<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST Two World Trade Center,
LETTER TO THE SHAREHOLDERS August 31, 1998 New York, New York 10048
DEAR SHAREHOLDER:
Volatile stock prices -- dependent largely on the ebb and flow of concern over
the fragile situation in Asia -- had a sharply negative effect on the Fund's
net asset value during the fiscal year ended August 31, 1998. In the final
analysis, after getting off to a good start that saw the Fund's Class B shares
up nearly 15 percent for the six months ended June 30, 1998, the fiscal year
under review was quite challenging.
PERFORMANCE
For the fiscal year ended August 31, 1998, the Fund's Class B shares posted a
total return of -9.65 percent versus 8.10 percent for the Standard & Poor's 500
Composite Stock Price Index (S&P 500) and 2.15 percent for the Lipper
Analytical Services Inc. Growth Funds Index. For the same period, the Fund's
Class A, C and D shares posted total returns of -8.98 percent, -9.63 percent
and -8.81 percent, respectively. PERFORMANCE OF THE FUND'S FOUR SHARE CLASSES
VARIES BECAUSE OF DIFFERING EXPENSES.
The bulk of the Fund's difficulty -- like much of the overall stock market --
was experienced during the month of August, when the Fund's Class B shares
registered a total return of -19.00 percent. At that time the focus of the
Fund's portfolio was shifted toward mid-sized market leaders, which appeared to
offer the greatest value. Unfortunately, the mid-cap sector of the market has
been particularly hard hit, with the Lipper Mid-Cap Funds average posting a
total return of -19.28 percent for August, versus -16.71 percent for the Lipper
General Equity Funds average. Virtually no industry sector went unscathed;
average declines ranged from 17 to 30 percent.
The accompanying chart illustrates the growth of a hypothetical $10,000
investment in the Fund's Class B shares from inception (April 28, 1997),
through the fiscal year ended August 31, 1998, versus similar investments in
the issues that comprise the S&P 500 and the Lipper Growth Funds Index.
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
LETTER TO THE SHAREHOLDERS August 31, 1998, continued
THE PORTFOLIO
While the largest market leaders held up until late August, even the most
historically solid names were affected. American International Group (AIG)
declined 24 percent between July 17 and August 31. Fannie Mae, one of the
portfolio's most stable and consistently priced companies, fell 16 percent. To
illustrate the scope of this downturn, consider these figures: Merck & Co.,
Inc. (Major Pharmaceuticals) declined 16 percent; Cisco Systems, Inc. (Computer
Communications) was down 18 percent; McDonald's Corp. (Restaurants) lost 23
percent; and Phelps Dodge Corp. (Specialty Steel) saw a decrease of 26 percent.
For long-term growth, the Fund continues to emphasize technology, healthcare,
financial services and energy. Some of the portfolio's smaller technology
stocks, such as Computer Sciences Corp., Gateway 2000, Inc. and DII Group,
Inc., were sold during the fiscal year. Vitesse Semiconductors, which was not
sold, declined despite the fact that the company's earnings growth has been
strong and is expected to remain so. Its production of chips for the worldwide
cellular industry is largely sold out for the year.
Financial services stocks have been among the hardest hit during the market's
recent volatility. Stalwart bank issues, such as Chase Manhattan Corp and
Citicorp, are down more than 30 percent. Brokerage stocks have been even worse
as a group, with names like Paine Webber Group, Inc., Merrill Lynch & Co., Inc.
and Hambrecht & Quist Group down 38 percent, on average. Not surprisingly, this
sector has been particularly affected by worries about a global financial
liquidity crisis, as well as the highly publicized problems of a prominent
hedge fund. We view the depressed levels of these market leading companies as a
buying opportunity given the overall positive outlook for this sector.
Energy and basic materials stocks have declined all year and fundamentals
remain weak. However, we believe that given current depressed levels, a
long-term investment focus on the positive expectations for this sector,
particularly for the oil drilling/services and non-ferrous metals groups, is
justified.
The Fund has concentrated on accumulating positions in companies regarded as
leaders in their respective industries with both good growth prospects in
revenues and net income. These companies are expected to expand their
businesses both domestically and abroad during difficult times.
OUTLOOK
We believe that the companies held in the Fund's portfolio will continue to
increase both revenues and earnings, as well as market share under either
favorable or difficult conditions. Accordingly, the Fund's investment strategy
going forward is to continue to purchase -- at the best possible price --
stocks issued by leading U.S. and global companies, which we believe are poised
to grow faster than the S&P 500.
2
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
LETTER TO THE SHAREHOLDERS August 31, 1998, continued
We appreciate your support of Morgan Stanley Dean Witter Market Leader Trust
and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO
- --------------------------
CHARLES A. FIUMEFREDDO
Chairman of the Board
3
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
FUND PERFORMANCE August 31, 1998
GROWTH OF $10,000 CLASS B
Date TOTAL S&P 500 LIPPER
---- ----- ------- ------
April 28, 1997 10,000 10,000 10,000
August 31, 1997 10,810 11,723 11,344
August 31, 1998 9,380(3) 12,673 11,252
----Fund ----S&P 500 (4) ----Lipper (5)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR CLASS A,
CLASS C, AND CLASS D SHARES WILL VARY FROM THE PERFORMANCE OF CLASS B SHARES
SHOWN ABOVE DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES**
- --------------------------------------------------------------
PERIOD ENDED 8/31/98
- ---------------------------
<S> <C> <C>
1 Year -9.65%(1) -14.12%(2)
Since Inception (4/28/97) -1.74%(1) -4.66%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES++
- --------------------------------------------------------------
PERIOD ENDED 8/31/98
- ---------------------------
<S> <C> <C>
1 Year -9.63%(1) -10.52%(2)
Since Inception (7/28/97) -9.54%(1) -9.54%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES+
- ---------------------------------------------
PERIOD ENDED 8/31/98
- ---------------------------
<S> <C> <C>
1 Year -8.98%(1) -13.76%(2)
Since Inception (7/28/97) -8.87%(1) -13.26%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D SHARES #
- ---------------------------------------------
PERIOD ENDED 8/31/98
- ---------------------------
<S> <C>
1 Year -8.81%(1)
Since Inception (7/28/97) -8.72%(1)
</TABLE>
- ---------------
(1) Figure shown assumes reinvestment of all distributions and
does not reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction
of the maximum applicable sales charge. See the Fund's current
prospectus for complete details on fees and sales charges.
(3) Closing value after the deduction of a 4% contingent deferred sales
charge (CDSC), assuming a complete redemption on August 31, 1998.
(4) The Standard & Poor's 500 Stock Index (S&P 500) is a broad-based
index, the performance of which is based on the average performance of
500 widely held common stocks. The performance of the index does not
include any expenses, fees or charges. The Index is unmanaged and should
not be considered an investment.
(5) The Lipper Growth and Income Funds Index is an equally-weighted
performance index of the largest qualifying funds (based on net assets)
in the Lipper Growth and Income Funds objective. The Index, which is
adjusted for capital gains distributions and income dividends, is
unmanaged and should not be considered an investment. There are
currently 30 funds represented in this Index.
* For periods of less than one year, the fund quotes its total return on
a non-annualized basis.
** The maximum CDSC for Class B is 5.0%. The CDSC declines to 0% after
six years.
+ The maximum front-end sales charge for Class A shares is 5.25%.
++ The maximum CDSC for Class C shares is 1% for shares redeemed within
one year of purchase.
# Class D shares have no sales charge.
4
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
PORTFOLIO OF INVESTMENTS August 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------ ------------------
<S> <C> <C>
COMMON STOCKS (87.5%)
Aerospace (1.7%)
28,000 United Technologies Corp. ..................... $ 2,031,750
------------
Biotechnology (3.2%)
45,000 Amgen Inc.* ................................... 2,745,000
35,000 Centocor, Inc.* ............................... 1,137,500
------------
3,882,500
------------
Broadcasting (1.5%)
30,000 Jacor Communications, Inc.* ................... 1,766,250
------------
Building Products (0.8%)
40,000 Masco Corp. ................................... 920,000
------------
Capital Goods (1.6%)
65,000 JLG Industries, Inc. .......................... 954,687
60,000 Roper Industries, Inc. ........................ 1,020,000
------------
1,974,687
------------
Computer Software (0.8%)
10,000 Microsoft Corp.* .............................. 959,375
------------
Computer Communications (5.7%)
30,000 3Com Corp.* ................................... 710,625
60,000 Cisco Systems, Inc.* .......................... 4,912,500
30,000 FORE Systems, Inc.* ........................... 517,500
80,000 Pairgain Technologies, Inc.* .................. 707,500
------------
6,848,125
------------
Diversified Commercial Services (1.0%)
135,000 CheckFree Holdings Corp.* ..................... 1,155,937
------------
Electronic Data Processing (6.8%)
32,000 COMPAQ Computer Corp. ......................... 894,000
55,000 EMC Corp.* .................................... 2,485,312
85,000 First Data Corp. .............................. 1,758,437
45,000 Hewlett-Packard Co. ........................... 2,185,312
40,000 Storage Technology Corp.* ..................... 870,000
------------
8,193,061
------------
Electronic Production Equipment (0.9%)
95,000 Photronics, Inc.* ............................. 1,140,000
------------
Finance Companies (3.4%)
47,000 Fannie Mae .................................... 2,670,187
45,000 Newcourt Credit Group, Inc.
(Canada) ...................................... 1,479,375
------------
4,149,562
------------
Integrated Oil Companies (2.0%)
20,000 Chevron Corp. ................................. 1,481,250
30,000 Unocal Corp. .................................. 939,375
------------
2,420,625
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------ ------------------
<S> <C> <C>
Investment Bankers/Brokers/Services (3.9%)
50,000 Hambrecht & Quist Group* ...................... $ 1,012,500
20,000 Lehman Brothers Holdings, Inc. ................ 787,500
20,000 Merrill Lynch & Co., Inc. ..................... 1,320,000
45,000 Paine Webber Group, Inc. ...................... 1,563,750
------------
4,683,750
------------
Major Banks (3.9%)
50,000 Chase Manhattan Corp. ......................... 2,650,000
19,000 Citicorp ...................................... 2,054,375
------------
4,704,375
------------
<PAGE>
Major Chemicals (1.2%)
25,000 Du Pont (E.I.) de Nemours &
Co., Inc. ..................................... 1,442,187
------------
Major Pharmaceuticals (9.6%)
50,000 American Home Products Corp. .................. 2,506,250
20,000 Bristol-Myers Squibb Co. ...................... 1,957,500
20,000 Johnson & Johnson ............................. 1,380,000
33,000 Merck & Co., Inc. ............................. 3,825,938
20,000 Pfizer, Inc. .................................. 1,860,000
------------
11,529,688
------------
Major U.S. Telecommunications (2.1%)
30,000 AT&T Corp. .................................... 1,503,750
25,000 WorldCom, Inc.* ............................... 1,021,875
------------
2,525,625
------------
Medical Specialties (2.1%)
50,000 Becton, Dickinson & Co. ....................... 1,665,625
45,000 Intelligent Polymers Ltd. (Units)++* .......... 877,500
------------
2,543,125
------------
Medical/Nursing Services (0.9%)
55,000 HEALTHSOUTH Corp.* ............................ 1,041,563
------------
Miscellaneous (1.4%)
120,000 USEC Inc.* .................................... 1,755,000
------------
Multi-Line Insurance (2.6%)
40,500 American International Group, Inc. ............ 3,131,156
------------
Oil & Gas Production (0.8%)
65,000 Snyder Oil Corp. .............................. 966,875
------------
Oil Refining/Marketing (1.0%)
35,000 Sun Co., Inc. ................................. 1,157,188
------------
Oil/Gas Transmission (1.5%)
80,000 Williams Companies, Inc. ...................... 1,840,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
PORTFOLIO OF INVESTMENTS August 31, 1998, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------ --------------
<S> <C> <C>
Oilfield Services/Equipment (3.6%)
40,000 BJ Services Co.* ....................... $ 505,000
56,000 Halliburton Co. ........................ 1,487,500
75,000 Noble Drilling Corp.* .................. 825,000
35,000 Schlumberger, Ltd ...................... 1,533,438
-----------
4,350,938
-----------
Other Consumer Services (0.9%)
90,000 Cendant Corp.* ......................... 1,040,625
-----------
Restaurants (2.1%)
45,000 McDonald's Corp. ....................... 2,522,813
-----------
Retail (7.9%)
33,000 Consolidated Stores Corp.* ............. 1,039,500
94,000 Proffitt's, Inc.* ...................... 2,397,000
70,000 Rite Aid Corp. ......................... 2,533,125
160,000 TJX Companies, Inc. .................... 3,570,000
-----------
9,539,625
-----------
Semiconductors (3.9%)
47,000 Intel Corp. ............................ 3,345,813
50,000 Vitesse Semiconductor Corp.* ........... 1,346,875
-----------
4,692,688
-----------
Specialty Steel (2.9%)
65,000 Nucor Corp. ............................ 2,335,938
25,000 Phelps Dodge Corp. ..................... 1,118,750
-----------
3,454,688
-----------
Telecommunications (5.8%)
30,000 CIENA Corp.* ........................... 840,000
25,000 Cincinnati Bell, Inc. .................. 587,500
30,000 ICG Communications, Inc.* .............. 536,250
15,000 Motorola, Inc. ......................... 645,938
60,000 Nextel Communications, Inc.
(Class A)* ............................. 1,080,000
50,000 Nokia Corp. (ADR) (Finland) ............ 3,340,625
-----------
7,030,313
-----------
TOTAL COMMON STOCKS
(Identified Cost $114,106,467).......... 105,394,094
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------- ---------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (8.4%)
U.S. GOVERNMENT AGENCIES (a) (8.2%)
$ 4,500 Federal Home Loan Mortgage
Corp. 5.46% due 09/11/98 ............ $ 4,493,175
5,400 Federal Home Loan Mortgage
Corp. 5.70% due 09/01/98 ............ 5,400,000
------------
TOTAL U.S. GOVERNMENT AGENCIES
(Amortized Cost $9,893,175).......... 9,893,175
------------
REPURCHASE AGREEMENT (0.2%)
194 The Bank of New York 5.75%
due 09/01/98 (dated 08/31/98;
proceeds $193,922) (b)
(Identified Cost $193,891) .......... 193,891
------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $10,087,066)................... 10,087,066
------------
TOTAL INVESTMENTS
(Identified Cost $124,193,533) (c)..... 95.9% 115,481,160
OTHER ASSETS IN EXCESS
OF LIABILITIES ........................ 4.1 4,926,286
----- ------------
NET ASSETS ............................ 100.0% $120,407,446
===== ============
</TABLE>
- --------------------------------
ADR American Depository Receipt.
* Non-income producing security.
++ Consists of more than one class of securities traded together as a
unit; stocks with attached warrants.
(a) Securities were purchased on a discount basis. The interest rates
shown have been adjusted to reflect a money market equivalent
yield.
(b) Collateralized by $151,277 U.S. Treasury Bond 7.875% due 02/15/21
valued at $197,769.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$11,432,976 and the aggregate gross unrealized depreciation is
$20,145,349, resulting in net unrealized depreciation of
$8,712,373.
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $124,193,533)................................... $115,481,160
Receivable for:
Investments sold ............................................... 7,697,478
Shares of beneficial interest sold ............................. 169,355
Dividends ...................................................... 117,649
Deferred organizational expenses .................................. 48,643
Prepaid expenses and other assets ................................. 91,960
------------
TOTAL ASSETS ................................................... 123,606,245
------------
LIABILITIES:
Payable for:
Investments purchased .......................................... 2,607,638
Shares of beneficial interest repurchased ...................... 290,211
Plan of distribution fee ....................................... 118,647
Investment management fee ...................................... 91,013
Accrued expenses .................................................. 91,290
------------
TOTAL LIABILITIES .............................................. 3,198,799
------------
NET ASSETS ..................................................... $120,407,446
============
COMPOSITION OF NET ASSETS:
Paid-in-capital ................................................... $129,292,629
Net unrealized depreciation ....................................... (8,712,373)
Distributions in excess of net realized gain ...................... (172,810)
------------
NET ASSETS ..................................................... $120,407,446
============
CLASS A SHARES:
Net Assets ........................................................ $ 318,652
Shares Outstanding (unlimited authorized, $.01 par value) ......... 32,761
NET ASSET VALUE PER SHARE ...................................... $ 9.73
============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) .............. $ 10.27
============
CLASS B SHARES:
Net Assets ........................................................ $116,692,554
Shares Outstanding (unlimited authorized, $.01 par value) ......... 12,060,344
NET ASSET VALUE PER SHARE ...................................... $ 9.68
============
CLASS C SHARES:
Net Assets ........................................................ $ 937,188
Shares Outstanding (unlimited authorized, $.01 par value) ......... 96,953
NET ASSET VALUE PER SHARE ...................................... $ 9.67
============
CLASS D SHARES:
Net Assets ........................................................ $ 2,459,052
Shares Outstanding (unlimited authorized, $.01 par value) ......... 252,580
NET ASSET VALUE PER SHARE ...................................... $ 9.74
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended August 31, 1998
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $5,071 foreign withholding tax) ......... $ 978,103
Interest .................................................. 781,066
-------------
TOTAL INCOME ........................................... 1,759,169
-------------
EXPENSES
Plan of distribution fee (Class A shares) ................. 1,019
Plan of distribution fee (Class B shares) ................. 1,378,923
Plan of distribution fee (Class C shares) ................. 9,052
Investment management fee ................................. 1,054,688
Transfer agent fees and expenses .......................... 214,409
Registration fees ......................................... 80,063
Professional fees ......................................... 38,688
Shareholder reports and notices ........................... 37,050
Trustees' fees and expenses ............................... 22,197
Custodian fees ............................................ 17,898
Organizational expenses ................................... 16,414
Other ..................................................... 3,205
-------------
TOTAL EXPENSES ......................................... 2,873,606
-------------
NET INVESTMENT LOSS .................................... (1,114,437)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain ......................................... 489,937
Net change in unrealized appreciation ..................... (12,924,249)
-------------
NET LOSS ............................................... (12,434,312)
-------------
NET DECREASE .............................................. $ (13,548,749)
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR APRIL 28, 1997*
ENDED THROUGH
AUGUST 31, 1998 AUGUST 31, 1997**
--------------------- ---------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) ......................... $ (1,114,437) $ 322,836
Net realized gain .................................... 489,937 434,680
Net change in unrealized appreciation ................ (12,924,249) 4,211,876
------------- ------------
NET INCREASE (DECREASE) ........................... (13,548,749) 4,969,392
------------- ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares ..................................... (2,346) --
Class B shares ..................................... (371,207) --
Class C shares ..................................... (3,451) --
Class D shares ..................................... (1,350) --
Net realized gain
Class A shares ..................................... (2,408) --
Class B shares ..................................... (791,200) --
Class C shares ..................................... (5,177) --
Class D shares ..................................... (1,210) --
------------- ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS ................. (1,178,349) --
------------- ------------
Net increase from transactions in shares of beneficial
interest ........................................... 27,225,224 102,839,928
------------- ------------
NET INCREASE ...................................... 12,498,126 107,809,320
NET ASSETS:
Beginning of period .................................. 107,909,320 100,000
------------- ------------
END OF PERIOD
(Including a undistributed net investment income
of $0 and $378,348, respectively) .................. $ 120,407,446 $107,909,320
============= ============
</TABLE>
- ---------------------
* Commencement of operations.
** Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Market Leader Trust (the "Fund"), formerly Dean
Witter Market Leader Trust, 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 growth of capital. The
Fund seeks to achieve its investment objective by investing at least 65% of its
assets in equity securities issued by companies that are established leaders in
their respective fields in growing industries in domestic and foreign markets.
The Fund was organized as a Massachusetts business trust on November 4, 1996
and had no other operations other than those relating to organizational matters
and the issuance of 10,000 shares of beneficial interest for $100,000 to Morgan
Stanley Dean Witter Advisors Inc. (the "Investment Manager"), formerly Dean
Witter InterCapital Inc., to effect the Fund's initial capitalization. The Fund
commenced operations on April 28, 1997. On July 28, 1997, the Fund commenced
offering three additional classes of shares, with the then current shares
designated as Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price
(in cases where securities are traded on more than one exchange, the security
is 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 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
10
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1998, continued
Trustees (valuation of debt securities for which market quotations are not
readily available may be based upon current market prices of securities which
are comparable in coupon, rating and maturity or an appropriate matrix
utilizing similar factors); (4) certain portfolio securities may be valued by
an outside pricing service approved by the Trustees. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon as
the evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, if available, in
determining what it believes is the fair valuation of the portfolio securities
valued by such pricing service; and (5) short-term debt securities having a
maturity date of more than sixty days at time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date
such items are recognized. Distribution fees are charged directly to the
respective class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which
may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized
11
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1998, continued
capital gains. To the extent they exceed net investment income and net realized
capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
F. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $71,000, of which
approximately $70,000 have been reimbursed. The
balance was absorbed by the Investment Manager. Such expenses have been
deferred and are being amortized on the straight-line method over a period not
to exceed five years from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.75% to the net assets of the Fund determined as of the close
of each business day.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services,
heat, light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
(the "Distributor"), an affiliate of the Investment Manager. The Fund has
adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A - up
to 0.25% of the average daily net assets of Class A; (ii) Class B - 1.0% of the
average daily net assets of Class B; and (iii) Class C - up to 1.0% of the
average daily net assets of Class C. In the case of Class A shares, amounts
paid under the Plan are paid to the Distributor for services provided. In the
case of Class B and Class C shares, amounts paid under the Plan are paid to the
Distributor for services provided and the expenses borne by it and others in
the distribution of the shares of these Classes, including the payment of
commissions for sales of these Classes and incentive compensation to, and
expenses of, Morgan Stanley Dean Witter financial advisors and others who
engage in or support distribution of the shares or who service shareholder
accounts, including overhead and telephone expenses, printing and distribution
of prospectuses and reports used in connection with the offering of these
shares to other than current shareholders and the
12
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1998, continued
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may utilize fees paid pursuant to the
Plan, in the case of Class B shares, to compensate Dean Witter Reynolds Inc.
("DWR") 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 $6,051,552 at August 31, 1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter financial advisors or other
selected broker-dealer representative may be reimbursed in the subsequent
calendar year. For the year ended August 31, 1998, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
1.0%, respectively.
The Distributor has informed the Fund that for the year ended August 31, 1998,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C shares of $347,509 and $1,156, respectively
and received $6,308 in front-end sales charges from sales of the Fund's Class A
shares. The respective shareholders pay such charges which are not an expense
of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended August 31, 1998 aggregated
$130,572,627 and $84,185,077, respectively.
For the year ended August 31, 1998, the Fund incurred $41,162 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the Fund.
13
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1998, continued
For the year ended August 31, 1998, the Fund incurred brokerage commissions of
$10,725 with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager, for portfolio transactions executed on behalf of the Fund.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. At August 31, 1998, the Fund had
transfer agent fees and expenses payable of approximately $17,900.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR APRIL 28, 1997*
ENDED THROUGH
AUGUST 31, 1998 AUGUST 31, 1997**
---------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold ................................................ 19,166 $ 222,348 26,664 $ 291,830
Reinvestment of dividends and distributions ......... 356 3,757 -- --
Redeemed ............................................ (13,425) (161,666) -- --
------- ------------- ------ -------------
Net increase - Class A .............................. 6,097 64,439 26,664 291,830
------- ------------- ------ -------------
CLASS B SHARES
Sold ................................................ 4,268,628 48,133,147 10,228,061 105,571,003
Reinvestment of dividends and distributions ......... 103,104 1,088,780 -- --
Redeemed ............................................ (2,239,034) (25,726,473) (310,415) (3,349,122)
---------- ------------- ---------- -------------
Net increase - Class B .............................. 2,132,698 23,495,454 9,917,646 102,221,881
---------- ------------- ---------- -------------
CLASS C SHARES
Sold ................................................ 85,684 979,787 30,204 330,257
Reinvestment of dividends and distributions ......... 801 8,447 -- --
Redeemed ............................................ (18,464) (215,453) (1,272) (14,053)
---------- ------------- ---------- -------------
Net increase - Class C .............................. 68,021 772,781 28,932 316,204
---------- ------------- ---------- -------------
CLASS D SHARES
Sold ................................................ 293,504 3,408,442 919 10,013
Reinvestment of dividends and distributions ......... 36 384 -- --
Redeemed ............................................ (41,879) (516,276) -- --
---------- ------------- ---------- -------------
Net increase - Class D .............................. 251,661 2,892,550 919 10,013
---------- ------------- ---------- -------------
Net increase in Fund ................................ 2,458,477 $ 27,225,224 9,974,161 $ 102,839,928
========== ============= ========== =============
</TABLE>
- ---------------
* Commencement of operations.
** For Class A, C and D shares, for the period July 28, 1997 (issue date)
through August 31, 1997.
14
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1998, continued
6. FEDERAL INCOME TAX STATUS
At August 31, 1998, the Fund had temporary book/tax differences 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 $817,011, distributions in excess of net realized
gain was charged $297,432 and undistributed net investment income was credited
$1,114,443.
15
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR APRIL 28, 1997*
ENDED THROUGH
AUGUST 31, 1998++ AUGUST 31, 1997**
------------------- ----------------------
<S> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............ $ 10.81 $ 10.00
----------- ---------------
Net investment income (loss) .................... (0.09) 0.04
Net realized and unrealized gain (loss) ......... (0.95) 0.77
----------- ---------------
Total from investment operations ................ (1.04) 0.81
----------- ---------------
Less dividends and distributions from:
Net investment income .......................... (0.03) --
Net realized gain .............................. (0.06) --
----------- ---------------
Total dividends and distributions ............... (0.09) --
----------- ---------------
Net asset value, end of period .................. $ 9.68 $ 10.81
=========== ===============
TOTAL INVESTMENT RETURN+ ........................ (9.65)% 8.10%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 2.06 %(4) 2.34%(2)(3)
Net investment income (loss) .................... (0.81)%(4) 1.21%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $116,693 $107,298
Portfolio turnover rate ......................... 68 % 22%(1)
</TABLE>
- -------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all of its expenses that were reimbursed or waived
by the Investment Manager, the annualized expense and net investment
income ratios would have been 2.47% and 1.08%, respectively.
(4) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
AUGUST 31, 1998++ AUGUST 31, 1997
------------------- ------------------
<S> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............. $10.82 $10.90
------- -------
Net investment income (loss) ..................... (0.01) 0.01
Net realized and unrealized loss ................. (0.96) (0.09)
------- -------
Total from investment operations ................. (0.97) (0.08)
------- -------
Less dividends and distributions from:
Net investment income ........................... (0.06) --
Net realized gain ............................... (0.06) --
------- -------
Total dividends and distributions ................ (0.12) --
------- -------
Net asset value, end of period ................... $ 9.73 $10.82
======= =======
TOTAL INVESTMENT RETURN+ ......................... (8.98)% (0.73)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ......................................... 1.31 %(3) 1.89 %(2)
Net investment income (loss) ..................... (0.06)%(3) 1.30 %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .......... $319 $288
Portfolio turnover rate .......................... 68 % 22 %(1)
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............. $10.81 $10.90
------- -------
Net investment income (loss) ..................... (0.10) 0.01
Net realized and unrealized loss ................. (0.94) (0.10)
------- -------
Total from investment operations ................. (1.04) (0.09)
------- -------
Less dividends and distributions from:
Net investment income ........................... (0.04) --
Net realized gain ............................... (0.06) --
------- -------
Total dividends and distributions ................ (0.10) --
------- -------
Net asset value, end of period ................... $ 9.67 $10.81
======= =======
TOTAL INVESTMENT RETURN+ ......................... (9.63)% (0.83)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ......................................... 2.06 %(3) 2.54 %(2)
Net investment income (loss) ..................... (0.81)%(3) 0.61 %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .......... $937 $313
Portfolio turnover rate .......................... 68 % 22 %(1)
</TABLE>
- --------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
AUGUST 31, 1998++ AUGUST 31, 1997
------------------- ------------------
<S> <C> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............ $ 10.82 $ 10.90
------- -------
Net investment income ........................... -- 0.02
Net realized and unrealized loss ................ (0.95) (0.10)
------- -------
Total from investment operations ................ (0.95) (0.08)
------- -------
Less dividends and distributions from:
Net investment income .......................... (0.07) --
Net realized gain .............................. (0.06) --
------- -------
Total dividends and distributions ............... (0.13) --
------- -------
Net asset value, end of period .................. $ 9.74 $ 10.82
======= =======
TOTAL INVESTMENT RETURN+ ........................ (8.81)% (0.73)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 1.06 %(3) 1.43 %(2)
Net investment income ........................... 0.19 %(3) 1.81 %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $2,459 $ 10
Portfolio turnover rate ......................... 68 % 22 %(1)
</TABLE>
- --------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter Market
Leader Trust (the "Fund"), formerly Dean Witter Market Leader Trust, at August
31, 1998, the results of its operations for the year then ended, and the
changes in its net assets and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at August 31, 1998 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
October 9, 1998
- --------------------------------------------------------------------------------
1998 FEDERAL TAX NOTICE
For the year ended August 31, 1998, the Fund paid to its shareholders
$0.01 per share from long-term capital gains.
- --------------------------------------------------------------------------------
19
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Guy G. Rutherfurd Jr.
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of
the Fund.
This report is not authorized for distribution to prospective investors in
the Fund unless preceded or accompanied by an effective prospectus.
MORGAN STANLEY
DEAN WITTER
MARKET LEADER
TRUST
ANNUAL REPORT
AUGUST 31, 1998
