<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND TWO WORLD TRADE CENTER, NEW YORK, NEW
YORK 10048
LETTER TO THE SHAREHOLDERS NOVEMBER 30, 1997
DEAR SHAREHOLDER:
Small-cap stocks got off to a slow start during the first quarter of 1997.
Inflationary concerns and fears of rising interest rates knocked the wind out of
the sails of the growth sector as investors sought safety in larger, more liquid
securities. Technology and biotechnology names particularly suffered as they
tend to be on the higher end of the multiple spectrum, making them especially
vulnerable during uncertain times. However, these concerns diminished in May and
investors began to warm up to small caps. This was the first time over the
trailing twelve-month period that we saw real signs of strength from this group.
Small caps performed in line with the market through the summer and into the
fall and then experienced the volatility commensurate with the larger indices
due to the instability of the Far East. Investor concerns switched from
containing inflation to absorbing deflation.
Current investor concerns include the impact that devalued foreign currencies
and depressed foreign economies will have on U.S. companies. It has been
encouraging to see the Dow recovering quickly as the market digests these
factors. However, secondary and tertiary names have not rebounded as quickly. We
hope to see this recovery broaden to these smaller companies in 1998.
PERFORMANCE AND PORTFOLIO
For the fiscal year ended November 30, 1997, the Fund's Class B shares produced
a total return of 9.47 percent compared to 28.53 percent for the broad-based
Standard & Poor's 500 Composite Stock Price Index (S&P 500) and 16.82 percent
for the Lipper Capital Appreciation Funds Index. The Fund's underperformance
relative to these benchmarks is due to the fact that the Fund's portfolio has
been overweighted in small-cap stocks while, during the period under review,
investors have favored larger companies. We believe that the small-cap segment
of the market remains undervalued and that, over the long term, the segment may
offer greater growth potential than the broader market. The Fund has focused on
small-cap stocks in the $5 to $25 price range with sound fundamentals, solid
earnings momentum,
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
LETTER TO THE SHAREHOLDERS NOVEMBER 30, 1997, CONTINUED
financial stability and management strength, but maintains the flexibility to
seek opportunities across market capitalizations. The portfolio is diversified
among many different industries.
The accompanying chart illustrates the
performance of a $10,000 investment in
the Fund from inception through the
fiscal year ended November 30, 1997,
versus the performance of similar
hypothetical investments in the S&P 500
and the Lipper Capital Appreciation
Funds Index.
LOOKING AHEAD
We continue to believe that the
fundamental picture for small caps is
bright. The domestic interest-rate
environment remains benign, economic
growth is moderate and current fiscal
policy seems favorable. Many of these
companies tend to benefit from a strong
dollar as they often do not have the
exposure to foreign currency weakness
that the multinationals do. We continue
to see companies with inherently high
growth rates trading at severely
discounted multiples. We believe that
small caps are historically undervalued
and that the Fund is well positioned to
benefit when this sector rallies.
We appreciate your ongoing support of
Dean Witter Capital Appreciation Fund
and look forward to continuing to serve
your investment needs.
Sincerely,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C> <C>
Growth of $10,000
- --
Class B
($ in Thousands)
Average Annual
Total Returns
Life of
1 Year Fund
9.47%(1) 18.30%(1)
4.47%(2) 17.11%(2)
Lipper
Fund S&P 500 (4) (5)
October 1995 $10,000 $10,000 $10,000
November 1995 $10,530 $10,485 $10,369
November 1996 $12,990 $13,407 $12,139
November 1997 $13,920 (3) $17,232 $14,181
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(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 contingent deferred sales charge (CDSC) (1 year-5%,
since inception-3%). See the Fund's current prospectus for complete details
on fees and sales charges.
(3) Closing Value assuming a complete redemption on November 30, 1997.
(4) The Standard and Poor's 500 Composite Stock Price Index (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The Index does not include any
expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(5) The Lipper Capital Appreciation Funds Index is an equally weighted
performance index of the largest qualifying funds (based on net assets) in
the Lipper Capital Appreciation Funds Objective. The Index, which is
adjusted for capital gains distributions and income dividends, is unmanaged
and should not be considered an investment. There are currently 30 funds
represented in this Index.
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (100.2%)
ADVERTISING (0.1%)
25,000 TMP Worldwide, Inc.*................................................................... $ 453,125
------------
AEROSPACE & DEFENSE (0.9%)
100,000 Kellstrom Industries, Inc.*............................................................ 2,612,500
30,000 Orbital Sciences Corp.*................................................................ 768,750
------------
3,381,250
------------
AGRICULTURE (0.1%)
20,000 Scheid Vineyards Inc. (Class A)*....................................................... 200,000
------------
AGRICULTURE RELATED (0.3%)
50,000 Agribiotech, Inc.*..................................................................... 493,750
100,000 Cadiz Land Company, Inc.*.............................................................. 718,750
------------
1,212,500
------------
ASSET MANAGEMENT (0.0%)
5,000 MAXIMUS, Inc.*......................................................................... 120,625
------------
AUTOMOTIVE (0.4%)
28,900 Avis Rent-A-Car, Inc.*................................................................. 969,956
31,600 Group 1 Automotive, Inc.*.............................................................. 306,125
------------
1,276,081
------------
BANKING (0.0%)
5,000 Net.B@nk, Inc.*........................................................................ 55,625
------------
BIOTECHNOLOGY (0.9%)
30,000 ESC Medical Systems Ltd. (Israel)*..................................................... 1,072,500
70,000 Osteotech, Inc.*....................................................................... 2,108,750
------------
3,181,250
------------
BUILDING & CONSTRUCTION (0.4%)
40,000 Dycom Industries, Inc.*................................................................ 900,000
20,000 Hospitality Worldwide Services, Inc.*.................................................. 240,000
15,000 Schuff Steel Co.*...................................................................... 165,000
900 UNIFAB International, Inc.*............................................................ 18,000
------------
1,323,000
------------
BUSINESS SERVICES (0.2%)
30,000 Wackenhut Corrections Corp.*........................................................... 840,000
------------
CEMENT (0.5%)
80,000 Giant Cement Holding, Inc.*............................................................ 1,930,000
------------
CHEMICALS - SPECIALTY (0.1%)
60,000 Eco Soil Systems, Inc.*................................................................ 337,500
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMERCIAL SERVICES (5.2%)
80,000 Actrade International, Ltd.*........................................................... $ 2,290,000
30,000 Administaff, Inc.*..................................................................... 667,500
60,000 Billing Information Concepts Corp.*.................................................... 2,670,000
50,000 Caribiner International, Inc.*......................................................... 2,121,875
50,000 Claremont Technology Group, Inc.*...................................................... 900,000
50,000 Complete Management, Inc.*............................................................. 831,250
30,000 Crescent Operating, Inc.*.............................................................. 498,750
50,000 Grow Biz International, Inc.*.......................................................... 600,000
30,000 International Total Services, Inc.*.................................................... 461,250
30,000 Lason Holdings, Inc.*.................................................................. 836,250
10,000 Market Facts Inc.*..................................................................... 176,250
65,000 May & Speh, Inc.*...................................................................... 861,250
5,300 Metro Information Services, Inc.*...................................................... 135,150
30,000 Personnel Group of America, Inc.*...................................................... 1,096,875
50,000 Primark Corp.*......................................................................... 1,693,750
80,000 ProSoft I-Net Solutions Inc.*.......................................................... 890,000
40,000 Quebecor Printing, Inc. (Canada)....................................................... 573,114
50,000 Superior Services, Inc.*............................................................... 1,168,750
30,000 Vestcom International, Inc.*........................................................... 592,500
------------
19,064,514
------------
COMMUNICATIONS - EQUIPMENT & SOFTWARE (0.2%)
30,000 EXCEL Communications, Inc.*............................................................ 705,000
------------
COMMUNICATIONS - EQUIPMENT/MANUFACTURERS (0.3%)
30,000 Bay Networks, Inc.*.................................................................... 901,875
------------
COMPUTER EQUIPMENT (0.8%)
30,000 Kemet Corp.*........................................................................... 708,750
45,000 RADCOM Ltd.*........................................................................... 348,750
60,000 Splash Technology Holdings, Inc.*...................................................... 1,920,000
------------
2,977,500
------------
COMPUTER SERVICES (1.0%)
80,000 CheckFree Corp.*....................................................................... 2,085,000
30,000 Data Systems Network Corp.*............................................................ 345,000
40,000 Procom Technology, Inc.*............................................................... 615,000
40,000 SPR Inc.*.............................................................................. 635,000
------------
3,680,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER SOFTWARE (9.5%)
25,000 Advantage Learning Systems, Inc.*...................................................... $ 568,750
60,000 Aladdin Knowledge Systems Ltd. (Israel)*............................................... 900,000
100,000 Borland International, Inc.*........................................................... 1,000,000
24,000 Box Hill Systems Corp.*................................................................ 280,500
50,000 Business Objects S.A. (ADR) (France)*.................................................. 537,500
100,000 Compuware Corp.*....................................................................... 3,493,750
80,000 CyberMedia, Inc.*...................................................................... 1,800,000
100,000 Data Dimensions, Inc.*................................................................. 1,806,250
50,000 DataMirror Corp. (Canada)*............................................................. 458,281
100,000 Digi International Inc.*............................................................... 1,937,500
60,000 Dr. Solomon's Group PLC (ADR) (United Kingdom)*........................................ 2,085,000
3,000 Great Plains Software, Inc.*........................................................... 67,500
50,000 International Microcomputer Software, Inc.*............................................ 787,500
60,000 INTERSOLV, Inc.*....................................................................... 956,250
50,000 InterVU Inc.*.......................................................................... 493,750
5,400 J.D. Edwards & Co.*.................................................................... 184,275
50,000 Kofax Image Products, Inc.*............................................................ 425,000
50,000 Landmark Systems Corp.*................................................................ 350,000
30,000 Learning Company, Inc.*................................................................ 543,750
50,000 LGS Group Inc. (Canada)................................................................ 570,656
40,000 MetaCreations Corp.*................................................................... 475,000
3,600 MMC Networks Inc.*..................................................................... 62,325
14,200 New Era of Networks, Inc.*............................................................. 181,050
40,000 Open Text Corp. (Canada)*.............................................................. 377,500
50,000 Oshap Technologies, Ltd. (Israel)*..................................................... 434,375
30,000 Pairgain Technologies, Inc.*........................................................... 706,875
30,000 Peregrine Systems, Inc.*............................................................... 356,250
20,000 Platinum Technology, Inc.*............................................................. 520,000
12,000 QAD Inc.*.............................................................................. 189,750
30,000 Rainbow Technologies, Inc.*............................................................ 720,000
25,000 RealNetworks, Inc.*.................................................................... 382,812
110,000 Sapiens International Corp. (Israel)*.................................................. 825,000
90,000 Simulation Sciences, Inc.*............................................................. 1,620,000
70,000 Symantec Corp.*........................................................................ 1,750,000
30,000 Symix Systems, Inc.*................................................................... 442,500
130,000 System Software Associates, Inc.*...................................................... 1,755,000
100,000 Systems & Computer Technology Corp.*................................................... 4,650,000
31,000 TSI International Software Ltd.*....................................................... 310,000
------------
35,004,649
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMPUTER SOFTWARE & SERVICES (8.6%)
80,000 Analysts International Corp............................................................ $ 3,780,000
30,000 CCC Information Services Group, Inc.*.................................................. 555,000
30,000 Certicom Corp. (Canada)*............................................................... 821,745
40,000 Check Point Software Technologies Ltd. (Israel)*....................................... 1,805,000
40,000 Cylink Corp.*.......................................................................... 440,000
30,000 Documentum, Inc.*...................................................................... 922,500
50,000 Edify Corp.*........................................................................... 837,500
45,000 Harbinger Corp.*....................................................................... 1,350,000
90,000 Hyperion Software Corp.*............................................................... 3,875,625
50,000 I2 Technologies, Inc.*................................................................. 2,256,250
30,000 IDT Corp.*............................................................................. 645,000
50,000 Infoseek Corp.*........................................................................ 553,125
30,000 JetForm Corp.*......................................................................... 459,375
50,000 Keane, Inc.*........................................................................... 1,584,375
80,000 Legato Systems, Inc.*.................................................................. 3,040,000
70,000 Lycos, Inc.*........................................................................... 2,135,000
50,000 Netopia, Inc.*......................................................................... 325,000
40,000 Olicom A/S (Denmark)*.................................................................. 1,147,500
60,000 PRI Automation, Inc.*.................................................................. 2,040,000
40,000 Secure Computing Corp.*................................................................ 475,000
90,000 Versant Object Technology Corp.*....................................................... 1,333,125
60,000 Xylan Corp.*........................................................................... 1,226,250
------------
31,607,370
------------
COMPUTERS (1.2%)
30,000 Lexmark International Group, Inc. (Class A)*........................................... 956,250
40,000 MICROS Systems, Inc.*.................................................................. 2,075,000
30,000 Network Appliance, Inc.*............................................................... 1,511,250
------------
4,542,500
------------
COMPUTERS - SYSTEMS (0.8%)
76,113 ATL Products, Inc.*.................................................................... 861,028
60,000 Tera Computer Co.*..................................................................... 900,000
60,000 Unisys Corp.*.......................................................................... 858,750
20,000 Video Lottery Technologies, Inc.*...................................................... 227,500
------------
2,847,278
------------
CONSUMER PRODUCTS (0.2%)
30,000 Consolidated Cigar Holdings Inc. (Class A)*............................................ 826,875
------------
CONSUMER SERVICES (1.1%)
60,000 AccuStaff, Inc.*....................................................................... 1,773,750
70,000 AmeriTrade Holding Corp. (Class A)*.................................................... 2,345,000
------------
4,118,750
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
DATA PROCESSING (0.4%)
20,000 Choicepoint Inc.*...................................................................... $ 701,250
100,000 Object Design, Inc.*................................................................... 937,500
------------
1,638,750
------------
DISTRIBUTION (0.5%)
5,800 JLK Direct Distribution Inc. (Class A)*................................................ 164,937
60,000 VWR Scientific Products Corp.*......................................................... 1,593,749
------------
1,758,686
------------
DRUGS (0.5%)
50,000 IDEC Pharmaceuticals Corp.*............................................................ 1,746,875
------------
EDUCATION (0.5%)
10,100 Bright Horizons, Inc.*................................................................. 156,550
82,700 Cornell Corrections, Inc.*............................................................. 1,447,250
13,000 Education Management Corp.*............................................................ 324,187
------------
1,927,987
------------
ELECTRONIC COMPONENTS (2.1%)
30,000 ATMI Inc.*............................................................................. 963,750
60,000 DII Group, Inc.*....................................................................... 1,342,500
40,000 DSP Communications, Inc.*.............................................................. 640,000
78,100 EFTC Corp.*............................................................................ 1,161,737
30,000 Exar Corp.*............................................................................ 746,250
19,600 FARO Technologies, Inc.*............................................................... 240,100
40,000 GenRad, Inc.*.......................................................................... 1,062,500
30,000 Ramtron International Corp.*........................................................... 193,125
60,000 Windmere-Durable Holdings Inc.......................................................... 1,447,500
------------
7,797,462
------------
ELECTRONICS (3.7%)
40,000 Aeroflex Inc.*......................................................................... 342,500
60,000 Analog Devices, Inc.*.................................................................. 1,882,500
19,000 Anaren Microwave, Inc.*................................................................ 380,000
110,000 Creative Technology Ltd. (Singapore)*.................................................. 2,928,750
30,000 DSP Group, Inc.*....................................................................... 975,000
40,000 Faroudja, Inc.*........................................................................ 275,000
20,000 Flextronics International, Ltd.*....................................................... 800,000
110,000 Kopin Corp.*........................................................................... 2,310,000
100,000 Odetics, Inc. (Class A)*............................................................... 662,500
8,700 OSI Systems, Inc.*..................................................................... 113,100
30,000 Ultratech Stepper, Inc.*............................................................... 731,250
50,000 Vitesse Semiconductor Corp.*........................................................... 2,225,000
------------
13,625,600
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONICS & ELECTRICAL (0.3%)
35,000 Teradyne, Inc.*........................................................................ $ 1,148,437
------------
ELECTRONICS - SEMICONDUCTORS (0.7%)
90,000 MRV Communications, Inc.*.............................................................. 2,520,000
------------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS (1.0%)
60,000 Kulicke & Soffa Industries, Inc.*...................................................... 1,653,750
60,000 Leitch Technology Corp. (Canada)*...................................................... 1,580,278
30,000 Supertex, Inc.*........................................................................ 367,500
------------
3,601,528
------------
ENERGY (0.6%)
30,000 Global Marine, Inc.*................................................................... 789,375
80,000 KTI, Inc.*............................................................................. 1,270,000
------------
2,059,375
------------
ENTERTAINMENT (0.0%)
9,600 N2K Inc.*.............................................................................. 177,600
------------
ENVIRONMENTAL (0.6%)
60,000 Allied Waste Industries, Inc.*......................................................... 1,308,750
90,000 ITEQ, Inc.*............................................................................ 1,057,500
------------
2,366,250
------------
ENVIRONMENTAL CONTROL (0.8%)
90,000 U.S.A Waste Services, Inc.*............................................................ 2,975,625
------------
EQUIPMENT (0.4%)
30,000 EVI, Inc.*............................................................................. 1,543,125
------------
FINANCE (0.5%)
50,000 Franchise Mortgage Acceptance Co.*..................................................... 875,000
76,500 New Century Financial Corp.*........................................................... 1,004,062
------------
1,879,062
------------
FINANCIAL SERVICES (0.2%)
30,000 Doral Financial Corp................................................................... 641,250
------------
FOOD PROCESSING (0.3%)
30,000 Smithfield Foods, Inc.*................................................................ 1,057,500
------------
FOODS (0.2%)
40,000 Foodmaker, Inc.*....................................................................... 620,000
------------
FURNITURE (0.2%)
25,900 Knoll, Inc.*........................................................................... 780,238
------------
HEALTH & PERSONAL CARE (0.5%)
109,000 Assisted Living Concepts, Inc.*........................................................ 1,866,625
------------
HEALTHCARE (0.2%)
60,000 Bone Care International, Inc.*......................................................... 600,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
HEALTHCARE - DIVERSIFIED (0.5%)
30,000 Healthsouth Corp.*..................................................................... $ 787,500
23,460 Paragon Health Network, Inc.*.......................................................... 1,216,988
------------
2,004,488
------------
HEALTHCARE - HMOs (0.2%)
60,000 Specialty Care Network, Inc.*.......................................................... 742,500
------------
HOME BUILDING (0.2%)
40,000 Kaufman & Broad Home Corp.............................................................. 867,500
------------
HOTELS/MOTELS (0.1%)
31,600 Execustay Corp.*....................................................................... 300,200
------------
HOUSEHOLD PRODUCTS (0.1%)
10,000 Dial Corp.............................................................................. 193,750
------------
INTERNET (0.4%)
18,000 Concentric Network Corp.*.............................................................. 180,000
30,000 Excite, Inc.*.......................................................................... 768,750
8,100 Network Solutions, Inc. (Class A)*..................................................... 128,588
35,000 Preview Travel, Inc.*.................................................................. 319,375
------------
1,396,713
------------
INVESTMENT COMPANIES (0.4%)
22,400 Affiliated Managers Group, Inc.*....................................................... 560,000
45,000 Consolidated Capital Corp.*............................................................ 922,500
------------
1,482,500
------------
LEISURE (1.1%)
40,000 American Coin Merchandising, Inc.*..................................................... 675,000
28,900 Brass Eagle Inc.*...................................................................... 334,156
30,000 Signature Resorts, Inc.*............................................................... 806,250
39,000 Silverleaf Resorts, Inc.*.............................................................. 809,250
34,500 Trendwest Resorts, Inc.*............................................................... 845,250
20,000 Vistana, Inc.*......................................................................... 440,000
------------
3,909,906
------------
MACHINERY (2.1%)
110,000 Chart Industries, Inc.................................................................. 2,543,750
40,000 MagneTek, Inc.*........................................................................ 835,000
140,000 National-Oilwell, Inc.*................................................................ 4,436,250
------------
7,815,000
------------
MACHINERY - DIVERSIFIED (0.3%)
50,400 Advanced Energy Industries, Inc.*...................................................... 989,100
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MANUFACTURING (0.8%)
110,000 General Scanning, Inc.*................................................................ $ 2,860,000
------------
MANUFACTURING - DIVERSIFIED (0.5%)
30,000 Griffon Corp.*......................................................................... 466,875
30,000 Mettler-Toledo International Inc.*..................................................... 536,250
35,000 Middleby Corp.*........................................................................ 354,375
40,000 Safety Components International, Inc.*................................................. 540,000
------------
1,897,500
------------
MEDICAL PRODUCTS & SUPPLIES (1.1%)
30,000 Health Care & Retirement Corp.*........................................................ 1,181,250
100,000 Molecular Dynamics, Inc.*.............................................................. 2,012,500
60,000 Optical Coating Laboratory, Inc........................................................ 900,000
------------
4,093,750
------------
MEDICAL SERVICES (0.1%)
50,000 Medical Resources, Inc.*............................................................... 450,000
------------
METALS & MINING (0.0%)
1,000 BRO-X Minerals Ltd. (Canada)*.......................................................... 492
------------
METALS - MISCELLANEOUS (0.4%)
50,000 Handy & Harman......................................................................... 1,118,750
60,000 Recycling Industries, Inc.*............................................................ 465,000
------------
1,583,750
------------
METALS NON-FERROUS (0.5%)
90,000 Tubos de Acero de Mexico S.A. (ADR) (Mexico)*.......................................... 1,991,250
------------
MISCELLANEOUS (2.5%)
60,000 Brunswick Technologies, Inc.*.......................................................... 1,027,500
90,000 Mail-Well, Inc.*....................................................................... 2,936,250
120,000 Maverick Tube Corp.*................................................................... 3,427,500
70,000 Royal Group Technologies Ltd. (Canada)*................................................ 1,684,375
------------
9,075,625
------------
NATURAL GAS - EXPLORATION & PRODUCTION (0.7%)
120,000 Gulf Island Fabrication, Inc.*......................................................... 2,640,000
------------
OFFICE EQUIPMENT & SUPPLIES (0.1%)
30,000 Corporate Express, Inc.*............................................................... 468,750
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
OIL & GAS (4.8%)
17,700 Bayard Drilling Technologies, Inc.*.................................................... $ 325,238
90,000 Clayton Williams Energy, Inc.*......................................................... 1,417,500
60,000 Comstock Resources, Inc.*.............................................................. 787,500
30,000 Cross Timbers Oil Co................................................................... 695,625
30,000 Dailey International Inc.*............................................................. 333,750
15,000 Dawson Geophysical Co.*................................................................ 285,000
39,700 Gulf Indonesia Resources Ltd.*......................................................... 895,731
50,000 KCS Energy, Inc........................................................................ 1,187,500
45,000 Lomak Petroleum, Inc................................................................... 781,875
60,000 Mallon Resources Corp.*................................................................ 592,500
120,000 Noble Drilling Corp.*.................................................................. 3,607,500
100,000 Patterson Energy, Inc.*................................................................ 3,637,500
50,000 St. Mary Land & Exploration Co......................................................... 2,043,750
100,000 Unit Corp.*............................................................................ 1,093,750
------------
17,684,719
------------
OIL - DOMESTIC (0.2%)
30,000 Snyder Oil Corp........................................................................ 596,250
------------
OIL - EXPLORATION & PRODUCTION (0.1%)
15,000 Brown (TOM), Inc.*..................................................................... 328,125
------------
OIL EQUIPMENT & SERVICES (1.7%)
3,000 Dril-Quip, Inc.*....................................................................... 89,813
100,000 ENSCO International, Inc............................................................... 3,575,000
120,000 Global Industries Ltd.*................................................................ 1,920,000
22,100 IRI International Corp.*............................................................... 356,363
10,000 Wiser Oil Co........................................................................... 152,500
------------
6,093,676
------------
OIL REFINERIES (0.5%)
60,000 Valero Energy Corp..................................................................... 1,882,500
------------
OIL RELATED (0.4%)
35,000 Veritas DGC Inc.*...................................................................... 1,400,000
------------
OIL SERVICES (1.5%)
97,500 Core Laboratories N.V.*................................................................ 3,510,000
40,000 Friede Goldman International Inc.*..................................................... 1,187,500
25,000 Superior Energy Services, Inc.*........................................................ 262,500
20,000 UTI Energy Corp.*...................................................................... 560,000
------------
5,520,000
------------
OIL WELL EQUIPMENT & SERVICE (0.2%)
30,000 Key Energy Group, Inc.*................................................................ 729,375
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PHARMACEUTICALS (2.3%)
100,000 Advance Paradigm, Inc.*................................................................ $ 2,962,500
5,000 Algos Pharmaceutical Corp.*............................................................ 127,500
30,000 Emisphere Technologies, Inc.*.......................................................... 603,750
40,000 MedImmune, Inc.*....................................................................... 1,517,500
30,000 PathoGenesis Corp.*.................................................................... 1,065,000
60,000 SangStat Medical Corp.*................................................................ 2,055,000
------------
8,331,250
------------
POLLUTION CONTROL (0.8%)
80,000 American Disposal Services, Inc.*...................................................... 2,820,000
------------
PROPERTY - CASUALTY INSURANCE (0.4%)
5,000 Penn-America Group, Inc................................................................ 91,250
30,000 Stewart Information Services Corp...................................................... 811,875
30,000 Symons International Group, Inc.*...................................................... 558,750
------------
1,461,875
------------
PUBLISHING (1.0%)
9,200 CMP Media Inc. (Class A)*.............................................................. 169,050
5,000 Petersen Companies, Inc. (Class A)*.................................................... 90,000
30,000 Thomson Corp. (Canada)................................................................. 759,587
90,000 Valassis Communications, Inc.*......................................................... 2,705,625
------------
3,724,262
------------
REAL ESTATE (0.3%)
50,000 Catellus Development Corp.*............................................................ 925,000
2,000 LaSalle Partners, Inc.*................................................................ 69,375
------------
994,375
------------
REAL ESTATE INVESTMENT TRUST (0.2%)
40,000 Laser Mortgage Management, Inc......................................................... 590,000
------------
RESTAURANTS (0.1%)
28,000 Star Buffet, Inc.*..................................................................... 364,000
------------
RETAIL (2.7%)
19,900 A. C. Moore Arts & Crafts, Inc.*....................................................... 296,013
30,000 Abercrombie & Fitch Co. (Class A)*..................................................... 898,125
60,000 Claire's Stores, Inc................................................................... 1,357,500
60,000 Fred's, Inc............................................................................ 1,462,500
80,000 Michaels Stores, Inc.*................................................................. 2,565,000
60,000 ONSALE, Inc.*.......................................................................... 1,053,750
60,000 Ross Stores, Inc....................................................................... 2,340,000
------------
9,972,888
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL - DEPARTMENT STORES (1.8%)
75,000 Dollar General Corp.................................................................... $ 2,821,875
60,000 Payless ShoeSource, Inc.*.............................................................. 3,810,000
------------
6,631,875
------------
RETAIL - SPECIALTY (0.8%)
100,000 Braun's Fashions Corp.*................................................................ 950,000
60,000 TJX Companies, Inc..................................................................... 2,070,000
------------
3,020,000
------------
RETAIL - SPECIALTY APPAREL (0.6%)
60,000 Dress Barn, Inc.*...................................................................... 1,545,000
30,000 Vans, Inc.*............................................................................ 481,875
------------
2,026,875
------------
SEMICONDUCTORS (1.1%)
50,000 Integrated Circuit Systems, Inc.*...................................................... 1,400,000
60,000 KLA-Tencor Corp.*...................................................................... 2,317,500
55,000 Plasma-Therm, Inc.*.................................................................... 460,625
------------
4,178,125
------------
SPECIALIZED SERVICES (1.4%)
10,800 Pegasus Systems, Inc.*................................................................. 190,350
30,000 RCM Technologies, Inc.*................................................................ 468,750
3,900 Securacom, Inc.*....................................................................... 40,463
30,000 Select Appointments Holdings Public Limited Co. (ADR) (United Kingdom)................. 577,500
50,000 SOS Staffing Services, Inc.*........................................................... 1,025,000
45,000 Source Services Corp.*................................................................. 922,500
30,000 Todd-AO Corp. (Class A)................................................................ 292,500
8,200 TransCoastal Marine Services, Inc.*.................................................... 159,900
70,000 Transcrypt International, Inc.*........................................................ 1,636,250
------------
5,313,213
------------
STEEL (0.8%)
30,000 Lone Star Technologies, Inc.*.......................................................... 870,000
60,000 Northwest Pipe Co.*.................................................................... 1,357,500
30,000 NS Group, Inc.*........................................................................ 562,500
------------
2,790,000
------------
TECHNOLOGY (1.7%)
40,000 Aerial Communications, Inc.*........................................................... 355,000
60,000 Brilliant Digital Entertainment, Inc.*................................................. 360,000
60,000 CIENA Corp.*........................................................................... 3,251,250
60,000 Kuhlman Corp........................................................................... 2,118,750
3,600 LHS Group, Inc.*....................................................................... 151,200
------------
6,236,200
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY RELATED (0.5%)
130,000 Graham-Field Health Products, Inc.*.................................................... $ 1,941,875
------------
TELECOMMUNICATIONS (4.4%)
50,000 ARC International Corp.*............................................................... 290,625
70,000 CGI Group, Inc. (Canada)*.............................................................. 1,976,401
30,000 CTC Communications Corp.*.............................................................. 442,500
30,000 Globalstar Telecommunications Ltd.*.................................................... 1,486,875
110,000 Inter-Tel Corp......................................................................... 2,310,000
30,000 Norstan, Inc.*......................................................................... 712,500
60,000 Orckit Communications Ltd. (Israel)*................................................... 1,230,000
20,000 PageMart Wireless, Inc.*............................................................... 197,500
19,100 Qwest Communications International Inc.*............................................... 1,040,950
30,000 STAR Telecommunications, Inc.*......................................................... 858,750
40,000 Tel-Save Holdings, Inc.*............................................................... 862,500
90,000 Winstar Communications, Inc.*.......................................................... 2,379,375
100,000 World Access, Inc.*.................................................................... 2,425,000
------------
16,212,976
------------
TELECOMMUNICATIONS EQUIPMENT (4.5%)
30,000 ACE COMM Corp.*........................................................................ 495,000
90,000 Applied Signal Technology, Inc.*....................................................... 1,350,000
40,000 Associated Group, Inc. - Class B*...................................................... 1,250,000
50,000 Boston Communications Group, Inc.*..................................................... 462,500
30,000 Communications Systems, Inc............................................................ 540,000
100,000 Davox Corp.*........................................................................... 3,225,000
180,000 Digital Microwave Corp.*............................................................... 2,835,000
2,000 Excel Switching Corp.*................................................................. 48,250
60,000 Mitec Telecom Inc. (Canada)*........................................................... 326,591
70,000 NICE-Systems Ltd. (ADR) (Israel)*...................................................... 3,062,500
30,000 Ortel Corp.*........................................................................... 528,750
110,000 RIT Technologies Ltd.*................................................................. 1,086,250
30,000 ViaSat, Inc.*.......................................................................... 457,500
30,000 Yurie Systems, Inc.*................................................................... 742,500
------------
16,409,841
------------
TEMPORARY SERVICES (0.5%)
80,000 Labor Ready Inc.*...................................................................... 1,780,000
------------
TRANSPORTATION (3.7%)
75,000 Air Express International Corp......................................................... 2,151,563
60,000 Alaska Air Group, Inc.*................................................................ 2,242,500
50,000 American Classic Voyages Co.*.......................................................... 850,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
44,700 Budget Group, Inc. (Class A)*.......................................................... $ 1,586,850
30,000 Coach USA, Inc.*....................................................................... 836,250
70,000 Consolidated Freightways Corp.*........................................................ 1,093,750
11,600 Jevic Transportation, Inc.*............................................................ 189,950
70,000 Offshore Logistics, Inc.*.............................................................. 1,601,250
120,000 Transat A.T., Inc. (Canada)*........................................................... 1,011,378
45,000 Trico Marine Service, Inc.*............................................................ 1,254,375
10,000 Virgin Express Holdings PLC - SP (ADR) (United Kingdom)*............................... 165,000
30,000 Werner Enterprises, Inc................................................................ 641,250
------------
13,624,116
------------
TRANSPORTATION - SHIPPING (0.4%)
30,000 Gulfmark Offshore Inc.*................................................................ 1,005,000
50,000 OMI Corp.*............................................................................. 512,500
------------
1,517,500
------------
TRUCKERS (0.5%)
40,000 CNF Transportation Inc................................................................. 1,740,000
------------
WASTE DISPOSAL (0.5%)
80,000 Eastern Environmental Services, Inc.*.................................................. 1,880,000
------------
WHOLESALE DISTRIBUTOR (0.6%)
60,000 Brightpoint, Inc.*..................................................................... 963,750
50,000 CellStar Corp.*........................................................................ 1,293,750
------------
2,257,500
------------
WIRELESS COMMUNICATION (0.1%)
30,000 Metro One Telecommunications*.......................................................... 247,500
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $320,804,094)......................................................... 367,982,907
------------
PREFERRED STOCK (0.0%)
MEDICAL PRODUCTS & SUPPLIES
30,000 Fresenius National Medical Care (Class D) (Germany) (Identified Cost $6,069)*.......... 1,950
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (0.7%)
REPURCHASE AGREEMENT
$ 2,447 The Bank of New York 5.375% due 12/01/97 (dated 11/28/97; proceeds $2,447,971)
(IDENTIFIED COST $2,446,890)......................................................... $ 2,446,890
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $323,257,053) (B)........................................................ 100.9 % 370,431,747
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................................ (0.9) (3,179,883)
------ -------------
NET ASSETS................................................................................ 100.0 % $ 367,251,864
------ -------------
------ -------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Collateralized by $842,747 Government National Mortgage Association 7.00%
due 09/20/24 valued at $519,347 and $1,843,626 Government National Mortgage
Association 9.00% due 11/15/27 valued at $1,976,481.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $62,429,313 and the
aggregate gross unrealized depreciation is $15,254,619, resulting in net
unrealized appreciation of $47,174,694.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $323,257,053).............................................................. $370,431,747
Cash.......................................................................................... 3,740
Receivable for:
Investments sold.......................................................................... 3,064,024
Shares of beneficial interest sold........................................................ 370,989
Dividends................................................................................. 28,770
Deferred organizational expenses.............................................................. 103,962
Prepaid expenses.............................................................................. 86,388
------------
TOTAL ASSETS............................................................................. 374,089,620
------------
LIABILITIES:
Payable for:
Investments purchased..................................................................... 6,181,443
Plan of distribution fee.................................................................. 312,445
Investment management fee................................................................. 234,571
Shares of beneficial interest repurchased................................................. 31,535
Accrued expenses.............................................................................. 77,762
------------
TOTAL LIABILITIES........................................................................ 6,837,756
------------
NET ASSETS............................................................................... $367,251,864
------------
------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................... $298,208,563
Net unrealized appreciation................................................................... 47,174,694
Accumulated undistributed net realized gain................................................... 21,868,607
------------
NET ASSETS............................................................................... $367,251,864
------------
------------
CLASS A SHARES:
Net Assets.................................................................................... $344,785
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 24,184
NET ASSET VALUE PER SHARE................................................................ $14.26
------------
------------
MAXIMUM OFFERING PRICE PER SHARE
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE)........................................ $15.05
------------
------------
CLASS B SHARES:
Net Assets.................................................................................... $365,483,520
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 25,703,352
NET ASSET VALUE PER SHARE................................................................ $14.22
------------
------------
CLASS C SHARES:
Net Assets.................................................................................... $1,287,861
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 90,559
NET ASSET VALUE PER SHARE................................................................ $14.22
------------
------------
CLASS D SHARES:
Net Assets.................................................................................... $135,698
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 9,511
NET ASSET VALUE PER SHARE................................................................ $14.27
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1997*
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $3,705 foreign withholding tax).............................................. $ 505,611
Interest....................................................................................... 215,588
-----------
TOTAL INCOME.............................................................................. 721,199
-----------
EXPENSES
Plan of distribution fee (Class A shares)...................................................... 197
Plan of distribution fee (Class B shares)...................................................... 3,434,993
Plan of distribution fee (Class C shares)...................................................... 2,400
Investment management fee...................................................................... 2,578,896
Transfer agent fees and expenses............................................................... 559,409
Registration fees.............................................................................. 70,436
Shareholder reports and notices................................................................ 67,583
Custodian fees................................................................................. 56,761
Professional fees.............................................................................. 51,873
Organizational expenses........................................................................ 35,763
Trustees' fees and expenses.................................................................... 9,206
Other.......................................................................................... 6,743
-----------
TOTAL EXPENSES............................................................................ 6,874,260
-----------
NET INVESTMENT LOSS....................................................................... (6,153,061)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain.............................................................................. 38,570,804
Net change in unrealized appreciation.......................................................... (6,517,638)
-----------
NET GAIN.................................................................................. 32,053,166
-----------
NET INCREASE................................................................................... $25,900,105
-----------
-----------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
NOVEMBER 30, NOVEMBER 30,
1997* 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss..................................... $ (6,153,061) $ (3,677,495)
Net realized gain (loss)................................ 38,570,804 (16,624,523)
Net change in unrealized appreciation................... (6,517,638) 48,698,318
-------------- --------------
NET INCREASE....................................... 25,900,105 28,396,300
Net increase from transactions in shares of beneficial
interest.............................................. 30,542,778 180,404,150
-------------- --------------
NET INCREASE....................................... 56,442,883 208,800,450
NET ASSETS:
Beginning of period..................................... 310,808,981 102,008,531
-------------- --------------
END OF PERIOD...................................... $ 367,251,864 $ 310,808,981
-------------- --------------
-------------- --------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1997
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's investment objective is
long-term capital appreciation. The Fund was organized as a Massachusetts
business trust on July 31, 1995 and commenced operations on October 27, 1995. On
July 28, 1997, the Fund commenced offering three additional classes of shares,
with the then current shares designated as Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some Class
A shares, and most Class B shares and Class C shares are subject to a contingent
deferred sales charge imposed on shares redeemed within one year, six years and
one year, respectively. Class D shares are not subject to a sales charge.
Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (in
cases where securities are traded on more than one exchange, the 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 Dean Witter InterCapital Inc. (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
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1997, CONTINUED
days at time of purchase are valued on a mark-to-market basis until sixty days
prior to maturity and thereafter at amortized cost based on their value on the
61st day. Short-term debt securities having a maturity date of sixty days or
less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except for certain dividends on foreign securities which are recorded as soon as
the Fund is informed after the ex-dividend date. Discounts are accreted over the
life of the respective securities. Interest income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
F. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $179,000 and was 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.
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1997, CONTINUED
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. Effective May 1, 1997, the Agreement was amended to reduce
the annual fee to 0.725% to the portion of daily net assets exceeding $500
million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Manager. The Fund has adopted a Plan of
Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A -- up to 0.25% of the
average daily net assets of Class A; (ii) Class B -- 1.0% of the lesser of: (a)
the average daily aggregate gross sales of the Class B shares since inception of
the Fund (not including reinvestment of dividend or capital gain distributions)
less the average net asset value of the Class B shares redeemed since the Fund's
inception upon which a contingent deferred sales charge has been imposed or
waived; or (b) the average daily net assets of Class B; and (iii) Class C -- up
to 1.0% of the average daily net assets of Class C. In the case of Class A
shares, amounts paid under the Plan are paid to the Distributor for services
provided. In the case of Class B and Class C shares, amounts paid under the Plan
are paid to the Distributor for services provided and the expenses borne by it
and others in the distribution of the shares of these Classes, including the
payment of commissions for sales of these Classes and incentive compensation to,
and expenses of, the account executives of Dean Witter Reynolds Inc. ("DWR"), an
affiliate of the Investment Manager and Distributor, and others who engage in or
support distribution of the 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 these shares to
other than current shareholders; and preparation, printing and distribution of
sales literature and advertising materials. In addition, the Distributor may
utilize fees
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1997, CONTINUED
paid pursuant to the Plan, in the case of Class B shares, to compensate DWR 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 $12,299,293 at November 30, 1997.
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 account executives may be reimbursed in the subsequent
calendar year. For the period ended November 30, 1997, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
1.0%, respectively.
The Distributor has informed the Fund that for the period ended November 30,
1997, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $983,855 and $653, respectively
and received $11,990 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 November 30, 1997 aggregated
$648,955,963 and $623,441,813, respectively.
For the year ended November 30, 1997, the Fund incurred brokerage commissions of
$29,900 with DWR for portfolio transactions executed on behalf of the fund.
For the period May 31, 1997 through November 30, 1997, the Fund incurred
brokerage commissions of $6,250 with Morgan Stanley & Co., Inc., an affiliate of
the Investment Manager since May 31, 1997, for portfolio transactions executed
on behalf of the Fund.
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1997, CONTINUED
Dean Witter Trust FSB, an affiliate of the Investment Manager and Distributor,
is the Fund's transfer agent. At November 30, 1997, the Fund had transfer agent
fees and expenses payable of approximately $4,600.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
NOVEMBER 30, 1997 NOVEMBER 30, 1996
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold............................................................. 24,829 $ 380,181 -- --
Repurchased...................................................... (645) (9,645) -- --
----------- -------------- ----------- ------------
Net increase -- Class A.......................................... 24,184 370,536 -- --
----------- -------------- ----------- ------------
CLASS B SHARES
Sold............................................................. 15,086,938 211,255,509 20,783,480 $262,842,130
Repurchased...................................................... (13,313,433) (182,682,535) (6,542,161) (82,437,980)
----------- -------------- ----------- ------------
Net increase -- Class B.......................................... 1,773,505 28,572,974 14,241,319 180,404,150
----------- -------------- ----------- ------------
CLASS C SHARES*
Sold............................................................. 101,030 1,609,066 -- --
Repurchased...................................................... (10,471) (153,924) -- --
----------- -------------- ----------- ------------
Net increase -- Class C.......................................... 90,559 1,455,142 -- --
----------- -------------- ----------- ------------
CLASS D SHARES*
Sold............................................................. 9,511 144,126 -- --
----------- -------------- ----------- ------------
Net increase in Fund............................................. 1,897,759 $ 30,542,778 14,241,319 $180,404,150
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
- ---------------------
* For the period July 28, 1997 (issue date) through November 30, 1997.
6. FEDERAL INCOME TAX STATUS
During the year ended November 30, 1997, the Fund utilized its net capital loss
carryover of approximately $15,684,000.
As of November 30, 1997, the Fund had temporary book/tax differences
attributable to capital loss deferrals on wash sales and permanent book/tax
differences primarily attributable to a net operating loss. To reflect
reclassifications arising from the permanent differences, paid-in-capital was
charged $6,136,407, accumulated undistributed net realized gain was charged
$16,654 and net investment loss was credited $6,153,061.
<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
OCTOBER 27,
FOR THE YEAR FOR THE YEAR 1995*
ENDED ENDED THROUGH
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1997**++ 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period..... $ 12.99 $ 10.53 $ 10.00
------ ------ ------
Net investment loss...... (0.24) (0.15) (0.01)
Net realized and
unrealized gain......... 1.47 2.61 0.54
------ ------ ------
Total from investment
operations.............. 1.23 2.46 0.53
------ ------ ------
Net asset value, end of
period.................. $ 14.22 $ 12.99 $ 10.53
------ ------ ------
------ ------ ------
TOTAL INVESTMENT
RETURN+.................. 9.47% 23.36% 5.30%(1)
RATIOS TO AVERAGE NET
ASSETS:
Expenses................. 2.00% 2.00% 2.87%(2)
Net investment loss...... (1.79)% (1.72)% (0.79)%(2)
SUPPLEMENTAL DATA:
Net assets, end of
period, in thousands.... $365,484 $310,809 $102,009
Portfolio turnover
rate.................... 184% 108% 7%(1)
Average commission rate
paid.................... $0.0570 $0.0570 --
</TABLE>
- ---------------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that date have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997 *
THROUGH
NOVEMBER 30,
1997++
- ----------------------------------------------------------------------------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 14.34
------
Net investment loss................................................... (0.06)
Net realized and unrealized loss...................................... (0.02)
------
Total from investment operations...................................... (0.08)
------
Net asset value, end of period........................................ $ 14.26
------
------
TOTAL INVESTMENT RETURN+.............................................. (0.56)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.27%(2)
Net investment loss................................................... (1.08)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $345
Portfolio turnover rate............................................... 184%(1)
Average commission rate paid.......................................... $0.0570
</TABLE>
<TABLE>
<S> <C>
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 14.34
------
Net investment loss................................................... (0.09)
Net realized and unrealized loss...................................... (0.03)
------
Total from investment operations...................................... (0.12)
------
Net asset value, end of period........................................ $ 14.22
------
------
TOTAL INVESTMENT RETURN+.............................................. (0.84)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 2.03%(2)
Net investment loss................................................... (1.82)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $1,288
Portfolio turnover rate............................................... 184%(1)
Average commission rate paid.......................................... $0.0570
</TABLE>
- ---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
NOVEMBER 30,
1997++
- ----------------------------------------------------------------------------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 14.34
------
Net investment loss................................................... (0.04)
Net realized and unrealized loss...................................... (0.03)
------
Total from investment operations...................................... (0.07)
------
Net asset value, end of period........................................ $ 14.27
------
------
TOTAL INVESTMENT RETURN+.............................................. (0.49)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.01%(2)
Net investment loss................................................... (0.82)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $136
Portfolio turnover rate............................................... 184%(1)
Average commission rate paid.......................................... $0.0570
</TABLE>
- ---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL APPRECIATION FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER CAPITAL APPRECIATION 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 Dean Witter Capital Appreciation
Fund (the "Fund") at November 30, 1997, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
November 30, 1997 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
JANUARY 14, 1998
<PAGE>
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