<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND Two World Trade Center,
LETTER TO THE SHAREHOLDERS January 31, 2000 New York, New York 10048
DEAR SHAREHOLDER:
During the six-month period ended January 31, 2000, the U.S. equity markets
experienced an increase in market volatility. Early in the period, both small
and large-cap stocks declined amidst two rate hikes by the Federal Reserve
Board. Following further weakness during early October, the market reversed
course, soaring to record highs by year-end. Small-cap growth stocks overtook
large-cap ones during the period under review, with the Russell 2000 Index
outperforming the Standard & Poor's 500 Composite Stock Price Index (S&P 500) by
nearly 7 percentage points. Among the 17 sectors in the Russell 2000 Index, only
4 had positive returns for the period. It was the exceptional performance of
three of these sectors - technology (up 75 percent), telecommunications (up 97
percent) and biotech (up 70 percent) - that drove the index's performance.
Within the small-cap sector, the differential between value and growth stocks
continued to be sharply polarized. The Russell 2000 Growth sub-index was up
29.66 percent for the period, while the Russell 2000 Value sub-index declined
6.64 percent. Much of the divergence between growth and value stocks was also
due to exceptional strength of the technology, telecommunications and
biotechnology sectors, which are underrepresented in the value sub-index.
PERFORMANCE
For the six-month period ended January 31, 2000, Morgan Stanley Dean Witter
Special Value Fund's Class B shares posted a total return of -5.79 percent
compared to a total return of 12.25 percent for the Russell 2000 Index. During
the same period, the Fund's Class A, C and D shares posted total returns of
- -5.42 percent, -5.88 percent and -5.39 percent, respectively. The total return
figures shown assume the reinvestment of all distributions and do not reflect
the deduction of any applicable sales charges. 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 January 31, 2000, continued
The Fund's underperformance relative to the Russell 2000 Index during the period
was reflective of the difficult environment experienced by small-cap value
stocks. The Fund's performance was further hindered by its decision to reduce
its exposure to technology holdings toward the end of the period. At that time,
we viewed valuations in the technology sector to be dangerously high relative to
earnings. We remain avid believers in the new economy, however. In the months
ahead, we anticipate selectively increasing our stake in technology companies
that we consider to be undervalued.
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 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.
Over the last year we have been focusing our investments in small companies that
are proactively addressing e-commerce and business-to-business initiatives. We
believe that many of these companies are undervalued because they are considered
part of the old economy, when in fact they are using the Internet to potentially
enhance their earning power, growth and cost structure.
Like other value-oriented funds, the Fund has been hurt by its exposure to
capital goods, basic materials and energy companies over the last few months. At
the same time, our stock selection has generally been positive. For example,
Renaissance Re, a large catastrophic-reinsurance company, is up 10 percent over
the last six months, while its peers are down an average of 30 percent. The
company sells at 6.9 times earnings and has a return on equity of 16 percent.
LOOKING AHEAD
Given their prolonged underperformance relative to growth stocks, we believe
that small-cap value stocks may currently offer investors some relative
stability in today's volatile market environment. Furthermore, 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.
2
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
LETTER TO THE SHAREHOLDERS January 31, 2000, continued
We appreciate your ongoing support of Morgan Stanley Dean Witter Special Value
Fund and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ Charles A. Fiumefreddo /s/ Mitchell M. Merin
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
3
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
FUND PERFORMANCE January 31, 2000
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A SHARES* CLASS B SHARES**
- --------------------------------------------------- ---------------------------------------------------
PERIOD ENDED 1/31/00 PERIOD ENDED 1/31/00
- -------------------------- --------------------------
<S> <C> <C> <S> <C> <C>
1 Year 2.28%(1) (3.09)%(2) 1 Year 1.51%(1) (3.49)%(2)
Since Inception (7/28/97) 1.16%(1) (0.99)%(2) Since Inception (10/29/96) 6.44%(1) 5.90 %(2)
<CAPTION>
CLASS C SHARES+ CLASS D SHARES++
- --------------------------------------------------- ---------------------------------------------------
PERIOD ENDED 1/31/00 PERIOD ENDED 1/31/00
- -------------------------- --------------------------
<S> <C> <C> <S> <C>
1 Year 1.51%(1) 0.51%(2) 1 Year 2.37%(1)
Since Inception (7/28/97) 0.40%(1) 0.40%(2) Since Inception (7/28/97) 1.34%(1)
</TABLE>
Past performance is not predictive of future returns
- ---------------
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable sales charge. See the Fund's current prospectus for
complete details on fees and sales charges.
* The maximum front-end sales charge for Class A is 5.25%.
** The maximum CDSC for Class B is 5.0%. The CDSC declines to 0% after six
years.
+ 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 January 31, 2000 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (93.2%)
Air Freight/Delivery Services (1.1%)
235,000 Fritz Companies, Inc.* ............... $ 2,467,500
------------
Apparel (3.8%)
392,100 Kellwood Co. ......................... 6,910,762
140,000 Warnaco Group, Inc. (Class A) ........ 1,461,250
------------
8,372,012
------------
Beverages - Non-Alcoholic (0.5%)
225,000 Packaged Ice Inc.* ................... 1,026,562
------------
Books/Magazines (1.8%)
98,000 Houghton Mifflin Co. ................. 4,030,250
------------
Canadian Oil & Gas (0.5%)
490,000 Hurricane Hydrocarbons Ltd.
(Class A) (Canada)* .................. 1,050,119
------------
Casino/Gambling (1.7%)
731,500 GameTech International, Inc.* ........ 3,657,500
------------
Clothing/Shoe/Accessory Stores (1.5%)
350,000 Charming Shoppes, Inc.* .............. 2,384,375
80,000 Ross Stores, Inc. .................... 1,015,000
------------
3,399,375
------------
Construction/Agricultural Equipment/
Trucks (2.2%)
210,000 Terex Corp.* ......................... 4,777,500
------------
Consumer Electronics/Appliances (2.1%)
81,500 Harman International Industries,
Inc. ............................... 4,757,562
------------
Containers/Packaging (1.2%)
460,000 Gaylord Container Corp. (Class A)* 2,760,000
------------
Diversified Commercial Services (0.8%)
310,000 GP Strategies Corp.* ................. 1,840,625
------------
Diversified Manufacturing (3.6%)
182,500 Ametek, Inc. ......................... 4,015,000
245,400 Scott Technologies, Inc.* ............ 4,018,425
------------
8,033,425
------------
E.D.P. Services (1.8%)
200,000 Complete Business Solutions,
Inc.* .............................. 4,050,000
------------
Electrical Products (0.6%)
60,000 Cable Design Technologies Corp.*...... 1,380,000
------------
Environmental Services (1.4%)
391,200 TETRA Technologies, Inc.* ............ 3,178,500
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Industrial Machinery/Components (1.8%)
296,500 Denison International PLC (ADR)
(United Kingdom)* .................. $ 2,927,937
93,600 Westinghouse Air Brake Co. ........... 1,041,300
------------
3,969,237
------------
Industrial Specialties (5.3%)
250,000 Farr Co.* ............................ 2,312,500
922,000 Paxar Corp.* ......................... 7,952,250
37,400 Rogers Corp.* ........................ 1,421,200
------------
11,685,950
------------
Insurance Brokers/Services (4.0%)
365,200 Corvel Corp.* ........................ 8,947,400
------------
Life Insurance (1.1%)
103,500 Annuity and Life Re (Holdings),
Ltd. ............................... 2,522,812
------------
Medical Equipment & Supplies (4.3%)
385,000 DENTSPLY International, Inc. ......... 9,528,750
------------
Medical Specialties (5.4%)
203,800 CONMED Corp.* ........................ 5,247,850
82,700 Invacare Corp. ....................... 1,638,494
146,000 Mentor Corp. ......................... 3,358,000
300,000 ProMedCo Management Co.* ............. 834,375
150,000 Serologicals Corp.* .................. 1,012,500
------------
12,091,219
------------
Military/Gov't/Technical (5.6%)
193,000 Alliant Techsystems, Inc.* ........... 12,520,875
------------
Multi-Sector Companies (2.1%)
150,000 Lancaster Colony Corp. ............... 4,743,750
------------
Natural Gas (3.3%)
156,500 MDU Resources Group, Inc. ............ 3,100,656
165,000 Washington Gas Light Co. ............. 4,145,625
------------
7,246,281
------------
Oil & Gas Production (4.4%)
215,000 Forest Oil Corp.* .................... 2,150,000
495,000 Santa Fe Snyder Corp.* ............... 3,619,688
160,000 St. Mary Land & Exploration Co........ 4,080,000
------------
9,849,688
------------
Other Consumer Services (0.6%)
120,000 Ambassadors International, Inc.*...... 1,320,000
------------
Other Telecommunications (1.4%)
85,000 Asia Satellite Telecommunications
Holdings Ltd. (ADR)
(Hong Kong) ........................ 3,139,688
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
PORTFOLIO OF INVESTMENTS January 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Package Goods/Cosmetics (1.2%)
212,000 Playtex Products, Inc.* .............. $ 2,676,500
------------
Precious Metals (0.8%)
50,000 Stillwater Mining Co.* ............... 1,781,250
------------
Property - Casualty Insurers (6.8%)
331,000 RenaissanceRe Holdings, Ltd.
(Bermuda) .......................... 12,888,313
164,765 Trenwick Group Inc. .................. 2,317,008
------------
15,205,321
------------
Railroads (1.4%)
296,000 RailWorks Corp.* ..................... 3,071,000
------------
Real Estate (0.5%)
60,000 LNR Property Corp. ................... 1,125,000
------------
Real Estate Investment Trusts (5.3%)
125,000 Alexandria Real Estate Equities,
Inc. ............................... 3,687,500
537,800 Mid-Atlantic Realty Trust ............ 5,310,775
105,000 Parkway Properties, Inc. ............. 2,841,563
------------
11,839,838
------------
Rental/Leasing Companies (0.6%)
248,000 Willis Lease Finance Corp.* .......... 1,410,500
------------
Savings & Loan Associations (1.0%)
85,000 Bank United Corp. (Class A) .......... 2,204,688
------------
Services to the Health Industry (3.0%)
290,400 Morrison Management Specialists,
Inc. ............................... 6,733,650
------------
Smaller Banks (1.3%)
200,000 Peoples Heritage Financial Group,
Inc. ............................... 2,950,000
------------
Specialty Foods/Candy (1.8%)
216,000 J & J Snack Foods Corp.* ............. 3,996,000
------------
Specialty Insurers (1.2%)
250,000 CNA Surety Corp. ..................... 2,734,375
------------
Specialty Steels (1.0%)
105,000 Quanex Corp. ......................... 2,270,625
------------
Steel/Iron Ore (2.1%)
95,000 AK Steel Holding Corp. ............... 961,875
128,700 Cleveland-Cliffs, Inc. ............... 3,595,556
------------
4,557,431
------------
Textiles (0.5%)
60,000 Polymer Group, Inc. .................. $ 1,020,000
------------
Water Supply (0.8%)
52,600 American States Water Co. ............ 1,748,950
------------
TOTAL COMMON STOCKS
(Identified Cost $224,913,621)........ 207,671,708
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -------------
<S> <C> <C>
SHORT-TERM INVESTMENT (a) (5.2%)
U.S. GOVERNMENT AGENCY
$ 11,550 Federal Home Loan Mortgage
Corp. 5.75% due 02/01/00
(Amortized Cost $11,550,000)........ 11,550,000
------------
TOTAL INVESTMENTS
(Identified Cost $236,463,621) (b)........... 98.4% 219,221,708
OTHER ASSETS IN EXCESS OF
LIABILITIES ................................. 1.6 3,482,638
----- ------------
NET ASSETS .................................. 100.0% $222,704,346
===== ============
</TABLE>
- --------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Purchased on a discount basis. The interest rate shown has been adjusted to
reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $16,902,421 and the
aggregate gross unrealized depreciation is $34,144,334, resulting in net
unrealized depreciation of $17,241,913.
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2000 (unaudited)
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities, at value
(identified cost $236,463,621).................................. $219,221,708
Cash ............................................................. 71,792
Receivable for:
Investments sold .............................................. 4,888,553
Shares of beneficial interest sold ............................ 126,742
Dividends ..................................................... 62,200
Deferred organizational expenses ................................. 62,431
Prepaid expenses and other assets ................................ 70,677
------------
TOTAL ASSETS .................................................. 224,504,103
------------
LIABILITIES:
Payable for:
Investments purchased ......................................... 1,100,888
Shares of beneficial interest repurchased ..................... 298,977
Plan of distribution fee ...................................... 192,547
Investment management fee ..................................... 148,851
Accrued expenses and other payables .............................. 58,494
------------
TOTAL LIABILITIES ............................................. 1,799,757
------------
NET ASSETS .................................................... $222,704,346
============
COMPOSITION OF NET ASSETS:
Paid-in-capital .................................................. $242,531,228
Net unrealized depreciation ...................................... (17,241,913)
Accumulated undistributed net investment income .................. 240,141
Accumulated net realized loss .................................... (2,825,110)
------------
NET ASSETS .................................................... $222,704,346
============
CLASS A SHARES:
Net Assets ....................................................... $6,129,512
Shares Outstanding (unlimited authorized, $.01 par value)......... 595,363
NET ASSET VALUE PER SHARE ..................................... $10.30
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ............... $10.87
======
CLASS B SHARES:
Net Assets ....................................................... $210,501,897
Shares Outstanding (unlimited authorized, $.01 par value)......... 20,871,165
NET ASSET VALUE PER SHARE ..................................... $10.09
======
CLASS C SHARES:
Net Assets ....................................................... $4,151,553
Shares Outstanding (unlimited authorized, $.01 par value)......... 411,091
NET ASSET VALUE PER SHARE ..................................... $10.10
======
CLASS D SHARES:
Net Assets ....................................................... $1,921,384
Shares Outstanding (unlimited authorized, $.01 par value)......... 185,564
NET ASSET VALUE PER SHARE ..................................... $10.35
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the six months ended January 31, 2000 (unaudited)
<TABLE>
<CAPTION>
NET INVESTMENT INCOME:
<S> <C>
INCOME
Dividends (net of $1,350 foreign withholding tax)......... $ 1,981,571
Interest ................................................. 719,511
-------------
TOTAL INCOME .......................................... 2,701,082
-------------
EXPENSES
Plan of distribution fee (Class A shares) ................ 8,096
Plan of distribution fee (Class B shares) ................ 1,205,758
Plan of distribution fee (Class C shares) ................ 21,586
Investment management fee ................................ 949,659
Transfer agent fees and expenses ......................... 163,109
Registration fees ........................................ 38,036
Professional fees ........................................ 34,776
Shareholder reports and notices .......................... 33,648
Organizational expenses .................................. 18,060
Custodian fees ........................................... 12,197
Trustees' fees and expenses .............................. 5,956
Other .................................................... 3,645
-------------
TOTAL EXPENSES ........................................ 2,494,526
-------------
NET INVESTMENT INCOME ................................. 206,556
-------------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss ........................................ (1,242,021)
Net change in unrealized depreciation .................... (15,096,779)
-------------
NET LOSS .............................................. (16,338,800)
-------------
NET DECREASE ............................................. $ (16,132,244)
=============
</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 SIX FOR THE YEAR
MONTHS ENDED ENDED
JANUARY 31, 2000 JULY 31, 1999
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) ......................... $ 206,556 $ (502,469)
Net realized loss .................................... (1,242,021) (23,565)
Net change in unrealized depreciation ................ (15,096,779) 4,383,296
------------- ------------
NET INCREASE (DECREASE) ........................... (16,132,244) 3,857,262
------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN:
Class A shares ....................................... - (748,492)
Class B shares ....................................... - (36,928,990)
Class C shares ....................................... - (560,902)
Class D shares ....................................... - (64,041)
------------- ------------
TOTAL DISTRIBUTIONS ............................... - (38,302,425)
------------- ------------
Net decrease from transactions in shares of beneficial
interest ........................................... (43,998,222) (69,094,754)
------------- ------------
NET DECREASE ...................................... (60,130,466) (103,539,917)
NET ASSETS:
Beginning of period .................................. 282,834,812 386,374,729
------------- ------------
END OF PERIOD
(Including undistributed net investment income of
$240,141 and $33,585, respectively)................ $ 222,704,346 $282,834,812
============= ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS January 31, 2000 (unaudited)
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 January 31, 2000 (unaudited), 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 January 31, 2000 (unaudited) , 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
following annual rates to the net assets of the Fund determined as of the close
of each business day: 0.75% to the portion of net assets not exceeding $500
million and 0.725% to the portion of daily net assets exceeding $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.
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
12
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS January 31, 2000 (unaudited) , continued
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 $13,113,740 at January 31, 2000.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
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 six months ended January 31, 2000, the distribution fee
was accrued for Class A shares and Class C shares at the annual rate of 0.25%
and 0.96%, respectively.
The Distributor has informed the Fund that for the six months ended January 31,
2000, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $413,100 and $1,973,
respectively and received $12,324 in front-end sales charges 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, 2000 aggregated
$78,196,573 and $110,580,669, respectively.
For the six months ended January 31, 2000, the Fund incurred brokerage
commissions of $37,109 with DWR for portfolio transactions executed on behalf of
the Fund. Included at January 31, 2000 in the payable for investments purchased
was $209,750 for unsettled trades with DWR.
For the six months ended January 31, 2000, the Fund incurred brokerage
commissions of $2,000 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 January 31, 2000, the Fund had
transfer agent fees and expenses payable of approximately $15,000.
13
<PAGE>
MORGAN STANLEY DEAN WITTER SPECIAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS January 31, 2000 (unaudited) , continued
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JANUARY 31, 2000 JULY 31, 1999
--------------------------------- --------------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold .................................. 465,408 $ 4,849,215 963,374 $ 9,880,837
Reinvestment of distributions ......... - - 75,716 743,536
Redeemed .............................. (484,196) (5,054,624) (1,046,979) (10,827,716)
-------- ------------- ---------- --------------
Net decrease - Class A ................ (18,788) (205,409) (7,889) (203,343)
-------- ------------- ---------- --------------
CLASS B SHARES
Sold .................................. 1,305,257 13,338,886 5,320,075 54,845,651
Reinvestment of distributions ......... - - 3,522,840 34,206,767
Redeemed .............................. (5,640,609) (57,363,302) (15,819,028) (158,291,490)
---------- ------------- ----------- --------------
Net decrease - Class B ................ (4,335,352) (44,024,416) (6,976,113) (69,239,072)
---------- ------------- ----------- --------------
CLASS C SHARES
Sold .................................. 70,232 715,316 219,871 2,236,613
Reinvestment of distributions ......... - - 56,098 544,707
Redeemed .............................. (122,017) (1,246,183) (221,117) (2,179,796)
---------- ------------- ----------- --------------
Net increase (decrease) - Class C ..... (51,785) (530,867) 54,852 601,524
---------- ------------- ----------- --------------
CLASS D SHARES
Sold .................................. 879,951 9,282,665 993,032 10,206,536
Reinvestment of distributions ......... - - 832 8,206
Redeemed .............................. (810,327) (8,520,195) (1,001,549) (10,468,605)
---------- ------------- ----------- --------------
Net increase (decrease) - Class D ..... 69,624 762,470 (7,685) (253,863)
---------- ------------- ----------- --------------
Net decrease in Fund .................. (4,336,301) $ (43,998,222) (6,936,835) $ (69,094,754)
========== ============= =========== ==============
</TABLE>
6. FEDERAL INCOME TAX STATUS
As of July 31, 1999, the Fund had temporary book/tax differences attributable to
capital loss deferrals on wash sales.
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 SIX FOR THE YEAR FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED ENDED THROUGH
JANUARY 31, 2000 JULY 31, 1999 JULY 31, 1998 JULY 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $10.89 $11.68 $12.21 $12.10
------ ------ ------ ------
Income (loss) from investment operations:
Net investment income ................................. 0.05 0.06 0.03 -
Net realized and unrealized gain (loss) ............... (0.64) 0.38 0.32 0.11
------ ------ ------ ------
Total income (loss) from investment operations ......... (0.59) 0.44 0.35 0.11
------ ------ ------ ------
Less distributions from net realized gain .............. - (1.23) (0.88) -
------ ------ ------ ------
Net asset value, end of period ......................... $10.30 $10.89 $11.68 $12.21
====== ====== ====== ======
TOTAL RETURN+ ......................................... (5.42)%(1) 4.94% 2.79% 0.91%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 1.24%(2)(3) 1.22%(3) 1.20% 1.20%(2)
Net investment income .................................. 0.89%(2)(3) 0.59%(3) 0.25% 2.27%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $6,130 $6,689 $7,265 $10
Portfolio turnover rate ................................ 34%(1) 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 SIX FOR THE YEAR FOR THE YEAR OCTOBER 29, 1996*
MONTHS ENDED ENDED ENDED THROUGH
JANUARY 31, 2000 JULY 31, 1999 JULY 31, 1998 JULY 31, 1997**
- ---------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
CLASS B SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period ............. $10.71 $11.59 $12.21 $10.00
------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) .................... 0.01 (0.02) (0.05) -
Net realized and unrealized gain (loss) ......... (0.63) 0.37 0.31 2.24
------ ------ ------ ------
Total income (loss) from investment operations ... (0.62) 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 ................... $10.09 $10.71 $11.59 $12.21
====== ====== ====== ======
TOTAL RETURN+ .................................... (5.79)%(1) 4.14% 2.02% 22.41%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ......................................... 1.99%(2)(3) 1.99%(3) 1.94% 2.01%(2)
Net investment income (loss) ..................... 0.14%(2)(3) (0.18)%(3) (0.36)% (0.03)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .......... $210,502 $269,916 $372,933 $280,288
Portfolio turnover rate .......................... 34%(1) 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 SIX FOR THE YEAR FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED ENDED THROUGH
JANUARY 31, 2000 JULY 31, 1999 JULY 31, 1998 JULY 31, 1997
- --------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
CLASS C SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $10.72 $11.59 $12.21 $12.10
------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) .......................... 0.01 (0.01) (0.06) -
Net realized and unrealized gain (loss) ............... (0.63) 0.37 0.32 0.11
------ ------ ------ ------
Total income (loss) from investment operations ......... (0.62) 0.36 0.26 0.11
------ ------ ------ ------
Less distributions from net realized gain .............. - (1.23) (0.88) -
------ ------ ------ ------
Net asset value, end of period ......................... $10.10 $10.72 $11.59 $12.21
====== ====== ====== ======
TOTAL RETURN+ .......................................... (5.88)%(1) 4.24% 2.02% 0.91%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 1.95%(2)(3) 1.88%(3) 1.95% 1.94%(2)
Net investment income (loss) ........................... 0.18%(2)(3) (0.07)%(3) (0.50)% 1.49%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $4,152 $4,962 $4,728 $11
Portfolio turnover rate ................................ 34%(1) 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 SIX FOR THE YEAR FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED ENDED THROUGH
JANUARY 31, 2000 JULY 31, 1999 JULY 31, 1998 JULY 31, 1997
- ------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period ............. $10.94 $11.71 $12.21 $12.10
------ ------ ------ ------
Income (loss) from investment operations:
Net investment income ........................... 0.05 0.09 0.06 -
Net realized and unrealized gain (loss) ......... (0.64) 0.37 0.32 0.11
------ ------ ------ ------
Total income (loss) from investment operations ... (0.59) 0.46 0.38 0.11
------ ------ ------ ------
Less distributions from net realized gain ........ - (1.23) (0.88) -
------ ------ ------ ------
Net asset value, end of period ................... $10.35 $10.94 $11.71 $12.21
====== ====== ====== ======
TOTAL RETURN+ .................................... (5.39)%(1) 5.11% 3.04% 0.91%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ......................................... 0.99%(2)(3) 0.99%(3) 0.94% 0.94%(2)
Net investment income ............................ 1.14%(2)(3) 0.82%(3) 0.50% 2.53%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .......... $1,921 $1,268 $1,448 $10
Portfolio turnover rate .......................... 34%(1) 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>
(This page has been left blank intentionally.)
<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
The financial statements included herein have been taken from the records of
the Fund without examination by the independent accountants and accordingly
they do not express an opinion thereon.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus
of the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus. Read the
prospectus carefully before investing.
MORGAN STANLEY
DEAN WITTER
SPECIAL VALUE FUND
[GRAPHIC OMITTED]
SEMIANNUAL REPORT
JANUARY 31, 2000
