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PROSPECTUS
DECEMBER 29, 1997
Morgan Stanley Dean Witter Compe-
titive Edge Fund (the "Fund") is an open-end, diversified management investment
company currently consisting of two separate portfolios: the "Best Ideas"
Portfolio and the Competitive Edge Portfolio. The portfolio covered in this
Prospectus, the "Best Ideas" Portfolio (the " 'Best Ideas' Portfolio" or the
"Portfolio"), has an investment objective of long-term capital growth and
invests primarily in the common stocks of U.S. and non-U.S. companies included
in the "Best Ideas" subgroup of "Global Investing: The Competitive Edge," a
research compilation assembled and maintained by Morgan Stanley Dean Witter
Equity Research ("MSDW Equity Research"). See "Investment Objective and
Policies."
INITIAL OFFERING--Shares of the "Best Ideas" Portfolio are
being offered in an underwriting by Dean Witter Distributors Inc. at $10.00 per
share for Class B, Class C and Class D shares with all proceeds going to the
Portfolio and at $10.00 per share plus a sales charge for Class A shares with
the sales charge paid to the Underwriter and the net asset value of $10.00 per
share going to the Portfolio. All expenses in connection with the organization
of the Fund and this offering will be paid by the Investment Manager and
Underwriter except for a maximum of $250,000 of organizational expenses to be
reimbursed by the Portfolio. The initial offering will run from approximately
January 26, 1998 through February 20, 1998. Shares of the Competitive Edge
Portfolio are not being offered to investors at this time.
CONTINUOUS OFFERING--A continuous offering of the shares of the
"Best Ideas" Portfolio will commence approximately two weeks after the closing
date of the initial offering which is anticipated for February 25, 1998. Class
B, Class C and Class D shares will be priced at the net asset value per share
and Class A shares will be priced at the net asset value per share plus a sales
charge, in each case as next determined following receipt of an order.
The "Best Ideas" Portfolio offers four classes of shares (each,
a "Class"), each with a different combination of sales charges, ongoing fees and
other features. The different distribution arrangements permit an investor to
choose the method of purchasing shares that the investor believes is most
beneficial given the amount of the purchase, the length of time the investor
expects to hold the shares and other relevant circumstances. (See "Purchase of
Portfolio Shares--Alternative Purchase Arrangements.")
DEAN WITTER DISTRIBUTORS INC.
DISTRIBUTOR
TABLE OF CONTENTS
Prospectus Summary/2
Summary of Fund Expenses/4
The Fund and its Management/6
Investment Objective and Policies/6
Risk Considerations and Investment Practices/8
Investment Restrictions/14
Underwriting/15
Purchase of Portfolio Shares--Continuous Offering/16
Shareholder Services/26
Redemptions and Repurchases/29
Dividends, Distributions and Taxes/30
Performance Information/31
Additional Information/32
This Prospectus sets forth concisely the information you should
know before investing in the "Best Ideas" Portfolio of the Fund. It should be
read and retained for future reference. Additional information about the "Best
Ideas" Portfolio of the Fund is contained in the Statement of Additional
Information, dated December 29, 1997, which has been filed with the Securities
and Exchange Commission, and which is available at no charge upon request of the
Fund at the address or telephone numbers listed on this page. The Statement of
Additional Information is incorporated herein by reference.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Morgan Stanley Dean Witter
Competitive Edge Fund
"Best Ideas" Portfolio
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
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PROSPECTUS SUMMARY
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The The Fund is an open-end, diversified management investment company currently consisting of two separate
Fund portfolios. The portfolio covered by this Prospectus, the "Best Ideas" Portfolio (the " 'Best Ideas' Portfolio"
or the "Portfolio"), invests primarily in the common stocks of U.S. and non-U.S. companies included in the "Best
Ideas" subgroup of "Global Investing: The Competitive Edge," a research compilation assembled and maintained by
Morgan Stanley Dean Witter Equity Research ("MSDW Equity Research").
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Shares Offered Shares of beneficial interest with $0.01 par value of the "Best Ideas" Portfolio (see page 32). The Portfolio
offers four Classes of shares, each with a different combination of sales charges, ongoing fees and other
features (see pages 16-26).
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Initial Shares of the "Best Ideas" Portfolio are being offered in an underwriting by Dean Witter Distributors Inc. at
Offering $10.00 per share for each of Class B, Class C and Class D and $10.00 per share plus a sales charge for Class A.
The minimum purchase for each Class is 100 shares; however, Class D shares are only available to persons who are
otherwise qualified to purchase such shares. The initial offering will run approximately from January 26, 1998
through February 20, 1998. The closing will take place on February 25, 1998 or such other date as may be agreed
upon by Dean Witter Distributors Inc. and the Fund (the "Closing Date"). Shares will not be issued and dividends
will not be declared by the Portfolio until after the Closing Date. If any orders received during the initial
offering period are accompanied by payment, such payment will be returned unless an accompanying request for
investment in a Dean Witter money market fund is received at the time the payment is made. Any purchase order
may be cancelled at any time prior to the Closing Date.
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Continuous A continuous offering of shares of the "Best Ideas" Portfolio, if any, will commence within approximately two
Offering/ weeks after the Closing Date. The minimum initial investment for each Class is $1,000 ($100 if the account is
Minimum opened through EasyInvest-SM-). Class D shares are only available to persons investing $5 million ($25 million
Purchase for certain qualified plans) or more and to certain other limited categories of investors. For the purpose of
meeting the minimum $5 million (or $25 million) investment for Class D shares, and subject to the $1,000 minimum
initial investment for each Class of the Portfolio, an investor's existing holdings of Class A shares and shares
of funds for which Dean Witter InterCapital serves as investment manager ("Dean Witter Funds") that are sold
with a front-end sales charge, and concurrent investments in Class D shares of the Portfolio and other Dean
Witter Funds that are multiple class funds will be aggregated. The minimum subsequent investment is $100 (see
page 16).
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Investment The investment objective of the "Best Ideas" Portfolio is long-term capital growth (see page 6).
Objective
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Investment Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the Fund, and its wholly-owned
Manager subsidiary, Dean Witter Services Company Inc., serve in various investment management, advisory, management and
administrative capacities to 103 investment companies and other portfolios with assets of approximately $102.3
billion at November 30, 1997.
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Management The Investment Manager receives a monthly fee at the annual rate of 0.65% of the Portfolio's average daily net
Fee assets (see page 6).
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Underwriter and Dean Witter Distributors Inc. (the "Distributor") is the Fund's Underwriter and Distributor. The Fund has
Distributor and adopted a distribution plan pursuant to Rule 12b-1 under the Investment Company Act (the "12b-1 Plan") with
Distribution Fee respect to the distribution fees paid by the Class A, Class B and Class C shares of the Portfolio to the
Distributor. The entire 12b-1 fee payable by Class A and a portion of the 12b-1 fee payable by each of Class B
and Class C equal to 0.25% of the average daily net assets of the Class are currently each characterized as a
service fee within the meaning of the National Association of Securities Dealers, Inc. guidelines. The remaining
portion of the 12b-1 fee, if any, is characterized as an asset-based sales charge (see pages 16 and 25).
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Alternative Four Classes of shares of the "Best Ideas" Portfolio are offered:
Purchase - Class A shares are offered with a front-end sales charge, starting at 5.25% and reduced for larger purchases.
Arrangements Investments of $1 million or more (and investments by certain other limited categories of investors) are not
subject to any sales charge at the time of purchase but a contingent deferred sales charge ("CDSC") of 1.0% may
be imposed on redemptions within one year of purchase. The Fund, on
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behalf of the Portfolio, is authorized to reimburse the Distributor for specific expenses incurred in promoting
the distribution of the Portfolio's Class A shares and servicing shareholder accounts pursuant to the Fund's
12b-1 Plan. Reimbursement may in no event exceed an amount equal to payments at an annual rate of up to 0.25% of
average daily net assets of the Class of the Portfolio (see pages 16, 19 and 25).
- Class B shares are offered without a front-end sales charge, but will in most cases be subject to a CDSC
(scaled down from 5.0% to 1.0%) if redeemed within six years after purchase. The CDSC will be imposed on any
redemption of shares if after such redemption the aggregate current value of a Class B account with the
Portfolio falls below the aggregate amount of the investor's purchase payments made during the six years
preceding the redemption. A different CDSC schedule applies to investments by certain qualified plans. Class B
shares are also subject to a 12b-1 fee assessed at the annual rate of 1.0% of the average daily net assets of
Class B of the Portfolio. Class B shares convert to Class A shares approximately ten years after the date of the
original purchase (see pages 16, 21 and 25).
- Class C shares are offered without a front-end sales charge, but will in most cases be subject to a CDSC of
1.0% if redeemed within one year after purchase. The Fund, on behalf of the Portfolio, is authorized to
reimburse the Distributor for specific expenses incurred in promoting the distribution of the Portfolio's Class
C shares and servicing shareholder accounts pursuant to the Fund's 12b-1 Plan. Reimbursement may in no event
exceed an amount equal to payments at an annual rate of up to 1.0% of average daily net assets of the Class of
the Portfolio (see pages 16, 24 and 25).
- Class D shares are offered only to investors meeting an initial investment minimum of $5 million ($25 million
for certain qualified plans) and to certain other limited categories of investors. Class D shares are offered
without a front-end sales charge or CDSC and are not subject to any 12b-1 fee (see pages 16, 24 and 25).
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Dividends and Dividends from net investment income and distributions from net capital gains, if any, are paid at least once
Capital Gains per year. The Portfolio may, however, determine to retain all or part of any net long-term capital gains in any
Distributions year for reinvestment. Dividends and capital gains distributions paid on shares of a Class are automatically
reinvested in additional shares of the same Class at net asset value unless the shareholder elects to receive
cash. Shares acquired by dividend and distribution reinvestment will not be subject to any sales charge or CDSC
(see pages 26 and 30).
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Redemption Shares of the Portfolio are redeemable by the shareholder at net asset value less any applicable CDSC on Class
A, Class B or Class C shares. An account may be involuntarily redeemed if the total value of the account is less
than $100 or, if the account was opened through EasyInvest-SM-, if after twelve months the shareholder has
invested less than $1,000 in the account (see page 29).
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Risk An investment in the "Best Ideas" Portfolio should be considered a long-term holding and subject to all the
Considerations risks associated with investing in a relatively small universe of equity securities of companies in domestic and
foreign markets. The net asset value of the Portfolio's shares will fluctuate with changes in the market value
of its portfolio securities, and therefore, will increase or decrease due to a variety of economic, market or
political factors which cannot be predicted. There can be no assurance that the securities contained in the
Competitive Edge "Best Ideas" List, which currently consists of only 40 companies, will perform as anticipated.
Past performance of securities and issuers included in the Competitive Edge "Best Ideas" List cannot be used to
predict future results of the Portfolio, which is actively managed by the Investment Manager and the results of
which are expected to vary from the performance of the Competitive Edge "Best Ideas" List. It should be
recognized that foreign securities and markets in which the Portfolio may invest pose different and greater
risks than those customarily associated with domestic securities and their markets such as fluctuations in
foreign currency exchange rates (i.e., if a substantial portion of the Portfolio's assets is denominated in
foreign currencies which decrease in value with respect to the U.S. dollar, the value of the investor's shares
and the distributions made on those shares will, likewise, decrease in value), foreign securities exchange
controls and foreign tax rates. The Portfolio may enter into repurchase agreements which entail certain risks
and may utilize certain investment techniques including options and futures transactions and forward foreign
currency exchange transactions which may be considered speculative in nature and may involve greater risks than
those customarily assumed by other investment companies which do not utilize such instruments (see pages 8-14).
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THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THE PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL
INFORMATION.
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SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of
the Portfolio will incur. The expenses and fees set forth in the table are based
on the fees and estimated other expenses for the first full fiscal year of the
Portfolio.
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CLASS A CLASS B CLASS C CLASS D
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SHAREHOLDER TRANSACTION EXPENSES
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Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)... 5.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments.................................. None None None None
Maximum Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds)................................................. None(2) 5.00%(3) 1.00%(4) None
Redemption Fees................................................................. None None None None
Exchange Fee.................................................................... None None None None
ANNUAL PORTFOLIO OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
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Management Fees*................................................................ 0.65% 0.65% 0.65% 0.65%
12b-1 Fees (5) (6).............................................................. 0.25% 1.00% 1.00% None
Other Expenses*................................................................. 0.32% 0.32% 0.32% 0.32%
Total Fund Operating Expenses* (7).............................................. 1.22% 1.97% 1.97% 0.97%
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* THE INVESTMENT MANAGER HAS UNDERTAKEN TO ASSUME ALL OPERATING EXPENSES
(EXCEPT FOR BROKERAGE AND 12b-1 FEES) AND TO WAIVE THE COMPENSATION PROVIDED
FOR IN ITS MANAGEMENT AGREEMENT FOR THE PORTFOLIO UNTIL SUCH TIME AS THE
PORTFOLIO HAS $50 MILLION OF NET ASSETS OR UNTIL SIX MONTHS FROM COMMENCEMENT
OF THE PORTFOLIO'S OPERATIONS, WHICHEVER OCCURS FIRST. THE FEES AND EXPENSES
DISCLOSED ABOVE DO NOT REFLECT THE ASSUMPTION OF ANY EXPENSES OR THE WAIVER
OF ANY COMPENSATION BY THE INVESTMENT MANAGER.
(1) REDUCED FOR PURCHASES OF $25,000 AND OVER (SEE "PURCHASE OF PORTFOLIO
SHARES--INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES").
(2) INVESTMENTS THAT ARE NOT SUBJECT TO ANY SALES CHARGE AT THE TIME OF PURCHASE
ARE SUBJECT TO A CDSC OF 1.00% THAT WILL BE IMPOSED ON REDEMPTIONS MADE
WITHIN ONE YEAR AFTER PURCHASE, EXCEPT FOR CERTAIN SPECIFIC CIRCUMSTANCES
(SEE "PURCHASE OF PORTFOLIO SHARES--INITIAL SALES CHARGE ALTERNATIVE--CLASS
A SHARES").
(3) THE CDSC IS SCALED DOWN TO 1.00% DURING THE SIXTH YEAR, REACHING ZERO
THEREAFTER.
(4) ONLY APPLICABLE TO REDEMPTIONS MADE WITHIN ONE YEAR AFTER PURCHASE (SEE
"PURCHASE OF PORTFOLIO SHARES-- LEVEL LOAD ALTERNATIVE--CLASS C SHARES").
(5) THE 12b-1 FEE IS ACCRUED DAILY AND PAYABLE MONTHLY. THE ENTIRE 12b-1 FEE
PAYABLE BY CLASS A AND A PORTION OF THE 12b-1 FEE PAYABLE BY EACH OF CLASS B
AND CLASS C OF THE PORTFOLIO EQUAL TO 0.25% OF THE AVERAGE DAILY NET ASSETS
OF THE CLASS ARE CURRENTLY EACH CHARACTERIZED AS A SERVICE FEE WITHIN THE
MEANING OF NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. ("NASD")
GUIDELINES AND ARE PAYMENTS MADE FOR PERSONAL SERVICE AND/OR MAINTENANCE OF
SHAREHOLDER ACCOUNTS. THE REMAINDER OF THE 12b-1 FEE, IF ANY, IS AN
ASSET-BASED SALES CHARGE, AND IS A DISTRIBUTION FEE PAID TO THE DISTRIBUTOR
TO COMPENSATE IT FOR THE SERVICES PROVIDED AND THE EXPENSES BORNE BY THE
DISTRIBUTOR AND OTHERS IN THE DISTRIBUTION OF THE PORTFOLIO OF THE FUND'S
SHARES (SEE "PURCHASE OF PORTFOLIO SHARES--PLAN OF DISTRIBUTION").
(6) UPON CONVERSION OF CLASS B SHARES TO CLASS A SHARES, SUCH SHARES WILL BE
SUBJECT TO THE LOWER 12b-1 FEE APPLICABLE TO CLASS A SHARES. NO SALES CHARGE
IS IMPOSED AT THE TIME OF CONVERSION OF CLASS B SHARES TO CLASS A SHARES.
CLASS C SHARES DO NOT HAVE A CONVERSION FEATURE AND, THEREFORE, ARE SUBJECT
TO AN ONGOING 1.00% DISTRIBUTION FEE (SEE "PURCHASE OF PORTFOLIO
SHARES--ALTERNATIVE PURCHASE ARRANGEMENTS").
(7) "TOTAL FUND OPERATING EXPENSES," AS SHOWN ABOVE WITH RESPECT TO EACH CLASS,
ARE ESTIMATES BASED UPON THE SUM OF MANAGEMENT AND 12b-1 FEES, AND ESTIMATED
"OTHER EXPENSES."
4
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EXAMPLES 1 year 3 years
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You would pay the following expenses on a $1,000
investment in the Portfolios assuming (1) a 5%
annual return and (2) redemption at the end of
each time period:
Class A....................................... $64 $89
Class B....................................... $70 $92
Class C....................................... $30 $62
Class D....................................... $10 $31
You would pay the following expenses on the same
$1,000 investment in the Portfolios assuming no
redemption at the end of the period:
Class A....................................... $64 $89
Class B....................................... $20 $62
Class C....................................... $20 $62
Class D....................................... $10 $31
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THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE PORTFOLIO MAY BE GREATER
OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Portfolio will bear directly
or indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Purchase of Portfolio Shares--Plan of
Distribution" and "Redemptions and Repurchases."
Long-term shareholders of Class B and Class C may pay more in sales charges,
including distribution fees, than the economic equivalent of the maximum
front-end sales charges permitted by the NASD.
5
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THE FUND AND ITS MANAGEMENT
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Morgan Stanley Dean Witter Competitive Edge Fund (the "Fund") is an
open-end, diversified management investment company. The Fund is a trust of the
type commonly known as a "Massachusetts business trust" and was organized under
the laws of the Commonwealth of Massachusetts on October 16, 1997.
Dean Witter InterCapital Inc. ("InterCapital" or the "Investment Manager"),
whose address is Two World Trade Center, New York, New York 10048, is the Fund's
Investment Manager. The Investment Manager, which was incorporated in July,
1992, is a wholly-owned subsidiary of Morgan Stanley, Dean Witter, Discover &
Co. ("MSDWD"), a preeminent global financial services firm that maintains
leading market positions in each of its three primary businesses--securities,
asset management and credit services.
InterCapital and its wholly-owned subsidiary, Dean Witter Services Company
Inc., serve in various investment management, advisory, management and
administrative capacities to 103 investment companies, thirty of which are
listed on the New York Stock Exchange, with combined assets of approximately
$98.5 billion as of November 30, 1997. The Investment Manager also manages and
advises portfolios of pension plans, other institutions and individuals which
aggregated approximately $3.8 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, which includes the allocation of the "Best Ideas" Portfolio's assets
principally among the securities on the Competitive Edge "Best Ideas" List (as
defined below). InterCapital has retained Dean Witter Services Company Inc. to
perform the aforementioned administrative services for the Fund. The Fund's
Board of Trustees reviews the various services provided by or under the
direction of the Investment Manager to ensure that each Portfolio's general
investment policies and programs are being properly carried out and that
administrative services are being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the "Best
Ideas" Portfolio and for expenses of the Portfolio incurred by the Investment
Manager, the Fund pays the Investment Manager monthly compensation calculated
daily by applying the annual rate of 0.65% of the Portfolio's net assets. The
Portfolio's expenses include: the fee of the Investment Manager, the fee
pursuant to the Plan of Distribution (see "Purchase of Portfolio Shares");
taxes; transfer agent and custodian fees; auditing fees; and certain legal fees,
and printing and other expenses relating to the Portfolio's operations which are
not expressly assumed by the Investment Manager under its Investment Management
Agreement with the Fund. The Investment Manager has agreed to assume all
operating expenses (except for brokerage and 12b-1 fees) for the Portfolio until
such time as the Portfolio has $50 million of net assets or until six months
from commencement of the Portfolio's operations, whichever occurs first.
INVESTMENT OBJECTIVE AND POLICIES
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The Fund currently consists of two separate portfolios, each of which is
operated as an open-end, diversified management investment company. The
investment objective of the portfolio contained in this Prospectus, the "Best
Ideas" Portfolio (the " 'Best Ideas' Portfolio" or the "Portfolio"), is long-
term capital growth. The objective of the Portfolio is a fundamental policy and
may not be changed without shareholder approval. There is no assurance that the
objective of the Portfolio will be achieved.
The "Best Ideas" Portfolio seeks to achieve its investment objective by
investing, under normal circumstances, at least 80% of its net assets in the
common stock (including depository receipts, such
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as ADRs or EDRs) of U.S. and non-U.S. companies included in the "Best Ideas"
subgroup of "Global Investing: The Competitive Edge," a research compilation
assembled and maintained by Morgan Stanley Dean Witter Equity Research ("MSDW
Equity Research") and such Supplemental Securities (as defined below) chosen by
the Investment Manager.
MSDW EQUITY RESEARCH. MSDW Equity Research is recognized as a world leader
in global financial research and provides comprehensive research and in-depth
knowledge about general markets and specific companies from around the world. It
believes that companies with a sustainable competitive edge in the operations of
their businesses are worth more than their weaker competitors. Through its
on-going research and analysis, MSDW Equity Research has developed and
undertaken a comprehensive study which it calls "Global Investing: The
Competitive Edge" which represents the list of those companies.
Specifically, MSDW Equity Research group's research analysts and strategists
presently evaluate approximately 2,000 companies in 21 industry sectors
worldwide (the "MSDW Covered Securities"). An initial comprehensive review was
conducted in October 1996 and identified 238 companies from the MSDW Covered
Securities (then nearly 1,650) as having a long-term sustainable competitive
advantage in the global arena (the "Competitive Edge List"). The criteria used
to select companies that have a global competitive advantage vary according to
industry sector. The Competitive Edge List is currently updated annually. From
the Competitive Edge List, MSDW Equity Research then assembled a subgroup of 40
companies which it considered at that time to be the most attractive investment
opportunities of the companies identified as having a long-term sustainable
competitive advantage in the global arena (the "Competitive Edge 'Best Ideas'
List"). MSDW Equity Research's Competitive Edge List and Competitive Edge "Best
Ideas" List are not compiled with any particular client or product in mind and
are not, and will not be, compiled with the Fund in mind. When selecting the
companies for its Competitive Edge "Best Ideas" List, MSDW Equity Research does
not take into account country or currency risk, and country or industry sector
diversification concerns. MSDWD publishes other lists of recommended securities
that could be appropriate for Portfolio investors but which will not be used by
the Investment Manager for choosing securities for the Portfolio. MSDWD could at
any time cease publishing the Competitive Edge List and the Competitive Edge
"Best Ideas" List. In that event the Board of Trustees will make a determination
of how to proceed in the best interests of shareholders of the Portfolio
consistent with the Portfolio's investment objective. A list of the companies
contained on the Competitive Edge "Best Ideas" List as of September 30, 1997 is
set forth in the Statement of Additional Information. The Competitive Edge "Best
Ideas" List is currently updated by MSDW Equity Research quarterly.
In accordance with the Portfolio's investment restrictions described below,
the Portfolio will not invest 25% or more of the value of its total assets in
any one industry. In addition, as the Portfolio principally invests in the
securities of companies on the Competitive Edge "Best Ideas" List, which
currently consists of only 40 companies, the Portfolio will invest in a
relatively small universe of securities. Accordingly, the Portfolio may be
highly invested in any one industry or country. It is the intention of the
Investment Manager that at least 1% and not more than 5% of the Portfolio's net
assets will be invested in each company on the Competitive Edge "Best Ideas"
List, determined at the time of investment and subject to the specific
investment policies and restrictions described below. However, the Investment
Manager may eliminate or reduce its investment in any company on the Competitive
Edge "Best Ideas" List below 1% of the Portfolio's net assets, in the following
circumstances: (a) the stock is no longer publicly traded, such as in the case
of a leveraged buyout or merger; (b) in the view of the Investment Manager,
there is a material adverse development with respect to a company, including
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but not limited to the downgrading of the company's rating by MSDW Equity
Research; (c) concerns that, in view of the price of the company's securities,
the depth of the market in those securities and the amount of those securities
held or to be held by the Portfolio, retaining shares of that company or making
additional purchases would be inadvisable because of liquidity concerns; or (d)
the diversification and other requirements that apply to registered investment
companies. The Investment Manager will monitor on an ongoing basis all companies
falling within any of the circumstances described in this paragraph, and may
increase the Portfolio's holdings in such company's shares when and if those
conditions cease to exist. The Portfolio will purchase any security which is
added to the Competitive Edge "Best Ideas" List, and will sell a security which
is eliminated from the Competitive Edge "Best Ideas" List and any related
Supplemental Security (as defined below), as soon as practicable after the
Competitive Edge "Best Ideas" List has been updated by MSDW Equity Research,
unless the Investment Manager decides to hold such security as a Supplemental
Security. Accordingly, securities may be purchased and sold by the Portfolio
when such purchases and sales would not be made under traditional investment
criteria. The Investment Manager will not have access to the Competitive Edge
"Best Ideas" List prior to its quarterly update by MSDW Equity Research.
While the Portfolio intends to invest in securities on the Competitive Edge
"Best Ideas" List, the Portfolio may purchase one or more supplemental
securities ("Supplemental Securities") that are not included on the Competitive
Edge "Best Ideas" List but are on the Competitive Edge List or, in the event no
suitable securities are on the Competitive Edge List, such other securities
deemed suitable by the Investment Manager. Supplemental Securities will
generally be selected by the Investment Manager from the same or similar
industry sector as the security which they are supplementing or replacing.
Accordingly, the Portfolio's holdings may not be limited to those on the
Competitive Edge "Best Ideas" List. While there is no limit on the total number
of Supplemental Securities that the Portfolio may hold, Supplemental Securities
and all other securities that are not on the Competitive Edge "Best Ideas" List
generally will not exceed 35% of the Portfolio's total assets. In addition, each
security on the Competitive Edge "Best Ideas" List which is supplemented or
replaced, together with its corresponding Supplemental Securities, will have a
combined weighting of no more than 5% of the Portfolio's net assets, determined
at the time of investment.
The Portfolio may invest up to 20% of its total assets in money market
instruments or cash. The money market instruments in which the Portfolio may
invest are securities issued or guaranteed by the U.S. Government (Treasury
bills, notes and bonds (including zero coupon securities)) American bank
obligations; Eurodollar certificates of deposit; obligations of American savings
institutions; fully insured certificates of deposit; and commercial paper of
American issuers rated within the two highest grades by Moody's Investors
Service Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") or, if not
rated, issued by a company having an outstanding debt issue rated at least AA by
S&P or Aa by Moody's.
There may be periods during which market conditions warrant reduction of
some or all of the Portfolio's securities holdings. During such periods, the
Portfolio may adopt a temporary "defensive" posture in which up to 100% of the
Portfolio's net assets are invested in cash or money market instruments.
RISK CONSIDERATIONS AND INVESTMENT PRACTICES
The net asset value of the Portfolio's shares will fluctuate with changes in
the market value of its portfolio securities. The market value of the
Portfolio's portfolio securities will increase or decrease due to a variety of
economic, market or political factors which cannot be predicted. A general
description and the risks involved of the various investment practices and
techniques which the Portfolio may engage in is set forth below. A more
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detailed discussion can be found in this Fund's Statement of Additional
Information.
COMPETITIVE EDGE "BEST IDEAS" SELECTION. The net asset value of the
Portfolio will fluctuate depending upon, among other things, the performance of
the securities included on the Competitive Edge "Best Ideas" List, which
currently consists of 40 companies and which is only updated quarterly. The
Portfolio is subject to all the risks associated with investing in a small
universe of securities. There can be no assurance that the securities contained
in the Competitive Edge "Best Ideas" List will perform as anticipated. The
selection of companies on the Competitive Edge "Best Ideas" List is a subjective
determination by MSDW Equity Research. Past performance of the securities and
issuers included in the Competitive Edge "Best Ideas" List cannot be used to
predict future results of the Portfolio, which is actively managed by the
Investment Manager and the results of which are expected to vary from the
performance of the Competitive Edge "Best Ideas" List.
POTENTIAL INVESTMENT RESTRICTIONS. The activities of an affiliate of the
Investment Manager, including but not limited to Dean Witter Reynolds Inc.
("DWR") or Morgan Stanley & Co. Incorporated ("Morgan Stanley"), may from time
to time limit the Portfolio's ability to purchase or sell securities on the
Competitive Edge "Best Ideas" List. For instance, when DWR or Morgan Stanley or
one of their affiliates is engaged in an underwriting or other distribution of
stock of an issuer, the Investment Manager may be prohibited from purchasing the
stock of that issuer for the Portfolio. In addition, the Competitive Edge "Best
Ideas" List is available to other clients of MSDWD and its affiliates, including
the Investment Manager, as well as the Portfolio. The lists are also subject to
restrictions related to MSDWD's other businesses and particular securities may
or may not be on the lists due to other business concerns of, or legal
restrictions applicable to, MSDWD.
MSDWD BUSINESSES. As a diversified financial services firm, with three
primary businesses--securities, asset management and credit services, MSDWD
provides a wide range of financial services to issuers of securities and
investors in securities. MSDWD and others associated with it may create markets
or specialize in, have positions in and affect transactions in securities of
companies included on its research lists and may also perform or seek to perform
investment banking services for those companies. Within the last three years
MSDWD may have managed or co-managed public security offerings for companies
included on their research lists, and they or their employees may have a long or
short position on holdings in the securities, or options on securities, or other
related investments of companies included on their research lists.
FOREIGN SECURITIES. Investors should carefully consider the risks of
investing in securities of foreign issuers and securities denominated in
non-U.S. currencies. Fluctuations in the relative rates of exchange between the
currencies of different nations will affect the value of the Portfolio's
investments. Changes in foreign currency exchange rates relative to the U.S.
dollar will affect the U.S. dollar value of the Portfolio's assets denominated
in that currency and thereby impact upon the Portfolio's total return on such
assets.
Foreign currency exchange rates are determined by forces of supply and
demand on the foreign exchange markets. These forces are themselves affected by
the international balance of payments and other economic and financial
conditions, government intervention, speculation and other factors. Moreover,
foreign currency exchange rates may be affected by the regulatory control of the
exchanges on which the currencies trade.
Investments in foreign securities will also occasion risks relating to
political and economic developments abroad, including the possibility of
expropriations or confiscatory taxation, limitations on the use or transfer of a
fund's assets and any effects of
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foreign social, economic or political instability. Foreign companies are not
subject to the regulatory requirements of U.S. companies and, as such, there may
be less publicly available information about such companies. Moreover, foreign
companies are not subject to uniform accounting, auditing and financial
reporting standards and requirements comparable to those applicable to U.S.
companies.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of fund trades effected in such markets. Inability to dispose of
portfolio securities due to settlement delays could result in losses to the
Portfolio due to subsequent declines in value of such securities and the
inability of the Portfolio to make intended security purchases due to settlement
problems could result in a failure of the Portfolio to make potentially
advantageous investments.
The foreign securities in which the Portfolio will be investing may be
issued by issuers located in developing countries. Compared to the United States
and other developed countries, developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
which trade a small number of securities. Prices of these securities tend to be
especially volatile and, in the past, securities in these countries have offered
greater potential for gain (as well as loss) than securities of companies
located in developed countries.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Portfolio may enter into
forward foreign currency exchange contracts ("forward contracts") in connection
with its foreign securities investments.
A forward contract involves an obligation to purchase or sell a currency at
a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
A fund may enter into forward contracts as a hedge against fluctuations in
future foreign exchange rates.
The Portfolio will enter into forward contracts under various circumstances.
When the Portfolio enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may, for example, desire to "lock in" the
price of the security in U.S. dollars or some other foreign currency which the
Portfolio is temporarily holding in its portfolio. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars or other
currency, of the amount of foreign currency involved in the underlying security
transactions, the Portfolio will be able to protect itself against a possible
loss resulting from an adverse change in the relationship between the U.S.
dollar or other currency which is being used for the security purchase (by the
Portfolio or the counterparty) and the foreign currency in which the security is
denominated during the period between the date on which the security is
purchased or sold and the date on which payment is made or received.
At other times, when, for example, the Investment Manager believes that the
currency of a particular foreign country may suffer a substantial decline
against the U.S. dollar or some other foreign currency, the Portfolio may enter
into a forward contract to sell, for a fixed amount of dollars or other
currency, the amount of foreign currency approximating the value of some or all
of the Portfolio's securities holdings (or securities which the Portfolio has
purchased for its portfolio) denominated in such foreign currency. Under
identical circumstances, the Portfolio may enter into a forward contract to
sell, for a fixed amount of U.S. dollars or other currency, an amount of foreign
currency other than the currency in which the securities to be hedged are
denominated approximating the value of some or all of the portfolio securities
to be hedged. This method of
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hedging, called "cross-hedging," will be selected by the Investment Manager when
it is determined that the foreign currency in which the portfolio securities are
denominated has insufficient liquidity or is trading at a discount as compared
with some other foreign currency with which it tends to move in tandem.
In addition, when the Investment Manager anticipates purchasing securities
at some time in the future, and wishes to lock in the current exchange rate of
the currency in which those securities are denominated against the U.S. dollar
or some other foreign currency, the Portfolio may enter into a forward contract
to purchase an amount of currency equal to some or all of the value of the
anticipated purchase, for a fixed amount of U.S. dollars or other currency. The
Portfolio may, however, close out the forward contract without purchasing the
security which was the subject of the "anticipatory" hedge.
In all of the above circumstances, if the currency in which the Portfolio's
securities holdings (or anticipated portfolio securities) are denominated rises
in value with respect to the currency which is being purchased (or sold), then
the Portfolio will have realized fewer gains than had it not entered into the
forward contracts. Moreover, the precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible,
since the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The Portfolio
is not required to enter into such transactions with regard to its foreign
currency-denominated securities and will not do so unless deemed appropriate by
the Investment Manager. The Portfolio generally will not enter into a forward
contract with a term of greater than one year, although it may enter into
forward contracts for periods of up to five years. The Portfolio may be limited
in its ability to enter into hedging transactions involving forward contracts by
the Internal Revenue Code requirements relating to qualification as a regulated
investment company.
OPTIONS AND FUTURES TRANSACTIONS. The Portfolio may purchase and sell
(write) call and put options on (i) portfolio securities which are denominated
in either U.S. dollars or foreign currencies; (ii) stock indexes; and (iii) the
U.S. dollar and foreign currencies. Such options are or may in the future be
listed on several U.S. and foreign securities exchanges or may be traded in
over-the-counter transactions ("OTC options"). OTC options are purchased from or
sold (written) to dealers or financial institutions which have entered into
direct agreements with the Portfolio.
The Portfolio is permitted to write covered call options on portfolio
securities and the U.S. dollar and foreign currencies, without limit, in order
to hedge against the decline in the value of a security or currency in which
such security is denominated (although such hedge is limited to the value of the
premium received) and to close out long call option positions. The Portfolio may
write covered put options, under which the Portfolio incurs an obligation to buy
the security (or currency) underlying the option from the purchaser of the put
at the option's exercise price at any time during the option period, at the
purchaser's election.
The Portfolio may purchase listed and OTC call and put options in amounts
equalling up to 5% of its total assets. The Portfolio may purchase call options
to close out a covered call position or to protect against an increase in the
price of a security it anticipates purchasing or, in the case of call options on
a foreign currency, to hedge against an adverse exchange rate change of the
currency in which the security it anticipates purchasing is denominated
vis-a-vis the currency in which the exercise price is denominated. The Portfolio
may purchase put options on securities which it holds in its portfolio to
protect itself against a decline in the value of the security and to close out
written put positions in a manner similar to call option closing purchase
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transactions. There are no other limits on the Portfolio's ability to purchase
call and put options other than compliance with the foregoing policies.
The Portfolio may purchase and sell futures contracts that are currently
traded, or may in the future be traded, on U.S. and foreign commodity exchanges
on underlying portfolio securities, on any currency ("currency" futures), on
U.S. and foreign fixed-income securities ("interest rate" futures) and on such
indexes of U.S. or foreign equity or fixed-income securities as may exist or
come into being ("index" futures). The Portfolio may purchase or sell interest
rate futures contracts for the purpose of hedging some or all of the value of
its portfolio securities (or anticipated portfolio securities) against changes
in prevailing interest rates. The Portfolio may purchase or sell index futures
contracts for the purpose of hedging some or all of its portfolio (or
anticipated portfolio) securities against changes in their prices. The Portfolio
may purchase or sell currency futures contracts to hedge against an anticipated
rise or decline in the value of the currency in which a portfolio security is
denominated vis-a-vis another currency. As a futures contract purchaser, the
Portfolio incurs an obligation to take delivery of a specified amount of the
obligation underlying the contract at a specified time in the future for a
specified price. As a seller of a futures contract, the Portfolio incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price.
The Portfolio also may purchase and write call and put options on futures
contracts which are traded on an exchange and enter into closing transactions
with respect to such options to terminate an existing position.
New futures contracts, options and other financial products and various
combinations thereof continue to be developed. The Portfolio may invest in any
such futures, options or products as may be developed, to the extent consistent
with its investment objective and applicable regulatory requirements.
RISKS OF OPTIONS AND FUTURES TRANSACTIONS. The Portfolio may close out its
position as writer of an option, or as a buyer or seller of a futures contract,
only if a liquid secondary market exists for options or futures contracts of
that series. There is no assurance that such a market will exist, particularly
in the case of OTC options, as such options may generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer. Also,
exchanges may limit the amount by which the price of many futures contracts may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased.
Futures contracts and options transactions may be considered speculative in
nature and may involve greater risks than those customarily assumed by other
investment companies which do not invest in such instruments. One such risk is
that the Investment Manager could be incorrect in its expectations as to the
direction or extent of various interest rate or price movements or the time span
within which the movements take place. For example, if the Portfolio sold
futures contracts for the sale of securities in anticipation of an increase in
interest rates, and then interest rates went down instead, causing bond prices
to rise, the Portfolio would lose money on the sale. Another risk which will
arise in employing futures contracts to protect against the price volatility of
portfolio securities is that the prices of securities, currencies and indexes
subject to futures contracts (and thereby the futures contract prices) may
correlate imperfectly with the behavior of the U.S. dollar cash prices of the
Portfolio's portfolio securities and their denominated currencies. See the
Statement of Additional Information for a further discussion of these risks.
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreements,
which may be viewed as a type of secured lending, and which typically involve
the acquisition by the Portfolio of debt securities, from a selling financial
institution such as a bank, savings and loan association or
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broker-dealer. The agreement provides that the Portfolio will sell back to the
institution, and that the institution will repurchase, the underlying security
at a specified price and at a fixed time in the future, usually not more than
seven days from the date of purchase. While repurchase agreements involve
certain risks not associated with direct investments in debt securities,
including the risks of default or bankruptcy of the selling financial
institution, the Portfolio follows procedures to minimize such risks. These
procedures include effecting repurchase transactions only with large,
well-capitalized and well-established financial institutions and maintaining
adequate collateralization. It is the current policy of the Portfolio not to
invest in repurchase agreements that do not mature within seven days if any such
investment, together with any other illiquid assets held by the Portfolio,
amounts to more than 15% of the Portfolio's net assets in keeping with its
policy on illiquid securities.
PRIVATE PLACEMENTS. The Portfolio may invest up to 15% of its net assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or which are otherwise not readily marketable. (Securities eligible for
resale pursuant to Rule 144A under the Securities Act, and determined to be
liquid pursuant to the procedures discussed in the following paragraph, are not
subject to the foregoing restriction.) These securities are generally referred
to as private placements or restricted securities. Limitations on the resale of
such securities may have an adverse effect on their marketability, and may
prevent a fund from disposing of them promptly at reasonable prices. The
Portfolio may have to bear the expense of registering such securities for resale
and the risk of substantial delays in effecting such registration.
The Securities and Exchange Commission has adopted Rule 144A under the
Securities Act, which permits a fund to sell restricted securities to qualified
institutional buyers without limitation. The Investment Manager, pursuant to
procedures adopted by the Trustees of the Fund, will make a determination as to
the liquidity of each restricted security purchased by the Portfolio. If a
restricted security is determined to be "liquid," such security will not be
included within the category "illiquid securities," which under current policy
may not exceed 15% of the Portfolio's net assets. However, investing in Rule
144A securities could have the effect of increasing the level of Portfolio
illiquidity to the extent the Portfolio, at a particular point in time, may be
unable to find qualified institutional buyers interested in purchasing such
securities.
RIGHTS AND WARRANTS. The Portfolio may acquire rights and/or warrants which
are attached to other securities in its portfolio, or which are issued as a
distribution by the issuer of a security held in its portfolio. Rights and/or
warrants are, in effect, options to purchase equity securities at a specific
price, generally valid for a specific period of time, and have no voting rights,
pay no dividends and have no rights with respect to the corporation issuing
them.
SECURITIES RECEIPTS. The Portfolio may also invest in securities of foreign
issuers in the form of American Depository Receipts (ADRs), European Depository
Receipts (EDRs) or other similar securities convertible into securities of
foreign issuers. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. ADRs are receipts
typically issued by a United States bank or trust company evidencing ownership
of the underlying securities. EDRs are European receipts evidencing a similar
arrangement. Generally, ADRs, in registered form, are designed for use in the
United States securities markets and EDRs, in bearer form, are designed for use
in European securities markets.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, the Portfolio may lend its portfolio securities to brokers,
dealers and other financial institutions, provided that such loans are callable
at any time by the Portfolio (subject to certain notice provisions described in
the Statement of Additional Information), and are
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at all times secured by cash or money market instruments, which are maintained
in a segregated account pursuant to applicable regulations and that are equal to
at least the market value, determined daily, of the loaned securities. As with
any extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities fail
financially. However, loans of portfolio securities will only be made to firms
deemed by the Investment Manager to be creditworthy and when the income which
can be earned from such loans justifies the attendant risks.
For additional risk disclosure, please refer to the "Investment Objective
and Policies" section of the Prospectus and to the "Investment Practices and
Policies of the Portfolios" section of the Statement of Additional Information.
Except as specifically noted, all investment policies and practices
discussed above are not fundamental policies of the Portfolio or the Fund and,
as such, may be changed without shareholder approval.
PORTFOLIO MANAGEMENT
The "Best Ideas" Portfolio is actively managed by the Investment Manager
with a view to achieving the Portfolio's investment objective. The assets of the
Portfolio are managed within InterCapital's Growth Group, which manages 33
equity funds and fund portfolios with approximately $14.2 billion in assets as
of November 30, 1997. Mark Bavoso, Senior Vice President of InterCapital, is the
primary portfolio manager of the Portfolio and has been a portfolio manager at
InterCapital for over five years.
Although the Portfolio does not intend to engage in short-term trading of
portfolio securities as a means of achieving its investment objective, it may
sell portfolio securities without regard to the length of time they have been
held whenever such sale will in the Investment Manager's opinion strengthen the
Portfolio's position and contribute to its investment objective.
Substantially all of the orders for transactions in portfolio securities and
commodities listed on exchanges are expected to be placed for the Portfolio with
broker-dealers affiliated with the Investment Manager including Morgan Stanley
and DWR. In addition to Morgan Stanley and DWR, the Portfolio may place such
orders with a number of brokers and dealers, including other brokers and dealers
that are affiliates of the Investment Manager. The Fund may incur brokerage
commissions on transactions conducted through such affiliates. Transactions
effected through Morgan Stanley and other affiliates are effected pursuant to
procedures adopted by the Fund's Board of Trustees that are designed to ensure
that the commissions paid to such affiliated brokers or dealers are not more
than the commissions expected to be paid to unaffiliated brokers or dealers in a
commensurate arms-length transaction. Pursuant to an order of the Securities and
Exchange Commission, the Fund may effect principal transactions in certain money
market instruments with DWR. It is not anticipated that the portfolio trading
will result in the Portfolio's portfolio turnover rate exceeding 100% in any one
year. The Portfolio will incur brokerage costs commensurate with its portfolio
turnover rate. See "Dividends, Distributions and Taxes" for a discussion of the
tax implications of the Portfolio's trading policy.
INVESTMENT RESTRICTIONS
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The investment restrictions listed below are among the restrictions which
have been adopted by the Fund as fundamental policies of the Portfolio. Under
the Investment Company Act of 1940, as amended (the "Act"), a fundamental policy
may not be changed with respect to the Portfolio, without the vote of a majority
of the outstanding voting securities of the Portfolio, as defined in the Act.
For purposes of the following limitations: (i) all percentage limitations apply
immediately after a purchase or initial investment, and (ii) any subsequent
change in any applicable percentage resulting from market
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fluctuations or other changes in total or net assets does not require
elimination of any security from the Portfolio.
The Portfolio may not:
1. As to 75% of its total assets, invest more than 5% of the value of its
total assets in the securities of any one issuer (other than obligations issued,
or guaranteed by, the United States Government, its agencies or
instrumentalities), except that the Portfolio may invest all or substantially
all of its assets in another registered investment company having the same
investment objective and policies and substantially the same investment
restrictions as the Portfolio (a "Qualifying Portfolio").
2. As to 75% of its total assets, purchase more than 10% of all outstanding
voting securities or any class of securities of any one issuer, except that the
Portfolio may invest all or substantially all of its assets in a Qualifying
Portfolio.
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to obligations
issued or guaranteed by the United States Government or its agencies or
instrumentalities.
UNDERWRITING
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Dean Witter Distributors Inc. (the "Underwriter") has agreed to purchase up
to 10,000,000 shares from the "Best Ideas" Portfolio, which number may be
increased or decreased in accordance with the Underwriting Agreement. The
initial offering will run approximately from January 26, 1998 through February
20, 1998. The Underwriting Agreement provides that the obligation of the
Underwriter is subject to certain conditions precedent and that the Underwriter
will be obligated to purchase the shares on February 25, 1998, or such other
date as may be agreed upon by the Underwriter and the Portfolio (the "Closing
Date"). Shares will not be issued and dividends will not be declared by the
Portfolio until after the Closing Date. For this reason, payment is not required
to be made prior to the Closing Date. If any orders received during the initial
offering period are accompanied by payment, such payment will be returned unless
an accompanying request for investment in a Dean Witter money market fund is
received at the time the payment is made. Prospective investors in money market
funds should request and read the money market fund prospectus prior to
investing. All such funds received and invested in a Dean Witter money market
fund will be automatically invested in the Portfolio on the Closing Date without
any further action by the investor. Any investor may cancel his or her purchase
of Portfolio shares without penalty at any time prior to the Closing Date.
The Underwriter will purchase Class B, Class C and Class D shares from the
Portfolio at $10.00 per share with all proceeds going to the Portfolio and will
purchase Class A shares at $10.00 per share plus a sales charge with the sales
charge paid to the Underwriter and the net asset value of $10.00 per share going
to the Portfolio. The Underwriter may, however, receive contingent deferred
sales charges from future redemptions of Class A, Class B and Class C shares
(see "Purchase of Portfolio Shares--Continuous Offering").
The Underwriter shall, regardless of its expected underwriting commitment,
be entitled and obligated to purchase only the number of shares for which
purchase orders have been received by the Underwriter prior to 2:00 p.m., New
York time, on the third business day preceding the Closing Date, or such other
date as may be agreed to between the parties.
The minimum number of Portfolio shares which may be purchased by any
shareholder pursuant to this offering is 100 shares. Certificates for shares
purchased will not be issued unless requested by the shareholder in writing.
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PURCHASE OF PORTFOLIO SHARES--CONTINUOUS OFFERING
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GENERAL
The "Best Ideas" Portfolio of the Fund offers each class of its shares for
sale to the public on a continuous basis. Pursuant to a Distribution Agreement
between the Fund and Dean Witter Distributors Inc. (the "Distributor"), an
affiliate of the Investment Manager, shares of the Portfolio of the Fund are
distributed by the Distributor and offered by DWR and other dealers which have
entered into agreements with the Distributor ("Selected Broker-Dealers"). The
principal executive office of the Distributor is located at Two World Trade
Center, New York, New York 10048.
The "Best Ideas" Portfolio of the Fund offers four classes of shares (each,
a "Class"). Class A shares are sold to investors with an initial sales charge
that declines to zero for larger purchases; however, Class A shares sold without
an initial sales charge are subject to a contingent deferred sales charge
("CDSC") of 1.0% if redeemed within one year of purchase, except for certain
specific circumstances. Class B shares are sold without an initial sales charge
but are subject to a CDSC (scaled down from 5.0% to 1.0%) payable upon most
redemptions within six years after purchase. (Class B shares purchased by
certain qualified employer-sponsored benefit plans are subject to a CDSC scaled
down from 2.0% to 1.0% if redeemed within three years after purchase.) Class C
shares are sold without an initial sales charge but are subject to a CDSC of
1.0% on most redemptions made within one year after purchase. Class D shares are
sold without an initial sales charge or CDSC and are available only to investors
meeting an initial investment minimum of $5 million ($25 million for certain
qualified plans), and to certain other limited categories of investors. At the
discretion of the Board of Trustees of the Fund, Class A shares may be sold to
categories of investors in addition to those set forth in this prospectus at net
asset value without a front-end sales charge, and Class D shares may be sold to
certain other categories of investors, in each case as may be described in the
then current prospectus of the Portfolio. See "Alternative Purchase
Arrangements--Selecting a Particular Class" for a discussion of factors to
consider in selecting which Class of shares to purchase.
The minimum initial purchase is $1,000 for each Class of shares, although
Class D shares are only available to persons investing $5 million ($25 million
for certain qualified plans) or more and to certain other limited categories of
investors. For the purpose of meeting the minimum $5 million (or $25 million)
initial investment for Class D shares, and subject to the $1,000 minimum initial
investment for each Class of the Portfolio, an investor's existing holdings of
Class A shares of the Portfolio and other Dean Witter Funds that are multiple
class funds ("Dean Witter Multi-Class Funds") and shares of Dean Witter Funds
sold with a front-end sales charge ("FSC Funds") and concurrent investments in
Class D shares of the Portfolio and other Dean Witter Multi-Class Funds will be
aggregated. Subsequent purchases of $100 or more may be made by sending a check,
payable to Morgan Stanley Dean Witter Competitive Edge Fund--"Best Ideas"
Portfolio, directly to Dean Witter Trust FSB (the "Transfer Agent" or "DWT") at
P.O. Box 1040, Jersey City, NJ 07303 or by contacting an account executive of
DWR or other Selected Broker-Dealer. When purchasing shares of the Portfolio,
investors must specify whether the purchase is for Class A, Class B, Class C or
Class D shares. If no Class is specified, the Transfer Agent will not process
the transaction until the proper Class is identified. The minimum initial
purchase, in the case of investments through EasyInvest-SM-, an automatic
purchase plan (see "Shareholder Services"), is $100, provided that the schedule
of automatic investments will result in investments totalling at least $1,000
within the first twelve months. The minimum initial purchase in the case of an
"Education IRA" is $500, if the Distributor has reason to believe that
additional investments will increase the investment in the account to $1,000
within three years. In the case of
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investments pursuant to (i) Systematic Payroll Deduction Plans (including
Individual Retirement Plans), (ii) the InterCapital mutual fund asset allocation
program and (iii) fee-based programs approved by the Distributor, pursuant to
which participants pay an asset based fee for services in the nature of
investment advisory or administrative services, the Portfolio, in its
discretion, may accept investments without regard to any minimum amounts which
would otherwise be required, provided, in the case of Systematic Payroll
Deduction Plans, that the Distributor has reason to believe that additional
investments will increase the investment in all accounts under such Plans to at
least $1,000. Certificates for shares purchased will not be issued unless a
request is made by the shareholder in writing to the Transfer Agent.
Shares of the Portfolio are sold through the Distributor on a normal three
business day settlement basis; that is, payment is due on the third business day
(settlement date) after the order is placed with the Distributor. Since DWR and
other Selected Broker-Dealers forward investors' funds on settlement date, they
will benefit from the temporary use of the funds if payment is made prior
thereto. As noted above, orders placed directly with the Transfer Agent must be
accompanied by payment. Investors will be entitled to receive income dividends
and capital gains distributions if their order is received by the close of
business on the day prior to the record date for such distributions. Sales
personnel of a Selected Broker-Dealer are compensated for selling shares of the
Fund at the time of their sale by the Distributor or any of its affiliates
and/or the Selected Broker-Dealer. In addition, some sales personnel of the
Selected Broker-Dealer will receive various types of non-cash compensation as
special sales incentives, including trips, educational and/or business seminars
and merchandise. The Portfolio and the Distributor reserve the right to reject
any purchase orders.
ALTERNATIVE PURCHASE ARRANGEMENTS
The "Best Ideas" Portfolio of the Fund offers several Classes of shares to
investors designed to provide them with the flexibility of selecting an
investment best suited to their needs. The general public is offered three
Classes of shares: Class A shares, Class B shares and Class C shares, which
differ principally in terms of sales charges and rate of expenses to which they
are subject. A fourth Class of shares, Class D shares, is offered only to
limited categories of investors (see "No Load Alternative--Class D Shares"
below).
Each Class A, Class B, Class C or Class D share of the Portfolio represents
an identical interest in the Portfolio except that Class A, Class B and Class C
shares bear the expenses of the ongoing shareholder service fees, Class B and
Class C shares bear the expenses of the ongoing distribution fees and Class A,
Class B and Class C shares which are redeemed subject to a CDSC bear the expense
of the additional incremental distribution costs resulting from the CDSC
applicable to shares of those Classes. The ongoing distribution fees of the
Portfolio that are imposed on Class A, Class B and Class C shares will be
imposed directly against those Classes of the Portfolio and not against all
assets of the Fund and, accordingly, such charges against one Class will not
affect the net asset value of any other Class or have any impact on investors
choosing another sales charge option. See "Plan of Distribution" and
"Redemptions and Repurchases."
Set forth below is a summary of the differences between the Classes and the
factors an investor should consider when selecting a particular Class. This
summary is qualified in its entirety by detailed discussion of each Class that
follows this summary.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
sales charge of up to 5.25%. The initial sales charge is reduced for certain
purchases. Investments of $1 million or more (and investments by certain other
limited categories of investors) are not subject to any sales charges at the
time of purchase but are subject to a CDSC of 1.0% on redemptions made within
one year after purchase, except for certain specific circumstances.
17
<PAGE>
Class A shares are also subject to a 12b-1 fee of up to 0.25% of the average
daily net assets of the Class. See "Initial Sales Charge Alternative--Class A
Shares."
CLASS B SHARES. Class B shares are offered at net asset value with no
initial sales charge but are subject to a CDSC (scaled down from 5.0% to 1.0%)
if redeemed within six years of purchase. (Class B shares purchased by certain
qualified plans are subject to a CDSC scaled down from 2.0% to 1.0% if redeemed
within three years after purchase.) This CDSC may be waived for certain
redemptions. Class B shares are also subject to an annual 12b-1 fee of 1.0% of
the average daily net assets of Class B. The Class B shares' distribution fee
will cause that Class to have higher expenses and pay lower dividends than Class
A or Class D shares.
After approximately ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund, based on the relative net asset
values of the shares of the two Classes on the conversion date. In addition, a
certain portion of Class B shares that have been acquired through the
reinvestment of dividends and distributions will be converted at that time. See
"Contingent Deferred Sales Charge Alternative--Class B Shares."
CLASS C SHARES. Class C shares are sold at net asset value with no initial
sales charge but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. This CDSC may be waived for certain redemptions. They are
subject to an annual 12b-1 fee of up to 1.0% of the average daily net assets of
the Class C shares. The Class C shares' distribution fee may cause that Class to
have higher expenses and pay lower dividends than Class A or Class D shares. See
"Level Load Alternative--Class C Shares."
CLASS D SHARES. Class D shares are available only to limited categories of
investors (see "No Load Alternative--Class D Shares" below). Class D shares are
sold at net asset value with no initial sales charge or CDSC. They are not
subject to any 12b-1 fees. See "No Load Alternative--Class D Shares."
SELECTING A PARTICULAR CLASS. In deciding which Class of Portfolio shares
to purchase, investors should consider the following factors, as well as any
other relevant facts and circumstances:
The decision as to which Class of shares is more beneficial to an investor
depends on the amount and intended length of his or her investment. Investors
who prefer an initial sales charge alternative may elect to purchase Class A
shares. Investors qualifying for significantly reduced or, in the case of
purchases of $1 million or more, no initial sales charges may find Class A
shares particularly attractive because similar sales charge reductions are not
available with respect to Class B or Class C shares. Moreover, Class A shares
are subject to lower ongoing expenses than are Class B or Class C shares over
the term of the investment. As an alternative, Class B and Class C shares are
sold without any initial sales charge so the entire purchase price is
immediately invested in the Portfolio. Any investment return on these additional
investment amounts may partially or wholly offset the higher annual expenses of
these Classes. Because the Portfolio's future return cannot be predicted,
however, there can be no assurance that this would be the case.
Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly lower
CDSC upon redemptions, they do not, unlike Class B shares, convert into Class A
shares after approximately ten years, and, therefore, are subject to an ongoing
12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A shares) for
an indefinite period of time. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks. Other
investors, however, may elect to purchase Class C shares if, for example, they
determine that they do not wish to be subject to a front-end sales charge and
they are uncertain as to the length of time they intend to hold their shares.
18
<PAGE>
For the purpose of meeting the $5 million (or $25 million) minimum
investment amount for Class D shares, holdings of Class A shares in all Dean
Witter Multi-Class Funds, shares of FSC Funds and shares of Dean Witter Funds
for which such shares have been exchanged, will be included together with the
current investment amount.
Sales personnel may receive different compensation for selling each Class of
shares. Investors should understand that the purpose of a CDSC is the same as
that of the initial sales charge in that the sales charges applicable to each
Class provide for the financing of the distribution of shares of that Class.
Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
CONVERSION
CLASS SALES CHARGE 12b-1 FEE FEATURE
<C> <S> <C> <C>
- -----------------------------------------------------------
A Maximum 5.25% 0.25% No
initial sales
charge reduced for
purchases of
$25,000 and over;
shares sold
without an initial
sales charge
generally subject
to a 1.0% CDSC
during first year.
- -----------------------------------------------------------
B Maximum 5.0% CDSC 1.0% B shares convert
during the first to A shares
year decreasing to automatically
0 after six years after
approximately
ten years
- -----------------------------------------------------------
C 1.0% CDSC during 1.0% No
first year
- -----------------------------------------------------------
D None None No
</TABLE>
See "Purchase of Portfolio Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.
INITIAL SALES CHARGE ALTERNATIVE--
CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales charge. In
some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one year
after purchase (calculated from the last day of the month in which the shares
were purchased), except for certain specific circumstances. The CDSC will be
assessed on an amount equal to the lesser of the current market value or the
cost of the shares being redeemed. The CDSC will not be imposed (i) in the
circumstances set forth below in the section "Contingent Deferred Sales Charge
Alternative--Class B Shares--CDSC Waivers," except that the references to six
years in the first paragraph of that section shall mean one year in the case of
Class A shares, and (ii) in the circumstances identified in the section
"Additional Net Asset Value Purchase Options" below. Class A shares are also
subject to an annual 12b-1 fee of up to 0.25% of the average daily net assets of
the Class.
The offering price of Class A shares will be the net asset value per share
next determined following receipt of an order (see "Determination of Net Asset
Value" below), plus a sales charge (expressed as a percentage of the offering
price) on a single transaction as shown in the following table:
19
<PAGE>
<TABLE>
<CAPTION>
SALES CHARGE
------------------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF PUBLIC OFFERING PERCENTAGE OF AMOUNT
SINGLE TRANSACTION PRICE INVESTED
- ------------------------- ------------------- ---------------------
<S> <C> <C>
Less than $25,000........ 5.25% 5.54%
$25,000 but less
than $50,000........ 4.75% 4.99%
$50,000 but less
than $100,000....... 4.00% 4.17%
$100,000 but less
than $250,000....... 3.00% 3.09%
$250,000 but less
than $1 million..... 2.00% 2.04%
$1 million and over...... 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods when 90% or more of the sales
charge is reallowed, such Selected Broker-Dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.
The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or her
spouse and their children under the age of 21 purchasing shares for his, her or
their own accounts; (c) a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account; (d) a pension, profit-sharing
or other employee benefit plan qualified or non-qualified under Section 401 of
the Internal Revenue Code; (e) tax-exempt organizations enumerated in Section
501(c)(3) or (13) of the Internal Revenue Code; (f) employee benefit plans
qualified under Section 401 of the Internal Revenue Code of a single employer or
of employers who are "affiliated persons" of each other within the meaning of
Section 2(a)(3)(c) of the Act; and for investments in Individual Retirement
Accounts of employees of a single employer through Systematic Payroll Deduction
plans; or (g) any other organized group of persons, whether incorporated or not,
provided the organization has been in existence for at least six months and has
some purpose other than the purchase of redeemable securities of a registered
investment company at a discount.
COMBINED PURCHASE PRIVILEGE. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Portfolio in single transactions with the purchase of
Class A shares of other Dean Witter Multi-Class Funds and shares of FSC Funds.
The sales charge payable on the purchase of the Class A shares of the Portfolio,
the Class A shares of the other Dean Witter Multi-Class Funds and the shares of
the FSC Funds will be at their respective rates applicable to the total amount
of the combined concurrent purchases of such shares.
RIGHT OF ACCUMULATION. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single transaction,
together with shares of the Portfolio and other Dean Witter Funds previously
purchased at a price including a front-end sales charge (including shares of the
Portfolio and other Dean Witter Funds acquired in exchange for those shares, and
including in each case shares acquired through reinvestment of dividends and
distributions), which are held at the time of such transaction, amounts to
$25,000 or more. If such investor has a cumulative net asset value of shares of
FSC Funds and Class A and Class D shares that, together with the current
investment amount, is equal to at least $5 million ($25 million for certain
qualified plans), such investor is eligible to purchase Class D shares subject
to the $1,000 minimum initial investment requirement of that Class of the Fund.
See "No Load Alternative--Class D Shares" below.
The Distributor must be notified by DWR or a Selected Broker-Dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in
20
<PAGE>
writing by the dealer or shareholder when such an order is placed by mail. The
reduced sales charge will not be granted if: (a) such notification is not
furnished at the time of the order; or (b) a review of the records of the
Selected Broker-Dealer or the Transfer Agent fails to confirm the investor's
represented holdings.
LETTER OF INTENT. The foregoing schedule of reduced sales charges will also
be available to investors who enter into a written Letter of Intent providing
for the purchase, within a thirteen-month period, of Class A shares of the
Portfolio from DWR or other Selected Broker-Dealers. The cost of Class A shares
of the Portfolio or shares of other Dean Witter Funds which were previously
purchased at a price including a front-end sales charge during the 90-day period
prior to the date of receipt by the Distributor of the Letter of Intent, or of
Class A shares of the Portfolio or shares of other Dean Witter Funds acquired in
exchange for shares of such funds purchased during such period at a price
including a front-end sales charge, which are still owned by the shareholder,
may also be included in determining the applicable reduction.
ADDITIONAL NET ASSET VALUE PURCHASE OPTIONS. In addition to investments of
$1 million or more, Class A shares also may be purchased at net asset value by
the following:
(1) trusts for which DWT (an affiliate of the Investment Manager) provides
discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for services
in the nature of investment advisory or administrative services (such
investments are subject to all of the terms and conditions of such programs,
which may include termination fees, mandatory redemption upon termination and
such other circumstances as specified in the programs' agreements, and
restrictions on transferability of Portfolio shares);
(3) employer-sponsored 401(k) and other plans qualified under Section 401(a)
of the Internal Revenue Code ("Qualified Retirement Plans") with at least 200
eligible employees and for which DWT serves as Trustee or DWR's Retirement Plan
Services serves as recordkeeper pursuant to a written Recordkeeping Services
Agreement;
(4) Qualified Retirement Plans for which DWT serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement whose Class B shares have converted to Class A
shares, regardless of the plan's asset size or number of eligible employees;
(5) investors who are clients of a Dean Witter account executive who joined
Dean Witter from another investment firm within six months prior to the date of
purchase of Portfolio shares by such investors, if the shares are being
purchased with the proceeds from a redemption of shares of an open-end
proprietary mutual fund of the account executive's previous firm which imposed
either a front-end or deferred sales charge, provided such purchase was made
within sixty days after the redemption and the proceeds of the redemption had
been maintained in the interim in cash or a money market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Portfolio.
No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.
For further information concerning purchases of the Portfolio's shares,
contact DWR or another Selected Broker-Dealer or consult the Statement of
Additional Information.
CONTINGENT DEFERRED SALES CHARGE
ALTERNATIVE--CLASS B SHARES
Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
21
<PAGE>
may be immediately invested in the Portfolio. A CDSC, however, will be imposed
on most Class B shares redeemed within six years after purchase. The CDSC will
be imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Portfolio falls below the aggregate
amount of the investor's purchase payments for Class B shares made during the
six years (or, in the case of shares held by certain Qualified Retirement Plans,
three years) preceding the redemption. In addition, Class B shares are subject
to an annual 12b-1 fee of 1.0% of the average daily net assets of Class B.
Except as noted below, Class B shares of the Portfolio which are held for
six years or more after purchase (calculated from the last day of the month in
which the shares were purchased) will not be subject to any CDSC upon
redemption. Shares redeemed earlier than six years after purchase may, however,
be subject to a CDSC which will be a percentage of the dollar amount of shares
redeemed and will be assessed on an amount equal to the lesser of the current
market value or the cost of the shares being redeemed. The size of this
percentage will depend upon how long the shares have been held, as set forth in
the following table:
<TABLE>
<CAPTION>
CDSC AS A
YEAR SINCE PURCHASE PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- -------------------------------------- ---------------------
<S> <C>
First................................. 5.0%
Second................................ 4.0%
Third................................. 3.0%
Fourth................................ 2.0%
Fifth................................. 2.0%
Sixth................................. 1.0%
Seventh and thereafter................ None
</TABLE>
In the case of Class B shares of the Portfolio purchased by Qualified
Retirement Plans for which DWT serves as Trustee or DWR's Retirement Plan
Services serves as recordkeeper pursuant to a written Recordkeeping Services
Agreement, shares held for three years or more after purchase (calculated as
described in the paragraph above) will not be subject to any CDSC upon
redemption. However, shares redeemed earlier than three years after purchase may
be subject to a CDSC (calculated as described in the paragraph above), the
percentage of which will depend on how long the shares have been held, as set
forth in the following table:
<TABLE>
<CAPTION>
CDSC AS A
YEAR SINCE PURCHASE PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- -------------------------------------- ---------------------
<S> <C>
First................................. 2.0%
Second................................ 2.0%
Third................................. 1.0%
Fourth and thereafter................. None
</TABLE>
CDSC WAIVERS. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or, in
the case of shares held by certain Qualified Retirement Plans, three years)
preceding the redemption; (ii) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) prior to the redemption; and (iii) the current
net asset value of shares purchased through reinvestment of dividends or
distributions and/or shares acquired in exchange for shares of other open-end
investment companies for which InterCapital serves as investment manager
(collectively, with the Portfolio, the "Dean Witter Funds") sold with a
front-end sales charge or of other Dean Witter Funds acquired in exchange for
such shares. Moreover, in determining whether a CDSC is applicable it will be
assumed that amounts described in (i), (ii) and (iii) above (in that order) are
redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (a) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (b) held in a
qualified corporate or self-employed retirement
22
<PAGE>
plan, Individual Retirement Account ("IRA") or Custodial Account under Section
403(b)(7) of the Internal Revenue Code ("403(b) Custodial Account"), provided in
either case that the redemption is requested within one year of the death or
initial determination of disability;
(2) redemptions in connection with the following retirement plan
distributions: (a) lump-sum or other distributions from a qualified corporate
or self-employed retirement plan following retirement (or, in the case of a "key
employee" of a "top heavy" plan, following attainment of age 59 1/2); (b)
distributions from an IRA or 403(b) Custodial Account following attainment of
age 59 1/2; or (c) a tax-free return of an excess contribution to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
Qualified Retirement Plan which offers investment companies managed by the
Investment Manager or its subsidiary, Dean Witter Services Company Inc., as
self-directed investment alternatives and for which DWT serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement ("Eligible Plan"), provided that either: (a)
the plan continues to be an Eligible Plan after the redemption; or (b) the
redemption is in connection with the complete termination of the plan involving
the distribution of all plan assets to participants.
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of disability contained in Section 72(m)(7)
of the Internal Revenue Code, which relates to the inability to engage in
gainful employment. With reference to (2) above, the term "distribution" does
not encompass a direct transfer of IRA, 403(b) Custodial Account or retirement
plan assets to a successor custodian or trustee. All waivers will be granted
only following receipt by the Distributor of confirmation of the shareholder's
entitlement.
CONVERSION TO CLASS A SHARES. Class B shares of the Portfolio will convert
automatically to Class A shares, based on the relative net asset values of the
shares of the two Classes on the conversion date, which will be approximately
ten (10) years after the date of the original purchase. The ten year period is
calculated from the last day of the month in which the shares were purchased or,
in the case of Class B shares acquired through an exchange or a series of
exchanges, from the last day of the month in which the original Class B shares
were purchased, provided that shares acquired in exchange for shares of another
fund originally purchased before May 1, 1997 will convert to Class A shares in
May, 2007. The conversion of shares purchased on or after May 1, 1997 will take
place in the month following the tenth anniversary of the purchase. There will
also be converted at that time such proportion of Class B shares acquired
through automatic reinvestment of dividends and distributions owned by the
shareholder as the total number of his or her Class B shares converting at the
time bears to the total number of outstanding Class B shares purchased and owned
by the shareholder. In the case of Class B shares held by a Qualified Retirement
Plan for which DWT serves as Trustee or DWR's Retirement Plan Services serves as
recordkeeper pursuant to a written Recordkeeping Services Agreement, the plan is
treated as a single investor and all Class B shares will convert to Class A
shares on the conversion date of the first shares of a Dean Witter Multi-Class
Fund purchased by that plan. In the case of Class B shares previously exchanged
for shares of an "Exchange Fund" (see "Shareholder Services--Exchange
Privilege"), the period of time the shares were held in the Exchange Fund
(calculated from the last day of the month in which the Exchange Fund shares
were acquired) is excluded from the holding period for conversion. If those
shares are subsequently re-exchanged for Class B shares of a Dean Witter
Multi-Class Fund, the holding period resumes on the last day of the month in
which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior to
23
<PAGE>
the date for conversion. Class B shares evidenced by share certificates that are
not received by the Transfer Agent at least one week prior to any conversion
date will be converted into Class A shares on the next scheduled conversion date
after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion will
have a basis equal to the shareholder's basis in the converted Class B shares
immediately prior to the conversion, and (iii) Class A shares received on
conversion will have a holding period that includes the holding period of the
converted Class B shares. The conversion feature may be suspended if the ruling
or opinion is no longer available. In such event, Class B shares would continue
to be subject to Class B 12b-1 fees.
LEVEL LOAD ALTERNATIVE--CLASS C SHARES
Class C shares are sold at net asset value next determined without an
initial sales charge but are subject to a CDSC of 1.0% on most redemptions made
within one year after purchase (calculated from the last day of the month in
which the shares were purchased). The CDSC will be assessed on an amount equal
to the lesser of the current market value or the cost of the shares being
redeemed. The CDSC will not be imposed in the circumstances set forth above in
the section "Contingent Deferred Sales Charge Alternative--Class B Shares--CDSC
Waivers," except that the references to six years in the first paragraph of that
section shall mean one year in the case of Class C shares. Class C shares are
subject to an annual 12b-1 fee of up to 1.0% of the average daily net assets of
the Class. Unlike Class B shares, Class C shares have no conversion feature and,
accordingly, an investor that purchases Class C shares will be subject to 12b-1
fees applicable to Class C shares for an indefinite period subject to annual
approval by the Fund's Board of Trustees and regulatory limitations.
NO LOAD ALTERNATIVE--CLASS D SHARES
Class D shares are offered without any sales charge on purchase or
redemption and without any 12b-1 fee. Class D shares are offered only to
investors meeting an initial investment minimum of $5 million ($25 million for
Qualified Retirement Plans for which DWT serves as Trustee or DWR's Retirement
Plan Services serves as recordkeeper pursuant to a written Recordkeeping
Services Agreement) and the following categories of investors: (i) investors
participating in the InterCapital mutual fund asset allocation program pursuant
to which such persons pay an asset based fee; (ii) persons participating in a
fee-based program approved by the Distributor, pursuant to which such persons
pay an asset based fee for services in the nature of investment advisory or
administrative services (subject to all of the terms and conditions of such
programs referred to in (i) and (ii) above, which may include termination fees,
mandatory redemption upon termination and such other circumstances as specified
in the programs' agreements, and restrictions on transferability of Fund
shares); (iii) 401(k) plans established by DWR and SPS Transaction Services,
Inc. (an affiliate of DWR) for their employees; (iv) certain Unit Investment
Trusts sponsored by DWR; (v) certain other open-end investment companies whose
shares are distributed by the Distributor; and (vi) other categories of
investors, at the discretion of the Board, as disclosed in the then current
prospectus of the Portfolio. Investors who require a $5 million (or $25 million)
minimum initial investment to qualify to purchase Class D shares may satisfy
that requirement by investing that amount in a single transaction in Class D
shares of the Portfolio and other Dean Witter Multi-Class Funds, subject to the
$1,000 minimum initial investment required for that Class of the Portfolio. In
addition, for the purpose of meeting the $5 million (or $25 million) minimum
investment amount, holdings of Class A shares in all Dean Witter Multi-Class
Funds, shares of FSC Funds and shares of Dean Witter Funds for which such shares
have been exchanged will be included together with the current investment
amount. If a shareholder redeems
24
<PAGE>
Class A shares and purchases Class D shares, such redemption may be a taxable
event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act with respect to the distribution of Class A, Class B and Class C shares of
the Portfolio. In the case of Class A and Class C shares, the Plan provides that
the Fund will, on behalf of the Portfolio, reimburse the Distributor and others
for the expenses of certain activities and services incurred by them
specifically on behalf of those shares. Reimbursements for these expenses will
be made in monthly payments by the Portfolio of the Fund to the Distributor,
which will in no event exceed amounts equal to payments at the annual rates of
0.25% and 1.0% of the average daily net assets of Class A and Class C,
respectively. In the case of Class B shares, the Plan provides that the Fund, on
behalf of the Portfolio, will pay the Distributor a fee, which is accrued daily
and paid monthly, at the annual rate of 1.0% of the average daily net assets of
Class B. The fee is treated by the Portfolio of the Fund as an expense in the
year it is accrued. In the case of Class A shares, the entire amount of the fee
currently represents a service fee within the meaning of the NASD guidelines. In
the case of Class B and Class C shares, a portion of the fee payable pursuant to
the Plan, equal to 0.25% of the average daily net assets of each of these
Classes, is currently characterized as a service fee. A service fee is a payment
made for personal service and/or the maintenance of shareholder accounts.
Additional amounts paid under the Plan in the case of Class B and Class C
shares are paid to the Distributor for services provided and the expenses borne
by the Distributor and others in the distribution of the shares of those
Classes, including the payment of commissions for sales of the shares of those
Classes and incentive compensation to and expenses of DWR's account executives
and others who engage in or support distribution of shares or who service
shareholder accounts, including overhead and telephone expenses; printing and
distribution of prospectuses and reports used in connection with the offering of
the Portfolio's shares to other than current shareholders; and preparation,
printing and distribution of sales literature and advertising materials. In
addition, the Distributor may utilize fees paid pursuant to the Plan in the case
of Class B shares to compensate DWR and other Selected Broker-Dealers for their
opportunity costs in advancing such amounts, which compensation would be in the
form of a carrying charge on any unreimbursed expenses.
In the case of Class B shares, at any given time, the expenses in
distributing Class B shares of the Portfolio may be in excess of the total of
(i) the payments made by the Portfolio pursuant to the Plan, and (ii) the
proceeds of CDSCs paid by investors upon the redemption of Class B shares of the
Portfolio. For example, if $1 million in expenses in distributing Class B shares
of the Portfolio had been incurred and $750,000 had been received as described
in (i) and (ii) above, the excess expense would amount to $250,000. Because
there is no requirement under the Plan that the Distributor be reimbursed for
all distribution expenses or any requirement that the Plan be continued from
year to year, such excess amount does not constitute a liability of the
Portfolio. Although there is no legal obligation for the Portfolio to pay
expenses incurred in excess of payments made to the Distributor under the Plan,
and the proceeds of CDSCs paid by investors upon redemption of shares, if for
any reason the Plan is terminated the Trustees will consider at that time the
manner in which to treat such expenses. Any cumulative expenses incurred, but
not yet recovered through distribution fees or CDSCs, may or may not be
recovered through future distribution fees or CDSCs.
In the case of Class A and Class C shares of the Portfolio, 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 Portfolio
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<PAGE>
through payments in any subsequent year, except that expenses representing a
gross sales commission credited to account executives at the time of sale may be
reimbursed in the subsequent calendar year. No interest or other financing
charges will be incurred on any Class A or Class C distribution expenses
incurred by the Distributor under the Plan or on any unreimbursed expenses due
to the Distributor pursuant to the Plan.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Portfolio is determined once daily at
4:00 p.m., New York time, on each day that the New York Stock Exchange is open
(or, on days when the New York Stock Exchange closes prior to 4:00 p.m., at such
earlier time) by taking the net assets of the Portfolio, dividing by the
respective number of shares outstanding and adjusting to the nearest cent. The
assets of the Portfolio, belonging to the Class A, Class B, Class C and Class D
shares will be invested together in a single portfolio. The net asset value of
each Class of the Portfolio, however, will be determined separately by
subtracting each Class's accrued expenses and liabilities. The net asset value
per share will not be determined on Good Friday and on such other federal and
non-federal holidays as are observed by the New York Stock Exchange.
In the calculation of the Portfolio's net asset value; (1) an equity
portfolio security listed or traded on the New York or American Stock Exchange
or other stock exchange is valued at its latest sale price on that exchange
prior to the time assets are valued; if there were no sales that day, the
security is valued at the latest bid price (in cases where a security is traded
on more than one exchange, the security is valued on the exchange designated as
the primary market pursuant to procedures adopted by the Trustees); (2) all
other portfolio securities for which over-the-counter market quotations are
readily available are valued at the latest bid price; (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 Fund's 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) the value of short-term debt
securities which mature at a date less than sixty days subsequent to valuation
date will be determined on an amortized cost or amortized value basis; and (5)
the value of other assets will be determined in good faith at fair value under
procedures established by and under the general supervision of the Fund's
Trustees. Dividends receivable are accrued as of the ex-dividend date. Interest
income is accrued daily. Certain securities in the Portfolio's portfolio may be
valued by an outside pricing service approved by the Fund's Trustees.
SHAREHOLDER SERVICES
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AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends
and capital gains distributions are automatically paid in full and fractional
shares of the applicable Class of the Portfolio (or, if specified by the
shareholder in shares of any other open-end Dean Witter Fund), unless the
shareholder requests that they be paid in cash. Shares so acquired are acquired
at net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Redemptions and Repurchases").
INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS RECEIVED IN CASH. Any shareholder
who receives a cash payment representing a dividend or capital gains
distribution may invest such dividend or distribution in shares of the
applicable Class at the net asset value per share next determined after receipt
by the Transfer Agent, by returning the check or the
26
<PAGE>
proceeds to the Transfer Agent within thirty days after the payment date. Shares
so acquired are acquired at net asset value are not subject to the imposition of
a front-end sales charge or a CDSC (see "Redemptions and Repurchases").
EASYINVEST-SM-. Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of shares of a Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Portfolio. (See "Purchase of Fund Shares" and "Redemptions and
Repurchases--Involuntary Redemption.")
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Portfolio
having a minimum value of $10,000 based upon the then current net asset value.
The Withdrawal Plan provides for monthly or quarterly (March, June, September
and December) checks in any dollar amount, not less than $25, or in any whole
percentage of the account balance, on an annualized basis. Any applicable CDSC
will be imposed on shares redeemed under the Withdrawal Plan (see "Purchase of
Portfolio Shares"). Therefore, any shareholder participating in the Withdrawal
Plan will have sufficient shares redeemed from his or her account so that the
proceeds (net of any applicable CDSC) to the shareholder will be the designated
monthly or quarterly amount.
Withdrawal Plan payments should not be considered as dividends, yields or
income. If periodic withdrawal plan payments continuously exceed net investment
income and net capital gains, the shareholder's original investment will be
correspondingly reduced and ultimately exhausted. Each withdrawal constitutes a
redemption of shares and any gain or loss realized must be recognized for
federal income tax purposes.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of the
above services.
TAX-SHELTERED RETIREMENT PLANS. Retirement plans are available for use by
corporations, the self-employed, Individual Retirement Accounts and Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of such
plans should be on advice of legal counsel or tax adviser.
For further information regarding plan administration, custodial fees and
other details, investors should contact their DWR or other Selected Dealer
account executive or the Transfer Agent.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of any
other Dean Witter Multi-Class Fund without the imposition of any exchange fee.
Shares may also be exchanged for shares of the following funds: Dean Witter
Short-Term U.S. Treasury Trust, Dean Witter Limited Term Municipal Trust, Dean
Witter Short-Term Bond Fund, Dean Witter Intermediate Term U.S. Treasury Trust
and five Dean Witter funds which are money market funds (the "Exchange Funds").
Class A shares may also be exchanged for shares of Dean Witter Multi-State
Municipal Series Trust and Dean Witter Hawaii Municipal Trust, which are Dean
Witter Funds sold with a front-end sales charge ("FSC Funds"). Class B shares
may also be exchanged for shares of Dean Witter Global Short-Term Income Fund
Inc. ("Global Short-Term"), which is a Dean Witter Fund offered with a CDSC.
Exchanges may be made after the shares of the Portfolio acquired by purchase
(not by exchange or dividend reinvestment) have been held for thirty days. There
is no waiting period for exchanges of shares acquired by exchange or dividend
reinvestment.
An exchange to another Dean Witter Multi-Class Fund, any FSC Fund, Global
Short-Term or any Exchange Fund that is not a money market fund is on the basis
of the next calculated net asset value per share of each fund after the exchange
order is received. When exchanging into a money market fund from the Portfolio,
shares of the Portfolio are
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<PAGE>
redeemed out of the Portfolio at their next calculated net asset value and the
proceeds of the redemption are used to purchase shares of the money market fund
at the net asset value determined the following business day. Subsequent
exchanges between any of the Dean Witter Multi-Class Funds, FSC Funds, Global
Short-Term or any Exchange Fund that is not a money market fund can be effected
on the same basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period of
time the shareholder remains in an Exchange Fund (calculated from the last day
of the month in which the Exchange Fund shares were acquired), the holding
period (for the purpose of determining the rate of the CDSC) is frozen. If those
shares are subsequently re-exchanged for shares of a Dean Witter Multi-Class
Fund or Global Short-Term, the holding period previously frozen when the first
exchange was made resumes on the last day of the month in which shares of a Dean
Witter Multi-Class Fund or shares of Global Short-Term are reacquired. Thus, the
CDSC is based upon the time (calculated as described above) the shareholder was
invested in shares of a Dean Witter Multi-Class Fund or in shares of Global
Short-Term (see "Purchase of Fund Shares"). In the case of exchanges of Class A
shares which are subject to a CDSC, the holding period also includes the time
(calculated as described above) the shareholder was invested in shares of a FSC
Fund. In the case of shares exchanged into an Exchange Fund on or after April
23, 1990, upon a redemption of shares which results in a CDSC being imposed, a
credit (not to exceed the amount of the CDSC) will be given in an amount equal
to the Exchange Fund 12b-1 distribution fees incurred on or after that date
which are attributable to those shares. (Exchange Fund 12b-1 distribution fees
are described in the prospectuses for those funds.) Class B shares of the
Portfolio acquired in exchange for Global Short-Term or Class B shares of
another Dean Witter Multi-Class Fund having a different CDSC schedule than that
of this Portfolio will be subject to the higher CDSC schedule, even if such
shares are subsequently re-exchanged for shares of the fund with the lower CDSC
schedule.
ADDITIONAL INFORMATION REGARDING EXCHANGES
Purchases and exchanges should be made for investment purposes only. A
pattern of frequent exchanges may be deemed by the Investment Manager to be
abusive and contrary to the best interests of the Portfolio's other shareholders
and, at the Investment Manager's discretion, may be limited by the Portfolio's
refusal to accept additional purchases and/or exchanges from the investor.
Although the Portfolio does not have any specific definition of what constitutes
a pattern of frequent exchanges, and will consider all relevant factors in
determining whether a particular situation is abusive and contrary to the best
interests of the Portfolio and its other shareholders, investors should be aware
that the Portfolio and each of the other Dean Witter Funds may in their
discretion limit or otherwise restrict the number of times this Exchange
Privilege may be exercised by any investor. Any such restriction will be made by
the Portfolio on a prospective basis only, upon notice of the shareholder not
later than ten days following such shareholder's most recent exchange. Also, the
Exchange Privilege may be terminated or revised at any time by the Fund and/or
any of such Dean Witter Funds for which shares of the Portfolio have been
exchanged, upon such notice as may be required by applicable regulatory
agencies. Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions on
exchange of shares of the Portfolio pledged in the margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain a copy and examine it carefully
before investing. Exchanges are subject to the minimum investment requirement of
each Class of Shares and any other conditions imposed by each fund. In the case
of any shareholder holding a share
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<PAGE>
certificate or certificates, no exchanges may be made until all applicable share
certificates have been received by the Transfer Agent and deposited in the
shareholder's account. An exchange will be treated for federal income tax
purposes the same as a repurchase or redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within ninety days after the shares are purchased. The
Exchange Privilege is only available in states where an exchange may legally be
made.
If DWR or another Selected Broker-Dealer is the current dealer of record and
its account numbers are part of the account information, shareholders may
initiate an exchange of shares of the Portfolio for shares of any of the Dean
Witter Funds (for which the Exchange Privilege is available) pursuant to this
Exchange Privilege by contacting their account executive (no Exchange Privilege
Authorization Form is required). Other shareholders (and those shareholders who
are clients of DWR or another Selected Broker-Dealer but who wish to make
exchanges directly by writing or telephoning the Transfer Agent) must complete
and forward to the Transfer Agent an Exchange Privilege Authorization Form,
copies of which may be obtained from the Transfer Agent, to initiate an
exchange. If the Authorization Form is used, exchanges may be made in writing or
by contacting the Transfer Agent at (800) 869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures may
include requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number and DWR or other
Selected Broker-Dealer account number (if any). Telephone instructions may also
be recorded. If such procedures are not employed, the Portfolio may be liable
for any losses due to unauthorized or fraudulent instructions.
Telephone exchange instructions will be accepted if received by the Transfer
Agent between 9:00 a.m. and 4:00 p.m., New York time, on any day the New York
Stock Exchange is open. Any shareholder wishing to make an exchange who has
previously filed an Exchange Privilege Authorization Form and who is unable to
reach the Fund by telephone should contact his or her DWR or other Selected
Broker-Dealer account executive, if appropriate, or make a written exchange
request. Shareholders are advised that during periods of drastic economic or
market changes, it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the experience with the Dean
Witter Funds in the past.
Shareholders should contact their DWR or other Selected Broker-Dealer
account executive or the Transfer Agent for further information about the
Exchange Privilege.
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------
REDEMPTION. Shares of each Class of the Portfolio of the Fund can be
redeemed for cash at any time at the net asset value per share next determined
less the amount of any applicable CDSC in the case of Class A, Class B or Class
C shares (see "Purchase of Portfolio Shares"). If shares are held in a
shareholder's account without a share certificate, a written request for
redemption sent to the Fund's Transfer Agent at P.O. Box 983, Jersey City, NJ
07303 is required. If certificates are held by the shareholder(s), the shares
may be redeemed by surrendering the certificates with a written request for
redemption, along with any additional information required by the Transfer
Agent.
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to any
of their offices. Shares held in a shareholder's account without a share
certificate may also be
29
<PAGE>
repurchased by DWR and other Selected Broker-Dealers upon the telephonic request
of the shareholder. The repurchase price is the net asset value next computed
(see "Purchase of Portfolio Shares") after such repurchase order is received by
DWR or other Selected Broker-Dealer, reduced by any applicable CDSC.
The CDSC, if any, will be the only fee imposed by either the Portfolio or
the Distributor. The offer by DWR and other Selected Broker-Dealers to
repurchase shares may be suspended without notice by the Distributor at any
time. In that event, shareholders may redeem their shares through the Fund's
Transfer Agent as set forth above under "Redemption."
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. Payment for shares presented
for repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in good
order. Such payment may be postponed or the right of redemption suspended under
unusual circumstances, e.g., when normal trading is not taking place on the New
York Stock Exchange. If the shares to be redeemed have recently been purchased
by check, payment of the redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of receipt of the check by the Transfer Agent).
Shareholders maintaining margin accounts with DWR or another Selected
Broker-Dealer are referred to their account executive regarding restrictions on
redemption of shares of the Portfolio pledged in the margin account.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares
redeemed or repurchased and has not previously exercised this reinstatement
privilege may, within 35 days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase in
shares of the Portfolio in the same Class from which such shares were redeemed
or repurchased at their net asset value next determined after a reinstatement
request, together with the proceeds, is received by the Transfer Agent and
receive a pro rata credit for any CDSC paid in connection with such redemption
or repurchase.
INVOLUNTARY REDEMPTION. The Portfolio reserves the right to redeem, on
sixty days' notice and at net asset value, the shares of any shareholder (other
than shares held in an Individual Retirement Account or Custodial Account under
Section 403(b)(7) of the Internal Revenue Code) whose shares due to redemptions
by the shareholder have a value of less than $100 or such lesser amount as may
be fixed by the Trustees or, in the case of an account opened through
EasyInvest-SM-, if after twelve months the shareholder has invested less than
$1,000 in the account. However, before the Portfolio redeems such shares and
sends the proceeds to the shareholder, it will notify the shareholder that the
value of the shares is less than the applicable amount and allow him or her
sixty days to make an additional investment in an amount which will increase the
value of his or her account to at least the applicable amount before the
redemption is processed. No CDSC will be imposed on any involuntary redemption.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS. The Portfolio intends to distribute
substantially all of its net investment income and distribute capital gains, if
any, once each year. The Portfolio may, however, determine either to distribute
or to retain all or part of any long-term capital gains in any year for
reinvestment.
All dividends and any capital gains distributions will be paid in additional
shares of the same Class and automatically credited to the shareholder's account
without issuance of a share certificate unless the shareholder requests in
writing that all dividends and/or distributions be paid in cash.
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Shares acquired by dividend and distribution reinvestments will not be subject
to any front-end sales charge or CDSC. Class B shares acquired through dividend
and distribution reinvestments will become eligible for conversion to Class A
shares on a pro rata basis. Distributions paid on Class A and Class D shares
will be higher than for Class B and Class C shares because distribution fees
paid by Class B and Class C shares are higher. (See "Shareholder
Services--Automatic Investment of Dividends and Distributions.")
TAXES. Because the Portfolio intends to distribute all of its net
investment income and net short-term capital gains to shareholders and otherwise
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code, it is not expected that the Fund will be required to pay any
Federal income tax on any such income and capital gains. Shareholders will
normally have to pay Federal income taxes, and any state and local income taxes,
on the dividends and distributions they receive from the Portfolio. Any
dividends declared in the last quarter of any calendar year which are paid in
the following year prior to February 1 will be deemed for tax purposes to have
been received in the prior year.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Portfolio's shares and regardless of whether the distribution is
received in additional shares or in cash. Capital gains distributions are not
eligible for the dividends received deduction.
After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax purposes.
To avoid being subject to a 31% Federal backup withholding tax on taxable
dividends, capital gains distributions and the proceeds of redemptions and
repurchases, shareholders' taxpayer identification numbers must be furnished and
certified as to their accuracy.
Shareholders should consult their tax advisers as to the applicability of
the foregoing to their current situation.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Portfolio may quote its "total return" in
advertisements and sales literature. These figures are computed separately for
Class A, Class B, Class C and Class D shares. The total return of the Portfolio
is based on historical earnings and is not intended to indicate future
performance.
The "average annual total return" of the Portfolio refers to a figure
reflecting the average annualized percentage increase (or decrease) in the value
of an initial investment in a Class of the Portfolio of $1,000 over periods of
one, five and ten years, or the life of the Portfolio, if less than any of the
foregoing. Average annual total return reflects all income earned by the
Portfolio, any appreciation or depreciation of the Portfolio's assets, all
expenses incurred by the applicable Class and all sales charges which will be
incurred by shareholders, for the stated
periods. It also assumes reinvestment of all dividends and distributions paid by
the Portfolio.
In addition to the foregoing, the Portfolio may advertise its total return
for each Class over different periods of time by means of aggregate, average,
and year-by-year or other types of total return figures. Such calculations may
or may not reflect the deduction of any sales charge which, if reflected, would
reduce the performance quoted. The Portfolio may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in each Class of
shares of the Portfolio. The Portfolio from time to time may also advertise its
performance relative to certain performance rankings and indexes compiled by
independent organizations, such as mutual fund performance rankings of Lipper
Analytical Services, Inc.
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ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS. All shares of beneficial interest of the Portfolio are of
$0.01 par value and are equal as to earnings, assets and voting privileges
except that each Class of the Portfolio will have exclusive voting privileges
with respect to matters relating to distribution expenses borne solely by such
Class or any other matter in which the interests of one Class differ from the
interests of any other Class. In addition, Class B shareholders will have the
right to vote on any proposed material increase in Class A's expenses, if such
proposal is submitted separately to Class A shareholders. Also, as discussed
herein, Class A, Class B and Class C of each Portfolio bear the expenses related
to the distribution of their respective shares.
The Portfolio is not required to hold Annual Meetings of Shareholders and,
in ordinary circumstances, the Portfolio does not intend to hold such meetings.
The Trustees may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Act or the Declaration of Trust. Under certain
circumstances the Trustees may be removed by action of the Trustees or by the
shareholders.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for obligations of the
Portfolio. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Portfolio, requires that
Portfolio obligations include such disclaimer, and provides for indemnification
and reimbursement of expenses out of the Portfolio's property for any
shareholder held personally liable for the obligations of the Fund. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Portfolio itself would be
unable to meet its obligations. Given the above limitations on shareholder
personal liability, and the nature of the Portfolio's assets and operations, the
possibility of the Fund being unable to meet its obligations is remote and thus,
in the opinion of Massachusetts counsel to the Fund, the risk to shareholders of
personal liability is remote.
CODE OF ETHICS. Directors, officers and employees of the Investment
Manager, Dean Witter Services Company Inc. and the Distributor are subject to a
strict Code of Ethics adopted by those companies. The Code of Ethics is intended
to ensure that the interests of shareholders and other clients are placed ahead
of any personal interest, that no undue personal benefit is obtained from a
person's employment activities and that actual and potential conflicts of
interest are avoided. To achieve these goals and comply with regulatory
requirements, the Code of Ethics requires, among other things, that personal
securities transactions by employees of the companies be subject to an advance
clearance process to monitor that no Dean Witter Fund is engaged at the same
time in a purchase or sale of the same security. The Code of Ethics bans the
purchase of securities in an initial public offering, and also prohibits
engaging in futures and options transactions and profiting on short-term trading
(that is, a purchase within sixty days of a sale or a sale within sixty days of
a purchase) of a security. In addition, investment personnel may not purchase or
sell a security for their personal account within thirty days before or after
any transaction in any Dean Witter Fund managed by them. Any violations of the
Code of Ethics are subject to sanctions, including reprimand, demotion or
suspension or termination of employment. The Code of Ethics comports with
regulatory requirements and the recommendations in the 1994 report by the
Investment Company Institute Advisory Group on Personal Investing.
MASTER/FEEDER CONVERSION. The Portfolio reserves the right to seek to
achieve its investment objective by investing all of its investable assets in a
diversified, open-end management investment company having the same investment
objective and policies and substantially the same investment restrictions as
those applicable to the Portfolio.
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<PAGE>
SHAREHOLDER INQUIRIES. All inquiries regarding the Portfolio should be
directed to the Fund at the telephone numbers or address set forth on the front
cover of this Prospectus.
The Investment Manager provided the initial capital for each Portfolio of
the Fund by purchasing 1,250 shares each of Class A, Class B, Class C and Class
D of each Portfolio for $12,500, respectively, on November 6, 1997. As of the
date of this Prospectus, the Investment Manager owned 100% of the outstanding
shares of the Fund. The Investment Manager may be deemed to control the Fund
until such time as it owns less than 25% of the outstanding shares of the Fund,
and may be deemed to control each Portfolio until such time as it owns less than
25% of the outstanding shares of that Portfolio.
33
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THE DEAN WITTER FAMILY OF FUNDS
<TABLE>
<S> <C>
MONEY MARKET FUNDS ACTIVE ASSETS ACCOUNT PROGRAM
Dean Witter Liquid Asset Fund Inc. Active Assets Money Trust
Dean Witter Tax-Free Daily Income Active Assets Tax-Free Trust
Trust Active Assets Government Securities
Dean Witter New York Municipal Trust
Money Market Active Assets California Tax-Free
Trust Trust
Dean Witter California Tax-Free
Daily Income Trust FIXED-INCOME FUNDS
Dean Witter U.S. Government Money Dean Witter High Yield Securities
Market Trust Inc.
Dean Witter Tax-Exempt Securities
EQUITY FUNDS Trust
Dean Witter American Value Fund Dean Witter U.S. Government
Dean Witter Natural Resource Securities Trust
Development Dean Witter California Tax-Free
Securities Inc. Income Fund
Dean Witter Dividend Growth Dean Witter New York Tax-Free
Securities Inc. Income Fund
Dean Witter Developing Growth Dean Witter Convertible Securities
Securities Trust Trust
Dean Witter World Wide Investment Dean Witter Federal Securities
Trust Trust
Dean Witter Value-Added Market Dean Witter World Wide Income Trust
Series Dean Witter Intermediate Income
Dean Witter Utilities Fund Securities
Dean Witter Precious Metals and Dean Witter Global Short-Term
Minerals Trust Income Fund Inc.
Dean Witter Capital Growth Dean Witter Multi-State Municipal
Securities Series Trust
Dean Witter European Growth Fund Dean Witter Short-Term U.S.
Inc. Treasury Trust
Dean Witter Pacific Growth Fund Dean Witter Diversified Income
Inc. Trust
Dean Witter Health Sciences Trust Dean Witter Limited Term Municipal
Dean Witter Global Dividend Growth Trust
Securities Dean Witter Short-Term Bond Fund
Dean Witter Global Utilities Fund Dean Witter Balanced Income Fund
Dean Witter International SmallCap Dean Witter Hawaii Municipal Trust
Fund Dean Witter Intermediate Term U.S.
Dean Witter Mid-Cap Growth Fund Treasury
Dean Witter Balanced Growth Fund Trust
Dean Witter Capital Appreciation
Fund DEAN WITTER RETIREMENT SERIES
Dean Witter Information Fund Liquid Asset Series
Dean Witter Japan Fund U.S. Government Money Market Series
Dean Witter Income Builder Fund U.S. Government Securities Series
Dean Witter Special Value Fund Intermediate Income Securities
Dean Witter Financial Services Series
Trust American Value Series
Dean Witter Market Leader Trust Capital Growth Series
Dean Witter S&P 500 Index Fund Dividend Growth Series
Dean Witter Fund of Funds Strategist Series
Morgan Stanley Dean Witter Utilities Series
Competitive Edge Value-Added Market Series
Fund, "BEST IDEAS" PORTFOLIO Global Equity Series
ASSET ALLOCATION FUNDS
Dean Witter Strategist Fund
Dean Witter Global Asset Allocation
Fund
</TABLE>
<PAGE>
Morgan Stanley Dean Witter
Competitive Edge Fund
"Best Ideas" Portfolio
Two World Trade Center
New York, New York 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Mark Bavoso
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
MORGAN STANLEY
DEAN WITTER
COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO
[GRAPHIC]
PROSPECTUS -- DECEMBER 29, 1997
