<PAGE>
DEAN WITTER SPECIAL VALUE FUND Two World Trade Center,
New York, New York 10048
LETTER TO THE SHAREHOLDERS July 31, 1997
DEAR SHAREHOLDER:
We are pleased to present this first annual report on the operations of Dean
Witter Special Value Fund. The Fund is currently closed to new investors, but
remains open to existing shareholders. The Fund was closed in an effort to
maintain the size of the portfolio at approximately $250 million. This enables
the portfolio manager to focus on finding small-cap companies that exhibit
the best value characteristics without being compelled to invest in
unsuitable stocks. We will evaluate the possibility of reopening the Fund from
time to time, and may do so if it is determined that reopening would be
consistent with prudent portfolio management.
The twelve months ended July 31, 1997 were quite favorable for equity
investors, despite a short-lived correction in March. Small-capitalization
stocks, while providing good performance, continued to lag larger-cap stocks
during this period, as investors, fearing a market downturn, have sought
safety in the stocks of larger companies.
FUND PERFORMANCE
As of July 28, 1997, the Fund began offering four classes of shares: A, B, C
and D, each with its own sales charge and distribution fee structure. Fund
shares held prior to July 28 were designated Class B shares. A revised
prospectus, which includes complete details regarding the Fund's conversion
to multiple classes of shares, was mailed to shareholders in mid-summer.
Since its inception on October 29, 1996 through July 31, 1997, the Fund's
Class B shares posted a total return of 22.41 percent. During the same
period, the Russell 2000 Small Stock Index returned 23.23 percent, while the
broad-based stock market, as measured by the Standard & Poor's 500 Composite
Stock Price Index, rose 38.20 percent.
The Fund's underperformance since inception as compared to the Russell 2000
is attributable to its underinvested status during its first two months of
operations as the portfolio manager scoured the market for appropriate
<PAGE>
DEAN WITTER SPECIAL VALUE FUND
LETTER TO THE SHAREHOLDERS July 31, 1997, continued
investment opportunities. However, more important, during the market
correction in March the Fund exhibited resilience because of the undervalued
nature of the companies in which it invests. During these intermittent
periods of weakness, the Fund has capitalized by buying companies at
opportunistic prices.
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE PURPOSE OF EDGAR
FILING.]
GROWTH OF $10,000 -- CLASS B SHARES
- --------------------------------------------------------------------------
($ IN THOUSANDS)
DATE FUND S&P 500(4) LIPPER (5)
October 29, 1996 $10,000 $10,000 $10,000
November 30, 1996 $10,100 $10,829 $10,181
December 31, 1996 $10,356 $10,614 $10,218
January 31, 1997 $10,607 $11,282 $10,451
February 28, 1997 $10,667 $11,366 $ 9,852
March 31, 1997 $10,427 $10,899 $ 9,255
April 30, 1997 $10,316 $11,554 $ 9,178
May 31, 1997 $11,209 $12,250 $10,327
June 30, 1997 $11,710 $12,801 $10,834
July 31, 1997 $11,741(3) $13,820 $11,460
CUMULATIVE TOTAL RETURNS (FUND)
22.41% (1)
17.41 (2)
(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 contingent deferred sales charge
(CDSC) (since inception-5%). See the Fund's current prospectus for
complete details on fees and sales charges.
(3) Closing value assuming a complete redemption on July 31, 1997.
(4) The Standard & Poor's 500 Composite Stock Price Index (S&P 500) is
a broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The performance of the
index does not include any expenses, fees or charges. The index is
unmanaged and should not be considered an investment.
(5) The Lipper Small Cap Funds Index is an equally-weighted performance
index of the largest qualifying funds (based on net assets) in the
small cap funds objective. The index, which is adjusted for capital
gains distributions and income dividends, is unmanaged and should
not be considered for investment. There are currently 30 funds
represented in this index.
THE PORTFOLIO
The Fund's performance since commencing operations has been favorably
impacted by several of its larger holdings, particularly E.W. Blanche
Holdings, Inc., DII Group Inc., Magellan Health Services, Inc. and Sun
Healthcare Group, Inc. DII Group Inc. was sold when it reached the portfolio
manager's long-term target price. The positions in EGG and Spacelabs Medical
were recently sold because the investment rationale was nullified by
management actions. Because the portfolio manager conducts exhaustive
research, the Fund was able to sell these stocks at a profit before the
market recognized the companies' deteriorating fundamentals. Recently, we
established positions in Corvel Corp., a medical services company, Wiser Oil
Co., General Cable Corp. and Chicago Bridge & Iron Co.
The Fund employs a long-term, bottom-up approach to stock selection. The
portfolio's 20 largest positions, which represent about 46 percent of net
assets, have contributed to the Fund's attractive performance over the last
six months. Among these investments are Tracor, Inc., an aerospace company
and Titan Wheel International, Inc., the world's largest wheel producer for
off-highway equipment used in the agriculture and construction industries.
GOING FORWARD
As of July 31, 1997, the Fund held 11 percent of its net assets in cash. This
position is larger than usual at this juncture because the portfolio manager
has recently sold stocks that have met their two- to
<PAGE>
DEAN WITTER SPECIAL VALUE FUND
LETTER TO THE SHAREHOLDERS July 31, 1997, continued
three-year price targets earlier than expected. The portfolio manager intends
to invest these monies in companies whose stock prices suggest limited
downside risk and potentially high reward characteristics.
We appreciate your ongoing support of Dean Witter Special Value Fund and look
forward to continuing to serve your investment needs.
Very truly yours,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE>
DEAN WITTER SPECIAL VALUE FUND
RESULTS OF SPECIAL MEETING (unaudited)
* * *
On May 21, 1997, a special meeting of the Fund's shareholders was held for
the purpose of voting on three separate matters, the results of which were as
follows:
(1) APPROVAL OF A NEW INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE FUND AND
DEAN WITTER INTERCAPITAL INC. IN CONNECTION WITH THE MERGER OF MORGAN
STANLEY GROUP INC. WITH DEAN WITTER, DISCOVER & CO.:
<TABLE>
<CAPTION>
<S> <C>
For ........ 11,341,416
Against .... 206,662
Abstain .... 825,485
</TABLE>
(2) ELECTION OF TRUSTEES:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Michael Bozic Charles A. Fiumefreddo Edwin J. Garn
For................... 11,802,803 For................... 11,824,413 For................... 11,814,903
Withheld.............. 570,760 Withheld.............. 549,150 Withheld.............. 558,660
John R. Haire Wayne E. Hedien Dr. Manuel H. Johnson
For................... 11,807,628 For .................. 11,808,359 For .................. 11,819,421
Withheld ............. 565,935 Withheld ............. 565,204 Withheld ............. 554,142
Michael E. Nugent Philip J. Purcell John L. Schroeder
For .................. 11,833,144 For .................. 11,829,003 For .................. 11,817,280
Withheld ............. 540,419 Withheld ............. 544,560 Withheld ............. 556,283
</TABLE>
(3) RATIFICATION OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS:
<TABLE>
<CAPTION>
<S> <C>
For ........ 11,473,033
Against .... 172,034
Abstain .... 728,496
</TABLE>
<PAGE>
DEAN WITTER SPECIAL VALUE FUND
PORTFOLIO OF INVESTMENTS July 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS (87.1%)
Agriculture (0.6%)
147,000 Sylvan, Inc.* ................................................... $ 1,672,125
---------------
Auto Parts - Original Equipment (2.1%)
336,500 Titan Wheel International, Inc. ................................ 5,804,625
---------------
Building & Construction (0.8%)
100,000 Chicago Bridge & Iron Co. (Netherlands) ......................... 2,287,500
---------------
Building Materials (1.2%)
100,000 Martin Marietta Materials, Inc. ................................ 3,456,250
---------------
Chemicals -Specialty (0.7%)
80,000 McWhorter Technologies, Inc.* ................................... 1,925,000
---------------
Commercial Services (0.9%)
133,700 York Group, Inc. ................................................ 2,473,450
---------------
Computer Software & Services (5.1%)
326,800 BancTec, Inc.* .................................................. 7,986,175
267,500 DecisionOne Holdings Corp.* ..................................... 6,185,937
---------------
14,172,112
---------------
Consumer Services (1.0%)
125,000 Steinway Musical* ............................................... 2,687,500
---------------
Containers (0.4%)
32,000 Liqui-Box Corp. ................................................ 1,104,000
---------------
Distribution (2.8%)
81,400 Rexel, Inc.* .................................................... 1,485,550
350,400 VWR Scientific Products Corp.* .................................. 6,263,400
---------------
7,748,950
---------------
Drugs (1.0%)
160,300 Mylan Laboratories, Inc. ....................................... 2,705,063
---------------
Electronic Components (1.6%)
110,000 Altron, Inc.* ................................................... 1,938,750
175,000 Pioneer Standard Electronics, Inc. .............................. 2,450,000
---------------
4,388,750
---------------
Electronics (2.7%)
92,000 Elsag Bailey Process Automation $2.75 (Conv. Pref.)(Netherlands). 4,002,000
175,000 Exar Corp.* ..................................................... 3,696,875
---------------
7,698,875
---------------
Electronics & Electrical (0.6%)
45,800 Esterline Technologies Corp.* ................................... 1,677,425
---------------
Electronics - Defense (4.6%)
470,000 Tracor, Inc.* ................................................... 12,807,500
---------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SPECIAL VALUE FUND
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
Entertainment (2.0%)
323,300 Showboat, Inc. ................................................. $ 5,677,956
---------------
Healthcare (5.3%)
330,500 Magellan Health Services, Inc.* ................................. 9,853,031
240,000 Sun Healthcare Group, Inc.* ..................................... 5,085,000
---------------
14,938,031
---------------
Home Building (0.8%)
123,200 Schult Homes Corp. ............................................. 2,125,200
---------------
Household Appliances (1.4%)
230,000 Rival Co. ...................................................... 3,852,500
---------------
Insurance (6.6%)
410,700 Capsure Holdings Corp.* ......................................... 5,724,131
320,000 E. W. Blanch Holdings, Inc. ..................................... 9,100,000
220,000 Gryphon Holdings, Inc.* ......................................... 3,767,500
---------------
18,591,631
---------------
Machinery & Machine Tools (1.9%)
50,000 Applied Power, Inc. (Class A) ................................... 2,628,125
100,000 Greenfield Industries, Inc. .................................... 2,837,500
---------------
5,465,625
---------------
Machinery - Diversified (0.8%)
45,000 Briggs & Stratton Corp. ........................................ 2,280,938
---------------
Manufacturing (4.3%)
378,000 Lydall, Inc.* ................................................... 8,883,000
130,600 Watts Industries, Inc. (Class A) ................................ 3,297,650
---------------
12,180,650
---------------
Manufacturing - Diversified (2.9%)
170,000 AMETEK, Inc.* ................................................... 4,590,000
95,000 Kaman Corp. (Class A) ........................................... 1,531,875
123,600 Katy Industries ................................................. 1,884,900
---------------
8,006,775
---------------
Medical Equipment (1.3%)
140,000 Marquette Medical Systems* ...................................... 3,570,000
---------------
Medical Products & Supplies (4.1%)
157,500 Conmed Corp.* ................................................... 2,638,125
78,000 Dentsply International, Inc. ................................... 4,221,750
276,500 Vital Signs, Inc. .............................................. 4,562,250
---------------
11,422,125
---------------
Medical Services (1.0%)
90,700 Corvel Corp.* ................................................... 2,698,325
---------------
Metals (0.6%)
78,900 Penn Engineering & Manufacturing Corp. (Class A) ................ 1,612,519
---------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SPECIAL VALUE FUND
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
Metals & Mining (1.1%)
155,000 Stillwater Mining Co.* .......................................... $ 3,216,250
---------------
Office Equipment & Supplies (1.0%)
45,000 International Imaging Materials, Inc.* .......................... 1,068,750
55,000 New England Business Service, Inc. .............................. 1,622,500
---------------
2,691,250
---------------
Oil & Gas (3.0%)
100,000 Aquila Gas Pipeline Corp. ...................................... 1,312,500
104,400 Forest Oil Corp.* ............................................... 1,474,650
160,000 Vintage Petroleum, Inc. ........................................ 5,750,000
---------------
8,537,150
---------------
Oil & Gas Drilling (0.8%)
76,000 Stone Energy Corp.* ............................................. 2,208,750
---------------
Oil - Exploration & Production (1.4%)
225,000 Wiser Oil Co. ................................................... 4,050,000
---------------
Publishing (1.5%)
347,000 Hollinger International, Inc. (Class A) ......................... 4,250,750
---------------
Real Estate Investment Trust (4.2%)
146,000 Brandywine Realty Trust ......................................... 3,266,750
120,000 First Industrial Realty Trust, Inc. ............................ 3,712,500
200,000 Glenborough Realty Trust, Inc. ................................. 4,762,500
---------------
11,741,75
---------------
Retail (0.9%)
149,500 Lazare Kaplan International, Inc.* ............................. 2,578,875
---------------
Retail - Specialty (2.6%)
218,000 Stanhome, Inc. ................................................. 7,180,375
---------------
Saving & Loan Associations (1.6%)
75,000 Bank United Corp. (Class A) ..................................... 2,831,250
46,200 InterWest Bancorp, Inc. ........................................ 1,790,250
---------------
4,621,500
---------------
Specialty Printing (0.7%)
100,000 Harland (John H.) Co. ........................................... 1,962,500
---------------
Telecommunications (3.6%)
160,000 ECI Telecommunications Limited Designs (Israel) ................. 5,220,000
125,000 Scientific-Atlanta, Inc. ....................................... 2,625,000
159,000 Western Wireless Corp. (Class A)* ............................... 2,385,000
---------------
10,230,000
---------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SPECIAL VALUE FUND
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------------------
Telecommunications Equipment (0.4%)
75,000 CommScope, Inc.* ................................................ $ 1,200,000
---------------
Textiles -Apparel (0.9%)
200,000 Burlington Industries, Inc.* .................................... 2,587,500
---------------
Utilities (1.2%)
100,000 Enron Global Power & Pipelines L.L.C. .......................... 3,318,750
---------------
Water (0.6%)
74,300 Southern California Water Co. .................................. 1,694,969
---------------
Wire & Cable (2.5%)
215,000 Asia Pacific Wire & Cable Corp.* ................................ 2,580,000
150,000 General Cable Corp.* ............................................ 4,518,750
---------------
7,098,750
---------------
TOTAL COMMON AND
PREFERRED STOCKS
(Identified Cost $207,612,289) .................................. 244,200,519
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
<S> <C> <C>
CONVERTIBLE BONDS (1.0%)
Machinery (0.6%)
$ 1,050 Robbins & Meyers, Inc.
6.50% due 09/01/03 ............................................. 1,497,331
--------------
Retail (0.4%)
1,750 JumboSports Inc.
4.25% due 11/01/00 ............................................. 1,138,375
--------------
TOTAL CONVERTIBLE BONDS
(Identified Cost $2,466,563) .................................... 2,635,706
--------------
SHORT-TERM INVESTMENTS (11.2%)
U.S. GOVERNMENT AGENCY (a) (11.1%)
31,000 Federal Home Loan Mortgage
Corp. 5.75% due 08/01/97
(Amortized Cost $31,000,000) ................................... 31,000,000
--------------
REPURCHASE AGREEMENT (0.1%)
442 The Bank of New York
5.75% due 08/01/97
(dated 07/31/97; proceeds
$441,868)(b)
(Identified Cost $441,798) ................................... 441,798
--------------
TOTAL SHORT-TERM
INVESTMENTS
(Identified Cost $31,441,798) ................................... 31,441,798
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SPECIAL VALUE FUND
PORTFOLIO OF INVESTMENTS July 31, 1997, continued
<TABLE>
<CAPTION>
VALUE
- ---------------------------------- -------- --------------
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $241,520,650)(c) . 99.3% $278,278,023
OTHER ASSETS IN EXCESS OF
LIABILITIES ....................... 0.7 2,040,364
-------- --------------
NET ASSETS......................... 100.0% $280,318,387
======== ==============
</TABLE>
- ------------
* 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 $127,506 Federal Home Loan Mortgage Corp. 6.08% due
10/29/08 valued at $121,685 and $315,738 U.S. Treasury Note 7.25% due
02/15/98 valued at $328,949.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$39,493,174 and the aggregate gross unrealized depreciation is
$2,735,801, resulting in net unrealized appreciation of $36,757,373.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SPECIAL VALUE FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value (identified cost
$241,520,650).................................................... $278,278,023
Receivable for:
Investments sold................................................ 4,583,462
Shares of beneficial interest sold.............................. 357,345
Dividends....................................................... 81,885
Interest........................................................ 47,031
Deferred organizational expenses.................................. 152,140
Prepaid expenses and other assets................................. 47,955
---------------
TOTAL ASSETS.................................................... 283,547,841
---------------
LIABILITIES:
Payable for:
Investments purchased........................................... 2,519,527
Plan of distribution fee........................................ 233,764
Investment management fee....................................... 175,323
Shares of beneficial interest repurchased....................... 165,309
Accrued expenses and other payables............................... 135,531
---------------
TOTAL LIABILITIES............................................... 3,229,454
---------------
NET ASSETS ....................................................... $280,318,387
===============
COMPOSITION OF NET ASSETS:
Paid-in-capital................................................... $231,663,293
Net unrealized appreciation ...................................... 36,757,373
Undistributed net realized gain................................... 11,897,721
---------------
NET ASSETS ..................................................... $280,318,387
===============
CLASS A SHARES:
Net Assets........................................................ $ 10,106
Shares Outstanding (unlimited authorized, $.01 par value) ........ 828
NET ASSET VALUE PER SHARE....................................... $ 12.21
===============
MAXIMUM OFFERING PRICE PER SHARE
(net asset value plus 5.54% of net asset value)................ $ 12.89
===============
CLASS B SHARES:
Net Assets........................................................ $280,287,612
Shares Outstanding (unlimited authorized, $.01 par value) ........ 22,957,030
NET ASSET VALUE PER SHARE....................................... $ 12.21
===============
CLASS C SHARES:
Net Assets........................................................ $ 10,563
Shares Outstanding (unlimited authorized, $.01 par value) ........ 865
NET ASSET VALUE PER SHARE....................................... $ 12.21
===============
CLASS D SHARES:
Net Assets........................................................ $ 10,106
Shares Outstanding (unlimited authorized, $.01 par value) ........ 828
NET ASSET VALUE PER SHARE....................................... $ 12.21
===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SPECIAL VALUE FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the period October 29, 1996* through July 31, 1997**
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest.......................................... $ 1,896,084
Dividends (net of $3,770 foreign withholding
tax)............................................. 1,516,682
------------
TOTAL INCOME ................................... 3,412,766
------------
EXPENSES
Plan of distribution fee (Class B shares) ........ 1,726,901
Investment management fee......................... 1,295,177
Transfer agent fees and expenses.................. 208,788
Registration fees................................. 79,851
Professional fees................................. 51,432
Shareholder reports and notices................... 41,012
Organizational expenses........................... 27,089
Custodian fees.................................... 26,413
Trustees' fees and expenses....................... 9,407
Other............................................. 1,279
------------
TOTAL EXPENSES.................................. 3,467,349
------------
NET INVESTMENT LOSS............................. (54,583)
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain................................. 12,293,884
Net unrealized appreciation ...................... 36,757,373
------------
NET GAIN........................................ 49,051,257
------------
NET INCREASE...................................... $48,996,674
============
</TABLE>
- -------------------
* Commencement of operations.
** Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SPECIAL VALUE FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 29, 1996*
THROUGH
JULY 31, 1997**
- --------------------------------------------------------------- -----------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss............................................. $ (54,583)
Net realized gain............................................... 12,293,884
Net unrealized appreciation..................................... 36,757,373
---------------
NET INCREASE ................................................. 48,996,674
---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class B shares ................................................ (99,469)
Net realized gain
Class B shares................................................. (396,163)
---------------
TOTAL DIVIDENDS AND DISTRIBUTIONS............................. (495,632)
---------------
Net increase from transactions in shares of beneficial interest 231,717,345
---------------
NET INCREASE ................................................. 280,218,387
NET ASSETS:
Beginning of period............................................. 100,000
---------------
END OF PERIOD................................................. $280,318,387
===============
</TABLE>
- -------------------
* Commencement of operations.
** Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SPECIAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS July 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Special Value Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is
long-term capital appreciation. The Fund seeks to achieve its objective by
investing primarily in domestic equity securities of small capitalization
companies. The Fund was organized as a Massachusetts business trust on June
21, 1996 and had no other operations other than those relating to
organizational matters and the issuance of 10,000 shares of beneficial
interest for $100,000 to Dean Witter InterCapital Inc. (the "Investment
Manager") to effect the Fund's initial capitalization. The Fund commenced
operations on October 29, 1996. On July 28, 1997, the Fund commenced offering
three additional classes of shares, with the then current shares designated
as Class B shares.
The Fund has temporarily suspended the offering of its shares to new
investors. Current shareholders continue to be able to purchase additional
Fund shares. The Fund will recommence offering its shares to new investors
from time to time as may be determined by the Investment Manager.
The Fund 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, 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 domestic or foreign 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 securities are traded on more than one exchange,
the security is valued on the exchange designated as the primary market
pursuant to procedures adopted by the Trustees); (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest available bid price prior to the time of valuation;
(3) when market quotations are not readily available, including circumstances
under which it is determined by the Investment Manager that sale or bid
prices are not reflective of a security's market value, portfolio securities
are valued at their fair value as
<PAGE>
DEAN WITTER SPECIAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS July 31, 1997, continued
determined in good faith under procedures established by and under the
general supervision of the Trustees (valuation of debt securities for which
market quotations are not readily available may be based upon current market
prices of securities which are comparable in coupon, rating and maturity or
an appropriate matrix utilizing similar factors); (4) certain portfolio
securities may be valued by an outside pricing service approved by the
Trustees. The pricing service may utilize a matrix system incorporating
security quality, maturity and coupon as the evaluation model parameters,
and/or research and evaluations by its staff, including review of
broker-dealer market price quotations, if available, in determining what it
believes is the fair valuation of the portfolio securities valued by such
pricing service; and (5) 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 life of the respective
securities. Interest income is accrued daily.
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 the income is earned or expenses and
realized and unrealized gains and losses are incurred. Distribution fees are
charged directly to the respective class.
C. 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.
D. 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
<PAGE>
DEAN WITTER SPECIAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS July 31, 1997, continued
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.
E. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of $179,229 which was 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 Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.75% to the net assets of the Fund determined as of the close
of each business day.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Fund who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted
a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The
Plan provides that the Fund will pay the Distributor a fee which is accrued
daily and paid monthly at the following annual rates: (i) Class A -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 -1.0% of the average daily net
assets of Class C. In the case of Class A shares, amounts paid under the Plan
are paid to the Distributor for services provided. In the case of Class B and
Class C shares, amounts paid under the Plan are paid to the Distributor for
services provided and the expenses borne by it and others in the distribution
of the shares of these Classes, including the payment of commissions for
sales of these Classes and incentive compensation to, and expenses of, the
account executives of Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Investment Manager and Distributor, and others who engage in or support
distribution of the shares or who service shareholder accounts, including
overhead and telephone expenses; printing and distribution of prospectuses
and reports used in connection with the offering of these shares to other
than current shareholders; and preparation, printing and distribution of
sales
<PAGE>
DEAN WITTER SPECIAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS July 31, 1997, continued
literature and advertising materials. In addition, the Distributor may
utilize fees paid pursuant to the Plan, in the case of Class B shares, to
compensate DWR and other selected broker-dealers for their opportunity costs
in advancing such amounts, which compensation would be in the form of a
carrying charge on any unreimbursed expenses.
In the case of Class B shares, 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 Fund 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 Fund that such
excess amounts, including carrying charges, totaled $11,666,768 at July 31,
1997.
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 Fund through payments in any subsequent year, except that expenses
representing a gross sales credit to account executives may be reimbursed in
the subsequent calendar year. For the period ended July 31, 1997, the
distribution fee was accrued for Class A shares and Class C shares at the
annual rate of 0.25% and 1.0%, respectively.
The Distributor has informed the Fund that for the period ended July 31,
1997, it received contingent deferred sales charges from certain redemptions
of the Fund's Class B shares of approximately $342,000. The shareholders pay
such charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the period ended July 31, 1997
aggregated $303,046,961 and $105,262,017, respectively.
For the period ended July 31, 1997, the Fund incurred brokerage commissions
of $51,805 with DWR for portfolio transactions executed on behalf of the
Fund.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At July 31, 1997, the Fund had
transfer agent fees and expenses payable of approximately $5,000.
<PAGE>
DEAN WITTER SPECIAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS July 31, 1997, continued
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 29, 1996*
THROUGH
JULY 31, 1997
---------------------------------
<S> <C> <C>
SHARES AMOUNT
----------------- --------------
CLASS A SHARES**
Sold ...................... 828 $ 10,015
----------------- --------------
CLASS B SHARES
Sold ...................... 24,952,042 253,387,961
Reinvestment of dividends . 45,626 464,015
Redeemed .................. (2,050,638) (22,165,133)
----------------- --------------
Net increase -Class B ..... 22,947,030 231,686,843
----------------- --------------
CLASS C SHARES**
Sold ...................... 865 10,472
----------------- --------------
CLASS D SHARES**
Sold ...................... 828 10,015
----------------- --------------
Net increase in Fund ...... 22,949,551 $231,717,345
================= ==============
</TABLE>
- ------------
* Commencement of operations.
** For the period July 28, 1997 (issue date) through July 31, 1997.
6. FEDERAL INCOME TAX STATUS
As of July 31, 1997, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and permanent book/tax
differences primarily attributable to nondeductible expenses. To reflect
reclassifications arising from the permanent differences, paid-in-capital was
charged and accumulated net investment loss was credited $154,052.
<PAGE>
DEAN WITTER SPECIAL VALUE FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 29, 1996*
THROUGH
JULY 31, 1997**
- ----------------------------------------------------------
<S> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .. $10.00
-------------
Net realized and unrealized gain ....... 2.24
-------------
Less dividends and distributions from:
Net investment income.................. (0.01)
Net realized gain...................... (0.02)
-------------
Total dividends and distributions ...... (0.03)
-------------
Net asset value, end of period.......... $12.21
=============
TOTAL INVESTMENT RETURN+ ............... 22.41%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................... 2.01%(2)
Net investment loss..................... (0.03)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $280,288
Portfolio turnover rate................. 57%(1)
Average commission rate paid ........... $0.0571
</TABLE>
- ------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated Class B
shares.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SPECIAL VALUE FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
JULY 31, 1997
- --------------------------------------------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $12.10
Net realized and unrealized gain ....... 0.11
------
Net asset value, end of period .......... $12.21
======
TOTAL INVESTMENT RETURN+ ................ 0.91%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................. 1.20%(2)
Net investment income.................... 2.27%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $10
Portfolio turnover rate ................. 57%(1)
Average commission rate paid ............ $0.0571
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $12.10
Net realized and unrealized gain ........ 0.11
---------
Net asset value, end of period........... $12.21
=========
TOTAL INVESTMENT RETURN+ ................ 0.91%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 1.94%(2)
Net investment income.................... 1.49%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands . $11
Portfolio turnover rate.................. 57%(1)
Average commission rate paid ............ $0.0571
</TABLE>
- ------------
* The date shares were first issued.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SPECIAL VALUE FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
JULY 31, 1997
- -------------------------------------------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .. $ 12.10
Net realized and unrealized gain ....... 0.11
-----------
Net asset value, end of period.......... $ 12.21
===========
TOTAL INVESTMENT RETURN+ ............... 0.91%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................... 0.94%(2)
Net investment income................... 2.53%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $10
Portfolio turnover rate................. 57%(1)
Average commission rate paid ........... $0.0571
</TABLE>
- ------------
* The date shares were first issued.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SPECIAL VALUE FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER SPECIAL VALUE FUND
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 Dean Witter
Special Value Fund (the "Fund") at July 31, 1997, and the results of its
operations and the changes in its net assets for the period October 29, 1996
(commencement of operations) through July 31, 1997 and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit, which included confirmation of securities at July 31, 1997 by
correspondence with the custodian and brokers, provides a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
September 12, 1997
1997 FEDERAL TAX NOTICE (unaudited)
During the period ended July 31, 1997, 11.90% of the income paid
qualified for the dividends received deduction available to
corporations.
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Jenny Beth Jones
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust FSB
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
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 offices 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.
DEAN WITTER
SPECIAL VALUE FUND
ANNUAL REPORT
JULY 31, 1997
