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MORGAN STANLEY DEAN WITTER
COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO
PROSPECTUS--JULY 30, 1998
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MORGAN STANLEY DEAN WITTER COMPETITIVE 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."
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.")
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 July 30, 1998, which has been filed with the Securities and Exchange
Commission, and which is available at no charge upon request of the Fund at the
address or telephone numbers listed on this page. The Statement of Additional
Information is incorporated herein by reference.
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TABLE OF CONTENTS
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Prospectus Summary................................ 2
Summary of Fund Expenses.......................... 4
Financial Highlights.............................. 5
The Fund and its Management....................... 6
Investment Objective and Policies................. 6
Risk Considerations and Investment
Practices.................................... 8
Investment Restrictions........................... 12
Purchase of Portfolio Shares...................... 12
Shareholder Services.............................. 20
Redemptions and Repurchases....................... 22
Dividends, Distributions and Taxes................ 23
Performance Information........................... 24
Additional Information............................ 24
Financial Statements--May 31, 1998................ 26
Report of Independent Accountants................. 36
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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.
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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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
MORGAN STANLEY DEAN WITTER DISTRIBUTORS INC., DISTRIBUTOR
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PROSPECTUS SUMMARY
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THE FUND The Fund is an open-end, diversified management investment company currently consisting
of two separate 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 24). The Portfolio offers four Classes of shares, each with a different combination
of sales charges, ongoing fees and other features (see pages 12-19).
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MINIMUM The minimum initial investment for each Class is $1,000 ($100 if the account is opened
PURCHASE through EasyInvest-SM-). Class D shares are only available to persons investing $5
million ($25 million for certain qualified plans) or more and to certain other limited
categories of investors. For the purpose of meeting the minimum $5 million (or $25
million) investment for Class D shares, and subject to the $1,000 minimum initial
investment for each Class of the Portfolio, an investor's existing holdings of Class A
shares and shares of funds for which Morgan Stanley Dean Witter Advisors Inc. serves as
investment manager ("Morgan Stanley Dean Witter Funds") that are sold with a front-end
sales charge, and concurrent investments in Class D shares of the Portfolio and other
Morgan Stanley Dean Witter Funds that are multiple class funds will be aggregated. The
minimum subsequent investment is $100 (see page 12).
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INVESTMENT The investment objective of the "Best Ideas" Portfolio is long-term capital growth (see
OBJECTIVE page 6).
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INVESTMENT Morgan Stanley Dean Witter Advisors Inc., the Investment Manager of the Fund, and its
MANAGER wholly-owned subsidiary, Morgan Stanley Dean Witter Services Company Inc., serve in
various investment management, advisory, management and administrative capacities to 100
investment companies and other portfolios with assets of approximately $115.2 billion at
June 30, 1998.
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MANAGEMENT FEE The Investment Manager receives a monthly fee at the annual rates of 0.65% of the
Portfolio's average daily net assets not exceeding $1.5 billion and 0.625% of the
Portfolio's average daily net assets exceeding $1.5 billion. The fee should not be
compared with fees paid by other investment companies without also considering
applicable sales loads and distribution fees, including those noted below (see page 6).
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DISTRIBUTOR Morgan Stanley Dean Witter Distributors Inc. (the "Distributor") is the Fund's
AND Underwriter and Distributor. The Fund has adopted a distribution plan pursuant to Rule
DISTRIBUTION 12b-1 under the Investment Company Act (the "12b-1 Plan") with respect to the
FEE 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 12 and
19).
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ALTERNATIVE Four Classes of shares of the "Best Ideas" Portfolio are offered:
PURCHASE
ARRANGEMENTS - Class A shares are offered with a front-end sales charge, starting at 5.25% and
reduced for larger purchases. Investments of $1 million or more (and investments by
certain other limited categories of investors) are not subject to any sales charge at
the time of purchase but a contingent deferred sales charge ("CDSC") of 1.0% may be
imposed on redemptions within one year of purchase. The Fund, on 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 12, 15 and 19).
- 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 12, 17 and 19).
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2
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- 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 12, 18 and 19).
- 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 12, 18 and 19).
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DIVIDENDS AND Dividends from net investment income and distributions from net capital gains, if any,
CAPITAL GAINS are paid at least once per year. The Portfolio may, however, determine to retain all or
DISTRIBUTIONS part of any net long-term capital gains in any 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 20 and 23).
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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 22).
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RISK An investment in the "Best Ideas" Portfolio should be considered a long-term holding and
CONSIDERATIONS subject to all the 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
8-12).
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THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS AND IN THE STATEMENT OF
ADDITIONAL INFORMATION.
3
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SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of the
Portfolio will incur. The expenses and fees set forth in the table are based on
the fees and expenses for the fiscal period ended May 31, 1998 of the Portfolio.
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CLASS A CLASS B CLASS C CLASS D
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<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)... 5.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments.................................. None None None None
Maximum Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds).................................................. None(2) 5.00%(3) 1.00%(4) None
Redemption Fees................................................................. None None None None
Exchange Fee.................................................................... None None None None
ANNUAL PORTFOLIO OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees* (5)............................................................ 0.65% 0.65% 0.65% 0.65%
12b-1 Fees (6) (7).............................................................. 0.25% 1.00% 1.00% None
Other Expenses* (5)............................................................. 0.23% 0.23% 0.23% 0.23%
Total Fund Operating Expenses* (8).............................................. 1.13% 1.88% 1.88% 0.88%
</TABLE>
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* THE INVESTMENT MANAGER AGREED 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
ATTAINED $50 MILLION IN NET ASSETS OR UNTIL SIX MONTHS FROM COMMENCEMENT OF
THE PORTFOLIO'S OPERATIONS, WHICHEVER OCCURS FIRST. THE PORTFOLIO ATTAINED
$50 MILLION IN NET ASSETS ON FEBRUARY 25, 1998. 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) MANAGEMENT FEES AND OTHER EXPENSES ARE BASED ON THE FUND'S ACTUAL AGGREGATE
EXPENSES.
(6) THE 12b-1 FEE IS ACCRUED DAILY AND PAYABLE MONTHLY. THE ENTIRE 12b-1 FEE
PAYABLE BY CLASS A AND A PORTION OF THE 12b-1 FEE PAYABLE BY EACH OF CLASS B
AND CLASS C 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").
(7) UPON CONVERSION OF CLASS B SHARES TO CLASS A SHARES, SUCH SHARES WILL BE
SUBJECT TO THE LOWER 12b-1 FEE APPLICABLE TO CLASS A SHARES. NO SALES CHARGE
IS IMPOSED AT THE TIME OF CONVERSION OF CLASS B SHARES TO CLASS A SHARES.
CLASS C SHARES DO NOT HAVE A CONVERSION FEATURE AND, THEREFORE, ARE SUBJECT
TO AN ONGOING 1.00% DISTRIBUTION FEE (SEE "PURCHASE OF PORTFOLIO
SHARES--ALTERNATIVE PURCHASE ARRANGEMENTS").
(8) "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."
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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....................................... $63 $87
Class B....................................... $69 $89
Class C....................................... $29 $59
Class D....................................... $ 9 $28
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....................................... $63 $87
Class B....................................... $19 $59
Class C....................................... $19 $59
Class D....................................... $ 9 $28
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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.
4
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FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by PricewaterhouseCoopers
LLP, independent accountants. The financial highlights should be read in
conjunction with the financial statements, notes thereto, and the unqualified
report of independent accountants, which are contained in this Prospectus
commencing on page 26.
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FOR THE PERIOD FEBRUARY 25, 1998* THROUGH MAY 31, 1998++
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CLASS A CLASS B
SHARES SHARES CLASS C SHARES CLASS D SHARES
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PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............. $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- -------- ------ ------
Net investment income........................... 0.05 0.03 0.03 0.08
Net realized and unrealized gain................ 0.32 0.32 0.32 0.30
-------- -------- ------ ------
Total from investment operations................ 0.37 0.35 0.35 0.38
-------- -------- ------ ------
Net asset value, end of period.................. $ 10.37 $ 10.35 $ 10.35 $ 10.38
-------- -------- ------ ------
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TOTAL INVESTMENT RETURN+(1)....................... 3.70% 3.50% %3.50 %3.80
Ratios to Average Net Assets (2):
Expenses...................................... 1.13% 1.88% %1.88 %0.92
Net investment income......................... 1.66% 0.92% %0.91 %2.94
SUPPLEMENTAL DATA:
Net assets, end of period, in millions.......... $118 $1,711 $176 $5
Portfolio turnover rate (1)..................... 19% 19% % 19 % 19
Average commission rate paid.................... $0.0287 $0.0287 $0.0287 $0.0287
</TABLE>
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* COMMENCEMENT OF OPERATIONS.
++ THE PER SHARE AMOUNTS WERE COMPUTED USING AN AVERAGE NUMBER OF SHARES
OUTSTANDING.
+ DOES NOT REFLECT THE DEDUCTION OF SALES CHARGE. CALCULATED BASED ON THE NET
ASSET VALUE AS OF THE LAST BUSINESS DAY OF THE PERIOD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
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.
Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors" or the "Investment
Manager"), whose address is Two World Trade Center, New York, New York 10048, is
the Fund's Investment Manager. The Investment Manager is a wholly-owned
subsidiary of Morgan Stanley Dean Witter & Co. ("MSDW"), a preeminent global
financial services firm that maintains leading market positions in each of its
three primary businesses--securities, asset management and credit services. The
Investment Manager, which was incorporated in July, 1992 under the name Dean
Witter InterCapital Inc., changed its name to Morgan Stanley Dean Witter
Advisors Inc. on June 22, 1998.
MSDW Advisors and its wholly-owned subsidiary, Morgan Stanley Dean Witter
Services Company Inc. ("MSDW Services"), serve in various investment management,
advisory, management and administrative capacities to 101 investment companies,
28 of which are listed on the New York Stock Exchange, with combined assets of
approximately $110.8 billion as of June 30, 1998. The Investment Manager also
manages and advises portfolios of pension plans, other institutions and
individuals which aggregated approximately $4.4 billion at such date.
The Fund has retained the Investment Manager to provide administrative
services, manage its business affairs and manage the investment of the Fund's
assets, 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). MSDW Advisors has retained MSDW Services 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 following annual rates to the Portfolio's net assets:
0.65% of the portion of daily net assets, not exceeding $1.5 billion and 0.625%
of the portion of the daily net assets exceeding $1.5 billion. 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, auditing and custodian fees; 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.
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 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
6
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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. MSDW
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. MSDW 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 July 16, 1998 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 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 net 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
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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 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. 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 Dean Witter Reynolds Inc. 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 MSDW and its
affiliates, including the Investment Manager, as well as the Portfolio. The
lists are also subject to restrictions related to MSDW'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, MSDW.
MSDW BUSINESSES. As a diversified financial services firm, with three primary
businesses--securities, asset management and credit services, MSDW provides a
wide range of financial services to issuers of securities and investors in
securities. MSDW 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
MSDW 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 different
currencies 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. The Portfolio will incur costs in
connection with conversations between various currencies.
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 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. Finally, in the event of a
default of any foreign debt obligations, it may be more difficult for the Fund
to obtain or enforce a judgement against the issuers of such securities.
Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures in 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
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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.
Many European countries are about to adopt a single European currency, the
euro (the "Euro Conversion"). The consequence of the Euro Conversion for foreign
exchange rates, interest rates and the value of European securities eligible for
purchase by the Portfolio are presently unclear. Such consequences may adversely
affect the value and/or increase the volatility of securities held by the
Portfolio.
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 a
particular foreign currency 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
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
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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
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 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
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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 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.
YEAR 2000. The investment management services provided to the Fund by the
Investment Manager and the services provided to shareholders by the Distributor
and the Transfer Agent depend on the smooth functioning of their computer
systems. Many computer software systems in use today cannot recognize the year
2000, but revert to 1900 or some other date, due to the manner in which dates
were encoded and calculated. That failure could have a negative impact on the
handling of securities trades, pricing and account services. The Investment
Manager, the Distributor and the Transfer Agent have been actively working on
necessary changes to their own computer systems to prepare for the year 2000 and
expect that their systems will be adapted before that date, but there can be no
assurance that they will be successful, or that interaction with other
non-complying computer systems will not impair their services at that time.
In addition, it is possible that the markets for securities in which the
Fund invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies and overall economic uncertainties.
Earnings of individual issuers will be affected by remediation costs, which may
be substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected.
For additional risk disclosure, please refer to the "Investment Objective
and Policies" section of the Prospectus and to the "Investment Practices and
Policies of
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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 MSDW Advisors' Growth Group, which manages 29
equity funds and fund portfolios with approximately $12.7 billion in assets as
of June 30, 1998. Mark Bavoso, Senior Vice President of MSDW Advisors, is the
primary portfolio manager of the Portfolio and has been a portfolio manager at
MSDW Advisors 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 Dean Witter Reynolds Inc. In addition to Morgan Stanley and Dean Witter
Reynolds Inc., 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
Dean Witter Reynolds Inc. 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 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.
PURCHASE OF PORTFOLIO SHARES
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GENERAL
The "Best Ideas" Portfolio offers each class of its shares for sale to the
public on a continuous basis. Pursuant to a Distribution Agreement between the
Fund and Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors" or
the "Distributor"), an affiliate of the Investment Manager, shares of the
Portfolio of the Fund are distributed by the Distributor and offered by Dean
Witter Reynolds Inc. ("DWR"), a selected dealer and subsidiary of MSDW and
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other dealers which have entered into agreements with the Distributor ("Selected
Broker-Dealers"). It is anticipated that DWR will undergo a change of corporate
name which is expected to incorporate the brand name "Morgan Stanley Dean
Witter" pending approval of various regulatory authorities. The principal
executive office of the Distributor is located at Two World Trade Center, New
York, New York 10048.
The "Best Ideas" Portfolio offers four classes of shares (each, a "Class").
Class A shares are sold to investors with an initial sales charge that declines
to zero for larger purchases; however, Class A shares sold without an initial
sales charge are subject to a contingent deferred sales charge ("CDSC") of 1.0%
if redeemed within one year of purchase, except for certain specific
circumstances. Class B shares are sold without an initial sales charge but are
subject to a CDSC (scaled down from 5.0% to 1.0%) payable upon most redemptions
within six years after purchase. (Class B shares purchased by certain qualified
plans are subject to a CDSC scaled down from 2.0% to 1.0% if redeemed within
three years after purchase.) Class C shares are sold without an initial sales
charge but are subject to a CDSC of 1.0% on most redemptions made within one
year after purchase. Class D shares are sold without an initial sales charge or
CDSC and are available only to investors meeting an initial investment minimum
of $5 million ($25 million for certain qualified plans), and to certain other
limited categories of investors. At the discretion of the Board of Trustees of
the Fund, Class A shares may be sold to categories of investors in addition to
those set forth in this prospectus at net asset value without a front-end sales
charge, and Class D shares may be sold to certain other categories of investors,
in each case as may be described in the then current prospectus of the
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 Morgan Stanley Dean Witter Funds that
are multiple class funds ("Morgan Stanley Dean Witter Multi-Class Funds") and
shares of Morgan Stanley Dean Witter Funds sold with a front-end sales charge
("FSC Funds") and concurrent investments in Class D shares of the Portfolio and
other Morgan Stanley Dean Witter Multi-Class Funds will be aggregated.
Subsequent purchases of $100 or more may be made by sending a check, payable to
Morgan Stanley Dean Witter Competitive Edge Fund--"Best Ideas" Portfolio,
directly to Morgan Stanley Dean Witter Trust FSB (the "Transfer Agent" or "MSDW
Trust") at P.O. Box 1040, Jersey City, NJ 07303 or by contacting a Morgan
Stanley Dean Witter Financial Advisor or other Selected Broker-Dealer
representative. When purchasing shares of the 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
investments pursuant to (i) Systematic Payroll Deduction Plans (including
Individual Retirement Plans), (ii) MSDW Advisors mutual fund asset allocation
program and (iii) fee-based programs approved by the Distributor, pursuant to
which participants pay an asset based fee for services in the nature of
investment advisory, administrative and/or brokerage 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 offers several Classes of shares to investors
designed to provide them with the flexibility of
13
<PAGE>
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. 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
14
<PAGE>
example, they determine that they do not wish to be subject to a front-end sales
charge and they are uncertain as to the length of time they intend to hold their
shares.
For the purpose of meeting the $5 million (or $25 million) minimum
investment amount for Class D shares, holdings of Class A shares in all Morgan
Stanley Dean Witter Multi-Class Funds, shares of FSC Funds and shares of Morgan
Stanley Dean Witter Funds for which such shares have been exchanged, will be
included together with the current investment amount.
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% initial 0.25% No
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 during 1.0% B shares
the first year decreasing convert to A
to 0 after six years shares
automatically
after
approximately
ten years
C 1.0% CDSC during first 1.0% No
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:
<TABLE>
<CAPTION>
SALES CHARGE
-------------------------------------
PERCENTAGE OF APPROXIMATE
AMOUNT OF PUBLIC OFFERING PERCENTAGE OF
SINGLE TRANSACTION PRICE AMOUNT INVESTED
- --------------------------- ----------------- ------------------
<S> <C> <C>
Less than $25,000.......... 5.25% 5.54%
$25,000 but less
than $50,000............. 4.75% 4.99%
$50,000 but less
than $100,000............ 4.00% 4.17%
$100,000 but less
than $250,000............ 3.00% 3.09%
$250,000 but less
than $1 million.......... 2.00% 2.04%
$1 million and over........ 0 0
</TABLE>
Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods 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
15
<PAGE>
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 Morgan Stanley Dean Witter Multi-Class Funds and shares of FSC
Funds. The sales charge payable on the purchase of the Class A shares of the
Portfolio, the Class A shares of the other Morgan Stanley Dean Witter
Multi-Class Funds and the shares of the FSC Funds will be at their respective
rates applicable to the total amount of the combined concurrent purchases of
such shares.
RIGHT OF ACCUMULATION. The above persons and entities may benefit from a
reduction of the sales charges in accordance with the above schedule if the
cumulative net asset value of Class A shares purchased in a single transaction,
together with shares of the Portfolio and other Morgan Stanley Dean Witter Funds
previously purchased at a price including a front-end sales charge (including
shares of the Portfolio and other Morgan Stanley Dean Witter Funds acquired in
exchange for those shares, and including in each case shares acquired through
reinvestment of dividends and distributions), which are held at the time of such
transaction, amounts to $25,000 or more. If such investor has a cumulative net
asset value of shares of FSC Funds and Class A and Class D shares that, together
with the current investment amount, 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 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 Morgan Stanley Dean Witter Funds which were
previously purchased at a price including a front-end sales charge during the
90-day period prior to the date of receipt by the Distributor of the Letter of
Intent, or of Class A shares of the Portfolio or shares of other Morgan Stanley
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 MSDW Trust (an affiliate of the Investment Manager)
provides discretionary trustee services;
(2) persons participating in a fee-based program approved by the
Distributor, pursuant to which such persons pay an asset based fee for services
in the nature of investment advisory, administrative and/or brokerage services
(such investments are subject to all of the terms and conditions of such
programs, which may include termination fees, mandatory redemption upon
termination and such other circumstances as specified in the programs'
agreements, and restrictions on transferability of 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 MSDW Trust serves as Trustee or DWR's
Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement;
(4) Qualified Retirement Plans for which MSDW Trust serves as Trustee or
DWR's Retirement Plan Services serves as recordkeeper pursuant to a written
Recordkeeping Services Agreement whose Class B shares have converted to Class A
shares, regardless of the plan's asset size or number of eligible employees;
(5) investors who are clients of a Morgan Stanley Dean Witter Financial
Advisor who joined Morgan Stanley Dean Witter from another investment firm
within six months prior to the date of purchase of 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 Financial Advisor's
previous firm which imposed either a front-end or deferred sales charge,
provided such purchase was made within sixty days after the redemption and the
proceeds of the redemption had been maintained in the interim in cash or a money
market fund; and
(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the 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.
16
<PAGE>
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Class B shares are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the 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>
YEAR SINCE PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- ---------------------------------------- ---------------------
<S> <C>
First................................... 5.0%
Second.................................. 4.0%
Third................................... 3.0%
Fourth.................................. 2.0%
Fifth................................... 2.0%
Sixth................................... 1.0%
Seventh and thereafter.................. None
</TABLE>
In the case of Class B shares of the Portfolio purchased by Qualified
Retirement Plans for which MSDW Trust serves as Trustee or DWR's Retirement Plan
Services serves as recordkeeper pursuant to a written Recordkeeping Services
Agreement, shares held for three years or more after purchase (calculated as
described in the paragraph above) will not be subject to any CDSC upon
redemption. However, shares redeemed earlier than three years after purchase may
be subject to a CDSC (calculated as described in the paragraph above), the
percentage of which will depend on how long the shares have been held, as set
forth in the following table:
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE CDSC AS A PERCENTAGE
PAYMENT MADE OF AMOUNT REDEEMED
- ---------------------------------------- ---------------------
<S> <C>
First................................... 2.0%
Second.................................. 2.0%
Third................................... 1.0%
Fourth and thereafter................... None
</TABLE>
CDSC WAIVERS. A CDSC will not be imposed on: (i) any amount which represents an
increase in value of shares purchased within the six years (or, in the case of
shares held by certain Qualified Retirement Plans, three years) preceding the
redemption; (ii) the current net asset value of shares purchased more than six
years (or, in the case of shares held by certain Qualified Retirement Plans,
three years) prior to the redemption; and (iii) the current net asset value of
shares purchased through reinvestment of dividends or distributions and/or
shares acquired in exchange for shares of other open-end investment companies
for which MSDW Advisors serves as investment manager (collectively, with the
Portfolio, the "Morgan Stanley Dean Witter Funds") sold with a front-end sales
charge or of other Morgan Stanley Dean Witter Funds acquired in exchange for
such shares. Moreover, in determining whether a CDSC is applicable it will be
assumed that amounts described in (i), (ii) and (iii) above (in that order) are
redeemed first.
In addition, the CDSC, if otherwise applicable, will be waived in the case
of:
(1) redemptions of shares held at the time a shareholder dies or becomes
disabled, only if the shares are: (a) registered either in the name of an
individual shareholder (not a trust), or in the names of such shareholder and
his or her spouse as joint tenants with right of survivorship; or (b) held in a
qualified corporate or self-employed retirement plan, Individual Retirement
Account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal
Revenue Code ("403(b) Custodial Account"), provided in either case that the
redemption is requested within one year of the death or initial determination of
disability;
(2) redemptions in connection with the following retirement plan
distributions: (a) lump-sum or other distributions from a qualified corporate
or self-employed retirement plan following retirement (or, in the case of a "key
employee" of a "top heavy" plan, following attainment of age 59 1/2); (b)
distributions from an IRA or 403(b) Custodial Account following attainment of
age 59 1/2; or (c) a tax-free return of an excess contribution to an IRA; and
(3) all redemptions of shares held for the benefit of a participant in a
Qualified Retirement Plan which offers investment companies managed by the
Investment Manager or its subsidiary, MSDW Services, as self-directed investment
alternatives and for which MSDW Trust serves as Trustee or DWR's Retirement Plan
Services serves as recordkeeper pursuant to a written Recordkeeping Services
Agreement ("Eligible Plan"), provided that either: (a) the plan continues to be
an Eligible Plan after the redemption; or (b) the redemption is in connection
with the complete termination of the plan involving the distribution of all plan
assets to participants.
With reference to (1) above, for the purpose of determining disability, the
Distributor utilizes the definition of
17
<PAGE>
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 MSDW Trust serves as Trustee or DWR's Retirement Plan Services
serves as recordkeeper pursuant to a written Recordkeeping Services Agreement,
the plan is treated as a single investor and all Class B shares will convert to
Class A shares on the conversion date of the first shares of a Morgan Stanley
Dean Witter Multi-Class Fund purchased by that plan. In the case of Class B
shares previously exchanged for shares of an "Exchange Fund" (see "Shareholder
Services--Exchange Privilege"), the period of time the shares were held in the
Exchange Fund (calculated from the last day of the month in which the Exchange
Fund shares were acquired) is excluded from the holding period for conversion.
If those shares are subsequently re-exchanged for Class B shares of a Morgan
Stanley Dean Witter Multi-Class Fund, the holding period resumes on the last day
of the month in which Class B shares are reacquired.
If a shareholder has received share certificates for Class B shares, such
certificates must be delivered to the Transfer Agent at least one week prior to
the date for conversion. Class B shares evidenced by share certificates that are
not received by the Transfer Agent at least one week prior to any conversion
date will be converted into Class A shares on the next scheduled conversion date
after such certificates are received.
Effectiveness of the conversion feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel that (i) the conversion of shares does not constitute a taxable event
under the Internal Revenue Code, (ii) Class A shares received on conversion will
have a basis equal to the shareholder's basis in the converted Class B shares
immediately prior to the conversion, and (iii) Class A shares received on
conversion will have a holding period that includes the holding period of the
converted Class B shares. The conversion feature may be suspended if the ruling
or opinion is no longer available. In such event, Class B shares would continue
to be subject to Class B 12b-1 fees.
LEVEL LOAD ALTERNATIVE-- CLASS C SHARES
Class C shares are sold at net asset value next determined without an initial
sales charge but are subject to a CDSC of 1.0% on most redemptions made within
one year after purchase (calculated from the last day of the month in which the
shares were purchased). The CDSC will be assessed on an amount equal to the
lesser of the current market value or the cost of the shares being redeemed. The
CDSC will not be imposed in the circumstances set forth above in the section
"Contingent Deferred Sales Charge Alternative-- Class B Shares--CDSC Waivers,"
except that the references to six years in the first paragraph of that section
shall mean one year in the case of Class C shares. Class C shares are subject to
an annual 12b-1 fee of up to 1.0% of the average daily net assets of the Class.
Unlike Class B shares, Class C shares have no conversion feature and,
accordingly, an investor that purchases Class C shares will be subject to 12b-1
fees applicable to Class C shares for an indefinite period subject to annual
approval by the Fund's Board of Trustees and regulatory limitations.
NO LOAD ALTERNATIVE-- CLASS D SHARES
Class D shares are offered without any sales charge on purchase or redemption
and without any 12b-1 fee. Class D shares are offered only to investors meeting
an initial investment minimum of $5 million ($25 million for Qualified
Retirement Plans for which MSDW Trust serves as Trustee or DWR's Retirement Plan
Services serves as recordkeeper pursuant to a written Recordkeeping Services
Agreement) and the following categories of investors: (i) investors
participating in the MSDW Advisors mutual fund asset allocation program pursuant
to which such persons pay an asset based fee; (ii) persons participating in a
fee-based program approved by the Distributor, pursuant to which such persons
pay an asset based fee for services in the nature of investment advisory,
administrative and/or brokerage services (subject to all of the terms and
conditions of such programs referred to in (i) and (ii) above, which may include
termination fees, mandatory redemption
18
<PAGE>
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
Morgan Stanley 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 Morgan Stanley Dean Witter Multi-Class
Funds, shares of FSC Funds and shares of Morgan Stanley Dean Witter Funds for
which such shares have been exchanged will be included together with the current
investment amount. If a shareholder redeems Class A shares and purchases Class D
shares, such redemption may be a taxable event.
PLAN OF DISTRIBUTION
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the Act
with respect to the distribution of Class A, Class B and Class C shares of the
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 Morgan Stanley Dean
Witter Financial Advisors and others who engage in or support distribution of
shares or who service shareholder accounts, including overhead and telephone
expenses; printing and distribution of prospectuses and reports used in
connection with the offering of the 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.
For the fiscal period February 25, 1998 (commencement of operations) through
May 31, 1998, Class A, Class B and Class C of the Portfolio accrued payments
under the Plan amounting to $71,636, $3,844,341 and $409,527, respectively,
which amounts on an annualized basis are equal to 0.25%, 1.00% and 1.00% of the
average daily net assets of Class A, Class B and Class C, respectively, for such
period.
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. The
Distributor has advised the Fund that such excess amounts, including the
carrying charge described above, totalled $79,592,457 at May 31, 1998 which was
equal to 4.65% of the net assets of Class B on such date. Because there is no
requirement under the Plan that the Distributor be reimbursed for all
distribution expenses or any requirement that the Plan be continued from year to
year, such excess amount does not constitute a liability of the 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 through payments in any subsequent year, except that
expenses representing a gross sales
19
<PAGE>
commission credited to Morgan Stanley Dean Witter Financial Advisors or other
Selected Broker-Dealer representatives at the time of sale may be reimbursed in
the subsequent calendar year. 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.
Generally, trading in foreign securities, as well as corporate bonds, United
States government securities and money market instruments, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value of
the Fund's shares are determined as of such times. Foreign currency exchange
rates are also generally determined prior to the close of the New York Stock
Exchange. Occasionally, events which affect the values of such securities and
such exchange rates may occur between the times at which they are determined and
the close of the New York Stock Exchange and will therefore not be reflected in
the computation of the Fund's net asset value. If events that may affect the
value of such securities occur during such period, then these securities may be
valued at their fair value as determined in good faith under procedures
established by and under the supervision of the Trustees.
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends and
capital gains distributions are automatically paid in full and fractional shares
of the applicable Class of the Portfolio (or, if specified by the shareholder in
shares of any other open-end Morgan Stanley Dean Witter Fund), unless the
shareholder requests that they be paid in cash. Shares so acquired are acquired
at net asset value and are not subject to the imposition of a front-end sales
charge or a CDSC (see "Redemptions and Repurchases").
INVESTMENT OF DIVIDENDS 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 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 Morgan Stanley Dean Witter money market fund, on a semi-monthly,
monthly or quarterly basis, to the Transfer Agent for investment in shares of
the Portfolio. (See "Purchase of Fund Shares" and "Redemptions and
Repurchases--Involuntary Redemption.")
20
<PAGE>
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 Morgan Stanley Dean Witter Financial
Advisor or other Selected Broker-Dealer representative or the Transfer Agent for
further information about any of the above services.
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 advisor.
For further information regarding plan administration, custodial fees and
other details, investors should contact their Morgan Stanley Dean Witter
Financial Advisor or other Selected Broker-Dealer representative or the Transfer
Agent.
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class of any other
Morgan Stanley Dean Witter Multi-Class Fund without the imposition of any
exchange fee. Shares may also be exchanged for shares of the following funds:
Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust, Morgan Stanley Dean
Witter Limited Term Municipal Trust, Morgan Stanley Dean Witter Short-Term Bond
Fund and five Morgan Stanley Dean Witter funds which are money market funds (the
"Exchange Funds"). Class A shares may also be exchanged for shares of Morgan
Stanley Dean Witter Multi-State Municipal Series Trust and Morgan Stanley Dean
Witter Hawaii Municipal Trust, which are Morgan Stanley Dean Witter Funds sold
with a front-end sales charge ("FSC Funds"). Class B shares may also be
exchanged for shares of Morgan Stanley Dean Witter Global Short-Term Income Fund
Inc. ("Global Short-Term"), which is a Morgan Stanley Dean Witter Fund offered
with a CDSC. Exchanges may be made after the shares of the 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 Morgan Stanley Dean Witter Multi-Class Fund, any FSC
Fund, Global Short-Term or any Exchange Fund that is not a money market fund is
on the basis of the next calculated net asset value per share of each fund after
the exchange order is received. When exchanging into a money market fund from
the Portfolio, shares of the Portfolio are 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
Morgan Stanley Dean Witter Multi-Class Funds, FSC Funds, Global Short-Term or
any Exchange Fund that is not a money market fund can be effected on the same
basis.
No CDSC is imposed at the time of any exchange of shares, although any
applicable CDSC will be imposed upon ultimate redemption. During the period of
time the shareholder remains in an Exchange Fund (calculated from the last day
of the month in which the 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 Morgan Stanley 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 Morgan Stanley Dean Witter Multi-Class Fund or shares of Global Short-Term
are reacquired. Thus, the CDSC is based upon the time (calculated as described
above) the shareholder was invested in shares of a Morgan Stanley Dean Witter
Multi-Class Fund or in shares of Global Short-Term (see "Purchase of Fund
Shares"). In the case of exchanges of Class A shares which are subject to a
CDSC, the holding period also includes the time (calculated as described above)
the shareholder was invested in shares of a FSC Fund. 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 Morgan Stanley 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.
21
<PAGE>
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
Morgan Stanley Dean Witter Funds may in their discretion limit or otherwise
restrict the number of times this Exchange Privilege may be exercised by any
investor. Any such restriction will be made by the 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 Morgan Stanley
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 Morgan Stanley Dean Witter Financial Advisor or other Selected
Broker-Dealer representative 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 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 Morgan
Stanley Dean Witter Funds (for which the Exchange Privilege is available)
pursuant to this Exchange Privilege by contacting their Morgan Stanley Dean
Witter Financial Advisor or other Selected Broker-Dealer representative (no
Exchange Privilege Authorization Form is required). Other shareholders (and
those shareholders who are clients of DWR or another Selected Broker-Dealer but
who wish to make exchanges directly by 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 Morgan Stanley Dean Witter
Financial Advisor or other Selected Broker-Dealer representative, if
appropriate, or make a written exchange request. Shareholders are advised that
during periods of drastic economic or market changes, it is possible that the
telephone exchange procedures may be difficult to implement, although this has
not been the experience with the Morgan Stanley Dean Witter Funds in the past.
Shareholders should contact their Morgan Stanley Dean Witter Financial
Advisor or other Selected Broker-Dealer representative 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.
22
<PAGE>
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to repurchase
shares represented by a share certificate which is delivered to any of their
offices. Shares held in a shareholder's account without a share certificate may
also be repurchased by DWR and other Selected Broker-Dealers upon the telephonic
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 Morgan Stanley Dean Witter Financial Advisor
or other Selected Broker-Dealer representative 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 declares dividends separately for
each Class of shares and intends to distribute substantially all of its net
investment income and net realized 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. 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
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<PAGE>
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.
Shareholders will also be notified of their proportionate share of long-term
capital gains distributions that are eligible for a reduced rate of tax under
the Taxpayer Relief Act of 1997. To avoid being subject to a 31% Federal backup
withholding tax on taxable dividends, capital gains distributions and the
proceeds of redemptions and repurchases, shareholders' taxpayer identification
numbers must be furnished and certified as to their accuracy.
Shareholders should consult their tax advisors 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. and the S&P 500 Index.
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 MSDW Advisors, MSDW
Services and MSDW Distributors are subject to a strict Code of Ethics adopted by
those companies. The Code of Ethics is intended to ensure that the interests of
shareholders and other clients are placed ahead of any personal interest, that
no undue personal benefit is obtained from a person's employment activities and
that actual and potential conflicts of interest are avoided. To
24
<PAGE>
achieve these goals and comply with regulatory requirements, the Code of Ethics
requires, among other things, that personal securities transactions by employees
of the companies be subject to an advance clearance process to monitor that no
Morgan Stanley Dean Witter Fund is engaged at the same time in a purchase or
sale of the same security. The Code of Ethics bans the purchase of securities in
an initial public offering, and also prohibits engaging in futures and options
transactions and profiting on short-term trading (that is, a purchase within
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
Morgan Stanley Dean Witter Fund managed by them. Any violations of the Code of
Ethics are subject to sanctions, including reprimand, demotion or suspension or
termination of employment. The Code of Ethics comports with regulatory
requirements and the recommendations in the 1994 report by the Investment
Company Institute Advisory Group on Personal Investing.
MASTER/FEEDER CONVERSION. The 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.
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.
25
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND "BEST IDEAS" PORTFOLIO
PORTFOLIO OF INVESTMENTS MAY 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS (92.0%)
AUSTRALIA (2.3%)
PUBLISHING & TELEVISION
8,483,000 News Corporation Ltd. (Pref.)...................................................... $ 45,677,774
--------------
FINLAND (2.6%)
PAPER PRODUCTS
1,778,000 UPM-Kymmene Oyj.................................................................... 51,517,234
--------------
FRANCE (10.4%)
ELECTRONICS - SEMICONDUCTORS/COMPONENTS
651,000 ST Microelectronics NV*............................................................ 50,371,125
--------------
INSURANCE
470,408 AXA................................................................................ 53,506,347
--------------
OIL - INTEGRATED
435,989 Total S.A. (B Shares).............................................................. 54,106,300
--------------
TIRE & RUBBER GOODS
839,983 Compagnie Generale des Etablissements Michelin (B Shares).......................... 51,938,619
--------------
TOTAL FRANCE....................................................................... 209,922,391
--------------
GERMANY (5.8%)
AUTOMOTIVE
54,120 Bayerische Motoren Werke (BMW) AG.................................................. 57,110,670
--------------
MACHINERY - DIVERSIFIED
148,400 MAN AG............................................................................. 59,010,921
--------------
TOTAL GERMANY...................................................................... 116,121,591
--------------
HONG KONG (2.6%)
BANKS - INTERNATIONAL
2,121,200 HSBC Holdings PLC.................................................................. 51,464,175
--------------
JAPAN (2.8%)
PHOTOGRAPHY/IMAGING
1,680,000 Fuji Photo Film Co................................................................. 56,746,129
--------------
SINGAPORE (1.7%)
PAPER PRODUCTS
3,209,000 Asia Pulp & Paper Co., Ltd. (ADR).................................................. 34,897,875
--------------
SWEDEN (2.7%)
MACHINERY - DIVERSIFIED
1,766,000 Sandvik AB (B Shares).............................................................. 53,315,415
--------------
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SWITZERLAND (5.5%)
BANKS - INTERNATIONAL
30,050 UBS................................................................................ $ 50,454,821
--------------
CEMENT
47,500 Holderbank Financiere Glarus AG (B Shares)......................................... 60,664,194
--------------
TOTAL SWITZERLAND.................................................................. 111,119,015
--------------
UNITED KINGDOM (8.2%)
CONSUMER PRODUCTS
5,016,000 Unilever PLC....................................................................... 55,017,871
--------------
ENGINEERING & CONSTRUCTION
2,346,000 Siebe PLC.......................................................................... 58,734,104
--------------
FOODS & BEVERAGE
4,536,000 Diageo PLC......................................................................... 51,232,646
--------------
TOTAL UNITED KINGDOM............................................................... 164,984,621
--------------
UNITED STATES (47.4%)
AIR FREIGHT
625,300 FDX Corp.*......................................................................... 40,097,362
--------------
AIRCRAFT & AEROSPACE
869,400 Boeing Co.......................................................................... 41,405,175
--------------
BANKS - MONEY CENTER
350,500 Citicorp........................................................................... 52,268,312
--------------
BEVERAGES
985,200 Coca-Cola Enterprises, Inc......................................................... 37,006,575
--------------
CHEMICALS
606,800 Du Pont (E.I.) de Nemours & Co., Inc............................................... 46,723,600
--------------
COMMUNICATIONS - EQUIPMENT & SOFTWARE
540,000 Cisco Systems, Inc.*............................................................... 40,770,000
--------------
COMPUTER SOFTWARE
404,100 Microsoft Corp.*................................................................... 34,272,731
--------------
CONSUMER PRODUCTS
614,900 Procter & Gamble Co................................................................ 51,613,169
--------------
ELECTRICAL EQUIPMENT
673,200 Emerson Electric Co................................................................ 40,896,900
457,400 General Electric Co................................................................ 38,135,725
--------------
79,032,625
--------------
ELECTRONICS - SEMICONDUCTORS/
COMPONENTS
635,000 Intel Corp......................................................................... 45,323,125
--------------
FINANCIAL SERVICES
500,000 American Express Co................................................................ 51,312,500
--------------
MEDICAL EQUIPMENT
860,000 Medtronic, Inc..................................................................... 47,837,500
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
26
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND "BEST IDEAS" PORTFOLIO
PORTFOLIO OF INVESTMENTS MAY 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MEDICAL SERVICES
690,000 Quintiles Transnational Corp.*..................................................... $ 33,465,000
--------------
OIL DRILLING & SERVICES
875,000 Dresser Industries, Inc............................................................ 40,742,187
562,700 Schlumberger Ltd................................................................... 43,925,769
--------------
84,667,956
--------------
OIL - INTERNATIONAL
643,400 Chevron Corp....................................................................... 51,391,575
--------------
PHARMACEUTICALS
590,000 Lilly (Eli) & Co................................................................... 36,248,125
--------------
PUBLISHING & TELEVISION
550,600 Time Warner, Inc................................................................... 42,843,562
--------------
SPECIALTY PACKAGING
299,600 Sealed Air Corp.*.................................................................. 16,028,600
--------------
TELEPHONE - LONG DISTANCE
766,400 AT&T Corp.......................................................................... 46,654,600
--------------
TEMPORARY SERVICES
915,300 Manpower, Inc...................................................................... 39,300,694
--------------
UTILITIES - ELECTRIC
738,800 AES Corp.*......................................................................... 35,139,175
--------------
TOTAL UNITED STATES................................................................ 953,401,961
--------------
TOTAL COMMON AND PREFERRED STOCKS
(IDENTIFIED COST $1,795,675,130)................................................... 1,849,168,181
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (a)(8.0%)
COMMERCIAL PAPER (3.0%)
HEALTHCARE - DIVERSIFIED
$ 30,000 Becton, Dickinson & Co. 5.53% due 06/03/98......................................... $ 29,990,783
--------------
TELECOMMUNICATIONS
30,000 Lucent Technologies Inc. 5.53% due 06/05/98........................................ 29,981,567
--------------
TOTAL COMMERCIAL PAPER
(AMORTIZED COST $59,972,350)....................................................... 59,972,350
--------------
U.S. GOVERNMENT AGENCIES (5.0%)
101,500 Federal Home Loan Mortgage Corp. 5.43%-5.55% due 06/01/98-6/10/98 (Amortized Cost
$101,454,625).................................................................... 101,454,625
--------------
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $161,426,975)...................................................... 161,426,975
--------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $1,957,102,105)(B)..................................................... 100.0 % 2,010,595,156
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES.......................................... 0.0 % 491,622
------ ---------------
NET ASSETS.............................................................................. 100.0 % $ 2,011,086,778
------ ---------------
------ ---------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $111,952,732 and the
aggregate gross unrealized depreciation is $58,459,681, resulting in net
unrealized appreciation of $53,493,051.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT MAY 31, 1998:
<TABLE>
<CAPTION>
CONTRACTS TO IN DELIVERY UNREALIZED
RECEIVE EXCHANGE FOR DATE DEPRECIATION
- ----------------------------------------------------
<S> <C> <C> <C>
HKD 75,040,874 $ 9,685,693 06/02/98 ($1,500)
JPY 692,366,007 $ 5,016,055 06/03/98 (29,623)
--------------
Total unrealized
depreciation.................. (3$1,123)
--------------
--------------
</TABLE>
CURRENCY ABBREVIATIONS:
<TABLE>
<S> <C>
HKD Hong Kong Dollar
JPY Japanese Yen
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
27
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND "BEST IDEAS" PORTFOLIO
SUMMARY OF INVESTMENTS MAY 31, 1998
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Air Freight..................................................................... $ 40,097,362 2.0 %
Aircraft & Aerospace............................................................ 41,405,175 2.1
Automotive...................................................................... 57,110,670 2.8
Banks - International........................................................... 101,918,996 5.1
Banks - Money Center............................................................ 52,268,312 2.6
Beverages....................................................................... 37,006,575 1.8
Cement.......................................................................... 60,664,194 3.0
Chemicals....................................................................... 46,723,600 2.3
Commercial Paper................................................................ 59,972,350 3.0
Communications - Equipment & Software........................................... 40,770,000 2.0
Computer Software............................................................... 34,272,731 1.7
Consumer Products............................................................... 106,631,040 5.3
Electrical Equipment............................................................ 79,032,625 3.9
Electronics - Semiconductors/
Components.................................................................... 95,694,250 4.8
Engineering & Construction...................................................... 58,734,104 2.9
Financial Services.............................................................. 51,312,500 2.6
Foods & Beverages............................................................... 51,232,646 2.5
Insurance....................................................................... 53,506,347 2.7
Machinery - Diversified......................................................... 112,326,336 5.6
Medical Equipment............................................................... 47,837,500 2.4
Medical Services................................................................ 33,465,000 1.7
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Oil - Integrated................................................................ $ 54,106,300 2.7 %
Oil - International............................................................. 51,391,575 2.6
Oil Drilling & Services......................................................... 84,667,956 4.2
Paper Products.................................................................. 86,415,109 4.3
Pharmaceuticals................................................................. 36,248,125 1.8
Photography/Imaging............................................................. 56,746,129 2.8
Publishing & Television......................................................... 88,521,336 4.4
Specialty Packaging............................................................. 16,028,600 0.8
Telephone - Long Distance....................................................... 46,654,600 2.3
Temporary Services.............................................................. 39,300,694 2.0
Tire & Rubber Goods............................................................. 51,938,619 2.6
U.S. Government Agencies........................................................ 101,454,625 5.0
Utilities - Electric............................................................ 35,139,175 1.7
-------------- -----
$2,010,595,156 100.0 %
-------------- -----
-------------- -----
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Common Stocks................................................................... $1,803,490,407 89.7 %
Preferred Stock................................................................. 45,677,774 2.3
Short-Term Investments.......................................................... 161,426,975 8.0
-------------- -----
$2,010,595,156 100.0 %
-------------- -----
-------------- -----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
28
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND "BEST IDEAS" PORTFOLIO
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
MAY 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $1,957,102,105).......................................................... $2,010,595,156
Cash........................................................................................ 418,848
Receivable for:
Shares of beneficial interest sold...................................................... 15,550,442
Dividends............................................................................... 1,641,433
Foreign withholding taxes reclaimed..................................................... 1,180,270
Deferred organizational expenses............................................................ 132,684
Prepaid expenses and other assets........................................................... 387,128
--------------
TOTAL ASSETS........................................................................... 2,029,905,961
--------------
LIABILITIES:
Payable for:
Investments purchased................................................................... 14,653,649
Plan of distribution fee................................................................ 1,608,320
Investment management fee............................................................... 1,086,679
Shares of beneficial interest repurchased............................................... 690,325
Organizational expenses..................................................................... 139,844
Accrued expenses and other payables......................................................... 640,366
--------------
TOTAL LIABILITIES...................................................................... 18,819,183
--------------
NET ASSETS............................................................................. $2,011,086,778
--------------
--------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................. $1,965,163,150
Net unrealized appreciation................................................................. 53,468,579
Undistributed net investment income......................................................... 5,900,361
Net realized loss........................................................................... (13,445,312)
--------------
NET ASSETS............................................................................. $2,011,086,778
--------------
--------------
CLASS A SHARES:
Net Assets.................................................................................. $117,750,034
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)................................... 11,355,995
NET ASSET VALUE PER SHARE.............................................................. $10.37
--------------
--------------
MAXIMUM OFFERING PRICE
PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET
ASSET VALUE)........................................................................ $10.94
--------------
--------------
CLASS B SHARES:
Net Assets.................................................................................. $1,711,433,492
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)................................... 165,374,106
NET ASSET VALUE PER SHARE.............................................................. $10.35
--------------
--------------
CLASS C SHARES:
Net Assets.................................................................................. $176,496,674
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)................................... 17,054,669
NET ASSET VALUE PER SHARE.............................................................. $10.35
--------------
--------------
CLASS D SHARES:
Net Assets.................................................................................. $5,406,578
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)................................... 521,064
NET ASSET VALUE PER SHARE.............................................................. $10.38
--------------
--------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE PERIOD FEBRUARY 25, 1998*
THROUGH MAY 31, 1998
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $943,515 foreign withholding tax)............................................ $ 8,858,096
Interest....................................................................................... 3,878,286
-----------
TOTAL INCOME.............................................................................. 12,736,382
-----------
EXPENSES
Plan of distribution fee (Class A shares)...................................................... 71,636
Plan of distribution fee (Class B shares)...................................................... 3,844,341
Plan of distribution fee (Class C shares)...................................................... 409,527
Investment management fee...................................................................... 2,943,814
Registration fees.............................................................................. 610,769
Transfer agent fees and expenses............................................................... 350,654
Custodian fees................................................................................. 50,947
Professional fees.............................................................................. 44,736
Trustees' fees and expenses.................................................................... 4,032
Organizational expenses........................................................................ 7,160
Other.......................................................................................... 149
-----------
TOTAL EXPENSES............................................................................ 8,337,765
-----------
NET INVESTMENT INCOME..................................................................... 4,398,617
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments................................................................................ (13,445,312)
Foreign exchange transactions.............................................................. 276,934
-----------
NET LOSS.................................................................................. (13,168,378)
-----------
Net unrealized appreciation/depreciation on:
Investments................................................................................ 53,493,051
Translation of forward foreign currency contracts, other assets and liabilities denominated
in foreign currencies.................................................................... (24,472)
-----------
NET APPRECIATION.......................................................................... 53,468,579
-----------
NET GAIN.................................................................................. 40,300,201
-----------
NET INCREASE.............................................................................. $44,698,818
-----------
-----------
</TABLE>
- ---------------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
29
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND "BEST IDEAS" PORTFOLIO
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 25, 1998*
THROUGH
MAY 31, 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income...................... $ 4,398,617
Net realized loss.......................... (13,168,378)
Net unrealized appreciation................ 53,468,579
---------------
NET INCREASE.......................... 44,698,818
Net increase from transactions in shares of
beneficial interest...................... 1,966,337,960
---------------
NET INCREASE.......................... 2,011,036,778
NET ASSETS:
Beginning of period........................ 50,000
---------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $5,900,361).................. $ 2,011,086,778
---------------
---------------
</TABLE>
- ---------------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
30
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND "BEST IDEAS" PORTFOLIO
NOTES TO FINANCIAL STATEMENTS MAY 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Competitive Edge Fund (the "Fund") is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
diversified, open-end management investment company, which currently consists of
two separate Portfolios. The information contained in this report is for the
"Best Ideas" Portfolio (the "Portfolio"). The Portfolio's investment objective
is to provide long term capital growth. The Portfolio seeks to achieve its
objective by investing at least 80% of its net assets in common stocks of U.S.
and non-U.S. companies included on the "Best Ideas" list, a research compilation
assembled and maintained by Morgan Stanley Dean Witter Equity Research. The
Portfolio was organized as a Massachusetts business trust on October 16, 1997
and had no other operations other than those relating to organizational matters
and the issuance of 1,250 shares of beneficial interest by each class for
$12,500 of each class to Morgan Stanley Dean Witter Advisors Inc. (the
"Investment Manager") to effect the Portfolio's initial capitalization. The
Portfolio commenced operations on February 25, 1998.
Effective June 22, 1998, the following entities have changed their name:
<TABLE>
<CAPTION>
OLD NAME NEW NAME
- -------------------------------------------------------------------------------------- --------------------------------------------
<S> <C>
Dean Witter InterCapital Inc. Morgan Stanley Dean Witter Advisors Inc.
Dean Witter Distributors Inc. Morgan Stanley Dean Witter Distributors Inc.
</TABLE>
The Portfolio offers four classes of shares. Class A shares, Class B shares,
Class C shares and Class D shares. The four classes are substantially the same
except that most Class A shares are subject to a sales charge imposed at the
time of purchase, some Class A shares, and most Class B shares and Class C
shares are subject to a contingent deferred sales charge imposed on shares
redeemed within one year, six years and one year, respectively. Class D shares
are not subject to a sales charge. Additionally, Class A shares, Class B shares
and Class C shares incur distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other stock exchange is valued at its latest sale price on
that exchange prior to the time when assets are valued; if there were no sales
that day, the security is valued at the latest bid price (in cases where 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 available bid price
prior to the time of valuation; (3) when market quotations are not readily
available, including circumstances under which it is determined by the
Investment Manager that sale or bid prices are not reflective of a security's
market value, portfolio securities are valued at their fair value as determined
in good faith under procedures established by and under the general supervision
of the Trustees; and (4) short-term debt securities having a maturity date of
more than
31
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND "BEST IDEAS" PORTFOLIO
NOTES TO FINANCIAL STATEMENTS MAY 31, 1998, CONTINUED
sixty days at time of purchase are valued on a mark-to-market basis until sixty
days prior to maturity and thereafter at amortized cost based on their value on
the 61st day. Short-term debt securities having a maturity date of sixty days or
less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted over the respective life of the securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. FOREIGN CURRENCY TRANSLATION -- The books and records of the Portfolio are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward foreign currency
contracts are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the
exchange rates prevailing on the respective dates of such transactions. The
resultant exchange gains and losses are included in the Statement of Operations
as realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a reduction
of ordinary income for federal income tax purposes. The Portfolio does not
isolate that portion of the results of operations arising as a result of changes
in the foreign exchange rates from the changes in the market prices of the
securities.
E. FORWARD FOREIGN CURRENCY CONTRACTS -- The Portfolio may enter into forward
foreign currency contracts which are valued daily at the appropriate exchange
rates. The resultant unrealized exchange gains and losses are included in the
Statement of Operations as unrealized gain/loss on foreign exchange transactions
and in the Statement of Assets and Liabilities as part of the related foreign
currency denominated asset or liabilities. The Portfolio records realized gains
or losses on delivery of the currency or at the time the forward contract is
extinguished (compensated) by entering into a closing transaction prior to
delivery.
F. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial
32
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND "BEST IDEAS" PORTFOLIO
NOTES TO FINANCIAL STATEMENTS MAY 31, 1998, CONTINUED
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
H. ORGANIZATIONAL EXPENSES -- The Investment Manager incurred the
organizational expenses of the Portfolio in the amount of approximately $140,000
which will be reimbursed for the full amount thereof. Such expenses have been
deferred and are being amortized on the straight-line method over a period not
to exceed five years from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Portfolio pays the
Investment Manager a management fee, accrued daily and payable monthly, by
applying the annual rate of 0.65% to the net assets of the Portfolio determined
as of the close of each business day. Effective May 1, 1998, the Agreement was
amended to reduce the annual fee to 0.625% of the portion of daily net assets in
excess of $1.5 billion.
Under the terms of the Agreement, in addition to managing the Portfolio's
investments, the Investment Manager maintains certain of the Portfolio's books
and records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Portfolio who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Portfolio.
3. PLAN OF DISTRIBUTION
Shares of the Portfolio are distributed by Morgan Stanley Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager.
The Portfolio has adopted a Plan of Distribution (the "Plan") pursuant to Rule
12b-1 under the Act. The Plan provides that the Portfolio will pay the
Distributor a fee which is accrued daily and paid monthly at the following
annual rates: (i) Class A -- up to 0.25% of the average daily net assets of
Class A; (ii) Class B -- 1.0% of the average daily net assets of Class B; and
(iii) Class C -- up to 1.0% of the average daily net assets of Class C. In the
case of Class A shares, amounts paid under the Plan are paid to the Distributor
for services provided. In the case of Class B and Class C shares, amounts paid
under the Plan are paid to the Distributor for services provided and the
expenses borne by it and others in the distribution of the shares of these
Classes, including the payment of commissions for sales of these Classes and
incentive compensation to, and expenses of, Morgan Stanley Dean Witter Financial
Advisors and others who engage in or support distribution of the shares or who
service shareholder accounts, including overhead and telephone expenses;
printing and distribution of prospectuses and reports used in connection with
the offering of these shares to other than current shareholders; and
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may utilize fees paid pursuant to the
Plan, in the case of Class B shares, to compensate Dean Witter Reynolds Inc.
("DWR"), an affiliate of the Investment Manager and Distributor, and other
selected broker-dealers for their opportunity costs in advancing such amounts,
which compensation would be in the form of a carrying charge on any unreimbursed
expenses.
33
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND "BEST IDEAS" PORTFOLIO
NOTES TO FINANCIAL STATEMENTS MAY 31, 1998, CONTINUED
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the
Portfolio to pay expenses incurred in excess of payments made to the Distributor
under the Plan and the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares, if for any reason the Plan is terminated,
the Trustees will consider at that time the manner in which to treat such
expenses. The Distributor has advised the Portfolio that such excess amounts,
including carrying charges, totaled $79,592,457 at May 31, 1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Portfolio through payments in any subsequent year, except that expenses
representing a gross sales credit to Morgan Stanley Dean Witter Financial
Advisors or other selected broker-dealer representatives may be reimbursed in
the subsequent calendar year. For the period ended May 31, 1998, the
distribution fee was accrued for Class A shares and Class C shares at the annual
rate of 0.25% and 1.0%, respectively.
The Distributor has informed the Portfolio that for the period ended May 31,
1998, it received contingent deferred sales charges from certain redemptions of
the Portfolio's Class A shares, Class B shares and Class C shares of $1,917,
$380,966 and $16,983, respectively and received $2,815,924 in front-end sales
charges from sales of the Portfolio's Class A shares. The respective
shareholders pay such charges which are not an expense of the Portfolio.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the period ended May 31, 1998 aggregated
$2,082,232,391 and $273,111,949, respectively.
For the period ended May 31, 1998, the Fund incurred brokerage commissions of
$1,046,737 with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager, for portfolio transactions executed on behalf of the Fund. At May 31,
1998, the Fund's payable for investments purchased included unsettled trades
with Morgan Stanley & Co., Inc. of $14,653,649.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Portfolio's transfer agent.
34
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND "BEST IDEAS" PORTFOLIO
NOTES TO FINANCIAL STATEMENTS MAY 31, 1998, CONTINUED
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 25, 1998*
THROUGH
MAY 31, 1998
----------------------------
SHARES AMOUNT
----------- --------------
<S> <C> <C>
CLASS A
Sold............................................................. 11,592,880 $ 116,824,084
Redeemed......................................................... (238,135) (2,486,285)
----------- --------------
Net increase -- Class A.......................................... 11,354,745 114,337,799
----------- --------------
CLASS B
Sold............................................................. 167,749,918 1,699,075,476
Redeemed......................................................... (2,377,063) (24,804,561)
----------- --------------
Net increase -- Class B.......................................... 165,372,855 1,674,270,915
----------- --------------
CLASS C
Sold............................................................. 17,653,992 178,479,819
Redeemed......................................................... (600,572) (6,271,272)
----------- --------------
Net increase -- Class C.......................................... 17,053,420 172,208,547
----------- --------------
CLASS D..........................................................
Sold 519,814 5,520,699
Net increase in Fund............................................. 194,300,834 $1,966,337,960
----------- --------------
----------- --------------
</TABLE>
- ---------------------
* Commencement of operations.
6. FEDERAL INCOME TAX STATUS
Capital losses incurred after October 31 ("post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $11,472,000 during fiscal 1998.
As of May 31, 1998, the Portfolio had temporary book/tax differences primarily
attributable to post-October losses and capital loss deferrals on wash sales and
permanent book/tax differences attributable to foreign currency gains and
nondeductible expenses. To reflect reclassifications arising from the permanent
differences, paid-in-capital was charged $1,224,810, net realized loss was
charged $276,934 and undistributed net investment income was credited
$1,501,744.
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Portfolio may enter into forward foreign currency contracts ("forward
contracts") to facilitate settlement of foreign currency denominated portfolio
transactions or to manage foreign currency exposure associated with foreign
currency denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Portfolio bears the
risk of an unfavorable change in the foreign exchange rates underlying the
forward contracts. Risks may also arise upon entering into these contracts from
the potential inability of the counterparties to meet the terms of their
contracts.
At May 31, 1998, there were outstanding forward contracts used to facilitate
settlement of foreign currency denominated portfolio transactions.
8. FINANCIAL HIGHLIGHTS
See the "Financial Highlights" table on page 5 of this Prospectus.
35
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE
FUND "BEST IDEAS" PORTFOLIO
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND -- "BEST IDEAS" PORTFOLIO
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights (appearing on page 5 of this
Prospectus) present fairly, in all material respects, the financial position of
Morgan Stanley Dean Witter Competitive Edge Fund -- "Best Ideas" Portfolio (the
"Portfolio") at May 31, 1998, and the results of its operations, the changes in
its net assets and the financial highlights for the period February 25, 1998
(commencement of operations) through May 31, 1998, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at May 31, 1998 by
correspondence with the custodian and brokers, provides a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
JULY 6, 1998
36
<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
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Prospectus -- July 30, 1998
