<PAGE> 1
MORGAN STANLEY DEAN WITTER SMALL CAP GROWTH FUND Two World Trade Center
LETTER TO THE SHAREHOLDERS August 31, 2000 New York, New York 10048
DEAR SHAREHOLDER:
During the six-month period ended August 31, 2000, inflation moderated while
growth in the economy continued to be robust. A confluence of events in March
and April raised concerns about a slowdown in the deployment of new technology,
which in turn led to a sharp correction in the Nasdaq and new-economy stocks.
First, the Department of Justice moved to split up Microsoft to prevent it from
using its monopoly power to restrain competition. Second, President Clinton
spoke of potential controls that might be applied on the patenting of
intellectual property in genomics. The Federal Reserve Board raised the federal
funds rate a total of 75 basis points during the first half of this period,
prompted by continued evidence that the economy was on the verge of overheating.
In the latter half of this period, the economy began to show signs of
decelerating, as retail sales, construction spending and employment registered
weaker numbers than expected. With the Federal Reserve Board keeping rates
unchanged at the most recent meeting of the Federal Open Market Committee, we
are optimistic that the economy will achieve a soft landing.
PERFORMANCE AND PORTFOLIO STRATEGY
For the six-month period ended August 31, 2000, Morgan Stanley Dean Witter Small
Cap Growth Fund's Class B shares returned -12.00 percent, compared to -6.38
percent for the Russell 2000 Index.(1) During the same period, the Fund's Class
A, C and D shares returned -11.78 percent, -12.10 percent and -11.66 percent,
respectively. The performance of the Fund's four share classes varies because of
differing expenses. Total return figures assume the reinvestment of all
distributions but do not reflect the deduction of any applicable sales charges.
---------------------
(1) The Russell 2000 Index is a capitalization-weighted index, which is
comprised of the 2,000 smallest stocks included in the Russell 3000 Index.
The Index does not include any expenses, fees or charges. The Index is
unmanaged and should not be considered an investment.
<PAGE> 2
MORGAN STANLEY DEAN WITTER SMALL CAP GROWTH FUND
LETTER TO THE SHAREHOLDERS August 31, 2000, continued
As of August 31, 2000, the Fund was fully invested, with 35 percent of the
portfolio allocated to technology stocks, 29 percent to services and 12 percent
to consumer issues. The Fund's overweighting of technology stocks contributed to
its underperformance of its benchmark during the six-month period under review.
According to TCW Investment Management Company, the Fund's sub-advisor, the
portfolio management team follows a strict research-driven, bottom-up
discipline, regardless of how positive or negative the short-term direction of
the market. The companies in which the Fund invests typically trade at high
multiples, making them particularly sensitive to changes in interest rates.
During periods of potential increases in the level of interest rates, such as
this past spring, the Fund's strategy can result in short-term losses. TCW
believes that over a reasonable period of time investment returns are driven by
earnings. This is why the sub-advisor remains focused on analyzing the potential
for earnings growth and not trying to foretell the short-term direction of
macroeconomic measures such as interest rates. When market direction improves,
TCW believes that the highest-quality companies with the most favorable earnings
prospects will recover first and to the greatest extent, as was the case in June
and August.
LOOKING AHEAD
Going forward, we believe that the outlook for the financial markets and the
economy is favorable. As inflation seems poised to remain low, we believe that
the strength in the economy has finally begun to wane as well. Because of these
developments, we do not anticipate that we will see further interest-rate
tightening in the near future.
We appreciate your ongoing support of Morgan Stanley Dean Witter Small Cap
Growth Fund and look forward to continuing to serve your investment needs.
Very truly yours,
<TABLE>
<S> <C>
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
</TABLE>
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER SMALL CAP GROWTH FUND
FUND PERFORMANCE August 31, 2000
AVERAGE ANNUAL TOTAL RETURNS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A SHARES*
-----------------------------------------------
<S> <C> <C>
PERIOD ENDED 8/31/00
-------------------------
1 Year 108.28%(1) 97.34%(2)
Since Inception (7/28/97) 46.89%(1) 44.35%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES+
-----------------------------------------------
<S> <C> <C>
PERIOD ENDED 8/31/00
-------------------------
1 Year 106.67%(1) 105.67%(2)
Since Inception (7/28/97) 45.77%(1) 45.77%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES**
-----------------------------------------------
<S> <C> <C>
PERIOD ENDED 8/31/00
-------------------------
1 Year 107.31%(1) 102.31%(2)
5 Years 34.42%(1) 34.30%(2)
Since Inception (8/2/93) 28.30%(1) 28.30%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D SHARES++
-----------------------------------------------
<S> <C> <C>
PERIOD ENDED 8/31/00
-------------------------
1 Year 108.84%(1)
Since Inception (7/28/97) 47.23%(1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
LESS THAN THEIR ORIGINAL COST.
---------------------
<TABLE>
<S> <C>
(1) Figure shown assumes reinvestment of all distributions and
does not reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and
the deduction of the maximum applicable sales charge. See
the Fund's current prospectus for complete details on fees
and sales charges.
* The maximum front-end sales charge for Class A is 5.25%.
** The maximum contingent deferred sales charge (CSDC) 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>
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS August 31, 2000 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
-------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (95.5%)
Advertising/Marketing Services (0.8%)
236,000 LifeMinders, Inc.*......... $ 7,080,000
148,300 MyPoints.com, Inc.*........ 2,020,587
--------------
9,100,587
--------------
Biotechnology (8.7%)
438,800 Alkermes, Inc.*............ 20,294,500
40,400 Applied Molecular
Evolution*................ 1,300,375
186,200 Arena Pharmaceuticals,
Inc.*..................... 8,611,750
95,500 Aurora Biosciences
Corp.*.................... 6,529,812
91,800 Celgene Corp.*............. 6,793,200
98,000 Emisphere Technologies,
Inc.*..................... 3,234,000
210,600 ImClone Systems, Inc.*..... 20,296,575
122,700 Lexicon Genetics Inc.*..... 4,079,775
138,000 Medarex, Inc.*............. 15,249,000
86,000 Protein Design Labs,
Inc.*..................... 6,536,000
178,900 Titan Pharmaceuticals,
Inc.*..................... 8,397,119
--------------
101,322,106
--------------
Broadcasting (4.1%)
117,600 Citadel Communications
Corp.*.................... 2,410,800
475,800 Cox Radio, Inc. (Class
A)*....................... 9,902,587
200,800 Emmis Broadcasting Corp.
(Class A)*................ 6,588,750
87,500 Entercom Communications
Corp.*.................... 3,614,844
87,400 Entravision Communications
Corp. (Class A)*.......... 1,731,612
217,000 Radio One, Inc.*........... 4,570,562
434,000 Radio One, Inc. (Class
D)*....................... 7,622,125
369,200 Spanish Broadcasting
System, Inc. (Class A)*... 3,715,075
271,400 Westwood One, Inc.*........ 7,548,312
--------------
47,704,667
--------------
Cable/Satellite TV (0.9%)
316,500 Mediacom Communications
Corp.*.................... 4,505,180
116,400 Pegasus Communications
Corp.*.................... 5,790,900
--------------
10,296,080
--------------
Commercial Printing/Forms (0.1%)
261,100 iPrint.com, Inc.*.......... 913,850
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
-------------------------------------------------------
<C> <S> <C>
Computer Communications (1.8%)
71,700 Alteon Websystems, Inc.*... $ 10,611,600
66,300 CacheFlow Inc.*............ 7,251,562
71,400 Cobalt Networks, Inc.*..... 3,543,225
--------------
21,406,387
--------------
Consumer Sundries (0.0%)
17,100 Oakley, Inc.*.............. 289,631
--------------
Data Processing Services (2.1%)
549,480 CSG Systems International,
Inc.*..................... 24,829,627
--------------
Discount Stores (0.3%)
96,412 Dollar Tree Stores,
Inc.*..................... 3,910,712
--------------
Electrical Products (1.5%)
106,300 Active Power, Inc.*........ 7,467,575
102,800 Capstone Turbine Corp.*.... 9,489,725
--------------
16,957,300
--------------
Electronic Equipment/Instruments (7.7%)
576,200 Gemstar-TV Guide
International, Inc.*...... 52,002,050
350,900 Macrovision Corp.*......... 37,414,712
--------------
89,416,762
--------------
Electronic Production Equipment (1.1%)
80,200 Cymer, Inc.*............... 3,684,187
35,200 GaSonics International
Corp.*.................... 844,800
153,400 Varian Semiconductor
Equipment Associates,
Inc.*..................... 8,762,975
--------------
13,291,962
--------------
Engineering & Construction (0.3%)
148,500 Spectrasite Holdings,
Inc.*..................... 3,480,469
--------------
Information Technology Services (1.2%)
381,500 McAfee.com Corp.*.......... 10,038,219
197,400 Predictive Systems,
Inc.*..................... 3,923,325
--------------
13,961,544
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS August 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
-------------------------------------------------------
<C> <S> <C>
Internet Software/Services (24.0%)
204,300 About.com, Inc.*........... $ 8,912,587
150,100 Agile Software Co.*........ 10,422,569
175,000 Critical Path, Inc.*....... 13,518,750
92,400 Digex, Inc.*............... 7,825,125
253,100 eLoyalty Corp.*............ 3,448,487
1,243,800 Exodus Communications,
Inc.*..................... 85,122,562
180,500 Extensity, Inc.*........... 4,061,250
245,500 GoTo.com, Inc.*............ 4,572,437
373,000 InfoSpace.com, Inc.*....... 14,547,000
201,000 Interwoven, Inc.*.......... 19,296,000
27,500 NaviSite, Inc.*............ 1,323,437
156,700 Proxicom, Inc.*............ 3,790,181
150,600 Quest Software, Inc.*...... 7,774,725
384,024 Razorfish, Inc. (Class
A)*....................... 4,848,303
112,800 Scient Corp.*.............. 3,052,650
178,100 Selectica Inc. *........... 8,493,144
62,100 Software.com, Inc.*........ 9,039,431
146,700 Support.com, Inc.*......... 4,549,992
77,600 Verio Inc.*................ 4,651,150
167,900 VeriSign, Inc.*............ 33,391,112
159,600 Versata, Inc.*............. 3,980,025
205,000 Viant Corp.*............... 2,844,375
253,100 WebEx Communications,
Inc.*..................... 14,015,413
60,130 webMethods, Inc.*.......... 6,460,217
--------------
279,940,922
--------------
Investment Banks/Brokers (0.1%)
78,600 E*TRADE Group, Inc.*....... 1,395,150
--------------
Medical Distributors (1.7%)
232,500 Andrx Corp.*............... 20,227,500
--------------
Miscellaneous Commercial Services (4.3%)
102,000 CheckFree Corp.*........... 5,284,875
225,500 Corporate Executive
Board Co.*................ 16,010,500
492,450 Dendrite International,
Inc.*..................... 13,080,703
69,900 Diamond Technology
Partners, Inc.*........... 4,460,494
472,300 HotJobs.com, Ltd.*......... 9,003,219
70,300 Saba Software, Corp.*...... 2,012,338
--------------
49,852,129
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
-------------------------------------------------------
<C> <S> <C>
Packaged Software (16.6%)
49,100 E.piphany, Inc.*........... $ 5,106,400
410,500 HNC Software, Inc.*........ 22,333,766
106,400 Informatica Corp.*......... 10,640,000
164,100 Mercury Interactive
Corp.*.................... 20,050,969
210,300 Micromuse Inc.*............ 31,939,313
380,000 Peregine Systems, Inc.*.... 12,136,250
322,600 Siebel Systems, Inc.*...... 63,814,313
128,300 SmartForce PLC (ADR)
(Ireland)*................ 6,671,600
202,200 TIBCO Software, Inc.*...... 20,611,763
--------------
193,304,374
--------------
Pharmaceuticals: Other (0.4%)
49,800 United Therapeutics
Corp.*.................... 4,300,697
--------------
Semiconductors (10.6%)
90,000 Exar Corp.*................ 10,856,250
275,600 Maxim Integrated Products,
Inc.*..................... 24,166,675
429,000 Micrel, Inc.*.............. 32,791,688
275,800 Semtech Corp.*............. 32,665,063
326,800 Silicon Image, Inc.*....... 12,009,900
188,900 TranSwitch Corp.*.......... 11,369,419
--------------
123,858,995
--------------
Services to the Health Industry (0.6%)
128,200 TriZetto Group, Inc.
(The)*.................... 1,314,050
385,300 Ventiv Health, Inc.*....... 5,153,388
--------------
6,467,438
--------------
Specialty Stores (1.6%)
227,750 Cost Plus, Inc.*........... 7,658,094
425,100 Linens 'N Things, Inc.*.... 11,477,700
--------------
19,135,794
--------------
Specialty Telecommunications (0.4%)
356,500 Network Plus Corp.*........ 4,077,469
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS August 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
-------------------------------------------------------
<C> <S> <C>
Telecommunication Equipment (4.6%)
252,100 Netro Corp.*............... $ 20,829,763
119,800 Polycom, Inc.*............. 13,462,525
47,400 Powerwave Technologies,
Inc.*..................... 2,281,125
63,300 Sonus Networks Inc.*....... 10,531,538
85,800 Virata Corp.*.............. 5,898,750
--------------
53,003,701
--------------
TOTAL COMMON STOCKS
(Cost $585,949,657)........ 1,112,445,853
--------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
---------
SHORT-TERM INVESTMENTS (4.4%)
U.S. GOVERNMENT AGENCY (a) (3.0%)
$ 35,000 Federal Farm Credit Bank
6.37% due 09/01/00 - 09/12/00
(Cost $34,980,536)........ 34,980,536
--------------
REPURCHASE AGREEMENT (1.4%)
16,805 The Bank of New York 6.438%
due 09/01/00 (dated 08/31/00;
proceeds $16,808,321)(b)
(Cost $16,805,316)......... 16,805,316
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $51,785,852)......... 51,785,852
--------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
------------------------------------------------------
<C> <S> <C>
TOTAL INVESTMENTS
(Cost $637,735,509) (c)...... 99.9% $1,164,231,705
--------------
OTHER ASSETS IN EXCESS OF
LIABILITIES.................... 0.1 979,359
---- --------------
NET ASSETS................... 100.0% $1,165,211,064
==== ==============
</TABLE>
---------------------
<TABLE>
<C> <S>
ADR American Depository Receipt.
* Non-income producing security.
(a) Purchased on a discount basis. The interest rate
shown has been adjusted to reflect a money market
equivalent yield.
(b) Collateralized by $13,020,210 U.S. Treasury Bond
8.75% due 09/01/17 valued at $17,144,652.
(c) The aggregate cost for federal income tax
purposes approximates the aggregate cost for book
purposes. The aggregate gross unrealized
appreciation is $593,430,126 and the aggregate
gross unrealized depreciation is $66,933,930,
resulting in net unrealized appreciation of
$526,496,196.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER SMALL CAP GROWTH FUND
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 2000 (unaudited)
ASSETS:
Investments in securities, at value
(cost $637,735,509)........................................ $1,164,231,705
Receivable for:
Shares of beneficial interest sold...................... 4,168,804
Investments sold........................................ 99,923
Prepaid expenses and other assets........................... 182,113
--------------
TOTAL ASSETS............................................ 1,168,682,545
--------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased............... 1,128,210
Investment management fee............................... 871,941
Investments purchased................................... 750,620
Plan of distribution fee................................ 636,566
Payable to bank............................................. 94
Accrued expenses and other payables......................... 84,050
--------------
TOTAL LIABILITIES....................................... 3,471,481
--------------
NET ASSETS.............................................. $1,165,211,064
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $ 576,643,278
Net unrealized appreciation................................. 526,496,196
Accumulated net investment loss............................. (7,279,061)
Accumulated undistributed net realized gain................. 69,350,651
--------------
NET ASSETS.............................................. $1,165,211,064
==============
CLASS A SHARES:
Net Assets.................................................. $49,468,069
Shares Outstanding (unlimited authorized, $.01 par value)... 928,377
NET ASSET VALUE PER SHARE............................... $53.28
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value)........ $56.23
======
CLASS B SHARES:
Net Assets.................................................. $1,030,004,856
Shares Outstanding (unlimited authorized, $.01 par value)... 19,757,364
NET ASSET VALUE PER SHARE............................... $52.13
======
CLASS C SHARES:
Net Assets.................................................. $38,069,505
Shares Outstanding (unlimited authorized, $.01 par value)... 733,263
NET ASSET VALUE PER SHARE............................... $51.92
======
CLASS D SHARES:
Net Assets.................................................. $47,668,634
Shares Outstanding (unlimited authorized, $.01 par value)... 887,754
NET ASSET VALUE PER SHARE............................... $53.70
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER SMALL CAP GROWTH FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended August 31, 2000 (unaudited)
NET INVESTMENT LOSS:
INTEREST INCOME............................................. $ 1,795,709
-------------
EXPENSES
Investment management fee................................... 4,977,375
Plan of distribution fee (Class A shares)................... 48,058
Plan of distribution fee (Class B shares)................... 3,290,752
Plan of distribution fee (Class C shares)................... 152,143
Transfer agent fees and expenses............................ 411,108
Registration fees........................................... 90,907
Shareholder reports and notices............................. 32,156
Professional fees........................................... 31,580
Custodian fees.............................................. 28,649
Trustees' fees and expenses................................. 6,472
Other....................................................... 5,570
-------------
TOTAL EXPENSES.......................................... 9,074,770
-------------
NET INVESTMENT LOSS..................................... (7,279,061)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................................... 69,350,663
Net change in unrealized appreciation....................... (204,283,904)
-------------
NET LOSS................................................ (134,933,241)
-------------
NET DECREASE................................................ $(142,212,302)
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER SMALL CAP GROWTH FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
AUGUST 31, 2000 FEBRUARY 29, 2000
----------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss................................. $ (7,279,061) $ (8,107,048)
Net realized gain................................... 69,350,663 78,386,411
Net change in unrealized appreciation............... (204,283,904) 586,436,265
-------------- --------------
NET INCREASE (DECREASE)......................... (142,212,302) 656,715,628
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN:
Class A shares...................................... (1,366,683) (866,302)
Class B shares...................................... (31,884,459) (42,219,798)
Class C shares...................................... (1,117,170) (700,263)
Class D shares...................................... (1,144,808) (241,781)
-------------- --------------
TOTAL DISTRIBUTIONS............................. (35,513,120) (44,028,144)
-------------- --------------
Net increase from transactions in shares of
beneficial interest................................ 185,889,487 216,745,881
-------------- --------------
NET INCREASE.................................... 8,164,065 829,433,365
NET ASSETS:
Beginning of period................................. 1,157,046,999 327,613,634
-------------- --------------
END OF PERIOD
(Including a net investment loss of $7,279,061
and $0, respectively)........................... $1,165,211,064 $1,157,046,999
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS August 31, 2000 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Small Cap Growth Fund (the "Fund") is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
non-diversified, open-end management investment company. The Fund's investment
objective is capital appreciation. The Fund seeks to achieve its objective by
investing primarily in common stocks and other equity securities of lesser
known, smaller capitalization domestic and foreign companies. The Fund was
organized as a Massachusetts business trust on March 11, 1992 and commenced
operations on August 2, 1993. On July 28, 1997, the Fund converted to a multiple
class share structure.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity portfolio security listed or traded
on the New York or American Stock Exchange, NASDAQ, or other exchange is valued
at its latest sale price, 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 a security is 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; (3) when market quotations are not readily available, including
circumstances under which it is determined by Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Manager"), or TCW Investment Management Company
(the "Sub-Advisor") that sale or bid prices are not reflective of a security's
market value, portfolio securities are valued at their fair value as determined
in good faith under procedures established by and under the general supervision
of the Trustees (valuation of debt securities for which market quotations are
not readily available may be based upon current market prices of securities
which are comparable in coupon, rating and maturity
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS August 31, 2000 (unaudited) continued
or an appropriate matrix utilizing similar factors); and (4) short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for tax purposes are reported as distributions of paid-in-capital.
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 rates to the net assets of
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS August 31, 2000 (unaudited) continued
the Fund determined as of the close of each business day: 1.0% to the portion of
daily net assets not exceeding $1.5 billion and effective May 1, 2000, the
Agreement was amended to reduce the annual rate to 0.95% of the portion of daily
net assets in excess of $1.5 billion.
Under a Sub-Advisory Agreement between the Investment Manager and the
Sub-Advisor, the Sub-Advisor provides the Fund with investment advice and
portfolio management relating to the Fund's 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
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 charged has been imposed or waived: or (b) the average daily net
assets of Class B; and (iii) Class C - up to 1.0% of the average daily net
assets of Class C.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay 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 totaled
$23,363,720 at August 31, 2000.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C,
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS August 31, 2000 (unaudited) continued
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, and other selected broker-dealer
representatives may be reimbursed in the subsequent calendar year. For the six
months ended August 31, 2000, 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 six months ended August 31,
2000 it received contingent deferred sales charges from certain redemptions of
the Fund's Class A shares, Class B shares and Class C shares of $3,208, $422,353
and $18,953, respectively and received $166,305 in front-end sales charges from
sales of the Fund's Class A shares. The respective shareholders pay such charges
which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended August 31, 2000 aggregated
$351,725,844 and $187,640,816, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent.
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS August 31, 2000 (unaudited) continued
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
AUGUST 31, 2000 FEBRUARY 29, 2000
-------------------------- --------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold........................................................ 561,721 $ 28,526,504 766,650 $ 31,657,246
Reinvestment of distributions............................... 27,727 1,233,572 15,880 681,495
Redeemed.................................................... (248,349) (11,645,393) (301,186) (11,411,879)
---------- ------------- ---------- -------------
Net increase - Class A...................................... 341,099 18,114,683 481,344 20,926,862
---------- ------------- ---------- -------------
CLASS B SHARES
Sold........................................................ 4,910,923 249,978,261 6,818,323 290,417,722
Reinvestment of distributions............................... 678,798 29,575,215 1,001,566 39,002,595
Redeemed.................................................... (3,210,413) (152,090,307) (4,560,472) (164,702,676)
---------- ------------- ---------- -------------
Net increase - Class B...................................... 2,379,308 127,463,169 3,259,417 164,717,641
---------- ------------- ---------- -------------
CLASS C SHARES
Sold........................................................ 373,821 19,424,985 448,998 19,262,241
Reinvestment of distributions............................... 24,451 1,061,408 15,410 636,670
Redeemed.................................................... (132,008) (6,133,880) (113,941) (4,688,431)
---------- ------------- ---------- -------------
Net increase - Class C...................................... 266,264 14,352,513 350,467 15,210,480
---------- ------------- ---------- -------------
CLASS D SHARES
Sold........................................................ 635,267 31,914,028 839,942 38,399,999
Reinvestment of distributions............................... 21,558 966,017 4,367 205,983
Redeemed.................................................... (110,859) (6,920,923) (503,074) (22,715,084)
---------- ------------- ---------- -------------
Net increase - Class D...................................... 545,966 25,959,122 341,235 15,890,898
---------- ------------- ---------- -------------
Net increase in Fund........................................ 3,532,637 $ 185,889,487 4,432,463 $ 216,745,881
========== ============= ========== =============
</TABLE>
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER SMALL 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 SIX FOR THE YEAR FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED ENDED THROUGH
AUGUST 31, 2000 FEBRUARY 29, 2000 FEBRUARY 28, 1999 FEBRUARY 28, 1998
-------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period.............. $62.72 $23.13 $21.18 $18.12
------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss.............................. (0.25) (0.41) (0.29) (0.15)
Net realized and unrealized gain (loss).......... (7.48) 42.93 2.24 3.21
------ ------ ------ ------
Total income (loss) from investment operations.... (7.73) 42.52 1.95 3.06
------ ------ ------ ------
Less distributions from net realized gain......... (1.71) (2.93) -- --
------ ------ ------ ------
Net asset value, end of period.................... $53.28 $62.72 $23.13 $21.18
====== ====== ====== ======
TOTAL RETURN+..................................... (11.78)%(1) 191.77 % 9.21 % 16.89 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................................... 1.37 %(2)(3) 1.40 %(3) 1.50 %(3) 1.52 %(2)
Net investment loss............................... (1.01)%(2)(3) (1.13)%(3) (1.40)%(3) (1.32)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........... $49,468 $36,835 $2,450 $276
Portfolio turnover rate........................... 20 %(1) 59 % 51 % 61 %
</TABLE>
---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER SMALL CAP GROWTH FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR ENDED FEBRUARY 28,
MONTHS ENDED ------------------------------------------------------
AUGUST 31, 2000++ 2000*++ 1999++ 1998**++ 1997 1996*
-----------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of
period.............................. $61.57 $22.84 $21.08 $15.73 $16.24 $9.90
------ ------ ------ ------ ------ ------
Income (loss) from investment
operations:
Net investment loss................. (0.36) (0.55) (0.43) (0.37) (0.26) (0.19)
Net realized and unrealized gain
(loss)............................ (7.37) 42.21 2.19 5.72 (0.25) 6.53
------ ------ ------ ------ ------ ------
Total income (loss) from investment
operations.......................... (7.73) 41.66 1.76 5.35 (0.51) 6.34
------ ------ ------ ------ ------ ------
Less distributions from net realized
gain................................ (1.71) (2.93) -- -- -- --
------ ------ ------ ------ ------ ------
Net asset value, end of period....... $52.13 $61.57 $22.84 $21.08 $15.73 $16.24
====== ====== ====== ====== ====== ======
TOTAL RETURN+........................ (12.00)%(1) 190.41% 8.35% 34.01% (3.14)% 64.04%
RATIOS TO AVERAGE NET ASSETS:
Expenses............................. 1.85 %(2)(3) 1.85%(3) 2.18%(3) 2.25% 2.15% 2.32%
Net investment loss.................. (1.49)%(2)(3) (1.58)%(3) (2.08)%(3) (2.05)% (1.70)% (1.75)%
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands........................... $1,030,005 $1,069,967 $322,489 $340,665 $268,783 $153,366
Portfolio turnover rate.............. 20 %(1) 59% 51% 61% 42% 52%
</TABLE>
---------------------
* Year ended February 29.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that date have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER SMALL CAP GROWTH FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED ENDED THROUGH
AUGUST 31, 2000 FEBRUARY 29, 2000 FEBRUARY 28, 1999 FEBRUARY 28, 1998
-------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
CLASS C SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period.............. $61.40 $22.85 $21.08 $18.12
------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss.............................. (0.42) (0.70) (0.45) (0.24)
Net realized and unrealized gain (loss).......... (7.35) 42.18 2.22 3.20
------ ------ ------ ------
Total income (loss) from investment operations.... (7.77) 41.48 1.77 2.96
------ ------ ------ ------
Less distributions from net realized gain......... (1.71) (2.93) -- --
------ ------ ------ ------
Net asset value, end of period.................... $51.92 $61.40 $22.85 $21.08
====== ====== ====== ======
TOTAL RETURN+..................................... (12.10)%(1) 189.51 % 8.35 % 16.39 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................................... 2.12 %(2)(3) 2.18 %(3) 2.26 %(3) 2.29 %(2)
Net investment loss............................... (1.76)%(2)(3) 1.91)%(3) (2.16)%(3) (2.10)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........... $38,070 $28,675 $2,662 $923
Portfolio turnover rate........................... 20 %(1) 59 % 51 % 61 %
</TABLE>
---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER SMALL CAP GROWTH FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED ENDED THROUGH
AUGUST 31, 2000 FEBRUARY 29, 2000 FEBRUARY 28, 1999 FEBRUARY 28, 1998
-------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period.............. $63.11 $23.20 $21.21 $18.12
------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss.............................. (0.19) (0.35) (0.24) (0.12)
Net realized and unrealized gain (loss).......... (7.51) 43.19 2.23 3.21
------ ------ ------ ------
Total income (loss) from investment operations.... (7.70) 42.84 1.99 3.09
------ ------ ------ ------
Less distributions from net realized gain......... (1.71) (2.93) -- --
------ ------ ------ ------
Net asset value, end of period.................... $53.70 $63.11 $23.20 $21.21
====== ====== ====== ======
TOTAL RETURN+..................................... (11.66)%(1) 192.59 % 9.38 % 17.05 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................................... 1.12 %(2)(3) 1.18 %(3) 1.26 %(3) 1.27 %(2)
Net investment loss............................... (0.76)%(2)(3) (0.91)%(3) (1.16)%(3) (1.10)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........... $47,669 $21,570 $13 $12
Portfolio turnover rate........................... 20 %(1) 59 % 51 % 61 %
</TABLE>
---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE> 19
MORGAN STANLEY DEAN WITTER SMALL CAP GROWTH FUND
CHANGE IN INDEPENDENT ACCOUNTANTS
On July 1, 2000, PricewaterhouseCoopers LLP resigned as independent accountants
of the Fund.
The reports of PricewaterhouseCoopers LLP on the financial statements of the
Fund for the past two fiscal years contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle.
In connection with its audit for the two most recent fiscal years and through
July 1, 2000, there have been no disagreements with PricewaterhouseCoopers LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of PricewaterhouseCoopers LLP would have caused them to make
reference thereto in their report on the financial statements for such years.
The Fund, with the approval of its Board of Trustees and its Audit Committee,
engaged Deloitte & Touche LLP as its new independent accountants as of July 1,
2000.
19
<PAGE> 20
TRUSTEES
----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
----------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
Christopher J. Ainley
Vice President
Charles Larsen
Vice President
Douglas S. Forman
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
----------------------------------
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT MANAGER
----------------------------------
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
SUB-ADVISER
----------------------------------
TCW Investment Management Company
805 South Fiqueroa Street, Suite 1800
Los Angeles, CA 90017
The financial statements included herein have been taken from the records of the
Trust without examination by the independent accountants and accordingly they
do not express an opinion thereon.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of
the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus. Read the
prospectus carefully before investing.
Morgan Stanley Dean Witter Distributors Inc., member NASD.
MORGAN STANLEY
DEAN WITTER
SMALL CAP
GROWTH FUND
[PHOTO]
SEMIANNUAL REPORT
AUGUST 31, 2000
