<PAGE>
DEAN WITTER UTILITIES FUND TWO WORLD TRADE CENTER, NEW YORK, NEW YORK
10048
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1996
DEAR SHAREHOLDER:
While interest rates edged higher in 1996, the continuing progress by
legislators and regulators toward the development of a fully competitive
utilities industry provided a more optimistic outlook for investors. Throughout
1996, a common thread among all sectors of the utility industry were mergers and
acquisitions which resulted from a perceived need for size and scope in order to
be able to successfully compete in a deregulated environment. Specifically, the
electric utilities began to receive regulatory relief on the matter of stranded
cost; thereby tempering the need for asset write-downs and limiting the threat
of financial weakening. The telecommunications industry received its long
awaited federal legislation designed to increase competition, with full
implementation expected to commence in 1997. The worldwide demand for
telecommunications services should reinforce strong industry growth and the need
for domestic and global industry convergence. The natural gas sector benefitted
in 1996 from a combination of higher commodity prices and the stream of
acquisitions of gas companies by electric utilities at attractive premium
levels.
PERFORMANCE AND PORTFOLIO STRATEGY
Against this backdrop, Dean Witter Utilities Fund provided a total return of
4.99 percent for the twelve month period ended December 31, 1996, compared to a
return of 9.87 percent for the Lipper Utility Funds Average and a return of
22.95 percent for the broad-based Standard and Poor's 500 Composite Stock Price
Index. During this period, the Fund paid income distributions totaling $0.58 per
share. Future quarterly income distributions will be based primarily on the
level of interest rates and the portfolio's overall investment allocation
strategy. The accompanying chart illustrates the growth of a $10,000 investment
in the Fund from inception (April 29, 1988) through the fiscal year-ended
December 31, 1996, versus a similar hypothetical investment in the issues that
comprise the S&P 500 Index and the Lipper Utility Funds Average.
<PAGE>
DEAN WITTER UTILITIES FUND
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1996, CONTINUED
At year-end, the Fund remained at a near fully invested position. This strategy
reflected in part the improving trend of industry fundamentals including the
enhanced competitive landscape and a degree of optimism regarding interest rates
and volatility going into 1997. On December 31, 1996, 85
percent of the Fund's net assets were
allocated to utility and utility-related
equities. While the major portion of the
Fund's equity holdings remained within the
electric utility sector, the overall
allocation was reduced throughout 1996 in
favor of selective natural gas investments
and foreign investments having an emphasis
on telecommunications. A diverse portfolio
of foreign securities accounted for 9
percent of net assets at year end.
Approximately 14 percent of the Fund's net
assets were allocated to a diversified
portfolio of high quality fixed-income
securities. The remaining one percent of
the portfolio was held in cash
equivalents. The Fund's fixed-income
holdings, 50 percent of which were
electric utilities, had a weighted average
credit rating of "Baa" and "BBB+", as
measured by Moody's Investors Service Inc.
and Standard & Poor's Corporation,
respectively.
Among the Fund's largest equity holdings
on December 31, 1996 were Ameritech Corp.,
SBC Communications, Inc. and GTE Corp.
(telecommunications); CINergy Corp., Texas
Utilities Co. and General Public Utilities
Corp. (electric utilities); and Williams
Companies, Inc. and Enron Corp. (natural
gas). Included among the Fund's major
foreign holdings were Telecommunications
Corp. New Zealand, Ltd., Telefonica Espana
S.A. (telecommunications) and Empresa
Nacional de Electricidad S.A. (electric
utilities).
<PAGE>
DEAN WITTER UTILITIES FUND
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1996, CONTINUED
LOOKING AHEAD
The Fund anticipates maintaining its fixed-income allocation at or near the
year-end 1996 level, while broadening exposure to selective areas of
telecommunications that are expected to show near-term benefits from the
competition and convergence of the industry. In addition, a modest increase in
foreign investments is foreseen as global infrastructure growth expands and
investment opportunities appear. As worldwide restructuring, alliances,
competition and broad-based deregulation progress throughout the utilities and
related industries, we believe the Fund is well positioned to meet its long-term
objectives.
For 1997, we expect further clarity on the structure, timing and impact of
deregulated and competitive utility industries. This should give the Fund a
better understanding of the direction and prospects of utility investments in
1997 and beyond.
We appreciate your support of Dean Witter Utilities Fund and look forward to
serving your future needs and investment objectives.
Very truly yours,
[SIGNATURE]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
<PAGE>
DEAN WITTER UTILITIES FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (84.6%)
NATURAL GAS (12.1%)
680,000 AGL Resources, Inc................................................... $ 14,365,000
385,000 Burlington Resources, Inc............................................ 19,394,375
475,000 Coastal Corp......................................................... 23,215,625
350,000 Consolidated Natural Gas Co.......................................... 19,337,500
620,335 El Paso Natural Gas Co............................................... 31,326,918
935,000 Enron Corp........................................................... 40,321,875
475,000 ENSERCH Corp......................................................... 10,925,000
200,000 Louisiana Land & Exploration Co. (The)............................... 10,725,000
235,000 New Jersey Resources Corp............................................ 6,873,750
690,000 PanEnergy Corp....................................................... 31,050,000
445,000 Sonat, Inc........................................................... 22,917,500
595,000 Tenneco, Inc......................................................... 26,849,375
285,000 Washington Gas Light Co.............................................. 6,448,125
1,575,000 Williams Companies, Inc.............................................. 59,062,500
-----------------
322,812,543
-----------------
TELECOMMUNICATIONS (29.1%)
300,000 360 DEG. Communications Co.*......................................... 6,937,500
740,000 Airtouch Communications, Inc.*....................................... 18,685,000
1,170,000 Alltel Corp.......................................................... 36,708,750
985,000 Ameritech Corp....................................................... 59,715,625
670,000 AT&T Corp............................................................ 29,145,000
630,000 BCE, Inc. (Canada)................................................... 30,082,500
430,000 Bell Atlantic Corp................................................... 27,842,500
915,000 BellSouth Corp....................................................... 36,943,125
250,000 British Telecommunications PLC (ADR) (United Kingdom)................ 17,156,250
245,000 Cable & Wireless PLC (ADR) (United Kingdom).......................... 6,033,125
580,000 Century Telephone Enterprises, Inc................................... 17,907,500
95,000 Compania de Telefonos de Chile S.A. (ADR) (Chile).................... 9,606,875
775,000 Comsat Corp.......................................................... 19,084,375
695,000 Ericsson (L.M.) Telephone Co. (Class B) (ADR) (Sweden)............... 20,936,875
680,000 Frontier Corp........................................................ 15,385,000
975,000 GTE Corp............................................................. 44,362,500
995,000 Hong Kong Telecommunications, Ltd. (ADR) (Hong Kong)................. 16,168,750
244,405 Lucent Technologies, Inc............................................. 11,303,731
1,345,000 MCI Communications Corp.............................................. 43,880,625
1,005,000 NYNEX Corp........................................................... 48,365,625
375,000 Pacific Telesis Group................................................ 13,781,250
215,000 Philippine Long Distance Telephone Co. (ADR)
(Philippines)...................................................... 10,965,000
960,000 SBC Communications, Inc.............................................. 49,680,000
875,000 Sprint Corp.......................................................... 34,890,625
340,000 Telecommunications Corp. New Zealand, Ltd. (ADR)
(New Zealand)...................................................... 27,540,000
360,000 Telefonica de Argentina S.A. (ADR) (Argentina)....................... 9,315,000
620,000 Telefonica Espana S.A. (ADR) (Spain)................................. 42,935,000
505,000 Telefonos de Mexico S.A. de C.V. (Series L) (ADR)
(Mexico)........................................................... 16,665,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER UTILITIES FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
755,000 U.S. West Communications Group....................................... $ 24,348,750
730,000 U.S. West Media Group*............................................... 13,505,000
270,000 Vodafone Group PLC (ADR) (United Kingdom)............................ 11,171,250
347,000 WorldCom, Inc.*...................................................... 9,022,000
-----------------
780,070,106
-----------------
UTILITIES - ELECTRIC (43.4%)
1,250,000 Allegheny Power Systems, Inc......................................... 37,968,750
670,000 American Electric Power Co........................................... 27,553,750
800,000 Baltimore Gas & Electric Co.......................................... 21,400,000
550,000 Boston Edison Co..................................................... 14,781,250
240,000 Carolina Power & Light Co............................................ 8,760,000
875,000 Central & South West Corp............................................ 22,421,875
1,310,470 CINergy Corp......................................................... 43,736,936
640,000 CMS Energy Corp...................................................... 21,520,000
685,000 Consolidated Edison Co. of New York, Inc............................. 20,036,250
880,000 Dominion Resources, Inc.............................................. 33,880,000
1,105,000 DPL, Inc............................................................. 27,072,500
550,000 DQE, Inc............................................................. 15,950,000
1,020,000 DTE Energy Co........................................................ 33,022,500
500,000 Duke Power Co........................................................ 23,125,000
1,585,000 Edison International................................................. 31,501,875
385,000 Empresa Nacional de Electricidad S.A. (ADR) (Spain).................. 26,950,000
210,000 Enersis S.A. (ADR) (Chile)........................................... 5,827,500
980,000 Enova Corp........................................................... 22,295,000
725,000 Entergy Corp......................................................... 20,118,750
600,000 Florida Progress Corp................................................ 19,350,000
735,000 FPL Group, Inc....................................................... 33,810,000
1,070,000 General Public Utilities Corp........................................ 35,978,750
1,270,000 Houston Industries, Inc.............................................. 28,733,750
920,000 Illinova Corp........................................................ 25,300,000
915,000 Kansas City Power & Light Co......................................... 26,077,500
570,000 Long Island Lighting Co.............................................. 12,611,250
380,000 Montana Power Co..................................................... 8,122,500
805,000 New England Electric System.......................................... 28,074,375
590,000 New York State Electric & Gas Corp................................... 12,758,750
860,000 NIPSCO Industries, Inc............................................... 34,077,500
290,000 Northern States Power Co............................................. 13,303,750
960,000 Ohio Edison Co....................................................... 21,840,000
490,000 Pacific Gas & Electric Co............................................ 10,290,000
980,000 PacifiCorp........................................................... 20,090,000
925,000 Peco Energy Co....................................................... 23,356,250
920,000 Pinnacle West Capital Corp........................................... 29,210,000
460,000 Portland General Corp................................................ 19,320,000
440,000 Potomac Electric Power Co............................................ 11,330,000
745,000 PP&L Resources, Inc.................................................. 17,135,000
865,000 Public Service Company of Colorado................................... 33,626,875
890,000 Public Service Enterprise Group, Inc................................. 24,252,500
190,000 Puget Sound Power & Light Co......................................... 4,560,000
415,000 Rochester Gas & Electric Corp........................................ 7,936,875
770,000 SCANA Corp........................................................... 20,597,500
1,535,000 Southern Co.......................................................... 34,729,375
315,000 Southwestern Public Service Co....................................... 11,143,125
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER UTILITIES FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
425,000 Teco Energy, Inc..................................................... $ 10,253,125
935,000 Texas Utilities Co................................................... 38,101,250
945,000 Unicom Corp.......................................................... 25,633,125
890,000 Union Electric Co.................................................... 34,265,000
525,000 Utilicorp United, Inc................................................ 14,175,000
700,000 Washington Water Power Co............................................ 13,037,500
-----------------
1,161,002,561
-----------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $1,627,090,605)..................................... 2,263,885,210
-----------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- ------------ ---------- ----------
<C> <S> <C> <C> <C>
CORPORATE BONDS (14.2%)
NATURAL GAS (3.4%)
$ 5,000 ANR Pipeline Co............................ 9.625% 11/01/21 6,168,600
7,000 Arkla, Inc................................. 10.00 11/15/19 7,781,200
10,000 Coastal Corp............................... 9.625 05/15/12 11,969,400
5,000 Coastal Corp............................... 7.75 10/15/35 5,061,550
5,000 Colorado Interstate Gas Co................. 10.00 06/15/05 5,949,850
5,000 Columbia Gas System, Inc................... 7.62 11/28/25 4,874,850
7,600 Enserch Exploration Inc. - 144A**.......... 7.54 01/02/09 7,491,168
5,000 Mitchell Energy/Development Corp........... 9.25 01/15/02 5,378,950
5,000 Northern Illinois Gas Co................... 9.00 07/01/19 5,296,350
5,000 Northwest Pipeline Corp.................... 10.65 11/15/18 5,333,400
2,000 Northwest Pipeline Corp.................... 9.00 08/01/22 2,172,400
5,750 Southwest Gas Corp......................... 8.00 08/01/26 6,026,460
5,000 Transco Energy Co.......................... 9.875 06/15/20 6,275,450
1,550 Transcontinental Gas Pipeline Corp......... 9.125 02/01/17 1,651,835
8,000 Williams Companies, Inc.................... 9.375 11/15/21 9,606,320
-----------------
91,037,783
-----------------
TELECOMMUNICATIONS (3.5%)
10,000 BellSouth Telecommunications, Inc.......... 7.625 05/15/35 9,993,600
5,000 BellSouth Telecommunications, Inc.......... 7.00 12/01/95 4,808,050
10,000 Century Telephone Enterprises, Inc......... 8.25 05/01/24 10,309,100
5,000 Century Telephone Enterprises, Inc......... 7.20 12/01/25 4,858,300
5,000 General Telephone & Electric Corp.......... 10.25 11/01/20 5,699,700
5,000 GTE North Inc.............................. 7.625 05/15/26 5,032,100
5,000 MCI Communications Corp.................... 7.75 03/15/24 5,062,350
6,000 MCI Communications Corp.................... 7.75 03/23/25 6,075,600
20,000 Southwestern Bell Telephone Co............. 7.20 10/15/26 19,242,400
10,000 Sprint Corp................................ 9.25 04/15/22 12,100,800
5,000 Telephone & Data Systems, Inc.............. 10.00 01/15/21 5,734,800
5,000 Telephone & Data Systems, Inc.............. 9.58 11/19/21 5,500,000
-----------------
94,416,800
-----------------
UTILITIES - ELECTRIC (7.2%)
1,499 AEP Generating Co.......................... 9.81 12/07/22 1,814,716
5,000 Arizona Public Service Co.................. 7.25 08/01/23 4,725,650
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER UTILITIES FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 6,000 Chugach Electric Co......................... 9.14 % 03/15/22 $ 6,722,460
5,000 Citizens Utilities Co....................... 7.45 07/01/35 5,032,250
5,000 Consumer Power Co........................... 7.375 09/15/23 4,704,150
4,985 CTC Mansfield Funding Corp.................. 10.25 03/30/03 5,109,625
5,000 CTC Mansfield Funding Corp.................. 11.125 09/30/16 5,325,000
14,783 DQU II Funding Corp......................... 8.70 06/01/16 15,603,161
10,000 Duke Power Co............................... 8.75 03/01/21 10,316,800
10,000 Gulf States Utilities Co.................... 8.94 01/01/22 10,202,600
7,000 Indiantown Cogeneration LP.................. 9.26 12/15/10 7,676,200
3,000 Long Island Lighting Co..................... 8.90 07/15/19 3,077,010
5,100 Long Island Lighting Co..................... 8.20 03/15/23 5,050,785
2,931 Mobile Energy SVC LLC....................... 8.665 01/01/17 3,016,486
10,100 National Cooperative Services Corp.......... 9.375 01/02/11 10,531,169
5,250 National Rural Utilities Cooperative
Finance Corp.............................. 9.00 09/01/21 5,655,982
1,984 New York State Electric & Gas Corp.......... 9.875 02/01/20 2,099,409
8,826 Niagara Mohawk Power Corp................... 8.77 01/01/18 8,394,762
5,000 Niagara Mohawk Power Corp................... 9.50 03/01/21 5,004,000
5,000 Pacific Gas & Electric Co................... 7.25 08/01/26 4,800,900
5,000 Pacific Gas Transmission Co................. 7.80 06/01/25 4,977,350
10,250 Public Service Company of Colorado.......... 8.75 03/01/22 10,960,120
10,000 Selkirk Cogen Funding Corp. - 144A**........ 8.98 06/26/12 10,243,100
4,000 South Carolina Electric Co.................. 8.875 08/15/21 4,323,800
442 Systems Energy Resources, Inc............... 11.375 09/01/16 473,055
10,000 Texas Utilities Electric Co................. 8.875 02/01/22 10,657,800
5,000 Texas Utilities Electric Co................. 7.375 10/01/25 4,779,450
5,000 Union Electric Co........................... 8.75 12/01/21 5,351,200
5,000 Utilicorp United, Inc....................... 9.00 11/15/21 5,332,400
5,000 Virginia Electric Power Co.................. 8.625 10/01/24 5,381,150
5,000 Wisconsin Power & Light Co.................. 8.60 03/15/27 5,321,550
-----------------
192,664,090
-----------------
UTILITIES - WATER (0.1%)
3,000 Pennsylvania American
Water Co. - 144A**........................ 7.80 09/01/26 3,135,840
-----------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $361,498,604)..................................... 381,254,513
-----------------
<CAPTION>
NUMBER OF
SHARES
- -----------
<C> <S> <C> <C> <C>
PREFERRED STOCKS (0.1%)
UTILITIES - ELECTRIC
40,000 Atlantic Capital I $2.0625........................................... 995,000
27,965 Entergy Gulf States Utilities $9.96.................................. 2,880,395
-----------------
TOTAL PREFERRED STOCKS
(IDENTIFIED COST $3,937,443)......................................... 3,875,395
-----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER UTILITIES FUND
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (0.8%)
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY (a) (0.7%)
$ 18,000 Federal Home Loan Banks (Amortized Cost
$17,996,750)............................. 6.50% 01/02/97 $ 17,996,750
-----------------
REPURCHASE AGREEMENT (0.1%)
2,839 The Bank of New York (dated 12/31/96;
proceeds $2,839,750; collateralized by
$2,596,989 U.S. Treasury Bond 6.50% due
11/15/26 valued at $2,570,151 and
$329,876 U.S. Treasury Note 5.625% due
11/30/00 valued at $325,530) (Identified
Cost $2,838,902)......................... 5.375 01/02/97 2,838,902
-----------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $20,835,652)...................................... 20,835,652
-----------------
TOTAL INVESTMENTS
(IDENTIFIED COST $2,013,362,304) (B)...... 99.7% 2,669,850,770
OTHER ASSETS IN EXCESS OF LIABILITIES..... 0.3 7,094,211
----- -------------
NET ASSETS................................ 100.0% $2,676,944,981
----- -------------
----- -------------
<FN>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
** Resale is restricted to qualified institutional investors.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $689,320,315 and the
aggregate gross unrealized depreciation is $32,831,849, resulting in net
unrealized appreciation of $656,488,466.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER UTILITIES FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $2,013,362,304).......................... $2,669,850,770
Receivable for:
Dividends............................................... 8,129,452
Interest................................................ 7,876,534
Investments sold........................................ 2,137,007
Shares of beneficial interest sold...................... 727,519
Foreign withholding taxes reclaimed..................... 104,097
Prepaid expenses and other assets........................... 34,978
--------------
TOTAL ASSETS........................................... 2,688,860,357
--------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased............... 5,927,658
Plan of distribution fee................................ 2,373,056
Distributions to shareholders........................... 1,968,513
Investment management fee............................... 1,269,807
Accrued expenses and other payables......................... 376,342
--------------
TOTAL LIABILITIES...................................... 11,915,376
--------------
NET ASSETS:
Paid-in-capital............................................. 2,002,828,386
Net unrealized appreciation................................. 656,488,466
Accumulated undistributed net investment income............. 764,341
Accumulated undistributed net realized gain................. 16,863,788
--------------
NET ASSETS............................................. $2,676,944,981
--------------
--------------
NET ASSET VALUE PER SHARE,
175,844,684 SHARES OUTSTANDING (UNLIMITED SHARES
AUTHORIZED OF $.01 PAR VALUE).............................
$15.22
--------------
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER UTILITIES FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $1,209,250 foreign withholding tax)....... $106,841,277
Interest.................................................... 48,906,955
------------
TOTAL INCOME........................................... 155,748,232
------------
EXPENSES
Plan of distribution fee.................................... 29,551,784
Investment management fee................................... 15,787,095
Transfer agent fees and expenses............................ 2,711,507
Custodian fees.............................................. 160,551
Shareholder reports and notices............................. 155,574
Registration fees........................................... 58,867
Professional fees........................................... 49,363
Insurance fees.............................................. 34,065
Trustees' fees and expenses................................. 15,376
Other....................................................... 42,598
------------
TOTAL EXPENSES......................................... 48,566,780
------------
NET INVESTMENT INCOME.................................. 107,181,452
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................................... 38,088,040
Net change in unrealized appreciation....................... (21,800,001)
------------
NET GAIN............................................... 16,288,039
------------
NET INCREASE................................................ $123,469,491
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER UTILITIES FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR
FOR THE YEAR ENDED
ENDED DECEMBER 31,
DECEMBER 31, 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 107,181,452 $ 126,947,362
Net realized gain........................................... 38,088,040 23,150,960
Net change in unrealized appreciation....................... (21,800,001) 608,846,502
----------------- -------------
NET INCREASE........................................... 123,469,491 758,944,824
----------------- -------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income....................................... (112,326,026) (127,913,235)
Net realized gain........................................... (13,000,035) --
----------------- -------------
TOTAL.................................................. (125,326,061) (127,913,235)
----------------- -------------
Net decrease from transactions in shares of beneficial
interest.................................................. (642,069,697) (137,151,642)
----------------- -------------
NET INCREASE (DECREASE)................................ (643,926,267) 493,879,947
NET ASSETS:
Beginning of period......................................... 3,320,871,248 2,826,991,301
----------------- -------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$764,341 AND $5,908,915, RESPECTIVELY).................. $ 2,676,944,981 $3,320,871,248
----------------- -------------
----------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Utilities Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a diversified, open-end
management investment company. The Fund's investment objective is to provide
current income and long-term growth of income and capital. The Fund seeks to
achieve its objective by investing primarily in equity and fixed income
securities of companies engaged in the public utilities industry. The Fund was
organized as a Massachusetts business trust on December 8, 1987 and commenced
operations on April 29, 1988.
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 or American Stock Exchange or other 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;
(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; (4) certain of the Fund's portfolio securities may
be valued by an outside pricing service approved by the Trustees. The pricing
service may utilize a matrix system incorporating security quality, maturity and
coupon as the evaluation model parameters, and/or research and evaluations by
its staff, including review of broker-dealer market price quotations, if
available, in determining what it believes is the fair valuation of the
portfolio securities valued by such pricing service; and (5) short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined
<PAGE>
DEAN WITTER UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, CONTINUED
by the identified cost method. Discounts are amortized over the life of the
respective securities. Dividend income and other distributions are recorded on
the ex-dividend date. Interest income is accrued daily.
C. 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.
D. 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 with the Investment Manager, the
Fund pays the Investment Manager a management fee, accrued daily and payable
monthly, by applying the annual rate of 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 exceeding $1 billion; 0.525% to the portion of daily net
assets exceeding $1 billion but not exceeding $1.5 billion; 0.50% to the portion
of daily net assets exceeding $1.5 billion but not exceeding $2.5 billion;
0.475% to the portion of daily net assets exceeding $2.5 billion but not
exceeding $3.5 billion; 0.45% to the portion of daily net assets exceeding $3.5
billion but not exceeding $5 billion; and 0.425% to the portion of daily net
assets exceeding $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
<PAGE>
DEAN WITTER UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, CONTINUED
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 pursuant
to which the Fund pays the Distributor compensation, accrued daily and payable
monthly, at an annual rate of 1.0% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's shares since the Fund's inception (not
including reinvestment of dividend or capital gain distributions) less the
average daily aggregate net asset value of the Fund's shares redeemed since the
Fund's inception upon which a contingent deferred sales charge has been imposed
or upon which such charge has been waived; or (b) the Fund's average daily net
assets. Amounts paid under the Plan are paid to the Distributor to compensate it
for the services provided and the expenses borne by it and others in the
distribution of the Fund's shares, including the payment of commissions for
sales of the Fund's shares and incentive compensation to, and expenses of,
account executives of Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Investment Manager and Distributor, and other employees or selected
broker-dealers, who engage in or support distribution of the Fund's 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 the Fund's shares to other than current shareholders and
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may be compensated under the Plan for
its opportunity costs in advancing such amounts which compensation would be in
the form of a carrying charge on any unreimbursed expenses by the Distributor.
Provided that the Plan continues in effect, any cumulative expenses incurred but
not yet recovered may be recovered through future distribution fees from the
Fund and contingent deferred sales charges from the Fund's shareholders.
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 $79,638,749
at December 31, 1996.
<PAGE>
DEAN WITTER UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, CONTINUED
The Distributor has informed the Fund that for the year ended December 31, 1996,
it received approximately $5,371,000 in contingent deferred sales charges from
certain redemptions of the Fund's shares.
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 December 31, 1996 aggregated
$206,863,095 and $827,394,262, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $36,230,229 and
$61,402,880, respectively. Included in the aforementioned are sales of Citizens
Utilities Co., an affiliate of the Fund by virtue of a common Trustee, in the
amount of $959,850, as well as a realized loss of $27,890.
For the year ended December 31, 1996, the Fund incurred approximately $162,000
in brokerage commissions with DWR for portfolio transactions executed on behalf
of the Fund.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At December 31, 1996, the Fund had
transfer agent fees and expenses payable of approximately $230,000.
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 December 31, 1996
included in Trustees' fees and expenses in the Statement of Operations amounted
to $726. At December 31, 1996, the Fund had an accrued pension liability of
$49,476 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
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ---------------- ------------ --------------
<S> <C> <C> <C> <C>
Sold............................................................. 20,469,306 $ 305,649,321 35,158,052 $ 482,155,919
Reinvestment of dividends and distributions...................... 6,797,078 100,198,592 7,381,506 101,941,449
------------ ---------------- ------------ --------------
27,266,384 405,847,913 42,539,558 584,097,368
Repurchased...................................................... (70,657,866) (1,047,917,610) (53,056,841) (721,249,010)
------------ ---------------- ------------ --------------
Net decrease..................................................... (43,391,482) $ (642,069,697) (10,517,283) $ (137,151,642)
------------ ---------------- ------------ --------------
------------ ---------------- ------------ --------------
</TABLE>
<PAGE>
DEAN WITTER UTILITIES FUND
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, CONTINUED
6. FEDERAL INCOME TAX STATUS
During the year ended December 31, 1996 the Fund utilized its net capital loss
carryover of approximately $6,396,000. As of December 31, 1996, the Fund had
temporary book/tax differences primarily attributable to capital loss deferrals
on wash sales.
<PAGE>
DEAN WITTER UTILITIES FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED DECEMBER 31 APRIL 29, 1988*
---------------------------------------------------------------------------------------- THROUGH
1996 1995 1994 1993 1992 1991 1990 1989 DECEMBER 31, 1988
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 15.15 $ 12.30 $ 14.34 $ 13.37 $ 12.93 $ 11.48 $ 12.22 $ 10.41 $ 10.00
----------- --------- --------- --------- --------- --------- --------- --------- ------
Net investment
income.......... 0.56 0.58 0.63 0.61 0.63 0.65 0.65 0.63 0.40
Net realized and
unrealized gain
(loss).......... 0.16 2.85 (2.04) 1.09 0.47 1.45 (0.71) 1.86 0.38
----------- --------- --------- --------- --------- --------- --------- --------- ------
Total from
investment
operations...... 0.72 3.43 (1.41) 1.70 1.10 2.10 (0.06) 2.49 0.78
----------- --------- --------- --------- --------- --------- --------- --------- ------
Less dividends
and
distributions
from:
Net investment
income........ (0.58) (0.58) (0.61) (0.61) (0.63) (0.65) (0.65) (0.67) (0.36)
Net realized
gain.......... (0.07) -- (0.02) (0.12) (0.03) -- (0.03) (0.01) (0.01)
----------- --------- --------- --------- --------- --------- --------- --------- ------
Total dividends
and
distributions... (0.65) (0.58) (0.63) (0.73) (0.66) (0.65) (0.68) (0.68) (0.37)
----------- --------- --------- --------- --------- --------- --------- --------- ------
Net asset value,
end of period... $ 15.22 $ 15.15 $ 12.30 $ 14.34 $ 13.37 $ 12.93 $ 11.48 $ 12.22 $ 10.41
----------- --------- --------- --------- --------- --------- --------- --------- ------
----------- --------- --------- --------- --------- --------- --------- --------- ------
TOTAL INVESTMENT
RETURN+.......... 4.99% 28.42% (9.90)% 12.79% 8.75% 18.89% (0.27)% 24.51% 7.90%(1)
RATIOS TO AVERAGE
NET ASSETS:
Expenses......... 1.64% 1.65% 1.64% 1.46% 1.59% 1.59% 1.67% 1.68% 1.84%(2)
Net investment
income.......... 3.63% 4.19% 4.67% 4.32% 5.05% 5.58% 5.85% 6.07% 6.69%(2)
SUPPLEMENTAL
DATA:
Net assets, end
of period, in
millions........ $ 2,677 $ 3,321 $ 2,827 $ 3,881 $ 2,926 $ 1,959 $ 1,369 $ 1,131 $ 458
Portfolio
turnover rate... 7% 9% 11% 16% 14% 13% 13% 25% 12%(1)
Average
commission rate
paid............ $0.0547 -- -- -- -- -- -- -- --
<FN>
- ---------------------
* Commencement of operations.
+ 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.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER UTILITIES FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER UTILITIES FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dean Witter Utilities Fund (the
"Fund") at December 31, 1996, 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 eight years in the
period then ended and for the period April 29, 1988 (commencement of operations)
through December 31, 1988, 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 December 31, 1996 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
FEBRUARY 6, 1997
1996 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended December 31, 1996, the Fund paid to
shareholders $0.07 per share from long-term capital gains. For
such period 91.73% of the income paid qualified for the dividends
received deduction available to corporations.
<PAGE>
DEAN WITTER UTILITIES FUND
<TABLE>
<CAPTION>
GROWTH OF $10,000 ($ in Thousands)
DATE TOTAL S&P 500 LIPPER AVG.
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
April 29, 1988 $10,000 $10,000 $10,000
December 31, 1988 $10,790 $10,890 $10,956
December 31, 1989 $13,435 $14,335 $14,092
December 31, 1990 $13,400 $13,891 $13,924
December 31, 1991 $15,930 $18,115 $16,936
December 31, 1992 $17,325 $19,494 $18,548
December 31, 1993 $19,541 $21,456 $21,276
December 31, 1994 $17,607 $21,738 $19,338
December 31, 1995 $22,610 $29,900 $24,639
December 31, 1996 $23,740(3) $36,763 $27,073
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURN (FUND)
1 YEAR 5 YEARS LIFE OF FUND
-------------------------------------------------
-------------------------------------------------
4.99%(1) 8.31%(1) 10.48%(1)
-0.01%(2) 8.01%(2) 10.48%(2)
-------------------------------------------------
-------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
______ Fund ______S&P 500 (4) ______Lipper AVG. (5)
------------------------------------------------------------------
------------------------------------------------------------------
Past performance is not predictive of future returns.
- ------------------------------
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of 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 December 31, 1996.
(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 Utility Funds Average tracks the performance of funds which
invest 65% of their equity portfolio in utility shares as reported by
Lipper Analytical Services.
