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Filed Pursuant to Rule 497(c)
Registration File No.: 33-87472
PROSPECTUS
JULY 29, 1998
Morgan Stanley Dean Witter Information Fund (the "Fund") is an
open-end, diversified management investment company, whose investment objective
is long-term capital appreciation. The Fund seeks to achieve its investment
objective by investing at least 65% of its total assets in common stocks and
securities convertible into common stocks of domestic and foreign companies
which are involved in all areas, and emerging areas, of the communications and
information industry. See "Investment Objective and Policies."
The Fund offers four classes of shares (each, a "Class"), each
with a different combination of sales charges, ongoing fees and other features.
The different distribution arrangements permit an investor to choose the method
of purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. (See "Purchase of Fund
Shares--Alternative Purchase Arrangements.")
This Prospectus sets forth concisely the information you should
know before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the Statement
of Additional Information, dated July 29, 1998, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page.
The Statement of Additional Information is incorporated herein by reference.
Morgan Stanley Dean Witter
Information Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
TABLE OF CONTENTS
Prospectus Summary/ 2
Summary of Fund Expenses / 4
Financial Highlights/ 6
The Fund and its Management/ 9
Investment Objective and Policies/ 9
Risk Considerations/ 11
Investment Restrictions/ 18
Purchase of Fund Shares/ 18
Shareholder Services/ 30
Redemptions and Repurchases/ 33
Dividends, Distributions and Taxes/ 34
Performance Information/ 35
Additional Information/ 35
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
MORGAN STANLEY DEAN WITTER DISTRIBUTORS INC.,
DISTRIBUTOR
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PROSPECTUS SUMMARY
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The The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is an
Fund open-end, diversified management investment company investing at least 65% of its total assets in
common stocks and securities convertible into common stocks of domestic and foreign companies
which are involved in all areas, and emerging areas, of the communications and information industry.
Shares Shares of beneficial interest with $0.01 par value (see page 35). The Fund offers four Classes of
Offered shares, each with a different combination of sales charges, ongoing fees and other features (see
pages 18-27).
Minimum The minimum initial investment for each Class is $1,000 ($100 if the account is opened through
Purchase EasyInvestSM); Class D shares are only available to persons investing $5 million ($25 million for
certain qualified plans) or more and to certain other limited categories of investors. For the purpose
of meeting the minimum $5 million (or $25 million) investment for Class D shares, and subject to the
$1,000 minimum initial investment for each Class of the Fund, an investor's existing holdings of Class
A shares and shares of funds for which Morgan Stanley Dean Witter Advisors Inc. serves as
investment manager ("Morgan Stanley Dean Witter Funds") that are sold with a front-end sales
charge, and concurrent investments in Class D shares of the Fund and other Morgan Stanley Dean
Witter Funds that are multiple class funds, will be aggregated. The minimum subsequent investment
is $100 (see page 18).
Investment The investment objective of the Fund is long-term capital appreciation (see page 9).
Objective
Investment Morgan Stanley Dean Witter Advisors Inc., the Investment Manager of the Fund, and its wholly-owned
Manager subsidiary, Morgan Stanley Dean Witter Services Company Inc., serve in various investment
management, advisory, management and administrative capacities to 101 investment companies
and other portfolios with net assets under management of approximately $115.2 billion at June 30,
1998 (see page 9).
Management The Investment Manager receives a monthly fee at the annual rate of 0.75% of the portion of the
Fee Fund's average daily net assets not exceeding $500 million and 0.725% of the portion of the Fund's
average daily net assets exceeding $500 million. (see page 9).
Distributor and Morgan Stanley Dean Witter Distributors Inc. (the "Distributor"). The Fund has adopted a distribution
Distribution plan pursuant to Rule 12b-1 under the Investment Company Act (the "12b-1 Plan") with respect to
Fee the distribution fees paid by the Class A, Class B and Class C shares of the Fund to the Distributor.
The entire 12b-1 fee payable by Class A and a portion of the 12b-1 fee payable by each of Class B
and Class C equal to 0.25% of the average daily net assets of the Class are currently each
characterized as a service fee within the meaning of the National Association of Securities Dealers,
Inc. guidelines. The remaining portion of the 12b-1 fee, if any, is characterized as an asset-based
sales charge (see pages 18 and 27).
Alternative Four classes of shares are offered:
Purchase
Arrangements o Class A shares are offered with a front-end sales charge, starting at 5.25% and reduced for larger
purchases. Investments of $1 million or more (and investments by certain other limited categories of
investors) are not subject to any sales charge at the time of purchase but a contingent deferred sales
charge ("CDSC") of 1.0% may be imposed on redemptions within one year of purchase. The Fund
is authorized to reimburse the Distributor for specific expenses incurred in promoting the distribution
of the Fund's Class A shares and servicing shareholder accounts pursuant to the Fund's 12b-1 Plan.
Reimbursement may in no event exceed an amount equal to payments at an annual rate of 0.25%
of average daily net assets of the Class (see pages 18, 22 and 27).
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2
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o Class B shares are offered without a front-end sales charge, but will in most cases be subject to
a CDSC (scaled down from 5.0% to 1.0%) if redeemed within six years after purchase. The CDSC
will be imposed on any redemption of shares if after such redemption the aggregate current value of
a Class B account with the Fund falls below the aggregate amount of the investor's purchase
payments made during the six years preceding the redemption. A different CDSC schedule applies
to investments by certain qualified plans. Class B shares are also subject to a 12b-1 fee assessed
at the annual rate of 1.0% of the lesser of: (a) the average daily net sales of the Fund's Class B
shares or (b) the average daily net assets of Class B. All shares of the Fund held prior to July 28,
1997 have been designated Class B shares. Shares held before May 1, 1997 will convert to Class
A shares in May, 2007. In all other instances, Class B shares convert to Class A shares approximately
ten years after the date of the original purchase (see pages 18, 24 and 27).
o Class C shares are offered without a front-end sales charge, but will in most cases be subject to
a CDSC of 1.0% if redeemed within one year after purchase. The Fund is authorized to reimburse
the Distributor for specific expenses incurred in promoting the distribution of the Fund's Class C
shares and servicing shareholder accounts pursuant to the Fund's 12b-1 Plan. Reimbursement may
in no event exceed an amount equal to payments at an annual rate of 1.0% of average daily net
assets of the Class (see pages 18 and 27).
o Class D shares are offered only to investors meeting an initial investment minimum of $5 million
($25 million for certain qualified plans) and to certain other limited categories of investors. Class D
shares are offered without a front-end sales charge or CDSC and are not subject to any 12b-1 fee
(see pages 18 and 27).
Dividends Dividends and capital gains will be distributed annually. The Fund may, however, determine to retain
and all or a part of any net long-term capital gains in any year for reinvestment. Dividends and capital
Capital gains distributions paid on shares of a Class are automatically reinvested in additional shares of the
Gains same Class at net asset value unless the shareholder elects to receive cash. Shares acquired by
Distributions dividend or distribution reinvestment will not be subject to any sales charge or CDSC (see pages 30
and 34).
Redemption Shares are redeemable by the shareholder at net asset value less any applicable CDSC on Class A,
Class B or Class C shares. An account may be involuntarily redeemed if the total value of the account
is less than $100 or, if the account was opened through EasyInvestSM, if after twelve months the
shareholder has invested less than $1,000 in the account (see page 33).
Risk The net asset value of the Fund's shares will fluctuate with changes in the market value of the Fund's
Considerations portfolio securities. The market value of the Fund's portfolio securities will increase or decrease due
to economic or market factors affecting companies and/or industries in which the Fund invests. In
addition, the value of the Fund's fixed-income and convertible securities generally increases or
decreases due to economic and market factors, as well as changes in prevailing interest rates.
Generally, a rise in interest rates will result in a decrease in value while a drop in interest rates will
result in an increase in value. There are also certain risks associated with the Fund's investments in
the communications and information industry (see page 10). The Fund will invest in the securities of
foreign issuers which entails certain additional risks. The Fund may also invest in options and futures
transactions in order to hedge its portfolio securities and may enter into forward foreign currency
exchange contracts in connection with its foreign securities investments and may purchase securities
on a when-issued, delayed delivery or "when, as and if issued" basis, which involve certain special
risks (see pages 11-17).
The above is qualified in its entirety by the detailed information appearing elsewhere in this Prospectus
and in the Statement of Additional Information.
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3
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SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder
of the Fund will incur. The fees and expenses set forth in the table are based
on the expenses and fees for the fiscal year ended March 31, 1998.
<TABLE>
<CAPTION>
Class A Class B Class C Class D
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<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases (as a
percentage of offering price) ......................... 5.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments ......... None None None None
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase price or
redemption proceeds) .................................. None(2) 5.00%(3) 1.00%(4) None
Redemption Fees ........................................ None None None None
Exchange Fee ........................................... None None None None
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees (5) .................................... 0.75% 0.75% 0.75% 0.75%
12b-1 Fees (6) (7) ..................................... 0.23% 1.00% 1.00% None
Other Expenses (5) ..................................... 0.30% 0.30% 0.30% 0.30%
Total Fund Operating Expenses (8) ...................... 1.28% 2.05% 2.05% 1.05%
</TABLE>
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(1) Reduced for purchases of $25,000 and over (see "Purchase of Fund
Shares--Initial Sales Charge Alternative--Class A Shares").
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a CDSC of 1.00% that will be imposed on
redemptions made within one year after purchase, except for certain
specific circumstances (see "Purchase of Fund Shares--Initial Sales
Charge Alternative--Class A Shares").
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter.
(4) Only applicable to redemptions made within one year after purchase (see
"Purchase of Fund Shares--Level Load Alternative--Class C Shares").
(5) Management fees and other expenses are based on the Fund's actual
aggregate expenses.
(6) The 12b-1 fee is accrued daily and payable monthly. The entire 12b-1 fee
payable by Class A and a portion of the 12b-1 fee payable by each of
Class B and Class C equal to 0.25% of the average daily net assets of the
Class are currently each characterized as a service fee within the
meaning of National Association of Securities Dealers, Inc. ("NASD")
guidelines and are payments made for personal service and/or maintenance
of shareholder accounts. The remainder of the 12b-1 fee, if any, is an
asset-based sales charge, and is a distribution fee paid to the
Distributor to compensate it for the services provided and the expenses
borne by the Distributor and others in the distribution of the Fund's
shares (see "Purchase of Fund Shares--Plan of Distribution").
(7) Upon conversion of Class B shares to Class A shares, such shares will be
subject to the lower 12b-1 fee applicable to Class A shares. No sales
charge is imposed at the time of conversion of Class B shares to Class A
shares. Class C shares do not have a conversion feature and, therefore,
are subject to an ongoing 1.00% distribution fee (see "Purchase of Fund
Shares--Alternative Purchase Arrangements").
(8) There were no outstanding shares of Class A, Class C or Class D prior to
July 28, 1997.
4
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Examples 1 year 3 years 5 years 10 years
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You would pay the following expenses on a $1,000 investment
assuming (1) a 5% annual return and (2) redemption at the end of
each time period:
Class A ...................................................... $65 $91 $119 $199
Class B ...................................................... $71 $94 $130 $238
Class C ...................................................... $31 $64 $110 $238
Class D ...................................................... $11 $33 $ 58 $128
You would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A ...................................................... $65 $91 $119 $199
Class B ...................................................... $21 $64 $110 $238
Class C ...................................................... $21 $64 $110 $238
Class D ...................................................... $11 $33 $ 58 $128
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THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF EACH CLASS MAY BE GREATER OR
LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Purchase of Fund Shares--Plan of Distribution"
and "Redemptions and Repurchases" in this Prospectus.
Long-term shareholders of Class B and Class C may pay more in sales
charges including distribution fees than the economic equivalent of the maximum
front-end sales charges permitted by the NASD.
5
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FINANCIAL HIGHLIGHTS
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The following per share data and ratios for a share of beneficial interest
outstanding throughout each period have been audited by PricewaterhouseCoopers
LLP, independent accountants. The financial highlights should be read in
conjunction with the statements and notes thereto and the unqualified report of
the independent accountants, which are contained in the Statement of Additional
Information. Further information about the performance of the Fund is contained
in the Fund's Annual Report to Shareholders, which may be obtained without
charge upon request to the Fund.
<TABLE>
<CAPTION>
For the Period
For the Year For the Year November 28, 1995*
Ended Ended through
March 31, 1998**++ March 31, 1997 March 31, 1996
-------------------- ---------------- -------------------
<S> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE :
Net asset value, beginning of period ...................... $ 8.94 $ 10.67 $ 10.00
---------- ----------- ----------
Net investment loss ....................................... (0.18) (0.13) (0.01)
Net realized and unrealized gain (loss) ................... 5.18 (1.60) 0.69
---------- ----------- ----------
Total from investment operations .......................... 5.00 (1.73) 0.68
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Less dividends in excess of net investment income......... -- -- (0.01)
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Net asset value, end of period ............................ $ 13.94 $ 8.94 $ 10.67
========== =========== ==========
TOTAL INVESTMENT RETURN+ .................................. 56.10 % (16.31)% 6.77 %(1)
RATIOS TO AVERAGE NET ASSETS :
Expenses .................................................. 2.05 % 2.01 % 2.31 %(2)
Net investment loss ....................................... (1.54)% (1.16)% (0.51)%(2)
SUPPLEMENTAL DATA :
Net assets, end of period, in thousands ................... $267,384 $ 213,726 $207,321
Portfolio turnover rate ................................... 218 % 132 % 8 %(1)
Average commission rate paid .............................. $ 0.0498 $ 0.0527 $ 0.0496
</TABLE>
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* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
6
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FINANCIAL HIGHLIGHTS, continued
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<CAPTION>
For the Period
July 28, 1997*
through
March 31, 1998++
-------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE :
Net asset value, beginning of period ............ $ 11.43
---------
Net investment loss ............................. (0.08)
Net realized and unrealized gain ................ 2.67
---------
Total from investment operations ................ 2.59
---------
Net asset value, end of period .................. $ 14.02
=========
TOTAL INVESTMENT RETURN+ ........................ 22.66 %(1)
RATIOS TO AVERAGE NET ASSETS :
Expenses ........................................ 1.27 %(2)
Net investment loss ............................. (0.93)%(2)
SUPPLEMENTAL DATA :
Net assets, end of period, in thousands ......... $ 206
Portfolio turnover rate ......................... 218 %
Average commission rate paid .................... $0.0498
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE :
Net asset value, beginning of period ............ $ 11.43
---------------
Net investment loss ............................. (0.14)
Net realized and unrealized gain ................ 2.65
---------------
Total from investment operations ................ 2.51
---------------
Net asset value, end of period .................. $ 13.94
===============
TOTAL INVESTMENT RETURN+ ........................ 21.96 %(1)
Ratios to Average Net Assets :
Expenses ........................................ 2.05 %(2)
Net investment loss ............................. (1.72)%(2)
SUPPLEMENTAL DATA :
Net assets, end of period, in thousands ......... $ 249
Portfolio turnover rate ......................... 218 %
Average commission rate paid .................... $0.0498
</TABLE>
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* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
7
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FINANCIAL HIGHLIGHTS, continued
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<CAPTION>
For the Period
July 28, 1997*
through
March 31, 1998++
-----------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE :
Net asset value, beginning of period ............ $ 11.43
---------
Net investment loss ............................. (0.07)
Net realized and unrealized gain ................ 2.67
---------
Total from investment operations ................ 2.60
---------
Net asset value, end of period .................. $ 14.03
=========
TOTAL INVESTMENT RETURN+ ........................ 22.75 %(1)
RATIOS TO AVERAGE NET ASSETS :
Expenses ........................................ 1.04 %(2)
Net investment loss ............................. (0.82)%(2)
SUPPLEMENTAL DATA :
Net assets, end of period, in thousands ......... $ 1,464
Portfolio turnover rate ......................... 218 %
Average commission rate paid .................... $0.0498
</TABLE>
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* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
8
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THE FUND AND ITS MANAGEMENT
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Morgan Stanley Dean Witter Information Fund (the "Fund") (formerly named
Dean Witter Information Fund) is an open-end, diversified management investment
company. The Fund is a trust of the type commonly known as a "Massachusetts
business trust" and was organized under the laws of Massachusetts on
December 8, 1994.
Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors" or the
"Investment Manager"), whose address is Two World Trade Center, New York, New
York 10048, is the Fund's Investment Manager. The Investment Manager is a
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co., a preeminent
global financial services firm that maintains leading market positions in each
of its three primary businesses--securities, asset management and credit
services. The Investment Manager, which was incorporated in July, 1992 under
the name Dean Witter InterCapital Inc., changed its name to Morgan Stanley Dean
Witter Advisors Inc. on June 22, 1998.
MSDW Advisors, and its wholly-owned subsidiary, Morgan Stanley Dean
Witter Services Company Inc. ("MSDW Services"), serve in various investment
management, advisory, management and administrative capacities to a total of
101 investment companies, 28 of which are listed on the New York Stock
Exchange, with combined assets of approximately $110.8 billion as of June 30,
1998. The Investment Manager also manages and advises portfolios of pension
plans, other institutions and individuals which aggregated approximately $4.4
billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, including the placing of orders for the purchase and sale of portfolio
securities. MSDW Advisors has retained MSDW Services to perform the
aforementioned administrative services for the Fund.
The Fund's Trustees review the various services provided by the
Investment Manager to ensure that the Fund's general investment policies and
programs are being properly carried out and that administrative services are
being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the
Fund and for expenses of the Fund assumed by the Investment Manager, the Fund
pays the Investment Manager monthly compensation calculated daily by applying
the annual rate of 0.75% to the net assets of the Fund not exceeding $500
million and 0.725% to the net assets of the Fund exceeding $500 million. For
the fiscal year ended March 31, 1998, the Fund accrued total compensation to
the Investment Manager amounting to an annual rate of 0.75% of the Fund's
average daily net assets and the total expenses of Class B amounted to 2.05% of
the average daily net assets of Class B. Shares of Class A, Class C and Class D
were first issued on July 28, 1997. The expenses of the Fund include: the fee
of the Investment Manager; the fee pursuant to the Plan of Distribution (see
"Purchase of Fund Shares"); taxes; transfer agent, custodian and auditing fees;
certain legal fees; and printing and other expenses relating to the Fund's
operations which are not expressly assumed by the Investment Manager under its
Investment Management Agreement with the Fund.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is long-term capital appreciation. This
objective is fundamental and may not be changed without shareholder approval.
There is no assurance that the objective will be achieved.
9
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The Fund seeks to achieve its investment objective by investing under
normal circumstances at least 65% of its total assets in common stocks and
securities convertible into common stocks of domestic or foreign companies
which are involved in all areas, including emerging areas, of the
communications and information industry. The Fund will not have more than 10%
of its total assets invested in convertible securities determined as of the
time of purchase. Under normal circumstances, the Fund will invest in equity
securities of issuers located in at least three countries, one of which is the
United States.
The communications and information industry is experiencing widespread
changes and expansion due to rapidly changing technologies (including enabling
technologies), industry migration in search of new markets, communications
needs in developing countries, competitive pressures and changes in
governmental regulation. Additionally, a number of traditional communications
industries have either converged or evolved into new corporate forms and some
of these industries are only beginning to emerge. The Investment Manager
believes that as technologies develop, many of the traditional distinctions and
characteristics of these industries will blur. The Investment Manager believes
that the communications and information industry will continue to grow in the
future and that the Fund's investment policies as outlined below are designed
to take advantage of the investment opportunities present in this industry.
Companies in the communications and information industry will be
considered those companies engaged in designing, developing, manufacturing or
providing the following products and services, or the enabling technology with
respect thereto, throughout the world: regular telephone service;
communications equipment and services (including equipment and services for
both data and voice transmission); electronic components and equip-ment;
broadcasting (including television and radio, satellite, microwave and cable
television and narrow-casting); computer equipment, enabling software, mobile
communications and cellular radio/paging; electronic mail and other electronic
data transmission services; local and wide area networking and linkage of word
and data processing systems; publishing and information systems, including the
storage and transmission of information; video text and teletext; and emerging
technologies combining telephone, television and/or computer systems; the
creation, packaging, distribution, and ownership of entertainment and
information programming throughout the world including but not limited to pre-
recorded music, feature length motion pictures, made for T.V. movies,
television series, documentaries, educational tutorials, animation, game shows,
sports programming, news programs, and live events such as professional
sporting events, concerts and theatrical exhibitions and academic courses or
tutorials; television and radio broadcasting via VHF, UHF, satellite and
microwave transmission, cable television programming and systems, and broadcast
and cable networks, wireless cable television and other emerging distribution
technologies, home video, and interactive/multimedia programming including
financial services, education, home shopping, video games and multiplayer
games; publishing including newspapers, magazines and books, advertising
agencies and niche advertising mediums such as in-store or direct mail,
emerging technologies combining television, telephone and computer systems,
computer hardware and software, and equipment used in the creation and
distribution of entertainment programming such as that required in the
provision of broadcast, cable or telecommunications services.
Companies considered to be in communications and information industry
will be those which derive at least 35% of their revenues or earnings from the
aforementioned respective activities, or devote at least 35% of their assets to
such respective activities.
Up to 35% of the Fund's total assets may be invested in investment grade
fixed-income securities, U.S. Government securities (including zero coupon
securities) or money market instruments. With respect to corporate fixed-income
securities, the term "investment grade" means securities which
10
<PAGE>
are rated Baa or higher by Moody's Investors Services, Inc. ("Moody's") or BBB
or higher by Standard & Poor's Corporation ("S&P") or, if not rated, are deemed
by the Investment Manager to be of comparable quality.
Investments in fixed-income securities rated either BBB by S&P or Baa by
Moody's (the lowest credit ratings designated "investment grade") have
speculative characteristics and, therefore, changes in economic conditions or
other circumstances are more likely to weaken their capacity to make principal
and interest payments than would be the case with investments in securities
with higher credit ratings. If a fixed-income or convertible security held by
the Fund is rated BBB or Baa and is subsequently downgraded by a rating agency,
or otherwise falls below investment grade the Fund will sell such securities as
soon as is practicable without undue market or tax consequences to the Fund.
See the Appendix to the Statement of Additional Information for a discussion of
ratings of fixed-income securities.
The Fund may invest up to 50% of its total assets in the securities of
foreign issuers. The Fund will not invest 25% or more of its total assets in
any one foreign country.
Money market instruments in which the Fund may invest are securities
issued or guaranteed by the U.S. Government or its agencies (Treasury bills,
notes and bonds); obligations of banks subject to regulation by the U.S.
Government and having total assets of $1 billion or more; Eurodollar
certificates of deposit; obligations of savings banks and savings and loan
associations having total assets of $1 billion or more; fully insured
certificates of deposit; and commercial paper rated within the two highest
grades by Moody's or S&P or, if not rated, issued by a company having an
outstanding debt issue rated AA by S&P or Aa by Moody's.
There may be periods during which, in the opinion of the Investment
Manager, market conditions warrant reduction of some or all of the Fund's
securities holdings. During such periods, the Fund may adopt a temporary
"defensive" posture in which greater than 35% of its total assets is invested
in money market instruments or cash.
Convertible Securities. The Fund may invest in investment grade
convertible securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. Convertible
securities rank senior to common stocks in a corporation's capital structure
and, therefore, entail less risk than the corporation's common stock. The value
of a convertible security is a function of its "investment value" (its value as
if it did not have a conversion privilege), and its "conversion value" (the
security's worth if it were to be exchanged for the underlying security, at
market value, pursuant to its conversion privilege).
Foreign Securities. As noted above, the Fund may invest in securities of
foreign companies. Such investments may also be in the form of American
Depository Receipts (ADRs), European Depository Receipts (EDRs) or other
similar securities convertible into securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by a United States bank or trust company evidencing ownership of the underlying
securities. EDRs are European receipts evidencing a similar arrangement.
Generally, ADRs, in registered form, are designed for use in the United States
securities markets and EDRs, in bearer form, are designed for use in European
securities markets. The Fund's investments in unlisted foreign securities are
subject to the Fund's overall policy limiting its investment in illiquid
securities to 15% or less of its net assets.
RISK CONSIDERATIONS
The net asset value of the Fund's shares will fluctuate with changes in
the market value of the Fund's portfolio securities. The market value of the
Fund's portfolio securities will increase or decrease due to a variety of
economic, market or political factors affecting companies and/or industries in
which the Fund invests, which factors cannot be predicted. Additionally, the
value of the Fund's fixed-income and convertible securities may increase or
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decrease due to changes in prevailing interest rates. Generally, a rise in
interest rates will result in a decrease in value, while a drop in interest
rates will result in an increase in value.
Communications and Information Industry. The Fund concentrates its
investments in the communications and information industry. Because of this
concentration, the value of the Fund's shares may be
more volatile than that of investment companies that do not similarly
concentrate their investments. The communications and information industry may
be subject to greater changes in governmental policies and governmental
regulation than in many other industries in the United States and worldwide.
Regulatory approval requirements, ownership restrictions and restrictions on
rates of return and types of services that may be offered may materially affect
the products and services of this industry. Additionally, the products and
services of companies in this industry may be subject to faster obsolescence as
a result of greater competition, advancing technological developments, and
changing market and consumer preferences. As a result, the stocks of companies
in this industry may exhibit greater price volatility than those of companies
in other industries.
Foreign Securities. Foreign securities investments may be affected by
changes in currency rates or exchange control regulations, changes in
governmental administration or economic or monetary policy (in the United
States and abroad) or changed circumstances in dealings between nations.
Fluctuations in the relative rates of exchange between different currencies
will affect the value of the Fund's investments denominated in foreign
currency. Changes in foreign currency exchange rates relative to the U.S.
dollar will affect the U.S. dollar value of the Fund's assets denominated in
that currency and thereby impact upon the Fund's total return on such assets.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of
the exchanges on which the currencies trade. The foreign currency transactions
of the Fund will be conducted on a spot basis or through forward foreign
currency exchange contracts (described below). The Fund will incur certain
costs in connection with these currency transactions.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, restrictions on foreign investment and
repatriation of capital, limitations on the use or transfer of Fund assets and
any effects of foreign social, economic or political instability. Foreign
companies are not subject to the regulatory requirements of U.S. companies and,
as such, there may be less publicly available information about such companies.
Moreover, foreign companies are not subject to uniform accounting, auditing and
financial reporting standards and requirements comparable to those applicable
to U.S. companies. Additionally, there may be less investment community
research and coverage with respect to certain foreign securities.
Securities of foreign issuers may be less liquid than comparable
securities of U.S. issuers and, as such, their price changes may be more
volatile. Furthermore, foreign exchanges and broker-dealers are generally
subject to less government and exchange scrutiny and regulation than their
American counterparts. Brokerage commissions, dealer concessions and other
transaction costs may be higher on foreign markets than in the U.S. In
addition, differences in clearance and settlement procedures on foreign markets
may occasion delays in settlements of the Fund's trades effected in such
markets. As such, the inability to dispose of portfolio securities due to
settlement delays could result in losses to the Fund due to subsequent declines
in value of such securities and the inability of the Fund to make intended
security purchases due to settlement problems could result in a failure of the
Fund to make potentially advantageous investments. To the extent the Fund
purchases Eurodollar certificates of deposit issued by foreign branches of
domestic U.S.
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banks, consideration will be given to their domestic marketability, the lower
reserve requirements normally mandated for overseas banking operations, the
possible impact of interruptions in the flow of international currency
transactions and future international political and economic developments which
might adversely affect the payment of principal or interest.
Many European countries are about to adopt a single European currency,
the euro (the "Euro Conversion"). The consequences of the Euro Conversion for
foreign exchange rates, interest rates and the value of European securities
eligible for purchase by the Fund are presently unclear. Such consequences may
adversely affect the value and/or increase the volatility of securities held by
the Fund.
Convertible Securities. To the extent that a convertible security's
investment value is greater than its conversion value, its price will be
primarily a reflection of such investment value and its price will be likely to
increase when interest rates fall and decrease when interest rates rise, as
with a fixed-income security (the credit standing of the issuer and other
factors may also have an effect on the convertible security's value). If the
conversion value exceeds the investment value, the price of the convertible
security will rise above its investment value and, in addition, will generally
sell at some premium over its conversion value. (This premium represents the
price investors are willing to pay for the privilege of purchasing a
fixed-income security with a possibility of capital appreciation due to the
conversion privilege.) At such times the price of the convertible security will
tend to fluctuate directly with the price of the underlying equity security.
Year 2000. The investment management services provided to the Fund by
the Investment Manager and the services provided to shareholders by the
Distributor and the Transfer Agent depend on the smooth functioning of their
computer systems. Many computer software systems in use today cannot recognize
the year 2000, but revert to 1900 or some other date, due to the manner in
which dates were encoded and calculated. That failure could have a negative
impact on the handling of securities trades, pricing and account services. The
Investment Manager, the Distributor and the Transfer Agent have been actively
working on necessary changes to their own computer systems to prepare for the
year 2000 and expect that their systems will be adapted before that date, but
there can be no assurance that they will be successful, or that interaction
with other non-complying computer systems will not impair their services at
that time.
In addition, it is possible that the markets for securities in which the
Fund invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies and overall economic
uncertainties. Earnings of individual issuers will be affected by remediation
costs, which may be substantial and may be reported inconsistently in U.S. and
foreign financial statements. Accordingly, the Fund's investments may be
adversely affected.
The risks of other investment techniques which may be utilized by the
Fund described under "Other Investment Policies," "Options and Futures
Transactions" and "Forward Foreign Currency Exchange Contracts" are described
below.
OTHER INVESTMENT POLICIES
Warrants and Stock Rights. The Fund may invest up to 5% of the value of
its net assets in warrants, including not more than 2% in warrants not listed
on either the New York or American Stock Exchange. The Fund may also invest in
stock rights. Warrants are, in effect, an option to purchase equity securities
at a specific price, generally valid for a specific period of time, and have no
voting rights, pay no dividends and have no rights with respect to the
corporations issuing them. The Fund may acquire warrants and stock rights
attached to other securities without reference to the foregoing limitations.
Repurchase Agreements. The Fund may enter into repurchase agreements,
which may be viewed as a type of secured lending by the Fund,
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and which typically involve the acquisition by the Fund of debt securities from
a selling financial institution such as a bank, savings and loan association or
broker-dealer. The agreement provides that the Fund will sell back to the
institution, and that the institution will repurchase, the underlying security
at a specified price and at a fixed time in the future, usually not more than
seven days from the date of purchase. While repurchase agreements involve
certain risks not associated with direct investments in debt securities,
including risks of defaults or bankruptcy of the selling institution, the Fund
follows procedures designed to minimize those risks. These procedures include
effecting repurchase transactions only with large, well-capitalized and
well-established financial institutions and maintaining adequate
collateralization. See the Statement of Additional Information for a further
discussion of such investments.
Private Placements. The Fund may invest up to 5% of its total assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible for
resale pursuant to Rule 144A under the Securities Act, and determined to be
liquid pursuant to the procedures discussed in the following paragraph, are not
subject to the foregoing restriction.) These securities are generally referred
to as private placements or restricted securities. Limitations on the resale of
such securities may have an adverse effect on their marketability, and may
prevent the Fund from disposing of them promptly at reasonable prices. The Fund
may have to bear the expense of registering such securities for resale and the
risk of substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits the Fund to sell restricted securities to
qualified institutional buyers without limitation. The Investment Manager,
pursuant to procedures adopted by the Trustees of the Fund, will make a
determination as to the liquidity of each restricted security purchased by the
Fund. If a restricted security is determined to be "liquid," such security will
not be included within the category "illiquid securities," which under current
policy may not exceed 15% of the Fund's net assets. However, investing in Rule
144A Securities could have the effect of increasing the level of Fund
illiquidity to the extent the Fund, at a particular point in time, may be
unable to find qualified institutional buyers interested in purchasing such
securities.
When-Issued and Delayed Delivery Securities and Forward
Commitments. From time to time, in the ordinary course of business, the Fund
may purchase securities on a when-issued or delayed delivery basis or may
purchase or sell securities on a forward commitment basis. When such
transactions are negotiated, the price is fixed at the time of the commitment,
but delivery and payment can take place a month or more after the date of the
commitment. An increase in the percentage of the Fund's assets committed to the
purchase of securities on a when-issued, delayed delivery or forward commitment
basis may increase the volatility of the Fund's net asset value.
When, As and If Issued Securities. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization, leveraged buyout or debt restructuring. If the
anticipated event does not occur and the securities are not issued, the Fund
will have lost an investment opportunity. An increase in the percentage of the
Fund's assets committed to the purchase of securities on a "when, as and if
issued" basis may increase the volatility of its net asset value.
Investment in Other Investment Vehicles. Under the Investment Company
Act of 1940, as amended, the Fund generally may invest up to 10% of its total
assets in shares of investment companies, including foreign investment
companies, and up to 5% of its total assets in any one investment company. The
Fund may not own more than 3% of the outstanding voting securities of any
investment company. Investment in foreign investment companies may be the sole
or most practical means by which the Fund may participate in certain foreign
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securities markets. As a shareholder in an investment company, the Fund would
bear its ratable share of that entity'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 other investment companies.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, the Fund may lend its portfolio securities to brokers, dealers
and other financial institutions, provided that such loans are callable at any
time by the Fund (subject to certain notice provisions described in the
Statement of Additional Information), and are at all times secured by cash or
money market instruments, which are maintained in a segregated account pursuant
to applicable regulations and that are equal to at least the market value,
determined daily, of the loaned securities. As with any extensions of credit,
there are risks of delay in recovery and in some cases even loss of rights in
the collateral should the borrower of the securities fail financially. However,
loans of portfolio securities will only be made to firms deemed by the
Investment Manager to be creditworthy and when the income which can be earned
from such loans justifies the attendant risks.
Zero Coupon Securities. A portion of the fixed-income securities
purchased by the Fund may be zero coupon securities. Such securities are
purchased at a discount from their face amount, giving the purchaser the right
to receive their full value at maturity. The interest earned on such securities
is, implicitly, automatically compounded and paid out at maturity. While such
compounding at a constant rate eliminates the risk of receiving lower yields
upon reinvestment of interest if prevailing interest rates decline, the owner
of a zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received on interest-paying securities if prevailing
interest rates rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. In
addition, zero coupon securities are subject to substantially greater price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest on a current basis. Current federal
tax law requires that a holder (such as the Fund) of a zero coupon security
accrue a portion of the discount at which the security was purchased as income
each year even though the Fund receives no interest payments in cash on the
security during the year.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase and sell (write) call and put options on portfolio
securities and on the U.S. dollar or foreign currencies which are or may in the
future be listed on securities exchanges or are written in over-the-counter
transactions ("OTC options"). Listed options are issued or guaranteed by the
exchange on which they trade or by a clearing corporation such as the Options
Clearing Corporation. OTC options are purchased from or sold (written) to
dealers or financial institutions which have entered into direct agreements
with the Fund. The Fund is permitted to write covered call options on portfolio
securities and the U.S. dollar or foreign currencies, without limit, in order
to aid it in achieving its investment objective. The Fund may also write
covered put options; however, the aggregate value of the obligations underlying
the puts determined as of the date the options are sold will not exceed 20% of
the Fund's net assets.
The Fund may purchase listed and OTC call and put options on securities
and stock indexes in amounts equalling up to 5% of its total assets. The Fund
may purchase call options to close out a covered call position or to protect
against an increase in the price of a security it anticipates purchasing. The
Fund may purchase put options on securities which it holds in its portfolio
only to protect itself against a decline in the value of the security. The Fund
may also purchase put options to close out written put positions in a manner
similar to call option closing purchase transactions. There are no other limits
on the Fund's ability to purchase call and put options.
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The Fund may also purchase and sell futures contracts that are currently
traded, or may in the future be traded, on U.S. and foreign commodity exchanges
on underlying portfolio securities, on any of the foreign currencies ("currency
futures"), on U.S. or foreign fixed-income securities ("interest rate futures")
and on such indexes of U.S. or foreign equity, fixed-income or convertible
securities as may exist or come into being ("index futures"). The Fund will
purchase or sell interest rate futures contracts for the purpose of hedging its
fixed-income portfolio (or anticipated portfolio) against changes in prevailing
interest rates. The Fund may purchase or sell index futures or currency futures
for the purpose of hedging some or all of its portfolio (or anticipated
portfolio) securities against changes in their prices (or the currency in which
they are denominated).
The Fund, for hedging purposes, also may purchase and write call and put
options on futures contracts which are traded on an exchange and enter into
closing transactions with respect to such options to terminate an existing
position.
New futures contracts, options and other financial products and various
combinations thereof continue to be developed. The Fund may invest in any such
futures, options or products as may be developed, to the extent consistent with
its investment objective and applicable regulatory requirements.
Risks of Options and Futures Transactions. The Fund may close out its
position as writer of an option, or as a buyer or seller of a futures contract,
only if a liquid secondary market exists for options or futures contracts of
that series. There is no assurance that such a market will exist, particularly
in the case of OTC options, as such options may generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer. Also,
exchanges may limit the amount by which the price of many futures contracts may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased.
The futures contracts and options transactions to be engaged in by the
Fund are only for the purpose of hedging the Fund's portfolio securities and
are not speculative in nature; however, there are risks inherent in the use of
such instruments. One such risk is that the Investment Manager could be
incorrect in its expectations as to the direction or extent of various interest
rate or price movements or the time span within which the movements take place.
For example, if the Fund sold futures contracts for the sale of securities in
anticipation of an increase in interest rates, and then interest rates went
down instead, causing bond prices to rise, the Fund would lose money on the
sale. Another risk which will arise in employing futures contracts to protect
against the price volatility of portfolio securities is that the prices of
securities, currencies and indexes subject to futures contracts (and thereby
the futures contract prices) may correlate imperfectly with the behavior of the
dollar cash prices of the Fund's portfolio securities and their denominated
currencies. See the Statement of Additional Information for a further
discussion of such risks.
FORWARD FOREIGN CURRENCY EXCHANGE
CONTRACTS
The Fund may enter into forward foreign currency exchange contracts
("forward contracts") in connection with its foreign securities investments.
A forward contract involves an obligation to purchase or sell a currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the
contract. The Fund may enter into forward contracts as a hedge against
fluctuations in future foreign exchange rates.
The Fund will enter into forward contracts under various circumstances.
When the Fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in" the
price of the security in U.S. dollars or some other foreign currency which the
Fund is temporarily holding in its portfolio. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars or other
currency, of the amount of foreign currency involved in the
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underlying security transactions, the Fund will be able to protect itself
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar or other currency which is being used for the security
purchase (by the Fund or the counterparty) and the foreign currency in which
the security is denominated during the period between the date on which the
security is purchased or sold and the date on which payment is made or
received.
At other times, when, for example, the Investment Manager believes that
a particular foreign currency may suffer a substantial decline against the U.S.
dollar or some other foreign currency, the Fund may enter into a forward
contract to sell, for a fixed amount of dollars or other currency, the amount
of foreign currency approximating the value of some or all of the Fund's
securities holdings (or securities which the Fund has purchased for its
portfolio) denominated in such foreign currency. Under identical circumstances,
the Fund may enter into a forward contract to sell, for a fixed amount of U.S.
dollars or other currency, an amount of foreign currency other than the
currency in which the securities to be hedged are denominated approximating the
value of some or all of the portfolio securities to be hedged. This method of
hedging, called "cross-hedging," will be selected by the Investment Manager
when it is determined that the foreign currency in which the portfolio
securities are denominated has insufficient liquidity or is trading at a
discount as compared with some other foreign currency with which it tends to
move in tandem.
In addition, when the Investment Manager anticipates purchasing
securities at some time in the future, and wishes to lock in the current
exchange rate of the currency in which those securities are denominated against
the U.S. dollar or some other foreign currency, the Fund may enter into a
forward contract to purchase an amount of currency equal to some or all of the
value of the anticipated purchase, for a fixed amount of U.S. dollars or other
currency. The Fund may, however, close out the forward contract without
purchasing the security which was the subject of the "anticipatory" hedge.
In all of the above circumstances, if the currency in which the Fund's
securities holdings (or anticipated portfolio securities) are denominated rises
in value with respect to the currency which is being purchased (or sold), then
the Fund will have realized fewer gains than had the Fund not entered into the
forward contracts. Moreover, the precise matching of the forward contract
amounts and the value of the securities involved will not generally be
possible, since the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of those securities
between the date the forward contract is entered into and the date it matures.
The Fund is not required to enter into such transactions with regard to its
foreign currency-denominated securities and will not do so unless deemed
appropriate by the Investment Manager. The Fund generally will not enter into a
forward contract with a term of greater than one year, although it may enter
into forward contracts for periods of up to five years. The Fund may be limited
in its ability to enter into hedging transactions involving forward contracts
by the Internal Revenue Code requirements related to qualification as a
regulated investment company (see "Dividends, Distributions, and Taxes").
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with
a view to achieving the Fund's investment objective. The Fund's portfolio is
managed within MSDW Advisors' Growth Group which manages 28 equity funds and
fund portfolios with approximately $10.5 billion in assets as of June 30, 1998.
George Paoletti, Vice President of MSDW Advisors, has been the Fund's primary
portfolio manager since July, 1998. Before managing the Fund Mr. Paoletti was a
Senior Equity Research Analyst with MSDW Advisors since May, 1997 and prior
thereto was an Equity Research Analyst with Fred Alger Management (November,
1995-May, 1997) and a consultant with Off Wall Street Consulting (July,
1992-November, 1995).
In determining which securities to purchase for the Fund or hold in the
Fund's portfolio, the Invest-
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ment Manager will rely on information from various sources, including research,
analysis and appraisals of brokers and dealers, including Dean Witter Reynolds
Inc., Morgan Stanley & Co. Incorporated and other broker-dealers that are
affiliates of the Investment Manager, and the Investment Manager's own analysis
of factors it deems relevant.
Orders for transactions in portfolio securities and commodities are
placed for the Fund with a number of brokers and dealers, including Dean Witter
Reynolds Inc. and other brokers and dealers that are affiliates of the
Investment Manager. The Fund may incur brokerage commissions on transactions
conducted through such affiliates. It is not anticipated that the portfolio
trading will result in the Fund's portfolio turnover rate exceeding 300% in any
one year. A portfolio turnover rate in excess of 100% may be considered high
and the Fund will incur correspondingly higher transaction costs. In addition,
high portfolio turnover may result in more capital gains which would be taxable
to the shareholders of the Fund. (See "Dividends, Distributions and Taxes.")
Except as specifically noted, all investment policies and practices
discussed above are not fundamental policies of the Fund and thus may be
changed without shareholder approval.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions listed below are among the restrictions
which have been adopted by the Fund as fundamental policies. (See the Statement
of Additional Information for a list of the Fund's other investment
restrictions.) Under the Act, a fundamental policy may not be changed without
the vote of a majority of the outstanding voting securities of the Fund, as
defined in the Act. For purposes of the following limitations: (i) all
percentage limitations apply immediately after a purchase or initial
investment, and (ii) any subsequent change in any applicable percentage
resulting from market fluctuations or other changes in total or net assets does
not require elimination of any security from the portfolio.
The Fund may not:
1. As to 75% of its total assets, invest more than 5% of the value
of its total assets in the securities of one issuer (other than
obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities).
2. Invest 25% or more of the value of its total assets in securities
of issuers in any one industry except that the Fund will invest at least
25% of its total assets in the securities of issuers in the
communications and information industry. This restriction does not apply
to securities of the communications and information industry as defined
herein, or to obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities.
3. Invest more than 5% of the value of its total assets in
securities of issuers having a record, together with predecessors, of
less than three years of continuous operation. This restriction does not
apply to obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities.
4. The Fund may not, as to 75% of its total assets, purchase more
than 10% of the voting securities of any issuer.
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.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
GENERAL
The Fund offers each class of its shares for sale to the public on a
continuous basis. Pursuant to a Distribution Agreement between the Fund and
Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors" or the
"Distributor"), an affiliate of the Investment Manager, shares of the Fund
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are distributed by the Distributor and offered by Dean Witter Reynolds Inc.
("DWR"), a selected dealer and subsidiary of Morgan Stanley Dean Witter & Co.,
and other dealers who have entered into selected broker-dealer agreements with
the Distributor ("Selected Broker-Dealers"). It is anticipated that DWR will
undergo a change of corporate name which is expected to incorporate the brand
name of "Morgan Stanley Dean Witter," pending approval of various regulatory
authorities. The principal executive office of the Distributor is located at
Two World Trade Center, New York, New York 10048.
The Fund offers four classes of shares (each, a "Class"). Class A shares
are sold to investors with an initial sales charge that declines to zero for
larger purchases; however, Class A shares sold without an initial sales charge
are subject to a contingent deferred sales charge ("CDSC") of 1.0% if redeemed
within one year of purchase, except for certain specific circumstances. Class B
shares are sold without an initial sales charge but are subject to a CDSC
(scaled down from 5.0% to 1.0%) payable upon most redemptions within six years
after purchase. (Class B shares purchased by certain qualified plans are
subject to a CDSC scaled down from 2.0% to 1.0% if redeemed within three years
after purchase.) Class C shares are sold without an initial sales charge but
are subject to a CDSC of 1.0% on most redemptions made within one year after
purchase. Class D shares are sold without an initial sales charge or CDSC and
are available only to investors meeting an initial investment minimum of $5
million ($25 million for certain qualified plans), and to certain other limited
categories of investors. At the discretion of the Board of Trustees of the
Fund, Class A shares may be sold to categories of investors in addition to
those set forth in this prospectus at net asset value without a front-end sales
charge, and Class D shares may be sold to certain other categories of
investors, in each case as may be described in the then current prospectus
of the Fund. See "Alternative Purchase Arrange-ments--Selecting a Particular
Class" for a discussion of factors to consider in selecting which Class of
shares to purchase.
The minimum initial purchase is $1,000 for each Class of shares,
although Class D shares are only available to persons investing $5 million ($25
million for certain qualified plans) or more and to certain other limited
categories of investors. For the purpose of meeting the minimum $5 million (or
$25 million) initial investment for Class D shares, and subject to the $1,000
minimum initial investment for each Class of the Fund, an investor's existing
holdings of Class A shares of the Fund and other Morgan Stanley Dean Witter
Funds that are multiple class funds ("Morgan Stanley Dean Witter Multi-Class
Funds") and shares of Morgan Stanley Dean Witter Funds sold with a front-end
sales charge ("FSC Funds") and concurrent investments in Class D shares of the
Fund and other Morgan Stanley Dean Witter Multi-Class Funds will be aggregated.
Subsequent purchases of $100 or more may be made by sending a check, payable to
Morgan Stanley Dean Witter Information Fund, directly to Morgan Stanley Dean
Witter Trust FSB (the "Transfer Agent" or "MSDW Trust") at P.O. Box 1040,
Jersey City, NJ 07303, or by contacting a Morgan Stanley Dean Witter Financial
Advisor or other Selected Broker-Dealer representative. When purchasing shares
of the Fund, investors must specify whether the purchase is for Class A, Class
B, Class C or Class D shares. If no Class is specified, the Transfer Agent will
not process the transaction until the proper Class is identified. The minimum
initial purchase in the case of investments through EasyInvestSM, an automatic
purchase plan (see "Shareholder Services"), is $100, provided that the schedule
of automatic investments will result in investments totalling at lease $1,000
within the first twelve months. The minimum initial purchase in the case of an
"Education IRA" is $500, if the Distributor has reason to believe that
additional investments will increase the investment in the account to $1,000
within three years. In the case of investments pursuant to (i) Systematic
Payroll Deduction Plans (including Individual Retirement Plans), (ii) the MSDW
Advisors mutual fund asset allocation program and (iii) fee-based programs
approved by the Distributor, pursuant to which participants pay an asset based
fee for services in the nature of invest-
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ment advisory, administrative and/or brokerage services, the Fund, in its
discretion, may accept investments without regard to any minimum amounts which
would otherwise be required, provided, in the case of Systematic Payroll
Deduction Plans, that the Distributor has reason to believe that additional
investments will increase the investment in all accounts under such Plans to at
least $1,000. Certificates for shares purchased will not be issued unless a
request is made by the shareholder in writing to the Transfer Agent.
Shares of the Fund are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business
day (settlement date) after the order is placed with the Distributor. Since DWR
and other Selected Broker-Dealers forward investors' funds on settlement date,
they will benefit from the temporary use of the funds if payment is made prior
thereto. As noted above, orders placed directly with the Transfer Agent must be
accompanied by payment. Investors will be entitled to receive income dividends
and capital gains distributions if their order is received by the close of
business on the day prior to the record date for such dividends and
distributions. Sales personnel of a Selected Broker-Dealer are compensated for
selling shares of the Fund by the Distributor or any of its affiliates and/or
the Selected Broker-Dealer. In addition, some sales personnel of the Selected
Broker-Dealer will receive non-cash compensation in the form of trips to
educational seminars and merchandise as special sales incentives. The Fund and
the Distributor reserve the right to reject any purchase orders.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund offers several Classes of shares to investors designed to
provide them with the flexibility of selecting an investment best suited to
their needs. The general public is offered three Classes of shares: Class A
shares, Class B shares and Class C shares, which differ principally in terms of
sales charges and rate of expenses to which they are subject. A fourth Class of
shares, Class D shares, is offered only to limited categories of investors (see
"No Load Alternative--Class D Shares" below).
Each Class A, Class B, Class C or Class D share of the Fund represents
an identical interest in the investment portfolio of the Fund except that Class
A, Class B and Class C shares bear the expenses of the ongoing shareholder
service fees, Class B and Class C shares bear the expenses of the ongoing
distribution fees and Class A, Class B and Class C shares which are redeemed
subject to a CDSC bear the expense of the additional incremental distribution
costs resulting from the CDSC applicable to shares of those Classes. The
ongoing distribution fees that are imposed on Class A, Class B and Class C
shares will be imposed directly against those Classes and not against all
assets of the Fund and, accordingly, such charges against one Class will not
affect the net asset value of any other Class or have any impact on investors
choosing another sales charge option. See "Plan of Distribution" and
"Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and
the factors an investor should consider when selecting a particular Class. This
summary is qualified in its entirety by detailed discussion of each Class that
follows this summary.
Class A Shares. Class A shares are sold at net asset value plus an
initial sales charge of up to 5.25%. The initial sales charge is reduced for
certain purchases. Investments of $1 million or more (and investments by
certain other limited categories of investors) are not subject to any sales
charges at the time of purchase but are subject to a CDSC of 1.0% on
redemptions made within one year after purchase, except for certain specific
circumstances. Class A shares are also subject to a 12b-1 fee of up to 0.25% of
the average daily net assets of the Class. See "Initial Sales Charge
Alternative--Class A Shares."
Class B Shares. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to 1.0%)
if redeemed within six years of purchase. (Class B shares purchased by certain
qualified plans are subject to a CDSC scaled down from 2.0% to 1.0% if redeemed
within three years after purchase.) This
20
<PAGE>
CDSC may be waived for certain redemptions. Class B shares are also subject to
an annual 12b-1 fee of 1.0% of the lesser of: (a) the average daily aggregate
gross sales of the Fund's Class B shares since the inception of the Fund (not
including reinvestments of dividends or capital gains distributions), less the
average daily aggregate net asset value of the Fund's Class B shares redeemed
since the Fund's inception upon which a CDSC has been imposed or waived, or (b)
the average daily net assets of Class B. The Class B shares' distribution fee
will cause that Class to have higher expenses and pay lower dividends than
Class A or Class D shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition, a
certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time. See
"Contingent Deferred Sales Charge Alternative--Class B Shares."
Class C Shares. Class C shares are sold at net asset value with no
initial sales charge but are subject to a CDSC of 1.0% on redemptions made
within one year after purchase. This CDSC may be waived for certain
redemptions. They are subject to an annual 12b-1 fee of up to 1.0% of the
average daily net assets of the Class C shares. The Class C shares'
distribution fee may cause that Class to have higher expenses and pay lower
dividends than Class A or Class D shares. See "Level Load Alternative--Class C
Shares."
Class D Shares. Class D shares are available only to limited categories
of investors (see "No Load Alternative--Class D Shares" below). Class D shares
are sold at net asset value with no initial sales charge or CDSC. They are not
subject to any 12b-1 fees. See "No Load Alternative--Class D Shares."
Selecting a Particular Class. In deciding which Class of Fund shares to
purchase, investors should consider the following factors, as well as any other
relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to an
investor depends on the amount and intended length of his or her investment.
Investors who prefer an initial sales charge alternative may elect to purchase
Class A shares. Investors qualifying for significantly reduced or, in the case
of purchases of $1 million or more, no initial sales charges may find Class A
shares particularly attractive because similar sales charge reductions are not
available with respect to Class B or Class C shares. Moreover, Class A shares
are subject to lower ongoing expenses than are Class B or Class C shares over
the term of the investment. As an alternative, Class B and Class C shares are
sold without any initial sales charge so the entire purchase price is
immediately invested in the Fund. Any investment return on these additional
investment amounts may partially or wholly offset the higher annual expenses of
these Classes. Because the Fund's future return cannot be predicted, however,
there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly
lower CDSC upon redemptions, they do not, unlike Class B shares, convert into
Class A shares after approximately ten years, and, therefore, are subject to an
ongoing 12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A
shares) for an indefinite period of time. Thus, Class B shares may be more
attractive than Class C shares to investors with longer term investment
outlooks. Other investors, however, may elect to purchase Class C shares if,
for example, they determine that they do not wish to be subject to a front-end
sales charge and they are uncertain as to the length of time they intend to
hold their shares.
For the purpose of meeting the $5 million (or $25 million) minimum
investment amount for Class D shares, holdings of Class A shares in all Morgan
Stanley Dean Witter Multi-Class Funds, shares of FSC Funds and shares of Morgan
Stanley Dean Witter Funds for which such shares have been exchanged will be
included together with the current investment amount.
21
<PAGE>
Sales personnel may receive different compensation for selling each
Class of shares. Investors should understand that the purpose of a CDSC is the
same as that of the initial sales charge in that the sales charges applicable
to each Class provide for the financing of the distribution of shares of that
Class.
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
CONVERSION
CLASS SALES CHARGE 12B-1 FEE FEATURE
- ------- ------------------------ ----------- ------------------
<S> <C> <C> <C>
A Maximum 5.25% 0.25% No
initial sales charge
reduced for
purchases of
$25,000 and over;
shares sold without
an initial sales
charge generally
subject to a 1.0%
CDSC during first
year.
- ------- ------------------------ ----------- ------------------
B Maximum 5.0% 1.0% B shares convert
CDSC during the first to A shares
year decreasing automatically
to 0 after six years after
------------------------
approximately
ten years
- ------- ------------------------ ----------- ------------------
C 1.0% CDSC during 1.0% No
first year
- ------- ------------------------ ----------- ------------------
D None None No
</TABLE>
See "Purchase of Fund Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge.
In some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one year
after purchase (calculated from the last day of the month in which the shares
were purchased), except for certain specific circumstances. The CDSC will be
assessed on an amount equal to the lesser of the current market value or the
cost of the shares being redeemed. The CDSC will not be imposed (i) in the
circumstances set forth below in the section "Contingent Deferred Sales Charge
Alternative--Class B Shares--CDSC Waivers," except that the references to six
years in the first paragraph of that section shall mean one year in the case of
Class A shares, and (ii) in the circumstances identified in the section
"Additional Net Asset Value Purchase Options" below. Class A shares are also
subject to an annual 12b-1 fee of up to 0.25% of the average daily net assets
of the Class.
The offering price of Class A shares will be the net asset value per
share next determined following receipt of an order (see "Determination of Net
Asset Value" below), plus a sales charge (expressed as a percentage of the
offering price) on a single transaction as shown in the following table:
<PAGE>
<TABLE>
<CAPTION>
SALES CHARGE
------------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF SINGLE PUBLIC OFFERING PERCENTAGE OF
TRANSACTION PRICE AMOUNT INVESTED
- ----------------------------- ----------------- ----------------
<S> <C> <C>
Less than $25,000 ........... 5.25% 5.54%
$25,000 but less
than $50,000 ............. 4.75% 4.99%
$50,000 but less
than $100,000 ............ 4.00% 4.17%
$100,000 but less
than $250,000 ............ 3.00% 3.09%
$250,000 but less
than $1 million .......... 2.00% 2.04%
$1 million and over ......... 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow
up to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods
22
<PAGE>
when 90% or more of the sales charge is reallowed, such Selected Broker-Dealers
may be deemed to be underwriters as that term is defined in the Securities Act
of 1933.
The above schedule of sales charges is applicable to purchases in a
single transaction by, among others: (a) an individual; (b) an individual, his
or her spouse and their children under the age of 21 purchasing shares for his,
her or their own accounts; (c) a trustee or other fiduciary purchasing shares
for a single trust estate or a single fiduciary account; (d) a pension,
profit-sharing or other employee benefit plan qualified or non-qualified under
Section 401 of the Internal Revenue Code; (e) tax-exempt organizations
enumerated in Section 501(c)(3) or (13) of the Internal Revenue Code; (f)
employee benefit plans qualified under Section 401 of the Internal Revenue Code
of a single employer or of employers who are "affiliated persons" of each other
within the meaning of Section 2(a)(3)(c) of the Act; and for investments in
Individual Retirement Accounts of employees of a single employer through
Systematic Payroll Deduction plans; or (g) any other organized group of
persons, whether incorporated or not, provided the organization has been in
existence for at least six months and has some purpose other than the purchase
of redeemable securities of a registered investment company at a discount.
Combined Purchase Privilege. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Fund in single transactions with the purchase of Class A
shares of other Morgan Stanley Dean Witter Multi-Class Funds and shares of FSC
Funds. The sales charge payable on the purchase of the Class A shares of the
Fund, the Class A shares of the other Morgan Stanley Dean Witter Multi-Class
Funds and the shares of the FSC Funds will be at their respective rates
applicable to the total amount of the combined concurrent purchases of such
shares.
Right of Accumulation. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single transaction,
together with shares of the Fund and other Morgan Stanley Dean Witter Funds
previously purchased at a price including a front-end sales charge (including
shares of the Fund and other Morgan Stanley Dean Witter Funds acquired in
exchange for those shares, and including in each case shares acquired through
reinvestment of dividends and distributions), which are held at the time of
such transaction, amounts to $25,000 or more. If such investor has a cumulative
net asset value of shares of FSC Funds and Class A and Class D shares that,
together with the current investment amount equal to at least $5 million ($25
million for certain qualified plans), such investor is eligible to purchase
Class D shares subject to the $1,000 minimum initial investment requirement of
that Class of the Fund. See "No Load Alternative--Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or
the shareholder at the time a purchase order is placed that the purchase
qualifies for the reduced charge under the Right of Accumulation. Similar
notification must be made in writing by the dealer or shareholder when such an
order is placed by mail. The reduced sales charge will not be granted if: (a)
such notification is not furnished at the time of the order; or (b) a review of
the records of the Selected Broker-Dealer or the Transfer Agent fails to
confirm the investor's represented holdings.
Letter of Intent. The foregoing schedule of reduced sales charges will
also be available to investors who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of Class A shares
of the Fund from DWR or other Selected Broker-Dealers. The cost of Class A
shares of the Fund or shares of other Morgan Stanley Dean Witter Funds which
were previously purchased at a price including a front-end sales charge during
the 90-day period prior to the date of receipt by the Distributor of the Letter
of Intent, or of Class A shares of the Fund or shares of other Morgan Stanley
Dean Witter Funds acquired in exchange for shares of such funds purchased dur-
23
<PAGE>
ing such period at a price including a front-end sales charge, which are still
owned by the shareholder, may also be included in determining the applicable
reduction.
Additional Net Asset Value Purchase Options. In addition to investments
of $1 million or more, Class A shares also may be purchased at net asset value
by the following:
(1) trusts for which MSDW Trust (which is an affiliate of the Investment
Manager) provides discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for services
in the nature of investment advisory, administrative and/or brokerage services
(such investments are subject to all of the terms and conditions of such
programs, which may include termination fees, mandatory redemption upon
termination and such other circumstances as specified in the programs'
agreements, and restrictions on transferability of Fund shares);
(3) employer-sponsored 401(k) and other plans qualified under Section
401(a) of the Internal Revenue Code ("Qualified Retirement Plans") with at
least 200 eligible employees and for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement;
(4) Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement whose Class B shares have converted to Class A
shares, regardless of the plan's asset size or number of eligible employees.
(5) investors who are clients of a Morgan Stanley Dean Witter Financial
Advisor who joined Morgan Stanley Dean Witter from another investment firm
within six months prior to the date of purchase of Fund shares by such
investors, if the shares are being purchased with the proceeds from a
redemption of shares of an open-end proprietary mutual fund of the Financial
Advisor's previous firm which imposed either a front-end or deferred sales
charge, provided such purchase was made within sixty days after the redemption
and the proceeds of the redemption had been maintained in the interim in cash
or a money market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Fund.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Fund's shares,
contact DWR or another Se-lected Broker-Dealer or consult the Statement of
Additional Information.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Fund. A CDSC, however, will be imposed on
most Class B shares redeemed within six years after purchase. The CDSC will be
imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Fund falls below the aggregate
amount of the investor's purchase payments for Class B shares made during the
six years (or, in the case of shares held by certain Qualified Retirement
Plans, three years) preceding the redemption. In addition, Class B shares are
subject to an annual 12b-1 fee of 1.0% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's Class B shares since the inception of the
Fund (not including reinvestments of dividends or capital gains distributions),
less the average daily aggregate net asset value of the Fund's Class B shares
redeemed since the Fund's inception upon which a CDSC has been imposed or
waived, or (b) the average daily net assets of Class B.
Except as noted below, Class B shares of the Fund which are held for six
years or more after
24
<PAGE>
purchase (calculated from the last day of the month in which the shares were
purchased) will not be subject to any CDSC upon redemption. Shares redeemed
earlier than six years after purchase may, however, be subject to a CDSC which
will be a percentage of the dollar amount of shares redeemed and will be
assessed on an amount equal to the lesser of the current market value or the
cost of the shares being redeemed. The size of this percentage will depend upon
how long the shares have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------------- ---------------------
<S> <C>
First .......................... 5.0%
Second ......................... 4.0%
Third .......................... 3.0%
Fourth ......................... 2.0%
Fifth .......................... 2.0%
Sixth .......................... 1.0%
Seventh and thereafter ......... None
</TABLE>
In the case of Class B shares of the Fund purchased on or after July 28,
1997 by Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement, shares held for three years or more after
purchase (calculated as described in the paragraph above) will not be subject
to any CDSC upon redemption. However, shares redeemed earlier than three years
after purchase may be subject to a CDSC (calculated as described in the
paragraph above), the percentage of which will depend on how long the shares
have been held, as set forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- ------------------------------- ---------------------
<S> <C>
First ......................... 2.0%
Second ........................ 2.0%
Third ......................... 1.0%
Fourth and thereafter ......... None
</TABLE>
CDSC Waivers. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or,
in the case of shares held by certain Qualified Retirement Plans, three years)
preceding the redemption; (ii) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) prior to the redemption; and (iii) the current
net asset value of shares purchased through reinvestment of dividends or
distributions and/or shares acquired in exchange for shares of FSC Funds, or of
other Morgan Stanley Dean Witter Funds acquired in exchange for such shares.
Moreover, in determining whether a CDSC is applicable it will be assumed that
amounts described in (i), (ii) and (iii) above (in that order) are redeemed
first.
In addition, the CDSC, if otherwise applicable, will be waived in the
case of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (A) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (B) held in
a qualified corporate or self-employed retirement plan, Individual Retirement
Account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination
of disability;
(2) redemptions in connection with the following retirement plan
distributions: (A) lump-sum or other distributions from a qualified corporate
or self-employed retirement plan following retirement (or, in the case of a
"key employee" of a "top heavy" plan, following attainment of age 59 1/2);
(B) distributions from an IRA or 403(b) Custodial Account following
attainment of age 59 1/2; or (C) a tax-free return of an excess contribution
to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
Qualified Retirement Plan which offers investment companies managed by the
Investment Manager or its subsidiary, MSDW Services, as self-directed
investment alternatives and
25
<PAGE>
for which MSDW Trust serves as Trustee or DWR's Retirement Plan Services serves
as recordkeeper pursuant to a written Recordkeeping Services Agreement
("Eligible Plan"), provided that either: (A) the plan continues to be an
Eligible Plan after the redemption; or (B) the redemption is in connection with
the complete termination of the plan involving the distribution of all plan
assets to participants.
With reference to (1) above, for the purpose of determining disability,
the Distributor utilizes the definition of disability contained in Section
72(m)(7) of the Internal Revenue Code, which relates to the inability to engage
in gainful employment. With reference to (2) above, the term "distribution"
does not encompass a direct transfer of IRA, 403(b) Custodial Account or
retirement plan assets to a successor custodian or trustee. All waivers will be
granted only following receipt by the Distributor of confirmation of the
shareholder's entitlement.
Conversion to Class A Shares. All shares of the Fund held prior to July
28, 1997 have been designated Class B shares. Shares held before May 1, 1997
will convert to Class A shares in May, 2007. In all other instances Class B
shares will convert automatically to Class A shares, based on the relative net
asset values of the shares of the two Classes on the conversion date, which
will be approximately ten (10) years after the date of the original purchase.
The ten year period is calculated from the last day of the month in which the
shares were purchased or, in the case of Class B shares acquired through an
exchange or a series of exchanges, from the last day of the month in which the
original Class B shares were purchased, provided that shares originally
purchased before May 1, 1997 will convert to Class A shares in May, 2007. The
conversion of shares purchased on or after May 1, 1997 will take place in the
month following the tenth anniversary of the purchase. There will also be
converted at that time such proportion of Class B shares acquired through
automatic reinvestment of dividends and distributions owned by the shareholder
as the total number of his or her Class B shares converting at the time bears
to the total number of outstanding Class B shares purchased and owned by the
shareholder. In the case of Class B shares held by a Qualified Retirement Plan
for which MSDW Trust serves as Trustee or DWR's Retirement Plan Services serves
as recordkeeper pursuant to a written Recordkeeping Services Agreement, the
plan is treated as a single investor and all Class B shares will convert to
Class A shares on the conversion date of the first shares of a Morgan Stanley
Dean Witter Multi-Class Fund purchased by that plan. In the case of Class B
shares previously exchanged for shares of an "Exchange Fund" (see "Shareholder
Services--Exchange Privilege"), the period of time the shares were held in the
Exchange Fund (calculated from the last day of the month in which the Exchange
Fund shares were acquired) is excluded from the holding period for conversion.
If those shares are subsequently re-exchanged for Class B shares of a Morgan
Stanley Dean Witter Multi-Class Fund, the holding period resumes on the last
day of the month in which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares,
such certificates must be delivered to the Transfer Agent at least one week
prior to the date for conversion. Class B shares evidenced by share
certificates that are not received by the Transfer Agent at least one week
prior to any conversion date will be converted into Class A shares on the next
scheduled conversion date after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion
will have a basis equal to the shareholder's basis in the converted Class B
shares immediately prior to the conversion, and (iii) Class A shares received
on conversion will have a holding period that includes the holding period of
the converted Class B shares. The conversion feature may be suspended if the
ruling or opinion is no longer available. In such event, Class B shares would
continue to be subject to Class B 12b-1 fees.
26
<PAGE>
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold at net asset value next determined without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions made
within one year after purchase (calculated from the last day of the month in
which the shares were purchased). The CDSC will be assessed on an amount equal
to the lesser of the current market value or the cost of the shares being
redeemed. The CDSC will not be imposed in the circumstances set forth above in
the section "Contingent Deferred Sales Charge Alternative--Class B Shares--CDSC
Waivers," except that the references to six years in the first paragraph of
that section shall mean one year in the case of Class C shares. Class C shares
are subject to an annual 12b-1 fee of up to 1.0% of the average daily net
assets of the Class. Unlike Class B shares, Class C shares have no conversion
feature and, accordingly, an investor that purchases Class C shares will be
subject to 12b-1 fees applicable to Class C shares for an indefinite period
subject to annual approval by the Fund's Board of Trustees and regulatory
limitations.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption and without any 12b-1 fee. Class D shares are offered only to
investors meeting an initial investment minimum of $5 million ($25 million for
Qualified Retirement Plans for which MSDW Trust serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement) and the following categories of investors:
(i) investors participating in the MSDW Advisors mutual fund asset allocation
program pursuant to which such persons pay an asset based fee; (ii) persons
participating in a fee-based program approved by the Distributor, pursuant to
which such persons pay an asset based fee for services in the nature of
investment advisory administrative and/or brokerage services (subject to all of
the terms and conditions of such programs, referred to in (i) and (ii) above,
which may include termination fees, mandatory redemption upon termination and
such other circumstances as specified in the programs' agreements, and
restrictions on transferability of Fund shares); (iii) 401(k) plans established
by DWR and SPS Transaction Services, Inc. (an affiliate of DWR) for their
employees; (iv) certain Unit Investment Trusts sponsored by DWR; (v) certain
other open-end investment companies whose shares are distributed by the
Distributor; and (vi) other categories of investors, at the discretion of the
Board, as disclosed in the then current prospectus of the Fund Investors who
require a $5 million (or $25 million) minimum initial investment to qualify to
purchase Class D shares may satisfy that requirement by investing that amount
in a single transaction in Class D shares of the Fund and other Morgan Stanley
Dean Witter Multi-Class Funds, subject to the $1,000 minimum initial investment
required for that Class of the Fund. In addition, for the purpose of meeting
the $5 million (or $25 million) minimum investment amount, holdings of Class A
shares in all Morgan Stanley Dean Witter Multi-Class Funds, shares of FSC Funds
and shares of Morgan Stanley Dean Witter Funds for which such shares have been
exchanged will be included together with the current investment amount. If a
shareholder redeems Class A shares and purchases Class D shares, such
redemption may be a taxable event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act with respect to the distribution of Class A, Class B and Class C shares
of the Fund. In the case of Class A and Class C shares, the Plan provides that
the Fund will reimburse the Distributor and others for the expenses of certain
activities and services incurred by them specifically on behalf of those
shares. Reimbursements for these expenses will be made in monthly payments by
the Fund to the Distributor, which will in no event exceed amounts equal to
payments at the annual rates of 0.25% and 1.0% of the average daily net assets
of Class A and Class C, respectively. In the case of Class B shares, the Plan
provides that the Fund will pay the Distributor a fee, which is accrued daily
and paid monthly, at the annual rate of 1.0% of the lesser of: (a) the average
27
<PAGE>
daily aggregate gross sales of the Fund's Class B shares since the inception of
the Fund (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
Class B shares redeemed since the Fund's inception upon which a CDSC has been
imposed or waived, or (b) the average daily net assets of Class B. The fee is
treated by the Fund as an expense in the year it is accrued. In the case of
Class A shares, the entire amount of the fee currently represents a service fee
within the meaning of the NASD guidelines. In the case of Class B and Class C
shares, a portion of the fee payable pursuant to the Plan, equal to 0.25% of
the average daily net assets of each of these Classes, is currently
characterized as a service fee. A service fee is a payment made for personal
service and/or the maintenance of shareholder accounts.
Additional amounts paid under the Plan in the case of Class B and Class
C shares are paid to the Distributor for services provided and the expenses
borne by the Distributor and others in the distribution of the shares of those
Classes, including the payment of commissions for sales of the shares of those
Classes and incentive compensation to and expenses of Morgan Stanley Dean
Witter Financial Advisors and others who engage in or support distribution of
shares or who service shareholder accounts, including overhead and telephone
expenses; printing and distribution of prospectuses and reports used in
connection with the offering of the Fund's shares to other than current
shareholders; and preparation, printing and distribution of sales literature
and advertising materials. In addition, the Distributor may utilize fees paid
pursuant to the Plan in the case of Class B shares to compensate DWR and other
Selected Broker-Dealers for their opportunity costs in advancing such amounts,
which compensation would be in the form of a carrying charge on any
unreimbursed expenses.
For the fiscal year ended March 31, 1998, Class B shares of the Fund
accrued payments under the Plan amounting to $2,387,929, which amount is equal
to 1.0% of the Fund's average daily net assets of Class B for the fiscal year.
The payments accrued under the Plan were calculated pursuant to clause (b) of
the compensation formula under the Plan. All shares held prior to July 28, 1997
have been designated Class B shares. For the fiscal period July 28, 1997
through March 31, 1998, Class A and Class C shares of the Fund accrued payments
under the Plan amounting to $193 and $554, respectively, which amounts on an
annualized basis are equal to 0.23% and 1.00% of the average daily net assets
of Class A and Class C, respectively, for such period.
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Fund may be in excess of the total of (i)
the payments made by the Fund pursuant to the Plan, and (ii) the proceeds of
CDSCs paid by investors upon the redemption of Class B shares. For example, if
$1 million in expenses in distributing Class B shares of the Fund had been
incurred and $750,000 had been received as described in (i) and (ii) above, the
excess expense would amount to $250,000. The Distributor has advised the Fund
that such excess amounts, including the carrying charge described above,
totalled $11,792,699 at March 31, 1998, which was equal to 4.41% of the net
assets of Class B on such date. Because there is no requirement under the Plan
that the Distributor be reimbursed for all distribution expenses or any
requirement that the Plan be continued from year to year, such excess amount
does not constitute a liability of the Fund. Although there is no legal
obligation for the Fund to pay expenses incurred in excess of payments made to
the Distributor under the Plan, and the proceeds of CDSCs paid by investors
upon redemption of shares, if for any reason the Plan is terminated the
Trustees will consider at that time the manner in which to treat such expenses.
Any cumulative expenses incurred, but not yet recovered through distribution
fees or CDSCs, may or may not be recovered through future distribution fees or
CDSCs.
In the case of Class A and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C,
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respectively, will not be reimbursed by the Fund through payments in any
subsequent year, except that expenses representing a gross sales commission
credited to Morgan Stanley Dean Witter Financial Advisors or other Selected
Broker-Dealer representatives at the time of sale may be reimbursed in the
subsequent calendar year. The Distributor has advised the Fund that
unreimbursed expenses representing a gross sales commission credited to Morgan
Stanley Dean Witter Financial Advisors and other Selected Broker-Dealer
representatives at the time of sale totalled $567 in the case of Class C at
December 31, 1997, which was equal to 0.66% of the net assets of Class C on
such date, and that there were no such expenses which may be reimbursed in the
subsequent year in the case of Class A on such date. No interest or other
financing charges will be incurred on any Class A or Class C distribution
expenses incurred by the Distributor under the Plan or on any unreimbursed
expenses due to the Distributor pursuant to the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined once daily at
4:00 p.m., New York 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) by taking the net assets of the Fund, dividing by the number
of shares outstanding and adjusting to the nearest cent. The assets belonging
to the Class A, Class B, Class C and Class D shares will be invested together
in a single portfolio. The net asset value of each Class, however, will be
determined separately by subtracting each Class's accrued expenses and
liabilities. The net asset value per share will not be determined on Good
Friday and on such other federal and non-federal holidays as are observed by
the New York Stock Exchange.
In the calculation of the Fund's net asset value: (1) an equity
portfolio security listed or traded on the New York or American Stock Exchange
or other domestic or foreign stock exchange is valued at its latest sale price
on that exchange prior to the time assets are valued; if there were no sales
that day, the security is valued at the latest bid price (in cases where a
security is traded on more than one exchange, the security is valued on the
exchange designated as the primary market pursuant to procedures adopted by the
Trustees); and (2) all other portfolio securities for which over-the-counter
market quotations are readily available are valued at the latest bid price.
When market quotations are not readily available, including circumstances under
which it is determined by the Investment Manager that sale or bid prices are
not reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by
and under the general supervision of the Board of Trustees. For valuation
purposes, quotations of foreign portfolio securities, other assets and
liabilities and forward contracts stated in foreign currency are translated
into U.S. dollar equivalents at the prevailing market rates as of the close of
the New York Stock Exchange. Dividends receivable are accrued as of the ex-
dividend date or as of the time that the relevant ex-dividend date and amounts
become known.
Short-term debt securities with remaining maturities of 60 days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees. Other short-term debt securities will be valued on a mark-to-market
basis until such time as they reach a remaining maturity of 60 days, whereupon
they will be valued at amortized cost using their value on the 61st day unless
the Trustees determine such does not reflect the securities' market value, in
which case these securities will be valued at their fair value as determined by
the Trustees. All other securities and other assets are valued at their fair
value as determined in good faith under procedures established by and under the
supervision of the Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may
utilize a matrix system incorporating security quality, ma-
29
<PAGE>
turity and coupon as the evaluation model parameters, and/or research
evaluations by its staff, including review of broker-dealer market price
quotations, in determining what it believes is the fair valuation of the
portfolio securities valued by such pricing service.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Automatic Investment of Dividends and Distributions. All income
dividends and capital gains distributions are automatically paid in full and
fractional shares of the applicable Class of the Fund (or, if specified by the
shareholder, in shares of any other open-end Morgan Stanley Dean Witter Fund),
unless the shareholder requests that they be paid in cash. Shares so acquired
are acquired at net asset value and are not subject to the imposition of a
front-end sales charge or a CDSC (see "Redemptions and Repurchases").
Investment of Dividends or Distributions Received in Cash. Any
shareholder who receives a cash payment representing a dividend or capital
gains distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value next determined after receipt by the
Transfer Agent, by returning the check or the proceeds to the Transfer Agent
within thirty days after the payment date. Shares so acquired are acquired at
net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Redemptions and Repurchases").
EasyInvest.SM Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of shares of a Morgan Stanley Dean Witter money market fund, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for investment
in shares of the Fund (see "Purchase of Fund Shares" and "Redemptions and
Repurchases--Involuntary Redemption").
Systematic Withdrawal Plan. A systematic withdrawal plan (the
"Withdrawal Plan") is available for shareholders who own or purchase shares of
the Fund having a minimum value of $10,000 based upon the then current net
asset value. The Withdrawal Plan provides for monthly or quarterly (March,
June, September and December) checks in any amount, not less than $25, or in
any whole percentage of the account balance, on an annualized basis. Any
applicable CDSC will be imposed on shares redeemed under the Withdrawal Plan
(See "Purchase of Fund Shares"). Therefore, any shareholder participating in
the Withdrawal Plan will have sufficient shares redeemed from his or her
account so that the proceeds (net of any applicable CDSC) to the shareholder
will be the designated monthly or quarterly amount.
Withdrawal Plan payments should not be considered as dividends, yields
or income. If periodic withdrawal plan payments continuously exceed net
investment income and net capital gains, the shareholder's original investment
will be correspondingly reduced and ultimately exhausted. Each withdrawal
constitutes a redemption of shares and any gain or loss realized must be
recognized for federal income tax purposes.
Tax-Sheltered Retirement Plans. Retirement plans are available for use
by corporations, the self-employed, Individual Retirement Accounts and
Custodial Accounts under Section 403(b)(7) of the Internal Revenue Code.
Adoption of such plans should be on advice of legal counsel or tax adviser.
Shareholders should contact their Morgan Stanley Dean Witter Financial
Advisor or other Selected Broker-Dealer representative or the Transfer Agent
for further information about any of the above services.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of
any other Morgan Stanley Dean Witter Multi-Class Fund without the imposition of
any exchange fee. Shares may also be
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exchanged for shares of the following funds: Morgan Stanley Dean Witter
Short-Term U.S. Treasury Trust, Morgan Stanley Dean Witter Limited Term
Municipal Trust, Morgan Stanley Dean Witter Short-Term Bond Fund and five
Morgan Stanley Dean Witter Funds which are money market funds (the "Exchange
Funds"). Class A shares may also be exchanged for shares of Morgan Stanley Dean
Witter Multi-State Municipal Series Trust and Morgan Stanley Dean Witter Hawaii
Municipal Trust, which are Morgan Stanley Dean Witter Funds sold with a
front-end sales charge ("FSC Funds"). Class B shares may also be exchanged for
shares of Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
("Global Short-Term"), which is a Morgan Stanley Dean Witter Fund offered with
a CDSC. Exchanges may be made after the shares of the Fund acquired by purchase
(not by exchange or dividend reinvestment) have been held for thirty days.
There is no waiting period for exchanges of shares acquired by exchange or
dividend reinvestment.
An exchange to another Morgan Stanley Dean Witter Multi-Class Fund, any
FSC Fund, Global Short-Term or any Exchange Fund that is not a money market
fund is on the basis of the next calculated net asset value per share of each
fund after the exchange order is received. When exchanging into a money market
fund from the Fund, shares of the Fund are redeemed out of the Fund at their
next calculated net asset value and the proceeds of the redemption are used to
purchase shares of the money market fund at their net asset value determined
the following business day. Subsequent exchanges between any of the money
market funds and any of the Morgan Stanley Dean Witter Multi-Class Funds, FSC
Funds , Global Short-Term or any Exchange Fund that is not a money market fund
can be effected on the same basis. No CDSC is imposed at the time of any
exchange of shares, although any applicable CDSC will be imposed upon ultimate
redemption. During the period of time the shareholder remains in an Exchange
Fund (calculated from the last day of the month in which the shares were
acquired) the holding period (for the purpose of determining the rate of the
contingent deferred sales charge) is frozen. If those shares are subsequently
reexchanged for shares of a Morgan Stanley Dean Witter Multi-Class Fund or
shares of Global Short-Term, the holding period previously frozen when the
first exchange was made resumes on the last day of the month in which shares of
a Morgan Stanley Dean Witter Multi-Class Fund or shares of Global Short-Term
are reacquired. Thus, the CDSC is based upon the time (calculated as described
above) the shareholder was invested in shares of a Morgan Stanley Dean Witter
Multi-Class Fund or in shares of Global Short-Term (see "Purchase of Fund
Shares"). In the case of exchanges of Class A shares which are subject to a
CDSC, the holding period also includes the time (calculated as described above)
the shareholder was invested in shares of a FSC Fund. However, in the case of
shares exchanged for shares of an Exchange Fund on or after April 23, 1990,
upon a redemption of shares which results in a CDSC being imposed, a credit
(not to exceed the amount of the CDSC) will be given in an amount equal to the
Exchange Fund 12b-1 distribution fees, if any, incurred on or after that date
which are attributable to those shares. (Exchange Fund 12b-1 distribution fees
are described in the prospectuses for those funds.) Class B shares of the Fund
acquired in exchange for shares of Global Short-Term or Class B shares of
another Morgan Stanley Dean Witter Multi-Class Fund having a different CDSC
schedule than that of this Fund will be subject to the higher CDSC schedule,
even if such shares are subsequently re-exchanged for shares of the fund with
the lower CDSC schedule.
Additional Information Regarding Exchanges. Purchases and exchanges
should be made for investment purposes only. A pattern of frequent exchanges
may be deemed by the Investment Manager to be abusive and contrary to the best
interests of the Fund's other shareholders and, at the Investment Manager's
discretion, may be limited by the Fund's refusal to accept additional purchases
and/or exchanges from the investor. Although the Fund does not have any
specific definition of what constitutes a pattern of frequent exchanges, and
will
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<PAGE>
consider all relevant factors in determining whether a particular situation is
abusive and contrary to the best interests of the Fund and its other
shareholders, investors should be aware that the Fund and each of the other
Morgan Stanley Dean Witter Funds may in their discretion limit or otherwise
restrict the number of times this Exchange Privilege may be exercised by any
investor. Any such restriction will be made by the Fund on a prospective basis
only, upon notice to the shareholder not later than ten days following such
shareholder's most recent exchange.
The Exchange Privilege may be terminated or revised at any time by the
Fund and/or any of such Morgan Stanley Dean Witter Funds for which shares of
the Fund have been exchanged, upon such notice as may be required by applicable
regulatory agencies (presently sixty days' prior written notice for termination
or material revision), provided that six months' prior written notice of
termination will be given to shareholders who hold shares of an Exchange Fund
pursuant to the Exchange Privilege, and provided further that the Exchange
Privilege may be terminated or materially revised without notice under certain
unusual circumstances. Shareholders maintaining margin accounts with DWR or
another Selected Broker-Dealer are referred to their Morgan Stanley Dean Witter
Financial Advisor or other Selected Broker-Dealer representative regarding
restrictions on exchange of shares of the Fund pledged in the margin account.
The current prospectus for each fund describes its investment
objective(s) and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement of each Class of shares and any other conditions imposed by each
fund. In the case of any shareholder holding a share certificate or
certificates, no exchanges may be made until all applicable share certificates
have been received by the Transfer Agent and deposited in the Shareholder's
account. In the case of a shareholder holding a share certificate or
certificates, no exchanges may be made until all applicable share certificates
have been received by the Transfer Agent and deposited in the shareholder's
account. An exchange will be treated for federal income tax purposes the same
as a repurchase or redemption of shares, on which the shareholder may realize a
capital gain or loss. However, the ability to deduct capital losses on an
exchange may be limited in situations where there is an exchange of shares
within ninety days after the shares are purchased. The Exchange Privilege is
only available in states where an exchange may legally be made.
If DWR or another Selected Broker-Dealer is the current dealer of record
and its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Fund for shares of any of the Morgan
Stanley Dean Witter Funds (for which the Exchange Privilege is available)
pursuant to this Exchange Privilege by contacting their Morgan Stanley Dean
Witter Financial Advisor or other Selected Broker-Dealer representative (no
Exchange Privilege Authorization Form is required). Other shareholders (and
those shareholders who are clients of DWR or another Selected Broker-Dealer but
who wish to make exchanges directly by telephoning the Transfer Agent) must
complete and forward to the Transfer Agent an Exchange Privilege Authorization
Form, copies of which may be obtained from the Transfer Agent, to initiate an
exchange. If the Authorization Form is used, exchanges may be made in writing
or by contacting the Transfer Agent at (800) 869-NEWS (toll-free). The Fund
will employ reasonable procedures to confirm that exchange instructions
communicated over the telephone are genuine. Such procedures may include
requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number and DWR or other
Selected Broker-Dealer account number (if any). Telephone instructions may also
be recorded. If such procedures are not employed, the Fund may be liable for
any losses due to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the
Transfer Agent between 9:00 a.m. and 4:00 p.m. New York time, on any day the
New York Stock Exchange is open. Any share-
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<PAGE>
holder wishing to make an exchange who has previously filed an Exchange
Privilege Authorization Form and who is unable to reach the Fund by telephone
should contact his or her Morgan Stanley Dean Witter Financial Advisor or other
Selected Broker-Dealer representative, if appropriate, or make a written
exchange request. Shareholders are advised that during periods of drastic
economic or market changes, it is possible that the telephone exchange
procedures may be difficult to implement, although this has not been the case
with the Morgan Stanley Dean Witter Funds in the past.
For further information regarding the Exchange Privilege, shareholders
should contact their Morgan Stanley Dean Witter Financial Advisor or other
Selected Broker-Dealer representative or the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
Redemption. Shares of each Class of the Fund can be redeemed for cash at
any time at the net asset value per share next determined less the amount of
any applicable CDSC in the case of Class A, Class B or Class C shares (see
"Purchase of Fund Shares"). If shares are held in a shareholder's account
without a share certificate, a written request for redemption sent to the
Fund's Transfer Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If
certificates are held by the shareholder, the shares may be redeemed by
surrendering the certificates with a written request for redemption, along with
any additional documentation required by the Transfer Agent.
Repurchase. DWR and other Selected Broker-Dealers are authorized to repurchase
shares represented by a share certificate which is delivered to any of their
offices. Shares held in a shareholder's account without a share certificate may
also be repurchased by DWR and other Selected Broker-Dealers upon the
telephonic or telegraphic request of the shareholder. The repurchase price is
the net asset value per share next determined (see "Purchase of Fund Shares")
after such purchase order is received by DWR or other Selected Broker-Dealer,
reduced by any applicable CDSC.
The CDSC, if any, will be the only fee imposed by the Fund or the
Distributor. The offer by DWR and other Selected Broker-Dealers to repurchase
shares may be suspended without notice by them at any time. In that event,
shareholders may redeem their shares through the Fund's Transfer Agent as set
forth above under "Redemption."
Payment for Shares Redeemed or Repurchased. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in good
order. Such payment may be postponed or the right of redemption suspended under
unusual circumstances, e.g. when normal trading is not taking place on the New
York Stock Exchange. If the shares to be redeemed have recently been purchased
by check, payment of the redemption proceeds may be delayed for the minimum
time needed to verify that the check used for investment has been honored (not
more than fifteen days from the time of receipt of the check by the Transfer
Agent). Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their Morgan Stanley Dean Witter Financial
Advisor or other Selected Broker-Dealer representative regarding restrictions
on redemption of shares of the Fund pledged in the margin account.
Reinstatement Privilege. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 35 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase
in shares of the Fund in the same Class from which such shares were redeemed or
repurchased at the net asset value next determined after a reinstatement
request, together with the proceeds, is received by the Transfer Agent and
receive a pro rata credit for any CDSC paid in connection with such redemption
or repurchase.
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<PAGE>
Involuntary Redemption. The Fund reserves the right on sixty days'
notice, to redeem and at net asset value, the shares of any shareholder (other
than shares held in an Individual Retirement or Custodial Account under Section
403(b)(7) of the Internal Revenue Code) whose shares, due to redemptions by the
shareholder, have a value of less than $100 as a result of redemptions or
repurchases, or such lesser amount as may be fixed by the Board of Trustees or,
in the case of an account opened through EasyInvestSM, if after twelve months
the shareholder has invested less than $1,000 in the account. However, before
the Fund redeems such shares and sends the proceeds to the shareholder, it will
notify the shareholder that the value of the shares is less than the applicable
amount and allow the shareholder sixty days to make an additional investment in
an amount which will increase the value of the account to at least the
applicable amount before the redemption is processed. No CDSC will be imposed
on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
Dividends and Distributions. The Fund declares dividends separately for
each Class of shares and intends to distribute substantially all of the Fund's
net investment income and net realized capital gains, if any, at least once
each year. The Fund may, however, determine to retain all or part of any net
long-term capital gains in any year for reinvestment.
All dividends and any capital gains distributions will be paid in
additional shares of the same Class and automatically credited to the
shareholder's account without issuance of a share certificate unless the
shareholder requests in writing that all dividends and/or distributions be paid
in cash. Shares acquired by dividend and distribution reinvestments will not be
subject to any front-end sales charge or CDSC. Class B shares acquired through
dividend and distribution reinvestments will become eligible for conversion to
Class A shares on a pro rata basis. Distributions paid on Class A and Class D
shares will be higher than for Class B and Class C shares because distribution
fees paid by Class B and Class C shares are higher. (See "Shareholder
Services--Automatic Investment of Dividends and Distributions.")
Taxes. Because the Fund intends to distribute all of its net investment
income and capital gains to shareholders and otherwise continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code,
it is not expected that the Fund will be required to pay any federal income
tax. Shareholders who are required to pay taxes on their income will normally
have to pay federal income taxes, and any state income taxes, on the dividends
and distributions they receive from the Fund. Such dividends and distributions,
to the extent that they are derived from net investment income or short-term
capital gains, are taxable to the shareholder as ordinary income regardless of
whether the shareholder receives such payments in additional shares or in cash.
Any dividends declared with a record date in the last quarter of any calendar
year which are paid in the following year prior to February 1 will be deemed,
for tax purposes, to have been received by the shareholder in the prior year.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. Capital gains distributions are not
eligible for the dividends received deduction.
The Fund may at times make payments from sources other than income or
net capital gains. Payments from such sources will, in effect, represent a
return of a portion of each shareholder's investment. All, or a portion, of
such payments will not be taxable to shareholders.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax
purposes. Share-
34
<PAGE>
holders will also be notified of their proportionate share of long-term capital
gains distributions that are eligible for a reduced rate of tax under the
Taxpayer Relief Act of 1997. To avoid being subject to a 31% federal backup
withholding tax on taxable dividends, capital gains distributions and the
proceeds of redemptions and repurchases, shareholders' taxpayer identification
numbers must be furnished and certified as to their accuracy.
Dividends, interest and gains received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. If it qualifies for
and makes the appropriate election with the Internal Revenue Service, the Fund
will report annually to its shareholders the amount per share of such taxes to
enable shareholders to claim United States foreign tax credits or deductions
with respect to such taxes. In the absence of such an election, the Fund would
deduct foreign tax in computing the amount of its distributable income.
Shareholders should consult their tax advisors as to the applicability
of the foregoing to their current situation.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may quote its "total return" in
advertisements and sales literature. These figures are computed separately for
Class A, Class B, Class C and Class D shares. The total return of the Fund is
based on historical earnings and is not intended to indicate future
performance. The "average annual total return" of the Fund refers to a figure
reflecting the average annualized percentage increase (or decrease) in the
value of an initial investment in a Class of the Fund of $1,000 over one, five
and ten years, or the life of the Fund, if less than any of the foregoing.
Average annual total return reflects all income earned by the Fund, any
appreciation or depreciation of the Fund's assets, all expenses incurred by the
applicable Class and all sales charges which would be incurred by shareholders,
for the stated periods. It also assumes reinvestment of all dividends and
distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return
for each Class over different periods of time by means of aggregate, average,
and year-by-year or other types of total return figures. Such calculations may
or may not reflect the deduction of any sales charge which, if reflected, would
reduce the performance quoted. The Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in each Class of
shares of the Fund. The Fund from time to time may also advertise its
performance relative to certain performance rankings and indexes compiled by
independent organizations (such as mutual fund performance rankings of Lipper
Analytical Services, Inc.).
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Voting Rights. All shares of beneficial interest of the Fund are of
$0.01 par value and are equal as to earnings, assets and voting privileges
except that each Class will have exclusive voting privileges with respect to
matters relating to distribution expenses borne solely by such Class or any
other matter in which the interests of one Class differ from the interests of
any other Class. In addition, Class B shareholders will have the right to vote
on any proposed material increase in Class A's expenses, if such proposal is
submitted separately to Class A shareholders. Also, as discussed herein, Class
A, Class B and Class C bear the expenses related to the distribution of their
respective shares.
The Fund is not required to hold Annual Meetings of Shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
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<PAGE>
circumstances, the Trustees may be removed by action of the Trustees or by the
shareholders.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for obligations of
the Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that Fund
obligations include such disclaimer, and provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitation on shareholder personal liability, and
the nature of the Fund's assets and operations, the possibility of the Fund
being unable to meet its obligations is remote and thus, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
Code of Ethics. Directors, officers and employees of MSDW Advisors, MSDW
Services and MSDW Distributors are subject to a strict Code of Ethics adopted
by those companies. The Code of Ethics is intended to ensure that the interests
of shareholders and other clients are placed ahead of any personal interest,
that no undue personal benefit is obtained from a person's employment
activities and that actual and potential conflicts of interest are avoided. To
achieve these goals and comply with regulatory requirements, the Code of Ethics
requires, among other things, that personal securities transactions by
employees of the companies be subject to an advance clearance process to
monitor that no Morgan Stanley Dean Witter Fund is engaged at the same time in
a purchase or sale of the same security. The Code of Ethics bans the purchase
of securities in an initial public offering, and also prohibits engaging in
futures and options transactions and profiting on short-term trading (that is,
a purchase within 60 days of a sale or a sale within 60 days of a purchase) of
a security. In addition, investment personnel may not purchase or sell a
security for their personal account within 30 days before or after any
transaction in any Morgan Stanley Dean Witter Fund managed by them. Any
violations of the Code of Ethics are subject to sanctions, including reprimand,
demotion or suspension or termination of employment. The Code of Ethics
comports with regulatory requirements and the recommendations in the 1994
report by the Investment Company Institute Advisory Group on Personal
Investing.
Master/Feeder Conversion. The Fund reserves the right to seek to achieve
its investment objective by investing all of its investable assets in a
diversified, open-end management investment company having the same investment
objective and policies and substantially the same investment restrictions as
those applicable to the Fund.
Shareholder Inquiries. All inquiries regarding the Fund should be
directed to the Fund at the telephone numbers or address set forth on the front
cover of this Prospectus.
36
<PAGE>
Morgan Stanley Dean Witter
Information Fund
Two World Trade Center
New York, New York 10048
MORGAN STANLEY
TRUSTEES DEAN WITTER
Michael Bozic INFORMATION FUND
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and
General Counsel
George Paoletti
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Chase Manhattan Bank
Chase Plaza
New York, New York 10005
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
PROSPECTUS--JULY 29, 1998
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
JULY 29, 1998
MORGAN STANLEY DEAN WITTER
INFORMATION FUND
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter Information Fund (the "Fund") is an open-end,
diversified management investment company, whose investment objective is
long-term capital appreciation. The Fund seeks to achieve its investment
objective by investing at least 65% of its total assets in common stocks and
securities convertible into common stocks of domestic and foreign companies
which are involved in all areas, and emerging areas, of the communications and
information industries. See "Investment Objective and Policies."
A Prospectus for the Fund dated July 29, 1998, which provides the basic
information you should know before investing in the Fund, may be obtained
without charge from the Fund at the address or telephone numbers listed below
or from the Fund's Distributor, Morgan Stanley Dean Witter Distributors Inc.,
or from Dean Witter Reynolds Inc. at any of its branch offices. This Statement
of Additional Information is not a Prospectus. It contains information in
addition to and more detailed than that set forth in the Prospectus. It is
intended to provide additional information regarding the activities and
operations of the Fund, and should be read in conjunction with the Prospectus.
Morgan Stanley Dean Witter Information Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Fund and its Management .................. 3
Trustees and Officers ........................ 8
Investment Practices and Policies ............ 13
Investment Restrictions ...................... 26
Portfolio Transactions and Brokerage ......... 27
The Distributor .............................. 29
Determination of Net Asset Value ............. 33
Purchase of Fund Shares ...................... 33
Shareholder Services ......................... 36
Redemptions and Repurchases .................. 40
Dividends, Distributions and Taxes ........... 42
Performance Information ...................... 43
Description of Shares ........................ 44
Custodian and Transfer Agent ................. 44
Independent Accountants ...................... 45
Reports to Shareholders ...................... 45
Legal Counsel ................................ 45
Experts ...................................... 45
Registration Statement ....................... 45
Financial Statements--March 31, 1998 ......... 46
Report of Independent Accountants ............ 60
</TABLE>
2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
THE FUND
The Fund is a trust of the type commonly known as a "Massachusetts
business trust" and was organized under the laws of the Commonwealth of
Massachusetts on December 8, 1994 under the name TCW/DW Global Communications
Fund. On June 22, 1998, the Trustees of the Fund adopted an Amendment to the
Declaration of Trust of the Fund changing the name of the Fund to Morgan
Stanley Dean Witter Information Fund.
THE INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc. (the "Investment Manager" or
"MSDW Advisors"), a Delaware corporation, whose address is Two World Trade
Center, New York, New York 10048, is the Fund's Investment Manager. MSDW
Advisors is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co.
("MSDW"), a Delaware corporation. The daily management of the Fund and research
relating to the Fund's portfolio are conducted by or under the direction of
officers of the Fund and of the Investment Manager, subject to review by the
Fund's Board of Trustees. Information as to these Trustees and officers is
contained under the caption "Trustees and Officers."
MSDW Advisors is the investment manager or investment advisor of the
following investment companies, which are collectively referred to as the
"Morgan Stanley Dean Witter Funds":
<TABLE>
<S> <C>
OPEN-END FUNDS
1 Active Assets California Tax-Free Trust
2 Active Assets Government Securities Trust
3 Active Assets Money Trust
4 Active Assets Tax-Free Trust
5 Morgan Stanley Dean Witter American Value Fund
6 Morgan Stanley Dean Witter Balanced Growth Fund
7 Morgan Stanley Dean Witter Balanced Income Fund
8 Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
9 Morgan Stanley Dean Witter California Tax-Free Income Fund
10 Morgan Stanley Dean Witter Capital Appreciation Fund
11 Morgan Stanley Dean Witter Capital Growth Securities
12 Morgan Stanley Dean Witter Competitive Edge Fund, "Best Ideas" Portfolio
13 Morgan Stanley Dean Witter Convertible Securities Trust
14 Morgan Stanley Dean Witter Developing Growth Securities Trust
15 Morgan Stanley Dean Witter Diversified Income Trust
16 Morgan Stanley Dean Witter Dividend Growth Securities Inc.
17 Morgan Stanley Dean Witter Equity Fund
18 Morgan Stanley Dean Witter European Growth Fund Inc.
19 Morgan Stanley Dean Witter Federal Securities Trust
20 Morgan Stanley Dean Witter Financial Services Trust
21 Morgan Stanley Dean Witter Fund of Funds
22 Dean Witter Global Asset Allocation Fund
23 Morgan Stanley Dean Witter Global Dividend Growth Securities
24 Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
25 Morgan Stanley Dean Witter Global Utilities Fund
26 Morgan Stanley Dean Witter Growth Fund
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
27 Morgan Stanley Dean Witter Hawaii Municipal Trust
28 Morgan Stanley Dean Witter Health Sciences Trust
29 Morgan Stanley Dean Witter High Yield Securities Inc.
30 Morgan Stanley Dean Witter Income Builder Fund
31 Morgan Stanley Dean Witter Information Fund
32 Morgan Stanley Dean Witter Intermediate Income Securities
33 Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
34 Morgan Stanley Dean Witter International SmallCap Fund
35 Morgan Stanley Dean Witter Japan Fund
36 Morgan Stanley Dean Witter Limited Term Municipal Trust
37 Morgan Stanley Dean Witter Liquid Asset Fund Inc.
38 Morgan Stanley Dean Witter Market Leader Trust
39 Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
40 Morgan Stanley Dean Witter Mid-Cap Growth Fund
41 Morgan Stanley Dean Witter Multi-State Municipal Series Trust
42 Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
43 Morgan Stanley Dean Witter New York Municipal Money Market Trust
44 Morgan Stanley Dean Witter New York Tax-Free Income Fund
45 Morgan Stanley Dean Witter Pacific Growth Fund Inc.
46 Morgan Stanley Dean Witter Precious Metals and Minerals Trust
47 Dean Witter Retirement Series
48 Morgan Stanley Dean Witter Select Dimensions Investment Series
49 Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
50 Morgan Stanley Dean Witter Short-Term Bond Fund
51 Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
52 Morgan Stanley Dean Witter Special Value Fund
53 Morgan Stanley Dean Witter S&P 500 Index Fund
54 Morgan Stanley Dean Witter Strategist Fund
55 Morgan Stanley Dean Witter Tax-Exempt Securities Trust
56 Morgan Stanley Dean Witter Tax-Free Daily Income Trust
57 Morgan Stanley Dean Witter U.S. Government Money Market Trust
58 Morgan Stanley Dean Witter U.S. Government Securities Trust
59 Morgan Stanley Dean Witter Utilities Fund
60 Morgan Stanley Dean Witter Value-Added Market Series
61 Morgan Stanley Dean Witter Variable Investment Series
62 Morgan Stanley Dean Witter World Wide Income Trust
CLOSED-END FUNDS
1 InterCapital California Insured Municipal Income Trust
2 InterCapital California Quality Municipal Securities
3 Dean Witter Government Income Trust
4 High Income Advantage Trust
5 High Income Advantage Trust II
6 High Income Advantage Trust III
7 InterCapital Income Securities Inc.
8 InterCapital Insured California Municipal Securities
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
9 InterCapital Insured Municipal Bond Trust
10 InterCapital Insured Municipal Income Trust
11 InterCapital Insured Municipal Securities
12 InterCapital Insured Municipal Trust
13 Municipal Income Opportunities Trust
14 Municipal Income Opportunities Trust II
15 Municipal Income Opportunities Trust III
16 Municipal Income Trust
17 Municipal Income Trust II
18 Municipal Income Trust III
19 Municipal Premium Income Trust
20 InterCapital New York Quality Municipal Securities
21 Morgan Stanley Dean Witter Prime Income Trust
22 InterCapital Quality Municipal Income Trust
23 InterCapital Quality Municipal Investment Trust
24 InterCapital Quality Municipal Securities
</TABLE>
In addition, Morgan Stanley Dean Witter Services Company Inc. ("MSDW
Services"), a wholly-owned subsidiary of MSDW Advisors, serves as manager for
the following investment companies for which TCW Funds Management, Inc. is the
investment advisor (the "TCW/DW Funds"):
<TABLE>
<S> <C>
OPEN-END FUNDS
1 TCW/DW Emerging Markets Opportunities Trust
2 TCW/DW Global Telecom Trust
3 TCW/DW Income and Growth Fund
4 TCW/DW Latin American Growth Fund
5 TCW/DW Mid-Cap Equity Trust
6 TCW/DW North American Government Income Trust
7 TCW/DW Small Cap Growth Fund
8 TCW/DW Total Return Trust
CLOSED-END FUNDS
1 TCW/DW Term Trust 2000
2 TCW/DW Term Trust 2002
3 TCW/DW Term Trust 2003
</TABLE>
MSDW Advisors also serves as: (i) administrator of The BlackRock Strategic
Term Trust Inc., a closed-end investment company; (ii) sub-administrator of
Templeton Global Governments Income Trust, a closed-end investment company; and
(iii) investment advisor of Offshore Dividend Growth Fund and Offshore Money
Market Fund, mutual funds established under the laws of the Cayman Islands and
available only to investors who are participants in the International Active
Assets Account program and are neither citizens nor residents of the United
States.
Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage the
investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective.
5
<PAGE>
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help and bookkeeping and legal services as the Fund may
reasonably require in the conduct of its business, including the preparation of
prospectuses, statements of additional information, proxy statements and
reports required to be filed with federal and state securities commissions
(except insofar as the participation or assistance of independent accountants
and attorneys is, in the opinion of the Investment Manager, necessary or
desirable). In addition, the Investment Manager pays the salaries of all
personnel, including officers of the Fund, who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone service, heat,
light, power and other utilities provided to the Fund. The Investment Manager
has retained MSDW Services to provide its administrative services under the
Agreement.
Expenses not expressly assumed by the Investment Manager under the
Agreement or by Morgan Stanley Dean Witter Distributors Inc., the Distributor
of the Fund's shares ("MSDW Distributors" or "the Distributor") will be paid by
the Fund. These expenses will be allocated among four classes of shares of the
Fund (each, a "Class") pro rata based on the net assets of the Fund
attributable to each Class, except as described below. Such expenses include,
but are not limited to: expenses of the Plan of Distribution pursuant to Rule
12b-1 (the "12b-1 fee") (see "The Distributor"); charges and expenses of any
registrar; custodian, stock transfer and dividend disbursing agent; brokerage
commissions; taxes; engraving and printing of share certificates; registration
costs of the Fund and its shares under federal and state securities laws; the
cost and expense of printing, including typesetting, and distributing
Prospectuses and Statements of Additional Information of the Fund and
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Trustees' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of Trustees or
members of any advisory board or committee who are not employees of the
Investment Manager or any corporate affiliate of the Investment Manager; all
expenses incident to any dividend, withdrawal or redemption options; charges
and expenses of any outside service used for pricing of the Fund's shares; fees
and expenses of legal counsel, including counsel to the Trustees who are not
interested persons of the Fund or of the Investment Manager (not including
compensation or expenses of attorneys who are employees of the Investment
Manager) and independent accountants; membership dues of industry associations;
interest on 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.
As full compensation for the services and facilities furnished to the Fund
and expenses of the Fund assumed by the Investment Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the annual
rate of 0.75% to the Fund's daily net assets. Effective May 1, 1997, the
Investment Manager's compensation was scaled down to 0.725% on assets over $500
million. The management fee is allocated among the Classes pro rata based on
the net assets of the Fund attributable to each Class. For the fiscal period
November 28, 1995 (commencement of operations) through March 31, 1996, and for
the fiscal years ended March 31, 1997 and 1998, the Fund accrued total
compensation to the Investment Manager in the amount of $405,308, $2,043,107
and $1,793,392, respectively.
The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder,
the Investment Manager is not liable to the Fund or any of its investors for
any act or omission by the Investment Manager or for any losses sustained by
the Fund or its investors. The Agreement in no way restricts the Investment
Manager from acting as investment manager or adviser to others.
The Investment Manager has paid the organizational expenses of the Fund of
approximately $179,000 incurred prior to the offering of the Fund's shares. The
Fund has reimbursed the Investment Manager for such expenses The Fund has
deferred and is amortizing the reimbursed expenses on the straight line method
over a period not to exceed five years from the date of commencement of the
Fund's operations.
6
<PAGE>
The Agreement was initially approved by the Trustees on February 21, 1997
and by the shareholders of the Fund at a Special Meeting of Shareholders held
on May 21, 1997. The Agreement is substantially similar to a prior investment
management agreement which was initially approved by the Trustees on August 24,
1995 and by MSDW Advisors as the then sole shareholder on September 15, 1995.
The Agreement took effect on May 31, 1997 upon the consummation of the merger
of Dean Witter, Discover & Co. with Morgan Stanley Group Inc. The Agreement may
be terminated at any time, without penalty, on thirty days' notice by the
Trustees of the Fund, by the holders of a majority of the outstanding shares of
the Fund, as defined in the Investment Company Act of 1940, as amended (the
"Act"), or by the Investment Manager. The Agreement will automatically
terminate in the event of its assignment (as defined in the Act).
Under its terms, the Agreement has an initial term ending April 30, 1999,
and will continue in effect from year to year thereafter, provided continuance
of the Agreement is approved at least annually by the vote of the holders of a
majority of the outstanding shares of the Fund, as defined in the Act, or by
the Trustees of the Fund; provided that in either event such continuance is
approved annually by the vote of a majority of the Trustees of the Fund who are
not parties to the Agreement or "interested persons" (as defined in the Act) of
any such party (the "Independent Trustees"), which vote must be cast in person
at a meeting called for the purpose of voting on such approval.
The following owned 5% or more of the outstanding shares of Class A on
July 8, 1998: George Evans, Pension Fund, 4 World Trade Center, 8th Fl Box
#051, New York, New York, 10048-0899--13.34%; Dean Witter Reynolds Inc.,
Custodian for Richard J. Holowicki, IRA STD DTD 4-14-83, 1465 SW 97th Way,
Davie, FL 33324-4360--10.488%; Dean Witter Reynolds Inc. Custodian for Richard
J. Holowicki, Profit Sharing Plan, 1465 SW 97th Way, Davie, FL
33324-4360--10.488%; Jonathan E. Loeser & Laurie Loeser JTTEN, 116 Valley St,
South Orange, NJ 07079-2812--10.278%. The following owned 5% or more of the
outstanding shares of Class C on July 8, 1998; Elizabeth H. Karger Trustee of
the Elizabeth Karger Family Trust DTD 7/11/97, 123 Georgina Ave #8, Santa
Monica, CA 90402-1663--8.139%. The following owned 5% or more of the
outstanding shares of Class D on July 8, 1998: Evelyn A. Peacock, Bette P.
Skates and Shirley P. Smith JTTEN, 1108 S. Park Ave, Sanford, FL
32771-2852--12.98%; MSDW Advisors, Attn: Maurice Bendrihem, 2 World Trade
Center 73rd Fl., New York, NY 10048-0203--8.57%; MSDW Trust, Custodian for Gary
A. Medvigy, 2133 Schaeffer Rd, Sebastopol, CA 95472-5554--5.18%. The following
owned 25% or more of the outstanding shares of Class D on July 8, 1998: Mr.
James P. Potelunas & Mrs. Mary Ann Potelunas JTWROS, Box 3318 Rd # 3, Moscow,
PA 18444--67.295%.
The Fund has acknowledged that the name "Morgan Stanley Dean Witter" is a
property right of MSDW. The Fund has agreed that MSDW, or any corporate
affiliate of MSDW, may use, or at any time permit others to use, the name
"Morgan Stanley Dean Witter." The Fund has also agreed that in the event the
Investment Management Agreement between MSDW Advisors and the Fund is
terminated, or if the affiliation between MSDW Advisors and its parent company
is terminated, the Fund will eliminate the name "Morgan Stanley Dean Witter"
from its name if MSDW, or any corporate affiliate of MSDW, shall so request.
7
<PAGE>
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with
MSDW Advisors, and its affiliated companies and with 86 Morgan Stanley Dean
Witter Funds and 11 TCW/DW Funds, are shown below:
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------------- ---------------------------------------------------
<S> <C>
Michael Bozic (57) Chairman and Chief Executive Officer of Levitz
Trustee Furniture Corporation (since November, 1995);
c/o Levitz Furniture Corporation Director or Trustee of the Morgan Stanley Dean
7887 N. Federal Highway Witter Funds; formerly President and Chief
Boca Raton, Florida Executive Officer of Hills Department Stores
(May, 1991-July, 1995); formerly variously
Chairman, Chief Executive Officer, President and
Chief Operating Officer (1987-1991) of the Sears
Merchandise Group of Sears, Roebuck and Co.;
Director of Eaglemark Financial Services, Inc. and
Weirton Steel Corporation.
Charles A. Fiumefreddo* (65) Chairman, Director or Trustee, President and Chief
Chairman, President, Chief Executive Officer of the Morgan Stanley Dean
Executive Officer and Trustee Witter Funds; Chairman, Chief Executive Officer
Two World Trade Center and Trustee of the TCW/DW Funds; formerly
New York, New York Chairman, Chief Executive Officer and Director of
MSDW Advisors, MSDW Distributors and MSDW
Services, Executive Vice President and Director of
Dean Witter Reynolds Inc. ("DWR"), Chairman
and Director of Morgan Stanley Dean Witter Trust
FSB ("MSDW Trust"), and Director and/or officer of
various MSDW subsidiaries (until June, 1998).
Edwin J. Garn (65) Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds; formerly United States Senator
c/o Huntsman Corporation (R-Utah) (1974-1992) and Chairman, Senate
500 Huntsman Way Banking Committee (1980-1986); formerly Mayor
Salt Lake City, Utah of Salt Lake City, Utah (1971-1974); formerly
Astronaut, Space Shuttle Discovery (April 12-19,
1985); Vice Chairman, Huntsman Corporation
(since January, 1993); Director of Franklin Covey
(time management systems), John Alden Financial
Corp. (health insurance), United Space Alliance
(joint venture between Lockheed Martin and the
Boeing Company) and Nuskin Asia Pacific
(multilevel marketing); member of the board of
various civic and charitable organizations.
John R. Haire (73) Chairman of the Audit Committee and Director or
Trustee Trustee of the Morgan Stanley Dean Witter Funds;
Two World Trade Center Chairman of the Audit Committee and Trustee of
New York, New York the TCW/DW Funds; formerly Chairman of the
Independent Directors or Trustees of the Morgan
Stanley Dean Witter Funds and the TCW/DW
Funds (until June, 1998); formerly President,
Council for Aid to Education (1978-1989), and
Chairman and Chief Executive Officer of Anchor
Corporation, an Investment Adviser (1964-1978).
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------------- -----------------------------------------------------
<S> <C>
Wayne E. Hedien (64) Retired; Director or Trustee of the Morgan Stanley
Trustee Dean Witter Funds; Director of The PMI Group,
c/o Gordon Altman Butowsky Inc. (private mortgage insurance); Trustee and
Weitzen Shalov & Wein Vice Chairman of The Field Museum of Natural
Counsel to the Independent History; formerly associated with the Allstate
Trustees Companies (1966-1994), most recently as
114 West 47th Street Chairman of The Allstate Corporation (March,
New York, New York 1993-December, 1994) and Chairman and Chief
Executive Officer of its wholly-owned subsidiary,
Allstate Insurance Company (July, 1989-December,
1994); director of various other business and
charitable organizations.
Dr. Manuel H. Johnson (49) Senior Partner, Johnson Smick International, Inc.,
Trustee a consulting firm; Co-Chairman and a founder of
c/o Johnson Smick International, Inc. the Group of Seven Council (G7C), an international
1133 Connecticut Avenue, N.W. economic commission (since September, 1990);
Washington, D.C. Director or Trustee of the Morgan Stanley Dean
Witter Funds; Trustee of the TCW/DW Funds;
Director of NASDAQ (since June, 1995); Director
of Greenwich Capital Markets Inc. (broker-dealer)
and NVR, Inc. (home construction); Chairman and
Trustee of the Financial Accounting Foundation
(oversight organization for the Financial Accounting
Standards Board); formerly Vice Chairman of the
Board of Governors at the Federal Reserve System
(February, 1986-August, 1990) and Assistant
Secretary of the U.S. Treasury (1982-1986).
Michael E. Nugent (62) General Partner, Triumph Capital, L.P., a private
Trustee investment partnership (since April, 1988); Director
c/o Triumph Capital, L.P. or Trustee of the Morgan Stanley Dean Witter
237 Park Avenue Funds; Trustee of the TCW/DW Funds; formerly
New York, New York Vice President, Bankers Trust Company and BT
Capital Corporation (1984-1988); Director of
various business organizations.
Philip J. Purcell* (54) Chairman of the Board of Directors and Chief
Trustee Executive Officer of MSDW, DWR and Novus
1585 Broadway Credit Services Inc.; Director of MSDW Distributors;
New York, New York Director or Trustee of the Morgan Stanley Dean
Witter Funds; Director and/or officer of various
MSDW subsidiaries.
John L. Schroeder (67) Retired; Director or Trustee of the Morgan Stanley
Trustee Dean Witter Funds; Trustee of the TCW/DW Funds;
c/o Gordon Altman Butowsky Director of Citizens Utilities Company; formerly
Weitzen Shalov & Wein Executive Vice President and Chief Investment
Counsel to the Independent Trustees Officer of the Home Insurance Company (August,
114 West 47th Street 1991-September, 1995).
New York, New York
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------------- --------------------------------------------------
<S> <C>
Barry Fink (43) Senior Vice President (since March, 1997),
Vice President, Secretary and General Counsel (since February,
Secretary and General Counsel 1997) and Director (since July, 1998) of MSDW
Two World Trade Center Advisors and MSDW Services; Senior Vice
New York, New York President (since March, 1997) and Assistant
Secretary and Assistant General Counsel (since
February, 1997) of MSDW Distributors; Assistant
Secretary of DWR (since August, 1996); Vice
President, Secretary and General Counsel of the
Morgan Stanley Dean Witter Funds and the
TCW/DW Funds (since February, 1997); previously
First Vice President (June, 1993-February, 1997),
Vice President (until June, 1993) and Assistant
Secretary and Assistant General Counsel of MSDW
Advisors and MSDW Services and Assistant
Secretary of the Morgan Stanley Dean Witter
Funds and TCW/DW Funds.
George Paoletti (38) Vice President of MSDW Advisors since May 1997;
Vice President previously Senior Equity Research Analyst with
Two World Trade Center MSDW Advisors (May, 1997-July, 1998); Equity
New York, New York Analyst with Fred Alger Management (November
1995 - May 1997) and Consultant with Off Wall
Street Consulting (July 1992-November 1995).
Thomas F. Caloia (51) First Vice President and Assistant Treasurer of
Treasurer MSDW Advisors and MSDW Services; Treasurer
Two World Trade Center of the Morgan Stanley Dean Witter Funds and the
New York, New York TCW/DW Funds.
</TABLE>
- ----------
* Denotes Trustees who are "interested persons" of the Fund, as defined in the
Act.
In addition, Mitchell M. Merin, President, Chief Executive Officer and
Director of MSDW Advisors and MSDW Services, Chairman and Director of MSDW
Distributors and MSDW Trust, Executive Vice President and Director of DWR, and
Director of SPS Transaction Services, Inc. and various other MSDW subsidiaries,
Robert M. Scanlan, President, Chief Operating Officer and Director of MSDW
Advisors and MSDW Services, Executive Vice President of MSDW Distributors and
MSDW Trust and Director of MSDW Trust, Robert S. Giambrone, Senior Vice
President of MSDW Advisors, MSDW Services, MSDW Distributors and MSDW Trust and
Director of MSDW Trust, Joseph J. McAlinden, Executive Vice President and Chief
Investment Officer of MSDW Advisors and Director of MSDW Trust, Edward F.
Gaylor and Jayne Stevlingson, Senior Vice Presidents of MSDW Advisors and Peter
Hermann, Vice President of MSDW Advisors, are Vice Presidents of the Fund, and
Marilyn K. Cranney and Carsten Otto, First Vice Presidents and Assistant
General Counsels of MSDW Advisors and MSDW Services, Frank Bruttomesso, LouAnne
D. McInnis and Ruth Rossi, Vice Presidents and Assistant General Counsels of
MSDW Advisors and MSDW Services, and Todd Lebo, a staff attorney with MSDW
Advisors, are Assistant Secretaries of the Fund.
THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES
The Board of Trustees consists of nine (9) trustees. These same
individuals also serve as directors or trustees for all of the Morgan Stanley
Dean Witter Funds, and are referred to in this section as Trustees. As of the
date of this Statement of Additional Information, there are a total of 86
Morgan Stanley Dean Witter Funds, comprised of 132 portfolios. As of June 30,
1998, the Morgan Stanley Dean Witter Funds had total net assets of
approximately $106.8 billion and more than six million shareholders.
Seven Trustees (77% of the total number) have no affiliation or business
connection with MSDW Advisors or any of its affiliated persons and do not own
any stock or other securities issued by MSDW Advisors' parent
10
<PAGE>
company, MSDW. These are the "disinterested" or "independent" Trustees. Four of
the seven independent Trustees are also Independent Trustees of the TCW/DW
Funds.
Law and regulation establish both general guidelines and specific duties
for the Independent Trustees. The Morgan Stanley Dean Witter Funds seek as
Independent Trustees individuals of distinction and experience in business and
finance, government service or academia; these are people whose advice and
counsel are in demand by others and for whom there is often competition. To
accept a position on the Funds' Boards, such individuals may reject other
attractive assignments because the Funds make substantial demands on their
time. Indeed, by serving on the Funds' Boards, certain Trustees who would
otherwise be qualified and in demand to serve on bank boards would be
prohibited by law from doing so.
All of the Independent Trustees serve as members of the Audit Committee.
Three of them also serve as members of the Derivatives Committee. During the
calendar year ended December 31, 1997, the Audit Committee, the Derivatives
Committee and the Independent Trustees held a combined total of seventeen
meetings.
The Independent Trustees are charged with recommending to the full Board
approval of management, advisory and administration contracts, Rule 12b-1 plans
and distribution and underwriting agreements; continually reviewing Fund
performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among Funds in
the same complex; and approving fidelity bond and related insurance coverage
and allocations, as well as other matters that arise from time to time. The
Independent Trustees are required to select and nominate individuals to fill
any Independent Trustee vacancy on the Board of any Fund that has a Rule 12b-1
plan of distribution. Most of the Morgan Stanley Dean Witter Funds have such a
plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; and reviewing
the independence of the independent accountants; considering the range of audit
and non-audit fees; reviewing the adequacy of the Fund's system of internal
controls.
Finally, the Board of each Fund has formed a Derivatives Committee to
approve parameters for and monitor the activities of the Fund with respect to
derivative investments, if any, made by the Fund.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL MORGAN
STANLEY DEAN WITTER FUNDS
The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Morgan Stanley Dean Witter Funds
avoids the duplication of effort that would arise from having different groups
of individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and
enhances their ability to negotiate on behalf of each Fund with the Fund's
service providers. This arrangement also precludes the possibility of separate
groups of Independent Trustees arriving at conflicting decisions regarding
operations and management of the Funds and avoids the cost and confusion that
would likely ensue. Finally, having the same Independent Trustees serve on all
Fund Boards enhances the ability of each Fund to obtain, at modest cost to each
separate Fund, the services of Independent Trustees of the caliber, experience
and business acumen of the individuals who serve as Independent Trustees of the
Morgan Stanley Dean Witter Funds.
COMPENSATION OF INDEPENDENT TRUSTEES
The Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees, the Independent
Trustees or Committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an additional annual fee of
$750). If a Board meeting and a meeting of the Independent Trustees or a
Committee meeting, or a meeting of the
11
<PAGE>
Independent Trustees and/or more than one Committee meeting, take place on a
single day, the Trustees are paid a single meeting fee by the Fund. The Fund
also reimburses such Trustees for travel and other out-of-pocket expenses
incurred by them in connection with attending such meetings. Trustees and
officers of the Fund who are or have been employed by the Investment Manager or
an affiliated company receive no compensation or expense reimbursement from the
Fund for their services as Trustee. Mr. Haire currently serves as Chairman of
the Audit Committee. Prior to June 1, 1998, Mr. Haire also served as Chairman
of the Independent Trustees, for which services the Fund paid him an additional
annual fee of $1,200.
The following table illustrates the compensation paid to the Fund's
Independent Trustees by the Fund for the fiscal year ended March 31, 1998.
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- ------------------------------- --------------
<S> <C>
Michael Bozic ................. $1,600
Edwin J. Garn ................. 1,700
John R. Haire ................. 3,550
Wayne E. Hedien ............... 1,132
Dr. Manuel H. Johnson ......... 1,650
Michael E. Nugent ............. 1,700
John L. Schroeder ............. 1,700
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1997 for services
to the 84 Morgan Stanley Dean Witter Funds and, in the case of Messrs. Haire,
Johnson, Nugent and Schroeder, the 14 TCW/DW Funds that were in operation at
December 31, 1997. Mr. Haire serves as Chairman of the Audit Committee of each
Morgan Stanley Dean Witter Fund and each TCW/DW Fund and, prior to June 1,
1998, also served as Chairman of the Independent Directors or Trustees of those
Funds. With respect to Messrs. Haire, Johnson, Nugent and Schroeder, the TCW/DW
Funds are included solely because of a limited exchange privilege between those
Funds and five Morgan Stanley Dean Witter Money Market Funds. Mr. Hedien's term
as Director or Trustee of each Morgan Stanley Dean Witter Fund commenced on
September 1, 1997.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS AND TCW/DW FUNDS
<TABLE>
<CAPTION>
FOR SERVICE AS
CHAIRMAN OF
INDEPENDENT FOR SERVICE AS TOTAL CASH
FOR SERVICE DIRECTORS/ CHAIRMAN OF COMPENSATION
AS DIRECTOR OR FOR SERVICE AS TRUSTEES AND INDEPENDENT FOR SERVICES TO
TRUSTEE AND TRUSTEE AND AUDIT TRUSTEES 84 MORGAN STANLEY
COMMITTEE MEMBER COMMITTEE MEMBER COMMITTEES OF 84 AND AUDIT DEAN WITTER
NAME OF OF 84 MORGAN STANLEY OF 14 TCW/DW MORGAN STANLEY COMMITTEES OF 14 FUNDS AND 14
INDEPENDENT TRUSTEE DEAN WITTER FUNDS FUNDS DEAN WITTER FUNDS TCW/DW FUNDS TCW/DW FUNDS
- --------------------------- ---------------------- ------------------ ------------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Michael Bozic ............. $133,602 -- -- -- $133,602
Edwin J. Garn ............. 149,702 -- -- -- 149,702
John R. Haire ............. 149,702 $73,725 $157,463 $25,350 406,240
Wayne E. Hedien ........... 39,010 -- -- -- 39,010
Dr. Manuel H. Johnson 145,702 71,125 -- -- 216,827
Michael E. Nugent ......... 149,702 73,725 -- -- 223,427
John L. Schroeder ......... 149,702 73,725 -- -- 223,427
</TABLE>
As of the date of this Statement of Additional Information, 57 of the
Morgan Stanley Dean Witter Funds, not including the Fund, have adopted a
retirement program under which an Independent Trustee who retires after serving
for at least five years (or such lesser period as may be determined by the
Board) as an Independent Director or Trustee of any Morgan Stanley Dean Witter
Fund that has adopted the retirement program (each such Fund referred to as an
"Adopting Fund" and each such Trustee referred to as an "Eligible Trustee") is
entitled to retirement payments upon reaching the eligible retirement age
(normally, after attaining age 72). Annual payments are based upon length of
service. Currently, upon retirement, each Eligible Trustee is entitled to
receive from the Adopting Fund, commencing as of his or her retirement date and
continuing for the remainder of his or her life, an annual retirement benefit
(the "Regular Benefit") equal to 29.41% of his or her Eligible Compensation
plus 0.4901667% of such Eligible Compensation for each full month of service as
an Independent Director or Trustee of any Adopting Fund in excess of five years
up to a maximum of 58.82%
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<PAGE>
after ten years of service. The foregoing percentages may be changed by the
Board.(1) "Eligible Compensa- tion" is one-fifth of the total compensation
earned by such Eligible Trustee for service to the Adopting Fund in the five
year period prior to the date of the Eligible Trustee's retirement. Benefits
under the retirement program are not secured or funded by the Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the 57 Morgan Stanley Dean Witter Funds (not
including the Fund) for the year ended December 31, 1997, and the estimated
retirement benefits for the Fund's Independent Trustees, to commence upon their
retirement, from the 57 Morgan Stanley Dean Witter Funds as of December 31,
1997.
RETIREMENT BENEFITS FROM ALL MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
ESTIMATED
RETIREMENT ANNUAL
ESTIMATED BENEFITS BENEFITS
CREDITED ACCRUED AS UPON
YEARS ESTIMATED EXPENSES RETIREMENT
OF SERVICE AT PERCENTAGE OF BY ALL FROM ALL
RETIREMENT ELIGIBLE ADOPTING ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUNDS FUNDS (2)
- ------------------------------- --------------- --------------- ------------------ -----------
<S> <C> <C> <C> <C>
Michael Bozic ................. 10 58.82% $ 20,499 $ 55,026
Edwin J. Garn ................. 10 58.82 30,878 55,026
John R. Haire ................. 10 58.82 (19,823)(3) 132,002
Wayne E. Hedien ............... 9 50.00 0 46,772
Dr. Manuel H. Johnson ......... 10 58.82 12,832 55,026
Michael E. Nugent ............. 10 58.82 22,546 55,026
John L. Schroeder ............. 8 49.02 39,350 46,123
</TABLE>
- -------------------
(1) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement.
The amount estimated to be payable under this method, through the
remainder of the later of the lives of such Eligible Trustee and spouse,
will be the actuarial equivalent of the Regular Benefit. In addition, the
Eligible Trustee may elect that the surviving spouse's periodic payment
of benefits will be equal to either 50% or 100% of the previous periodic
amount, an election that, respectively, increases or decreases the
previous periodic amount so that the resulting payments will be the
actuarial equivalent of the Regular Benefit.
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
(3) This number reflects the effect of the extension of Mr. Haire's term as
Director or Trustee until May 1, 1999.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's
officers and Trustees as a group was less than 1 percent of the Fund's shares
of beneficial interest outstanding.
INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES
As discussed in the Prospectus, the Fund may invest in, among other
securities, securities issued by the U.S. Government, its agencies or
instrumentalities. Such securities include:
(1) U.S. Treasury bills (maturities of one year or less), U.S. Treasury
notes (maturities of one to ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years), all of which are direct obligations
of the U.S. Government and, as such, are backed by the "full faith and
credit" of the United States.
(2) Securities issued by agencies and instrumentalities of the U.S.
Government which are backed by the full faith and credit of the United
States. Among the agencies and instrumentalities issuing such obligations
are the Federal Housing Administration, the Government National Mortgage
Association
13
<PAGE>
("GNMA"), the Department of Housing and Urban Development, the
Export-Import Bank, the Farmers Home Administration, the General Services
Administration, the Maritime Administration and the Small Business
Administration. The maturities of such obligations range from three months
to 30 years.
(3) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but whose issuing
agency or instrumentality has the right to borrow, to meet its obligations,
from an existing line of credit with the U.S. Treasury. Among the agencies
and instrumentalities issuing such obligations are the Tennessee Valley
Authority, the Federal National Mortgage Association ("FNMA"), the Federal
Home Loan Mortgage Corporation ("FHLMC") and the U.S. Postal Service.
(4) Securities issued by agencies and instrumentalities which are not
backed by the full faith and credit of the United States, but which are
backed by the credit of the issuing agency or instrumentality. Among the
agencies and instrumentalities issuing such obligations are the Federal
Farm Credit System and the Federal Home Loan Banks.
Neither the value nor the yield of the U.S. Government securities which
may be invested in by the Fund are guaranteed by the U.S. Government. Such
values and yield will fluctuate with changes in prevailing interest rates and
other factors. Generally, as prevailing interest rates rise, the value of any
U.S. Government securities held by the Fund will fall. Such securities with
longer maturities generally tend to produce higher yields and are subject to
greater market fluctuation as a result of changes in interest rates than debt
securities with shorter maturities. The Fund is not limited as to the
maturities of the U.S. Government securities in which it may invest.
MONEY MARKET SECURITIES
As stated in the Prospectus, the money market instruments which the Fund
may purchase include U.S. Government securities, bank obligations, Eurodollar
certificates of deposit, obligations of savings institutions, fully insured
certificates of deposit and commercial paper. Such securities are limited to:
U.S. Government Securities. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as the
Federal Home Loan Bank), including Treasury bills, notes and bonds;
Bank Obligations. Obligations (including certificates of deposit, bankers'
acceptances, commercial paper (see below) and other debt obligations) of banks
subject to regulation by the U.S. Government and having total assets of $1
billion or more, and instruments secured by such obligations, not including
obligations of foreign branches of domestic banks except as permitted below;
Eurodollar Certificates of Deposit. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of $1 billion
or more (investments in Eurodollar certificates may be affected by changes in
currency rates or exchange control regulations, or changes in governmental
administration or economic or monetary policy in the United States and abroad);
Obligations of Savings Institutions. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion or
more (investments in savings institutions above $100,000 in principal amount
are not protected by Federal deposit insurance);
Fully Insured Certificates of Deposit. Certificates of deposit of banks
and savings institutions, having total assets of less than $1 billion, if the
principal amount of the obligation is insured by the Bank Insurance Fund or the
Savings Association Insurance Fund (each of which is administered by the
Federal Deposit Insurance Corporation), limited to $100,000 principal amount
per certificate and to 15% or less of the Fund's total assets in all such
obligations and in all illiquid assets, in the aggregate; and
Commercial Paper. Commercial paper rated within the two highest grades by
Standard & Poor's Corporation or the highest grade by Moody's Investors
Service, Inc. or, if not rated, issued by a company having an outstanding debt
issue rated at least AAA by Standard & Poor's or Aaa by Moody's.
14
<PAGE>
LENDING OF PORTFOLIO SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities to brokers, dealers and other financial institutions,
provided that such loans are callable at any time by the Fund (subject to
notice provisions described below), and are at all times secured by cash or
money market instruments, which are maintained in a segregated account pursuant
to applicable regulations and that are equal to at least the market value,
determined daily, of the loaned securities. The advantage of such loans is that
the Fund continues to receive the income on the loaned securities while at the
same time earning interest on the cash amounts deposited as collateral, which
will be invested in short-term obligations. The Fund will not lend its
portfolio securities if such loans are not permitted by the laws or regulations
of any state in which its shares are qualified for sale and will not lend more
than 25% of the value of its total assets. A loan may be terminated by the
borrower on one business day's notice, or by the Fund on two business days'
notice. If the borrower fails to deliver the loaned securities within two days
after receipt of notice, the Fund could use the collateral to replace the
securities while holding the borrower liable for any excess of replacement cost
over collateral. As with any extensions of credit, there are risks of delay in
recovery and in some cases even loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans of portfolio
securities will only be made to firms deemed by the Investment Manager to be
creditworthy and when the income which can be earned from such loans justifies
the attendant risks. Upon termination of the loan, the borrower is required to
return the securities to the Fund. Any gain or loss in the market price during
the loan period would inure to the Fund. The creditworthiness of firms to which
the Fund lends its portfolio securities will be monitored on an ongoing basis
by the Investment Manager pursuant to procedures adopted and reviewed, on an
ongoing basis, by the Board of Trustees of the Fund.
When voting or consent rights which accompany loaned securities pass to
the borrower, the Fund will follow the policy of calling the loaned securities,
to be delivered within one day after notice, to permit the exercise of such
rights if the matters involved would have a material effect on the Fund's
investment in such loaned securities. The Fund will pay reasonable finder's,
administrative and custodial fees in connection with a loan of its securities.
During the fiscal year ended March 31, 1998, the Fund did not lend any
portfolio securities.
REPURCHASE AGREEMENTS
When cash may be available for only a few days, it may be invested by the
Fund in repurchase agreements until such time as it may otherwise be invested
or used for payments of obligations of the Fund. These agreements, which may be
viewed as a type of secured lending by the Fund, typically involve the
acquisition by the Fund of debt securities from a selling financial institution
such as a bank, savings and loan association or broker-dealer. The agreement
provides that the Fund will sell back to the institution, and that the
institution will repurchase, the underlying security ("collateral") at a
specified price and at a fixed time in the future, usually not more than seven
days from the date of purchase. The collateral will be maintained in a
segregated account and will be marked to market daily to determine that the
value of the collateral, as specified in the agreement, does not decrease below
the purchase price plus accrued interest. If such decrease occurs, additional
collateral will be requested and, when received, added to the account to
maintain full collateralization. The Fund will accrue interest from the
institution until the time when the repurchase is to occur. Although such date
is deemed by the Fund to be the maturity date of a repurchase agreement, the
maturities of securities subject to repurchase agreements are not subject to
any limits.
While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures designed to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions
whose financial condition will be continually monitored by the Investment
Manager subject to procedures established by the Board of Trustees of the Fund.
In addition, as described above, the value of the collateral underlying the
repurchase agreement will be at least equal to the repurchase price, including
any accrued interest earned on the repurchase agreement. In the event of a
default or bankruptcy by a selling financial institution, the Fund will seek to
liquidate such collateral. However, the exercising of the Fund's right to
liquidate such collateral could involve certain costs or delays and, to the
extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Fund could suffer a loss.
It is the current
15
<PAGE>
policy of the Fund not to invest in repurchase agreements that do not mature
within seven days if any such investment, together with any other illiquid
assets held by the Fund, amounts to more than 15% of its net assets. During the
fiscal year ended March 31, 1998, the Fund did not enter into any repurchase
agreements.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
From time to time, in the ordinary course of business, the Fund may
purchase securities on a when-issued or delayed delivery basis and may purchase
or sell securities on a forward commitment basis. When such transactions are
negotiated, the price is fixed at the time of the commitment, but delivery and
payment can take place a month or more after the date of the commitment. The
securities so purchased or sold are subject to market fluctuation and no
interest or dividends accrue to the purchaser prior to the settlement date.
While the Fund will only purchase securities on a when-issued, delayed delivery
or forward commitment basis with the intention of acquiring the securities, the
Fund may sell the securities before the settlement date, if it is deemed
advisable. At the time the Fund makes the commitment to purchase or sell
securities on a when-issued, delayed delivery or forward commitment basis, the
Fund will record the transaction and thereafter reflect the value, each day, of
such security purchased or, if a sale, the proceeds to be received, in
determining its net asset value. At the time of delivery of the securities, the
value may be more or less than the purchase or sale price. The Fund will also
establish a segregated account with the Fund's custodian bank in which it will
continuously maintain cash or U.S. Government securities or other liquid
portfolio securities equal in value to commitments to purchase securities on a
when-issued, delayed delivery or forward commitment basis; subject to this
requirement, the Fund may purchase securities on such basis without limit. An
increase in the percentage of the Fund's assets committed to the purchase of
securities on a when-issued or delayed delivery basis may increase the
volatility of the Fund's net asset value. During the fiscal year ended March
31, 1998, the Fund did not purchase any securities on a when-issued and delayed
delivery 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, leveraged buyout
or debt restructuring. The commitment for the purchase of any such security
will not be recognized in the portfolio of the Fund until the Investment
Manager determines that issuance of the security is probable. At such time, the
Fund will record the transaction and, in determining its net asset value, will
reflect the value of the security daily. At such time, the Fund will also
establish a segregated account with its custodian bank in which it will
continuously maintain cash or U.S. Government securities or other liquid
portfolio securities equal in value to recognized commitments for such
securities. Once a segregated account has been established, if the anticipated
event does not occur and the securities are not issued the Fund will have lost
an investment opportunity. The Fund may purchase securities on such basis
without limit. An increase in the percentage of the Fund's assets committed to
the purchase of securities on a "when, as and if issued" basis may increase the
volatility of its net asset value. The Fund may also sell securities on a
"when, as and if issued" basis provided that the issuance of the security will
result automatically from the exchange or conversion of a security owned by the
Fund at the time of the sale. During the fiscal year ended March 31, 1998, the
Fund did not purchase any when, as and if issued securities.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS.
As discussed in the Prospectus, the Fund may enter into forward foreign
currency exchange contract ("forward contracts") as a hedge against
fluctuations in future foreign exchange rates. The Fund will conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
entering into forward contracts to purchase or sell foreign currencies. A
forward contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders and their customers. Such forward contracts will be
entered into only with United States banks and their foreign branches,
insurance companies and other dealers whose assets total $1 billion or more, or
foreign banks whose assets total $1 billion or more. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades.
16
<PAGE>
When the Fund's Investment Manager believes that a particular foreign
currency may experience a substantial movement against the U.S. dollar, it may
enter into a forward contract to purchase or sell, for a fixed amount of
dollars or other currency, the amount of foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in such
foreign currency. The Fund will also not enter into such forward contracts or
maintain a net exposure to such contracts where the consummation of the
contracts would obligate the Fund to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets
denominated in that currency. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the longer term
investment decisions made with regard to overall diversification strategies.
However, the management of the Fund believes that it is important to have the
flexibility to enter into such forward contracts when it determines that the
best interests of the Fund will be served. The Fund's custodian bank will place
cash, U.S. Government securities or other appropriate liquid portfolio
securities in a segregated account of the Fund in an amount equal to the value
of the Fund's total assets committed to the consummation of forward contract
entered into under the circumstances set forth above. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of the Fund's commitments with respect to
such contracts.
Where, for example, the Fund is hedging a portfolio position consisting of
foreign fixed-income securities denominated in a foreign currency against
adverse exchange rate moves vis-a-vis the U.S. dollar, at the maturity of the
forward contract for delivery by the Fund of a foreign currency, the Fund may
either sell the portfolio security and make delivery of the foreign currency,
or it may retain the security and terminate its contractual obligation to
deliver the foreign currency by purchasing an "offsetting" contract with the
same currency trader obligating it to purchase, the same amount of the foreign
currency. It is impossible to forecast the market value of portfolio securities
at the expiration of the contract. Accordingly, it may be necessary for the
Fund to purchase additional foreign currency on the spot market (and bear the
expense of such purchase) if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver and if a decision
is made to sell the security and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio securities if its market value
exceeds the amount of foreign currency the Fund is obligated to deliver.
If the Fund retains the portfolio securities and engages in an offsetting
transaction, the Fund will incur a gain or loss to the extent that there has
been movement in spot or forward contract prices. If the Fund engages in an
offsetting transaction, it may subsequently enter into a new forward contract
to sell the foreign currency. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale of a foreign
currency and the date it enters into an offsetting contract for the purchase of
the foreign currency, the Fund will realize a gain to the extent the price of
the currency it has agreed to sell exceeds the price of the currency it has
agreed to purchase. Should forward prices increase, the Fund will suffer a loss
to the extent the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
If the Fund purchases a fixed-income security which is denominated in U.S.
dollars but which will pay out its principal based upon a formula tied to the
exchange rate between the U.S. dollar and a foreign currency, it may hedge
against a decline in the principal value of the security by entering into a
forward contract to sell or purchase an amount of the relevant foreign currency
equal to some or all of the principal value of the security.
At times when the Fund has written a call or put option on a fixed-income
security or the currency in which it is denominated, it may wish to enter into
a forward contract to purchase or sell the foreign currency in which the
security is denominated. A forward contract would, for example, hedge the risk
of the security on which a call currency option has been written declining in
value to a greater extent than the value of the premium received for the
option. The Fund will maintain with its Custodian at all times, cash, U.S.
Government securities or other liquid portfolio securities in a segregated
account equal in value to all forward contract obligations and option contract
obligations entered into in hedge situations such as this.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. It will, however, do so from time to time, and investors
17
<PAGE>
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the spread between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may write covered call options against securities held in its
portfolio and covered put options on eligible portfolio securities and stock
indexes and purchase options of the same series to effect closing transactions,
and may hedge against potential changes in the market value of investments (or
anticipated investments) by purchasing put and call options on portfolio (or
eligible portfolio) securities and engaging in transactions involving futures
contracts and options on such contracts. Call and put options on U.S. Treasury
notes, bonds and bills and equity securities are listed on Exchanges and are
written in over-the-counter transactions ("OTC options"). Listed options are
issued by the Options Clearing Corporation ("OCC"). Ownership of a listed call
option gives the Fund the right to buy from the OCC the underlying security
covered by the option at the stated exercise price (the price per unit of the
underlying security) by filing an exercise notice prior to the expiration date
of the option. The writer (seller) of the option would then have the obligation
to sell to the OCC the underlying security at that exercise price prior to the
expiration date of the option, regardless of its then current market price.
Ownership of a listed put option would give the Fund the right to sell the
underlying security to the OCC at the stated exercise price. Upon notice of
exercise of the put option, the writer of the put would have the obligation to
purchase the underlying security from the OCC at the exercise price. The Fund
will not write uncovered options.
Options on Treasury Bonds and Notes. Because trading in options written on
Treasury bonds and notes tends to center on the most recently auctioned issues,
the exchanges on which such securities trade will not continue indefinitely to
introduce options with new expirations to replace expiring options on
particular issues. Instead, the expirations introduced at the commencement of
options trading on a particular issue will be allowed to run their course, with
the possible addition of a limited number of new expirations as the original
ones expire. Options trading on each issue of bonds or notes will thus be
phased out as new options are listed on more recent issues, and options
representing a full range of expirations will not ordinarily be available for
every issue on which options are traded.
Options on Treasury Bills. Because a deliverable Treasury bill changes
from week to week, writers of Treasury bill calls cannot provide in advance for
their potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Fund holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of
the option, the position may be hedged from a risk standpoint by the writing of
a call option. For so long as the call option is outstanding, the Fund will
hold the Treasury bills in a segregated account with its Custodian, so that
they will be treated as being covered.
OTC Options. Exchange-listed options are issued by the OCC which assures
that all transactions in such options are properly executed. OTC options are
purchased from or sold (written) to dealers or financial institutions which
have entered into direct agreements with the Fund. With OTC options, such
variables as expiration date, exercise price and premium will be agreed upon
between the Fund and the transacting dealer, without the intermediation of a
third party such as the OCC. If the transacting dealer fails to make or take
delivery of the securities underlying an option it has written, in accordance
with the terms of that option, the Fund would lose the premium paid for the
option as well as any anticipated benefit of the transaction. The Fund will
engage in OTC option transactions only with primary U.S. Government securities
dealers recognized by the Federal Reserve Bank of New York.
Covered Call Writing. The Fund is permitted to write covered call options
on portfolio securities in order to aid in achieving its investment objective.
Generally, a call option is "covered" if the Fund owns, or has the right to
acquire, without additional cash consideration (or for additional cash
consideration held for the Fund by its Custodian in a segregated account) the
underlying security subject to the option except that in the case of call
options on U.S. Treasury Bills, the Fund might own U.S. Treasury Bills of a
different series from those underlying the call option, but with a principal
amount and value corresponding to the exercise price and a maturity date not
later than that of the securities deliverable under the call option. A call
option is also covered if the Fund holds a call on the same security as the
underlying security of the written option, where the exercise
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price of the call used for coverage is equal to or less than the exercise price
of the call written or greater than the exercise price of the call written if
the mark to market difference is maintained by the Fund in cash, U.S.
Government securities or other liquid portfolio securities which the Fund holds
in a segregated account maintained with its Custodian.
The Fund will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable the Fund to achieve a greater total return than would be
realized from holding the underlying securities alone. Moreover, the premium
received will offset a portion of the potential loss incurred by the Fund if
the securities underlying the option are ultimately sold by the Fund at a loss.
The premium received will fluctuate with varying economic market conditions. If
the market value of the portfolio securities upon which call options have been
written increases, the Fund may receive less total return from the portion of
its portfolio upon which calls have been written than it would have had such
call not been written.
During the option period, the Fund may be required, at any time, to
deliver the underlying security against payment of the exercise price on any
calls it has written (exercise of certain listed options may be limited to
specific expiration dates). This obligation is terminated upon the expiration
of the option period or at such earlier time when the writer effects a closing
purchase transaction. A closing purchase transaction is accomplished by
purchasing an option of the same series as the option previously written.
However, once the Fund has been assigned an exercise notice, the Fund will be
unable to effect a closing purchase transaction.
Closing purchase transactions are ordinarily effected to realize a profit
on an outstanding call option to prevent an underlying security from being
called, to permit the sale of an underlying security or to enable the Fund to
write another call option on the underlying security with either a different
exercise price or expiration date or both. Also, effecting a closing purchase
transaction will permit the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other investments by the Fund.
The Fund may realize a net gain or loss from a closing purchase transaction
depending upon whether the amount of the premium received on the call option is
more or less than the cost of effecting the closing purchase transaction. Any
loss incurred in a closing purchase transaction may be wholly or partially
offset by unrealized appreciation in the market value of the underlying
security. Conversely, a gain resulting from a closing purchase transaction
could be offset in whole or in part or exceeded by a decline in the market
value of the underlying security.
If a call option expires unexercised, the Fund realizes a gain in the
amount of the premium on the option less the commission paid. Such a gain,
however, may be offset by depreciation in the market value of the underlying
security during the option period. If a call option is exercised, the Fund
realizes a gain or loss from the sale of the underlying security equal to the
difference between the purchase price of the underlying security and the
proceeds of the sale of the security plus the premium received on the option
less the commission paid.
Options written by a Fund normally have expiration dates of from up to
nine months (equity securities) to eighteen months (fixed-income securities)
from the date written. The exercise price of a call option may be below, equal
to or above the current market value of the underlying security at the time the
option is written. See "Risks of Options and Futures Transactions," below.
Covered Put Writing. As a writer of a covered put option, the Fund incurs
an obligation to buy the security underlying the option from the purchaser of
the put, at the option's exercise price at any time during the option period,
at the purchaser's election (certain listed put options written by the Fund
will be exercisable by the purchaser only on a specific date). A put is
"covered" if, at all times, the Fund maintains, in a segregated account
maintained on its behalf at the Fund's Custodian, cash, U.S. Government
securities or other high grade debt obligations in an amount equal to at least
the exercise price of the option, at all times, during the option period.
Similary, a short put position could be covered by the Fund by its purchase of
a put option on the same security as the underlying security of the written
option, where the exercise price of the purchased option is equal to or more
than the exercise price of the put written or less than the exercise price of
the put written if the mark to market difference is maintained by the Fund in
cash, U.S. Government securities or other liquid portfolio securities which the
Fund holds in a segregated account maintained at its Custodian. In writing
puts, the Fund assumes the risk of loss should the market value of the
underlying security decline below the exercise price of the option (any loss
being decreased by the receipt of the premium on the option written). During
the option period, the Fund may be required, at any time, to make payment of
the exercise price against delivery of the underlying security. The operation
of and limitations on covered put options in other respects are substantially
identical to those of call options.
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The Fund will write put options for two purposes: (1) to receive the
income derived from the premiums paid by purchasers; and (2) when the
Investment Manager wishes to purchase the security underlying the option at a
price lower than its current market price, in which case it will write the
covered put at an exercise price reflecting the lower purchase price sought.
The potential gain on a covered put option is limited to the premium received
on the option (less the commissions paid on the transaction) while the
potential loss equals the difference between the exercise price of the option
and the current market price of the underlying securities when the put is
exercised, offset by the premium received (less the commissions paid on the
transaction).
Purchasing Call and Put Options. As stated in the Prospectus, the Fund may
purchase listed and OTC call and put options on securities and stock indexes in
amounts equalling up to 10% of its total assets, with a maximum of 5% of the
Fund's assets invested in stock index options. The Fund may purchase call
options only in order to close out a covered call position (see "Covered Call
Writing" above). The purchase of a call option to effect a closing transaction
on a call written over-the-counter may be a listed or OTC option. In either
case, the call purchased is likely to be on the same securities and have the
same terms as the written option. If purchased over-the-counter, the option
would generally be acquired from the dealer or financial institution which
purchased the call written by the Fund.
The Fund may purchase put options on securities which it holds (or has the
right to acquire) in its portfolio only to protect itself against a decline in
the value of the security. If the value of the underlying security were to fall
below the exercise price of the put purchased in an amount greater than the
premium paid for the option, the Fund would incur no additional loss. The Fund
may also purchase put options to close out written put positions in a manner
similar to call options closing purchase transactions. In addition, the Fund
may sell a put option which it has previously purchased prior to the sale of
the securities underlying such option. Such a sale would result in a net gain
or loss depending on whether the amount received on the sale is more or less
than the premium and other transaction costs paid on the put option which is
sold. And such gain or loss could be offset in whole or in part by a change in
the market value of the underlying security. If a put option purchased by the
Fund expired without being sold or exercised, the premium would be lost.
Risks of Options Transactions. During the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of
the underlying security increase, but has retained the risk of loss should the
price of the underlying security decline. The secured put writer also retains
the risk of loss should the market value of the underlying security decline
below the exercise price of the option less the premium received on the sale of
the option. In both cases, the writer has no control over the time when it may
be required to fulfill its obligation as a writer of the option. Once an option
writer has received an exercise notice, it cannot effect a closing purchase
transaction in order to terminate its obligation under the option and must
deliver or receive the underlying securities at the exercise price.
Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction, it cannot
sell the underlying security until the option expires or the option is
exercised. Accordingly, a covered call option writer may not be able to sell an
underlying security at a time when it might otherwise be advantageous to do so.
A secured put option writer who is unable to effect a closing purchase
transaction would continue to bear the risk of decline in the market price of
the underlying security until the option expires or is exercised. In addition,
a secured put writer would be unable to utilize the amount held in cash or U.S.
government or other liquid portfolio securities as security for the put option
for other investment purposes until the exercise or expiration of the option.
The Fund's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on Option Exchanges.
There is no assurance that such a market will exist, particularly in the case
of OTC options. However, the Fund may be able to purchase an offsetting option
which does not close out its position as a writer but constitutes an asset of
equal value to the obligation under the option written. If the Fund is not able
to either enter into a closing purchase transaction or purchase an offsetting
position, it will be required to maintain the securities subject to the call,
or the collateral underlying the put, even though it might not be advantageous
to do so, until a closing transaction can be entered into (or the option is
exercised or expires).
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Among the possible reasons for the absence of a liquid secondary market on
an Exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an Exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an Exchange; (v) inadequacy of the facilities of an Exchange or
the OCC to handle current trading volume; or (vi) a decision by one or more
Exchanges to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that Exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the OCC as a result of trades
on that Exchange would generally continue to be excerisable in accordance with
their terms.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker. Similarly, in the
event of the bankruptcy of the writer of an OTC option purchased by the Fund,
the Fund could experience a loss of all or part of the value of the option.
Transactions are entered into by the Fund only with brokers or financial
institutions deemed creditworthy by the Investment Manager.
Each of the Exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different Exchanges or are held or written
on one or more accounts or through one or more brokers). An Exchange may order
the liquidation of positions found to be in violation of these limits and it
may impose other sanctions or restrictions. These position limits may restrict
the number of listed options which the Fund may write.
The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be
reflected in the option markets.
Stock Index Options. Options on stock indexes are similar to options on
stock except that, rather than the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the stock index upon which the option is based is greater than, in the case of
a call, or less than, in the case of a put, the exercise price of the option.
This amount of cash is equal to such difference between the closing price of
the index and the exercise price of the option expressed in dollars times a
specified multiple (the "multiplier"). The multiplier for an index option
performs a function similar to the unit of trading for a stock option. It
determines the total dollar value per contract of each point in the difference
between the exercise price of an option and the current level of the underlying
index. A multiplier of 100 means that a one-point difference will yield $100.
Options on different indexes may have different multipliers. The writer of the
option is obligated, in return for the premium received, to make delivery of
this amount. Unlike stock options, all settlements are in cash and a gain or
loss depends on price movements in the stock market generally (or in a
particular segment of the market) rather than the price movements in individual
stocks. Currently, options are traded on the S&P 100 Index and the S&P 500
Index on the Chicago Board Options Exchange, the Major Market Index and the
Computer Technology Index, Oil Index and Institutional Index on the American
Stock Exchange and the NYSE Index and NYSE Beta Index on the New York Stock
Exchange, The Financial News Composite Index on the Pacific Stock Exchange and
the Value Line Index, National O-T-C Index and Utilities Index on the
Philadelphia Stock Exchange, each of which and any similar index on which
options are traded in the future which include stocks that are not limited to
any particular industry or segment of the market is referred to as a "broadly
based stock market index." The Fund will invest only in broadly based indexes.
Options on broad-based stock indexes provide the Fund with a means of
protecting the Fund against the risk of market wide price movements. If the
Investment Manager anticipates a market decline, the Fund could purchase a
stock index put option. If the expected market decline materialized, the
resulting decrease in the value of the Fund's portfolio would be offset to the
extent of the increase in the value of the put option. If the Investment
Manager anticipates a market rise, the Fund may purchase a stock index call
option to enable the Fund to participate in such rise until completion of
anticipated common stock purchases by the Fund. Purchases and sales of stock
index options also enable the Investment Manager to more speedily achieve
changes in the Fund's equity positions.
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The Fund will write put options on stock indexes only if such positions
are covered by cash, U.S. government securities or other liquid portfolio
securities equal to the aggregate exercise price of the puts, or by a put
option on the same stock index with a strike price no lower than the strike
price of the put option sold by the Fund, which cover is held for the Fund in a
segregated account maintained for it by the Fund's Custodian. All call options
on stock indexes written by the Fund will be covered either by a portfolio of
stocks substantially replicating the movement of the index underlying the call
option or by holding a separate call option on the same stock index with a
strike price no higher than the strike price of the call option sold by the
Fund.
Risks of Options on Indexes. Because exercises of stock index options are
settled in cash, call writers such as the Fund cannot provide in advance for
their potential settlement obligations by acquiring and holding the underlying
securities. A call writer can offset some of the risk of its writing position
by holding a diversified portfolio of stocks similar to those on which the
underlying index is based. However, most investors cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same stocks as the
underlying index, and, as a result, bear a risk that the value of the
securities held will vary from the value of the index. Even if an index call
writer could assemble a stock portfolio that exactly reproduced the composition
of the underlying index, the writer still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. As with
other kinds of options, the writer will not learn that it had been assigned
until the next business day, at the earliest. The time lag between exercise and
notice of assignment poses no risk for the writer of a covered call on a
specific underlying security, such as a common stock, because there the
writer's obligation is to deliver the underlying security, not to pay its value
as of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds stocks that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those stocks against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date; and by the time it learns that it has been assigned, the index
may have declined, with a corresponding decrease in the value of its stock
portfolio. This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure by holding stock positions.
A holder of an index option who exercises it before the closing index
value for that day is available runs the risk that the level of the underlying
index may subsequently change. If such a change causes the exercised option to
fall out-of-the-money, the exercising holder will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
If dissemination of the current level of an underlying index is
interrupted, or if trading is interrupted in stocks accounting for a
substantial portion of the value of an index, the trading of options on that
index will ordinarily be halted. If the trading of options on an underlying
index is halted, an exchange may impose restrictions prohibiting the exercise
of such options.
Futures Contracts. As stated in the Prospectus, the Fund may purchase and
sell interest rate and stock index futures contracts ("futures contracts") that
are traded on U.S. commodity exchanges on such underlying securities as U.S.
Treasury bonds, notes, bills and GNMA Certificates ("interest rate" futures)
and such indexes as the S&P 500 Index, the Moody's Investment-Grade Corporate
Bond Index and the New York Stock Exchange Composite Index ("index" futures).
As a futures contract purchaser, the Fund incurs an obligation to take
delivery of a specified amount of the obligation underlying the contract at a
specified time in the future for a specified price. As a seller of a futures
contract, the Fund incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon price.
The Fund will purchase or sell interest rate futures contracts and bond
index futures contracts for the purpose of hedging its fixed-income portfolio
(or anticipated portfolio) securities against changes in prevailing interest
rates. If the Investment Manager anticipates that interest rates may rise and,
concomitantly, the price of fixed-income securities falls, the Fund may sell an
interest rate futures contract or a bond index futures
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contract. If declining interest rates are anticipated, the Fund may purchase an
interest rate futures contract to protect against a potential increase in the
price of U.S. Government securities the Fund intends to purchase. Subsequently,
appropriate fixed-income securities may be purchased by the Fund in an orderly
fashion; as securities are purchased, corresponding futures positions would be
terminated by offsetting sales of contracts.
The Fund will purchase or sell stock index futures contracts for the
purpose of hedging its equity portfolio (or anticipated portfolio) securities
against changes in their prices. If the Investment Manager anticipates that the
prices of stock held by the Fund may fall, the Fund may sell a stock index
futures contract. Conversely, if the Investment Manager wishes to hedge against
anticipated price rises in those stocks which the Fund intends to purchase, the
Fund may purchase stock index futures contracts. In addition, interest rate and
stock index futures contracts will be bought or sold in order to close out a
short or long position in a corresponding futures contract.
Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Stock index futures
contracts provide for the delivery of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the open or
close of the last trading day of the contract and the futures contract price. A
futures contract sale is closed out by effecting a futures contract purchase
for the same aggregate amount of the specific type of equity security and the
same delivery date. If the sales price exceeds the offsetting purchase price,
the seller would be paid the difference and would realize a gain. If the
offsetting purchase price exceeds the sale price, the seller would pay the
difference and would realize a loss. Similarly, a futures contract purchase is
closed out by effecting a futures contract sale for the same aggregate amount
of the specific type of security and the same delivery date. If the offsetting
sale price exceeds the purchase price, the purchaser would realize a gain,
whereas if the purchase price exceeds the offsetting sale price, the purchaser
would realize a loss. There is no assurance that the Fund will be able to enter
into a closing transaction.
Interest Rate Futures Contracts. When the Fund enters into an interest
rate futures contract, it is initially required to deposit with the Fund's
Custodian, in a segregated account in the name of the broker performing the
transaction, an "initial margin" of cash or U.S. Government securities or other
liquid portfolio securities equal to approximately 2% of the contract amount.
Initial margin requirements are established by the Exchanges on which futures
contracts trade and may, from time to time, change. In addition, brokers may
establish margin deposit requirements in excess of those required by the
Exchanges.
Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing
of funds by a broker's client but is, rather, a good faith deposit on the
futures contract which will be returned to the Fund upon the proper termination
of the futures contract. The margin deposits made are marked to market daily
and the Fund may be required to make subsequent deposits of cash or U.S.
Government securities called "variation margin", with the Fund's futures
contract clearing broker, which are reflective of price fluctuations in the
futures contract. Currently, interest rate futures contracts can be purchased
on debt securities such as U.S. Treasury Bills and Bonds, U.S. Treasury Notes
with Maturities between 6 1/2 and 10 years, GNMA Certificates and Bank
Certificates of Deposit.
Index Futures Contracts. As discussed in the Prospectus, the Fund may
invest in index futures contracts. An index futures contract sale creates an
obligation by the Fund, as seller, to deliver cash at a specified future time.
An index futures contract purchase would create an obligation by the Fund, as
purchaser, to take delivery of cash at a specified future time. Futures
contracts on indexes do not require the physical delivery of securities, but
provide for a final cash settlement on the expiration date which reflects
accumulated profits and losses credited or debited to each party's account.
The Fund is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirements range from 3% to 10% of the contract amount for index
futures. In addition, due to current industry practice, daily variations in
gains and losses on open contracts are required to be reflected in cash in the
form of variation margin payments. The Fund may be required to make additional
margin payments during the term of the contract.
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At any time prior to expiration of the futures contract, the Fund may
elect to close the position by taking an opposite position which will operate
to terminate the Fund's position in the futures contract. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund and the Fund realizes a loss or a gain.
Currently, index futures contracts can be purchased or sold with respect
to, among others, the Standard & Poor's 500 Stock Price Index and the Standard
& Poor's 100 Stock Price Index on the Chicago Mercantile Exchange, the New York
Stock Exchange Composite Index on the New York Futures Exchange, the Major
Market Index on the American Stock Exchange, the Value Line Stock Index on the
Kansas City Board of Trade and the Moody's Investment-Grade Corporate Bond
Index on the Chicago Board of Trade.
Options on Futures Contracts. The Fund may purchase and write call and put
options on futures contracts and enter into closing transactions with respect
to such options to terminate an existing position. An option on a futures
contract gives the purchaser the right (in return for the premium paid), and
the writer the obligation, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put)
at a specified exercise price at any time during the term of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option is accompanied by delivery of the
accumulated balance in the writer's futures margin account, which represents
the amount by which the market price of the futures contract at the time of
exercise exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract.
The Fund will purchase and write options on futures contracts for
identical purposes to those set forth above for the purchase of a futures
contract (purchase of a call option or sale of a put option) and the sale of a
futures contract (purchase of a put option or sale of a call option), or to
close out a long or short position in futures contracts. If, for example, the
Investment Manager wished to protect against an increase in interest rates and
the resulting negative impact on the value of a portion of its fixed-income
portfolio, it might write a call option on an interest rate futures contract,
the underlying security of which correlates with the portion of the portfolio
the Investment Manager seeks to hedge. Any premiums received in the writing of
options on futures contracts may, of course, augment the total return of the
Fund and thereby provide a further hedge against losses resulting from price
declines in portions of the Fund's portfolio.
The writer of an option on a futures contract is required to deposit
initial and variation margin pursuant to requirements similar to those
applicable to futures contracts. Premiums received from the writing of an
option on a futures contract are included in initial margin deposits.
Limitations on Futures Contracts and Options on Futures. The Fund may not
enter into futures contracts or purchase related options thereon if,
immediately thereafter, the amount committed to margin plus the amount paid for
premiums for unexpired options on futures contracts exceeds 5% of the value of
the Fund's total assets, after taking into account unrealized gains and
unrealized losses on such contracts it has entered into, provided, however,
that in the case of an option that is in-the-money (the exercise price of the
call (put) option is less (more) than the market price of the underlying
security) at the time of purchase, the in-the-money amount may be excluded in
calculating the 5%. However, there is no overall limitation on the percentage
of the Fund's assets which may be subject to a hedge position. In addition, in
accordance with the regulations of the Commodity Futures Trading Commission
("CFTC") under which the Fund is exempted from registration as a commodity pool
operator, the Fund may only enter into futures contracts and options on futures
contracts transactions for purposes of hedging a part or all of its portfolio.
If the CFTC changes its regulations so that the Fund would be permitted to
write options on futures contracts for purposes other than hedging the Fund's
investments without CFTC registration, the Fund may engage in such transactions
for those purposes. Except as described above, there are no other limitations
on the use of futures and options thereon by the Fund. With respect to futures
and options on futures contracts, segregated accounts will be maintained
consisting of cash or other liquid portfolio securities with a value (marked to
market daily) equal to the dollar amount of the Fund's purchase or sale
obligation under such contracts.
Risks of Transactions in Futures Contracts and Related Options. The Fund
may sell a futures contract to protect against the decline in the value of
securities held by the Fund. However, it is possible that the futures market
may advance and the value of securities held in the portfolio of the Fund may
decline. If this occurred,
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the Fund would lose money on the futures contract and also experience a decline
in value of its portfolio securities. However, while this could occur for a
very brief period or to a very small degree, over time the value of a
diversified portfolio will tend to move in the same direction as the futures
contracts.
If the Fund purchases a futures contract to hedge against the increase in
value of securities it intends to buy, and the value of such securities
decreases, then the Investment Manager may determine not to invest in the
securities as planned and will realize a loss on the futures contract that is
not offset by a reduction in the price of the securities.
If the Fund maintains a short position in a futures contract or has sold a
call option in a futures contract, it will cover this position by holding, in a
segregated account maintained at its Custodian, cash, U.S. Government
securities or other liquid portfolio securities equal in value (when added to
any initial or variation margin on deposit) to the market value of the
securities underlying the futures contract or the exercise price of the option.
Such a position may also be covered by owning the securities underlying the
futures contract (in the case of a stock index futures contract a portfolio of
securities substantially replicating the relevant index), or by holding a call
option permitting the Fund to purchase the same contract at a price no higher
than the price at which the short position was established.
In addition, if the Fund holds a long position in a futures contract or
has sold a put option on a futures contract, it will hold cash, U.S. Government
securities or other liquid portfolio securities equal to the purchase price of
the contract or the exercise price of the put option (less the amount of
initial or variation margin on deposit) in a segregated account maintained for
the Fund by its Custodian. Alternatively, the Fund could cover its long
position by purchasing a put option on the same futures contract with an
exercise price as high or higher than the price of the contract held by the
Fund.
Exchanges limit the amount by which the price of a futures contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of variation margin
on open futures positions. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. In addition,
the Fund may be required to take or make delivery of the instruments underlying
interest rate futures contracts it holds at a time when it is disadvantageous
to do so. The inability to close out options and futures positions could also
have an adverse impact on the Fund's ability to effectively hedge its
portfolio.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in 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. Transactions are entered into by the Fund only with brokers or
financial institutions deemed creditworthy by the Investment Manager.
There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Fund and the movements in the prices of the
securities which are the subject of the hedge. If participants in the futures
market elect to close out their contracts through offsetting transactions
rather than meet margin deposit requirements, distortions in the normal
relationship between the securities and futures markets could result. Price
distortions could also result if investors in futures contracts opt to make or
take delivery of underlying securities rather than engage in closing
transactions due to the resultant reduction in the liquidity of the futures
market. In addition, due to the fact that, from the point of view of
speculators, the deposit requirements in the futures markets are less onerous
than margin requirements in the cash market, increased participation by
speculators in the futures market could cause temporary price distortions. Due
to the possibility of price distortions in the futures market and because of
the imperfect correlation between movements in the prices of securities and
movements in the prices of futures contracts, a correct forecast of stock price
or interest rate 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
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<PAGE>
a futures position and, in the event of adverse price movements, the Fund would
continue to be required to make daily cash payments of variation margin. In
addition, limitations imposed by an exchange or board of trade on which futures
contracts are traded may compel or prevent the Fund from closing out a contract
which may result in reduced gain or increased loss to the Fund. The absence of
a liquid market in futures contracts might cause the Fund to make or take
delivery of the underlying securities at a time when it may be disadvantageous
to do so.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on futures contracts involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances when the purchase
of a call or put option on a futures contract would result in a loss to the
Fund notwithstanding that the purchase or sale of a futures contract would not
result in a loss, as in the instance where there is no movement in the prices
of the futures contract or underlying securities.
PORTFOLIO TURNOVER
It is anticipated that the Fund's portfolio turnover rate generally will
not exceed 300%. A 300% turnover rate would occur, for example, if 300% of the
securities held in the Fund's portfolio (excluding all securities whose
maturities at acquisition were one year or less) were sold and replaced within
one year. For the fiscal years ended March 31, 1997 and 1998, the Fund's
portfolio turnover rate was 132% and 218%, respectively.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
In addition to the investment restrictions enumerated in the Prospectus,
the investment restrictions listed below have been adopted by the Fund as
fundamental policies, except as otherwise indicated. Under the Act, a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act. Such a
majority is defined as the lesser of (a) 67% or more of the shares present at a
meeting of shareholders, if the holders of 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the
outstanding shares of the Fund.
The Fund may not:
1. Purchase or sell real estate or interests therein (including limited
partnership interests), although the Fund may purchase securities of
issuers which engage in real estate operations and securities secured by
real estate or interests therein.
2. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the Fund may
invest in the securities of companies which operate, invest in, or sponsor
such programs.
3. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets or, in accordance with the provisions of Section 12(d) of the Act
and any Rules promulgated thereunder.
4. Borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% (taken at the
lower of cost or current value) of its total assets (not including the
amount borrowed).
5. Pledge its assets or assign or otherwise encumber them except to
secure borrowings effected within the limitations set forth in restriction
(4). For the purpose of this restriction, collateral arrangements with
respect to initial or variation margin for futures are not deemed to be
pledges of assets.
6. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of (a)
entering into any repurchase agreement; (b) purchasing any securities on a
when-issued or delayed delivery basis; (c) purchasing or selling any
financial futures contracts; (d) borrowing money in accordance with
restrictions described above; or (e) lending portfolio securities.
26
<PAGE>
7. Make loans of money or securities, except: (a) by the purchase of
portfolio securities in which the Fund may invest consistent with its
investment objective and policies; (b) by investment in repurchase
agreements; or (c) by lending its portfolio securities.
8. Purchase or sell commodities or commodities contracts except that the
Fund may purchase or sell financial or stock index futures contracts or
options thereon.
9. Make short sales of securities.
10. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts is not considered the purchase of a security on margin.
11. Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing
of a portfolio security.
12. Invest for the purpose of exercising control or management of any
other issuer.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
As a non-fundamental policy, the Fund may not invest in other investment
companies in reliance on Sections 12(d)(1)(F), 12(d)(1)(G) or 12(d)(1)(J) of
the Act.
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 as the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------
Subject to the general supervision of the Trustees, the Investment Manager
is responsible for decisions to buy and sell securities for the Fund, the
selection of brokers and dealers to effect the transactions, and the
negotiation of brokerage commissions, if any. Purchases and sales of securities
on a stock exchange are effected through brokers who charge a commission for
their services. In the over-the-counter market, securities are generally traded
on a "net" basis with dealers acting as principal for their own accounts
without a stated commission, although the price of the security usually
includes a profit to the dealer. In addition, securities may be purchased at
times in underwritten offerings where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or
discount. Futures transactions will usually be effected through a broker and a
commission will be charged. On occasion, the Fund may also purchase certain
money market instruments directly from an issuer, in which case no commissions
or discounts are paid. For the fiscal period November 28, 1995 (commencement of
operations) through March 31, 1996 and for the fiscal years ended March 31,
1997 and 1998, the Fund paid brokerage commissions in the amount of $212,600,
$506,740 and $516,052, respectively.
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 to others. It is the practice of the Investment Manager to
cause purchase and sale transactions to be allocated among the Fund and others
whose assets it manages in such manner as it deems equitable. In making such
allocations among the Fund and other client accounts, various factors may be
considered including the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investments generally held and the opinions of
the persons responsible for managing the portfolios of the Fund and other
client accounts. In the case of certain initial and secondary public offerings,
the Investment Manager utilizes a pro-rata allocation process based on the size
of the Morgan Stanley Dean Witter Funds involved and the number of shares
available from the public offering.
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions.
27
<PAGE>
Consistent with this policy, when securities transactions are effected on a
stock exchange, the Fund's policy is to pay commissions which are considered
fair and reasonable without necessarily determining that the lowest possible
commissions are paid in all circumstances. The Fund believes that a requirement
always to seek the lowest possible commission cost could impede effective
portfolio management and preclude the Fund and the Investment Manager from
obtaining a high quality of brokerage and research services. In seeking to
determine the reasonableness of brokerage commissions paid in any transaction,
the Investment Manager relies upon its experience and knowledge regarding
commissions generally charged by various brokers and on its judgment in
evaluating the brokerage and research services received from the broker
effecting the transaction. Such determinations are necessarily subjective and
imprecise, 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 such prices and
executions are obtainable from more than one broker or dealer, it may give
consideration to placing portfolio transactions with those brokers and dealers
who also furnish research and other services to the Fund or the Investment
Manager. Such services may include, but are not limited to, any one or more of
the following: reports on industries and companies, economic analyses and
review of business conditions, portfolio strategy, analytic computer software,
account performance services, computer terminals and various trading and/or
quotation equipment. They also include advice from broker-dealers as to the
value of securities, availability of securities, availability of buyers, and
availability of sellers. In addition, they include recommendations as to
purchase and sale of individual securities and timing of such transactions. The
Fund will not purchase at a higher price or sell at a lower price in connection
with transactions effected with a dealer, acting as principal, who furnishes
research services to the Fund than would be the case if no weight were given by
the Fund to the dealer's furnishing of such services. During the fiscal year
ended March 31, 1998, the Fund paid $371,038 in brokerage commissions in
connection with transactions in the aggregate amount of $243,199,287 to brokers
because of research services provided.
The information and services received by the Investment Manager from
brokers and dealers may be of benefit to the Investment Manager in the
management of accounts of some of its other clients and may not in all cases
benefit the Fund directly. While the receipt of such information and services
is useful in varying degrees and would generally reduce the amount of research
or services otherwise performed by the Investment Manager and thereby reduce
its expenses, it is of indeterminable value and the advisory fee paid to the
Investment Manager is not reduced by any amount that may be attributable to the
value of such services.
Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may
be effected through DWR, Morgan Stanley & Co. Incorporated ("MS & Co.") and
other affiliated brokers and dealers. In order for an affiliated broker or
dealer to effect any portfolio transactions for the Fund, the commissions, fees
or other remuneration received by the affiliated broker or dealer must be
reasonable and fair compared to the commissions, fees or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on an exchange during a comparable
period of time. This standard would allow the affiliated broker or dealer to
receive no more than the remuneration which would be expected to be received by
an unaffiliated broker in a commensurate arm's-length transaction. Furthermore,
the Board of Trustees of the Fund, including a majority of the Trustees who are
not "interested" persons of the Fund, as defined in the Act, have adopted
procedures which are reasonably 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 period November 28, 1995 through March 31, 1996 and
during the fiscal years ended March 31, 1997 and 1998, the Fund paid a total of
$49,550 and $73,538 and $70,244, respectively, in brokerage commissions to DWR.
During the fiscal year ended March 31, 1998, the brokerage commissions paid to
DWR represented approximately 13.61% 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
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<PAGE>
18.64% 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 March 31, 1998, the Fund paid a total of $20,370 in brokerage
commissions to MS & Co., which broker-dealer became an affiliate of the
Investment Manager on May 31, 1997 upon consummation of the merger of Dean
Witter, Discover & Co. with Morgan Stanley Group Inc. The brokerage commissions
paid to MS & Co. represented approximately 3.95% of the total brokerage
commissions paid by the Fund during the period and were paid on account of
transactions having an aggregate dollar value equal to approximately 4.40% of
the aggregate dollar value of all portfolio transactions of the Fund during the
period for which commissions were paid.
THE DISTRIBUTOR
- --------------------------------------------------------------------------------
As discussed in the Prospectus, shares of the Fund are distributed by
Morgan Stanley Dean Witter Distributors Inc. (the "Distributor"). The
Distributor has entered into a selected dealer agreement with DWR, which
through its own sales organization sells shares of the Fund. In addition, the
Distributor may enter into selected dealer agreements with other selected
broker-dealers. The Distributor, a Delaware corporation, is a wholly-owned
subsidiary of MSDW. The Trustees of the Fund, including a majority of the
Independent Trustees, approved, at their meeting held on June 30, 1997, a
Distribution Agreement appointing the Distributor as exclusive distributor of
the Fund's shares and providing for the Distributor to bear distribution
expenses not borne by the Fund. By its terms, the Distribution Agreement had an
initial term ending April 30, 1998 and will remain in effect from year to year
thereafter if approved by the Board. At their meeting held on April 30, 1998,
the Trustees of the Fund, including a majority of the Independent Trustees,
approved the continuation of the Distribution Agreement until April 30, 1999.
The Distributor bears all expenses it may incur in providing services
under the Distribution Agreement. Such expenses include the payment of
commissions for sales of the Fund's shares and incentive compensation to Morgan
Stanley Dean Witter Financial Advisors and other Selected Broker-Dealer
representatives. The Distributor also pays certain expenses in connection with
the distribution of the Fund's shares, including the costs of preparing,
printing and distributing advertising or promotional materials, and the costs
of printing and distributing prospectuses and supplements thereto used in
connection with the offering and sale of the Fund's shares. The Fund bears the
costs of initial typesetting, printing and distribution of prospectuses and
supplements thereto to shareholders. The Fund also bears the costs of
registering the Fund and its shares under federal securities laws and pays
filing fees in accordance with state securities laws. The Fund and the
Distributor have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to the Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for any losses sustained by the
Fund or its shareholders.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Act (the "Plan") pursuant to which each Class, other than Class D pays the
Distributor compensation accrued daily and payable monthly at the following
annual rates: 0.25% and 1.0% of the average daily net assets of Class A and
Class C, respectively, and, with respect to Class B, 1.0% of the lesser of: (a)
the average daily aggregate gross sales of the Fund's Class B shares since the
inception of the Fund (not including reinvestments of dividends or capital
gains distributions), less the average daily aggregate net asset value of the
Fund's Class B shares redeemed since the Fund's inception upon which a
contingent deferred sales charge has been imposed or upon which such charge has
been waived; or (b) the average daily net assets of Class B. The Distributor
receives the proceeds of front-end sales charges and of contingent deferred
sales charges imposed on certain redemptions of shares, which are separate and
apart from payments made pursuant to the Plan (see "Purchase of Fund Shares").
The Distributor has informed the Fund that it and/or DWR received (a)
approximately $66,500, $874,455 and $957,856 in contingent deferred sales
charges from Class B for the fiscal period November 28, 1995 through March 31,
1996 and for the fiscal years ended March 31, 1997 and 1998, respectively, (b)
approximately $5 and $94 in contingent deferred sales charges from Class A and
Class
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<PAGE>
C, respectively, for the fiscal year ended March 31, 1998, and (c)
approximately $7,180 in front-end sales charges from Class A for the fiscal
year ended March 31, 1998, none of which was retained by the Distributor.
The Distributor has informed the Fund that the entire fee payable by Class
A and a portion of the fees payable by each of Class B and Class C each year
under the Plan of Distribution, equal to 0.25% of such Class's average daily
net assets, are currently characterized as a "service fee" under the Rules of
the Association of the National Association of Securities Dealers (of which the
Distributor is a member). The "service fee" is payments made for personal
service and/or the maintenance of shareholder accounts. The remaining portion
of the Plan fees payable by a Class, if any, are characterized as "asset-based
sales charges" pursuant to the aforementioned Rules of the Association.
The Plan was adopted by a vote of the Trustees of the Fund on August 24,
1995, at a meeting of the Trustees called for the purpose of voting on such
Plan. The vote included the vote of a majority of the Trustees of the Fund who
are not "interested persons" of the Fund (as defined in the Act) and who have
no direct or indirect financial interest in the operation of the Plan (the
"Independent 12b-1 Trustees"). In making their decision to adopt the Plan, the
Trustees requested from the Distributor and received such information as they
deemed necessary to make an informed determination as to whether or not
adoption of the Plan was in the best interests of the shareholders of the Fund.
After due consideration of the information received, the Trustees, including
the Independent 12b-1 Trustees, determined that adoption of the Plan would
benefit the shareholders of the Fund. MSDW Advisors, as sole shareholder of the
Fund, approved the Plan on September 15, 1995, whereupon the Plan went into
effect. At their meeting held on June 30, 1997, the Trustees, including a
majority of the Independent 12b-1 Trustees, approved amendments to the Plan to
reflect the multiple-class structure for the Fund, which took effect on July
28, 1997.
Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each fiscal quarter a written report provided
by the Distributor of the amounts expended under the Plan and the purpose for
which such expenditures were made. Class B shares of the Fund accrued amounts
payable to the Distributor under the Plan, for the fiscal year ended March 31,
1998, of $2,387,929. This amount is equal to 1.0% of the average daily net
assets of Class B for the fiscal year and was calculated pursuant to clause (b)
of the compensation formula under the Plan. This amount is treated by the Fund
as an expense in the year it is accrued. For the fiscal period July 28, 1997
through March 31, 1998, Class A and Class C shares of the Fund accrued payments
under the Plan amounting to $193 and $554, respectively, which amounts are
equal to 0.23% and 1.00% of the average daily net assets of Class A and Class
C, respectively, for such period.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes of shares; each with a different distribution arrangement as set forth
in the Prospectus.
With respect to Class A shares, DWR compensates its Financial Advisors by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.25% of the current value
of the respective accounts for which they are the account executives or dealers
of record in all cases. On orders of $1 million or more (for which no sales
charge was paid) or net asset value purchases by employer-sponsored 401(k) and
other plans qualified under Section 401(a) of the Internal Revenue Code
("Qualified Retirement Plans") for which Morgan Stanley Dean Witter Trust FSB
("MSDW Trust") serves as Trustee or DWR's Retirement Plan Services serves as
recordkeeper pursuant to a written Recordkeeping Services Agreement, the
Investment Manager compensates DWR's account executives by paying them, from
its own funds, a gross sales credit of 1.0% of the amount sold.
With respect to Class B shares, DWR compensates its Financial Advisors by
paying them, from its own funds, commissions for the sale of Class B shares,
currently a gross sales credit of up to 5.0% of the amount sold (except as
provided in the following sentence) and an annual residual commission,
currently a residual of up to 0.25% of the current value (not including
reinvested dividends or distributions) of the amount sold in all cases. In the
case of Class B shares purchased on or after July 28, 1997 by Qualified
Retirement Plans for which MSDW Trust serves as Trustee or DWR's Retirement
Plan Services serves as recordkeeper pursuant to a written Recordkeeping
Services Agreement, DWR compensates its Financial Advisors by paying them, from
its own funds, a gross sales credit of 3.0% of the amount sold.
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<PAGE>
With respect to Class C shares, DWR compensates its Financial Advisors by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 1.0% of the current value of
the respective accounts for which they are the Financial Advisors of record.
With respect to Class D shares other than shares held by participants in
the MSDW Advisors mutual fund asset allocation program, the Investment Manager
compensates DWR's Financial Advisors by paying them, from its own funds,
commissions for the sale of Class D shares, currently a gross sales credit of
up to 1.0% of the amount sold. There is a chargeback of 100% of the amount paid
if the Class D shares are redeemed in the first year and a chargeback of 50% of
the amount paid if the Class D shares are redeemed in the second year after
purchase. The Investment Manager also compensates DWR's Financial Advisors by
paying them, from its own funds, an annual residual commission, currently a
residual of up to 0.10% of the current value of the respective accounts for
which they are the Financial Advisors of record (not including accounts of
participants in the MSDW Advisors mutual fund asset allocation program).
The gross sales credit is a charge which reflects commissions paid by DWR
to its Financial Advisors and DWR's Fund associated distribution-related
expenses, including sales compensation, and overhead and other branch office
distribution-related expenses including: (a) the expenses of operating DWR's
branch offices in connection with the sale of Fund shares, including lease
costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery and
supplies; (b) the costs of client sales seminars; (c) travel expenses of mutual
fund sales coordinators to promote the sale of Fund shares; and (d) other
expenses relating to branch promotion of Fund share sales. The distribution fee
that the Distributor receives from the Fund under the Plan, in effect, offsets
distribution expenses incurred under the Plan on behalf of the Fund and, in the
case of Class B shares, opportunity costs, such as the gross sales credit and
an assumed interest charge thereon ("carrying charge"). In the Distributor's
reporting of distribution expenses to the Fund, in the case of Class B shares,
such assumed interest (computed at the "broker's call rate") has been
calculated on the gross sales credit as it is reduced by amounts received by
the Distributor under the Plan and any contingent deferred sales charges
received by the Distributor upon redemption of shares of the Fund. No other
interest charge is included as a distribution expense in the Distributor's
calculation of distribution costs for this purpose. The broker's call rate is
the interest rate charged to securities brokers on loans secured by
exchange-listed securities.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments at
the end of each month. The amount of each monthly payment may in no event
exceed an amount equal to a payment at the annual rate of 0.25%, in the case of
Class A, and 1.0%, in the case of Class C, of the average net assets of the
respective Class during the month. No interest or other financing charges, if
any, incurred on any distribution expenses on behalf of Class A and Class C
will be reimbursable under the Plan. With respect to Class A, in the case of
all expenses other than expenses representing the service fee, and, with
respect to Class C, in the case of all expenses other than expenses
representing a gross sales credit or a residual to Morgan Stanley Dean Witter
Financial Advisors and other selected broker-dealer representatives, such
amounts shall be determined at the beginning of each calendar quarter by the
Trustees, including, a majority of the Independent 12b-1 Trustees. Expenses
representing the service fee (for Class A) or a gross sales credit or a
residual to Morgan Stanley Dean Witter Financial Advisors and other selected
broker-dealer representatives (for Class C) may be reimbursed without prior
determination. In the event that the Distributor proposes that monies shall be
reimbursed for other than such expenses, then in making quarterly
determinations of the amounts that may be reimbursed by the Fund, the
Distributor will provide and the Trustees will review a quarterly budget of
projected distribution expenses to be incurred on behalf of the Fund, together
with a report explaining the purposes and anticipated benefits of incurring
such expenses. The Trustees will determine which particular expenses, and the
portions thereof, that may be borne by the Fund, and in making such a
determination shall consider the scope of the Distributor's commitment to
promoting the distribution of the Fund's Class A and Class C shares.
Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the fiscal year ended March 31, 1998 to the Distributor. The
Distributor and DWR estimate that they have spent, pursuant to the Plan,
$19,357,018 on behalf of Class B since the inception of the Plan. It is
estimated that this amount was
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<PAGE>
spent in approximately the following ways: (i) 8.83% ($1,708,805)--advertising
and promotional expenses, (ii) 0.41% ($79,312)--printing of prospectuses for
distribution to other than current shareholders; and (iii) 90.76%
($17,568,901)--other expenses, including the gross sales credit and the
carrying charge, of which 7.41% ($1,302,696) represents carrying charges,
37.18% ($6,532,508) represents commission credits to DWR branch offices and
other selected broker-dealers for payments of commissions to Morgan Stanley
Dean Witter Financial Advisors and other selected broker-dealer representatives
and 55.41% ($9,733,697) represents overhead and other branch office
distribution-related expenses. Class B shares of the Fund accrued amounts
payable to the Distributor under the Plan, for the fiscal year ended May 31,
1998, of $2,387,929. This amount is equal to 1.0% of the average daily net
assets of Class B for the fiscal year and was calculated pursuant to clause (b)
of the compensation formula under the Plan. This amount is treated by the Fund
as an expense in the year it is accrued. For the fiscal period July 28, 1997
through May 31, 1998, Class A and Class C shares of the Fund accrued payments
under the Plan amounting to $193 and $554, respectively, which amounts are
equal to 0.23% and 1.0% of the average daily net assets of Class A and Class C,
respectively, for such period.
In the case of Class B shares, at any given time, the expenses in
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan and (ii) the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares.
The Distributor has advised the Fund that, in the case of Class B shares, such
excess amount, including the carrying charge designed to approximate the
opportunity costs incurred by the Distributor which arise from it having
advanced monies without having received the amount of any sales charges imposed
at the time of sale of the Fund's Class B shares totalled $11,792,699 at March
31, 1998. Because there is no requirement under the Plan that the Distributor
be reimbursed for all distribution expenses with respect to Class B shares or
any requirement that the Plan be continued from year to year, this excess
amount does not constitute a liability of the Fund. Although there is no legal
obligation for the Fund to pay distribution expenses in excess of payments made
under the Plan and the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares, if for any reason the Plan is terminated,
the Trustees will consider at that time the manner in which to treat such
expenses. Any cumulative expenses incurred, but not yet recovered through
distribution fees or contingent deferred sales charges, may or may not be
recovered through future distribution fees or contingent deferred sales
charges.
Under the Plan, 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.
The Plan had an initial term ending April 30, 1996, and will continue in
effect from year to year thereafter, provided such continuance is approved
annually by a vote of the Trustees, including a majority of the Independent
12b-1 Trustees. Prior to the Board's approval of amendments to the Plan to
reflect the multiple-class structure for the Fund, the Trustees, including a
majority of the Independent 12b-1 Trustees, approved the most recent
continuation of the Plan until April 30, 1999 at their meeting held on April
30, 1998. Prior to approving the continuation of the Plan, the Board requested
and received from the Distributor and reviewed all the information which it
deemed necessary to arrive at an informed determination of whether or not the
Plan should be continued. In making their determination to continue the Plan,
the Trustees considered: (i) the Fund's experience under the Plan and whether
such experience indicates that the Plan is operating as anticipated; (2) the
benefits the Fund had obtained, was obtaining and would be likely to obtain
under the Plan; and (3) what services had been provided and were continuing to
be provided under the Plan by DWR to the Fund and its shareholders. Based upon
their review, the Trustees of the Fund, 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.
No interested person of the Fund, nor any Trustee of the Fund who is not
an interested person of the Fund, as defined in the Act, has any direct or
indirect financial interest in the operation of the Plan except to the extent
that DWR, MSDW Advisors, the Distributor or MSDW Services or certain of their
employees, may be deemed to have such an interest as a result of benefits
derived from the successful operation of the Plan or as a result of receiving a
portion of the amounts expended thereunder by the Fund.
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<PAGE>
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval of the shareholders of the
affected Class or Classes of the Fund, and all material amendments of the Plan
must also be approved by the Trustees in the manner described above. The Plan
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Independent 12b-1 Trustees or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the Act) on not more
than thirty days' written notice to any other party or the Plan. So long as the
Plan is in effect, the election and nomination of Independent Trustees shall be
committed to the discretion of the Independent Trustees.
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
As stated in the Prospectus, short-term securities with remaining
maturities of sixty days or less at the time of purchase are valued at
amortized cost, unless the Trustees determine such does not reflect the
securities' market value, in which case these securities will be valued at
their fair value as determined by the Trustees. Other short-term debt
securities will be valued on a mark-to-market basis until such time as they
reach a remaining maturity of sixty days, whereupon they will be valued at
amortized cost using their value on the 61st day unless the Trustees determine
such does not reflect the securities' market value, in which case these
securities will be valued at their fair value as determined by the Trustees.
All other securities and other assets are valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Trustees.
Generally, trading in foreign securities, as well as corporate bonds,
United States government securities and money market instruments, is
substantially completed each day at various times prior to the close of the New
York Stock Exchange. The values of such securities used in computing the net
asset value of the Fund's shares are determined as of such times. Foreign
currency exchange rates are also generally determined prior to the close of the
New York Stock Exchange. Occasionally, events which may affect the values of
such securities and such exchange rates may occur between the times at which
they are determined and the close of the New York Stock Exchange and will
therefore not be reflected in the computation of the Fund's net asset value. If
events that may affect the value of such securities occur during such period,
then these securities may be valued at their fair value as determined in good
faith under procedures established by and under the supervision of the
Trustees.
The net asset value per share for each Class of shares of the Fund is
determined once daily at 4:00 p.m., New York time 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) The New York Stock Exchange currently
observes the following holidays: New Year's Day; Reverend Dr. Martin Luther
King, Jr. Day; Presidents' Day; Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day and Christmas Day.
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund offers four Classes of shares as
follows:
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Class A shares are sold to investors with an initial sales charge that
declines to zero for larger purchases; however, Class A shares sold without an
initial sales charge are subject to a contingent deferred sales charge ("CDSC")
of 1.0% if redeemed within one year of purchase, except in the circumstances
discussed in the Prospectus.
Right of Accumulation. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefiting from the reduced sales charges available for purchases
of shares of the Fund totalling at least $25,000 in net asset value. For
example, if any person or entity who qualifies for this privilege holds Class A
shares of the Fund and/or other Morgan Stanley Dean Witter Funds that are
multiple class funds ("Morgan Stanley Dean Witter Multi-Class Funds") or shares
of other Morgan Stanley Dean Witter Funds sold with a front-end sales charge
purchased at a price including
33
<PAGE>
a front-end sales charge having a current value of $5,000, and purchases
$20,000 of additional shares of the Fund, the sales charge applicable to the
$20,000 purchase would be 4.75% of the offering price.
The Distributor must be notified by the selected broker-dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the selected broker-dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if:
(a) such notification is not furnished at the time of the order; or (b) a
review of the records of the Distributor or Morgan Stanley Dean Witter Trust
FSB (the "Transfer Agent" or "MSDW Trust") fails to confirm the investor's
represented holdings.
Letter of Intent. As discussed in the Prospectus, reduced sales charges
are available to investors who enter into a written Letter of Intent providing
for the purchase, within a thirteen-month period, of Class A shares of the Fund
from the Distributor or from a single Selected Broker-Dealer.
A Letter of Intent permits an investor to establish a total investment
goal to be achieved by any number of purchases over a thirteen-month period.
Each purchase of Class A shares made during the period will receive the reduced
sales commission applicable to the amount represented by the goal, as if it
were a single purchase. A number of shares equal in value to 5% of the dollar
amount of the Letter of Intent will be held in escrow by the Transfer Agent, in
the name of the shareholder. The initial purchase under a Letter of Intent must
be equal to at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the investor is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and sales charges actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor is authorized
by the shareholder to liquidate a sufficient number of his or her escrowed
shares to obtain such difference.
If the goal is exceeded and purchases pass the next sales charge level,
the sales charge on the entire amount of the purchase that results in passing
that level and on subsequent purchases will be subject to further reduced sales
charges in the same manner as set forth above under "Right of Accumulation,"
but there will be no retroactive reduction of sales charges on previous
purchases. For the purpose of determining whether the investor is entitled to a
further reduced sales charge applicable to purchases at or above a sales charge
level which exceeds the stated goal of a Letter of Intent, the cumulative
current net asset value of any shares owned by the investor in any other Morgan
Stanley Dean Witter Funds held by the shareholder which were previously
purchased at a price including a front-end sales charge (including shares of
the Fund and other Morgan Stanley Dean Witter Funds acquired in exchange for
those shares, and including in each case shares acquired through reinvestment
of dividends and distributions) will be added to the cost or net asset value of
shares of the Fund owned by the investor. However, shares of "Exchange Funds"
(see "Shareholder Services--Exchange Privilege") and the purchase of shares of
other Morgan Stanley Dean Witter Funds will not be included in determining
whether the stated goal of a Letter of Intent has been reached.
At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction.
The 5% escrow and minimum purchase requirements will be applicable to the new
stated goal. Investors electing to purchase shares of the Fund pursuant to a
Letter of Intent should carefully read such Letter of Intent.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold without an initial sales charge but are subject to
a CDSC payable upon most redemptions within six years after purchase. As stated
in the Prospectus, a CDSC will be imposed on any redemption by an investor if
after such redemption the current value of the investor's Class B shares of the
Fund is less than the dollar amount of all payments by the shareholder for the
purchase of Class B shares during the preceding six years (or, in the case of
shares held by certain Qualified Retirement Plans, three years). However, no
CDSC will be imposed to the extent that the net asset value of the shares
redeemed does not exceed: (a) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) prior to the redemption, plus (b) the current
net asset
34
<PAGE>
value of shares purchased through reinvestment of dividends or distributions of
the Fund or another Morgan Stanley Dean Witter Fund (see "Shareholder
Services--Targeted Dividends"), plus (c) the current net asset value of shares
acquired in exchange for (i) shares of Morgan Stanley Dean Witter front-end
sales charge funds, or (ii) shares of other Morgan Stanley Dean Witter Funds
for which shares of front-end sales charge funds have been exchanged (see
"Shareholder Services--Exchange Privilege"), plus (d) increases in the net
asset value of the investor's shares above the total amount of payments for the
purchase of Fund shares made during the preceding six (three) years. The CDSC
will be paid to the Distributor.
In determining the applicability of the CDSC to each redemption, the
amount which represents an increase in the net asset value of the investor's
shares above the amount of the total payments for the purchase of shares within
the last six years (or, in the case of shares held by certain
employer-sponsored benefit plans, three years) will be redeemed first. In the
event the redemption amount exceeds such increase in value, the next portion of
the amount redeemed will be the amount which represents the net asset value of
the investor's shares purchased more than six (three) years prior to the
redemption and/or shares purchased through reinvestment of dividends or
distributions and/or shares acquired in exchange for shares of Morgan Stanley
Dean Witter front-end sales charge funds, or for shares of other Morgan Stanley
Dean Witter Funds for which shares of front-end sales charge funds have been
exchanged. A portion of the amount redeemed which exceeds an amount which
represents both such increase in value and the value of shares purchased more
than six years (or, in the case of shares held by certain Qualified Retirement
Plans, three years) prior to the redemption and/or shares purchased through
reinvestment of dividends or distributions and/or shares acquired in the
above-described exchanges will be subject to a CDSC.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Fund until
the time of redemption of such shares. For purposes of determining the number
of years from the time of any payment for the purchase of shares, all payments
made during a month will be aggregated and deemed to have been made on the last
day of the month. The following table sets forth the rates of the CDSC
applicable to most Class B shares of the Fund:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------------- ---------------------
<S> <C>
First .......................... 5.0%
Second ......................... 4.0%
Third .......................... 3.0%
Fourth ......................... 2.0%
Fifth .......................... 2.0%
Sixth .......................... 1.0%
Seventh and thereafter ......... None
</TABLE>
The following table sets forth the rates of the CDSC applicable to Class B
shares of the Fund purchased on or after July 28, 1997 by Qualified Retirement
Plans for which MSDW Trust serves as Trustee or DWR's Retirement Plan Services
serves as recordkeeper pursuant to a written Recordkeeping Services Agreement:
<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- ------------------------------- ---------------------
<S> <C>
First ......................... 2.0%
Second ........................ 2.0%
Third ......................... 1.0%
Fourth and thereafter ......... None
</TABLE>
In determining the rate of the CDSC, it will be assumed that a redemption
is made of shares held by the investor for the longest period of time within
the applicable six-year or three-year period. This will result in any such CDSC
being imposed at the lowest possible rate. The CDSC will be imposed, in
accordance with the table shown above, on any redemptions within six years (or,
in the case of shares held by certain Qualified
35
<PAGE>
Retirement Plans, three years) of purchase which are in excess of these amounts
and which redemptions do not qualify for waiver of the CDSC, as described in
the Prospectus.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold without a sales charge but are subject to a CDSC
of 1.0% on most redemptions made within one year after purchase, except in the
circumstances discussed in the Prospectus.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Upon the purchase of shares of the Fund, a Shareholder Investment Account
is opened for the investor on the books of the Fund and maintained by the
Transfer Agent. This is an open account in which shares owned by the investor
are credited by the Transfer Agent in lieu of issuance of a share certificate.
If a share certificate is desired, it must be requested in writing for each
transaction. Certificates are issued only for full shares and may be
redeposited in the account at any time. There is no charge to the investor for
issuance of a certificate. Whenever a shareholder-instituted transaction takes
place in the Shareholder Investment Account, the shareholder will be mailed a
confirmation of the transaction from the Fund or from DWR or other selected
broker-dealer.
Automatic Investment of Dividends and Distributions. As stated in the
Prospectus, all income dividends and capital gains distributions are
automatically paid in full and fractional shares of the applicable Class of the
Fund, unless the shareholder requests that they be paid in cash. Each purchase
of shares of the Fund is made upon the condition that the Transfer Agent is
thereby automatically appointed as agent of the investor to receive all
dividends and capital gains distributions on shares owned by the investor. Such
dividends and distributions will be paid, at the net asset value per share, in
shares of the applicable Class of the Fund (or in cash if the shareholder so
requests) as of the close of business on the record date. At any time an
investor may request the Transfer Agent, in writing, to have subsequent
dividends and/or capital gains distributions paid to him or her in cash rather
than shares. To assure sufficient time to process the change, such request
should be received by the Transfer Agent at least five business days prior to
the record date of the dividend or distribution. In the case of recently
purchased shares for which registration instructions have not been received on
the record date, cash payments will be made to DWR or the other selected
broker-dealer, and which will be forwarded to the shareholder, upon the receipt
of proper instructions. It has been and remains the Fund's policy and practice
that, if checks for dividends and distributions paid in cash remain uncashed,
no interest will accrue on amounts represented by such uncashed checks.
Targeted Dividends.SM In states where it is legally permissible,
shareholders may also have all income dividends and capital gains distributions
automatically invested in shares of any Class of an open-end Morgan Stanley
Dean Witter Fund other than Morgan Stanley Dean Witter Information Fund or in
another Class of Morgan Stanley Dean Witter Information Fund. Such investment
will be made as described above for automatic investment in shares of the
applicable Class of the Fund, at the net asset value per share of the selected
Morgan Stanley Dean Witter Fund as of the close of business on the payment date
of the dividend or distribution and will begin to earn dividends, if any, in
the selected Morgan Stanley Dean Witter Fund the next business day. To
participate in the Targeted Dividends program, shareholders should contact
their Morgan Stanley Dean Witter Financial Advisor or other selected
broker-dealer representative or the Transfer Agent. Shareholders of the Fund
must be shareholders of the selected Class of the Morgan Stanley Dean Witter
Fund targeted to receive investments from dividends at the time they enter the
Targeted Dividends program. Investors should review the prospectus of the
targeted Morgan Stanley Dean Witter Fund before entering the program.
EasyInvest.SM Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or
36
<PAGE>
following redemption of shares of a Morgan Stanley Dean Witter money market
fund, on a semi-monthly, monthly or quarterly basis, to the Transfer Agent for
investment in shares of the Fund. Shares purchased through EasyInvest will be
added to the shareholder's existing account at the net asset value calculated
the same business day the transfer of funds is effected (subject to any
applicable sales charges). Shares of the Morgan Stanley Dean Witter money
market funds redeemed in connection with EasyInvest are redeemed on the
business day preceding the transfer of funds. For further information or to
subscribe to EasyInvest, shareholders should contact their Morgan Stanley Dean
Witter Financial Advisor or other selected broker-dealer representative or the
Transfer Agent.
Investment of Dividends or Distributions Received in Cash. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution in shares of
the applicable Class at net asset value, without the imposition of a CDSC upon
redemption, by returning the check or the proceeds to the Transfer Agent within
30 days after the payment date. If the shareholder returns the proceeds of a
dividend or distribution, such funds must be accompanied by a signed statement
indicating that the proceeds constitute a dividend or distribution to be
invested. Such investment will be made at the net asset value per share next
determined after receipt of the check or proceeds by the Transfer Agent.
Systematic Withdrawal Plan. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders who own
or purchase shares of the Fund having a minimum value of $10,000 based upon the
then current net asset value. The Withdrawal Plan provides for monthly or
quarterly (March, June, September and December) checks in any dollar amount,
not less then $25, or in any whole percentage of the account balance, on an
annualized basis. Any applicable CDSC will be imposed on shares redeemed under
the Withdrawal Plan (see "Purchase of Fund Shares"). Therefore, any shareholder
participating in the Withdrawal Plan will have sufficient shares redeemed from
his or her account so that the proceeds (net of any applicable CDSC) to the
shareholder will be the designated monthly or quarterly amount.
The Transfer Agent acts as agent for the shareholder in tendering to the
Fund for redemption sufficient full and fractional shares to provide the amount
of the periodic withdrawal payment designated in the application. The shares
will be redeemed at their net asset value determined, at the shareholder's
option, on the tenth or twenty-fifth day (or next following business day) of
the relevant month or quarter and normally a check for the proceeds will be
mailed by the Transfer Agent, or amounts credited to a shareholder's DWR
brokerage account, within five business days after the date of redemption. The
Withdrawal Plan may be terminated at any time by the Fund.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the share-holder's original investment will be
correspondingly reduced and ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of sales charges which may be applicable to
purchases or redemptions of shares (see "Purchase of Fund Shares").
Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the account
must send complete written instructions to the Transfer Agent to enroll in the
Withdrawal Plan. The shareholder's signature on such instructions must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A shareholder
may, at any time, change the amount and interval of withdrawal payments through
his or her Morgan Stanley Dean Witter Financial Advisor or other selected
broker-dealer representative or by written notification to the Transfer Agent.
In addition, the party and/or the address to which checks are mailed may be
changed by written notification to the Transfer Agent, with signature
guarantees required in the manner described above. The shareholder may also
terminate the Withdrawal Plan at any time by written notice to the Transfer
Agent. In the event of such termination, the account will be continued as a
regular shareholder investment account. The shareholder may also redeem all or
part of the shares held in the Withdrawal Plan account (see "Redemptions and
Repurchases" in the Prospectus) at any time.
37
<PAGE>
Direct Investments through Transfer Agent. As discussed in the Prospectus,
a shareholder may make additional investments in any Class of shares of the
Fund for which they qualify at any time by sending a check in any amount, not
less than $100, payable to Morgan Stanley Dean Witter Information Fund, and
indicating the selected Class, directly to the Fund's Transfer Agent. In the
case of Class A shares, after deduction of any applicable sales charge, the
balance will be applied to the purchase of Fund shares, and, in the case of
shares of the other Classes, the entire amount will be applied to the purchase
of Fund shares, at the net asset value per share next computed after receipt of
the check or purchase payment by the Transfer Agent. The shares so purchased
will be credited to the investor's account.
EXCHANGE PRIVILEGE
As discussed in the Prospectus, the Fund makes available to its
shareholders an Exchange Privilege whereby shareholders of each Class of shares
of the Fund may exchange their shares for shares of the same Class of shares of
any other Morgan Stanley Dean Witter Multi-Class Fund, without the imposition
of any exchange fee. Shares may also be exchanged for shares of any of the
following funds: Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust,
Morgan Stanley Dean Witter Limited Term Municipal Trust, Morgan Stanley Dean
Witter Short-Term Bond Fund and five Morgan Stanley Dean Witter Funds which are
money market funds (the foregoing eight non-CDSC Funds are hereinafter referred
to as "Exchange Funds"). Class A shares may also be exchanged for shares of
Morgan Stanley Dean Witter Multi-State Municipal Series Trust and Morgan
Stanley Dean Witter Hawaii Municipal Trust, which are Morgan Stanley Dean
Witter Funds sold with a front-end sales charge ("FSC Funds"). Class B shares
may also be exchanged for shares of Morgan Stanley Dean Witter Global
Short-Term Income Fund Inc., ("Global Short-Term"), which is a Morgan Stanley
Dean Witter Fund offered with a CDSC. Exchanges may be made after the shares of
the Fund acquired by purchase (not by exchange or dividend reinvestment) have
been held for thirty days. There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment. An exchange will be treated for
federal income tax purposes the same as a repurchase or redemption of shares,
on which the shareholder may realize a capital gain or loss.
Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the
present account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.
Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed.)
As described below, and in the Prospectus under the captions "Purchase of
Fund Shares", a CDSC may be imposed upon a redemption, depending on a number of
factors, including the number of years from the time of purchase until the time
of redemption or exchange ("holding period"). When shares of a Morgan Stanley
Dean Witter Multi-Class Fund or Global Short-Term are exchanged for shares of
an Exchange Fund, the Exchange Fund is executed at no charge to the
shareholder, without the imposition of the CDSC at the time of the exchange.
During the period of time the shareholder remains in the Exchange Fund
(calculated from the last day of the month in which the Exchange Fund shares
were acquired), the investment period or "year since purchase payment made" is
frozen. When shares are redeemed out of the Exchange Fund, they will be subject
to a CDSC which would be based upon the period of time the shareholder held
shares in a Morgan Stanley Dean Witter Multi-Class Fund or in Global
Short-Term. However, in the case of shares of the Fund exchanged into the
Exchange Fund, upon a redemption of shares which results in a CDSC being
imposed, a credit (not to exceed the amount of the CDSC) will be given in an
amount equal to the Exchange Fund 12b-1 distribution fees, if any, incurred on
or after that date which are attributable to those shares. Shareholders
acquiring shares of an Exchange Fund pursuant to this exchange privilege may
exchange those shares back into Global Short-Term from the Exchange Fund, with
no CDSC being imposed on such exchange. The holding period previously frozen
when shares were first exchanged for shares of the Exchange Fund resumes on the
last day of the month in which shares of a Morgan Stanley Dean Witter
Multi-Class Fund or in Global Short-Term are reacquired. A CDSC is imposed only
upon an ultimate redemption, based upon the time (calculated as described
above) the shareholder was invested in a Morgan Stanley Dean Witter
38
<PAGE>
Multi-Class Fund or in Global Short-Term. In the case of exchanges of Class A
shares which are subject to a CDSC, the holding period also includes the time
(calculated as described above) the shareholder was invested in a FSC Fund.
When shares initially purchased in a Morgan Stanley Dean Witter
Multi-Class Fund or in Global Short-Term are exchanged for shares of a Morgan
Stanley Dean Witter Multi-Class Fund, shares of Global Short-Term, shares of a
FSC Fund, or shares of an Exchange Fund, the date of purchase of the shares of
the fund exchanged into, for purposes of the CDSC upon redemption, will be the
last day of the month in which the shares being exchanged were originally
purchased. In allocating the purchase payments between funds for purposes of
the CSDC, the amount which represents the current net asset value of shares at
the time of the exchange which were (i) purchased more than one, three or six
years (depending on the CDSC schedule applicable to the shares) prior to the
exchange, (ii) originally acquired through reinvestment of dividends or
distributions and (iii) acquired in exchange for shares of FSC Funds, or for
shares of other Morgan Stanley Dean Witter Funds for which shares of FSC Funds
have been exchanged (all such shares called "Free Shares"), will be exchanged
first. Shares of Morgan Stanley Dean Witter Dividend Growth Securities Inc. and
Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
acquired prior to July 2, 1984, and shares of Morgan Stanley Dean Witter
Strategist Fund acquired prior to November 8, 1989, are also considered Free
Shares and will be the first Free Shares to be exchanged. After an exchange,
all dividends earned on shares in an Exchange Fund will be considered Free
Shares. If the exchanged amount exceeds the value of such Free Shares, an
exchange is made, on a block-by-block basis, of non-Free Shares held for the
longest period of time (except that, with respect to Class B shares, if shares
held for identical periods of time but subject to different CDSC schedules are
held in the same Exchange Privilege account, the shares of that block that are
subject to a lower CDSC rate will be exchanged prior to the shares of that
block that are subject to a higher CDSC rate). Shares equal to any appreciation
in the value of non-Free Shares exchanged will be treated as Free Shares, and
the amount of the purchase payments for the non-Free Shares of the fund
exchanged into will be equal to the lesser of (a) the purchase payments for, or
(b) the current net asset value of, the exchanged non-Free Shares. If an
exchange between funds would result in exchange of only part of a particular
block of non-Free Shares, then shares equal to any appreciation in the value of
the block (up to the amount of the exchange) will be treated as Free Shares and
exchanged first, and the purchase payment for that block will be allocated on a
pro rata basis between the non-Free Shares of that block to be retained and the
non-Free Shares to be exchanged. The prorated amount of such purchase payment
attributable to the retained non-Free Shares will remain as the purchase
payment for such shares, and the amount of purchase payment for the exchanged
non-Free Shares will be equal to the lesser of (a) the prorated amount of the
purchaser payment for, or (b) the current net asset value of, those exchanged
in non-Free Shares. Based upon the procedures described in the Prospectus under
the caption "Purchase of Fund Shares," any applicable CDSC will be imposed upon
the ultimate redemption of shares of any fund, regardless of the number of
exchanges since those shares were originally purchased.
With respect to the redemption or repurchase of shares of the Fund, the
application of proceeds to the purchase of new shares in the Fund or any other
of the funds and the general administration of the Exchange Privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
selected broker-dealer, if any, in the performance of such functions.
With respect to exchanges, redemptions or repurchases, the Transfer Agent
shall be liable for its own negligence and not for the default or negligence of
its correspondents or for losses in transit. The Fund shall not be liable for
any default or negligence of the Transfer Agent, the Distributor or any
selected broker-dealer.
The Distributor and any selected broker-dealer have authorized and
appointed the Transfer Agent to act as their agent in connection with the
application of proceeds of any redemption of Fund shares to the purchase of
shares of any other fund and the general administration of the Exchange
Privilege. No commission or discounts will be paid to the Distributor or any
selected broker-dealer for any transactions pursuant to this Exchange
Privilege.
Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege account of each Class is $5,000 for
39
<PAGE>
Morgan Stanley Dean Witter Liquid Asset Fund Inc., Morgan Stanley Dean Witter
Tax-Free Daily Income Trust, Morgan Stanley Dean Witter California Tax-Free
Daily Income Trust and Morgan Stanley Dean Witter New York Municipal Money
Market Trust although those funds may, at their discretion, accept initial
investments of as low as $1,000. The minimum initial investment for the
Exchange Privilege account of each Class is $10,000 for Morgan Stanley Dean
Witter Short-Term U.S. Treasury Trust, although that fund, in its discretion,
may accept initial purchases of as low as $5,000. The minimum initial
investment for the Exchange Privilege account of each Class is $5,000 for
Morgan Stanley Dean Witter Special Value Fund. The minimum initial investment
for the Exchange Privilege account of each Class of all other Morgan Stanley
Dean Witter Funds for which the Exchange Privilege is available is $1,000.)
Upon exchange into an Exchange Fund, the shares of that fund will be held in a
special Exchange Privilege Account separately from accounts of those
shareholders who have acquired their shares directly from that fund. As a
result, certain services normally available to shareholders of money market
funds, including the check writing feature, will not be available for funds
held in that account.
The Fund and each of the other Morgan Stanley Dean Witter Funds may limit
the number of times this Exchange Privilege may be exercised by any investor
within a specified period of time. Also, the Exchange Privilege may be
terminated or revised at any time by the Fund and/or any of the Morgan Stanley
Dean Witter Funds for which shares of the Fund have been exchanged, upon such
notice as may be required by applicable regulatory agencies (presently sixty
days for termination or material revision), provided that six months' prior
written notice of termination will be given to the shareholders who hold shares
of Exchange Funds, pursuant to the Exchange Privilege, and provided further
that the Exchange Privilege may be terminated or materially revised without
notice at times (a) when the New York Stock Exchange is closed for other than
customary weekends and holidays, (b) when trading on that Exchange is
restricted, (c) when an emergency exists as a result of which disposal by the
Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, (d) during any other period when the Securities and Exchange Commission
by order so permits (provided that applicable rules and regulations of the
Securities and Exchange Commission shall govern as to whether the conditions
prescribed in (b) or (c) exist) or (e) if the Fund would be unable to invest
amounts effectively in accordance with its investment objective, policies and
restrictions.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. An exchange will be treated for federal income tax purposes
the same as a repurchase or redemption of shares, on which the shareholder may
realize a capital gain or loss. However, the ability to deduct capital losses
on an exchange may be limited in situations where there is an exchange of
shares within ninety days after the shares are purchased. The Exchange
Privilege is only available in states where an exchange may legally be made.
For further information regarding the Exchange Privilege, shareholders
should contact their Morgan Stanley Dean Witter Financial Advisor or other
selected broker-dealer representative or the Transfer Agent.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
Redemption. As stated in the Prospectus, shares of each Class of the Fund
can be redeemed for cash at any time at the net asset value per share next
determined; however, such redemption proceeds will be reduced by the amount of
any applicable CDSC. If shares are held in a shareholder's account without a
share certificate, a written request for redemption to the Fund's Transfer
Agent at P.O. Box 983, Jersey City, NJ 07303 is required. If certificates are
held by the shareholder, the shares may be redeemed by surrendering the
certificates with a written request for redemption. The share certificate, or
an accompanying stock power, and the request for redemption, must be signed by
the shareholder or shareholders exactly as the shares are registered. Each
request for redemption, whether or not accompanied by a share certificate, must
be sent to the Fund's Transfer Agent, which will redeem the shares at their net
asset value next computed (see "Purchase of Fund Shares") after it receives the
request, and certificate, if any, in good order. Any redemption request
received after such computation will be redeemed at the next determined net
asset value. The term "good order" means that the share certificate, if any,
and request for redemption are properly signed, accompanied by any
documentation required by the Transfer Agent, and bear signature guarantees
when
40
<PAGE>
required by the Fund or the Transfer Agent. If redemption is requested by a
corporation, partnership, trust or fiduciary, the Transfer Agent may require
that written evidence of authority acceptable to the Transfer Agent be
submitted before such request is accepted.
Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other
than the Distributor or a selected broker-dealer for the account of the
shareholder), partnership, trust or fiduciary, or sent to the shareholder at an
address other than the registered address, signatures must be guaranteed by an
eligible guarantor acceptable to the Transfer Agent (shareholders should
contact the Transfer Agent for a determination as to whether a particular
institution is such an eligible guarantor). A stock power may be obtained from
any dealer or commercial bank. The Fund may change the signature guarantee
requirements from time to time upon notice to shareholders, which may be by
means of a new prospectus.
Repurchase. As stated in the Prospectus, DWR and other selected
broker-dealers are authorized to repurchase shares represented by a share
certificate which is delivered to any of their offices. Shares held in a
shareholder's account without a share certificate may also be repurchased by
DWR and other selected broker-dealers upon the telephonic request of the
shareholder. The repurchase price is the net asset value next computed after
such purchase order is received by DWR or other selected broker-dealer reduced
by any applicable CDSC.
Payment for Shares Redeemed or Repurchased. As discussed in the
Prospectus, payment for shares of any Class presented for repurchase or
redemption will be made by check within seven days after receipt by the
Transfer Agent of the certificate and/or written request in good order. Such
payment may be postponed or the right of redemption suspended at times (a) when
the New York Stock Exchange is closed for other than customary weekends and
holidays, (b) when trading on that Exchange is restricted, (c) when an
emergency exists as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable or it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or (d) during any other
period when the Securities and Exchange Commission by order so permits;
provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist. If the shares to be redeemed have recently been purchased by check,
payment of the redemption proceeds may be delayed for the minimum time needed
to verify that the check used for investment has been honored (not more than
fifteen days from the time of receipt of the check by the Transfer Agent). It
has been and remains the Fund's policy and practice that, if checks for
redemption proceeds remain uncashed, no interest will accrue on amounts
represented by such uncashed checks. Shareholders maintaining margin accounts
with DWR or another selected broker-dealer are referred to their Morgan Stanley
Dean Witter Financial Advisor or other selected broker-dealer representative
regarding restrictions on redemption of shares of the Fund pledged in the
margin account.
Transfers of Shares. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the
length of time shares subject to the charge have been held), any transfer
involving less than all of the shares in an account will be made on a pro rata
basis (that is, by transferring shares in the same proportion that the
transferred shares bear to the total shares in the account immediately prior to
the transfer). The transferred shares will continue to be subject to any
applicable CDSC as if they had not been so transferred.
Reinstatement Privilege. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may, within 35 days after the date of
redemption or repurchase, reinstate any portion or all of the proceeds of such
redemption or repurchase in shares of the Fund in the same Class at the net
asset value next determined after a reinstatement request, together with the
proceeds, is received by the Transfer Agent.
Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and
reinstatement is made in shares of the Fund, some or all of the loss, depending
on the amount reinstated, will not be allowed as a deduction for federal income
tax purposes but will be applied to adjust the cost basis of the shares
acquired upon reinstatement.
41
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
As discussed in the Prospectus, the Fund will determine either to
distribute or to retain all or part of any net long-term capital gains in any
year for reinvestment. If any such gains are retained, the Fund will pay
federal income tax thereon, and shareholders will be required to include such
undistributed gains in their taxable income and will be able to claim their
share of the tax paid by the Fund as a credit against their individual federal
income tax.
Gains or losses on sales of securities by the Fund will be long-term
capital gains or losses if the securities have been held by the Fund for more
than twelve months. Gains or losses on the sale of securities held for twelve
months or less will be short-term gains or losses.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. Capital gains distributions are not
eligible for the dividends received deduction. The Treasury intends to issue
regulations to permit shareholders to take into account their proportionate
share of the Fund's capital gains distributions that will be subject to a
reduced rate under the Taxpayer Relief Act of 1997. The Taxpayer Relief Act
reduces the maximum tax rate on long-term capital gains from 28% to 20%. It
also lengthens the required holding period to obtain the lower rate from more
than twelve months to more than eighteen months. However, the IRS Restructuring
and Reform Act of 1998 reduces the holding period requirement for the lower
capital gain rate to more than twelve months for transactions occurring after
January 1, 1998. The lower rates do not apply to collectibles and certain other
assets. Additionally, the maximum capital gain rate for assets that are held
more than five years and that are acquired after December 31, 2000 is 18%.
The Fund intends to remain qualified as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986. As such, the Fund will
not be subject to federal income tax on its net investment income and capital
gains, if any, realized during any fiscal year in which it distributes such
income and capital gains to its shareholders. In addition, the Fund intends to
distribute to its shareholders each calendar year a sufficient amount of
ordinary income and capital gains to avoid the imposition of a 4% excise tax.
Shareholders will normally have to pay federal income taxes, and any state
and/or local income taxes, on the dividends and distributions they receive from
the Fund. Such dividends and distributions, to the extent that they are derived
from net investment income or short-term capital gains, are taxable to the
shareholder as ordinary income regardless of whether the shareholder receives
such payments in additional shares or in cash. Any dividends declared in the
last quarter of any calendar year which are paid in the following year prior to
February 1 will be deemed received by the shareholder in the prior year.
Any dividend or capital gains distribution received by a shareholder from
any investment company will have the effect of reducing the net asset value of
the shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, capital gains distributions and
dividends are subject to federal income taxes. If the net asset value of the
shares should be reduced below a shareholder's cost as a result of the payment
of dividends or the distribution of realized net long-term capital gains, such
payment or distribution would be in part a return of the shareholder's
investment to the extent of such reduction below the shareholder's cost, but
nonetheless would be fully taxable at either ordinary or capital gain rates.
Therefore, an investor should consider the tax implications of purchasing Fund
shares immediately prior to a dividend or distribution record date.
Any loss realized by shareholders upon a redemption of shares within six
months of the date of their purchase will be treated as a long-term capital
loss to the extent of any distributions of net long-term capital gains during
the six-month period.
Dividend payments will be eligible for the federal dividends received
deduction available to the Fund's corporate shareholders only to the extent the
aggregate dividends received by the Fund would be eligible for the deduction if
the Fund were the shareholder claiming the dividends received deduction. The
amount of dividends paid by the Fund which may qualify for the dividends
received deduction is limited to the aggregate amount of qualifying dividends
which the Fund derives from its portfolio investments which the Fund has held
for a minimum period, usually 46 days within a 90-day period beginning 45 days
before the ex-dividend date
42
<PAGE>
of each qualifying dividend. Shareholders must meet a similar holding period
requirement with respect to their shares to claim the dividends received
deduction with respect to any distribution of qualifying dividends. Any
long-term capital gain distributions will also not be eligible for the
dividends received deduction. The ability to take the dividends received
deduction will also be limited in the case of a Fund shareholder which incurs
or continues indebtedness which is directly attributable to its investment in
the Fund.
Dividends, interest and capital gains received by the Fund may give rise
to withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. Investors may be entitled to claim United States foreign tax credits or
deductions with respect to such taxes, subject to certain provisions and
limitations contained in the Code. If more than 50% of the Fund's total assets
at the close of its fiscal year consist of securities of foreign corporations,
the Fund would be eligible and would determine whether or not to file an
election with the Internal Revenue Service pursuant to which shareholders of
the Fund will be required to include their respective pro rata portions of such
withholding taxes in their United States income tax returns as gross income,
treat such respective pro rata portions as taxes paid by them, and deduct such
respective pro rata portions in computing their taxable income or,
alternatively, use them as foreign tax credits against their United States
income taxes. If the Fund does elect to file the election with the Internal
Revenue Service, the Fund will report annually to its shareholders the amount
per share of such withholding.
Special Rules for Certain Foreign Currency Transactions. In general, gains
from foreign currencies and from foreign currency options, foreign currency
futures and forward foreign exchange contracts relating to investments in
stock, securities or foreign currencies are currently considered to be
qualifying income for purposes of determining whether the Fund qualifies as a
regulated investment company. It is currently unclear, however, who will be
treated as the issuer of certain foreign currency instruments or how foreign
currency options, futures, or forward foreign currency contracts will be valued
for purposes of the regulated investment company diversification requirements
applicable to the Fund. The Fund may request a private letter ruling from the
Internal Revenue Service on some or all of these issues.
Under Code Section 988, special rules are provided for certain
transactions in a foreign currency other than the taxpayer's functional
currency (i.e., unless certain special rules apply, currencies other than the
U.S. dollar). In general, foreign currency gains or losses from forward
contracts, from futures contracts that are not "regulated futures contracts",
and from unlisted options will be treated as ordinary income or loss under Code
Section 988. Also, certain foreign exchange gains or losses derived with
respect to foreign fixed-income securities are also subject to Section 988
treatment. In general, therefore, Code Section 988 gains or losses will
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to shareholders as ordinary income, rather than
increasing or decreasing the amount of the Fund's net capital gain.
Additionally, if Code Section 988 losses exceed other investment company
taxable income during a taxable year, the Fund would not be able to make any
ordinary dividend distributions.
If the Fund invests in an entity which is classified as a "passive foreign
investment company" ("PFIC") for U.S. tax purposes, the application of certain
technical tax provisions applying to such companies could result in the
imposition of federal income tax with respect to such investments at the Fund
level which could not be eliminated by distributions to shareholders. The U.S.
Treasury issued proposed regulation section 1.1291-8 which establishes a
mark-to-market regime which allows investment companies investing in PFIC's to
avoid most, if not all, of the difficulties posed by the PFIC rules. In any
event, it is not anticipated that any taxes on the Fund with respect to
investments in PFIC's would be significant.
Shareholders are urged to consult their attorneys or tax advisers
regarding specific questions as to federal, state or local taxes.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
As discussed in the Prospectus, from time to time the Fund may quote its
"total return" in advertisements and sales literature. These figures are
computed separately for Class A, Class B, Class C and Class D shares. The
Fund's "average annual total return" represents an annualization of the Fund's
total return over a particular period and is computed by finding the annual
percentage rate which will result in the ending
43
<PAGE>
redeemable value of a hypothetical $1,000 investment made at the beginning of a
one, five or ten year period, or for the period from the date of commencement
of the Fund's operations, if shorter than any of the foregoing. The ending
redeemable value is reduced by any CDSC at the end of the one, five or ten year
or other period. For the purpose of this calculation, it is assumed that all
dividends and distributions are reinvested. The formula for computing the
average annual total return involves a percentage obtained by dividing the
ending redeemable value by the amount of the initial investment, taking a root
of the quotient (where the root is equivalent to the number of years in the
period) and subtracting 1 from the result. The average annual total return of
Class B for the fiscal year ended March 31, 1998 and for the period November
28, 1995 through March 31, 1998 were 51.10% and 14.23%, respectively.
For periods of less than one year, the Fund quotes its total return on a
non-annualized basis. Accordingly, the Fund may compute its aggregate total
return for each of Class A, Class C and Class D for specified periods by
determining the aggregate percentage rate which will result in the ending value
of a hypothetical $1,000 investment made at the beginning of the period. For
the purpose of this calculation, it is assumed that all dividends and
distributions are reinvested. The formula for computing aggregate total return
involves a percentage obtained by dividing the ending value by the initial
$1,000 investment and subtracting 1 from the result. The ending redeemable
value is reduced by any CDSC at the end of the period. Based on the foregoing
calculations, the total returns for the period July 28, 1997 through March 31,
1998 were 16.22%, 20.96% and 22.75% for Class A, Class C and Class D,
respectively.
In addition to the foregoing, the Fund may advertise its total return for
each Class over different periods of time by means of aggregate, year-by-year
or other types of total return figures. Such calculations may or may not
reflect the imposition of the maximum front-end sales charge for Class A or the
deduction of the CDSC for each of Class B and Class C which, if reflected,
would reduce the performance quoted. For example, the average annual total
return of the Fund may be calculated in the manner described above, but without
deduction for any applicable sales charge. Based on the foregoing calculation,
the total returns of Class B for the period November 28, 1995 through March 31,
1997 and for the fiscal years ended March 31, 1997 and 1998 were -10.64%,
- -16.31% and 56.10%, respectively.
In addition, the Fund may compute its aggregate total return for each
Class for specified periods by determining the aggregate percentage rate which
will result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed
that all dividends and distributions are reinvested. The formula for computing
aggregate total return involves a percentage obtained by dividing the ending
value (without the reduction for any sales charge) by the initial $1,000
investment and subtracting 1 from the result. Based on the foregoing
calculation, the total returns of Class B for the period November 28, 1995
through March 31, 1997 and for the fiscal years ended March 31, 1997 and 1998
were -8.06%, -16.31% and 39.50%, respectively. Based on the foregoing
calculations, the total returns for Class A, Class C and Class D for the period
July 28, 1997 through March 31, 1998 were 22.66%, 21.96% and 22.75%,
respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of in 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 or $100,000 in the case of each of Class B, Class C and Class D, as the
case may be. Investments of $10,000, $50,000 and $100,000 in each Class at
inception of the Class would have grown to the following amounts at March 31,
1998:
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
INCEPTION -----------------------------------
CLASS DATE: $10,000 $50,000 $100,000
- ---------------------- ---------- --------- --------- -----------
<S> <C> <C> <C> <C>
Class A ............ 7/28/97 $11,622 $58,877 $118,980
Class B ............ 11/28/95 13,950 69,750 139,500
Class C ............ 7/28/97 12,196 60,980 121,960
Class D ............ 7/28/97 12,275 61,375 122,750
</TABLE>
44
<PAGE>
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by independent organizations.
DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full
share held. All of the Trustees have been elected by the shareholders of the
Fund, most recently at a Special Meeting of Shareholders held on May 21, 1997.
The Trustees themselves have the power to alter the number and the terms of
office of the Trustees, and they may at any time lengthen their own terms or
make their terms of unlimited duration and appoint their own successors,
provided that always at least a majority of the Trustees has been elected by
the shareholders of the Fund. Under certain circumstances the Trustees may be
removed by action of the Trustees. The shareholders also have the right to
remove the Trustees following a meeting called for that purpose requested in
writing by the record holders of not less than ten percent of the Fund's
outstanding shares. The voting rights of shareholders are not cumulative, so
that holders of more than 50 percent of the shares voting can, if they choose,
elect all Trustees being selected, while the holders of the remaining shares
would be unable to elect any Trustees.
The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series. The Trustees presently have not authorized any such
additional series or classes of shares other than as set forth in the
Prospectus.
The Declaration of Trust provides that no Trustee, officer, employee or
agent of the Fund is liable to the Fund or to a shareholder, nor is any
Trustee, officer, employee or agent liable to any third persons in connection
with the affairs of the Fund, except as such liability may arise from his own
bad faith, willful misfeasance, gross negligence, or reckless disregard of his
duties. It also provides that all third persons shall look solely to the Fund's
property for satisfaction of claims arising in connection with the affairs of
the Fund. With the exceptions stated, the Declaration of Trust provides that a
Trustee, officer, employee or agent is entitled to be indemnified against all
liabilities in connection with the affairs of the Fund.
The Fund is authorized to issue an unlimited number of shares of
beneficial interest. The Fund shall be of unlimited duration subject to the
provisions of the Declaration of Trust concerning termination by action of the
shareholders.
CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------
The Chase Manhattan Bank, Chase Plaza, New York, New York 10005 is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.
Morgan Stanley Dean Witter Trust FSB, Harborside Financial Center, Plaza
Two, Jersey City, New Jersey 07311 is the Transfer Agent of the Fund's shares
and Dividend Disbursing Agent for payment of dividends and distributions on
Fund shares and Agent for shareholders under various investment plans described
herein. Morgan Stanley Dean Witter Trust FSB is an affiliate of Morgan Stanley
Dean Witter Advisors Inc., the Fund's Investment Manager, and of Morgan Stanley
Dean Witter Distributors Inc., the Fund's Distributor. As Transfer Agent and
Dividend Disbursing Agent, Morgan Stanley Dean Witter Trust FSB's
responsibilities include maintaining shareholder accounts, disbursing cash
dividends and reinvesting dividends, processing account registration changes,
handling purchase and redemption transactions, mailing prospectuses and
reports, mailing and tabulating proxies, processing share certificate
transactions, and maintaining shareholder records and lists. For these services
Morgan Stanley Dean Witter Trust FSB receives a per shareholder account fee.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP serves as the independent accountants of the
Fund. The independent accountants are responsible for auditing the annual
financial statements of the Fund.
45
<PAGE>
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The Fund will send to shareholders, at least semi-annually, reports
showing the Fund's portfolio and other information. An annual report containing
financial statements audited by independent accountants will be sent to
shareholders each year.
The Fund's fiscal year ends on March 31. The financial statements of the
Fund must be audited at least once a year by independent accountants whose
selection is made annually by the Fund's Board of Trustees.
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Barry Fink, Esq., who is an officer and the General Counsel of the
Manager, is an officer and the General Counsel of the Fund.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of the Fund for the fiscal year ended March 31,
1998 included in this Statement of Additional Information and incorporated by
reference in the Prospectus have been so included and incorporated in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.
46
<PAGE>
DEAN WITTER INFORMATION FUND
PORTFOLIO OF INVESTMENTS March 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------------------------------------------------------- --------------
<S> <C> <C>
COMMON STOCKS (98.3%)
Advertising (5.0%)
105,000 Lamar Advertising Co. (Class A)* ................................ $ 3,629,062
50,000 Omnicom Group, Inc. ............................................. 2,353,125
180,000 Outdoor Systems, Inc.* .......................................... 6,311,250
25,000 Snyder Communications, Inc.* .................................... 1,171,875
--------------
13,465,312
--------------
Broadcasting (10.9%)
130,000 Chancellor Media Corp. (Class A)* ............................... 5,963,750
50,000 Cinar Films, Inc. (Class B)(Canada)* ............................ 2,125,000
55,000 Clear Channel Communications, Inc.* ............................. 5,390,000
94,500 Cox Radio, Inc. (Class A)* ...................................... 4,583,250
40,000 Heftel Broadcasting Corp. (Class A)* ............................ 1,790,000
60,000 Jacor Communications, Inc.* ..................................... 3,543,750
40,000 Time Warner, Inc. ............................................... 2,880,000
80,000 Univision Communications, Inc. (Class A)* ....................... 2,980,000
--------------
29,255,750
--------------
Commercial Services (0.9%)
20,000 FDX Corp.* ...................................................... 1,422,500
10,000 International Network Services* ................................. 290,625
60,000 Mecon, Inc.* .................................................... 652,500
--------------
2,365,625
--------------
Communications Equipment (11.8%)
110,000 Advanced Fibre Communications, Inc.* ............................ 4,001,250
100,000 Ascend Communications, Inc.* .................................... 3,787,500
121,000 CIENA Corp.* .................................................... 5,150,062
65,000 Cisco Systems, Inc.* ............................................ 4,444,375
100,000 Digital Lightwave, Inc.* ........................................ 609,375
120,000 Digital Microwave Corp.* ........................................ 1,762,500
98,500 Innova Corp.* ................................................... 1,526,750
100,000 Natural Microsystems Corp.* ..................................... 3,962,500
10,000 Newbridge Networks Corp. (Canada)* .............................. 268,750
90,000 P-COM, Inc.* .................................................... 1,800,000
85,000 Positron Fiber Systems Corp. (Class A)(Canada)* ................. 653,437
10,000 Powerwave Technologies, Inc.* ................................... 131,875
90,000 Premisys Communications, Inc.* .................................. 2,581,875
50,000 Yurie Systems, Inc.* ............................................ 1,209,375
--------------
31,889,624
--------------
Computer Services (7.3%)
60,000 American Management Systems, Inc.* .............................. $ 1,642,500
35,000 Checkfree Holdings Corp.* ....................................... 770,000
140,000 Condor Technology Solutions, Inc.* .............................. 1,960,000
57,000 Keane, Inc.* .................................................... 3,220,500
55,000 PRT Group, Inc.* ................................................ 536,250
150,000 Saville Systems Ireland PLC (ADR)(Ireland)* ..................... 7,575,000
40,000 SunGard Data Systems, Inc.* ..................................... 1,472,500
80,000 Unisys Corp.* ................................................... 1,520,000
80,000 VideoServer, Inc.* .............................................. 995,000
--------------
19,691,750
--------------
Computer Software (22.2%)
American Software, Inc.
102,300 (Class A)* ...................................................... 805,613
70,000 Aspect Development, Inc.* ....................................... 3,815,000
40,000 Autodesk, Inc. ................................................. 1,722,500
90,000 BEA Systems, Inc.* .............................................. 2,531,250
80,000 BMC Software, Inc.* ............................................. 6,705,000
130,000 Business Objects S.A. (ADR)(France)* ............................ 1,950,000
90,000 Computer Associates International, Inc. ......................... 5,197,500
90,000 Compuware Corp.* ................................................ 4,438,125
60,000 CrossKeys Systems Corp. (Canada)* ............................... 675,000
120,000 Emulex Corp.* ................................................... 1,095,000
109,000 FlexiInternational Software, Inc.* .............................. 1,335,250
20,000 Genesys Telecommunications Laboratories, Inc.* .................. 757,500
79,000 Geoworks Corp.* ................................................ 587,563
50,000 Harbinger Corp.* ................................................ 1,875,000
20,000 HBO & Co. ...................................................... 1,206,250
20,000 Interlink Computer Sciences, Inc.* .............................. 108,750
50,000 INTERSOLV, Inc.* ................................................ 887,500
33,000 Legato Systems, Inc.* ........................................... 1,955,250
50,000 Lernout & Hauspie Speech Products N.V. (ADR)(Belgium)* .......... 4,350,000
30,000 Manugistics Group, Inc.* ........................................ 1,680,000
40,000 Micro Focus Group PLC (ADR)(United Kingdom)* .................... 1,890,000
70,000 Network Associates, Inc.* ....................................... 4,637,500
100,000 Remedy Corp.* ................................................... 1,950,000
50,000 VERITAS Software Corp.* ......................................... 2,950,000
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
DEAN WITTER INFORMATION FUND
PORTFOLIO OF INVESTMENTS March 31, 1998, continued
NUMBER OF
SHARES VALUE
- ----------- ---------------------------------------------------------------- --------------
80,000 Visio Corp.* ................................................... $ 3,410,000
49,100 Visual Networks, Inc.* .......................................... 1,258,188
--------------
59,773,739
--------------
Computers -Systems (1.6%)
30,000 Dell Computer Corp.* ............................................ 2,030,625
30,000 Storage Technology Corp.* ....................................... 2,281,875
--------------
4,312,500
--------------
Electronics (2.8%)
139,500 Anaren Microwave, Inc.* ......................................... 3,069,000
170,000 Electronics for Imaging, Inc.* .................................. 4,420,000
--------------
7,489,000
--------------
Electronics -Capital Equipment (1.9%)
10,000 ASM Lithography Holding N.V. (ADR)(Netherlands)* ................ 923,750
130,000 Cymer, Inc.* ................................................... 2,624,375
40,000 Newport Corp. ................................................... 782,500
70,000 Semitool, Inc.* ................................................. 875,000
--------------
5,205,625
--------------
Entertainment (2.3%)
45,000 Electronic Arts, Inc.* .......................................... 2,109,375
90,000 Gemstar International Group Ltd. (ADR)(Virgin Islands)* ......... 2,688,750
50,000 Imax Corp. (Canada)* ............................................ 1,415,625
--------------
6,213,750
--------------
Internet (5.3%)
60,000 America Online, Inc.* ........................................... 4,098,750
66,000 At Home Corp. (Series A)* ....................................... 2,219,250
50,000 E*TRADE Group, Inc.* ............................................ 1,243,750
70,000 Icon CMT Corp.* ................................................. 1,085,000
129,000 RealNetworks, Inc.* ............................................ 3,708,750
60,000 Ticketmaster Group, Inc.* ...................................... 1,803,750
--------------
14,159,250
--------------
Media (4.7%)
30,000 Scripps (E.W.) Co. (Class A) .................................... 1,659,375
40,000 Sinclair Broadcast Group, Inc. (Class A)* ....................... 2,302,500
120,000 Tele-Communications Liberty Media Group (Class A)* .............. 4,117,500
85,000 Viacom, Inc. (Class B)* ......................................... 4,568,750
--------------
12,648,125
--------------
Semiconductors (7.6%)
100,000 Adaptec, Inc.* .................................................. $ 1,962,500
175,200 Galileo Technology, Ltd. (ADR)(Israel)* ......................... 4,818,000
50,000 Intel Corp. ..................................................... 3,900,000
34,900 Kopin Corp.* .................................................... 612,931
50,000 Sheldahl, Inc.* ................................................. 556,250
30,000 Texas Instruments, Inc. ......................................... 1,623,750
100,000 Vitesse Semiconductor Corp.* .................................... 4,700,000
60,000 Xilinx, Inc.* .................................................. 2,246,250
--------------
20,419,681
--------------
Telecommunications (7.9%)
70,000 Intermedia Communications, Inc.* ................................ 5,573,750
100,000 LCI International, Inc.* ........................................ 3,850,000
40,000 Pacific Gateway Exchange, Inc.* ................................. 2,275,000
32,000 Portugal Telecom S.A. (ADR)(Portugal) ........................... 1,678,000
35,000 RCN Corp.* ...................................................... 1,741,250
30,000 Telecom Italia SpA (ADR)(Italy) ................................. 2,383,125
60,000 PT Telekomunikasi Indonesia (ADR)(Indonesia) .................... 588,750
50,000 Teligent, Inc. (Class A)* ....................................... 1,543,750
40,000 WinStar Communications, Inc.* ................................... 1,712,500
--------------
21,346,125
--------------
Wireless Communication (6.1%)
45,000 Airtouch Communications, Inc.* .................................. 2,202,188
40,000 Iridium World Communications, Ltd. (Class A)* ................... 2,490,000
4,030 Mannesman AG (Germany) .......................................... 2,951,439
50,000 Millicom International Cellular S.A. (Luxembourg)* .............. 2,200,000
500,000 Telecom Italia Mobile SpA (Italy) ............................... 2,688,718
30,000 Telecomunicacoes Brasileiras S.A. (ADR)(Brazil) ................. 3,894,375
--------------
16,426,720
--------------
TOTAL COMMON STOCKS
(Identified Cost $202,826,847) .................................. 264,662,576
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
DEAN WITTER INFORMATION FUND
PORTFOLIO OF INVESTMENTS March 31, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT (A)(2.4%)
<S> <C> <C>
U.S. GOVERNMENT AGENCY
Federal Home Loan Mortgage Corp. 5.48% due 04/01/98 (Amortized
$6,500 Cost $6,500,000) ................................................ $6,500,000
------------
TOTAL INVESTMENTS
(IDENTIFIED COST $209,326,847)(B) .................................. 100.7% 271,162,576
LIABILITIES IN EXCESS OF CASH
AND OTHER ASSETS.................................................... (0.7) (1,859,962)
------ ------------
NET ASSETS.......................................................... 100.0% $269,302,614
====== ============
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$66,391,035 and the aggregate gross unrealized depreciation is
$4,555,306, resulting in net unrealized appreciation of $61,835,729.
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
DEAN WITTER INFORMATION FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $209,326,847)............. $271,162,576
Cash........................................ 2,957,749
Receivable for:
Investments sold ......................... 9,297,272
Shares of beneficial interest sold ...... 206,288
Dividends................................. 17,388
Deferred organizational expenses............ 95,438
Prepaid expenses and other assets........... 92,997
---------------
TOTAL ASSETS ............................. 283,829,708
---------------
LIABILITIES:
Payable for:
Investments purchased..................... 13,856,471
Plan of distribution fee.................. 229,530
Shares of beneficial interest
repurchased................................ 200,742
Investment management fee................. 172,934
Accrued expenses............................ 67,417
---------------
TOTAL LIABILITIES ........................ 14,527,094
---------------
NET ASSETS ............................... $269,302,614
===============
COMPOSITION OF NET ASSETS:
Paid-in-capital ............................ $195,109,859
Net unrealized appreciation ................ 61,835,729
Net investment loss......................... (93)
Accumulated undistributed net realized
gain....................................... 12,357,119
---------------
NET ASSETS ............................... $269,302,614
===============
CLASS A SHARES:
Net Assets.................................. $205,769
Shares Outstanding (unlimited authorized,
$.01 par value)............................ 14,682
NET ASSET VALUE PER SHARE ................ $14.02
===============
MAXIMUM OFFERING PRICE PER SHARE
(net asset value plus 5.54% of net
asset value)............................. $14.80
===============
CLASS B SHARES:
Net Assets.................................. $267,384,459
Shares Outstanding (unlimited authorized,
$.01 par value)............................ 19,180,309
NET ASSET VALUE PER SHARE ................ $13.94
===============
CLASS C SHARES:
Net Assets.................................. $ 248,750
Shares Outstanding (unlimited authorized,
$.01 par value)............................ 17,839
NET ASSET VALUE PER SHARE ................ $13.94
===============
CLASS D SHARES:
Net Assets.................................. $ 1,463,636
Shares Outstanding (unlimited authorized,
$.01 par value)............................ 104,357
NET ASSET VALUE PER SHARE ................ $ 14.03
===============
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
For the year ended March 31, 1998*
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $64,118 foreign withholding
tax)......................................... $ 604,787
Interest...................................... 598,848
--------------
TOTAL INCOME ............................... 1,203,635
--------------
EXPENSES
Plan of distribution fee (Class A shares) .... 193
Plan of distribution fee (Class B shares) .... 2,387,929
Plan of distribution fee (Class C shares) .... 554
Investment management fee..................... 1,793,392
Transfer agent fees and expenses.............. 465,618
Professional fees............................. 50,834
Shareholder reports and notices............... 48,839
Registration fees............................. 43,520
Custodian fees................................ 40,165
Organizational expenses....................... 35,839
Trustees' fees and expenses................... 15,407
Other......................................... 11,603
--------------
TOTAL EXPENSES ............................. 4,893,893
--------------
NET INVESTMENT LOSS ........................ (3,690,258)
--------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain............................. 47,488,489
Net change in unrealized depreciation ........ 61,837,292
--------------
NET GAIN ................................... 109,325,781
--------------
NET INCREASE ................................. $105,635,523
==============
</TABLE>
- ------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
50
<PAGE>
DEAN WITTER INFORMATION FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MARCH 31, MARCH 31,
1998* 1997
---------------------------------------------------- ------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss.................................... $ (3,690,258) $ (3,163,565)
Net realized gain (loss)............................... 47,488,489 (32,902,627)
Net change in unrealized depreciation ................. 61,837,292 (12,858,100)
--------------- --------------
NET INCREASE (DECREASE).............................. 105,635,523 (48,924,292)
Net increase (decrease) from transactions in shares of
beneficial interest................................... (50,059,140) 55,329,540
--------------- --------------
NET INCREASE ........................................ 55,576,383 6,405,248
NET ASSETS:
Beginning of period.................................... 213,726,231 207,320,983
--------------- --------------
END OF PERIOD
(Including a net investment loss of $93
and $0, respectively)................................ $269,302,614 $213,726,231
=============== ==============
</TABLE>
- ------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
51
<PAGE>
DEAN WITTER INFORMATION FUND
NOTES TO FINANCIAL STATEMENTS March 31, 1998
1. Organization and Accounting Policies
Dean Witter Information 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 long-term
capital appreciation. The Fund seeks to achieve its investment objective by
investing primarily in common stocks and securities convertible into common
stocks of domestic and foreign companies which are involved in the
communications and information industry. The Fund was organized as a
Massachusetts business trust on December 8, 1994 and commenced operations on
November 28, 1995. On July 28, 1997, the Fund commenced offering three
additional classes of shares, with the then current shares designated as
Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a
sales charge. Additionally, Class A shares, Class B shares and Class C shares
incur distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. valuation of investments-- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at
its latest sale price on that exchange prior to the time when assets are
valued; if there were no sales that day, the security is valued at the latest
bid price (in cases where securities are traded on more than one exchange,
the securities are valued on the exchange designated as the primary market
pursuant to procedures adopted by the Trustees); (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest available bid price prior to the time of valuation;
(3) when market quotations are not readily available, including circumstances
under which it is determined by Dean Witter InterCapital Inc. (the
"Investment Manager") that sale or bid prices are not reflective of a
security's market value, portfolio securities are valued at their fair value
as determined in good faith under procedures established by and under the
general supervision of the Trustees; and (4) short-term debt securities
having a maturity date of more than sixty days at time of purchase are valued
on a mark-to-market basis until sixty days prior to
52
<PAGE>
DEAN WITTER INFORMATION FUND
NOTES TO FINANCIAL STATEMENTS March 31, 1998, continued
maturity and thereafter at amortized cost based on their value on the 61st
day. Short-term debt securities having a maturity date of sixty days or less
at the time of purchase are valued at amortized cost.
B. accounting for investments-- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Dividend income and other distributions are recorded on the
ex-dividend date except for certain dividends on foreign securities which are
recorded as soon as the Fund is informed after the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. multiple class allocations-- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are
allocated to each class of shares based upon the relative net asset value on
the date such items are recognized. Distribution fees are charged directly to
the respective class.
D. foreign currency translation-- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value
of investment securities, other assets and liabilities and forward foreign
currency contracts are translated at the exchange rates prevailing at the end
of the period; and (2) purchases, sales, income and expenses are translated
at the exchange rates prevailing on the respective dates of such
transactions. The resultant exchange gains and losses are included in the
Statement of Operations as realized and unrealized gain/loss on foreign
exchange transactions. Pursuant to U.S. Federal income tax regulations,
certain foreign exchange gains/losses included in realized and unrealized
gain/loss are included in or are a reduction of ordinary income for federal
income tax purposes. The Fund does not isolate that portion of the results of
operations arising as a result of changes in the foreign exchange rates from
the changes in the market prices of the securities.
E. forward foreign currency contracts-- The Fund may enter into forward
foreign currency contracts which are valued daily at the appropriate exchange
rates. The resultant unrealized exchange gains and losses are included in the
Statement of Operations as unrealized foreign currency gain or loss and in
the Statement of Assets and Liabilities as part of the related foreign
currency denominated asset or liability. The Fund records realized gains or
losses on delivery of the currency or at the time the forward contract is
extinguished (compensated) by entering into a closing transaction prior to
delivery.
F. federal income tax status-- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
53
<PAGE>
DEAN WITTER INFORMATION FUND
NOTES TO FINANCIAL STATEMENTS March 31, 1998, continued
G. dividends and distributions to shareholders-- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
H. organizational expenses-- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $179,000 which have been
reimbursed for the full amount thereof. Such expenses have been deferred and
are being amortized on the straight-line method over a period not to exceed
five years from 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
following annual rates to the net assets of the Fund determined as of the
close of each business day: 0.75% to the portion of daily net assets not
exceeding $500 million; and 0.725% to the portion of daily net assets
exceeding $500 million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Fund who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Fund.
3. Plan of Distribution
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted
a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The
Plan provides that the Fund will pay the Distributor a fee which is accrued
daily and paid monthly at the following annual rates: (i) Class A -up to
0.25% of the average daily net assets of
54
<PAGE>
DEAN WITTER INFORMATION FUND
NOTES TO FINANCIAL STATEMENTS March 31, 1998, continued
Class A; (ii) Class B -1.0% of the lesser of: (a) the average daily aggregate
gross sales of the Class B shares since the inception of the Fund (not
including reinvestment of dividend or capital gain distributions) less the
average daily aggregate net asset value of the Class B shares redeemed since
the Fund's inception upon which a contingent deferred sales charge has been
imposed or waived; or (b) the average daily net assets of Class B; and (iii)
Class C -up to 1.0% of the average daily net assets of Class C. In the case
of Class A shares, amounts paid under the Plan are paid to the Distributor
for services provided. In the case of Class B and Class C shares, amounts
paid under the Plan are paid to the Distributor for services provided and the
expenses borne by it and others in the distribution of the shares of these
Classes, including the payment of commissions for sales of these Classes and
incentive compensation to, and expenses of, the account executives of Dean
Witter Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and
Distributor, and others who engage in or support distribution of the shares
or who service shareholder accounts, including overhead and telephone
expenses; printing and distribution of prospectuses and reports used in
connection with the offering of these shares to other than current
shareholders; and preparation, printing and distribution of sales literature
and advertising materials. In addition, the Distributor may utilize fees paid
pursuant to the Plan, in the case of Class B shares, to compensate DWR and
other selected broker-dealers for their opportunity costs in advancing such
amounts, which compensation would be in the form of a carrying charge on any
unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect,
any cumulative expenses incurred by the Distributor but not yet recovered may
be recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses
incurred in excess of payments made to the Distributor under the Plan and the
proceeds of contingent deferred sales charges paid by investors upon
redemption of shares, if for any reason the Plan is terminated, the 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 $11,792,699 at March 31, 1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant
to the Plan in any calendar year in excess of 0.25% or 1.0% of the average
daily net assets of Class A or Class C, respectively, will not be reimbursed
by the Fund through payments in any subsequent year, except that expenses
representing a gross sales credit to account executives may be reimbursed in
the subsequent calendar year. For the period ended March 31, 1998, the
distribution fee was accrued for Class A shares and Class C shares at the
annual rate of 0.23% and 1.0%, respectively.
55
<PAGE>
DEAN WITTER INFORMATION FUND
NOTES TO FINANCIAL STATEMENTS March 31, 1998, continued
The Distributor has informed the Fund that for the period ended March 31,
1998, it received contingent deferred sales charges from certain redemptions
of the Fund's Class A shares, Class B shares and Class C shares of $5,
$957,856 and $94, respectively and received $7,180 in front-end sales charges
from sales of the Fund's Class A shares. The respective shareholders pay such
charges which are not an expense of the Fund.
4. Security Transactions and Transactions with Affiliates
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended March 31, 1998
aggregated $493,143,825, and $530,473,117, respectively.
For the year ended March 31, 1998, the Fund incurred brokerage commissions of
$70,244 with DWR for portfolio transactions executed on behalf of the Fund.
At March 31, 1998, the Fund's receivable for investments sold and payable for
investments purchased included unsettled trades with DWR of $851,097 and
$691,750, respectively.
For the period May 31, 1997 through March 31, 1998, the Fund incurred
brokerage commissions of $20,370 with Morgan Stanley & Co., Inc., an
affiliate of the Investment Manager since May 31, 1997, for portfolio
transactions executed on behalf of the Fund. At March 31, 1998, the Fund's
receivable for investments sold and payable for investments purchased
included unsettled trades with Morgan Stanley & Co., Inc. of $528,970 and
$625,500, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. At March 31, 1998, the Fund
had transfer agent fees and expenses payable of approximately $5,500.
5. Federal Income Tax Status
During the year ended March 31, 1998, the Fund utilized its net capital loss
carryover of approximately $19,088,000.
As of March 31, 1998, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and permanent book/tax
differences primarily attributable to a net operating loss. To reflect
reclassifications arising from the permanent differences, paid-in-capital was
charged $3,702,150, net investment loss was credited $3,690,165 and
accumulated undistributed net realized gain was credited $11,985.
56
<PAGE>
DEAN WITTER INFORMATION FUND
NOTES TO FINANCIAL STATEMENTS March 31, 1998, continued
6. Shares of Beneficial Interest
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold.............................. 15,349 $ 178,877 -- --
Reedemed.......................... (667) (8,097) -- --
--------------- --------------- --------------- --------------
Net increase -Class A............. 14,682 170,780 -- --
--------------- --------------- --------------- --------------
CLASS B SHARES
Sold.............................. 3,649,152 42,792,430 12,321,396 $136,279,927
Redeemed.......................... (8,387,989) (94,589,565) (7,831,515) (80,950,387)
--------------- --------------- --------------- --------------
Net increase (decrease) -Class B . (4,738,837) (51,797,135) 4,489,881 55,329,540
--------------- --------------- --------------- --------------
CLASS C SHARES*
Sold.............................. 19,252 242,097 -- --
Redeemed.......................... (1,413) (17,311) -- --
--------------- --------------- --------------- --------------
Net increase -Class C............. 17,839 224,786 -- --
--------------- --------------- --------------- --------------
CLASS D SHARES*
Sold.............................. 104,357 1,342,429 -- --
--------------- --------------- --------------- --------------
Net increase (decrease) in Fund .. (4,601,959) $(50,059,140) 4,489,881 $ 55,329,540
=============== =============== =============== ==============
</TABLE>
- ------------
* For the period July 28, 1997 (issue date) through March 31, 1998.
7. Purposes of and Risks Relating to Certain Financial Instruments
The Fund may enter into forward foreign currency contracts ("forward
contracts") to facilitate settlement of foreign currency denominated
portfolio transactions or to manage foreign currency exposure associated with
foreign currency denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk
of an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their
contracts.
At March 31, 1998, there were no outstanding forward foreign currency
contracts.
57
<PAGE>
DEAN WITTER INFORMATION FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE PERIOD
ENDED FOR THE YEAR NOVEMBER 28, 1995*
MARCH 31, ENDED THROUGH
1998**++ MARCH 31, 1997 MARCH 31, 1996
- -------------------------------------------------- ----------------- -------------- ------------------
<S> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $ 8.94 $ 10.67 $10.00
----------------- -------------- ------------------
Net investment loss ............................... (0.18) (0.13) (0.01)
Net realized and unrealized gain (loss) .......... 5.18 (1.60) 0.69
----------------- -------------- ------------------
Total from investment operations .................. 5.00 (1.73) 0.68
----------------- -------------- ------------------
Less dividends in excess of net investment income -- -- (0.01)
----------------- -------------- ------------------
Net asset value, end of period .................... $13.94 $ 8.94 $10.67
================= ============== ==================
TOTAL INVESTMENT RETURN+ .......................... 56.10 % (16.31)% 6.77 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 2.05 % 2.01 % 2.31 %(2)
Net investment loss ............................... (1.54)% (1.16)% (0.51)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .......... $267,384 $213,726 $207,321
Portfolio turnover rate ........................... 218 % 132 % 8 %(1)
Average commission rate paid ...................... $0.0498 $0.0527 $0.0496
</TABLE>
- ------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated Class B
shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
58
<PAGE>
DEAN WITTER INFORMATION FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
MARCH 31,
1998++
- --------------------------------------- ---------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .. $ 11.43
---------------
Net investment loss .................... (0.08)
Net realized and unrealized gain ...... 2.67
---------------
Total from investment operations ...... 2.59
---------------
Net asset value, end of period ......... $ 14.02
===============
TOTAL INVESTMENT RETURN+ ............... 22.66 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 1.27 %(2)
Net investment loss..................... (0.93)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $ 206
Portfolio turnover rate................. 218 %
Average commission rate paid............ $0.0498
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .. $ 11.43
---------------
Net investment loss..................... (0.14)
Net realized and unrealized gain ...... 2.65
---------------
TOTAL FROM INVESTMENT OPERATIONS ....... 2.51
---------------
Net asset value, end of period.......... $ 13.94
===============
TOTAL INVESTMENT RETURN+ ............... 21.96 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 2.05 %(2)
Net investment loss..................... (1.72)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $ 249
Portfolio turnover rate................. 218 %
Average commission rate paid............ $0.0498
</TABLE>
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
59
<PAGE>
DEAN WITTER INFORMATION FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
MARCH 31,
1998++
- --------------------------------------- ---------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .. $ 11.43
---------------
Net investment loss..................... (0.07)
Net realized and unrealized gain ...... 2.67
---------------
Total from investment operations ....... 2.60
---------------
Net asset value, end of period.......... $ 14.03
===============
TOTAL INVESTMENT RETURN+ ............... 22.75 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 1.04 %(2)
Net investment loss..................... (0.82)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $ 1,464
Portfolio turnover rate................. 218 %
Average commission rate paid............ $0.0498
</TABLE>
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
60
<PAGE>
DEAN WITTER INFORMATION FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER INFORMATION FUND
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Dean Witter
Information Fund (the "Fund") at March 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits,
which included confirmation of securities at
March 31, 1998 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from
brokers were not received, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
May 8, 1998
61
