<PAGE>
Morgan Stanley Dean Witter Competitive Edge Fund Two World Trade Center,
"Best Ideas" Portfolio New York, New York 10048
Letter to the Shareholders November 30, 1999
DEAR SHAREHOLDER:
During the six-month period ended November 30, 1999, large-capitalization growth
stocks continued to outperform most other asset classes. The combination of low
commodity and food price inflation, high consumer sentiment, accommodative
monetary policies and a powerful corporate profit cycle around the world created
an ideal backdrop for global stock market performance. Other asset classes, such
as bonds and commodity-based investments, marked time but provided little
competition to the returns provided by global equities.
Regionally, Japan's equity market led the way as economic stability and
financial services reforms combined to bolster confidence. The markets of the
Pacific Rim and Latin America also performed well, as did those of the United
Kingdom, continental Europe and the United States.
PERFORMANCE
For the six-month period ended November 30, 1999, Morgan Stanley Dean Witter
Competitive Edge Fund - "Best Ideas" Portfolio's Class A, B, C and D shares
returned 12.73 percent, 12.27 percent, 12.34 percent and 12.79 percent,
respectively. (The performance of the four classes varies because of differing
expenses. Total return figures assume the reinvestment of all distributions and
do not reflect the deduction of any applicable sales charges.) During the same
period, the Morgan Stanley Capital International World Index (MSCI World Index)
returned 11.48 percent, while the Lipper Global Funds Index returned 15.63
percent.
The Fund's large holdings in Japan and continental Europe, as well as the United
States, helped the Fund outpace MSCI World Index, but the Fund's avoidance of
smaller-capitalization markets such as the Pacific Rim and Latin America caused
the Fund to lag its Lipper peer group.
<PAGE>
Morgan Stanley Dean Witter Competitive Edge Fund
"Best Ideas" Portfolio
Letter to the Shareholders November 30, 1999, continued
PORTFOLIO STRATEGY
The Fund invests primarily in stocks compiled by the Morgan Stanley Dean Witter
Equity Research department, which they believe demonstrate a long-term
sustainable competitive advantage versus other players in the global arena. This
compilation of approximately 40 companies is referred to as the Competitive Edge
"Best Ideas" List and is updated continuously. The Fund purchases any security
that is added to the list, and will generally sell a security that is eliminated
from the list as soon as practicable after the list is updated. The Fund's
portfolio manager then translates these ideas into a portfolio of equity
holdings, investing at least 1 percent and not more than 5 percent of the Fund's
assets in each company on the list. The Fund's portfolio is actively managed on
a day-to-day basis.
As of November 30, 1999, approximately 99 percent of the Fund's assets were
invested in 40 equity positions throughout the world. The remaining 1 percent
was held in U.S. commercial paper. Equity holdings in the United States
accounted for nearly 52 percent of the Fund's assets, with the remainder
diversified among 10 other countries. In descending order beginning with the
largest exposure, these were: Japan, the United Kingdom, France, Sweden,
Finland, Switzerland, Mexico, Australia, Germany and the Netherlands.
Among the Fund's largest equity holdings were America Online (Internet
services), Cisco Systems (telecommunications equipment) and EMC Corporation
(data storage) in the United States, Matsushita Electric (electronics) and Tokyo
Electron (semiconductors) in Japan, TOTAL Fina (oil refining/marketing) and Axa
(multiline insurance) in France, British Telecommunications (telecommunications)
and HSBC Holdings PLC (financial services) in the United Kingdom and UPM Kymmene
(paper) in Finland.
LOOKING AHEAD
After a period of strong performance, we anticipate that the year ahead could be
a more volatile and challenging one for the world's equity markets. However, we
believe that despite any short-term uncertainties and volatility the Fund's
assemblage of companies, and their perceived competitive advantage, will
continue to provide an outstanding array of globally diversified opportunities
for a long-term equity investor.
2
<PAGE>
Morgan Stanley Dean Witter Competitive Edge Fund
"Best Ideas" Portfolio
Letter to the Shareholders November 30, 1999, continued
We appreciate your ongoing support of Morgan Stanley Dean Witter Competitive
Edge Fund - "Best Ideas" Portfolio and look forward to serving your investment
needs.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
- ----------------------------- -----------------------------
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
3
<PAGE>
Morgan Stanley Dean Witter Competitive Edge Fund
"Best Ideas" Portfolio
Fund Performance November 30, 1999
Average Annual Total Returns
- --------------------------------------------------------------------------------
Class A Shares*
- --------------------------------------------------------------
Period Ended 11/30/99
- ---------------------
1 Year 21.66%(1) 15.27%(2)
Since Inception (2/25/98) 12.35%(1) 8.96%(2)
Class B Shares**
- --------------------------------------------------------------
Period Ended 11/30/99
- ---------------------
1 Year 20.80%(1) 15.80%(2)
Since Inception (2/25/98) 11.52%(1) 9.41%(2)
Class C Shares+
- --------------------------------------------------------------
Period Ended 11/30/99
- ---------------------
1 Year 21.07%(1) 20.07%(2)
Since Inception (2/25/98) 11.66%(1) 11.66%(2)
Class D Shares++
- --------------------------------------------------------------
Period Ended 11/30/99
- ---------------------
1 Year 21.89%(1)
Since Inception (2/25/98) 12.60%(1)
Past performance is not predictive of future returns
- ---------------
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable sales charge. See the Fund's current prospectus for
complete details on fees and sales charges.
* The maximum front-end sales charge for Class A is 5.25%.
** The maximum contingent deferred sales charge (CDSC) for Class B is 5.00%.
The CDSC declines to 0% after six years.
+ The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of purchase.
++ Class D shares have no sales charge.
4
<PAGE>
Morgan Stanley Dean Witter Competitive Edge Fund
"Best Ideas" Portfolio
Portfolio of Investments November 30, 1999 (unaudited)
NUMBER OF
SHARES VALUE
- ------------ -------------
COMMON AND PREFERRED STOCKS (99.5%)
AUSTRALIA (2.3%)
Media Conglomerates
5,655,800 News Corporation Ltd. (Pref.) ....... $ 43,935,691
-------------
FINLAND (2.6%)
Paper
1,516,500 UPM-Kymmene Oyj ..................... 50,765,687
-------------
FRANCE (7.3%)
Multi-Line Insurance
343,700 AXA ................................. 46,403,408
-------------
Oil Refining/Marketing
396,000 Total S.A. (B Shares) ............... 52,745,786
-------------
Packaged Foods
187,000 Groupe Danone ....................... 43,423,549
-------------
TOTAL FRANCE ........................ 142,572,743
-------------
GERMANY (2.3%)
Motor Vehicles
1,669,200 Bayerische Motoren Werke (BMW)
AG ................................ 44,600,940
-------------
JAPAN (12.7%)
Consumer Electronics/Appliances
280,000 Sony Corp. .......................... 51,882,353
-------------
Diversified Electronic Products
2,189,000 Matsushita Electric Industrial Co.,
Ltd. .............................. 55,476,127
-------------
Electronic Data Processing
1,351,000 Fujitsu Ltd. ........................ 47,947,255
-------------
Electronic Production Equipment
510,000 Tokyo Electron Ltd. ................. 53,000,000
-------------
Specialty Chemicals
967,400 Shin-Etsu Chemical Co., Ltd. ........ 38,221,784
-------------
TOTAL JAPAN ......................... 246,527,519
-------------
MEXICO (2.5%)
Telecommunications
532,750 Telefonos de Mexico S.A.
(Series L) (ADR) .................. 49,312,672
-------------
NETHERLANDS (2.3%)
Alcoholic Beverages
923,500 Heineken NV ......................... 44,695,922
-------------
NUMBER OF
SHARES VALUE
- ------------ -------------
SWEDEN (2.8%)
Life Insurance
2,284,880 Skandia Forsakrings AB .............. $ 54,651,279
-------------
SWITZERLAND (2.6%)
Building Materials
40,000 Holderbank Financiere Glarus AG
(B Shares) ........................ 50,169,918
-------------
UNITED KINGDOM (9.8%)
Alcoholic Beverages
4,584,900 Diageo PLC .......................... 41,615,487
-------------
Diversified Financial Services
3,799,000 HSBC Holdings PLC ................... 50,134,866
-------------
Industrial Machinery/Components
9,816,450 Invensys PLC ........................ 45,805,126
-------------
Telecommunications
2,670,000 British Telecommunications PLC ...... 53,695,916
-------------
TOTAL UNITED KINGDOM ................ 191,251,395
-------------
UNITED STATES (52.3%)
Air Freight/Delivery Services
968,800 FDX Corp.* .......................... 40,871,250
-------------
Beverages - Non-Alcoholic
1,782,300 Coca-Cola Enterprises, Inc. ......... 37,762,481
-------------
<PAGE>
Broadcasting
659,000 Clear Channel Communications, Inc.* . 52,967,125
-------------
Computer Communications
719,200 Cisco Systems, Inc.* ................ 64,098,700
-------------
Computer Software
504,000 Microsoft Corp.* .................... 45,864,000
-------------
Discount Chains
960,000 Wal-Mart Stores, Inc. ............... 55,320,000
-------------
Diversified Financial Services
345,000 American Express Co. ................ 52,202,812
-------------
E.D.P. Peripherals
749,400 EMC Corp.* .......................... 62,621,737
-------------
Electrical Products
730,000 Emerson Electric Co. ................ 41,610,000
-------------
Internet Services
905,000 America Online, Inc.* ............... 65,782,188
-------------
Major Banks
1,200,000 Bank of New York Co., Inc. .......... 47,850,000
-------------
See Notes to Financial Statements
5
<PAGE>
Morgan Stanley Dean Witter Competitive Edge Fund
"Best Ideas" Portfolio
Portfolio of Investments November 30, 1999 (unaudited) continued
NUMBER OF
SHARES VALUE
- ------------ -------------
Major Chemicals
637,700 Du Pont (E.I.) de Nemours & Co.,
Inc. .............................. $ 37,903,294
-------------
Major Pharmaceuticals
920,000 American Home Products Corp. ........ 47,840,000
-------------
Major U.S. Telecommunications
566,000 MCI WorldCom, Inc.* ................. 46,801,125
-------------
Media Conglomerates
658,000 Time Warner Inc. .................... 40,590,375
-------------
Medical Equipment & Supplies
1,242,000 Medtronic, Inc. ..................... 48,282,750
-------------
Multi-Sector Companies
407,000 General Electric Co. ................ 52,910,000
-------------
Oilfield Services/Equipment
1,075,000 Halliburton Co. ..................... 41,589,063
697,600 Schlumberger Ltd. ................... 41,899,600
-------------
83,488,663
-------------
Semiconductors
560,000 Intel Corp. ......................... 42,910,000
-------------
Telecommunications Equipment
700,000 Lucent Technologies Inc. ............ 51,143,750
-------------
TOTAL UNITED STATES ................. 1,018,820,250
-------------
TOTAL COMMON AND
PREFERRED STOCKS
(Identified Cost $1,538,345,649)..... 1,937,304,016
-------------
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ------------ -------------
SHORT-TERM INVESTMENTS (0.6%)
U.S. GOVERNMENT AGENCY (a) (0.6%)
$11,000 Federal National Mortgage Assoc.
5.61% due 12/01/99
(Amortized Cost $11,000,000) .... $ 11,000,000
-------------
REPURCHASE AGREEMENT (0.0%)
719 The Bank of New York 5.375%
due 12/01/99 (dated 11/30/99;
proceeds $719,155) (b)
(Identified Cost $719,048) ...... 719,048
-------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $11,719,048)...... 11,719,048
-------------
TOTAL INVESTMENTS
(Identified Cost $1,550,064,697) (c)..... 100.1 % 1,949,023,064
LIABILITIES IN EXCESS OF OTHER
ASSETS .................................. (0.1) (1,724,939)
----- -------------
NET ASSETS .............................. 100.0 % $1,947,298,125
===== ==============
- --------------------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $3,060,118 U.S. Treasury Note 0.00% due 11/15/21 value
at $732,990.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $445,949,801 and the
aggregate gross unrealized depreciation is $46,991,434, resulting in net
unrealized appreciation of $398,958,367.
See Notes to Financial Statements
6
<PAGE>
Morgan Stanley Dean Witter Competitive Edge Fund
"Best Ideas" Portfolio
Summary of Investments November 30, 1999 (unaudited)
PERCENT OF
INDUSTRY VALUE NET ASSETS
- --------------------------------------------------------------------------------
Air Freight/Delivery Services ........... $ 40,871,250 2.1%
Alcoholic Beverages ..................... 86,311,409 4.4
Beverages - Non-Alcoholic ............... 37,762,481 1.9
Broadcasting ............................ 52,967,125 2.7
Building Materials ...................... 50,169,918 2.6
Computer Communications ................. 64,098,700 3.3
Computer Software ....................... 45,864,000 2.4
Consumer Electronics/Appliances ......... 51,882,353 2.7
Discount Chains ......................... 55,320,000 2.8
Diversified Electronic Products ......... 55,476,127 2.8
Diversified Financial Services .......... 102,337,678 5.3
E.D.P. Peripherals ...................... 62,621,737 3.2
Electrical Products ..................... 41,610,000 2.1
Electronic Data Processing .............. 47,947,255 2.5
Electronic Production Equipment ......... 53,000,000 2.7
Industrial Machinery/Components ......... 45,805,126 2.4
Internet Services ....................... 65,782,188 3.4
Life Insurance .......................... 54,651,279 2.8
Major Banks ............................. 47,850,000 2.5
Major Chemicals ......................... 37,903,294 1.9
Major Pharmaceuticals ................... 47,840,000 2.5
Major U.S. Telecommunications ........... 46,801,125 2.4
Media Conglomerates ..................... 84,526,066 4.3
Medical Equipment & Supplies ............ 48,282,750 2.5
Motor Vehicles .......................... 44,600,940 2.3
Multi-Line Insurance .................... 46,403,408 2.4
Multi-Sector Companies .................. 52,910,000 2.7
Oil Refining/Marketing .................. 52,745,786 2.7
Oilfield Services/Equipment ............. 83,488,663 4.3
Packaged Foods .......................... 43,423,549 2.2
Paper ................................... 50,765,687 2.6
Repurchase Agreement .................... 719,048 0.0
Semiconductors .......................... 42,910,000 2.2
Specialty Chemicals ..................... 38,221,784 2.0
Telecommunications ...................... 103,008,588 5.3
Telecommunications Equipment ............ 51,143,750 2.6
U.S. Government Agency .................. 11,000,000 0.6
-------------- -----
$1,949,023,064 100.1%
============== =====
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- --------------------------------------------------------------------------------
Common Stocks ........................... $1,893,368,325 97.2%
Preferred Stock ......................... 43,935,691 2.3
Short-Term Investments .................. 11,719,048 0.6
-------------- -----
$1,949,023,064 100.1%
============== =====
See Notes to Financial Statements
7
<PAGE>
Morgan Stanley Dean Witter Competitive Edge Fund
"Best Ideas" Portfolio
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1999 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $1,550,064,697) ................ $1,949,023,064
Receivable for:
Shares of beneficial interest sold ............ 1,713,287
Foreign withholding taxes reclaimed ........... 1,337,338
Dividends ..................................... 1,231,818
Deferred organizational expenses ................... 90,997
Prepaid expenses and other assets .................. 112,755
--------------
TOTAL ASSETS ................................... 1,953,509,259
--------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased ..... 3,635,005
Plan of distribution fee ...................... 1,271,511
Investment management fee ..................... 1,106,871
Accrued expenses and other payables ................ 197,747
--------------
TOTAL LIABILITIES .............................. 6,211,134
--------------
NET ASSETS ..................................... $1,947,298,125
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital .................................... $1,598,591,999
Net unrealized appreciation ........................ 398,904,568
Accumulated net investment loss .................... (8,656,703)
Accumulated net realized loss ...................... (41,541,739)
--------------
NET ASSETS ..................................... $1,947,298,125
==============
CLASS A SHARES:
Net Assets ......................................... $95,252,481
Shares Outstanding (unlimited authorized,
$.01 par value) ................................. 7,794,098
NET ASSET VALUE PER SHARE ...................... $12.22
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net
asset value) ............................. $12.90
======
CLASS B SHARES:
Net Assets ......................................... $1,706,348,506
Shares Outstanding (unlimited authorized,
$.01 par value) ................................. 141,274,587
NET ASSET VALUE PER SHARE ...................... $12.08
======
CLASS C SHARES:
Net Assets ......................................... $141,332,575
Shares Outstanding (unlimited authorized,
$.01 par value) ................................. 11,667,746
NET ASSET VALUE PER SHARE ...................... $12.11
======
CLASS D SHARES:
Net Assets ......................................... $4,364,563
Shares Outstanding (unlimited authorized,
$.01 par value) ................................. 356,036
NET ASSET VALUE PER SHARE ...................... $12.26
======
STATEMENT OF OPERATIONS
For the six months ended November 30, 1999 (unaudited)
NET INVESTMENT LOSS:
INCOME
Dividends (net of $629,749 foreign withholding
tax) ........................................... $ 7,841,790
Interest .......................................... 620,944
------------
TOTAL INCOME .................................. 8,462,734
------------
EXPENSES
Plan of distribution fee (Class A shares) ......... 114,590
Plan of distribution fee (Class B shares) ......... 8,367,290
Plan of distribution fee (Class C shares) ......... 622,943
Investment management fee ......................... 6,166,105
Transfer agent fees and expenses .................. 1,259,038
Custodian fees .................................... 228,619
Registration fees ................................. 122,042
Shareholder reports and notices ................... 111,325
Professional fees ................................. 40,310
Organizational expenses ........................... 14,076
Trustees' fees and expenses ....................... 6,379
Other ............................................. 12,958
------------
TOTAL EXPENSES ................................ 17,065,675
------------
NET INVESTMENT LOSS ........................... (8,602,941)
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain/loss on:
Investments .................................. 34,001,224
Foreign exchange transactions ................ (129,364)
------------
NET GAIN ...................................... 33,871,860
------------
Net change in unrealized appreciation/depreciation on:
Investments .................................. 196,413,597
Translation of forward foreign currency
contracts, other assets and liabilities
denominated in foreign currencies ......... 56,298
------------
NET APPRECIATION .............................. 196,469,895
------------
NET GAIN ...................................... 230,341,755
------------
NET INCREASE ...................................... $221,738,814
============
See Notes to Financial Statements
8
<PAGE>
Morgan Stanley Dean Witter Competitive Edge Fund
"Best Ideas" Portfolio
Financial Statements, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
NOVEMBER 30, 1999 MAY 31, 1999
------------------- -----------------
<S> <C> <C>
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss .................................. $ (8,602,941) $ (10,158,583)
Net realized gain (loss) ............................. 33,871,860 (62,024,654)
Net change in unrealized appreciation ................ 196,469,895 148,966,094
-------------- --------------
NET INCREASE ...................................... 221,738,814 76,782,857
-------------- --------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares ....................................... -- (518,953)
Class B shares ....................................... -- (5,088,869)
Class C shares ....................................... -- (458,864)
Class D shares ....................................... -- (41,260)
-------------- --------------
TOTAL DIVIDENDS ................................... -- (6,107,946)
-------------- --------------
Net decrease from transactions in shares of beneficial
interest ........................................... (133,113,496) (223,088,882)
-------------- --------------
NET INCREASE (DECREASE) ........................... 88,625,318 (152,413,971)
NET ASSETS:
Beginning of period .................................. 1,858,672,807 2,011,086,778
-------------- --------------
END OF PERIOD
(Including accumulated net investment losses of
$8,656,703 and $53,762, respectively).............. $1,947,298,125 $1,858,672,807
============== ==============
</TABLE>
See Notes to Financial Statements
9
<PAGE>
Morgan Stanley Dean Witter Competitive Edge Fund
"Best Ideas" Portfolio
Notes to Financial Statements November 30, 1999 (unaudited)
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 commenced operations on February 25, 1998.
The Portfolio offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS - (1) an equity security listed or traded on the New
York, American or other stock exchange is valued at its latest sale price on
that exchange prior to the time when assets are valued; if there were no sales
that day, the security is valued at the latest bid price (in cases where a
security is traded on more than one exchange, the security is valued on the
exchange designated as the primary market pursuant to procedures adopted by the
Trustees); (2) all other portfolio securities for which over-the-counter market
quotations are readily available are valued at the latest available bid price
prior to the time of valuation; (3) when market quotations are not readily
available, including circumstances under which it is determined by Morgan
Stanley Dean Witter Advisors Inc. (the "Investment Manager") that sale or bid
prices are not reflective of a security's market value, portfolio securities are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Trustees; 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
10
<PAGE>
Morgan Stanley Dean Witter Competitive Edge Fund
"Best Ideas" Portfolio
Notes to Financial Statements November 30, 1999 (unaudited) continued
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 liability. The Portfolio records realized gains or
losses on delivery of the currency or at the time the forward contract is
extinguished (compensated) by entering into a closing transaction prior to
delivery.
F. FEDERAL INCOME TAX STATUS - It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment
11
<PAGE>
Morgan Stanley Dean Witter Competitive Edge Fund
"Best Ideas" Portfolio
Notes to Financial Statements November 30, 1999 (unaudited) continued
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 have
been 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 following annual rates to the net assets of the Fund determined as
of the close of each business day: 0.65% of the portion of the daily net assets
not exceeding $1.5 billion and 0.625% of the portion of daily net assets
exceeding $1.5 billion.
Under the terms of the Agreement, in addition to managing the Portfolio's
investments, the Investment Manager maintains certain of the Portfolio's books
and records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Portfolio who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Portfolio.
3. PLAN OF DISTRIBUTION
Shares of the Portfolio are distributed by Morgan Stanley Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager.
The Portfolio has adopted a Plan of Distribution (the "Plan") pursuant to Rule
12b-1 under the Act. The Plan provides that the Portfolio will pay the
Distributor a fee which is accrued daily and paid monthly at the following
annual rates: (i) Class A - up to 0.25% of the average daily net assets of Class
A; (ii) Class B - 1.0% of the average daily net assets of Class B; and (iii)
Class C - up to 1.0% of the average daily net assets of Class C. In the case of
Class A shares,
12
<PAGE>
Morgan Stanley Dean Witter Competitive Edge Fund
"Best Ideas" Portfolio
Notes to Financial Statements November 30, 1999 (unaudited) continued
amounts paid under the Plan are paid to the Distributor for services provided.
In the case of Class B and Class C shares, amounts paid under the Plan are paid
to the Distributor for (1) services provided and the expenses borne by it and
others in the distribution of the shares of these Classes, including the payment
of commissions for sales of these Classes and incentive compensation to, and
expenses of, Morgan Stanley Dean Witter Financial Advisors and others who engage
in or support distribution of the shares or who service shareholder accounts,
including overhead and telephone expenses; (2) printing and distribution of
prospectuses and reports used in connection with the offering of these shares to
other than current shareholders; and (3) preparation, printing and distribution
of sales literature and advertising materials. In addition, the Distributor may
utilize fees paid pursuant to the Plan, in the case of Class B shares, to
compensate Dean Witter Reynolds Inc. ("DWR"), 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 $75,697,846 at November 30, 1999.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Portfolio through payments in any subsequent year, except that expenses
representing a gross sales credit to Morgan Stanley Dean Witter Financial
Advisors or other selected broker-dealer representatives may be reimbursed in
the subsequent calendar year. For the six months ended November 30, 1999, the
distribution fee was accrued for Class A shares and Class C shares at the annual
rate of 0.24% and 0.88%, respectively.
The Distributor has informed the Portfolio that for the six months ended
November 30, 1999, it received contingent deferred sales charges from certain
redemptions of the Portfolio's Class A shares, Class B shares and Class C shares
of $728, $2,658,123 and $13,775, respectively and received $39,925 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.
13
<PAGE>
Morgan Stanley Dean Witter Competitive Edge Fund
"Best Ideas" Portfolio
Notes to Financial Statements November 30, 1999 (unaudited) continued
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended November 30, 1999 aggregated
$313,090,058 and $440,593,127, respectively.
For the six months ended November 30, 1999, the Fund incurred brokerage
commissions of $665,034 with Morgan Stanley & Co., Inc., an affiliate of the
Investment Manager and Distributor, for portfolio transactions executed on
behalf of the Fund.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Portfolio's transfer agent.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
NOVEMBER 30, 1999 MAY 31, 1999
---------------------------------- ----------------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
--------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold ................................. 185,813 $ 2,168,298 1,703,197 $ 16,901,264
Reinvestment of dividends ............ -- -- 49,227 485,379
Redeemed ............................. (1,502,528) (17,322,270) (3,997,606) (41,066,748)
---------- -------------- ---------- --------------
Net decrease - Class A ............... (1,316,715) (15,153,972) (2,245,182) (23,680,105)
---------- -------------- ---------- --------------
CLASS B SHARES
Sold ................................. 5,536,679 63,989,784 36,363,867 364,351,913
Reinvestment of dividends ............ -- -- 485,760 4,770,136
Redeemed ............................. (14,330,647) (165,131,788) (52,155,178) (526,365,062)
----------- -------------- ----------- --------------
Net decrease - Class B ............... (8,793,968) (101,142,004) (15,305,551) (157,243,013)
----------- -------------- ----------- --------------
CLASS C SHARES
Sold ................................. 471,726 5,459,115 3,595,166 35,695,226
Reinvestment of dividends ............ -- -- 44,094 432,997
Redeemed ............................. (1,979,953) (22,702,866) (7,517,956) (76,432,043)
----------- -------------- ----------- --------------
Net decrease - Class C ............... (1,508,227) (17,243,751) (3,878,696) (40,303,820)
----------- -------------- ----------- --------------
CLASS D SHARES
Sold ................................. 252,907 2,974,084 368,735 3,798,090
Reinvestment of dividends ............ -- -- 2,677 26,448
Redeemed ............................. (229,193) (2,547,853) (560,154) (5,686,482)
----------- -------------- ----------- --------------
Net increase (decrease) - Class D .... 23,714 426,231 (188,742) (1,861,944)
----------- -------------- ----------- --------------
Net decrease in Fund ................. (11,595,196) $ (133,113,496) (21,618,171) $ (223,088,882)
=========== ============== =========== ==============
</TABLE>
14
<PAGE>
Morgan Stanley Dean Witter Competitive Edge Fund
"Best Ideas" Portfolio
Notes to Financial Statements November 30, 1999 (unaudited) continued
6. FEDERAL INCOME TAX STATUS
At May 31, 1999, the Fund had a net capital loss carryover of approximately
$60,680,000 which will be available through May 31, 2007 to offset future
capital gains to the extent provided by regulations. Foreign currency 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.
As of May 31, 1999, the Fund had temporary book/tax differences primarily
attributable to post-October losses and capital loss deferrals on wash sales.
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 November 30, 1999, there were no outstanding forward contracts.
15
<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
FOR THE SIX FOR THE YEAR FEBRUARY 25, 1998*
MONTHS ENDED ENDED THROUGH
NOVEMBER 30, 1999 MAY 31, 1999 MAY 31, 1998
---------------------- -------------- -------------------
(unaudited)
<S> <C> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period .......... $10.84 $10.37 $10.00
------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) ................. (0.01) 0.02 0.05
Net realized and unrealized gain ............. 1.39 0.49 0.32
------ ------ ------
Total income from investment operations ....... 1.38 0.51 0.37
------ ------ ------
Less dividends from net investment income ..... - (0.04) -
------ ------ ------
Net asset value, end of period ................ $12.22 $10.84 $10.37
====== ====== ======
TOTAL RETURN+ ................................. 12.73 %(1) 5.01% 3.70%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ...................................... 1.07 %(2)(3) 1.10%(3) 1.13%(2)
Net investment income (loss) .................. (0.19)%(2)(3) 0.18%(3) 1.66%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ....... $95,252 $98,784 $117,750
Portfolio turnover rate ....................... 17 %(1) 97% 19%(1)
</TABLE>
- -------------
* Commencement of operations.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
See Notes to Financial Statements
16
<PAGE>
Morgan Stanley Dean Witter Competitive Edge Fund
"Best Ideas" Portfolio
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR FEBRUARY 25, 1998*
MONTHS ENDED ENDED THROUGH
NOVEMBER 30, 1999 MAY 31, 1999 MAY 31, 1998
------------------------ ------------------ -------------------
(unaudited)
<S> <C> <C> <C>
CLASS B SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $10.76 $10.35 $10.00
------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) ..................... (0.05) (0.06) 0.03
Net realized and unrealized gain ................. 1.37 0.50 0.32
------ ------ ------
Total income from investment operations ........... 1.32 0.44 0.35
------ ------ ------
Less dividends from net investment income ......... - (0.03) -
------ ------ ------
Net asset value, end of period .................... $12.08 $10.76 $10.35
====== ====== ======
TOTAL RETURN + .................................... 12.27 %(1) 4.27 % 3.50%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.83 %(2)(3) 1.86 %(3) 1.88%(2)
Net investment income (loss) ...................... (0.95)%(2)(3) (0.58)%(3) 0.92%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $1,706,349 $1,614,229 $1,711,433
Portfolio turnover rate ........................... 17 %(1) 97 % 19%(1)
</TABLE>
- --------------
* Commencement of operations.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
See Notes to Financial Statements
17
<PAGE>
Morgan Stanley Dean Witter Competitive Edge Fund
"Best Ideas" Portfolio
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR FEBRUARY 25, 1998*
MONTHS ENDED ENDED THROUGH
NOVEMBER 30, 1999 MAY 31, 1999 MAY 31, 1998
------------------------ ------------------ -------------------
<S> <C> <C> <C>
(unaudited)
CLASS C SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $10.78 $10.35 $10.00
------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) ..................... (0.05) (0.04) 0.03
Net realized and unrealized gain ................. 1.38 0.50 0.32
------ ------ ------
Total income from investment operations ........... 1.33 0.46 0.35
------ ------ ------
Less dividends from net investment income ......... - (0.03) -
------ ------ ------
Net asset value, end of period .................... $12.11 $10.78 $10.35
====== ====== ======
TOTAL RETURN + .................................... 12.34 %(1) 4.44 % 3.50%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.71 %(2)(3) 1.69 %(3) 1.88%(2)
Net investment income (loss) ...................... (0.83)%(2)(3) (0.41)%(3) 0.91%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $141,333 $142,048 $176,497
Portfolio turnover rate ........................... 17 %(1) 97 % 19%(1)
</TABLE>
- --------------
* Commencement of operations.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
See Notes to Financial Statements
18
<PAGE>
Morgan Stanley Dean Witter Competitive Edge Fund
"Best Ideas" Portfolio
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR FEBRUARY 25, 1998*
MONTHS ENDED ENDED THROUGH
NOVEMBER 30, 1999 MAY 31, 1999 MAY 31, 1998
---------------------- ---------------- -------------------
<S> <C> <C> <C>
(unaudited)
CLASS D SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $10.87 $10.38 $10.00
------ ------ ------
Income from investment operations:
Net investment income ............................ - 0.03 0.08
Net realized and unrealized gain ................. 1.39 0.51 0.30
------ ------ ------
Total income from investment operations ........... 1.39 0.54 0.38
------ ------ ------
Less dividends from net investment income ......... - (0.05) -
------ ------ ------
Net asset value, end of period .................... $12.26 $10.87 $10.38
====== ====== ======
TOTAL RETURN+ ..................................... 12.79%(1) 5.26% 3.80%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 0.83%(2)(3) 0.86%(3) 0.92%(2)
Net investment income ............................. 0.05%(2)(3) 0.42%(3) 2.94%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $4,365 $3,611 $5,407
Portfolio turnover rate ........................... 17 %(1) 97% 19%(1)
</TABLE>
- --------------
* Commencement of operations.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
See Notes to Financial Statements
19
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
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
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
Mark Bavoso
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been taken from the records
of the Fund without examination by the independent accountants and
accordingly they do not express an opinion thereon.
This report is submitted for the general information of shareholders
of the Fund. For more detailed information about the Fund, its officers
and trustees, fees, expenses and other pertinent information, please see
the prospectus of the Fund.
This report is not authorized for distribution to prospective investors
in the Fund unless preceded or accompanied by an effective prospectus.
Read the prospectus carefully before investing.
MORGAN STANLEY
DEAN WITTER
COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO
[GRAPHIC OMITTED]
SEMIANNUAL REPORT
NOVEMBER 30, 1999
