<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND Two World Trade Center
LETTER TO THE SHAREHOLDERS December 31, 1998 New York, New York 10048
DEAR SHAREHOLDER:
The first half of 1998 saw a great deal of volatility and uncertainty as
financial turmoil in Asia spread across the globe. However, the U.S. stock
market recovered quickly, with the stocks of large American companies
benefiting from the notion that they could provide a safe haven. This positive
investor psychology was coupled with strong fundamental data, such as low
inflation, strong employment figures and rising consumer confidence, which
supported higher equity prices.
After soaring to a record high of 9,338 in July, the Dow Jones Industrial
Average plunged nearly 1,800 points by the end of August. Several factors
combined to drag down the price of stocks, including slowing profits, the
persistent Asian contagion, Russia's debt default and devaluation of the ruble,
the ongoing White House scandal, and the near-collapse of a major hedge fund,
Long-Term Capital Management. The steadying influence of the "Goldilocks"
economy -- an environment that is considered neither too hot nor too cold,
allowing for economic expansion with low inflation -- pulled the market out of
its summer slump.
In October, an unprecedented number of central banks around the world responded
to a global contraction in the availability of credit by lowering interest
rates in a series of impressive moves, indicating this action could continue
into the first quarter of 1999. Countries as diverse as the United States and
China, as well as all of the countries comprising the European Monetary Union,
lowered rates across the board. More than 60 separate easing moves were
recorded.
During the fourth quarter of 1998, the stock market regained much of the ground
it had lost during the difficult summer months. By year-end, global economies
had begun to stabilize. The powerful U.S. economy continued to be blessed by a
substantial economic expansion with only moderate inflation and low levels of
unemployment. For the full year, the Dow was up 18.16 percent and the Standard
& Poor's 500 Composite Stock Price Index (S&P 500) was up 28.58 percent.
<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
LETTER TO THE SHAREHOLDERS December 31, 1998, continued
PERFORMANCE
Despite the ups and downs, 1998 was a noteworthy year for Morgan Stanley Dean
Witter American Value Fund. The Fund outperformed both of its benchmarks, the
S&P 500 and the Lipper Growth Funds Index.
For the fiscal year ended December 31, 1998, the Fund's Class A, B, C and D
shares posted total returns of 31.78 percent, 31.07 percent, 30.78 percent and
32.12 percent, respectively. For the same period, the S&P 500 and the Lipper
Growth Funds Index registered total returns of 28.58 percent and 25.69 percent,
respectively. Performance of the Fund's four share classes varies because of
differing expenses. The accompanying chart illustrates the growth of a
hypothetical $10,000 investment in the Fund's Class B shares for the 10-year
period ended December 31, 1998, versus similar hypothetical investments in the
issues that comprise the S&P 500 and the Lipper Growth Funds Index.
The Fund has been a Lipper leader for a decade. The Fund's Class B shares
ranked #272 of 980 growth funds (top 28 percent) for the 12 months ended
December 31, 1998, #264 of 585 funds (top 45 percent) for the three years ended
December 31, 1998, #139 of 365 funds (top 38 percent) for the five years ended
December 31, 1998 and #34 of 172 funds (top 20 percent) for the 10 years ended
December 31, 1998. Lipper rankings are based on total return and do not take
any sales charges into account.
THE PORTFOLIO
At the beginning of the year the Fund avoided industries and stocks with
exposure to emerging markets and natural resource-dependent countries, areas
where we anticipated weaker economic growth. Instead, the Fund was positioned
for stronger economic growth in the United States and Europe. We emphasized
domestic, consumer-oriented groups such as retailers, automobiles and
housing-related stocks. As the weak growth outlook spread throughout the world,
interest rates declined, benefiting U.S. consumer-oriented industries. The
performance of these sectors was also aided by three major developments: the
lowest unemployment level in 30 years, the highest real-wages in 30 years and
the greatest net worth appreciation in the post-war era.
In the first half of the year the Fund had a large commitment to the more
stable growth segments of technology: software (Microsoft), the Internet
(America Online) and communications equipment (IBM). Given the positive secular
trend of the aging of the U.S. population, health care remained a 10 to 15
percent commitment throughout the year. Financial holdings (Charles Schwab,
Providian) were also of significance because of positive retirement and savings
demographics as well as the interest-rate sensitivity of this group.
By mid-year it appeared the contagion afflicting emerging and natural-resource
markets around the world would spread, even to developed countries. When Russia
defaulted on its loan payments to European and
2
<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
LETTER TO THE SHAREHOLDERS December 31, 1998, continued
American banks, credit conditions tightened at almost an unprecedented rate. In
anticipation of a worsening outlook, the Fund became very defensively oriented.
Technology and financial holdings were significantly reduced, while holdings in
defensive food, beverage, utility and U.S. Treasury bonds were added. These
portfolio adjustments enabled the Fund to weather the turbulent period between
July and mid-October.
In mid-October, the U.S. monetary authorities took aggressive actions to ease
monetary conditions. This was accompanied by monetary easings in 32 countries.
In response to these moves, as well as more dramatic fiscal moves by the
Japanese government, the Fund began to shift back to a more normal,
growth-oriented position. Defensive issues were sold, including U.S.
Treasuries. Financial groups such as banks, brokerages and life insurance
companies were repurchased. Technology sectors purchased include
semiconductors, capital equipment, Internet and computer companies, many of
which had lagged for much of the year.
LOOKING AHEAD
The next year could see additional volatility. While things are beginning to
stabilize in Asia, energy-related countries and Latin America are still
undergoing significant dislocations. Developed economies are likely to
decelerate. It is still uncertain what effect the Y2K computer problem may have
on the global economy. On the positive side, further monetary and fiscal easing
moves are expected around the world, which should provide strong support for
the capital markets.
The Fund's Board of Trustees has approved a change of the Fund's name from
Morgan Stanley Dean Witter American Value Fund to Morgan Stanley Dean Witter
American Opportunities Fund. This change is expected to occur in April 1999. Be
assured that only the name of the Fund will change; the management, investment
objective and policies will remain the same.
We appreciate your support of Morgan Stanley Dean Witter American Value Fund
and look forward to continuing to serve your investment needs and objectives.
Very truly yours,
/s/CHARLES A. FIUMEFREDDO
- -------------------------
CHARLES A. FIUMEFREDDO
Chairman of the Board
3
<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
FUND PERFORMANCE December 31, 1998
FUND PERFORMANCE DECEMBER 31, 1998
GROWTH OF $10,000 - Class B
DATE TOTAL S&P 500 LIPPER
---- ----- ------- ------
December 31,1988 $10,000 $10,000 $10,000
December 31,1989 $12,539 $13,164 $12,747
December 31,1990 $12,426 $12,756 $12,057
December 31,1991 $19,417 $16,635 $16,438
December 31,1992 $20,162 $17,901 $17,692
December 31,1993 $23,933 $19,703 $19,812
December 31,1994 $22,318 $19,962 $19,501
December 31,1995 $31,736 $23,457 $25,867
December 31,1996 $35,079 $33,759 $30,402
December 31,1997 $46,145 $45,017 $38,942
December 31,1998 $60,483 (3) $57,881 $48,924
-- Fund -- S&P 500(4) -- Lipper(5)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR CLASS A,
CLASS C, AND CLASS D SHARES WILL VARY FROM THE PERFORMANCE OF CLASS B SHARES
SHOWN ABOVE DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
1 Year 5 Year 10 Year From Inception
------ ------ ------- --------------
Class B*
31.07(1) 20.37(1) 19.72(1)
26.07(2) 20.18(2) 19.72(2)
Class A+ (7/28/97)
31.78(1) 27.82(1)
24.86(2) 23.08(2)
Class C++ (7/28/98)
30.78(1) 26.88(1)
29.78(2) 26.88(2)
Class D# (7/28/97)
32.12(1) 28.16(1)
- ---------------
(1) Figure shown assumes reinvestment of all distributions and does not
reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction
of the maximum applicable sales charge. See the Fund's current prospectus
for complete details on fees and sales charges.
(3) Closing value assuming a complete redemption on December 31, 1998.
(4) The Standard and Poor's 500 Stock Index (S&P 500) is a broad-based index,
the performance of which is based on the average performance of 500 widely
held common stocks. The performance of the Index does not include any
expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(5) The Lipper Growth Funds Index is an equally-weighted performance index of
the largest qualifying funds (based on net assets) in the Lipper Growth
Funds objective. The Index, which is adjusted for capital gains
distributions and income dividends, is unmanaged and should not be
considered an investment. There are currently 30 funds represented in this
Index.
* The maximum CDSC for Class B is 5.0%. The CDSC declines to 0% after six
years.
+ The maximum front-end sales charge for Class A shares is 5.25%.
++ The maximum CDSC for Class C shares is 1% for shares redeemed within one
year of purchase.
# Class D shares have no sales charge.
4
<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS December 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------- -----------------
<S> <C> <C>
COMMON STOCKS (96.8%)
Advertising (0.4%)
310,000 Interpublic Group of
Companies, Inc. ................... $ 24,722,500
--------------
Aerospace (0.5%)
560,600 General Dynamics Corp. ............... 32,865,175
--------------
Airlines (0.3%)
641,600 Southwest Airlines Co. ............... 14,395,900
--------------
Banking (1.3%)
9,000 Argentaria, Caja Postal y Banco
Hipotecario de Espana S.A.
(Spain) ........................... 233,070
622,100 Bank of New York Co., Inc. ........... 25,039,525
4,000 BankAmerica Corp. .................... 240,500
5,000 BankBoston Corp. ..................... 194,687
410,000 Chase Manhattan Corp. (The) .......... 27,905,625
9,500 Citigroup Inc. ....................... 470,250
203,000 Fifth Third Bancorp .................. 14,476,437
191,900 First Union Corp. .................... 11,669,919
5,000 Mellon Bank Corp. .................... 343,750
112,000 Unicredito Italiano SpA (Italy) ...... 664,309
15,000 Wells Fargo & Co. .................... 599,062
--------------
81,837,134
--------------
Biotechnology (3.1%)
430,000 Amgen Inc.* .......................... 44,935,000
228,000 Biogen, Inc.* ........................ 18,895,500
28,100 Genentech, Inc. (Special)* ........... 2,239,219
561,000 Genzyme Corp. (General Division)* 27,874,687
325,000 IDEC Pharmaceuticals Corp.* .......... 15,275,000
295,000 Immunex Corp.* ....................... 36,948,750
250,000 MedImmune, Inc.* ..................... 24,843,750
288,000 PathoGenesis Corp.* .................. 16,416,000
--------------
187,427,906
--------------
Broadcasting (2.3%)
14,000 CBS Corp. ............................ 458,500
589,000 Chancellor Media Corp.* .............. 28,161,562
1,050,500 Clear Channel Communications,
Inc.* ............................. 57,252,250
195,600 Infinity Broadcasting Corp.
(Class A)* ........................ 5,354,550
8,000 Jacor Communications, Inc.* .......... 515,000
605,000 Tele-Communications Liberty
Media Group (Class A)* ............ 27,867,812
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------- -----------------
<S> <C> <C>
4,200 Univision Communications, Inc.
(Class A)* ........................ $ 151,987
539,500 USA Networks, Inc.* .................. 17,837,219
--------------
137,598,880
--------------
Cable Television (3.6%)
1,126,000 Comcast Corp. (Class A Special) ...... 66,082,125
1,047,900 Cox Communications, Inc.
(Class A)* ........................ 72,436,087
14,000 MediaOne Group, Inc.* ................ 658,000
1,279,000 Time Warner, Inc. .................... 79,377,937
--------------
218,554,149
--------------
Computer Hardware (7.1%)
1,770,000 Compaq Computer Corp. ................ 74,229,375
362,000 Dell Computer Corp.* ................. 26,493,875
250,000 Flextronics International Ltd.* ...... 21,375,000
180,900 Hewlett-Packard Co. .................. 12,357,731
420,000 International Business Machines
Corp. ............................. 77,595,000
206,000 Jabil Circuit, Inc.* ................. 15,372,750
470,000 Sanmina Corp.* ....................... 29,257,500
547,000 SCI Systems, Inc.* ................... 31,589,250
688,400 Solectron Corp.* ..................... 63,978,175
886,000 Sun Microsystems, Inc.* .............. 75,808,375
--------------
428,057,031
--------------
<PAGE>
Computer Software (3.4%)
200,000 Citrix Systems, Inc.* ................ 19,400,000
750,000 Compuware Corp.* ..................... 58,546,875
4,300 Great Plains Software, Inc.* ......... 207,475
219,000 Legato Systems, Inc.* ................ 14,426,625
700,000 Microsoft Corp.* ..................... 96,993,750
9,000 Platinum Technology, Inc.* ........... 172,687
249,000 Veritas Software Corp.* .............. 14,893,312
--------------
204,640,724
--------------
Consumer Electronics/
Appliances (0.9%)
285,000 Electronic Arts Inc.* ................ 15,960,000
631,000 Maytag Corp. ......................... 39,279,750
--------------
55,239,750
--------------
Consumer Sundries (2.3%)
905,000 Anheuser-Busch Companies, Inc. ....... 59,390,625
242,500 Clorox Co. ........................... 28,327,031
3,200 Colgate-Palmolive Co. ................ 297,200
235,000 Estee Lauder Companies, Inc.
(The) (Class A) ................... 20,092,500
5,000 Groupe Danone (ADR) (France) ......... 281,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS December 31, 1998, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------- -----------------
<S> <C> <C>
4,000 PepsiCo, Inc. ......................... $ 163,750
530,000 Philip Morris Companies, Inc. ......... 28,355,000
1,700 Procter & Gamble Co. .................. 155,231
--------------
137,062,587
--------------
Consumer/Business Services (2.3%)
432,900 Automatic Data Processing, Inc. ....... 34,713,169
400,000 Ceridian Corp.* ....................... 27,925,000
465,000 Computer Sciences Corp.* .............. 29,963,437
347,800 Outdoor Systems, Inc.* ................ 10,434,000
693,200 Paychex, Inc. ......................... 35,656,475
3,000 Snyder Communications, Inc.* .......... 101,250
5,500 Waste Management, Inc. ................ 256,437
--------------
139,049,768
--------------
Diversified Financial Services (1.1%)
646,000 General Electric Co. .................. 65,932,375
--------------
Diversified Manufacturing (0.5%)
260,500 United Technologies Corp. ............. 28,329,375
--------------
Drug Store Chain (2.9%)
887,500 CVS Corp. ............................. 48,812,500
266,600 Duane Reade, Inc.* .................... 10,264,100
1,528,000 Rite Aid Corp. ........................ 75,731,500
739,000 Walgreen Co. .......................... 43,277,687
--------------
178,085,787
--------------
E.D.P. Peripherals (2.4%)
910,000 EMC Corp.* ............................ 77,350,000
1,675,000 Seagate Technology, Inc.* ............. 50,668,750
1,150,000 Western Digital Corp.* ................ 17,321,875
--------------
145,340,625
--------------
Electronic Production
Equipment (3.2%)
1,805,000 Applied Materials, Inc.* .............. 77,050,937
472,000 ASM Lithography Holding N.V.
(Netherlands)* ..................... 14,396,000
565,000 KLA-Tencor Corp.* ..................... 24,506,875
658,000 Novellus Systems, Inc.* ............... 32,488,750
1,000,000 Teradyne, Inc.* ....................... 42,375,000
42,000 Veeco Instruments Inc.* ............... 2,215,500
--------------
193,033,062
--------------
Energy (0.9%)
28 British Petroleum Co. P.L.C. (ADR)
(United Kingdom)* .................. 2,509
460,000 Exxon Corp. ........................... 33,637,500
267,500 Mobil Corp. ........................... 23,305,937
--------------
56,945,946
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------- -----------------
<S> <C> <C>
Farming/Seeds/Milling (0.0%)
4,000 Delta & Pine Land Co. ................. $ 148,000
--------------
Financial Services (8.3%)
6,000 American Express Co. .................. 613,500
25,000 Amvescap PLC (United Kingdom) 192,995
558,792 Associates First Capital Corp.
(Class A) .......................... 23,678,811
206,500 Capital One Financial Corp. ........... 23,747,500
268,200 CIT Group, Inc. (The) (Class A) ....... 8,532,113
495,500 E*TRADE Group, Inc.* .................. 23,164,625
6,350 Edwards (A.G.), Inc. .................. 236,538
706,500 Fannie Mae ............................ 52,281,000
325,900 Franklin Resources, Inc. .............. 10,428,800
963,500 Freddie Mac ........................... 62,085,531
10,000 Hambrecht & Quist Group* .............. 226,875
389,100 Lehman Brothers Holdings, Inc. ........ 17,144,719
846,400 Merrill Lynch & Co., Inc. ............. 56,497,200
757,400 Paine Webber Group, Inc. .............. 29,254,575
1,117,500 Providian Financial Corp. ............. 83,812,500
1,960,950 Schwab (CHARLES) Corp. ................ 110,180,878
--------------
502,078,160
--------------
Food Chains (2.4%)
1,343,800 Fred Meyer, Inc.* ..................... 80,963,950
12,000 Kroger Co.* ........................... 726,000
1,012,000 Safeway Inc.* ......................... 61,668,750
--------------
143,358,700
--------------
Forest Products (0.5%)
456,100 Georgia-Pacific Corp. ................. 26,710,356
1,855,000 Jefferson Smurfit Group PLC
(Ireland) .......................... 3,317,430
--------------
30,027,786
--------------
Healthcare (0.9%)
150,600 CIGNA Corp. ........................... 11,643,263
1,138,000 Health Management Associates,
Inc. (Class A)* .................... 24,609,250
17,680 Total Renal Care Holdings, Inc.* ...... 522,665
235,000 Wellpoint Health Networks, Inc.* ...... 20,445,000
--------------
57,220,178
--------------
Insurance (3.3%)
2,010 Aegon N.V. (ARS) (Netherlands) ........ 245,723
282,000 Aegon N.V. (Netherlands) .............. 34,599,202
381,700 American General Corp. ................ 29,772,600
430,000 American International Group,
Inc. ............................... 41,548,750
7,000 AON Corp. ............................. 387,625
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS December 31, 1998, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------- ---------------
<S> <C> <C>
178,000 Axa (France)* ........................... $ 25,798,486
285,000 Equitable Companies, Inc. ............... 16,494,375
550,000 Hartford Financial Services
Group, Inc. (The) .................... 30,181,250
271,500 Nationwide Financial Services,
Inc. (Class A) ....................... 14,033,156
5,000 ReliaStar Financial Corp. ............... 230,625
620,000 Societa Assicuratrice Industriale
(SAI) (Italy)* ....................... 7,471,237
5,100 SunAmerica Inc. ......................... 413,738
1,500 Torchmark Corp. ......................... 52,969
--------------
201,229,736
--------------
Internet Services (4.4%)
750,000 America Online, Inc.* ................... 108,562,500
310,000 At Home Corp. (Series A)* ............... 22,823,750
250,000 Inktomi Corp.* .......................... 32,484,375
620,000 Intuit Inc.* ............................ 44,950,000
14,000 Lycos, Inc.* ............................ 777,000
10,000 Netscape Communications Corp.* 602,500
5,700 Ticketmaster Online-CitySearch, Inc.
(Class B)* ........................... 324,900
243,000 Yahoo! Inc.* ............................ 57,560,625
--------------
268,085,650
--------------
Major Chemicals (0.0%)
7,000 Du Pont (E.I.) de Nemours & Co.,
Inc. ................................. 371,438
--------------
Major Pharmaceuticals (5.8%)
205,000 ALZA Corp.* ............................. 10,711,250
414,000 American Home Products Corp. ............ 23,313,375
122,000 Bristol-Myers Squibb Co. ................ 16,325,125
529,000 Elan Corp. PLC (ADR) (Ireland)* ......... 36,798,563
1,044,000 Forest Laboratories, Inc.* .............. 55,527,750
570,000 Glaxo Wellcome PLC
(United Kingdom) ..................... 19,519,087
310,000 Lilly (Eli) & Co. ....................... 27,551,250
484,500 Pfizer, Inc. ............................ 60,774,469
340,000 Pharmacia & Upjohn, Inc. ................ 19,252,500
764,400 Schering-Plough Corp. ................... 42,233,100
325,000 SmithKline Beecham PLC
(United Kingdom) ..................... 4,520,607
482,000 Warner-Lambert Co. ...................... 36,240,375
--------------
352,767,451
--------------
Media Conglomerates (0.8%)
7,000 News Corp., Ltd. (ADR) (Australia) ...... 185,063
7,000 Seagram Co. Ltd. (Canada) ............... 266,000
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------- -------------------
<S> <C> <C>
667,000 Viacom, Inc. (Class B)* ................. $ 49,358,000
7,500 Walt Disney Co. ......................... 225,000
--------------
50,034,063
--------------
Medical Equipment &
Supplies (2.0%)
388,000 Bausch & Lomb Inc. ...................... 23,280,000
16,000 Becton, Dickinson & Co. ................. 683,000
380,000 Guidant Corp. ........................... 41,895,000
705,000 Medtronic, Inc. ......................... 52,346,250
2,000 Sofamor Danek Group, Inc.* .............. 243,500
--------------
118,447,750
--------------
Motor Vehicles (1.8%)
961,000 Ford Motor Co. .......................... 56,398,688
720,000 General Motors Corp. .................... 51,525,000
--------------
107,923,688
--------------
Restaurants (0.8%)
10,000 Brinker International, Inc.* ............ 288,750
237,000 McDonald's Corp. ........................ 18,160,125
360,000 Outback Steakhouse, Inc.* ............... 14,310,000
6,000 Starbucks Corp.* ........................ 335,625
280,000 Tricon Global Restaurants, Inc.* ........ 14,035,000
--------------
47,129,500
--------------
Retail (8.4%)
536,200 Abercrombie & Fitch Co.
(Class A)* ........................... 37,936,150
179,000 Amazon.com, Inc.* ....................... 57,492,563
1,463,800 Ann Taylor Stores Corp.* ................ 57,728,613
6,000 Barnes & Noble, Inc.* ................... 255,000
490,000 Bed Bath & Beyond Inc.* ................. 16,690,625
622,000 Costco Companies, Inc.* ................. 44,900,625
7,500 Dollar Tree Stores, Inc.* ............... 327,188
32,000 Family Dollar Stores, Inc. .............. 704,000
1,005,000 Gap, Inc. (The) ......................... 56,531,250
1,137,000 Home Depot, Inc. (The) .................. 69,570,188
6,800 Kmart Corp.* ............................ 104,125
246,000 Linens 'N Things, Inc.* ................. 9,747,750
1,514,000 Lowe's Companies, Inc. .................. 77,497,875
885,000 Wal-Mart Stores, Inc. ................... 72,072,188
160,000 Williams-Sonoma, Inc.* .................. 6,450,000
--------------
508,008,140
--------------
Semiconductors (7.1%)
975,000 Altera Corp.* ........................... 59,231,250
688,000 Analog Devices, Inc.* ................... 21,586,000
467,500 Applied Micro Circuits Corp.* ........... 15,836,563
615,000 Intel Corp. ............................. 72,877,500
375,000 Linear Technology Corp. ................. 33,562,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
PORTFOLIO OF INVESTMENTS December 31, 1998, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------ ----------------
<S> <C> <C>
780,000 Maxim Integrated Products, Inc.* $ 34,027,500
90,000 Micrel, Inc.* ......................... 4,950,000
1,175,500 Micron Technology, Inc.* .............. 59,436,219
805,600 Texas Instruments Inc. ................ 68,929,150
940,000 Xilinx, Inc.* ......................... 61,158,750
-------------
431,595,432
-------------
Telecommunication
Equipment (5.1%)
10,000 Alcatel (ADR) (France) ................ 244,375
1,300 Alcatel (France) ...................... 159,107
637,500 Ascend Communications, Inc.* .......... 41,915,625
235,000 Broadcom Corp. (Class A)* ............. 28,288,125
1,220,500 Cisco Systems, Inc.* .................. 113,277,656
306,100 Lucent Technologies Inc. .............. 33,671,000
903,000 Newbridge Networks Corp.
(Canada)* .......................... 27,428,625
206,000 Nokia Corp. (ADR) (Class A)
(Finland) .......................... 24,810,125
255,000 PMC - Sierra, Inc.* ................... 16,065,000
480,000 RF Micro Devices, Inc.* ............... 22,050,000
71,000 Xircom, Inc.* ......................... 2,414,000
-------------
310,323,638
-------------
Telecommunications (6.7%)
720,000 Ameritech Corp. ....................... 45,630,000
967,000 AT&T Corp. ............................ 72,766,750
765,000 Bell Atlantic Corp. ................... 43,461,563
930,000 BellSouth Corp. ....................... 46,383,750
975,000 MCI WorldCom, Inc.* ................... 69,956,250
601,200 Sprint Corp. (FON Group) .............. 50,575,950
252,500 Sprint PCS* ........................... 5,839,063
927,800 US West, Inc. ......................... 59,959,075
360,000 Winstar Communications, Inc.* ......... 14,017,500
-------------
408,589,901
-------------
TOTAL COMMON STOCKS
(Identified Cost $4,787,286,956) ...... 5,866,457,885
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (7.0%)
U.S. GOVERNMENT AGENCIES (a) (6.9%)
$ 272,500 Federal Home Loan Mortgage
Corp. 4.50% due 01/04/99 ....... 272,397,813
150,000 Federal Home Loan Mortgage
Corp. 5.14% due 01/08/99 ....... 149,850,083
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------- -----------------
<S> <C> <C>
TOTAL U.S. GOVERNMENT AGENCIES
(Amortized Cost $422,247,896) ....... $ 422,247,896
--------------
REPURCHASE AGREEMENT (0.1%)
$ 4,479 The Bank of New York 4.00%
due 01/04/99 (dated 12/31/98;
proceeds $4,481,451) (b)
(Identified Cost $4,479,460)......... 4,479,460
--------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $426,727,356) ......... 426,727,356
-----------
TOTAL INVESTMENTS
(Identified Cost $5,214,014,312) (c) 103.8% 6,293,185,241
LIABILITIES IN EXCESS OF OTHER
ASSETS ................................. ( 3.8) (229,927,252)
----- -------------
NET ASSETS ............................. 100.0% $6,063,257,989
===== ==============
</TABLE>
- --------------------------------
ADR American Depository Receipt.
ARS American Regulatory Share.
* Non-income producing security.
(a) Securities were purchased on a discount basis. The interest rates
shown have been adjusted to reflect a money market equivalent
yield.
(b) Collateralized by $4,521,710 U.S. Treasury Note 6.75% due
06/30/99 valued at $4,569,050.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$1,111,112,200 and the aggregate gross unrealized depreciation is
$31,941,271, resulting in net unrealized appreciation of
$1,079,170,929.
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS IN DELIVERY APPRECIATION/
TO DELIVER EXCHANGE FOR DATE DEPRECIATION
- ---------------- ----------------- ---------- --------------
<S> <C> <C> <C>
$ 4,534,755 GBP 2,722,759 01/08/99 $ (26,139)
$ 19,736,215 GBP 11,850,024 01/08/99 (113,760)
GBP 26,946 $ 44,878 01/08/99 259
---------
Net unrealized depreciation ................ $(139,640)
=========
Currency Abbreviation:
----------------------
GBP British Pound.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $5,214,014,312)................................. $6,293,185,241
Receivable for:
Investments sold ............................................... 39,901,358
Shares of beneficial interest sold ............................. 17,359,866
Dividends ...................................................... 1,716,813
Foreign withholding taxes reclaimed ............................ 465,867
Prepaid expenses and other assets ................................. 205,971
--------------
TOTAL ASSETS ................................................... 6,352,835,116
--------------
LIABILITIES:
Payable for:
Investments purchased .......................................... 273,189,212
Shares of beneficial interest repurchased ...................... 5,641,729
Dividends and distributions to shareholders .................... 4,237,837
Plan of distribution fee ....................................... 3,608,416
Investment management fee ...................................... 2,297,805
Accrued expenses and other payables ............................... 602,128
--------------
TOTAL LIABILITIES .............................................. 289,577,127
--------------
NET ASSETS ..................................................... $6,063,257,989
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital ................................................... $4,848,284,549
Net unrealized appreciation ....................................... 1,079,194,234
Accumulated net investment loss ................................... (44,936)
Accumulated undistributed net realized gain ....................... 135,824,142
--------------
NET ASSETS ..................................................... $6,063,257,989
==============
CLASS A SHARES:
Net Assets ........................................................ $116,893,865
Shares Outstanding (unlimited authorized, $.01 par value).......... 3,524,872
NET ASSET VALUE PER SHARE ...................................... $33.16
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ............... $35.00
======
CLASS B SHARES:
Net Assets ........................................................ $5,750,481,023
Shares Outstanding (unlimited authorized, $.01 par value) ......... 175,055,357
NET ASSET VALUE PER SHARE ...................................... $32.85
======
CLASS C SHARES:
Net Assets ........................................................ $60,861,444
Shares Outstanding (unlimited authorized, $.01 par value) ......... 1,858,983
NET ASSET VALUE PER SHARE ...................................... $32.74
======
CLASS D SHARES:
Net Assets ........................................................ $135,021,657
Shares Outstanding (unlimited authorized, $.01 par value) ......... 4,053,894
NET ASSET VALUE PER SHARE ...................................... $33.31
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<S> <C>
NET INVESTMENT LOSS:
INCOME
Interest ............................................................. $ 33,556,385
Dividends (net of $604,412, foreign withholding tax).................. 29,485,237
--------------
TOTAL INCOME ...................................................... 63,041,622
--------------
EXPENSES
Plan of distribution fee (Class A shares) ............................ 138,389
Plan of distribution fee (Class B shares) ............................ 36,879,912
Plan of distribution fee (Class C shares) ............................ 301,162
Investment management fee ............................................ 23,716,700
Transfer agent fees and expenses ..................................... 4,747,072
Registration fees .................................................... 541,392
Custodian fees ....................................................... 348,885
Shareholder reports and notices ...................................... 296,808
Professional fees .................................................... 56,955
Trustees' fees and expenses .......................................... 19,310
Other ................................................................ 62,626
--------------
TOTAL EXPENSES ..................................................... 67,109,211
--------------
NET INVESTMENT LOSS ................................................ (4,067,589)
--------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain on:
Investments ....................................................... 821,020,621
Foreign exchange transactions ..................................... 4,518
--------------
NET GAIN ........................................................... 821,025,139
--------------
Net change in unrealized appreciation/depreciation on:
Investments ....................................................... 554,955,558
Translation of forward foreign currency contracts, other assets and
liabilities denominated in foreign currencies ................... 23,145
--------------
NET APPRECIATION ................................................... 554,978,703
--------------
NET GAIN ........................................................... 1,376,003,842
--------------
NET INCREASE ......................................................... $1,371,936,253
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997*
------------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss .................................. $ (4,067,589) $ (11,954,379)
Net realized gain .................................... 821,025,139 738,335,473
Net change in unrealized appreciation ................ 554,978,703 251,384,827
-------------- --------------
NET INCREASE ....................................... 1,371,936,253 977,765,921
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
NET REALIZED GAIN:
Class A shares ....................................... (13,723,199) (1,747,209)
Class B shares ....................................... (795,828,381) (680,450,520)
Class C shares ....................................... (7,103,483) (1,454,608)
Class D shares ....................................... (17,168,974) (6,581,680)
-------------- --------------
TOTAL DISTRIBUTIONS ................................ (833,824,037) (690,234,017)
-------------- --------------
Net increase from transactions in shares of beneficial
interest ........................................... 1,369,254,273 769,509,113
-------------- --------------
NET INCREASE ....................................... 1,907,366,489 1,057,041,017
NET ASSETS:
Beginning of period .................................. 4,155,891,500 3,098,850,483
-------------- --------------
END OF PERIOD
(Including accumulated net investment losses of
$44,936 and $42,030, respectively)................. $6,063,257,989 $4,155,891,500
============== ==============
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS December 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter American Value Fund (the "Fund"), formerly Dean
Witter American Value 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 capital growth consistent with an
effort to reduce volatility. The Fund seeks to achieve its objective by
investing in a diversified portfolio of securities consisting principally of
common stocks. The Fund was incorporated in Maryland in 1979, commenced
operations on March 27, 1980 and was reorganized as a Massachusetts business
trust on April 30, 1987. On July 28, 1997, the Fund commenced offering three
additional classes of shares, with the then current shares, other than shares
which were purchased prior to April 30, 1984 (and with respect to such shares,
certain shares acquired through reinvestment of dividends and capital gains
distributions (collectively the "Old Shares")), designated as Class B shares.
The Old Shares have been designated Class D shares.
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 Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager"), formerly Dean Witter InterCapital Inc., that sale 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
12
<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS December 31, 1998, continued
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. FOREIGN CURRENCY TRANSLATION -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward foreign
currency contracts are translated at the exchange rates prevailing at the end
of the period; and (2) purchases, sales, income and expenses are translated at
the exchange rates prevailing on the respective dates of such transactions. The
resultant exchange gains and losses are included in the Statement of Operations
as realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a
reduction of ordinary income for federal income tax purposes. The Fund does not
isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the changes in the market prices of
the securities.
E. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund may enter into forward
foreign currency contracts which are valued daily at the appropriate exchange
rates. The resultant unrealized exchange gains and losses are included in the
Statement of Operations as unrealized gain/loss on foreign exchange
transactions. The Fund records realized gains or losses on delivery of the
currency or at the time the forward contract is extinguished (compensated) by
entering into a closing transaction prior to delivery.
13
<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS December 31, 1998, continued
F. 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.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the record 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.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with the Investment Manager, the
Fund pays a management fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined at the close of
each business day: 0.625% to the portion of daily net assets not exceeding $250
million; 0.50% to the portion of daily net assets exceeding $250 million but
not exceeding $2.5 billion; 0.475% to the portion of daily net assets exceeding
$2.5 billion but not exceeding $3.5 billion and 0.45% of the portion of daily
net assets in excess of $3.5 billion but not exceeding $4.5 billion. Effective
May 1, 1998, the Agreement was amended to reduce the annual rate to 0.425% of
the portion of daily net assets in excess of $4.5 billion.
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.
14
<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS December 31, 1998, continued
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
lesser of: (a) the average daily aggregate gross sales of the Class B shares
since the inception of the Fund (not including reinvestment of dividend or
capital gain distributions) less the average daily aggregate net asset value of
the Class B shares redeemed since the Fund's inception upon which a contingent
deferred sales charge has been imposed or waived; or (b) the average daily net
assets of Class B; and (iii) Class C - up to 1.0% of the average daily net
assets of Class C. In the case of Class A shares, amounts paid under the Plan
are paid to the Distributor for services provided. In the case of Class B and
Class C shares, amounts paid under the Plan are paid to the Distributor for
(1) services provided and the expenses borne by it and others in the
distribution of the shares of these Classes, including the payment of
commissions for sales of these Classes and incentive compensation to, and
expenses of, Morgan Stanley Dean Witter Financial Advisors and others who
engage in or support distribution of the shares or who service shareholder
accounts, including overhead and telephone expenses; (2) printing and
distribution of prospectuses and reports used in connection with the offering
of these shares to other than current shareholders; and (3) preparation,
printing and distribution of sales literature and advertising materials. In
addition, the Distributor may utilize fees paid pursuant to the Plan, in the
case of Class B shares, to compensate Dean Witter Reynolds Inc. ("DWR"), an
affiliate of the Investment Manager and Distributor and other selected
broker-dealers for their opportunity costs in advancing such amounts, which
compensation would be in the form of a carrying charge on any unreimbursed
expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the Distributor
under the Plan and the proceeds of contingent deferred sales charges paid by
investors upon redemption of shares, if for any reason the Plan is terminated,
the Trustees will consider at that time the manner in which to treat such
expenses. The Distributor has advised the Fund that such excess amounts,
including carrying charges, totaled $83,296,669 at December 31, 1998.
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
15
<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS December 31, 1998, continued
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 year ended December 31,
1998, 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 year ended December 31, 1998, it
received contingent deferred sales charges from certain redemptions of the
Fund's Class A shares, Class B shares and Class C shares of $929, $4,656,751
and $36,715, respectively and received $488,168 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 year ended December 31, 1998,
aggregated $15,240,752,037 and $14,710,008,819, respectively. Included in the
aforementioned are purchases and sales of U.S. Government securities of
$1,695,231,351 and $2,089,737,989, respectively.
For the year ended December 31, 1998, the Fund incurred $1,418,553 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the Fund.
At December 31, 1998, the Fund's payable for investments purchased and
receivables for investments sold included unsettled trades with DWR of
$107,612,218 and $9,622,953, respectively.
For the year ended December 31, 1998, the Fund incurred brokerage commissions
of $3,091,548 with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager and Distributor, for portfolio transactions executed on behalf of the
Fund.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. At December 31, 1998, the Fund
had transfer agent fees and expenses payable of approximately $7,600.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended December 31, 1998
included in Trustees' fees and expenses in the Statement of Operations amounted
to $6,003. At December 31, 1998, the Fund had an accrued pension liability of
$44,873 which is included in accrued expenses in the Statement of Assets and
Liabilities.
16
<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS December 31, 1998, continued
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997+*
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold .............................................. 3,040,045 $ 98,844,494 539,039 $ 17,439,944
Reinvestment of distributions ..................... 442,608 13,534,616 57,321 1,665,172
Redeemed .......................................... (493,155) (16,123,421) (60,986) (2,023,896)
----------- -------------- ----------- --------------
Net increase - Class A ............................ 2,989,498 96,255,689 535,374 17,081,220
----------- -------------- ----------- --------------
CLASS B SHARES
Sold .............................................. 41,693,951 1,350,536,686 26,893,089 818,085,006
Reinvestment of distributions ..................... 24,515,681 750,904,568 22,224,675 644,669,591
Redeemed .......................................... (29,339,840) (949,807,859) (24,498,814) (739,128,498)
----------- -------------- ----------- --------------
Net increase - Class B ............................ 36,869,792 1,151,633,395 24,618,950 723,626,099
----------- -------------- ----------- --------------
CLASS C SHARES
Sold .............................................. 1,645,951 53,383,964 387,776 12,691,589
Reinvestment of distributions ..................... 225,932 6,841,485 46,319 1,340,948
Redeemed .......................................... (426,767) (13,856,699) (20,228) (667,646)
----------- -------------- ----------- --------------
Net increase - Class C ............................ 1,445,116 46,368,750 413,867 13,364,891
----------- -------------- ----------- --------------
CLASS D SHARES
Sold .............................................. 1,603,145 52,338,697 332,349 10,839,979
Reinvestment of distributions ..................... 512,115 15,767,494 208,632 6,067,022
Shares issued in connection with the acquisition of
Retirement American Value ........................ 1,423,395 44,485,158 -- --
Redeemed .......................................... (1,164,596) (37,594,910) (45,049) (1,470,098)
----------- -------------- ----------- --------------
Net increase - Class D ............................ 2,374,059 74,996,439 495,932 15,436,903
----------- -------------- ----------- --------------
Net increase in Fund .............................. 43,678,465 $1,369,254,273 26,064,123 $ 769,509,113
=========== ============== =========== ==============
</TABLE>
- ---------------
+ On July 28, 1997 1,183,904 shares representing $37,731,024 were transferred
to Class D.
* For Class A, C and D shares, for the period July 28, 1997 (issue date)
through December 31, 1997.
6. FEDERAL INCOME TAX STATUS
As of December 31, 1998, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and permanent book/tax
differences primarily attributable to a net operating loss. To reflect
reclassifications arising from the permanent differences, accumulated
undistributed net realized gain was charged $4,064,701, paid-in-capital was
credited $18 and accumulated net investment loss was credited $4,064,683.
17
<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
NOTES TO FINANCIAL STATEMENTS December 31, 1998, continued
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward
contracts") to facilitate settlement of foreign currency denominated portfolio
transactions or to manage foreign currency exposure associated with foreign
currency denominated securities.
Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk
of an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
At December 31, 1998, there were outstanding forward contracts used to
facilitate settlement of foreign currency denominated portfolio transactions.
8. ACQUISITION OF DEAN WITTER RETIREMENT SERIES -- AMERICAN VALUE SERIES
On September 11, 1998, the Fund acquired all the net assets of Dean Witter
Retirement Series -- American Value Series ("Retirement American") pursuant to
a plan of reorganization approved by the shareholders of Retirement American on
August 19, 1998. The acquisition was accomplished by a tax-free exchange of
1,423,395 Class D shares of the Fund at a net asset value of $31.24 per share
for 3,765,186 shares of Retirement American. The net assets of the Fund and
Retirement American immediately before the acquisition were $4,748,265,432, and
$44,485,158, respectively, including unrealized appreciation of $3,189,940 for
Retirement American. Immediately after the acquisition, the combined assets of
the Fund amounted to $4,792,750,590.
9. ACQUISITION OF MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
On October 29, 1998, the Trustees of the Fund and of Morgan Stanley Dean Witter
Capital Appreciation Fund ("Capital Appreciation") approved a reorganization
plan ("the Plan") whereby Capital Appreciation would be merged into the Fund.
The Plan is subject to the consent of Capital Appreciation's shareholders. If
approved, the assets of Capital Appreciation would be combined with the assets
of the Fund and shareholders of Capital Appreciation would become shareholders
of the Fund, receiving shares of the corresponding class of the Fund equal to
the value of their holdings in Capital Appreciation.
18
<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1998 ++ 1997*++ 1996 1995 1994
------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $29.51 $27.01 $27.16 $21.21 $23.10
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss) .......................... (0.03) (0.10) (0.08) 0.01 --
Net realized and unrealized gain (loss) ............... 8.66 8.34 2.86 8.87 (1.57)
------- ------- ------- ------- -------
Total income (loss) from investment operations ......... 8.63 8.24 2.78 8.88 (1.57)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income ................................. -- -- (0.01) -- --
Net realized gain ..................................... (5.29) (5.74) (2.92) (2.93) (0.32)
------- ------- ------- ------- -------
Total dividends and distributions ...................... (5.29) (5.74) (2.93) (2.93) (0.32)
------- ------- ------- ------- -------
Net asset value, end of period ......................... $32.85 $29.51 $27.01 $27.16 $21.21
======= ======= ======= ======= =======
TOTAL RETURN+ .......................................... 31.07 % 31.55 % 10.53 % 42.20 % (6.75)%
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 1.39 %(1) 1.46 % 1.53 % 1.61 % 1.71 %
Net investment income (loss) ........................... (0.10)%(1) (0.34)% (0.33)% 0.06 % 0.01 %
SUPPLEMENTAL DATA:
Net assets, end of period, in millions ................. $5,750 $4,078 $3,099 $2,389 $1,490
Portfolio turnover rate ................................ 321 % 275 % 279% 256 % 295 %
</TABLE>
- -------------
* Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that date, other than shares which were purchased
prior to April 30, 1984 (and with respect to such shares, certain shares
acquired through reinvestment of dividends and capital gains distributions
(collectively the "Old Shares")), have been designated Class B shares. The
Old Shares have been designated Class D shares.
++ 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) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------- ------------------
<S> <C> <C>
CLASS A SHARES ++
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $29.59 $31.87
------ ------
Income from investment operations:
Net investment income ............................ 0.15 0.05
Net realized and unrealized gain ................. 8.71 2.32
------ ------
Total income from investment operations ........... 8.86 2.37
------ ------
Less distributions from net realized gain......... (5.29) (4.65)
------ ------
Net asset value, end of period .................... $33.16 $29.59
====== ======
TOTAL RETURN+ ..................................... 31.78 % 7.70 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 0.86 %(3) 0.92 %(2)
Net investment income ............................. 0.43 %(3) 0.38 %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $116,894 $15,844
Portfolio turnover rate ........................... 321 % 275 %
CLASS C SHARES ++
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $29.49 $31.87
------ ------
Income from investment operations:
Net investment loss .............................. (0.10) (0.05)
Net realized and unrealized gain ................. 8.64 2.32
------ ------
Total income from investment operations ........... 8.54 2.27
------ ------
Less distributions from net realized gain.......... (5.29) (4.65)
------ ------
Net asset value, end of period .................... $32.74 $29.49
====== ======
TOTAL RETURN+ ..................................... 30.78 % 7.39 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.61 %(3) 1.66 %(2)
Net investment loss ............................... (0.32)%(3) (0.36)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $60,861 $12,204
Portfolio turnover rate ........................... 321 % 275 %
</TABLE>
- --------------
* The date shares were first issued.
++ 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
20
<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------- ------------------
<S> <C> <C>
CLASS D SHARES ++
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $29.63 $31.87
------ ------
Income from investment operations:
Net investment income ............................ 0.24 0.07
Net realized and unrealized gain ................. 8.73 2.34
------ ------
Total income from investment operations ........... 8.97 2.41
------ ------
Less distributions from net realized gain.......... ( 5.29) ( 4.65)
------ ------
Net asset value, end of period .................... $33.31 $29.63
====== ======
TOTAL RETURN+ ..................................... 32.12% 7.83%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 0.61%(3) 0.64%(2)
Net investment income ............................. 0.68%(3) 0.50%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $135,022 $49,772
Portfolio turnover rate ........................... 321% 275%
</TABLE>
- --------------
* The date shares were first issued. Shareholders who held shares of the Fund
prior to July 28, 1997 (the date the Fund converted to a multiple class
share structure) should refer to the Financial Highlights of Class B to
obtain the historical per share data and ratio information of their shares.
++ 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
21
<PAGE>
MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER AMERICAN VALUE FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter
American Value Fund (the "Fund"), formerly Dean Witter American Value Fund, at
December 31, 1998, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 5, 1999
- --------------------------------------------------------------------------------
1998 FEDERAL TAX NOTICE
During the year ended December 31, 1998, the Fund paid to its
shareholders $2.75 per share from long-term capital gains. For such
period, 4.66% of the income paid qualified for the dividends received
deduction available to corporations.
- --------------------------------------------------------------------------------
22
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
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
Barry Fink
Vice President, Secretary and General Counsel
Anita H. Kolleeny
Vice President
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
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
AMERICAN
VALUE FUND
[GRAPHIC]
ANNUAL REPORT
DECEMBER 31,1998
