<PAGE> 1
MORGAN STANLEY DEAN WITTER EQUITY FUND
Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS May 31, 1999
DEAR SHAREHOLDER:
We are pleased to present the Morgan Stanley Dean Witter Equity Fund's first
annual report to shareholders. The Fund, which commenced operations on July 29,
1998, seeks to provide investors with an attractive total return by constructing
a portfolio of equity securities believed to offer compelling valuation
characteristics and improving business dynamics. The Fund's sub-advisor, Miller
Anderson & Sherrerd, LLP (MAS), selects growth and value stocks in proportions
that seek to maximize the portfolio's total return potential while reducing
market risk.
MARKET OVERVIEW
The period under review, from inception on July 29, 1998, through May 31, 1999,
was one of continued, though turbulent, growth in the large-capitalization,
domestic equity marketplace. Although only 10 months in duration, the period
since inception has already been buffeted by three distinct types of markets.
From inception through the first week of October 1998, the market was down
nearly 15 percent, with large-cap growth stocks providing significant
outperformance relative to value stocks and other capitalization strategies.
Thereafter, the market turned in its best fourth-quarter performance ever in the
history of the S&P 500 Composite Stock Price Index (S&P 500), up 21.3 percent,
again led by large-cap growth companies. This growth trend continued through the
first quarter of 1999 with the market up 5 percent, then abruptly changed course
in April, with the value side of the market dramatically taking the lead. Large
increases in emerging-stock markets, better data from those same economies,
continued domestic strength and dramatic hikes in oil prices and U.S. interest
rates conspired to change near-term market sentiment in favor of value-oriented
and economically sensitive stocks.
PERFORMANCE
For the period under review, Morgan Stanley Dean Witter Equity Fund's Class A,
B, C and D shares returned 17.60 percent, 16.90 percent,
<PAGE> 2
MORGAN STANLEY DEAN WITTER EQUITY FUND
LETTER TO THE SHAREHOLDERS May 31, 1999, continued
17.10 percent and 17.90 percent, respectively. The performance of the four share
classes varies because of differing expenses. During the same period, the S&P
500 Index returned 17.20 percent, while the Lipper Growth Funds Index returned
16.13 percent. The accompanying chart illustrates the performance of the Fund
versus the S&P 500 and Lipper indexes.
Despite the erratic market, which occurred early in the Fund's life, the Fund's
return nearly matched its market benchmark and did exceed the performance of its
peer group, due to an effective combination of strong stock selection,
diversified sector representation, a low cash position and risk management. From
the market low on October 8, 1998, with the Fund then fully invested, the
portfolio return has significantly exceeded its market and peer benchmarks.
While maintaining a modest value tilt against the S&P 500 Index for the entire
period, the Fund outperformed its benchmarks during both the strong,
growth-stock rebound phase of this market and the more recent shift to value
stocks.
PORTFOLIO STRATEGY
At the close of the period, the portfolio was overweighted in consumer durables
and consumer services where strong earnings performance persists. The portfolio
is market weighted in the technology sector but underweighted within that
sector's industry groups in securities whose earnings dynamics are disappointing
or where prices appear speculative. The portfolio remains underweighted in
personal products and drugs, though less so than previously, as valuations have
fallen to more reasonable levels. Weights in the other market sectors are
roughly neutral to those in the benchmark.
Among the Fund's largest holdings on May 31, 1999, were Microsoft, MCI WorldCom,
Royal Dutch Petroleum, General Motors and Cisco Systems.
LOOKING AHEAD
The stock market is experiencing a major change in sentiment from global
deflation to global reflation and economic recovery, although uncertainty exists
as to whether this change will be lasting or only temporary. As the Fund's
fiscal year drew to a close, it became clear that investor sentiment was
favoring value over growth and extending that sentiment into other than mega-cap
stocks. Since April 1999, the returns from the 50 largest stocks in the S&P 500
Index have been lagging those of the remaining stocks in the index. Stocks with
low price/earnings (p/e) ratios are again outperforming high p/e stocks. Large-,
mid- and small-capitalization stock returns have all favored value over growth
since April. Moreover, mid- and small-cap stock returns have turned positive
after a protracted period of underperformance. These changes in the market have
not affected the fundamental positioning of the Fund's portfolio, which
emphasizes a balanced investment strategy with an average valuation level
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER EQUITY FUND
LETTER TO THE SHAREHOLDERS May 31, 1999, continued
lower than the market and expected earnings growth higher than the market. MAS
believes that this balanced strategy, the product of interactive growth and
value investing, is a cornerstone strategy which should enable the Fund to
provide investors with competitive total returns over the long term.
On May 1, 1999, Mitchell M. Merin was named President of the Morgan Stanley Dean
Witter Funds. Mr. Merin is also the President and Chief Operating Officer of
Asset Management of Morgan Stanley Dean Witter & Co. and President, Chief
Executive Officer and Director of Morgan Stanley Dean Witter Advisors Inc., 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 Equity Fund and
look forward to continuing to serve your investment objectives.
Very truly yours,
/S/ CHARLES A. FIUMEFREDDO /S/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER EQUITY FUND
FUND PERFORMANCE May 31, 1999
[LINE GRAPH]
GROWTH OF $10,000
($ in Thousands)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D S&P 500(4)
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
July 29, 1998 9475.00 10000.00 10000.00 10000.00 10000.00
July 31, 1998 9323.00 9840.00 9840.00 9840.00 9970.00
August 31, 1998 7788.00 8220.00 8220.00 8230.00 8530.00
September 30, 1998 8111.00 8550.00 8550.00 8570.00 9076.00
October 31, 1998 8755.00 9220.00 9220.00 9240.00 9814.00
November 30, 1998 9267.00 9750.00 9750.00 9780.00 10408.00
December 31, 1998 9845.00 10350.00 10350.00 10400.00 11008.00
January 31, 1999 10366.00 10900.00 10900.00 10950.00 11468.00
February 28, 1999 9987.00 10500.00 10500.00 10560.00 11112.00
March 31, 1999 10498.00 11020.00 11020.00 11100.00 11556.00
April 30, 1999 11190.00 11740.00 11740.00 11830.00 12003.00
May 31, 1999 11143.00(3) 11190.00(3) 11610.00(3) 11790.00(3) 11720.00
<CAPTION>
LIPPER(5)
---------
<S> <C>
July 29, 1998 10000.00
July 31, 1998 10000.00
August 31, 1998 8394.00
September 30, 1998 8954.00
October 31, 1998 9573.00
November 30, 1998 10144.00
December 31, 1998 10992.00
January 31, 1999 11461.00
February 28, 1999 11071.00
March 31, 1999 11551.00
April 30, 1999 11845.00
May 31, 1999 11613.00
</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*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A SHARES**
- ----------------------------------------------
<S> <C> <C>
PERIOD ENDED 5/31/99
- -------------------------
Since Inception (7/29/98) 17.60(1) 11.43(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES+
- ----------------------------------------------
<S> <C> <C>
PERIOD ENDED 5/31/99
- -------------------------
Since Inception (7/29/98) 16.90(1) 11.90(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES++
- ----------------------------------------------
<S> <C> <C>
PERIOD ENDED 5/31/99
- -------------------------
Since Inception (7/29/98) 17.10(1) 16.10(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D SHARES#
- ----------------------------------------------
<S> <C> <C>
PERIOD ENDED 5/31/99
- -------------------------
Since Inception (7/29/98) 17.90(1)
</TABLE>
- ---------------------
<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.
(3) Closing value assuming a complete redemption on May 31,
1999.
(4) The Standard & Poor's 500 Composite Stock Price Index (S&P
500) is a broad-based index, the performance of which is
based on the average performance of 500 widely held common
stocks. The performance of the index does not include any
expenses, fees or charges. The Index is unmanaged and should
not be considered an investment.
(5) The Lipper Growth Funds Index is an equally-weighted
performance index of the largest-qualifying funds (based on
net assets) in the Lipper Growth 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.
</TABLE>
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER EQUITY FUND
PORTFOLIO OF INVESTMENTS May 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (95.7%)
Accident & Health Insurance (1.0%)
53,100 UNUM Corp. .................. $ 2,857,444
------------
Airlines (0.4%)
20,400 AMR Corp.*................... 1,327,275
------------
Alcoholic Beverages (0.7%)
28,500 Anheuser-Busch Companies,
Inc......................... 2,082,281
------------
Auto Parts: O.E.M. (0.9%)
31,400 Dana Corp. .................. 1,621,025
56,404 Delphi Automotive Systems
Corp.*...................... 1,106,922
------------
2,727,947
------------
Beverages - Non-Alcoholic (1.2%)
36,600 Coca Cola Co. ............... 2,500,237
31,400 PepsiCo, Inc. ............... 1,124,512
------------
3,624,749
------------
Broadcasting (1.5%)
31,900 Clear Channel Communications,
Inc.*....................... 2,107,394
88,800 Infinity Broadcasting Corp.
(Series A)*................. 2,269,950
------------
4,377,344
------------
Building Materials (1.7%)
127,500 Owens Corning................ 5,020,312
------------
Building Materials/DIY Chains (0.5%)
27,700 Lowe's Companies, Inc. ...... 1,438,669
------------
Building Products (1.0%)
71,100 York International Corp. .... 2,999,531
------------
Cable Television (0.9%)
36,400 MediaOne Group Inc.*......... 2,689,050
------------
Cellular Telephone (1.3%)
29,000 AirTouch Communications,
Inc.*....................... 2,914,500
18,350 Sprint Corp. (PCS Group)*.... 825,750
------------
3,740,250
------------
Computer Communications (1.8%)
49,550 Cisco Systems, Inc.*......... 5,397,853
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Computer Hardware (2.6%)
47,300 Compaq Computer Corp. ....... $ 1,120,419
25,600 Dell Computer Corp.*......... 880,000
17,600 Hewlett-Packard Co. ......... 1,659,900
34,000 International Business
Machines Corp. ............. 3,954,625
------------
7,614,944
------------
Computer/Video Chains (1.3%)
48,300 Tandy Corp. ................. 3,984,750
------------
Computer Software (4.3%)
159,400 Microsoft Corp.*............. 12,861,587
------------
Construction/Agricultural Equipment/ Trucks
(2.3%)
85,200 Case Corp. .................. 4,004,400
55,800 Cummins Engine Co., Inc. .... 2,824,875
------------
6,829,275
------------
Discount Chains (2.9%)
44,500 Consolidated Stores Corp.*... 1,529,687
28,400 Dayton Hudson Corp. ......... 1,789,200
53,650 Dollar General Corp. ........ 1,425,078
90,600 Wal-Mart Stores, Inc. ....... 3,861,825
------------
8,605,790
------------
Diversified Financial Services (0.8%)
35,350 Citigroup Inc. .............. 2,341,937
------------
Drugstore Chains (0.9%)
60,900 CVS Corp. ................... 2,801,400
------------
Electric Utilities (1.5%)
37,700 Carolina Power & Light
Co. ........................ 1,649,375
47,600 Energy East Corp. ........... 1,320,900
33,200 PECO Energy Co. ............. 1,624,725
------------
4,595,000
------------
Electronic Data Processing (0.7%)
57,000 Unisys Corp.*................ 2,162,437
------------
Environmental Services (1.8%)
54,700 Allied Waste Industries,
Inc.* 1,018,787
81,400 Waste Management, Inc. ...... 4,304,025
------------
5,322,812
------------
Finance Companies (1.2%)
80,400 Household International,
Inc. ....................... 3,487,350
------------
Fluid Controls (0.6%)
43,400 Parker-Hannifin Corp. ....... 1,896,037
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER EQUITY FUND
PORTFOLIO OF INVESTMENTS May 31, 1999, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Food Chains (1.2%)
27,100 Kroger Co.*.................. $ 1,587,044
39,500 Safeway Inc.*................ 1,836,750
------------
3,423,794
------------
Generic Drugs (0.4%)
44,600 Mylan Laboratories, Inc. .... 1,131,725
------------
Hospital/Nursing Management (0.3%)
75,200 Health Management Associates,
Inc. (Class A)*............. 977,600
------------
Insurance Brokers/Services (0.7%)
48,300 Aon Corp. ................... 2,076,900
------------
Integrated Oil Companies (3.4%)
21,700 Atlantic Richfield Co. ...... 1,816,019
12,000 Chevron Corp. ............... 1,112,250
104,700 Royal Dutch Petroleum Co.
(ADR) (Netherlands)......... 5,922,094
17,600 Texaco, Inc. ................ 1,152,800
------------
10,003,163
------------
Internet Services (2.2%)
30,300 America Online, Inc.*........ 3,617,062
12,800 At Home Corp. (Series A)*.... 1,621,600
9,500 Excite, Inc.*................ 1,262,312
------------
6,500,974
------------
Major Banks (5.2%)
74,400 Bank of America Corp. ....... 4,812,750
60,100 Bank One Corp. .............. 3,399,406
45,100 BankBoston Corp. ............ 2,136,612
43,300 KeyCorp...................... 1,504,675
24,200 PNC Bank Corp. .............. 1,385,450
54,500 Wells Fargo & Co. ........... 2,180,000
------------
15,418,893
------------
Major Chemicals (1.3%)
68,700 Rohm & Haas Co. ............. 2,756,587
52,800 Solutia, Inc. ............... 1,184,700
------------
3,941,287
------------
Major Pharmaceuticals (5.9%)
40,600 Abbott Laboratories.......... 1,834,612
44,000 Baxter International,
Inc. ....................... 2,840,750
44,700 Bristol-Myers Squibb Co. .... 3,067,537
22,900 Lilly (Eli) & Co. ........... 1,635,919
61,000 Merck & Co., Inc. ........... 4,117,500
17,700 Pfizer, Inc. ................ 1,893,900
33,300 Warner-Lambert Co. .......... 2,064,600
------------
17,454,818
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Major U.S. Telecommunications (7.8%)
41,500 Ameritech Corp. ............. $ 2,731,219
80,259 AT&T Corp. .................. 4,454,374
112,502 MCI WorldCom, Inc.*.......... 9,710,329
47,700 SBC Communications, Inc. .... 2,438,663
33,700 Sprint Corp. (FON Group)..... 3,799,675
------------
23,134,260
------------
Managed Health Care (1.2%)
37,900 Aetna Inc. .................. 3,441,794
------------
Media Conglomerates (2.7%)
54,548 AT&T Corp. - Liberty Media
Group (Class A)*............ 3,624,033
72,400 Fox Entertainment Group
(Class A)*.................. 1,846,200
37,800 Time Warner, Inc. ........... 2,572,763
------------
8,042,996
------------
Medical/Nursing Services (0.5%)
56,600 Lincare Holdings, Inc.*...... 1,386,700
------------
Military/Gov't/Technical (0.2%)
39,500 Loral Space & Communications
Ltd. (Bermuda)*............. 656,688
------------
Motor Vehicles (3.0%)
59,900 Ford Motor Co. .............. 3,418,044
80,700 General Motors Corp. ........ 5,568,300
------------
8,986,344
------------
Multi-Line Insurance (1.1%)
86,900 Allstate Corp. .............. 3,166,419
------------
Multi-Sector Companies (0.1%)
14,500 Tenneco, Inc. ............... 338,031
------------
Oil Refining/Marketing (1.6%)
52,300 Tosco Corp. ................. 1,336,919
57,100 Total S.A. (ADR) (France).... 3,472,394
------------
4,809,313
------------
Oil/Gas Transmission (1.4%)
106,000 Coastal Corp. ............... 4,087,625
------------
Oilfield Services/Equipment (0.8%)
36,700 BJ Services Co.*............. 1,011,544
30,900 Halliburton Co. ............. 1,278,488
------------
2,290,032
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER EQUITY FUND
PORTFOLIO OF INVESTMENTS May 31, 1999, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Package Goods/Cosmetics (1.4%)
52,300 Gillette Co. ................ $ 2,667,300
17,300 Procter & Gamble Co. ........ 1,615,388
------------
4,282,688
------------
Packaged Foods (0.7%)
26,100 General Mills, Inc. ......... 2,097,788
------------
Property - Casualty Insurers (2.0%)
55,800 Everest Reinsurance Holdings,
Inc. ....................... 1,834,425
105,400 Travelers Property Casualty
Corp. (Class A)............. 4,163,300
------------
5,997,725
------------
Railroads (0.5%)
50,400 Burlington Northern Santa Fe
Corp. ...................... 1,562,400
------------
Rental/Leasing Companies (0.9%)
58,900 Ryder System, Inc. .......... 1,413,600
43,400 United Rentals, Inc. ........ 1,302,000
------------
2,715,600
------------
Retail - Specialty (0.5%)
4,100 Best Buy Co., Inc.*.......... 186,550
60,100 Office Depot, Inc.*.......... 1,254,588
------------
1,441,138
------------
Semiconductors (1.3%)
69,200 Intel Corp. ................. 3,758,425
------------
Specialty Chemicals (2.7%)
52,800 Air Products & Chemicals,
Inc......................... 2,164,800
148,200 Engelhard Corp. ............. 3,001,050
163,400 Grace (W. R.) & Co.*......... 2,910,563
------------
8,076,413
------------
Specialty Insurers (4.1%)
69,800 Ace, Ltd. (Bermuda).......... 2,128,900
52,800 Ambac Financial Group,
Inc. ....................... 3,078,900
60,100 MBIA, Inc. .................. 4,105,581
48,200 XL Capital Ltd. (Class A).... 2,931,163
------------
12,244,544
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Telecommunications Equipment (5.7%)
34,800 ADC Telecommunications,
Inc.*....................... $ 1,696,500
48,100 General Instrument Corp.*.... 1,860,869
45,200 Motorola, Inc. .............. 3,743,125
26,000 Nortel Networks Corp. ....... 1,950,000
43,800 QUALCOMM Inc.*............... 4,256,813
56,600 Tellabs, Inc.*............... 3,311,100
------------
16,818,407
------------
Tobacco (1.1%)
101,700 RJR Nabisco Holdings
Corp. ...................... 3,146,344
------------
TOTAL COMMON STOCKS
(Identified Cost
$240,898,764)................ 284,196,852
------------
PREFERRED STOCK (0.8%)
Media Conglomerates
81,500 News Corporation Ltd. (The)
(ADR) (Australia)
(Identified Cost
$2,480,656)................. 2,480,656
------------
PRINCIPAL
AMOUNT IN
THOUSANDS
- --------
SHORT-TERM INVESTMENT (3.8%)
REPURCHASE AGREEMENT
$ 11,382 The Bank of New York 4.50%
due 06/01/99 (dated
05/28/99; proceeds
$11,388,081) (a)
(Identified Cost
$11,382,389) 11,382,389
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $254,761,809)
(b).............................. 100.3% 298,059,897
LIABILITIES IN EXCESS
OF OTHER ASSETS.................. (0.3) (969,714)
------ ------------
NET ASSETS....................... 100.0% $297,090,183
===== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
ADR American Depository Receipt.
* Non-income producing security.
(a) Collateralized by $9,052,686 U.S. Treasury Bond
8.75% due 05/15/17 valued at $11,611,176.
(b) The aggregate cost for federal income tax
purposes approximates identified cost. The
aggregate gross unrealized appreciation is
$49,170,398 and the aggregate gross unrealized
depreciation is $5,872,310, resulting in net
unrealized appreciation of $43,298,088.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER EQUITY FUND
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1999
ASSETS:
Investments in securities, at value
(identified cost $254,761,809)............................. $298,059,897
Receivable for:
Investments sold........................................ 1,765,473
Shares of beneficial interest sold...................... 856,858
Dividends............................................... 294,828
Deferred offering costs..................................... 17,458
Prepaid expenses and other assets........................... 82,320
------------
TOTAL ASSETS............................................ 301,076,834
------------
LIABILITIES:
Payable for:
Investments purchased................................... 3,328,726
Plan of distribution fee................................ 247,154
Investment management fee............................... 214,019
Shares of beneficial interest repurchased............... 61,105
Offering costs.............................................. 14,820
Accrued expenses............................................ 120,827
------------
TOTAL LIABILITIES....................................... 3,986,651
------------
NET ASSETS.............................................. $297,090,183
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $252,460,556
Net unrealized appreciation................................. 43,298,088
Undistributed net realized gain............................. 1,331,539
------------
NET ASSETS.............................................. $297,090,183
============
CLASS A SHARES:
Net Assets.................................................. $7,932,667
Shares Outstanding (unlimited authorized, $.01 par value)... 674,526
NET ASSET VALUE PER SHARE............................... $11.76
============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value)........ $12.41
============
CLASS B SHARES:
Net Assets.................................................. $273,344,542
Shares Outstanding (unlimited authorized, $.01 par value)... 23,389,925
NET ASSET VALUE PER SHARE............................... $11.69
============
CLASS C SHARES:
Net Assets.................................................. $15,744,308
Shares Outstanding (unlimited authorized, $.01 par value)... 1,345,094
NET ASSET VALUE PER SHARE............................... $11.70
============
CLASS D SHARES:
Net Assets.................................................. $68,666
Shares Outstanding (unlimited authorized, $.01 par value)... 5,826
NET ASSET VALUE PER SHARE............................... $11.79
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER EQUITY FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the period July 29, 1998* through May 31, 1999
NET INVESTMENT LOSS:
INCOME
Dividends (net of $25,641 foreign withholding tax).......... $ 2,339,522
Interest.................................................... 542,741
-----------
TOTAL INCOME............................................ 2,882,263
-----------
EXPENSES
Plan of distribution fee (Class A shares)................... 14,950
Plan of distribution fee (Class B shares)................... 1,820,482
Plan of distribution fee (Class C shares)................... 86,747
Investment management fee................................... 1,692,914
Transfer agent fees and expenses............................ 246,712
Offering costs.............................................. 108,387
Registration fees........................................... 90,876
Professional fees........................................... 56,842
Custodian fees.............................................. 29,075
Shareholder reports and notices............................. 15,692
Trustees' fees and expenses................................. 9,910
Other....................................................... 2,904
-----------
TOTAL EXPENSES.......................................... 4,175,491
-----------
NET INVESTMENT LOSS..................................... (1,293,228)
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................................... 2,324,956
Net unrealized appreciation................................. 43,298,088
-----------
NET GAIN................................................ 45,623,044
-----------
NET INCREASE................................................ $44,329,816
===========
</TABLE>
- ---------------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER EQUITY FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
JULY 29, 1998*
THROUGH
MAY 31, 1999
- ----------------------------------------------------------------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss......................................... $ (1,293,228)
Net realized gain........................................... 2,324,956
Net unrealized appreciation................................. 43,298,088
------------
NET INCREASE............................................ 44,329,816
Net increase from transactions in shares of beneficial
interest................................................... 252,660,367
------------
NET INCREASE............................................ 296,990,183
NET ASSETS:
Beginning of period......................................... 100,000
------------
END OF PERIOD........................................... $297,090,183
============
</TABLE>
- ---------------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER EQUITY FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Equity Fund (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 total
return. The Fund seeks to achieve its objective by investing at least 65% of its
total assets in equity securities. The Fund was organized as a Massachusetts
business trust on April 6, 1998 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 July 29, 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;
(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
or Miller Anderson & Sherrerd, LLP (the "Sub-Advisor"), an affiliate of 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 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
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER EQUITY FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1999, continued
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. OFFERING COSTS -- The Investment Manager incurred offering costs on behalf of
the Fund in the amount of approximately $126,000 which will be reimbursed for
the full amount thereof. Such expenses were deferred and are being amortized by
the Fund on the straight-line method over the period of benefit of approximately
one year or less from the commencement of operations.
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER EQUITY FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1999, continued
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.85% to the net assets of the Fund determined as of the close of
each business day.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
Under a Sub-Advisory Agreement between the 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. 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
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
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER EQUITY FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1999, continued
literature and advertising materials. In addition, the Distributor may utilize
fees paid pursuant to the Plan, in the case of Class B shares, to compensate
Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and
Distributor, and other selected broker-dealers for their opportunity costs in
advancing such amounts, which compensation would be in the form of a carrying
charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $12,174,612 at May 31, 1999.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the period ended May 31, 1999, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
0.78%, respectively.
The Distributor has informed the Fund that for the period ended May 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 $1,059, $531,731 and
$19,126, respectively and received $49,580 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 May 31, 1999 aggregated
$422,810,841 and $181,765,046, respectively.
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER EQUITY FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1999, continued
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At May 31, 1999, the Fund had
transfer agent fees and expenses payable of approximately $2,300.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 29, 1998*
THROUGH
MAY 31, 1999
-------------------------
SHARES AMOUNT
---------- ------------
<S> <C> <C>
CLASS A SHARES
Sold........................................................ 986,023 $ 9,815,933
Redeemed.................................................... (313,997) (3,248,973)
---------- -----------
Net increase - Class A...................................... 672,026 6,566,960
---------- -----------
CLASS B SHARES
Sold........................................................ 26,743,761 266,671,820
Redeemed.................................................... (3,356,336) (33,876,428)
---------- -----------
Net increase - Class B...................................... 23,387,425 232,795,392
---------- -----------
CLASS C SHARES
Sold........................................................ 1,753,484 17,458,304
Redeemed.................................................... (410,890) (4,196,497)
---------- -----------
Net increase - Class C...................................... 1,342,594 13,261,807
---------- -----------
CLASS D SHARES
Sold........................................................ 3,326 36,208
---------- -----------
Net increase in Fund........................................ 25,405,371 $252,660,367
========== ===========
</TABLE>
- ---------------------
* Commencement of operations.
6. FEDERAL INCOME TAX STATUS
As of May 31, 1999, the Fund had permanent book/tax differences attributable to
a net operating loss and nondeductible expenses. To reflect reclassifications
arising from these differences, paid-in-capital was charged $299,811,
undistributed net realized gain was charged $993,417 and net investment loss was
credited $1,293,228.
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER EQUITY FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a beneficial interest outstanding
throughout the period:
<TABLE>
<CAPTION>
FOR THE PERIOD JULY 29, 1998* THROUGH MAY 31, 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 (loss)............................... 0.01 (0.07) (0.04) 0.03
Net realized and unrealized gain........................... 1.75 1.76 1.74 1.76
------ ------ ------ ------
Total income from investment operations..................... 1.76 1.69 1.70 1.79
------ ------ ------ ------
Net asset value, end of period.............................. $11.76 $11.69 $11.70 $11.79
====== ====== ====== ======
TOTAL RETURN+(1)............................................ 17.60% 16.90% 17.10% 17.90%
RATIOS TO AVERAGE NET ASSETS(2)(3):
Expenses.................................................... 1.38% 2.13% 1.91% 1.13%
Net investment income (loss)................................ 0.07% (0.68)% (0.46)% 0.32%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $7,933 $273,345 $15,744 $69
Portfolio turnover rate(1).................................. 80% 80% 80% 80%
</TABLE>
- ---------------------
* Commencement of operations.
++ The per share amounts were computed using an average number of shares
outstanding.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER EQUITY FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER EQUITY FUND
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 Equity
Fund (the "Fund") at May 31, 1999, and the results of its operations, the
changes in its net assets and the financial highlights for the period July 29,
1998 (commencement of operations) through May 31, 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 May 31, 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
July 6, 1999
17
<PAGE> 18
(This Page Intentionally Left Blank)
<PAGE> 19
(This Page Intentionally Left Blank)
<PAGE> 20
TRUSTEES
- ----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
- ----------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
- ----------------------------------
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- ----------------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
- ----------------------------------
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
SUB-ADVISOR
- ----------------------------------
Miller Anderson & Sherrerd, LLP
One Tower Bridge
West Conshohocken, Pennsylvania 19428
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
EQUITY FUND
Annual Report
May 31, 1999
