<PAGE> 1
MORGAN STANLEY DEAN WITTER VALUE FUND Two World Trade Center
LETTER TO THE SHAREHOLDERS March 31, 2000 New York, New York 10048
DEAR SHAREHOLDER:
The six-month period ended March 31, 2000, was a challenging one for value
investors. Led by large-capitalization growth stocks in general and a white-hot
technology sector, the U.S. equity markets rose 17.50 percent for the period, as
measured by the Standard & Poor's 500 Composite Stock Price Index (S&P 500).(1)
Growth-oriented stocks outperformed value-oriented issues throughout this period
as investors continued to believe in and invest in the sustainability of the
growth of the largest companies. The performance of the market was narrow
throughout most of 1999, although some broadening did occur late in the year.
Increased volatility marked the U.S. equity markets in the first quarter of
2000. While the S&P 500 increased 2.29 percent overall for the quarter, it had
been down as much as 8 percent in late February. Growth continued to outperform
value for the quarter, with the Russell 1000 Growth Index appreciating 7.13
percent versus 0.48 percent for the Russell 1000 Value Index. The market
remained extremely narrow, with technology stocks the dominant contributor to
the S&P 500's performance. However, technology underperformed late in the
quarter as investor attention shifted toward beaten-down old-economy companies,
several prominent tech names (e.g., Microsoft, Lucent, Yahoo, America Online)
being among the index's biggest detractors in the quarter.
PERFORMANCE
The difficult market environment for low price/earnings (P/E) value investing is
reflected in Morgan Stanley Dean Witter Value Fund's performance. For the
six-month period ended March 31, 2000, the Fund's Class A, B, C and D shares
returned 3.55 percent, 3.14 percent, 3.02 percent and 3.76 percent,
respectively. For the same period, the S&P 500 returned 17.50 percent. The
performance of the Fund's four share classes varies because of differing
expenses. Total return figures assume the reinvestment of all distributions but
do not reflect the deduction of any applicable sales charges.
---------------------
(1) The Standard & Poor's 500 Composite Stock Price 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.
<PAGE> 2
MORGAN STANLEY DEAN WITTER VALUE FUND
LETTER TO THE SHAREHOLDERS March 31, 2000 continued
According to Miller Anderson & Sherrerd, LLP (MAS), the Fund's sub-advisor, both
stock and sector selection, including a significant underweighting of
technology, contributed to the Fund's underperformance of its benchmark index.
Also contributing to the Fund's underperformance was the Fund's large
commitments to financials and large- and mid-cap cyclicals. In the stock
selection area, the Fund's individual holdings in the technology, financial,
retail and basic resource sectors underperformed their benchmark counterparts.
A closer look at the Fund's investment returns reveals that virtually all of the
Fund's underperformance resulted from strict adherence to its investment
philosophy and discipline.
Low P/E stocks generated the lowest returns, high P/E issues the highest returns
during the period under review.
PORTFOLIO STRATEGY
When selecting securities for the Fund's portfolio, MAS utilizes a disciplined
stock valuation process. The Fund's management process is executed in two
stages. An initial screen identifies companies with flat or positive earnings
growth that have underperformed the broad market averages and have valuations
that fall into the lower segment of the investment universe. In the second
stage, fundamental analysis is used to determine the cyclical sustainability of
earnings and the competitive dynamics of the company. This approach is fortified
by attention to risk management. Portfolio diversification is emphasized in
terms of both sectors and stocks. The Fund also utilizes a strict sell
discipline, which generally calls for the sale of any stock that satisfies one
or more of three sell criteria: price appreciation, earnings deterioration or
negative fundamental change.
The Fund's sector allocations are reflective of its commitment to low P/E
investing. The largest sector exposures included those with notable economic
sensitivity such as consumer durables, capital goods, basic materials and
transportation companies. MAS expects that most of the Fund's holdings in
companies in these sectors will benefit from a still healthy domestic economy
and improving global economic activity. Noncyclical sector overweightings
included financial and health-care services.
In financial services, the Fund continues to favor money centers, large regional
banks and insurance stocks. These companies have maintained some of the lowest
relative valuations ever seen for high-quality financial-service franchises.
When the Fed's actions to slow the domestic economy succeed and interest rates
peak, MAS believes that financials could have a relatively strong performance
rally. Also, merger and acquisition activity is expected to pick up in 2000 as
large banks continue to acquire others as well as mid-sized insurance companies.
The other notable sector commitment is the Fund's large position in health-care
services. While this sector exposure represents a modest overweighting versus
the benchmark index, it demonstrates a
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER VALUE FUND
LETTER TO THE SHAREHOLDERS March 31, 2000 continued
significant overweighting versus the Fund's low P/E universe as well as the
popular value benchmarks. Two industries represent the bulk of the position:
hospital-management companies and managed-care companies. The former are
moderate but consistent growers generating healthy cash flow and trading at deep
discounts to the benchmark index. Recent actions in Washington to raise
reimbursement levels, as well as improved pricing flexibility for health
maintenance organizations (HMOs), should provide hospitals with the opportunity
to increase revenues and profit margins in 2000. MAS believes that managed-care
companies suffer today from unfounded political and legal concerns while their
business conditions are quite healthy. Current fundamentals are characterized by
strong pricing, still reasonable unit growth and further industry consolidation.
Should the political and legal concerns abate, HMO stocks maintain the potential
for significant relative valuation improvements in the year ahead.
Notable underweightings in the portfolio include technology, utilities, consumer
services and consumer staples. The most significant impact on relative
performance recently was the Fund's small position in technology stocks. The
extremely high valuations for most technology companies generally preclude
ownership of them in the Fund's low P/E portfolio.
LOOKING AHEAD
MAS considers that the relative valuation characteristics remain quite favorable
in the value strategy. The Fund's P/E multiple, price-to-cash-flow and
price-to-sales ratios are all at substantial discounts to the benchmark index,
in keeping with the Fund's portfolio methodology. When investor psychology
shifts meaningfully and market rotation moves away from, for example, the
technology-dominated mega-cap growth issues, which have been such strong market
leaders, the Fund should be well positioned for very positive relative
performance comparisons.
We appreciate your ongoing support of 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 March 31, 2000
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A*
------------------------------------------------
<S> <C> <C>
PERIOD ENDED 3/31/00
--------------------------
Since Inception (11/25/98) (2.66)(1) (6.48)(2)
1 Year 0.31(1) (4.95)(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C+
------------------------------------------------
<S> <C> <C>
PERIOD ENDED 3/31/00
--------------------------
Since Inception (11/25/98) (3.39)(1) (3.39)(2)
1 Year (0.42)(1) (1.41)(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS B**
------------------------------------------------
<S> <C> <C>
PERIOD ENDED 3/31/00
--------------------------
Since Inception (11/25/98) (3.39)(1) (6.28)(2)
1 Year (0.42)(1) (5.40)(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D++
------------------------------------------------
<S> <C> <C>
PERIOD ENDED 3/31/00
--------------------------
Since Inception (11/25/98) (2.35)(1)
1 Year 0.73 (1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE.
WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
---------------------
<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.
* The maximum front-end sales charge for Class A is 5.25%.
** The maximum contingent deferred sales charge (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.
</TABLE>
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER VALUE FUND
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
-------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (97.8%)
Agricultural Chemicals (0.8%)
70,200 IMC Global, Inc.............. $ 1,031,063
------------
Airlines (1.1%)
26,900 AMR Corp.*................... 857,438
9,100 Delta Air Lines, Inc......... 484,575
------------
1,342,013
------------
Aluminum (1.0%)
17,000 Alcoa Inc.................... 1,194,250
------------
Apparel (1.6%)
24,300 Jones Apparel Group, Inc.*... 774,563
26,200 Liz Claiborne, Inc........... 1,200,287
------------
1,974,850
------------
Auto Parts: O.E.M. (1.9%)
36,500 Delphi Automotive Systems
Corp........................ 584,000
22,900 Eaton Corp................... 1,786,200
------------
2,370,200
------------
Building Materials (1.9%)
116,700 Owens Corning................ 2,261,063
------------
Construction/Agricultural Equipment/ Trucks
(2.0%)
50,100 Cummins Engine Co., Inc...... 1,881,881
12,800 Navistar International
Corp.*...................... 513,600
------------
2,395,481
------------
Consumer Electronics/Appliances (1.0%)
21,500 Whirlpool Corp............... 1,260,438
------------
Contract Drilling (3.4%)
69,900 Noble Drilling Corp.*........ 2,896,481
67,300 R & B Falcon Corp.*.......... 1,324,969
------------
4,221,450
------------
Diversified Financial Services (2.8%)
35,500 AXA Financial, Inc........... 1,273,563
36,100 Citigroup, Inc............... 2,141,181
------------
3,414,744
------------
Diversified Manufacturing (2.2%)
28,400 Dover Corp................... 1,359,650
25,700 Honeywell International
Inc......................... 1,354,069
------------
2,713,719
------------
E.D.P. Peripherals (0.6%)
63,200 Quantum Corp. - DLT & Storage
Systems*.................... 754,450
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
-------------------------------------------------------
<C> <S> <C>
E.D.P. Services (1.4%)
39,300 First Data Corp.............. $ 1,739,025
------------
Electric Utilities (1.7%)
10,000 Cinergy Corp................. 215,000
14,200 Duke Energy Corp............. 745,500
25,900 PG & E Corp.................. 543,900
25,900 Southern Co.................. 563,325
------------
2,067,725
------------
Electrical Products (0.8%)
28,000 Cooper Industries, Inc....... 980,000
------------
Electronic Distributors (0.5%)
9,700 Avnet, Inc................... 611,100
------------
Finance Companies (0.6%)
18,000 Household International,
Inc......................... 671,625
------------
Fluid Controls (1.6%)
48,600 Parker-Hannifin Corp......... 2,007,788
------------
Forest Products (1.0%)
21,600 Weyerhaeuser Co.............. 1,231,200
------------
Hospital/Nursing Management (5.0%)
96,500 Columbia/HCA Healthcare
Corp........................ 2,442,656
161,600 Tenet Healthcare Corp.*...... 3,716,799
------------
6,159,455
------------
Integrated Oil Companies (2.2%)
26,100 Conoco, Inc. (Class B)....... 668,813
16,000 Exxon Mobil Corp............. 1,245,000
13,800 Texaco, Inc.................. 740,025
------------
2,653,838
------------
Life Insurance (3.1%)
43,500 American General Corp........ 2,441,438
41,000 ReliaStar Financial Corp..... 1,388,875
------------
3,830,313
------------
Major Banks (9.6%)
41,900 Bank of America Corp......... 2,197,131
24,700 Bank One Corp................ 849,063
32,900 Chase Manhattan Corp.
(The)....................... 2,868,468
58,078 FleetBoston Financial Corp... 2,119,847
52,300 PNC Bank Corp................ 2,356,768
33,300 Wells Fargo & Co............. 1,363,219
------------
11,754,496
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER VALUE FUND
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
-------------------------------------------------------
<C> <S> <C>
Major Chemicals (2.7%)
11,100 Dow Chemical Co.............. $ 1,265,400
39,200 Du Pont (E.I.) de Nemours &
Co., Inc.................... 2,072,700
------------
3,338,100
------------
Major U.S. Telecommunications (10.0%)
77,600 AT&T Corp.................... 4,364,999
36,800 Bell Atlantic Corp........... 2,249,400
40,000 BellSouth Corp............... 1,880,000
24,400 GTE Corp..................... 1,732,400
48,500 SBC Communications, Inc...... 2,037,000
------------
12,263,799
------------
Managed Health Care (4.1%)
258,400 Foundation Health Systems
Inc. (Class A)*............. 2,067,200
29,400 United HealthCare Corp....... 1,752,975
16,800 Wellpoint Health Networks,
Inc.*....................... 1,173,900
------------
4,994,075
------------
Medical Specialties (2.6%)
30,800 Beckman Coulter, Inc......... 1,976,975
46,200 St. Jude Medical, Inc.*...... 1,192,538
------------
3,169,513
------------
Medical/Nursing Services (3.8%)
826,100 Healthsouth Corp.*........... 4,595,181
------------
Mid-Sized Banks (0.5%)
29,100 Firstar Corp................. 667,481
------------
Motor Vehicles (3.5%)
67,400 Ford Motor Co................ 3,096,187
14,300 General Motors Corp.......... 1,184,219
------------
4,280,406
------------
Multi-Line Insurance (4.1%)
12,800 American International Group,
Inc......................... 1,401,600
23,600 CIGNA Corp................... 1,787,700
35,700 Hartford Financial Services
Group, Inc.................. 1,883,174
------------
5,072,474
------------
Oil & Gas Production (1.1%)
15,000 Anardarko Petroleum Corp..... 580,313
15,000 Apache Corp.................. 746,250
------------
1,326,563
------------
Oil Refining/Marketing (1.7%)
68,700 Tosco Corp................... 2,091,056
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
-------------------------------------------------------
<S> <C> <C>
Oil/Gas Transmission (0.8%)
21,600 Coastal Corp................. $ 993,600
------------
Oilfield Services/Equipment (3.1%)
8,700 BJ Services Co.*............. 642,713
46,000 Halliburton Co............... 1,886,000
16,700 Smith International, Inc.*... 1,294,250
------------
3,822,963
------------
Paints/Coatings (0.9%)
22,300 PPG Industries, Inc.......... 1,166,569
------------
Paper (1.0%)
30,100 International Paper Co....... 1,286,775
------------
Savings & Loan Associations (2.5%)
113,600 Washington Mutual, Inc....... 3,010,400
------------
Specialty Chemicals (5.1%)
93,900 Engelhard Corp............... 1,420,238
26,800 FMC Corp.*................... 1,514,200
74,000 Lubrizol Corp. (The)......... 2,132,124
29,200 Praxair, Inc................. 1,215,450
------------
6,282,012
------------
Specialty Foods/Candy (1.0%)
57,600 Universal Foods Corp......... 1,231,200
------------
Specialty Steels (1.0%)
24,500 Nucor Corp................... 1,225,000
------------
Telecommunication Equipment (0.5%)
4,000 Motorola, Inc................ 569,500
------------
TOTAL COMMON STOCKS
(Identified Cost
$122,126,742)................ 120,026,953
------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
---------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (3.0%)
U.S. GOVERNMENT AGENCY
Federal Home Loan Mortgage Corp.
$ 3,750 6.05% due 04/03/00
(Amortized Cost
$3,748,740)................. 3,748,740
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER VALUE FUND
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
VALUE
------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $125,875,482) (b)... 100.8% $123,775,693
LIABILITIES IN
EXCESS OF OTHER ASSETS............... 0.8 1,005,170
----- --------------
NET ASSETS........................... 100.0% $122,770,523
===== ==============
</TABLE>
---------------------
* 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 $8,178,527 and the
aggregate gross unrealized depreciation is $10,278,316, resulting in net
unrealized depreciation of $2,099,789.
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER VALUE FUND
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2000 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $125,875,482)............................. $123,775,693
Cash........................................................ 71,168
Receivable for:
Investments sold........................................ 6,854,361
Shares of beneficial interest sold...................... 637,636
Dividends............................................... 126,996
Prepaid expenses and other assets........................... 91,006
------------
TOTAL ASSETS............................................ 131,556,860
------------
LIABILITIES:
Payable for:
Investments purchased................................... 7,213,355
Shares of beneficial interest repurchased............... 1,352,074
Investment management fee............................... 95,829
Plan of distribution fee................................ 90,115
Accrued expenses and other payables......................... 34,964
------------
TOTAL LIABILITIES....................................... 8,786,337
------------
NET ASSETS.............................................. $122,770,523
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $131,111,022
Net unrealized depreciation................................. (2,099,789)
Net investment loss......................................... (141,532)
Accumulated net realized loss............................... (6,099,178)
------------
NET ASSETS.............................................. $122,770,523
============
CLASS A SHARES:
Net Assets.................................................. $4,919,828
Shares Outstanding (unlimited authorized, $.01 par value)... 510,674
NET ASSET VALUE PER SHARE............................... $9.63
============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value)........ $10.16
============
CLASS B SHARES:
Net Assets.................................................. $106,369,961
Shares Outstanding (unlimited authorized, $.01 par value)... 11,146,494
NET ASSET VALUE PER SHARE............................... $9.54
============
CLASS C SHARES:
Net Assets.................................................. $5,976,996
Shares Outstanding (unlimited authorized, $.01 par value)... 626,319
NET ASSET VALUE PER SHARE............................... $9.54
============
CLASS D SHARES:
Net Assets.................................................. $5,503,738
Shares Outstanding (unlimited authorized, $.01 par value)... 568,940
NET ASSET VALUE PER SHARE............................... $9.67
============
</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 six months ended March 31, 2000 (unaudited)
NET INVESTMENT LOSS:
INCOME
Dividends................................................... $ 1,201,296
Interest.................................................... 87,074
-----------
TOTAL INCOME............................................ 1,288,370
-----------
EXPENSES
Investment management fee................................... 625,689
Plan of distribution fee (Class A shares)................... 5,606
Plan of distribution fee (Class B shares)................... 564,495
Plan of distribution fee (Class C shares)................... 28,775
Transfer agent fees and expenses............................ 91,271
Registration fees........................................... 45,734
Professional fees........................................... 25,613
Offering costs.............................................. 17,047
Shareholder reports and notices............................. 12,415
Trustees' fees and expenses................................. 4,303
Other....................................................... 8,954
-----------
TOTAL EXPENSES.......................................... 1,429,902
-----------
NET INVESTMENT LOSS..................................... (141,532)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................................... (4,639,201)
Net change in unrealized depreciation....................... 7,880,337
-----------
NET GAIN................................................ 3,241,136
-----------
NET INCREASE................................................ $ 3,099,604
===========
</TABLE>
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 SIX FOR THE PERIOD
MONTHS ENDED NOVEMBER 25, 1998*
MARCH 31, THROUGH
2000 SEPTEMBER 30, 1999
--------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss................................ $ (141,532) $ (204,273)
Net realized loss.................................. (4,639,201) (1,459,977)
Net change in unrealized depreciation.............. 7,880,337 (9,980,126)
------------ ------------
NET INCREASE (DECREASE)........................ 3,099,604 (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 (decrease) from transactions in shares
of beneficial interest............................ (14,476,893) 145,767,192
------------ ------------
NET INCREASE (DECREASE)........................ (11,377,289) 134,047,812
NET ASSETS:
Beginning of period................................ 134,147,812 100,000
------------ ------------
END OF PERIOD
(Including a net investment loss of $141,532
and $0, respectively).......................... $122,770,523 $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 March 31, 2000 (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 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
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER VALUE FUND
NOTES TO FINANCIAL STATEMENTS March 31, 2000 (unaudited) continued
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); 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 March 31, 2000 (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 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 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 totaled $8,072,289
at March 31, 2000.
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER VALUE FUND
NOTES TO FINANCIAL STATEMENTS March 31, 2000 (unaudited) continued
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 March 31, 2000, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.24% and
1.0%, respectively.
The Distributor has informed the Fund that for the six months ended March 31,
2000, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $313,682, and $3,500,
respectively and received $17,669 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 March 31, 2000 aggregated
$88,517,186 and $94,431,187, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager,
Sub-Advisor and Distributor, is the Fund's transfer agent. At March 31, 2000,
the Fund had transfer agent fees and expenses payable of approximately $91,000.
5. 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.
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER VALUE FUND
NOTES TO FINANCIAL STATEMENTS March 31, 2000 (unaudited) continued
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX NOVEMBER 25, 1998*
MONTHS ENDED THROUGH
MARCH 31, 2000 SEPTEMBER 30, 1999
------------------------- -------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
CLASS A
Sold........................................................ 158,883 $ 1,469,759 712,266 $ 7,088,696
Reinvestment of dividends................................... -- -- 498 4,804
Redeemed.................................................... (269,769) (2,491,320) (93,704) (966,777)
---------- ------------ ---------- ------------
Net increase (decrease) - Class A........................... (110,886) (1,021,561) 619,060 6,126,723
---------- ------------ ---------- ------------
CLASS B
Sold........................................................ 2,357,149 21,590,228 16,407,820 165,264,611
Reinvestment of dividends................................... -- -- 6,205 59,814
Redeemed.................................................... (4,410,259) (40,107,207) (3,216,921) (32,488,695)
---------- ------------ ---------- ------------
Net increase (decrease) - Class B........................... (2,053,110) (18,516,979) 13,197,104 132,835,730
---------- ------------ ---------- ------------
CLASS C
Sold........................................................ 177,346 1,599,308 936,207 9,365,853
Reinvestment of dividends................................... -- -- 365 3,517
Redeemed.................................................... (227,720) (2,071,633) (262,379) (2,616,322)
---------- ------------ ---------- ------------
Net increase (decrease) - Class C........................... (50,374) (472,325) 674,193 6,753,048
---------- ------------ ---------- ------------
CLASS D
Sold........................................................ 975,308 9,191,650 10,651 115,491
Reinvestment of dividends................................... -- -- 4 40
Redeemed.................................................... (413,431) (3,657,678) (6,092) (63,840)
---------- ------------ ---------- ------------
Net increase - Class D...................................... 561,877 5,533,972 4,563 51,691
---------- ------------ ---------- ------------
Net increase (decrease) in Fund............................. (1,652,493) $(14,476,893) 14,494,920 $145,767,192
========== ============ ========== ============
</TABLE>
---------------------
* Commencement of operations.
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER 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 NOVEMBER 25, 1998*
MONTHS ENDED THROUGH
MARCH 31, 2000 SEPTEMBER 30, 1999
-------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $9.30 $10.00
----- ------
Income (loss) from investment operations:
Net investment income...................................... 0.02 0.05
Net realized and unrealized gain (loss).................... 0.31 (0.74)
----- ------
Total income (loss) from investment operations.............. 0.33 (0.69)
----- ------
Less dividends from net investment income................... -- (0.01)
----- ------
Net asset value, end of period.............................. $9.63 $ 9.30
===== ======
TOTAL RETURN+(1)............................................ 3.55% (6.88)%
RATIOS TO AVERAGE NET ASSETS (2)(3):
Expenses.................................................... 1.57% 1.59 %
Net investment income....................................... 0.49% 0.54 %
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $4,920 $5,779
Portfolio turnover rate (1)................................. 72% 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
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER VALUE FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX NOVEMBER 25, 1998*
MONTHS ENDED THROUGH
MARCH 31, 2000 SEPTEMBER 30, 1999
-------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS B SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $ 9.25 $10.00
------ ------
Income (loss) from investment operations:
Net investment loss........................................ (0.01) (0.02)
Net realized and unrealized gain (loss).................... 0.30 (0.72)
------ ------
Total income (loss) from investment operations.............. 0.29 (0.74)
------ ------
Less dividends from net investment income................... -- (0.01)
------ ------
Net asset value, end of period.............................. $ 9.54 $ 9.25
====== ======
TOTAL RETURN+(1)............................................ 3.14 % (7.45)%
RATIOS TO AVERAGE NET ASSETS (2)(3):
Expenses.................................................... 2.33 % 2.34 %
Net investment loss......................................... (0.27)% (0.21)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $106,370 $122,040
Portfolio turnover rate (1)................................. 72 % 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
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX NOVEMBER 25, 1998*
MONTHS ENDED THROUGH
MARCH 31, 2000 SEPTEMBER 30, 1999
-------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS C SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $ 9.26 $10.00
------ ------
Income (loss) from investment operations:
Net investment loss........................................ (0.01) (0.01)
Net realized and unrealized gain (loss).................... 0.29 (0.72)
------ ------
Total income (loss) from investment operations.............. 0.28 (0.73)
------ ------
Less dividends from net investment income................... -- (0.01)
------ ------
Net asset value, end of period.............................. $ 9.54 $ 9.26
====== ======
TOTAL RETURN+(1)............................................ 3.02 % (7.35)%
RATIOS TO AVERAGE NET ASSETS (2)(3):
Expenses.................................................... 2.33 % 2.21 %
Net investment loss......................................... (0.27)% (0.08)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $5,977 $6,263
Portfolio turnover rate (1)................................. 72 % 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
18
<PAGE> 19
MORGAN STANLEY DEAN WITTER VALUE FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX NOVEMBER 25, 1998*
MONTHS ENDED THROUGH
MARCH 31, 2000 SEPTEMBER 30, 1999
-------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $9.32 $10.00
----- ------
Income (loss) from investment operations:
Net investment income...................................... 0.03 0.06
Net realized and unrealized gain (loss).................... 0.32 (0.72)
----- ------
Total income (loss) from investment operations.............. 0.35 (0.66)
----- ------
Less dividends from net investment income................... -- (0.02)
----- ------
Net asset value, end of period.............................. $9.67 $ 9.32
===== ======
TOTAL RETURN+(1)............................................ 3.76% (6.65)%
RATIOS TO AVERAGE NET ASSETS (2)(3):
Expenses.................................................... 1.33% 1.34 %
Net investment income....................................... 0.73% 0.79 %
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $5,504 $66
Portfolio turnover rate (1)................................. 72% 52 %
</TABLE>
---------------------
* Commencement of operations.
++ 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
19
<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
One Tower Bridge
West Conshohocken, PA 19428
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 Distributions Inc., member NASD.
MORGAN STANLEY
DEAN WITTER
VALUE FUND
Semiannual Report
March 31, 2000
