<PAGE> 1
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS May 31, 2000
DEAR SHAREHOLDER:
After declining to a 52-week low in mid-December, real estate investment trusts
(REITs) rallied during the final two weeks of 1999, as value investors appeared
to gain a renewed interest in the sector. REITs outperformed the broader equity
market indexes during the first quarter of 2000, posting modest declines in
January and February and favorable returns in March. The sector offered relative
tranquility to investors in an extremely volatile equity market, which underwent
a sharp rotation out of new-economy stocks. During April, REITs gained almost 7
percent, while all major domestic equity indexes declined. May represented a
continuation of this trend, as REITs gained 1 percent while the equity markets
declined again.
The strong performance of the REIT sector may be attributed to two key factors:
fundamental real estate trends remain strong, and at current valuation levels,
REITs represent an attractive asset class. REITs are currently trading at more
than a 10 percent discount to the net asset value of their underlying assets. As
a result, there continues to be an attractive arbitrage between valuations in
the public versus the private real estate markets. (We define real estate
arbitrage as the pricing disparity between prices of actual properties in the
private real estate market versus the implied pricing of properties owned by
public companies, based on their share price.) The unexpected continued strength
of the U.S. economy has allowed for an extension of the growth phase for the
U.S. real estate market, resulting in modest occupancy gains and healthy rental
growth. This has been particularly true in markets with more exposure to
technology-oriented businesses.
PERFORMANCE
For the six months ended May 31, 2000, Morgan Stanley Dean Witter Real Estate
Fund's Class A, B, C and D shares produced a total return of 15.07 percent,
14.64 percent, 14.62 percent and 15.45 percent, respectively. During the same
period the NAREIT Equity Index returned
<PAGE> 2
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
LETTER TO THE SHAREHOLDERS May 31, 2000, continued
13.84 percent.(1) The performance of the four 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.
The Fund produced returns in line with the overall market, as a result of
exposure to property- market segments that have benefited from the exceptionally
strong economy. In particular, a pair of companies owned by the Fund that have
concentrations in Pacific apartment properties were rewarded with increasing
rents, fueled by technology-led demand in the region. Top-down contributions to
performance were led by an overweight position in the office sector, which was
concentrated in the central business districts (CBDs) of densely populated
metropolitan areas, where real estate fundamentals have been strong.
PORTFOLIO STRATEGY
In our last shareholder letter, Morgan Stanley Dean Witter Investment Management
Inc., the Fund's sub-advisor, pointed out that the U.S. real estate market had
entered the equilibrium phase of its cycle. As the economy slows and demand and
supply are in balance, the sub-advisor expects occupancies to reach plateau
levels and rental growth to moderate. Accordingly, the Fund remains focused on
being overweighted in companies that own properties in the more
supply-constrained markets, particularly in urban and in-fill markets, such as
CBDs.
Morgan Stanley Dean Witter Investment Management continues to shape the
portfolio with companies offering attractive fundamental valuations, relative to
their underlying real estate value. The sub-advisor increased the Fund's
overweighting in the office sector, as the growth in occupancies and rental
rates caused the sub-advisor to upgrade its estimates of underlying net asset
value and, as a result, its price targets. The sub-advisor also increased the
Fund's underweighting of the shopping-center sector, as new supply continues to
place occupancy pressure on existing properties.
LOOKING AHEAD
Morgan Stanley Dean Witter Investment Management believes that the outlook for
the REIT market remains favorable. The private real estate markets have remained
strong, based on the strong U.S. economy and a rational level of new supply. The
sub-advisor is encouraged that the development
---------------------
(1)Real estate securities are represented by the NAREIT Equity Index, which is
an unmanaged benchmark of real estate investment trusts compiled by the
National Association of Real Estate Investment Trusts. Real estate stocks will
fluctuate with changes in the values of their underlying properties. The
performance of the index does not include any expenses, fees or charges. The
index is unmanaged and should not be considered an investment.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
LETTER TO THE SHAREHOLDERS May 31, 2000, continued
3
pipelines either peaked in 1999 or are in the process of peaking in 2000 for the
vast majority of property types. Clearly, the better-than-expected strength of
the economy has provided the demand for these large pipelines. However, given
the declining levels of construction, the U.S. real estate market is better
prepared for the eventual slowdown in the economy, and as a result, the
probability that supply will slow in line with an eventual slowing in demand has
continued to improve. This factor, when combined with a REIT market that trades
at more than a 10 percent discount to its private valuation, provides the
foundation for what may be an attractively priced, defensive asset class. The
final critical factor is the relative attractiveness of real estate versus other
asset classes. Given the recent volatility in the equity markets, it appears
that REITs may be well positioned to receive a greater level of attention from
traditional equity investors.
We appreciate your ongoing support of Morgan Stanley Dean Witter Real Estate
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>
<PAGE> 4
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
FUND PERFORMANCE May 31, 2000
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A*
----------------------------------------------
<S> <C> <C>
PERIOD ENDED 5/31/00
-------------------------
1 Year (0.49)%(1) (5.72)%(2)
Since Inception (4/28/99) 1.28 (1) (3.60) (2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C+
----------------------------------------------
<S> <C> <C>
PERIOD ENDED 5/31/00
-------------------------
1 Year (1.34)%(1) (2.29)%(2)
Since Inception (4/28/99) 0.49 (1) 0.49 (2)
</TABLE>
<TABLE>
<CAPTION>
CLASS B**
----------------------------------------------
<S> <C> <C>
PERIOD ENDED 5/31/00
-------------------------
1 Year (1.30)%(1) (6.04)%(2)
Since Inception (4/28/99) 0.53 (1) (3.02) (2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D++
----------------------------------------------
<S> <C> <C>
PERIOD ENDED 5/31/00
-------------------------
1 Year 0.05%(1)
Since Inception (4/28/99) 1.79 (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 REAL ESTATE FUND
PORTFOLIO OF INVESTMENTS May 31, 2000 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
-------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (95.5%)
REIT - Diversified (2.6%)
49,600 Meditrust Corp. (Paired
Stock)*...................... $ 93,000
1,200 Pennsylvania Real Estate
Investment Trust............. 20,925
58,400 Vornado Realty Trust.......... 2,040,350
-----------
2,154,275
-----------
REIT - Industrial/Office (38.1%)
186,900 Arden Realty, Inc. ........... 4,298,699
108,400 Boston Properties, Inc. ...... 3,787,225
340,200 Brookfield Properties Corp.
(Canada)..................... 4,522,364
8,000 Cabot Industrial Trust........ 155,000
124,000 CarrAmerica Realty Corp. ..... 3,100,000
119,100 Cornerstone Properties,
Inc. ........................ 2,143,800
105,600 Equity Office Properties
Trust........................ 2,805,000
113,100 Great Lakes REIT, Inc. ....... 1,901,494
14,300 Highwoods Properties, Inc. ... 344,094
65,000 Pacific Gulf Properties
Inc. ........................ 1,503,125
125,800 ProLogis Trust................ 2,602,488
58,400 PS Business Parks, Inc. ...... 1,394,300
162,500 TrizecHahn Corp. (Canada)..... 2,437,500
-----------
30,995,089
-----------
REIT - Lodging/Resorts (6.0%)
7,332 Interstate Hotels Corp.*...... 17,414
150,993 Starwood Hotels & Resorts
Worldwide, Inc. ............. 4,463,730
217,700 Wyndham International, Inc.
(Class A)*................... 408,188
-----------
4,889,332
-----------
REIT - Residential (27.0%)
51,800 Amli Residential Properties
Trust........................ 1,181,688
98,300 Archstone Communities Trust... 2,205,606
101,300 Avalonbay Communities,
Inc. ........................ 4,026,674
47,000 Charles E. Smith Residential
Realty, Inc. ................ 1,777,188
95,900 Chateau Communities, Inc. .... 2,601,288
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
-------------------------------------------------------
<C> <S> <C>
65,900 Equity Residential Properties
Trust........................ $ 2,940,788
120,500 Essex Property Trust, Inc. ... 4,797,405
11,900 Gables Residential Trust...... 293,038
84,900 Manufactured Home Communities,
Inc. ........................ 2,048,213
7,800 Summit Properties Inc. ....... 165,750
-----------
22,037,638
-----------
REIT - Retail (16.3%)
204,500 Burnham Pacific Properties,
Inc. ........................ 1,316,469
45,200 Federal Realty Investment
Trust........................ 991,575
24,700 JDN Realty Corp. ............. 263,981
62,600 Pan Pacific Retail Properties,
Inc. ........................ 1,252,000
107,500 Rouse Co. (The)............... 2,573,281
150,600 Simon Property Group, Inc. ... 3,689,700
292,000 Taubman Centers, Inc. ........ 3,175,500
-----------
13,262,506
-----------
REIT - Storage (5.5%)
200,900 Public Storage, Inc. ......... 4,482,581
-----------
77,821,421
TOTAL INVESTMENTS
(Identified Cost $78,814,943)(a)... 95.5%
3,690,072
OTHER ASSETS IN EXCESS OF
LIABILITIES........................ 4.5
---- -----------
$81,511,493
NET ASSETS....................... 100.0%
---- ===========
</TABLE>
---------------------
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $4,055,754 and the
aggregate gross unrealized depreciation is $5,049,276, resulting in net
unrealized depreciation of $993,522.
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2000 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $78,814,943).............................. $77,821,421
Cash........................................................ 3,522,338
Receivable for:
Shares of beneficial interest sold...................... 225,700
Dividends............................................... 61,487
Investment sold......................................... 29,843
Prepaid expenses and other assets........................... 84,592
-----------
TOTAL ASSETS............................................ 81,745,381
-----------
LIABILITIES:
Payable for:
Investment management fee............................... 73,606
Plan of distribution fee................................ 65,591
Shares of beneficial interest repurchased............... 31,666
Investments purchased................................... 21,810
Offering costs.............................................. 13,915
Accrued expenses and other payables......................... 27,300
-----------
TOTAL LIABILITIES....................................... 233,888
-----------
NET ASSETS.............................................. $81,511,493
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $85,075,537
Net unrealized depreciation................................. (993,505)
Dividends in excess of net investment income................ (10,274)
Accumulated net realized loss............................... (2,560,265)
-----------
NET ASSETS.............................................. $81,511,493
===========
CLASS A SHARES:
Net Assets.................................................. $10,780,239
Shares Outstanding (unlimited authorized, $.01 par value)... 1,114,016
NET ASSET VALUE PER SHARE............................... $9.68
===========
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value)........ $10.22
===========
CLASS B SHARES:
Net Assets.................................................. $62,414,062
Shares Outstanding (unlimited authorized, $.01 par value)... 6,457,152
NET ASSET VALUE PER SHARE............................... $9.67
===========
CLASS C SHARES:
Net Assets.................................................. $6,843,722
Shares Outstanding (unlimited authorized, $.01 par value)... 707,796
NET ASSET VALUE PER SHARE............................... $9.67
===========
CLASS D SHARES:
Net Assets.................................................. $1,473,470
Shares Outstanding (unlimited authorized, $.01 par value)... 151,776
NET ASSET VALUE PER SHARE............................... $9.71
===========
</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 six months ended May 31, 2000 (unaudited)
NET INVESTMENT INCOME:
INCOME
Dividends (net of $9,780 foreign withholding tax)........... $ 2,254,762
Interest.................................................... 67,226
-----------
TOTAL INCOME............................................ 2,321,988
-----------
EXPENSES
Investment management fee................................... 369,506
Plan of distribution fee (Class A shares)................... 7,782
Plan of distribution fee (Class B shares)................... 298,971
Plan of distribution fee (Class C shares)................... 34,164
Offering costs.............................................. 72,176
Transfer agent fees and expenses............................ 53,526
Professional fees........................................... 27,110
Registration fees........................................... 18,172
Custodian fees.............................................. 9,800
Shareholder reports and notices............................. 8,914
Trustees' fees and expenses................................. 6,212
Other....................................................... 804
-----------
TOTAL EXPENSES.......................................... 907,137
-----------
NET INVESTMENT INCOME................................... 1,414,851
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................................... (2,455,752)
Net change in unrealized depreciation....................... 11,319,814
-----------
NET GAIN................................................ 8,864,062
-----------
NET INCREASE................................................ $10,278,913
===========
</TABLE>
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
FOR THE PERIOD
FOR THE SIX APRIL 28, 1999*
MONTHS ENDED THROUGH
MAY 31, 2000 NOVEMBER 30, 1999
--------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................... $ 1,414,851 $ 1,429,756
Net realized loss................................... (2,455,752) (104,513)
Net change in unrealized depreciation............... 11,319,814 (12,313,319)
----------- ------------
NET INCREASE (DECREASE)......................... 10,278,913 (10,988,076)
----------- ------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares...................................... (120,485) (142,441)
Class B shares...................................... (1,239,423) (1,182,548)
Class C shares...................................... (146,053) (164,052)
Class D shares...................................... (32,788) (624)
----------- ------------
TOTAL DIVIDENDS................................. (1,538,749) (1,489,665)
----------- ------------
Net increase (decrease) from transactions in shares
of beneficial interest............................. (233,029) 85,382,099
----------- ------------
NET INCREASE.................................... 8,507,135 72,904,358
NET ASSETS:
Beginning of period................................. 73,004,358 100,000
----------- ------------
END OF PERIOD
(Including dividends in excess of net investment
income of $10,274 and undistributed net
investment income of $113,624, respectively).... $81,511,493 $ 73,004,358
=========== ============
</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, 2000 (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, 2000 (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, 2000 (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 fully amortized as of
April 28, 2000.
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 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 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 $4,989,233
at May 31, 2000.
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
NOTES TO FINANCIAL STATEMENTS May 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 May 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 May 31,
2000, it received contingent deferred sales charges from certain redemptions of
the Fund's Class A shares, Class B shares and Class C shares of $9,264, $205,552
and $9,445, respectively and received $23,726 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 May 31, 2000 aggregated
$28,860,645 and $32,371,686, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of Investment Manager,
Sub-Advisor and Distributor, is the Fund's transfer agent. At May 31, 2000, the
Fund had transfer agent fees and expenses payable of approximately $2,450.
5. FEDERAL INCOME TAX STATUS
At November 30, 1999, the Fund had a net capital loss carryover of approximately
$71,000 which will be available through November 30, 2007 to offset future
capital gains to the extent provided by regulations.
As of November 30, 1999, the Fund had temporary book/tax differences
attributable to capital loss deferrals on wash sales.
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
NOTES TO FINANCIAL STATEMENTS May 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 APRIL 28, 1999*
MONTHS ENDED THROUGH
MAY 31, 2000 NOVEMBER 30, 1999
------------------------- ------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold........................................................ 842,606 $ 7,783,577 1,018,402 $ 9,991,037
Reinvestment of dividends................................... 11,939 104,278 12,614 119,098
Redeemed.................................................... (393,077) (3,525,353) (380,968) (3,512,632)
---------- ------------ ---------- -----------
Net increase - Class A...................................... 461,468 4,362,502 650,048 6,597,503
---------- ------------ ---------- -----------
CLASS B SHARES
Sold........................................................ 4,361,593 40,302,149 7,905,926 78,867,679
Reinvestment of dividends................................... 106,385 927,239 93,767 883,747
Redeemed.................................................... (4,928,624) (45,460,812) (1,084,395) (9,987,438)
---------- ------------ ---------- -----------
Net increase (decrease) - Class B........................... (460,646) (4,231,424) 6,915,298 69,763,988
---------- ------------ ---------- -----------
CLASS C SHARES
Sold........................................................ 112,994 1,022,095 1,178,369 11,769,700
Reinvestment of dividends................................... 14,584 127,046 15,030 142,127
Redeemed.................................................... (312,425) (2,761,638) (303,256) (2,869,650)
---------- ------------ ---------- -----------
Net increase (decrease) - Class C........................... (184,847) (1,612,497) 890,143 9,042,177
---------- ------------ ---------- -----------
CLASS D SHARES
Sold........................................................ 1,446,898 13,229,176 986,391 9,768,008
Reinvestment of dividends................................... 3,701 32,042 66 624
Redeemed.................................................... (1,301,875) (12,012,828) (985,905) (9,790,201)
---------- ------------ ---------- -----------
Net increase (decrease) - Class D........................... 148,724 1,248,390 552 (21,569)
---------- ------------ ---------- -----------
Net increase (decrease) in Fund............................. (35,301) $ (233,029) 8,456,041 $85,382,099
========== ============ ========== ===========
</TABLE>
---------------------
* Commencement of operations.
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER REAL ESTATE 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 APRIL 28, 1999*
MONTHS ENDED THROUGH
MAY 31, 2000 NOVEMBER 30, 1999
----------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS A SHARES ++
SELECTED PER SHARE DATA
Net asset value, beginning of period........................ $ 8.63 $10.00
------ ------
Income (loss) from investment operations:
Net investment income...................................... 0.19 0.21
Net realized and unrealized gain (loss).................... 1.08 (1.38)
------ ------
Total income (loss) from investment operations.............. 1.27 (1.17)
------ ------
Less dividends from net investment income................... (0.22) (0.20)
------ ------
Net asset value, end of period.............................. $ 9.68 $ 8.63
====== ======
TOTAL RETURN+(1)............................................ 15.07% (11.88)%
RATIOS TO AVERAGE NET ASSETS(2)(3):
Expenses.................................................... 1.77% 1.81 %
Net investment income....................................... 4.51% 3.59 %
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $10,780 $5,634
Portfolio turnover rate(1).................................. 40% 27 %
</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
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX APRIL 28, 1999*
MONTHS ENDED THROUGH
MAY 31, 2000 NOVEMBER 30, 1999
----------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS B SHARES++
SELECTED PER SHARE DATA
Net asset value, beginning of period........................ $ 8.62 $10.00
------ ------
Income (loss) from investment operations:
Net investment income...................................... 0.17 0.16
Net realized and unrealized gain (loss).................... 1.07 (1.37)
------ ------
Total income (loss) from investment operations.............. 1.24 (1.21)
------ ------
Less dividends from net investment income................... (0.19) (0.17)
------ ------
Net asset value, end of period.............................. $ 9.67 $ 8.62
====== ======
TOTAL RETURN+(1)............................................ 14.64% (12.27)%
RATIOS TO AVERAGE NET ASSETS(2)(3):
Expenses.................................................... 2.53% 2.56 %
Net investment income....................................... 3.75% 2.84 %
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $62,414 $59,645
Portfolio turnover rate(1).................................. 40% 27 %
</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
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX APRIL 28, 1999*
MONTHS ENDED THROUGH
MAY 31, 2000 NOVEMBER 30, 1999
----------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS C SHARES++
SELECTED PER SHARE DATA
Net asset value, beginning of period........................ $ 8.62 $10.00
------ ------
Income (loss) from investment operations:
Net investment income...................................... 0.17 0.16
Net realized and unrealized gain (loss).................... 1.07 (1.38)
------ ------
Total income (loss) from investment operations.............. 1.24 (1.22)
------ ------
Less dividends from net investment income................... (0.19) (0.16)
------ ------
Net asset value, end of period.............................. $ 9.67 $ 8.62
====== ======
TOTAL RETURN+(1)............................................ 14.62% (12.29)%
RATIOS TO AVERAGE NET ASSETS(2)(3):
Expenses.................................................... 2.53% 2.56 %
Net investment income....................................... 3.75% 2.84 %
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $6,844 $7,698
Portfolio turnover rate(1).................................. 40% 27 %
</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 REAL ESTATE FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX APRIL 28, 1999*
MONTHS ENDED THROUGH
MAY 31, 2000 NOVEMBER 30, 1999
----------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA
Net asset value, beginning of period........................ $ 8.64 $10.00
------ ------
Income (loss) from investment operations:
Net investment income...................................... 0.37 0.15
Net realized and unrealized gain (loss).................... 0.94 (1.30)
------ ------
Total income (loss) from investment operations.............. 1.31 (1.15)
------ ------
Less dividends from net investment income................... (0.24) (0.21)
------ ------
Net asset value, end of period.............................. $ 9.71 $ 8.64
====== ======
TOTAL RETURN+(1)............................................ 15.45% (11.69)%
RATIOS TO AVERAGE NET ASSETS(2)(3):
Expenses.................................................... 1.53% 1.56 %
Net investment income....................................... 4.75% 3.84 %
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $1,473 $26
Portfolio turnover rate(1).................................. 40% 27 %
</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
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER REAL ESTATE FUND
CHANGE IN INDEPENDENT ACCOUNTANTS
On July 1, 2000 PricewaterhouseCoopers LLP resigned as independent accountants
of the Fund.
The reports of PricewaterhouseCoopers LLP on the financial statements of the
Fund for the past two fiscal years contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle.
In connection with its audits for the two most recent fiscal years and through
July 1, 2000, there have been no disagreements with PricewaterhouseCoopers LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of PricewaterhouseCoopers LLP would have caused them to make
reference thereto in their report on the financial statements for such years.
The Fund, with the approval of its Board of Trustees and its Audit Committee,
engaged Deloitte & Touche LLP as its new independent accountants as of July 1,
2000.
18
<PAGE> 19
(This Page Intentionally Left Blank)
19
<PAGE> 20
TRUSTEES
----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
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. Read the
prospectus carefully before investing.
Morgan Stanley Dean Witter Distributors Inc., member NASD.
MORGAN STANLEY
DEAN WITTER
REAL ESTATE FUND
Semiannual Report
May 31, 2000
