<PAGE> 1
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST Two World Trade Center
LETTER TO THE SHAREHOLDERS May 31, 2000 New York, New York 10048
DEAR SHAREHOLDER:
The six-month period ended May 31, 2000, proved to be a tale of two markets.
During the first four months of the period, new-economy stocks continued to lead
the equity markets to new heights. In April and May, however, a combination of
factors primarily driven by rising interest rates resulted in a dramatic decline
in stock-market valuations, with new-economy stocks among the hardest hit.
Despite the market's pullback, the economy remains quite robust: growth remains
strong, albeit at a lower level than was seen in 1999, and inflation is under
control with the Federal Reserve Board taking prudent steps to prevent its
recurrence.
PERFORMANCE
For the six-month period ended May 31, 2000, Morgan Stanley Dean Witter Mid-Cap
Equity Trust's Class B shares returned 0.13 percent, compared to 13.78 percent
for the Standard & Poor's Midcap 400 Index (S&P Midcap 400).(1) For the same
period, the Fund's Class A, C and D shares returned 0.34 percent, -0.02 percent
and 0.46 percent, respectively. The performance of the Fund's four share classes
varies because of differing expenses. Total return figures assume the
reinvestment of all distributions but do not reflect the deduction of any
applicable sales charges.
The Fund's underperformance of its benchmark was due primarily to the sharp
decline in new economy and technology issues during the final two months of the
period. Despite the sell-off, TCW Investment Management Company, Inc., the
Fund's sub-advisor, believes that the fundamentals of the companies in the
Fund's portfolio continue to be strong. Top-line growth has not slowed at all as
the economy has continued its healthy expansion. According to TCW, the very best
companies still have no problem raising capital to fund their growth, and
slightly higher interest
---------------------
(1)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.
<PAGE> 2
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
LETTER TO THE SHAREHOLDERS May 31, 2000, continued
payments for those with debt will have only a minimal effect on bottom-line
results. While higher interest rates can cause pain throughout an entire sector,
it is the weakest competitors who are generally hurt the most, as they are the
first to have trouble raising additional funds. This tends to benefit the market
leaders over the long run by winnowing out some of the competition as well as
creating attractive consolidation opportunities.
THE PORTFOLIO
During the first half of its fiscal year, the Fund's portfolio sector weightings
shifted gradually, mostly due to the capital appreciation of some of its major
holdings. The largest weighting in the portfolio continues to be technology
(42.1 percent), followed by services (25.0 percent) and consumer issues (13.6
percent). During the period, TCW initiated a position in Sonus Networks, a
telecom switching company that converts voice traffic into data in order to
reduce the cost of telephone calls. TCW sold positions in Hartford Life,
Infineon Technologies and I3 Mobile in order to raise cash to purchase companies
with greater near-term prospects.
LOOKING AHEAD
According to TCW, one benefit of the difficult market environment is that some
of the very best companies it seeks to own in the Fund's portfolio currently
sell at attractive valuations. Furthermore, some of the most promising newly
public companies now stay within the Fund's market-cap range long enough for the
Fund to be able to buy a meaningful amount of their stock. Finally, TCW is
taking advantage of the difficult environment to seek to upgrade the quality of
the stocks in the portfolio, selling issues where TCW's level of conviction is
not as high as it once was and replacing them with what the sub-advisor believes
to be the very best names in a particular sector.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
LETTER TO THE SHAREHOLDERS May 31, 2000, continued
In closing, it is important to point out that difficult periods such as the one
experienced during April and May are part and parcel of equity investing. TCW
seeks to use these periods to its benefit, repositioning the Fund with what it
considers to be the very best mid-cap-growth names. TCW believes that this
strategy will best position the Fund to participate in any future gains as
market conditions improve.
We appreciate your ongoing support of Morgan Stanley Dean Witter Mid-Cap Equity
Trust and look forward to continuing to serve your investment needs.
<TABLE>
<S> <C>
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
</TABLE>
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FUND PERFORMANCE May 31, 2000
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A*
----------------------------------------------
<S> <C> <C>
PERIOD ENDED 5/31/00
-------------------------
1 Year 36.40%(1) 29.24%(2)
Since Inception (7/28/97) 49.39%(1) 46.58%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS B**
----------------------------------------------
<S> <C> <C>
PERIOD ENDED 5/31/00
-------------------------
1 Year 35.70%(1) 30.70%(2)
Since Inception (2/27/96) 32.75%(1) 32.57%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C+
----------------------------------------------
<S> <C> <C>
PERIOD ENDED 5/31/00
-------------------------
1 Year 35.33%(1) 34.33%(2)
Since Inception (7/28/97) 48.28%(1) 48.28%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D++
----------------------------------------------
<S> <C> <C>
PERIOD ENDED 5/31/00
-------------------------
1 Year 36.47%(1)
Since Inception (7/28/97) 49.67%(1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST.
---------------------
<TABLE>
<S> <C>
(1) Figure shown assumes reinvestment of all distributions and
does not reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and
the deduction of the maximum applicable sales charge. See
the Fund's current prospectus for complete details on fees
and sales charges.
* The maximum front-end sales charge for Class A is 5.25%.
** The maximum contingent deferred sales charge (CDSC) for
Class B is 5.0%. The CDSC declines to 0% after six years.
+ The maximum CDSC for Class C shares is 1% for shares
redeemed within one year of purchase.
++ Class D shares have no sales charge.
</TABLE>
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
PORTFOLIO OF INVESTMENTS May 31, 2000 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (98.1%)
Accident & Health Insurance (0.5%)
175,000 AFLAC, Inc. ............... $ 9,045,313
--------------
Advertising (1.2%)
262,000 DoubleClick Inc.*.......... 11,036,750
225,000 Lamar Advertising Co.
(Class A)*................ 9,000,000
--------------
20,036,750
--------------
Biotechnology (5.6%)
477,900 Abgenix, Inc.*............. 37,515,150
139,400 Genentech, Inc.*........... 14,968,075
138,900 Gilead Sciences, Inc.*..... 7,604,775
412,000 Human Genome Sciences,
Inc.*..................... 36,153,000
--------------
96,241,000
--------------
Broadcasting (6.2%)
199,537 Clear Channel
Communications, Inc.*..... 14,940,333
474,000 Cox Radio, Inc. (Class
A)*....................... 13,509,000
202,100 Hispanic Broadcasting
Corp.*.................... 15,309,075
341,200 Univision Communications,
Inc. (Class A)*........... 35,143,599
854,600 Westwood One, Inc.*........ 28,362,038
--------------
107,264,045
--------------
Cable Television (4.2%)
386,800 Cablevision Systems Corp.
(Class A)*................ 24,223,350
859,400 EchoStar Communications
Corp. (Class A)*.......... 34,322,287
1,050,400 Mediacom Communications
Corp.*.................... 8,436,025
672,700 TCI Satellite
Entertainment, Inc.*...... 5,423,644
--------------
72,405,306
--------------
Catalog/Specialty Distribution (1.3%)
468,500 Amazon.com, Inc.*.......... 22,634,406
--------------
Clothing/Shoe/Accessory Stores (0.4%)
130,400 Talbots, Inc. (The)........ 7,449,100
--------------
Computer Communications (3.8%)
148,900 Foundry Networks, Inc.*.... 9,343,475
317,400 Juniper Networks, Inc.*.... 55,604,513
--------------
64,947,988
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------------------------------------------------------
<C> <S> <C>
Computer Software (10.6%)
155,800 Citrix Systems, Inc.*...... $ 8,198,975
220,000 Mercury Interactive
Corp.*.................... 18,672,500
129,850 Phone.com, Inc.*........... 9,073,269
411,000 Rational Software Corp.*... 30,131,437
997,800 Siebel Systems, Inc.*...... 116,680,237
--------------
182,756,418
--------------
Diversified Commercial Services (1.9%)
365,600 CheckFree Holdings Corp.*.. 15,263,800
486,488 Paychex, Inc. ............. 17,027,063
--------------
32,290,863
--------------
Diversified Electronic Products (5.3%)
720,000 Gemstar International Group
Ltd. (Virgin Islands)*.... 30,555,000
680,000 JDS Uniphase Corp.*........ 59,797,500
--------------
90,352,500
--------------
Engineering & Construction (2.8%)
939,200 Metromedia Fiber Network,
Inc. (Class A)*........... 28,997,800
1,121,900 SpectraSite Holdings,
Inc.*..................... 19,002,181
--------------
47,999,981
--------------
Internet Services (19.9%)
711,200 Ariba, Inc.*............... 36,982,399
497,600 Commerce One, Inc.*........ 17,789,200
302,800 Exodus Communications,
Inc.*..................... 21,347,400
168,200 Kana Communications,
Inc.*..................... 7,526,950
419,000 Portal Software, Inc.*..... 16,838,563
551,800 Scient Corp.*.............. 23,727,400
490,900 StarMedia Network, Inc.*... 8,774,838
692,300 VeriSign, Inc.*............ 93,676,843
427,200 Viant Corp.*............... 10,626,600
1,233,000 Vignette Corp.*............ 33,830,438
634,430 Yahoo! Inc.*............... 71,690,589
--------------
342,811,220
--------------
Investment Bankers/Brokers/
Services (1.3%)
1,374,300 E*TRADE Group, Inc.*....... 21,387,544
--------------
Investment Managers (1.0%)
441,700 Price (T.) Rowe Associates,
Inc. ..................... 16,867,419
--------------
Medical Specialties (0.9%)
136,700 Minimed, Inc.*............. 16,284,388
--------------
Medical/Dental Distributors (1.7%)
487,800 Andrx Corp.*............... 28,993,613
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
PORTFOLIO OF INVESTMENTS May 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------------------------------------------------------
<C> <S> <C>
Other Consumer Services (2.7%)
590,600 eBay, Inc.*................ $ 36,949,413
425,600 Homestore.Com Inc.*........ 9,975,000
--------------
46,924,413
--------------
Other Pharmaceuticals (1.7%)
300,800 Sepracor, Inc.*............ 28,726,400
--------------
Other Specialty Stores (1.0%)
468,700 Bed Bath & Beyond Inc.*.... 17,254,019
--------------
Other Telecommunications (4.7%)
924,600 AT&T Canada, Inc.
(Canada)*................. 35,943,824
325,000 BroadWing Inc. ............ 7,739,063
555,516 Global Crossing Ltd.
(Bermuda)*................ 13,922,620
1,202,700 McLeodUSA, Inc. (Class
A)*....................... 24,054,000
--------------
81,659,507
--------------
Semiconductors (11.0%)
474,900 Altera Corp.*.............. 40,782,038
905,400 Maxim Integrated Products,
Inc.*..................... 57,379,725
1,200,500 Xilinx, Inc.*.............. 91,313,030
--------------
189,474,793
--------------
Services to the Health Industry (1.2%)
461,500 Healtheon/WebMD Corp.*..... 6,749,438
343,300 MedQuist Inc.*............. 14,204,037
--------------
20,953,475
--------------
Smaller Banks (0.3%)
125,000 Zions Bancorporation....... 5,820,313
--------------
Telecommunication Equipment (6.9%)
694,800 American Tower Corp. (Class
A)........................ 25,794,450
800,000 QUALCOMM Inc.*............. 53,049,999
118,200 SONUS Networks, Inc.*...... 8,621,213
365,000 Sycamore Networks, Inc.*... 30,477,500
--------------
117,943,162
--------------
TOTAL COMMON STOCKS
(Identified Cost
$1,182,085,528)............ 1,688,523,936
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
-------------------------------------------------------------
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS (2.1%)
U.S. GOVERNMENT AGENCIES (a) (1.7%)
$ 10,000 Federal Home Loan Banks
6.30% due 06/01/00......... $ 10,000,000
20,000 Federal Home Loan Banks
6.30% due 06/07/00......... 19,979,000
--------------
TOTAL U.S. GOVERNMENT
AGENCIES
(Identified Cost
$29,979,000)................ 29,979,000
--------------
REPURCHASE AGREEMENT (0.4%)
7,479 The Bank of New York
6.75% due 06/01/00
(dated 05/31/00;
proceeds $7,480,288) (b)
(Identified Cost
$7,478,886)........... 7,478,886
--------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost
$37,457,886)................ 37,457,886
--------------
TOTAL INVESTMENTS
(Identified Cost
$1,219,543,414) (c)............ 100.2% 1,725,981,822
OTHER ASSETS IN EXCESS
OF LIABILITIES................. (0.2) (3,962,828)
----- --------------
NET ASSETS..................... 100.0% $1,722,018,994
===== ==============
</TABLE>
---------------------
* Non-income producing security.
(a) Purchased on a discount basis. The interest rate shown has been adjusted to
reflect a money market equivalent yield.
(b) Collateralized by $7,534,833 Federal Home Loan Banks 6.75% due 02/01/02
valued at $7,628,467.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $708,572,197 and the
aggregate gross unrealized depreciation is $202,133,789, resulting in net
unrealized appreciation of $506,438,408.
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2000 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $1,219,543,414)....... $1,725,981,822
Receivable for:
Shares of beneficial interest
sold............................... 3,107,933
Dividends........................... 14,875
Deferred organizational expenses........ 24,521
Prepaid expenses and other assets....... 317,432
--------------
TOTAL ASSETS........................ 1,729,446,583
--------------
LIABILITIES:
Payable for:
Investments purchased............... 2,887,282
Shares of beneficial interest
repurchased........................ 1,811,031
Plan of distribution fee............ 1,349,695
Investment management fee........... 1,195,180
Accrued expenses and other payables..... 184,401
--------------
TOTAL LIABILITIES................... 7,427,589
--------------
NET ASSETS.......................... $1,722,018,994
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital......................... $1,229,012,145
Net unrealized appreciation............. 506,438,407
Accumulated net investment loss......... (11,448,593)
Accumulated net realized loss........... (1,982,965)
--------------
NET ASSETS.......................... $1,722,018,994
==============
CLASS A SHARES:
Net Assets.............................. $44,975,183
Shares Outstanding (unlimited
authorized, $.01 par value)............ 1,356,162
NET ASSET VALUE PER SHARE........... $33.16
==============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net
asset value)....................... $35.00
==============
CLASS B SHARES:
Net Assets.............................. $1,594,206,769
Shares Outstanding (unlimited
authorized, $.01 par value)............ 48,866,772
NET ASSET VALUE PER SHARE........... $32.62
==============
CLASS C SHARES:
Net Assets.............................. $64,266,415
Shares Outstanding (unlimited
authorized, $.01 par value)............ 1,980,438
NET ASSET VALUE PER SHARE........... $32.45
==============
CLASS D SHARES:
Net Assets.............................. $18,570,627
Shares Outstanding (unlimited
authorized, $.01 par value)............ 556,992
NET ASSET VALUE PER SHARE........... $33.34
==============
</TABLE>
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended May 31, 2000 (unaudited)
NET INVESTMENT LOSS:
INCOME
Interest................................ $ 2,807,460
Dividends............................... 442,859
-------------
TOTAL INCOME........................ 3,250,319
-------------
EXPENSES
Investment management fee............... 7,201,998
Plan of distribution fee (Class A
shares)................................ 51,581
Plan of distribution fee (Class B
shares)................................ 6,108,645
Plan of distribution fee (Class C
shares)................................ 321,571
Transfer agent fees and expenses........ 655,110
Registration fees....................... 151,590
Shareholder reports and notices......... 110,462
Professional fees....................... 47,543
Custodian fees.......................... 18,349
Organizational expenses................. 16,559
Trustees' fees and expenses............. 9,067
Other................................... 6,437
-------------
TOTAL EXPENSES...................... 14,698,912
-------------
NET INVESTMENT LOSS................. (11,448,593)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain....................... 15,097,466
Net change in unrealized appreciation... (105,163,128)
-------------
NET LOSS............................ (90,065,662)
-------------
NET DECREASE............................ $(101,514,255)
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
MAY 31, 2000 NOVEMBER 30, 1999
---------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss................................ $ (11,448,593) $ (8,748,580)
Net realized gain.................................. 15,097,466 44,590,626
Net change in unrealized appreciation.............. (105,163,128) 422,052,427
-------------- --------------
NET INCREASE (DECREASE)........................ (101,514,255) 457,894,473
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED
GAIN:
Class A shares..................................... (549,412) (707)
Class B shares..................................... (35,691,907) (54,653)
Class C shares..................................... (988,964) (1,211)
Class D shares..................................... (137,421) (4)
-------------- --------------
TOTAL DISTRIBUTIONS............................ (37,367,704) (56,575)
-------------- --------------
Net increase from transactions in shares of
beneficial interest............................... 485,755,285 703,430,965
-------------- --------------
NET INCREASE................................... 346,873,326 1,161,268,863
NET ASSETS:
Beginning of period................................ 1,375,145,668 213,876,805
-------------- --------------
END OF PERIOD
(Including a net investment loss of
$11,448,593 and $0, respectively).............. $1,722,018,994 $1,375,145,668
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 2000 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Mid-Cap Equity Trust (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 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
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 2000 (unaudited) continued
coupon, rating and maturity or an appropriate matrix utilizing similar factors);
and (4) short-term debt securities having a maturity date of more than sixty
days at time of purchase are valued on a mark-to-market basis until sixty days
prior to maturity and thereafter at amortized cost based on their value on the
61st day. Short-term debt securities having a maturity date of sixty days or
less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except for certain dividends from foreign securities which are recorded as soon
as the Fund is informed after the ex-dividend date. Discounts are accreted over
the life of the respective securities. Interest income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
F. ORGANIZATIONAL EXPENSES -- 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
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 2000 (unaudited) continued
expenses have been deferred and are being amortized on the straight-line method
over a period not to exceed five years from the commencement of operations.
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.75% to the portion of daily net assets not exceeding $500
million and 0.725% to the portion of daily net assets exceeding $500 million but
not exceeding $2 billion. Effective May 1, 2000, the Agreement was amended to
reduce the annual rate to 0.70% of the portion of daily net assets exceeding
$2.0 billion but not exceeding $3.0 billion; and 0.675% of the portion of daily
net assets in excess of $3.0 billion.
Under a Sub-Advisory Agreement between the Investment Manager and the
Sub-Advisor, the Sub-Advisor provides the Fund with investment advice and
portfolio management relating to the Fund's investment in securities, subject to
the overall supervision of the Investment Manager. As compensation for its
services provided pursuant to the Sub-Advisory Agreement, the Investment Manager
pays the Sub-Advisor compensation equal to 40% of its monthly compensation.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has
adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A -- up
to 0.25% of the average daily net assets of Class A; (ii) Class B -- 1.0% of the
lesser of: (a) the average daily aggregate gross sales of the Class B shares
since 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 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
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 2000 (unaudited) continued
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 $38,762,243 at May 31, 2000.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the six months ended May 31, 2000, 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 six months ended May 31,
2000, it received contingent deferred sales charges from certain redemptions of
the Fund's Class A shares, Class B shares and Class C shares of $121, $769,930
and $27,955, respectively and received $319,597 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 May 31, 2000 aggregated
$616,047,214 and $172,375,488, respectively.
For the six months ended May 31, 2000, the Fund incurred brokerage commission of
$8,000 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 May 31, 2000, the Fund had
transfer agent fees and expenses payable of approximately $655,000.
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 2000 (unaudited) continued
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
MAY 31, 2000 NOVEMBER 30, 1999
-------------------------- --------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold........................................................ 963,616 $ 40,558,062 634,895 $ 17,175,647
Reinvestment of distributions............................... 13,380 499,329 23 593
Acquisition of Morgan Stanley Dean Witter Mid-Cap Growth
Fund....................................................... -- -- 137,952 3,450,632
Repurchased................................................. (210,090) (8,599,503) (254,595) (6,451,822)
---------- ------------- ---------- -------------
Net increase - Class A...................................... 766,906 32,457,888 518,275 14,175,050
---------- ------------- ---------- -------------
CLASS B SHARES
Sold........................................................ 14,126,663 589,774,870 11,267,017 301,595,088
Reinvestment of distributions............................... 904,628 33,272,193 1,986 50,366
Acquisition of Morgan Stanley Dean Witter Mid-Cap Growth
Fund....................................................... -- -- 20,363,981 503,472,815
Repurchased................................................. (5,610,272) (226,525,953) (5,905,022) (145,463,060)
---------- ------------- ---------- -------------
Net increase - Class B...................................... 9,421,019 396,521,110 25,727,962 659,655,209
---------- ------------- ---------- -------------
CLASS C SHARES
Sold........................................................ 1,230,698 50,920,229 849,493 22,720,952
Reinvestment of distributions............................... 26,230 961,084 44 1,113
Acquisition of Morgan Stanley Dean Witter Mid-Cap Growth
Fund....................................................... -- -- 264,929 6,532,755
Repurchased................................................. (326,311) (13,020,247) (110,763) (2,910,576)
---------- ------------- ---------- -------------
Net increase - Class C...................................... 930,617 38,861,066 1,003,703 26,344,244
---------- ------------- ---------- -------------
CLASS D SHARES
Sold........................................................ 710,887 30,114,636 688,208 18,792,852
Reinvestment of distributions............................... 3,245 121,637 -- 4
Acquisition of Morgan Stanley Dean Witter Mid-Cap Growth
Fund....................................................... -- -- 11,712 294,460
Repurchased................................................. (286,221) (12,321,052) (571,762) (15,830,854)
---------- ------------- ---------- -------------
Net increase - Class D...................................... 427,911 17,915,221 128,158 3,256,462
---------- ------------- ---------- -------------
Net increase in Fund........................................ 11,546,453 $ 485,755,285 27,378,098 $ 703,430,965
========== ============= ========== =============
</TABLE>
6. FEDERAL INCOME TAX STATUS
At November 30, 1999, the Fund had a net capital loss carryover of approximately
$10,286,000 which will be available through November 30, 2005 to offset future
capital gains to the extent provided by regulations. On June 28, 1999, the Fund
acquired all the net assets of Morgan Stanley Dean Witter Mid-Cap Growth Fund
("Mid-Cap Growth"). Due to the Fund's acquisition of Mid-Cap Growth, utilization
of this carryover is subject to limitations imposed by the Internal Revenue Code
and Treasury Regulations, significantly reducing the total carryover available.
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS May 31, 2000 (unaudited) continued
As of November 30, 1999, the Fund had temporary book/tax differences
attributable to unused capital loss carryovers and capital loss deferrals on
wash sales.
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.
8. SUBSEQUENT EVENT
On January 26, 2000, the Trustees of the Fund and of Morgan Stanley Dean Witter
Mid-Cap Dividend Growth Securities ("Mid-Cap Dividend") approved a
reorganization plan (the "Plan") whereby Mid-Cap Dividend would be merged into
the Fund. Under the Plan, which was approved on June 22, 2000 by Mid-Cap
Dividend's shareholders, the assets of Mid-Cap Dividend will be combined with
the assets of the Fund and shareholders of Mid-Cap Dividend will become
shareholders of the Fund, receiving shares of the corresponding class of the
Fund equal to the value of their holdings in Mid-Cap Dividend. The merger is
expected to close on or about July 21, 2000.
14
<PAGE> 15
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 SIX FOR THE YEAR FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED ENDED THROUGH
MAY 31, 2000 NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1997
---------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period............. $33.83 $15.60 $10.88 $10.85
------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss............................. (0.15) (0.34) (0.18) (0.06)
Net realized and unrealized gain................ 0.36 18.57 4.90 0.09
------ ------ ------ ------
Total income from investment operations.......... 0.21 18.23 4.72 0.03
------ ------ ------ ------
Less distributions from net realized gain........ (0.88) -- -- --
------ ------ ------ ------
Net asset value, end of period................... $33.16 $33.83(4) $15.60 $10.88
====== ====== ====== ======
TOTAL RETURN+.................................... 0.34 %(1) 116.89 % 43.38 % 0.28 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses......................................... 1.07 %(2)(3) 1.23 %(3) 1.55 %(3) 1.55 %(2)
Net investment loss.............................. (0.74)%(2)(3) (0.93)%(3) (1.40)%(3) (1.46)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.......... $44,975 $19,934 $1,107 $58
Portfolio turnover rate.......................... 9 %(1) 51 % 52 % 49 %(1)
</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
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR ENDED NOVEMBER 30, FEBRUARY 27, 1996*
MONTHS ENDED -------------------------------------- THROUGH
MAY 31, 2000++ 1999++ 1998++ 1997**++ NOVEMBER 30, 1996
---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period......... $33.36 $15.46 $10.85 $10.92 $10.00
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss......................... (0.24) (0.42) (0.26) (0.22) (0.13)
Net realized and unrealized gain............ 0.38 18.32 4.87 0.15 1.05
------ ------ ------ ------ ------
Total income (loss) from investment
operations.................................. 0.14 17.90 4.61 (0.07) 0.92
------ ------ ------ ------ ------
Less distributions from net realized gain.... (0.88) -- -- -- --
------ ------ ------ ------ ------
Net asset value, end of period............... $32.62 $33.36(4) $15.46 $10.85 $10.92
====== ====== ====== ====== ======
TOTAL RETURN+................................ 0.13 %(1) 115.82% 42.49% (0.64)% 9.20 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses..................................... 1.49 %(2)(3) 1.74 %(3) 2.20 %(3) 2.29 % 2.28 %(2)
Net investment loss.......................... (1.16)%(2)(3) (1.44)%(3) (2.05)%(3) (2.16)% (1.79)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands...... $1,594,207 $1,315,930 $212,043 $174,412 $205,274
Portfolio turnover rate...................... 9 %(1) 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
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED ENDED THROUGH
MAY 31, 2000 NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1997
---------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
CLASS C SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period............. $33.24 $15.45 $10.85 $10.85
------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss............................. (0.30) (0.52) (0.28) (0.08)
Net realized and unrealized gain................ 0.39 18.31 4.88 0.08
------ ------ ------ ------
Total income from investment operations.......... 0.09 17.79 4.60 --
------ ------ ------ ------
Less distributions from net realized gain........ (0.88) -- -- --
------ ------ ------ ------
Net asset value, end of period................... $32.45 $33.24(4) $15.45 $10.85
====== ====== ====== ======
TOTAL RETURN+.................................... (0.02)%(1) 115.18 % 42.27 % 0.09 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses......................................... 1.83 %(2)(3) 1.99 %(3) 2.30 %(3) 2.32 %(2)
Net investment loss.............................. (1.50)%(2)(3) (1.69)%(3) (2.15)%(3) (2.22)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.......... $64,266 $34,898 $712 $83
Portfolio turnover rate.......................... 9 %(1) 51 % 52 % 49 %(1)
</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
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED ENDED THROUGH
MAY 31, 2000 NOVEMBER 30, 1999 NOVEMBER 30, 1998 NOVEMBER 30, 1997
---------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period............. $33.97 $15.66 $10.89 $10.85
------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss............................. (0.11) (0.21) (0.15) (0.05)
Net realized and unrealized gain................ 0.36 18.52 4.92 0.09
------ ------ ------ ------
Total income from investment operations.......... 0.25 18.31 4.77 0.04
------ ------ ------ ------
Less distributions from net realized gain........ (0.88) -- -- --
------ ------ ------ ------
Net asset value, end of period................... $33.34 $33.97(4) $15.66 $10.89
====== ====== ====== ======
TOTAL RETURN+.................................... 0.46 %(1) 116.96 % 43.80 % 0.37 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses......................................... 0.83 %(2)(3) 0.99 %(3) 1.30 %(3) 1.30 %(2)
Net investment loss.............................. (0.50)%(2)(3) (0.69)%(3) (1.15)%(3) (1.19)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.......... $18,571 $4,384 $15 $10
Portfolio turnover rate.......................... 9 %(1) 51 % 52 % 49 %(1)
</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
18
<PAGE> 19
MORGAN STANLEY DEAN WITTER MID-CAP EQUITY TRUST
CHANGE IN INDEPENDENT ACCOUNTANTS
On July 1, 2000 PricewaterhouseCoopers LLP resigned as independent accountants
of the Fund.
The reports of PricewaterhouseCoopers LLP on the financial statements of the
Fund for the past two fiscal years contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle.
In connection with its audits for the two most recent fiscal years and through
July 1, 2000, there have been no disagreements with PricewaterhouseCoopers LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of PricewaterhouseCoopers LLP would have caused them to make
reference thereto in their report on the financial statements for such years.
The Fund, with the approval of its Board of Trustees and its Audit Committee,
engaged Deloitte & Touche LLP as its new independent accountants as of July 1,
2000.
19
<PAGE> 20
TRUSTEES
----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
----------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
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
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 Distributors Inc., member NASD.
MORGAN STANLEY
DEAN WITTER
MID CAP
EQUITY TRUST
Semiannual Report
May 31, 2000
