<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION TWO WORLD TRADE CENTER, NEW
FUND YORK, NEW YORK 10048
LETTER TO THE SHAREHOLDERS MAY 31, 1998
DEAR SHAREHOLDER:
The Asian financial crisis continued to impact many of the Fund's holdings,
especially small- and mid-cap stocks, technology issues and companies that deal
with commodities. Small- and mid-cap companies were the first to be impacted by
the Asian turmoil as investors sought safety in these larger, more liquid and
thought-to-be safer names. Many technology stocks were also negatively impacted,
particularly component companies, as concerns over excess inventories and
slowing demand caused prices to erode. Commodity prices, particularly oil, also
experienced downward pressure due to a combination of the economic slowdown in
Asia and the warmer-than-expected winter across most of North America. This
decline in prices has, in turn, negatively affected many oil service and
drilling stocks.
PERFORMANCE AND PORTFOLIO
For the first half of the fiscal year ended May 31, 1998 the Fund's Class B
shares produced a total return of -0.61 percent versus 15.05 percent for the
Standard & Poor's 500 Composite Stock Price Index (S&P 500) and 9.08 percent for
the Lipper Capital Appreciation Funds Average. For the same period, the Fund's
Class A, C and D shares had total returns of -0.25 percent, -0.62 percent and
- -0.11 percent, respectively. The performance of the Fund's four share classes
varies because of differing expenses.
The Fund's underperformance relative to the S&P 500 and its Lipper universe is
due to the fact that the Fund has been overweighted relative to these benchmarks
in small-cap stocks while, during the period under review, large-cap stocks
significantly outperformed. However, we continue to believe that the small-cap
segment of the market remains undervalued and that, over the long term, this
segment offers greater growth potential than the broader market. Accordingly,
the Fund continues to pursue small-cap stocks in the $5 to $25 price range with
sound fundamentals, solid earnings momentum and financial stability while
maintaining broad diversification across industry groups. The top
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
LETTER TO THE SHAREHOLDERS MAY 31, 1998, CONTINUED
five industries represented in the portfolio on May 31, 1998 were technology
(37.3 percent of net assets), consumer cyclicals (17.7 percent), capital goods
(10.2 percent), energy (8 percent) and health care (7.3 percent). While the
technology industry has been particularly impacted by the Asian crisis, we
remain heavily concentrated there because we believe there is good value in this
sector among small- and mid-cap software names that operate within niche
markets.
LOOKING AHEAD
We believe that small- and mid-cap stocks stand to benefit from the current
environment of stable interest rates, moderate economic growth and a strong U.S.
dollar. Although the Asian financial crisis initially caused investors to
gravitate toward large caps that were perceived to be safer during the resulting
market uncertainty in the United States, small- and mid-cap stocks actually have
less global exposure and should, therefore, provide investors with a greater
defense against any continued turmoil in the Pacific Rim.
We appreciate your support of Morgan Stanley Dean Witter Capital Appreciation
Fund and look forward to continuing to serve your investment needs.
Sincerely,
[SIGNATURE]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
2
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (94.7%)
ADVERTISING (0.3%)
20,000 Snyder Communications, Inc.*........................................................... $ 806,250
------------
AEROSPACE & DEFENSE (1.2%)
30,000 Kellstrom Industries, Inc.*............................................................ 832,500
70,000 Orbital Sciences Corp.*................................................................ 2,861,250
------------
3,693,750
------------
AIRLINES (0.4%)
40,000 America West Holdings Corp. (Class B)*................................................. 1,132,500
------------
APPAREL (0.6%)
30,000 Polo Ralph Lauren Corp.*............................................................... 915,000
50,000 Quiksilver, Inc.*...................................................................... 953,125
------------
1,868,125
------------
BANKS (1.0%)
30,000 Bank of Commerce....................................................................... 536,250
60,000 Flagstar Bancorp....................................................................... 1,432,500
20,000 Zions Bancorporation................................................................... 1,027,500
------------
2,996,250
------------
BIOTECHNOLOGY (0.8%)
60,000 Sepracor, Inc.*........................................................................ 2,580,000
------------
BREWERY (0.1%)
30,000 Boston Beer Company, Inc. (Class A)*................................................... 330,000
------------
BROADCASTING (0.4%)
20,000 Chancellor Media Corp.*................................................................ 835,000
30,000 Source Media, Inc.*.................................................................... 438,750
------------
1,273,750
------------
BROKERAGE (0.3%)
60,000 Freedom Securities Corp.*.............................................................. 1,035,000
------------
BUILDING & CONSTRUCTION (0.5%)
50,000 Dycom Industries, Inc.*................................................................ 1,431,250
------------
CABLE TELEVISION EQUIPMENT (0.3%)
30,000 Century Communications Corp.*.......................................................... 476,250
30,000 Harmonic Lightwaves, Inc.*............................................................. 521,250
------------
997,500
------------
COMMERCIAL SERVICES (3.1%)
150,000 Century Business Sevices, Inc.*........................................................ 2,578,125
75,000 International Telecommunication Data Systems, Inc.*.................................... 1,846,875
55,000 International Total Services, Inc.*.................................................... 1,127,500
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
50,000 Lason, Inc.*........................................................................... $ 2,031,250
51,079 Romac International, Inc.*............................................................. 1,430,212
60,000 TeleSpectrum Worldwide Inc.*........................................................... 506,250
------------
9,520,212
------------
COMMUNICATIONS - EQUIPMENT/MANUFACTURERS (1.6%)
100,000 Bay Networks, Inc.*.................................................................... 2,768,750
30,000 FORE Systems, Inc.*.................................................................... 654,375
100,000 Network Equipment Technologies, Inc.*.................................................. 1,568,750
------------
4,991,875
------------
COMPUTER EQUIPMENT (0.3%)
10,000 Storage Technology Corp.*.............................................................. 838,750
------------
COMPUTER SOFTWARE & SERVICES (15.1%)
50,000 Acxiom Corp.*.......................................................................... 1,081,250
50,000 American Business Information, Inc. (Class B)*......................................... 625,000
60,000 Aspen Technology, Inc.*................................................................ 2,670,000
60,000 AXENT Technologies, Inc.*.............................................................. 1,470,000
40,000 BroadVision, Inc.*..................................................................... 635,000
60,000 Brooktrout Technology, Inc.*........................................................... 1,087,500
130,000 Business Objects S.A. (ADR) (France)*.................................................. 2,193,750
30,000 Cadence Design Systems, Inc.*.......................................................... 1,057,500
60,000 Certicom Corp. (Canada)*............................................................... 1,359,703
30,000 Cognicase Inc.*........................................................................ 457,500
30,000 Datastream Systems, Inc.*.............................................................. 633,750
60,000 Dendrite International, Inc.*.......................................................... 1,785,000
50,000 Documentum, Inc.*...................................................................... 2,350,000
30,000 FileNET Corp.*......................................................................... 1,650,000
100,000 IDT Corp.*............................................................................. 2,612,500
40,000 InterVU Inc.*.......................................................................... 650,000
18,000 JDA Software Group, Inc.*.............................................................. 810,000
80,000 Legato Systems, Inc.*.................................................................. 2,280,000
50,000 Macromedia, Inc.*...................................................................... 790,625
60,000 MAPICS, Inc.*.......................................................................... 1,050,000
30,000 New Dimension Sofware Ltd. (Israel)*................................................... 851,250
30,000 New Era of Networks, Inc.*............................................................. 802,500
60,000 Novell, Inc.*.......................................................................... 630,000
40,000 Open Text Corp. (Canada)*.............................................................. 700,000
30,000 OzEmail Ltd. (ADR) (Australia)......................................................... 571,875
30,000 Pinnacle Systems, Inc.*................................................................ 1,001,250
30,000 Platinum Technology, Inc.*............................................................. 817,500
30,000 Policy Management Systems Corp.*....................................................... 2,475,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
120,000 PsiNet, Inc.*.......................................................................... $ 1,290,000
50,000 Rational Software Corp.*............................................................... 762,500
50,000 Segue Software, Inc.*.................................................................. 646,875
70,000 Software AG Systems, Inc.*............................................................. 1,706,250
30,000 SPR Inc.*.............................................................................. 832,500
60,000 Summit Design, Inc.*................................................................... 892,500
60,000 Symix Systems, Inc.*................................................................... 1,162,500
40,000 Systems & Computer Technology Corp.*................................................... 1,017,500
40,000 TSI International Software Ltd.*....................................................... 877,500
70,000 Xylan Corp.*........................................................................... 1,680,000
------------
45,966,578
------------
COMPUTERS (5.4%)
45,000 Cybex Corp*............................................................................ 1,029,375
60,000 Hutchinson Technology Inc.*............................................................ 1,500,000
50,000 Lexmark International Group, Inc. (Class A)*........................................... 2,775,000
50,000 MICROS Systems, Inc.*.................................................................. 2,900,000
130,000 Musicland Stores Corp.*................................................................ 1,876,875
110,000 Network Appliance, Inc.*............................................................... 3,822,500
100,000 Sunquest Information Systems, Inc.*.................................................... 862,500
100,000 Xircom, Inc.*.......................................................................... 1,562,500
------------
16,328,750
------------
COMPUTERS - SYSTEMS (2.1%)
40,000 Apple Computer, Inc.*.................................................................. 1,062,500
20,000 EMC Corp.*............................................................................. 828,750
50,000 Gerber Scientific, Inc................................................................. 1,259,375
70,000 Mentor Graphics Corp.*................................................................. 770,000
100,000 Unisys Corp.*.......................................................................... 2,450,000
------------
6,370,625
------------
COSMETICS (0.2%)
30,000 NBTY, Inc.*............................................................................ 521,250
------------
DATA PROCESSING (0.7%)
40,000 Choicepoint Inc.*...................................................................... 2,080,000
------------
EDUCATION (0.5%)
43,000 Education Management Corp.*............................................................ 1,494,250
------------
ELECTRIC (0.2%)
20,000 Jabil Circuit, Inc.*................................................................... 681,250
------------
ELECTRONIC & ELECTRICAL EQUIPMENT (0.1%)
25,000 Artisan Components, Inc.*.............................................................. 421,875
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ELECTRONIC - MAJOR COMPANIES (0.3%)
30,000 Aris Corp.*............................................................................ $ 840,000
1,700 Manhattan Associates, Inc.*............................................................ 34,000
------------
874,000
------------
ELECTRONIC COMPONENTS (0.2%)
40,000 EFTC Corp.*............................................................................ 580,000
------------
ELECTRONICS (1.1%)
50,000 Aeroflex Inc.*......................................................................... 562,500
30,000 Avid Technology, Inc.*................................................................. 1,215,000
30,000 Oak Industries Inc.*................................................................... 1,046,250
30,000 PMT Services, Inc.*.................................................................... 581,250
------------
3,405,000
------------
ELECTRONICS - INSTRUMENTATION (0.8%)
40,000 EG & G, Inc............................................................................ 1,260,000
30,000 Qlogic Corp.*.......................................................................... 1,215,000
------------
2,475,000
------------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS (2.4%)
30,000 DuPont Photomasks, Inc.*............................................................... 1,275,000
80,000 MTI Technology Corp.*.................................................................. 1,070,000
20,000 PMC - Sierra, Inc. (Canada)*........................................................... 777,500
30,000 Uniphase Corp.*........................................................................ 1,526,250
100,000 Vitesse Semiconductor Corp.*........................................................... 2,556,250
------------
7,205,000
------------
ENERGY (1.1%)
25,000 Diamond Offshore Drilling, Inc......................................................... 1,195,312
55,000 KTI, Inc.*............................................................................. 1,216,875
20,000 Transocean Offshore, Inc............................................................... 986,250
------------
3,398,437
------------
ENTERTAINMENT (1.4%)
150,000 Acclaim Entertainment, Inc.*........................................................... 956,250
23,900 ResortQuest International, Inc.*....................................................... 362,981
30,000 Sabre Group Holdings, Inc.*............................................................ 1,051,875
30,000 Steinway Musical Instruments Inc.*..................................................... 898,125
30,000 Travel Services International, Inc.*................................................... 1,042,500
------------
4,311,731
------------
ENVIRONMENTAL (0.6%)
70,000 Allied Waste Industries, Inc.*......................................................... 1,846,250
------------
ENVIRONMENTAL CONTROL (0.2%)
30,000 Newpark Resources, Inc.*............................................................... 545,625
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
ETHICAL DRUGS & DISTRIBUTIONS (0.1%)
20,000 Spiros Development (Units)*++.......................................................... $ 327,500
------------
FINANCIAL SERVICES (0.8%)
30,000 AmeriCredit Corp.*..................................................................... 978,750
2,000 Resource America, Inc. (Class A)....................................................... 132,500
30,000 Southern Pacific Funding Corp.*........................................................ 461,250
30,000 Webster Financial Corp................................................................. 995,625
------------
2,568,125
------------
HEALTH EQUIPMENT & SERVICES (0.2%)
30,000 United Payors & United Providers, Inc.*................................................ 603,750
------------
HEALTHCARE (0.8%)
30,000 Allegiance Corp........................................................................ 1,500,000
30,000 Res-Care, Inc.*........................................................................ 945,000
------------
2,445,000
------------
HEALTHCARE - SPECIALIZED SERVICES (1.0%)
60,000 ALZA Corp. (Class A)*.................................................................. 2,902,500
------------
HOME ENTERTAINMENT (0.4%)
30,000 Electronic Arts Inc.*.................................................................. 1,297,500
------------
HOSPITAL MANAGEMENT (0.3%)
50,000 Veterinary Centers of America, Inc.*................................................... 928,125
------------
HOUSEHOLD FURNISHINGS & APPLIANCES (0.9%)
30,000 Furniture Brands International, Inc.*.................................................. 885,000
85,000 Haverty Furniture Companies, Inc....................................................... 1,848,750
------------
2,733,750
------------
HOUSING & HOME FURNISHINGS (0.1%)
30,000 Shaw Industries, Inc................................................................... 480,000
------------
INSURANCE (0.2%)
20,000 INSpire Insurance Solutions, Inc.*..................................................... 645,000
------------
INTERNET (0.3%)
35,000 Preview Travel, Inc.*.................................................................. 988,750
------------
INVESTMENT COMPANIES (0.3%)
22,400 Affiliated Managers Group, Inc.*....................................................... 802,200
------------
LEISURE TIME/EQUIPMENT (0.2%)
50,000 Handleman Co.*......................................................................... 612,500
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
MACHINERY (1.3%)
80,000 National-Oilwell, Inc.*................................................................ $ 2,795,000
40,000 Terex Corp.*........................................................................... 1,232,500
------------
4,027,500
------------
MANUFACTURING (0.9%)
40,000 Johnstown America Industries, Inc.*.................................................... 720,000
40,000 NN Ball & Roller, Inc.................................................................. 460,000
130,000 Oakley, Inc.*.......................................................................... 1,698,125
------------
2,878,125
------------
MEDIA GROUP (0.3%)
30,000 Outdoor Systems, Inc.*................................................................. 900,000
------------
MEDICAL PRODUCTS & SUPPLIES (1.0%)
30,000 Serologicals Corp.*.................................................................... 870,000
80,000 Trex Medical Corp.*.................................................................... 1,350,000
30,000 Ventana Medical Systems, Inc.*......................................................... 776,250
------------
2,996,250
------------
METALS & MINING (0.0%)
1,000 BRO-X Minerals Ltd. (Canada)*.......................................................... 481
------------
MISCELLANEOUS (0.8%)
50,000 Mail-Well, Inc.*....................................................................... 2,300,000
------------
NATURAL GAS (0.3%)
50,000 Basin Exploration, Inc.*............................................................... 787,500
------------
OIL SERVICES (9.1%)
60,000 Cal Dive International, Inc.*.......................................................... 2,010,000
100,000 Canadian 88 Energy Corp. (Canada)*..................................................... 446,367
110,000 Core Laboratories N.V.*................................................................ 2,901,250
30,000 ENSCO International, Inc............................................................... 759,375
40,000 Evi Weatherford Inc.*.................................................................. 2,022,500
50,000 Friede Goldman International Inc.*..................................................... 1,662,500
90,000 Global Industries Ltd.*................................................................ 1,912,500
87,400 Gulf Island Fabrication, Inc.*......................................................... 1,933,725
60,000 Mallon Resources Corp.*................................................................ 645,000
60,000 Marine Drilling Company, Inc.*......................................................... 1,128,750
70,000 Noble Drilling Corp.*.................................................................. 2,065,000
60,000 Oceaneering International, Inc.*....................................................... 1,290,000
50,000 Patterson Energy, Inc.*................................................................ 559,375
30,000 Stolt Comex Seaway, S.A. (United Kingdom)*............................................. 946,875
50,000 Stone Energy Corp.*.................................................................... 1,771,875
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
25,000 Superior Energy Services, Inc.*........................................................ $ 240,625
50,000 Unit Corp.*............................................................................ 390,625
80,000 Varco International, Inc.*............................................................. 2,085,000
55,000 Veritas DGC Inc.*...................................................................... 2,849,688
------------
27,621,030
------------
PAPER PRODUCTS (0.2%)
30,000 Getty Images, Inc.*.................................................................... 607,500
------------
PHARMACEUTICALS (3.1%)
100,000 Advance Paradigm, Inc.*................................................................ 3,537,500
30,000 Algos Pharmaceutical Corp.*............................................................ 1,091,250
30,000 ChiRex, Inc.*.......................................................................... 633,750
70,000 ImClone Systems, Inc.*................................................................. 765,625
50,000 MedImmune, Inc.*....................................................................... 2,493,750
40,000 SangStat Medical Corp.*................................................................ 1,045,000
------------
9,566,875
------------
POLLUTION CONTROL (1.3%)
100,000 American Disposal Services, Inc.*...................................................... 3,912,500
------------
PROPERTY - CASUALTY INSURANCE (1.1%)
50,000 Reliance Group Holdings, Inc........................................................... 903,125
60,000 Stewart Information Services Corp...................................................... 2,302,500
------------
3,205,625
------------
PUBLISHING (0.6%)
30,000 Big Flower Holdings, Inc.*............................................................. 920,625
40,000 Petersen Companies, Inc. (Class A)*.................................................... 985,000
------------
1,905,625
------------
RESTAURANTS (0.6%)
30,000 Consolidated Products, Inc.*........................................................... 594,375
30,000 Outback Steakhouse, Inc.*.............................................................. 1,104,375
------------
1,698,750
------------
RETAIL (3.5%)
60,000 AnnTaylor Stores Corp.*................................................................ 1,308,750
40,000 Bed Bath & Beyond, Inc.*............................................................... 2,007,500
40,000 Buckle (THE), Inc.*.................................................................... 2,040,000
20,000 Kohl's Corp.*.......................................................................... 951,250
40,000 Maxim Group, Inc.*..................................................................... 675,000
40,000 Party City Corp.*...................................................................... 1,170,000
60,000 Shoe Carnival Inc.*.................................................................... 825,000
30,000 Signet Group PLC (ADR) (United Kingdom)*............................................... 693,750
60,000 Stein Mart, Inc.*...................................................................... 945,000
------------
10,616,250
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL - DEPARTMENT STORES (1.3%)
80,000 Elder-Beerman Stores Corp.*............................................................ $ 1,990,000
30,000 Payless ShoeSource, Inc.*.............................................................. 2,101,875
------------
4,091,875
------------
RETAIL - FOOD CHAINS (0.3%)
30,000 Wild Oats Markets, Inc.*............................................................... 858,750
------------
RETAIL - GENERAL MERCHANDISE (0.2%)
30,000 Loblaw Companies Ltd. (Canada)......................................................... 659,250
------------
RETAIL - SPECIALTY (4.7%)
50,000 Baker (J.), Inc........................................................................ 606,250
20,000 Costco Companies, Inc.*................................................................ 1,156,250
30,000 DM Management Co.*..................................................................... 915,000
60,000 Houghton Mifflin Co.................................................................... 2,085,000
120,000 Linens 'N Things, Inc.*................................................................ 3,855,000
30,000 Staples, Inc.*......................................................................... 751,875
100,000 Sunglass Hut International, Inc.*...................................................... 1,218,750
30,000 Talbot's, Inc. (The)................................................................... 856,875
60,000 TJX Companies, Inc..................................................................... 2,805,000
------------
14,250,000
------------
SPECIALIZED SERVICES (0.4%)
60,000 RCM Technologies, Inc.*................................................................ 1,245,000
------------
SPORTING GOODS (0.3%)
30,000 Hibbett Sporting Goods, Inc.*.......................................................... 993,750
------------
TECHNOLOGY (1.2%)
30,000 Kroll-O'Gara Co.*...................................................................... 652,500
70,000 Kuhlman Corp........................................................................... 2,957,500
------------
3,610,000
------------
TELECOMMUNICATIONS (5.7%)
40,000 ANTEC Corp.*........................................................................... 765,000
328,000 CGI Group, Inc. (Canada)*.............................................................. 6,779,838
60,000 Qwest Communications International Inc.*............................................... 1,983,750
40,000 SkyTel Communications Inc.*............................................................ 905,000
100,000 STAR Telecommunications, Inc.*......................................................... 2,350,000
60,000 Startec Global Communications Corp.*................................................... 982,500
50,000 WinStar Communications, Inc.*.......................................................... 1,862,500
40,000 World Access, Inc.*.................................................................... 1,250,000
50,000 WorldPort Communications, Inc.*........................................................ 556,250
------------
17,434,838
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS - LONG DISTANCE (1.1%)
90,000 ITC DeltaCom, Inc.*.................................................................... $ 3,217,500
------------
TELECOMMUNICATIONS EQUIPMENT (3.1%)
30,000 Advanced Fibre Communications, Inc.*................................................... 1,110,000
59,500 AFC Cable Systems, Inc.*............................................................... 1,985,813
60,000 Applied Voice Technology, Inc.*........................................................ 1,125,000
70,000 e. Spire Communications, Inc.*......................................................... 1,128,750
25,000 L-3 Communications Holdings, Inc.*..................................................... 700,000
110,000 RIT Technologies Ltd.*................................................................. 1,237,500
30,000 Tellabs, Inc.*......................................................................... 2,060,625
------------
9,347,688
------------
TEXTILES (0.1%)
30,000 Donna Karan International Inc.*........................................................ 420,000
------------
TEXTILES - APPAREL (0.4%)
30,000 Fruit of the Loom, Inc. (Class A)*..................................................... 1,078,125
------------
TRANSPORTATION (1.4%)
48,000 Coach USA, Inc.*....................................................................... 2,067,000
35,000 Offshore Logistics, Inc.*.............................................................. 713,125
30,000 Sea Containers, Ltd. (Class A)......................................................... 1,213,125
17,000 Trico Marine Service, Inc.*............................................................ 337,875
------------
4,331,125
------------
UTILITIES (0.3%)
30,000 Hagler Bailly, Inc.*................................................................... 821,250
------------
WASTE DISPOSAL (0.9%)
95,000 Eastern Environmental Services, Inc.*.................................................. 2,683,750
------------
WIRELESS COMMUNICATION (0.3%)
30,000 Metro One Telecommunications*.......................................................... 348,750
30,000 Powerwave Technologies, Inc.*.......................................................... 573,750
------------
922,500
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $253,313,447)......................................................... 288,324,945
------------
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 INVESTMENTS (5.3%)
U.S. GOVERNMENT AGENCY (a) (3.6%)
$ 11,000 Federal Home Loan Mortgage Corp. 5.55% due 06/01/98 (AMORTIZED COST $11,000,000)....... $ 11,000,000
------------
REPURCHASE AGREEMENT (1.7%)
5,256 The Bank of New York 5.50% due 06/01/98 (dated 05/29/98; proceeds $5,258,240) (b)
(IDENTIFIED COST $5,255,831)......................................................... 5,255,831
------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $16,255,831).......................................................... 16,255,831
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $269,575,347) (C)........................................................ 100.0 % 304,582,726
LIABILITIES IN EXCESS OF OTHER ASSETS..................................................... (0.0) (31,805)
------ -------------
NET ASSETS................................................................................ 100.0 % $ 304,550,921
------ -------------
------ -------------
</TABLE>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
++ Consists of more than one class of securities traded together as a unit;
stocks with attached warrants.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $4,418,339 Government National Mortgage Assoc. 7.00% due
08/20/23 valued at $2,376,198 and $3,063,450 U.S. Treasury Bill 0.00% due
11/27/98 valued at $2,984,749.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $44,167,839 and the
aggregate gross unrealized depreciation is $9,160,460, resulting in net
unrealized appreciation of $35,007,379.
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $269,575,347).............................................................. $304,582,726
Receivable for:
Investments sold.......................................................................... 4,813,795
Shares of beneficial interest sold........................................................ 119,790
Dividends................................................................................. 14,208
Deferred organizational expenses.............................................................. 86,130
Prepaid expenses and other assets............................................................. 109,205
------------
TOTAL ASSETS............................................................................. 309,725,854
------------
LIABILITIES:
Payable for:
Investments purchased..................................................................... 4,134,738
Shares of beneficial interest repurchased................................................. 472,553
Plan of distribution fee.................................................................. 273,857
Investment management fee................................................................. 206,956
Accrued expenses and other payables........................................................... 86,829
------------
TOTAL LIABILITIES........................................................................ 5,174,933
------------
NET ASSETS............................................................................... $304,550,921
------------
------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................... $249,539,040
Net unrealized appreciation................................................................... 35,007,379
Net investment loss........................................................................... (3,184,461)
Accumulated undistributed net realized gain................................................... 23,188,963
------------
NET ASSETS............................................................................... $304,550,921
------------
------------
CLASS A SHARES:
Net Assets.................................................................................... $814,616
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 59,451
NET ASSET VALUE PER SHARE................................................................ $13.70
------------
------------
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE)........................................ $14.46
------------
------------
CLASS B SHARES:
Net Assets.................................................................................... $300,938,226
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 22,109,133
NET ASSET VALUE PER SHARE................................................................ $13.61
------------
------------
CLASS C SHARES:
Net Assets.................................................................................... $1,713,373
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 125,868
NET ASSET VALUE PER SHARE................................................................ $13.61
------------
------------
CLASS D SHARES:
Net Assets.................................................................................... $1,084,706
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 79,013
NET ASSET VALUE PER SHARE................................................................ $13.73
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $500 foreign withholding tax)................................................ $ 175,278
Interest....................................................................................... 131,712
-----------
TOTAL INCOME.............................................................................. 306,990
-----------
EXPENSES
Plan of distribution fee (Class A shares)...................................................... 843
Plan of distribution fee (Class B shares)...................................................... 1,671,084
Plan of distribution fee (Class C shares)...................................................... 9,501
Investment management fee...................................................................... 1,268,728
Transfer agent fees and expenses............................................................... 352,065
Registration fees.............................................................................. 67,136
Shareholder reports and notices................................................................ 37,077
Custodian fees................................................................................. 32,731
Professional fees.............................................................................. 25,239
Organizational expenses........................................................................ 17,832
Trustees' fees and expenses.................................................................... 6,740
Other.......................................................................................... 2,475
-----------
TOTAL EXPENSES............................................................................ 3,491,451
-----------
NET INVESTMENT LOSS....................................................................... (3,184,461)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain.............................................................................. 13,670,887
Net change in unrealized appreciation.......................................................... (12,167,315)
-----------
NET GAIN.................................................................................. 1,503,572
-----------
NET DECREASE................................................................................... $(1,680,889)
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
MAY 31, 1998 NOVEMBER 30, 1997*
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss....................................................... $ (3,184,461) $ (6,153,061 )
Net realized gain......................................................... 13,670,887 38,570,804
Net change in unrealized appreciation..................................... (12,167,315) (6,517,638 )
------------ ------------------
NET INCREASE (DECREASE).............................................. (1,680,889) 25,900,105
------------ ------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET
REALIZED GAIN:
Class A shares............................................................ (16,866) --
Class B shares............................................................ (12,266,897) --
Class C shares............................................................ (47,349) --
Class D shares............................................................ (19,419) --
------------ ------------------
TOTAL DISTRIBUTIONS.................................................. (12,350,531) --
------------ ------------------
Net increase (decrease) from transactions in shares of beneficial
interest................................................................ (48,669,523) 30,542,778
------------ ------------------
NET INCREASE (DECREASE).............................................. (62,700,943) 56,442,883
NET ASSETS:
Beginning of period....................................................... 367,251,864 310,808,981
------------ ------------------
END OF PERIOD
(INCLUDING A NET INVESTMENT LOSS OF $3,184,461 AND $0,
RESPECTIVELY)......................................................... $304,550,921 $ 367,251,864
------------ ------------------
------------ ------------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1998 (UNAUDITED)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley 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.
Effective June 22, 1998, the following entities have changed their name:
<TABLE>
<CAPTION>
Old Name New Name
- --------------------------------------------- -----------------------------------------------------
<S> <C>
Dean Witter Capital Appreciation Fund Morgan Stanley Dean Witter Capital Appreciation Fund
Dean Witter InterCapital Inc. Morgan Stanley Dean Witter Advisors Inc.
Dean Witter Distributors Inc. Morgan Stanley Dean Witter Distributors Inc.
</TABLE>
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some Class
A shares, and most Class B shares and Class C shares are subject to a contingent
deferred sales charge imposed on shares redeemed within one year, six years and
one year, respectively. Class D shares are not subject to a sales charge.
Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic stock exchange is valued at its latest sale
price on that exchange prior to the time when assets are valued; if there were
no sales that day, the security is valued at the latest bid price (in cases
where securities are traded on more than one exchange, the securities are valued
on the exchange designated as the primary market pursuant to procedures adopted
by the Trustees); (2) all other portfolio securities for which over-the-counter
market quotations are readily available are valued at the latest available bid
price prior to the time of valuation; (3) when market quotations are not readily
available, including circumstances under which it is determined by Morgan
Stanley Dean
11
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1998 (UNAUDITED) CONTINUED
Witter Advisors 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 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
12
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1998 (UNAUDITED) CONTINUED
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.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 0.75% to the portion of daily net assets not exceeding
$500 million and 0.725% to the portion of daily net assets in excess of $500
million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the 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
13
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1998 (UNAUDITED) CONTINUED
are paid to the Distributor for services provided. In the case of Class B and
Class C shares, amounts paid under the Plan are paid to the Distributor for
services provided and the expenses borne by it and others in the distribution of
the shares of these Classes, including the payment of commissions for sales of
these Classes and incentive compensation to, and expenses of, Morgan Stanley
Dean Witter Financial Advisors 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 paid
pursuant to the Plan, in the case of Class B shares, to compensate Dean Witter
Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and Distributor,
and other selected broker-dealers for their opportunity costs in advancing such
amounts, which compensation would be in the form of a carrying charge on any
unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $11,435,574 at May 31, 1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the six months ended May 31, 1998, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
1.0%, respectively.
The Distributor has informed the Fund that for the six months ended May 31,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C
14
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1998 (UNAUDITED) CONTINUED
shares of $501,230 and $15,716, respectively and received $8,683 in front-end
sales charges from sales of the Fund's Class A shares. The respective
shareholders pay such charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended May 31, 1998 aggregated
$379,206,734 and $460,276,440, respectively.
For the six months ended May 31, 1998, the Fund incurred brokerage commissions
of $16,350 with DWR for portfolio transactions executed on behalf of the fund.
For the six months ended May 31, 1998, the Fund incurred brokerage commissions
of $32,298 with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager, for portfolio transactions executed on behalf of the Fund.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At May 31, 1998, the Fund had
transfer agent fees and expenses payable of approximately $12,500.
15
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1998 (UNAUDITED) CONTINUED
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
MAY 31, 1998 FOR THE YEAR
---------------------------- ENDED
NOVEMBER 30, 1997*
(UNAUDITED) --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold............................................................. 39,212 $ 531,187 24,829 $ 380,181
Reinvestment of distributions.................................... 977 12,342 -- --
Repurchased...................................................... (4,922) (68,079) (645) (9,645)
----------- -------------- ----------- ------------
Net increase -- Class A.......................................... 35,267 475,450 24,184 370,536
----------- -------------- ----------- ------------
CLASS B SHARES
Sold............................................................. 2,043,140 28,691,181 15,086,938 211,255,509
Reinvestment of distributions.................................... 921,964 11,598,309 -- --
Repurchased...................................................... (6,559,323) (90,727,691) (13,313,433) (182,682,535)
----------- -------------- ----------- ------------
Net increase (decrease) -- Class B............................... (3,594,219) (50,438,201) 1,773,505 28,572,974
----------- -------------- ----------- ------------
CLASS C SHARES
Sold............................................................. 169,930 2,285,277 101,030 1,609,066
Reinvestment of distributions.................................... 3,263 41,082 -- --
Repurchased...................................................... (137,884) (1,891,877) (10,471) (153,924)
----------- -------------- ----------- ------------
Net increase -- Class C.......................................... 35,309 434,482 90,559 1,455,142
----------- -------------- ----------- ------------
CLASS D SHARES
Sold............................................................. 144,353 1,918,701 9,511 144,126
Reinvestment of distributions.................................... 376 4,754 -- --
Repurchased...................................................... (75,227) (1,064,709) -- --
----------- -------------- ----------- ------------
Net increase -- Class D.......................................... 69,502 858,746 9,511 144,126
----------- -------------- ----------- ------------
Net increase (decrease) in Fund.................................. (3,454,141) $ (48,669,523) 1,897,759 $ 30,542,778
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
- ---------------------
* For Class A, C, and D shares, for the period July 28, 1997 (issue date)
through November 30, 1997.
6. FEDERAL INCOME TAX STATUS
As of November 30, 1997 the Fund had temporary book/tax differences attributable
to post-October losses deferrals on wash sales.
16
<PAGE>
MORGAN STANLEY 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 SIX FOR THE OCTOBER 27,
MONTHS YEAR ENDED FOR THE 1995*
ENDED NOVEMBER YEAR ENDED THROUGH
MAY 31, 30, NOVEMBER NOVEMBER
1998++ 1997**++ 30, 1996 30, 1995
<S> <C> <C> <C> <C>
(UNAUDITED)
- --------------------------------------------------------------------------------------------
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period.............................. $ 14.22 $ 12.99 $ 10.53 $ 10.00
----------- ----------- ----------- -----------
Net investment loss.................. (0.13) (0.24) (0.15) (0.01)
Net realized and unrealized gain..... -- 1.47 2.61 0.54
----------- ----------- ----------- -----------
Total from investment operations..... (0.13) 1.23 2.46 0.53
----------- ----------- ----------- -----------
Less distributions from net realized
gain................................ (0.48) -- -- --
----------- ----------- ----------- -----------
Net asset value, end of period....... $ 13.61 $ 14.22 $ 12.99 $ 10.53
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
TOTAL INVESTMENT RETURN+............. (0.61)%(1) 9.47% 23.36% 5.30%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses............................. 2.07%(2) 2.00% 2.00% 2.87%(2)
Net investment loss.................. (1.89)%(2) (1.79)% (1.72)% (0.79)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands........................... $300,938 $365,484 $310,809 $102,009
Portfolio turnover rate.............. 113%(1) 184% 108% 7%(1)
Average commission rate paid......... $0.0560 $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
17
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
FOR THE SIX THROUGH
MONTHS ENDED NOVEMBER 30,
MAY 31, 1998++ 1997++
<S> <C> <C>
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 14.26 $ 14.34
------ ------
Net investment loss................................................... (0.08) (0.06)
Net realized and unrealized loss...................................... -- (0.02)
------ ------
Total from investment operations...................................... (0.08) (0.08)
------ ------
Less distributions from net realized gain............................. (0.48) --
------ ------
Net asset value, end of period........................................ $ 13.70 $ 14.26
------ ------
------ ------
TOTAL INVESTMENT RETURN+.............................................. (0.25)%(1) (0.56)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.31%(2) 1.27%(2)
Net investment loss................................................... (1.12)%(2) (1.08)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $ 815 $ 345
Portfolio turnover rate............................................... 113%(1) 184%
Average commission rate paid.......................................... $0.0560 $0.0570
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 14.22 $ 14.34
------ ------
Net investment loss................................................... (0.13) (0.09)
Net realized and unrealized loss...................................... -- (0.03)
------ ------
Total from investment operations...................................... (0.13) (0.12)
------ ------
Less distributions from net realized gain............................. (0.48) --
------ ------
Net asset value, end of period........................................ $ 13.61 $ 14.22
------ ------
------ ------
TOTAL INVESTMENT RETURN+.............................................. (0.62)%(1) (0.84)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 2.08%(2) 2.03%(2)
Net investment loss................................................... (1.90)%(2) (1.82)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $1,713 $1,288
Portfolio turnover rate............................................... 113%(1) 184%
Average commission rate paid.......................................... $0.0560 $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
18
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
FOR THE SIX THROUGH
MONTHS ENDED NOVEMBER 30,
MAY 31, 1998++ 1997++
<S> <C> <C>
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 14.27 $ 14.34
------ ------
Net investment loss................................................... (0.06) (0.04)
Net realized and unrealized loss...................................... -- (0.03)
------ ------
Total from investment operations...................................... (0.06) (0.07)
------ ------
Less distributions from net realized gain............................. (0.48) --
------ ------
Net asset value, end of period........................................ $ 13.73 $ 14.27
------ ------
------ ------
TOTAL INVESTMENT RETURN+.............................................. (0.11)%(1) (0.49)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.06%(2) 1.01%(2)
Net investment loss................................................... (0.87)%(2) (0.82)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $ 1,085 $ 136
Portfolio turnover rate............................................... 113%(1) 184%
Average commission rate paid.......................................... $0.0560 $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
19
<PAGE>
TRUSTEES
MORGAN STANLEY
Michael Bozic DEAN WITTER
Charles A. Fiumefreddo CAPITAL APPRECIATION
Edwin J. Garn FUND
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Ronald J. Worobel
Vice President
[PHOTO]
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
SEMIANNUAL REPORT
MAY 31, 1998
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
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of
the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
