MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND, 485BPOS, 1998-07-30

MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
485BPOS, 1998-07-30

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1998
REGISTRATION NO.: 333-38297
811-08455

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 1 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 2 /X/

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MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
(A MASSACHUSETTS BUSINESS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600

BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)

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COPY TO:
DAVID M. BUTOWSKY, ESQ.
GORDON ALTMAN BUTOWSKY
WEITZEN SHALOV & WEIN
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036
----------------

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of this registration statement.

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IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE
BOX)

<TABLE>
<C> <S>
X immediately upon filing pursuant to paragraph (b)
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on (date) pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)
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on (date) pursuant to paragraph (a) of rule 485.
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AMENDING THE PROSPECTUS AND UPDATING FINANCIAL
STATEMENTS
</TABLE>

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<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND

CROSS-REFERENCE SHEET

FORM N-1A

<TABLE>
<CAPTION>
ITEM CAPTION
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<S> <C>
PART A PROSPECTUSES
1. ................................. Cover Page
2. ................................. Prospectus Summary; Summary of Fund
Expenses
3. ................................. Performance Information
4. ................................. Investment Objective and Policies; The
Fund and its Management; Cover Page;
Investment Restrictions; Prospectus
Summary
5. ................................. The Fund and Its Management; Back
Cover; Investment Objective and
Policies
6. ................................. Dividends, Distributions and Taxes;
Additional Information
7. ................................. Underwriting; Purchase of Portfolio
Shares; Shareholder Services
8. ................................. Redemptions and Repurchases;
Shareholder Services
9. ................................. Not Applicable
10. ................................. Experts; Financial Statements

PART B STATEMENT OF ADDITIONAL INFORMATION
11. ................................. Cover Page
12. ................................. Table of Contents
13. ................................. The Fund and Its Management
14. ................................. Investment Practices and Policies;
Investment Restrictions; Portfolio
Transactions and Brokerage
15. ................................. The Fund and Its Management; Trustees
and Officers
16. ................................. Trustees and Officers
17. ................................. The Fund and Its Management; The
Distributor; Shareholder Services;
Custodian and Transfer Agent;
Independent Accountants
18. ................................. Portfolio Transactions and Brokerage
19. ................................. Description of Shares
20. ................................. The Distributor; Purchase of Portfolio
Shares; Redemptions and Repurchases;
Statement of Assets and Liabilities;
Shareholder Services
21. ................................. Dividends, Distributions and Taxes
22. ................................. Purchase of Portfolio Shares
23. ................................. Performance Information
</TABLE>

PART C

Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>

PROSPECTUS
JULY 30, 1998

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.

MORGAN STANLEY DEAN WITTER DISTRIBUTORS INC.
DISTRIBUTOR

TABLE OF CONTENTS

Prospectus Summary/2
Summary of Fund Expenses/4
Financial Highlights/6
The Fund and its Management/7
Investment Objective and Policies/7
Risk Considerations and Investment
Practices/9
Investment Restrictions/16
Purchase of Portfolio Shares/17
Shareholder Services/28
Redemptions and Repurchases/31
Dividends, Distributions and Taxes/32
Performance Information/33
Additional Information/33
Financial Statements--May 31, 1998/37
Report of Independent Accountants/49

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Morgan Stanley Dean Witter
Competitive Edge Fund
"Best Ideas" Portfolio
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
PROSPECTUS SUMMARY
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<TABLE>
<S> <C>
The The Fund is an open-end, diversified management investment company currently consisting of two separate
Fund portfolios. The portfolio covered by this Prospectus, the "Best Ideas" Portfolio (the " 'Best Ideas' Portfolio"
or the "Portfolio"), invests primarily in the common stocks of U.S. and non-U.S. companies included in the "Best
Ideas" subgroup of "Global Investing: The Competitive Edge," a research compilation assembled and maintained by
Morgan Stanley Dean Witter Equity Research ("MSDW Equity Research").
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Shares Offered Shares of beneficial interest with $0.01 par value of the "Best Ideas" Portfolio (see page 35). The Portfolio
offers four Classes of shares, each with a different combination of sales charges, ongoing fees and other
features (see pages 19-28).
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Minimum The minimum initial investment for each Class is $1,000 ($100 if the account is opened through EasyInvest-SM-).
Purchase 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 19).
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Investment The investment objective of the "Best Ideas" Portfolio is long-term capital growth (see page 9).
Objective
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Investment Morgan Stanley Dean Witter Advisors Inc., the Investment Manager of the Fund, and its wholly-owned subsidiary,
Manager 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 The Investment Manager receives a monthly fee at the annual rates of 0.65% of the Portfolio's average daily net
Fee 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 9).
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Distributor and Morgan Stanley Dean Witter Distributors Inc. (the "Distributor") is the Fund's Underwriter and Distributor. The
Distribution Fee Fund has adopted a distribution plan pursuant to Rule 12b-1 under the Investment Company Act (the "12b-1 Plan")
with respect to the distribution fees paid by the Class A, Class B and Class C shares of the Portfolio to the
Distributor. The entire 12b-1 fee payable by Class A and a portion of the 12b-1 fee payable by each of Class B
and Class C equal to 0.25% of the average daily net assets of the Class are currently each characterized as a
service fee within the meaning of the National Association of Securities Dealers, Inc. guidelines. The remaining
portion of the 12b-1 fee, if any, is characterized as an asset-based sales charge (see pages 28 and 34).
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Alternative Four Classes of shares of the "Best Ideas" Portfolio are offered:
Purchase - Class A shares are offered with a front-end sales charge, starting at 5.25% and reduced for larger purchases.
Arrangements Investments of $1 million or more (and investments by certain other limited categories of investors) are not
subject to any sales charge at the time of purchase but a contingent deferred sales charge ("CDSC") of 1.0% may
be imposed on redemptions within one year of purchase. The Fund, on
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 19, 22 and 28).
</TABLE>

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2
<PAGE>
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<TABLE>
<S> <C>
- 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 19, 25 and 28).
- 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 19, 27 and 28).
- 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 19, 27 and 28).
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Dividends and Dividends from net investment income and distributions from net capital gains, if any, are paid at least once
Capital Gains per year. The Portfolio may, however, determine to retain all or part of any net long-term capital gains in any
Distributions year for reinvestment. Dividends and capital gains distributions paid on shares of a Class are automatically
reinvested in additional shares of the same Class at net asset value unless the shareholder elects to receive
cash. Shares acquired by dividend and distribution reinvestment will not be subject to any sales charge or CDSC
(see pages 30 and 34).
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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 33).
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Risk An investment in the "Best Ideas" Portfolio should be considered a long-term holding and subject to all the
Considerations risks associated with investing in a relatively small universe of equity securities of companies in domestic and
foreign markets. The net asset value of the Portfolio's shares will fluctuate with changes in the market value
of its portfolio securities, and therefore, will increase or decrease due to a variety of economic, market or
political factors which cannot be predicted. There can be no assurance that the securities contained in the
Competitive Edge "Best Ideas" List, which currently consists of only 40 companies, will perform as anticipated.
Past performance of securities and issuers included in the Competitive Edge "Best Ideas" List cannot be used to
predict future results of the Portfolio, which is actively managed by the Investment Manager and the results of
which are expected to vary from the performance of the Competitive Edge "Best Ideas" List. It should be
recognized that foreign securities and markets in which the Portfolio may invest pose different and greater
risks than those customarily associated with domestic securities and their markets such as fluctuations in
foreign currency exchange rates (i.e., if a substantial portion of the Portfolio's assets is denominated in
foreign currencies which decrease in value with respect to the U.S. dollar, the value of the investor's shares
and the distributions made on those shares will, likewise, decrease in value), foreign securities exchange
controls and foreign tax rates. The Portfolio may enter into repurchase agreements which entail certain risks
and may utilize certain investment techniques including options and futures transactions and forward foreign
currency exchange transactions which may be considered speculative in nature and may involve greater risks than
those customarily assumed by other investment companies which do not utilize such instruments (see pages 12-17).
</TABLE>

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THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THE PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL
INFORMATION.

3
<PAGE>
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 exexpenses for the fiscal period ended May 31, 1998 of the
Portfolio.

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
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<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
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Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)... 5.25%(1) None None None
Sales Charge Imposed on Dividend Reinvestments.................................. None None None None
Maximum Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds)................................................. None(2) 5.00%(3) 1.00%(4) None
Redemption Fees................................................................. None None None None
Exchange Fee.................................................................... None None None None
ANNUAL PORTFOLIO OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
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Management Fees* (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."

4
<PAGE>
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<TABLE>
<CAPTION>
EXAMPLES 1 Year 3 Years
- -------------------------------------------------- ------ -------
<S> <C> <C>
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
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE PORTFOLIO MAY BE GREATER
OR LESS THAN THOSE SHOWN.

The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Portfolio will bear directly
or indirectly. For a more complete description of these costs and expenses, see
"The Fund and its Management," "Purchase of Portfolio Shares--Plan of
Distribution" and "Redemptions and Repurchases."

Long-term shareholders of Class B and Class C may pay more in sales charges,
including distribution fees, than the economic equivalent of the maximum
front-end sales charges permitted by the NASD.

5
<PAGE>

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 35.

<TABLE>
<CAPTION>
FOR THE PERIOD FEBRUARY 26, 1998* THROUGH
MAY 31, 1998++
------------------------------------------
CLASS A CLASS B CLASS C CLASS D
SHARES SHARES SHARES SHARES
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
--------- --------- --------- ---------
--------- --------- --------- ---------
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.

6
<PAGE>
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.

7
<PAGE>
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 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

8
<PAGE>
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
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

9
<PAGE>
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.

10
<PAGE>

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.

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

11
<PAGE>
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
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

12
<PAGE>
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

13
<PAGE>
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 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

14
<PAGE>
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 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

15
<PAGE>

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
- --------------------------------------------------------------------------------

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.

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<PAGE>

PURCHASE OF PORTFOLIO SHARES

- --------------------------------------------------------------------------------

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 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

17
<PAGE>

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 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

18
<PAGE>
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,

19
<PAGE>
however, there can be no assurance that this would be the case.

Finally, investors should consider the effect of the CDSC period and any
conversion rights of the Classes in the context of their own investment time
frame. For example, although Class C shares are subject to a significantly lower
CDSC upon redemptions, they do not, unlike Class B shares, convert into Class A
shares after approximately ten years, and, therefore, are subject to an ongoing
12b-1 fee of 1.0% (rather than the 0.25% fee applicable to Class A shares) for
an indefinite period of time. Thus, Class B shares may be more attractive than
Class C shares to investors with longer term investment outlooks. Other
investors, however, may elect to purchase Class C shares if, for example, they
determine that they do not wish to be subject to a front-end sales charge and
they are uncertain as to the length of time they intend to hold their shares.

For the purpose of meeting the $5 million (or $25 million) minimum
investment amount for Class D shares, holdings of Class A shares in all Morgan
Stanley Dean Witter Multi-Class Funds, shares of FSC Funds and shares of Morgan
Stanley Dean Witter Funds for which such shares have been exchanged, will be
included together with the current investment amount.

Sales personnel may receive different compensation for selling each Class of
shares. Investors should understand that the purpose of a CDSC is the same as
that of the initial sales charge in that the sales charges applicable to each
Class provide for the financing of the distribution of shares of that Class.

Set forth below is a chart comparing the sales charge, 12b-1 fees and
conversion options applicable to each Class of shares:

<TABLE>
<CAPTION>
- -----------------------------------------------------------
CONVERSION
CLASS SALES CHARGE 12b-1 FEE FEATURE
<C> <S> <C> <C>
- -----------------------------------------------------------
A Maximum 5.25% 0.25% No
initial sales
charge reduced for
purchases of
$25,000 and over;
shares sold
without an initial
sales charge
generally subject
to a 1.0% CDSC
during first year.
- -----------------------------------------------------------
B Maximum 5.0% CDSC 1.0% B shares convert
during the first to A shares
year decreasing to automatically
0 after six years after
approximately
ten years
- -----------------------------------------------------------
C 1.0% CDSC during 1.0% No
first year
- -----------------------------------------------------------
D None None No
</TABLE>

See "Purchase of Portfolio Shares" and "The Fund and its Management" for a
complete description of the sales charges and service and distribution fees for
each Class of shares and "Determination of Net Asset Value," "Dividends,
Distributions and Taxes" and "Shareholder Services--Exchange Privilege" for
other differences between the Classes of shares.

INITIAL SALES CHARGE ALTERNATIVE--
CLASS A SHARES

Class A shares are sold at net asset value plus an initial sales charge. In
some cases, reduced sales charges may be available, as described below.
Investments of $1 million or more (and investments by certain other limited
categories of investors) are not subject to any sales charges at the time of
purchase but are subject to a CDSC of 1.0% on redemptions made within one year
after purchase (calculated from the last day of the month in which the shares
were purchased), except for certain specific circumstances. The CDSC will be
assessed on an amount equal to the lesser of the current market value or the
cost of the shares being redeemed. The CDSC will not be imposed (i) in the

20
<PAGE>
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 AMOUNT
SINGLE TRANSACTION PRICE INVESTED
- ------------------------- ------------------- ---------------------
<S> <C> <C>
Less than $25,000........ 5.25% 5.54%
$25,000 but less
than $50,000........ 4.75% 4.99%
$50,000 but less
than $100,000....... 4.00% 4.17%
$100,000 but less
than $250,000....... 3.00% 3.09%
$250,000 but less
than $1 million..... 2.00% 2.04%
$1 million and over...... 0 0
</TABLE>

Upon notice to all Selected Broker-Dealers, the Distributor may reallow up
to the full applicable sales charge as shown in the above schedule during
periods specified in such notice. During periods when 90% or more of the sales
charge is reallowed, such Selected Broker-Dealers may be deemed to be
underwriters as that term is defined in the Securities Act of 1933.

The above schedule of sales charges is applicable to purchases in a single
transaction by, among others: (a) an individual; (b) an individual, his or her
spouse and their children under the age of 21 purchasing shares for his, her or
their own accounts; (c) a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account; (d) a pension, profit-sharing
or other employee benefit plan qualified or non-qualified under Section 401 of
the Internal Revenue Code; (e) tax-exempt organizations enumerated in Section
501(c)(3) or (13) of the Internal Revenue Code; (f) employee benefit plans
qualified under Section 401 of the Internal Revenue Code of a single employer or
of employers who are "affiliated persons" of each other within the meaning of
Section 2(a)(3)(c) of the Act; and for investments in Individual Retirement
Accounts of employees of a single employer through Systematic Payroll Deduction
plans; or (g) any other organized group of persons, whether incorporated or not,
provided the organization has been in existence for at least six months and has
some purpose other than the purchase of redeemable securities of a registered
investment company at a discount.

COMBINED PURCHASE PRIVILEGE. Investors may have the benefit of reduced
sales charges in accordance with the above schedule by combining purchases of
Class A shares of the Portfolio in single transactions with the purchase of
Class A shares of other 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

21
<PAGE>
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

22
<PAGE>
sixty days after the redemption and the proceeds of the redemption had been
maintained in the interim in cash or a money market fund; and

(6) other categories of investors, at the discretion of the Board, as
disclosed in the then current prospectus of the Portfolio.

No CDSC will be imposed on redemptions of shares purchased pursuant to
paragraphs (1), (2) or (5), above.

For further information concerning purchases of the Portfolio's shares,
contact DWR or another Selected Broker-Dealer or consult the Statement of
Additional Information.

CONTINGENT DEFERRED SALES CHARGE
ALTERNATIVE--CLASS B SHARES

Class B shares are sold at net asset value next determined without an
initial sales charge so that the full amount of an investor's purchase payment
may be immediately invested in the Portfolio. A CDSC, however, will be imposed
on most Class B shares redeemed within six years after purchase. The CDSC will
be imposed on any redemption of shares if after such redemption the aggregate
current value of a Class B account with the Portfolio falls below the aggregate
amount of the investor's purchase payments for Class B shares made during the
six years (or, in the case of shares held by certain Qualified Retirement Plans,
three years) preceding the redemption. In addition, Class B shares are subject
to an annual 12b-1 fee of 1.0% of the average daily net assets of Class B.

Except as noted below, Class B shares of the Portfolio which are held for
six years or more after purchase (calculated from the last day of the month in
which the shares were purchased) will not be subject to any CDSC upon
redemption. Shares redeemed earlier than six years after purchase may, however,
be subject to a CDSC which will be a percentage of the dollar amount of shares
redeemed and will be assessed on an amount equal to the lesser of the current
market value or the cost of the shares being redeemed. The size of this
percentage will depend upon how long the shares have been held, as set forth in
the following table:

<TABLE>
<CAPTION>
CDSC AS A
YEAR SINCE PURCHASE PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- -------------------------------------- ---------------------
<S> <C>
First................................. 5.0%
Second................................ 4.0%
Third................................. 3.0%
Fourth................................ 2.0%
Fifth................................. 2.0%
Sixth................................. 1.0%
Seventh and thereafter................ None
</TABLE>

In the case of Class B shares of the Portfolio purchased by Qualified
Retirement Plans for which 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>
CDSC AS A
YEAR SINCE PURCHASE PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- -------------------------------------- ---------------------
<S> <C>
First................................. 2.0%
Second................................ 2.0%
Third................................. 1.0%
Fourth and thereafter................. None
</TABLE>

CDSC WAIVERS. A CDSC will not be imposed on: (i) any amount which
represents an increase in value of shares purchased within the six years (or, in
the case of shares held by certain Qualified Retirement Plans, three years)
preceding the redemption; (ii) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) prior to the redemption; and (iii) the current
net asset value of shares purchased through reinvestment of dividends or
distributions and/or shares acquired in exchange for shares of other open-end

23
<PAGE>

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 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

24
<PAGE>

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 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

25
<PAGE>

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.

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<PAGE>

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 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

27
<PAGE>
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.")

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

28
<PAGE>
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

29
<PAGE>

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.

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

30
<PAGE>

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.

REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------

REDEMPTION. Shares of each Class of the Portfolio of the Fund can be
redeemed for cash at any time at the net asset value per share next determined
less the amount of any applicable CDSC in the case of Class A, Class B or Class
C shares (see "Purchase of Portfolio Shares"). If shares are held in a
shareholder's account without a share certificate, a written request for
redemption sent to the Fund's Transfer Agent at P.O. Box 983, Jersey City, NJ
07303 is required. If certificates are held by the shareholder(s), the shares
may be redeemed by surrendering the certificates with a written request for
redemption, along with any additional information required by the Transfer
Agent.

REPURCHASE. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to any
of their offices. Shares held in a shareholder's account without a share
certificate may also be 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."

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<PAGE>

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.")

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<PAGE>
TAXES. Because the Portfolio intends to distribute all of its net
investment income and net short-term capital gains to shareholders and otherwise
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code, it is not expected that the Fund will be required to pay any
Federal income tax on any such income and capital gains. Shareholders will
normally have to pay Federal income taxes, and any state and local income taxes,
on the dividends and distributions they receive from the Portfolio. Any
dividends declared in the last quarter of any calendar year which are paid in
the following year prior to February 1 will be deemed for tax purposes to have
been received in the prior year.

Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Portfolio's shares and regardless of whether the distribution is
received in additional shares or in cash. Capital gains distributions are not
eligible for the dividends received deduction.

After the end of the calendar year, shareholders will be sent full
information on their dividends and capital gains distributions for tax purposes.
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

33
<PAGE>
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 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.

34
<PAGE>

MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO

PORTFOLIO OF INVESTMENTS MAY 31, 1998

<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<S> <C> <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
-------------

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
-------------

SEE NOTES TO FINANCIAL STATEMENTS

35
<PAGE>

MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO

PORTFOLIO OF INVESTMENTS MAY 31, 1998, CONTINUED

<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<S> <C> <C>
FINANCIAL SERVICES
500,000 American Express Co.. . . . . . . . . $ 51,312,500
-------------
MEDICAL EQUIPMENT
860,000 Medtronic, Inc. . . . . . . . . . . . 47,837,500
-------------

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
---------
<S> <C> <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
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------
<S> <C> <C>
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
--------------

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. . . . . $(31,123)
--------
--------
</TABLE>

CURRENCY ABBREVIATIONS:
- -----------------------
HKD Hong Kong Dollar.
JPY Japanese Yen.

SEE NOTES TO FINANCIAL STATEMENTS

36
<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
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

37
<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>

SEE NOTES TO FINANCIAL STATEMENTS

38
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO

FINANCIAL STATEMENTS, CONTINUED

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

39
<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

40
<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:

OLD NAME NEW NAME
- -------- --------
Dean Witter InterCapital Inc. Morgan Stanley Dean Witter Advisors Inc.
Dean Witter Distributors Inc. Morgan Stanley Dean Witter Distributors Inc.

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

41
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO

NOTES TO FINANCIAL STATEMENTS MAY 31, 1998, CONTINUED

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 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.

42
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO

NOTES TO FINANCIAL STATEMENTS MAY 31, 1998, CONTINUED

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 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.

43
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO

NOTES TO FINANCIAL STATEMENTS MAY 31, 1998, CONTINUED

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.

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

44
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO

NOTES TO FINANCIAL STATEMENTS MAY 31, 1998, CONTINUED

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.

45
<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.

46
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO

NOTES TO FINANCIAL STATEMENTS MAY 31, 1998, CONTINUED

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.

47
<PAGE>

MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO

FINANCIAL HIGHLIGHTS

Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:

<TABLE>
<CAPTION>
FOR THE PERIOD FEBRUARY 25, 1998* THROUGH MAY 31, 1998++
-----------------------------------------------------------
CLASS A CLASS B CLASS C CLASS D
SHARES SHARES SHARES SHARES
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
------ ------ ------ ------
------ ------ ------ ------

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>

- --------------------
* 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.

SEE NOTES TO FINANCIAL STATEMENTS

48
<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 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

49
<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.

MORGAN STANLEY
DEAN WITTER
COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO

[GRAPHIC]
PROSPECTUS -- JULY 30, 1998

<PAGE>
(This page has been left blank intentionally.)
<PAGE>
(This page has been left blank intentionally.)
<PAGE>

STATEMENT OF MORGAN STANLEY DEAN WITTER
ADDITIONAL INFORMATION COMPETITIVE EDGE FUND
JULY 30, 1998

- --------------------------------------------------------------------------------

Morgan Stanley Dean Witter Competitive Edge Fund (the "Fund") is an
open-end, diversified management investment company currently consisting of two
separate portfolios (individually a "Portfolio" and collectively the
"Portfolios"). The "BEST IDEAS" PORTFOLIO has an investment objective of long-
term capital growth and invests primarily in common stocks of U.S. and non-U.S.
companies included in the "Best Ideas" subgroup of "Global Investing--The
Competitive Edge" (the " 'Competitive Edge' List"), a research compilation
assembled and maintained by Morgan Stanley Dean Witter Equity Research ("MSDW
Equity Research"). The COMPETITIVE EDGE PORTFOLIO has an investment objective of
long-term capital growth and invests primarily in common stocks of U.S. and
non-U.S. companies included in the Competitive Edge List.

A Prospectus for the "Best Ideas" Portfolio of the Fund dated July 30, 1998,
which provides the basic information you should know before investing in that
Portfolio, may be obtained without charge from the Fund at its address or
telephone numbers listed below or from the Fund's Distributor, Morgan Stanley
Dean Witter Distributors Inc., or from Dean Witter Reynolds Inc. at any of its
branch offices. The Competitive Edge Portfolio is not being offered to investors
at this time. This Statement of Additional Information is not a Prospectus. It
contains information in addition to and more detailed than that set forth in the
Prospectus of each Portfolio. It is intended to provide you additional
information regarding the activities and operations of the respective Portfolio,
and should be read in conjunction with each Portfolio's Prospectus.

Morgan Stanley Dean Witter
Competitive Edge Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550 or
(800) 869-NEWS (toll-free)
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
The Fund and its Management............................................................ 3

Trustees and Officers.................................................................. 8

Investment Practices and Policies of the Portfolios.................................... 13

Investment Restrictions................................................................ 30

Portfolio Transactions and Brokerage................................................... 31

The Distributor........................................................................ 32

Determination of Net Asset Value....................................................... 36

Purchase of Portfolio Shares........................................................... 37

Shareholder Services................................................................... 39

Redemptions and Repurchases............................................................ 44

Dividends, Distributions and Taxes..................................................... 45

Performance Information................................................................ 46

Description of Shares of The Fund...................................................... 48

Custodian and Transfer Agent........................................................... 48

Independent Accountants................................................................ 48

Reports to Shareholders................................................................ 49

Legal Counsel.......................................................................... 49

Experts................................................................................ 49

Registration Statement................................................................. 49
</TABLE>

2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------

THE FUND

The Fund is a trust of the type commonly known as a "Massachusetts business
trust" and was organized under the laws of the Commonwealth of Massachusetts on
October 16, 1997. On December 18, 1997 the Fund changed its name from Dean
Witter "Competitive Edge" Fund to Morgan Stanley Dean Witter Competitive Edge
Fund and changed the name of its "Competitive Edge" Portfolio to Competitive
Edge Portfolio.

THE INVESTMENT MANAGER

Morgan Stanley Dean Witter Advisors Inc. (the "Investment Manager" or "MSDW
Advisors"), a Delaware corporation, whose address is Two World Trade Center, New
York, New York, 10048, is the Fund's investment manager. MSDW Advisors is a
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. ("MSDW"), a Delaware
corporation. The daily management of the Fund and research relating to each
Portfolio of the Fund are conducted by or under the direction of officers of the
Fund and of the Investment Manager, subject to review by the Fund's Board of
Trustees. Information as to these Trustees and officers is contained under the
caption, "Trustees and Officers."

Morgan Stanley Dean Witter Equity Research is not the investment advisor of
the Fund, has not made its stock selections with the Fund or any other
investment product in mind and makes no representation that the stock
selections, taken as a whole, are a suitable investment portfolio, or are
suitable for any type of investor based on their specific investment objectives
and financial position. MSDW Equity Research is under no obligation to the Fund
to continue to publish these types of lists or to advise the Fund of any changes
in its opinion or information.

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.

MSDW Advisors is the investment manager or investment advisor of the
following investment companies, which are collectively referred to as the
"Morgan Stanley Dean Witter Funds":

<TABLE>
<CAPTION>
OPEN-END FUNDS

<C> <S>
1 Active Assets California Tax-Free Trust
2 Active Assets Government Securities Trust
3 Active Assets Money Trust
4 Active Assets Tax-Free Trust
5 Morgan Stanley Dean Witter American Value Fund
6 Morgan Stanley Dean Witter Balanced Growth Fund
7 Morgan Stanley Dean Witter Balanced Income Fund
8 Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
9 Morgan Stanley Dean Witter California Tax-Free Income Fund
10 Morgan Stanley Dean Witter Capital Appreciation Fund
11 Morgan Stanley Dean Witter Capital Growth Securities
12 Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS" Portfolio
13 Morgan Stanley Dean Witter Convertible Securities Trust
14 Morgan Stanley Dean Witter Developing Growth Securities Trust
15 Morgan Stanley Dean Witter Diversified Income Trust
</TABLE>

3
<PAGE>

<TABLE>
<C> <S>
16 Morgan Stanley Dean Witter Dividend Growth Securities Inc.
17 Morgan Stanley Dean Witter Equity Fund
18 Morgan Stanley Dean Witter European Growth Fund Inc.
19 Morgan Stanley Dean Witter Federal Securities Trust
20 Morgan Stanley Dean Witter Financial Services Trust
21 Morgan Stanley Dean Witter Fund of Funds
22 Dean Witter Global Asset Allocation Fund
23 Morgan Stanley Dean Witter Global Dividend Growth Securities
24 Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
25 Morgan Stanley Dean Witter Global Utilities Fund
26 Morgan Stanley Dean Witter Growth Fund
27 Morgan Stanley Dean Witter Hawaii Municipal Trust
28 Morgan Stanley Dean Witter Health Sciences Trust
29 Morgan Stanley Dean Witter High Yield Securities Inc.
30 Morgan Stanley Dean Witter Income Builder Fund
31 Morgan Stanley Dean Witter Information Fund
32 Morgan Stanley Dean Witter Intermediate Income Securities
33 Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
34 Morgan Stanley Dean Witter International SmallCap Fund
35 Morgan Stanley Dean Witter Japan Fund
36 Morgan Stanley Dean Witter Limited Term Municipal Trust
37 Morgan Stanley Dean Witter Liquid Asset Fund Inc.
38 Morgan Stanley Dean Witter Market Leader Trust
39 Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
40 Morgan Stanley Dean Witter Mid-Cap Growth Fund
41 Morgan Stanley Dean Witter Multi-State Municipal Series Trust
42 Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
43 Morgan Stanley Dean Witter New York Municipal Money Market Trust
44 Morgan Stanley Dean Witter New York Tax-Free Income Fund
45 Morgan Stanley Dean Witter Pacific Growth Fund Inc.
46 Morgan Stanley Dean Witter Precious Metals and Minerals Trust
47 Dean Witter Retirement Series
48 Morgan Stanley Dean Witter Select Dimensions Investment Series
49 Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
50 Morgan Stanley Dean Witter Short-Term Bond Fund
51 Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
52 Morgan Stanley Dean Witter Special Value Fund
53 Morgan Stanley Dean Witter S&P 500 Index Fund
54 Morgan Stanley Dean Witter Strategist Fund
55 Morgan Stanley Dean Witter Tax-Exempt Securities Trust
56 Morgan Stanley Dean Witter Tax-Free Daily Income Trust
57 Morgan Stanley Dean Witter U.S. Government Money Market Trust
58 Morgan Stanley Dean Witter U.S. Government Securities Trust
59 Morgan Stanley Dean Witter Utilities Fund
60 Morgan Stanley Dean Witter Value-Added Market Series
61 Morgan Stanley Dean Witter Variable Investment Series
62 Morgan Stanley Dean Witter World Wide Income Trust
<CAPTION>

CLOSED-END FUNDS
<C> <S>

1 InterCapital California Insured Municipal Income Trust
2 InterCapital California Quality Municipal Securities
3 Dean Witter Government Income Trust
4 High Income Advantage Trust
</TABLE>

4
<PAGE>

<TABLE>
<C> <S>
5 High Income Advantage Trust II
6 High Income Advantage Trust III
7 InterCapital Income Securities Inc.
8 InterCapital Insured California Municipal Securities
9 InterCapital Insured Municipal Bond Trust
10 InterCapital Insured Municipal Income Trust
11 InterCapital Insured Municipal Securities
12 InterCapital Insured Municipal Trust
13 Municipal Income Opportunities Trust
14 Municipal Income Opportunities Trust II
15 Municipal Income Opportunities Trust III
16 Municipal Income Trust
17 Municipal Income Trust II
18 Municipal Income Trust III
19 Municipal Premium Income Trust
20 InterCapital New York Quality Municipal Securities
21 Morgan Stanley Dean Witter Prime Income Trust
22 InterCapital Quality Municipal Income Trust
23 InterCapital Quality Municipal Investment Trust
24 InterCapital Quality Municipal Securities
</TABLE>

In addition, Morgan Stanley Dean Witter Services Company Inc. ("MSDW
Services"), a wholly-owned subsidiary of MSDW Advisors, serves as manager for
the following investment companies for which TCW Funds Management, Inc. is the
investment advisor (the "TCW/DW Funds"):

<TABLE>
<CAPTION>
OPEN-END FUNDS

<C> <S>
1 TCW/DW Emerging Markets Opportunities Trust
2 TCW/DW Global Telecom Trust
3 TCW/DW Income and Growth Fund
4 TCW/DW Latin American Growth Fund
5 TCW/DW Mid-Cap Equity Trust
6 TCW/DW North American Government Income Trust
7 TCW/DW Small Cap Growth Fund
8 TCW/DW Total Return Trust

CLOSED-END FUNDS
<C> <S>

1 TCW/DW Term Trust 2000
2 TCW/DW Term Trust 2002
3 TCW/DW Term Trust 2003
</TABLE>

MSDW Advisors also serves as: (i) administrator of The BlackRock Strategic
Term Trust Inc., a closed-end investment company; (ii) sub-administrator of
Templeton Global Governments Income Trust, a closed-end investment company; and
(iii) investment advisor of Offshore Dividend Growth Fund and Offshore Money
Market Fund, mutual funds established under the laws of the Cayman Islands and
available only to investors who are participants in The International Active
Assets Account program and are neither citizens nor residents of the United
States.

Pursuant to an Investment Management Agreement (the "Agreement") with the
Investment Manager, the Fund has retained the Investment Manager to manage the
investment of the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. The Investment Manager obtains and
evaluates such information and advice relating to the economy, securities
markets, and specific securities as it considers necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective and policies.

5
<PAGE>

Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, such office space, facilities,
equipment, clerical help, bookkeeping and certain legal services as the Fund may
reasonably require in the conduct of its business, including the preparation of
prospectuses, proxy statements and reports required to be filed with federal and
state securities commissions (except insofar as the participation or assistance
of independent accountants and attorneys is, in the opinion of the Investment
Manager, necessary or desirable). In addition, the Investment Manager pays the
salaries of all personnel, including officers of the Fund, who are employees of
the Investment Manager. The Investment Manager also bears the cost of telephone
service, heat, light, power and other utilities provided to the Fund. The
Investment Manager has retained MSDW services to provide its administrative
services under the agreement.

Each Portfolio pays all expenses incurred in its operation and a portion of
the Fund's general administrative expenses allocated on the basis of asset size
of the respective Portfolio. Expenses not expressly assumed by the Investment
Manager under the Agreement or by the Distributor of the Portfolio's shares,
Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors" or the
"Distributor") (see "The Distributor"), will be paid by the Portfolio. These
expenses will be allocated among the four classes of shares of the Portfolio of
the Fund (each, a "Class") pro rata based on the net assets of the Portfolio of
the Fund attributable to each Class, except as described below. Such expenses
include, but are not limited to: expenses of the Plan of Distribution pursuant
to Rule 12b-1 (the "12b-1 fee") (see "The Distributor"); charges and expenses of
any registrar, custodian, share transfer and dividend disbursing agent;
brokerage commissions; taxes; engraving and printing share certificates;
registration costs of the Portfolio and its shares under federal and state
securities laws; the cost and expenses of printing, including typesetting, and
distributing prospectuses of the Portfolio and supplements thereto to the
Portfolio's shareholders; all expenses of shareholders' and Trustees' meetings
and of preparing, printing and mailing proxy statements and reports to
shareholders; fees and travel expenses of Trustees or members of any advisory
board or committee who are not employees of the Investment Manager or any
corporate affiliate of the Investment Manager; all expenses incident to any
dividend, withdrawal or redemption options; any charges and expenses of any
outside service used for pricing of the Portfolio's shares; fees and expenses of
legal counsel, including counsel to the Trustees who are not interested persons
of the Fund, the Portfolio or of the Investment Manager (not including
compensation or expenses of attorneys who are employees of the Investment
Manager) and independent accountants; membership dues of industry associations;
interest on Portfolio borrowings; postage; insurance premiums on property or
personnel (including officers and Trustees) of the Portfolio which inure to its
benefit; extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification relating thereto;
depending upon the nature of the legal claim, liability or lawsuit, the costs of
litigation, payment of legal claims or liabilities or indemnification relating
thereto may be directly applicable to the Portfolio or may be proportionately
allocated on the basis of the size of the Portfolio. The Trustees have
determined that this is an appropriate method of allocation of such expenses);
and all other costs of the Portfolio's operation properly payable by the Fund
and allocable on the basis of size of the respective Portfolio. The 12b-1 fees
relating to a particular Class of the Portfolio will be allocated directly to
that Class. In addition, other expenses associated with a particular Class of a
particular Portfolio (except custodial fees) may be allocated directly to that
Class, provided that such expenses are reasonably identified as specifically
attributable to that Class and the direct allocation to that Class is approved
by the Trustees.

The Investment Manager paid the organizational expenses of each Portfolio
incurred prior to the offering of its shares. Each Portfolio has agreed to bear
and reimburse the Investment Manager for such expenses, in an amount of up to a
maximum of $250,000. The organizational expenses of each Portfolio have been
deferred by the Portfolio and are being amortized on the straight line method
over a period not to exceed five years from the date of commencement of each
Portfolio's operations.

As full compensation for the services and facilities furnished to each
Portfolio of the Fund and expenses of each Portfolio assumed by the Investment
Manager, the Fund pays the Investment Manager

6
<PAGE>

monthly compensation calculated daily by applying the annual rate of 0.65% to
the daily net assets not exceeding $1.5 billion and 0.625% of the daily net
assets exceeding $1.5 billion of the "Best Ideas" Portfolio and 0.75% to the
daily net assets of the Competitive Edge Portfolio. The management fee is
allocated among the Classes of each Portfolio pro rata based on the net assets
of the respective Portfolio attributable to each Class. For the fiscal period
ended May 31, 1998 the "Best Ideas" Portfolio accrued to the Investment Manager
total compensation of $2,943,814.

The Agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder, the
Investment Manager is not liable to the Fund or any of its investors for any act
or omission by the Investment Manager or for any losses sustained by the Fund or
its investors. The Agreement in no way restricts the Investment Manager from
acting as investment manager or adviser to others.

The Agreement was initially approved by the Board of Trustees on November 6,
1997 and by MSDW Advisors, as the then sole shareholder, on November 6, 1997.
The Agreement may be terminated with respect to any Portfolio, at any time,
without penalty, on thirty days' notice by the Board of Trustees of the Fund, by
the holders of a majority, as defined in the Investment Company Act of 1940 (the
"Act"), of the outstanding shares of the respective Portfolio of the Fund, or by
the Investment Manager. The Agreement will automatically terminate in the event
of its assignment (as defined in the Act).

Under its terms, the Agreement has an initial term ending April 30, 1999 and
will remain in effect from year to year thereafter with respect to each
Portfolio, provided continuance of the Agreement is approved at least annually
by the vote of the holders of a majority, as defined in the Act, of the
outstanding shares of each Portfolio of the Fund, or by the Board of Trustees of
the Fund; provided that in either event such continuance is approved annually by
the vote of a majority of the Trustees of the Fund who are not parties to the
Agreement or "interested persons" (as defined in the Act) of any such party (the
"Independent Trustees"), which vote must be cast in person at a meeting called
for the purpose of voting on such approval.

The following owned 5% or more of the outstanding shares of Class D on June
30, 1998: Reinhard Eschbach TTEE & Ruth Eschbach TTEE UAD 12/08/82 by Rudolf
Eschbach IRV. TR, 24430 Hoover Road, Warren, MI 48089--56.7%; Hare & Co, c/o The
Bank of New York P.O. Box 11203, New York, NY 10286--36.5%.

The Fund has acknowledged that the name "Morgan Stanley Dean Witter" is a
property right of MSDW. The Fund has agreed that MSDW, or any corporate
affiliate of MSDW, may use or, at any time, permit others to use, the name
"Morgan Stanley Dean Witter." The Fund has also agreed that in the event the
Agreement is terminated, or if the affiliation between MSDW Advisors and its
parent company is terminated, the Fund will eliminate the name "Morgan Stanley
Dean Witter" from its name if MSDW, or any corporate affiliate of MSDW, shall so
request.

7
<PAGE>
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------

The Trustees and Executive Officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with MSDW
Advisors, and with the 86 Morgan Stanley Dean Witter Funds and the 11 TCW/DW
Funds are shown below:

<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Michael Bozic (57) ................................... Chairman and Chief Executive Officer of Levitz Furniture
Trustee Corporation (since November, 1995); Director or Trustee of
c/o Levitz Furniture Corporation the Morgan Stanley Dean Witter Funds; formerly President
7887 N. Federal Highway and Chief Executive Officer of Hills Department Stores
Boca Raton, Florida (May, 1991-July, 1995); formerly variously Chairman, Chief
Executive Officer, President and Chief Operating Officer
(1987-1991) of the Sears Merchandise Group of Sears,
Roebuck and Co.; Director of Eaglemark Financial Services,
Inc. and Weirton Steel Corporation.

Charles A. Fiumefreddo* (65) ......................... Chairman, Director or Trustee, President and Chief
Chairman, President Executive Officer of the Morgan Stanley Dean Witter Funds;
Chief Executive Officer and Trustee Chairman, Chief Executive Officer and Trustee of the
Two World Trade Center TCW/DW Funds; formerly Chairman, Chief Executive Officer
New York, New York and Director of MSDW Advisors, MSDW Distributors and MSDW
Services, Executive Vice President and Director of Dean
Witter Reynolds Inc. ("DWR"), Chairman and Director of
Morgan Stanley Dean Witter Trust FSB ("MSDW Trust"), and
Director and/or officer of various MSDW subsidiaries
(until June, 1998).

Edwin J. Garn (65) ................................... Director or Trustee of the Morgan Stanley Dean Witter
Trustee Funds; formerly United States Senator (R-Utah) (1974-1992)
c/o Huntsman Corporation and Chairman, Senate Banking Committee (1980-1986);
500 Huntsman Way formerly Mayor of Salt Lake City, Utah (1972-1974);
Salt Lake City, Utah formerly Astronaut, Space Shuttle Discovery (April 12-19,
1985); Vice Chairman, Huntsman Corporation (since January,
1993); Director of Franklin Covey (time management
systems), John Alden Financial Corp. (health insurance),
United Space Alliance (joint venture between Lockheed
Martin and the Boeing Company) and Nuskin Asia Pacific
(Multilevel Marketing); member of the board of various
civic and charitable organizations.

John R. Haire (73) ................................... Chairman of the Audit Committee and Director or Trustee of
Trustee the Morgan Stanley Dean Witter Funds; Chairman of the
Two World Trade Center Audit Committee and Trustee of the TCW/DW Funds; formerly
New York, New York Chairman of the Independent Directors or Trustees of the
Morgan Stanley Dean Witter Funds and the TCW/DW Funds
(until June, 1998); formerly President, Council for Aid to
Education (1978-1989) and Chairman and Chief Executive
Officer of Anchor Corporation, an Investment Adviser
(1964-1978).
</TABLE>

8
<PAGE>

<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
Wayne E. Hedien (64) ................................. Retired, Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds; Director of The PMI Group, Inc. (private
c/o Gordon Altman Butowsky mortgage insurance); Trustee and Vice Chairman of The
Weitzen Shalov & Wein Field Museum of Natural History; formerly associated with
Counsel to the Independent Trustees the Allstate Companies (1966-1994), most recently as
114 West 47th Street Chairman of The Allstate Corporation (March,
New York, New York 1993-December, 1994) and Chairman and Chief Executive
Officer of its wholly-owned subsidiary, Allstate Insurance
Company (July, 1989-December, 1994); director of various
other business and charitable organizations.
<S> <C>

Dr. Manuel H. Johnson (49) ........................... Senior Partner, Johnson Smick International, Inc., a
Trustee consulting firm; Co-Chairman and a founder of the Group of
c/o Johnson Smick International, Inc. Seven Council (G7C), an international economic commission;
1133 Connecticut Avenue, N.W. Director or Trustee of the Morgan Stanley Dean Witter
Washington, DC Funds; Trustee of the TCW/ DW Funds; Director of Greenwich
Capital Markets, Inc. (broker-dealer); Director of NASDAQ
(since June, 1995); Director of Greenwich Capital Markets,
Inc. (broker-dealer) and NVR, Inc. (Home Construction);
Chairman and Trustee of the Financial Accounting
Foundation (oversight organization for the Financial
Accounting Standards Board); formerly Vice Chairman of the
Board of Governors of the Federal Reserve System
(1986-1990) and Assistant Secretary of the U.S. Treasury
(1982-1986).

Michael E. Nugent (62) ............................... General Partner, Triumph Capital, L.P., a private in-
Trustee vestment partnership; Director or Trustee of the Morgan
c/o Triumph Capital, L.P. Stanley Dean Witter Funds; Trustee of the TCW/ DW Funds;
237 Park Avenue formerly Vice President, Bankers Trust Company and BT
New York, New York Capital Corporation (1984-1988); director of various
business organizations.

Philip J. Purcell* (54) .............................. Chairman of the Board of Directors and Chief Executive
Trustee Officer of MSDW, DWR and Novus Credit Services Inc.;
1585 Broadway Director of MSDW Distributors; Director or Trustee of the
New York, New York Morgan Stanley Dean Witter Funds; Director and/or officer
of various MSDW subsidiaries.

John L. Schroeder (67) ............................... Retired; Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds; Trustee of the TCW/DW Funds; Director of
c/o Gordon Altman Butowsky Weitzen Citizens Utilities Company; formerly Executive Vice
Shalov & Wein President and Chief Investment Officer of the Home
Counsel to the Independent Trustees Insurance Company (August, 1991-September, 1995).
114 West 47th Street
New York, New York
</TABLE>

9
<PAGE>

<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------------------------------------------------ ----------------------------------------------------------
Barry Fink (43) ...................................... Senior Vice President (since March, 1997), Secretary and
Vice President, Secretary General Counsel (since February, 1997) and Director (since
and General Counsel July, 1998) of MSDW Advisors and MSDW Services; Senior
Two World Trade Center Vice President (since March, 1997) and Assistant Secretary
New York, New York and Assistant General Counsel (since February, 1997) of
MSDW Distributors; Assistant Secretary of DWR (since Au-
gust, 1996); Vice President, Secretary and General Counsel
of the Morgan Stanley Dean Witter Funds and the TCW/DW
Funds (since February, 1997); previously First Vice
President (June, 1993-February, 1997), Vice President
(until June, 1993) and Assistant Secretary and Assistant
General Counsel of MSDW Advisors and MSDW Services and
Assistant Secretary of the Morgan Stanley Dean Witter
Funds and the TCW/DW Funds.
<S> <C>

Mark Bavoso (37) ..................................... Senior Vice President of MSDW Advisors (since June, 1993);
Vice President formerly Vice President of MSDW Advisors; Vice President
Two World Trade Center of various Morgan Stanley Dean Witter Funds.
New York, New York

Thomas F. Caloia (52) ................................ First Vice President and Assistant Treasurer of MSDW
Treasurer Advisors and MSDW Services; Treasurer of the Morgan
Two World Trade Center Stanley Dean Witter Funds and the TCW/DW Funds.
New York, New York
</TABLE>

- ------------
* Denotes Trustees who are "interested persons" of the Fund, as defined in the
Act.

In addition, Mitchell M. Merin, President, Chief Executive Officer and
Director of MSDW Advisors and MSDW Services, Chairman and Director of MSDW
Distributors and MSDW Trust. Executive Vice President and Director of DWR, and
Director of SPS Transaction Services, Inc. and various other MSDW subsidiaries,
Robert M. Scanlan, President, Chief Operating Officer and Director of MSDW
Advisors and MSDW Services, Executive Vice President of MSDW Distributors and
MSDW Trust and Director of MSDW Trust, Joseph J. McAlinden, Executive Vice
President and Chief Investment Officer of MSDW Advisors and Director of MSDW
Trust, Robert S. Giambrone, Senior Vice President of MSDW Advisors, MSDW
Services, MSDW Distributors and MSDW Trust and a Director of MSDW Trust, and
Kenton J. Hinchliffe and Guy D. Rutherford, Jr., Senior Vice Presidents of MSDW
Advisors, and Robert Rossetti, Vice President of MSDW Advisors are Vice
Presidents of the Fund, and Steven MacNamara Vice President of MSDW Advisors is
an Assistant Vice President of the Fund, and Marilyn K. Cranney and Carsten
Otto, First Vice Presidents and Assistant General Counsels of MSDW Advisors and
MSDW Services, Frank Bruttomesso, Lou Anne D. McInnis and Ruth Rossi, Vice
Presidents and Assistant General Counsels of MSDW Advisors and MSDW Services,
and Todd Lebo, a Staff Attorney with MSDW Advisors, are Assistant Secretaries of
the Fund.

THE BOARD OF TRUSTEES, THE INDEPENDENT TRUSTEES, AND THE COMMITTEES

The Board of Trustees consists of nine (9) trustees. These same individuals
also serve as directors or trustees for all of the Morgan Stanley Dean Witter
Funds, and are referred to in this section as Trustees. As of the date of this
Statement of Additional Information, there are a total of 86 Morgan Stanley Dean
Witter Funds, comprised of 132 portfolios. As of June 30, 1998, the Morgan
Stanley Dean Witter Funds had total net assets of approximately $107 billion and
more than six million shareholders.

10
<PAGE>

Seven Trustees (77% of the total number) have no affiliation or business
connection with MSDW Advisors or any of its affiliated persons and do not own
any stock or other securities issued by MSDW Advisors' parent company, MSDW.
These are the "disinterested" or "independent" Trustees. Four of the seven
independent Trustees are also Independent Trustees of the TCW/DW Funds.

Law and regulation establish both general guidelines and specific duties for
the Independent Trustees. The Morgan Stanley Dean Witter Funds seek as
Independent Trustees individuals of distinction and experience in business and
finance, government service or academia; these are people whose advice and
counsel are in demand by others and for whom there is often competition. To
accept a position on the Funds' Boards, such individuals may reject other
attractive assignments because the Funds make substantial demands on their time.
Indeed, by serving on the Funds' Boards, certain Trustees who would otherwise be
qualified and in demand to serve on bank boards would be prohibited by law from
doing so.

All of the Independent Trustees serve as members of the Audit Committee.
Three of them also serve as members of the Derivatives Committee. During the
calendar year ended December 31, 1997, the Audit Committee, the Derivatives
Committee and the Independent Trustees held a combined total of seventeen
meetings.

The Independent Trustees are charged with recommending to the full Board
approval of management, advisory and administration contracts, Rule 12b-1 plans
and distribution and underwriting agreements; continually reviewing Fund
performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among Funds in
the same complex; and approving fidelity bond and related insurance coverage and
allocations, as well as other matters that arise from time to time. The
Independent Trustees are required to select and nominate individuals to fill any
Independent Trustee vacancy on the Board of any Fund that has a Rule 12b-1 plan
of distribution. Most of the Morgan Stanley Dean Witter Funds have such a plan.

The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of such services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; and reviewing the adequacy of the Fund's system of internal
controls.

Finally, the Board of each Fund has formed a Derivatives Committee to
approve parameters for and monitor the activities of the Fund with respect to
derivative investments, if any, made by the Fund.

ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL MORGAN
STANLEY DEAN WITTER FUNDS

The Independent Trustees and the Funds' management believe that having the
same Independent Trustees for each of the Morgan Stanley Dean Witter Funds
avoids the duplication of effort that would arise from having different groups
of individuals serving as Independent Trustees for each of the Funds or even of
sub-groups of Funds. They believe that having the same individuals serve as
Independent Trustees of all the Funds tends to increase their knowledge and
expertise regarding matters which affect the Fund complex generally and enhances
their ability to negotiate on behalf of each Fund with the Fund's service
providers. This arrangement also precludes the possibility of separate groups of
Independent Trustees arriving at conflicting decisions regarding operations and
management of the Funds and avoids the cost and confusion that would likely
ensue. Finally, having the same Independent Trustees serve on all Fund Boards
enhances the ability of each Fund to obtain, at modest cost to each separate
Fund, the services of Independent Trustees of the caliber, experience and
business acumen of the individuals who serve as Independent Trustees of the
Morgan Stanley Dean Witter Funds.

11
<PAGE>

COMPENSATION OF INDEPENDENT TRUSTEES

The Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees, the Independent
Trustees or Committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an additional annual fee of $750).
If a Board meeting and a meeting of the Independent Trustees or a Committee
meeting, or a meeting of the Independent Trustees and/or more than one Committee
meeting, take place on a single day, the Trustees are paid a single meeting fee
by the Fund. The Fund also reimburses such Trustees for travel and other
out-of-pocket expenses incurred by them in connection with attending such
meetings. Trustees and officers of the Fund who are or have been employed by the
Investment Manager or an affiliated company receive no compensation or expense
reimbursement from the Fund for their services as Trustee. Mr. Haire currently
serves as Chairman of the Audit Committee.

At such time as the Fund has been in operation, and has paid fees to the
Independent Trustees, for a full fiscal year, and assuming that during such
fiscal year the Fund holds the same number of meetings of the Board, the
Independent Trustees and the Committees as were held by the other Morgan Stanley
Dean Witter Funds during the calendar year ended December 31, 1997, it is
estimated that the compensation paid to each Independent Trustee during such
fiscal year will be the amount shown in the following table:

FUND COMPENSATION (ESTIMATED)

<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- -------------------------------------------------------------- ---------------
<S> <C>
Michael Bozic................................................. $1,600
Edwin J. Garn................................................. 1,600
John R. Haire................................................. 2,350
Wayne E. Hedien............................................... 1,600
Dr. Manuel H. Johnson......................................... 1,600
Michael E. Nugent............................................. 1,600
John L. Schroeder............................................. 1,600
</TABLE>

The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1997 for services
to the 84 Morgan Stanley Dean Witter Funds and, in the case of Messrs. Haire,
Johnson, Nugent and Schroeder, the 14 TCW/DW Funds that were in operation at
December 31, 1997. Mr. Haire serves as Chairman of the Audit Committee of each
Morgan Stanley Dean Witter Fund and each TCW/DW Fund and, prior to June 1, 1998,
also served as Chairman of the Independent Directors or Trustees of those Funds.
With respect to Messrs. Haire, Johnson, Nugent and Schroeder, the TCW/DW Funds
are included solely because of a limited exchange privilege between those Funds
and five Morgan Stanley Dean Witter Money Market Funds. Mr. Hedien's term as
Director or Trustee of each Morgan Stanley Dean Witter Fund commenced on
September 1, 1997.

CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS AND TCW/DW FUNDS

<TABLE>
<CAPTION>
FOR SERVICE AS TOTAL CASH
FOR SERVICE AS CHAIRMAN OF FOR SERVICE AS COMPENSATION
DIRECTOR OR INDEPENDENT CHAIRMAN OF FOR SERVICES
TRUSTEE AND DIRECTORS/TRUSTEES INDEPENDENT TO 84
COMMITTEE MEMBER FOR SERVICE AS AND AUDIT TRUSTEES MORGAN
OF 84 MORGAN TRUSTEE AND COMMITTEES OF 84 AND AUDIT STANLEY
STANLEY COMMITTEE MEMBER MORGAN STANLEY COMMITTEES OF DEAN WITTER
DEAN WITTER OF 14 TCW/DW DEAN WITTER 14 FUNDS AND 14
NAME OF INDEPENDENT TRUSTEE FUNDS FUNDS FUNDS TCW/DW FUNDS TCW/DW FUNDS
- --------------------------- ---------------- ---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Michael Bozic.............. $133,602 -- -- -- $133,602
Edwin J. Garn.............. 149,702 -- -- -- 149,702
John R. Haire.............. 149,702 $ 73,725 $157,463 $ 25,350 406,240
Wayne E. Hedien............ 39,010 -- -- -- 39,010
Dr. Manuel H. Johnson...... 145,702 71,125 -- -- 216,827
Michael E. Nugent.......... 149,702 73,725 -- -- 223,427
John L. Schroeder.......... 149,702 73,725 -- -- 223,427
</TABLE>

12
<PAGE>

As of the date of this Statement of Additional Information, 57 of the Morgan
Stanley Dean Witter Funds, not including the Fund, have adopted a retirement
program under which an Independent Trustee who retires after serving for at
least five years (or such lesser period as may be determined by the Board) as an
Independent Director or Trustee of any Morgan Stanley Dean Witter Fund that has
adopted the retirement program (each such Fund referred to as an "Adopting Fund"
and each such Trustee referred to as an "Eligible Trustee") is entitled to
retirement payments upon reaching the eligible retirement age (normally, after
attaining age 72). Annual payments are based upon length of service. Currently,
upon retirement, each Eligible Trustee is entitled to receive from the Adopting
Fund, commencing as of his or her retirement date and continuing for the
remainder of his or her life, an annual retirement benefit (the "Regular
Benefit") equal to 29.41% of his or her Eligible Compensation plus 0.4901667% of
such Eligible Compensation for each full month of service as an Independent
Director or Trustee of any Adopting Fund in excess of five years up to a maximum
of 58.82% after ten years of service. The foregoing percentages may be changed
by the Board.(1) "Eligible Compensation" is one-fifth of the total compensation
earned by such Eligible Trustee for service to the Adopting Fund in the five
year period prior to the date of the Eligible Trustee's retirement. Benefits
under the retirement program are not secured or funded by the Adopting Funds.

The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the 57 Morgan Stanley Dean Witter Funds (not
including the Fund) for the year ended December 31, 1997, and the estimated
retirement benefits for the Fund's Independent Trustees, to commence upon their
retirement, from the 57 Morgan Stanley Dean Witter Funds as of December 31,
1997.

RETIREMENT BENEFITS FROM ALL MORGAN STANLEY DEAN WITTER FUNDS

<TABLE>
<CAPTION>
ESTIMATED
RETIREMENT ANNUAL
BENEFITS BENEFITS
ESTIMATED ACCRUED AS UPON
CREDITED YEARS ESTIMATED EXPENSES RETIREMENT
OF SERVICE AT PERCENTAGE OF BY ALL FROM ALL
RETIREMENT ELIGIBLE ADOPTING ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUNDS FUNDS(2)
- ----------------------------------------------------- ------------------- --------------- ------------ -----------
<S> <C> <C> <C> <C>
Michael Bozic........................................ 10 58.82% $20,499 $ 55,026
Edwin J. Garn........................................ 10 58.82 30,878 55,026
John R. Haire........................................ 10 58.82 (19,823)(3) 132,002
Wayne E. Hedien...................................... 9 50.00 0 46,772
Dr. Manuel H. Johnson................................ 10 58.82 12,832 55,026
Michael E. Nugent.................................... 10 58.82 22,546 55,026
John L. Schroeder.................................... 8 49.02 39,350 46,123
</TABLE>

- ------------

(1) An Eligible Trustee may elect alternate payments of his or her retirement
benefits based upon the combined life expectancy of such Eligible Trustee
and his or her spouse on the date of such Eligible Trustee's retirement.
The amount estimated to be payable under this method, through the remainder
of the later of the lives of such Eligible Trustee and spouse, will be the
actuarial equivalent of the Regular Benefit. In addition, the Eligible
Trustee may elect that the surviving spouse's periodic payment of benefits
will be equal to either 50% or 100% of the previous periodic amount, an
election that, respectively, increases or decreases the previous periodic
amount so that the resulting payments will be the actuarial equivalent of
the Regular Benefit.

(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.

(3) This number reflects the effect of the extension of Mr. Haire's term as
Director or Trustee until May 1, 1999.

As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's officers
and Trustees as a group was less than 1 percent of the Fund's shares of
beneficial interest outstanding.

INVESTMENT PRACTICES AND POLICIES OF THE PORTFOLIOS

- --------------------------------------------------------------------------------

"BEST IDEAS" LIST. As of July 16, 1998, the companies in the "Best Ideas"
subgroup as published in "Global Industry -- The Competitive Edge" Update --
July 1998 were as follows: AES Corp., American Express, American Home Products,
AXA-UAP, Bank of New York, BMW, Boeing, Chevron, Cisco,

13
<PAGE>

Citicorp, Coca-Cola Enterprises, Computer Associates, Diageo, Dresser
Industries, DuPont, Emerson Electric, Federal Express, Fuji Photo Film, General
Electric, Holderbank, HSBC, Intel, Lilly (Eli), MAN, Medtronic, Michelin,
Microsoft, Nestle, News Corp, Quintiles, Sandvik, Schlumberger, Siebe, Skandia
International, Sony, Time Warner, Total, Unilever plc, United Bank of
Switzerland (UBS) and UPM-Kymmene. The "Best Ideas" List is updated quarterly.

A description of the various investment practices and techniques in which
certain or all of the Portfolios may engage is set forth below as well as in the
Prospectus of each Portfolio. Shareholders are referred to the Prospectuses of
those Portfolios for more detailed information.

MONEY MARKET INSTRUMENTS. As stated in the Prospectus for each Portfolio,
the money market instruments which each Portfolio of the Fund may purchase
include U.S. Government securities, bank obligations, Eurodollar certificates of
deposit, obligations of savings institutions, fully insured certificates of
deposit and commercial paper. Such securities are limited to:

U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as the
Federal Home Loan Bank), including Treasury bills, notes and bonds;

BANK OBLIGATIONS. Obligations (including certificates of deposit and
bankers' acceptances) of banks subject to regulation by the U.S. Government and
having total assets of $1,000,000,000 or more, and instruments secured by such
obligations, not including obligations of foreign branches of domestic banks
except to the extent below;

EURODOLLAR CERTIFICATES OF DEPOSIT. Eurodollar certificates of deposit
issued by foreign branches of domestic banks, having total assets of
$1,000,000,000 or more;

OBLIGATIONS OF SAVINGS INSTITUTIONS. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1,000,000,000
or more;

FULLY INSURED CERTIFICATES OF DEPOSIT. Certificates of deposit of banks
and savings institutions, having total assets of less than $1,000,000,000, if
the principal amount of the obligation is insured by the Federal Deposit
Insurance Corporation, limited to $100,000 principal amount per certificate and
to 10% or less of each Portfolio's total assets;

COMMERCIAL PAPER. Commercial paper rated within the two highest grades
by Standard & Poor's (S&P) or the highest grade by Moody's or, if not rated,
issue by a company having an outstanding debt issue rated at least AA by S&P or
Aa by Moody's.

FOREIGN SECURITIES. As stated in the Prospectuses for the Portfolio,
foreign securities investments may be affected by changes in currency rates or
exchange control regulations, changes in governmental administration or economic
or monetary policy (in the United States and abroad) or changed circumstances in
dealings between nations. Fluctuations in the relative rates of exchange between
the
currencies of different nations will affect the value of the Portfolio's
investments denominated in foreign currency. Changes in foreign currency
exchange rates relative to the U.S. dollar will affect the U.S. dollar value of
a 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 foreign currency transactions of a
fund will be conducted on a spot basis or through forward contracts or futures
contracts (described in the Statement of Additional Information). The Portfolio
will incur certain costs in connection with these currency transactions.

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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 the more rigorous uniform
accounting, auditing and financial reporting standards and requirements
applicable to U.S. companies.

Securities of foreign issuers may be less liquid than comparable securities
of U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts. Brokerage commissions, dealer concessions and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of certain Portfolio trades effected in such markets. Inability to
dispose of portfolio securities due to settlement delays could result in losses
to the Portfolio due to subsequent declines in value of such securities and the
inability of the Portfolio to make intended security purchases due to settlement
problems could result in a failure of the Portfolio to make potentially
advantageous investments. To the extent the Portfolio purchases Eurodollar
certificates of deposit issued by foreign branches of domestic United States
banks, consideration will be given to their domestic marketability, the lower
reserve requirements normally mandated for overseas banking operations, the
possible impact of interruptions in the flow of international currency
transactions, and future international political and economic developments which
might adversely affect the payment of principal or interest.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. As stated in the Prospectuses
for the Global Best Ideas Portfolio and the Global Competitive Edge Portfolio,
the Portfolios may enter into forward foreign currency exchange contracts
("forward contracts") as a hedge against fluctuations in future foreign exchange
rates. A Portfolio will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through entering into forward contracts to purchase
or sell foreign currencies. A forward contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (usually large,
commercial and investment banks) and their customers. Such forward contracts
will only be entered into with United States banks and their foreign branches or
foreign banks, insurance companies and other dealers whose assets total $1
billion or more. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.

When management of the Portfolio believes that a particular foreign currency
may suffer a substantial movement against the U.S. dollar, it may enter into a
forward contract to purchase or sell, for a fixed amount of dollars or other
currency, the amount of foreign currency approximating the value of some or all
of the Portfolio's portfolio securities denominated in such foreign currency.

At other times, when, for example, the Portfolio's Investment Manager
believes that the currency of a particular foreign country may suffer a
substantial decline against the U.S. dollar or some other foreign currency, the
Portfolio may enter into a forward contract to sell, for a fixed amount of
dollars or other currency, the amount of foreign currency approximating the
value of some or all of the Portfolio's securities holdings (or securities which
the fund has purchased for its portfolio) denominated in such foreign currency.
Under identical circumstances, the Portfolio may enter into a forward contract
to sell,

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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.

The Portfolio will not enter into forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the Portfolio to deliver an amount of foreign currency in excess of the
value of the Portfolio's portfolio securities or other assets denominated in
that currency. Under normal circumstances, consideration of the prospect for
currency parities will be incorporated into the longer term investment decisions
made with regard to overall diversification strategies. However, the management
of the relevant Portfolio believes that it is important to have the flexibility
to enter into such forward contracts when it determines that the best interests
of the Portfolio will be served. The Portfolio's custodian bank will place cash,
U.S. Government securities or other appropriate liquid portfolio securities in a
segregated account of the Portfolio in an amount equal to the value of the
Portfolio's total assets committed to the consummation of forward contracts
entered into under the circumstances set forth above. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of the Portfolio's commitments with respect to
such contracts.

Where, for example, the Portfolio is hedging a portfolio position consisting
of foreign securities denominated in a foreign currency against adverse exchange
rate moves vis-a-vis the U.S. dollar, at the maturity of the forward contract
for delivery by the Portfolio of a foreign currency, the Portfolio may either
sell the portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract with the same currency
trader obligating it to purchase, on the same maturity date, the same amount of
the foreign currency (however, the ability of the fund to terminate a contract
is contingent upon the willingness of the currency trader with whom the contract
has been entered into to permit an offsetting transaction). It is impossible to
forecast the market value of portfolio securities at the expiration of the
contract. Accordingly, it may be necessary for the Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of foreign
currency the fund is obligated to deliver and if a decision is made to sell the
security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio securities if its market value exceeds the amount of
foreign currency a fund is obligated to deliver.

If the Portfolio retains the portfolio securities and engages in an
offsetting transaction, the Portfolio will incur a gain or loss to the extent
that there has been movement in spot or forward contract prices. If the
Portfolio engages in an offsetting transaction, it may subsequently enter into a
new forward contract to sell the foreign currency. Should forward prices decline
during the period between the Portfolio's entering into a forward contract for
the sale of a foreign currency and the date it enters into an offsetting
contract for the purchase of the foreign currency, the Portfolio will realize a
gain to the extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward prices increase,
the Portfolio will suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell.

If the Portfolio purchases a fixed-income security which is denominated in
U.S. dollars but which will pay out its principal based upon a formula tied to
the exchange rate between the U.S. dollar and a

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<PAGE>
foreign currency, it may hedge against a decline in the principal value of the
security by entering into a forward contract to sell an amount of the relevant
foreign currency equal to some or all of the principal value of the security.

At times when the Portfolio has written a call option on a security or the
currency in which it is denominated, it may wish to enter into a forward
contract to purchase or sell the foreign currency in which the security is
denominated. A forward contract would, for example, hedge the risk of the
security on which a call option has been written declining in value to a greater
extent than the value of the premium received for the option. The Portfolio will
maintain with its Custodian at all times, cash, U.S. Government securities, or
other liquid portfolio securities in a segregated account equal in value to all
forward contract obligations and option contract obligations entered into in
hedge situations such as this.

Although the Portfolio values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S. dollars
on a daily basis. It will, however, do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the spread between the prices at which they are buying and selling various
currencies. Thus a dealer may offer to sell a foreign currency to the fund at
one rate, while offering a lesser rate of exchange should the fund desire to
resell that currency to the dealer.

In all of the above circumstances, if the currency in which the Portfolio
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 the Fund not entered into
the forward contracts. Moreover, the precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible,
since the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The 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 (the "Code") requirements relating to qualifications
as a regulated investment company (see "Dividends, Distributions and Taxes").

REPURCHASE AGREEMENTS. As discussed in each Portfolio's Prospectus, when
cash may be available for only a few days, it may be invested by the Portfolio
in repurchase agreements until such time as it may otherwise be invested or used
for payments of obligations of the Portfolio. These agreements, which may be
viewed as a type of secured lending by the Portfolio, 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 ("collateral") at
a specified price and at a fixed time in the future, usually not more than seven
days from the date of purchase. The collateral will be maintained in a
segregated account and will be marked to market daily to determine that the
value of the collateral, as specified in the agreement, does not decrease below
the purchase price plus accrued interest. If such decrease occurs, additional
collateral will be requested and, when received, added to the account to
maintain full collateralization. The Portfolio will accrue interest from the
institution until the time when the repurchase is to occur. Although such date
is deemed by the fund to be the maturity date of a repurchase agreement, the
maturities of securities subject to repurchase agreements are not subject to any
limits.

While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Portfolio follows procedures designed to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions
whose financial condition will be continually monitored by the Investment
Manager subject to procedures established by the Board of Trustees of the fund.
In addition, as described above, the value of the collateral underlying the
repurchase agreement will be at least equal to the repurchase price,

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including any accrued interest earned on the repurchase agreement. In the event
of a default or bankruptcy by a selling financial institution, the Portfolio
will seek to liquidate such collateral. However, the exercising of the
Portfolio's right to liquidate such collateral could involve certain costs or
delays and, to the extent that proceeds from any sale upon a default of the
obligation to repurchase were less than the repurchase price, the Portfolio
could suffer a loss. It is the current policy of the Portfolios 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 a Portfolio, amounts
to more than 15% of its net assets. A Portfolio's investments in repurchase
agreements may at times be substantial when, in the view of the Investment
Manager, liquidity, tax or other considerations warrant.

LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, each 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 notice provisions described below), and
are at all times secured by cash or cash equivalents, which are maintained in a
segregated account pursuant to applicable regulations and that are equal to at
least the market value, determined daily, of the loaned securities. The
advantage of such loans is that the Portfolio continues to receive the income on
the loaned securities while at the same time earning interest on the cash
amounts deposited as collateral, which will be invested in short-term
obligations. A Portfolio will not lend its portfolio securities if such loans
are not permitted by the laws or regulations of any state in which its shares
are qualified for sale and will not lend more than 25% of the value of its total
assets. A loan may be terminated by the borrower on one business days' notice,
or by the fund on four business days' notice. If the borrower fails to deliver
the loaned securities within four days after receipt of notice, the Portfolio
could use the collateral to replace the securities while holding the borrower
liable for any excess of replacement cost over collateral. As with any
extensions of credit, there are risks of delay in recovery and in some cases
even loss of rights in the collateral should the borrower of the securities fail
financially. However, these loans of portfolio securities will only be made to
firms deemed by the Portfolio's management to be creditworthy and when the
income which can be earned from such loans justifies the attendant risks. Upon
termination of the loan, the borrower is required to return the securities to
the Portfolio. Any gain or loss in the market price during the loan period would
inure to the Portfolio. The creditworthiness of firms to which the Portfolio
lends its portfolio securities will be monitored on an ongoing basis by the
Investment Manager pursuant to procedures adopted and reviewed, on an ongoing
basis, by the Board of Trustees of the Fund.

When voting or consent rights which accompany loaned securities pass to the
borrower, the Portfolio will follow the policy of calling the loaned securities,
to be delivered within one day after notice, to permit the exercise of such
rights if the matters involved would have a material effect on the fund's
investment in such loaned securities. A Portfolio will pay reasonable finder's,
administrative and custodial fees in connection with a loan of its securities.

PRIVATE PLACEMENTS. As discussed in each Portfolio's Prospectus, 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 of the Securities Act, and determined to be liquid pursuant to the
procedures discussed in the following paragraph, are not subject to the
foregoing restriction.) Limitations on the resale of such securities may have an
adverse effect on their marketability, and may prevent a Portfolio 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.

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The Securities and Exchange Commission ("SEC") has adopted Rule 144A under
the Securities Act, which permits the Portfolio 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. The procedures require that the following factors be taken into
account in making a liquidity determination: (1) the frequency of trades and
price quotes for the security; (2) the number of dealers and other potential
purchasers who have issued quotes on the security; (3) any dealer undertakings
to make a market in the security; and (4) the nature of the security and the
nature of the marketplace trades (the time needed to dispose of the security,
the method of soliciting offers, and the mechanics of transfer). If a restricted
security is determined to be "liquid", such security will not be included within
the category "illiquid securities", which under current policies may not exceed
15% of the Portfolio's net assets.

The Rule 144A marketplace of sellers and qualified institutional buyers is
new and still developing and may take a period of time to develop into a mature
liquid market. As such, the market for certain private placements purchased
pursuant to Rule 144A may be initially small or may, subsequent to purchase,
become illiquid. Furthermore, the Investment Manager may not posses all the
information concerning an issue of securities that it wishes to purchase in a
private placement to which it would normally have had access, had the
registration statement necessitated by a public offering been filed with the
Securities and Exchange Commission.

RIGHTS AND WARRANTS. As stated in each Portfolio's Prospectus, the
Portfolio may acquire rights and 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. Warrants are, in effect, an option to purchase
equity securities at a specific price, generally valid for a specific period of
time, and have no voting rights, pay no dividends and have no rights with
respect to the corporation issuing them.

OPTIONS AND FUTURES TRANSACTIONS As stated in the Prospectus, each
Portfolio may write covered call options against securities held in its
portfolio and covered put options on eligible portfolio securities and stock
indexes and purchase options of the same series to effect closing transactions,
and may hedge against potential changes in the market value of investments (or
anticipated investments) and facilitate the reallocation of a fund's assets into
and out of equities and fixed-income securities by purchasing put and call
options on portfolio (or eligible portfolio) securities and engaging in
transactions involving futures contracts and options on such contracts. A
Portfolio may also hedge against potential changes in the market value of the
currencies in which its investments (or anticipated investments) are denominated
by purchasing put and call options on currencies and engage in transactions
involving currency futures contracts and options on such contracts.

Call and put options on U.S. Treasury notes, bonds and bills and equity
securities are listed on Exchanges and are written in over-the-counter
transactions ("OTC options"). Listed options are issued by the Options Clearing
Corporation ("OCC") and other clearing entities including foreign exchanges.
Ownership of a listed call option gives a Portfolio the right to buy from the
OCC the underlying security covered by the option at the stated exercise price
(the price per unit of the underlying security) by filing an exercise notice
prior to the expiration date of the option. The writer (seller) of the option
would then have the obligation to sell to the OCC the underlying security at
that exercise price prior to the expiration date of the option, regardless of
its then current market price. Ownership of a listed put option would give the
Portfolio the right to sell the underlying security to the OCC at the stated
exercise price. Upon notice of exercise of the put option, the writer of the put
would have the obligation to purchase the underlying security from the OCC at
the exercise price.

OPTIONS ON TREASURY BONDS AND NOTES. Because trading in options written on
Treasury bonds and notes tends to center on the most recently auctioned issues,
the exchanges on which such securities trade will not continue indefinitely to
introduce options with new expirations to replace expiring options on particular
issues. Instead, the expirations introduced at the commencement of options
trading on a particular issue will be allowed to run their course, with the
possible addition of a limited number of new

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expirations as the original ones expire. Options trading on each issue of bonds
or notes will thus be phased out as new options are listed on more recent
issues, and options representing a full range of expirations will not ordinarily
be available for every issue on which options are traded.

OPTIONS ON TREASURY BILLS. Because a deliverable Treasury bill changes from
week to week, writers of Treasury bill calls cannot provide in advance for their
potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Portfolio holds a long position in Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option, the position may be hedged from a risk standpoint by the writing of a
call option. For so long as the call option is outstanding, the Portfolio will
hold the Treasury bills in a segregated account with its Custodian, so that they
will be treated as being covered.

OPTIONS ON FOREIGN CURRENCIES. The Portfolio may purchase and write options
on foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts. For example, in order to protect
against declines in the dollar value of portfolio securities which are
denominated in a foreign currency, the Portfolio may purchase put options on an
amount of such foreign currency equivalent to the current value of the portfolio
securities involved. As a result, the Portfolio would be enabled to sell the
foreign currency for a fixed amount of U.S. dollars, thereby "locking in" the
dollar value of the portfolio securities (less the amount of the premiums paid
for the options). Conversely, the Portfolio may purchase call options on foreign
currencies in which securities it anticipates purchasing are denominated to
secure a set U.S. dollar price for such securities and protect against a decline
in the value of the U.S. dollar against such foreign currency. The Portfolio may
also purchase call and put options to close out written option positions.

The Portfolio may also write call options on foreign currency to protect
against potential declines in its portfolio securities which are denominated in
foreign currencies. If the U.S. dollar value of the portfolio securities falls
as a result of a decline in the exchange rate between the foreign currency in
which a security is denominated and the U.S. dollar, then a loss to a fund
occasioned by such value decline would be ameliorated by receipt of the premium
on the option sold. At the same time, however, the Portfolio gives up the
benefit of any rise in value of the relevant portfolio securities above the
exercise price of the option and, in fact, only receives a benefit from the
writing of the option to the extent that the value of the portfolio securities
falls below the price of the premium received. The Portfolio may also write
options to close out long call option positions.

The markets in foreign currency options are relatively new and the
Portfolio's ability to establish and close out positions on such options is
subject to the maintenance of a liquid secondary market. Although the Portfolio
will not purchase or write such options unless and until, in the opinion of the
management of the Portfolio, the market for them has developed sufficiently to
ensure that the risks in connection with such options are not greater than the
risks in connection with the underlying currency, there can be no assurance that
a liquid secondary market will exist for a particular option at any specific
time. In addition, options on foreign currencies are affected by all of those
factors which influence foreign exchange rates and investments generally.

The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security,
including foreign securities held in a "hedged" investment portfolio. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.

There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where

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rates may be less favorable. The interbank market in foreign currencies is a
global, around-the-clock market. To the extent that the U.S. options markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements may take place in the underlying markets that are not
reflected in the options market.

OTC OPTIONS. Exchange-listed options are issued by the OCC which assures
that all transactions in such options are properly executed. OTC options are
purchased from or sold (written) to dealers or financial institutions which have
entered into direct agreements with the respective Portfolio. With OTC options,
such variables as expiration date, exercise price and premium will be agreed
upon between a Portfolio and the transacting dealer, without the intermediation
of a third party such as the OCC. If the transacting dealer fails to make or
take delivery of the securities underlying an option it has written, in
accordance with the terms of that option, the Portfolio would lose the premium
paid for the option as well as any anticipated benefit of the transaction. A
Portfolio will engage in OTC option transactions only with primary U.S.
Government securities dealers recognized by the Federal Reserve Bank of New
York.

COVERED CALL WRITING. The Portfolio is permitted to write covered call
options on portfolio securities and the U.S. dollar and foreign currencies,
without limit. Generally, a call option is "covered" if the Portfolio owns, or
has the right to acquire, without additional cash consideration (or for
additional cash consideration held for the Portfolio by its Custodian in a
segregated account) the underlying security (currency) subject to the option
except that in the case of call options on U.S. Treasury Bills, a fund might own
U.S. Treasury Bills of a different series from those underlying the call option,
but with a principal amount and value corresponding to the exercise price and a
maturity date no later than that of the securities (currency) deliverable under
the call option. A call option is also covered if the Portfolio holds a call on
the same security (currency) as the underlying security (currency) of the
written option, where the exercise price of the call used for coverage is equal
to or less than the exercise price of the call written or greater than the
exercise price of the call written if the mark to market difference is
maintained by the Portfolio in cash, U.S. Government securities or other liquid
portfolio securities which the fund holds in a segregated account maintained
with its Custodian.

The Portfolio will receive from the purchaser, in return for a call it has
written, a "premium"; i.e., the price of the option. Receipt of these premiums
may better enable the Portfolio to achieve a greater total return than would be
realized from holding the underlying securities (currency) alone. Moreover, the
income received from the premium will offset a portion of the potential loss
incurred by the fund if the securities (currency) underlying the option are
ultimately sold (exchanged) by the Portfolio at a loss. The premium received
will fluctuate with varying economic market conditions. If the market value of
the portfolio securities (or the currencies in which they are denominated) upon
which call options have been written increases, the Portfolio may receive less
total return from the portion of its portfolio upon which calls have been
written than it would have had such calls not been written.

As regards listed options and certain OTC options, during the option period,
the Portfolio may be required, at any time, to deliver the underlying security
(currency) against payment of the exercise price on any calls it has written
(exercise of certain listed and OTC options may be limited to specific
expiration dates). This obligation is terminated upon the expiration of the
option period or at such earlier time when the writer effects a closing purchase
transaction. A closing purchase transaction is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Portfolio has been assigned an exercise notice, it will be unable to effect a
closing purchase transaction.

Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call option to prevent an underlying security (currency) from
being called, to permit the sale of an underlying security (or the exchange of
the underlying currency) or to enable the Portfolio to write another call option
on the underlying security (currency) with either a different exercise price or
expiration date or both. Also, effecting a closing purchase transaction will
permit the cash or proceeds from the concurrent sale of any securities subject
to the option to be used for other investments by the Portfolio. The Portfolio
may realize a net gain or loss from a closing purchase transaction depending
upon whether the amount of the premium received on the call option is more or
less than the cost of effecting the closing purchase

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transaction. Any loss incurred in a closing purchase transaction may be wholly
or partially offset by unrealized appreciation in the market value of the
underlying security (currency). Conversely, a gain resulting from a closing
purchase transaction could be offset in whole or in part or exceeded by a
decline in the market value of the underlying security (currency).

If a call option expires unexercised, the Portfolio realizes a gain in the
amount of the premium on the option less the commission paid. Such a gain,
however, may be offset by depreciation in the market value of the underlying
security (currency) during the option period. If a call option is exercised, the
Portfolio realizes a gain or loss from the sale of the underlying security
(currency) equal to the difference between the purchase price of the underlying
security (currency) and the proceeds of the sale of the security (currency) plus
the premium received for on the option less the commission paid.

Options written by the Portfolio normally have expiration dates of from up
to nine months (equity securities) to eighteen months (fixed-income securities)
from the date written. The exercise price of a call option may be below, equal
to or above the current market value of the underlying security (currency) at
the time the option is written. See "Risks of Options and Futures Transactions,"
below.

COVERED PUT WRITING. As a writer of a covered put option, the Portfolio
incurs an obligation to buy the security underlying the option from the
purchaser of the put, at the option's exercise price at any time during the
option period, at the purchaser's election (certain listed and OTC put options
written by the Portfolio will be exercisable by the purchaser only on a specific
date). A put is "covered" if, at all times, the Portfolio maintains, in a
segregated account maintained on its behalf at the Portfolio's Custodian, cash,
U.S. Government securities or other high grade obligations in an amount equal to
at least the exercise price of the option, at all times during the option
period. Similarly, a short put position could be covered by the Portfolio by its
purchase of a put option on the same security as the underlying security of the
written option, where the exercise price of the purchased option is equal to or
more than the exercise price of the put written or less than the exercise price
of the put written if the mark to market difference is maintained by the
Portfolio in cash, U.S. Government securities or other liquid portfolio
securities which the Portfolio holds in a segregated account maintained at its
Custodian. In writing puts, the Portfolio assumes the risk of loss should the
market value of the underlying security decline below the exercise price of the
option (any loss being decreased by the receipt of the premium on the option
written). In the case of listed options, during the option period, the Portfolio
may be required, at any time, to make payment of the exercise price against
delivery of the underlying security. The operation of and limitations on covered
put options in other respects are substantially identical to those of call
options.

The Portfolio will write put options for two purposes: (1) to receive the
income derived from the premiums paid by purchasers; and (2) when the Investment
Manager wishes to purchase the security underlying the option at a price lower
than its current market price, in which case it will write the covered put at an
exercise price reflecting the lower purchase price sought. The potential gain on
a covered put option is limited to the premium received on the option (less the
commissions paid on the transaction) while the potential loss equals the
difference between the exercise price of the option and the current market price
of the underlying securities when the put is exercised, offset by the premium
received (less the commissions paid on the transaction).

PURCHASING CALL AND PUT OPTIONS. 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 in order to close out a covered call
position (see "Covered Call Writing" above) or purchase call options on
securities they intend to purchase. The Portfolio may also purchase a call
option on foreign currency to hedge against an adverse exchange rate move 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 purchase
of the call option to effect a closing transaction or a call written
over-the-counter may be a listed or an OTC option. In either case, the call
purchased is likely to be on the same securities (currencies) and have the same
terms as the written option. If purchased over-the-counter, the option would
generally be acquired from the dealer or financial institution which purchased
the call written by the Portfolio.

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<PAGE>
The Portfolio may purchase put options on securities (currency) which it
holds (or has the right to acquire) in its portfolio only to protect itself
against a decline in the value of the security (currency). If the value of the
underlying security (currency) were to fall below the exercise price of the put
purchased in an amount greater than the premium paid for the option, the
Portfolio would incur no additional loss. A Portfolio may also purchase put
options to close out written put positions in a manner similar to call options
closing purchase transactions. In addition, the Portfolio may sell a put option
which it has previously purchased prior to the sale of the securities (currency)
underlying such option. Such a sale would result in a net gain or loss depending
on whether the amount received on the sale is more or less than the premium and
other transaction costs paid on the put option which is sold. Any such gain or
loss could be offset in whole or in part by a change in the market value of the
underlying security (currency). If a put option purchased by the Portfolio
expired without being sold or exercised, the premium would be lost.

RISKS OF OPTIONS TRANSACTIONS. During the option period, the covered call
writer has, in return for the premium on the option, given up the opportunity
for capital appreciation above the exercise price should the market price of the
underlying security (or the currency in which it is denominated) increase, but
has retained the risk of loss should the price of the underlying security
(currency) decline. The covered put writer also retains the risk of loss should
the market value of the underlying security (currency) decline below the
exercise price of the option less the premium received on the sale of the
option. In both cases, the writer has no control over the time when it may be
required to fulfill its obligation as a writer of the option. Once an option
writer has received an exercise notice, it cannot effect a closing purchase
transaction in order to terminate its obligation under the option and must
deliver or receive the underlying securities (currency) at the exercise price.

Prior to exercise or expiration, an option position can only be terminated
by entering into a closing purchase or sale transaction. If a covered call
option writer is unable to effect a closing purchase transaction or to purchase
an offsetting over-the-counter option, it cannot sell the underlying security
until the option expires or the option is exercised. Accordingly, a covered call
option writer may not be able to sell (exchange) an underlying security
(currency) at a time when it might otherwise be advantageous to do so. A covered
put option writer who is unable to effect a closing purchase transaction or to
purchase an offsetting over-the-counter option would continue to bear the risk
of decline in the market price of the underlying security (currency) until the
option expires or is exercised. In addition, a coveredput writer would be unable
to utilize the amount held in cash or U.S. Government or other liquid portfolio
securities as security for the put option for other investment purposes until
the exercise or expiration of the option.

The Portfolio's ability to close out its position as a writer of an option
is dependent upon the existence of a liquid secondary market on option
Exchanges. There is no assurance that such a market will exist, particularly in
the case of OTC options, as such options will generally only be closed out by
entering into a closing purchase transaction with the purchasing dealer.
However, the Portfolio may be able to purchase an offsetting option which does
not close out its position as a writer but constitutes an asset of equal value
to the obligation under the option written. If the Portfolio is not able to
either enter into a closing purchase transaction or purchase an offsetting
position, it will be required to maintain the securities subject to the call, or
the collateral underlying the put, even though it might not be advantageous to
do so, until a closing transaction can be entered into (or the option is
exercised or expires).

Among the possible reasons for the absence of a liquid secondary market on
an Exchange are: (i) insufficient trading interest in certain options; (ii)
restrictions on transactions imposed by an Exchange; (iii) trading halts,
suspensions or other restrictions imposed with respect to particular classes or
series of options or underlying securities; (iv) interruption of the normal
operations on an Exchange; (v) inadequacy of the facilities of an Exchange or
the Options Clearing Corporation ("OCC") to handle current trading volume; or
(vi) a decision by one or more Exchanges to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that Exchange (or in

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that class or series of options) would cease to exist, although outstanding
options on that Exchange that had been issued by the OCC as a result of trades
on that Exchange would generally continue to be exercisable in accordance with
their terms.

Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, a fund would continue to
be required to make daily cash payments of variation margin on open futures
positions. In such situations, if the Portfolio has insufficient cash, it may
have to sell portfolio securities to meet daily variation margin requirements at
a time when it may be disadvantageous to do so. In addition, the Portfolio may
be required to take or make delivery of the instruments underlying interest rate
futures contracts it holds at a time when it is disadvantageous to do so. The
inability to close out options and futures positions could also have an adverse
impact on a Portfolio's ability to effectively hedge its portfolio.

In the event of the bankruptcy of a broker through which a Portfolio engages
in transactions in options, futures or options thereon, the Portfolio could
experience delays and/or losses in liquidating open positions purchased or sold
through the broker and/or incur a loss of all or part of its margin deposits
with the broker. Similarly, in the event of the bankruptcy of the writer of an
OTC option purchased by the Portfolio, the Portfolio could experience a loss of
all or part of the value of the option. Transactions are entered into by the
Portfolio only with brokers or financial institutions deemed creditworthy by the
Investment Manager.

Each of the Exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different Exchanges or are held or written on
one or more accounts or through one or more brokers). An Exchange may order the
liquidation of positions found to be in violation of these limits and it may
impose other sanctions or restrictions. These position limits may restrict the
number of listed options which a fund may write.

While the futures contracts and options transactions to be engaged in by the
Portfolio for the purpose of hedging the Portfolio's portfolio securities are
not speculative in nature, there are risks inherent in the use of such
instruments. One such risk which may arise in employing futures contracts to
protect against the price volatility of portfolio securities is that the prices
of securities and indexes subject to futures contracts (and thereby the futures
contract prices) may correlate imperfectly with the behavior of the cash prices
of the Portfolio's portfolio securities. Another such risk is that prices of
interest rate futures contracts may not move in tandem with the changes in
prevailing interest rates against which the fund seeks a hedge. A correlation
may also be distorted by the fact that the futures market is dominated by
short-term traders seeking to profit from the difference between a contract or
security price objective and their cost of borrowed funds. Such distortions are
generally minor and would diminish as the contract approached maturity.

The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.

STOCK INDEX OPTIONS. Options on stock indexes are similar to options on
stock except that, rather than the right to take or make delivery of stock at a
specified price, an option on a stock index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the stock index upon which the option is based is greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the option. This
amount of cash is equal to such difference between the closing price of the
index and the exercise price of the option expressed in dollars times a
specified multiple (the "multiplier"). The multiplier for an index option
performs a function similar to the unit of trading for a stock option. It
determines the total dollar value per contract of each point in the difference
between the

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exercise price of an option and the current level of the underlying index. A
multiplier of 100 means that a one-point difference will yield $100. Options on
different indexes may have different multipliers. The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
Unlike stock options, all settlements are in cash and a gain or loss depends on
price movements in the stock market generally (or in a particular segment of the
market) rather than the price movements in individual stocks. Currently, options
are traded on the Standard & Poor's 100 Index and the Standard & Poor's 500
Index on the Chicago Board Options Exchange, the Major Market Index and the
Computer Technology Index, Oil Index and Institutional Index on the American
Stock Exchange and the NYSE Index and NYSE Beta Index on the New York Stock
Exchange, The Financial News Composite Index on the Pacific Stock Exchange and
the Value Line Index, National O-T-C Index and Utilities Index on the
Philadelphia Stock Exchange, each of which and any similar index on which
options are traded in the future which include stocks that are not limited to
any particular industry or segment of the market is referred to as a "broadly
based stock market index." Options on stock indexes provide a fund with a means
of protecting a Portfolio against the risk of market wide price movements. If
the Investment Manager anticipates a market decline, the Portfolio could
purchase a stock index put option. If the expected market decline materialized,
the resulting decrease in the value of the Portfolio's portfolio would be offset
to the extent of the increase in the value of the put option. If the Investment
Manager anticipates a market rise, the Portfolio may purchase a stock index call
option to enable the Portfolio to participate in such rise until completion of
anticipated common stock purchases by the fund. Purchases and sales of stock
index options also enable the Investment Manager to more speedily achieve
changes in a fund's equity positions.

The Portfolio will write put options on stock indexes only if such positions
are covered by cash, U.S. Government securities or other liquid portfolio
securities equal to the aggregate exercise price of the puts, which cover is
held for the Portfolio in a segregated account maintained for it by the fund's
Custodian. All call options on stock indexes written by the Portfolio will be
covered either by a portfolio of stocks substantially replicating the movement
of the index underlying the call option or by holding a separate call option on
the same stock index with a strike price no higher than the strike price of the
call option sold by the fund.

RISKS OF OPTIONS ON INDEXES. Because exercises of stock index options are
settled in cash, call writers such as the Portfolio cannot provide in advance
for their potential settlement obligations by acquiring and holding the
underlying securities. A call writer can offset some of the risk of its writing
position by holding a diversified portfolio of stocks similar to those on which
the underlying index is based. However, most investors cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same stocks as the
underlying index, and, as a result, bear a risk that the value of the securities
held will vary from the value of the index. Even if an index call writer could
assemble a stock portfolio that exactly reproduced the composition of the
underlying index, the writer still would not be fully covered from a risk
standpoint because of the "timing risk" inherent in writing index options. When
an index option is exercised, the amount of cash that the holder is entitled to
receive is determined by the difference between the exercise price and the
closing index level on the date when the option is exercised. As with other
kinds of options, the writer will not learn that it has been assigned until the
next business day, at the earliest. The time lag between exercise and notice of
assignment poses no risk for the writer of a covered call on a specific
underlying security, such as a common stock, because there the writer's
obligation is to deliver the underlying security, not to pay its value as of a
fixed time in the past. So long as the writer already owns the underlying
security, it can satisfy its settlement obligations by simply delivering it, and
the risk that its value may have declined since the exercise date is borne by
the exercising holder. In contrast, even if the writer of an index call holds
stocks that exactly match the composition of the underlying index, it will not
be able to satisfy its assignment obligations by delivering those stocks against
payment of the exercise price. Instead, it will be required to pay cash in an
amount based on the closing index value on the exercise date; and by the time it
learns that it has been assigned, the index may have declined, with a
corresponding decrease in the value of its stock portfolio. This "timing risk"
is an inherent limitation on the ability of index call writers to cover their
risk exposure by holding stock positions.

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<PAGE>
A holder of an index option who exercises it before the closing index value
for that day is available
runs the risk that the level of the underlying index may subsequently change. If
such a change causes the exercised option to fall out-of-the-money, the
exercising holder will be required to pay the difference between the closing
index value and the exercise price of the option (times the applicable
multiplier) to the assigned writer.

If dissemination of the current level of an underlying index is interrupted,
or if trading is interrupted in stocks accounting for a substantial portion of
the value of an index, the trading of options on that index will ordinarily be
halted. If the trading of options on an underlying index is halted, an exchange
may impose restrictions prohibiting the exercise of such options.

FUTURES CONTRACTS. Each Portfolio may purchase and sell interest rate,
currency and stock index futures contracts ("futures contracts") that are traded
on U.S. and foreign commodity exchanges on such underlying securities as U.S.
Treasury bonds, notes and bills ("interest rate" futures), on the U.S. dollar
and foreign currencies, and such indexes as the S&P 500 Index, the Moody's
Investment-Grade Corporate Bond Index and the New York Stock Exchange Composite
Index ("index" futures).

As a futures contract purchaser, a 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 will purchase or sell interest rate futures contracts and bond
index futures contracts for the purpose of hedging its fixed-income portfolio
(or anticipated portfolio) securities against changes in prevailing interest
rates. If the Investment Manager anticipates that interest rates may rise and,
concomitantly, the price of fixed-income securities fall, a fund may sell an
interest rate futures contract or a bond index futures contract. If declining
interest rates are anticipated, the Portfolio may purchase an interest rate
futures contract to protect against a potential increase in the price of U.S.
Government securities the Portfolio intends to purchase. Subsequently,
appropriate fixed-income securities may be purchased by the Portfolio in an
orderly fashion; as securities are purchased, corresponding futures positions
would be terminated by offsetting sales of contracts.

The Portfolio will purchase or sell futures contracts on the U.S. dollar and
on foreign currencies to hedge against an anticipated rise or decline in the
value of the U.S. dollar or foreign currency in which a portfolio security of
the fund is denominated vis-a-vis another currency.

The Portfolio will purchase or sell stock index futures contracts for the
purpose of hedging its equity portfolio (or anticipated portfolio) securities
against changes in their prices. If the Investment Manager anticipates that the
prices of stock held by the Portfolio may fall, the fund may sell a stock index
futures contract. Conversely, if the Investment Manager wishes to hedge against
anticipated price rises in those stocks which a Portfolio intends to purchase,
the fund may purchase stock index futures contracts. In addition, interest rate
and stock index futures contracts will be bought or sold in order to close out a
short or long position in a corresponding futures contract.

Although most interest rate futures contracts call for actual delivery or
acceptance of securities, the contracts usually are closed out before the
settlement date without the making or taking of delivery. Index futures
contracts provide for the delivery of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the open or
close of the last trading day of the contract and the futures contract price. A
futures contract sale is closed out by effecting a futures contract purchase for
the same aggregate amount of the specific type of equity security and the same
delivery date. If the sale price exceeds the offsetting purchase price, the
seller would be paid the difference and would realize a gain. If the offsetting
purchase price exceeds the sale price, the seller would pay the difference and
would realize a loss. Similarly, a futures contract purchase is closed out by
effecting a futures contract sale for the same aggregate amount of the specific
type of equity security and

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<PAGE>
the same delivery date. If the offsetting sale price exceeds the purchase price,
the purchaser would realize a gain, whereas if the purchase price exceeds the
offsetting sale price, the purchaser would realize a loss. There is no assurance
that the Fund will be able to enter into a closing transaction.

INTEREST RATE FUTURES CONTRACTS. When the Portfolio enters into an interest
rate futures contract, it is initially required to deposit with the Portfolio's
Custodian, in a segregated account in the name of the broker performing the
transaction, an "initial margin" of cash or U.S. Government securities or other
liquid portfolio securities equal to approximately 2% of the contract amount.
Initial margin requirements are established by the Exchanges on which futures
contracts trade and may, from time to time, change. In addition, brokers may
establish margin deposit requirements in excess of those required by the
Exchanges.

Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is, rather, a good faith deposit on the futures
contract which will be returned to the Portfolio upon the proper termination of
the futures contract. The margin deposits made are marked to market daily and
the Portfolio may be required to make subsequent deposits called "variation
margin", with the Portfolio's Custodian, in the account in the name of the
broker, which are reflective of price fluctuations in the futures contract.
Currently, interest rates futures contracts can be purchased on debt securities
such as U.S. Treasury Bills and Bonds, U.S. Treasury Notes with maturities
between 6 1/2 and 10 years, GNMA Certificates and Bank Certificates of Deposit.

INDEX FUTURES CONTRACTS. The Portfolio may invest in index futures
contracts. An index futures contract sale creates an obligation by the
Portfolio, as seller, to deliver cash at a specified future time. An index
futures contract purchase would create an obligation by the Portfolio, as
purchaser, to take delivery of cash at a specified future time. Futures
contracts on indexes do not require the physical delivery of securities, but
provide for a final cash settlement on the expiration date which reflects
accumulated profits and losses credited or debited to each party's account.

The Portfolio is required to maintain margin deposits with brokerage firms
through which it effects index futures contracts in a manner similar to that
described above for interest rate futures contracts. Currently, the initial
margin requirement is approximately 5% of the contract amount for index futures.
In addition, due to current industry practice, daily variations in gains and
losses on open contracts are required to be reflected in cash in the form of
variation margin payments. The Fund may be required to make additional margin
payments during the term of the contract.

At any time prior to expiration of the futures contract, the Portfolio may
elect to close the position by taking an opposite position which will operate to
terminate the fund's position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid by or
released to the Portfolio and the Portfolio realizes a loss or a gain.

Currently, index futures contracts can be purchased or sold with respect to,
among others, the Standard & Poor's 500 Stock Price Index and the Standard &
Poor's 100 Stock Price Index on the Chicago Mercantile Exchange, the New York
Stock Exchange Composite Index on the New York Futures Exchange, the Major
Market Index on the American Stock Exchange, the Moody's Investment-Grade
Corporate Bond Index on the Chicago Board of Trade and the Value Line Stock
Index on the Kansas City Board of Trade.

OPTIONS ON FUTURES CONTRACTS. The Portfolio may purchase and write call and
put options on futures contracts and enter into closing transactions with
respect to such options to terminate an existing position. An option on a
futures contract gives the purchaser the right (in return for the premium paid),
and the writer the obligation, to assume a position in a futures contract (a
long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the term of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option is accompanied by delivery of the
accumulated balance in the writer's futures

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<PAGE>
margin account, which represents the amount by which the market price of the
futures contract at the time of exercise exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option on the futures
contract.

The Portfolio will purchase and write options on futures contracts for
identical purposes to those set forth above for the purchase of a futures
contract (purchase of a call option or sale of a put option) and the sale of a
futures contract (purchase of a put option or sale of a call option), or to
close out a long or short position in futures contracts. If, for example, the
Investment Manager wished to protect against an increase in interest rates and
the resulting negative impact on the value of a portion of its fixed-income
portfolio, it might write a call option on an interest rate futures contract,
the underlying security of which correlates with the portion of the portfolio
the Investment Manager seeks to hedge. Any premiums received in the writing of
options on futures contracts may, of course, augment the total return of the
fund and thereby provide a further hedge against losses resulting from price
declines in portions of the Portfolio's holdings.

The writer of an option on a futures contract is required to deposit initial
and variation margin pursuant to requirements similar to those applicable to
futures contracts. Premiums received from the writing of an option on a futures
contract are included in initial margin deposits.

LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Portfolio may
not enter into futures contracts or purchase related options thereon if,
immediately thereafter, the amount committed to margin plus the amount paid for
premiums for unexpired options on futures contracts exceeds 5% of the value of
the Portfolio's total assets, after taking into account unrealized gains and
unrealized losses on such contracts it has entered into, provided, however, that
in the case of an option that is in-the-money (the exercise price of the call
(put) option is less (more) than the market price of the underlying security) at
the time of purchase, the in-the-money amount may be excluded in calculating the
5%. However, there is no overall limitation on the percentage of the Portfolio's
assets which may be subject to a hedge position. In addition, in accordance with
the regulations of the Commodity Futures Trading Commission ("CFTC") under which
the Portfolio is exempted from registration as a commodity pool operator, the
fund may only enter into futures contracts and options on futures contracts
transactions for purposes of hedging a part or all of its portfolio. If the CFTC
changes its regulations so that the Portfolio would be permitted to write
options on futures contracts for purposes other than hedging the Portfolio's
investments without CFTC registration, the Portfolio may engage in such
transactions for those purposes. Except as described above, there are no other
limitations on the use of futures and options thereon by the fund.

RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. The
Portfolio may sell a futures contract to protect against the decline in the
value of securities held by the Fund. However, it is possible that the futures
market may advance and the value of securities held in the portfolio of the
Portfolio may decline. If this occurred, the Portfolio would lose money on the
futures contract and also experience a decline in value of its portfolio
securities. However, while this could occur for a very brief period or to a very
small degree, over time the value of a diversified portfolio will tend to move
in the same direction as the futures contracts.

If the Portfolio purchases a futures contract to hedge against the increase
in value of securities it intends to buy, and the value of such securities
decreases, then the Portfolio may determine not to invest in the securities as
planned and will realize a loss on the futures contract that is not offset by a
reduction in the price of the securities.

In addition, if the Portfolio holds a long position in a futures contract or
has sold a put option on a futures contract, it will hold cash, U.S. Government
securities or other liquid portfolio securities equal to the purchase price of
the contract or the exercise price of the put option (less the amount of initial
or variation margin on deposit) in a segregated account maintained for the fund
by its Custodian. Alternatively, the fund could cover its long position by
purchasing a put option on the same futures contract with an exercise price as
high or higher than the price of the contract held by the Portfolio.

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<PAGE>

If the Portfolio maintains a short position in a futures contract or has
sold a call option on a futures contract, it will cover this position by
holding, in a segregated account maintained at its Custodian, cash, U.S.
Government securities or other liquid portfolio securities equal in value (when
added to any initial or variation margin on deposit) to the market value of the
securities underlying the futures contract or the exercise price of the option.
Such a position may also be covered by owning the securities underlying the
futures contract (in the case of a stock index futures contract a portfolio of
securities substantially replicating the relevant index), or by holding a call
option permitting the Fund to purchase the same contract at a price no higher
than the price at which the short position was established.

Exchanges may limit the amount by which the price of futures contracts may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased.

The extent to which the Portfolio may enter into transactions involving
options and futures contracts may be limited by the Internal Revenue Code's
requirements for qualification as a regulated investment company and the fund's
intention to qualify as such. See "Dividends, Distributions and Taxes" in the
Prospectus and the Statement of Additional Information.

There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Portfolio and the movements in the prices of
the securities which are the subject of the hedge. If participants in the
futures market elect to close out their contracts through offsetting
transactions rather than meet margin deposit requirements, distortions in the
normal relationship between the debt securities and futures markets could
result. Price distortions could also result if investors in futures contracts
opt to make or take delivery of underlying securities rather than engage in
closing transactions due to the resultant reduction in the liquidity of the
futures market. In addition, due to the fact that, from the point of view of
speculators, the deposit requirements in the futures markets are less onerous
than margin requirements in the cash market, increased participation by
speculators in the futures market could cause temporary price distortions. Due
to the possibility of price distortions in the futures market and because of the
imperfect correlation between movements in the prices of securities and
movements in the prices of futures contracts, a correct forecast of interest
rate trends by the Investment Manager may still not result in a successful
hedging transaction.

There is no assurance that a liquid secondary market will exist for futures
contracts and related options in which a fund may invest. In the event a liquid
market does not exist, it may not be possible to close out a futures position,
and in the event of adverse price movements, the Portfolio would continue to be
required to make daily cash payments of variation margin. In addition,
limitations imposed by an exchange or board of trade on which futures contracts
are traded may compel or prevent the fund from closing out a contract which may
result in reduced gain or increased loss to the Portfolio. The absence of a
liquid market in futures contracts might cause the fund to make or take delivery
of the underlying securities at a time when it may be disadvantageous to do so.

Compared to the purchase or sale of futures contracts, the purchase of call
or put options on futures contracts involves less potential risk to a fund
because the maximum amount at risk is the premium paid for the options (plus
transaction costs). However, there may be circumstances when the purchase of a
call or put option on a futures contract would result in a loss to a fund
notwithstanding that the purchase or sale of a futures contract would not result
in a loss, as in the instance where there is no movement in the prices of the
futures contract or underlying securities.

The Investment Manager has substantial experience in the use of the
investment techniques described above under the heading "Options and Futures
Transactions," which techniques require skills different from those needed to
select the portfolio securities underlying various options and futures
contracts.

NEW INSTRUMENTS. New financial products and various combinations thereof
continue to be developed. The Fund may invest in any such products as may be
developed, to the extent consistent with its investment objective and applicable
regulatory requirements.

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<PAGE>
PORTFOLIO TURNOVER. It is anticipated that the portfolio turnover rate of
each Portfolio of the Fund will not exceed 100%. A 100% turnover rate would
occur, for example, if 100% of the securities held in a Portfolio of the Fund
(excluding all securities whose maturities at acquisition were one year or less)
were sold and replaced within one year.

INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------

In addition to the investment restrictions enumerated in each Portfolio's
Prospectus, the investment restrictions listed below have been adopted by the
Fund as fundamental policies of the Portfolios, except as otherwise indicated.
Under the Act, a fundamental policy may not be changed with respect to a
Portfolio without the vote of a majority of the outstanding voting securities of
that Portfolio, as defined in the Act. Such a majority is defined as the lesser
of (a) 67% or more of the shares present at a meeting of shareholders, if the
holders of 50% of the outstanding shares of the Portfolio are present or
represented by proxy or (b) more than 50% of the outstanding shares of the
Portfolio.

Each Portfolio of the Fund may not:

1. Purchase or sell real estate or interests therein (including limited
partnership interests), although each Portfolio may purchase securities of
issuers which engage in real estate operations and securities secured by
real estate or interests therein.

2. Borrow money, except that each Portfolio may borrow from a bank for
temporary or emergency purposes in an amount not exceeding 5% (taken at the
lower of cost or current value) of its total assets (not including the
amount borrowed).

3. Issue senior securities as defined in the Act, except insofar as
permitted in Investment Restriction 2 and except insofar as each Portfolio
may be deemed to have issued a senior security by reason of entering into
repurchase agreements.

4. Make short sales of securities.

5. Engage in the underwriting of securities, except insofar as a
Portfolio may be deemed an underwriter under the Securities Act of 1933 in
disposing of a portfolio security.

6. Invest for the purpose of exercising control or management of any
other issuer.

7. Purchase or sell commodities or commodities contracts except that
each Portfolio may purchase or write interest rate, currency and stock and
bond index futures contracts and related options thereon.

8. Pledge its assets or assign or otherwise encumber them except to
secure permitted borrowings. (For the purpose of this restriction,
collateral arrangements with respect to the writing of options by the
Portfolio and collateral arrangements with respect to initial or variation
margin for futures by the Portfolio are not deemed to be pledges of assets.)

9. Purchase securities on margin (but a Portfolio may obtain short-term
loans as are necessary for the clearance of transactions). The deposit or
payment by a Portfolio of initial or variation margin in connection with
futures contracts or related options thereon is not considered the purchase
of a security on margin.

10. Make loans of money or securities, except by investment in
repurchase agreements. (For the purpose of this restriction, lending of
Portfolio securities by the Portfolio are not deemed to be loans).

Notwithstanding any other investment policy or restriction, each Portfolio
of the Fund may seek to achieve its investment objectives by investing all or
substantially all of its assets in another investment company having
substantially the same investment objectives and policies as the respective
Portfolio.

30
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------

Subject to the general supervision of the Board of Trustees, the Investment
Manager is responsible for decisions to buy and sell securities for the
Portfolios, the selection of brokers and dealers to effect the transactions, and
the negotiation of brokerage commissions, if any. The Investment Manager
currently intends to effect substantially all such transactions through
broker-dealers affiliated with the Investment Manager, including Morgan Stanley
& Co. Incorporated ("Morgan Stanley"), and Dean Witter Reynolds Inc. ("DWR"),
subject to the policies and procedures applicable for affiliated brokers or
dealers described below. Purchases and sales of securities on a stock exchange
are effected through brokers who charge a commission for their services. In the
over-the-counter market, securities are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer. The
Portfolios also expect that securities will be purchased at times in
underwritten offerings where the price includes a fixed amount of compensation,
generally referred to as the underwriter's concession or discount. Futures
transactions are usually effected through a broker and a commission will be
charged. On occasion, the Portfolio may also purchase certain money market
instruments directly from an issuer, in which case no commissions or discounts
are paid. During the period February 25, 1998 (commencement of operations)
through May 31, 1998, the "Best Ideas" Portfolio paid a total of $1,566,636 in
brokerage commissions.

The Investment Manager currently serves as investment manager to a number of
clients, including other investment companies, and may in the future act as
investment manager or adviser to others. It is the practice of the Investment
Manager to cause purchase and sale transactions to be allocated among the
Portfolios and others whose assets it manages in such manner as it deems
equitable. In making such allocations among the Portfolios and other client
accounts, various factors may be considered, including the respective investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held and the opinions of the persons responsible for
managing the Portfolio and other client accounts. In the case of certain initial
and secondary public offerings, the Investment Manager utilizes a pro rata
allocation process based on the size of the Morgan Stanley Dean Witter Funds
involved and the number of shares available from the public offering.

The policy of the Portfolios regarding purchases and sales of securities for
its portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Portfolios' policy is to pay commissions which are considered fair and
reasonable without necessarily determining that the lowest possible commissions
are paid in all circumstances. The Portfolios believe that a requirement always
to seek the lowest possible commission cost could impede effective portfolio
management and preclude the Portfolios and the Investment Manager from obtaining
a high quality of brokerage and research services. In seeking to determine the
reasonableness of brokerage commissions paid in any transaction, the Investment
Manager relies upon its experience and knowledge regarding commissions generally
charged by various brokers and on its judgment in evaluating the brokerage and
research services received from the broker effecting the transaction. Such
determinations are necessarily subjective and imprecise, as in most cases an
exact dollar value for those services is not ascertainable.

In seeking to implement the Portfolios' policies, the Investment Manager
effects transactions with those brokers and dealers who the Investment Manager
believes provide the most favorable prices and are capable of providing
efficient executions. If the Investment Manager believes such prices and
executions are obtainable from more than one broker or dealer, it may give
consideration to placing portfolio transactions with those brokers and dealers
who also furnish research and other services to the Portfolios or the Investment
Manager. Such services may include, but are not limited to, any one or more of
the following: information as to the availability of securities for purchase or
sale; statistical or factual information or opinions pertaining to investments;
wire services; and appraisals or evaluations of portfolio securities.

31
<PAGE>

The information and services received by the Investment Manager from brokers
and dealers may be of benefit to the Investment Manager in the management of
accounts of some of its other clients and may not in all cases benefit the
Portfolios directly. While the receipt of such information and services is
useful in varying degrees and would generally reduce the amount of research or
services otherwise performed by the Investment Manager and thereby reduce its
expenses, it is of indeterminable value and the management fee paid to the
Investment Manager is not reduced by any amount that may be attributable to the
value of such services. During the period February 25, 1998 (commencement of
operations) through May 31, 1998, the "Best Ideas" Portfolio paid $495,652 to
brokers for research services provided.

Pursuant to an order of the Securities and Exchange Commission, the
Portfolios may effect principal transactions in certain money market instruments
with DWR. The Portfolios will limit their transactions with DWR to U.S.
Government and Government Agency Securities, Bank Money Instruments (i.e.,
Certificates of Deposit and Bankers' Acceptances) and Commercial Paper. Such
transactions will be effected with DWR only when the price available from DWR is
better than that available from other dealers.

Consistent with the policy described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may be
effected through Morgan Stanley, DWR and other affiliated brokers and dealers.
In order for an affiliated broker or dealer to effect any portfolio transactions
for the Portfolios, the commissions, fees or other remuneration received by the
affiliated broker or dealer must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
an exchange during a comparable period of time. This standard would allow the
affiliated broker or dealer to receive no more than the remuneration which would
be expected to be received by an unaffiliated broker in a commensurate
arm's-length transaction. Furthermore, the Board of Trustees of the Fund,
including a majority of the Trustees who are not "interested" persons of the
Fund, as defined in the Act, have adopted procedures which are reasonably
designed to provide that any commissions, fees or other remuneration paid to an
affiliated broker or dealer are consistent with the foregoing standard. The
Portfolios do not reduce the management fee they pay to the Investment Manager
by any amount of the brokerage commissions they may pay to an affiliated broker
or dealer. During the period February 25, 1998 (commencement of operations)
through May 31, 1998, the Portfolio paid no brokerage commissions to DWR. During
the period February 25, 1998 (commencement of operations) through May 31, 1998,
the "Best Ideas" Portfolio paid a total of $1,046,737 in brokerage commissions
to Morgan Stanley. The Brokerage commissions paid to Morgan Stanley represented
approximately 66.8% of the total brokerage commissions paid by the "Best Ideas"
Portfolio during the period and were paid on account of transactions having an
aggregate dollar value equal to approximately 88.9% of the aggregate dollar
value of all portfolio transactions of the "Best Ideas" Portfolio during the
period for which commissions were paid.

THE DISTRIBUTOR
- --------------------------------------------------------------------------------

As discussed in the Prospectus, shares of each Portfolio of the Fund are
distributed by Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors"
or the "Distributor"). The Distributor has entered into a selected dealer
agreement with DWR, which through its own sales organization sells shares of the
Fund. In addition, the Distributor may enter into selected dealer agreements
with other selected broker-dealers. The Distributor, a Delaware corporation, is
a wholly-owned subsidiary of MSDW. The Trustees of the Fund, including a
majority of the Trustees who are not, and were not at the time they voted,
interested persons of the Fund, as defined in the Act (the "Independent
Trustees"), approved, at their meeting held on November 6, 1997, the current
Distribution Agreement appointing the Distributor as exclusive distributor of
the Fund's shares and providing for the Distributor to bear distribution
expenses not borne by the Fund. By its terms, the Distribution Agreement had an
initial term ending April 30, 1998 and will remain in effect from year to year
thereafter if approved by the Board. At their meeting held on April 30, 1998,
the Trustees of the Fund, approved the continuation of the Distribution
Agreement until April 30, 1999.

32
<PAGE>

The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. Such expenses include the payment of commissions for
sales of the Fund's shares and incentive compensation to Morgan Stanley Dean
Witter Financial Advisors and other selected broker-dealer representatives. The
Distributor also pays certain expenses in connection with the distribution of
each Portfolio of the Fund's shares, including the costs of preparing, printing
and distributing advertising or promotional materials, and the costs of printing
and distributing prospectuses and supplements thereto used in connection with
the offering and sale of each Portfolio of the Fund's shares. The Fund bears the
costs of initial typesetting, printing and distribution of prospectuses and
supplements thereto to shareholders. The Fund also bears the costs of
registering the Fund and its shares under federal securities laws and pays
filing fees in accordance with state securities laws. The Fund and the
Distributor have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to the Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for losses sustained by the Fund or
its shareholders.

PLAN OF DISTRIBUTION

The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act (the "Plan") pursuant to which each Class of each Portfolio, other than
Class D, pays the Distributor compensation accrued daily and payable monthly at
the following annual rates: 0.25%, 1.0% and 1.0% of the average daily net assets
of Class A, Class B and Class C, respectively. The Distributor also receives the
proceeds of front-end sales charges and of contingent deferred sales charges
imposed on certain redemptions of shares, which are separate and apart from
payments made pursuant to the Plan (see "Purchase of Fund Shares" in the
Prospectus). The Distributor has informed the Fund that it and/or DWR received
(a) approximately $380,966 in contingent deferred sales charges from Class B for
the period February 25, 1998 (commencement of operations) through May 31, 1998,
(b) approximately $1,917 and $16,983 in contingent deferred sales charges from
Class A and Class C, respectively for the period February 25, 1998 (commencement
of operations) through May 31, 1998, and (c) approximately $2,815,924 in
front-end sales charges from Class A for the period February 25, 1998
(commencement of operations) through May 31, 1998, none of which was retained by
the Distributor.

The Distributor has informed the Fund that the entire fee payable by Class A
and a portion of the fees payable by each of Class B and Class C each year
pursuant to the Plan equal to 0.25% of such Class's average daily net assets are
currently each characterized as a "service fee" under the Rules of the
Association of the National Association of Securities Dealers, Inc. (of which
the Distributor is a member). The "service fee" is a payment made for personal
service and/or the maintenance of shareholder accounts. The remaining portion of
the Plan fees payable by a Class, if any, is characterized as an "asset-based
sales charge" as such is defined by the aforementioned Rules of the Association.

The Plan was adopted by a majority vote of the Board of Trustees, including
all of the Trustees of the Fund who are not "interested persons" of the Fund (as
defined in the Act) and who have no direct or indirect financial interest in the
operation of the Plan (the "Independent 12b-1 Trustees"), cast in person at a
meeting called for the purpose of voting on the Plan, on November 6, 1997.

Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each calendar quarter a written report provided
by the Distributor of the amounts expended under the Plan and the purpose for
which such expenditures were made. For the period February 25, 1998
(commencement of operations) through May 31, 1998, Class A, Class B and Class C
shares of the "Best Ideas" Portfolio accrued payments under the Plan amounting
to $71,636, $3,844,341 and $409,527 respectively, which amounts 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.

33
<PAGE>
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method each Portfolio of the
Fund offers four Classes of shares, each with a different distribution
arrangement as set forth in the Prospectus.

With respect to Class A shares, DWR compensates its Financial Advisors by
paying them, from proceeds of the front-end sales charge, commissions for the
sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.25% of the current value of
the respective accounts for which they are the Financial Advisors or dealers of
record in all cases. On orders of $1 million or more (for which no sales charge
was paid) or net asset value purchases by employer-sponsored 401(k) and other
plans qualified under Section 401(a) of the Internal Revenue Code ("Qualified
Retirement Plans") for which Morgan Stanley Dean Witter Trust FSB ("MSDW Trust")
serves as Trustee or DWR's Retirement Plan Services serves as recordkeeper
pursuant to a written Recordkeeping Services Agreement, the Investment Manager
compensates DWR's Financial Advisors by paying them, from its own funds, a gross
sales credit of 1.0% of the amount sold.

With respect to Class B shares, DWR compensates its Financial Advisors by
paying them, from its own funds, commissions for the sale of Class B shares,
currently a gross sales credit of up to 5.0% of the amount sold (except as
provided in the following sentence) and an annual residual commission, currently
a residual of up to 0.25% of the current value (not including reinvested
dividends or distributions) of the amount sold in all cases. In the case of
Class B shares purchased by Qualified Retirement Plans for which DWT serves as
Trustee or DWR's Retirement Plan Services serves as recordkeeper pursuant to a
written Recordkeeping Services Agreement, DWR compensates its Financial Advisors
by paying them, from its own funds, a gross sales credit of 3.0% of the amount
sold.

With respect to Class C shares, DWR compensates its Financial Advisors by
paying them, from its own funds, commissions for the sale of Class C shares,
currently a gross sales credit of up to 1.0% of the amount sold and an annual
residual commission, currently a residual of up to 1.0% of the current value of
the respective accounts for which they are the Financial Advisors of record.

With respect to Class D shares other than shares held by participants in
MSDW Advisors mutual fund asset allocation program, the Investment Manager
compensates DWR's Financial Advisors by paying them, from its own funds,
commissions for the sale of Class D shares, currently a gross sales credit of up
to 1.0% of the amount sold. There is a chargeback of 100% of the amount paid if
the Class D shares are redeemed in the first year and a chargeback of 50% of the
amount paid if the Class D shares are redeemed in the second year after
purchase. The Investment Manager also compensates DWR's Financial Advisors by
paying them, from its own funds, an annual residual commission, currently a
residual of up to 0.10% of the current value of the respective accounts for
which they are the Financial Advisors of record (not including accounts of
participants in the MSDW Advisors mutual fund asset allocation program).

The gross sales credit is a charge which reflects commissions paid by DWR to
its Financial Advisors and DWR's Fund-associated distribution-related expenses,
including sales compensation, and overhead and other branch office
distribution-related expenses including (a) the expenses of operating DWR's
branch offices in connection with the sale of Fund shares, including lease
costs, the salaries and employee benefits of operations and sales support
personnel, utility costs, communications costs and the costs of stationery and
supplies, (b) the costs of client sales seminars, (c) travel expenses of mutual
fund sales coordinators to promote the sale of Fund shares and (d) other
expenses relating to branch promotion of Fund sales. The distribution fee that
the Distributor receives from the Fund under the Plan, in effect, offsets
distribution expenses incurred under the Plan on behalf of the Fund and, in the
case of Class B shares, opportunity costs, such as the gross sales credit and an
assumed interest charge thereon ("carrying charge"). In the Distributor's
reporting of the distribution expenses to the Fund, in the case of Class B
shares, such assumed interest (computed at the "broker's call rate") has been
calculated on the gross credit as it is reduced by amounts received by the
Distributor under the Plan and any contingent deferred sales charges received by
the Distributor upon redemption of shares of the Fund.

34
<PAGE>
No other interest charge is included as a distribution expense in the
Distributor's calculation of its distribution costs for this purpose. The
broker's call rate is the interest rate charged to securities brokers on loans
secured by exchange-listed securities.

Each Portfolio is authorized to reimburse expenses incurred or to be
incurred in promoting the distribution of the Portfolio's Class A and Class C
shares and in servicing shareholder accounts. Reimbursement will be made through
payments at the end of each month. The amount of each monthly payment may in no
event exceed an amount equal to a payment at the annual rate of 0.25%, in the
case of Class A, and 1.0%, in the case of Class C, of the average net assets of
the respective Class of each Portfolio during the month. No interest or other
financing charges, if any, incurred on any distribution expenses on behalf of
Class A and Class C will be reimbursable under the Plan. With respect to Class
A, in the case of all expenses other than expenses representing the service fee,
and, with respect to Class C, in the case of all expenses other than expenses
representing a gross sales credit or a residual to Morgan Stanley Dean Witter
Financial Advisor and other selected broker-dealer representatives, such amounts
shall be determined at the beginning of each calendar quarter by the Trustees,
including a majority of the Independent 12b-1 Trustees. Expenses representing
the service fee (for Class A) or a gross sales credit or a residual to Morgan
Stanley Dean Witter Financial Advisor and other selected broker-dealer
representatives (for Class C) may be reimbursed without prior determination. In
the event that the Distributor proposes that monies shall be reimbursed for
other than such expenses, then in making quarterly determinations of the amounts
that may be reimbursed by the Fund, the Distributor will provide and the
Trustees will review a quarterly budget of projected distribution expenses to be
incurred on behalf of each Portfolio of the Fund, together with a report
explaining the purposes and anticipated benefits of incurring such expenses. The
Trustees will determine which particular expenses, and the portions thereof,
that may be borne by each Portfolio of the Fund, and in making such a
determination shall consider the scope of the Distributor's commitment to
promoting the distribution of the Fund's Class A and Class C shares.

Each Class of the "Best Ideas" Portfolio paid 100% of the amounts accrued
under the Plan with respect to that Class for the period February 25, 1998
(commencement of operations) through May 31, 1998 to the Distributor. The
Distributor and DWR estimate that they have spent, pursuant to the Plan,
$83,724,470 on behalf of Class B since the inception of the Plan. It is
estimated that this amount was spent in approximately the following ways: (i)
4.05% ($3,390,361)--advertising and promotional expenses; (ii) 0.34%
($285,105)--printing of prospectuses for distribution to other than current
shareholders; and (iii) 95.61% ($80,049,004)--other expenses, including the
gross sales credit and the carrying charge, of which 1.10% ($877,853) represents
carrying charges, 40.45% ($32,381,001) represents commission credits to DWR
branch offices and other selected broker-dealers for payments of commissions to
Morgan Stanley Dean Witter Financial Advisors and other selected broker-dealer
representatives and 58.45% ($46,790,150) represents overhead and other branch
office distribution-related expenses. The amounts accrued by Class A and Class C
for distribution during the fiscal period February 25, 1998 (commencement of
operations) through May 31, 1998 were for expenses which relate to compensation
of sales personnel and associated overhead expenses.

In the case of Class B Shares at any given time, the expenses of
distributing shares of a Portfolio may be more or less than the total of (i) the
payments made by the Portfolio pursuant to the Plan and (ii) the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares.
The Distributor has advised the "Best Ideas" Portfolio that in the case of Class
B shares the excess distribution expenses including the carrying charge designed
to approximate the opportunity costs incurred by DWR which arise from it having
advanced monies without having received the amount of any sales charge imposed
at the time of sale of the "Best Ideas" Portfolio shares, totaled $79,592,457 as
of May 31, 1998. Because there is no requirement under the Plan that the
Distributor be reimbursed for all distribution expenses with respect to Class B
shares or any requirement that the Plan be continued from year to year, this
excess amount does not constitute a liability of the 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 contingent
deferred sales charges paid by investors upon redemption of

35
<PAGE>
shares, if for any reason the Plan is terminated, the Trustees will consider at
that time the manner in which to treat such expenses. Any cumulative expenses
incurred, but not yet recovered through distribution fees or contingent deferred
sales charges, may or may not be recovered through future distribution fees or
contingent deferred sales charges.

No interested person of the Fund nor any Trustee of the Fund who is not an
interested person of the Fund, as defined in the Act, has any direct financial
interest in the operation of the Plan except to the extent that the Distributor,
MSDW Advisors, DWR, MSDW Services or certain of their employees may be deemed to
have such an interest as a result of benefits derived from the successful
operation of the Plan or as a result of receiving a portion of the amounts
expended thereunder by the Fund.

Under its terms, the Plan has an initial term ending April 30, 1998 and will
continue from year to year thereafter, provided such continuance is approved
annually by a vote of the Trustees in the manner described above. The most
recent continuance of the Plan for one year, until April 30, 1999, was approved
by the Board of Trustees of the Fund, including a majority of the Independent
12b-1 Trustees, at a Board meeting held on April 30, 1998. Prior to approving
the continuation of the Plan, the Board requested and received from the
Distributor and reviewed all the information which it deemed necessary to arrive
at an informed determination. In making their determination to continue the
Plan, the Trustees considered: (1) the Fund's experience under the Plan and
whether such experience indicates that the Plan is operating as anticipated; (2)
the benefits the Fund had obtained, was obtaining and would be likely to obtain
under the Plan; and (3) what services had been provided and were continuing to
be provided under the Plan by the Distributor to the Fund and its shareholders.
Based upon their review, the Trustees of the Fund, including each of the
Independent 12b-1 Trustees, determined that continuation of the Plan would be in
the best interest of the Fund and would have a reasonable likelihood of
continuing to benefit the Fund and its shareholders. In the Trustees' quarterly
review of the Plan, they will consider its continued appropriateness and the
level of compensation provided therein.

The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval by the shareholders of the
affected Class or Classes of each Portfolio of the Fund, and all material
amendments to the Plan must also be approved by the Trustees in the manner
described above. The Plan may be terminated at any time, without payment of any
penalty, by vote of a majority of the Independent 12b-1 Trustees or by a vote of
a majority of the outstanding voting securities of each Portfolio of the Fund
(as defined in the Act) on not more than thirty days' written notice to any
other party to the Plan. So long as the Plan is in effect, the election and
nomination of Independent 12b-1 Trustees shall be committed to the discretion of
the Independent 12b-1 Trustees.

DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------

The procedures for valuing securities held in each Portfolio are set forth
in the Portfolio's Prospectus. As stated in each Portfolio's Prospectus,
short-term securities with remaining maturities of sixty days or less at the
time of purchase are valued at amortized cost, unless the Trustees determine
such does not reflect the securities' market value, in which case these
securities will be valued at their fair value as determined by the Trustees.
Other short-term debt securities will be valued on a mark-to-market basis until
such time as they reach a remaining maturity of sixty days, whereupon they will
be valued at amortized cost using their value on the 61st day unless the
Trustees determine such does not reflect the securities' market value, in which
case these securities will be valued at their fair value as determined by the
Trustees. All other securities and other assets are valued at their fair value
as determined in good faith under procedures established by and under the
supervision of the Trustees.

The net asset value per share for each Class of shares of each Portfolio of
the Fund is determined once daily as of 4:00 p.m., New York time (or, on days
when the New York Stock Exchange closes prior to 4:00 p.m., at such earlier
time), on each day that the New York Stock Exchange is open. The New York Stock
Exchange currently observes the following holidays: New Year's Day; Reverend Dr.
Martin Luther King, Jr. Day; Presidents' Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day; and Christmas Day.

36
<PAGE>
PURCHASE OF PORTFOLIO SHARES
- --------------------------------------------------------------------------------

As discussed in the Prospectus of each Portfolio, each Portfolio of the Fund
offers four Classes of shares as follows:

INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES

Class A shares are sold to investors with an initial sales charge that
declines to zero for larger purchases; however, Class A shares sold without an
initial sales charge are subject to a contingent deferred sales charge ("CDSC")
of 1.0% if redeemed within one year of purchase, except in the circumstances
discussed in the Prospectus.

RIGHT OF ACCUMULATION. As discussed in the Prospectus, investors may
combine the current value of shares purchased in separate transactions for
purposes of benefitting from the reduced sales charges available for purchases
of shares of the Portfolio totalling at least $25,000 in net asset value. For
example, if any person or entity who qualifies for this privilege holds Class A
shares of the Portfolio and/ or other Morgan Stanley Dean Witter Funds that are
multiple class funds ("Morgan Stanley Dean Witter Multi-Class Funds") or shares
of other Morgan Stanley Dean Witter Funds sold with a front-end sales charge
purchased at a price including a front-end sales charge having a current value
of $5,000, and purchases $20,000 of additional shares of the Portfolio, the
sales charge applicable to the $20,000 purchase would be 4.75% of the offering
price.

The Distributor must be notified by the selected broker-dealer or the
shareholder at the time a purchase order is placed that the purchase qualifies
for the reduced charge under the Right of Accumulation. Similar notification
must be made in writing by the selected broker-dealer or shareholder when such
an order is placed by mail. The reduced sales charge will not be granted if: (a)
such notification is not furnished at the time of the order; or (b) a review of
the records of the Distributor or Morgan Stanley Dean Witter Trust FSB (the
"Transfer Agent") fails to confirm the investor's represented holdings.

LETTER OF INTENT. As discussed in the Prospectus, reduced sales charges are
available to investors who enter into a written Letter of Intent providing for
the purchase, within a thirteen-month period, of Class A shares of the Portfolio
from the Distributor or from a single Selected Broker-Dealer.

A Letter of Intent permits an investor to establish a total investment goal
to be achieved by any number of purchases over a thirteen-month period. Each
purchase of Class A shares made during the period will receive the reduced sales
commission applicable to the amount represented by the goal, as if it were a
single purchase. A number of shares equal in value to 5% of the dollar amount of
the Letter of Intent will be held in escrow by the Transfer Agent, in the name
of the shareholder. The initial purchase under a Letter of Intent must be equal
to at least 5% of the stated investment goal.

The Letter of Intent does not obligate the investor to purchase, nor the
Portfolio to sell, the indicated amount. In the event the Letter of Intent goal
is not achieved within the thirteen-month period, the investor is required to
pay the difference between the sales charge otherwise applicable to the
purchases made during this period and sales charges actually paid. Such payment
may be made directly to the Distributor or, if not paid, the Distributor is
authorized by the shareholder to liquidate a sufficient number of his or her
escrowed shares to obtain such difference.

If the goal is exceeded and purchases pass the next sales charge level, the
sales charge on the entire amount of the purchase that results in passing that
level and on subsequent purchases will be subject to further reduced sales
charges in the same manner as set forth above under "Right of Accumulation," but
there will be no retroactive reduction of sales charges on previous purchases.
For the purpose of determining whether the investor is entitled to a further
reduced sales charge applicable to purchases at or above a sales charge level
which exceeds the stated goal of a Letter of Intent, the cumulative current net
asset value of any shares owned by the investor in any other Morgan Stanley Dean
Witter Funds held by the shareholder which were previously purchased at a price
including a front-end sales charge (including shares of the Portfolio and other
Morgan Stanley Dean Witter Funds acquired in exchange for those shares, and
including in each case shares acquired through

37
<PAGE>

reinvestment of dividends and distributions) will be added to the cost or net
asset value of shares of the Portfolio owned by the investor. However, shares of
"Exchange Funds" (see "Shareholder Services-- Exchange Privilege") and the
purchase of shares of other Morgan Stanley Dean Witter Funds will not be
included in determining whether the stated goal of a Letter of Intent has been
reached.

At any time while a Letter of Intent is in effect, a shareholder may, by
written notice to the Distributor, increase the amount of the stated goal. In
that event, only shares purchased during the previous 90-day period and still
owned by the shareholder will be included in the new sales charge reduction. The
5% escrow and minimum purchase requirements will be applicable to the new stated
goal. Investors electing to purchase shares of the Portfolio pursuant to a
Letter of Intent should carefully read such Letter of Intent.

CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES

Class B shares are sold without an initial sales charge but are subject to a
CDSC payable upon most redemptions within six years after purchase. As stated in
the Prospectus, a CDSC will be imposed on any redemption by an investor if after
such redemption the current value of the investor's Class B shares of the
Portfolio is less than the dollar amount of all payments by the shareholder for
the purchase of Class B shares during the preceding six years (or, in the case
of shares held by certain Qualified Retirement Plans, three years). However, no
CDSC will be imposed to the extent that the net asset value of the shares
redeemed does not exceed: (a) the current net asset value of shares purchased
more than six years (or, in the case of shares held by certain Qualified
Retirement Plans, three years) prior to the redemption, plus (b) the current net
asset value of shares purchased through reinvestment of dividends or
distributions of the Portfolio or another Morgan Stanley Dean Witter Fund (see
"Shareholder Services--Targeted Dividends"), plus (c) the current net asset
value of shares acquired in exchange for (i) shares of Morgan Stanley Dean
Witter front-end sales charge funds, or (ii) shares of other Morgan Stanley Dean
Witter Funds for which shares of front-end sales charge funds have been
exchanged (see "Shareholder Services--Exchange Privilege"), plus (d) increases
in the net asset value of the investor's shares above the total amount of
payments for the purchase of Portfolio shares made during the preceding six
(three) years. The CDSC will be paid to the Distributor. [In addition, no CDSC
will be imposed on redemptions of shares which are attributable to reinvestment
of dividends or distributions from, or the proceeds of, certain Unit Investment
Trusts.]

In determining the applicability of the CDSC to each redemption, the amount
which represents an increase in the net asset value of the investor's shares
above the amount of the total payments for the purchase of shares within the
last six years (or, in the case of shares held by certain Qualified Retirement
Plans, three years) will be redeemed first. In the event the redemption amount
exceeds such increase in value, the next portion of the amount redeemed will be
the amount which represents the net asset value of the investor's shares
purchased more than six (three) years prior to the redemption and/or shares
purchased through reinvestment of dividends or distributions and/or shares
acquired in exchange for shares of Morgan Stanley Dean Witter front-end sales
charge funds, or for shares of other Morgan Stanley Dean Witter funds for which
shares of front-end sales charge funds have been exchanged. A portion of the
amount redeemed which exceeds an amount which represents both such increase in
value and the value of shares purchased more than six years (or, in the case of
shares held by certain Qualified Retirement Plans, three years) prior to the
redemption and/or shares purchased through reinvestment of dividends or
distributions and/or shares acquired in the above-described exchanges will be
subject to a CDSC.

The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares of the Portfolio
until the time of redemption of such shares. For purposes of determining the
number of years from the time of any payment for the purchase of

38
<PAGE>
shares, all payments made during a month will be aggregated and deemed to have
been made on the last day of the month. The following table sets forth the rates
of the CDSC applicable to most Class B shares of the Portfolio:

<TABLE>
<CAPTION>
YEAR SINCE
PURCHASE CDSC AS A PERCENTAGE OF
PAYMENT MADE AMOUNT REDEEMED
- ------------------------------------------------------------------------------------------ --------------------------
<S> <C>
First..................................................................................... 5.0%
Second.................................................................................... 4.0%
Third..................................................................................... 3.0%
Fourth.................................................................................... 2.0%
Fifth..................................................................................... 2.0%
Sixth..................................................................................... 1.0%
Seventh and thereafter.................................................................... None
</TABLE>

The following table sets forth the rates of the CDSC applicable to Class B
shares of the Portfolio shares 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:

In determining the rate of the CDSC, it will be assumed that a redemption is
made of shares held by the investor for the longest period of time within the
applicable six-year or three-year period. This will result in any such CDSC
being imposed at the lowest possible rate. The CDSC will be imposed, in
accordance with the table shown above, on any redemptions within six years (or,
in the case of shares held by certain Qualified Retirement Plans, three years)
of purchase which are in excess of these amounts and which redemptions do not
qualify for waiver of the CDSC, as described in the Prospectus.

LEVEL LOAD ALTERNATIVE--CLASS C SHARES

Class C shares are sold without a sales charge but are subject to a CDSC of
1.0% on most redemptions made within one year after purchase, except in the
circumstances discussed in the Prospectus.

NO LOAD ALTERNATIVE--CLASS D SHARES

Class D shares are offered without any sales charge on purchase or
redemption. Class D shares are offered only to those persons meeting the
qualifications set forth in the Prospectus.

SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------

Upon the purchase of shares of a Portfolio, a Shareholder Investment Account
is opened for the investor on the books of the Portfolio of the Fund and
maintained by the Transfer Agent. This is an open account in which shares owned
by the investor are credited by the Transfer Agent in lieu of issuance of a
share certificate. If a share certificate is desired, it must be requested in
writing for each transaction. Certificates are issued only for full shares and
may be redeposited in the account at any time. There is no charge to the
investor for issuance of a certificate. Whenever a shareholder instituted
transaction takes place in the Shareholder Investment Account, the shareholder
will be mailed a confirmation of the transaction from the Fund or from DWR or
other selected broker-dealer.

AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. As stated in the
Prospectus of each Portfolio, all income dividends and capital gains
distributions are automatically paid in full and fractional shares of the
applicable Class of the Portfolio, unless the shareholder requests that they be
paid in cash. Each purchase of shares of the Portfolio is made upon the
condition that the Transfer Agent is thereby

39
<PAGE>
automatically appointed as agent of the investor to receive all dividends and
capital gains distributions on shares owned by the investor. Such dividends and
distributions will be paid, at the net asset value per share, in shares of the
applicable Class of the Portfolio (or in cash if the shareholder so requests) as
of the close of business on the record date. At any time an investor may request
the Transfer Agent, in writing, to have subsequent dividends and/or capital
gains distributions paid to him or her in cash rather than shares. To assure
sufficient time to process the change, such request should be received by the
Transfer Agent at least five business days prior to the record date of the
dividend or distribution. In the case of recently purchased shares for which
registration instructions have not been received on the record date, cash
payments will be made to DWR or other selected broker-dealer, and will be
forwarded to the shareholder, upon the receipt of proper instructions. It is the
Portfolio's policy and practice that, if checks for dividends or distributions
paid in cash remain uncashed, no interest will accrue on amounts represented by
such uncashed checks.

TARGETED DIVIDENDS.-SM- In states where it is legally permissible,
shareholders may also have all income dividends and capital gains distributions
automatically invested in shares of any Class of an open-end Morgan Stanley Dean
Witter Fund other than Morgan Stanley Dean Witter Competitive Edge Fund or in
another Class or Portfolio of Morgan Stanley Dean Witter Competitive Edge Fund.
Such investment will be made as described above for automatic investment in
shares of the applicable Class of the Fund, at the net asset value per share of
the selected Morgan Stanley Dean Witter Fund as of the close of business on the
payment date of the dividend or distribution and will begin to earn dividends,
if any, in the selected Morgan Stanley Dean Witter Fund the next business day.
To participate in the Targeted Dividends program, shareholders should contact
their DWR or other selected broker-dealer Morgan Stanley Dean Witter Financial
Advisor or other selected broker-dealer representative or the Transfer Agent.
Shareholders of the Portfolio must be shareholders of the selected Class of the
Morgan Stanley Dean Witter Fund targeted to receive investments from dividends
at the time they enter the Targeted Dividends program. Investors should review
the prospectus of the targeted Morgan Stanley Dean Witter Fund before entering
the program.

EASYINVEST.-SM- Shareholders may subscribe to EasyInvest, an automatic
purchase plan which provides for any amount from $100 to $5,000 to be
transferred automatically from a checking or savings account or following
redemption of shares of a Morgan Stanley Dean Witter money market fund, on a
semi-monthly, monthly or quarterly basis, to the Transfer Agent for investment
in shares of the Fund. Shares purchased through EasyInvest will be added to the
shareholder's existing account at the net asset value calculated the same
business day the transfer of funds is effected (subject to any applicable sales
charges). Shares of the Morgan Stanley Dean Witter Money Market Funds redeemed
in connection with EasyInvest are redeemed on the business day preceding the
transfer of funds. For further information or to subscribe to EasyInvest,
shareholders should contact their Morgan Stanley Dean Witter Financial Advisor
or other selected broker-dealer representative or the Transfer Agent.

INVESTMENT OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH. As discussed in
the Prospectus, any shareholder who receives a cash payment representing a
dividend or distribution may invest such dividend or distribution in shares of
the applicable Class at net asset value, without the imposition of a CDSC upon
redemption, by returning the check or the proceeds to the Transfer Agent within
thirty days after the payment date. If the shareholder returns the proceeds of a
dividend or distribution, such funds must be accompanied by a signed statement
indicating that the proceeds constitute a dividend or distribution to be
invested. Such investment will be made at the net asset value per share next
determined after receipt of the check or the proceeds by the Transfer Agent.

SYSTEMATIC WITHDRAWAL PLAN. As discussed in the Prospectus, a systematic
withdrawal plan (the "Withdrawal Plan") is available for shareholders who own or
purchase shares of the Fund having a minimum value of $10,000 based upon the
then current net asset value. The Withdrawal Plan provides for monthly or
quarterly (March, June, September and December) checks in any dollar amount, not
less 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.

40
<PAGE>
The Transfer Agent acts as agent for the shareholder in tendering to the
Portfolio for redemption sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment designated in the application. The
shares will be redeemed at their net asset value determined, at the
shareholder's option, on the tenth or twenty-fifth day (or next following
business day) of the relevant month or quarter and normally a check for the
proceeds will be mailed by the Transfer Agent, or amounts credited to a
shareholder's DWR or other selected broker-dealer brokerage account, within five
business days after the date of redemption. The Withdrawal Plan may be
terminated at any time by the Portfolio.

Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income tax purposes. Although the
shareholder may make additional investments of $2,500 or more under the
Withdrawal Plan, withdrawals made concurrently with purchases of additional
shares may be inadvisable because of sales charges which may be applicable to
purchases or redemptions of shares (see "Purchase of Fund Shares").

Any shareholder who wishes to have payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the account
must send complete written instructions to the Transfer Agent to enroll in the
Withdrawal Plan. The shareholder's signature on such instructions must be
guaranteed by an eligible guarantor acceptable to the Transfer Agent
(shareholders should contact the Transfer Agent for a determination as to
whether a particular institution is such an eligible guarantor). A shareholder
may, at any time, change the amount and interval of withdrawal payments through
his or her Morgan Stanley Dean Witter Financial Advisor or other selected
broker-dealer representative or by written notification to the Transfer Agent.
In addition, the party and/or the address to which checks are mailed may be
changed by written notification to the Transfer Agent, with signature guarantees
required in the manner described above. The shareholder may also terminate the
Withdrawal Plan at any time by written notice to the Transfer Agent. In the
event of such termination, the account will be continued as a regular
shareholder investment account. The shareholder may also redeem all or part of
the shares held in the Withdrawal Plan account (see "Redemptions and
Repurchases" in the Prospectus) at any time.

DIRECT INVESTMENTS THROUGH TRANSFER AGENT. As discussed in the Prospectus,
shareholders may make additional investments in any Class of shares of any
Portfolio of the Fund for which they qualify at any time by sending a check in
any amount, not less than $100, payable to Morgan Stanley Dean Witter
Competitive Edge Fund, and indicating the selected Class and Portfolio, directly
to the Fund's Transfer Agent. In the case of Class A shares, after deduction of
any applicable sales charge, the balance will be applied to the purchase of
Portfolio shares, and, in the case of shares of the other Classes, the entire
amount will be applied to the purchase of Portfolio shares, at the net asset
value per share next computed after receipt of the check or purchase payment by
the Transfer Agent. The shares so purchased will be credited to the investor's
account.

EXCHANGE PRIVILEGE

As discussed in the Prospectus, each Portfolio makes available to its
shareholders an Exchange Privilege whereby shareholders of each Class of shares
of any Portfolio of the Fund may exchange their shares for shares of the same
Class of shares of any other Portfolio of the Fund or any other Morgan Stanley
Dean Witter Multi-Class Fund without the imposition of any exchange fee. Shares
may also be exchanged for shares of any of the following funds: Morgan Stanley
Dean Witter Short-Term U.S. Treasury Trust, Morgan Stanley Dean Witter Limited
Term Municipal Trust, Morgan Stanley Dean Witter Short-Term Bond Fund and five
Morgan Stanley Dean Witter Funds which are money market funds (the foregoing
eight funds are hereinafter referred to as 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

41
<PAGE>

Stanley Dean Witter Global Short-Term Income Fund Inc. ("Global Short-Term")
which is a Morgan Stanley Dean Witter Fund offered with a CDSC. Exchanges may be
made after the shares of the Fund acquired by purchase (not by exchange or
dividend reinvestment) have been held for thirty days. There is no waiting
period for exchanges of shares acquired by exchange or dividend reinvestment. An
exchange will be treated for federal income tax purposes the same as a
repurchase or redemption of shares, on which the shareholder may realize a
capital gain or loss.

Any new account established through the Exchange Privilege will have the
same registration and cash dividend or dividend reinvestment plan as the present
account, unless the Transfer Agent receives written notification to the
contrary. For telephone exchanges, the exact registration of the existing
account and the account number must be provided.

Any shares held in certificate form cannot be exchanged but must be
forwarded to the Transfer Agent and deposited into the shareholder's account
before being eligible for exchange. (Certificates mailed in for deposit should
not be endorsed.)

As described below, and in the Prospectus under the caption "Purchase of
Portfolio Shares," a CDSC may be imposed upon a redemption, depending on a
number of factors, including the number of years from the time of purchase until
the time of redemption or exchange ("holding period"). When shares of a Morgan
Stanley Dean Witter Multi-Class Fund or Global Short-Term are exchanged for
shares of an Exchange Fund, the exchange is executed at no charge to the
shareholder, without the imposition of the CDSC at the time of the exchange.
During the period of time the shareholder remains in the Exchange Fund
(calculated from the last day of the month in which the Exchange Fund shares
were acquired), the holding period or "year since purchase payment made" is
frozen. When shares are redeemed out of the Exchange Fund, they will be subject
to a CDSC which would be based upon the period of time the shareholder held
shares in a Morgan Stanley Dean Witter Multi-Class Fund or Global Short-Term.
However, 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. Shareholders acquiring shares of an
Exchange Fund pursuant to this exchange privilege may exchange those shares back
into a Morgan Stanley Dean Witter Multi-Class Fund or Global Short-Term from the
Exchange Fund, with no CDSC being imposed on such exchange. The holding period
previously frozen when shares were first exchanged for shares of the Exchange
Fund resumes on the last day of the month in which shares of a Morgan Stanley
Dean Witter Multi-Class Fund or Global Short-Term are reacquired. A CDSC is
imposed only upon an ultimate redemption, based upon the time (calculated as
described above) the shareholder was invested in a Morgan Stanley Dean Witter
Multi-Class Fund or in Global Short-Term. In the case of exchanges of Class A
shares which are subject to a CDSC, the holding period also includes the time
(calculated as described above) the shareholder was invested in a FSC Fund.

When shares initially purchased in a Morgan Stanley Dean Witter Multi-Class
Fund or in Global Short-Term are exchanged for shares of a Morgan Stanley Dean
Witter Multi-Class Fund, shares of a CDSC Fund, shares of a FSC Fund, or shares
of an Exchange Fund, the date of purchase of the shares of the fund exchanged
into, for purposes of the CDSC upon redemption, will be the last day of the
month in which the shares being exchanged were originally purchased. In
allocating the purchase payments between funds for purposes of the CDSC, the
amount which represents the current net asset value of shares at the time of the
exchange which were (i) purchased more than one, three or six years (depending
on the CDSC schedule applicable to the shares) prior to the exchange, (ii)
originally acquired through reinvestment of dividends or distributions and (iii)
acquired in exchange for shares of FSC Funds, or for shares of other Morgan
Stanley Dean Witter Funds for which shares of FSC Funds have been exchanged (all
such shares called "Free Shares"), will be exchanged first. After an exchange,
all dividends earned on shares in an Exchange Fund will be considered Free
Shares. If the exchanged amount exceeds the value of such Free Shares, an
exchange is made, on a block-by-block basis, of non-Free Shares held for the
longest period of time (except that, with respect to Class B shares, if shares
held for identical periods of time but subject to different CDSC schedules are
held in the same Exchange

42
<PAGE>
Privilege account, the shares of that block that are subject to a lower CDSC
rate will be exchanged prior to the shares of that block that are subject to a
higher CDSC rate). Shares equal to any appreciation in the value of non-Free
Shares exchanged will be treated as Free Shares, and the amount of the purchase
payments for the non-Free Shares of the fund exchanged into will be equal to the
lesser of (a) the purchase payments for, or (b) the current net asset value of,
the exchanged non-Free Shares. If an exchange between funds would result in
exchange of only part of a particular block of non-Free Shares, then shares
equal to any appreciation in the value of the block (up to the amount of the
exchange) will be treated as Free Shares and exchanged first, and the purchase
payment for that block will be allocated on a pro rata basis between the
non-Free Shares of that block to be retained and the non-Free Shares to be
exchanged. The prorated amount of such purchase payment attributable to the
retained non-Free Shares will remain as the purchase payment for such shares,
and the amount of purchase payment for the exchanged non-Free Shares will be
equal to the lesser of (a) the prorated amount of the purchase payment for, or
(b) the current net asset value of, those exchanged non-Free Shares. Based upon
the procedures described in the Prospectus under the caption "Purchase of
Portfolio Shares," any applicable CDSC will be imposed upon the ultimate
redemption of shares of any fund, regardless of the number of exchanges since
those shares were originally purchased.

With respect to the redemption or repurchase of shares of any Portfolio of
the Fund, the application of proceeds to the purchase of new shares in the
Portfolio or any other of the funds and the general administration of the
Exchange Privilege, the Transfer Agent acts as agent for the Distributor and for
the shareholder's selected broker-dealer, if any, in the performance of such
functions. With respect to exchanges, redemptions or repurchases, the Transfer
Agent shall be liable for its own negligence and not for the default or
negligence of its correspondents or for losses in transit. The Portfolio shall
not be liable for any default or negligence of the Transfer Agent, the
Distributor or any selected broker-dealer.

The Distributor and any selected broker-dealer have authorized and appointed
the Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any other
Portfolio or any other fund and the general administration of the Exchange
Privilege. No commission or discounts will be paid to the Distributor or any
selected broker-dealer for any transactions pursuant to this Exchange Privilege.

Exchanges are subject to the minimum investment requirement and any other
conditions imposed by each fund. (The minimum initial investment for the
Exchange Privilege account of each Class is $5,000 for Morgan Stanley Dean
Witter Liquid Asset Fund Inc., Morgan Stanley Dean Witter Tax-Free Daily Income
Trust, Morgan Stanley Dean Witter California Tax-Free Daily Income Trust and
Morgan Stanley Dean Witter New York Municipal Money Market Trust, although those
funds may, in their discretion, accept initial investments of as low as $1,000.
The minimum initial investment for the Exchange Privilege account of each Class
is $10,000 for Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust,
although that fund, in its discretion, may accept initial purchases of as low as
$5,000. The minimum initial investment for the Exchange Privilege account of
each Class is $5,000 for Morgan Stanley Dean Witter Special Value Fund. The
minimum initial investment for the Exchange Privilege account of each Class of
all other Morgan Stanley Dean Witter Funds for which the Exchange Privilege is
available is $1,000.) Upon exchange into an Exchange Fund, the shares of that
fund will be held in a special Exchange Privilege Account separately from
accounts of those shareholders who have acquired their shares directly from that
fund. As a result, certain services normally available to shareholders of those
funds, including the check writing feature, will not be available for funds held
in that account.

The Portfolios and each of the other Morgan Stanley Dean Witter Funds may
limit the number of times this Exchange Privilege may be exercised by any
investor within a specified period of time. Also, the Exchange Privilege may be
terminated or revised at any time by the Portfolios and/or any of the Morgan
Stanley Dean Witter Funds for which shares of the Portfolios have been
exchanged, upon such notice as may be required by applicable regulatory agencies
(presently sixty days' prior written notice for termination or material
revision), provided that six months' prior written notice of termination will be
given to the shareholders who hold shares of Exchange Funds pursuant to the
Exchange Privilege, and provided further that the Exchange Privilege may be
terminated or materially revised without notice at

43
<PAGE>
times (a) when the New York Stock Exchange is closed for other than customary
weekends and holidays, (b) when trading on that Exchange is restricted, (c) when
an emergency exists as a result of which disposal by the Portfolio of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Portfolio fairly to determine the value of its net assets, (d) during
any other period when the Securities and Exchange Commission by order so permits
(provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist) or (e) if the Fund would be unable to invest amounts effectively in
accordance with its investment objective, policies and restrictions.

For further information regarding the Exchange Privilege, shareholders
should contact their Morgan Stanley Dean Witter Financial Advisor or other
selected broker-dealer representative or the Transfer Agent.

REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------

REDEMPTION. As stated in the Prospectus, shares of each Class of each
Portfolio of the Fund can be redeemed for cash at any time at the net asset
value per share next determined; however, such redemption proceeds will be
reduced by the amount of any applicable CDSC. If shares are held in a
shareholder's account without a share certificate, a written request for
redemption to the Fund's Transfer Agent at P.O. Box 983, Jersey City, NJ 07303
is required. If certificates are held by the shareholder, the shares may be
redeemed by surrendering the certificates with a written request for redemption.
The share certificate, or an accompanying stock power, and the request for
redemption, must be signed by the shareholder or shareholders exactly as the
shares are registered. Each request for redemption, whether or not accompanied
by a share certificate, must be sent to the Fund's Transfer Agent, which will
redeem the shares at their net asset value next computed (see "Purchase of Fund
Shares" in the Prospectus) after it receives the request, and certificate, if
any, in good order. Any redemption request received after such computation will
be redeemed at the next determined net asset value. The term "good order" means
that the share certificate, if any, and request for redemption are properly
signed, accompanied by any documentation required by the Transfer Agent, and
bear signature guarantees when required by the Fund or the Transfer Agent. If
redemption is requested by a corporation, partnership, trust or fiduciary, the
Transfer Agent may require that written evidence of authority acceptable to the
Transfer Agent be submitted before such request is accepted.

Whether certificates are held by the shareholder or shares are held in a
shareholder's account, if the proceeds are to be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other than
the Distributor or a selected broker-dealer for the account of the shareholder),
partnership, trust or fiduciary, or sent to the shareholder at an address other
than the registered address, signatures must be guaranteed by an eligible
guarantor acceptable to the Transfer Agent (shareholders should contact the
Transfer Agent for a determination as to whether a particular institution is
such an eligible guarantor). A stock power may be obtained from any dealer or
commercial bank. The Fund may change the signature guarantee requirements from
time to time upon notice to shareholders, which may be by means of a new
prospectus.

REPURCHASE. As stated in the Prospectus, DWR and other selected
broker-dealers are authorized to repurchase shares represented by a share
certificate which is delivered to any of their offices. Shares held in a
shareholder's account without a share certificate may also be repurchased by DWR
and other selected broker-dealers upon the telephonic request of the
shareholder. The repurchase price is the net asset value next computed after
such purchase order is received by DWR or other selected broker-dealer reduced
by any applicable CDSC.

PAYMENT FOR SHARES REDEEMED OR REPURCHASED. As discussed in the Prospectus,
payment for shares of any Class presented for repurchase or redemption will be
made by check within seven days after receipt by the Transfer Agent of the
certificate and/or written request in good order. Such payment may be postponed
or the right of redemption suspended at times (a) when the New York Stock
Exchange is closed for other than customary weekends and holidays, (b) when
trading on that

44
<PAGE>

Exchange is restricted, (c) when an emergency exists as a result of which
disposal by the Portfolio of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the Securities
and Exchange Commission by order so permits; provided that applicable rules and
regulations of the Securities and Exchange Commission shall govern as to whether
the conditions prescribed in (b) or (c) exist. If the shares to be redeemed have
recently been purchased by check (including a certificate or bank cashier's
check), payment of redemption proceeds may be delayed for the minimum time
needed to verify that the check used for investment has been honored (not more
than fifteen days from the time of receipt of the check by the Transfer Agent).
It is the Portfolio's policy and practice that, if checks for redemption
proceeds remain uncashed, no interest will accrue on amounts represented by such
uncashed checks. Shareholders maintaining margin accounts with DWR or another
selected broker-dealer are referred to their Morgan Stanley Dean Witter
Financial Advisor or other selected broker-dealer representative regarding
restrictions on redemption of shares of the Fund pledged in the margin account.

TRANSFERS OF SHARES. In the event a shareholder requests a transfer of any
shares to a new registration, such shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the length
of time shares subject to the charge have been held), any transfer involving
less than all the shares in an account will be made on a pro rata basis (that
is, by transferring shares in the same proportion that the transferred shares
bear to the total shares in the account immediately prior to the transfer). The
transferred shares will continue to be subject to any applicable CDSC as if they
had not been so transferred.

REINSTATEMENT PRIVILEGE. As discussed in the Prospectus, a shareholder who
has had his or her shares redeemed or repurchased and has not previously
exercised this reinstatement privilege may, within 35 days after the date of 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 at the net
asset value next determined after a reinstatement request, together with such
proceeds, is received by the Transfer Agent.

Exercise of the reinstatement privilege will not affect the federal income
tax treatment of any gain or loss realized upon the redemption or repurchase,
except that if the redemption or repurchase resulted in a loss and reinstatement
is made in shares of the Fund, some or all of the loss, depending on the amount
reinstated, will not be allowed as a deduction for federal income tax purposes
but will be applied to adjust the cost basis of the shares acquired upon
reinstatement.

DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------

As discussed in the Prospectus, each Portfolio of the Fund will determine
either to distribute or to retain all or part of any net long-term capital gains
in any year for reinvestment. If any such gains are retained, each Portfolio
will pay federal income tax thereon, and will notify shareholders that,
following an election by the Portfolio, the shareholders will be required to
include such undistributed gains in determining their taxable income and may
claim their share of the tax paid by the Portfolio as a credit against their
individual federal income tax.

Because each Portfolio of the Fund intends to distribute all of its net
investment income and capital gains to shareholders and otherwise continue to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code, it is not expected that the Portfolio will be required to pay any
federal income tax. Shareholders will normally have to pay federal income taxes,
and any state income taxes, on the dividends and distributions they receive from
each Portfolio of the Fund. Such dividends and distributions, to the extent that
they are derived from net investment income or short-term capital gains, are
taxable to the shareholder as ordinary income regardless of whether the
shareholder receives such payments in additional shares or in cash. Any
dividends declared in the last quarter of any calendar year which are paid in
the following year prior to February 1 will be deemed received by the
shareholder in the prior calendar year.

45
<PAGE>

Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. Capital gains distributions are not eligible for
the dividends received deduction. The Treasury has announced that it will issue
regulations or other guidance to permit shareholders to take into account their
proportionate share of the Fund's capital gains distributions that will be
subject to a reduced rate under the Taxpayer Relief Act of 1997. The Taxpayer
Relief Act reduces the maximum tax on long-term capital gains from 28% to 20%,
it also lengthened the required holding period to obtain this lower rate from
more than 12 months to more than 18 months. However, the IRS Restructuring and
Reform Act of 1998 reduces the holding period requirement for the lower capital
gain rate to mature 12 months for transactions occuring after January 1, 1998.
These lower rates do not apply to collectibles and certain other assets.
Additionally, the maximum capital gain rate for assets that are held more than 5
years and that are acquired after December 31, 2000 is 18%.

Any ordinary income dividends or capital gains distributions received by a
shareholder from any investment company will have the effect of reducing the net
asset value of the shareholder's shares in that company by the exact amount of
the dividend or capital gains distribution. Furthermore, capital gains
distributions and ordinary income dividends are subject to federal income taxes.
If the net asset value of the shares should be reduced below a shareholder's
cost as a result of the payment of dividends or realized long-term capital
gains, such payment would be in part a return of the shareholder's investment to
the extent of such reduction below the shareholder's cost, but nonetheless would
be taxable to the shareholder. Therefore, an investor should consider the tax
implications of purchasing Fund shares immediately prior to a dividend or
distribution record date.

Any loss realized by shareholders upon a redemption of shares within six
months of the date of their purchase will be treated as a long-term capital loss
to the extent of any distributions of net long-term capital gains during the six
month period.

Dividend payments will be eligible for the federal dividends received
deduction available to the Portfolio's corporate shareholders only to the extent
the aggregate dividends received by the Portfolio would be eligible for the
deduction if the Portfolio were the shareholder claiming the dividends received
deduction. The amount of dividends paid by the Portfolio which may qualify for
the dividends received deduction is limited to the aggregate amount of
qualifying dividends which the Fund derives from its portfolio investments which
the Portfolio has held for a minimum period, usually 46 days within a 90 day
period beginning 45 days before the ex dividend date of each qualifying
dividend. Shareholders must meet a similar holding period requirement with
respect to their shares to claim the dividends received deduction with respect
to any distribution of qualifying dividends. Any long-term capital gain
distributions will also not be eligible for the dividends received deduction.
The ability to take the dividends received deduction will also be limited in the
case of a Portfolio shareholder which incurs or continues indebtedness which is
directly attributable to its investment in the Portfolio.

After the end of the year, shareholders will be sent full information on
their dividends and capital gains distributions for tax purposes, including
information as to the portion taxable as ordinary income, the portion taxable as
long-term capital gains and the portion eligible for the dividends received
deduction. 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 are urged to consult their attorneys or tax advisors regarding
specific questions as to federal, state or local taxes.

PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

As discussed in the Prospectus, from time to time each Portfolio of the Fund
may quote its "total return" in advertisements and sales literature. These
figures are computed separately for Class A,

46
<PAGE>

Class B, Class C and Class D shares. Each Portfolio's "average annual total
return" represents an annualization of that Portfolio's total return over a
specified period and is computed by finding the annual percentage rate which
will result in the ending redeemable value of a hypothetical $1,000 investment
made at the beginning of a one, five or ten year period, or for the period from
the date of commencement of the Portfolio's operations, if shorter than any of
the foregoing.

For periods of less than one year, the Fund quotes its total return on a
non-annualized basis. Accordingly, the Fund may compute its aggregate total
return for each Class for specified periods by determining the aggregate
percentage rate which will result in the ending value of a hypothetical $1,000
investment made at the beginning of the period. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
The formula for computing aggregate total return involves a percentage obtained
by dividing the ending value by the initial $1,000 investment and subtracting 1
from the result. The ending redeemable value is reduced by any CDSC at the end
of the period. Based on the foregoing calculations, the total returns for the
period February 25, 1998 (commencement of operations) through May 31, 1998 were
- -1.74%, -1.50%, 2.50% and 3.80% for Class A, Class B, Class C and Class D,
respectively.

In addition to the foregoing, each Portfolio may advertise its total return
for each Class over different periods of time by means of aggregate, average,
year-by-year or other types of total return figures. Such calculations may or
may not reflect the imposition of the maximum front-end sales charge for Class A
or the deduction of the CDSC for each of Class B and Class C which, if
reflected, would reduce the performance quoted. For example, the aggregate total
return of each Portfolio may be calculated in the manner described in the
preceding paragraph, but without deduction for any applicable sales charge.
Based on this calculation, the total returns for each Class for the period
February 25, 1998 (commencement of operations) through May 31, 1998 were 3.70%,
3.50%, 3.50% and 3.80% for Class A, Class B, Class C and Class D, respectively.

Each Portfolio may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the respective
Portfolio by adding 1 to the respective Portfolio's aggregate total return to
date (expressed as a decimal and without taking into account the effect of any
applicable CDSC) and multiplying by $9,475, $48,000 and $97,000 in the case of
Class A (investments of $10,000, $50,000 and $100,000 adjusted for the initial
sales charge) or by $10,000, $50,000 and $100,000 in the case of each of Class
B, Class C and Class D, as the case may be. Investments of $10,000, $50,000 and
$100,000 in each Class of the "Best Ideas" Portfolio at inception of the Class
would have grown to the following amounts at May 31, 1998:

<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
INCEPTION ---------------------------------
CLASS DATE: $10,000 $50,000 $100,000
- --------------------------------------------------------------- ------------ --------- --------- -----------
<S> <C> <C> <C> <C>
Class A........................................................ 2/25/98 $ 9,826 $ 49,776 $ 100,589
Class B........................................................ 2/25/98 $ 10,350 $ 51,750 $ 103,500
Class C........................................................ 2/25/98 $ 10,350 $ 51,750 $ 103,500
Class D........................................................ 2/25/98 $ 10,380 $ 51,900 $ 103,800
</TABLE>

Each Portfolio from time to time may also advertise its performance relative
to certain performance rankings and indexes compiled by independent
organizations.

DESCRIPTION OF SHARES OF THE FUND
- --------------------------------------------------------------------------------

The shareholders of each Portfolio of the Fund are entitled to a full vote
for each full share held. The Trustees themselves have the power to alter the
number and the terms of office of the Trustees, and they may at any time
lengthen their own terms or make their terms of unlimited duration and appoint
their own successors, provided that always at least a majority of the Trustees
has been elected by the shareholders of the Fund. Under certain circumstances
the Trustees may be removed by action of the Trustees. The shareholders also
have the right under certain circumstances to remove the Trustees. The voting

47
<PAGE>
rights of shareholders are not cumulative, so that holders of more than 50
percent of the shares voting can, if they choose, elect all Trustees being
selected, while the holders of the remaining shares would be unable to elect any
Trustees.

The Declaration of Trust permits the Trustees to authorize the creation of
additional series of shares (the proceeds of which would be invested in
separate, independently managed portfolios) and additional classes of shares
within any series. The Trustees have not authorized any such additional series
or classes of shares other than as set forth in the Prospectus.

The Declaration of Trust provides that no Trustee, officer, employee or
agent of the Fund is liable to the Fund or to a shareholder, nor is any Trustee,
officer, employee or agent liable to any third persons in connection with the
affairs of the Fund, except as such liability may arise from his/her or its own
bad faith, willful misfeasance, gross negligence, or reckless disregard of
his/her or its duties. It also provides that all third persons shall look solely
to the Fund property for satisfaction of claims arising in connection with the
affairs of the Fund. With the exceptions stated above, the Declaration of Trust
provides that a Trustee, officer, employee or agent is entitled to be
indemnified against all liability in connection with the affairs of the Fund.

The Fund is authorized to issue an unlimited number of shares of beneficial
interest. The Fund shall be of unlimited duration, subject to the provisions in
the Declaration of Trust concerning termination by action of the shareholders.

CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------

The Bank of New York, 90 Washington Street, New York, New York 10286 is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
Such balances may, at times, be substantial.

Morgan Stanley Dean Witter Trust FSB ("MSDW Trust"), Harborside Financial
Center, Plaza Two, Jersey City, New Jersey 07311 is the Transfer Agent of the
Portfolio's shares and Dividend Disbursing Agent for payment of dividends and
distributions on Portfolio shares and Agent for shareholders under various
investment plans described herein. MSDW Trust is an affiliate of Morgan Stanley
Dean Witter Advisors Inc., the Fund's Investment Manager, and of Morgan Stanley
Dean Witter Distributors Inc., the Fund's Distributor. As Transfer Agent and
Dividend Disbursing Agent, MSDW Trust's responsibilities include maintaining
shareholder accounts, disbursing cash dividends and reinvesting dividends,
processing account registration changes, handling purchase and redemption
transactions, mailing prospectuses and reports, mailing and tabulating proxies,
processing share certificate transactions, and maintaining shareholder records
and lists. For these services MSDW Trust receives a per shareholder account fee.

INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------

PricewaterhouseCoopers LLP serves as the independent accountants of each
Portfolio of the Fund. The independent accountants are responsible for auditing
the annual financial statements of the Fund.

REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------

The Fund will send to shareholders, at least semi-annually, reports showing
the Portfolio of the Fund's portfolio and other information. An annual report
containing financial statements audited by independent accountants will be sent
to shareholders each year.

The Fund's fiscal year ends on May 31. The financial statements of the Fund
must be audited at least once a year by independent accountants whose selection
is made annually by the Fund's Board of Trustees.

48
<PAGE>
LEGAL COUNSEL
- --------------------------------------------------------------------------------

Barry Fink, Esq., who is an officer and the General Counsel of the
Investment Manager, is an officer and the General Counsel of the Fund.

EXPERTS
- --------------------------------------------------------------------------------

The financial statements of the Portfolio included in the Prospectus have
been so included and incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

REGISTRATION STATEMENT
- --------------------------------------------------------------------------------

This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the Securities and Exchange Commission. The complete Registration
Statement may be obtained from the Securities and Exchange Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.

49
<PAGE>

MORGAN STANLEY DEAN WITTER COMPETITVE EDGE FUND

PART C OTHER INFORMATION

Item 24. Financial Statements and Exhibits

a) FINANCIAL STATEMENTS

(1) Financial statements and schedules, included
in Prospectus (Part A):

Page in
Prospectus

Financial Highlights for the period February 25, 1998
(commencement of operations) through May 31, 1998 4

Portfolio of Investments at May 31, 1998 35

Statement of Assets and Liabilities at May 31, 1998 38

Statement of Operations for the year ended May 31, 1998 39

Statement of Changes in Net Assets for the period
February 25, 1998 (commencement of operations) through
May 31, 1998 40

Notes to Financial Statements at May 31, 1998 41

(2) Financial statements included in the Statement of Additional
Information (Part B):

None

(3) Financial statements included in Part C:

None

b) EXHIBITS

5 Form of Investment Management Agreement between Registrant and Morgan
Stanley Dean Witter Advisors Inc.

6. Form of distribution Agreement between the registrant Morgan Stanley
Dean Witter Distributors Inc.

8. Form of Transfer Agency and Service Agreement between the Registrant
and Morgan Stanley Dean Witter Trust FSB

9. Form of Services Agreement between Morgan Stanley Dean Witter
Advisors Inc. and Morgan Stanley Dean Witter Advisors Inc.

11. Consent of Independent Accountants

<PAGE>

16. Schedules for Computations of Performance Quotations

27. Financial Data Schedules

Other. Form of Multiple Class Plan Pursuant to 18-f3

- -------------------------------------------------------------------------------
All other exhibits were previously filed via EDGAR and are hereby
incorporated by reference.

Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None

Item 26. NUMBER OF HOLDERS OF SECURITIES

<TABLE>
<CAPTION>
(1) (2)
Number of Record Holders
Title of Class at June 30, 1998
-------------- ------------------------
<S>> <C>
Class A 4,797
Class B 177,843
Class C 17,367
Class D 60
</TABLE>

Item 27. Indemnification

Pursuant to Section 5.3 of the Registrant's Declaration of Trust and
under Section 4.8 of the Registrant's By-laws, the indemnification of the
Registrant's trustees, officers, employees and agents is permitted if it is
determined that they acted under the belief that their actions were in or not
opposed to the best interest of the Registrant, and, with respect to any
criminal proceeding, they had reasonable cause to believe their conduct was
not unlawful. In addition, indemnification is permitted only if it is
determined that the actions in question did not render them liable by reason
of willful misfeasance, bad faith or gross negligence in the performance of
their duties or by reason of reckless disregard of their obligations and
duties to the Registrant. Trustees, officers, employees and agents will be
indemnified for the expense of litigation if it is determined that they are
entitled to indemnification against any liability established in such
litigation. The Registrant may also advance money for these expenses
provided that they give their undertakings to repay the Registrant unless
their conduct is later determined to permit indemnification.

Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the
Registrant shall be liable for any action or failure to act, except in the
case of bad faith, willful misfeasance, gross negligence or reckless
disregard of duties to the Registrant.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses

<PAGE>

incurred or paid by a trustee, officer, or controlling person of the Registrant
in connection with the successful defense of any action, suit or proceeding) is
asserted against the Registrant by such trustee, officer or controlling person
in connection with the shares being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act, and will
be governed by the final adjudication of such issue.

The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with Release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940,
so long as the interpretation of Sections 17(h) and 17(i) of such Act remains
in effect.

Registrant, in conjunction with the Investment Manager, Registrant's
Trustees, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was
a Trustee, officer, employee, or agent of Registrant, or who is or was
serving at the request of Registrant as a trustee, director, officer,
employee or agent of another trust or corporation, against any liability
asserted against him and incurred by him or arising out of his position.
However, in no event will Registrant maintain insurance to indemnify any such
person for any act for which Registrant itself is not permitted to indemnify
him.

Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR

See "The Fund and Its Management" in the Prospectus regarding the business
of the investment advisor. The following information is given regarding
officers of Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"). MSDW
Advisors is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. The
principal address of the Morgan Stanley Dean Witter Funds is Two World Trade
Center, New York, New York 10048.

The term "Morgan Stanley Dean Witter Funds" refers to the following
registered investment companies:

CLOSED-END INVESTMENT COMPANIES
- -------------------------------
(1) Dean Witter Government Income Trust
(2) High Income Advantage Trust
(3) High Income Advantage Trust II
(4) High Income Advantage Trust III
(5) InterCapital California Insured Municipal Income Trust
(6) InterCapital California Quality Municipal Securities
(7) InterCapital Income Securities Inc.
(8) InterCapital Insured California Municipal Securities
(9) InterCapital Insured Municipal Bond Trust
(10) InterCapital Insured Municipal Income Trust
(11) InterCapital Insured Municipal Securities
(12) InterCapital Insured Municipal Trust
(13) InterCapital New York Quality Municipal Securities
(14) InterCapital Quality Municipal Income Trust
(15) InterCapital Quality Municipal Investment Trust
(16) InterCapital Quality Municipal Securities
(17) Municipal Income Opportunities Trust

<PAGE>

(18) Municipal Income Opportunities Trust II
(19) Municipal Income Opportunities Trust III
(20) Municipal Income Trust
(21) Municipal Income Trust II
(22) Municipal Income Trust III
(23) Municipal Premium Income Trust
(24) Morgan Stanley Dean Witter Prime Income Trust

OPEN-END INVESTMENT COMPANIES
- -----------------------------
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Money Trust
(4) Active Assets Tax-Free Trust
(5) Dean Witter Global Asset Allocation Fund
(6) Dean Witter Retirement Series
(7) Morgan Stanley Dean Witter American Value Fund
(8) Morgan Stanley Dean Witter Balanced Growth Fund
(9) Morgan Stanley Dean Witter Balanced Income Fund
(10) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(11) Morgan Stanley Dean Witter California Tax-Free Income Fund
(12) Morgan Stanley Dean Witter Capital Appreciation Fund
(13) Morgan Stanley Dean Witter Capital Growth Securities
(14) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS PORTFOLIO"
(15) Morgan Stanley Dean Witter Convertible Securities Trust
(16) Morgan Stanley Dean Witter Developing Growth Securities Trust
(17) Morgan Stanley Dean Witter Diversified Income Trust
(18) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(19) Morgan Stanley Dean Witter Equity Fund
(20) Morgan Stanley Dean Witter European Growth Fund Inc.
(21) Morgan Stanley Dean Witter Federal Securities Trust
(22) Morgan Stanley Dean Witter Financial Services Trust
(23) Morgan Stanley Dean Witter Fund of Funds
(24) Morgan Stanley Dean Witter Global Dividend Growth Securities
(25) Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
(26) Morgan Stanley Dean Witter Global Utilities Fund
(27) Morgan Stanley Dean Witter Growth Fund
(28) Morgan Stanley Dean Witter Hawaii Municipal Trust
(29) Morgan Stanley Dean Witter Health Sciences Trust
(30) Morgan Stanley Dean Witter High Yield Securities Inc.
(31) Morgan Stanley Dean Witter Income Builder Fund
(32) Morgan Stanley Dean Witter Information Fund
(33) Morgan Stanley Dean Witter Intermediate Income Securities
(34) Morgan Stanley Dean Witter intermediate Term U.S. Treasury Trust
(35) Morgan Stanley Dean Witter International SmallCap Fund
(36) Morgan Stanley Dean Witter Japan Fund
(37) Morgan Stanley Dean Witter Limited Term Municipal Trust
(38) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(39) Morgan Stanley Dean Witter Market Leader Trust
(40) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(41) Morgan Stanley Dean Witter Mid-Cap Growth Fund
(42) Morgan Stanley Dean Witter Multi-State Municipal Series Trust

<PAGE>

(43) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(44) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(45) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(46) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(47) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(48) Morgan Stanley Dean Witter S&P 500 Index Fund
(49) Morgan Stanley Dean Witter Select Dimensions Investment Series
(50) Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
(51) Morgan Stanley Dean Witter Short-Term Bond Fund
(52) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(53) Morgan Stanley Dean Witter Special Value Fund
(54) Morgan Stanley Dean Witter Strategist Fund
(55) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(56) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(57) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(58) Morgan Stanley Dean Witter U.S. Government Securities Trust
(59) Morgan Stanley Dean Witter Utilities Fund
(60) Morgan Stanley Dean Witter Value-Added Market Series
(61) Morgan Stanley Dean Witter Variable Investment Series
(62) Morgan Stanley Dean Witter World Wide Income Trust

The term "TCW/DW Funds" refers to the following registered investment
companies:

OPEN-END INVESTMENT COMPANIES
- -----------------------------
(1) TCW/DW Emerging Markets Opportunities Trust
(2) TCW/DW Global Telecom Trust
(3) TCW/DW Income and Growth Fund
(4) TCW/DW Latin American Growth Fund
(5) TCW/DW Mid-Cap Equity Trust
(6) TCW/DW North American Government Income Trust
(7) TCW/DW Small Cap Growth Fund
(8) TCW/DW Total Return Trust

CLOSED-END INVESTMENT COMPANIES
- -------------------------------
(1) TCW/DW Term Trust 2000
(2) TCW/DW Term Trust 2002
(3) TCW/DW Term Trust 2003

NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ---------------------------------------------------------
<S> <C>
Mitchell M. Merin Chairman and Director of Morgan Stanley Dean Witter
President, Chief Distributors Inc. ("MSDW Distributors") and Morgan
Executive Officer and Stanley Dean Witter Trust FSB ("MSDW Trust"); President,
Director Chief Executive Officer and Director of Morgan Stanley
Dean Witter Services Company Inc. ("MSDW Services");
Executive Vice President and Director of Dean Witter
Reynolds Inc. ("DWR"); Director of SPS Transaction
Services, Inc. and various other Morgan Stanley Dean
Witter & Co. ("MSDW") subsidiaries.
</TABLE>

<PAGE>

Robert M. Scanlan President, Chief Operating Officer and Director of MSD
President, Chief Services, Executive Vice President of MSDW Distributors;
Operating Officer Executive Vice President and Director of MSDW Trust;
and Director Vice President of the Morgan Stanley Dean Witter Funds
and the TCW/DW Funds.

Joseph J. McAlinden Vice President of the Morgan Stanley Dean Witter Funds
Executive Vice President and Director of MSDW Trust.
and Chief Investment
Officer

Edward C. Oelsner, III
Executive Vice President

Barry Fink Assistant Secretary of DWR; Senior Vice President,
Senior Vice President, Secretary, General Counsel and Director of MSDW
Secretary, General Services; Senior Vice President, Assistant Secretary and
Counsel and Director Assistant General Counsel of MSDW Distributors; Vice
President, Secretary and General Counsel of the Morgan
Stanley Dean Witter Funds and the TCW/DW Funds.

Peter M. Avelar Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Mark Bavoso Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Richard Felegy
Senior Vice President

Edward F. Gaylor Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Robert S. Giambrone Senior Vice President of MSDW Services, MSDW
Senior Vice President Distributors and MSDW Trust and Director of MSDW Trust;
Vice President of the Morgan Stanley Dean Witter Funds and
the TCW/DW Funds.

Rajesh Gupta Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
</TABLE>

<PAGE>

Kevin Hurley Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Margaret Iannuzzi
Senior Vice President

Jenny Beth Jones Vice President of Morgan Stanley Dean Witter Special
Senior Vice President Value Fund.

John B. Kemp, III President of MSDW Distributors.
Senior Vice President

Anita H. Kolleeny Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Jonathan R. Page Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Ira N. Ross Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Guy G. Rutherfurd, Jr. Vice President of Morgan Stanley Dean Witter Market
Senior Vice President Leader Trust.

Rochelle G. Siegel Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Jayne M. Stevlingson Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Paul D. Vance Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Elizabeth A. Vetell
Senior Vice President

James F. Willison Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Ronald J. Worobel Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Douglas Brown
First Vice President
</TABLE>

<PAGE>

Thomas Chronert
First Vice President

Rosalie Clough
First Vice President

Marilyn K. Cranney Assistant Secretary of DWR; First Vice President and
First Vice President Assistant Secretary of MSDW Services; Assistant
and Assistant Secretary Secretary of the Morgan Stanley Dean Witter Funds and
the TCW/DW Funds.

Salvatore DeSteno Vice President of MSDW Services.
First Vice President

Michael Interrante First Vice President and Controller of MSDW Services;
First Vice President Assistant Treasurer of MSDW Distributors; First Vice
and Controller President and Treasurer of MSDW Trust.

David Johnson
First Vice President

Stanley Kapica
First Vice President

Carsten Otto First Vice President and Assistant Secretary of MSDW
First Vice President Services; Assistant Secretary of the Morgan Stanley
and Assistant Secretary Dean Witter Funds and the TCW/DW Funds.

Robert Zimmerman
First Vice President

Dale Albright
Vice President

Joan G. Allman
Vice President

Andrew Arbenz
Vice President
</TABLE>

<PAGE>

Nancy Belza
Vice President

Maurice Bendrihem
Vice President and
Assistant Controller

Frank Bruttomesso Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of the Morgan Stanley Dean
Assistant Secretary Witter Funds
and the TCW/DW Funds.

Ronald Caldwell
Vice President

Joseph Cardwell
Vice President

Philip Casparius
Vice President

David Dineen
Vice President

Bruce Dunn
Vice President

Michael Durbin
Vice President

Sheila Finnerty
Vice President

Jeffrey D. Geffen
Vice President

Michael Geringer
Vice President

Ellen Gold
Vice President

Stephen Greenhut
Vice President

<PAGE>
<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ---------------------------------------------------------
<S> <C>
Sandra Grossman
Vice President

Peter W. Gurman
Vice President

Matthew Haynes Vice President of Morgan Stanley Dean Witter
Vice President Variable Investment Series.

Peter Hermann Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Elizabeth Hinchman
Vice President

David Hoffman
Vice President

Christopher Jones
Vice President
Kevin Jung
Vice President

Carol Espejo Kane
Vice President

James P. Kastberg
Vice President

Michelle Kaufman Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Paula LaCosta Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Thomas Lawlor
Vice President

Gerard J. Lian Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Nancy Login
Vice President

Steven MacNamara
Vice President

<PAGE>

<CAPTION>
NAME AND POSITION OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION WITH
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
- -------------------- ---------------------------------------------------------
<S> <C>

Catherine Maniscalco Vice President of Morgan Stanley Dean Witter Natural
Vice President Resource Development Securities Inc.

Albert McGarity
Vice President

LouAnne D. McInnis Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of the Morgan Stanley Dean
Assistant Secretary Witter Funds and the TCW/DW Funds.

Sharon K. Milligan
Vice President

Julie Morrone
Vice President

Mary Beth Mueller
Vice President

David Myers Vice President of Morgan Stanley Dean Witter Natural
Vice President Resource Development Securities Inc.

Richard Norris
Vice President

George Paoletti
Vice President

Anne Pickrell Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Michael Roan
Vice President

John Roscoe
Vice President

Hugh Rose
Vice President

Robert Rossetti Vice President of Morgan Stanley Dean Witter Precious
Vice President Metals and Minerals Trust.

Ruth Rossi Vice President and Assistant Secretary of MSDW
Vice President and Services; Assistant Secretary of the Morgan Stanley Dean Assistant Secretary
Witter Funds and the TCW/DW Funds.

<PAGE>

Carl F. Sadler
Vice President

Deborah Santaniello
Vice President

Peter J. Seeley Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Robert Stearns
Vice President

Naomi Stein
Vice President

Kathleen H. Stromberg Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Marybeth Swisher
Vice President

Robert Vanden Assem
Vice President

James P. Wallin
Vice President

Alice Weiss Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

John Wong
Vice President
</TABLE>

Item 29. PRINCIPAL UNDERWRITERS

(a) Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors"), a
Delaware corporation, is the principal underwriter of the Registrant. MSDW
Distributors is also the principal underwriter of the following investment
companies:

(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Money Trust
(4) Active Assets Tax-Free Trust
(5) Dean Witter Global Asset Allocation Fund
(6) Dean Witter Retirement Series
(7) Morgan Stanley Dean Witter American Value Fund

<PAGE>

(8) Morgan Stanley Dean Witter Balanced Growth Fund
(9) Morgan Stanley Dean Witter Balanced Income Fund
(10) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(11) Morgan Stanley Dean Witter California Tax-Free Income Fund
(12) Morgan Stanley Dean Witter Capital Appreciation Fund
(13) Morgan Stanley Dean Witter Capital Growth Securities
(14) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS PORTFOLIO"
(15) Morgan Stanley Dean Witter Convertible Securities Trust
(16) Morgan Stanley Dean Witter Developing Growth Securities Trust
(17) Morgan Stanley Dean Witter Diversified Income Trust
(18) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(19) Morgan Stanley Dean Witter Equity Fund
(20) Morgan Stanley Dean Witter European Growth Fund Inc.
(21) Morgan Stanley Dean Witter Federal Securities Trust
(22) Morgan Stanley Dean Witter Financial Services Trust
(23) Morgan Stanley Dean Witter Fund of Funds
(24) Morgan Stanley Dean Witter Global Dividend Growth Securities
(25) Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
(26) Morgan Stanley Dean Witter Global Utilities Fund
(27) Morgan Stanley Dean Witter Growth Fund
(28) Morgan Stanley Dean Witter Hawaii Municipal Trust
(29) Morgan Stanley Dean Witter Health Sciences Trust
(30) Morgan Stanley Dean Witter High Yield Securities Inc.
(31) Morgan Stanley Dean Witter Income Builder Fund
(32) Morgan Stanley Dean Witter Information Fund
(33) Morgan Stanley Dean Witter Intermediate Income Securities
(34) Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
(35) Morgan Stanley Dean Witter International SmallCap Fund
(36) Morgan Stanley Dean Witter Japan Fund
(37) Morgan Stanley Dean Witter Limited Term Municipal Trust
(38) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(39) Morgan Stanley Dean Witter Market Leader Trust
(40) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(41) Morgan Stanley Dean Witter Mid-Cap Growth Fund
(42) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(43) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(44) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(45) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(46) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(47) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
(48) Morgan Stanley Dean Witter Prime Income Trust
(49) Morgan Stanley Dean Witter S&P 500 Index Fund
(50) Morgan Stanley Dean Witter Short-Term Bond Fund
(51) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(52) Morgan Stanley Dean Witter Special Value Fund
(53) Morgan Stanley Dean Witter Strategist Fund
(54) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(55) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(56) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(57) Morgan Stanley Dean Witter U.S. Government Securities Trust
(58) Morgan Stanley Dean Witter Utilities Fund

<PAGE>

(59) Morgan Stanley Dean Witter Value-Added Market Series
(60) Morgan Stanley Dean Witter Variable Investment Series
(61) Morgan Stanley Dean Witter World Wide Income Trust
(1) TCW/DW Emerging Markets Opportunities Trust
(2) TCW/DW Global Telecom Trust
(3) TCW/DW Income and Growth
(4) TCW/DW Latin American Growth Fund
(5) TCW/DW Mid-Cap Equity Trust
(6) TCW/DW North American Government Income Trust
(7) TCW/DW Small Cap Growth Fund
(8) TCW/DW Total Return Trust

(b) The following information is given regarding directors and officers of
MSDW Distributors not listed in Item 28 above. The principal address of MSDW
Distributors is Two World Trade Center, New York, New York 10048. None of the
following persons has any position or office with the Registrant.

NAME POSITIONS AND OFFICE WITH MSDW DISTRIBUTORS
- ---- -------------------------------------------
<S> <C>

Richard M. DeMartini Director

Christine Edwards Executive Vice President, Secretary, Director and Chief
Legal Officer.

Michael T. Gregg Vice President and Assistant Secretary.

James F. Higgins Director

Fredrick K. Kubler Senior Vice President, Assistant Secretary and Chief
Compliance Officer.

Philip J. Purcell Director
</TABLE>

Item 30. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Investment Manager at its offices, except records relating to
holders of shares issued by the Registrant, which are maintained by the
Registrant's Transfer Agent, at its place of business as shown in the
prospectus.

Item 31. MANAGEMENT SERVICES

Registrant is not a party to any such management-related service contract.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and the State of New York on
the 30th day of July, 1998.

Morgan Stanley Dean Witter Competitive Edge Fund

By /s/ Barry Fink
--------------------
Barry Fink

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 has been signed below by the following persons
the capacities and on the dates indicated.

SIGNATURES TITLE DATE
---------- ----- ----

(1) Principal Executive Officer President, Chief
Executive Officer,
Trustee and Chairman
By /s/ Charles A. Fiumefreddo 7/30/98
---------------------------
Charles A. Fiumefreddo

(2) Principal Financial Officer Treasurer and Principal
Accounting Officer
By /s/ Thomas F. Caloia 7/30/98
---------------------------
Thomas F. Caloia

(3) Majority of the Trustees

Charles A. Fiumefreddo
(Chairman)
Philip J. Purcell

By /s/ Barry Fink 7/30/98
---------------------------
Barry Fink
Attorney-in-Fact

Michael Bozic Manuel H. Johnson
Edwin J. Garn Michael E. Nugent
John R. Haire John L. Schroeder
Wayne E. Hedien

By /s/ David M. Butowsky 7/30/98
---------------------------
David M. Butowsky
Attorney-in-Fact

<PAGE>

EXHIBIT INDEX

5 Form of Investment management Agreement between Registrant and
Dean Witter InterCapital Inc.

6. Form of distribution Agreement between the registrant Morgan Stanley
Dean Witter Distributors Inc.

8. Form of Transfer Agency and Service Agreement between the Registrant
and Morgan Stanley Dean Witter Trust FSB

9. Form of Services Agreement between Morgan Stanley Dean Witter
Advisors Inc. and Morgan Stanley Dean Witter Advisors Inc.

11. Consent of Independent Accountants

16. Schedules for Computations of Performance Quotations

28. Financial Data Schedules

Other. Form of Multiple Class Plan Pursuant to 18-f3

<PAGE>
INVESTMENT MANAGEMENT AGREEMENT

AGREEMENT made as of the 6th day of November, 1997, and amended as of May 1,
1998, by and between Morgan Stanley Dean Witter Competitive Edge Fund, a
Massachusetts business trust (hereinafter called the "Fund"), and Dean Witter
InterCapital Inc., a Delaware corporation (hereinafter called the "Investment
Manager"):

WHEREAS, The Fund is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act"); and

WHEREAS, The Investment Manager is registered as an investment adviser under
the Investment Advisers Act of 1940, and engages in the business of acting as
investment adviser; and

WHEREAS, The Fund desires to retain the Investment Manager to render
management and investment advisory services in the manner and on the terms and
conditions hereinafter set forth; and

WHEREAS, The Investment Manager desires to be retained to perform services
on said terms and conditions:

Now, Therefore, this Agreement

W I T N E S S E T H:

that in consideration of the premises and the mutual covenants hereinafter
contained, the Fund and the Investment Manager agree as follows:

1. The Fund hereby retains the Investment Manager to act as investment
manager of the Fund and, subject to the supervision of the Board of Trustees, to
supervise the investment activities of the Fund as hereinafter set forth.
Without limiting the generality of the foregoing, the Investment Manager shall
obtain and evaluate such information and advice relating to the economy,
securities and commodities markets and securities and commodities as it deems
necessary or useful to discharge its duties hereunder; shall continuously manage
the assets of the Fund in a manner consistent with the investment objectives and
policies of the Fund; shall determine the securities and commodities to be
purchased, sold or otherwise disposed of by the Fund and the timing of such
purchases, sales and dispositions; and shall take such further action, including
the placing of purchase and sale orders on behalf of the Fund, as the Investment
Manager shall deem necessary or appropriate. The Investment Manager shall also
furnish to or place at the disposal of the Fund such of the information,
evaluations, analyses and opinions formulated or obtained by the Investment
Manager in the discharge of its duties as the Fund may, from time to time,
reasonably request.

In the event the Fund establishes additional Portfolios other than the
current Portfolios with respect to which it desires to retain the Investment
Manager to render investment advisory services hereunder, it shall notify the
Investment Manager in writing. If the Investment Manager is willing to render
such services, it shall notify the Fund in writing, whereupon such other
Portfolios shall become a Portfolio hereunder.

2. The Investment Manager shall, at its own expense, maintain such staff
and employ or retain such personnel and consult with such other persons as it
shall from time to time determine to be necessary or useful to the performance
of its obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of the Investment Manager shall be deemed to
include persons employed or otherwise retained by the Investment Manager to
furnish statistical and other factual data, advice regarding economic factors
and trends, information with respect to technical and scientific developments,
and such other information, advice and assistance as the Investment Manager may
desire. The Investment Manager shall, as agent for the Fund, maintain the Fund's
records and books of account (other than those maintained by the Fund's transfer
agent, registrar, custodian and other agencies). All such books and records so
maintained shall be the property of the Fund and, upon request therefor, the
Investment Manager shall surrender to the Fund such of the books and records so
requested.

98NYC6028

<PAGE>
3. The Fund will, from time to time, furnish or otherwise make available to
the Investment Manager such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as the Investment
Manager may reasonably require in order to discharge its duties and obligations
hereunder.

4. The Investment Manager shall bear the cost of rendering the investment
management and supervisory services to be performed by it under this Agreement,
and shall, at its own expense, pay the compensation of the officers and
employees, if any, of the Fund who are also directors, officers or employees of
the Investment Manager, and provide such office space, facilities and equipment
and such clerical help and bookkeeping services as the Fund shall reasonably
require in the conduct of its business. The Investment Manager shall also bear
the cost of telephone service, heat, light, power and other utilities provided
to the Fund.

5. The Fund assumes and shall pay or cause to be paid all other expenses of
the Fund, including without limitation, fees pursuant to any plan of
distribution that the Fund may adopt; the charges and expenses of any registrar,
any custodian or depository appointed by the Fund for the safekeeping of its
cash, portfolio securities or commodities and other property, and any stock
transfer or dividend agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio transactions to which the
Fund is a party; all taxes, including securities or commodities issuance and
transfer taxes, and fees payable by the Fund to federal, state or other
governmental agencies; the cost and expense of engraving or printing
certificates representing shares of the Fund; all costs and expenses in
connection with the registration and maintenance of registration of the Fund and
its shares with the Securities and Exchange Commission and various states and
other jurisdictions (including filing fees and legal fees and disbursements of
counsel); the cost and expense of printing, including typesetting, and
distributing prospectuses and statements of additional information of the Fund
and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
proxy statements and reports to shareholders; fees and travel expenses of
trustees or members of any advisory board or committee who are not employees of
the Investment Manager or any corporate affiliate of the Investment Manager; all
expenses incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any outside
service used for pricing of the Fund's shares; charges and expenses of legal
counsel, including counsel to the Trustees of the Fund who are not interested
persons (as defined in the Act) of the Fund or the Investment Manager, and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Trustees) of the Fund which inure to its benefit; extraordinary expenses
(including but not limited to legal claims and liabilities and litigation costs
and any indemnification related thereto); and all other charges and costs of the
Fund's operation unless otherwise explicitly provided herein.

6. For the services to be rendered, the facilities furnished, and the
expenses assumed by the Investment Manager, the Fund shall pay to the Investment
Manager monthly compensation determined by applying the following annual rates
to the daily net assets of the respective Portfolios determined as of the close
of each business day: (a) the "Best Ideas" Portfolio -- 0.65% of daily net
assets up to $1.5 billion and 0.625% of daily net assets over $1.5 billion; and
(b) the "Competitive Edge" Portfolio -- 0.75%. Except as hereinafter set forth,
compensation under this Agreement shall be calculated and accrued daily and the
amounts of the daily accruals shall be paid monthly as promptly as possible for
the preceding month. Such calculations shall be made by applying 1/365ths of the
annual rates to the Fund's net assets each day determined as of the close of
business on that day or the last previous business day. If this Agreement
becomes effective subsequent to the first day of a month or shall terminate
before the last day of a month, compensation for that part of the month this
Agreement is in effect shall be prorated in a manner consistent with the
calculation of the fees as set forth above.

7. The Investment Manager will use its best efforts in the supervision and
management of the investment activities of the Fund, but in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, the Investment Manager shall not be liable to the Fund or
any of its investors for any error of judgment or mistake of law or for any act
or omission by the Investment Manager or for any losses sustained by the Fund or
its investors.

2
<PAGE>
8. Nothing contained in this Agreement shall prevent the Investment Manager
or any affiliated person of the Investment Manager from acting as investment
adviser or manager for any other person, firm or corporation and shall not in
any way bind or restrict the Investment Manager or any such affiliated person
from buying, selling or trading any securities or commodities for their own
accounts or for the account of others for whom they may be acting. Nothing in
this Agreement shall limit or restrict the right of any Director, officer or
employee of the Investment Manager to engage in any other business or to devote
his or her time and attention in part to the management or other aspects of any
other business whether of a similar or dissimilar nature.

9. This Agreement shall remain in effect until April 30, 1999 and from year
to year thereafter with respect to each Portfolio provided such continuance with
respect to a Portfolio is approved at least annually by the vote of holders of a
majority, as defined in the Investment Company Act of 1940, as amended (the
"Act"), of the outstanding voting securities of such Portfolio or by the
Trustees of the Fund; provided, that in either event such continuance is also
approved annually by the vote of a majority of the Trustees of the Fund who are
not parties to this Agreement or "interested persons" (as defined in the Act) of
any such party, which vote must be cast in person at a meeting called for the
purpose of voting on such approval; provided, however, that (a) the Fund may, at
any time and without the payment of any penalty, terminate this Agreement upon
thirty days' written notice to the Investment Manager, either by majority vote
of the Trustees of the Fund or, with respect to a Portfolio, by the vote of a
majority of the outstanding voting securities of such Portfolio; (b) this
Agreement shall immediately terminate in the event of its assignment (to the
extent required by the Act and the rules thereunder) unless such automatic
terminations shall be prevented by an exemptive order of the Securities and
Exchange Commission; and (c) the Investment Manager may terminate this Agreement
without payment of penalty on thirty days' written notice to the Fund. Any
notice under this Agreement shall be given in writing, addressed and delivered,
or mailed post-paid, to the other party at the principal office of such party.

Any approval of this Agreement by the holders of a majority of the
outstanding voting securities of any Portfolio shall be effective to continue
this Agreement with respect to such Portfolio notwithstanding (a) that this
Agreement has not been approved by the holders of a majority of the outstanding
voting securities of any other Portfolio or (b) that this Agreement has not been
approved by the vote of a majority of the outstanding voting securities of the
Fund, unless such approval shall be required by any other applicable law or
otherwise.

10. This Agreement may be amended by the parties without the vote or consent
of the shareholders of the Fund to supply any omission, to cure, correct or
supplement any ambiguous, defective or inconsistent provision hereof, or if they
deem it necessary to conform this Agreement to the requirements of applicable
federal laws or regulations, but neither the Fund nor the Investment Manager
shall be liable for failing to do so.

11. This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the Act. To the extent the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Act, the latter shall control.

12. The Investment Manager and the Fund each agree that the name "Morgan
Stanley Dean Witter," which comprises a component of the Fund's name, is a
property right of Morgan Stanley Dean Witter & Co. ("MSDW"), the parent of the
Investment Manager. The Fund agrees and consents that (i) it will only use the
name "Morgan Stanley Dean Witter" as a component of its name and for no other
purpose, (ii) it will not purport to grant to any third party the right to use
the name "Morgan Stanley Dean Witter" for any purpose, (iii) MSDW, or any
corporate affiliate of MSDW, may use or grant to others the right to use the
name "Morgan Stanley Dean Witter," or any combination or abbreviation thereof,
as all or a portion of a corporate or business name or for any commercial
purpose, including a grant of such right to any other investment company, (iv)
at the request of MSDW or any corporate affiliate of MSDW, the Fund will take
such action as may be required to provide its consent to the use of the name
"Morgan Stanley Dean Witter," or any combination or abbreviation thereof, by
MSDW or any corporate affiliate of MSDW, or by any person to whom MSDW or a
corporate affiliate of MSDW shall have granted the right to such use, and (v)
upon the

3
<PAGE>
termination of any investment advisory agreement into which a corporate
affiliate of MSDW and the Fund may enter, or upon termination of affiliation of
the Investment Manager with its parent, the Fund shall, upon request of MSDW or
any corporate affiliate of MSDW, cease to use the name "Morgan Stanley Dean
Witter" as a component of its name, and shall not use the name, or any
combination or abbreviation thereof, as part of its name or for any other
commercial purpose, and shall cause its officers, Trustees and shareholders to
take any and all actions which MSDW or any corporate affiliate of MSDW may
request to effect the foregoing and to reconvey to MSDW any and all rights to
such name.

13. The Declaration of Trust establishing Morgan Stanley Dean Witter
Competitive Edge Fund, dated October 16, 1997, a copy of which, together with
all amendments thereto (the "Declaration"), is on file in the office of the
Secretary of the Commonwealth of Massachusetts, provides that the name Morgan
Stanley Dean Witter Competitive Edge Fund refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or personally; and
no Trustee, shareholder, officer, employee or agent of Morgan Stanley Dean
Witter Competitive Edge Fund shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any obligation
or claim or otherwise, in connection with the affairs of said Morgan Stanley
Dean Witter Competitive Edge Fund, but the Trust Estate only shall be liable.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on May 1, 1998 in New York, New York.

<TABLE>
<S> <C>
MORGAN STANLEY DEAN WITTER
COMPETITIVE EDGE FUND

By:
...................................

Attest:

..................................

DEAN WITTER INTERCAPITAL INC.

By:
...................................

Attest:

..................................
</TABLE>

<PAGE>
MORGAN STANLEY DEAN WITTER FUNDS

DISTRIBUTION AGREEMENT

AGREEMENT made as of this 28th day of July, 1997, and amended as of June 22,
1998, between each of the open-end investment companies to which Morgan Stanley
Dean Witter Advisors Inc. acts as investment manager, that are listed on
Schedule A, as may be amended from time to time (each, a "Fund" and
collectively, the "Funds"), and Morgan Stanley Dean Witter Distributors Inc., a
Delaware corporation (the "Distributor").

W I T N E S S E T H:

WHEREAS, each Fund is registered as an open-end investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and it is in the
interest of each Fund to offer its shares for sale continuously, and

WHEREAS, each Fund and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of each Fund's transferable
shares, of $0.01 par value (the "Shares"), to commence on the date listed above,
in order to promote the growth of each Fund and facilitate the distribution of
its shares.

NOW, THEREFORE, the parties agree as follows:

SECTION 1. APPOINTMENT OF THE DISTRIBUTOR.

(a) Each Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Fund to sell Shares to the public on the terms set forth
in this Agreement and that Fund's prospectus and the Distributor hereby accepts
such appointment and agrees to act hereunder. Each Fund, during the term of this
Agreement, shall sell Shares to the Distributor upon the terms and conditions
set forth herein.

(b) The Distributor agrees to purchase Shares, as principal for its own
account, from each Fund and to sell Shares as principal to investors, and
securities dealers, including Dean Witter Reynolds Inc. ("DWR"), an affiliate of
the Distributor, upon the terms described herein and in that Fund's prospectus
(the "Prospectus") and statement of additional information included in the
Fund's registration statement (the "Registration Statement") most recently filed
from time to time with the Securities and Exchange Commission (the "SEC") and
effective under the Securities Act of 1933, as amended (the "1933 Act"), and the
1940 Act or as the Prospectus may be otherwise amended or supplemented and filed
with the SEC pursuant to Rule 497 under the 1933 Act.

SECTION 2. EXCLUSIVE NATURE OF DUTIES. The Distributor shall be the
exclusive principal underwriter and distributor of each Fund, except that the
exclusive rights granted to the Distributor to sell the Shares shall not apply
to Shares issued by each Fund: (i) in connection with the merger or
consolidation of any other investment company or personal holding company with
the Fund or the acquisition by purchase or otherwise of all (or substantially
all) the assets or the outstanding shares of any such company by the Fund; (ii)
pursuant to reinvestment of dividends or capital gains distributions; or (iii)
pursuant to the reinstatement privilege afforded redeeming shareholders.

SECTION 3. PURCHASE OF SHARES FROM EACH FUND. The Shares are offered in
four classes (each, a "Class"), as described in the Prospectus, as amended or
supplemented from time to time.

(a) The Distributor shall have the right to buy from each Fund the Shares of
the particular class needed, but not more than the Shares needed (except for
clerical errors in transmission), to fill unconditional orders for Shares of the
applicable class placed with the Distributor by investors or securities dealers.
The price which the Distributor shall pay for the Shares so purchased from the
Fund shall be the net asset value, determined as set forth in the Prospectus,
used in determining the public offering price on which such orders were based.

(b) The Shares are to be resold by the Distributor at the public offering
price of Shares of the applicable class as set forth in the Prospectus, to
investors or to securities dealers, including DWR, who

1
<PAGE>
have entered into selected dealer agreements with the Distributor upon the terms
and conditions set forth in Section 7 hereof ("Selected Dealers").

(c) Each Fund shall have the right to suspend the sale of the Shares at
times when redemption is suspended pursuant to the conditions set forth in
Section 4(f) hereof. Each Fund shall also have the right to suspend the sale of
the Shares if trading on the New York Stock Exchange shall have been suspended,
if a banking moratorium shall have been declared by federal or New York
authorities, or if there shall have been some other extraordinary event which,
in the judgment of a Fund, makes it impracticable to sell its Shares.

(d) Each Fund, or any agent of a Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Shares received by the
Distributor. Any order may be rejected by a Fund; provided, however, that a Fund
will not arbitrarily or without reasonable cause refuse to accept orders for the
purchase of Shares. The Distributor will confirm orders upon their receipt, and
each Fund (or its agent) upon receipt of payment therefor and instructions will
deliver share certificates for such Shares or a statement confirming the
issuance of Shares. Payment shall be made to the Fund in New York Clearing House
funds. The Distributor agrees to cause such payment and such instructions to be
delivered promptly to the Fund (or its agent).

(e) With respect to Shares sold by any Selected Dealer, the Distributor is
authorized to direct each Fund's transfer agent to receive instructions directly
from the Selected Dealer on behalf of the Distributor as to registration of
Shares in the names of investors and to confirm issuance of the Shares to such
investors. The Distributor is also authorized to instruct the transfer agent to
receive payment directly from the Selected Dealer on behalf of the Distributor,
for prompt transmittal to each Fund's custodian, of the purchase price of the
Shares. In such event the Distributor shall obtain from the Selected Dealer and
maintain a record of such registration instructions and payments.

SECTION 4. REPURCHASE OR REDEMPTION OF SHARES.

(a) Any of the outstanding Shares of a Fund may be tendered for redemption
at any time, and each Fund agrees to redeem its Shares so tendered in accordance
with the applicable provisions set forth in its Prospectus. The price to be paid
to redeem the Shares shall be equal to the net asset value determined as set
forth in the Prospectus less any applicable contingent deferred sales charge
("CDSC"). Upon any redemption of Shares the Fund shall pay the total amount of
the redemption price in New York Clearing House funds in accordance with
applicable provisions of the Prospectus.

(b) The redemption by a Fund of any of its Class A Shares purchased by or
through the Distributor will not affect the applicable front-end sales charge
secured by the Distributor or any Selected Dealer in the course of the original
sale, except that if any Class A Shares are tendered for redemption within seven
business days after the date of the confirmation of the original purchase, the
right to the applicable front-end sales charge shall be forfeited by the
Distributor and the Selected Dealer which sold such Shares.

(c) The proceeds of any redemption of Class A, Class B or Class C Shares
shall be paid by each Fund as follows: (i) any applicable CDSC shall be paid to
the Distributor or to the Selected Dealer, or, when applicable, pursuant to the
Rules of the Association of the National Association of Securities Dealers, Inc.
("NASD"), retained by the Fund and (ii) the balance shall be paid to the
redeeming shareholders, in each case in accordance with applicable provisions of
its Prospectus in New York Clearing House funds. The Distributor is authorized
to direct a Fund to pay directly to the Selected Dealer any CDSC payable by a
Fund to the Distributor in respect of Class A, Class B, or Class C Shares sold
by the Selected Dealer to the redeeming shareholders.

(d) The Distributor is authorized, as agent for the Fund, to repurchase
Shares, represented by a share certificate which is delivered to any office of
the Distributor in accordance with applicable provisions set forth in each
Fund's Prospectus. The Distributor shall promptly transmit to the transfer agent
of the Fund for redemption all Shares so delivered. The Distributor shall be
responsible for the accuracy of instructions transmitted to the Fund's transfer
agent in connection with all such repurchases.

2
<PAGE>
(e) The Distributor is authorized, as agent for each Fund, to repurchase
Shares held in a shareholder's account with a Fund for which no share
certificate has been issued, upon the telephonic request of the shareholders, or
at the discretion of the Distributor. The Distributor shall promptly transmit to
the transfer agent of the Fund, for redemption, all such orders for repurchase
of Shares. Payment for Shares repurchased may be made by a Fund to the
Distributor for the account of the shareholder. The Distributor shall be
responsible for the accuracy of instructions transmitted to the Fund's transfer
agent in connection with all such repurchases.

(f) Redemption of its Shares or payment by a Fund may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
restricted, when an emergency exists as a result of which disposal by a Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for a Fund fairly to determine the value of its net assets, or
during any other period when the SEC, by order, so permits.

(g) With respect to its Shares tendered for redemption or repurchase by any
Selected Dealer on behalf of its customers, the Distributor is authorized to
instruct the transfer agent of a Fund to accept orders for redemption or
repurchase directly from the Selected Dealer on behalf of the Distributor and to
instruct the Fund to transmit payments for such redemptions and repurchases
directly to the Selected Dealer on behalf of the Distributor for the account of
the shareholder. The Distributor shall obtain from the Selected Dealer, and
shall maintain, a record of such orders. The Distributor is further authorized
to obtain from the Fund, and shall maintain, a record of payment made directly
to the Selected Dealer on behalf of the Distributor.

SECTION 5. DUTIES OF THE FUND.

(a) Each Fund shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of its Shares, including one
certified copy, upon request by the Distributor, of all financial statements
prepared by the Fund and examined by independent accountants. Each Fund shall,
at the expense of the Distributor, make available to the Distributor such number
of copies of its Prospectus as the Distributor shall reasonably request.

(b) Each Fund shall take, from time to time, but subject to the necessary
approval of its shareholders, all necessary action to fix the number of its
authorized Shares and to register Shares under the 1933 Act, to the end that
there will be available for sale such number of Shares as investors may
reasonably be expected to purchase.

(c) Each Fund shall use its best efforts to pay the filing fees for an
appropriate number of its Shares to be sold under the securities laws of such
states as the Distributor and the Fund may approve. Any qualification to sell
its Shares in a state may be withheld, terminated or withdrawn by a Fund at any
time in its discretion. As provided in Section 8(c) hereof, such filing fees
shall be paid by the Fund. The Distributor shall furnish any information and
other material relating to its affairs and activities as may be required by a
Fund in connection with the sale of its Shares in any state.

(d) Each Fund shall, at the expense of the Distributor, furnish, in
reasonable quantities upon request by the Distributor, copies of its annual and
interim reports.

SECTION 6. DUTIES OF THE DISTRIBUTOR.

(a) The Distributor shall sell shares of each Fund through DWR and may sell
shares through other securities dealers and its own Financial Advisors, and
shall devote reasonable time and effort to promote sales of the Shares, but
shall not be obligated to sell any specific number of Shares. The services of
the Distributor hereunder are not exclusive and it is understood that the
Distributor may act as principal underwriter for other registered investment
companies, so long as the performance of its obligations hereunder is not
impaired thereby. It is also understood that Selected Dealers, including DWR,
may also sell shares for other registered investment companies.

3
<PAGE>
(b) Neither the Distributor nor any Selected Dealer shall give any
information or make any representations, other than those contained in the
Registration Statement or related Prospectus and any sales literature
specifically approved by the appropriate Fund.

(c) The Distributor agrees that it will at all times comply with the
applicable terms and limitations of the Rules of the Association of the NASD.

SECTION 7. SELECTED DEALERS AGREEMENTS.

(a) The Distributor shall have the right to enter into selected dealer
agreements with Selected Dealers for the sale of Shares. In making agreements
with Selected Dealers, the Distributor shall act only as principal and not as
agent for a Fund. Shares sold to Selected Dealers shall be for resale by such
dealers only at the public offering price set forth in the Prospectus. With
respect to Class A Shares, in such agreement the Distributor shall have the
right to fix the portion of the applicable front-end sales charge which may be
allocated to the Selected Dealers.

(b) Within the United States, the Distributor shall offer and sell Shares
only to Selected Dealers that are members in good standing of the NASD.

(c) The Distributor shall adopt and follow procedures, as approved by each
Fund, for the confirmation of sales of its Shares to investors and Selected
Dealers, the collection of amounts payable by investors and Selected Dealers on
such sales, and the cancellation of unsettled transactions, as may be necessary
to comply with the requirements of the NASD, as such requirements may from time
to time exist.

SECTION 8. PAYMENT OF EXPENSES.

(a) Each Fund shall bear all costs and expenses of the Fund, including fees
and disbursements of legal counsel including counsel to the Directors/Trustees
of each Fund who are not interested persons (as defined in the 1940 Act) of the
Fund or the Distributor, and independent accountants, in connection with the
preparation and filing of any required Registration Statements and Prospectuses
and all amendments and supplements thereto, and the expense of preparing,
printing, mailing and otherwise distributing prospectuses and statements of
additional information, annual or interim reports or proxy materials to
shareholders.

(b) The Distributor shall bear all expenses incurred by it in connection
with its duties and activities under this Agreement including the payment to
Selected Dealers of any sales commissions, service fees and other expenses for
sales of a Fund's Shares (except such expenses as are specifically undertaken
herein by a Fund) incurred or paid by Selected Dealers, including DWR. The
Distributor shall bear the costs and expenses of preparing, printing and
distributing any supplementary sales literature used by the Distributor or
furnished by it for use by Selected Dealers in connection with the offering of
the Shares for sale. Any expenses of advertising incurred in connection with
such offering will also be the obligation of the Distributor. It is understood
and agreed that, so long as a Fund's Plan of Distribution pursuant to Rule 12b-1
under the 1940 Act ("Rule 12b-1 Plan") continues in effect, any expenses
incurred by the Distributor hereunder may be paid in accordance with the terms
of such Rule 12b-1 Plan.

(c) Each Fund shall pay the filing fees, and, if necessary or advisable in
connection therewith, bear the cost and expense of qualifying each Fund as a
broker or dealer, in such states of the United States or other jurisdictions as
shall be selected by the Fund and the Distributor pursuant to Section 5(c)
hereof and the cost and expenses payable to each such state for continuing to
offer Shares therein until the Fund decides to discontinue selling Shares
pursuant to Section 5(c) hereof.

SECTION 9. INDEMNIFICATION.

(a) Each Fund shall indemnify and hold harmless the Distributor and each
person, if any, who controls the Distributor against any loss, liability, claim,
damage or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith) arising by reason of any person acquiring
any Shares, which may be based upon the 1933 Act, or on any other statute or at
common law, on the ground that the Registration Statement or related Prospectus
and Statement of Additional Information, as from time to time amended

4
<PAGE>
and supplemented, or the annual or interim reports to shareholders of a Fund,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, unless such statement or omission was made in reliance
upon, and in conformity with, information furnished to the Fund in connection
therewith by or on behalf of the Distributor; provided, however, that in no case
(i) is the indemnity of a Fund in favor of the Distributor and any such
controlling persons to be deemed to protect the Distributor or any such
controlling persons thereof against any liability to a Fund or its security
holders to which the Distributor or any such controlling persons would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of its duties or by reason of reckless disregard of its
obligations and duties under this Agreement; or (ii) is a Fund to be liable
under its indemnity agreement contained in this paragraph with respect to any
claim made against the Distributor or any such controlling persons, unless the
Distributor or any such controlling persons, as the case may be, shall have
notified the Fund in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall have
been served upon the Distributor or uch controlling persons (or after the
Distributor or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund of any such
claim shall not relieve it from any liability which it may have to the person
against whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. Each Fund will be entitled to participate
at its own expense in the defense, or, if it so elects, to assume the defense,
of any such suit brought to enforce any such liability, but if a Fund elects to
assume the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or persons, defendant
or defendants in the suit. In the event the Fund elects to assume the defense of
any such suit and retain such counsel, the Distributor or such controlling
person or persons, defendant or defendants in the suit, shall bear the fees and
expenses of any additional counsel retained by them, but, in case the Fund does
not elect to assume the defense of any such suit, it will reimburse the
Distributor or such controlling person or persons, defendant or defendants in
the suit, for the reasonable fees and expenses of any counsel retained by them.
Each Fund shall promptly notify the Distributor of the commencement of any
litigation or proceedings against it or any of its officers or
Directors/Trustees in connection with the issuance or sale of the Shares.

(b) (i) The Distributor shall indemnify and hold harmless each Fund and each
of its Directors/ Trustees and officers and each person, if any, who controls
the Fund against any loss, liability, claim, damage, or expense described in the
indemnity contained in subsection (a) of this Section, but only with respect to
statements or omissions made in reliance upon, and in conformity with,
information furnished to a Fund in writing by or on behalf of the Distributor
for use in connection with the Registration Statement or related Prospectus and
Statement of Additional Information, as from time to time amended, or the annual
or interim reports to shareholders.

(ii) The Distributor shall indemnify and hold harmless each Fund and
each Fund's transfer agent, individually and in its capacity as the Fund's
transfer agent, from and against any claims, damages and liabilities which arise
as a result of actions taken pursuant to instructions from, or on behalf of, the
Distributor to: (1) redeem all or a part of shareholder accounts in the Fund
pursuant to Section 4(g) hereof and pay the proceeds to, or as directed by, the
Distributor for the account of each shareholder whose Shares are so redeemed;
and (2) register Shares in the names of investors, confirm the issuance thereof
and receive payment therefor pursuant to Section 3(e) hereof.

(iii) In case any action shall be brought against a Fund or any person
so indemnified by this Section 9(b) in respect of which indemnity may be sought
against the Distributor, the Distributor shall have the rights and duties given
to a Fund, and the Fund and each person so indemnified shall have the rights and
duties given to the Distributor, by the provisions of subsection (a) of this
Section 9.

(c) If the indemnification provided for in this Section 9 is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above in respect of any losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to herein, then each indemnifiying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
benefits received by a Fund on the one hand and the Distributor on the other
from the

5
<PAGE>
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law, then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of a Fund on the one hand and the Distributor on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by a Fund on the one hand and the Distributor on the other
shall be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Fund bear to the total
compensation received by the Distributor, in each case as set forth in the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by a Fund or the Distributor and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. Each Fund and the Distributor agree that it would not be
just and equitable ifcontribution were determined by pro rata allocation or by
any other method of allocation which does not take into account the equitable
considerations referred to above. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to above shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such claim. Notwithstanding the
provisions of this subsection (c), the Distributor shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Shares distributed by it to the public were offered to the public exceeds
the amount of any damages which it has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.

SECTION 10. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement
shall remain in force until April 30, 1999, and thereafter, but only so long as
such continuance is specifically approved at least annually by (i) the Board of
Directors/Trustees of each Fund, or by the vote of a majority of the outstanding
voting securities of the Fund, cast in person or by proxy, and (ii) a majority
of those Directors/ Trustees who are not parties to this Agreement or interested
persons of any such party and who have no direct or indirect financial interest
in this Agreement or in the operation of the Fund's Rule 12b-1 Plan or in any
agreement related thereto, cast in person at a meeting called for the purpose of
voting upon such approval.

This Agreement may be terminated at any time without the payment of any
penalty, by the Directors/ Trustees of a Fund, by a majority of the
Directors/Trustees of a Fund who are not interested persons of the Fund and who
have no direct or indirect financial interest in this Agreement, or by vote of a
majority of the outstanding voting securities of a Fund, or by the Distributor,
on sixty days' written notice to the other party. This Agreement shall
automatically terminate in the event of its assignment.

The terms "vote of a majority of the outstanding voting securities,"
"assignment" and "interested person," when used in this Agreement, shall have
the respective meanings specified in the 1940 Act.

SECTION 11. AMENDMENTS OF THIS AGREEMENT. This Agreement may be amended by
the parties only if such amendment is specifically approved by (i) the
Directors/Trustees of a Fund, or by the vote of a majority of outstanding voting
securities of a Fund, and (ii) a majority of those Directors/Trustees of a Fund
who are not parties to this Agreement or interested persons of any such party
and who have no direct or indirect financial interest in this Agreement or in
any Agreement related to the Fund's Rule 12b-1 Plan, cast in person at a meeting
called for the purpose of voting on such approval.

SECTION 12. ADDITIONAL FUNDS. If at any time another Fund desires to
appoint the Distributor as its principal underwriter and distributor under this
Agreement, it shall notify the Distributor in writing. If the Distributor is
willing to serve as the Fund's principal underwriter and distributor under this
Agreement, it shall notify the Fund in writing, whereupon such other Fund shall
become a Fund hereunder.

SECTION 13. GOVERNING LAW. This Agreement shall be construed in accordance
with the law of the State of New York and the applicable provisions of the 1940
Act. To the extent the applicable law of the

6
<PAGE>
State of New York, or any of the provisions herein, conflicts with the
applicable provisions of the 1940 Act, the latter shall control.

SECTION 14. PERSONAL LIABILITY. With respect to any Fund that is organized
as an unincorporated business trust under the laws of the Commonwealth of
Massachusetts, its Declaration of the Trust (each, a "Declaration") is on file
in the office of the Secretary of the Commonwealth of Massachusetts. Each
Declaration provides that the name of the Fund refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or personally; and
no Trustee, shareholder, officer, employee or agent of any Fund shall be held to
any personal liability, nor shall resort be had to their private property for
the satisfaction of any obligation or claim or otherwise, in connection with the
affairs of any Fund, but the Trust Estate only shall be liable.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on June 22, 1998 in New York, New York.

ON BEHALF OF THE FUNDS SET FORTH ON
SCHEDULE A, ATTACHED HERETO

By: ..................................

MORGAN STANLEY DEAN WITTER
DISTRIBUTORS INC.

By: ..................................

7
<PAGE>
MORGAN STANLEY DEAN WITTER FUNDS
DISTRIBUTION AGREEMENT
SCHEDULE A
AT JULY 22, 1998

<TABLE>
<S> <C>
1) Morgan Stanley Dean Witter American Value Fund
2) Morgan Stanley Dean Witter Balanced Growth Fund
3) Morgan Stanley Dean Witter Balanced Income Fund
4) Morgan Stanley Dean Witter California Tax-Free Income Fund
5) Morgan Stanley Dean Witter Capital Appreciation Fund
6) Morgan Stanley Dean Witter Capital Growth Securities
7) Morgan Stanley Dean Witter Competitive Edge Fund
8) Morgan Stanley Dean Witter Convertible Securities Trust
9) Morgan Stanley Dean Witter Developing Growth Securities Trust
10) Morgan Stanley Dean Witter Diversified Income Trust
11) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
12) Morgan Stanley Dean Witter Equity Fund
13) Morgan Stanley Dean Witter European Growth Fund Inc.
14) Morgan Stanley Dean Witter Federal Securities Trust
15) Morgan Stanley Dean Witter Financial Services Trust
16) Morgan Stanley Dean Witter Fund of Funds
17) Dean Witter Global Asset Allocation Fund
18) Morgan Stanley Dean Witter Global Dividend Growth Securities
19) Morgan Stanley Dean Witter Global Utilities Fund
20) Morgan Stanley Dean Witter Growth Fund
21) Morgan Stanley Dean Witter Health Sciences Trust
22) Morgan Stanley Dean Witter High Yield Securities Inc.
23) Morgan Stanley Dean Witter Income Builder Fund
24) Morgan Stanley Dean Witter Information Fund
25) Morgan Stanley Dean Witter Intermediate Income Securities
26) Morgan Stanley Dean Witter International SmallCap Fund
27) Morgan Stanley Dean Witter Japan Fund
28) Morgan Stanley Dean Witter Market Leader Trust
29) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
30) Morgan Stanley Dean Witter Mid-Cap Growth Fund
31) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
32) Morgan Stanley Dean Witter New York Tax-Free Income Fund
33) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
34) Morgan Stanley Dean Witter Precious Metals and Minerals Trust
35) Morgan Stanley Dean Witter Research Fund
36) Morgan Stanley Dean Witter Special Value Fund
37) Morgan Stanley Dean Witter S&P 500 Index Fund
38) Morgan Stanley Dean Witter S&P 500 Select Fund
39) Morgan Stanley Dean Witter Strategist Fund
40) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
41) Morgan Stanley Dean Witter U.S. Government Securities Trust
42) Morgan Stanley Dean Witter Utilities Fund
43) Morgan Stanley Dean Witter Value-Added Market Series
44) Morgan Stanley Dean Witter Value Fund
45) Morgan Stanley Dean Witter Worldwide High Income Fund
46) Morgan Stanley Dean Witter World Wide Income Trust
</TABLE>

<PAGE>

AMENDED AND RESTATED
TRANSFER AGENCY AND SERVICE AGREEMENT

with

MORGAN STANLEY DEAN WITTER TRUST FSB

[open-end funds]
<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Article 1 Terms of Appointment...................................... 1

Article 2 Fees and Expenses......................................... 5

Article 3 Representations and Warranties of MSDW TRUST.............. 6

Article 4 Representations and Warranties of the Fund................ 7

Article 5 Duty of Care and Indemnification.......................... 7

Article 6 Documents and Covenants of the Fund and MSDW TRUST........10

Article 7 Duration and Termination of Agreement.....................13

Article 8 Assignment................................................14

Article 9 Affiliations..............................................14

Article 10 Amendment.................................................15

Article 11 Applicable Law............................................15

Article 12 Miscellaneous.............................................15

Article 13 Merger of Agreement.......................................17

Article 14 Personal Liability........................................17
</TABLE>

-i-
<PAGE>

AMENDED AND RESTATED TRANSFER AGENCY AND SERVICE AGREEMENT

AMENDED AND RESTATED AGREEMENT made as of the 22nd day of June, 1998
by and between each of the Funds listed on the signature pages hereof, each of
such Funds acting severally on its own behalf and not jointly with any of such
other Funds (each such Fund hereinafter referred to as the "Fund"), each such
Fund having its principal office and place of business at Two World Trade
Center, New York, New York, 10048, and MORGAN STANLEY DEAN WITTER TRUST FSB
("MSDW TRUST"), a federally chartered savings bank, having its principal office
and place of business at Harborside Financial Center, Plaza Two, Jersey City,
New Jersey 07311.

WHEREAS, the Fund desires to appoint MSDW TRUST as its transfer agent,
dividend disbursing agent and shareholder servicing agent and MSDW TRUST desires
to accept such appointment;

NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:

Article 1 TERMS OF APPOINTMENT; DUTIES OF MSDW TRUST

1.1 Subject to the terms and conditions set forth in this
Agreement, the Fund hereby employs and appoints MSDW TRUST to act as, and MSDW
TRUST agrees to act as, the transfer agent for each series and class of shares
of the Fund, whether now or hereafter authorized or issued ("Shares"), dividend
disbursing agent and shareholder servicing agent in

-1-
<PAGE>

connection with any accumulation, open-account or similar plans provided to
the holders of such Shares ("Shareholders") and set out in the currently
effective prospectus and statement of additional information ("prospectus")
of the Fund, including without limitation any periodic investment plan or
periodic withdrawal program.

1.2 MSDW TRUST agrees that it will perform the following
services:

(a) In accordance with procedures established from time to
time by agreement between the Fund and MSDW TRUST, MSDW TRUST shall:

(i) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation therefor to the
custodian of the assets of the Fund (the "Custodian");

(ii) Pursuant to purchase orders, issue the appropriate number
of Shares and issue certificates therefor or hold such Shares in book form in
the appropriate Shareholder account;

(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation therefor to the Custodian;

(iv) At the appropriate time as and when it receives monies
paid to it by the Custodian with respect to any redemption, pay over or cause to
be paid over in the appropriate manner such monies as instructed by the
redeeming Shareholders;

-2-
<PAGE>

(v) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;

(vi) Prepare and transmit payments for dividends and
distributions declared by the Fund;

(vii) Calculate any sales charges payable by a Shareholder on
purchases and/or redemptions of Shares of the Fund as such charges may be
reflected in the prospectus;

(viii) Maintain records of account for and advise the Fund and
its Shareholders as to the foregoing; and

(ix) Record the issuance of Shares of the Fund and maintain
pursuant to Rule 17Ad-10(e) under the Securities Exchange Act of 1934 ("1934
Act") a record of the total number of Shares of the Fund which are authorized,
based upon data provided to it by the Fund, and issued and outstanding. MSDW
TRUST shall also provide to the Fund on a regular basis the total number of
Shares that are authorized, issued and outstanding and shall notify the Fund in
case any proposed issue of Shares by the Fund would result in an overissue. In
case any issue of Shares would result in an overissue, MSDW TRUST shall refuse
to issue such Shares and shall not countersign and issue any certificates
requested for such Shares. When recording the issuance of Shares, MSDW TRUST
shall have no obligation to take cognizance of any Blue Sky laws relating to the
issue of sale of such Shares, which functions shall be the sole responsibility
of the Fund.

(b) In addition to and not in lieu of the services set forth
in the above paragraph (a), MSDW TRUST shall:

-3-
<PAGE>

(i) perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, shareholder servicing agent in
connection with dividend reinvestment, accumulation, open-account or similar
plans (including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to, maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing shareholder reports and prospectuses to current
Shareholders, withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing appropriate forms required with respect to
dividends and distributions by federal tax authorities for all Shareholders,
preparing and mailing confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and mailing activity statements
for Shareholders and providing Shareholder account information;

(ii) open any and all bank accounts which may be necessary or
appropriate in order to provide the foregoing services; and

(iii) provide a system that will enable the Fund to monitor the
total number of Shares sold in each State or other jurisdiction.

(i) identify to MSDW TRUST in writing those transactions and
assets to be treated as exempt from Blue Sky reporting for each State; and

-4-
<PAGE>

(ii) verify the inclusion on the system prior to activation of
each State in which Fund shares may be sold and thereafter monitor the daily
purchases and sales for shareholders in each State. The responsibility of MSDW
TRUST for the Fund's status under the securities laws of any State or other
jurisdiction is limited to the inclusion on the system of each State as to which
the Fund has informed MSDW TRUST that shares may be sold in compliance with
state securities laws and the reporting of purchases and sales in each such
State to the Fund as provided above and as agreed from time to time by the Fund
and MSDW TRUST.

(d) MSDW TRUST shall provide such additional services and
functions not specifically described herein as may be mutually agreed between
MSDW TRUST and the Fund. Procedures applicable to such services may be
established from time to time by agreement between the Fund and MSDW TRUST.

Article 2 FEES AND EXPENSES

2.1 For performance by MSDW TRUST pursuant to this
Agreement, each Fund agrees to pay MSDW TRUST an annual maintenance fee for
each Shareholder account and certain transactional fees, if applicable, as
set out in the respective fee schedule attached hereto as Schedule A. Such
fees and out-of-pocket expenses and advances identified under Section 2.2
below may be changed from time to time subject to mutual written agreement
between the Fund and MSDW TRUST.

2.2 In addition to the fees paid under Section 2.1 above, the
Fund agrees to reimburse MSDW TRUST for out of pocket expenses in connection
with the services rendered

-5-
<PAGE>

by MSDW TRUST hereunder. In addition, any other expenses incurred by MSDW
TRUST at the request or with the consent of the Fund will be reimbursed by
the Fund.

2.3 The Fund agrees to pay all fees and reimbursable expenses
within a reasonable period of time following the mailing of the respective
billing notice. Postage for mailing of dividends, proxies, Fund reports and
other mailings to all Shareholder accounts shall be advanced to MSDW TRUST by
the Fund upon request prior to the mailing date of such materials.

Article 3 REPRESENTATIONS AND WARRANTIES OF MSDW TRUST

MSDW TRUST represents and warrants to the Fund that:

3.1 It is a federally chartered savings bank whose principal
office is in New Jersey.

3.2 It is and will remain registered with the U.S. Securities
and Exchange Commission ("SEC") as a Transfer Agent pursuant to the requirements
of Section 17A of the 1934 Act.

3.3 It is empowered under applicable laws and by its charter
and By-Laws to enter into and perform this Agreement.

3.4 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.

3.5 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.

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<PAGE>

Article 4 REPRESENTATIONS AND WARRANTIES OF THE FUND

The Fund represents and warrants to MSDW TRUST that:

4.1 It is a corporation duly organized and existing and in
good standing under the laws of Delaware or Maryland or a trust duly organized
and existing and in good standing under the laws of Massachusetts, as the case
may be.

4.2 It is empowered under applicable laws and by its
Articles of Incorporation or Declaration of Trust, as the case may be, and
under its By-Laws to enter into and perform this Agreement.

4.3 All corporate proceedings necessary to authorize it to
enter into and perform this Agreement have been taken.

4.4 It is an investment company registered with the SEC under
the Investment Company Act of 1940, as amended (the "1940 Act").

4.5 A registration statement under the Securities Act of 1933
(the "1933 Act") is currently effective and will remain effective, and
appropriate state securities law filings have been made and will continue to be
made, with respect to all Shares of the Fund being offered for sale.

Article 5 DUTY OF CARE AND INDEMNIFICATION

5.1 MSDW TRUST shall not be responsible for, and the Fund
shall indemnify and hold MSDW TRUST harmless from and against, any and all
losses, damages, costs,

-7-
<PAGE>

charges, counsel fees, payments, expenses and liability
arising out of or attributable to:

(a) All actions of MSDW TRUST or its agents or subcontractors
required to be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.

(b) The Fund's refusal or failure to comply with the terms of
this Agreement, or which arise out of the Fund's lack of good faith, negligence
or willful misconduct or which arise out of breach of any representation or
warranty of the Fund hereunder.

(c) The reliance on or use by MSDW TRUST or its agents or
subcontractors of information, records and documents which (i) are received by
MSDW TRUST or its agents or subcontractors and furnished to it by or on behalf
of the Fund, and (ii) have been prepared and/or maintained by the Fund or any
other person or firm on behalf of the Fund.

(d) The reliance on, or the carrying out by MSDW TRUST or its
agents or subcontractors of, any instructions or requests of the Fund.

(e) The offer or sale of Shares in violation of any
requirement under the federal securities laws or regulations or the securities
or Blue Sky laws of any State or other jurisdiction that notice of offering of
such Shares in such State or other jurisdiction or in violation of any stop
order or other determination or ruling by any federal agency or any State or
other jurisdiction with respect to the offer or sale of such Shares in such
State or other jurisdiction.

-8-
<PAGE>

5.2 MSDW TRUST shall indemnify and hold the Fund harmless from
or against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to any action or failure
or omission to act by MSDW TRUST as a result of the lack of good faith,
negligence or willful misconduct of MSDW TRUST, its officers, employees or
agents.

5.3 At any time, MSDW TRUST may apply to any officer of the
Fund for instructions, and may consult with legal counsel to the Fund, with
respect to any matter arising in connection with the services to be performed
by MSDW TRUST under this Agreement, and MSDW TRUST and its agents or
subcontractors shall not be liable and shall be indemnified by the Fund for
any action taken or omitted by it in reliance upon such instructions or upon
the opinion of such counsel. MSDW TRUST, its agents and subcontractors shall
be protected and indemnified in acting upon any paper or document furnished
by or on behalf of the Fund, reasonably believed to be genuine and to have
been signed by the proper person or persons, or upon any instruction,
information, data, records or documents provided to MSDW TRUST or its agents
or subcontractors by machine readable input, telex, CRT data entry or other
similar means authorized by the Fund, and shall not be held to have notice of
any change of authority of any person, until receipt of written notice
thereof from the Fund. MSDW TRUST, its agents and subcontractors shall also
be protected and indemnified in recognizing stock certificates which are
reasonably believed to bear the proper manual or facsimile signature of the
officers of the Fund, and the proper countersignature of any former transfer
agent or registrar, or of a co-transfer agent or co-registrar.

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<PAGE>

5.4 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to perform or
otherwise from such causes.

5.5 Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of this Agreement or
for any act or failure to act hereunder.

5.6 In order that the indemnification provisions contained in
this Article 5 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.

Article 6 DOCUMENTS AND COVENANTS OF THE FUND AND MSDW TRUST

6.1 The Fund shall promptly furnish to MSDW TRUST the
following, unless previously furnished to Dean Witter Trust Company, the prior
transfer agent of the Fund:

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<PAGE>

(a) If a corporation:

(i) A certified copy of the resolution of the Board of
Directors of the Fund authorizing the appointment of MSDW TRUST and the
execution and delivery of this Agreement;

(ii) A certified copy of the Articles of Incorporation and
By-Laws of the Fund and all amendments thereto;

(iii) Certified copies of each vote of the Board of Directors
designating persons authorized to give instructions on behalf of the Fund and
signature cards bearing the signature of any officer of the Fund or any other
person authorized to sign written instructions on behalf of the Fund;

(iv) A specimen of the certificate for Shares of the Fund in
the form approved by the Board of Directors, with a certificate of the Secretary
of the Fund as to such approval;

(b) If a business trust:

(i) A certified copy of the resolution of the Board of
Trustees of the Fund authorizing the appointment of MSDW TRUST and the execution
and delivery of this Agreement;

(ii) A certified copy of the Declaration of Trust and By-Laws
of the Fund and all amendments thereto;

-11-
<PAGE>
(iii) Certified copies of each vote of the Board of Trustees
designating persons authorized to give instructions on behalf of the Fund and
signature cards bearing the signature of any officer of the Fund or any other
person authorized to sign written instructions on behalf of the Fund;

(iv) A specimen of the certificate for Shares of the Fund in
the form approved by the Board of Trustees, with a certificate of the Secretary
of the Fund as to such approval;

(c) The current registration statements and any amendments and
supplements thereto filed with the SEC pursuant to the requirements of the 1933
Act or the 1940 Act;

(d) All account application forms or other documents relating
to Shareholder accounts and/or relating to any plan, program or service offered
or to be offered by the Fund; and

(e) Such other certificates, documents or opinions as MSDW
TRUST deems to be appropriate or necessary for the proper performance of its
duties.

6.2 MSDW TRUST hereby agrees to establish and maintain
facilities and procedures reasonably acceptable to the Fund for safekeeping of
Share certificates, check forms and facsimile signature imprinting devices, if
any; and for the preparation or use, and for keeping account of, such
certificates, forms and devices.

-12-
<PAGE>

6.3 MSDW TRUST shall prepare and keep records relating to the
services to be performed hereunder, in the form and manner as it may deem
advisable and as required by applicable laws and regulations. To the extent
required by Section 31 of the 1940 Act, and the rules and regulations
thereunder, MSDW TRUST agrees that all such records prepared or maintained by
MSDW TRUST relating to the services performed by MSDW TRUST hereunder are the
property of the Fund and will be preserved, maintained and made available in
accordance with such Section 31 of the 1940 Act, and the rules and regulations
thereunder, and will be surrendered promptly to the Fund on and in accordance
with its request.

6.4 MSDW TRUST and the Fund agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential and shall not be voluntarily disclosed to
any other person except as may be required by law or with the prior consent of
MSDW TRUST and the Fund.

6.5 In case of any request or demands for the inspection of
the Shareholder records of the Fund, MSDW TRUST will endeavor to notify the Fund
and to secure instructions from an authorized officer of the Fund as to such
inspection. MSDW TRUST reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.

Article 7 DURATION AND TERMINATION OF AGREEMENT

7.1 This Agreement shall remain in full force and effect until
August 1,

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<PAGE>

2000 and from year-to-year thereafter unless terminated by either
party as provided in Section 7.2 hereof.

7.2 This Agreement may be terminated by the Fund on 60 days
written notice, and by MSDW TRUST on 90 days written notice, to the other party
without payment of any penalty.

7.3 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and other
materials will be borne by the Fund. Additionally, MSDW TRUST reserves the
right to charge for any other reasonable fees and expenses associated with
such termination.

Article 8 ASSIGNMENT

8.1 Except as provided in Section 8.3 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.

8.2 This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and assigns.

8.3 MSDW TRUST may, in its sole discretion and without further
consent by the Fund, subcontract, in whole or in part, for the performance of
its obligations and duties hereunder with any person or entity including but not
limited to companies which are affiliated with MSDW TRUST; PROVIDED, HOWEVER,
that such person or entity has and maintains the qualifications, if any,
required to perform such obligations and duties, and that MSDW TRUST

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<PAGE>

shall be as fully responsible to the Fund for the acts and omissions of any
agent or subcontractor as it is for its own acts or omissions under this
Agreement.

Article 9 AFFILIATIONS

9.1 MSDW TRUST may now or hereafter, without the consent of or
notice to the Fund, function as transfer agent and/or shareholder servicing
agent for any other investment company registered with the SEC under the 1940
Act and for any other issuer, including without limitation any investment
company whose adviser, administrator, sponsor or principal underwriter is or may
become affiliated with Morgan Stanley Dean Witter & Co. or any of its direct or
indirect subsidiaries or affiliates.

9.2 It is understood and agreed that the Directors or Trustees
(as the case may be), officers, employees, agents and shareholders of the Fund,
and the directors, officers, employees, agents and shareholders of the Fund's
investment adviser and/or distributor, are or may be interested in MSDW TRUST as
directors, officers, employees, agents and shareholders or otherwise, and that
the directors, officers, employees, agents and shareholders of MSDW TRUST may be
interested in the Fund as Directors or Trustees (as the case may be), officers,
employees, agents and shareholders or otherwise, or in the investment adviser
and/or distributor as directors, officers, employees, agents, shareholders or
otherwise.

Article 10 AMENDMENT

10.1 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Board of Directors or the Board of Trustees (as the case may be) of the
Fund.

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<PAGE>

Article 11 APPLICABLE LAW

11.1 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of the State of New
York.

Article 12 MISCELLANEOUS

12.1 In the event that one or more additional investment
companies managed or administered by Morgan Stanley Dean Witter Advisors Inc. or
any of its affiliates ("Additional Funds") desires to retain MSDW TRUST to act
as transfer agent, dividend disbursing agent and/or shareholder servicing agent,
and MSDW TRUST desires to render such services, such services shall be provided
pursuant to a letter agreement, substantially in the form of Exhibit A hereto,
between MSDW TRUST and each Additional Fund.

12.2 In the event of an alleged loss or destruction of any
Share certificate, no new certificate shall be issued in lieu thereof, unless
there shall first be furnished to MSDW TRUST an affidavit of loss or non-receipt
by the holder of Shares with respect to which a certificate has been lost or
destroyed, supported by an appropriate bond satisfactory to MSDW TRUST and the
Fund issued by a surety company satisfactory to MSDW TRUST, except that MSDW
TRUST may accept an affidavit of loss and indemnity agreement executed by the
registered holder (or legal representative) without surety in such form as MSDW
TRUST deems appropriate indemnifying MSDW TRUST and the Fund for the issuance of
a replacement certificate, in cases where the alleged loss is in the amount of
$1,000 or less.

12.3 In the event that any check or other order for payment of
money on the

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<PAGE>

account of any Shareholder or new investor is returned unpaid for any
reason, MSDW TRUST will (a) give prompt notification to the Fund's distributor
("Distributor") (or to the Fund if the Fund acts as its own distributor) of such
non-payment; and (b) take such other action, including imposition of a
reasonable processing or handling fee, as MSDW TRUST may, in its sole
discretion, deem appropriate or as the Fund and, if applicable, the Distributor
may instruct MSDW TRUST.

12.4 Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or to MSDW TRUST shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.

To the Fund:

[Name of Fund]
Two World Trade Center
New York, New York 10048

Attention: General Counsel

To MSDW TRUST:

Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311

Attention: President

Article 13 MERGER OF AGREEMENT

13.1 This Agreement constitutes the entire agreement between
the parties hereto and supersedes any prior agreement with respect to the
subject matter hereof whether oral or written.

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<PAGE>

Article 14 PERSONAL LIABILITY

14.1 In the case of a Fund organized as a Massachusetts
business trust, a copy of the Declaration of Trust of the Fund is on file
with the Secretary of The Commonwealth of Massachusetts, and notice is hereby
given that this instrument is executed on behalf of the Board of Trustees of
the Fund as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of the Fund;
provided, however, that the Declaration of Trust of the Fund provides that
the assets of a particular Series of the Fund shall under no circumstances be
charged with liabilities attributable to any other Series of the Fund and
that all persons extending credit to, or contracting with or having any claim
against, a particular Series of the Fund shall look only to the assets of
that particular Series for payment of such credit, contract or claim.

IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Agreement to be executed in their names and on their behalf by and
through their duly authorized officers, as of the day and year first above
written.

MORGAN STANLEY DEAN WITTER FUNDS

MONEY MARKET FUNDS

1. Morgan Stanley Dean Witter Liquid Asset Fund Inc.
2. Active Assets Money Trust
3. Morgan Stanley Dean Witter U.S. Government Money Market Trust
4. Active Assets Government Securities Trust
5. Morgan Stanley Dean Witter Tax-Free Daily Income Trust
6. Active Assets Tax-Free Trust
7. Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
8. Morgan Stanley Dean Witter New York Municipal Money Market Trust
9. Active Assets California Tax-Free Trust

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<PAGE>

EQUITY FUNDS

10. Morgan Stanley Dean Witter American Value Fund
11. Morgan Stanley Dean Witter Mid-Cap Growth Fund
12. Morgan Stanley Dean Witter Dividend Growth Securities Inc.
13. Morgan Stanley Dean Witter Capital Growth Securities
14. Morgan Stanley Dean Witter Global Dividend Growth Securities
15. Morgan Stanley Dean Witter Income Builder Fund
16. Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
17. Morgan Stanley Dean Witter Precious Metals and Minerals Trust
18. Morgan Stanley Dean Witter Developing Growth Securities Trust
19. Morgan Stanley Dean Witter Health Sciences Trust
20. Morgan Stanley Dean Witter Capital Appreciation Fund
21. Morgan Stanley Dean Witter Information Fund
22. Morgan Stanley Dean Witter Value-Added Market Series
23. Morgan Stanley Dean Witter European Growth Fund Inc.
24. Morgan Stanley Dean Witter Pacific Growth Fund Inc.
25. Morgan Stanley Dean Witter International SmallCap Fund
26. Morgan Stanley Dean Witter Japan Fund
27. Morgan Stanley Dean Witter Utilities Fund
28. Morgan Stanley Dean Witter Global Utilities Fund
29. Morgan Stanley Dean Witter Special Value Fund
30. Morgan Stanley Dean Witter Financial Services Trust
31. Morgan Stanley Dean Witter Market Leader Trust
32. Morgan Stanley Dean Witter Fund of Funds
33. Morgan Stanley Dean Witter S&P 500 Index Fund
34. Morgan Stanley Dean Witter Competitive Edge Fund
35. Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
36. Morgan Stanley Dean Witter Equity Fund
37. Morgan Stanley Dean Witter Growth Fund

BALANCED FUNDS

38. Morgan Stanley Dean Witter Balanced Growth Fund
39. Morgan Stanley Dean Witter Balanced Income Trust

ASSET ALLOCATION FUNDS

40. Morgan Stanley Dean Witter Strategist Fund
41. Dean Witter Global Asset Allocation Fund

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<PAGE>

FIXED INCOME FUNDS

42. Morgan Stanley Dean Witter High Yield Securities Inc.
43. Morgan Stanley Dean Witter High Income Securities
44. Morgan Stanley Dean Witter Convertible Securities Trust
45. Morgan Stanley Dean Witter Intermediate Income Securities
46. Morgan Stanley Dean Witter Short-Term Bond Fund
47. Morgan Stanley Dean Witter World Wide Income Trust
48. Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
49. Morgan Stanley Dean Witter Diversified Income Trust
50. Morgan Stanley Dean Witter U.S. Government Securities Trust
51. Morgan Stanley Dean Witter Federal Securities Trust
52. Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
53. Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
54. Morgan Stanley Dean Witter Tax-Exempt Securities Trust
55. Morgan Stanley Dean Witter Limited Term Municipal Trust
56. Morgan Stanley Dean Witter California Tax-Free Income Fund
57. Morgan Stanley Dean Witter New York Tax-Free Income Fund
58. Morgan Stanley Dean Witter Hawaii Municipal Trust
59. Morgan Stanley Dean Witter Multi-State Municipal Series Trust
60. Morgan Stanley Dean Witter Select Municipal Reinvestment Fund

SPECIAL PURPOSE FUNDS

61. Dean Witter Retirement Series
62. Morgan Stanley Dean Witter Variable Investment Series
63. Morgan Stanley Dean Witter Select Dimensions Investment Series

TCW/DW FUNDS

64. TCW/DW North American Government Income Trust
65. TCW/DW Latin American Growth Fund
66. TCW/DW Income and Growth Fund
67. TCW/DW Small Cap Growth Fund
68. TCW/DW Total Return Trust

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<PAGE>

69. TCW/DW Global Telecom Trust
70. TCW/DW Mid-Cap Equity Trust
71. TCW/DW Emerging Markets Opportunities Trust

By:_______________________________
Barry Fink
Vice President and General Counsel

ATTEST:

- ------------------------
Assistant Secretary

MORGAN STANLEY DEAN WITTER TRUST FSB

By:_________________________________
John Van Heuvelen
President

ATTEST:

- ------------------------
Executive Vice President

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<PAGE>
EXHIBIT A

Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, NJ 07311

Gentlemen:

The undersigned, (INSET NAME OF INVESTMENT COMPANY) a (Massachusetts
business trust/Maryland corporation) (the "Fund"), desires to employ and appoint
Morgan Stanley Dean Witter Trust FSB ("MSDW TRUST") to act as transfer agent for
each series and class of shares of the Fund, whether now or hereafter authorized
or issued ("Shares"), dividend disbursing agent and shareholder servicing agent,
registrar and agent in connection with any accumulation, open-account or similar
plan provided to the holders of Shares, including without limitation any
periodic investment plan or periodic withdrawal plan.

The Fund hereby agrees that, in consideration for the payment by the
Fund to MSDW TRUST of fees as set out in the fee schedule attached hereto as
Schedule A, MSDW TRUST shall provide such services to the Fund pursuant to the
terms and conditions set forth in the Transfer Agency and Service Agreement
annexed hereto, as if the Fund was a signatory thereto.

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<PAGE>

Please indicate MSDW TRUST's acceptance of employment and appointment
by the Fund in the capacities set forth above by so indicating in the space
provided below.

Very truly yours,

(NAME OF FUND)

By:__________________________________
Barry Fink
Vice President and General Counsel

ACCEPTED AND AGREED TO:

MORGAN STANLEY DEAN WITTER TRUST FSB

By:_______________________
Its:______________________
Date:_____________________

Secs\Allfnds\MSDWtrans2/6/98

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<PAGE>
SCHEDULE A

Fund: Morgan Stanley Dean Witter Competitive Edge Fund

Fees: (1) Annual Maintenance fee of $12.65 per shareholder account, payable
monthly.

(2) A fee equal to 1/12 of the fee set forth in (1) above, for
providing Forms 1099 for accounts closed during the year, payable following
the end of the calendar year.

(3) Out-of-pocket expenses in accordance with Section 2.2 of the
Agreement

(4) Fees for additional services not set forth in this Agreement
shall be as negotiated between the parties.

\schedA\95

<PAGE>
SERVICES AGREEMENT

AGREEMENT made as of the 17th day of April, 1995, and amended as of June 22,
1998, by and between Morgan Stanley Dean Witter Advisors Inc., a Delaware
corporation (herein referred to as "MSDW Advisors"), and Morgan Stanley Dean
Witter Services Company Inc., a Delaware corporation (herein referred to as
"MSDW Services").

WHEREAS, MSDW Advisors has entered into separate agreements (each such
agreement being herein referred to as an "Investment Management Agreement") with
certain investment companies as set forth on Schedule A (each such investment
company being herein referred to as a "Fund" and, collectively, as the "Funds")
pursuant to which MSDW Advisors is to perform, or supervise the performance of,
among other services, administrative services for the Funds (and, in the case of
Funds with multiple portfolios, the Series or Portfolios of the Funds (such
Series and Portfolio being herein individually referred to as "a Series" and,
collectively, as "the Series"));

WHEREAS, MSDW Advisors desires to retain MSDW Services to perform the
administrative services as described below; and

WHEREAS, MSDW Services desires to be retained by MSDW Advisors to perform
such administrative services:

Now, therefore, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:

1. MSDW Services agrees to provide administrative services to each Fund as
hereinafter set forth. Without limiting the generality of the foregoing, MSDW
Services shall (i) administer the Fund's business affairs and supervise the
overall day-to-day operations of the Fund (other than rendering investment
advice); (ii) provide the Fund with full administrative services, including the
maintenance of certain books and records, such as journals, ledger accounts and
other records required under the Investment Company Act of 1940, as amended (the
"Act"), the notification to the Fund and MSDW Advisors of available funds for
investment, the reconciliation of account information and balances among the
Fund's custodian, transfer agent and dividend disbursing agent and MSDW
Advisors, and the calculation of the net asset value of the Fund's shares; (iii)
provide the Fund with the services of persons competent to perform such
supervisory, administrative and clerical functions as are necessary to provide
effective operation of the Fund; (iv) oversee the performance of administrative
and professional services rendered to the Fund by others, including its
custodian, transfer agent and dividend disbursing agent, as well as accounting,
auditing and other services; (v) provide the Fund with adequate general office
space and facilities; (vi) assist in the preparation and the printing of the
periodic updating of the Fund's registration statement and prospectus (and, in
the case of an open-end Fund, the statement of additional information), tax
returns, proxy statements, and reports to its shareholders and the Securities
and Exchange Commission; and (vii) monitor the compliance of the Fund's
investment policies and restrictions.

In the event that MSDW Advisors enters into an Investment Management
Agreement with another investment company, and wishes to retain MSDW Services to
perform administrative services hereunder, it shall notify MSDW Services in
writing. If MSDW Services is willing to render such services, it shall notify
MSDW Advisors in writing, whereupon such other Fund shall become a Fund as
defined herein.

2. MSDW Services shall, at its own expense, maintain such staff and employ
or retain such personnel and consult with such other persons as it shall from
time to time determine to be necessary or useful to the performance of its
obligations under this Agreement. Without limiting the generality of the
foregoing, the staff and personnel of MSDW Services shall be deemed to include
officers of MSDW Services and persons employed or otherwise retained by MSDW
Services (including officers and employees of MSDW Advisors, with the consent of
MSDW Advisors) to furnish services, statistical and other factual data,
information with respect to technical and scientific developments, and such
other information, advice and assistance as MSDW Services may desire. MSDW
Services shall maintain each Fund's records and books of account

98NYC8262
<PAGE>
(other than those maintained by the Fund's transfer agent, registrar, custodian
and other agencies). All such books and records so maintained shall be the
property of the Fund and, upon request therefor, MSDW Services shall surrender
to MSDW Advisors or to the Fund such of the books and records so requested.

3. MSDW Advisors will, from time to time, furnish or otherwise make
available to MSDW Services such financial reports, proxy statements and other
information relating to the business and affairs of the Fund as MSDW Services
may reasonably require in order to discharge its duties and obligations to the
Fund under this Agreement or to comply with any applicable law and regulation or
request of the Board of Directors/Trustees of the Fund.

4. For the services to be rendered, the facilities furnished, and the
expenses assumed by MSDW Services, MSDW Advisors shall pay to MSDW Services
monthly compensation calculated daily (in the case of an open-end Fund) or
weekly (in the case of a closed-end Fund) by applying the annual rate or rates
set forth on Schedule B to the net assets of each Fund. Except as hereinafter
set forth, (i) in the case of an open-end Fund, compensation under this
Agreement shall be calculated by applying 1/365th of the annual rate or rates to
the Fund's or the Series' daily net assets determined as of the close of
business on that day or the last previous business day and (ii) in the case of a
closed-end Fund, compensation under this Agreement shall be calculated by
applying the annual rate or rates to the Fund's average weekly net assets
determined as of the close of the last business day of each week. If this
Agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that part of the
month this Agreement is in effect shall be prorated in a manner consistent with
the calculation of the fees as set forth on Schedule B. Subject to the
provisions of paragraph 5 hereof, payment of MSDW Services' compensation for the
preceding month shall be made as promptly as possible after completion of the
computations contemplated by paragraph 5 hereof.

5. In the event the operating expenses of any open-end Fund and/or any
Series thereof, or of InterCapital Income Securities Inc., including amounts
payable to MSDW Advisors pursuant to the Investment Management Agreement, for
any fiscal year ending on a date on which this Agreement is in effect, exceed
the expense limitations applicable to the Fund and/or any Series thereof imposed
by state securities laws or regulations thereunder, as such limitations may be
raised or lowered from time to time, or, in the case of InterCapital Income
Securities Inc. or Morgan Stanley Dean Witter Variable Investment Series or any
Series thereof, the expense limitation specified in the Fund's Investment
Management Agreement, the fee payable hereunder shall be reduced on a pro rata
basis in the same proportion as the fee payable by the Fund under the Investment
Management Agreement is reduced.

6. MSDW Services shall bear the cost of rendering the administrative
services to be performed by it under this Agreement, and shall, at its own
expense, pay the compensation of the officers and employees, if any, of the Fund
employed by MSDW Services, and such clerical help and bookkeeping services as
MSDW Services shall reasonably require in performing its duties hereunder.

7. MSDW Services will use its best efforts in the performance of
administrative activitives on behalf of each Fund, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations hereunder, MSDW Services shall not be liable to the Fund or any of
its investors for any error of judgment or mistake of law or for any act or
omission by MSDW Services or for any losses sustained by the Fund or its
investors. It is understood that, subject to the terms and conditions of the
Investment Management Agreement between each Fund and MSDW Advisors, MSDW
Advisors shall retain ultimate responsibility for all services to be performed
hereunder by MSDW Services. MSDW Services shall indemnify MSDW Advisors and hold
it harmless from any liability that MSDW Advisors may incur arising out of any
act or failure to act by MSDW Services in carrying out its responsibilities
hereunder.

8. It is understood that any of the shareholders, Directors/Trustees,
officers and employees of the Fund may be a shareholder, director, officer or
employee of, or be otherwise interested in, MSDW Services, and in any person
controlling, controlled by or under common control with MSDW Services, and that
MSDW Services and any person controlling, controlled by or under common control
with MSDW

2
<PAGE>
Services may have an interest in the Fund. It is also understood that MSDW
Services and any affiliated persons thereof or any persons controlling,
controlled by or under common control with MSDW Services have and may have
advisory, management, administration service or other contracts with other
organizations and persons, and may have other interests and businesses, and
further may purchase, sell or trade any securities or commodities for their own
accounts or for the account of others for whom they may be acting.

9. This Agreement shall continue until April 30, 1999, and thereafter shall
continue automatically for successive periods of one year unless terminated by
either party by written notice delivered to the other party within 30 days of
the expiration of the then-existing period. Notwithstanding the foregoing, this
Agreement may be terminated at any time, by either party on 30 days' written
notice delivered to the other party. In the event that the Investment Management
Agreement between any Fund and MSDW Advisors is terminated, this Agreement will
automatically terminate with respect to such Fund.

10. This Agreement may be amended or modified by the parties in any manner
by written agreement executed by each of the parties hereto.

11. This Agreement may be assigned by either party with the written consent
of the other party.

12. This Agreement shall be construed and interpreted in accordance with the
laws of the State of New York.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as amended, on June 22, 1998 in New York, New York.

<TABLE>
<S> <C>
MORGAN STANLEY DEAN WITTER ADVISORS INC.

By:_____________________________________
Attest:
_____________________________________
MORGAN STANLEY DEAN WITTER SERVICES COMPANY
INC.

By:_____________________________________
Attest:
_____________________________________
</TABLE>

<PAGE>
SCHEDULE A
DEAN WITTER FUNDS
AS AMENDED AS OF JULY 22, 1998
OPEN-END FUNDS

<TABLE>
<C> <S>
1. Active Assets California Tax-Free Trust
2. Active Assets Government Securities Trust
3. Active Assets Money Trust
4. Active Assets Tax-Free Trust
5. Dean Witter Retirement Series
6. Morgan Stanley Dean Witter American Value Fund
7. Morgan Stanley Dean Witter Balanced Growth Fund
8. Morgan Stanley Dean Witter Balanced Income Fund
9. Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
10. Morgan Stanley Dean Witter California Tax-Free Income Fund
11. Morgan Stanley Dean Witter Capital Appreciation Fund
12. Morgan Stanley Dean Witter Capital Growth Securities
13. Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS" Portfolio
14. Morgan Stanley Dean Witter Convertible Securities Trust
15. Morgan Stanley Dean Witter Developing Growth Securities Trust
16. Morgan Stanley Dean Witter Diversified Income Trust
17. Morgan Stanley Dean Witter Dividend Growth Securities Inc.
18. Morgan Stanley Dean Witter Equity Fund
19. Morgan Stanley Dean Witter European Growth Fund Inc.
20. Morgan Stanley Dean Witter Federal Securities Trust
21. Morgan Stanley Dean Witter Financial Services Trust
22. Morgan Stanley Dean Witter Fund of Funds
(i) Domestic Portfolio
(ii) International Portfolio
23. Morgan Stanley Dean Witter Global Dividend Growth Securities
24. Morgan Stanley Dean Witter Global Short-Term Income Fund Inc.
25. Morgan Stanley Dean Witter Global Utilities Fund
26. Morgan Stanley Dean Witter Growth Fund
27. Morgan Stanley Dean Witter Hawaii Municipal Trust
28. Morgan Stanley Dean Witter Health Sciences Trust
29. Morgan Stanley Dean Witter High Yield Securities Inc.
30. Morgan Stanley Dean Witter Income Builder Fund
31. Morgan Stanley Dean Witter Information Fund
32. Morgan Stanley Dean Witter Intermediate Income Securities
33. Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust
34. Morgan Stanley Dean Witter International SmallCap Fund
35. Morgan Stanley Dean Witter Japan Fund
36. Morgan Stanley Dean Witter Limited Term Municipal Trust
37. Morgan Stanley Dean Witter Liquid Asset Fund Inc.
38. Morgan Stanley Dean Witter Market Leader Trust
39. Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
40. Morgan Stanley Dean Witter Mid-Cap Growth Fund
41. Morgan Stanley Dean Witter Multi-State Municipal Series Trust
42. Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
43. Morgan Stanley Dean Witter New York Municipal Money Market Trust
</TABLE>

A-1
<PAGE>
<TABLE>
<C> <S>
44. Morgan Stanley Dean Witter New York Tax-Free Income Fund
45. Morgan Stanley Dean Witter Pacific Growth Fund Inc.
46. Morgan Stanley Dean Witter Precious Metals and Minerals Trust
47. Morgan Stanley Dean Witter Select Dimensions Investment Series
(i) American Value Portfolio
(ii) Balanced Growth Portfolio
(iii) Developing Growth Portfolio
(iv) Diversified Income Portfolio
(v) Dividend Growth Portfolio
(vi) Emerging Markets Portfolio
(vii) Global Equity Portfolio
(viii) Growth Portfolio
(ix) Mid-Cap Growth Portfolio
(x) Money Market Portfolio
(xi) North American Government Securities Portfolio
(xii) Utilities Portfolio
(xiii) Value-Added Market Portfolio
48. Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
49. Morgan Stanley Dean Witter U.S. Government Money Market Trust
50. Morgan Stanley Dean Witter Utilities Fund
51. Morgan Stanley Dean Witter Short-Term Bond Fund
52. Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
53. Morgan Stanley Dean Witter Special Value Fund
54. Morgan Stanley Dean Witter Strategist Fund
55. Morgan Stanley Dean Witter S&P 500 Index Fund
56. Morgan Stanley Dean Witter S&P 500 Select Fund
57. Morgan Stanley Dean Witter Tax-Exempt Securities Trust
58. Morgan Stanley Dean Witter Tax-Free Daily Income Trust
59. Morgan Stanley Dean Witter U.S. Government Securities Trust
60. Morgan Stanley Dean Witter Value-Added Market Series
61. Morgan Stanley Dean Witter Value Fund
62. Morgan Stanley Dean Witter Variable Investment Series
(i) Capital Appreciation Portfolio
(ii) Capital Growth Portfolio
(iii) Competitive Edge "Best Ideas" Portfolio
(iv) Dividend Growth Portfolio
(v) Equity Portfolio
(vi) European Growth Portfolio
(vii) Global Dividend Growth Portfolio
(viii) High Yield Portfolio
(ix) Income Builder Portfolio
(x) Money Market Portfolio
(xi) Quality Income Plus Portfolio
(xii) Pacific Growth Portfolio
(xiii) S&P 500 Index Portfolio
(xiv) Strategist Portfolio
(xv) Utilities Portfolio
63. Morgan Stanley Dean Witter World Wide Income Trust
64. Morgan Stanley Dean Witter Worldwide High Income Fund
65. Dean Witter Global Asset Allocation Fund
</TABLE>

A-2
<PAGE>
<TABLE>
<C> <S>
CLOSED-END FUNDS
66. High Income Advantage Trust
67. High Income Advantage Trust II
68. High Income Advantage Trust III
69. InterCapital Income Securities Inc.
70. Dean Witter Government Income Trust
71. InterCapital Insured Municipal Bond Trust
72. InterCapital Insured Municipal Trust
73. InterCapital Insured Municipal Income Trust
74. InterCapital California Insured Municipal Income Trust
75. InterCapital Insured Municipal Securities
76. InterCapital Insured California Municipal Securities
77. InterCapital Quality Municipal Investment Trust
78. InterCapital Quality Municipal Income Trust
79. InterCapital Quality Municipal Securities
80. InterCapital California Quality Municipal Securities
81. InterCapital New York Quality Municipal Securities
</TABLE>

A-3

<PAGE>
SCHEDULE B

MORGAN STANLEY DEAN WITTER SERVICES COMPANY INC.
SCHEDULE OF ADMINISTRATIVE FEES
AS AMENDED AS OF JUNE 22, 1998

Monthly compensation calculated daily by applying the following annual rates
to a fund's daily net assets:

<TABLE>
<S> <C>
FIXED INCOME FUNDS

Morgan Stanley Dean Witter 0.060% of the daily net assets.
Balanced Income Fund

Morgan Stanley Dean Witter 0.055% of the portion of the daily net assets not
California Tax-Free Income Fund exceeding $500 million; 0.0525% of the portion of the
daily net assets exceeding $500 million but not exceeding
$750 million; 0.050% of the portion of the daily net
assets exceeding $750 million but not exceeding $1
billion; 0.0475% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.25 billion; and
0.045% of the portion of the daily net assets exceeding
$1.25 billion.

Morgan Stanley Dean Witter 0.060% of the portion of the daily net assets not
Convertible Securities Trust exceeding $750 million; 0.055% of the portion of the
daily net assets exceeding $750 million but not exceeding
$1 billion; 0.050% of the portion of the daily net assets
of the exceeding $1 billion but not exceeding $1.5
billion; 0.0475% of the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2 billion;
0.045% of the portion of the daily net assets exceeding
$2 billion but not exceeding $3 billion; and 0.0425% of
the portion of the daily net assets exceeding $3 billion.

Morgan Stanley Dean Witter 0.040% of the daily net assets.
Diversified Income Trust

Morgan Stanley Dean Witter 0.055% of the portion of the daily net assets not
Federal Securities Trust exceeding $1 billion; 0.0525% of the portion of the daily
net assets exceeding $1 billion but not exceeding $1.5
billion; 0.050% of the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2 billion;
0.0475% of the portion of the daily net assets exceeding
$2 billion but not exceeding $2.5 billion; 0.045% of the
portion of the daily net assets exceeding $2.5 billion
but not exceeding $5 billion; 0.0425% of the portion of
the daily net assets exceeding $5 billion but not
exceeding $7.5 billion; 0.040% of the portion of the
daily net assets exceeding $7.5 billion but not exceeding
$10 billion; 0.0375% of the portion of the daily net
assets exceeding $10 billion but not exceeding $12.5
billion; and 0.035% of the portion of the daily net
assets exceeding $12.5 billion.

Morgan Stanley Dean Witter Global 0.055% of the portion of the daily net assets not
Short-Term Income Fund Inc. exceeding $500 million; and 0.050% of the portion of the
daily net assets exceeding $500 million.
</TABLE>

B-1
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Hawaii 0.035% of the daily net assets.
Municipal Trust

Morgan Stanley Dean Witter High 0.050% of the portion of the daily net assets not
Yield Securities Inc. exceeding $500 million; 0.0425% of the portion of the
daily net assets exceeding $500 million but not exceeding
$750 million; 0.0375% of the portion of the daily net
assets exceeding $750 million but not exceeding $1
billion; 0.035% of the portion of the daily net assets
exceeding $1 billion but not exceeding $2 billion;
0.0325% of the portion of the daily net assets exceeding
$2 billion but not exceeding $3 billion; and 0.030% of
the portion of daily net assets exceeding $3 billion.

Morgan Stanley Dean Witter 0.060% of the portion of the daily net assets not
Intermediate Income Securities exceeding $500 million; 0.050% of the portion of the
daily net assets exceeding $500 million but not exceeding
$750 million; 0.040% of the portion of the daily net
assets exceeding $750 million but not exceeding $1
billion; and 0.030% of the portion of the daily net
assets exceeding $1 billion.

Morgan Stanley Dean Witter 0.035% of the daily net assets.
Intermediate Term
U.S. Treasury Trust

Morgan Stanley Dean Witter 0.050% of the daily net assets.
Limited Term Municipal Trust

Morgan Stanley Dean Witter Multi- 0.035% of the daily net assets.
State Municipal Series Trust
(10 Series)

Morgan Stanley Dean Witter New 0.055% of the portion of the daily net assets not
York Tax-Free Income Fund exceeding $500 million; and 0.0525% of the portion of the
daily net assets exceeding $500 million.

Morgan Stanley Dean Witter 0.065% of the daily net assets.
Retirement Series--Intermediate
Income Securities Series
U.S. Government Securities 0.065% of the daily net assets.
Series

Morgan Stanley Dean Witter Select 0.039% of the daily net assets.
Dimensions Investment Series--
North American Government
Securities Portfolio

Morgan Stanley Dean Witter Select 0.050% of the daily net assets.
Municipal Reinvestment Fund

Morgan Stanley Dean Witter Short- 0.070% of the daily net assets.
Term Bond Fund

Morgan Stanley Dean Witter Short- 0.035% of the daily net assets.
Term U.S. Treasury Trust
</TABLE>

B-2
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Tax- 0.050% of the portion of the daily net assets not
Exempt Securities Trust exceeding $500 million; 0.0425% of the portion of the
daily net assets exceeding $500 million but not exceeding
$750 million; 0.0375% of the portion of the daily net
assets exceeding $750 million but not exceeding $1
billion; and 0.035% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.25
billion; .0325% of the portion of the daily net assets
exceeding $1.25 billion.

Morgan Stanley Dean Witter U.S. 0.050% of the portion of the daily net assets not
Government Securities Trust exceeding $1 billion; 0.0475% of the portion of the daily
net assets exceeding $1 billion but not exceeding $1.5
billion; 0.045% of the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2 billion;
0.0425% of the portion of the daily net assets exceeding
$2 billion but not exceeding $2.5 billion; 0.040% of the
portion of the daily net assets exceeding $2.5 billion
but not exceeding $5 billion; 0.0375% of the portion of
the daily net assets exceeding $5 billion but not
exceeding $7.5 billion; 0.035% of the portion of the
daily net assets exceeding $7.5 billion but not exceeding
$10 billion; 0.0325% of the portion of the daily net
assets exceeding $10 billion but not exceeding $12.5
billion; and 0.030% of the portion of the daily net
assets exceeding $12.5 billion.

Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not
Variable Investment exceeding $500 million; and 0.0425% of the daily net
Series--High Yield Portfolio assets exceeding $500 million.
Quality Income Plus Portfolio 0.050% of the portion of the daily the net assets up to
$500 million; and 0.045% of the portion of the daily net
assets exceeds $500 million.

Morgan Stanley Dean Witter World 0.075% of the portion of the daily net assets up to $250
Wide Income Trust million; 0.060% of the portion of the daily net assets
exceeding $250 million but not exceeding $500 million;
0.050% of the portion of the daily net assets of the
exceeding $500 million but not exceeding $750 million;
0.040% of the portion of the daily net assets exceeding
$750 million but not exceeding $1 billion; and 0.030% of
the portion of the daily net assets exceeding $1 billion.

Morgan Stanley Dean Witter 0.060% of the daily net assets.
Worldwide High Income Fund

EQUITY FUNDS

Morgan Stanley Dean Witter 0.0625% of the portion of the daily net assets not
American Value Fund exceeding $250 million; 0.050% of the portion of the
daily net assets exceeding $250 million but not exceeding
$2.25 billion; 0.0475% of the portion of the daily net
assets exceeding $2.25 billion but not exceeding $3.5
billion; 0.0450% of the portion of the daily net assets
exceeding $3.5 billion but not exceeding $4.5 billion;
and 0.0425% of the portion of the daily net assets
exceeding $4.5 billion.
</TABLE>

B-3
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter 0.060% of the daily net assets.
Balanced Growth Fund

Morgan Stanley Dean Witter 0.075% of the portion of the daily net assets not
Capital Appreciation Fund exceeding $500 million; and 0.0725% of the portion of the
daily net assets exceeding $500 million.

Morgan Stanley Dean Witter 0.065% of the portion of the daily net assets not
Capital Growth Securities exceeding $500 million; 0.055% of the portion exceeding
$500 million but not exceeding $1 billion; 0.050% of the
portion of the daily net assets exceeding $1 billion but
not exceeding $1.5 billion; and 0.0475% of the portion of
the daily net assets exceeding $1.5 billion.

Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not
Developing Growth Securities exceeding $500 million; and 0.0475% of the portion of the
Trust daily net assets exceeding $500 million.

Morgan Stanley Dean Witter 0.0625% of the portion of the daily net assets not
Dividend Growth Securities Inc. exceeding $250 million; 0.050% of the portion of the
daily net assets exceeding $250 million but not exceeding
$1 billion; 0.0475% of the portion of the daily net
assets exceeding $1 billion but not exceeding $2 billion;
0.045% of the portion of the daily net assets exceeding
$2 billion but not exceeding $3 billion; 0.0425% of the
portion of the daily net assets exceeding $3 billion but
not exceeding $4 billion; 0.040% of the portion of the
daily net assets exceeding $4 billion but not exceeding
$5 billion; 0.0375% of the portion of the daily net
assets exceeding $5 billion but not exceeding $6 billion;
0.035% of the portion of the daily net assets exceeding
$6 billion but not exceeding $8 billion; 0.0325% of the
portion of the daily net assets exceeding $8 billion but
not exceeding $10 billion; 0.030% of the portion of the
daily net assets exceeding $10 billion but not exceeding
$15 billion; and 0.0275% of the portion of the daily net
assets exceeding $15 billion.

Morgan Stanley Dean Witter 0.060% of the portion of the daily net assets not
European Growth Fund Inc. exceeding $500 million; 0.057% of the portion of the
daily net assets exceeding $500 million but not exceeding
$2 billion; and 0.054% of the portion of the daily net
assets exceeding $2 billion.

Morgan Stanley Dean Witter 0.075% of the daily net assets.
Financial Services Trust

Morgan Stanley Dean Witter Fund
of Funds-
Domestic Portfolio None
International Portfolio None

Dean Witter Global Asset 0.070% of the daily net assets.
Allocation Fund
</TABLE>

B-4
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Global 0.075% of the portion of the daily net assets not
Dividend Growth Securities exceeding $1 billion; 0.0725% of the portion of the daily
net assets exceeding $1 billion but not exceeding $1.5
billion; 0.070% of the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2.5 billion;
0.0675% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3.5 billion; 0.0650% of
the portion of the daily net assets exceeding $3.5
billion but not exceeding $4.5 billion; and 0.0625% of
the portion of the daily net assets exceeding $4.5
billion.

Morgan Stanley Dean Witter Global 0.065% of the portion of the daily net assets not
Utilities Fund exceeding $500 million; and 0.0625% of the portion of the
daily net assets exceeding $500 million.

Morgan Stanley Dean Witter Health 0.100% of the portion of daily net assets not exceeding
Sciences Trust $500 million; and 0.095% of the portion of daily net
assets exceeding $500 million.

Morgan Stanley Dean Witter Income 0.075% of the portion of the net assets not exceeding
Builder Fund $500 million; and 0.0725% of the portion of daily net
assets exceeding $500 million.

Morgan Stanley Dean Witter 0.075% of the portion of the daily net assets not
Information Fund exceeding $500 million; and 0.0725% of the portion of the
daily net assets exceeding $500 million.

Morgan Stanley Dean Witter 0.075% of the daily net assets.
International SmallCap Fund

Morgan Stanley Dean Witter 0.060% of the daily net assets.
Japan Fund

Morgan Stanley Dean Witter Market 0.075% of the daily net assets.
Leader Trust

Morgan Stanley Dean Witter 0.075% of the portion of the daily net assets not
Mid-Cap Growth Fund exceeding $500 million; and 0.0725% of the portion of the
daily net assets exceeding $500 million.

Morgan Stanley Dean Witter 0.0625% of the portion of the daily net assets not
Natural Resource Development exceeding $250 million and 0.050% of the portion of the
Securities Inc. daily net assets exceeding $250 million.

Morgan Stanley Dean Witter 0.060% of the portion of the daily net assets not
Pacific Growth Fund Inc. exceeding $1 billion; 0.057% of the portion of the daily
net assets exceeding $1 billion but not exceeding $2
billion; and 0.054% of the portion of the daily net
assets exceeding $2 billion.

Morgan Stanley Dean Witter 0.080% of the daily net assets.
Precious Metals and
Minerals Trust
</TABLE>

B-5
<PAGE>
<TABLE>
<S> <C>
Dean Witter Retirement Series--
American Value Series 0.085% of the daily net assets.
Capital Growth Series 0.085% of the daily net assets.
Dividend Growth Series 0.075% of the daily net assets.
Global Equity Series 0.10% of the daily net assets.
Strategist Series 0.085% of the daily net assets.
Utilities Series 0.075% of the daily net assets.
Value Added Market Series 0.050% of the daily net assets.

Morgan Stanley Dean Witter Select
Dimensions Investment Series--
American Value Portfolio 0.0625% of the daily net assets.
Balanced Growth Portfolio 0.065% of the daily net assets.
Developing Growth Portfolio 0.050% of the daily net assets.
Diversified Income Portfolio 0.040% of the daily net assets.
Dividend Growth Portfolio 0.0625% of the portion of the daily net assets not
exceeding $500 million; and 0.050% of the portion of the
daily net assets exceeding $500 million.
Emerging Markets Portfolio 0.075% of the daily net assets.
Global Equity Portfolio 0.10% of the daily net assets.
Growth Portfolio 0.048% of the daily net assets.
Mid-Cap Growth Portfolio 0.075% of the daily net assets
Utilities Portfolio 0.065% of the daily net assets.
Value-Added Market Portfolio 0.050% of the daily net assets.

Morgan Stanley Dean Witter 0.075% of the daily net assets.
Special Value Fund

Morgan Stanley Dean Witter 0.060% of the portion of the daily net assets not
Strategist Fund exceeding $500 million; 0.055% of the portion of the
daily net assets exceeding $500 million but not exceeding
$1 billion; 0.050% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5 billion;
0.0475% of the portion of the daily net assets exceeding
$1.5 billion but not exceeding $2.0 billion; and 0.045%
of the portion of the daily net assets exceeding $2.0
billion.

Morgan Stanley Dean Witter 0.040% of the daily net assets.
S&P 500 Index Fund

Morgan Stanley Dean Witter
S&P 500 Select Fund 0.060% of the daily net assets.

Morgan Stanley Dean Witter 0.065% of the portion of the daily net assets not
Utilities Fund exceeding $500 million; 0.055% of the portion of the
daily net assets exceeding $500 million but not exceeding
$1 billion; 0.0525% of the portion of the daily net
assets exceeding $1 billion but not exceeding $1.5
billion; 0.050% of the portion of the daily net assets
exceeding $1.5 billion but not exceeding $2.5 billion;
0.0475% of the portion of the daily net assets exceeding
$2.5 billion but not exceeding $3.5 billion; 0.045% of
the portion of the daily net assets exceeding $3.5 but
not exceeding $5 billion; and 0.0425% of the daily net
assets exceeding $5 billion.

Morgan Stanley Dean 0.10% of the daily net assets.
Witter Value Fund

</TABLE>

B-6
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter Value- 0.050% of the portion of the daily net assets not
Added Market Series exceeding $500 million; 0.45% of the portion of the daily
net assets exceeding $500 million but not exceeding $1
billion; 0.0425% of the portion of the daily net assets
exceeding $1.0 billion but not exceeding $2.0 billion;
and 0.040% of the portion of the daily net assets
exceeding $2 billion.

Morgan Stanley Dean Witter
Variable Investment Series--
Capital Appreciation Portfolio 0.075% of the daily net assets.
Capital Growth Portfolio 0.065% of the daily net assets.
Competitive Edge "Best Ideas" 0.065% of the daily net assets.
Portfolio
Dividend Growth Portfolio 0.0625% of the portion of the daily net assets not
exceeding $500 million; and 0.050% of the portion of the
daily net assets exceeding $500 million but not exceeding
$1 billion; 0.0475% of the portion of the daily net
assets exceeding $1.0 billion but not exceeding $2.0
billion; and 0.045% of the portion of the daily net
assets exceeding $2 billion.
Equity Portfolio 0.050% of the portion of the daily net assets not
exceeding $1 billion; and 0.0475% of the portion of the
daily net assets exceeding $1 billion.
European Growth Portfolio 0.060% of the portion of the daily net assets not
exceeding $500 million; and 0.057% of the portion of the
daily net assets exceeding $500 million.
Income Builder Portfolio 0.075% of the daily net assets.
S&P 500 Index Portfolio 0.040% of the daily net assets.
Strategist Portfolio 0.050% of the daily net assets.
Utilities Portfolio 0.065% of the portion of the daily net assets not
exceeding $500 million and 0.055% of the portion of the
daily net assets exceeding $500 million.

Morgan Stanley Dean Witter 0.065% of the portion of the daily net assets not
Competitive Edge Fund, "BEST exceeding $1.5 billion; and 0.0625% of the portion of the
IDEAS" Portfolio daily net assets exceeding $1.5 billion.

Morgan Stanley Dean Witter 0.051% of the daily net assets.
Equity Fund

Morgan Stanley Dean Witter Growth 0.048% of the portion of daily net assets not exceeding
Fund $750 million; 0.045% of the portion of daily net assets
exceeding $750 million but not exceeding $1.5 billion;
and 0.042% of the portion of daily net assets exceeding
$1.5 billion.

Morgan Stanley Dean Witter 0.075 of the daily net assets.
Mid-Cap Dividend Growth Fund
</TABLE>

B-7
<PAGE>
<TABLE>
<S> <C>
MONEY MARKET FUNDS

Active Assets Trusts: 0.050% of the portion of the daily net assets not
(1) Active Assets Money Trust exceeding $500 million; 0.0425% of the portion of the
(2) Active Assets Tax-Free daily net assets exceeding $500 million but not exceeding
Trust $750 million; 0.0375% of the portion of the daily net
(3) Active Assets California assets exceeding $750 million but not exceeding $1
Tax-Free Trust billion; 0.035% of the portion of the daily net assets
(4) Active Assets Government exceeding $1 billion but not exceeding $1.5 billion;
Securities Trust 0.0325% of the portion of the daily net assets exceeding
$1.5 billion but not exceeding $2 billion; 0.030% of the
portion of the daily net assets exceeding $2 billion but
not exceeding $2.5 billion; 0.0275% of the portion of the
daily net assets exceeding $2.5 billion but not exceeding
$3 billion; and 0.025% of the portion of the daily net
assets exceeding $3 billion.

Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not
California Tax-Free Daily exceeding $500 million; 0.0425% of the portion of the
Income Trust daily net assets exceeding $500 million but not exceeding
$750 million; 0.0375% of the portion of the daily net
assets exceeding $750 million but not exceeding $1
billion; 0.035% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding
$1.5 billion but not exceeding $2 billion; 0.030% of the
portion of the daily net assets exceeding $2 billion but
not exceeding $2.5 billion; 0.0275% of the portion of the
daily net assets exceeding $2.5 billion but not exceeding
$3 billion; and 0.025% of the portion of the daily net
assets exceeding $3 billion.

Morgan Stanley Dean Witter Liquid 0.050% of the portion of the daily net assets not
Asset Fund Inc. exceeding $500 million; 0.0425% of the portion of the
daily net assets exceeding $500 million but not exceeding
$750 million; 0.0375% of the portion of the daily net
assets exceeding $750 million but not exceeding $1
billion; 0.035% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.35 billion;
0.0325% of the portion of the daily net assets exceeding
$1.35 billion but not exceeding $1.75 billion; 0.030% of
the portion of the daily net assets exceeding $1.75
billion but not exceeding $2.15 billion; 0.0275% of the
portion of the daily net assets exceeding $2.15 billion
but not exceeding $2.5 billion; 0.025% of the portion of
the daily net assets exceeding $2.5 billion but not
exceeding $15 billion; 0.0249% of the portion of the
daily net assets exceeding $15 billion but not exceeding
$17.5 billion; and 0.0248% of the portion of the daily
net assets exceeding $17.5 billion.
</TABLE>

B-8
<PAGE>
<TABLE>
<S> <C>
Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not
New York Municipal Money exceeding $500 million; 0.0425% of the portion of the
Market Trust daily net assets exceeding $500 million but not exceeding
$750 million; 0.0375% of the portion of the daily net
assets exceeding $750 million but not exceeding $1
billion; 0.035% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding
$1.5 billion but not exceeding $2 billion; 0.030% of the
portion of the daily net assets exceeding $2 billion but
not exceeding $2.5 billion; 0.0275% of the portion of the
daily net assets exceeding $2.5 billion but not exceeding
$3 billion; and 0.025% of the portion of the daily net
assets exceeding $3 billion.

Dean Witter Retirement Series--
Liquid Asset Series 0.050% of the daily net assets.
U.S. Government Money 0.050% of the daily net assets.
Market Series

Morgan Stanley Dean Witter Select
Dimensions Investment Series--
Money Market Portfolio 0.050% of the daily net assets.

Morgan Stanley Dean Witter 0.050% of the portion of the daily net assets not
Tax-Free Daily Income Trust exceeding $500 million; 0.0425% of the portion of the
daily net assets exceeding $500 million but not exceeding
$750 million; 0.0375% of the portion of the daily net
assets exceeding $750 million but not exceeding $1
billion; 0.035% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding
$1.5 billion but not exceeding $2 billion; 0.030% of the
portion of the daily net assets exceeding $2 billion but
not exceeding $2.5 billion; 0.0275% of the portion of the
daily net assets exceeding $2.5 billion but not exceeding
$3 billion; and 0.025% of the portion of the daily net
assets exceeding $3 billion.

Morgan Stanley Dean Witter U.S. 0.050% of the portion of the daily net assets not
Government Money Market Trust exceeding $500 million; 0.0425% of the portion of the
daily net assets exceeding $500 million but not exceeding
$750 million; 0.0375% of the portion of the daily net
assets exceeding $750 million but not exceeding $1
billion; 0.035% of the portion of the daily net assets
exceeding $1 billion but not exceeding $1.5 billion;
0.0325% of the portion of the daily net assets exceeding
$1.5 billion but not exceeding $2 billion; 0.030% of the
portion of the daily net assets exceeding $2 billion but
not exceeding $2.5 billion; 0.0275% of the portion of the
daily net assets exceeding $2.5 billion but not exceeding
$3 billion; and 0.025% of the portion of the daily net
assets exceeding $3 billion.

Morgan Stanley Dean Witter 0.050% of the daily net assets.
Variable Investment Series--
Money Market Portfolio
</TABLE>

B-9
<PAGE>
Monthly compensation calculated weekly by applying the following annual
rates to a fund's weekly net assets:

<TABLE>
<S> <C>
CLOSED-END FUNDS

Dean Witter Government 0.060% of the average weekly net assets.
Income Trust

High Income Advantage Trust 0.075% of the portion of the average weekly net assets
not exceeding $250 million; 0.060% of the portion of
average weekly net assets exceeding $250 million and not
exceeding $500 million; 0.050% of the portion of average
weekly net assets exceeding $500 million and not
exceeding $750 million; 0.040% of the portion of average
weekly net assets exceeding $750 million and not
exceeding $1 billion; and 0.030% of the portion of
average weekly net assets exceeding $1 billion.

High Income Advantage Trust II 0.075% of the portion of the average weekly net assets
not exceeding $250 million; 0.060% of the portion of
average weekly net assets exceeding $250 million and not
exceeding $500 million; 0.050% of the portion of average
weekly net assets exceeding $500 million and not
exceeding $750 million; 0.040% of the portion of average
weekly net assets exceeding $750 million and not
exceeding $1 billion; and 0.030% of the portion of
average weekly net assets exceeding $1 billion.

High Income Advantage Trust III 0.075% of the portion of the average weekly net assets
not exceeding $250 million; 0.060% of the portion of
average weekly net assets exceeding $250 million and not
exceeding $500 million; 0.050% of the portion of average
weekly net assets exceeding $500 million and not
exceeding $750 million; 0.040% of the portion of the
average weekly net assets exceeding $750 million and not
exceeding $1 billion; and 0.030% of the portion of
average weekly net assets exceeding $1 billion.

InterCapital Income Securities 0.050% of the average weekly net assets.
Inc.

InterCapital Insured Municipal 0.035% of the average weekly net assets.
Bond Trust

InterCapital Insured Municipal 0.035% of the average weekly net assets.
Trust

InterCapital Insured Municipal 0.035% of the average weekly net assets.
Income Trust

InterCapital California Insured 0.035% of the average weekly net assets.
Municipal Income Trust

InterCapital Quality Municipal 0.035% of the average weekly net assets.
Investment Trust

InterCapital New York Quality 0.035% of the average weekly net assets.
Municipal Securities

InterCapital Quality Municipal 0.035% of the average weekly net assets.
Income Trust
</TABLE>

B-10
<PAGE>
<TABLE>
<S> <C>
InterCapital Quality Municipal 0.035% of the average weekly net assets.
Securities

InterCapital California Quality 0.035% of the average weekly net assets.
Municipal Securities

InterCapital Insured Municipal 0.035% of the average weekly net assets.
Securities

InterCapital Insured California 0.035% of the average weekly net assets.
Municipal Securities
</TABLE>

B-11

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 1 to the registration statement on Form N-1A
(the "Registration Statement") of our report dated July 6, 1998, relating to
the financial statements and financial highlights of Morgan Stanley Dean
Witter Competitive Edge Fund-"Best Ideas" Portfolio, which appears in such
Prospectus. We also consent to the reference to us under the heading
"Financial Highlights" in such Prospectus and to the references to us under
the headings "Independent Accountants" and "Experts" in the Statement of
Additional Information which constitutes part of such Registration Statement.

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
July 29, 1998

<PAGE>

SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
MSDW COMPETITIVE EDGE - BEST IDEAS PORTFOLIO (A)

(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)

- -
| ---------------------- |
FORMULA: | | |
| /\ n | ERV |
T = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|

T = AVERAGE ANNUAL COMPOUND RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT

<TABLE>
<CAPTION>
(A)
$1,000 ERV AS OF NUMBER OF AVERAGE ANNUAL CUMULATIVE
INVESTED - P 31-May-98 YEARS - n COMPOUND RETURN - T TOTAL RETURN
- ------------ --------- --------- ------------------- -------------
<S> <C> <C> <C> <C>
25-Feb-98 $982.60 0.26 N/A -1.74%

</TABLE>

(B) AVERAGE ANNUAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)

- -
| ---------------------- |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|

EV
TR = ---------- - 1
P

t = AVERAGE ANNUAL COMPOUND RETURN
(NO DEDUCTION FOR APPLICABLE SALES CHARGE)
n = NUMBER OF YEARS
EV = ENDING VALUE (NO DEDUCTION FOR APPLICABLE SALES CHARGE)
P = INITIAL INVESTMENT
TR = TOTAL RETURN (NO DEDUCTION FOR APPLICABLE SALES CHARGE)

<TABLE>
<CAPTION>
(C) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-May-98 RETURN - TR YEARS - n COMPOUND RETURN - t
- ------------- ---------- ----------- --------- --------------------
<S> <C> <C> <C> <C>
25-Feb-98 $1,037.00 3.70% 0.26 N/A
</TABLE>

(D) GROWTH OF $10,000*
(E) GROWTH OF $50,000*
(F) GROWTH OF $100,000*

FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION
<TABLE>
<CAPTION>
TOTAL (D) GROWTH OF (E) GROWTH OF (F) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT - G $50,000 INVESTMENT-G $100,000 INVESTMENT - G
- ------------ ----------- ---------------------- -------------------- -----------------------
<S> <C> <C> <C> <C>
25-Feb-98 3.70 $9,826 $49,776 $100,589
</TABLE>

*INITIAL INVESTMENT $9,475, $48,000 & 97,000 RESPECTIVELY
REFLECTS A 5.25%, 4% & 3% SALES CHARGE

<PAGE>

SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
MSDW COMPETITIVE EDGE- BEST IDEAS PORTFOLIO (B)

(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)

_ _
| ---------------------- |
FORMULA: | | |
| /\ n | ERV |
T = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|

T = AVERAGE ANNUAL COMPOUND RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT

<TABLE>
<CAPTION>
(A)
$1,000 ERV AS OF NUMBER OF AVERAGE ANNUAL CUMULATIVE
INVESTED - P 31-May-98 YEARS - n COMPOUND RETURN - T TOTAL RETURN
- ------------ --------- --------- ------------------- ------------
<S> <C> <C> <C> <C>
25-Feb-98 $985.00 0.26 N/A -1.50%

</TABLE>

(B) AVERAGE ANNUAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)

_ _
| ---------------------- |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|

EV
TR = ---------- - 1
P

<TABLE>
<CAPTION>
(C) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-May-98 RETURN - TR YEARS - n COMPOUND RETURN - t
- ------------ --------- ----------- --------- --------------------
<S> <C> <C> <C> <C>
25-Feb-98 $1,035.00 3.50% 0.26 N/A
</TABLE>

(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000

FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION

<TABLE>
<CAPTION>
TOTAL (D) GROWTH OF (E) GROWTH OF (F) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT - G $50,000 INVESTMENT-G $100,000 INVESTMENT - G
- ------------ ----------- ---------------------- -------------------- ------------------------
<S> <C> <C> <C> <C>
25-Feb-98 3.50 $10,350 $51,750 $103,500
</TABLE>

<PAGE>

SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
MSDW COMPETITIVE EDGE - BEST IDEAS PORTFOLIO(C)

(A) AVERAGE ANNUAL TOTAL RETURNS (I.E. STANDARDIZED COMPUTATIONS)

_ _
| ---------------------- |
FORMULA: | | |
| /\ n | ERV |
T = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|

T = AVERAGE ANNUAL COMPOUND RETURN
n = NUMBER OF YEARS
ERV = ENDING REDEEMABLE VALUE
P = INITIAL INVESTMENT

<TABLE>
<CAPTION>
(A)
$1,000 ERV AS OF NUMBER OF AVERAGE ANNUAL CUMULATIVE
INVESTED - P 31-May-98 YEARS - n COMPOUND RETURN - T TOTAL RETURN
- ------------ --------- --------- ------------------- ------------
<S> <C> <C> <C> <C>
25-Feb-98 $1,025.00 0.26 N/A 2.50%
</TABLE>

(B) AVERAGE ANNUAL RETURN WITHOUT DEDUCTION FOR APPLICABLE SALES CHARGE
(NON STANDARD COMPUTATIONS)

- -
| ---------------------- |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|

EV
TR = ---------- - 1
P

(C) (B)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-May-98 RETURN - TR YEARS - n COMPOUND RETURN - t
- ------------ --------- ----------- --------- -------------------
<S> <C> <C> <C> <C>
25-Feb-98 $1,035.00 3.50% 0.26 N/A
</TABLE>

(D) GROWTH OF $10,000
(E) GROWTH OF $50,000
(F) GROWTH OF $100,000

FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION

<TABLE>
<CAPTION>
TOTAL (D) GROWTH OF (E) GROWTH OF (F) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT - G $50,000 INVESTMENT-G $100,000 INVESTMENT - G
- ------------ ----------- ---------------------- -------------------- -----------------------
<S> <C> <C> <C> <C>
25-Feb-98 3.50 $10,350 $51,750 $103,500
</TABLE>

<PAGE>

SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
MSDW COMPETITIVE EDGE - BEST IDEAS PORTFOLIO (D)

(A) AVERAGE ANNUAL TOTAL RETURNS (NO LOAD FUND)

(B) TOTAL RETURN (NO LOAD FUND)

- -
| ---------------------- |
FORMULA: | | |
| /\ n | EV |
t = | \ | ------------- | - 1
| \ | P |
| \| |
|_ _|

EV
TR = ---------- - 1
P

t = AVERAGE ANNUAL COMPOUND RETURN
n = NUMBER OF YEARS
EV = ENDING VALUE
P = INITIAL INVESTMENT
TR = TOTAL RETURN

<TABLE>
<CAPTION>
(B) (A)
$1,000 EV AS OF TOTAL NUMBER OF AVERAGE ANNUAL
INVESTED - P 31-May-98 RETURN - TR YEARS - n COMPOUND RETURN - t
- ------------ --------- ----------- --------- -------------------
<S> <C> <C> <C> <C>
25-Feb-98 $1,038.00 3.80% 0.26 NA
</TABLE>

FORMULA: G= (TR+1)*P
G= GROWTH OF INITIAL INVESTMENT
P= INITIAL INVESTMENT
TR= TOTAL RETURN SINCE INCEPTION

<TABLE>
<CAPTION>
$10,000 TOTAL (C) GROWTH OF (D) GROWTH OF (E) GROWTH OF
INVESTED - P RETURN - TR $10,000 INVESTMENT- G $50,000 INVESTMENT- G $100,000 INVESTMENT- G
- ------------ ----------- --------------------- --------------------- -----------------------
<S> <C> <C> <C> <C>
25-Feb-98 3.80 $10,380 $51,900 $103,800
</TABLE>

<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE BEST IDEAS - CLASS A

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 1,957,102,105
<INVESTMENTS-AT-VALUE> 2,010,595,156
<RECEIVABLES> 18,372,145
<ASSETS-OTHER> 519,812
<OTHER-ITEMS-ASSETS> 418,848
<TOTAL-ASSETS> 2,029,905,961
<PAYABLE-FOR-SECURITIES> 14,653,649
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,165,534
<TOTAL-LIABILITIES> 18,819,183
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,965,163,150
<SHARES-COMMON-STOCK> 11,355,995
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 5,900,361
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (13,445,312)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 53,468,579
<NET-ASSETS> 117,750,034
<DIVIDEND-INCOME> 8,858,096
<INTEREST-INCOME> 3,878,286
<OTHER-INCOME> 0
<EXPENSES-NET> 8,337,765
<NET-INVESTMENT-INCOME> 4,398,617
<REALIZED-GAINS-CURRENT> (13,168,378)
<APPREC-INCREASE-CURRENT> 53,468,579
<NET-CHANGE-FROM-OPS> 44,698,818
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,592,880
<NUMBER-OF-SHARES-REDEEMED> (238,135)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,011,036,778
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,943,814
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,337,765
<AVERAGE-NET-ASSETS> 108,947,067
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> .32
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.37
<EXPENSE-RATIO> 1.13
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE BEST IDEAS - CLASS B

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 1,957,102,105
<INVESTMENTS-AT-VALUE> 2,010,595,156
<RECEIVABLES> 18,372,145
<ASSETS-OTHER> 519,812
<OTHER-ITEMS-ASSETS> 418,848
<TOTAL-ASSETS> 2,029,905,961
<PAYABLE-FOR-SECURITIES> 14,653,649
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,165,534
<TOTAL-LIABILITIES> 18,819,183
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,965,163,150
<SHARES-COMMON-STOCK> 165,374,106
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 5,900,361
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (13,445,312)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 53,468,579
<NET-ASSETS> 1,711,433,492
<DIVIDEND-INCOME> 8,858,096
<INTEREST-INCOME> 3,878,286
<OTHER-INCOME> 0
<EXPENSES-NET> 8,337,765
<NET-INVESTMENT-INCOME> 4,398,617
<REALIZED-GAINS-CURRENT> (13,168,378)
<APPREC-INCREASE-CURRENT> 53,468,579
<NET-CHANGE-FROM-OPS> 44,698,818
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 167,749,918
<NUMBER-OF-SHARES-REDEEMED> (2,377,063)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,011,036,778
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,943,814
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,337,765
<AVERAGE-NET-ASSETS> 1,461,650,493
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> .32
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.35
<EXPENSE-RATIO> 1.88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE BEST IDEAS - CLASS C

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 1,957,102,105
<INVESTMENTS-AT-VALUE> 2,010,595,156
<RECEIVABLES> 18,372,145
<ASSETS-OTHER> 519,812
<OTHER-ITEMS-ASSETS> 418,848
<TOTAL-ASSETS> 2,029,905,961
<PAYABLE-FOR-SECURITIES> 14,653,649
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,165,534
<TOTAL-LIABILITIES> 18,819,183
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,965,163,150
<SHARES-COMMON-STOCK> 17,054,669
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 5,900,361
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (13,445,312)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 53,468,579
<NET-ASSETS> 176,496,674
<DIVIDEND-INCOME> 8,858,096
<INTEREST-INCOME> 3,878,286
<OTHER-INCOME> 0
<EXPENSES-NET> 8,337,765
<NET-INVESTMENT-INCOME> 4,398,617
<REALIZED-GAINS-CURRENT> (13,168,378)
<APPREC-INCREASE-CURRENT> 53,468,579
<NET-CHANGE-FROM-OPS> 44,698,818
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,653,992
<NUMBER-OF-SHARES-REDEEMED> (600,572)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,011,036,778
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
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<PAGE>
<ARTICLE> 6
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<NUMBER> 04
<NAME> MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE BEST IDEAS - CLASS D

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<PAGE>
MORGAN STANLEY DEAN WITTER FUNDS
MULTIPLE CLASS PLAN
PURSUANT TO RULE 18f-3

INTRODUCTION

This plan (the "Plan") is adopted pursuant to Rule 18f-3(d) of the
Investment Company Act of 1940, as amended (the "1940 Act"), effective as of
July 28, 1997, and amended as of June 22, 1998. The Plan relates to shares of
the open-end investment companies to which Morgan Stanley Dean Witter Advisors
Inc. acts as investment manager, that are listed on Schedule A, as may be
amended from time to time (each, a "Fund" and collectively, the "Funds"). The
Funds are distributed pursuant to a system (the "Multiple Class System") in
which each class of shares (each, a "Class" and collectively, the "Classes") of
a Fund represents a pro rata interest in the same portfolio of investments of
the Fund and differs only to the extent outlined below.

I. DISTRIBUTION ARRANGEMENTS

One or more Classes of shares of the Funds are offered for purchase by
investors with the sales load structures described below. In addition, pursuant
to Rule 12b-1 under the 1940 Act, the Funds have each adopted a Plan of
Distribution (the "12b-1 Plan") under which shares of certain Classes are
subject to the service and/or distribution fees ("12b-1 fees") described below.

1. CLASS A SHARES

Class A shares are offered with a front-end sales load ("FESL"). The
schedule of sales charges applicable to a Fund and the circumstances under which
the sales charges are subject to reduction are set forth in each Fund's current
prospectus. As stated in each Fund's current prospectus, Class A shares may be
purchased at net asset value (without a FESL): (i) in the case of certain large
purchases of such shares; and (ii) by certain limited categories of investors,
in each case, under the circumstances and conditions set forth in each Fund's
current prospectus. Class A shares purchased at net asset value may be subject
to a contingent deferred sales charge ("CDSC") on redemptions made within one
year of purchase. Further information relating to the CDSC, including the manner
in which it is calculated, is set forth in paragraph 6 below. Class A shares are
also subject to payments under each Fund's 12b-1 Plan to reimburse Morgan
Stanley Dean Witter Distributors Inc., Dean Witter Reynolds Inc. ("DWR"), its
affiliates and other broker-dealers for distribution expenses incurred by them
specifically on behalf of the Class, assessed at an annual rate of up to 0.25%
of average daily net assets. The entire amount of the 12b-1 fee represents a
service fee within the meaning of National Association of Securities Dealers,
Inc. ("NASD") guidelines.

2. CLASS B SHARES

Class B shares are offered without a FESL, but will in most cases be subject
to a six-year declining CDSC which is calculated in the manner set forth in
paragraph 6 below. Class B shares purchased by certain qualified
employer-sponsored benefit plans are subject to a three-year declining CDSC
which is calculated in the manner set forth in paragraph 6 below. The schedule
of CDSC charges applicable to each Fund is set forth in each Fund's current
prospectus. With the exception of certain of the Funds which have a different
formula described below (Morgan Stanley Dean Witter American Value Fund, Morgan
Stanley Dean Witter Natural Resource Development Securities Inc., Morgan Stanley
Dean Witter Strategist Fund and Morgan

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<PAGE>
Stanley Dean Witter Dividend Growth Securities Inc.)(1), Class B shares are also
subject to a fee under each Fund's respective 12b-1 Plan, assessed at the annual
rate of up to 1.0% of either: (a) the lesser of (i) the average daily aggregate
gross sales of the Fund's Class B shares since the inception of the Fund (not
including reinvestment of dividends or capital gains distributions), less the
average daily aggregate net asset value of the Fund's Class B shares redeemed
since the Fund's inception upon which a CDSC has been imposed or waived, or (ii)
the average daily net assets of Class B; or (b) the average daily net assets of
Class B. A portion of the 12b-1 fee equal to up to 0.25% of the Fund's average
daily net assets is characterized as a service fee within the meaning of the
NASD guidelines and the remaining portion of the 12b-1 fee, if any, is
characterized as an asset-based sales charge. Also, Class B shares have a
conversion feature ("Conversion Feature") under which such shares convert to
Class A shares after a certain holding period. Details of the Conversion Feature
are set forth in Section IV below.

3. CLASS C SHARES

Class C shares are offered without imposition of a FESL, but will in most
cases be subject to a CDSC of 1.0% on redemptions made within one year after
purchase. Further information relating to the CDSC is set forth in paragraph 6
below. In addition, Class C shares, under each Fund's 12b-1 Plan, are subject to
12b-1 payments to reimburse Morgan Stanley Dean Witter Distributors Inc., DWR,
its affiliates and other broker-dealers for distribution expenses incurred by
them specifically on behalf of the Class, assessed at the annual rate of up to
1.0% of the average daily net assets of the Class. A portion of the 12b-1 fee
equal to up to 0.25% of the Fund's average daily net assets is characterized as
a service fee within the meaning of NASD guidelines. Unlike Class B shares,
Class C shares do not have the Conversion Feature.

4. CLASS D SHARES

Class D shares are offered without imposition of a FESL, CDSC or a 12b-1 fee
for purchases of Fund shares by (i) investors meeting an initial minimum
investment requirement and (ii) certain other limited categories of investors,
in each case, as may be approved by the Boards of Directors/Trustees of the
Funds and as disclosed in each Fund's current prospectus.

5. ADDITIONAL CLASSES OF SHARES

The Boards of Directors/Trustees of the Funds have the authority to create
additional Classes, or change existing Classes, from time to time, in accordance
with Rule 18f-3 under the 1940 Act.

- ------------

(1)The payments under the 12b-1 Plan for each of Morgan Stanley Dean Witter
American Value Fund, Morgan Stanley Dean Witter Natural Resource Development
Securities Inc. and Morgan Stanley Dean Witter Dividend Growth Securities Inc.
are assessed at the annual rate of 1.0% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's Class B shares since the inception of the
Fund's Plan (not including reinvestment of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
Class B shares redeemed since the Plan's inception upon which a contingent
deferred sales charge has been imposed or waived, or (b) the average daily net
assets of Class B attributable to shares issued, net of related shares redeemed,
since inception of the Plan. The payments under the 12b-1 Plan for the Morgan
Stanley Dean Witter Strategist Fund are assessed at the annual rate of: (i) 1%
of the lesser of (a) the average daily aggregate gross sales of the Fund's Class
B shares since the effectiveness of the first amendment of the Plan on November
8, 1989 (not including reinvestment of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
Class B shares redeemed since the effectiveness of the first amended Plan, upon
which a contingent deferred sales charge has been imposed or waived, or (b) the
average daily net assets of Class B attributable to shares issued, net of
related shares redeemed, since the effectiveness of the first amended Plan; plus
(ii) 0.25% of the average daily net assets of Class B attributable to shares
issued, net of related shares redeemed, prior to effectiveness of the first
amended Plan.

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<PAGE>
6. CALCULATION OF THE CDSC

Any applicable CDSC is calculated based upon the lesser of net asset value
of the shares at the time of purchase or at the time of redemption. The CDSC
does not apply to amounts representing an increase in share value due to capital
appreciation and shares acquired through the reinvestment of dividends or
capital gains distributions. The CDSC schedule applicable to a Fund and the
circumstances in which the CDSC is subject to waiver are set forth in each
Fund's prospectus.

II. EXPENSE ALLOCATIONS

Expenses incurred by a Fund are allocated among the various Classes of
shares pro rata based on the net assets of the Fund attributable to each Class,
except that 12b-1 fees relating to a particular Class are allocated directly to
that Class. In addition, other expenses associated with a particular Class
(except advisory or custodial fees), may be allocated directly to that Class,
provided that such expenses are reasonably identified as specifically
attributable to that Class and the direct allocation to that Class is approved
by the Fund's Board of Directors/Trustees.

III. CLASS DESIGNATION

All shares of the Funds held prior to July 28, 1997 (other than the shares
held by certain employee benefit plans established by DWR and its affiliate, SPS
Transaction Services, Inc., shares of Funds offered with a FESL, and shares of
Morgan Stanley Dean Witter Balanced Growth Fund and Morgan Stanley Dean Witter
Balanced Income Fund) have been designated Class B shares. Shares held prior to
July 28, 1997 by such employee benefit plans have been designated Class D
shares. Shares held prior to July 28, 1997 of Funds offered with a FESL have
been designated Class D shares. In addition, shares of Morgan Stanley Dean
Witter American Value Fund purchased prior to April 30, 1984, shares of Morgan
Stanley Dean Witter Strategist Fund purchased prior to November 8, 1989 and
shares of Morgan Stanley Dean Witter Natural Resource Development Securities
Inc. and Morgan Stanley Dean Witter Dividend Growth Securities Inc. purchased
prior to July 2, 1984 (with respect to such shares of each Fund, including such
proportion of shares acquired through reinvestment of dividends and capital
gains distributions as the total number of shares acquired prior to each of the
preceding dates in this sentence bears to the total number of shares purchased
and owned by the shareholder of that Fund) have been designated Class D shares.
Shares of Morgan Stanley Dean Witter Balanced Growth Fund and Morgan Stanley
Dean Witter Balanced Income Fund held prior to July 28, 1997 have been
designated Class C shares except that shares of Morgan Stanley Dean Witter
Balanced Growth Fund and Morgan Stanley Dean Witter Balanced Income Fund held
prior to July 28, 1997 that were acquired in exchange for shares of an
investment company offered with a CDSC have been designated Class B shares and
those that were acquired in exchange for shares of an investment company offered
with a FESL have been designated Class A shares.

IV. THE CONVERSION FEATURE

Class B shares held before May 1, 1997 will convert to Class A shares in
May, 2007, except that Class B shares which were purchased before July 28, 1997
by trusts for which Morgan Stanley Dean Witter Trust FSB ("MSDW Trust") provides
discretionary trustee services converted to Class A shares on August 29, 1997
(the CDSC was not applicable to such shares upon the conversion). In all other
instances, Class B shares of each Fund will automatically convert 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. Conversions will be effected once a month. The 10
year period will be calculated from the last day of the month in which the
shares were purchased or, in the case of Class B shares acquired through an
exchange or a series of exchanges, from the last day of the month in which the
original Class B shares were purchased, provided that shares originally
purchased before May 1, 1997 will convert to Class A shares in May, 2007. Except
as set forth below, 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 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 401(k) plan or other plan
qualified under Section 401(a) of the Internal Revenue Code (the "Code") and

3
<PAGE>
for which MSDW Trust serves as Trustee or DWR's Retirement Plan Services serves
as recordkeeper pursuant to a written Recordkeeping Services Agreement, all
Class B shares will convert to Class A shares on the conversion date of the
first shares of a Fund purchased by that plan. In the case of Class B shares
previously exchanged for shares of an "Exchange Fund" (as such term is defined
in the prospectus of each Fund), 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 Fund, the
holding period resumes on the last day of the month in which Class B shares are
reacquired.

Effectiveness of the Conversion Feature is subject to the continuing
availability of a ruling of the Internal Revenue Service or an opinion of
counsel to the effect that (i) the conversion of shares does not constitute a
taxable event under the 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 fees under the applicable Fund's 12b-1 Plan.

V. EXCHANGE PRIVILEGES

Shares of each Class may be exchanged for shares of the same Class of the
other Funds and for shares of certain other investment companies without the
imposition of an exchange fee as described in the prospectuses and statements of
additional information of the Funds. The exchange privilege of each Fund may be
terminated or revised at any time by the Fund upon such notice as may be
required by applicable regulatory agencies as described in each Fund's
prospectus.

VI. VOTING

Each Class shall have exclusive voting rights on any matter that relates
solely to its 12b-1 Plan, except that Class B shareholders will have the right
to vote on any proposed material increase in Class A's expenses, including
payments under the Class A 12b-1 Plan, if such proposal is submitted separately
to Class A shareholders. If the amount of expenses, including payments under the
Class A 12b-1 Plan, is increased materially without the approval of Class B
shareholders, the Fund will establish a new Class A for Class B shareholders
whose shares automatically convert on the same terms as applied to Class A
before the increase. In addition, each Class shall have separate voting rights
on any matter submitted to shareholders in which the interests of one Class
differ from the interests of any other Class.

4
<PAGE>
MORGAN STANLEY DEAN WITTER FUNDS
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
SCHEDULE A
AT JULY 22, 1998