<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND Two World Trade Center,
LETTER TO THE SHAREHOLDERS July 31, 1999 New York, New York 10048
DEAR SHAREHOLDER:
During the twelve-month period ended July 31, 1999, investors experienced two
different markets. The first half of the fiscal year saw small- and
mid-capitalization stocks eclipsed by the returns of a narrow list of
larger-cap growth stocks. Huge cash flows into these few large-cap companies
left the rest of the market relatively neglected, taking the relative
valuations of small- and mid-cap companies to historically low levels.
In the second half of the period, however, the U.S. equity market experienced a
change in leadership. Mega-cap market leaders, particularly in the technology
and pharmaceutical sectors, which had dominated the market's performance in
1998, experienced lower returns. Large-cap multinationals also faltered as
concerns over inflation and global economic crises surfaced. In contrast to the
rocky road endured by large-cap stocks, mid- and small-cap stocks had a much
smoother ride. Renewed worries about increasing inflation, given global growth
rates, prompted investors to begin rotating out of high P/E growth stocks into
value investments. Against this backdrop, small-cap value stocks began to
outperform in the last four months of the fiscal year. Furthermore, during the
last six months, mergers and acquisitions and leveraged buyouts within the
small-cap sector have reached an activity level not seen since the 1980s,
creating renewed interest in small-cap stocks.
PERFORMANCE
For the twelve-month period ended July 31, 1999, Morgan Stanley Dean Witter
Special Value Fund's Class B shares posted a total return of 4.14 percent,
compared to 8.51 percent for the Lipper Small Cap Funds Index, 7.41 percent for
the Russell 2000 Index and 20.20 percent for the S&P 500. During the same
period, the Fund's Class A, C and D shares posted total returns of 4.94
percent, 4.24 percent and 5.11 percent, respectively. The performance of the
Fund's four share classes varies because of differing expenses.
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
LETTER TO THE SHAREHOLDERS July 31, 1999, continued
The Fund's one-year total returns reflect the difficult environment for
small-cap value stocks, which underperformed small-cap growth stocks for the
first eight months of the fiscal year. The Fund's underperformance relative to
the Russell 2000 Index can be attributed largely to its inability to buy
Internet stocks, which do not meet our value criteria. While the Fund has made
no direct investments in Internet companies, it does hold numerous investments
that indirectly benefit from the Internet's growth.
The Fund's one-year return number includes its noteworthy surge in performance
during the last four months of the period, when small-cap value stocks began to
strongly rebound. From the end of March through July 31, the Russell 2000 was
up 12.3 percent versus a 3.7 percent gain for the S&P 500. The small-cap
market's recent outperformance versus large caps is notable; the last time
these companies outperformed by such a degree was in September 1992, in the
middle of a small-cap cycle.
PORTFOLIO STRATEGY
The Fund continues to follow a bottom-up, value-oriented investment strategy
that focuses on stock selection rather than sector selection. The portfolio
manager looks for companies that are underpriced, selling at low values
relative to earnings, free cash flow, book value and/or asset value. However,
beyond merely investing in attractively priced companies, the portfolio manager
seeks to identify catalysts that may lead to better market valuations for these
companies.
The Fund's exposure to capital goods, basic materials and energy companies,
which hurt the Fund's performance in the beginning of the fiscal year, led to
its strong performance over the past few months. Our stock holdings in each of
these sectors outperformed their respective sectors as a whole during the
period. Throughout most of this year the Fund maintained a weighting in
technology stocks on par with the market. Because of the recent strong
performance of these companies, however, we have recently scaled out of these
investments as they approached our targets. Our technology holdings are service
oriented and represent low risks relative to other technology-related stocks,
which currently carry historically high valuations.
One of the Fund's largest holdings, Tetra Technology, hurt our overall
performance during the period. Tetra is a specialty chemical company with
leading market shares in completion fluids used in drilling oil and gas wells,
micronutrients used in fertilizers and animal feed and calcium chloride. While
we are clearly disappointed in the stock's performance, we believe that the
company's intrinsic value is intact.
LOOKING AHEAD
Given their prolonged underperformance relative to large-cap stocks, we believe
that small-cap value stocks may currently offer investors an opportunity for
long-term growth at attractive valuations. Despite
2
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
LETTER TO THE SHAREHOLDERS July 31, 1999, continued
the recent resurgence by small caps, the small-cap market continues to sell at
near-historic discounts to the large-cap market. We also 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.
On May 1, 1999, Mitchell M. Merin was named President of the Morgan Stanley
Dean Witter Funds. Mr. Merin is the President and Chief Operating Officer of
Asset Management for Morgan Stanley Dean Witter & Co. and President, Chief
Executive Officer and Director of Morgan Stanley Dean Witter Advisors Inc., the
Fund's investment manager. He also serves as Chairman, Chief Executive Officer
and Director of the Fund's distributor and transfer agent.
We appreciate your ongoing support of Morgan Stanley Dean Witter Special Value
Fund and look forward to continuing to serve your investment objectives.
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 SPECIAL VALUE FUND
FUND PERFORMANCE July 31, 1999
<TABLE>
<CAPTION>
GROWTH OF $10,000 CLASS B SHARES
Date TOTAL S&P 500 LIPPER RUSSELL 2000
- ---------------- ------- ------- ------ ------------
<S> <C> <C> <C> <C>
October 29, 1996 $10,000 $10,000 $10,000 $10,000
July 31, 1997 $12,241 $13,818 $11,454 $12,323
July 31, 1998 $12,488 $16,482 $11,638 $12,608
July 31, 1999 $12,705(3) $19,813 $12,628 $13,542
</TABLE>
[GRAPHIC OMITTED]
- ---- Fund ---- S&P 500(4) ---- Lipper(5) ---- Russell 2000(6)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR CLASS A,
CLASS C, AND CLASS D SHARES WILL VARY FROM THE PERFORMANCE OF CLASS B SHARES
SHOWN ABOVE DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------
CLASS B SHARES*
- -------------------------------------------------------------
PERIOD ENDED 7/31/99
- ----------------------------
<S> <C> <C>
1 Year 4.14%(1) -0.48%(2)
Since Inception (10/29/96) 10.02%(1) 9.09%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES++
- -----------------------------------------------------------
PERIOD ENDED 7/31/99
- ---------------------------
<S> <C> <C>
1 Year 4.24%(1) 3.31%(2)
Since Inception (7/28/97) 3.58%(1) 3.58%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES+
- -----------------------------------------------------------
PERIOD ENDED 7/31/99
- ---------------------------
<S> <C> <C>
1 Year 4.94%(1) -0.57%(2)
Since Inception (7/28/97) 4.31%(1) 1.55%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D SHARES#
- --------------------------------------------
PERIOD ENDED 7/31/99
- ---------------------------
<S> <C>
1 Year 5.11%(1)
Since Inception (7/28/97) 4.53%(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 after the deduction of a 3% contingent deferred sales charge
(CDSC), assuming a complete redemption on July 31, 1999.
(4) The Standard & Poor's 500 Stock 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 gain
distributions and income dividends, is unmanaged and should not be
considered an investment. There are currently 30 funds represented in this
Index.
(6) The Russell 2000 Index is a capitalization weighted index which is
comprised of 2000 of the smallest stocks (on the basis of capitalization)
in the Russell 3000 Index. The Index does not include any expenses, fees,
or charges. The Index is unmanaged and should not be considered an
investment.
* The maximum CDSC for Class B is 5.0%. The CDSC declines to 0% after six
years.
+ The maximum front-end sales charge for Class A shares is 5.25%.
++ The maximum CDSC 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 SPECIAL VALUE FUND
PORTFOLIO OF INVESTMENTS July 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------- ------------
<S> <C> <C>
COMMON STOCKS (89.2%)
Air Freight/Delivery Services (1.1%)
270,000 Fritz Companies, Inc.* ................. $ 3,172,500
------------
Apparel (3.3%)
412,100 Kellwood Co. ........................... 9,349,519
------------
Books/Magazines (1.2%)
68,000 Houghton Mifflin Co. ................... 3,361,750
------------
Canadian Oil & Gas (0.1%)
490,000 Hurricane Hydrocarbons Ltd.
(Class A) (Canada)* .................... 188,812
------------
Casino/Gambling (1.8%)
720,000 GameTech International, Inc.* .......... 3,735,000
75,000 Hollywood Park, Inc.* .................. 1,387,500
------------
5,122,500
------------
Clothing/Shoe/Accessory Stores (1.3%)
70,000 Ross Stores, Inc. ...................... 3,355,625
30,000 Venator Group, Inc.* ................... 315,000
------------
3,670,625
------------
Computer/Video Chains (0.4%)
100,000 Trans World Entertainment
Corp.* ................................. 1,237,500
------------
Construction/Agricultural
Equipment/Trucks (1.9%)
175,000 Terex Corp.* ........................... 5,250,000
------------
Consumer Electronics/Appliances (1.3%)
86,500 Harman International Industries,
Inc. ................................... 3,806,000
------------
Consumer Sundries (1.4%)
150,000 Luxottica Group SpA (ADR)
(Italy) ................................ 2,315,625
175,000 Packaged Ice, Inc.* .................... 885,937
40,000 Sola International, Inc.* .............. 670,000
------------
3,871,562
------------
Containers/Packaging (1.8%)
125,000 American National Can Group,
Inc.* .................................. 2,085,937
385,000 Gaylord Container Corp.
(Class A)* ............................. 2,959,687
------------
5,045,624
------------
Diversified Commercial Services (1.4%)
310,000 GP Strategies Corp.* ................... 2,402,500
75,000 Interim Services, Inc.* ................ 1,584,375
------------
3,986,875
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------- ------------
<S> <C> <C>
Diversified Manufacturing (2.7%)
147,500 AMETEK, Inc ............................ $ 3,447,812
230,300 Scott Technologies, Inc.* .............. 4,188,581
------------
7,636,393
------------
E.D.P. Services (1.8%)
270,000 Complete Business Solutions, Inc.* 5,113,125
------------
Electric Utilities (0.4%)
75,000 Avista Corp. ........................... 1,260,937
------------
Electronic Components (1.4%)
105,000 DII Group, Inc.* ....................... 3,878,437
------------
Electronic Data Processing (0.4%)
100,000 Melita International Corp.* ............ 1,137,500
------------
Electronic Production Equipment (0.1%)
25,000 Esterline Technologies Corp.* .......... 385,937
------------
Environmental Services (3.2%)
1,059,500 TETRA Technologies, Inc.* .............. 9,005,750
------------
Industrial Machinery/Components (3.0%)
286,500 Denison International PLC (ADR)
(United Kingdom)* ...................... 3,939,375
105,900 Gleason Corp. .......................... 1,707,637
74,000 Westinghouse Air Brake Co. ............. 1,757,500
22,000 Zebra Technologies Corp.
(Class A)* ............................. 1,027,125
------------
8,431,637
------------
Industrial Specialties (5.0%)
305,000 Farr Co.* .............................. 3,050,000
1,129,000 Paxar Corp.* ........................... 11,078,312
------------
14,128,312
------------
Insurance Brokers/Services (2.8%)
367,700 Corvel Corp.* .......................... 7,905,550
------------
Life Insurance (1.4%)
170,000 Annuity and Life Re (Holdings),
Ltd. ................................... 4,037,500
------------
Medical Equipment & Supplies (2.9%)
305,000 DENTSPLY International, Inc. ........... 8,254,062
------------
Medical Specialties (1.8%)
98,800 CONMED Corp.* .......................... 3,062,800
350,000 ProMedCo Management Co.* ............... 1,082,813
125,000 Serologicals Corp.* .................... 929,688
------------
5,075,301
------------
Military/Gov't/Technical (2.3%)
78,500 Alliant Techsystems, Inc.* ............. 6,490,969
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
PORTFOLIO OF INVESTMENTS July 31, 1999, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------- ------------
<S> <C> <C>
Oil & Gas Production (5.5%)
50,000 Apache Corp. .......................... $ 2,121,875
255,000 Forest Oil Corp.* ..................... 3,793,125
581,875 Santa Fe Snyder Corp.* ................ 5,382,344
165,000 St. Mary Land & Exploration Co. 4,310,625
------------
15,607,969
------------
Other Consumer Services (0.1%)
15,000 Ambassadors International, Inc.* ...... 202,500
------------
Other Metals/Minerals (3.3%)
158,900 Cyprus Amax Minerals Co. .............. 2,085,563
597,000 USEC Inc. ............................. 7,201,313
------------
9,286,876
------------
Other Telecommunications (1.8%)
225,000 Asia Satellite Telecommunications
Holdings Ltd. (ADR)
(Hong Kong) ........................... 5,245,313
------------
Property -- Casualty Insurers (6.6%)
279,900 Chartwell Re Corp. .................... 5,160,656
365,000 RenaissanceRe Holdings, Ltd.
(Bermuda) ............................. 13,527,812
------------
18,688,468
------------
Railroads (1.0%)
296,000 RailWorks Corp.* ...................... 2,738,000
------------
Real Estate (0.5%)
60,000 LNR Property Corp. .................... 1,316,250
------------
Real Estate Investment Trusts (5.3%)
100,000 Alexandria Real Estate Equities,
Inc. .................................. 2,987,500
115,000 MeriStar Hospitality Corp. ............ 2,199,375
552,800 Mid-Atlantic Realty Trust ............. 5,735,300
125,000 Parkway Properties, Inc. .............. 4,156,250
------------
15,078,425
------------
Rental/Leasing Companies (1.5%)
50,000 Ryder System, Inc. .................... 1,178,125
197,000 Willis Lease Finance Corp.* ........... 3,102,750
------------
4,280,875
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------- ------------
<S> <C> <C>
Restaurants (0.4%)
75,000 Host Marriott Services Corp.* ......... $ 1,167,188
------------
Savings & Loan Associations (2.3%)
170,000 Bank United Corp. (Class A) ........... 6,545,000
------------
Semiconductors (1.8%)
172,500 Exar Corp.* ........................... 4,980,938
------------
Services to the Health Industry (2.5%)
284,200 Morrison Management Specialists,
Inc. .................................. 6,945,138
------------
Smaller Banks (2.4%)
184,000 Pacific Bank, N.A. .................... 3,680,000
170,000 Peoples Heritage Financial Group,
Inc. .................................. 3,070,625
------------
6,750,625
------------
Specialty Chemicals (0.2%)
40,000 NL Industries, Inc. ................... 510,000
------------
Specialty Foods/Candy (1.4%)
176,000 J & J Snack Foods Corp.* .............. 4,092,000
------------
Specialty Insurers (1.9%)
275,000 CNA Surety Corp. ...................... 4,125,000
75,000 MIIX Group, Inc.* ..................... 1,350,000
------------
5,475,000
------------
Specialty Steels (1.5%)
105,500 Oregon Steel Mills, Inc. .............. 1,279,188
115,000 Quanex Corp. .......................... 3,033,125
------------
4,312,313
------------
Steel/Iron Ore (1.4%)
121,700 Cleveland-Cliffs, Inc. ................ 3,894,400
------------
Textiles (0.6%)
140,000 Polymer Group, Inc.* .................. 1,627,500
------------
Water Supply (1.0%)
90,000 American States Water Co. ............. 2,705,625
------------
TOTAL COMMON STOCKS
(Identified Cost $255,010,794) ........ 252,255,080
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
PORTFOLIO OF INVESTMENTS July 31, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------- ---------------
<S> <C> <C>
CONVERTIBLE BOND (1.4%)
Electronic Production Equipment
$ 4,000 Lam Research Corp.
5.00% due 09/01/02
(Identified Cost $3,332,500) .......... $ 3,943,080
------------
SHORT-TERM INVESTMENTS (a) (11.0%)
U.S. GOVERNMENT AGENCIES
14,500 Federal National Mortgage Assoc.
4.95% due 08/06/99 .................... 14,490,031
16,800 Student Loan Marketing Assoc.
4.97% due 08/02/99 .................... 16,797,681
------------
TOTAL SHORT-TERM INVESTMENTS
(Amortized Cost $31,287,712) .......... 31,287,712
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
---------------
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $289,631,006) (b) ......... 101.6 % $287,485,872
LIABILITIES IN EXCESS OF CASH
AND OTHER ASSETS ........................... (1.6) (4,651,060)
------- ------------
NET ASSETS ................................. 100.0 % $282,834,812
======= ============
</TABLE>
- --------------------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $29,617,520 and the
aggregate gross unrealized depreciation is $31,762,654, resulting in net
unrealized depreciation of $2,145,134.
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $289,631,006)................ $287,485,872
Cash ............................................ 87,109
Receivable for:
Investments sold ........................... 320,168
Shares of beneficial interest sold ......... 129,413
Interest ................................... 83,152
Dividends .................................. 6,695
Deferred organizational expenses ................ 80,491
Prepaid expenses and other assets ............... 73,508
------------
TOTAL ASSETS ............................... 288,266,408
------------
LIABILITIES:
Payable for:
Investments purchased ...................... 4,745,212
Plan of distribution fee ................... 239,074
Shares of beneficial interest
repurchased ............................. 224,685
Investment management fee .................. 183,495
Accrued expenses and other payables ............. 39,130
------------
TOTAL LIABILITIES .......................... 5,431,596
------------
NET ASSETS ................................. $282,834,812
============
COMPOSITION OF NET ASSETS:
Paid-in-capital ................................. $286,529,450
Net unrealized depreciation ..................... (2,145,134)
Accumulated undistributed net investment
income ....................................... 33,585
Accumulated net realized loss ................... (1,583,089)
------------
NET ASSETS ................................. $282,834,812
============
CLASS A SHARES:
Net Assets ...................................... $ 6,688,688
Shares Outstanding (unlimited authorized,
$.01 par value)............................... 614,151
NET ASSET VALUE PER SHARE .................. $10.89
============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net
asset value) ............................ $11.49
============
CLASS B SHARES:
Net Assets ...................................... $269,915,545
Shares Outstanding (unlimited authorized,
$.01 par value)............................... 25,206,517
NET ASSET VALUE PER SHARE .................. $10.71
============
CLASS C SHARES:
Net Assets ...................................... $ 4,962,066
Shares Outstanding (unlimited authorized,
$.01 par value) .............................. 462,876
NET ASSET VALUE PER SHARE .................. $10.72
============
CLASS D SHARES:
Net Assets ...................................... $ 1,268,513
Shares Outstanding (unlimited authorized,
$.01 par value)............................... 115,940
NET ASSET VALUE PER SHARE .................. $10.94
============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended July 31, 1999
<TABLE>
<S> <C>
NET INVESTMENT LOSS:
INCOME
Dividends (net of $16,420 foreign
withholding tax) ............................... $4,047,371
Interest .......................................... 1,589,590
----------
TOTAL INCOME ................................. 5,636,961
----------
EXPENSES
Plan of distribution fee (Class A shares) ......... 15,086
Plan of distribution fee (Class B shares) ......... 2,994,739
Plan of distribution fee (Class C shares) ......... 40,160
Investment management fee ......................... 2,338,728
Transfer agent fees and expenses .................. 408,133
Registration fees ................................. 107,415
Shareholder reports and notices ................... 74,477
Professional fees ................................. 68,299
Organizational expenses ........................... 35,824
Custodian fees .................................... 35,729
Trustees' fees and expenses ....................... 12,527
Other ............................................. 8,313
----------
TOTAL EXPENSES ............................... 6,139,430
----------
NET INVESTMENT LOSS .......................... (502,469)
----------
NET REALIZED AND UNREALIZED GAIN
(LOSS):
Net realized loss ................................. (23,565)
Net change in unrealized depreciation ............. 4,383,296
----------
NET GAIN ..................................... 4,359,731
----------
NET INCREASE ...................................... $3,857,262
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, 1999 JULY 31, 1998
----------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss ...................................... $ (502,469) $ (1,300,344)
Net realized gain (loss) ................................. (23,565) 46,595,280
Net change in unrealized appreciation/depreciation ....... 4,383,296 (43,285,803)
-------------- -------------
NET INCREASE .......................................... 3,857,262 2,009,133
-------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET
REALIZED GAIN:
Class A shares ........................................... (748,492) (36,472)
Class B shares ........................................... (36,928,990) (20,393,805)
Class C shares ........................................... (560,902) (18,182)
Class D shares ........................................... (64,041) (1,549)
-------------- -------------
TOTAL DISTRIBUTIONS ................................... (38,302,425) (20,450,008)
-------------- -------------
Net increase (decrease) from transactions in shares of
beneficial interest .................................... (69,094,754) 124,497,217
-------------- -------------
NET INCREASE (DECREASE) ............................... (103,539,917) 106,056,342
NET ASSETS:
Beginning of period ...................................... 386,374,729 280,318,387
-------------- -------------
END OF PERIOD
(Including undistributed net investment income of
$33,585 and $0, respectively).......................... $ 282,834,812 $ 386,374,729
============== =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS July 31, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley 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 commenced operations on October 29, 1996. On July 28, 1997, the Fund
converted to a multiple class share structure.
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 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 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 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 (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
10
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS July 31, 1999, continued
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.
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.
11
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS July 31, 1999, continued
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. Effective May 1, 1999, the Agreement was amended to
reduce the annual rate to 0.725% of the portion of daily net assets in excess
of $500 million.
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 Morgan Stanley 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 (1) for services provided and the expenses borne by it and others
in the distribution of the shares of these Classes, including the payment of
commissions for sales of these Classes and incentive compensation to, and
expenses of, Morgan Stanley Dean Witter Financial Advisors and others who
engage in or support distribution of the shares or who service shareholder
accounts, including overhead and telephone expenses; (2) printing and
distribution of prospectuses and reports used in connection with the offering
of these shares to other than current shareholders; and (3) preparation,
printing and distribution of sales literature and advertising materials. In
addition, the Distributor may utilize fees paid pursuant to the Plan, in the
case of Class B shares, to compensate Dean Witter Reynolds Inc. ("DWR"), an
affiliate of the Investment Manager and Distributor, and other selected
broker-dealers for their opportunity costs in advancing such amounts, which
compensation would be in the form of a carrying charge on any unreimbursed
expenses.
12
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS July 31, 1999, continued
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 $13,545,257 at July 31, 1999.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund 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 July 31, 1999, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.23% and
0.89%, respectively.
The Distributor has informed the Fund that for the year ended July 31, 1999, it
received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C shares of $1,044,946 and $5,945, respectively
and received $25,447 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 year ended July 31, 1999 aggregated
$209,596,483 and $303,431,435, respectively.
For the year ended July 31, 1999, the Fund incurred brokerage commissions of
$102,705 with DWR for portfolio transactions executed on behalf of the Fund.
Included at July 31, 1999 in the receivable for investments sold was $140,214
for unsettled trades with DWR.
For the year ended July 31, 1999, the Fund incurred brokerage commissions of
$47,065 with Morgan Stanley & Co., Inc., an affiliate of the Investment Manager
and Distributor, for portfolio transactions executed on behalf of the Fund.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. At July 31, 1999, the Fund had
transfer agent fees and expenses payable of approximately $8,000.
13
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS July 31, 1999, continued
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, 1999 JULY 31, 1998+
----------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold ....................................... 963,374 $ 9,880,837 699,033 $ 8,650,697
Reinvestment of distributions .............. 75,716 743,536 3,096 36,472
Redeemed ................................... (1,046,979) (10,827,716) (80,917) (1,024,723)
---------- -------------- ------- -------------
Net increase (decrease) -- Class A ......... (7,889) (203,343) 621,212 7,662,446
---------- -------------- ------- -------------
CLASS B SHARES
Sold ....................................... 5,320,075 54,845,651 12,864,278 157,244,896
Reinvestment of distributions .............. 3,522,840 34,206,767 1,627,397 19,105,644
Redeemed ................................... (15,819,028) (158,291,490) (5,266,075) (65,987,673)
----------- -------------- ---------- -------------
Net increase (decrease) -- Class B ......... (6,976,113) (69,239,072) 9,225,600 110,362,867
----------- -------------- ---------- -------------
CLASS C SHARES
Sold ....................................... 219,871 2,236,613 454,511 5,568,035
Reinvestment of distributions .............. 56,098 544,707 1,549 18,182
Redeemed ................................... (221,117) (2,179,796) (48,901) (614,455)
----------- -------------- ---------- -------------
Net increase -- Class C .................... 54,852 601,524 407,159 4,971,762
----------- -------------- ---------- -------------
CLASS D SHARES
Sold ....................................... 993,032 10,206,536 123,097 1,504,096
Reinvestment of distributions .............. 832 8,206 131 1,549
Redeemed ................................... (1,001,549) (10,468,605) (431) (5,503)
----------- -------------- ---------- -------------
Net increase (decrease) -- Class D ......... (7,685) (253,863) 122,797 1,500,142
----------- -------------- ---------- -------------
Net increase (decrease) in Fund ............ (6,936,835) $ (69,094,754) 10,376,768 $ 124,497,217
=========== ============== ========== =============
</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.
6. FEDERAL INCOME TAX STATUS
As of July 31, 1999, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and permanent book/tax
differences primarily attributable to a net operating loss. To reflect
reclassifications arising from the permanent differences, accumulated net
realized loss was charged $33,585, paid-in-capital was charged $502,469 and
accumulated undistributed net investment income was credited $536,054.
14
<PAGE>
MORGAN STANLEY 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 YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period .......... $ 11.68 $ 12.21 $ 12.10
-------- ------- --------
Income from investment operations:
Net investment income ........................ 0.06 0.03 --
Net realized and unrealized gain ............. 0.38 0.32 0.11
-------- ------- --------
Total income from investment operations ....... 0.44 0.35 0.11
-------- ------- --------
Less distributions from net realized gain..... ( 1.23) ( 0.88) --
-------- -------- --------
Net asset value, end of period ................ $ 10.89 $ 11.68 $ 12.21
======== ======== ========
TOTAL RETURN+ ................................. 4.94% 2.79% 0.91%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ...................................... 1.22%(3) 1.20% 1.20%(2)
Net investment income ......................... 0.59%(3) 0.25% 2.27%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ....... $ 6,689 $ 7,265 $ 10
Portfolio turnover rate ....................... 74% 123% 57%(1)
</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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR OCTOBER 29, 1996*
ENDED ENDED THROUGH
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997**
------------------ --------------- ------------------
<S> <C> <C> <C>
CLASS B SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period ............ $ 11.59 $ 12.21 $ 10.00
-------- -------- --------
Income (loss) from investment operations:
Net investment loss ............................ ( 0.02) ( 0.05) --
Net realized and unrealized gain ............... 0.37 0.31 2.24
-------- -------- --------
Total income from investment operations ......... 0.35 0.26 2.24
-------- -------- --------
Less dividends and distributions from:
Net investment income .......................... -- -- ( 0.01)
Net realized gain .............................. ( 1.23) ( 0.88) ( 0.02)
-------- -------- --------
Total dividends and distributions ............... ( 1.23) ( 0.88) ( 0.03)
-------- -------- --------
Net asset value, end of period .................. $ 10.71 $ 11.59 $ 12.21
======== ======== ========
TOTAL RETURN+ ................................... 4.14% 2.02 % 22.41%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 1.99%(3) 1.94 % 2.01%(2)
Net investment loss ............................. (0.18)%(3) (0.36)% (0.03)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $269,916 $372,933 $280,288
Portfolio turnover rate ......................... 74% 123% 57%(1)
</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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997
------------------ --------------- ---------------
<S> <C> <C> <C>
CLASS C SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $ 11.59 $ 12.21 $ 12.10
------- ------- --------
Income (loss) from investment operations:
Net investment loss .............................. (0.01) (0.06) --
Net realized and unrealized gain ................. 0.37 0.32 0.11
------- ------- --------
Total income from investment operations ........... 0.36 0.26 0.11
------- ------- --------
Less distributions from net realized gain......... (1.23) (0.88) --
------- ------- --------
Net asset value, end of period .................... $ 10.72 $ 11.59 $ 12.21
======= ======= ========
TOTAL RETURN+ ..................................... 4.24 % 2.02 % 0.91%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.88 %(3) 1.95 % 1.94%(2)
Net investment income (loss) ...................... (0.07)%(3) (0.50)% 1.49%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $4,962 $4,728 $ 11
Portfolio turnover rate ........................... 74 % 123 % 57%(1)
</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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $ 11.71 $ 12.21 $ 12.10
-------- ------- --------
Income from investment operations:
Net investment income ............................ 0.09 0.06 --
Net realized and unrealized gain ................. 0.37 0.32 0.11
-------- ------- --------
Total income from investment operations ........... 0.46 0.38 0.11
-------- ------- --------
Less distributions from net realized gain......... (1.23) (0.88) --
-------- -------- --------
Net asset value, end of period .................... $ 10.94 $ 11.71 $ 12.21
======== ======== ========
TOTAL RETURN+ ..................................... 5.11% 3.04% 0.91%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 0.99%(3) 0.94% 0.94%(2)
Net investment income ............................. 0.82%(3) 0.50% 2.53%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $ 1,268 $ 1,448 $ 10
Portfolio turnover rate ........................... 74% 123% 57%(1)
</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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY 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 Morgan Stanley Dean Witter Special
Value Fund (the "Fund") at July 31, 1999, the results of its operations for the
year then ended, and 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
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 audits. We conducted our audits 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 audits, which included confirmation of
securities at July 31, 1999 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
September 10, 1999
1999 FEDERAL TAX NOTICE (unaudited)
During the year ended July 31, 1999, the Fund paid to shareholders $0.65
per share from long-term capital gains.
19
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
Jenny Beth Jones
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
SPECIAL VALUE FUND
[GRAPHIC OMITTED]
ANNUAL REPORT
July 31, 1999
