<PAGE>
Morgan Stanley Dean Witter Small Cap Growth Fund Two World Trade Center,
Letter to the Shareholders February 29, 2000 New York, New York 10048
DEAR SHAREHOLDER:
The 12-month period ended February 29, 2000 proved to be a very rewarding one
for Morgan Stanley Dean Witter Small Cap Growth Fund. During this period, the
Fund's Class B shares returned 190.41 percent, versus 49.02 percent for the
Russell 2000 Small Stock Index. For the same period, the Fund's Class A, C and
D shares returned 191.77 percent, 189.51 percent and 192.59 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.
The accompanying chart compares the Fund's performance to that of the Russell
2000 Index.
The Fund's significant outperformance relative to its benchmark indexes was
attributable primarily to its heavy weighting in technology stocks,
particularly Internet-related companies. On February 29, 2000, approximately
27.9 percent of the Fund's assets were allocated to Internet services
companies. Given the rapid rise of stock prices in 1999, particularly among
technology issues, there can be no expectation that the Fund's impressive
results will be repeated.
MARKET COMMENTARY
The fiscal year ended February 29, 2000 saw the U.S. equity markets continue to
soar in the face of multiple Federal Reserve Board interest-rate increases. As
in recent years, the strong performance of the markets was not broad based but
was concentrated more in a number of high-profile stocks. TCW Investment
Management Company (TCW), the Fund's sub-advisor, believes that fundamental
forces are behind this phenomenon. First among these is the Internet, which is
permanently altering the structure of virtually every industry. Companies that
are capitalizing on these changes are being richly rewarded by the equity
markets. At the same time, there is a long list of companies whose share prices
are not benefiting from the overall strength of the U.S. stock market. In many
cases, these are companies whose franchises are being threatened by the
<PAGE>
Morgan Stanley Dean Witter Small Cap Growth Fund
Letter to the Shareholders February 29, 2000, continued
Internet's new technologies and by intermediaries. In these cases, investors
are deciding not to pay for future earnings that may, in fact, not exist.
INVESTMENT STRATEGY
TCW follows a bottom-up approach that is designed to create a portfolio of
rapidly growing companies with the potential to grow at a rate faster and with
higher profitability than Wall Street currently expects. TCW spends little time
predicting macroeconomic events, considering instead that the companies the
Fund owns are ones the sub-advisor believes will benefit from powerful shifts
in the economy and will not be derailed by changes in the rate of economic
growth or interest rates.
During the second half of the fiscal year, TCW noted that many of the Fund's
most promising investments had seen their share prices move sideways through
much of 1999, as the rising interest rate environment held back growth stocks.
To TCW this represented an opportunity, as these rapidly growing companies were
substantially larger than they had been even a quarter before. The net effect
was that even though their share prices had moved sideways, they had become
cheaper relative to their underlying earnings power. In the past four months,
this opportunity was unlocked. Despite additional interest-rate increases by
the Federal Reserve Board, growth stocks have moved progressively higher, as
reflected in the strong performance of the major indexes. The Fund's
investments benefited disproportionately. TCW judges this to be a direct result
of the superior earnings power and growth rates of the companies in which the
Fund invests. Among the Fund's top-performing holdings were Citrix Systems,
Exodus Communications, Gemstar, HNC Software, Legato Systems, Siebel Systems
and VeriSign.
LOOKING AHEAD
Clearly, the last four months have been an unusually strong period for
small-cap growth stocks in general and the Fund in particular. TCW firmly
believes that the stocks held in the Fund deserve the valuations currently
awarded them by the market. These companies are, in the sub-advisor's opinion,
among the finest young businesses in America. They are creating entirely new
industries or rewriting the rules of existing ones. Nevertheless, given how far
and fast these stocks have appreciated, we would not be surprised to see their
appreciation slow or even reverse somewhat. Should interest rates move higher
in the coming months, the high-growth companies in which the Fund invests will
likely see their stock prices suffer, as occurred at times last year. However,
because it is unable to predict short-term market movements, the Fund will
continue to focus on seeking the highest-quality small-cap growth companies
that TCW believes have the ability to consistently exceed Wall Street
expectations for growth, profitability, and earnings over the long term.
2
<PAGE>
Morgan Stanley Dean Witter Small Cap Growth Fund
Letter to the Shareholders February 29, 2000, continued
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,
/s/ Charles A Fiumefreddo /s/ Mitchell M. Merin
- -------------------------------- ------------------------------------
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
3
<PAGE>
Morgan Stanley Dean Witter Small Cap Growth Fund
Fund Performance February 29, 2000
GROWTH OF $10,000 CLASS B
Date Total Russell 2000
- --------------------------------------------------------------------------------
August 2, 1993 10,000 10,000
- --------------------------------------------------------------------------------
February 28, 1994 10,300 11,231
- --------------------------------------------------------------------------------
February 28, 1995 9,900 11,036
- --------------------------------------------------------------------------------
February 29, 1996 16,240 14,197
- --------------------------------------------------------------------------------
February 28, 1997 15,730 15,980
- --------------------------------------------------------------------------------
February 28, 1998 21,080 20,767
- --------------------------------------------------------------------------------
February 28, 1999 22,840 17,829
- --------------------------------------------------------------------------------
February 29, 2000 66,329 (3) 26,615
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
--- Fund --- Russell 2000 (4)
- --------------------------------------------------------------------------------
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 2/29/00
- --------------------------
<S> <C> <C>
1 Year 190.41%(1) 185.41%(2)
5 Year 46.29%(1) 46.20%(2)
Since Inception (8/2/93) 33.34%(1) 33.34%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES+
- -----------------------------------------------------------------
PERIOD ENDED 2/29/00
- ---------------------------
<S> <C> <C>
1 Year 189.51%(1) 188.51%(2)
Since Inception (7/28/97) 64.87%(1) 64.87%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES**
- -----------------------------------------------------------------
PERIOD ENDED 2/29/00
- ---------------------------
<S> <C> <C>
1 Year 191.77%(1) 176.45%(2)
Since Inception (7/28/97) 66.14%(1) 62.72%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D SHARES++
- ------------------------------------------------
PERIOD ENDED 2/29/00
- ---------------------------
<S> <C>
1 Year 192.59%(1)
Since Inception (7/28/97) 66.52%(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 assuming a complete redemption on February 29, 2000.
(4) The Russell 2000 Small Stock Index is a capitalization-weighted price-only
index of the 2000 smallest stocks represented in the Russell 3000 Index.
The performance of the Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
* The maximum contingent deferred sales charge (CDSC) for Class B is 5.0%.
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 Small Cap Growth Fund
Portfolio of Investments February 29, 2000
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (93.7%)
Advertising (1.0%)
15,900 Be Free, Inc.* ....................... $ 1,434,975
138,100 MyPoints.com, Inc.* .................. 6,473,437
82,500 Netcentives Inc.* .................... 3,712,500
------------
11,620,912
------------
Biotechnology (6.9%)
164,800 Alkermes, Inc.* ...................... 31,476,800
177,100 ImClone Systems, Inc.* ............... 22,945,519
117,100 Medarex, Inc.* ....................... 18,999,475
114,300 Titan Pharmaceuticals Inc.* .......... 5,743,575
------------
79,165,369
------------
Broadcasting (3.6%)
99,300 Citadel Communications Corp.* ........ 3,351,375
118,100 Clear Channel Communications,
Inc.* .............................. 7,868,412
52,100 Cox Radio, Inc. (Class A)* ........... 4,168,000
171,000 Emmis Broadcasting Corp.
(Class A)* ......................... 6,241,500
74,600 Entercom Communications Corp.*........ 3,137,862
127,600 Radio One, Inc.* ..................... 8,389,700
69,300 Spanish Broadcasting System, Inc.
(Class A)* ......................... 1,325,362
114,300 Westwood One, Inc.* .................. 7,636,669
------------
42,118,880
------------
Cable Television (0.5%)
49,400 Pegasus Communications Corp.* ........ 6,119,425
------------
Catalog/Specialty Distribution (0.0%)
186,000 E4L, Inc.* .......................... 418,500
------------
Clothing/Shoe/Accessory Stores (0.3%)
132,600 Pacific Sunwear of California,
Inc.* .............................. 3,373,012
------------
Computer Communications (0.8%)
80,250 TranSwitch Corp.* .................... 9,469,500
------------
Computer Software (25.8%)
76,800 Aspect Development, Inc.* ............ 11,433,600
619,800 Citrix Systems, Inc.* ................ 65,350,163
49,100 E.piphany, Inc.* ..................... 10,795,862
69,100 Great Plains Software, Inc.* ......... 4,806,769
410,500 HNC Software, Inc.* .................. 40,305,969
53,200 Informatica Corp.* ................... 9,097,200
416,100 Legato Systems, Inc.* ................ 14,797,556
32,000 Macromedia, Inc.* .................... 2,766,000
120,000 Mercury Interactive Corp.* ........... 11,550,000
210,300 Micromuse Inc.* ...................... 29,823,169
380,000 Peregine Systems, Inc.* .............. 20,757,500
322,600 Siebel Systems, Inc.* ................ 44,740,587
128,300 SmartForce PLC (ADR) (Ireland)*....... $ 5,653,219
202,200 TIBCO Software, Inc.* ................ 26,488,200
------------
298,365,794
------------
Discount Chains (0.2%)
64,275 Dollar Tree Stores, Inc.* ............ 2,494,673
------------
Diversified Commercial Services (3.7%)
86,900 CheckFree Holdings Corp.* ............ 7,641,769
176,900 Corporate Executive Board Co.* ....... 8,800,775
412,450 Dendrite International, Inc.* ........ 10,156,581
1,600 DigitalThink, Inc.* .................. 64,800
69,400 Exchange Applications, Inc.* ......... 7,495,200
322,600 HotJobs.com, Ltd.* ................... 8,085,162
------------
42,244,287
------------
Diversified Electronic Products (5.7%)
650,000 Gemstar International Group Ltd.
(Virgin Islands)* .................. 49,237,500
162,500 Macrovision Corp.* .................. 16,209,375
------------
65,446,875
------------
E.D.P. Services (4.4%)
460,980 CSG Systems International, Inc.*...... 23,682,847
192,000 McAfee.com Corp.* .................... 6,552,000
158,300 Pegasus Systems, Inc.* ............... 3,166,000
105,900 Predictive Systems, Inc.* ............ 6,433,425
323,524 Razorfish, Inc.* ..................... 10,797,614
19,900 Technology Solutions Co.* ........... 141,788
------------
50,773,674
------------
Electronic Components (0.4%)
93,300 Power Integrations, Inc.* ............ 4,845,769
------------
Electronic Production Equipment (1.0%)
68,100 Cymer, Inc.* ......................... 3,745,500
129,300 Varian Semiconductor Equipment
Associates, Inc.* .................. 7,491,319
------------
11,236,819
------------
Finance Companies (0.4%)
217,200 NextCard, Inc.* ...................... 4,887,000
------------
Internet Services (27.9%)
204,300 About.com, Inc.* ..................... 14,352,075
29,100 Agile Software Co.* .................. 4,161,300
79,600 Critical Path, Inc.* ................. 6,855,550
79,000 Digex, Inc.* ......................... 12,802,938
253,100 eLoyalty Corp.* ...................... 7,719,550
638,100 Exodus Communications, Inc.* ......... 90,809,606
168,500 GoTo.com, Inc.* ...................... 10,699,750
195,600 InfoSpace.com, Inc.* ................. 42,481,875
100,500 Interwoven, Inc.* .................... 15,024,750
44,200 Lycos, Inc.* ......................... 2,632,663
124,200 Proxicom, Inc.* ...................... 5,193,113
</TABLE>
See Notes to Financial Statements
5
<PAGE>
Morgan Stanley Dean Witter Small Cap Growth Fund
Portfolio of Investments February 29, 2000, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
77,700 Quest Software, Inc.* ................ $ 9,022,913
64,800 Scient Corp.* ........................ 4,584,600
62,100 Software.com, Inc.* .................. 5,977,125
248,400 Verio Inc.* .......................... 18,645,525
163,500 VeriSign, Inc.* ...................... 41,385,938
141,200 Viant Corp.* ......................... 5,339,125
40,000 Vignette Corp.* ...................... 9,220,000
21,200 Vitria Technology, Inc.* ............. 3,998,850
70,736 Yahoo! Inc.* ......................... 11,295,655
-------------
322,202,901
-------------
Investment Bankers/Brokers/
Services (0.7%)
331,650 E*TRADE Group, Inc.* ................. 8,166,881
-------------
Medical/Dental Distributors (0.3%)
38,300 Andrx Corp.* ......................... 3,669,619
-------------
Movies/Entertainment (0.1%)
70,100 Championship Auto Racing
Teams, Inc.* ....................... 1,402,000
-------------
Non-U.S. Utilities (0.6%)
143,400 Independent Energy Holdings
PLC (ADR) (United Kingdom)*......... 7,080,375
-------------
Other Specialty Stores (1.2%)
255,600 Bed Bath & Beyond Inc.* .............. 7,236,675
191,050 Cost Plus, Inc.* ..................... 3,534,425
126,300 Linens 'N Things, Inc.* .............. 2,486,531
-------------
13,257,631
-------------
Other Telecommunications (0.9%)
182,200 AT&T Canada, Inc. (Class B)* ......... 10,544,825
8,000 Network Plus Corp.* .................. 307,500
-------------
10,852,325
-------------
Semiconductors (6.2%)
22,400 Intersil Holding Corp.* .............. 1,330,000
248,600 Maxim Integrated Products, Inc.*...... 16,594,050
180,400 Micrel, Inc.* ........................ 20,858,750
84,900 MIPS Technologies, Inc.
(Class A)* ......................... 4,966,650
231,900 Semtech Corp.* ....................... 14,493,750
137,900 Silicon Image, Inc.* ................. 13,514,200
-------------
71,757,400
-------------
Services to the Health Industry (1.1%)
72,700 MedQuist Inc.* ....................... 1,872,025
125,700 TriZetto Group, Inc. (The)* .......... 10,236,694
-------------
12,108,719
-------------
Shoe Manufacturing (0.0%)
24,300 Global Sports, Inc.* ................. 431,325
-------------
TOTAL COMMON STOCKS
(Identified Cost $352,729,565)........ 1,083,509,665
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (10.7%)
U.S. GOVERNMENT AGENCIES (a) (9.9%)
$ 10,000 Federal Agricultural Mortgage
Corp. 5.65% due 03/16/00 ............. $ 9,976,458
10,000 Federal Agricultural Mortgage
Corp. 5.73% due 03/01/00 ............. 10,000,000
25,000 Federal Home Loan Banks
5.57% due 03/01/00 ................... 25,000,000
25,000 Federal Home Loan Banks
5.62% due 03/10/00 ................... 24,964,875
10,000 Federal Home Loan Mortgage
Corp. 5.63% due 03/07/00 ............. 9,990,617
35,000 Federal National Mortgage Assoc.
5.72% due 03/02/00 ................... 34,994,439
--------------
TOTAL U.S. GOVERNMENT AGENCIES
(Identified Cost $114,926,389)........ 114,926,389
--------------
REPURCHASE AGREEMENT (0.8%)
9,472 The Bank of New York 5.688%
due 03/01/00 (dated 02/29/00;
proceeds $9,473,289) (b)
(Identified Cost $9,471,792).......... 9,471,792
--------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $124,398,181).......... 124,398,181
--------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $477,127,746) (c)......... 104.4 % 1,207,907,846
LIABILITIES IN EXCESS OF OTHER
ASSETS .................................... (4.4) (50,860,847)
---- -------------
NET ASSETS ................................ 100.0 % $1,157,046,999
===== ==============
</TABLE>
- --------------------
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 $9,802,816 U.S. Treasury Bill 5.687% due 06/01/00 valued
at $9,661,263.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $741,656,571 and the
aggregate gross unrealized depreciation is $10,876,471, resulting in net
unrealized appreciation of $730,780,100.
See Notes to Financial Statements
6
<PAGE>
Morgan Stanley Dean Witter Small Cap Growth Fund
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
February 29, 2000
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $477,127,746).................. $1,207,907,846
Receivable for:
Shares of beneficial interest sold ........... 15,714,727
Investments sold ............................. 830,586
Prepaid expenses and other assets ................. 32,367
--------------
TOTAL ASSETS .................................. 1,224,485,526
--------------
LIABILITIES:
Payable for:
Investments purchased ........................ 65,390,694
Investment advisory fee ...................... 781,223
Shares of beneficial interest repurchased..... 762,119
Plan of distribution fee ..................... 405,697
Accrued expenses and other payables ............... 98,794
--------------
TOTAL LIABILITIES ............................. 67,438,527
--------------
NET ASSETS .................................... $1,157,046,999
==============
COMPOSITION OF NET ASSETS:
Paid-in-capital ................................... $ 390,753,791
Net unrealized appreciation ....................... 730,780,100
Accumulated undistributed net realized gain ....... 35,513,108
--------------
NET ASSETS .................................... $1,157,046,999
==============
CLASS A SHARES:
Net Assets ........................................ $36,835,091
Shares Outstanding (unlimited authorized, $.01
par value) ..................................... 587,278
NET ASSET VALUE PER SHARE ..................... $62.72
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset
value) .................................. $66.19
======
CLASS B SHARES:
Net Assets ........................................ $1,069,966,881
Shares Outstanding (unlimited authorized, $.01
par value) ..................................... 17,378,056
NET ASSET VALUE PER SHARE ..................... $61.57
======
CLASS C SHARES:
Net Assets ........................................ $28,674,648
Shares Outstanding (unlimited authorized, $.01
par value) ..................................... 466,999
NET ASSET VALUE PER SHARE ..................... $61.40
======
CLASS D SHARES:
Net Assets ........................................ $21,570,379
Shares Outstanding (unlimited authorized, $.01
par value) ..................................... 341,788
NET ASSET VALUE PER SHARE ..................... $63.11
======
</TABLE>
STATEMENT OF OPERATIONS
For the year ended February 29, 2000
<TABLE>
<S> <C>
NET INVESTMENT LOSS:
INTEREST INCOME ................................... $ 1,379,205
------------
EXPENSES
Plan of distribution fee (Class A shares) ......... 22,517
Plan of distribution fee (Class B shares) ......... 3,301,845
Plan of distribution fee (Class C shares) ......... 79,576
Investment management fee ......................... 4,020,625
Management fee .................................... 675,182
Transfer agent fees and expenses .................. 500,433
Investment advisory fee ........................... 450,121
Shareholder reports and notices ................... 195,447
Registration fees ................................. 95,230
Professional fees ................................. 67,242
Custodian fees .................................... 44,072
Trustees' fees and expenses ....................... 16,564
Other ............................................. 17,399
------------
TOTAL EXPENSES ................................ 9,486,253
------------
NET INVESTMENT LOSS ........................... (8,107,048)
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ................................. 78,386,411
Net change in unrealized appreciation ............. 586,436,265
------------
NET GAIN ...................................... 664,822,676
------------
NET INCREASE ...................................... $656,715,628
============
</TABLE>
See Notes to Financial Statements
7
<PAGE>
Morgan Stanley Dean Witter Small Cap Growth Fund
Financial Statements, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 29, 2000 FEBRUARY 28, 1999
------------------- ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss .................................. $ (8,107,048) $ (6,603,169)
Net realized gain .................................... 78,386,411 12,853,310
Net change in unrealized appreciation ................ 586,436,265 18,442,746
-------------- ------------
NET INCREASE ...................................... 656,715,628 24,692,887
-------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN:
Class A shares ....................................... (866,302) -
Class B shares ....................................... (42,219,798) -
Class C shares ....................................... (700,263) -
Class D shares ....................................... (241,781) -
-------------- ------------
TOTAL DISTRIBUTIONS ............................... (44,028,144) -
-------------- ------------
Net increase (decrease) from transactions in shares of
beneficial interest ................................ 216,745,881 (38,954,929)
-------------- ------------
NET INCREASE (DECREASE) ........................... 829,433,365 (14,262,042)
NET ASSETS:
Beginning of period .................................. 327,613,634 341,875,676
-------------- ------------
END OF PERIOD ..................................... $1,157,046,999 $327,613,634
============== ============
</TABLE>
See Notes to Financial Statements
8
<PAGE>
Morgan Stanley Dean Witter Small Cap Growth Fund
Notes to Financial Statements February 29, 2000
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Small Cap Growth Fund (the "Fund"), formerly TCW/DW
Small Cap Growth 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 security listed or traded on the
New York or American or other domestic or foreign stock exchange is valued at
its latest sale price on that exchange prior to the time when assets are
valued; if there were no sales that day, the security is valued at the latest
bid price (in cases where securities are traded on more than one exchange, the
securities are valued on the exchange designated as the primary market pursuant
to procedures adopted by the Trustees); (2) all other portfolio securities for
which over-the-counter market quotations are readily available are valued at
the latest available bid price prior to the time of valuation; (3) when market
quotations are not readily available, including circumstances under which it is
determined by 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 or an appropriate matrix utilizing
similar factors); and (4) short-term debt securities having a maturity date of
9
<PAGE>
Morgan Stanley Dean Witter Small Cap Growth Fund
Notes to Financial Statements February 29, 2000, continued
more than sixty days at time of purchase are valued on a mark-to-market basis
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity date
of sixty days or less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS - Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS - Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date
such items are recognized. Distribution fees are charged directly to the
respective class.
D. FEDERAL INCOME TAX STATUS - It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which
may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS
Pursuant to a new Investment Management Agreement that took effect June 28,
1999, the Fund pays the Investment Manager an investment management fee,
accrued daily and payable monthly, by applying the annual rate of 1.0% to the
net assets of the Fund determined as of the close of each business day.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
10
<PAGE>
Morgan Stanley Dean Witter Small Cap Growth Fund
Notes to Financial Statements February 29, 2000, continued
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services,
heat, light, power and other utilities provided to the Fund.
Under a new Sub-Advisory Agreement that took effect June 28, 1999 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.
Prior to June 28, 1999, pursuant to a Management Agreement with Morgan Stanley
Dean Witter Services Company Inc. (the "Former Manager"), the Fund paid the
Former Manager a management fee, accrued daily and payable monthly, by applying
the annual rate of 0.60% to the net assets of the Fund determined as of the
close of each business day.
Under the terms of the Management Agreement, the Manager maintained certain of
the Fund's books and records and furnished, at its own expense, office space,
facilities, equipment, clerical, bookkeeping and certain legal services and
paid the salaries of all personnel, including officers of the Fund who were
employees of the Manager. The Manager also bore the cost of telephone services,
heat, light, power and other utilities provided to the Fund.
Prior to June 28, 1999, pursuant to an Investment Advisory Agreement with the
current Sub-Advisor, the Fund paid an investment advisory fee, accrued daily
and payable monthly, by applying the annual rate of 0.40% to the net assets of
the Fund determined as of the close of each business day.
Under the terms of the Investment Advisory Agreement, the Fund had retained the
current Sub-Advisor to invest the Fund's assets, including placing orders for
the purchase and sale of portfolio securities. The current Sub-Advisor obtained
and evaluated such information and advice relating to the economy, securities
markets, and specific securities as it considered necessary or useful to
continuously manage the assets of the Fund in a manner consistent with its
investment objective. In addition, the current Sub-Advisor paid the salaries of
all personnel, including officers of the Fund, who were employees of the
current Sub-Advisor.
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
11
<PAGE>
Morgan Stanley Dean Witter Small Cap Growth Fund
Notes to Financial Statements February 29, 2000, continued
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 A shares, amounts paid under the Plan are paid to
the Distributor for services provided. In the case of Class B and Class C
shares, amounts paid under the Plan are paid to the Distributor for (1)
services provided and the expenses borne by it and others in the distribution
of the shares of these Classes, including the payment of commissions for sales
of these Classes and incentive compensation to, and expenses of, Morgan Stanley
Dean Witter Financial Advisors, and others who engage in or support
distribution of the shares or who service shareholder accounts, including
overhead and telephone expenses; (2) printing and distribution of prospectuses
and reports used in connection with the offering of these shares to other than
current shareholders; and (3) preparation, printing and distribution of sales
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 $17,199,042 at February 29, 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, 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
12
<PAGE>
Morgan Stanley Dean Witter Small Cap Growth Fund
Notes to Financial Statements February 29, 2000, continued
broker-dealer representatives may be reimbursed in the subsequent calendar
year. For the year ended February 29, 2000, the distribution fee was accrued
for Class A shares and Class C shares at the annual rate of 0.22% and 1.0%,
respectively.
The Distributor has informed the Fund that for the year ended February 29, 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 $1,000, $630,665
and $12,466, respectively and received $115,625 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 February 29, 2000
aggregated $399,373,349 and $298,448,837, respectively.
For the year ended February 29, 2000, the Fund incurred brokerage commissions
of $11,453 with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager and Distributor, for portfolio transactions executed on behalf of the
Fund.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager
and Distributor, is the Fund's transfer agent.
13
<PAGE>
Morgan Stanley Dean Witter Small Cap Growth Fund
Notes to Financial Statements February 29, 2000, continued
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
FEBRUARY 29, 2000 FEBRUARY 28, 1999
---------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold ...................................... 766,650 $ 31,657,246 116,536 $ 2,511,381
Reinvestment of distributions ............. 15,880 681,495 - -
Redeemed .................................. (301,186) (11,411,879) (23,647) (450,535)
-------- -------------- ------- --------------
Net increase - Class A .................... 481,344 20,926,862 92,889 2,060,846
-------- -------------- ------- --------------
CLASS B SHARES
Sold ...................................... 6,818,323 290,417,722 4,486,194 90,833,133
Reinvestment of distributions ............. 1,001,566 39,002,595 - -
Redeemed .................................. (4,560,472) (164,702,676) (6,527,001) (133,486,471)
---------- -------------- ---------- --------------
Net increase (decrease) - Class B ......... 3,259,417 164,717,641 (2,040,807) (42,653,338)
---------- -------------- ---------- --------------
CLASS C SHARES
Sold ...................................... 448,998 19,262,241 108,755 2,343,245
Reinvestment of distributions ............. 15,410 636,670 - -
Redeemed .................................. (113,941) (4,688,431) (35,976) (705,682)
---------- -------------- ---------- --------------
Net increase - Class C .................... 350,467 15,210,480 72,779 1,637,563
---------- -------------- ---------- --------------
CLASS D SHARES
Sold ...................................... 839,942 38,399,999 - -
Reinvestment of distributions ............. 4,367 205,983 - -
Redeemed .................................. (503,074) (22,715,084) - -
---------- -------------- ---------- --------------
Net increase - Class D .................... 341,235 15,890,898 - -
---------- -------------- ---------- --------------
Net increase (decrease) in Fund ........... 4,432,463 $ 216,745,881 (1,875,139) $ (38,954,929)
========== ============== ========== ==============
</TABLE>
6. FEDERAL INCOME TAX STATUS
As of February 29, 2000, the Fund had permanent book/tax differences
attributable to a net operating loss. To reflect reclassifications arising from
these differences, accumulated undistributed net realized gain was charged and
net investment loss was credited $8,107,048.
14
<PAGE>
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 YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
FEBRUARY 29, 2000 FEBRUARY 28, 1999 FEBRUARY 28, 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A SHARES#
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $ 23.13 $ 21.18 $ 18.12
------- ------- -------
Income (loss) from investment operations:
Net investment loss .............................. (0.41) (0.29) (0.15)
Net realized and unrealized gain ................. 42.93 2.24 3.21
------- ------- -------
Total income from investment operations ........... 42.52 1.95 3.06
------- ------- -------
Less distributions from net realized gain ......... (2.93) - -
------- ------- -------
Net asset value, end of period .................... $ 62.72 $ 23.13 $ 21.18
======= ======= =======
TOTAL RETURN+ ..................................... 191.77 % 9.21 % 16.89 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.40 %(3) 1.50 %(3) 1.52 %(2)
Net investment loss ............................... (1.13)%(3) (1.40)%(3) (1.32)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $36,835 $2,450 $276
Portfolio turnover rate ........................... 59 % 51 % 61 %(1)
</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>
Morgan Stanley Dean Witter Small Cap Growth Fund
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 28,
------------------------------------------------------------------------
2000*# 1999# 1998**# 1997 1996*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................. $22.84 $21.08 $15.73 $16.24 $ 9.90
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss ................................. (0.55) (0.43) (0.37) (0.26) (0.19)
Net realized and unrealized gain (loss) ............. 42.21 2.19 5.72 (0.25) 6.53
------ ------ ------ ------ ------
Total income (loss) from investment operations ....... 41.66 1.76 5.35 (0.51) 6.34
------ ------ ------ ------ ------
Less distributions from net realized gain ............ ( 2.93) - - - -
------ ------ ------ ------ ------
Net asset value, end of period ....................... $61.57 $22.84 $21.08 $15.73 $16.24
====== ====== ====== ====== ======
TOTAL RETURN+ ........................................ 190.41 % 8.35 % 34.01 % (3.14) % 64.04 %
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................. 1.85 %(1) 2.18 %(1) 2.25 % 2.15 % 2.32 %
Net investment loss .................................. (1.58)%(1) (2.08)%(1) (2.05)% (1.70)% (1.75)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .............. $1,069,967 $322,489 $340,665 $268,783 $153,366
Portfolio turnover rate .............................. 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) Reflects overall Fund ratios for investment income and non-class specific
expenses.
See Notes to Financial Statements
16
<PAGE>
Morgan Stanley Dean Witter Small Cap Growth Fund
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
FEBRUARY 29, 2000 FEBRUARY 28, 1999 FEBRUARY 28, 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS C SHARES#
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $22.85 $21.08 $18.12
------ ------ ------
Income (loss) from investment operations:
Net investment loss .............................. (0.70) (0.45) (0.24)
Net realized and unrealized gain ................. 42.18 2.22 3.20
------ ------ ------
Total income from investment operations ........... 41.48 1.77 2.96
------ ------ ------
Less distributions from net realized gain ......... (2.93) - -
------ ------ ------
Net asset value, end of period .................... $61.40 $22.85 $21.08
====== ====== ======
TOTAL RETURN+ ..................................... 189.51 % 8.35 % 16.39 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 2.18 %(3) 2.26 %(3) 2.29 %(2)
Net investment loss ............................... (1.91)%(3) (2.16)%(3) (2.10)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $28,675 $2,662 $923
Portfolio turnover rate ........................... 59 % 51 % 61 %(1)
</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>
Morgan Stanley Dean Witter Small Cap Growth Fund
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
FEBRUARY 29, 2000 FEBRUARY 28, 1999 FEBRUARY 28, 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS D SHARES#
SELECTED PER SHARE DATA:
Net asset value, beginning of period .............. $23.20 $21.21 $18.12
------ ------ ------
Income (loss) from investment operations:
Net investment loss .............................. (0.35) (0.24) (0.12)
Net realized and unrealized gain ................. 43.19 2.23 3.21
------ ------ ------
Total income from investment operations ........... 42.84 1.99 3.09
------ ------ ------
Less distributions from net realized gain ......... (2.93) - -
------ ------ ------
Net asset value, end of period .................... $63.11 $23.20 $21.21
====== ====== ======
TOTAL RETURN+ ..................................... 192.59 % 9.38 % 17.05 %(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .......................................... 1.18 %(3) 1.26 %(3) 1.27 %(2)
Net investment loss ............................... (0.91)%(3) (1.16)%(3) (1.10)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ........... $21,570 $13 $12
Portfolio turnover rate ........................... 59 % 51 % 61 %(1)
</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>
Morgan Stanley Dean Witter Small Cap Growth Fund
Report of Independent Accountants
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER SMALL 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 Small
Cap Growth Fund (the "Fund"), formerly TCW/DW Small Cap Growth Fund, at
February 29, 2000, 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 indicated, in conformity
with accounting principles generally accepted in the United States. 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 auditing standards generally accepted in the United States, 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 February 29, 2000 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
April 14, 2000
-------------------------------------------------------------------------
2000 FEDERAL TAX NOTICE (unaudited)
During the year ended February 29, 2000, the Fund paid shareholders $2.93
per share from long-term capital gains.
-------------------------------------------------------------------------
19
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
Christopher J. Ainley
Vice President
Charles Larsen
Vice President
Douglas S. Foreman
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
SUB-ADVISOR
TCW Investment Management Company
865 South Figueroa Street, Suite 1800
Los Angeles, CA 90017
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
SMALL CAP
GROWTH FUND
[GRAPHIC OMITTED]
ANNUAL REPORT
FEBRUARY 29, 2000
