MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND, N-30D, 1999-01-29

MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
N-30D, 1999-01-29

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<PAGE>

MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION TWO WORLD TRADE CENTER,
FUND NEW YORK, NEW YORK 10048
LETTER TO THE SHAREHOLDERS NOVEMBER 30, 1998

DEAR SHAREHOLDER:

The broad market rally that started during the fourth quarter of 1997 carried
over into the first quarter of 1998. An overall market rebound, driven by
stronger-than-expected corporate earnings and relatively cheap valuations, led
small-cap stocks to perform well early in 1998. However, continued worldwide
pressure on oil prices and global economic turmoil resulted in a sharp
correction in April. In addition, fears of a global recession caused many
financial institutions to become more restrictive in extending lines of credit.

As a result, the prices of small-cap stocks experienced a steep decline.
Small-caps fell 19 percent -- the second worst decline in 20 years -- in August
alone. In October, the Federal Reserve Board took action against a potential
global credit crisis by lowering interest rates for the second time in less than
four weeks. While the central bank's move led small-cap stocks to begin a modest
rebound, small caps continue to trail their mid- and large-cap brethren.

PERFORMANCE

For the fiscal year ended November 30, 1998, the Fund's Class B shares produced
a total return of -11.19 percent compared to 23.66 percent for the broad-based
Standard & Poor's 500 Composite Stock Price Index (S&P 500) and 11.52 percent
for the Lipper Capital Appreciation Fund Index.

The Fund's underperformance relative to the S&P 500 and the Lipper Capital
Appreciation Fund Index is attributable to the fact that the Fund's portfolio
has been overweighted, on a relative basis, in small-cap stocks while, during
the period under review, the stocks of larger companies were much stronger
performers. Throughout the period under review, total return of the Russell 2000
Small Stock Index, a popular measure of the stock price performance of small
companies, was -6.62 percent.

<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
LETTER TO THE SHAREHOLDERS NOVEMBER 30, 1998, CONTINUED

The accompanying chart illustrates the performance of a $10,000 investment in
the Fund from inception through the fiscal year ended November 30, 1998, versus
the performance of similar hypothetical investments in the S&P 500 and the
Lipper Capital Appreciation Funds Index.

PORTFOLIO

Over the past fiscal year, the Fund continued to focus on small-cap stocks that
we view to have sound fundamentals, solid earnings momentum and strong
management. The portfolio is diversified across many different industries. As of
November 30, 1998 the five largest industries represented in the portfolio were
computer hardware (8.6 percent of net assets), computer software (8.0 percent),
consumer/ business services (7.6 percent), financial services (7.5 percent) and
pharmaceuticals (7.0 percent). Within these sectors, representative holdings
include EMC Corp., Microsoft Corp., Unisys Corp., American Express Co. and Intel
Corp.

LOOKING AHEAD

The heightened volatility that the market has experienced over the past 18
months may continue into 1999. Because of the uncertainty surrounding many
foreign economies, the portfolio will have a greater emphasis on domestic
companies with limited international exposure. We expect that the current
relatively low interest rates may support a small-cap rally. Further, we believe
that the small-cap segment of the market is undervalued and, over the long term,
may offer greater growth potential than the broader market.

On October 28, 1998, the Fund's Board of Trustees voted to recommend to
shareholders a reorganization plan whereby the Fund would be merged into Morgan
Stanley Dean Witter American Value Fund. This plan is subject to the consent of
the Fund's shareholders at a special meeting scheduled for February 24, 1999.

We appreciate your support of Morgan Stanley Dean Witter Capital Appreciation
Fund and look forward to continuing to serve your investment needs and
objectives.

Very truly yours,

[SIGNATURE]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD

2
<PAGE>

MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION
FUND
FUND PERFORMANCE NOVEMBER 30, 1998

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
Growth of $10,000 -- Class B
Shares
($ in Thousands)

TOTAL S&P 500(4) Lipper(5)
<S> <C> <C> <C>
October-1995 $10,000 $10,000 $10,000
November-1995 $10,530 $10,485 $10,369
November-1996 $12,990 $13,407 $12,138
November-1997 $14,220 $17,228 $14,194
$12,429
November-1998 (3) $21,304 $15,829
</TABLE>

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR CLASS
A, CLASS C, AND CLASS D SHARES WILL VARY FROM THE PERFORMANCE OF CLASS B
SHARES SHOWN ABOVE DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- ----------------------------------------------------------------------------------------------------
CLASS B SHARES* CLASS A SHARES+
- ----------------------------------------------- -----------------------------------------------
PERIOD ENDED 11/30/98 PERIOD ENDED 11/30/98
- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
1 Year -11.19%(1) -15.13%(2) 1 Year -10.48%(1) -15.18%(2)
Since Inception
(10/27/95) 7.84(1) 7.28(2) Since Inception (7/28/97) -8.30(1) -11.92(2)
</TABLE>

<TABLE>
<CAPTION>
CLASS C SHARES++ CLASS D SHARES#
- ----------------------------------------------- -----------------------------------------------
PERIOD ENDED 11/30/98 PERIOD ENDED 11/30/98
- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
1 Year -11.19%(1) -11.98%(2) 1 Year -10.34%(1)
Since Inception (7/28/97) -9.04(1) -9.04(2) From Inception (7/28/97) -8.15(1)
</TABLE>

- ------------------------
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable sales charge. See the Fund's current prospectus for
complete details on fees and sales charges.
(3) Closing value after the deduction of a 2% contingent deferred sales charge
(CDSC), assuming a complete redemption on November 30, 1998.
(4) The Standard & Poor's 500 Stock 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 Fund 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.
* The maximum CDSC for Class B shares is 5.0%. The CDSC declines to 0% after
six years.
+ The maximum front-end sales charge for Class A shares is 5.25%.
++ The maximum CDSC for Class C shares is 1% for shares redeemed within one
year of purchase.
# Class D shares have no sales charge.

3
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (96.6%)
AEROSPACE (2.1%)
45,000 General Dynamics Corp.................................................................. $ 2,612,812
30,000 Litton Industries, Inc.*............................................................... 1,835,625
------------
4,448,437
------------
BANKING (2.4%)
41,000 Chase Manhattan Corp................................................................... 2,600,937
20,000 Fifth Third Bancorp.................................................................... 1,327,500
30,000 Wells Fargo Co......................................................................... 1,080,000
------------
5,008,437
------------
BEVERAGES - BREWERS (0.7%)
30,000 Coors (Adolph) Co. (Class B)........................................................... 1,492,500
------------
BIOTECHNOLOGY (4.6%)
70,000 Centocor, Inc.*........................................................................ 2,839,375
40,000 Chiron Corp.*.......................................................................... 905,000
30,000 Genset (ADR) (France)*................................................................. 862,500
12,000 Immunex Corp.*......................................................................... 1,104,750
33,000 PathoGenesis Corp.*.................................................................... 1,584,000
30,000 Sepracor, Inc.*........................................................................ 2,471,250
------------
9,766,875
------------
CABLE TELEVISION (3.1%)
40,000 Century Communications Corp.*.......................................................... 975,000
50,000 Comcast Corp. (Class A Special)........................................................ 2,425,000
35,000 Cox Communications, Inc. (Class A)*.................................................... 1,844,062
30,000 Superior TeleCom Inc................................................................... 1,305,000
------------
6,549,062
------------
COMMUNICATIONS EQUIPMENT (5.1%)
17,000 At Home Corp. (Series A)*.............................................................. 988,125
50,000 AVT Corp.*............................................................................. 1,162,500
40,000 Gemstar International Group Ltd.* (Virgin Islands)..................................... 2,430,000
30,000 Gilat Satellite Networks Ltd. (Israel)*................................................ 1,526,250
40,000 Network Appliance, Inc.*............................................................... 3,005,000
30,000 Western Digital Corp.*................................................................. 391,875
40,000 Xircom, Inc.*.......................................................................... 1,207,500
------------
10,711,250
------------
COMPUTER HARDWARE (8.6%)
60,000 American Power Conversion Corp.*....................................................... 2,478,750
19,000 Compaq Computer Corp................................................................... 617,500
60,000 EMC Corp.*............................................................................. 4,350,000

<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
13,000 Flextronics International, Ltd.*....................................................... $ 864,500
11,000 Jabil Circuit, Inc.*................................................................... 638,000
25,000 Lexmark International Group, Inc. (Class A)*........................................... 1,909,375
60,000 Micron Electronics, Inc.*.............................................................. 1,357,500
70,000 Sun Microsystems, Inc.*................................................................ 5,175,625
18,000 Wind River Systems, Inc.*.............................................................. 837,000
------------
18,228,250
------------
COMPUTER SOFTWARE (8.0%)
20,000 Best Software, Inc.*................................................................... 497,500
13,000 Citrix Systems, Inc.*.................................................................. 1,079,000
30,000 Concord Communications, Inc.*.......................................................... 1,323,750
30,000 Electronics for Imaging, Inc.*......................................................... 804,375
30,000 Great Plains Software, Inc.*........................................................... 1,177,500
30,000 Henry (JACK) & Associates, Inc......................................................... 1,505,625
40,000 Legato Systems, Inc.*.................................................................. 1,910,000
25,000 Macromedia, Inc.*...................................................................... 696,875
9,000 Microsoft Corp.*....................................................................... 1,098,000
50,000 MicroStrategy Inc. (Class A)*.......................................................... 1,118,750
30,000 New Era of Networks, Inc.*............................................................. 2,216,250
40,000 Novell, Inc.*.......................................................................... 660,000
40,000 Peregine Systems, Inc.*................................................................ 1,475,000
20,000 Veritas Software Corp.*................................................................ 1,195,000
------------
16,757,625
------------
CONSTRUCTION/AG EQUIP/TRUCKS (0.5%)
20,000 Astec Industries, Inc.*................................................................ 1,027,500
------------
CONSUMER PRODUCTS (2.7%)
60,000 CVS Corp............................................................................... 2,962,500
50,000 Walgreen Co............................................................................ 2,684,375
------------
5,646,875
------------
CONSUMER/BUSINESS SERVICES (7.6%)
30,000 Advantage Learning Systems, Inc.*...................................................... 1,657,500
75,000 Lason, Inc.*........................................................................... 4,603,125
30,000 Macrovision Corp.*..................................................................... 1,083,750
70,000 Metzler Group, Inc. (The)*............................................................. 2,905,000
30,000 NCO Group, Inc.*....................................................................... 1,106,250
60,000 Paychex, Inc........................................................................... 2,985,000
60,000 Unisys Corp.*.......................................................................... 1,710,000
------------
16,050,625
------------
ENERGY (3.1%)
1,000 BRO-X Minerals Ltd. (Canada)*.......................................................... 457
61,000 Cooper Cameron Corp.*.................................................................. 1,486,875
80,000 Halliburton Co......................................................................... 2,350,000
54,000 Smith International, Inc.*............................................................. 1,302,750
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
53,000 Transocean Offshore, Inc............................................................... $ 1,308,437
------------
6,448,519
------------
FINANCIAL SERVICES (7.5%)
15,000 American Express Co.................................................................... 1,500,937
40,000 Charter One Financial, Inc............................................................. 1,187,500
54,000 Donaldson, Lufkin & Jenrette, Inc...................................................... 2,170,125
27,000 Equitable Companies, Inc............................................................... 1,491,750
14,000 Franklin Resources, Inc................................................................ 598,500
45,000 Hambrecht & Quist Group*............................................................... 1,091,250
23,000 Lehman Brothers Holdings, Inc.......................................................... 1,148,562
60,000 Merrill Lynch & Co., Inc............................................................... 4,500,000
22,000 Providian Financial Corp............................................................... 2,019,875
------------
15,708,499
------------
HEALTHCARE (3.6%)
29,000 Eclipsys Corp.*........................................................................ 583,625
40,000 IMPATH, Inc.*.......................................................................... 1,525,000
25,000 Kendle International Inc.*............................................................. 559,375
30,000 MedImmune, Inc.*....................................................................... 2,006,250
30,000 MedQuist Inc.*......................................................................... 911,250
22,000 Quintiles Transnational Corp.*......................................................... 1,097,250
40,000 Res-Care, Inc.*........................................................................ 970,000
------------
7,652,750
------------
INTERNET SERVICES (5.9%)
36,000 America Online, Inc.*.................................................................. 3,152,250
30,000 Earthlink Network, Inc.*............................................................... 1,822,500
25,100 Inktomi Corp.*......................................................................... 3,352,419
8,000 Intuit Inc.*........................................................................... 463,000
14,000 Lycos, Inc.*........................................................................... 823,375
70,000 PsiNet, Inc.*.......................................................................... 1,312,500
8,000 Yahoo! Inc.*........................................................................... 1,535,500
------------
12,461,544
------------
MEDICAL EQUIPMENT & SUPPLIES (4.7%)
25,000 Biomet, Inc............................................................................ 954,688
80,000 Dendrite International, Inc.*.......................................................... 1,540,000
90,000 Haemonetics Corp.*..................................................................... 2,030,625
10,000 MiniMed, Inc.*......................................................................... 712,500
39,000 ResMed, Inc.*.......................................................................... 1,326,000
75,000 Serologicals Corp.*.................................................................... 2,203,125
25,000 Xomed Surgical Products, Inc.*......................................................... 1,075,000
------------
9,841,938
------------

<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
PAPER (0.9%)
15,000 Jefferson Smurfit Group PLC (Ireland).................................................. $ 29,931
30,000 Union Camp Corp........................................................................ 1,940,625
------------
1,970,556
------------
PHARMACEUTICALS (7.0%)
40,000 Alpharma Inc. (Class A)................................................................ 1,440,000
16,000 Barr Laboratories, Inc.*............................................................... 676,000
30,000 Elan Corp. PLC (ADR) (Ireland)*........................................................ 2,043,750
35,000 Lilly (Eli) & Co....................................................................... 3,139,063
80,000 Pharmacia & Upjohn, Inc................................................................ 4,165,000
10,000 Schering-Plough Corp................................................................... 1,063,750
30,000 Watson Pharmaceuticals, Inc.*.......................................................... 1,616,250
30,000 Zonagen, Inc.*......................................................................... 577,500
------------
14,721,313
------------
RESTAURANTS (0.9%)
40,000 U.S. Foodservice*...................................................................... 1,837,500
------------
RETAIL (6.3%)
38,000 Abercrombie & Fitch Co. (Class A)*..................................................... 2,128,000
43,000 Best Buy Co., Inc.*.................................................................... 2,477,875
38,000 Gap, Inc. (The)........................................................................ 2,795,375
42,000 Lowe's Companies, Inc.................................................................. 1,774,500
25,000 The Children's Place Retail Stores, Inc.*.............................................. 462,500
35,000 TJX Companies, Inc..................................................................... 896,875
35,000 Wal-Mart Stores, Inc................................................................... 2,635,938
------------
13,171,063
------------
SEMICONDUCTORS (6.8%)
59,000 Advanced Micro Devices, Inc.*.......................................................... 1,633,563
20,000 Intel Corp............................................................................. 2,151,250
95,000 Micron Technology, Inc.*............................................................... 3,924,688
40,000 Novellus Systems, Inc.*................................................................ 1,980,000
18,000 Rambus, Inc.*.......................................................................... 1,594,125
35,000 Seagate Technology, Inc.*.............................................................. 1,032,500
67,000 Semtech Corp.*......................................................................... 1,968,125
------------
14,284,251
------------
TELECOMMUNICATION EQUIPMENT (1.0%)
66,000 Applied Micro Circuits Corp.*.......................................................... 2,211,000
------------
TELECOMMUNICATIONS (1.9%)
40,000 ITC DeltaCom, Inc.*.................................................................... 620,000
50,000 MCI WorldCom, Inc.*.................................................................... 2,946,875
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS NOVEMBER 30, 1998, CONTINUED

<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
47,500 WorldPort Communications, Inc.*........................................................ $ 427,500
------------
3,994,375
------------
TOBACCO (1.6%)
60,000 Philip Morris Companies, Inc........................................................... 3,356,250
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $178,252,819)......................................................... 203,346,994
------------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
SHORT-TERM INVESTMENTS (7.1%)
U.S. GOVERNMENT AGENCY (a) (4.3%)
$ 9,000 Federal Home Loan Banks 5.15% due 12/01/98 (AMORTIZED COST $9,000,000)................. 9,000,000
------------

REPURCHASE AGREEMENT (2.8%)
6,007 The Bank of New York 4.625% due 12/01/98 (dated 11/30/98; proceeds $6,007,856) (b)
(IDENTIFIED COST $6,007,084)......................................................... 6,007,084
------------

TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $15,007,084).......................................................... 15,007,084
------------
</TABLE>

<TABLE>
<CAPTION>
VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $193,259,903) (C)........................................................ 103.7 % $ 218,354,078

LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................................ (3.7) (7,705,980)
------ -------------

NET ASSETS................................................................................ 100.0 % $ 210,648,098
------ -------------
------ -------------
</TABLE>

- ---------------------

ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $2,284,700 Federal Home Loan Banks 5.125% due 09/15/03
valued at $2,308,771; $3,500,000 Federal National Mortgage Assoc. 5.94% due
01/27/03 valued at $3,595,512 and $202,662 Tennessee Valley Authority
6.375% due 06/15/05 valued at $224,145.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $28,934,555 and the
aggregate gross unrealized depreciation is $3,840,380, resulting in net
unrealized appreciation of $25,094,175.

FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT NOVEMBER 30, 1998:

<TABLE>
<CAPTION>
CONTRACTS TO IN DELIVERY UNREALIZED
DELIVER EXCHANGE FOR DATE DEPRECIATION
- ----------------------------------------------------
<S> <C> <C> <C>
$ 9,938 GBP 6,009 12/04/98 $ (29)
$ 19,963 GBP 12,084 12/07/98 (35)
---
Total unrealized
depreciation.................. $ (64)
---
---
</TABLE>

CURRENCY ABBREVIATION:

<TABLE>
<S> <C>
GBP British Pound.
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998

<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $193,259,903).............................................................. $218,354,078
Cash.......................................................................................... 532,909
Receivable for:
Investments sold.......................................................................... 8,126,612
Dividends................................................................................. 36,350
Shares of beneficial interest sold........................................................ 23,629
Deferred organizational expenses.............................................................. 68,199
Prepaid expenses and other assets............................................................. 46,606
------------
TOTAL ASSETS............................................................................. 227,188,383
------------
LIABILITIES:
Payable for:
Investments purchased..................................................................... 13,787,995
Shares of beneficial interest repurchased................................................. 2,373,219
Plan of distribution fee.................................................................. 179,262
Investment management fee................................................................. 135,103
Accrued expenses and other payables........................................................... 64,706
------------
TOTAL LIABILITIES........................................................................ 16,540,285
------------
NET ASSETS............................................................................... $210,648,098
------------
------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................... $191,228,728
Net unrealized appreciation................................................................... 25,094,175
Undistributed net investment income........................................................... 64
Accumulated net realized loss................................................................. (5,674,869)
------------
NET ASSETS............................................................................... $210,648,098
------------
------------
CLASS A SHARES:
Net Assets.................................................................................... $756,374
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 66,725
NET ASSET VALUE PER SHARE................................................................ $11.34
------------
------------
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET
ASSET VALUE)......................................................................... $11.97
------------
------------
CLASS B SHARES:
Net Assets.................................................................................... $208,338,909
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 18,579,831
NET ASSET VALUE PER SHARE................................................................ $11.21
------------
------------
CLASS C SHARES:
Net Assets.................................................................................... $1,337,833
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 119,300
NET ASSET VALUE PER SHARE................................................................ $11.21
------------
------------
CLASS D SHARES:
Net Assets.................................................................................... $214,982
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 18,907
NET ASSET VALUE PER SHARE................................................................ $11.37
------------
------------
</TABLE>

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1998

<TABLE>
<S> <C>
NET INVESTMENT LOSS:

INCOME
Interest...................................................................................... $ 439,548
Dividends (net of $1,102 foreign withholding tax)............................................. 437,343
------------

TOTAL INCOME............................................................................. 876,891
------------

EXPENSES
Plan of distribution fee (Class A shares)..................................................... 1,807
Plan of distribution fee (Class B shares)..................................................... 2,871,970
Plan of distribution fee (Class C shares)..................................................... 16,801
Investment management fee..................................................................... 2,178,703
Transfer agent fees and expenses.............................................................. 578,735
Registration fees............................................................................. 109,796
Shareholder reports and notices............................................................... 85,105
Custodian fees................................................................................ 60,608
Professional fees............................................................................. 51,500
Organizational expenses....................................................................... 35,763
Trustees' fees and expenses................................................................... 12,332
Other......................................................................................... 10,106
------------

TOTAL EXPENSES........................................................................... 6,013,226
------------

NET INVESTMENT LOSS...................................................................... (5,136,335)
------------

NET REALIZED AND UNREALIZED LOSS:
Net realized loss............................................................................. (4,574,466)
Net change in unrealized appreciation......................................................... (22,080,519)
------------

NET LOSS................................................................................. (26,654,985)
------------

NET DECREASE.................................................................................. $(31,791,320)
------------
------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY 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, 1998 NOVEMBER 30, 1997*
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>

INCREASE (DECREASE) IN NET ASSETS:

OPERATIONS:
Net investment loss.................................................. $ (5,136,335 ) $ (6,153,061 )
Net realized gain (loss)............................................. (4,574,466 ) 38,570,804
Net change in unrealized appreciation................................ (22,080,519 ) (6,517,638 )
----------------- ------------------

NET INCREASE (DECREASE)......................................... (31,791,320 ) 25,900,105
----------------- ------------------

DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain
Class A shares................................................... (46,742 ) --
Class B shares................................................... (22,786,920 ) --
Class C shares................................................... (108,873 ) --
Class D shares................................................... (26,485 ) --
Paid-in-capital
Class A shares................................................... (34,749 ) --
Class B shares................................................... (12,236,012 ) --
Class C shares................................................... (71,559 ) --
Class D shares................................................... (8,219 ) --
----------------- ------------------

TOTAL DISTRIBUTIONS............................................. (35,319,559 ) --
----------------- ------------------
Net increase (decrease) from transactions in shares of beneficial
interest........................................................... (89,492,887 ) 30,542,778
----------------- ------------------

NET INCREASE (DECREASE)......................................... (156,603,766 ) 56,442,883

NET ASSETS:
Beginning of period.................................................. 367,251,864 310,808,981
----------------- ------------------

END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $64 AND $0,
RESPECTIVELY).................................................... $ 210,648,098 $ 367,251,864
----------------- ------------------
----------------- ------------------
</TABLE>

- ---------------------

* Class A, Class C and Class D shares were issued July 28, 1997.

SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1998

1. ORGANIZATION AND ACCOUNTING POLICIES

Morgan Stanley Dean Witter Capital Appreciation Fund (the "Fund"), formerly Dean
Witter Capital Appreciation 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 and some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.

The following is a summary of significant accounting policies:

A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, 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 Witter Advisors Inc., formerly 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

9
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1998, CONTINUED

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. FOREIGN CURRENCY TRANSLATION -- The books and records are maintained in U.S.
dollars as follows: (1) the foreign currency market value of investment
securities, other assets and liabilities and forward foreign currency contracts
are translated at the exchange rates prevailing at the end of the period; and
(2) purchases, sales, income and expenses are translated at the exchange rates
prevailing on the respective dates of such transactions. The resultant exchange
gains and losses are included in the Statement of Operations as realized and
unrealized gain/loss on foreign exchange transactions. Pursuant to U.S. Federal
income tax regulations, certain foreign exchange gains/losses included in
realized and unrealized gain/loss are included in or are a reduction of ordinary
income for federal income tax purposes. The Fund does not isolate that portion
of the results of operations arising as a result of changes in the foreign
exchange rates from the changes in the market prices of the securities.

E. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund may enter into forward foreign
currency contracts which are valued daily at the appropriate exchange rates. The
resultant unrealized exchange gains and losses are included in the Statement of
Operations as unrealized gain/loss on

10
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1998, CONTINUED

foreign exchange transactions. The Fund records realized gains or losses on
delivery of the currency or at the time the forward contract is extinguished
(compensated) by entering into a closing transaction prior to delivery.

F. 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.

G. 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.

H. 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

11
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1998, CONTINUED

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 are paid to the Distributor for services
provided. In the case of Class B and Class C shares, amounts paid under the Plan
are paid to the Distributor for (1) services provided and the expenses borne by
it and others in the distribution of the shares of these Classes, including the
payment of commissions for sales of these Classes and incentive compensation to,
and expenses of, Morgan Stanley Dean Witter Financial Advisors and others who
engage in or support distribution of the shares or who service shareholder
accounts, including overhead and telephone expenses; (2) printing and
distribution of prospectuses and reports used in connection with the offering of
these shares to other than current shareholders; and (3) preparation, printing
and distribution of sales literature and advertising materials. In addition, the
Distributor may utilize fees paid pursuant to the Plan, in the case of Class B
shares, to compensate Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Investment Manager and Distributor, and other selected broker-dealers for their
opportunity costs in advancing such amounts, which compensation would be in the
form of a carrying charge on any unreimbursed expenses.

In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to

12
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1998, CONTINUED

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 $10,578,940 at November 30, 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 year ended November 30, 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 year ended November 30, 1998,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares and Class C shares of $953,916 and $17,659, respectively
and received $11,913 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, 1998 aggregated
$901,719,184 and $1,039,609,013, respectively.

For the year ended November 30, 1998, the Fund incurred brokerage commissions of
$45,905 with DWR for portfolio transactions executed on behalf of the Fund. At
November 30, 1998, included in the Fund's payable for investments purchased and
receivable for investments sold were unsettled trades with DWR of $1,765,005 and
$2,903,457, respectively.

For the year ended November 30, 1998, the Fund incurred brokerage commissions of
$55,358 with Morgan Stanley & Co., Inc., an affiliate of the Investment Manager
and Distributor, for portfolio transactions executed on behalf of the Fund. At
November 30, 1998, included in the Fund's payable for investments purchased were
unsettled trades with Morgan Stanley & Co., Inc. of $693,011.

13
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1998, CONTINUED

Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At November 30, 1998, the Fund had
transfer agent fees and expenses payable of approximately $2,400.

5. FEDERAL INCOME TAX STATUS

At November 30, 1998, the Fund had a net capital loss carryover of approximately
$5,055,000 which will be available through November 30, 2006 to offset future
capital gains to the extent provided by regulations.

As of November 30, 1998, the Fund had temporary book/tax differences primarily
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 $5,136,409, accumulated net realized loss was credited $10 and net
investment income was credited $5,136,399.

6. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS

The Fund may enter into forward foreign currency contracts ("forward contracts")
to facilitate settlement of foreign currency denominated portfolio transactions
or to manage foreign currency exposure associated with foreign currency
denominated securities.

Forward contracts involve elements of market risk in excess of the amounts
reflected in the Statement of Assets and Liabilities. The Fund bears the risk of
an unfavorable change in the foreign exchange rates underlying the forward
contracts. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.

At November 30, 1998, there were outstanding forward contracts used to
facilitate settlement of foreign currency denominated portfolio transactions.

7. PLAN OF REORGANIZATION

On October 28, 1998, the Board of Trustees of the Fund and of Morgan Stanley
Dean Witter American Value Fund ("American Value") approved a reorganization
plan ("the Plan") whereby the Fund would be merged into American Value. The Plan
is subject to the consent of the Fund's shareholders. If approved, the assets of
the Fund would be combined with the assets of American Value and shareholders of
the Fund would become shareholders of American Value, receiving shares of the
corresponding class of American Value equal to the value of their holdings in
the Fund.

14
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
NOTES TO FINANCIAL STATEMENTS NOVEMBER 30, 1998, CONTINUED

8. 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, 1998 NOVEMBER 30, 1997*
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold............................................................. 105,264 $ 1,260,276 24,829 $ 380,181
Reinvestment of distributions.................................... 5,387 67,591 -- --
Repurchased...................................................... (68,110) (767,681) (645) (9,645)
----------- -------------- ----------- ------------
Net increase - Class A........................................... 42,541 560,186 24,184 370,536
----------- -------------- ----------- ------------

CLASS B SHARES
Sold............................................................. 3,447,816 44,774,600 15,086,938 211,255,509
Reinvestment of distributions.................................... 2,658,525 33,183,756 -- --
Repurchased...................................................... (13,229,862) (168,460,961) (13,313,433) (182,682,535)
----------- -------------- ----------- ------------
Net increase (decrease) - Class B................................ (7,123,521) (90,502,605) 1,773,505 28,572,974
----------- -------------- ----------- ------------

CLASS C SHARES
Sold............................................................. 190,699 2,521,947 101,030 1,609,066
Reinvestment of distributions.................................... 13,775 171,744 -- --
Repurchased...................................................... (175,733) (2,323,669) (10,471) (153,924)
----------- -------------- ----------- ------------
Net increase - Class C........................................... 28,741 370,022 90,559 1,455,142
----------- -------------- ----------- ------------

CLASS D SHARES
Sold............................................................. 465,845 5,631,045 9,511 144,126
Reinvestment of distributions.................................... 1,540 19,398 -- --
Repurchased...................................................... (457,989) (5,570,933) -- --
----------- -------------- ----------- ------------
Net increase - Class D........................................... 9,396 79,510 9,511 144,126
----------- -------------- ----------- ------------
Net increase (decrease) in Fund.................................. (7,042,843) $ (89,492,887) 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.

9. 1998 FEDERAL TAX NOTICE (UNAUDITED)

During the year ended November 30, 1998, the Fund paid to shareholders $0.97 per
share from long-term capital gains.

15
<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
OCTOBER 27,
1995*
FOR THE YEAR ENDED NOVEMBER 30, THROUGH
---------------------------------- NOVEMBER 30,
1998++ 1997**++ 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
CLASS B SHARES

SELECTED PER SHARE DATA:

Net asset value, beginning of period.................................. $ 14.22 $ 12.99 $ 10.53 $ 10.00
---------- ---------- ---------- ------

Income (loss) from investment operations:
Net investment loss................................................ (0.23) (0.24) (0.15) (0.01)
Net realized and unrealized gain (loss)............................ (1.24) 1.47 2.61 0.54
---------- ---------- ---------- ------

Total income (loss) from investment operations........................ (1.47) 1.23 2.46 0.53
---------- ---------- ---------- ------

Less distributions from:
Net realized gain.................................................. (0.97) -- -- --
Paid-in-capital.................................................... (0.57) -- -- --
---------- ---------- ---------- ------

Total distributions................................................... (1.54) -- -- --
---------- ---------- ---------- ------

Net asset value, end of period........................................ $ 11.21 $ 14.22 $ 12.99 $ 10.53
---------- ---------- ---------- ------
---------- ---------- ---------- ------

TOTAL RETURN+......................................................... (11.19)% 9.47% 23.36% 5.30%(1)

RATIOS TO AVERAGE NET ASSETS:

Expenses.............................................................. 2.07 %(3 2.00% 2.00% 2.87%(2)

Net investment loss................................................... (1.77) (3) (1.79)% (1.72)% (0.79)%(2)

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $208,339 $365,484 $310,809 $102,009

Portfolio turnover rate............................................... 321% 184% 108% 7%(1)
</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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.

SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS, CONTINUED

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
NOVEMBER 30, NOVEMBER 30,
1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period.................................. $ 14.26 $ 14.34
------ ------
Loss from investment operations:
Net investment loss................................................ (0.12) (0.06)
Net realized and unrealized loss................................... (1.26) (0.02)
------ ------
Total loss from investment operations................................. (1.38) (0.08)
------ ------
Less distributions from:
Net realized gain.................................................. (0.97) --
Paid-in-capital.................................................... (0.57) --
------ ------
Total distributions................................................... (1.54) --
------ ------
Net asset value, end of period........................................ $ 11.34 $ 14.26
------ ------
------ ------
TOTAL RETURN+......................................................... (10.48)% (0.56)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.32%(3) 1.27%(2)
Net investment loss................................................... (1.02)%(3) (1.08)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $756 $345
Portfolio turnover rate............................................... 321% 184%
CLASS C SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period.................................. $ 14.22 $ 14.34
------ ------
Loss from investment operations:
Net investment loss................................................ (0.22) (0.09)
Net realized and unrealized loss................................... (1.25) (0.03)
------ ------
Total loss from investment operations................................. (1.47) (0.12)
------ ------
Less distributions from:
Net realized gain.................................................. (0.97) --
Paid-in-capital.................................................... (0.57) --
------ ------
Total distributions................................................... (1.54) --
------ ------
Net asset value, end of period........................................ $ 11.21 $ 14.22
------ ------
------ ------
TOTAL RETURN+......................................................... (11.19)% (0.84)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 2.07%(3) 2.03%(2)
Net investment loss................................................... (1.77)%(3) (1.82)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $ 1,338 $ 1,288
Portfolio turnover rate............................................... 321% 184%
</TABLE>

- ---------------------

* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.

SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION FUND
FINANCIAL HIGHLIGHTS, CONTINUED

<S> <C> <C>
CLASS D SHARES++

SELECTED PER SHARE DATA:

Net asset value, beginning of period.................................. $ 14.27 $ 14.34
------ ------

Loss from investment operations:
Net investment loss................................................ (0.11) (0.04)
Net realized and unrealized loss................................... (1.25) (0.03)
------ ------

Total loss from investment operations................................. (1.36) (0.07)
------ ------

Less distributions from:
Net realized gain.................................................. (0.97) --
Paid-in-capital.................................................... (0.57) --
------ ------

Total distributions................................................... (1.54) --
------ ------

Net asset value, end of period........................................ $ 11.37 $ 14.27
------ ------
------ ------

TOTAL RETURN+......................................................... (10.34)% (0.49)%(1)

RATIOS TO AVERAGE NET ASSETS:

Expenses.............................................................. 1.07%(3) 1.01%(2)

Net investment loss................................................... (0.77)%(3) (0.82)%(2)

SUPPLEMENTAL DATA:

Net assets, end of period, in thousands............................... $215 $136

Portfolio turnover rate............................................... 321% 184%
</TABLE>

- ---------------------

* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.

SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>

MORGAN STANLEY DEAN WITTER CAPITAL APPRECIATION
FUND
REPORT OF INDEPENDENT ACCOUNTANTS

TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY 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 Morgan Stanley Dean Witter Capital
Appreciation Fund (the "Fund"), formerly Dean Witter Capital Appreciation Fund,
at November 30, 1998, 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, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.

As described in Note 7 to the financial statements, the Board of Trustees of the
Fund approved a reorganization plan, subject to shareholder approval, whereby
the Fund will be merged into Morgan Stanley Dean Witter American Value Fund.

PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
JANUARY 8, 1999

<PAGE>

TRUSTEES
Michael Bozic
Charles A. Fiumefreddo Morgan Stanley
Edwin J. Garn Dean Witter
John R. Haire Capital Appreciation
Wayne E. Hedien Fund
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder [PHOTO]

OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer

Barry Fink
Vice President, Secretary and General Counsel

Anita H. Kolleeny
Vice President

Thomas F. Caloia
Treasurer

TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center Plaza Two
Jersey City, New Jersey 07311

INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036

INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048

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 Annual Report
accompanied by an effective prospectus. November 30, 1998