<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
