<PAGE> 1
DEAN WITTER SPECIAL VALUE FUND Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS January 31, 1998
DEAR SHAREHOLDER:
Small-cap stocks were highly volatile during the six months ended January 31,
1998. At the beginning of the period, small caps were outperforming large caps.
However, at the end of this period, worries about the economic crisis in Asia
caused investors to seek the safety of larger, more well known companies. This
"flight to safety" caused small caps to once again fall behind their larger
counterparts.
PERFORMANCE
For the six-month period ended January 31, 1998, the Fund's Class B shares
posted a total return of 5.27 percent, versus 6.10 percent and 0.60 percent,
respectively, for the Russell 2000 Index and the Lipper Small Cap Funds Index.
Since their inception on July 28, 1997, through January 31, 1998, the Fund's
Class A, C and D shares had total returns of 5.69 percent, 5.27 percent and 5.86
percent, respectively. Performance of the Fund's four share classes varies
because of differing charges and expenses.
The Fund's performance over the last six months was favorably affected by
several of its larger holdings, including Showboat, Inc. (1.5 percent of
assets), Glenborough Realty Trust, Inc. (2.7 percent) and Tracor, Inc. (2.3
percent). Showboat, Inc. was a particularly rewarding holding: during the period
under review, Hilton made a bid for its stock at 60 percent above the Fund's
cost. The small-cap market was negatively affected by the October stock market
correction; however, Dean Witter Special Value Fund exhibited a great deal of
resilience during the period. This ability to rebound was due in large part to
the Fund's long-term bottom-up value approach and to the undervalued nature of
the investments it seeks to exploit.
On December 16, 1997, Dean Witter Special Value Fund reopened to new investors.
From this date through calendar year-end, pent-up demand for the Fund resulted
in cash inflows of about $60 million and an increased
<PAGE> 2
DEAN WITTER SPECIAL VALUE FUND
LETTER TO THE SHAREHOLDERS January 31, 1998, continued
cash position of 9.5 percent. These monies are being invested in current
holdings as well as in selected new businesses that meet the Fund's investment
criteria.
LOOKING AHEAD
We believe that the Fund's intense fundamental research resulting in a portfolio
of approximately 65 to 70 companies, as well as our strict adherence to our
buy/sell valuation criteria, will contribute positively to the Fund's
performance over the long term. We appreciate your 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> 3
DEAN WITTER SPECIAL VALUE FUND
PORTFOLIO OF INVESTMENTS January 31, 1998 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<S> <C>
COMMON STOCKS (83.2%)
Aerospace & Defense (1.8%)
271,300 Watkins-Johnson Co. ......... $ 6,782,500
------------
Agriculture (0.4%)
117,000 Sylvan, Inc.*................ 1,440,562
------------
Auto Parts - Original Equipment (0.9%)
190,000 Titan Wheel International,
Inc. ....................... 3,396,250
------------
Commercial Services (1.1%)
191,700 York Group, Inc. ............ 4,217,400
------------
Computer Equipment (3.8%)
568,600 BancTec, Inc.*............... 14,534,837
------------
Computer Software & Services (2.3%)
365,000 Wang Laboratories, Inc.*..... 8,668,750
------------
Computers - Systems (0.3%)
60,000 Sequent Computer Systems,
Inc.*....................... 1,057,500
------------
Containers (0.6%)
58,000 Liqui-Box Corp. ............. 2,189,500
------------
Electric Utilities (1.1%)
282,500 Calpine Corp.*............... 4,449,375
------------
Electronics (0.5%)
250,000 Information Storage Devices,
Inc.*....................... 1,796,875
------------
Electronics - Defense (2.3%)
306,000 Tracor, Inc.*................ 8,682,750
------------
Electronics - Semiconductors (1.2%)
250,000 Unitrode Corp.*.............. 4,531,250
------------
Electronics - Semiconductors/ Components
(1.7%)
364,000 Exar Corp.*.................. 6,734,000
------------
Energy Exploration (0.4%)
210,820 Hurricane Hydrocarbons Ltd.
(Class A) (Canada)*......... 1,541,621
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<S> <C> <C>
Entertainment (2.5%)
200,000 Showboat, Inc. .............. $ 5,900,000
153,500 Steinway Musical Instruments
Inc.*....................... 3,645,625
------------
9,545,625
------------
Entertainment/Gaming (0.3%)
200,000 GameTech International,
Inc.*....................... 1,175,000
------------
Environmental Control (2.0%)
365,000 TETRA Technologies, Inc.*.... 7,801,875
------------
Financial (1.0%)
95,000 Bank United Corp. (Class
A).......................... 3,918,750
------------
Food, Beverage, & Tobacco (1.0%)
467,000 M & F Worldwide Corp.*....... 3,969,500
------------
Healthcare (3.3%)
498,265 Magellan Health Services,
Inc.*....................... 9,809,592
150,000 Sun Healthcare Group,
Inc.*....................... 2,793,750
------------
12,603,342
------------
Home Building (0.8%)
140,000 Schult Homes Corp. .......... 3,097,500
------------
Hospital Management (1.0%)
255,000 Veterinary Centers of
America, Inc.*.............. 3,697,500
------------
Industrials (0.9%)
200,000 Elsag Bailey Process Automation
N.V. (Netherlands)*......... 3,387,500
------------
Insurance (3.0%)
220,000 MMI Companies, Inc. ......... 5,376,250
234,000 United Wisconsin Services,
Inc. ....................... 5,996,250
------------
11,372,500
------------
Insurance Brokers (1.0%)
110,000 E. W. Blanch Holdings,
Inc. ....................... 3,712,500
------------
Insurance & Financial Services (2.0%)
485,700 CNA Surety Corp.*............ 7,710,487
------------
Labels (1.1%)
300,000 Paxar Corp.*................. 4,275,000
------------
Leasing (1.5%)
300,000 Willis Lease Finance
Corp.*...................... 5,625,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 4
DEAN WITTER SPECIAL VALUE FUND
PORTFOLIO OF INVESTMENTS January 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<S> <C>
Machinery & Machine Tools (1.1%)
175,600 Gleason Corp. ............... $ 4,269,275
------------
Manufacturing (2.0%)
385,000 Lydall, Inc.*................ 7,675,937
------------
Manufacturing - Consumer & Industrial
Products (2.7%)
510,000 Baldwin Technology Co., Inc.
(Class A)*.................. 2,518,125
293,000 Denison International PLC
(ADR) (United Kingdom)*..... 4,688,000
240,000 Farr Co.*.................... 3,360,000
------------
10,566,125
------------
Manufacturing - Diversified (1.2%)
173,900 AMETEK, Inc.................. 4,532,269
------------
Medical Equipment (0.9%)
140,000 Marquette Medical Systems*... 3,640,000
------------
Medical Products & Supplies (3.5%)
253,300 Conmed Corp.*................ 5,509,275
130,000 Dentsply International,
Inc. ....................... 3,867,500
220,600 Vital Signs, Inc. ........... 4,218,975
------------
13,595,750
------------
Medical Services (1.6%)
167,700 Corvel Corp.*................ 6,204,900
------------
Metals (0.5%)
78,900 Penn Engineering & Manufacturing
Corp. (Class A)............. 1,888,669
------------
Metals & Mining (1.7%)
332,500 Stillwater Mining Co.*....... 6,546,094
------------
Oil & Gas (2.0%)
390,000 Snyder Oil Corp. ............ 6,508,125
57,700 Vintage Petroleum, Inc. ..... 1,016,962
------------
7,525,087
------------
Oil - Exploration & Production (3.4%)
310,600 Forest Oil Corp.*............ 4,387,225
325,000 Petroglyph Energy, Inc.*..... 2,884,375
437,000 Wiser Oil Co. ............... 5,735,625
------------
13,007,225
------------
Property - Casualty Insurance (1.2%)
310,000 Gryphon Holdings, Inc.*...... 4,843,750
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<S> <C>
Publishing (1.4%)
385,000 Hollinger International, Inc.
(Class A)................... $ 5,365,938
------------
Real Estate Investment Trust (5.1%)
146,000 Brandywine Realty Trust...... 3,504,000
330,000 Glenborough Realty Trust,
Inc. ....................... 10,477,500
407,800 Mid-Atlantic Realty Trust.... 5,785,663
------------
19,767,163
------------
Recreation (0.3%)
61,800 Intrawest Corp. (Canada)..... 1,023,563
------------
Reinsurers (5.4%)
404,500 Chartwell Re Corp. .......... 13,702,438
165,000 RenaissanceRe Holdings, Ltd.
(Bermuda)................... 6,888,750
------------
20,591,188
------------
Retail (0.6%)
221,000 Lazare Kaplan International,
Inc.*....................... 2,403,375
------------
Retail - Specialty (1.6%)
226,200 Stanhome, Inc. .............. 6,135,675
------------
Savings & Loan Associations (1.4%)
46,900 InterWest Bancorp, Inc. ..... 1,829,100
200,000 Sovereign Bancorp, Inc. ..... 3,712,500
------------
5,541,600
------------
Sporting Goods (0.7%)
149,500 Sturm, Ruger & Co., Inc. .... 2,606,906
------------
Telecommunication Equipment (1.2%)
213,500 Asia Pacific Wire & Cable
Corp.*...................... 1,601,250
80,000 General Cable Corp. ......... 3,105,000
------------
4,706,250
------------
Telecommunications (2.0%)
160,000 ECI Telecommunications
Limited Designs (Israel).... 4,000,000
180,000 Western Wireless Corp. (Class
A)*......................... 3,600,000
------------
7,600,000
------------
Textiles (1.0%)
282,000 Burlington Industries,
Inc.*....................... 4,018,500
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
DEAN WITTER SPECIAL VALUE FUND
PORTFOLIO OF INVESTMENTS January 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<S> <C>
Water (0.9%)
133,100 Southern California Water
Co. ........................ $ 3,369,094
------------
TOTAL COMMON STOCKS
(Identified Cost
$293,029,311)................ 319,339,582
------------
CONVERTIBLE PREFERRED STOCKS (3.7%)
Auto Parts - Original Equipment (1.8%)
140,000 BTI Capital Trust
$3.25 - 144A**.............. 6,755,000
------------
Industrials (1.9%)
184,000 Elsag Bailey Process
Automation $2.75
(Netherlands)............... 7,302,592
------------
TOTAL CONVERTIBLE PREFERRED
STOCKS
(Identified Cost
$14,122,245)................ 14,057,592
------------
PRINCIPAL
AMOUNT IN
THOUSANDS
-------
SHORT-TERM INVESTMENTS (12.2%)
U.S. GOVERNMENT AGENCY (a) (12.0%)
$46,000 Federal Home Loan Mortgage
Corp. 5.57% due 02/02/98
(Amortized Cost $45,985,766).. 45,985,766
------------
REPURCHASE AGREEMENT (0.2%)
832 The Bank of New York 5.375%
due 02/02/98 (dated
01/30/98; proceeds $832,178)
(b)
(Identified Cost
$831,805)................... 831,805
------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost
$46,817,571)................ 46,817,571
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
- -------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $353,969,127)
(c)............................ 99.1% $380,214,745
OTHER ASSETS IN EXCESS
OF LIABILITIES................... 0.9 3,600,188
----- ------------
NET ASSETS..................... 100.0% $383,814,933
===== ============
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
** Resale is restricted to qualified institutional
investors.
(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 $824,806 U.S. Treasury Note
6.75% due 05/31/99 valued at $848,441.
(c) The aggregate cost for federal income tax
purposes approximates identified cost. The
aggregate gross unrealized appreciation is
$34,973,868 and the aggregate gross unrealized
depreciation is $8,728,250, resulting in net
unrealized appreciation of $26,245,618.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
DEAN WITTER SPECIAL VALUE FUND
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1998 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $353,969,127).......... $380,214,745
Receivable for:
Investments sold..................... 7,525,870
Shares of beneficial interest sold... 1,347,617
Dividends............................ 4,000
Deferred organizational expenses......... 134,080
Prepaid expenses and other assets........ 90,781
------------
TOTAL ASSETS......................... 389,317,093
------------
LIABILITIES:
Payable for:
Investments purchased................ 4,743,546
Plan of distribution fee............. 312,557
Investment management fee............ 236,776
Shares of beneficial interest
repurchased......................... 127,245
Accrued expenses and other payables...... 82,036
------------
TOTAL LIABILITIES.................... 5,502,160
------------
NET ASSETS........................... $383,814,933
============
COMPOSITION OF NET ASSETS:
Paid-in-capital.......................... $339,836,664
Net unrealized appreciation.............. 26,245,618
Net investment loss...................... (313,376)
Accumulated undistributed net realized
gain.................................... 18,046,027
------------
NET ASSETS........................... $383,814,933
============
CLASS A SHARES:
Net Assets............................... $3,954,150
Shares Outstanding (unlimited authorized,
$.01 par value)......................... 329,122
NET ASSET VALUE PER SHARE............ $12.01
======
MAXIMUM OFFERING PRICE PER SHARE
(net asset value plus 5.54% of net
asset value)........................ $12.68
======
CLASS B SHARES:
Net Assets............................... $375,606,545
Shares Outstanding (unlimited authorized,
$.01 par value)......................... 31,396,856
NET ASSET VALUE PER SHARE............ $11.96
======
CLASS C SHARES:
Net Assets............................... $3,124,560
Shares Outstanding (unlimited authorized,
$.01 par value)......................... 261,178
NET ASSET VALUE PER SHARE............ $11.96
======
CLASS D SHARES:
Net Assets............................... $1,129,678
Shares Outstanding (unlimited authorized,
$.01 par value)......................... 93,920
NET ASSET VALUE PER SHARE............ $12.03
======
STATEMENT OF OPERATIONS
For the six months ended January 31, 1998 (unaudited)
NET INVESTMENT INCOME:
INCOME
Dividends (net of $5,039 foreign
withholding tax)........................ $ 1,671,895
Interest................................. 1,115,603
------------
TOTAL INCOME......................... 2,787,498
------------
EXPENSES
Plan of distribution fee (Class A
shares)................................. 1,392
Plan of distribution fee (Class B
shares)................................. 1,574,070
Plan of distribution fee (Class C
shares)................................. 4,004
Investment management fee................ 1,188,613
Transfer agent fees and expenses......... 159,083
Registration fees........................ 74,549
Professional fees........................ 28,522
Shareholder reports and notices.......... 26,866
Organizational expenses.................. 18,060
Custodian fees........................... 16,650
Trustees' fees and expenses.............. 7,998
Other.................................... 1,067
------------
TOTAL EXPENSES....................... 3,100,874
------------
NET INVESTMENT LOSS.................. (313,376)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................ 26,598,315
Net change in unrealized appreciation.... (10,511,755)
------------
NET GAIN............................. 16,086,560
------------
NET INCREASE............................. $ 15,773,184
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
DEAN WITTER SPECIAL VALUE FUND
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
FOR THE SIX OCTOBER 29, 1996*
MONTHS ENDED THROUGH
JANUARY 31, 1998 JULY 31, 1997**
- ------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss................................. $ (313,376) $ (54,583)
Net realized gain................................... 26,598,315 12,293,884
Net change in unrealized appreciation............... (10,511,755) 36,757,373
------------ ------------
NET INCREASE.................................... 15,773,184 48,996,674
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class B shares.................................. -- (99,469)
Net realized gain
Class A shares.................................. (36,473) --
Class B shares.................................. (20,393,805) (396,163)
Class C shares.................................. (18,182) --
Class D shares.................................. (1,549) --
------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS............... (20,450,009) (495,632)
------------ ------------
Net increase from transactions in shares of
beneficial interest................................ 108,173,371 231,717,345
------------ ------------
NET INCREASE.................................... 103,496,546 280,218,387
NET ASSETS:
Beginning of period................................. 280,318,387 100,000
------------ ------------
END OF PERIOD
(Including a net investment loss of $313,376 and
$0, respectively)............................... $383,814,933 $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> 8
DEAN WITTER SPECIAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998 (unaudited)
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 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 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
<PAGE> 9
DEAN WITTER SPECIAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998 (unaudited) continued
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.
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. 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.
E. 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.
<PAGE> 10
DEAN WITTER SPECIAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998 (unaudited) continued
F. 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 -- up to 0.25% of the
average daily net assets of Class A; (ii) Class B -- 1.0% of the average daily
net assets of Class B; and (iii) Class C -- up to 1.0% of the average daily net
assets of Class C. In the case of Class A shares, amounts paid under the Plan
are paid to the Distributor for services provided. In the case of Class B and
Class C shares, amounts paid under the Plan are paid to the Distributor for
services provided and the expenses borne by it and others in the distribution of
the shares of these Classes, including the payment of commissions for sales of
these Classes and incentive compensation to, and expenses of, 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 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
<PAGE> 11
DEAN WITTER SPECIAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998 (unaudited) continued
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 $14,134,508 at January 31, 1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
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 six months ended January 31, 1998, the distribution fee
was accrued for Class A shares and Class C shares at the annual rate of 0.25%
and 1.0%, respectively.
The Distributor has informed the Fund that for the six months ended January 31,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $330,595 and $15, respectively
and received $120,453 in front-end sales from sales of the Fund's Class A
shares. The respective 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 six months ended January 31, 1998 aggregated
$229,339,850 and $158,865,461, respectively.
For the six months ended January 31, 1998, the Fund incurred brokerage
commissions of $81,845 with DWR for portfolio transactions executed on behalf of
the Fund.
For the six months ended January 31, 1998, the Fund incurred brokerage
commissions of $27,275 with Morgan Stanley & Co., Inc., an affiliate of the
Investment Manager, for portfolio transactions executed on behalf of the Fund.
<PAGE> 12
DEAN WITTER SPECIAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998 (unaudited) continued
Dean Witter Trust FSB, an affiliate of the Investment Manager and Distributor,
is the Fund's transfer agent. At January 31, 1998, the Fund had transfer agent
fees and expenses payable of approximately $6,000.
5. SHARES OF BENEFICIAL INTEREST+
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX OCTOBER 29, 1996*
MONTHS ENDED THROUGH
JANUARY 31, 1998 JULY 31, 1997**
------------------------- -------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold........................................................ 338,149 $ 4,042,667 828 $ 10,015
Reinvestment of distributions............................... 3,096 36,472 -- --
Redeemed.................................................... (12,951) (155,116) -- --
---------- ------------ ---------- ------------
Net increase - Class A...................................... 328,294 3,924,023 828 10,015
---------- ------------ ---------- ------------
CLASS B SHARES
Sold........................................................ 8,555,714 102,847,138 24,952,042 253,387,961
Reinvestment of dividends and distributions................. 1,627,398 19,105,644 45,626 464,015
Redeemed.................................................... (1,743,286) (21,905,964) (2,050,638) (22,165,133)
---------- ------------ ---------- ------------
Net increase - Class B...................................... 8,439,826 100,046,818 22,947,030 231,686,843
---------- ------------ ---------- ------------
CLASS C SHARES
Sold........................................................ 260,174 3,090,450 865 10,472
Reinvestment of distributions............................... 1,549 18,182 -- --
Redeemed.................................................... (1,410) (16,674) -- --
---------- ------------ ---------- ------------
Net increase - Class C...................................... 260,313 3,091,958 865 10,472
---------- ------------ ---------- ------------
CLASS D SHARES
Sold........................................................ 92,973 1,109,177 828 10,015
Reinvestment of distributions............................... 131 1,549 -- --
Redeemed.................................................... (12) (154) -- --
---------- ------------ ---------- ------------
Net increase - Class D...................................... 93,092 1,110,572 828 10,015
---------- ------------ ---------- ------------
Net increase in Fund........................................ 9,121,525 $108,173,371 22,949,551 $231,717,345
========== ============ ========== ============
</TABLE>
- ---------------------
+ For the period March 28, 1997 through December 15, 1997, the Fund suspended
the offering of its shares to new investors. The Fund intends to suspend the
offering of its shares to new investors from time to time as may be
determined by the Investment Manager.
* Commencement of operations.
** For Class A, C, and D shares, for the period July 28, 1997 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.
<PAGE> 13
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
FOR THE SIX OCTOBER 29, 1996*
MONTHS ENDED THROUGH
JANUARY 31, 1998++ JULY 31, 1997**++
- -----------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $12.21 $10.00
------ ------
Net investment loss......................................... (0.01) --
Net realized and unrealized gain............................ 0.64 2.24
------ ------
Total from investment operations............................ 0.63 2.24
------ ------
Less dividends and distributions from:
Net investment income.................................... -- (0.01)
Net realized gain........................................ (0.88) (0.02)
------ ------
Total dividends and distributions........................... (0.88) (0.03)
------ ------
Net asset value, end of period.............................. $11.96 $12.21
====== ======
TOTAL INVESTMENT RETURN+.................................... 5.27 %(1) 22.41 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.96 %(2) 2.01 %(2)
Net investment loss......................................... (0.20)%(2) (0.03)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $375,607 $280,288
Portfolio turnover rate..................................... 57 %(1) 57 %(1)
Average commission rate paid................................ $0.0569 $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.
++ 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.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 14
DEAN WITTER SPECIAL VALUE FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JULY 28, 1997*
MONTHS ENDED THROUGH
JANUARY 31, 1998++ JULY 31, 1997++
- ---------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $12.21 $12.10
------ ------
Net investment income....................................... 0.02 --
Net realized and unrealized gain............................ 0.66 0.11
------ ------
Total from investment operations............................ 0.68 0.11
------ ------
Less distributions from net realized gain................... (0.88) --
------ ------
Net asset value, end of period.............................. $12.01 $12.21
====== ======
TOTAL INVESTMENT RETURN+.................................... 5.69%(1) 0.91%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.24%(2) 1.20%(2)
Net investment income....................................... 0.35%(2) 2.27%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $3,954 $10
Portfolio turnover rate..................................... 57%(1) 57%(1)
Average commission rate paid................................ $0.0569 $0.0571
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $12.21 $12.10
------ ------
Net investment loss......................................... (0.03) --
Net realized and unrealized gain............................ 0.66 0.11
------ ------
Total from investment operations............................ 0.63 0.11
------ ------
Less distributions from net realized gain................... (0.88) --
------ ------
Net asset value, end of period.............................. $11.96 $12.21
====== ======
TOTAL INVESTMENT RETURN+.................................... 5.27 %(1) 0.91%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 2.00 %(2) 1.94%(2)
Net investment income (loss)................................ (0.46)%(2) 1.49%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $3,125 $11
Portfolio turnover rate..................................... 57 %(1) 57%(1)
Average commission rate paid................................ $0.0569 $0.0571
</TABLE>
- ---------------------
* The date shares were first issued.
++ 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.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 15
DEAN WITTER SPECIAL VALUE FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JULY 28, 1997*
MONTHS ENDED THROUGH
JANUARY 31, 1998++ JULY 31, 1997++
- ---------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $12.21 $12.10
------ ------
Net investment income....................................... 0.03 --
Net realized and unrealized gain............................ 0.67 0.11
------ ------
Total from investment operations............................ 0.70 0.11
------ ------
Less distributions from net realized gain................... (0.88) --
------ ------
Net asset value, end of period.............................. $12.03 $12.21
====== ======
TOTAL INVESTMENT RETURN+.................................... 5.86%(1) 0.91%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.99%(2) 0.94%(2)
Net investment income....................................... 0.52%(2) 2.53%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $1,130 $10
Portfolio turnover rate..................................... 57%(1) 57%(1)
Average commission rate paid................................ $0.0569 $0.0571
</TABLE>
- ---------------------
* The date shares were first issued.
++ 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.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 16
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
The financial statements included herein have been taken from the records of
the Fund without examination by the independent accountants and accordingly
they do not express an opinion thereon.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and
trustees, fees, expenses and other pertinent information, please see the
prospectus of the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
DEAN WITTER
SPECIAL VALUE FUND
[GRAPHIC]
SEMIANNUAL REPORT
JANUARY 31, 1998
