<PAGE> 1
MORGAN STANLEY DEAN WITTER VALUE FUND Two World Trade Center
LETTER TO THE SHAREHOLDERS September 30, 1999 New York, New York 10048
DEAR SHAREHOLDER:
The difficult environment for low P/E (price/earnings) value investing continued
in the fiscal year ended September 30, 1999. According to Miller Anderson &
Sherrerd, LLP (MAS), the sub-advisor for Morgan Stanley Dean Witter Value Fund,
early in the year it appeared that the equity markets had gone increasingly
digital. The digital world reduces inputs to streams of 1s and 0s, off or on,
with no mention or measurement of degree. Investors seemed to have reduced their
opinions about companies and their stock prices to the same level of simplicity.
Internet, technology and mega-cap growth stocks were switched "on" in the equity
markets. Valuations were irrelevant in this new digital investment world. Most
other sectors of the market were deemed "off." Conceptually unappealing sectors
such as the small and mid caps, as well as economically sensitive companies of
every size, remained ignored irrespective of their fundamentals and valuations.
Stock valuations in the broad market continued to reflect investor apathy.
Growth rates appeared to be under pressure for many companies, especially those
small- and mid-sized, industrial and commodity businesses. MAS believed that
economies abroad would eventually stabilize and recover and that U.S. inventory
reduction in the industrial sector would subside. Further, MAS held that
continued healthy domestic demand, combined with recovering foreign economies,
would accelerate revenue and profit growth for many economically sensitive
companies. For these reasons the Fund remained fully invested in low P/E value
stocks.
PERFORMANCE AND PORTFOLIO STRATEGY
Against this difficult backdrop, Morgan Stanley Dean Witter Value Fund's Class
A, B, C and D shares returned -6.88 percent, -7.45 percent, -7.35 percent and
- -6.65 percent, respectively, for the period since inception (November 25, 1998)
through September 30, 1999. The Fund underperformed the broad-based Standard &
Poor's 500 Composite Stock Price Index (S&P 500) and the Lipper Growth and
Income Funds Index,
<PAGE> 2
MORGAN STANLEY DEAN WITTER VALUE FUND
LETTER TO THE SHAREHOLDERS September 30, 1999, continued
which returned 9.40 percent and 4.52 percent, respectively. The Fund trailed its
benchmark index for much of the fiscal year, with the quarter ended June 30,
1999, being a notable exception. (Total return figures assume the reinvestment
of all distributions and do not reflect the deduction of any applicable sales
charges. Performance of the Fund's four share classes varies because of
differing expenses.)
The three months ended June 30, 1999 represented an excellent quarter for value
and low P/E investing and proved a welcome respite from earlier performance
comparisons. The months of April and May 1999 were particularly strong for the
low P/E value style of investing although June did show some reversion back to
mega-cap growth stocks. However, the brief fling that investors had with value
stocks in the June quarter ended abruptly in the fourth fiscal quarter of 1999.
The most important aspect of the third fiscal quarter was the market's
significant rotation toward the low P/E value style of investing. For the first
time in recent years, the trend of mega-cap growth outperformance was broken.
Generally, everything that had suffered over the past 18 months recovered: large
issues outperformed mega-caps, cyclicals outperformed defensives, value
outperformed growth and low P/E outperformed high P/E.
Traditional performance attribution reveals that stock selection contributed
about 75 percent of the Fund's performance shortfall and sector allocation the
remainder. The sector allocation shortfall was a result of the Fund's
underweighting in technology and its overweightings in financial, consumer
durables and transportation stocks. Stock selection in the health care,
technology, financial, heavy industry and retail groups penalized relative
performance. Further analysis, however, reveals that the major reason for the
Fund's significant underperformance during the quarter was its strict adherence
to the low P/E investment discipline. From June through September the low P/E
universe, as defined by the two lowest P/E quintiles of all stocks greater than
$2.5 billion in market cap, returned -14.07 percent. This showing reversed the
positive momentum that value investing had established in the third fiscal
quarter and reestablished the primary trend of the past two years -- a situation
in which mega-cap growth stocks with exceptionally high valuations had
appreciated while the vast majority of low-valuation shares stagnated or
declined. Unmistakably, the average stock in our investable universe experienced
a severe bear market during the quarter.
This disappointing performance occurred despite favorable macroeconomic factors
for the average value stock. Global growth accelerated, interest rates rose and
corporate profitability broadened. Nevertheless, while the fundamentals remained
quite healthy, investor psychology reversed sharply. Most low P/E stocks
remained under heavy selling pressure during the quarter. Low absolute and
relative valuations, once considered to be a significant insurance policy,
provided no protection against
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER VALUE FUND
LETTER TO THE SHAREHOLDERS September 30, 1999, continued
share price declines and underperformance. In fact, investor psychology in the
fourth fiscal quarter shifted decidedly against low valuations in stocks. This
psychology is contrary to historical fact and is likely to change eventually.
MAS believes valuations will come to matter once again. Until then, however,
value investing remains a frustrating exercise in swimming upstream.
Sector allocation in the Fund remained true to the low P/E investable universe
at the end of the fiscal year. Overweightings remained in the financial,
industrial, durable goods, transportation and basic materials sectors. Larger
commitments were made in the health-care services sector, a group that now
represents a significant overweighting. MAS believes that this sector, under
pressure from reimbursement and legal concerns, represents exceptional value in
a stable, growing and necessary part of the economy. Sector underweightings
remain in technology, which MAS believes is in an Internet-led mania
stage -- consumer staples, telecommunications and energy stocks. In each of
these sectors, valuations prevent the Fund from participating without violating
its low P/E discipline.
LOOKING AHEAD
The sub-advisor's outlook toward the equity market remains one that is
cautiously optimistic: cautious toward many fairly valued or still expensive
sectors, but optimistic that the market can broaden and generate acceptable
returns for good companies with attractive valuations.
The combination of a still healthy U.S. economy with a global healing now in
process, and a Federal Reserve that doesn't appear overly hostile to the economy
or the financial markets, may cause the market to continue to generate
above-average results from equities. MAS's hope remains that the better returns
will accrue to the value style.
We appreciate your ongoing support of the Morgan Stanley Dean Witter Value Fund
and look forward to continuing to serve your investment needs.
<TABLE>
<S> <C>
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
</TABLE>
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER VALUE FUND
FUND PERFORMANCE September 30, 1999
GROWTH OF $10,000
($ in Thousands)
[LINE GRAPH]
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D S&P 500(4)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
November 25, 1998 9475.00 10000.00 10000.00 10000.00 10000.00
November 30, 1998 9314.00 9820.00 9820.00 9830.00 9818.00
December 31, 1998 9260.00 9766.00 9766.00 9775.00 10383.00
January 31, 1999 9023.00 9516.00 9515.00 9525.00 10817.00
February 28, 1999 8928.00 9406.00 9405.00 9425.00 10481.00
March 31, 1999 9108.00 9586.00 9586.00 9615.00 10900.00
April 30, 1999 10124.00 10646.00 10646.00 10697.00 11322.00
May 31, 1999 10237.00 10756.00 10776.00 10817.00 11055.00
June 30, 1999 10418.00 10946.00 10956.00 11017.00 11668.00
July 31, 1999 10057.00 10566.00 10576.00 10637.00 11304.00
August 31, 1999 9563.00 10036.00 10046.00 10116.00 11248.00
September 30, 1999 8823.00(3) 8793.00(3) 9173.00(3) 9335.00(3) 10940.00
<CAPTION>
LIPPER(5)
------
<S> <C>
November 25, 1998 10000.00
November 30, 1998 9846.00
December 31, 1998 10180.00
January 31, 1999 10278.00
February 28, 1999 10049.00
March 31, 1999 10396.00
April 30, 1999 11070.00
May 31, 1999 10909.00
June 30, 1999 11360.00
July 31, 1999 11035.00
August 31, 1999 10791.00
September 30, 1999 10452.00
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR THE FUND'S
FOUR SHARE CLASSES VARIES BECAUSE OF DIFFERENCES IN SALES CHARGES AND EXPENSE.
AVERAGE ANNUAL TOTAL RETURNS*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A SHARES**
- ------------------------------------------------
<S> <C> <C>
PERIOD ENDED 9/30/99
- --------------------------
Since Inception (11/25/98) (6.88)(1) (11.77)(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES++
- ------------------------------------------------
<S> <C> <C>
PERIOD ENDED 9/30/99
- --------------------------
Since Inception (11/25/98) (7.35)(1) (8.27)(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES+
- ------------------------------------------------
<S> <C> <C>
PERIOD ENDED 9/30/99
- --------------------------
Since Inception (11/25/98) (7.45)(1) (12.07)(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D SHARES#
- ------------------------------------------------
<S> <C>
PERIOD ENDED 9/30/99
- --------------------------
Since Inception (11/25/98) (6.65)(1)
</TABLE>
- ---------------------
<TABLE>
<S> <C>
(1) Figure shown assumes reinvestment of all distributions and
does not reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and
the deduction of the maximum applicable sales charge. See
the Fund's current prospectus for complete details on fees
and sales charges.
(3) Closing value assuming a complete redemption on September
30, 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 Growth and Income Funds Index is an
equally-weighted performance index of the largest qualifying
funds (based on net assets) in the Lipper Growth and Income
Funds objective. The Index, which is adjusted for capital
gains distributions and income dividends, is unmanaged and
should not be considered an investment. There are currently
30 funds represented in this Index.
* For periods of less than one year, the fund quotes its total
return on a non-annualized basis.
** The maximum front-end sales charge for Class A is 5.25%.
+ The maximum CDSC for Class B is 5.0%. The contingent
deferred sales charge (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.
</TABLE>
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER VALUE FUND
PORTFOLIO OF INVESTMENTS September 30, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (91.4%)
Agricultural Chemicals (0.8%)
73,800 IMC Global, Inc. ............ $ 1,074,712
------------
Air Freight/Delivery Services (0.5%)
18,800 CNF Transportation, Inc. .... 700,300
------------
Airlines (3.8%)
46,200 AMR Corp.*................... 2,517,900
52,200 Delta Air Lines, Inc. ....... 2,531,700
------------
5,049,600
------------
Apparel (3.8%)
72,600 Liz Claiborne, Inc. ......... 2,250,600
91,100 VF Corp. .................... 2,824,100
------------
5,074,700
------------
Auto Parts: O.E.M. (4.0%)
50,000 Dana Corp. .................. 1,856,250
18,400 Eaton Corp. ................. 1,588,150
39,100 TRW Inc. .................... 1,945,225
------------
5,389,625
------------
Building Materials (1.4%)
89,400 Owens Corning................ 1,938,862
------------
Construction/Agricultural
Equipment/Trucks (4.8%)
75,100 Cummins Engine Co., Inc. .... 3,740,919
57,900 Navistar International
Corp.*...................... 2,692,350
------------
6,433,269
------------
Consumer Electronics/
Appliances (1.1%)
23,500 Whirlpool Corp. ............. 1,534,844
------------
Contract Drilling (2.3%)
89,300 Nabors Industries, Inc. ..... 2,232,500
29,000 Transocean Offshore, Inc. ... 888,125
------------
3,120,625
------------
Diversified Manufacturing (1.0%)
29,400 Cooper Industries, Inc. ..... 1,374,450
------------
E.D.P. Services (3.0%)
58,800 First Data Corp. ............ 2,579,850
101,300 Quantum Corp. - DLT & Storage
Systems*.................... 1,424,531
------------
4,004,381
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Electric Utilities (3.7%)
10,500 Cinergy Corp. ............... $ 297,281
24,700 DTE Energy Co. .............. 892,287
14,900 Duke Energy Corp. ........... 821,362
25,400 Entergy Corp. ............... 735,012
21,500 GPU, Inc. ................... 701,437
17,100 PECO Energy Co. ............. 641,250
31,900 Southern Co. ................ 821,425
------------
4,910,054
------------
Electronic Data Processing (1.5%)
16,300 International Business
Machines Corp. ............. 1,978,412
------------
Electronic Distributors
(1.0%)
37,000 Arrow Electronics, Inc. ..... 652,125
16,500 Avnet, Inc. ................. 693,000
------------
1,345,125
------------
Fluid Controls (1.7%)
51,100 Parker-Hannifin Corp. ....... 2,289,919
------------
Forest Products (0.5%)
11,500 Weyerhaeuser Co. ............ 662,687
------------
Hospital/Nursing Management (3.7%)
102,500 Columbia/HCA Healthcare
Corp. ...................... 2,171,719
177,600 Health Management Associates,
Inc. (Class A)*............. 1,309,800
87,300 Tenet Healthcare Corp.*...... 1,533,206
------------
5,014,725
------------
Industrial Machinery/
Components (1.0%)
27,500 Tecumseh Products Co. ....... 1,368,125
------------
Life Insurance (1.8%)
14,900 American General Corp. ...... 941,494
43,100 ReliaStar Financial Corp. ... 1,433,075
------------
2,374,569
------------
Major Banks (9.8%)
37,100 Bank of America Corp. ....... 2,066,006
51,400 BankBoston Corp. ............ 2,229,475
61,400 Chase Manhattan Corp.
(The)....................... 4,628,025
78,900 PNC Bank Corp. .............. 4,157,044
------------
13,080,550
------------
Major Chemicals (0.8%)
59,900 Solutia, Inc. ............... 1,070,712
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER VALUE FUND
PORTFOLIO OF INVESTMENTS September 30, 1999, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Major U.S. Telecommunications (4.8%)
38,600 Bell Atlantic Corp. ......... $ 2,598,263
25,600 GTE Corp. ................... 1,968,000
32,900 U.S. West, Inc. ............. 1,877,356
------------
6,443,619
------------
Managed Health Care (2.3%)
79,200 Foundation Health Systems
Inc. (Class A).............. 747,450
30,900 United HealthCare Corp. ..... 1,504,444
14,300 Wellpoint Health Networks,
Inc.*....................... 815,100
------------
3,066,994
------------
Meat/Poultry/Fish (0.8%)
40,700 IBP, Inc. ................... 1,004,781
------------
Medical Specialties (1.1%)
32,300 Beckman Coulter, Inc. ....... 1,457,538
------------
Medical/Nursing Services (3.9%)
853,500 HealthSouth Corp.*........... 5,174,344
------------
Motor Vehicles (7.2%)
70,900 Ford Motor Co. .............. 3,558,294
97,800 General Motors Corp. ........ 6,155,288
------------
9,713,582
------------
Multi-Line Insurance (1.8%)
11,800 CIGNA Corp. ................. 917,450
37,500 Hartford Financial Services
Group, Inc. ................ 1,532,813
------------
2,450,263
------------
Office Equipment/Supplies (1.0%)
33,200 Xerox Corp. ................. 1,392,325
------------
Oil Refining/Marketing (1.6%)
20,800 Tosco Corp. ................. 525,200
64,600 Ultramar Diamond Shamrock
Corp. ...................... 1,647,300
------------
2,172,500
------------
Oil/Gas Transmission (0.7%)
22,700 Coastal Corp. ............... 929,281
------------
Other Specialty Stores (0.6%)
71,800 Office Depot, Inc.*.......... 731,463
------------
Property - Casualty Insurers (1.2%)
93,300 Ace, Ltd. (Bermuda).......... 1,580,269
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Railroads (0.5%)
25,000 Burlington Northern Santa Fe
Corp. ...................... $ 687,500
------------
Rental/Leasing Companies (0.6%)
37,100 Ryder System, Inc. .......... 755,913
------------
Savings & Loan Companies (2.6%)
119,400 Washington Mutual, Inc. ..... 3,492,450
------------
Specialty Chemicals (4.8%)
98,800 Engelhard Corp. ............. 1,796,925
28,200 FMC Corp.*................... 1,360,650
78,500 Grace (W. R.) & Co. ......... 1,260,906
77,800 Lubrizol Corp. (The)......... 1,998,488
------------
6,416,969
------------
Specialty Foods/Candy (1.0%)
60,500 Universal Foods Corp. ....... 1,387,719
------------
Specialty Insurers (1.0%)
30,700 XL Capital Ltd. (Class A)
(Bermuda)................... 1,381,500
------------
Textiles (0.5%)
21,400 Springs Industries, Inc.
(Class A)................... 726,263
------------
Tobacco (1.4%)
43,400 Nabisco Group Holdings
Corp. ...................... 651,000
47,900 R. J. Nabisco Tobacco
Holdings, Inc. ............. 1,293,300
------------
1,944,300
------------
TOTAL COMMON STOCKS
(Identified Cost
$132,679,945)................ 122,699,819
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
SHORT-TERM INVESTMENTS (7.9%)
U.S. GOVERNMENT AGENCY (a) (3.7%)
$5,000 Federal Home Loan Mortgage
Corp. 5.22% due 10/13/99
(Amortized Cost $4,991,300).. 4,991,300
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER VALUE FUND
PORTFOLIO OF INVESTMENTS September 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT (4.2%)
$5,577 The Bank of New York 5.00%
due 10/01/99 (dated
09/30/99; proceeds
$5,578,162) (b)
(Identified Cost
$5,577,387)................. $ 5,577,387
------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost
$10,568,687)................ 10,568,687
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $143,248,632)
(c)............................. 99.3% 133,268,506
OTHER ASSETS IN EXCESS OF
LIABILITIES...................... 0.7 879,306
------ ------------
NET ASSETS....................... 100.0% $134,147,812
======= ============
</TABLE>
- ---------------------
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $5,558,568 U.S. Treasury Bill 5.625% due 10/31/99 valued
at $5,691,166.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $5,464,728 and the
aggregate gross unrealized depreciation is $15,444,854, resulting in net
unrealized depreciation of $9,980,126.
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER VALUE FUND
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
ASSETS:
Investments in securities, at value
(identified cost $143,248,632)............................. $133,268,506
Receivable for:
Investments sold........................................ 3,839,216
Shares of beneficial interest sold...................... 233,794
Dividends............................................... 128,103
Deferred offering expenses.................................. 16,734
Prepaid expenses and other assets........................... 70,499
-----------
TOTAL ASSETS............................................ 137,556,852
-----------
LIABILITIES:
Payable for:
Investments purchased................................... 2,965,753
Shares of beneficial interest repurchased............... 131,075
Investment management fee............................... 116,944
Plan of distribution fee................................ 105,731
Accrued expenses and other payables......................... 89,537
-----------
TOTAL LIABILITIES....................................... 3,409,040
-----------
NET ASSETS.............................................. $134,147,812
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $145,587,915
Net unrealized depreciation................................. (9,980,126)
Net realized loss........................................... (1,459,977)
-----------
NET ASSETS.............................................. $134,147,812
===========
CLASS A SHARES:
Net Assets.................................................. $5,779,471
Shares Outstanding (unlimited authorized, $.01 par value)... 621,560
NET ASSET VALUE PER SHARE............................... $9.30
===========
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value)........ $9.82
============
CLASS B SHARES:
Net Assets.................................................. $122,039,557
Shares Outstanding (unlimited authorized, $.01 par value)... 13,199,604
NET ASSET VALUE PER SHARE............................... $9.25
===========
CLASS C SHARES:
Net Assets.................................................. $6,262,983
Shares Outstanding (unlimited authorized, $.01 par value)... 676,693
NET ASSET VALUE PER SHARE............................... $9.26
===========
CLASS D SHARES:
Net Assets.................................................. $65,801
Shares Outstanding (unlimited authorized, $.01 par value)... 7,063
NET ASSET VALUE PER SHARE............................... $9.32
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER VALUE FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the period November 25, 1998* through September 30, 1999
NET INVESTMENT LOSS:
INCOME
Dividends................................................... $ 2,021,323
Interest.................................................... 484,680
-----------
TOTAL INCOME............................................ 2,506,003
-----------
EXPENSES
Investment management fee................................... 1,176,430
Plan of distribution fee (Class A shares)................... 11,795
Plan of distribution fee (Class B shares)................... 1,069,957
Plan of distribution fee (Class C shares)................... 51,020
Transfer agent fees and expenses............................ 150,900
Offering costs.............................................. 97,411
Professional fees........................................... 61,909
Registration fees........................................... 59,636
Shareholder reports and notices............................. 14,966
Trustees' fees and expenses................................. 13,229
Other....................................................... 3,023
-----------
TOTAL EXPENSES.......................................... 2,710,276
-----------
NET INVESTMENT LOSS..................................... (204,273)
-----------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss........................................... (1,459,977)
Net unrealized depreciation................................. (9,980,126)
-----------
NET LOSS................................................ (11,440,103)
-----------
NET DECREASE................................................ $(11,644,376)
===========
</TABLE>
- ---------------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER VALUE FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
NOVEMBER 25, 1998*
THROUGH
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss......................................... $ (204,273)
Net realized loss........................................... (1,459,977)
Net unrealized depreciation................................. (9,980,126)
-----------
NET DECREASE............................................ (11,644,376)
-----------
DIVIDENDS TO SHAREHOLDERS IN EXCESS OF NET INVESTMENT
INCOME:
Class A shares.............................................. (5,564)
Class B shares.............................................. (65,573)
Class C shares.............................................. (3,827)
Class D shares.............................................. (40)
-----------
TOTAL DIVIDENDS......................................... (75,004)
-----------
Net increase from transactions in shares of beneficial
interest................................................... 145,767,192
-----------
NET INCREASE............................................ 134,047,812
NET ASSETS:
Beginning of period......................................... 100,000
-----------
END OF PERIOD........................................... $134,147,812
===========
</TABLE>
- ---------------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER VALUE FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter 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 total
return. The Fund seeks to achieve its objective by investing, under normal
circumstances, at least 65% of the value of its total assets in common stocks
and other equity securities that are believed to be relatively undervalued based
primarily on price/earnings ratios, as well as on various other value measures.
The Fund was organized as a Massachusetts business trust on June 9, 1998 and had
no operations other than those relating to organizational matters and the
issuance of 2,500 shares of beneficial interest by each class for $25,000 of
each class to Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager") to effect the Fund's initial capitalization. The Fund commenced
operations on November 25, 1998.
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 a security is traded on more than one exchange, the security is
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Trustees); (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (3) when market
quotations are not readily available, including circumstances under which it is
determined by the Investment Manager or Miller Anderson & Sherrerd, LLP (the
"Sub-Advisor"), an affiliate of the Investment Manager, that sale or bid prices
are not reflective of a security's market value, portfolio securities are valued
at their fair
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER VALUE FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1999, continued
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); and (4) short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted over the respective life of the securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. 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.
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER VALUE FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1999, continued
F. OFFERING COSTS -- The Investment Manager incurred offering costs on behalf of
the Fund in the amount of approximately $114,000 which has been reimbursed for
the full amount thereof. Such expenses were deferred and are being amortized by
the Fund on the straight-line method over a period of approximately one year or
less from the commencement of operations.
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS
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 1.00% to the net assets of the Fund determined as of the close of
each business day.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
Under a Sub-Advisory Agreement between the Sub-Advisor and the Investment
Manager, the Sub-Advisor provides the Fund with investment advice and portfolio
management relating to the Fund's investments in securities, subject to the
overall supervision of the Investment Manager. As compensation for its services
provided pursuant to the Sub-Advisory Agreement, the Investment Manager pays the
Sub-Advisor compensation equal to 40% of its monthly compensation.
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 for (1) services provided and the expenses borne by it and others in
the distribution of the shares of these Classes, including
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER VALUE FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1999, continued
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 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 $7,573,365 at September 30, 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 period ended September 30, 1999, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
0.87%, respectively.
The Distributor has informed the Fund that for the period ended September 30,
1999, it received contingent deferred sales charges from certain redemptions of
the Fund's Class A shares, Class B shares and Class C shares of $20, $398,990
and $11,750, respectively and received $44,525 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.
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER VALUE FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1999, continued
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the period ended September 30, 1999 aggregated
$199,565,122 and $65,426,019, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At September 30, 1999, the Fund had
transfer agent fees and expenses payable of approximately $3,000.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 25, 1998*
THROUGH
SEPTEMBER 30, 1999
-----------------------------
SHARES AMOUNT
---------- ------------
<S> <C> <C>
CLASS A
Sold........................................................ 712,266 $ 7,088,696
Reinvestment of dividends................................... 498 4,804
Redeemed.................................................... (93,704) (966,777)
---------- ------------
Net increase - Class A...................................... 619,060 6,126,723
---------- ------------
CLASS B
Sold........................................................ 16,407,820 165,264,611
Reinvestment of dividends................................... 6,205 59,814
Redeemed.................................................... (3,216,921) (32,488,695)
---------- ------------
Net increase - Class B...................................... 13,197,104 132,835,730
---------- ------------
CLASS C
Sold........................................................ 936,207 9,365,853
Reinvestment of dividends................................... 365 3,517
Redeemed.................................................... (262,379) (2,616,322)
---------- ------------
Net increase - Class C...................................... 674,193 6,753,048
---------- ------------
CLASS D
Sold........................................................ 10,651 115,491
Reinvestment of dividends................................... 4 40
Redeemed.................................................... (6,092) (63,840)
---------- ------------
Net increase - Class D...................................... 4,563 51,691
---------- ------------
Net increase in Fund........................................ 14,494,920 $145,767,192
========== ============
</TABLE>
- ---------------------
* Commencement of operations.
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER VALUE FUND
NOTES TO FINANCIAL STATEMENTS September 30, 1999, continued
6. FEDERAL INCOME TAX STATUS
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $414,000 during fiscal 1999.
As of September 30, 1999, the Fund had temporary book/tax differences
attributable to post-October losses and capital loss deferrals on wash sales and
permanent book/tax differences primarily attributable to nondeductible expenses
and a dividend redesignation. To reflect reclassifications arising from the
permanent differences, paid-in-capital was charged and net investment loss was
credited $279,277.
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER VALUE FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE PERIOD NOVEMBER 25, 1998*
THROUGH SEPTEMBER 30, 1999**
--------------------------------------
CLASS A CLASS B CLASS C CLASS D
SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $10.00 $10.00 $10.00 $10.00
------ -------- ------ ------
Income (loss) from investment operations:
Net investment income (loss)............................... 0.05 (0.02) (0.01) 0.06
Net realized and unrealized loss........................... (0.74) (0.72) (0.72) (0.72)
------ -------- ------ ------
Total loss from investment operations....................... (0.69) (0.74) (0.73) (0.66)
------ -------- ------ ------
Less dividends from net investment income................... (0.01) (0.01) (0.01) (0.02)
------ -------- ------ ------
Net asset value, end of period.............................. $ 9.30 $ 9.25 $ 9.26 $ 9.32
====== ======== ====== ======
TOTAL RETURN+(1)............................................ (6.88)% (7.45)% (7.35)% (6.65)%
RATIOS TO AVERAGE NET ASSETS(2)(3):
Expenses.................................................... 1.59% 2.34% 2.21% 1.34%
Net investment income (loss)................................ 0.54% (0.21)% (0.08)% 0.79%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $5,779 $122,040 $6,263 $66
Portfolio turnover rate(1).................................. 52% 52% 52% 52%
</TABLE>
- ---------------------
* Commencement of operations.
** The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER VALUE FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER 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 Value
Fund (the "Fund") at September 30, 1999, and the results of its operations, the
changes in its net assets and the financial highlights for the period November
25, 1998 (commencement of operations) through September 30, 1999, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at September 30, 1999 by
correspondence with the custodian and brokers, provides a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
November 10, 1999
18
<PAGE> 19
(This Page Intentionally Left Blank)
<PAGE> 20
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
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
SUB-ADVISOR
- ----------------------------------
Miller Anderson & Sherrerd, LLP
1 Tara Bridge
West Conshohocken, PA 19428
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
VALUE FUND
Annual Report
September 30, 1999
