<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND Two World Trade Center, New
LETTER TO THE SHAREHOLDERS May 31, 1998 York, New York 10048
DEAR SHAREHOLDER:
During the twelve-month period ended May 31, 1998, U.S. stocks continued to
post impressive gains. Bolstered by a strong economy and low inflation, the
Standard & Poor's 500 Composite Stock Price Index, a common measure of the U.S.
stock market, returned 30.67 percent. While stocks of larger companies were
responsible for much of the market's advance, smaller and mid-sized companies
also turned in solid results, with the S&P MidCap 400 Index gaining nearly 30
percent. Mid-cap and small-cap stocks, which had earlier been out of favor with
investors, performed particularly well in August and September 1997, as
investors began taking advantage of those sectors' attractive valuations.
In October, however, the market's advance came to an abrupt halt over
concerns about the economic crisis in Asia, which caused the Dow Jones
Industrial Average (DJIA) to drop more than 550 points in a single trading
day. Investor concerns resulted in a "flight to quality" that led to their
seeking out the relative stability and liquidity of large-cap companies.
Despite increased market volatility, U.S. stocks, again led by large-cap
issues and supported by the relative strength of the domestic economy,
recovered nicely as 1997 came to a close. In fact, by early April 1998 the
DJIA surpassed the 9000 mark before partially retreating in May. Once again
the catalyst was Asia, where high unemployment in Korea and a relatively
peaceful Indonesian revolution, as well as an attack on the Russian currency,
caused a renewal of the same fears that had led to the market's weakness last
October.
PERFORMANCE AND PORTFOLIO
For the twelve-month period ended May 31, 1998, the Fund's Class B shares
produced a total return of 24.68 percent, compared to 21.29 percent for the
Lipper Mid Cap Funds Index and 29.91 percent for the S&P MidCap 400 Index.
Since their inception on July 28, 1997, the Fund's Class A, C and D shares
had total returns of 12.77 percent, 12.01 percent and 12.89 percent,
respectively. The Fund's benchmarks, the Lipper Mid Cap
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
LETTER TO THE SHAREHOLDERS May 31, 1998
Funds Index and the S&P MidCap 400 Index, returned 8.74 percent and 14.97
percent, respectively. The performance of the Fund's four share classes
varies because of differing expenses.
While the Fund outperformed its peer group during the fiscal year, it did
underperform the S&P MidCap 400 Index. The Fund's underperformance relative
to the Index can be attributed primarily to the Fund's underweighting of
financial stocks, which performed strongly during the period. In addition,
the Fund held a substantial portion of its assets in technology stocks, which
were negatively affected by the Asian economic crisis.
The accompanying chart illustrates the growth of a hypothetical $10,000
investment in the Fund's Class B shares from inception (September 29, 1994)
through May 31, 1998, versus a similar investment in the issues that comprise
the S&P MidCap 400 Index and the Lipper Mid Cap Funds Index.
Over the course of the fiscal year, several important changes have been made
to the Fund's portfolio. The most apparent one has been to reduce the number
of securities held by the Fund. At the beginning of the current fiscal year
the Fund's portfolio consisted of nearly 150 different securities, compared
to under 100 securities at fiscal year-end on May 31, 1998. We believe that
holding larger positions in fewer securities will enable the Fund to better
seek its objective of long-term capital growth.
Despite holding fewer securities, the Fund remains fully diversified across
market sectors. At the end of the fiscal year the Fund had 24 percent of its
assets in technology, 19 percent in economically sensitive sectors, 15
percent in retail, 14 percent in health care and 8 percent in financial
services and interest-rate-sensitive stocks. Among the Fund's largest
holdings were Platinum Technology (computer software), Providian Financial
Corp. (financial - miscellaneous), Conseco, Inc. (life and health insurance),
Tyco International (manufacturing - diversified), U.S.A. Waste Services, Inc.
(pollution control) and Staples Inc. (retail - specialty).
LOOKING AHEAD
We remain positive about the long-term prospects for mid-capitalization
stocks in general and the Fund in particular. After a sustained period of
underperformance compared to large-cap stocks, mid-cap stocks currently offer
attractive relative valuations. We believe that as investors begin to realize
this, mid-cap stocks will once again resume their pattern of attractive
growth.
2
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
LETTER TO THE SHAREHOLDERS May 31, 1998
We appreciate your ongoing support of Morgan Stanley Dean Witter Mid-Cap
Growth 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
3
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
FUND PERFORMANCE May 31, 1998
GROWTH OF $10,000 CLASS B
Date TOTAL S&P MIDCAP IX LIPPER
---- ----- ------------- ------
September 29, 1994 $10,000 $10,000 $10,000
May 31, 1995 $10,826 $11,057 $10,894
May 31, 1996 $16,566 $14,204 $15,430
May 31, 1997 $17,563 $16,783 $16,156
May 31, 1998 $21,698 (3) $21,803 $19,597
-- Fund --- S&P MIDCAP IX (4) --- Lipper (5)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR CLASS
A, CLASS C, AND CLASS D SHARES WILL VARY FROM THE PERFORMANCE OF CLASS B
SHARES SHOWN ABOVE DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
AVERAGE ANNUAL TOTAL RETURNS*
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES**
- --------------------------------------------------
PERIOD ENDED 5/31/98
- ------------------------
<S> <C> <C>
1 Year 24.68%(1) 19.68%(2)
From Inception (9/29/94) 23.82%(1) 23.51%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES++
- --------------------------------------------------
PERIOD ENDED 5/31/98
- ------------------------
<S> <C> <C>
FROM INCEPTION (7/28/97) 12.01%(1) 11.01%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES+
- -------------------------------------------------
PERIOD ENDED 5/31/98
- ------------------------
<S> <C> <C>
From Inception (7/28/97) 12.77%(1) 6.85%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D SHARES+
+
- --------------------------------------------------
PERIOD ENDED 5/31/98
- ------------------------
<S> <C> <C>
From Inception (7/28/97) 12.89%(1)
</TABLE>
- ------------
(1) Figure shown assumes reinvestment of all distributions and does not
reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction
of the maximum applicable sales charge. See the Fund's current prospectus
for complete details on fees and sales charges.
(3) Closing value after the deduction of a 2% CDSC, assuming a complete
redemption on May 31, 1998.
(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 contingent deferred sales charge (CDSC) for Class B is 5%.
The CDSC declines to 0% after six years.
+ The maximum front-end sales charge for Class A is 5.25%.
++ 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.
4
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS May 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (95.1%)
Advertising (2.6%)
181,225 HA-LO Industries, Inc.* ......................................... $ 5,606,648
270,000 Snyder Communications, Inc.* .................................... 10,884,375
------------
16,491,023
------------
Apparel (3.8%)
140,000 Jones Apparel Group, Inc.* ...................................... 8,872,500
150,000 Tommy Hilfiger Corp.* ........................................... 10,087,500
140,000 Warnaco Group, Inc. (Class A) ................................... 5,775,000
------------
24,735,000
------------
Automotive -Replacement Parts (0.5%)
50,000 Magna International Inc. (Class A)(Canada) ..................... 3,525,000
------------
Biotechnology (2.5%)
320,000 BioChem Pharma, Inc. (Canada)* .................................. 8,360,000
200,000 Centocor, Inc.* ................................................. 7,800,000
------------
16,160,000
------------
Broadcast Media (0.7%)
100,000 Cox Radio, Inc. (Class A)* ...................................... 4,212,500
------------
Building Materials (1.7%)
170,000 Southdown, Inc. ................................................. 11,156,250
------------
Communications Equipment (2.1%)
200,000 CIENA Corp.* .................................................... 10,350,000
200,000 Pairgain Technologies, Inc.* .................................... 3,125,000
------------
13,475,000
------------
Computer Equipment (1.1%)
175,000 EMC Corp.* ...................................................... 7,251,562
------------
Computer Software (7.8%)
250,000 Cadence Design Systems, Inc.* ................................... 8,812,500
125,000 Compuware Corp.* ................................................ 5,734,375
170,000 Network Associates, Inc.* ....................................... 10,412,500
440,000 Platinum Technology, Inc.* ...................................... 11,990,000
275,000 Software AG Systems, Inc.* ...................................... 6,703,125
150,000 Synopsys, Inc.* ................................................. 6,440,625
------------
50,093,125
------------
Computer Software & Services (4.0%)
180,000 Citrix Systems, Inc.* ........................................... 9,382,500
350,000 Legato Systems, Inc.* ........................................... 9,975,000
140,000 Visio Corp.* .................................................... 6,545,000
------------
25,902,500
------------
Computers (1.9%)
100,000 FileNET Corp.* .................................................. $ 5,500,000
125,000 Lexmark International Group, Inc. (Class A)* .................... 6,937,500
------------
12,437,500
------------
Consumer Business Services (1.5%)
290,000 AccuStaff Inc.* ................................................. 9,551,875
------------
Consumer Products (1.3%)
200,000 Dominick's Supermarkets, Inc.* .................................. 8,625,000
------------
Drugs (3.2%)
240,000 ICN Pharmaceuticals, Inc. ....................................... 10,365,000
250,000 Medicis Pharmaceutical Corp. (Class A)* ......................... 10,156,250
------------
20,521,250
------------
Electronics (3.1%)
125,000 Avid Technology, Inc.* .......................................... 5,062,500
180,000 Jabil Circuit, Inc.* ............................................ 6,131,250
115,000 Sanmina Corp* ................................................... 8,941,250
------------
20,135,000
------------
Energy (7.6%)
50,000 Camco International Inc. ....................................... 3,487,500
200,000 Diamond Offshore Drilling, Inc. ................................. 9,562,500
150,000 Evi Weatherford Inc.* ........................................... 7,584,375
375,000 R&B Falcon Corp.* ............................................... 10,757,812
150,000 Rowan Companies, Inc.* .......................................... 3,834,375
150,000 Stolt Comex Seaway, S.A. (United Kingdom)* ...................... 4,734,375
350,000 Varco International, Inc.* ...................................... 9,121,875
------------
49,082,812
------------
Environmental Control (1.4%)
500,000 Newpark Resources, Inc.* ........................................ 9,093,750
------------
Financial -Miscellaneous (3.0%)
130,000 Newcourt Credit Group Inc. (Canada) ............................ 6,386,250
200,000 Providian Financial Corp. ....................................... 12,725,000
------------
19,111,250
------------
Healthcare Products & Services (7.0%)
12,500 Concentra Managed Care, Inc.* ................................... 292,188
72,000 Express Scripts, Inc. (Class A)* ................................ 5,508,000
225,000 Health Management Associates, Inc. (Class A)* ................... 6,707,813
300,000 HealthSouth Corp.* .............................................. 8,512,500
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS May 31, 1998, continued
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------------------------------
190,000 IDX Systems Corp.* ..............................................$ 7,956,250
160,000 Renal Care Group, Inc.* ......................................... 5,770,000
350,000 Total Renal Care Holdings, Inc.* ................................ 10,740,625
------------
45,487,376
------------
Home Entertainment (1.0%)
150,000 Electronic Arts Inc.* ........................................... 6,487,500
------------
Insurance (1.2%)
150,000 Hartford Life, Inc. (Class A) .................................. 7,725,000
------------
Internet (1.1%)
200,000 At Home Corp. (Series A)* ....................................... 6,925,000
------------
Life & Health Insurance (1.8%)
250,000 Conseco, Inc. .................................................. 11,656,250
------------
Manufacturing -Diversified (2.1%)
250,000 Tyco International Ltd. ........................................ 13,843,750
------------
Media Group (6.5%)
225,000 Chancellor Media Corp.* ......................................... 9,393,750
75,000 Clear Channel Communications, Inc.* ............................. 7,190,625
150,000 Jacor Communications, Inc.* ..................................... 7,912,500
300,000 Outdoor Systems, Inc.* .......................................... 9,000,000
235,000 Univision Communications, Inc. (Class A)* ....................... 8,166,250
------------
41,663,125
------------
Medical Products & Supplies (0.2%)
39,000 North American Scientific, Inc.* ................................ 1,126,125
------------
Pharmaceuticals (1.4%)
107,000 Shire Pharmaceuticals Group PLC (ADR)* (United Kingdom) ......... 2,046,375
160,000 Watson Pharmaceuticals, Inc.* ................................... 7,000,000
------------
9,046,375
------------
Pollution Control (6.1%)
400,000 Allied Waste Industries, Inc.* .................................. 10,550,000
275,000 Eastern Environmental Services, Inc.* ........................... 7,768,750
260,000 U.S. Filter Corp.* .............................................. 7,913,750
275,000 U.S.A. Waste Services, Inc.* .................................... 12,976,562
------------
39,209,062
------------
Restaurants (2.8%)
280,000 Showbiz Pizza Time, Inc.* .......................................$ 9,940,000
175,000 Starbucks Corp.* ................................................ 8,378,125
------------
18,318,125
------------
Retail (2.8%)
Abercrombie & Fitch Co.
165,000 (Class A)* ...................................................... 6,971,250
50,000 General Nutrition Companies, Inc.* .............................. 1,575,000
250,000 Proffitt's, Inc.* ............................................... 9,812,500
------------
18,358,750
------------
Retail -Department Stores (1.8%)
80,000 Dillard's, Inc. (Class A) ....................................... 3,365,000
225,000 Dollar General Corp. ............................................ 8,578,125
------------
11,943,125
------------
Retail -Specialty (4.2%)
190,000 Consolidated Stores Corp.* ...................................... 7,255,625
300,000 Finish Line, Inc. (Class A)* .................................... 7,087,500
500,000 Staples, Inc.* .................................................. 12,531,250
------------
26,874,375
------------
Retail -Specialty Apparel (1.4%)
190,000 Stage Stores, Inc.* ............................................. 8,858,750
------------
Telecommunications (2.2%)
190,000 Pacific Gateway Exchange, Inc.* ................................. 8,075,000
350,000 Vanguard Cellular Systems, Inc. (Class A)* ...................... 6,278,125
------------
14,353,125
------------
Utilities -Electric (1.7%)
225,000 AES Corp.* ...................................................... 10,701,563
------------
TOTAL COMMON STOCKS (Identified Cost $563,762,612) .............. 614,137,773
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
<S> <C> <C>
SHORT-TERM INVESTMENTS (4.1%)
U.S. GOVERNMENT AGENCY (a) (1.6%)
$10,200 Federal Home Loan Mortgage Corp. 5.50% due 06/01/98 (Amortized
Cost $10,200,000) ............................................... 10,200,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS May 31, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENT (2.5%)
$15,837 The Bank of New York 5.50% due 06/01/98 (dated 05/29/98;
proceeds $15,844,654)(b)
(Identified Cost $15,837,395) ................................... $15,837,395
--------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $26,037,395) ................................... 26,037,395
--------------
</TABLE>
<TABLE>
<CAPTION>
TOTAL INVESTMENTS
(Identified Cost $589,800,007)(c) . 99.2% 640,175,168
<S> <C> <C>
OTHER ASSETS IN EXCESS OF
LIABILITIES........................ 0.8 5,399,739
-------- -------------
NET ASSETS......................... 100.0% $645,574,907
======== =============
</TABLE>
- ------------
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 $15,105,582 U.S. Treasury Note 7.50% due 05/15/02
valued at $16,154,143.
(c) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$67,382,362 and the aggregate gross unrealized depreciation is
$17,007,201, resulting in net unrealized appreciation of
$50,375,161.
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $589,800,007)............. $640,175,168
Receivable for:
Investments sold ......................... 19,972,517
Shares of beneficial interest sold ...... 1,689,528
Dividends ................................ 38,125
Deferred organizational expenses ........... 42,651
Prepaid expenses and other assets .......... 89,676
--------------
TOTAL ASSETS ............................. 662,007,665
--------------
LIABILITIES:
Payable for:
Investments purchased..................... 14,139,345
Shares of beneficial interest
repurchased.............................. 1,224,538
Plan of distribution fee.................. 569,716
Investment management fee................. 426,321
Accrued expenses and other payables ....... 72,838
--------------
TOTAL LIABILITIES ........................ 16,432,758
--------------
NET ASSETS................................ $645,574,907
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................. $506,745,908
Net unrealized appreciation ................ 50,375,161
Accumulated undistributed net realized
gain....................................... 88,453,838
--------------
NET ASSETS ............................... $645,574,907
==============
CLASS A SHARES:
Net Assets.................................. $2,875,594
Shares Outstanding (unlimited authorized,
$.01 par value) ........................... 166,357
NET ASSET VALUE PER SHARE ................ $17.29
==============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset
value) .................................. $18.25
==============
CLASS B SHARES:
Net Assets.................................. $635,816,029
Shares Outstanding (unlimited authorized,
$.01 par value) ........................... 37,034,486
NET ASSET VALUE PER SHARE ................ $17.17
==============
CLASS C SHARES:
Net Assets.................................. $5,802,131
Shares Outstanding (unlimited authorized,
$.01 par value) ........................... 337,906
NET ASSET VALUE PER SHARE ................ $17.17
==============
CLASS D SHARES:
Net Assets.................................. $1,081,153
Shares Outstanding (unlimited authorized,
$.01 par value) ........................... 62,443
NET ASSET VALUE PER SHARE ................ $17.31
==============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended May 31, 1998*
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $6,428 foreign withholding
tax) ....................................... $ 1,911,801
Interest .................................... 1,635,606
-------------
TOTAL INCOME .............................. 3,547,407
-------------
EXPENSES
Plan of distribution fee (Class A shares) ... 3,277
Plan of distribution fee (Class B shares) ... 5,693,336
Plan of distribution fee (Class C shares) ... 26,884
Investment management fee.................... 4,285,550
Transfer agent fees and expenses............. 682,082
Registration fees ........................... 180,094
Custodian fees............................... 51,400
Professional fees ........................... 50,182
Shareholder reports and notices ............. 39,674
Organizational expenses ..................... 30,229
Trustees' fees and expenses.................. 14,381
Other........................................ 7,524
-------------
TOTAL EXPENSES ............................ 11,064,613
-------------
NET INVESTMENT LOSS ....................... (7,517,206)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain............................ 120,508,014
Net change in unrealized appreciation ...... (3,609,267)
-------------
NET GAIN .................................. 116,898,747
-------------
NET INCREASE ................................ $109,381,541
=============
</TABLE>
- ------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MAY 31, 1998* MAY 31, 1997
- ------------------------------------------------------ --------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss ................................... $ (7,517,206) $ (3,745,901)
Net realized gain...................................... 120,508,014 18,972,626
Net change in unrealized appreciation ................. (3,609,267) 10,689,644
--------------- --------------
NET INCREASE ........................................ 109,381,541 25,916,369
--------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN:
Class A shares ........................................ (57,133) --
Class B shares ........................................ (38,691,036) (28,296,177)
Class C shares ........................................ (196,298) --
Class D shares ........................................ (20,585) --
--------------- --------------
TOTAL DISTRIBUTIONS ................................. (38,965,052) (28,296,177)
--------------- --------------
Net increase from transactions in shares of beneficial
interest.............................................. 156,406,489 111,860,026
--------------- --------------
NET INCREASE ........................................ 226,822,978 109,480,218
NET ASSETS:
Beginning of period.................................... 418,751,929 309,271,711
--------------- --------------
END OF PERIOD ....................................... $645,574,907 $418,751,929
=============== ==============
</TABLE>
- ------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Mid-Cap Growth 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 to seek long-term capital growth. The Fund seeks to achieve its
objective by investing primarily in domestic and foreign equity securities of
"mid-cap" companies. The Fund was organized as a Massachusetts business trust
on May 25, 1994 and commenced operations on September 29, 1994. On July 28,
1997, the Fund commenced offering three additional classes of shares, with
the then current shares designated as Class B shares.
Effective June 22, 1998, the following entities have changed their name:
<TABLE>
<CAPTION>
OLD NAME NEW NAME
------------------------------------ ------------------------------------------------
<S> <C>
Dean Witter Mid-Cap Growth Fund Morgan Stanley Dean Witter Mid-Cap Growth Fund
Dean Witter InterCapital Inc. Morgan Stanley Dean Witter Advisors Inc.
Dean Witter Distributors Inc. Morgan Stanley Dean Witter Distributors Inc.
</TABLE>
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, 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 security is valued on the exchange designated as the primary market
pursuant to procedures adopted by the Trustees); (2) all other portfolio
securities for which over-the-counter market quotations are readily available
are valued at the latest available bid price prior to the time of valuation;
(3) when market quotations are not readily available, including circumstances
under which it is determined by Morgan Stanley Dean Witter Advisors Inc. (the
10
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
"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 having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Dividend income and other distributions are recorded on the
ex-dividend date except for certain dividends on foreign securities which are
recorded as soon as the Fund is informed after the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are
allocated to each class of shares based upon the relative net asset value on
the date such items are recognized. Distribution fees are charged directly to
the respective class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the 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.
11
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
F. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $156,000 which have been
reimbursed for the full amount thereof. Such expenses have been deferred and
are being amortized on the straight-line method over a period not to exceed
five years from the commencement of operations.
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
following annual rates to the net assets of the Fund as of the close of each
business day: 0.75% to the portion of net assets not exceeding $500 million
and 0.725% to the portion of the daily net assets exceeding $500 million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Fund who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund
has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under
the Act. The Plan provides that the Fund will pay the Distributor a fee which
is accrued daily and paid monthly at the following annual rates: (i) Class A
- - up to 0.25% of the average daily net assets of Class A; (ii) Class B - 1.0%
of the lesser of: (a) the average daily aggregate gross sales of the Class B
shares since the inception of the Fund (not including reinvestment of
dividend or capital gain distributions) less the average daily aggregate net
asset value of the Class B shares redeemed since the Fund's inception upon
which a contingent deferred sales charge has been imposed or waived; or (b)
the average daily net assets of Class B; and (iii) Class C - up to 1.0% of the
average daily net assets of Class C. In the case of Class A shares, amounts
paid under the Plan are paid to the Distributor for services provided. In the
case of Class B and Class C shares, amounts paid under the Plan are paid to
the Distributor for 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 Inc. and others
who engage in or support distribution of the shares or who service
shareholder accounts, including overhead
12
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
and telephone expenses; printing and distribution of prospectuses and reports
used in connection with the offering of these shares to other than current
shareholders; and preparation, printing and distribution of sales literature
and advertising materials. In addition, the Distributor may utilize fees paid
pursuant to the Plan, in the case of Class B shares, to compensate Dean
Witter Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and
Distributor and other selected broker-dealers for their opportunity costs in
advancing such amounts, which compensation would be in the form of a carrying
charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect,
any cumulative expenses incurred by the Distributor but not yet recovered may
be recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the
Distributor under the Plan and the proceeds of contingent deferred 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 $14,280,349 at May 31,
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 May 31, 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 May 31, 1998,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class A shares, Class B shares and Class C shares of $7,185, $800,755
and $2,004, respectively and received $59,087 in front-end sales charges from
sales of the Fund's Class A shares. The respective shareholders pay such
charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended May 31, 1998 aggregated
$1,012,812,830 and $920,667,492, respectively.
13
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
For the year ended May 31, 1998, the Fund incurred $91,976 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the
Fund. At May 31, 1998, the Fund's payable for investments purchased included
unsettled trades with DWR of $244,938.
For the year ended May 31, 1998, the Fund incurred $88,675 in brokerage
commissions with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager, for portfolio transactions executed on behalf of the Fund. At May
31, 1998 the Fund's payable for investments purchased included an unsettled
trade with Morgan Stanley & Co., Inc. of $620,730.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent. At May 31, 1998, the Fund had
transfer agent fees and expenses payable of approximately $2,500.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MAY 31, 1998 MAY 31, 1997
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold .......................... 223,859 $ 3,887,750 -- --
Reinvestment of distributions 3,525 57,133 -- --
Redeemed ...................... (61,027) (1,101,805) -- --
--------------- --------------- --------------- ---------------
Net increase -Class A ......... 166,357 2,843,078 -- --
--------------- --------------- --------------- ---------------
CLASS B SHARES
Sold .......................... 20,515,049 348,155,548 21,016,632 $ 298,480,486
Reinvestment of distributions 2,245,246 36,260,726 1,950,535 26,449,257
Redeemed ...................... (14,102,658) (237,680,244) (15,064,395) (213,069,717)
--------------- --------------- --------------- ---------------
Net increase -Class B ......... 8,657,637 146,736,030 7,902,772 111,860,026
--------------- --------------- --------------- ---------------
CLASS C SHARES*
Sold .......................... 388,549 6,774,774 -- --
Reinvestment of distributions 11,759 190,027 -- --
Redeemed ...................... (62,402) (1,095,646) -- --
--------------- --------------- --------------- ---------------
Net increase -Class C ......... 337,906 5,869,155 -- --
--------------- --------------- --------------- ---------------
CLASS D SHARES*
Sold .......................... 132,955 2,212,136 -- --
Reinvestment of distributions 495 8,020 -- --
Redeemed ...................... (71,007) (1,261,930) -- --
--------------- --------------- --------------- ---------------
Net increase -Class D ......... 62,443 958,226 -- --
--------------- --------------- --------------- ---------------
Net increase in Fund .......... 9,224,343 $ 156,406,489 7,902,772 $ 111,860,026
=============== =============== =============== ===============
</TABLE>
- ------------
* For the period July 28, 1997 (issue date) through May 31, 1998.
14
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1998, continued
6. FEDERAL INCOME TAX STATUS
As of May 31, 1998, the Fund had temporary book/tax differences attributable
to capital loss deferrals on wash sales and permanent book/tax differences
attributable to a net operating loss. To reflect reclassifications arising
from the permanent differences, accumulated undistributed net realized gain
was charged and net investment loss was credited $7,517,206.
15
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED MAY 31, SEPTEMBER 29, 1994*
---------------------------------------------- THROUGH
1998**++ 1997 1996 MAY 31, 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $14.76 $15.11 $10.81 $10.00
-------------- -------------- -------------- -------------------
Net investment loss ....................... (0.22) (0.13) (0.10) (0.01)
Net realized and unrealized gain .......... 3.79 0.94 5.60 0.84
-------------- -------------- -------------- -------------------
Total from investment operations .......... 3.57 0.81 5.50 0.83
-------------- -------------- -------------- -------------------
Less distributions from net realized gain (1.16) (1.16) (1.20) (0.02)
-------------- -------------- -------------- -------------------
Net asset value, end of period ............ $17.17 $14.76 $15.11 $10.81
============== ============== ============== ===================
TOTAL INVESTMENT RETURN+ .................. 24.68 % 6.01 % 53.02 % 8.26 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 1.93 % 1.99 % 2.05 % 2.21 %(2)
Net investment loss ....................... (1.31)% (1.06)% (1.05)% (0.16)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $635,816 $418,752 $309,272 $115,126
Portfolio turnover rate ................... 169 % 209 % 328 % 199 %(1)
Average commission rate paid .............. $0.0579 $0.0592 $0.0582 --
</TABLE>
- ------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated Class B
shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
MAY 31, 1998++
- ------------------------------------------ --------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...... $ 16.43
--------------
Net investment loss ....................... (0.10)
Net realized and unrealized gain .......... 2.12
--------------
Total from investment operations .......... 2.02
--------------
Less distributions from net realized gain (1.16)
--------------
Net asset value, end of period ............ $ 17.29
==============
TOTAL INVESTMENT RETURN+ .................. 12.77 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 1.19 %(2)
Net investment loss ....................... (0.70)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $ 2,876
Portfolio turnover rate ................... 169 %
Average commission rate paid .............. $ 0.0579
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...... $ 16.43
--------------
Net investment loss ....................... (0.20)
Net realized and unrealized gain .......... 2.10
--------------
Total from investment operations .......... 1.90
--------------
Less distributions from net realized gain (1.16)
--------------
Net asset value, end of period ............ $ 17.17
==============
TOTAL INVESTMENT RETURN+ .................. 12.01 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................. 1.94 %(2)
Net investment loss ....................... (1.40)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $ 5,802
Portfolio turnover rate ................... 169 %
Average commission rate paid .............. $ 0.0579
</TABLE>
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
MAY 31, 1998++
- ------------------------------------------ --------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ...... 16.43
--------------
Net investment loss ....................... (0.06)
Net realized and unrealized gain .......... 2.10
--------------
Total from investment operations .......... 2.04
--------------
Less distributions from net realized gain (1.16)
--------------
Net asset value, end of period ............ $17.31
==============
TOTAL INVESTMENT RETURN+ .................. 12.89 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................... 0.93 %(2)
Net investment loss ....................... (0.41)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $ 1,081
Portfolio turnover rate ................... 169 %
Average commission rate paid .............. $0.0579
</TABLE>
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
MORGAN STANLEY DEAN WITTER MID-CAP GROWTH FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER MID-CAP GROWTH 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 Mid-Cap Growth Fund (the "Fund"), formerly Dean Witter Mid-Cap
Growth Fund, at May 31, 1998, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at May 31, 1998 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
July 6, 1998
1998 Federal Tax Notice (unaudited)
During the year ended May 31, 1998, the Fund paid to its shareholders
$0.26 per share from long-term capital gains. Of this $0.26
distribution, $0.15 is taxable as 28% rate gain and $0.11 is taxable as
20% rate gain. For such period, 8.16% of the income paid qualified for
the dividends received deduction available to corporations.
19
<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
Peter Hermann
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
GROWTH FUND
ANNUAL REPORT
MAY 31, 1998
