<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE TWO WORLD TRADE CENTER,
FUND NEW YORK, NEW YORK 10048
"BEST IDEAS" PORTFOLIO
LETTER TO THE SHAREHOLDERS MAY 31, 2000
DEAR SHAREHOLDER:
The 12-month period, ended May 31, 2000, continued to be dominated by very
favorable total return trends for equity markets throughout the world. Much as
we have seen each year throughout this decade-long bull market, stock market
returns this past year were once again well ahead of the historical averages.
Large-capitalization growth stocks, especially those of the technology, media
and telecommunications industries, provided exceptional returns throughout this
period. A combination of familiar trends fueled this performance:
- Inflation remained relatively benign throughout developed and emerging
economies around the world;
- Trade restrictions and regulatory hurdles lessened, allowing the global
exchange of goods and services to accelerate;
- Central banks in Japan, Europe and the U.S. remained vigilant in defending
gradual growth with limited excesses, resulting in a more stable,
predictable growth cycle;
- Productivity, enhanced by the more rapid adoption of new technologies,
allowed corporations to increase profits at rates unmatched in previous
expansions.
PERFORMANCE
For the 12-month period ended May 31, 2000, Morgan Stanley Dean Witter
Competitive Edge Fund "Best Ideas" Portfolio's Class A, B, C and D shares
returned 17.25 percent, 16.36 percent, 16.42 percent and 17.48 percent,
respectively. The performance of the four classes varies because of differing
expenses. Total return figures assume the reinvestment of all distributions but
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 13.60 percent. The accompanying chart compares the Fund's performance
to that of the MSCI World Index.
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO
LETTER TO THE SHAREHOLDERS MAY 31, 2000, 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 edge" versus other players in the global arena. The
Fund's portfolio managers then translate these ideas into a model of equity
positions and target weightings, from which the Fund is managed on a day-to-day
basis.
As of May 31, 2000, 95.3 percent of the Fund's assets were invested in 40 equity
positions throughout the world. The remaining 2.1 percent was held in U.S.
commercial paper. Equity holdings in the United States accounted for nearly 56
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, France, Finland, the United Kingdom, Sweden, Switzerland, Germany,
Australia, Mexico, and the Netherlands.
Among the Fund's largest equity holdings were Wal-Mart (discount chains),
General Electric (multi-sector companies), and Emerson Electric (electrical
products) in the United States, Shin-Etsu Chemical (specialty chemicals), Tokyo
Electron (electronic production equipment) and Sony Corp. (consumer electronic
appliances) in Japan, TOTAL Fina (oil refining/marketing) and Axa (multi-line
insurance) in France, Skandia (life insurance) in Sweden, Diageo PLC (alcoholic
beverages) and Invensys (industrial machinery/components) in the United Kingdom
and UPM Kymmene (paper) in Finland.
LOOKING AHEAD
As we outlined in the Fund's semiannual letter to shareholders, dated November
30, 1999, we believe that the year ahead will prove quite challenging, as global
central banks gradually nudge interest rates higher in an effort to curtail
spiraling growth. In this atmosphere, corporations will be challenged to meet
the lofty expectations that investors have placed on them, and management teams
may find themselves unable to deliver. We believe that a thoroughly researched
portfolio may temper this risk.
2
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO
LETTER TO THE SHAREHOLDERS MAY 31, 2000, CONTINUED
We appreciate your ongoing support of Morgan Stanley Dean Witter Competitive
Edge Fund "Best Ideas" Portfolio and look forward to continuing to serve 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 MAY 31, 2000
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
GROWTH OF $10,000
($ in Thousands)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D MSCI WORLD(4)
<S> <C> <C> <C> <C> <C>
February 1998 $10,000 $10,000 $10,000 $9,475 $10,000
May 1998 $10,380 $10,350 $10,350 $9,826 $10,510
May 1999 $10,926 $10,792 $10,810 $10,317 $11,890
May 2000 $12,097(3) $12,257(3) $12,584(3) $12,836(3) $13,507
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUNDS SHARES, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE FOR CLASS A,
CLASS B, CLASS C, AND CLASS D SHARES WILL VARY DUE TO DIFFERENCES IN SALES
CHARGES AND EXPENSES.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
---------------------------------------------------------------------------------------------------------------
CLASS A SHARES* CLASS B SHARES**
------------------------------------------------- ---------------------------------------------------------
PERIOD ENDED 5/31/00 PERIOD ENDED 5/31/00
------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
1 Year 17.25%(1) 11.10%(2) 1 Year 16.36%(1) 11.36%(2)
Since Inception (2/25/98) 11.41%(1) 8.78%(2) Since Inception (2/25/98) 10.59%(1) 9.42%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES+ CLASS D SHARES#
------------------------------------------------- -------------------------------------------------
PERIOD ENDED 5/31/00 PERIOD ENDED 5/31/00
------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
1 Year 16.42%(1) 15.42%(2) 1 Year 17.48%(1)
Since Inception (2/25/98) 10.70%(1) 10.70%(2) Since Inception (2/25/98) 11.67%(1)
</TABLE>
------------------------
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable sales charge. See the Fund's current prospectus for
complete details on fees and sales charges.
(3) Closing value assuming a complete redemption on May 31, 2000.
(4) The Morgan Stanley Capital International World Index (MSCI) measures the
performance from a diverse range of global stock markets including the
U.S., Canada, Europe, Australia, New Zealand and the Far East. The
performance of the Index is listed in U.S. dollars and assumes reinvestment
of net dividends. "Net dividends" reflects a reduction in dividends after
taking into account withhholding of taxes by certain foreign countries
represented in the index. The index does not take into account the Fund's
expenses, fees, or charges. The index is unmanaged and should not be
considered an investment.
* The maximum front-end sales charge for Class A shares is 5.25%.
** The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%. 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 MAY 31, 2000
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS (97.6%)
AUSTRALIA (2.0%)
MEDIA CONGLOMERATES
3,952,000 News Corporation Ltd. (Pref.)................................... $ 38,058,258
--------------
FINLAND (4.6%)
PAPER
2,007,000 UPM-Kymmene Oyj................................................. 51,134,828
--------------
TELECOMMUNICATIONS EQUIPMENT
716,000 Nokia Oyj (ADR)................................................. 37,232,000
--------------
TOTAL FINLAND................................................... 88,366,828
--------------
FRANCE (8.2%)
MULTI-LINE INSURANCE
403,000 AXA............................................................. 59,643,436
--------------
OIL REFINING/MARKETING
315,000 Total Fina Elf.................................................. 49,835,718
--------------
PACKAGED FOODS
205,000 Groupe Danone................................................... 48,217,101
--------------
TOTAL FRANCE.................................................... 157,696,255
--------------
GERMANY (2.2%)
MOTOR VEHICLES
1,424,000 Bayerische Motoren Werke (BMW) AG............................... 43,083,704
--------------
JAPAN (11.3%)
CONSUMER ELECTRONICS/APPLIANCES
557,600 Sony Corp....................................................... 50,432,282
--------------
DIVERSIFIED ELECTRONIC PRODUCTS
2,022,000 Matsushita Electric Industrial Co., Ltd......................... 47,736,456
--------------
ELECTRONIC PRODUCTION EQUIPMENT
394,000 Tokyo Electron Ltd.............................................. 53,727,273
--------------
SPECIALTY CHEMICALS
1,323,000 Shin-Etsu Chemical Co., Ltd..................................... 64,800,000
--------------
TOTAL JAPAN..................................................... 216,696,011
--------------
MEXICO (1.9%)
TELECOMMUNICATIONS
754,000 Telefonos de Mexico S.A. (Series L) (ADR)....................... 36,710,375
--------------
<CAPTION>
NUMBER OF
SHARES VALUE
----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
NETHERLANDS (1.9%)
ALCOHOLIC BEVERAGES
703,000 Heineken NV..................................................... $ 36,250,431
--------------
SWEDEN (2.6%)
LIFE INSURANCE
1,950,000 Skandia Forsakrings AB.......................................... 50,082,634
--------------
SWITZERLAND (2.5%)
BUILDING MATERIALS
40,300 Holderbank Financiere Glarus AG (B Shares)...................... 47,404,719
--------------
UNITED KINGDOM (4.3%)
ALCOHOLIC BEVERAGES
6,161,000 Diageo PLC...................................................... 52,808,519
--------------
INDUSTRIAL MACHINERY/COMPONENTS
8,610,000 Invensys PLC.................................................... 29,674,795
--------------
TOTAL UNITED KINGDOM............................................ 82,483,314
--------------
UNITED STATES (56.1%)
AIR FREIGHT/DELIVERY SERVICES
1,362,000 FedEx Corp.*.................................................... 48,180,750
--------------
BROADCASTING
644,000 Clear Channel Communications, Inc.*............................. 48,219,500
--------------
COMPUTER COMMUNICATIONS
878,000 Cisco Systems, Inc.*............................................ 49,991,125
--------------
COMPUTER SOFTWARE
735,000 Microsoft Corp.*................................................ 45,937,500
--------------
DISCOUNT CHAINS
1,033,000 Wal-Mart Stores, Inc............................................ 59,526,625
--------------
DIVERSIFIED FINANCIAL SERVICES
933,000 American Express Co............................................. 50,207,062
--------------
E.D.P. PERIPHERALS
397,000 EMC Corp.*...................................................... 46,176,062
--------------
ELECTRICAL PRODUCTS
853,000 Emerson Electric Co............................................. 50,327,000
--------------
INTERNET SERVICES
876,000 America Online, Inc.*........................................... 46,428,000
635,000 Exodus Communications, Inc.*.................................... 44,767,500
--------------
91,195,500
--------------
MAJOR BANKS
1,034,000 Bank of New York Co., Inc....................................... 48,533,375
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO
PORTFOLIO OF INVESTMENTS MAY 31, 2000, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MAJOR CHEMICALS
942,000 Du Pont (E.I.) de Nemours & Co., Inc............................ $ 46,158,000
--------------
MAJOR PHARMACEUTICALS
842,000 American Home Products Corp..................................... 45,362,750
--------------
MAJOR U.S. TELECOMMUNICATIONS
1,204,000 WorldCom, Inc.*................................................. 45,225,250
--------------
MEDIA CONGLOMERATES
595,000 Time Warner Inc................................................. 46,967,812
--------------
MEDICAL EQUIPMENT & SUPPLIES
863,000 Medtronic, Inc.................................................. 44,552,375
--------------
MULTI-SECTOR COMPANIES
1,091,000 General Electric Co............................................. 57,413,875
--------------
OIL/GAS TRANSMISSION
350,000 Enron Corp...................................................... 25,506,250
--------------
OILFIELD SERVICES/EQUIPMENT
980,000 Halliburton Co.................................................. 49,980,000
489,000 Schlumberger Ltd................................................ 35,972,063
--------------
85,952,063
--------------
SEMICONDUCTORS
391,000 Intel Corp...................................................... 48,752,813
--------------
TELECOMMUNICATIONS EQUIPMENT
835,000 Lucent Technologies Inc......................................... 47,908,125
521,000 Motorola, Inc................................................... 48,843,750
--------------
96,751,875
--------------
TOTAL UNITED STATES............................................. 1,080,937,562
--------------
TOTAL COMMON AND PREFERRED STOCKS
(IDENTIFIED COST $1,644,816,337)................................ 1,877,770,091
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
---------
<C> <S> <C>
SHORT-TERM INVESTMENTS (2.1%)
U.S. GOVERNMENT AGENCY (a) (2.1%)
$41,000 Federal Home Loan Bank
6.30% due 06/01/00
(AMORTIZED COST $41,000,000)........................................ 41,000,000
--------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
-------------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT (0.0%)
$436 The Bank of New York 6.75%
due 06/01/00 (dated 05/31/00; proceeds $436,448) (b)
(IDENTIFIED COST $436,366).......................................... $ 436,366
--------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $41,436,366)......................................... 41,436,366
--------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $1,686,252,703) (c).................................................... 99.7% 1,919,206,457
OTHER ASSETS IN EXCESS OF LIABILITIES................................................... 0.3 6,182,795
----- ---------------
NET ASSETS.............................................................................. 100.0% $ 1,925,389,252
----- ---------------
----- ---------------
</TABLE>
---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Purchased on a discount basis. The interest rate shown has been adjusted to
reflect a money market equivalent yield.
(b) Collateralized by $480,281 Federal Home Loan Bank 6.38% due 10/06/08 valued
at $445,094.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $339,992,997 and the
aggregate gross unrealized depreciation is $107,039,243, resulting in net
unrealized appreciation of $232,953,754.
FORWARD FOREIGN CURRENCY CONTRACT OPEN AT MAY 31, 2000:
<TABLE>
<CAPTION>
CONTRACT TO IN EXCHANGE DELIVERY UNREALIZED
DELIVER FOR DATE DEPRECIATION
----------------------------------------------------
<S> <C> <C> <C>
EUR 6,443,459 $6,005,303 06/30/00 $(30,284)
========
</TABLE>
CURRENCY ABBREVIATION:
------------------------
<TABLE>
<S> <C>
EUR Euro.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO
SUMMARY OF INVESTMENTS MAY 31, 2000
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Air Freight/Delivery Services................................................... $ 48,180,750 2.5%
Alcoholic Beverages............................................................. 89,058,949 4.6
Broadcasting.................................................................... 48,219,500 2.5
Building Materials.............................................................. 47,404,719 2.5
Computer Communications......................................................... 49,991,125 2.6
Computer Software............................................................... 45,937,500 2.4
Consumer Electronics/Appliances................................................. 50,432,282 2.6
Discount Chains................................................................. 59,526,625 3.1
Diversified Electronic Products................................................. 47,736,456 2.5
Diversified Financial Services.................................................. 50,207,062 2.6
E.D.P. Peripherals.............................................................. 46,176,062 2.4
Electrical Products............................................................. 50,327,000 2.6
Electronic Production Equipment................................................. 53,727,273 2.8
Industrial Machinery/Components................................................. 29,674,796 1.5
Internet Services............................................................... 91,195,500 4.7
Life Insurance.................................................................. 50,082,634 2.6
Major Banks..................................................................... 48,533,375 2.5
Major Chemicals................................................................. 46,158,000 2.4
Major Pharmaceuticals........................................................... 45,362,750 2.4
Major U.S. Telecommunications................................................... 45,225,250 2.4
Media Conglomerates............................................................. 85,026,070 4.4
Medical Equipment & Supplies.................................................... 44,552,375 2.3
Motor Vehicles.................................................................. 43,083,704 2.2
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Multi-Line Insurance............................................................ $ 59,643,436 3.1%
Multi-Sector Companies.......................................................... 57,413,875 3.0
Oil Refining/Marketing.......................................................... 49,835,718 2.6
Oil/Gas Transmission............................................................ 25,506,250 1.3
Oilfield Services/Equipment..................................................... 85,952,063 4.5
Packaged Foods.................................................................. 48,217,101 2.5
Paper........................................................................... 51,134,828 2.7
Repurchase Agreement............................................................ 436,366 0.0
Semiconductors.................................................................. 48,752,813 2.5
Specialty Chemicals............................................................. 64,800,000 3.4
Telecommunications.............................................................. 36,710,375 1.9
Telecommunications Equipment.................................................... 133,983,875 7.0
U.S. Government Agency.......................................................... 41,000,000 2.1
-------------- ----
$1,919,206,457 99.7%
-------------- ----
-------------- ----
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks................................................................... $1,839,711,833 95.6%
Preferred Stocks................................................................ 38,058,258 2.0
Short-Term Investments.......................................................... 41,436,366 2.1
-------------- ----
$1,919,206,457 99.7%
-------------- ----
-------------- ----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 2000
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $1,686,252,703).......................................................... $1,919,206,457
Receivable for:
Investments sold........................................................................ 6,035,588
Foreign withholding taxes reclaimed..................................................... 1,945,493
Dividends............................................................................... 1,927,708
Shares of beneficial interest sold...................................................... 823,717
Deferred organizational expenses............................................................ 76,920
Prepaid expenses and other assets........................................................... 44,879
--------------
TOTAL ASSETS........................................................................... 1,930,060,762
--------------
LIABILITIES:
Unrealized depreciation on open forward foreign currency contracts.......................... 30,284
Payable for:
Plan of distribution fee................................................................ 1,718,857
Shares of beneficial interest repurchased............................................... 1,605,026
Investment management fee............................................................... 1,151,084
Accrued expenses and other payables......................................................... 166,259
--------------
TOTAL LIABILITIES...................................................................... 4,671,510
--------------
NET ASSETS............................................................................. $1,925,389,252
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................. $1,501,382,991
Net unrealized appreciation................................................................. 232,812,171
Accumulated net investment loss............................................................. (137,957)
Accumulated undistributed net realized gain................................................. 191,332,047
--------------
NET ASSETS............................................................................. $1,925,389,252
==============
CLASS A SHARES:
Net Assets.................................................................................. $97,056,778
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)................................... 7,634,309
NET ASSET VALUE PER SHARE.............................................................. $12.71
==============
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE)...................................... $13.41
==============
CLASS B SHARES:
Net Assets.................................................................................. $1,688,392,089
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)................................... 134,871,201
NET ASSET VALUE PER SHARE.............................................................. $12.52
==============
CLASS C SHARES:
Net Assets.................................................................................. $138,693,574
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)................................... 11,054,108
NET ASSET VALUE PER SHARE.............................................................. $12.55
==============
CLASS D SHARES:
Net Assets.................................................................................. $1,246,811
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)................................... 97,631
NET ASSET VALUE PER SHARE.............................................................. $12.77
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 2000
<TABLE>
<S> <C>
NET INVESTMENT LOSS:
INCOME
Dividends (net of $1,513,223 foreign withholding tax)......................................... $ 17,048,043
Interest...................................................................................... 2,117,592
------------
TOTAL INCOME............................................................................. 19,165,635
------------
EXPENSES
Plan of distribution fee (Class A shares)..................................................... 239,001
Plan of distribution fee (Class B shares)..................................................... 17,387,205
Plan of distribution fee (Class C shares)..................................................... 1,448,814
Investment management fee..................................................................... 12,777,878
Transfer agent fees and expenses.............................................................. 2,406,795
Custodian fees................................................................................ 495,873
Shareholder reports and notices............................................................... 193,769
Registration fees............................................................................. 186,084
Professional fees............................................................................. 69,758
Organizational expenses....................................................................... 28,153
Trustees' fees and expenses................................................................... 12,516
Other......................................................................................... 312,877
------------
TOTAL EXPENSES........................................................................... 35,558,723
------------
NET INVESTMENT LOSS...................................................................... (16,393,088)
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain (loss) on:
Investments............................................................................... 283,187,761
Foreign exchange transactions............................................................. (161,375)
------------
NET GAIN................................................................................. 283,026,386
------------
Net change in unrealized appreciation/depreciation on:
Investments............................................................................... 30,408,985
Translation of forward foreign currency contracts, other assets and liabilities
denominated in foreign currencies....................................................... (31,487)
------------
NET APPRECIATION......................................................................... 30,377,498
------------
NET GAIN................................................................................. 313,403,884
------------
NET INCREASE.................................................................................. $297,010,796
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MAY 31, 2000 MAY 31, 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss......................................................... $ (16,393,088) $ (10,158,583)
Net realized gain (loss).................................................... 283,026,386 (62,024,654)
Net change in unrealized appreciation....................................... 30,377,498 148,966,094
-------------- --------------
NET INCREASE........................................................... 297,010,796 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............. (230,294,351) (223,088,882)
-------------- --------------
NET INCREASE (DECREASE)................................................ 66,716,445 (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 $137,957 AND $53,762,
RESPECTIVELY)........................................................... $1,925,389,252 $1,858,672,807
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO
NOTES TO FINANCIAL STATEMENTS MAY 31, 2000
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
11
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO
NOTES TO FINANCIAL STATEMENTS MAY 31, 2000, CONTINUED
(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 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.
12
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO
NOTES TO FINANCIAL STATEMENTS MAY 31, 2000, 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 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.
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
13
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO
NOTES TO FINANCIAL STATEMENTS MAY 31, 2000, CONTINUED
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 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,
totaled $72,072,947 at May 31, 2000.
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 year ended May 31, 2000, the distribution
fee was accrued for Class A shares and Class C shares at the annual rate of
0.24% and 1.0%, respectively.
The Distributor has informed the Portfolio that for the year ended May 31, 2000,
it received contingent deferred sales charges from certain redemptions of the
Portfolio's Class A shares, Class B shares and Class C shares of $748,
$5,206,675 and $18,903, respectively and received $112,583 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 year ended May 31, 2000 aggregated
$1,451,645,796 and $1,721,864,716, respectively.
14
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO
NOTES TO FINANCIAL STATEMENTS MAY 31, 2000, CONTINUED
For the year ended May 31, 2000, the Fund incurred brokerage commissions of
$2,490,578 with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager and Distributor, for portfolio transactions executed on behalf of the
Fund. At May 31, 2000, the Fund's receivable for investments sold included
unsettled trades with Morgan Stanley & Co., Inc. of $6,005,303.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Portfolio's transfer agent. At May 31, 2000, the Fund had
transfer agent fees and expenses payable of $4,000.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MAY 31, 2000 MAY 31, 1999
--------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold............................................................. 743,094 $ 9,595,947 1,703,197 $ 16,901,264
Reinvestment of dividends........................................ -- -- 49,227 485,379
Redeemed......................................................... (2,219,598) (26,833,356) (3,997,606) (41,066,748)
----------- ------------- ----------- -------------
Net decrease - Class A........................................... (1,476,504) (17,237,409) (2,245,182) (23,680,105)
----------- ------------- ----------- -------------
CLASS B SHARES
Sold............................................................. 14,763,805 184,903,996 36,363,867 364,351,913
Reinvestment of dividends........................................ -- -- 485,760 4,770,136
Redeemed......................................................... (29,961,159) (369,974,658) (52,155,178) (526,365,062)
----------- ------------- ----------- -------------
Net decrease - Class B........................................... (15,197,354) (185,070,662) (15,305,551) (157,243,013)
----------- ------------- ----------- -------------
CLASS C SHARES
Sold............................................................. 1,275,517 16,066,500 3,595,166 35,695,226
Reinvestment of dividends........................................ -- -- 44,094 432,997
Redeemed......................................................... (3,397,382) (41,282,432) (7,517,956) (76,432,043)
----------- ------------- ----------- -------------
Net decrease - Class C........................................... (2,121,865) (25,215,932) (3,878,696) (40,303,820)
----------- ------------- ----------- -------------
CLASS D SHARES
Sold............................................................. 926,984 11,956,808 368,735 3,798,090
Reinvestment of dividends........................................ -- -- 2,677 26,448
Redeemed......................................................... (1,161,675) (14,727,156) (560,154) (5,686,482)
----------- ------------- ----------- -------------
Net decrease - Class D........................................... (234,691) (2,770,348) (188,742) (1,861,944)
----------- ------------- ----------- -------------
Net decrease in Fund............................................. (19,030,414) $(230,294,351) (21,618,171) $(223,088,882)
=========== ============= =========== =============
</TABLE>
15
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO
NOTES TO FINANCIAL STATEMENTS MAY 31, 2000, CONTINUED
6. FEDERAL INCOME TAX STATUS
During the year ended May 31, 2000, the Fund utilized its net capital loss
carryover of approximately $61,999,000.
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. The Fund incurred and will elect to defer net currency losses
of approximately $168,000 during fiscal 2000.
As of May 31, 2000, the Fund 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 a net operating loss, foreign
currency losses and nondeductible expenses. To reflect reclassifications arising
from the permanent differences, paid-in-capital was charged $28,153, accumulated
undistributed net realized gain was charged $16,280,740 and accumulated net
investment loss was credited $16,308,893.
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, 2000, there was an outstanding forward contract.
16
<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 YEAR FOR THE YEAR FEBRUARY 25, 1998*
ENDED ENDED THROUGH
MAY 31, 2000 MAY 31, 1999 MAY 31, 1998
------------------------------------------------------------------------------------------------------------------------
<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......................... 1.88 0.49 0.32
------ ------ ------
Total income from investment operations..................... 1.87 0.51 0.37
------ ------ ------
Less dividends from net investment income................... -- (0.04) --
------ ------ ------
Net asset value, end of period.............................. $12.71 $10.84 $10.37
====== ====== ======
TOTAL RETURN+............................................... 17.25 % 5.01% 3.70%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.07 %(3) 1.10%(3) 1.13%(2)
Net investment income (loss)................................ (0.10)%(3) 0.18%(3) 1.66%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $97,057 $98,784 $117,750
Portfolio turnover rate..................................... 75 % 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 YEAR FOR THE YEAR FEBRUARY 25, 1998*
ENDED ENDED THROUGH
MAY 31, 2000 MAY 31, 1999 MAY 31, 1998
--------------------------------------------------------------------------------------------------------------------
<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)............................. (0.11) (0.06) 0.03
Net realized and unrealized gain......................... 1.87 0.50 0.32
------ ------ ------
Total income from investment operations..................... 1.76 0.44 0.35
------ ------ ------
Less dividends from net investment income................... -- (0.03) --
------ ------ ------
Net asset value, end of period.............................. $12.52 $10.76 $10.35
====== ====== ======
TOTAL RETURN+............................................... 16.36 % 4.27 % 3.50%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.83 %(3) 1.86 %(3) 1.88%(2)
Net investment income (loss)................................ (0.86)%(3) (0.58)%(3) 0.92%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $1,688,392 $1,614,229 $1,711,433
Portfolio turnover rate..................................... 75 % 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 YEAR FOR THE YEAR FEBRUARY 25, 1998*
ENDED ENDED THROUGH
MAY 31, 2000 MAY 31, 1999 MAY 31, 1998
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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)............................. (0.11) (0.04) 0.03
Net realized and unrealized gain......................... 1.88 0.50 0.32
------ ------ ------
Total income from investment operations..................... 1.77 0.46 0.35
------ ------ ------
Less dividends from net investment income................... -- (0.03) --
------ ------ ------
Net asset value, end of period.............................. $12.55 $10.78 $10.35
====== ====== ======
TOTAL RETURN+............................................... 16.42 % 4.44 % 3.50%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.83 %(3) 1.69 %(3) 1.88%(2)
Net investment income (loss)................................ (0.86)%(3) (0.41)%(3) 0.91%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $138,694 $142,048 $176,497
Portfolio turnover rate..................................... 75 % 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
19
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR FEBRUARY 25, 1998*
ENDED ENDED THROUGH
MAY 31, 2000 MAY 31, 1999 MAY 31, 1998
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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......................... 1.90 0.51 0.30
------ ------ ------
Total income from investment operations..................... 1.90 0.54 0.38
------ ------ ------
Less dividends from net investment income................... -- (0.05) --
------ ------ ------
Net asset value, end of period.............................. $12.77 $10.87 $10.38
====== ====== ======
TOTAL RETURN+............................................... 17.48% 5.26% 3.80%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.83%(3) 0.86%(3) 0.92%(2)
Net investment income....................................... 0.14%(3) 0.42%(3) 2.94%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands................. ... $1,247 $3,611 $5,407
Portfolio turnover rate..................................... 75% 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
20
<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,
2000, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended and the financial
highlights for each of the periods indicated, in conformity with accounting
principles generally accepted in the United States. 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 audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at May 31,
2000 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
JUNE 30, 2000
21
<PAGE>
MORGAN STANLEY DEAN WITTER COMPETITIVE EDGE FUND
"BEST IDEAS" PORTFOLIO
CHANGE IN INDEPENDENT ACCOUNTANTS
On July 1, 2000, PricewaterhouseCoopers LLP resigned as independent accountants
of the Fund.
The reports of PricewaterhouseCoopers LLP on the financial statements of the
Fund for the past two fiscal years contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle.
In connection with its audits for the two most recent fiscal years and through
July 1, 2000, there have been no disagreements with PricewaterhouseCoopers LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of PricewaterhouseCoopers LLP would have caused them to make
reference thereto in their report on the financial statements for such years.
The Fund, with the approval of its Board of Trustees and its Audit Committee,
engaged Deloitte & Touche LLP as its new independent accountants as of July 1,
2000.
22
<PAGE>
Trustees
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
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
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 Distributors Inc., member NASD.
Morgan Stanley
Dean Witter
Competitive Edge Fund
"Best Ideas" Portfolio
[photo]
Annual Report
May 31, 2000
