<PAGE>
Morgan Stanley Dean Witter Total Return Trust Two World Trade Center,
New York, New York 10048
Letter to the Shareholders July 31, 2000
DEAR SHAREHOLDER:
During the 12-month period ended July 31, 2000, the U.S. equity markets reached
new heights amid episodes of increased volatility. Strong global economic
growth, rising crude oil prices and a tight labor market fueled concerns about
inflation. The Federal Reserve Board raised the federal funds rate by a total
of 150 basis points (1.50 percent) during the period, negatively affecting
expectations for earnings growth and the profitability of old-economy stocks.
However, new-economy issues shrugged off the higher rates until April, when a
correction in the Nasdaq refocused investors on such traditional valuation
measures as earnings, cash flow and financial flexibility. Toward the end of
the period, investors were favoring health care, consumer staples, energy and
utility stocks over those in the technology sector.
PERFORMANCE
For the 12-month period ended July 31, 2000, Morgan Stanley Dean Witter Total
Return Trust's Class B shares produced a total return of 23.01 percent compared
to 8.97 percent for the Standard & Poor's 500 Stock Index (S&P 500). For the
same period, the Fund's Class A, C and D shares returned 23.77 percent, 22.78
percent and 24.00 percent, respectively. The performance of the Fund's four
share classes varies because of differing expenses. Total return figures assume
the reinvestment of all distributions but do not reflect the deduction of any
applicable sales charges.
PORTFOLIO STRATEGY
According to TCW Investment Management Company, the Fund's sub-advisor, equity
selection is based on a combination of reasonable value and earnings growth
potential. TCW firmly believes that earnings and cash flow growth drive stock
prices; however, the sub-advisor does not believe in growth at any price. The
focus of the Fund's investment strategy is to buy undervalued stocks prior to
significant earnings improvement. TCW looks for companies that are generating
improving
<PAGE>
Morgan Stanley Dean Witter Total Return Trust
Letter to the Shareholders July 31, 2000, continued
returns on invested capital. This can lead to a combination of out-of-favor
cyclical stocks and undervalued growth stocks. This analytical approach has led
the Fund to invest in the following sectors and companies.
At the end of the Fund's fiscal year, technology issues represented 30 percent
of the portfolio. Technology also encompassed the highest weight in the S&P 500
index, at 32 percent. Within this sector TCW focuses on companies believed to
have the best business models and that appear to be dominant in their
respective businesses. The Fund's technology holdings included Intel, Cisco
Systems, Microsoft, Dell Computer, Siebel Systems, Texas Instruments and GM
Hughes.
Financial stocks represented approximately 18 percent of the portfolio compared
to 13 percent for the S&P 500. According to the sub-advisor, selectivity was
extremely important to achieving success in this area. Within this sector, TCW
emphasized financial services and brokers because they tend to be less
influenced by interest-rate spreads. Receivable growth remained robust for
financial services companies, and asset quality showed no signs of
deterioration. Among brokers and investment banking firms, trading volume,
mergers and acquisitions and underwriting remained strong despite market
turmoil during the second quarter. Companies emphasized in this sector included
Charles Schwab, Capital One Financial, Goldman Sachs, Merrill Lynch, Citigroup
and American International Group.
Energy represented more than 11 percent of the portfolio, compared to 6 percent
for the S&P 500. The Fund's primary focus within this sector has been in the
oilfield-services area. As commodity prices remained at robust levels, capital
spending accelerated throughout the year and is expected to continue at high
levels going into 2001. The main beneficiaries of increased spending by oil
companies should be the oilfield-service companies. At fiscal year-end, TCW is
focusing on deepwater drilling contractors and major oil services companies.
Health-care stocks represented approximately 12 percent of the portfolio versus
an index weight of 11 percent. The Fund's portfolio was evenly distributed
between pharmaceutical stocks and biotechnology stocks. In terms of the
pharmaceutical stocks, TCW believes that these stocks represent good value,
because they are trading near the bottom of their trading range despite their
consistency. Although there aren't the number of blockbuster drugs coming to
market in the past several years, the sub-advisor believes that demographics,
free cash flow and the subsector's defensive nature more than offset the lack
of high profile drugs. In terms of the biotech companies, this was one of the
most exciting, high-profile areas to be involved with during the year.
Everything from genetic mapping to potential cures for all types of illnesses
made this group highly newsworthy. The Fund's health-care holdings included Eli
Lilly, Schering-Plough, Merck, Johnson & Johnson, Pfizer, Amgen and Genentech.
2
<PAGE>
Morgan Stanley Dean Witter Total Return Trust
Letter to the Shareholders July 31, 2000, continued
LOOKING AHEAD
Going forward, TCW will continue to focus on long-term trends rather than
short-term concerns. According to the sub-advisor, inflation remains under
control, strong U.S. economic growth is proceeding and corporate earnings
continue to exceed expectations. TCW believes that as long as these trends
remain in place, the long-term outlook for U.S. equities will remain positive.
We appreciate your ongoing support of Morgan Stanley Dean Witter Total Return
Trust and look forward to continuing to serve your financial needs. Very truly
yours,
/s/ Charles A Fiumefreddo /s/ Mitchell M. Merin
------------------------------------ ------------------------------------
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
3
<PAGE>
Morgan Stanley Dean Witter Total Return Trust
Fund Performance July 31, 2000
[LINE CHART]
GROWTH OF $10,000 - CLASS B
($ in Thousands)
Date Total S&P 500(4)
----------------------------------------------------------
November 30, 1994 10,000 10,000
----------------------------------------------------------
July 31, 1995 11,904 12,610
----------------------------------------------------------
July 31, 1996 12,883 14,692
----------------------------------------------------------
July 31, 1997 19,539 22,342
----------------------------------------------------------
July 31, 1998 21,151 26,649
----------------------------------------------------------
July 31, 1999 26,870 32,034
----------------------------------------------------------
July 31, 2000 32,951(3) 34,908
----------------------------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
LESS THAN THEIR ORIGINAL COST. 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
-------------------------------------------------------------------------------
CLASS A SHARES*
--------------------------------------------------------------
PERIOD ENDED 7/31/00
--------------------------
1 Year 23.77%(1) 17.27%(2)
From Inception (7/28/97) 21.09%(1) 18.94%(2)
CLASS B SHARES**
---------------------------------------------------------------
PERIOD ENDED 7/31/00
---------------------------
1 Year 23.01%(1) 18.01%(2)
5 Years 22.66%(1) 22.48%(2)
From Inception (11/30/94) 23.48%(1) 23.42%(2)
CLASS C SHARES+
--------------------------------------------------------------
PERIOD ENDED 7/31/00
--------------------------
1 Year 22.78%(1) 21.78%(2)
From Inception (7/28/97) 20.32%(1) 20.32%(2)
CLASS D SHARES#
----------------------------------------------
PERIOD ENDED 7/31/00
--------------------------
1 Year 24.00%(1)
From Inception (7/28/97) 21.36%(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 after the deduction of a 1% sales charge (CDSC), assuming a
complete redemption on July 31, 2000.
(4) The Standard and Poor's 500 Index (S&P 500) is a broad-based index, the
performance of which is based on the performance of 500 widely held common
stocks chosen for market size, liquidity and industry group representation.
The Index does not include any expenses, fees or charges. The Index is
unmanaged and should not be considered an investment.
* 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 contingent deferred sales charge 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 Total Return Trust
Portfolio of Investments July 31, 2000
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (93.2%)
Aerospace (0.5%)
65,800 Boeing Co. ............................. $ 3,224,200
------------
Air Freight/Delivery
Services (0.1%)
15,000 United Parcel Service, Inc.
(Class B) .............................. 881,250
------------
Airlines (3.1%)
806,600 Southwest Airlines Co. ................. 19,055,925
------------
Beverages - Non-Alcoholic (0.9%)
115,650 PepsiCo, Inc. .......................... 5,298,216
------------
Biotechnology (4.8%)
217,400 Amgen Inc.* ............................ 14,117,412
99,300 Genentech, Inc.* ....................... 15,106,012
------------
29,223,424
------------
Casino/Gambling (1.8%)
441,600 Harrah's Entertainment, Inc.* .......... 11,067,600
------------
Cellular Telephone (1.8%)
80,300 Powertel, Inc.* ........................ 7,216,962
28,200 Voicestream Wireless Corp.* ............ 3,616,650
------------
10,833,612
------------
Computer Communications (3.5%)
331,300 Cisco Systems, Inc.* ................... 21,679,444
------------
Computer Software (7.0%)
246,000 Microsoft Corp.* ....................... 17,173,875
176,700 Siebel Systems, Inc.* .................. 25,621,500
------------
42,795,375
------------
Construction/Agricultural
Equipment/Trucks (2.7%)
422,300 Deere & Co. ............................ 16,284,944
------------
Contract Drilling (2.8%)
84,600 Santa Fe International Corp. ........... 2,971,575
282,000 Transocean Sedco Forex Inc. ............ 13,959,000
------------
16,930,575
------------
Discount Chains (1.7%)
70,900 Costco Wholesale Corp.* ................ 2,308,681
151,600 Wal-Mart Stores, Inc. .................. 8,328,525
------------
10,637,206
------------
Diversified Financial Services (1.6%)
63,200 American Express Co. ................... 3,582,650
86,200 Citigroup, Inc. ........................ 6,082,487
------------
9,665,137
------------
Diversified Manufacturing (2.3%)
415,275 Honeywell International, Inc. .......... $ 13,963,622
------------
E.D.P. Services (0.7%)
62,500 Amdocs Ltd.* ........................... 4,199,219
------------
Electric Utilities (1.7%)
362,400 Montana Power Co. ...................... 10,486,950
------------
Electronic Components (1.1%)
345,300 Power Integrations, Inc.* .............. 6,668,606
------------
Electronic Data Processing (5.5%)
664,600 Compaq Computer Corp. .................. 18,650,337
349,900 Dell Computer Corp.* ................... 15,373,731
------------
34,024,068
------------
Finance Companies (4.1%)
343,600 Capital One Financial Corp. ............ 20,143,550
48,200 Fannie Mae ............................. 2,403,975
68,400 Freddie Mac ............................ 2,697,525
------------
25,245,050
------------
<PAGE>
Insurance Brokers/Services (1.4%)
69,700 Marsh & McLennan Companies,
Inc. ................................ 8,503,400
------------
Integrated Oil Companies (4.3%)
65,800 Chevron Corp. .......................... 5,198,200
111,500 Exxon Mobil Corp. ...................... 8,920,000
73,900 Royal Dutch Petroleum Co. (ADR)
(Netherlands) ........................ 4,304,675
158,200 Texaco, Inc. ........................... 7,821,012
------------
26,243,887
------------
Investment Bankers/
Brokers/Services (5.5%)
55,900 Goldman Sachs Group, Inc. (The) 5,530,606
89,100 Merrill Lynch & Co., Inc. .............. 11,516,175
464,050 Schwab (Charles) Corp. ................. 16,763,806
------------
33,810,587
------------
Major Banks (0.4%)
18,200 Morgan (J.P.) & Co., Inc. .............. 2,429,700
------------
Major Pharmaceuticals (6.0%)
34,700 Johnson & Johnson ...................... 3,229,269
194,700 Lilly (Eli) & Co. ...................... 20,224,463
85,700 Merck & Co., Inc. ...................... 6,143,619
77,725 Pfizer Inc. ............................ 3,351,891
91,300 Schering-Plough Corp. .................. 3,943,019
------------
36,892,261
------------
</TABLE>
See Notes to Financial Statements
5
<PAGE>
Morgan Stanley Dean Witter Total Return Trust
Portfolio of Investments July 31, 2000, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------------------------------------------------------------------------------
<S> <C> <C>
Media Conglomerates (0.9%)
139,100 Disney (Walt) Co. .................... $ 5,381,431
-----------
Military/Gov't/Technical (2.7%)
644,464 General Motors Corp. (Class H)* ...... 16,675,506
-----------
Multi-Line Insurance (3.6%)
624,900 Allstate Corp. ....................... 17,223,806
55,481 American International Group,
Inc. ............................... 4,864,946
-----------
22,088,752
-----------
Multi-Sector Companies (3.4%)
412,100 General Electric Co. ................. 21,197,394
-----------
Oil & Gas Production (1.2%)
378,800 Occidental Petroleum Corp. ........... 7,670,700
-----------
Oilfield Services/Equipment (3.2%)
177,500 Baker Hughes Inc. .................... 6,145,938
207,200 Cooper Cameron Corp.* ................ 13,390,300
-----------
19,536,238
-----------
Other Telecommunications (0.2%)
34,800 Sonera Corp. (ADR) (Finland)* ........ 1,381,125
-----------
Paper (0.2%)
41,400 Fort James Corp. ..................... 1,265,288
-----------
Property - Casualty Insurers (1.4%)
127,000 Progressive Corp. .................... 8,540,750
-----------
Restaurants (3.0%)
581,100 McDonald's Corp. ..................... 18,304,650
-----------
Semiconductors (5.9%)
315,200 Intel Corp. .......................... 21,039,600
218,900 Texas Instruments, Inc. .............. 12,846,694
35,400 Xilinx, Inc.* ........................ 2,657,213
-----------
36,543,507
-----------
Telecommunication Equipment (2.2%)
417,100 Motorola, Inc. ....................... 13,790,369
-----------
TOTAL COMMON STOCKS
(Cost $472,902,168) .................. 572,419,968
-----------
SHORT-TERM INVESTMENTS (7.9%)
U.S. GOVERNMENT AGENCIES (a) (4.9%)
$ 10,000 Federal Home Loan Banks
6.33% due 08/02/00 ........... $ 9,998,242
10,000 Federal Home Loan Mortgage Corp.
6.39% due 08/08/00 ........... 9,987,575
10,000 Federal Home Loan Mortgage Corp.
6.41% due 08/08/00 ........... 9,987,536
------------
TOTAL U.S. GOVERNMENT AGENCIES
(Cost $29,973,353) ............. 29,973,353
------------
REPURCHASE AGREEMENT (3.0%)
18,755 The Bank of New York 6.50%
due 08/01/00 (dated 07/31/00;
proceeds $18,758,651) (b)
(Cost $18,755,265) ........... 18,755,265
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $48,728,618) ............. 48,728,618
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Cost $521,630,786)(c) ......... 101.1 % 621,148,586
LIABILITIES IN EXCESS OF OTHER
ASSETS ......................... (1.1) (6,848,594)
------- -----------
NET ASSETS ..................... 100.0 % $614,299,992
======= ============
</TABLE>
--------------------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Purchased on a discount basis. The interest rate shown has been adjusted
to reflect a money market equivalent yield.
(b) Collateralized by U.S. Treasury Bond 7.25% due 05/15/16 valued at
$19,130,428.
(c) The aggregate cost for federal income tax purposes approximates the
aggregate cost for book purposes. The aggregate gross unrealized
appreciation is $115,198,441 and the aggregate gross unrealized
depreciation is $15,680,641, resulting in net unrealized appreciation of
$99,517,800.
See Notes to Financial Statements
6
<PAGE>
Morgan Stanley Dean Witter Total Return Trust
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2000
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities, at value
(cost $521,630,786) ............................. $621,148,586
Receivable for:
Shares of beneficial interest sold ............ 5,604,856
Investments sold .............................. 1,851,564
Dividends ..................................... 212,122
Prepaid expenses and other assets .................. 49,564
------------
TOTAL ASSETS ................................... 628,866,692
------------
LIABILITIES:
Payable for:
Investments purchased ......................... 13,187,887
Shares of beneficial interest repurchased ..... 453,430
Plan of distribution fee ...................... 401,334
Investment management fee ..................... 368,783
Accrued expenses and other payables ................ 155,266
------------
TOTAL LIABILITIES .............................. 14,566,700
------------
NET ASSETS ..................................... $614,299,992
============
COMPOSITION OF NET ASSETS:
Paid-in-capital .................................... $499,796,368
Net unrealized appreciation ........................ 99,517,800
Accumulated undistributed net realized gain ........ 14,985,824
------------
NET ASSETS ..................................... $614,299,992
============
CLASS A SHARES:
Net Assets ......................................... $16,211,145
Shares Outstanding (unlimited authorized,
$.01 par value) ................................. 678,926
NET ASSET VALUE PER SHARE ...................... $23.88
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset
value) ..................................... $25.20
======
CLASS B SHARES:
Net Assets ......................................... $551,685,104
Shares Outstanding (unlimited authorized,
$.01 par value) ................................. 23,561,337
NET ASSET VALUE PER SHARE ...................... $23.41
======
CLASS C SHARES:
Net Assets ......................................... $21,996,858
Shares Outstanding (unlimited authorized,
$.01 par value) ................................. 940,235
NET ASSET VALUE PER SHARE ...................... $23.40
======
CLASS D SHARES:
Net Assets ......................................... $24,406,885
Shares Outstanding (unlimited authorized,
$.01 par value) ................................. 1,014,704
NET ASSET VALUE PER SHARE ...................... $24.05
======
</TABLE>
STATEMENT OF OPERATIONS
For the year ended July 31, 2000
<TABLE>
<CAPTION>
NET INVESTMENT LOSS:
INCOME
<S> <C>
Dividends (net of $21,129 foreign withholding
tax) ........................................... $ 3,094,717
Interest .......................................... 786,932
-----------
TOTAL INCOME .................................. 3,881,649
-----------
EXPENSES
Plan of distribution fee (Class A shares) ......... 21,775
Plan of distribution fee (Class B shares) ......... 2,627,011
Plan of distribution fee (Class C shares) ......... 87,387
Investment management fee ......................... 2,605,802
Transfer agent fees and expenses .................. 277,903
Registration fees ................................. 178,068
Professional fees ................................. 75,302
Shareholder reports and notices ................... 62,107
Custodian fees .................................... 14,211
Trustees' fees and expenses ....................... 11,910
Organizational expenses ........................... 10,175
<PAGE>
Other ............................................. 164
-----------
TOTAL EXPENSES ................................ 5,971,815
-----------
NET INVESTMENT LOSS ........................... (2,090,166)
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ................................. 18,062,173
Net change in unrealized appreciation ............. 46,644,468
-----------
NET GAIN ...................................... 64,706,641
-----------
NET INCREASE ...................................... $62,616,475
===========
</TABLE>
See Notes to Financial Statements
7
<PAGE>
Morgan Stanley Dean Witter Total Return Trust
Financial Statements, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, 2000 JULY 31, 1999
-------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss ........................... $ (2,090,166) $ (1,156,175)
Net realized gain ............................. 18,062,173 14,349,364
Net change in unrealized appreciation ......... 46,644,468 26,980,524
------------ ------------
NET INCREASE ............................... 62,616,475 40,173,713
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN:
Class A shares ................................ (343,469) (78,538)
Class B shares ................................ (14,177,469) (8,017,342)
Class C shares ................................ (265,441) (36,827)
Class D shares ................................ (217,069) (597)
------------ ------------
TOTAL DISTRIBUTIONS ........................ (15,003,448) (8,133,304)
------------ ------------
NET INCREASE FROM TRANSACTIONS IN SHARES OF
BENEFICIAL INTEREST ........................... 364,245,934 16,076,667
------------ ------------
NET INCREASE ............................... 411,858,961 48,117,076
NET ASSETS:
Beginning of period ........................... 202,441,031 154,323,955
------------ ------------
END OF PERIOD .............................. $614,299,992 $202,441,031
============ ============
</TABLE>
See Notes to Financial Statements
8
<PAGE>
Morgan Stanley Dean Witter Total Return Trust
Notes to Financial Statements July 31, 2000
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Total Return Trust (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 high total return from capital growth and income. The Fund seeks
to achieve its objective by investing primarily in equity and equity-related
securities issued by domestic and foreign companies. The Fund was organized as
a Massachusetts business trust on June 29, 1994 and commenced operations on
November 30, 1994. On July 28, 1997, the Fund converted to a multiple class
share structure.
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 portfolio security listed or traded
on the New York or American Stock Exchange, NASDAQ, or other exchange is valued
at its latest sale price, 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 securities are traded on more than one exchange, the securities are
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; (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"), or TCW Investment
Management Company (the "Sub-Advisor") that sale and bid prices are not
reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by
and under the general supervision of the Trustees; 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.
9
<PAGE>
Morgan Stanley Dean Witter Total Return Trust
Notes to Financial Statements July 31, 2000, continued
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.
Discounts are accreted over the life of the respective securities. Dividend
income and other distributions are recorded on the ex-dividend date. 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 allocated 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 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.
F. ORGANIZATIONAL EXPENSES - The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $127,000 which have been
reimbursed for the full amount thereof. Such expenses were deferred and fully
amortized as of November 30, 1999.
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 0.75% to the net assets of the Fund determined as of the close
of each business day. Effective May 1, 2000, the agreement was amended to
reduce the annual rate to 0.725% of the portion of daily net assets in excess
of $500 million.
Under a Sub-Advisory Agreement between the Investment Manager and the
Sub-Advisor, the Sub-Advisor provides the Fund with investment advice and
portfolio management relating to the Fund's investments in
10
<PAGE>
Morgan Stanley Dean Witter Total Return Trust
Notes to Financial Statements July 31, 2000, continued
securities, subject to the overall supervision of the Investment Manager. As
compensation for its services provided pursuant to the Sub-Advisory Agreement,
the Investment Manager pays the Sub-Advisor compensation equal to 40% of its
monthly compensation.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has
adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A - up
to 0.25% of the average daily net assets of Class A; (ii) Class B - 1.0% of the
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 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
$11,320,499 at July 31, 2000.
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 year ended July 31, 2000, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
1.0%, respectively.
The Distributor has informed the Fund that for the year ended July 31, 2000, it
received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C shares of $334,348 and $4,891, respectively
and received $120,698 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.
11
<PAGE>
Morgan Stanley Dean Witter Total Return Trust
Notes to Financial Statements July 31, 2000, continued
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended July 31, 2000 aggregated
$550,243,944 and $238,882,775, respectively.
For the year ended July 31, 2000, the Fund incurred brokerage commissions of
$84,740 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 July 31, 2000, the Fund had
transfer agent fees and expenses payable of approximately $200.
5. FEDERAL INCOME TAX STATUS
As of July 31, 2000, the Fund had temporary book/tax differences 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, paid-in-capital was charged $27,072,
accumulated undistributed net realized gain was charged $2,063,094 and net
investment loss was credited $2,090,166.
12
<PAGE>
Morgan Stanley Dean Witter Total Return Trust
Notes to Financial Statements July 31, 2000, continued
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JULY 31, 2000 JULY 31, 1999
-------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold ............................... 977,928 $ 22,547,042 262,041 $ 5,265,953
Reinvestment of distributions ...... 16,047 329,290 4,229 73,536
Redeemed ........................... (515,422) (11,788,054) (140,633) (2,838,266)
-------- ------------- -------- -------------
Net increase - Class A ............. 478,553 11,088,278 125,637 2,501,223
-------- ------------- -------- -------------
CLASS B SHARES
Sold ............................... 16,266,390 367,144,886 2,294,287 41,396,214
Reinvestment of distributions ...... 640,068 12,922,983 423,058 7,289,285
Redeemed ........................... (3,035,196) (67,747,312) (2,161,664) (37,861,050)
---------- ------------- ---------- -------------
Net increase - Class B ............. 13,871,262 312,320,557 555,681 10,824,449
---------- ------------- ---------- -------------
CLASS C SHARES
Sold ............................... 935,698 21,021,934 48,860 970,933
Reinvestment of distributions ...... 12,638 255,289 2,093 36,001
Redeemed ........................... (88,058) (1,952,973) (13,007) (236,796)
---------- ------------- ---------- -------------
Net increase - Class C ............. 860,278 19,324,250 37,946 770,138
---------- ------------- ---------- -------------
CLASS D SHARES
Sold ............................... 923,524 21,690,791 96,551 1,980,260
Reinvestment of distributions ...... 10,162 209,734 34 597
Redeemed ........................... (16,238) (387,676) - -
---------- ------------- ---------- -------------
Net increase - Class D ............. 917,448 21,512,849 96,585 1,980,857
---------- ------------- ---------- -------------
Net increase in Fund ............... 16,127,541 $ 364,245,934 815,849 $ 16,076,667
========== ============= ========== =============
</TABLE>
13
<PAGE>
Morgan Stanley Dean Witter Total Return Trust
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 YEAR ENDED JULY 31, JULY 28, 1997*
----------------------------------------------------- THROUGH
2000 1999 1998 JULY 31, 1997
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES#
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $20.36 $16.78 $16.59 $16.07
------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) ..................... (0.01) - (0.01) 0.01
Net realized and unrealized gain ................. 4.72 4.47 1.34 0.51
------ ------ ------ ------
Total income from investment operations ........... 4.71 4.47 1.33 0.52
------ ------ ------ ------
Less distributions from net realized gain ......... (1.19) (0.89) (1.14) -
------ ------ ------ ------
Net asset value, end of period .................... $23.88 $20.36 $16.78 $16.59
====== ====== ====== ======
TOTAL RETURN+ .................................... 23.77 % 27.78 % 8.94 % 3.24%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.18 %(3) 1.30 %(3) 1.31 % 1.31%(2)
Net investment income (loss) ...................... (0.06)%(3) (0.10)%(3) (0.07)% 4.08%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $16,211 $4,079 $1,254 $10
Portfolio turnover rate ........................... 71 % 79 % 93 % 198%
</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
14
<PAGE>
Morgan Stanley Dean Witter Total Return Trust
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31,
------------------------------------------------------------------------------
2000# 1999# 1998# 1997* 1996
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ............ $20.10 $16.68 $16.59 $12.00 $11.75
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) ................... (0.14) (0.12) (0.08) 0.04 0.15
Net realized and unrealized gain ............... 4.64 4.43 1.31 5.81 0.80
------ ------ ------ ------ ------
Total income from investment operations ......... 4.50 4.31 1.23 5.85 0.95
------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income .......................... - - - (0.06) (0.21)
Net realized gain .............................. (1.19) (0.89) (1.14) (1.20) (0.49)
------ ------ ------ ------ ------
Total dividends and distributions ............... (1.19) (0.89) (1.14) (1.26) (0.70)
------ ------ ------ ------ ------
Net asset value, end of period .................. $23.41 $20.10 $16.68 $16.59 $12.00
====== ====== ====== ====== ======
TOTAL RETURN+ ................................... 23.01 % 27.04 % 8.25 % 51.66% 8.23%
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 1.75 %(2) 1.90 %(2) 1.90 % 2.05% 1.98%(1)
Net investment income (loss) .................... (0.63)%(2) (0.70)%(2) (0.50)% 0.28% 1.30%(1)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $551,685 $194,763 $152,380 $117,041 $48,524
Portfolio turnover rate ......................... 71 % 79 % 93 % 198% 261%
</TABLE>
--------------
* Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that date have been designated Class B 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) If the Fund had borne all of its expenses that were reimbursed or waived by
Morgan Stanley Dean Witter Services Company Inc. (the then current Manager)
and TCW Investment Management Company (the then current Adviser), the above
annualized expense and net investment income ratios would have been 2.21%
and 1.07%, respectively, for the year ended July 31, 1996.
(2) Reflects overall Fund ratios for investment income and non-class specific
expenses.
See Notes to Financial Statements
15
<PAGE>
Morgan Stanley Dean Witter Total Return Trust
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED JULY 31, JULY 28, 1997*
----------------------------------------------------- THROUGH
2000 1999 1998 JULY 31, 1997
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES#
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $20.12 $16.66 $16.59 $16.07
------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) ..................... (0.20) (0.09) (0.12) 0.01
Net realized and unrealized gain ................. 4.67 4.44 1.33 0.51
------ ------ ------ ------
Total income from investment operations ........... 4.47 4.35 1.21 0.52
------ ------ ------ ------
Less distributions from net realized gain ......... (1.19) (0.89) (1.14) -
------ ------ ------ ------
Net asset value, end of period .................... $23.40 $20.12 $16.66 $16.59
====== ====== ====== ======
TOTAL RETURN+ ..................................... 22.78 % 27.33 % 8.12 % 3.24%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.93 %(3) 1.72 %(3) 2.06 % 2.06%(2)
Net investment income (loss) ...................... (0.81)%(3) (0.52)%(3) (0.70)% 2.75%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $21,997 $1,609 $700 $38
Portfolio turnover rate ........................... 71 % 79 % 93 % 198%
</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
16
<PAGE>
Morgan Stanley Dean Witter Total Return Trust
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED JULY 31, JULY 28, 1997*
------------------------------------------------- THROUGH
2000 1999 1998 JULY 31, 1997
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS D SHARES#
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $20.46 $16.83 $16.59 $16.07
------ ------ ------ ------
Income from investment operations:
Net investment income ............................ 0.03 0.02 0.06 0.01
Net realized and unrealized gain ................. 4.75 4.50 1.32 0.51
------ ------ ------ ------
Total income from investment operations ........... 4.78 4.52 1.38 0.52
------ ------ ------ ------
Less distributions from net realized gain ......... (1.19) (0.89) (1.14) -
------ ------ ------ ------
Net asset value, end of period .................... $24.05 $20.46 $16.83 $16.59
====== ====== ====== ======
TOTAL RETURN+ ..................................... 24.00% 28.08% 9.20% 3.24%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 0.93%(3) 1.06%(3) 1.06% 1.06%(2)
Net investment income ............................. 0.19%(3) 0.14%(3) 0.34% 4.33%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $24,407 $1,990 $11 $10
Portfolio turnover rate ........................... 71% 79% 93% 198%
</TABLE>
--------------
* The date shares were first issued.
# 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>
Morgan Stanley Dean Witter Total Return Trust
Independent Auditors' Report
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
OF MORGAN STANLEY DEAN WITTER TOTAL RETURN TRUST:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Dean Witter Total Return Trust (the "Fund"), including the portfolio of
investments, as of July 31, 2000, and the related statements of operations and
changes in net assets, and financial highlights for the year then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The statement
of changes in net assets for the year ended July 31, 1999 and the financial
highlights for each of the respective stated periods ended July 31, 1999 were
audited by other auditors whose report, dated September 10, 1999, expressed an
unqualified opinion on that statement and the financial highlights.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards 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. Our procedures included confirmation of securities owned at July
31, 2000 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Morgan Stanley Dean
Witter Total Return Trust as of July 31, 2000, the results of its operations,
the changes in its net assets and the financial highlights for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.
Deloitte & Touche LLP
New York, New York
September 18, 2000
2000 FEDERAL TAX NOTICE (unaudited)
For the year ended July 31, 2000, the Fund paid to its shareholders $1.19
per share from long-term capital gains.
18
<PAGE>
Morgan Stanley Dean Witter Total Return Trust
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.
19
<PAGE>
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
James A. Tilton
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
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
SUB-ADVISOR
TCW Investment Management Company
865 South Figueroa Street, Suite 1800
Los Angeles, California 90017
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
TOTAL RETURN TRUST
[GRAPHIC OMITTED]
ANNUAL REPORT
July 31, 2000
