<PAGE> 1
<TABLE>
<S> <C>
MORGAN STANLEY DEAN WITTER EQUITY FUND Two World Trade Center, New York, New York 10048
</TABLE>
LETTER TO THE SHAREHOLDERS November 30, 1998
DEAR SHAREHOLDER:
We are pleased to present Morgan Stanley Dean Witter Equity Fund's first
shareholder report. The Fund, which commenced operations on July 29, 1998, seeks
to provide investors with total return through a combination of growth stocks
and value stocks. The Fund's sub-advisor, Miller Anderson & Sherrerd, LLP (MAS),
evaluates economic conditions and formulates a market outlook in order to weight
the portfolio either towards growth stocks or value stocks.
The period under review (July 29, 1998 through November 30, 1998) was volatile
for both the U.S. and foreign financial markets. Stock markets around the world
corrected sharply in reaction to Russia's default on its debt and the collapse
of a major U.S.-based hedge fund. However, by early October markets rebounded
following a series of interest-rate reductions by the Federal Reserve Board and
other central banks around the world.
PERFORMANCE AND PORTFOLIO
Against this backdrop, Morgan Stanley Dean Witter Equity Fund Class A returned
- -2.20 percent, Class B returned -2.50 percent, Class C returned -2.50 percent
and Class D returned -2.20 percent. The performance of the Fund's four share
classes varies because of differing expenses. During the same period, the
Standard & Poor's 500 Composite Stock Price Index (S&P 500) returned 4.08
percent and the Lipper Growth Funds Index returned 1.29 percent.
The Fund's return lagged its benchmarks partly as a result of MAS' slow and
careful investing of new funds within this volatile market. This meant that the
Fund had a relatively high cash position. Going forward, MAS expects to be fully
invested. In addition, the Fund's tilt toward value investing during the period
hurt performance because growth stocks outperformed value stocks, by a wide
margin.
The Fund combines growth-style investing with value-style investing and looks
for stocks that it determines have lower-than-market valuations and
<PAGE> 2
MORGAN STANLEY DEAN WITTER EQUITY FUND
LETTER TO THE SHAREHOLDERS November 30, 1998, continued
higher-than-market expected earnings growth potential. At the end of the period
under review, the stocks in the Fund's portfolio were, on average, trading at
lower valuations (based on price/earnings ratios) than the overall market. In
addition, the portfolio's expected earnings growth over the next three years is
around 17 percent versus 15 percent for the market as a whole. During this
reporting period the portfolio was weighted slightly in favor of value stocks.
However, the percentage of growth-style issues in the portfolio has been
steadily increasing as attractive opportunities among growth issues appear.
At the close of the period, the portfolio was overweighted in consumer services,
consumer durables and technology where good earnings prospects exist. The
portfolio was underweighted in personal products because these stocks' modest
earnings growth potentials are resulting in price declines. The portfolio was
also underweighted in drugs because these stocks' prices already fully account
for the industry's strong long-term outlook. Energy has remained underweighted
as the supply/demand outlook from oil continues to be negative.
Assets under management in the Fund at the end of November were more than $226
million; cash flow into the Fund has been positive since inception.
LOOKING AHEAD
While we have some concerns about corporate profit growth over the near term,
the stock market generally gains support during the first calendar quarter from
heavy cash flows from 401(k) and IRA contributions. Past the first quarter of
1999, we are cautiously optimistic about the market as a whole. Stock
valuations, based on price-to-earnings ratios, are relatively high compared to
many other times throughout the past year. However, we believe that the
portfolio, which has an average valuation level that is lower than that of the
overall market, is well positioned in such an environment. In addition, we
believe that the industries that are currently overweighted in the Fund, such as
consumer services, consumer durables and technology, should provide greater
growth opportunities than the overall market during the year ahead.
We appreciate your support of Morgan Stanley Dean Witter Equity Fund 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> 3
MORGAN STANLEY DEAN WITTER EQUITY FUND
PORTFOLIO OF INVESTMENTS November 30, 1998 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (94.4%)
Accident & Health Insurance (2.2%)
32,200 Aetna, Inc. ................. $ 2,489,463
48,400 UNUM Corp. .................. 2,607,550
------------
5,097,013
------------
Airlines (0.4%)
15,100 AMR Corp.*................... 995,656
------------
Alcoholic Beverages (1.4%)
52,900 Anheuser-Busch Companies,
Inc. ....................... 3,207,063
------------
Auto Parts (0.4%)
26,000 Dana Corp. .................. 1,014,000
------------
Auto Parts - Original Equipment (1.6%)
3,000 Lear Corp.*.................. 115,875
100,700 LucasVarity PLC (ADR) (United
Kingdom).................... 3,524,500
------------
3,640,375
------------
Automotive Aftermarket (0.6%)
24,600 Goodyear Tire & Rubber Co.... 1,396,050
------------
Broadcasting (0.8%)
37,400 Clear Channel Communications,
Inc.*....................... 1,748,450
------------
Building Materials (1.2%)
74,600 Owens Corning................ 2,783,513
------------
Cable Television (2.3%)
144,300 Tele-Communications TCI
Ventures Group (Class A)*... 2,849,925
57,900 Tele-Communications, Inc.
(Class A)*.................. 2,442,656
------------
5,292,581
------------
Cellular Telephone (0.8%)
32,800 Airtouch Communications,
Inc.*....................... 1,875,750
------------
Computer Hardware (2.3%)
88,100 Compaq Computer Corp. ....... 2,863,250
13,900 International Business
Machines Corp. ............. 2,293,500
------------
5,156,750
------------
Computer Software (5.9%)
56,400 BMC Software, Inc.*.......... 2,876,400
86,800 Microsoft Corp.*............. 10,589,599
------------
13,465,999
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Computers Communications (2.5%)
39,600 3Com Corp.*.................. $ 1,532,025
53,550 Cisco Systems, Inc.*......... 4,036,331
------------
5,568,356
------------
Computers - Peripheral Equipment (0.6%)
46,200 Seagate Technology, Inc.*.... 1,362,900
------------
Construction/Ag Equipment/Trucks (2.3%)
116,700 Case Corp. .................. 2,829,975
63,200 Cummins Engine Co., Inc. .... 2,346,300
------------
5,176,275
------------
Department Stores (0.3%)
18,100 Ross Stores, Inc. ........... 658,388
------------
Discount Chains (2.6%)
44,700 Dayton-Hudson Corp. ......... 2,011,500
50,400 Wal-Mart Stores, Inc. ....... 3,795,750
------------
5,807,250
------------
Diversified Commercial Services (0.7%)
17,000 America Online, Inc.*........ 1,488,563
------------
Diversified Manufacturing (1.8%)
28,300 FMC Corp.*................... 1,644,938
58,000 York International Corp. .... 2,436,000
------------
4,080,938
------------
Drug Store Chain (1.2%)
54,700 CVS Corp. ................... 2,700,813
------------
Electric Utilities: East
(0.3%)
14,200 Energy East Corp. ........... 753,488
------------
Electric Utilities: South
(1.2%)
29,000 Carolina Power & Light
Co. ........................ 1,344,875
49,600 Southern Co. ................ 1,463,200
------------
2,808,075
------------
Electronics - Defense (0.9%)
33,900 Hewlett-Packard Co. ......... 2,127,225
------------
Environmental Services (2.3%)
83,700 Allied Waste Industries,
Inc.*....................... 1,705,388
82,200 Waste Management, Inc. ...... 3,524,325
------------
5,229,713
------------
Finance (0.5%)
24,300 Countrywide Credit
Industries, Inc. ........... 1,202,850
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER EQUITY FUND
PORTFOLIO OF INVESTMENTS November 30, 1998 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Finance Services (1.4%)
78,600 Household International,
Inc. ....................... $ 3,075,225
------------
Generic Drugs (0.5%)
30,800 Mylan Laboratories, Inc. .... 1,022,175
------------
Healthcare (2.6%)
41,000 Abbott Laboratories.......... 1,968,000
63,200 Baxter International,
Inc. ....................... 4,017,149
------------
5,985,149
------------
Hospital/Nursing Management (1.4%)
76,000 Health Management Associates,
Inc. (Class A)*............. 1,648,250
48,900 Tenet Healthcare Corp.*...... 1,445,606
------------
3,093,856
------------
Integrated Oil Companies (1.7%)
83,100 Coastal Corp. ............... 2,898,113
24,200 Phillips Petroleum Co. ...... 1,016,400
------------
3,914,513
------------
Life Insurance (1.6%)
109,500 Conseco, Inc. ............... 3,627,188
------------
Major Banks (5.5%)
45,800 Bank One Corp. .............. 2,350,112
2,600 BankAmerica Corp. ........... 169,488
54,200 BankBoston Corp. ............ 2,256,075
60,600 Chase Manhattan Corp. ....... 3,844,312
77,050 Citigroup Inc.*.............. 3,866,946
------------
12,486,933
------------
Major Chemicals (0.3%)
34,800 Solutia, Inc. ............... 778,650
------------
Major Pharmaceuticals (2.4%)
18,000 American Home Products
Corp. ...................... 958,500
18,200 Bristol-Myers Squibb Co. .... 2,230,638
14,600 Merck & Co., Inc. ........... 2,261,175
------------
5,450,313
------------
Major U.S. Telecommunications (7.5%)
48,500 Ameritech Corp. ............. 2,625,063
137,402 MCI WorldCom, Inc.*.......... 8,098,129
67,300 SBC Communications, Inc. .... 3,226,194
37,100 Sprint Corp. (FON Group)..... 2,699,025
18,550 Sprint Corp. (PCS Group)*.... 296,800
------------
16,945,211
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Manufacturing - Consumer & Industrial
Products (0.7%)
43,800 Parker-Hannifin Corp. ....... $ 1,522,050
------------
Manufacturing - Diversified Industries
(0.6%)
38,000 Aeroquip-Vickers, Inc. ...... 1,382,250
------------
Media Conglomerates (0.8%)
73,200 Fox Entertainment Group, Inc.
(Class A)*.................. 1,729,350
------------
Medical/Nursing Services (1.4%)
81,200 HEALTHSOUTH Corp.*........... 1,091,125
57,200 Lincare Holdings, Inc.*...... 1,973,400
------------
3,064,525
------------
Military/Government/Technical (0.7%)
86,400 Loral Space & Communications
Ltd.*....................... 1,587,600
------------
Motor Vehicles (4.1%)
77,700 Ford Motor Co. .............. 4,292,925
72,700 General Motors Corp. ........ 5,089,000
------------
9,381,925
------------
Multi-Line Insurance (1.7%)
45,500 Allstate Corp. .............. 1,854,125
36,300 Hartford Financial Services
Group, Inc. ................ 2,003,306
------------
3,857,431
------------
Oil/Gas Transmission (0.5%)
18,200 Columbia Energy Group........ 1,032,850
------------
Other Consumer Services
(1.0%)
60,900 Service Corp.
International............... 2,276,138
------------
Packaged Foods (0.9%)
26,400 General Mills, Inc. ......... 1,993,200
------------
Packaged Goods/Cosmetics (0.3%)
24,800 Dial Corp. .................. 651,000
------------
Paper (0.3%)
17,200 Bowater, Inc. ............... 679,400
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER EQUITY FUND
PORTFOLIO OF INVESTMENTS November 30, 1998 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Property - Casualty Insurers (4.6%)
94,900 Ace, Ltd. (Bermuda).......... $ 3,036,800
18,200 EXEL Ltd. (Class A).......... 1,367,275
61,600 Everest Reinsurance Holdings,
Inc. ....................... 2,313,850
110,800 Travelers Property Casualty
Corp. (Class A)............. 3,815,675
------------
10,533,600
------------
Semiconductor Equipment (0.4%)
23,100 Applied Materials, Inc.*..... 895,125
------------
Semiconductors (1.7%)
34,900 Intel Corp. ................. 3,753,931
------------
Soft Drinks (0.9%)
50,900 PepsiCo Inc. ................ 1,969,194
------------
Specialty Chemicals (3.8%)
63,200 Air Products & Chemicals,
Inc. ....................... 2,409,500
11,600 Engelhard Corp. ............. 224,025
110,800 Grace (W.R.) & Co.*.......... 1,828,200
28,300 Morton International,
Inc. ....................... 833,081
21,300 Praxair, Inc. ............... 813,394
69,400 Rohm & Haas Co. ............. 2,424,663
------------
8,532,863
------------
Specialty Insurers (1.5%)
57,200 Ambac Financial Group,
Inc. ....................... 3,489,200
------------
Telecommunications Equipment (3.3%)
60,800 General Instrument Corp.*.... 1,710,000
37,800 Motorola, Inc. .............. 2,343,600
41,200 Northern Telecom Ltd.
(Canada).................... 1,923,525
29,900 Tellabs, Inc.*............... 1,614,600
------------
7,591,725
------------
Tobacco (3.2%)
88,900 Philip Morris Companies,
Inc. ....................... 4,972,843
76,800 RJR Nabisco Holdings
Corp. ...................... 2,212,800
------------
7,185,643
------------
TOTAL COMMON STOCKS
(Identified Cost
$209,484,781)................ 214,126,247
------------
PREFERRED STOCK (0.9%)
Newspapers
82,300 News Corp. Ltd. (ADR)
(Australia)
(Identified Cost
$2,113,146)................. 2,072,931
------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (4.5%)
U.S. GOVERNMENT AGENCY (a) (0.9%)
$2,000 Federal National Mortgage
Assoc. 4.80% due 12/14/98
(Amortized Cost
$1,996,533)................. $ 1,996,533
------------
REPURCHASE AGREEMENT (3.6%)
8,297 The Bank of New York 4.625%
due 12/01/98 (dated
11/30/98; proceeds
$8,298,131) (b)
(Identified Cost
$8,297,065)................. 8,297,065
------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $10,293,598)... 10,293,598
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $221,891,525)
(c).............................. 99.8% 226,492,776
OTHER ASSETS IN EXCESS OF
LIABILITIES...................... 0.2 396,162
------- ------------
NET ASSETS....................... 100.0% $226,888,938
======= ============
</TABLE>
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ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $1,983,993 Federal Farm Credit Discount Note 0.00% due
12/10/98 valued at $1,980,552; $1,243,468 Federal National Mortgage Assoc.
5.75% due 04/15/03 valued at $1,290,196; and $5,000,000 Federal National
Mortgage Assoc. 5.75% due 04/23/01 valued at $5,193,918.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $14,041,871 and the
aggregate gross unrealized depreciation is $9,440,620, resulting in net
unrealized appreciation of $4,601,251.
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER EQUITY FUND
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1998 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $221,891,525)............................. $226,492,776
Receivable for:
Investments sold........................................ 1,036,923
Shares of beneficial interest sold...................... 370,211
Dividends............................................... 256,199
Deferred offering costs..................................... 77,527
Prepaid expenses and other assets........................... 23,191
------------
TOTAL ASSETS............................................ 228,256,827
------------
LIABILITIES:
Payable for:
Investments purchased................................... 664,666
Shares of beneficial interest repurchased............... 278,591
Plan of distribution fee................................ 183,205
Investment management fee............................... 159,609
Accrued expenses............................................ 66,998
Organizational expenses..................................... 14,820
------------
TOTAL LIABILITIES....................................... 1,367,889
------------
NET ASSETS.............................................. $226,888,938
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $229,036,709
Net unrealized appreciation................................. 4,601,251
Net investment loss......................................... (211,546)
Net realized loss........................................... (6,537,476)
------------
NET ASSETS.............................................. $226,888,938
============
CLASS A SHARES:
Net Assets.................................................. $7,275,814
Shares Outstanding (unlimited authorized, $.01 par value)... 744,227
NET ASSET VALUE PER SHARE............................... $9.78
=====
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value)........ $10.32
======
CLASS B SHARES:
Net Assets.................................................. $206,636,945
Shares Outstanding (unlimited authorized, $.01 par value)... 21,190,309
NET ASSET VALUE PER SHARE............................... $9.75
=====
CLASS C SHARES:
Net Assets.................................................. $12,946,182
Shares Outstanding (unlimited authorized, $.01 par value)... 1,327,588
NET ASSET VALUE PER SHARE............................... $9.75
=====
CLASS D SHARES:
Net Assets.................................................. $29,997
Shares Outstanding (unlimited authorized, $.01 par value)... 3,066
NET ASSET VALUE PER SHARE............................... $9.78
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER EQUITY FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the period July 29, 1998* through November 30, 1998
(unaudited)
NET INVESTMENT LOSS:
INCOME
Dividends (net of $2,766 foreign withholding tax)........... $ 828,195
Interest.................................................... 408,396
-----------
TOTAL INCOME............................................ 1,236,591
-----------
EXPENSES
Plan of distribution fee (Class A shares)................... 5,503
Plan of distribution fee (Class B shares)................... 613,625
Plan of distribution fee (Class C shares)................... 39,373
Investment management fee................................... 573,838
Transfer agent fees and expenses............................ 85,176
Offering costs.............................................. 48,318
Registration fees........................................... 37,150
Professional fees........................................... 22,364
Shareholders reports and notices............................ 8,794
Custodian fees.............................................. 7,594
Trustees' fees and expenses................................. 4,581
Other....................................................... 1,821
-----------
TOTAL EXPENSES.......................................... 1,448,137
-----------
NET INVESTMENT LOSS..................................... (211,546)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................................... (6,537,476)
Net unrealized appreciation................................. 4,601,251
-----------
NET LOSS................................................ (1,936,225)
-----------
NET DECREASE................................................ $(2,147,771)
===========
</TABLE>
- ---------------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER EQUITY FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD
JULY 29, 1998*
THROUGH
NOVEMBER 30, 1998
- -------------------------------------------------------------------------------
(unaudited)
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss......................................... $ (211,546)
Net realized loss........................................... (6,537,476)
Net unrealized appreciation................................. 4,601,251
------------
NET DECREASE............................................ (2,147,771)
Net increase from transactions in shares of beneficial
interest................................................... 228,936,709
------------
NET INCREASE............................................ 226,788,938
NET ASSETS:
Beginning of period......................................... 100,000
------------
END OF PERIOD
(Including a net investment loss of $211,546)........... $226,888,938
============
</TABLE>
- ---------------------
* Commencement of operations.
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER EQUITY FUND
NOTES TO FINANCIAL STATEMENTS November 30, 1998 (unaudited)
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 other 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"), formerly Dean Witter
InterCapital Inc., to effect the Fund's initial capitalization. The Fund
commenced operations on July 29, 1998.
The Fund offers four classes of shares. 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
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER EQUITY FUND
NOTES TO FINANCIAL STATEMENTS November 30, 1998 (unaudited) 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.
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER EQUITY FUND
NOTES TO FINANCIAL STATEMENTS November 30, 1998 (unaudited) 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
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER EQUITY FUND
NOTES TO FINANCIAL STATEMENTS November 30, 1998 (unaudited) 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 $11,694,357 at November 30, 1998.
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 November 30, 1998, 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 November 30,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $107,703 and $4,220,
respectively and received $33,601 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 November 30, 1998 aggregated
$272,731,475 and $54,604,740, respectively.
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER EQUITY FUND
NOTES TO FINANCIAL STATEMENTS November 30, 1998 (unaudited) continued
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 29, 1998*
THROUGH
NOVEMBER 30, 1998
-------------------------
(unaudited)
SHARES AMOUNT
---------- ------------
<S> <C> <C>
CLASS A SHARES
Sold........................................................ 830,186 $ 8,119,129
Redeemed.................................................... (88,459) (785,860)
---------- ------------
Net increase - Class A...................................... 741,727 7,333,269
---------- ------------
CLASS B SHARES
Sold........................................................ 22,495,947 220,076,163
Redeemed.................................................... (1,308,138) (11,503,018)
---------- ------------
Net increase - Class B...................................... 21,187,809 208,573,145
---------- ------------
CLASS C SHARES
Sold........................................................ 1,449,742 14,133,720
Redeemed.................................................... (124,654) (1,108,528)
---------- ------------
Net increase - Class C...................................... 1,325,088 13,025,192
---------- ------------
CLASS D SHARES
Sold........................................................ 566 5,103
---------- ------------
Net increase in Fund........................................ 23,255,190 $228,936,709
========== ============
</TABLE>
- ---------------------
* Commencement of operations.
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER EQUITY FUND
FINANCIAL HIGHLIGHTS (unaudited)
Selected ratios and per share data for a share of beneficial interest
outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE PERIOD JULY 29, 1998*
THROUGH NOVEMBER 30, 1998
-----------------------------------------------
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
------ ------ ------ ------
Loss from investment operations:
Net investment income (loss)............................... 0.01 (0.01) (0.01) 0.02
Net realized and unrealized loss........................... (0.23) (0.24) (0.24) (0.24)
------ ------ ------ ------
Total loss from investment operations....................... (0.22) (0.25) (0.25) (0.22)
------ ------ ------ ------
Net asset value, end of period.............................. $ 9.78 $ 9.75 $ 9.75 $ 9.78
====== ====== ====== ======
TOTAL RETURN+(1)............................................ (2.20)% (2.50)% (2.50)% (2.20)%
RATIOS TO AVERAGE NET ASSETS (2)(3):
Expenses.................................................... 1.42 % 2.17 % 2.17 % 1.17 %
Net investment income (loss)................................ 0.41 % (0.34)% (0.34)% 0.66 %
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $7,276 $206,637 $12,946 $30
Portfolio turnover rate (1)................................. 30 % 30 % 30 % 30 %
</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
14
<PAGE> 15
(This Page Intentionally Left Blank)
<PAGE> 16
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
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
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.
MORGAN STANLEY
DEAN WITTER
EQUITY FUND
[DEAN WITTER LOGO]
SEMIANNUAL REPORT
NOVEMBER 30, 1998
