<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND TWO WORLD TRADE CENTER, NEW YORK, NEW
YORK 10048
LETTER TO THE SHAREHOLDERS MAY 31, 1996
DEAR SHAREHOLDER:
The six-month period ended May 31, 1996 was outstanding for small-capitalization
stocks. The equity markets, in general, benefited from heavy capital inflows
during the period and experienced multiple expansion across the board as
investors were attracted to the small-cap arena by low interest rates and
moderate growth.
Against this favorable backdrop, Dean Witter Capital Appreciation Fund posted a
total return of 34.28 percent for the six-month period ended May 31, 1996,
compared to a return of 17.39 percent for the NASDAQ Composite Index and a
return of 11.77 percent for the Standard & Poor's 500 Composite Stock Price
Index.
The Fund's performance was fueled by its broad exposure to small-cap stocks in
the $5 to $25 price range that exhibit sound fundamentals, solid earnings
momentum, financial stability and strong management. In addition, the Fund
benefited from the strong performance of small- and mid-cap stocks in April and
May.
PORTFOLIO COMPOSITION
The Fund follows a flexible management style that allows it to seek investment
opportunities wherever they may lie. As such, the Fund is well diversified among
many different industries. The Fund has a significant exposure in retail, which
accounts for 7.7 percent of the portfolio. After several years of
underperformance, the retail sector has come back into favor. Store closings,
reductions in inventories and increasing same-store sales have all contributed
to this turnaround. Among the Fund's key retail holdings are Charming Shoppes,
Inc., Mossimo, Inc., Designer Holdings Ltd. and Claire's Stores, Inc.
Approximately 18 percent of the Fund is invested in medical holdings. Within
this broad sector, biotechnology has been especially dynamic. More clinical
trials are currently going on than ever before and the FDA has become more
expedient and responsive to the industry's needs. In addition, many
biotechnology companies have formed alliances with
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
LETTER TO THE SHAREHOLDERS MAY 31, 1996, CONTINUED
major pharmaceutical companies and have become likely take-out candidates. Key
holdings in this area include Curative Technologies, Inc. and Cytotherapeutics,
Inc.
At the end of the period under review, the Fund maintains a significant exposure
to the energy sector. Typically, these stocks have been very cyclical as
investors bought in the fall and sold in the spring. Recently, however, we have
seen inventories reach new lows, day rates in the Gulf rise and many stocks
break out of their 15-year trading ranges. Among the Fund's energy holdings are
Diamond Offshore Drilling, Inc., ENSCO International, Inc. and Marine Drilling
Company, Inc.
The Fund's technology exposure, at approximately 35 percent of net assets, is
well diversified among a wide variety of subsectors, including
telecommunications and software.
LOOKING AHEAD
For the remainder of 1996, we anticipate that overall earnings growth for
equities in general will be lower than 1995 levels, despite a stronger economy.
Despite the stronger economy, the recent rise in commodity prices and the
anticipation for higher employee costs, our inflationary projection for 1996 as
a whole remains at 3.0 percent, slightly higher than in 1995. We expect some
increases in interest rates as 1996 plays out, which should slow growth in
consumer spending and capital investment. Monetary tightening by the Federal
Reserve Board also remains a possibility during the second half of 1996.
Despite some short-term market volatility, we believe that small- and mid-cap
stocks continue to present compelling investment opportunities for long-term
investors. As such, we feel the Fund is well positioned to provide competitive
returns over the long term.
We appreciate your support of Dean Witter Capital Appreciation Fund and look
forward to continuing to serve your investment needs and objectives.
Very truly yours,
[SIGNATURE]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (97.4%)
ADVERTISING (0.7%)
4,500 Eagle River Interactive, Inc.*......... $ 93,375
30,000 Ha Lo Industries, Inc.*................ 1,035,000
30,000 National Media Corp.*.................. 558,750
3,000 Outdoor Systems, Inc.*................. 96,000
---------------
1,783,125
---------------
AEROSPACE & DEFENSE (0.2%)
40,000 Base Ten Systems, Inc. (Class A)*...... 500,000
---------------
AUTO PARTS (0.4%)
30,000 Boyds Wheels, Inc.*.................... 303,750
30,000 Tower Automotive, Inc.*................ 716,250
---------------
1,020,000
---------------
BANKS (0.4%)
40,000 Cole Taylor Financial Group, Inc....... 1,060,000
---------------
BIOTECHNOLOGY (4.6%)
1,500 Aksys, Ltd.*........................... 24,750
40,000 Centocor, Inc.*........................ 1,405,000
70,000 Cytotherapeutics, Inc.*................ 848,750
50,000 Genzyme Corp.*......................... 625,000
10,000 Gilead Sciences, Inc.*................. 345,000
100,000 Guilford Pharmaceuticals, Inc.*........ 3,400,000
60,000 Interneuron Pharmaceuticals, Inc.*..... 2,325,000
40,000 Liposome Company, Inc.*................ 800,000
100,000 Medarex, Inc.*......................... 1,000,000
70,000 Sequus Pharmaceuticals, Inc.*.......... 1,487,500
---------------
12,261,000
---------------
BROADCAST MEDIA (0.4%)
50,000 All American Communications, Inc.
(Class B)*............................. 425,000
100,000 Valuevision International, Inc. (Class
A)*.................................... 706,250
---------------
1,131,250
---------------
BUILDING MATERIALS (0.7%)
40,000 NCI Building Systems, Inc.*............ 1,340,000
50,000 Universal Forest Products, Inc......... 525,000
---------------
1,865,000
---------------
BUSINESS SERVICES (0.1%)
12,000 AccuStaff, Inc.*....................... 378,000
---------------
BUSINESS SYSTEMS (0.5%)
45,000 American Management Systems, Inc.*..... 1,282,500
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
<C> <S> <C>
COMMERCIAL SERVICES (6.2%)
50,000 ABR Information Services, Inc.*........ $ 3,100,000
16,000 Career Horizons, Inc.*................. 634,000
20,000 Caribiner International, Inc.*......... 635,000
70,000 Childrens Comprehensive Service,
Inc.*.................................. 1,566,250
50,000 Employee Solutions, Inc.*.............. 1,575,000
25,000 FYI Inc.*.............................. 512,500
25,000 Learning Tree International, Inc.*..... 743,750
80,000 National Education Corp.*.............. 1,490,000
40,000 Nobel Education Dynamics*.............. 685,000
40,000 Prepaid Legal Services, Inc.*.......... 835,000
30,000 Profit Recovery Group International,
Inc.*.................................. 600,000
30,000 Romac International, Inc.*............. 840,000
30,000 SCB Computer Technology, Inc.*......... 622,500
21,000 Superior Services, Inc.*............... 357,000
20,000 Vincam Group, Inc.*.................... 555,000
30,000 Whittman-Hart, Inc.*................... 1,125,000
30,000 Youth Services International, Inc.*.... 780,000
---------------
16,656,000
---------------
COMMUNICATIONS - EQUIPMENT & SOFTWARE (0.8%)
80,000 Brite Voice Systems, Inc.*............. 2,020,000
---------------
COMPUTER SOFTWARE (5.4%)
15,000 Adept Technology, Inc.*................ 240,000
65,000 Brooktrout Technology, Inc.*........... 2,908,750
50,000 Ciber, Inc.*........................... 2,262,500
35,000 Fulcrum Technologies, Inc.*............ 1,181,250
70,000 MDL Information Systems, Inc.*......... 2,117,500
30,000 Pri Automation, Inc.*.................. 1,177,500
17,600 Renaissance Solutions, Inc.*........... 624,800
40,000 STB Systems, Inc.*..................... 630,000
70,000 Symantec Corp.*........................ 1,102,500
60,000 Technology Solutions Co.*.............. 2,122,500
---------------
14,367,300
---------------
COMPUTER SOFTWARE & SERVICES (7.4%)
10,000 Advent Software, Inc.*................. 290,000
50,000 Ansoft Corp.*.......................... 412,500
30,000 Applied Microsystems Corp.*............ 491,250
5,000 Arbor Software Corp.*.................. 303,750
60,000 Artisoft Inc.*......................... 615,000
2,900 Aspect Development, Inc.*.............. 87,000
10,000 Axent Technologies, Inc.*.............. 186,250
40,000 Check Technology Corp.*................ 465,000
50,000 Cimatron Ltd.* (Israel)................ 481,250
45,000 Computer Horizons Corp.*............... 2,081,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1996 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
<C> <S> <C>
80,000 Computer Task Group, Inc............... $ 2,270,000
6,000 Cylink Corp.*.......................... 111,000
30,000 DeltaPoint, Inc.*...................... 450,000
1,700 Documentum, Inc.*...................... 73,100
21,400 Engineering Animation, Inc.*........... 460,100
1,000 Forte Software, Inc.*.................. 64,000
20,000 Gensym Corp.*.......................... 445,000
25,500 GT Interactive Software Corp.*......... 529,125
900 I2 Technologies, Inc.*................. 35,775
42,400 IDT Corp.*............................. 519,400
80,000 IKOS Systems, Inc.*.................... 2,280,000
1,700 Individual, Inc.*...................... 33,575
2,800 Indus Group, Inc.*..................... 56,700
40,000 ISG International Software Group Ltd.*
(Israel)............................... 520,000
6,600 JDA Software Group, Inc.*.............. 155,925
30,000 Jetform Corp.*......................... 547,500
40,000 Keane, Inc.*........................... 1,595,000
22,000 Lanvision Systems, Inc.*............... 368,500
22,500 Lycos, Inc.*........................... 343,125
1,800 Mechanical Dynamics, Inc.*............. 31,725
37,000 Meridian Data, Inc.*................... 633,625
31,300 Mindspring Enterprises, Inc.*.......... 379,512
70,000 Nicollet Process Engineering, Inc.*.... 323,750
4,400 Objective Systems Integrators, Inc.*... 196,900
2,400 Open Market, Inc.*..................... 76,200
15,100 Planning Sciences International (ADR)*
(United Kingdom)....................... 388,825
2,250 Raptor Systems, Inc.*.................. 68,625
1,100 Red Brick Systems, Inc.*............... 45,375
6,000 Scopus Technology, Inc.*............... 126,000
3,100 Segue Software, Inc.*.................. 102,300
11,700 SQA, Inc.*............................. 403,650
4,900 Sterling Commerce, Inc.*............... 214,987
2,900 Sykes Enterprises, Inc.*............... 136,300
30,000 Truevision, Inc.*...................... 232,500
4,500 Workgroup Technology Corp.*............ 124,875
5,500 Xeinon NV (ADR)* (Belgium)............. 135,437
---------------
19,891,661
---------------
COMPUTERS (3.7%)
30,000 3D Systems Corp.*...................... 690,000
40,000 Ariel Corp.*........................... 615,000
25,000 Ciprico, Inc.*......................... 550,000
20,000 IDX Systems Corp.*..................... 835,000
100,000 Mylex Corp.*........................... 2,562,500
110,000 NetStar, Inc.*......................... 2,502,500
10,000 Sandisk Corp.*......................... 148,750
32,000 Voice Control Systems, Inc.*........... 412,000
70,000 Wang Laboratories, Inc.*............... 1,487,500
---------------
9,803,250
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
<C> <S> <C>
COMPUTERS - SYSTEMS (0.5%)
30,000 Amdahl Corp.*.......................... $ 352,500
34,600 Quality Systems, Inc.*................. 1,020,700
---------------
1,373,200
---------------
COSMETICS (0.6%)
40,000 Estee Lauder Companies (Class A)....... 1,520,000
1,500 Revlon Inc. (Class A)*................. 47,063
---------------
1,567,063
---------------
DRUGS (0.5%)
50,000 IDEC Pharmaceuticals Corp.*............ 1,287,500
---------------
ELECTRICAL EQUIPMENT (2.8%)
30,000 C.P. Clare Corp.*...................... 630,000
80,000 Conductus, Inc.*....................... 1,140,000
20,000 Data General Corp.*.................... 255,000
110,000 Geotek Communications, Inc.*........... 1,526,250
60,000 Illinois Superconductor Corp.*......... 1,320,000
98,000 JPM Co.*............................... 808,500
40,000 Sheldahl, Inc.*........................ 1,020,000
30,000 Tencor Instruments*.................... 675,000
---------------
7,374,750
---------------
ELECTRONICS (7.0%)
95,000 BI, Inc.*.............................. 1,520,000
50,000 Blonder Tongue Laboratories, Inc.*..... 818,750
40,000 California Micro Devices Corp.*........ 420,000
20,000 Checkpoint Systems, Inc.*.............. 777,500
70,000 Computer Products, Inc.*............... 1,417,500
60,000 Galileo Electro-Optics Corp.*.......... 1,710,000
30,000 Lattice Semiconductor Corp.*........... 1,038,750
40,000 LTX Corp.*............................. 425,000
60,000 Oak Industries, Inc.*.................. 1,875,000
60,000 Perceptron, Inc.*...................... 2,160,000
40,000 Powell Industries, Inc.*............... 450,000
30,000 SAES Getters SpA (ADR)* (Italy)........ 562,500
1,700 Sawtek, Inc.*.......................... 46,325
20,000 Sipex Corp.*........................... 350,000
55,000 ThermoQuest Corp.*..................... 886,875
30,000 Trident International, Inc.*........... 675,000
24,000 Ultrak, Inc.*.......................... 459,000
31,500 Vishay Intertechnology, Inc.*.......... 870,188
80,000 Vitesse Semiconductors Corp.*.......... 2,240,000
---------------
18,702,388
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1996 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
<C> <S> <C>
ELECTRONICS - SEMICONDUCTORS (1.5%)
100,000 Etec Systems, Inc.*.................... $ 3,450,000
30,000 Mosaid Technologies, Inc.* (Canada).... 677,186
---------------
4,127,186
---------------
ENTERTAINMENT (1.0%)
60,000 Bally Entertainment Corp.*............. 1,440,000
120,000 Iwerks Entertainment, Inc.*............ 1,230,000
1,300 Penske Motorsports, Inc.*.............. 37,700
---------------
2,707,700
---------------
ENVIRONMENTAL CONTROL (1.6%)
60,000 ATC Environmental, Inc.*............... 915,000
50,000 GTS Duratek, Inc.*..................... 850,000
60,000 Tetra Tech, Inc.*...................... 1,245,000
40,000 U.S.A. Waste Services, Inc.*........... 1,180,000
---------------
4,190,000
---------------
FINANCIAL SERVICES (0.5%)
60,000 First Financial Caribbean Corp......... 1,260,000
800 First USA Paymentech, Inc.*............ 37,100
---------------
1,297,100
---------------
FOOD SERVICES (0.7%)
107,500 BAB Holdings, Inc.*.................... 913,750
40,000 Daka International, Inc.*.............. 990,000
---------------
1,903,750
---------------
FOOD WHOLESALERS (0.4%)
40,000 Northland Cranberries, Inc. (Class
A)..................................... 1,100,000
---------------
HEALTH EQUIPMENT & SERVICES (0.1%)
30,000 Matria Healthcare, Inc.*............... 251,250
---------------
HOSPITAL MANAGEMENT (2.5%)
40,000 Apria Healthcare Group, Inc.*.......... 1,170,000
50,000 Emeritus Corp.*........................ 1,012,500
30,000 FPA Medical Management, Inc.*.......... 528,750
55,000 Medcath, Inc.*......................... 2,062,500
30,000 Pediatrix Medical Group, Inc.*......... 1,860,000
---------------
6,633,750
---------------
HOTELS/MOTELS (1.3%)
15,000 Bristol Hotel Co.*..................... 429,375
25,000 Extended Stay America, Inc.*........... 781,250
40,000 La Quinta Inns, Inc.................... 1,260,000
4,900 Suburban Lodges of America, Inc.*...... 120,050
20,000 Sun International Hotels Ltd.*......... 1,010,000
---------------
3,600,675
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
<C> <S> <C>
HOUSEHOLD APPLIANCES (0.2%)
30,000 Falcon Products, Inc................... $ 498,750
---------------
INSURANCE (1.0%)
35,000 Capmac Holdings, Inc................... 966,875
60,000 Delphi Financial Group, Inc. (Class
A)*.................................... 1,650,000
3,000 RISCORP, Inc. (Class A)*............... 65,625
---------------
2,682,500
---------------
LEISURE TIME / EQUIPMENT (0.3%)
30,000 Coastcast Corp.*....................... 768,750
---------------
MACHINERY (1.0%)
35,000 Ade Corp.*............................. 665,000
30,000 Computational Systems, Inc.*........... 637,500
40,000 Micrion Corp.*......................... 1,420,000
---------------
2,722,500
---------------
MANUFACTURED HOUSING (1.0%)
40,000 Belmont Homes, Inc.*................... 900,000
80,000 Cavalier Homes, Inc.................... 1,870,000
---------------
2,770,000
---------------
MANUFACTURING (1.0%)
60,000 Ballantyne of Omaha, Inc.*............. 1,020,000
50,000 NN Ball & Roller, Inc.................. 1,137,500
40,000 Thermo Sentron, Inc.*.................. 615,000
---------------
2,772,500
---------------
MEDICAL PRODUCTS & SUPPLIES (7.7%)
50,000 Angeion Corp.*......................... 475,000
40,000 Bio-Vascular, Inc.*.................... 350,000
60,000 Capstone Pharmacy Services*............ 600,000
30,000 Clintrials Research, Inc.*............. 1,432,500
50,000 Cryolife, Inc.*........................ 1,737,500
100,000 Fischer Imaging Corp.*................. 1,300,000
60,000 InStent, Inc.*......................... 1,275,000
120,000 Med-Design Corp.*...................... 2,460,000
100,000 NABI, Inc.*............................ 1,350,000
40,000 Norland Medical Systems, Inc.*......... 1,240,000
70,000 Optical Coating Laboratory, Inc........ 1,216,250
70,000 PLC Systems, Inc.* (Canada)............ 1,802,500
60,000 Sano Corp.*............................ 1,005,000
40,000 Sofamor Danek Group, Inc.*............. 1,430,000
60,000 Thermolase Corp.*...................... 1,785,000
3,000 VISX, Inc.*............................ 96,750
40,000 Vivus, Inc.*........................... 1,180,000
---------------
20,735,500
---------------
MEDICAL SERVICES (0.2%)
50,000 Transcend Services, Inc.*.............. 537,500
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1996 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
<C> <S> <C>
METALS & MINING (1.0%)
50,000 Arequipa Resources Ltd.* (Canada)...... $ 1,090,291
60,000 U.S. Energy Corp.*..................... 1,215,000
33,500 United States Lime & Minerals, Inc..... 402,000
---------------
2,707,291
---------------
MISCELLANEOUS (2.9%)
60,000 Control Data Systems, Inc.*............ 1,485,000
50,000 Deckers Outdoor Corp.*................. 431,250
50,000 DST Systems, Inc.*..................... 1,743,750
5,200 Garden Botanika, Inc.*................. 139,100
60,000 Horsham Corp. (Canada)................. 892,500
30,000 On Assignment, Inc.*................... 1,177,500
30,000 Penn Treaty American Corp.*............ 570,000
30,000 Tollgrade Communications, Inc.*........ 712,500
30,000 Vans, Inc.*............................ 596,250
---------------
7,747,850
---------------
OFFICE EQUIPMENT (0.3%)
60,000 Kentek Information Systems, Inc.*...... 705,000
---------------
OFFSHORE DRILLING (2.3%)
40,000 Diamond Offshore Drilling, Inc.*....... 1,915,000
70,000 Reading & Bates Corp.*................. 1,540,000
40,000 Rowan Companies, Inc.*................. 605,000
50,000 Tidewater, Inc......................... 2,062,500
---------------
6,122,500
---------------
OIL & GAS (1.6%)
100,000 Basin Exploration, Inc.*............... 562,500
50,000 Comstock Resources Inc.*............... 381,250
2,200 GeoScience Corp.*...................... 43,450
30,000 Marine Drilling Company, Inc.*......... 300,000
40,000 Noble Drilling Corp.*.................. 535,000
60,000 Nova Corp. (Canada).................... 576,375
60,000 St. Mary Land & Exploration Co......... 1,035,000
30,000 Swift Energy Co.*...................... 536,250
60,000 Zydeco Energy, Inc.*................... 405,000
---------------
4,374,825
---------------
OIL EQUIPMENT & SERVICES (2.6%)
25,000 Carbo Ceramics, Inc.*.................. 587,500
50,000 ENSCO International, Inc.*............. 1,518,750
30,000 Global Industries Ltd.*................ 930,000
40,000 Oceaneering International, Inc.*....... 660,000
70,000 Pride Petroleum Services, Inc.*........ 1,207,500
40,000 Smith International, Inc.*............. 1,260,000
50,000 Varco International Inc.*.............. 831,250
---------------
6,995,000
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
<C> <S> <C>
PERSONAL PRODUCTS (0.2%)
30,000 National Dentex Corp.*................. $ 660,000
---------------
PHARMACEUTICALS (3.4%)
30,000 Alkermes, Inc.*........................ 465,000
30,000 Alliance Pharmaceutical Corp.*......... 641,250
35,000 Chirex, Inc.*.......................... 441,875
30,000 Curative Technologies, Inc.*........... 772,500
100,000 Cytel Corp.*........................... 775,000
30,000 ERGO Science Corp.*.................... 600,000
25,000 Houghten Pharmaceuticals, Inc.*........ 237,500
40,000 ICOS Corp.*............................ 355,000
50,000 La Jolla Pharmaceutical Co.*........... 343,750
30,000 Magainin Pharmaceuticals, Inc.*........ 333,750
60,000 North American Vaccine, Inc.*.......... 1,357,500
30,000 PathoGenesis Corp.*.................... 495,000
60,000 SangStat Medical Corp.*................ 1,192,500
50,000 Vical, Inc.*........................... 956,250
---------------
8,966,875
---------------
RESTAURANTS (2.1%)
30,000 Applebee's International, Inc.......... 840,000
30,000 CKE Restaurants, Inc................... 693,750
60,000 Cracker Barrell Old Country Stores,
Inc.................................... 1,575,000
30,000 Garden Fresh Restaurant Corp.*......... 273,750
30,000 Mortons Restaurant Group Inc.*......... 540,000
2,700 Planet Hollywood International, Inc.
(Class A)*............................. 71,550
40,000 Quality Dining, Inc.*.................. 1,310,000
30,000 Silver Diner Developments, Inc.*....... 187,500
---------------
5,491,550
---------------
RETAIL (2.1%)
12,200 99 Cents Only Stores*.................. 187,575
30,000 Buckle, Inc.*.......................... 1,072,500
30,000 Cato Corp. (Class A)................... 225,000
40,000 Claire's Stores, Inc................... 1,000,000
5,600 Cost Plus Inc.*........................ 148,400
2,300 Loehmann's, Inc.*...................... 58,075
30,000 Ross Stores, Inc....................... 1,170,000
70,000 Tuesday Morning Corp.*................. 910,000
40,000 Zale Corp.*............................ 770,000
---------------
5,541,550
---------------
RETAIL - DEPARTMENT STORES (0.5%)
30,000 Dollar Tree Stores, Inc.*.............. 1,260,000
---------------
RETAIL - SPECIALTY (3.8%)
30,000 Brookstone, Inc.*...................... 330,000
50,000 Charming Shoppes, Inc.................. 396,875
40,000 Chico's Fas, Inc.*..................... 400,000
35,000 Cole National Corp. (Class A)*......... 708,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1996 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
<C> <S> <C>
63,600 Consolidated Stores Corp.*............. $ 2,408,850
30,000 Corporate Express, Inc.*............... 1,256,250
100,000 Intelligent Electronics, Inc........... 962,500
60,000 J. Baker, Inc.......................... 577,500
60,000 Orchard Supply Hardware Stores
Corp.*................................. 1,717,500
40,000 TJX Companies, Inc..................... 1,410,000
---------------
10,168,225
---------------
STEEL & IRON (1.2%)
40,000 Gibraltar Steel Corp.*................. 830,000
45,000 Olympic Steel, Inc.*................... 815,625
40,000 Shiloh Industries, Inc.*............... 625,000
100,000 UNR Industries, Inc.................... 962,500
---------------
3,233,125
---------------
TELECOMMUNICATION EQUIPMENT (3.7%)
30,000 Coherent Communications Systems
Corp.*................................. 787,500
115,000 Davox Corp.*........................... 3,392,500
30,000 Digital Systems International, Inc.*... 652,500
15,000 Natural Microsystems Corp.*............ 555,000
30,000 P-COM, Inc.*........................... 892,500
1,500 Polycom, Inc.*......................... 12,750
25,000 Spectralink Corp.*..................... 287,500
21,000 Teklogix International, Inc.*
(Canada)............................... 210,936
1,875 United States Satellite Broadcasting
Company, Inc.*......................... 64,688
40,000 Westell Technologies, Inc. (Class
A)*.................................... 3,060,000
---------------
9,915,874
---------------
TELECOMMUNICATIONS (3.4%)
30,000 ACC TelEnterprises Ltd.* (Canada)...... 262,985
50,000 General DataComm Industries, Inc.*..... 793,750
100,000 IntelCom Group, Inc.*.................. 2,650,000
3,200 Premiere Technologies, Inc.*........... 148,800
20,000 ProNet, Inc.*.......................... 500,000
90,000 Proxim, Inc.*.......................... 3,690,000
50,000 Tel-Save Holdings, Inc.*............... 1,075,000
---------------
9,120,535
---------------
TEXTILES (1.3%)
30,000 Cutter & Buck, Inc.*................... 427,500
20,000 Designer Holdings Ltd.*................ 615,000
30,000 Mossimo, Inc.*......................... 1,470,000
70,000 Sport-Haley Inc.*...................... 1,015,000
---------------
3,527,500
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------
<C> <S> <C>
TRANSPORTATION (0.0%)
5,800 Trico Marine Service, Inc.*............ $ 129,050
---------------
UTILITIES - ELECTRIC (0.1%)
40,000 York Research Corp.*................... 385,000
---------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $200,695,122)......... 260,675,148
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ---------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (4.4%)
U.S. GOVERNMENT AGENCY (a) (3.8%)
$ 10,000 Federal Home Loan Mortgage Corp. 5.30%
due 06/03/96 (Amortized Cost
$9,997,056)............................ 9,997,056
---------------
REPURCHASE AGREEMENT (0.6%)
1,682 The Bank of New York 5.25% due 06/03/96
(dated 05/31/96; proceeds $1,682,720;
collateralized by $1,643,005 U.S.
Treasury Bond 7.50% due 11/15/16 valued
at $1,715,624) (Identified Cost
$1,681,984)............................ 1,681,984
---------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $11,679,040).......... 11,679,040
---------------
TOTAL INVESTMENTS
(IDENTIFIED COST
$212,374,162) (B)........... 101.8% 272,354,188
LIABILITIES IN EXCESS OF
OTHER ASSETS................ (1.8) (4,722,988)
----- ------------
NET ASSETS.................. 100.0% $267,631,200
----- ------------
----- ------------
<FN>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes is $212,374,162; the
aggregate gross unrealized appreciation is $62,895,082 and the aggregate
gross unrealized depreciation is $2,915,056, resulting in net unrealized
appreciation of $59,980,026.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $212,374,162)............................ $272,354,188
Receivable for:
Shares of beneficial interest sold...................... 4,493,502
Investments sold........................................ 1,083,978
Dividends............................................... 23,138
Deferred organizational expenses............................ 154,968
Prepaid expenses and other assets........................... 28,208
------------
TOTAL ASSETS........................................... 278,137,982
------------
LIABILITIES:
Payable for:
Investments purchased................................... 8,869,512
Shares of beneficial interest repurchased............... 1,215,134
Plan of distribution fee................................ 166,796
Investment management fee............................... 148,409
Accrued expenses............................................ 106,931
------------
TOTAL LIABILITIES...................................... 10,506,782
------------
NET ASSETS:
Paid-in-capital............................................. 212,798,547
Net unrealized appreciation................................. 59,980,026
Net investment loss......................................... (1,302,710)
Accumulated net realized loss............................... (3,844,663)
------------
NET ASSETS............................................. $267,631,200
------------
------------
NET ASSET VALUE PER SHARE,
18,917,367 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$14.15
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest.................................................... $ 99,906
Dividends (net of $1,791 foreign withholding tax)........... 88,283
-----------
TOTAL INCOME........................................... 188,189
-----------
EXPENSES
Plan of distribution fee.................................... 675,730
Investment management fee................................... 564,801
Transfer agent fees and expenses............................ 119,580
Registration fees........................................... 49,069
Professional fees........................................... 28,924
Shareholder reports and notices............................. 19,043
Organizational expenses..................................... 17,160
Trustees' fees and expenses................................. 9,363
Custodian fees.............................................. 6,591
Other....................................................... 638
-----------
TOTAL EXPENSES......................................... 1,490,899
-----------
NET INVESTMENT LOSS.................................... (1,302,710)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................................... (3,783,643)
Net change in unrealized appreciation....................... 54,986,012
-----------
NET GAIN............................................... 51,202,369
-----------
NET INCREASE................................................ $49,899,659
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE PERIOD
ENDED OCTOBER 27, 1995*
MAY 31, 1996 THROUGH
(UNAUDITED) NOVEMBER 30, 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss......................................... $ (1,302,710) $ (66,087)
Net realized loss........................................... (3,783,643) (61,020)
Net change in unrealized appreciation....................... 54,986,012 4,994,014
------------------ -----------------
NET INCREASE........................................... 49,899,659 4,866,907
Net increase from transactions in shares of beneficial
interest.................................................. 115,723,010 97,041,624
------------------ -----------------
TOTAL INCREASE......................................... 165,622,669 101,908,531
NET ASSETS:
Beginning of period......................................... 102,008,531 100,000
------------------ -----------------
END OF PERIOD
(INCLUDING A NET INVESTMENT LOSS OF $1,302,710 AND $0,
RESPECTIVELY)........................................... $267,631,200 $102,008,531
------------------ -----------------
------------------ -----------------
- ---------------------
* Commencement of operations.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1996 (UNAUDITED)
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Capital Appreciation Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund was organized as a
Massachusetts business trust on July 31, 1995 and had no operations other than
those relating to organizational matters and the issuance of 10,000 shares of
beneficial interest for $100,000 to Dean Witter InterCapital Inc. (the
"Investment Manager") to effect the Fund's initial capitalization. The Fund
commenced operations on October 27, 1995.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic 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 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 the Investment Manager that sale
or bid prices are not reflective of a security's market value, portfolio
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Trustees
(valuation of debt securities for which market quotations are not readily
available may be based upon current market prices of securities which are
comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors); and (4) short-term debt securities having a maturity date of
more than sixty days at time of purchase are valued on a mark-to-market basis
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity date
of sixty days or less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except for certain dividends on foreign securities which are recorded as soon as
the Fund is informed after the ex-dividend date. Discounts are accreted over the
life of the respective securities. Interest income is accrued daily.
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1996 (UNAUDITED) CONTINUED
C. 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.
D. 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.
E. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $176,000 which will be
reimbursed for the full amount thereof. Such expenses have been deferred and are
being amortized on the straight-line method over a period not to exceed five
years from the commencement of operations.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.75% to the net assets of the Fund determined as of the close of
each business day.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1996 (UNAUDITED) CONTINUED
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by 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 pursuant
to which the Fund pays the Distributor compensation, accrued daily and payable
monthly, at an annual rate of 1.0% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's shares since the Fund's inception (not
including reinvestment of dividend or capital gain distributions) less the
average daily aggregate net asset value of the Fund's shares redeemed since the
Fund's inception upon which a contingent deferred sales charge has been imposed
or upon which such charge has been waived; or (b) the Fund's average daily net
assets. Amounts paid under the Plan are paid to the Distributor to compensate it
for the services provided and the expenses borne by it and others in the
distribution of the Fund's shares, including the payment of commissions for
sales of the Fund's shares and incentive compensation to, and expenses of, the
account executives of Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Investment Manager and Distributor, and other employees or selected
broker-dealers who engage in or support distribution of the Fund's shares or who
service shareholder accounts, including overhead and telephone expenses,
printing and distribution of prospectuses and reports used in connection with
the offering of the Fund's shares to other than current shareholders and
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may be compensated under the Plan for
its opportunity costs in advancing such amounts, which compensation would be in
the form of a carrying charge on any unreimbursed expenses incurred by the
Distributor.
Provided that the Plan continues in effect, any cumulative expenses incurred but
not yet recovered, may be recovered through future distribution fees from the
Fund and contingent deferred sales charges from the Fund's shareholders.
The Distributor has informed the Fund that for the six months ended May 31,
1996, it received approximately $135,000 in contingent deferred sales charges
from certain redemptions of the Fund's shares.
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 May 31, 1996 aggregated
$192,626,027 and $77,730,261, respectively.
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1996 (UNAUDITED) CONTINUED
For the six months ended May 31, 1996, the Fund incurred brokerage commissions
of $8,250 with DWR for portfolio transactions executed on behalf of the Fund. At
May 31, 1996, included in the Fund's payable for investments purchased for
unsettled trades with DWR was $588,990.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At May 31, 1996, the Fund had
transfer agent fees and expenses payable of approximately $21,000.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE PERIOD
MAY 31, 1996 OCTOBER 27, 1995*
---------------------------- THROUGH
NOVEMBER 30, 1995
(UNAUDITED) --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold............................................................. 11,254,941 $ 141,273,153 9,767,074 $ 97,945,242
Repurchased...................................................... (2,026,102) (25,550,143) (88,546) (903,618)
----------- -------------- ----------- ------------
Net increase..................................................... 9,228,839 $ 115,723,010 9,678,528 $ 97,041,624
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
- ---------------------
* Commencement of operations.
6. FEDERAL INCOME TAX STATUS
Capital losses incurred after October 31 ("post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $61,000 during fiscal 1995. As of November 30, 1995, the Fund had
temporary book/tax differences attributable to post-October losses and permanent
book/tax differences attributable to a net operating loss.
<PAGE>
DEAN WITTER CAPITAL APPRECIATION 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 OCTOBER
SIX MONTHS 27, 1995*
ENDED MAY THROUGH
31, 1996 NOVEMBER
(UNAUDITED) 30, 1995
- ---------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $10.53 $10.00
Net investment loss................ (0.07) (0.01)
Net realized and unrealized gain... 3.69 0.54
Total from investment operations... 3.62 0.53
Net asset value, end of period..... $14.15 $10.53
TOTAL INVESTMENT RETURN+........... 34.28%(1) 5.30%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 1.98%(2) 2.87%(2)
Net investment loss................ (1.73)%(2) (0.79)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $267,631 $102,009
Portfolio turnover rate............ 43% (1) 7% (1)
Average commission rate paid....... $0.0569 --
<FN>
- ---------------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge.
(1) Not annualized.
(2) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
Ronald Worobel
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been taken from the records of
the Fund without examination by the independent accountants and accordingly
they do not express an opinion thereon.
This report is submitted for the general information of shareholders of the
Trust. For more detailed information about the Trust, its officers and
trustees, fees, expenses and other pertinent information, please see the
prospectus of the Trust.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
DEAN WITTER CAPITAL APPRECIATION FUND
[Graphic]
SEMIANNUAL REPORT
MAY 31, 1996
