any personal interest.
B. AVOID ACTUAL AND POTENTIAL CONFLICTS OF INTEREST
The restrictions and requirements of this Code of Ethics are designed to
prevent behavior which conflicts, potentially conflicts or raises the
appearance of actual or potential conflict with the interests of the
shareholders of the Morgan Stanley Dean Witter Funds and MSDW Advisors
Managed Account clients. It is of the utmost importance that the
personal securities transactions of employees and affiliates be
conducted in a manner consistent with both the letter and spirit of this
Code of Ethics, including these principles. Only then can an individual,
and MSDW Advisors, Services and Distributors as a whole, be certain to
avoid any actual or potential conflict of interest or any abuse of an
individual's position of trust and responsibility.
<PAGE>
C. AVOID UNDUE PERSONAL BENEFIT
MSDW Advisors, Services and Distributors employees and affiliates should
ensure that they do not acquire undue personal benefit or advantage as a
result of the performance of their normal duties as they relate to the
Morgan Stanley Dean Witter Funds and other MSDW Advisors clients.
Consistent with the first principle that the interests of the Morgan
Stanley Dean Witter Fund shareholders and other MSDW Advisors clients
must always come first is the fundamental standard that undue personal
advantage deriving from the management by MSDW Advisors of other
people's money is to be avoided.
III. OBJECTIVE
The Securities and Exchange Commission's code of ethics rule contained in
the Investment Company Act of 1940 makes it unlawful for certain persons
associated with investment advisers or principal underwriters of investment
companies to engage in conduct which is deceitful, fraudulent, or
manipulative, or which involves false or misleading statements, in
connection with the purchase or sale of a security held or proposed to be
acquired by an investment company. In addition, Section 204A of the
Investment Advisers Act of 1940 requires investment advisers to establish,
maintain and enforce written policies and procedures designed to prevent
misuse of material non-public information. The objective of this Code is to
maintain the behavior of certain individuals associated with MSDW Advisors,
Services and Distributors (herein called "Access Persons") within the
general principles set forth above, as well as to prevent such persons from
engaging in conduct proscribed by the code of ethics rule and Section 204A
of the Investment Advisers Act. The Compliance Officer or Compliance
Coordinator in MSDW Advisors Risk Management Department will identify all
Access Persons and notify them of their reporting obligations at the time
they become an Access Person. Access Persons include all directors,
officers and employees of MSDW Advisors, Services or Distributors except
those directors and officers of Distributors who meet the following three
criteria: (i) they do not devote substantially all working time to the
activities of MSDW Advisors, Services or Distributors; (ii) they do not, in
connection with their regular functions and duties, participate in, obtain
information with respect to, or make recommendations as to, the purchase
and sale of securities; and (iii) they do not have access to information
regarding the day-to-day investment activities of MSDW Advisors, Services
or Distributors (those Directors and officers must, however, file quarterly
transaction reports pursuant to Section V., sub-section D., below). An
Officer or employee of MSDW Advisors, Distributors or Services on leave is
not considered an Access Person hereunder, provided that during the period
such person is on leave, subparagraphs (ii) and (iii) in the preceding
sentence are applicable.
IV. GROUNDS FOR DISQUALIFICATION FROM EMPLOYMENT
Pursuant to the terms of Section 9 of the Investment Company Act of 1940, no
director, officer or employee of MSDW Advisors, Services or Distributors may
become, or continue to remain, an officer, director or employee, without an
exemptive order issued by the Securities and Exchange Commission, if such
director, officer or employee is, or becomes:
A. within the past ten years convicted of any felony or misdemeanor
involving the purchase or sale of any security or arising out of the
officer's or employee's conduct as an affiliated person, salesman or
employee of any investment company, bank, insurance company or entity or
person required to be registered under the Commodity Exchange Act; or
B. permanently or temporarily enjoined by any court from acting as an
affiliated person, salesman or employee of any investment company, bank,
insurance company or entity or person required to be registered under the
Commodity Exchange Act, or from engaging in or continuing any conduct or
practice in connection with any such activity or in connection with the
purchase or sale of any security.
2
<PAGE>
It is your obligation to immediately report any conviction or injunction to
the General Counsel of MSDW Advisors.
V. PERSONAL TRANSACTIONS IN SECURITIES
A. PROHIBITED CONDUCT
No Access Person shall buy or sell any security for his own account or
for an account in which he has, or as a result of the transaction
acquires, any direct or indirect beneficial ownership (referred to herein
as a "personal transaction") unless:
1. advance clearance of the transaction has been obtained; and
2. the transaction is reported in writing to MSDW Advisors in accordance
with the requirements of sub-section D below.
B. RESTRICTIONS AND LIMITATIONS ON PERSONAL SECURITIES TRANSACTIONS
The following restrictions and limitations govern investments and
personal securities transactions by Access Persons. Unless otherwise
indicated, all restrictions and limitations are applicable to all Access
Persons:
1. Securities purchased may not be sold at a profit until at least 60
days from the purchase trade date. In addition, securities sold may
not be purchased at a lower price until at least 60 days from the
sale trade date. Any violation will result in disgorgement of all
profits from the transactions.
2. No foreign security may be purchased unless the security is listed on
a U.S. Stock Exchange or can be held as an American Depository
Receipt (ADR).
3. No short sales are permitted.
4. No transactions in options or futures are permitted.
5. No Access Person may acquire any security in an Initial Public
Offering (IPO).
6a. Private placements of any kind may only be acquired with special
permission of the Code of Ethics Review Committee, and, if approved,
will be subject to continuous monitoring for possible future
conflict. Any Access Person wishing to request approval for private
placements must complete an MSDW Advisors Private Placement Approval
Request Form and submit the form to MSDW Advisors' Risk Management
Department. A copy of MSDW Advisors Private Placement Approval
Request Form, which may be revised at any time, is attached as
Exhibit A. Where the Code of Ethics Review Committee approves any
acquisition of private placements, its decision and reasons for
supporting the decision will be documented in a written report, which
is to be kept for five years in MSDW Advisors' Risk Management
Department after the end of the fiscal year in which the approval was
granted.
6b. Any Access Person who has a personal position in an issuer through a
private placement must affirmatively disclose that interest if such
Access Person is involved in consideration of any subsequent
investment decision regarding any security of that issuer or an
affiliate by any Morgan Stanley Dean Witter Fund or MSDW Advisors
Managed Account. In such event, the final investment decision shall
be independently reviewed by MSDW Advisor's Chief Investment Officer.
Written records of any such circumstance shall be maintained and sent
to the MSDW Advisors' Risk Management Department.
7. Access Persons with MSDW Online accounts are permitted to trade ONLY
between the hours of 9:30 a.m. and 4:00 p.m. (New York time). Trading
after hours is prohibited.
THE FOLLOWING RESTRICTIONS, 8a, 8b AND 8c, APPLY ONLY TO (I) PORTFOLIO
MANAGERS (AND ALL PERSONS REPORTING TO PORTFOLIO MANAGERS) AND (II)
PERSONNEL IN THE MSDW ADVISORS TRADING DEPARTMENT.
3
<PAGE>
8a. No purchase or sale transactions may be made in any security by any
portfolio manager (or person reporting to a portfolio manager) for a
period of thirty (30) days before or after that security is bought or
sold by any Morgan Stanley Dean Witter Fund (other than Morgan
Stanley Dean Witter Value-Added Market Series, Morgan Stanley Dean
Witter Select Dimensions Investment Series--Value-Added Portfolio,
Morgan Stanley Dean Witter Index Funds, or Portfolios) or MSDW
Advisors Managed Account for which such portfolio manager (or the
portfolio manager to whom such person reports) serves in that
capacity.
8b. No purchase or sale transactions may be made in any security traded
through the MSDW Advisors trading department by any person employed
in the MSDW Advisors trading department for a period of seven (7)
days before or after that security is bought or sold by any Morgan
Stanley Dean Witter Fund (other than Morgan Stanley Dean Witter
Value-Added Market Series, Morgan Stanley Dean Witter Select
Dimensions Investment Series--Value-Added Portfolio, Morgan Stanley
Dean Witter Index Funds, or Portfolios) or MSDW Advisors Managed
Account.
8c. Any transactions by persons described in (a) and (b) above within
such enumerated period will be required to be reversed, if
applicable, and any profits or, at the discretion of the Code of
Ethics Review Committee, any differential between the sale price of
the individual security transaction and the subsequent purchase or
sale price by a relevant MSDW Fund during the enumerated period, will
be subject to disgorgement.
IMPORTANT: Regardless of the limited applicability of Restriction 8,
MSDW Advisors' Risk Management Department monitors all transactions
by ALL Access Persons in order to ascertain any pattern of conduct
which may evidence conflicts or potential conflicts with the
principles and objectives of this Code, including a pattern of
frontrunning. On a quarterly basis, MSDW Advisors' Risk Management
Department will provide the MSDW Funds Boards of Directors with a
written report that (i) describes issues that arose during the
previous quarter under this Code and if applicable, each MSDW Funds'
Sub-Adviser's Code, including but not limited to, information about
material violations and sanctions imposed in response to the material
violations, and (ii) certifies that MSDW Advisors has adopted
procedures reasonably necessary to prevent Access Persons from
violating this Code.
C. ADVANCE CLEARANCE REQUIREMENT
1. PROCEDURES
(a) FROM WHOM OBTAINED
Subject to the limitations and restrictions of B above, advance
clearance of a personal transaction in a security must be
obtained from any two of the following officers of MSDW Advisors:
(1) CEO/President
(2) Chief Investment Officer
(3) Chief Administrative Officer
(4) General Counsel
(5) any other person so designated by the CEO or President,
provided, however, that no more than ten persons, at any
time, may be Clearing Officers.
These officers are referred to in this Code as "Clearing
Officers."
4
<PAGE>
Prior to obtaining the two signatures from the Clearing Officers,
the form must be approved by the MSDW Advisors Department
responsible for the type of security for which permission is
being sought, as follows:
1. Equity Trading --Equity Trading Department
2. Fixed-Income Corporate --Manager,Corporate Fixed-Income
Bonds
3. Municipal Bonds --Manager, Municipal Fixed-Income
4. Non-Investment Grade --Manager, High Yield Fixed-Income
("Junk") Bonds
5. Collateralized Mortgage --Manager, Government Fixed-Income
Obligations (CMOs) and
other non-exempt Mortgage
and Asset-Backed Securities
6. Convertible Securities --Manager, Convertible Securities
Prior to obtaining the Clearing Officers' signatures the form
also must be reviewed and initialed by the MSDW Advisors' Risk
Management Department. A copy of MSDW Advisors Securities
Transaction Approval Form, which may be revised at any time, is
attached as Exhibit B.
The Clearing Officers will not sign unless the approvals of the
relevant investment department and MSDW Advisors' Risk Management
Department are indicated on the form. MSDW Advisors' Risk
Management Department has implemented procedures reasonably
designed to monitor purchases and sales effected pursuant to the
aforementioned pre-clearance procedures.
(b) TIME OF CLEARANCE
All approved securities transactions, whether executed through
an MSDW BROKERAGE ACCOUNT OR AN MSDW ONLINE ACCOUNT, must take
place, prior to 4:00 p.m. EST, on the same day that the complete
advance clearance is obtained. If the transaction is not
completed on the date of clearance, a new clearance must be
obtained, including one for any uncompleted portion.
Post-approval is NOT PERMITTED under the Code of Ethics. If it is
determined that a trade was completed before approval, it will be
considered a violation of the Code of Ethics.
(c) PERMITTED BROKERAGE ACCOUNTS
ALL SECURITIES TRANSACTIONS MUST BE THROUGH AN MSDW BROKERAGE
ACCOUNT OR AN MSDW ONLINE ACCOUNT; NO OTHER BROKERAGE ACCOUNTS
ARE PERMITTED UNLESS SPECIAL PERMISSION IS OBTAINED. If you
maintain accounts outside of MSDW, you must immediately transfer
your accounts to a MSDW branch. Failure to do so will be
considered a significant violation of the Code of Ethics. In the
event permission is granted to maintain an outside brokerage
account, it is the responsibility of the employee to arrange for
duplicate confirmations of all securities transactions and
monthly brokerage statements to be sent to the MSDW Advisors'
Risk Management Department.
Prior to opening an MSDW ONLINE ACCOUNT, Access Persons must
obtain approval from MSDW Advisors' Risk Management Department.
NO employee may open an MSDW Online account unless a completed
and signed copy of their MSDW Online account application and MSDW
Employee Account Request Form is submitted to MSDW Advisors' Risk
Management Department for approval. NO employee may apply for an
MSDW ONLINE ACCOUNT ONLINE. A copy of the MSDW Employee Account
Request Form, which may be revised at any time, is attached as
Exhibit C.
5
<PAGE>
(d) FORM
Clearance must be obtained by completing and signing the
Securities Transaction Approval Form provided for that purpose by
MSDW Advisors and obtaining the signature of the correct
Department indicated in sub-section C.1 (a) and any two of the
Clearing Officers. The form must also indicate the name of the
individual's Financial Advisor and the Branch Office Number,
whether the account is an MSDW Online Account, as well as other
required information.
If you have more than one account under your control, indicate on
the approval sheet for which account the trade is intended.
ADDITIONALLY, PLEASE ADVISE YOUR FINANCIAL ADVISOR OR MSDW ONLINE
TO SEND DUPLICATE COPIES OF YOUR CONFIRMATION SLIPS AND BROKER
STATEMENTS TO THE MSDW Advisors' Risk Management Department FOR
EACH ACCOUNT UNDER YOUR CONTROL.
(e) FILING
After all required signatures are obtained, the Securities
Transaction Approval Form must be filed with the Risk Management
Department of MSDW Advisors by noon of the day following
execution of the trade for filing in the respective individual's
Code of Ethics file. A copy is retained by the employee for his
or her records. (If a preclearance request is denied, a copy of
the form will be maintained with MSDW Advisors' Risk Management
Department.)
2. FACTORS CONSIDERED IN CLEARANCE OF PERSONAL TRANSACTIONS
In addition to the limitations and restrictions set forth under B
above, the Clearing Officers, in keeping with the general principles
and objectives of this Code of Ethics, may refuse to grant clearance
of a personal transaction in their sole discretion without being
required to specify any reason for the refusal. Generally, the
Clearing Officers will consider the following factors in determining
whether or not to clear a proposed transaction:
(a) Whether the amount or the nature of the transaction or person
making it is likely to affect the price or market of the
security.
(b) Whether the individual making the proposed purchase or sale is
likely to benefit from purchases or sales being made or
considered on behalf of any Morgan Stanley Dean Witter Fund or
client.
(c) Whether the transaction is non-volitional on the part of the
individual.
3. EXEMPT SECURITIES
(a) The securities listed below are exempt from the restrictions of
sub-sections (B) (1) and (7), the advance clearance requirement
of sub-section C AND the quarterly and annual reporting
requirements of sub-section D. Therefore, it is not necessary to
obtain advance clearance for personal transactions in any of the
following securities nor is it necessary to report such
securities in the quarterly transaction reports or annual
securities holdings list:
(i) U.S. Government Securities;
(ii) Bank Certificates of Deposit;
(iii) Bankers' Acceptances;
(iv) Commercial Paper;
6
<PAGE>
(v) Purchases which are part of an automatic dividend
reinvestment plan (All employees with dividend reinvestment
plans must submit a memorandum to MSDW Advisors' Risk
Management Department and sales must be pre-approved); and
(vi) Open-end investment companies (mutual funds) (Closed-end
funds must be pre-approved).
(b) In addition, the following securities are exempt from the
restrictions of sub-sections B (1) and (7) and the advance
clearance requirement of sub-section C, but are subject to the
quarterly and annual reporting requirements of sub-section D:
(i) Unit Investment Trusts; and
(ii) Morgan Stanley Dean Witter & Co. stock (including
exercise of stock option grants), due to the fact that
it may not be purchased by any actively managed Morgan
Stanley Dean Witter Fund (other than index-type funds)
or for any MSDW Advisors Managed Account. The restrictions
imposed by Morgan Stanley Dean Witter & Co. on Senior
Management and other persons in connection with
transactions in Morgan Stanley Dean Witter & Co. stock
are not affected by the exemption of Morgan Stanley Dean
Witter & Co. stock from the advance clearance requirements
of this Code, and continue in effect to the extent
applicable.
4. ACCOUNTS COVERED
Advance clearance must be obtained for any personal transaction in a
security by an Access Person if such Access Person has, or as a
result of the transaction acquires, any direct or indirect beneficial
ownership in the security.
The term "beneficial ownership" is defined by rules of the SEC which
will be applicable in all cases. Generally, under the SEC rules, a
person is regarded as having beneficial ownership of securities held
in the name of:
(a) a husband, wife or a minor child; OR
(b) a relative sharing the same house; OR
(c) anyone else if the Access Person:
(i) obtains benefits substantially equivalent to ownership
of the securities; or
(ii) can obtain ownership of the securities immediately or at
some future time.
5. EXEMPTION FROM CLEARANCE REQUIREMENT
Clearance is not required for any account over which the Access
Person has no influence or control. In case of doubt the Access
Person may state on the Securities Transaction Approval Form that he
or she disclaims any beneficial ownership in the securities involved.
D. REPORT OF TRANSACTIONS
1. TRANSACTIONS AND ACCOUNTS COVERED
(a) All securities transactions, except for transactions involving
exempt securities listed in Section V., sub-section C.3. (a) of
this Code must be reported in the next quarterly transaction
report after the transaction is effected. In addition, any new
brokerage account(s) opened during the quarter as well as the
date(s) the account(s) was opened must be reported.
(b) EVERY ACCESS PERSON MUST FILE A REPORT WHEN DUE EVEN IF SUCH
PERSON MADE NO PURCHASES OR SALES OF SECURITIES DURING THE PERIOD
COVERED BY THE REPORT.
7
<PAGE>
(c) Directors and officers who, pursuant to Section III, are exempt
from preclearance ARE subject to the quarterly reporting
requirements.
2. TIME OF REPORTING
(a) INITIAL HOLDINGS REPORT
Each Access Person must, at the time of becoming an Access
Person, provide an initial holdings report to the Compliance
Officer or Compliance Coordinator disclosing (i) all securities
beneficially owned by the Access Person listing the title of the
security, number of shares held, and principal amount of the
security (any privately-placed securities held must be reported)
(ii) the name of the broker dealer or financial institution where
the Access Person maintains a personal account and (iii) the date
the report is submitted by the Access Person. New employees will
be required to provide a listing of all non-exempt securities
holdings as of the date of commencement of employment as well as
a listing of all outside brokerage accounts. This report must be
provided no later than 10 days after a person becomes an Access
Person.
(b) QUARTERLY TRANSACTION REPORTS
Each Access Person must submit a quarterly report of all
securities transactions, except for transactions involving exempt
securities listed in Section V., sub-section C.3. (a) of this
Code, and any new accounts(s) opened during the quarter as well
as the date(s) the account(s) was opened within 10 calendar days
after the end of each calendar quarter.
(c) ANNUAL HOLDINGS REPORTS
The January Annual Listing of Securities Holdings Report requires
all Access Persons to provide an annual listing of holdings of
(i) all securities beneficially owned listing the title of the
security, number of shares held, and principal amount of the
security as of December 31 of the preceding year, except
securities exempt from pre-clearance AND reporting under Section
V., sub-section C. 3(a), (ii) the name of any broker dealer or
financial institution where the account(s) are maintained, as of
December 31 of the preceding year (a current listing will also be
required upon the effectiveness of this Code) and (iii) the date
the Report is submitted by the Access Person. The information
must be current as of a date not more than 30 days before the
report is submitted.
3. FORM OF REPORTING
The initial holdings report, quarterly transaction report and the
annual listing of holdings report must be on the appropriate forms
provided by MSDW Advisors or may consist of broker statements
(attached to the Report form or, if an MSDW account, the broker
statements formerly sent to MSDW Advisors' Risk Management
Department) which provide at least the same information. In the event
that MSDW Advisors already maintains a record of the required
information, an Access Person may satisfy this requirement by (i)
confirming in writing (which may include e-mail) the accuracy and
completeness of the record and disclose the beneficial ownership of
securities (if any) not listed on the account statement and (ii)
recording the date of the confirmation. Copies of MSDW Advisors'
initial holdings report, quarterly transaction report and the annual
listing of holdings report, which may be revised at any time, are
attached as Exhibits D, E, and F, respectively.
8
<PAGE>
4. RESPONSIBILITY TO REPORT
The responsibility for taking the initiative to report is imposed on
each individual required to make a report. Any effort by MSDW
Advisors to facilitate the reporting process does not change or alter
that responsibility.
5. WHERE TO FILE REPORT
All reports must be filed with the Risk Management Department of MSDW
Advisors.
6. RESPONSIBILITY TO REVIEW
MSDW Advisors' Risk Management Department's Compliance Officer or
Compliance Coordinator will review all initial holdings reports,
quarterly transaction reports, and annual listing of holdings reports
filed by Access Persons.
VI. REVIEW COMMITTEE
A Code of Ethics Review Committee, consisting of the CEO/ President, Chief
Investment Officer and the General Counsel of MSDW Advisors, will review and
consider any proper request of an Access Person for relief or exemption from
any restriction, limitation or procedure contained herein, which
restriction, limitation or procedure is claimed to cause a hardship for such
Access Person. The committee shall meet on an ad hoc basis, as deemed
necessary upon written request by an Access Person, stating the basis for
his or her request for relief. The committee's decision is solely within its
complete discretion.
VII. SERVICE AS DIRECTOR
No Access Person may serve on the board of any company without prior
approval of the Code of Ethics Review Committee. If such approval is
granted, it will be subject to the implementation of Chinese Wall
procedures to isolate investment personnel serving as directors from making
investment decisions for Morgan Stanley Dean Witter Funds or MSDW Advisors
Managed Accounts concerning the company in question.
VIII.GIFTS
No Access Person shall accept, directly or indirectly, anything of value,
including gifts and gratuities, in excess of $100 per year from any person
or entity that does business with any Morgan Stanley Dean Witter Fund or
MSDW Advisors Managed Account, not including occasional meals or tickets
to theater or sporting events or other similar entertainment.
IX. SANCTIONS
Upon discovering a violation of this Code, MSDW Advisors may impose such
sanctions as it deems appropriate, including, but not limited to, a
reprimand (orally or in writing), demotion, and suspension or termination of
employment. The CEO of MSDW Advisors, in his sole discretion, is authorized
to determine the choice of sanctions to be imposed in specific cases,
including termination of employment of any employee.
X. EFFECTIVE DATE
All employees, officers and Directors of MSDW Advisors, Services and
Distributors (whether or not Access Persons) are required to sign a copy
of this Code indicating their agreement to abide by the terms of this Code.
In addition, all employees, officers and Directors of MSDW Advisors,
Services and Distributors will be required to certify annually that (i)
they have read and understand the terms of this Code of Ethics and
recognize the responsibilities and obligations incurred by their being
subject to this Code, and (ii) they are in compliance with the requirements
of this Code of Ethics, including but
9
<PAGE>
not limited to the reporting of all brokerage accounts, the preclearance for
Access Persons and all non-exempt personal securities transactions in
accordance with this Code.
XI. EMPLOYEE CERTIFICATION
I have read and understand the terms of the above Code of Ethics. I
recognize the responsibilities and obligations, including but not limited to
my quarterly transaction, annual listing of holdings, and initial holdings
reporting obligations, incurred by me as a result of my being subject to
this Code of Ethics. I hereby agree to abide by the above Code of Ethics.
- -------------------------------------- ------------------------
(Signature) (Date)
- --------------------------------------
(Print name)
10
<PAGE>
EXHIBIT A
MORGAN STANLEY DEAN WITTER ADVISORS
PRIVATE PLACEMENT APPROVAL REQUEST
(ATTACH A COPY OF THE PRIVATE PLACEMENT MEMORANDUM, OFFERING MEMORANDUM OR ANY
OTHER RELEVANT DOCUMENTS)
- ------------------------------ ----------------------------
NAME (PLEASE PRINT) DEPARTMENT & JOB TITLE
1. Name of the sponsor's corporation, partnership or other entity (the
"Private Placement"):
---------------------------------------------------------------------------
2. Is the sponsor's corporation or partnership: [ ] Public [ ] Private
3. Type of security or fund:
-------------------------------------------------
4. Nature of participation (e.g. Stockholder, General Partner, Limited
Partner). Indicate all applicable:
---------------------------------------------------------------------------
5. Planned date of transaction:
----------------------------------------------
6. Size of offering (if a fund, size of fund):
-------------------------------
7. Size of your participation (number of units/shares and dollar amount):
---------------------------------------------------------------------------
8. Would the investment carry limited or unlimited liability? [ ] Limited
[ ] Unlimited
9. Would the investment require any use of MSDW Advisors' premises, facilities
or materials? [ ] Yes [ ] No If "yes," please describe:
---------------------------------------------------------------------------
10. Are other MSDW Advisors' personnel or clients involved? [ ] Yes [ ] No
If "yes," please describe:
------------------------------------------------
11. Describe the business to be conducted by the Private Placement:
---------------------------------------------------------------------------
If Private Placement is a fund:
o Describe investment objectives of the fund (e.g. value, growth, core or
specialty)
-----------------------------------------------------------------------
o Is this a permissible investment for an account or fund that you
manage? [ ] Yes [ ] No
If "yes", please describe which client or fund:
-----------------------------------------------------------------------
12. Will you participate in any investment decisions for the Private Placement?
[ ] Yes [ ] No
If "Yes," please describe:
---------------------------------------------------------------------------
13. Describe how you became aware of this Private Placement:
---------------------------------------------------------------------------
14. Has this private placement been made available to an account or fund that
you manage? IF no, state why:
---------------------------------------------------------------------------
15. To the best of your knowledge, will this Private Placement result in an
initial public offering ("IPO")? [ ] YES [ ] NO
- --------------------------------------------------------------------------------
I understand that approval, if granted, is based upon the information provided
herein and I agree to observe any conditions imposed upon such approval, I will
notify MSDW Advisors Risk Management Department in writing if any aspect of the
Private Placement is proposed to be changed (e.g., investment focus of fund,
compensation, involvement in organization's management) and I hereby acknowledge
that such changes may require further approvals, or disinvestment by me.
I represent (i) that I have read and understand the MSDW Advisors' Code of
Ethics (the "Code") with respect to personal trading and recognize that I am
subject thereto; (ii) that the above trade is in compliance with the Code; (iii)
that to the best of my knowledge that the above trade does not represent a
conflict of interest, or an appearance of a conflict of interest, with any MSDW
Client or MSDW Fund; and (iv) that I have no knowledge of any pending client
orders in this security nor is the above trade in a related security which
indirectly would result in a transaction in a security in which there are
pending client orders. Furthermore, I acknowledge that no action should be taken
by me to effect the trade(s) listed above until I have received formal approval.
Signature Date:
------------------------------------ --------------------
Date Received by Risk Management:
------------
Approved: Disapproved: Date:
----------- ----------- --------------------
<PAGE>
EXHIBIT B
SECURITIES TRANSACTION APPROVAL FORM
MORGAN STANLEY DEAN WITTER ADVISORS INC.
MORGAN STANLEY DEAN WITTER SERVICES COMPANY INC.
MORGAN STANLEY DEAN WITTER DISTRIBUTORS INC.
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
PRINT NAME DEPARTMENT NAME OF PORTFOLIO MANAGER TO WHOM YOU REPORT
IF INVESTMENT DEPARTMENT COMPLETE BOX ->
- ---------------------------------------------------------------------------------------------------------------------------
DEAN WITTER ACCOUNT NO./MSDW NAME OF FINANCIAL ADVISOR DEANWITTER BRANCH/MSDW ONLINE
ONLINE ACCOUNT NO.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
REQUEST FOR PERMISSION TO ENGAGE IN PERSONAL TRANSACTION
--------------------------------------------------------
I hereby request permission to effect a transaction in the security as
indicated below for my own account or other account in which I have a beneficial
interest or legal title. THE APPROVAL WILL BE EFFECTIVE ONLY FOR A TRANSACTION
COMPLETED PRIOR TO THE CLOSE OF BUSINESS ON THE DAY OF APPROVAL. ANY
TRANSACTION, OR PORTION THEREOF, NOT SO COMPLETED WILL REQUIRE A NEW APPROVAL.
NOTE: A SEPARATE FORM MUST BE USED FOR EACH SECURITY TRANSACTION. ADVISE YOUR
FINANCIAL ADVISOR/MSDW ONLINE TO SUPPLY DUPLICATE CONFIRMS AND STATEMENTS ON ALL
TRANSACTIONS TO: MORGAN STANLEY DEAN WITTER ADVISORS INC., RISK MANAGEMENT
DEPARTMENT, TWO WORLD TRADE CENTER, NEW YORK, N.Y. 10048
I AM FAMILIAR WITH AND AGREE TO ABIDE BY THE REQUIREMENTS SET FORTH IN THE
MORGAN STANLEY DEAN WITTER ADVISORS INC. CODE OF ETHICS AND PARTICULARLY THE
FOLLOWING:
1. In the case of a purchase, I agree that I will not sell the security at
a profit for a minimum of sixty days from the date of the purchase
transaction. In the case of a sale, I agree that I will not purchase
the security at a profit for a minimum of sixty days from the date of
the sale transaction. Any violation will result in disgorgement of all
profits from the transaction.
2. I represent that this security: (A) is not involved in an Initial
Public Offering (IPO); (B) does not involve a short sale, futures or
option transaction and (c) is not a foreign security, unless (i) traded
on a U.S. Stock Exchange or (ii) an American Depository Receipt (ADR).
3. For any private placement, I am aware that specific pre-approval must
be obtained from the Morgan Stanley Dean Witter Advisors Inc. Code of
Ethics Review Committee.
4. For (A) EQUITY PORTFOLIO MANAGERS AND PERSONS REPORTING TO EQUITY
PORTFOLIO MANAGERS: I am aware that I must obtain the equity
security's description page from Bloomberg and attach the
description to this preapproval form and a signature from Joe
McAlinden or Rajesh Gupta as one of my Approving Officers (in
their absence I shall obtain the initials of my immediate
supervisor). I am aware that in certain cases I may be
required to disgorge any profits from a transaction if a
Morgan Stanley Dean Witter Fund buys or sells the same
security within 30 days preceding or subsequent to my
transaction (see Section V.B. (8) of the Code of Ethics for a
complete description of the scope of this restriction).
(B) PORTFOLIO MANAGERS AND PERSONS REPORTING TO PORTFOLIO
MANAGERS: I am aware that I must obtain a signature from Joe
McAlinden or Rajesh Gupta as one of my Approving Officers (in
their absence I shall obtain the initials of my immediate
supervisor). I am aware that in certain cases I may be
required to disgorge any profits from a transaction if a
Morgan Stanley Dean Witter Fund buys or sells the same
security within 30 days preceding or subsequent to my
transaction (see Section V.B. (8) of the Code of Ethics for a
complete description of the scope of this restriction).
(C) PERSONNEL IN THE MORGAN STANLEY DEAN WITTER ADVISORS INC.
TRADING DEPARTMENT: I am aware that in certain cases I may be
required to disgorge any profits from a transaction if a
Morgan Stanley Dean Witter Fund buys or sells the same
security within 7 days preceding or subsequent to my
transaction (see Section V.B.(8) of the Code of Ethics for a
complete description of the scope of this restriction).
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
A. PURCHASE
-----------------------------------------------------------------------------------------------------------
NAME OF SECURITY/SYMBOL CUSIP NUMBER FOR FIXED INCOME SECURITIES ONLY
-----------------------------------------------------------------------------------------------------------
NUMBER OF SHARES OR ORDER PRICE EXECUTION PRICE TOTAL PRICE
PRINCIPAL AMOUNT
-----------------------------------------------------------------------------------------------------------
HAVE YOU SOLD ANY SHARES OF THIS SECURITY WITHIN THE PAST SIXTY DAYS? NO [ ] YES [ ] IF YES, AT WHAT PRICE PER SHARE? $
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
B. SALE
-----------------------------------------------------------------------------------------------------------
NAME OF SECURITY/SYMBOL CUSIP NUMBER FOR FIXED INCOME SECURITIES ONLY
-----------------------------------------------------------------------------------------------------------
NUMBER OF SHARES OR ORDER PRICE EXECUTION PRICE TOTAL PRICE DATE ACQUIRED UNIT PRICE AT
PRINCIPAL AMOUNT ACQUISITION
- ------------------------------------------------------------------------------------------------------------------------------------
[ ] CHECK BOX IF THE SECURITY IS OFFERED THROUGH A PRIVATE DATE: YOUR SIGNATURE:
PLACEMENT. IF SO, CONTACT THE MORGAN STANLEY DEAN WITTER
ADVISORS INC. RISK MANAGEMENT DEPARTMENT FIRST.
- ------------------------------------------------------------------------------------------------------------------------------------
PERMISSION: GRANTED: DATE: TRADING DEPARTMENT SIGNATURE: IF APPLICABLE, RISK MANAGEMENT
-------- DEPARTMENT REVIEW:
DENIED: ---------------
--------
- ------------------------------------------------------------------------------------------------------------------------------------
DATE: SIGNATURE - APPROVING OFFICER: DATE: SIGNATURE - APPROVING OFFICER:
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* IF SHARES BEING SOLD WERE PURCHASED ON MORE THAN ONE DATE, EACH ACQUISITION
DATE MUST BE LISTED FOR PURPOSES OF DETERMINING THE 60-DAY HOLDING PERIOD.
THE WHITE COPY OF THIS PREAPPROVAL FORM MUST BE RETURNED TO THE RISK
MANAGEMENT DEPARTMENT BY NOON OF THE DAY FOLLOWING EXECUTION OF THE TRADE.
WHITE -- RISK MANAGEMENT PINK -- EMPLOYEE COPY
<PAGE>
EXHIBIT C
MORGAN STANLEY DEAN WITTER ADVISORS ("MSDW ADVISORS")
MSDW EMPLOYEE REQUEST FORM FOR
OPENING AN MSDW ONLINE BROKERAGE ACCOUNT
Please complete this form for all "employee accounts" you intend to maintain at
Morgan Stanley Dean Witter Online, Inc. ("MSDW Online"). Please make additional
copies of this page as necessary in order to include information for all your
accounts. After MSDW Advisors' Risk Management Department's review, this form
will be returned to you.
- ------------------------------ ----------------------- ---------------------
PRINT NAME EMPLOYEE ID # FAX #
- ------------------------------ -----------------------------------------------
SOCIAL SECURITY # DEPARTMENT/BRANCH #
Check one of the following:
[ ] I am an MSDW employee [ ] I am a subcontractor/vendor
---------------------------------------------------------------------------
ACCOUNT INFORMATION
---------------------------------------------------------------------------
The following MSDW Online account is currently open or will be opened.
Account Title:
---------------------------------------------------------
MSDW Online Account Number:
--------------------------------------------
(TO BE COMPLETED BY MSDW ONLINE)
Employee's relationship to account owner:
------------------------------
[ ] This account is NOT independently managed; I am involved in the
investment decisions.(2)
[ ] This account is independently managed; I am NOT involved in the
investment decisions.(3)
Name of investment manager and relationship, if any:
------------------------------------------------------------------------
By signing below, you agree to abide by MSDW Advisors Employee Trading Policy
and any desk or division trading policy applicable to you with respect to any
account maintained at MSDW Online.
DATE: SIGNATURE:
----------------------- --------------------------
PLEASE SEND DUPLICATE STATEMENTS & TRADE CONFIRMATIONS TO:
----------------------------------------------------------
MSDW ADVISORS
2 WORLD TRADE CENTER, 70TH FLOOR
NEW YORK, NY 10048
ATTN: RISK MANAGEMENT DEPARTMENT
- --------------------------------------------------------------------------------
TO MSDW ONLINE:
Pursuant to NYSE Rule 407, please accept this form as notification that MSDW
Advisors has approved the employee named above to maintain the account titled
above with your firm. The employee has a beneficial interest in such account.
This account must be placed in the appropriate employee account range, i.e.,
MSDW Advisors, Morgan Stanley Dean Witter Services Company and Morgan Stanley
Dean Witter Distributors, in order to permit appropriate review by MSDW
Advisors.
DATE: APPROVED BY:
----------------------- ---------------------------------
SIGNATURE
-------------------------------
PRINT NAME
MSDW ADVISORS RISK MANAGEMENT
(1) An "employee" account means any brokerage account owned or controlled, in
whole or in part, directly or indirectly by you, whether held in your name
individually, or jointly with others, or not in your name at all. Refer to
Section V. subsection C.4 Accounts Covered under MSDW Advisors' Code of
Ethics for further clarification. If you are unsure as to whether an account
is an employee account, MSDW Advisors, MSDW Services Company and MSDW
Distributors employees should call the Risk Management Department at
212-392-6532.
(2) Your participation in the selection of any investment, including mutual
funds, means that the account is NOT independently managed.
(3) You must not be involved in investment selections through recommendation,
advice, and prior review or otherwise, or you must be a passive beneficiary
of the account in order to represent that you are not involved in investment
decisions for the account.
<PAGE>
EXHIBIT D
MORGAN STANLEY DEAN WITTER ADVISORS INC.
MORGAN STANLEY DEAN WITTER DISTRIBUTORS INC.
MORGAN STANLEY DEAN WITTER SERVICES COMPANY INC.
LISTING OF SECURITIES HOLDINGS AND BROKERAGE ACCOUNTS (INITIAL)
---------------------------------------------------------------
I hereby certify that the following is a complete listing of all
securities beneficially owned by me AS OF THE DATE HEREOF. I also hereby certify
that, set forth below, is a listing of all brokerage accounts and any other
accounts holding securities maintained by me.
NOTE: The term "securities" includes all stocks, bonds, derivatives,
private placements, limited partnership interests, etc. Failure to fully
disclose all securities, whether or not held in a Morgan Stanley Dean Witter
brokerage account or Morgan Stanley Dean Witter Online account, will be
considered a violation of the Code of Ethics.
<TABLE>
<CAPTION>
=================================================================================================
TYPE OF SECURITY NUMBER OF
SHARES AND YEAR
I. TITLE OF SECURITY (Indicate if security PRINCIPAL ACQUIRED
is a Private AMOUNT
Placement etc.)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
(Use additional sheet if necessary)
</TABLE>
<TABLE>
<CAPTION>
=================================================================================================
II. NAME OF BROKERAGE ACCOUNT LOCATION ACCOUNT NUMBER
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
(Use additional sheet if necessary)
</TABLE>
- ------------------------------- --/--/--
(Sign Name) (Date)
- -------------------------------
(Print Name)
<PAGE>
EXHIBIT E
MORGAN STANLEY DEAN WITTER ADVISORS INC.
MORGAN STANLEY DEAN WITTER DISTRIBUTORS INC.
MORGAN STANLEY DEAN WITTER SERVICES COMPANY INC.
QUARTERLY SECURITIES TRANSACTIONS - CONFIDENTIAL REPORT
-------------------------------------------------------
XXXXQUARTER 2000/ XXX.,XXX.,XXX.
--------------------------------
The following lists all transactions in securities in which I had any direct or
indirect beneficial ownership during the last calendar quarter (excluding
securities exempted by Section V., sub-section C.3.(a) of the Morgan Stanley
Dean Witter Advisors Code of Ethics (revised March 1, 2000).
ANY TRANSACTIONS IN UNIT INVESTMENT TRUSTS OR MORGAN STANLEY DEAN WITTER & CO.
STOCK (INCLUDING EXERCISE OF STOCK OPTION GRANTS) MUST BE REPORTED ON THIS FORM.
IF ALL TRANSACTIONS LISTED BELOW WERE EXECUTED THROUGH MSDW AND ALL THE
APPLICABLE INFORMATION IS REFLECTED IN THE CONFIRMS PREVIOUSLY SENT, INDICATE SO
ON THIS FORM. *Use reverse side if additional space is needed.
IF NO TRANSACTIONS TOOK PLACE, WRITE "NONE".
<TABLE>
<CAPTION>
DATE OF NUMBER OF TITLE OF SECURITY UNIT PRICE TOTAL PRICE BROKER
TRANSACTION SHARES/ (INCLUDING, IF APPLICABLE,
PRINCIPAL INTEREST AND MATURITY RATE)
AMOUNT
<S> <C> <C> <C> <C> <C>
Purchases and Acquisitions
--------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Sales and Other Acquisitions
----------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
1) Did you submit a pre-approval request form for each of the securities
transactions listed above? YES NO
--- ---
2) Which DWR branch maintains your account?
-------------------------------------
3) Who is your Financial Advisor at the Branch?
---------------------------------
4) (For MSDW Advisors and Distributors Directors and Officers only) To your
knowledge, are you the beneficial owner of more than 1/2 of 1% of the
outstanding securities of any issuer? YES NO
--- ---
If yes, please specify:
------------------------------------------------------
-----------------------------------------------------------------------------
5) HAVE YOU RECEIVED WRITTEN PERMISSION TO MAINTAIN BROKERAGE ACCOUNT FOR YOU OR
A MEMBER OF YOUR IMMEDIATE FAMILY AT A BROKER-DEALER OTHER THAN DWR?
YES NO
--- ---
6) IF "YES", HAVE ALL TRANSACTIONS BEEN PRECLEARED AND REPORTED AS
REQUIRED BY THE CODE OF ETHICS? YES NO
--- ---
7) HAVE YOU OPENED ANY NEW ACCOUNTS THIS QUARTER? YES___ NO___ IF "YES", WHAT
DATE WAS THIS ACCOUNT(S) OPENED?
---------------------------------------------
-----------------------------------------------------------------------------
WHAT IS THE NAME OF THE BROKER DEALER OR FINANCIAL INSTITUTION WITH WHOM YOU
ESTABLISHED THE ACCOUNT?
-----------------------------------------------------
Date: / / Name: Signed:
---- ---- ---- --------------------- ----------------------
RETURN THIS FORM TO: MORGAN STANLEY DEAN WITTER ADVISORS RISK MANAGEMENT
DEPARTMENT, 2 WTC/7O, BY 00/00/00. REV (03/00)
<PAGE>
EXHIBIT F
MORGAN STANLEY DEAN WITTER ADVISORS INC.
MORGAN STANLEY DEAN WITTER DISTRIBUTORS INC.
MORGAN STANLEY DEAN WITTER SERVICES COMPANY INC.
ANNUAL LISTING OF SECURITIES HOLDINGS AND BROKERAGE ACCOUNTS
------------------------------------------------------------
I hereby certify that the following is a complete listing of all securities
(other than open-end mutual funds and other exempt securities as described in
Section V., sub-section C.3. (a) of the Code of Ethics) beneficially owned (as
defined in Section V., sub-section C.4 of the Code of Ethics) by me AS OF THE
DATE HEREOF. I also hereby certify that, set forth below, is a listing of all
brokerage accounts and any other accounts holding securities maintained by me. I
also hereby certify that, the information contained below is current as of the
date indicated below.
NOTE: The term "securities" includes all stocks, bonds, derivatives,
private placements, limited partnership interests, etc. ANY TRANSACTIONS IN UNIT
INVESTMENT TRUSTS OR MORGAN STANLEY DEAN WITTER & CO. STOCK (INCLUDING EXERCISE
OF STOCK OPTION GRANTS) MUST BE REPORTED ON THIS FORM. Failure to fully disclose
all securities holdings, whether or not held in a Morgan Stanley Dean Witter
brokerage account or MSDW Online Account, will be considered a violation of the
Code of Ethics.
<TABLE>
<CAPTION>
NUMBER OF
SHARES AND YEAR
I. TITLE OF SECURITY TYPE OF SECURITY PRINCIPAL ACQUIRED
AMOUNT
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
(Use additional sheet if necessary)
</TABLE>
<TABLE>
<CAPTION>
II. NAME OF BROKERAGE ACCOUNT LOCATION ACCOUNT NUMBER
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
(Use additional sheet if necessary)
</TABLE>
- ------------------------------ --/--/--
(Sign Name) (Date)
- ------------------------------
(Print Name)
PLEASE RETURN THIS FORM TO : MORGAN STANLEY DEAN WITTER ADVISORS' RISK
MANAGEMENT DEPARTMENT, 2 WTC /7O, BY 00/10/00.
<PAGE>
MORGAN STANLEY DEAN WITTER FUNDS
CODE OF ETHICS
I. INTRODUCTION
This Code of Ethics is adopted by the investment companies listed on
Schedule A attached hereto, which list may be amended from time to time
(each a "Fund" and collectively the "Morgan Stanley Dean Witter Funds" or
the "Funds"), in compliance with Rule 17j-1 promulgated by the Securities
and Exchange Commission ("SEC") under the Investment Company Act of 1940, as
amended. This Code covers all persons who are "Access Persons," as that term
is defined in Rule 17j-1. To the extent that any such individuals are
"Access Persons" under the Code of Ethics of the Funds' Investment Advisor,
Investment Manager, or Sub-Advisor, as applicable (any such entity herein
referred to as "Investment Advisor"), whose Codes have also been established
pursuant to Rule 17j-1, compliance by such individuals with the provisions
of the Code of the applicable Investment Advisor shall constitute compliance
with this Code.
II. PERSONAL TRANSACTIONS
A. REPORTS OF TRANSACTIONS - INDEPENDENT DIRECTORS/TRUSTEES
An Independent Director/Trustee of a Morgan Stanley Dean Witter Fund
shall report quarterly to the Fund any personal transaction in a security if
he or she knows or should know at the time of entering into the transaction
that: (a) the Fund has engaged in a transaction in the same security within
the last 15 days, or is engaging in such transaction or is going to engage
in a transaction in the same security in the next 15 days, or (b) the Fund
or its Investment Advisor has within the last 15 days considered a
transaction in the same security or is considering a transaction in the
security or within the next 15 days is going to consider a transaction in
the security.
B. REPORTS OF TRANSACTIONS, BROKERAGE ACCOUNTS AND HOLDINGS - ACCESS
PERSONS WHO ARE NOT INDEPENDENT DIRECTORS/ TRUSTEES
An Access Person who is not an Independent Director/Trustee of a Morgan
Stanley Dean Witter Fund shall report all non-exempt securities transactions
and new brokerage accounts on a quarterly basis.
An Access Person who is not an Independent Director/Trustee of a Morgan
Stanley Dean Witter Fund shall provide an annual listing of holdings of (i)
all securities beneficially owned as of December 31 of the preceding year,
except securities exempt from pre-clearance and reporting under Section D.,
(2) hereof listing the title of the security, number of shares held, and
principal amount of the security, (ii) the name of any broker dealer or
financial institution where the account(s) are maintained, as of December 31
of the preceding year (a current listing will also be required upon the
effectiveness of this Code) and (iii) the date the Report is submitted by
the Access Person. The information must be current as of a date not more
than 30 days before the report is submitted. New Access Persons, who are not
Independent Directors/Trustees of a Morgan Stanley Dean Witter Fund, will be
required to provide a listing of all non-exempt securities holdings, with
the information set forth above, as of the date of commencement of
employment as well as a listing of all outside brokerage accounts no later
than ten days after that person becomes an Access Person.
C. REPORTS OF TRANSACTIONS, BROKERAGE ACCOUNTS AND HOLDINGS - GENERAL
Any quarterly report required under A or B above must be made within ten
days after the end of the calendar quarter in which the personal transaction
occurred. The report may be made on the form provided by the Investment
Advisor or may consist of a broker statement that provides at least the same
information. In the event that MSDW Advisors already maintains a record of
the required information, an Access Person may satisfy this requirement by
(i) confirming in writing (which may include e-mail) the accuracy and
completeness of the record and disclose the beneficial ownership of
<PAGE>
securities (if any) not listed on the account statement and (ii) recording
the date of the confirmation. Copies of the Investment Advisor's forms,
which may be revised at any time, are attached.
The Funds' Compliance Officer will identify and advise all Access
Persons, including the Independent Directors/Trustees, subject to the
reporting requirement under A or B above, of their reporting requirement.
Each report required under A or B above will be submitted for review by the
Compliance Officer or Compliance Coordinator in the Risk Management
Department of the Investment Advisor.
D. DEFINITIONS AND EXEMPTIONS
(1) DEFINITIONS
For purposes of this Code the term "personal transaction" means the
purchase or sale, or other acquisition or disposition, of a security for
the account of the individual making the transaction or for an account in
which he or she has, or as a result of the transaction acquires, any
direct or indirect beneficial ownership in a security.
The term "beneficial ownership" is defined by rules of the SEC.
Generally, under SEC rules a person is regarded as having beneficial
ownership of securities held in the name of:
(a) a husband, wife, or minor child;
(b) a relative sharing the same house;
(c) anyone else if the access person -
(i) obtains benefits substantially equivalent to ownership of the
securities; or
(ii)can obtain ownership of the securities immediately or at
some future time.
The term "Access Person" is defined by rules of the SEC as (i) any
director, officer, or general partner of a fund or of a fund's investment
adviser, or any employee of a fund or of a fund's investment adviser who,
in connection with his or her regular functions or duties, participates
in the selection of a fund's portfolio securities or who has access to
information regarding a fund's future purchases or sales of portfolio
securities; or (ii) any director, officer, or general partner of a
principal underwriter who in the ordinary course of business, makes,
participates in or obtains information regarding, the purchase or sale of
securities for the fund for which the principal underwriter acts, or
whose functions or duties in the ordinary course of business relate to
the making of any recommendation to the fund regarding the purchase or
sale of securities.
(2) EXEMPTIONS
No report is required for a personal transaction in any of the
following securities:
(i) Securities issued by the U.S. Government;
(ii) Bank certificates of deposit;
(iii) Bankers' acceptances;
(iv) Commercial paper;
(v) Open-end mutual fund shares.
Also, no report is required with respect to any account over which
the access person has no influence or control.
III. CODE VIOLATIONS
Any officer of a Morgan Stanley Dean Witter Fund who discovers a
violation or apparent violation of this Code by an access person shall bring
the matter to the attention of the Chief Executive Officer or General
Counsel of the Fund who shall then report the matter to the Board of
Directors or the Board of Trustees, as the case may be, of the fund. The
Board shall determine
<PAGE>
whether a violation has occurred and, if it so finds, may impose such
sanctions, if any, as it considers appropriate.
IV. ADMINISTRATION OF CODE OF ETHICS
On a quarterly basis, the Board of Directors or the Board of Trustees of
each of the Funds shall be provided with a written report by each of the
Funds and the Investment Advisors, that describes any new issues arising
under the Code of Ethics, including information on material violations of
the Code of Ethics or procedures and sanctions imposed, and certifies that
each Fund and the Investment Advisors have adopted procedures reasonably
necessary to prevent Access Persons from violating the Code of Ethics.
Rev. March 1, 2000
<PAGE>
MORGAN STANLEY DEAN WITTER FUNDS
AT
FEBRUARY 29, 2000
MONEY MARKET FUNDS
1. Active Assets California Tax-Free Trust ("AA CALIFORNIA")
2. Active Assets Government Securities Trust ("AA GOVERNMENT")
3. Active Assets Institutional Money Trust ("AA INSTITUTIONAL")
4. Active Assets Money Trust ("AA MONEY")
5. Active Assets Premier Money Trust ("AA PREMIER")
6. Active Assets Tax-Free Trust ("AA TAX-FREE")
7. Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
("CALIFORNIA TAX-FREE DAILY")
8. Morgan Stanley Dean Witter Liquid Asset Fund Inc. ("LIQUID ASSET")
9. Morgan Stanley Dean Witter New York Municipal Money Market Trust ("NEW
YORK MONEY")
10. Morgan Stanley Dean Witter Tax-Free Daily Income Trust ("TAX-FREE
DAILY")
11. Morgan Stanley Dean Witter U.S. Government Money Market Trust
("GOVERNMENT MONEY")
EQUITY FUNDS
12. Morgan Stanley Dean Witter Aggressive Equity Fund ("AGGRESSIVE EQUITY")
13. Morgan Stanley Dean Witter American Opportunities Fund ("AMERICAN
OPPORTUNITIES")
14. Morgan Stanley Dean Witter Capital Growth Securities ("CAPITAL GROWTH")
15. Morgan Stanley Dean Witter Competitive Edge Fund ("COMPETITIVE EDGE")
16. Morgan Stanley Dean Witter Developing Growth Securities Trust
("DEVELOPING GROWTH")
17. Morgan Stanley Dean Witter Dividend Growth Securities Inc. ("DIVIDEND
GROWTH")
18. Morgan Stanley Dean Witter Equity Fund ("EQUITY FUND")
19. Morgan Stanley Dean Witter European Growth Fund Inc. ("EUROPEAN
GROWTH")
20. Morgan Stanley Dean Witter Financial Services Trust ("FINANCIAL
SERVICES")
21. Morgan Stanley Dean Witter Fund of Funds ("FUND OF FUNDS")
22. Morgan Stanley Dean Witter Global Dividend Growth Securities ("GLOBAL
DIVIDEND GROWTH")
23. Morgan Stanley Dean Witter Global Utilities Fund ("GLOBAL UTILITIES")
24. Morgan Stanley Dean Witter Growth Fund ("GROWTH FUND")
25. Morgan Stanley Dean Witter Health Sciences Trust ("HEALTH SCIENCES")
26. Morgan Stanley Dean Witter Income Builder Fund ("INCOME BUILDER")
27. Morgan Stanley Dean Witter Information Fund ("INFORMATION FUND")
28. Morgan Stanley Dean Witter International Fund ("INTERNATIONAL FUND")
29. Morgan Stanley Dean Witter International SmallCap Fund ("INTERNATIONAL
SMALLCAP")
30. Morgan Stanley Dean Witter Japan Fund ("JAPAN FUND")
<PAGE>
31. Morgan Stanley Dean Witter Latin American Growth Fund ("LATIN
AMERICAN")
32. Morgan Stanley Dean Witter Market Leader Trust ("MARKET LEADER")
33. Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities ("MID-CAP
DIVIDEND GROWTH")
34. Morgan Stanley Dean Witter Mid-Cap Equity Trust ("MID-CAP EQUITY")
35. Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
("NATURAL RESOURCE")
36. Morgan Stanley Dean Witter Next Generation Trust ("NEXT GENERATION")
37. Morgan Stanley Dean Witter Pacific Growth Fund Inc. ("PACIFIC GROWTH")
38. Morgan Stanley Dean Witter Real Estate Fund ("REAL ESTATE")
39. Morgan Stanley Dean Witter Small Cap Growth Fund ("SMALL CAP GROWTH")
40. Morgan Stanley Dean Witter S&P 500 Index Fund ("S&P500 INDEX")
41. Morgan Stanley Dean Witter S&P 500 Select Fund ("S&P 500 SELECT")
42. Morgan Stanley Dean Witter Special Value Fund ("SPECIAL VALUE")
43. Morgan Stanley Dean Witter Tax-Managed Growth Fund ("TAX-MANAGED
GROWTH")
44. Morgan Stanley Dean Witter Total Market Index Fund ("TOTAL MARKET
INDEX")
45. Morgan Stanley Dean Witter Total Return Trust ("TOTAL RETURN")
46. Morgan Stanley Dean Witter 21st Century Trend Fund ("21ST CENTURY
TREND")
47. Morgan Stanley Dean Witter Utilities Fund ("UTILITIES FUND")
48. Morgan Stanley Dean Witter Value-Added Market Series ("VALUE-ADDED")
49. Morgan Stanley Dean Witter Value Fund ("VALUE FUND")
BALANCED FUNDS
50. Morgan Stanley Dean Witter Balanced Growth Fund ("BALANCED GROWTH")
51. Morgan Stanley Dean Witter Balanced Income Fund ("BALANCED INCOME")
ASSET ALLOCATION FUND
52. Morgan Stanley Dean Witter Strategist Fund ("STRATEGIST FUND")
FIXED-INCOME FUNDS
53. Morgan Stanley Dean Witter California Tax-Free Income Fund ("CALIFORNIA
TAX-FREE")
54. Morgan Stanley Dean Witter Convertible Securities Trust ("CONVERTIBLE
SECURITIES")
55. Morgan Stanley Dean Witter Diversified Income Trust ("DIVERSIFIED
INCOME")
56. Morgan Stanley Dean Witter Federal Securities Trust ("FEDERAL
SECURITIES")
57. Morgan Stanley Dean Witter Hawaii Municipal Trust ("HAWAII MUNICIPAL")
58. Morgan Stanley Dean Witter High Yield Securities Inc ("HIGH YIELD")
59. Morgan Stanley Dean Witter Intermediate Income Securities
("INTERMEDIATE INCOME")
60. Morgan Stanley Dean Witter Limited Term Municipal Trust ("LIMITED TERM
MUNICIPAL")
61. Morgan Stanley Dean Witter Multi-State Municipal Series Trust
("MULTI-STATE SERIES")
<PAGE>
62. Morgan Stanley Dean Witter New York Tax-Free Income Fund ("NEW YORK
TAX-FREE")
63. Morgan Stanley Dean Witter North American Government Income Trust
("NORTH AMERICAN GOVERNMENT")
64. Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
("MUNICIPAL REINVESTMENT")
65. Morgan Stanley Dean Witter Short-Term Bond Fund ("SHORT-TERM BOND")
66. Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust ("SHORT-TERM
TREASURY")
67. Morgan Stanley Dean Witter Tax-Exempt Securities Trust ("TAX-EXEMPT
SECURITIES")
68. Morgan Stanley Dean Witter U.S. Government Securities Trust
("GOVERNMENT SECURITIES")
69. Morgan Stanley Dean Witter World Wide Income Trust ("WORLD WIDE
INCOME")
SPECIAL PURPOSE FUNDS
70. Morgan Stanley Dean Witter Select Dimensions Investment Series ("SELECT
DIMENSIONS")
71. Morgan Stanley Dean Witter Variable Investment Series ("VARIABLE
INVESTMENT")
CLOSED-END FUNDS
72. Morgan Stanley Dean Witter California Insured Municipal Income Trust
("CALIFORNIA INSURED MUNICIPAL")
73. Morgan Stanley Dean Witter California Quality Municipal Securities
("CALIFORNIA QUALITY MUNICIPAL")
74. Morgan Stanley Dean Witter Government Income Trust ("GOVERNMENT
INCOME")
75. Morgan Stanley Dean Witter High Income Advantage Trust ("HIGH INCOME")
76. Morgan Stanley Dean Witter High Income Advantage Trust II ("HIGH
INCOME II")
77. Morgan Stanley Dean Witter High Income Advantage Trust III ("HIGH
INCOME III")
78. Morgan Stanley Dean Witter Income Securities Inc. ("INCOME SECURITIES")
79. Morgan Stanley Dean Witter Insured California Municipal Securities
("INSURED CALIFORNIA SECURITIES")
80. Morgan Stanley Dean Witter Insured Municipal Bond Trust ("INSURED
MUNICIPAL BOND")
81. Morgan Stanley Dean Witter Insured Municipal Income Trust ("INSURED
MUNICIPAL INCOME")
82. Morgan Stanley Dean Witter Insured Municipal Securities ("INSURED
MUNICIPAL SECURITIES")
83. Morgan Stanley Dean Witter Insured Municipal Trust ("INSURED MUNICIPAL
TRUST")
84. Morgan Stanley Dean Witter Municipal Income Opportunities Trust
("MUNICIPAL OPPORTUNITIES")
85. Morgan Stanley Dean Witter Municipal Income Opportunities Trust II
("MUNICIPAL OPPORTUNITIES II")
86. Morgan Stanley Dean Witter Municipal Income Opportunities Trust III
("MUNICIPAL OPPORTUNITIES III")
87. Morgan Stanley Dean Witter Municipal Income Trust ("MUNICIPAL INCOME")
88. Morgan Stanley Dean Witter Municipal Income Trust II ("MUNICIPAL INCOME
II")
89. Morgan Stanley Dean Witter Municipal Income Trust III ("MUNICIPAL
INCOME III")
90. Morgan Stanley Dean Witter Municipal Premium Income Trust ("MUNICIPAL
PREMIUM")
<PAGE>
91. Morgan Stanley Dean Witter New York Quality Municipal Securities ("NEW
YORK QUALITY MUNICIPAL")
92. Morgan Stanley Dean Witter Prime Income Trust ("PRIME INCOME")
93. Morgan Stanley Dean Witter Quality Municipal Income Trust ("QUALITY
MUNICIPAL INCOME")
94. Morgan Stanley Dean Witter Quality Municipal Investment Trust ("QUALITY
MUNICIPAL INVESTMENT")
95. Morgan Stanley Dean Witter Quality Municipal Securities ("QUALITY
MUNICIPAL SECURITIES")
TCW/DW TERM TRUSTS
AT
FEBRUARY 29, 2000
1. TCW/DW Term Trust 2000 ("TERM TRUST 2000")
2. TCW/DW Term Trust 2002 ("TERM TRUST 2002")
3. TCW/DW Term Trust 2003 ("TERM TRUST 2003")
