<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND TWO WORLD TRADE CENTER, NEW YORK, NEW
YORK 10048
LETTER TO THE SHAREHOLDERS MAY 31, 1996
DEAR SHAREHOLDER:
We are pleased to report that Dean Witter International SmallCap Fund produced a
total return of 20.37 percent for the twelve-month period ended May 31, 1996,
compared to a return of 13.89 percent for its benchmark, the NatWest Markets
Small Cap Euro-Pacific Index (NatWest Index). During the same period, large-cap
stocks, as measured by the Morgan Stanley Capital International EAFE Index (MSCI
EAFE), returned 8.94 percent. The Fund's outperformance of its benchmark index
could be attributed to stock selection and the yen hedge maintained throughout
the period. The accompanying chart illustrates the performance of a $10,000
investment in the Fund from inception through May 31, 1996, versus a similar
investment in NatWest Index and the MSCI EAFE Index.
During the period under review, the Fund shifted to a small overweight position
in Japan reflecting the exceptional value which Morgan Grenfell, the Fund's
investment adviser, sees in that market and reduced the weighting in the United
Kingdom to reflect the more mature phase of its economic cycle. Continental
Europe and the Far Eastern markets (excluding Japan) have retained neutral
weightings, the former reflecting some recovery potential negated by signs of
continued consumer weakness, and the latter's strong relative value
characteristics countered by the current subdued state of those markets
following Chinese-Taiwanese strains in early 1996.
The U.S. dollar returns for both large and small-cap stocks (outside of the
U.S.) were reduced by the strength of the dollar during the period. The weakest
currency against the dollar was the yen, where very strong local currency
returns were reduced by 21.7 percent. As a result, Japan was the weakest
performing major world market from the perspective of an unhedged U.S. investor,
rising only 5.4 percent in U.S.-dollar terms. However, the Fund's yen exposure
was substantially hedged until a few days before the end of the year thus
capturing the bulk of the market's strong yen performance (+25.1 percent).
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
LETTER TO THE SHAREHOLDERS MAY 31, 1996, CONTINUED
RECOVERY IN JAPAN
During the fiscal year, the focus of investors in the Japanese market has been
on stocks expected to benefit strongly from the long awaited liquidity-driven
recovery in the economy. In the first seven months of the fiscal year, Japanese
larger-cap stocks rose 4.7 percent in dollar terms, but increased only 0.7
percent in the first five months of 1996. Smaller companies alternatively fell
3.7 percent in the last seven months of 1995, but have risen 7.4 percent in the
first five months of 1996. Overall, the effect was that Japanese large-caps
outperformed small-caps during the entire fiscal year. However, given signs of
rising consumer confidence and the export benefits of a weaker yen, we
[GRAPHIC]
remain confident that the Japanese
small-cap stocks will perform well over
the long term.
[GRAPHIC]
The Fund's Japanese exposure is heavily
skewed toward long-term growth stocks,
which is where Morgan Grenfell sees the
best value in the market. The Japanese
small-cap portfolio is trading at
around 27x March 1997 earnings, by
comparison with 49x for the large-cap
stocks which make up the bulk of the
market's capitalization. Earnings
growth for small-caps is 20 percent
versus 16 percent for large-caps. Since
January, these valuation
characteristics have begun to be
realized by the market, although
further progress is dependent on the
expectations of an economic recovery
being fulfilled.
[GRAPHIC]
As mentioned above, the Fund maintained
a Japanese yen hedge for most of the
fiscal year. The Fund's investment
adviser viewed that currency as
significantly overvalued on a
purchasing power parity basis and, as
they expected, the falling trade
surplus gave rise to a significant
correction in the yen-U.S. dollar rate.
The hedge was removed at the end of May
as target levels were reached. Morgan
Grenfell believes the fall in the yen
should boost
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
LETTER TO THE SHAREHOLDERS MAY 31, 1996, CONTINUED
both short-term export earnings and enhance future export prospects and should
encourage further progress from the market.
EUROPEAN SMALL CAPS OUTPERFORM
Small-cap equity markets in Continental Europe were strong performers during the
period as investors looked to an economic recovery aided by lower interest
rates. The large-cap stocks in the main Deutschemark bloc stock markets (France
and Germany) marginally outperformed smaller companies, while in the smaller
markets of Switzerland and the Netherlands, this movement was reversed. The only
real trend in the fiscal year has been the outperformance of smaller companies
thus far in 1996, similar to that experienced in Japan. Investors have begun to
recognize the attractions of higher growth and lower valuations in smaller
companies across the region.
The Fund's exposure to the United Kingdom contributed to its performance during
the period under review, with small-cap stocks returning 19.0 percent during the
fiscal year as expectations of higher domestic growth rates, driven by the
return of long-awaited higher consumer spending, counterbalanced by weakness in
the U.K.'s European export markets.
EMERGING/DEVELOPING MARKETS BACK IN FAVOR
The Mexican stock market, having fallen dramatically in December 1994 and
January 1995, recovered sharply during the past twelve months as the current
account improved and the international rescue package warmed investor sentiment.
The Far Eastern markets (excluding Japan) were strong during the fiscal year as
they recovered from uncertainty in early 1995 relating to U.S. interest rates
and the weaker sentiment toward emerging markets following the Mexican
devaluation. The attractive sustainable growth rates in the region have been
recognized, although Chinese-Taiwanese hostilities earlier in 1996 did hit
sentiment. While these markets are currently subdued, any further weakness would
be viewed as a buying opportunity as their relative valuation characteristics
are attractive.
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
LETTER TO THE SHAREHOLDERS MAY 31, 1996, CONTINUED
LOOKING AHEAD
According to Morgan Grenfell, non-U.S. small-cap stocks are currently
attractive. The underperformance, which lasted for 18 months until the end of
1995, has started to reverse. Investors have refocused on the superior earnings
growth and/or lower price/earnings (P/E) ratings which small companies possess
relative to large-cap stocks in all regions of the non-U.S. world. Small-cap
stocks in continental Europe and the United Kingdom show P/Es on a par with
larger-cap stocks but with earnings growth rates at levels greater than that of
large-cap stocks. Historically, smaller companies in European markets have
traded at premiums to larger cap stocks reflecting their superior long-term
growth potential.
Overall, sentiment in international equity markets has improved over the course
of the year with the U.S. interest rate and global liquidity picture looking
benign.
We appreciate your support of Dean Witter International SmallCap Fund and look
forward to continuing to serve your investment needs and objectives.
Very truly yours,
[SIGNATURE]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1996
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
COMMON AND PREFERRED STOCKS
AND RIGHTS (94.4%)
ARGENTINA (0.4%)
AUTOMOTIVE
53,333 Ciadea S.A.................... $ 378,829
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
65,000 Nobleza Piccardo S.A.......... 247,106
---------------
TOTAL ARGENTINA............... 625,935
---------------
AUSTRALIA (1.9%)
BUILDING & CONSTRUCTION
700,000 Macmahon Holdings Ltd......... 474,988
---------------
MANUFACTURING
230,000 Pacific BBA Ltd............... 572,860
---------------
METALS & MINING
330,000 Australian National Industries
Ltd........................... 287,149
100,000 Capral Aluminium Ltd.......... 277,808
500,000 Highlands Gold Ltd.*.......... 259,448
175,000 Resolute Samantha Ltd......... 461,018
---------------
1,285,423
---------------
RETAIL - FOOD CHAINS
125,000 Foodland Associated Ltd....... 437,069
---------------
TOTAL AUSTRALIA............... 2,770,340
---------------
AUSTRIA (1.2%)
CONSUMER PRODUCTS
6,385 Wolford AG.................... 1,486,999
---------------
ELECTRONIC COMPONENTS
1,920 Austria Mikro Systeme
International AG.............. 207,215
---------------
TOTAL AUSTRIA................. 1,694,214
---------------
BELGIUM (0.3%)
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
4,050 Quick Restaurants S.A......... 427,730
---------------
BRAZIL (0.2%)
MERCHANDISING
40,000 Makro Atacadista S.A.*........ 345,000
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
DENMARK (1.3%)
MANUFACTURING
13,660 Oticon Holding AS............. $ 1,484,783
---------------
MULTI-INDUSTRY
6,310 Martin Gruppen*............... 380,443
---------------
TOTAL DENMARK................. 1,865,226
---------------
FINLAND (0.1%)
TELECOMMUNICATIONS
11,390 Benefon Oy.................... 198,928
---------------
FRANCE (3.9%)
AUTO PARTS
4,000 Bertrand Faure................ 144,274
---------------
COMMERCIAL SERVICES
4,860 Assystem...................... 531,904
---------------
COMPUTER SOFTWARE & SERVICES
1,600 Jet Multimedia................ 278,940
---------------
COMPUTERS
63,560 PixTech, Inc.*................ 516,425
---------------
CONSUMER PRODUCTS
3,000 Hermes International.......... 836,820
---------------
ELECTRONICS
2,900 CIPE France S.A............... 261,216
---------------
FINANCIAL SERVICES
6,250 But S.A....................... 411,630
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
2,569 Brioche Pasquier S.A.......... 404,081
---------------
OFFICE EQUIPMENT
7,899 Airfeu S.A.................... 321,321
4,965 Guilbert S.A.................. 741,519
---------------
1,062,840
---------------
PUBLISHING
22 Filipacchi Medias............. 4,202
---------------
RETAIL - SPECIALTY
6,510 Grand Optical Photoservice.... 877,685
---------------
TEXTILES
2,742 Deveaux S.A................... 354,807
---------------
TOTAL FRANCE.................. 5,684,824
---------------
GERMANY (7.4%)
AUTO PARTS - ORIGINAL EQUIPMENT
17,250 Kiekert AG.................... 480,769
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
BIOTECHNOLOGY
1,220 Biotest AG (Pref.)............ $ 412,027
---------------
BUILDING MATERIALS
1,418 Sto AG (Pref.)................ 710,441
---------------
DISTRIBUTION
720 Hach AG (Pref.)............... 276,215
---------------
ELECTRICAL & ALARM SYSTEMS
6,780 Effeff Fritz Fuss GmbH &
Co............................ 371,257
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
22,840 Berentzen-Gruppe AG (Pref.)... 988,550
---------------
INSURANCE BROKERS
575 Marschollek, Lautenschlaeger
und Partner AG................ 582,579
---------------
MANUFACTURING
5,800 Adidas AG..................... 435,694
---------------
MEDICAL SERVICES
10,368 Rhoen-Klinikum AG (Pref.)..... 1,257,840
---------------
MULTI-INDUSTRY
727 Hugo Boss AG (Pref.).......... 777,107
---------------
PHOTOGRAPHY
2,180 Cewe Color Holding AG......... 771,985
---------------
RETAIL - SPECIALTY
36,430 Fielmann AG (Pref.)........... 1,672,307
14,080 Moebel Walther AG............. 544,770
---------------
2,217,077
---------------
TEXTILES
936 Jil Sander AG (Pref.)......... 613,811
---------------
TEXTILES - APPAREL MANUFACTURERS
19,090 Puma AG*...................... 655,988
---------------
TOTAL GERMANY................. 10,551,340
---------------
HONG KONG (2.3%)
AUTOMOTIVE
80,000 Jardine International Motor
Holdings Ltd.................. 105,995
---------------
BANKS - COMMERCIAL
150,000 Liu Chong Hing Bank Ltd....... 202,619
80,000 Wing Hang Bank Ltd............ 312,298
---------------
514,917
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
ELECTRONICS & ELECTRICAL
71,000 ASM Pacific Technology........ $ 64,243
904,000 Gold Peak Industries.......... 519,997
---------------
584,240
---------------
ENGINEERING
40,000 Hong Kong Aircraft Engineering
Co. Ltd....................... 124,868
---------------
HOTELS
200,000 Harbour Centre Development.... 261,110
---------------
HOTELS/MOTELS
700,000 Grand Hotel Holdings Ltd.
(Series A).................... 280,499
1,050,000 Regal Hotels International.... 271,451
---------------
551,950
---------------
MACHINERY & MACHINE TOOLS
300,000 Chen Hsong Holdings........... 160,932
---------------
REAL ESTATE
400,000 China Resources Enterprise
Ltd........................... 292,133
300,000 HKR International Ltd......... 343,192
1,000,000 Hon Kwok Land Investment
Ltd........................... 339,314
---------------
974,639
---------------
WHOLESALE DISTRIBUTOR
275,000 Four Seas Mercantile Holdings
Ltd........................... 115,528
---------------
TOTAL HONG KONG............... 3,394,179
---------------
INDONESIA (0.9%)
BANKS - COMMERCIAL
50,000 PT Bank Niaga................. 123,285
---------------
CHEMICALS
96,000 PT Aneka Kimia Raya........... 181,132
72,500 PT Trias Sentosa.............. 151,560
---------------
332,692
---------------
DISTRIBUTION
30,000 PT Wicaksana Overseas
International................. 86,514
---------------
ENGINEERING & CONSTRUCTION
50,000 PT Bukaka Teknik Utama........ 75,043
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
142,000 PT Fast Food Indonesia........ 182,676
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
MACHINERY & MACHINE TOOLS
80,000 PT United Tractors............ $ 149,228
---------------
PHARMACEUTICALS
144,000 PT Enseval Putera
Megatrading................... 87,993
---------------
WHOLESALE DISTRIBUTOR
60,500 PT Tigaraksa Satria........... 300,943
---------------
TOTAL INDONESIA............... 1,338,374
---------------
ITALY (3.7%)
ELECTRONICS & ELECTRICAL
76,000 Gewiss SpA.................... 1,118,422
---------------
MACHINERY & MACHINE TOOLS
44,500 Industria Macchine
Automatic..................... 336,665
---------------
MANUFACTURING
16,252 Industrie Natuzzi SpA (ADR)... 849,167
59,000 SAES Getters Di Risp.......... 1,155,115
33,000 SAES Getters SpA.............. 845,040
---------------
2,849,322
---------------
MEDICAL PRODUCTS & SUPPLIES
35,890 De Rigo SpA (ADR)*............ 1,022,865
---------------
TOTAL ITALY................... 5,327,274
---------------
JAPAN (41.5%)
APPAREL
17,000 Maruco Co., Ltd............... 1,446,542
---------------
AUTO RELATED
60,000 Mitsuba Electric Mfg Co....... 715,871
---------------
BUILDING & CONSTRUCTION
55,000 Ichiken Co., Ltd.............. 569,737
50,000 Kaneshita Construction........ 652,053
50,000 Kawasho Lease System Corp..... 591,935
33,000 Oriental Construction Co...... 540,233
50,000 Takada Kiko................... 517,943
---------------
2,871,901
---------------
BUILDING MATERIALS
50,000 Juken Sangyo Co............... 582,686
20,000 Maezawa Kaisei Industries..... 799,112
40,500 Nichiha Corp.................. 741,676
100,000 Shin Nikkei Co., Ltd.......... 767,666
85,000 Toyo Shutter.................. 856,918
---------------
3,748,058
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
BUSINESS SERVICES
40,000 Chuo Warehouse Co............. $ 536,441
18,500 Nichii Gakkan Co.............. 978,727
24,000 Nippon Kanzai................. 674,806
55,000 Tanseisha..................... 788,476
---------------
2,978,450
---------------
CHEMICALS
130,000 Sakai Chemical Industry Co.... 859,693
---------------
COMPUTERS
20,000 Enix Corp..................... 580,836
38,000 Meitec Corp................... 815,390
---------------
1,396,226
---------------
COMPUTERS - SYSTEMS
27,500 Daiwabo Information Systems
Co............................ 661,302
8,000 Mars Engineering Corp......... 619,312
25,300 TKC Corp...................... 760,498
---------------
2,041,112
---------------
ELECTRONIC & ELECTRICAL EQUIPMENT
29,000 Mitsui High-Tec............... 667,869
30,000 Mitsumi Electric Co. Ltd...... 485,572
65,000 Nitto Electric Works.......... 1,052,072
---------------
2,205,513
---------------
ELECTRONICS
110,000 Nissin Electric............... 754,902
25,000 Ryoyo Electro Corp............ 568,812
---------------
1,323,714
---------------
ELECTRONICS - SEMICONDUCTORS
22,000 Apic Yamada Corp.............. 569,737
33,000 Maspro Denkoh Corp............ 808,824
---------------
1,378,561
---------------
ENGINEERING & CONSTRUCTION
22,000 Japan Industrial Land
Development................... 752,867
---------------
FINANCIAL SERVICES
19,000 Nissin Co. Ltd................ 852,294
9,000 Sanyo Shinpan Finance Co.,
Ltd........................... 615,150
24,000 Shinki Co. Ltd................ 816,870
---------------
2,284,314
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
9,000 Plenus Company, Ltd........... 402,053
44,000 Stamina Foods................. 443,581
6,000 Yukiguni Maitake Company
Ltd........................... 57,159
---------------
902,793
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
FOREST PRODUCTS, PAPER & PACKAGING
65,000 Daishowa Paper Manufacturing
Co. Ltd.*..................... $ 498,983
---------------
HEALTH & PERSONAL CARE
35,000 Aderans Co. Ltd............... 896,689
---------------
HOME BUILDING
500 Higashi Nihon House........... 8,185
45,000 Mitsui Home Co., Ltd.......... 724,195
50,000 Tohoku Misawa Homes Co.,
Ltd........................... 656,678
---------------
1,389,058
---------------
HOUSEHOLD FURNISHINGS & APPLIANCES
35,000 Beltecno Corp................. 407,880
---------------
LEISURE TIME
16,000 H.I.S. Company Ltd............ 899,741
19,000 Honma Golf Co. Ltd............ 514,891
---------------
1,414,632
---------------
MACHINERY
27,500 Misumi Corp................... 915,649
---------------
MACHINERY & MACHINE TOOLS
70,000 Aichi Corp.................... 770,440
70,000 CKD Corp...................... 673,326
20,000 Fuji Machine Manufacturing
Co............................ 532,741
105,000 Nippon Thompson Co............ 922,586
27,000 Nitto Kohki Co. Ltd........... 1,136,238
105,000 OSG Corp...................... 844,895
45,000 Sansei Yusoki Co., Ltd........ 653,441
70,000 Sintokogio.................... 673,326
55,000 Takuma Co., Ltd............... 808,824
105,000 Tsudakoma..................... 781,770
---------------
7,797,587
---------------
MANUFACTURING
80,000 Bridgestone Metalpha Corp..... 1,043,285
70,000 Itoki Crebio Corp............. 574,917
60,000 Ricoh Elemex.................. 893,452
---------------
2,511,654
---------------
MEDICAL SERVICES
40,000 Kawasumi Laboratories, Inc.... 566,038
---------------
MEDICAL SUPPLIES
12,000 Paramount Bed Co.............. 821,310
125,000 Shimadzu Corp................. 783,851
80,000 Terumo........................ 961,894
---------------
2,567,055
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
MISCELLANEOUS MATERIALS & COMMODITIES
150,000 Tokai Carbon Co., Ltd.*....... $ 847,669
---------------
MULTI-INDUSTRY
36,000 Trusco Nakayama Corp.......... 915,649
30,000 Yamae Hisano.................. 285,794
---------------
1,201,443
---------------
PHARMACEUTICALS
1,000 Towa Pharmaceutical Co.,
Ltd........................... 27,655
---------------
PHOTOGRAPHY
25,000 Noritsu Kohki Co. Ltd......... 1,109,878
---------------
REAL ESTATE
90,000 Cesar Co...................... 874,029
49,000 Chubu Sekiwa Real Estate,
Ltd........................... 797,632
34,000 Fuso Lexel, Inc............... 415,094
45,000 Kansai Sekiwa Real Estate..... 923,973
55,000 Sekiwa Real Estate............ 584,998
---------------
3,595,726
---------------
RESTAURANTS
45 Yoshinoya D & C Company
Ltd........................... 624,306
---------------
RETAIL
50,000 Arcland Sakamoto.............. 652,053
1,500 Belluna Co., Ltd.............. 31,354
35,000 Ministop Co., Ltd............. 951,720
20,000 Xebio Co. Ltd................. 745,468
---------------
2,380,595
---------------
RETAIL - DRUG STORES
20,000 Seijo Corp.................... 591,935
---------------
RETAIL - GENERAL MERCHANDISE
25,000 Circle K Japan Co. Ltd........ 1,119,127
7,000 Ryohin Keikaku Co. Ltd........ 615,057
---------------
1,734,184
---------------
RETAIL - SPECIALTY
25,000 Paris Miki Inc................ 1,093,692
25,000 Shimachu Co., Ltd............. 739,919
---------------
1,833,611
---------------
TRANSPORTATION
25,000 Kanto Seino Transportation.... 739,919
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
WHOLESALE DISTRIBUTOR
24,000 Satori Electric Co. Ltd....... $ 876,804
45,000 Wakita & Co................... 690,899
---------------
1,567,703
---------------
TOTAL JAPAN................... 60,125,464
---------------
MALAYSIA (1.9%)
AUTOMOTIVE
35,000 Cycle & Carriage Bintang
Berhad........................ 234,222
---------------
BANKS - COMMERCIAL
100,000 Hock Hua Bank Berhad.......... 294,530
---------------
BUILDING & CONSTRUCTION
30,000 Metacorp Berhad............... 81,747
60,000 Muhibbah Engineering Berhad... 218,794
---------------
300,541
---------------
CHEMICALS
95,000 Nylex Berhad.................. 376,878
---------------
FINANCIAL SERVICES
73,333 Arab Malaysian Finance
Berhad........................ 337,940
80,000 Public Finance Berhad......... 182,729
---------------
520,669
---------------
FOOD SERVICES
46,000 KFC Holdings (Malaysia)
Berhad........................ 259,908
---------------
MULTI-INDUSTRY
46,000 Road Builder (M) Holdings
Berhad........................ 191,705
---------------
REAL ESTATE
68,000 IOI Properties Berhad......... 213,905
36,000 Shah Alam Properties Berhad... 150,030
---------------
363,935
---------------
TOBACCO
70,000 RJ Reynolds Berhad............ 213,184
---------------
TOTAL MALAYSIA................ 2,755,572
---------------
MEXICO (1.0%)
BANKS - COMMERCIAL
25,000 Grupo Financiero GBM Atlantico
S.A. (GDS)*................... 37,500
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
50,000 Sigma Alimentos S.A........... 453,325
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
INDUSTRIALS
250,000 Grupo Industrial Saltillo S.A.
de C.V. (Series A)............ $ 554,063
---------------
TRANSPORTATION
60,000 Transportacion Maritima
Mexicana S.A. de C.V. (ADR)... 472,500
---------------
TOTAL MEXICO.................. 1,517,388
---------------
NETHERLANDS (2.3%)
BUILDING MATERIALS
13,486 Koninklijke Sphinx............ 231,057
---------------
BUSINESS SERVICES
7,200 Randstad Holdings NV.......... 524,274
---------------
ELECTRONICS & ELECTRICAL
30,190 Otra NV....................... 690,847
---------------
HARDWARE & TOOLS
6,092 Aalberts Industries NV........ 543,322
---------------
RETAIL
20,000 Gucci Group NV................ 1,349,528
---------------
TOTAL NETHERLANDS............. 3,339,028
---------------
NORWAY (3.9%)
COMMERCIAL SERVICES
37,100 Sysdeco Group AS*............. 347,325
---------------
ELECTRONICS & ELECTRICAL
38,900 Sensonor AS*.................. 340,296
---------------
ENERGY TECHNOLOGY & EQUIPMENT
132,000 Tomra Systems AS.............. 1,286,411
---------------
ENTERTAINMENT
534,240 NCL Holdings AS
(Conv. Loan Stock due
12/12/98)*.................... 1,132,589
---------------
MISCELLANEOUS
128,130 Hitec AS*..................... 688,258
---------------
RETAIL - SPECIALTY
58,510 System Etikettering AS........ 821,643
---------------
TELECOMMUNICATIONS
17,427 Nera AS....................... 593,756
---------------
TRANSPORTATION - SHIPPING
38,325 Awilco AS (Series B).......... 408,789
---------------
TOTAL NORWAY.................. 5,619,067
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
PHILIPPINES (0.2%)
BANKS - COMMERCIAL
14,000 Union Bank of Philippines*.... $ 22,494
---------------
BUILDING MATERIALS
14,717 Bacnotan Consolidated
Industries.................... 69,813
---------------
CONGLOMERATES
57,694 First Philippine Holdings
Corp. (B Shares).............. 147,877
---------------
REAL ESTATE
200,000 Belle Corp.*.................. 45,141
---------------
TOTAL PHILIPPINES............. 285,325
---------------
SINGAPORE (1.3%)
COMPUTERS
75,000 CSA Holding Ltd............... 74,067
---------------
ELECTRONICS & ELECTRICAL
110,000 Venture Manufacturing Ltd..... 429,840
---------------
ENGINEERING
150,000 Amtek Engineering Ltd......... 265,364
---------------
ENGINEERING & CONSTRUCTION
40,000 Jurong Engineering Ltd........ 138,686
---------------
FINANCE
20,000 Hong Leong Finance Ltd........ 71,048
---------------
HOUSEHOLD FURNISHINGS & APPLIANCES
190,000 Courts Ltd.................... 310,480
---------------
MULTI-INDUSTRY
108,000 Haw Par Brothers International
Ltd........................... 268,561
---------------
PHARMACEUTICALS
40,000 Tiger Medicals Ltd............ 71,048
---------------
SHIPBUILDING
125,000 Singapore Technologies
Shipbuilding & Engineering
Ltd........................... 285,968
---------------
TOTAL SINGAPORE............... 1,915,062
---------------
SPAIN (0.3%)
RETAIL
21,000 Cortefiel S.A................. 475,860
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
SWEDEN (3.9%)
AUTOMOTIVE
36,000 Garphyttan Industrier AB...... $ 533,194
370 Opcon (Restricted)*........... 316,687
---------------
849,881
---------------
ELECTRICAL EQUIPMENT
12,400 Allgon AB (B Shares).......... 202,114
---------------
MANUFACTURING
21,520 SinterCast AB (A Shares)*..... 1,601,667
---------------
METALS & MINING
13,290 Hoganas AB.................... 508,415
---------------
MISCELLANEOUS
36,681 Assa Abloy AB (Series B)...... 431,348
25,000 Kalmar Industries AB.......... 558,202
12,260 Trio*......................... 437,987
---------------
1,427,537
---------------
PHARMACEUTICALS
30,980 Elekta Instrument AB (Series
B)............................ 1,143,650
---------------
TOTAL SWEDEN.................. 5,733,264
---------------
SWITZERLAND (0.7%)
HOUSEHOLD FURNISHINGS & APPLIANCES
1,604 Fust S.A. AG.................. 513,486
---------------
MISCELLANEOUS
1,295 Kardex AG..................... 373,109
343 Zehnder Holdings.............. 148,235
---------------
521,344
---------------
TOTAL SWITZERLAND............. 1,034,830
---------------
THAILAND (0.3%)
ELECTRONICS
24,000 Hana Microelectronics PCL..... 156,373
---------------
HOUSEHOLD PRODUCTS
20,000 Srithai Superware Co., Ltd.... 141,368
---------------
RETAIL
36,000 Robinson Dept. Store Co....... 90,981
---------------
TRANSPORTATION - SHIPPING
7,000 Regional Container Line PCL... 88,454
---------------
TOTAL THAILAND................ 477,176
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
UNITED KINGDOM (13.5%)
ADVERTISING
300,000 Shandwick PLC................. $ 251,262
---------------
AUTO PARTS - ORIGINAL EQUIPMENT
100,000 BBA Group PLC................. 514,932
45,300 Henlys Group PLC.............. 453,179
33,500 Laird Group PLC............... 242,646
---------------
1,210,757
---------------
BUILDING & CONSTRUCTION
93,750 Barratt Developments PLC...... 371,513
---------------
BUILDING MATERIALS
110,000 Hepworth PLC.................. 515,242
226,666 Ibstock Funding PLC
(Rights)*..................... 24,609
340,000 Ibstock PLC................... 363,865
255,000 Rugby Group PLC............... 474,606
108,000 SIG PLC....................... 385,268
---------------
1,763,590
---------------
CHEMICALS
90,000 Albright & Wilson PLC......... 254,054
100,300 Scapa Group................... 354,689
---------------
608,743
---------------
COMPUTER SERVICES
170,000 ISA International PLC......... 461,422
30,200 Misys PLC..................... 394,394
---------------
855,816
---------------
CONGLOMERATES
35,000 Charter PLC................... 524,665
---------------
CONTAINERS
29,764 British Polythene
Industries.................... 348,538
---------------
CONTAINERS - PAPER
60,000 David S. Smith
Holdings PLC.................. 277,319
---------------
ELECTRONIC & ELECTRICAL EQUIPMENT
42,700 Diploma PLC................... 253,652
50,000 Fairey Group PLC.............. 531,217
---------------
784,869
---------------
ENTERTAINMENT
47,500 London Clubs International
PLC........................... 380,518
---------------
FINANCIAL SERVICES
431,900 Rutland Trust PLC............. 355,035
---------------
FOOD PROCESSING
104,500 Devro International PLC....... 379,266
---------------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
HEALTH & PERSONAL CARE
35,000 Community Hospitals Group
PLC........................... $ 157,426
---------------
HOUSEHOLD FURNISHINGS & APPLIANCES
145,000 MFI Furniture Group PLC....... 411,558
63,400 Walker Greenbank PLC.......... 98,333
---------------
509,891
---------------
INDUSTRIALS
120,000 Staveley Industries PLC....... 413,186
---------------
INSURANCE
10,000 Domestic & General Group
PLC........................... 271,425
---------------
INVESTMENT COMPANIES
38,400 United News & Media PLC....... 442,817
---------------
MACHINERY & MACHINE TOOLS
60,000 Spirax-Sarco Engineering
PLC........................... 683,991
---------------
MANUFACTURING
75,000 Bunzl PLC..................... 273,364
50,000 Glynwed International PLC..... 267,547
54,000 IMI PLC....................... 300,258
43,400 Trinity Holdings PLC.......... 240,309
165,000 Vickers PLC................... 655,142
60,000 Vitec Group PLC............... 674,685
29,300 Vosper Thornycroft Holdings
PLC........................... 373,098
---------------
2,784,403
---------------
PHARMACEUTICALS
18,000 Amersham International PLC.... 279,180
---------------
PUBLISHING
29,800 Daily Mail & General Trust
(Class A)..................... 739,517
99,600 Mirror Group PLC.............. 337,152
---------------
1,076,669
---------------
REAL ESTATE
70,000 Bradford Property Trust PLC... 251,882
120,000 Capital Shopping Centers
PLC........................... 536,026
63,000 Great Portland Estates PLC.... 170,998
40,000 Helical Bar PLC............... 241,956
---------------
1,200,862
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1996, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------
<C> <S> <C>
RESTAURANTS
22,800 Compass Group PLC............. $ 204,397
---------------
RETAIL - SPECIALTY
80,000 Christies International PLC... 272,976
75,500 Cowie Group PLC............... 462,547
100,000 Goldsmiths Group.............. 510,279
---------------
1,245,802
---------------
TELECOMMUNICATIONS
42,500 Security Services PLC......... 805,512
---------------
TEXTILES
57,500 Courtlaulds Textiles PLC...... 332,651
---------------
TRANSPORTATION
47,700 Associated British Ports
Holdings PLC.................. 211,221
35,100 Forth Ports PLC............... 310,853
70,200 Stagecoach Holdings PLC....... 480,162
---------------
1,002,236
---------------
TOTAL UNITED KINGDOM.......... 19,522,339
---------------
TOTAL COMMON AND PREFERRED
STOCKS
AND RIGHTS
(IDENTIFIED COST
$123,209,342)................. 137,023,739
---------------
</TABLE>
<TABLE>
<CAPTION>
CURRENCY
AMOUNT IN EXPIRATION DATE/
THOUSANDS EXERCISE PRICE VALUE
- -----------------------------------------------------------------
<C> <S> <C>
PURCHASED PUT OPTION ON FOREIGN CURRENCY (0.0%)
FRF 28,000 November 5, 1996/FRF 5.192
(Identified Cost $56,560)..... 49,000
---------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (5.4%)
U.S. GOVERNMENT AGENCY
$7,875 Federal Home Loan Mortgage
Corp. 5.30% due 06/03/96
(Amortized Cost $7,872,681)... $ 7,872,681
---------------
TOTAL INVESTMENTS
(IDENTIFIED COST
$131,138,583) (B)........... 99.8 % 144,945,420
CASH AND OTHER ASSETS IN
EXCESS OF LIABILITIES....... 0.2 308,951
----- ------------
NET ASSETS.................. 100.0 % $145,254,371
----- ------------
----- ------------
<FN>
- ---------------------
ADR American Depository Receipt.
GDS Global Depository Shares.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation was $21,818,897 and the
aggregate gross unrealized depreciation was $8,012,060, resulting in net
unrealized appreciation of $13,806,837.
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT MAY 31, 1996:
<TABLE>
<CAPTION>
CONTRACTS TO IN DELIVERY UNREALIZED
DELIVER EXCHANGE FOR DATE APPRECIATION
- -------------------------------------------------------
<S> <C> <C> <C>
$ 189,144 SEK 1,278,235 06/03/96 $1,126
$ 66,207 Y 7,167,616 06/04/96 86
------
Total unrealized appreciation......... $1,212
------
------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
SUMMARY OF INVESTMENTS MAY 31, 1996
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------
<S> <C> <C>
Advertising............................. $ 251,262 0.2%
Apparel................................. 1,446,541 1.0
Auto Parts.............................. 144,274 0.1
Auto Parts - Original Equipment......... 1,691,526 1.2
Auto Related............................ 715,871 0.5
Automotive.............................. 1,568,926 1.1
Banks - Commercial...................... 992,726 0.7
Biotechnology........................... 412,027 0.3
Building & Construction................. 4,018,944 2.8
Building Materials...................... 6,522,960 4.5
Business Services....................... 3,502,724 2.4
Chemicals............................... 2,178,006 1.5
Commercial Services..................... 879,229 0.6
Computer Services....................... 855,817 0.6
Computer Software & Services............ 278,940 0.2
Computers............................... 1,986,719 1.4
Computers - Systems..................... 2,041,112 1.4
Conglomerates........................... 672,541 0.5
Consumer Products....................... 2,323,819 1.6
Containers.............................. 348,538 0.2
Containers - Paper...................... 277,319 0.2
Distribution............................ 362,729 0.2
Electrical & Alarm Systems.............. 371,257 0.3
Electrical Equipment.................... 202,114 0.1
Electronic & Electrical Equipment....... 2,990,382 2.1
Electronic Components................... 207,215 0.1
Electronics............................. 1,741,303 1.2
Electronics & Electrical................ 3,163,645 2.2
Electronics - Semiconductors............ 1,378,561 0.9
Energy Technology & Equipment........... 1,286,411 0.9
Engineering............................. 390,232 0.3
Engineering & Construction.............. 966,596 0.7
Entertainment........................... 1,513,107 1.0
Finance................................. 71,048 --
Financial Services...................... 3,571,648 2.5
Food Processing......................... 379,266 0.3
Food Services........................... 259,908 0.2
Food, Beverage, Tobacco & Household
Products.............................. 3,606,261 2.5
Foreign Currency Put Option............. 49,000 --
Forest Products, Paper & Packaging...... 498,983 0.3
Hardware & Tools........................ 543,322 0.4
Health & Personal Care.................. 1,054,115 0.7
Home Building........................... 1,389,058 1.0
Hotels.................................. 261,110 0.2
Hotels/Motels........................... 551,951 0.4
Household Furnishings & Appliances...... 1,741,736 1.2
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------
<S> <C> <C>
Household Products...................... $ 141,368 0.1%
Industrials............................. 967,250 0.7
Insurance............................... 271,425 0.2
Insurance Brokers....................... 582,579 0.4
Investment Companies.................... 442,817 0.3
Leisure Time............................ 1,414,632 1.0
Machinery............................... 915,649 0.6
Machinery & Machine Tools............... 9,128,401 6.2
Manufacturing........................... 12,240,385 8.3
Medical Products & Supplies............. 1,022,865 0.7
Medical Services........................ 1,823,878 1.3
Medical Supplies........................ 2,567,055 1.8
Merchandising........................... 345,000 0.2
Metals & Mining......................... 1,793,837 1.2
Miscellaneous........................... 2,637,140 1.8
Miscellaneous Materials & Commodities... 847,669 0.6
Multi-Industry.......................... 2,819,259 1.9
Office Equipment........................ 1,062,840 0.7
Pharmaceuticals......................... 1,609,525 1.1
Photography............................. 1,881,863 1.3
Publishing.............................. 1,080,870 0.7
Real Estate............................. 6,180,304 4.3
Restaurants............................. 828,703 0.6
Retail.................................. 4,296,965 3.0
Retail - Drug Stores.................... 591,935 0.4
Retail - Food Chains.................... 437,069 0.3
Retail - General Merchandise............ 1,734,184 1.2
Retail - Specialty...................... 6,995,818 4.8
Shipbuilding............................ 285,968 0.2
Telecommunications...................... 1,598,195 1.1
Textiles................................ 1,301,269 0.9
Textiles - Apparel Manufacturers........ 655,988 0.5
Tobacco................................. 213,184 0.1
Transportation.......................... 2,214,654 1.5
Transportation - Shipping............... 497,243 0.3
U.S. Government Agency.................. 7,872,681 5.4
Wholesale Distributor................... 1,984,174 1.4
------------ ---
$144,945,420 99.8%
------------ ---
------------ ---
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
- ------------------------------------------------------------------
<S> <C> <C>
Common Stocks........................... $130,290,832 89.8%
Foreign Currency Put Option............. 49,000 --
Preferred Stocks........................ 6,708,298 4.6
Rights.................................. 24,609 --
Short-Term Investment................... 7,872,681 5.4
------------ ---
$144,945,420 99.8%
------------ ---
------------ ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $131,138,583)............................ $144,945,420
Cash........................................................ 91,558
Receivable for:
Shares of beneficial interest sold...................... 567,238
Dividends............................................... 245,465
Investments sold........................................ 75,394
Foreign withholding taxes reclaimed..................... 56,683
Deferred organizational expenses............................ 108,880
Prepaid expenses and other assets........................... 41,580
------------
TOTAL ASSETS........................................... 146,132,218
------------
LIABILITIES:
Payable for:
Investments purchased................................... 379,206
Investment management fee............................... 150,866
Plan of distribution fee................................ 120,693
Shares of beneficial interest repurchased............... 76,943
Accrued expenses and other payables......................... 150,139
------------
TOTAL LIABILITIES...................................... 877,847
------------
NET ASSETS:
Paid-in-capital............................................. 138,468,483
Net unrealized appreciation................................. 13,804,673
Accumulated undistributed net investment income............. 2,767,223
Accumulated net realized loss............................... (9,786,008)
------------
NET ASSETS............................................. $145,254,371
------------
------------
NET ASSET VALUE PER SHARE,
14,129,791 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$10.28
------------
------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 1996
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $234,493 foreign withholding tax)......... $ 1,710,803
Interest.................................................... 277,855
-----------
TOTAL INCOME........................................... 1,988,658
-----------
EXPENSES
Investment management fee................................... 1,410,200
Plan of distribution fee.................................... 1,128,160
Transfer agent fees and expenses............................ 211,940
Custodian fees.............................................. 169,784
Professional fees........................................... 92,266
Shareholder reports and notices............................. 80,743
Registration fees........................................... 53,819
Organizational expenses..................................... 34,595
Trustees' fees and expenses................................. 20,974
Other....................................................... 15,890
-----------
TOTAL EXPENSES......................................... 3,218,371
-----------
NET INVESTMENT LOSS.................................... (1,229,713)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments............................................. (5,604,280)
Foreign exchange transactions........................... 5,262,371
-----------
TOTAL LOSS............................................. (341,909)
-----------
Net change in unrealized depreciation on:
Investments............................................. 22,902,135
Translation of forward foreign currency contracts, other
assets and liabilities denominated in foreign
currencies............................................ (3,919)
-----------
TOTAL APPRECIATION..................................... 22,898,216
-----------
NET GAIN............................................... 22,556,307
-----------
NET INCREASE................................................ $21,326,594
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED FOR THE PERIOD
MAY 31, JULY 29, 1994* THROUGH
1996 MAY 31, 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss......................................... $(1,229,713) $ (879,196)
Net realized loss........................................... (341,909) (5,262,428)
Net change in unrealized depreciation....................... 22,898,216 (9,093,543)
----------- ----------------------
NET INCREASE (DECREASE)................................ 21,326,594 (15,235,167)
Net increase from transactions in shares of beneficial
interest.................................................. 30,198,498 108,864,446
----------- ----------------------
TOTAL INCREASE......................................... 51,525,092 93,629,279
NET ASSETS:
Beginning of period......................................... 93,729,279 100,000
----------- ----------------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$2,767,223 AND ACCUMULATED NET INVESTMENT LOSS OF
$259,957, RESPECTIVELY)................................. $145,254,371 $ 93,729,279
----------- ----------------------
----------- ----------------------
</TABLE>
<TABLE>
<C> <S>
- ---------------------
* Commencement of operations.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1996
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter International SmallCap Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a non-diversified,
open-end management investment company. The Fund's investment objective is
long-term growth of capital. The Fund seeks to achieve its objective by
investing primarily in equity securities of "small capitalization" companies
located outside of the United States. The Fund was organized as a Massachusetts
business trust on April 21, 1994 and had no operations other than those relating
to organizational matters and the issuance of 10,000 shares of beneficial
interest for $100,000 to Dean Witter InterCapital Inc. (the "Investment
Manager") to effect the Fund's initial capitalization. The Fund commenced
operations on July 29, 1994.
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 by the Trustees); (2)
listed options are valued at the latest sale price on the exchange on which they
are listed unless no sales of such options have taken place that day, in which
case they will be valued at the mean between their latest bid and asked price;
(3) 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; (4) when market quotations are not readily available,
including circumstances under which it is determined by the Investment Manager
that sale and bid prices are not reflective of a security's market value,
portfolio securities are valued at their fair value as determined in good faith
under procedures established by and under the general supervision of the
Trustees (valuation of debt securities for which market quotations are not
readily available may be based upon current market prices of securities which
are comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors); and (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.
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1996, CONTINUED
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Dividend income and other distributions are recorded on the ex-dividend date
except for certain dividends from foreign securities which are recorded as soon
as the Fund is informed after the ex-dividend date. Discounts are accreted over
the life of the respective securities. Interest income is accrued daily.
C. OPTION ACCOUNTING PRINCIPLES -- When the Fund writes a call option, an amount
equal to the premium received is included in the Fund's Statement of Assets and
Liabilities as a liability which is subsequently marked-to-market to reflect the
current market value of the option written. If a written option either expires
or the Fund enters into a closing purchase transaction, the Fund realizes a gain
or loss without regard to any unrealized gain or loss on the underlying security
or currency and the liability related to such option is extinguished. If a
written call option is exercised, the Fund realizes a gain or loss from the sale
of the underlying security or currency and the proceeds from such sale are
increased by the premium originally received.
When the Fund purchases a call or put option, the premium paid is recorded as an
investment which is subsequently marked-to-market to reflect the current market
value. If a purchased option expires, the Fund will realize a loss to the extent
of the premium paid. If the Fund enters into a closing sale transaction, a gain
or loss is realized for the difference between the proceeds from the sale and
the cost of the option. If a put option is exercised, the cost of the security
or currency sold upon exercise will be increased by the premium originally paid.
If a call option is exercised, the cost of the security purchased upon exercise
will be increased by the premium originally paid.
D. FOREIGN CURRENCY TRANSLATION -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward contracts are
translated at the exchange rates prevailing at the end of the period; and (2)
purchases, sales, income and expenses are translated at the exchange rates
prevailing on the respective dates of such transactions. The resultant exchange
gains and losses are included in the Statement of Operations as realized and
unrealized gain/loss on foreign exchange transactions. Pursuant to U.S. Federal
income tax regulations, certain foreign exchange gains/losses included in
realized and unrealized gain/loss are included in or are a reduction of ordinary
income for federal income tax purposes. The Fund does not isolate that portion
of the results of operations arising as a result of changes in the foreign
exchange rates from the changes in the market prices of the securities.
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1996, CONTINUED
E. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund may enter into forward foreign
currency contracts which are valued daily at the appropriate exchange rates. The
resultant unrealized exchange gains and losses are included in the Statement of
Operations as unrealized foreign currencies gain or loss. The Fund records
realized gains or losses on delivery of the currency or at the time the forward
contract is extinguished (compensated) by entering into a closing transaction
prior to delivery.
F. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
H. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $172,000 which have been
reimbursed for the full amount thereof. Such expenses have been deferred and are
being amortized on the straight line method over a period not to exceed five
years from the commencement of operations.
2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS
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 1.25% to the net assets of the Fund
determined as of the close of each business day.
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
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1996, CONTINUED
space, facilities, equipment, clerical, bookkeeping and certain legal services
and pays the salaries of all personnel, including officers of the Fund who are
employees of the Investment Manager. The Investment Manager also bears the cost
of telephone services, heat, light, power and other utilities provided to the
Fund.
Under a Sub-Advisory Agreement between Morgan Grenfell Investment Services
Limited (the "Sub-Advisor") and the Investment Manager, the Sub-Advisor provides
the Fund with investment advice and portfolio management relating to the Fund's
investments in securities, subject to the overall supervision of the Investment
Manager. As compensation for its services provided pursuant to the Sub-Advisory
Agreement, the Investment Manager pays the Sub-Advisor monthly compensation
equal to 40% of its monthly compensation.
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, the
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 incurred by the
Distributor.
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1996, CONTINUED
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.
The Distributor has informed the Fund that for the year ended May 31, 1996, it
received approximately $483,000 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 May 31, 1996 aggregated $80,726,522
and $46,816,805, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At May 31, 1996, the Fund had
transfer agent fees and expenses payable of approximately $20,000.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED JULY 29, 1994*
MAY 31, 1996 THROUGH MAY 31, 1995
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold............................................................. 6,640,227 $ 62,312,623 12,935,998 $126,064,242
Repurchased...................................................... (3,490,725) (32,114,125) (1,965,709) (17,199,796)
----------- -------------- ----------- ------------
Net increase..................................................... 3,149,502 $ 30,198,498 10,970,289 $108,864,446
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
- ---------------------
*Commencement of operations.
6. FEDERAL INCOME TAX STATUS
At May 31, 1996, the Fund had a net capital loss carryover of approximately
$7,030,000 which will be available through May 31, 2004 to offset future capital
gains to the extent provided by regulations. To the extent that this carryover
loss is used to offset future capital gains, it is probable that the gains so
offset will not be distributed to shareholders.
Capital losses incurred after October 31 ("post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $2,675,000 during fiscal 1996. As of May 31, 1996, the Fund had
temporary book/tax differences primarily attributable to post-October losses and
permanent book/
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1996, CONTINUED
tax differences primarily attributable to foreign currency gains. To reflect
reclassifications arising from permanent book/tax differences for the year ended
May 31, 1996, accumulated net realized loss was charged and accumulated
undistributed net investment income was credited $4,256,893.
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward contracts")
to facilitate settlement of foreign currency denominated portfolio transactions
or to manage foreign currency exposure associated with foreign currency
denominated securities. The Fund may also purchase put options on foreign
currencies in which the securities are denominated to hedge against adverse
foreign currency and market risk.
At May 31, 1996, there were outstanding forward contracts used to facilitate
settlement of foreign currency denominated portfolio transactions.
Forward contracts and purchased put options on foreign currency involve elements
of market risk in excess of the amounts reflected in the Statement of Assets and
Liabilities. The Fund bears the risk of an unfavorable change in the foreign
exchange rates underlying the forward contracts. Risks may also arise upon
entering into these contracts and over-the-counter purchased put options from
the potential inability of the counterparties to meet the terms of their
contracts.
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP 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 JULY 29, 1994*
ENDED THROUGH
MAY 31, 1996 MAY 31, 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 8.54 $ 10.00
------ ------
Net investment loss................................................... (0.08) (0.08)
Net realized and unrealized gain (loss)............................... 1.82 (1.38)
------ ------
Total from investment operations...................................... 1.74 (1.46)
------ ------
Net asset value, end of period........................................ $ 10.28 $ 8.54
------ ------
------ ------
TOTAL INVESTMENT RETURN+.............................................. 20.37% (14.60)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 2.85% 2.90% (2)
Net investment loss................................................... (1.09)% (1.12)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $145,254 $93,729
Portfolio turnover rate............................................... 44% 41% (1)
Average commission rate paid.......................................... $0.0069 --
<FN>
- ---------------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge.
(1) Not annualized.
(2) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER INTERNATIONAL SMALLCAP 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 International SmallCap
Fund (the "Fund") at May 31, 1996, the results of its operations for the year
then ended and the changes in its net assets and the financial highlights for
the year then ended and for the period July 29, 1994 (commencement of
operations) through May 31, 1995, 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 May 31, 1996 by correspondence with the custodian
and brokers and the application of alternative auditing procedures where
confirmations from brokers were not received, provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
JULY 10, 1996
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
SUB-ADVISOR
Morgan Grenfell Investment Services Limited
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of the
Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
DEAN WITTER
INTERNATIONAL
SMALLCAP FUND
[Graphic]
ANNUAL REPORT
MAY 31, 1996
