<PAGE>
DEAN WITTER MID-CAP GROWTH FUND Two World Trade Center, New York,
LETTER TO THE SHAREHOLDERS May 31, 1997 New York 10048
DEAR SHAREHOLDER:
During the fiscal year ended May 31, 1997, the stock market continued to
appreciate based on good earnings, low inflation and continued economic
growth. Overall, the stock market, as measured by the Standard & Poor's 500
Composite Stock Index, rose 29.44 percent, despite a market correction early
in the fiscal year. During this correction, mid-and small-cap issues declined
more sharply than larger-cap companies as investors gravitated to the safety,
liquidity and earnings visibility of larger companies.
During the final months of 1996 and into the first quarter of 1997, large
caps continued to outperform smaller caps as investors continued their flight
to safety as concerns of a Federal Reserve Board tightening heightened. An
exuberant stock market was halted very quickly in March 1997 when the Fed
hiked short-term interest rates for the first time since 1994. In April,
however, it was apparent that inflation was subdued and the Fed tightening
moves would be less severe than anticipated. As the fiscal year came to a
close, the market leadership began to show signs of broadening as mid-caps
broke their relative strength downtrend and started to outperform larger-cap
stocks in May.
PERFORMANCE AND PORTFOLIO STRATEGY
Against this backdrop, Dean Witter Mid-Cap Growth Fund posted a total return
of 6.01 percent for the twelve-month period ended May 31, 1997. This compares
to a return of 4.80 percent for the Lipper Mid Cap Funds Index and a return
of 18.16 percent for the S&P Midcap Index. The accompanying chart illustrates
the growth of a hypothetical $10,000 investment in the Fund from inception
(September 29, 1994) through May 31, 1997, versus a similar investment in the
issues that comprise the S&P Midcap Index and the Lipper Mid Cap Funds Index.
DEAN WITTER MID-CAP GROWTH FUND
GROWTH OF $10,000
DATE TOTAL S&P MIDCAP IX LIPPER
- -------------------------------------------------------------------------------
September 29, 1994 $10000 $10000 $10000
- -------------------------------------------------------------------------------
May 31, 1995 $10826 $11057 $10894
- -------------------------------------------------------------------------------
May 31, 1996 $16566 $14204 $15430
- -------------------------------------------------------------------------------
May 31, 1997 $17262(3) $16783 $16171
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
ONE YEAR LIFE OF FUND
--------------------------------------------------
6.01(1) 23.49(1)
--------------------------------------------------
1.13(2) 22.69(2)
--------------------------------------------------
Past preformance is not predictive of future returns.
- ---------------
(1) Figure shown does not reflect the deduction of any sales charges.
(2) Figure shown assumes the deduction of the maximum applicable contingent
deferred sales charge (CDSC)(1 year-5%, since inception 3%). See the
Fund's current prospectus for complete details on fees and sales charges.
(3) Closing value after the deduction of a 3% CDSC, assuming a complete
redemption on May 31, 1997.
(4) The S&P Midcap Index is a market-value weighted index, the performance of
which is based on the average performance of 400 domestic stock chosen
for market size, liquidity, and industry group representation. The index
does not include any expenses, fees or charges. The Index is unmanaged
and should not be considered an investment.
(5) The Lipper Mid Cap Fund Index is an equally-weighted performance index of
the largest qualifying funds (based on net assets) in the Lipper Mid Cap
Funds objective. The index, which is adjusted for capital gains
distributions and income dividends, is unmanaged and should not be
considered an investment. There are currently 30 funds represented in
this Index.
In selecting securities for the Fund's portfolio, we employ both a top down
(where we are in the economic cycle) and a bottom up (what companies will
perform in this environment) approach. In the early part of the fiscal year,
the Fund was positioned defensively to take advantage of a slowing
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
LETTER TO THE SHAREHOLDERS May 31, 1997, continued
economy, with half the portfolio in steady growth companies (drug and food
stores, health care and cosmetics) and the other half in early cycle
companies (shoes, computer and communication equipment and semiconductors).
Toward the end of 1996, as inflation numbers remained controlled, we
increased the Fund's exposure to interest-rate sensitive sectors (banks and
brokerage firms) and oil equipment stocks as the international oil companies
continue their multi-year spending cycle on exploration and drilling. By
April, when it became more apparent that inflation was subdued and that the
Fed tightening moves would be less severe than anticipated, we further tilted
the Fund's portfolio toward growth industries by quickly over-weighting
technology, banks, brokerage firms and consumer staples.
By the end of the fiscal year, we had positioned the majority of the Fund in
economically sensitive sectors, with technology representing the largest
exposure. Driven by the need to be the low-cost producer in a competitive
global environment, we expect demand for technology to be strong. Industries
that are experiencing strong demand from emerging markets continue to be
overweighted in the portfolio. These include agricultural (bio-engineered
seeds), energy services and consumer brand companies. In the steady growth
industries, we believe earnings acceleration will be seen in selective
medical devices, specialty drug and biotechnology companies that are
experiencing new product cycles. Furthermore with low inflation, deregulation
and consolidation, we believe that the financial services sector should
continue to perform well into 1997.
LOOKING AHEAD
Going forward, we believe that the economy will continue to expand in the
second half of 1997, albeit at a slower pace than was experienced during the
robust first half.
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
LETTER TO THE SHAREHOLDERS May 31, 1997, continued
Mid-cap stocks should deliver superior growth as they are typically in
younger industries characterized by more rapid growth than the overall
economy. At present, their valuations (price-to-earnings ratios as compared
to their three-to five-year growth rates) are near record lows versus
large-cap stocks. Additionally, the strong dollar should continue to penalize
the earnings of larger multinational companies well into 1997, giving mid-cap
companies a further advantage throughout 1997. With valuations of mid-cap
stocks at relative lows, the United States economy growing, no apparent signs
of accelerating inflation and the lack of pressure on earnings from the high
value of the dollar, the mid-cap sector's potential appears very good for the
coming fiscal year.
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 Mid-Cap Growth Fund and look
forward to continuing to serve your investment needs and objectives.
Very truly yours,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
RESULTS OF ANNUAL MEETING (unaudited)
* * *
On May 21, 1997, a special meeting of the Fund's shareholders was held for
the purpose of voting on four separate matters, the results of which were as
follows:
(1) APPROVAL OF A NEW INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE FUND AND
DEAN WITTER INTERCAPITAL INC., THEN A WHOLLY OWNED SUBSIDIARY OF DEAN
WITTER, DISCOVER & CO., IN CONNECTION WITH THE MERGER OF MORGAN STANLEY
GROUP INC. WITH DEAN WITTER, DISCOVER & CO.:
<TABLE>
<CAPTION>
<S> <C>
For ....... 13,854,118
Against .. 352,934
Abstain .. 1,382,422
</TABLE>
(2) ELECTION OF TRUSTEES:
Michael Bozic
<TABLE>
<CAPTION>
<S> <C>
For ........ 14,644,890
Withheld .. 944,584
</TABLE>
Charles A. Fiumefreddo
<TABLE>
<CAPTION>
<S> <C>
For ........ 14,643,140
Withheld .. 946,334
</TABLE>
Edwin J. Garn
<TABLE>
<CAPTION>
<S> <C>
For ........ 14,669,973
Withheld .. 919,501
</TABLE>
John R. Haire
<TABLE>
<CAPTION>
<S> <C>
For ........ 14,624,223
Withheld .. 965,251
</TABLE>
Wayne E. Hedien
<TABLE>
<CAPTION>
<S> <C>
For ........ 14,666,801
Withheld .. 922,673
</TABLE>
Dr. Manuel H. Johnson
<TABLE>
<CAPTION>
<S> <C>
For ........ 14,671,045
Withheld .. 918,429
</TABLE>
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
RESULTS OF ANNUAL MEETING (unaudited) continued
Michael E. Nugent
<TABLE>
<CAPTION>
<S> <C>
For ........ 14,676,354
Withheld .. 913,120
</TABLE>
Philip J. Purcell
<TABLE>
<CAPTION>
<S> <C>
For ........ 14,683,715
Withheld .. 905,759
</TABLE>
John L. Schroeder
<TABLE>
<CAPTION>
<S> <C>
For ........ 14,655,651
Withheld .. 933,823
</TABLE>
(3) APPROVAL OF A NEW INVESTMENT POLICY WITH RESPECT TO INVESTMENTS IN
CERTAIN OTHER INVESTMENT COMPANIES:
<TABLE>
<CAPTION>
<S> <C>
For ....... 13,332,660
Against .. 661,804
Abstain .. 1,595,010
</TABLE>
(4) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS THE FUND'S
INDEPENDENT ACCOUNTANTS:
<TABLE>
<CAPTION>
<S> <C>
For ....... 14,191,859
Against .. 228,853
Abstain .. 1,168,762
</TABLE>
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS May 31, 1997
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (96.8%)
Agriculture Related (3.9%)
83,000 Dekalb Genetics Corp. (Class B) ................................. $ 5,830,750
48,333 Delta & Pine Land Co. ........................................... 1,468,115
35,000 IMC Global, Inc. ................................................ 1,369,375
60,000 Pioneer Hi-Bred International, Inc. ............................. 4,185,000
15,000 Potash Corp. of Saskatchewan, Inc. (Canada) ..................... 1,231,875
105,000 Tyson Foods, Inc. (Class A) ..................................... 2,139,375
--------------
16,224,490
--------------
Apparel & Footwear (1.0%)
50,000 Jones Apparel Group, Inc. * ..................................... 2,343,750
45,000 Reebok International Ltd. ...................................... 1,845,000
--------------
4,188,750
--------------
Auto Related (1.4%)
14,500 Hertz Corp. (Class A)* .......................................... 496,625
154,000 Miller Industries, Inc.* ........................................ 2,521,750
90,000 Pep Boys-Manny, Moe & Jack ...................................... 2,812,500
--------------
5,830,875
--------------
Banks (7.6%)
50,000 City National Corp. ............................................. 1,206,250
45,000 Comerica, Inc. .................................................. 2,812,500
60,000 Crestar Financial Corp. ......................................... 2,280,000
29,000 First of America Bank Corp. ..................................... 1,997,375
13,000 First Union Corp. ............................................... 1,116,375
140,000 Firstar Corp. .................................................. 4,182,500
90,000 KeyCorp ......................................................... 4,893,750
56,000 National Commerce Bancorporation ................................ 1,295,000
50,000 North Fork Bancorporation, Inc. ................................ 1,050,000
80,000 Southtrust Corp. ................................................ 3,110,000
100,000 State Street Corp. .............................................. 4,462,500
60,000 Washington Mutual, Inc. ........................................ 3,330,000
--------------
31,736,250
--------------
Basic Cyclicals (0.2%)
30,000 Titanium Metals Corp.* .......................................... 900,000
--------------
Biotechnology (3.4%)
120,000 Alkermes, Inc.* ................................................. 1,965,000
160,000 Biochem Pharma, Inc.* ........................................... 3,960,000
37,000 Biogen, Inc.* ................................................... 1,225,625
75,000 Centocor, Inc.* ................................................. 2,625,000
15,000 Gilead Sciences, Inc.* .......................................... 401,250
100,000 IDEC Pharmaceuticals Corp.* ..................................... $ 2,237,500
50,000 Vertex Pharmaceuticals, Inc.* ................................... 2,000,000
--------------
14,414,375
--------------
Capital Goods (2.0%)
30,000 Precision Castparts Corp. ....................................... 1,875,000
70,000 Sundstrand Corp. ................................................ 3,482,500
34,000 Tyco International Ltd. ......................................... 2,159,000
30,000 Wyman-Gordon Co.* ............................................... 678,750
--------------
8,195,250
--------------
Communications Equipment (3.5%)
28,000 Andrew Corp.* ................................................... 759,500
150,000 Brightpoint, Inc.* .............................................. 4,612,500
115,000 Ericsson (L.M.) Telephone Co. (ADR)(Sweden) ..................... 4,096,875
50,000 Newbridge Networks Corp.* (Canada) .............................. 2,006,250
39,000 Northern Telecom Ltd. (Canada) .................................. 3,276,000
--------------
14,751,125
--------------
Computer Equipment (2.5%)
100,000 EMC Corp.* ...................................................... 3,987,500
35,000 SCI Systems, Inc.* .............................................. 2,275,000
99,000 Seagate Technology, Inc.* ....................................... 4,021,875
--------------
10,284,375
--------------
Computer Services (0.5%)
9,000 HNC Software, Inc.* ............................................. 295,875
39,000 Transaction Systems Architects, Inc. (Class A)* ................. 1,613,625
--------------
1,909,500
--------------
<PAGE>
Computer Software (2.2%)
25,000 BMC Software, Inc.* ............................................. 1,350,000
40,000 Computer Associates International, Inc. ......................... 2,190,000
114,000 Veritas Software Co.* ........................................... 5,643,000
--------------
9,183,000
--------------
Construction (1.6%)
88,000 American Standard Companies, Inc.* .............................. 4,411,000
60,000 Miller (Herman), Inc. ........................................... 2,130,000
--------------
6,541,000
--------------
Consumer -Noncyclical (6.5%)
104,000 Alberto-Culver Co. (Class B) .................................... 2,964,000
40,000 Avon Products, Inc. ............................................. 2,550,000
19,000 Clorox, Co. ..................................................... 2,398,750
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS May 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
80,000 Consolidated Cigar Holdings Inc. (Class A)* ..................... $ 2,420,000
92,000 Heinz (H.J.) Co. ................................................ 3,956,000
20,000 Hershey Foods Corp. ............................................. 1,122,500
40,000 Interstate Bakeries Corp. ....................................... 2,150,000
134,800 PanAmerican Beverages, Inc. (Class A)(Mexico) ................... 3,909,200
20,000 Procter & Gamble Co. ........................................... 2,757,500
10,000 Unilever N.V. & PLC (Netherlands) ............................... 1,937,500
50,000 Whitman Corp. ................................................... 1,206,250
--------------
27,371,700
--------------
Consumer Business Services (2.7%)
10,000 Allied Waste Industries, Inc.* .................................. 146,250
60,000 Corrections Corp. of America* ................................... 2,175,000
65,000 Mail Boxes Etc.* ................................................ 1,495,000
30,000 Pittston Brink's Group .......................................... 937,500
130,000 Service Corp. International ..................................... 4,582,500
54,000 U.S.A. Waste Services, Inc.* .................................... 1,957,500
--------------
11,293,750
--------------
Consumer Products (6.0%)
195,000 Arbor Drugs, Inc. ............................................... 3,802,500
42,900 Callaway Golf Co. ............................................... 1,383,525
38,000 CVS Corp. ....................................................... 1,819,250
100,000 Dean Foods Co. .................................................. 3,800,000
88,000 Dominick's Supermarkets, Inc.* .................................. 2,134,000
126,000 Kroger Co.* ..................................................... 3,228,750
117,000 Rite Aid Corp. .................................................. 5,440,500
81,000 Safeway, Inc.* .................................................. 3,645,000
--------------
25,253,525
--------------
Drugs (1.5%)
78,000 Dura Pharmaceuticals, Inc.* ..................................... 3,110,250
83,000 Medicis Pharmaceutical Corp. (Class A)* ......................... 2,811,625
10,000 Pharmaceutical Product Development, Inc.* ....................... 191,250
--------------
6,113,125
--------------
Energy (7.5%)
100,000 Baker Hughes, Inc. .............................................. 3,750,000
54,000 Cooper Cameron Corp.* ........................................... 4,421,250
50,000 Diamond Offshore Drilling, Inc.* ................................ 3,556,250
26,000 ENSCO International, Inc.* ...................................... 1,296,750
47,000 Falcon Drilling Company, Inc.* .................................. 2,156,125
161,700 Global Marine, Inc.* ............................................ 3,638,250
60,000 Halter Marine Group, Inc.* ...................................... 1,410,000
37,000 Louisiana Land & Exploration Co. ................................ $ 1,905,500
60,000 Marine Drilling Company, Inc.* .................................. 1,200,000
9,800 Petroleum Geo-Services ASA (ADR)* ............................... 418,950
30,000 Rowan Companies, Inc.* .......................................... 693,750
47,000 Smith International, Inc.* ...................................... 2,461,625
35,000 Transocean Offshore, Inc. ....................................... 2,415,000
30,000 Western Atlas, Inc.* ............................................ 2,032,500
--------------
31,355,950
--------------
Entertainment/Gaming & Lodging (2.6%)
50,000 HFS, Incorporated* .............................................. 2,693,750
120,500 International Game Technology ................................... 2,138,875
60,900 MGM Grand, Inc.* ................................................ 2,306,587
80,000 Mirage Resorts, Inc.* ........................................... 1,910,000
135,000 Sodak Gaming, Inc.* ............................................. 1,940,625
--------------
10,989,837
--------------
Financial -Miscellaneous (5.4%)
37,000 Associates First Capital Corp. (Class A) ........................ 1,748,250
131,250 Bear Stearns Companies, Inc. ................................... 4,265,625
120,000 Catellus Development Corp.* ..................................... 2,025,000
95,000 Edwards (A.G.), Inc. ............................................ 3,526,875
20,000 Finova Group Inc. ............................................... 1,490,000
41,600 HomeSide, Inc.* ................................................. 743,600
13,100 Infinity Financial Technology, Inc.* ............................ 168,662
60,000 Legg Mason, Inc. ................................................ 2,767,500
60,600 Lehman Brothers Holdings, Inc. .................................. 2,446,725
32,000 Paine Webber Group, Inc. ........................................ 1,136,000
85,000 Raymond James Financial, Inc. .................................. 2,337,500
--------------
22,655,737
--------------
<PAGE>
Healthcare Products & Services (4.9%)
10,000 Advanced Technology Laboratories, Inc.* ......................... 387,500
30,000 Dentsply International, Inc. .................................... 1,507,500
150,000 Health Management Associates, Inc. (Class A)* ................... 4,387,500
188,000 Healthsouth Corp.* .............................................. 4,300,500
5,000 National Surgery Centers, Inc.* ................................. 192,500
50,000 PhyCor, Inc.* ................................................... 1,425,000
112,000 Renal Treatment Centers, Inc.* .................................. 3,220,000
140,000 Vivra, Inc.* .................................................... 4,952,500
--------------
20,373,000
--------------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS May 31, 1997, continued
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
Insurance (1.9%)
60,000 CRA Managed Care, Inc.* ......................................... $ 2,745,000
20,000 Equitable of Iowa Co. .......................................... 1,107,500
9,150 Executive Risk, Inc. ............................................ 476,944
61,200 Hartford Life, Inc. (Class A)* .................................. 2,050,200
22,500 Nationwide Financial Services, Inc. (Class A)* .................. 632,813
23,000 Protective Life Corp. .......................................... 1,029,250
--------------
8,041,707
--------------
Internet (1.3%)
75,000 America Online, Inc.* ........................................... 4,143,750
30,000 Security Dynamics Technologies, Inc.* ........................... 1,102,500
--------------
5,246,250
--------------
Media Group (4.9%)
43,000 Argyle Television, Inc. (Class A)* .............................. 999,750
25,400 Clear Channel Communications, Inc.* ............................. 1,343,025
75,000 Evergreen Media Corp. (Class A)* ................................ 2,906,250
66,000 Heftel Broadcasting Corp. (Class A)* ............................ 3,234,000
67,800 Jacor Communications, Inc.* ..................................... 2,330,625
102,900 Outdoor Systems, Inc.* .......................................... 3,395,700
60,000 Telemundo Group, Inc. (Class A)* ................................ 1,470,000
85,000 Universal Outdoor Holdings, Inc.* ............................... 2,720,000
63,100 Univision Communications, Inc. (Class A)* ....................... 2,271,600
--------------
20,670,950
--------------
Medical Supplies (1.4%)
60,000 Acuson Corp.* ................................................... 1,560,000
10,000 Guidant Corp. .................................................. 776,250
130,700 Mentor Corp. .................................................... 3,398,200
--------------
5,734,450
--------------
Restaurants (0.7%)
30,000 Rainforest Cafe, Inc.* .......................................... 731,250
65,000 Starbucks Corp.* ................................................ 2,047,500
--------------
2,778,750
--------------
Retail (5.0%)
76,700 99 Cents Only Stores* ........................................... 1,936,675
44,000 Barnes & Noble, Inc.* ........................................... 1,831,500
133,000 Costco Companies, Inc.* ......................................... $ 4,488,750
98,000 Eagle Hardware & Garden, Inc.* .................................. 2,352,000
145,000 General Nutrition Companies, Inc.* .............................. 3,335,000
10,000 Kohl's Corp.* ................................................... 538,750
25,500 Neiman-Marcus Group, Inc.* ...................................... 675,750
103,000 Proffitt's, Inc.* ............................................... 4,107,125
40,000 Tiffany & Co. ................................................... 1,855,000
--------------
21,120,550
--------------
Semiconductor Equipment (5.2%)
70,000 Applied Materials, Inc.* ........................................ 4,558,750
70,700 DuPont Photomasks, Inc.* ........................................ 3,817,800
55,000 Etec Systems, Inc.* ............................................. 2,447,500
147,000 KLA-Tencor Corp.* ............................................... 6,982,500
104,800 PRI Automation, Inc.* ........................................... 3,982,400
--------------
21,788,950
--------------
Semiconductors (8.0%)
135,000 Analog Devices, Inc.* ........................................... 3,611,250
75,000 Burr-Brown Corp.* ............................................... 2,343,750
300,000 Cypress Semiconductor Corp.* .................................... 4,275,000
37,000 Lattice Semiconductor Corp.* .................................... 2,132,125
35,000 Linear Technology Corp. ........................................ 1,750,000
130,000 LSI Logic Corp.* ................................................ 5,427,500
135,000 MEMC Electronic Materials, Inc.* ................................ 4,809,375
48,000 Micrel, Inc.* ................................................... 2,496,000
75,000 Micron Technology, Inc. ......................................... 3,187,500
2,300 Rambus Inc.* .................................................... 71,875
100,000 Vitesse Semiconductor Corp.* .................................... 3,587,500
--------------
33,691,875
--------------
<PAGE>
Transportation (1.5%)
50,000 Knightsbridge Tankers Ltd. ..................................... 1,218,750
80,000 OMI Corp.* ...................................................... 770,000
3,600 Ryanair Holdings PLC (Ireland)(ADR)* ............................ 89,100
52,000 Teekay Shipping Corp. ........................................... 1,631,500
79,000 U.S. Airways Group, Inc.* ....................................... 2,745,250
--------------
6,454,600
--------------
TOTAL COMMON STOCKS
(Identified Cost $351,109,268) .................................. 405,093,696
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS May 31, 1997, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (3.7%)
U.S. GOVERNMENT AGENCY (a)(3.6%)
Federal Home Loan Mortgage Corp. 5.55% due 06/02/97 (Amortized
$15,000 Cost $14,997,687) ............................................... $14,997,687
--------------
REPURCHASE AGREEMENT (0.1%)
The Bank of New York 5.4375% due 06/02/97 (dated 05/30/97;
proceeds $561,720; collateralized by $486,967 Federal Farm
Credit Bank Note 9.20% due 08/22/05 valued at
561 $572,695)(Identified Cost $561,466) ............................. 561,466
--------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $15,559,153) ................................... 15,559,153
--------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost
$366,668,421)(b).................. 100.5% 420,652,849
LIABILITIES IN EXCESS OF
OTHER ASSETS...................... (0.5) (1,900,920)
-------- -------------
NET ASSETS........................ 100.0% $418,751,929
======== =============
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$58,811,936 and the aggregate gross unrealized depreciation is
$4,827,508, resulting in net unrealized appreciation of $53,984,428.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $366,668,421)....................................... $420,652,849
Receivable for:
Shares of beneficial interest sold ................................. 810,236
Investments sold ................................................... 203,743
Dividends........................................................... 181,959
Deferred organizational expenses...................................... 72,880
Prepaid expenses and other assets..................................... 16,164
--------------
TOTAL ASSETS ....................................................... 421,937,831
--------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased .......................... 2,220,249
Plan of distribution fee ........................................... 343,279
Investment management fee .......................................... 257,459
Investments purchased .............................................. 236,716
Accrued expenses and other payables .................................. 128,199
--------------
TOTAL LIABILITIES................................................... 3,185,902
--------------
NET ASSETS:
Paid-in-capital ...................................................... 350,339,419
Net unrealized appreciation .......................................... 53,984,428
Accumulated undistributed net realized gain .......................... 14,428,082
--------------
NET ASSETS ......................................................... $418,751,929
==============
NET ASSET VALUE PER SHARE,
28,376,849 shares outstanding (unlimited shares authorized of $.01
par value)........................................................... $ 14.76
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended May 31, 1997
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Dividends (net of $17,764 foreign withholding tax). $ 1,835,706
Interest........................................... 1,428,194
-------------
TOTAL INCOME..................................... 3,263,900
-------------
EXPENSES
Plan of distribution fee .......................... 3,526,078
Investment management fee ......................... 2,644,558
Transfer agent fees and expenses .................. 481,395
Registration fees ................................. 91,955
Custodian fees .................................... 90,481
Shareholder reports and notices ................... 71,764
Professional fees ................................. 55,243
Organizational expenses ........................... 30,230
Trustees' fees and expenses ....................... 12,952
Other ............................................. 5,145
-------------
TOTAL EXPENSES .................................. 7,009,801
-------------
NET INVESTMENT LOSS ............................. (3,745,901)
-------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain.................................. 18,972,626
Net change in unrealized appreciation.............. 10,689,644
-------------
NET GAIN ........................................ 29,662,270
-------------
NET INCREASE ...................................... $25,916,369
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
MAY 31, 1997 MAY 31, 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss ............................... $ (3,745,901) $ (2,062,519)
Net realized gain ................................. 18,972,626 45,084,990
Net change in unrealized appreciation.............. 10,689,644 36,875,007
-------------- --------------
NET INCREASE..................................... 25,916,369 79,897,478
Distributions from net realized gain............... (28,296,177) (17,035,698)
Increase from transactions in shares of beneficial
interest.......................................... 111,860,026 131,283,761
-------------- --------------
NET INCREASE..................................... 109,480,218 194,145,541
NET ASSETS:
Beginning of period................................ 309,271,711 115,126,170
-------------- --------------
END OF PERIOD ................................... $418,751,929 $309,271,711
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1997
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Mid-Cap Growth Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is to
seek long-term capital growth. The Fund seeks to achieve its objective by
investing primarily in domestic and foreign equity securities of "mid-cap"
companies. The Fund
was organized as a Massachusetts business trust on May 25, 1994 and commenced
operations on September 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 security is valued on the exchange designated as the primary market by
the Trustees); (2) all other portfolio securities for which over-the-counter
market quotations are readily available are valued at the latest available
bid price prior to the time of valuation; (3) when market quotations are not
readily available, including circumstances under which it is determined by
Dean Witter InterCapital Inc. (the "Investment Manager") that sale or bid
prices are not reflective of a security's market value, portfolio securities
are valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Trustees (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 (4) short-term debt securities having a maturity date of more
than sixty days at time of purchase are valued on a mark-to-market basis
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity
date of sixty days or less at the time of purchase are valued at amortized
cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Dividend income and other distributions are recorded on the
ex-dividend date
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1997, continued
except for certain dividends on 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. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the 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.
E. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $156,000 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 AGREEMENT
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 0.75% to the net assets of the Fund as of the close of each
business day. Effective May 1, 1997, the Agreement was amended to reduce the
annual rate to 0.725% of the portion of the daily net assets exceeding $500
million.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1997, continued
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services,
heat, light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted
a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act
pursuant to which the Fund pays the Distributor compensation, accrued daily
and payable monthly, at an annual rate of 1.0% of the lesser of: (a) the
average daily aggregate gross sales of the Fund's shares since the Fund's
inception (not including reinvestment of dividend or capital gain
distributions) less the average daily aggregate net asset value of the Fund's
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or upon which such charge has been waived; or
(b) the Fund's average daily net assets. Amounts paid under the Plan are paid
to the Distributor to compensate it for the services provided and the
expenses borne by it and others in the distribution of the Fund's shares,
including the payment of commissions for sales of the Fund's shares and
incentive compensation to, and expenses of, 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.
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 $12,182,108 at May 31, 1997.
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1997, continued
The Distributor has informed the Fund that for the year ended May 31, 1997,
it received approximately $731,000 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
$760,062,815 and $686,062,408 respectively. Included in the aforementioned
are purchases and sales of U.S. Government securities of $17,616,409 and
$17,606,270, respectively.
For the year ended May 31, 1997, the Fund incurred $64,885 in brokerage
commissions with DWR for portfolio transactions executed on behalf of the
Fund. At May 31, 1997, the Fund's payable for investments purchased included
unsettled trades with Morgan Stanley Inc., an affiliate of the Investment
Manager and Distributor, of $53,028.
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 $41,000.
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 21,016,632 $ 298,480,486 22,165,276 $ 297,479,183
Reinvestment of distributions 1,950,535 26,449,257 1,247,724 15,771,239
-------------- --------------- -------------- ---------------
22,967,167 324,929,743 23,413,000 313,250,422
Repurchased (15,064,395) (213,069,717) (13,590,922) (181,966,661)
-------------- --------------- -------------- ---------------
Net increase 7,902,772 $ 111,860,026 9,822,078 $ 131,283,761
============== =============== ============== ===============
</TABLE>
6. FEDERAL INCOME TAX STATUS
As of May 31, 1997, the Fund had temporary book/tax differences attributable
to capital loss deferrals on wash sales and permanent book/tax differences
attributable to a net operating loss. To reflect reclassifications arising
from the permanent differences, accumulated undistributed net realized gain
was charged and net investment loss was credited $3,745,901.
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS May 31, 1997, continued
7. 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. A
revised prospectus, which includes complete details regarding this change,
will be mailed to shareholders in the coming weeks.
<PAGE>
DEAN WITTER MID-CAP GROWTH 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 SEPTEMBER 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 ..... $15.11 $10.81 $10.00
-------------- --------------- -------------------
Net investment loss....................... (0.13) (0.10) (0.01)
Net realized and unrealized gain ........ 0.94 5.60 0.84
-------------- --------------- -------------------
Total from investment operations.......... 0.81 5.50 0.83
-------------- --------------- -------------------
Less distributions from net realized
gain..................................... (1.16) (1.20) (0.02)
-------------- --------------- -------------------
Net asset value, end of period............ $14.76 $15.11 $10.81
============== =============== ===================
TOTAL INVESTMENT RETURN+.................. 6.01% 53.02% 8.26%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................. 1.99% 2.05% 2.21%(2)
Net investment loss....................... (1.06)% (1.05)% (0.16)%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands . $418,752 $309,272 $115,126
Portfolio turnover rate................... 209% 328% 199%(1)
--
Average commission rate paid.............. $0.0592 $0.0582
</TABLE>
- ------------
* 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.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER MID-CAP GROWTH FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER MID-CAP GROWTH 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
Mid-Cap Growth 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 September 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, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
July 3, 1997
1997 FEDERAL TAX NOTICE (unaudited)
During the year ended May 31, 1997, the Fund paid to its shareholders
$.09 per share from long-term capital gains. For such period, 1.87% of
the income paid qualified for the dividends received deduction
available to corporations.
<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
Barry Fink
Vice President, Secretary and General Counsel
Kirk Balzer
Vice President
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
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
MID-CAP
GROWTH FUND
ANNUAL REPORT
MAY 31, 1997
