<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 2000
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
---------------------
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
---------------------
MORGAN STANLEY DEAN WITTER
MID-CAP EQUITY TRUST
(Exact Name of Registrant as Specified in Charter)
(formerly named TCW/DW Mid-Cap Equity Trust)
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(Address of Principal Executive Offices)
212-392-1600
(Registrant's Telephone Number)
BARRY FINK, ESQ.
Two World Trade Center
New York, New York 10048
(Name and Address of Agent for Service)
---------------------
COPY TO:
STUART M. STRAUSS, ESQ.
Mayer, Brown & Platt
1675 Broadway
New York, New York 10019
---------------------
It is proposed that this filing will become effective on the thirtieth day
after the date of the filing, pursuant to Rule 488.
The Exhibit Index is located on page [ ]
PURSUANT TO RULE 429, THIS REGISTRATION STATEMENT RELATES TO SHARES
PREVIOUSLY REGISTERED BY THE REGISTRANT ON FORM N-1A (REGISTRATION NOS.
33-63685; 811-7377).
================================================================================
<PAGE>
FORM N-14
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A) UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
PART A OF FORM N-14 ITEM NO. PROXY STATEMENT AND PROSPECTUS HEADING
- - - ------------------------------ -------------------------------------------------------
<S> <C>
1 (a) ........................ Cross Reference Sheet
(b) ........................ Front Cover Page
(c) ........................ *
2 (a) ........................ *
(b) ........................ Table of Contents
3 (a) ........................ Fee Table
(b) ........................ Synopsis
(c) ........................ Principal Risk Factors
4 (a) ........................ The Reorganization
(b) ........................ The Reorganization -- Capitalization Table (Unaudited)
5 (a) ........................ Registrant's Prospectus
(b) ........................ *
(c) ........................ *
(d) ........................ *
(e) ........................ Available Information
(f) ........................ Available Information
6 (a) ........................ Prospectus of Morgan Stanley Dean Witter Mid-Cap
Dividend Growth Securities
(b) ........................ Available Information
(c) ........................ *
(d) ........................ *
7 (a) ........................ Introduction -- Proxies
(b) ........................ *
(c) ........................ Introduction; The Reorganization -- Appraisal Rights
8 (a) ........................ The Reorganization
(b) ........................ *
9 ........................ *
PART B OF FORM N-14 ITEM NO. STATEMENT OF ADDITIONAL INFORMATION HEADING
- - - ------------------------------ --------------------------------------------------------
10(a) ........................ Cover Page
(b) ........................ *
11 ........................ Table of Contents
12(a) ........................ Additional Information about Morgan Stanley Dean Witter
Mid-Cap Equity Trust
(b) ........................ *
(c) ........................
13(a) ........................ Additional Information about Morgan Stanley Dean Witter
Mid-Cap Dividend Growth Securities
(b) ........................ *
(c) ........................ *
14 ........................ Registrant's Annual Report for the fiscal year ended
November 30, 1999. Morgan Stanley Dean Witter Mid-Cap
Dividend Growth Securities Annual Report for the fiscal
year ended February 28, 1999 and Semi-Annual Report for
the six month period ended August 31, 1999.
PART C OF FORM N-14 ITEM NO. OTHER INFORMATION HEADING
- - - ------------------------------ --------------------------
15 ........................ Indemnification
16 ........................ Exhibits
17 .......................... Undertakings
</TABLE>
- - - ----------
* Not Applicable or negative answer
<PAGE>
MORGAN STANLEY DEAN WITTER
MID-CAP DIVIDEND GROWTH SECURITIES
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(800) 869-NEWS
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 22, 2000
TO THE SHAREHOLDERS OF MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH
SECURITIES:
Notice is hereby given of a Special Meeting of the Shareholders of Morgan
Stanley Dean Witter Mid-Cap Dividend Growth Securities ("Mid-Cap Dividend") to
be held in Conference Room A, Forty-Fourth Floor, Two World Trade Center, New
York, New York 10048, at 10:30 A.M., New York time, on June 22, 2000, and any
adjournments thereof (the "Meeting"), for the following purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization, dated
January 26, 2000 (the "Reorganization Agreement"), between Mid-Cap
Dividend and Morgan Stanley Dean Witter Mid-Cap Equity Trust ("Mid-Cap
Equity"), pursuant to which substantially all of the assets of Mid-Cap
Dividend would be combined with those of Mid-Cap Equity and shareholders
of Mid-Cap Dividend would become shareholders of Mid-Cap Equity receiving
shares of Mid-Cap Equity with a value equal to the value of their holdings
in Mid-Cap Dividend (the "Reorganization"); and
2. To act upon such other matters as may properly come before the Meeting.
The Reorganization is more fully described in the accompanying Proxy
Statement and Prospectus and a copy of the Reorganization Agreement is attached
as Exhibit A thereto. Shareholders of record at the close of business on
March 1, 2000 are entitled to notice of, and to vote at, the Meeting. Please
read the Proxy Statement and Prospectus carefully before telling us, through
your proxy or in person, how you wish your shares to be voted. Alternatively,
if you are eligible to vote telephonically by touchtone telephone or
electronically on the Internet (as discussed in the enclosed Proxy Statement)
you may do so in lieu of attending the Meeting in person. THE BOARD OF TRUSTEES
OF MID-CAP DIVIDEND RECOMMENDS YOU VOTE IN FAVOR OF THE REORGANIZATION. WE URGE
YOU TO SIGN, DATE AND MAIL THE ENCLOSED PROXY PROMPTLY.
By Order of the Board of Trustees,
BARRY FINK,
Secretary
March , 2000
- - - --------------------------------------------------------------------------------
YOU CAN HELP AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP LETTERS TO
ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY. IF YOU ARE UNABLE TO
BE PRESENT IN PERSON, PLEASE FILL IN, SIGN AND RETURN THE ENCLOSED PROXY IN
ORDER THAT THE NECESSARY QUORUM BE REPRESENTED AT THE MEETING. THE ENCLOSED
ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. AS DISCUSSED IN THE
ENCLOSED PROXY STATEMENT, CERTAIN SHAREHOLDERS WILL BE ABLE TO VOTE
TELEPHONICALLY BY TOUCHTONE TELEPHONE OR ELECTRONICALLY ON THE INTERNET BY
FOLLOWING INSTRUCTIONS ON THEIR PROXY CARDS OR ON THE ENCLOSED VOTING
INFORMATION CARD.
- - - --------------------------------------------------------------------------------
<PAGE>
MORGAN STANLEY DEAN WITTER
MID-CAP EQUITY TRUST
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
(800) 869-NEWS
ACQUISITION OF THE ASSETS OF
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
BY AND IN EXCHANGE FOR SHARES OF
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
This Proxy Statement and Prospectus is being furnished to shareholders of
Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities ("Mid-Cap
Dividend") in connection with an Agreement and Plan of Reorganization, dated
January 26, 2000 (the "Reorganization Agreement"), pursuant to which
substantially all the assets of Mid-Cap Dividend will be combined with those of
Morgan Stanley Dean Witter Mid-Cap Equity Trust ("Mid-Cap Equity") in exchange
for shares of Mid-Cap Equity (the "Reorganization"). As a result of this
transaction, shareholders of Mid-Cap Dividend will become shareholders of
Mid-Cap Equity and will receive shares of Mid-Cap Equity with a value equal to
the value of their holdings in Mid-Cap Dividend. The terms and conditions of
this transaction are more fully described in this Proxy Statement and
Prospectus and in the Reorganization Agreement between Mid-Cap Dividend and
Mid-Cap Equity, attached hereto as Exhibit A. The address of Mid-Cap Dividend
is that of Mid-Cap Equity set forth above. This Proxy Statement also
constitutes a Prospectus of Mid-Cap Equity, which is dated March , 2000,
filed by Mid-Cap Equity with the Securities and Exchange Commission (the
"Commission") as part of its Registration Statement on Form N-14 (the
"Registration Statement").
Mid-Cap Equity is an open-end diversified management investment company
whose investment objective is to seek long-term capital appreciation. The fund
seeks to achieve its objective by investing at least 65% of its assets in
common stocks and convertible securities of medium-sized companies with market
capitalizations, at the time of purchase, within the capitalization range of
the companies comprising the Standard & Poor's Mid-Cap 400 Index (approximately
between $165 million and 37 billion as of December 31, 1999). The fund's
"Sub-Advisor", TCW Investment Management Company ("TCW" or the "Sub-Advisor"),
invests the fund's assets in companies it believes exhibit superior earnings
growth prospects and attractive stock market valuations.
This Proxy Statement and Prospectus sets forth concisely information about
Mid-Cap Equity that shareholders of Mid-Cap Dividend should know before voting
on the Reorganization Agreement. A copy of the Prospectus for Mid-Cap Equity
dated January 28, 2000, is attached as Exhibit B and incorporated herein by
reference. Also enclosed and incorporated herein by reference is Mid-Cap
Equity's Annual Report for the fiscal year ended November 30, 1999. A Statement
of Additional Information relating to the Reorganization, described in this
Proxy Statement and Prospectus (the "Additional Statement"), dated March ,
2000, has been filed with the Commission and is also incorporated herein by
reference. Also incorporated herein by reference are Mid-Cap Dividend's
Prospectus, dated June 30, 1999, and Annual Report for its fiscal year ended
February 28, 1999 and the succeeding unaudited Semi-Annual Report for the six
months ended August 31, 1999. Such documents are available without charge by
calling (800) 869-NEWS (TOLL FREE).
Investors are advised to read and retain this Proxy Statement and Prospectus
for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THIS PROXY STATEMENT AND PROSPECTUS IS DATED MARCH , 2000.
<PAGE>
TABLE OF CONTENTS
PROXY STATEMENT AND PROSPECTUS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTRODUCTION ............................................................................. 1
General ................................................................................ 1
Record Date; Share Information ......................................................... 1
Proxies ................................................................................ 2
Expenses of Solicitation ............................................................... 3
Vote Required .......................................................................... 3
SYNOPSIS ................................................................................. 3
The Reorganization ..................................................................... 4
Fee Table .............................................................................. 4
Tax Consequences of the Reorganization ................................................. 8
Comparison of Mid-Cap Dividend and Mid-Cap Equity ...................................... 8
PRINCIPAL RISK FACTORS ................................................................... 11
THE REORGANIZATION ....................................................................... 13
The Proposal ........................................................................... 13
The Board's Consideration .............................................................. 13
The Reorganization Agreement ........................................................... 14
Tax Aspects of the Reorganization ...................................................... 16
Description of Shares .................................................................. 17
Capitalization Table (unaudited) ....................................................... 18
Appraisal Rights ....................................................................... 18
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS ........................... 18
Investment Objectives and Policies ..................................................... 18
Investment Restrictions ................................................................ 20
ADDITIONAL INFORMATION ABOUT MID-CAP DIVIDEND AND MID-CAP
EQUITY .................................................................................. 21
General ................................................................................ 21
Financial Information .................................................................. 21
Management ............................................................................. 21
Description of Securities and Shareholder Inquiries .................................... 21
Dividends, Distributions and Taxes ..................................................... 21
Purchases, Repurchases and Redemptions ................................................. 21
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE .............................................. 21
FINANCIAL STATEMENTS AND EXPERTS ......................................................... 22
LEGAL MATTERS ............................................................................ 22
AVAILABLE INFORMATION .................................................................... 22
OTHER BUSINESS ........................................................................... 22
Exhibit A - Agreement and Plan of Reorganization, dated January 26, 2000, by and between
Mid-Cap Dividend and Mid-Cap Equity ..................................................... A-1
Exhibit B - Prospectus of Mid-Cap Equity dated January 28, 2000 .......................... B-1
</TABLE>
<PAGE>
MORGAN STANLEY DEAN WITTER
MID-CAP DIVIDEND GROWTH SECURITIES
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(800) 869-NEWS
--------------------
PROXY STATEMENT AND PROSPECTUS
--------------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 22, 2000
INTRODUCTION
GENERAL
This Proxy Statement and Prospectus is being furnished to the shareholders
of Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities ("Mid-Cap
Dividend"), an open-end diversified management investment company, in
connection with the solicitation by the Board of Trustees of Mid-Cap Dividend
(the "Board") of proxies to be used at the Special Meeting of Shareholders of
Mid-Cap Dividend to be held in Conference Room A, Forty-Fourth Floor, Two World
Trade Center, New York, New York 10048 at 10:30 A.M., New York time, on June
22, 2000, and any adjournments thereof (the "Meeting"). It is expected that the
mailing of this Proxy Statement and Prospectus will be made on or about March
, 2000.
At the Meeting, Mid-Cap Dividend shareholders ("Shareholders") will
consider and vote upon an Agreement and Plan of Reorganization, dated January
26, 2000 (the "Reorganization Agreement"), between Mid-Cap Dividend and Morgan
Stanley Dean Witter Mid-Cap Equity Trust ("Mid-Cap Equity") pursuant to which
substantially all of the assets of Mid-Cap Dividend will be combined with those
of Mid-Cap Equity in exchange for shares of Mid-Cap Equity. As a result of this
transaction, Shareholders will become shareholders of Mid-Cap Equity and will
receive shares of Mid-Cap Equity equal to the value of their holdings in
Mid-Cap Dividend on the date of such transaction (the "Reorganization").
Pursuant to the Reorganization, each Shareholder will receive the class of
shares of Mid-Cap Equity that corresponds to the class of shares of Mid-Cap
Dividend currently held by that Shareholder. Accordingly, as a result of the
Reorganization, each Class A, Class B, Class C and Class D Shareholder of
Mid-Cap Dividend will receive Class A, Class B, Class C and Class D shares of
Mid-Cap Equity, respectively. The shares to be issued by Mid-Cap Equity
pursuant to the Reorganization (the "Mid-Cap Equity Shares") will be issued at
net asset value without an initial sales charge. Further information relating
to Mid-Cap Equity is set forth herein and in Mid-Cap Equity's current
Prospectus, dated January 28, 2000 ("Mid-Cap Equity's Prospectus"), attached to
this Proxy Statement and Prospectus and incorporated herein by reference.
The information concerning Mid-Cap Dividend contained herein has been
supplied by Mid-Cap Dividend and the information concerning Mid-Cap Equity
contained herein has been supplied by Mid-Cap Equity.
RECORD DATE; SHARE INFORMATION
The Board has fixed the close of business on March 1, 2000 as the record
date (the "Record Date") for the determination of the Shareholders entitled to
notice of, and to vote at, the Meeting. As of the Record Date,
1
<PAGE>
there were [ ] shares of Mid-Cap Dividend issued and outstanding.
Shareholders on the Record Date are entitled to one vote per share on each
matter submitted to a vote at the Meeting. A majority of the outstanding shares
entitled to vote, represented in person or by proxy, will constitute a quorum
at the Meeting.
The following persons were known to own of record or beneficially 5% or
more of the outstanding shares of a Class of Mid-Cap Dividend as of the Record
Date: Class A -- . Class B -- . Class C -- . Class D -- .
As of the Record Date, the trustees and officers of Mid-Cap Dividend, as a
group, owned less than % of the outstanding shares of Mid-Cap Dividend.
The following persons were known to own of record or beneficially 5% or
more of the outstanding shares of a Class of Mid-Cap Equity as of the Record
Date: Class A -- . Class B -- . Class C -- . Class D -- .
As of the Record Date, the trustees and officers of Mid-Cap Equity, as a group,
owned less than % of the outstanding shares of Mid-Cap Equity.
PROXIES
The enclosed form of proxy, if properly executed and returned, will be
voted in accordance with the choice specified thereon. The proxy will be voted
in favor of the Reorganization Agreement unless a choice is indicated to vote
against or to abstain from voting on the Reorganization Agreement. The Board
knows of no business, other than that set forth in the Notice of Special
Meeting of Shareholders, to be presented for consideration at the Meeting.
However, the proxy confers discretionary authority upon the persons named
therein to vote as they determine on other business, not currently
contemplated, which may come before the Meeting. Abstentions and, if
applicable, broker "non-votes" will not count as votes in favor of the
Reorganization Agreement, and broker "non-votes" will not be deemed to be
present at the meeting for purposes of determining whether the Reorganization
Agreement has been approved. Broker "non-votes" are shares held in street name
for which the broker indicates that instructions have not been received from
the beneficial owners or other persons entitled to vote and for which the
broker does not have discretionary voting authority. If a Shareholder executes
and returns a proxy but fails to indicate how the votes should be cast, the
proxy will be voted in favor of the Reorganization Agreement. The proxy may be
revoked at any time prior to the voting thereof by: (i) delivering written
notice of revocation to the Secretary of Mid-Cap Dividend at Two World Trade
Center, New York, New York 10048; (ii) attending the Meeting and voting in
person; or (iii) completing and returning a new proxy (whether by mail or, as
discussed below, by touchtone telephone or the Internet) (if returned and
received in time to be voted). Attendance at the Meeting will not in and of
itself revoke a proxy.
In the event that the necessary quorum to transact business or the vote
required to approve or reject the Reorganization Agreement is not obtained at
the Meeting, the persons named as proxies may propose one or more adjournments
of the Meeting to permit further solicitation of proxies. Any such adjournment
will require the affirmative vote of the holders of a majority of shares of
Mid-Cap Dividend present in person or by proxy at the Meeting. The persons
named as proxies will vote in favor of such adjournment those proxies which
they are entitled to vote in favor of the Reorganization Agreement and will
vote against any such adjournment those proxies required to be voted against
the Reorganization Agreement.
2
<PAGE>
EXPENSES OF SOLICITATION
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement and Prospectus, will be borne by Mid-Cap Dividend
which expenses are expected to approximate $157,000. Mid-Cap Dividend and
Mid-Cap Equity will bear all of their respective other expenses associated with
the Reorganization. In addition to the solicitation of proxies by mail, proxies
may be solicited by officers of Mid-Cap Dividend, and officers and regular
employees of Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors" or the
"Investment Manager") and Morgan Stanley Dean Witter Trust FSB ("MSDW Trust"),
an affiliate of MSDW Advisors, personally or by mail, telephone, telegraph or
otherwise, without compensation therefor. Brokerage houses, banks and other
fiduciaries may be requested to forward soliciting material to the beneficial
owners of shares and to obtain authorization for the execution of proxies.
Shareholders whose shares are registered with MSDW Trust will be able to
vote their shares by touchtone telephone or by Internet by following the
instructions on the proxy card or on the Voting Information Card accompanying
this Proxy Statement. To vote by touchtone telephone, Shareholders can call the
toll-free number 1-800-690-6903. To vote by Internet, Shareholders can access
the websites www.msdwt.com or www.proxyvote.com. Telephonic and Internet voting
with MSDW Trust presently are not available to Shareholders whose shares are
held in street name.
In certain instances, MSDW Trust, an affiliate of MSDW Advisors, may call
Shareholders to ask if they would be willing to have their votes recorded by
telephone. The telephone voting procedure is designed to authenticate
Shareholders' identities, to allow Shareholders to authorize the voting of
their shares in accordance with their instructions and to confirm that their
instructions have been recorded properly. No recommendation will be made as to
how a Shareholder should vote on the Reorganization Agreement other than to
refer to the recommendation of the Board. Mid-Cap Dividend has been advised by
counsel that these procedures are consistent with the requirements of
applicable law. Shareholders voting by telephone in this manner will be asked
for their social security number or other identifying information and will be
given an opportunity to authorize proxies to vote their shares in accordance
with their instructions. To ensure that the Shareholders' instructions have
been recorded correctly, they will receive a confirmation of their instructions
in the mail. A special toll-free number will be available in case the
information contained in the confirmation is incorrect. Although a
Shareholder's vote may be taken by telephone, each Shareholder will receive a
copy of this Proxy Statement and Prospectus and may vote by mail using the
enclosed proxy card or by touchtone telephone or the Internet as set forth
above. The last proxy vote received in time to be voted, whether by proxy card,
touchtone telephone or Internet, will be the vote that is counted and will
revoke all previous votes by the Shareholder.
VOTE REQUIRED
Approval of the Reorganization Agreement by the Shareholders requires the
affirmative vote of a majority (i.e., more than 50%) of the shares of Mid-Cap
Dividend represented in person or by proxy and entitled to vote at the Meeting,
provided a quorum is present at the Meeting. If the Reorganization Agreement is
not approved by Shareholders, Mid-Cap Dividend will continue in existence and
the Board will consider alternative actions.
SYNOPSIS
The following is a synopsis of certain information contained in or
incorporated by reference in this Proxy Statement and Prospectus. This synopsis
is only a summary and is qualified in its entirety by the more detailed
information contained or incorporated by reference in this Proxy Statement and
Prospectus and the Reorganization Agreement. Shareholders should carefully
review this Proxy Statement and Prospectus and Reorganization Agreement in
their entirety and, in particular, Mid-Cap Equity's Prospectus, which is
attached to this Proxy Statement and incorporated herein by reference.
3
<PAGE>
THE REORGANIZATION
The Reorganization Agreement provides for the transfer of substantially
all the assets of Mid-Cap Dividend, subject to stated liabilities, to Mid-Cap
Equity in exchange for the Mid-Cap Equity Shares. The aggregate net asset value
of the Mid-Cap Equity Shares issued in the exchange will equal the aggregate
value of the net assets of Mid-Cap Dividend received by Mid-Cap Equity. On or
after the closing date scheduled for the Reorganization (the "Closing Date"),
Mid-Cap Dividend will distribute the Mid-Cap Equity Shares received by Mid-Cap
Dividend to Shareholders as of the Valuation Date (as defined below under "The
Reorganization Agreement") in complete liquidation of Mid-Cap Dividend and
Mid-Cap Dividend will thereafter be dissolved and deregistered under the
Investment Company Act of 1940, as amended (the "1940 Act"). As a result of the
Reorganization, each Shareholder will receive that number of full and
fractional Mid-Cap Equity Shares equal in value to such Shareholder's pro rata
interest in the net assets of Mid-Cap Dividend transferred to Mid-Cap Equity.
Pursuant to the Reorganization, each Shareholder will receive the class of
shares of Mid-Cap Equity that corresponds to the class of shares of Mid-Cap
Dividend currently held by that Shareholder. Accordingly, as a result of the
Reorganization, each Class A, Class B, Class C and Class D Shareholder of
Mid-Cap Dividend will become a holder of Class A, Class B, Class C and Class D
shares of Mid-Cap Equity, respectively. Shareholders holding their shares of
Mid-Cap Dividend in certificate form will be asked to surrender their
certificates in connection with the Reorganization. Shareholders who do not
surrender their certificates prior to the Closing Date will still receive their
shares of Mid-Cap Equity; however, such Shareholders will not be able to
redeem, transfer or exchange the Mid-Cap Equity Shares received until the old
certificates have been surrendered. The Board has determined that the interests
of Shareholders will not be diluted as a result of the Reorganization.
FOR THE REASONS SET FORTH BELOW UNDER "THE REORGANIZATION -- THE BOARD'S
CONSIDERATION," THE BOARD, INCLUDING THE TRUSTEES WHO ARE NOT "INTERESTED
PERSONS" OF MID-CAP DIVIDEND ("INDEPENDENT TRUSTEES"), AS THAT TERM IS DEFINED
IN THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE "1940 ACT"), HAS
CONCLUDED THAT THE REORGANIZATION IS IN THE BEST INTERESTS OF MID-CAP DIVIDEND
AND ITS SHAREHOLDERS AND RECOMMENDS APPROVAL OF THE REORGANIZATION AGREEMENT.
FEE TABLE
Mid-Cap Dividend and Mid-Cap Equity each pay expenses for management of
their assets, distribution of their shares and other services, and those
expenses are reflected in the net asset value per share of each fund. The
following table briefly describes the fees and expenses that a shareholder of
Mid-Cap Dividend and Mid-Cap Equity may pay if they buy and hold shares of each
respective fund. These expenses are deducted from each respective fund's assets
and are based on expenses paid by Mid-Cap Dividend for its fiscal year ended
February 28, 1999, and by Mid-Cap Equity for its fiscal year ended November 30,
1999. The table also sets forth pro forma fees for the surviving combined fund
(Mid-Cap Equity) reflecting what the fee schedule would have been on November
30, 1999, if the Reorganization had been consummated twelve (12) months prior
to that date.
4
<PAGE>
Shareholder Fees
<TABLE>
<CAPTION>
PRO FORMA
MID-CAP MID-CAP COMBINED
DIVIDEND EQUITY (MID-CAP EQUITY)
--------------- --------------- -----------------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON PURCHASES
(AS A PERCENTAGE OF OFFERING PRICE)
Class A ............................................... 5.25%(1) 5.25%(1) 5.25%(1)
Class B ............................................... none none none
Class C ............................................... none none none
Class D ............................................... none none none
MAXIMUM SALES CHARGE (LOAD) IMPOSED ON REINVESTED
DIVIDENDS
Class A ............................................... none none none
Class B ............................................... none none none
Class C ............................................... none none none
Class D ............................................... none none none
MAXIMUM CONTINGENT DEFERRED SALES CHARGE (LOAD) (AS A
PERCENTAGE OF THE LESSER OF ORIGINAL PURCHASE PRICE OR
REDEMPTION PROCEEDS)
Class A ............................................... none(2) none(2) none(2)
Class B ............................................... 5.00%(3) 5.00%(3) 5.00%(3)
Class C ............................................... 1.00%(4) 1.00%(4) 1.00%(4)
Class D ............................................... none none none
REDEMPTION FEES
Class A ............................................... none none none
Class B ............................................... none none none
Class C ............................................... none none none
Class D ............................................... none none none
EXCHANGE FEE
Class A ............................................... none none none
Class B ............................................... none none none
Class C ............................................... none none none
Class D ............................................... none none none
</TABLE>
Annual Fund Operating Expenses (expenses that are deducted from fund assets)
<TABLE>
<CAPTION>
PRO FORMA
MID-CAP MID-CAP COMBINED
DIVIDEND EQUITY (MID-CAP EQUITY)
--------------- --------------- -----------------
<S> <C> <C> <C>
MANAGEMENT FEES(5)
Class A ............................................... 0.75% 0.75% 0.74%
Class B ............................................... 0.75% 0.75% 0.74%
Class C ............................................... 0.75% 0.75% 0.74%
Class D ............................................... 0.75% 0.75% 0.74%
DISTRIBUTION AND SERVICE (12B-1) FEES(6)(7)(8)
Class A ............................................... 0.25% 0.24% 0.24%
Class B ............................................... 1.00% 0.75% 0.82%(9)
Class C ............................................... 1.00% 1.00% 1.00%
Class D ............................................... none none none
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
MID-CAP MID-CAP COMBINED
DIVIDEND EQUITY (MID-CAP EQUITY)
---------- --------- -----------------
<S> <C> <C> <C>
OTHER EXPENSES
Class A ..................................... 0.30% 0.18% 0.19%
Class B ..................................... 0.30% 0.18% 0.19%
Class C ..................................... 0.30% 0.18% 0.19%
Class D ..................................... 0.30% 0.18% 0.19%
TOTAL ANNUAL FUND OPERATING EXPENSES
Class A ..................................... 1.30% 1.17% 1.17%
Class B ..................................... 2.05% 1.68% 1.75%
Class C ..................................... 2.05% 1.93% 1.93%
Class D ..................................... 1.05% 0.93% 0.93%
</TABLE>
- - - ----------
(1) Reduced for purchases of $25,000 and over (see "Share Class Arrangements
-- Class A Shares" in each fund's Prospectus).
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a Contingent Deferred Sales Charge ("CDSC") of
1.00% that will be imposed on redemptions made within one year after
purchase, except for certain specific circumstances (see "Purchases,
Exchanges and Redemptions" below and "Share Class Arrangements -- Class A
Shares" in each fund's Prospectus).
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter.
(4) Only applicable to redemptions made within one year after purchase (see
"Purchases, Exchanges and Redemptions" below and "Share Class
Arrangements -- Class C Shares" in each fund's Prospectus).
(5) The combined pro forma rate reflects the current aggregate fee payable by
Mid-Cap Equity for management and advisory services, effective as of June
28, 1999.
(6) The 12b-1 fee is accrued daily and payable monthly. With respect to each
fund, the entire 12b-1 fee payable by Class A and a portion of the 12b-1
fee payable by each of Class B and Class C equal to 0.25% of the average
daily net assets of the class are currently characterized as a service
fee within the meaning of National Association of Securities Dealers,
Inc. ("NASD") guidelines and are payments made for personal service and/
or maintenance of shareholder accounts. The remainder of the 12b-1 fee,
if any, is an asset-based sales charge, and is a distribution fee paid to
Morgan Stanley Dean Witter Distributors Inc. (the "Distributor") to
compensate it for the services provided and the expenses borne by the
Distributor and others in the distribution of each fund's shares (see
"Description of Shares" below and "Share Class Arrangements" in each
fund's Prospectus).
(7) Upon conversion of Class B shares to Class A shares, such shares will be
subject to the lower 12b-1 fee applicable to Class A shares. No sales
charge is imposed at the time of conversion of Class B shares to Class A
shares. Class C shares do not have a conversion feature and, therefore,
are subject to an ongoing 1.00% 12b-1 fee (see "Description of Shares"
below and "Share Class Arrangements" in each fund's Prospectus).
(8) Although the 12b-1 fee for the Class B shares is similar for both funds,
the formula for calculating the 12b-1 fees for the Class B shares of
Mid-Cap Equity (1.0% of the lesser of average daily net sales or average
daily net assets) results in lower annual 12b-1 fees on the existing
assets of the Class B shares of Mid-Cap Equity. Upon the consummation of
the reorganization, the assets of Mid-Cap Dividend are treated under the
formula as new sales and a 1.0% rate is applied thereto.
(9) The combined fund's Class B 12b-1 fee of 0.82% is based on the combined
fund's average net assets during the fiscal year ended November 30,
1999. Mid-Cap Equity's assets have grown significantly during the fiscal
year. Thus, if Mid-Cap Equity's much higher asset level at November 30,
1999 (the end of the fiscal year) combined with Mid-Cap Dividend's lower
net assets at November 30, 1999 is assumed for purposes of calculating
the combined fund's pro forma Class B 12b-1 fee, such fee rate, on an
annualized basis, would be 0.73% of the combined fund's net assets.
6
<PAGE>
EXAMPLE
To attempt to show the effect of these expenses on an investment over
time, the hypotheticals shown below have been created. The Example assumes that
an investor invests $10,000 in either Mid-Cap Dividend or Mid-Cap Equity or the
new combined fund (Mid-Cap Equity), that the investment has a 5% return each
year and that the operating expenses for each fund remain the same (as set
forth in the chart above). Although a shareholder's actual costs may be higher
or lower, the tables below show a shareholder's costs at the end of each period
based on these assumptions depending upon whether or not a shareholder sold his
shares at the end of each period.
If a Shareholder SOLD His Shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Mid-Cap Dividend
Class A ......... $651 $917 $1,203 $2,015
Class B ......... $708 $944 $1,306 $2,384
Class C ......... $308 $644 $1,106 $2,384
Class D ......... $108 $335 $ 582 $1,288
Mid-Cap Equity
Class A ......... $638 $877 $1,135 $1,871
Class B ......... $671 $830 $1,113 $1,987
Class C ......... $296 $606 $1,042 $2,254
Class D ......... $ 95 $296 $ 515 $1,143
Pro Forma Combined
Class A ......... $638 $877 $1,135 $1,871
Class B ......... $678 $851 $1,149 $2,062
Class C ......... $296 $606 $1,042 $2,254
Class D ......... $ 95 $296 $ 515 $1,143
</TABLE>
A Shareholder HELD His Shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Mid-Cap Dividend
Class A ......... $651 $917 $1,203 $2,015
Class B ......... $208 $644 $1,106 $2,384
Class C ......... $208 $644 $1,106 $2,384
Class D ......... $108 $335 $ 582 $1,288
Mid-Cap Equity
Class A ......... $638 $877 $1,135 $1,871
Class B ......... $171 $530 $ 913 $1,987
Class C ......... $196 $606 $1,042 $2,254
Class D ......... $ 95 $296 $ 515 $1,143
Pro Forma Combined
Class A ......... $638 $877 $1,135 $1,871
Class B ......... $178 $551 $ 949 $2,062
Class C ......... $196 $606 $1,042 $2,254
Class D ......... $ 95 $296 $ 515 $1,143
</TABLE>
7
<PAGE>
LONG-TERM SHAREHOLDERS OF CLASS B AND CLASS C SHARES OF MID-CAP DIVIDEND
AND MID-CAP EQUITY MAY PAY MORE IN SALES CHARGES INCLUDING DISTRIBUTION FEES
THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM FRONT-END SALES CHARGES PERMITTED
BY THE NASD.
The purpose of the foregoing fee table is to assist the investor or
shareholder in understanding the various costs and expenses that an investor or
shareholder in the fund will bear directly or indirectly. For a more complete
description of these costs and expenses, see "Comparison of Mid-Cap Dividend
and Mid-Cap Equity -- Investment Management and Distribution Plan Fees, Other
Significant Fees, and Purchases, Exchanges and Redemptions" below.
TAX CONSEQUENCES OF THE REORGANIZATION
As a condition to the Reorganization, Mid-Cap Dividend will receive an
opinion of Mayer, Brown & Platt to the effect that the Reorganization will
constitute a tax-free reorganization for federal income tax purposes, and that
no gain or loss will be recognized by Mid-Cap Dividend or the shareholders of
Mid-Cap Dividend for federal income tax purposes as a result of the
transactions included in the Reorganization. For further information about the
tax consequences of the Reorganization, see "The Reorganization -- Tax Aspects
of the Reorganization" below.
COMPARISON OF MID-CAP DIVIDEND AND MID-CAP EQUITY
INVESTMENT OBJECTIVES AND POLICIES. The investment objective of Mid-Cap
Dividend is total return. The investment objective of Mid-Cap Equity is
long-term capital appreciation. Both funds seek to achieve their objectives by
investing principally in a diversified portfolio of equity securities of
medium-sized companies in accordance with their respective investment
strategies set forth below.
Mid-Cap Dividend seeks to achieve its investment objective by investing,
under normal circumstances, at least 65% of its total assets in equity
securities of medium sized companies whose capitalization falls within the range
of companies comprising the Standard & Poor's Mid-Cap 400 Index (approximately
between $165 million and $37 billion as of December 31, 1999) (the "S&P 400
Index"), that currently pay dividends and that have the potential for increasing
dividends. Mid-Cap Equity seeks to achieve its investment objective by
investing, under normal circumstances, at least 65% of its total assets in
common stocks and convertible securities of medium sized companies whose
capitalization falls within the range of companies comprising the S&P 400 Index.
The fund's "Sub-Advisor", TCW Investment Management Company ("TCW" or the
"Sub-Advisor"), invests the fund's assets in companies it believes exhibit
superior earnings growth prospects and attractive stock market valuations.
Mid-Cap Dividend may invest up to 35% of its total assets in common stocks of
U.S. companies that fall outside the range of mid-cap securities or in
non-dividend paying mid-cap securities, as well as in investment grade
fixed-income securities. Mid-Cap Dividend may also invest up to 35% of its total
assets in convertible bonds or preferred stocks that are convertible into common
stock. There are no minimum rating or quality requirements with respect to
convertible securities in which Mid-Cap Dividend may invest. However, Mid-Cap
Dividend will not invest in convertible securities that are in default in
payment of principal or interest. Additionally, Mid-Cap Dividend may invest up
to 25% of its total assets in equity securities (including depository receipts)
of foreign issuers whose market capitalization is within the range of the
companies comprising the S&P 400 Index. Mid-Cap Dividend may invest any amount
of its assets in foreign securities (including depositary receipts) that are
listed in the U.S. on a national securities exchange. Up to 35% of Mid-Cap
Equity's total assets may be invested in equity securities of companies with
market capitalization at the time of acquisition which is not within the
capitalization range of companies comprising the S&P 400 Index, as well as in
investment grade fixed-income securities. Additionally, Mid-Cap Equity may
invest up to 25% of
8
<PAGE>
its total assets in equity securities of foreign issuers in the form of direct
investments or depository receipts or similar investments. The processes by
which each fund selects common stocks and other investments may differ and are
more fully described under "Comparison of Investment Objectives, Policies and
Restrictions" below.
The principal differences between the funds' investment policies, as well
as certain similarities, are more fully described under "Comparison of
Investment Objectives, Policies and Restrictions" below.
The investment policies of both Mid-Cap Dividend and Mid-Cap Equity are
not fundamental and may be changed by their respective Boards of Trustees.
INVESTMENT MANAGEMENT AND DISTRIBUTION PLAN FEES. Mid-Cap Dividend and
Mid-Cap Equity obtain management services from MSDW Advisors. With respect to
Mid-Cap Equity, MSDW Advisors has contracted with the Sub-Advisor to invest
Mid-Cap Equity's assets, including the placing of orders for the purchase and
sale of portfolio securities. Mid-Cap Dividend pays MSDW Advisors monthly
compensation calculated daily at an annual rate of 0.75% of the fund's average
daily net assets. With respect to Mid-Cap Equity, the fund pays MSDW Advisors
monthly compensation calculated daily by applying the annual rate of 0.75% to
the portion of the fund's average daily net assets not exceeding $500 million
and 0.725% to the portion of such daily net assets exceeding $500 million. MSDW
Advisors pays the Sub-Advisor monthly compensation equal to 40% of MSDW
Advisors' fee. Each class of both funds' shares is subject to the same
management fee rates applicable to the respective fund.
Both Mid-Cap Dividend and Mid-Cap Equity have adopted similar distribution
plans ("Plans") pursuant to Rule 12b-1 under the 1940 Act. In the case of Class
A and Class C shares, each fund's Plan provides that the fund will reimburse
the Distributor and others for the expenses of certain activities and services
incurred by them in connection with the distribution of the Class A and Class C
Shares of the fund. Reimbursement for these expenses is made in monthly
payments by each fund to the Distributor which will in no event exceed amounts
equal to payments at the annual rates of 0.25% and 1.0% of the average daily
net assets of Class A and Class C shares, respectively. In the case of Class B
shares, Mid-Cap Dividend's Plan provides that the fund will pay the Distributor
a fee, which is accrued daily and paid monthly, at the annual rate of 1.0% of
the fund's average daily net assets. In the case of Mid-Cap Equity's Class B
shares, Mid-Cap Equity's Plan provides that the fund will pay the Distributor a
fee, which is accrued daily and paid monthly, at the annual rate of 1.0% of the
lesser of (a) the average daily aggregate gross sales of the fund's Class B
shares since the inception of the fund (not including reinvestment of dividends
or capital gains distributions), less the average daily aggregate net asset
value of the fund's Class B shares redeemed since the fund's inception upon
which a contingent deferred sales charge ("CDSC") has been imposed or upon
which such charge has been waived; or (b) the average daily net assets of Class
B shares. The 12b-1 fee is paid for the services provided and the expenses
borne by the Distributor and others in connection with the distribution of each
fund's Class B shares. There are no 12b-1 fees applicable to both funds' Class
D shares. For further information relating to the 12b-1 fees applicable to each
class of Mid-Cap Equity's shares, see the section entitled "Share Class
Arrangements" in Mid-Cap Equity's Prospectus, attached hereto. The Distributor
also receives the proceeds of any contingent deferred sales charge ("CDSC")
paid by the funds' shareholders at the time of redemption. The CDSC schedules
applicable to each of Mid-Cap Dividend and Mid-Cap Equity are set forth below
under "Purchases, Exchanges and Redemptions."
OTHER SIGNIFICANT FEES. Both Mid-Cap Dividend and Mid-Cap Equity pay
additional fees in connection with their operations, including legal, auditing,
transfer agent, trustees fees and custodial fees. See "Synopsis -- Fee Table"
above for the percentage of average net assets represented by such "Other
Expenses."
PURCHASES, EXCHANGES AND REDEMPTIONS. Class A shares of each fund are sold
at net asset value plus an initial sales charge of up to 5.25%. The initial
sales charge is reduced for certain purchases. Investments of
9
<PAGE>
$1 million or more (and investment by certain other limited categories of
investors) are not subject to any sales charges at the time of purchase, but
are subject to a CDSC of 1.0% on redemptions made within one year after
purchase (except for certain specific circumstances fully described in each
fund's Prospectus).
Class B shares of each fund are offered at net asset value with no initial
sales charge, but are subject to the same CDSC schedule set forth below:
<TABLE>
<CAPTION>
CLASS B SHARES OF MID-CAP DIVIDEND AND
YEAR SINCE PURCHASE PAYMENT MADE MID-CAP EQUITY
- - - ------------------------------------- ---------------------------------------
<S> <C>
First .......................... 5.0%
Second ......................... 4.0%
Third .......................... 3.0%
Fourth ......................... 2.0%
Fifth .......................... 2.0%
Sixth .......................... 1.0%
Seventh and thereafter ......... none
</TABLE>
Class C shares of each fund are sold at net asset value with no initial
sales charge, but are subject to a CDSC of 1.0% on redemptions made within one
year after purchase. The CDSC may be waived for certain redemptions (which are
fully described under the section "Share Class Arrangements" in each fund's
Prospectus).
Class D shares of each fund are available only to limited categories of
investors and are sold at net asset value with no initial sales charge or CDSC.
The CDSC charge is paid to the Distributor. Shares of Mid-Cap Equity and
Mid-Cap Dividend are distributed by the Distributor and offered by Dean Witter
Reynolds Inc. and other dealers who have entered into selected dealer
agreements with the Distributor. For further information relating to the CDSC
schedules applicable to each of the classes of shares of Mid-Cap Dividend and
Mid-Cap Equity, see the section entitled "Share Class Arrangements" in each
fund's Prospectus.
Shares of each class of Mid-Cap Dividend and Mid-Cap Equity may be
exchanged for shares of the same class of any other Morgan Stanley Dean Witter
Fund that offers its shares in more than one class, without the imposition of
an exchange fee. Additionally, shares of each class of Mid-Cap Dividend and
Mid-Cap Equity may be exchanged for shares of Morgan Stanley Dean Witter
Short-Term U.S. Treasury Trust, Morgan Stanley Dean Witter North American
Government Income Trust, Morgan Stanley Dean Witter Limited Term Municipal
Trust, Morgan Stanley Dean Witter Short-Term Bond Fund and the five Morgan
Stanley Dean Witter Funds that are money market funds (the foregoing nine
funds are collectively referred to as the "Exchange Funds"), without the
imposition of an exchange fee. Class A shares of Mid-Cap Dividend and Mid-Cap
Equity may also be exchanged for shares of Morgan Stanley Dean Witter
Multi-State Municipal Series Trust and Morgan Stanley Dean Witter Hawaii
Municipal Trust. Upon consummation of the Reorganization, the foregoing
exchange privileges will still be applicable to shareholders of the combined
fund (Mid-Cap Equity).
Mid-Cap Equity shares distributed to shareholders as a result of the
merger will not be subject to an initial sales charge.
With respect to both funds, no CDSC is imposed at the time of any
exchange, although any applicable CDSC will be imposed upon ultimate
redemption. During the period of time a Mid-Cap Equity or Mid-Cap
10
<PAGE>
Dividend shareholder remains in an Exchange Fund, the holding period (for
purposes of determining the CDSC rate) is frozen. Both Mid-Cap Dividend and
Mid-Cap Equity provide telephone exchange privileges to their shareholders. For
greater details relating to exchange privileges applicable to Mid-Cap Equity,
see the section entitled "How to Exchange Shares" in Mid-Cap Equity's
Prospectus.
Shareholders of Mid-Cap Dividend and Mid-Cap Equity may redeem their
shares for cash at any time at the net asset value per share next determined;
however, such redemption proceeds may be reduced by the amount of any
applicable CDSC. Both Mid-Cap Dividend and Mid-Cap Equity offer a reinstatement
privilege whereby a shareholder who has not previously exercised such privilege
whose shares have been redeemed or repurchased may, within thirty-five days
after the date of redemption or repurchase, reinstate any portion or all of the
proceeds thereof in shares of the same class from which such shares were
redeemed or repurchased and receive a pro rata credit for any CDSC paid in
connection with such redemption or repurchase. Mid-Cap Dividend and Mid-Cap
Equity may redeem involuntarily, at net asset value, most accounts valued at
less than $100.
DIVIDENDS. Each fund declares dividends separately for each of its
classes. Mid-Cap Dividend and Mid-Cap Equity each pay dividends from net
investment income at least once each year. Both funds distribute net capital
gains, if any, at least annually. Each fund, however, may determine either to
distribute or to retain all or part of any net long-term capital gains in any
year for reinvestment. With respect to each fund, dividends and capital gains
distributions are automatically reinvested in additional shares of the same
class of shares of the fund at net asset value unless the shareholder elects to
receive cash.
PRINCIPAL RISK FACTORS
The share price or net asset value of Mid-Cap Equity and Mid-Cap Dividend
will fluctuate with changes in the market value of their respective portfolio
securities. The market value of the funds' portfolio securities will increase
or decrease due to a variety of economic, market and political factors,
including movements in interest rates, which cannot be predicted.
Both funds invest in medium-sized companies which may involve greater risk
of volatility of a fund's net asset value than is customarily associated with
investing in larger, established companies. Often medium-sized companies and
the industries in which they are focused are still evolving and while this may
offer better growth potential than larger, established companies, it also may
make them more sensitive to changing market conditions. In addition, consistent
with its objective of total return, Mid-Cap Dividend invests principally in
mid-cap companies which currently pay dividends. By contrast, Mid-Cap Equity,
consistent with its capital appreciation objective, generally invests in
companies that the Sub-Advisor believes exhibit, among other things, superior
earnings growth prospects. As a result, Mid-Cap Equity's portfolio may be
comprised, to a greater extent than Mid-Cap Dividend, of "growth" or emerging
companies whose securities may be more volatile than those of established
companies that pay dividends consistently.
Both funds may invest up to 35% of their total assets in fixed-income
securities. All fixed-income securities, such as corporate debt, are subject to
two types of risk: credit risk and interest rate risk. Credit risk refers to
the possibility that the issuer of a security will be unable to make interest
payments and/or repay the principal on its debt. Interest rate risk refers to
fluctuations in the value of a fixed-income security resulting from changes in
the general level of interest rates. When the general level of interest rates
goes up, the price of most fixed-income securities goes down. When the general
level of interest rates goes down, the price of most fixed-income securities
goes up.
Both funds may invest up to 25% of their total assets in foreign
securities (Mid-Cap Dividend may invest any amount of its assets in foreign
securities (including depositary receipts) that are listed in the U.S. on a
11
<PAGE>
national securities exchange.) and, as such, are subject to additional risks
such as adverse political and economic development abroad, including the
possibility of expropriations or confiscatory taxation, limitations on the use
or transfer of fund assets and any effects of foreign social, economic or
political instability. Foreign companies are not subject to the regulatory
requirements of U.S. companies and, as such, there may be less publicly
available information about such companies. Moreover, foreign companies are not
subject to uniform accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies. Additionally,
securities of foreign issuers may be less liquid than comparable securities of
U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their American
counterparts and brokerage commissions, dealer concessions and other
transaction costs may be higher in foreign markets than in the U.S.
Fluctuations in the relative rates of exchange between the currencies of
different countries will affect the value of a fund's investments. Changes in
foreign currency exchange rates relative to the U.S. dollar may affect the U.S.
dollar value of a fund's assets denominated in that currency and thereby impact
upon the fund's total return on such assets.
Mid-Cap Equity may invest any amount of its assets in convertible
securities. Mid-Cap Dividend may invest up to 35% of its total assets in such
securities. Convertible securities may carry risks associated with both common
stock and fixed-income securities. To the extent that a convertible security's
investment value is greater than its conversion value, its price will be
primarily a reflection of such investment value and its price will be likely to
increase when interest rates fall and decrease when interest rates rise, as
with a fixed-income security (the credit standing of the issuer and other
factors may also have an effect on the convertible security's value). If the
conversion value exceeds the investment value, the price of the convertible
security will rise above its investment value and, in addition, the convertible
security will sell at some premium over its conversion value. (This premium
represents the price investors are willing to pay for the privilege of
purchasing a fixed-income security with a possibility of capital appreciation
due to the conversion privilege.) At such times the price of the convertible
security will tend to fluctuate directly with the price of the underlying
equity security. All or a portion of the convertible securities in which
Mid-Cap Dividend may invest may generally be rated below investment grade.
Securities below investment grade are commonly known as "junk bonds" and have
speculative credit risk characteristics. Mid-Cap Equity may invest up to 5% of
its assets in convertible and other fixed income securities which are rated
below investment grade.
Mid-Cap Dividend and Mid-Cap Equity may enter into foreign currency
exchange contracts when purchasing foreign securities in order to facilitate
settlement and to limit the effect of changes in the relationship between the
U.S. dollar and the foreign currency during the period between trade date and
settlement date. Both funds may enter into repurchase agreements, may purchase
securities on a when issued and delayed delivery basis, or on a when, as and if
issued basis, may lend their portfolio securities, may purchase zero coupon
securities and may invest in real estate investment trusts, all of which
involve certain special risks.
In addition, Mid-Cap Equity generally engages in active and frequent
trading of portfolio securities (i.e., portfolio turnover) to a greater extent
than Mid-Cap Dividend. A high turnover rate will increase fund brokerage costs
and may affect the fund's performance and increase capital gains taxes
incurred.
The foregoing discussion is a summary of the principal risk factors. For a
more complete discussion of the risks of each fund, see "Principal Risks" and
"Additional Risk Information" in the Prospectus of Mid-Cap Dividend and in
Mid-Cap Equity's Prospectus attached hereto and incorporated herein by
reference.
12
<PAGE>
THE REORGANIZATION
THE PROPOSAL
The Board of Trustees of Mid-Cap Dividend, including the Independent
Trustees, having reviewed the financial position of Mid-Cap Dividend and the
prospects for achieving economies of scale through the Reorganization and
having determined that the Reorganization is in the best interests of Mid-Cap
Dividend and its Shareholders and that the interests of Shareholders will not
be diluted as a result thereof, recommends approval of the Reorganization by
Shareholders of Mid-Cap Dividend.
THE BOARD'S CONSIDERATION
At a meeting held on January 26, 2000, the Board, including the
Independent Trustees unanimously approved the Reorganization Agreement and
determined to recommend that Shareholders approve the Reorganization Agreement.
In reaching this decision, the Board made an extensive inquiry into a number of
factors, particularly the comparative expenses currently incurred in the
operations of Mid-Cap Dividend and Mid-Cap Equity and TCW's capabilities in
providing sub-advisory services to Mid-Cap Equity. The Board also considered
other factors, including, but not limited to: the general compatibility of the
investment objectives, policies and restrictions of Mid-Cap Dividend and Mid-Cap
Equity; the terms and conditions of the Reorganization which would affect the
price of shares to be issued in the Reorganization; the tax-free nature of the
Reorganization; and any direct or indirect costs to be incurred by Mid-Cap
Dividend and Mid-Cap Equity in connection with the Reorganization.
In recommending the Reorganization to Shareholders, the Board of Mid-Cap
Dividend considered that the Reorganization would have the following benefits
to Shareholders:
1. Once the Reorganization is consummated, the expenses which would be
borne by shareholders of each class of the "combined fund" (Mid-Cap Equity)
will be lower on a percentage basis than the expenses per share of each
corresponding class of Mid-Cap Dividend. Furthermore, to the extent that the
Reorganization would result in Shareholders becoming shareholders of a combined
larger fund, further economies of scale could be achieved since various fixed
expenses (e.g., auditing and legal) can be spread over a larger number of
shares. The board noted that the expense ratio for each class of Mid-Cap
Dividend was higher (for its fiscal year ended February 28, 1999) than the
expense ratio for each corresponding class of Mid-Cap Equity (for its fiscal
year ended November 30, 1999).
2. Shareholders would have a continued participation in a diversified
portfolio of mid-cap equity securities through investment in Mid-Cap Equity.
3. The Reorganization is intended to qualify as a tax-free reorganization
for Federal income tax purposes, pursuant to which no gain or loss will be
recognized by Mid-Cap Dividend or its Shareholders for Federal income tax
purposes as a result of transactions included in the Reorganization.
4. The Board also took into consideration that absent the Reorganization,
the much larger Mid-Cap Equity will continue to compete for investor funds with
Mid-Cap Dividend and that it appeared unlikely that Mid-Cap Dividend would
experience a material growth in assets in the future. The Reorganization should
allow for more concentrated selling efforts to the benefit of both Mid-Cap
Dividend and Mid-Cap Equity shareholders and avoid the inefficiencies associated
with the operation and distribution of two mid-cap funds through the same sales
organization.
The Board of Trustees of Mid-Cap Equity, including a majority of the
Independent Trustees of Mid-Cap Equity, also have determined that the
Reorganization is in the best interests of Mid-Cap Equity and its
13
<PAGE>
shareholders and that the interests of existing shareholders of Mid-Cap
Equity will not be diluted as a result thereof. The transaction will enable
Mid-Cap Equity to acquire investment securities which are consistent with
Mid-Cap Equity's investment objective, without the brokerage costs attendant to
the purchase of such securities in the market. Furthermore, like the
Shareholders of Mid-Cap Dividend, the shareholders of Mid-Cap Equity may also
realize an intangible benefit in having the Morgan Stanley Dean Witter sales
organization concentrate its selling efforts on one rather than two similar
funds, which may result in further economies of scale. Finally, the Board
considered that even if the benefits enumerated above are not realized, the
costs to the Fund are sufficiently minor to warrant taking the opportunity to
realize those benefits. The Board noted that, if the reorganization was
consummated at the beginning of Mid-Cap Equity's fiscal year, the combined
fund's Class B 12b-1 fee would have been 0.82% of the combined fund's average
net assets which is eight basis points higher than Mid-Cap Equity's Class B
12b-1 fee during the fiscal year, assuming the Merger had not been effected.
However, the Board also noted that management has advised that Mid-Cap Equity's
assets have grown significantly during the fiscal year. Thus, if the fund's much
higher asset level at November 30, 1999 (the end of the fiscal year) combined
with Mid-Cap Dividend's lower net assets at November 30, 1999 is assumed for
purposes of calculating the combined fund's pro forma Class B 12b-1 fee rate,
such rate (on an annualized basis) would be 0.73% of the fund's net assets, two
basis points less than Mid-Cap Equity's Class B 12b-1 fee during the fiscal year
ended November 30, 1999.
THE REORGANIZATION AGREEMENT
The terms and conditions under which the Reorganization would be
consummated, as summarized below, are set forth in the Reorganization
Agreement. This summary is qualified in its entirety by reference to the
Reorganization Agreement, a copy of which is attached as Exhibit A to this
Proxy Statement and Prospectus.
The Reorganization Agreement provides that (i) Mid-Cap Dividend will
transfer all of its assets, including portfolio securities, cash (other than
cash amounts retained by Mid-Cap Dividend as a "Cash Reserve" in the amount
sufficient to discharge its liabilities not discharged prior to the Valuation
Date (as defined below) and for expenses of the dissolution), cash equivalents
and receivables to Mid-Cap Equity on the Closing Date in exchange for the
assumption by Mid-Cap Equity of stated liabilities of Mid-Cap Dividend,
including all expenses, costs, charges and reserves, as reflected on an
unaudited statement of assets and liabilities of Mid-Cap Dividend prepared by
the Treasurer of Mid-Cap Dividend as of the Valuation Date (as defined below)
in accordance with generally accepted accounting principles consistently
applied from the prior audited period, and the delivery of the Mid-Cap Equity
Shares; (ii) such Mid-Cap Equity Shares would be distributed to Shareholders on
the Closing Date or as soon as practicable thereafter; (iii) Mid-Cap Dividend
would be dissolved; and (iv) the outstanding shares of Mid-Cap Dividend would
be canceled.
The number of Mid-Cap Equity Shares to be delivered to Mid-Cap Dividend
will be determined by dividing the aggregate net asset value of each class of
shares of Mid-Cap Dividend acquired by Mid-Cap Equity by the net asset value
per share of the corresponding class of shares of Mid-Cap Equity; these values
will be calculated as of the close of business of the New York Stock Exchange
on the third business day following the receipt of the requisite approval by
Shareholders of the Reorganization Agreement or at such other time as Mid-Cap
Dividend and Mid-Cap Equity may agree (the "Valuation Date"). As an
illustration, assume that on the Valuation Date, Class B shares of Mid-Cap
Dividend had an aggregate net asset value (not including any Cash Reserve of
Mid-Cap Dividend) of $100,000. If the net asset value per Class B share of
Mid-Cap Equity were $10 per share at the close of business on the Valuation
Date, the number of Class B shares of Mid-Cap Equity to be issued would be
10,000 ($100,000 (divided by) $10). These 10,000 Class B shares of Mid-Cap
Equity would be distributed to the former Class B shareholders of Mid-Cap
Dividend. This example is given for illustration purposes only and does not
bear any relationship to the dollar amounts or shares expected to be involved
in the Reorganization.
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On the Closing Date or as soon as practicable thereafter, Mid-Cap Dividend
will distribute pro rata to its Shareholders of record as of the close of
business on the Valuation Date, the Mid-Cap Equity Shares it receives. Each
Shareholder will receive the class of shares of Mid-Cap Equity that corresponds
to the class of shares of Mid-Cap Dividend currently held by that Shareholder.
Accordingly, the Mid-Cap Equity Shares will be distributed as follows: each of
the Class A, Class B, Class C and Class D shares of Mid-Cap Equity will be
distributed to holders of Class A, Class B, Class C and Class D shares of
Mid-Cap Dividend, respectively. Mid-Cap Equity will cause its transfer agent to
credit and confirm an appropriate number of Mid-Cap Equity Shares to each
Shareholder. Certificates for Mid-Cap Equity Shares will be issued only upon
written request of a Shareholder and only for whole shares, with fractional
shares credited to the name of the Shareholder on the books of Mid-Cap Equity.
Shareholders who wish to receive certificates representing their Mid-Cap Equity
Shares must, after receipt of their confirmations, make a written request to
Mid-Cap Equity's transfer agent Morgan Stanley Dean Witter Trust FSB,
Harborside Financial Center, Jersey City, New Jersey 07311. Shareholders of
Mid-Cap Dividend holding their shares in certificate form will be asked to
surrender such certificates in connection with the Reorganization. Shareholders
who do not surrender their certificates prior to the Closing Date will still
receive their shares of Mid-Cap Equity; however, such Shareholders will not be
able to redeem, transfer or exchange the Mid-Cap Equity Shares received until
the old certificates have been surrendered.
The Closing Date will be the next business day following the Valuation
Date. The consummation of the Reorganization is contingent upon the approval of
the Reorganization by the Shareholders and the receipt of the other opinions
and certificates set forth in Sections 6, 7 and 8 of the Reorganization
Agreement and the occurrence of the events described in those Sections, certain
of which may be waived by Mid-Cap Dividend or Mid-Cap Equity. The
Reorganization Agreement may be amended in any mutually agreeable manner. All
expenses of this solicitation, including the cost of preparing and mailing this
Proxy Statement and Prospectus, will be borne by Mid-Cap Dividend, which
expenses are expected to approximate $157,000. Mid-Cap Dividend and Mid-Cap
Equity will bear all of their respective other expenses associated with the
Reorganization.
The Reorganization Agreement may be terminated and the Reorganization
abandoned at any time, before or after approval by Shareholders or by mutual
consent of Mid-Cap Dividend and Mid-Cap Equity. In addition, either party may
terminate the Reorganization Agreement upon the occurrence of a material breach
of the Reorganization Agreement by the other party or if, by September 30,
2000, any condition set forth in the Reorganization Agreement has not been
fulfilled or waived by the party entitled to its benefits.
Under the Reorganization Agreement, within one year after the Closing
Date, Mid-Cap Dividend shall: either pay or make provision for all of its
liabilities and distribute any remaining amount of the Cash Reserve (after
paying or making provision for such liabilities and the estimated cost of
making the distribution) to former Shareholders of Mid-Cap Dividend that
received Mid-Cap Equity Shares. Mid-Cap Dividend shall be dissolved and
deregistered as an investment company promptly following the distributions of
shares of Mid-Cap Equity to Shareholders of record of Mid-Cap Dividend.
The effect of the Reorganization is that Shareholders who vote their
shares in favor of the Reorganization Agreement are electing to sell their
shares of Mid-Cap Dividend (at net asset value on the Valuation Date calculated
after subtracting any Cash Reserve) and reinvest the proceeds in Mid-Cap Equity
Shares at net asset value and without recognition of taxable gain or loss for
Federal income tax purposes. See "Tax Aspects of the Reorganization" below. As
noted in "Tax Aspects of the Reorganization" below, if Mid-Cap Dividend
recognizes net gain from the sale of securities prior to the Closing Date, such
gain, to the extent not offset by capital loss carryforwards, will be
distributed to Shareholders prior to the Closing Date and will be taxable to
Shareholders as capital gain.
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<PAGE>
Shareholders will continue to be able to redeem their shares of Mid-Cap
Dividend at net asset value next determined after receipt of the redemption
request (subject to any applicable CDSC) until the close of business on the
business day next preceding the Closing Date. Redemption requests received by
Mid-Cap Dividend thereafter will be treated as requests for redemption of
shares of Mid-Cap Equity.
TAX ASPECTS OF THE REORGANIZATION
At least one but not more than 20 business days prior to the Valuation
Date, Mid-Cap Dividend will declare and pay a dividend or dividends which,
together with all previous such dividends, will have the effect of distributing
to Shareholders all of Mid-Cap Dividend's investment company taxable income for
all periods since the inception of Mid-Cap Dividend through and including the
Valuation Date (computed without regard to any dividends paid deduction), and
all of Mid-Cap Dividend's net capital gain, if any, realized in such periods
(after reduction for any capital loss carryforward).
The Reorganization is intended to qualify for Federal income tax purposes
as a tax-free reorganization under Section 368(a)(1)(C) of the Internal Revenue
Code of 1986, as amended (the "Code").
As a condition to the Reorganization, Mid-Cap Dividend and Mid-Cap Equity
will receive an opinion of Mayer, Brown & Platt to the effect that, based on
certain assumptions, facts, the terms of the Reorganization Agreement and
representations set forth in the Reorganization Agreement or otherwise provided
by Mid-Cap Dividend and Mid-Cap Equity (including a representation to the
effect that Mid-Cap Equity has no plan or intention to sell or otherwise
dispose of more than fifty percent of the assets of Mid-Cap Dividend acquired
in the Reorganization except for dispositions made in the ordinary course of
business):
1. The transfer of Mid-Cap Dividend's assets in exchange for the Mid-Cap
Equity Shares and the assumption by Mid-Cap Equity of certain stated
liabilities of Mid-Cap Dividend followed by the distribution by Mid-Cap
Dividend of the Mid-Cap Equity Shares to Shareholders in exchange for their
Mid-Cap Dividend shares pursuant to and in accordance with the terms of the
Reorganization Agreement will constitute a "reorganization" within the meaning
of Section 368(a)(1)(C) of the Code, and Mid-Cap Dividend and Mid-Cap Equity
will each be a "party to a reorganization" within the meaning of Section 368(b)
of the Code;
2. No gain or loss will be recognized by Mid-Cap Equity upon the receipt
of the assets of Mid-Cap Dividend solely in exchange for the Mid-Cap Equity
Shares and the assumption by Mid-Cap Equity of the stated liabilities of
Mid-Cap Dividend;
3. No gain or loss will be recognized by Mid-Cap Dividend upon the
transfer of the assets of Mid-Cap Dividend to Mid-Cap Equity in exchange for
the Mid-Cap Equity Shares and the assumption by Mid-Cap Equity of the stated
liabilities or upon the distribution of Mid-Cap Equity Shares to Shareholders
in exchange for their Mid-Cap Dividend shares;
4. No gain or loss will be recognized by Shareholders upon the exchange of
the shares of Mid-Cap Dividend for the Mid-Cap Equity Shares;
5. The aggregate tax basis for the Mid-Cap Equity Shares received by each
of the Shareholders pursuant to the Reorganization will be the same as the
aggregate tax basis of the shares in Mid-Cap Dividend held by each such
Shareholder immediately prior to the Reorganization;
6. The holding period of the Mid-Cap Equity Shares to be received by each
Shareholder will include the period during which the shares in Mid-Cap Dividend
surrendered in exchange therefor were held (provided such shares in Mid-Cap
Dividend were held as capital assets on the date of the Reorganization);
7. The tax basis of the assets of Mid-Cap Dividend acquired by Mid-Cap
Equity will be the same as the tax basis of such assets of Mid-Cap Dividend
immediately prior to the Reorganization; and
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8. The holding period of the assets of Mid-Cap Dividend in the hands of
Mid-Cap Equity will include the period during which those assets were held by
Mid-Cap Dividend.
The Reorganization will result in substantial limitations under the Code
on the utilization of the capital loss carryovers of Mid-Cap Dividend. Under
those limitations, for the eight years following the Reorganization, only a
portion of the capital loss carryover of Mid-Cap Dividend will be available
to offset capital gains realized by the combined fund, and thereafter the
unused portion of such capital loss carryover will be eliminated. Although the
actual amount of the capital loss carryover that will be available for each
such year will be determined at the time of the Reorganization, such amount
would have been approximately $10 million per year if the Reorganization had
occurred on December 31, 1999. It is anticipated that Mid-Cap Dividend will
have a capital loss carryover of not less than approximately $100 million at
the time of the Reorganization.
Any capital gains recognized following the Reorganization would be
distributable and taxable to the post-Reorganization shareholders of Mid-Cap
Equity, including the former shareholders of Mid-Cap Dividend. Mid-Cap Equity
had gross unrealized capital gains of approximately $992 million and net
unrealized capital gains of approximately $965 million at the end of its most
recent fiscal year ended November 30, 1999.
SHAREHOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE EFFECT, IF
ANY, OF THE PROPOSED TRANSACTION IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES.
BECAUSE THE FOREGOING DISCUSSION ONLY RELATES TO THE FEDERAL INCOME TAX
CONSEQUENCES OF THE PROPOSED TRANSACTION, SHAREHOLDERS SHOULD ALSO CONSULT
THEIR TAX ADVISORS AS TO STATE AND LOCAL TAX CONSEQUENCES, IF ANY, OF THE
PROPOSED TRANSACTION.
DESCRIPTION OF SHARES
Mid-Cap Equity shares to be issued pursuant to the Reorganization
Agreement will, when issued, be fully paid and non-assessable by Mid-Cap Equity
and transferable without restrictions and will have no preemptive rights. Class
B shares of Mid-Cap Equity, like Class B shares of Mid-Cap Dividend, have a
conversion feature pursuant to which approximately ten (10) years after the
date of the original purchase of such shares, the shares will convert
automatically to Class A shares, based on the relative net asset values of the
two classes. For greater details regarding the conversion feature, including
the method by which the 10 year period is calculated and the treatment of
reinvested dividends, see "Purchase of Fund Shares" in each fund's Prospectus.
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CAPITALIZATION TABLE (UNAUDITED)
The following table sets forth the capitalization of the Morgan Stanley
Dean Witter Mid-Cap Equity and Morgan Stanley Mid-Cap Dividend as of January
31, 2000 and on a pro forma combined basis as if the Reorganization had
occurred on that date:
<TABLE>
<CAPTION>
NET ASSET
SHARES VALUE
NET ASSETS OUTSTANDING PER SHARE
----------------- ------------- ----------
<S> <C> <C> <C>
CLASS A
- - - ------------------------------------
MSDW -- Mid-Cap Dividend .......... $ 4,227,562 610,539 $ 6.92
MSDW -- Mid-Cap Equity ............ $ 37,283,717 925,755 $ 40.27
Combined Fund (pro forma) ......... $ 41,511,279 1,030,735 $ 40.27
CLASS B
- - - ------------------------------------
MSDW -- Mid-Cap Dividend .......... $ 155,314,203 22,613,365 $ 6.87
MSDW -- Mid-Cap Equity ............ $1,759,055,252 44,333,144 $ 39.68
Combined Fund (pro forma) ......... $1,914,369,455 48,247,312 $ 39.68
CLASS C
- - - ------------------------------------
MSDW -- Mid-Cap Dividend .......... $ 9,017,341 1,306,086 $ 6.90
MSDW -- Mid-Cap Equity ............ $ 57,076,905 1,444,712 $ 39.51
Combined Fund (pro forma) ......... $ 66,094,246 1,672,941 $ 39.51
CLASS D
- - - ------------------------------------
MSDW -- Mid-Cap Dividend .......... $ 256,616 37,026 $ 6.93
MSDW -- Mid-Cap Equity ............ $ 9,741,314 240,777 $ 40.46
Combined Fund (pro forma) ......... $ 9,997,930 247,119 $ 40.46
TOTAL CLASS A, B, C, D
- - - ------------------------------------
MSDW -- Mid-Cap Dividend .......... $ 168,815,722 - -
MSDW -- Mid-Cap Equity ............ $1,863,157,188 - -
Combined Fund (pro forma) ......... $2,031,972,910 - -
</TABLE>
APPRAISAL RIGHTS
Shareholders will have no appraisal rights in connection with the
Reorganization.
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of Mid-Cap Equity is long-term capital
appreciation. The investment objective of Mid-Cap Dividend is total return.
Both funds seek to achieve their objectives by investing principally in a
diversified portfolio of equity securities of medium-sized companies in
accordance with their respective investment strategies set forth below.
Mid-Cap Equity seeks to achieve its investment objective by investing,
under normal circumstances, at least 65% of its total assets in common stocks
and convertible securities of companies whose capitalization falls within the
range of companies comprising the S&P 400 Index (approximately between $165
million and $37 billion as of December 31, 1999). The Sub-Advisor invests the
fund's assets in companies it believes exhibit
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superior earnings growth prospects and attractive stock market valuations. In
buying and selling securities for the fund's portfolio, the Sub-Advisor uses its
proprietary research in pursuing a "bottom-up" investment philosophy, which
emphasizes individual company selection. Quantitative and qualitative standards
are used to screen the more than 1,000 medium-sized companies within the
applicable capitalization range to provide the Sub-Advisor with a list of
potential investment securities. The Sub-Advisor then subjects the list of
securities to fundamental analyses which generally look for at least some of the
following factors: a demonstrated record of consistent earnings growth or the
potential to grow earnings; an ability to earn an attractive return on equity; a
price/earnings ratio which is less than the Sub-Advisor's internally estimated
three-year earnings growth rate; a large and growing market share; a strong
balance sheet; and significant ownership by management and a strong management
team. Up to 35% of Mid-Cap Equity's total assets may be invested in equity
securities of companies with market capitalizations at the time of acquisition
not within the capitalization range of companies comprising the S&P 400 Index,
as well as in investment grade fixed-income securities. Mid-Cap Equity may also
invest up to 5% of its total assets in certain high yield, high risk convertible
or other fixed-income securities (commonly known as "junk bonds"). Additionally,
Mid-Cap Equity may invest up to 25% of its total assets in equity securities of
foreign issuers in the form of direct investments or depository receipts or
similar investments.
Mid-Cap Dividend seeks to achieve its investment objective by investing,
under normal circumstances, at least 65% of its total assets in common stocks
and other equity securities of companies whose capitalization falls within the
range of companies comprising the S&P 400 Index, that currently pay dividends
and that have the potential for increasing dividends. In pursuing Mid-Cap
Dividend's investment objective, MSDW Advisors initially employs a quantitative
screening process in an attempt to identify a number of common stocks that are
underrated and that currently pay dividends. MSDW Advisors then applies
qualitative analysis to determine which stocks it believes have the potential
to increase dividends and whether any of the stocks should be added to or sold
from the fund's portfolio. Mid-Cap Dividend may invest up to 35% of its total
assets in common stocks of U.S. companies that fall outside the range of
mid-cap securities or in non-dividend paying mid-cap securities, as well as in
investment grade fixed-income securities. Mid-Cap Dividend may also invest up
to 35% of its total assets in convertible bonds or preferred stocks that are
convertible into common stock. There are no minimum rating or quality
requirements with respect to convertible securities in which Mid-Cap Dividend
may invest, however Mid-Cap Dividend will not invest in convertible securities
that are in default in payment of principal or interest. Additionally, Mid-Cap
Dividend may invest up to 25% of its total assets in equity securities
(including depository receipts) of foreign issuers whose market capitalization
is within the range of the companies comprising the S&P 400 Index and may
invest any amount of its assets in foreign securities (including depositary
receipts) that are listed in the U.S. on a national securities exchange.
Unlike Mid-Cap Dividend, Mid-Cap Equity generally engages in active and
frequent trading of portfolio securities.
During periods in which, in the opinion of Mid-Cap Equity's Sub-Advisor or
Mid-Cap Dividend's Investment Manager, market conditions warrant a reduction of
some or all of the respective funds' securities holdings, the funds may take
temporary "defensive" positions in which the funds may invest any amount of
their total assets in cash or money market instruments.
Both Mid-Cap Equity and Mid-Cap Dividend may (i) purchase securities on a
when-issued or delayed delivery basis, (ii) purchase securities on a "when, as
and if issued" basis, (iii) enter into repurchase agreements subject to certain
procedures designed to minimize risks associated with such agreements, (iv)
purchase rights and warrants, (v) invest in zero coupon securities, (vi) invest
in real estate investment trusts, (vii) lend their portfolio securities, and
(viii) invest up to 15% of their net assets in securities which are subject to
restrictions on resale because they have not been registered under the
Securities Act of 1933, as amended, or which are not otherwise readily
marketable (both funds do not include Rule 144A securities in this limitation).
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The investment policies of both Mid-Cap Dividend and Mid-Cap Equity are
not fundamental and may be changed by their respective Boards. The foregoing
discussion is a summary of the principal differences and similarities between
the investment policies of the funds. For a more complete discussion of each
fund's policies, see "Principal Investment Strategies" and "Additional
Investment Strategy Information" in each fund's Prospectus and "Description of
the Fund and Its Investments and Risks" in each fund's Statement of Additional
Information.
INVESTMENT RESTRICTIONS
The investment restrictions adopted by Mid-Cap Dividend and Mid-Cap Equity
as fundamental policies are substantially similar and are summarized under the
caption "Description of the Fund and Its Investments and Risks -- Fund
Policies/Investment Restrictions" in their respective Statements of Additional
Information. A fundamental investment restriction cannot be changed without the
vote of the majority of the outstanding voting securities of a fund, as defined
in the 1940 Act. The material differences are as follows: (a) both funds may
not, with respect to 75% of their assets, (i) invest more than 5% of their total
assets in the securities of any one issuer (other than obligations issued, or
guaranteed by, the United States Government, its agencies or instrumentalities);
or (ii) purchase more than 10% of all outstanding voting securities or any class
of securities of any one issuer. However, Mid-Cap Dividend may invest all or
substantially all of its assets in another registered investment company having
the same investment objective and policies and substantially the same investment
restrictions as Mid-Cap Dividend (Qualifying Fund); (b) Mid-Cap Equity may not
invest more than 5% of its total assets in securities of issuers having a
record, together with predecessors, of less than 3 years of continuous
operation. This restriction does not apply to any obligations of the United
States Government, its agencies or instrumentalities; Mid-Cap Dividend has no
such limitation; (c) both funds have fundamental restrictions that they may not:
(i) purchase securities of other investment companies, except in connection with
a merger, consolidation, reorganization or acquisition of assets, but Mid-Cap
Dividend is allowed to purchase securities of other investment companies as
permitted by Section 12(d) of the Investment Company Act or the rules
promulgated thereunder, and this restriction does not apply to an investment by
Mid-Cap Dividend in a Qualifying Fund; (ii) invest for the purpose of exercising
control or management of any other issuer, but Mid-Cap Dividend is allowed to
invest in a Qualifying Fund; (iii) pledge its assets or assign or otherwise
encumber them except to secure permitted borrowings, but Mid-Cap Dividend's
collateral arrangements with respect to the writing of options and collateral
arrangements with respect to initial or variation margin for futures are not
deemed to be pledges of assets; or (iv) purchase securities on margin, except
for such short term loans as are necessary for the clearance of portfolio
securities, but Mid-Cap Dividend's deposit or payment of initial or variation
margin in connection with futures contracts or related options thereon is not
considered the purchase of a security on margin; (d) Mid-Cap Equity may not
purchase oil, gas or other mineral leases, rights or royalty contracts, or
exploration or development programs, except that the fund may invest in the
securities of companies which operate, invest in, or sponsor these programs;
Mid-Cap Dividend has no such restriction; (e) both funds are prohibited from
purchasing or selling commodities, but only Mid-Cap Equity is further prohibited
from purchasing or selling commodities contracts; (f) both funds are prohibited
from issuing senior securities as defined in the 1940 Act except insofar as a
fund may be deemed to have issued a senior security by reason of: (i) entering
into any repurchase agreement; (ii) borrowing money; or (iii) lending portfolio
securities; Mid-Cap Equity carves out an additional exception for purchasing
securities on a when-issued or delayed delivery basis; (g) Mid-Cap Equity may
not purchase warrants if, as a result, the fund would then have either more than
5% of its net assets invested in warrants or more than 2% of its net assets
invested in warrants not listed on the New York or American Stock Exchange;
Mid-Cap Dividend has no such restriction; and (h) Mid-Cap Equity may not invest
in options or futures contracts; Mid-Cap Dividend has no such restriction.
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ADDITIONAL INFORMATION ABOUT MID-CAP DIVIDEND
AND MID-CAP EQUITY
GENERAL
For a discussion of the organization and operation of Mid-Cap Equity and
Mid-Cap Dividend, see "The Fund and its Management," "Investment Objective and
Policies," "Investment Restrictions" and "Prospectus Summary" in, and the cover
page of, their respective Prospectuses.
FINANCIAL INFORMATION
For certain financial information about Mid-Cap Equity and Mid-Cap
Dividend, see "Financial Highlights" and "Past Performance" in their respective
Prospectuses.
MANAGEMENT
For information about the respective Board of Trustees, Investment
Manager, and the Distributor of Mid-Cap Equity and Mid-Cap Dividend, see "Fund
Management" in their respective Prospectuses.
DESCRIPTION OF SECURITIES AND SHAREHOLDER INQUIRIES
For a description of the nature and most significant attributes of shares
of Mid-Cap Dividend and Mid-Cap Equity, and information regarding shareholder
inquiries, see "Capital Stock and Other Securities" in their respective
Statements of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of Mid-Cap Equity's and Mid-Cap Dividend's policies with
respect to dividends, distributions and taxes, see "Distributions" and "Tax
Consequences" in their respective Prospectuses as well as the discussion herein
under "Synopsis -- Purchases, Exchanges and Redemptions."
PURCHASES, REPURCHASES AND REDEMPTIONS
For a discussion of how Mid-Cap Equity's and Mid-Cap Dividend's shares may
be purchased, repurchased and redeemed, see "How to Buy Shares," "How to
Exchange Shares" and "How to Sell Shares" in their respective Prospectuses.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
For a discussion of Mid-Cap Equity's performance, see management's letter
to shareholders in its Annual Report for its fiscal year ended November 30,
1999 accompanying this Proxy Statement and Prospectus. For a discussion of the
performance of Mid-Cap Dividend, see its Annual Report for its fiscal year
ended February 28, 1999 and its unaudited Semi-Annual Report for the six months
ended August 31, 1999.
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<PAGE>
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of Mid-Cap Equity, for the year ended November
30, 1999, and Mid-Cap Dividend, for the year ended February 28, 1999 that are
incorporated by reference in the Statement of Additional Information relating
to the Registration Statement on Form N-14 of which this Proxy Statement and
Prospectus forms a part, have been audited by PricewaterhouseCoopers LLP,
independent accountants. The financial statements have been incorporated by
reference in reliance upon such reports given upon the authority of
PricewaterhouseCoopers LLP as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Mid-Cap Equity
will be passed upon by Mayer, Brown & Platt, New York, New York. Such firm will
rely on Lane Altman & Owens as to matters of Massachusetts law.
AVAILABLE INFORMATION
Additional information about Mid-Cap Dividend and Mid-Cap Equity is
available, as applicable, in the following documents which are incorporated
herein by reference: (i) Mid-Cap Equity's Prospectus dated January 28, 2000
attached to this Proxy Statement and Prospectus, which Prospectus forms a part
of Post-Effective Amendment No. 9 to Mid-Cap Equity's Registration Statement
on Form N-1A (File Nos. 33-63685; 811-7377); (ii) Mid-Cap Equity's Annual
Report for its fiscal year ended November 30, 1999, accompanying this Proxy
Statement and Prospectus; (iii) Mid-Cap Dividend's Prospectus dated June 30,
1999, which Prospectus forms a part of Post-Effective Amendment No. 2 to
Mid-Cap Dividend's Registration Statement on Form N-1A (File Nos. 333-43135;
811-8577); and (iv) Mid-Cap Dividend's Annual Report for its fiscal year ended
February 28, 1998 and its unaudited Semi-Annual Report for its six months ended
August 31, 1999. The foregoing documents may be obtained without charge by
calling (800) 869-NEWS (toll-free).
Mid-Cap Dividend and Mid-Cap Equity are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith, file reports and other information with the Commission.
Proxy material, reports and other information about Mid-Cap Dividend and
Mid-Cap Equity which are of public record can be inspected and copied at public
reference facilities maintained by the Commission at Room 1204, Judiciary
Plaza, 450 Fifth Street, NW, Washington, D.C. 20549 and certain of its regional
offices, and copies of such materials can be obtained at prescribed rates from
the Public Reference Branch, Office of Consumer Affairs and Information
Services, Securities and Exchange Commission, Washington, D.C. 20549.
OTHER BUSINESS
Management of Mid-Cap Dividend knows of no business other than the matters
specified above which will be presented at the Meeting. Since matters not known
at the time of the solicitation may come before the Meeting, the proxy as
solicited confers discretionary authority with respect to such matters as
properly come before the Meeting, including any adjournment or adjournments
thereof, and it is the intention of the persons named as attorneys-in-fact in
the proxy to vote this proxy in accordance with their judgment on such matters.
By Order of the Board of Trustees
Barry Fink,
Secretary
March , 2000
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made as of this
26th day of January, 2000, by and between MORGAN STANLEY DEAN WITTER MID-CAP
EQUITY TRUST, a Massachusetts business trust ("Mid-Cap Equity") and MORGAN
STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES, a Massachusetts
business trust ("Precious Metals").
This Agreement is intended to be and is adopted as a "plan of
reorganization" within the meaning of Treas. Reg. 1.368-2(g), for a
reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization ("Reorganization") will consist of the
transfer to Mid-Cap Equity of substantially all of the assets of Mid-Cap
Dividend in exchange for the assumption by Mid-Cap Equity of all stated
liabilities of Mid-Cap Dividend and the issuance by Mid-Cap Equity of shares of
common stock, par value $0.01 per share (the "Mid-Cap Equity Shares"), to be
distributed, after the Closing Date hereinafter referred to, to the
shareholders of Mid-Cap Dividend in liquidation of Mid-Cap Dividend as provided
herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. THE REORGANIZATION AND LIQUIDATION OF MID-CAP DIVIDEND
1.1 Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, Mid-Cap Dividend agrees
to assign, deliver and otherwise transfer the Mid-Cap Dividend Assets (as
defined in paragraph 1.2) to Mid-Cap Equity and Mid-Cap Equity agrees in
exchange therefor to assume all of Mid-Cap Dividend's stated liabilities on the
Closing Date as set forth in paragraph 1.3(a) and to deliver to Mid-Cap
Dividend the number of Mid-Cap Equity Shares, including fractional Mid-Cap
Equity Shares, determined in the manner set forth in paragraph 2.3. Such
transactions shall take place at the closing provided for in paragraph 3.1
("Closing").
1.2 (a) The "Mid-Cap Dividend Assets" shall consist of all property,
including without limitation, all cash (other than the "Cash Reserve" (as
defined in paragraph 1.3(b)), cash equivalents, securities and dividend and
interest receivables owned by Mid-Cap Dividend, and any deferred or prepaid
expenses shown as an asset on Mid-Cap Dividend's books on the Valuation Date.
(b) On or prior to the Valuation Date, Mid-Cap Dividend will provide
Mid-Cap Equity with a list of all of Mid-Cap Dividend's assets to be assigned,
delivered and otherwise transferred to Mid-Cap Equity and of the stated
liabilities to be assumed by Mid-Cap Equity pursuant to this Agreement. Mid-Cap
Dividend reserves the right to sell any of the securities on such list but will
not, without the prior approval of Mid-Cap Equity, acquire any additional
securities other than securities of the type in which Mid-Cap Equity is
permitted to invest and in amounts agreed to in writing by Mid-Cap Equity.
Mid-Cap Equity will, within a reasonable time prior to the Valuation Date,
furnish Mid-Cap Dividend with a statement of Mid-Cap Equity's investment
objectives, policies and restrictions and a list of the securities, if any, on
the list referred to in the first sentence of this paragraph that do not
conform to Mid-Cap Equity's investment objective, policies and restrictions. In
the event that Mid-Cap Dividend holds any investments that Mid-Cap Equity is
not permitted to hold, Mid-Cap Dividend will dispose of such securities on or
prior to the Valuation Date. In addition, if it is determined that the
portfolios of Mid-Cap Dividend and Mid-Cap Equity, when aggregated, would
contain investments exceeding
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certain percentage limitations imposed upon Mid-Cap Equity with respect to such
investments, Mid-Cap Dividend if requested by Mid-Cap Equity will, on or prior
to the Valuation Date, dispose of and/or reinvest a sufficient amount of such
investments as may be necessary to avoid violating such limitations as of the
Closing Date (as defined in paragraph 3.1).
1.3 (a) Mid-Cap Dividend will endeavor to discharge all of its liabilities
and obligations on or prior to the Valuation Date. Mid-Cap Equity will assume
all stated liabilities, which includes, without limitation, all expenses,
costs, charges and reserves reflected on an unaudited Statement of Assets and
Liabilities of Mid-Cap Dividend prepared by the Treasurer of Mid-Cap Dividend
as of the Valuation Date in accordance with generally accepted accounting
principles consistently applied from the prior audited period.
(b) On the Valuation Date, Mid-Cap Dividend may establish a cash reserve,
which shall not exceed 5% of Mid-Cap Dividend's net assets as of the close of
business on the Valuation Date ("Cash Reserve") to be retained by Mid-Cap
Dividend and used for the payment of its liabilities not discharged prior to
the Valuation Date and for the expenses of dissolution.
1.4 In order for Mid-Cap Dividend to comply with Section 852(a)(1) of the
Code and to avoid having any investment company taxable income or net capital
gain (as defined in Sections 852(b)(2) and 1222(11) of the Code, respectively)
in the short taxable year ending with its dissolution, Mid-Cap Dividend will on
or before the Valuation Date (a) declare a dividend in an amount large enough
so that it will have declared dividends of all of its investment company
taxable income and net capital gain, if any, for such taxable year (determined
without regard to any deduction for dividends paid) and (b) distribute such
dividend.
1.5 On the Closing Date or as soon as practicable thereafter, Mid-Cap
Dividend will distribute Mid-Cap Equity Shares received by Mid-Cap Dividend
pursuant to paragraph 1.1 pro rata to its shareholders of record determined as
of the close of business on the Valuation Date ("Mid-Cap Dividend
Shareholders"). Each Mid-Cap Dividend Shareholder will receive the class of
shares of Mid-Cap Equity that corresponds to the class of shares of Mid-Cap
Dividend currently held by that Mid-Cap Dividend Shareholder. Accordingly, the
Mid-Cap Equity Shares will be distributed as follows: each of the Class A,
Class B, Class C and Class D shares of Mid-Cap Equity will be distributed to
holders of Class A, Class B, Class C and Class D shares of Mid-Cap Dividend,
respectively. Such distribution will be accomplished by an instruction, signed
by Mid-Cap Dividend's Secretary, to transfer Mid-Cap Equity Shares then
credited to Mid-Cap Dividend's account on the books of Mid-Cap Equity to open
accounts on the books of Mid-Cap Equity in the names of the Mid-Cap Dividend
Shareholders and representing the respective pro rata number of Mid-Cap Equity
Shares due such Mid-Cap Dividend Shareholders. All issued and outstanding
shares of Mid-Cap Dividend simultaneously will be canceled on Mid-Cap
Dividend's books; however, share certificates representing interests in Mid-Cap
Dividend will represent a number of Mid-Cap Equity Shares after the Closing
Date as determined in accordance with paragraph 2.3. Mid-Cap Equity will issue
certificates representing Mid-Cap Equity Shares in connection with such
exchange only upon the written request of a Mid-Cap Dividend Shareholder.
1.6 Ownership of Mid-Cap Equity Shares will be shown on the books of
Mid-Cap Equity's transfer agent. Mid-Cap Equity Shares will be issued in the
manner described in Mid-Cap Equity's current Prospectus and Statement of
Additional Information.
1.7 Any transfer taxes payable upon issuance of Mid-Cap Equity Shares in a
name other than the registered holder of Mid-Cap Equity Shares on Mid-Cap
Dividend's books as of the close of business on the Valuation Date shall, as a
condition of such issuance and transfer, be paid by the person to whom Mid-Cap
Equity Shares are to be issued and transferred.
1.8 Any reporting responsibility of Mid-Cap Dividend is and shall remain
the responsibility of Mid-Cap Dividend up to and including the date on which
Mid-Cap Dividend is dissolved and deregistered pursuant to paragraph 1.9.
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1.9 Within one year after the Closing Date, Mid-Cap Dividend shall pay or
make provision for the payment of all its liabilities and taxes, and distribute
to the shareholders of Mid-Cap Dividend as of the close of business on the
Valuation Date any remaining amount of the Cash Reserve (as reduced by the
estimated cost of distributing it to shareholders). If and to the extent that
any trust, escrow account, or other similar entity continues after the close of
such one-year period in connection either with making provision for payment of
liabilities or taxes or with distributions to shareholders of Mid-Cap Dividend,
such entity shall either (i) qualify as a liquidating trust under Section 7701
of the Code (and applicable Treasury Regulations thereunder) or other entity
which does not constitute a continuation of Mid-Cap Dividend for federal income
tax purposes, or (ii) be subject to a waiver under Section 368(a)(2)(G)(ii) of
the complete distribution requirement of Section 368(a)(2)(G)(i) of the Code.
Mid-Cap Dividend shall be dissolved as a Massachusetts business trust and
deregistered as an investment company under the Investment Company Act of 1940,
as amended ("1940 Act"), promptly following the making of all distributions
pursuant to paragraph 1.5 (and, in any event, within one year after the Closing
Date).
1.10 Copies of all books and records maintained on behalf of Mid-Cap
Dividend in connection with its obligations under the 1940 Act, the Code, state
blue sky laws or otherwise in connection with this Agreement will promptly
after the Closing be delivered to officers of Mid-Cap Equity or their designee
and Mid-Cap Equity or its designee shall comply with applicable record
retention requirements to which Mid-Cap Dividend is subject under the 1940 Act.
2. VALUATION
2.1 The value of the Mid-Cap Dividend Assets shall be the value of such
assets computed as of 4:00 p.m. on the New York Stock Exchange on the third
business day following the receipt of the requisite approval by shareholders of
Mid-Cap Dividend of this Agreement or at such time on such earlier or later
date after such approval as may be mutually agreed upon in writing (such time
and date being hereinafter called the "Valuation Date"), using the valuation
procedures set forth in Mid-Cap Equity's then current Prospectus and Statement
of Additional Information.
2.2 The net asset value of a Mid-Cap Equity Share shall be the net asset
value per share computed on the Valuation Date, using the valuation procedures
set forth in Mid-Cap Equity's then current Prospectus and Statement of
Additional Information.
2.3 The number of Mid-Cap Equity Shares (including fractional shares, if
any) to be issued hereunder shall be determined, with respect to each class, by
dividing the aggregate net asset value of each class of Mid-Cap Dividend shares
(determined in accordance with paragraph 2.1) by the net asset value per share
of the corresponding class of shares of Mid-Cap Equity (determined in
accordance with paragraph 2.2). For purposes of this paragraph, the aggregate
net asset value of each class of shares of Mid-Cap Dividend shall not include
the amount of the Cash Reserve.
2.4 All computations of value shall be made by Morgan Stanley Dean Witter
Services Company Inc. ("MSDW Services") in accordance with its regular practice
in pricing Mid-Cap Equity. Mid-Cap Equity shall cause MSDW Services to deliver
a copy of its valuation report at the Closing.
3. CLOSING AND CLOSING DATE
3.1 The Closing shall take place on the next business day following the
Valuation Date (the "Closing Date"). The Closing shall be held as of 9:00 a.m.
Eastern time, or at such other time as the parties may agree. The Closing shall
be held in a location mutually agreeable to the parties hereto. All acts taking
place at the Closing shall be deemed to take place simultaneously as of 9:00
a.m. Eastern time on the Closing Date unless otherwise provided.
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3.2 Portfolio securities held by Mid-Cap Dividend and represented by a
certificate or other written instrument shall be presented by it or on its
behalf to The Bank of New York (the "Custodian"), as custodian for Mid-Cap
Equity, for examination no later than five business days preceding the
Valuation Date. Such portfolio securities (together with any cash or other
assets) shall be delivered by Mid-Cap Dividend to the Custodian for the account
of Mid-Cap Equity on or before the Closing Date in conformity with applicable
custody provisions under the 1940 Act and duly endorsed in proper form for
transfer in such condition as to constitute good delivery thereof in accordance
with the custom of brokers. The portfolio securities shall be accompanied by
all necessary Federal and state stock transfer stamps or a check for the
appropriate purchase price of such stamps. Portfolio securities and instruments
deposited with a securities depository (as defined in Rule 17f-4 under the 1940
Act) shall be delivered on or before the Closing Date by book-entry in
accordance with customary practices of such depository and the Custodian. The
cash delivered shall be in the form of a Federal Funds wire, payable to the
order of "The Bank of New York, Custodian for Morgan Stanley Dean Witter
Mid-Cap Equity Trust."
3.3 In the event that on the Valuation Date, (a) the New York Stock
Exchange shall be closed to trading or trading thereon shall be restricted or
(b) trading or the reporting of trading on such Exchange or elsewhere shall be
disrupted so that, in the judgment of both Mid-Cap Equity and Mid-Cap Dividend,
accurate appraisal of the value of the net assets of Mid-Cap Equity or the
Mid-Cap Dividend Assets is impracticable, the Valuation Date shall be postponed
until the first business day after the day when trading shall have been fully
resumed without restriction or disruption and reporting shall have been
restored.
3.4 If requested, Mid-Cap Dividend shall deliver to Mid-Cap Equity or its
designee (a) at the Closing, a list, certified by its Secretary, of the names,
addresses and taxpayer identification numbers of the Mid-Cap Dividend
Shareholders and the number and percentage ownership of outstanding Mid-Cap
Dividend shares owned by each such Mid-Cap Dividend Shareholder, all as of the
Valuation Date, and (b) as soon as practicable after the Closing, all original
documentation (including Internal Revenue Service forms, certificates,
certifications and correspondence) relating to the Mid-Cap Dividend
Shareholders' taxpayer identification numbers and their liability for or
exemption from back-up withholding. Mid-Cap Equity shall issue and deliver to
such Secretary a confirmation evidencing delivery of Mid-Cap Equity Shares to
be credited on the Closing Date to Mid-Cap Dividend or provide evidence
satisfactory to Mid-Cap Dividend that such Mid-Cap Equity Shares have been
credited to Mid-Cap Dividend's account on the books of Mid-Cap Equity. At the
Closing, each party shall deliver to the other such bills of sale, checks,
assignments, share certificates, if any, receipts or other documents as such
other party or its counsel may reasonably request.
4. COVENANTS OF MID-CAP EQUITY AND MID-CAP DIVIDEND
4.1 Except as otherwise expressly provided herein with respect to Mid-Cap
Dividend, Mid-Cap Equity and Mid-Cap Dividend each will operate its business in
the ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include customary
dividends and other distributions.
4.2 Mid-Cap Equity will prepare and file with the Securities and Exchange
Commission ("Commission") a registration statement on Form N-14 under the
Securities Act of 1933, as amended ("1933 Act"), relating to Mid-Cap Equity
Shares ("Registration Statement"). Mid-Cap Dividend will provide Mid-Cap Equity
with the Proxy Materials as described in paragraph 4.3 below, for inclusion in
the Registration Statement. Mid-Cap Dividend will further provide Mid-Cap
Equity with such other information and documents relating to Mid-Cap Dividend
as are reasonably necessary for the preparation of the Registration Statement.
4.3 Mid-Cap Dividend will call a meeting of its shareholders to consider
and act upon this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated herein. Mid-Cap
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Dividend will prepare the notice of meeting, form of proxy and proxy statement
(collectively, "Proxy Materials") to be used in connection with such meeting;
provided that Mid-Cap Equity will furnish Mid-Cap Dividend with its currently
effective prospectus for inclusion in the Proxy Materials and with such other
information relating to Mid-Cap Equity as is reasonably necessary for the
preparation of the Proxy Materials.
4.4 Mid-Cap Dividend will assist Mid-Cap Equity in obtaining such
information as Mid-Cap Equity reasonably requests concerning the beneficial
ownership of Mid-Cap Dividend shares.
4.5 Subject to the provisions of this Agreement, Mid-Cap Equity and
Mid-Cap Dividend will each take, or cause to be taken, all action, and do or
cause to be done, all things reasonably necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement.
4.6 Mid-Cap Dividend shall furnish or cause to be furnished to Mid-Cap
Equity within 30 days after the Closing Date a statement of Mid-Cap Dividend's
assets and liabilities as of the Closing Date, which statement shall be
certified by Mid-Cap Dividend's Treasurer and shall be in accordance with
generally accepted accounting principles consistently applied. As promptly as
practicable, but in any case within 60 days after the Closing Date, Mid-Cap
Dividend shall furnish Mid-Cap Equity, in such form as is reasonably
satisfactory to Mid-Cap Equity, a statement certified by Mid-Cap Dividend's
Treasurer of Mid-Cap Dividend's earnings and profits for Federal income tax
purposes that will be carried over to Mid-Cap Equity pursuant to Section 381 of
the Code.
4.7 As soon after the Closing Date as is reasonably practicable, Mid-Cap
Dividend (a) shall prepare and file all Federal and other tax returns and
reports of Mid-Cap Dividend required by law to be filed with respect to all
periods ending on or before the Closing Date but not theretofore filed and (b)
shall pay all Federal and other taxes shown as due thereon and/or all Federal
and other taxes that were unpaid as of the Closing Date, including without
limitation, all taxes for which the provision for payment was made as of the
Closing Date (as represented in paragraph 5.2(k)).
4.8 Mid-Cap Equity agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act and the 1940 Act and to
make such filings required by the state Blue Sky and securities laws as it may
deem appropriate in order to continue its operations after the Closing Date.
5. REPRESENTATIONS AND WARRANTIES
5.1 Mid-Cap Equity represents and warrants to Mid-Cap Dividend as follows:
(a) Mid-Cap Equity is a validly existing Massachusetts Business Trust
with full power to carry on its business as presently conducted;
(b) Mid-Cap Equity is a duly registered, open-end, management investment
company, and its registration with the Commission as an investment company
under the 1940 Act and the registration of its shares under the 1933 Act
are in full force and effect;
(c) All of the issued and outstanding shares of Mid-Cap Equity have been
offered and sold in compliance in all material respects with applicable
registration requirements of the 1933 Act and state securities laws. Shares
of Mid-Cap Equity are registered in all jurisdictions in which they are
required to be registered under state securities laws and other laws, and
said registrations, including any periodic reports or supplemental filings,
are complete and current, all fees required to be paid have been paid, and
Mid-Cap Equity is not subject to any stop order and is fully qualified to
sell its shares in each state in which its shares have been registered;
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(d) The current Prospectus and Statement of Additional Information of
Mid-Cap Equity conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the regulations
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
(e) Mid-Cap Equity is not in, and the execution, delivery and performance
of this Agreement will not result in a, material violation of any provision
of Mid-Cap Equity's Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which
Mid-Cap Equity is a party or by which it is bound;
(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its
knowledge, threatened against Mid-Cap Equity or any of its properties or
assets which, if adversely determined, would materially and adversely
affect its financial condition or the conduct of its business; and Mid-Cap
Equity knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which
materially and adversely affects, or is reasonably likely to materially and
adversely effect, its business or its ability to consummate the
transactions herein contemplated;
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights for the year
ended November 30, 1999, of Mid-Cap Equity certified by
PricewaterhouseCoopers LLP (copies of which have been furnished to Mid-Cap
Dividend), fairly present, in all material respects, Mid-Cap Equity's
financial condition as of such date in accordance with generally accepted
accounting principles, and its results of such operations, changes in its
net assets and financial highlights for such period, and as of such date
there were no known liabilities of Mid-Cap Equity (contingent or otherwise)
not disclosed therein that would be required in accordance with generally
accepted accounting principles to be disclosed therein;
(h) All issued and outstanding Mid-Cap Equity Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and nonassessable with no personal liability attaching to the ownership
thereof, except as set forth under the caption "Additional Information" in
Mid-Cap Equity's current Prospectus incorporated by reference in the
Registration Statement. Mid-Cap Equity does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of its
shares;
(i) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of Mid-Cap Equity, and
this Agreement constitutes a valid and binding obligation of Mid-Cap Equity
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws relating
to or affecting creditors rights and to general equity principles. No other
consents, authorizations or approvals are necessary in connection with
Mid-Cap Equity's performance of this Agreement;
(j) Mid-Cap Equity Shares to be issued and delivered to Mid-Cap Dividend,
for the account of the Mid-Cap Dividend Shareholders, pursuant to the terms
of this Agreement will at the Closing Date have been duly authorized and,
when so issued and delivered, will be duly and validly issued Mid-Cap
Equity Shares, and will be fully paid and non-assessable with no personal
liability attaching to the ownership thereof, except as set forth under the
caption "Capital Stock and Other Securities" in Mid-Cap Equity's current
Statement of Additional Information incorporated by reference in the
Statement of Additional Information to this Registration Statement;
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(k) All material Federal and other tax returns and reports of Mid-Cap
Equity required by law to be filed on or before the Closing Date have been
filed and are correct, and all Federal and other taxes shown as due or
required to be shown as due on said returns and reports have been paid or
provision has been made for the payment thereof, and to the best of Mid-Cap
Equity's knowledge, no such return is currently under audit and no
assessment has been asserted with respect to any such return;
(l) For each taxable year since its inception, Mid-Cap Equity has met the
requirements of Subchapter M of the Code for qualification and treatment as
a "regulated investment company" and neither the execution or delivery of
nor the performance of its obligations under this Agreement will adversely
affect, and no other events are reasonably likely to occur which will
adversely affect the ability of Mid-Cap Equity to continue to meet the
requirements of Subchapter M of the Code;
(m) Since November 30, 1999 there has been no change by Mid-Cap Equity in
accounting methods, principles, or practices, including those required by
generally accepted accounting principles;
(n) The information furnished or to be furnished by Mid-Cap Equity for
use in registration statements, proxy materials and other documents which
may be necessary in connection with the transactions contemplated hereby
shall be accurate and complete in all material respects and shall comply in
all material respects with Federal securities and other laws and
regulations applicable thereto; and
(o) The Proxy Materials to be included in the Registration Statement
(only insofar as they relate to Mid-Cap Equity) will, on the effective date
of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading.
5.2 Mid-Cap Dividend represents and warrants to Mid-Cap Equity as follows:
(a) Mid-Cap Dividend is a validly existing Massachusetts business trust
with full power to carry on its business as presently conducted;
(b) Mid-Cap Dividend is a duly registered, open-end, management
investment company, and its registration with the Commission as an
investment company under the 1940 Act and the registration of its shares
under the 1933 Act are in full force and effect;
(c) All of the issued and outstanding shares of beneficial interest of
Mid-Cap Dividend have been offered and sold in compliance in all material
respects with applicable requirements of the 1933 Act and state securities
laws. Shares of Mid-Cap Dividend are registered in all jurisdictions in
which they are required to be registered and said registrations, including
any periodic reports or supplemental filings, are complete and current, all
fees required to be paid have been paid, and Mid-Cap Dividend is not
subject to any stop order and is fully qualified to sell its shares in each
state in which its shares have been registered;
(d) The current Prospectus and Statement of Additional Information of
Mid-Cap Dividend conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the regulations
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading;
(e) Mid-Cap Dividend is not, and the execution, delivery and performance
of this Agreement will not result, in a material violation of any provision
of Mid-Cap Dividend's Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which
Mid-Cap Dividend is a party or by which it is bound;
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(f) No litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or, to its
knowledge, threatened against Mid-Cap Dividend or any of its properties or
assets which, if adversely determined, would materially and adversely
affect its financial condition or the conduct of its business; and Mid-Cap
Dividend knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which
materially and adversely affects, or is reasonably likely to materially and
adversely effect, its business or its ability to consummate the
transactions herein contemplated;
(g) The Statement of Assets and Liabilities, Statement of Operations,
Statement of Changes in Net Assets and Financial Highlights of Mid-Cap
Dividend for the year ended February 28, 1999, certified by
PricewaterhouseCoopers LLP (copies of which have been or will be furnished
to Mid-Cap Equity) fairly present, in all material respects, Mid-Cap
Dividend's financial condition as of such date, and its results of
operations, changes in its net assets and financial highlights for such
period in accordance with generally accepted accounting principles, and as
of such date there were no known liabilities of Mid-Cap Dividend
(contingent or otherwise) not disclosed therein that would be required in
accordance with generally accepted accounting principles to be disclosed
therein;
(h) Mid-Cap Dividend has no material contracts or other commitments
(other than this Agreement) that will be terminated with liability to it
prior to the Closing Date;
(i) All issued and outstanding shares of Mid-Cap Dividend are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and nonassessable with no personal liability attaching to the ownership
thereof, except as set forth under the caption "Capital Stock and Other
Securities" in Mid-Cap Dividend's current Statement of Additional
Information incorporated by reference in the Statement of Additional
Information to this Registration Statement. Mid-Cap Dividend does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of its shares, nor is there outstanding any security
convertible to any of its shares. All such shares will, at the time of
Closing, be held by the persons and in the amounts set forth in the list of
shareholders submitted to Mid-Cap Equity pursuant to paragraph 3.4;
(j) The execution, delivery and performance of this Agreement will have
been duly authorized prior to the Closing Date by all necessary action on
the part of Mid-Cap Dividend, and subject to the approval of Mid-Cap
Dividend's shareholders, this Agreement constitutes a valid and binding
obligation of Mid-Cap Dividend, enforceable in accordance with its terms,
subject as to enforcement to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors rights and to
general equity principles. No other consents, authorizations or approvals
are necessary in connection with Mid-Cap Dividend's performance of this
Agreement;
(k) All material Federal and other tax returns and reports of Mid-Cap
Dividend required by law to be filed on or before the Closing Date shall
have been filed and are correct and all Federal and other taxes shown as
due or required to be shown as due on said returns and reports have been
paid or provision has been made for the payment thereof, and to the best of
Mid-Cap Dividend's knowledge, no such return is currently under audit and
no assessment has been asserted with respect to any such return;
(l) For each taxable year since its inception, Mid-Cap Dividend has met
all the requirements of Subchapter M of the Code for qualification and
treatment as a "regulated investment company" and neither the execution or
delivery of nor the performance of its obligations under this Agreement
will adversely affect, and no other events are reasonably likely to occur
which will adversely affect the ability of Mid-Cap Dividend to continue to
meet the requirements of Subchapter M of the Code;
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(m) At the Closing Date, Mid-Cap Dividend will have good and valid title
to the Mid-Cap Dividend Assets, subject to no liens (other than the
obligation, if any, to pay the purchase price of portfolio securities
purchased by Mid-Cap Dividend which have not settled prior to the Closing
Date), security interests or other encumbrances, and full right, power and
authority to assign, deliver and otherwise transfer such assets hereunder,
and upon delivery and payment for such assets, Mid-Cap Equity will acquire
good and marketable title thereto, subject to no restrictions on the full
transfer thereof, including any restrictions as might arise under the 1933
Act;
(n) On the effective date of the Registration Statement, at the time of
the meeting of Mid-Cap Dividend's shareholders and on the Closing Date, the
Proxy Materials (exclusive of the currently effective Mid-Cap Equity
Prospectus contained therein) will (i) comply in all material respects with
the provisions of the 1933 Act, the Securities Exchange Act of 1934, as
amended ("1934 Act") and the 1940 Act and the regulations thereunder and
(ii) not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. Any other information furnished by
Mid-Cap Dividend for use in the Registration Statement or in any other
manner that may be necessary in connection with the transactions
contemplated hereby shall be accurate and complete and shall comply in all
material respects with applicable Federal securities and other laws and
regulations thereunder;
(o) Mid-Cap Dividend will, on or prior to the Valuation Date, declare one
or more dividends or other distributions to shareholders that, together
with all previous dividends and other distributions to shareholders, shall
have the effect of distributing to the shareholders all of its investment
company taxable income and net capital gain, if any, through the Valuation
Date (computed without regard to any deduction for dividends paid);
(p) Mid-Cap Dividend has maintained or has caused to be maintained on its
behalf all books and accounts as required of a registered investment company
in compliance with the requirements of Section 31 of the 1940 Act and the
Rules thereunder; and
(q) Mid-Cap Dividend is not acquiring Mid-Cap Equity Shares to be issued
hereunder for the purpose of making any distribution thereof other than in
accordance with the terms of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF MID-CAP DIVIDEND
The obligations of Mid-Cap Dividend to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
Mid-Cap Equity of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following conditions:
6.1 All representations and warranties of Mid-Cap Equity contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if
made on and as of the Closing Date;
6.2 Mid-Cap Equity shall have delivered to Mid-Cap Dividend a certificate
of its President and Treasurer, in a form reasonably satisfactory to Mid-Cap
Dividend and dated as of the Closing Date, to the effect that the
representations and warranties of Mid-Cap Equity made in this Agreement are
true and correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other
matters as Mid-Cap Dividend shall reasonably request;
6.3 Mid-Cap Dividend shall have received a favorable opinion from Mayer,
Brown & Platt, counsel to Mid-Cap Equity, dated as of the Closing Date, to the
effect that:
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<PAGE>
(a) Mid-Cap Equity is a validly existing Massachusetts Business Trust,
and has the power to own all of its properties and assets and to carry on
its business as presently conducted (Massachusetts counsel may be relied
upon in delivering such opinion); (b) Mid-Cap Equity is a duly registered,
open-end, management investment company, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect; (c) this Agreement has been duly authorized, executed and delivered
by Mid-Cap Equity and, assuming that the Registration Statement complies
with the 1933 Act, the 1934 Act and the 1940 Act and regulations thereunder
and assuming due authorization, execution and delivery of this Agreement by
Mid-Cap Dividend, is a valid and binding obligation of Mid-Cap Equity
enforceable against Mid-Cap Equity in accordance with its terms, subject as
to enforcement, to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors rights and to general equity
principles; (d) Mid-Cap Equity Shares to be issued to Mid-Cap Dividend
Shareholders as provided by this Agreement are duly authorized and upon
such delivery will be validly issued, fully paid and non-assessable (except
as set forth under the caption "Capital Stock and Other Securities" in
Mid-Cap Equity's Statement of Additional Information), and no shareholder
of Mid-Cap Equity has any preemptive rights to subscription or purchase in
respect thereof (Massachusetts counsel may be relied upon in delivering
such opinion); (e) the execution and delivery of this Agreement did not,
and the consummation of the transactions contemplated hereby will not,
violate Mid-Cap Equity's Declaration of Trust or By-Laws; and (f) to the
knowledge of such counsel, no consent, approval, authorization or order of
any court or governmental authority of the United States or any state is
required for the consummation by Mid-Cap Equity of the transactions
contemplated herein, except such as have been obtained under the 1933 Act,
the 1934 Act and the 1940 Act and such as may be required under state
securities laws; and
6.4 As of the Closing Date, there shall have been no material change in
the investment objective, policies and restrictions nor any increase in the
investment management fees or annual fees pursuant to Mid-Cap Equity's 12b-1
plan of distribution from those described in Mid-Cap Equity's Prospectus dated
January 28, 2000 and Statement of Additional Information dated January 28, 2000.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF MID-CAP EQUITY
The obligations of Mid-Cap Equity to complete the transactions provided
for herein shall be subject, at its election, to the performance by Mid-Cap
Dividend of all the obligations to be performed by it hereunder on or before
the Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of Mid-Cap Dividend contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force and
effect as if made on and as of the Closing Date;
7.2 Mid-Cap Dividend shall have delivered to Mid-Cap Equity at the Closing
a certificate of its President and its Treasurer, in form and substance
satisfactory to Mid-Cap Equity and dated as of the Closing Date, to the effect
that the representations and warranties of Mid-Cap Dividend made in this
Agreement are true and correct at and as of the Closing Date, except as they
may be affected by the transactions contemplated by this Agreement, and as to
such other matters as Mid-Cap Equity shall reasonably request;
7.3 Mid-Cap Dividend shall have delivered to Mid-Cap Equity a statement of
the Mid-Cap Dividend Assets and its liabilities, together with a list of
Mid-Cap Dividend's portfolio securities and other assets showing the respective
adjusted bases and holding periods thereof for income tax purposes, as of the
Closing Date, certified by the Treasurer of Mid-Cap Dividend;
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<PAGE>
7.4 Mid-Cap Dividend shall have delivered to Mid-Cap Equity within three
business days after the Closing a letter from PricewaterhouseCoopers LLP dated
as of the Closing Date stating that (a) such firm has performed a limited
review of the Federal and state income tax returns of Mid-Cap Dividend for each
of the last three taxable years and, based on such limited review, nothing came
to their attention that caused them to believe that such returns did not
properly reflect, in all material respects, the Federal and state income tax
liabilities of Mid-Cap Dividend for the periods covered thereby, (b) for the
period from February 28, 1999 to and including the Closing Date, such firm has
performed a limited review (based on unaudited financial data) to ascertain the
amount of applicable Federal, state and local taxes and has determined that
same either have been paid or reserves have been established for payment of
such taxes, and, based on such limited review, nothing came to their attention
that caused them to believe that the taxes paid or reserves set aside for
payment of such taxes were not adequate in all material respects for the
satisfaction of all Federal, state and local tax liabilities for the period
from February 28, 1999 to and including the Closing Date and (c) based on such
limited reviews, nothing came to their attention that caused them to believe
that Mid-Cap Dividend would not qualify as a regulated investment company for
Federal income tax purposes for any such year or period;
7.5 Mid-Cap Equity shall have received at the Closing a favorable opinion
from Mayer, Brown & Platt, counsel to Mid-Cap Dividend, dated as of the Closing
Date to the effect that:
(a) Mid-Cap Dividend is a validly existing Massachusetts business trust
and has the power to own all of its properties and assets and to carry on
its business as presently conducted (Massachusetts counsel may be relied
upon in delivering such opinion); (b) Mid-Cap Dividend is a duly
registered, open-end, management investment company under the 1940 Act, and
its registration with the Commission as an investment company under the
1940 Act is in full force and effect; (c) this Agreement has been duly
authorized, executed and delivered by Mid-Cap Dividend and, assuming that
the Registration Statement complies with the 1933 Act, the 1934 Act and the
1940 Act and the regulations thereunder and assuming due authorization,
execution and delivery of this Agreement by Mid-Cap Equity, is a valid and
binding obligation of Mid-Cap Dividend enforceable against Mid-Cap Dividend
in accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors rights and to general equity principles; (d) the
execution and delivery of this Agreement did not, and the consummation of
the transactions contemplated hereby will not, violate Mid-Cap Dividend's
Declaration of Trust or By-Laws; and (e) to the knowledge of such counsel,
no consent, approval, authorization or order of any court or governmental
authority of the United States or any state is required for the
consummation by Mid-Cap Dividend of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934 Act and the
1940 Act and such as may be required under state securities laws; and
7.6 On the Closing Date, the Mid-Cap Dividend Assets shall include no
assets that Mid-Cap Equity, by reason of limitations of the fund's Declaration
of Trust or otherwise, may not properly acquire.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF MID-CAP EQUITY
AND MID-CAP DIVIDEND
The obligations of Mid-Cap Dividend and Mid-Cap Equity hereunder are each
subject to the further conditions that on or before the Closing Date:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
Mid-Cap Dividend in accordance with the provisions of Mid-Cap Dividend's
Declaration of Trust, and certified copies of the resolutions evidencing such
approval shall have been delivered to Mid-Cap Equity;
A-11
<PAGE>
8.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities, including
"no-action" positions of and exemptive orders from such Federal and state
authorities) deemed necessary by Mid-Cap Equity or Mid-Cap Dividend to permit
consummation, in all material respects, of the transactions contemplated herein
shall have been obtained, except where failure to obtain any such consent,
order or permit would not involve risk of a material adverse effect on the
assets or properties of Mid-Cap Equity or Mid-Cap Dividend;
8.4 The Registration Statement shall have become effective under the 1933
Act, no stop orders suspending the effectiveness thereof shall have been issued
and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act;
8.5 Mid-Cap Dividend shall have declared and paid a dividend or dividends
and/or other distribution or distributions that, together with all previous
such dividends or distributions, shall have the effect of distributing to the
Mid-Cap Dividend Shareholders all of Mid-Cap Dividend's investment company
taxable income (computed without regard to any deduction for dividends paid)
and all of its net capital gain (after reduction for any capital loss
carry-forward and computed without regard to any deduction for dividends paid)
for all taxable years ending on or before the Closing Date; and
8.6 The parties shall have received the opinion of the law firm of Mayer,
Brown & Platt (based on such representations as such law firm shall reasonably
request), addressed to Mid-Cap Equity and Mid-Cap Dividend, which opinion may
be relied upon by the shareholders of Mid-Cap Dividend, substantially to the
effect that, for Federal income tax purposes:
(a) The transfer of Mid-Cap Dividend's assets in exchange for Mid-Cap
Equity Shares and the assumption by Mid-Cap Equity of certain stated
liabilities of Mid-Cap Dividend followed by the distribution by Mid-Cap
Dividend of Mid-Cap Equity Shares to the Mid-Cap Dividend Shareholders in
exchange for their Mid-Cap Dividend shares pursuant to and in accordance
with the terms of the Reorganization Agreement will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code,
and Mid-Cap Dividend and Mid-Cap Equity will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by Mid-Cap Equity upon the receipt
of the assets of Mid-Cap Dividend solely in exchange for Mid-Cap Equity
Shares and the assumption by Mid-Cap Equity of the stated liabilities of
Mid-Cap Dividend;
(c) No gain or loss will be recognized by Mid-Cap Dividend upon the
transfer of the assets of Mid-Cap Dividend to Mid-Cap Equity in exchange
for Mid-Cap Equity Shares and the assumption by Mid-Cap Equity of the
stated liabilities or upon the distribution of Mid-Cap Equity Shares to the
Mid-Cap Dividend Shareholders in exchange for their Mid-Cap Dividend
shares;
(d) No gain or loss will be recognized by the Mid-Cap Dividend
Shareholders upon the exchange of the Mid-Cap Dividend shares for Mid-Cap
Equity Shares;
(e) The aggregate tax basis for Mid-Cap Equity Shares received by each
Mid-Cap Dividend Shareholder pursuant to the reorganization will be the
same as the aggregate tax basis of the Mid-Cap Dividend Shares held by each
such Mid-Cap Dividend Shareholder immediately prior to the Reorganization;
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<PAGE>
(f) The holding period of Mid-Cap Equity Shares to be received by each
Mid-Cap Dividend Shareholder will include the period during which the
Mid-Cap Dividend Shares surrendered in exchange therefor were held
(provided such Mid-Cap Dividend Shares were held as capital assets on the
date of the Reorganization);
(g) The tax basis of the assets of Mid-Cap Dividend acquired by Mid-Cap
Equity will be the same as the tax basis of such assets to Mid-Cap Dividend
immediately prior to the Reorganization; and
(h) The holding period of the assets of Mid-Cap Dividend in the hands of
Mid-Cap Equity will include the period during which those assets were held
by Mid-Cap Dividend.
Notwithstanding anything herein to the contrary, neither Mid-Cap Equity
nor Mid-Cap Dividend may waive the conditions set forth in this paragraph 8.6.
9. FEES AND EXPENSES
9.1 (a) Mid-Cap Equity shall bear its expenses incurred in connection with
the entering into, and carrying out of, the provisions of this Agreement,
including legal, accounting, Commission registration fees and Blue Sky
expenses. Mid-Cap Dividend shall bear its expenses incurred in connection with
the entering into and carrying out of the provisions of this Agreement,
including legal and accounting fees, printing, filing and proxy solicitation
expenses and portfolio transfer taxes (if any) incurred in connection with the
consummation of the transactions contemplated herein.
(b) In the event the transactions contemplated herein are not consummated
by reason of Mid-Cap Dividend being either unwilling or unable to go forward
(other than by reason of the nonfulfillment or failure of any condition to
Mid-Cap Dividend's obligations specified in this Agreement), Mid-Cap Dividend's
only obligation hereunder shall be to reimburse Mid-Cap Equity for all
reasonable out-of-pocket fees and expenses incurred by Mid-Cap Equity in
connection with those transactions.
(c) In the event the transactions contemplated herein are not consummated
by reason of Mid-Cap Equity being either unwilling or unable to go forward
(other than by reason of the nonfulfillment or failure of any condition to
Mid-Cap Equity's obligations specified in this Agreement), Mid-Cap Equity's
only obligation hereunder shall be to reimburse Mid-Cap Dividend for all
reasonable out-of-pocket fees and expenses incurred by Mid-Cap Dividend in
connection with those transactions.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 This Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions contemplated
herein, except that the representations, warranties and covenants of Mid-Cap
Dividend hereunder shall not survive the dissolution and complete liquidation
of Mid-Cap Dividend in accordance with Section 1.9.
11. TERMINATION
11.1 This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time prior to the Closing:
(a) by the mutual written consent of Mid-Cap Dividend and Mid-Cap
Equity;
A-13
<PAGE>
(b) by either Mid-Cap Equity or Mid-Cap Dividend by notice to the other,
without liability to the terminating party on account of such termination
(providing the terminating party is not otherwise in material default or
breach of this Agreement) if the Closing shall not have occurred on or
before September 30, 2000; or
(c) by either Mid-Cap Equity or Mid-Cap Dividend, in writing without
liability to the terminating party on account of such termination (provided
the terminating party is not otherwise in material default or breach of
this Agreement), if (i) the other party shall fail to perform in any
material respect its agreements contained herein required to be performed
on or prior to the Closing Date, (ii) the other party materially breaches
any of its representations, warranties or covenants contained herein, (iii)
the Mid-Cap Dividend shareholders fail to approve this Agreement at any
meeting called for such purpose at which a quorum was present or (iv) any
other condition herein expressed to be precedent to the obligations of the
terminating party has not been met and it reasonably appears that it will
not or cannot be met.
11.2 (a) Termination of this Agreement pursuant to paragraphs 11.1 (a) or
(b) shall terminate all obligations of the parties hereunder and there shall be
no liability for damages on the part of Mid-Cap Equity or Mid-Cap Dividend, or
the trustees or officers of Mid-Cap Equity or Mid-Cap Dividend, to any other
party or its trustees or officers.
(b) Termination of this Agreement pursuant to paragraph 11.1 (c)
shall terminate all obligations of the parties hereunder and there shall be
no liability for damages on the part of Mid-Cap Equity or Mid-Cap Dividend,
or the trustees or officers of Mid-Cap Equity or Mid-Cap Dividend, except
that any party in breach of this Agreement shall, upon demand, reimburse the
non-breaching party for all reasonable out-of-pocket fees and expenses
incurred in connection with the transactions contemplated by this
Agreement, including legal, accounting and filing fees.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the parties.
13. MISCELLANEOUS
13.1 The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
13.5 The obligations and liabilities of Mid-Cap Equity hereunder are
solely those of Mid-Cap Equity. It is expressly agreed that no shareholder,
nominee, trustee, officer, agent, or employee of Mid-Cap Equity shall be
personally liable hereunder. The execution and delivery of this Agreement have
been authorized by the
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<PAGE>
trustees of Mid-Cap Equity and signed by authorized officers of Mid-Cap Equity
acting as such, and neither such authorization by such trustees nor such
execution and delivery by such officers shall be deemed to have been made by
any of them individually or to impose any liability on any of them personally.
13.6 The obligations and liabilities of Mid-Cap Dividend hereunder are
solely those of Mid-Cap Dividend. It is expressly agreed that no shareholder,
nominee, trustee, officer, agent, or employee of Mid-Cap Dividend shall be
personally liable hereunder. The execution and delivery of this Agreement have
been authorized by the trustees of Mid-Cap Dividend and signed by authorized
officers of Mid-Cap Dividend acting as such, and neither such authorization by
such trustees nor such execution and delivery by such officers shall be deemed
to have been made by any of them individually or to impose any liability on any
of them personally.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by a duly authorized officer.
MORGAN STANLEY DEAN WITTER MID-CAP
DIVIDEND SECURITIES
By: /s/ CHARLES A. FIUMEFREDDO
--------------------------------------------
Name: Charles A. Fiumefreddo
Title: Chairman
MORGAN STANLEY DEAN WITTER MID-CAP
EQUITY TRUST
By: /s/ BARRY FINK
--------------------------------------------
Name: Barry Fink
Title: Vice President
A-15
<PAGE>
PROSPECTUS - JANUARY 28, 2000
EXHIBIT B
Morgan Stanley Dean Witter
----------------------------------------------------------------
MID-CAP EQUITY TRUST
A MUTUAL FUND THAT SEEKS LONG-TERM CAPITAL APPRECIATION
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation
to the contrary is a criminal offense.
<PAGE>
CONTENTS
<TABLE>
<S> <C>
The Fund Investment Objective 1
Principal Investment Strategies 1
Principal Risks 2
Past Performance 3
Fees and Expenses 4
Additional Investment Strategy Information 5
Additional Risk Information 6
Fund Management 7
Shareholder Information Pricing Fund Shares 9
How to Buy Shares 9
How to Exchange Shares 11
How to Sell Shares 13
Distributions 15
Tax Consequences 15
Share Class Arrangements 16
Financial Highlights 24
Our Family of Funds Inside Back Cover
This Prospectus contains important information
about the Fund. Please read it carefully and keep
it for future reference.
</TABLE>
<PAGE>
THE FUND
[GRAPHIC OMITTED]
INVESTMENT OBJECTIVE
- - - --------------------------------
Morgan Stanley Dean Witter Mid-Cap Equity Trust (the "Fund") seeks
long-term capital appreciation.
[GRAPHIC OMITTED]
PRINCIPAL INVESTMENT STRATEGIES
- - - --------------------------------------------
CAPITAL APPRECIATION
AN INVESTMENT OBJECTIVE HAVING
THE GOAL OF SELECTING SECURITIES
WITH THE POTENTIAL TO RISE IN
PRICE RATHER THAN PAY OUT INCOME.
The Fund will normally invest at least 65%
of its total assets in a portfolio of
common stocks and convertible securities of
medium-sized companies with market
capitalizations, at the time of purchase,
within the capitalization range of the
companies comprising the Standard & Poor's
Mid-Cap 400 Index, which capitalization
range is approximately between $165 million
and $37 billion as of December 31, 1999.
The Fund's "Sub-Advisor," TCW Investment
Management Company, invests the Fund's
assets in companies that it believes
exhibit superior earnings growth prospects
and attractive stock market valuations. In
buying and selling securities for the
Fund's portfolio, the Sub-Advisor uses its
proprietary research in pursuing a
"bottom-up" investment philosophy, which
emphasizes individual company selection.
Quantitative and qualitative standards also
will be used to screen more than one
thousand companies to provide a list of
potential investment securities. The
Sub-Advisor then subjects the list of
securities to a fundamental analysis which
generally looks for at least some of the
following factors:
o a demonstrated record of
consistent earnings growth or the
potential to grow earnings;
o an ability to earn an attractive
return on equity;
o a price/earnings ratio which is
less than the Sub-Advisor's
internally estimated three-year
earnings growth rate;
o a large and growing market share;
o a strong balance sheet; and
o significant ownership by
management and a strong management
team.
Common stock is a share ownership or equity
interest in a corporation. It may or may
not pay dividends, as some companies
reinvest all of their profits back into
their businesses, while others pay out some
of their profits to shareholders as
dividends. A convertible security is a
bond, preferred stock or other security
that may be converted into a prescribed
amount of common stock at a particular time
and price.
In addition, the Fund's investments may
include equity securities of small or large
companies, foreign securities and
investment grade fixed-income securities.
1
<PAGE>
In pursuing the Fund's investment objective, the Sub-Advisor has
considerable leeway in deciding which investments it buys, holds or
sells on a day-to-day basis -- and which trading strategies it uses.
For example, the Sub-Advisor in its discretion may determine to use
some permitted trading strategies while not using others.
[GRAPHIC OMITTED]
PRINCIPAL RISKS
- - - --------------------------
There is no assurance that the Fund will achieve its investment
objective. The Fund's share price will fluctuate with changes in the
market value of the Fund's portfolio securities. When you sell Fund
shares, they may be worth less than what you paid for them and,
accordingly, you can lose money investing in this Fund.
Common Stocks. A principal risk of investing in the Fund is
associated with its common stock investments of medium-sized
companies. In general, stock values fluctuate in response to
activities specific to the company as well as general market,
economic and political conditions. Stock prices can fluctuate widely
in response to these factors.
Investing in securities of medium-sized companies may involve greater
risk than is customarily associated with investing in more
established companies. Often, medium-sized companies and the
industries in which they are focused are still evolving, and they are
more sensitive to changing market conditions than larger companies in
more established industries. Their securities may be more volatile
and have returns that vary, sometimes significantly, from the overall
stock market.
Convertible Securities. The Fund's investments in convertible
securities subject the Fund to the risks associated with both
fixed-income securities and common stocks. To the extent that a
convertible security's investment value is greater than its
conversion value, its price will likely increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income
security. If the conversion value exceeds the investment value, the
price of the convertible security will tend to fluctuate directly
with the price of the underlying equity security.
Other Risks. The performance of the Fund also will depend on whether
the Sub-Advisor is successful in pursuing the Fund's investment
strategy. The Fund is also subject to other risks from its
permissible investments including the risks associated with its
investments in equity securities of small or large companies, foreign
securities and its fixed-income investments. For more information
about these risks, see the "Additional Risk Information" section.
Shares of the Fund are not bank deposits and are not guaranteed or
insured by the FDIC or any other government agency.
2
<PAGE>
[GRAPHIC OMITTED]
PAST PERFORMANCE
- - - ----------------------------
The bar chart and table below provide some indication of the
risks of investing in the Fund. The Fund's past performance
does not indicate how the Fund will perform in the future.
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
ANNUAL TOTAL RETURNS
THIS CHART SHOWS HOW THE PERFORMANCE
OF THE FUND'S CLASS B SHARES HAS VARIED
FROM YEAR TO YEAR FOR THE PAST THREE
CALENDAR YEARS.
AVERAGE ANNUAL
TOTAL RETURNS
THIS TABLE COMPARES THE FUND'S AVERAGE
ANNUAL RETURNS WITH THOSE OF A BROAD
MEASURE OF MARKET PERFORMANCE OVER TIME.
THE FUND'S RETURNS INCLUDE THE MAXIMUM
APPLICABLE SALES CHARGE FOR EACH CLASS
AND ASSUME YOU SOLD YOUR SHARES AT THE
END OF EACH PERIOD.
[GRAPHIC OMITTED]
The bar chart reflects the performance of
Class B shares; the performance of the
other Classes will differ because the
Classes have different ongoing fees. The
performance information in the bar chart
does not reflect the deduction of sales
charges; if these amounts were reflected,
returns would be less than shown.
During the periods shown in the bar chart, the highest return for a
calendar quarter was 62.22% (quarter ended December 31, 1999) and the
lowest return for a calendar quarter was -21.17% (quarter ended March
31, 1997).
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31,
1999)
<TABLE>
<CAPTION>
LIFE OF FUND
PAST 1 YEAR (SINCE 2/27/96)
<S> <C> <C>
Class A(1) 113.79% --
Class B 119.60% 45.24%
Class C(1) 122.93% --
Class D(1) 125.75% --
S&P Mid-Cap 400 Index(2) 14.72% 20.42%(3)
</TABLE>
1 Classes A, C and D commenced operations on July 28,
1997.
2 The S&P Mid-Cap 400 Index is a market-value weighted
Index, the performance of which is based on the
average performance of 400 domestic stocks chosen
for market size, liquidity and industry group
representation. The Index does not include any
expenses, fees or charges. The Index is unmanaged
and should not be considered an investment.
3 For the period February 29, 1996 to December 31,
1999.
3
<PAGE>
[GRAPHIC OMITTED]
FEES AND EXPENSES
- - - -----------------------------
The table below briefly describes the fees and expenses that you may
pay if you buy and hold shares of the Fund. The Fund offers four
Classes of shares: Classes A, B, C and D. Each Class has a different
combination of fees, expenses and other features. The Fund does not
charge account or exchange fees. See the "Share Class Arrangements"
section for further fee and expense information.
SHAREHOLDER FEES
THESE FEES ARE PAID DIRECTLY FROM
YOUR INVESTMENT.
ANNUAL FUND
OPERATING EXPENSES
THESE EXPENSES ARE DEDUCTED
FROM THE FUND'S ASSETS AND
ARE BASED ON EXPENSES PAID
FOR THE FISCAL YEAR ENDED
NOVEMBER 30, 1999.*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
Maximum sales charge (load)
imposed on purchases (as a
percentage of offering price) 5.25%(1) None None None
Maximum deferred sales charge
(load) (as a percentage based on
the lesser of the offering price or
net asset value at redemption) None(2) 5.00%(3) 1.00%(4) None
ANNUAL FUND OPERATING EXPENSES
Management fee* 0.75% 0.75% 0.75% 0.75%
Distribution and service (12b-1)
fees 0.24% 0.75% 1.00% None
Other expenses 0.18% 0.18% 0.18% 0.18%
Total annual Fund operating
expenses 1.17% 1.68% 1.93% 0.93%
</TABLE>
1 Reduced for purchases of $25,000 and over.
2 Investments that are not subject to any sales charge
at the time of purchase are subject to a contingent
deferred sales charge ("CDSC") of 1.00% that will be
imposed if you sell your shares within one year
after purchase, except for certain specific
circumstances.
3 The CDSC is scaled down to 1.00% during the sixth
year, reaching zero thereafter. See "Share Class
Arrangements" for a complete discussion of the CDSC.
4 Only applicable if you sell your shares within one
year after purchase.
* Restated to reflect a reduction in the aggregate fee
payable by the Fund for management and advisory
services from 1.00% of the Fund's daily net assets
to 0.75% of the portion of the Fund's daily net
assets not exceeding $500 million and 0.725% of the
portion of the Fund's daily net assets exceeding
$500 million, which took effect when the Fund's
management arrangements were changed effective June
28, 1999.
4
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund, your
investment has a 5% return each year, and the Fund's operating
expenses remain the same. Although your actual costs may be higher or
lower, the tables below show your costs at the end of each period
based on these assumptions depending upon whether or not you sell
your shares at the end of each period.
<TABLE>
<CAPTION>
IF YOU SOLD YOUR SHARES: IF YOU HELD YOUR SHARES:
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- - - ----------- -------- --------- ---------- ---------- --------- --------- ---------- ---------
CLASS A $ 638 $ 877 $ 1,135 $ 1,871 $ 638 $ 877 $ 1,135 $ 1,871
- - - ----------- ----- ----- ------- ------- ----- ----- ------- -------
CLASS B $ 671 $ 830 $ 1,113 $ 1,987 $ 171 $ 530 $ 913 $ 1,987
- - - ----------- ----- ----- ------- ------- ----- ----- ------- -------
CLASS C $ 296 $ 606 $ 1,042 $ 2,254 $ 196 $ 606 $ 1,042 $ 2,254
- - - ----------- ----- ----- ------- ------- ----- ----- ------- -------
CLASS D $ 95 $ 296 $ 515 $ 1,143 $ 95 $ 296 $ 515 $ 1,143
- - - ----------- ----- ----- ------- ------- ----- ----- ------- -------
</TABLE>
Long-term shareholders of Class B and Class C may pay more in sales
charges, including distribution fees, than the economic equivalent of
the maximum front-end sales charges permitted by the NASD.
[GRAPHIC OMITTED]
ADDITIONAL INVESTMENT STRATEGY INFORMATION
- - - ---------------------------------------------------------
This section provides additional information relating to the Fund's
principal investment strategies.
Other Investments. The Fund also may invest up to 35% of its assets
in equity securities of small or large companies and investment grade
fixed-income securities. It also may invest up to 25% of its assets
in foreign equity securities (including depository receipts).
Defensive Investing. The Fund may take temporary "defensive"
positions in attempting to respond to adverse market conditions. The
Fund may invest any amount of its assets in cash or money market
instruments in a defensive posture when the Sub-Advisor believes it
is advisable to do so. Although taking a defensive posture is
designed to protect the Fund from an anticipated market downturn, it
could have the effect of reducing the benefit from any upswing in the
market. When the Fund takes a defensive position, it may not achieve
its investment objective.
The percentage limitations relating to the composition of the Fund's
portfolio apply at the time the Fund acquires an investment and refer
to the Fund's net assets, unless otherwise noted. Subsequent
percentage changes that result from market fluctuations
5
<PAGE>
will not require the Fund to sell any portfolio security. The Fund
may change its principal investment strategies without shareholder
approval; however, you would be notified of any changes.
[GRAPHIC OMITTED]
ADDITIONAL RISK INFORMATION
- - - ----------------------------------------
This section provides additional information relating to the
principal risks of investing in the Fund.
Small Companies. As with the Fund's investments in medium-sized
companies, its investments in the securities of small companies may
involve greater risk than is customarily associated with investing in
more established companies. Small companies in particular often have
limited product lines, financial resources and less experienced
management. As a consequence, their securities may be more volatile
and have returns that vary, sometimes significantly, from the overall
stock market.
Fixed-Income Securities. Principal risks of investing in the Fund are
associated with its fixed-income investments. All fixed-income
securities, such as corporate debt, are subject to two types of risk:
credit risk and interest rate risk. Credit risk refers to the
possibility that the issuer of a security will be unable to make
interest payments and/or repay the principal on its debt.
Interest rate risk refers to fluctuations in the value of a
fixed-income security resulting from changes in the general level of
interest rates. When the general level of interest rates goes up, the
price of most fixed-income securities goes down. When the general
level of interest rates goes down, the price of most fixed-income
securities goes up.
Foreign Securities. The Fund's investments in foreign securities
(including depository receipts) involve risks that are in addition to
the risks associated with domestic securities. One additional risk is
currency risk. While the price of Fund shares is quoted in U.S.
dollars, the Fund generally converts U.S. dollars to a foreign
market's local currency to purchase a security in that market. If the
value of that local currency falls relative to the U.S. dollar, the
U.S. dollar value of the foreign security will decrease. This is true
even if the foreign security's local price remains unchanged.
Foreign securities also have risks related to economic and political
developments abroad, including expropriations, confiscatory taxation,
exchange control regulation, limitations on the use or transfer of
Fund assets and any effects of foreign social, economic or political
instability. Foreign companies, in general, are not subject to the
regulatory requirements of U.S. companies and, as such, there may be
less publicly available information about these companies. Moreover,
foreign accounting, auditing and financial reporting standards
generally are different from those applicable to U.S.
6
<PAGE>
companies. Finally, in the event of a default of any foreign debt
obligations, it may be more difficult for the Fund to obtain or
enforce a judgment against the issuers of the securities.
Securities of foreign issuers may be less liquid than comparable
securities of U.S. issuers and, as such, their price changes may be
more volatile. Furthermore, foreign exchanges and broker-dealers are
generally subject to less government and exchange scrutiny and
regulation than their U.S. counterparts. In addition, differences in
clearance and settlement procedures in foreign markets may occasion
delays in settlements of the Fund's trades effected in those markets.
Many European countries have adopted or are in the process of
adopting a single European currency, referred to as the "euro." The
long-term consequences of the euro conversion for foreign exchange
rates, interest rates and the value of European securities the Fund
may purchase are unclear. The consequences may adversely affect the
value and/or increase the volatility of securities held by the Fund.
[GRAPHIC OMITTED]
FUND MANAGEMENT
- - - ----------------------------
MORGAN STANLEY DEAN WITTER ADVISORS INC.
THE INVESTMENT MANAGER IS WIDELY
RECOGNIZED AS A LEADER IN THE MUTUAL FUND
INDUSTRY AND TOGETHER WITH MORGAN STANLEY
DEAN WITTER SERVICES COMPANY INC.,
ITS WHOLLY-OWNED SUBSIDIARY, HAD
APPROXIMATELY $145 BILLION IN ASSET
UNDER MANAGEMENT AS OF DECEMBER 31, 1999.
Effective June 28, 1999, the Fund has retained the Investment Manager
-- Morgan Stanley Dean Witter Advisors Inc. -- to provide
administrative services, manage its business affairs and supervise the
investment of its assets. The Investment Manager has, in turn,
contracted with the Sub-Advisor -- TCW Investment Management Company --
to invest the Fund's assets, including the placing of orders for the
purchase and sale of portfolio securities. Prior to June 28, 1999, TCW
Investment Management Company acted as the Fund's advisor and Morgan
Stanley Dean Witter Services Company Inc., a wholly-owned subsidiary of
the Investment Manager, served as the Fund's manager. The Investment
Manager is a wholly-owned subsidiary of Morgan Stanley Dean Witter &
Co., a preeminent global financial services firm that maintains leading
market positions in each of its three primary businesses: securities,
asset management and credit services. Its main business office is
located at Two World Trade Center, New York, NY 10048.
The Sub-Advisor is a wholly-owned subsidiary of TCW Group, Inc., whose
direct and indirect subsidiaries provide a variety of trust,
investment management and investment advisory services. The
Sub-Advisor's main business office is located at 865 South Figueroa
Street, Suite 1800, Los Angeles, CA 90017. The Sub-Advisor, together
with its affiliated companies, manages approximately $70 billion
primarily for institutional investors.
7
<PAGE>
Douglas S. Foreman, Chief Investment Officer of U.S. Equities and
Group Managing Director of the Sub-Advisor, is the primary portfolio
manager of the Fund. He is assisted by Christopher J. Ainley,
Managing Director of the Sub-Advisor. Mr. Foreman and Mr. Ainley have
been portfolio managers with affiliated companies of the TCW Group
since 1994.
The Fund pays the Investment Manager a monthly management fee as full
compensation for the services and facilities furnished to the Fund,
and for Fund expenses assumed by the Investment Manager. The fee is
based on the Fund's average daily net assets. The Investment Manager
pays the Sub-Advisor monthly compensation equal to 40% of this fee.
For the fiscal period December 1, 1998 through June 27, 1999, the
Fund accrued total compensation to Morgan Stanley Dean Witter
Services Company Inc. (at the time the Fund's manager) and TCW
Investment Management Company (at the time acting as the Fund's
advisor, rather than sub-advisor) in the amount of 1.00% of the
Fund's average daily net assets (0.60% to Morgan Stanley Dean Witter
Services Company Inc. and 0.40% to TCW Investment Management
Company). Upon effectiveness of the change in the Fund's management
arrangements on June 28, 1999, the aggregate fee payable by the Fund
for management and advisory services was lowered from 1.00% of the
Fund's daily net assets to 0.75% of the portion of the Fund's daily
net assets not exceeding $500 million and 0.725% of the portion of
the Fund's daily net assets exceeding $500 million. For the fiscal
period June 28, 1999 through November 30, 1999 the Fund accrued total
compensation to the Investment Manager in the amount of 0.74% of the
Fund's daily net assets.
8
<PAGE>
SHAREHOLDER INFORMATION
[GRAPHIC OMITTED]
PRICING FUND SHARES
- - - -------------------------------
The price of Fund shares (excluding sales charges), called "net asset
value," is based on the value of the Fund's portfolio securities. The
net asset value of each Class, however, will differ because the
Classes have different ongoing distribution fees.
The net asset value per share of the Fund is determined once daily at
4:00 p.m. Eastern time on each day that the New York Stock Exchange
is open (or, on days when the New York Stock Exchange closes prior to
4:00 p.m., at such earlier time). Shares will not be priced on days
that the New York Stock Exchange is closed.
The value of the Fund's portfolio securities is based on the
securities' market price when available. When a market price is not
readily available, including circumstances under which the Investment
Manager and/or Sub-Advisor determines that a security's market price
is not accurate, a portfolio security is valued at its fair value, as
determined under procedures established by the Fund's Board of
Trustees. In these cases, the Fund's net asset value will reflect
certain portfolio securities' fair value rather than their market
price. With respect to securities that are listed on foreign
exchanges, the value of the Fund's portfolio securities may change on
days when you will not be able to purchase or sell your shares.
An exception to the Fund's general policy of using market prices
concerns its short-term debt portfolio securities. Debt securities
with remaining maturities of sixty days or less at the time of
purchase are valued at amortized cost. However, if the cost does not
reflect the securities' market value, these securities will be valued
at their fair value.
[GRAPHIC OMITTED]
HOW TO BUY SHARES
- - - ------------------------------
CONTACTING A FINANCIAL ADVISOR
IF YOU ARE NEW TO THE MORGAN STANLEY
DEAN WITTER FAMILY OF FUNDS AND WOULD
LIKE TO CONTACT A FINANCIAL ADVISOR,
CALL (877) 937-MSDW (TOLL-FREE) FOR THE
TELEPHONE NUMBER OF THE MORGAN STANLEY
DEAN WITTER OFFICE NEAREST YOU. YOU MAY
ALSO ACCESS OUR OFFICE LOCATOR ON OUR
INTERNET SITE AT:
WWW.MSDW.COM/INDIVIDUAL/FUNDS
You may open a new account to buy Fund shares or buy additional Fund
shares for an existing account by contacting your Morgan Stanley Dean
Witter Financial Advisor or other authorized financial representative.
Your Financial Advisor will assist you, step-by-step, with the
procedures to invest in the Fund. You may also purchase shares
directly by calling the Fund's transfer agent and requesting an
application.
Because every investor has different immediate financial needs and
long-term investment goals, the Fund offers investors four Classes of
shares: Classes A, B, C and D. Class D shares are only offered to a
limited group of investors. Each Class of shares offers a distinct
structure of sales charges, distribution and service fees, and other
features that are designed to address a variety of needs. Your
Financial Advisor or other authorized financial representative can
9
<PAGE>
help you decide which Class may be most appropriate for you. When
purchasing Fund shares, you must specify which Class of shares you
wish to purchase.
When you buy Fund shares, the shares are purchased at the next share
price calculated (less any applicable front-end sales charge for
Class A shares) after we receive your purchase order. Your payment is
due on the third business day after you place your purchase order. We
reserve the right to reject any order for the purchase of Fund
shares.
EASYINVEST(SM)
A PURCHASE PLAN THAT ALLOWS YOU TO
TRANSFER MONEY AUTOMATICALLY FROM YOUR
CHECKING OR SAVINGS ACCOUNT OR FROM A
MONEY MARKET FUND ON A SEMI-MONTHLY,
MONTHLY OR QUARTERLY BASIS. CONTACT YOUR
MORGAN STANLEY DEAN WITTER FINANCIAL
ADVISOR FOR FURTHER INFORMATION ABOUT
THIS SERVICE.
<TABLE>
<CAPTION>
MINIMUM INVESTMENT AMOUNTS
- - - -------------------------------------------------------------------------------------------------------
MINIMUM INVESTMENT
-----------------------
INVESTMENT OPTIONS INITIAL ADDITIONAL
- - - ------------------ ------- ----------
<S> <C> <C> <C>
Regular Account $ 1,000 $ 100
Individual Retirement Accounts: Regular IRAs $ 1,000 $ 100
Education IRAs $ 500 $ 100
EasyInvest(SM)
(Automatically from your checking or savings account or
Money Market Fund) $ 100* $ 100*
</TABLE>
* Provided your schedule of investments totals $1,000
in twelve months.
There is no minimum investment amount if you purchase Fund shares
through: (1) the Investment Manager's mutual fund asset allocation
plan, (2) a program, approved by the Fund's distributor, in which you
pay an asset-based fee for advisory, administrative and/or brokerage
services, or (3) employer-sponsored employee benefit plan accounts.
Investment Options for Certain Institutional and Other
Investors/Class D Shares. To be eligible to purchase Class D shares,
you must qualify under one of the investor categories specified in
the "Share Class Arrangements" section of this Prospectus.
Subsequent Investments Sent Directly to the Fund. In addition to
buying additional Fund shares for an existing account by contacting
your Morgan Stanley Dean Witter Financial Advisor, you may send a
check directly to the Fund. To buy additional shares in this manner:
o Write a "letter of instruction" to the Fund specifying the
name(s) on the account, the account number, the social security or
tax identification number, the Class of shares you wish to purchase
and the investment amount (which would include any applicable
front-end sales charge). The letter must be signed by the account
owner(s).
o Make out a check for the total amount payable to: Morgan Stanley
Dean Witter Mid-Cap Equity Trust.
o Mail the letter and check to Morgan Stanley Dean Witter Trust FSB
at P.O. Box 1040, Jersey City, NJ 07303.
10
<PAGE>
[GRAPHIC OMITTED]
HOW TO EXCHANGE SHARES
- - - ------------------------------------
Permissible Fund Exchanges. You may exchange shares of any Class of
the Fund for the same Class of any other continuously offered
Multi-Class Fund, or for shares of a No-Load Fund, a Money Market
Fund, North American Government Income Trust or Short-Term U.S.
Treasury Trust, without the imposition of an exchange fee. See the
inside back cover of this Prospectus for each Morgan Stanley Dean
Witter Fund's designation as a Multi-Class Fund, No-Load Fund or
Money Market Fund. If a Morgan Stanley Dean Witter Fund is not
listed, consult the inside back cover of that Fund's Prospectus for
its designation. For purposes of exchanges, shares of FSC Funds
(subject to a front-end sales charge) are treated as Class A shares
of a Multi-Class Fund.
Exchanges may be made after shares of the Fund acquired by purchase
have been held for thirty days. There is no waiting period for
exchanges of shares acquired by exchange or dividend reinvestment.
The current Prospectus for each Fund describes its investment
objective, policies and investment minimums and should be read before
investment. Since exchanges are available only into continuously
offered Morgan Stanley Dean Witter Funds, exchanges are not available
into any new Morgan Stanley Dean Witter Fund during its initial
offering period, or when shares of a particular Morgan Stanley Dean
Witter Fund are not being offered for purchase.
Exchange Procedures. You can process an exchange by contacting your
Morgan Stanley Dean Witter Financial Advisor or other authorized
financial representative. Otherwise, you must forward an exchange
privilege authorization form to the Fund's transfer agent -- Morgan
Stanley Dean Witter Trust FSB -- and then write the transfer agent or
call (800) 869-NEWS to place an exchange order. You can obtain an
exchange privilege authorization form by contacting your Financial
Advisor or other authorized financial representative or by calling
(800) 869-NEWS. If you hold share certificates, no exchanges may be
processed until we have received all applicable share certificates.
An exchange to any Morgan Stanley Dean Witter Fund (except a Money
Market Fund) is made on the basis of the next calculated net asset
values of the Funds involved after the exchange instructions are
accepted. When exchanging into a Money Market Fund, the Fund's shares
are sold at their next calculated net asset value and the Money
Market Fund's shares are purchased at their net asset value on the
following business day.
The Fund may terminate or revise the exchange privilege upon required
notice. The check writing privilege is not available for Money Market
Fund shares you acquire in an exchange.
Telephone Exchanges. For your protection when calling Morgan Stanley
Dean Witter Trust FSB, we will employ reasonable procedures to
confirm that exchange instructions communicated over the telephone
are genuine. These procedures may include
11
<PAGE>
requiring various forms of personal identification such as name,
mailing address, social security or other tax identification number.
Telephone instructions also may be recorded.
Telephone instructions will be accepted if received by the Fund's
transfer agent between 9:00 a.m. and 4:00 p.m. Eastern time on any
day the New York Stock Exchange is open for business. During periods
of drastic economic or market changes, it is possible that the
telephone exchange procedures may be difficult to implement, although
this has not been the case with the Fund in the past.
Margin Accounts. If you have pledged your Fund shares in a margin
account, contact your Morgan Stanley Dean Witter Financial Advisor or
other authorized financial representative regarding restrictions on
the exchange of such shares.
Tax Considerations of Exchanges. If you exchange shares of the Fund
for shares of another Morgan Stanley Dean Witter Fund there are
important tax considerations. For tax purposes, the exchange out of
the Fund is considered a sale of Fund shares -- and the exchange into
the other Fund is considered a purchase. As a result, you may realize
a capital gain or loss.
You should review the "Tax Consequences" section and consult your own
tax professional about the tax consequences of an exchange.
Limitations on Exchanges. Certain patterns of exchanges may result in
the Fund limiting or prohibiting, at its discretion, additional
purchases and/or exchanges. Determinations in this regard may be made
based on the frequency or dollar amount of previous exchanges. The
Fund will notify you in advance of limiting your exchange privileges.
CDSC Calculations on Exchanges. See the "Share Class Arrangements"
section of this Prospectus for a further discussion of how applicable
contingent deferred sales charges (CDSCs) are calculated for shares
of one Fund that are exchanged for shares of another.
For further information regarding exchange privileges, you should
contact your Morgan Stanley Dean Witter Financial Advisor or call
(800) 869-NEWS.
12
<PAGE>
[GRAPHIC OMITTED]
HOW TO SELL SHARES
- - - -------------------------------
You can sell some or all of your Fund shares at any time. If you sell
Class A, Class B or Class C shares, your net sale proceeds are
reduced by the amount of any applicable CDSC. Your shares will be
sold at the next price calculated after we receive your order to sell
as described below.
<TABLE>
<CAPTION>
OPTIONS PROCEDURES
- - - --------------------- --------------------------------------------------------------------------------------------
<S> <C>
Contact Your To sell your shares, simply call your Morgan Stanley Dean Witter Financial Advisor or
Financial Advisor other authorized financial representative.
[GRAPHIC OMITTED] --------------------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Payment will be sent to the address to which the account is registered or deposited in
your brokerage account.
--------------------------------------------------------------------------------------------
By Letter You can also sell your shares by writing a "letter of instruction" that includes:
[GRAPHIC OMITTED] o your account number;
o the dollar amount or the number of shares you wish to sell;
o the Class of shares you wish to sell; and
o the signature of each owner as it appears on the account.
--------------------------------------------------------------------------------------------
If you are requesting payment to anyone other than the registered owner(s) or that
payment be sent to any address other than the address of the registered owner(s) or
pre-designated bank account, you will need a signature guarantee. You can obtain a
signature guarantee from an eligible guarantor acceptable to Morgan Stanley Dean
Witter Trust FSB. (You should contact Morgan Stanley Dean Witter Trust FSB at
(800) 869-NEWS for a determination as to whether a particular institution is an eligible
guarantor.) A notary public cannot provide a signature guarantee. Additional
documentation may be required for shares held by a corporation, partnership, trustee
or executor.
--------------------------------------------------------------------------------------------
Mail the letter to Morgan Stanley Dean Witter Trust FSB at P.O. Box 983, Jersey City,
NJ 07303. If you hold share certificates, you must return the certificates, along with the
letter and any required additional documentation.
--------------------------------------------------------------------------------------------
A check will be mailed to the name(s) and address in which the account is registered, or
otherwise according to your instructions.
--------------------------------------------------------------------------------------------
Systematic If your investment in all of the Morgan Stanley Dean Witter Family of Funds has a total
Withdrawal Plan market value of at least $10,000, you may elect to withdraw amounts of $25 or more,
[GRAPHIC OMITTED] or in any whole percentage of a Fund's balance (provided the amount is at least $25), on
a monthly, quarterly, semi-annual or annual basis, from any Fund with a balance of at least
$1,000. Each time you add a Fund to the plan, you must meet the plan requirements.
--------------------------------------------------------------------------------------------
Amounts withdrawn are subject to any applicable CDSC. A CDSC may be waived under
certain circumstances. See the Class B waiver categories listed in the "Share Class
Arrangements" section of this Prospectus.
--------------------------------------------------------------------------------------------
To sign up for the Systematic Withdrawal Plan, contact your Morgan Stanley Dean
Witter Financial Advisor or call (800) 869-NEWS. You may terminate or suspend your
plan at any time. Please remember that withdrawals from the plan are sales of shares,
not Fund "distributions," and ultimately may exhaust your account balance. The Fund
may terminate or revise the plan at any time.
--------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Payment for Sold Shares. After we receive your complete instruction
to sell as described above, a check will be mailed to you within
seven days, although we will attempt to make payment within one
business day. Payment may also be sent to your brokerage account.
Payment may be postponed or the right to sell your shares suspended,
however, under unusual circumstances. If you request to sell shares
that were recently purchased by check, your sale will not be effected
until it has been verified that the check has been honored.
Tax Considerations. Normally, your sale of Fund shares is subject to
federal and state income tax. You should review the "Tax
Consequences" section of this Prospectus and consult your own tax
professional about the tax consequences of a sale.
Reinstatement Privilege. If you sell Fund shares and have not
previously exercised the reinstatement privilege, you may, within 35
days after the date of sale, invest any portion of the proceeds in
the same Class of Fund shares at their net asset value and receive a
pro rata credit for any CDSC paid in connection with the sale.
Involuntary Sales. The Fund reserves the right, on sixty days'
notice, to sell the shares of any shareholder (other than shares held
in an IRA or 403(b) Custodial Account) whose shares, due to sales by
the shareholder, have a value below $100, or in the case of an
account opened through EasyInvest(SM), if after 12 months the
shareholder has invested less than $1,000 in the account.
However, before the Fund sells your shares in this manner, we will
notify you and allow you sixty days to make an additional investment
in an amount that will increase the value of your account to at least
the required amount before the sale is processed. No CDSC will be
imposed on any involuntary sale.
Margin Accounts. If you have pledged your Fund shares in a margin
account, contact your Morgan Stanley Dean Witter Financial Advisor or
other authorized financial representative regarding restrictions on
the sale of such shares.
14
<PAGE>
[GRAPHIC OMITTED] DISTRIBUTIONS
- - - ----------------------------------
TARGETED DIVIDENDS(SM)
YOU MAY SELECT TO HAVE YOUR FUND
DISTRIBUTIONS AUTOMATICALLY INVESTED
IN OTHER CLASSES OF FUND SHARES OR
CLASSES OF ANOTHER MORGAN STANLEY
DEAN WITTER FUND THAT YOU OWN. CONTACT
YOUR MORGAN STANLEY DEAN WITTER
FINANCIAL ADVISOR FOR FURTHER
INFORMATION ABOUT THIS SERVICE.
The Fund passes substantially all of its earnings from income and
capital gains along to its investors as "distributions." The Fund
earns income from stocks and interest from fixed-income investments.
These amounts are passed along to Fund shareholders as "income
dividend distributions." The Fund realizes capital gains whenever it
sells securities for a higher price than it paid for them. These
amounts are passed along as "capital gain distributions."
The Fund declares income dividends separately for each Class.
Distributions paid on Class A and Class D shares will be higher than
for Class B and Class C because distribution fees that Class B and
Class C pay are higher. Normally, income dividends are distributed to
shareholders semi-annually. Capital gains, if any, are usually
distributed in June and December. The Fund, however, may retain and
reinvest any long-term capital gains. The Fund may at times make
payments from sources other than income or capital gains that
represent a return of a portion of your investment.
Distributions are reinvested automatically in additional shares of the
same Class and automatically credited to your account, unless you
request in writing that all distributions be paid in cash. If you
elect the cash option, the Fund will mail a check to you no later than
seven business days after the distribution is declared. No interest
will accrue on uncashed checks. If you wish to change how your
distributions are paid, your request should be received by the Fund's
transfer agent, Morgan Stanley Dean Witter Trust FSB, at least five
business days prior to the record date of the distributions.
[GRAPHIC OMITTED] TAX CONSEQUENCES
- - - ------------------------------------
As with any investment, you should consider how your Fund investment
will be taxed. The tax information in this Prospectus is provided as
general information. You should consult your own tax professional
about the tax consequences of an investment in the Fund.
Unless your investment in the Fund is through a tax-deferred
retirement account, such as a 401(k) plan or IRA, you need to be aware
of the possible tax consequences when:
o The Fund makes distributions; and
o You sell Fund shares, including an exchange to another Morgan
Stanley Dean Witter Fund.
Taxes on Distributions. Your distributions are normally subject to
federal and state income tax when they are paid, whether you take them
in cash or reinvest them in
15
<PAGE>
Fund shares. A distribution also may be subject to local income tax.
Any income dividend distributions and any short-term capital gain
distributions are taxable to you as ordinary income. Any long-term
capital gain distributions are taxable as long-term capital gains, no
matter how long you have owned shares in the Fund.
Every January, you will be sent a statement (IRS Form 1099-DIV)
showing the taxable distributions paid to you in the previous year.
The statement provides information on your dividends and capital gains
for tax purposes.
Taxes on Sales. Your sale of Fund shares normally is subject to
federal and state income tax and may result in a taxable gain or loss
to you. A sale also may be subject to local income tax. Your exchange
of Fund shares for shares of another Morgan Stanley Dean Witter Fund
is treated for tax purposes like a sale of your original shares and a
purchase of your new shares. Thus, the exchange may, like a sale,
result in a taxable gain or loss to you and will give you a new tax
basis for your new shares.
When you open your Fund account, you should provide your social
security or tax identification number on your investment application.
By providing this information, you will avoid being subject to a
federal backup withholding tax of 31% on taxable distributions and
redemption proceeds. Any withheld amount would be sent to the IRS as
an advance tax payment.
[GRAPHIC OMITTED] SHARE CLASS ARRANGEMENTS
- - - ----------------------------------------------
The Fund offers several Classes of shares having different
distribution arrangements designed to provide you with different
purchase options according to your investment needs. Your Morgan
Stanley Dean Witter Financial Advisor or other authorized financial
representative can help you decide which Class may be appropriate for
you.
The general public is offered three Classes: Class A shares, Class B
shares and Class C shares, which differ principally in terms of sales
charges and ongoing expenses. A fourth Class, Class D shares, is
offered only to a limited category of investors. Shares that you
acquire through reinvested distributions will not be subject to any
front-end sales charge or CDSC -- contingent deferred sales charge.
Sales personnel may receive different compensation for selling each
Class of shares. The sales charges applicable to each Class provide
for the distribution financing of shares of that Class.
16
<PAGE>
The chart below compares the sales charge and maximum annual 12b-1
fee applicable to each Class:
<TABLE>
<CAPTION>
MAXIMUM
CLASS SALES CHARGE ANNUAL 12B-1FEE
<S> <C> <C>
A Maximum 5.25% initial sales charge reduced for purchase of $25,000 or more;
shares sold without an initial sales charge are generally subject to a 1.0% CDSC
during the first year 0.25%
B Maximum 5.0% CDSC during the first year decreasing to 0% after six years 1.0%
C 1.0% CDSC during the first year 1.0%
D None None
</TABLE>
CLASS A SHARES Class A shares are sold at net asset value plus an
initial sales charge of up to 5.25%. The initial sales charge is
reduced for purchases of $25,000 or more according to the schedule
below. Investments of $1 million or more are not subject to an initial
sales charge, but are generally subject to a contingent deferred sales
charge, or CDSC, of 1.0% on sales made within one year after the last
day of the month of purchase. The CDSC will be assessed in the same
manner and with the same CDSC waivers as with Class B shares. Class A
shares are also subject to a distribution (12b-1) fee of up to 0.25%
of the average daily net assets of the Class.
The offering price of Class A shares includes a sales charge
(expressed as a percentage of the offering price) on a single
transaction as shown in the following table:
FRONT-END SALES
CHARGE OR FSC
AN INITIAL SALES CHARGE YOU PAY
WHEN PURCHASING CLASS A SHARES
THAT IS BASED ON A PERCENTAGE OF
THE OFFERING PRICE. THE
PERCENTAGE DECLINES BASED UPON
THE DOLLAR VALUE OF CLASS A SHARES
YOU PURCHASE. WE OFFER THREE
WAYS TO REDUCE YOUR CLASS A SALES
CHARGES -- THE COMBINED
PURCHASE PRIVILEGE, RIGHT OF
ACCUMULATION AND LETTER OF
INTENT.
<TABLE>
<CAPTION>
FRONT-END SALES CHARGE
PERCENTAGE OF APPROXIMATE PERCENTAGE
AMOUNT OF SINGLE TRANSACTION PUBLIC OFFERING PRICE OF NET AMOUNT INVESTED
- - - ---------------------------- --------------------- ----------------------
<S> <C> <C>
Less than $25,000 5.25% 5.54%
$25,000 but less than $50,000 4.75% 4.99%
$50,000 but less than $100,000 4.00% 4.17%
$100,000 but less than $250,000 3.00% 3.09%
$250,000 but less than $1 million 2.00% 2.04%
$1 million and over 0 0
</TABLE>
17
<PAGE>
The reduced sales charge schedule is applicable to purchases of Class
A shares in a single transaction by:
o A single account (including an individual, trust or
fiduciary account).
o Family member accounts (limited to husband, wife and
children under the age of 21).
o Pension, profit sharing or other employee benefit
plans of companies and their affiliates.
o Tax-exempt organizations.
o Groups organized for a purpose other than to buy
mutual fund shares.
Combined Purchase Privilege. You also will have the benefit of reduced
sales charges by combining purchases of Class A shares of the Fund in
a single transaction with purchases of Class A shares of other
Multi-Class Funds and shares of FSC Funds.
Right of Accumulation. You also may benefit from a reduction of sales
charges if the cumulative net asset value of Class A shares of the
Fund purchased in a single transaction, together with shares of other
Funds you currently own which were previously purchased at a price
including a front-end sales charge (including shares acquired through
reinvestment of distributions), amounts to $25,000 or more. Also, if
you have a cumulative net asset value of all your Class A and Class D
shares equal to at least $5 million (or $25 million for certain
employee benefit plans), you are eligible to purchase Class D shares
of any Fund subject to the Fund's minimum initial investment
requirement.
You must notify your Morgan Stanley Dean Witter Financial Advisor or
other authorized financial representative (or Morgan Stanley Dean
Witter Trust FSB if you purchase directly through the Fund), at the
time a purchase order is placed, that the purchase qualifies for the
reduced charge under the Right of Accumulation. Similar notification
must be made in writing when an order is placed by mail. The reduced
sales charge will not be granted if: (i) notification is not furnished
at the time of the order; or (ii) a review of the records of Dean
Witter Reynolds or other authorized dealer of Fund shares or the
Fund's transfer agent does not confirm your represented holdings.
Letter of Intent. The schedule of reduced sales charges for larger
purchases also will be available to you if you enter into a written
"letter of intent." A letter of intent provides for the purchase of
Class A shares of the Fund or other Multi-Class Funds or shares of FSC
Funds within a thirteen month period. The initial purchase under a
letter of intent must be at least 5% of the stated investment goal. To
determine the applicable sales charge reduction, you may also include:
(1) the cost of shares of other Morgan Stanley Dean Witter Multi-Class
Funds which were previously purchased at a price including a front-end
sales charge during the 90-day period prior to the distributor
receiving the letter of intent, and (2) the cost of shares of other
Funds you currently own acquired in exchange for shares of Funds
purchased during that period at a price including a
18
<PAGE>
front-end sales charge. You can obtain a letter of intent by
contacting your Morgan Stanley Dean Witter Financial Advisor or other
authorized financial representative, or by calling (800) 869-NEWS. If
you do not achieve the stated investment goal within the thirteen
month period, you are required to pay the difference between the sales
charges otherwise applicable and sales charges actually paid, which
may be deducted from your investment.
Other Sales Charge Waivers. In addition to investments of $1 million
or more, your purchase of Class A shares is not subject to a front-end
sales charge (or a CDSC upon sale) if your account qualifies under one
of the following categories:
o A trust for which Morgan Stanley Dean Witter Trust FSB
provides discretionary trustee services.
o Persons participating in a fee-based investment program
(subject to all of its terms and conditions, including
termination fees, mandatory sale or transfer restrictions on
termination) approved by the Fund's distributor pursuant to
which they pay an asset-based fee for investment advisory,
administrative and/or brokerage services.
o Employer-sponsored employee benefit plans, whether or not
qualified under the Internal Revenue Code, for which Morgan
Stanley Dean Witter Trust FSB serves as trustee or Dean
Witter Reynolds' Retirement Plan Services serves as
recordkeeper under a written Recordkeeping Services Agreement
("MSDW Eligible Plans") which have at least 200 eligible
employees.
o An MSDW Eligible Plan whose Class B shares have converted to
Class A shares, regardless of the plan's asset size or number
of eligible employees.
o A client of a Morgan Stanley Dean Witter Financial Advisor
who joined us from another investment firm within six months
prior to the date of purchase of Fund shares, and you used
the proceeds from the sale of shares of a proprietary mutual
fund of that Financial Advisor's previous firm that imposed
either a front-end or deferred sales charge to purchase Class
A shares, provided that: (1) you sold the shares not more
than 60 days prior to the purchase of Fund shares, and (2)
the sale proceeds were maintained in the interim in cash or a
money market fund.
o Current or retired Directors/Trustees of the Morgan Stanley
Dean Witter Funds, such persons' spouses and children under
the age of 21, and trust accounts for which any of such
persons is a beneficiary.
o Current or retired directors, officers and employees of
Morgan Stanley Dean Witter & Co. and any of its subsidiaries,
such persons' spouses and children under the age of 21 and
trust accounts for which any of such persons is a
beneficiary.
19
<PAGE>
CLASS B SHARES Class B shares are offered at net asset value with no
initial sales charge but are subject to a contingent deferred sales
charge, or CDSC, as set forth in the table below. For the purpose of
calculating the CDSC, shares are deemed to have been purchased on the
last day of the month during which they were purchased.
CONTINGENT DEFERRED
SALES CHARGE OR CDSC
A FEE YOU PAY WHEN YOU SELL
SHARES OF CERTAIN MORGAN STANLEY
DEAN WITTER FUNDS PURCHASED
WITHOUT AN INITIAL SALES CHARGE.
THIS FEE DECLINES THE LONGER YOU
HOLD YOUR SHARES AS SET FORTH IN
THE TABLE.
<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE OF
YEAR SINCE PURCHASE PAYMENT MADE AMOUNT REDEEMED
- - - -------------------------------- ---------------
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
Each time you place an order to sell or exchange shares, shares with
no CDSC will be sold or exchanged first, then shares with the lowest
CDSC will be sold or exchanged next. For any shares subject to a CDSC,
the CDSC will be assessed on an amount equal to the lesser of the
current market value or the cost of the shares being sold.
CDSC Waivers. A CDSC, if otherwise applicable, will be waived in the
case of:
o Sales of shares held at the time you die or become disabled
(within the definition in Section 72(m)(7) of the Internal
Revenue Code which relates to the ability to engage in
gainful employment), if the shares are: (i) registered either
in your name (not a trust) or in the names of you and your
spouse as joint tenants with right of survivorship; or (ii)
held in a qualified corporate or self-employed retirement
plan, IRA or 403(b) Custodial Account, provided in either
case that the sale is requested within one year of your death
or initial determination of disability.
o Sales in connection with the following retirement plan
"distributions:" (i) lump-sum or other distributions from a
qualified corporate or self-employed retirement plan
following retirement (or, in the case of a "key employee" of
a "top heavy" plan, following attainment of age 59 1/2); (ii)
distributions from an IRA or 403(b) Custodial Account
following attainment of age 59 1/2; or (iii) a tax-free
return of an excess IRA contribution (a "distribution" does
not include a direct transfer of IRA, 403(b) Custodial
Account or retirement plan assets to a successor custodian or
trustee).
o Sales of shares held for you as a participant in a MSDW
Eligible Plan.
o Sales of shares in connection with the Systematic Withdrawal
Plan of up to 12% annually of the value of each Fund from
which plan sales are made. The percentage is determined on
the date you establish the Systematic Withdrawal Plan and
based on the next calculated share price. You may have this
CDSC waiver applied in amounts up to 1% per month, 3% per
quarter, 6% semi-annually or 12% annually. Shares with
20
<PAGE>
no CDSC will be sold first, followed by those with the lowest
CDSC. As such, the waiver benefit will be reduced by the
amount of your shares that are not subject to a CDSC. If you
suspend your participation in the plan, you may later resume
plan payments without requiring a new determination of the
account value for the 12% CDSC waiver.
o Sales of shares if you simultaneously invest the proceeds in
the Investment Manager's mutual fund asset allocation
program, pursuant to which investors pay an asset-based fee.
Any shares you acquire in connection with the Investment
Manager's mutual fund asset allocation program are subject to
all of the terms and conditions of that program, including
termination fees, mandatory sale or transfer restrictions on
termination.
All waivers will be granted only following the Fund's distributor
receiving confirmation of your entitlement. If you believe you are
eligible for a CDSC waiver, please contact your Financial Advisor or
call (800) 869-NEWS.
Distribution Fee. Class B shares are subject to an annual 12b-1 fee
of 1.0% of the lesser of: (a) the average daily aggregate gross
purchases by all shareholders of the Fund's Class B shares since the
inception of the Fund (not including reinvestments of dividends or
capital gains distributions), less the average daily aggregate net
asset value of the Fund's Class B shares sold by all shareholders
since the Fund's inception upon which a CDSC has been imposed or
waived, or (b) the average daily net assets of Class B.
Conversion Feature. After ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund with no initial sales
charge. The ten year period runs from the last day of the month in
which the shares were purchased, or in the case of Class B shares
acquired through an exchange, from the last day of the month in which
the original Class B shares were purchased; the shares will convert
to Class A shares based on their relative net asset values in the
month following the ten year period. At the same time, an equal
proportion of Class B shares acquired through automatically
reinvested distributions will convert to Class A shares on the same
basis. (Class B shares held before May 1, 1997, however, will convert
to Class A shares in May 2007.)
In the case of Class B shares held in a MSDW Eligible Plan, the plan
is treated as a single investor and all Class B shares will convert
to Class A shares on the conversion date of the Class B shares of a
Morgan Stanley Dean Witter Fund purchased by that plan.
Currently, the Class B share conversion is not a taxable event; the
conversion feature may be cancelled if it is deemed a taxable event
in the future by the Internal Revenue Service.
If you exchange your Class B shares for shares of a Money Market
Fund, a No-Load Fund, North American Government Income Trust or
Short-Term U.S. Treasury Trust,
21
<PAGE>
the holding period for conversion is frozen as of the last day of the
month of the exchange and resumes on the last day of the month you
exchange back into Class B shares.
Exchanging Shares Subject to a CDSC. There are special considerations
when you exchange Fund shares that are subject to a CDSC. When
determining the length of time you held the shares and the
corresponding CDSC rate, any period (starting at the end of the month)
during which you held shares of a fund that does not charge a CDSC
will not be counted. Thus, in effect the "holding period" for purposes
of calculating the CDSC is frozen upon exchanging into a fund that
does not charge a CDSC.
For example, if you held Class B shares of the Fund in a regular
account for one year, exchanged to Class B of another Morgan Stanley
Dean Witter Multi-Class Fund for another year, then sold your shares,
a CDSC rate of 4% would be imposed on the shares based on a two year
holding period -- one year for each Fund. However, if you had
exchanged the shares of the Fund for a Money Market Fund (which does
not charge a CDSC) instead of the Multi-Class Fund, then sold your
shares, a CDSC rate of 5% would be imposed on the shares based on a
one year holding period. The one year in the Money Market Fund would
not be counted. Nevertheless, if shares subject to a CDSC are
exchanged for a Fund that does not charge a CDSC, you will receive a
credit when you sell the shares equal to the distribution (12b-1)
fees, if any, you paid on those shares while in that Fund up to the
amount of any applicable CDSC.
In addition, shares that are exchanged into or from a Morgan Stanley
Dean Witter Fund subject to a higher CDSC rate will be subject to the
higher rate, even if the shares are re-exchanged into a Fund with a
lower CDSC rate.
CLASS C SHARES Class C shares are sold at net asset value with no
initial sales charge but are subject to a CDSC of 1.0% on sales made
within one year after the last day of the month of purchase. The CDSC
will be assessed in the same manner and with the same CDSC waivers as
with Class B shares.
Distribution Fee. Class C shares are subject to an annual distribution
(12b-1) fee of up to 1.0% of the average daily net assets of that
Class. The Class C shares' distribution fee may cause that Class to
have higher expenses and pay lower dividends than Class A or Class D
shares. Unlike Class B shares, Class C shares have no conversion
feature and, accordingly, an investor that purchases Class C shares
may be subject to distribution (12b-1) fees applicable to Class C
shares for an indefinite period.
22
<PAGE>
CLASS D SHARES Class D shares are offered without any sales charge on
purchases or sales and without any distribution (12b-1) fee. Class D
shares are offered only to investors meeting an initial investment
minimum of $5 million ($25 million for MSDW Eligible Plans) and the
following investor categories:
o Investors participating in the Investment Manager's mutual
fund asset allocation program (subject to all of its terms
and conditions, including termination fees, mandatory sale or
transfer restrictions on termination) pursuant to which they
pay an asset-based fee.
o Persons participating in a fee-based investment program
(subject to all of its terms and conditions, including
termination fees, mandatory sale or transfer restrictions on
termination) approved by the Fund's distributor pursuant to
which they pay an asset-based fee for investment advisory,
administrative and/or brokerage services.
o Employee benefit plans maintained by Morgan Stanley Dean
Witter & Co. or any of its subsidiaries for the benefit of
certain employees of Morgan Stanley Dean Witter & Co. and its
subsidiaries.
o Certain unit investment trusts sponsored by Dean Witter
Reynolds.
o Certain other open-end investment companies whose shares are
distributed by the Fund's distributor.
o Investors who were shareholders of the Dean Witter Retirement
Series on September 11, 1998 for additional purchases for
their former Dean Witter Retirement Series accounts.
Meeting Class D Eligibility Minimums. To meet the $5 million ($25
million for MSDW Eligible Plans) initial investment to qualify to
purchase Class D shares you may combine: (1) purchases in a single
transaction of Class D shares of the Fund and other Morgan Stanley
Dean Witter Multi-Class Funds and/or (2) previous purchases of Class
A and Class D shares of Multi-Class Funds and shares of FSC Funds you
currently own, along with shares of Morgan Stanley Dean Witter Funds
you currently own that you acquired in exchange for those shares.
NO SALES CHARGES FOR REINVESTED CASH DISTRIBUTIONS If you receive a
cash payment representing an income dividend or capital gain and you
reinvest that amount in the applicable Class of shares by returning
the check within 30 days of the payment date, the purchased shares
would not be subject to an initial sales charge or CDSC.
PLAN OF DISTRIBUTION (RULE 12B-1 FEES) The Fund has adopted a Plan of
Distribution in accordance with Rule 12b-1 under the Investment
Company Act of 1940 with respect to the distribution of Class A, Class
B and Class C shares. The Plan allows the Fund to pay distribution
fees for the sale and distribution of these shares. It also allows the
Fund to pay for services to shareholders of Class A, Class B and Class
C shares. Because these fees are paid out of the Fund's assets on an
ongoing basis, over time these fees will increase the cost of your
investment in these Classes and may cost you more than paying other
types of sales charges.
23
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the life of the Fund. Certain information reflects
financial results for a single Fund share throughout each year. The total
returns in the table represent the rate an investor would have earned or lost
on an investment in the Fund (assuming reinvestment of all dividends and
distributions).
This information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the annual report, which is available upon request.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE JULY 28, 1997*
YEAR ENDED YEAR ENDED THROUGH
NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1997
- - - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A ++
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 15.60 $ 10.88 $ 10.85
---------- --------- -------
Income (loss) from investment operations:
Net investment loss (0.34) (0.18) (0.06)
Net realized and unrealized gain 18.57 4.90 0.09
---------- --------- -------
Total income from investment operations 18.23 4.72 0.03
---------- --------- -------
Net asset value, end of period $ 33.83(4) $ 15.60 $ 10.88
---------- --------- -------
TOTAL RETURN+ 116.89% 43.38% 0.28%(1)
========== ========== =======
RATIOS TO AVERAGE NET ASSETS
Expenses 1.23%(3) 1.55%(3) 1.55%(2)
---------- --------- -------
Net investment loss (0.93)%(3) (1.40)%(3) (1.46)%(2)
========== ========== =======
SUPPLEMENTAL DATA
Net assets, end of period, in thousands $ 19,934 $ 1,107 $ 58
---------- --------- -------
Portfolio turnover rate 51% 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.
(4) Includes the effect of a capital gain distribution of $0.004.
24
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 27, 1996*
THROUGH
FOR THE YEAR ENDED NOVEMBER 30 NOVEMBER 30, 1996
--------------------------------------------------- -------------------
1999++ 1998++ 1997**++ 1996
<S> <C> <C> <C> <C>
CLASS B
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 (0.42) (0.26) (0.22) (0.13)
Net realized and unrealized gain 18.32 4.87 0.15 1.05
----------- --------- ------- ---------
Total income (loss) from investment operations 17.90 4.61 (0.07) 0.92
- - - ------------------------------------------------- ----------- --------- ------- ---------
Net asset value, end of period $ 33.36 (4) $ 15.46 $ 10.85 $ 10.92
- - - ------------------------------------------------- ------------ --------- ------- ---------
TOTAL RETURN+ 115.82% 42.49% (0.64)% 9.20% (1)
- - - ------------------------------------------------- ------------ --------- ------- ------------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.74% (3) 2.20% (3) 2.29% 2.28% (2)
Net investment loss (1.44)%(3) (2.05)%(3) (2.16)% (1.79)%(2)
- - - ------------------------------------------------- ------------- ------------ ------- ------------
SUPPLEMENTAL DATA
Net assets, end of period, in thousands $1,315,930 $ 212,043 $174,412 $ 205,274
- - - ------------------------------------------------- ------------- ------------ -------- ------------
Portfolio turnover rate 51% 52% 49% 25%
</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.
(4) Includes the effect of a capital gain distribution of $0.004.
25
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE JULY 28, 1997*
YEAR ENDED YEAR ENDED THROUGH
NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1997
<S> <C> <C> <C>
CLASS C ++
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 15.45 $ 10.85 $ 10.85
---------- --------- ---------
Income (loss) from investment operations:
Net investment loss (0.52) (0.28) (0.08)
Net realized and unrealized gain 18.31 4.88 0.08
---------- --------- ---------
Total income from investment operations 17.79 4.60 --
Net asset value, end of period $ 33.24 (4) $ 15.45 $ 10.85
------------ --------- ---------
TOTAL RETURN+ 115.18% 42.27% 0.09% (1)
------------ --------- ------------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.99% (3) 2.30% (3) 2.32% (2)
Net investment loss (1.69)%(3) (2.15)%(3) (2.22)%(2)
------------- ------------ ------------
SUPPLEMENTAL DATA
Net assets, end of period, in thousands $ 34,898 $ 712 $ 83
Portfolio turnover rate 51% 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.
(4) Includes the effect of a capital gain distribution of $0.004.
26
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE JULY 28, 1997*
YEAR ENDED YEAR ENDED THROUGH
NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1997
<S> <C> <C> <C>
CLASS D ++
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 15.66 $ 10.89 $ 10.85
---------- --------- ---------
Income (loss) from investment operations:
Net investment loss (0.21) (0.15) (0.05)
Net realized and unrealized gain 18.52 4.92 0.09
---------- --------- ---------
Total income from investment operations 18.31 4.77 0.04
---------- --------- ---------
Net asset value, end of period $ 33.97 (4) $ 15.66 $ 10.89
------------ --------- ---------
TOTAL RETURN+ 116.96% 43.80% 0.37% (1)
------------ --------- ------------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.99% (3) 1.30% (3) 1.30% (2)
Net investment loss (0.69)%(3) (1.15)%(3) (1.19)%(2)
------------- ------------ ------------
SUPPLEMENTAL DATA
Net assets, end of period, in thousands $ 4,384 $ 15 $ 10
Portfolio turnover rate 51% 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.
(4) Includes the effect of a capital gain distribution of $0.004.
27
<PAGE>
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28
<PAGE>
MORGAN STANLEY DEAN WITTER
FAMILY OF FUNDS
The Morgan Stanley Dean Witter Family of Funds offers
investors a wide range of investment choices. Come on
in and meet the family!
- - - --------------------------------------------------------------------------------
GROWTH FUNDS
GROWTH FUNDS
Aggressive Equity Fund
American Opportunities Fund
Capital Growth Securities
Developing Growth Securities
Growth Fund
Market Leader Trust
Mid-Cap Equity Trust
Next Generation Trust
Small Cap Growth Fund
Special Value Fund
21st Century Trend Fund
THEME FUNDS
Financial Services Trust
Health Sciences Trust
Information Fund
Natural Resource Development Securities
GLOBAL/INTERNATIONAL FUNDS
Competitive Edge Fund - "Best Ideas" Portfolio
European Growth Fund
Fund of Funds - International Portfolio
International Fund
International SmallCap Fund
Japan Fund
Latin American Growth Fund
Pacific Growth Fund
- - - --------------------------------------------------------------------------------
GROWTH & INCOME FUNDS
Balanced Growth Fund
Balanced Income Fund
Convertible Securities Trust
Dividend Growth Securities
Equity Fund
Fund of Funds - Domestic Portfolio
Income Builder Fund
Mid-Cap Dividend Growth Securities
S&P 500 Index Fund
S&P 500 Select Fund
Strategist Fund
Total Market Index Fund
Total Return Trust
Value Fund
Value/Added Market Series/Equity Portfolio
THEME FUNDS
Real Estate Fund
Utilities Fund
GLOBAL FUNDS
Global Dividend Growth Securities
Global Utilities Fund
- - - --------------------------------------------------------------------------------
INCOME FUNDS
GOVERNMENT INCOME FUNDS
Federal Securities Trust
Short-Term U.S. Treasury Trust
U.S. Government Securities Trust
DIVERSIFIED INCOME FUNDS
Diversified Income Trust
CORPORATE INCOME FUNDS
High Yield Securities
Intermediate Income Securities
Short-Term Bond Fund(NL)
GLOBAL INCOME FUNDS
North American Government Income Trust
World Wide Income Trust
TAX-FREE INCOME FUNDS
California Tax-Free Income Fund
Hawaii Municipal Trust(FSC)
Limited Term Municipal Trust(NL)
Multi-State Municipal Series Trust(FSC)
New York Tax-Free Income Fund
Tax-Exempt Securities Trust
- - - --------------------------------------------------------------------------------
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
Liquid Asset Fund(MM)
U.S. Government Money Market Trust(MM)
TAX-FREE MONEY MARKET FUNDS
California Tax-Free Daily Income Trust(MM)
New York Municipal Money Market Trust(MM)
Tax-Free Daily Income Trust(MM)
There may be Funds created after this Prospectus was published. Please consult
the inside back cover of a new Fund's prospectus for its designations, e.g.,
Multi-Class Fund or Money Market Fund.
Unless otherwise noted, each listed Morgan Stanley Dean Witter Fund, except for
North American Government Income Trust and Short-Term U.S. Treasury Trust, is a
Multi-Class Fund. A Multi-Class Fund is a mutual fund offering multiple Classes
of shares. The other types of Funds are: NL -- No-Load (Mutual) Fund; MM --
Money Market Fund; FSC -- A mutual fund sold with a front-end sales charge and
a distribution (12b-1) fee.
<PAGE>
PROSPECTUS - JANUARY 28, 2000
Additional information about the Fund's investments is available in the Fund's
Annual and Semi-Annual Reports to Shareholders. In the Fund's Annual Report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its last fiscal year.
The Fund's Statement of Additional Information also provides additional
information about the Fund. The Statement of Additional Information is
incorporated herein by reference (legally is part of this Prospectus). For a
free copy of any of these documents, to request other information about the
Fund, or to make shareholder inquiries, please call:
(800) 869-NEWS
You also may obtain information about the Fund by calling your Morgan Stanley
Dean Witter Financial Advisor or by visiting our Internet
site at:
WWW.MSDW.COM/INDIVIDUAL/FUNDS
Information about the Fund (including the Statement of Additional Information)
can be viewed and copied at the Securities and Exchange Commission's Public
Reference Room in Washington, DC. Information about the Reference Room's
operations may be obtained by calling the SEC at (202) 942-8090. Reports and
other information about the Fund are available on the EDGAR Database on the
SEC's Internet site (www.sec.gov) and copies of this information may be
obtained, after paying a duplicating fee, by electronic request at the
following e-mail address: [email protected], or by writing the Public
Reference Section of the SEC, Washington, DC 20549-0102.
TICKER SYMBOLS:
Class A: MCFAX
- - - -------------------------------
Class B: MCFBX
- - - -------------------------------
Class C: MCFCX
- - - -------------------------------
Class D: MCFDX
- - - -------------------------------
(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7377)
Morgan Stanley Dean Witter
MID-CAP EQUITY TRUST
[GRAPHIC OMITTED]
A MUTUAL FUND THAT SEEKS
LONG-TERM CAPITAL APPRECIATION
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST Two World Trade Center,
LETTER TO THE SHAREHOLDERS November 30, 1999 New York, New York 10048
DEAR SHAREHOLDER:
The twelve-month period ended November 30, 1999, proved to be a rewarding one
for Morgan Stanley Dean Witter Mid-Cap Equity Trust. During this period, the
Fund's Class B shares returned 115.82 percent, compared to 21.37 percent for the
Standard & Poor's MidCap 400 Index (S&P MidCap) and 38.69 percent for the Lipper
Mid Cap Fund Index. For the same period, the Fund's Class A, C and D shares
returned 116.89 percent, 115.18 percent and 116.96 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.) The accompanying
chart compares the Fund's performance to that of the S&P MidCap and Lipper
indexes.
The Fund's outperformance relative to its benchmark indexes was attributable
primarily to its heavy weighting in technology stocks, particularly
Internet-related companies. On November 30, 1999, at 39.5 percent of net assets
- - - - up from 26 percent a year ago - technology represented the Fund's largest
sector weighting. Following close behind were business services at 25.2 percent
and consumer staples with an 18.2 percent weighting as compared to 31 percent
and 26 percent in 1998, respectively. Health care, representing 7.1 percent of
net assets, remains the lowest weighted of the Fund's four core growth sectors,
as a result of the lingering pricing pressure many of the health-care companies
are facing.
PORTFOLIO STRATEGY
According to TCW Investment Management Company (formerly TCW Funds Management,
Inc.), the Fund's sub-advisor, the strategy of the Fund remains unchanged:
investing in what the sub-advisor believes to be rapidly growing companies
whose earnings power is significantly underestimated by Wall Street consensus.
During the fiscal year, TCW continued to position the Fund in what it believes
are the fastest-growing
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
LETTER TO THE SHAREHOLDERS November 30, 1999, continued
sectors of the economy in an effort to minimize the effect of any macroeconomic
slowdown. During this past year, the main investment theme continued to be
seeking companies that were positioned to take advantage of the high-powered
growth occurring in communications and data, driven mostly by the Internet.
Instead of remaining just a personal-computer-dependent application, the Web
has moved on to television and digital wireless telephony and a whole host of
growth companies has arisen to facilitate this transition. Key holdings
benefiting from this trend include Qualcomm, Gemstar International Group and
JDS Uniphase. In addition, the Fund maintains an exposure to companies that
have been successful at creating entirely new businesses on the Web, including
Yahoo! and eBay, and in companies that are allowing their clients to use the
Internet to improve their own business processes, such as Verisign, Vignette
and Scient.
The Fund continues to hold quite a few older-line companies not related to the
new economy. In the broadcast sector, the Fund maintains positions in
Univision, the nation's leading Hispanic broadcaster, and Echostar, a satellite
video provider. Both companies have ridden the wave of consumers looking for
more choices in entertainment. In the health-care arena, the Fund owns Biogen
and Genentech, which have been successful in developing new pharmaceuticals.
TCW continues to cast a wide net, looking for companies that have developed new
processes or are changing the dynamics of an existing industry. It is here that
the Fund seeks to add the most value for its shareholders, by identifying
companies with the potential for exceeding Wall Street's growth estimates. As
the true magnitude of the opportunity these companies face becomes more
evident, other investors are expected to rush in to gain exposure, which could
drive stock prices higher over time. This in a nutshell describes the Fund's
investment process, a philosophy that the Fund's sub-advisor continued to
follow regardless of the prevailing macroeconomic conditions.
LOOKING AHEAD
The past year has been a relatively stable one for the U.S. equity markets,
particularly compared to the turmoil of 1998. Nevertheless, the phenomenon of a
few stocks accounting for most of the gains in the major indexes while many
laggards were left behind continued. TCW believes that one possible explanation
for this trend is that many older companies are seeing their very franchises
threatened by new technologies and new intermediaries who are using the
Internet to change the rules of the game. As a result, investors are deciding
not to pay for future earnings that may not exist. Instead, investors appear to
prefer to invest money in companies that are expected to benefit from future
change while avoiding those that may be threatened.
According to TCW, this theme of dramatic economic change is one on which the
Fund seeks to capitalize. In other words, TCW seeks to identify companies that
are driving change while avoiding those that may
2
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
LETTER TO THE SHAREHOLDERS November 30, 1999, continued
be negatively affected by it. As the pace of change accelerates, TCW
anticipates that the market will reward companies that are creating the new
economy while penalizing those that remain wedded to the old. Finally, while it
is impossible to expect the same returns that the Fund has delivered over the
past few years, TCW believes that attractive investment opportunities will
arise in the years ahead.
We appreciate your ongoing support of Morgan Stanley Dean Witter Mid-Cap Equity
Trust and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
3
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
RESULTS OF ANNUAL MEETING
* * * * *
On June 8, 1999, a special meeting of the Fund's shareholders was held for the
purpose of voting on three separate matters, the results of which were as
follows:
(1) APPROVAL OF A NEW INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE FUND
AND MORGAN STANLEY DEAN WITTER ADVISORS INC.:
For .............. 6,382,378
Against .......... 138,571
Abstain .......... 562,201
(2) APPROVAL OF A NEW SUB-ADVISORY AGREEMENT BETWEEN MORGAN STANLEY DEAN WITTER
ADVISORS INC. AND TCW INVESTMENT MANAGEMENT COMPANY:
For .............. 6,342,674
Against .......... 158,865
Abstain .......... 581,611
(3) ELECTION OF TRUSTEES: Michael Bozic
For .............. 6,744,268
Withheld ......... 338,882
Charles A. Fiumefreddo
For .............. 6,755,007
Withheld ......... 328,143
Edwin J. Garn
For .............. 6,742,628
Withheld ......... 340,522
Wayne E. Hedien
For .............. 6,751,717
Withheld ......... 331,433
Manuel H. Johnson
For .............. 6,749,821
Withheld ......... 333,329
Michael E. Nugent
For .............. 6,754,388
Withheld ......... 328,762
Philip J. Purcell
For .............. 6,740,704
Withheld ......... 342,446
John L. Schroeder
For .............. 6,743,435
Withheld ......... 339,715
4
<PAGE>
Morgan Stanley Dean Witter Mid-Cap Equity Trust
Fund Performance November 30, 1999
GROWTH OF $10,000 - CLASS B
($ in Thousands)
Date TOTAL S&P Midcap IX LIPPER
----------------------------------------------------------
February 27, 1996 $10,000 $10,000 $10,000
November 30, 1996 $10,920 $11,284 $11,192
November 30, 1997 $10,850 $14,382 $12,974
November 30, 1998 $15,460 $15,877 $13,451
November 30, 1999 $23,165(3) $19,270 $18,655
------------------------------------------------
---Fund ---S&P Midcap IX(4) ---Lipper(5)
------------------------------------------------
Past performance is not predictive of future returns. Performance for Class A,
Class C, and Class D shares will vary from the performance of Class B shares
shown above due to differences in sales charges and expenses.
AVERAGE ANNUAL TOTAL RETURNS
- - - --------------------------------------------------------------------------------
CLASS B SHARES*
- - - ----------------------------------------------------------------
PERIOD ENDED 11/30/99
- - - --------------------------
1 Year 115.82%(1) 110.82%(2)
From Inception (2/27/96) 37.82%(1) 37.60%(2)
CLASS C SHARES++
- - - ----------------------------------------------------------------
PERIOD ENDED 11/30/99
- - - --------------------------
1 Year 115.18%(1) 114.18%(2)
From Inception (7/28/97) 61.34%(1) 61.34%(2)
CLASS A SHARES+
- - - ----------------------------------------------------------------
PERIOD ENDED 11/30/99
- - - --------------------------
1 Year 116.89%(1) 105.51%(2)
From Inception (7/28/97) 62.56%(1) 58.86%(2)
CLASS D SHARES#
- - - -----------------------------------------------
PERIOD ENDED 11/30/99
- - - --------------------------
1 Year 116.96%(1)
From Inception (7/28/97) 62.84%(1)
- - - ---------------
(1) Figure shown assumes reinvestment of all distributions and does not
reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction
of the maximum applicable sales charge. See the Fund's current prospectus
for complete details on fees and sales charges.
(3) Closing value after the deduction of a 2% contingent deferred sales
charge (CDSC), assuming a complete redemption on November 30, 1999.
(4) The Standard & Poor's Midcap index is a market-value weighted index, the
performance of which is based on the average performance of 400 domestic
stocks chosen for market size, liquidity, and industry group
representation. The Index does not include any expenses, fees or charges.
The Index is unmanaged and should not be considered an investment.
(5) The Lipper Mid Cap Fund Index is an equally-weighted performance index
of the largest qualifying funds (based on net assets) in the Lipper Mid
Cap Funds objective. The Index, which is adjusted for capital gains
distributions and income dividends, is unmanaged and should not be
considered an investment. There are currently 30 funds represented in
this index.
* The maximum CDSC for Class B is 5.0%. The CDSC declines to 0% after six
years.
+ The maximum front-end sales charge for Class A is 5.25%.
++ The maximum CDSC for Class C shares is 1% for shares redeemed within one
year of purchase.
# Class D shares have no sales charge.
5
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- - - ----------------- ------------------
<S> <C> <C>
COMMON STOCKS (97.1%)
Accident & Health Insurance (0.6%)
175,000 AFLAC, Inc. .......................... $ 8,378,125
--------------
Advertising (1.9%)
85,700 DoubleClick Inc.* .................... 13,712,000
225,000 Lamar Advertising Co. (Class A)*...... 12,867,187
--------------
26,579,187
--------------
Apparel (0.6%)
100,000 Gucci Group N.V. (Netherlands) ....... 8,325,000
--------------
Auto Parts: O.E.M. (0.3%)
200,000 Gentex Corp.* ........................ 3,725,000
--------------
Biotechnology (3.3%)
359,900 Biogen, Inc.* ........................ 26,272,700
139,400 Genentech, Inc.* ..................... 11,970,975
138,900 Gilead Sciences, Inc.* ............... 6,658,519
--------------
44,902,194
--------------
Books/Magazines (0.0%)
24,400 Playboy Enterprises, Inc. (Class B)* . 507,825
--------------
Broadcasting (5.0%)
359,737 Clear Channel Communications, Inc.* .. 28,913,861
116,100 Hispanic Broadcasting Corp.* ......... 9,556,481
341,200 Univision Communications, Inc.
(Class A)* ......................... 29,855,000
--------------
68,325,342
--------------
Building Materials/DIY Chains (0.7%)
192,000 Lowe's Companies, Inc. ............... 9,564,000
--------------
Cable Television (3.5%)
279,100 Cablevision Systems Corp. (Class A)* . 19,135,794
429,700 EchoStar Communications Corp.
(Class A)* ......................... 28,360,200
--------------
47,495,994
--------------
Catalog/Specialty Distribution (2.4%)
295,200 Amazon.com, Inc.* .................... 25,092,000
186,900 Drugstore.com, Inc.* ................. 7,849,800
--------------
32,941,800
--------------
Clothing/Shoe/Accessory Stores (1.4%)
100,000 Ann Taylor Stores Corp.* ............. 4,318,750
312,100 Talbot's, Inc. (The) ................. 15,136,850
--------------
19,455,600
--------------
Computer Communications (2.1%)
32,800 Foundry Networks, Inc.* .............. 7,714,150
78,600 Juniper Networks, Inc.* .............. 21,762,375
--------------
29,476,525
--------------
Computer Software (8.0%)
77,900 Citrix Systems, Inc.* ................ 7,405,369
110,000 Mercury Interactive Corp.* ........... 9,123,125
91,550 Phone.com, Inc.* ..................... 13,228,975
411,000 Rational Software Corp.* ............. 20,961,000
845,400 Siebel Systems, Inc.* ................ 59,283,675
--------------
110,002,144
--------------
Computer/Video Chains (0.7%)
200,000 Circuit City Stores, Inc. - Circuit
City Group ......................... 9,700,000
--------------
Diversified Commercial Services (4.7%)
324,325 Paychex, Inc. ........................ 12,932,459
275,900 Scient Corp.* ........................ 39,971,012
142,000 Viant Corp.* ......................... 11,786,000
--------------
64,689,471
--------------
Diversified Electronic Products (5.8%)
360,000 Gemstar International Group Ltd.
(Virgin Islands)* .................. 40,590,000
170,000 JDS Uniphase Corp.* .................. 38,876,875
--------------
79,466,875
--------------
Diversified Financial Services (0.2%)
35,000 Providian Financial Corp. ............ 2,769,375
--------------
E.D.P. Peripherals (0.4%)
66,100 Lexmark International Group, Inc.
(Class A)* ......................... 5,486,300
--------------
Electronic Components (1.3%)
75,000 Rambus Inc.* ......................... 5,268,750
160,000 Solectron Corp.* ..................... 13,180,000
--------------
18,448,750
--------------
Electronic Production Equipment (0.5%)
116,000 Jabil Circuit, Inc.* ................. 7,416,750
--------------
Engineering & Construction (0.9%)
312,400 Metromedia Fiber Network, Inc.
(Class A)* ......................... 12,085,975
--------------
Generic Drugs (0.3%)
86,200 Andrx Corp.* ......................... 4,433,913
--------------
</TABLE>
See Notes to Financial Statements
6
<PAGE>
Morgan Stanley Dean Witter Mid-Cap Equity Trust
Portfolio of Investments November 30, 1999, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- - - ---------------- ------------------
<S> <C> <C>
Internet Services (18.3%)
130,500 Ariba Inc.* ........................... $ 23,522,625
163,000 At Home Corp. (Series A)* ............. 7,915,687
21,900 Commerce One, Inc.* ................... 7,183,200
151,400 Exodus Communications, Inc.* .......... 16,313,350
41,400 Kana Communications, Inc.* ............ 6,080,625
209,500 Portal Software, Inc.* ................ 24,511,500
232,500 Starmedia Network Inc.* ............... 6,873,281
267,200 VeriSign, Inc.* ....................... 49,632,400
205,500 Vignette Corp.* ....................... 42,512,813
315,915 Yahoo! Inc.* .......................... 67,250,406
---------------
251,795,887
---------------
Investment Bankers/Brokers/
Services (3.0%)
1,374,300 E*TRADE Group, Inc.* .................. 41,229,000
---------------
Investment Managers (1.2%)
441,700 Price (T.) Rowe Associates, Inc. ...... 15,873,594
---------------
Life Insurance (1.0%)
298,400 Hartford Life, Inc. (Class A) ......... 13,353,400
---------------
Medical Equipment &
Supplies (0.6%)
103,700 VISX, Inc.* ........................... 8,043,231
---------------
Medical Specialties (1.5%)
200,000 Bard (C.R.), Inc. ..................... 10,862,500
136,700 Minimed, Inc.* ........................ 10,004,731
---------------
20,867,231
---------------
Mid-Sized Banks (0.2%)
100,000 First Tennessee National Corp. ........ 3,287,500
---------------
Motor Vehicles (0.5%)
115,000 Harley-Davidson, Inc. ................. 7,015,000
---------------
Movies/Entertainment (1.0%)
250,000 Westwood One, Inc.* ................... 14,312,500
---------------
Other Consumer Services (4.6%)
295,300 eBay Inc.* ............................ 48,724,500
217,400 Homestore.Com Inc.* ................... 14,144,588
---------------
62,869,088
---------------
Other Pharmaceuticals (0.8%)
109,000 Sepracor, Inc.* ....................... 10,573,000
---------------
Other Specialty Stores (0.4%)
187,500 Bed Bath & Beyond, Inc.* .............. 5,859,375
---------------
Other Telecommunications (3.7%)
307,600 AT&T Canada Inc. (Canada)* ............ 11,573,450
325,000 Broadwing Inc. ........................ 9,465,625
555,516 Global Crossing Ltd. (Bermuda)*........ 24,164,946
128,200 McLeodUSA, Inc. (Class A)* ............ 5,512,600
---------------
50,716,621
---------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- - - ----------------- ------------------
<S> <C> <C>
Precision Instruments (0.4%)
100,000 Waters Corp.* ......................... $ 4,900,000
---------------
Semiconductors (7.0%)
394,400 Altera Corp.* ......................... 21,248,300
452,700 Maxim Integrated Products, Inc.*....... 36,329,175
425,000 Xilinx, Inc.* ......................... 38,010,938
---------------
95,588,413
---------------
Services to the Health Industry (1.2%)
135,000 Express Scripts, Inc. (Class A)* ...... 6,851,250
343,300 MedQuist Inc.* ........................ 9,784,050
---------------
16,635,300
---------------
Smaller Banks (0.6%)
125,000 Zions Bancorporation .................. 8,062,500
---------------
Telecommunications
Equipment (6.5%)
450,500 American Tower Corp. (Class A)*........ 11,769,313
200,000 QUALCOMM Inc.* ........................ 72,450,000
25,000 Sycamore Networks Inc.* ............... 5,568,750
---------------
89,788,063
---------------
TOTAL COMMON STOCKS
(Identified Cost $723,344,313)......... 1,334,945,848
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- - - -----------
<S> <C> <C>
SHORT-TERM INVESTMENT (2.7%)
REPURCHASE AGREEMENT
$ 36,810 The Bank of New York 5.375%
due 12/01/99 (dated 11/30/99;
proceeds $36,815,163) (a)
(Identified Cost $36,809,667).......... 36,809,667
--------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $760,153,980) (b)......... 99.8% 1,371,755,515
OTHER ASSETS IN EXCESS OF
LIABILITIES ............................... 0.2 3,390,153
----- --------------
NET ASSETS ................................ 100.0% $1,375,145,668
===== --------------
</TABLE>
- - - --------------------------------
* Non-income producing security.
(a) Collateralized by $37,078,056 U.S. Treasury Note 6.125% due
09/30/00 valued at $37,539,730.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$628,876,349 and the aggregate gross unrealized depreciation is
$17,274,814, resulting in net unrealized appreciation of
$611,601,535.
See Notes to Financial Statements
7
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $760,153,980) .................................. $1,371,755,515
Receivable for:
Shares of beneficial interest sold ............................. 6,788,582
Investments sold ............................................... 755,711
Dividends ...................................................... 41,731
Deferred organizational expenses .................................. 41,081
Prepaid expenses and other assets ................................. 121,603
--------------
TOTAL ASSETS ................................................... 1,379,504,223
==============
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased ...................... 2,629,665
Plan of distribution fee ....................................... 795,036
Investment management fee ...................................... 829,199
Accrued expenses and other payables ............................... 104,655
--------------
TOTAL LIABILITIES .............................................. 4,358,555
--------------
NET ASSETS ..................................................... $1,375,145,668
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital ................................................... $ 743,256,860
Net unrealized appreciation ....................................... 611,601,535
Accumulated undistributed net realized gain ....................... 20,287,273
--------------
NET ASSETS ..................................................... $1,375,145,668
==============
CLASS A SHARES:
Net Assets ........................................................ $19,934,043
Shares Outstanding (unlimited authorized, $.01 par value) ......... 589,256
NET ASSET VALUE PER SHARE ...................................... $33.83
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ................ $35.70
======
CLASS B SHARES:
Net Assets ........................................................ $1,315,929,755
Shares Outstanding (unlimited authorized, $.01 par value) ......... 39,445,753
NET ASSET VALUE PER SHARE ...................................... $33.36
======
CLASS C SHARES:
Net Assets ........................................................ $34,897,583
Shares Outstanding (unlimited authorized, $.01 par value) ......... 1,049,821
NET ASSET VALUE PER SHARE ...................................... $33.24
======
CLASS D SHARES:
Net Assets ........................................................ $4,384,287
Shares Outstanding (unlimited authorized, $.01 par value) ......... 129,081
NET ASSET VALUE PER SHARE ...................................... $33.97
======
</TABLE>
See Notes to Financial Statements
8
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended November 30, 1999
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT LOSS:
INCOME
Interest .................................................. $ 1,334,422
Dividends (net of $6,000 foreign withholding tax) ......... 534,042
------------
TOTAL INCOME ........................................... 1,868,464
------------
EXPENSES
Plan of distribution fee (Class A shares) ................. 16,178
Plan of distribution fee (Class B shares) ................. 4,436,240
Plan of distribution fee (Class C shares) ................. 109,805
Investment management fee ................................. 3,257,327
Management fee ............................................ 1,034,415
Investment advisory fee ................................... 689,610
Transfer agent fees and expenses .......................... 656,717
Shareholder reports and notices ........................... 154,252
Registration fees ......................................... 92,140
Professional fees ......................................... 69,781
Organizational expenses ................................... 33,034
Custodian fees ............................................ 26,780
Trustees' fees and expenses ............................... 21,565
Other ..................................................... 19,200
------------
TOTAL EXPENSES ......................................... 10,617,044
------------
NET INVESTMENT LOSS .................................... (8,748,580)
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ......................................... 44,590,626
Net change in unrealized appreciation ..................... 422,052,427
------------
NET GAIN ............................................... 466,643,053
------------
NET INCREASE .............................................. $457,894,473
============
</TABLE>
See Notes to Financial Statements
9
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
NOVEMBER 30, 1999 NOVEMBER 30, 1998
- - - -------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss .................................. $ (8,748,580) $ (3,698,987)
Net realized gain .................................... 44,590,626 31,236,102
Net change in unrealized appreciation ................ 422,052,427 37,809,903
--------------- -------------
NET INCREASE ...................................... $ 457,894,473 65,347,018
--------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN:
Class A shares ....................................... (707) -
Class B shares ....................................... (54,653) -
Class C shares ....................................... (1,211) -
Class D shares ....................................... (4) -
---------------- -------------
TOTAL DISTRIBUTIONS ............................... (56,575) -
--------------- -------------
Net increase (decrease) from transactions in shares of
beneficial interest ................................ 703,430,965 (26,033,572)
--------------- -------------
NET INCREASE ...................................... 1,161,268,863 39,313,446
NET ASSETS:
Beginning of period .................................. 213,876,805 174,563,359
--------------- -------------
END OF PERIOD ..................................... $1,375,145,668 $213,876,805
=============== =============
</TABLE>
See Notes to Financial Statements
10
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Mid-Cap Equity Trust (the "Fund"), formerly TCW/DW
Mid-Cap Equity Trust, 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 Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager") or TCW Investment Management Company (the "Sub-Advisor") 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
comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors); and (4) short-term debt securities having a maturity date of
11
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
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 - The Investment Manager paid the organizational
expenses of the Fund in the 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.
12
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS
Pursuant to a new Investment Management Agreement that took effect June 28,
1999, the Fund pays the Investment Manager a management fee, accrued daily and
payable monthly, by applying the annual rate of 0.75% to the portion of net
assets not exceeding $500 million and 0.725% to the portion of the daily net
assets exceeding $500 million.
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 new Sub-Advisory Agreement that took effect June 28, 1999 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.
Prior to June 28, 1999, pursuant to a Management Agreement with Morgan Stanley
Dean Witter Services Company Inc. (the "Former Manager"), the Fund paid the
Former 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 maintained certain of
the Fund's books and records and furnished, at its own expense, office space,
facilities, equipment, clerical, bookkeeping and certain legal services and
paid the salaries of all personnel, including officers of the Fund who were
employees of the Manager. The Manager also bore the cost of telephone services,
heat, light, power and other utilities provided to the Fund.
Prior to June 28, 1999, pursuant to an Investment Advisory Agreement with the
current Sub-Advisor, the Fund paid 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 had retained the
current Sub-Advisor to invest the Fund's assets, including placing orders for
the purchase and sale of portfolio securities. The current Sub-Advisor obtained
and evaluated such information and advice relating to the economy,
13
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
securities markets, and specific securities as it considered necessary or
useful to continuously manage the assets of the Fund in a manner consistent
with its investment objective. In addition, the current Sub-Advisor paid the
salaries of all personnel, including officers of the Fund, who were employees
of the current Sub-Advisor.
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 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
14
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
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 $25,765,238 at November 30,
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 year ended November 30, 1999, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.24% and
1.0%, respectively.
The Distributor has informed the Fund that for the year ended November 30,
1999, it received contingent deferred sales charges from certain redemptions of
the Fund's Class A shares, Class B shares and Class C shares of $3,082,
$693,550 and $10,375, respectively and received $154,526 in front-end sales
charges from sales of the Fund's Class A shares. The respective shareholders
pay such charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended November 30, 1999
aggregated $512,599,322 and $310,931,925, respectively.
For the year ended November 30, 1999, the Fund incurred brokerage commissions
of $9,005 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 November 30, 1999, the Fund
had transfer agent fees and expenses payable of approximately $4,000.
5. FEDERAL INCOME TAX STATUS
As part of the Fund's acquisition of the assets of Morgan Stanley Dean Witter
Mid-Cap Growth Fund ("Mid-Cap Growth"), the Fund obtained a net capital loss
carryover of approximately $18,137,000 from Mid-Cap Growth. Utilization of this
carryover is subject to limitations imposed by the Internal Revenue Code and
Treasury Regulations. During the year ended November 30, 1999, the Fund
utilized
15
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
approximately $7,851,000 of this carryover. At November 30, 1999, the Fund had
a net capital loss carryover remaining of approximately $10,286,000 which will
be available through November 30, 2005 to offset future capital gains to the
extent provided by regulations.
As of November 30, 1999, the Fund had temporary book/tax differences
attributable to unused capital loss carryover and capital loss deferrals on
wash sales and permanent book/tax differences primarily attributable to a net
operating loss. To reflect reclassifications arising from the permanent
differences, paid-in-capital was charged and net investment loss was credited
$8,748,580.
16
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
NOVEMBER 30, 1999 NOVEMBER 30, 1998
--------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold ................................................ 634,895 $ 17,175,647 70,760 $ 975,219
Reinvestment of distributions ....................... 23 593 - -
Acquisition of Morgan Stanley Dean Witter Mid-Cap
Growth Fund ........................................ 137,952 3,450,632
Repurchased ......................................... (254,595) (6,451,822) (5,127) (68,294)
-------- -------------- ------ -------------
Net increase - Class A .............................. 518,275 14,175,050 65,633 906,925
-------- -------------- ------ -------------
CLASS B SHARES
Sold ................................................ 11,267,017 301,595,088 2,515,413 32,751,132
Reinvestment of distributions ....................... 1,986 50,366 - -
Acquisition of Morgan Stanley Dean Witter Mid-Cap
Growth Fund ........................................ 20,363,981 503,472,815
Repurchased ......................................... (5,905,022) (145,463,060) (4,871,632) (60,224,693)
---------- -------------- ---------- -------------
Net increase (decrease) - Class B ................... 25,727,962 659,655,209 (2,356,219) (27,473,561)
---------- -------------- ---------- -------------
CLASS C SHARES
Sold ................................................ 849,493 22,720,952 41,665 574,086
Reinvestment of distributions ....................... 44 1,113 - -
Acquisition of Morgan Stanley Dean Witter Mid-Cap
Growth Fund ........................................ 264,929 6,532,755
Repurchased ......................................... (110,763) (2,910,576) (3,216) (41,022)
---------- -------------- ---------- -------------
Net increase - Class C .............................. 1,003,703 26,344,244 38,449 533,064
---------- -------------- ---------- -------------
CLASS D SHARES
Sold ................................................ 688,208 18,792,852 - -
Reinvestment of distributions ....................... - 4 - -
Acquisition of Morgan Stanley Dean Witter Mid-Cap
Growth Fund ........................................ 11,712 294,460
Repurchased ......................................... (571,762) (15,830,854) - -
---------- -------------- ---------- -------------
Net increase - Class D .............................. 128,158 3,256,462 - -
---------- -------------- ---------- -------------
Net increase (decrease) in Fund ..................... 27,378,098 $ 703,430,965 (2,252,137) $ (26,033,572)
========== ============== ========== =============
</TABLE>
17
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
7. 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 223,982 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 33,262,962 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
431,232 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 $513,750,663, 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 $869,683,919.
18
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1997
- - - ------------------------------------------------------------------------------------------------------------
<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 ............................ (0.34) (0.18) (0.06)
Net realized and unrealized gain ............... 18.57 4.90 0.09
------ ------ ------
Total income from investment operations ......... 18.23 4.72 0.03
------ ------ ------
Net asset value, end of period .................. $33.83(4) $15.60 $10.88
====== ====== ======
TOTAL RETURN+ ................................... 116.89 % 43.38 % 0.28 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 1.23 %(3) 1.55 %(3) 1.55 %(2)
Net investment loss ............................. (0.93)%(3) (1.40)%(3) (1.46)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $19,934 $1,107 $58
Portfolio turnover rate ......................... 51 % 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.
(4) Includes the effect of a capital gain distribution of $0.004.
See Notes to Financial Statements
19
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED NOVEMBER 30 FEBRUARY 27, 1996*
--------------------------------------------------- THROUGH
1999# 1998# 1997**# NOVEMBER 30, 1996
------------------ ------------------ ------------- -------------------
<S> <C> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $5.46 $10.85 $10.92 $10.00
------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss ................................... (0.42) (0.26) (0.22) (0.13)
Net realized and unrealized gain ...................... 18.32 4.87 0.15 1.05
------ ------ ------ ------
Total income (loss) from investment operations ......... 17.90 4.61 (0.07) 0.92
------ ------ ------ ------
Net asset value, end of period ......................... $33.36(4) $15.46 $10.85 $10.92
====== ====== ====== ======
TOTAL RETURN+ .......................................... 115.82 % 42.49 % (0.64)% 9.20 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 1.74 %(3) 2.20 %(3) 2.29 % 2.28 %(2)
Net investment loss .................................... (1.44)%(3) (2.05)%(3) (2.16)% (1.79)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $1,315,930 $212,043 $174,412 $205,274
Portfolio turnover rate ................................ 51 % 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.
(4) Includes the effect of a capital gain distribution of $0.004.
See Notes to Financial Statements
20
<PAGE>
Morgan Stanley Dean Witter Mid-Cap Equity Trust
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1997
------------------- ------------------- ------------------
<S> <C> <C> <C>
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 ............................ (0.52) (0.28) (0.08)
Net realized and unrealized gain ............... 18.31 4.88 0.08
------ ------ ------
Total income from investment operations ......... 17.79 4.60 -
------ ------ ------
Net asset value, end of period .................. $33.24(4) $15.45 $10.85
====== ====== ======
TOTAL RETURN+ ................................... 115.18 % 42.27 % 0.09 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 1.99 %(3) 2.30 %(3) 2.32 %(2)
Net investment loss ............................. (1.69)%(3) (2.15)%(3) (2.22)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $34,898 $712 $83
Portfolio turnover rate ......................... 51 % 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.
(4) Includes the effect of a capital gain distribution of $0.004.
See Notes to Financial Statements
21
<PAGE>
Morgan Stanley Dean Witter Mid-Cap Equity Trust
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1997
- - - ------------------------------------------------------------------------------------------------------------
<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 ............................ (0.21) (0.15) (0.05)
Net realized and unrealized gain ............... 18.52 4.92 0.09
------ ------ ------
Total income from investment operations ......... 18.31 4.77 0.04
------ ------ ------
Net asset value, end of period .................. $33.97(4) $15.66 $10.89
====== ====== ======
TOTAL RETURN+ ................................... 116.96 % 43.80 % 0.37 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 0.99 %(3) 1.30 %(3) 1.30 %(2)
Net investment loss ............................. (0.69)%(3) (1.15)%(3) (1.19)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $4,384 $15 $10
Portfolio turnover rate ......................... 51 % 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.
(4) Includes the effect of a capital gain distribution of $0.004.
See Notes to Financial Statements
22
<PAGE>
Morgan Stanley Dean Witter Mid-Cap Equity Trust
Report of Independent Accountants
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter Mid-Cap
Equity Trust (the "Fund"), formerly TCW/DW Mid-Cap Equity Trust, at November
30, 1999, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at November 30, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
January 11, 2000
- - - --------------------------------------------------------------------------------
1999 FEDERAL TAX NOTICE (unaudited)
During the year ended November 30, 1999, the Fund paid shareholders $.004 per
share from long-term capital gains.
- - - --------------------------------------------------------------------------------
23
<PAGE>
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
Douglas S. Foreman
Vice President
Christopher J. Ainley
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, CA 90017
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus
of the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus. Read the
prospectus carefully before investing.
MORGAN STANLEY
DEAN WITTER
MID-CAP
EQUITY TRUST
[GRAPHIC OMITTED]
ANNUAL REPORT
NOVEMBER 30, 1999
<PAGE>
PROSPECTUS - JUNE 30, 1999
MORGAN STANLEY DEAN WITTER
MID-CAP DIVIDEND GROWTH SECURITIES
A MUTUAL FUND THAT SEEKS TOTAL RETURN
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
CONTENTS
<TABLE>
<S> <C> <C>
The Fund Investment Objective ......................................... 1
Principal Investment Strategies .............................. 1
Principal Risks .............................................. 1
Past Performance ............................................ 2
Fees and Expenses ............................................ 3
Additional Investment Strategy Information ................... 4
Additional Risk Information ................................. 5
Fund Management .............................................. 7
Shareholder Information Pricing Fund Shares .......................................... 8
How to Buy Shares ........................................... 8
How to Exchange Shares ....................................... 10
How to Sell Shares ........................................... 12
Distributions ................................................ 14
Tax Consequences ............................................. 14
Share Class Arrangements ..................................... 15
Financial Highlights ............................................................. 23
Our Family of Funds ............................................... Inside Back Cover
This Prospectus contains important information about the Fund.
Please read it carefully and keep it for future reference.
</TABLE>
<PAGE>
THE FUND
[GRAPHIC OMITTED]
INVESTMENT OBJECTIVE
- - - --------------------------------
Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities seeks total
return.
(sidebar)
TOTAL RETURN
An investment objective having the goal of selecting securities with the
potential to rise in price and pay out income.
(end sidebar)
[GRAPHIC OMITTED]
PRINCIPAL INVESTMENT STRATEGIES
- - - --------------------------------------------
The Fund will normally invest at least 65% of its total assets in a diversified
portfolio of common stocks and other equity securities of companies whose
capitalization falls within the range of companies comprising the Standard &
Poor's Mid-Cap 400 Index, which capitalization range is approximately between
$207 million and $13.9 billion as of May 28, 1999, that currently pay dividends
and that have the potential for increasing dividends. The Fund's "Investment
Manager," Morgan Stanley Dean Witter Advisors Inc., initially employs a
quantitative screening process in an attempt to identify a number of common
stocks that are underated and that currently pay dividends. The Investment
Manager then applies qualitative analysis to determine which stocks it believes
have the potential to increase dividends and, finally, to determine whether any
of the stocks should be added to or sold from the Fund's portfolio.
Common stock is a share ownership or equity interest in a corporation. It may or
may not pay dividends, as some companies reinvest all of their profits back into
their businesses, while others pay out some of their profits to shareholders as
dividends.
In addition, the Fund may invest in certain other common stocks, fixed-income,
convertible and foreign securities.
In pursuing the Fund's investment objective, the Investment Manager has
considerable leeway in deciding which investments it buys, holds or sells on a
day-to-day basis -- and which trading or investment strategies it uses. For
example, the Investment Manager in its discretion may determine to use some
permitted trading or investment strategies while not using others.
[GRAPHIC OMITTED]
PRINCIPAL RISKS
- - - --------------------------
There is no assurance that the Fund will achieve its investment objective. The
Fund's share price will fluctuate with changes in the market value of the Fund's
portfolio securities. When you sell Fund shares, they may be worth less than
what you paid for them and, accordingly, you can lose money investing in this
Fund.
A principal risk of investing in the Fund is associated with its common stock
investments. In general, stock values fluctuate in response to activities
specific to the company as well as general market, economic and political
conditions. Stock prices can fluctuate widely in response to these factors.
1
<PAGE>
The Fund will invest in medium-sized companies that involve greater risk than is
customarily associated with investing in more established companies. These
stocks may be more volatile and have returns that vary, sometimes significantly,
from the overall stock market.
The performance of the Fund also will depend on whether the Investment Manager
is successful in pursuing the Fund's investment strategy. The Fund is also
subject to other risks from its permissible investments including the risks
associated with other common stocks, fixed-income, convertible and foreign
securities. For more information about these risks, see the "Additional Risk
Information" section.
Shares of the Fund are not bank deposits and are not guaranteed or insured by
the FDIC or any other government agency.
[GRAPHIC OMITTED]
PAST PERFORMANCE
- - - ----------------------------
The table below provides some indication of the risks of investing in the Fund.
The Fund's past performance does not indicate how the Fund will perform in the
future.
(sidebar)
TOTAL RETURNS
This table compares the Fund's returns with those of a broad measure of market
performance over time, as well as with an index of Funds with similar
investment objectives. The Fund's returns include the maximum applicable sales
charge for each Class and assume you sold your shares at the end of each
period.
(end sidebar)
TOTAL RETURNS (AS OF DECEMBER 31, 1998)
<TABLE>
<CAPTION>
LIFE OF FUND
(SINCE 5/27/98)
<S> <C>
Class A -12.87%
Class B -13.27%
Class C -13.29%
Class D -12.74%
S&P Mid-Cap 400 Index(1) -11.34%
Lipper Mid-Cap Fund Index(2) 6.44%
</TABLE>
(1) The S&P Mid-Cap 400 Index is a market-value weighted index, the performance
of which is based on the average performance of 400 domestic stocks chosen
for market size, liquidity and industry group representation. The Index
does not include any expenses, fees or charges. The Index is unmanaged and
should not be considered an investment.
(2) The Lipper Mid-Cap Fund Index is an equally-weighted performance index of
the largest qualifying funds (based on net assets) in the Lipper Mid-Cap
Funds objective. The Index, which is adjusted for capital gains
distributions and income dividends, is unmanaged and should not be
considered an investment. There are currently 30 funds represented in this
Index.
2
<PAGE>
[GRAPHIC OMITTED]
FEES AND EXPENSES
- - - -----------------------------
The table below briefly describes the fees and expenses that you may pay if you
buy and hold shares of the Fund. The Fund offers four classes of shares: Classes
A, B, C and D. Each Class has a different combination of fees, expenses and
other features. The Fund does not charge account or exchange fees. See the
"Share Class Arrangements" section for further fee and expense information.
(sidebar)
SHAREHOLDER FEES
These fees are paid directly from your investment.
(end sidebar)
(sidebar)
ANNUAL FUND
OPERATING EXPENSES
These expenses are deducted from the Fund's assets and are based on expenses
paid for the fiscal year ended February 28, 1999.
(end sidebar)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 5.25%(1) None None None
Maximum deferred sales charge (load) (as a
percentage based on the lesser of the offering
price or net asset value at redemption) None(2) 5.00%(3) 1.00%(4) None
ANNUAL FUND OPERATING EXPENSES
Management fee 0.75% 0.75% 0.75% 0.75%
Distribution and service (12b-1) fees 0.25% 1.00% 1.00% None
Other expenses 0.30% 0.30% 0.30% 0.30%
Total annual Fund operating expenses 1.30% 2.05% 2.05% 1.05%
</TABLE>
(1) Reduced for purchases of $25,000 and over.
(2) Investments that are not subject to any sales charge at the time of
purchase are subject to a contingent deferred sales charge ("CDSC") of
1.00% that will be imposed if you sell your shares within one year after
purchase, except for certain specific circumstances.
(3) The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter. See "Share Class Arrangements" for a complete discussion of the
CDSC.
(4) Only applicable if you sell your shares within one year after purchase.
3
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund, your investment has a
5% return each year, and the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, the tables below show your costs at
the end of each period based on these assumptions depending upon whether or not
you sell your shares at the end of each period.
<TABLE>
<CAPTION>
IF YOU SOLD YOUR IF YOU HELD YOUR
SHARES: SHARES:
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 1 YEAR 3 YEARS
- - - ----------- -------- --------- -------- --------
CLASS A $ 651 $ 917 $651 $ 917
- - - ----------- ----- ----- ---- -----
CLASS B $ 708 $ 944 $208 $ 644
- - - ----------- ----- ----- ---- -----
CLASS C $ 308 $ 644 $208 $ 644
- - - ----------- ----- ----- ---- -----
CLASS D $ 108 $ 335 $108 $ 335
- - - ----------- ----- ----- ---- -----
</TABLE>
Long-term shareholders of Class B and Class C may pay more in sales charges,
including distribution fees, than the economic equivalent of the maximum
front-end sales charges permitted by the National Association of Securities
Dealers.
[GRAPHIC OMITTED]
ADDITIONAL INVESTMENT STRATEGY INFORMATION
- - - ---------------------------------------------------------
This section provides additional information relating to the Fund's principal
strategies.
Other Common Stocks and Fixed-Income Securities. The Fund may invest up to 35%
of its assets in common stocks of U.S. companies that fall outside the range of
mid-cap securities or in non-dividend paying mid-cap securities and in U.S.
government securities, investment grade corporate debt securities and/or money
market instruments. The Fund's fixed-income investments may include zero coupon
securities, which are purchased at a discount and make no interest payments
until maturity.
Convertible Securities. The Fund may invest up to 35% of its assets in
convertible bonds or preferred stocks that are convertible into common stock.
There are no minimum rating or quality requirements with respect to convertible
securities in which the Fund may invest. The Fund will not invest in convertible
securities that are in default in payment of principal or interest.
Foreign Securities. The Fund may invest up to 25% of its assets in equity
securities (including depository receipts) issued by foreign issuers. The Fund
will invest in foreign securities whose market capitalization is within the
range of the companies comprising the S&P Mid-Cap Index. Although certain of
these securities may not be mid-cap
4
<PAGE>
companies in the foreign markets in which they trade, they will be included in
the mid-cap securities in which the Fund may invest. The Fund may invest any
amount of its assets in foreign securities (including depository receipts) that
are listed in the U.S. on a national securities exchange. A depository receipt
is generally issued by a bank or financial institution and represents an
ownership interest in the common stock or other equity securities of a foreign
company.
Defensive Investing. The Fund may take temporary "defensive" positions in
attempting to respond to adverse market conditions. The Fund may invest any
amount of its total assets in cash or money market instruments in a defensive
posture when the Investment Manager believes it is advisable to do so. Although
taking a defensive posture is designed to protect the Fund from an anticipated
market downturn, it could have the effect of reducing the benefit from any
upswing in the market.
The percentage limitations relating to the composition of the Fund's portfolio
apply at the time the Fund acquires an investment and refer to the Fund's net
assets, unless otherwise noted. Subsequent percentage changes that result from
market fluctuations will not require the Fund to sell any portfolio security.
The Fund may change its principal investment strategies without shareholder
approval; however, you would be notified of any changes.
[GRAPHIC OMITTED]
ADDITIONAL RISK INFORMATION
- - - ----------------------------------------
This section provides additional information relating to the principal risks of
investing in the Fund.
Common Stocks. A principal risk of investing in the Fund is associated with its
common stock investments that fall outside the range of mid-cap securities or
non-dividend paying mid-cap securities. These stock values fluctuate in response
to activities specific to the company as well as general market, economic and
political conditions. Stock prices can fluctuate widely in response to these
factors.
Fixed-Income Securities. Principal risks of investing in the Fund are associated
with its fixed-income investments. All fixed-income securities, such as
corporate debt securities, are subject to two types of risk: credit risk and
interest rate risk. Credit risk refers to the possibility that the issuer of a
security will be unable to make interest payments and repay the principal on its
debt.
Interest rate risk refers to fluctuations in the value of a fixed-income
security resulting from changes in the general level of interest rates. When the
general level of interest rates goes up, the prices of most fixed-income
securities go down. When the general level of interest rates goes down, the
prices of most fixed-income securities go up. (Zero coupon securities are
typically subject to greater price fluctuations than comparable securities that
pay interest.)
5
<PAGE>
Convertible Securities. The Fund also may invest a portion of its assets in
convertible securities, which are debt or preferred securities that generally
pay interest and may be converted into common stock. These securities may carry
risks associated with both common stock and fixed-income securities. All or a
portion of the convertible securities in which the Fund may invest will
generally be below investment grade. Securities below investment grade are
commonly known as "junk bonds" and have speculative credit risk characteristics.
Foreign Securities. The Fund's investments in foreign securities (including
depository receipts) may involve risks in addition to the risks associated with
domestic securities. One additional risk is currency risk. While the price of
Fund shares is quoted in U.S. dollars, the Fund generally converts U.S. dollars
to a foreign market's local currency to purchase a security in that market. If
the value of that local currency falls relative to the U.S. dollar, the U.S.
dollar value of the foreign security will decrease. This is true even if the
foreign security's local price remains unchanged.
Foreign securities also have risks related to economic and political
developments abroad, including expropriations, confiscatory taxation, exchange
control regulation, limitations on the use or transfer of Fund assets and any
effects of foreign social, economic or political instability. Foreign companies,
in general, are not subject to the regulatory requirements of U.S. companies
and, as such, there may be less publicly available information about these
companies. Moreover, foreign accounting, auditing and financial reporting
standards generally are different from those applicable to U.S. companies.
Finally, in the event of a default of any foreign debt obligations, it may be
more difficult for the Fund to obtain or enforce a judgment against the issuers
of the securities.
Securities of foreign issuers may be less liquid than comparable securities of
U.S. issuers and, as such, their price changes may be more volatile.
Furthermore, foreign exchanges and broker-dealers are generally subject to less
government and exchange scrutiny and regulation than their U.S. counterparts. In
addition, differences in clearance and settlement procedures in foreign markets
may occasion delays in settlements of the Fund's trades effected in those
markets.
Year 2000. The Fund could be adversely affected if the computer systems
necessary for the efficient operation of the Investment Manager, the Fund's
other service providers and the markets and corporate and governmental issuers
in which the Fund invests do not properly process and calculate date-related
information from and after January 1, 2000. While year 2000-related computer
problems could have a negative effect on the Fund, the Investment Manager and
its affiliates are working hard to avoid any problems and to obtain assurances
from their service providers that they are taking similar steps.
6
<PAGE>
In addition, it is possible that the markets for securities in which the Fund
invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies and overall economic uncertainties.
Earnings of individual issuers will be affected by remediation costs, which may
be substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected.
[GRAPHIC OMITTED]
FUND MANAGEMENT
- - - ----------------------------
The Fund has retained the Investment Manager -- Morgan Stanley Dean Witter
Advisors Inc. -- to provide administrative services, manage its business affairs
and invest its assets, including the placing of orders for the purchase and sale
of portfolio securities. The Investment Manager is a wholly-owned subsidiary of
Morgan Stanley Dean Witter & Co., a preeminent global financial services firm
that maintains leading market positions in each of its three primary businesses:
securities, asset management and credit services. Its main business office is
located at Two World Trade Center, New York, NY 10048.
(sidebar)
MORGAN STANLEY DEAN
WITTER ADVISORS INC.
The Investment Manager is widely recognized as a leader in the mutual fund
industry and together with Morgan Stanley Dean Witter Services Company Inc.,
its wholly-owned subsidiary, has more than $134 billion in assets under
management or administration as of May 31, 1999.
(end sidebar)
The Fund's portfolio is managed within the Investment Manager's Growth and
Income Group. Paul D. Vance, Senior Vice President of the Investment Manager and
Steven M. MacNamara, Assistant Vice President of the Investment Manager, are the
primary portfolio managers of the Fund. Mr. Vance has been a portfolio manager
with the Investment Manager for over five years. Mr. MacNamara has been a
portfolio manager with the Investment Manager since April, 1996, and was a
Senior Portfolio Manager with Investment Advisors International from February,
1991 until December, 1995.
The Fund pays the Investment Manager a monthly management fee as full
compensation for the services and facilities furnished to the Fund, and for Fund
expenses assumed by the Investment Manager. The fee is based on the Fund's
average daily net assets. For the fiscal year ended February 28, 1999, the Fund
accrued total compensation to the Investment Manager amounting to 0.75% of the
Fund's average daily net assets.
7
<PAGE>
SHAREHOLDER INFORMATION
[GRAPHIC OMITTED]
PRICING FUND SHARES
- - - -------------------------------
The price of Fund shares (excluding sales charges), called "net asset value," is
based on the value of the Fund's portfolio securities. While the assets of each
Class are invested in a single portfolio of securities, the net asset value of
each Class will differ because the Classes have different ongoing distribution
fees.
The net asset value per share of the Fund is determined once daily at 4:00 p.m.
Eastern time, on each day that the New York Stock Exchange is open (or, on days
when the New York Stock Exchange closes prior to 4:00 p.m., at such earlier
time). Shares will not be priced on days that the New York Stock Exchange is
closed.
The value of the Fund's portfolio securities is based on the securities' market
price when available. When a market price is not readily available, including
circumstances under which the Investment Manager determines that a security's
market price is not accurate, a portfolio security is valued at its fair value,
as determined under procedures established by the Fund's Board of Trustees. In
these cases, the Fund's net asset value will reflect certain portfolio
securities' fair value rather than their market price. In addition, if the Fund
holds securities primarily listed on foreign exchanges, the value of the Fund's
portfolio securities may change on days when you will not be able to purchase or
sell your shares.
An exception to the Fund's general policy of using market prices concerns its
short-term debt portfolio securities. Debt securities with remaining maturities
of sixty days or less at the time of purchase are valued at amortized cost.
However, if the cost does not reflect the securities' market value, these
securities will be valued at their fair value.
[GRAPHIC OMITTED]
HOW TO BUY SHARES
- - - ------------------------------
You may open a new account to buy Fund shares or buy additional Fund shares for
an existing account by contacting your Morgan Stanley Dean Witter Financial
Advisor or other authorized financial representative. Your Financial Advisor
will assist you, step-by-step, with the procedures to invest in the Fund. You
may also purchase shares directly by calling the Fund's transfer agent and
requesting an application.
(sidebar)
CONTACTING A FINANCIAL ADVISOR
If you are new to the Morgan Stanley Dean Witter Family of Funds and would like
to contact a Financial Advisor, call (800) THE-DEAN for the telephone number of
the Morgan Stanley Dean Witter office nearest you. You may also access our
office locator on our Internet site at: www.deanwitter.com/funds
(end sidebar)
Because every investor has different immediate financial needs and long-term
investment goals, the Fund offers investors four Classes of shares: Classes A,
B, C and D. Class D shares are only offered to a limited group of investors.
Each Class of shares offers a distinct structure of sales charges, distribution
and service fees, and other features that are designed to address a variety of
needs. Your Financial Advisor or other authorized financial representative can
8
<PAGE>
help you decide which Class may be most appropriate for you. When purchasing
Fund shares, you must specify which Class of shares you wish to purchase.
When you buy Fund shares, the shares are purchased at the next share price
calculated, less any applicable front-end sales charge, after we receive your
purchase order. Your payment is due on the third business day after you place
your purchase order. We reserve the right to reject any order for the purchase
of Fund shares.
(sidebar)
EASYINVEST(SM)
A purchase plan that allows you to transfer money automatically from your
checking or savings account or from a Money Market Fund on a semi-monthly,
monthly or quarterly basis. Contact your Morgan Stanley Dean Witter Financial
Advisor for further information about this service.
(end sidebar)
MINIMUM INVESTMENT AMOUNTS
<TABLE>
<CAPTION>
MINIMUM INVESTMENT
INVESTMENT OPTIONS INITIAL ADDITIONAL
<S> <C> <C> <C>
Regular Accounts $1,000 $100
Individual Retirement Accounts: Regular IRAs $1,000 $100
Education IRAs $500 $100
EasyInvest(SM)
(Automatically from your checking or savings account or
Money Market Fund) $ 100* $100*
</TABLE>
* Provided your schedule of investments totals $1,000 in twelve months.
There is no minimum investment amount if you purchase Fund shares through: (1)
the Investment Manager's mutual fund asset allocation plan, (2) a program,
approved by the Fund's distributor, in which you pay an asset-based fee for
advisory, administrative and/or brokerage services, or (3) employer-sponsored
employee benefit plan accounts.
Investment Options for Certain Institutional and Other Investors/Class D Shares.
To be eligible to purchase Class D shares, you must qualify under one of the
investor categories specified in the "Share Class Arrangements" section of this
Prospectus.
Subsequent Investments Sent Directly to the Fund. In addition to buying
additional Fund shares for an existing account by contacting your Morgan Stanley
Dean Witter Financial Advisor, you may send a check directly to the Fund. To buy
additional shares in this manner:
o Write a "letter of instruction" to the Fund specifying the name(s) on the
account, the account number, the social security or tax identification
number, the Class of shares you wish to purchase, and the investment amount
(which would include any applicable front-end sales charge). The letter
must be signed by the account owner(s).
o Make out a check for the total amount payable to: Morgan Stanley Dean
Witter Mid-Cap Dividend Growth Securities.
o Mail the letter and check to Morgan Stanley Dean Witter Trust FSB at P.O.
Box 1040, Jersey City, NJ 07303.
9
<PAGE>
[GRAPHIC OMITTED]
HOW TO EXCHANGE SHARES
- - - ------------------------------------
Permissible Fund Exchanges. You may exchange shares of any Class of the Fund for
the same Class of any other continuously offered Multi-Class Fund, or for shares
of a No-Load Fund, Money Market Fund, North American Government Income Trust or
Short-Term U.S. Treasury Trust, without the imposition of an exchange fee. See
the inside back cover of this Prospectus for each Morgan Stanley Dean Witter
Fund's designation as a Multi-Class Fund, No-Load Fund or Money Market Fund. If
a Morgan Stanley Dean Witter Fund is not listed, consult the inside back cover
of that Fund's Prospectus for its designation. For purposes of exchanges, shares
of FSC Funds (subject to a front-end sales charge) are treated as Class A shares
of a Multi-Class Fund.
Exchanges may be made after shares of the Fund acquired by purchase have been
held for thirty days. There is no waiting period for exchanges of shares
acquired by exchange or dividend reinvestment. The current Prospectus for each
fund describes its investment objective(s), policies and investment minimum, and
should be read before investment.
Exchange Procedures. You can process an exchange by contacting your Morgan
Stanley Dean Witter Financial Advisor or other authorized financial
representative. Otherwise, you must forward an exchange privilege authorization
form to the Fund's transfer agent -- Morgan Stanley Dean Witter Trust FSB -- and
then write the transfer agent or call (800) 869-NEWS to place an exchange order.
You can obtain an exchange privilege authorization form by contacting your
Financial Advisor or other authorized financial representative or by calling
(800) 869-NEWS. If you hold share certificates, no exchanges may be processed
until we have received all applicable share certificates.
An exchange to any Morgan Stanley Dean Witter Fund (except a Money Market Fund)
is made on the basis of the next calculated net asset values of the Funds
involved after the exchange instructions are accepted. When exchanging into a
Money Market Fund, the Fund's shares are sold at their next calculated net asset
value and the Money Market Fund's shares are purchased at their net asset value
on the following business day.
The Fund may terminate or revise the exchange privilege upon required notice.
Certain services normally available to shareholders of Money Market Funds,
including the check writing privilege, are not available for Money Market Fund
shares you acquire in an exchange.
Telephone Exchanges. For your protection when calling Morgan Stanley Dean Witter
Trust FSB, we will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. These procedures may
include requiring various forms of personal identification such as name, mailing
address, social security or other tax identification number. Telephone
instructions also may be recorded.
10
<PAGE>
Telephone instructions will be accepted if received by the Fund's transfer agent
between 9:00 a.m. and 4:00 p.m. Eastern time, on any day the New York Stock
Exchange is open for business. During periods of drastic economic or market
changes, it is possible that the telephone exchange procedures may be difficult
to implement, although this has not been the case with the Fund in the past.
Margin Accounts. If you have pledged your Fund shares in a margin account,
contact your Morgan Stanely Dean Witter Financial Advisor or other authorized
financial representative regarding restrictions on the exchange of such shares.
Tax Considerations of Exchanges. If you exchange shares of the Fund for shares
of another Morgan Stanley Dean Witter Fund there are important tax
considerations. For tax purposes, the exchange out of the Fund is considered a
sale of the Fund's shares -- and the exchange into the other Fund is considered
a purchase. As a result, you may realize a capital gain or loss.
You should review the "Tax Consequences" section and consult your own tax
professional about the tax consequences of an exchange.
Frequent Exchanges. A pattern of frequent exchanges may result in the Fund
limiting or prohibiting, at its discretion, additional purchases and/or
exchanges. The Fund will notify you in advance of limiting your exchange
privileges.
CDSC Calculations on Exchanges. See the "Share Class Arrangements" section of
this Prospectus for a discussion of how applicable contingent deferred sales
charges (CDSCs) are calculated for shares of one Morgan Stanley Dean Witter Fund
that are exchanged for shares of another.
For further information regarding exchange privileges, you should contact your
Morgan Stanley Dean Witter Financial Advisor or call (800) 869-NEWS.
11
<PAGE>
[GRAPHIC OMITTED]
HOW TO SELL SHARES
- - - ------------------------------
You can sell some or all of your Fund shares at any time. If you sell Class A,
Class B or Class C shares, your net sale proceeds are reduced by the amount of
any applicable CDSC. Your shares will be sold at the next price calculated after
we receive your order to sell as described below.
<TABLE>
<CAPTION>
OPTIONS PROCEDURES
- - - --------------------- --------------------------------------------------------------------------------------------
<S> <C>
Contact Your To sell your shares, simply call your Morgan Stanley Dean Witter Financial Advisor or
Financial Advisor other authorized financial representative.
--------------------------------------------------------------------------------------------
[GRAPHIC OMITTED] Payment will be sent to the address to which the account is registered or deposited in
your brokerage account.
- - - --------------------- --------------------------------------------------------------------------------------------
By Letter You can also sell your shares by writing a "letter of instruction" that includes:
o your account number;
[GRAPHIC OMITTED] o the dollar amount or the number of shares you wish to sell;
o the Class of shares you wish to sell; and
o the signature of each owner as it appears on the account.
--------------------------------------------------------------------------------------------
If you are requesting payment to anyone other than the registered owner(s) or that
payment be sent to any address other than the address of the registered owner(s) or
pre-designated bank account, you will need a signature guarantee. You can obtain a
signature guarantee from an eligible guarantor acceptable to Morgan Stanley Dean
Witter Trust FSB. (You should contact Morgan Stanley Dean Witter Trust FSB at (800)
869-NEWS for a determination as to whether a particular institution is an eligible
guarantor.) A notary public cannot provide a signature guarantee. Additional
documentation may be required for shares held by a corporation, partnership, trustee
or executor.
--------------------------------------------------------------------------------------------
Mail the letter to Morgan Stanley Dean Witter Trust FSB at P.O. Box 983, Jersey City, NJ
07303. If you hold share certificates, you must return the certificates, along with the
letter and any required additional documentation.
--------------------------------------------------------------------------------------------
A check will be mailed to the name(s) and address in which the account is registered, or
otherwise according to your instructions.
- - - --------------------- --------------------------------------------------------------------------------------------
Systematic If your investment in all of the Morgan Stanley Dean Witter Family of Funds has a total
Withdrawal Plan market value of at least $10,000, you may elect to withdraw amounts of $25 or more,
or in any whole percentage of a Fund's balance (provided the amount is at least $25), on
[GRAPHIC OMITTED] $1,000. Each time you add a Fund to the plan, you must meet the plan requirements.
--------------------------------------------------------------------------------------------
Amounts withdrawn are subject to any applicable CDSC. A CDSC may be waived under
certain circumstances. See the Class B waiver categories listed in the "Share Class
Arrangements" section of this Prospectus.
--------------------------------------------------------------------------------------------
To sign up for the Systematic Withdrawal Plan, contact your Morgan Stanley Dean
Witter Financial Advisor or call (800) 869-NEWS. You may terminate or suspend your
plan at any time. Please remember that withdrawals from the plan are sales of shares,
not Fund "distributions," and ultimately may exhaust your account balance. The Fund
may terminate or revise the plan at any time.
- - - --------------------- --------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Payment for Sold Shares. After we receive your complete instructions to sell as
described above, a check will be mailed to you within seven days, although we
will attempt to make payment within one business day. Payment may also be sent
to your brokerage account.
Payment may be postponed or the right to sell your shares suspended under
unusual circumstances. If you request to sell shares that were recently
purchased by check, payment of the sale proceeds may be delayed for the minimum
time needed to verify that the check has been honored (not more than fifteen
days from the time we receive the check).
Tax Considerations. Normally, your sale of Fund shares is subject to federal and
state income tax. You should review the "Tax Consequences" section of this
Prospectus and consult your own tax professional about the tax consequences of a
sale.
Reinstatement Privilege. If you sell Fund shares and have not previously
exercised the reinstatement privilege, you may, within 35 days after the date of
sale, invest any portion of the proceeds in the same Class of Fund shares at
their net asset value and receive a pro rata credit for any CDSC paid in
connection with the sale.
Involuntary Sales. The Fund reserves the right, on sixty days' notice, to sell
the shares of any shareholder (other than shares held in an IRA or 403(b)
Custodial Account) whose shares, due to sales by the shareholder, have a value
below $100, or in the case of an account opened through EasyInvestSM, if after
12 months the shareholder has invested less than $1,000 in the account.
However, before the Fund sells your shares in this manner, we will notify you
and allow you sixty days to make an additional investment in an amount that will
increase the value of your account to at least the required amount before the
sale is processed. No CDSC will be imposed on any involuntary sale.
Margin Accounts. If you have pledged your Fund shares in a margin account,
contact your Morgan Stanley Dean Witter Financial Advisor or other authorized
financial representative regarding restrictions on the sale of such shares.
13
<PAGE>
[GRAPHIC OMITTED]
DISTRIBUTIONS
- - - ------------------------
The Fund passes substantially all of its earnings from income and capital gains
along to its investors as "distributions." The Fund earns income from stocks and
interest from fixed-income investments. These amounts are passed along to Fund
shareholders as "income dividend distributions." The Fund realizes capital gains
whenever it sells securities for a higher price than it paid for them. These
amounts may be passed along as "capital gain distributions."
(sidebar)
TARGETED DIVIDENDSSM
You may select to have your Fund distributions automatically invested in other
Classes of Fund shares or Classes of another Morgan Stanley Dean Witter Fund
that you own. Contact your Morgan Stanley Dean Witter Financial Advisor for
further information about this service.
(end sidebar)
The Fund declares income dividends separately for each Class. Distributions paid
on Class A and Class D shares will be higher than for Class B and Class C
because distribution fees that Class B and Class C pay are higher. Normally,
income dividends and capital gains are distributed semi-annually. Capital gains,
if any, are usually distributed in June and December. The Fund, however, may
retain and reinvest any long-term capital gains. The Fund may at times make
payments from sources other than income or capital gains that represent a return
of a portion of your investment.
Distributions are reinvested automatically in additional shares of the same
Class and automatically credited to your account, unless you request in writing
that all distributions be paid in cash. If you elect the cash option, the Fund
will mail a check to you no later than seven business days after the
distribution is declared. No interest will accrue on uncashed checks. If you
wish to change how your distributions are paid, your request should be received
by the Fund's transfer agent, Morgan Stanley Dean Witter Trust FSB, at least
five business days prior to the record date of the distributions.
[GRAPHIC OMITTED]
TAX CONSEQUENCES
- - - ----------------------------
As with any investment, you should consider how your Fund investment will be
taxed. The tax information in this Prospectus is provided as general
information. You should consult your own tax professional about the tax
consequences of an investment in the Fund.
Unless your investment in the Fund is through a tax-deferred retirement account,
such as a 401(k) plan or IRA, you need to be aware of the possible tax
consequences when:
o The Fund makes distributions; and
o You sell Fund shares, including an exchange to another Morgan Stanley Dean
Witter Fund.
Taxes on Distributions. Your distributions are normally subject to federal and
state income tax when they are paid, whether you take them in cash or reinvest
them in
14
<PAGE>
Fund shares. A distribution also may be subject to local income tax. Any income
dividend distributions and any short-term capital gain distributions are taxable
to you as ordinary income. Any long-term capital gain distributions are taxable
as long-term capital gains, no matter how long you have owned shares in the
Fund.
Every January, you will be sent a statement (IRS Form 1099-DIV) showing the
taxable distributions paid to you in the previous year. The statement provides
full information on your dividends and capital gains for tax purposes.
Taxes on Sales. Your sale of Fund shares normally is subject to federal and
state income tax and may result in a taxable gain or loss to you. A sale also
may be subject to local income tax. Your exchange of Fund shares for shares of
another Morgan Stanley Dean Witter Fund is treated for tax purposes like a sale
of your original shares and a purchase of your new shares. Thus, the exchange
may, like a sale, result in a taxable gain or loss to you and will give you a
new tax basis for your new shares.
When you open your Fund account, you should provide your Social Security or tax
identification number on your investment application. By providing this
information, you will avoid being subject to a federal backup withholding tax of
31% on taxable distributions and redemption proceeds. Any withheld amount would
be sent to the IRS as an advance tax payment.
[GRAPHIC OMITTED]
SHARE CLASS ARRANGEMENTS
- - - -------------------------------------
The Fund offers several Classes of shares having different distribution
arrangements designed to provide you with different purchase options according
to your investment needs. Your Morgan Stanley Dean Witter Financial Advisor or
other authorized financial representative can help you decide which Class may be
appropriate for you.
The general public is offered three Classes: Class A shares, Class B shares and
Class C shares, which differ principally in terms of sales charges and ongoing
expenses. A fourth Class, Class D shares, is offered only to a limited category
of investors. Shares that you acquire through reinvested distributions will not
be subject to any front-end sales charge or CDSC -- contingent deferred sales
charge. Sales personnel may receive different compensation for selling each
Class of shares. The sales charges applicable to each Class provide for the
distribution financing of shares of that Class.
15
<PAGE>
The chart below compares the sales charge and the maximum annual 12b-1 fees
applicable to each Class:
<TABLE>
<CAPTION>
MAXIMUM
CLASS SALES CHARGE ANNUAL 12B-1 FEE
<S> <C> <C>
A Maximum 5.25% initial sales charge reduced for purchase of $25,000 or more;
shares sold without an initial sales charge are generally subject to a 1.0% CDSC
during first year. 0.25%
B Maximum 5.0% CDSC during the first year decreasing to 0% after six years. 1.0%
C 1.0% CDSC during first year 1.0%
D None None
</TABLE>
CLASS A SHARES Class A shares are sold at net asset value plus an initial sales
charge of up to 5.25%. The initial sales charge is reduced for purchases of
$25,000 or more according to the schedule below. Investments of $1 million or
more are not subject to an initial sales charge, but are generally subject to a
contingent deferred sales charge, or CDSC, of 1.0% on sales made within one year
after the last day of the month of purchase. The CDSC will be assessed in the
same manner and with the same CDSC waivers as with Class B shares. Class A
shares are also subject to a distribution (12b-1) fee of up to 0.25% of the
average daily net assets of the Class.
The offering price of Class A shares includes a sales charge (expressed as a
percentage of the offering price) on a single transaction as shown in the
following table:
(sidebar)
FRONT-END SALES CHARGE OR FSC
An initial sales charge you pay when purchasing Class A shares that is based on
a percentage of the offering price. The percentage declines based upon the
dollar value of Class A shares you purchase. We offer three ways to reduce your
Class A sales charges -- the Combined Purchase Privilege, Right of Accumulation
and Letter of Intent.
(end sidebar)
<TABLE>
<CAPTION>
FRONT-END SALES CHARGE
PERCENTAGE OF APPROXIMATE PERCENTAGE
AMOUNT OF SINGLE TRANSACTION PUBLIC OFFERING PRICE OF AMOUNT INVESTED
<S> <C> <C>
Less than $25,000 5.25% 5.54%
$25,000 but less than $50,000 4.75% 4.99%
$50,000 but less than $100,000 4.00% 4.17%
$100,000 but less than $250,000 3.00% 3.09%
$250,000 but less than $1 million 2.00% 2.04%
$1 million and over 0 0
</TABLE>
16
<PAGE>
The reduced sales charge schedule is applicable to purchases of Class A shares
in a single transaction by:
o A single account (including an individual, trust or fiduciary account).
o Family member accounts (limited to husband, wife and children under the age
of 21).
o Pension, profit sharing or other employee benefit plans of companies and
their affiliates.
o Tax-exempt organizations.
o Groups organized for a purpose other than to buy mutual fund shares.
Combined Purchase Privilege. You also will have the benefit of reduced sales
charges by combining purchases of Class A shares of the Fund in a single
transaction with purchases of Class A shares of other Multi-Class Funds and
shares of FSC Funds.
Right of Accumulation. You also may benefit from a reduction of sales charges,
if the cumulative net asset value of Class A shares of the Fund purchased in a
single transaction, together with shares of other Funds you currently own which
were previously purchased at a price including a front-end sales charge
(including shares acquired through reinvestment of distributions), amounts to
$25,000 or more. Also, if you have a cumulative net asset value of all your
Class A and Class D shares equal to at least $5 million (or $25 million for
certain employee benefit plans), you are eligible to purchase Class D shares of
any Fund subject to the Fund's minimum initial investment requirement.
You must notify your Morgan Stanley Dean Witter Financial Advisor or other
authorized financial representative, (or Morgan Stanley Dean Witter Trust FSB if
you purchase directly through the Fund) at the time a purchase order is placed,
that the purchase qualifies for the reduced charge under the Right of
Accumulation. Similar notification must be made in writing when an order is
placed by mail. The reduced sales charge will not be granted if: (i)
notification is not furnished at the time of the order; or (ii) a review of the
records of Dean Witter Reynolds or other authorized dealer of Fund shares or the
Fund's transfer agent does not confirm your represented holdings.
Letter of Intent. The schedule of reduced sales charges for larger purchases
also will be available to you if you enter into a written "letter of intent." A
letter of intent provides for the purchase of shares within a thirteen-month
period. It is available for purchases of Class A shares of Multi-Class Funds
and/or shares of FSC Funds. The initial purchase under a letter of intent must
be at least 5% of the stated investment goal. To determine the applicable sales
charge reduction, you may also include: (1) the cost of shares of other Morgan
Stanley Dean Witter Funds which were previously purchased at a price including a
front-end sales charge during the 90-day period prior to the distributor
receiving the letter of intent, and (2) the cost of shares of other Funds you
currently own acquired in exchange for shares of Funds purchased during that
period at a price including a front-end sales charge. You can obtain a letter of
intent by contacting your
17
<PAGE>
Morgan Stanley Dean Witter Financial Advisor or other authorized financial
representative, or by calling (800) 869-NEWS. If you do not achieve the stated
investment goal within the thirteen-month period, you are required to pay the
difference between the sales charges otherwise applicable and sales charges
actually paid, which may be deducted from your investment.
Other Sales Charge Waivers. In addition to investments of $1 million or more,
your purchase of Class A shares is not subject to a front-end sales charge (or a
CDSC upon sale) if your account qualifies under one of the following categories:
o A trust for which Morgan Stanley Dean Witter Trust FSB provides
discretionary trustee services.
o Persons participating in a fee-based investment program (subject to all of
its terms and conditions, including mandatory sale or transfer restrictions
on termination) approved by the Fund's distributor pursuant to which they
pay an asset based fee for investment advisory, administrative and/or
brokerage services.
o Employer-sponsored employee benefit plans, whether or not qualified under
the Internal Revenue Code, for which Morgan Stanley Dean Witter Trust FSB
serves as trustee or Dean Witter Reynolds' Retirement Plan Services serves
as recordkeeper under a written Recordkeeping Services Agreement ("MSDW
Eligible Plans") which have at least 200 eligible employees.
o A MSDW Eligible Plan whose Class B shares have converted to Class A shares,
regardless of the plan's asset size or number of eligible employees.
o A client of a Morgan Stanley Dean Witter Financial Advisor who joined us
from another investment firm within six months prior to the date of
purchase of Fund shares, and you used the proceeds from the sale of shares
of a proprietary mutual fund of that Financial Advisor's previous firm that
imposed either a front-end or deferred sales charge to purchase Class A
shares, provided that: (1) you sold the shares not more than 60 days prior
to purchase, and (2) the sale proceeds were maintained in the interim in
cash or a money market fund.
o Current or retired Directors/Trustees of the Morgan Stanley Dean Witter
Funds, such persons' spouses and children under the age of 21, and trust
accounts for which any of such persons is a beneficiary.
o Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries, such persons' spouses and
children under the age of 21, and trust accounts for which any of such
persons is a beneficiary.
18
<PAGE>
CLASS B SHARES Class B shares are offered at net asset value with no initial
sales charge but are subject to a contingent deferred sales charge, or CDSC, as
set forth in the table below. For the purpose of calculating the CDSC, shares
are deemed to have been purchased on the last day of the month during which they
were purchased.
(sidebar)
CONTINGENT DEFERRED SALES
CHARGE OR CDSC
A fee you pay when you sell shares of certain Morgan Stanley Dean Witter Funds
purchased without an initial sales charge. This fee declines the longer you hold
your shares as set forth in the table.
(end sidebar)
<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE
YEAR SINCE PURCHASE PAYMENT MADE OF AMOUNT REDEEMED
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
Each time you place an order to sell or exchange shares, shares with no CDSC
will be sold or exchanged first, then shares with the lowest CDSC will be sold
or exchanged next. For any shares subject to a CDSC, the CDSC will be assessed
on an amount equal to the lesser of the current market value or the cost of the
shares being sold.
CDSC Waivers. A CDSC, if otherwise applicable, will be waived in the case of:
o Sales of shares held at the time you die or become disabled (within the
definition in Section 72(m)(7) of the Internal Revenue Code which relates
to the ability to engage in gainful employment), if the shares are: (i)
registered either in your name (not a trust) or in the names of you and
your spouse as joint tenants with right of survivorship; or (ii) held in a
qualified corporate or self-employed retirement plan, IRA or 403(b)
Custodial Account, provided in either case that the sale is requested
within one year of your death or initial determination of disability.
o Sales in connection with the following retirement plan "distributions": (i)
lump-sum or other distributions from a qualified corporate or self-employed
retirement plan following retirement (or, in the case of a "key employee"
of a "top heavy" plan, following attainment of age 591/2); (ii)
distributions from an IRA or 403(b) Custodial Account following attainment
of age 591/2; or (iii) a tax-free return of an excess IRA contribution (a
"distribution" does not include a direct transfer of IRA, 403(b) Custodial
Account or retirement plan assets to a successor custodian or trustee).
o Sales of shares held for you as a participant in a MSDW Eligible Plan.
o Sales of shares in connection with the Systematic Withdrawal Plan of up to
12% annually of the value of each Fund from which plan sales are made. The
percentage is determined on the date you establish the Systematic
Withdrawal Plan and based on the next calculated share price. You may have
this CDSC waiver applied in amounts up to 1% per month, 3% per quarter, 6%
semi-annually or 12% annually. Shares with
19
<PAGE>
no CDSC will be sold first, followed by those with the lowest CDSC. As
such, the waiver benefit will be reduced by the amount of your shares that
are not subject to a CDSC. If you suspend your participation in the plan,
you may later resume plan payments without requiring a new determination of
the account value for the 12% CDSC waiver.
All waivers will be granted only following the Fund's distributor receiving
confirmation of your entitlement. If you believe you are eligible for a CDSC
waiver, please contact your Financial Advisor or call (800) 869-NEWS.
Distribution Fee. Class B shares are also subject to an annual distribution
(12b-1) fee of 1.0% of the average daily net assets of Class B shares.
Conversion Feature. After ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund with no initial sales charge. The
ten year period runs from the last day of the month in which the shares were
purchased, or in the case of Class B shares acquired through an exchange, from
the last day of the month in which the original Class B shares were purchased;
the shares will convert to Class A shares based on their relative net asset
values in the month following the ten year period. At the same time, an equal
proportion of Class B shares acquired through automatically reinvested
distributions will convert to Class A shares on the same basis. (Class B shares
acquired in exchange for shares of another Morgan Stanley Dean Witter Fund
originally purchased before May 1, 1997, however, will convert to Class A shares
in May 2007.)
In the case of Class B shares held in a MSDW Eligible Plan, the plan is treated
as a single investor and all Class B shares will convert to Class A shares on
the conversion date of the Class B shares of a Morgan Stanley Dean Witter Fund
purchased by that plan.
Currently, the Class B share conversion is not a taxable event; the conversion
feature may be cancelled if it is deemed a taxable event in the future by the
Internal Revenue Service.
If you exchange your Class B shares for shares of a Money Market Fund, a No-Load
Fund, North American Government Income Trust or Short-Term U.S. Treasury Trust,
the holding period for conversion is frozen as of the last day of the month of
the exchange and resumes on the last day of the month you exchange back into
Class B shares.
Exchanging Shares Subject to a CDSC. There are special considerations when you
exchange Fund shares that are subject to a CDSC. When determining the length of
time you held the shares and the corresponding CDSC rate, any period (starting
at the end of the month) during which you held shares of a fund that does not
charge a CDSC will not be counted. Thus, in effect the "holding period" for
purposes of calculating the CDSC is frozen upon exchanging into a fund that does
not charge a CDSC.
20
<PAGE>
For example, if you held Class B shares of the Fund for one year, exchanged to
Class B of another Morgan Stanley Dean Witter Multi-Class Fund for another year,
then sold your shares, a CDSC rate of 4% would be imposed on the shares based on
a two year holding period -- one year for each Fund. However, if you had
exchanged the shares of the Fund for a Money Market Fund (which does not charge
a CDSC) instead of the Multi-Class Fund, then sold your shares, a CDSC rate of
5% would be imposed on the shares based on a one year holding period. The one
year in the Money Market Fund would not be counted. Nevertheless, if shares
subject to a CDSC are exchanged for a fund that does not charge a CDSC, you will
receive a credit when you sell the shares equal to the distribution (12b-1) fees
you paid on those shares while in that Fund up to the amount of any applicable
CDSC.
In addition, shares that are exchanged into or from a Morgan Stanley Dean Witter
Fund subject to a higher CDSC rate will be subject to the higher rate, even if
the shares are re-exchanged into a Fund with a lower CDSC rate.
CLASS C SHARES Class C shares are sold at net asset value with no initial sales
charge but are subject to a CDSC of 1.0% on sales made within one year after the
last day of the month of purchase. The CDSC will be assessed in the same manner
and with the same CDSC waivers as with Class B shares.
Distribution Fee. Class C shares are subject to an annual distribution (12b-1)
fee of up to 1.0% of the average daily net assets of that Class. The Class C
shares' distribution fee may cause that Class to have higher expenses and pay
lower dividends than Class A or Class D shares. Unlike Class B shares, Class C
shares have no conversion feature and, accordingly, an investor that purchases
Class C shares may be subject to distribution (12b-1) fees applicable to Class C
shares for an indefinite period.
CLASS D SHARES Class D shares are offered without any sales charge on purchases
or sales and without any distribution (12b-1) fee. Class D shares are offered
only to investors meeting an initial investment minimum of $5 million ($25
million for MSDW Eligible Plans) and the following categories of investors:
o Investors participating in the Investment Manager's mutual fund asset
allocation program (subject to all of its terms and conditions, including
mandatory sale or transfer restrictions on termination) pursuant to which
they pay an asset-based fee.
o Persons participating in a fee-based investment program (subject to all of
its terms and conditions, including mandatory sale or transfer restrictions
on termination) approved by the Fund's distributor pursuant to which they
pay an asset based fee for investment advisory, administrative and/or
brokerage services.
o Employee benefit plans maintained by Morgan Stanley Dean Witter & Co. or
any of its subsidiaries for the benefit of certain employees of Morgan
Stanley Dean Witter & Co. and its subsidiaries.
21
<PAGE>
o Certain unit investment trusts sponsored by Dean Witter Reynolds.
o Certain other open-end investment companies whose shares are distributed by
the Fund's distributor.
o Investors who were shareholders of the Dean Witter Retirement Series on
September 11, 1998 for additional purchases for their former Dean Witter
Retirement Series accounts.
Meeting Class D Eligibility Minimums. To meet the $5 million ($25 million for
MSDW Eligible Plans) initial investment to qualify to purchase Class D shares
you may combine: (1) purchases in a single transaction of Class D shares of the
Fund and other Morgan Stanley Dean Witter Multi-Class Funds and/or (2) previous
purchases of Class A and Class D shares of Multi-Class Funds and shares of FSC
Funds you currently own, along with shares of Morgan Stanley Dean Witter Funds
you currently own that you acquired in exchange for those shares.
NO SALES CHARGES FOR REINVESTED CASH DISTRIBUTIONS If you receive a cash payment
representing an income dividend or capital gain and you reinvest that amount in
the applicable Class of shares by returning the check within 30 days of the
payment date, the purchased shares would not be subject to an initial sales
charge or CDSC.
PLAN OF DISTRIBUTION (RULE 12B-1 FEES) The Fund has adopted a Plan of
Distribution in accordance with Rule 12b-1 under the Investment Company Act of
1940 with respect to the distribution of Class A, Class B and Class C shares.
The Plan allows the Fund to pay distribution fees for the sale and distribution
of these shares. It also allows the Fund to pay for services to shareholders of
Class A, Class B and Class C shares. Because these fees are paid out of the
Fund's assets on an ongoing basis, over time these fees will increase the cost
of your investment in these Classes and may cost you more than paying other
types of sales charges.
22
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance over the life of the Fund. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate an investor would have earned or lost on an investment in
the Fund (assuming reinvestment of all dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the Fund's financial statements, is included in the annual report,
which is available upon request.
CLASS A
<TABLE>
<CAPTION>
FOR THE PERIOD MAY 27, 1998*
THROUGH FEBRUARY 28, 1999**
<S> <C>
SELECTED PER SHARE DATA
Net asset value, beginning of period $10.00
- - - ------------------------------------------ -------
Income (loss) from investment operations
Net investment income 0.06
Net realized and unrealized loss (2.17)
-------
Total loss from investment operations (2.11)
- - - ------------------------------------------ -------
Less dividends from
Net investment income (0.06)
Net asset value, end of period $ 7.83
- - - ------------------------------------------ -------
TOTAL RETURN+(1) (21.13)%
RATIOS TO AVERAGE NET ASSETS (2)(3)
Expenses 1.30%
Net investment income 0.93%
SUPPLEMENTAL DATA
Net assets, end of period, in thousands $9,536
Portfolio turnover rate (1) 124%
</TABLE>
* Commencement of operations.
** The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
23
<PAGE>
CLASS B
<TABLE>
<CAPTION>
FOR THE PERIOD MAY 27, 1998*
THROUGH FEBRUARY 28, 1999**
<S> <C>
SELECTED PER SHARE DATA
Net asset value, beginning of period $ 10.00
- - - ------------------------------------------ ---------
Income (loss) from investment operations
Net investment income 0.01
Net realized and unrealized loss (2.17)
---------
Total loss from investment operations (2.16)
- - - ------------------------------------------ ---------
Less dividends from
Net investment income (0.02)
Net asset value, end of period $ 7.82
- - - ------------------------------------------ ----------
TOTAL RETURN+(1) (21.59)%
RATIOS TO AVERAGE NET ASSETS (2)(3)
Expenses 2.05%
Net investment income 0.18%
SUPPLEMENTAL DATA
Net assets, end of period, in thousands $283,779
Portfolio turnover rate (1) 124%
</TABLE>
* Commencement of operations.
** The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
24
<PAGE>
CLASS C
<TABLE>
<CAPTION>
FOR THE PERIOD MAY 27, 1998*
THROUGH FEBRUARY 28, 1999**
<S> <C>
SELECTED PER SHARE DATA
Net asset value, beginning of period $ 10.00
- - - ------------------------------------------ --------
Income (loss) from investment operations
Net investment income 0.01
Net realized and unrealized loss (2.17)
--------
Total loss from investment operations (2.16)
- - - ------------------------------------------ --------
Less dividends from
Net investment income (0.02)
Net asset value, end of period $ 7.82
- - - ------------------------------------------ --------
TOTAL RETURN+(1) (21.61)%
RATIOS TO AVERAGE NET ASSETS (2)(3)
Expenses 2.05%
Net investment income 0.18%
SUPPLEMENTAL DATA
Net assets, end of period, in thousands $ 18,075
Portfolio turnover rate (1) 124%
</TABLE>
* Commencement of operations.
** The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
25
<PAGE>
CLASS D
<TABLE>
<CAPTION>
FOR THE PERIOD MAY 27, 1998*
THROUGH FEBRUARY 28, 1999**
<S> <C>
SELECTED PER SHARE DATA
Net asset value, beginning of period $ 0.00
- - - ------------------------------------------ -------
Income (loss) from investment operations
Net investment income 0.06
Net realized and unrealized loss (2.16)
-------
Total loss from investment operations (2.10)
- - - ------------------------------------------ -------
Less dividends from
Net investment income (0.07)
Net asset value, end of period $ 7.83
- - - ------------------------------------------ -------
TOTAL RETURN+(1) (21.01)%
RATIOS TO AVERAGE NET ASSETS (2)(3)
Expenses 1.05%
Net investment income 1.18%
SUPPLEMENTAL DATA
Net assets, end of period, in thousands $1,485
Portfolio turnover rate (1) 124%
</TABLE>
* Commencement of operations.
** The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
26
<PAGE>
NOTES
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27
<PAGE>
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28
<PAGE>
MORGAN STANLEY DEAN WITTER
FAMILY OF FUNDS
The Morgan Stanley Dean Witter Family of Funds offers
investors a wide range of investment choices. Come on
in and meet the family!
- - - --------------------------------------------------------------------------------
GROWTH FUNDS
GROWTH FUNDS
Aggressive Equity Fund
American Opportunities Fund
Capital Growth Securities
Developing Growth Securities
Equity Fund
Growth Fund
Market Leader Trust
Mid-Cap Equity Trust
Small Cap Growth Fund
Special Value Fund
Value Fund
THEME FUNDS
Financial Services Trust
Health Sciences Trust
Information Fund
Natural Resource Development Securities
Precious Metals and Minerals Trust
GLOBAL/INTERNATIONAL FUNDS
Competitive Edge Fund - "Best Ideas" Portfolio
European Growth Fund
Fund of Funds - International Portfolio
International Fund
International SmallCap Fund
Japan Fund
Latin American Growth Fund
Pacific Growth Fund
- - - --------------------------------------------------------------------------------
GROWTH & INCOME FUNDS
Balanced Growth Fund
Balanced Income Fund
Convertible Securities Trust
Dividend Growth Securities
Fund of Funds - Domestic Portfolio
Income Builder Fund
Mid-Cap Dividend Growth Securities
S&P 500 Index Fund
S&P 500 Select Fund
Strategist Fund
Total Return Trust
Value-Added Market Series/Equity Portfolio
THEME FUNDS
Global Utilities Fund
Real Estate Fund
Utilities Fund
GLOBAL FUNDS
Global Dividend Growth Securities
- - - --------------------------------------------------------------------------------
INCOME FUNDS
GOVERNMENT INCOME FUNDS
Federal Securities Trust
Short-Term U.S. Treasury Trust
U.S. Government Securities Trust
DIVERSIFIED INCOME FUNDS
Diversified Income Trust
CORPORATE INCOME FUNDS
High Yield Securities
Intermediate Income Securities
Short-Term Bond Fund(NL)
GLOBAL INCOME FUNDS
North American Government Income Trust
World Wide Income Trust
TAX-FREE INCOME FUNDS
California Tax-Free Income Fund
Hawaii Municipal Trust(FSC)
Limited Term Municipal Trust(NL)
Multi-State Municipal Series Trust(FSC)
New York Tax-Free Income Fund
Tax-Exempt Securities Trust
- - - --------------------------------------------------------------------------------
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
Liquid Asset Fund(MM)
U.S. Government Money Market Trust(MM)
TAX-FREE MONEY MARKET FUNDS
California Tax-Free Daily Income Trust(MM)
New York Municipal Money Market Trust(MM)
Tax-Free Daily Income Trust(MM)
There may be Funds created after this Prospectus was published. Please consult
the inside back cover of a new Fund's prospectus for its designations, e.g.,
Multi-Class Fund or Money Market Fund.
Unless otherwise noted, each listed Morgan Stanley Dean Witter Fund, except for
North American Government Income Trust and Short-Term U.S. Treasury Trust, is a
Multi-Class Fund. A Multi-Class Fund is a mutual fund offering multiple Classes
of shares. The other types of Funds are: NL -- No-Load (Mutual) Fund; MM --
Money Market Fund; FSC -- A mutual fund sold with a front-end sales charge and
a distribution (12b-1) fee.
<PAGE>
PROSPECTUS - JUNE 30, 1999
Additional information about the Fund's investments is available in the Fund's
Annual and Semi-Annual Reports to Shareholders. In the Fund's Annual Report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. The
Fund's Statement of Additional Information also provides additional information
about the Fund. The Statement of Additional Information is incorporated herein
by reference (legally is part of this Prospectus). For a free copy of any of
these documents, to request other information about the Fund, or to make
shareholder inquiries, please call:
(800) 869-NEWS
You also may obtain information about the Fund by calling your Morgan Stanley
Dean Witter Financial Advisor or by visiting our Internet site at:
WWW.DEANWITTER.COM/FUNDS
Information about the Fund (including the Statement of Additional Information)
can be viewed and copied at the Securities and Exchange Commission's Public
Reference Room in Washington, DC. Information about the Reference Room's
operations may be obtained by calling the SEC at (800) SEC-0330. Reports and
other information about the Fund are available on the SEC's Internet site
(www.sec.gov), and copies of this information may be obtained, upon payment of
a duplicating fee, by writing the Public Reference Section of the SEC,
Washington, DC 20549-6009.
TICKER SYMBOLS:
Class A: MDVAX
- - - -------------------------------
Class B: MDVBX
- - - -------------------------------
Class C: MDVCX
- - - -------------------------------
Class D: MDVDX
- - - -------------------------------
(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-8577)
MORGAN STANLEY DEAN WITTER
MID-CAP DIVIDEND GROWTH
SECURITIES
A MUTUAL FUND THAT SEEKS
TOTAL RETURN
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP
DIVIDEND GROWTH SECURITIES Two World Trade Center,
LETTER TO THE SHAREHOLDERS February 28, 1999 New York, New York 10048
DEAR SHAREHOLDER:
The fiscal year ended February 28, 1999, proved to be very volatile in the
markets, both domestically and abroad. After a peak in the market in the middle
of July, the markets sold off on fears of problems in several foreign economies
and their potential impact on the United States. In the fall, the Fed lowered
the federal-funds rate by 75 basis points and investors regained their
confidence. The markets rebounded, closing the calendar year with
above-20-percent returns for the fourth year in a row. While interest rates
continued their decline, inflation remained in check and the markets continued
to hit new highs.
Throughout this period, medium-sized companies continued to underperform larger
companies as investors favored more established better-known companies during
the market's late summer downturn. This divergence became even more severe when
coupled with the continuing underperformance of value-oriented stocks relative
to growth-oriented stocks.
PERFORMANCE
The volatility exhibited by equity markets over the period under review was
evident in the performance of Morgan Stanley Dean Witter Mid-Cap Dividend
Growth Securities. From its inception on May 27, 1998, through February 28,
1999, the Fund's Class A, B, C and D shares posted returns of --21.13 percent,
- - - --21.59 percent, --21.61 percent and --21.01 percent, respectively. Performance
of the Fund's four share classes varies because of differing expenses. During
the same period, the Standard & Poor's 400 Midcap Index returned 1.40 percent,
while the Lipper Mid-Cap Fund Index returned 2.51 percent. The accompanying
chart compares the performance of the Fund's four share classes with that of
the S&P 400 Midcap and Lipper indexes.
The Fund's underperformance of its benchmark indexes can be attributed to its
focus on dividend-paying mid-cap stocks that we believe to have attractive
valuations. Forty percent of the S&P 400 Midcap Index's
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
LETTER TO THE SHAREHOLDERS February 28, 1999, continued
performance during the period was due to a small number of growth stocks. Since
many of these companies generally do not pay dividends, they do not meet the
Fund's screening process.
In selecting securities for the Fund's portfolio we employ an analytical
screening process. This process is a blend of both quantitative and qualitative
factors. At the end of the fiscal year, the Fund was well diversified, with
positions in 55 common stocks spread among 37 different industry groups. Among
the better-known names in the Fund's portfolio on February 28, 1999, were
CompUSA (computer/video chains), Conseco (life insurance), Aetna (managed
health care), Dole Food (packaged foods), Polaroid (photographic products) and
Mattel (recreational products/toys).
LOOKING AHEAD
As the Fund enters its new fiscal year, many mid-cap stocks are selling at very
attractive valuations after a prolonged period of underperformance. We believe
that, given the market's cyclical nature, this trend should be expected to
reverse as investors once again look for bargains in an overvalued market.
We remain convinced that the continued use of our disciplined screening process
and our focus on dividend-paying mid-cap stocks will be key to the Fund's
long-term performance. We believe securities that pay cash dividends offer the
potential for growth of both investment capital and dividend income, the
primary components of total return. Historically, investors have been willing
to pay for that income flow, making dividend-paying stocks particularly
attractive during periods of market weakness or uncertainty. With this in mind
we remain true to our strategy as we continue to build a sound portfolio poised
for total return over the long term.
We appreciate your ongoing support of Morgan Stanley Dean Witter Mid-Cap
Dividend Growth Securities and look forward to continuing to serve your
investment needs.
Very truly yours,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
Chairman of the Board
2
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
FUND PERFORMANCE February 28, 1999
[GRAPH]
<TABLE>
<CAPTION>
Date Class A Class B Class C Class D S&P 400 LIPPER
- - - ---- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
May, 27, 1998 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
May 31, 1998 $10,060 $10,060 $10,060 $10,060 $10,091 $10,000
June 30, 1998 $9,660 $9,650 $9,650 $9,660 $10,155 $10,484
July 31, 1998 $8,890 $8,880 $8,880 $8,890 $9,761 $9,999
August 31, 1998 $7,490 $7,470 $7,470 $7,490 $7,944 $7,979
September 30, 1998 $7,640 $7,620 $7,620 $7,650 $8,686 $8,602
October 31, 1998 $8,410 $8,380 $8,380 $8,410 $9,462 $9,026
November 30, 1998 $8,630 $8,590 $8,590 $8,640 $9,934 $9,612
December 31, 1998 $8,713 $8,673 $8,671 $8,726 $11,134 $10,644
January 31, 1999 $8,351 $8,302 $8,311 $8,363 $10,701 $10,930
February 28, 1999 $7,473(3) $7,450(3) $7,761(3) $7,899(3) $10,140 $10,251
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR EACH
CLASS OF SHARES WILL VARY DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
AVERAGE ANNUAL TOTAL RETURNS*
- - - --------------------------------------------------------------------------------
CLASS A SHARES**
- - - ----------------------------------------------------------
PERIOD ENDED 2/28/99
- - - ----------------------
Since Inception -21.13%(1) -25.27%(2)
CLASS C SHARES++
- - - ---------------------------------------------------------
PERIOD ENDED 2/28/99
- - - ---------------------
Since Inception -21.61%(1) -22.39%(2)
CLASS B SHARES+
- - - ---------------------------------------------------------
PERIOD ENDED 2/28/99
- - - ---------------------
Since Inception -21.59%(1) -25.50%(2)
CLASS D SHARES++
- - - ---------------------------------------------------------
PERIOD ENDED 2/28/99
- - - ----------------------
Since Inception -21.01%(1)
- - - ---------------
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable sales charge. See the Fund's current prospectus for
complete details on fees and sales charges.
(3) Closing value assuming a complete redemption on February 28, 1999.
(4) The S&P Midcap 400 Index is a market-value weighted index, the performance
of which is based on the average performance of 400 domestic stocks chosen
for market size, liquidity, and industry group representation. The Index
does not include any expenses, fees or charges. The Index is unmanaged and
should not be considered an investment.
(5) The Lipper Mid-Cap Fund Index is an equally-weighted performance index of
the largest qualifying funds (based on net assets) in the Lipper Mid-Cap
Funds objective. The Index, which is adjusted for capital gains
distributions and income dividends, is unmanaged and should not be
considered an investment. There are currently 30 funds represented in this
Index.
* For periods of less than one year, the fund quotes its total return on a
non-annualized basis.
** The maximum front-end sales charge for Class A is 5.25%.
+ The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%.
The CDSC declines to 0% after six years.
++ The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of purchase.
++ Class D shares have no sales charge.
3
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
PORTFOLIO OF INVESTMENTS February 28, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- - - -----------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (98.8%)
Aerospace (3.1%)
100,000 Goodrich (B.F.) Co. (The) ................ $ 3,412,500
165,000 Lockheed Martin Corp. .................... 6,218,437
------------
9,630,937
------------
Auto Parts: O.E.M. (1.9%)
137,300 Borg-Warner Automotive, Inc. ............. 5,981,131
------------
Casino/Gambling (3.5%)
195,000 International Game Technology ............ 3,705,000
365,000 Mirage Resorts, Inc.* .................... 7,117,500
------------
10,822,500
------------
Computer/Video Chains (1.4%)
425,000 CompUSA, Inc.* ........................... 4,462,500
------------
Construction/Agricultural
Equipment/Trucks (3.3%)
749,000 AGCO Corp. ............................... 4,915,312
276,000 Case Corp. ............................... 5,382,000
------------
10,297,312
------------
Containers/Packaging (1.9%)
250,000 Owens-Illinois, Inc.* .................... 5,984,375
------------
Contract Drilling (3.6%)
280,000 Diamond Offshore Drilling, Inc. .......... 5,792,500
616,000 ENSCO International, Inc. ................ 5,467,000
------------
11,259,500
------------
Discount Chains (2.2%)
270,000 Consolidated Stores Corp.* ............... 6,800,625
------------
E.D.P. Services (3.5%)
185,000 Cambridge Technology Partners,
Inc.* ................................... 4,648,125
250,000 CIBER, Inc.* ............................. 6,281,250
------------
10,929,375
------------
Electronic Components (0.9%)
85,000 Hadco Corp.* ............................. 2,698,750
------------
Finance -- Consumer (2.1%)
160,000 Household International, Inc. ............ 6,500,000
------------
Finance Companies (1.8%)
145,000 Countrywide Credit Industries,
Inc. .................................... 5,491,875
------------
Food Distributors (2.1%)
271,800 Richfood Holdings, Inc. .................. 6,455,250
------------
Hospital/Nursing Management (2.3%)
255,000 HCR Manor Care, Inc.* .................... 5,705,625
1,192,900 Sun Healthcare Group, Inc.* .............. 1,640,237
------------
7,345,862
------------
NUMBER OF
SHARES VALUE
- - - -----------------------------------------------------------------------------
Hotels/Resorts (1.9%)
590,000 Prime Hospitality Corp.* ................. $ 6,047,500
------------
Life Insurance (2.1%)
215,000 Conseco, Inc. ............................ 6,436,562
------------
Major Banks (2.0%)
140,000 Republic New York Corp. .................. 6,343,750
------------
Major Chemicals (4.0%)
219,000 Hercules, Inc. ........................... 6,063,562
330,000 IMC Global, Inc. ......................... 6,579,375
------------
12,642,937
------------
Managed Health Care (6.0%)
80,000 Aetna Inc. ............................... 5,925,000
414,000 First Health Group Corp.* ................ 6,624,000
362,000 Humana, Inc.* ............................ 6,335,000
------------
18,884,000
------------
Medical/Nursing Services (2.4%)
220,000 HEALTHSOUTH Corp.* ....................... 2,557,500
900,000 PhyCor, Inc.* ............................ 4,837,500
------------
7,395,000
------------
Metals Fabrications (1.9%)
330,000 Timken Co. (The) ......................... 5,836,875
------------
Multi-Sector Companies (1.4%)
150,000 Tenneco, Inc. ............................ 4,490,625
------------
Oil Refining/Marketing (1.9%)
295,000 USX-Marathon Group ....................... 6,102,812
------------
Other Specialty Stores (3.6%)
557,300 Friedman's, Inc. (Class A) ............... 5,816,819
410,000 General Nutrition Companies,
Inc.* .................................... 5,458,125
------------
11,274,944
------------
Packaged Foods (4.0%)
200,000 Dole Food Co., Inc. ...................... 6,300,000
260,700 Interstate Bakeries Corp. ................ 6,256,800
------------
12,556,800
------------
Photographic Products (1.0%)
125,000 Polaroid Corp. ........................... 2,984,375
------------
Real Estate Investment Trust (6.2%)
680,000 Equity Inns, Inc. ........................ 6,417,500
275,000 FelCor Lodging Trust Inc. ................ 6,496,875
169,700 Kimco Realty Corp. ....................... 6,437,994
------------
19,352,369
------------
Recreational Products/Toys (3.8%)
638,300 K2 Inc. .................................. 5,625,019
241,500 Mattel, Inc. ............................. 6,369,563
------------
11,994,582
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
PORTFOLIO OF INVESTMENTS February 28, 1999, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- - - -----------------------------------------------------------------------
<S> <C> <C>
Rental/Leasing Companies (3.9%)
500,000 Budget Group, Inc. (Class A)* ........... $ 5,843,750
240,000 Ryder System, Inc. ...................... 6,480,000
------------
12,323,750
------------
Retail -- Specialty (2.1%)
450,000 Rexall Sundown, Inc.* ................... 6,440,625
------------
Savings & Loan Associations (3.9%)
270,000 Dime Bancorp, Inc. ...................... 6,682,500
140,000 Washington Mutual, Inc. ................. 5,600,000
------------
12,282,500
------------
Specialty Chemicals (1.9%)
325,000 Crompton & Knowles Corp. ................ 6,012,500
------------
Specialty Insurers (2.1%)
106,000 MBIA, Inc. .............................. 6,525,625
------------
Specialty Steels (2.0%)
141,900 Nucor Corp. ............................. 6,323,419
------------
Steel/Iron Ore (2.0%)
245,000 USX-U.S. Steel Group .................... 6,201,563
------------
Textiles (3.1%)
322,100 Guilford Mills, Inc. .................... 3,985,988
467,800 Unifi, Inc. ............................. 5,642,838
------------
9,628,826
------------
Tobacco (2.0%)
235,000 RJR Nabisco Holdings Corp. .............. 6,418,438
------------
TOTAL COMMON STOCKS
(Identified Cost $368,413,130) .......... 309,160,369
------------
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- - - -----------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (0.9%)
REPURCHASE AGREEMENT
$ 2,925 The Bank of New York 4.75%
due 03/01/99 (dated 02/26/99;
proceeds $2,926,209) (a)
(Amortized Cost $2,925,051) ............ $ 2,925,051
------------
TOTAL INVESTMENTS
(Identified Cost $371,338,181) (b) 99.7% 312,085,420
OTHER ASSETS IN EXCESS OF
LIABILITIES .................................. 0.3 790,247
----- ------------
NET ASSETS ................................... 100.0% $312,875,667
===== ============
</TABLE>
- - - --------------
* Non-income producing security.
(a) Collateralized by $2,384,067 U.S. Treasury Bond 7.875% due 02/15/21 valued
at $2,983,552.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $8,201,964 and the
aggregate gross unrealized depreciation is $67,454,725, resulting in net
unrealized depreciation of $59,252,761.
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1999
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $371,338,181) .................................. $312,085,420
Receivable for:
Investments sold ............................................... 10,282,469
Dividends ...................................................... 297,840
Shares of beneficial interest sold ............................. 146,331
Deferred organizational expenses .................................. 61,976
Prepaid expenses and other assets ................................. 109,393
------------
TOTAL ASSETS ................................................... 322,983,429
------------
LIABILITIES:
Payable for:
Investments purchased .......................................... 8,611,524
Shares of beneficial interest repurchased ...................... 845,422
Plan of distribution fee ....................................... 263,251
Investment management fee ...................................... 202,972
Accrued expenses and other payables ............................... 184,593
------------
TOTAL LIABILITIES .............................................. 10,107,762
------------
NET ASSETS ..................................................... $312,875,667
============
COMPOSITION OF NET ASSETS:
Paid-in-capital ................................................... $406,684,779
Net unrealized depreciation ....................................... (59,252,761)
Net realized loss ................................................. (34,556,351)
------------
NET ASSETS ..................................................... $312,875,667
============
CLASS A SHARES:
Net Assets ........................................................ $9,536,116
Shares Outstanding (unlimited authorized, $.01 par value) ......... 1,218,589
NET ASSET VALUE PER SHARE ...................................... $7.83
=====
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) .............. $8.26
=====
CLASS B SHARES:
Net Assets ........................................................ $283,779,367
Shares Outstanding (unlimited authorized, $.01 par value) ......... 36,299,590
NET ASSET VALUE PER SHARE ...................................... $7.82
=====
CLASS C SHARES:
Net Assets ........................................................ $18,074,791
Shares Outstanding (unlimited authorized, $.01 par value) ......... 2,311,718
NET ASSET VALUE PER SHARE ...................................... $7.82
=====
CLASS D SHARES:
Net Assets ........................................................ $1,485,393
Shares Outstanding (unlimited authorized, $.01 par value) ......... 189,690
NET ASSET VALUE PER SHARE ...................................... $7.83
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the period May 27, 1998* through February 28, 1999
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends ......................................... $ 5,402,422
Interest .......................................... 864,060
------------
TOTAL INCOME ................................... 6,266,482
------------
EXPENSES
Plan of distribution fee (Class A shares) ......... 20,128
Plan of distribution fee (Class B shares) ......... 2,549,049
Plan of distribution fee (Class C shares) ......... 167,088
Investment management fee ......................... 2,103,972
Transfer agent fees and expenses .................. 481,572
Registration fees ................................. 224,409
Professional fees ................................. 65,024
Custodian fees .................................... 33,677
Shareholder reports and notices ................... 22,566
Organizational expenses ........................... 10,246
Trustees' fees and expenses ....................... 7,378
Other ............................................. 8,685
------------
TOTAL EXPENSES ................................. 5,693,794
------------
NET INVESTMENT INCOME .......................... 572,688
------------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss ................................. (34,556,351)
Net unrealized depreciation ....................... (59,252,761)
------------
NET LOSS ....................................... (93,809,112)
------------
NET DECREASE ...................................... $(93,236,424)
============
</TABLE>
- - - --------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 27, 1998*
THROUGH
FEBRUARY 28, 1999
- - - -----------------------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................................ $ 572,688
Net realized loss .................................................... (34,556,351)
Net unrealized depreciation .......................................... (59,252,761)
------------
NET DECREASE ...................................................... (93,236,424)
------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares ....................................................... (78,008)
Class B shares ....................................................... (866,259)
Class C shares ....................................................... (52,602)
Class D shares ....................................................... (3,143)
------------
TOTAL DIVIDENDS ................................................... (1,000,012)
------------
Net increase from transactions in shares of beneficial interest ...... 407,012,103
------------
NET INCREASE ...................................................... 312,775,667
NET ASSETS:
Beginning of period .................................................. 100,000
------------
END OF PERIOD ..................................................... $312,875,667
============
</TABLE>
- - - --------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS February 28, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities (the "Fund") is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
a diversified, open-end management investment company. The Fund's investment
objective is to seek total return. The Fund seeks to achieve its objective by
investing primarily in domestic and foreign equity securities of companies
whose market capitalization falls within the capitalization range of the
companies comprising the Standard and Poor's Midcap 400 Index and that
currently pay dividends and that have the potential for increasing dividends.
The Fund was organized as a Massachusetts business trust on December 23, 1997
and had no operations other than those relating to organizational matters and
the issuance of 2,500 shares of beneficial interest by each class for $25,000
of each class to Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager") to effect the Fund's initial capitalization. The Fund commenced
operations on May 27, 1998.
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 the Investment Manager 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
9
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS February 28, 1999, continued
upon current market prices of securities which are comparable in coupon, rating
and maturity or an appropriate matrix utilizing similar factors); and (4)
short-term debt securities having a maturity date of more than sixty days at
time of purchase are valued on a mark-to-market basis until sixty days prior to
maturity and thereafter at amortized cost based on their value on the 61st day.
Short-term debt securities having a maturity date of sixty days or less at the
time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date
such items are recognized. Distribution fees are charged directly to the
respective class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which
may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
F. ORGANIZATIONAL EXPENSES -- The Investment Manager incurred the
organizational expenses of the Fund in the amount of approximately $72,000 and
was 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.
10
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS February 28, 1999, continued
2. INVESTMENT MANAGEMENT AGREEMENT
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.
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
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, the 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
11
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS February 28, 1999, continued
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 $21,286,639 at February 28, 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 period ended February 28, 1999, 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 period ended February 28,
1999, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $841,536 and $25,401,
respectively and received $94,934 in front-end sales charges from sales of the
Fund's Class A shares. The respective shareholders pay such charges which are
not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the period ended February 28, 1999
aggregated $831,615,904 and $428,646,423, respectively.
For the period ended February 28, 1999, the Fund incurred $288,085 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the Fund.
At February 28, 1999, the Fund's receivable for investments sold and payable
for investments purchased included unsettled trades with DWR of $3,454,617 and
$757,500, respectively.
For the period ended February 28, 1999, the Fund incurred $116,705 in brokerage
commissions 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, and affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. At February 28, 1999, the Fund
had transfer agent fees and expenses payable of approximately $3,600.
12
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS February 28, 1999, continued
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 27, 1998*
THROUGH
FEBRUARY 28, 1999
-------------------------------
SHARES AMOUNT
-------------- ----------------
<S> <C> <C>
CLASS A SHARES
Sold .............................. 1,553,857 $ 14,971,777
Reinvestment of dividends ......... 8,612 71,827
Redeemed .......................... (346,380) (2,873,074)
--------- -------------
Net increase - Class A ............ 1,216,089 12,170,530
--------- -------------
CLASS B SHARES
Sold .............................. 46,157,509 451,064,311
Reinvestment of dividends ......... 97,339 811,803
Redeemed .......................... (9,957,758) (82,556,557)
---------- -------------
Net increase - Class B ............ 36,297,090 369,319,557
---------- -------------
CLASS C SHARES
Sold .............................. 3,086,861 30,246,228
Reinvestment of dividends ......... 5,944 49,573
Redeemed .......................... (783,587) (6,546,367)
---------- -------------
Net increase - Class C ............ 2,309,218 23,749,434
---------- -------------
CLASS D SHARES
Sold .............................. 323,389 2,934,148
Reinvestment of dividends ......... 159 1,329
Redeemed .......................... (136,358) (1,162,895)
---------- -------------
Net increase - Class D ............ 187,190 1,772,582
---------- -------------
Net increase in Fund .............. 40,009,587 $ 407,012,103
========== =============
</TABLE>
- - - ---------------
* Commencement of operations.
6. FEDERAL INCOME TAX STATUS
At February 28, 1999, the Fund had a net capital loss carryover of
approximately $26,212,000 which will be available through February 28, 2007 to
offset future capital gains to the extent provided by regulations.
As of February 28, 1999, the Fund had temporary book/tax differences
attributable to capital loss deferrals on wash sales and permanent book/tax
differences primarily attributable to nondeductible expenses. To reflect
reclassifications arising from the permanent differences, paid-in-capital was
charged and net investment income was credited $427,324.
13
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE PERIOD MAY 27, 1998* THROUGH FEBRUARY 28, 1999**
---------------------------------------------------------
CLASS A CLASS B CLASS C CLASS D
SHARES SHARES SHARES SHARES
- - - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $10.00 $10.00 $10.00 $10.00
------ ------ ------ ------
Income (loss) from investment operations:
Net investment income ............................ 0.06 0.01 0.01 0.06
Net realized and unrealized loss ................. (2.17) (2.17) (2.17) (2.16)
------ ------ ------ ------
Total loss from investment operations ............. (2.11) (2.16) (2.16) (2.10)
------ ------ ------ ------
Less dividends from net investment income ......... (0.06) (0.02) (0.02) (0.07)
------ ------ ------ ------
Net asset value, end of period .................... $7.83 $7.82 $7.82 $7.83
====== ====== ====== ======
TOTAL RETURN+(1) .................................. (21.13)% (21.59)% (21.61)% (21.01)%
RATIOS TO AVERAGE NET ASSETS (2) (3):
Expenses .......................................... 1.30% 2.05% 2.05% 1.05%
Net investment income ............................. 0.93% 0.18% 0.18% 1.18%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $9,536 $283,779 $18,075 $1,485
Portfolio turnover rate (1) ....................... 124% 124% 124% 124%
</TABLE>
- - - -------------
* Commencement of operations.
** The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter Mid-Cap
Dividend Growth Securities (the "Fund") at February 28, 1999, and the results
of its operations, the changes in its net assets and the financial highlights
for the period May 27, 1998 (commencement of operations) through February 28,
1999, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit, which included confirmation of
securities at February 28, 1999 by correspondence with the custodian and
brokers, provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
April 14, 1999
- - - --------------------------------------------------------------------------------
1999 FEDERAL TAX NOTICE (unaudited)
For the period ended February 28, 1999, 100% of the income dividends qualified
for dividends received deduction available to corporations.
- - - --------------------------------------------------------------------------------
15
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Paul D. Vance
Vice President
Steven M. MacNamara
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus
of the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
MORGAN STANLEY
DEAN WITTER
MID-CAP DIVIDEND
GROWTH SECURITIES
[GRAPHIC]
ANNUAL REPORT
FEBRUARY 28, 1999
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP
DIVIDEND GROWTH SECURITIES Two World Trade Center,
LETTER TO THE SHAREHOLDERS August 31, 1999 New York, New York 10048
DEAR SHAREHOLDER:
During the six-month period ended August 31, 1999, financial markets around the
world continued to experience volatility. Following a brief, marked rebound in
small and value-oriented stocks during April, the markets returned to a
large-company-growth focus. After a peak in the domestic markets in the middle
of July, stock prices pulled back toward the end of the period amid concerns
that the domestic economy might be growing too fast. This concern was manifested
in the Federal Reserve Board's two moves in June and August that raised interest
rates a total of 50 basis points while inflation remained low and the economy
continued to grow.
PERFORMANCE AND PORTFOLIO
For the six-month period ended August 31, 1999, Morgan Stanley Dean Witter
Mid-Cap Dividend Growth Securities' Class B shares posted a total return of
- - - --0.13 percent compared to 10.92 percent for the Standard & Poor's 400 MidCap
Index (S&P 400 MidCap) and 12.50 percent for the Lipper Mid Cap Fund Index. For
the same period the Fund's Class A, C and D shares returned 0.26 percent, 0.13
percent and 0.51 percent, respectively. The performance of the Fund's four share
classes varies because of differing expenses. (Total return figures shown assume
the reinvestment of all distributions and do not reflect the deduction of any
applicable sales charges.)
The Fund's underperformance of the S&P 400 MidCap Index over the period can be
attributed primarily to its lack of exposure to the handful of richly valued
growth stocks responsible for more than 50 percent of the index's total return
for the period. Under the Fund's current investment strategy of investing
exclusively in securities that meet the parameters of our screening process,
stocks that do not possess value characteristics have not been eligible for
purchase. Our investment process also emphasizes dividends, and fast-growing
smaller- to medium-sized companies often do not pay cash dividends.
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
LETTER TO THE SHAREHOLDERS August 31, 1999, continued
PORTFOLIO STRUCTURE AND STRATEGY
On August 31, the Fund's portfolio consisted of 44 common stocks spread among 30
industries. To determine which investments to make and hold in the portfolio, we
employ an analytical screening process that blends quantitative and qualitative
factors. At period end, the portfolio was well diversified across nine major
market sectors and was essentially fully invested. The Fund's portfolio managers
have decided to adjust the screening process to take advantage of market sectors
that have generally not been eligible for purchase by the Fund. In the future,
the earnings component of the Fund's screening process will be given greater
weight when selecting investments.
LOOKING AHEAD
Going forward, we are convinced that the outlook for the financial markets and
the economy is favorable. We believe that the continued use of our stringent
screening process that seeks out high-quality attractively valued stocks, as
well as monitoring the progress of current investments, will play a key role in
the Fund's long-term success. We expect that at some point the underperformance
of value stocks relative to growth stocks will reverse. Consequently, we remain
confident in our stated objective and strategy and believe that we are building
a sound portfolio that is poised for growth over the long term.
On May 1, 1999, Mitchell M. Merin was named President of the Morgan Stanley Dean
Witter Funds. Mr. Merin is the President and Chief Operating Officer of Asset
Management for Morgan Stanley Dean Witter & Co. and President, Chief Executive
Officer and Director of Morgan Stanley Dean Witter Advisors Inc., the Fund's
investment manager. He also serves as Chairman, Chief Executive Officer and
Director of the Fund's distributor and transfer agent.
We appreciate your ongoing support of Morgan Stanley Dean Witter Mid-Cap
Dividend Growth Securities 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
2
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
FUND PERFORMANCE August 31, 1999
AVERAGE ANNUAL TOTAL RETURNS
- - - --------------------------------------------------------------------------------
CLASS A SHARES*
- - - -------------------------------------------------------------------
PERIOD ENDED 8/31/99
- - - -----------------------
1 Year 5.57 %(1) 0.03 %(2)
Since Inception (5/27/98) (16.97)%(1) (20.45)%(2)
CLASS B SHARES+
- - - -------------------------------------------------------------------
PERIOD ENDED 8/31/99
- - - ---------------------------
1 Year 4.83 %(1) (0.17)%(2)
Since Inception (5/27/98) (17.61)%(1) (20.23)%(2)
CLASS C SHARES++
- - - -------------------------------------------------------------------
PERIOD ENDED 8/31/99
- - - ---------------------------
1 Year 5.08 %(1) 4.08 %(2)
Since Inception (5/27/98) (17.46)%(1) (17.46)%(2)
CLASS D SHARES#
- - - -------------------------------------------------------------------
PERIOD ENDED 8/31/99
- - - ---------------------------
1 Year 6.00 %(1)
Since Inception (5/27/98) (16.71)%(1)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
- - - ---------------
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable sales charge. See the Fund's current prospectus for
complete details on fees and sales charges.
* The maximum front-end sales charge for Class A is 5.25%.
+ The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%.
The CDSC declines to 0% after six years.
++ The maximum contingent deferred sales charge for Class C shares is 1% for
shares redeemed within one year of purchase.
# Class D shares have no sales charge.
3
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
PORTFOLIO OF INVESTMENTS August 31, 1999 (unaudited)
NUMBER OF
SHARES VALUE
- - - ---------------------------------------------------------------------
COMMON STOCKS (93.8%)
Aerospace (8.9%)
268,600 AAR Corp. ................................ $ 5,741,325
145,000 Goodrich (B.F.) Co. (The) ................ 5,355,937
150,000 Lockheed Martin Corp. .................... 5,550,000
80,000 Northrop Grumman Corp. ................... 5,800,000
------------
22,447,262
------------
Broadcasting (1.8%)
400,000 Granite Broadcasting Corp.* .............. 4,450,000
------------
Casino/Gambling (2.3%)
505,000 Park Place Entertainment Corp.* .......... 5,712,812
------------
Construction/Agricultural
Equipment/Trucks (2.2%)
529,000 AGCO Corp. ............................... 5,455,312
------------
Contract Drilling (4.2%)
231,000 ENSCO International Inc. ................. 4,923,187
165,000 Transocean Offshore, Inc. ................ 5,610,000
------------
10,533,187
------------
Discount Chains (2.1%)
325,000 Consolidated Stores Corp.* ............... 5,240,625
------------
Diversified Commercial Services (3.1%)
360,000 Modis Professional Services, Inc.* ....... 5,692,500
50,000 Navigant Consulting, Inc.* ............... 2,193,750
------------
7,886,250
------------
E.D.P. Services (1.9%)
355,000 Cambridge Technology Partners, Inc.* 4,836,875
------------
Electric Utilities (9.5%)
160,000 Carolina Power & Light Co. ............... 5,820,000
240,000 Edison International ..................... 6,090,000
165,000 New Century Energies, Inc. ............... 5,960,625
240,000 SCANA Corp. .............................. 6,000,000
------------
23,870,625
------------
Finance Companies (2.0%)
160,000 Countrywide Credit Industries, Inc. ...... 5,140,000
------------
Food Chains (2.1%)
110,000 Albertson's, Inc. ........................ 5,273,125
------------
Generic Drugs (2.1%)
150,000 Watson Pharmaceuticals, Inc.* ............ 5,381,250
------------
Life Insurance (2.4%)
135,000 ReliaStar Financial Corp. ................ 6,083,438
------------
Managed Health Care (2.3%)
75,000 Aetna Inc. ............................... 5,831,250
------------
NUMBER OF
SHARES VALUE
- - - ---------------------------------------------------------------------
Natural Gas (4.6%)
325,000 MCN Energy Group Inc. .................... $ 5,809,375
260,000 Sempra Energy ............................ 5,801,250
------------
11,610,625
------------
Oil & Gas Production (2.2%)
146,237 Devon Energy Corp. ....................... 5,648,404
------------
Oil Refining/Marketing (2.3%)
185,000 USX-Marathon Group ....................... 5,758,125
------------
Oilfield Services/Equipment (2.0%)
507,700 Seitel, Inc.* ............................ 4,950,076
------------
Other Consumer Services (1.6%)
740,000 Stewart Enterprises, Inc. (Class A) ...... 3,977,500
------------
Other Specialty Stores (3.9%)
300,000 AutoNation, Inc.* ........................ 3,881,250
672,300 Friedman's, Inc. (Class A) ............... 5,840,606
------------
9,721,856
------------
Paints/Coatings (2.0%)
375,000 RPM, Inc. ................................ 4,992,188
------------
Property - Casualty Insurers (2.2%)
98,000 Allmerica Financial Corp. ................ 5,537,000
------------
Real Estate Investment Trusts (4.8%)
280,000 Crescent Real Estate Equities Co. ........ 5,810,000
169,700 Kimco Realty Corp. ....................... 6,321,325
------------
12,131,325
------------
Recreational Products/Toys (2.2%)
261,500 Mattel, Inc. ............................. 5,573,219
------------
Rental/Leasing Companies (2.0%)
565,000 Budget Group, Inc. (Class A)* ............ 4,979,063
------------
Specialty Foods/Candy (2.3%)
240,700 Interstate Bakeries Corp. ................ 5,761,756
------------
Specialty Insurers (8.5%)
444,900 Capital Re Corp. ......................... 5,394,413
243,700 Enhance Financial Services Group
Inc. ..................................... 4,995,850
350,000 First American Financial Corp. (The) 5,206,250
110,000 MBIA, Inc. ............................... 5,706,250
------------
21,302,763
------------
Steel/Iron Ore (2.2%)
210,000 USX-U.S. Steel Group ..................... 5,670,000
------------
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
PORTFOLIO OF INVESTMENTS August 31, 1999 (unaudited) continued
NUMBER OF
SHARES VALUE
- - - ---------------------------------------------------------------------
Textiles (2.2%)
599,900 Guilford Mills, Inc. .................... $ 5,661,556
------------
Wholesale Distributors (2.0%)
455,000 IKON Office Solutions, Inc. ............. 5,061,875
------------
TOTAL COMMON STOCKS
(Identified Cost $254,226,274) .......... 236,479,342
------------
PRINCIPAL
AMOUNT IN
THOUSANDS
- - - -------------
SHORT-TERM INVESTMENT (3.8%)
REPURCHASE AGREEMENT
$9,462 The Bank of New York 5.50%
due 09/01/99 (dated 08/31/99;
proceeds $9,463,665) (a)
(Identified Cost $9,462,219) .......... 9,462,219
------------
TOTAL INVESTMENTS
(Identified Cost $263,688,493) (b)......... 97.6% 245,941,561
OTHER ASSETS IN EXCESS OF
LIABILITIES ............................... 2.4 6,099,327
----- ------------
NET ASSETS ................................ 100.0% $252,040,888
===== ============
- - - --------------------------------
* Non-income producing security.
(a) Collateralized by $4,403,151 U.S. Treasury Bill 0.00% due 11/15/18 valued
at $1,262,472 and $8,311,076 U.S. Treasury Note 6.25% due 08/31/02 valued
at $8,388,992.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $11,279,008 and the
aggregate gross unrealized depreciation is $29,025,940, resulting in net
unrealized depreciation of $17,746,932.
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1999 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $263,688,493).............................. $ 245,941,561
Receivable for:
Investments sold .......................................... 6,413,289
Dividends ................................................. 220,196
Shares of beneficial interest sold ........................ 97,971
Deferred organizational expenses ............................. 54,615
Prepaid expenses and other assets ............................ 126,072
-------------
TOTAL ASSETS .............................................. 252,853,704
-------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased ................. 387,524
Plan of distribution fee .................................. 185,746
Investment management fee ................................. 174,801
Accrued expenses and other payables .......................... 64,745
-------------
TOTAL LIABILITIES ......................................... 812,816
-------------
NET ASSETS ................................................ $ 252,040,888
=============
COMPOSITION OF NET ASSETS:
Paid-in-capital .............................................. $ 342,830,964
Net unrealized depreciation .................................. (17,746,932)
Accumulated undistributed net investment income .............. 193,265
Accumulated net realized loss ................................ (73,236,409)
-------------
NET ASSETS ................................................ $ 252,040,888
=============
CLASS A SHARES:
Net Assets ................................................... $7,106,556
Shares Outstanding (unlimited authorized, $.01 par value) .... 905,385
NET ASSET VALUE PER SHARE ................................. $7.85
=====
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ......... $8.28
=====
CLASS B SHARES:
Net Assets ................................................... $229,979,568
Shares Outstanding (unlimited authorized, $.01 par value) .... 29,441,414
NET ASSET VALUE PER SHARE ................................. $7.81
=====
CLASS C SHARES:
Net Assets ................................................... $14,234,691
Shares Outstanding (unlimited authorized, $.01 par value) .... 1,817,833
NET ASSET VALUE PER SHARE ................................. $7.83
=====
CLASS D SHARES:
Net Assets ................................................... $720,073
Shares Outstanding (unlimited authorized, $.01 par value) .... 91,502
NET ASSET VALUE PER SHARE ................................. $7.87
=====
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the six months ended August 31, 1999 (unaudited)
NET INVESTMENT INCOME:
INCOME
Dividends ......................................... $ 2,906,414
Interest .......................................... 305,802
-------------
TOTAL INCOME ................................... 3,212,216
-------------
EXPENSES
Plan of distribution fee (Class A shares) ......... 10,879
Plan of distribution fee (Class B shares) ......... 1,370,680
Plan of distribution fee (Class C shares) ......... 45,607
Investment management fee ......................... 1,132,360
Transfer agent fees and expenses .................. 308,421
Registration fees ................................. 69,037
Professional fees ................................. 26,277
Custodian fees .................................... 20,097
Shareholder reports and notices ................... 17,163
Organizational expenses ........................... 7,362
Trustees' fees and expenses ....................... 6,886
Other ............................................. 4,182
-------------
TOTAL EXPENSES ................................. 3,018,951
-------------
NET INVESTMENT INCOME .......................... 193,265
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss ................................. (38,680,058)
Net change in unrealized depreciation ............. 41,505,829
-------------
NET GAIN ....................................... 2,825,771
-------------
NET INCREASE ...................................... $ 3,019,036
=============
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX MAY 27, 1998*
MONTHS ENDED THROUGH
AUGUST 31, 1999 FEBRUARY 28, 1999
- - - ---------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................ $ 193,265 $ 572,688
Net realized loss .................................... (38,680,058) (34,556,351)
Net change in unrealized depreciation ................ 41,505,829 (59,252,761)
------------- -------------
NET INCREASE (DECREASE) ........................... 3,019,036 (93,236,424)
------------- -------------
DIVIDENDS TO SHAREHOLDERS FROM NET
INVESTMENT INCOME:
Class A shares ....................................... -- (78,008)
Class B shares ....................................... -- (866,259)
Class C shares ....................................... -- (52,602)
Class D shares ....................................... -- (3,143)
------------- -------------
TOTAL DIVIDENDS ................................... -- (1,000,012)
------------- -------------
Net increase (decrease) from transactions in shares of
beneficial interest ................................ (63,853,815) 407,012,103
------------- -------------
NET INCREASE (DECREASE) ........................... (60,834,779) 312,775,667
NET ASSETS:
Beginning of period .................................. 312,875,667 100,000
------------- -------------
END OF PERIOD
(Including undistributed net investment income of
$193,265 and $0, respectively)..................... $ 252,040,888 $ 312,875,667
============= =============
</TABLE>
- - - ---------------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS August 31, 1999 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities (the "Fund") is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
a diversified, open-end management investment company. The Fund's investment
objective is to seek total return. The Fund seeks to achieve its objective by
investing primarily in domestic and foreign equity securities of companies whose
market capitalization falls within the capitalization range of the companies
comprising the Standard and Poor's Mid-Cap 400 Index and that currently pay
dividends and that have the potential for increasing dividends. The Fund was
organized as a Massachusetts business trust on December 23, 1997 and had no
operations other than those relating to organizational matters and the issuance
of 2,500 shares of beneficial interest by each class for $25,000 of each class
to Morgan Stanley Dean Witter Advisors Inc. (the "Investment Manager") to effect
the Fund's initial capitalization. The Fund commenced operations on May 27,
1998.
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 the Investment Manager 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
9
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS August 31, 1999 (unaudited) continued
upon current market prices of securities which are comparable in coupon, rating
and maturity or an appropriate matrix utilizing similar factors); and (4)
short-term debt securities having a maturity date of more than sixty days at
time of purchase are valued on a mark-to-market basis until sixty days prior to
maturity and thereafter at amortized cost based on their value on the 61st day.
Short-term debt securities having a maturity date of sixty days or less at the
time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date
such items are recognized. Distribution fees are charged directly to the
respective class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
F. ORGANIZATIONAL EXPENSES -- The Investment Manager incurred the organizational
expenses of the Fund in the amount of approximately $72,000 and was 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.
10
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS August 31, 1999 (unaudited) continued
2. INVESTMENT MANAGEMENT AGREEMENT
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.
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
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, the 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
11
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS August 31, 1999 (unaudited) continued
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 $20,935,857 at August 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 months ended August 31, 1999, the distribution fee
was accrued for Class A shares and Class C shares at the annual rate of 0.25%
and 0.52%, respectively.
The Distributor has informed the Fund that for the six months ended August 31,
1999, it received contingent deferred sales charges from certain redemptions of
the Fund's Class A shares, Class B shares and Class C shares of $2,388, $711,977
and $13,108, respectively and received $17,230 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.
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 August 31, 1999 aggregated
$264,633,575 and $340,140,373, respectively.
For the six months ended August 31, 1999, the Fund incurred $94,245 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the Fund.
At August 31, 1999, the Fund's receivable for investments sold included
unsettled trades with DWR of $2,404,508.
For the six months ended August 31, 1999, the Fund incurred $99,020 in brokerage
commissions with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager and Distributor, for portfolio transactions executed on behalf of the
Fund. At August 31, 1999, the Fund's receivable for investments sold included
unsettled trades with Morgan Stanley & Co., Inc. of $342,715.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At August 31, 1999, the Fund had
transfer agent fees and expenses payable of approximately $22,000.
12
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS August 31, 1999 (unaudited) continued
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX MAY 27, 1998*
MONTHS ENDED THROUGH
AUGUST 31, 1999 FEBRUARY 28, 1999
----------------------------------- ---------------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold ....................................... 95,498 $ 803,943 1,553,857 $ 14,971,777
Reinvestment of dividends .................. -- -- 8,612 71,827
Redeemed ................................... (408,702) (3,399,088) (346,380) (2,873,074)
-------- ------------- --------- -------------
Net increase (decrease) -- Class A ......... (313,204) (2,595,145) 1,216,089 12,170,530
-------- ------------- --------- -------------
CLASS B SHARES
Sold ....................................... 1,963,957 16,503,997 46,157,509 451,064,311
Reinvestment of dividends .................. -- -- 97,339 811,803
Redeemed ................................... (8,822,133) (72,739,103) (9,957,758) (82,556,557)
---------- ------------- ---------- -------------
Net increase (decrease) -- Class B ......... (6,858,176) (56,235,106) 36,297,090 369,319,557
---------- ------------- ---------- -------------
CLASS C SHARES
Sold ....................................... 83,746 697,623 3,086,861 30,246,228
Reinvestment of dividends .................. -- -- 5,944 49,573
Redeemed ................................... (577,631) (4,828,773) (783,587) (6,546,367)
---------- ------------- ---------- -------------
Net increase (decrease) -- Class C ......... (493,885) (4,131,150) 2,309,218 23,749,434
---------- ------------- ---------- -------------
CLASS D SHARES
Sold ....................................... 936,438 8,112,493 323,389 2,934,148
Reinvestment of dividends .................. -- -- 159 1,329
Redeemed ................................... (1,034,626) (9,004,907) (136,358) (1,162,895)
---------- ------------- ---------- -------------
Net increase (decrease) -- Class D ......... (98,188) (892,414) 187,190 1,772,582
---------- ------------- ---------- -------------
Net increase (decrease) in Fund ............ (7,763,453) $ (63,853,815) 40,009,587 $ 407,012,103
========== ============= ========== =============
</TABLE>
- - - ---------------
* Commencement of operations.
6. FEDERAL INCOME TAX STATUS
At February 28, 1999, the Fund had a net capital loss carryover of approximately
$26,212,000 which will be available through February 28, 2007 to offset future
capital gains to the extent provided by regulations.
As of February 28, 1999, the Fund had temporary book/tax differences
attributable to capital loss deferrals on wash sales.
13
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
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 MAY 27, 1998*
MONTHS ENDED THROUGH
AUGUST 31, 1999 FEBRUARY 28, 1999
- - - -------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $ 7.83 $10.00
------ ------
Income (loss) from investment operations:
Net investment income ................................. 0.04 0.06
Net realized and unrealized loss ...................... (0.02) (2.17)
------ ------
Total income (loss) from investment operations ......... 0.02 (2.11)
------ ------
Less dividends from net investment income .............. -- (0.06)
------ ------
Net asset value, end of period ......................... $ 7.85 $ 7.83
====== ======
TOTAL RETURN+ (1) ...................................... 0.26% (21.13)%
RATIOS TO AVERAGE NET ASSETS: (2) (3)
Expenses ............................................... 1.30% 1.30 %
Net investment income .................................. 0.82% 0.93 %
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $7,107 $9,536
Portfolio turnover rate (1) ............................ 94% 124 %
</TABLE>
- - - -------------
* Commencement of operations.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX MAY 27, 1998*
MONTHS ENDED THROUGH
AUGUST 31, 1999 FEBRUARY 28, 1999
- - - ---------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS B SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $7.82 $10.00
----- ------
Income (loss) from investment operations:
Net investment income ............................ -- 0.01
Net realized and unrealized loss ................. (0.01) (2.17)
----- ------
Total loss from investment operations ............. (0.01) (2.16)
----- ------
Less dividends from net investment income ......... -- (0.02)
----- ------
Net asset value, end of period .................... $7.81 $ 7.82
===== ======
TOTAL RETURN+ (1) ................................. (0.13)% (21.59)%
RATIOS TO AVERAGE NET ASSETS: (2) (3)
Expenses .......................................... 2.05 % 2.05 %
Net investment income ............................. 0.07 % 0.18 %
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $229,980 $283,779
Portfolio turnover rate (1) ....................... 94 % 124 %
</TABLE>
- - - --------------
* Commencement of operations.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX MAY 27, 1998*
MONTHS ENDED THROUGH
AUGUST 31, 1999 FEBRUARY 28, 1999
- - - -------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS C SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $7.82 $10.00
----- ------
Income (loss) from investment operations:
Net investment income ................................. 0.02 0.01
Net realized and unrealized loss ...................... (0.01) (2.17)
----- ------
Total income (loss) from investment operations......... 0.01 (2.16)
----- ------
Less dividends from net investment income .............. -- (0.02)
----- ------
Net asset value, end of period ......................... $7.83 $ 7.82
===== ======
TOTAL RETURN+ (1) ...................................... 0.13% (21.61)%
RATIOS TO AVERAGE NET ASSETS: (2) (3)
Expenses ............................................... 1.57% 2.05 %
Net investment income .................................. 0.55% 0.18 %
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $14,235 $18,075
Portfolio turnover rate (1) ............................ 94% 124 %
</TABLE>
- - - --------------
* Commencement of operations.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX MAY 27, 1998*
MONTHS ENDED THROUGH
AUGUST 31, 1999 FEBRUARY 28, 1999
- - - -------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $7.83 $10.00
----- ------
Income (loss) from investment operations:
Net investment income ................................. 0.04 0.06
Net realized and unrealized loss ...................... -- (2.16)
----- ------
Total income (loss) from investment operations ......... 0.04 (2.10)
----- ------
Less dividends from net investment income .............. -- (0.07)
----- ------
Net asset value, end of period ......................... $7.87 $ 7.83
===== ======
TOTAL RETURN+ (1) ...................................... 0.51% (21.01)%
RATIOS TO AVERAGE NET ASSETS: (2) (3)
Expenses ............................................... 1.05% 1.05 %
Net investment income .................................. 1.07% 1.18 %
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $720 $1,485
Portfolio turnover rate (1) ............................ 94% 124 %
</TABLE>
- - - --------------
* Commencement of operations.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
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
Paul D. Vance
Vice President
Steven M. MacNamara
Assistant 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
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
MID-CAP DIVIDEND
GROWTH SECURITES
[GRAPHIC OMITTED]
SEMIANNUAL REPORT
August 31, 1999
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
PART B
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the shares of Morgan
Stanley Dean Witter Mid-Cap Equity Trust ("Mid-Cap Equity") to be issued
pursuant to an Agreement and Plan of Reorganization, dated January 26, 2000,
between Mid-Cap Equity and Morgan Stanley Dean Witter Mid-Cap Dividend
Securities ("Mid-Cap Dividend") in connection with the acquisition by Mid-Cap
Equity of substantially all of the assets, subject to stated liabilities, of
Mid-Cap Dividend. This Statement of Additional Information does not constitute
a prospectus. This Statement of Additional Information does not include all
information that a shareholder should consider before voting on the proposals
contained in the Proxy Statement and Prospectus, and, therefore, should be read
in conjunction with the related Proxy Statement and Prospectus, dated March ,
2000. A copy of the Proxy Statement and Prospectus may be obtained without
charge by mailing a written request to Mid-Cap Equity at Two World Trade
Center, New York, New York 10048 or by calling (800) 869-NEWS (TOLL FREE).
Please retain this document for future reference.
The date of this Statement of Additional Information is March , 2000.
B-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTRODUCTION ......................................... B-3
ADDITIONAL INFORMATION ABOUT MID-CAP EQUITY .......... B-3
FINANCIAL STATEMENTS ................................. B-4
</TABLE>
B-2
<PAGE>
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in the Proxy Statement and Prospectus dated March , 2000
(the "Proxy Statement and Prospectus"). The Proxy Statement and Prospectus has
been sent to Mid-Cap Dividend shareholders in connection with the solicitation
of proxies by the Board of Trustees of Mid-Cap Dividend to be voted at the
Special Meeting of shareholders of Mid-Cap Dividend to be held on June 22,
2000. This Statement of Additional Information incorporates by reference the
Statement of Additional Information of Mid-Cap Equity dated January 28, 2000
and the Statement of Additional Information of Mid-Cap Dividend dated June 30,
1999.
ADDITIONAL INFORMATION ABOUT NATURAL RESOURCE
INVESTMENT OBJECTIVES AND POLICIES
For additional information about Mid-Cap Equity's investment objectives
and policies, see "Description of the Fund and Its Investments and Risks" in
Mid-Cap Equity's Statement of Additional Information.
MANAGEMENT
For additional information about the Board of Trustees, officers and
management personnel of Mid-Cap Equity, see "Management of the Fund" and
"Investment Management and Other Services" in Mid-Cap Equity's Statement of
Additional Information.
INVESTMENT ADVISORY AND OTHER SERVICES
For additional information about Mid-Cap Equity's investment manager, see
"Investment Management and Other Services" in Mid-Cap Equity's Statement of
Additional Information. For additional information about Mid-Cap Equity's
independent auditors, see "Investment Management and Other Services" in Mid-Cap
Equity's Statement of Additional Information. For additional information about
other services provided to Mid-Cap Equity, see "Investment Management and Other
Services" in Mid-Cap Equity's Statement of Additional Information.
PORTFOLIO TRANSACTIONS AND BROKERAGE
For additional information about brokerage allocation practices, see
"Brokerage Allocation and Other Practices" in Mid-Cap Equity's Statement of
Additional Information.
DESCRIPTION OF FUND SHARES
For additional information about the voting rights and other
characteristics of the shares of Mid-Cap Equity, see "Capital Stock and Other
Securities" in Mid-Cap Equity's Statement of Additional Information.
PURCHASE, REDEMPTION AND PRICING OF SHARES
For additional information about the purchase and redemption of Mid-Cap
Equity's shares and the determination of net asset value, see "Purchase,
Redemption and Pricing of Shares" in Mid-Cap Equity's Statement of Additional
Information.
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
For additional information about Mid-Cap Equity's policies regarding
dividends and distributions and tax matters affecting Mid-Cap Equity and its
shareholders, see "Taxation of the Fund and Shareholders" in Mid-Cap Equity's
Statement of Additional Information.
B-3
<PAGE>
DISTRIBUTION OF SHARES
For additional information about Mid-Cap Equity's distributor and the
distribution agreement between Mid-Cap Equity and its distributor, see
"Investment Management and Other Services" and "Underwriters" in Mid-Cap
Equity's Statement of Additional Information.
PERFORMANCE DATA
For additional information about Mid-Cap Equity's performance, see
"Calculation of Performance Data" in Mid-Cap Equity's Statement of Additional
Information.
FINANCIAL STATEMENTS
Mid-Cap Equity's most recent audited financial statements are set forth in
Mid-Cap Equity's Annual Report for the fiscal year ended November 30, 1999. A
copy of the Annual Report accompanies, and is incorporated by reference in, the
Proxy Statement and Prospectus. Mid-Cap Dividend's most recent audited
financial statements are set forth in Mid-Cap Dividend's Annual Report for the
fiscal year ended February 28, 1999, and Mid-Cap Dividend's updated, unaudited
financial statements are set forth in its unaudited Semi-Annual Report for the
six month period ended August 31, 1999, which are incorporated by reference in
the Proxy Statement and Prospectus.
B-4
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
January 28, 2000
MORGAN STANLEY
DEAN WITTER MID-CAP
EQUITY TRUST
- - - --------------------------------------------------------------------------------
This Statement of Additional Information is not a Prospectus. The
Prospectus dated January 28, 2000 for Morgan Stanley Dean Witter Mid-Cap Equity
Trust may be obtained without charge from the Fund at its address or telephone
number listed below or from Dean Witter Reynolds at any of its branch offices.
Morgan Stanley Dean Witter Mid-Cap Equity Trust
Two World Trade Center
New York, New York 10048
(800) 869-NEWS
<PAGE>
TABLE OF CONTENTS
- - - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
I. Fund History ............................................. 4
II. Description of the Fund and Its Investments and Risks .... 4
A. Classification ....................................... 4
B. Investment Strategies and Risks ...................... 4
C. Fund Policies/Investment Restrictions ................ 9
III. Management of the Fund .................................... 10
A. Board of Trustees .................................... 10
B. Management Information ............................... 10
C. Compensation ......................................... 15
IV. Control Persons and Principal Holders of Securities ....... 17
V. Management, Investment Advice and Other Services .......... 17
A. Investment Manager and Sub-Advisor ................... 17
B. Principal Underwriter ................................ 18
C. Services Provided by the Investment Manager
and the Sub-Advisor ................................. 19
D. Dealer Reallowances .................................. 20
E. Rule 12b-1 Plan ...................................... 20
F. Other Service Providers .............................. 24
VI. Brokerage Allocation and Other Practices .................. 24
A. Brokerage Transactions ............................... 24
B. Commissions .......................................... 25
C. Brokerage Selection .................................. 25
D. Directed Brokerage ................................... 26
E. Regular Broker-Dealers ............................... 26
VII. Capital Stock and Other Securities ........................ 26
VIII. Purchase, Redemption and Pricing of Shares ................ 27
A. Purchase/Redemption of Shares ........................ 27
B. Offering Price ....................................... 28
IX. Taxation of the Fund and Shareholders ..................... 28
X. Underwriters .............................................. 30
XI. Calculation of Performance Data ........................... 30
XII. Financial Statements ...................................... 32
</TABLE>
2
<PAGE>
Glossary of Selected Defined Terms
The terms defined in this glossary are frequently used in this Statement
of Additional Information (other terms used occasionally are defined in the
text of the document).
"Custodian " - The Bank of New York.
"Dean Witter Reynolds " - Dean Witter Reynolds Inc., a wholly-owned
broker-dealer subsidiary of MSDW.
"Distributor " - Morgan Stanley Dean Witter Distributors Inc., a
wholly-owned broker-dealer subsidiary of MSDW.
"Financial Advisors " - Morgan Stanley Dean Witter authorized financial
services representatives.
"Fund " - Morgan Stanley Dean Witter Mid-Cap Equity Trust, a registered
open-end investment company.
"Investment Manager " - Morgan Stanley Dean Witter Advisors Inc., a
wholly-owned investment advisor subsidiary of MSDW.
"Independent Trustees " - Trustees who are not "interested persons" (as
defined by the Investment Company Act) of the Fund.
"Morgan Stanley & Co." - Morgan Stanley & Co. Incorporated, a wholly-owned
broker-dealer subsidiary of MSDW.
"Morgan Stanley Dean Witter Funds " - Registered investment companies (i)
for which the Investment Manager serves as the investment advisor; and (ii)
that hold themselves out to investors as related companies for investment and
investor services.
"MSDW " - Morgan Stanley Dean Witter & Co., a preeminent global financial
services firm.
"MSDW Services Company " - Morgan Stanley Dean Witter Services Company Inc.,
a wholly-owned fund services subsidiary of the Investment Manager.
"Sub-Advisor " - TCW Investment Management Company, a wholly-owned
subsidiary of TCW.
"TCW " - The TCW Group, Inc., a preeminent investment management and
investment advisory services firm.
"Transfer Agent " - Morgan Stanley Dean Witter Trust FSB, a wholly-owned
transfer agent subsidiary of MSDW.
"Trustees " - The Board of Trustees of the Fund.
3
<PAGE>
I. FUND HISTORY
- - - --------------------------------------------------------------------------------
The Fund was organized under the laws of the Commonwealth of Massachusetts
on October 17, 1995 as a Massachusetts business trust under the name "TCW/DW
Mid-Cap Equity Trust." On February 25, 1999 the Fund's Trustees adopted an
Amendment to the Fund's Declaration of Trust changing the name of the Fund to
Morgan Stanley Dean Witter Mid-Cap Equity Trust, effective June 28, 1999.
II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
- - - --------------------------------------------------------------------------------
A. CLASSIFICATION
The Fund is an open-end, diversified management investment company whose
investment objective is to seek long-term capital appreciation.
B. INVESTMENT STRATEGIES AND RISKS
The following discussion of the Fund's investment strategies and risks
should be read with the sections of the Fund's Prospectus titled "Principal
Investment Strategies," "Principal Risks," "Additional Investment Strategy
Information" and "Additional Risk Information."
CONVERTIBLE SECURITIES. The Fund may invest in fixed-income securities
which are convertible into common stock of the issuer. Convertible securities
rank senior to common stocks in a corporation's capital structure and,
therefore, entail less risk than the corporation's common stock. The value of a
convertible security is a function of its "investment value" (its value as if
it did not have a conversion privilege), and its "conversion value" (the
security's worth if it were to be exchanged for the underlying security, at
market value, pursuant to its conversion privilege).
To the extent that a convertible security's investment value is greater
than its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security
(the credit standing of the issuer and other factors may also have an effect on
the convertible security's value). If the conversion value exceeds the
investment value, the price of the convertible security will rise above its
investment value and, in addition, will sell at some premium over its
conversion value. (This premium represents the price investors are willing to
pay for the privilege of purchasing a fixed-income security with a possibility
of capital appreciation due to the conversion privilege.) At such times the
price of the convertible security will tend to fluctuate directly with the
price of the underlying equity security. Convertible securities may be
purchased by the Fund at varying price levels above their investment values
and/or their conversion values in keeping with the Fund's objective.
The Fund may also invest up to 5% of its assets in convertible securities
and other fixed income securities rated below investment grade. Securities
below investment grade are the equivalent of high yield, high risk bonds
(commonly known as "junk bonds"). However, the Fund will not invest in
convertible and other fixed-income securities that are rated lower than B by
S&P or Moody's or, if not rated, determined to be of comparable quality by the
Sub-Advisor.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may enter into
forward foreign currency exchange contracts ("forward contracts") to "lock in"
the price of a security in U.S. dollars or some other foreign currency which
the Fund is holding in its portfolio. By entering into a forward contract for
the purchase or sale, for a fixed amount of dollars or other currency, of the
amount of foreign currency involved in the underlying security transactions,
the Fund may be able to protect itself against a possible loss resulting from
an adverse change in the relationship between the U.S. dollar or other currency
which is being used for the security purchase and the foreign currency in which
the security is denominated during the period between the date on which the
security is purchased or sold and the date on which payment is made or
received. A forward contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large, commercial and investment
banks) and their customers. Forward contracts only will be entered into with
United States banks and their
4
<PAGE>
foreign branches, insurance companies and other dealers or foreign banks whose
assets total $1 billion or more. A forward contract generally has no deposit
requirement, and no commissions are charged at any stage for trades.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intent to convert the holdings of foreign currencies into U.S. dollars
on a daily basis. It will, however, do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the spread between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.
The Fund may be limited in its ability to enter into hedging transactions
involving forward contracts by the Internal Revenue Code requirements relating
to qualification as a regulated investment company.
Forward currency contracts may limit gains on portfolio securities that
could otherwise be realized had they not been utilized and could result in
losses.
MONEY MARKET SECURITIES. The Fund may invest in various money market
securities for cash management purposes or when assuming a temporary defensive
position, which among others may include commercial paper, bank acceptances,
bank obligations, corporate debt securities, certificates of deposit, U.S.
Government securities and obligations of savings institutions and repurchase
agreements. Such securities are limited to:
U.S. Government Securities. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as the
Federal Home Loan Bank), including Treasury bills, notes and bonds;
Bank Obligations. Obligations (including certificates of deposit and
bankers' acceptances) of banks subject to regulation by the U.S. Government and
having total assets of $1 billion or more, and instruments secured by such
obligations, not including obligations of foreign branches of domestic banks
except to the extent below;
Eurodollar Certificates of Deposit. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of $1 billion
or more;
Obligations of Savings Institutions. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion or
more;
Fully Insured Certificates of Deposit. Certificates of deposit of banks
and savings institutions having total assets of less than $1 billion, if the
principal amount of the obligation is federally insured by the Bank Insurance
Fund or the Savings Association Insurance Fund (each of which is administered
by the FDIC), limited to $100,000 principal amount per certificate and to 10%
or less of the Fund's total assets in all such obligations and in all illiquid
assets, in the aggregate; and
Commercial Paper. Commercial paper rated within the two highest grades by
Standard & Poor's Corporation ("S&P") or the two highest grade by Moody's
Investor's Service, Inc. ("Moody's") or, if not rated, issued by a company
having an outstanding debt issue rated at least AA by S&P or Aa by Moody's; and
Repurchase Agreements. The Fund may invest in repurchase agreements. When
cash may be available for only a few days, it may be invested by the Fund in
repurchase agreements until such time as it may otherwise be invested or used
for payments of obligations of the Fund. These agreements, which may be viewed
as a type of secured lending by the Fund, typically involve the acquisition, by
the Fund, of debt securities from a selling financial institution such as a
bank, savings and loan association or broker-dealer. The agreement provides
that the Fund will sell back to the institution, and that the institution will
repurchase, the underlying security serving as collateral at a specified price
and at a fixed time in the future, usually not more than seven days from the
date of purchase. The collateral will be
5
<PAGE>
marked-to-market daily to determine that the value of the collateral, as
specified in the agreement, does not decrease below the purchase price plus
accrued interest. If such decrease occurs, additional collateral will be
requested and, when received, added to the account to maintain full
collateralization. The Fund will accrue interest from the institution until the
time when the repurchase is to occur. Although this date is deemed by the Fund
to be the maturity date of a repurchase agreement, the maturities of securities
subject to repurchase agreements are not subject to any limits.
While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures designed to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions
whose financial condition will be continually monitored by the Investment
Manager and/or Sub-Advisor subject to procedures established by the Trustees.
In addition, as described above, the value of the collateral underlying the
repurchase agreement will be at least equal to the repurchase price, including
any accrued interest earned on the repurchase agreement. In the event of a
default or bankruptcy by a selling financial institution, the Fund will seek to
liquidate such collateral. However, the exercising of the Fund's right to
liquidate such collateral could involve certain costs or delays and, to the
extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Fund could suffer a loss.
It is the current policy of the Fund not to invest in repurchase agreements
that do not mature within seven days if any such investment, together with any
other illiquid assets held by the Fund, amounts to more than 15% of its net
assets.
ZERO COUPON SECURITIES. A portion of the fixed-income securities purchased
by the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive
their full value at maturity. The interest earned on such securities is,
implicitly, automatically compounded and paid out at maturity. While such
compounding at a constant rate eliminates the risk of receiving lower yields
upon reinvestment of interest if prevailing interest rates decline, the owner
of a zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received on interest-paying securities if prevailing
interest rates rise.
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. In
addition, zero coupon securities are subject to substantially greater price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest on a current basis. Current federal
tax law requires that a holder (such as the Fund) of a zero coupon security
accrue a portion of the discount at which the security was purchased as income
each year even though the Fund receives no interest payments in cash on the
security during the year.
INVESTMENT IN REAL ESTATE INVESTMENT TRUSTS. The Fund may invest in real
estate investment trusts, which pool investors' funds for investments primarily
in commercial real estate properties. Investment in real estate investment
trusts may be the most practical available means for the Fund to invest in the
real estate industry (the Fund is prohibited from investing in real estate
directly). As a shareholder in a real estate investment trust, the Fund would
bear its ratable share of the real estate investment trust's expenses,
including its advisory and administration fees. At the same time the Fund would
continue to pay its own management fees, investment advisory fees and other
expenses, as a result of which the Fund and its shareholders in effect will be
absorbing duplicate levels of fees with respect to investments in real estate
investment trusts.
LENDING PORTFOLIO SECURITIES. The Fund may lend its portfolio securities
to brokers, dealers and other financial institutions, provided that the loans
are callable at any time by the Fund, and are at all times secured by cash or
cash equivalents, which are maintained in a segregated account pursuant to
applicable regulations and that are equal to at least 100% of the market value,
determined daily, of the loaned securities. The advantage of these loans is
that the Fund continues to receive the income on the loaned securities while at
the same time earning interest on the cash amounts deposited as collateral,
which will be invested in short-term obligations. The Fund will not lend more
than 25% of the value of its total assets.
6
<PAGE>
As with any extensions of credit, there are risks of delay in recovery
and, in some cases, even loss of rights in the collateral should the borrower
of the securities fail financially. However, these loans of portfolio
securities will only be made to firms deemed by the Fund's management to be
creditworthy and when the income which can be earned from such loans justifies
the attendant risks. Upon termination of the loan, the borrower is required to
return the securities to the Fund. Any gain or loss in the market price during
the loan period would inure to the Fund.
When voting or consent rights which accompany loaned securities pass to
the borrower, the Fund will follow the policy of calling the loaned securities,
to be delivered within one day after notice, to permit the exercise of the
rights if the matters involved would have a material effect on the Fund's
investment in the loaned securities. The Fund will pay reasonable finder's,
administrative and custodial fees in connection with a loan of its securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. The
Fund may purchase securities on a when-issued or delayed delivery basis or may
purchase or sell securities on a forward commitment basis. When these
transactions are negotiated, the price is fixed at the time of the commitment,
but delivery and payment can take place a month or more after the date of
commitment. While the Fund will only purchase securities on a when-issued,
delayed delivery or forward commitment basis with the intention of acquiring
the securities, the Fund may sell the securities before the settlement date, if
it is deemed advisable. The securities so purchased or sold are subject to
market fluctuation and no interest or dividends accrue to the purchaser prior
to the settlement date.
At the time the Fund makes the commitment to purchase or sell securities
on a when-issued, delayed delivery or forward commitment basis, it will record
the transaction and thereafter reflect the value, each day, of such security
purchased, or if a sale, the proceeds to be received, in determining its net
asset value. At the time of delivery of the securities, their value may be more
or less than the purchase or sale price. An increase in the percentage of the
Fund's assets committed to the purchase of securities on a when-issued, delayed
delivery or forward commitment basis may increase the volatility of its net
asset value. The Fund will also establish a segregated account on the Fund's
books in which it will continually maintain cash or cash equivalents or other
liquid portfolio securities equal in value to commitments to purchase
securities on a when-issued, delayed delivery or forward commitment basis.
WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization or debt restructuring. The commitment for the purchase
of any such security will not be recognized in the portfolio of the Fund until
the Investment Manager and/or Sub-Advisor determines that issuance of the
security is probable. At that time, the Fund will record the transaction and,
in determining its net asset value, will reflect the value of the security
daily. At that time, the Fund will also establish a segregated account on the
Fund's books in which it will maintain cash or cash equivalents or other liquid
portfolio securities equal in value to recognized commitments for such
securities.
An increase in the percentage of the Fund's assets committed to the
purchase of securities on a "when, as and if issued" basis may increase the
volatility of its net asset value. The Fund may also sell securities on a
"when, as and if issued" basis provided that the issuance of the security will
result automatically from the exchange or conversion of a security owned by the
Fund at the time of sale.
PRIVATE PLACEMENTS AND RESTRICTED SECURITIES. The Fund may invest up to
15% of its net assets in securities which are subject to restrictions on resale
because they have not been registered under the Securities Act of 1933 (the
"Securities Act"), or which are otherwise not readily marketable. (Securities
eligible for resale pursuant to Rule 144A under the Securities Act, and
determined to be liquid pursuant to the procedures discussed in the following
paragraph, are not subject to the foregoing restriction.) These securities are
generally referred to as "private placements" or "restricted securities."
Limitations on the resale of these securities may have an adverse effect on
their marketability, and may prevent the Fund from disposing of them promptly
at reasonable prices. The Fund may have to bear the expense of registering the
securities for resale and the risk of substantial delays in effecting the
registration.
7
<PAGE>
Rule 144A permits the Fund to sell restricted securities to qualified
institutional buyers without limitation. The Investment Manager and/or
Sub-Advisor, pursuant to procedures adopted by the Trustees, will make a
determination as to the liquidity of each restricted security purchased by the
Fund. If a restricted security is determined to be "liquid," the security will
not be included within the category "illiquid securities," which may not exceed
15% of the Fund's net assets. However, investing in Rule 144A securities could
have the effect of increasing the level of Fund illiquidity to the extent the
Fund, at a particular point in time, may be unable to find qualified
institutional buyers interested in purchasing such securities.
WARRANTS AND SUBSCRIPTION RIGHTS. The Fund may acquire warrants and
subscription rights attached to other securities. The Fund may invest up to 5%
of the value of its net assets in warrants, including not more than 2% in
warrants not listed on either the New York or American Stock Exchange. A
warrant is, in effect, an option to purchase equity securities at a specific
price, generally valid for a specific period of time, and has no voting rights,
pays no dividends and has no rights with respect to the corporation issuing it.
A subscription right is a privilege granted to existing shareholders of a
corporation to subscribe to shares of a new issue of common stock before it is
offered to the public. A subscription right normally has a life of two to four
weeks and a subscription price lower than the current market value of the
common stock. The Fund may invest up to 5% of the value of its net assets in
rights.
HIGH YIELD, HIGH RISK SECURITIES. Because of the ability of the Fund to
invest in certain high yield, high risk convertible and other fixed-income
securities (commonly known as "junk bonds"), the Investment Manager and/or
Sub-Advisor must take into account the special nature of such securities and
certain special considerations in assessing the risks associated with such
investments. Although the growth of the high yield securities market in the
1980s had paralleled a long economic expansion, since that time many issuers
have been affected by adverse economic and market conditions. It should be
recognized that an economic downturn or increase in interest rates is likely to
have a negative effect on the high yield bond market and on the value of the
high yield securities held by the Fund, as well as on the ability of the
securities' issuers to repay principal and interest on their borrowings.
The prices of high yield securities have been found to be less sensitive
to changes in prevailing interest rates than higher-rated investments but more
sensitive to adverse economic changes or individual corporate developments.
During an economic downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress which would adversely
affect their ability to service their principal and interest payment
obligations, to meet their projected business goals or to obtain additional
financing. If the issuer of a fixed-income security owned by the Fund defaults,
the Fund may incur additional expenses to seek recovery. In addition, periods
of economic uncertainty and change can be expected to result in an increased
volatility of market prices of high yield securities and a corresponding
volatility in the net asset value of a share of the Fund.
The secondary market for high yield securities may be less liquid than the
markets for higher quality securities and, as such, may have an adverse effect
on the market prices of certain securities. The limited liquidity of the market
may also adversely affect the ability of the Trustees to arrive at a fair value
for certain high yield securities at certain times and could make it difficult
for the Fund to sell certain securities. In addition, new laws and potential
new laws may have an adverse effect upon the value of high yield securities and
a corresponding negative impact upon the net asset value of a share of the
Fund.
YEAR 2000. The investment management services provided to the Fund by the
Investment Manager and the Sub-Advisor and the services provided to
shareholders by the Distributor and the Transfer Agent depend on the smooth
functioning of their computer systems. Many computer software systems in use
today were designed in such a way that they may not be able to recognize the
year 2000, but revert to 1900 or some other date, due to the manner in which
dates were encoded and calculated. That failure could have a negative impact on
the handling of securities trades, pricing and account services.
8
<PAGE>
Improperly functioning trading systems may result in settlement problems
and liquidity issues. Corporate and governmental data processing errors could
result in production problems for individual issuers and overall economic
uncertainties. Operations ran smoothly from the last week in December through
the first few weeks of January, but the year 2000 issue may yet have an adverse
impact on financial market participants and other entities, including the
issuers whose securities are contained in the Fund's portfolios.
C. FUND POLICIES/INVESTMENT RESTRICTIONS
The investment objective, policies and restrictions listed below have been
adopted by the Fund as fundamental policies. Under the Investment Company Act
of 1940 (the "Investment Company Act"), a fundamental policy may not be changed
without the vote of a majority of the outstanding voting securities of the
Fund. The Investment Company Act defines a majority as the lesser of (a) 67% or
more of the shares present at a meeting of shareholders, if the holders of 50%
of the outstanding shares of the Fund are present or represented by proxy; or
(b) more than 50% of the outstanding shares of the Fund. For purposes of the
following restrictions: (i) all percentage limitations apply immediately after
a purchase or initial investment; and (ii) any subsequent change in any
applicable percentage resulting from market fluctuations or other changes in
total or net assets does not require elimination of any security from the
portfolio.
The Fund will:
1. Seek long-term capital appreciation.
The Fund may not:
1. As to 75% of its assets, invest more than 5% of the value of its
total assets in the securities of any one issuer (other than
obligations issued, or guaranteed by, the United States Government,
its agencies or instrumentalities).
2. As to 75% of its assets, purchase more than 10% of all outstanding
voting securities or any class of securities of any one issuer.
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to
obligations issued or guaranteed by the United States Government, its
agencies or instrumentalities or to cash equivalents.
4. Invest more than 5% of the value of its total assets in securities of
issuers having a record, together with predecessors, of less than 3
years of continuous operation. This restriction does not apply to any
obligation of the United States Government, its agencies or
instrumentalities.
5. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or
acquisition of assets.
6. Purchase or sell real estate or interests therein (including limited
partnership interests), although the Fund may purchase securities of
issuers which engage in real estate operations and securities secured
by real estate or interests therein.
7. Purchase oil, gas or other mineral leases, rights or royalty
contracts, or exploration or development programs, except that the
Fund may invest in the securities of companies which operate, invest
in, or sponsor these programs.
8. Purchase or sell commodities or commodities contracts.
9. Borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes, in amounts not exceeding 5% of its
total assets (not including the amount borrowed).
10. Pledge its assets or assign or otherwise encumber them except to
secure permitted borrowings.
9
<PAGE>
11. Issue senior securities as defined in the Investment Company Act,
except insofar as the Fund may be deemed to have issued a senior
security by reason of: (a) entering into any repurchase agreement;
(b) purchasing any securities on a when-issued or delayed delivery
basis; (c) borrowing money; or (d) lending portfolio securities.
12. Make loans of money or securities, except: (a) by the purchase of
portfolio securities; (b) by investment in repurchase agreements; or
(c) by lending its portfolio securities.
13. Make short sales of securities.
14. Purchase securities on margin, except for short-term loans as are
necessary for the clearance of portfolio securities.
15. Engage in the underwriting of securities, except insofar as the Fund
may be deemed an underwriter under the Securities Act in disposing of
a portfolio security.
16. Invest for the purpose of exercising control or management of any
other issuer.
17. Purchase warrants if, as a result, the Fund would then have either
more than 5% of its net assets invested in warrants or more than 2%
of its net assets invested in warrants not listed on the New York or
American Stock Exchange.
18. Invest in options or futures contracts.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amount of total or net assets will not be considered a
violation of any of the foregoing restrictions.
III. MANAGEMENT OF THE FUND
- - - --------------------------------------------------------------------------------
A. BOARD OF TRUSTEES
The Board of Trustees of the Fund oversees the management of the Fund but
does not itself manage the Fund. The Trustees review various services provided
by or under the direction of the Investment Manager to ensure that the Fund's
general investment policies and programs are properly carried out. The Trustees
also conduct their review to ensure that administrative services are provided
to the Fund in a satisfactory manner.
Under state law, the duties of the Trustees are generally characterized as
a duty of loyalty and a duty of care. The duty of loyalty requires a Trustee to
exercise his or her powers in the interest of the Fund and not the Trustee's
own interest or the interest of another person or organization. A Trustee
satisfies his or her duty of care by acting in good faith with the care of an
ordinarily prudent person and in a manner the Trustee reasonably believes to be
in the best interest of the Fund and its shareholders.
B. MANAGEMENT INFORMATION
TRUSTEES AND OFFICERS. The Board of the Fund consists of eight (8)
Trustees. These same individuals also serve as directors or trustees for all of
the Morgan Stanley Dean Witter Funds. Six Trustees (75% of the total number)
have no affiliation or business connection with the Investment Manager or any
of its affiliated persons and do not own any stock or other securities issued
by the Investment Manager's parent company, MSDW or the Sub-Advisor's parent
company, TCW. These are the "disinterested" or "independent" Trustees. The
other two Trustees (the "management Trustees") are affiliated with the
Investment Manager.
The Trustees and executive officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with the
Investment Manager or the Sub-Advisor, and with the 93 Morgan Stanley Dean
Witter Funds are shown below.
10
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- - - ------------------------------------------- ---------------------------------------------------------------
<S> <C>
Michael Bozic (59) ........................ Vice Chairman of Kmart Corporation (since
Trustee December 1998); Director or Trustee of the Morgan
c/o Kmart Corporation Stanley Dean Witter Funds; formerly Chairman
3100 West Big Beaver Road and Chief Executive Officer of Levitz Furniture
Troy, Michigan Corporation (November 1995-November 1998) and
President and Chief Executive Officer of Hills Department
Stores (May 1991-July 1995);formerly variously Chairman,
Chief Executive Officer,President and Chief Operating
Officer (1987-1991) of the Sears Merchandise Group of Sears,
Roebuck and Co.; Director of Weirton Steel Corporation.
Charles A. Fiumefreddo* (66) .............. Chairman, Director or Trustee and Chief Executive
Chairman of the Board, Officer of the Morgan Stanley Dean Witter Funds;
Chief Executive Officer and Trustee formerly Chairman, Chief Executive Officer and
Two World Trade Center Director of the Investment Manager, the Distributor
New York, New York and MSDW Services Company; Executive Vice
President and Director of Dean Witter Reynolds; Chairman and
Director of the Transfer Agent;formerly Director and/or officer
of various MSDW subsidiaries(until June 1998).
Edwin J. Garn (67) ........................ Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds; formerly United States Senator
c/o Huntsman Corporation (R-Utah) (1974-1992) and Chairman, Senate
500 Huntsman Way Banking Committee (1980-1986); formerly Mayor
Salt Lake City, Utah of Salt Lake City, Utah (1971-1974); formerly
Astronaut, Space Shuttle Discovery (April 12-19, 1985);
Vice Chairman, Huntsman Corporation (chemical company);
Director of Franklin Covey (time management systems), BMW Bank of
North America, Inc. (industrialloan corporation), United Space
Alliance (joint venture between Lockheed Martin and the Boeing
Company) and Nuskin Asia Pacific(multilevel marketing); member of
the board of various civic and charitable organizations.
Wayne E. Hedien (65) ...................... Retired; Director or Trustee of the Morgan Stanley
Trustee Dean Witter Funds; Director of The PMI Group,
c/o Mayer, Brown & Platt Inc. (private mortgage insurance); Trustee and
Counsel to the Independent Trustees Vice Chairman of The Field Museum of Natural
1675 Broadway History; formerly associated with the Allstate
New York, New York Companies (1966-1994), most recently as Chairman of The Allstate
Corporation (March 1993- December 1994) and Chairman and Chief
Executive Officer of its wholly-owned subsidiary, Allstate
Insurance Company (July 1989-December 1994); director of
various other business and charitable organizations.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- - - ------------------------------------------- ----------------------------------------------------
<S> <C>
Dr. Manuel H. Johnson (50) ................ Senior Partner, Johnson Smick International, Inc.,
Trustee a consulting firm; Co-Chairman and a founder of
c/o Johnson Smick International, Inc. the Group of Seven Council (G7C), an international
1133 Connecticut Avenue, N.W. economic commission; Chairman of the Audit
Washington, D.C. Committee and Director or Trustee of the Morgan
Stanely Dean Witter Funds; Director of Greenwich
Capital Markets, Inc. (broker-dealer) and NVR, Inc.
(home construction); Chairman and Trustee of the
Financial Accounting Foundation (oversight
organization of the Financial Accounting Standards
Board); formerly Vice Chairman of the Board of
Governors of the Federal Reserve System (1986-
1990) and Assistant Secretary of the U.S. Treasury.
Michael E. Nugent (63) .................... General Partner, Triumph Capital, L.P., a private
Trustee investment partnership; Chairman of the Insurance
c/o Triumph Capital, L.P. Committee and Director or Trustee of the Morgan
237 Park Avenue Stanley Dean Witter Funds; formerly Vice
New York, New York President, Bankers Trust Company and BT Capital
Corporation (1984-1988); director of various
business organizations.
Philip J. Purcell* (56) ................... Chairman of the Board of Directors and Chief
Trustee Executive Officer of MSDW, Dean Witter Reynolds
1585 Broadway and Novus Credit Services Inc.; Director of the
New York, New York Distributor; Director or Trustee of the Morgan
Stanley Dean Witter Funds; Director of American
Airlines, Inc. and its parent company, AMR
Corporation; Director and/or officer of various
MSDW subsidiaries.
John L. Schroeder (69) .................... Retired; Chairman of the Derivatives Committee
Trustee and Director or Trustee of the Morgan Stanley
c/o Mayer, Brown & Platt Dean Witter Funds; Director of Citizens Utilities
Counsel to the Independent Trustees Company (telecommunications, gas, electric and
1675 Broadway water utilities company); formerly Executive Vice
New York, New York President and Chief Investment Officer of Home
Insurance Company (August 1991-September 1995).
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- - - ------------------------------------------- ----------------------------------------------------------------
<S> <C>
Mitchell M. Merin (46) .................... President and Chief Operating Officer of Asset Management
President of MSDW (since December 1998); President and Director
Two World Trade Center (since April 1997) and Chief Executive Officer (since June 1998)
New York, New York of the Investment Manager and MSDW Services Company; Chairman, Chief
Executive Officer and Director of the Distributor (since June
1998); Chairman and Chief Executive Officer (since June
1998) and Director (since January 1998) of the Transfer Agent;
Director of various MSDW subsidiaries; President of the
Morgan Stanley Dean Witter Funds(since May 1999); Trustee of
various Van Kampen investment companies (since December 1999);
previously Chief Strategic Officer of the Investment Manager
and MSDW Services Company and Executive Vice President of the
Distributor (April 1997-June 1998), Vice President of the
Morgan Stanley Dean Witter Funds(May 1997-April 1999), and
Executive Vice President of Dean Witter, Discover & Co.
Barry Fink (45) ........................... Executive Vice President (since December 1999)
Vice President, and Secretary and General Counsel (since
Secretary and General Counsel February 1997) and Director (since July 1998) of
Two World Trade Center the Investment Manager and MSDW Services
New York, New York Company; Executive Vice President (since December 1999) and
Assistant Secretary and Assistant General
Counsel (since February 1997) of the Distributor; Assistant
Secretary of Dean Witter Reynolds(since August 1996); Vice
President, Secretary and General Counsel of the Morgan Stanley
Dean Witter Funds (since February 1997); previously Senior Vice
President (March 1997-December 1999), First Vice President (June
1993-February 1997), Vice President and Assistant Secretary
and Assistant General Counsel of the Investment Manager and MSDW
Services Company, Senior Vice President of the Distributor
(March 1997-December 1999); and Assistant Secretary of the Morgan
Stanley Dean Witter Funds.
Douglas S. Foreman (42) ................... Chief Investment Officer of U.S. Equities and Group
Vice President Managing Director of the Sub-Advisor, Trust
865 South Figueroa Street Company of the West and TCW Asset Management
Los Angeles, California Company; previously portfolio manager with
Putnam Investments.
Christopher J. Ainley (41) ................ Managing Director of the Sub-Advisor, Trust
Vice President Company of the West and TCW Asset Management
865 South Figueroa Street Company (since February 1996); formerly Senior
Los Angeles, California Vice President of the Sub-Advisor, Trust Company
of the West and TCW Asset Management Company
(May 1994-February 1996).
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- - - ------------------------------------------- ----------------------------------------------------
<S> <C>
Thomas F. Caloia (53) ..................... First Vice President and Assistant Treasurer of the
Treasurer Investment Manager, the Distributor and MSDW
Two World Trade Center Services Company; Treasurer of the Morgan Stanley
New York, New York Dean Witter Funds.
</TABLE>
- - - ----------
*Denotes Trustees who are "interested persons" of the Fund as defined by the
Investment Company Act.
In addition, Ronald E. Robison, Executive Vice President, Chief
Administrative Officer and Director of the Investment Manager and MSDW Services
Company, Robert S. Giambrone, Senior Vice President of the Investment Manager,
MSDW Services Company, the Distributor and the Transfer Agent and Director of
the Transfer Agent, and Joseph J. McAlinden, Executive Vice President and Chief
Investment Officer of the Investment Manager and Director of the Transfer
Agent, are Vice Presidents of the Fund.
In addition, Marilyn K. Cranney, Todd Lebo, Lou Anne D. McInnis, Carsten
Otto and Ruth Rossi, First Vice Presidents and Assistant General Counsels of
the Investment Manager and MSDW Services Company, and Natasha Kassian,
Assistant Vice President and Assistant General Counsel of the Investment
Manager and MSDW Services Company, are Assistant Secretaries of the Fund.
INDEPENDENT DIRECTORS/TRUSTEES AND THE COMMITTEES. Law and regulation
establish both general guidelines and specific duties for the independent
directors/trustees. The Morgan Stanley Dean Witter Funds seek as independent
directors/trustees individuals of distinction and experience in business and
finance, government service or academia; these are people whose advice and
counsel are in demand by others and for whom there is often competition. To
accept a position on the Funds' boards, such individuals may reject other
attractive assignments because the Funds make substantial demands on their
time. All of the independent directors/trustees serve as members of the Audit
Committee. In addition, three of the directors/trustees, including two
independent director/trustees, serve as members of the Derivatives Committee
and the Insurance Committee.
The independent directors/trustees are charged with recommending to the
full board approval of management, advisory and administration contracts, Rule
12b-1 plans and distribution and underwriting agreements; continually reviewing
Fund performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among Funds in
the same complex; and approving fidelity bond and related insurance coverage
and allocations, as well as other matters that arise from time to time. The
independent directors/trustees are required to select and nominate individuals
to fill any independent director/trustee vacancy on the board of any Fund that
has a Rule 12b-1 plan of distribution. Most of the Morgan Stanley Dean Witter
Funds have a Rule 12b-1 plan.
The Audit Committee is charged with recommending to the full board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of the services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
board.
The board of each Fund has a Derivatives Committee to approve parameters
for and monitor the activities of the Fund with respect to derivative
investments, if any, made by the Fund.
Finally, the board of each Fund has formed an Insurance Committee to
review and monitor the insurance coverage maintained by the Fund.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT DIRECTORS/TRUSTEES
FOR ALL MORGAN STANLEY DEAN WITTER FUNDS. The independent directors/trustees
and the Funds' management believe that having the same independent
directors/trustees for each of the Morgan Stanley Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as independent directors/trustees for each of the Funds or
even of sub-groups of Funds. They believe that
14
<PAGE>
having the same individuals serve as independent directors/trustees of all the
Funds tends to increase their knowledge and expertise regarding matters which
affect the Fund complex generally and enhances their ability to negotiate on
behalf of each Fund with the Fund's service providers. This arrangement also
precludes the possibility of separate groups of independent directors/trustees
arriving at conflicting decisions regarding operations and management of the
Funds and avoids the cost and confusion that would likely ensue. Finally,
having the same independent directors/trustees serve on all Fund boards
enhances the ability of each Fund to obtain, at modest cost to each separate
Fund, the services of independent directors/trustees, of the caliber,
experience and business acumen of the individuals who serve as independent
directors/trustees of the Morgan Stanley Dean Witter Funds.
TRUSTEE AND OFFICER INDEMNIFICATION. The Fund's Declaration of Trust
provides that no Trustee, officer, employee or agent of the Fund is liable to
the Fund or to a shareholder, nor is any Trustee, officer, employee or agent
liable to any third persons in connection with the affairs of the Fund, except
as such liability may arise from his/her or its own bad faith, willful
misfeasance, gross negligence or reckless disregard of his/her or its duties.
It also provides that all third persons shall look solely to the Fund property
for satisfaction of claims arising in connection with the affairs of the Fund.
With the exceptions stated, the Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Fund.
C. COMPENSATION
The Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees, the Independent
Trustees or Committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an additional annual fee of $750,
and the Chairmen of the Derivatives and Insurance Committees additional annual
fees of $500). If a Board meeting and a meeting of the Independent Trustees or
a Committee meeting, or a meeting of the Independent Trustees and/or more than
one Committee meeting, take place on a single day, the Trustees are paid a
single meeting fee by the Fund. The Fund also reimburses such Trustees for
travel and other out-of-pocket expenses incurred by them in connection with
attending such meetings. Trustees and officers of the Fund who are or have been
employed by the Investment Manager or an affiliated company receive no
compensation or expense reimbursement from the Fund for their services as
Trustee.
At their June 8, 1999 meeting, shareholders elected or re-elected, as
appropriate, the following eight individuals to the Fund's Board of Trustees to
serve for indefinite terms: 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. Messrs. Fiumefreddo, Johnson, Nugent and
Schroeder previously served as Trustees of the Fund and were previously elected
by shareholders. Messrs. Bozic, Garn, Hedien and Purcell previously held
directorships or trusteeships with the other Morgan Stanley Dean Witter Funds
and were elected to replace Messrs. Argue, DeMartini, Larkin and Stern who
resigned as Trustees. Messrs. Bozic, Garn, Hedien and Purcell commenced service
at the time the new Investment Management Agreement took effect on June 28,
1999. Prior to the effectiveness of the election of Messrs. Bozic, Garn, Hedien
and Purcell and the resignation of Messrs. Argue, DeMartini, Larkin and Stern,
the Fund paid each Independent Trustee an annual fee of $2,225 plus a per
meeting fee of $200 for meetings of the Board of Trustees or committees of the
Board attended by the Trustee.
The following table illustrates the compensation that the Fund paid to its
Independent Trustees for the fiscal year ended November 30, 1999.
15
<PAGE>
FUND COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- - - ------------------------------- --------------
<S> <C>
Michael Bozic ................. $ 750
Edwin J. Garn ................. 750
Wayne E. Hedien ............... 750
Dr. Manuel H. Johnson ......... 4,250
Michael E. Nugent ............. 4,083
John L. Schroeder ............. 4,083
</TABLE>
At such time as the Fund has paid fees to the Independent Trustees for a
full fiscal year at the lower current compensation rates set forth above, and
assuming that during such fiscal year the Fund holds the same number of
meetings of the Board, the Independent Trustees and the Committees as were held
by the other Morgan Stanley Dean Witter Funds during the calendar year ended
December 31, 1999, it is estimated that the compensation paid to each
Independent Trustee during such fiscal year will be $1,550 and an additional
$750 to Dr. Johnson who serves as Chairman of the Audit Committee and an
additional $500 to each of Messrs. Nugent and Schroeder, who serve as Chairman
of the Insurance Committee and the Derivatives Committee, respectively.
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1999 for services
to the 93 Morgan Stanley Dean Witter Funds that were in operation at December
31, 1999.
Cash Compensation from Morgan Stanley Dean Witter Funds
<TABLE>
<CAPTION>
TOTAL CASH COMPENSATION
NAME OF FOR SERVICES TO 93 MORGAN
INDEPENDENT TRUSTEE STANLEY DEAN WITTER FUNDS
- - - ------------------------------- --------------------------
<S> <C>
Michael Bozic ................. $134,600
Edwin J. Garn ................. 138,700
Wayne E. Hedien ............... 138,700
Dr. Manuel H. Johnson ......... 208,638
Michael E. Nugent ............. 193,324
John L. Schroeder ............. 193,324
</TABLE>
As of the date of this Statement of Additional Information, 55 of the
Morgan Stanley Dean Witter Funds, not including the Fund, have adopted a
retirement program under which an independent director/trustee who retires
after serving for at least five years (or such lesser period as may be
determined by the Board) as an independent director/trustee of any Morgan
Stanley Dean Witter Fund that has adopted the retirement program (each such
Fund referred to as an "Adopting Fund" and each such trustee referred to as an
"Eligible Trustee") is entitled to retirement payments upon reaching the
eligible retirement age (normally, after attaining age 72), Annual payments are
based upon length of service.
Currently, upon retirement, each Eligible Trustee is entitled to receive
from the Adopting Fund, commencing as of his or her retirement date and
continuing for the remainder of his or her life, an annual retirement benefit
(the "Regular Benefit") equal to 30.22% of his or her Eligible Compensation
plus 0.5036667% of such Eligible Compensation for each full month of service as
an independent director/trustee of any Adopting Fund in excess of five years up
to a maximum of 60.44% after ten years of service. The foregoing percentages
may be changed by the Board(1). "Eligible Compensation" is
- - - ----------
(1) An Eligible Trustee may elect alternative payments of his or her
retirement benefits based upon the combined life expectancy of the
Eligible Trustee and his or her spouse on the date of such Eligible
Trustee's retirement. In addition, the Eligible Trustee may elect that
the surviving spouse's periodic payment of benefits will be equal to a
lower percentage of the periodic amount when both spouses were alive. The
amount estimated to be payable under this method, through the remainder
of the later of the lives of the Eligible Trustee and spouse, will be the
actuarial equivalent of the Regular Benefit.
16
<PAGE>
one-fifth of the total compensation earned by such Eligible Trustee for service
to the Adopting Fund in the five year period prior to the date of the Eligible
Trustee's retirement. Benefits under the retirement program are accrued as
expenses on the books of the Adopting Funds. Such benefits are not secured or
funded by the Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the 55 Morgan Stanley Dean Witter Funds (not
including the Fund) for the year ended December 31, 1999, and the estimated
retirement benefits for the Independent Trustees, to commence upon their
retirement, from the 55 Morgan Stanley Dean Witter Funds as of December 31,
1999.
RETIREMENT BENEFITS FROM ALL MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
FOR ALL ADOPTING FUNDS
---------------------------------
ESTIMATED
CREDITED
YEARS ESTIMATED RETIREMENT BENEFITS ESTIMATED ANNUAL
OF SERVICE AT PERCENTAGE OF ACCRUED AS EXPENSES BENEFITS UPON RETIREMENT
NAME OF RETIREMENT ELIGIBLE BY ALL FROM ALL
INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION ADOPTING FUNDS ADOPTING FUNDS(2)
- - - -------------------------- --------------- --------------- --------------------- -------------------------
<S> <C> <C> <C> <C>
Michael Bozic ............ 10 60.44% $20,933 $50,588
Edwin J. Garn ............ 10 60.44 31,737 50,675
Wayne E. Hedien .......... 9 51.37 39,566 43,000
Dr. Manuel H. Johnson..... 10 60.44 13,129 75,520
Michael E. Nugent ........ 10 60.44 23,175 67,209
John L. Schroeder ........ 8 50.37 41,558 52,994
</TABLE>
- - - ----------
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- - - --------------------------------------------------------------------------------
The following owned 5% or more of the outstanding shares of Class D of the
Fund on January 25, 2000: Mark A. Susz rev trust dtd 5/1/97, Mark A. Susz
Trustee, 400 West 49th Terr Unit 2188, Kansas City, MO 64112-2303 - 39.29%.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's
officers and Trustees as a group was less than 1% of the Fund's shares of
beneficial interest outstanding.
V. MANAGEMENT, INVESTMENT ADVICE AND OTHER SERVICES
- - - --------------------------------------------------------------------------------
A. INVESTMENT MANAGER AND SUB-ADVISOR
The Investment Manager to the Fund is Morgan Stanley Dean Witter Advisors
Inc., a Delaware corporation, whose address is Two World Trade Center, New
York, NY 10048. The Investment Manager is a wholly-owned subsidiary of MSDW, a
Delaware corporation. MSDW is a preeminent global financial services firm that
maintains leading market positions in each of its three primary businesses:
securities, asset management and credit services.
The Sub-Advisor is TCW Investment Management Company, a wholly-owned
subsidiary of TCW, whose direct and indirect subsidiaries provide a variety of
trust, investment management and investment advisory services. The Sub-Advisor
is headquartered at 865 South Figueroa Street, Suite 1800, Los Angeles, CA
90017. Robert A. Day, who is Chairman of the Board of Directors of TCW, may be
deemed to be a control person of the Sub-Advisor by virtue of the aggregate
ownership by Mr. Day and his family of more than 25% of the outstanding voting
stock of TCW. The Sub-Advisor was retained to provide sub-advisory services to
the Fund effective June 28, 1999.
Pursuant to an Investment Management Agreement (the "Management Agreement
") with the Investment Manager, the Fund has retained the Investment Manager to
provide administrative services, manage its business affairs and supervise the
investment of the Fund's assets. The Fund pays the
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<PAGE>
Investment Manager monthly compensation calculated daily by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 0.75% to the portion of daily net assets not exceeding
$500 million; and 0.725% to the portion of daily net assets exceeding $500
million. The management fee is allocated among the Classes pro rata based on
the net assets of the Fund attributable to each Class. The Investment Manager
has retained its wholly-owned subsidiary, MSDW Services Company, to perform
administrative services for the Fund.
Under a Sub-Advisory Agreement (the "Sub-Advisory Agreement ") between the
Sub-Advisor and the Investment Manager, the Sub-Advisor provides the Fund with
investment advice and portfolio management relating to the Fund's investments
in securities, subject to the overall supervision of the Investment Manager.
The Investment Manager pays the Sub-Advisor monthly compensation equal to 40%
of the Investment Manager's fee.
Prior to June 28, 1999, the Fund was managed by MSDW Services Company,
pursuant to a management agreement between the Fund and MSDW Services Company
and was advised by TCW Investment Management Company pursuant to an advisory
agreement between the Fund and TCW Investment Management Company. As part of an
overall consolidation of the TCW/DW Family of Funds and the Morgan Stanley Dean
Witter Family of Funds, the Fund's Board of Trustees recommended on February
25, 1999 and shareholders of the Fund approved on June 8, 1999 the Investment
Management Agreement between the Fund and the Investment Manager. The Board
also recommended and shareholders also approved the Sub-Advisory Agreement
between the Investment Manager and TCW Investment Management Company. The fee
rate under the Management Agreement with the Investment Manager with respect to
the portion of the Fund's average daily net assets not exceeding $500 million
is 0.25% lower and with respect to the portion of the Fund's average daily net
assets exceeding $500 million is 0.275% lower than the total aggregate fee rate
that was in effect under the previous management agreement and advisory
agreement combined. For the fiscal years ended November 30, 1997 and 1998 and
the period December 1, 1998 through June 27, 1999, MSDW Services Company
accrued total compensation under the former management agreement in the amounts
of $1,081,715, $1,085,682 and $1,034,415, respectively. For the same periods,
TCW Investment Management Company accrued total compensation in its former
capacity of advisor to the Fund in the amounts of $721,143, $723,788 and
$689,610, respectively. For the fiscal period June 28, 1999 through November
30, 1999, the Investment Manager accrued total compensation under the new
Investment Management Agreement in the amount of $3,257,327, of which
$1,302,930 was paid to the sub-advisor.
B. PRINCIPAL UNDERWRITER
The Fund's principal underwriter is the Distributor (which has the same
address as the Investment Manager). In this capacity, the Fund's shares are
distributed by the Distributor. The Distributor has entered into a Selected
Dealer Agreement with Dean Witter Reynolds, which through its own sales
organization sells shares of the Fund. In addition, the Distributor may enter
into similar agreements with other selected broker-dealers. The Distributor, a
Delaware corporation, is a wholly-owned subsidiary of MSDW.
The Distributor bears all expenses it may incur in providing services
under the Distribution Agreement. These expenses include the payment of
commissions for sales of the Fund's shares and incentive compensation to
Financial Advisors, the costs of educational and/or business related trips and
educational and/or promotional and business-related expenses. The Distributor
also pays certain expenses in connection with the distribution of the Fund's
shares, including the costs of preparing, printing and distributing advertising
or promotional materials, and the costs of printing and distributing
prospectuses and supplements thereto used in connection with the offering and
sale of the Fund's shares. The Fund bears the costs of initial typesetting,
printing and distribution of prospectuses and supplements thereto to
shareholders. The Fund also bears the costs of registering the Fund and its
shares under federal and state securities laws and pays filing fees in
accordance with state securities laws.
The Fund and the Distributor have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act. Under the
Distribution Agreement, the Distributor uses its
18
<PAGE>
best efforts in rendering services to the Fund, but in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations, the Distributor is not liable to the Fund or any of its
shareholders for any error of judgment or mistake of law or for any act or
omission or for any losses sustained by the Fund or its shareholders.
C. SERVICES PROVIDED BY THE INVESTMENT MANAGER AND THE SUB-ADVISOR
The Investment Manager supervises the investment of the Fund's assets. The
Investment Manager obtains and evaluates the information and advice relating to
the economy, securities markets, and specific securities as it considers
necessary or useful to continuously oversee the management of the assets of the
Fund in a manner consistent with its investment objective.
Under the terms of the Management Agreement, the Investment Manager also
maintains certain of the Fund's books and records and furnishes, at its own
expense, the office space, facilities, equipment, clerical help, bookkeeping
and certain legal services as the Fund may reasonably require in the conduct of
its business, including the preparation of prospectuses, proxy statements and
reports required to be filed with federal and state securities commissions
(except insofar as the participation or assistance of independent accountants
and attorneys is, in the opinion of the Investment Manager, necessary or
desirable). In addition, the Investment Manager 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 service, heat,
light, power and other utilities provided to the Fund.
Pursuant to the Sub-Advisory Agreement, the Sub-Advisor has been retained,
subject to the overall supervision of the Investment Manager, to continuously
furnish investment advice concerning individual security selections, asset
allocations and overall economic trends.
Expenses not expressly assumed by the Investment Manager or the
Sub-Advisor under the Management Agreement and the Sub-Advisory Agreement or by
the Distributor, will be paid by the Fund. These expenses will be allocated
among the four Classes of shares pro rata based on the net assets of the Fund
attributable to each Class, except as described below. Such expenses include,
but are not limited to: expenses of the Plan of Distribution pursuant to Rule
12b-1; charges and expenses of any registrar, custodian, stock transfer and
dividend disbursing agent; brokerage commissions; taxes; engraving and printing
share certificates; registration costs of the Fund and its shares under federal
and state securities laws; the cost and expense of printing, including
typesetting, and distributing prospectuses of the Fund and supplements thereto
to the Fund's shareholders; all expenses of shareholders' and Trustees'
meetings and of preparing, printing and mailing of proxy statements and reports
to shareholders; fees and travel expenses of Trustees or members of any
advisory board or committee who are not employees of the Investment Manager or
any corporate affiliate of the Investment Manager or the Sub-Advisor; all
expenses incident to any dividend, withdrawal or redemption options; charges
and expenses of any outside service used for pricing of the Fund's shares; fees
and expenses of legal counsel, including counsel to the Trustees who are not
interested persons of the Fund or of the Investment Manager or the Sub-Advisor
(not including compensation or expenses of attorneys who are employees of the
Investment Manager or the Sub-Advisor); fees and expenses of the Fund's
independent accountants; membership dues of industry associations; interest on
Fund borrowings; postage; insurance premiums on property or personnel
(including officers and Trustees) of the Fund which inure to its benefit;
extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification relating thereto); and
all other costs of the Fund's operation. The 12b-1 fees relating to a
particular Class will be allocated directly to that Class. In addition, other
expenses associated with a particular Class (except advisory or custodial fees)
may be allocated directly to that Class, provided that such expenses are
reasonably identified as specifically attributable to that Class and the direct
allocation to that Class is approved by the Trustees.
The Management Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Investment Manager is not liable to the Fund or any
of its investors for any act or omission by the Investment Manager or for any
losses sustained by the Fund or its investors.
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<PAGE>
The Management Agreement will remain in effect from year to year, provided
continuance of the Management Agreement is approved at least annually by the
vote of the holders of a majority, as defined in the Investment Company Act, of
the outstanding shares of the Fund, or by the Trustees; provided that in either
event such continuance is approved annually by the vote of a majority of the
Trustees, including a majority of the Independent Trustees.
D. DEALER REALLOWANCES
Upon notice to selected broker-dealers, the Distributor may reallow up to
the full applicable front-end sales charge during periods specified in such
notice. During periods when 90% or more of the sales charge is reallowed, such
selected broker-dealers may be deemed to be underwriters as that term is
defined in the Securities Act.
E. RULE 12B-1 PLAN
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Investment Company Act (the "Plan") pursuant to which each Class, other
than Class D, pays the Distributor compensation accrued daily and payable
monthly at the following annual rates: 0.25% and 1.0% of the average daily net
assets of Class A and Class C, respectively, and, with respect to Class B, 1.0%
of the lesser of: (a) the average daily aggregate gross sales of the Fund's
Class B shares since the inception of the Fund (not including reinvestment of
dividends or capital gains distributions), less the average daily aggregate net
asset value of the Fund's Class B shares redeemed since the Fund's inception
upon which a contingent deferred sales charge has been imposed or upon which
such charge has been waived; or (b) the average daily net assets of Class B
shares.
The Distributor also receives the proceeds of front-end sales charges
("FSCs") and of contingent deferred sales charges ("CDSCs") imposed on certain
redemptions of shares, which are separate and apart from payments made pursuant
to the Plan. The Distributor has informed the Fund that it and/or Dean Witter
Reynolds received the proceeds of CDSCs and FSCs, for the last three fiscal
years ended November 30, in approximate amounts as provided in the table below
(the Distributor did not retain any of these amounts).
<TABLE>
<CAPTION>
1999 1998 1997
------------------------- ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A .......... FSCs:(1) $154,526 FSCs:(1) $ 15,552 FSCs:(1) $ 3,000
CDSCs: $ 3,082 CDSCs: $ 0 CDSCs: $ 0
Class B .......... CDSCs: $693,550 CDSCs: $679,862 CDSCs: $946,000
Class C .......... CDSCs: $ 10,375 CDSCs: $ 372 CDSCs: $ 0
</TABLE>
- - - ----------
(1) FSCs apply to Class A only.
The Distributor has informed the Fund that the entire fee payable by Class
A and a portion of the fees payable by each of Class B and Class C each year
pursuant to the Plan equal to 0.25% of such Class' average daily net assets are
currently each characterized as a "service fee" under the Rules of the National
Association of Securities Dealers, Inc. (of which the Distributor is a member).
The "service fee" is a payment made for personal service and/or the maintenance
of shareholder accounts. The remaining portion of the Plan fees payable by a
Class, if any, is characterized as an "asset-based sales charge" as such is
defined by the Rules of the Association.
Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each calendar quarter a written report
provided by the Distributor of the amounts expended under the Plan and the
purpose for which such expenditures were made. Class B shares of the Fund
accrued amounts payable to the Distributor under the Plan, during the fiscal
year ended November 30, 1999, of $4,436,240. This amount is equal to 0.75% of
the average daily net assets of Class B for the fiscal year and was calculated
pursuant to clause (a) of the compensation formula under the Plan. For the
fiscal year ended November 30, 1999, Class A and Class C shares of the Fund
accrued payments under the Plan amounting to $16,178 and $109,805,
respectively, which amounts are equal to 0.24% and 1.00% of the average daily
net assets of Class A and Class C, respectively, for the fiscal year.
20
<PAGE>
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes, each with a different distribution arrangement.
With respect to Class A shares, Dean Witter Reynolds compensates its
Financial Advisors by paying them, from proceeds of the FSC, commissions for
the sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.25% of the current value
of the respective accounts for which they are the Financial Advisors or dealers
of record in all cases. On orders of $1 million or more (for which no sales
charge was paid) or net asset value purchases by employer-sponsored employee
benefit plans, whether or not qualified under the Internal Revenue Code, for
which the Transfer Agent serves as Trustee or Dean Witter Reynolds Retirement
Plan Services serves as recordkeeper pursuant to a written Recordkeeping
Services Agreement ("MSDW Eligible Plans"), MSDW Advisors compensates Financial
Advisors by paying them, from its own funds, a gross sales credit of 1.0% of
the amount sold.
With respect to Class B shares, Dean Witter Reynolds compensates its
Financial Advisors by paying them, from its own funds, commissions for the sale
of Class B shares, currently a gross sales credit of up to 5.0% of the amount
sold (except as provided in the following sentence) and an annual residual
commission, currently a residual of up to 0.25% of the current value (not
including reinvested dividends or distributions) of the amount sold in all
cases. In the case of Class B shares purchased on or after July 28, 1997 by
MSDW Eligible Plans, Dean Witter Reynolds compensates its Financial Advisors by
paying them, from its own funds, a gross sales credit of 3.0% of the amount
sold.
With respect to Class C shares, Dean Witter Reynolds compensates its
Financial Advisors by paying them, from its own funds, commissions for the sale
of Class C shares, currently a gross sales credit of up to 1.0% of the amount
sold and an annual residual commission, currently up to 1.0% of the current
value of the respective accounts for which they are the Financial Advisors of
record.
With respect to Class D shares other than shares held by participants in
MSDW Advisor's mutual fund asset allocation program, MSDW Advisors compensates
Dean Witter Reynolds' Financial Advisors by paying them, from its own funds,
commissions for the sale of Class D shares, currently a gross sales credit of
up to 1.0% of the amount sold. There is a chargeback of 100% of the amount paid
if the Class D shares are redeemed in the first year and a chargeback of 50% of
the amount paid if the Class D shares are redeemed in the second year after
purchase. The Manager also compensates Dean Witter Reynolds' Financial Advisors
by paying them, from its own funds, an annual residual commission, currently up
to 0.10% of the current value of the respective accounts for which they are the
Financial Advisors of record (not including accounts of participants in the
Investment Manager's mutual fund asset allocation program).
The gross sales credit is a charge which reflects commissions paid by Dean
Witter Reynolds to its Financial Advisors and Dean Witter Reynolds'
Fund-associated distribution-related expenses, including sales compensation,
and overhead and other branch office distribution-related expenses including
(a) the expenses of operating Dean Witter Reynolds' branch offices in
connection with the sale of Fund shares, including lease costs, the salaries
and employee benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies; (b) the costs of
client sales seminars; (c) travel expenses of mutual fund sales coordinators to
promote the sale of Fund shares; and (d) other expenses relating to branch
promotion of Fund sales.
The Investment Manager pays a retention fee to Financial Advisors at an
annual rate of 0.05% of the value of shares of the Fund sold after January 1,
2000 and held for at least one year. Shares purchased through the reinvestment
of dividends will be eligible for a retention fee, provided that such dividends
were earned on shares otherwise eligible for a retention fee payment. Shares
owned in variable annuities, closed-end fund shares and shares held in 401(k)
plans where the Transfer Agent or Dean Witter Reynolds's Retirement Plan
Services is either recordkeeper or trustee are not eligible for a retention
fee.
21
<PAGE>
For the first year only, the retention fee is paid on any shares of the
Fund sold after January 1, 2000 and held by shareholders on December 31, 2000.
The retention fees are paid by the Investment Manager from its own assets,
which may include profits from investment management fees payable under the
Management Agreement, as well as from borrowed funds.
The distribution fee that the Distributor receives from the Fund under the
Plan, in effect, offsets distribution expenses incurred under the Plan on
behalf of the Fund and, in the case of Class B shares, opportunity costs, such
as the gross sales credit and an assumed interest charge thereon ("carrying
charge"). These expenses may include the cost of Fund-related educational
and/or business-related trips or payment of Fund-related educational and/or
promotional expenses of Financial Advisors. In the Distributor's reporting of
the distribution expenses to the Fund, in the case of Class B shares, such
assumed interest (computed at the "broker's call rate") has been calculated on
the gross credit as it is reduced by amounts received by the Distributor under
the Plan and any contingent deferred sales charges received by the Distributor
upon redemption of shares of the Fund. No other interest charge is included as
a distribution expense in the Distributor's calculation of its distribution
costs for this purpose. The broker's call rate is the interest rate charged to
securities brokers on loans secured by exchange-listed securities.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments at
the end of each month. The amount of each monthly payment may in no event
exceed an amount equal to a payment at the annual rate of 0.25%, in the case of
Class A, and 1.0%, in the case of Class C, of the average net assets of the
respective Class during the month. No interest or other financing charges, if
any, incurred on any distribution expenses on behalf of Class A and Class C
will be reimbursable under the Plan. With respect to Class A, in the case of
all expenses other than expenses representing the service fee, and, with
respect to Class C, in the case of all expenses other than expenses
representing a gross sales credit or a residual to Financial Advisors and other
authorized financial representatives, such amounts shall be determined at the
beginning of each calendar quarter by the Trustees, including, a majority of
the Independent Trustees. Expenses representing the service fee (for Class A)
or a gross sales credit or a residual to Financial Advisors and other
authorized financial representatives (for Class C) may be reimbursed without
prior determination. In the event that the Distributor proposes that monies
shall be reimbursed for other than such expenses, then in making quarterly
determinations of the amounts that may be reimbursed by the Fund, the
Distributor will provide and the Trustees will review a quarterly budget of
projected distribution expenses to be incurred on behalf of the Fund, together
with a report explaining the purposes and anticipated benefits of incurring
such expenses. The Trustees will determine which particular expenses, and the
portions thereof, that may be borne by the Fund, and in making such a
determination shall consider the scope of the Distributor's commitment to
promoting the distribution of the Fund's Class A and Class C shares.
Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the fiscal year ended November 30, 1999 to the Distributor. The
Distributor and Dean Witter Reynolds estimate that they have spent, pursuant to
the Plan, $37,540,306 on behalf of Class B since the inception of the Plan. It
is estimated that this amount was spent in approximately the following ways:
(i) 6.18% ($2,321,741)-advertising and promotional expenses; (ii) 0.41%
($155,295)-printing and mailing of prospectuses for distribution to other than
current shareholders; and (iii) 93.40% ($35,063,270)-other expenses, including
the gross sales credit and the carrying charge, of which 4.48% ($1,572,317)
represents carrying charges, 25.25% ($8,855,201) represents commission credits
to Dean Witter Reynolds branch offices and other selected broker-dealers for
payments of commissions to Financial Advisors and other authorized financial
representatives, and 35.75% ($12,534,174) represents overhead and other branch
office distribution-related expenses and 34.52% ($12,101,578) represents excess
distribution expenses of Morgan Stanley Dean Witter Mid-Cap Growth Fund, the
net assets of which were combined with those of the Fund on June 28, 1999
pursuant to an Agreement and Plan of
22
<PAGE>
Reorganization. The amounts accrued by Class A and a portion of the amounts
accrued by Class C under the Plan during the fiscal year ended November 30,
1999 were service fees. The remainder of the amount accrued by Class C were for
expenses which relate to compensation of sales personnel and associated
overhead expenses.
In the case of Class B shares, at any given time, the expenses of
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan; and (ii) the proceeds of CDSCs
paid by investors upon redemption of shares. For example, if $1 million in
expenses in distributing Class B shares of the Fund had been incurred and
$750,000 had been received as described in (i) and (ii) above, the excess
expense would amount to $250,000. The Distributor has advised the Fund that in
the case of Class B shares the excess distribution expenses, including the
carrying charge designed to approximate the opportunity costs incurred by Dean
Witter Reynolds which arise from it having advanced monies without having
received the amount of any sales charges imposed at the time of sale of the
Fund's Class B shares, totaled $25,765,238 as of November 30, 1999 (the end of
the Fund's fiscal year), which was equal to 1.96% of the net assets of Class B
on such date. Because there is no requirement under the Plan that the
Distributor be reimbursed for all distribution expenses with respect to Class B
shares or any requirement that the Plan be continued from year to year, this
excess amount does not constitute a liability of the Fund. 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 CDSCs 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. Any cumulative expenses incurred, but not yet recovered through
distribution fees or CDSCs, may or may not be recovered through future
distribution fees or CDSCs.
In the case of Class A 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 commission credited to Morgan Stanley Dean Witter Financial
Advisors and other authorized financial representatives at the time of sale may
be reimbursed in the subsequent calendar year. The Distributor has advised the
Fund that unreimbursed expenses representing a gross sales commission credited
to Morgan Stanley Dean Witter Financial Advisors and other authorized financial
representatives at the time of sale totaled $128,662 in the case of Class C at
December 31, 1999 (end of the calendar year), which amount was equal to 0.25%
of the net assets of Class C on such date, and that there were no such expenses
that may be reimbursed in the subsequent year in the case of Class A on such
date. No interest or other financing charges will be incurred on any Class A or
Class C distribution expenses incurred by the Distributor under the Plan or on
any unreimbursed expenses due to the Distributor pursuant to the Plan.
No interested person of the Fund nor any Independent Trustee has any
direct financial interest in the operation of the Plan except to the extent
that the Distributor, the Manager, Dean Witter Reynolds, MSDW Advisors or
certain of their employees may be deemed to have such an interest as a result
of benefits derived from the successful operation of the Plan or as a result of
receiving a portion of the amounts expended thereunder by the Fund.
On an annual basis, the Trustees, including a majority of the Independent
Trustees, consider whether the Plan should be continued. Prior to approving the
last continuation of the Plan, the Trustees requested and received from the
Distributor and reviewed all the information which they deemed necessary to
arrive at an informed determination. In making their determination to continue
the Plan, the Trustees considered: (1) the Fund's experience under the Plan and
whether such experience indicates that the Plan is operating as anticipated;
(2) the benefits the Fund had obtained, was obtaining and would be likely to
obtain under the Plan, including that: (a) the Plan is essential in order to
give Fund investors a choice of alternatives for payment of distribution and
service charges and to enable the Fund to continue to grow and avoid a pattern
of net redemptions which, in turn, are essential for effective investment
management; and (b) without the compensation to individual brokers and the
reimbursement of distribution and account maintenance expenses of Dean Witter
Reynolds' branch offices made possible by the 12b-1 fees, Dean Witter Reynolds
could not establish and maintain an effective system
23
<PAGE>
for distribution, servicing of Fund shareholders and maintenance of shareholder
accounts; and (3) what services had been provided and were continuing to be
provided under the Plan to the Fund and its shareholders. Based upon their
review, the Trustees, including each of the Independent Trustees, determined
that continuation of the Plan would be in the best interest of the Fund and
would have a reasonable likelihood of continuing to benefit the Fund and its
shareholders. In the Trustees' quarterly review of the Plan, they will consider
its continued appropriateness and the level of compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval by the shareholders of the
affected Class or Classes of the Fund, and all material amendments to the Plan
must also be approved by the Trustees in the manner described above. The Plan
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Independent Trustees or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the Investment Company
Act) on not more than thirty days' written notice to any other party to the
Plan. So long as the Plan is in effect, the election and nomination of
Independent Trustees shall be committed to the discretion of the Independent
Trustees.
F. OTHER SERVICE PROVIDERS
(1) TRANSFER AGENT/DIVIDEND-PAYING AGENT
Morgan Stanley Dean Witter Trust FSB is the Transfer Agent for the Fund's
shares and the Dividend Disbursing Agent for payment of dividends and
distributions on Fund shares and Agent for shareholders under various
investment plans. The principal business address of the Transfer Agent is
Harborside Financial Center, Plaza Two, Jersey City, NJ 07311.
(2) CUSTODIAN AND INDEPENDENT ACCOUNTANTS
The Bank of New York, 100 Church Street, New York, NY 10007, is the
Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
These balances may, at times, be substantial.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, NY
10036, serves as the independent accountants of the Fund. The independent
accountants are responsible for auditing the annual financial statements of the
Fund.
(3) AFFILIATED PERSONS
The Transfer Agent is an affiliate of the Investment Manager, and of the
Distributor. As Transfer Agent and Dividend Disbursing Agent, the Transfer
Agent's responsibilities include maintaining shareholder accounts, disbursing
cash dividends and reinvesting dividends, processing account registration
changes, handling purchase and redemption transactions, mailing prospectuses
and reports, mailing and tabulating proxies, processing share certificate
transactions, and maintaining shareholder records and lists. For these
services, the Transfer Agent receives a per shareholder account fee from the
Fund and is reimbursed for its out-of-pocket expenses in connection with such
services.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
- - - --------------------------------------------------------------------------------
A. BROKERAGE TRANSACTIONS
Subject to the general supervision of the Trustees, the Investment Manager
and/or Sub-Advisor are responsible for decisions to buy and sell securities for
the Fund, the selection of brokers and dealers to effect the transactions, and
the negotiation of brokerage commissions, if any. Purchases and sales of
securities on a stock exchange are effected through brokers who charge a
commission for their services. In the over-the-counter market, securities are
generally traded on a "net" basis with dealers acting as principal for their
own accounts without a stated commission, although the price of the security
usually includes a profit to the dealer. The Fund also expects that securities
will be purchased at times in underwritten offerings where the price includes a
fixed amount of compensation, generally referred to as the underwriter's
concession or discount. On occasion, the Fund may also purchase certain money
market instruments directly from an issuer, in which case no commissions or
discounts are paid.
24
<PAGE>
For the fiscal years ended November 30, 1997, 1998 and 1999, the Fund paid
a total of $170,759, $88,027 and $336,574, respectively, in brokerage
commissions.
B. COMMISSIONS
Pursuant to an order of the SEC, the Fund may effect principal
transactions in certain money market instruments with Dean Witter Reynolds. The
Fund will limit its transactions with Dean Witter Reynolds to U.S. Government
and government agency securities, bank money instruments (i.e., certificates of
deposit and bankers' acceptances) and commercial paper. The transactions will
be effected with Dean Witter Reynolds only when the price available from Dean
Witter Reynolds is better than that available from other dealers.
During the fiscal years ended November 30, 1997, 1998 and 1999, the Fund
did not effect any principal transactions with Dean Witter Reynolds.
Brokerage transactions in securities listed on exchanges or admitted to
unlisted trading privileges may be effected through Dean Witter Reynolds,
Morgan Stanley & Co. and other affiliated brokers and dealers. In order for an
affiliated broker or dealer to effect any portfolio transactions on an exchange
for the Fund, the commissions, fees or other remuneration received by the
affiliated broker or dealer must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on an exchange during a comparable period of time. This standard would
allow the affiliated broker or dealer to receive no more than the remuneration
which would be expected to be received by an unaffiliated broker in a
commensurate arm's-length transaction. Furthermore, the Trustees, including the
Independent Trustees, have adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to an affiliated
broker or dealer are consistent with the foregoing standard. The Fund does not
reduce the management fee it pays to the Investment Manager by any amount of
the brokerage commissions it may pay to an affiliated broker or dealer.
During the fiscal years ended November 30, 1997, 1998 and 1999 there were
no brokerage fees paid to Dean Witter Reynolds. During the period June 1
through November 30, 1997 and during the fiscal years ended November 30, 1998
and 1999, the Fund paid a total of $1,235, $645, and $9,005, respectively, in
brokerage commissions to Morgan Stanley & Co., which broker-dealer became an
affiliate of the Investment Manager on May 31, 1997 upon consummation of the
merger of Dean Witter, Discover & Co. with Morgan Stanley Group Inc. During the
fiscal year ended November 30, 1999, the brokerage commissions paid to Morgan
Stanley & Co. represented approximately 2.68% of the total brokerage
commissions paid by the Fund for this period and were paid on account of
transactions having an aggregate dollar value equal to approximately 0.74% of
the aggregate dollar value of all portfolio transactions of the Fund during the
year for which commissions were paid.
C. BROKERAGE SELECTION
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions. Consistent with this
policy, when securities transactions are effected on a stock exchange, the
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid
in all circumstances. The Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Investment Manager and/or Sub-Advisor from obtaining
a high quality of brokerage and research services. In seeking to determine the
reasonableness of brokerage commissions paid in any transaction, the Investment
Manager and/or Sub-Advisor relies upon its experience and knowledge regarding
commissions generally charged by various brokers and on its judgment in
evaluating the brokerage and research services received from the broker
effecting the transaction. These determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for those services is not
ascertainable. The Fund anticipates that certain of its transactions involving
foreign securities will be effected on foreign securities exchanges. Fixed
commissions on such
25
<PAGE>
transactions are generally higher than negotiated commissions on domestic
transactions. There is also generally less government supervision and
regulation of foreign securities exchanges and brokers than in the United
States.
In seeking to implement the Fund's policies, the Investment Manager and
the Sub-Advisor effect transactions with those brokers and dealers who the
Investment Manager and/or Sub-Advisor believes provide the most favorable
prices and are capable of providing efficient executions. If the Investment
Manager and/or Sub-Advisor believes the prices and executions are obtainable
from more than one broker or dealer, it may give consideration to placing
portfolio transactions with those brokers and dealers who also furnish research
and other services to the Fund or the Investment Manager and the Sub-Advisor.
The services may include, but are not limited to, any one or more of the
following: information as to the availability of securities for purchase or
sale; statistical or factual information or opinions pertaining to investment;
wire services; and appraisals or evaluations of portfolio securities. The
information and services received by the Investment Manager and/or Sub-Advisor
from brokers and dealers may be of benefit to the Investment Manager and/or
Sub-Advisor in the management of accounts of some of their other clients and
may not in all cases benefit the Fund directly.
The Investment Manager and the Sub-Advisor currently serve as investment
advisors to a number of clients, including other investment companies, and may
in the future act as investment manager or advisor to others. It is the
practice of the Investment Manager and the Sub-Advisor to cause purchase and
sale transactions to be allocated among the Fund and others whose assets they
manage in such manner as they deem equitable. In making such allocations among
the Fund and other client accounts, various factors may be considered,
including the respective investment objectives, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash for
investment, the size of investment commitments generally held and the opinions
of the persons responsible for managing the portfolios of the Fund and other
client accounts. In the case of certain initial and secondary public offerings,
the Investment Manager utilizes a pro rata allocation process based on the size
of the funds involved and the number of shares available from the public
offering.
D. DIRECTED BROKERAGE
During the fiscal year ended November 30, 1999, the Fund paid $335,564 in
brokerage commissions in connection with transactions in the aggregate amount
of $233,461,835 to brokers because of research services provided.
E. REGULAR BROKER-DEALERS
During the fiscal year ended November 30, 1999, the Fund did not purchase
securities issued by brokers or dealers that were among the ten brokers or the
ten dealers that executed transactions for or with the Fund in the largest
dollar amounts during the year.
VII. CAPITAL STOCK AND OTHER SECURITIES
- - - --------------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full
share of beneficial interest held. The Fund is authorized to issue an unlimited
number of shares of beneficial interest. All shares of beneficial interest of
the Fund are of $0.01 par value and are equal as to earnings, assets and voting
privileges except that each Class will have exclusive voting privileges with
respect to matters relating to distribution expenses borne solely by such Class
or any other matter in which the interests of one Class differ from the
interests of any other Class. In addition, Class B shareholders will have the
right to vote on any proposed material increase in Class A's expenses, if such
proposal is submitted separately to Class A shareholders. Also, Class A, Class
B and Class C bear expenses related to the distribution of their respective
shares.
The Fund's Declaration of Trust permits the Trustees to authorize the
creation of additional series of shares (the proceeds of which would be
invested in separate, independently managed portfolios) and additional Classes
of shares within any series. The Trustees have not presently authorized any
such additional series or Classes of shares other than as set forth in the
Prospectus.
26
<PAGE>
The Fund is not required to hold annual meetings of shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call special meetings of shareholders for action by shareholder
vote as may be required by the Investment Company Act or the Declaration of
Trust. Under certain circumstances the Trustees may be removed by action of the
Trustees. In addition, under certain circumstances the shareholders may call a
meeting to remove Trustees and the Fund is required to provide assistance in
communicating with shareholders about such a meeting. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees.
Under Massachusetts law, shareholders of a business trust may, under
certain limited circumstances, be held personally liable as partners for the
obligations of the Fund. However, the Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Fund,
requires that notice of such Fund obligations include such disclaimer, and
provides for indemnification out of the Fund's property for any shareholder
held personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, the possibility of the Fund
being unable to meet its obligations is remote and thus, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
All of the Trustees have been elected by the shareholders of the Fund,
most recently at a Special Meeting of Shareholders held on June 8, 1999. The
Trustees themselves have the power to alter the number and the terms of office
of the Trustees (as provided for in the Declaration of Trust), and they may at
any time lengthen or shorten their own terms or make their terms of unlimited
duration and appoint their own successors, provided that always at least a
majority of the Trustees has been elected by the shareholders of the Fund.
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
- - - --------------------------------------------------------------------------------
A. PURCHASE/REDEMPTION OF SHARES
Information concerning how Fund shares are offered to the public (and how
they are redeemed and exchanged) is provided in the Fund's Prospectus.
TRANSFER AGENT AS AGENT. With respect to the redemption or repurchase of
Fund shares, the application of proceeds to the purchase of new shares in the
Fund or any other Morgan Stanley Dean Witter Fund and the general
administration of the exchange privilege, the Transfer Agent acts as agent for
the Distributor and for the shareholder's authorized broker-dealer, if any, in
the performance of such functions. With respect to exchanges, redemptions or
repurchases, the Transfer Agent shall be liable for its own negligence and not
for the default or negligence of its correspondents or for losses in transit.
The Fund shall not be liable for any default or negligence of the Transfer
Agent, the Distributor or any authorized broker-dealer.
The Distributor and any authorized broker-dealer have appointed the
Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any
other continuously offered Morgan Stanley Dean Witter Fund and the general
administration of the exchange privilege. No commission or discounts will be
paid to the Distributor or any authorized broker-dealer for any transaction
pursuant to the exchange privilege.
TRANSFERS OF SHARES. In the event a shareholder requests a transfer of
Fund shares to a new registration, the shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to the CDSC or free of such charge (and with regard to the
length of time shares subject to the charge have been held), any transfer
involving less than all of the shares in an account will be made on a pro rata
basis (that is, by transferring shares in the same proportion that the
transferred shares bear to the total shares in the account immediately prior to
the transfer). The transferred shares will continue to be subject to any
applicable CDSC as if they had not been so transferred.
27
<PAGE>
B. OFFERING PRICE
The Fund's Class B, Class C and Class D shares are offered at net asset
value per share and the Class A shares are offered at net asset value per share
plus any applicable FSC which is distributed among the Fund's Distributor, Dean
Witter Reynolds and other authorized dealers as described in Section "V.
Management, Investment Advice and Other Services-F. Rule 12b-1 Plan."
The price of Fund shares, called "net asset value," is based on the value
of the Fund's portfolio securities. Net asset value per share of each Class is
calculated by dividing the value of the portion of the Fund's securities and
other assets attributable to that Class, less the liabilities attributable to
that Class, by the number of shares of that Class outstanding. The assets of
each Class of shares are invested in a single portfolio. The net asset value of
each Class, however, will differ because the Classes have different ongoing
fees.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
stock exchange is valued at its latest sale price on that exchange, prior to
the time when assets are valued; if there were no sales that day, the security
is valued at the latest bid price (in cases where a security is traded on more
than one exchange, the security is valued on the exchange designated as the
primary market pursuant to procedures adopted by the Trustees); and (2) all
other portfolio securities for which over-the-counter market quotations are
readily available are valued at the latest bid price. When market quotations
are not readily available, including circumstances under which it is determined
by the Investment Manager or the Sub-Advisor 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 Fund's Trustees. For valuation
purposes, quotations of foreign portfolio securities, other assets and
liabilities and forward contracts stated in foreign currency are translated
into U.S. dollar equivalents at the prevailing market rates prior to the close
of the New York Stock Exchange.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon as
the evaluation model parameters, and/or research evaluations by its staff,
including review of broker-dealer market price quotations in determining what
it believes is the fair valuation of the portfolio securities valued by such
pricing service.
Generally, trading in foreign securities, as well as corporate bonds, U.S.
Government securities and money market instruments, is substantially completed
each day at various times prior to the close of the New York Stock Exchange.
The values of such securities used in computing the net asset value of the
Fund's shares are determined as of such times. Foreign currency exchange rates
are also generally determined prior to the close of the New York Stock
Exchange. Occasionally, events which may affect the values of such securities
and such exchange rates may occur between the times at which they are
determined and the close of the New York Stock Exchange and will therefore not
be reflected in the computation of the Fund's net asset value. If events that
may affect the value of such securities occur during such period, then these
securities may be valued at their fair value as determined in good faith under
procedures established by and under the supervision of the Trustees.
IX. TAXATION OF THE FUND AND SHAREHOLDERS
- - - --------------------------------------------------------------------------------
The Fund generally will make two basic types of distributions: ordinary
dividends and long-term capital gain distributions. These two types of
distributions are reported differently on a shareholder's income tax return and
they are also subject to different rates of tax. The tax treatment of the
investment activities of the Fund will affect the amount and timing and
character of the distributions made by the Fund. Tax issues relating to the
Fund are not generally a consideration for shareholders such as tax
28
<PAGE>
exempt entities and tax-advantaged retirement vehicles such as an IRA or 401(k)
plan. Shareholders are urged to consult their own tax professionals regarding
specific questions as to federal, state or local taxes.
INVESTMENT COMPANY TAXATION. The Fund intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986. As such, the Fund will not be subject to federal income tax on its net
investment income and capital gains, if any, to the extent that it distributes
such income and capital gains to its shareholders.
The Fund generally intends to distribute sufficient income and gains so
that the Fund will not pay corporate income tax on its earnings. The Fund also
generally intends to distribute to its shareholders in each calendar year a
sufficient amount of ordinary income and capital gains to avoid the imposition
of a 4% excise tax. However, the Fund may instead determine to retain all or
part of any net long-term capital gains in any year for reinvestment. In such
event, the Fund will pay federal income tax (and possibly excise tax) on such
retained gains.
Gains or losses on sales of securities by the Fund will be long-term
capital gains or losses if the securities have a tax holding period of more
than one year. Gains or losses on the sale of securities with a tax holding
period of one year or less will be short-term gains or losses.
Under certain tax rules, the Fund may be required to accrue a portion of
any discount at which certain securities are purchased as income each year even
though the Fund receives no payments in cash on the security during the year.
To the extent that the Fund invests in such securities, it would be required to
pay out such accrued discount as an income distribution in each year in order
to avoid taxation at the Fund level. Such distributions will be made from the
available cash of the Fund or by liquidation of portfolio securities if
necessary. If a distribution of cash necessitates the liquidation of portfolio
securities, the Investment Manager and/or Sub-Advisor will select which
securities to sell. The Fund may realize a gain or loss from such sales. In the
event the Fund realizes net capital gains from such transactions, its
shareholders may receive a larger capital gain distribution, if any, than they
would in the absence of such transactions.
TAXATION OF DIVIDENDS AND DISTRIBUTIONS. Shareholders normally will have
to pay federal income taxes, and any state and/or local income taxes, on the
dividends and other distributions they receive from the Fund. Such dividends
and distributions, to the extent that they are derived from net investment
income or short-term capital gains, are taxable to the shareholder as ordinary
income regardless of whether the shareholder receives such payments in
additional shares or in cash.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. The maximum tax on long-term capital
gains applicable to individuals is 20%.
Shareholders are generally taxed on any ordinary dividend or capital gain
distributions from the Fund in the year they are actually distributed. However,
if any such dividends or distributions are declared in October, November or
December and paid in January then such amounts will be treated for tax purposes
as received by the shareholders on December 31, to shareholders of record of
such month.
Subject to certain exceptions, a corporate shareholder may be eligible for
a 70% dividends received deduction to the extent that the Fund earns and
distributes qualifying dividends from its investments. Distributions of net
capital gains by the Fund will not be eligible for the dividends received
deduction.
Shareholders who are not citizens or residents of the United States and
certain foreign entities may be subject to withholding of United States tax on
distributions made by the Fund of investment income and short term capital
gains.
After the end of each calendar year, shareholders will be sent full
information on their dividends and capital gain distributions for tax purposes,
including the portion taxable as ordinary income, the portion taxable as
long-term capital gains and the amount of any dividends eligible for the
federal dividends received deduction for corporations.
29
<PAGE>
PURCHASES AND REDEMPTIONS AND EXCHANGES OF FUND SHARES. Any dividend or
capital gains distribution received by a shareholder from any investment
company will have the effect of reducing the net asset value of the
shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, such dividends and capital gains
distributions are subject to federal income taxes. If the net asset value of
the shares should be reduced below a shareholder's cost as a result of the
payment of dividends or the distribution of realized long-term capital gains,
such payment or distribution would be in part a return of the shareholder's
investment but nonetheless would be taxable to the shareholder. Therefore, an
investor should consider the tax implications of purchasing Fund shares
immediately prior to a distribution record date.
In general, a sale of shares results in capital gain or loss, and for
individual shareholders, is taxable at a federal rate dependent upon the length
of time the shares were held. A redemption of a shareholder's Fund shares is
normally treated as a sale for tax purposes. Fund shares held for a period of
one year or less will, for tax purposes, generally result in short-term gains
or losses and those held for more than one year generally result in long-term
gain or loss. Under current law, the maximum tax on long-term capital gains is
20%. Any loss realized by shareholders upon a sale or redemption of shares
within six months of the date of their purchase will be treated as a long-term
capital loss to the extent of any distributions of net long-term capital gains
with respect to such shares during the six-month period.
Gain or loss on the sale or redemption of shares in the Fund is measured
by the difference between the amount received and the tax basis of the shares.
Shareholders should keep records of investments made (including shares acquired
through reinvestment of dividends and distributions) so they can compute the
tax basis of their shares. Under certain circumstances a shareholder may
compute and use an average cost basis in determining the gain or loss on the
sale or redemption of shares.
Exchanges of Fund shares for shares of any other continuously offered
Morgan Stanley Dean Witter Fund are also subject to similar tax treatment. Such
an exchange is treated for tax purposes as a sale of the original shares in the
first fund, followed by the purchase of shares in the second fund.
If a shareholder realizes a loss on the redemption or exchange of a fund's
shares and reinvests in that fund's shares within 30 days before or after the
redemption or exchange, the transactions may be subject to the "wash sale"
rules, resulting in a postponement of the recognition of such loss for tax
purposes.
X. UNDERWRITERS
- - - --------------------------------------------------------------------------------
The Fund's shares are offered to the public on a continuous basis. The
Distributor, as the principal underwriter of the shares, has certain
obligations under the Distribution Agreement concerning the distribution of the
shares. These obligations and the compensation the Distributor receives are
described above in the sections titled "Principal Underwriter" and "Rule 12b-1
Plans".
XI. CALCULATION OF PERFORMANCE DATA
- - - --------------------------------------------------------------------------------
From time to time, the Fund may quote its "total return" in advertisements
and sales literature. These figures are computed separately for Class A, Class
B, Class C and Class D shares. The Fund's "average annual total return"
represents an annualization of the Fund's total return over a particular period
and is computed by finding the annual percentage rate which will result in the
ending redeemable value of a hypothetical $1,000 investment made at the
beginning of a one, five or ten year period, or for the period from the date of
commencement of operations, if shorter than any of the foregoing. The ending
redeemable value is reduced by any contingent deferred sales charge ("CDSC") at
the end of the one, five, ten year or other period. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
The formula for computing the average annual total return involves a percentage
obtained by dividing the ending redeemable value by the amount of the initial
investment (which in the case of Class A shares is reduced by the Class A
initial sales charge), taking a root of the quotient (where the root is
equivalent to the number of years in the period) and subtracting 1 from the
result. Based on this calculation, the average annual total returns for Class B
for the one year period ended November 30, 1999 and for the period February 27,
1996 (inception of the Class) through November 30, 1999 were 110.82% and
37.60%, respectively. The average annual total returns of
30
<PAGE>
Class A for the fiscal year ended November 30, 1999 and for the period July 28,
1997 (inception of the Class) through November 30, 1999 were 105.51% and
58.86%, respectively. The average annual total returns of Class C for the
fiscal year ended November 30, 1999 and for the period July 28, 1997 (inception
of the Class) through November 30, 1999 were 114.18% and 61.34%, respectively.
The average annual total returns of Class D for the fiscal year ended November
30, 1999 and for the period July 28, 1997 (inception of the Class) through
November 30, 1999 were 116.96% and 62.84%, respectively.
In addition, the Fund may advertise its total return for each Class over
different periods of time by means of aggregate, average, year-by-year or other
types of total return figures. These calculations may or may not reflect the
imposition of the maximum front-end sales charge for Class A or the deduction
of the CDSC for each of Class B and Class C which, if reflected, would reduce
the performance quoted. For example, the average annual total return of the
Fund may be calculated in the manner described above, but without deduction for
any applicable sales charge. Based on this calculation, the average annual
total returns of Class B for the one year period ended November 30, 1999 and
for the period February 27, 1996 through November 30, 1999 were 115.82% and
37.82%, respectively. The average annual total returns of Class A for the
fiscal year ended November 30, 1999 and for the period July 28, 1997 through
November 30, 1999 were 116.89% and 62.56%, respectively. The average annual
total returns of Class C for the fiscal year ended November 30, 1999 and for
the period July 28, 1997 through November 30, 1999 were 115.18% and 61.34%,
respectively. The average annual total returns of Class D for the fiscal year
ended November 30, 1999 and for the period July 28, 1997 through November 30,
1999 were 116.96% and 62.84%, respectively.
In addition, the Fund may compute its aggregate total return for each
Class for specified periods by determining the aggregate percentage rate which
will result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed
that all dividends and distributions are reinvested. The formula for computing
aggregate total return involves a percentage obtained by dividing the ending
value (without reduction for any sales charge) by the initial $1,000 investment
and subtracting 1 from the result. Based on this calculation, the total returns
for Class B for the one year period ended November 30, 1999 and for the period
February 27, 1996 through November 30, 1999 were 115.82% and 233.65%,
respectively. The total returns of Class A for the fiscal year ended November
30, 1999 and for the period July 28, 1997 through November 30, 1999 were
116.89% and 211.85%, respectively. The total returns of Class C for the fiscal
year ended November 30, 1999 and for the period July 28, 1997 through November
30, 1999 were 115.18% and 206.41%, respectively. The total returns of Class D
for the fiscal year ended November 30, 1999 and for the period July 28, 1997
through November 30, 1999 were 116.96% and 213.14%, respectively.
The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1
to the Fund's aggregate total return to date (expressed as a decimal and
without taking into account the effect of any applicable CDSC) and multiplying
by $9,475, $48,000 and $97,000 in the case of Class A (investments of $10,000,
$50,000 and $100,000 adjusted for the initial sales charge) or by $10,000,
$50,000 and $100,000 in the case of each of Class B, Class C and Class D, as
the case may be. Investments of $10,000, $50,000 and $100,000 in each Class at
inception of the Class would have grown to the following amounts at November
30, 1999:
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
-------------------------------------
INCEPTION
CLASS DATE $10,000 $50,000 $100,000
- - - ----------------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Class A ......... 7/28/97 $29,547 $149,688 $302,495
Class B ......... 2/27/96 33,365 166,825 333,650
Class C ......... 7/28/97 30,641 153,205 306,410
Class D ......... 7/28/97 31,314 156,570 313,140
</TABLE>
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by recognized organizations.
31
<PAGE>
XII. FINANCIAL STATEMENTS
- - - --------------------------------------------------------------------------------
EXPERTS. The financial statements of the Fund for the fiscal year ended
November 30, 1999 included in this Statement of Additional Information and
incorporated by reference in the Prospectus have been so included and
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
* * * * *
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the SEC. The complete Registration Statement may be obtained from
the SEC.
32
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
PORTFOLIO OF INVESTMENTS November 30, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- - - ----------------- -------------------
<S> <C> <C>
COMMON STOCKS (97.1%)
Accident & Health Insurance (0.6%)
175,000 AFLAC, Inc. .......................... $ 8,378,125
--------------
Advertising (1.9%)
85,700 DoubleClick Inc.* .................... 13,712,000
225,000 Lamar Advertising Co. (Class A)*...... 12,867,187
--------------
26,579,187
--------------
Apparel (0.6%)
100,000 Gucci Group N.V. (Netherlands) ....... 8,325,000
--------------
Auto Parts: O.E.M. (0.3%)
200,000 Gentex Corp.* ........................ 3,725,000
--------------
Biotechnology (3.3%)
359,900 Biogen, Inc.* ........................ 26,272,700
139,400 Genentech, Inc.* ..................... 11,970,975
138,900 Gilead Sciences, Inc.* ............... 6,658,519
--------------
44,902,194
--------------
Books/Magazines (0.0%)
24,400 Playboy Enterprises, Inc.
(Class B)* ......................... 507,825
--------------
Broadcasting (5.0%)
359,737 Clear Channel Communications,
Inc.* .............................. 28,913,861
116,100 Hispanic Broadcasting Corp.* ......... 9,556,481
341,200 Univision Communications, Inc.
(Class A)* ......................... 29,855,000
--------------
68,325,342
--------------
Building Materials/DIY
Chains (0.7%)
192,000 Lowe's Companies, Inc. ............... 9,564,000
--------------
Cable Television (3.5%)
279,100 Cablevision Systems Corp.
(Class A)* ......................... 19,135,794
429,700 EchoStar Communications Corp.
(Class A)* ......................... 28,360,200
--------------
47,495,994
--------------
Catalog/Specialty
Distribution (2.4%)
295,200 Amazon.com, Inc.* .................... 25,092,000
186,900 Drugstore.com, Inc.* ................. 7,849,800
--------------
32,941,800
--------------
Clothing/Shoe/Accessory
Stores (1.4%)
100,000 Ann Taylor Stores Corp.* ............. 4,318,750
312,100 Talbot's, Inc. (The) ................. 15,136,850
--------------
19,455,600
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- - - ----------------- -------------------
<S> <C> <C>
Computer Communications (2.1%)
32,800 Foundry Networks, Inc.* .............. $ 7,714,150
78,600 Juniper Networks, Inc.* .............. 21,762,375
--------------
29,476,525
--------------
Computer Software (8.0%)
77,900 Citrix Systems, Inc.* ................ 7,405,369
110,000 Mercury Interactive Corp.* ........... 9,123,125
91,550 Phone.com, Inc.* ..................... 13,228,975
411,000 Rational Software Corp.* ............. 20,961,000
845,400 Siebel Systems, Inc.* ................ 59,283,675
--------------
110,002,144
--------------
Computer/Video Chains (0.7%)
200,000 Circuit City Stores, Inc. - Circuit
City Group ......................... 9,700,000
--------------
Diversified Commercial
Services (4.7%)
324,325 Paychex, Inc. ........................ 12,932,459
275,900 Scient Corp.* ........................ 39,971,012
142,000 Viant Corp.* ......................... 11,786,000
--------------
64,689,471
--------------
Diversified Electronic
Products (5.8%)
360,000 Gemstar International Group Ltd.
(Virgin Islands)* .................. 40,590,000
170,000 JDS Uniphase Corp.* .................. 38,876,875
--------------
79,466,875
--------------
Diversified Financial
Services (0.2%)
35,000 Providian Financial Corp. ............ 2,769,375
--------------
E.D.P. Peripherals (0.4%)
66,100 Lexmark International Group, Inc.
(Class A)* ......................... 5,486,300
--------------
Electronic Components (1.3%)
75,000 Rambus Inc.* ......................... 5,268,750
160,000 Solectron Corp.* ..................... 13,180,000
--------------
18,448,750
--------------
Electronic Production
Equipment (0.5%)
116,000 Jabil Circuit, Inc.* ................. 7,416,750
--------------
Engineering & Construction (0.9%)
312,400 Metromedia Fiber Network, Inc.
(Class A)* ......................... 12,085,975
--------------
Generic Drugs (0.3%)
86,200 Andrx Corp.* ......................... 4,433,913
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
33
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
PORTFOLIO OF INVESTMENTS November 30, 1999, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- - - ----------------- -------------------
<S> <C> <C>
Internet Services (18.3%)
130,500 Ariba Inc.* ........................... $ 23,522,625
163,000 At Home Corp. (Series A)* ............. 7,915,687
21,900 Commerce One, Inc.* ................... 7,183,200
151,400 Exodus Communications, Inc.* .......... 16,313,350
41,400 Kana Communications, Inc.* ............ 6,080,625
209,500 Portal Software, Inc.* ................ 24,511,500
232,500 Starmedia Network Inc.* ............... 6,873,281
267,200 VeriSign, Inc.* ....................... 49,632,400
205,500 Vignette Corp.* ....................... 42,512,813
315,915 Yahoo! Inc.* .......................... 67,250,406
---------------
251,795,887
---------------
Investment Bankers/Brokers/
Services (3.0%)
1,374,300 E*TRADE Group, Inc.* .................. 41,229,000
---------------
Investment Managers (1.2%)
441,700 Price (T.) Rowe Associates, Inc. ...... 15,873,594
---------------
Life Insurance (1.0%)
298,400 Hartford Life, Inc. (Class A) ......... 13,353,400
---------------
Medical Equipment &
Supplies (0.6%)
103,700 VISX, Inc.* ........................... 8,043,231
---------------
Medical Specialties (1.5%)
200,000 Bard (C.R.), Inc. ..................... 10,862,500
136,700 Minimed, Inc.* ........................ 10,004,731
---------------
20,867,231
---------------
Mid-Sized Banks (0.2%)
100,000 First Tennessee National Corp. ........ 3,287,500
---------------
Motor Vehicles (0.5%)
115,000 Harley-Davidson, Inc. ................. 7,015,000
---------------
Movies/Entertainment (1.0%)
250,000 Westwood One, Inc.* ................... 14,312,500
---------------
Other Consumer Services (4.6%)
295,300 eBay Inc.* ............................ 48,724,500
217,400 Homestore.Com Inc.* ................... 14,144,588
---------------
62,869,088
---------------
Other Pharmaceuticals (0.8%)
109,000 Sepracor, Inc.* ....................... 10,573,000
---------------
Other Specialty Stores (0.4%)
187,500 Bed Bath & Beyond, Inc.* .............. 5,859,375
---------------
Other Telecommunications (3.7%)
307,600 AT&T Canada Inc. (Canada)* ............ 11,573,450
325,000 Broadwing Inc. ........................ 9,465,625
555,516 Global Crossing Ltd. (Bermuda)*........ 24,164,946
128,200 McLeodUSA, Inc. (Class A)* ............ 5,512,600
---------------
50,716,621
---------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- - - ----------------- -------------------
<S> <C> <C>
Precision Instruments (0.4%)
100,000 Waters Corp.* ......................... $ 4,900,000
---------------
Semiconductors (7.0%)
394,400 Altera Corp.* ......................... 21,248,300
452,700 Maxim Integrated Products, Inc.*....... 36,329,175
425,000 Xilinx, Inc.* ......................... 38,010,938
---------------
95,588,413
---------------
Services to the Health Industry (1.2%)
135,000 Express Scripts, Inc. (Class A)* ...... 6,851,250
343,300 MedQuist Inc.* ........................ 9,784,050
---------------
16,635,300
---------------
Smaller Banks (0.6%)
125,000 Zions Bancorporation .................. 8,062,500
---------------
Telecommunications
Equipment (6.5%)
450,500 American Tower Corp. (Class A)*........ 11,769,313
200,000 QUALCOMM Inc.* ........................ 72,450,000
25,000 Sycamore Networks Inc.* ............... 5,568,750
---------------
89,788,063
---------------
TOTAL COMMON STOCKS
(Identified Cost $723,344,313)......... 1,334,945,848
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- - - -----------
<S> <C> <C>
SHORT-TERM INVESTMENT (2.7%)
REPURCHASE AGREEMENT
$ 36,810 The Bank of New York 5.375%
due 12/01/99 (dated 11/30/99;
proceeds $36,815,163) (a)
(Identified Cost $36,809,667).............. 36,809,667
--------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $760,153,980) (b)......... 99.8% 1,371,755,515
OTHER ASSETS IN EXCESS OF
LIABILITIES ............................... 0.2 3,390,153
----- -------------
NET ASSETS ................................ 100.0% $1,375,145,668
=====
</TABLE>
- - - --------------------------------
* Non-income producing security.
(a) Collateralized by $37,078,056 U.S. Treasury Note 6.125% due 09/30/00
valued at $37,539,730.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $628,876,349 and the
aggregate gross unrealized depreciation is $17,274,814, resulting in net
unrealized appreciation of $611,601,535.
SEE NOTES TO FINANCIAL STATEMENTS
34
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1999
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities, at value
(identified cost $760,153,980) .................................. $ 1,371,755,515
Receivable for:
Shares of beneficial interest sold ............................. 6,788,582
Investments sold ............................................... 755,711
Dividends ...................................................... 41,731
Deferred organizational expenses .................................. 41,081
Prepaid expenses and other assets ................................. 121,603
---------------
TOTAL ASSETS ................................................... 1,379,504,223
===============
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased ...................... 2,629,665
Plan of distribution fee ....................................... 795,036
Investment management fee ...................................... 829,199
Accrued expenses and other payables ............................... 104,655
---------------
TOTAL LIABILITIES .............................................. 4,358,555
---------------
NET ASSETS ..................................................... $ 1,375,145,668
===============
COMPOSITION OF NET ASSETS:
Paid-in-capital ................................................... $ 743,256,860
Net unrealized appreciation ....................................... 611,601,535
Accumulated undistributed net realized gain ....................... 20,287,273
---------------
NET ASSETS ..................................................... $ 1,375,145,668
===============
CLASS A SHARES:
Net Assets ........................................................ $ 19,934,043
Shares Outstanding (unlimited authorized, $.01 par value) ......... 589,256
NET ASSET VALUE PER SHARE ...................................... $ 33.83
===============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) ................ $ 35.70
===============
CLASS B SHARES:
Net Assets ........................................................ $ 1,315,929,755
Shares Outstanding (unlimited authorized, $.01 par value) ......... 39,445,753
NET ASSET VALUE PER SHARE ...................................... $ 33.36
===============
CLASS C SHARES:
Net Assets ........................................................ $ 34,897,583
Shares Outstanding (unlimited authorized, $.01 par value) ......... 1,049,821
NET ASSET VALUE PER SHARE ...................................... $ 33.24
===============
CLASS D SHARES:
Net Assets ........................................................ $ 4,384,287
Shares Outstanding (unlimited authorized, $.01 par value) ......... 129,081
NET ASSET VALUE PER SHARE ...................................... $ 33.97
===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
35
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended November 30, 1999
<TABLE>
<CAPTION>
NET INVESTMENT LOSS:
<S> <C>
INCOME
Interest .................................................. $ 1,334,422
Dividends (net of $6,000 foreign withholding tax) ......... 534,042
------------
TOTAL INCOME ........................................... 1,868,464
------------
EXPENSES
Plan of distribution fee (Class A shares) ................. 16,178
Plan of distribution fee (Class B shares) ................. 4,436,240
Plan of distribution fee (Class C shares) ................. 109,805
Investment management fee ................................. 3,257,327
Management fee ............................................ 1,034,415
Investment advisory fee ................................... 689,610
Transfer agent fees and expenses .......................... 656,717
Shareholder reports and notices ........................... 154,252
Registration fees ......................................... 92,140
Professional fees ......................................... 69,781
Organizational expenses ................................... 33,034
Custodian fees ............................................ 26,780
Trustees' fees and expenses ............................... 21,565
Other ..................................................... 19,200
------------
TOTAL EXPENSES ......................................... 10,617,044
------------
NET INVESTMENT LOSS .................................... (8,748,580)
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ......................................... 44,590,626
Net change in unrealized appreciation ..................... 422,052,427
------------
NET GAIN ............................................... 466,643,053
------------
NET INCREASE .............................................. $457,894,473
============
</TABLE>
See Notes to Financial Statements
36
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
NOVEMBER 30, 1999 NOVEMBER 30, 1998
------------------- ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss .................................. $ (8,748,580) $ (3,698,987)
Net realized gain .................................... 44,590,626 31,236,102
Net change in unrealized appreciation ................ 422,052,427 37,809,903
--------------- -------------
NET INCREASE ...................................... $ 457,894,473 65,347,018
--------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN:
Class A shares ....................................... (707) --
Class B shares ....................................... (54,653) --
Class C shares ....................................... (1,211) --
Class D shares ....................................... (4) --
---------------- -------------
TOTAL DISTRIBUTIONS ............................... (56,575) --
--------------- -------------
Net increase (decrease) from transactions in shares of
beneficial interest ................................ 703,430,965 (26,033,572)
--------------- -------------
NET INCREASE ...................................... 1,161,268,863 39,313,446
NET ASSETS:
Beginning of period .................................. 213,876,805 174,563,359
--------------- -------------
END OF PERIOD ..................................... $1,375,145,668 $ 213,876,805
=============== =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Mid-Cap Equity Trust (the "Fund"), formerly TCW/DW
Mid-Cap Equity Trust, 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 Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager") or TCW Investment Management Company (the "Sub-Advisor") 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
comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors); and (4) short-term debt securities having a maturity date of
38
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
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 - The Investment Manager paid the organizational
expenses of the Fund in the 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.
39
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS
Pursuant to a new Investment Management Agreement that took effect June 28,
1999, the Fund pays the Investment Manager a management fee, accrued daily and
payable monthly, by applying the annual rate of 0.75% to the portion of net
assets not exceeding $500 million and 0.725% to the portion of the daily net
assets exceeding $500 million.
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 new Sub-Advisory Agreement that took effect June 28, 1999 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.
Prior to June 28, 1999, pursuant to a Management Agreement with Morgan Stanley
Dean Witter Services Company Inc. (the "Former Manager"), the Fund paid the
Former 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 maintained certain of
the Fund's books and records and furnished, at its own expense, office space,
facilities, equipment, clerical, bookkeeping and certain legal services and
paid the salaries of all personnel, including officers of the Fund who were
employees of the Manager. The Manager also bore the cost of telephone services,
heat, light, power and other utilities provided to the Fund.
Prior to June 28, 1999, pursuant to an Investment Advisory Agreement with the
current Sub-Advisor, the Fund paid 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 had retained the
current Sub-Advisor to invest the Fund's assets, including placing orders for
the purchase and sale of portfolio securities. The current Sub-Advisor obtained
and evaluated such information and advice relating to the economy,
40
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
securities markets, and specific securities as it considered necessary or
useful to continuously manage the assets of the Fund in a manner consistent
with its investment objective. In addition, the current Sub-Advisor paid the
salaries of all personnel, including officers of the Fund, who were employees
of the current Sub-Advisor.
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 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
41
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
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 $25,765,238 at November 30,
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 year ended November 30, 1999, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.24% and
1.0%, respectively.
The Distributor has informed the Fund that for the year ended November 30,
1999, it received contingent deferred sales charges from certain redemptions of
the Fund's Class A shares, Class B shares and Class C shares of $3,082,
$693,550 and $10,375, respectively and received $154,526 in front-end sales
charges from sales of the Fund's Class A shares. The respective shareholders
pay such charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended November 30, 1999
aggregated $512,599,322 and $310,931,925, respectively.
For the year ended November 30, 1999, the Fund incurred brokerage commissions
of $9,005 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 November 30, 1999, the Fund
had transfer agent fees and expenses payable of approximately $4,000.
5. FEDERAL INCOME TAX STATUS
As part of the Fund's acquisition of the assets of Morgan Stanley Dean Witter
Mid-Cap Growth Fund ("Mid-Cap Growth"), the Fund obtained a net capital loss
carryover of approximately $18,137,000 from Mid-Cap Growth. Utilization of this
carryover is subject to limitations imposed by the Internal Revenue Code and
Treasury Regulations. During the year ended November 30, 1999, the Fund
utilized
42
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
approximately $7,851,000 of this carryover. At November 30, 1999, the Fund had
a net capital loss carryover remaining of approximately $10,286,000 which will
be available through November 30, 2005 to offset future capital gains to the
extent provided by regulations.
As of November 30, 1999, the Fund had temporary book/tax differences
attributable to unused capital loss carryover and capital loss deferrals on
wash sales and permanent book/tax differences primarily attributable to a net
operating loss. To reflect reclassifications arising from the permanent
differences, paid-in-capital was charged and net investment loss was credited
$8,748,580.
43
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
NOVEMBER 30, 1999 NOVEMBER 30, 1998
--------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold ................................................ 634,895 $ 17,175,647 70,760 $ 975,219
Reinvestment of distributions ....................... 23 593 -- --
Acquisition of Morgan Stanley Dean Witter Mid-Cap
Growth Fund ....................................... 137,952 3,450,632 -- --
Repurchased ......................................... (254,595) (6,451,822) (5,127) (68,294)
-------- -------------- ------ -------------
Net increase - Class A .............................. 518,275 14,175,050 65,633 906,925
-------- -------------- ------ -------------
CLASS B SHARES
Sold ................................................ 11,267,017 301,595,088 2,515,413 32,751,132
Reinvestment of distributions ....................... 1,986 50,366 -- --
Acquisition of Morgan Stanley Dean Witter Mid-Cap
Growth Fund ....................................... 20,363,981 503,472,815 -- --
Repurchased ......................................... (5,905,022) (145,463,060) (4,871,632) (60,224,693)
---------- -------------- ---------- -------------
Net increase (decrease) - Class B ................... 25,727,962 659,655,209 (2,356,219) (27,473,561)
---------- -------------- ---------- -------------
CLASS C SHARES
Sold ................................................ 849,493 22,720,952 41,665 574,086
Reinvestment of distributions ....................... 44 1,113 -- --
Acquisition of Morgan Stanley Dean Witter Mid-Cap
Growth Fund ....................................... 264,929 6,532,755 -- --
Repurchased ......................................... (110,763) (2,910,576) (3,216) (41,022)
---------- -------------- ---------- -------------
Net increase - Class C .............................. 1,003,703 26,344,244 38,449 533,064
---------- -------------- ---------- -------------
CLASS D SHARES
Sold ................................................ 688,208 18,792,852 -- --
Reinvestment of distributions ....................... -- 4 -- --
Acquisition of Morgan Stanley Dean Witter Mid-Cap
Growth Fund ....................................... 11,712 294,460 -- --
Repurchased ......................................... (571,762) (15,830,854) -- --
---------- -------------- ---------- -------------
Net increase - Class D .............................. 128,158 3,256,462 -- --
---------- -------------- ---------- -------------
Net increase (decrease) in Fund ..................... 27,378,098 $ 703,430,965 (2,252,137) $ (26,033,572)
========== ============== ========== =============
</TABLE>
44
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS November 30, 1999, continued
7. 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 223,982 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 33,262,962 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
431,232 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 $513,750,663, 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 $869,683,919.
45
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1997
------------------- ------------------- ------------------
<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 ............................ (0.34) (0.18) (0.06)
Net realized and unrealized gain ............... 18.57 4.90 0.09
------- ------- -------
Total income from investment operations ......... 18.23 4.72 0.03
------- ------- -------
Net asset value, end of period .................. $ 33.83 (4) $ 15.60 $ 10.88
======= ======= =======
TOTAL RETURN+ .................................. 116.89% 43.38 % 0.28 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 1.23%(3) 1.55 %(3) 1.55 %(2)
Net investment loss ............................. (0.93)%(3) (1.40)%(3) (1.46)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $19,934 $1,107 $ 58
Portfolio turnover rate ......................... 51% 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. (4) Includes the effect of a capital gain distribution of
$0.004.
SEE NOTES TO FINANCIAL STATEMENTS
46
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED NOVEMBER 30 FEBRUARY 27, 1996*
--------------------------------------------------- THROUGH
1999++ 1998++ 1997**++ NOVEMBER 30, 1996
------------------ ------------------ ------------- -------------------
<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 .................................. (0.42) (0.26) (0.22) (0.13)
Net realized and unrealized gain ..................... 18.32 4.87 0.15 1.05
---------- -------- -------- --------
Total income (loss) from investment operations ........ 17.90 4.61 (0.07) 0.92
---------- -------- -------- --------
Net asset value, end of period ........................ $ 33.36(4) $ 15.46 $ 10.85 $ 10.92
========== ======== ======== ========
TOTAL RETURN+ ........................................ 115.82 % 42.49 % (0.64)% 9.20 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .............................................. 1.74 %(3) 2.20 %(3) 2.29 % 2.28 %(2)
Net investment loss ................................... (1.44)%(3) (2.05)%(3) (2.16)% (1.79)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ............... $1,315,930 $212,043 $174,412 $205,274
Portfolio turnover rate ............................... 51 % 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.
(4) Includes the effect of a capital gain distribution of $0.004.
SEE NOTES TO FINANCIAL STATEMENTS
47
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1997
------------------- ------------------- ------------------
<S> <C> <C> <C>
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 ............................ ( 0.52) (0.28) (0.08)
Net realized and unrealized gain ............... 18.31 4.88 0.08
------- ------- -------
Total income from investment operations ......... 17.79 4.60 -
------- ------- -------
Net asset value, end of period .................. $ 33.24(4) $ 15.45 $ 10.85
======= ======= =======
TOTAL RETURN+ ................................... 115.18% 42.27 % 0.09 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 1.99 %(3) 2.30 %(3) 2.32 %(2)
Net investment loss ............................. (1.69)%(3) (2.15)%(3) (2.22)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $ 34,898 $ 712 $ 83
Portfolio turnover rate ......................... 51 % 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.
(4) Includes the effect of a capital gain distribution of $0.004.
SEE NOTES TO FINANCIAL STATEMENTS
48
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1997
------------------- ------------------- ------------------
<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 ............................ (0.21) (0.15) (0.05)
Net realized and unrealized gain ............... 18.52 4.92 0.09
------- ------- -------
Total income from investment operations ......... 18.31 4.77 0.04
------- ------- -------
Net asset value, end of period .................. $ 33.97(4) $ 15.66 $ 10.89
======= ======= =======
TOTAL RETURN+ .................................. 116.96% 43.80 % 0.37 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................ 0.99%(3) 1.30 %(3) 1.30 %(2)
Net investment loss ............................. (0.69)%(3) (1.15)%(3) (1.19)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ......... $4,384 $ 15 $ 10
Portfolio turnover rate ......................... 51% 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.
(4) Includes the effect of a capital gain distribution of $0.004.
SEE NOTES TO FINANCIAL STATEMENTS
49
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter Mid-Cap
Equity Trust (the "Fund"), formerly TCW/DW Mid-Cap Equity Trust, at November
30, 1999, the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at November 30, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
January 11, 2000
1999 FEDERAL TAX NOTICE (unaudited)
During the year ended November 30, 1999, the Fund paid shareholders $.004
per share from long-term capital gains.
50
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MORGAN STANLEY DEAN WITTER
MID-CAP DIVIDEND GROWTH
JUNE 30, 1999 SECURITIES
- - - --------------------------------------------------------------------------------
This Statement of Additional Information is not a Prospectus. The
Prospectus (dated June 30, 1999) for the Morgan Stanley Dean Witter Mid-Cap
Dividend Growth Securities may be obtained without charge from the Fund at its
address or telephone number listed below or from Dean Witter Reynolds at any of
its branch offices.
Morgan Stanley Dean Witter
Mid-Cap Dividend Growth Securities
Two World Trade Center
New York, New York 10048
(800) 869-NEWS
<PAGE>
TABLE OF CONTENTS
- - - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
I. Fund History ................................................................... 4
II. Description of the Fund and Its Investments and Risks ......................... 4
A. Classification ............................................................ 4
B. Investment Strategies and Risks ........................................... 4
C. Fund Policies/Investment Restrictions ..................................... 7
III.Management of the Fund ......................................................... 8
A. Board of Trustees ......................................................... 8
B. Management Information .................................................... 9
C. Compensation .............................................................. 13
IV. Control Persons and Principal Holders of Securities ............................ 15
V. Investment Management and Other Services ....................................... 15
A. Investment Manager ........................................................ 15
B. Principal Underwriter ..................................................... 16
C. Services Provided by the Investment Manager and Fund Expenses Paid by Third
Parties .................................................................. 16
D. Dealer Reallowances ....................................................... 17
E. Rule 12b-1 Plan ........................................................... 17
F. Other Service Providers ................................................... 21
VI. Brokerage Allocation and Other Practices ..................................... 21
A. Brokerage Transactions .................................................... 21
B. Commissions ............................................................... 22
C. Brokerage Selection ....................................................... 22
D. Directed Brokerage ........................................................ 23
E. Regular Broker-Dealers .................................................... 23
VII. Capital Stock and Other Securities ........................................... 23
VIII. Purchase, Redemption and Pricing of Shares ................................... 24
A. Purchase/Redemption of Shares ............................................. 24
B. Offering Price ............................................................ 25
IX. Taxation of the Fund and Shareholders ........................................ 26
X. Underwriters ................................................................. 28
XI. Calculation of Performance Data .............................................. 28
XII. Financial Statements ......................................................... 29
</TABLE>
2
<PAGE>
GLOSSARY OF SELECTED DEFINED TERMS
The terms defined in this glossary are frequently used in this Statement
of Additional Information (other terms used occasionally are defined in the
text of the document).
"Custodian" -- The Bank of New York.
"Dean Witter Reynolds" -- Dean Witter Reynolds Inc., a wholly-owned
broker-dealer subsidiary of MSDW.
"Distributor" -- Morgan Stanley Dean Witter Distributors Inc., a
wholly-owned broker-dealer subsidiary of MSDW.
"Financial Advisors" -- Morgan Stanley Dean Witter authorized financial
services representatives.
"Fund" -- Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities, a
registered open-end investment company.
"Investment Manager" -- Morgan Stanley Dean Witter Advisors Inc., a
wholly-owned investment advisor subsidiary of MSDW.
"Independent Trustees" -- Trustees who are not "interested persons" (as
defined by the Investment Company Act) of the Fund.
"Morgan Stanley & Co." -- Morgan Stanley & Co. Incorporated, a
wholly-owned broker-dealer subsidiary of MSDW.
"Morgan Stanley Dean Witter Funds" -- Registered investment companies (i)
for which the Investment Manager serves as the investment advisor; and (ii)
that hold themselves out to investors as related companies for investment and
investor services.
"MSDW" -- Morgan Stanley Dean Witter & Co., a preeminent global financial
services firm.
"MSDW Services Company" -- Morgan Stanley Dean Witter Services Company
Inc., a wholly-owned fund services subsidiary of the Investment Manager.
"Transfer Agent" -- Morgan Stanley Dean Witter Trust FSB, a wholly-owned
transfer agent subsidiary of MSDW.
"Trustees" -- The Board of Trustees of the Fund.
3
<PAGE>
I. FUND HISTORY
- - - --------------------------------------------------------------------------------
The Fund was organized as a Massachusetts business trust, under a
Declaration of Trust, on December 23, 1997.
II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
- - - --------------------------------------------------------------------------------
A. CLASSIFICATION
The Fund is an open-end, diversified management investment company whose
investment objective is to seek total return.
B. INVESTMENT STRATEGIES AND RISKS
The following discussion of the Fund's investment strategies and risks
should be read with the sections of the Fund's Prospectus titled "Principal
Investment Strategies," "Principal Risks," "Additional Investment Strategy
Information" and "Additional Risk Information."
MONEY MARKET SECURITIES. In addition to the money market securities in
which the Fund may otherwise invest, the Fund may invest in various money
market securities for cash management purposes or when assuming a temporary
defensive position, which among others may include commercial paper, bank
acceptances, bank obligations, corporate debt securities, certificates of
deposit, U.S. Government securities, obligations of savings institutions and
repurchase agreements. Such securities are limited to:
U.S. Government Securities. Obligations issued or guaranteed as to
principal and interest by the United States or its agencies (such as the
Export-Import Bank of the United States, Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as the
Federal Home Loan Bank), including Treasury bills, notes and bonds;
Bank Obligations. Obligations (including certificates of deposit, time
deposits and bankers' acceptances) of banks subject to regulation by the U.S.
Government and having total assets of $1 billion or more, and instruments
secured by such obligations, not including obligations of foreign branches of
domestic banks except to the extent below;
Eurodollar Certificates of Deposit. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of $1 billion
or more;
Obligations of Savings Institutions. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion or
more;
Fully Insured Certificates of Deposit. Certificates of deposit of banks
and savings institutions, having total assets of less than $1 billion, if the
principal amount of the obligation is federally insured by the Bank Insurance
Fund or the Savings Association Insurance Fund (each of which is administered
by the FDIC), limited to $100,000 principal amount per certificate and to 10%
or less of the Fund's total assets in all such obligations and in all illiquid
assets, in the aggregate;
Commercial Paper. Commercial paper rated within the two highest grades by
Standard & Poor's Corporation ("S&P") or the two highest grade by Moody's
Investors Service, Inc. ("Moody's") or, if not rated, issued by a company
having an outstanding debt issue rated at least AA by S&P or Aa by Moody's; and
Repurchase Agreements. The Fund may invest in repurchase agreements. When
cash may be available for only a few days, it may be invested by the Fund in
repurchase agreements until such time as it may otherwise be invested or used
for payments of obligations of the Fund. These agreements, which may be viewed
as a type of secured lending by the Fund, typically involve the acquisition by
the Fund of debt securities from a selling financial institution such as a
bank, savings and loan association or broker-dealer. The agreement provides
that the Fund will sell back to the institution, and that the institution will
repurchase, the underlying security serving as collateral at a specified price
and at a fixed
4
<PAGE>
time in the future, usually not more than seven days from the date of purchase.
The collateral will be marked-to-market daily to determine that the value of
the collateral, as specified in the agreement, does not decrease below the
purchase price plus accrued interest. If such decrease occurs, additional
collateral will be requested and, when received, added to the account to
maintain full collateralization. The Fund will accrue interest from the
institution until the time when the repurchase is to occur. Although this date
is deemed by the Fund to be the maturity date of a repurchase agreement, the
maturities of securities subject to repurchase agreements are not subject to
any limits.
While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures designed to
minimize such risks. These procedures include effecting repurchase transactions
only with large, well-capitalized and well-established financial institutions
whose financial condition will be continually monitored by the Investment
Manager subject to procedures established by the Trustees. In addition, as
described above, the value of the collateral underlying the repurchase
agreement will be at least equal to the repurchase price, including any accrued
interest earned on the repurchase agreement. In the event of a default or
bankruptcy by a selling financial institution, the Fund will seek to liquidate
such collateral. However, the exercising of the Fund's right to liquidate such
collateral could involve certain costs or delays and, to the extent that
proceeds from any sale upon a default of the obligation to repurchase were less
than the repurchase price, the Fund could suffer a loss. It is the current
policy of the Fund not to invest in repurchase agreements that do not mature
within seven days if any such investment, together with any other illiquid
assets held by the Fund, amounts to more than 15% of its net assets.
INVESTMENT IN REAL ESTATE INVESTMENT TRUSTS. The Fund may invest in real
estate investment trusts, which pool investors' funds for investments primarily
in commercial real estate properties. Investment in real estate investment
trusts may be the most practical available means for the Fund to invest in the
real estate industry (the Fund is prohibited from investing in real estate
directly). As a shareholder in a real estate investment trust, the Fund would
bear its ratable share of the real estate investment trust's expenses,
including its advisory and administration fees. At the same time the Fund would
continue to pay its own investment management fees and other expenses, as a
result of which the Fund and its shareholders in effect will be absorbing
duplicate levels of fees with respect to investments in real estate investment
trusts.
LENDING PORTFOLIO SECURITIES. The Fund may lend its portfolio securities
to brokers, dealers and other financial institutions, provided that the loans
are callable at any time by the Fund, and are at all times secured by cash or
cash equivalents, which are maintained in a segregated account pursuant to
applicable regulations and that are equal to at least 100% of the market value,
determined daily, of the loaned securities. The advantage of these loans is
that the Fund continues to receive the income on the loaned securities while at
the same time earning interest on the cash amounts deposited as collateral,
which will be invested in short-term obligations. The Fund will not lend more
than 25% of the value of its total assets.
As with any extensions of credit, there are risks of delay in recovery
and, in some cases, even loss of rights in the collateral should the borrower
of the securities fail financially. However, these loans of portfolio
securities will only be made to firms deemed by the Fund's management to be
creditworthy and when the income which can be earned from such loans justifies
the attendant risks. Upon termination of the loan, the borrower is required to
return the securities to the Fund. Any gain or loss in the market price during
the loan period would inure to the Fund.
When voting or consent rights which accompany loaned securities pass to
the borrower, the Fund will follow the policy of calling the loaned securities,
to be delivered within one day after notice, to permit the exercise of the
rights if the matters involved would have a material effect on the Fund's
investment in the loaned securities. The Fund will pay reasonable finder's,
administrative and custodial fees in connection with a loan of its securities.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time the Fund may purchase securities on a when-issued or delayed
delivery basis or may purchase or sell securities on a forward commitment
basis. When these transactions are negotiated, the price is fixed at
5
<PAGE>
the time of the commitment, but delivery and payment can take place a month or
more after the date of commitment. While the Fund will only purchase securities
on a when-issued, delayed delivery or forward commitment basis with the
intention of acquiring the securities, the Fund may sell the securities before
the settlement date, if it is deemed advisable. The securities so purchased or
sold are subject to market fluctuation and no interest or dividends accrue to
the purchaser prior to the settlement date.
At the time the Fund makes the commitment to purchase or sell securities
on a when-issued, delayed delivery or forward commitment basis, it will record
the transaction and thereafter reflect the value, each day, of such security
purchased, or if a sale, the proceeds to be received, in determining its net
asset value. At the time of delivery of the securities, their value may be more
or less than the purchase or sale price. An increase in the percentage of the
Fund's assets committed to the purchase of securities on a when-issued, delayed
delivery or forward commitment basis may increase the volatility of its net
asset value. The Fund will also establish a segregated account on the Fund's
books in which it will continually maintain cash or cash equivalents or other
liquid portfolio securities equal in value to commitments to purchase
securities on a when-issued, delayed delivery or forward commitment basis.
WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization or debt restructuring. The commitment for the purchase
of any such security will not be recognized in the portfolio of the Fund until
the Investment Manager determines that issuance of the security is probable. At
that time, the Fund will record the transaction and, in determining its net
asset value, will reflect the value of the security daily. At that time, the
Fund will also establish a segregated account on the Fund's books in which it
will maintain cash or cash equivalents or other liquid portfolio securities
equal in value to recognized commitments for such securities.
The value of the Fund's commitments to purchase the securities of any one
issuer, together with the value of all securities of such issuer owned by the
Fund, may not exceed 5% of the value of the Fund's total assets at the time the
initial commitment to purchase such securities is made. An increase in the
percentage of the Fund's total assets committed to the purchase of securities
on a "when, as and if issued" basis may increase the volatility of its net
asset value. The Fund may also sell securities on a "when, as and if issued"
basis provided that the issuance of the security will result automatically from
the exchange or conversion of a security owned by the Fund at the time of sale.
PRIVATE PLACEMENTS. The Fund may invest up to 15% of its net assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933 (the "Securities Act"), or
which are otherwise not readily marketable. (Securities eligible for resale
pursuant to Rule 144A under the Securities Act, and determined to be liquid
pursuant to the procedures discussed in the following paragraph, are not
subject to the foregoing restriction.) These securities are generally referred
to as private placements or restricted securities. Limitations on the resale of
these securities may have an adverse effect on their marketability, and may
prevent the Fund from disposing of them promptly at reasonable prices. The Fund
may have to bear the expense of registering the securities for resale and the
risk of substantial delays in effecting the registration.
Rule 144A permits the Fund to sell restricted securities to qualified
institutional buyers without limitation. The Investment Manager, pursuant to
procedures adopted by the Trustees, will make a determination as to the
liquidity of each restricted security purchased by the Fund. If a restricted
security is determined to be "liquid," the security will not be included within
the category "illiquid securities," which may not exceed 15% of the Fund's net
assets. However, investing in Rule 144A securities could have the effect of
increasing the level of Fund illiquidity to the extent the Fund, at a
particular point in time, may be unable to find qualified institutional buyers
interested in purchasing such securities.
WARRANTS AND SUBSCRIPTION RIGHTS. The Fund may acquire warrants and
subscription rights attached to other securities. A warrant is, in effect, an
option to purchase equity securities at a specific price, generally valid for a
specific period of time, and has no voting rights, pays no dividends and has no
rights with respect to the corporation issuing it.
6
<PAGE>
A subscription right is a privilege granted to existing shareholders of a
corporation to subscribe to shares of a new issue of common stock before it is
offered to the public. A subscription right normally has a life of two to four
weeks and a subscription price lower than the current market value of the
common stock. A subscription right is freely transferable.
YEAR 2000. The investment management services provided to the Fund by the
Investment Manager and the services provided to shareholders by the Distributor
and the Transfer Agent depend on the smooth functioning of their computer
systems. Many computer software systems in use today cannot recognize the year
2000, but revert to 1900 or some other date, due to the manner in which dates
were encoded and calculated. That failure could have a negative impact on the
handling of securities trades, pricing and account services. The Investment
Manager, the Distributor and the Transfer Agent have been actively working on
necessary changes to their own computer systems to prepare for the year 2000
and expect that their systems will be adapted before that date, but there can
be no assurance that they will be successful, or that interaction with other
non-complying computer systems will not impair their services at that time.
In addition, it is possible that the markets for securities in which the
Fund invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues. In
addition, corporate and governmental data processing errors may result in
production problems for individual companies and overall economic
uncertainties. Earnings of individual issuers will be affected by remediation
costs, which may be substantial and may be reported inconsistently in U.S. and
foreign financial statements. Accordingly, the Fund's investments may be
adversely affected.
C. FUND POLICIES/INVESTMENT RESTRICTIONS
The investment objective, policies and restrictions listed below have been
adopted by the Fund as fundamental policies. Under the Investment Company Act
of 1940 (the "Investment Company Act"), a fundamental policy may not be changed
without the vote of a majority of the outstanding voting securities of the
Fund. The Investment Company Act defines a majority as the lesser of (a) 67% or
more of the shares present at a meeting of shareholders, if the holders of 50%
of the outstanding shares of the Fund are present or represented by proxy; or
(b) more than 50% of the outstanding shares of the Fund. For purposes of the
following restrictions: (i) all percentage limitations apply immediately after
a purchase or initial investment; and (ii) any subsequent change in any
applicable percentage resulting from market fluctuations or other changes in
total or net assets does not require elimination of any security from the
portfolio.
The Fund will:
1. Seek total return.
The Fund may not:
1. With respect to 75% of its assets, invest more than 5% of the value of
its total assets in the securities of any one issuer (other than
obligations issued, or guaranteed by, the United States Government, its
agencies or instrumentalities), except that the Fund may invest all or
substantially all of its assets in another registered investment company
having the same investment objective and policies and substantially the
same investment restrictions as the Fund.
2. With respect to 75% of its assets, purchase more than 10% of all
outstanding voting securities or any class of securities of any one
issuer, except that the Fund may invest all or substantially all of its
assets in another registered investment company having the same
investment objective and policies and substantially the same investment
restrictions as the Fund.
3. Invest 25% or more of the value of its total assets in securities of
issuers in any one industry. This restriction does not apply to
obligations issued or guaranteed by the United States Government or its
agencies or instrumentalities.
7
<PAGE>
4. Purchase or sell real estate or interests therein (including limited
partnership interests), although the Fund may purchase securities of
issuers which engage in real estate operations and securities secured by
real estate or interests therein.
5. Purchase or sell commodities.
6. Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets or
as otherwise permitted by Section 12(d) of the Investment Company Act or
the Rules promulgated thereunder. This restriction does not apply to an
investment by the Fund of all or substantially all of its assets in
another registered investment company having the same investment
objective and policies and substantially the same investment
restrictions as the Fund.
7. Borrow money, except that the Fund may borrow from a bank for temporary
or emergency purposes in amounts not exceeding 5% (taken at the lower of
cost or current value) of its total assets (not including the amount
borrowed).
8. Pledge its assets or assign or otherwise encumber them except to secure
permitted borrowings. For the purpose of this restriction, collateral
arrangements with respect to the writing of options and collateral
arrangements with respect to initial or variation margin for futures are
not deemed to be pledges of assets.
9. Issue senior securities as defined in the Act except insofar as the
Fund may be deemed to have issued a senior security by reason of: (a)
entering into any repurchase agreement; (b) borrowing money in
accordance with restrictions described above; or (c) lending portfolio
securities.
10. Make loans of money or securities, except: (a) by the purchase of debt
obligations in which the Fund may invest consistent with its investment
objective and policies; (b) by investment in repurchase agreements; or
(c) by lending its portfolio securities.
11. Make short sales of securities.
12. Purchase securities on margin, except for such short-term loans as are
necessary for the clearance of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options thereon is not considered the
purchase of a security on margin.
13. Engage in the underwriting of securities, except insofar as the Fund
may deemed an underwriter under the Securities Act in disposition of a
portfolio security.
14. Invest for the purpose of exercising control or management of any other
issuer, except that the Fund may invest all or substantially all of its
assets in another registered investment company having the same
investment objective and policies and substantially the same investment
restrictions as the Fund.
III. MANAGEMENT OF THE FUND
- - - --------------------------------------------------------------------------------
A. BOARD OF TRUSTEES
The Board of Trustees of the Fund oversees the management of the Fund but
does not itself manage the Fund. The Trustees review various services provided
by or under the direction of the Investment Manager to ensure that the Fund's
general investment policies and programs are properly carried out. The Trustees
also conduct their review to ensure that administrative services are provided
to the Fund in a satisfactory manner.
Under state law, the duties of the Trustees are generally characterized as
a duty of loyalty and a duty of care. The duty of loyalty requires a Trustee to
exercise his or her powers in the interest of the Fund
8
<PAGE>
and not the Trustee's own interest or the interest of another person or
organization. A Trustee satisfies his or her duty of care by acting in good
faith with the care of an ordinarily prudent person and in a manner the Trustee
reasonably believes to be in the best interest of the Fund and its
shareholders.
B. MANAGEMENT INFORMATION
TRUSTEES AND OFFICERS. The Board of the Fund consists of eight (8)
Trustees. These same individuals also serve as directors or trustees for all of
the Morgan Stanley Dean Witter Funds. Six Trustees (75% of the total number)
have no affiliation or business connection with the Investment Manager or any
of its affiliated persons and do not own any stock or other securities issued
by the Investment Manager's parent company, MSDW. These are the
"non-interested" or "independent" Trustees. The other two Trustees (the
"management Trustees") are affiliated with the Investment Manager. All of the
Trustees also serve as Trustees of "Discover Brokerage Index Series," a mutual
fund for which the Investment Manager is the investment advisor.
The Trustees and executive officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with the
Investment Manager, and with the 90 Morgan Stanley Dean Witter Funds and
Discover Brokerage Index Series are shown below.
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- - - ------------------------------------------- ---------------------------------------------------
<S> <C>
Michael Bozic (58) ........................ Vice Chairman of Kmart Corporation (since
Trustee December, 1998); Director or Trustee of the Morgan
c/o Kmart Corporation Stanley Dean Witter Funds and Discover Brokerage
3100 West Big Beaver Road Index Series; formerly Chairman and Chief
Troy, Michigan Executive Officer of Levitz Furniture Corporation
(November, 1995-November, 1998) and President
and Chief Executive Officer of Hills Department
Stores (May, 1991-July, 1995); formerly variously
Chairman, Chief Executive Officer, President and
Chief Operating Officer (1987-1991) of the Sears
Merchandise Group of Sears, Roebuck and Co.;
Director of Eaglemark Financial Services, Inc. and
Weirton Steel Corporation.
Charles A. Fiumefreddo* (66) .............. Chairman, Director or Trustee and Chief Executive
Chairman of the Board, Chief Officer of the Morgan Stanley Dean Witter Funds
Executive Officer and Trustee and Discover Brokerage Index Series; formerly
Two World Trade Center Chairman, Chief Executive Officer and Director of
New York, New York the Investment Manager, the Distributor and MSDW
Services Company; Executive Vice President and
Director of Dean Witter Reynolds; Chairman and
Director of the Transfer Agent; formerly Director
and/or officer of various MSDW subsidiaries (until
June, 1998).
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- - - ------------------------------------------- -----------------------------------------------------
<S> <C>
Edwin J. Garn (66) ........................ Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds and Discover Brokerage Index Series;
c/o Huntsman Corporation formerly United States Senator (R-Utah)
500 Huntsman Way (1974-1992) and Chairman, Senate Banking
Salt Lake City, Utah Committee (1980-1986); formerly Mayor of Salt
Lake City, Utah (1971-1974); formerly Astronaut,
Space Shuttle Discovery (April 12-19, 1985); Vice
Chairman, Huntsman Corporation (chemical
company); Director of Franklin Covey (time
management systems), BMW Bank of North
America, Inc. (industrial loan corporation), United
Space Alliance (joint venture between Lockheed
Martin and the Boeing Company) and Nuskin Asia
Pacific (multilevel marketing); member of the board
of various civic and charitable organizations.
Wayne E. Hedien (65) ...................... Retired; Director or Trustee of the Morgan Stanley
Trustee Dean Witter Funds and Discover Brokerage Index
c/o Gordon Altman Butowsky Series; Director of The PMI Group, Inc. (private
Weitzen Shalov & Wein mortgage insurance); Trustee and Vice Chairman
Counsel to the Independent Trustees of The Field Museum of Natural History; formerly
114 West 47th Street associated with the Allstate Companies
New York, New York (1966-1994), most recently as Chairman of The
Allstate Corporation (March, 1993-December,
1994) and Chairman and Chief Executive Officer of
its wholly-owned subsidiary, Allstate Insurance
Company (July, 1989-December, 1994); director of
various other business and charitable organizations.
Dr. Manuel H. Johnson (50) ................ Senior Partner, Johnson Smick International, Inc.,
Trustee a consulting firm; Co-Chairman and a founder of
c/o Johnson Smick International, Inc. the Group of Seven Council (G7C), an international
1133 Connecticut Avenue, N.W. economic commission; Chairman of the Audit
Washington, D.C. Committee and Director or Trustee of the Morgan
Stanley Dean Witter Funds and Discover Brokerage
Index Series; Director of Greenwich Capital
Markets, Inc. (broker-dealer) and NVR, Inc. (home
construction); Chairman and Trustee of the
Financial Accounting Foundation (oversight
organization of the Financial Accounting Standards
Board); formerly Vice Chairman of the Board of
Governors of the Federal Reserve System
(1986-1990) and Assistant Secretary of the U.S.
Treasury.
Michael E. Nugent (63) .................... General Partner, Triumph Capital, L.P., a private
Trustee investment partnership; Chairman of the Insurance
c/o Triumph Capital, L.P. Committee and Director or Trustee of the Morgan
237 Park Avenue Stanley Dean Witter Funds and Discover Brokerage
New York, New York Index Series; formerly Vice President, Bankers
Trust Company and BT Capital Corporation
(1984-1988); director of various business
organizations.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- - - ------------------------------------------- ------------------------------------------------------
<S> <C>
Philip J. Purcell* (55) ................... Chairman of the Board of Directors and Chief
Trustee Executive Officer of MSDW, Dean Witter Reynolds
1585 Broadway and Novus Credit Services Inc.; Director of the
New York, New York Distributor; Director or Trustee of the Morgan
Stanley Dean Witter Funds and Discover Brokerage
Index Series; Director and/or officer of various
MSDW subsidiaries.
John L. Schroeder (68) .................... Retired; Chairman of the Derivatives Committee
Trustee and Director or Trustee of the Morgan Stanley
c/o Gordon Altman Butowsky Dean Witter Funds and Discover Brokerage Index
Weitzen Shalov & Wein Series; Director of Citizens Utilities Company
Counsel to the Independent Trustees (telecommunications, gas, electric and water
114 West 47th Street utilities company); formerly Executive Vice
New York, New York President and Chief Investment Officer of the
Home Insurance Company (August, 1991-
September, 1995).
Mitchell M. Merin (45) .................... President and Chief Operating Officer of Asset
President Management of MSDW (since December, 1998);
Two World Trade Center President and Director (since April, 1997) and
New York, New York Chief Executive Officer (since June, 1998) of the
Investment Manager and MSDW Services
Company; Chairman, Chief Executive Officer and
Director of the Distributor (since June, 1998);
Chairman and Chief Executive Officer (since June,
1998) and Director (since January, 1998) of the
Transfer Agent; Director of various MSDW
subsidiaries; President of the Morgan Stanley Dean
Witter Funds and Discover Brokerage Index Series
(since May, 1999); previously Chief Strategic Officer
of the Investment Manager and MSDW Services
Company and Executive Vice President of the
Distributor (April, 1997-June, 1998), Vice President
of the Morgan Stanley Dean Witter Funds and
Discover Brokerage Index Series (May, 1997-April,
1999), and Executive Vice President of Dean
Witter, Discover & Co.
Barry Fink (44) ........................... Senior Vice President (since March, 1997) and
Vice President, Secretary and General Counsel (since February,
Secretary and General Counsel 1997) and Director (since July, 1998) of the
Two World Trade Center Investment Manager and MSDW Services
New York, New York Company; Senior Vice President (since March,
1997) and Assistant Secretary and Assistant
General Counsel (since February, 1997) of the
Distributor; Assistant Secretary of Dean Witter
Reynolds (since August, 1996); Vice President,
Secretary and General Counsel of the Morgan
Stanley Dean Witter Funds (since February, 1997);
Vice President, Secretary and General Counsel of
Discover Brokerage Index Series; previously First
Vice President (June, 1993-February, 1997), Vice
President and Assistant Secretary and Assistant
General Counsel of the Investment Manager and
MSDW Services Company and Assistant Secretary
of the Morgan Stanley Dean Witter Funds.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- - - ------------------------------------------- ----------------------------------------------------
<S> <C>
Paul D. Vance (63) ........................ Senior Vice President of the Investment Manager;
Vice President Vice President of various Morgan Stanley Dean
Two World Trade Center Witter Funds.
New York, New York
Steven M. MacNamara (36) .................. Assistant Vice President of the Investment Manager
Assistant Vice President (since April, 1996); Assistant Vice President of
Two World Trade Center various Morgan Stanley Dean Witter Funds (since
New York, New York April, 1996); previously Senior Portfolio Manager
with Investment Advisors International (February,
1991-December, 1995).
Thomas F. Caloia (53) ..................... First Vice President and Assistant Treasurer of the
Treasurer Investment Manager, the Distributor and MSDW
Two World Trade Center Services Company; Treasurer of the Morgan
New York, New York Stanley Dean Witter Funds and Discover Brokerage
Index Series.
</TABLE>
- - - ----------
* A Trustee who is an "interested person" of the Fund, as defined in the
Investment Company Act.
In addition, Ronald E. Robison, Executive Vice President, Chief
Administrative Officer and Director of the Investment Manager and MSDW Services
Company, Robert S. Giambrone, Senior Vice President of the Investment Manager,
MSDW Services Company, the Distributor and the Transfer Agent and Director of
the Transfer Agent, Joseph J. McAlinden, Executive Vice President and Chief
Investment Officer of the Investment Manager and Director of the Transfer
Agent, and Mark Bavoso, Kenton J. Hinchliffe and Ira N. Ross, Senior Vice
Presidents of the Investment Manager, and Matthew Haynes, Vice President of the
Investment Manager, are Vice Presidents of the Fund.
In addition, Frank Bruttomesso, Marilyn K. Cranney, Lou Anne D. McInnis,
Carsten Otto and Ruth Rossi, First Vice Presidents and Assistant General
Counsels of the Investment Manager and MSDW Services Company, and Todd Lebo,
Vice President and Assistant General Counsel of the Investment Manager and MSDW
Services Company, are Assistant Secretaries of the Fund.
INDEPENDENT TRUSTEES AND THE COMMITTEES. Law and regulation establish both
general guidelines and specific duties for the Independent Trustees. The Morgan
Stanley Dean Witter Funds seek as Independent Trustees individuals of
distinction and experience in business and finance, government service or
academia; these are people whose advice and counsel are in demand by others and
for whom there is often competition. To accept a position on the Funds' Boards,
such individuals may reject other attractive assignments because the Funds make
substantial demands on their time. All of the Independent Trustees serve as
members of the Audit Committee. In addition, three of the Trustees, including
two Independent Trustees, serve as members of the Derivatives Committee and the
Insurance Committee.
The Independent Trustees are charged with recommending to the full Board
approval of management, advisory and administration contracts, Rule 12b-1 plans
and distribution and underwriting agreements; continually reviewing Fund
performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among Funds in
the same complex; and approving fidelity bond and related insurance coverage
and allocations, as well as other matters that arise from time to time. The
Independent Trustees are required to select and nominate individuals to fill
any Independent Trustee vacancy on the Board of any Fund that has a Rule 12b-1
plan of distribution. Most of the Morgan Stanley Dean Witter Funds have a Rule
12b-1 plan.
The Audit Committee is charged with recommending to the full Board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance
12
<PAGE>
of the services; reviewing the independence of the independent accountants;
considering the range of audit and non-audit fees; reviewing the adequacy of
the Fund's system of internal controls; and preparing and submitting Committee
meeting minutes to the full Board.
The Board of each Fund has a Derivatives Committee to approve parameters
for and monitor the activities of the Fund with respect to derivative
investments, if any, made by the Fund.
Finally, the Board of each Fund has formed an Insurance Committee to
review and monitor the insurance coverage maintained by the Fund.
ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL
MORGAN STANLEY DEAN WITTER FUNDS. The Independent Trustees and the Funds'
management believe that having the same Independent Trustees for each of the
Morgan Stanley Dean Witter Funds avoids the duplication of effort that would
arise from having different groups of individuals serving as Independent
Trustees for each of the Funds or even of sub-groups of Funds. They believe
that having the same individuals serve as Independent Trustees of all the Funds
tends to increase their knowledge and expertise regarding matters which affect
the Fund complex generally and enhances their ability to negotiate on behalf of
each Fund with the Fund's service providers. This arrangement also precludes
the possibility of separate groups of Independent Trustees arriving at
conflicting decisions regarding operations and management of the Funds and
avoids the cost and confusion that would likely ensue. Finally, having the same
Independent Trustees serve on all Fund Boards enhances the ability of each Fund
to obtain, at modest cost to each separate Fund, the services of Independent
Trustees, of the caliber, experience and business acumen of the individuals who
serve as Independent Trustees of the Morgan Stanley Dean Witter Funds.
TRUSTEE AND OFFICER INDEMNIFICATION. The Fund's Declaration of Trust
provides that no Trustee, officer, employee or agent of the Fund is liable to
the Fund or to a shareholder, nor is any Trustee, officer, employee or agent
liable to any third persons in connection with the affairs of the Fund, except
as such liability may arise from his/her or its own bad faith, willful
misfeasance, gross negligence or reckless disregard of his/her or its duties.
It also provides that all third persons shall look solely to the Fund property
for satisfaction of claims arising in connection with the affairs of the Fund.
With the exceptions stated, the Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Fund.
C. COMPENSATION
The Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees, the Independent
Trustees or Committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an additional annual fee of $750,
and the Chairmen of the Derivatives and Insurance Committees additional annual
fees of $500). If a Board meeting and a meeting of the Independent Trustees or
a Committee meeting, or a meeting of the Independent Trustees and/or more than
one Committee meeting, take place on a single day, the Trustees are paid a
single meeting fee by the Fund. The Fund also reimburses such Trustees for
travel and other out-of-pocket expenses incurred by them in connection with
attending such meetings. Trustees and officers of the Fund who are or have been
employed by the Investment Manager or an affiliated company receive no
compensation or expense reimbursement from the Fund for their services as
Trustee. Dr. Johnson serves as Chairman of the Audit Committee.
13
<PAGE>
At such time as the Fund has been in operation, and has paid fees to the
Independent Trustees, for a full fiscal year, and assuming that during such
fiscal year the Fund holds the same number of Board and committee meetings as
were held by the other Morgan Stanley Dean Witter Funds during the calendar
year ended December 31, 1998, it is estimated that the compensation paid to
each Independent Trustee during such fiscal year will be the amount shown in
the following table:
FUND COMPENSATION (ESTIMATED)
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
- - - ------------------------------- --------------
<S> <C>
Michael Bozic ................. $1,650
Edwin J. Garn ................. 1,650
Wayne E. Hedien ............... 1,650
Dr. Manuel H. Johnson ......... 2,400
Michael E. Nugent ............. 2,150
John L. Schroeder ............. 2,150
</TABLE>
The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1998 for services
to the 90 Morgan Stanley Dean Witter Funds that were in operation at December
31, 1998. No compensation was paid to the Fund's Independent Trustees by
Discover Brokerage Index Series for the calendar year ended December 31, 1998.
CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
TOTAL CASH
COMPENSATION
FOR SERVICES
TO 90
MORGAN STANLEY
NAME OF DEAN WITTER
INDEPENDENT TRUSTEE FUNDS
- - - ------------------------------- ---------------
<S> <C>
Michael Bozic ................. $120,150
Edwin J. Garn ................. 132,450
Wayne E. Hedien ............... 132,350
Dr. Manuel H. Johnson ......... 155,681
Michael E. Nugent ............. 159,731
John L. Schroeder ............. 160,731
</TABLE>
As of the date of this Statement of Additional Information, 55 of the
Morgan Stanley Dean Witter Funds, not including the Fund, have adopted a
retirement program under which an Independent Trustee who retires after serving
for at least five years (or such lesser period as may be determined by the
Board) as an Independent Director or Trustee of any Morgan Stanley Dean Witter
Fund that has adopted the retirement program (each such Fund referred to as an
"Adopting Fund" and each such Trustee referred to as an "Eligible Trustee") is
entitled to retirement payments upon reaching the eligible retirement age
(normally, after attaining age 72). Annual payments are based upon length of
service.
Currently, upon retirement, each Eligible Trustee is entitled to receive
from the Adopting Fund, commencing as of his or her retirement date and
continuing for the remainder of his or her life, an annual retirement benefit
(the "Regular Benefit") equal to 30.22% of his or her Eligible Compensation
plus 0.5036667% of such Eligible Compensation for each full month of service as
an Independent Director or
14
<PAGE>
Trustee of any Adopting Fund in excess of five years up to a maximum of 60.44%
after ten years of service. The foregoing percentages may be changed by the
Board(1). "Eligible Compensation" is one-fifth of the total compensation earned
by such Eligible Trustee for service to the Adopting Fund in the five year
period prior to the date of the Eligible Trustee's retirement. Benefits under
the retirement program are accrued as expenses on the books of the Adopting
Funds. Such benefits are not secured or funded by the Adopting Funds.
The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the 55 Morgan Stanley Dean Witter Funds (not
including the Fund) for the calendar year ended December 31, 1998, and the
estimated retirement benefits for the Independent Trustees, to commence upon
their retirement, from the 55 Morgan Stanley Dean Witter Funds as of the
calendar year ended December 31, 1998.
RETIREMENT BENEFITS FROM ALL MORGAN STANLEY DEAN WITTER FUNDS
<TABLE>
<CAPTION>
RETIREMENT ESTIMATED
BENEFITS ANNUAL
ESTIMATED ACCRUED AS BENEFITS UPON
CREDITED YEARS ESTIMATED EXPENSES RETIREMENT
OF SERVICE AT PERCENTAGE OF BY ALL FROM ALL
NAME OF RETIREMENT ELIGIBLE ADOPTING ADOPTING
INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION FUNDS FUNDS(2)
- - - ------------------------------- ---------------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
Michael Bozic ................. 10 60.44% $22,377 $52,250
Edwin J. Garn ................. 10 60.44 35,225 52,250
Wayne E. Hedien ............... 9 51.37 41,979 44,413
Dr. Manuel H. Johnson ......... 10 60.44 14,047 52,250
Michael E. Nugent ............. 10 60.44 25,336 52,250
John L. Schroeder ............. 8 50.37 45,117 44,343
</TABLE>
- - - ----------
(1) An Eligible Trustee may elect alternative payments of his or her
retirement benefits based upon the combined life expectancy of the
Eligible Trustee and his or her spouse on the date of such Eligible
Trustee's retirement. In addition, the Eligible Trustee may elect that
the surviving spouse's periodic payment of benefits will be equal to a
lower percentage of the periodic amount when both spouses were alive. The
amount estimated to be payable under this method, through the remainder
of the later of the lives of the Eligible Trustee and spouse, will be the
actuarial equivalent of the Regular Benefit.
(2) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1)
above.
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- - - --------------------------------------------------------------------------------
The following persons owned 5% or more of the outstanding Class A shares
of the Fund as of June 9, 1999: Dean Witter Reynolds Custodian for Dale E.
Fuller, IRA rollover dated 6/16/94, 5607 Lobello Drive, Dallas, TX 75229-6405
- - - -- 5.601%. The following owned 5% or more of the outstanding Class D shares of
the Fund on June 9, 1999: Hare & Co., c/o The Bank of New York, P.O. Box 11203,
New York, NY 10286-1203 -- 89.685%.
As of the date of this Statement of Additional Information, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's
officers and Trustees as a group was less than 1% of the Fund's shares of
beneficial interest outstanding.
V. INVESTMENT MANAGEMENT AND OTHER SERVICES
- - - --------------------------------------------------------------------------------
A. INVESTMENT MANAGER
The Investment Manager to the Fund is Morgan Stanley Dean Witter Advisors
Inc., a Delaware corporation, whose address is Two World Trade Center, New
York, New York 10048. The Investment Manager is a wholly-owned subsidiary of
MSDW, a Delaware corporation. MSDW is a preeminent global financial services
firm that maintains leading market positions in each of its three primary
businesses: securities, asset management and credit services.
15
<PAGE>
Pursuant to an Investment Management Agreement (the "Management
Agreement") with the Investment Manager, the Fund has retained the Investment
Manager to provide administrative services and manage the investment of the
Fund's assets, including the placing of orders for the purchase and sale of
portfolio securities. The Fund pays the Investment Manager monthly compensation
calculated daily by applying the following annual rates to the net assets of
the Fund determined as of the close of each business day: 0.75% to the portion
of daily net assets. The management fee is allocated among the Classes pro rata
based on the net assets of the Fund attributable to each Class. For the period
May 27, 1998 (commencement of operations) through February 28, 1999, the
Investment Manager accrued total compensation under the Management Agreement in
the amount of $2,103,972. This amount takes into account that the Investment
Manager had agreed to assume all expenses (except for brokerage and 12b-1 fees)
and to waive the compensation provided for in its Management Agreement until
such time as the Fund has $50 million of net assets or until six months from
the date of commencement of the Fund's operations, whichever occurred first.
This waiver and assumption is no longer in effect.
The Investment Manager has retained its wholly-owned subsidiary, MSDW
Services Company, to perform administrative services for the Fund.
B. PRINCIPAL UNDERWRITER
The Fund's principal underwriter is the Distributor (which has the same
address as the Investment Manager). In this capacity, the Fund's shares are
distributed by the Distributor. The Distributor has entered into a selected
dealer agreement with Dean Witter Reynolds, which through its own sales
organization sells shares of the Fund. In addition, the Distributor may enter
into similar agreements with other selected broker-dealers. The Distributor, a
Delaware corporation, is a wholly-owned subsidiary of MSDW.
The Distributor bears all expenses it may incur in providing services
under the Distribution Agreement. These expenses include the payment of
commissions for sales of the Fund's shares and incentive compensation to
Financial Advisors. The Distributor also pays certain expenses in connection
with the distribution of the Fund's shares, including the costs of preparing,
printing and distributing advertising or promotional materials, and the costs
of printing and distributing prospectuses and supplements thereto used in
connection with the offering and sale of the Fund's shares. The Fund bears the
costs of initial typesetting, printing and distribution of prospectuses and
supplements thereto to shareholders. The Fund also bears the costs of
registering the Fund and its shares under federal and state securities laws and
pays filing fees in accordance with state securities laws.
The Fund and the Distributor have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to the Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for any losses sustained by the
Fund or its shareholders.
C. SERVICES PROVIDED BY THE INVESTMENT MANAGER AND FUND EXPENSES PAID BY THIRD
PARTIES
The Investment Manager manages the investment of the Fund's assets,
including the placing of orders for the purchase and sale of portfolio
securities. The Investment Manager obtains and evaluates the 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.
Under the terms of the Management 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, the office space,
facilities, equipment, clerical help, bookkeeping and certain legal services as
the Fund may reasonably require in the conduct of its business, including the
preparation of prospectuses, proxy statements and reports required to be filed
with federal and state securities
16
<PAGE>
commissions (except insofar as the participation or assistance of independent
accountants and attorneys is, in the opinion of the Investment Manager,
necessary or desirable). In addition, the Investment Manager 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
service, heat, light, power and other utilities provided to the Fund.
Expenses not expressly assumed by the Investment Manager under the
Management Agreement or by the Distributor, will be paid by the Fund. These
expenses will be allocated among the four Classes of shares pro rata based on
the net assets of the Fund attributable to each Class, except as described
below. Such expenses include, but are not limited to: expenses of the Plan of
Distribution pursuant to Rule 12b-1; charges and expenses of any registrar,
custodian, stock transfer and dividend disbursing agent; brokerage commissions;
taxes; engraving and printing share certificates; registration costs of the
Fund and its shares under federal and state securities laws; the cost and
expense of printing, including typesetting, and distributing prospectuses of
the Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing of
proxy statements and reports to shareholders; fees and travel expenses of
Trustees or members of any advisory board or committee who are not employees of
the Investment Manager or any corporate affiliate of the Investment Manager;
all expenses incident to any dividend, withdrawal or redemption options;
charges and expenses of any outside service used for pricing of the Fund's
shares; fees and expenses of legal counsel, including counsel to the Trustees
who are not interested persons of the Fund or of the Investment Manager (not
including compensation or expenses of attorneys who are employees of the
Investment Manager); fees and expenses of the Fund's independent accountants;
membership dues of industry associations; interest on Fund borrowings; postage;
insurance premiums on property or personnel (including officers and Trustees)
of the Fund which inure to its benefit; extraordinary expenses (including, but
not limited to, legal claims and liabilities and litigation costs and any
indemnification relating thereto); and all other costs of the Fund's operation.
The 12b-1 fees relating to a particular Class will be allocated directly to
that Class. In addition, other expenses associated with a particular Class
(except advisory or custodial fees) may be allocated directly to that Class,
provided that such expenses are reasonably identified as specifically
attributable to that Class and the direct allocation to that Class is approved
by the Trustees.
The Management Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Investment Manager is not liable to the Fund or any
of its investors for any act or omission by the Investment Manager or for any
losses sustained by the Fund or its investors.
The Management Agreement will remain in effect from year to year, provided
continuance of the Management Agreement is approved at least annually by the
vote of the holders of a majority, as defined in the Investment Company Act, of
the outstanding shares of the Fund, or by the Trustees; provided that in either
event such continuance is approved annually by the vote of a majority of the
Trustees.
D. DEALER REALLOWANCES
Upon notice to selected broker-dealers, the Distributor may reallow up to
the full applicable front-end sales charge during periods specified in such
notice. During periods when 90% or more of the sales charge is reallowed, such
selected broker-dealers may be deemed to be underwriters as that term is
defined in the Securities Act.
E. RULE 12B-1 PLAN
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under
the Investment Company Act (the "Plan") pursuant to which each Class, other
than Class D, pays the Distributor compensation accrued daily and payable
monthly at the annual rate of 0.25% of the average daily net assets of Class A
and 1.0% of the average daily net assets of each of Class B and Class C.
The Distributor also receives the proceeds of front-end sales charges
("FSCs") and of contingent deferred sales charges ("CDSCs") imposed on certain
redemptions of shares, which are separate and
17
<PAGE>
apart from payments made pursuant to the Plan. The Distributor has informed the
Fund that it and/or Dean Witter Reynolds received the proceeds of CDSCs and
FSCs, for the period May 27, 1998 (commencement of operations) through February
28, 1999, in approximate amounts as provided in the table below (the
Distributor did not retain any of these amounts).
<TABLE>
<CAPTION>
1998
----------
<S> <C> <C>
Class A .......... FSCs:(1) $ 94,934
CDSCs: $ 0
Class B .......... CDSCs: $841,536
Class C .......... CDSCs: $ 25,401
</TABLE>
- - - ----------
(1) FSCs apply to Class A only.
The Distributor has informed the Fund that the entire fee payable by Class
A and a portion of the fees payable by each of Class B and Class C each year
pursuant to the Plan equal to 0.25% of such Class' average daily net assets are
currently each characterized as a "service fee" under the Rules of the National
Association of Securities Dealers, Inc. (of which the Distributor is a member).
The "service fee" is a payment made for personal service and/or the maintenance
of shareholder accounts. The remaining portion of the Plan fees payable by a
Class, if any, is characterized as an "asset-based sales charge" as such is
defined by the Rules of the Association.
Under the Plan and as required by Rule 12b-1, the Trustees receive and
review promptly after the end of each calendar quarter a written report
provided by the Distributor of the amounts expended under the Plan and the
purpose for which such expenditures were made. For the period May 27, 1998
(commencement of operations) through February 28, 1999, Class A, Class B and
Class C shares of the Fund accrued payments under the Plan amounting to
$20,128, $2,549,049 and $167,088, respectively, which amounts are equal to
0.25%, 1.00% and 1.00% of the average daily net assets of Class A, Class B and
Class C, respectively, for the period.
The Plan was adopted in order to permit the implementation of the Fund's
method of distribution. Under this distribution method the Fund offers four
Classes, each with a different distribution arrangement.
With respect to Class A shares, Dean Witter Reynolds compensates its
Financial Advisors by paying them, from proceeds of the FSC, commissions for
the sale of Class A shares, currently a gross sales credit of up to 5.0% of the
amount sold (except as provided in the following sentence) and an annual
residual commission, currently a residual of up to 0.25% of the current value
of the respective accounts for which they are the Financial Advisors or dealers
of record in all cases. On orders of $1 million or more (for which no sales
charge was paid) or net asset value purchases by employer-sponsored employee
benefit plans, whether or not qualified under the Internal Revenue Code, for
which the Transfer Agent serves as Trustee or Dean Witter Reynolds Retirement
Plan Services serves as recordkeeper pursuant to a written Recordkeeping
Services Agreement ("MSDW Eligible Plans"), the Investment Manager compensates
Financial Advisors by paying them, from its own funds, a gross sales credit of
1.0% of the amount sold.
With respect to Class B shares, Dean Witter Reynolds compensates its
Financial Advisors by paying them, from its own funds, commissions for the sale
of Class B shares, currently a gross sales credit of up to 5.0% of the amount
sold (except as provided in the following sentence) and an annual residual
commission, currently a residual of up to 0.25% of the current value (not
including reinvested dividends or distributions) of the amount sold in all
cases. In the case of Class B shares purchased by MSDW Eligible Plans, Dean
Witter Reynolds compensates its Financial Advisors by paying them, from its own
funds, a gross sales credit of 3.0% of the amount sold.
With respect to Class C shares, Dean Witter Reynolds compensates its
Financial Advisors by paying them, from its own funds, commissions for the sale
of Class C shares, currently a gross sales credit of up to 1.0% of the amount
sold and an annual residual commission, currently up to 1.0% of the current
value of the respective accounts for which they are the Financial Advisors of
record.
18
<PAGE>
With respect to Class D shares other than shares held by participants in
the Investment Manager's mutual fund asset allocation program, the Investment
Manager compensates Dean Witter Reynolds's Financial Advisors by paying them,
from its own funds, commissions for the sale of Class D shares, currently a
gross sales credit of up to 1.0% of the amount sold. There is a chargeback of
100% of the amount paid if the Class D shares are redeemed in the first year
and a chargeback of 50% of the amount paid if the Class D shares are redeemed
in the second year after purchase. The Investment Manager also compensates Dean
Witter Reynolds's Financial Advisors by paying them, from its own funds, an
annual residual commission, currently up to 0.10% of the current value of the
respective accounts for which they are the Financial Advisors of record (not
including accounts of participants in the Investment Manager's mutual fund
asset allocation program).
The gross sales credit is a charge which reflects commissions paid by Dean
Witter Reynolds to its Financial Advisors and Dean Witter Reynolds's
Fund-associated distribution-related expenses, including sales compensation,
and overhead and other branch office distribution-related expenses including
(a) the expenses of operating Dean Witter Reynolds's branch offices in
connection with the sale of Fund shares, including lease costs, the salaries
and employee benefits of operations and sales support personnel, utility costs,
communications costs and the costs of stationery and supplies; (b) the costs of
client sales seminars; (c) travel expenses of mutual fund sales coordinators to
promote the sale of Fund shares; and (d) other expenses relating to branch
promotion of Fund sales.
The distribution fee that the Distributor receives from the Fund under the
Plan, in effect, offsets distribution expenses incurred under the Plan on
behalf of the Fund and, in the case of Class B shares, opportunity costs, such
as the gross sales credit and an assumed interest charge thereon ("carrying
charge"). In the Distributor's reporting of the distribution expenses to the
Fund, in the case of Class B shares, such assumed interest (computed at the
"broker's call rate") has been calculated on the gross credit as it is reduced
by amounts received by the Distributor under the Plan and any contingent
deferred sales charges received by the Distributor upon redemption of shares of
the Fund. No other interest charge is included as a distribution expense in the
Distributor's calculation of its distribution costs for this purpose. The
broker's call rate is the interest rate charged to securities brokers on loans
secured by exchange-listed securities.
The Fund is authorized to reimburse expenses incurred or to be incurred in
promoting the distribution of the Fund's Class A and Class C shares and in
servicing shareholder accounts. Reimbursement will be made through payments at
the end of each month. The amount of each monthly payment may in no event
exceed an amount equal to a payment at the annual rate of 0.25%, in the case of
Class A, and 1.0%, in the case of Class C, of the average net assets of the
respective Class during the month. No interest or other financing charges, if
any, incurred on any distribution expenses on behalf of Class A and Class C
will be reimbursable under the Plan. With respect to Class A, in the case of
all expenses other than expenses representing the service fee, and, with
respect to Class C, in the case of all expenses other than expenses
representing a gross sales credit or a residual to Financial Advisors and other
authorized financial representatives, such amounts shall be determined at the
beginning of each calendar quarter by the Trustees, including, a majority of
the Independent Trustees. Expenses representing the service fee (for Class A)
or a gross sales credit or a residual to Financial Advisors and other
authorized financial representatives (for Class C) may be reimbursed without
prior determination. In the event that the Distributor proposes that monies
shall be reimbursed for other than such expenses, then in making quarterly
determinations of the amounts that may be reimbursed by the Fund, the
Distributor will provide and the Trustees will review a quarterly budget of
projected distribution expenses to be incurred on behalf of the Fund, together
with a report explaining the purposes and anticipated benefits of incurring
such expenses. The Trustees will determine which particular expenses, and the
portions thereof, that may be borne by the Fund, and in making such a
determination shall consider the scope of the Distributor's commitment to
promoting the distribution of the Fund's Class A and Class C shares.
Each Class paid 100% of the amounts accrued under the Plan with respect to
that Class for the period May 27, 1998 (commencement of operations) through
February 28, 1999 to the Distributor. The Distributor and Dean Witter Reynolds
estimate that they have spent, pursuant to the Plan, $24,908,331
19
<PAGE>
on behalf of Class B since the inception of the Plan. It is estimated that this
amount was spent in approximately the following ways: (i) 8.26%
($2,058,639)--advertising and promotional expenses; (ii) 0.44%
($109,831)--printing of prospectuses for distribution to other than current
shareholders; and (iii) 91.30% ($22,739,861)--other expenses, including the
gross sales credit and the carrying charge, of which 3.43% ($780,733)
represents carrying charges, 39.98% ($9,091,079) represents commission credits
to Dean Witter Reynolds branch offices and other selected broker-dealers for
payments of commissions to Financial Advisors and other authorized financial
representatives, and 56.59% ($12,868,049) represents overhead and other branch
office distribution-related expenses. The amounts accrued by Class A and a
portion of the amounts accrued by Class C under the Plan were service fees
during the period May 27, 1998 through February 28, 1999. The remainder of the
amounts accrued by Class C were for expenses which relate to compensation of
sales personnel and associated overhead expenses.
In the case of Class B shares, at any given time, the expenses of
distributing shares of the Fund may be more or less than the total of (i) the
payments made by the Fund pursuant to the Plan; and (ii) the proceeds of CDSCs
paid by investors upon redemption of shares. For example, if $1 million in
expenses in distributing Class B shares of the Fund had been incurred and
$750,000 had been received as described in (i) and (ii) above, the excess
expense would amount to $250,000. The Distributor has advised the Fund that in
the case of Class B shares the excess distribution expenses, including the
carrying charge designed to approximate the opportunity costs incurred by Dean
Witter Reynolds which arise from it having advanced monies without having
received the amount of any sales charges imposed at the time of sale of the
Fund's Class B shares, totaled $21,286,639 as of December 31, 1998 (the end of
the calendar year), which was equal to 7.50% of the net assets of Class B on
such date. Because there is no requirement under the Plan that the Distributor
be reimbursed for all distribution expenses with respect to Class B shares or
any requirement that the Plan be continued from year to year, this excess
amount does not constitute a liability of the Fund. 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 CDSCs 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. Any
cumulative expenses incurred, but not yet recovered through distribution fees
or CDSCs, may or may not be recovered through future distribution fees or
CDSCs.
In the case of Class A 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 commission credited to Morgan Stanley Dean Witter Financial
Advisors and other authorized financial representatives at the time of sale may
be reimbursed in the subsequent calendar year. The Distributor has advised the
Fund that unreimbursed expenses representing a gross sales commission credited
to Morgan Stanley Dean Witter Financial Advisors and other authorized financial
representatives at the time of sale totaled $175,875 in the case of Class C at
December 31, 1998 (end of the calendar year), which amount was equal to 0.81%
of the net assets of Class C on such date, and that there were no such expenses
that may be reimbursed in the subsequent year in the case of Class A on such
date. No interest or other financing charges will be incurred on any Class A or
Class C distribution expenses incurred by the Distributor under the Plan or on
any unreimbursed expenses due to the Distributor pursuant to the Plan.
No interested person of the Fund nor any Independent Trustee has any
direct financial interest in the operation of the Plan except to the extent
that the Distributor, the Investment Manager, Dean Witter Reynolds, MSDW
Services Company or certain of their employees may be deemed to have such an
interest as a result of benefits derived from the successful operation of the
Plan or as a result of receiving a portion of the amounts expended thereunder
by the Fund.
On an annual basis the Trustees, including a majority of the Independent
Trustees, consider whether the Plan should be continued. Prior to approving the
last continuation of the Plan, the Trustees requested and received from the
Distributor and reviewed all the information which they deemed necessary to
arrive at an informed determination. In making their determination to continue
the Plan, the Trustees
20
<PAGE>
considered: (1) the Fund's experience under the Plan and whether such
experience indicates that the Plan is operating as anticipated; (2) the
benefits the Fund had obtained, was obtaining and would be likely to obtain
under the Plan, including that: (a) the Plan is essential in order to give Fund
investors a choice of alternatives for payment of distribution and service
charges and to enable the Fund to continue to grow and avoid a pattern of net
redemptions which, in turn, are essential for effective investment management;
and (b) without the compensation to individual brokers and the reimbursement of
distribution and account maintenance expenses of Dean Witter Reynolds's branch
offices made possible by the 12b-1 fees, Dean Witter Reynolds could not
establish and maintain an effective system for distribution, servicing of Fund
shareholders and maintenance of shareholder accounts; and (3) what services had
been provided and were continuing to be provided under the Plan to the Fund and
its shareholders. Based upon their review, the Trustees, including each of the
Independent Trustees, determined that continuation of the Plan would be in the
best interest of the Fund and would have a reasonable likelihood of continuing
to benefit the Fund and its shareholders. In the Trustees' quarterly review of
the Plan, they will consider its continued appropriateness and the level of
compensation provided therein.
The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval by the shareholders of the
affected Class or Classes of the Fund, and all material amendments to the Plan
must also be approved by the Trustees in the manner described above. The Plan
may be terminated at any time, without payment of any penalty, by vote of a
majority of the Independent Trustees or by a vote of a majority of the
outstanding voting securities of the Fund (as defined in the Investment Company
Act) on not more than thirty days' written notice to any other party to the
Plan. So long as the Plan is in effect, the election and nomination of
Independent Trustees shall be committed to the discretion of the Independent
Trustees.
F. OTHER SERVICE PROVIDERS
(1) TRANSFER AGENT/DIVIDEND-PAYING AGENT
Morgan Stanley Dean Witter Trust FSB is the Transfer Agent for the Fund's
shares and the Dividend Disbursing Agent for payment of dividends and
distributions on Fund shares and Agent for shareholders under various
investment plans. The principal business address of the Transfer Agent is
Harborside Financial Center, Plaza Two, Jersey City, New Jersey 07311.
(2) CUSTODIAN AND INDEPENDENT ACCOUNTANTS
The Bank of New York, 90 Washington Street, New York, New York 10286, is
the Custodian of the Fund's assets. Any of the Fund's cash balances with the
Custodian in excess of $100,000 are unprotected by federal deposit insurance.
These balances may, at times, be substantial.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New
York 10036, serves as the independent accountants of the Fund. The independent
accountants are responsible for auditing the annual financial statements of the
Fund.
(3) AFFILIATED PERSONS
The Transfer Agent is an affiliate of the Investment Manager, and of the
Distributor. As Transfer Agent and Dividend Disbursing Agent, the Transfer
Agent's responsibilities include maintaining shareholder accounts, disbursing
cash dividends and reinvesting dividends, processing account registration
changes, handling purchase and redemption transactions, mailing prospectuses
and reports, mailing and tabulating proxies, processing share certificate
transactions, and maintaining shareholder records and lists. For these
services, the Transfer Agent receives a per shareholder account fee from the
Fund and is reimbursed for its out-of-pocket expenses in connection with such
services.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
- - - --------------------------------------------------------------------------------
A. BROKERAGE TRANSACTIONS
Subject to the general supervision of the Trustees, the Investment Manager
is responsible for decisions to buy and sell securities for the Fund, the
selection of brokers and dealers to effect the
21
<PAGE>
transactions, and the negotiation of brokerage commissions, if any. Purchases
and sales of securities on a stock exchange are effected through brokers who
charge a commission for their services. In the over-the-counter market,
securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. The Fund also
expects that securities will be purchased at times in underwritten offerings
where the price includes a fixed amount of compensation, generally referred to
as the underwriter's concession or discount. On occasion, the Fund may also
purchase certain money market instruments directly from an issuer, in which
case no commissions or discounts are paid.
For the period May 27, 1998 (commencement of operations) through February
28, 1999, the Fund paid a total of $2,419,220 in brokerage commissions.
B. COMMISSIONS
Pursuant to an order of the SEC, the Fund may effect principal
transactions in certain money market instruments with Dean Witter Reynolds. The
Fund will limit its transactions with Dean Witter Reynolds to U.S. Government
and government agency securities, bank money instruments (i.e., certificates of
deposit and bankers' acceptances) and commercial paper. The transactions will
be effected with Dean Witter Reynolds only when the price available from Dean
Witter Reynolds is better than that available from other dealers.
During the period May 27, 1998 (commencement of operations) through
February 28, 1999, the Fund did not effect any principal transactions with Dean
Witter Reynolds.
Brokerage transactions in securities listed on exchanges or admitted to
unlisted trading privileges may be effected through Dean Witter Reynolds,
Morgan Stanley & Co. and other affiliated brokers and dealers. In order for an
affiliated broker or dealer to effect any portfolio transactions on an exchange
for the Fund, the commissions, fees or other remuneration received by the
affiliated broker or dealer must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on an exchange during a comparable period of time. This standard would
allow the affiliated broker or dealer to receive no more than the remuneration
which would be expected to be received by an unaffiliated broker in a
commensurate arm's-length transaction. Furthermore, the Trustees, including the
Independent Trustees, have adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid to an affiliated
broker or dealer are consistent with the foregoing standard. The Fund does not
reduce the management fee it pays to the Investment Manager by any amount of
the brokerage commissions it may pay to an affiliated broker or dealer.
During the period May 27, 1998 (commencement of operations) through
February 28, 1999, the Fund paid a total of $288,085 in brokerage commissions
to Dean Witter Reynolds. During the period May 27, 1998 through February 28,
1999, the brokerage commissions paid to Dean Witter Reynolds represented
approximately 11.91% of the total brokerage commissions paid by the Fund during
the year and were paid on account of transactions having an aggregate dollar
value equal to approximately 14.41% of the aggregate dollar value of all
portfolio transactions of the Fund during the year for which commissions were
paid.
During the period May 27, 1998 (commencement of operations) through
February 28, 1999, the Fund paid a total of $116,705 in brokerage commissions
to Morgan Stanley & Co. During the period May 27, 1998 through February 28,
1999, the brokerage commissions paid to Morgan Stanley & Co. represented
approximately 4.82% of the total brokerage commissions paid by the Fund for
this period and were paid on account of transactions having an aggregate dollar
value equal to approximately 4.45% of the aggregate dollar value of all
portfolio transactions of the Fund during the year for which commissions were
paid.
C. BROKERAGE SELECTION
The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions.
22
<PAGE>
Consistent with this policy, when securities transactions are effected on a
stock exchange, the Fund's policy is to pay commissions which are considered
fair and reasonable without necessarily determining that the lowest possible
commissions are paid in all circumstances. The Fund believes that a requirement
always to seek the lowest possible commission cost could impede effective
portfolio management and preclude the Fund and the Investment Manager from
obtaining a high quality of brokerage and research services. In seeking to
determine the reasonableness of brokerage commissions paid in any transaction,
the Investment Manager relies upon its experience and knowledge regarding
commissions generally charged by various brokers and on its judgment in
evaluating the brokerage and research services received from the broker
effecting the transaction. These determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
The Fund anticipates that certain of its transactions involving foreign
securities will be effected on foreign securities exchanges. Fixed commissions
on such transactions are generally higher than negotiated commissions on
domestic transactions. There is also generally less government supervision and
regulation of foreign securities exchanges and brokers than in the United
States.
In seeking to implement the Fund's policies, the Investment Manager
effects transactions with those brokers and dealers who the Investment Manager
believes provide the most favorable prices and are capable of providing
efficient executions. If the Investment Manager believes the prices and
executions are obtainable from more than one broker or dealer, it may give
consideration to placing portfolio transactions with those brokers and dealers
who also furnish research and other services to the Fund or the Investment
Manager. The services may include, but are not limited to, any one or more of
the following: information as to the availability of securities for purchase or
sale; statistical or factual information or opinions pertaining to investment;
wire services; and appraisals or evaluations of portfolio securities. The
information and services received by the Investment Manager from brokers and
dealers may be of benefit to the Investment Manager in the management of
accounts of some of its other clients and may not in all cases benefit the Fund
directly.
The Investment Manager currently serves as investment manager to a number
of clients, including other investment companies, and may in the future act as
investment manager or advisor to others. It is the practice of the Investment
Manager to cause purchase and sale transactions to be allocated among the Fund
and others whose assets it manages in such manner as it deems equitable. In
making such allocations among the Fund and other client accounts, various
factors may be considered, including the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and the opinions of the persons responsible for managing the
portfolios of the Fund and other client accounts. In the case of certain
initial and secondary public offerings, the Investment Manager utilizes a pro
rata allocation process based on the size of the Morgan Stanley Dean Witter
Funds involved and the number of shares available from the public offering.
D. DIRECTED BROKERAGE
During the period May 27, 1998 (commencement of operations) through
February 28, 1999, the Fund paid $1,994,158 in brokerage commissions in
connection with transactions in the aggregate amount of $852,480,869 to brokers
because of research services provided.
E. REGULAR BROKER-DEALERS
During the period May 27, 1998 (commencement of operations) through
February 28, 1999, the Fund did not purchase securities issued by brokers or
dealers that were among the ten brokers or the ten dealers that executed
transactions for or with the Fund in the largest dollar amounts during the
year. At February 28, 1999, the Fund did not own any securities issued by any
of these issuers.
VII. CAPITAL STOCK AND OTHER SECURITIES
- - - --------------------------------------------------------------------------------
The shareholders of the Fund are entitled to a full vote for each full
share of beneficial interest held. The Fund is authorized to issue an unlimited
number of shares of beneficial interest. All shares of
23
<PAGE>
beneficial interest of the Fund are of $0.01 par value and are equal as to
earnings, assets and voting privileges except that each Class will have
exclusive voting privileges with respect to matters relating to distribution
expenses borne solely by such Class or any other matter in which the interests
of one Class differ from the interests of any other Class. In addition, Class B
shareholders will have the right to vote on any proposed material increase in
Class A's expenses, if such proposal is submitted separately to Class A
shareholders. Also, Class A, Class B and Class C bear expenses related to the
distribution of their respective shares.
The Fund's Declaration of Trust permits the Trustees to authorize the
creation of additional series of shares (the proceeds of which would be
invested in separate, independently managed portfolios) and additional Classes
of shares within any series. The Trustees have not presently authorized any
such additional series or Classes of shares other than as set forth in the
Prospectus.
The Fund is not required to hold annual meetings of shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call special meetings of shareholders for action by shareholder
vote as may be required by the Investment Company Act or the Declaration of
Trust. Under certain circumstances the Trustees may be removed by action of the
Trustees. In addition, under certain circumstances the shareholders may call a
meeting to remove Trustees and the Fund is required to provide assistance in
communicating with shareholders about such a meeting. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees.
Under Massachusetts law, shareholders of a business trust may, under
certain limited circumstances, be held personally liable as partners for the
obligations of the Fund. However, the Declaration of Trust contains an express
disclaimer of shareholder liability for acts or obligations of the Fund,
requires that notice of such Fund obligations include such disclaimer, and
provides for indemnification out of the Fund's property for any shareholder
held personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, the possibility of the Fund
being unable to meet its obligations is remote and thus, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
The Trustees themselves have the power to alter the number and the terms
of office of the Trustees (as provided for in the Declaration of Trust), and
they may at any time lengthen or shorten their own terms or make their terms of
unlimited duration and appoint their own successors, provided that always at
least a majority of the Trustees has been elected by the shareholders of the
Fund.
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
- - - --------------------------------------------------------------------------------
A. PURCHASE/REDEMPTION OF SHARES
Information concerning how Fund shares are offered to the public (and how
they are redeemed and exchanged) is provided in the Fund's Prospectus.
TRANSFER AGENT AS AGENT. With respect to the redemption or repurchase of
Fund shares, the application of proceeds to the purchase of new shares in the
Fund or any other Morgan Stanley Dean Witter Funds and the general
administration of the exchange privilege, the Transfer Agent acts as agent for
the Distributor and for the shareholder's authorized broker-dealer, if any, in
the performance of such functions. With respect to exchanges, redemptions or
repurchases, the Transfer Agent shall be liable for its own negligence and not
for the default or negligence of its correspondents or for losses in transit.
The Fund shall not be liable for any default or negligence of the Transfer
Agent, the Distributor or any authorized broker-dealer.
The Distributor and any authorized broker-dealer have appointed the
Transfer Agent to act as their agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any
other Morgan Stanley Dean Witter Fund and the general administration of the
exchange
24
<PAGE>
privilege. No commission or discounts will be paid to the Distributor or any
authorized broker-dealer for any transactions pursuant to the exchange
privilege.
TRANSFERS OF SHARES. In the event a shareholder requests a transfer of
Fund shares to a new registration, the shares will be transferred without sales
charge at the time of transfer. With regard to the status of shares which are
either subject to a CDSC or free of such charge (and with regard to the length
of time shares subject to the charge have been held), any transfer involving
less than all of the shares in an account will be made on a pro rata basis
(that is, by transferring shares in the same proportion that the transferred
shares bear to the total shares in the account immediately prior to the
transfer). The transferred shares will continue to be subject to any applicable
CDSC as if they had not been so transferred.
B. OFFERING PRICE
The Fund's Class B, Class C and Class D shares are offered at net asset
value per share and the Class A shares are offered at net asset value per share
plus any applicable FSC which is distributed among the Fund's Distributor, Dean
Witter Reynolds and other authorized dealers as described in Section "V.
Investment Management and Other Services--E. Rule 12b-1 Plan."
The price of Fund shares, called "net asset value," is based on the value
of the Fund's portfolio securities. Net asset value per share of each Class is
calculated by dividing the value of the portion of the Fund's securities and
other assets attributable to that Class, less the liabilities attributable to
that Class, by the number of shares of that Class outstanding. The assets of
each Class of shares are invested in a single portfolio. The net asset value of
each Class, however, will differ because the Classes have different ongoing
fees.
In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
stock exchange is valued at its latest sale price on that exchange, prior to
the time when assets are valued; if there were no sales that day, the security
is valued at the latest bid price (in cases where a security is traded on more
than one exchange, the security is valued on the exchange designated as the
primary market pursuant to procedures adopted by the Trustees); and (2) all
other portfolio securities for which over-the-counter market quotations are
readily available are valued at the latest bid price. When market quotations
are not readily available, including circumstances under which it is determined
by the Investment Manager 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 Fund's Trustees. For valuation purposes, quotations of
foreign portfolio securities, other assets and liabilities and forward
contracts stated in foreign currency are translated into U.S. dollar
equivalents at the prevailing market rates prior to the close of the New York
Stock Exchange.
Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees.
Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may
utilize a matrix system incorporating security quality, maturity and coupon as
the evaluation model parameters, and/or research evaluations by its staff,
including review of broker-dealer market price quotations in determining what
it believes is the fair valuation of the portfolio securities valued by such
pricing service.
Listed options on debt securities are valued at the latest sale price on
the exchange on which they are listed unless no sales of such options have
taken place that day, in which case they will be valued at the mean between
their latest bid and asked prices. Unlisted options on debt securities and all
options on equity securities are valued at the mean between their latest bid
and asked prices. Futures are valued at the latest sale price on the
commodities exchange on which they trade unless the Trustees determine such
price does not reflect their market value, in which case they will be valued at
their fair value as determined in good faith under procedures established by
and under the supervision of the Trustees.
25
<PAGE>
Generally, trading in foreign securities, as well as corporate bonds, U.S.
Government securities and money market instruments, is substantially completed
each day at various times prior to the close of the New York Stock Exchange.
The values of such securities used in computing the net asset value of the
Fund's shares are determined as of such times. Foreign currency exchange rates
are also generally determined prior to the close of the New York Stock
Exchange. Occasionally, events which may affect the values of such securities
and such exchange rates may occur between the times at which they are
determined and the close of the New York Stock Exchange and will therefore not
be reflected in the computation of the Fund's net asset value. If events that
may affect the value of such securities occur during such period, then these
securities may be valued at their fair value as determined in good faith under
procedures established by and under the supervision of the Trustees.
IX. TAXATION OF THE FUND AND SHAREHOLDERS
- - - --------------------------------------------------------------------------------
The Fund generally will make two basic types of distributions: ordinary
dividends and long-term capital gain distributions. These two types of
distributions are reported differently on a shareholder's income tax return and
they are also subject to different rates of tax. The tax treatment of the
investment activities of the Fund will affect the amount and timing and
character of the distributions made by the Fund. Tax issues relating to the
Fund are not generally a consideration for shareholders such as tax exempt
entities and tax-advantaged retirement vehicles such as an IRA or 401(k) plan.
Shareholders are urged to consult their own tax professionals regarding
specific questions as to federal, state or local taxes.
INVESTMENT COMPANY TAXATION. The Fund intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986. As such, the Fund will not be subject to federal income tax on its net
investment income and capital gains, if any, to the extent that it distributes
such income and capital gains to its shareholders.
The Fund generally intends to distribute sufficient income and gains so
that the Fund will not pay corporate income tax on its earnings. The Fund also
generally intends to distribute to its shareholders in each calendar year a
sufficient amount of ordinary income and capital gains to avoid the imposition
of a 4% excise tax. However, the Fund may instead determine to retain all or
part of any net long-term capital gains in any year for reinvestment. In such
event, the Fund will pay federal income tax (and possibly excise tax) on such
retained gains.
Gains or losses on sales of securities by the Fund will be long-term
capital gains or losses if the securities have a tax holding period of more
than one year. Gains or losses on the sale of securities with a tax holding
period of one year or less will be short-term gains or losses.
Gains or losses on the Fund's transactions in listed non-equity options,
futures and options on futures generally are treated as 60% long-term and 40%
short-term. When the Fund engages in options and futures transactions, various
tax rules may accelerate or defer recognition of certain gains and losses,
change the character of certain gains or losses, or alter the holding period of
other investments held by the Fund. The application of these rules would
therefore also affect the amount, timing and character of distributions made by
the Fund.
Under certain tax rules, the Fund may be required to accrue a portion of
any discount at which certain securities are purchased as income each year even
though the Fund receives no payments in cash on the security during the year.
To the extent that the Fund invests in such securities, it would be required to
pay out such accrued discount as an income distribution in each year in order
to avoid taxation at the Fund level. Such distributions will be made from the
available cash of the Fund or by liquidation of portfolio securities if
necessary. If a distribution of cash necessitates the liquidation of portfolio
securities, the Investment Manager will select which securities to sell. The
Fund may realize a gain or loss from such sales. In the event the Fund realizes
net capital gains from such transactions, its shareholders may receive a larger
capital gain distribution, if any, than they would in the absence of such
transactions.
26
<PAGE>
TAXATION OF DIVIDENDS AND DISTRIBUTIONS. Shareholders normally will have
to pay federal income taxes, and any state and/or local income taxes, on the
dividends and other distributions they receive from the Fund. Such dividends
and distributions, to the extent that they are derived from net investment
income or short-term capital gains, are taxable to the shareholder as ordinary
income regardless of whether the shareholder receives such payments in
additional shares or in cash.
Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. The Taxpayer Relief Act of 1997
reduced the maximum tax on long-term capital gains applicable to individuals
from 28% to 20%.
Shareholders are generally taxed on any ordinary dividend or capital gain
distributions from the Fund in the year they are actually distributed. However,
if any such dividends or distributions are declared in October, November or
December and paid in January then such amounts will be treated for tax purposes
as received by the shareholders on December 31, to shareholders of record of
such month.
Subject to certain exceptions, a corporate shareholder may be eligible for
a 70% dividends received deduction to the extent that the Fund earns and
distributes qualifying dividends from its investments. Distributions of net
capital gains by the Fund will not be eligible for the dividends received
deduction.
Shareholders who are not citizens or residents of the United States and
certain foreign entities may be subject to withholding of United States tax on
distributions made by the Fund of investment income and short term capital
gains.
After the end of each calendar year, shareholders will be sent full
information on their dividends and capital gain distributions for tax purposes,
including the portion taxable as ordinary income, the portion taxable as
long-term capital gains and the amount of any dividends eligible for the
federal dividends received deduction for corporations.
PURCHASES AND REDEMPTIONS AND EXCHANGES OF FUND SHARES. Any dividend or
capital gains distribution received by a shareholder from any investment
company will have the effect of reducing the net asset value of the
shareholder's stock in that company by the exact amount of the dividend or
capital gains distribution. Furthermore, such dividends and capital gains
distributions are subject to federal income taxes. If the net asset value of
the shares should be reduced below a shareholder's cost as a result of the
payment of dividends or the distribution of realized long-term capital gains,
such payment or distribution would be in part a return of the shareholder's
investment but nonetheless would be taxable to the shareholder. Therefore, an
investor should consider the tax implications of purchasing Fund shares
immediately prior to a distribution record date.
In general, a sale of shares results in capital gain or loss, and for
individual shareholders, is taxable at a federal rate dependent upon the length
of time the shares were held. A redemption of a shareholder's Fund shares is
normally treated as a sale for tax purposes. Fund shares held for a period of
one year or less will, for tax purposes, generally result in short-term gains
or losses and those held for more than one year generally result in long-term
gain or loss. Any loss realized by shareholders upon a redemption of shares
within six months of the date of their purchase will be treated as a long-term
capital loss to the extent of any distributions of net long-term capital gains
with respect to such shares during the six-month period.
Gain or loss on the sale or redemption of shares in the Fund is measured
by the difference between the amount received and the tax basis of the shares.
Shareholders should keep records of investments made (including shares acquired
through reinvestment of dividends and distributions) so they can compute the
tax basis of their shares. Under certain circumstances a shareholder may
compute and use an average cost basis in determining the gain or loss on the
sale or redemption of shares.
Exchanges of Fund shares for shares of another fund, including shares of
other Morgan Stanley Dean Witter Funds, are also subject to similar tax
treatment. Such an exchange is treated for tax purposes as a sale of the
original shares in the first fund, followed by the purchase of shares in the
second fund.
27
<PAGE>
If a shareholder realizes a loss on the redemption or exchange of a fund's
shares and reinvests in that fund's shares within 30 days before or after the
redemption or exchange, the transactions may be subject to the "wash sale"
rules, resulting in a postponement of the recognition of such loss for tax
purposes.
X. UNDERWRITERS
- - - --------------------------------------------------------------------------------
The Fund's shares are offered to the public on a continuous basis. The
Distributor, as the principal underwriter of the shares, has certain
obligations under the Distribution Agreement concerning the distribution of the
shares. These obligations and the compensation the Distributor receives are
described above in the sections titled "Principal Underwriter" and "Rule 12b-1
Plans."
XI. CALCULATION OF PERFORMANCE DATA
- - - --------------------------------------------------------------------------------
From time to time, the Fund may quote its "total return" in advertisements
and sales literature. These figures are computed separately for Class A, Class
B, Class C and Class D shares. The Fund's "average annual total return"
represents an annualization of the Fund's total return over a particular period
and is computed by finding the annual percentage rate which will result in the
ending redeemable value of a hypothetical $1,000 investment made at the
beginning of a one, five or ten year period, or for the period from the date of
commencement of operations, if shorter than any of the foregoing. The ending
redeemable value is reduced by any contingent deferred sales charge ("CDSC") at
the end of the one, five, ten year or other period. For the purpose of this
calculation, it is assumed that all dividends and distributions are reinvested.
The formula for computing the average annual total return involved a percentage
obtained by dividing the ending redeemable value by the amount of the initial
investment (which in the case of Class A shares is reduced by the Class A
initial sales charge), taking a root of the quotient (which the root is
equivalent to the number of years in the period) and subtracting 1 from the
result.
In addition, the Fund may advertise its total return for each Class over
different periods of time by means of aggregate, average, year-by-year or other
types of total return figures. These calculations may or may not reflect the
imposition of the maximum front-end sales charge for Class A or the deduction
of the CDSC for each of Class B and Class C which, if reflected, would reduce
the performance quoted. For example, the average annual total return of the
Fund may be calculated in the manner described above, but without deduction for
any applicable sales charge.
For periods of less than one year, the Fund quotes its total return on a
non-annualized basis. Accordingly, the Fund may compute its aggregate total
return for each Class for specified periods by determining the aggregate
percentage rate which will result in the ending value of a hypothetical $1,000
investment made at the beginning of the period. For the purpose of this
calculation, it is assumed that all dividends and distribution are reinvested.
The formula for computing aggregate total return involves a percentage obtained
by dividing the ending value (without reduction for any sale charge) by the
initial $1,000 investment and subtracting 1 from the result. Based on this
calculation, the total return for Class A for the period May 27, 1998
(commencement of operations) through February 28, 1999 was -21.13%. The total
return of Class B for the period May 27, 1998 through February 28, 1999 was
- - - -21.59%. The total return of Class C for the period May 27, 1998 through
February 28, 1999 was -21.61%. The total return of Class D for the period May
27, 1998 through February 28, 1999 was -21.01%.
The Fund may also advertise the growth of hypothetical investment of
$10,000, $50,000 and $100,000 in each Class of shares of the Fund by adding 1
to the Fund's aggregate total return to date (expressed as a decimal and
without taking into account the effect of any applicable CDSC) and multiplying
by $9,475, $48,000 and $97,000 in the case of Class A (investments of $10,000,
$50,000 and $100,000 in each Class of shares of the Fund by adding 1 to the
Fund's aggregate total return to date (expressed as a decimal and without
taking into account the effect of any applicable CDSC) and multiplying by
$9,475, $48,000 and $97,000 in the case of Class A (investments of $10,000,
$50,000 and
28
<PAGE>
$100,000 adjusted for the initial sales charge) or by $10,000, $50,000 and
$100,000 in the case of each of Class B, Class C and Class D, as the case may
be. Investments of $10,000, $50,000 and $100,000 in each Class at inception of
the Class would have declined to the following amounts at February 28, 1999:
<TABLE>
<CAPTION>
INVESTMENT AT INCEPTION OF:
INCEPTION ---------------------------------
CLASS DATE: $10,000 $50,000 $100,000
- - - ----------------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Class A ......... 5/27/98 $7,473 $37,858 $76,504
Class B ......... 5/27/98 7,841 39,205 78,410
Class C ......... 5/27/98 7,839 39,195 78,390
Class D ......... 5/27/98 7,899 39,495 78,990
</TABLE>
The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by recognized organizations.
XII. FINANCIAL STATEMENTS
- - - --------------------------------------------------------------------------------
EXPERTS. The financial statements of the Fund for the period May 27, 1998
(commencement of operations) through February 28, 1999 are included herein in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
and on the authority of that firm as experts in auditing and accounting.
* * * * *
This Statement of Additional Information and the Prospectus do not contain
all of the information set forth in the Registration Statement the Fund has
filed with the SEC. The complete Registration Statement may be obtained from
the SEC.
29
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
PORTFOLIO OF INVESTMENTS February 28, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- - - ----------------- -------------
<S> <C> <C>
COMMON STOCKS (98.8%)
Aerospace (3.1%)
100,000 Goodrich (B.F.) Co. (The) ................ $ 3,412,500
165,000 Lockheed Martin Corp. .................... 6,218,437
------------
9,630,937
------------
Auto Parts: O.E.M. (1.9%)
137,300 Borg-Warner Automotive, Inc. ............. 5,981,131
------------
Casino/Gambling (3.5%)
195,000 International Game Technology ............ 3,705,000
365,000 Mirage Resorts, Inc.* .................... 7,117,500
------------
10,822,500
------------
Computer/Video Chains (1.4%)
425,000 CompUSA, Inc.* ........................... 4,462,500
------------
Construction/Agricultural
Equipment/Trucks (3.3%)
749,000 AGCO Corp. ............................... 4,915,312
276,000 Case Corp. ............................... 5,382,000
------------
10,297,312
------------
Containers/Packaging (1.9%)
250,000 Owens-Illinois, Inc.* .................... 5,984,375
------------
Contract Drilling (3.6%)
280,000 Diamond Offshore Drilling, Inc. .......... 5,792,500
616,000 ENSCO International, Inc. ................ 5,467,000
------------
11,259,500
------------
Discount Chains (2.2%)
270,000 Consolidated Stores Corp.* ............... 6,800,625
------------
E.D.P. Services (3.5%)
185,000 Cambridge Technology Partners,
Inc.* .................................... 4,648,125
250,000 CIBER, Inc.* ............................. 6,281,250
------------
10,929,375
------------
Electronic Components (0.9%)
85,000 Hadco Corp.* ............................. 2,698,750
------------
Finance -- Consumer (2.1%)
160,000 Household International, Inc. ............ 6,500,000
------------
Finance Companies (1.8%)
145,000 Countrywide Credit Industries,
Inc. ..................................... 5,491,875
------------
Food Distributors (2.1%)
271,800 Richfood Holdings, Inc. .................. 6,455,250
------------
Hospital/Nursing Management (2.3%)
255,000 HCR Manor Care, Inc.* .................... 5,705,625
1,192,900 Sun Healthcare Group, Inc.* .............. 1,640,237
------------
7,345,862
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- - - ----------------- ------------------
<S> <C> <C>
Hotels/Resorts (1.9%)
590,000 Prime Hospitality Corp.* ................. $ 6,047,500
------------
Life Insurance (2.1%)
215,000 Conseco, Inc. ............................ 6,436,562
------------
Major Banks (2.0%)
140,000 Republic New York Corp. .................. 6,343,750
------------
Major Chemicals (4.0%)
219,000 Hercules, Inc. ........................... 6,063,562
330,000 IMC Global, Inc. ......................... 6,579,375
------------
12,642,937
------------
Managed Health Care (6.0%)
80,000 Aetna Inc. ............................... 5,925,000
414,000 First Health Group Corp.* ................ 6,624,000
362,000 Humana, Inc.* ............................ 6,335,000
------------
18,884,000
------------
Medical/Nursing Services (2.4%)
220,000 HEALTHSOUTH Corp.* ....................... 2,557,500
900,000 PhyCor, Inc.* ............................ 4,837,500
------------
7,395,000
------------
Metals Fabrications (1.9%)
330,000 Timken Co. (The) ......................... 5,836,875
------------
Multi-Sector Companies (1.4%)
150,000 Tenneco, Inc. ............................ 4,490,625
------------
Oil Refining/Marketing (1.9%)
295,000 USX-Marathon Group ....................... 6,102,812
------------
Other Specialty Stores (3.6%)
557,300 Friedman's, Inc. (Class A) ............... 5,816,819
410,000 General Nutrition Companies,
Inc.* .................................... 5,458,125
------------
11,274,944
------------
Packaged Foods (4.0%)
200,000 Dole Food Co., Inc. ...................... 6,300,000
260,700 Interstate Bakeries Corp. ................ 6,256,800
------------
12,556,800
------------
Photographic Products (1.0%)
125,000 Polaroid Corp. ........................... 2,984,375
------------
Real Estate Investment Trust (6.2%)
680,000 Equity Inns, Inc. ........................ 6,417,500
275,000 FelCor Lodging Trust Inc. ................ 6,496,875
169,700 Kimco Realty Corp. ....................... 6,437,994
------------
19,352,369
------------
Recreational Products/Toys (3.8%)
638,300 K2 Inc. .................................. 5,625,019
241,500 Mattel, Inc. ............................. 6,369,563
------------
11,994,582
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
30
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
PORTFOLIO OF INVESTMENTS February 28, 1999, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- - - ------------ ---------------
<S> <C> <C>
Rental/Leasing Companies (3.9%)
500,000 Budget Group, Inc. (Class A)* ........... $ 5,843,750
240,000 Ryder System, Inc. ...................... 6,480,000
------------
12,323,750
------------
Retail -- Specialty (2.1%)
450,000 Rexall Sundown, Inc.* ................... 6,440,625
------------
Savings & Loan Associations (3.9%)
270,000 Dime Bancorp, Inc. ...................... 6,682,500
140,000 Washington Mutual, Inc. ................. 5,600,000
------------
12,282,500
------------
Specialty Chemicals (1.9%)
325,000 Crompton & Knowles Corp. ................ 6,012,500
------------
Specialty Insurers (2.1%)
106,000 MBIA, Inc. .............................. 6,525,625
------------
Specialty Steels (2.0%)
141,900 Nucor Corp. ............................. 6,323,419
------------
Steel/Iron Ore (2.0%)
245,000 USX-U.S. Steel Group .................... 6,201,563
------------
Textiles (3.1%)
322,100 Guilford Mills, Inc. .................... 3,985,988
467,800 Unifi, Inc. ............................. 5,642,838
------------
9,628,826
------------
Tobacco (2.0%)
235,000 RJR Nabisco Holdings Corp. .............. 6,418,438
------------
TOTAL COMMON STOCKS
(Identified Cost $368,413,130) .......... 309,160,369
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- - - ------------- ---------------
<S> <C> <C>
SHORT-TERM INVESTMENT (0.9%)
REPURCHASE AGREEMENT
$ 2,925 The Bank of New York 4.75%
due 03/01/99 (dated 02/26/99;
proceeds $2,926,209) (a)
(Amortized Cost $2,925,051) .......... $ 2,925,051
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $371,338,181) (b) 99.7% 312,085,420
OTHER ASSETS IN EXCESS OF
LIABILITIES ...................... 0.3 790,247
----- -----------
NET ASSETS ....................... 100.0% $312,875,667
===== ============
</TABLE>
- - - -------------------------------
* Non-income producing security.
(a) Collateralized by $2,384,067 U.S. Treasury Bond 7.875% due
02/15/21 valued at $2,983,552.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$8,201,964 and the aggregate gross unrealized depreciation is
$67,454,725, resulting in net unrealized depreciation of
$59,252,761.
SEE NOTES TO FINANCIAL STATEMENTS
31
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1999
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $371,338,181) .................................. $ 312,085,420
Receivable for:
Investments sold ............................................... 10,282,469
Dividends ...................................................... 297,840
Shares of beneficial interest sold ............................. 146,331
Deferred organizational expenses .................................. 61,976
Prepaid expenses and other assets ................................. 109,393
-------------
TOTAL ASSETS ................................................... 322,983,429
-------------
LIABILITIES:
Payable for:
Investments purchased .......................................... 8,611,524
Shares of beneficial interest repurchased ...................... 845,422
Plan of distribution fee ....................................... 263,251
Investment management fee ...................................... 202,972
Accrued expenses and other payables ............................... 184,593
-------------
TOTAL LIABILITIES .............................................. 10,107,762
-------------
NET ASSETS ..................................................... $ 312,875,667
=============
COMPOSITION OF NET ASSETS:
Paid-in-capital ................................................... $ 406,684,779
Net unrealized depreciation ....................................... (59,252,761)
Net realized loss ................................................. (34,556,351)
-------------
NET ASSETS ..................................................... $ 312,875,667
=============
CLASS A SHARES:
Net Assets ........................................................ $ 9,536,116
Shares Outstanding (unlimited authorized, $.01 par value) ......... 1,218,589
NET ASSET VALUE PER SHARE ...................................... $ 7.83
=============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value) .............. $ 8.26
=============
CLASS B SHARES:
Net Assets ........................................................ $ 283,779,367
Shares Outstanding (unlimited authorized, $.01 par value) ......... 36,299,590
NET ASSET VALUE PER SHARE ...................................... $ 7.82
=============
CLASS C SHARES:
Net Assets ........................................................ $ 18,074,791
Shares Outstanding (unlimited authorized, $.01 par value) ......... 2,311,718
NET ASSET VALUE PER SHARE ...................................... $ 7.82
=============
CLASS D SHARES:
Net Assets ........................................................ $ 1,485,393
Shares Outstanding (unlimited authorized, $.01 par value) ......... 189,690
NET ASSET VALUE PER SHARE ...................................... $ 7.83
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
32
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the period May 27, 1998* through February 28, 1999
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends ......................................... $ 5,402,422
Interest .......................................... 864,060
-------------
TOTAL INCOME ................................... 6,266,482
-------------
EXPENSES
Plan of distribution fee (Class A shares) ......... 20,128
Plan of distribution fee (Class B shares) ......... 2,549,049
Plan of distribution fee (Class C shares) ......... 167,088
Investment management fee ......................... 2,103,972
Transfer agent fees and expenses .................. 481,572
Registration fees ................................. 224,409
Professional fees ................................. 65,024
Custodian fees .................................... 33,677
Shareholder reports and notices ................... 22,566
Organizational expenses ........................... 10,246
Trustees' fees and expenses ....................... 7,378
Other ............................................. 8,685
-------------
TOTAL EXPENSES ................................. 5,693,794
-------------
NET INVESTMENT INCOME .......................... 572,688
-------------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss ................................. (34,556,351)
Net unrealized depreciation ....................... (59,252,761)
-------------
NET LOSS ....................................... (93,809,112)
-------------
NET DECREASE ...................................... $ (93,236,424)
=============
</TABLE>
- - - ---------------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
33
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 27, 1998*
THROUGH
FEBRUARY 28, 1999
------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................................ $ 572,688
Net realized loss .................................................... (34,556,351)
Net unrealized depreciation .......................................... (59,252,761)
-------------
NET DECREASE ...................................................... (93,236,424)
-------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares ....................................................... (78,008)
Class B shares ....................................................... (866,259)
Class C shares ....................................................... (52,602)
Class D shares ....................................................... (3,143)
-------------
TOTAL DIVIDENDS ................................................... (1,000,012)
-------------
Net increase from transactions in shares of beneficial interest ...... 407,012,103
-------------
NET INCREASE ...................................................... 312,775,667
NET ASSETS:
Beginning of period .................................................. 100,000
-------------
END OF PERIOD ..................................................... $ 312,875,667
=============
</TABLE>
- - - ---------------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
34
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS February 28, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities (the "Fund") is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
a diversified, open-end management investment company. The Fund's investment
objective is to seek total return. The Fund seeks to achieve its objective by
investing primarily in domestic and foreign equity securities of companies
whose market capitalization falls within the capitalization range of the
companies comprising the Standard and Poor's Midcap 400 Index and that
currently pay dividends and that have the potential for increasing dividends.
The Fund was organized as a Massachusetts business trust on December 23, 1997
and had no operations other than those relating to organizational matters and
the issuance of 2,500 shares of beneficial interest by each class for $25,000
of each class to Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager") to effect the Fund's initial capitalization. The Fund commenced
operations on May 27, 1998.
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 the Investment Manager 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
35
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS February 28, 1999, continued
upon current market prices of securities which are comparable in coupon, rating
and maturity or an appropriate matrix utilizing similar factors); and (4)
short-term debt securities having a maturity date of more than sixty days at
time of purchase are valued on a mark-to-market basis until sixty days prior to
maturity and thereafter at amortized cost based on their value on the 61st day.
Short-term debt securities having a maturity date of sixty days or less at the
time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date
such items are recognized. Distribution fees are charged directly to the
respective class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which
may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
F. ORGANIZATIONAL EXPENSES -- The Investment Manager incurred the
organizational expenses of the Fund in the amount of approximately $72,000 and
was 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.
36
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS February 28, 1999, continued
2. INVESTMENT MANAGEMENT AGREEMENT
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.
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
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, the 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
37
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS February 28, 1999, continued
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 $21,286,639 at February 28, 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 period ended February 28, 1999, 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 period ended February 28,
1999, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $841,536 and $25,401,
respectively and received $94,934 in front-end sales charges from sales of the
Fund's Class A shares. The respective shareholders pay such charges which are
not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the period ended February 28, 1999
aggregated $831,615,904 and $428,646,423, respectively.
For the period ended February 28, 1999, the Fund incurred $288,085 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the Fund.
At February 28, 1999, the Fund's receivable for investments sold and payable
for investments purchased included unsettled trades with DWR of $3,454,617 and
$757,500, respectively.
For the period ended February 28, 1999, the Fund incurred $116,705 in brokerage
commissions 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, and affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. At February 28, 1999, the Fund
had transfer agent fees and expenses payable of approximately $3,600.
38
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS February 28, 1999, continued
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 27, 1998*
THROUGH
FEBRUARY 28, 1999
-------------------------------
SHARES AMOUNT
-------------- ----------------
<S> <C> <C>
CLASS A SHARES
Sold .............................. 1,553,857 $ 14,971,777
Reinvestment of dividends ......... 8,612 71,827
Redeemed .......................... (346,380) (2,873,074)
--------- -------------
Net increase - Class A ............ 1,216,089 12,170,530
--------- -------------
CLASS B SHARES
Sold .............................. 46,157,509 451,064,311
Reinvestment of dividends ......... 97,339 811,803
Redeemed .......................... (9,957,758) (82,556,557)
---------- -------------
Net increase - Class B ............ 36,297,090 369,319,557
---------- -------------
CLASS C SHARES
Sold .............................. 3,086,861 30,246,228
Reinvestment of dividends ......... 5,944 49,573
Redeemed .......................... (783,587) (6,546,367)
---------- -------------
Net increase - Class C ............ 2,309,218 23,749,434
---------- -------------
CLASS D SHARES
Sold .............................. 323,389 2,934,148
Reinvestment of dividends ......... 159 1,329
Redeemed .......................... (136,358) (1,162,895)
---------- -------------
Net increase - Class D ............ 187,190 1,772,582
---------- -------------
Net increase in Fund .............. 40,009,587 $ 407,012,103
========== =============
</TABLE>
- - - ---------------
* Commencement of operations.
6. FEDERAL INCOME TAX STATUS
At February 28, 1999, the Fund had a net capital loss carryover of
approximately $26,212,000 which will be available through February 28, 2007 to
offset future capital gains to the extent provided by regulations.
As of February 28, 1999, the Fund had temporary book/tax differences
attributable to capital loss deferrals on wash sales and permanent book/tax
differences primarily attributable to nondeductible expenses. To reflect
reclassifications arising from the permanent differences, paid-in-capital was
charged and net investment income was credited $427,324.
39
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE PERIOD MAY 27, 1998* THROUGH FEBRUARY 28, 1999**
---------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS D
SHARES SHARES SHARES SHARES
------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $ 10.00 $ 10.00 $ 10.00 $ 10.00
------- ---------- --------- -------
Income (loss) from investment operations:
Net investment income ............................ 0.06 0.01 0.01 0.06
Net realized and unrealized loss ................. (2.17) (2.17) (2.17) (2.16)
------- ---------- --------- -------
Total loss from investment operations ............. (2.11) (2.16) (2.16) (2.10)
------- ---------- --------- -------
Less dividends from net investment income ......... (0.06) (0.02) (0.02) (0.07)
------- ---------- --------- -------
Net asset value, end of period .................... $ 7.83 $ 7.82 $7.82 $7.83
======= ========== ========= =======
TOTAL RETURN+(1) .................................. (21.13)% (21.59)% (21.61)% (21.01)%
RATIOS TO AVERAGE NET ASSETS (2) (3):
Expenses .......................................... 1.30% 2.05% 2.05% 1.05%
Net investment income ............................. 0.93% 0.18% 0.18% 1.18%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $9,536 $283,779 $18,075 $1,485
Portfolio turnover rate (1) ....................... 124% 124% 124% 124%
</TABLE>
- - - -------------
* Commencement of operations.
** The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
40
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter Mid-Cap
Dividend Growth Securities (the "Fund") at February 28, 1999, and the results
of its operations, the changes in its net assets and the financial highlights
for the period May 27, 1998 (commencement of operations) through February 28,
1999, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit, which included confirmation of
securities at February 28, 1999 by correspondence with the custodian and
brokers, provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
April 14, 1999
1999 FEDERAL TAX NOTICE (unaudited)
For the period ended February 28, 1999, 100% of the income dividends
qualified for dividends received deduction available to corporations.
41
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
The response to this item is incorporated herein by reference to
Exhibits 1 and 2 under Item 16 below and by reference to Item 27 of,
Post-Effective Amendment No. 9 to Registrant's Registration Statement on Form
N-1A, dated January 28, 2000 which was filed electronically pursuant to
Regulation S-T on January 28, 2000 ("Post-Effective Amendment No. 9") as an
amendment to Registrant's Registration Statement on Form N-1A (File Nos.
811-7377 and 33-63685) (the "Registration Statement").
ITEM 16. EXHIBITS
(1) Declaration of Trust dated October 16, 1995 (The "Declaration")
(incorporated herein by reference to Exhibit 1 of Registrant's Initial
Registration Statement on Form N-1A filed on October 25, 1995); Amendment to
the Declaration Establishing and Designating Additional Classes of Shares
(incorporated herein by reference to Exhibit 1 to Post-Effective Amendment
No. 3 filed on July 15, 1997 ("Post Effective Amendment No. 3"))
(2) Amended and Restated By-Laws of Registrant dated as of May 1, 1999
(incorporated herein by reference to Exhibit 2 to the Registrant's
Post-Effective Amendment No. 7 filed on April 23, 1999)
(3) Not Applicable
(4) Copy of Agreement and Plan of Reorganization (filed herewith as Exhibit A
to the Proxy Statement and Prospectus)
(5) Not Applicable
(6) (a) Investment Management Agreement (incorporated herein by reference to
Exhibit 4(a) to Registrant's Post-Effective Amendment No. 8 filed on
June 24, 1999 ("Post-Effective Amendment No. 8"))
(b) Sub-Advisory Agreement between Morgan Stanley Dean Witter Advisors Inc.
and TCW Funds Management Inc. (incorporated by reference to Exhibit 4(b)
of Post-Effective Amendment No. 8)
(7) (a) Distribution Agreement between Registrant and Morgan Stanley Dean
Witter Distributors Inc. (incorporated herein by reference to Exhibit
5(a) to Post-Effective Amendment No. 8)
(b) Multiple Class Distribution Agreement between Registrant and Morgan
Stanley Dean Witter Distributors, Inc. (incorporated herein by
reference to Exhibit 6 of Post-Effective Amendment No. 3)
(c) Form of Selected Dealer Agreement (incorporated herein by reference to
Exhibit 6(c) to Registrant's Pre-Effective Amendment No. 1 to the
Registration Statement filed on December 6, 1995 ("Pre-Effective
Amendment No. 1"))
(8) Not Applicable
(9) (a) Custody Agreement dated November 30, 1995 (incorporated herein by
reference to Exhibit 8(a) to Pre-Effective Amendment No. 1
C-1
<PAGE>
(b) Amended and Restated Transfer Agency and Services Agreement between
Registrant and Morgan Stanley Dean Witter Trust FSB (incorporated
herein by reference to Exhibit 8(a) of Post-Effective Amendment No. 5
filed on January 28, 1999)
(10) (a) Amended and Restated Plan of Distribution pursuant to Rule 12b-1,
dated June 28, 1999 (incorporated herein by reference to Exhibit 13 to
Post-Effective Amendment No. 8)
(b) Morgan Stanley Dean Witter Funds Multiple Class Plan pursuant to Rule
18f-3 (incorporated herein by reference to Exhibit 14 to Post-Effective
Amendment No. 8)
(11) (a) Opinion and consent of Mayer, Brown & Platt
(b) Opinion and consent of Lane Altman & Owens LLP.
(12) Opinion and consent of Mayer, Brown & Platt regarding tax matters
(13) Form of Services Agreement between Morgan Stanley Dean Witter Advisors
Inc. and Morgan Stanley Dean Witter Services Company Inc. (incorporated
herein by reference to Exhibit 8(b) to Post-Effective Amendment No. 8)
(14) Consent of Independent Accountants
(15) Not Applicable
(16) Powers of Attorney
(17) (a) Registrant's Rule 24f-2 Notice pursuant to Rule 24f-2 under the
Investment Company Act of 1940, for its fiscal year ended November 30,
1999 (incorporated herein by reference to Form 24f-2 filed with the
Securities and Exchange Commission on February 4, 2000)
(b) Form of Proxy
(c) Voting Information Card (incorporated herein by reference to Exhibit 17
of the Initial Registration Statement on Form N-14).
ITEM 17. UNDERTAKINGS
1. The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of the prospectus which is a part
of this registration statement on Form N-14 by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the Securities
Act of 1933, the reoffering prospectus will contain the information called for
by the applicable registration form for reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
2. The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to this
registration statement on Form N-14 and will not be used until the amendment is
effective, and that, in determining any liability under the Securities Act of
1933, each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide offering of
them.
C-2
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this registration statement has
been signed on behalf of the registrant, in the City of New York and State of
New York, on the 11th day of February, 2000.
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY
TRUST
By: /s/ Barry Fink
.......................................
Barry Fink
Vice President and Secretary
As required by the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - ------------------------------ ------------------------------------ ------------------
<S> <C> <C>
1. Principal Executive Officer
/s/ Charles A. Fiumefreddo President, Chief Executive Officer,
............................ Trustee and Chairman February 11, 2000
2. Principal Financial Officer
/s/ Thomas F. Caloia Treasurer and Principal
............................ Accounting Officer February 11, 2000
3. Majority of Trustees
/s/ Michael Bozic Trustee February 11, 2000
............................
/s/ Edwin J. Garn Trustee February 11, 2000
............................
/s/ John R. Haire Trustee February 11, 2000
............................
/s/ Wayne E. Hedien Trustee February 11, 2000
............................
/s/ Manuel H. Johnson Trustee February 11, 2000
............................
/s/ Michael E. Nugent Trustee February 11, 2000
............................
/s/ John L. Schroeder Trstee February 11, 2000
............................
/s/ Philip J. Purcell Trustee February 11, 2000
............................
</TABLE>
C-3
<PAGE>
MAYER, BROWN & PLATT
1675 BROADWAY
NEW YORK, NEW YORK 10019-5820
February 8, 2000
MAIN TELEPHONE
212-508-2500
MAIN FAX
212-262-1910
Morgan Stanley Dean Witter Mid-Cap Equity Trust
Two World Trade Center
New York, New York 10048
Ladies and Gentlemen:
This opinion is being furnished to Morgan Stanley Dean Witter Mid-Cap
Equity Trust, a Massachusetts business trust ("Mid-Cap Equity"), in connection
with the Registration Statement on Form N-14 (the "Registration Statement")
under the Securities Act of 1933, as amended (the "1933 Act"), to be filed by
Mid-Cap Equity in connection with the acquisition by Mid-Cap Equity, of
substantially all the assets of Morgan Stanley Dean Witter Mid-Cap Dividend
Growth Securities, a Massachusetts business trust ("Mid-Cap Dividend"), in
exchange for shares of beneficial interest of Mid-Cap Equity ("Shares") and the
assumption by Mid-Cap Equity of certain stated liabilities of Mid-Cap Dividend
pursuant to an Agreement and Plan of Reorganization dated as of January 26, 2000
(the "Reorganization Agreement"). We have examined such statutes, regulations,
corporate records and other documents and reviewed such questions of law as we
deemed necessary or appropriate for the purposes of this opinion.
As to matters of Massachusetts law contained in this opinion, we have
relied upon the opinion of Lane Altman & Owens LLP, dated February 8, 2000.
Based upon the foregoing, we are of the opinion that the Shares when
issued, as described in the Reorganization Agreement, will be duly authorized
and, assuming receipt of the consideration to be paid therefor, upon delivery as
provided in the Reorganization Agreement, will be legally issued, fully paid and
non-assessable (except for the potential liability of shareholders described in
Mid-Cap Equity's Statement of Additional Information dated January 28, 2000
under the caption "Capital Stock And Other Securities").
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. We do
not thereby admit that we are within the category of persons whose consent is
required under Section 7 of the 1933 Act or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Mayer, Brown & Platt
------------------------
Mayer, Brown & Platt
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LANE ALTMAN & OWENS LLP
Counsellors at Law
February 8, 2000
Mayer Brown & Platt
1675 Broadway
New York, NY 10019-5820
Dear Sirs:
We understand that the trustees of Morgan Stanley Dean Witter Mid-Cap
Equity Trust, a Massachusetts business trust (the "Trust"), intend, on or about
February 8, 2000, to cause to be filed on behalf of the Trust a Registration
Statement on Form N-14 (the "Registration Statement") in connection with the
acquisition (the "Acquisition") by the Trust of substantially all the assets of
Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities ("MSDW Mid-Cap
Dividend Growth"), in exchange for shares of beneficial interest of the Trust
(the "Shares"), and the assumption by the Trust of certain stated liabilities
of MSDW Mid-Cap Dividend Growth pursuant to an Agreement and Plan of
Reorganization dated as of January 26, 2000 (the "Agreement"). We further
understand that the Shares will be issued pursuant to the Agreement.
You have requested that we act as special counsel to the Trust with
respect to the laws of the Commonwealth of Massachusetts on certain specified
matters, and in such capacity we are furnishing you with this opinion. You have
not asked for, and we do not offer, an opinion on any other matter or
transaction related to the Trust, MSDW Mid-Cap Dividend Growth, the
Acquisition, the Agreement or any matter related thereto, except as
specifically set forth below.
The Trust is a business trust created under an Agreement and Declaration
of Trust finally executed, delivered and filed in Boston, Massachusetts on
October 17, 1995 (as amended from time to time, the "Trust Agreement"). The
Trustees of the Trust (as defined in the Trust Agreement) (the "Trustees") have
the powers set forth in the Trust Agreement, subject to the terms, provisions
and conditions provided therein.
In connection with our opinions delivered herein, we have examined the
following items some of which have been provided to us by, or on behalf of,
you: (i) a copy of the Agreement in the form to be executed by the Trust; (ii)
a copy of the Trust Agreement; (iii) a copy of the Amended and Restated By-laws
of the Trust effective as of May 1, 1999; (iv) a Certificate of Legal Existence
for the Trust provided by the Secretary of State of the Commonwealth of
Massachusetts dated February 3, 2000; and (v) copies of the Registration
Statement on Form
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N-14 to be filed by the Trust and the Trust's current Prospectus and Statement
of Additional Information.
In rendering this opinion we have assumed, without independent
verification, (i) the due authority of all individuals signing in
representative capacities and the genuineness of signatures, (ii) the
authenticity, completeness and continued effectiveness of all documents or
copies furnished to us, (iii) that resolutions approving the Registration
Statement, the Acquisition and the Agreement have been duly adopted by the
Trustees, (iv) that no amendments, agreements, resolutions or actions have been
approved, executed or adopted which would limit, supersede or modify the items
described above, and (v) that the by-laws filed as an exhibit to the
Registration Statement have been duly adopted by the Trustees. We have also
examined such questions of law as we have concluded necessary or appropriate
for purposes of the opinions expressed below. Where documents are referred to
in resolutions approved by the Trustees, or in the Registration Statement, we
assume such documents are the same as in the most recent form provided to us,
whether as an exhibit to the Registration Statement, or otherwise. When any
opinion set forth below relates to the existence or standing of the Trust, such
opinion is based entirely upon and is limited by the items referred to above.
We understand that the foregoing assumptions, limitations and qualifications
are acceptable to you.
Based upon the foregoing and with respect to Massachusetts law only
(except that no opinion is herein expressed with respect to compliance with the
Massachusetts Uniform Securities Act), to the extent that Massachusetts law may
be applicable, and without reference to the laws of any of the other several
states or of the United States of America, including State and Federal
securities laws, we are of the opinion that:
1. The Trust is a business trust with transferable shares, organized in
compliance with the requirements of The Commonwealth of Massachusetts, and the
Trust Agreement is legal and valid.
2. The Shares to be issued as described in the Registration Statement,
including any Exhibits thereto, have been duly authorized and, assuming receipt
of the consideration to be paid therefor, upon delivery as provided in the
Agreement, will be validly issued, fully paid and nonassessable (except for the
potential liability of shareholders described in the Trust's current Statement
of Additional Information under the caption "Capital Stock and Other
Securities."
We understand that you will rely on this opinion solely in connection with
your opinion to be filed with the Securities and Exchange Commission as an
exhibit to the Registration Statement. We hereby consent to such use of this
opinion and we also consent to the filing of said opinion with the Securities
and Exchange Commission. In so consenting, we do not thereby
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admit to be within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Lane Altman & Owens LLP
LANE ALTMAN & OWENS LLP
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Page 1
Mayer Brown & Platt
1675 Broadway
New York, New York 10019-5820
February 8, 2000
To the Persons Listed on
Schedule I Attached hereto
Re: Agreement and Plan of Reorganization for the Exchange
of Stock of Morgan Stanley Dean Witter Mid-Cap Equity
Trust for Substantially All of the Assets of Morgan
Stanley Dean Witter Mid-Cap Dividend Growth
Securities, dated as of January 26, 2000 (the
"Reorganization Agreement").
Ladies and Gentlemen:
We have acted as counsel to Morgan Stanley Dean Witter Mid-Cap Dividend
Growth Securities ("Mid-Cap Dividend"), and Morgan Stanley Dean Witter Mid-Cap
Equity Trust ("Mid-Cap Equity") in connection with the proposed transfer of
substantially all of the assets of Mid-Cap Dividend to Mid-Cap Equity and
certain other transactions related thereto pursuant to and in accordance with
the terms of the Reorganization Agreement (the "Reorganization"). You have
requested that we provide an opinion regarding the treatment of the
Reorganization under the Internal Revenue Code of 1986, as amended (the "Code"),
and the accuracy of the tax disclosures in the proxy statement/prospectus (the
"Proxy Statement/Prospectus") on Exhibit 12 to the Form N-14 Registration
Statement.
In connection with rendering this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of (i) the
Reorganization Agreement, (ii) the Registration Statement on Form N-14 for the
Reorganization, and the Proxy Statement/Prospectus and other documents,
exhibits, attachments and schedules contained therein, (iii) written
representations of Morgan Stanley Dean Witter Advisors Inc. (the "Advisor")
concerning certain facts underlying and relating to the Reorganization set forth
in a letter dated February 8, 2000, and (iv) such other documents and materials
as we have deemed
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February 8, 2000
Page 2
necessary or appropriate for purposes of the opinions set forth below. In our
examination, we have assumed the genuineness of all signatures, the legal
capacity of all natural persons, the authenticity of all documents submitted to
us as originals, the conformity to original documents of all documents submitted
to us as certified or photostatic copies, and the authenticity of the originals
of such copies. We have not made an independent investigation of the facts set
forth either in the Registration Statement, the Reorganization Agreement or such
other documents that we have examined. We have consequently assumed in rendering
this opinion that the information presented in such documents or otherwise
furnished to us accurately and completely describes in all material respects all
facts relevant to the Reorganization.
We have also assumed for purposes of rendering our opinion (i) the accuracy
of, and material compliance with, the representations of the Advisor set forth
in the letter referred to above, (ii) the accuracy of, and material compliance
with, the representations, warranties, covenants and agreements of Mid-Cap
Equity and Mid-Cap Dividend made in the Reorganization Agreement, and (iii) that
there are no agreements or understandings other than those of which we have been
informed that would affect our conclusions set forth below.
The opinion set forth below is based on the Code, the legislative history
with respect thereto, rules and regulations promulgated thereunder, and
published rulings, court decisions and administrative authorities issued with
respect to all of the foregoing, all as in effect and existing on the date
hereof, and all of which are subject to change at any time, possibly on a
retroactive basis. In addition, there can be no assurance that positions
contrary to those stated in our opinion may not be asserted by the Internal
Revenue Service.
Any change occurring after the date hereof in, or a variation from, any of
the foregoing factual or legal bases for our opinion could affect the
conclusions set forth below.
In addition, the opinion expressed herein is given as of the date
hereof and we express no obligation to advise you of any changes in the law or
events that may hereafter come to our attention that could affect our opinion
set forth below.
Based on the foregoing, we are of the opinion that, for federal income
tax purposes:
1. The summaries of United States federal income tax consequences set
forth in the Proxy Statement/Prospectus under the headings "Synopsis -- Tax
Consequences of the Reorganization", "The Reorganization -- The Board's
Consideration" and "The Reorganization --Tax Aspects of the Reorganization" are
accurate in all material respects as to matters of law and legal conclusions.
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February 8, 2000
Page 3
2. The transfer of Mid-Cap Dividend's assets in exchange for Mid-Cap
Equity Shares(1) and the assumption by Mid-Cap Equity of certain stated
liabilities of Mid-Cap Dividend followed by the distribution by Mid-Cap Dividend
of Mid-Cap Equity Shares to the Mid-Cap Dividend Shareholders in exchange for
their Mid-Cap Dividend shares pursuant to and in accordance with the terms of
the Reorganization Agreement will constitute a "reorganization" within the
meaning of section 368(a)(1)(C) of the Code, and Mid-Cap Dividend and Mid-Cap
Equity will each be a "party to a reorganization" within the meaning of section
368(b) of the Code.
3. No gain or loss will be recognized by Mid-Cap Equity upon receipt of
the assets of Mid-Cap Dividend solely in exchange for Mid-Cap Equity Shares and
the assumption by Mid-Cap Equity of the stated liabilities of Mid-Cap Dividend.
4. No gain or loss will be recognized by Mid-Cap Dividend upon the
transfer of the assets of Mid-Cap Dividend to Mid-Cap Equity in exchange for
Mid-Cap Equity Shares and the assumption by Mid-Cap Equity of the stated
liabilities or upon the distribution of Mid-Cap Equity Shares to the Mid-Cap
Dividend Shareholders in exchange for their Mid-Cap Dividend shares.
5. No gain or loss will be recognized by the Mid-Cap Dividend
Shareholders upon the exchange of the Mid-Cap Dividend shares for Mid-Cap Equity
Shares.
6. The aggregate tax basis for the Mid-Cap Equity Shares received by
each Mid-Cap Dividend Shareholder pursuant to the Reorganization will be the
same as the aggregate tax basis of the Mid-Cap Dividend shares held by each such
Mid-Cap Dividend Shareholder immediately prior to the Reorganization.
7. The holding period of the Mid-Cap Equity Shares to be received by
each Mid-Cap Dividend Shareholder will include the period during which the
Mid-Cap Dividend shares surrendered in exchange therefor were held (provided
such Mid-Cap Dividend shares are held as capital assets on the date of the
Reorganization).
8. The tax basis of the assets of Mid-Cap Dividend acquired by Mid-Cap
Equity will be the same as the tax basis of such assets to Mid-Cap Dividend
immediately prior to the Reorganization.
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(1) Capitalized terms used herein without definition have the meanings
ascribed to them in the Reorganization Agreement.
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February 8, 2000
Page 4
9. The holding period of the assets of Mid-Cap Dividend in the hands of
Mid-Cap Equity will include the period during which those assets were held by
Mid-Cap Dividend.
This opinion is being provided to you solely in connection with the filing
of the Registration Statement for the Reorganization. This opinion may not be
relied upon by you for any other purpose or relied upon by or furnished to any
other person without our prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the Proxy
Statement/Prospectus and to all references to this firm under the headings
"Synopsis -- Tax Consequences of the Reorganization" and "The Reorganization --
Tax Aspects of the Reorganization" in the Proxy Statement/Prospectus.
Very truly yours,
/s/ Mayer, Brown & Platt
MAYER, BROWN & PLATT
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February 8, 2000
Page 5
SCHEDULE I
Morgan Stanley Dean Witter
Mid-Cap Dividend Growth Securities
Morgan Stanley Dean Witter
Mid-Cap Equity Trust
<PAGE>
CONSENT OF INDEPENDENT OF ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy Statement and
Prospectus and the Statement of Additional Information constituting parts of
this registration statement on Form N-14 (the "Registration Statement") of our
report dated January 11, 2000 relating to the November 30, 1999 financial
statements and financial highlights of Morgan Stanley Dean Witter Mid-Cap
Equity Trust appearing in the November 30, 1999 Annual Report to Shareholders
of Morgan Stanley Dean Witter Mid-Cap Equity Trust, which is also incorporated
by reference in the Registration Statement. We also consent to the references
to us under the heading "Financial Statements and Experts" in such Proxy
Statement and Prospectus. We also consent to the references to us under the
headings "Independent Accountants" and "Experts" in that fund's Statement of
Additional Information dated January 28, 2000 and to the reference to us under
the heading "Financial Highlights" in that fund's Prospectus dated January 28,
2000 which are incorporated by reference into the Registration Statement. We
also consent to the incorporation by reference in the Proxy Statement and
Prospectus of our report dated April 14, 1999 relating to February 28, 1999
financial statements and financial highlights of Morgan Stanley Dean Witter
Mid-Cap Dividend Growth Securities appearing in the February 28, 1999 Annual
Report to Shareholders of Morgan Stanley Dean Witter Mid-Cap Dividend Growth
Securities, which is also incorporated by reference in the Registration
Statement. We also consent to the references to us under the headings
"Independent Accountants" and "Experts" in that fund's Statement of Additional
Information dated June 30, 1999 and to the reference to us under the heading
"Financial Highlights" in that fund's Prospectus dated June 30, 1999, which are
incorporated by reference into the Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
February 8, 2000
<PAGE>
POWER OF ATTORNEY
Know All Men by These Presents, that each person whose signature appears
below constitutes and appoints David M. Butowsky, Stuart M. Strauss and Ronald
M. Feiman and each and any one of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form N-14 of Morgan Stanley Dean Witter Mid-Cap Equity Trust, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitutes, may
lawfully do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MICHAEL BOZIC Trustee February 11, 2000
-------------------------------
MICHAEL BOZIC
/s/ EDWIN J. GARN Trustee February 11, 2000
-------------------------------
EDWIN J. GARN
/s/ WAYNE E. HEDIEN Trustee February 11, 2000
-------------------------------
WAYNE E. HEDIEN
/s/ MANUEL H. JOHNSON Trustee February 11, 2000
-------------------------------
MANUEL H. JOHNSON
/s/ MICHAEL E. NUGENT Trustee February 11, 2000
-------------------------------
MICHAEL E. NUGENT
/s/ JOHN L. SCHROEDER Trustee February 11, 2000
-------------------------------
JOHN L. SCHROEDER
<PAGE>
POWER OF ATTORNEY
Know All Men by These Presents, that each person whose signature appears
below constitutes and appoints Barry Fink and Marilyn K. Cranney and each and
any one of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to the Registration Statement on Form N-14 of Morgan
Stanley Dean Witter Mid-Cap Equity Trust, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may lawfully do or cause
to be done by virtue hereof.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CHARLES A. FIUMEFREDDO Trustee February 11, 2000
-------------------------------
CHARLES A. FIUMEFREDDO
/s/ PHILIP J. PURCELL Trustee February 11, 2000
-------------------------------
PHILIP J. PURCELL
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP DIVIDEND GROWTH SECURITIES
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 22, 2000
The undersigned shareholder of Morgan Stanley Dean Witter Mid-Cap Dividend
Growth Securities does hereby appoint Barry Fink, Ronald E. Robison and Joseph
J. McAlinden and each of them, as attorneys-in-fact and proxies of the
undersigned, each with the full power of substitution, to attend the Special
Meeting of Shareholders of Morgan Stanley Dean Witter Mid-Cap Dividend Growth
Securities to be held on June 22, 2000, in Conference Room A, Forty-Fourth
Floor, Two World Trade Center, New York, New York at 10:30 A.M., New York time,
and at all adjournments thereof and to vote the shares held in the name of the
undersigned on the record date for said meeting for the Proposal specified on
the reverse side hereof. Said attorneys-in-fact shall vote in accordance with
their best judgment as to any other matter.
(Continued on reverse side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE PROPOSAL SET FORTH ON THE REVERSE HEREOF AND AS RECOMMENDED BY
THE BOARD OF TRUSTEES.
IMPORTANT--THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
<PAGE>
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AS TO VOTE BY MAIL, PLEASE COMPLETE AND RETURN THIS CARD
YOU ALSO MAY VOTE A PROXY BY TOUCH-TONE PHONE OR BY INTERNET
(SEE ENCLOSED VOTING INFORMATION CARD FOR FURTHER INSTRUCTIONS)
TO VOTE A PROXY BY PHONE, call Toll-Free: 1-800-690-6903
TO VOTE A PROXY BY INTERNET, visit our Website(s): WWW/MSDWT.COM or
WWW.PROXYVOTE.COM
PLEASE MARK VOTES IN THE EXAMPLE USING BLACK OR BLUE INK [X]
The Proposal:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Approval of the Agreement and Plan of Reorganization, dated as of January 26,
2000, pursuant to which substantially all of the assets of Morgan Stanley Dean
Witter Mid-Cap Dividend Growth Securities would be combined with those of Morgan
Stanley Dean Witter Mid-Cap Equity Trust and shareholders of Morgan Stanley Dean
Witter Mid-Cap Dividend Growth Securities would become shareholders of Morgan
Stanley Dean Witter Mid-Cap Equity Trust receiving shares in Morgan Stanley Dean
Witter Mid-Cap Equity Trust with a value equal to the value of their holdings in
Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities.
Please sign personally. If the shares are registered in more than one name, each
joint owner or each fiduciary should sign personally. Only authorized officers
should sign for corporations.
Please make sure to sign and date this Proxy
using black or blue ink.
Date
----------------------------------------
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|
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Shareholder sign in the box above
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| |
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Co-Owner (if any) sign in the box above
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
PLEASE FOLD AND DETACH AT PERFORATION ALONG DOTTED LINES
MORGAN STANLEY DEAN WITTER MID-CAP
DIVIDEND GROWTH SECURITIES
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IMPORTANT
USE ONE OF THE THREE EASY WAYS TO VOTE YOUR PROXY
1. BY MAIL. PLEASE DATE, SIGN AND RETURN THE ABOVE PROXY CARD IN THE ENCLOSED
POSTAGE PAID ENVELOPE.
2. BY INTERNET. HAVE YOUR PROXY CARD AT HAND. GO TO THE "VOTE YOUR PROXY HERE"
LINK ON THE WEBSITE WWW.MSDWT.COM OR WWW.PROXYVOTE.COM. ENTER YOUR 12
DIGIT CONTROL NUMBER LOCATED ON THE PROXY CARD AND FOLLOW THE SIMPLE
INSTRUCTIONS.
3. BY TELEPHONE. HAVE YOUR PROXY CARD AT HAND. CALL 1-800-690-6903 ON A
TOUCH-TONE PHONE. ENTER YOUR 12-DIGIT CONTROL NUMBER LOCATED ON THE PROXY
CARD AND FOLLOW THE SIMPLE RECORDED INSTRUCTIONS.
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054, 394, 395, 396
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MORGAN STANLEY DEAN WITTER FUNDS
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OFFERS TWO NEW WAYS TO VOTE YOUR PROXY
24 HOURS A DAY, 7 DAYS A WEEK
You can now vote your proxy in a matter of minutes with the ease and
convenience of the Internet or the telephone. You may still vote by mail.
But remember, if you are voting by Internet or telephone, do not mail the
proxy.
TO VOTE BY INTERNET:
1. Read the enclosed Proxy Statement and have your Proxy Card available.
2. Go to the "Proxy Voting" link on www.msdwt.com or to website
www.proxyvote.com.
3. Enter the 12-digit Control Number found on your Proxy Card.
4. Follow the simple instructions.
TO VOTE BY TELEPHONE:
1. Read the enclosed Proxy Statement and have your Proxy Card available.
2. Call toll-free 1-800-690-6903.
3. Enter the 12-digit Control Number found on your Proxy Card.
4. Follow the simple recorded instructions.
Your Proxy Vote is Important!
Thank You for Submitting Your Proxy.
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