DEAN WITTER INTERNATIONAL SMALLCAP FUND, N-30D, 1997-07-31

DEAN WITTER INTERNATIONAL SMALLCAP FUND
N-30D, 1997-07-31

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<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND TWO WORLD TRADE CENTER, NEW YORK, NEW
YORK 10048
LETTER TO THE SHAREHOLDERS MAY 31, 1997

DEAR SHAREHOLDER:

During the fiscal year ended May 31, 1997, small non-U.S. companies
underperformed their larger counterparts by a large margin. Large caps, as
measured by the Morgan Stanley Capital International (MSCI) EAFE Index, rose 7.8
percent during this period, compared with a decline of 6.0 percent for the
NatWest Markets Euro-Pacific Small Cap Index. The U.S.-dollar returns for both
the foreign large- and small-cap markets were reduced by the strength of the
U.S. dollar during the period.

STRENGTH IN CONTINENTAL EUROPE AND THE UNITED KINGDOM

The small-cap equity markets in continental Europe were strong performers during
the period under review. On average, the region's markets rose 13.8 percent as
investors continued to look for economic recovery aided by lower interest rates.
The region's large-cap stocks were even stronger, however, rising 22.1 percent
as short-term earnings enhancements from corporate restructuring and more liquid
stocks attracted increasing investor attention.

In the United Kingdom small-caps rose 4.1 percent during the year as
expectations of higher domestic growth rates driven by the return of consumer
spending counterbalanced weakness in the U.K.'s export markets. As had been the
case in continental Europe, large-cap stocks in the United Kingdom outperformed
small-caps, rising an impressive 33 percent. Their performance toward the end of
the year was driven primarily by the strength of retail banks and other
financial sectors.

SUBDUED PERFORMANCE IN THE FAR EAST

The Far Eastern markets (except Japan) were only mildly positive during the
period, rising 6.4 percent. Recent worries about slowing economic growth and the
weakening of the Japanese yen affecting export prospects hit the region's
markets in March and April. The latter worries were remedied to some extent by
the yen's strength in May. While these markets are currently subdued, any
further weakness would represent a further buying opportunity, since their
relative
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
LETTER TO THE SHAREHOLDERS MAY 31, 1997, CONTINUED

valuation characteristics remain attractive. In addition, the prospects for
economic growth in China should prove beneficial for the region in general and
especially in Hong Kong as a result of the June 30, 1997, handover.
CONTINUED WEAKNESS IN JAPAN
The Japanese yen continued to weaken during the fiscal year, falling 7.1
percent. As a result, Japan was the weakest-performing major world market for
U.S. dollar-based investors, declining 14.6 percent in U.S.-dollar terms. During
the year, the primary focus of investors in the Japanese market
[GRAPHIC]
was on large-cap exporting stocks,
which generally benefit strongly from
weakness in the local currency. As a
result, small-cap stocks underperformed
large-caps for the year, despite
showing renewed strength in May as the
yen strengthened sharply against the
U.S. dollar.
PERFORMANCE AND PORTFOLIO STRATEGY
[GRAPHIC]
Against this backdrop, Dean Witter
International SmallCap Fund produced a
total return of -9.52 percent for the
twelve-month period ended May 31, 1997.
This compares to a return of -5.97
percent for its benchmark, the NatWest
Markets Euro-Pacific Small Cap Index
(NatWest Index) and a return of 10.11
percent for the Lipper International
Small Company Funds Average (Lipper
Average). The Fund's underperformance
of its benchmark was primarily due to
the lackluster performance of its
continental Europe holdings. This was
mitigated to some extent by strong
stock selection in all other investment
regions, particularly in the smaller
Far Eastern markets. The accompanying
chart illustrates the performance of a
hypothetical $10,000 investment in the
Fund from inception (July 29, 1994)
through the fiscal year ended May 31,
1997, versus a similar investment in
the issues that comprise the NatWest
Index and the Lipper Average.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
Growth of
$10,000
($ in Thousands)
<S> <C> <C> <C>

TOTAL NATWEST IX LIPPER
29-Jul-94 10,000 10000 10,000
31-May-95 8,540 9,475 9,301
31-May-96 10,280 10,791 11,136
31-May-97 9,034 10,148 12,262
</TABLE>

<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
LETTER TO THE SHAREHOLDERS MAY 31, 1997, CONTINUED

After maintaining a neutral weighting in continental Europe for much of the
fiscal year, Morgan Grenfell Investment Services Limited, the Fund's
sub-adviser, has recently begun to overweight the Fund's exposure to the region
to reflect the attractive valuations and prospects for economic recovery during
the second half of 1997. In the United Kingdom, the Fund remains underweighted
to reflect concerns over rising interest rates and fears of rising corporate
taxes in the forthcoming budget statement.

In Asia, Morgan Grenfell has reduced the Fund's position in Japan from an
overweighted to an underweighted target, as unattractive valuation levels
relative to other regions and to historical levels relative to large caps argue
for a reduction in weighting. The Fund's Japanese holdings are heavily skewed
toward long-term growth stocks, which is where the sub-adviser currently sees
the best value in the market. The reduction in Japan's weighting has funded the
increase in continental Europe and the smaller Far Eastern markets, where Morgan
Grenfell has increased the Fund's weightings to reflect attractive earnings
growth prospects at reasonable valuations.

Since the beginning of 1997, the Fund has maintained hedges against the Deutsche
mark and French franc which have proven beneficial.

LOOKING AHEAD

Morgan Grenfell believes that non-U.S. small-cap stocks are currently attractive
relative to large-cap stocks. Price-earnings discounts for the Pacific Basin are
35 percent in Japan and 21 percent in the Far East (ex-Japan). In these regions,
small-cap stocks have a history of trading at discounts of between 5 percent and
40 percent. In addition, these regional portfolios show earnings that run
between 5 percent to 10 percent higher than those of their large-cap peers. On
the basis of both higher earnings and discounts in the bottom half of their
historical ranges, Morgan Grenfell expects progress in the current year.

In continental Europe and the United Kingdom, the portfolio shows price-earnings
discounts relative to large caps of 10 percent and 20 percent, respectively.
Historically, smaller companies in these European markets have traded between 15
percent discounts and 25 percent premiums. Earnings in the region are between 3
percent and 5 percent higher than those of their large-cap peers. Like the
markets in the Pacific Basin, the earnings enhancement and satisfactory level of
price-earnings discounts here argue for improved performance in the remainder of
1997.
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
LETTER TO THE SHAREHOLDERS MAY 31, 1997, CONTINUED

On June 30, 1997, the Fund's Board of Trustees approved a proposal to adopt a
multiple class share structure. Through this arrangement the Fund will offer
four classes of shares with various sales charges, ongoing fees and other
features. This conversion is scheduled to take place on July 28, 1997. A revised
prospectus, which includes complete details regarding this change, will be
mailed to shareholders in the coming weeks.

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
RESULTS OF SPECIAL MEETING (UNAUDITED)

On May 21, 1997, a special meeting of the Fund's shareholders was held for the
purpose of voting on five separate matters, the results of which are as follows:

(1) Approval of a new Investment Management Agreement between the Fund and Dean
Witter InterCapital Inc., in connection with the merger of Morgan Stanley
Group Inc. with Dean Witter, Discover & Co.:

<TABLE>
<S> <C>
For........................................................... 6,046,542
Against....................................................... 121,002
Abstain....................................................... 500,958
</TABLE>

(2) Approval of a new Sub-Advisory Agreement between Dean Witter InterCapital
Inc. and Morgan Grenfell Investment Services Limited in connection with the
merger of Morgan Stanley Group Inc. with Dean Witter, Discover & Co.:

<TABLE>
<S> <C>
For........................................................... 6,019,999
Against....................................................... 151,232
Abstain....................................................... 497,271
</TABLE>

(3) Election of Trustees:

Michael Bozic

<TABLE>
<S> <C>
For........................................................... 6,275,708
Withheld...................................................... 392,794
</TABLE>

Charles A. Fiumefreddo

<TABLE>
<S> <C>
For........................................................... 6,295,357
Withheld...................................................... 373,145
</TABLE>

Edwin J. Garn

<TABLE>
<S> <C>
For........................................................... 6,281,529
Withheld...................................................... 386,973
</TABLE>

John R. Haire

<TABLE>
<S> <C>
For........................................................... 6,274,933
Withheld...................................................... 393,569
</TABLE>

<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
RESULTS OF SPECIAL MEETING (UNAUDITED) CONTINUED

Wayne E. Hedien

<TABLE>
<S> <C>
For........................................................... 6,271,721
Withheld...................................................... 396,781
</TABLE>

Dr. Manuel H. Johnson

<TABLE>
<S> <C>
For........................................................... 6,287,966
Withheld...................................................... 380,536
</TABLE>

Michael E. Nugent

<TABLE>
<S> <C>
For........................................................... 6,294,843
Withheld...................................................... 373,659
</TABLE>

Philip J. Purcell

<TABLE>
<S> <C>
For........................................................... 6,296,874
Withheld...................................................... 371,628
</TABLE>

John L. Schroeder

<TABLE>
<S> <C>
For........................................................... 6,284,922
Withheld...................................................... 383,580
</TABLE>

(4) Approval of a new investment policy with respect to investments in certain
other investment companies:

<TABLE>
<S> <C>
For........................................................... 5,774,007
Against....................................................... 289,769
Abstain....................................................... 604,726
</TABLE>

(5) Ratification of the selection of Price Waterhouse LLP as the Fund's
Independent Accountants:

<TABLE>
<S> <C>
For........................................................... 6,160,070
Against....................................................... 74,865
Abstain....................................................... 433,567
</TABLE>
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS, PREFERRED
STOCKS AND BONDS (95.6%)
AUSTRALIA (2.9%)
APPLIANCES & HOUSEHOLD DURABLES
71,730 McPherson's Ltd................... $ 141,776
---------------
BUILDING & CONSTRUCTION
700,000 Macmahon Holdings Ltd............. 553,426
---------------
MANUFACTURING
230,000 Pacific BBA Ltd................... 872,481
---------------
METALS & MINING
100,000 Capral Aluminium Ltd.............. 361,095
---------------
RECREATION
222,350 Adelaide Brighton Ltd............. 321,158
---------------
RETAIL - FOOD CHAINS
125,000 Foodland Associated Ltd........... 783,956
---------------
TOTAL AUSTRALIA................... 3,033,892
---------------
AUSTRIA (1.3%)
CONSUMER PRODUCTS
12,770 Wolford AG........................ 1,338,765
---------------
BELGIUM (0.2%)
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
4,050 Quick Restaurants S.A............. 233,083
---------------
DENMARK (1.9%)
MANUFACTURING
6,150 Oticon Holding AS................. 1,116,547
---------------
MEDICAL PRODUCTS & SUPPLIES
12,000 Coloplast AS (B Shares)........... 821,602
---------------
TOTAL DENMARK..................... 1,938,149
---------------

FINLAND (0.8%)
FOOD PROCESSING
12,700 Cultor Oy (Series "1")............ 661,664
4,260 Cultor Oy (Series "2")............ 218,631
---------------
TOTAL FINLAND..................... 880,295
---------------

<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
FRANCE (8.9%)
COMPUTER SOFTWARE & SERVICES
2,350 Altran Technologies S.A........... $ 754,120
1,750 Fininfo S.A....................... 216,739
---------------
970,859
---------------
COMPUTERS
63,560 PixTech, Inc.*.................... 246,295
---------------
ELECTRONICS
3,030 CIPE France S.A................... 381,050
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
5,139 Brioche Pasquier S.A.............. 567,831
---------------
MANUFACTURING
5,500 Stedim S.A.*...................... 669,731
---------------
METALS NON-FERROUS
5,500 Imetal S.A........................ 725,065
---------------
OFFICE EQUIPMENT
8,134 Guilbert S.A...................... 1,209,165
---------------
PHARMACEUTICALS
36,000 Genset (ADR)*..................... 616,500
---------------
RETAIL - SPECIALTY
10,850 Grand Optical Photoservice........ 1,624,206
---------------
TEXTILES
9,597 Deveaux S.A....................... 1,306,790
---------------
WHOLESALE DISTRIBUTOR
14,360 Societe Manutan................... 1,006,321
---------------

TOTAL FRANCE...................... 9,323,813
---------------

GERMANY (6.8%)
AUTO PARTS - ORIGINAL EQUIPMENT
2,741 Kiekert AG........................ 118,692
---------------
ELECTRICAL & ALARM SYSTEMS
6,780 Effeff Fritz Fuss GmbH & Co....... 256,246
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
27,408 Berentzen-Gruppe AG (Pref.)....... 684,156
---------------
INSURANCE
6,325 Marschollek, Lautenschlaeger und
Partner AG (Pref.).............. 1,519,542
---------------
MANUFACTURING
5,800 Adidas AG......................... 610,043
---------------
</TABLE>

TOTAL GERMANY..................... 7,159,019
---------------
HONG KONG (7.7%)
BANKS - COMMERCIAL
371,600 Wing Hang Bank Ltd................ 1,769,752
---------------
ELECTRONICS & ELECTRICAL
1,804,000 Gold Peak Industries Holdings
Ltd............................. 1,222,380
---------------
ENGINEERING
320,000 Hong Kong Aircraft Engineering Co.
Ltd............................. 976,768
---------------
HOTELS
69,000 Harbour Centre Development........ 91,282
---------------
MACHINERY
2,144,000 Chen Hsong Holdings............... 1,259,060
---------------
REAL ESTATE
362,000 China Resources Enterprise Ltd.... 1,270,831
1,054,400 HKR International Ltd............. 1,469,737
---------------
2,740,568
---------------

TOTAL HONG KONG................... 8,059,810
---------------

INDONESIA (0.5%)
BANKING
316,000 PT Pan Indonesia Bank*............ 214,392
---------------
DISTRIBUTION
60,000 PT Wicaksana Overseas
International................... 72,780
---------------
FOOD, BEVERAGE, TOBACCO & HOUSEHOLD PRODUCTS
70,000 PT Fast Food Indonesia............ 112,253
---------------

<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
WHOLESALE DISTRIBUTOR
108,900 PT Tigaraksa Satria............... $ 147,767
---------------

TOTAL INDONESIA................... 547,192
---------------

ITALY (5.0%)
ELECTRONICS & ELECTRICAL
76,000 Gewiss SpA........................ 1,229,614
---------------
MANUFACTURING
82,244 Industrie Natuzzi SpA (ADR)....... 2,076,661
59,000 SAES Getters Di Risp.............. 523,529
33,000 SAES Getters SpA.................. 452,897
---------------
3,053,087
---------------
MEDICAL PRODUCTS & SUPPLIES
35,764 De Rigo SpA (ADR)*................ 223,525
---------------
RETAIL
18,800 Fila Holding SpA (ADR)............ 801,350
---------------

TOTAL ITALY....................... 5,307,576
---------------

JAPAN (22.8%)
APPAREL
15,000 World Co., Ltd.................... 636,403
---------------
BUILDING & CONSTRUCTION
45,000 Kaneshita Construction............ 338,855
---------------
BUILDING MATERIALS
42,500 Nichiha Corp...................... 694,923
---------------
BUSINESS SERVICES
15,000 Nichii Gakkan Co.................. 800,344
7,000 Tanseisha Co., Ltd................ 37,952
---------------
838,296
---------------
CHEMICALS
95,000 Sumitomo Bakelite Co. Ltd......... 712,909
---------------
COMPUTER SOFTWARE & SERVICES
40,000 Ines Corp......................... 612,737
---------------
COMPUTERS
33,000 Meitec Corp....................... 871,859
---------------
ELECTRONIC & ELECTRICAL EQUIPMENT
31,000 Mitsui High-Tec................... 733,649
45,000 Nitto Electric Works.............. 832,616
---------------
1,566,265
---------------
ELECTRONICS
32,000 Aiwa Co........................... 594,836
8,000 Nidec Corp........................ 415,835
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
Y 34,000 Nippon Densan Corp. 1.00% 09/30/03
(Conv.)......................... $ 478,984
23,700 Nitto Kohki Co. Ltd............... 693,460
54,000 Taiyo Yuden Co., Ltd.............. 864,372
---------------
3,047,487
---------------
HEALTH & PERSONAL CARE
25,000 Aderans Co. Ltd................... 664,802
---------------
HOME BUILDING
500 Higashi Nihon House............... 5,207
---------------
HOUSEHOLD FURNISHINGS & APPLIANCES
25,000 Beltecno Corp..................... 182,874
---------------
LEISURE TIME
10,000 H.I.S. Company Ltd................ 507,745
---------------
MACHINERY
23,000 Misumi Corp....................... 534,423
---------------
MACHINERY & MACHINE TOOLS
23,600 Aichi Corp........................ 141,153
23,000 Fuji Machine Manufacturing Co..... 783,821
90,000 Nippon Thompson Co................ 729,604
90,000 OSG Corp.......................... 650,602
50,000 Tsudakoma......................... 221,601
---------------
2,526,781
---------------
MANUFACTURING
3,000 Bridgestone Metalpha Corp......... 27,108
---------------
MEDICAL SUPPLIES
45,000 Terumo Corp....................... 793,890
---------------
METALS & MINING
35,000 Sumitomo Sitix Corp............... 743,976
---------------
MISCELLANEOUS MATERIALS & COMMODITIES
12,000 Fujimi Inc........................ 708,434
55,000 Toshiba Ceramics Co., Ltd......... 534,854
---------------
1,243,288
---------------
MULTI-INDUSTRY
33,000 Yamae Hisano...................... 255,594
---------------
REAL ESTATE
35,700 Chubu Sekiwa Real Estate, Ltd..... 347,169
38,000 Sekiwa Real Estate................ 274,699
---------------
621,868
---------------
RETAIL
14,000 Arcland Sakamoto.................. 144,578
13,500 Ministop Co., Ltd................. 429,862
22,000 Olympic Corp...................... 435,456

<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
8,000 Otsuka Kagu Ltd................... $ 667,814
10,000 Xebio Co. Ltd..................... 251,291
---------------
1,929,001
---------------
RETAIL - GENERAL MERCHANDISE
20,000 Circle K Japan Co. Ltd............ 1,068,847
---------------
RETAIL - SPECIALTY
20,000 Shimachu Co., Ltd................. 586,919
---------------
STEEL & IRON
65,000 Yamato Kogyo Co., Ltd............. 643,287
---------------
TELECOMMUNICATION EQUIPMENT
2,000 Forval Corp....................... 53,184
---------------
TELECOMMUNICATIONS
46,000 Nippon Denwa Shisetsu............. 392,306
---------------
TEXTILES
200,000 Nitto Boseki Co................... 662,651
---------------
TRANSPORTATION
21,000 Kanto Seino Transportation........ 487,952
---------------
WHOLESALE DISTRIBUTOR
24,000 Satori Electric Co. Ltd........... 753,873
---------------

TOTAL JAPAN....................... 24,005,310
---------------

MALAYSIA (2.8%)
AUTOMOTIVE
75,000 Cycle & Carriage Bintang Berhad... 498,507
---------------
CONSTRUCTION
210,000 Road Builder (M) Holdings
Berhad.......................... 1,036,418
---------------
FINANCIAL SERVICES
310,000 MBM Resources Berhad.............. 721,791
332,500 Public Finance Berhad............. 529,353
---------------
1,251,144
---------------
TOBACCO
70,000 RJ Reynolds Berhad................ 183,881
---------------

TOTAL MALAYSIA.................... 2,969,950
---------------

NETHERLANDS (5.7%)
COMPUTER SOFTWARE
13,860 Baan Co., NV*..................... 808,542
---------------
HARDWARE & TOOLS
30,764 Aalberts Industries NV............ 807,621
---------------
</TABLE>

NORWAY (5.2%)
ELECTRONICS & ELECTRICAL
29,663 Sensonor AS*...................... 193,742
---------------
ENERGY TECHNOLOGY & EQUIPMENT
106,300 Tomra Systems AS.................. 2,433,758
---------------
ENTERTAINMENT
279,001 NCL Holdings ASA*................. 830,803
---------------
HOUSING & HOME FURNISHINGS
69,500 Ekornes AS (A Shares)............. 600,367
---------------
OIL DRILLING & SERVICES
128,130 Hitec AS*......................... 683,898
---------------
RETAIL - SPECIALTY
53,000 System Etikettering AS............ 699,778
---------------
TOTAL NORWAY...................... 5,442,346
---------------

PHILIPPINES (0.0%)
CONGLOMERATES
15,117 First Philippine Holdings Corp. (B
Shares)......................... 24,956
---------------

SINGAPORE (2.2%)
AUTOMOTIVE
22,000 Singapore Technologies Automotive
Ltd. (F Shares)................. 55,080
---------------
ELECTRONIC & ELECTRICAL EQUIPMENT
98,000 Elec & Eltek International Co.
Ltd............................. 578,200
---------------
ELECTRONIC COMPONENTS
100,000 GP Batteries International Ltd.... 474,000
---------------
ELECTRONICS & ELECTRICAL
184,000 Venture Manufacturing Ltd......... 630,489
---------------

<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
ENGINEERING
210,000 Amtek Engineering Ltd............. $ 362,727
---------------
SHIPBUILDING
125,000 Singapore Technologies
Shipbuilding & Engineering
Ltd............................. 172,203
---------------

TOTAL SINGAPORE................... 2,272,699
---------------

SWEDEN (1.7%)
CONGLOMERATES
32,280 Cardo AB.......................... 942,238
---------------
MANUFACTURING
21,520 SinterCast AB (A Shares)*......... 444,714
---------------
METALS & MINING
13,290 Hoganas AB........................ 413,677
---------------

TOTAL SWEDEN...................... 1,800,629
---------------

SWITZERLAND (2.2%)
CONGLOMERATES
2,855 Kardex AG......................... 883,219
---------------
ELECTRONICS
90 Kudelski SA*...................... 273,963
---------------
FOOD SERVICES
3,875 Selecta Group*.................... 615,841
---------------
MACHINERY
170 SIG Schweizerische Industrie -
Gesellschaft Holding AG -
Bearer.......................... 511,468
---------------

TOTAL SWITZERLAND................. 2,284,491
---------------

THAILAND (0.0%)
FOODS & BEVERAGES
2,000 Sermsuk Public Co., Ltd........... 39,435
---------------

UNITED KINGDOM (17.0%)
AUTO PARTS - ORIGINAL EQUIPMENT
105,000 BBA Group PLC..................... 575,428
47,600 Henlys Group PLC.................. 370,985
56,050 Laird Group PLC................... 350,394
---------------
1,296,807
---------------
BROADCAST MEDIA
242,500 General Cable PLC*................ 541,136
---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1997, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
BUILDING MATERIALS
110,000 Hepworth PLC...................... $ 453,025
566,666 Ibstock PLC....................... 641,552
119,100 SIG PLC........................... 609,395
---------------
1,703,972
---------------
CHEMICALS
94,500 Albright & Wilson PLC............. 244,212
110,600 Scapa Group....................... 337,539
---------------
581,751
---------------
COMMERCIAL SERVICES
79,650 Capita Group PLC.................. 333,259
---------------
COMPUTER SERVICES
60,000 ISA International PLC............. 226,430
31,700 Misys PLC......................... 712,583
---------------
939,013
---------------
CONGLOMERATES
17,500 Charter PLC....................... 235,742
---------------
CONTAINERS - PAPER
90,700 David S. Smith Holdings PLC....... 330,382
---------------
ELECTRONIC & ELECTRICAL EQUIPMENT
50,000 Fairey Group PLC.................. 438,094
---------------
ENTERTAINMENT
99,800 London Clubs International PLC.... 655,007
---------------
FINANCIAL SERVICES
569,880 Rutland Trust PLC................. 504,932
---------------
FOOD PROCESSING
131,250 Devro International PLC........... 699,904
---------------
HOUSEHOLD FURNISHINGS & APPLIANCES
178,950 MFI Furniture Group PLC........... 387,580
---------------
INDUSTRIALS
60,000 Staveley Industries PLC........... 172,284
---------------
MACHINERY & MACHINE TOOLS
42,600 Spirax-Sarco Engineering PLC...... 487,889
---------------
MANUFACTURING
112,400 Bunzl PLC......................... 368,852
76,650 Glynwed International PLC......... 335,799
91,100 Trinity Holdings PLC.............. 378,176
121,300 Vickers PLC....................... 431,893
38,100 Vitec Group PLC................... 362,584
29,300 Vosper Thornycroft Holdings PLC... 382,200
---------------
2,259,504
---------------

<CAPTION>
NUMBER OF
SHARES VALUE
- ------------------------------------------------------------------
<C> <S> <C>
PHARMACEUTICALS
18,900 Amersham International PLC........ $ 431,055
---------------
PUBLISHING
22,200 Daily Mail & General Trust (Class
A).............................. 572,613
104,600 Mirror Group PLC.................. 375,865
19,200 United News & Media PLC........... 243,836
---------------
1,192,314
---------------
REAL ESTATE
70,000 Bradford Property Trust PLC....... 352,608
106,700 Capital Shopping Centers PLC...... 712,549
81,200 Pillar Property Investments PLC... 301,773
---------------
1,366,930
---------------
RESTAURANTS
22,800 Compass Group PLC................. 255,138
---------------
RETAIL - SPECIALTY
80,000 Christies International PLC....... 402,980
90,633 Cowie Group PLC................... 529,410
---------------
932,390
---------------
TELECOMMUNICATIONS
163,455 Securicor PLC..................... 771,066
---------------
TEXTILES
57,500 Courtlaulds Textiles PLC.......... 265,112
---------------
TRANSPORTATION
47,700 Associated British Ports Holdings
PLC............................. 202,709
35,100 Forth Ports PLC................... 345,552
55,151 Stagecoach Holdings PLC........... 609,009
---------------
1,157,270
---------------

TOTAL UNITED KINGDOM.............. 17,938,531
---------------

TOTAL COMMON STOCKS, PREFERRED
STOCKS
AND BONDS
(IDENTIFIED COST $86,294,373)..... 100,626,365
---------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
PORTFOLIO OF INVESTMENTS MAY 31, 1997, CONTINUED

<TABLE>
<CAPTION>
CURRENCY
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------------
<C> <S> <C>
PURCHASED PUT OPTION ON
FOREIGN CURRENCY (0.3%)
DEM 10,417 July 1, 1997/DEM 1.6026
(Identified Cost $124,800)... $ 355,875
---------------
</TABLE>

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -------------
<C> <S> <C>
SHORT-TERM INVESTMENT (a) (3.3%)
U.S. GOVERNMENT AGENCY
$ 3,500 Federal Home Loan Mortgage Corp.
5.55% due 06/02/97 (Amortized
Cost $3,499,460)................ 3,499,460
---------------

</TABLE>

<TABLE>
<CAPTION>
VALUE
- -------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $89,918,633)(B)........... 99.2% $104,481,700

CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES................................ 0.8 826,485
------ ------------

NET ASSETS................................. 100.0% $105,308,185
------ ------------
------ ------------

<FN>
- ---------------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $21,273,414 and the
aggregate gross unrealized depreciation is $6,710,347, resulting in net
unrealized appreciation of $14,563,067.
</TABLE>

FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT MAY 31, 1997:

<TABLE>
<CAPTION>
CONTRACTS TO IN DELIVERY UNREALIZED
DELIVER EXCHANGE FOR DATE DEPRECIATION
- -------------------------------------------------------
<S> <C> <C> <C>
$ 523,867 CHF 736,871 06/03/97 ($2,225)
HKD 357,268 $ 46,108 06/03/97 (3)
THB 2,534,349 $ 101,577 06/03/97 (614)
-------
Total unrealized depreciation.......... ($2,842)
-------
-------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
SUMMARY OF INVESTMENTS MAY 31, 1997
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------
Apparel................................... $ 636,403 0.6%
Appliances & Household Durables........... 141,776 0.1
Auto Parts - Original Equipment........... 1,415,499 1.3
Automotive................................ 553,587 0.5
Banking................................... 214,392 0.2
Banks - Commercial........................ 1,769,752 1.7
Broadcast Media........................... 541,136 0.5
Building & Construction................... 892,281 0.8
Building Materials........................ 2,398,895 2.3
Business Services......................... 838,296 0.8
Chemicals................................. 1,294,660 1.2
Commercial Services....................... 333,259 0.3
Computer Services......................... 939,013 0.9
Computer Software......................... 808,542 0.8
Computer Software & Services.............. 1,583,596 1.5
Computers................................. 1,118,154 1.1
Conglomerates............................. 2,086,155 2.0
Construction.............................. 1,036,418 1.0
Consumer Products......................... 1,338,765 1.3
Containers - Paper........................ 330,382 0.3
Distribution.............................. 72,780 0.1
Electrical & Alarm Systems................ 256,246 0.2
Electronic & Electrical Equipment......... 2,582,559 2.5
Electronic Components..................... 474,000 0.5
Electronics............................... 3,702,500 3.5
Electronics & Electrical.................. 3,276,225 3.1
Energy Technology & Equipment............. 2,433,758 2.3
Engineering............................... 1,339,495 1.3
Entertainment............................. 1,485,810 1.4
Financial Services........................ 1,756,076 1.7
Food Processing........................... 1,580,199 1.5
Food Services............................. 615,841 0.6
Food, Beverage, Tobacco & Household
Products................................ 1,597,323 1.5
Foods & Beverages......................... 39,435 0.0
Foreign Currency Put Options.............. 355,875 0.3
Hardware & Tools.......................... 807,621 0.8
Health & Personal Care.................... 664,802 0.6
Home Building............................. 5,207 0.0
Hotels.................................... 91,282 0.1
Household Furnishings & Appliances........ 570,454 0.5
Housing & Home Furnishings................ 600,367 0.6
Industrials............................... 172,284 0.2

<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
- ------------------------------------------------------------------------------
<S> <C> <C>
Insurance................................. $ 1,519,542 1.4%
Leisure Time.............................. 507,745 0.5
Machinery................................. 2,304,951 2.2
Machinery & Machine Tools................. 3,014,670 2.9
Manufacturing............................. 9,053,215 8.6
Medical Products & Supplies............... 1,045,127 1.0
Medical Services.......................... 1,233,273 1.2
Medical Supplies.......................... 793,890 0.8
Metals & Mining........................... 1,518,748 1.4
Metals Non-Ferrous........................ 725,065 0.7
Miscellaneous Materials & Commodities..... 1,243,288 1.2
Multi-Industry............................ 1,107,581 1.1
Office Equipment.......................... 1,209,165 1.1
Oil Drilling & Services................... 683,898 0.6
Pharmaceuticals........................... 1,047,555 1.0
Photography............................... 1,060,237 1.0
Publishing................................ 1,192,314 1.1
Real Estate............................... 4,729,366 4.5
Recreation................................ 321,158 0.3
Restaurants............................... 255,138 0.2
Retail.................................... 4,873,475 4.6
Retail - Food Chains...................... 783,956 0.7
Retail - General Merchandise.............. 1,068,847 1.0
Retail - Specialty........................ 4,077,324 3.9
Shipbuilding.............................. 172,203 0.2
Steel & Iron.............................. 643,287 0.6
Telecommunication Equipment............... 53,184 0.1
Telecommunications........................ 1,163,372 1.1
Textiles.................................. 2,234,553 2.1
Textiles - Apparel Manufacturers.......... 590,812 0.6
Tobacco................................... 183,881 0.2
Transportation............................ 2,835,741 2.7
Transportation - Shipping................. 1,076,618 1.0
U.S. Government Agency.................... 3,499,460 3.3
Wholesale Distributor..................... 1,907,961 1.8
------------------ -----
$ 104,481,700 99.2%
------------------ -----
------------------ -----
</TABLE>

<TABLE>
<CAPTION>
PERCENT OF
TYPE OF INVESTMENT VALUE NET ASSETS
<S> <C> <C>
- ------------------------------------------------------------------------------
Common Stocks............................. $ 95,858,423 91.0%
Convertible Bonds......................... 478,984 0.5
Foreign Currency Put Option............... 355,875 0.3
Preferred Stocks.......................... 4,288,958 4.1
Short-Term Investments.................... 3,499,460 3.3
------------------ -----
$ 104,481,700 99.2%
------------------ -----
------------------ -----
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997

<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $89,918,633)............................. $104,481,700
Cash (including $225,747 in foreign currency)............... 342,694
Receivable for:
Investments sold........................................ 306,591
Dividends............................................... 197,612
Shares of beneficial interest sold...................... 91,481
Foreign withholding taxes reclaimed..................... 60,372
Interest................................................ 4,840
Deferred organizational expenses............................ 74,442
Prepaid expenses and other assets........................... 36,332
Receivable from affiliate................................... 720,000
------------

TOTAL ASSETS........................................... 106,316,064
------------

LIABILITIES:
Payable for:
Investments purchased................................... 517,768
Shares of beneficial interest repurchased............... 149,284
Investment management fee............................... 110,454
Plan of distribution fee................................ 88,363
Accrued expenses and other payables......................... 142,010
------------

TOTAL LIABILITIES...................................... 1,007,879
------------

NET ASSETS:
Paid-in-capital............................................. 117,069,152
Net unrealized appreciation................................. 14,561,125
Dividends in excess of net investment income................ (1,880,282)
Accumulated net realized loss............................... (24,441,810)
------------

NET ASSETS............................................. $105,308,185
------------
------------

NET ASSET VALUE PER SHARE,
11,810,008 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$8.92
------------
------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
FINANCIAL STATEMENTS, CONTINUED

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 1997

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

INCOME
Dividends (net of $243,015 foreign withholding tax)......... $ 1,715,215
Interest.................................................... 239,950
------------

TOTAL INCOME........................................... 1,955,165
------------

EXPENSES
Investment management fee................................... 1,584,086
Plan of distribution fee.................................... 1,267,269
Transfer agent fees and expenses............................ 233,996
Custodian fees.............................................. 155,317
Professional fees........................................... 138,461
Shareholder reports and notices............................. 67,971
Registration fees........................................... 47,121
Organizational expenses..................................... 34,438
Trustees' fees and expenses................................. 10,886
Other....................................................... 118,849
------------

TOTAL EXPENSES......................................... 3,658,394
------------

NET INVESTMENT LOSS.................................... (1,703,229)
------------

NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss on:
Investments............................................. (14,123,495)
Foreign exchange transactions........................... (105,309)
------------

NET LOSS............................................... (14,228,804)
------------
Net change in unrealized appreciation/depreciation on:
Investments............................................. 756,230
Translation of forward foreign currency contracts, other
assets and liabilities denominated in foreign
currencies............................................ 222
------------

NET APPRECIATION....................................... 756,452
------------

NET LOSS............................................... (13,472,352)
------------

NET DECREASE................................................ $(15,175,581)
------------
------------
</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 FOR THE
YEAR YEAR
ENDED ENDED
MAY 31, MAY 31,
1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>

INCREASE (DECREASE) IN NET ASSETS:

OPERATIONS:
Net investment loss......................................... $(1,703,229) $(1,229,713)
Net realized loss........................................... (14,228,804) (341,909)
Net change in unrealized appreciation/depreciation.......... 756,452 22,898,216
----------- -----------

NET INCREASE (DECREASE)................................ (15,175,581) 21,326,594
Dividends from net investment income........................ (5,142,946) --
Net increase (decrease) from transactions in shares of
beneficial interest....................................... (20,347,659) 30,198,498
Capital contribution........................................ 720,000 --
----------- -----------

NET INCREASE (DECREASE)................................ (39,946,186) 51,525,092

NET ASSETS:
Beginning of period......................................... 145,254,371 93,729,279
----------- -----------

END OF PERIOD
(INCLUDING DIVIDENDS IN EXCESS OF NET INVESTMENT INCOME
OF $1,880,282 AND UNDISTRIBUTED NET INVESTMENT INCOME OF
$2,767,223, RESPECTIVELY)............................... $105,308,185 $145,254,371
----------- -----------
----------- -----------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1997

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 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 pursuant to procedures
adopted 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 Dean Witter InterCapital Inc. (the "Investment Manager") or Morgan
Grenfell Investment Services Limited (the "Sub-Adviser") 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, 1997, 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 foreign currency
contracts are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the
exchange rates prevailing on the respective dates of such transactions. The
resultant exchange gains and losses are included in the Statement of Operations
as realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a reduction
of ordinary income for federal income tax purposes. The Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the changes in the market prices of the securities.
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1997, 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 currency 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 and was reimbursed
for the full amount thereof. Such expenses have been deferred and are being
amortized on the straight line method over a period not to exceed five years
from the commencement of operations.

2. INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS

Pursuant to an Investment Management Agreement, 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, 1997, 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 the Sub-Adviser and the Investment
Manager, the Sub-Adviser 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-Adviser 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 others 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 utilize
fees paid pursuant to the Plan to compensate DWR and other selected
broker-dealers for their opportunity costs in advancing such amounts, which
compensation would be in the form of a carrying charge on any unreimbursed
distribution expenses incurred by the Distributor.
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1997, 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.

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 $8,434,427 at
May 31, 1997.

The Distributor has informed the Fund that for the year ended May 31, 1997, it
received approximately $442,000 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, 1997 aggregated $55,615,891
and $78,485,146, respectively.

Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At May 31, 1997, the Fund had
transfer agent fees and expenses payable of approximately $20,000.

During the year ended May 31, 1997, foreign regulatory authorities initiated an
investigation involving an individual associated with an affiliate of the Fund's
Sub-Adviser. Although this investigation did not at any time involve the Fund or
the Investment Manager, the Sub-Adviser's affiliate purchased from the Fund two
securities whose separate holdings by the affiliate had become part of the
investigation and, on May 27, 1997, voluntarily committed to contribute $720,000
to the Fund, which was paid in full subsequent to the Fund's fiscal year end.
The two securities represented only a very small percentage of the Fund's
portfolio (approximately one-half of one percent) and were purchased by the
Sub-Adviser's affiliate at cost plus interest.
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1997, CONTINUED

5. SHARES OF BENEFICIAL INTEREST

Transactions in shares of beneficial interest were as follows:

<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MAY 31, 1997 MAY 31, 1996
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold............................................................. 2,242,741 $ 21,576,152 6,640,227 $ 62,312,623
Reinvestment of dividends........................................ 534,196 4,743,655 -- --
----------- -------------- ----------- ------------
2,776,937 26,319,807 6,640,227 62,312,623
Repurchased...................................................... (5,096,720) (46,667,466) (3,490,725) (32,114,125)
----------- -------------- ----------- ------------
Net increase (decrease).......................................... (2,319,783) $ (20,347,659) 3,149,502 $ 30,198,498
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>

6. FEDERAL INCOME TAX STATUS

At May 31, 1997, the Fund had a net capital loss carryover of approximately
$8,489,000 of which $7,034,000 will be available through May 31, 2004 and
$1,455,000 which will be available through May 31, 2005 to offset future capital
gains to the extent provided by regulations.

Capital and foreign currency 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 and foreign currency losses of approximately $15,832,000 and $79,000,
respectively during fiscal 1997.

As of May 31, 1997, the Fund had temporary book/tax differences primarily
attributable to post-October losses and income from the mark-to-market of
passive foreign investment companies ("PFICs") and permanent book/tax
differences primarily attributable to a net operating loss, a capital
contribution to the Fund by the Sub-Adviser and tax adjustments on PFICs sold by
the Fund. To reflect reclassifications arising from the permanent differences,
paid-in-capital was charged $1,771,672, accumulated net realized loss was
charged $426,998 and dividends in excess of net investment income was credited
$2,198,670.

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.
<PAGE>
DEAN WITTER INTERNATIONAL SMALLCAP FUND
NOTES TO FINANCIAL STATEMENTS MAY 31, 1997, CONTINUED

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.

At May 31, 1997, there were outstanding forward contracts used to facilitate
settlement of foreign currency denominated portfolio transactions.

8. SUBSEQUENT EVENT

On June 30, 1997, the Fund's Board of Trustees approved a proposal to adopt a
multiple class share structure. Through this arrangement, the Fund will offer
four classes of shares with various sales charges, ongoing fees and other
features. This conversion is scheduled to take place on July 28, 1997.
<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 FOR THE YEAR JULY 29, 1994*
ENDED ENDED THROUGH
MAY 31, 1997 MAY 31, 1996 MAY 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:

Net asset value, beginning of period.................................. $ 10.28 $ 8.54 $ 10.00
------ ------ ------

Net investment income (loss).......................................... (0.16) (0.08) (0.08)
Net realized and unrealized gain (loss)............................... (0.88) 1.82 (1.38)
------ ------ ------

Total from investment operations...................................... (1.04) 1.74 (1.46)
------ ------ ------

Dividends from net investment income:................................. (0.38) -- --
------ ------ ------

Capital contribution.................................................. 0.06 -- --
------ ------ ------

Net asset value, end of period........................................ $ 8.92 $ 10.28 $ 8.54
------ ------ ------
------ ------ ------

TOTAL INVESTMENT RETURN+.............................................. (9.52)%(3) 20.37% (14.60)%(1)

RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 2.89% 2.85% 2.90%(2)

Net investment loss................................................... (1.34)% (1.09)% (1.12)%(2)

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $105,308 $145,254 $93,729

Portfolio turnover rate............................................... 46% 44% 41%(1)

Average commission rate paid.......................................... $0.0030 $0.0069 --
<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.
(3) Includes voluntary capital contribution from the Sub-Adviser, the effect of
which was to increase total return by 0.59%.
</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, 1997, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the two years in the
period 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, 1997 by correspondence with the custodian
and brokers and the application of alternative auditing procedures where
confirmations from brokers were not received, provide a reasonable basis for the
opinion expressed above.

PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
JULY 10, 1997