DEAN WITTER SHORT-TERM BOND FUND
485BPOS, 1994-06-20
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<PAGE>
   
     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 20, 1994
    
   
                                                     REGISTRATION NOS.: 33-50857
                                                                        811-7117
    
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                ----------------

                                   FORM N-1A

                             REGISTRATION STATEMENT

                       UNDER THE SECURITIES ACT OF 1933                      /X/

                        PRE-EFFECTIVE AMENDMENT NO.                          / /

   
                        POST-EFFECTIVE AMENDMENT NO. 1                       /X/
    

                                     AND/OR

              REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY

                                  ACT OF 1940                                /X/

   
                               AMENDMENT NO. 2                               /X/
    
                              -------------------

   
                        DEAN WITTER SHORT-TERM BOND FUND
    
                        (A MASSACHUSETTS BUSINESS TRUST)

               (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

                             TWO WORLD TRADE CENTER
                            NEW YORK, NEW YORK 10048

                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600

                              SHELDON CURTIS, ESQ.
                             TWO WORLD TRADE CENTER
                            NEW YORK, NEW YORK 10048
                    (NAME AND ADDRESS OF AGENT FOR SERVICE)

                                    COPY TO:
                            DAVID M. BUTOWSKY, ESQ.
                  GORDON ALTMAN BUTOWSKY WEITZEN SHALOV & WEIN
                              114 WEST 47TH STREET
                            NEW YORK, NEW YORK 10036
                              -------------------

   APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
                the effective date of the registration statement
                              -------------------

 IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)

<TABLE>
<S>            <C>
         X
        ---    immediately upon filing pursuant to paragraph (b)
        ---    on                 pursuant to paragraph (b)
        ---    60 days after filing pursuant to paragraph (a)
        ---    on (date) pursuant to paragraph (a) of rule 485
</TABLE>

   
    THE  REGISTRANT HAS REGISTERED AN INDEFINITE  NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT  OF 1933  PURSUANT TO  SECTION  (A)(1) OF  RULE 24F-2  UNDER  THE
INVESTMENT COMPANY ACT OF 1940. THE REGISTRANT FILED A RULE 24F-2 NOTICE FOR ITS
FISCAL  PERIOD ENDING APRIL 30, 1994 WITH THE SECURITIES AND EXCHANGE COMMISSION
ON JUNE 8, 1994.
    

            -------------------------------------------------------
            -------------------------------------------------------
<PAGE>
                        DEAN WITTER SHORT-TERM BOND FUND

                             CROSS-REFERENCE SHEET

                                   FORM N-1A

<TABLE>
<CAPTION>
ITEM                                                                           CAPTION
- ----------------------------------------------  ---------------------------------------------------------------------
<S>                                             <C>
PART A                                                                       PROSPECTUS
 1.  .........................................  Cover Page
 2.  .........................................  Summary of Fund Expenses; Prospectus Summary
 3.  .........................................  Performance Information
 4.  .........................................  Investment Objective and Policies; The Fund and its Management; Cover
                                                 Page; Investment Restrictions; Prospectus Summary
 5.  .........................................  The Fund and Its Management; Back Cover; Investment Objective and
                                                 Policies
 6.  .........................................  Dividends, Distributions and Taxes; Additional Information
 7.  .........................................  Purchase of Fund Shares; Shareholder Services; Redemptions and
                                                 Repurchases
 8.  .........................................  Redemptions and Repurchases; Shareholder Service;
 9.  .........................................  Not Applicable

PART B                                                           STATEMENT OF ADDITIONAL INFORMATION
10.  .........................................  Cover Page
11.  .........................................  Table of Contents
12.  .........................................  The Fund and Its Management
13.  .........................................  Investment Practices and Policies; Investment Restrictions; Portfolio
                                                 Transactions and Brokerage
14.  .........................................  The Fund and Its Management; Trustees and Officers
15.  .........................................  Trustees and Officers
16.  .........................................  The Fund and Its Management; Purchase of Fund Shares; Custodian and
                                                 Transfer Agent; Independent Accountant;
17.  .........................................  Portfolio Transactions and Brokerage
18.  .........................................  Description of Shares; Validity of Shares of Beneficial Interest
19.  .........................................  Repurchase of Fund Shares; Redemptions and Repurchases; Shareholder
                                                 Services
20.  .........................................  Dividends, Distributions and Taxes
21.  .........................................  Purchase of Fund Shares
22.  .........................................  Dividends, Distributions and Taxes
23.  .........................................  Performance Information
</TABLE>

PART C

    Information  required  to be  included  in Part  C  is set  forth  under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
               PROSPECTUS

   
               JUNE 20, 1994
    

               Dean Witter Short-Term Bond Fund (the "Fund") is a no-load,
open-end diversified management investment company whose investment objective is
to provide a high level of current income consistent with the preservation of
capital. The Fund seeks to achieve its objective by investing in a diversified
portfolio of short-term fixed-income securities with a dollar-weighted average
portfolio maturity of less than three years. (See "Investment Objective and
Policies.")

               Shares of the Fund are sold and redeemed at net asset value
without the imposition of a sales charge. In accordance with a Plan of
Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940
with Dean Witter Distributors Inc. (the "Distributor"), the Fund authorizes the
Distributor or any of its affiliates, including Dean Witter InterCapital Inc.,
to make payments, out of their own resources, for specific expenses incurred in
promoting the distribution of the Fund's shares.

   
               This Prospectus sets forth concisely the information you should
know before investing in the Fund. It should be read and retained for future
reference. Additional information about the Fund is contained in the Statement
of Additional Information, dated June 20, 1994, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page. The
Statement of Additional Information is incorporated herein by reference.
    

                               TABLE OF CONTENTS

Prospectus Summary/2
Summary of Fund Expenses/3
   
Financial Highlights/4
    
   
The Fund and its Management/4
    
   
Investment Objective and Policies/5
    
   
Risks and Portfolio Characteristics/6
    
   
Investment Restrictions/14
    
   
Purchase of Fund Shares/15
    
   
Shareholder Services/16
    
   
Redemptions and Repurchases/19
    
   
Dividends, Distributions and Taxes/20
    
   
Performance Information/21
    
   
Additional Information/21
    

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.

THESE  SECURITIES HAVE  NOT BEEN APPROVED  OR DISAPPROVED BY  THE SECURITIES AND
EXCHANGE COMMISSION OR ANY  STATE SECURITIES COMMISSION  NOR HAS THE  SECURITIES
AND  EXCHANGE  COMMISSION OR  ANY STATE  SECURITIES  COMMISSION PASSED  UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

               DEAN WITTER
               SHORT-TERM BOND FUND
               TWO WORLD TRADE CENTER
               NEW YORK, NEW YORK 10048
               (212) 392-2550 OR (800) 526-3143

               Dean Witter Distributors Inc.,
               Distributor
<PAGE>
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------

   
<TABLE>
<S>               <C>
The               The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is a
Fund              no-load, open-end, diversified management investment company investing in a diversified
                  portfolio of short-term fixed-income securities with a dollar-weighted average portfolio
                  maturity of less than three years.
Shares            Shares of beneficial interest with $0.01 par value (see page 21).
Offered
Offering          The price of the shares offered by this Prospectus is determined once daily as of 4:00 p.m., New
Price             York time, on each day that the New York Stock Exchange is open, and is equal to the net asset
                  value per share without a sales charge (see page 15).
Minimum           Minimum initial purchase, $1,000; minimum subsequent investments, $100 (see page 15).
Purchase
Investment        The investment objective of the Fund is to provide investors with a high level of current
Objective         income, consistent with the preservation of capital.
Investment        Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the Fund, and its
Manager           wholly-owned subsidiary, Dean Witter Services Company Inc., serve in various investment
                  management, advisory, management and administrative capacities to eighty-seven investment
                  companies and other portfolios with assets of approximately $70.6 billion at May 31, 1994 (see
                  page 4).
Management        The Investment Manager receives a monthly fee at the annual rate of 0.70% of the average daily
Fee               net assets (see page 4).
Dividends and     Dividends are declared daily and are payable monthly. Capital gains distributions, if any, are
Capital Gains     paid at least once a year or are retained for reinvestment by the Fund. Dividends and
Distributions     distributions are automatically invested in additional shares at net asset value unless the
                  shareholder elects to receive cash (see page 20).
Distributor       Dean Witter Distributors Inc. (the "Distributor") sells shares of the Fund through Dean Witter
and Plan of       Reynolds Inc. ("DWR") and other selected broker-dealers. The Distributor has entered into a Plan
Distribution      of Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended,
                  (the "Act") with the Fund authorizing the Distributor or any of its affiliates, including the
                  Investment Manager, to make payments, out of their own resources, for expenses incurred in
                  connection with the promotion or distribution of the Fund's shares
                  (see page 15).
Redemption        Shares are redeemable at net asset value. An account may be involuntarily redeemed if total
                  value of the account is less than $100 (see page 19).
Shareholder       Automatic Investment of Dividends and Distributions; Investment of Distributions Received in
Services          Cash; Exchange Privilege; Systematic Withdrawal Plan; EasyInvestSM; Tax-Sheltered Retirement
                  Plans (see page 16).
Risks             The prices of interest-bearing securities are, generally, inversely affected by changes in
                  interest rates and, therefore, are subject to the risk of market price fluctuations. The values
                  of fixed-income securities also may be affected by changes in the credit rating or financial
                  condition of the issuing entities. Mortgage-backed securities are subject to prepayments or
                  refinancings of the mortgage pools underlying such securities which may have an impact upon the
                  yield and the net asset value of the Fund's shares. Certain of the mortgage-backed securities in
                  which the Fund may invest have higher yields than traditional mortgage-backed securities and
                  will have concomitant greater price volatility. Asset-backed securities involve risks resulting
                  mainly from the fact that such securities do not usually contain the complete benefit of a
                  security interest in the related collateral. Certain of the high yield, high risk fixed-income
                  securities in which the Fund may invest are subject to greater risk of loss of income and
                  principal than the higher rated lower yielding fixed-income securities. The foreign securities
                  and markets in which the Fund will invest pose different and generally greater risks than those
                  risks customarily associated with domestic securities and markets including fluctuations in
                  foreign currency exchange rates, foreign tax rates and foreign exchange controls. (see page 6).
</TABLE>
    

    THE ABOVE IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS AND IN THE STATEMENT OF
                             ADDITIONAL INFORMATION.
                                       2
<PAGE>
   
SUMMARY OF FUND EXPENSES
    
- --------------------------------------------------------------------------------

   
    The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are estimated
for the fiscal year ending April 30, 1995.
    

   
<TABLE>
<S>                                                                                     <C>
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases.............................................  None
Maximum Sales Charge Imposed on Reinvested Dividends..................................  None
Deferred Sales Charge.................................................................  None
Redemption Fees.......................................................................  None
Exchange Fee..........................................................................  None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- --------------------------------------------------------------------------------------
Management Fees* (after fee waiver)...................................................  0.23%
12b-1 Fees............................................................................  None
Other Expenses* (after expense assumption)............................................  0.25%
Total Fund Operating Expenses*........................................................  0.48%
</TABLE>
    

   
    "Management  Fees", as shown above is based  upon an estimate for the fiscal
year of the Fund ending April 30, 1995. "Other Expenses" as shown above is based
upon estimated amounts of  expenses of the Fund  expected to be incurred  during
its fiscal year ending April 30, 1995.
    

   
<TABLE>
<CAPTION>
EXAMPLE                                   1 YEAR   3 YEARS
- ---------------------------------------   ------   -------
<S>                                       <C>      <C>
You would pay the following expenses on
  a $1,000 investment, assuming (1) 5%
  annual return and (2) redemption at
  the end of each time period:.........   $   5    $   16
<FN>
- ------------------------

*   The  Investment  Manager has  undertaken  to assume  all  operating expenses
    (except for any brokerage fees) and  to waive the compensation provided  for
    in  its Investment Management Agreement until such  time as the Fund has $50
    million of net assets  or until December 31,  1995, whichever occurs  first.
    Absent  fee  waiver, "Management  Fees" would  be  0.70% and  absent expense
    assumption, "Other Expenses" would be 0.45% for the fiscal year of the  Fund
    ending April 30, 1995.
</TABLE>
    

   
    THE  ABOVE  EXAMPLE SHOULD  NOT BE  CONSIDERED A  REPRESENTATION OF  PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND MAY BE MORE OR  LESS
THAN THOSE SHOWN.
    

   
    The  purpose of this  table is to  assist the investor  in understanding the
various costs and expenses that  an investor in the  Fund will bear directly  or
indirectly.  For a  more complete description  of these costs  and expenses, see
"The Fund  and Its  Management,"  "Plan of  Distribution" and  "Redemptions  and
Repurchases."
    

                                       3
<PAGE>
   
FINANCIAL HIGHLIGHTS
    
- --------------------------------------------------------------------------------

   
The  following ratios  and per  share data  for a  share of  beneficial interest
outstanding throughout  the  period  have  been  audited  by  Price  Waterhouse,
independent  accountants. The financial highlights should be read in conjunction
with the financial statements  and notes thereto and  the report of  independent
accountants  which  are contained  in the  Statement of  Additional Information.
Further information about the performance of the Fund is contained in the Fund's
Annual Report to Shareholders, which may be obtained without charge upon request
to the Fund.
    

   
<TABLE>
<CAPTION>
                                                    JANUARY 10, 1994*
                                                         THROUGH
                                                     APRIL 30, 1994
                                                    -----------------
<S>                                                 <C>
PER SHARE OPERATING PERFORMANCE:
  Net asset value, beginning of period............      $10.00
                                                    --------
    Net investment income.........................        0.21
    Net realized and unrealized loss on
     investments..................................       (0.40)
                                                    --------
  Total from investment operations................       (0.19)
  Dividends from net investment income............       (0.19)
                                                    --------
  Net asset value, end of period..................       $9.62
                                                    --------
                                                    --------
TOTAL INVESTMENT RETURN...........................       (2.01)%(1)
RATIOS/SUPPLEMENTAL DATA:
  Net assets, end of period (in thousands)........  $43,403
  Ratio of net investment income to average net
   assets.........................................        6.36% (2)(3)
  Ratio of expenses to average net assets.........        0.00% (3)
  Portfolio turnover rate.........................        9   %
<FN>
- ------------------------
*   DATE OF COMMENCEMENT OF OPERATIONS.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
(3) IF THE  FUND HAD  BORNE ALL  EXPENSES THAT  WERE ASSUMED  OR WAIVED  BY  THE
    INVESTMENT MANAGER, THE ABOVE ANNUALIZED EXPENSE RATIO WOULD HAVE BEEN 1.55%
    AND THE ABOVE ANNUALIZED NET INVESTMENT INCOME RATIO WOULD HAVE BEEN 4.81%.
</TABLE>
    

THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------

    Dean  Witter  Short-Term  Bond  Fund (the  "Fund")  is  a  no-load, open-end
diversified management  investment company.  The Fund  is a  trust of  the  type
commonly  known as a "Massachusetts business  trust" and was organized under the
laws of The Commonwealth of Massachusetts on October 22, 1993.
   
    Dean Witter InterCapital Inc. ("InterCapital" or the "Investment  Manager"),
whose address is Two World Trade Center, New York, New York 10048, is the Fund's
Investment  Manager.  The Investment  Manager, which  was incorporated  in July,
1992, is a wholly-owned  subsidiary of Dean Witter,  Discover & Co. ("DWDC"),  a
balanced  financial services organization providing  a broad range of nationally
marketed credit and investment products.
    
   
    InterCapital and its wholly-owned  subsidiary, Dean Witter Services  Company
Inc.,   serve  in  various  investment   management,  advisory,  management  and
administrative capacities to eighty-seven investment companies, thirty of  which
are listed on the New York Stock Exchange, with combined assets of approximately
$68.6 billion at May 31, 1994. The Investment Manager also manages portfolios of
pension plans, other institutions and indi-
    

                                       4
<PAGE>
   
viduals which aggregated approximately $2.0 billion at such date.
    

   
    The  Fund has  retained the  Investment Manager,  pursuant to  an Investment
Management Agreement, to  provide administrative services,  manage its  business
affairs and manage the investment of the Fund's assets, including the placing of
orders  for  the purchase  and sale  of  portfolio securities.  InterCapital has
retained Dean  Witter  Services  Company  Inc.  to  perform  the  aforementioned
administrative services to the Fund.
    

    The  Fund's Board of  Trustees reviews the various  services provided by the
Investment Manager to  ensure that  the Fund's general  investment policies  and
programs  are being  properly carried out  and that  administrative services are
being provided to the Fund in a satisfactory manner.
    As full compensation for the services  and facilities furnished to the  Fund
and  for expenses of the  Fund assumed by the  Investment Manager, the Fund pays
the Investment Manager  monthly compensation  calculated daily  by applying  the
following  annual rate of  0.70% to the  Fund's net assets  determined as of the
close of each business day.

   
    The Fund's  expenses include:  the  fee of  the Investment  Manager;  taxes;
certain  legal, transfer  agent, custodian and  auditing fees;  and printing and
other expenses relating to the Fund's operations which are not expressly assumed
by the Investment  Manager under  its Investment Management  Agreement with  the
Fund.  The Investment  Manager has undertaken  to assume  all operating expenses
(except for any brokerage fees) and  waive the compensation provided for in  its
Investment  Management Agreement until such time as  the Fund has $50 million of
net assets or until December 31, 1994, whichever occurs first.
    

INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------

    The investment objective  of the Fund  is to provide  investors with a  high
level  of  current income,  consistent with  the  preservation of  capital. This
investment objective is a fundamental policy of  the Fund and, as such, may  not
be  altered without the  approval of the  shareholders of the  Fund. There is no
assurance that the Fund will achieve its investment objective.

    The  Fund  seeks  to  achieve  its  investment  objective  by  investing  in
short-term,  fixed-income  securities with  a dollar-weighted  average portfolio
maturity of less than three years. The Fund may invest in nominally  longer-term
securities  that  have many  of the  characteristics of  shorter-term securities
which will be  deemed to have  maturities earlier than  their ultimate  maturity
dates  (E.G., securities  with demand  features). A  substantial portion  of the
Fund's  portfolio  will  consist  of  fixed-income  securities  issued  by  U.S.
corporate   issuers   and   by   the   U.S.   Government,   its   agencies   and
instrumentalities.

    Under normal market conditions, at least 65% of the Fund's total assets will
be invested in bonds (for purposes of this provision, debt securities, which had
at time  of  issuance a  maturity  of greater  than  one year,  are  defined  as
"bonds").  Furthermore, a  portion of  the Fund's  portfolio (up  to 25%  of the
Fund's total  assets)  may be  invested  in fixed-income  securities  issued  by
foreign corporate and government issuers.

    The  Fund is designed for the investor who seeks a higher yield than a money
market fund and  less fluctuation  in net asset  value than  a longer-term  bond
fund.  In addition, while an investment in the Fund is not federally insured and
there is no guarantee of  price stability (the Fund is  not a money market  fund
with  a virtually constant net asset value per share), an investment in the Fund
- -- unlike a  certificate of deposit  ("CD") --  is not frozen  for any  specific
period  of time, may be redeemed at  any time without incurring early withdrawal
penalties, and may also provide a higher yield.

    The non-governmental  debt securities  in which  the Fund  will invest  will
include:  (a) corporate debt  securities, including bonds,  notes and commercial
paper,  rated  in  the  four  highest  categories  by  a  nationally  recognized
statistical rating organization

                                       5
<PAGE>
("NRSRO")   including  Moody's  Investors  Service,   Inc.,  Standard  &  Poor's
Corporation, Duff and Phelps, Inc. and  Fitch Investors Service, Inc.; (b)  bank
obligations,  including CDs, banker's  acceptances and time  deposits, issued by
banks with a  long-term CD rating  in one of  the four highest  categories by  a
NRSRO;  and (c) investment grade  fixed-rate and adjustable rate Mortgage-Backed
and Asset-Backed securities  (see below)  of corporate  issuers. Investments  in
securities  rated  within the  four  highest rating  categories  by a  NRSRO are
considered "investment grade." However, such securities rated within the  fourth
highest  rating category  by a NRSRO  may have  speculative characteristics and,
therefore, changes in economic conditions or other circumstances are more likely
to weaken their capacity to make  principal and interest payments than would  be
the  case with  investments in  securities with  higher credit  ratings. Where a
fixed-income security is not rated by a NRSRO (as may be the case with a foreign
security)  the   Investment   Manager  will   make   a  determination   of   its
creditworthiness and may deem it to be investment grade.

    The  Fund  may also  invest in  preferred stocks  rated in  one of  the four
highest categories by a NRSRO.

    Up to 5% of the Fund's net assets may be invested in fixed-income securities
rated below investment grade. Such  lower-rated securities are considered to  be
speculative investments and, while producing higher yields than investment grade
securities,  are subject  to greater  credit risks. The  Fund does  not have any
minimum quality rating standards with respect to this portion of its  portfolio.
If an investment grade fixed-income security held by the Fund is downgraded by a
rating  agency  to a  grade below  investment  grade, the  Fund may  retain such
security in its  portfolio unless  such downgraded security,  together with  all
other  non-investment grade fixed-income securities held by the Fund constitute,
in the aggregate,  more than 5%  of the Fund's  net assets. In  such event,  the
Investment Manager will seek to sell such securities from its portfolio, as soon
as  is reasonably  practicable, in  sufficient amounts  to reduce  this total to
below 5% of its  net assets. A description  of fixed-income security ratings  is
contained in the Appendix to the Statement of Additional Information.

    The  United  States  Government securities  in  which the  Fund  will invest
include securities which are direct obligations of the United States Government,
such as United States treasury bills, and which are backed by the full faith and
credit of the United States; securities which  are backed by the full faith  and
credit  of the United States but which are obligations of a United States agency
or instrumentality  (E.G.,  obligations  of  the  Government  National  Mortgage
Association);  securities issued  by a  United States  agency or instrumentality
which has the right to borrow, to meet its obligations, from an existing line of
credit with  the  United  States  Treasury (E.G.,  obligations  of  the  Federal
National  Mortgage Association); securities issued by  a United States agency or
instrumentality which  is  backed  by  the  credit  of  the  issuing  agency  or
instrumentality  (E.G.,  obligations of  the  Federal Farm  Credit  System); and
governmentally issued mortgage-backed securities.

    In addition, as stated above,  up to 25% of the  Fund's total assets may  be
invested  in securities issued by foreign corporations and governments and their
agencies and instrumentalities.  Such securities may  be denominated in  foreign
currencies.  The principal foreign  currencies in which  such securities will be
denominated are:  the Australian  dollar; Deutsche  mark; Japanese  yen;  French
franc; British pound; Canadian dollar; Mexican peso; Swiss franc; Dutch guilder;
Austrian  schilling; Spanish Peseta; Swedish  Krona; and European Currency Unit.
The Fund will only invest  in foreign securities which are  rated by a NRSRO  as
investment  grade or which, if unrated, are  deemed by the Investment Manager to
be of investment grade creditworthiness.

   
RISKS AND PORTFOLIO CHARACTERISTICS
    

MORTGAGE-BACKED SECURITIES

    As  stated  above,  a   portion  of  the  Fund's   investments  may  be   in
Mortgage-Backed securities.
Mort-

                                       6
<PAGE>
gage-Backed  securities are securities  that directly or  indirectly represent a
participation in, or are secured by and payable from, mortgage loans secured  by
real  property.  The term  Mortgage-Backed  securities as  used  herein includes
adjustable rate mortgage  securities and  derivative mortgage  products such  as
collateralized  mortgage  obligations, stripped  Mortgage-Backed  securities and
other products described below.

    There are currently  three basic  types of  Mortgage-Backed securities:  (i)
those  issued  or guaranteed  by  the United  States  Government or  one  of its
agencies  or  instrumentalities,  such  as  the  Government  National   Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC") (securities issued by GNMA, but
not  those issued by FNMA or FHLMC, are backed by the "full faith and credit" of
the United  States); (ii)  those issued  by private  issuers that  represent  an
interest  in  or  are  collateralized by  Mortgage-Backed  securities  issued or
guaranteed  by  the  United  States  Government  or  one  of  its  agencies   or
instrumentalities;  and (iii) those issued by  private issuers that represent an
interest in or  are collateralized  by whole mortgage  loans or  Mortgage-Backed
securities  without  a  government guarantee  but  usually having  some  form of
private credit enhancement (described below).

    The Fund  will  invest  in  mortgage  pass-through  securities  representing
participation  interests in  pools of  residential mortgage  loans originated by
United States  governmental or  private lenders  and guaranteed,  to the  extent
provided  in such  securities, by  the United  States Government  or one  of its
agencies or instrumentalities. Such securities, which are ownership interests in
the underlying mortgage loans, differ  from conventional debt securities,  which
provide for periodic payment of interest in fixed amounts (usually semiannually)
and  principal  payments  at  maturity  or  on  specified  call  dates. Mortgage
pass-through securities provide for monthly  payments that are a  "pass-through"
of  the monthly interest and principal payments (including any prepayments) made
by the individual borrowers on the pooled  mortgage loans, net of any fees  paid
to  the guarantor of such securities and the servicer of the underlying mortgage
loans.

    The guaranteed mortgage  pass-through securities in  which the Fund  invests
include  those issued or  guaranteed by GNMA, FNMA  and FHLMC. GNMA certificates
are direct obligations of the  U.S. Government and, as  such, are backed by  the
"full  faith and credit"  of the United  States. FNMA is  a federally chartered,
privately owned  corporation and  FHLMC is  a corporate  instrumentality of  the
United  States. FNMA and FHLMC certificates are not backed by the full faith and
credit of the United  States but the issuing  agency or instrumentality has  the
right  to borrow, to meet its obligations,  from an existing line of credit with
the U.S. Treasury.  The U.S. Treasury  has no legal  obligation to provide  such
line of credit and may choose not to do so.

    Certificates  for  Mortgage-Backed  securities  evidence  an  interest  in a
specific pool of  mortgages. These  certificates are, in  most cases,  "modified
pass-through"  instruments, wherein the issuing agency guarantees the payment of
principal and interest on mortgages underlying the certificates, whether or  not
such amounts are collected by the issuer on the underlying mortgages.

    Private  mortgage pass-through  securities are  structured similarly  to the
GNMA, FNMA  and  FHLMC  mortgage  pass-through  securities  and  are  issued  by
originators  of  and investors  in mortgage  loans,  including savings  and loan
associations, mortgage  banks, commercial  banks, investment  banks and  special
purpose  subsidiaries of the foregoing. These securities usually are backed by a
pool of conventional fixed rate or adjustable rate mortgage loans. Since private
mortgage pass-through  securities  typically are  not  guaranteed by  an  entity
having  the credit status of GNMA, FNMA and FHLMC, such securities generally are
structured with one or more types of credit enhancement.

    The Fund may also  invest in adjustable  rate mortgage securities  ("ARMs"),
which  are  pass-through mortgage  securities  collateralized by  mortgages with
adjustable rather than fixed rates. ARMs

                                       7
<PAGE>
eligible for inclusion in a mortgage pool generally provide for a fixed  initial
mortgage  interest rate  for either  the first  three, six,  twelve or thirteen,
twenty-
four, thirty-six or longer scheduled monthly payments. Thereafter, the  interest
rates  are  subject to  periodic  adjustment based  on  changes to  a designated
benchmark index.  ARMs  contain  maximum  and minimum  rates  beyond  which  the
mortgage  interest  rate may  not vary  over  the lifetime  of the  security. In
addition, certain ARMs provide for additional limitations on the maximum  amount
by which the mortgage interest rate may adjust for any single adjustment period.
Alternatively,  certain  ARMs contain  limitations  on changes  in  the required
monthly payment. In the event  that a monthly payment  is not sufficient to  pay
the  interest  accruing on  an ARM,  any such  excess interest  is added  to the
principal balance of the mortgage loan,  which is repaid through future  monthly
payments.  If the monthly payment for such  an instrument exceeds the sum of the
interest accrued  at the  applicable mortgage  interest rate  and the  principal
payment  required at  such point to  amortize the  outstanding principal balance
over the remaining term of the loan,  the excess is utilized to reduce the  then
outstanding principal balance of the ARM.

    COLLATERALIZED  MORTGAGE OBLIGATIONS.  The Fund may invest in collateralized
mortgage obligations  or "CMOs".  CMOs are  debt obligations  collateralized  by
mortgage   loans  or  mortgage  pass-through  securities.  Typically,  CMOs  are
collateralized  by  GNMA,  FNMA,  or   FHLMC  certificates,  but  also  may   be
collateralized  by whole loans or private mortgage pass-through securities (such
collateral is  collectively  hereinafter  referred  to  as  "Mortgage  Assets").
Multiclass  pass-through securities are equity interests  in a trust composed of
Mortgage Assets. Payments of principal of  and interest on the Mortgage  Assets,
and  any reinvestment income thereon,  provide the funds to  pay debt service on
the  CMOs  or  make  scheduled  distributions  on  the  multiclass  pass-through
securities.  CMOs may be  issued by agencies or  instrumentalities of the United
States Government,  or by  private  originators of,  or investors  in,  mortgage
loans,  including  savings  and loan  associations,  mortgage  banks, commercial
banks, investment banks and special purpose subsidiaries of the foregoing.

    The issuer of  a series of  CMOs may elect  to be treated  as a Real  Estate
Mortgage  Investment  Conduit  ("REMIC"). REMICs  include  governmental  and/ or
private entities that issue a fixed pool of mortgages secured by an interest  in
real property. REMICs are similar to CMOs in that they issue multiple classes of
securities,  but  unlike  CMOs, which  are  required  to be  structured  as debt
securities, REMICs  may be  structured as  indirect ownership  interests in  the
underlying assets of the REMICs themselves. However, there are no effects on the
Fund  from investing in CMOs issued by  entities that have elected to be treated
as REMICs, and all  future references to  CMOs shall also  be deemed to  include
REMICs.  In addition,  in reliance  upon an interpretation  by the  staff of the
Securities and  Exchange Commission  with respect  to limitations  contained  in
Section  12(d) of the  Act, the Fund  may invest without  limitation in CMOs and
other Mortgage-Backed securities which are  not by definition excluded from  the
provisions  of  the Act,  and  which have  obtained  exemptive orders  from such
provisions from the Securities and Exchange Commission.

    In a CMO, a series of bonds  or certificates is issued in multiple  classes.
Each  class of CMOs, often  referred to as a "tranche",  is issued at a specific
fixed or floating coupon  rate and has a  stated maturity or final  distribution
date.  Principal prepayments  on the  Mortgage Assets may  cause the  CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates. Interest is  paid or accrues  on all classes  of the CMOs  on a  monthly,
quarterly  or  semiannual  basis. Certain  CMOs  may have  variable  or floating
interest rates and  others may be  stripped (securities which  provide only  the
principal or interest feature of the underlying security).

    The  principal of and interest on the Mortgage Assets may be allocated among
the several classes of a  CMO series in a  number of different ways.  Generally,
the  purpose of the allocation of the cash  flow of a CMO to the various classes
is to obtain a more

                                       8
<PAGE>
predictable cash flow to the individual tranches than exists with the underlying
collateral of the CMO. As a general rule, the more predictable the cash flow  is
on a CMO tranche, the lower the anticipated yield will be on that tranche at the
time  of  issuance  relative  to  prevailing  market  yields  on Mortgage-Backed
securities. As part of  the process of creating  more predictable cash flows  on
most of the tranches in a series of CMOs, one or more tranches generally must be
created  that absorb most of the volatility  in the cash flows on the underlying
mortgage  loans.  The  yields  on  these  tranches  are  generally  higher  than
prevailing markets yields on Mortgage-Backed securities with similar maturities.
As  a result of the uncertainty of the  cash flows of these tranches, the market
prices of and yield on these tranches generally are more volatile.

    The Fund may  invest up  to 10%  of its  total assets  in inverse  floaters.
Inverse  floaters  constitute a  class of  CMOs  with a  coupon rate  that moves
inversely to a designated  index, such as the  LIBOR (London Inter-Bank  Offered
Rate)  Index.  Inverse floaters  have coupon  rates that  typically change  at a
multiple of the changes of the relevant  index rate. Any rise in the index  rate
(as  a consequence of an increase in interest rates) causes a drop in the coupon
rate of an inverse floater while any  drop in the index rate causes an  increase
in  the coupon of an inverse floater.  In addition, like most other fixed-income
securities, the  value  of inverse  floaters  will decrease  as  interest  rates
increase. Inverse floaters exhibit greater price volatility than the majority of
mortgage  pass-through securities  or CMOs.  In addition,  some inverse floaters
exhibit extreme sensitivity to changes in prepayments. As a result, the yield to
maturity of an  inverse floater  is sensitive not  only to  changes in  interest
rates but also to changes in prepayment rates on the related underlying Mortgage
Assets.

    The  Fund also  may invest  in, among  other things,  parallel pay  CMOs and
Planned Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are  structured
to  provide payments of principal  on each payment date  to more than one class.
These simultaneous payments  are taken  into account in  calculating the  stated
maturity date or final distribution date of each class, which, as with other CMO
structures,  must be retired  by its stated maturity  date or final distribution
date but  may be  retired earlier.  PAC Bonds  generally require  payments of  a
specified  amount  of  principal on  each  payment  date. PAC  Bonds  always are
parallel pay CMOs with the required principal payment on such securities  having
the highest priority after interest has been paid to all classes.

    STRIPPED MORTGAGE-BACKED SECURITIES. Stripped Mortgage-Backed securities are
derivative  multiclass mortgage securities.  Stripped Mortgage-Backed securities
may be issued by agencies or instrumentalities of the United States  Government,
or by private originators of, or investors in, mortgage loans, including savings
and  loan associations, mortgage  banks, commercial banks,  investment banks and
special purpose subsidiaries of the  foregoing. Up to 15%  of the net assets  of
the Fund may be invested in Stripped Mortgage-Backed Securities.

    Stripped  Mortgage-Backed securities usually are structured with two classes
that receive different proportions of the interest and principal distribution on
a pool of Mortgage  Assets. A common type  of Stripped Mortgage-Backed  security
will  have one class  receiving some of  the interest and  most of the principal
from the  Mortgage  Assets, while  the  other class  will  receive most  of  the
interest and the remainder of the principal. In the most extreme case, one class
will  receive all of the  interest (the interest-only or  "IO" class), while the
other class receive all of the principal (the principal-only or "PO" class).  PO
classes generate income through the accretion of the deep discount at which such
securities are purchased, and, while PO classes do not receive periodic payments
of   interest,  they   receive  monthly   payments  associated   with  scheduled
amortization and principal prepayment from the Mortgage Assets underlying the PO
class. The yield to maturity on an  IO class is extremely sensitive to the  rate
of principal payments (including prepayments) on the related underlying Mortgage
Assets,  and a  rapid rate  of principal  payments may  have a  material adverse
effect on the Fund's yield to

                                       9
<PAGE>
maturity. If the underlying Mortgage Assets experience greater than  anticipated
prepayments  of  principal,  the  Fund  may fail  to  fully  recoup  its initial
investment in  these securities  even  if the  securities are  rated  investment
grade.

    The Fund may purchase Stripped Mortgage-Backed securities for income, or for
hedging   purposes  to  protect  the  Fund's  portfolio  against  interest  rate
fluctuations. For example, since an IO class  will tend to increase in value  as
interest  rates rise, it may be utilized to hedge against a decrease in value of
other fixed-income securities in a rising interest rate environment. The  Fund's
management  understands that the staff of the Securities and Exchange Commission
("SEC")  considers   privately   issued  Stripped   Mortgage-Backed   securities
representing  interest only or  principal only components  of U.S. Government or
other debt  securities to  be  illiquid securities.  The  Fund will  treat  such
securities  as illiquid so long as the  staff maintains such position. The staff
of the  SEC  also  takes  the  position that  the  determination  of  whether  a
particular  government-issued IO or PO backed  by fixed-rate mortgages is liquid
may be made under guidelines and  standards established by the Fund's  Trustees.
Such  securities may be deemed liquid if they can be disposed of promptly in the
ordinary course of  business at a  value reasonably  close to that  used in  the
calculation  of the net asset value per share. The Fund may not invest more than
15% of its net assets in illiquid securities.

    TYPES OF CREDIT ENHANCEMENT.  Mortgage-Backed securities are often backed by
a pool of assets representing the obligations of a number of different  parties.
To  lessen  the effect  of failures  by  obligors on  underlying assets  to make
payments, those securities may  contain elements of  credit support, which  fall
into two categories: (i) liquidity protection and (ii) protection against losses
resulting  from  ultimate  default  by  an  obligor  on  the  underlying assets.
Liquidity protection  refers to  the  provision of  advances, generally  by  the
entity  administering the pool of assets, to ensure that the receipt of payments
on the underlying  pool occurs in  a timely fashion.  Protection against  losses
resulting from default ensures ultimate payment of the obligations on at least a
portion  of  assets  in  the  pool.  This  protection  may  be  provided through
guarantees, insurance policies or  letters of credit obtained  by the issuer  or
sponsor from third parties, through various means of structuring the transaction
or  through  a combination  of  such approaches.  The  degree of  credit support
provided for each issue is generally based on historical information  respecting
the level of credit risk associated with the underlying assets. Delinquencies or
losses  in excess of those  anticipated could adversely affect  the return on an
investment in a security. In addition, any circumstances adversely affecting the
ability of third  parties (E.G., insurance  companies) to satisfy  any of  their
obligations with respect to any Mortgage-Backed security, such as a diminishment
of their creditworthiness, could adversely affect the value of the security. The
Fund  will not pay any fees for credit support, although the existence of credit
support may increase the price of a security.

    RISKS  OF  MORTGAGE-BACKED  SECURITIES.    Mortgage-Backed  securities  have
certain  different characteristics  than traditional debt  securities. Among the
major differences  are  that  interest  and principal  payments  are  made  more
frequently,  usually  monthly, and  that principal  may be  prepaid at  any time
because the underlying mortgage loans or  other assets generally may be  prepaid
at  any time. As a result, if the Fund purchases such a security at a premium, a
prepayment rate that  is faster  than expected  will reduce  yield to  maturity,
while  a prepayment  rate that  is slower than  expected will  have the opposite
effect of increasing  yield to  maturity. Alternatively, if  the Fund  purchases
these  securities at a discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce, yield to maturity. The  Fund
may invest a portion of its assets in derivative Mortgage-Backed securities such
as  Stripped Mortgage-Backed securities which are highly sensitive to changes in
prepayment and  interest rates.  The Investment  Manager seeks  to manage  these
risks  (and potential benefits) by investing in a variety of such securities and
through hedging techniques.

                                       10
<PAGE>
    Mortgage-Backed securities,  like  all fixed  income  securities,  generally
decrease  in value  as a  result of  increases in  interest rates.  In addition,
although generally the value of fixed-income securities increases during periods
of falling interest  rates and,  as stated  above, decreases  during periods  of
rising interest rates, as a result of prepayments and other factors, this is not
always the case with respect to Mortgage-Backed securities.

    Although  the extent of prepayments  on a pool of  mortgage loans depends on
various economic and other factors, as a general rule prepayments on fixed  rate
mortgage  loans  will increase  during a  period of  falling interest  rates and
decrease  during  a  period  of  rising  interest  rates.  Accordingly,  amounts
available  for reinvestment by the Fund are likely to be greater during a period
of declining interest rates and, as a  result, likely to be reinvested at  lower
interest  rates than during  a period of  rising interest rates. Mortgage-Backed
securities generally decrease  in value  as a  result of  increases in  interest
rates  and may  benefit less than  other fixed-income  securities from declining
interest rates because of the risk of prepayment.

    There are certain risks  associated specifically with  CMOs. CMOs issued  by
private  entities are not  U.S. Government securities and  are not guaranteed by
any government agency, although the securities  underlying a CMO may be  subject
to  a guarantee. Therefore, if  the collateral securing the  CMO, as well as any
third party credit support or guarantees,  is insufficient to make payment,  the
holder  could sustain a loss. Also, a number of different factors, including the
extent  of  prepayment  of  principal   of  the  Mortgage  Assets,  affect   the
availability  of cash for  principal payments by  the CMO issuer  on any payment
date and,  accordingly, affect  the timing  of principal  payments on  each  CMO
class. In addition, CMO classes with higher yields tend to be more volatile with
respect  to cash flow of the underlying mortgages; as a result the market prices
of a yield on these classes tend to be more volatile.

    ASSET-BACKED SECURITIES.   The Fund may  invest in Asset-Backed  securities.
Asset-Backed  securities represent the securitization techniques used to develop
Mortgage-Backed securities applied to a broad range of other assets. Through the
use of  trusts  and  special  purpose corporations,  various  types  of  assets,
primarily  automobile and  credit card  receivables and  home equity  loans, are
being  securitized   in  pass-through   structures  similar   to  the   mortgage
pass-through structures described above or in a pay-through structure similar to
the CMO structure.

    Asset-Backed  securities  involve  certain  risks  that  are  not  posed  by
Mortgage-Backed securities,  resulting mainly  from the  fact that  Asset-Backed
securities do not usually contain the complete benefit of a security interest in
the  related  collateral. For  example,  credit card  receivables  generally are
unsecured and the debtors are  entitled to the protection  of a number of  state
and  federal consumer credit laws, including  the bankruptcy laws, some of which
may reduce  the  ability to  obtain  full payment.  In  the case  of  automobile
receivables, due to various legal and economic factors, proceeds for repossessed
collateral may not always be sufficient to support payments on these securities.

    New  instruments and  variations of existing  Mortgage-Backed securities and
Asset-Backed securities continue  to be developed.  The Fund may  invest in  any
such  instruments or  variations as may  be developed, to  the extent consistent
with  its   investment  objective   and  policies   and  applicable   regulatory
requirements.

    FOREIGN  SECURITIES.   Foreign  securities  investments may  be  affected by
changes  in  currency  rates  or   exchange  control  regulations,  changes   in
governmental administration or economic or monetary policy (in the United States
and  abroad) or changed circumstances  in dealings between nations. Fluctuations
in the relative rates  of exchange between the  currencies of different  nations
will affect the value of the Fund's investments denominated in foreign currency.
Changes  in foreign  currency exchange  rates relative  to the  U.S. dollar will
affect the U.S. dollar value of  the Fund's assets denominated in that  currency
and thereby impact upon the Fund's total return on such assets.

                                       11
<PAGE>
    Foreign  currency  exchange rates  are determined  by  forces of  supply and
demand on the foreign exchange markets. These forces are themselves affected  by
the   international  balance  of  payments  and  other  economic  and  financial
conditions, government intervention,  speculation and  other factors.  Moreover,
foreign currency exchange rates may be affected by the regulatory control of the
exchanges  on which the  currencies trade. The  foreign currency transactions of
the Fund will  be conducted  on a  spot basis  or through  forward contracts  or
futures  contracts (described in  the Statement of  Additional Information). The
Fund will incur certain costs in connection with these currency transactions.

    Investments in  foreign  securities will  also  occasion risks  relating  to
political  and  economic  developments  abroad,  including  the  possibility  of
expropriations or confiscatory taxation, limitations  on the use or transfer  of
Fund   assets  and  any  effects  of   foreign  social,  economic  or  political
instability. Foreign companies are not subject to the regulatory requirements of
U.S. companies and, as  such, there may be  less publicly available  information
about  such companies. Moreover,  foreign companies are not  subject to the more
rigorous uniform  accounting, auditing  and  financial reporting  standards  and
requirements applicable to U.S. companies.

    Securities  of foreign issuers may be less liquid than comparable securities
of U.S.  issuers  and,  as such,  their  price  changes may  be  more  volatile.
Furthermore,  foreign exchanges and broker-dealers are generally subject to less
government  and   exchange  scrutiny   and   regulation  than   their   American
counterparts.  Brokerage commissions,  dealer concessions  and other transaction
costs may be higher on foreign markets than in the U.S. In addition, differences
in clearance and settlement procedures on foreign markets may occasion delays in
settlements of Fund  trades effected in  such markets. Inability  to dispose  of
portfolio securities due to settlement delays could result in losses to the Fund
due  to subsequent declines in value of such securities and the inability of the
Fund to make intended security purchases due to settlement problems could result
in a failure of  the Fund to make  potentially advantageous investments. To  the
extent  the Fund purchases Eurodollar certificates  of deposit issued by foreign
branches of domestic United States banks,  consideration will be given to  their
domestic  marketability, the  lower reserve  requirements normally  mandated for
overseas banking operations, the possible impact of interruptions in the flow of
international currency  transactions,  and future  international  political  and
economic  developments which might adversely affect  the payment of principal or
interest.

    REPURCHASE AGREEMENTS.  The Fund may enter into repurchase agreements, which
may be viewed  as a type  of secured lending  by the Fund,  and which  typically
involve  the acquisition by the Fund of debt securities from a selling financial
institution such as a bank, savings  and loan association or broker-dealer.  The
agreement provides that the Fund will sell back to the institution, and that the
institution  will  repurchase,  the  underlying  security  ("collateral")  at  a
specified price and at a fixed time  in the future, usually not more than  seven
days from the date of purchase.

    While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such  risks. These procedures include  effecting repurchase agreements only with
large,  well-capitalized  and  well-established  financial  institutions   whose
financial  condition  will be  continually monitored  by the  Investment Manager
subject to procedures established by the  Trustees of the Fund. In addition,  as
described  above,the value of the collateral underlying the repurchase agreement
will be at least equal to  the repurchase price, including any accrued  interest
earned on the repurchase agreement. In the event of a default or bankruptcy by a
selling  financial institution, the Fund will seek to liquidate such collateral.
However, the exercising of the Fund's  right to liquidate such collateral  could
involve  certain costs or delays and, to  the extent that proceeds from any sale
upon a default  of the obligation  to repurchase were  less than the  repurchase
price, the Fund could suffer a loss.

                                       12
<PAGE>
    WHEN-ISSUED  AND DELAYED DELIVERY SECURITIES  AND FORWARD COMMITMENTS.  From
time to  time,  in  the ordinary  course  of  business, the  Fund  may  purchase
securities  on a when-issued or  delayed delivery basis or  may purchase or sell
securities on a forward commitment basis. When such transactions are negotiated,
the price is fixed at the time  of the commitment, but delivery and payment  can
take place a month or more after the date of the commitment. While the Fund will
only   purchase  securities  on  a  when-issued,  delayed  delivery  or  forward
commitment basis with the  intention of acquiring the  securities, the Fund  may
sell  the securities before the settlement date,  if it is deemed advisable. The
securities so  purchased  or sold  are  subject  to market  fluctuation  and  no
interest accrues to the purchaser during this period. At the time the Fund makes
the commitment to purchase or sell securities on a when-issued, delayed delivery
or  forward  commitment basis,  it will  record  the transaction  and thereafter
reflect the value,  each day,  of such  security purchased  or, if  a sale,  the
proceeds  to be  received in  determining its  net asset  value. At  the time of
delivery of the securities, their value may be more or less than the purchase or
sale price. The Fund will also establish a segregated account with its custodian
bank in which  it will continually  maintain cash or  cash equivalents or  other
high  grade debt portfolio securities equal  in value to commitments to purchase
securities on a when-issued,  delayed delivery or  forward commitment basis.  An
increase  in the percentage  of the Fund's  assets committed to  the purchase of
securities on a when-issued,  delayed delivery or  forward commitment basis  may
increase the volatility of the Fund's net asset value.
   
    WHEN,  AS AND IF ISSUED  SECURITIES.  The Fund  may purchase securities on a
"when, as and if issued" basis under which the issuance of the security  depends
upon  the  occurrence of  a  subsequent event,  such  as approval  of  a merger,
corporate reorganization, leveraged buyout or debt restructuring. The commitment
for the purchase of any such security  will not be recognized by the Fund  until
the  Investment Manager determines that issuance of the security is probable. At
such time, the  Fund will  record the transaction  and, in  determining its  net
asset  value, will reflect  the value of  the security daily.  At such time, the
Fund will also establish a segregated  account with its custodian bank in  which
it  will continuously maintain cash or  U.S. Government securities or other high
grade debt portfolio  securities equal  in value to  recognized commitments  for
such securities. Settlement of the trade will occur within five business days of
the occurrence of the subsequent event. With respect to 75% of its total assets,
the  value  of the  Fund's commitments  to  purchase the  securities of  any one
issuer, together with the value  of all securities of  such issuer owned by  the
Fund,  may not exceed 5% of the value of the Fund's total assets at the time the
initial  commitment  to  purchase  such  securities  is  made  (see  "Investment
Restrictions").  Subject to  the foregoing  restrictions, the  Fund may purchase
securities on such  basis without limit.  An increase in  the percentage of  the
Fund's  assets committed  to the purchase  of securities  on a "when,  as and if
issued" basis may increase the volatility of its net asset value. The Investment
Manager and the Trustees  do not believe  that the net asset  value of the  Fund
will be adversely affected by its purchase of securities on such basis.
    

   
    ZERO  COUPON  SECURITIES.    A portion  of  the  U.S.  Government securities
purchased by the Fund may be  "zero coupon" Treasury securities. These are  U.S.
Treasury  bills, notes  and bonds  which have  been stripped  of their unmatured
interest coupons and receipts or  which are certificates representing  interests
in  such stripped debt  obligations and coupons.  In addition, a  portion of the
fixed-income securities purchased by such Fund may be "zero coupon"  securities.
"Zero  coupon" securities  are purchased at  a discount from  their face amount,
giving the purchaser the right to receive  their full value at maturity. A  zero
coupon  security pays no interest to its holder during its life. Its value to an
investor consists  of the  difference between  its  face value  at the  time  of
maturity  and the price for which it  was acquired, which is generally an amount
significantly less  than  its face  value  (sometimes  referred to  as  a  "deep
discount" price).
    

                                       13
<PAGE>
   
    The  interest  earned  on  such  securities  is,  implicitly,  automatically
compounded and paid out at maturity.  While such compounding at a constant  rate
eliminates  the risk of receiving lower  yields upon reinvestment of interest if
prevailing interest rates decline, the owner  of a zero coupon security will  be
unable to participate in higher yields upon reinvestment of interest received if
prevailing  interest rates  rise. For  this reason,  zero coupon  securities are
subject to substantially  greater market  price fluctuations  during periods  of
changing  prevailing interest  rates than  are comparable  debt securities which
make current distributions of interest. Current federal tax law requires that  a
holder  (such as  the Fund) of  a zero coupon  security accrue a  portion of the
discount at which the security was purchased as income each year even though the
Fund receives no interest payments in cash on the securities during the year.
    

   
    Currently, the only  U.S. Treasury  security issued without  coupons is  the
Treasury  bill. However, in the  last few years a  number of banks and brokerage
firms have  separated  ("stripped")  the  principal  portions  from  the  coupon
portions  of the U.S. Treasury  bonds and notes and  sold them separately in the
form of  receipts  or certificates  representing  undivided interests  in  these
instruments  (which instruments are generally  held by a bank  in a custodial or
trust account).
    
    Except  as  specifically  noted,  all  investment  policies  and   practices
discussed  in this Prospectus are  not fundamental policies of  the Fund and, as
such, may be changed without shareholder approval.

PORTFOLIO MANAGEMENT

   
    The Fund's portfolio  is managed by  its Investment Manager  with a view  to
achieving  its investment objective.  The Fund is  managed within InterCapital's
Corporate Bond Group, which managed approximately $1.3 billion in assets at  May
31, 1994. Rochelle G. Siegel, Senior Vice President of InterCapital and a member
of  InterCapital's  Corporate  Bond Group,  has  been designated  as  the Fund's
primary portfolio manager. Ms. Siegel has been managing portfolios comprised  of
fixed-income securities at InterCapital for over five years.
    

    Securities  purchased by the Fund are,  generally, sold by dealers acting as
principal for their own accounts. Pursuant to an order issued by the  Securities
and  Exchange Commission, the Fund may  effect principal transactions in certain
money market instruments  with DWR. In  addition, the Fund  may incur  brokerage
commissions on transactions conducted through DWR.

   
    Although  the  Fund  does not  intend  to engage  in  substantial short-term
trading, it may sell portfolio securities  without regard to the length of  time
that  they  have  been  held,  in order  to  take  advantage  of  new investment
opportunities or yield differentials,  or because the  Fund desires to  preserve
gains or limit losses due to changing economic conditions, interest rate trends,
or  the  financial condition  of the  issuer. The  Fund anticipates  a portfolio
turnover rate of no more than 100%.
    

INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------

    The investment restrictions  listed below  are among  the restrictions  that
have  been  adopted  by the  Fund  as  fundamental policies.  Under  the  Act, a
fundamental policy may  not be changed  without the  vote of a  majority of  the
outstanding voting securities of the Fund, as defined in the Act.

    The Fund may not:

        1.   As to 75% of its total assets,  invest more than 5% of the value of
    its total assets in the securities of any one issuer (other than obligations
    issued, or  guaranteed by,  the United  States Government,  its agencies  or
    instrumentalities).

        2.    As to  75% of  its total  assets,  purchase more  than 10%  of all
    outstanding voting securities or any class of securities of any one issuer.

        3.  Invest 25% or more of the value of its total assets in securities of
    issuers in any one industry. This restriction does not apply to  obligations
    issued or guaranteed by the United

                                       14
<PAGE>
    States Government or its agencies or instrumentalities.

        4.   Invest more than 5% of the  value of its total assets in securities
    of issuers having a record, together  with predecessors, of less than  three
    years   of  continuous  operation.  This  restriction  shall  not  apply  to
    Mortgage-Backed securities or Asset-Backed  securities or to any  obligation
    of the United States Government, its agencies or instrumentalities.

    If a percentage restriction is adhered to at the time of investment, a later
increase  or  decrease  in  percentage  resulting from  a  change  in  values of
portfolio securities or amount of total or  net assets will not be considered  a
violation of any of the foregoing restrictions.

PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------

    The  Fund offers it shares  for sale to the public  on a continuous basis at
the offering price without the imposition of a sales charge. The offering  price
will  be the net asset  value per share next  determined following receipt of an
order (see  "Determination of  Net  Asset Value").  Pursuant to  a  Distribution
Agreement   between   the  Fund   and   Dean  Witter   Distributors   Inc.  (the
"Distributor"), an affiliate of the Investment  Manager, shares of the Fund  are
distributed  by the Distributor and are  offered by DWR and other broker-dealers
which  have   entered   into   agreements  with   the   Distributor   ("Selected
Broker-Dealers").  The principal executive office  of the Distributor is located
at Two World Trade Center, New York, New York 10048.

    The minimum initial purchase is $1,000  and subsequent purchases of $100  or
more  may be  made by sending  a check,  payable to Dean  Witter Short-Term Bond
Fund, directly to Dean Witter Trust  Company (the "Transfer Agent") at P.O.  Box
1040,  Jersey City,  NJ 07303 or  by contacting  an account executive  of DWR or
other Selected Broker-Dealers. In the case of investments pursuant to Systematic
Payroll Deduction Plans,  the Fund,  in its discretion,  may accept  investments
without  regard to any minimum amounts which  would otherwise be required if the
Fund has  reason  to  believe  that additional  investments  will  increase  the
investment in all accounts under such Plans to at least $1,000. Certificates for
shares  purchased will not be issued unless a request is made by the shareholder
in writing to the Transfer Agent.

    Shares  of  the  Fund  are  sold  through  the  Distributor  or  a  Selected
Broker-Dealer  on a normal five business  day settlement basis; that is, payment
is due on the  fifth business day  (settlement date) after  the order is  placed
with  the Distributor or Selected Broker-Dealer. Since DWR or any other Selected
Broker-Dealer may forward investors' funds  on settlement date, it will  benefit
from  the temporary use of the funds if  payment is made prior thereto. As noted
above, orders placed  directly with the  Transfer Agent must  be accompanied  by
payment.  Investors will  be entitled to  receive dividends  or distributions if
their order is received by the close of business on the day prior to the  record
date for such dividends and distributions.

   
    Sales  personnel of a  Selected Broker-Dealer are  compensated for shares of
the Fund sold by them  by the Distributor or any  of its affiliates and/or by  a
Selected  Broker-Dealer.  In  addition,  some sales  personnel  of  the Selected
Broker-Dealer will  receive  non-cash  compensation  in the  form  of  trips  to
educational  seminars and merchandise as special  sales incentives. The Fund and
the Distributor reserve the right to reject any purchase orders.
    

PLAN OF DISTRIBUTION

    The Fund has  entered into  a Plan of  Distribution pursuant  to Rule  12b-1
under  the Act  with the  Distributor whereby  the Distributor  is authorized to
utilize its own resources or those of its affiliates, including InterCapital, to
finance certain services and activities  in connection with the distribution  of
the  Fund's shares. The principal activities  and services which may be provided
by the Distributor, DWR, its affiliates and other Selected Broker-Dealers  under
the  Plan include: (1) compensation to,  and expenses of, account executives and
other employees of DWR and other Selected Broker-Dealers, including overhead and
telephone expenses; (2)  sales incentives and  bonuses to sales  representatives
and  to marketing  personnel in  connection with  promoting sales  of the Fund's
shares; (3) expenses incurred in connection with promoting

                                       15
<PAGE>
sales of the Fund's shares; (4) preparing and distributing sales literature; and
(5) providing  advertising and  promotional  activities, including  direct  mail
solicitation   and  television,  radio,  newspaper,  magazine  and  other  media
advertisements.

DETERMINATION OF NET ASSET VALUE

    The net asset value per share of  the Fund is determined once daily at  4:00
p.m.,  New York time,  on each day that  the New York Stock  Exchange is open by
taking the value  of all assets  of the Fund,  subtracting all its  liabilities,
dividing  by the number of shares outstanding and adjusting to the nearest cent.
The net asset value per share will not be determined on Good Friday and on  such
other  federal and non-federal  holidays as are  observed by the  New York Stock
Exchange.

    In the calculation of  the Fund's net asset  value: (1) an equity  portfolio
security  listed or traded on  the New York or  American Stock Exchange or other
stock exchange is valued at its latest sale price on that exchange prior to  the
time  when assets are valued; if there were  no sales that day, the security, is
valued at the latest  bid price (in  cases where securities  are traded on  more
than  one exchange, the securities are valued  on the exchange designated as the
primary  market  by  the  Investment  Manager);  and  (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.
When  market quotations are not readily available, including circumstances under
which it is determined by 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 Fund's  Trustees. For valuation purposes,
quotations of  foreign  portfolio securities  are  translated into  U.S.  dollar
equivalents  at  the prevailing  market rates  as of  the morning  of valuation.
Dividends receivable are accrued as  of the ex-dividend date  or as of the  time
that the relevant ex-dividend date and amounts become known.

    Short-term  debt securities with remaining maturities  of sixty days or less
at the  time of  purchase are  valued  at amortized  cost, unless  the  Trustees
determine  such does  not reflect  the securities'  market value,  in which case
these securities  will  be valued  at  their fair  value  as determined  by  the
Trustees.

    Certain  of  the Fund's  portfolio securities  may be  valued by  an outside
pricing service approved by the Fund's Trustees. The pricing service utilizes  a
matrix  system  incorporating  security  quality,  maturity  and  coupon  as the
evaluation model  parameters,  and/or research  and  evaluations by  its  staff,
including  review of broker-dealer market  price quotations, in determining what
it believes is  the fair valuation  of the portfolio  securities valued by  such
pricing service.

SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------

    AUTOMATIC  INVESTMENT OF DIVIDENDS AND  DISTRIBUTIONS.  All income dividends
and capital gains distributions  are automatically paid  in full and  fractional
shares  of  the  Fund,  (or,  if  specified  by  the  shareholder,  any open-end
investment  company  for  which   InterCapital  serves  as  investment   manager
(collectively,  with the Fund, the "Dean  Witter Funds")) unless the shareholder
requests that they  be paid in  cash. Such dividends  and distributions will  be
paid in shares of the Fund at net asset value per share. At any time an investor
may  request the Transfer  Agent in writing to  have subsequent dividends and/or
capital gains distributions paid to the investor in cash rather than shares.  To
assure sufficient time to process the change, such request should be received by
the  Transfer Agent at  least five business  days prior to  the payment date for
which it commences to take effect. In the case of recently purchased shares  for
which  registration instructions have not been received on the record date, cash
payments will be made to DWR or other Selected Broker-Dealer through whom shares
were purchased.

    INVESTMENT OF DISTRIBUTIONS RECEIVED IN CASH. Any shareholder who receives a
cash payment representing a  dividend or capital  gains distribution may  invest
such  dividend  or distribution  at the  net asset  value next  determined after
receipt by the  Transfer Agent by  returning the  check or the  proceeds to  the
Transfer Agent within 30 days after the payment date.

    EASYINVEST-SM-.    Shareholders may  subscribe  to EasyInvest,  an automatic
purchase plan which
pro-

                                       16
<PAGE>
vides for any amount from $100 to $5,000 to be transferred automatically from  a
checking  or savings account, on a  semi-monthly, monthly or quarterly basis, to
the Fund's Transfer Agent for investment in shares of the Fund.

    SYSTEMATIC WITHDRAWAL PLAN.  A  systematic withdrawal plan (the  "Withdrawal
Plan")  is available  for shareholders  who own or  purchase shares  of the Fund
having a minimum value of $10,000 based  upon the then current net asset  value.
The  Withdrawal Plan provides  for monthly or  quarterly (March, June, September
and December) checks in any  dollar amount, not less than  $25, or in any  whole
percentage of the account balance, on an annualized basis.

    Shareholders  should  contact  their  DWR  or  other  Selected Broker-Dealer
account executive or the Transfer Agent for further information about any of the
above services.

    TAX-SHELTERED RETIREMENT PLANS.  Retirement  plans are available for use  by
the   self-employed,  eligible  Individual  Retirement  Accounts  and  Custodial
Accounts under Section 403(b)(7) of the Internal Revenue Code. Adoption of  such
plans  should  be  on  advice  of legal  counsel  or  tax  adviser.  For further
information regarding  plan administration,  custodial fees  and other  details,
investors  should  contact their  DWR  or other  Selected  Broker-Dealer account
executive or the Transfer Agent.

   
    EXCHANGE PRIVILEGE.   An  "Exchange Privilege",  that is,  the privilege  of
exchanging  shares of certain Dean  Witter Funds for shares  of the Fund, exists
whereby shares  of  various Dean  Witter  Funds which  are  open-end  investment
companies sold with either a front-end (at time of purchase) sales charge ("FESC
funds")  or a contingent deferred sales charge ("CDSC funds") may be redeemed at
their next calculated net asset value and the proceeds of the redemption may  be
used to purchase shares of the Fund, shares of Dean Witter Tax-Free Daily Income
Trust,  Dean Witter U.S. Government Money Market Trust, Dean Witter Liquid Asset
Fund Inc., Dean Witter  California Tax-Free Daily Income  Trust and Dean  Witter
New  York Municipal Money Market Trust  (which five funds are hereinafter called
"money market funds") and shares of  Dean Witter Short-Term U.S. Treasury  Trust
and  Dean Witter Limited Term Municipal Trust (collectively, the Fund, the money
market funds, Dean Witter Short-Term U.S. Treasury Trust and Dean Witter Limited
Term Municipal  Trust  are referred  to  herein  as the  "Exchange  Funds").  An
exchange  from an FESC fund  or a CDSC fund to  the Fund, Dean Witter Short-Term
U.S. Treasury Trust or Dean Witter Limited Term Municipal Trust is on the  basis
of the next calculated net asset value per share of each fund after the exchange
order is received. When exchanging into a money market fund from an FESC fund or
a CDSC fund, shares of the FESC fund or the CDSC fund are redeemed at their next
calculated  net asset value and exchanged for shares of the money market fund at
their net  asset  value determined  the  following business  day.  Subsequently,
shares  of the Exchange Funds received in an exchange for shares of an FESC fund
(regardless of  the type  of  fund originally  purchased)  may be  redeemed  and
exchanged  for shares  of the  other Exchange  Funds, FESC  funds or  CDSC funds
(however, shares of CDSC  funds, including shares acquired  in exchange for  (i)
shares of FESC funds or (ii) shares of the Exchange Funds which were acquired in
exchange  for shares  of FESC  funds, may  not be  exchanged for  shares of FESC
funds). Additionally, shares of the Exchange  Funds received in an exchange  for
shares  of a CDSC fund (regardless of the type of fund originally purchased) may
be redeemed and exchanged for shares of the other Exchange Funds or CDSC  funds.
Ultimately,  any applicable contingent deferred  sales charge ("CDSC") will have
to be paid upon redemption of shares originally purchased from a CDSC fund.  (If
shares of the Exchange Fund received in exchange for shares originally purchased
from  a  CDSC  fund are  exchanged  for shares  of  another CDSC  fund  having a
different CDSC  schedule than  that of  the CDSC  fund from  which the  Exchange
Funds'  shares were  acquired, the  shares will  be subject  to the  higher CDSC
schedule.) During the period of time the shares originally purchased from a CDSC
fund remain in an Exchange  Fund (calculated from the last  day of the month  in
which  the  Exchange Fund  shares were  acquired), the  holding period  (for the
purpose of  determining  the  rate of  CDSC)  is  frozen. If  those  shares  are
subsequently  reexchanged  for  shares  of  a  CDSC  fund,  the  holding  period
previously frozen when the first exchange was made
    

                                       17
<PAGE>
   
resumes on the  last day  of the  month in  which shares  of the  CDSC fund  are
reacquired.  Thus, the  CDSC is  based upon  the period  of time  (calculated as
described above)  the  shareholder  was  invested  in  a  CDSC  fund.  Exchanges
involving FESC funds or CDSC funds may be made after the shares of the FESC fund
or  CDSC fund  acquired by purchase  (not by exchange  or dividend reinvestment)
have been held  for thirty days.  There is  no waiting period  for exchanges  of
shares acquired by exchange or dividend reinvestment.
    

    Purchases  and  exchanges should  be made  for  investment purposes  only. A
pattern of frequent  exchanges may  be deemed by  the Investment  Manager to  be
abusive and contrary to the best interests of the Fund's other shareholders and,
at  the Investment Manager's discretion, may be limited by the Fund's refusal to
accept additional purchases and/  or exchanges from  the investor. Although  the
Fund  does not  have any  specific definition of  what constitutes  a pattern of
frequent exchanges,  and  will  consider all  relevant  factors  in  determining
whether  a particular situation is abusive and contrary to the best interests of
the Fund and its other shareholders, investors should be aware that the Fund and
each of the other Dean Witter Funds  may in their discretion limit or  otherwise
restrict  the number of  times this Exchange  Privilege may be  exercised by any
investor. Any such restriction will be made  by the Fund on a prospective  basis
only,  upon notice  to the  shareholder not later  than ten  days following such
shareholder's most recent exchange.

   
    The current prospectus for each  fund describes its investment  objective(s)
and  policies, and shareholders  should obtain one and  read it carefully before
investing. Exchanges are subject to  the minimum investment requirement and  any
other  conditions imposed by each fund. An  exchange will be treated for federal
income tax purposes the same  as a repurchase or  redemption of shares on  which
the  shareholder has realized  a capital gain  or loss. However,  the ability to
deduct capital losses on an exchange may be limited in situations where there is
an exchange of  shares within ninety  days after the  shares are purchased.  The
Exchange  Privilege is only available in states where an exchange may legally be
made.
    
    If DWR or another Selected Broker-Dealer is the current dealer of record and
its account  numbers  are part  of  the account  information,  shareholders  may
initiate  an exchange of shares of the Fund  for shares of any of the above Dean
Witter Funds (for which  the Exchange Privilege is  available) pursuant to  this
Exchange  Privilege by  contacting their  DWR or  other Selected  Dealer account
executive  (no  Exchange  Privilege  Authorization  Form  is  required).   Other
shareholders  (and those who are clients  of DWR or other Selected Broker-Dealer
but who wish to make exchanges  directly by writing or telephoning the  Transfer
Agent)  must complete  and forward to  the Transfer Agent  an Exchange Privilege
Authorization Form, copies of which may  be obtained from the Fund, to  initiate
an exchange. If the Authorization Form is used, exchanges may be made in writing
or  by contacting the Transfer Agent at (800) 526-3143 (toll free).The Fund will
employ reasonable procedures to confirm that exchange instructions  communicated
over  the telephone are  genuine. Such procedures  may include requiring various
forms of personal identification such as name, mailing address, social  security
or  other tax  identification number  and DWR  or other  Selected Dealer account
number (if any). Telephone instructions may also be recorded. If such procedures
are not employed, the Fund may be  liable for any losses due to unauthorized  or
fraudulent instructions.

    Telephone exchange instructions will be accepted if received by the Transfer
Agent  between 9:00 a.m. and 4:00  p.m., New York time, on  any day the New York
Stock Exchange is  open. Any  shareholder wishing to  make an  exchange who  has
previously  filed an Exchange Privilege Authorization  Form and who is unable to
reach the Fund  by telephone should  contact his  or her DWR  or other  Selected
Broker-Dealer  account  executive, if  appropriate, or  make a  written exchange
request. Shareholders are  advised that  during periods of  drastic economic  or
market  changes, it  is possible that  the telephone exchange  procedures may be
difficult to implement, although this has  not been the experience of the  other
Dean Witter Funds in the past.

    Additional  information on the above is  available from an account executive
of DWR or another Selected Broker-Dealer or from the Transfer Agent.

                                       18
<PAGE>
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------

    REDEMPTION.  Shares of the Fund can be redeemed for cash at any time at  its
respective  current net asset  value per share (without  any redemption or other
charge). If  shares  are  held  in  a  shareholder's  account  without  a  share
certificate,  a written request for redemption  is required. If certificates are
held by  the  shareholder,  the  shares may  be  redeemed  by  surrendering  the
certificates with a written request for redemption. The share certificate, or an
accompanying  stock power, and the request for redemption, must be signed by the
shareholder or shareholders exactly as  the shares are registered. Each  request
for  redemption, whether or not accompanied by a share certificate, must be sent
to the Fund's Transfer Agent at P.O  Box 983, Jersey City, NJ 07303, which  will
redeem  the shares at  their net asset  value next determined  (see "Purchase of
Fund Shares -- Determination of Net Asset Value") after it receives the request,
and certificates, if any, in good  order. Any redemption request received  after
such determination will be redeemed at the price next determined. The term "good
order" means that the share certificates, if any, and request for redemption are
properly  signed,  accompanied by  any  documentation required  by  the Transfer
Agent, and bear signature guarantees when  required by the Fund or the  Transfer
Agent.  If  redemption  is requested  by  a corporation,  partnership,  trust or
fiduciary, the Transfer  Agent may  require that written  evidence of  authority
acceptable  to  the Transfer  Agent  be submitted  before  such request  will be
accepted. A stock power may be obtained from any dealer or commercial bank.  The
Fund   may  change   the  signature   guarantee  requirements   upon  notice  to
shareholders, which may be by means of a new Prospectus.

    Whether certificates are  held by the  shareholder or shares  are held in  a
shareholder's  account, if the proceeds are to  be paid to any person other than
the record owner, or if the proceeds are to be paid to a corporation (other than
the Distributor  for the  account  of the  shareholder), partnership,  trust  or
fiduciary,  or sent to the  shareholder at an address  other than the registered
address, signature(s) must be guaranteed by an eligible guarantor acceptable  to
the  Transfer  Agent  (shareholders  should contact  the  Transfer  Agent  for a
determination as to whether a particular institution is an eligible guarantor).

    REPURCHASE.   DWR  and  other  Selected  Broker-Dealers  are  authorized  to
repurchase  shares represented by a share  certificate which is delivered to any
of their  offices.  Shares held  in  a  shareholder's account  without  a  share
certificate  may also  be repurchased by  DWR and  other Selected Broker-Dealers
upon the telephonic request of the shareholder. The repurchase price is the  net
asset  value next determined  (see "Purchase of Fund  Shares -- Determination of
Net Asset  Value") after  such repurchase  order  is received  by DWR  or  other
Selected  Broker-Dealer. Payment for shares repurchased  may be made by the Fund
to the Distributor  for the account  of the  shareholder. The offer  by DWR  and
other  Selected  Broker-Dealers to  repurchase shares  from shareholders  may be
suspended without notice by  them at any time.  In that event, shareholders  may
redeem  their shares through the Fund's Transfer  Agent as set forth above under
"Redemption."

    PAYMENT FOR SHARES REDEEMED  OR REPURCHASED.   Payment for shares  presented
for  repurchase or  redemption will  be made  by check  within seven  days after
receipt by the Transfer Agent of the certificate and/or written request in  good
order.  Such payment may be postponed or the right of redemption suspended under
unusual circumstances. If the shares to be redeemed have recently been purchased
by check, payment of the redemption proceeds may be delayed for the minimum time
needed to verify that the check used  for investment has been honored (not  more
than  fifteen days from the time of receipt of the check by the Transfer Agent).
Shareholders  maintaining  margin   accounts  with  DWR   or  another   Selected
Broker-Dealer  are referred to their account executive regarding restrictions on
redemption of shares of the Fund pledged in the margin account.

    REINSTATEMENT PRIVILEGE.   A  shareholder  who has  had  his or  her  shares
redeemed  or  repurchased and  has not  previously exercised  this reinstatement
privilege  may,  within  thirty  days  after  the  date  of  the  redemption  or
repurchase, reinstate any portion or

                                       19
<PAGE>
all  of the proceeds of  such redemption or repurchase in  shares of the Fund at
net asset value next determined after a reinstatement request, together with the
proceeds, is received by the Transfer Agent.

   
    INVOLUNTARY REDEMPTION.   The Fund reserves  the right to  redeem, on  sixty
days'  notice and at net  asset value, the shares (other  than shares held in an
Individual Retirement Account  or custodial account  under Section 403(b)(7)  of
the  Internal Revenue Code) of any shareholder whose shares have a value of less
than $100 as a result  of redemptions or repurchases,  or such lesser amount  as
may  be fixed by the Trustees. However,  before the Fund redeems such shares and
sends the proceeds to the shareholder,  it will notify the shareholder that  the
value  of the shares is  less than $100 and allow  the shareholder sixty days in
which to make  an additional  investment in an  amount which  will increase  the
value of his or her account to $100 or more before the redemption is processed.
    

DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------

    DIVIDENDS  AND DISTRIBUTIONS.   The Fund declares dividends  on each day the
New York  Stock  Exchange is  open  for  business. Such  dividends  are  payable
monthly.  The  Fund intends  to distribute  substantially all  of its  daily net
investment income on an annual basis. Dividends from net capital gains, if  any,
will be paid at least once each year.

    Shareholders  may instruct  the Transfer  Agent (in  writing) to  have their
dividends paid  out  monthly  in  cash. Processing  of  dividend  checks  begins
immediately  following the monthly payment date. Shareholders who have requested
to receive dividends in cash will normally be sent their monthly dividend  check
during the first ten days of the following month.

    TAXES.   Because the  Fund intends to  distribute all of  its net investment
income and net  short-term capital  gains to shareholders  and otherwise  remain
qualified  as a regulated investment company  under Subchapter M of the Internal
Revenue Code, it  is not  expected that  the Fund will  be required  to pay  any
federal income tax on such income and capital gains.

    Shareholders  who are  required to pay  taxes on their  income will normally
have to pay federal income taxes,  and any applicable state and/or local  income
taxes,  on  the dividends  and distributions  they receive  from the  Fund. Such
dividends  and  distributions,  to  the  extent  that  they  are  derived   from
net  investment  income and  net short-term  capital gains,  are taxable  to the
shareholder as ordinary  dividend income regardless  of whether the  shareholder
receives  such  distributions in  additional shares  or  in cash.  Any dividends
declared in  the  last quarter  of  any calendar  year  which are  paid  in  the
following  year prior to  February 1 will  be deemed, for  tax purposes, to have
been received by the shareholder in the prior year.

    Distributions of  net  long-term  capital  gains, if  any,  are  taxable  to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional  shares or  in cash. It  is not  anticipated that any  portion of the
Fund's distributions will be  eligible for the  dividends received deduction  to
corporate shareholders.

    After  the  end  of  the  calendar  year,  shareholders  will  be  sent full
information on their dividends and capital gains distributions for tax purposes,
including information  as to  the portion  taxable as  ordinary income  and  the
portion taxable as long-term capital gains.

    To  avoid being subject to  a 31% federal backup  withholding tax on taxable
dividends, capital  gains  distributions and  the  proceeds of  redemptions  and
repurchases, shareholders' taxpayer identification numbers must be furnished and
certified  as to their accuracy. Shareholders  who are not citizens or residents
of, or entities organized  in, the United States  may be subject to  withholding
taxes of up to 30% on certain payments received from the Fund.

    The   foregoing  discussion  relates  solely   to  the  federal  income  tax
consequences of an investment in the Fund. Distributions may also be subject  to
state  and local taxes; therefore, each shareholder is advised to consult his or
her own tax adviser.

                                       20
<PAGE>
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

    From time to time the Fund may  quote its "yield" and/or its "total  return"
in  advertisements and sales literature. Both the  yield and the total return of
the Fund  are based  on historical  earnings and  are not  intended to  indicate
future  performance.  The yield  of the  Fund  is computed  by dividing  the net
investment income of the Fund  over a 30-day period  by an average value  (using
the  average number of  shares entitled to  receive dividends and  the net asset
value per share at  the end of  the period), all  in accordance with  applicable
regulatory  requirements.  Such amount  is compounded  for  six months  and then
annualized for a twelve-month period to derive the yield of the Fund.

    From time to time  the Fund may quote  its "total return" in  advertisements
and  sales  literature. The  total return  of  the Fund  is based  on historical
earnings and is not intended to indicate future performance. The "average annual
total return" of the Fund refers  to a figure reflecting the average  annualized
percentage  increase (or decrease) in the value  of an initial investment in the
Fund of $1,000 over the life of  the Fund. Average annual total return  reflects
all  income earned by the  Fund, any appreciation or  depreciation of the Fund's
assets, all expenses incurred by the Fund  and any sales charges which would  be
incurred by redeeming shareholders, for the period. It also assumes reinvestment
of all dividends and distributions paid by the Fund.

    In  addition to the foregoing, the Fund  may advertise its total return over
different periods of time  by means of aggregate,  average, and year-by-year  or
other  types of total return figures. The  Fund may also advertise the growth of
hypothetical investments of $10,000, $50,000 and $100,000 in shares of the Fund.
The Fund  from time  to time  may  also advertise  its performance  relative  to
certain  performance rankings and indexes  compiled by independent organizations
(such as mutual fund performance rankings of Lipper Analytical Services, Inc.).

ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------

    VOTING RIGHTS.  All shares of beneficial  interest of the Fund are of  $0.01
par  value and are equal as to earnings, assets and voting privileges. There are
no conversion,  pre-emptive  or  other  subscription rights.  In  the  event  of
liquidation,  each share of beneficial  interest of the Fund  is entitled to its
portion of all of the Fund's assets after all debts and expenses have been paid.
The shares do not have cumulative voting rights.

    The Fund is  not required  to hold Annual  Meetings of  Shareholders and  in
ordinary  circumstances  the Fund  does not  intend to  hold such  meetings. The
Trustees may call  Special Meetings  of Shareholders for  action by  shareholder
vote  as may be required  by the Act or the  Declaration of Trust. Under certain
circumstances the Trustees may be  removed by action of  the Trustees or by  the
shareholders.

    Under Massachusetts law, shareholders of a business trust may, under certain
circumstances,  be held  personally liable  as partners  for obligations  of the
Fund. However,  the  Declaration of  Trust  contains an  express  disclaimer  of
shareholder  liability for acts  or obligations of the  Fund, requires that Fund
obligations include  such  disclaimer,  and  provides  for  indemnification  and
reimbursement  of expenses out  of the Fund's property  for any shareholder held
personally liable  for  the  obligations  of  the Fund.  Thus,  the  risk  of  a
shareholder  incurring  financial loss  on account  of shareholder  liability is
limited to circumstances in which  the Fund itself would  be unable to meet  its
obligations.  Given the above limitations on shareholder personal liability, and
the nature of the Fund's assets and operations, in the opinion of  Massachusetts
counsel to the Fund, the risk to shareholders of personal liability is remote.

   
    SHAREHOLDER  INQUIRIES.  All inquiries regarding the Fund should be directed
to the Fund at the telephone number or  address set forth on the front cover  of
this Prospectus.
    

                                       21
<PAGE>
                        THE DEAN WITTER FAMILY OF FUNDS

   
<TABLE>
<S>                                                       <C>
MONEY MARKET FUNDS                                        DEAN WITTER RETIREMENT SERIES
Dean Witter Liquid Asset Fund Inc.                        Liquid Asset Series
Dean Witter U.S. Government Money Market Trust            U.S. Government Money Market Series
Dean Witter Tax-Free Daily Income Trust                   U.S. Government Securities Series
Dean Witter California Tax-Free Daily Income Trust        Intermediate Income Securities Series
Dean Witter New York Municipal Money Market Trust         American Value Series
EQUITY FUNDS                                              Capital Growth Series
Dean Witter American Value Fund                           Dividend Growth Series
Dean Witter Natural Resource Development Securities Inc.  Strategist Series
Dean Witter Dividend Growth Securities Inc.               Utilities Series
Dean Witter Developing Growth Securities Trust            Value-Added Market Series
Dean Witter World Wide Investment Trust                   Global Equity Series
Dean Witter Value-Added Market Series                     ASSET ALLOCATION FUNDS
Dean Witter Utilities Fund                                Dean Witter Managed Assets Trust
Dean Witter Capital Growth Securities                     Dean Witter Strategist Fund
Dean Witter European Growth Fund Inc.                     ACTIVE ASSETS ACCOUNT PROGRAM
Dean Witter Precious Metals and Minerals Trust            Active Assets Money Trust
Dean Witter Pacific Growth Fund Inc.                      Active Assets Tax-Free Trust
Dean Witter Health Sciences Trust                         Active Assets Government Securities
Dean Witter Global Dividend Growth Securities             Trust
Dean Witter Global Utilities Fund                         Active Assets California Tax-Free Trust
Dean Witter International SmallCap Fund
FIXED-INCOME FUNDS
Dean Witter High Yield Securities Inc.
Dean Witter Tax-Exempt Securities Trust
Dean Witter U.S. Government Securities Trust
Dean Witter California Tax-Free Income Fund
Dean Witter New York Tax-Free Income Fund
Dean Witter Convertible Securities Trust
Dean Witter Federal Securities Trust
Dean Witter World Wide Income Trust
Dean Witter Intermediate Income Securities
Dean Witter Global Short-Term Income Fund Inc.
Dean Witter Multi-State Municipal Series Trust
Dean Witter Short-Term U.S. Treasury Trust
Dean Witter Premier Income Trust
Dean Witter Diversified Income Trust
Dean Witter Limited Term Municipal Trust
Dean Witter Short-Term Bond Fund
Dean Witter High Income Securities
Dean Witter National Municipal Trust
</TABLE>
    
<PAGE>

   
<TABLE>
<S>                                                   <C>
TRUSTEES                                              Dean Witter
Jack F. Bennett                                       Short-Term
Michael Bozic                                         Bond Fund
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. John E. Jeuck
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
Edward R. Telling
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
Peter M. Avelar
Vice President
Rajesh K. Gupta
Vice President
Rochelle G. Siegel
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
110 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Dean Witter Trust Company
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
</TABLE>
    

   
                                                     Prospectus -- June 20, 1994
    
<PAGE>

<TABLE>
<S>                          <C>
STATEMENT OF ADDITIONAL        DEAN WITTER
INFORMATION                     SHORT-TERM
JUNE 20, 1994                    BOND FUND
</TABLE>

- --------------------------------------------------

    Dean  Witter Short-Term  Bond Fund (the  "Fund") is  an open-end diversified
management investment company whose  investment objective is  to provide a  high
level  of current income  consistent with the preservation  of capital. The Fund
seeks to  achieve its  objective  by investing  in  a diversified  portfolio  of
short-term  fixed-income  securities, with  a dollar-weighted  average portfolio
maturity of less than three years. (See "Investment Objective and Policies").

   
    A Prospectus for  the Fund  dated June 20,  1994, which  provides the  basic
information  you  should know  before  investing in  the  Fund, may  be obtained
without charge from the Fund at its address or telephone number listed below  or
from  the Fund's Distributor, Dean Witter Distributors Inc., or from Dean Witter
Reynolds Inc.  at  any of  its  branch  offices. This  Statement  of  Additional
Information is not a Prospectus. It contains information in addition to and more
detailed  than  that set  forth in  the  Prospectus. It  is intended  to provide
additional information regarding the activities and operations of the Fund,  and
should be read in conjunction with the Prospectus.
    

Dean Witter
Short-Term Bond Fund
Two World Trade Center
New York, New York 10048
(212) 392-2550
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------

   
<TABLE>
<S>                                                                                      <C>
The Fund and Its Management............................................................          3
Trustees and Officers..................................................................          6
Investment Practices and Policies......................................................          9
Investment Restrictions................................................................         24
Portfolio Transactions and Brokerage...................................................         25
Purchase of Fund Shares................................................................         26
Shareholder Services...................................................................         28
Redemptions and Repurchases............................................................         33
Dividends, Distributions and Taxes.....................................................         33
Performance Information................................................................         36
Description of Shares..................................................................         36
Custodian and Transfer Agent...........................................................         37
Independent Accountants................................................................         37
Reports to Shareholders................................................................         38
Legal Counsel..........................................................................         38
Experts................................................................................         38
Registration Statement.................................................................         38
Financial Statements...................................................................         39
Report of Independent Accountants......................................................         47
Appendix...............................................................................         48
</TABLE>
    

                                       2
<PAGE>
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------

THE FUND

    The  Fund is a trust of the type commonly known as a "Massachusetts business
trust" and was organized under the laws of the Commonwealth of Massachusetts  on
October 22, 1993.

THE INVESTMENT MANAGER

   
    Dean  Witter InterCapital Inc. (the "Investment Manager" or "InterCapital"),
whose address is Two World Trade Center, New York, New York 10048, is the Fund's
Investment Manager. InterCapital  is a wholly-owned  subsidiary of Dean  Witter,
Discover  & Co. ("DWDC"), a Delaware  corporation. In an internal reorganization
which  took  place  in  January,   1993,  InterCapital  assumed  the   advisory,
administrative   and   management   activities  previously   performed   by  the
InterCapital Division  of Dean  Witter Reynolds  Inc. ("DWR"),  a  broker-dealer
affiliate  of InterCapital. (As hereinafter used in this Statement of Additional
Information, the terms  "InterCapital" and "Investment  Manager" refer to  DWR's
InterCapital  Division prior to  the internal reorganization  and to Dean Witter
InterCapital Inc. thereafter.) The daily management of the Fund is conducted  by
or  under the direction of  officers of the Fund  and of the Investment Manager,
subject to review of investments by  the Fund's Trustees. In addition,  Trustees
of  the  Fund provide  guidance on  economic factors  and interest  rate trends.
Information as to  these Trustees and  Officers is contained  under the  caption
"Trustees and Officers".
    

   
    The Investment Manager is also the investment manager (or investment adviser
and  administrator)  of the  following  management investment  companies: Active
Assets Money  Trust,  Active Assets  Tax-Free  Trust, Active  Assets  California
Tax-Free  Trust, Active Assets  Government Securities Trust,  Dean Witter Liquid
Asset Fund Inc.,  InterCapital Income Securities  Inc., InterCapital  California
Insured  Municipal Income  Trust, InterCapital  Insured Municipal  Income Trust,
Dean Witter High Yield Securities Inc., Dean Witter Tax-Free Daily Income Trust,
Dean  Witter  Developing  Growth   Securities  Trust,  Dean  Witter   Tax-Exempt
Securities Trust, Dean Witter Natural Resource Development Securities Inc., Dean
Witter  Dividend Growth Securities  Inc., Dean Witter  American Value Fund, Dean
Witter U.S.  Government  Money Market  Trust,  Dean Witter  Variable  Investment
Series,  Dean Witter World  Wide Investment Trust,  Dean Witter Select Municipal
Reinvestment Fund, Dean  Witter U.S.  Government Securities  Trust, Dean  Witter
California  Tax-Free Income Fund,  Dean Witter Equity  Income Trust, Dean Witter
New York Tax-Free Income  Fund, Dean Witter  Convertible Securities Trust,  Dean
Witter  Federal Securities  Trust, Dean  Witter Value-Added  Market Series, High
Income Advantage Trust, High  Income Advantage Trust  II, High Income  Advantage
Trust  III, Dean Witter Government  Income Trust, InterCapital Insured Municipal
Bond  Trust,  InterCapital  Quality  Municipal  Investment  Trust,  Dean  Witter
Utilities  Fund, Dean Witter Strategist Fund,  Dean Witter Managed Assets Trust,
Dean Witter  California Tax-Free  Daily  Income Trust,  Dean Witter  World  Wide
Income  Trust, Dean Witter  Intermediate Income Securities,  Dean Witter Capital
Growth Securities, Dean Witter European  Growth Fund Inc., Dean Witter  Precious
Metals  and Minerals Trust,  Dean Witter New York  Municipal Money Market Trust,
Dean Witter Global Short-Term Income Fund Inc., Dean Witter Pacific Growth  Fund
Inc.,  Dean Witter  Premier Income Trust,  Dean Witter  Short-Term U.S. Treasury
Trust, InterCapital  Insured  Municipal Trust,  InterCapital  Quality  Municipal
Income  Trust, Dean Witter Diversified Income Trust, Dean Witter Health Sciences
Trust, Dean  Witter  Global  Dividend Growth  Securities,  InterCapital  Insured
Municipal Securities, InterCapital Insured California Municipal Securities, Dean
Witter  Short-Term Bond  Fund, Dean  Witter Global  Utilities Fund,  Dean Witter
National Municipal  Trust,  Dean  Witter High  Income  Securities,  Dean  Witter
International   SmallCap   Fund,  InterCapital   California   Quality  Municipal
Securities, InterCapital  Quality Municipal  Securities, InterCapital  New  York
Quality  Municipal Securities,  Dean Witter  Limited Term  Municipal Trust, Dean
Witter Retirement Series,  Municipal Income  Trust, Municipal  Income Trust  II,
Municipal  Income  Trust III,  Municipal  Income Opportunities  Trust, Municipal
Income Opportunities Trust II, Municipal  Income Opportunities Trust III,  Prime
Income  Trust  and  Municipal  Premium Income  Trust.  The  foregoing investment
companies, together with  the Fund,  are collectively  referred to  as the  Dean
Witter  Funds. In  addition, Dean Witter  Services Company  Inc., a wholly-owned
subsidiary of  InterCapital  serves  as manager  for  the  following  investment
companies,  for  which TCW  Funds Management,  Inc.  is the  investment adviser:
TCW/DW Core Equity Trust, TCW/DW North American Government Income Trust,  TCW/DW
Latin American
    

                                       3
<PAGE>
   
Growth Fund, TCW/DW Term Trust 2002, TCW/DW Income and Growth Fund, TCW/DW Small
Cap  Growth Fund,  TCW/DW Term  Trust 2000,  TCW/DW Balanced  Fund, TCW/DW North
American Intermediate Income Trust, TCW/DW Emerging Markets Opportunities  Trust
and  TCW/DW Term Trust  2003 (the "TCW/DW Funds").  InterCapital also serves as:
(i) sub-adviser to Templeton Global Opportunities Trust, an open-end  investment
company;  (ii)  administrator  of The  BlackRock  Strategic Term  Trust  Inc., a
closed-end investment  company;  and  (iii)  sub-administrator  of  Mass  Mutual
Participation   Investors  and   Templeton  Global   Governments  Income  Trust,
closed-end investment companies.
    

    The Investment Manager also serves as an investment adviser for Dean  Witter
World  Wide Investment Fund,  an investment company organized  under the laws of
Luxembourg, shares of which company may not  be offered in the United States  or
purchased by American citizens outside of the United States.

    Pursuant  to an Investment  Management Agreement (the  "Agreement") with the
Investment Manager, the Fund has retained  the Investment Manager to manage  the
investment  of  the  Fund's assets,  including  the  placing of  orders  for the
purchase and sale of  portfolio securities. The  Investment Manager obtains  and
evaluates  such  information  and  advice relating  to  the  economy, securities
markets, and  specific  securities  as  it  considers  necessary  or  useful  to
continuously  manage the  assets of  the Fund  in a  manner consistent  with its
investment objective.

    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, such  office  space,  facilities,
equipment,  clerical help and bookkeeping and certain legal services as the Fund
may reasonably require in the conduct of its business, including the preparation
of prospectuses,  statements of  additional  information, proxy  statements  and
reports  required  to be  filed with  federal  and state  securities commissions
(except insofar as  the participation or  assistance of independent  accountants
and  attorneys  is,  in the  opinion  of  the Investment  Manager,  necessary or
desirable). In  addition,  the  Investment  Manager 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 service,  heat,
light, power and other utilities provided to the Fund.

   
    The Fund pays all expenses incurred in its operation. Expenses not expressly
assumed  by the Investment Manager under the  Agreement or by the distributor of
the  Fund's  shares,  Dean  Witter  Distributors  Inc.  ("Distributors"  or  the
"Distributor")  (see "Purchase of  Fund Shares") will  be paid by  the Fund. The
expenses borne by the Fund include, but are not limited to: charges and expenses
of any  registrar;  custodian, stock  transfer  and dividend  disbursing  agent;
brokerage  commissions;  taxes; engraving  and  printing of  share certificates;
registration costs of the Fund and its shares under federal and state securities
laws; the cost and expense of printing, including typesetting, and  distributing
Prospectuses   and  Statements  of  Additional   Information  of  the  Fund  and
supplements thereto to  the Fund's shareholders;  all expenses of  shareholders'
and  trustees'  meetings  and  of  preparing,  printing  and  mailing  of  proxy
statements and reports to shareholders; fees and travel expenses of trustees  or
members  of  any  advisory board  or  committee  who are  not  employees  of the
Investment Manager or  any corporate  affiliate of the  Investment Manager;  all
expenses incident to any dividend, withdrawal or redemption options; charges and
expenses  of any outside service used for pricing of the Fund's shares; fees and
expenses of  legal  counsel, including  counsel  to  the trustees  who  are  not
interested  persons  of the  Fund or  of the  Investment Manager  (not including
compensation or  expenses  of attorneys  who  are employees  of  the  Investment
Manager)  and independent accountants; membership dues of industry associations;
interest on the Fund's  borrowings; postage; insurance  premiums on property  or
personnel  (including  officers and  trustees) of  the Fund  which inure  to its
benefit; extraordinary expenses including, but not limited to, legal claims  and
liabilities  and  litigation  costs  and  any  indemnification  relating thereto
(depending upon the nature of the legal claim, liability or lawsuit), the  costs
of  litigation,  payment  of  legal  claims  or  liabilities  or indemnification
relating thereto; and all other costs of the Fund's operations.
    

   
    As full compensation for the services  and facilities furnished to the  Fund
and  expenses of the Fund  assumed by the Investment  Manager, the Fund pays the
Investment Manager monthly compensation calculated daily by applying the  annual
rate   of  0.70%  to  the  daily  net   assets  of  the  Fund.  For  the  fiscal
    

                                       4
<PAGE>
   
period January 10, 1994  (commencement of the  Fund's operations) through  April
30,  1994,  the fee  payable under  the  Agreement ($73,373)  was waived  by the
Investment Manager,  pursuant to  its undertaking  to waive  its management  fee
until the later of six months after the commencement of the Fund's operations or
until the Fund reaches $50 million in net asset size.
    
   
    Pursuant  to the Agreement, total operating expenses of the Fund are subject
to applicable limitations under rules and  regulations of states where the  Fund
is  authorized to sell its shares. Therefore, operating expenses of the Fund are
effectively subject to such limitations as the same may be amended from time  to
time.  Presently,  the most  restrictive limitation  is as  follows: If,  in any
fiscal year,  the  total operating  expenses  of  a fund,  exclusive  of  taxes,
interest,  brokerage fees, distribution fees  and extraordinary expenses (to the
extent permitted by  applicable state securities  laws and regulations),  exceed
2  1/2% of  the first $30,000,000  of average daily  net assets, 2%  of the next
$70,000,000 and 1 1/2% of any  excess over $100,000,000, the Investment  Manager
will  reimburse such fund  for the amount  of such excess.  Such amount, if any,
will be calculated  daily and  credited on  a monthly  basis. The  Fund did  not
exceed  such  limitation  for  the  period  January  10,  1994  (commencement of
operations) through April 30, 1994.
    
    The Agreement  provides that  in  the absence  of willful  misfeasance,  bad
faith, gross negligence or reckless disregard of its obligations thereunder, the
Investment Manager is not liable to the Fund or any of its investors for any act
or omission by the Investment Manager or for any losses sustained by the Fund or
its  investors. The  Agreement in no  way restricts the  Investment Manager from
acting as investment manager or adviser to others.

   
    The Investment Manager paid the organizational expenses of the Fund incurred
prior to  the  offering of  the  Fund's shares.  The  Fund agreed  to  bear  and
reimburse the Investment Manager for such expenses, which totalled approximately
$160,000. The Fund has deferred and is amortizing the reimbursed expenses on the
straight  line method over  a period not to  exceed five years  from the date of
commencement of the Fund's operations.
    

    The Agreement was initially approved by the Trustees and by InterCapital  as
the sole shareholder on December 2, 1993. The Agreement may be terminated at any
time,  without penalty, on thirty  days' notice by the  Trustees of the Fund, by
the holders of a majority of the  outstanding shares of the Fund, as defined  in
the Investment Company Act of 1940, as amended (the "Act"), or by the Investment
Manager.  The  Agreement  will  automatically  terminate  in  the  event  of its
assignment (as defined in the Act).

    Under its terms, the Agreement will continue in effect until April 30, 1995,
and will continue  from year  to year  thereafter, provided  continuance of  the
Agreement is approved at least annually by the vote of the holders of a majority
of the outstanding shares of the Fund, as defined in the Act, or by the Trustees
of the Fund; provided that in either event such continuance is approved annually
by the vote of a majority of the Trustees of the Fund who are not parties to the
Agreement or "interested persons" (as defined in the Act) of any such party (the
"Independent  Trustees"), which vote must be cast  in person at a meeting called
for the purpose of voting on such approval.

    The Fund has acknowledged that the name "Dean Witter" is a property right of
DWR. The Fund has  agreed that DWR or  its parent companies may  use, or at  any
time permit others to use, the name "Dean Witter". The Fund has also agreed that
in  the event the investment management  contract between the Investment Manager
and the Fund is terminated, or if the affiliation between the Investment Manager
and its parent companies is terminated,  the Fund will eliminate the name  "Dean
Witter"  from its name  if the Investment  Manager, DWR or  its parent companies
shall so request.

                                       5
<PAGE>
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------

    The Trustees and Executive  Officers of the  Fund, their principal  business
occupations  during the  last five  years and  their affiliations,  if any, with
InterCapital, and with the Dean Witter Funds and the TCW Funds, are shown below:

<TABLE>
<CAPTION>
         NAME, POSITION WITH FUND AND ADDRESS                  PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------  ----------------------------------------------------------
<S>                                                     <C>
Jack F. Bennett ......................................  Retired; Director  or Trustee  of the  Dean Witter  Funds;
Trustee                                                 formerly  Senior  Vice  President  and  Director  of Exxon
141 Taconic Road                                        Corporation (1975-January,  1989) and  Under Secretary  of
Greenwich, Connecticut                                  the   U.S.  Treasury  for  Monetary  Affairs  (1974-1975);
                                                        Director of  Philips  Electronics N.V.,  Tandem  Computers
                                                        Inc.  and Massachusetts Mutual Insurance Company; director
                                                        or  trustee   of  various   not-for-profit  and   business
                                                        organizations.
Michael Bozic ........................................  President  and Chief Executive Officer of Hills Department
Trustee                                                 Stores (since  May,  1991); formerly  Chairman  and  Chief
c/o Hills Stores Inc.                                   Executive   Officer   (January,  1987-August,   1990)  and
15 Dan Road                                             President   and   Chief    Operating   Officer    (August,
Canton, Massachusetts                                   1990-February,  1991)  of the  Sears Merchandise  Group of
                                                        Sears, Roebuck and  Co.; Director or  Trustee of the  Dean
                                                        Witter Funds; Director of Harley Davidson Credit Inc., the
                                                        United  Negro  College Fund  and  Domain Inc.  (home decor
                                                        retailer).
Charles A. Fiumefreddo* ..............................  Chairman,  Chief   Executive  Officer   and  Director   of
Chairman of the Board,                                  InterCapital,   Distributors  and   DWSC;  Executive  Vice
President, Chief Executive Officer                      President and  Director  of  DWR;  Chairman,  Director  or
and Trustee                                             Trustee, President and Chief Executive Officer of the Dean
Two World Trade Center                                  Witter   Funds;  Chairman,  Chief  Executive  Officer  and
New York, New York                                      Trustee of the TCW/DW Funds; Chairman and Director of Dean
                                                        Witter Trust Company ("DWTC"); Director and/or officer  of
                                                        various   DWDC   subsidiaries;  formerly   Executive  Vice
                                                        President and Director of DWDC (until February, 1993).
Edwin J. Garn ........................................  Director or  Trustee of  the Dean  Witter Funds;  formerly
Trustee                                                 United  States Senator (R-Utah)  (1974-1992) and Chairman,
2000 Eagle Gate Tower                                   Senate Banking  Committee (1980-1986);  formerly Mayor  of
Salt Lake City, Utah                                    Salt  Lake  City,  Utah  (1971-1974);  formerly Astronaut,
                                                        Space  Shuttle   Discovery  (April   12-19,  1985);   Vice
                                                        Chairman,  Huntsman  Chemical Corporation  (since January,
                                                        1993); Member of the board of various civic and charitable
                                                        organizations.
John R. Haire ........................................  Chairman of  the  Audit  Committee  and  Chairman  of  the
Trustee                                                 Committee  of  the Independent  Directors or  Trustees and
439 East 51st Street                                    Director or Trustee of the  Dean Witter Funds; Trustee  of
New York, New York                                      the  TCW/DW Funds; formerly President,  Council for Aid to
                                                        Education (1978-October,  1989)  and  Chairman  and  Chief
                                                        Executive  Officer  of Anchor  Corporation,  an Investment
                                                        Advisor  (1964-1978);  Director  of  Washington   National
                                                        Corporation (insurance) and Bowne & Co., Inc. (printing).
</TABLE>

                                       6
<PAGE>
<TABLE>
<CAPTION>
         NAME, POSITION WITH FUND AND ADDRESS                  PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------  ----------------------------------------------------------
<S>                                                     <C>
Dr. John E. Jeuck ....................................  Retired;  Director or  Trustee of  the Dean  Witter Funds;
Trustee                                                 formerly Robert Law Professor of Business  Administration,
70 East Cedar Street                                    Graduate  School of Business, University of Chicago (until
Chicago, Illinois                                       July, 1989); Business consultant.
Dr. Manuel H. Johnson ................................  Senior  Partner,  Johnson  Smick  International,  Inc.,  a
Trustee                                                 consulting firm; Koch Professor of International Economics
7521 Old Dominion Drive                                 and  Director of the  Center for Global  Market Studies at
McLean, Virginia                                        George   Mason   University   (since   September,   1990);
                                                        Co-Chairman  and a founder  of the Group  of Seven Council
                                                        (G7C),  an   international  economic   commission   (since
                                                        September,  1990); Director or Trustee  of the Dean Witter
                                                        Funds; Trustee of the TCW/DW Funds; Director of  Greenwich
                                                        Capital   Markets  Inc.   (broker-dealer);  formerly  Vice
                                                        Chairman of the Board of Governors of the Federal  Reserve
                                                        System   (February,   1986-August,  1990)   and  Assistant
                                                        Secretary of the U.S. Treasury (1982-1986).
Paul Kolton ..........................................  Director or Trustee of the Dean Witter Funds; Chairman  of
Trustee                                                 the  Audit Committee and Chairman  of the Committee of the
9 Hunting Ridge Road                                    Independent Trustees  and  Trustee of  the  TCW/DW  Funds;
Stamford, Connecticut                                   formerly  Chairman of  the Financial  Accounting Standards
                                                        Advisory Council and Chairman and Chief Executive  Officer
                                                        of  the American Stock Exchange; Director of UCC Investors
                                                        Holding Inc. (Uniroyal  Chemical Company, Inc.);  director
                                                        or trustee of various not-for-profit organizations
Michael E. Nugent ....................................  General   Partner,  Triumph   Capital,  L.P.,   a  private
Trustee                                                 investment partnership  (since April,  1988); Director  or
237 Park Avenue                                         Trustee  of the Dean  Witter Funds; Trustee  of the TCW/DW
New York, New York                                      Funds; formerly Vice President, Bankers Trust Company  and
                                                        BT  Capital  Corporation  (September,  1984-March,  1988);
                                                        Director of various business organizations.
Philip J. Purcell*....................................  Chairman of  the Board  of Directors  and Chief  Executive
Trustee                                                 Officer  of  DWDC,  DWR and  Novus  Credit  Services Inc.;
Two World Trade Center                                  Director of InterCapital, DWSC and Distributors;  Director
New York, New York                                      or  Trustee  of  the Dean  Witter  Funds;  Director and/or
                                                        officer of various DWDC subsidiaries.
John L. Schroeder.....................................  Executive Vice President and  Chief Investment Officer  of
Trustee                                                 the  Home Insurance Company (since August, 1991); Director
Northgate 3A                                            or Trustee of the Dean Witter Funds; Director of  Citizens
Alger Court                                             Utilities  Company; formerly Chairman and Chief Investment
Bronxville, New York                                    Officer of  Axe-Houghton Management  and the  Axe-Houghton
                                                        Funds  (April,  1983-June,  1991) and  President  of USF&G
                                                        Financial Services, Inc. (June 1990-June, 1991).
</TABLE>

                                       7
<PAGE>
<TABLE>
<CAPTION>
         NAME, POSITION WITH FUND AND ADDRESS                  PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------  ----------------------------------------------------------
<S>                                                     <C>
Edward R. Telling* ...................................  Retired; Director  or Trustee  of the  Dean Witter  Funds;
Trustee                                                 formerly  Chairman  of the  Board  of Directors  and Chief
Sears Tower                                             Executive Officer  (until  December, 1985)  and  President
Chicago, Illinois                                       (from   January,  1981-March,  1982   and  from  February,
                                                        1984-August, 1984)  of Sears,  Roebuck and  Co.;  formerly
                                                        Director of Sears, Roebuck and Co.
Sheldon Curtis* ......................................  Senior  Vice President and General Counsel of InterCapital
Vice President, Secretary and General Counsel           and DWSC;  Senior Vice  President  and Secretary  of  Dean
Two World Trade Center                                  Witter  Trust  Company; Senior  Vice  President, Assistant
New York, New York                                      Secretary and  Assistant General  Counsel of  Dean  Witter
                                                        Distributors Inc.; Assistant Secretary of DWDC and DWR and
                                                        Vice  President, Secretary and General Counsel of the Dean
                                                        Witter Funds and the TCW/DW Funds.
Peter M. Avelar ......................................  Senior Vice President of InterCapital (since April  1992);
Vice President                                          Vice President (since December, 1990); formerly First Vice
Two World Trade Center                                  President   of   PaineWebber   Asset   Management  (March,
New York, New York                                      1989-December, 1990).
Rajesh K. Gupta ......................................  Senior Vice President  of InterCapital  (since May  1991);
Vice President                                          Vice  President of  various Dean  Witter Funds; previously
Two World Trade Center                                  Vice President of InterCapital.
New York, New York
Rochelle G. Siegel ...................................  Senior Vice President of  InterCapital; Vice President  of
Vice President                                          various Dean Witter Funds.
Two World Trade Center
New York, New York
Thomas F. Caloia .....................................  First  Vice  President  (since  May,  1991)  and Assistant
Treasurer                                               Treasurer  (since  January   1993)  of  InterCapital   and
Two World Trade Center                                  Treasurer  of the Dean Witter  Funds and the TCW/DW Funds;
New York, New York                                      previously Vice President of InterCapital.
<FN>
- ------------------------
*     Denotes Trustees who are "interested persons"  of the Fund, as defined  in
      the Act.
</TABLE>

   
    In  addition, Robert  M. Scanlan, President  and Chief  Operating Officer of
InterCapital and DWSC,  Executive Vice  President of Distributors  and DWTC  and
Director   of  DWTC,  David  A.  Hughey,  Executive  Vice  President  and  Chief
Administrative  Officer  of  InterCapital,  DWSC,  DWTC  and  Distributors   and
additionally, Director of DWTC, Edmund C. Puckhaber, Executive Vice President of
InterCapital  are Vice  Presidents of  the Fund, and  Barry Fink  and Marilyn K.
Cranney, First Vice  Presidents and Assistant  General Counsels of  InterCapital
and  Lawrence S. Lafer, Lou Anne D.  McInnis and Ruth Rossi, Vice Presidents and
Assistant General Counsels  of InterCapital,  are Assistant  Secretaries of  the
Fund.
    

   
    The Fund pays each Trustee who is not an employee or retired employee of the
Investment Manager or an affiliated company an annual fee of $1,200 plus $50 for
each  meeting of the Trustees,  the Audit Committee, or  of the Committee of the
Independent Trustees  attended by  the  Trustee in  person  (the Fund  pays  the
Chairman  of the Audit Committee an additional annual fee of $1,000 and pays the
Chairman of the Committee of the  Independent Trustees an additional annual  fee
of  $2,400, in each case inclusive of the Committee meeting fees). The Fund also
reimburses such Trustees for travel and other out-of-pocket expenses incurred by
them in connection with  attending such meetings. Trustees  and officers of  the
Fund  who are or have  been employed by the  Investment Manager or an affiliated
company receive  no compensation  or expense  reimbursement from  the Fund.  The
Trustees, pursuant to a Board
    

                                       8
<PAGE>
   
resolution,  received no  fees and  were reimbursed  for no  expenses during the
fiscal period ended April 30, 1994.
    

INVESTMENT PRACTICES AND POLICIES
- --------------------------------------------------------------------------------

    As stated  in the  Prospectus,  the Fund  seeks  to achieve  its  investment
objective   by  investing   in  short-term,   fixed-income  securities   with  a
dollar-weighted  average  portfolio  maturity  of  less  than  three  years.  In
calculating  the maturity of certain of  the Fund's securities (E.G., securities
with a demand feature), the Fund will utilize the provisions of Rule 2a-7 of the
Act.

    The maturity of  a portfolio  instrument shall be  deemed to  be the  period
remaining (calculated from the trade date or such other date on which the Fund's
interest  in the instrument is subject to market action) until the date noted on
the face of the  instrument as the  date on which the  principal amount must  be
paid,  or in the case of an instrument  called for redemption, the date on which
the redemption payment must be made, except that:

        (1) An instrument  that is  issued or  guaranteed by  the United  States
    government  or  any agency  thereof which  has a  variable rate  of interest
    readjusted no less frequently than every 762 days shall be deemed to have  a
    maturity  equal to the  period remaining until the  next readjustment of the
    interest rate.

        (2) A  variable  rate  instrument,  the principal  amount  of  which  is
    scheduled  on the face of the instrument to  be paid in 397 calendar days or
    less shall be deemed to have a maturity equal to the period remaining  until
    the next readjustment of the interest rate.

        (3) A variable rate instrument that is subject to a demand feature shall
    be  deemed to have  a maturity equal  to the longer  of the period remaining
    until the next  readjustment of the  interest rate or  the period  remaining
    until the principal amount can be recovered through demand.

        (4) A floating rate instrument that is subject to a demand feature shall
    be  deemed  to have  a  maturity equal  to  the period  remaining  until the
    principal amount can be recovered through demand.

        (5) A repurchase agreement shall be  deemed to have a maturity equal  to
    the  period  remaining  until  the  date  on  which  the  repurchase  of the
    underlying securities is scheduled to occur, or, where no date is specified,
    but the agreement is subject to a demand, the notice period applicable to  a
    demand for the repurchase of the securities.

        (6)  A portfolio lending agreement shall be treated as having a maturity
    equal to the period remaining until the date on which the loaned  securities
    are  scheduled  to be  returned,  or where  no  date is  specified,  but the
    agreement is subject to demand, the notice period applicable to a demand for
    the return of the loaned securities.

    FORWARD FOREIGN  CURRENCY  EXCHANGE CONTRACTS.    The Fund  may  enter  into
forward  foreign currency  exchange contracts  ("forward contracts")  as a hedge
against fluctuations in future foreign exchange rates. The Fund will conduct its
foreign currency exchange transactions  either on a spot  (i.e., cash) basis  at
the  spot rate  prevailing in the  foreign currency exchange  market, or through
entering into  forward  contracts to  purchase  or sell  foreign  currencies.  A
forward  contract involves an obligation to purchase or sell a specific currency
at a future date,  which may be any  fixed number of days  from the date of  the
contract agreed upon by the parties, at a price set at the time of the contract.
These  contracts are traded  in the interbank  market conducted directly between
currency traders  (usually large,  commercial and  investment banks)  and  their
customers.  Such forward contracts will only  be entered into with United States
banks and their foreign branches or foreign banks whose assets total $1  billion
or  more.  A  forward contract  generally  has  no deposit  requirement,  and no
commissions are charged at any stage for trades.

    When management  of the  Fund believes  that the  currency of  a  particular
foreign  country may suffer  a substantial movement against  the U.S. dollar, it
may   enter    into    a    forward    contract    to    purchase    or    sell,

                                       9
<PAGE>
for  a fixed amount of dollars or other currency, the amount of foreign currency
approximating the  value of  some  or all  of  the Fund's  portfolio  securities
denominated in such foreign currency.

    The Fund will enter into forward contracts under various circumstances. When
the  Fund  enters  into  a contract  for  the  purchase or  sale  of  a security
denominated in a foreign currency, it may, for example, desire to "lock in"  the
price  of the security in U.S. dollars  or some other foreign currency which the
Fund is  temporarily  holding in  its  portfolio.  By entering  into  a  forward
contract  for  the purchase  or sale,  for a  fixed amount  of dollars  or other
currency, of the amount of foreign currency involved in the underlying  security
transactions,  the Fund will be  able to protect itself  against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar  or
other currency which is being used for the security purchase (by the Fund or the
counterparty)  and the  foreign currency  in which  the security  is denominated
during the period between the  date on which the  security is purchased or  sold
and the date on which payment is made or received.

    At  other times, when,  for example, the  Fund's Investment Manager believes
that the  currency of  a particular  foreign country  may suffer  a  substantial
decline  against the U.S.  dollar or some  other foreign currency,  the Fund may
enter into a forward contract  to sell, for a fixed  amount of dollars or  other
currency,  the amount of foreign currency approximating the value of some or all
of the Fund's securities  holdings (or securities which  the Fund has  purchased
for  its  portfolio)  denominated  in  such  foreign  currency.  Under identical
circumstances, the Fund may enter into a  forward contract to sell, for a  fixed
amount  of U.S. dollars or  other currency, an amount  of foreign currency other
than the  currency  in  which  the  securities  to  be  hedged  are  denominated
approximating the value of some or all of the portfolio securities to be hedged.
This  method  of  hedging,  called  "cross-hedging,"  will  be  selected  by the
Investment Manager when it is determined that the foreign currency in which  the
portfolio securities are denominated has insufficient liquidity or is trading at
a  discount as compared with some other  foreign currency with which it tends to
move in tandem.

    In addition,  when  the  Fund's Investment  Manager  anticipates  purchasing
securities  at  some time  in  the future,  and wishes  to  lock in  the current
exchange rate of the currency in which those securities are denominated  against
the  U.S.  dollar or  some other  foreign currency,  the Fund  may enter  into a
forward contract to purchase an amount of  currency equal to some or all of  the
value  of the anticipated purchase, for a  fixed amount of U.S. dollars or other
currency.

    The Fund will not enter into forward contracts or maintain a net exposure to
such contracts where the consummation of  the contracts would obligate the  Fund
to  deliver an amount of  foreign currency in excess of  the value of the Fund's
portfolio securities or other assets denominated in that currency. Under  normal
circumstances,  consideration  of the  prospect  for currency  parities  will be
incorporated into  the longer  term  investment decisions  made with  regard  to
overall diversification strategies. However, the management of the Fund believes
that  it  is  important to  have  the  flexibility to  enter  into  such forward
contracts when it determines that the best interests of the Fund will be served.
The Fund's custodian bank will place  cash, U.S. Government securities or  other
appropriate  liquid high  grade debt securities  in a segregated  account of the
Fund in an amount equal to the value of the Fund's total assets committed to the
consummation of forward contracts entered into under the circumstances set forth
above. If the value of the securities placed in the segregated account declines,
additional cash or securities will be placed in the account on a daily basis  so
that  the value of the  account will equal the  amount of the Fund's commitments
with respect to such contracts.

    Where, for example, the Fund is  hedging a portfolio position consisting  of
foreign  securities denominated in  a foreign currency  against adverse exchange
rate moves vis-a-vis the  U.S. dollar, at the  maturity of the forward  contract
for  delivery by the  Fund of a foreign  currency, the Fund  may either sell the
portfolio security and make delivery of  the foreign currency, or it may  retain
the  security and  terminate its contractual  obligation to  deliver the foreign
currency by purchasing an  "offsetting" contract with  the same currency  trader
obligating  it to purchase,  on the same  maturity date, the  same amount of the
foreign currency (however, the  ability of the Fund  to terminate a contract  is
contingent  upon the willingness  of the currency trader  with whom the contract
has been entered into to permit an offsetting

                                       10
<PAGE>
transaction). It  is  impossible  to  forecast the  market  value  of  portfolio
securities  at the expiration of the  contract. Accordingly, it may be necessary
for the Fund  to purchase additional  foreign currency on  the spot market  (and
bear  the expense of such purchase) if the  market value of the security is less
than the amount of foreign  currency the Fund is obligated  to deliver and if  a
decision is made to sell the security and make delivery of the foreign currency.
Conversely,  it may be necessary to sell on  the spot market some of the foreign
currency received upon the sale of the portfolio securities if its market  value
exceeds the amount of foreign currency the Fund is obligated to deliver.

    If  the Fund retains  the portfolio securities and  engages in an offsetting
transaction, the Fund will  incur a gain  or loss to the  extent that there  has
been  movement in  spot or forward  contract prices.  If the Fund  engages in an
offsetting transaction, it may subsequently enter into a new forward contract to
sell the  foreign currency.  Should  forward prices  decline during  the  period
between  the Fund's entering into  a forward contract for  the sale of a foreign
currency and the date it enters into an offsetting contract for the purchase  of
the  foreign currency, the Fund  will realize a gain to  the extent the price of
the currency it  has agreed to  sell exceeds the  price of the  currency it  has
agreed  to purchase. Should forward prices increase, the Fund will suffer a loss
to the extent the price  of the currency it has  agreed to purchase exceeds  the
price of the currency it has agreed to sell.

    If  the Fund purchases a fixed-income  security which is denominated in U.S.
dollars but which will pay  out its principal based upon  a formula tied to  the
exchange  rate between  the U.S.  dollar and  a foreign  currency, it  may hedge
against a decline  in the principal  value of  the security by  entering into  a
forward  contract to sell  an amount of  the relevant foreign  currency equal to
some or all of the principal value of the security.

    At times  when the  Fund has  written a  call option  on a  security or  the
currency  in  which it  is  denominated, it  may wish  to  enter into  a forward
contract to  purchase or  sell the  foreign currency  in which  the security  is
denominated.  A  forward contract  would,  for example,  hedge  the risk  of the
security on which a call option has been written declining in value to a greater
extent than the  value of the  premium received  for the option.  The Fund  will
maintain  with its Custodian at all  times, cash, U.S. Government securities, or
other appropriate high grade debt obligations  in a segregated account equal  in
value  to  all  forward  contract obligations  and  option  contract obligations
entered into in hedge situations such as this.

    Although the Fund values its assets daily in terms of U.S. dollars, it  does
not  intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will, however, do so from time to time, and investors should  be
aware  of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for  conversion, they do realize a  profit based on the  spread
between the prices at which they are buying and selling various currencies. Thus
a  dealer may offer  to sell a foreign  currency to the Fund  at one rate, while
offering a  lesser  rate of  exchange  should the  Fund  desire to  resell  that
currency to the dealer.

   
    In  all  of the  above  circumstances, if  the  currency in  which  the Fund
securities holdings (or anticipated portfolio securities) are denominated  rises
in  value with respect to the currency  which is being purchased (or sold), then
the Fund will have realized fewer gains  than had the Fund not entered into  the
forward  contracts.  Moreover,  the  precise matching  of  the  forward contract
amounts and the value of the securities involved will not generally be possible,
since the future value of such securities in foreign currencies will change as a
consequence of market  movements in the  value of those  securities between  the
date  the forward contract is entered into and  the date it matures. The Fund is
not required  to  enter  into  such transactions  with  regard  to  its  foreign
currency-denominated  securities and will not do so unless deemed appropriate by
the Investment  Manager.  The Fund  generally  will  not enter  into  a  forward
contract  with  a term  of greater  than one  year, although  it may  enter into
forward contracts for periods of  up to five years. The  Fund may be limited  in
its  ability to enter  into hedging transactions  involving forward contracts by
the Internal Revenue Code (the  "Code") requirements relating to  qualifications
as  a regulated investment  company (see "Dividends,  Distributions and Taxes").
The Fund has not and does
    

                                       11
<PAGE>
   
not intend to, in the foreseeable future, enter into forward contracts involving
greater than 5% of its net assets.
    

    REPURCHASE AGREEMENTS.  When cash may be  available for only a few days,  it
may  be invested by the Fund in repurchase  agreements until such time as it may
otherwise be  invested  or used  for  payments of  obligations  of the  Fund.  A
repurchase  agreement may  be viewed as  a type  of secured lending  by the Fund
which typically involves the  acquisition by the  Fund of government  securities
from  a  selling  financial  institution  such  as  a  bank,  savings  and  loan
association or broker-dealer.  The agreement  provides that the  Fund will  sell
back  to  the  institution,  and  that  the  institution  will  repurchase,  the
underlying security ("collateral") at a specified  price and at a fixed time  in
the  future, usually  not more than  seven days  from the date  of purchase. The
collateral will be  maintained in  a segregated account  and will  be marked  to
market daily to determine that the full value of the collateral, as specified in
the  agreement,  does  not  decrease below  the  repurchase  price  plus accrued
interest. If such decrease  occurs, additional collateral will  be added to  the
account  to maintain  full collateralization. In  the event  the original seller
defaults on its  obligations to  repurchase, as a  result of  its bankruptcy  or
otherwise, the Fund will seek to sell the collateral, which action could involve
costs  or delays. In such case, the  Fund's ability to dispose of the collateral
to recover its investment may be restricted or delayed.

    The Fund will, when received, accrue interest from the institution until the
time when the repurchase is to occur.  Although such date is deemed by the  Fund
to  be the maturity date of a repurchase agreement, the maturities of securities
subject to repurchase agreements  are not subject to  any limits and may  exceed
one year.

    When  repurchase agreements involve certain risks not associated with direct
investments in  debt  securities,  each  Fund  follows  procedures  designed  to
minimize  such risks. Repurchase agreements will  be transacted only with large,
well-capitalized and  well-established  financial institutions  whose  financial
condition  will be continuously  monitored by the  Investment Manager subject to
procedures established by  the Trustees.  The procedures also  require that  the
collateral underlying the agreement be specified.

    WHEN-ISSUED  AND DELAYED  DELIVERY SECURITIES  AND FORWARD  COMMITMENTS.  As
discussed in  the Prospectus,  from time  to  time, in  the ordinary  course  of
business,  the Fund may purchase securities on a when-issued or delayed delivery
basis or may purchase  or sell securities on  a forward commitment  basis--i.e.,
delivery  and payment  can take  place a  month or  more after  the date  of the
transactions. The securities so purchased are subject to market fluctuation  and
no  interest accrues to  the purchaser during  this period. While  the Fund will
only  purchase  securities  on  a  when-issued,  delayed  delivery  or   forward
commitment  basis with the  intention of acquiring the  securities, the Fund may
sell the securities before  the settlement date, if  it is deemed advisable.  At
the  time the Fund makes the commitment  to purchase securities on a when-issued
or delayed delivery basis, the Fund  will record the transaction and  thereafter
reflect the value, each day, of such security in determining the net asset value
of the Fund. At the time of delivery of the securities, the value may be more or
less  than the purchase price. The Fund will also establish a segregated account
with the Fund's custodian  bank in which it  will continuously maintain cash  or
U.S.  Government securities or other high  grade debt portfolio securities equal
in value to  commitments for  such when-issued or  delayed delivery  securities;
subject  to this  requirement, the  Fund may  purchase securities  on such basis
without limit. An increase in the  percentage of the Fund's assets committed  to
the  purchase  of securities  on  a when-issued  or  delayed delivery  basis may
increase the volatility of  the Fund's net asset  value. The Investment  Manager
and  the Trustees do not believe that any  Fund's net asset value or income will
be adversely affected by its purchase of securities on such basis.

    REVERSE REPURCHASE  AGREEMENTS AND  DOLLAR ROLLS.   The  Fund may  also  use
reverse  repurchase  agreements  and  dollar rolls  as  part  of  its investment
strategy. Reverse repurchase agreements involve  sales by the Fund of  portfolio
assets  concurrently with an agreement by the Fund to repurchase the same assets
at a later date at a fixed price. Generally, the effect of such a transaction is
that the Fund  can recover all  or most of  the cash invested  in the  portfolio
securities  involved during the term of  the reverse repurchase agreement, while
it will be  able to  keep the interest  income associated  with those  portfolio

                                       12
<PAGE>
securities.  Such transactions are only advantageous if the interest cost to the
Fund of the reverse  repurchase transaction is less  than the cost of  obtaining
the cash otherwise.

    The  Fund may enter into dollar rolls in which the Fund sells securities for
delivery in  the  current  month  and  simultaneously  contracts  to  repurchase
substantially  similar (same type  and coupon) securities  on a specified future
date. During the roll period, the  Fund foregoes principal and interest paid  on
the  securities. The Fund  is compensated by the  difference between the current
sales price and the lower forward price for the future purchase (often  referred
to  as the "drop") as well as by the interest earned on the cash proceeds of the
initial sale.

   
    The Fund will  establish a  segregated account  with its  custodian bank  in
which  it will  maintain cash, U.S.  Government Securities or  other liquid high
grade debt obligations equal in value  to its obligations in respect of  reverse
repurchase agreements and dollar rolls. Reverse repurchase agreements and dollar
rolls  involve the  risk that  the market  value of  the securities  the Fund is
obligated to repurchase  under the  agreement may decline  below the  repurchase
price. In the event the buyer of securities under a reverse repurchase agreement
or  dollar roll  files for  bankruptcy or becomes  insolvent, the  Fund's use of
proceeds of the agreement may be restricted pending a determination by the other
party, or its trustee or receiver,  whether to enforce the Fund's obligation  to
repurchase  the securities. Reverse  repurchase agreements and  dollar rolls are
speculative techniques involving leverage, and are considered borrowings by  the
Fund.  The  Fund has  not to  date and  does  not intend  to enter  into reverse
repurchase agreements or dollar rolls in the foreseeable future.
    

    LENDING OF  PORTFOLIO SECURITIES.    Consistent with  applicable  regulatory
requirements  and subject to Investment Restriction (6) below, the Fund may lend
its portfolio securities to brokers,  dealers and other financial  institutions,
provided  that such loans are callable  at any time by the  Fund, and are at all
times secured by  cash or money  market instruments, which  are maintained in  a
segregated  account pursuant to applicable regulations  and that are equal to at
least the  market  value,  determined  daily,  of  the  loaned  securities.  The
advantage  of such loans is that the Fund continues to receive the income on the
loaned securities while at  the same time earning  interest on the cash  amounts
deposited  as collateral, which will be  invested in short-term obligations. The
Fund will not lend portfolio securities having  a value of more than 10% of  its
total assets.

    A loan may be terminated by the borrower on one business day's notice, or by
the  Fund on four  business days' notice.  If the borrower  fails to deliver the
loaned securities within four days after  receipt of notice, the Fund could  use
the  collateral to replace the securities  while holding the borrower liable for
any excess  of replacement  cost  over collateral.  As  with any  extensions  of
credit,  there are  risks of delay  in recovery and  in some cases  even loss of
rights in the collateral should the borrower of the securities fail financially.
However, these loans of portfolio securities  will only be made of firms  deemed
by  the Fund's management  to be creditworthy  and when the  income which can be
earned from such loans  justifies the attendant risks.  Upon termination of  the
loan, the borrower is required to return the securities to the Fund. Any gain or
loss in the market price during the loan period will inure to the Fund.

   
    When  voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the  policy of calling the loaned securities,  in
whole  or in part  as may be appropriate,  to be delivered  within one day after
notice, to permit the exercise of such rights if the matters involved would have
a material effect on the Fund's  investment in such loaned securities. The  Fund
will  pay reasonable finder's,  administrative and custodian  fees in connection
with a loan of its securities. The Fund  has not to date and does not intend  to
lend any of its portfolio securities in the foreseeable future.
    

    PRIVATE  PLACEMENTS.  The  Fund may invest up  to 5% of  its total assets in
securities which are  subject to restrictions  on resale because  they have  not
been  registered under  the Securities  Act of 1933  or which  are otherwise not
readily marketable.  These  securities  are generally  referred  to  as  private
placements   or  restricted  securities.  Limitations  on  the  resale  of  such
securities may have an  adverse effect on their  marketability, and may  prevent
the Fund from disposing of them promptly at reasonable prices. The Fund may have
to  bear the expense of  registering such securities for  resale and the risk of
substantial delays in effecting such registration. The above policy on  purchase
of illiquid securities may be changed by the Fund's Trustees.

                                       13
<PAGE>
   
    The  Securities and Exchange Commission has recently adopted Rule 144A under
the Securities  Act of  1933, which  will  permit the  Fund to  sell  restricted
securities to qualified institutional buyers without limitation. The Trustees of
the  Fund  have adopted  procedures  for the  Investment  Manager to  utilize in
determining the liquidity of securities which may be sold pursuant to Rule 144A.
In addition,  the  Trustees have  determined  that, where  such  securities  are
determined to be liquid under these procedures, investment in such securities by
the  Fund shall not be subject to  the 5% limitation referred to above. However,
the Fund  has  not to  date  and does  not  intend to  purchase  any  restricted
securities in the foreseeable future.
    
   
    WARRANTS.    The  Fund may  acquire  warrants  which are  attached  to other
securities in its portfolio, or which are issued as a distribution by the issuer
of a security  held in  its portfolio.  Warrants are,  in effect,  an option  to
purchase  equity securities at a specific  price, generally valid for a specific
period of time, and have no voting  rights, pay no dividends and have no  rights
with  respect to the corporation issuing them. The Fund has not to date and does
not intend to acquire any warrants in the forseeable future.
    
    CONVERTIBLE SECURITIES.  Certain of the fixed-income securities purchased by
the Fund  may  be convertible  into  common  stock of  the  issuer.  Convertible
securities  rank senior  to common stocks  in a  corporation's capital structure
and, therefore, entail less risk than the corporation's common stock. The  value
of  a convertible security is a function of its "investment value" (its value as
if it did  not have  a conversion privilege),  and its  "conversion value"  (the
security's  worth if  it were  to be exchanged  for the  underlying security, at
market value, pursuant to its conversion privilege).

   
    To the extent that a convertible security's investment value is greater than
its conversion  value,  its  price  will  be  primarily  a  reflection  of  such
investment  value and its price  will be likely to  increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other  factors may also have an effect on  the
convertible  security's value). If  the conversion value  exceeds the investment
value, the price  of the  convertible security  will rise  above its  investment
value  and, in addition,  will sell at  some premium over  its conversion value.
(This premium  represents  the  price  investors are  willing  to  pay  for  the
privilege  of purchasing a  fixed-income security with  a possibility of capital
appreciation due to the  conversion privilege.) At such  times the price of  the
convertible  security  will tend  to fluctuate  directly with  the price  of the
underlying equity security. Convertible securities may be purchased by the  Fund
at  varying price levels  above their investment  values and/or their conversion
values in keeping with the Fund's objective.  The Fund has not to date and  does
not intend to invest in any convertible securities in the foreseeable future.
    

OPTIONS AND FUTURES TRANSACTIONS

   
    The  Fund  may write  covered call  options against  securities held  in its
portfolio and covered  put options  on eligible portfolio  securities and  stock
indexes  and purchase options of the same series to effect closing transactions,
and may hedge against potential changes  in the market value of investments  (or
anticipated  investments) and facilitate  the reallocation of  the Fund's assets
into and out of equities and fixed-income securities by purchasing put and  call
options  on  portfolio  (or  eligible  portfolio)  securities  and  engaging  in
transactions involving futures contracts and options on such contracts. The Fund
may also hedge against potential changes  in the market value of the  currencies
in  which  its  investments  (or  anticipated  investments)  are  denominated by
purchasing put  and  call  options  on currencies  and  engage  in  transactions
involving currency futures contracts and options on such contracts. However, the
Fund  has not to date and  does not intend to enter  into any options or futures
transactions in the foreseeable future.
    
    Call and put  options on  U.S. Treasury notes,  bonds and  bills and  equity
securities   are  listed  on  Exchanges  and  are  written  in  over-the-counter
transactions ("OTC options"). Listed options are issued by the Options  Clearing
Corporation  ("OCC") and  other clearing  entities including  foreign exchanges.
Ownership of a listed call option gives the  Fund the right to buy from the  OCC
the  underlying security covered by the option at the stated exercise price (the
price per unit of the underlying security) by filing an exercise notice prior to
the expiration date of the option. The writer (seller) of the option would  then
have  the obligation to sell to the OCC the underlying security at that exercise
price prior to the expiration date of the option, regardless of its then current
market   price.    Ownership   of    a   listed    put   option    would    give

                                       14
<PAGE>
the  Fund the  right to sell  the underlying security  to the OCC  at the stated
exercise price. Upon notice of exercise of the put option, the writer of the put
would have the obligation  to purchase the underlying  security from the OCC  at
the exercise price.

    OPTIONS  ON TREASURY BONDS AND NOTES.  Because trading in options written on
Treasury bonds and notes tends to center on the most recently auctioned  issues,
the  exchanges on which such securities  trade will not continue indefinitely to
introduce options with new expirations to replace expiring options on particular
issues. Instead,  the  expirations introduced  at  the commencement  of  options
trading  on a  particular issue will  be allowed  to run their  course, with the
possible addition of a  limited number of new  expirations as the original  ones
expire.  Options trading on each issue of bonds or notes will thus be phased out
as new options are listed on more recent issues, and options representing a full
range of expirations will not ordinarily  be available for every issue on  which
options are traded.

    OPTIONS ON TREASURY BILLS.  Because a deliverable Treasury bill changes from
week to week, writers of Treasury bill calls cannot provide in advance for their
potential   exercise  settlement  obligations  by   acquiring  and  holding  the
underlying security. However,  if the  Fund holds  a long  position in  Treasury
bills with a principal amount of the securities deliverable upon exercise of the
option,  the position may be  hedged from a risk standpoint  by the writing of a
call option. For so long as the  call option is outstanding, the Fund will  hold
the Treasury bills in a segregated account with its Custodian, so that they will
be treated as being covered.

    OPTIONS  ON FOREIGN CURRENCIES.  The Fund  may purchase and write options on
foreign currencies  for purposes  similar to  those involved  with investing  in
forward  foreign currency exchange  contracts. For example,  in order to protect
against  declines  in  the  dollar  value  of  portfolio  securities  which  are
denominated  in a  foreign currency,  the Fund  may purchase  put options  on an
amount of such foreign currency equivalent to the current value of the portfolio
securities involved. As a result, the Fund would be enabled to sell the  foreign
currency  for a fixed  amount of U.S.  dollars, thereby "locking  in" the dollar
value of the portfolio securities (less the amount of the premiums paid for  the
options).  Conversely, the Fund may purchase  call options on foreign currencies
in which securities it  anticipates purchasing are denominated  to secure a  set
U.S. dollar price for such securities and protect against a decline in the value
of  the U.S. dollar  against such foreign  currency. The Fund  may also purchase
call and put options to close out written option positions.

    The Fund may also write call options on foreign currency to protect  against
potential  declines in its portfolio securities which are denominated in foreign
currencies. If the  U.S. dollar  value of the  portfolio securities  falls as  a
result of a decline in the exchange rate between the foreign currency in which a
security  is denominated and the U.S. dollar, then a loss to the Fund occasioned
by such value  decline would be  ameliorated by  receipt of the  premium on  the
option  sold. At the  same time, however, the  Fund gives up  the benefit of any
rise in value of the relevant  portfolio securities above the exercise price  of
the  option and, in fact, only receives a benefit from the writing of the option
to the extent that the value of  the portfolio securities falls below the  price
of  the premium received. The Fund may also write options to close out long call
option positions.

    The markets in foreign  currency options are relatively  new and the  Fund's
ability  to establish and close out positions  on such options is subject to the
maintenance of a liquid secondary market. Although the Fund will not purchase or
write such options unless  and until, in  the opinion of  the management of  the
Fund, the market for them has developed sufficiently to ensure that the risks in
connection  with such options are not greater  than the risks in connection with
the underlying  currency, there  can be  no assurance  that a  liquid  secondary
market  will exist for  a particular option  at any specific  time. In addition,
options on  foreign  currencies are  affected  by  all of  those  factors  which
influence foreign exchange rates and investments generally.

    The  value  of a  foreign  currency option  depends  upon the  value  of the
underlying currency relative to the U.S. dollar.  As a result, the price of  the
option  position may vary with changes in the value of either or both currencies
and have  no  relationship to  the  investment  merits of  a  foreign  security,
including  foreign securities held  in a "hedged"  investment portfolio. Because
foreign  currency  transactions  occurring  in  the  interbank  market   involve
substantially  larger amounts  than those  that may  be involved  in the  use of

                                       15
<PAGE>
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally  consisting of transactions of  less than $1  million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.

    There  is  no  systematic reporting  of  last sale  information  for foreign
currencies or  any  regulatory  requirement that  quotations  available  through
dealers  or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions  in
the  interbank market and  thus may not  reflect relatively smaller transactions
(i.e., less than $1  million) where rates may  be less favorable. The  interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that  the U.S. options markets  are closed while the  markets for the underlying
currencies remain open, significant price and  rate movements may take place  in
the underlying markets that are not reflected in the options market.

    OTC  OPTIONS.  Exchange-listed  options are issued by  the OCC which assures
that all transactions  in such options  are properly executed.  OTC options  are
purchased from or sold (written) to dealers or financial institutions which have
entered  into direct agreements with the  Fund. With OTC options, such variables
as expiration date, exercise price and  premium will be agreed upon between  the
Fund  and the  transacting dealer, without  the intermediation of  a third party
such as the OCC. If the transacting dealer fails to make or take delivery of the
securities underlying an option it has written, in accordance with the terms  of
that  option, the Fund would lose the premium paid for the option as well as any
anticipated benefit  of the  transaction. The  Fund will  engage in  OTC  option
transactions  only with primary U.S. Government securities dealers recognized by
the Federal Reserve Bank of New York.

    COVERED CALL WRITING.  The Fund  is permitted to write covered call  options
on  portfolio securities  and the  U.S. dollar  and foreign  currencies, without
limit, in order to aid in achieving its investment objective. Generally, a  call
option  is "covered"  if the  Fund owns,  or has  the right  to acquire, without
additional cash consideration (or for additional cash consideration held for the
Fund  by  its  Custodian  in  a  segregated  account)  the  underlying  security
(currency) subject to the option except that in the case of call options on U.S.
Treasury  Bills, the Fund  might own U.S.  Treasury Bills of  a different series
from those underlying  the call option,  but with a  principal amount and  value
corresponding  to the exercise price  and a maturity date  no later than that of
the securities (currency) deliverable  under the call option.  A call option  is
also  covered if the  Fund holds a call  on the same  security (currency) as the
underlying security (currency) of the  written option, where the exercise  price
of the call used for coverage is equal to or less than the exercise price of the
call  written or greater than the exercise price of the call written if the mark
to market  difference  is  maintained  by the  Fund  in  cash,  U.S.  Government
securities  or  other high  grade debt  obligations  which the  Fund holds  in a
segregated account maintained with its Custodian.

    The Fund  will receive  from the  purchaser, in  return for  a call  it  has
written,  a "premium"; i.e., the price of  the option. Receipt of these premiums
may better enable  the Fund  to achieve  a greater  total return  than would  be
realized  from holding the underlying securities (currency) alone. Moreover, the
income received from  the premium will  offset a portion  of the potential  loss
incurred by the Fund if the securities
(currency)  underlying the option are ultimately sold (exchanged) by the Fund at
a loss.  The  premium  received  will fluctuate  with  varying  economic  market
conditions.  If the market value of  the portfolio securities (or the currencies
in which  they  are denominated)  upon  which  call options  have  been  written
increases,  the  Fund may  receive less  total  return from  the portion  of its
portfolio upon which calls have been written  than it would have had such  calls
not been written.

    As regards listed options and certain OTC options, during the option period,
the  Fund  may be  required, at  any  time, to  deliver the  underlying security
(currency) against payment  of the exercise  price on any  calls it has  written
(exercise  of  certain  listed  and  OTC  options  may  be  limited  to specific
expiration dates).  This obligation  is terminated  upon the  expiration of  the
option period or at such earlier time when the writer effects a closing purchase
transaction.  A closing  purchase transaction  is accomplished  by purchasing an
option of the same  series as the option  previously written. However, once  the
Fund  has been assigned an exercise notice, the  Fund will be unable to effect a
closing purchase transaction.

    Closing purchase transactions are ordinarily effected to realize a profit on
an outstanding call  option to  prevent an underlying  security (currency)  from
being called, to permit the sale of an underlying

                                       16
<PAGE>
security  (or the exchange of the underlying  currency) or to enable the Fund to
write another call option  on the underlying security  (currency) with either  a
different  exercise price or expiration date  or both. Also, effecting a closing
purchase transaction will permit the cash  or proceeds from the concurrent  sale
of  any securities subject to the option to be used for other investments by the
Fund. The  Fund  may  realize  a  net gain  or  loss  from  a  closing  purchase
transaction  depending upon  whether the amount  of the premium  received on the
call option is  more or less  than the  cost of effecting  the closing  purchase
transaction.  Any loss incurred in a  closing purchase transaction may be wholly
or partially  offset by  unrealized  appreciation in  the  market value  of  the
underlying  security  (currency). Conversely,  a gain  resulting from  a closing
purchase transaction  could be  offset in  whole or  in part  or exceeded  by  a
decline in the market value of the underlying security (currency).

    If a call option expires unexercised, the Fund realizes a gain in the amount
of the premium on the option less the commission paid. Such a gain, however, may
be  offset  by  depreciation in  the  market  value of  the  underlying security
(currency) during the  option period. If  a call option  is exercised, the  Fund
realizes  a gain  or loss  from the sale  of the  underlying security (currency)
equal to the difference  between the purchase price  of the underlying  security
(currency)  and the  proceeds of  the sale of  the security  (currency) plus the
premium received for on the option less the commission paid.

    Options written by a Fund normally have expiration dates of from up to  nine
months (equity securities) to eighteen months (fixed-income securities) from the
date  written. The  exercise price of  a call option  may be below,  equal to or
above the current market value of the underlying security (currency) at the time
the option is written. See "Risks of Options and Futures Transactions," below.

    COVERED PUT WRITING.  As a writer  of a covered put option, the Fund  incurs
an obligation to buy the security underlying the option from the purchase of the
put, at the option's exercise price at any time during the option period, at the
purchaser's  election (certain  listed and OTC  put options written  by the Fund
will be  exercisable  by the  purchaser  only on  a  specific date).  A  put  is
"covered"  if,  at  all  times,  the Fund  maintains,  in  a  segregated account
maintained on  its  behalf  at  the  Fund's  Custodian,  cash,  U.S.  Government
securities  or other high grade  obligations in an amount  equal to at least the
exercise price of the option, at all times during the option period.  Similarly,
a  short put  position could be  covered by  the Fund by  its purchase  of a put
option on the same  security as the underlying  security of the written  option,
where  the exercise price of  the purchased option is equal  to or more than the
exercise price of the  put written or  less than the exercise  price of the  put
written if the mark to market difference is maintained by the Fund in cash, U.S.
Government  securities or other high grade debt obligations which the Fund holds
in a segregated account maintained at  its Custodian. In writing puts, the  Fund
assumes  the risk  of loss  should the market  value of  the underlying security
decline below the exercise price of the option (any loss being decreased by  the
receipt  of the premium on  the option written). In  the case of listed options,
during the option period, the Fund may be required, at any time, to make payment
of the exercise price against delivery of the underlying security. The operation
of and limitations on  covered put options in  other respects are  substantially
identical to those of call options.

    The  Fund will write put options for two purposes: (1) to receive the income
derived from  the premiums  paid  by purchasers;  and  (2) when  the  Investment
Manager  wishes to purchase the security underlying  the option at a price lower
than its current market price, in which case it will write the covered put at an
exercise price reflecting the lower purchase price sought. The potential gain on
a covered put option is limited to the premium received on the option (less  the
commissions  paid  on  the  transaction) while  the  potential  loss  equals the
difference between the exercise price of the option and the current market price
of the underlying securities  when the put is  exercised, offset by the  premium
received (less the commissions paid on the transaction).

    PURCHASING  CALL AND PUT OPTIONS.  The Fund may purchase listed and OTC call
and put options in amounts equalling up to 5% of its total assets. The Fund  may
purchase  call  options in  order  to close  out  a covered  call  position (see
"Covered Call Writing" above) or purchase call options on securities they intend
to purchase. The Fund  may also purchase  a call option  on foreign currency  to
hedge  against  an adverse  exchange  rate move  of  the currency  in  which the
security it  anticipates purchasing  is denominated  vis-a-vis the  currency  in
which  the  exercise  price is  denominated.  The  purchase of  the  call option

                                       17
<PAGE>
to effect a  closing transaction  or a call  written over-the-counter  may be  a
listed  or an OTC option. In either case,  the call purchased is likely to be on
the same securities (currencies) and have the same terms as the written  option.
If  purchased over-the-counter, the option would  generally be acquired from the
dealer or financial institution which purchased the call written by the Fund.

    The Fund may purchase  put options on securities  (currency) which it  holds
(or  has the right to acquire) in its portfolio only to protect itself against a
decline in the value of the security (currency). If the value of the  underlying
security  (currency) were to fall below the  exercise price of the put purchased
in an amount greater than the premium paid for the option, the Fund would  incur
no  additional loss. The Fund may also purchase put options to close out written
put positions in a manner similar to call options closing purchase transactions.
In addition, the Fund may  sell a put option  which it has previously  purchased
prior  to the sale of  the securities (currency) underlying  such option. Such a
sale would result in a net gain or loss depending on whether the amount received
on the sale is more or less than the premium and other transaction costs paid on
the put option which is sold. Any such gain or loss could be offset in whole  or
in  part by a change in the  market value of the underlying security (currency).
If a put option purchased by the  Fund expired without being sold or  exercised,
the premium would be lost.

    RISKS  OF OPTIONS TRANSACTIONS.  During  the option period, the covered call
writer has, in return for  the premium on the  option, given up the  opportunity
for capital appreciation above the exercise price should the market price of the
underlying  security (or the currency in  which it is denominated) increase, but
has retained  the risk  of loss  should  the price  of the  underlying  security
(currency)  decline. The covered put writer also retains the risk of loss should
the market  value  of  the  underlying security  (currency)  decline  below  the
exercise  price  of the  option less  the premium  received on  the sale  of the
option. In both cases, the  writer has no control over  the time when it may  be
required  to fulfill its  obligation as a  writer of the  option. Once an option
writer has received  an exercise  notice, it  cannot effect  a closing  purchase
transaction  in  order to  terminate its  obligation under  the option  and must
deliver or receive the underlying securities (currency) at the exercise price.

    Prior to exercise or expiration, an  option position can only be  terminated
by  entering into  a closing  purchase or  sale transaction.  If a  covered call
option writer is unable to effect a closing purchase transaction or to  purchase
an  offsetting over-the-counter option,  it cannot sell  the underlying security
until the option expires or the option is exercised. Accordingly, a covered call
option writer  may  not  be  able to  sell  (exchange)  an  underlying  security
(currency) at a time when it might otherwise be advantageous to do so. A covered
put  option writer who is unable to  effect a closing purchase transaction or to
purchase an offsetting over-the-counter option  would continue to bear the  risk
of  decline in the market price of  the underlying security (currency) until the
option expires  or is  exercised. In  addition, a  covered put  writer would  be
unable to utilize the amount held in cash or U.S. Government or other high grade
short-term  debt obligations as security for the put option for other investment
purposes until the exercise or expiration of the option.

    The Fund's ability to  close out its  position as a writer  of an option  is
dependent  upon the existence of a  liquid secondary market on option Exchanges.
There is no assurance that such a market will exist, particularly in the case of
OTC options, as such options will generally only be closed out by entering  into
a closing purchase transaction with the purchasing dealer. However, the Fund may
be  able to purchase an offsetting option  which does not close out its position
as a writer but constitutes an asset of equal value to the obligation under  the
option  written. If the Fund is not able to either enter into a closing purchase
transaction or purchase an offsetting position, it will be required to  maintain
the  securities subject to the call, or  the collateral underlying the put, even
though it might not be advantageous to do so, until a closing transaction can be
entered into (or the option is exercised or expires).

    Among the possible reasons for the  absence of a liquid secondary market  on
an  Exchange are:  (i) insufficient  trading interest  in certain  options; (ii)
restrictions on  transactions  imposed  by an  Exchange;  (iii)  trading  halts,
suspensions  or other restrictions imposed with respect to particular classes or
series of  options or  underlying securities;  (iv) interruption  of the  normal
operations  on an Exchange; (v)  inadequacy of the facilities  of an Exchange or
the Options Clearing Corporation  ("OCC") to handle  current trading volume;  or
(vi)  a decision by one or more  Exchanges to discontinue the trading of options

                                       18
<PAGE>
(or a  particular class  or series  of options),  in which  event the  secondary
market  on that Exchange (or in that class  or series of options) would cease to
exist, although outstanding options on that Exchange that had been issued by the
OCC as  a result  of trades  on that  Exchange would  generally continue  to  be
exercisable in accordance with their terms.

    Exchanges  limit the amount by which the price of a future contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, the Fund would continue to
be required to  make daily  cash payments of  variation margin  on open  futures
positions. In such situations, if the Fund has insufficient cash, it may have to
sell  portfolio securities to meet daily variation margin requirements at a time
when it may be disadvantageous to do  so. In addition, the Fund may be  required
to  take or  make delivery of  the instruments underlying  interest rate futures
contracts it holds at a time when it is disadvantageous to do so. The  inability
to  close out options and futures positions could also have an adverse impact on
the Fund's ability to effectively hedge its portfolio.

    In the event of the bankruptcy of a broker through which the Fund engages in
transactions in options, futures or  options thereon, the Fund could  experience
delays and/or losses in liquidating open positions purchased or sold through the
broker  and/or incur  a loss  of all  or part  of its  margin deposits  with the
broker. Similarly, in the event of the bankruptcy of the writer of an OTC option
purchased by the Fund, the  Fund could experience a loss  of all or part of  the
value of the option. Transactions are entered into by the Fund only with brokers
or financial institutions deemed creditworthy by the Investment Manager.

    Each  of  the Exchanges  has established  limitations governing  the maximum
number of  call  or put  options  on the  same  underlying security  or  futures
contract  (whether or not  covered) which may  be written by  a single investor,
whether acting  alone or  in concert  with others  (regardless of  whether  such
options are written on the same or different Exchanges or are held or written on
one  or more accounts or through one or more brokers). An Exchange may order the
liquidation of positions found  to be in  violation of these  limits and it  may
impose  other sanctions or restrictions. These  position limits may restrict the
number of listed options which the Fund may write.

    While the futures contracts and options transactions to be engaged in by the
Fund for  the  purpose  of  hedging the  Fund's  portfolio  securities  are  not
speculative  in nature, there are risks inherent in the use of such instruments.
One such risk which may arise in employing futures contracts to protect  against
the  price volatility of  portfolio securities is that  the prices of securities
and indexes  subject to  futures  contracts (and  thereby the  futures  contract
prices)  may correlate imperfectly with  the behavior of the  cash prices of the
Fund's portfolio securities. Another such risk  is that prices of interest  rate
futures contracts may not move in tandem with the changes in prevailing interest
rates  against which the Fund seeks a hedge. A correlation may also be distorted
by the fact that the futures  market is dominated by short-term traders  seeking
to profit from the difference between a contract or security price objective and
their  cost of  borrowed funds. Such  distortions are generally  minor and would
diminish as the contract approached maturity.

    The hours of trading for options may  not conform to the hours during  which
the  underlying securities  are traded.  To the  extent that  the option markets
close before the markets  for the underlying  securities, significant price  and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.

    FUTURES  CONTRACTS.  The Fund may purchase  and sell interest rate and index
futures contracts  ("futures contracts")  that are  traded on  U.S. and  foreign
commodity  exchanges on such underlying securities as U.S. Treasury bonds, notes
and bills ("interest rate" figures), on the U.S. dollar and foreign  currencies,
and  such indexes as the S&P  500 Index, Moody's Investment-Grade Corporate Bond
Index and the New York Stock Exchange Composite Index ("index" futures).

    As a  futures contract  purchaser, the  Fund incurs  an obligation  to  take
delivery  of a specified amount  of the obligation underlying  the contract at a
specified  time  in  the  future  for   a  specified  price.  As  a  seller   of

                                       19
<PAGE>
a  futures  contract, the  Fund incurs  an obligation  to deliver  the specified
amount of the underlying obligation at a specified time in return for an  agreed
upon price.

    The  Fund will  purchase or  sell interest  rate futures  contracts and bond
index futures contracts for  the purpose of  hedging its fixed-income  portfolio
(or  anticipated portfolio)  securities against  changes in  prevailing interest
rates. If the Investment Manager anticipates  that interest rates may rise  and,
concomitantly,  the price of fixed-income securities  fall, the Fund may sell an
interest rate futures contract  or a bond index  futures contract. If  declining
interest  rates are anticipated, the Fund  may purchase an interest rate futures
contract to protect against a potential increase in the price of U.S. Government
securities the Fund intends to purchase. Subsequently, appropriate  fixed-income
securities may be purchased by the Fund in an orderly fashion; as securities are
purchased,  corresponding futures  positions would  be terminated  by offsetting
sales of contracts.

    The Fund will purchase or sell futures  contracts on the U.S. dollar and  on
foreign  currencies to hedge against an anticipated rise or decline in the value
of the U.S. dollar or foreign currency in which a portfolio security of the Fund
is denominated vis-a-vis another currency.

    The Fund will purchase  or sell index futures  contracts for the purpose  of
hedging  its portfolio (or anticipated  portfolio) securities against changes in
their  prices.  If  the  Investment  Manager  anticipates  that  the  prices  of
securities  held by the  Fund may fall,  the Fund may  sell an appropriate index
futures contract. Conversely, if the Investment Manager wishes to hedge  against
anticipated  price rises in those securities which the Fund intends to purchase,
the Fund may purchase an index futures contracts. In addition, interest rate and
index futures contracts will be bought or sold in order to close out a short  or
long position in a corresponding futures contract.

    Although  most interest rate  futures contracts call  for actual delivery or
acceptance of  securities,  the contracts  usually  are closed  out  before  the
settlement  date  without  the  making  or  taking  of  delivery.  Index futures
contracts provide for the  delivery of an  amount of cash  equal to a  specified
dollar  amount times the difference between the stock index value at the open or
close of the last trading day of the contract and the futures contract price.  A
futures contract sale is closed out by effecting a futures contract purchase for
the  same aggregate amount of the specific  type of equity security and the same
delivery date. If  the sale  price exceeds  the offsetting  purchase price,  the
seller  would be paid the difference and would realize a gain. If the offsetting
purchase price exceeds the sale price,  the seller would pay the difference  and
would  realize a loss. Similarly,  a futures contract purchase  is closed out by
effecting a futures contract sale for the same aggregate amount of the  specific
type of equity security and the same delivery date. If the offsetting sale price
exceeds  the purchase price, the purchaser would  realize a gain, whereas if the
purchase price exceeds the offsetting sale price, the purchaser would realize  a
loss.  There is no assurance that the Fund  will be able to enter into a closing
transaction.

    INTEREST RATE FUTURES CONTRACTS.  When the Fund enters into an interest rate
futures contract, it is initially required to deposit with the Fund's Custodian,
in a segregated account in the name of the broker performing the transaction, an
"initial margin"  of cash  or U.S.  Government securities  or other  high  grade
short-term  debt obligations equal  to approximately 2%  of the contract amount.
Initial margin requirements are  established by the  Exchanges on which  futures
contracts  trade and may,  from time to  time, change. In  addition, brokers may
establish margin  deposit  requirements  in  excess of  those  required  by  the
Exchanges.

    Initial   margin  in  futures  transactions  is  different  from  margin  in
securities transactions in that initial margin does not involve the borrowing of
funds by a brokers' client but is,  rather, a good faith deposit on the  futures
contract  which will be returned to the  Fund upon the proper termination of the
futures contract. The margin  deposits made are marked  to market daily and  the
Fund may be required to make subsequent deposits called "variation margin", with
the  Fund's  Custodian, in  the account  in the  name of  the broker,  which are
reflective of price  fluctuations in the  futures contract. Currently,  interest
rates  futures  contracts  can be  purchased  on  debt securities  such  as U.S.
Treasury Bills and Bonds, U.S. Treasury Notes with maturities between 6 1/2  and
10 years, GNMA Certificates and Bank Certificates of Deposit.

                                       20
<PAGE>
    INDEX FUTURES CONTRACTS.  The Fund may invest in index futures contracts. An
index  futures contract sale  creates an obligation  by the Fund,  as seller, to
deliver cash at  a specified  future time.  An index  futures contract  purchase
would  create an obligation by the Fund,  as purchaser, to take delivery of cash
at a specified  future time.  Futures contracts on  indexes do  not require  the
physical  delivery of securities, but provide for a final cash settlement on the
expiration date  which  reflects  accumulated profits  and  losses  credited  or
debited to each party's account.

    The  Fund  is  required to  maintain  margin deposits  with  brokerage firms
through which it  effects index futures  contracts in a  manner similar to  that
described  above  for interest  rate futures  contracts. Currently,  the initial
margin requirement is approximately 5% of the contract amount for index futures.
In addition, due  to current industry  practice, daily variations  in gains  and
losses  on open contracts  are required to be  reflected in cash  in the form of
variation margin payments. The  Fund may be required  to make additional  margin
payments during the term of the contract.

    At  any time prior to expiration of the futures contract, the Fund may elect
to close  the position  by taking  an opposite  position which  will operate  to
terminate  the Fund's position in the futures contract. A final determination of
variation margin is  then made, additional  cash is  required to be  paid by  or
released to the Fund and the Fund realizes a loss or a gain.

    Currently, index futures contracts can be purchased or sold with respect to,
among  others, the Standard  & Poor's 500  Stock Price Index  and the Standard &
Poor's 100 Stock Price  Index on the Chicago  Mercantile Exchange, the New  York
Stock  Exchange  Composite Index  on the  New York  Futures Exchange,  the Major
Market Index  on  the  American Stock  Exchange,  the  Moody's  Investment-Grade
Corporate  Bond Index  on the Chicago  Board of  Trade and the  Value Line Stock
Index on the Kansas City Board of Trade.

    OPTIONS ON FUTURES CONTRACTS.  The Fund may purchase and write call and  put
options on futures contracts and enter into closing transactions with respect to
such  options to terminate an existing position. An option on a futures contract
gives the purchaser the right (in return  for the premium paid), and the  writer
the  obligation, to assume a position in  a futures contract (a long position if
the option is a call and a short position if the option is a put) at a specified
exercise price at any time during the  term of the option. Upon exercise of  the
option,  the delivery of the futures position by the writer of the option to the
holder of the option  is accompanied by delivery  of the accumulated balance  in
the  writer's futures margin  account, which represents the  amount by which the
market price of the  futures contract at  the time of  exercise exceeds, in  the
case of a call, or is less than, in the case of a put, the exercise price of the
option on the futures contract.

    The  Fund will purchase and write options on futures contracts for identical
purposes to  those  set forth  above  for the  purchase  of a  futures  contract
(purchase  of a call option or  sale of a put option)  and the sale of a futures
contract (purchase of a put option or sale of a call option), or to close out  a
long  or short  position in futures  contracts. If, for  example, the Investment
Manager wished  to  protect  against  an increase  in  interest  rates  and  the
resulting  negative  impact  on  the  value of  a  portion  of  its fixed-income
portfolio, it might write  a call option on  an interest rate futures  contract,
the  underlying security of  which correlates with the  portion of the portfolio
the Investment Manager seeks to hedge.  Any premiums received in the writing  of
options  on futures contracts  may, of course,  augment the total  return of the
Fund and thereby  provide a further  hedge against losses  resulting from  price
declines in portions of the Fund's portfolio.

    The writer of an option on a futures contract is required to deposit initial
and  variation margin  pursuant to requirements  similar to  those applicable to
futures contracts. Premiums received from the writing of an option on a  futures
contract are included in initial margin deposits.

    LIMITATIONS  ON FUTURES CONTRACTS AND OPTIONS ON  FUTURES.  The Fund may not
enter into futures contracts or purchase related options thereon if, immediately
thereafter, the amount committed to margin plus the amount paid for premiums for
unexpired options on  futures contracts exceeds  5% of the  value of the  Fund's
total  assets, after taking into account  unrealized gains and unrealized losses
on such contracts it has entered into, provided, however, that in the case of an
option that is in-the-money (the exercise price of the call (put) option is less
(more)  than   the   market  price   of   the  underlying   security)   at   the

                                       21
<PAGE>
time of purchase, the in-the-money amount may be excluded in calculating the 5%.
However,  there is no overall limitation on  the percentage of the Fund's assets
which may be subject to  a hedge position. In  addition, in accordance with  the
regulations of the Commodity Futures Trading Commission ("CFTC") under which the
Fund  is exempted from registration  as a commodity pool  operator, the Fund may
only enter into futures contracts and options on futures contracts  transactions
for  purposes of hedging a part or all of its portfolio. If the CFTC changes its
regulations so that  the Fund  would be permitted  to write  options on  futures
contracts  for purposes other  than hedging the  Fund's investments without CFTC
registration, the  Fund may  engage  in such  transactions for  those  purposes.
Except  as described above, there are no other limitations on the use of futures
and options thereon by the Fund.

    RISKS OF TRANSACTIONS IN  FUTURES CONTRACTS AND RELATED  OPTIONS.  The  Fund
may  sell a  futures contract  to protect  against the  decline in  the value of
securities held by the Fund. However, it is possible that the futures market may
advance and the value of  the securities held in the  portfolio of the Fund  may
decline. If this occurred, the Fund would lose money on the futures contract and
also  experience a decline in value  of its portfolio securities. However, while
this could occur for a  very brief period or to  a very small degree, over  time
the  value of a diversified portfolio will tend to move in the same direction as
the futures contracts.

    If the Fund purchases  a futures contract to  hedge against the increase  in
value  of  securities  it intends  to  buy,  and the  value  of  such securities
decreases, then  the Fund  may determine  not  to invest  in the  securities  as
planned  and will realize a loss on the futures contract that is not offset by a
reduction in the price of the securities.

    In addition, if the Fund holds a long position in a futures contract or  has
sold  a put  option on a  futures contract,  it will hold  cash, U.S. Government
securities or other high grade debt  obligations equal to the purchase price  of
the contract or the exercise price of the put option (less the amount of initial
or  variation margin on deposit) in a segregated account maintained for the Fund
by its  Custodian. Alternatively,  the Fund  could cover  its long  position  by
purchasing  a put option on the same  futures contract with an exercise price as
high or higher than the price of the contract held by the Fund.

    If the Fund maintains a short position  in a futures contract or has sold  a
call  option on a futures contract, it will cover this position by holding, in a
segregated account maintained at its Custodian, cash, U.S. Government securities
or other high grade debt obligations equal  in value (when added to any  initial
or variation margin on deposit) to the market value of the securities underlying
the  futures contract or the  exercise price of the  option. Such a position may
also be covered by owning the securities underlying the futures contract (in the
case of a stock index futures  contract a portfolio of securities  substantially
replicating the relevant index), or by holding a call option permitting the Fund
to  purchase the same contract at a price  no higher than the price at which the
short position was established.

    Exchanges may limit the amount by  which the price of futures contracts  may
move  on any day. If  the price moves equal the  daily limit on successive days,
then it may  prove impossible to  liquidate a futures  position until the  daily
limit moves have ceased.

    The  extent to which the Fund  may enter into transactions involving options
and  futures  contracts  may   be  limited  by   the  Code's  requirements   for
qualification  as a  regulated investment  company and  the Fund's  intention to
qualify as such. See "Dividends, Distributions and Taxes" in the Prospectus  and
the Statement of Additional Information.

    There  may exist  an imperfect  correlation between  the price  movements of
futures contracts purchased by the Fund and  the movements in the prices of  the
securities  which are the subject  of the hedge. If  participants in the futures
market elect to close out their contracts through offsetting transactions rather
than meet margin  deposit requirements, distortions  in the normal  relationship
between  the debt securities and futures markets could result. Price distortions
could also result if investors in futures contracts opt to make or take delivery
of underlying securities rather than engage  in closing transactions due to  the
resultant  reduction in the liquidity of the futures market. In addition, due to
the fact that, from the point  of view of speculators, the deposit  requirements
in  the futures markets  are less onerous  than margin requirements  in the cash
market,  increased   participation  by   speculators  in   the  futures   market

                                       22
<PAGE>
could  cause  temporary  price  distortions. Due  to  the  possibility  of price
distortions in  the futures  market  and because  of the  imperfect  correlation
between  movements in the  prices of securities  and movements in  the prices of
futures contracts, a correct forecast of interest rate trends by the  Investment
Manager may still not result in a successful hedging transaction.

    There  is no assurance that a liquid secondary market will exist for futures
contracts and related  options in  which the  Fund may  invest. In  the event  a
liquid  market does  not exist, it  may not be  possible to close  out a futures
position, and in the event of  adverse price movements, the Fund would  continue
to  be required to  make daily cash  payments of variation  margin. In addition,
limitations imposed by an exchange or board of trade on which futures  contracts
are  traded may compel or prevent the Fund from closing out a contract which may
result in reduced gain or  increased loss to the Fund.  The absence of a  liquid
market in futures contracts might cause the Fund to make or take delivery of the
underlying securities at a time when it may be disadvantageous to do so.

    Compared  to the purchase or sale of futures contracts, the purchase of call
or put options  on futures contracts  involves less potential  risk to the  Fund
because  the maximum amount  at risk is  the premium paid  for the options (plus
transaction costs). However, there may be  circumstances when the purchase of  a
call  or put option  on a futures  contract would result  in a loss  to the Fund
notwithstanding that the purchase or sale of a futures contract would not result
in a loss, as in the  instance where there is no  movement in the prices of  the
futures contract or underlying securities.

    The  Investment  Manager  has  substantial  experience  in  the  use  of the
investment techniques described  above under  the heading  "Options and  Futures
Transactions,"  which techniques require  skills different from  those needed to
select  the  portfolio  securities   underlying  various  options  and   futures
contracts.

PORTFOLIO TURNOVER

   
    It  is anticipated that  the Fund's portfolio turnover  rate will not exceed
100%. A 100% turnover rate would occur,  for example, if 100% of the  securities
held  in  the Fund's  portfolio (excluding  all  securities whose  maturities at
acquisition were one year or less) were sold and replaced within one year.
    

INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------

    In addition to the investment restrictions enumerated in the Prospectus, the
investment  restrictions  listed  below  have  been  adopted  by  the  fund   as
fundamental   policies,  except  as  otherwise   indicated.  Under  the  Act,  a
fundamental policy may  not be changed  without the  vote of a  majority of  the
outstanding  voting  securities of  the  fund, as  defined  in the  Act.  Such a
majority is defined as the lesser of (a) 67% or more of the shares present at  a
meeting  of shareholders, if the holders of 50% of the outstanding shares of the
Fund are present or represented by proxy or (b) more than 50% of the outstanding
shares of the Fund.

    The Fund may not:

        1.  Purchase or sell real estate or interests therein, although the fund
    may purchase securities of  issuers which engage  in real estate  operations
    and securities secured by real estate or interests therein.

        2.    Purchase  oil, gas  or  other  mineral leases,  rights  or royalty
    contracts or exploration or development  programs, except that the Fund  may
    invest  in the securities of companies  which operate, invest in, or sponsor
    such programs.

        3.   With the  exception  of reverse  repurchase agreements  and  dollar
    rolls,  borrow  money, except  that  the Fund  may  borrow from  a  bank for
    temporary or emergency purposes  in amounts not exceeding  5% (taken at  the
    lower  of cost  or current  value) of  its total  assets (not  including the
    amount borrowed).

                                       23
<PAGE>
        4.  Pledge  its assets or  assign or otherwise  encumber them except  to
    secure  borrowings effected within the  limitations set forth in restriction
    (3). For  the  purpose of  this  restriction, collateral  arrangements  with
    respect  to the writing of options  and collateral arrangements with respect
    to initial or variation margin for futures  are not deemed to be pledges  of
    assets.

        5.  Issue senior securities as defined in the Act, except insofar as the
    Fund  may  be deemed  to  have issued  a senior  security  by reason  of (a)
    entering into any repurchase or reverse repurchase agreement or dollar roll;
    (b) purchasing any securities  on a when-issued  or delayed delivery  basis;
    (c)  purchasing  or  selling  futures  contracts,  forward  foreign exchange
    contracts or options;  (d) borrowing money  in accordance with  restrictions
    described above; or (e) lending portfolio securities.

        6.   Make loans of  money or securities, except:  (a) by the purchase of
    publicly  distributed  debt  obligations  in  which  the  Fund  may   invest
    consistent  with its investment objective and policies; (b) by investment in
    repurchase agreements; or (c) by lending its portfolio securities.

        7.  Make short sales of securities.

        8.  Purchase securities on margin,  except for such short-term loans  as
    are  necessary for  the clearance  of portfolio  securities. The  deposit or
    payment by  the Fund  of  initial or  variation  margin in  connection  with
    futures  contracts or related options thereon is not considered the purchase
    of a security on margin.

        9.  Engage in the underwriting of securities, except insofar as the Fund
    may be deemed an underwriter under  the Securities Act of 1933 in  disposing
    of a portfolio security.

        10. Invest for purposes of exercising control or management of any other
    issuer.

        11.  Purchase  securities  of  other  investment  companies,  except  in
    connection with a  merger, consolidation, reorganization  or acquisition  of
    assets  or in accordance with the provisions of Section 12(d) of the Act and
    any Rules promulgated thereunder.

        12. Purchase or  sell commodities or  commodities contracts except  that
    the Fund may purchase or sell futures contracts or options on futures.

    In  addition,  as  a  nonfundamental  policy, the  Fund  may  not  invest in
securities of  any issuer  if, to  the knowledge  of the  Fund, any  officer  or
trustee  of the Fund or  any officer or director  of the Investment Manager owns
more than 1/2  of 1%  of the  outstanding securities  of such  issuer, and  such
officers,  trustees  and  directors who  own  more than  1/2  of 1%  own  in the
aggregate more than 5% of the outstanding securities of such issuers.

    If a percentage restriction is adhered to at the time of investment, a later
increase or  decrease  in  percentage  resulting from  a  change  in  values  of
portfolio  securities or amount of total or  net assets will not be considered a
violation of any of the foregoing restrictions.

PORTFOLIO TRANSACTIONS AND BROKERAGE
- --------------------------------------------------------------------------------

    The Investment  Manager  is  responsible  for  decisions  to  buy  and  sell
securities and commodities for the Fund, the selection of brokers and dealers to
effect  the transactions, and the negotiation  of brokerage commissions, if any.
The Fund expects that the primary market for the securities in which it  intends
to  invest  will  generally  be  the  over-the-counter  market.  Securities  are
generally traded in the  over-the-counter market on a  "net" basis with  dealers
acting as principal for their own accounts without charging a stated commission,
although  the price  of the  security usually includes  a profit  to the dealer.
Options and futures transactions will usually be effected through a broker and a
commission will  be charged.  The  Fund also  expects  that securities  will  be
purchased  at times in  underwritten offerings where the  price includes a fixed
amount of compensation, generally referred to as the underwriter's concession or
discount.  On  occasion,  the  Fund  may  also  purchase  certain  money  market
instruments directly from an

                                       24
<PAGE>
   
issuer,  in which case  no commissions or  discounts are paid.  The Fund paid no
brokerage commissions during the fiscal period ended April 30, 1994.
    

    The Investment Manager currently serves as investment manager to a number of
clients, including other  investment companies,  and may  in the  future act  as
investment  manager or adviser to  others. It is the  practice of the Investment
Manager to cause purchase and sale  transactions to be allocated among the  Fund
and  others whose  assets it manages  in such  manner as it  deems equitable. In
making such  allocations among  the Fund  and other  client accounts,  the  main
factors  considered are the respective  investment objectives, the relative size
of portfolio holdings of the same or comparable securities, the availability  of
cash  for investment, the size of  investment commitments generally held and the
opinion of the persons responsible for  managing the portfolios of the Fund  and
other client accounts.

    The  policy of the Fund, regarding purchases and sales of securities is that
primary consideration  be  given to  obtaining  the most  favorable  prices  and
efficient  execution  of  transactions.  In  seeking  to  implement  the  Fund's
policies, the Investment  Manager effects  transactions with  those brokers  and
dealers  who the Investment  Manager believes provide  the most favorable prices
and are capable  of providing  efficient executions. If  the Investment  Manager
believes  such price and executions are obtainable  from more than one broker or
dealer, it may give consideration  to placing portfolio transactions with  those
brokers  and dealers who also furnish research and other services to the Fund or
the Investment Manager. Although the  Fund may purchase securities from  brokers
or  dealers acting as principal,  who also provide research  for the advisor, it
will not pay  a mark-up in  consideration for such  services. Such services  may
include,  but are not limited to, any  one or more of the following: information
as to  the availability  of  securities for  purchase  or sale;  statistical  or
factual  information or  opinions pertaining  to investment;  wire services; and
appraisals or evaluations of portfolio securities.

    The information and services received by the Investment Manager from brokers
and dealers may be  of benefit to  the Investment Manager  in the management  of
accounts  of some of its  other clients and may not,  in every case, benefit the
Fund directly. While the receipt of  such information and services is useful  in
varying  degrees and would  generally reduce the amount  of research or services
otherwise performed by the Investment  Manager and thereby reduce its  expenses,
it is of indeterminable value and the Fund will not reduce the management fee it
pays  to the Investment  Manager by any  amount that may  be attributable to the
value of such services.

    Pursuant to an order of the Securities and Exchange Commission, the Fund may
effect principal transactions in certain money market instruments with DWR.  The
Fund  will limit  its transactions  with DWR  to U.S.  Government and Government
Agency Securities,  Bank Money  Instruments (i.e.  Certificates of  Deposit  and
Bankers'  Acceptances) and Commercial Paper.  Such transactions will be effected
with DWR only when the  price available from DWR  is better than that  available
from other dealers.

    Consistent  with  the  policy  described  above,  brokerage  transactions in
securities and commodities listed on  exchanges or admitted to unlisted  trading
privileges  may be effected  through DWR. In  order for DWR  to effect portfolio
transactions for the Fund, the commissions, fees or other remuneration  received
by  DWR must be reasonable  and fair compared to  the commissions, fees or other
remuneration paid to  other brokers in  connection with comparable  transactions
involving  similar securities  being purchased or  sold on an  exchange during a
comparable period of time. This standard would allow DWR to receive no more than
the remuneration  which would  be expected  to be  received by  an  unaffiliated
broker  in a commensurate arms-length  transaction. Furthermore, the Trustees of
the Fund,  including  a  majority  of the  Trustees  who  are  not  "interested"
Trustees,  have adopted procedures which are reasonably designed to provide that
any commissions, fees or other remuneration paid to DWR are consistent with  the
foregoing standard.

   
    The Fund purchased obligations issued by Lehman Brothers Holdings, Inc., one
of  the  ten broker-dealers  which engaged  as principal  in the  largest dollar
amounts of portfolio transactions during the fiscal period ended April 30, 1994.
At April 30, 1994,  the Fund held $500,726.00  of the Lehman Brothers  Holdings,
Inc. 7.625% bonds, maturing 7/15/99.
    

                                       25
<PAGE>
PURCHASE OF FUND SHARES
- --------------------------------------------------------------------------------

   
    As  discussed in the Prospectus, the Fund  offers its shares for sale to the
public  through  Dean  Witter  Distributors  Inc.  (the  "Distributor"),  on   a
continuous  basis at an  offering price equal  to the net  asset value per share
next determined following receipt of any order without a sales charge. (See  the
Prospectus--  "Purchase  of Fund  Shares").  The Distributor  is  a wholly-owned
subsidiary of  DWR, which  in turn  is a  wholly-owned subsidiary  of DWDC.  The
Distributor  has  entered into  selected broker-dealer  agreements with  DWR and
other dealers ("Selected Broker-Dealers") pursuant  to which shares of the  Fund
are sold. The Trustees of the Fund, including a majority of the Trustees who are
not,  and were not  at the time they  voted, interested persons  of the Fund, as
defined in the Act (the "Independent Trustees"), approved, at their meeting held
on December  2,  1993,  a  Distribution  Agreement  appointing  the  Distributor
exclusive  distributor of the Fund's shares and providing for the Distributor to
bear distribution expenses not borne by the Fund. At a meeting held on April  8,
1994,  the Trustees, including all of the Independent Trustees, voted to approve
the continuance of  the Distribution Agreement  until April 30,  1995, and  from
year  to  year thereafter  if approved  by  the Board,  in conjunction  with the
continuance of the Plan of Distribution (see below).
    

    The Distributor will bear  all expenses it may  incur in providing  services
under   the  Distribution  Agreement.  Such  expenses  include  the  payment  of
commissions for sales of the Fund's shares and incentive compensation to account
executives. The Distributor will  also pay certain  expenses in connection  with
the  distribution of the shares  of the Fund, including  the costs of preparing,
printing and distributing advertising or promotional materials, and the costs of
printing  and  distributing  prospectuses   and  supplements  thereto  used   in
connection  with the offering and sale of  the Fund's shares. The Fund bears the
costs of  initial typesetting,  printing and  distribution of  prospectuses  and
supplements  thereto  to shareholders.  The  Fund also  will  bear the  costs of
registering the Fund and its shares under federal and state securities laws. The
Fund and the  Distributor have agreed  to indemnify each  other against  certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
Under  the  Distribution Agreement,  the Distributor  uses  its best  efforts in
rendering services to the Fund, but  in the absence of willful misfeasance,  bad
faith,   gross  negligence  or  reckless   disregard  of  its  obligations,  the
Distributor is not liable to the Fund  or any of its shareholders for any  error
of  judgment or  mistake of law  or for  any act or  omission or  for any losses
sustained by the Fund or its shareholders.

PLAN OF DISTRIBUTION

    The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act (the "Plan")  whereby the Distributor  or any of  its affiliates,  including
InterCapital,  is authorized to  utilize their own  resources to finance certain
activities in connection with the distribution  of shares of the Fund. The  Plan
was  approved by the Trustees and by InterCapital as the Fund's sole shareholder
on December  2, 1993,  whereupon the  Plan went  into effect.  The vote  of  the
Trustees, which was cast in person at a meeting called for the purpose of voting
on  such Plan, included a majority  of the Trustees who are  not and were not at
the time of their voting interested persons of the Fund and who have and had  at
the  time  of  their votes  no  direct  or indirect  financial  interest  in the
operation of  the  Plan (the  "Independent  12b-1 Trustees").  In  making  their
decision  to adopt  the Plan,  the Trustees  requested from  the Distributor and
received  such  information  as  they  deemed  necessary  to  make  an  informed
determination  as  to  whether or  not  adoption of  the  Plan was  in  the best
interests of  the shareholders  of  the Fund.  After  due consideration  of  the
information  received, the  Trustees, including the  Independent 12b-1 Trustees,
determined that adoption of the Plan would benefit the shareholders of the Fund.

    The Plan provides  that the Fund  authorizes the Distributor  or any of  its
affiliates,  including InterCapital, to bear the  expense of all promotional and
distribution related activities on behalf of the Fund. Among the activities  and
services  which  may be  provided under  the  Plan are:  (1 compensation  to and
expenses of account executives and other employees of the Distributor and  other
Selected  Broker-Dealers including  overhead and  telephone expenses;  (2) sales
incentives and bonuses to  sales representatives and  to marketing personnel  in
connection  with promoting sales of the  Fund's shares; (3) expenses incurred in
connection with  promoting  sales  of  the  Fund's  shares;  (4)  preparing  and

                                       26
<PAGE>
distributing  sales literature;  and (5)  providing advertising  and promotional
activities, including direct mail solicitation and television, radio, newspaper,
magazine and other media advertisements.

    Pursuant to the  Selected Broker-Dealer Agreements  between the  Distributor
and  DWR and  other Selected Broker-Dealers,  the account executives  of DWR and
other Selected Broker-Dealers may be paid  an annual fee based upon the  current
value  of the respective accounts  for which they are  the account executives of
record. The fee also  reflects a payment made  for expenses associated with  the
servicing  of shareholder's accounts, including the expenses of operating branch
offices in  connection  with  the servicing  of  shareholder's  accounts,  which
expenses  include lease costs, the salaries  and employee benefits of operations
and sales support personnel, utility  costs, communications costs and the  costs
of  stationery  and  supplies  and  other  expenses  relating  to  branch office
servicing of shareholder accounts.

    Under the Plan, the Distributor uses its best efforts in rendering  services
to  the  Fund, but  in  the absence  of  willful misfeasance,  bad  faith, gross
negligence or  reckless disregard  of its  obligations, the  Distributor is  not
liable  to the  Fund or  any of its  shareholders for  any error  of judgment or
mistake of law or  for any act or  omission or for any  losses sustained by  the
Fund or its shareholders.

    The  Plan will remain in effect until April  30, 1994, and from year to year
thereafter will  continue  in  effect, provided  such  continuance  is  approved
annually  by a  vote of  the Trustees, including  a majority  of the Independent
12b-1 Trustees. Assumption by  the Fund of any  distribution expenses under  the
Plan  must be approved by  the shareholders, and all  material amendments to the
Plan must be approved by  the Trustees in the  manner described above. The  Plan
may  be terminated at any  time, without payment of any  penalty, by vote of the
holders of  a majority  of the  Independent 12b-1  Trustees or  by a  vote of  a
majority  of the outstanding  voting securities (as  defined in the  Act) on not
more than 30 days written notice to any other party to the Plan. So long as  the
Plan is in effect, the selection or nomination of the Independent 12b-1 Trustees
is committed to the discretion of the Independent 12b-1 Trustees.

    Under  the  Plan,  the Distributor  provides  the  Fund, for  review  by the
Trustees, and  the  Trustees review,  promptly  after  the end  of  each  fiscal
quarter,  a written report  regarding the distribution  expenses incurred by the
Distributor of the Fund during such fiscal quarter, which report includes (1) an
itemization of the types of expenses and the purposes therefor; (2) the  amounts
of  such expenses; and (3) a description of the benefits derived by the Fund. In
the Trustees' quarterly  review of  the Plan  they will  consider its  continued
appropriateness.

   
    At their meeting held April 8, 1994, the Trustees of the Fund, including all
of  the Independent  12b-1 Trustees, approved  the continuance of  the Plan. The
Plan will  remain  in  effect until  April  30,  1995, and  from  year  to  year
thereafter  will  continue  in  effect, provided  such  continuance  is approved
annually by a  vote of  the Trustees, including  a majority  of the  Independent
12b-1  Trustees. Assumption by  the Fund of any  distribution expenses under the
Plan must be approved  by the shareholders, and  all material amendments to  the
Plan  must be approved by  the Trustees in the  manner described above. The Plan
may be terminated at any  time, without payment of any  penalty, by vote of  the
holders  of a  majority of  the Independent  12b-1 Trustees  or by  a vote  of a
majority of the  outstanding voting securities  (as defined in  the Act) on  not
more  than 30 days written notice to any other party to the Plan. So long as the
Plan is in effect, the selection or nomination of the Independent 12b-1 Trustees
is committed to the discretion of the Independent 12b-1 Trustees.
    

    No interested person of the Fund nor any  Trustee of the Fund who is not  an
interested person of the Fund, as defined in the Act, has any direct or indirect
financial  interest in the operation  of the Plan except  to the extent that the
Distributor or certain of its employees may  be deemed to have such an  interest
as  a result of benefits derived from the successful operation of the Plan or as
a result  of receiving  a portion  of  the amounts  expended thereunder  by  the
Distributor or any of its affiliates, including InterCapital.

DETERMINATION OF NET ASSET VALUE

    As stated in the Prospectus, short-term securities with remaining maturities
of  sixty days  or less at  the time of  purchase are valued  at amortized cost,
unless the Trustees determine such does not reflect

                                       27
<PAGE>
the securities' market value, in which  case these securities will be valued  at
their fair value as determined by the Trustees. Other short-term debt securities
will  be  valued on  a  mark-to-market basis  until such  time  as they  reach a
remaining maturity of  sixty days, whereupon  they will be  valued at  amortized
cost  using their value on the 61st  day unless the Trustees determine such does
not reflect the securities' market value, in which case these securities will be
valued at their fair value as  determined by the Trustees. All other  securities
and  other assets  are valued at  their fair  value as determined  in good faith
under procedures established by and under the supervision of the Trustees.

    As discussed in the Prospectus, the net asset value per share of the Fund is
determined once daily on each day that the New York Stock Exchange is open.  The
net asset value per share will not be determined on such federal and non-federal
holidays  as are  observed by the  New York  Stock Exchange. The  New York Stock
Exchange currently observes the following holidays: New Year's Day;  Presidents'
Day;  Good Friday; Memorial Day; Independence  Day; Labor Day; Thanksgiving Day;
and Christmas Day.

SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------

    Upon the purchase of shares of the Fund, a Shareholder Investment Account is
opened for the investor on  the books of the Fund  and maintained by the  Fund's
Transfer  Agent, Dean  Witter Trust Company  (the "Transfer Agent").  This is an
open account in which shares owned by the investor are credited by the  Transfer
Agent  in lieu  of issuance of  a share  certificate. If a  share certificate is
desired, it must be requested in writing for each transaction. Certificates  are
issued  only for full shares and may be  redeposited in the account at any time.
There is no charge  to the investor  for issuance of  a certificate. Whenever  a
shareholder  instituted transaction  takes place  in the  Shareholder Investment
Account, the shareholder will be mailed  a confirmation of the transaction  from
the Fund or from DWR or other selected broker-dealer.

    INVESTMENT  OF DIVIDENDS OR DISTRIBUTIONS RECEIVED IN CASH.  As discussed in
the Prospectus,  any shareholder  who  receives a  cash payment  representing  a
dividend  or capital gains distribution may invest such dividend or distribution
at net asset  value (without  sales charge),  next determined  by returning  the
check  or the proceeds  to the Transfer  Agent within 30  days after the payment
date. If the  shareholder returns the  proceeds of a  dividend or  distribution,
such  funds  must  be accompanied  by  a  signed statement  indicating  that the
proceeds constitute a dividend or  distribution to be invested. Such  investment
will  be made at the net asset value  per share next determined after receipt of
the check or proceeds by the Transfer Agent.

    AUTOMATIC INVESTMENT  OF DIVIDENDS  AND  DISTRIBUTIONS.   As stated  in  the
Prospectus,   all  income   dividends  and   capital  gains   distributions  are
automatically paid  in  full and  fractional  shares  of the  Fund,  unless  the
shareholder  requests that they be paid in  cash. Each purchase of shares of the
Fund is made upon the condition that the Transfer Agent is thereby automatically
appointed as agent of  the investor to receive  all dividends and capital  gains
distributions  on shares owned by the investor. Such dividends and distributions
will be paid, at  the net asset value  per share, in shares  of the Fund (or  in
cash  if the shareholder so requests) on the monthly payment date, which will be
no later than  the last  business day  of the month  for which  the dividend  or
distribution  is  payable.  Processing  of  dividend  checks  begins immediately
following the monthly payment date.  Shareholders who have requested to  receive
dividends  in cash will normally receive their monthly dividend check during the
first ten days of the following month.  At any time an investor may request  the
Transfer  Agent, in writing,  to have subsequent  dividends and/or capital gains
distributions paid  to  him  or  her  in cash  rather  than  shares.  To  assure
sufficient  time to process the  change, such request should  be received by the
Transfer Agent at  least five  business days  prior to  the record  date of  the
dividend  or distribution.  In the case  of recently purchased  shares for which
registration instructions  have  not been  received  on the  record  date,  cash
payments  will  be made  to DWR  or  other selected  broker-dealer, and  will be
forwarded to the shareholder, upon the receipt of proper instructions.

                                       28
<PAGE>
    TARGETED  DIVIDENDS.-SM-    In  states  where  it  is  legally  permissible,
shareholders  may also have all income dividends and capital gains distributions
automatically invested in shares of an open-end Dean Witter Fund other than Dean
Witter Short-Term Bond Fund. Such investment will be made as described above for
automatic investment in shares of the Fund, at the net asset value per share  of
the selected Dean Witter Fund as of the close of business on the payment date of
the  dividend or distribution and  will begin to earn  dividends, if any, in the
selected Dean Witter Fund the next business day. To participate in the  Targeted
Dividends  program,  shareholders should  contact  their DWR  or  other selected
broker-dealer account executive or the Transfer Agent. Shareholders of the  Fund
must  be shareholders  of the Dean  Witter Fund targeted  to receive investments
from dividends at the time they enter the Targeted Dividends program.  Investors
should  review the prospectus  of the targeted Dean  Witter Fund before entering
the program.

    EASYINVEST.-SM-   Shareholders may  subscribe  to EasyInvest,  an  automatic
purchase  plan  which  provides  for  any  amount  from  $100  to  $5,000  to be
transferred automatically from a checking or savings account, on a semi-monthly,
monthly or quarterly basis,  to the Transfer Agent  for investment in shares  of
the Fund. Shares purchased through EasyInvest will be added to the shareholder's
existing  account at the  net asset value  calculated the same  business day the
transfer of  funds is  effected.  For further  information  or to  subscribe  to
EasyInvest,   shareholders   should  contact   their   DWR  or   other  selected
broker-dealer account executive or the Transfer Agent.

    SYSTEMATIC WITHDRAWAL PLAN.   As discussed in  the Prospectus, a  withdrawal
plan is available for shareholders who own or purchase shares of the Fund having
a  minimum value of $10,000 based upon the then current offering price. The Plan
provides for monthly or quarterly  (March, June, September and December)  checks
in  any dollar  amount, not  less than $25,  or in  any whole  percentage of the
account balance, on an annualized basis.

    Withdrawal Plan payments should  not be considered  as dividends, yields  or
income.  If periodic withdrawal plan payments continuously exceed net investment
income and  net capital  gains, the  shareholder's original  investment will  be
correspondingly reduced and ultimately exhausted.

    Each  withdrawal constitutes  a redemption  of shares  and any  gain or loss
realized must be recognized for federal  income, and generally, state and  local
tax purposes.

    Dividends   and  capital  gains  distributions  on  shares  held  under  the
Systematic Withdrawal Plan will  be invested in  additional full and  fractional
shares  at net asset value (without a  sales charge). Shares will be credited to
an open account for  the investor by the  Transfer Agent; no share  certificates
will be issued. Only shareholders having accounts in which no share certificates
have  been  issued  will  be  permitted to  enroll  in  the  Withdrawal  Plan. A
shareholder is  entitled to  a share  certificate upon  written request  to  the
Transfer  Agent, although in that  event the shareholder's Systematic Withdrawal
Plan will be terminated.

    The Transfer Agent  acts as agent  for the shareholder  in tendering to  the
Fund  for redemption sufficient full and fractional shares to provide the amount
of the periodic  withdrawal payment  designated in the  application. The  shares
will  be  redeemed at  their net  asset value  determined, at  the shareholder's
option on the tenth or twenty-fifth day (or next following business day) of  the
relevant  month or quarter and normally a  check for the proceeds will be mailed
by the Transfer Agent  within five business days  after the date of  redemption.
The Withdrawal Plan may be terminated at any time by the Fund.

    Any  shareholder who wishes to have  payments under the Withdrawal Plan made
to a third party or sent to an address other than the one listed on the  account
must  send complete written instructions to the  Transfer Agent to enroll in the
Withdrawal Plan.  The  shareholder's  signature on  such  instructions  must  be
guaranteed   by  an  eligible   guarantor  acceptable  to   the  Transfer  Agent
(shareholders should  contact  the Transfer  Agent  for a  determination  as  to
whether  a particular institution is such  an eligible guarantor). A shareholder
may, at any time change the amount  and interval of withdrawal payments and  the
address  to  which checks  are mailed  by written  notification to  the Transfer
Agent. The shareholder's signature on such notification must be guaranteed by an
eligible guarantor as described  above. The shareholder  may also terminate  the
Systematic   Withdrawal   Plan   at  any   time   by  written   notice   to  the

                                       29
<PAGE>
Transfer Agent. In the event of such termination, the account will be  continued
as a Shareholder Investment Account. The shareholder may also redeem all or part
of  the shares held in the  Systematic Withdrawal Plan account (see "Redemptions
and Repurchases" in the Prospectus) at any time.

    DIRECT INVESTMENTS THROUGH TRANSFER AGENT.  As discussed in the  Prospectus,
a shareholder may make additional investments in Fund shares at any time through
the  Shareholder Investment Account by  sending a check in  any amount, not less
than $100, payable to Dean Witter  Short-Term Bond Fund, directly to the  Fund's
Transfer  Agent.  The investment  proceeds will  be applied  to the  purchase of
shares of the Fund at the net asset value per share next computed after  receipt
of  the check or purchase payment by the Transfer Agent. The shares so purchased
will be credited to the investor's account.

    EXCHANGE PRIVILEGE.  As discussed  in the Prospectus, an Exchange  Privilege
exists  whereby investors who  have purchased shares  of any of  the Dean Witter
Funds sold with  either a front-end  (at time of  purchase) sales charge  ("FESC
funds")  or a  contingent deferred (at  time of redemption)  sales charge ("CDSC
funds") will be  permitted, after the  shares of the  fund acquired by  purchase
(not  by exchange or dividend  reinvestment) have been held  for thirty days, to
redeem all or part of their shares  in that fund and have the proceeds  invested
in  shares of the  Fund, Dean Witter  Limited Term Municipal  Trust, Dean Witter
Short-Term Treasury Trust  and five  Dean Witter  Funds which  are money  market
funds (the Fund, Dean Witter Short-Term U.S. Treasury Trust, Dean Witter Limited
Term  Municipal Trust and the five money market funds hereinafter referred to as
"Exchange Funds"). There is no waiting  period for exchanges of shares  acquired
by exchange or dividend reinvestment. Subsequently, shares of the Exchange Funds
received  in an exchange for  shares of an FESC fund  (regardless of the type of
fund originally  purchased) may  be redeemed  and exchanged  for shares  of  the
Exchange  Funds,  FESC  funds or  CDSC  funds  (however, shares  of  CDSC funds,
including shares acquired in exchange of (i) shares of FESC funds or (ii) shares
of the Exchange Funds which were acquired in exchange for shares of FESC  funds,
may  not be  exchanged for  shares of FESC  funds). Additionally,  shares of the
Exchange Funds received in an exchange for shares of a CDSC fund (regardless  of
the  type of fund originally purchased) may be redeemed and exchanged for shares
of the  Exchange Funds  or  CDSC funds.  Ultimately, any  applicable  contingent
deferred  sales charge ("CDSC") will  have to be paid  upon redemption of shares
originally purchased from a CDSC fund.  An exchange will be treated for  federal
income  tax purposes  and applicable  state income  tax purposes  the same  as a
repurchase or  redemption of  shares, on  which the  shareholder may  realize  a
capital gain or loss.

    Any  new account  established through the  Exchange Privilege  will have the
same registration and cash dividend or dividend reinvestment plan as the present
account,  unless  the  Transfer  Agent  receives  written  notification  to  the
contrary.  For  telephone  exchanges,  the exact  registration  of  the existing
account and the account number must be provided.

    Any shares  held  in  certificate  form cannot  be  exchanged  but  must  be
forwarded  to the  Transfer Agent and  deposited into  the shareholder's account
before being eligible for exchange.  (Certificates mailed in for deposit  should
not be endorsed.)

    When shares of any CDSC fund are exchanged for shares of the Exchange Funds,
the exchange is executed at no charge to the shareholder, without the imposition
of  the  CDSC  at the  time  of the  exchange.  During  the period  of  time the
shareholder remains in the Exchange Funds  (calculated from the last day of  the
month  in which the Exchange  Fund shares were acquired),  the holding period or
"year since purchase payment  made" is frozen. When  shares are redeemed out  of
the  Exchange Fund, they will be subject to a CDSC which would be based upon the
period of  time  the  shareholder  held shares  in  a  CDSC  fund.  Shareholders
acquiring  shares of  an Exchange Fund  pursuant to this  exchange privilege may
exchange those shares back  into a CDSC  fund from the  Exchange Funds, with  no
CDSC  being imposed on such exchange.  The holding period previously frozen when
shares were first exchanged for shares of the Exchange Fund resumes on the  last
day  of the month in which shares of a CDSC fund are reacquired. Thus, a CDSC is
imposed only upon  an ultimate redemption,  based upon the  time (calculated  as
described  above) the shareholder was invested in  a CDSC fund. Shares of a CDSC
fund acquired in exchange for shares of an FESC fund (or in exchange for  shares
of other Dean Witter funds

                                       30
<PAGE>
for  which shares of  an FESC fund have  been exchanged) are  not subject to any
CDSC upon their redemption.

    When shares initially purchased in a  CDSC fund are exchanged for shares  of
another CDSC fund or for shares of an Exchange Fund, the date of purchase of the
shares  of the fund  exchanged into, for  purposes of the  CDSC upon redemption,
will be the  last day  of the  month in which  the shares  being exchanged  were
originally  purchased.  In allocating  the purchase  payments between  funds for
purposes of the CDSC, the amount which represents the current net asset value of
shares at the time of the exchange  which were (i) purchased more than three  or
six years (depending on the CDSC schedule applicable to the shares) prior to the
exchange,   (ii)  originally  acquired  through  reinvestment  of  dividends  or
distributions and (iii) acquired  in exchange for shares  of FESC funds, or  for
shares  of other  Dean Witter  Funds for  which shares  of FESC  funds have been
exchanged (all  such shares  called  "Free Shares"),  will be  exchanged  first.
Shares  of Dean  Witter American  Value Fund acquired  prior to  April 30, 1984,
shares of Dean Witter  Dividend Growth Securities Inc.  and Dean Witter  Natural
Resource  Development Securities Inc. acquired prior to July 2, 1984, and shares
of Dean  Witter Strategist  Fund acquired  prior to  November 8,  1989 are  also
considered  Free Shares and will be the first Free Shares to be exchanged. After
an exchange, all dividends earned on shares in the Fund or the money market fund
will be considered  Free Shares. If  the exchanged amount  exceeds the value  of
such  Free Shares, an exchange  is made, on a  block-by-block basis, of non-Free
Shares held for  the longest  period of  time (except  that if  shares held  for
identical  periods of time but  subject to different CDSC  schedules are held in
the same Exchange Privilege Account, the  shares of that block that are  subject
to  the lower CDSC rate will be exchanged prior to the shares of that block that
are subject to  a higher CDSC  rate). Shares  equal to any  appreciation in  the
value  of non-Free  Shares exchanged  will be  treated as  Free Shares,  and the
amount of the purchase  payments for the non-Free  Shares of the fund  exchanged
into  will be equal to the  lesser of (a) the purchase  payments for, or (b) the
current net  asset value  of,  the exchanged  non-Free  Shares. If  an  exchange
between  funds would result  in exchange of  only part of  a particular block of
non-Free Shares, then shares equal to any appreciation in the value of the block
(up to the amount of the exchange) will be treated as Free Shares and  exchanged
first,  and the purchase payment  for that block will  be allocated on a prorata
basis between the non-Free Shares of that block to be retained and the  non-Free
Shares   to  be  exchanged.  The  prorated   amount  of  such  purchase  payment
attributable to the retained non-Free Shares will remain as the purchase payment
for such shares, and the amount  of purchase payment for the exchanged  non-Free
Shares  will be equal to  the lesser of (a) the  prorated amount of the purchase
payment for, or  (b) the current  net asset value  of, those exchanged  non-Free
Shares.  Based upon the  procedures described in the  CDSC fund Prospectus under
the caption  "Contingent Deferred  Sales Charge",  any applicable  CDSC will  be
imposed  upon the ultimate redemption  of shares of any  fund, regardless of the
number of exchanges since those shares were originally purchased.

    The Transfer Agent acts as agent  for shareholders of the fund in  effecting
redemptions of Fund shares and in applying the proceeds to the purchase of other
fund  shares. In  the absence  of negligence on  its part,  neither the Transfer
Agent nor the Fund shall be liable  for any redemption of Fund shares caused  by
unauthorized telephone or telegraph instructions. Accordingly, in such event the
investor  shall bear the risk of loss.  The staff of the Securities and Exchange
Commission is currently considering the propriety of such a policy.

    With respect to  exchanges, redemptions or  repurchases, the Transfer  Agent
shall  be liable for its own negligence and not for the default or negligence of
its correspondents or for losses  in transit. The Fund  shall not be liable  for
any default or negligence of the Transfer Agent, the Distributor or any Selected
Broker-Dealer.

    The Distributor and any Selected Broker-Dealer have authorized and appointed
the  Transfer Agent to act as their  agent in connection with the application of
proceeds of any redemption of Fund shares to the purchase of shares of any other
fund and the general administration of the Exchange Privilege. No commission  or
discounts  will be paid to the Distributor or any Selected Broker-Dealer for any
transactions pursuant to this Exchange Privilege.

                                       31
<PAGE>
    Exchanges are subject to  the minimum investment  requirement and any  other
conditions  imposed by each fund. (The  minimum initial investment is $5,000 for
Dean Witter Liquid  Asset Fund Inc.,  Dean Witter Tax-Free  Daily Income  Trust,
Dean  Witter New  York Municipal Money  Market Trust and  Dean Witter California
Tax-Free Daily  Income Trust,  although those  funds may,  at their  discretion,
accept  initial investments of as low  as $1,000. The minimum initial investment
for Dean Witter Short-Term U.S. Treasury  Trust is $10,000, although that  fund,
in  its discretion,  may accept  initial investments  of as  low as  $5,000. The
minimum initial  investment  for all  other  Dean  Witter Funds  for  which  the
Exchange Privilege is available is $1,000.) Upon exchange into an Exchange Fund,
the  shares of that  fund will be  held in a  special Exchange Privilege Account
separately from accounts of  those shareholders who  have acquired their  shares
directly  from that  fund. As a  result, certain services  normally available to
shareholders of  Dean Witter  Short-Term U.S.  Treasury or  money market  funds,
including  the check writing  feature, will not  be available for  funds held in
that account.

    The Fund and each  of the other  Dean Witter Funds may  limit the number  of
times  this  Exchange  Privilege  may  be exercised  by  any  investor  within a
specified period of  time. Also,  the Exchange  Privilege may  be terminated  or
revised  at any time by the  fund and/or any of the  Dean Witter Funds for which
shares of the Fund have been exchanged,  upon such notice as may be required  by
applicable  regulatory agencies (presently sixty  days' prior written notice for
termination or  material  revision), provided  that  six months'  prior  written
notice  of termination will be given to the shareholders who hold shares of Dean
Witter Limited Term Municipal Trust, Dean Witter Short-Term U.S. Treasury Trust,
Dean Witter Liquid  Asset Fund Inc.,  Dean Witter Tax-Free  Daily Income  Trust,
Dean  Witter  New  York Municipal  Money  Market Trust,  Dean  Witter California
Tax-Free Daily Income Trust or Dean  Witter U.S. Government Money Market  Trust,
pursuant  to  this Exchange  Privilege and  provided  further that  the Exchange
Privilege may be terminated  or materially revised without  notice at times  (a)
when the New York Stock Exchange is closed for other than customary weekends and
holidays, (b) when trading on that Exchange is restricted, (c) when an emergency
exists  as a result of which  disposal by the Fund of  securities owned by it is
not reasonably practicable  or it  is not  reasonably practicable  for the  Fund
fairly  to determine the  value of its  net assets, (d)  during any other period
when the Securities and Exchange Commission  by order so permits (provided  that
applicable rules and regulations of the Securities and Exchange Commission shall
govern  as to whether the  conditions prescribed in (b) or  (c) exist) or (e) if
the Fund would be  unable to invest amounts  effectively in accordance with  its
investment objective, policies and restrictions.

    The  Exchange Privilege may be terminated or revised at any time by the Fund
and/or any  of such  Dean Witter  Funds  for which  shares of  the Fund  may  be
exchanged, upon such notice as may be required by applicable regulatory agencies
(presently  sixty  days'  prior  written  notice  for  termination  or  material
revision), provided that six months' prior  notice of termination will be  given
to  shareholders  who hold  shares of  Exchange Funds  pursuant to  the Exchange
Privilege, and provided further that the Exchange Privilege may be terminated or
materially  revised  without   notice  under   certain  unusual   circumstances.
Shareholders  maintaining margin accounts  with DWR or  another Selected Broker-
Dealer are  referred  to  their  account  executive  regarding  restrictions  on
exchange of shares of the Fund pledged in the margin account.

    The  current  prospectus for  each of  the Dean  Witter Funds  describes its
investment objective(s) and policies. Shareholders should obtain a copy and read
it carefully before investing.  Exchange are subject  to the minimum  investment
requirement  and any other conditions  imposed by each Fund.  In the case of any
shareholder holding a share  certificate or certificates,  not exchanges may  be
made  until all applicable share certificates have been received by the Transfer
Agent and deposited in  the shareholder's account. An  exchange will be  treated
for federal income tax purposes the same as a repurchase or redemption of shares
on  which the  shareholder will  realize a  capital gain  or loss.  However, the
ability to deduct  capital losses on  an exchange may  be limited in  situations
where  there is an  exchange of shares  within ninety days  after the shares are
purchased. The Exchange Privilege is only available in states where an  exchange
may legally be made.

    For  further  information  regarding  the  Exchange  Privilege, shareholders
should contact their account executives or the Transfer Agent.

                                       32
<PAGE>
REDEMPTIONS AND REPURCHASES
- --------------------------------------------------------------------------------

    PAYMENT FOR SHARES REDEEMED OR REPURCHASED.  As discussed in the Prospectus,
payment  for shares presented for repurchase or redemption will be made by check
within seven days after receipt by the Transfer Agent of the certificate  and/or
written  request  in good  order. The  term  "good order"  means that  the share
certificate,  if  any,  and  request   for  redemption,  are  properly   signed,
accompanied  by  any  documentation required  by  the Transfer  Agent,  and bear
signature guarantees  when required  by the  Fund or  the Transfer  Agent.  Such
payment  may be postponed or the right of redemption suspended at times (a) when
the New York  Stock Exchange  is closed for  other than  customary weekends  and
holidays, (b) when trading on that Exchange is restricted, (c) when an emergency
exists  as a result of which  disposal by the Fund of  securities owned by it is
not reasonably practicable  or it  is not  reasonably practicable  for the  Fund
fairly  to determine the value of its net  assets, or (d) during any period when
the Securities  and  Exchange Commission  by  order so  permits;  provided  that
applicable rules and regulations of the Securities and Exchange Commission shall
govern as to whether the conditions prescribed in (b) or (c) exist.

    INVOLUNTARY  REDEMPTION.    As  described  in  the  Prospectus,  due  to the
relatively high cost of handling small investments, the Fund reserves the  right
to redeem, at net asset value, the shares of any shareholder whose shares have a
value  of less than $100, or such lesser amount  as may be fixed by the Board of
Trustees. However, before the Fund redeems such shares and sends the proceeds to
the shareholder, it will notify the shareholder that the value of the shares  is
less  than $100 and allow him or her 60 days to make an additional investment in
an amount which will increase  the value of his or  her account to $100 or  more
before the redemption is processed.

    REINSTATEMENT  PRIVILEGE.  As discussed in the Prospectus, a shareholder who
has had  his  or her  shares  redeemed or  repurchased  and has  not  previously
exercised  this reinstatement privilege may, within 30 days after the redemption
or repurchase, reinstate any portion or  all of the proceeds of such  redemption
or  repurchase in shares  of the Fund held  by the shareholder  at the net asset
value next determined after a reinstatement request, together with the proceeds,
is received by the Transfer Agent.

    Exercise of the reinstatement privilege  will not affect the federal  income
tax  and  state income  tax  treatment of  any gain  or  loss realized  upon the
redemption or repurchase, except that  if the redemption or repurchase  resulted
in  a loss and reinstatement is  made in shares of the  Fund, some or all of the
loss, depending on the amount reinstated, will not be allowed as a deduction for
federal income tax and state personal income tax purposes but will be applied to
adjust the cost basis of the shares acquired upon reinstatement.

DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------

    The Fund  intends  to  qualify  and  elect to  be  treated  as  a  regulated
investment  company for  each taxable  year under  the Internal  Revenue Code of
1986, as  amended  (the "Code").  To  so qualify,  the  Fund must  meet  certain
requirements as to the nature of its income and the nature of its assets.

    As  a regulated investment company,  the Fund will not  be subject to United
States federal income tax on its income that it distributes to its shareholders,
provided that an amount equal to at least 90% of its investment company  taxable
income  (i.e., 90% of  its taxable income minus  the excess, if  any, of its net
realized long-term capital gains over its net realized short-term capital losses
including any capital loss carryovers), plus or minus certain other  adjustments
as  specified in section 852  of the Code) for  the taxable year is distributed,
but will be subject  to tax at  regular corporate rates on  any income or  gains
that  it does not distribute. Furthermore, the  Fund will be subject to a United
States corporate income tax with respect to such distributed amounts in any year
that it fails to qualify as a regulated investment company or fails to meet this
distribution requirement.

    The Fund will determine either to distribute or to retain all or part of any
net long-term capital gains in any year for reinvestment. If any such gains  are
retained, the Fund expects to designate such retained

                                       33
<PAGE>
amounts  as undistributed capital gains in a  notice to its shareholders who (a)
will be  required to  include in  income for  United States  federal income  tax
purposes,  as  long-term  capital  gains,  their  proportionate  shares  of  the
undistributed amount, (b) will be entitled to credit their proportionate  shares
of the 35% tax paid by the Fund on the undistributed amount against their United
States  federal income  tax liabilities,  if any,  and to  claim refunds  to the
extent their credits exceed their liabilities, if any, and (c) will be  entitled
to  increase their tax basis, for United  States federal income tax purposes, in
their shares by an amount  equal to 65% of  the amount of undistributed  capital
gains included in the shareholder's income.

    The Code imposes a 4% nondeductible excise tax on the Fund to the extent the
Fund does not distribute by the end of any calendar year at least 98% of its net
investment  income for that year and 98% of  the net amount of its capital gains
(both long-and short-term) for the one-year period ending, as a general rule, on
October 31 of that year. For this purpose, however, any income or gain  retained
by  the Fund that is subject to corporate  income tax will be considered to have
been distributed  by  year-end. The  Fund  anticipates  that it  will  pay  such
dividends  and will make such  distributions as are necessary  in order to avoid
the application of this tax.

    Gains or  losses  on sales  of  securities by  the  Fund will  generally  be
long-term  capital gains or losses if the  securities have been held by the Fund
for more than twelve months. Gains or losses on the sale of securities held  for
twelve months or less will be generally short-term gains or losses.

    Gains  or losses  on the  Fund's transactions  in certain  listed options on
securities and  on futures  and  options on  futures  traded on  U.S.  exchanges
generally  are treated as 60% long-term gain  or loss and 40% short-term gain or
loss. When the  Fund engages in  options and futures  transactions, various  tax
regulations  applicable to the Fund  may have the effect  of causing the Fund to
recognize a gain or loss for tax purposes before that gain or loss is  realized,
or  to defer recognition of  a realized loss for  tax purposes. Recognition, for
tax purposes, of an unrealized loss may result in a lesser amount of the  Fund's
realized net gains being available for distribution.

    As  a regulated investment  company, the Fund is  subject to the requirement
that less than  30% of  its gross  income be derived  from the  sale of  certain
investments  held for  less than  three months.  This requirement  may limit the
Fund's ability to engage in options and futures transactions and to engage in  a
large number of short-term transactions.

    The  Fund may invest in securities  having original issue discount which may
generate income in excess  of the cash received  by the Fund. Consequently,  the
Fund  may be  required to  borrow or  to liquidate  securities in  order to make
distributions.

    Any dividend or capital  gains distribution received  by a shareholder  from
any  investment company will have the effect  of reducing the net asset value of
the shareholder's stock in that company by  the exact amount of the dividend  or
capital   gains  distribution.  Furthermore,  capital  gains  distributions  and
dividends are subject to  federal income taxes.  If the net  asset value of  the
shares  should be reduced below a shareholder's  cost as a result of the payment
of dividends or the distribution of  realized net long-term capital gains,  such
payment  or  distribution  would  be  in  part  a  return  of  the shareholder's
investment to the  extent of such  reduction below the  shareholder's cost,  but
nonetheless  would be fully taxable. Therefore,  an investor should consider the
tax implications of purchasing Fund  shares immediately prior to a  distribution
record date.

   
    Any  loss realized  by shareholders upon  a redemption of  shares within six
months of the date of their purchase will be treated as a long-term capital loss
to the extent  of any distributions  of net long-term  capital gains during  the
six-month period.
    

    SPECIAL  RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS.  In general, gains
from foreign  currencies and  from foreign  currency options,  foreign  currency
futures and forward foreign exchange contracts relating to investments in stock,
securities  or  foreign currencies  are  currently considered  to  be qualifying
income for purposes  of determining whether  the Fund qualifies  as a  regulated
investment company. It is currently unclear, however, who will be treated as the
issuer  of certain foreign currency instruments or how foreign currency options,
futures, or  forward foreign  currency  contracts will  be valued  for  purposes

                                       34
<PAGE>
of  the regulated investment company  diversification requirements applicable to
the Fund. The Fund may request a private letter ruling from the Internal Revenue
Service on some or all of these issues.

    Under Code Section 988, special rules are provided for certain  transactions
in  a  foreign currency  other than  the  taxpayer's functional  currency (I.E.,
unless certain special rules apply, currencies  other than the U.S. dollar).  In
general,  foreign currency gains or losses  from forward contracts, from futures
contracts that are not "regulated futures contracts," and from unlisted  options
will be treated as ordinary income or loss under Code Section 988. Also, certain
foreign  exchange gains or  losses derived with  respect to foreign fixed-income
securities are also  subject to  Section 988 treatment.  In general,  therefore,
Code  Section 988 gains  or losses will  increase or decrease  the amount of the
Fund's  investment  company  taxable  income  available  to  be  distributed  to
shareholders as ordinary income, rather than increasing or decreasing the amount
of  the Fund's net capital gain. Additionally, if Code Section 988 losses exceed
other investment company taxable income during a taxable year, the Fund may  not
be  able  to make  any ordinary  dividend  distributions and  distributions paid
during the year may be characterized for tax purposes as a return of capital.

    Exchange control regulations may restrict repatriations of investment income
and capital or the proceeds of securities sales by foreign investors such as the
Fund and may limit the  Fund's ability to pay  sufficient dividends and to  make
sufficient  distributions  to  satisfy  the  90%  and  excise  tax  distribution
requirements.

    The Fund's transactions, if any,  in foreign currencies, forward  contracts,
options  and  futures  contracts  (including options  and  futures  contracts on
foreign currencies) may be subject to special provisions of the Code that, among
other things, may affect the character of gains and losses realized by the  Fund
(i.e.,  may affect whether gains or  losses are ordinary or capital), accelerate
recognition of  income to  the Fund  and defer  Fund losses.  These rules  could
therefore   affect  the  character,  amount   and  timing  of  distributions  to
shareholders. These  rules also  (a) could  require the  Fund to  mark-to-market
certain  types of the positions in its  portfolio (i.e., treat them as they were
closed out) and  (b) may cause  the Fund to  recognize income without  receiving
cash  with which to pay dividends or  make distributions in amounts necessary to
satisfy the distribution requirements for avoiding income and excise taxes.

    Distributions in excess of the  Fund's current and accumulated earnings  and
profits  will,  as to  each  shareholder, be  treated  as a  tax-free  return of
capital, to the extent of a shareholder's  basis in his shares of the Fund,  and
as  a capital gain thereafter (if the shareholder  held his or her shares of the
Fund as capital assets).

    Shareholders receiving dividends or distributions in the form of  additional
Fund  shares should be treated for United  States federal income tax purposes as
receiving a distribution  in an amount  equal to  the amount of  money that  the
shareholders  receiving cash dividends or distributions will receive, and should
have a cost basis in the shares received equal to such amount.

    Any loss realized on the redemption by  a shareholder of his shares will  be
disallowed  to  the  extent  the  shares  disposed  of  are  replaced, including
replacement through the reinvesting of dividends and capital gains distributions
in the Fund, within a period (of 61 days) beginning 30 days before and ending 30
days after the  disposition of  the shares.  In such a  case, the  basis of  the
shares  acquired  will be  increased to  reflect the  disallowed loss.  Any loss
realized by a shareholder on  the sale of a Fund  share held by the  shareholder
for  six months or less will be treated for United States income tax purposes as
a  long-term  capital  loss  to  the  extent  of  any  distributions  or  deemed
distributions  of  long-term  capital  gains received  by  the  shareholder with
respect to such share.

    Distributions may  also  be  subject  to  state,  local  and  foreign  taxes
depending on each shareholder's particular situation.

    The  foregoing discussion  is a  general summary  of certain  of the current
Federal income tax laws  regarding the Fund and  investors. The discussion  does
not  purport to deal with all of  the Federal income tax consequences applicable
to the Fund, or  to all categories  of investors, some of  which may be  subject

                                       35
<PAGE>
to  special rules. Investors should consult their own tax advisors regarding the
tax consequences to them of investments in shares.

PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

   
    As discussed in the  Prospectus, from time  to time the  Fund may quote  its
"yield"  and/or its "total return" in advertisements and sales literature. Yield
is calculated for any  30-day period as follows:  the amount of interest  and/or
dividend  income  for each  security in  the Fund's  portfolio is  determined in
accordance with  regulatory requirements;  the total  for the  entire  portfolio
constitutes  the Fund's gross income for the period. Expenses accrued during the
period are subtracted to arrive at "net investment income". The resulting amount
is divided by the product of  the net asset value per  share on the last day  of
the  period multiplied by  the average number of  Fund shares outstanding during
the period that were entitled to dividends. This amount is added to 1 and raised
to the sixth power. 1 is then  subtracted from the result and the difference  is
multiplied  by  2 to  arrive at  the  annualized yield.  Based on  the foregoing
calculation, the Fund's annualized  yield for the thirty  (30) day period  ended
April  30, 1994 was 4.62%. Without the waiver of fees and assumption of expenses
by the Investment Manager, the Fund's  annualized yield for the thirty (30)  day
period ended April 30, 1994 would have been 3.20%.
    

   
    The  Fund's "average annual total return" represents an annualization of the
Fund's total return  over a  particular period and  is computed  by finding  the
annual  percentage rate which  will result in  the ending redeemable  value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten  year
period,  or  for  the  period  from  the  date  of  commencement  of  the Fund's
operations, if  shorter than  any of  the  foregoing. For  the purpose  of  this
calculation,  it is assumed that all dividends and distributions are reinvested.
The formula for computing the average annual total return involves a  percentage
obtained  by dividing the ending  redeemable value by the  amount of the initial
investment, taking a root of the quotient  (where the root is equivalent to  the
number  of years in the period) and subtracting  1 from the result. Based on the
foregoing calculation, the  Fund's average  annual total return  for the  period
January  10, 1994  (commencement of operations)  through April  30, 1994 (fiscal
year end) was -6.52%. Without the waiver  of fees and assumption of expenses  by
the Investment Manager, the average annual total return would have been -6.68%.
    

   
    In  addition to the foregoing, the Fund  may advertise its total return over
different periods of time by means of aggregate, year-by-year or other types  of
total  return figures.  In addition,  the Fund  may compute  its aggregate total
return for specified periods by determining the aggregate percentage rate  which
will  result in the ending value of a hypothetical $1,000 investment made at the
beginning of the period. For the purpose of this calculation, it is assumed that
all dividends  and  distributions  are reinvested.  The  formula  for  computing
aggregate  total return  involves a percentage  obtained by  dividing the ending
value by the initial $1,000 investment and subtracting 1 from the result.  Based
on  the foregoing calculation, the Fund's  aggregate total return for the period
January 10, 1994  (commencement of  operations) through April  30, 1994  (fiscal
year end) was -2.01%.
    

   
    The  Fund  may  also advertise  the  growth of  hypothetical  investments of
$10,000, $50,000 and $100,000 in  shares of the Fund by  adding 1 to the  Fund's
aggregate  total return  (expressed as a  decimal and without  reduction for any
contingent deferred  sales  charges)  and multiplying  by  $10,000,  $50,000  or
$100,000,  as the case may  be. Investments of $10,000,  $50,000 and $100,000 in
the Fund at inception would have been $9,799, $48,995 and $97,990,  respectively
at April 30, 1994.
    

    The  Fund from time to  time may also advertise  its performance relative to
certain performance rankings and indexes compiled by independent organizations.

DESCRIPTION OF SHARES
- --------------------------------------------------------------------------------

    The shareholders of the Fund are entitled to a full vote for each full share
held. The Trustees have been elected by InterCapital as the sole shareholder  of
the  Fund. The Trustees  themselves have the  power to alter  the number and the
terms of  office of  the  Trustees, and  they may  at  any time  lengthen  their

                                       36
<PAGE>
own  terms  or make  their terms  of  unlimited duration  and appoint  their own
successors, provided that always  at least a majority  of the Trustees has  been
elected  by  the  shareholders  of the  Fund.  Under  certain  circumstances the
Trustees may be removed  by action of the  Trustees. The shareholders also  have
the  right to remove  the Trustees following  a meeting called  for that purpose
requested in writing by the record holders  of not less than ten percent of  the
Fund's outstanding shares. The voting rights of shareholders are not cumulative,
so  that holders  of more  than 50  percent of  the shares  voting can,  if they
choose, elect all Trustees  being selected, while the  holders of the  remaining
shares would be unable to elect any Trustees.

    The  Declaration of Trust permits the  Trustees to authorize the creation of
additional series  of  shares  (the  proceeds of  which  would  be  invested  in
separate,  independently managed  portfolios) and  additional classes  of shares
within any  series (which  would be  used  to distinguish  among the  rights  of
different categories of shareholders, as might be required by future regulations
or  other unforeseen circumstances).  However, the Trustees  have not authorized
any such additional series or classes of shares.

    The Declaration  of Trust  provides that  no Trustee,  officer, employee  or
agent of the Fund is liable to the Fund or to a shareholder, nor is any Trustee,
officer,  employee or agent liable  to any third persons  in connection with the
affairs of the Fund, except as such liability may arise from his or her own  bad
faith,  willful misfeasance, gross  negligence, or reckless  disregard of his or
her duties. It also  provides that all  third persons shall  look solely to  the
Fund's  property  for  satisfaction of  claims  arising in  connection  with the
affairs of  the Fund.  With  the exceptions  stated,  the Declaration  of  Trust
provides  that  a  Trustee,  officer,  employee  or  agent  is  entitled  to  be
indemnified against all liabilities in connection with the affairs of the Fund.

    The Fund is authorized to issue an unlimited number of shares of  beneficial
interest.  The Fund shall be of unlimited  duration subject to the provisions in
the Declaration of Trust concerning termination by action of the shareholders.

CUSTODIAN AND TRANSFER AGENT
- --------------------------------------------------------------------------------

    The Bank of New York, 110 Washington Street, New York, New York 10286 is the
Custodian of  the  Fund's assets.  Any  of the  Fund's  cash balances  with  the
Custodian  in excess of  $100,000 are unprotected  by federal deposit insurance.
Such balances may, at times, be substantial.

    Dean Witter Trust  Company, Harborside Financial  Center, Plaza Two,  Jersey
City,  New Jersey 07311 is the Transfer  Agent of the Fund's shares and Dividend
Disbursing Agent for payment of dividends  and distributions on Fund shares  and
Agent  for shareholders  under various  investment plans  described herein. Dean
Witter Trust  Company is  an affiliate  of Dean  Witter InterCapital  Inc.,  the
Fund's  Investment Manager,  and of  Dean Witter  Distributors Inc.,  the Fund's
Distributor. As Transfer Agent and Dividend Disbursing Agent, Dean Witter  Trust
Company's  responsibilities include maintaining shareholder accounts; disbursing
cash  dividends  and  reinvesting  dividends;  processing  account  registration
changes; handling purchase and redemption transactions; mailing prospectuses and
reports;   mailing   and  tabulating   proxies;  processing   share  certificate
transactions; and maintaining shareholder records and lists. For these  services
Dean Witter Trust Company receives a per shareholder account fee.

INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------

    Price  Waterhouse serves  as the  independent accountants  of the  Fund. The
independent accountants  are  responsible  for  auditing  the  annual  financial
statements of the Fund.

                                       37
<PAGE>
REPORTS TO SHAREHOLDERS
- --------------------------------------------------------------------------------

    The  Fund will send to shareholders, at least semi-annually, reports showing
the  Fund's  portfolio  and  other  information.  An  annual  report  containing
financial  statements  audited  by  independent  accountants  will  be  sent  to
shareholders each year.

   
    The Fund's fiscal  year ends on  April 30. The  financial statements of  the
Fund  must be  audited at  least once  a year  by independent  accountants whose
selection is made annually by the Fund's Board of Trustees.
    

LEGAL COUNSEL
- --------------------------------------------------------------------------------

    Sheldon Curtis,  Esq., who  is an  officer and  the General  Counsel of  the
Investment Manager, is an officer and the General Counsel of the Fund.

EXPERTS
- --------------------------------------------------------------------------------

   
    The  Financial  Statements  of  the  Fund  included  in  this  Statement  of
Additional Information and  incorporated by  reference in  the Prospectus,  have
been so included and incorporated in reliance on the report of Price Waterhouse,
independent  accountants,  given on  the authority  of said  firm as  experts in
auditing and accounting.
    

REGISTRATION STATEMENT
- --------------------------------------------------------------------------------

    This Statement of Additional Information  and the Prospectus do not  contain
all  of the  information set  forth in the  Registration Statement  the Fund has
filed with the  Securities and  Exchange Commission.  The complete  Registration
Statement  may  be obtained  from the  Securities  and Exchange  Commission upon
payment of the fee prescribed by the rules and regulations of the Commission.

                                       38
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1994
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
  PRINCIPAL
  AMOUNT (IN                                     COUPON    MATURITY
  THOUSANDS)                                      RATE       DATE       VALUE
  -----------                                   --------   --------  ------------
  <C>           <S>                             <C>        <C>       <C>
                BONDS (55.3%)
                CORPORATE (40.2%)
                AUTOMOTIVE FINANCE (3.5%)
     US $ 500   Ford Motor Credit Corp. ......     6.25%    2/26/98  $    488,910
        1,000   General Motors Acceptance
                Corp. ........................     7.75     4/15/97     1,023,770
                                                                     ------------
                                                                        1,512,680
                                                                     ------------
                BANK HOLDING COMPANIES (3.2%)
          500   Home Savings America Co. .....     6.00    11/ 1/00       458,205
          625   Integra Financial Corp. ......     6.50     4/15/00       600,018
          314   Midlantic Corp................     9.25     9/ 1/99       335,786
                                                                     ------------
                                                                        1,394,009
                                                                     ------------
                BANKS -- INTERNATIONAL (2.2%)
        1,000   Kansalis -- Osake Pankki......     6.125    5/15/98       957,813
                                                                     ------------
                BROKERAGE (2.3%)
          500   Lehman Brothers Holdings,
                Inc...........................     7.625    7/15/99       500,726
          500   Smith Barney Shearson, Inc....     6.00     3/15/97       491,116
                                                                     ------------
                                                                          991,842
                                                                     ------------
                CHEMICALS (2.5%)
          500   General Chemical Corp. .......    14.00    11/ 1/98       545,000
          500   Georgia Gulf Corp. ...........    15.00     4/15/00       533,750
                                                                     ------------
                                                                        1,078,750
                                                                     ------------
                COMPUTER EQUIPMENT (3.6%)
        1,000   Digital Equipment Corp. ......     7.00    11/15/97       989,740
          500   Unisys Corp...................    13.50*    7/ 1/97       550,000
                                                                     ------------
                                                                        1,539,740
                                                                     ------------
                FOOD & TOBACCO (1.2%)
          500   RJR Nabisco, Inc. ............    10.50     4/15/98       523,690
                                                                     ------------
                FOREST & PAPER PRODUCTS (2.3%)
          500   Boise Cascade Corp. ..........     9.625    7/15/98       514,380
          500   Champion International
                Corp. ........................     7.70    12/15/99       502,420
                                                                     ------------
                                                                        1,016,800
                                                                     ------------
                INDUSTRIALS (5.4%)
          500   Comdisco, Inc. ...............     9.75     1/15/97       532,010
          500   Hertz Corporation. ...........     9.50     5/15/98       539,645
          500   Mitchell Energy & Development
                Co. ..........................     5.10     2/15/97       478,820
          500   Reynolds Metals, Inc. ........     9.375    6/15/99       538,665
          250   USX -- Marathon Corp. ........     9.80     7/ 1/01       266,852
                                                                     ------------
                                                                        2,355,992
                                                                     ------------
                INSURANCE (2.4%)
        1,000   Continental Corp. ............     8.25     4/15/99     1,031,430
                                                                     ------------
                PUBLISHING (1.0%)
          500   Time Warner, Inc. ............    11.00+    8/15/02       454,375
                                                                     ------------
                TELECOMMUNICATIONS (1.1%)
          500   Telecommunications, Inc. .....     7.375    2/15/00       484,805
                                                                     ------------
</TABLE>

                                       39
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1994 (CONTINUED)
- --------------------------------------------------------------------------------

   
<TABLE>
<CAPTION>
  PRINCIPAL     TRANSPORTATION (0.7%)
  AMOUNT (IN                                     COUPON    MATURITY
  THOUSANDS)                                      RATE       DATE       VALUE
  -----------                                   --------   --------  ------------
  <C>           <S>                             <C>        <C>       <C>
     US$  300   AMR Corp. ....................     8.10%   11/ 1/98  $    306,477
                                                                     ------------
                UTILITIES -- ELECTRIC (7.8%)
          500   Commonwealth Edison Co. ......     6.50     4/15/00       473,820
          500   Consolidated Edison Co. ......     5.90    12/15/96       493,670
          370   Consumers Power Co. ..........     8.875   11/15/99       392,488
          500   Long Island Lighting Co. .....     6.25     7/15/01       440,595
          500   Ohio Edison Co................     8.75     2/15/98       526,185
          575   Public Service Co. of New
                Hampshire.....................     8.875    5/15/96       590,306
          500   United Illuminating Co. ......     6.20     1/15/99       470,615
                                                                     ------------
                                                                        3,387,679
                                                                     ------------
                UTILITIES -- INTERNATIONAL
                (1.0%)
          500   Korea Electric Power Corp. ...     6.375   12/ 1/03       437,700
                                                                     ------------
                TOTAL CORPORATE BONDS
                (IDENTIFIED COST $18,406,548)......................    17,473,782
                                                                     ------------

                MORTGAGE PASS-THROUGH CERTIFICATES
                (6.1%)
        1,000   Federal Home Loan Mortgage
                Corp..........................    6.50++    5/16/99       994,375
        2,000   Federal National Mortgage
                Association. .................     7.56+   12/20/01     1,640,625
                                                                     ------------
                TOTAL MORTGAGE PASS-THROUGH CERTIFICATES
                (IDENTIFIED COST $2,735,062).......................     2,635,000
                                                                     ------------
                U.S. GOVERNMENT OBLIGATIONS
                (9.0%)
        2,000   U.S. Treasury Note............     4.00     1/31/96     1,946,562
        2,000   U.S. Treasury Note............     4.625    2/29/96     1,963,437
                                                                     ------------
                TOTAL U.S. GOVERNMENT OBLIGATIONS
                (IDENTIFIED COST $3,991,024).......................     3,909,999
                                                                     ------------
                TOTAL BONDS (IDENTIFIED COST $25,132,634)..........    24,018,781
                                                                     ------------
                SHORT-TERM INVESTMENTS(44.8%)
                COMMERCIAL PAPER (A) (2.3%)
                UTILITY--FINANCE (2.3%)
        1,000   National Rural Utilities
                Cooperative Finance Corp.
                (AMORTIZED COST $998,311).....     3.801    5/16/94       998,311
                                                                     ------------
                U.S. GOVERNMENT AGENCIES (A)
                (23.7%)
        3,000   Federal Home Loan Banks.......     3.631    5/ 9/94     2,997,277
        4,300   Federal Home Loan Mortgage
                Corp. ........................     3.501    5/ 2/94     4,299,165
        3,000   Federal Home Loan Mortgage
                Corp..........................     3.651    5/ 4/94     2,998,784
                                                                     ------------
                TOTAL U.S. GOVERNMENT AGENCIES (AMORTIZED COST
                $10,295,226).......................................    10,295,226
                                                                     ------------
</TABLE>
    

                                       40
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1994 (CONTINUED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
  PRINCIPAL     MEXICAN GOVERNMENT SECURITIES
  AMOUNT (IN    (A) (18.0%)                      COUPON    MATURITY
  THOUSANDS)                                      RATE       DATE       VALUE
  -----------                                   --------   --------  ------------
  <C>           <S>                             <C>        <C>       <C>
    MXP 9,600   Cetes Series 0504.............    10.70%    5/ 4/94  $  2,935,848
        9,542   Cetes Series 0519.............    10.20     5/19/94     2,906,160
        6,430   Cetes Series 0526.............    10.80     5/26/94     1,953,860
                                                                     ------------
                TOTAL MEXICAN GOVERNMENT SECURITIES
                (AMORTIZED COST $8,196,543)........................     7,795,868
                                                                     ------------
                REPURCHASE AGREEMENT (0.8%)
     US$  352   The Bank of New York (dated
                4/29/94; proceeds $352,210;
                collateralized by $372,797
                Student Loan Marketing
                Association 6.81% due 12/1/10
                valued at $359,146)
                (IDENTIFIED COST $352,104)....     3.625    5/ 2/94       352,104
                                                                     ------------
                TOTAL SHORT-TERM INVESTMENTS
                (IDENTIFIED COST $19,842,184)......................    19,441,509
                                                                     ------------
                TOTAL INVESTMENTS
                (IDENTIFIED COST $44,974,818) (B).......      100.1%   43,460,290
                LIABILITIES IN EXCESS OF OTHER ASSETS...       (0.1)      (57,653)
                                                           --------  ------------
                NET ASSETS..............................      100.0% $ 43,402,637
                                                           --------  ------------
                                                           --------  ------------
<FN>
- ---------------

 *   Adjustable rate. Rate shown is the rate in effect at April 30, 1994.
 +   Currently zero coupon under terms of the initial offering.
++
     Security purchased on a when issue basis.
(a)  Securities  were purchased on  a discount basis. The  rates shown have been
     adjusted to reflect a bond equivalent yield.
(b)  The aggregate  cost for  federal income  tax purposes  is $44,974,818;  the
     aggregate  gross unrealized  appreciation is  $312 and  the aggregate gross
     unrealized  depreciation  is  $1,514,840,   resulting  in  net   unrealized
     depreciation of $1,514,528.
</TABLE>

                       SEE NOTES TO FINANCIAL STATEMENTS

                                       41
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1994
- --------------------------------------------------------------------------------

<TABLE>
<S>                                          <C>
ASSETS:
Investments in securities, at value
  (identified cost $44,974,818) (Note 1)...  $ 43,460,290
Receivable for:
  Interest.................................       405,746
  Shares of beneficial interest sold.......       563,704
Deferred organizational expenses (Note
  1).......................................       150,361
                                             ------------
      TOTAL ASSETS.........................    44,580,101
                                             ------------
LIABILITIES:
Payable for:
  Investments purchased....................       996,771
  Shares of beneficial interest
   repurchased.............................         8,385
  Dividends to shareholders................        21,947
Organizational expenses payable (Note 1)...       150,361
                                             ------------
      TOTAL LIABILITIES....................     1,177,464
                                             ------------
NET ASSETS:
Paid-in-capital............................    44,884,482
Accumulated net realized loss on
  investments..............................       (50,773)
Net unrealized depreciation on
  investments..............................    (1,514,528)
Accumulated undistributed net investment
  income...................................        83,456
                                             ------------
      NET ASSETS...........................  $ 43,402,637
                                             ------------
                                             ------------
NET ASSET VALUE PER SHARE, 4,510,655 shares
  outstanding (unlimited authorized of $.01
  par value)...............................         $9.62
                                             ------------
                                             ------------
</TABLE>

STATEMENT OF OPERATIONS FOR THE PERIOD
JANUARY 10, 1994 THROUGH APRIL 30, 1994 (NOTE 1)

<TABLE>
<S>                                         <C>
INVESTMENT INCOME:
INTEREST..................................  $    666,656
                                            ------------
EXPENSES
  Investment management fee (Note 2)......        73,373
  Shareholder reports and notices.........         9,000
  Trustees' fees and expenses.............         5,696
  Professional fees.......................        42,311
  Custodian fees..........................        10,294
  Registration fees.......................        16,267
  Transfer agent fees.....................         4,532
  Organizational expenses (Note 1)........         9,638
                                            ------------
    TOTAL EXPENSES BEFORE FEES WAIVED/
     ASSUMED..............................       171,111
  Less: Expenses Waived/Assumed by
    Investment Manager (Note 2)...........      (171,111)
                                            ------------
    TOTAL EXPENSES AFTER FEES WAIVED/
     ASSUMED..............................       --
                                            ------------
      NET INVESTMENT INCOME...............       666,656
                                            ------------
                                            ------------

NET REALIZED AND UNREALIZED LOSS ON
  INVESTMENTS (Note 1):
Realized loss on investments..............       (50,773)
Unrealized depreciation on investments....    (1,514,528)
                                            ------------
    NET LOSS ON INVESTMENTS...............    (1,565,301)
                                            ------------
      NET DECREASE IN NET ASSETS
        RESULTING FROM OPERATIONS.........  $   (898,645)
                                            ------------
                                            ------------
</TABLE>

STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                                 FOR THE PERIOD
                                                                                                                JANUARY 10, 1994
                                                                                                                    THROUGH
                                                                                                                 APRIL 30, 1994
                                                                                                                    (NOTE 1)
                                                                                                               ------------------
<S>                                                                                                            <C>
INCREASE (DECREASE) IN NET ASSETS:
  Operations:
    Net investment income....................................................................................    $      666,656
    Net realized loss on investments.........................................................................           (50,773)
    Net unrealized depreciation on investments...............................................................        (1,514,528)
                                                                                                               ------------------
      Net decrease in net assets resulting from operations...................................................          (898,645)
  Dividends to shareholders from net investment income.......................................................          (583,200)
  Net increase from shares of beneficial interest (Note 4)...................................................        44,784,482
                                                                                                               ------------------
        Total increase.......................................................................................        43,302,637
NET ASSETS:
  Beginning of period........................................................................................           100,000
                                                                                                               ------------------
  END OF PERIOD (including undistributed net investment income of $83,456)...................................    $   43,402,637
                                                                                                               ------------------
                                                                                                               ------------------
</TABLE>

                       SEE NOTES TO FINANCIAL STATEMENTS

                                       42
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

1.   ORGANIZATION  AND ACCOUNTING POLICIES  -- Dean Witter  Short-Term Bond Fund
(the "Fund") was organized on October 22, 1993 as a Massachusetts business trust
and is registered under  the Investment Company  Act of 1940,  as amended, as  a
diversified  open-end management investment company  and commenced operations on
January 10, 1994.

    The following is a summary of significant accounting policies:

    A.  VALUATION OF INVESTMENTS --  (1) an equity portfolio security listed  or
    traded  on the New York  or American Stock Exchange  is valued at its latest
    sale price on that exchange (if there  were no sales that day, the  security
    is  valued at the closing bid price); (2) all other portfolio securities for
    which over-the-counter market quotations are readily available are valued at
    the latest bid price; (3) when market quotations are not readily  available,
    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  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); (4) certain  of the Fund's portfolio securities
    may be valued by an outside pricing service approved by the Fund's Trustees.
    The pricing service utilizes a matrix system incorporating security quality,
    maturity and coupon as the evaluation model parameters, and/or research  and
    evaluations  by its  staff, including  review of  broker-dealer market price
    quotations, in determining  what it believes  is the fair  valuation of  the
    portfolio securities valued by such pricing service; and (5) short-term debt
    securities  with remaining maturities of 60 days or less at time of purchase
    are valued at amortized  cost; other short-term securities  are valued on  a
    mark-to-market  basis until such time as  they reach a remaining maturity of
    60 days, whereupon they  are valued at amortized  cost using their value  on
    the 61st day. All other securities and other assets are valued at their fair
    value  as determined in good faith under procedures established by and under
    the general supervision of the Trustees.

    B.  ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
    the trade date (date the order to buy or sell is executed). In computing net
    investment income, the Fund does  not amortize premiums or accrue  discounts
    on  fixed income  securities in the  portfolio, except  those original issue
    discounts  for  which  amortization  is  required  for  federal  income  tax
    purposes.  Realized gains and losses on security transactions are determined
    on the identified cost method. Interest income is accrued daily.

    C.  FOREIGN CURRENCY TRANSLATION  -- The books and  records of the Fund  are
    maintained in U.S. dollars as follows: (1) the foreign currency market value
    of investment securities, other assets and liabilities and forward contracts
    stated in foreign currencies are translated at the exchange rates at the end
    of  the period; and (2) purchases, sales, income and expenses are translated
    at the  rate  of  exchange  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  net  foreign  exchange   gains/losses  included  in  realized   and
    unrealized gain/loss in the Statement of Operations 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.

                                       43
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

    D.   FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
    requirements of the Internal Revenue Code applicable to regulated investment
    companies and to distribute all of  its taxable income to its  shareholders.
    Accordingly, no federal income tax provision is required.

    E.    DIVIDENDS  AND  DISTRIBUTIONS  TO  SHAREHOLDERS  --  The  Fund records
    dividends and  distributions to  its shareholders  on the  record date.  The
    amount  of dividends  and distributions from  net investment  income and net
    realized capital gains are determined in accordance with federal income  tax
    regulations, which may differ from generally accepted accounting principles.
    These "book/tax" differences are either considered temporary or permanent in
    nature.  To  the  extent these  differences  are permanent  in  nature, such
    amounts are reclassified within the capital accounts based on their  federal
    tax-basis treatment; temporary differences do not require reclassifications.
    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.

    F.   ORGANIZATIONAL  EXPENSES --  The  Fund's Investment  Manager  paid  the
    organizational expenses of the Fund in the amount of approximately $160,000.
    Organizational  expenses will be reimbursed by  the Fund for the full amount
    exclusive of any  amounts assumed by  the Investment Manager.  The Fund  has
    deferred  and is amortizing the organizational expenses on the straight-line
    method over  a period  not to  exceed five  years from  the commencement  of
    operations.

    G.  REPURCHASE AGREEMENTS -- The Fund's custodian takes possession on behalf
    of  the  Fund  of  the  collateral  pledged  for  investments  in repurchase
    agreements. It is the policy of the Fund to value the underlying  collateral
    daily  on  a mark-to-market  basis to  determine  that the  value, including
    accrued interest, is  at least equal  to the repurchase  price plus  accrued
    interest.  In the event of default of the obligation to repurchase, the Fund
    has the  right  to  liquidate  the collateral  and  apply  the  proceeds  in
    satisfaction of the obligation.

2.   INVESTMENT  MANAGEMENT AGREEMENT  -- Pursuant  to an  Investment Management
Agreement  (the  "Agreement"),   with  Dean  Witter   Intercapital  Inc.,   (the
"Investment  Manager"), the Fund  pays its Investment  Manager a management fee,
accrued daily and payable monthly,  by applying the annual  rate of .70% 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  office  space  and  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.

   
    The  Investment  Manager  undertook  to  assume  all  expenses  (except  for
brokerage fees) and waive the compensation  provided for in the Agreement  until
such  time as the Fund has $50 million of net assets or until December 31, 1994,
which ever comes first.
    

3.   SECURITY TRANSACTIONS  AND  TRANSACTIONS WITH  AFFILIATES  -- The  cost  of
purchases  and the  proceeds from sales  of portfolio securities  for the period
January 10, 1994 (commencement of operations) through April 30, 1994,  excluding
short-term  investments,  aggregated $26,650,867  and  $1,504,025, respectively,
including purchases of U.S. Government securities of $6,726,086.

                                       44
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

4.  SHARES OF BENEFICIAL INTEREST -- Transactions in shares of beneficial
interest were as follows:

<TABLE>
<CAPTION>
                                                                 FOR THE PERIOD JANUARY 10,
                                                                            1994
                                                                   THROUGH APRIL 30, 1994
                                                                          (NOTE 1)
                                                                -----------------------------
                                                                   SHARES         AMOUNTS
                                                                ------------  ---------------
<S>                                                             <C>           <C>
Sold..........................................................     5,562,083  $    55,179,598
Reinvestments of dividends....................................        52,040          505,222
                                                                ------------  ---------------
                                                                   5,614,123       55,684,820
Repurchased...................................................    (1,113,468)     (10,900,338)
                                                                ------------  ---------------
Net increase..................................................     4,500,655  $    44,784,482
                                                                ------------  ---------------
                                                                ------------  ---------------
</TABLE>

5.  FEDERAL INCOME TAX STATUS --  Any net capital losses incurred after  October
31  ("Post-October losses") within the  taxable year are deemed  to arise on the
first business day of the Fund's next  taxable year. The Fund incurred and  will
elect  to defer net capital losses of approximately $51,000 during fiscal period
1994. To the extent that these losses  are used to offset future capital  gains,
it is probable that the gains so offset will not be distributed to shareholders.
The   Fund  has   temporary  book/tax  differences   primarily  attributable  to
Post-October losses.

                                       45
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected ratios and per share data for a share of beneficial interest
outstanding for the period:

<TABLE>
<CAPTION>
                                                    JANUARY 10, 1994*
                                                         THROUGH
                                                     APRIL 30, 1994
                                                    -----------------
<S>                                                 <C>
PER SHARE OPERATING PERFORMANCE:
  Net asset value, beginning of period............      $10.00
                                                    --------
    Net investment income.........................        0.21
    Net realized and unrealized loss on
     investments..................................       (0.40)
                                                    --------
  Total from investment operations................       (0.19)
  Dividends from net investment income............       (0.19)
                                                    --------
  Net asset value, end of period..................      $ 9.62
                                                    --------
                                                    --------
TOTAL INVESTMENT RETURN...........................       (2.01)%(1)
RATIOS/SUPPLEMENTAL DATA:
  Net assets, end of period (in thousands)........  $43,403
  Ratio of net investment income to average net
   assets.........................................        6.36% (2)(3)
  Ratio of expenses to average net assets.........        0.00% (3)
  Portfolio turnover rate.........................        9   %
<FN>
- ------------------------

 *   Date of commencement of operations.
(1)  Not annualized.
(2)  Annualized.
(3)  If the Fund  had borne  all expenses  that were  assumed or  waived by  the
     Investment  Manager,  the above  annualized expense  ratio would  have been
     1.55% and the above annualized net investment income ratio would have  been
     4.81%.
</TABLE>

                       SEE NOTES TO FINANCIAL STATEMENTS

                                       46
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of Dean Witter Short-Term Bond 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 Short-Term Bond  Fund
(the  "Fund") at April 30, 1994, and  the results of its operations, the changes
in its net assets and the financial  highlights for the period January 10,  1994
(commencement  of  operations)  through  April  30,  1994,  in  conformity  with
generally  accepted  accounting  principles.  These  financial  statements   and
financial  highlights (hereafer 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 audit. We conducted our audit
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
audit, which included  confirmation of  securities owned  at April  30, 1994  by
correspondence  with the custodian  and broker, provides  a reasonable basis for
the opinion expressed above.

PRICE WATERHOUSE
New York, New York
June 15, 1994

                                       47
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------

RATINGS OF CORPORATE DEBT INSTRUMENTS INVESTMENTS
MOODY'S INVESTORS SERVICE INC. ("MOODY'S")

                         FIXED-INCOME SECURITY RATINGS

<TABLE>
<S>        <C>
Aaa        Fixed-income  securities which are rated Aaa are  judged to be of the best quality.
           They carry the smallest degree of investment risk and are generally referred to  as
           "gilt  edge." Interest  payments are  protected by a  large or  by an exceptionally
           stable margin and principal  is secure. While the  various protective elements  are
           likely to change, such changes as can be visualized are most unlikely to impair the
           fundamentally strong position of such issues.
Aa         Fixed-income  securities which are rated Aa are judged to be of high quality by all
           standards. Together with the  Aaa group they comprise  what are generally known  as
           high grade fixed-income securities. They are rated lower than the best fixed-income
           securities  because margins of protection may not  be as large as in Aaa securities
           or fluctuation of  protective elements  may be of  greater amplitude  or there  may
           other  elements present which make the  long-term risks appear somewhat larger than
           in Aaa securities.
A          Fixed-income securities  which  are  rated  A  possess  many  favorable  investment
           attributes  and are  to be  considered as  upper medium  grade obligations. Factors
           giving security to principal and interest are considered adequate, but elements may
           be present which suggest a susceptibility to impairment sometime in the future.
Baa        Fixed-income securities  which  are  rated  Baa  are  considered  as  medium  grade
           obligations;  i.e., they are neither highly  protected nor poorly secured. Interest
           payments and  principal  security  appear  adequate for  the  present  but  certain
           protective elements may be lacking or may be characteristically unreliable over any
           great  length  of time.  Such fixed-income  securities lack  outstanding investment
           characteristics and in fact have speculative characteristics as well.
           Fixed-income securities rated Aaa, Aa, A and Baa are considered investment grade.
Ba         Fixed-income securities which are rated Ba are judged to have speculative elements;
           their future cannot be considered as well assured. Often the protection of interest
           and principal payments  may be very  moderate, and therefore  not well  safeguarded
           during both good and bad times in the future. Uncertainty of position characterizes
           bonds in this class.
B          Fixed-income  securities which  are rated B  generally lack  characteristics of the
           desirable  investment.  Assurance  of  interest   and  principal  payments  or   of
           maintenance  of other  terms of the  contract over any  long period of  time may be
           small.
Caa        Fixed-income securities which are rated Caa  are of poor standing. Such issues  may
           be  in default or there may be present elements of danger with respect to principal
           or interest.
Ca         Fixed-income  securities  which  are  rated   Ca  present  obligations  which   are
           speculative in a high degree. Such issues are often in default or have other marked
           shortcomings.
C          Fixed-income  securities which  are rated  C are  the lowest  rated class  of fixed
           income securities, and  issues so rated  can be regarded  as having extremely  poor
           prospects of ever attaining any real investment standing.
</TABLE>

    RATING  REFINEMENTS: Moody's may  apply numerical modifiers, 1,  2, and 3 in
each  generic  rating  classification  from  Aa  through  B  in  its   municipal
fixed-income  security rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking;  and a modifier  3 indicates  that the issue  ranks in  the
lower end of its generic rating category.

                                       48
<PAGE>
                            COMMERCIAL PAPER RATINGS

    Moody's  Commercial  Paper  ratings are  opinions  of the  ability  to repay
punctually promissory obligations not having  an original maturity in excess  of
nine  months. The ratings apply to Municipal Commercial Paper as well as taxable
Commercial Paper. Moody's employs the  following three designations, all  judged
to  be investment  grade, to indicate  the relative repayment  capacity of rated
issuers: Prime-1, Prime-2, Prime-3.

    Issuers rated Prime-1 have a  superior capacity for repayment of  short-term
promissory  obligations.  Issuers  rated  Prime-2  have  a  strong  capacity for
repayment of short-term promissory obligations;  and Issuers rated Prime-3  have
an  acceptable  capacity  for repayment  of  short-term  promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.

STANDARD & POOR'S CORPORATION ("STANDARD & POOR'S")

                         FIXED-INCOME SECURITY RATINGS

    A Standard & Poor's fixed-income security rating is a current assessment  of
the  creditworthiness of an obligor with  respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.

    The ratings are  based on  current information  furnished by  the issuer  or
obtained  by Standard  & Poor's  from other  sources it  considers reliable. The
ratings are  based, in  varying degrees,  on the  following considerations:  (1)
likelihood  of default-capacity and willingness of  the obligor as to the timely
payment of interest and repayment of  principal in accordance with the terms  of
the  obligation;  (2)  nature  of  and provisions  of  the  obligation;  and (3)
protection afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.

    Standard & Poor's does  not perform an audit  in connection with any  rating
and  may, on occasion, rely on  unaudited financial information. The ratings may
be changed, suspended or withdrawn as a result of changes in, or  unavailability
of, such information, or for other reasons.

<TABLE>
<S>        <C>
AAA        Fixed-income  securities rated "AAA" have the highest rating assigned by Standard &
           Poor's. Capacity to pay interest and repay principal is extremely strong.
AA         Fixed-income securities rated "AA" have a very strong capacity to pay interest  and
           repay principal and differs from the highest-rate issues only in small degree.
A          Fixed-income  securities rated "A" have a strong capacity to pay interest and repay
           principal although they  are somewhat more  susceptible to the  adverse effects  of
           changes  in circumstances and  economic conditions than  fixed-income securities in
           higher-rated categories.
BBB        Fixed-income securities rated "BBB" are regarded as having an adequate capacity  to
           pay  interest and repay principal. Whereas it normally exhibits adequate protection
           parameters, adverse economic conditions or  changing circumstances are more  likely
           to lead to a weakened capacity to pay interest and repay principal for fixed-income
           securities  in  this  category  than for  fixed-income  securities  in higher-rated
           categories.
           Fixed-income securities rated AAA, AA, A and BBB are considered investment grade.
BB         Fixed-income securities rated  "BB" have  less near-term  vulnerability to  default
           than  other  speculative grade  fixed-income  securities. However,  it  faces major
           ongoing uncertainties  or  exposures to  adverse  business, financial  or  economic
           conditions  which could lead to inadequate  capacity or willingness to pay interest
           and repay principal.
B          Fixed-income securities  rated "B"  have  a greater  vulnerability to  default  but
           presently  have the  capacity to meet  interest payments  and principal repayments.
           Adverse business, financial or economic conditions would likely impair capacity  or
           willingness to pay interest and repay principal.
</TABLE>

                                       49
<PAGE>
<TABLE>
<S>        <C>
CCC        Fixed-income  securities rated "CCC"  have a current  identifiable vulnerability to
           default,  and  are  dependent  upon  favorable  business,  financial  and  economic
           conditions  to meet timely payments of interest and repayments of principal. In the
           event of adverse business, financial or economic conditions, they are not likely to
           have the capacity to pay interest and repay principal.
CC         The rating "CC"  is typically  applied to fixed-income  securities subordinated  to
           senior debt which is assigned an actual or implied "CCC" rating.
C          The  rating "C"  is typically  applied to  fixed-income securities  subordinated to
           senior debt which is assigned an actual or implied "CCC-" rating.
CI         The rating "CI"  is reserved for  fixed-income securities on  which no interest  is
           being paid.
NR         Indicates that no rating has been requested, that there is insufficient information
           on which to base a rating or that Standard & Poor's does not rate a particular type
           of obligation as a matter of policy.
           Fixed-income securities rated "BB," "B," "CCC," "CC" and "C" are regarded as having
           predominantly  speculative characteristics with respect to capacity to pay interest
           and repay principal.  "BB" indicates the  least degree of  speculation and "C"  the
           highest  degree of speculation. While such fixed-income securities will likely have
           some  quality  and  protective  characteristics,  these  are  outweighed  by  large
           uncertainties or major risk exposures to adverse conditions.
           Plus  (+)  or minus  (-): The  rating from  "AA" to  "CCC" may  be modified  by the
           addition of a plus or minus sign  to show relative standing with the major  ratings
           categories.
</TABLE>

                            COMMERCIAL PAPER RATINGS

    Standard  and Poor's commercial paper rating  is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. The  commercial paper rating  is not a  recommendation to purchase  or
sell a security. The ratings are based upon current information furnished by the
issuer  or obtained by S&P from other sources it considers reliable. The ratings
may  be  changed,  suspended,  or  withdrawn  as  a  result  of  changes  in  or
unavailability  of such information.  Ratings are graded  into group categories,
ranging from "A"  for the  highest quality obligations  to "D"  for the  lowest.
Ratings  are applicable  to both  taxable and  tax-exempt commercial  paper. The
categories are as follows:

    Issues assigned A ratings are regarded  as having the greatest capacity  for
timely payment. Issues in this category are further refined with the designation
1, 2, and 3 to indicate the relative degree of safety.

<TABLE>
<S>        <C>
A-1        indicates that the degree of safety regarding timely payment is very strong.
A-2        indicates  capacity for timely  payment on issues with  this designation is strong.
           However, the  relative  degree of  safety  is not  as  overwhelming as  for  issues
           designated "A-1."
A-3        indicates  a satisfactory  capacity for  timely payment.  Obligations carrying this
           designation are,  however,  somewhat more  vulnerable  to the  adverse  effects  of
           changes in circumstances than obligations carrying the higher designations.
</TABLE>

                                  BOND RATINGS
FITCH INVESTORS SERVICE, INC. ("FITCH")

    The  Fitch Bond  Ratings provides  a guide  to investors  in determining the
investment risk associated with a particular security. The rating represents its
assessment of the issuer's  ability to meet the  obligations of a specific  debt
issue  or  class  of  debt  in  a timely  manner.  Fitch  bond  ratings  are not
recommendations to  buy,  sell or  hold  securities since  they  incorporate  no
information on market price or yield relative to other debt instruments.

    The  rating  takes into  consideration special  features  of the  issue, its
relationship to other obligations of the issuer, the record of the issuer and of
any guarantor, as  well as  the political  and economic  environment that  might
affect the future financial strength and credit quality of the issuer.

                                       50
<PAGE>
    Bonds  which  have  the  same  rating are  of  similar  but  not necessarily
identical investment  quality  since the  limited  number of  rating  categories
cannot  fully reflect  small differences  in the  degree of  risk. Moreover, the
character of  the risk  factor  varies from  industry  to industry  and  between
corporate, health care and municipal               .

    In  assessing  credit  risk,  Fitch  Investors  Service  relies  on  current
information furnished by the issuer and/or guarantor and other sources which  it
considers  reliable. Fitch does not perform an audit of the financial statements
used in assigning a rating.

    Ratings may  be changed,  withdrawn  or suspended  at  any time  to  reflect
changes  in  the financial  condition of  the  issuer, the  status of  the issue
relative to other  debt of  the issuer, or  any other  circumstances that  Fitch
considers to have a material effect on the credit of the obligor.

<TABLE>
<S>        <C>
AAA        rated  bonds  are considered  to  be investment  grade  and of  the  highest credit
           quality. The obligor has an exceptionally strong ability to pay interest and  repay
           principal, which is unlikely to be affected by reasonably foreseeable events.
AA         rated  bonds are considered to be investment grade and of very high credit quality.
           The obligor's ability to  pay interest and repay  principal, while very strong,  is
           somewhat less than for AAA rated securities or more subject to possible change over
           the term of the issue.
A          rated  bonds are considered to be investment  grade and of high credit quality. The
           obligor's ability to pay interest and  repay principal is considered to be  strong,
           but  may  be  more  vulnerable  to  adverse  changes  in  economic  conditions  and
           circumstances than bonds with higher ratings.
BBB        rated bonds  are considered  to  be investment  grade  and of  satisfactory  credit
           quality. The obligor's ability to pay interest and repay principal is considered to
           be adequate. Adverse changes in economic conditions and circumstances, however, are
           more likely to weaken this ability than bonds with higher ratings.
BB         rated  bonds are considered speculative and  of low investment grade. The obligor's
           ability to pay interest and repay principal is not strong and is considered  likely
           to be affected over time by adverse economic changes.
B          rated  bonds are  considered highly  speculative. Bonds  in this  class are lightly
           protected as to the obligor's  ability to pay interest over  the life of the  issue
           and repay principal when due.
CCC        rated  bonds may have certain identifiable  characteristics which, if not remedied,
           could lead to the possibility of default in either principal or interest payments.
CC         rated bonds  are  minimally  protected.  Default  in  payment  of  interest  and/or
           principal seems probable.
C          rated bonds are in imminent default in payment of interest or principal.
</TABLE>

                               SHORT-TERM RATINGS

    Fitch's  short-term ratings  apply to debt  obligations that  are payable on
demand or have  original maturities of  generally up to  three years,  including
commercial  paper, certificates of deposit, medium-term notes, and municipal and
investment notes. Although the credit analysis is similar to Fitch's bond rating
analysis, the  short-term rating  places greater  emphasis on  the existence  of
liquidity necessary to meet the issuer's obligations in a timely manner. Fitch's
short-term ratings are as follows:

<TABLE>
<S>        <C>
Fitch-1+   (Exceptionally  Strong Credit Quality) Issues  assigned this rating are regarded
           as having the strongest degree of assurance for timely payment.
Fitch-1    (Very Strong Credit Quality) Issues assigned this rating reflect an assurance of
           timely payment only slightly less in degree than issues rated Fitch-1+.
Fitch-2    (Good Credit Quality) Issues assigned this rating have a satisfactory degree  of
           assurance for timely payment but the margin of safety is not as great as the two
           higher categories.
</TABLE>

                                       51
<PAGE>
<TABLE>
<S>        <C>
Fitch-3    (Fair   Credit  Quality)  Issues  assigned   this  rating  have  characteristics
           suggesting that the degree of assurance for timely payment is adequate, however,
           near-term adverse change is likely to  cause these securities to be rated  below
           investment grade.
Fitch-S    (Weak   Credit  Quality)  Issues  assigned   this  rating  have  characteristics
           suggesting a minimal degree of assurance  for timely payment and are  vulnerable
           to near term adverse changes in financial and economic conditions.
D          (Default) Issues assigned this rating are in actual or imminent payment default.
LOC        This  symbol LOC indicates that the rating is based on a letter of credit issued
           by a commercial bank.
</TABLE>

                               LONG-TERM RATINGS
DUFF & PHELPS, INC.

    These  ratings  represent  a  summary  opinion  of  the  issuer's  long-term
fundamental   quality.  Rating   determination  is  based   on  qualitative  and
quantitative factors  which  may  vary  according  to  the  basic  economic  and
financial   characteristics  of   each  industry  and   each  issuer.  Important
considerations are vulnerability to economic cycles as well as risks related  to
such  factors  as  competition,  government  action,  regulation,  technological
obsolescence, demand shifts, cost structure, and management depth and expertise.
The projected viability of the obligor at the trough of the cycle is a  critical
determination.

    Each  rating also takes into account the  legal form of the security, (e.g.,
first mortgage bonds, subordinated debt,  preferred stock, etc.). The extent  of
rating  dispersion  among the  various classes  of  securities is  determined by
several factors including relative weightings of the different security  classes
in  the capital structure,  the overall credit  strength of the  issuer, and the
nature of covenant protection. Review of indenture restrictions is important  to
the analysis of a company's operating and financial constraints.

    The  Credit Rating Committee  formally reviews all  ratings once per quarter
(more frequently, if necessary).

<TABLE>
<CAPTION>
RATING SCALE     DEFINITION

<S>              <C>
AAA              Highest credit quality. The risk factors are negligible, being only slightly more than  risk-free
                 U.S. Treasury debt.

AA+              High  credit quality. Protection factors  are strong. Risk is modest,  but may vary slightly from
AA               time to time because of economic conditions.
AA-

A+               Protection factors are average but adequate. However, risk factors are more variable and  greater
A                in periods of economic stress.
A
BBB+             Below  average  protection  factors  but  still  considered  sufficient  for  prudent investment.
BBB              Considerable variability in risk during economic cycles.
BBB-

BB+              Below investment grade but  deemed likely to  meet obligations when  due. Present or  prospective
BB               financial  protection factors  fluctuate according  to industry  conditions or  company fortunes.
BB-              Overall quality may move up or down frequently within this category.

B+               Below investment grade and possessing risk that  obligations will not be met when due.  Financial
B                protection factors will fluctuate widely according to economic cycles, industry conditions and/or
B-               company  fortunes.  Potential exists  for  frequent changes  in  the quality  rating  within this
                 category or into a higher or lower quality rating grade.
</TABLE>

                                       52
<PAGE>
<TABLE>
<S>              <C>
CCC              Well below investment grade securities. May be in default or have considerable uncertainty exists
                 as to timely payment of principal, interest or preferred dividends. Protection factors are narrow
                 and risk  can  be  substantial  with  unfavorable  economic/  industry  conditions,  and/or  with
                 unfavorable company developments.

DD               Defaulted  debt obligations. Issuer failed to  meet scheduled principal and/or interest payments.
DP               Preferred stock with dividend arrearages.
</TABLE>

                               SHORT-TERM RATINGS

    Duff & Phelps' short-term  ratings are consistent  with the rating  criteria
utilized by money market participants. The ratings apply to all obligations with
maturities  of under one year, including commercial paper, the uninsured portion
of  certificates  of  deposit,  unsecured  bank  loans,  master  notes,  bankers
acceptances,  irrevocable letters of credit, and current maturities of long-term
debt. Asset-backed commercial paper is also rated according to this scale.

    Emphasis is  placed on  liquidity which  is defined  as not  only cash  from
operations,  but also  access to  alternative sources  of fund,  including trade
credit, bank lines, and the capital  markets. An important consideration is  the
level of an obligor's reliance on short-term funds on an ongoing basis.

<TABLE>
<S>                  <C>
    A. CATEGORY 1:   HIGH GRADE
    Duff 1+          Highest  certainty of  timely payment.  Short-term liquidity, including
                      internal operating  factors and/or  access to  alternative sources  of
                      funds,  is  outstanding,  and  safety  is  just  below  risk-free U.S.
                      Treasury short-term obligations.
    Duff 1           Very high certainty of timely payment. Liquidity factors are  excellent
                      and supported by good fundamental protection factors. Risk factors are
                      minor.
    Duff-            High  certainty  of timely  payment. Liquidity  factors are  strong and
                      supported by  good fundamental  protection factors.  Risk factors  are
                      very small.

    B. CATEGORY 2:   GOOD GRADE
    Duff 2           Good  certainty  of  timely  payment.  Liquidity  factors  and  company
                      fundamentals are  sound. Although  ongoing funding  needs may  enlarge
                      total  financing requirements, access to capital markets is good. Risk
                      factors are small.

    C. CATEGORY 3:   SATISFACTORY GRADE
    Duff 3           Satisfactory liquidity and other protection factors qualify issue as to
                      investment  grade.  Risk  factors  are  larger  and  subject  to  more
                      variation. Nevertheless, timely payment is expected.

    D. CATEGORY 4:   NON-INVESTMENT GRADE
    Duff 4           Speculative  investment characteristics. Liquidity is not sufficient to
                      insure against  disruption  in  debt service.  Operating  factors  and
                      market access may be subject to a high degree of variation.

    E. CATEGORY 5:   DEFAULT
    Duff 5           Issuer failed to meet scheduled principal and/or interest payments.
</TABLE>

                                       53
<PAGE>

                        DEAN WITTER SHORT-TERM BOND FUND

                            PART C  OTHER INFORMATION



Item 24.  Financial Statements and Exhibits

     (a)  FINANCIAL STATEMENTS

        (1)  Financial statements and schedules (unaudited),
             included in Prospectus (Part A):
                                                               Page in
                                                              Prospectus
                                                              ----------

             Financial highlights for the period January 10, 1994
             through April 30, 1994................................4

        (2)  Financial statements included in the Statement of Additional
             Information (Part B):                               Page in
                                                                   SAI
                                                                   ---

             Portfolio of Investments at April 30, 1994 ...........40

             Statement of assets and liabilities at
             April 30, 1994 .......................................43

             Statement of operations for the period
             January 10, 1994 through April 30, 1994...............43

             Statement of changes in net assets for
             the period January 10, 1994 through April 30, 1994....43

             Notes to Financial Statements ........................44

             Financial highlights for the period January 10, 1994
             through April 30, 1994................................47

        (3)  Financial statements included in Part C:


        (a)  FINANCIAL STATEMENTS

             None

        (b)  EXHIBITS:

Exhibit
Number              Description
- -------             ------------

9.       --         Form of Services Agreement between Dean Witter InterCapital
                    Inc. and Dean Witter Services Company Inc.



                                        1

<PAGE>

11.      --         Consent of Independent Accountants

16.      --         Schedule for Computation of Performance Quotations

Other    --         Powers of Attorney

Item 25.  PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

          None

Item 26.  NUMBER OF HOLDERS OF SECURITIES.


      (1)                                      (2)
                                     Number of Record Holders
     Title Of Class                   at June 7, 1994
     --------------                  ------------------------

Shares of Beneficial Interest                1,364


Item 27.  INDEMNIFICATION.

      Pursuant to Section 5.3 of the Registrant's Declaration of Trust and under
Section 4.8 of the Registrant's By-Laws, the indemnification of the
Registrant's trustees, officers, employees and agents is permitted if it is
determined that they acted under the belief that their actions were in or not
opposed to the best interest of the  Registrant, and, with respect to any
criminal proceeding, they had reasonable cause to believe their conduct was
not unlawful.  In addition, indemnification is permitted only if it is
determined that the actions in question did not render them liable by reason
of willful misfeasance, bad faith or gross negligence in the performance of
their duties or by reason of reckless disregard of their obligations and duties
to the Registrant.  Trustees, officers, employees and agents will be indemnified
for the expense of litigation if it is determined that they are entitled to
indemnification against any liability established in such litigation.  The
Registrant may also advance money for these expenses provided that they give
their undertakings to repay the Registrant unless their conduct is later
determined to permit indemnification.

      Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the Registrant
shall be liable for any action or failure to act, except in the case of bad
faith, willful misfeasance, gross negligence or reckless disregard of duties to
the Registrant.

      Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to trustees,



                                        2

<PAGE>

officers and controlling persons of the Registrant pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the opinion of
the  Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.  In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officer, or
controlling person of the Registrant in connection with the successful defense
of any action, suit or proceeding) is asserted against the Registrant by such
trustee, officer or controlling person in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act, and will be governed by the
final adjudication of such issue.

      The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with Release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940, so
long as the interpretation of Sections 17(h) and 17(i) of such Act remains in
effect.

      Registrant, in conjunction with the Investment Manager, Registrant's
Trustees, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was a
Trustee, officer, employee, or agent of Registrant, or who is or was serving at
the request of Registrant as a trustee, director, officer, employee or agent of
another trust or corporation, against any liability asserted against him and
incurred by him or arising out of his position.  However, in no event will
Registrant maintain insurance to indemnify any such person for any act for which
Registrant itself is not permitted to indemnify him.


Item 28.  BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

      See "The Fund and Its Management" in the Prospectus regarding the business
of the investment adviser.  The term "Dean Witter Funds" used below refers to
the following Funds:  (1) InterCapital Income Securities Inc., (2) High Income
Advantage Trust, (3) High Income Advantage Trust II, (4) High Income Advantage
Trust III, (5) Municipal Income Trust, (6) Municipal Income Trust II, (7)
Municipal Income Trust III, (8) Dean Witter Government Income Trust, (9)
Municipal Premium Income Trust, (10) Municipal Income Opportunities Trust, (11)
Municipal Income Opportunities Trust II, (12) Municipal Income Opportunities
Trust III, (13) Prime Income Trust, (14) InterCapital Insured Municipal Bond
Trust, (15) InterCapital Quality Municipal Income Trust, (16) InterCapital
Quality Municipal Investment Trust, (17) InterCapital Insured Municipal Income
Trust, (18) InterCapital California Insured Municipal Income Trust, (19)



                                        3

<PAGE>

InterCapital Insured Municipal Trust, (20) InterCapital Quality Municipal
Securities (21) InterCapital New York Quality Municipal Securities, (22)
InterCapital California Municipal Securities, (23) InterCapital Insured
California Municipal Securities and (24) InterCapital Insured Municipal
Securities, registered closed-end investment companies, and (1) Dean Witter
Short-Term Bond Fund, (2) Dean Witter Tax-Exempt Securities Trust, (3) Dean
Witter Tax-Free Daily Income Trust, (4) Dean Witter Dividend Growth Securities
Inc., (5) Dean Witter Convertible Securities Trust, (6) Dean Witter Liquid Asset
Fund Inc., (7) Dean Witter Developing Growth Securities Trust, (8) Dean Witter
Retirement Series, (9) Dean Witter Federal Securities Trust, (10) Dean Witter
World Wide Investment Trust, (11) Dean Witter U.S. Government Securities Trust,
(12) Dean Witter Select Municipal Reinvestment Fund, (13) Dean Witter High Yield
Securities Inc., (14) Dean Witter Intermediate Income Securities, (15) Dean
Witter New York Tax-Free Income Fund, (16) Dean Witter California Tax-Free
Income Fund, (17) Dean Witter Health Sciences Trust, (18) Dean Witter California
Tax-Free Daily Income Trust, (19) Dean Witter Managed Assets Trust, (20) Dean
Witter American Value Fund, (21) Dean Witter Strategist Fund, (22) Dean Witter
Utilities Fund, (23) Dean Witter World Wide Income Trust, (24) Dean Witter New
York Municipal Money Market Trust, (25) Dean Witter Capital Growth Securities,
(26) Dean Witter Precious Metals and Minerals Trust, (27) Dean Witter European
Growth Fund Inc., (28) Dean Witter Global Short-Term Income Fund Inc., (29) Dean
Witter Pacific Growth Fund Inc., (30) Dean Witter Multi-State Municipal Series
Trust, (31) Dean Witter Premier Income Trust, (32) Dean Witter Short-Term U.S.
Treasury Trust, (33) Dean Witter Diversified Income Trust, (34) Dean Witter U.S.
Government Money Market Trust, (35) Dean Witter Global Dividend Growth
Securities, (36) Active Assets California Tax-Free Trust, (37) Dean Witter
Natural Resource Development Securities Inc., (38) Active Assets Government
Securities Trust, (39) Active Assets Money Trust, (40) Active Assets Tax-Free
Trust, (41) Dean Witter Limited Term Municipal Trust, (42) Dean Witter Variable
Investment Series, (43) Dean Witter Value-Added Market Series, (44) Dean Witter
Global Utilities Fund, (45) Dean Witter High Income Securities, (46) Dean Witter
National Municipal Trust and (47) Dean Witter International SmallCap Fund,
registered open-end investment companies. InterCapital is a wholly-owned direct
subsidiary of Dean Witter Reynolds Inc. which in turn is a wholly-owned
subsidiary of Dean Witter, Discover & Co.  The principal address of the Dean
Witter Funds is Two World Trade Center, New York, New York 10048.  The term
"TCW/DW Funds" refers to the following Funds: (1) TCW/DW Core Equity Trust, (2)
TCW/DW North American Government Income Trust, (3) TCW/DW Latin American Growth
Fund, (4) TCW/DW Income and Growth Fund, (5) TCW/DW Small Cap Growth Fund, (6)
TCW/DW Balanced Fund, (7) TCW/DW North American Intermediate Income Trust,
registered open-end investment companies and (8) TCW/DW Term Trust 2002, (9)
TCW/DW Term Trust 2003, (10) TCW/DW Term Trust 2000, and (11) TCW/DW Emerging
Markets Opportunities Trust, registered closed-end investment companies.



                                        4

<PAGE>

                                              Other Substantial
                                              Business, Profession,
                          Position with       Vocation or Employment,
                           Dean Witter        including Name, Prin-
                          InterCapital        cipal Address and
    Name                      Inc.            Nature of Connection
    ----                 ------------------   ------------------------

Charles A.               Chairman, Chief      Executive Vice
Fiumefreddo              Executive Officer    President and Director
                         and Director         of Dean Witter Reynolds Inc.
                                              ("DWR"); Chairman, Director
                                              or Trustee, President and
                                              Chief Executive Officer of
                                              the Dean Witter Funds;
                                              Chairman, Chief Executive
                                              Officer and Trustee of the
                                              TCW/DW Funds; Chairman and
                                              Director of Dean Witter Trust
                                              Company ("DWTC");
                                              Chairman, Chief Executive
                                              Officer and Director of Dean
                                              Witter Distributors
                                              Inc.("Distributors"); Formerly
                                              Executive Vice President and
                                              Director of Dean Witter,
                                              Discover & Co. ("DWDC");
                                              Director and/or officer of
                                              DWDC subsidiaries.

Philip J.                Director             Chairman, Chief Executive
  Purcell                                     Officer and Director of DWDC
                                              and DWR; Director of
                                              Distributors; Director or Trustee
                                              of the Dean Witter Funds; Director
                                              and/or officer of various DWDC
                                              subsidiaries.



                                        5

<PAGE>

                                              Other Substantial
                                              Business, Profession,
                          Position with       Vocation or Employment,
                           Dean Witter        including Name, Prin-
                          InterCapital        cipal Address and
    Name                      Inc.            Nature of Connection
    ----                 ------------------   ------------------------

Richard M.               Director             President and Chief
  DeMartini                                   Operating Officer of
                                              Dean Witter Capital
                                              and Director of DWSC,
                                              DWR and Distributors;
                                              Trustee of the TCW/DW Funds.

James F.                 Director             President and Chief
  Higgins                                     Operating Officer of
                                              Dean Witter Financial;
                                              Director of DWSC, DWR
                                              and Distributors.

Thomas C. Schneider      Executive Vice       Executive Vice President,
                         President, Chief     Chief Financial Officer and
                         Financial Officer    Director of DWSC, DWR and
                         and Director         Distributors.

Christine A.             Director             Executive Vice
  Edwards                                     President, Secretary, General
                                              Counsel and Director of DWSC,
                                              DWR and Distributors.

Robert M. Scanlan        President and        Vice President of
                         Chief Operating      the Dean Witter Funds
                         Officer              and the TCW/DW Funds;
                                              President of DWSC; Executive
                                              Vice President of
                                              Distributors; Executive Vice
                                              President and Director of
                                              DWTC.



                                        6

<PAGE>

                                               Other Substantial
                                               Business, Profession,
                          Position with        Vocation or Employment,
                           Dean Witter         including Name, Prin-
                          InterCapital         cipal Address and
    Name                      Inc.             Nature of Connection
    ----                 -------------------   ------------------------

David A. Hughey          Executive Vice        Vice President of the
                         President and         Dean Witter Funds and
                         Chief Administrative  the TCW/DW Funds;
                         Officer               Executive Vice President,
                                               Chief Administrative Officer
                                               and Director of DWTC;
                                               Executive Vice President and
                                               Chief Administrative Officer
                                               of DWSC and Distributors.

Edmund C.                Executive Vice        Vice President of the
  Puckhaber              President             Dean Witter Funds.

John Van Heuvelen        Executive Vice        President and Chief
                         President             Executive Officer of
                                               DWTC.

Sheldon Curtis           Senior Vice           Vice President,
                         President,            Secretary and
                         General Counsel       General Counsel of the
                         and Secretary         Dean Witter Funds and the
                                               TCW/DW Funds; Senior Vice
                                               President and Secretary of
                                               DWTC; Assistant Secretary
                                               of DWR and DWDC; Senior
                                               Vice President, Assistant
                                               General Counsel and
                                               Assistant Secretary of
                                               Distributors.

Peter M. Avelar          Senior Vice           Vice President of
                         President             various Dean Witter
                                               Funds.

Mark Bavoso              Senior Vice           Vice President of
                         President             various Dean Witter
                                               Funds.

Thomas H. Connelly       Senior Vice           Vice President of
                         President             various Dean Witter
                                               Funds.

Edward Gaylor            Senior Vice           Vice President of
                         President             various Dean Witter Funds.

Rajesh K. Gupta          Senior Vice           Vice President of
                         President             various Dean Witter
                                               Funds.



                                        7

<PAGE>

                                               Other Substantial
                                               Business, Profession,
                          Position with        Vocation or Employment,
                           Dean Witter         including Name, Prin-
                          InterCapital         cipal Address and
    Name                      Inc.             Nature of Connection
    ----                 ------------------    ------------------------

Kenton J.                Senior Vice           Vice President of
  Hinchliffe             President             various Dean Witter
                                               Funds.

John B. Kemp, III        Senior Vice           Director of the
                         President             Provident Savings
                                               Bank, Jersey City,
                                               New Jersey.

Anita Kolleeny           Senior Vice           Vice President of
                         President             various Dean Witter
                                               Funds.

Jonathan R. Page         Senior Vice           Vice President of
                         President             various Dean Witter
                                               Funds.

Ira Ross                 Senior Vice           Vice President of
                         President             various Dean Witter
                                               Funds.

Rochelle G. Siegel       Senior Vice           Vice President of
                         President             various Dean Witter
                                               Funds.

Paul D. Vance            Senior Vice           Vice President of
                         President             various Dean Witter
                                               Funds.

Elizabeth A.             Senior Vice
  Vetell                 President

James F. Willison        Senior Vice           Vice President of
                         President             various Dean Witter
                                               Funds.

Ronald Worobel           Senior Vice           Vice President of
                         President             various Dean Witter
                                               Funds.

Thomas F. Caloia         First Vice            Treasurer of the
                         President and         Dean Witter Funds
                         Assistant Treasurer   and the TCW/DW Funds;
                                               Assistant Treasurer
                                               of DWSC; Assistant
                                               Treasurer of
                                               Distributors.



                                        8

<PAGE>

                                              Other Substantial
                                              Business, Profession,
                          Position with       Vocation or Employment,
                           Dean Witter        including Name, Prin-
                          InterCapital        cipal Address and
    Name                      Inc.            Nature of Connection
    ----                 ------------------   ------------------------

Marilyn K. Cranney       First Vice           Assistant Secretary
                         President and        of the Dean Witter
                         Assistant            Funds and the TCW/DW
                         Secretary            Funds; Vice President
                                              and Assistant
                                              Secretary of DWSC;
                                              Assistant Secretary of
                                              DWR and DWDC.

Barry Fink               First Vice           Assistant Secretary
                         President            of the Dean Witter
                                              Funds and TCW/DW
                                              Funds; First Vice
                                              President and
                                              Assistant Secretary of
                                              DWSC.

Michael                  First Vice           First Vice President
  Interrante             President and        and Controller of
                         Controller           DWSC; Assistant
                                              Treasurer of
                                              Distributors.
Robert Zimmerman         First Vice
                         President

Joseph Arcieri           Vice President

Mark Bavoso              Vice President

Douglas Brown            Vice President

Rosalie Clough           Vice President

B. Catherine             Vice President
  Connelly

Salvatore DeSteno        Vice President       Vice President of
                                              DWSC.

Frank J. DeVito          Vice President       Vice President of
                                              DWSC.

Dwight Doolan            Vice President

Bruce Dunn               Vice President

June Ewers               Vice President

Geoffrey D. Flynn        Vice President       Vice President of
                                              DWSC.

Bette Freedman           Vice President



                                        9

<PAGE>

                                              Other Substantial
                                              Business, Profession,
                          Position with       Vocation or Employment,
                           Dean Witter        including Name, Prin-
                          InterCapital        cipal Address and
    Name                      Inc.            Nature of Connection
    ----                 ------------------   ------------------------

Deborah Genovese         Vice President

Peter W. Gurman          Vice President

Shant Harootunian        Vice President

John Hechtlinger         Vice President

David Johnson            Vice President

Christopher Jones        Vice President

Stanley Kapica           Vice President

Konrad J. Krill          Vice President

Paula LaCosta            Vice President       Vice President of
                                              various Dean Witter
                                              Funds.

Lawrence S. Lafer        Vice President       Assistant Secretary
                         and Assistant        of the Dean Witter
                         Secretary            Funds and the TCW/DW
                                              Funds; Vice President and
                                              Assistant Secretary of DWSC.

Thomas Lawlor            Vice President

Lou Anne D. McInnis      Vice President       Assistant Secretary
                         and Assistant        of the Dean Witter
                         Secretary            Funds and the TCW/DW
                                              Funds; Vice President  of
                                              DWSC.

Sharon K. Milligan       Vice President

James Mulcahy            Vice President

James Nash               Vice President

Hugh Rose                Vice President

Ruth Rossi               Vice President       Assistant Secretary
                         and Assistant        of the Dean Witter
                         Secretary            Funds and the TCW/DW
                                              Funds; Assistant Secretary
                                              of DWSC.
Carl F. Sadler           Vice President



                                       10

<PAGE>

                                              Other Substantial
                                              Business, Profession,
                          Position with       Vocation or Employment,
                           Dean Witter        including Name, Prin-
                          InterCapital        cipal Address and
    Name                      Inc.            Nature of Connection
    ----                 ------------------   ------------------------

Rafael Scolari           Vice President

Rose Simpson             Vice President

Stuart Smith             Vice President

Diane Lisa Sobin         Vice President       Vice President of
                                              various Dean Witter
                                              Funds.

Susanne Stager           Vice President

Kathleen Stromberg       Vice President       Vice President of
                                              various Dean Witter
                                              Funds.

Vinh Q. Tran             Vice President       Vice President of
                                              various Dean Witter
                                              Funds.

Alice Weiss              Vice President       Vice President of
                                              various Dean Witter
                                              Funds.

Jayne M. Wolff           Vice President

Marianne Zalys           Vice President



Item 29.  PRINCIPAL UNDERWRITERS

(a)  Dean Witter Distributors Inc. ("Distributors"), a Delaware corporation, is
the principal underwriter of the Registrant.  Distributors is also the principal
underwriter of the following investment companies:

 (1)  Dean Witter Liquid Asset Fund Inc.
 (2)  Dean Witter Tax-Free Daily Income Trust
 (3)  Dean Witter California Tax-Free Daily Income Trust
 (4)  Dean Witter Retirement Series
 (5)  Dean Witter Dividend Growth Securities Inc.
 (6)  Dean Witter Natural Resource Development Securities Inc.
 (7)  Dean Witter World Wide Investment Trust
 (8)  Dean Witter Capital Growth Securities
 (9)  Dean Witter Convertible Securities Trust
(10)  Active Assets Tax-Free Trust
(11)  Active Assets Money Trust
(12)  Active Assets California Tax-Free Trust
(13)  Active Assets Government Securities Trust
(14)  Dean Witter Short-Term Bond Fund
(15)  Dean Witter Federal Securities Trust
(16)  Dean Witter U.S. Government Securities Trust



                                       11

<PAGE>

(17)  Dean Witter High Yield Securities Inc.
(18)  Dean Witter New York Tax-Free Income Fund
(19)  Dean Witter Tax-Exempt Securities Trust
(20)  Dean Witter California Tax-Free Income Fund
(21)  Dean Witter Managed Assets Trust
(22)  Dean Witter Limited Term Municipal Trust
(23)  Dean Witter World Wide Income Trust
(24)  Dean Witter Utilities Fund
(25)  Dean Witter Strategist Fund
(26)  Dean Witter New York Municipal Money Market Trust
(27)  Dean Witter Intermediate Income Securities
(28)  Prime Income Trust
(29)  Dean Witter European Growth Fund Inc.
(30)  Dean Witter Developing Growth Securities Trust
(31)  Dean Witter Precious Metals and Minerals Trust
(32)  Dean Witter Pacific Growth Fund Inc.
(33)  Dean Witter Multi-State Municipal Series Trust
(34)  Dean Witter Premier Income Trust
(35)  Dean Witter Short-Term U.S. Treasury Trust
(36)  Dean Witter Diversified Income Trust
(37)  Dean Witter Health Sciences Trust
(38)  Dean Witter Global Dividend Growth Securities
(39)  Dean Witter American Value Fund
(40)  Dean Witter U.S. Government Money Market Trust
(41)  Dean Witter Global Short-Term Income Fund Inc.
(42)  Dean Witter Variable Investment Series
(43)  Dean Witter Value-Added Market Series
(44)  Dean Witter Global Utilities Fund
(45)  Dean Witter High Income Securities
(46)  Dean Witter National Municipal Trust
(47)  Dean Witter International SmallCap Fund
 (1)  TCW/DW Core Equity Trust
 (2)  TCW/DW North American Government Income Trust
 (3)  TCW/DW Latin American Growth Fund
 (4)  TCW/DW Income and Growth Fund
 (5)  TCW/DW Small Cap Growth Fund
 (6)  TCW/DW Balanced Fund
 (7)  TCW/DW North American Intermediate Income Trust
 (8)  TCW/DW Emerging Markets Opportunities Trust

(b)  The following information is given regarding directors and officers of
Distributors not listed in Item 28 above.  The principal address of Distributors
is Two World Trade Center, New York, New York 10048.  None of the following
persons has any position or office with the Registrant.

                                                  Positions and
                                                  Office with
Name                                              Distributors
- ----                                              ------------

Fredrick K. Kubler                      Senior Vice President, Assistant
                                        Secretary and Chief Compliance
                                        Officer.

Michael T. Gregg                        Vice President and Assistant
                                        Secretary.

Edward C. Oelsner III                   Vice President of Distributors.

Samuel Wolcott III                      Vice President of Distributors.



                                       12

<PAGE>

Item 30.  LOCATION OF ACCOUNTS AND RECORDS

      All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Investment Manager at its offices, except records relating to
holders of shares issued by the Registrant, which are maintained by the
Registrant's Transfer Agent, at its place of business as shown in the
prospectus.


Item 31.  MANAGEMENT SERVICES

      Registrant is not a party to any such management-related service
contract.


Item 32.  UNDERTAKINGS

      Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.



                                       13


<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York and State of
New York on the 17th day of June, 1994.

                                        DEAN WITTER SHORT-TERM BOND FUND

                                       By      /s/ Sheldon Curtis
                                          ----------------------------------
                                                   Sheldon Curtis
                                           Vice President and Secretary

     Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 1 has been signed below by the following persons in the
capacities and on the dates indicated.

     Signatures                    Title                     Date
     ----------                    -----                     ----

(1) Principal Executive Officer    President, Chief
                                   Executive Officer,
                                   Trustee and Chairman
By  /s/ Charles A. Fiumefreddo                             06/17/94
    ------------------------------
        Charles A. Fiumefreddo

(2) Principal Financial Officer    Treasurer and Principal
                                   Accounting Officer

By  /s/ Thomas F. Caloia                                   06/17/94
    ------------------------------
        Thomas F. Caloia

(3) Majority of the Trustees

    Charles A. Fiumefreddo (Chairman)
    Edward R. Telling
    Philip J. Purcell

By  /s/ Sheldon Curtis                                     06/17/94
    ------------------------------
        Sheldon Curtis
        Attorney-in-Fact

    Jack F. Bennett                Michael H. Johnson
    Michael Bozic                  Paul Kolton
    Edwin J. Garn                  Michael E. Nugent
    John R. Haire                  John L. Schroeder
    John E. Jeuck

By  /s/ David M. Butowsky                                  06/17/94
    ------------------------------
        David M. Butowsky
        Attorney-in-Fact


<PAGE>


                        DEAN WITTER SHORT-TERM BOND FUND

                                  EXHIBIT INDEX



Exhibit No.                        Description
- -----------                        -----------


9.    --       Form of Services Agreement between Dean Witter InterCapital Inc.
               and Dean Witter Services Company Inc.

11.   --       Consent of Independent Accountants

16.   --       Schedules for Computation of Performance Quotations

Other --       Powers of Attorney





cc\stbond\exhibit.94



<PAGE>

                               SERVICES AGREEMENT

     AGREEMENT made as of the 31st day of December, 1993 by and between Dean
Witter InterCapital Inc., a Delaware corporation (herein referred to as
"InterCapital"), and Dean Witter Services Company Inc., a New Jersey corporation
(herein referred to as "DWS").

     WHEREAS, InterCapital has entered into separate agreements (each such
agreement being herein referred to as an "Investment Management Agreement") with
certain investment companies as set forth on Schedule A (each such investment
company being herein referred to as a "Fund" and, collectively, as the "Funds")
pursuant to which InterCapital is to perform, or supervise the performance of,
among other services, administrative services for the Funds (and, in the case of
Funds with multiple portfolios, the Series or Portfolios of the Funds (such
Series and Portfolio being herein individually referred to as "a Series" and,
collectively, as "the Series"));

     WHEREAS, InterCapital desires to retain DWS to perform the administrative
services as described below; and

     WHEREAS, DWS desires to be retained by InterCapital to perform such
administrative services:

     Now, therefore, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:

     1. DWS agrees to provide administrative services to each Fund as
hereinafter set forth. Without limiting the generality of the foregoing, DWS
shall (i) administer the Fund's business affairs and supervise the overall
day-to-day operations of the Fund (other than rendering investment advice); (ii)
provide the Fund with full administrative services, including the maintenance of
certain books and records, such as journals, ledger accounts and other records
required under the Investment Company Act of 1940, as amended (the"Act"), the
notification to the Fund and InterCapital of available funds for investment, the
reconciliation of account information and balances among the Fund's custodian,
transfer agent and dividend disbursing agent and InterCapital, and the
calculation of the net asset value of the Fund's shares; (iii) provide the Fund
with the services of persons competent to perform such supervisory,
administrative and clerical functions as are necessary to provide effective
operation of the Fund; (iv) oversee the performance of administrative and
professional services rendered to the Fund by others, including its custodian,
transfer agent and dividend disbursing agent, as well as accounting, auditing
and other services; (v) provide the Fund with adequate general office space and
facilities; (vi) assist in the preparation and the printing of the periodic
updating of the Fund's registration statement and prospectus (and, in the case
of an open-end Fund, the statement of additional information), tax returns,
proxy statements, and reports to its shareholders and the Securities and
Exchange Commission; and (vii) monitor the compliance of the Fund's investment
policies and restrictions.

     In the event that InterCapital enters into an Investment Management
Agreement with another investment company, and wishes to retain DWS to perform
administrative services hereunder, it shall notify DWS in writing. If DWS is
willing to render such services, it shall notify InterCapital in writing,
whereupon such other Fund shall become a Fund as defined herein.

     2. DWS shall, at its own expense, maintain such staff and employ or retain
such personnel and consult with such other persons as it shall from time to time
determine to be necessary or useful to the performance of its obligations under
this Agreement. Without limiting the generality of the foregoing, the staff and
personnel of DWS shall be deemed to include officers of DWS and persons employed
or otherwise retained by DWS (including officers and employees of InterCapital,
with the consent of InterCapital) to furnish services, statistical and other
factual data, information with respect to technical and scientific developments,
and such other information, advice and assistance as DWS may desire. DWS shall
maintain each Fund's records and books of account (other than those maintained
by the Fund's transfer agent, registrar, custodian and other agencies). All such
books and records so maintained shall be the property of the Fund and, upon
request therefor, DWS shall surrender to InterCapital or to the Fund such of the
books and records so requested.

     3. InterCapital will, from time to time, furnish or otherwise make
available to DWS such financial reports, proxy statements and other information
relating to the business and affairs of the Fund as DWS may



                                        1


<PAGE>

reasonably require in order to discharge its duties and obligations to the Fund
under this Agreement or to comply with any applicable law and regulation or
request of the Board of Directors/Trustees of the Fund.

     4. For the services to be rendered, the facilities furnished, and the
expenses assumed by DWS, InterCapital shall pay to DWS monthly compensation
calculated daily (in the case of an open-end Fund) or weekly (in the case of
a closed-end Fund) by applying the annual rate or rates set forth on Schedule B
to the net assets of each Fund. Except as hereinafter set forth, (i) in the
case of an open-end Fund, compensation under this Agreement shall be calculated
by applying 1/365th of the annual rate or rates to the Fund's or the Series'
daily net assets determined as of the close of business on that day or the last
previous business day and (ii) in the case of a closed-end Fund, compensation
under this Agreement shall be calculated by applying the annual rate or rates
to the Fund's average weekly net assets determined as of the close of the last
business day of each week. If this Agreement becomes effective subsequent to
the first day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
on Schedule B. Subject to the provisions of paragraph 5 hereof, payment of DWS'
compensation for the preceding month shall be made as promptly as possible
after completion of the computations contemplated by paragraph 5 hereof.

     5. In the event the operating expenses of any open-end Fund and/or any
Series thereof, or of InterCapital Income Securities Inc., including amounts
payable to InterCapital pursuant to the Investment Management Agreement, for any
fiscal year ending on a date on which this Agreement is in effect, exceed the
expense limitations applicable to the Fund and/or any Series thereof imposed by
state securities laws or regulations thereunder, as such limitations may be
raised or lowered from time to time, or, in the case of InterCapital Income
Securities Inc. or Dean Witter Variable Investment Series or any Series thereof,
the expense limitation specified in the Fund's Investment Management Agreement,
the fee payable hereunder shall be reduced on a pro rata basis in the same
proportion as the fee payable by the Fund under the Investment Management
Agreement is reduced.

     6. DWS shall bear the cost of rendering the administrative services to be
performed by it under this Agreement, and shall, at its own expense, pay the
compensation of the officers and employees, if any, of the Fund employed by DWS,
and such clerical help and bookkeeping services as DWS shall reasonably require
in performing its duties hereunder.

     7. DWS will use its best efforts in the performance of administrative
activitives on behalf of each Fund, but in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations hereunder,
DWS shall not be liable to the Fund or any of its investors for any error of
judgment or mistake of law or for any act or omission by DWS or for any losses
sustained by the Fund or its investors. It is understood that, subject to the
terms and conditions of the Investment Management Agreement between each Fund
and InterCapital, InterCapital shall retain ultimate responsibility for all
services to be performed hereunder by DWS. DWS shall indemnify InterCapital and
hold it harmless from any liability that InterCapital may incur arising out of
any act or failure to act by DWS in carrying out its responsibilities hereunder.

     8. It is understood that any of the shareholders, Directors/Trustees,
officers and employees of the Fund may be a shareholder, director, officer or
employee of, or be otherwise interested in, DWS, and in any person controlling,
controlled by or under common control with DWS, and that DWS and any person
controlling, controlled by or under common control with DWS may have an interest
in the Fund. It is also understood that DWS and any affiliated persons thereof
or any persons controlling, controlled by or under common control with DWS have
and may have advisory, management, administration service or other contracts
with other organizations and persons, and may have other interests and
businesses, and further may purchase, sell or trade any securities or
commodities for their own accounts or for the account of others for whom they
may be acting.

     9. This Agreement shall continue until April 30, 1994, and thereafter shall
continue automatically for successive periods of one year unless terminated by
either party by written notice delivered to the other party within 30 days of
the expiration of the then-existing period. Notwithstanding the foregoing, this
Agreement may be terminated at any time, by either party on 30 days' written
notice delivered to the other party. In the



                                        2


<PAGE>

event that the Investment Management Agreement between any Fund and InterCapital
is terminated, this Agreement will automatically terminate with respect to such
Fund.

     10. This Agreement may be amended or modified by the parties in any manner
by mutual written agreement executed by each of the parties hereto.

     11. This Agreement shall be construed and interpreted in accordance with
the laws of the State of New York.

     IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written in New York, New York.

                                   DEAN WITTER INTERCAPITAL INC.

                                   By: ____________________________

Attest:

__________________________

                                   DEAN WITTER SERVICES COMPANY INC.

                                   By: _____________________________

Attest:

__________________________



                                        3


<PAGE>

                                   SCHEDULE A

                                DEAN WITTER FUNDS
                              at December 31, 1993

Open-End Funds

 1. Active Assets California Tax-Free Trust
 2. Active Assets Government Securities Trust
 3. Active Assets Money Trust
 4. Active Assets Tax-Free Trust
 5. Dean Witter American Value Fund
 6. Dean Witter California Tax-Free Daily Income Trust
 7. Dean Witter California Tax-Free Income Fund
 8. Dean Witter Capital Growth Securities
 9. Dean Witter Convertible Securities Trust
10. Dean Witter Developing Growth Securities Trust
11. Dean Witter Diversified Income Trust
12. Dean Witter Dividend Growth Securities Inc.
13. Dean Witter Equity Income Trust
14. Dean Witter European Growth Fund Inc.
15. Dean Witter Federal Securities Trust
16. Dean Witter Global Dividend Growth Securities
17. Dean Witter Global Short-Term Income Fund Inc.
18. Dean Witter Health Sciences Trust
19. Dean Witter High Yield Securities Inc.
20. Dean Witter Intermediate Income Securities
21. Dean Witter Limited Term Municipal Trust
22. Dean Witter Liquid Asset Fund Inc.
23. Dean Witter Managed Assets Trust
24. Dean Witter Multi-State Municipal Series Trust
25. Dean Witter Natural Resource Development Securities Inc.
26. Dean Witter New York Municipal Money Market Trust
27. Dean Witter New York Tax-Free Income Fund
28. Dean Witter Pacific Growth Fund Inc.
29. Dean Witter Precious Metals and Minerals Trust
30. Dean Witter Premier Income Trust
31. Dean Witter Retirement Series
32. Dean Witter Select Municipal Reinvestment Fund
33. Dean Witter Short-Term U.S. Treasury Trust
34. Dean Witter Strategist Fund
35. Dean Witter Tax-Exempt Securities Trust
36. Dean Witter Tax-Free Daily Income Trust
37. Dean Witter U.S. Government Money Market Trust
38. Dean Witter U.S. Government Securities Trust
39. Dean Witter Utilities Fund
40. Dean Witter Value-Added Market Series
41. Dean Witter Variable Investment Series
42. Dean Witter World Wide Income Trust
43. Dean Witter World Wide Investment Trust

Closed-End Funds
44. High Income Advantage Trust
45. High Income Advantage Trust II
46. High Income Advantage Trust III
47. InterCapital Income Securities Inc.
48. Dean Witter Government Income Trust
49. InterCapital Insured Municipal Bond Trust
50. InterCapital Insured Municipal Trust
51. InterCapital Insured Municipal Income Trust
52. InterCapital California Insured Municipal Income Trust
53. InterCapital Quality Municipal Investment Trust
54. InterCapital Quality Municipal Income Trust
55. InterCapital Quality Municipal Securities
56. InterCapital California Quality Municipal Securities
57. InterCapital New York Quality Municipal Securities



                                        4



<PAGE>




                          DEAN WITTER SERVICES COMPANY

                SCHEDULE OF ADMINISTRATIVE FEES - JANUARY 1, 1994

Monthly compensation calculated daily by applying the following annual
rates to a fund's net assets:

Dean Witter Short-Term      0.070% to the net assets.
   Bond Fund


<PAGE>


Consent of Independent Accountants



We  hereby  consent  to  the  use in the Statement of Additional Information
constituting  part of this Post-Effective Amendment No.1 to the registration
statement on  Form  N-1A  (the "Registration Statement") of our report dated
June 15, 1994, relating to the financial statements and financial highlights
of The Dean Witter  Short-Term Bond Fund, which appears in such Statement of
Additional Information,  and to the incorporation by reference of our report
into the Prospectus  which  constitutes part of this Registration Statement.
We  also  consent  to  the  references to us under the headings "Independent
Accountants" and  "Experts"  in such Statement of Additional Information and
to  the  reference  to  us  under the heading "Financial Highlights" in such
Prospectus.




PRICE WATERHOUSE
1177 Avenue of the Americas
New York, New York 10036
June 17, 1994









<PAGE>


              SCHEDULE FOR COMPUTATIONS OF PERFORMANCE QUOTATIONS
                        DEAN WITTER SHORT-TERM BOND FUND


(A)  AVERAGE ANNUAL TOTAL RETURNS (NO LOAD FUND)

(B)  TOTAL RETURN (NO LOAD FUND)


                         -
                         |        ________________________________
FORMULA:                 |    /\ n|               |                 |
               t=        |      \ |              EV               |
                         |       \|            -------------------------  | - 1
                         |                       P               |
                         -                         |
                                                    |
                                                   _
                                       EV
               TR=                 -----------------------  - 1
                                       P


          t  = AVERAGE ANNUAL COMPOUND RETURN
          n  = NUMBER OF YEARS
          EV = ENDING VALUE
          P  = INITIAL INVESTMENT
          TR = TOTAL RETURN

<TABLE>
<CAPTION>
                                         (B)                               (A)
$1,000              EV AS OF            TOTAL          NUMBER OF      AVERAGE ANNUAL
INVESTED-P          30-Apr-94           RETURN-TR      YEARS-n        COMPOUND RETURN - t
- ----------          ---------           ---------      ---------      -------------------
<S>                 <C>                 <C>            <C>            <C>
10-Jan-94           $979.90             -2.01%         0.3012         -6.52%

</TABLE>


(C)  AVERAGE ANNUAL TOTAL RETURNS (STANDARDIZED COMPUTATIONS) WITHOUT WAIVER OF
     FEES AND ASSUMPTION OF EXPENSES.


               -
               |      ______________________________________|
               |      |                 |
FORMULA:       |  /\ n|                EVb                |
         tb =  |    \ |       ---------------------------------       | - 1
               |     \|                P              |
               |                        |
               |                         |
               -                         -

          tb  = AVERAGE ANNUAL COMPOUND RETURN
                (DEDUCTION FOR EXPENSES ASSUMED BY FUND MANAGER)
          n   = NUMBER OF YEARS
          EVb = ENDING VALUE (DEDUCTION FOR EXPENSES
                ASSUMED BY FUND MANAGER)
          P   = INITIAL INVESTMENT

<TABLE>
<CAPTION>

                                                             (C)
$1,000              EVb AS OF           NUMBER OF      AVERAGE ANNUAL
INVESTED - P        30-Apr-94           YEARS-n        COMPOUND RETURN - t
- ------------        ---------           ---------      -------------------
<S>                 <C>                 <C>            <C>
10-Jan-94           $979.40             0.3012         -6.68%

</TABLE>

(C)       GROWTH OF $10,000
(D)       GROWTH OF $50,000
(E)       GROWTH OF $100,000


FORMULA:  G  = (TR+1)*P
          G  = GROWTH OF INITIAL INVESTMENT
          P  = INITIAL INVESTMENT
          TR = TOTAL RETURN SINCE INCEPTION

<TABLE>
<CAPTION>

$10,000             TOTAL               (C) GROWTH OF                 (D) GROWTH OF                 (E) GROWTH OF
INVESTED - P        RETURN -TR          $10,000 INVESTMENT - G        $50,000 INVESTMENT - G        $100,000 INVESTMENT - G
- ------------        ----------          ----------------------        ----------------------        -----------------------
<S>                 <C>                 <C>                           <C>                           <C>
10-Jan-94           -2.01               $9,799                        $46,995                       $97,990

</TABLE>




<PAGE>


                         SCHEDULE OF COMPUTATION OF YIELD QUOTATION
                              DEAN WITTER SHORT-TERM BOND FUND
                                 30 day Yield as of 4/30/94




                                      6
         YIELD = 2{ [ ((a-b)/c * d) + 1] -1}



         WHERE:     a = Dividends and interest earned during the period

                    b = Expenses accrued for the period

                    c = The average daily number of shares outstanding
                        during the period that were entitled to
                        receive dividends

                    d = The maximum offering price per share on the last
                        day of the period


                                                                    6
          YIELD = 2{ [(( 160,072.25 - 48,855)/4,358,706.187 * 9.62)+1] -1}

                    = 3.20%


             *    YIELD WITH EXPENSES FOR THE 30 DAY PERIOD
<PAGE>


                  SCHEDULE OF COMPUTATION OF YIELD QUOTATION
                              DEAN WITTER SHORT-TERM BOND FUND
                                 30 day Yield as of 4/30/94




                                      6
         YIELD = 2{ [ ((a-b)/c * d) + 1] -1}



         WHERE:     a = Dividends and interest earned during the period

                    b = Expenses accrued for the period

                    c = The average daily number of shares outstanding
                        during the period that were entitled to
                        receive dividends

                    d = The maximum offering price per share on the last
                        day of the period


                                                              6
         YIELD = 2{ [(( 160,072.25 - 0)/4,358,706.187 * 9.62)+1] -1}

                    = 4.62%


            *    YIELD WITH EXPENSES FOR THE 30 DAY PERIOD

<PAGE>


                                POWER OF ATTORNEY



     KNOW ALL MEN BY THESE PRESENTS, that MICHAEL E. NUNGENT, whose signature
appears below, constitutes and appoints David M. Butowsky, Ronald Feiman and
Stuart Strauss, or either of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution among himself and each of the persons
appointed herein, for him and in his name, place and stead, in any and all
capacities, to sign any amendments to any registration statement of DEAN WITTER
SHORT-TERM BOND FUND, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or either
of them, may lawfully do or cause to be done by virtue hereof.



Dated:  December 3, 1993

                                                   /s/ Michael E. Nungent
                                                  ----------------------------
                                                       Michael E. Nungent


<PAGE>


                                POWER OF ATTORNEY



     KNOW ALL MEN BY THESE PRESENTS, that EDWARD R. TELLING, whose signature
appears below, constitutes and appoints Sheldon Curtis, Marilyn K. Cranney and
Barry Fink, or either of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution among himself and each of the persons
appointed herein, for him and in his name, place and stead, in any and all
capacities, to sign any amendments to any registration statement of DEAN WITTER
SHORT-TERM BOND FUND, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, may lawfully do or cause to be done by virtue hereof.



Dated:  December 3, 1993

                                                  /s/ Edward R. Telling
                                                  ----------------------------
                                                      Edward R. Telling


<PAGE>

                                POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that MICHAEL BOZIC, whose signature appears
below, constitutes and appoints David M. Butowsky, Ronald Feiman and Stuart
Strauss, or any of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution among himself and each of the persons appointed
herein, for him and in his name, place and stead, in any and all capacities, to
sign any amendments to any registration statement of ANY OF THE DEAN WITTER
FUNDS SET FORTH ON SCHEDULE A ATTACHED HERETO, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.

Dated:  April 15, 1994


/s/ Michael Bozic
- --------------------------
Michael Bozic

<PAGE>

                                DEAN WITTER FUNDS

MONEY MARKET

1.   Dean Witter Liquid Asset Fund Inc.
2.   Active Assets Money Trust
3.   Active Assets Tax-Free Trust
4.   Active Assets California Tax-Free Trust
5.   Active Assets Government Securities Trust
6.   Dean Witter Tax-Free Daily Income Trust
7.   Dean Witter U.S. Government Money Market Trust
8.   Dean Witter California Tax-Free Daily Income Trust
9.   Dean Witter New York Municipal Money Market Trust


EQUITY FUNDS

10.  Dean Witter American Value Fund
11.  Dean Witter Dividend Growth Securities Inc.
12.  Dean Witter Capital Growth Securities
13.  Dean Witter Natural Resource Development Securities Inc.
14.  Dean Witter Precious Metals & Minerals Trust
15.  Dean Witter Developing Growth Securities Trust
16.  Dean Witter World Wide Investment Trust
17.  Dean Witter Value-Added Market Series
18.  Dean Witter European Growth Fund Inc.
19.  Dean Witter Pacific Growth Fund Inc.
20.  Dean Witter Equity Income Trust
21.  Dean Witter Utilities Fund
22.  Dean Witter Health Sciences Trust
23.  Dean Witter Global Dividend Growth Securities
24.  Dean Witter Global Utilities Fund

ASSET ALLOCATION FUNDS

25.  Dean Witter Managed Assets Trust
26.  Dean Witter Strategist Fund


FIXED-INCOME FUNDS

27.  Dean Witter High Yield Securities Inc.
28.  Dean Witter Convertible Securities Trust
29.  Dean Witter Intermediate Income Securities
30.  Dean Witter World Wide Income Trust
31.  Dean Witter Global Short-Term Income Fund Inc.
32.  Dean Witter Diversified Income Trust
33.  Dean Witter Premier Income Trust
34   Dean Witter U.S. Government Securities Trust
35.  Dean Witter Federal Securities Trust

<PAGE>

36.  Dean Witter Short-Term U.S. Treasury Trust
37.  Dean Witter Tax-Exempt Securities Trust
38.  Dean Witter California Tax-Free Income Fund
39.  Dean Witter New York Tax-Free Income Fund
40.  Dean Witter Multi-State Municipal Series Trust
          Arizona Series
          California Series
          Florida Series
          Massachusetts Series
          Michigan Series
          Minnesota Series
          New Jersey Series
          New York Series
          Ohio Series
          Pennsylvania Series
41.  Dean Witter Select Municipal Reinvestment Fund
42.  Dean Witter Limited Term Municipal Trust
43.  Dean Witter Short-Term Bond Fund


SPECIAL PURPOSE FUNDS

44.  Dean Witter Variable Investment Series
          Money Market Portfolio
          Quality Income Plus Portfolio
          High Yield Portfolio
          Utilities Portfolio
          Dividend Growth Portfolio
          Capital Growth Portfolio
          European Growth Portfolio
          Equity Portfolio
          Managed Assets Portfolio
45.  Dean Witter Retirement Series
          Liquid Asset Series
          U.S. Government Money Market Series
          U.S. Government Securities Series
          Intermediate Income Securities Series
          American Value Series
          Capital Growth Series
          Dividend Growth Series
          Strategist Series
          Utilities Series
          Value-Added Market Series
          Global Equity Series

<PAGE>

CLOSED-END FUNDS

46.  High Income Advantage Trust
47.  High Income Advantage Trust II
48.  High Income Advantage Trust III
49.  InterCapital Income Securities Inc.
50.  Dean Witter Government Income Trust
51.  InterCapital Insured Municipal Bond Trust
52.  InterCapital Insured Municipal Trust
53.  InterCapital Quality Municipal Investment Trust
54.  InterCapital Quality Municipal Income Trust
55.  Municipal Income Trust
56.  Municipal Income Trust II
57.  Municipal Income Trust III
58.  Municipal Income Opportunities Trust
59.  Municipal Income Opportunities Trust II
60.  Municipal Income Opportunities Trust III
61.  Municipal Premium Income Trust
62.  Prime Income Trust
63.  InterCapital Insured Municipal Income Trust
64.  InterCapital California Insured Municipal Income Trust
65.  InterCapital Quality Municipal Securities
66.  InterCapital California Quality Municipal Securities
67.  InterCapital New York Quality Municipal Securities
68.  InterCapital California Insured Municipal Securities
69.  InterCapital Insured Municipal Securities


<PAGE>

                                POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that PHILIP J. PURCELL, whose signature
appears below, constitutes and appoints Sheldon Curtis, Marilyn K. Cranney and
Barry Fink, or any of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution among himself and each of the persons appointed
herein, for him and in his name, place and stead, in any and all capacities, to
sign any amendments to any registration statement of ANY OF THE DEAN WITTER
FUNDS SET FORTH ON SCHEDULE A ATTACHED HERETO, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.

Dated:  April 8, 1994


/s/ Philip J. Purcell
- --------------------------
Philip J. Purcell

<PAGE>

                                DEAN WITTER FUNDS

MONEY MARKET

1.   Dean Witter Liquid Asset Fund Inc.
2.   Active Assets Money Trust
3.   Active Assets Tax-Free Trust
4.   Active Assets California Tax-Free Trust
5.   Active Assets Government Securities Trust
6.   Dean Witter Tax-Free Daily Income Trust
7.   Dean Witter U.S. Government Money Market Trust
8.   Dean Witter California Tax-Free Daily Income Trust
9.   Dean Witter New York Municipal Money Market Trust


EQUITY FUNDS

10.  Dean Witter American Value Fund
11.  Dean Witter Dividend Growth Securities Inc.
12.  Dean Witter Capital Growth Securities
13.  Dean Witter Natural Resource Development Securities Inc.
14.  Dean Witter Precious Metals & Minerals Trust
15.  Dean Witter Developing Growth Securities Trust
16.  Dean Witter World Wide Investment Trust
17.  Dean Witter Value-Added Market Series
18.  Dean Witter European Growth Fund Inc.
19.  Dean Witter Pacific Growth Fund Inc.
20.  Dean Witter Equity Income Trust
21.  Dean Witter Utilities Fund
22.  Dean Witter Health Sciences Trust
23.  Dean Witter Global Dividend Growth Securities
24.  Dean Witter Global Utilities Fund

ASSET ALLOCATION FUNDS

25.  Dean Witter Managed Assets Trust
26.  Dean Witter Strategist Fund


FIXED-INCOME FUNDS

27.  Dean Witter High Yield Securities Inc.
28.  Dean Witter Convertible Securities Trust
29.  Dean Witter Intermediate Income Securities
30.  Dean Witter World Wide Income Trust
31.  Dean Witter Global Short-Term Income Fund Inc.
32.  Dean Witter Diversified Income Trust
33.  Dean Witter Premier Income Trust
34   Dean Witter U.S. Government Securities Trust
35.  Dean Witter Federal Securities Trust

<PAGE>

36.  Dean Witter Short-Term U.S. Treasury Trust
37.  Dean Witter Tax-Exempt Securities Trust
38.  Dean Witter California Tax-Free Income Fund
39.  Dean Witter New York Tax-Free Income Fund
40.  Dean Witter Multi-State Municipal Series Trust
          Arizona Series
          California Series
          Florida Series
          Massachusetts Series
          Michigan Series
          Minnesota Series
          New Jersey Series
          New York Series
          Ohio Series
          Pennsylvania Series
41.  Dean Witter Select Municipal Reinvestment Fund
42.  Dean Witter Limited Term Municipal Trust
43.  Dean Witter Short-Term Bond Fund


SPECIAL PURPOSE FUNDS

44.  Dean Witter Variable Investment Series
          Money Market Portfolio
          Quality Income Plus Portfolio
          High Yield Portfolio
          Utilities Portfolio
          Dividend Growth Portfolio
          Capital Growth Portfolio
          European Growth Portfolio
          Equity Portfolio
          Managed Assets Portfolio
45.  Dean Witter Retirement Series
          Liquid Asset Series
          U.S. Government Money Market Series
          U.S. Government Securities Series
          Intermediate Income Securities Series
          American Value Series
          Capital Growth Series
          Dividend Growth Series
          Strategist Series
          Utilities Series
          Value-Added Market Series
          Global Equity Series

<PAGE>

CLOSED-END FUNDS

46.  High Income Advantage Trust
47.  High Income Advantage Trust II
48.  High Income Advantage Trust III
49.  InterCapital Income Securities Inc.
50.  Dean Witter Government Income Trust
51.  InterCapital Insured Municipal Bond Trust
52.  InterCapital Insured Municipal Trust
53.  InterCapital Quality Municipal Investment Trust
54.  InterCapital Quality Municipal Income Trust
55.  Municipal Income Trust
56.  Municipal Income Trust II
57.  Municipal Income Trust III
58.  Municipal Income Opportunities Trust
59.  Municipal Income Opportunities Trust II
60.  Municipal Income Opportunities Trust III
61.  Municipal Premium Income Trust
62.  Prime Income Trust
63.  InterCapital Insured Municipal Income Trust
64.  InterCapital California Insured Municipal Income Trust
65.  InterCapital Quality Municipal Securities
66.  InterCapital California Quality Municipal Securities
67.  InterCapital New York Quality Municipal Securities
68.  InterCapital California Insured Municipal Securities
69.  InterCapital Insured Municipal Securities


<PAGE>


                                POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that JOHN L. SCHROEDER, whose signature
appears below, constitutes and appoints David M. Butowsky, Ronald Feiman and
Stuart Strauss, or any of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution among himself and each of the persons
appointed herein, for him and in his name, place and stead, in any and all
capacities, to sign any amendments to any registration statement of ANY OF THE
DEAN WITTER FUNDS SET FORTH ON SCHEDULE A ATTACHED HERETO, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.

Dated:  April 13, 1994


/s/ John L. Schroeder
- --------------------------
John L. Schroeder

<PAGE>

                                DEAN WITTER FUNDS

MONEY MARKET

1.   Dean Witter Liquid Asset Fund Inc.
2.   Active Assets Money Trust
3.   Active Assets Tax-Free Trust
4.   Active Assets California Tax-Free Trust
5.   Active Assets Government Securities Trust
6.   Dean Witter Tax-Free Daily Income Trust
7.   Dean Witter U.S. Government Money Market Trust
8.   Dean Witter California Tax-Free Daily Income Trust
9.   Dean Witter New York Municipal Money Market Trust


EQUITY FUNDS

10.  Dean Witter American Value Fund
11.  Dean Witter Dividend Growth Securities Inc.
12.  Dean Witter Capital Growth Securities
13.  Dean Witter Natural Resource Development Securities Inc.
14.  Dean Witter Precious Metals & Minerals Trust
15.  Dean Witter Developing Growth Securities Trust
16.  Dean Witter World Wide Investment Trust
17.  Dean Witter Value-Added Market Series
18.  Dean Witter European Growth Fund Inc.
19.  Dean Witter Pacific Growth Fund Inc.
20.  Dean Witter Equity Income Trust
21.  Dean Witter Utilities Fund
22.  Dean Witter Health Sciences Trust
23.  Dean Witter Global Dividend Growth Securities
24.  Dean Witter Global Utilities Fund

ASSET ALLOCATION FUNDS

25.  Dean Witter Managed Assets Trust
26.  Dean Witter Strategist Fund


FIXED-INCOME FUNDS

27.  Dean Witter High Yield Securities Inc.
28.  Dean Witter Convertible Securities Trust
29.  Dean Witter Intermediate Income Securities
30.  Dean Witter World Wide Income Trust
31.  Dean Witter Global Short-Term Income Fund Inc.
32.  Dean Witter Diversified Income Trust
33.  Dean Witter Premier Income Trust
34   Dean Witter U.S. Government Securities Trust
35.  Dean Witter Federal Securities Trust

<PAGE>

36.  Dean Witter Short-Term U.S. Treasury Trust
37.  Dean Witter Tax-Exempt Securities Trust
38.  Dean Witter California Tax-Free Income Fund
39.  Dean Witter New York Tax-Free Income Fund
40.  Dean Witter Multi-State Municipal Series Trust
          Arizona Series
          California Series
          Florida Series
          Massachusetts Series
          Michigan Series
          Minnesota Series
          New Jersey Series
          New York Series
          Ohio Series
          Pennsylvania Series
41.  Dean Witter Select Municipal Reinvestment Fund
42.  Dean Witter Limited Term Municipal Trust
43.  Dean Witter Short-Term Bond Fund


SPECIAL PURPOSE FUNDS

44.  Dean Witter Variable Investment Series
          Money Market Portfolio
          Quality Income Plus Portfolio
          High Yield Portfolio
          Utilities Portfolio
          Dividend Growth Portfolio
          Capital Growth Portfolio
          European Growth Portfolio
          Equity Portfolio
          Managed Assets Portfolio
45.  Dean Witter Retirement Series
          Liquid Asset Series
          U.S. Government Money Market Series
          U.S. Government Securities Series
          Intermediate Income Securities Series
          American Value Series
          Capital Growth Series
          Dividend Growth Series
          Strategist Series
          Utilities Series
          Value-Added Market Series
          Global Equity Series

<PAGE>

CLOSED-END FUNDS

46.  High Income Advantage Trust
47.  High Income Advantage Trust II
48.  High Income Advantage Trust III
49.  InterCapital Income Securities Inc.
50.  Dean Witter Government Income Trust
51.  InterCapital Insured Municipal Bond Trust
52.  InterCapital Insured Municipal Trust
53.  InterCapital Quality Municipal Investment Trust
54.  InterCapital Quality Municipal Income Trust
55.  Municipal Income Trust
56.  Municipal Income Trust II
57.  Municipal Income Trust III
58.  Municipal Income Opportunities Trust
59.  Municipal Income Opportunities Trust II
60.  Municipal Income Opportunities Trust III
61.  Municipal Premium Income Trust
62.  Prime Income Trust
63.  InterCapital Insured Municipal Income Trust
64.  InterCapital California Insured Municipal Income Trust
65.  InterCapital Quality Municipal Securities
66.  InterCapital California Quality Municipal Securities
67.  InterCapital New York Quality Municipal Securities
68.  InterCapital California Insured Municipal Securities
69.  InterCapital Insured Municipal Securities



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