<PAGE> 1
MORGAN STANLEY DEAN WITTER CAPITAL GROWTH SECURITIES Two World Trade Center
LETTER TO THE SHAREHOLDERS April 30, 1999 New York, New York 10048
DEAR SHAREHOLDER:
The six-month period ended April 30, 1999, saw the U.S. equity markets rally to
record highs amid continued global economic uncertainty. The U.S. economy
continued to display signs of robust expansion as employment grew, income
climbed and consumers remained confident. During this period, solid corporate
earnings results combined with minimal inflation, low interest rates and almost
non-existent unemployment to bolster investor confidence and help the market
rebound from its late-summer 1998 correction.
PERFORMANCE
For the six-month period ended April 30, 1999, Morgan Stanley Dean Witter
Capital Growth Securities' Class B shares produced a total return of 26.45
percent versus 22.31 percent for the S&P 500 Composite Stock Price Index (S&P
500) and 23.71 percent for the Lipper Growth Funds Index. During the same
period, the Fund's Class A, C and D shares posted total returns of 26.98
percent, 26.84 percent and 27.02 percent, respectively. The performance of the
Fund's four share classes varies because of differing expenses.
PORTFOLIO
During the period under review the Fund maintained its commitment to investing
in companies of all sizes and in all major sectors of the S&P 500. Within that
time frame, however, two notable shifts occurred. First, toward the end of 1998
and into early 1999 the Fund became heavily concentrated in large-capitalization
issues, because of the strong performance of large-cap stocks relative to almost
all other classes of equities. The second shift occurred at the close of the
period under review. The Fund began at that time to weight energy, basic
industry and cyclical stocks more heavily as these sectors were showing positive
earnings surprises, solid relative strength and attractive valuations. At the
same time, we began to shift some of the Fund's assets from large-cap stocks
into mid- to smaller-capitalization stocks. As the period closed out,
<PAGE> 2
MORGAN STANLEY DEAN WITTER CAPITAL GROWTH SECURITIES
LETTER TO THE SHAREHOLDERS April 30, 1999, continued
the Fund maintained a near-market weighting in financial and technology stocks
while underweighting health-care and consumer-staple issues.
As of April 30, 1999, the portfolio had an approximate 65 percent weighting in
large-cap issues, with the majority of the remaining assets invested in mid-cap
stocks. Going forward, we do not anticipate a dramatic shift in the market
capitalization structure of the Fund. Because we believe that portfolio
diversification is important across both industry sectors and capitalization
ranges, the Fund will continue to hold stocks of various market capitalizations.
At the end of the period under review the Fund's ten largest holdings were
Allied Signal, Tyco International, General Electric, Staples, Bank of America,
Citigroup, Providian Financial, Capital One Financial, Microsoft and Cisco
Systems.
LOOKING AHEAD
We continue to believe that the stock market will move higher and that the Fund
is well positioned to take advantage of such an advance. We believe the Fund is
well diversified across various industry sectors. It continues to maintain a
healthy exposure to sectors of the market that we believe have strong potential
for future growth, including technology, capital goods, financial services and
basic industry. For this reason we remain optimistic about the prospects for the
Fund's performance.
On May 1, 1999, Mitchell M. Merin was named President of the Morgan Stanley Dean
Witter Funds. Mr. Merin is also the President and Chief Operating Officer of
Asset Management of Morgan Stanley Dean Witter & Co. and President, Chief
Executive Officer and Director of Morgan Stanley Dean Witter Advisors Inc., the
Fund's Investment Manager. He also serves as Chairman, Chief Executive Officer
and Director of the Fund's distributor and transfer agent.
We appreciate your ongoing support of Morgan Stanley Dean Witter Capital Growth
Securities and look forward to continuing to serve your investment needs.
Very truly yours,
/S/ CHARLES A. FIUMEFREDDO /S/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER CAPITAL GROWTH SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1999 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (99.1%)
Accident & Health Insurance (1.5%)
150,000 ALFAC, Inc. ................. $ 8,137,500
------------
Advertising (1.6%)
50,000 Omnicom Group, Inc. ......... 3,625,000
75,000 Outdoor Systems, Inc.*....... 1,889,062
2,000 Snyder Communications,
Inc.*....................... 58,750
50,000 TMP Worldwide, Inc.*......... 3,350,000
------------
8,922,812
------------
Aerospace (1.5%)
58,000 United Technologies Corp. ... 8,402,750
------------
Air Freight/Delivery Services (0.8%)
40,000 FDX Corp.*................... 4,502,500
------------
Airlines (1.4%)
75,000 Delta Air Lines, Inc. ....... 4,757,812
85,000 Southwest Airlines Co. ...... 2,767,812
------------
7,525,624
------------
Aluminum (0.4%)
35,000 Alcoa Inc. .................. 2,178,750
------------
Apparel (0.0%)
1,000 Tommy Hilfiger Corp.*........ 69,875
------------
Auto Parts: O.E.M. (1.0%)
60,000 Gentex Corp.*................ 1,803,750
50,000 Johnson Controls, Inc. ...... 3,646,875
------------
5,450,625
------------
Biotechnology (0.0%)
1,500 Elan Corp. PLC (ADR)
(Ireland)*.................. 77,250
------------
Broadcasting (1.3%)
100,000 Clear Channel Communications,
Inc.*....................... 6,950,000
------------
Building Materials (0.9%)
75,000 Martin Marietta Materials,
Inc. ....................... 4,635,937
2,500 Southdown, Inc. ............. 160,156
------------
4,796,093
------------
Building Materials/DIY Chains (0.7%)
65,000 Home Depot, Inc. (The)....... 3,895,937
------------
Building Products (0.8%)
100,000 American Standard Companies,
Inc.*....................... 4,575,000
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Casino/Gambling (0.4%)
90,000 Mirage Resorts, Inc.*........ $ 2,019,375
------------
Catalog/Specialty Distribution (0.3%)
10,000 Amazon.com, Inc.*............ 1,720,000
------------
Cellular Telephone (0.0%)
1,500 AirTouch Communications,
Inc.*....................... 140,062
------------
Clothing/Shoe/Accessory Stores (1.4%)
80,000 Abercrombie & Fitch Co.
(Class A)*.................. 7,610,000
1,300 Finish Line, Inc. (Class
A)*......................... 19,500
1,500 Stage Stores, Inc.*.......... 9,656
------------
7,639,156
------------
Computer Communications (2.1%)
100,000 Cisco Systems, Inc.*......... 11,406,250
------------
Computer Hardware (3.3%)
150,000 Dell Computer Corp.*......... 6,168,750
50,000 EMC Corp.*................... 5,446,875
30,000 International Business
Machines Corp. ............. 6,275,625
------------
17,891,250
------------
Computer Software & Services (0.4%)
50,000 CSG Systems International,
Inc.*....................... 1,931,250
------------
Computer Software (3.7%)
50,000 Adobe Systems, Inc. ......... 3,168,750
60,000 Citrix Systems, Inc.*........ 2,550,000
1,500 Legato Systems, Inc.*........ 60,656
5,100 Marimba, Inc.*............... 309,825
175,000 Microsoft Corp.*............. 14,218,750
650 Visio Corp.*................. 17,550
------------
20,325,531
------------
Construction/Agricultural Equipment/Trucks
(0.4%)
40,000 PACCAR, Inc. ................ 2,235,000
------------
Consumer Electronics/Appliances (0.9%)
70,000 Maytag Corp. ................ 4,786,250
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER CAPITAL GROWTH SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Containers/Packaging (0.4%)
40,000 Sealed Air Corp.*............ $ 2,432,500
------------
Contract Drilling (1.1%)
100,000 Diamond Offshore
Drilling, Inc. ............. 3,306,250
165,000 Rowan Companies, Inc.*....... 2,640,000
------------
5,946,250
------------
Department Stores (0.0%)
700 Saks Incorporated*........... 19,819
------------
Discount Chains (1.4%)
25,000 Dayton Hudson Corp. ......... 1,682,812
1,500 Dollar General Corp. ........ 52,594
135,000 Wal-Mart Stores, Inc. ....... 6,210,000
------------
7,945,406
------------
Diversified Commercial Services (0.0%)
3,300 Modis Professional
Services, Inc.*............. 38,156
------------
Diversified Electronic Products (1.7%)
25,000 Gemstar International
Group Ltd. (Virgin
Islands)*................... 2,626,562
40,000 Honeywell, Inc. ............. 3,790,000
25,000 Uniphase Corp.*.............. 3,025,000
------------
9,441,562
------------
Diversified Financial Services (5.3%)
35,000 American Express Co. ........ 4,574,062
125,000 Citigroup Inc. .............. 9,406,250
50,000 Equitable Companies, Inc. ... 3,365,625
93,000 Providian Financial Corp. ... 12,002,812
------------
29,348,749
------------
Diversified Manufacturing (4.5%)
200,000 AlliedSignal, Inc. .......... 11,750,000
40,000 Danaher Corp. ............... 2,657,500
125,000 Tyco International Ltd. ..... 10,156,250
------------
24,563,750
------------
Electric Utilities (0.8%)
85,000 AES Corp.*................... 4,250,000
------------
Electrical Products (1.4%)
70,000 American Power Conversion
Corp.*...................... 2,305,625
80,000 Emerson Electric Co. ........ 5,160,000
------------
7,465,625
------------
Electronic Components (0.8%)
85,000 Solectron Corp.*............. 4,122,500
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Electronic Production Equipment (0.6%)
65,000 Jabil Circuit, Inc.*......... $ 3,026,562
------------
Environmental Services (0.0%)
1,500 Waste Management, Inc. ...... 84,750
------------
Finance Companies (2.6%)
60,000 Capital One Financial
Corp. ...................... 10,421,250
75,000 Household International,
Inc. ....................... 3,773,437
------------
14,194,687
------------
Fluid Controls (1.3%)
150,000 Parker-Hannifin Corp. ....... 7,040,625
------------
Food Chains (0.0%)
2,000 Safeway Inc.*................ 107,875
------------
Generic Drugs (0.0%)
1,100 ICN Pharmaceuticals, Inc. ... 36,369
------------
Home Building (0.4%)
92,000 Kaufman & Broad
Home Corp. ................. 2,236,750
------------
Hospital/Nursing Management (0.9%)
325,000 Health Management Associates,
Inc. (Class A)*............. 5,078,125
1,200 Quorum Health Group, Inc.*... 14,850
1,000 Universal Health Services,
Inc. (Class B)*............. 51,812
------------
5,144,787
------------
Hotels/Resorts (0.4%)
50,000 Marriott International, Inc.
(Class A)................... 2,093,750
------------
Industrial Machinery/Components (1.6%)
40,000 Illinois Tool Works Inc. .... 3,080,000
85,000 Ingersoll-Rand Co. .......... 5,880,937
------------
8,960,937
------------
Insurance Brokers/Services (0.6%)
40,000 Marsh & McLennan Companies,
Inc. ....................... 3,062,500
------------
Integrated Oil Companies (2.2%)
70,000 Atlantic Richfield Co. ...... 5,875,625
75,000 Exxon Corp. ................. 6,229,688
------------
12,105,313
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER CAPITAL GROWTH SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Internet Services (1.8%)
50,000 America Online, Inc.*........ $ 7,137,500
15,000 Yahoo! Inc.*................. 2,618,438
------------
9,755,938
------------
Investment Bankers/Brokers/Services (0.8%)
10,000 Knight/Trimark Group, Inc.
(Class A)*.................. 1,531,875
25,000 Schwab (Charles) Corp. ...... 2,743,750
------------
4,275,625
------------
Investment Managers (0.5%)
75,000 Franklin Resources, Inc. .... 3,000,000
------------
Life Insurance (0.0%)
2,200 Conseco, Inc. ............... 69,438
------------
Major Banks (5.5%)
125,000 Bank of America Corp. ....... 9,000,000
100,000 Chase Manhattan Corp. (The).. 8,275,000
150,000 Firstar Corp. ............... 4,509,375
40,000 Morgan (J.P.) & Co., Inc. ... 5,390,000
50 State Street Corp. .......... 4,375
75,000 Wells Fargo & Co. ........... 3,239,063
------------
30,417,813
------------
Major Chemicals (3.9%)
65,000 Dow Chemical Co. ............ 8,527,188
75,000 Du Pont (E.I.) de Nemours &
Co., Inc. .................. 5,296,875
175,000 Rohm & Haas Co. ............. 7,842,188
------------
21,666,251
------------
Major Pharmaceuticals (0.9%)
50,000 Johnson & Johnson............ 4,875,000
------------
Major U.S. Telecommunications (2.7%)
50,000 AT&T Corp. .................. 2,525,000
125,000 GTE Corp. ................... 8,367,188
50,000 MCI WorldCom, Inc.*.......... 4,109,375
------------
15,001,563
------------
Media Conglomerates (1.3%)
100,000 Time Warner, Inc. ........... 7,000,000
------------
Medical Specialties (1.8%)
60,000 Bausch & Lomb, Inc. ......... 4,500,000
60,000 Biomet, Inc.*................ 2,460,000
75,000 Boston Scientific Corp.*..... 3,192,188
------------
10,152,188
------------
Military/Gov't/Technical (0.4%)
35,000 General Dynamics Corp. ...... 2,458,750
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Motor Vehicles (0.8%)
70,000 Harley-Davidson, Inc. ....... $ 4,173,750
------------
Multi-Line Insurance (0.7%)
35,000 American International
Group, Inc. ................ 4,110,313
------------
Multi-Sector Companies (1.7%)
90,000 General Electric Co. ........ 9,495,000
------------
Newspapers (1.5%)
100,000 New York Times Co. (The)
(Class A)................... 3,450,000
60,000 Tribune Co. ................. 5,006,250
------------
8,456,250
------------
Oil Refining/Marketing (0.7%)
140,000 Tosco Corp. ................. 3,745,000
------------
Oil/Gas Transmission (0.7%)
80,000 Williams Companies, Inc. .... 3,780,000
------------
Oilfield Services/Equipment (2.4%)
75,000 Halliburton Co. ............. 3,196,875
100,000 Schlumberger, Ltd.
(Netherlands)............... 6,387,500
85,000 Smith International, Inc.*... 3,814,375
------------
13,398,750
------------
Other Consumer Services (0.6%)
160,000 Service Corp.
International............... 3,320,000
------------
Other Pharmaceuticals (0.0%)
3,000 Medicis Pharmaceutical Corp.
(Class A)*.................. 72,938
------------
Other Specialty Stores (2.8%)
300,000 Staples, Inc.*............... 9,000,000
75,000 Tiffany & Co. ............... 6,300,000
------------
15,300,000
------------
Package Goods/Cosmetics (0.5%)
85,000 Dial Corp. (The)............. 2,890,000
------------
Precision Instruments (0.6%)
30,000 Waters Corp.*................ 3,153,750
------------
Real Estate Investment Trust (0.6%)
125,000 Equity Office Properties
Trust....................... 3,445,313
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER CAPITAL GROWTH SECURITIES
PORTFOLIO OF INVESTMENTS April 30, 1999 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------
<C> <S> <C>
Restaurants (1.4%)
125,000 Foodmaker, Inc.*............. $ 3,015,625
125,000 Outback Steakhouse, Inc.*.... 4,476,563
------------
7,492,188
------------
Retail - Specialty (1.1%)
80,000 Bed Bath & Beyond, Inc.*..... 2,855,000
50,000 Gap, Inc. (The).............. 3,328,125
------------
6,183,125
------------
Semiconductors (3.9%)
40,000 Altera Corp.*................ 2,890,000
120,000 Intel Corp. ................. 7,335,000
50,000 Linear Technology Corp. ..... 2,843,750
125,000 LSI Logic Corp.*............. 4,250,000
25,000 Texas Instruments, Inc. ..... 2,553,125
35,000 Xilinx, Inc.*................ 1,596,875
------------
21,468,750
------------
Services to the Health Industry (0.0%)
1,000 Express Scripts, Inc. (Class
A)*......................... 73,625
------------
Smaller Banks (0.9%)
75,000 Zions Bancorporation......... 5,001,563
------------
Telecommunications (0.4%)
40,000 Frontier Corp. .............. 2,207,500
------------
Telecommunications Equipment (5.4%)
40,000 Comverse Technology, Inc.*... 2,565,000
90,000 Corning Inc. ................ 5,152,500
80,000 General Instrument Corp.*.... 2,920,000
90,000 Lucent Technologies Inc. .... 5,411,250
60,000 Motorola, Inc. .............. 4,807,500
75,000 Nokia Corp. (ADR)
(Finland)................... 5,564,063
15,000 QUALCOMM Inc.*............... 2,990,625
------------
29,410,938
------------
</TABLE>
<TABLE>
<CAPTION>
VALUE
- ---------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $509,291,956)
(a)............................. 99.1% $545,099,381
OTHER ASSETS IN
EXCESS OF LIABILITIES........... 0.9 4,705,073
------ ------------
NET ASSETS...................... 100.0% $549,804,454
====== ============
</TABLE>
- ---------------------
<TABLE>
<C> <S>
ADR American Depository Receipt.
* Non-income producing security.
(a) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross unrealized
appreciation is $44,226,321 and the aggregate gross unrealized depreciation is $8,418,896, resulting in net
unrealized appreciation of $35,807,425.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER CAPITAL GROWTH SECURITIES
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999 (unaudited)
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $509,291,956)............................. $545,099,381
Receivable for:
Investments sold........................................ 49,257,920
Shares of beneficial interest sold...................... 319,900
Dividends............................................... 190,225
Prepaid expenses............................................ 38,168
------------
TOTAL ASSETS............................................ 594,905,594
------------
LIABILITIES:
Payable for:
Investments purchased................................... 37,250,652
Plan of distribution fee................................ 427,103
Shares of beneficial interest repurchased............... 389,609
Investment management fee............................... 307,196
Payable to bank............................................. 6,597,518
Accrued expenses............................................ 129,062
------------
TOTAL LIABILITIES....................................... 45,101,140
------------
NET ASSETS.............................................. $549,804,454
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $371,115,892
Net unrealized appreciation................................. 35,807,425
Accumulated net investment loss............................. (3,386,759)
Accumulated undistributed net realized gain................. 146,267,896
------------
NET ASSETS.............................................. $549,804,454
============
CLASS A SHARES:
Net Assets.................................................. $4,422,783
Shares Outstanding (unlimited authorized, $.01 par value)... 267,230
NET ASSET VALUE PER SHARE............................... $16.55
======
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net asset value)........ $17.47
======
CLASS B SHARES:
Net Assets.................................................. $501,896,115
Shares Outstanding (unlimited authorized, $.01 par value)... 30,812,332
NET ASSET VALUE PER SHARE............................... $16.29
======
CLASS C SHARES:
Net Assets.................................................. $763,222
Shares Outstanding (unlimited authorized, $.01 par value)... 46,713
NET ASSET VALUE PER SHARE............................... $16.34
======
CLASS D SHARES:
Net Assets.................................................. $42,722,334
Shares Outstanding (unlimited authorized, $.01 par value)... 2,569,758
NET ASSET VALUE PER SHARE............................... $16.63
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER CAPITAL GROWTH SECURITIES
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the six months ended April 30, 1999 (unaudited)
<S> <C>
NET INVESTMENT LOSS:
INCOME
Dividends (net of $6,982 foreign withholding tax)........... $ 1,108,407
Interest.................................................... 218,497
------------
TOTAL INCOME............................................ 1,326,904
------------
EXPENSES
Plan of distribution fee (Class A shares)................... 2,910
Plan of distribution fee (Class B shares)................... 2,414,413
Plan of distribution fee (Class C shares)................... 2,030
Investment management fee................................... 1,700,601
Transfer agent fees and expenses............................ 381,308
Registration fees........................................... 44,672
Shareholder reports and notices............................. 39,983
Custodian fees.............................................. 35,743
Professional fees........................................... 27,262
Trustees' fees and expenses................................. 9,304
Other....................................................... 5,133
------------
TOTAL EXPENSES.......................................... 4,663,359
------------
NET INVESTMENT LOSS..................................... (3,336,455)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................................... 163,595,530
Net change in unrealized appreciation....................... (37,008,475)
------------
NET GAIN................................................ 126,587,055
------------
NET INCREASE................................................ $123,250,600
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER CAPITAL GROWTH SECURITIES
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX
MONTHS ENDED FOR THE YEAR
APRIL 30, ENDED
1999 OCTOBER 31, 1998
- --------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss.................................. $(3,336,455) $ (7,501,513)
Net realized gain.................................... 163,595,530 41,554,280
Net change in unrealized appreciation................ (37,008,475) (51,278,029)
------------ ------------
NET INCREASE (DECREASE).......................... 123,250,600 (17,225,262)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAIN:
Class A shares....................................... (401,301) (332,952)
Class B shares....................................... (51,411,180) (96,278,872)
Class C shares....................................... (98,960) (137,250)
Class D shares....................................... (4,282,604) (6,786,251)
------------ ------------
TOTAL DISTRIBUTIONS.............................. (56,194,045) (103,535,325)
------------ ------------
Net increase (decrease) from transactions in shares
of beneficial interest.............................. (2,246,869) 44,543,546
------------ ------------
NET INCREASE (DECREASE).......................... 64,809,686 (76,217,041)
NET ASSETS:
Beginning of period.................................. 484,994,768 561,211,809
------------ ------------
END OF PERIOD
(Including accumulated net investment losses of
$3,386,759 and $50,304, respectively)............ $549,804,454 $484,994,768
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER CAPITAL GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1999 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley 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 converted to a multiple class share structure.
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 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 Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager"), that sale or bid prices are not reflective of a security's market
value, portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Trustees; 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
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER CAPITAL GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1999 (unaudited) continued
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 assets not exceeding $500
million; 0.55% to the portion of daily net assets exceeding $500 million but not
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER CAPITAL GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1999 (unaudited) continued
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 Morgan Stanley 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 (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.
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER CAPITAL GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1999 (unaudited) 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 $17,745,732 at April 30, 1999.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the six months ended April 30, 1999, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.15% and
0.49%, respectively.
The Distributor has informed the Fund that for the six months ended April 30,
1999, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $122,782 and $269, respectively
and received $1,185 in front-end sales charges from sales of the Fund's Class A
shares. The respective shareholders pay such charges which are not an expense of
the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended April 30, 1999 aggregated
$1,453,536,078 and $1,517,214,136, respectively.
For the six months ended April 30, 1999 the Fund incurred $213,520 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the Fund.
At April 30, 1999, the Fund's payable for investments purchased and receivable
for investments sold included unsettled trades with DWR of $3,134,188 and
$2,873,070, respectively.
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER CAPITAL GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1999 (unaudited) continued
For the six months ended April 30, 1999, the Fund incurred brokerage commissions
of $213,140 with Morgan Stanley & Co., Inc., an affiliate of the Investment
Manager and Distributor, for portfolio transactions executed on behalf of the
Fund. At April 30, 1999, the Fund's payable for investments purchased included
unsettled trades with Morgan Stanley & Co., Inc. of $2,489,900.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At April 30, 1999 the Fund had
transfer agent fees and expenses payable of approximately $1,500.
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 six months ended April 30, 1999
included in Trustees fees and expenses in the Statement of Operations amounted
to $3,099. At April 30, 1999, the Fund had an accrued pension liability of
$51,944 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. FEDERAL INCOME TAX STATUS
As of October 31, 1998, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales.
6. ACQUISITION OF DEAN WITTER RETIREMENT SERIES -- CAPITAL GROWTH SERIES
As of the close of business on September 11, 1998, the Fund acquired all the net
assets of Dean Witter Retirement Series -- Capital Growth Series ("Retirement
Capital Growth") pursuant to a plan of reorganization approved by the
shareholders of Retirement Capital Growth on August 19, 1998. The acquisition
was accomplished by a tax-free exchange of 218,480 Class D shares of the Fund at
a net asset value of $13.96 per share for 271,835 shares of Retirement Capital
Growth. The net assets of the Fund and Retirement Capital Growth immediately
before the acquisition were $469,210,059 and $3,049,132, respectively, including
unrealized depreciation of $87,914 for Retirement Capital Growth. Immediately
after the acquisition, the combined net assets of the Fund amounted to
$472,259,191.
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER CAPITAL GROWTH SECURITIES
NOTES TO FINANCIAL STATEMENTS April 30, 1999 (unaudited) continued
7. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
APRIL 30, 1999 OCTOBER 31, 1998
------------------------- --------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold........................................................ 80,920 $ 1,273,695 223,439 $ 3,613,973
Reinvestment of distributions............................... 28,595 388,035 23,370 332,008
Redeemed.................................................... (74,100) (1,179,393) (104,811) (1,707,265)
---------- ------------ ---------- -------------
Net increase - Class A...................................... 35,415 482,337 141,998 2,238,716
---------- ------------ ---------- -------------
CLASS B SHARES
Sold........................................................ 2,116,014 32,694,216 3,644,613 59,399,825
Reinvestment of distributions............................... 3,655,138 48,978,844 6,483,260 91,640,518
Redeemed.................................................... (5,364,199) (82,571,349) (7,641,998) (118,765,145)
---------- ------------ ---------- -------------
Net increase (decrease) - Class B........................... 406,953 (898,289) 2,485,875 32,275,198
---------- ------------ ---------- -------------
CLASS C SHARES
Sold........................................................ 29,784 447,342 63,753 1,053,888
Reinvestment of distributions............................... 5,481 73,451 6,035 85,400
Redeemed.................................................... (54,887) (835,720) (24,271) (372,811)
---------- ------------ ---------- -------------
Net increase (decrease) - Class C........................... (19,622) (314,927) 45,517 766,477
---------- ------------ ---------- -------------
CLASS D SHARES
Sold........................................................ 927,964 14,709,270 774,509 11,951,069
Reinvestment of distributions............................... 302,203 4,119,023 477,524 6,784,035
Acquisition of Dean Witter Retirement Series -
Capital Growth Series...................................... -- -- 218,480 3,049,132
Redeemed.................................................... (1,297,461) (20,344,283) (798,883) (12,521,081)
---------- ------------ ---------- -------------
Net increase (decrease) - Class D........................... (67,294) (1,515,990) 671,630 9,263,155
---------- ------------ ---------- -------------
Net increase (decrease) in Fund............................. 355,452 $ (2,246,869) 3,345,020 $ 44,543,546
========== ============ ========== =============
</TABLE>
15
<PAGE> 16
MORGAN STANLEY 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 SIX FOR THE YEAR ENDED OCTOBER 31,
MONTHS ENDED -------------------------------------------------------
APRIL 30, 1999++ 1998++ 1997*++ 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period........... $14.53 $18.71 $16.98 $14.40 $11.86 $13.35
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment loss........................... (0.10) (0.23) (0.21) (0.11) (0.06) (0.07)
Net realized and unrealized gain (loss)....... 3.57 (0.54) 4.68 2.69 2.60 --
------ ------ ------ ------ ------ ------
Total income (loss) from investment
operations.................................... 3.47 (0.77) 4.47 2.58 2.54 (0.07)
------ ------ ------ ------ ------ ------
Less distributions from net realized gain...... (1.71) (3.41) (2.74) -- -- (1.42)
------ ------ ------ ------ ------ ------
Net asset value, end of period................. $16.29 $14.53 $18.71 $16.98 $14.40 $11.86
====== ====== ====== ====== ====== ======
TOTAL RETURN+.................................. 26.45%(1) (3.56)% 31.21% 17.92% 21.42% (0.79)%
RATIOS TO AVERAGE NET ASSETS:
Expenses....................................... 1.85%(2)(3) 1.84%(3) 1.84% 1.84% 1.89% 1.87%
Net investment loss............................ (1.35)%(2)(3) (1.44)%(3) (1.26)% (0.64)% (0.43)% (0.15)%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........ $501,896 $441,787 $522,276 $506,571 $483,870 $456,977
Portfolio turnover rate........................ 277%(1) 230% 123% 72% 33% 13%
</TABLE>
- ---------------------
* 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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER CAPITAL GROWTH SECURITIES
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THIS PERIOD
FOR THE SIX FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED THROUGH
APRIL 30, 1999 OCTOBER 31, 1998 OCTOBER 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $14.68 $18.75 $18.10
------ ------ ------
Income (loss) from investment operations:
Net investment loss........................................ (0.04) (0.11) (0.04)
Net realized and unrealized gain (loss).................... 3.62 (0.55) 0.69
------ ------ ------
Total income (loss) from investment operations.............. 3.58 (0.66) 0.65
------ ------ ------
Less distributions from net realized gain................... (1.71) (3.41) --
------ ------ ------
Net asset value, end of period.............................. $16.55 $14.68 $18.75
====== ====== ======
TOTAL RETURN+............................................... 26.98%(1) (2.84)% 3.59%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.00%(2)(3) 1.09%(3) 1.12%(2)
Net investment loss......................................... (0.50)%(2)(3) (0.69)%(3) (0.82)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $4,423 $3,403 $1,684
Portfolio turnover rate..................................... 277%(1) 230% 123%(1)
CLASS C SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $14.53 $18.71 $18.10
------ ------ ------
Income (loss) from investment operations:
Net investment loss........................................ (0.06) (0.23) (0.07)
Net realized and unrealized gain (loss).................... 3.58 (0.54) 0.68
------ ------ ------
Total income (loss) from investment operations.............. 3.52 (0.77) 0.61
------ ------ ------
Less distributions from net realized gain................... (1.71) (3.41) --
------ ------ ------
Net asset value, end of period.............................. $16.34 $14.53 $18.71
====== ====== ======
TOTAL RETURN+............................................... 26.84%(1) (3.56)% 3.37%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.34%(2)(3) 1.84%(3) 1.85%(2)
Net investment loss......................................... (0.84)%(2)(3) (1.44)%(3) (1.54)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $763 $964 $389
Portfolio turnover rate..................................... 277%(1) 230% 123%(1)
</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 and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER CAPITAL GROWTH SECURITIES
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX FOR THE YEAR JULY 28, 1997*
MONTHS ENDED ENDED THROUGH
APRIL 30, 1999 OCTOBER 31, 1998 OCTOBER 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $14.73 $18.76 $18.10
------ ------ ------
Income (loss) from investment operations:
Net investment loss........................................ (0.03) (0.07) (0.02)
Net realized and unrealized gain (loss).................... 3.64 (0.55) 0.68
------ ------ ------
Total income (loss) from investment operations.............. 3.61 (0.62) 0.66
------ ------ ------
Less distributions from net realized gain:.................. (1.71) (3.41) --
------ ------ ------
Net asset value, end of period.............................. $16.63 $14.73 $18.76
====== ====== ======
TOTAL RETURN+............................................... 27.02%(1) (2.59)% 3.65%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.85%(2)(3) 0.84%(3) 0.82%(2)
Net investment loss......................................... (0.35)%(2)(3) (0.44)%(3) (0.50)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $42,722 $38,840 $36,863
Portfolio turnover rate..................................... 277%(1) 230% 123%(1)
</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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE> 19
(This Page Intentionally Left Blank)
<PAGE> 20
TRUSTEES
- ----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
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
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
Peter Hermann
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
The financial statements included herein have been taken from the records of the
Fund without examination by the independent accountants and accordingly they
do not express an opinion thereon.
This report is submitted for the genereal 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.
MORGAN STANLEY
DEAN WITTER
CAPITAL GROWTH
SECURITIES
[PHOTO]
Semiannual Report
April 30, 1999
