<PAGE> 1
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST Two World Trade Center
LETTER TO SHAREHOLDERS May 31, 1999 New York, New York 10048
DEAR SHAREHOLDER:
We are pleased to present the semiannual letter to shareholders of Morgan
Stanley Dean Witter Mid-Cap Equity Trust, formerly TCW/DW Mid-Cap Equity Trust,
for the six-month period ended May 31, 1999.
Following the close of this period, shareholders of TCW/DW Mid-Cap Equity Trust,
at a special meeting held on June 8, 1999, approved several proposals related to
an overall consolidation of the TCW/DW Family of Funds and the Morgan Stanley
Dean Witter Family of Funds. Accordingly, on June 28, 1999, TCW/DW Mid-Cap
Equity Trust became part of the Morgan Stanley Dean Witter Family of Funds and
was renamed Morgan Stanley Dean Witter Mid-Cap Equity Trust.
Among the proposals approved by shareholders were a new investment management
agreement between the Fund and Morgan Stanley Dean Witter Advisors Inc. (MSDW
Advisors) and a new sub-advisory agreement between MSDW Advisors and TCW Funds
Management, Inc. (TCW). (Detailed information on the investment management and
sub-advisory agreements follows the close of this letter.)
MARKET OVERVIEW
The six-month period ended May 31, 1999, can be delineated by a single number
that changed the investment outlook dramatically. In contrast to the first four
months of the period, which saw U.S. equity markets pushing to new heights,
April and May saw the return of investor uncertainty and weak stock performance.
The defining moment of this period was the release of the April producer price
index, which showed an increase of 0.7 percent. The specter of renewed inflation
and higher interest rates put a damper on the equity market, which has moved
sideways or down since the announcement. Long-term interest rates have moved
above 6 percent for the first time in two years, and the debate has changed from
whether or not the Federal Reserve Board will raise short-term rates to how high
the increase will be. Until that question is
<PAGE> 2
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
LETTER TO THE SHAREHOLDERS May 31, 1999, continued
resolved and investors receive more data about the direction of pricing levels,
this issue is likely to dominate market sentiment.
PERFORMANCE AND PORTFOLIO STRATEGY
For the six-month period ended May 31, 1999, the Fund's Class B shares produced
a total return of 59.25 percent, compared to 13.7 percent for the S&P Midcap 400
Index and 16.6 percent for the Lipper Mid-Cap Fund Index. During the same
period, the Fund's Class A, C and D shares returned 59.55 percent, 58.96 percent
and 59.71 percent, respectively. The performance of the Fund's share classes
varies because of differing expenses.
According to TCW, the primary driver of these results was the Fund's investment
strategy of identifying and owning high-growth companies that TCW believes will
exceed Wall Street's expectations. In addition, the Fund favors companies that
have shown, on a secular basis, the ability to grow, regardless of the
macroeconomic environment. TCW believes that the recent rise in interest rates
should have a minimal impact on the long-term growth potential of the Fund's
portfolio securities.
During the period under review, the Fund's portfolio sector weightings have
shifted gradually, mostly because of the capital appreciation of some of its
major holdings. The business services and consumer sectors now represent the two
largest sector weightings, at 37 percent and 24 percent of net assets,
respectively. Internet and internet-related companies continue to be key
components of the Fund, representing 22% percent of the portfolio. TCW believes
that the Fund holds some of the premier names in this sector, many of which have
held up extremely well on a relative basis, despite the sector's recent
correction. The Fund's two largest internet holdings are E*Trade and Amazon.com.
While a shakeout in the internet sector was clearly in the cards, because of the
declining quality of new companies going public, TCW believes that fundamentals
remain quite strong for all of the Fund's major holdings. Other sectors
represented in the portfolio are technology (19 percent), finance (10 percent)
and health care (4 percent).
In keeping with the themes described above, the Fund has changed several of the
individual names in the portfolio. Among the Fund's stock purchases were
Echostar, a provider of direct broadcast satellite services, which is
experiencing rapid subscriber growth, and Univision, the leading Hispanic media
company. The Fund also added to its internet service and infrastructure exposure
by purchasing Portal Software, an e-commerce billing company, and Scient, an
outsourcing firm that helps companies become web-enabled.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
LETTER TO THE SHAREHOLDERS May 31, 1999, continued
On the sell side the Fund has stuck by its strict discipline, removing companies
from the portfolio that have failed to meet the sub-advisor's minimum
expectations. Among this group were Documentum and Restoration Hardware. Both
positions were quite small on a relative basis and did not hurt the portfolio
performance significantly. The Fund also benefited from several takeovers,
including Fore Systems, which is being bought by General Electric PLC of the
United Kingdom, and TCA Cable's merger with Cox Communications.
LOOKING AHEAD
In the months ahead, investor concern about rising interest rates is likely to
cause some market instability. According to TCW, the key to success lies in
focusing on the fundamentals of individual companies, not on macroeconomic
factors beyond our control. The companies represented in the Fund's portfolio
continue to benefit from both a strong economy and the continued shift of
business processes to new technology platforms and more efficient distribution
channels. While the recent technology revolution has helped companies cut costs
and become more productive, the internet is allowing these same companies to
establish much closer relationships with their customers. TCW believes leading
companies that understand how to benefit from the increased efficiency the
internet affords them will see a whole new phase in their growth, one that is
primarily top-line driven. TCW believes that this will happen regardless of what
direction interest rates take over the near term. Going forward, TCW will
continue to seek to identify those companies that are enabling this
transformation, as well as those businesses with the vision to benefit from it.
On May 1, 1999, Mitchell M. Merin was named President of the Morgan Stanley Dean
Witter Funds. Mr. Merin is also the President and Chief Operating Officer of
Asset Management of Morgan Stanley Dean Witter & Co. and President, Chief
Executive Officer and Director of Morgan Stanley Dean Witter Advisors Inc. He
also serves as Chairman, Chief Executive Officer and Director of the Fund's
distributor and transfer agent.
We appreciate your continued support of Morgan Stanley Dean Witter Mid-Cap
Equity Trust and look forward to continuing to serve your investment objectives.
Very truly yours,
/S/ CHARLES A. FIUMEFREDDO /S/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
RESULTS OF SPECIAL MEETING
* * *
NEW INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS
Under the new investment management agreement mentioned above, MSDW Advisors
serves as the investment manager for the Fund. The advisory fee rates that MSDW
Advisors charges the Fund are 0.75 percent of the Fund's net assets not
exceeding $500 million and 0.725 percent of assets exceeding $500 million. The
combined fee rate in effect under the Fund's previous management and advisory
agreements was 1.00 percent of the Fund's net assets. Therefore, the fee rate
under the new investment management agreement is 0.25 percent lower with respect
to the portion of daily net assets not exceeding $500 million and is 0.275
percent lower with respect to the portion of daily net assets exceeding $500
million. In return for the services that TCW will render under the new
sub-advisory agreement, MSDW Advisors will pay TCW monthly compensation equal to
40 percent of the compensation it receives under the new investment management
agreement.
ELECTION OF TRUSTEES
At the same special meeting, shareholders also elected the following eight
nominees to the Fund's Board of Trustees: Michael Bozic, Charles A. Fiumefreddo,
Edwin Jacob (Jake) Garn, Wayne E. Hedien, Dr. Manuel H. Johnson, Michael E.
Nugent, Philip J. Purcell and John L. Schroeder. Each of these individuals
currently holds directorships or trusteeships with 86 other investment companies
for which MSDW Advisors serves as investment manager or investment advisor.
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
PORTFOLIO OF INVESTMENTS May 31, 1999 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (95.3%)
Advertising (2.1%)
245,412 Outdoor Systems, Inc.*....... $ 7,347,022
------------
Biotechnology (1.1%)
33,300 Biogen, Inc.*................ 3,629,700
------------
Books/Magazines (0.6%)
74,600 Playboy Enterprises, Inc.
(Class B)*.................. 2,172,725
------------
Broadcasting (4.9%)
153,500 Clear Channel Communications,
Inc.*....................... 10,140,594
115,400 Univision Communications,
Inc. (Class A)*............. 6,844,662
------------
16,985,256
------------
Cable Television (6.7%)
147,000 Cablevision Systems Corp.
(Class A)*.................. 11,594,625
40,700 EchoStar Communications Corp.
(Class A)*.................. 4,634,712
125,800 TCA Cable TV, Inc............ 7,123,425
------------
23,352,762
------------
Casino/Gambling (1.3%)
224,900 Mirage Resorts, Inc.*........ 4,610,450
------------
Catalog/Specialty Distribution (5.6%)
163,200 Amazon.com, Inc.*............ 19,369,800
------------
Clothing/Shoe/Accessory Stores (0.9%)
101,400 Talbot's, Inc. (The)......... 3,219,450
------------
Computer Software (6.2%)
92,000 New Era of Networks, Inc.*... 4,094,000
86,000 Rational Software Corp.*..... 2,902,500
322,700 Siebel Systems, Inc.*........ 14,682,850
------------
21,679,350
------------
Contract Drilling (1.7%)
314,100 Precision Drilling Corp.
(Class A) (Canada)*......... 5,712,694
------------
Diversified Commercial Services (3.0%)
104,025 Paychex, Inc................. 3,081,741
129,400 Robert Half International,
Inc.*....................... 3,647,462
266,500 Romac International, Inc.*... 3,830,937
------------
10,560,140
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
E.D.P. Services (2.2%)
102,700 National TechTeam, Inc.*..... $ 539,175
14,700 Scient Corp.*................ 738,675
223,600 Whittman-Hart, Inc.*......... 6,260,800
------------
7,538,650
------------
Generic Drugs (1.3%)
43,100 Andrx Corp.*................. 4,323,469
------------
Hospital/Nursing Management (0.4%)
101,087 Health Management Associates,
Inc. (Class A)*............. 1,314,131
------------
Internet Services (22.3%)
101,400 At Home Corp. (Series A)*.... 12,846,112
103,000 Broadcast.com Inc.*.......... 11,297,812
106,200 eBay Inc.*................... 18,797,400
3,100 GeoCities*................... 309,806
2,600 iVillage Inc.*............... 124,475
97,800 Portal Software, Inc.*....... 4,804,425
83,600 VeriSign, Inc.*.............. 9,896,150
47,000 Vignette Corp.*.............. 2,743,625
113,100 Yahoo! Inc.*................. 16,724,662
------------
77,544,467
------------
Investment Bankers/Brokers/Services (7.0%)
546,200 E*TRADE Group, Inc.*......... 24,271,762
------------
Investment Managers (1.3%)
112,700 Price (T. Rowe) Associates,
Inc......................... 4,353,038
------------
Life Insurance (1.6%)
75,600 Hartford Life, Inc. (Class
A).......................... 3,591,000
72,800 The MONY Group Inc........... 2,011,100
------------
5,602,100
------------
Medical Specialties (0.7%)
198,400 Safeskin Corp.*.............. 2,467,600
------------
Movies/Entertainment (1.3%)
132,800 Westwood One, Inc.*.......... 4,614,800
------------
Other Consumer Services (1.6%)
48,200 Priceline.com Inc.*.......... 5,395,388
4,100 Ticketmaster
Online-CitySearch, Inc.
(Series B)*................. 115,569
------------
5,510,957
------------
Other Pharmaceuticals (0.7%)
39,400 Sepracor, Inc.*.............. 2,511,750
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
PORTFOLIO OF INVESTMENTS May 31, 1999 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Real Estate (0.3%)
46,500 CB Richard Ellis Services,
Inc.*....................... $ 900,938
------------
Retail - Specialty (6.4%)
187,500 Bed Bath & Beyond, Inc.*..... 6,398,438
264,400 Best Buy Co., Inc.*.......... 12,030,200
413,200 PETsMART, Inc.*.............. 3,692,975
------------
22,121,613
------------
Semiconductors (6.4%)
169,800 Altera Corp.*................ 5,900,550
142,800 Maxim Integrated Products,
Inc.*....................... 7,604,100
200,000 Xilinx, Inc.*................ 8,875,000
------------
22,379,650
------------
Telecommunications (6.4%)
215,600 Global Crossing Ltd.
(Bermuda)*.................. 10,241,000
64,100 McLeodUSA, Inc. (Class A)*... 3,421,338
153,800 MetroNet Communications Corp.
(Class B) (Canada)*......... 8,708,925
------------
22,371,263
------------
Telecommunications Equipment (1.3%)
200,500 American Tower Corp. (Class
A)*......................... 4,511,250
------------
TOTAL COMMON STOCKS
(Identified Cost
$140,715,022)................ 330,976,787
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (4.3%)
REPURCHASE AGREEMENT
$ 15,022 The Bank of New York 4.50%
due 06/01/99 (dated
05/28/99; proceeds
$15,029,886) (a)
(Identified Cost
$15,022,375)................ $ 15,022,375
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $155,737,397)
(b).............................. 99.6% 345,999,162
OTHER ASSETS IN
EXCESS OF LIABILITIES............ 0.4 1,333,923
------ ------------
NET ASSETS....................... 100.0% $347,333,085
====== ============
</TABLE>
- ---------------------
* Non-income producing security.
(a) Collateralized by $7,779,165 U.S. Treasury Bond 8.75% due 05/15/17 valued
at $9,977,730 and $5,330,645 U.S. Treasury Bill 3.875% due 04/15/29 valued
at $5,346,595.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $196,131,450 and the
aggregate gross unrealized depreciation is $5,869,685, resulting in net
unrealized appreciation of $190,261,765.
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1999 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $155,737,397)............................. $345,999,162
Receivable for:
Shares of beneficial interest sold...................... 1,572,545
Investments sold........................................ 770,494
Interest................................................ 7,511
Dividends............................................... 6,804
Deferred organizational expenses............................ 57,645
Prepaid expenses............................................ 96,613
------------
TOTAL ASSETS............................................ 348,510,774
------------
LIABILITIES:
Payable for:
Investments purchased................................... 498,808
Management fee.......................................... 182,251
Plan of distribution fee................................ 176,657
Shares of beneficial interest repurchased............... 165,136
Investment advisory fee................................. 121,501
Accrued expenses............................................ 33,336
------------
TOTAL LIABILITIES....................................... 1,177,689
------------
NET ASSETS.............................................. $347,333,085
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $141,233,397
Net unrealized appreciation................................. 190,261,765
Accumulated net investment loss............................. (2,510,534)
Accumulated undistributed net realized gain................. 18,348,457
------------
NET ASSETS.............................................. $347,333,085
============
CLASS A SHARES:
Net Assets.................................................. $4,060,823
Shares Outstanding (unlimited authorized, $.01 par value)... 163,143
NET ASSET VALUE PER SHARE............................... $24.89
============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value)........ $26.27
============
CLASS B SHARES:
Net Assets.................................................. $336,569,815
Shares Outstanding (unlimited authorized, $.01 par value)... 13,671,829
NET ASSET VALUE PER SHARE............................... $24.62
============
CLASS C SHARES:
Net Assets.................................................. $6,674,793
Shares Outstanding (unlimited authorized, $.01 par value)... 271,861
NET ASSET VALUE PER SHARE............................... $24.55
============
CLASS D SHARES:
Net Assets.................................................. $27,654
Shares Outstanding (unlimited authorized, $.01 par value)... 1,106
NET ASSET VALUE PER SHARE............................... $25.00
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year six months ended May 31, 1999 (unaudited)
NET INVESTMENT LOSS:
INCOME
Interest.................................................... $ 104,361
Dividends................................................... 89,572
-----------
TOTAL INCOME............................................ 193,933
-----------
EXPENSES
Management fee.............................................. 892,132
Plan of distribution fee (Class A shares)................... 2,809
Plan of distribution fee (Class B shares)................... 887,673
Plan of distribution fee (Class C shares)................... 14,534
Investment advisory fee..................................... 594,755
Transfer agent fees and expenses............................ 134,875
Trustees' fees and expenses................................. 43,447
Professional fees........................................... 36,099
Registration fees........................................... 27,016
Shareholder reports and notices............................. 26,741
Organizational expenses..................................... 16,469
Custodian fees.............................................. 11,429
Other....................................................... 16,488
-----------
TOTAL EXPENSES.......................................... 2,704,467
-----------
NET INVESTMENT LOSS..................................... (2,510,534)
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................................... 21,650,904
Net change in unrealized appreciation....................... 103,616,183
-----------
NET GAIN................................................ 125,267,087
-----------
NET INCREASE................................................ $122,756,553
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
MAY 31, 1999 NOVEMBER 30, 1998
- --------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss................................. $ (2,510,534) $ (3,698,987)
Net realized gain................................... 21,650,904 31,236,102
Net change in unrealized appreciation............... 103,616,183 37,809,903
------------ ------------
NET INCREASE.................................... 122,756,553 65,347,018
Net increase (decrease) from transactions in shares
of beneficial interest............................. 10,699,727 (26,033,572)
------------ ------------
NET INCREASE.................................... 133,456,280 39,313,446
NET ASSETS:
Beginning of period................................. 213,876,805 174,563,359
------------ ------------
END OF PERIOD
(Including accumulated net investment losses of
$2,510,534 and $0, respectively)................ $347,333,085 $213,876,805
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1999 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Mid-Cap Equity Trust (the "Fund"), formerly TCW/DW
Mid-Cap Equity Trust (the Fund changed its name effective June 28, 1999), is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
a diversified, open-end management investment company. The Fund's investment
objective is to seek long-term capital appreciation. The Fund seeks to achieve
its objective by investing primarily in equity securities, including common
stocks and securities convertible into common stock, issued by medium-sized
companies. The Fund was organized as a Massachusetts business trust on October
17, 1995 and commenced operations on February 27, 1996. 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 TCW Funds Management, Inc. (the "Adviser") that sale or bid prices
are not reflective of a security's market value, portfolio securities are valued
at their fair value as determined in good faith under procedures established by
and under the general supervision of the Trustees (valuation of debt securities
for which market quotations are not readily available may be based upon current
market prices of securities which are
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1999 (unaudited) continued
comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors); and (4) short-term debt securities having a maturity date of
more than sixty days at time of purchase are valued on a mark-to-market basis
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity date
of sixty days or less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except for certain dividends from foreign securities which are recorded as soon
as the Fund is informed after the ex-dividend date. Discounts are accreted over
the life of the respective securities. Interest income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the 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 -- Morgan Stanley Dean Witter Advisors Inc., an
affiliate of Morgan Stanley Dean Witter Services Co. Inc. (the "Manager"), paid
the organizational expenses of the Fund in the
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1999 (unaudited) continued
amount of approximately $165,000 which have been reimbursed for the full amount
thereof. Such expenses have been deferred and are being amortized on the
straight-line method over a period not to exceed five years from the
commencement of operations.
2. MANAGEMENT AGREEMENT
Pursuant to a Management Agreement, the Fund pays the Manager a management fee,
accrued daily and payable monthly, by applying the annual rate of 0.60% to the
net assets of the Fund determined as of the close of each business day.
Under the terms of the Management Agreement, the 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 Manager. The Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. INVESTMENT ADVISORY AGREEMENT
Pursuant to an Investment Advisory Agreement, the Fund pays an advisory fee,
accrued daily and payable monthly, by applying the annual rate of 0.40% to the
net assets of the Fund determined as of the close of each business day.
Under the terms of the Investment Advisory Agreement, the Fund has retained the
Adviser to invest the Fund's assets, including placing orders for the purchase
and sale of portfolio securities. The Adviser obtains and evaluates such
information and advice relating to the economy, securities markets, and specific
securities as it considers necessary or useful to continuously manage the assets
of the Fund in a manner consistent with its investment objective. In addition,
the Adviser pays the salaries of all personnel, including officers of the Fund,
who are employees of the Adviser.
4. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the 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
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1999 (unaudited) continued
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 inception of the
Fund (not including reinvestment of dividend or capital gain distributions) less
the average net asset value of the Class B shares redeemed since the Fund's
inception upon which a contingent deferred sales charge has been imposed or
waived; or (b) the average daily net assets of Class B; and (iii) Class C -- up
to 1.0% of the average daily net assets of Class C. In the case of Class A
shares, amounts paid under the Plan are paid to the Distributor for services
provided. In the case of Class B and Class C shares, amounts paid under the Plan
are paid to the Distributor for (1) services provided and the expenses borne by
it and others in the distribution of the shares of these Classes, including the
payment of commissions for sales of these Classes and incentive compensation to,
and expenses of, Morgan Stanley Dean Witter Financial Advisors and others who
engage in or support distribution of the shares or who service shareholder
accounts, including overhead and telephone expenses; (2) printing and
distribution of prospectuses and reports used in connection with the offering of
these shares to other than current shareholders; and (3) preparation, printing
and distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan, in the case of Class B
shares, to compensate Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Investment Manager and Distributor and other selected broker-dealers for their
opportunity costs in advancing such amounts, which compensation would be in the
form of a carrying charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $10,642,870 at May 31, 1999.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the six
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1999 (unaudited) continued
months ended May 31, 1999, the distribution fee was accrued for Class A shares
and Class C shares at the annual rate of 0.23% and 1.0%, respectively.
The Distributor has informed the Fund that for the six months ended May 31,
1999, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $235,958 and $2,608,
respectively and received $50,822 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.
5. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended May 31, 1999 aggregated
$48,470,314 and $53,246,873, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Manager and
Distributor, is the Fund's transfer agent.
6. FEDERAL INCOME TAX STATUS
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $3,106,000 during fiscal 1998.
As of November 30, 1998, the Fund had temporary book/tax differences
attributable to post-October losses and capital loss deferrals on wash sales.
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1999 (unaudited) continued
7. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
MAY 31, 1999 NOVEMBER 30, 1998
------------------------- -------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold........................................................ 134,083 $ 3,248,144 70,760 $ 975,219
Repurchased................................................. (41,921) (934,881) (5,127) (68,294)
---------- ------------ ---------- ------------
Net increase - Class A...................................... 92,162 2,313,263 65,633 906,925
---------- ------------ ---------- ------------
CLASS B SHARES
Sold........................................................ 2,760,719 62,854,764 2,515,413 32,751,132
Repurchased................................................. (2,806,681) (59,918,063) (4,871,632) (60,224,693)
---------- ------------ ---------- ------------
Net increase (decrease) - Class B........................... (45,962) 2,936,701 (2,356,219) (27,473,561)
---------- ------------ ---------- ------------
CLASS C SHARES
Sold........................................................ 252,752 6,062,573 41,665 574,086
Repurchased................................................. (27,009) (613,888) (3,216) (41,022)
---------- ------------ ---------- ------------
Net increase - Class C...................................... 225,743 5,448,685 38,449 533,064
---------- ------------ ---------- ------------
CLASS D SHARES
Sold........................................................ 1,631 39,342 -- --
Repurchased................................................. (1,448) (38,264) -- --
---------- ------------ ---------- ------------
Net increase - Class D...................................... 183 1,078 -- --
---------- ------------ ---------- ------------
Net increase (decrease) in Fund............................. 272,126 $ 10,699,727 (2,252,137) $(26,033,572)
========== ============ ========== ============
</TABLE>
8. REORGANIZATION
On June 8, 1999, the Fund's shareholders approved that the Fund engage Morgan
Stanley Dean Witter Advisors Inc. ("MSDW Advisors") to serve as the Fund's new
Investment Manager and that the current Adviser be retained as the Fund's
Sub-Advisor. MSDW Advisors would be responsible for all of the services that are
presently provided in accordance with the current Management Agreement between
the Fund and the Manager and the current Investment Advisory Agreement between
the Fund and the Advisor. The fee paid to MSDW Advisors will be calculated by
applying the following annual rates to the net assets of the Fund as of the
close of each business day: 0.75% to the portion of nets assets not exceeding
$500 million and 0.725% to the portion of the daily net assets exceeding $500
million. The aforementioned changes were effective on June 28, 1999. Upon
effectiveness of the changes, the Fund
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 1999 (unaudited) continued
changed its name from TCW/DW Mid-Cap Equity Trust to Morgan Stanley Dean Witter
Mid-Cap Equity Trust.
9. ACQUISITION OF MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
On June 28, 1999, the Fund acquired all the net assets of the Morgan Stanley
Dean Witter Mid-Cap Growth Fund ("Mid-Cap Growth") based on the respective
valuations as of the close of business on June 25, 1999, pursuant to a plan of
reorganization approved by the shareholders of Mid-Cap Growth on June 8, 1999.
The acquisition was accomplished by a tax-free exchange of 137,952 Class A
shares of the Fund at a net asset value of $25.02 per share for 224,015 class A
shares of Mid-Cap Growth; 20,363,981 Class B shares of the Fund at a net asset
value of $24.73 per share for 33,293,288 Class B shares of Mid-Cap Growth;
264,929 Class C shares of the Fund at a net asset value of $24.66 per share for
434,262 Class C shares of Mid-Cap Growth; and 11,712 Class D shares of the Fund
at a net asset value of $25.14 per share for 19,083 Class D shares of Mid-Cap
Growth. The net assets of the Fund and Mid-Cap Growth immediately before the
acquisition were $355,933,256 and $514,256,215, respectively, including
unrealized appreciation of $102,903,526 for Mid-Cap Growth. Immediately after
the acquisition, the combined net assets of the Fund amounted to $766,795,147.
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR FOR THE YEAR FEBRUARY 27, 1996*
MONTHS ENDED ENDED ENDED THROUGH
MAY 31, 1999++ NOVEMBER 30, 1998++ NOVEMBER 30, 1997**++ NOVEMBER 30, 1996
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period.... $15.46 $10.85 $10.92 $10.00
------ ------ ------ ------
Income (loss) from investment
operations:
Net investment loss.................... (0.18) (0.26) (0.22) (0.13)
Net realized and unrealized gain....... 9.34 4.87 0.15 1.05
------ ------ ------ ------
Total income (loss) from investment
operations............................. 9.16 4.61 (0.07) 0.92
------ ------ ------ ------
Net asset value, end of period.......... $24.62 $15.46 $10.85 $10.92
====== ====== ====== ======
TOTAL RETURN+........................... 59.25%(1) 42.49% (0.64)% 9.20%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 1.82%(2)(3) 2.20%(3) 2.29% 2.28%(2)
Net investment loss..................... (1.69)%(2)(3) (2.05)%(3) (2.16)% (1.79)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $336,570 $212,043 $174,412 $205,274
Portfolio turnover rate................. 17%(1) 52% 49% 25%(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) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED THROUGH
MAY 31, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1997
- -------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $15.60 $10.88 $10.85
------ ------ ------
Income (loss) from investment operations:
Net investment loss........................................ (0.15) (0.18) (0.06)
Net realized and unrealized gain........................... 9.44 4.90 0.09
------ ------ ------
Total income from investment operations..................... 9.29 4.72 0.03
------ ------ ------
Net asset value, end of period.............................. $24.89 $15.60 $10.88
====== ====== ======
TOTAL RETURN+............................................... 59.55%(1) 43.38% 0.28%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.44%(2)(3) 1.55%(3) 1.55%(2)
Net investment loss......................................... (1.31)%(2)(3) (1.40)%(3) (1.46)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $4,061 $1,107 $58
Portfolio turnover rate..................................... 17%(1) 52% 49%
CLASS C SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $15.45 $10.85 $10.85
------ ------ ------
Income (loss) from investment operations:
Net investment loss........................................ (0.24) (0.28) (0.08)
Net realized and unrealized gain........................... 9.34 4.88 0.08
------ ------ ------
Total income from investment operations..................... 9.10 4.60 --
------ ------ ------
Net asset value, end of period.............................. $24.55 $15.45 $10.85
====== ====== ======
TOTAL RETURN+............................................... 58.96%(1) 42.27% 0.09%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 2.21%(2)(3) 2.30%(3) 2.32%(2)
Net investment loss......................................... (2.08)%(2)(3) (2.15)%(3) (2.22)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $6,675 $712 $83
Portfolio turnover rate..................................... 17%(1) 52% 49%
</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 MID-CAP EQUITY TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED THROUGH
MAY 31, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1997
- ---------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $15.66 $10.89 $10.85
------ ------ ------
Income (loss) from investment operations:
Net investment loss........................................ (0.12) (0.15) (0.05)
Net realized and unrealized gain........................... 9.46 4.92 0.09
------ ------ ------
Total income from investment operations..................... 9.34 4.77 0.04
------ ------ ------
Net asset value, end of period.............................. $25.00 $15.66 $10.89
====== ====== ======
TOTAL RETURN+............................................... 59.71%(1) 43.80% 0.37%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.21%(2)(3) 1.30%(3) 1.30%(2)
Net investment loss......................................... (1.08)%(2)(3) (1.15)%(3) (1.19)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $28 $15 $10
Portfolio turnover rate..................................... 17%(1) 52% 49%
</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
James F. Willison
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 Funds Management, Inc.
865 South Figueroa Street, Suite 1800
Los Angeles, CA 90017
The financial statements included herein have been taken from the records of the
Trust without examination by the independent accountants and accordingly they
do not express an opinion thereon.
The report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of the
Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
MORGAN STANLEY
DEAN WITTER
MID-CAP
EQUITY TRUST
Semiannual Report
May 31, 1999
