<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
LETTER TO THE SHAREHOLDERS August 31, 1999
Two World Trade Center, New York, New York 10048
DEAR SHAREHOLDER:
During the twelve-month period ended August 31, 1999, the U.S. equity market,
led primarily by the largest market capitalization stocks and a resurgent
technology sector, rebounded sharply from its late-summer 1998 correction.
After a peak in the domestic markets in mid-July 1999, stock prices pulled back
toward the end of the period amid concerns that the domestic economy might be
growing too fast. This concern was manifested in the Federal Reserve Board's
two moves in June and August that raised interest rates a total of 50 basis
points while inflation remained low and the economy continued to grow.
PERFORMANCE
For the twelve-month period ended August 31, 1999, Morgan Stanley Dean Witter
Market Leader Trust's Class B shares posted a total return of 55.89 percent,
compared to 39.81 percent for the Standard & Poor's 500 Composite Stock Price
Index (S&P 500) and 41.28 percent for the Lipper Growth Funds Index. For the
same period, the Fund's Class A, C and D shares posted returns of 57.14
percent, 56.36 percent and 57.80 percent, respectively. Performance of the
Fund's four share classes varies because of differing expenses. The
accompanying chart compares the Fund's performance with that of the S&P 500 and
Lipper indexes. (Total return figures shown assume the reinvestment of all
distributions and do not reflect the deduction of any applicable sales
charges.)
The Fund's strong performance relative to its benchmarks was due primarily to
its focus on large-capitalization, industry-leading companies and its
overweighting in the technology sector. During this period many of the Fund's
largest holdings were among the market's best performers, including Qualcomm,
EMC Corporation, Nokia and Cisco. In September and early October of last year
the Fund took advantage of market weakness to add to positions in some
market-leading companies like America Online.
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
LETTER TO THE SHAREHOLDERS August 31, 1999, continued
PORTFOLIO STRATEGY
The Fund continues to focus on fast-growing companies regarded as leaders in
their respective industries that have the ability to expand their businesses
both domestically and abroad during different types of economic environments.
In February the Fund began to shift some of its assets from technology and
communications into more economically sensitive industries such as basic
materials and energy. As global GDP growth rates started to rebound in early
1999, these companies had a much better operating environment. Many cyclical
companies had very depressed share prices and appeared to be extremely
undervalued. As a result, we overweighted the basic materials and energy
sectors.
The financial-services sector bottomed in early October 1998, driven by fears
of a global recession and a subsequent liquidity crisis. When many financial
services companies rebounded strongly from their October lows, the Fund
benefited from holding high-quality names such as American International Group,
Chase Manhattan, Merrill Lynch, and Citigroup. However, in early April as the
outlook for economic growth improved, some of these gains in the
financial-services sector were eroded by fears of rising interest rates.
LOOKING FORWARD
We believe that the companies held by the Fund will continue to increase
revenues, earnings and market share, whether under favorable or difficult
conditions. We also believe that the anticipated continued strength in global
GDP growth will provide a positive operating environment for cyclical
industries, which should lead them to outperform the market. Going forward, the
Fund's investment strategy is to continue to purchase, at the best possible
price, stocks of leading, fast-growing U.S. and global companies.
On May 1, 1999, Mitchell M. Merin was named President of the Morgan Stanley
Dean Witter Funds. Mr. Merin is the President and Chief Operating Officer of
Asset Management for Morgan Stanley Dean Witter & Co. and President, Chief
Executive Officer and Director of Morgan Stanley Dean Witter Advisors Inc., the
Fund's investment manager. He also serves as Chairman, Chief Executive Officer
and Director of the Fund's distributor and transfer agent.
2
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
LETTER TO THE SHAREHOLDERS August 31, 1999, continued
We appreciate your ongoing support of Morgan Stanley Dean Witter Market Leader
Trust and look forward to continuing to serve your investment objectives.
Very truly yours,
/s/ Charles A. Fiumefreddo /s/ Mitchell M. Merin
---------------------- -----------------
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
3
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
FUND PERFORMANCE August 31, 1999
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 11,567
---------------- ------------ -------------- -----------
August 31, 998 9,767 12,673 11,816
---------------- ------------ -------------- -----------
August 31, 1999 14,926(3) 17,718 16,694
---------------- ------------ -------------- -----------
-----------------------------------------------------------
---- 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
- --------------------------------------------------------------------------------
CLASS B SHARES*
- -------------------------------------------------------------
PERIOD ENDED 8/31/99
- ---------------------------
1 Year 55.89%(1) 50.89%(2)
Since Inception (4/28/97) 19.67%(1) 18.66%(2)
CLASS C SHARES++
- -------------------------------------------------------------
PERIOD ENDED 8/31/99
- ---------------------------
1 Year 56.36%(1) 55.36%(2)
Since Inception (7/28/97) 17.51%(1) 17.51%(2)
CLASS A SHARES+
- -------------------------------------------------------------
PERIOD ENDED 8/31/99
- ---------------------------
1 Year 57.14%(1) 48.89%(2)
Since Inception (7/28/97) 18.24%(1) 15.23%(2)
CLASS D SHARES++
- ---------------------------------------------
PERIOD ENDED 8/31/99
- ---------------------------
1 Year 57.80%(1)
Since Inception (7/28/97) 18.58%(1)
- ---------------
(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 3% contingent deferred sales charge
(CDSC), assuming a complete redemption on August 31, 1999.
(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 Funds Index is an equally-weighted performance index of
the largest qualifying funds (based on net assets) in the Lipper Growth
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.
* The maximum CDSC for Class B shares 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, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (93.7%)
BASIC MATERIALS (3.2%)
Forest Products (1.7%)
49,000 Georgia-Pacific Corp. .................... $ 2,027,375
20,000 Weyerhaeuser Co. ......................... 1,125,000
------------
3,152,375
------------
Steel/Iron Ore (1.5%)
110,000 USX-U.S. Steel Group ..................... 2,970,000
------------
TOTAL BASIC MATERIALS .................... 6,122,375
------------
CAPITAL GOODS (6.1%)
Aerospace (1.8%)
54,000 United Technologies Corp. ................ 3,570,750
------------
Building Products (1.0%)
65,000 Masco Corp. .............................. 1,840,312
------------
Construction/Agricultural
Equipment/Trucks (1.2%)
130,000 JLG Industries, Inc. ..................... 2,307,500
------------
Fluid Controls (1.3%)
70,000 Roper Industries, Inc. ................... 2,506,875
------------
Metals Fabrications (0.8%)
180,000 Atchison Casting Corp.* .................. 1,597,500
------------
TOTAL CAPITAL GOODS ...................... 11,822,937
------------
CONSUMER/COMMERCIAL SERVICES (1.8%)
Paper
40,000 Bowater, Inc. ............................ 2,145,000
37,000 Mead Corp. ............................... 1,380,563
------------
3,525,563
------------
CONSUMER NON-DURABLES (0.5%)
Tobacco
25,000 Philip Morris Companies, Inc. ............ 935,938
------------
ENERGY (8.9%)
Contract Drilling (1.6%)
125,000 Noble Drilling Corp.* .................... 3,078,125
------------
Integrated Oil Companies (2.1%)
25,000 Chevron Corp. ............................ 2,306,250
40,000 Unocal Corp. ............................. 1,675,000
------------
3,981,250
------------
Oil & Gas Production (2.5%)
30,000 Apache Corp. ............................. 1,365,000
50,000 Burlington Resources, Inc. ............... 2,090,625
35,800 Devon Energy Corp.* ...................... 1,382,775
------------
4,838,400
------------
Oilfield Services/Equipment (2.7%)
66,000 Halliburton Co. .......................... 3,060,750
35,000 Schlumberger, Ltd. ....................... 2,336,250
------------
5,397,000
------------
TOTAL ENERGY ............................. 17,294,775
------------
ENTERTAINMENT & LEISURE (3.5%)
Broadcasting (1.6%)
15,000 AMFM, Inc.* .............................. $ 738,750
34,719 Clear Channel Communications, Inc.* ...... 2,432,500
------------
3,171,250
------------
Restaurants (1.9%)
90,000 McDonald's Corp. ......................... 3,723,750
------------
TOTAL ENTERTAINMENT & LEISURE 6,895,000
------------
FINANCIAL SERVICES (18.6%)
Diversified Financial Services (4.8%)
93,750 Citigroup, Inc. .......................... 4,166,016
25,000 Equitable Companies, Inc. ................ 1,543,750
45,000 Providian Financial Corp.* ............... 3,493,125
------------
9,202,891
------------
Finance Companies (2.3%)
72,000 Fannie Mae ............................... 4,473,000
------------
Investment Bankers/Brokers/
Services (1.7%)
45,000 Merrill Lynch & Co., Inc. ................ 3,358,125
------------
Major Banks (3.7%)
50,000 Bank of America Corp. .................... 3,025,000
50,000 Chase Manhattan Corp. .................... 4,184,375
------------
7,209,375
------------
Multi-Line Insurance (2.7%)
55,625 American International Group, Inc......... 5,155,742
------------
Real Estate Investment Trusts (3.4%)
65,000 Boston Properties, Inc. .................. 2,165,313
80,000 Equity Office Properties Trust ........... 2,045,000
55,000 Equity Residential Properties Trust....... 2,420,000
------------
6,630,313
------------
TOTAL FINANCIAL SERVICES ................. 36,029,446
------------
HEALTHCARE (11.5%)
Generic Drugs (1.0%) .....................
55,000 Watson Pharmaceuticals, Inc.* ............ 1,973,125
------------
Major Pharmaceuticals (8.4%)
93,000 American Home Products Corp. ............. 3,859,500
30,000 Johnson & Johnson ........................ 3,067,500
81,000 Merck & Co., Inc. ........................ 5,442,187
60,000 Pfizer, Inc. ............................. 2,265,000
32,000 Schering-Plough Corp. .................... 1,682,000
------------
16,316,187
------------
Medical Equipment & Supplies (1.4%)
35,000 Medtronic, Inc. .......................... 2,738,750
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
PORTFOLIO OF INVESTMENTS August 31, 1999, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------
<S> <C> <C>
Medical/Dental Distributors (0.7%)
20,000 Cardinal Health, Inc. ................... $ 1,275,000
------------
TOTAL HEALTHCARE ........................ 22,303,062
------------
MULTI-SECTOR COMPANIES (0.9%)
Conglomerates
15,000 General Electric Co. .................... 1,684,687
------------
RETAIL (3.7%)
Clothing/Shoe/Accessory Stores (2.2%)
150,000 TJX Companies, Inc. ..................... 4,331,250
------------
Discount Chains (1.1%)
10,000 Costco Companies Inc.* .................. 746,875
30,000 Wal-Mart Stores, Inc. ................... 1,329,375
------------
2,076,250
------------
Food Chains (0.4%)
35,000 Kroger Co.* ............................. 809,375
------------
TOTAL RETAIL ............................ 7,216,875
------------
TECHNOLOGY (27.6%)
Computer Communications (3.1%)
87,000 Cisco Systems, Inc.* .................... 5,894,250
------------
Computer Software (4.4%)
30,000 BMC Software, Inc.* ..................... 1,612,500
75,000 Microsoft Corp.* ........................ 6,937,500
------------
8,550,000
------------
E.D.P. Peripherals (2.1%)
69,000 EMC Corp.* .............................. 4,140,000
------------
Internet Services (2.5%)
53,000 America Online, Inc.* ................... 4,839,562
------------
Semiconductors (3.7%)
38,000 Intel Corp. ............................. 3,123,125
60,000 Vitesse Semiconductor Corp.* ............ 4,068,750
------------
7,191,875
------------
Telecommunications Equipment (11.8%)
30,000 Comverse Technology, Inc.* .............. 2,338,125
55,000 Corning Inc. ............................ 3,657,500
25,000 Motorola, Inc. .......................... 2,306,250
74,000 Nokia Corp. (ADR) (Finland) ............. 6,169,750
60,000 Nortel Networks Corp. (Canada) .......... 2,463,750
30,000 QUALCOMM Inc.* .......................... 5,763,750
------------
22,699,125
------------
TOTAL TECHNOLOGY ........................ 53,314,812
------------
TELECOMMUNICATIONS (6.1%)
Cellular Telephone (3.1%)
60,000 Nextel Communications, Inc.
(Class A)* .............................. $ 3,465,000
60,000 VoiceStream Wireless Corp.* ............. 2,460,000
------------
5,925,000
------------
Major U.S. Telecommunications (3.0%)
64,500 AT&T Corp. .............................. 2,902,500
40,000 MCI WorldCom, Inc.* ..................... 3,027,500
------------
5,930,000
------------
TOTAL TELECOMMUNICATIONS ................ 11,855,000
------------
TRANSPORTATION (1.3%)
Railroads
40,000 Canadian National Railway Co. ........... 2,542,500
------------
TOTAL COMMON STOCKS
(Identified Cost $133,018,043) .......... 181,542,970
------------
PRINCIPAL
AMOUNT IN
THOUSANDS
- ------------
SHORT-TERM INVESTMENT (4.3%)
REPURCHASE AGREEMENT
$ 8,429 The Bank of New York 5.50%
due 09/01/99 (dated 08/31/99;
proceeds $8,430,185) (a)
(Identified Cost $8,428,897) ............ 8,428,897
------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $141,446,940) (b)......... 98.0% 189,971,867
CASH AND OTHER ASSETS IN EXCESS
OF LIABILITIES ............................ 2.0 3,810,622
----- ------------
NET ASSETS ................................ 100.0% $193,782,489
===== ============
</TABLE>
- -----------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Collateralized by $648,011 U.S. Treasury Note 0.00% due 02/15/06 valued
at $434,473 and $15,121,152 U.S. Treasury Note 0.00% due 05/15/09
valued at $8,163,003.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$50,265,366 and the aggregate gross unrealized depreciation is
$1,740,439, resulting in net unrealized appreciation of $48,524,927.
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS :
Investments in securities, at value
(identified cost $141,446,940) .................................. $ 189,971,867
Cash .............................................................. 1,658
Receivable for:
Investments sold ............................................... 7,806,389
Shares of beneficial interest sold ............................. 556,106
Dividends ...................................................... 131,923
Deferred organizational expenses .................................. 35,315
Prepaid expenses and other assets ................................. 108,940
-------------
TOTAL ASSETS ................................................... 198,612,198
-------------
LIABILITIES:
Payable for:
Investments purchased .......................................... 4,414,450
Plan of distribution fee ....................................... 168,124
Investment management fee ...................................... 126,991
Shares of beneficial interest repurchased ...................... 71,733
Accrued expenses .................................................. 48,411
-------------
TOTAL LIABILITIES .............................................. 4,829,709
-------------
NET ASSETS ..................................................... $ 193,782,489
=============
COMPOSITION OF NET ASSETS:
Paid-in-capital ................................................... $ 137,091,296
Net unrealized appreciation ....................................... 48,524,927
Accumulated undistributed net realized gain ....................... 8,166,266
-------------
NET ASSETS ..................................................... $ 193,782,489
=============
CLASS A SHARES:
Net Assets ........................................................ $971,460
Shares Outstanding (unlimited authorized, $.01 par value) ......... 63,532
NET ASSET VALUE PER SHARE ...................................... $15.29
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) .............. $16.14
======
CLASS B SHARES:
Net Assets ........................................................ $189,533,622
Shares Outstanding (unlimited authorized, $.01 par value) ......... 12,557,750
NET ASSET VALUE PER SHARE ...................................... $15.09
======
CLASS C SHARES:
Net Assets ........................................................ $2,723,327
Shares Outstanding (unlimited authorized, $.01 par value) ......... 180,108
NET ASSET VALUE PER SHARE ...................................... $15.12
======
CLASS D SHARES:
Net Assets ........................................................ $554,080
Shares Outstanding (unlimited authorized, $.01 par value) ......... 36,055
NET ASSET VALUE PER SHARE ...................................... $15.37
======
</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, 1999
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT LOSS:
INCOME
Dividends (net of $10,762 foreign withholding tax) ......... $ 1,361,669
Interest ................................................... 412,181
-----------
TOTAL INCOME ............................................ 1,773,850
-----------
EXPENSES
Plan of distribution fee (Class A shares) .................. 1,542
Plan of distribution fee (Class B shares) .................. 1,591,706
Plan of distribution fee (Class C shares) .................. 12,780
Investment management fee .................................. 1,218,449
Transfer agent fees and expenses ........................... 181,978
Registration fees .......................................... 67,710
Professional fees .......................................... 64,689
Shareholder reports and notices ............................ 43,874
Custodian fees ............................................. 19,462
Organizational expenses .................................... 13,352
Other ...................................................... 6,261
-----------
TOTAL EXPENSES .......................................... 3,221,803
-----------
NET INVESTMENT LOSS ..................................... (1,447,953)
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain .......................................... 8,339,076
Net change in unrealized depreciation ...................... 57,237,300
-----------
NET GAIN ................................................ 65,576,376
-----------
NET INCREASE ............................................... $64,128,423
===========
</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 YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, 1999 AUGUST 31, 1998
- ------------------------------------------------------------------------ ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss .................................. $ (1,447,953) $ (1,114,437)
Net realized gain .................................... 8,339,076 489,937
Net change in unrealized appreciation/depreciation ... 57,237,300 (12,924,249)
------------ -------------
NET INCREASE (DECREASE) ........................... 64,128,423 (13,548,749)
------------ -------------
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 ........................................... 9,246,620 27,225,224
------------ -------------
NET INCREASE ...................................... 73,375,043 12,498,126
NET ASSETS:
Beginning of period .................................. 120,407,446 107,909,320
------------ -------------
END OF PERIOD ..................................... $193,782,489 $ 120,407,446
============ =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Market Leader Trust (the "Fund") is registered under
the Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is
long-term 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 commenced operations on
April 28, 1997. On July 28, 1997, the Fund converted to a multiple class share
structure.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price
(in cases where securities are traded on more than one exchange, the 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 Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager") that sale or bid prices are not reflective of a security's market
value, portfolio securities are valued at their fair value as determined in
good faith under procedures established by and under the general supervision of
the Trustees (valuation of debt securities for which market quotations are not
readily available may be based upon current market prices of securities which
are comparable in coupon, rating and maturity or an appropriate matrix
utilizing similar factors); (4) certain portfolio securities may be valued by
an outside pricing service approved by the Trustees. The pricing service may
10
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1999, continued
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 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
11
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1999, continued
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
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has
adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A -- up
to 0.25% of the average daily net assets of Class A; (ii) Class B -- 1.0% of
the average daily net assets of Class B; and (iii) Class C -- up to 1.0% of the
average daily net assets of Class C. In the case of Class A shares, amounts
paid under the Plan are paid to the Distributor for services provided. In the
case of Class B and Class C shares, amounts paid under the Plan are paid to the
Distributor for (1) services provided and the expenses borne by it and others
in the distribution of the shares of these Classes, including the payment of
commissions for sales of these Classes and incentive compensation to, and
expenses of, Morgan Stanley Dean Witter Financial Advisors and others who
engage in or support distribution of the shares or who service shareholder
accounts, including overhead and telephone expenses, (2) printing and
distribution of prospectuses and reports used in connection with the offering
of these shares to other than current shareholders and (3) preparation,
printing and distribution of sales literature and advertising materials. In
addition, the Distributor may utilize fees paid pursuant to the Plan, in the
case of Class B shares, to compensate Dean Witter Reynolds Inc. ("DWR") 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.
12
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1999, continued
In the case of Class B Shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the Distributor
under the Plan and the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares, if for any reason the Plan is terminated,
the Trustees will consider at that time the manner in which to treat such
expenses. The Distributor has advised the Fund that such excess amounts,
including carrying charges, totaled $6,360,433 at August 31, 1999.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the year ended August 31, 1999, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.24% and
0.76%, respectively.
The Distributor has informed the Fund that for the year ended August 31, 1999,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class A shares, Class B shares and Class C shares of $28, $341,570 and
$876, respectively and received $13,208 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, 1999 aggregated
$137,169,717 and $126,597,218, respectively.
For the year ended August 31, 1999, the Fund incurred $33,835 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the Fund.
At August 31, 1999, the Fund's receivables for investments sold included
unsettled trades with DWR of $404,187.
For the year ended August 31, 1999, the Fund incurred brokerage commissions of
$21,100 with Morgan Stanley & Co., Inc., an affliate of the Investment Manager
and Distributor, 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, 1999, the Fund had
transfer agent fees and expenses payable of approximately $500.
13
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
NOTES TO FINANCIAL STATEMENTS August 31, 1999, continued
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, 1999 AUGUST 31, 1998
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold ................................................ 83,365 $ 1,181,215 19,166 $ 222,348
Reinvestment of dividends and distributions ......... -- -- 356 3,757
Redeemed ............................................ (52,594) (727,278) (13,425) (161,666)
------- ------------- ------- -------------
Net increase -- Class A ............................. 30,771 453,937 6,097 64,439
------- ------------- ------- -------------
CLASS B SHARES
Sold ................................................ 4,845,409 69,690,625 4,268,628 48,133,147
Reinvestment of dividends and distributions ......... -- -- 103,104 1,088,780
Redeemed ............................................ (4,348,003) (59,846,856) (2,239,034) (25,726,473)
---------- ------------- ---------- -------------
Net increase -- Class B ............................. 497,406 9,843,769 2,132,698 23,495,454
---------- ------------- ---------- -------------
CLASS C SHARES
Sold ................................................ 112,429 1,624,859 85,684 979,787
Reinvestment of dividends and distributions ......... -- -- 801 8,447
Redeemed ............................................ (29,274) (404,672) (18,464) (215,453)
---------- ------------- ---------- -------------
Net increase -- Class C ............................. 83,155 1,220,187 68,021 772,781
---------- ------------- ---------- -------------
CLASS D SHARES
Sold ................................................ 115,422 1,690,861 293,504 3,408,442
Reinvestment of dividends and distributions ......... -- -- 36 384
Redeemed ............................................ (331,947) (3,962,134) (41,879) (516,276)
---------- ------------- ---------- -------------
Net increase (decrease) -- Class D .................. (216,525) (2,271,273) 251,661 2,892,550
---------- ------------- ---------- -------------
Net increase in Fund ................................ 394,807 $ 9,246,620 2,458,477 $ 27,225,224
========== ============= ========== =============
</TABLE>
6. FEDERAL INCOME TAX STATUS
At August 31, 1999, 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 and net
investment loss was credited $1,447,953.
14
<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 FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
AUGUST 31, 1999 AUGUST 31, 1998 AUGUST 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $ 9.73 $10.82 $10.90
------- ------ ------
Income (loss) from investment operations:
Net investment income (loss) ......................... (0.05) (0.01) 0.01
Net realized and unrealized gain (loss) .............. 5.61 (0.96) (0.09)
------- ------ ------
Total income (loss) from investment operations ......... 5.56 (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 ......................... $ 15.29 $ 9.73 $10.82
======= ====== ======
TOTAL RETURN+ .......................................... 57.14 % (8.98)% (0.73)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 1.23 %(3) 1.31 %(3) 1.89 %(2)
Net investment income (loss) ........................... (0.14)%(3) (0.06)%(3) 1.30 %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $971 $319 $288
Portfolio turnover rate ................................ 83 % 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
15
<PAGE>
MORGAN STANLEY DEAN WITTER MARKET LEADER TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR APRIL 28, 1997*
ENDED ENDED THROUGH
AUGUST 31, 1999++ AUGUST 31, 1998++ AUGUST 31, 1997**
- ---------------------------------------------------------------------------- ------------------- ----------------------
<S> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $ 9.68 $10.81 $10.00
------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) ......................... (0.12) (0.09) 0.04
Net realized and unrealized gain (loss) .............. 5.53 (0.95) 0.77
------ ------ ------
Total income (loss) from investment operations ......... 5.41 (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 ......................... $15.09 $ 9.68 $10.81
====== ====== ======
TOTAL RETURN+ .......................................... 55.89 % (9.65)% 8.10%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 1.99 %(4) 2.06 %(4) 2.34%(2)(3)
Net investment income (loss) ........................... (0.90)%(4) (0.81)%(4) 1.21%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $189,534 $116,693 $107,298
Portfolio turnover rate ................................ 83 % 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 waved
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 FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
AUGUST 31, 1999 AUGUST 31, 1998 AUGUST 31, 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS C SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $ 9.67 $10.81 $10.90
------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) .......................... (0.09) (0.10) 0.01
Net realized and unrealized gain (loss) ............... 5.54 (0.94) (0.10)
------ ------ ------
Total income (loss) from investment operations ......... 5.45 (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 ......................... $15.12 $ 9.67 $10.81
====== ====== ======
TOTAL RETURN+ .......................................... 56.36 % (9.63)% (0.83)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 1.75 %(3) 2.06 %(3) 2.54 %(2)
Net investment income (loss) ........................... (0.66)%(3) (0.81)%(3) 0.61 %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $2,723 $937 $313
Portfolio turnover rate ................................ 83 % 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 FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
AUGUST 31, 1999 AUGUST 31, 1998 AUGUST 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $ 9.74 $10.82 $10.90
------ ------ ------
Income (loss) from investment operations:
Net investment income ................................. -- -- 0.02
Net realized and unrealized gain (loss) ............... 5.63 (0.95) (0.10)
------ ------ ------
Total income (loss) from investment operations ......... 5.63 (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 ......................... $15.37 $ 9.74 $10.82
====== ====== ======
TOTAL RETURN+ .......................................... 57.80% (8.81)% (0.73)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 0.99%(3) 1.06 %(3) 1.43 %(2)
Net investment income .................................. 0.10%(3) 0.19 %(3) 1.81 %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $554 $2,459 $10
Portfolio turnover rate ................................ 83% 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") at August 31, 1999, 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 August 31, 1999 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 8, 1999
19
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn MORGAN STANLEY
Wayne E. Hedien DEAN WITTER
Dr. Manuel H. Johnson MARKET LEADER
Michael E. Nugent TRUST
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
Guy G. Rutherfurd Jr.
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT [graphic omitted]
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 ANNUAL REPORT
New York, New York 10048 AUGUST 31, 1999
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. Read the
prospectus carefully before investing.
