<PAGE> 1
MORGAN STANLEY DEAN WITTER TOTAL RETURN TRUST Two World Trade Center
LETTER TO THE SHAREHOLDERS January 31, 2000 New York, New York 10048
DEAR SHAREHOLDER:
The U.S. economy, led by consumer demand, experienced robust growth during the
six-month period ended January 31, 2000. As a result, the financial markets
anticipated that the Federal Reserve Board would change monetary policy and
remove the liquidity it had provided during the 1998 international economic
crises. Between June and November, the Fed raised the federal funds rate a total
of 75 basis points, from 4.75 percent to 5.50 percent. Subsequently, on February
2, 2000, the federal funds rate was raised an additional 25 basis points.
The U.S. stock market reached new highs during the second half of 1999 before
pulling back in late January and early February. Technology stocks, particularly
those related to information processing, telecommunications and semiconductors,
led the equity market during this period. Consumer staples also performed well
during the period, rising nearly 30 percent. Lagging the broad market were
pollution control, auto parts, energy and aerospace.
PERFORMANCE AND PORTFOLIO
For the six-month period ended January 31, 2000, Morgan Stanley Dean Witter
Total Return Trust's Class B shares returned 10.87 percent, compared to 5.59
percent for the Standard & Poor's 500 Composite Stock Price Index. For the same
period the Fund's Class A, C and D shares returned 11.17 percent, 10.76 percent
and 11.32 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 and do not reflect the deduction of any
applicable sales charges.
PORTFOLIO STRATEGY
According to TCW Investment Management Company (TCW), the Fund's sub-advisor,
the Fund's investment process begins with the development of a long-term
economic forecast. This forecast is then used to identify
<PAGE> 2
MORGAN STANLEY DEAN WITTER TOTAL RETURN TRUST
LETTER TO THE SHAREHOLDERS January 31, 2000, continued
certain market sectors that will assist in obtaining the Fund's objective of
high total return from capital growth and income. Individual stock selection is
based on a combination of reasonable value and earnings growth potential. TCW
believes that earnings and cash flow growth drive stock prices. However, the
sub-advisor does not believe in growth at any price, focusing instead on
undervalued stocks poised for significant earnings improvement. TCW looks for
companies that are generating improving returns on invested capital. This leads
the sub-advisor to a combination of out-of-favor cyclical stocks and undervalued
growth stocks. This approach has resulted in the following sector allocations:
technology (27.3 percent of the Fund's assets), financial services (17.7
percent) and energy and oil services (11.2 percent). Together these three
sectors accounted for 56.2 percent of the Fund's net assets.
Technology continues to be the Fund's largest sector holding, because of its
positive long-term growth characteristics. Investments are spread among three
categories: electronic componentry and instrumentation, telecommunications and
information processing. The companies included in this sector are generally
dominant in their respective fields such as Agilent Technologies and Intel
(electronics componentry and instrumentation), Motorola and Williams
Communications (telecommunications) and Siebel Systems, Cisco Systems and
Microsoft (information processing).
With respect to the financial services sector, investments include
capital-markets-related stocks such as Charles Schwab and Merrill Lynch, which
have benefited from the strong stock market, and credit-card companies that are
thriving because of the rise in consumer spending. The Fund's financial services
holdings also include the Federal Home Loan Mortgage Corporation and Federal
National Mortgage Association, two highly regarded federally sponsored mortgage
lenders, which TCW believes are near the bottom of their valuation spread.
While some segments of the energy and oil services sector did not perform well
in 1999, TCW believes that this may change in 2000. By the end of January, oil
prices have risen from around $12 per barrel to near $26 per barrel, which
resulted in an increase in rig counts. Not only is activity in North America
expanding, but other regions are also showing signs of increased operations,
with noticeable pickups in Brazil, West Africa and Southeast Asia.
LOOKING AHEAD
Propelled by the lowest unemployment rate in thirty years, a booming stock
market and an improving world economy, the U.S. economic expansion should
continue throughout 2000. TCW believes that gross domestic product (GDP) growth
could average 3.8 percent in 2000, down modestly from the
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER TOTAL RETURN TRUST
LETTER TO THE SHAREHOLDERS January 31, 2000, continued
4.1 percent rate of the last two years. Most of the slowdown is expected to come
from the consumer sector, where the demand for vehicles and housing has been
outpacing basic demographic trends. The Federal Reserve is likely to increase
short-term interest rates in an attempt to contain nascent inflationary
pressures, which thus far have been controlled by technology enhancements
producing extraordinary productivity gains. As measured by the consumer price
index, inflation in 2000 should increase by 2.5 percent, up modestly from the
2.2 percent experienced in 1999.
We appreciate your ongoing support of Morgan Stanley Dean Witter Total Return
Trust and look forward to continuing to serve your investment needs.
<TABLE>
<S> <C>
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
</TABLE>
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER TOTAL RETURN TRUST
FUND PERFORMANCE January 31, 2000
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A*
- ----------------------------------------------
<S> <C> <C>
PERIOD ENDED 1/31/00
- -------------------------
1 Year 25.50%(1) 18.91%(2)
Since Inception (7/28/97) 20.52%(1) 17.96%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS B+
- -----------------------------------------------
<S> <C> <C>
PERIOD ENDED 1/31/00
- --------------------------
5 Years 24.22%(1) 24.06%(2)
1 Year 24.80%(1) 19.80%(2)
Since Inception (11/30/94) 23.51%(1) 23.43%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C++
- ----------------------------------------------
<S> <C> <C>
PERIOD ENDED 1/31/00
- -------------------------
1 Year 25.01%(1) 24.01%(2)
Since Inception (7/28/97) 19.81%(1) 19.81%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D#
- -----------------------------------------------
<S> <C> <C>
PERIOD ENDED 1/31/00
- --------------------------
1 Year 25.79%(1)
Since Inception (7/28/97) 20.80%(1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
- ---------------------
<TABLE>
<S> <C>
(1) Figure shown assumes reinvestment of all distributions and
does not reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and
the deduction of the maximum applicable sales charge. See
the Fund's current prospectus for complete details on fees
and sales charges.
* The maximum front-end sales charge for Class A is 5.25%.
+ The maximum CDSC for Class B is 5.0%. The CDSC declines to
0% after six years.
++ The maximum CDSC for Class C shares is 1% for shares
redeemed within one year of purchase.
# Class D shares have no sales charge.
</TABLE>
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER TOTAL RETURN TRUST
PORTFOLIO OF INVESTMENTS January 31, 2000 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (98.0%)
Aerospace (0.8%)
55,500 Boeing Co. .................. $ 2,459,344
------------
Air Freight/Delivery Services (0.9%)
51,800 FedEx Corp.*................. 2,049,337
14,500 United Parcel Service, Inc.
(Class B)................... 862,750
------------
2,912,087
------------
Auto Parts: O.E.M. (1.5%)
263,498 Delphi Automotive Systems
Corp. ...................... 4,561,809
------------
Beverages - Non-Alcoholic (1.8%)
2,100 Coca Cola Co. ............... 120,619
160,950 PepsiCo, Inc. ............... 5,492,419
------------
5,613,038
------------
Biotechnology (1.6%)
80,900 Amgen Inc.*.................. 5,152,319
------------
Casino/Gambling (3.5%)
278,600 Harrah's Entertainment,
Inc.*....................... 5,554,587
428,800 Mirage Resorts, Inc.*........ 5,360,000
------------
10,914,587
------------
Cellular Telephone (1.8%)
32,700 Powertel, Inc.*.............. 2,857,162
24,100 Voicestream Wireless
Corp.*...................... 2,827,231
------------
5,684,393
------------
Computer Communications (4.1%)
117,450 Cisco Systems, Inc.*......... 12,853,434
------------
Computer Software (7.2%)
87,700 Microsoft Corp.*............. 8,578,156
152,000 Siebel Systems, Inc.*........ 13,936,500
------------
22,514,656
------------
Construction/Agricultural
Equipment/Trucks (2.3%)
166,800 Deere & Co. ................. 7,287,075
------------
Contract Drilling (1.2%)
144,600 Santa Fe International
Corp. ...................... 3,868,050
------------
Discount Chains (1.9%)
109,300 Wal-Mart Stores, Inc. ....... 5,984,175
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Diversified Financial Services (1.9%)
15,900 American Express Co. ........ $ 2,620,519
60,200 Citigroup, Inc. ............. 3,457,737
------------
6,078,256
------------
Diversified Manufacturing (0.1%)
1,875 Honeywell International
Inc. ....................... 90,000
------------
E.D.P. Services (0.6%)
29,100 Amdocs Ltd.*................. 1,547,756
7,400 Infonet Services Corp. (Class
B)*......................... 209,050
------------
1,756,806
------------
Electric Utilities (3.8%)
291,100 Montana Power Co. ........... 11,789,550
------------
Electronic Data Processing (1.8%)
143,400 Dell Computer Corp.*......... 5,511,937
------------
Electronic Production Equipment (0.8%)
19,100 Applied Materials, Inc.*..... 2,620,281
------------
Finance Companies (1.5%)
34,400 Fannie Mae................... 2,061,850
50,400 Freddie Mac.................. 2,529,450
------------
4,591,300
------------
Insurance Brokers/Services (1.4%)
47,700 Marsh & McLennan Companies,
Inc. ....................... 4,483,800
------------
Integrated Oil Companies (4.7%)
46,300 Chevron Corp. ............... 3,868,944
76,200 Exxon Mobil Corp. ........... 6,362,700
82,100 Royal Dutch Petroleum Co.
(ADR) (Netherlands)......... 4,520,631
------------
14,752,275
------------
Investment Bankers/Brokers/
Services (4.5%)
8,500 Goldman Sachs Group, Inc.
(The)....................... 778,812
61,100 Merrill Lynch & Co., Inc. ... 5,300,425
225,400 Schwab (Charles) Corp. ...... 8,128,487
------------
14,207,724
------------
Investment Managers (0.9%)
71,000 Price (T.) Rowe Associates,
Inc. ....................... 2,746,812
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER TOTAL RETURN TRUST
PORTFOLIO OF INVESTMENTS January 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Life Insurance (1.3%)
96,100 Hartford Life, Inc. (Class A) $ 3,910,069
------------
Major Banks (1.1%)
15,900 Morgan (J.P.) & Co., Inc. ... 1,952,719
36,400 Wells Fargo & Co. ........... 1,456,000
------------
3,408,719
------------
Major Pharmaceuticals (6.3%)
9,200 Johnson & Johnson............ 791,775
97,800 Lilly (Eli) & Co. ........... 6,540,375
38,000 Merck & Co., Inc. ........... 2,994,875
102,400 Pharmacia & Upjohn, Inc. .... 4,812,800
63,200 Schering-Plough Corp. ....... 2,780,800
19,800 Warner-Lambert Co. .......... 1,879,763
------------
19,800,388
------------
Major U.S. Telecommunications (0.5%)
13,550 AT&T Corp. .................. 714,763
17,350 SBC Communications, Inc. .... 748,219
------------
1,462,982
------------
Media Conglomerates (1.1%)
96,100 Disney (Walt) Co. ........... 3,489,631
------------
Military/Gov't/Technical (3.8%)
97,450 General Motors Corp. (Class
H)*......................... 10,963,125
35,600 Raytheon Co. (Class B)....... 812,125
------------
11,775,250
------------
Motor Vehicles (0.0%)
900 General Motors Corp. ........ 72,394
------------
Multi-Line Insurance (3.2%)
291,700 Allstate Corp. .............. 6,763,794
31,387 American International Group,
Inc. ....................... 3,268,171
------------
10,031,965
------------
Multi-Sector Companies (1.6%)
38,200 General Electric Co. ........ 5,094,925
------------
Oilfield Services/Equipment (5.2%)
408,500 Baker Hughes Inc. ........... 10,059,313
169,100 Halliburton Co. ............. 6,087,600
------------
16,146,913
------------
Other Consumer Services (0.1%)
400 SkillSoft Corp.*............. 5,600
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Other Telecommunications (4.0%)
29,700 Sonera Corp. (ADR)
(Finland)*.................. $ 2,056,725
281,900 Williams Communications
Group, Inc.*................ 10,606,488
------------
12,663,213
------------
Package Goods/Cosmetics (3.6%)
235,000 Gillette Co. ................ 8,841,875
23,700 Procter & Gamble Co. ........ 2,390,738
------------
11,232,613
------------
Paper (1.5%)
176,700 Fort James Corp. ............ 4,726,725
------------
Precision Instruments (2.3%)
111,000 Agilent Technologies,
Inc.*....................... 7,346,813
------------
Property - Casualty Insurers (0.4%)
20,500 Progressive Corp. ........... 1,276,125
------------
Restaurants (2.0%)
119,200 McDonald's Corp. ............ 4,432,750
61,810 Tricon Global Restaurants,
Inc.*....................... 1,769,311
------------
6,202,061
------------
Semiconductors (4.3%)
86,500 Intel Corp. ................. 8,552,688
45,000 Texas Instruments, Inc. ..... 4,854,375
------------
13,407,063
------------
Telecommunication Equipment (5.1%)
60,500 Lucent Technologies Inc. .... 3,342,625
92,500 Motorola, Inc. .............. 12,649,375
400 Turnstone Systems, Inc.*..... 11,600
------------
16,003,600
------------
TOTAL COMMON STOCKS
(Identified Cost
$226,067,303)............... 306,490,757
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
SHORT-TERM INVESTMENT (2.7%)
REPURCHASE AGREEMENT
$8,324 The Bank of New York 5.75% due
02/01/00 (dated 01/31/00;
proceeds $8,325,615) (a)
(Identified Cost $8,324,285)... 8,324,285
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER TOTAL RETURN TRUST
PORTFOLIO OF INVESTMENTS January 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
VALUE
- -------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $234,391,588)
(b)........................... 100.7% $314,815,042
LIABILITIES IN EXCESS OF OTHER
ASSETS........................ (0.7) (2,146,886)
----- ------------
NET ASSETS.................... 100.0% $312,668,156
===== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
ADR American Depository Receipt.
* Non-income producing security.
(a) Collateralized by $8,523,999 U.S. Treasury Note
6.25% due 06/30/02 valued at $8,490,787.
(b) The aggregate cost for federal income tax
purposes approximates identified cost. The
aggregate gross unrealized appreciation is
$88,509,123 and the aggregate gross unrealized
depreciation is $8,085,669, resulting in net
unrealized appreciation of $80,423,454.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER TOTAL RETURN TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2000 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $234,391,588)........... $314,815,042
Receivable for:
Shares of beneficial interest sold.... 2,645,919
Dividends............................. 194,044
Investments sold...................... 142,408
Prepaid expenses and other assets......... 92,232
------------
TOTAL ASSETS.......................... 317,889,645
------------
LIABILITIES:
Payable for:
Investments purchased................. 4,246,775
Shares of beneficial interest......... 464,137
Plan of distribution fee.............. 196,702
Investment management fee............. 193,286
Accrued expenses and other payables....... 120,589
------------
TOTAL LIABILITIES..................... 5,221,489
------------
NET ASSETS............................ $312,668,156
============
COMPOSITION OF NET ASSETS:
Paid-in-capital........................... $233,251,190
Net unrealized appreciation............... 80,423,454
Accumulated net investment loss........... (574,818)
Accumulated net realized loss............. (431,670)
------------
NET ASSETS............................ $312,668,156
============
CLASS A SHARES:
Net Assets................................ $7,202,303
Shares Outstanding (unlimited authorized,
$.01 par value).......................... 335,720
NET ASSET VALUE PER SHARE............. $21.45
============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net
asset value)......................... $22.64
============
CLASS B SHARES:
Net Assets................................ $292,609,024
Shares Outstanding (unlimited authorized,
$.01 par value).......................... 13,868,160
NET ASSET VALUE PER SHARE............. $21.10
============
CLASS C SHARES:
Net Assets................................ $6,888,889
Shares Outstanding (unlimited authorized,
$.01 par value).......................... 326,487
NET ASSET VALUE PER SHARE............. $21.10
============
CLASS D SHARES:
Net Assets................................ $5,967,940
Shares Outstanding (unlimited authorized,
$.01 par value).......................... 276,460
NET ASSET VALUE PER SHARE............. $21.59
============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the six months ended January 31, 2000 (unaudited)
NET INVESTMENT LOSS:
INCOME
<S> <C>
Dividends (net of $9,998 foreign
withholding tax)......................... $ 1,389,513
Interest.................................. 196,555
-----------
TOTAL INCOME.......................... 1,586,068
-----------
EXPENSES
Plan of distribution fee (Class A
shares).................................. 6,754
Plan of distribution fee (Class B
shares).................................. 933,632
Plan of distribution fee (Class C
shares).................................. 18,672
Investment management fee................. 917,733
Transfer agent fees and expenses.......... 105,029
Registration fees......................... 67,394
Professional fees......................... 44,965
Shareholder reports and notices........... 39,349
Organizational expenses................... 10,176
Trustees' fees and expenses............... 5,465
Custodian fees............................ 4,294
Other..................................... 7,423
-----------
TOTAL EXPENSES........................ 2,160,886
-----------
NET INVESTMENT LOSS................... (574,818)
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain......................... 581,585
Net change in unrealized appreciation..... 27,550,122
-----------
NET GAIN.............................. 28,131,707
-----------
NET INCREASE.............................. $27,556,889
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER TOTAL RETURN TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JANUARY 31, 2000 JULY 31, 1999
- ---------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss................................... $ (574,818) $ (1,156,175)
Net realized gain..................................... 581,585 14,349,364
Net change in unrealized appreciation................. 27,550,122 26,980,524
------------ ------------
NET INCREASE...................................... 27,556,889 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.................................. 97,673,684 16,076,667
------------ ------------
NET INCREASE...................................... 110,227,125 48,117,076
NET ASSETS:
Beginning of period................................... 202,441,031 154,323,955
------------ ------------
END OF PERIOD
(Including a net investment loss of $574,818 and
$0, respectively)................................. $312,668,156 $202,441,031
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER TOTAL RETURN TRUST
NOTES TO FINANCIAL STATEMENTS January 31, 2000 (unaudited)
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 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 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 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"), 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
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER TOTAL RETURN TRUST
NOTES TO FINANCIAL STATEMENTS January 31, 2000 (unaudited) continued
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.
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.
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER TOTAL RETURN TRUST
NOTES TO FINANCIAL STATEMENTS January 31, 2000 (unaudited) continued
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.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
Under a Sub-Advisory Agreement between the 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 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 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
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER TOTAL RETURN TRUST
NOTES TO FINANCIAL STATEMENTS January 31, 2000 (unaudited) continued
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 $6,480,461 at January 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 six months ended January 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 six months ended January 31,
2000, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $121,435 and $2,179,
respectively and received $28,230 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.
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER TOTAL RETURN TRUST
NOTES TO FINANCIAL STATEMENTS January 31, 2000 (unaudited) continued
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended January 31, 2000 aggregated
$162,340,790 and $80,333,547, respectively.
For the six months ended January 31, 2000, the Fund incurred brokerage
commissions of $21,055 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 January 31, 2000, the Fund had
transfer agent fees and expenses payable of approximately $5,400.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JANUARY 31, 2000 JULY 31, 1999
------------------------ -------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold........................................................ 303,950 $ 6,492,322 262,041 $ 5,265,953
Reinvestment of distributions............................... 16,047 329,290 4,229 73,536
Redeemed.................................................... (184,650) (3,971,336) (140,633) (2,838,266)
--------- ------------ ---------- ------------
Net increase - Class A...................................... 135,347 2,850,276 125,637 2,501,223
--------- ------------ ---------- ------------
CLASS B SHARES
Sold........................................................ 4,527,180 93,453,436 2,294,287 41,396,214
Reinvestment of distributions............................... 640,068 12,922,983 423,058 7,289,285
Redeemed.................................................... (989,163) (20,425,101) (2,161,664) (37,861,050)
--------- ------------ ---------- ------------
Net increase - Class B...................................... 4,178,085 85,951,318 555,681 10,824,449
--------- ------------ ---------- ------------
CLASS C SHARES
Sold........................................................ 277,727 5,719,944 48,860 970,933
Reinvestment of distributions............................... 12,638 255,289 2,093 36,001
Redeemed.................................................... (43,835) (922,779) (13,007) (236,796)
--------- ------------ ---------- ------------
Net increase - Class C...................................... 246,530 5,052,454 37,946 770,138
--------- ------------ ---------- ------------
CLASS D SHARES
Sold........................................................ 170,049 3,631,147 96,551 1,980,260
Reinvestment of distributions............................... 10,162 209,734 34 597
Redeemed.................................................... (1,007) (21,245) -- --
--------- ------------ ---------- ------------
Net increase - Class D...................................... 179,204 3,819,636 96,585 1,980,857
--------- ------------ ---------- ------------
Net increase in Fund........................................ 4,739,166 $ 97,673,684 815,849 $ 16,076,667
========= ============ ========== ============
</TABLE>
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER TOTAL RETURN TRUST
NOTES TO FINANCIAL STATEMENTS January 31, 2000 (unaudited) continued
6. FEDERAL INCOME TAX STATUS
At July 31, 1999, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales.
15
<PAGE> 16
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 SIX FOR THE YEAR FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED ENDED THROUGH
JANUARY 31, 2000 JULY 31, 1999 JULY 31, 1998 JULY 31, 1997
- -------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<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
Net realized and unrealized gain........................... 2.28 4.47 1.34 0.51
------ ------ ------ ------
Total income from investment operations..................... 2.28 4.47 1.33 0.52
------ ------ ------ ------
Less distributions from net realized gain................... (1.19) (0.89) (1.14) --
------ ------ ------ ------
Net asset value, end of period.............................. $21.45 $20.36 $16.78 $16.59
====== ====== ====== ======
TOTAL RETURN+............................................... 11.17%(1) 27.78% 8.94% 3.24%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.23%(2)(3) 1.30%(3) 1.31% 1.31%(2)
Net investment income (loss)................................ 0.06%(2)(3) (0.10)%(3) (0.07)% 4.08%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $7,202 $4,079 $1,254 $10
Portfolio turnover rate..................................... 26%(1) 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> 17
MORGAN STANLEY DEAN WITTER TOTAL RETURN TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR ENDED JULY 31, NOVEMBER 30, 1994*
MONTHS ENDED ------------------------------------------ THROUGH
JANUARY 31, 2000++ 1999++ 1998++ 1997** 1996 JULY 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <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 $10.00
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss)................ (0.05) (0.12) (0.08) 0.04 0.15 0.21
Net realized and unrealized gain............ 2.24 4.43 1.31 5.81 0.80 1.68
------ ------ ------ ------ ------ ------
Total income from investment operations...... 2.19 4.31 1.23 5.85 0.95 1.89
------ ------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income....................... -- -- -- (0.06) (0.21) (0.14)
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) (0.14)
------ ------ ------ ------ ------ ------
Net asset value, end of period............... $21.10 $20.10 $16.68 $16.59 $12.00 $11.75
====== ====== ====== ====== ====== ======
TOTAL RETURN+................................ 10.87%(1) 27.04% 8.25% 51.66% 8.23% 19.04%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses..................................... 1.78%(2)(4) 1.90%(4) 1.90% 2.05% 1.98%(3) 0.94%(2)(3)
Net investment income (loss)................. (0.49)%(2)(4) (0.70)%(4) (0.50)% 0.28% 1.30%(3) 3.19%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands...... $292,609 $194,763 $152,358 $117,041 $48,524 $36,018
Portfolio turnover rate...................... 26%(1) 79% 93% 198% 261% 91%(1)
</TABLE>
- ---------------------
* Commencement of operations.
** 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) Not annualized.
(2) Annualized.
(3) 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 and 2.66% and
1.47%, respectively, for the period ended July 31, 1995.
(4) Reflects overall Fund ratios for investment income and non-class specific
expenses
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER TOTAL RETURN TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED ENDED THROUGH
JANUARY 31, 2000 JULY 31, 1999 JULY 31, 1998 JULY 31, 1997
- -------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<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)............................... (0.08) (0.09) (0.12) 0.01
Net realized and unrealized gain........................... 2.25 4.44 1.33 0.51
------ ------ ------ ------
Total income from investment operations..................... 2.17 4.35 1.21 0.52
------ ------ ------ ------
Less distributions from net realized gain................... (1.19) (0.89) (1.14) --
------ ------ ------ ------
Net asset value, end of period.............................. $21.10 $20.12 $16.66 $16.59
====== ====== ====== ======
TOTAL RETURN+............................................... 10.76%(1) 27.33% 8.12% 3.24%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.98%(2)(3) 1.72%(3) 2.06% 2.06%(2)
Net investment income (loss)................................ (0.69)%(2)(3) (0.52)%(3) (0.70)% 2.75%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $6,889 $1,609 $700 $38
Portfolio turnover rate..................................... 26%(1) 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
18
<PAGE> 19
MORGAN STANLEY DEAN WITTER TOTAL RETURN TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED ENDED THROUGH
JANUARY 31, 2000 JULY 31, 1999 JULY 31, 1998 JULY 31, 1997
- -------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<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...................................... 0.02 0.02 0.06 0.01
Net realized and unrealized gain........................... 2.30 4.50 1.32 0.51
------ ------ ------ ------
Total income from investment operations..................... 2.32 4.52 1.38 0.52
------ ------ ------ ------
Less distributions from net realized gain................... (1.19) (0.89) (1.14) --
------ ------ ------ ------
Net asset value, end of period.............................. $21.59 $20.46 $16.83 $16.59
====== ====== ====== ======
TOTAL RETURN+............................................... 11.32%(1) 28.08% 9.20% 3.24%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.98%(2)(3) 1.06%(3) 1.06% 1.06%(2)
Net investment income....................................... 0.31%(2)(3) 0.14%(3) 0.34% 4.33%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $5,968 $1,990 $11 $10
Portfolio turnover rate..................................... 26%(1) 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
19
<PAGE> 20
TRUSTEES
- ----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
- ----------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
Thomas K. McKissick
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
SUB-ADVISOR
- ----------------------------------
TCW Investment Management Company
865 South Figueroa Street, Suite 1800
Los Angeles, California 90017
The financial statements included herein have been taken from the records of the
Fund without examination by the independent accountants and accordingly they
do not express an opinion thereon.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of
the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus. Read the
prospectus carefully before investing.
MORGAN STANLEY
DEAN WITTER
TOTAL RETURN FUND
Semiannual Report
January 31, 2000
