<PAGE>
DEAN WITTER CAPITAL GROWTH SECURITIES TWO WORLD TRADE CENTER, NEW YORK, NEW
YORK 10048
LETTER TO THE SHAREHOLDERS OCTOBER 31, 1997
DEAR SHAREHOLDER:
During the fiscal year ended October 31, 1997, Dean Witter Capital Growth
Securities made a greater commitment to mid- and small-capitalization stocks.
The Fund is also better diversified across capitalization ranges and industry
sectors. It has been buying companies that have, on average, historically higher
growth rates and more attractive valuations. The Fund seeks out companies in all
ranges of capitalization based on strong track records, anticipated future
revenue and earnings growth, and attractive valuations.
PERFORMANCE AND PORTFOLIO
For the fiscal year, the Fund's Class B shares produced a return of 31.21
percent as compared to a return of 32.10 percent for the Standard & Poor's 500
Composite Stock Price Index (S&P 500) and 28.42 percent for the Lipper
Analytical Services Growth Funds Index. Within its Lipper objective, the Fund
ranked just outside the top quartile for the fiscal year and was in the second
quartile on a three-year basis. The accompanying chart illustrates the
performance of a $10,000 investment in the Fund from inception through the
fiscal year ended on October 31, 1997, versus the performance of similar
hypothetical investments in the S&P 500 Index and the Lipper Growth Funds Index.
In the first half of the year, Dean Witter Capital Growth Securities
underperformed the S&P 500 because of its increased emphasis on small- and
mid-cap stocks which did not perform as strongly as the large-cap issues that
dominated the S&P 500 during that period. However, during the second half of the
fiscal year, these small- and mid-cap stocks contributed heavily to the Fund's
strong performance. In addition, the Fund's investments in energy, technology,
financial and retail paid off handsomely during the second half of the year. The
Fund maintained an overweighted position in the aforementioned sectors for much
of its fiscal year.
At the end of the period, Dean Witter Capital Growth Securities' sector
breakdown was: retail, 27 percent of net assets; technology, 26 percent;
financial/interest-rate sensitive stocks, 18 percent; energy, 18 percent; and
health care, 9 percent.
<PAGE>
DEAN WITTER CAPITAL GROWTH SECURITIES
LETTER TO THE SHAREHOLDERS OCTOBER 31, 1997, CONTINUED
The Fund's portfolio composition was as
follows: mid-capitalization stocks, 48
percent; large-capitalization stocks,
44 percent; and small-cap issues, 8
percent. At the end of the Fund's 1997
fiscal year, the Fund owned 53 stocks
and net assets totaled slightly more
than $561 million.
On July 28, 1997, the Fund began
offering four classes of shares: A, B,
C and D, each with its own sales charge
and distribution fee structure. A
revised prospectus, which includes
complete details regarding the Fund's
conversion to multiple classes of
shares, was mailed to shareholders in
mid-summer.
LOOKING AHEAD
Looking forward, we are optimistic
about the Fund's prospects. After
spending much of the first half of its
fiscal year undergoing a transition,
the Fund performed strongly over the
latter half. Now that the repositioning
of the Fund is complete, we believe
that Dean Witter Capital Growth
Securities will continue to deliver
strong performance relative to its
comparable market indices.
We appreciate your ongoing support of
Dean Witter Capital Growth Securities
and look forward to continuing to serve
your investment needs.
Sincerely,
[/S/ CHARLES A. FIUMEFREDDO]
CHARLES A FIUMEFREDDO
CHAIRMAN OF THE BOARD
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Growth of $10,000 - Class B
Shares
($ in Thousands)
Average Annual Total Returns
Life of
1 Year 5 Years Fund
<S> <C> <C> <C>
31.21%(1) 12.28%(1) 13.01%(1)
26.21%(2) 12.03%(2) 13.01%(2)
Fund S&P 500(4) Lipper IX5)
April-1990 $10,000 $10,000 $10,000
October-1990 $ 9,190 $ 9,173 $ 8,985
October-1991 $13,605 $12,242 $12,709
October-1992 $14,158 $13,459 $13,701
October-1993 $13,556 $15,465 $16,301
October-1994 $13,450 $16,061 $16,634
October-1995 $16,330 $20,298 $20,622
October-1996 $19,256 $25,182 $24,166
October-1997 $25,267(3) $33,265 $30,971
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable contingent deferred sales charge (CDSC) (1 year-5%, 5
years-2%, since inception-0%). See the Fund's current prospectus for
complete details on fees and sales charges.
(3) Closing value assuming a complete redemption on October 31, 1997.
(4) The Standard & Poor's 500 Composite Stock Price Index (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The performance of the index
does not include any expenses, fees or charges. The index is unmanaged and
should not be considered an investment.
(5) The Lipper Growth Fund Index is an equally-weighted performance index of the
largest qualifying funds (based on net assets) in the Lipper Growth Funds
objective. The index, which is adjusted for capital gains distributions and
income dividends, is unmanaged and should not be considered an investment.
There are currently 30 funds represented in this index.
<PAGE>
DEAN WITTER CAPITAL GROWTH SECURITIES
RESULTS OF SPECIAL MEETING (UNAUDITED)
On May 21, 1997, a special meeting of the Fund's shareholders was held to vote
on four separate matters, the results of which were as follows:
1) APPROVAL OF A NEW INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE FUND AND DEAN
WITTER INTERCAPITAL INC. IN CONNECTION WITH THE MERGER OF MORGAN STANLEY
GROUP INC. WITH DEAN WITTER, DISCOVER & CO.:
<TABLE>
<CAPTION>
VOTE NO. OF SHARES
- ---------------------------------------- -------------
<S> <C>
For..................................... 16,515,029
Against................................. 399,802
Abstain................................. 1,501,757
</TABLE>
2) ELECTION OF TRUSTEES:
<TABLE>
<S> <C>
Michael Bozic
For..................................... 17,305,408
Withheld................................ 1,111,180
Charles A. Fiumefreddo
For..................................... 17,307,785
Withheld................................ 1,108,803
Edwin J. Garn
For..................................... 17,325,837
Withheld................................ 1,090,751
John R. Haire
For..................................... 17,278,995
Withheld................................ 1,137,593
Wayne E. Hedien
For..................................... 17,318,875
Withheld................................ 1,097,713
Dr. Manuel H. Johnson
For..................................... 17,329,163
Withheld................................ 1,087,425
Michael E. Nugent
For..................................... 17,329,198
Withheld................................ 1,087,390
Philip J. Purcell
For..................................... 17,334,961
Withheld................................ 1,081,627
John L. Schroeder
For..................................... 17,303,994
Withheld................................ 1,112,594
</TABLE>
3) APPROVAL OF A NEW INVESTMENT POLICY WITH RESPECT TO INVESTMENTS IN CERTAIN
OTHER INVESTMENT COMPANIES:
<TABLE>
<CAPTION>
VOTE NO. OF SHARES
- ---------------------------------------- -------------
<S> <C>
For..................................... 13,889,495
Against................................. 2,786,606
Abstain................................. 1,740,487
</TABLE>
4) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSSE LLP AS THE FUND'S
INDEPENDENT ACCOUNTANTS:
<TABLE>
<CAPTION>
VOTE NO. OF SHARES
- ---------------------------------------- -------------
<S> <C>
For..................................... 16,930,305
Against................................. 216,153
Abstain................................. 1,270,130
</TABLE>
<PAGE>
DEAN WITTER CAPITAL GROWTH SECURITIES
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (97.5%)
BANKS (1.0%)
99,000 State Street Corp...................................................................... $ 5,519,250
------------
CAPITAL GOODS (2.5%)
360,000 Tyco International Ltd................................................................. 13,590,000
------------
COMPUTER SOFTWARE (5.4%)
160,000 Computer Associates International, Inc................................................. 11,930,000
230,000 Electronics for Imaging, Inc.*......................................................... 10,723,750
30,000 Microsoft Corp.*....................................................................... 3,896,250
100,000 Oracle Corp.*.......................................................................... 3,575,000
------------
30,125,000
------------
COMPUTERS - PERIPHERAL EQUIPMENT (2.6%)
260,000 EMC Corp.*............................................................................. 14,560,000
------------
CONSUMER SERVICES (2.1%)
420,000 AccuStaff, Inc.*....................................................................... 11,996,250
------------
DRUGS (2.4%)
270,000 Elan Corp. PLC (ADR) (Ireland)*........................................................ 13,466,250
------------
ELECTRONICS (0.8%)
170,000 Computer Products, Inc.*............................................................... 4,590,000
------------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS (6.5%)
150,000 Hadco Corp*............................................................................ 8,250,000
210,000 Jabil Circuit, Inc.*................................................................... 9,450,000
115,000 Sanmina Corp.*......................................................................... 8,538,750
230,000 SCI Systems, Inc.*..................................................................... 10,120,000
------------
36,358,750
------------
ENVIRONMENTAL CONTROL (1.9%)
260,000 Newpark Resources, Inc.*............................................................... 10,790,000
------------
FINANCE - CONSUMER (2.4%)
320,000 Green Tree Financial Corp.............................................................. 13,480,000
------------
FINANCIAL - MISCELLANEOUS (9.1%)
115,000 Household International, Inc........................................................... 13,023,750
500,000 MBNA Corp.............................................................................. 13,156,250
350,000 Providian Financial Corp.*............................................................. 12,950,000
330,000 SunAmerica, Inc........................................................................ 11,859,375
------------
50,989,375
------------
HEALTHCARE PRODUCTS & SERVICES (1.8%)
180,000 Express Scripts, Inc. (Class A)*....................................................... 10,147,500
------------
HOSPITAL MANAGEMENT (2.6%)
335,000 Universal Health Services, Inc. (Class B)*............................................. 14,760,937
------------
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
HOUSEHOLD FURNISHINGS & APPLIANCES (0.8%)
120,000 Ethan Allen Interiors, Inc............................................................. $ 4,252,500
------------
INSURANCE (2.5%)
235,000 MGIC Investment Corp................................................................... 14,173,438
------------
MEDIA GROUP (2.8%)
240,000 Clear Channel Communications, Inc.*.................................................... 15,840,000
------------
OFFICE EQUIPMENT & SUPPLIES (4.0%)
580,000 Corporate Express, Inc.*............................................................... 8,482,500
240,000 Danka Business Systems PLC (ADR) (United Kingdom)...................................... 8,850,000
160,000 U.S. Office Products Co.*.............................................................. 4,960,000
------------
22,292,500
------------
OIL & GAS DRILLING (4.1%)
270,000 ENSCO International, Inc.*............................................................. 11,356,875
350,000 Pride International, Inc.*............................................................. 11,550,000
------------
22,906,875
------------
OIL DRILLING & SERVICES (2.1%)
320,000 Falcon Drilling Company, Inc.*......................................................... 11,640,000
------------
OIL EQUIPMENT & SERVICES (7.9%)
50,000 Camco International, Inc............................................................... 3,612,500
270,000 Global Industries Ltd.*................................................................ 5,400,000
100,000 Smith International, Inc.*............................................................. 7,625,000
220,000 Tidewater, Inc......................................................................... 14,451,250
220,000 Varco International, Inc.*............................................................. 13,406,250
------------
44,495,000
------------
PHARMACEUTICALS (2.1%)
250,000 Medicis Pharmaceutical Corp. (Class A)*................................................ 11,875,000
------------
RETAIL - DEPARTMENT STORES (2.6%)
360,000 Proffitt's, Inc.*...................................................................... 10,327,500
125,000 Stage Stores, Inc.*.................................................................... 4,500,000
------------
14,827,500
------------
RETAIL - DRUG STORES (1.1%)
220,000 Walgreen Co............................................................................ 6,187,500
------------
RETAIL - FOOD CHAINS (5.0%)
420,000 Kroger Co.*............................................................................ 13,702,500
250,000 Safeway, Inc.*......................................................................... 14,531,250
------------
28,233,750
------------
RETAIL - GENERAL MERCHANDISE (3.1%)
280,000 Consolidated Stores Corp.*............................................................. 11,165,000
190,000 Dollar General Corp.................................................................... 6,281,875
------------
17,446,875
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL GROWTH SECURITIES
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
RETAIL - SPECIALTY (3.0%)
530,000 General Nutrition Companies, Inc.*..................................................... $ 16,562,500
------------
RETAIL STORES (2.6%)
565,000 Staples, Inc.*......................................................................... 14,760,625
------------
SAVINGS & LOAN COMPANIES (2.7%)
220,000 Washington Mutual, Inc................................................................. 15,042,500
------------
TELECOMMUNICATIONS - LONG DISTANCE (1.4%)
300,000 LCI International, Inc.*............................................................... 7,762,500
------------
TELECOMMUNICATIONS - WIRELESS (2.3%)
340,000 Airtouch Communications, Inc.*......................................................... 13,132,500
------------
TELECOMMUNICATIONS EQUIPMENT (3.9%)
135,000 MRV Communications, Inc.*.............................................................. 3,915,000
100,000 Newbridge Networks Corp. (Canada)*..................................................... 5,300,000
230,000 Tellabs, Inc.*......................................................................... 12,405,625
------------
21,620,625
------------
UTILITIES (2.4%)
340,000 AES Corp.*............................................................................. 13,472,500
------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $422,804,071)......................................................... 546,898,000
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
SHORT-TERM INVESTMENTS (3.5%)
U.S. GOVERNMENT AGENCY (a) (3.4%)
$ 19,000 Federal Home Loan Mortgage Corp. 5.65% due 11/03/97 (AMORTIZED COST $18,994,036)....... 18,994,036
------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT (0.1%)
$ 766 The Bank of New York 5.50% due 11/03/97 (dated 10/31/97; proceeds $766,712) (IDENTIFIED
COST $766,361) (b)................................................................... $ 766,361
------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $19,760,397).......................................................... 19,760,397
------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $442,564,468) (c)....................................................... 101.0 % 566,658,397
LIABILITIES IN EXCESS OF OTHER ASSETS.................................................... (1.0) (5,446,588)
------ -------------
NET ASSETS............................................................................... 100.0 % $ 561,211,809
------ -------------
------ -------------
</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 $767,106 Federal National Mortgage Assoc. 6.60% due
09/20/02 valued at $781,688.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $132,736,027 and the
aggregate gross unrealized depreciation is $8,642,098, resulting in net
unrealized appreciation of $124,093,929.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL GROWTH SECURITIES
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $442,564,468).............................................................. $566,658,397
Receivable for:
Investments sold.......................................................................... 5,584,240
Shares of beneficial interest sold........................................................ 750,123
Dividends................................................................................. 72,850
Prepaid expenses.............................................................................. 62,122
------------
TOTAL ASSETS............................................................................. 573,127,732
------------
LIABILITIES:
Payable for:
Investments purchased..................................................................... 10,737,338
Plan of distribution fee.................................................................. 464,562
Investment management fee................................................................. 316,422
Shares of beneficial interest repurchased................................................. 284,682
Accrued expenses.............................................................................. 112,919
------------
TOTAL LIABILITIES........................................................................ 11,915,923
------------
NET ASSETS............................................................................... $561,211,809
------------
------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................... $336,217,820
Net unrealized appreciation................................................................... 124,093,929
Accumulated net investment loss............................................................... (47,938)
Accumulated undistributed net realized gain................................................... 100,947,998
------------
NET ASSETS............................................................................... $561,211,809
------------
------------
CLASS A SHARES:
Net Assets.................................................................................... $1,683,830
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 89,818
NET ASSET VALUE PER SHARE................................................................ $18.75
------------
------------
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET ASSET VALUE)........................................ $19.79
------------
------------
CLASS B SHARES:
Net Assets.................................................................................... $522,275,500
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 27,919,504
NET ASSET VALUE PER SHARE................................................................ $18.71
------------
------------
CLASS C SHARES:
Net Assets.................................................................................... $389,491
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 20,819
NET ASSET VALUE PER SHARE................................................................ $18.71
------------
------------
CLASS D SHARES:
Net Assets.................................................................................... $36,862,988
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 1,965,422
NET ASSET VALUE PER SHARE................................................................ $18.76
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL GROWTH SECURITIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997*
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $1,774 foreign withholding tax)............................................. $ 1,953,707
Interest...................................................................................... 1,017,192
------------
TOTAL INCOME............................................................................. 2,970,899
------------
EXPENSES
Plan of distribution fee (Class A shares)..................................................... 744
Plan of distribution fee (Class B shares)..................................................... 5,092,548
Plan of distribution fee (Class C shares)..................................................... 510
Investment management fee..................................................................... 3,349,034
Transfer agent fees and expenses.............................................................. 734,230
Shareholder reports and notices............................................................... 80,363
Professional fees............................................................................. 57,197
Custodian fees................................................................................ 47,378
Registration fees............................................................................. 43,438
Trustees' fees and expenses................................................................... 13,198
Other......................................................................................... 10,905
------------
TOTAL EXPENSES........................................................................... 9,429,545
------------
NET INVESTMENT LOSS...................................................................... (6,458,646)
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain............................................................................. 108,316,922
Net change in unrealized appreciation......................................................... 37,095,380
------------
NET GAIN................................................................................. 145,412,302
------------
NET INCREASE.................................................................................. $138,953,656
------------
------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL GROWTH SECURITIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1997* OCTOBER 31, 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss............................... $ (6,458,646) $ (3,339,393)
Net realized gain................................. 108,316,922 84,433,122
Net change in unrealized appreciation............. 37,095,380 3,014,056
----------------- ----------------
NET INCREASE................................. 138,953,656 84,107,785
----------------- ----------------
Distributions from net realized gain--Class B
shares.......................................... (81,010,400) --
----------------- ----------------
Net decrease from transactions in shares of
beneficial interest............................. (3,302,638) (61,406,297)
----------------- ----------------
NET INCREASE................................. 54,640,618 22,701,488
NET ASSETS:
Beginning of period............................... 506,571,191 483,869,703
----------------- ----------------
END OF PERIOD
(INCLUDING ACCUMULATED NET INVESTMENT LOSSES
OF $47,938 AND $48,617, RESPECTIVELY)......... $561,211,809 $506,571,191
----------------- ----------------
----------------- ----------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Capital Growth Securities (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 growth. The Fund was organized as a Massachusetts business
trust on December 8, 1989 and commenced operations on April 2, 1990. On July 28,
1997, the Fund commenced offering three additional classes of shares, with the
then current shares, other than shares held by certain employee benefit plans
established by Dean Witter Reynolds Inc. and its affiliate, SPS Transaction
Services, Inc., designated as Class B shares. Shares held by those employee
benefit plans prior to July 28, 1997 have been designated Class D shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some Class
A shares, and most Class B shares and Class C shares are subject to a contingent
deferred sales charge imposed on shares redeemed within one year, six years and
one year, respectively. Class D shares are not subject to a sales charge.
Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (in
cases where securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Trustees); (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (3) when market
quotations are not readily available, including circumstances under which it is
determined by Dean Witter InterCapital Inc. (the "Investment Manager") that sale
or bid prices are not reflective of a security's market value, portfolio
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Trustees; and
(4) short-term debt securities having a maturity date of more than sixty days at
time of purchase are valued on a mark-
<PAGE>
DEAN WITTER CAPITAL GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
to-market basis until sixty days prior to maturity and thereafter at amortized
cost based on their value on the 61st day. Short-term debt securities having a
maturity date of sixty days or less at the time of purchase are valued at
amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT 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 at the close of
each business day: 0.65% to the portion of daily net
<PAGE>
DEAN WITTER CAPITAL GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
assets not exceeding $500 million; 0.55% to the portion of daily net assets
exceeding $500 million but not exceeding $1 billion; 0.50% to the portion of
daily net assets exceeding $1 billion but not exceeding $1.5 billion; and 0.475%
to the portion of daily net assets exceeding $1.5 billion.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A -- up to 0.25% of the
average daily net assets of Class A; (ii) Class B -- 1.0% of the lesser of: (a)
the average daily aggregate gross sales of the Class B shares since the
inception of the Fund (not including reinvestment of dividend or capital gain
distributions) less the average daily aggregate net asset value of the Class B
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or waived; or (b) the average daily net assets of
Class B; and (iii) Class C -- up to 1.0% of the average daily net assets of
Class C. In the case of Class A shares, amounts paid under the Plan are paid to
the Distributor for services provided. In the case of Class B and Class C
shares, amounts paid under the Plan are paid to the Distributor for services
provided and the expenses borne by it and others in the distribution of the
shares of these Classes, including the payment of commissions for sales of these
Classes and incentive compensation to, and expenses of, the account executives
of Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and
Distributor, and others who engage in or support distribution of the shares or
who service shareholder accounts, including overhead and telephone expenses;
printing and distribution of prospectuses and reports used in connection with
the offering of these shares to other than current shareholders; and
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may utilize fees paid pursuant to the
Plan, in the case of Class B shares, to compensate DWR and other selected
broker-dealers for their opportunity costs in advancing such amounts, which
compensation would be in the form of a carrying charge on any unreimbursed
expenses.
<PAGE>
DEAN WITTER CAPITAL GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
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 $21,548,919 at October 31, 1997.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to account executives may be reimbursed in the subsequent
calendar year. For the period ended October 31, 1997, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
1.0%, respectively.
The Distributor has informed the Fund that for the year ended October 31, 1997,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class B shares of $520,902 and received $3,725 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 October 31, 1997 aggregated
$613,764,665 and $684,169,444, respectively.
For the year ended October 31, 1997, the Fund incurred brokerage commissions of
$109,090 with DWR for portfolio transactions executed on behalf of the Fund. At
October 31, 1997, the Fund's receivable for investments sold and payable for
investments purchased included unsettled trades with DWR of $1,723,998 and
$2,596,879, respectively.
For the period May 31, 1997 through October 31, 1997, the Fund incurred
brokerage commissions of $19,945 with Morgan Stanley & Co., Inc., an affiliate
of the Investment Manager since May 31, 1997, for portfolio transactions
executed on behalf of the Fund.
<PAGE>
DEAN WITTER CAPITAL GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
Dean Witter Trust FSB, an affiliate of the Investment Manager and Distributor,
is the Fund's transfer agent. At October 31, 1997, the Fund had transfer agent
fees and expenses payable of approximately $2,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended October 31, 1997 included
in Trustees fees and expenses in the Statement of Operations amounted to $2,238.
At October 31, 1997, the Fund had an accrued pension liability of $47,938 which
is included in accrued expenses in the Statement of Assets and Liabilities.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1997+ OCTOBER 31, 1996
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold......................................... 119,616 $ 2,203,507 -- --
Redeemed..................................... (29,798) (567,173) -- --
------------ -------------- ------------ --------------
Net increase--Class A........................ 89,818 1,636,334 -- --
------------ -------------- ------------ --------------
CLASS B SHARES
Sold......................................... 6,428,644 107,706,868 6,983,726 $ 113,678,617
Reinvestment of distributions................ 5,359,165 77,011,200 -- --
Redeemed..................................... (11,716,042) (189,751,824) (10,755,353) (175,084,914)
------------ -------------- ------------ --------------
Net increase (decrease)--Class B............. 71,767 (5,033,756) (3,771,627) (61,406,297)
------------ -------------- ------------ --------------
CLASS C SHARES*
Sold......................................... 23,055 439,171 -- --
Redeemed..................................... (2,236) (40,010) -- --
------------ -------------- ------------ --------------
Net increase--Class C........................ 20,819 399,161 -- --
------------ -------------- ------------ --------------
CLASS D SHARES*
Sold......................................... 133,845 2,512,173 -- --
Redeemed..................................... (149,862) (2,816,550) -- --
------------ -------------- ------------ --------------
Net decrease--Class D........................ (16,017) (304,377) -- --
------------ -------------- ------------ --------------
Net increase (decrease) in Fund.............. 166,387 $ (3,302,638) (3,771,627) $ (61,406,297)
------------ -------------- ------------ --------------
------------ -------------- ------------ --------------
</TABLE>
- ---------------------
* For the period July 28, 1997 (issue date) through October 31, 1997.
+ On July 28, 1997, 1,981,439 shares representing $35,864,043 were
transferred to Class D.
<PAGE>
DEAN WITTER CAPITAL GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1997, CONTINUED
6. FEDERAL INCOME TAX STATUS
As of October 31, 1997, 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, accumulated
undistributed net realized gain was charged $6,459,325 and accumulated net
investment loss was credited $6,459,325.
<PAGE>
DEAN WITTER CAPITAL GROWTH SECURITIES
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED OCTOBER 31 APRIL 2, 1990*
-------------------------------------------------------------------------- THROUGH
1997**++ 1996 1995 1994 1993 1992 1991 OCTOBER 31, 1990
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period....................... $16.98 $14.40 $11.86 $13.35 $14.09 $13.58 $ 9.19 $10.00
-------- -------- -------- -------- -------- -------- -------- ------
Net investment income
(loss)....................... (0.21) (0.11) (0.06) (0.07) (0.08) (0.03) (0.01) 0.01
Net realized and unrealized
gain (loss).................. 4.68 2.69 2.60 -- (0.50) 0.58 4.42 (0.82)
-------- -------- -------- -------- -------- -------- -------- ------
Total from investment
operations................... 4.47 2.58 2.54 (0.07) (0.58) 0.55 4.41 (0.81)
-------- -------- -------- -------- -------- -------- -------- ------
Less dividends and
distributions from:
Net investment income...... -- -- -- -- -- -- (0.02) --
Net realized gain.......... (2.74) -- -- (1.42) (0.16) (0.04) -- --
-------- -------- -------- -------- -------- -------- -------- ------
Total dividends and
distributions................ (2.74) -- -- (1.42) (0.16) (0.04) (0.02) --
-------- -------- -------- -------- -------- -------- -------- ------
Net asset value, end of
period....................... $18.71 $16.98 $14.40 $11.86 $13.35 $14.09 $13.58 $ 9.19
-------- -------- -------- -------- -------- -------- -------- ------
-------- -------- -------- -------- -------- -------- -------- ------
TOTAL INVESTMENT RETURN+...... 31.21% 17.92% 21.42% (0.79)% (4.25)% 4.06% 48.07% (8.10)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses...................... 1.84% 1.84% 1.89% 1.87% 1.81% 1.74% 1.83% 1.97%(2)
Net investment income
(loss)....................... (1.26)% (0.64)% (0.43)% (0.15)% (0.38)% (0.32)% (0.17)% 0.25%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.................... $ 522,276 $ 506,571 $ 483,870 $ 456,977 $ 683,165 $ 973,110 $ 600,027 $ 206,588
Portfolio turnover rate....... 123% 72% 33% 13% 25% 29% 40% 10%(1)
Average commission rate
paid......................... $ 0.0582 $ 0.0571 -- -- -- -- -- --
</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, other than shares held by certain
employee benefit plans established by Dean Witter Reynolds Inc. and its
affiliate, SPS Transaction Services, Inc., have been designated as Class B
shares. Shares held by those employee benefit plans prior to July 28, 1997
have been designated Class D shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL GROWTH SECURITIES
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
OCTOBER 31,
1997++
- -------------------------------------------------------------------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $18.10
------
Net investment loss......................................... (0.04)
Net realized and unrealized gain............................ 0.69
------
Total from investment operations............................ 0.65
------
Net asset value, end of period.............................. $18.75
------
------
TOTAL INVESTMENT RETURN+.................................... 3.59%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.12%(2)
Net investment loss......................................... (0.82)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $1,684
Portfolio turnover rate..................................... 123%
Average commission rate paid................................ $0.0582
</TABLE>
<TABLE>
<S> <C>
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $18.10
------
Net investment loss......................................... (0.07)
Net realized and unrealized gain............................ 0.68
------
Total from investment operations............................ 0.61
------
Net asset value, end of period.............................. $18.71
------
------
TOTAL INVESTMENT RETURN+.................................... 3.37%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.85%(2)
Net investment loss......................................... (1.54)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $389
Portfolio turnover rate..................................... 123%
Average commission rate paid................................ $0.0582
</TABLE>
- ---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL GROWTH SECURITIES
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
OCTOBER 31,
1997++
- ----------------------------------------------------------------------------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 18.10
------
Net investment loss................................................... (0.02)
Net realized and unrealized gain...................................... 0.68
------
Total from investment operations...................................... 0.66
------
Net asset value, end of period........................................ $ 18.76
------
------
TOTAL INVESTMENT RETURN+.............................................. 3.65%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.82%(2)
Net investment loss................................................... (0.50)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $36,863
Portfolio turnover rate............................................... 123%
Average commission rate paid.......................................... $0.0582
</TABLE>
- ---------------------
* The date shares were first issued. Shareholders who held shares of the Fund
prior to July 28, 1997 (the date the Fund converted to a multiple class
share structure) should refer to the Financial Highlights of Class B to
obtain the historical per share data and ratio information of their shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER CAPITAL GROWTH SECURITIES
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER CAPITAL GROWTH SECURITIES
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dean Witter Capital Growth
Securities (the "Fund") at October 31, 1997, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1997 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
DECEMBER 5, 1997
1997 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended October 31, 1997, the Fund paid to
shareholders $2.74 per share from long-term capital gains.
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
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
Peter Hermann
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
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.
DEAN WITTER CAPITAL GROWTH SECURITIES
[GRAPHIC]
ANNUAL REPORT
OCTOBER 31, 1997
