<PAGE> 1
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS May 31, 1999
DEAR SHAREHOLDER:
We are pleased to present Morgan Stanley Dean Witter Real Estate Fund's first
semiannual report to shareholders. The Fund, which commenced operations on April
28, 1999, seeks to provide high current income and long-term capital
appreciation by investing primarily in equity securities of companies
principally engaged in the U.S. real estate industry, including real estate
investment trusts (REITs). Morgan Stanley Dean Witter Investment Management
Inc., the Fund's sub-advisor, is responsible for day-to-day investment
decisions.
MARKET OVERVIEW
The inception of the Fund marked the beginning of a more constructive period for
domestic real estate securities. After falling nearly 17 percent in 1998, the
National Association of Real Estate Investment Trusts (NAREIT) Equity Index
continued its weak performance into the first quarter of 1999 as the index lost
another 5 percent. However, the sector exhibited a powerful rally in mid April,
which carried forward into May.
Morgan Stanley Dean Witter Investment Management believes that by the end of the
first quarter of 1999 the REIT market was dramatically oversold, with stocks
trading, on average, at a 10 percent discount to the underlying net asset value
(NAV) of their assets. This was a unique valuation period that allowed investors
to buy real estate far more cheaply on Wall Street (through the purchase of
securities) than on Main Street (through the direct purchase of properties).
Although it is difficult to point to any one catalyst that prompted the sector's
recent recovery, the Fund's sub-advisor believes it was the result of a
combination of factors. These factors include a rotation in the equity market
from growth-oriented stocks to cyclical and value-oriented securities, a filing
by Warren Buffett indicating he had taken a 5 percent position in two REITs,
three management-led leveraged buyouts (two of which have been approved by their
boards) and reports of significant purchases by senior members of many REIT
management teams. As a result of this rally, many REITs are currently trading on
a par with their net asset value.
<PAGE> 2
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
LETTER TO THE SHAREHOLDERS May 31, 1999, continued
PERFORMANCE
From its inception on April 28, 1999, through May 31, 1999, Morgan Stanley Dean
Witter Real Estate Fund's Class A, B, C and D each returned 1.90 percent. During
the same period the NAREIT Equity Index returned 2.79 percent, while the Lipper
Real Estate Funds Index returned 2.90 percent.
The Fund's underperformance relative to its benchmarks during the period was the
result of carefully investing the proceeds of the Fund underwriting into the
REIT rally. This drag on performance was the direct result of carrying an
abnormally high level of cash during the first month.
PORTFOLIO STRATEGY
The overall strategy of the Fund is to provide investors with diversified
exposure to the U.S. real estate market at prices comparable to the direct
market through the purchase of real estate securities, primarily REITs. Aside
from attempting to provide this broad exposure at the most attractive prices,
the Fund will generally overweight real estate markets in the favorable phase of
their supply-demand cycle. Generally, the Fund is overweighted in companies that
own properties in the more supply-constrained markets, particularly urban and
in-fill markets.
Currently, the Fund is overweighted in the residential sector, with a geographic
emphasis in the Pacific, East Coast and mid Atlantic regions of the United
States. The Fund is also overweighted in the office sector, with an emphasis on
central business district locations. The portfolio is market weighted in owners
of retail properties, with a focus on high-end malls and grocery-anchored
shopping centers. The Fund is underweighted in the owners of industrial
properties, because this sector is merely in equilibrium (from a supply-demand
perspective) and the public securities are commanding premium pricing. Finally,
the Fund is underweighted in the hotel sector, in as much as the Fund's
sub-advisor remains cautious with regard to the potential for oversupply and a
slowdown in the U.S. economy.
LOOKING AHEAD
The Fund's sub-advisor believes that the U.S. real estate markets remain
generally in equilibrium as robust levels of demand serve to mute any serious
threat of oversupply. The combination of this scenario, and a valuation level
for real estate securities at par with NAV leads the sub-advisor to believe that
REITs can return to a path of previous historical trend returns. However, the
sub-advisor continues to monitor the real estate markets carefully, because most
are at historically high occupancy levels and a slowdown in the U.S. economy
could put pressure on occupancies if it is not met with a similar reduction in
the new supply of properties.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
LETTER TO THE SHAREHOLDERS May 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 support of Morgan Stanley Dean Witter Real Estate Fund and
look forward to continuing to serve your investment objectives.
Very truly yours,
/S/ CHARLES A. FIUMEFREDDO /S/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
PORTFOLIO OF INVESTMENTS May 31, 1999 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (94.7%)
Hotels/Resorts (7.4%)
191,500 Host Marriot Corp............. $ 2,393,750
220,000 Patriot American Hospitality,
Inc. (Paired Stock).......... 1,141,250
39,000 Promus Hotel Corp.*........... 975,000
59,300 Starwood Hotels & Resorts
Worldwide, Inc. (Paired
Stock)....................... 1,942,075
-----------
6,452,075
-----------
REIT - Diversified (4.1%)
134,200 Crescent Real Estate Equities
Co........................... 3,094,987
36,200 Meditrust Corp. (Paired
Stock)....................... 502,275
-----------
3,597,262
-----------
REIT - Industrial/Office (34.8%)
145,800 Arden Realty, Inc............. 3,727,012
32,600 Boston Properties, Inc........ 1,171,562
261,900 Brookfield Properties Corp.
(Canada)..................... 3,862,439
109,800 CarrAmerica Realty Corp....... 2,738,137
144,000 Cornerstone Properties,
Inc.......................... 2,385,000
10,800 EastGroup Properties, Inc..... 219,375
113,800 Equity Office Properties
Trust........................ 3,214,850
150,600 Great Lakes REIT, Inc......... 2,390,775
57,500 Highwoods Properties, Inc..... 1,512,969
23,200 Mack-Cali Realty Corp......... 751,100
88,600 Prentiss Properties Trust..... 2,093,175
151,900 ProLogis Trust................ 3,104,456
4,100 PS Business Parks, Inc........ 101,987
150,500 TrizecHahn Corp. (Canada)..... 3,104,062
-----------
30,376,899
-----------
REIT - Residential (24.0%)
21,700 Amli Residential Properties
Trust........................ 489,606
45,000 Apartment Investment &
Management Co. (Class A)..... 1,890,000
76,500 Archstone Communities Trust... 1,721,250
137,100 Avalonbay Communities, Inc.... 4,849,912
157,700 Berkshire Realty Company,
Inc.......................... 1,803,694
25,400 Charles E. Smith Residential
Realty, Inc.................. 877,887
115,700 Chateau Communities, Inc...... 3,492,694
5,000 Equity Residential Properties
Trust........................ 239,688
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
127,400 Essex Property Trust, Inc..... $ 4,092,725
57,500 Manufactured Home Communities,
Inc.......................... 1,487,813
-----------
20,945,269
-----------
REIT - Retail (20.3%)
204,500 Burnham Pacific Properties,
Inc.......................... 2,262,281
33,100 Federal Realty Investment
Trust........................ 765,438
145,500 Pan Pacific Retail Properties,
Inc.......................... 2,891,813
130,600 Regency Realty Corp........... 2,881,363
6,900 Rouse Co. (The)............... 177,675
118,600 Simon Property Group, Inc..... 3,469,050
281,000 Taubman Centers, Inc.......... 3,846,188
44,400 Urban Shopping Centers,
Inc.......................... 1,465,200
-----------
17,759,008
-----------
REIT - Storage (4.1%)
44,000 Public Storage, Inc........... 1,284,250
83,800 Shurgard Storage Centers, Inc.
(Class A).................... 2,278,313
-----------
3,562,563
-----------
TOTAL COMMON STOCKS
(Identified Cost
$81,657,790).................. 82,693,076
-----------
PRINCIPAL
AMOUNT IN
THOUSANDS
- --------
SHORT-TERM INVESTMENTS (5.7%)
U.S. GOVERNMENT AGENCY (a) (4.8%)
$4,200 Federal Home Loan Mortgage
Corp. 4.72% due 06/01/99
(Amortized Cost $4,200,000).. 4,200,000
-----------
REPURCHASE AGREEMENT (0.9%)
776 The Bank of New York 4.50% due
06/01/99 (dated 05/28/99;
proceeds $776,774)(b)
(Identified Cost $776,386)... 776,386
-----------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost
$4,976,386).................. 4,976,386
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
PORTFOLIO OF INVESTMENTS May 31, 1999 (unaudited) continued
<TABLE>
<CAPTION>
VALUE
- ----------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $86,634,176)
(c)............................... 100.4% $87,669,462
LIABILITIES IN EXCESS OF
OTHER ASSETS...................... (0.4) (347,680)
------ -----------
NET ASSETS........................ 100.0% $87,321,782
====== ===========
</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 $628,602 U.S. Treasury Bond 8.125% due 08/15/21 valued at
$791,991.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $1,772,524 and the
aggregate gross unrealized depreciation is $737,238, resulting in net
unrealized appreciation of $1,035,286.
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1999 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $86,634,176).............................. $87,669,462
Receivable for:
Shares of beneficial interest sold...................... 2,178,986
Dividends............................................... 75,143
Deferred offering costs..................................... 161,419
Prepaid expenses and other assets........................... 1,461
-----------
TOTAL ASSETS............................................ 90,086,471
-----------
LIABILITIES:
Payable for:
Investments purchased................................... 2,351,541
Shares of beneficial interest repurchased............... 86,839
Investment management fee............................... 68,441
Plan of distribution fee................................ 64,183
Accrued expenses and other payables......................... 15,685
Offering costs.............................................. 178,000
-----------
TOTAL LIABILITIES....................................... 2,764,689
-----------
NET ASSETS.............................................. $87,321,782
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $86,029,193
Net unrealized appreciation................................. 1,035,286
Undistributed net investment income......................... 253,461
Undistributed net realized gain............................. 3,842
-----------
NET ASSETS.............................................. $87,321,782
===========
CLASS A SHARES:
Net Assets.................................................. $7,511,173
Shares Outstanding (unlimited authorized, $.01 par value)... 737,079
NET ASSET VALUE PER SHARE............................... $10.19
===========
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value)........ $10.75
===========
CLASS B SHARES:
Net Assets.................................................. $67,696,187
Shares Outstanding (unlimited authorized, $.01 par value)... 6,647,821
NET ASSET VALUE PER SHARE............................... $10.18
===========
CLASS C SHARES:
Net Assets.................................................. $10,816,416
Shares Outstanding (unlimited authorized, $.01 par value)... 1,062,171
NET ASSET VALUE PER SHARE............................... $10.18
===========
CLASS D SHARES:
Net Assets.................................................. $1,298,006
Shares Outstanding (unlimited authorized, $.01 par value)... 127,392
NET ASSET VALUE PER SHARE............................... $10.19
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the period April 28, 1999* through May 31, 1999
(unaudited)
NET INVESTMENT INCOME:
INCOME
Dividends................................................... $ 345,347
Interest.................................................... 96,829
----------
TOTAL INCOME............................................ 442,176
----------
EXPENSES
Investment management fee................................... 74,532
Plan of distribution fee (Class A shares)................... 1,497
Plan of distribution fee (Class B shares)................... 58,701
Plan of distribution fee (Class C shares)................... 9,713
Offering costs.............................................. 16,581
Transfer agent fees and expenses............................ 10,407
Professional fees........................................... 7,991
Registration fees........................................... 6,031
Shareholder reports and notices............................. 1,567
Custodian fees.............................................. 917
Trustees' fees and expenses................................. 778
----------
TOTAL EXPENSES.......................................... 188,715
----------
NET INVESTMENT INCOME................................... 253,461
----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................................... 3,842
Net unrealized appreciation................................. 1,035,286
----------
NET GAIN................................................ 1,039,128
----------
NET INCREASE................................................ $1,292,589
==========
</TABLE>
- ---------------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
<S> <C>
FOR THE PERIOD
APRIL 28,
1999*
THROUGH
MAY 31, 1999
- ----------------------------------------------------------------------------
<CAPTION>
(unaudited)
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 253,461
Net realized gain........................................... 3,842
Net unrealized appreciation................................. 1,035,286
----------
NET INCREASE............................................ 1,292,589
Net increase from transactions in shares of beneficial
interest................................................... 85,929,193
----------
NET INCREASE............................................ 87,221,782
NET ASSETS:
Beginning of period......................................... 100,000
----------
END OF PERIOD
(Including undistributed net investment income of
$253,461)............................................... $87,321,782
===========
</TABLE>
- ---------------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1999 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Real Estate Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a non-diversified,
open-end management investment company. The Fund's investment objective is to
provide high current income and long-term capital appreciation. The Fund seeks
to achieve its objective by investing primarily in equity securities of
companies that are principally engaged in the U.S. real estate industry,
including real estate investment trusts. The Fund was organized as a
Massachusetts business trust on November 23, 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 April 28, 1999.
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 Morgan Stanley Dean Witter Investment
Management Inc. (the "Sub-Advisor"), an affiliate of the Investment Manager,
that sale or bid prices are not reflective of a security's market value,
portfolio
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1999 (unaudited) continued
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 life of the respective securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1999 (unaudited) continued
F. OFFERING COSTS -- The Investment Manager incurred offering costs on behalf of
the Fund in the amount of approximately $178,000 which will be reimbursed for
the full amount thereof. Such expenses were deferred and are being amortized 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 1.0% 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. As compensation for its services
provided pursuant to the Sub-Advisory Agreement, the Investment Manager pays
the Sub-Advisor monthly 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 and
Sub-Advisor. 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
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1999 (unaudited) continued
shares of these Classes, including the payment of commissions for sales of these
Classes and incentive compensation to, and expenses of, the 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, Sub-Advisor 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 $4,226,355 at May 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 May 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 May 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 $2,010, $3,116 and
$1,835, respectively and received $9,167 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.
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
NOTES TO FINANCIAL STATEMENTS May 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 May 31, 1999 aggregated $81,755,731
and $101,783, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager,
Sub-Advisor and Distributor, is the Fund's transfer agent. At May 31, 1999, the
Fund had transfer agent fees and expenses payable of approximately $3,200.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 28, 1999*
THROUGH
MAY 31, 1999
-----------------------
SHARES AMOUNT
--------- -----------
<S> <C> <C>
CLASS A SHARES
Sold........................................................ 764,959 $ 7,681,940
Redeemed.................................................... (30,380) (312,252)
--------- -----------
Net increase - Class A...................................... 734,579 7,369,688
--------- -----------
CLASS B SHARES
Sold........................................................ 6,677,039 67,001,979
Redeemed.................................................... (31,718) (325,411)
--------- -----------
Net increase - Class B...................................... 6,645,321 66,676,568
--------- -----------
CLASS C SHARES
Sold........................................................ 1,085,168 10,872,492
Redeemed.................................................... (25,497) (262,189)
--------- -----------
Net increase - Class C...................................... 1,059,671 10,610,303
--------- -----------
CLASS D SHARES
Sold........................................................ 124,892 1,272,634
--------- -----------
Net increase in Fund........................................ 8,564,463 $85,929,193
========= ===========
</TABLE>
- ---------------------
* Commencement of operations.
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER REAL ESTATE 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 APRIL 28, 1999*
THROUGH MAY 31, 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 from investment operations:
Net investment income...................................... 0.04 0.03 0.03 0.00
Net realized and unrealized gain........................... 0.15 0.15 0.15 0.19
------ ------ ------ ------
Total income from investment operations..................... 0.19 0.18 0.18 0.19
------ ------ ------ ------
Net asset value, end of period.............................. $10.19 $10.18 $10.18 $10.19
====== ====== ====== ======
TOTAL RETURN+(1)............................................ 1.90% 1.90% 1.90% 1.90%
RATIOS TO AVERAGE NET ASSETS(2)(3):
Expenses.................................................... 1.84% 2.59% 2.59% 1.59%
Net investment income....................................... 4.09% 3.34% 3.34% 4.34%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $7,511 $67,696 $10,816 $1,298
Portfolio turnover rate(4).................................. -- -- -- --
</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.
(4) Less than 0.5%.
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE> 15
(This Page Intentionally Left Blank)
<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
- ----------------------------------
Morgan Stanley Dean Witter
Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
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
REAL ESTATE FUND
Semiannual Report
May 31, 1999
