<PAGE> 1
MORGAN STANLEY DEAN WITTER VALUE FUND Two World Trade Center
LETTER TO THE SHAREHOLDERS March 31, 1999 New York, New York 10048
DEAR SHAREHOLDER:
The six-month period ended March 31, 1999, was a difficult one for value
investors in general, and for Morgan Stanley Dean Witter Value Fund. The Fund,
which commenced operations on November 25, 1998, seeks to provide total return.
The Fund's sub-advisor, Miller Anderson & Sherrerd LLP (MAS), uses a
team-oriented approach, coupled with rigorous independent research to identify
stocks that appear to be trading below their true worth.
MARKET OVERVIEW
Despite residual effects from Asia and continued fears of a global economic
recession, the U.S. economy continued to boom throughout the fourth quarter of
1998 and in the first quarter of 1999. In particular, the domestic equity market
remained strong. Volume increased as the Dow Jones Industrial Average climbed
toward the 10,000 mark, then continued upward in the first quarter of 1999.
Interest rates remained low, inflation minimal and unemployment almost
nonexistent. Investors continued to flock toward index and growth stocks, and
the Standard & Poor's 500 Composite Stock Price Index (S&P 500) returned its
fourth consecutive year of exceptional returns (28.6 percent).
And yet something seemed amiss. Active managers underperformed and the stock
market saw an ever widening gap between mega-cap growth and Internet-related
stocks and the small- and mid-cap, economically sensitive cyclical stocks that
make up much of Morgan Stanley Dean Witter Value Fund's portfolio. Throughout
the period, the lion's share of the S&P 500's remarkable returns came from only
a handful of stocks. During 1998, the largest 100 companies in the S&P
outperformed the other 400 companies by a margin of 21.4 percent. In addition,
the market experienced the anomaly of a tremendous spread between the
performance results of the two highest and the two lowest price-earnings (P/E)
quintiles. This trend continued in first-quarter 1999 when the greatest
quarterly performance differential in two decades was recorded: nearly 1,500
basis points.
<PAGE> 2
MORGAN STANLEY DEAN WITTER VALUE FUND
LETTER TO THE SHAREHOLDERS March 31, 1999, continued
PERFORMANCE AND PORTFOLIO
From its inception through March 31, 1999, Morgan Stanley Dean Witter Value
Fund's Class A, B, C and D shares returned -3.87 percent, -4.14 percent, -4.14
percent and -3.85 percent, respectively. Performance of the Fund's four share
classes varies because of differing expenses. The Fund underperformed the
broad-based S&P 500 and the Lipper Growth and Income Funds Index, which returned
8.91 percent and 3.96 percent, respectively.
During the period under review, the Fund's disciplined, low P/E, value-oriented
strategy proved to be the most influential factor affecting the negative
performance of the portfolio. Both stock selection and sector allocation
contributed to the Fund's underperformance, each being driven by the Fund's
commitment to a low P/E, value discipline. The Fund was simply priced out of
many opportunities. The Fund's largest overweights were in the economically
sensitive, cyclically driven sectors of consumer durables, financial services,
basic resources, heavy industry and transportation. Its largest underweightings
were in technology, consumer nondurables, utilities, consumer services and
health care, sectors dominated by stocks with high P/E valuations.
During the first quarter of 1999, the Fund took advantage of buying
opportunities in the health-care services industry by adding to positions in
United Healthcare, Foundation Health and HEALTHSOUTH. Many HMO and hospital
management stocks have attractive long-term growth opportunities, stable demand
characteristics, positive demographics and compelling valuations at 10 times
earnings and six times cash flow.
A strategy that benefited performance was exposure to merger and acquisition
activity as mega-cap companies strove to boost revenue growth through
acquisitions. In early February two of our industrial names were acquired:
Aeroquip-Vickers (by Eaton) and Morton (by Rohm & Haas). The Aeroquip-
Vickers/Eaton merger alone contributed strongly to performance in February.
LOOKING AHEAD
Despite the continued dominance of growth stocks, MAS remains optimistic about
value investing. The underperformance of this style has created exceptional
pricing opportunities. Global economic growth appears to be picking up, spurred
on by continuing interest-rate cuts and by the beginnings of a recovery in many
emerging markets. Together with the extremely high valuations of many growth
stocks, including some earnings disappointments among them, the time may well be
right for a rotation into value stocks. MAS believes that at some point low P/E
investing will attract investor attention again. When it does, the Fund is well
positioned to participate in the market's upswing.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER VALUE FUND
LETTER TO THE SHAREHOLDERS March 31, 1999, continued
On May 1, 1999, Mitchell M. Merin was named President of the Morgan Stanley Dean
Witter Funds. Mr. Merin is also the President and Chief Operating Officer of
Asset Management of 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 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> 4
MORGAN STANLEY DEAN WITTER VALUE FUND
PORTFOLIO OF INVESTMENTS March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (96.6%)
Agricultural Chemicals (1.1%)
69,400 IMC Global, Inc. ............ $ 1,418,362
------------
Air Freight/Delivery Services
9,900 (0.3%) CNF Transportation,
Inc. .... 374,344
------------
Airlines (2.8%)
25,800 AMR Corp.*................... 1,510,912
29,900 Delta Air Lines, Inc. ....... 2,078,050
------------
3,588,962
------------
Apparel (3.6%)
68,300 Liz Claiborne, Inc. ......... 2,228,287
50,200 VF Corp. .................... 2,368,812
------------
4,597,099
------------
Auto Parts: O.E.M. (2.9%)
47,000 Dana Corp. .................. 1,786,000
8,800 Eaton Corp. ................. 629,200
27,200 TRW Inc. .................... 1,237,600
------------
3,652,800
------------
Automotive Aftermarket (1.7%)
43,800 Goodyear Tire & Rubber Co.... 2,181,787
------------
Building Materials (1.6%)
63,200 Owens Corning................ 2,010,550
------------
Computer Hardware (2.9%)
20,700 International Business
Machines Corp. ............. 3,669,075
------------
Construction/Agricultural
Equipment/Trucks (4.1%)
97,900 Case Corp. .................. 2,484,212
45,700 Cummins Engine Co., Inc. .... 1,625,206
27,100 Navistar International
Corp.*...................... 1,089,081
------------
5,198,499
------------
Contract Drilling (1.2%)
84,000 Nabors Industries, Inc.*..... 1,527,750
------------
Department Stores (2.0%)
40,200 Dillard's, Inc. (Class A).... 1,020,075
32,700 Sears, Roebuck & Co. ........ 1,477,631
------------
2,497,706
------------
Discount Chains (0.0%)
300 Consolidated Stores Corp.*... 9,094
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Diversified Commercial
Services (0.4%)
75,800 Olsten Corp. ................ $ 469,012
------------
Diversified Manufacturing (2.7%)
46,700 Aeroquip-Vickers, Inc. ...... 2,676,494
16,100 FMC Corp.*................... 794,937
------------
3,471,431
------------
E.D.P. Services (2.4%)
71,800 First Data Corp. ............ 3,069,450
------------
Electric Utilities (3.9%)
14,300 Cinergy Corp. ............... 393,250
23,200 DTE Energy Co. .............. 891,750
14,000 Duke Energy Corp. ........... 764,750
23,900 Entergy Corp. ............... 657,250
20,200 GPU, Inc. ................... 753,712
16,100 PECO Energy Co. ............. 744,625
30,000 Southern Co. ................ 699,375
------------
4,904,712
------------
Electronic Distributors
(1.4%)
58,400 Arrow Electronics, Inc.*..... 876,000
23,500 Avnet Inc.. ................. 860,687
------------
1,736,687
------------
Fluid Controls (1.3%)
48,100 Parker-Hannifin Corp. ....... 1,647,425
------------
Hospital/Nursing Management
(2.1%)
48,400 Columbia/HCA Healthcare
Corp. ...................... 916,575
92,300 Tenet Healthcare Corp.*...... 1,747,931
------------
2,664,506
------------
Industrial Machinery/
Components (1.5%)
53,700 Harnischfeger Industries,
Inc. ....................... 305,419
29,600 Kennametal, Inc. ............ 518,000
20,400 Tecumseh Products Co.*....... 1,025,100
------------
1,848,519
------------
Life Insurance (1.8%)
14,000 American General Corp. ...... 987,000
31,100 ReliaStar Financial Corp. ... 1,325,637
------------
2,312,637
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER VALUE FUND
PORTFOLIO OF INVESTMENTS March 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Major Banks (11.7%)
38,300 Bank One Corp. .............. $ 2,108,894
34,600 BankAmerica Corp. ........... 2,443,625
20,100 BankBoston Corp. ............ 870,581
54,300 Chase Manhattan Corp.
(The)....................... 4,415,269
24,000 First Union Corp. ........... 1,282,500
48,300 PNC Bank Corp. .............. 2,683,669
20,600 Republic New York Corp. ..... 950,175
------------
14,754,713
------------
Major Chemicals (1.1%)
41,500 Rohm & Haas Co. ............. 1,392,844
------------
Major U.S. Telecommunications
(2.5%)
36,300 Bell Atlantic Corp. ......... 1,876,256
22,800 U.S. West, Inc. ............. 1,255,425
------------
3,131,681
------------
Managed Health Care (3.7%)
91,100 Foundation Health Systems
Inc. (Class A).............. 1,110,281
71,100 Humana, Inc.*................ 1,226,475
43,500 United Healthcare Corp. ..... 2,289,188
------------
4,625,944
------------
Meat/Poultry/Fish (0.6%)
38,300 IBP, Inc. ................... 713,338
------------
Medical/Nursing Services
(1.6%)
192,300 HEALTHSOUTH Corp.*........... 1,995,113
------------
Mid-Sized Banks (0.9%)
33,900 UnionBanCal Corp. ........... 1,152,600
------------
Motor Vehicles (6.9%)
52,700 Ford Motor Co. .............. 2,990,725
66,200 General Motors Corp. ........ 5,751,125
------------
8,741,850
------------
Multi-Line Insurance (5.9%)
54,700 Allstate Corp. .............. 2,027,319
30,600 CIGNA Corp. ................. 2,564,663
35,200 Hartford Financial Services
Group, Inc. ................ 1,999,800
46,300 Old Republic International
Corp. ...................... 844,975
------------
7,436,757
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Oil Refining/Marketing (1.5%)
25,800 Tosco Corp. ................. $ 640,163
60,800 Ultramar Diamond Shamrock
Corp. ...................... 1,314,800
------------
1,954,963
------------
Oil/Gas Transmission (0.6%)
21,400 Coastal Corp. ............... 706,200
------------
Other Consumer Services
(0.9%)
81,600 Service Corp.
International............... 1,162,800
------------
Other Specialty Stores (1.3%)
85,100 Toys 'R' Us, Inc.*........... 1,600,944
------------
Paper (0.3%)
18,200 Westavaco Corp. ............. 382,200
------------
Photographic Products (1.0%)
19,500 Eastman Kodak Co. ........... 1,245,563
------------
Precision Instruments (2.1%)
30,400 Beckman Coulter, Inc.*....... 1,337,600
51,300 Tektronix, Inc. ............. 1,295,325
------------
2,632,925
------------
Printing/Forms (0.3%)
14,300 Standard Register Co. ....... 424,531
------------
Property - Casualty Insurers
(1.7%)
32,900 Everest Reinsurance Holdings,
Inc. ....................... 1,026,069
14,300 Transatlantic Holdings,
Inc. ....................... 1,072,500
------------
2,098,569
------------
Railroads (0.5%)
18,200 Burlington Northern Santa Fe
Corp. ...................... 598,325
------------
Rental/Leasing Companies
(0.1%)
6,300 Ryder System, Inc. .......... 174,038
------------
Savings & Loan Companies
(2.4%)
74,800 Washington Mutual, Inc. ..... 3,057,450
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER VALUE FUND
PORTFOLIO OF INVESTMENTS March 31, 1998 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Specialty Chemicals (3.5%)
29,200 Air Products & Chemicals,
Inc. ....................... $ 1,000,100
63,000 Grace (W. R.) & Co.*......... 763,875
87,300 Lubrizol Corp. (The)......... 1,964,250
18,500 Morton International,
Inc. ....................... 679,875
------------
4,408,100
------------
Specialty Foods/Candy (0.9%)
56,900 Universal Foods Corp. ....... 1,173,563
------------
Specialty Steels (0.5%)
45,900 Ryerson Tull, Inc. .......... 674,156
------------
Textiles (0.5%)
21,100 Springs Industries, Inc.
(Class A)................... 571,019
------------
Tobacco (1.9%)
31,000 Philip Morris Companies,
Inc. ....................... 1,090,813
54,500 RJR Nabisco Holdings
Corp. ...................... 1,362,500
------------
2,453,313
------------
TOTAL COMMON STOCKS
(Identified Cost
$126,169,441)................ 122,113,906
------------
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------
SHORT-TERM INVESTMENTS (3.5%)
U.S. GOVERNMENT AGENCY (a)
$3,000 (2.4%) Federal National
Mortgage Assoc. 4.77% due
04/20/99 (Amortized Cost
$2,992,448)................. $ 2,992,448
------------
REPURCHASE AGREEMENT (1.1%)
1,390 The Bank of New York
4.875% due 04/01/99
(dated 03/31/99; proceeds
$1,390,495) (b)
(Identified Cost
$1,390,307)................. 1,390,307
------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost
$4,382,755).................. 4,382,755
------------
TOTAL INVESTMENTS
(Identified Cost $130,552,196)
(c).............................. 100.1% 126,496,661
------------
LIABILITIES IN EXCESS OF OTHER ASSETS (0.1) (94,615)
---- ------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
- -------------------------------------------------------
<C> <S> <C>
NET ASSETS....................... 100.0% $126,402,046
====== ============
</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 $395,000 U.S. Treasury Bill 0.00% due 03/02/00 valued at
$378,446; $101,650 U.S. Treasury Bond 7.875% due 02/15/21 valued at
$126,448; $421,000 U.S. Treasury Note 5.50% due 02/15/08 valued at $427,958;
$400,000 U.S. Treasury Note 6.50% due 04/30/99 valued at $411,345 and
$70,775 U.S. Treasury Note 6.625% due 07/31/01 valued at $73,917.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $6,920,932 and the
aggregate gross unrealized depreciation is $10,976,467, resulting in net
unrealized depreciation of $4,055,535.
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER VALUE FUND
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $130,552,196)............................. $126,496,661
Receivable for:
Shares of beneficial interest sold...................... 201,698
Dividends............................................... 154,978
Investments sold........................................ 140,431
Deferred offering costs..................................... 74,238
Prepaid expenses and other assets........................... 17,256
------------
TOTAL ASSETS............................................ 127,085,262
------------
LIABILITIES:
Payable for:
Investments purchased................................... 252,016
Shares of beneficial interest repurchased............... 139,032
Investment management fee............................... 115,397
Plan of distribution fee................................ 111,802
Offering costs.............................................. 3,100
Accrued expenses and other payables......................... 61,869
------------
TOTAL LIABILITIES....................................... 683,216
------------
NET ASSETS.............................................. $126,402,046
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $131,407,757
Net unrealized depreciation................................. (4,055,535)
Net investment loss......................................... (36,725)
Net realized loss........................................... (913,451)
------------
NET ASSETS.............................................. $126,402,046
============
CLASS A SHARES:
Net Assets.................................................. $5,302,213
Shares Outstanding (unlimited authorized, $.01 par value)... 552,544
NET ASSET VALUE PER SHARE............................... $9.60
============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value)........ $10.13
============
CLASS B SHARES:
Net Assets.................................................. $114,687,349
Shares Outstanding (unlimited authorized, $.01 par value)... 11,974,791
NET ASSET VALUE PER SHARE............................... $9.58
============
CLASS C SHARES:
Net Assets.................................................. $6,380,731
Shares Outstanding (unlimited authorized, $.01 par value)... 666,219
NET ASSET VALUE PER SHARE............................... $9.58
============
CLASS D SHARES:
Net Assets.................................................. $31,753
Shares Outstanding (unlimited authorized, $.01 par value)... 3,307
NET ASSET VALUE PER SHARE............................... $9.60
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER VALUE FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the period November 25, 1998* through March 31, 1999
(unaudited)
NET INVESTMENT INCOME:
INCOME
Dividends................................................... $ 750,400
Interest.................................................... 307,133
-----------
TOTAL INCOME............................................ 1,057,533
-----------
EXPENSES
Investment management fee................................... 433,381
Plan of distribution fee (Class A shares)................... 4,169
Plan of distribution fee (Class B shares)................... 394,004
Plan of distribution fee (Class C shares)................... 22,605
Transfer agent fees and expenses............................ 66,475
Offering costs.............................................. 39,907
Professional fees........................................... 22,500
Registration fees........................................... 20,206
Shareholder reports and notices............................. 5,828
Trustees' fees and expenses................................. 4,163
Custodian fees.............................................. 3,443
Other....................................................... 2,572
-----------
TOTAL EXPENSES.......................................... 1,019,253
-----------
NET INVESTMENT INCOME................................... 38,280
-----------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss........................................... (913,451)
Net unrealized depreciation................................. (4,055,535)
-----------
NET LOSS................................................ (4,968,986)
-----------
NET DECREASE................................................ $(4,930,706)
===========
</TABLE>
- ---------------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER VALUE FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
<S> <C>
FOR THE PERIOD
NOVEMBER 25, 1998*
THROUGH
MARCH 31, 1999
- --------------------------------------------------------------------------------
(unaudited)
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 38,280
Net realized loss........................................... (913,451)
Net unrealized deppreciation................................ (4,055,535)
------------
NET DECREASE............................................ (4,930,706)
------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares.............................................. (5,565)
Class B shares.............................................. (65,573)
Class C shares.............................................. (3,827)
Class D shares.............................................. (40)
------------
TOTAL DIVIDENDS......................................... (75,005)
------------
Net increase from transactions in shares of beneficial
interest................................................... 131,307,757
------------
NET INCREASE............................................ 126,302,046
NET ASSETS:
Beginning of period......................................... 100,000
------------
END OF PERIOD
(Including a net investment loss of $36,725)............ $126,402,046
============
</TABLE>
- ---------------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER VALUE FUND
NOTES TO FINANCIAL STATEMENTS March 31, 1999 (unaudited)
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 other 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
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER VALUE FUND
NOTES TO FINANCIAL STATEMENTS March 31, 1999 (unaudited) 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.
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER VALUE FUND
NOTES TO FINANCIAL STATEMENTS March 31, 1999 (unaudited) continued
F. OFFERING COSTS -- The Investment Manager incurred offering costs on behalf of
the Fund in the amount of approximately $114,000 which will be 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
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER VALUE FUND
NOTES TO FINANCIAL STATEMENTS March 31, 1999 (unaudited) 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 $7,160,203 at March 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 period ended March 31, 1999, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
1.0%, respectively.
The Distributor has informed the Fund that for the period ended March 31, 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, $97,999 and
$3,972, respectively and received $24,563 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.
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER VALUE FUND
NOTES TO FINANCIAL STATEMENTS March 31, 1999 (unaudited) 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 March 31, 1999 aggregated
$132,302,326 and $5,219,487, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At March 31, 1999, the Fund had
transfer agent fees and expenses payable of approximately $11,000.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 25, 1998*
THROUGH
MARCH 31, 1999
-------------------------
SHARES AMOUNT
---------- ------------
<S> <C> <C>
CLASS A
Sold........................................................ 578,095 $ 5,711,029
Reinvestment of dividends................................... 498 4,804
Redeemed.................................................... (28,549) (275,149)
---------- ------------
Net increase - Class A...................................... 550,044 5,440,684
---------- ------------
CLASS B
Sold........................................................ 13,174,242 130,788,249
Reinvestment of dividends................................... 6,204 59,814
Redeemed.................................................... (1,208,155) (11,611,693)
---------- ------------
Net increase - Class B...................................... 11,972,291 119,236,370
---------- ------------
CLASS C
Sold........................................................ 805,557 7,991,636
Reinvestment of dividends................................... 365 3,517
Redeemed.................................................... (142,203) (1,372,238)
---------- ------------
Net increase - Class C...................................... 663,719 6,622,915
---------- ------------
CLASS D
Sold........................................................ 803 7,748
Reinvestment of dividends................................... 4 40
---------- ------------
Net increase - Class D...................................... 807 7,788
---------- ------------
Net increase in Fund........................................ 13,186,861 $131,307,757
========== ============
</TABLE>
- ---------------------
* Commencement of operations.
14
<PAGE> 15
15
MORGAN STANLEY DEAN WITTER VALUE FUND
FINANCIAL HIGHLIGHTS (unaudited)
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 MARCH 31, 1999**
--------------------------------------
CLASS A CLASS B CLASS C CLASS D
SHARES SHARES SHARES SHARES
- ----------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA:
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------
Income (loss) from investment operations:
Net investment income...................................... 0.03 --++ --++ 0.04
Net realized and unrealized loss........................... (0.42) (0.41) (0.41) (0.42)
------ ------ ------ ------
Total loss from investment operations....................... (0.39) (0.41) (0.41) (0.38)
------ ------ ------ ------
Less dividends from net investment income................... (0.01) (0.01) (0.01) (0.02)
------ ------ ------ ------
Net asset value, end of period.............................. $ 9.60 $ 9.58 $ 9.58 $ 9.60
====== ====== ====== ======
TOTAL RETURN+(1)............................................ (3.87)% (4.14)% (4.14)% (3.85)%
RATIOS TO AVERAGE NET ASSETS(2)(3):
Expenses.................................................... 1.63% 2.38% 2.38% 1.38%
Net investment income....................................... 0.81% 0.06% 0.06% 1.06%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $5,302 $114,687 $6,381 $32
Portfolio turnover rate (1)................................. 5% 5% 5% 5%
</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.
Excludes $0.005650 and $0.005557 of dividends from net
++ investment income for Class B and Class C, respectively.
(1) Not annualized.
(2) Annualized.
Reflects overall Fund ratios for investment income and
(3) non-class specific expenses.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 16
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
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.
MORGAN STANLEY
DEAN WITTER
VALUE FUND
[MORGAN STANLEY/DEAN WITTER GRAPHIC]
Semiannual Report
March 31, 1999
