DEAN WITTER SHORT-TERM BOND FUND
485BPOS, 1995-06-29
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<PAGE>
   
     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 29, 1995
    
                                                     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. 2                       /X/
    

                                     AND/OR

              REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY

                                  ACT OF 1940                                /X/

   
                               AMENDMENT NO. 3                               /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 YEAR ENDING APRIL 30, 1995 WITH THE SECURITIES AND EXCHANGE COMMISSION ON
JUNE 15, 1995.
    

            -------------------------------------------------------
            -------------------------------------------------------
<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; Financial Highlights
 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 29, 1995
    

              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 29, 1995, 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.
    

     DEAN WITTER DISTRIBUTORS INC.,
     DISTRIBUTOR

      TABLE OF CONTENTS

Prospectus Summary/2
Summary of Fund Expenses/3
Financial Highlights/4
   
The Fund and its Management/5
    
Investment Objective and Policies/5
   
  Risks and Portfolio Characteristics/7
    
   
Investment Restrictions/15
    
   
Purchase of Fund Shares/16
    
   
Shareholder Services/17
    
   
Redemptions and Repurchases/20
    
   
Dividends, Distributions and Taxes/21
    
   
Performance Information/22
    
   
Additional Information/23
    

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
<PAGE>
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------

   
<TABLE>
<S>                 <C>
The                 The Fund is organized as a Trust, commonly known as a Massachusetts business trust, and is a no-load, open-end,
Fund                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 23).
Offered
- ------------------------------------------------------------------------------------------------------------------------------------
Offering            The price of the shares offered by this Prospectus is determined once daily as of 4:00 p.m., New York time, on
Price               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 16).
- ------------------------------------------------------------------------------------------------------------------------------------
Minimum             Minimum initial purchase, $1,000; minimum subsequent investments, $100 (see page 16).
Purchase
- ------------------------------------------------------------------------------------------------------------------------------------
Investment          The investment objective of the Fund is to provide investors with a high level of current income, consistent
Objective           with the preservation of capital.
- ------------------------------------------------------------------------------------------------------------------------------------
Investment          Dean Witter InterCapital Inc. ("InterCapital"), the Investment Manager of the Fund, and its wholly-owned
Manager             subsidiary, Dean Witter Services Company Inc., serve in various investment management, advisory, management and
                    administrative capacities to ninety-four investment companies and other portfolios with assets of approximately
                    $72.6 billion at May 31, 1995 (see page 5).
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Management          The Investment Manager receives a monthly fee at the annual rate of 0.70% of the average daily net assets (see
Fee                 page 5).
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Dividends and       Dividends are declared daily and are payable monthly. Capital gains distributions, if any, are paid at least
Capital Gains       once a year or are retained for reinvestment by the Fund. Dividends and distributions are automatically invested
Distributions       in additional shares at net asset value unless the shareholder elects to receive cash (see page 21).
- ------------------------------------------------------------------------------------------------------------------------------------
Distributor         Dean Witter Distributors Inc. (the "Distributor") sells shares of the Fund through Dean Witter Reynolds Inc.
and Plan of         ("DWR") and other selected broker-dealers. The Distributor has entered into a Plan of Distribution pursuant to
Distribution        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
                    16).
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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 20).
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Shareholder         Automatic Investment of Dividends and Distributions; Investment of Distributions Received in Cash; Exchange
Services            Privilege; Systematic Withdrawal Plan; EasyInvest-SM-; Tax-Sheltered Retirement Plans (see page 17).
- ------------------------------------------------------------------------------------------------------------------------------------
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 7).
- ------------------------------------------------------------------------------------------------------------------------------------
</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, 1996.
    

   
<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)............................................  0.13%
Total Fund Operating Expenses*........................................................  0.36%
</TABLE>
    

   
    "Management  Fees", as shown above, is based upon an estimate for the fiscal
year of the Fund ending April 30, 1996. "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, 1996.
    

   
<TABLE>
<CAPTION>
                                                                         10
EXAMPLE                                   1 YEAR   3 YEARS   5 YEARS    YEARS
- ---------------------------------------   ------   -------   -------   -------
<S>                                       <C>      <C>       <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:.........   $   4    $   12    $   20    $   46
<FN>
- ------------
* THE INVESTMENT MANAGER HAD UNDERTAKEN TO ASSUME ALL OPERATING EXPENSES (EXCEPT
  FOR  ANY BROKERAGE FEES) AND HAD AGREED TO WAIVE THE COMPENSATION PROVIDED FOR
  IN ITS AGREEMENT UNTIL SUCH TIME AS THE FUND HAD $50 MILLION OF NET ASSETS  OR
  UNTIL  SIX  MONTHS FROM  THE DATE  OF COMMENCEMENT  OF THE  FUND'S OPERATIONS,
  WHICHEVER OCCURRED FIRST. THE INVESTMENT  MANAGER WILL CONTINUE TO ASSUME  ALL
  OPERATING  EXPENSES (EXCEPT FOR ANY BROKERAGE FEES) AND WILL CONTINUE TO WAIVE
  COMPENSATION 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  0.38% FOR THE  FISCAL YEAR  OF THE FUND  ENDING APRIL 30,
  1996.
</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," 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  LLP,
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>
                                                                                                  FOR THE PERIOD
                                                                                                JANUARY 10, 1994*
                                                                        FOR THE YEAR ENDED           THROUGH
                                                                          APRIL 30, 1995          APRIL 30, 1994
                                                                        ------------------   ------------------------
<S>                                                                     <C>                  <C>
PER SHARE OPERATING PERFORMANCE:
  Net asset value, beginning of period................................           $9.62                  $10.00
                                                                              --------                --------
  Net investment income...............................................            0.77                    0.21
  Net realized and unrealized loss....................................           (0.33)                  (0.40)
                                                                              --------                --------
  Total from investment operations....................................            0.44                   (0.19)
                                                                              --------                --------
  Less dividends and distributions from:
    Net investment income.............................................           (0.59)                  (0.19)
    Paid-in-capital...................................................           (0.01)             --
                                                                              --------                --------
  Total dividends and distributions...................................           (0.60)                  (0.19)
                                                                              --------                --------
  Net asset value, end of period......................................           $9.46                   $9.62
                                                                              --------                --------
                                                                              --------                --------
TOTAL INVESTMENT RETURN...............................................           4.76%                   (2.01)%(1)
RATIOS TO AVERAGE NET ASSETS:
  Expenses............................................................             --%(4)                  --%(2)(3)
  Net investment income...............................................           7.64%(4)                6.36%(2)(3)
SUPPLEMENTAL DATA:
  Net assets, end of period, in thousands.............................  $       29,818       $          43,403
  Portfolio turnover rate.............................................             74%                      9%(1)
<FN>
- ------------
* 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 AND NET INVESTMENT INCOME
    RATIOS WOULD HAVE BEEN 1.55% AND 4.81%, RESPECTIVELY.
(4) IF  THE FUND  HAD BORNE  ALL EXPENSES  THAT WERE  ASSUMED OR  WAIVED BY  THE
    INVESTMENT MANAGER, THE ABOVE EXPENSE AND NET INVESTMENT INCOME RATIOS WOULD
    HAVE BEEN 1.08% AND 6.56%, RESPECTIVELY.
</TABLE>
    

   
                       SEE NOTES TO FINANCIAL STATEMENTS
    

                                       4
<PAGE>
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 ninety-four  investment companies, thirty of  which
are listed on the New York Stock Exchange, with combined assets of approximately
$70.3 billion at May 31, 1995. The Investment Manager also manages portfolios of
pension plans, other institutions and individuals which aggregated approximately
$2.3 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 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, 1995,  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

                                       5
<PAGE>
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 ("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 instru-

                                       6
<PAGE>
mentality  (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. Mortgage-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

                                       7
<PAGE>
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 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
mort-

                                       8
<PAGE>
gages  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 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

                                       9
<PAGE>
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 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

                                       10
<PAGE>
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.

    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

                                       11
<PAGE>
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.

    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

                                       12
<PAGE>
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.

    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 subse-

                                       13
<PAGE>
quent  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).

    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
invest-

                                       14
<PAGE>
   
ment objective. The Fund is managed within InterCapital's Corporate Bond  Group,
which managed approximately $13.5 billion in assets at May 31, 1995. 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 Dean Witter Reynolds Inc. ("DWR"), a broker-dealer
affiliate  of the Investment Manager. 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 IN OTHER INVESTMENT VEHICLES. Under the Investment Company Act of
1940,  as amended (the  "Act"), the Fund generally  may invest up  to 10% of its
total assets in the aggregate in shares of other investment companies and up  to
3% of its total assets in any one investment company, as long as that investment
company  does not  represent more than  5% of  the voting stock  of the acquired
investment company at the time such shares are purchased. In addition, the  Fund
may  invest in  real estate investment  trusts, which pool  investors' funds for
investments primarily in commercial real estate properties. Investment in  other
investment  companies may be the sole or  most practical means by which the Fund
may participate in  certain securities  markets, and investment  in real  estate
investment  trusts may  be the  most practical available  means for  the Fund to
invest in the  real estate industry  (the Fund is  prohibited from investing  in
real  estate directly). As a shareholder in an investment company or real estate
investment trust,  the  Fund would  bear  its  ratable share  of  that  entity's
expenses,  including its advisory and administration  fees. At the same time the
Fund would  continue  to  pay  its own  investment  management  fees  and  other
expenses,  as a result of which the Fund  and its shareholders in effect will be
absorbing duplicate  levels  of  fees  with  respect  to  investments  in  other
investment companies and in real estate investment trusts.
    

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 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

                                       15
<PAGE>
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 three business day settlement basis; that is, payment
is due on the  third 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  various types  of non-cash  compensation as  special
sales  incentives,  including trips,  educational  and/or business  seminars and
merchandise. 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,

                                       16
<PAGE>
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 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
domestic or foreign stock exchange or quoted  by NASDAQ is valued at its  latest
sale  price on that exchange or quotation  service 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 suffi-

                                       17
<PAGE>
cient 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  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  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,
Dean  Witter Balanced  Income Fund, Dean  Witter Balanced Growth  Fund, and Dean
Witter Limited Term Municipal  Trust (collectively, the  Fund, the money  market
funds,  Dean Witter Short-Term U.S. Treasury  Trust, Dean Witter Balanced Income
Fund, Dean Witter Balanced Growth Fund,  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
    

                                       18
<PAGE>
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 Fund's  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 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

                                       19
<PAGE>
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.

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
determina-

                                       20
<PAGE>
tion 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 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.

                                       21
<PAGE>
    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.

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.

                                       22
<PAGE>
    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.

   
    CODE  OF ETHICS.   Directors, officers  and employees  of InterCapital, Dean
Witter Services Company Inc. and the Distributor are subject to a strict Code of
Ethics adopted by those companies. The Code of Ethics is intended to ensure that
the interests of shareholders and other clients are placed ahead of any personal
interest, that no undue personal benefit is obtained from a person's  employment
activities  and that actual and potential  conflicts of interest are avoided. To
achieve these goals and comply with regulatory requirements, the Code of  Ethics
requires, among other things, that personal securities transactions by employees
of  the companies be subject to an  advance clearance process to monitor that no
Dean Witter Fund is engaged at the same  time in a purchase or sale of the  same
security.  The Code  of Ethics  bans the  purchase of  securities in  an initial
public offering, and also prohibits engaging in futures and option  transactions
and  profiting on short-term trading (that is, a purchase within sixty days of a
sale or a  sale within sixty  days of a  purchase) of a  security. In  addition,
investment  personnel may  not purchase  or sell  a security  for their personal
account within thirty days  before or after any  transaction in any Dean  Witter
Fund  managed  by them.  Any violations  of the  Code of  Ethics are  subject to
sanctions,  including  reprimand,  demotion  or  suspension  or  termination  of
employment.  The Code  of Ethics comports  with regulatory  requirements and the
recommendations in  the  recent  report  by  the  Investment  Company  Institute
Advisory Group on Personal Investing.
    

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

                                       23
<PAGE>

   
Dean Witter
Short-Term
                                    Dean Witter
Bond Fund
TRUSTEES                            Short-Term
Jack F. Bennett                     Bond Fund
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive
Officer
Sheldon Curtis
Vice President, Secretary and
General Counsel
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
90 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 LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
                                            PROSPECTUS -- JUNE 29, 1995

    
<PAGE>

   
<TABLE>
<S>                          <C>
STATEMENT OF ADDITIONAL        DEAN WITTER
INFORMATION                     SHORT-TERM
JUNE 29, 1995                    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 29,  1995, 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......................................................         12
Investment Restrictions................................................................         26
Portfolio Transactions and Brokerage...................................................         27
Purchase of Fund Shares................................................................         29
Shareholder Services...................................................................         31
Redemptions and Repurchases............................................................         36
Dividends, Distributions and Taxes.....................................................         36
Performance Information................................................................         39
Description of Shares..................................................................         39
Custodian and Transfer Agent...........................................................         40
Independent Accountants................................................................         40
Reports to Shareholders................................................................         40
Legal Counsel..........................................................................         41
Experts................................................................................         41
Registration Statement.................................................................         41
Financial Statements...................................................................         42
Report of Independent Accountants......................................................         50
Appendix...............................................................................         51
</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 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, Dean Witter
Mid-Cap Growth  Fund,  Dean Witter  Select  Dimensions Investment  Series,  Dean
Witter  Global Asset  Allocation Fund,  Dean Witter  Balanced Income  Fund, Dean
Witter Balanced Growth  Fund, Dean Witter  Hawaii Municipal Trust,  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.,  ("DWSC") 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 Total Return Trust, TCW/DW Global Convertible Trust,  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.

   
    Effective  December  31,  1993,  pursuant to  a  Services  Agreement between
InterCapital and DWSC, a wholly-owned subsidiary of InterCapital, DWSC began  to
provide  the administrative services to the Fund which were previously performed
directly by InterCapital. On April 17,  1995, DWSC was reorganized in the  State
of   Delaware,  necessitating  the  entry  into  a  new  Services  Agreement  by
InterCapital and DWSC on such  date. The foregoing internal reorganizations  did
not  result in any change in the  nature or scope of the administrative services
being provided to the  Fund or any of  the fees being paid  by the Fund for  the
overall services being performed under the terms of the existing Agreement.
    
    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,

                                       4
<PAGE>
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 period January
10, 1994 (commencement of the Fund's operations) through April 30, 1994, and for
the  fiscal year ended April  30, 1995, the fees  payable under the Agreement of
$73,373 and  $264,109,  respectively, were  waived  by the  Investment  Manager,
pursuant  to its undertaking to waive its management fee until December 31, 1995
or until such  time as the  Fund reaches  $50 million in  net assets,  whichever
occurs first.
    
   
    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 periods  January  10,  1994  (commencement of
operations) through April  30, 1994,  and for the  fiscal year  ended April  30,
1995.
    
    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 continued 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  continuation of the Agreement
until April 30,  1996 was  approved by  the Trustees  of the  Fund, including  a
majority of the Independent Trustees, at their meeting held on April 20, 1995.
    
    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 77 Dean Witter Funds and the 13 TCW Funds, are shown
below:
    

   
<TABLE>
<CAPTION>
      NAME, AGE, POSITION WITH FUND AND ADDRESS                PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------  ----------------------------------------------------------
<S>                                                     <C>
Jack F. Bennett (71) .................................  Retired; Director  or Trustee  of the  Dean Witter  Funds;
Trustee                                                 formerly  Senior  Vice  President  and  Director  of Exxon
c/o Gordon Altman Butowsky                              Corporation (1975-January,  1989) and  Under Secretary  of
Weitzen Shalov & Wein                                   the   U.S.  Treasury  for  Monetary  Affairs  (1974-1975);
Counsel to the Independent Trustees                     Director of  Philips  Electronics N.V.,  Tandem  Computers
114 West 47th Street,                                   Inc.  and Massachusetts Mutual Insurance Company; director
New York, New York                                      or  trustee   of  various   not-for-profit  and   business
                                                        organizations.
Michael Bozic (54) ...................................  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 Eaglemark  Financial Services,
                                                        Inc., the United Negro College Fund and Domain Inc.  (home
                                                        decor retailer).
Charles A. Fiumefreddo* (62) .........................  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 (62) ...................................  Director  or Trustee  of the  Dean Witter  Funds; formerly
Trustee                                                 United States Senator  (R-Utah) (1974-1992) and  Chairman,
c/o Huntsman Chemical Corporation                       Senate  Banking Committee  (1980-1986); formerly  Mayor of
2000 Eagle Gate Tower                                   Salt Lake  City,  Utah  (1971-1974);  formerly  Astronaut,
Salt Lake City, Utah                                    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 (70) ...................................  Chairman  of  the  Audit  Committee  and  Chairman  of the
Trustee                                                 Committee of  the Independent  Directors or  Trustees  and
Two World Trade Center                                  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).
</TABLE>
    

                                       6
<PAGE>
   
<TABLE>
<CAPTION>
      NAME, AGE, POSITION WITH FUND AND ADDRESS                PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------  ----------------------------------------------------------
<S>                                                     <C>
Dr. Manuel H. Johnson (46) ...........................  Senior  Partner,  Johnson  Smick  International,  Inc.,  a
Trustee                                                 consulting  firm  (since  June, 1985);  Koch  Professor of
c/o Johnson Smick International, Inc.                   International Economics  and Director  of the  Center  for
1133 Connecticut Avenue, N.W.                           Global  Market Studies  at George  Mason University (since
Washington, D.C.                                        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 (71) .....................................  Director  or Trustee of the Dean Witter Funds; Chairman of
Trustee                                                 the Audit Committee and Chairman  of the Committee of  the
c/o Gordon Altman Butowsky                              Independent  Trustees  and  Trustee of  the  TCW/DW Funds;
Weitzen Shalov & Wein                                   formerly Chairman  of the  Financial Accounting  Standards
Counsel to the Independent Trustees                     Advisory  Council and Chairman and Chief Executive Officer
114 West 47th Street,                                   of the American Stock Exchange; Director of UCC  Investors
New York, New York                                      Holding  Inc. (Uniroyal Chemical  Company, Inc.); director
                                                        or trustee of various not-for-profit organizations
Michael E. Nugent (58) ...............................  General  Partner,   Triumph  Capital,   L.P.,  a   private
Trustee                                                 investment  partnership (since  April, 1988);  Director or
c/o Triumph Capital, L.P.                               Trustee of the  Dean Witter Funds;  Trustee of the  TCW/DW
237 Park Avenue                                         Funds;  formerly Vice President, Bankers Trust Company and
New York, New York                                      BT  Capital  Corporation  (September,  1984-March,  1988);
                                                        Director of various business organizations.
Philip J. Purcell* (51) ..............................  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 (64) ...............................  Executive  Vice President and  Chief Investment Officer of
Trustee                                                 the Home Insurance Company (since August, 1991);  Director
c/o The Home Insurance Company                          or  Trustee of the Dean Witter Funds; Director of Citizens
59 Maiden Lane                                          Utilities Company; formerly Chairman and Chief  Investment
New York, 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, AGE, POSITION WITH FUND AND ADDRESS                PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
- ------------------------------------------------------  ----------------------------------------------------------
<S>                                                     <C>
Sheldon Curtis* (63) .................................  Senior  Vice President,  Secretary and  General Counsel of
Vice President, Secretary and General Counsel           InterCapital and DWSC; Senior Vice President and Secretary
Two World Trade Center                                  of DWTC; Senior  Vice President,  Assistant Secretary  and
New York, New York                                      Assistant   General  Counsel  of  Distributors;  Assistant
                                                        Secretary of DWR and Vice President, Secretary and General
                                                        Counsel of the Dean Witter Funds and the TCW/DW Funds.
Peter M. Avelar (36) .................................  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 (36) .................................  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 (46) ..............................  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 (49) ................................  First  Vice  President  (since  May,  1991)  and Assistant
Treasurer                                               Treasurer (since January 1993) of InterCapital; First Vice
Two World Trade Center                                  President and Assistant Treasurer of DWSC and Treasurer of
New York, New York                                      the Dean  Witter Funds  and the  TCW/DW Funds;  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 and Director of  DWTC, are Vice Presidents  of the Fund, and  Barry
Fink  and  Marilyn  K.  Cranney, First  Vice  Presidents  and  Assistant General
Counsels of InterCapital and DWSC and Lawrence S. Lafer, Lou Anne D. McInnis and
Ruth Rossi, Vice Presidents and  Assistant General Counsels of InterCapital  and
DWSC, are Assistant Secretaries of the Fund.
    

   
BOARD OF TRUSTEES; RESPONSIBILITIES AND COMPENSATION OF INDEPENDENT TRUSTEES
    
   
    As mentioned above under the caption "The Fund and its Management," the Fund
is  one of  the Dean Witter  Funds, a  group of investment  companies managed by
InterCapital. As of the date of this Statement of Additional Information,  there
are  a total of 77 Dean Witter Funds, comprised of 117 portfolios. As of May 31,
1995, the Dean Witter Funds had total net assets of approximately $71.3  billion
and more than five million shareholders.
    

   
    The  Board of  Directors or  Trustees, consisting  of ten  (10) directors or
trustees, is the same for each of the  Dean Witter Funds. Some of the Funds  are
organized  as business  trusts, others  as corporations,  but the  functions and
duties of  directors  and trustees  are  the same.  Accordingly,  directors  and
trustees of the Dean Witter Funds are referred to in this section as Trustees.
    

   
    Eight  Trustees, that is,  80% of the  total number, have  no affiliation or
business connection with InterCapital  or any of its  affiliated persons and  do
not  own any stock or other  securities issued by InterCapital's parent company,
DWDC. These are  the "disinterested"  or "  independent" Trustees.  Five of  the
eight Independent Trustees are also Independent Trustees of the TCW/DW Funds. As
of the date of
    

                                       8
<PAGE>
   
this  Statement of Additional Information, there are a total of 13 TCW/DW Funds.
Two of the  Funds' Trustees, that  is, the management  Trustees, are  affiliated
with InterCapital.
    

   
    As  noted in a federal court ruling,  "[T]he independent directors . . . are
expected  to  look  after  the  interests  of  shareholders  by  'furnishing  an
independent  check upon management,' especially with respect to fees paid to the
investment company's sponsor." In addition  to their general "watchdog"  duties,
the  Independent Trustees  are charged with  a wide  variety of responsibilities
under the Act.  In order to  perform their duties  effectively, the  Independent
Trustees  are required to review and understand large amounts of material, often
of a highly technical and legal nature.
    

   
    The  Dean  Witter  Funds  seek   as  Independent  Trustees  individuals   of
distinction  and  experience  in  business and  finance,  government  service or
academia; that is, people whose advice and counsel are valuable and in demand by
others and for  whom there is  often competition.  To accept a  position on  the
Funds'  Boards, such individuals may reject other attractive assignments because
of the demands made on their time by  the Funds. Indeed, to serve on the  Funds'
Boards,  certain Trustees who would be qualified  and in demand to serve on bank
boards would be prohibited by law from serving at the same time as a director of
a national bank and as a Trustee of a Fund.
    

   
    The Independent Trustees are required to select and nominate individuals  to
fill  any Independent Trustee vacancy  on the Board of any  Fund that has a Rule
12b-1 plan of  distribution. Since most  of the  Dean Witter Funds  have such  a
plan,  and since all of the Funds' Boards have the same members, the Independent
Trustees effectively control the selection of other Independent Trustees of  all
the Dean Witter Funds.
    

   
GOVERNANCE STRUCTURE OF THE DEAN WITTER FUNDS
    
   
    While the regulatory system establishes both general guidelines and specific
duties  for  the  Independent  Trustees, the  governance  arrangements  from one
investment company  group to  another  vary significantly.  In some  groups  the
Independent  Trustees perform their  role by attendance  at periodic meetings of
the board  of  directors with  study  of  materials furnished  to  them  between
meetings.  At  the other  extreme, an  investment company  complex may  employ a
full-time staff to assist the Independent  Trustees in the performance of  their
duties.
    

   
    The  governance structure  of the Dean  Witter Funds lies  between these two
extremes. The  Independent  Trustees and  the  Funds' Investment  Manager  alike
believe  that these  arrangements are effective  and serve the  interests of the
Funds' shareholders. All  of the Independent  Trustees serve as  members of  the
Audit  Committee and  the Committee of  the Independent Trustees.  Three of them
also serve as members of the Derivatives Committee.
    

   
    The Committee of the  Independent Trustees is  charged with recommending  to
the  full Board approval  of management, advisory  and administration contracts,
Rule 12b-1  plans  and  distribution and  underwriting  agreements,  continually
reviewing  Fund performance,  checking on  the pricing  of portfolio securities,
brokerage commissions, transfer agent costs  and performance, and trading  among
Funds  in the  same complex, and  approving fidelity bond  and related insurance
coverage and allocations, as well as other matters that arise from time to time.
    

   
    The Audit  Committee is  charged with  recommending to  the full  Board  the
engagement  or  discharge  of  the  Fund's  independent  accountants;  directing
investigations into matters  within the  scope of  the independent  accountants'
duties,  including the power  to retain outside  specialists; reviewing with the
independent accountants the audit plan  and results of the auditing  engagement;
approving  professional  services provided  by  the independent  accountants and
other accounting firms prior to the performance of such services; reviewing  the
independence  of the independent accountants; considering the range of audit and
non-audit fees;  reviewing  the  adequacy  of  the  Fund's  system  of  internal
controls;  advising the  independent accountants  and management  personnel that
they have  direct  access to  the  Committee at  all  times; and  preparing  and
submitting Committee meeting minutes to the full Board.
    

                                       9
<PAGE>
   
    Finally,  the Board of each Fund  has established a Derivatives Committee to
establish parameters for and oversee the activities of the Fund with respect  to
derivative investments, if any, made by the Fund.
    

   
    During  the calendar year ended December 31, 1994, the three Committees held
a combined total of eleven meetings.  The Committee meetings are sometimes  held
away  from  the offices  of  InterCapital and  sometimes  in the  Board  room of
InterCapital. These meetings are held  without management directors or  officers
being  present, unless and until they may be invited to the meeting for purposes
of furnishing information or  making a report.  These separate meetings  provide
the  Independent  Trustees an  opportunity to  explore in  depth with  their own
independent  legal   counsel,  independent   auditors  and   other   independent
consultants, as needed, the issues they believe should be addressed and resolved
in the interests of the Funds' shareholders.
    

   
DUTIES OF CHAIRMAN OF COMMITTEES
    
   
    The   Chairman  of  the  Committees  maintains   an  office  at  the  Funds'
headquarters in New York.  He is responsible for  keeping abreast of  regulatory
and  industry developments and the Funds'  operations and management. He screens
and/or prepares  written  materials  and  identifies  critical  issues  for  the
Independent  Trustees  to  consider, develops  agendas  for  Committee meetings,
determines the type and amount of  information that the Committees will need  to
form  a judgment on the issues, and  arranges to have the information furnished.
He also arranges for the services of  independent experts to be provided to  the
Committees  and consults with them in advance of meetings to help refine reports
and to focus  on critical  issues. Members of  the Committees  believe that  the
person  who serves as Chairman of all  three Committees and guides their efforts
is pivotal to the effective functioning of the Committees.
    

   
    The Chairman of the  Committees also maintains  continuous contact with  the
Funds' management, with independent counsel to the Independent Trustees and with
the  Fund's independent auditors.  He arranges for a  series of special meetings
involving the  annual  review  of  investment  management  and  other  operating
contracts  of the Funds and, on  behalf of the Committees, conducts negotiations
with the Investment Manager and other service providers. In effect, the Chairman
of the Committees serves as a  combination of chief executive and support  staff
of the Independent Trustees.
    

   
    The Chairman of the Committees is not employed by any other organization and
devotes his time primarily to the services he performs as Committee Chairman and
Independent  Trustee of the Dean  Witter Funds and as  an Independent Trustee of
the TCW/DW Funds.  The current  Committee Chairman has  had more  than 35  years
experience as a senior executive in the investment company industry.
    

   
VALUE OF HAVING SAME INDIVIDUALS AS INDEPENDENT TRUSTEES FOR ALL DEAN WITTER
FUNDS
    
   
    The  Independent Trustees and the Funds'  management believe that having the
same Independent Trustees  for each  of the  Dean Witter  Funds is  in the  best
interests   of  all  the  Funds'   shareholders.  This  arrangement  avoids  the
duplication  of  effort  that  would  arise  from  having  different  groups  of
individuals  serving as Independent  Trustees for each  of the Funds  or even of
sub-groups of Funds. It  is believed that having  the same individuals serve  as
Independent  Trustees of  all the  Funds tends  to increase  their knowledge and
expertise regarding matters which affect the Fund complex generally and enhances
their ability  to negotiate  on behalf  of  each Fund  with the  Fund's  service
providers.  This arrangement also precludes the likelihood of separate groups of
Independent Trustees arriving at conflicting decisions regarding operations  and
management  of the  Funds and  avoids the cost  and confusion  that would likely
ensue. Finally, it is believed that  having the same Independent Trustees  serve
on  all Fund Boards enhances the ability of  each Fund to obtain, at modest cost
to each separate Fund, the services  of Independent Trustees, and a Chairman  of
their  Committees,  of  the  caliber,  experience  and  business  acumen  of the
individuals who serve as Independent Trustees of the Dean Witter Funds.
    

   
COMPENSATION OF INDEPENDENT TRUSTEES
    
   
    The Fund will pay each  Independent Trustee an annual  fee of $1,200 plus  a
per  meeting fee of $50  for meetings of the Board  of Trustees or committees of
the Board of Trustees attended by the Trustee (the Fund will pay the Chairman of
the Audit Committee an  annual fee of  $1,000 and will pay  the Chairman of  the
Committee  of the  Independent Trustees an  additional annual fee  of $2,400, in
each case inclusive of
    

                                       10
<PAGE>
   
the Committee meeting  fees). The  Fund will  also reimburse  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 of an affiliated company will not receive any
compensation   or  expense  reimbursement  from  the  Fund.  The  Fund  paid  no
compensation to the  Independent Trustees for  the fiscal year  ended April  30,
1995.  Payments will commence as  of the time the  Fund begins paying management
fees, which, pursuant to  an undertaking by the  Investment Manager, will be  at
such  time as  the Fund  has $50  million of  net assets  or December  31, 1995,
whichever occurs first.
    

   
    At such time as  the Fund has  paid fees to the  Independent Trustees for  a
full  fiscal year, and assuming that during  such fiscal year the Fund holds the
same number of  Board and  committee meetings  as were  held by  the other  Dean
Witter  Funds during the calendar year ended  December 31, 1994, it is estimated
that compensation paid to each Independent Trustee during such fiscal year  will
be the amount shown in the following table.
    

   
                          FUND COMPENSATION (ESTIMATED)
    

   
<TABLE>
<CAPTION>
                                                                                          AGGREGATE COMPENSATION
NAME OF INDEPENDENT TRUSTEE                                                                    FROM THE FUND
- ---------------------------------------------------------------------------------------  -------------------------
<S>                                                                                      <C>
Jack F. Bennett........................................................................          $   1,950
Michael Bozic..........................................................................              1,950
Edwin J. Garn..........................................................................              1,950
John R. Haire..........................................................................              4,900*
Dr. Manuel H. Johnson..................................................................              1,950
Paul Kolton............................................................................              1,950
Michael E. Nugent......................................................................              1,950
John L. Schroeder......................................................................              1,950
<FN>
- ------------------------
*    Of  Mr.  Haire's compensation  from  the Fund,  $3,400  is paid  to  him as
     Chairman of  the Committee  of  the Independent  Trustees ($2,400)  and  as
     Chairman of the Audit Committee ($1,000).
</TABLE>
    

   
    The  following  table  illustrates  the  compensation  paid  to  the  Fund's
Independent Trustees for the calendar year ended December 31, 1994 for  services
to  the 73 Dean Witter Funds and, in  the case of Messrs. Haire, Johnson, Kolton
and Nugent, the 13  TCW/DW Funds that  were in operation  at December 31,  1994.
With  respect to Messrs. Haire, Johnson, Kolton and Nugent, the TCW/DW Funds are
included solely because of a limited exchange privilege between those Funds  and
five  Dean Witter Money Market Funds. Mr.  Schroeder was elected as a Trustee of
the TCW/DW Funds on April 20, 1995.
    

   
            CASH COMPENSATION FOR DEAN WITTER FUNDS AND TCW/DW FUNDS
    

   
<TABLE>
<CAPTION>
                                FOR SERVICE AS                          FOR SERVICE AS CHAIRMAN
                              DIRECTOR OR TRUSTEE    FOR SERVICE AS         OF COMMITTEES OF      TOTAL CASH COMPENSATION
                                 AND COMMITTEE         TRUSTEE AND       INDEPENDENT DIRECTORS/   FOR SERVICES TO 73 DEAN
NAME OF                        MEMBER OF 73 DEAN   COMMITTEE MEMBER OF     TRUSTEES AND AUDIT       WITTER FUNDS AND 13
INDEPENDENT TRUSTEES             WITTER FUNDS        13 TCW/DW FUNDS           COMMITTEES              TCW/DW FUNDS
- ----------------------------  -------------------  -------------------  ------------------------  -----------------------
<S>                           <C>                  <C>                  <C>                       <C>
Jack F. Bennett.............      $   125,761              --                      --                  $     125,761
Michael Bozic...............           82,637              --                      --                         82,637
Edwin J. Garn...............          125,711              --                      --                        125,711
John R. Haire...............          101,061          $    66,950            $    225,563**                 393,574
Dr. Manuel H. Johnson.......          122,461               60,750                 --                        183,211
Paul Kolton.................          128,961               51,850                  34,200***                215,011
Michael E. Nugent...........          115,761               52,650                 --                        168,411
John L. Schroeder...........           85,938              --                      --                         85,938
<FN>
- ------------------------
**   For the 73 Dean Witter Funds.
***  For the 13 TCW/DW Funds.
</TABLE>
    

                                       11
<PAGE>
   
    As of the date  of this Statement of  Additional Information, the  aggregate
number of shares of beneficial interest of the Fund owned by the Fund's officers
and  Trustees  as a  group  was less  than  1 percent  of  the Fund's  shares of
beneficial interest outstanding.
    

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.

                                       12
<PAGE>
    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, 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

                                       13
<PAGE>
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 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

                                       14
<PAGE>
regulated  investment company  (see "Dividends,  Distributions and  Taxes"). The
Fund has not  and does  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

                                       15
<PAGE>
repurchase agreement,  while  it  will  be able  to  keep  the  interest  income
associated   with  those  portfolio  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

                                       16
<PAGE>
delays  in effecting such registration. The above policy on purchase of illiquid
securities may be changed by the Fund's Trustees.

    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

                                       17
<PAGE>
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 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

                                       18
<PAGE>
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 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.

                                       19
<PAGE>
    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 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

                                       20
<PAGE>
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 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;

                                       21
<PAGE>
(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 (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).

                                       22
<PAGE>
    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 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.

                                       23
<PAGE>
Treasury Notes with maturities between 6 1/2 and 10 years, GNMA Certificates and
Bank Certificates of Deposit.

    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

                                       24
<PAGE>
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 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

                                       25
<PAGE>
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 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

                                       26
<PAGE>
    exceeding  5% (taken  at the lower  of cost  or current value)  of its total
    assets (not including the amount borrowed).

        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

                                       27
<PAGE>
   
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 issuer,  in which  case  no
commissions or discounts are paid. The Fund paid no brokerage commissions during
the fiscal year ended April 30, 1995.
    

    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.

   
    During the  fiscal year  ended April  30, 1995,  the Fund  held $491,325  of
Lehman  Brothers Holdings, Inc., 7.625% bonds,  maturing 7/15/97 and $488,765 of
Smith Barney Shearson 6.000% bonds
    

                                       28
<PAGE>
   
maturing 3/15/97, both of which issuers  were among the ten broker-dealers  with
whom the Fund transacted principal transactions in the largest amounts.
    

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,   a  Delaware
corporation, is an indirect  wholly-owned subsidiary of  DWDC. In addition,  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. By its terms, the Distribution
Agreement had an initial term ending April  30, 1995, and provides that it  will
continue from year to year thereafter if approved by the Board. At their meeting
held on April 20, 1995, the Trustees, including all of the Independent Trustees,
approved continuation of the Distribution Agreement until April 30, 1996.
    

    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-

                                       29
<PAGE>
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  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.
    

    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.

   
    The  Plan remained in effect until April 30, 1995, and will remain in effect
from year to year thereafter, 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. At their  meeting
held  on  April  20,  1995, the  Trustees  of  the Fund,  including  all  of the
Independent 12b-1  Trustees,  approved  the  continuance  of  the  Plan  for  an
additional year until April 30, 1996.
    

    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 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

                                       30
<PAGE>
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.

    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

                                       31
<PAGE>
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 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

                                       32
<PAGE>
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,  Dean  Witter  Balanced  Income  Fund,  Dean Witter
Balanced Growth Fund  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, Dean Witter Balanced  Income Fund, Dean Witter Balanced  Growth
Fund  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 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

                                       33
<PAGE>
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.

    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.

                                       34
<PAGE>
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  Balanced Income  Fund, Dean
Witter Balanced Growth Fund,  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.

                                       35
<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

                                       36
<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.

   
    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.
    

                                       37
<PAGE>
   
    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.
    

    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 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.

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

                                       38
<PAGE>
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, 1995 was 5.57%. 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, 1995 would have been 7.09%.
    

   
    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  fiscal
year  ended  April  30, 1995  was  4.76% and  for  the period  January  10, 1994
(commencement of  operations) through  April  30, 1995  was 2.03%.  Without  the
waiver of fees and assumption of expenses by the Investment Manager, the average
annual total return would have been 3.39% and 0.45%, respectively.
    

   
    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 fiscal
year ended  April  30, 1995  was  4.76% and  for  the period  January  10,  1994
(commencement of operations) through April 30, 1995 was 2.65%.
    

   
    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  $10,265,  $51,325  and   $102,650,
respectively at April 30, 1995.
    

    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  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

                                       39
<PAGE>
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, 90 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, including
providing  subaccounting  and  recordkeeping  services  for  certain  retirement
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 LLP serves as the independent accountants of the Fund.  The
independent  accountants  are  responsible  for  auditing  the  annual financial
statements of the Fund.
    

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.

                                       40
<PAGE>
    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
LLP,  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.

                                       41
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1995
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
 PRINCIPAL
 AMOUNT IN                                                                            COUPON    MATURITY
 THOUSANDS                                                                             RATE       DATES        VALUE
- -----------                                                                          ---------  ---------  -------------
<C>          <S>                                                                     <C>        <C>        <C>
             CORPORATE BONDS (55.8%)
             AUTOMOTIVE FINANCE (5.0%)
 $     500   Ford Motor Credit Co..................................................     6.25  %  02/26/98  $     487,880
     1,000   General Motors Acceptance Corp........................................     7.75     04/15/97      1,009,170
                                                                                                           -------------
                                                                                                               1,497,050
                                                                                                           -------------
             BANK HOLDING COMPANIES (11.1%)
       593   Bank of Boston Corp...................................................    10.30     09/01/00        599,476
     1,000   Bankers Trust New York Corp...........................................     7.25     11/01/96      1,002,830
       500   Home Savings America Co...............................................     6.00     11/01/00        463,365
       625   Integra Financial Corp................................................     6.50     04/15/00        596,356
       608   Midlantic Corp........................................................     9.25     09/01/99        644,790
                                                                                                           -------------
                                                                                                               3,306,817
                                                                                                           -------------
             BANKS - COMMERCIAL (1.7%)
       500   Chase Manhattan Bank..................................................     7.50     12/01/97        503,820
                                                                                                           -------------
             BANKS - INTERNATIONAL (3.2%)
     1,000   Kansallis-Osake Pankki (Finland)......................................     6.125    05/15/98        963,750
                                                                                                           -------------
             BROKERAGE (3.3%)
       500   Lehman Brothers Holdings, Inc.........................................     7.625    07/15/99        491,325
       500   Smith Barney Shearson, Inc............................................     6.00     03/15/97        488,765
                                                                                                           -------------
                                                                                                                 980,090
                                                                                                           -------------
             COMPUTER EQUIPMENT (1.9%)
       500   Unisys Corp...........................................................    13.50*    07/01/97        550,000
                                                                                                           -------------
             FINANCIAL SERVICES (1.7%)
       500   Golden West Financial Corp............................................     7.875    01/15/02        504,530
                                                                                                           -------------
             FOOD PROCESSING (1.7%)
       500   Great Atlantic & Pacific Tea Inc......................................     9.125    01/15/98        511,230
                                                                                                           -------------
             FOREST & PAPER PRODUCTS (1.7%)
       500   Boise Cascade Corp....................................................     9.625    07/15/98        502,520
                                                                                                           -------------
             INDUSTRIALS (13.9%)
     1,000   Chrysler Corp.........................................................    10.40     08/01/99      1,061,130
       500   Comdisco, Inc.........................................................     9.75     01/15/97        519,440
       500   Grand Metropolitan Investment Corp....................................     8.125    08/15/96        507,580
       500   Hertz Corp............................................................     9.50     05/15/98        528,785
       500   Mitchell Energy & Development Co......................................     5.10     02/15/97        482,055
       500   Reynolds Metals Co....................................................     9.375    06/15/99        531,865
       500   Xerox Corp............................................................     9.20     07/15/99        513,125
                                                                                                           -------------
                                                                                                               4,143,980
                                                                                                           -------------
</TABLE>

                       SEE NOTES TO FINANCIAL STATEMENTS

                                       42
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
 PRINCIPAL
 AMOUNT IN                                                                    COUPON    MATURITY
 THOUSANDS                                                                     RATE       DATES       VALUE
- -----------  PUBLISHING (1.6%)                                               ---------  ---------  ------------
<C>          <S>                                                             <C>        <C>        <C>
 $     500   Time Warner, Inc..............................................     11.00+%  08/15/02  $    485,000
                                                                                                   ------------
             TRANSPORTATION (1.0%)
       300   AMR Corp......................................................      8.10    11/01/98       304,467
                                                                                                   ------------
             UTILITIES - ELECTRIC (8.0%)
       500   Commonwealth Edison Co........................................      6.50    04/15/00       478,070
       500   Consolidated Edison Co. of N.Y., Inc..........................      5.90    12/15/96       492,215
       370   Consumers Power Co............................................      8.875   11/15/99       387,146
       500   Long Island Lighting Co.......................................      6.25    07/15/01       432,525
       575   Public Service Co. of New Hampshire...........................      8.875   05/15/96       583,182
                                                                                                   ------------
                                                                                                      2,373,138
                                                                                                   ------------
             TOTAL CORPORATE BONDS (IDENTIFIED COST $17,323,829).................................    16,626,392
                                                                                                   ------------
</TABLE>

<TABLE>
<CAPTION>
<C>          <S>                                                                    <C>        <C>         <C>
             U.S. GOVERNMENT & AGENCIES OBLIGATIONS (32.3%)
             MORTGAGE PASS-THROUGH SECURITY (6.3%)
     1,894   Federal Home Loan Mortgage Corp. PC Gold.............................     6.50     05/01/99-
                                                                                                 06/01/99      1,863,783
                                                                                                           -------------
             U.S. GOVERNMENT AGENCIES (15.9%)
       500   Federal Home Loan Mortgage Banks.....................................     5.75      06/20/96        493,750
     2,000   Federal Home Loan Mortgage Corp......................................     8.05      01/06/97      2,016,140
       500   Federal National Mortgage Assoc......................................     6.90      11/12/96        500,625
     2,000   Federal National Mortgage Assoc......................................     7.56+     12/20/01      1,758,437
                                                                                                           -------------
                                                                                                               4,768,952
                                                                                                           -------------
             U.S. GOVERNMENT OBLIGATIONS (10.1%)
     2,000   U.S. Treasury Note...................................................     5.875     05/15/95      1,999,375
     1,000   U.S. Treasury Note...................................................     7.125     02/29/00      1,009,219
                                                                                                           -------------
                                                                                                               3,008,594
                                                                                                           -------------
             TOTAL U.S. GOVERNMENT & AGENCIES OBLIGATIONS
               (IDENTIFIED COST $9,719,958)..............................................................      9,641,329
                                                                                                           -------------
</TABLE>

<TABLE>
<CAPTION>
<C>          <S>                                                                     <C>        <C>        <C>
             SHORT-TERM INVESTMENTS (10.1%)
             U.S. GOVERNMENT AGENCIES (A) (6.7%)
     2,000   Federal Farm Credit Banks (Amortized Cost $1,998,698).................     5.87     05/05/95      1,998,698
                                                                                                           -------------
</TABLE>

                       SEE NOTES TO FINANCIAL STATEMENTS

                                       43
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
 PRINCIPAL
 AMOUNT IN                                                                            COUPON    MATURITY
 THOUSANDS                                                                             RATE       DATES        VALUE
- -----------                                                                          ---------  ---------  -------------
<C>          <S>                                                                     <C>        <C>        <C>
             REPURCHASE AGREEMENT (3.4%)
 $   1,013   The Bank of New York (dated 04/28/95; proceeds $1,013,815,
               collateralized by $859,916 Federal Home Loan Mortgage Corp 1604 IA
               6.0% due 09/15/08 valued at $776,257 and $270,996 U.S. Treasury Note
               6.75% due 02/28/97 valued at $274,639) (Identified Cost
               $1,013,303).........................................................     6.0625%  05/01/95  $   1,013,303
                                                                                                           -------------
             TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST $3,012,001)...................................      3,012,001
                                                                                                           -------------
TOTAL INVESTMENTS (IDENTIFIED COST $30,055,788) (B)......................       98.2%    29,279,722
OTHER ASSETS IN EXCESS OF LIABILITIES....................................        1.8        538,115
                                                                           ----------  ------------
NET ASSETS...............................................................      100.0%  $ 29,817,837
                                                                           ----------  ------------
                                                                           ----------  ------------
<FN>
- ----------------
 *   ADJUSTABLE RATE. RATE SHOWN IS THE RATE IN EFFECT AT APRIL 30, 1995.
 +   CURRENTLY ZERO COUPON BOND AND WILL PAY INTEREST AT THE RATE SHOWN AT A
     FUTURE SPECIFIED DATE.
(A)  SECURITIES WERE PURCHASED ON A DISCOUNT BASIS. THE INTEREST RATE SHOWN HAS
     BEEN ADJUSTED TO REFLECT A MONEY MARKET EQUIVALENT YIELD.
(B)  THE AGGREGATE COST OF INVESTMENTS FOR FEDERAL INCOME TAX PURPOSES IS
     $30,055,788; THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $80,570 AND
     THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $856,636, RESULTING IN NET
     UNREALIZED DEPRECIATION OF $776,066.
</TABLE>

                       SEE NOTES TO FINANCIAL STATEMENTS

                                       44
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1995
- --------------------------------------------------------------------------------

<TABLE>
<S>                                          <C>
ASSETS:
Investments in securities, at value
  (identified cost $30,055,788)............  $ 29,279,722
Receivable for:
  Interest.................................       525,877
  Shares of beneficial interest sold.......        42,652
Deferred organizational expenses...........       118,380
Receivable from affiliate (Note 2).........       100,420
                                             ------------
        TOTAL ASSETS.......................    30,067,051
                                             ------------
LIABILITIES:
Payable for:
  Shares of beneficial interest
    repurchased............................        20,865
  Dividends to shareholders................        10,352
  Organizational expenses..................       118,380
Accrued expenses and other payables........        99,617
                                             ------------
        TOTAL LIABILITIES..................       249,214
                                             ------------
NET ASSETS:
Paid-in-capital............................    32,012,843
Net unrealized depreciation................      (776,066)
Distributions in excess of net investment
  income...................................       (10,352)
Accumulated net realized loss..............    (1,408,588)
                                             ------------
        NET ASSETS.........................  $ 29,817,837
                                             ------------
                                             ------------
NET ASSET VALUE PER SHARE, 3,151,166 shares
  outstanding (unlimited shares authorized
  of $.01 par value).......................
                                                    $9.46
                                             ------------
                                             ------------
</TABLE>

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1995

<TABLE>
<S>                                          <C>
NET INVESTMENT INCOME:
  INTEREST INCOME..........................  $ 2,882,945
                                             -----------
  EXPENSES
    Investment management fee..............      264,109
    Professional fees......................       52,294
    Organizational expenses................       31,981
    Trustees' fees and expenses............       15,993
    Registration fees......................       12,799
    Custodian fees.........................       11,575
    Shareholder reports and notices........        9,964
    Transfer agent fees and expenses.......        9,790
                                             -----------
        TOTAL EXPENSES BEFORE AMOUNTS
            ASSUMED/WAIVED.................      408,505
        LESS: AMOUNTS ASSUMED/WAIVED.......     (408,505)
                                             -----------
        TOTAL EXPENSES AFTER AMOUNTS
          ASSUMED/WAIVED...................      --
                                             -----------
          NET INVESTMENT INCOME............    2,882,945
                                             -----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
    Net realized loss on:
    Investments............................     (664,638)
    Foreign exchange transactions..........   (1,355,510)
                                             -----------
        TOTAL LOSS.........................   (2,020,148)
    Net change in unrealized
      depreciation.........................      738,462
          NET LOSS.........................   (1,281,686)
                                             -----------
          NET INCREASE.....................  $ 1,601,259
                                             -----------
                                             -----------
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                 FOR THE YEAR    FOR THE PERIOD
                                                                                     ENDED      JANUARY 10, 1994*
                                                                                   APRIL 30,         THROUGH
                                                                                     1995        APRIL 30, 1994
                                                                                 -------------  -----------------
<S>                                                                              <C>            <C>
INCREASE (DECREASE) IN NET ASSETS:
  OPERATIONS:
    Net investment income......................................................   $ 2,882,945     $     666,656
    Net realized loss..........................................................    (2,020,148)          (50,773)
    Net change in unrealized depreciation......................................       738,462        (1,514,528)
                                                                                 -------------  -----------------
        NET INCREASE (DECREASE)................................................     1,601,259          (898,645)
                                                                                 -------------  -----------------
    Dividends and distributions to shareholders from:
      Net investment income....................................................    (2,314,420)         (583,200)
      Paid-in-capital..........................................................       (46,360)         --
                                                                                 -------------  -----------------
TOTAL..........................................................................    (2,360,780)         (583,200)
                                                                                 -------------  -----------------
    Net increase (decrease) from transactions in shares of beneficial
      interest.................................................................   (12,825,279)       44,784,482
                                                                                 -------------  -----------------
        TOTAL INCREASE (DECREASE)..............................................   (13,584,800)       43,302,637
                                                                                 -------------  -----------------
NET ASSETS:
  Beginning of period..........................................................    43,402,637           100,000
                                                                                 -------------  -----------------
  END OF PERIOD (including distributions in excess of net investment income of
   $10,352 and undistributed net investment income of $83,456, respectively)...   $29,817,837     $  43,402,637
                                                                                 -------------  -----------------
                                                                                 -------------  -----------------
- ---------------------
  * COMMENCEMENT OF OPERATIONS.
</TABLE>

                       SEE NOTES TO FINANCIAL STATEMENTS

                                       45
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1995
- --------------------------------------------------------------------------------

1.   ORGANIZATION  AND ACCOUNTING POLICIES  -- Dean Witter  Short-Term Bond Fund
(the "Fund") is registered under the Investment Company Act of 1940, as amended,
as a diversified, open-end management investment company. The Fund was organized
as a Massachusetts  business trust  on October 22,  1993 and  had no  operations
other  than those relating to organizational  matters and the issuance of 10,000
shares of beneficial  interest for  $100,000 to Dean  Witter InterCapital,  Inc.
(the "Investment Manager). The Fund commenced operations on January 10, 1994.

    The following is a summary of significant accounting policies:

    A.    VALUATION OF  INVESTMENTS --  (1) all  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; (2) certain of
    the portfolio  securities  may  be  valued by  an  outside  pricing  service
    approved  by  the Trustees.  The pricing  service  utilizes a  matrix system
    incorporating security quality, maturity and coupon as the evaluation  model
    parameters, and/or research and evaluation by its staff, including review of
    broker-dealer  market price quotations, if available, in determining what it
    believes is the fair  valuation of the portfolio  securities valued by  such
    pricing  service;  (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)  and (4)  short-term  debt securities  having  a
    maturity  date of more than sixty days at the time of purchase are valued on
    a mark-to-market basis until sixty days prior to maturity and thereafter  at
    amortized  cost  based  on their  value  on  the 61st  day.  Short-term debt
    securities having a  maturity date  of sixty  days or  less at  the time  of
    purchase are valued at amortized cost.

    B.  ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
    the  trade date (date the order to  buy or sell is executed). Realized gains
    and losses on security  transactions are determined  by the identified  cost
    method. Discounts on securities purchased are amortized over the life of the
    respective securities. 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
    are translated at the  exchange rates prevailing at  the end of the  period;
    and (2) purchases, sales, income and expenses are translated at the exchange
    rates prevailing on the respective dates of such transactions. The resultant
    exchange  gains and  losses are included  in the Statement  of Operations as
    realized and unrealized gain/loss on foreign exchange transactions. Pursuant
    to  U.S.   Federal  income   tax  regulations,   certain  foreign   exchange
    gains/losses  included in realized and  unrealized gain/loss are included in
    or are a reduction of ordinary  income for federal income tax purposes.  The
    Fund does not isolate that portion of the results of operations arising as a
    result  of changes  in the  foreign exchange rates  from the  changes in the
    market prices of the securities.

    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 ex-dividend date. The
    amount  of dividends  and distributions from  net investment  income and net
    realized capital gains are determined in accordance with federal income  tax
    regulations  which may differ from generally accepted accounting principles.
    These "book/tax" differences are either considered temporary or permanent in
    nature. To  the  extent these  differences  are permanent  in  nature,  such
    amounts  are  reclassified  within  the  capital  accounts  based  on  their

                                       46
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------
    federal  tax-basis   treatment;  temporary   differences  do   not   require
    reclassification.  Dividends and  distributions which  exceed net investment
    income and net realized capital  gains for financial reporting purposes  but
    not  for tax purposes are reported as  dividends in excess of net investment
    income or distributions  in excess  of net  realized capital  gains. To  the
    extent  they exceed net investment income and net realized capital gains for
    tax purposes, they are reported as distributions of paid-in-capital.

    F.     ORGANIZATIONAL  EXPENSES   --  The   Investment  Manager   paid   the
    organizational  expenses of the Fund in the amount of approximately $160,000
    which will be  reimbursed by  the Fund,  exclusive of  amounts waived.  Such
    expenses  have been  deferred and are  being amortized  on the straight-line
    method over  a period  not to  exceed five  years from  the commencement  of
    operations.

2.   INVESTMENT  MANAGEMENT AGREEMENT  -- Pursuant  to an  Investment Management
Agreement, the Fund pays its Investment Manager a management fee, accrued  daily
and  payable monthly, by applying the annual rate  of 0.70% 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, at its own expense, office space, facilities,  equipment,
clerical,  bookkeeping and certain  legal services and pays  the salaries of all
personnel, including officers of  the Fund who are  employees of the  Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.

    The  Investment  Manager had  undertaken  to assume  all  operating expenses
(except for  any  brokerage fees)  and  had  agreed to  waive  the  compensation
provided for in its Agreement until such time as the Fund had $50 million of net
assets  or  until  six  months  from the  date  of  commencement  of  the Fund's
operations, whichever occurred  first. The Investment  Manager will continue  to
assume  all operating expenses (except for any brokerage fees) and will continue
to waive compensation until such time as the Fund has $50 million of net  assets
or until December 31, 1995, whichever occurs first.

3.    SECURITY TRANSACTIONS  AND  TRANSACTIONS WITH  AFFILIATES  -- The  cost of
purchases and proceeds from sales of portfolio securities, excluding  short-term
investments, for the year ended April 30, 1995 were $23,203,896 and $20,670,677,
respectively.  Included in  the aforementioned are  purchases and  sales of U.S.
Government securities of $16,544,196 and $13,477,680, respectively.

    Dean Witter Trust Company,  an affiliate of the  Investment Manager, is  the
Fund's transfer agent.

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

<TABLE>
<CAPTION>
                                                                                                        FOR THE PERIOD
                                                                                                      JANUARY 10, 1994*
                                                                        FOR THE YEAR ENDED                 THROUGH
                                                                          APRIL 30, 1995                APRIL 30, 1994
                                                                   ----------------------------   --------------------------
                                                                     SHARES          AMOUNT         SHARES         AMOUNT
                                                                   -----------   --------------   -----------   ------------
<S>                                                                <C>           <C>              <C>           <C>
Sold.............................................................    1,807,698   $   17,153,744     5,562,083   $ 55,179,598
Reinvestment of dividends........................................      215,629        2,044,701        52,040        505,222
                                                                   -----------   --------------   -----------   ------------
                                                                     2,023,327       19,198,445     5,614,123     55,684,820
Repurchased......................................................   (3,382,816)     (32,023,724)   (1,113,468)   (10,900,338)
                                                                   -----------   --------------   -----------   ------------
Net increase (decrease)..........................................   (1,359,489)  $  (12,825,279)    4,500,655   $ 44,784,482
                                                                   -----------   --------------   -----------   ------------
                                                                   -----------   --------------   -----------   ------------
<FN>

- ----------------
 *  Commencement of operations.
</TABLE>

                                       47
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1995 (CONTINUED)
- --------------------------------------------------------------------------------

5.  FEDERAL INCOME TAX STATUS -- At  April 30, 1995, the Fund had a net  capital
loss  carryover of approximately $378,000 which  will be available through April
30, 2003 to offset future capital  gains to the extent provided by  regulations.
Capital  and foreign  currency losses  incurred after  October 31 ("post-October
losses") within the taxable year are deemed  to arise on the first business  day
of  the Fund's next taxable year. The Fund  incurred and will elect to defer net
capital and  foreign currency  losses of  approximately $369,000  and  $662,000,
respectively  during fiscal 1995. As  of April 30, 1995,  the Fund had temporary
book/tax differences primarily attributable to post-October losses and permanent
book/ tax  differences  attributable  to foreign  currency  losses.  To  reflect
reclassifications arising from permanent book/tax differences for the year ended
April 30, 1995, distributions in excess of net investment income was charged and
accumulated net realized loss was credited $662,333.

                                       48
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

    Selected  ratios  and per  share  data for  a  share of  beneficial interest
outstanding throughout each period:

<TABLE>
<CAPTION>
                                                                                            FOR THE PERIOD
                                                                                             JANUARY 10,
                                                                          FOR THE YEAR          1994*
                                                                        ENDED APRIL 30,        THROUGH
                                                                              1995          APRIL 30, 1994
                                                                        ----------------   ----------------
<S>                                                                     <C>                <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..................................      $  9.62            $ 10.00
                                                                             ------            -------
Net investment income.................................................         0.77               0.21
Net realized and unrealized loss......................................        (0.33)             (0.40)
                                                                             ------            -------
Total from investment operations......................................         0.44              (0.19)
                                                                             ------            -------
Less dividends and distributions from:
  Net investment income...............................................        (0.59)             (0.19)
  Paid-in-capital.....................................................        (0.01)                --
                                                                             ------            -------
Total dividends and distributions.....................................        (0.60)             (0.19)
                                                                             ------            -------
Net asset value, end of period........................................      $  9.46            $  9.62
                                                                             ------            -------
                                                                             ------            -------
TOTAL INVESTMENT RETURN...............................................         4.76%             (2.01)%(1)

RATIOS TO AVERAGE NET ASSETS:
Expenses..............................................................      --     %(4)        --     %(2)(3)
Net investment income.................................................         7.64%(4)           6.36%(2)(3)

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands...............................           $29,818            $43,403
Portfolio turnover rate...............................................           74%                 9%(1)
<FN>

- ----------------
 *   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 AND NET INVESTMENT INCOME
     RATIOS WOULD HAVE BEEN 1.55% AND 4.81%, RESPECTIVELY.
(4)  IF THE FUND HAD BORNE ALL EXPENSES THAT WERE ASSUMED OR WAIVED BY THE
     INVESTMENT MANAGER, THE ABOVE EXPENSE AND NET INVESTMENT INCOME RATIOS
     WOULD HAVE BEEN 1.08% AND 6.56%, RESPECTIVELY.
</TABLE>

                       SEE NOTES TO FINANCIAL STATEMENTS

                                       49
<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, 1995, the results of its operations for the year then
ended, and the changes in  its net assets and  the financial highlights for  the
year then ended and for the period January 10, 1994 (commencement of operations)
through  April  30,  1994,  in  conformity  with  generally  accepted accounting
principles. These  financial  statements  and  financial  highlights  (hereafter
referred  to as  "financial statements")  are the  responsibility of  the Fund's
management; our  responsibility is  to  express an  opinion on  these  financial
statements  based  on our  audits. We  conducted our  audits of  these financial
statements in  accordance  with  generally  accepted  auditing  standards  which
require  that we plan and perform the audit to obtain reasonable assurance about
whether the financial  statements are  free of material  misstatement. An  audit
includes  examining,  on  a  test basis,  evidence  supporting  the  amounts and
disclosures in  the financial  statements, assessing  the accounting  principles
used  and significant estimates  made by management,  and evaluating the overall
financial statement presentation.  We believe  that our  audits, which  included
confirmation  of securities owned  at April 30, 1995  by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
    

PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
June 8, 1995

                                       50
<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.

                                       51
<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>

                                       52
<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.

                                       53
<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>

                                       54
<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>

                                       55
<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>

                                       56
<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, included
          in Prospectus (Part A):                                       Page in
                                                                      Prospectus
                                                                      ----------

          Financial highlights for the period January 10, 1994
          through April 30, 1994 and for the fiscal year
          ended April 30, 1995.................................            4


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

          Portfolio of Investments at April 30, 1995...........             42

          Statement of assets and liabilities at
          April 30, 1995.......................................             45

          Statement of operations for the year ended
          April 30, 1995.......................................             45

          Statement of changes in net assets for the period
          January 10, 1994 through April 30, 1994 and for the
          fiscal year ended April 30, 1995.....................             45

          Notes to Financial Statements........................             46

          Financial highlights for the period January 10, 1994
          through April 30, 1994 and for the fiscal year
          ended April 30, 1995.................................             49


          (3) Financial statements included in Part C:

          None


   (b)    EXHIBITS:

              2.    --   Amended and Restated By-Laws of the Registrant

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

             11.    --   Consent of Independent Accountants

             16.    --   Schedules for Computation of Performance Quotations

             27.    --   Financial Data Schedule

        --------------------------------
        All other exhibits previously filed and incorporated
        by reference.


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 2, 1995
          --------------                  ------------------------

          Shares of Beneficial Interest          1,252


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.


                                        2

<PAGE>

          Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to trustees, 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 following information is given
regarding officers of Dean Witter InterCapital Inc.  InterCapital 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 "Dean Witter Funds" used below refers to the following
registered investment companies:

CLOSED-END INVESTMENT COMPANIES
 (1) InterCapital Income Securities Inc.
 (2) High Income Advantage Trust
 (3) High Income Advantage Trust II
 (4) High Income Advantage Trust III


                                        3

<PAGE>

 (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) InterCapital Insured Municipal Trust
(20) InterCapital Quality Municipal Securities
(21) InterCapital New York Quality Municipal Securities
(22) InterCapital California Quality Municipal Securities
(23) InterCapital Insured California Municipal Securities
(24) InterCapital Insured Municipal Securities

OPEN-END INVESTMENT COMPANIES:
 (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


                                        4

<PAGE>

(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
(47) Dean Witter International SmallCap Fund
(48) Dean Witter Mid-Cap Growth Fund
(49) Dean Witter Select Dimensions Investment Series
(50) Dean Witter Global Asset Allocation Fund
(51) Dean Witter Balanced Growth Fund
(52) Dean Witter Balanced Income Fund
(53) Dean Witter Hawaii Municipal Trust

The term "TCW/DW Funds" refers to the following registered investment companies:

OPEN-END INVESTMENT COMPANIES
 (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 Global Convertible Trust
 (9) TCW/DW Total Return Trust

CLOSED-END INVESTMENT COMPANIES
 (1) TCW/DW Term Trust 2000
 (2) TCW/DW Term Trust 2002
 (3) TCW/DW Term Trust 2003
 (4) TCW/DW Emerging Markets Opportunities Trust


                                        5

<PAGE>

NAME AND POSITION             OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER              OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC.             AND NATURE OF CONNECTION
- -----------------             ------------------------------------------------

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

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

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

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

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

Christine A. Edwards          Executive Vice President, Secretary and General
Director                      Counsel of DWDC and DWR; Executive Vice President,
                              Secretary and Chief Legal Officer of Distributors;
                              Director of DWR, DWSC and Distributors.

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

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


                                        6

<PAGE>

NAME AND POSITION             OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER              OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC.             AND NATURE OF CONNECTION
- -----------------             ------------------------------------------------

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

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

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

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

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

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

Richard Felegy
Senior Vice President

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

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

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

Kevin Hurley
Senior Vice President         Vice President of various Dean Witter Funds.

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

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

Joseph McAlinden
Senior Vice President


                                        7

<PAGE>

NAME AND POSITION             OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER              OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC.             AND NATURE OF CONNECTION
- -----------------             ------------------------------------------------

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

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

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

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

Elizabeth A. Vetell
Senior Vice President

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

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

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

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

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

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

Robert Zimmerman
First Vice President

Joan Allman
Vice President

Joseph Arcieri
Vice President                Vice President of various Dean Witter Funds.

Stephen Brophy
Vice President


                                        8

<PAGE>

NAME AND POSITION             OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER              OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC.             AND NATURE OF CONNECTION
- -----------------             ------------------------------------------------

Terence P. Brennan, II
Vice President

Douglas Brown
Vice President

Thomas Chronert
Vice President

Rosalie Clough
Vice President

Patricia A. Cuddy
Vice President                Vice President of various Dean Witter Funds.

B. Catherine Connelly
Vice President

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

Jeffrey D. Geffen
Vice President

Deborah Genovese
Vice President

Peter W. Gurman
Vice President

Russell Harper
Vice President

John Hechtlinger
Vice President

Peter Hermann
Vice President                Vice President of Dean Witter Mid-Cap Growth Fund.

David Hoffman
Vice President


                                        9

<PAGE>

NAME AND POSITION             OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER              OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC.             AND NATURE OF CONNECTION
- -----------------             ------------------------------------------------

David Johnson
Vice President

Christopher Jones
Vice President

Stanley Kapica
Vice President

Michael Knox                  Vice President of Dean Witter Convertible
Vice President                Securities Trust.

Konrad J. Krill
Vice President                Vice President of various Dean Witter Funds.

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

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

Thomas Lawlor
Vice President

Gerard Lian
Vice President                Vice President of various Dean Witter Funds.

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

Sharon K. Milligan
Vice President

Julie Morrone
Vice President

David Myers
Vice President

James Nash
Vice President

Richard Norris
Vice President

Hugh Rose
Vice President


                                       10

<PAGE>

NAME AND POSITION             OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
WITH DEAN WITTER              OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
INTERCAPITAL INC.             AND NATURE OF CONNECTION
- -----------------             ------------------------------------------------

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

Carl F. Sadler
Vice President

Rafael Scolari
Vice President                Vice President of Prime Income Trust

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                Vice President of various Dean Witter Funds.

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 Global Asset Allocation
 (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 Mid-Cap Growth Fund
(16)           Dean Witter U.S. Government Securities Trust
(17)           Dean Witter High Yield Securities Inc.
(18)           Dean Witter New York Tax-Free Income Fund


                                       11

<PAGE>

(19)           Dean Witter Tax-Exempt Securities Trust
(20)           Dean Witter California Tax-Free Income Fund
(21)           Dean Witter Managed Assets Trust
(22)           Dean Witter Natural Resource Development Securities Inc.
(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 Federal Securities 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 Premium Income Trust
(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
(48)           Dean Witter Balanced Growth Fund
(49)           Dean Witter Balanced Income Fund
(50)           Dean Witter Hawaii Municipal Trust
(51)           Dean Witter Global Asset Allocation Fund
(52)           Dean Witter Variable Investment Investment Series
 (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 Global Convertible Trust
 (9)           TCW/DW Total Return 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.


                                       12

<PAGE>


                                   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.


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 28th day of June, 1995.

                                       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. 2 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                             06/28/95
    ----------------------------
        Charles A. Fiumefreddo

(2) Principal Financial Officer    Treasurer and Principal
                                   Accounting Officer

By   /s/Thomas F. Caloia                                   06/28/95
    ----------------------------
        Thomas F. Caloia

(3) Majority of the Trustees

    Charles A. Fiumefreddo (Chairman)
    Philip J. Purcell

By   /s/Sheldon Curtis                                     06/28/95
    ----------------------------
        Sheldon Curtis
        Attorney-in-Fact

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


By   /s/David M. Butowsky                                  06/28/95
    ----------------------------
        David M. Butowsky
        Attorney-in-Fact

<PAGE>


                        DEAN WITTER SHORT-TERM BOND FUND

                                  EXHIBIT INDEX



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


2.    --       Amended and Restated By-Laws of the Registrant

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

27.   --       Financial Data Schedule





<PAGE>



                                   BY-LAWS

                                      OF

                       DEAN WITTER SHORT-TERM BOND FUND
                (AMENDED AND RESTATED AS OF JANUARY 25, 1995)

                                  ARTICLE I
                                 DEFINITIONS

   The terms "COMMISSION", "DECLARATION", "DISTRIBUTOR", "INVESTMENT
ADVISER", "MAJORITY SHAREHOLDER VOTE", "1940 ACT", "SHAREHOLDER", "SHARES",
"TRANSFER AGENT", "TRUST", "TRUST PROPERTY", and "TRUSTEES" have the
respective meanings given them in the Declaration of Trust of Dean Witter
Short-Term Bond Fund dated October 21, 1993.

                                  ARTICLE II
                                   OFFICES

   SECTION 2.1. PRINCIPAL OFFICE. Until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be
in the City of Boston, County of Suffolk.

   SECTION 2.2. OTHER OFFICES. In addition to its principal office in the
Commonwealth of Massachusetts, the Trust may have an office or offices in the
City of New York, State of New York, and at such other places within and
without the Commonwealth as the Trustees may from time to time designate or
the business of the Trust may require.

                                 ARTICLE III
                            SHAREHOLDERS' MEETINGS

   SECTION 3.1. PLACE OF MEETINGS. Meetings of Shareholders shall be held at
such place, within or without the Commonwealth of Massachusetts, as may be
designated from time to time by the Trustees.

   SECTION 3.2. MEETINGS. Meetings of Shareholders of the Trust shall be held
whenever called by the Trustees or the President of the Trust and whenever
election of a Trustee or Trustees by Shareholders is required by the
provisions of Section 16(a) of the 1940 Act, for that purpose. Meetings of
Shareholders shall also be called by the Secretary upon the written request
of the holders of Shares entitled to vote as otherwise required by Section
16(c) of the 1940 Act and to the extent required by the corporate or business
statute of any state in which the Shares of the Trust are sold, as made
applicable to the Trust by the provisions of Section 2.3 of the Declaration.
Such request shall state the purpose or purposes of such meeting and the
matters proposed to be acted on thereat. Except to the extent otherwise
required by Section 16(c) of the 1940 Act, as made applicable to the Trust by
the provisions of Section 2.3 of the Declaration, the Secretary shall inform
such Shareholders of the reasonable estimated cost of preparing and mailing
such notice of the meeting, and upon payment to the Trust of such costs, the
Secretary shall give notice stating the purpose or purposes of the meeting to
all entitled to vote at such meeting. No meeting need be called upon the
request of the holders of Shares entitled to cast less than a majority of all
votes entitled to be cast at such meeting, to consider any matter which is
substantially the same as a matter voted upon at any meeting of Shareholders
held during the preceding twelve months.

   SECTION 3.3. NOTICE OF MEETINGS. Written or printed notice of every
Shareholders' meeting stating the place, date, and purpose or purposes
thereof, shall be given by the Secretary not less than ten (10) nor more than
ninety (90) days before such meeting to each Shareholder entitled to vote at
such meeting. Such notice shall be deemed to be given when deposited in the
United States mail, postage prepaid, directed to the Shareholder at his
address as it appears on the records of the Trust.

   SECTION 3.4. QUORUM AND ADJOURNMENT OF MEETINGS. Except as otherwise
provided by law, by the Declaration or by these By-Laws, at all meetings of
Shareholders the holders of a majority of the Shares

<PAGE>

issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall be requisite and shall constitute a quorum for
the transaction of business. In the absence of a quorum, the Shareholders
present or represented by proxy and entitled to vote thereat shall have power
to adjourn the meeting from time to time. Any adjourned meeting may be held
as adjourned without further notice. At any adjourned meeting at which a
quorum shall be present, any business may be transacted as if the meeting had
been held as originally called.

   SECTION 3.5. VOTING RIGHTS, PROXIES. At each meeting of Shareholders, each
holder of record of Shares entitled to vote thereat shall be entitled to one
vote in person or by proxy, executed in writing by the Shareholder or his
duly authorized attorney-in-fact, for each Share of beneficial interest of
the Trust and for the fractional portion of one vote for each fractional
Share entitled to vote so registered in his name on the records of the Trust
on the date fixed as the record date for the determination of Shareholders
entitled to vote at such meeting. No proxy shall be valid after eleven months
from its date, unless otherwise provided in the proxy. At all meetings of
Shareholders, unless the voting is conducted by inspectors, all questions
relating to the qualification of voters and the validity of proxies and the
acceptance or rejection of votes shall be decided by the chairman of the
meeting. Pursuant to a resolution of a majority of the Trustees, proxies may
be solicited in the name of one or more Trustees or Officers of the Trust.

   SECTION 3.6. VOTE REQUIRED. Except as otherwise provided by law, by the
Declaration of Trust, or by these By-Laws, at each meeting of Shareholders at
which a quorum is present, all matters shall be decided by Majority
Shareholder Vote.

   SECTION 3.7. INSPECTORS OF ELECTION. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of Shareholders may, and on the
request of any Shareholder or his proxy shall, appoint Inspectors of Election
of the meeting. In case any person appointed as Inspector fails to appear or
fails or refuses to act, the vacancy may be filled by appointment made by the
Trustees in advance of the convening of the meeting or at the meeting by the
person acting as chairman. The Inspectors of Election shall determine the
number of Shares outstanding, the Shares represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies,
shall receive votes, ballots or consents, shall hear and determine all
challenges and questions in any way arising in connection with the right to
vote, shall count and tabulate all votes or consents, determine the results,
and do such other acts as may be proper to conduct the election or vote with
fairness to all Shareholders. On request of the chairman of the meeting, or
of any Shareholder or his proxy, the Inspectors of Election shall make a
report in writing of any challenge or question or matter determined by them
and shall execute a certificate of any facts found by them.

   SECTION 3.8. INSPECTION OF BOOKS AND RECORDS. Shareholders shall have such
rights and procedures of inspection of the books and records of the Trust as
are granted to Shareholders under Section 32 of the Corporations Law of the
State of Massachusetts.

   SECTION 3.9. ACTION BY SHAREHOLDERS WITHOUT MEETING. Except as otherwise
provided by law, the provisions of these By-Laws relating to notices and
meetings to the contrary notwithstanding, any action required or permitted to
be taken at any meeting of Shareholders may be taken without a meeting if a
majority of the Shareholders entitled to vote upon the action consent to the
action in writing and such consents are filed with the records of the Trust.
Such consent shall be treated for all purposes as a vote taken at a meeting
of Shareholders.

                                  ARTICLE IV
                                   TRUSTEES

   SECTION 4.1. MEETINGS OF THE TRUSTEES. The Trustees may in their
discretion provide for regular or special meetings of the Trustees. Regular
meetings of the Trustees may be held at such time and place as shall be
determined from time to time by the Trustees without further notice. Special
meetings of the Trustees may be called at any time by the Chairman and shall
be called by the Chairman or the Secretary upon the written request of any
two (2) Trustees.

                                2

<PAGE>

   SECTION 4.2. NOTICE OF SPECIAL MEETINGS. Written notice of special
meetings of the Trustees, stating the place, date and time thereof, shall be
given not less than two (2) days before such meeting to each Trustee,
personally, by telegram, by mail, or by leaving such notice at his place of
residence or usual place of business. If mailed, such notice shall be deemed
to be given when deposited in the United States mail, postage prepaid,
directed to the Trustee at his address as it appears on the records of the
Trust. Subject to the provisions of the 1940 Act, notice or waiver of notice
need not specify the purpose of any special meeting.

   SECTION 4.3. TELEPHONE MEETINGS. Subject to the provisions of the 1940
Act, any Trustee, or any member or members of any committee designated by the
Trustees, may participate in a meeting of the Trustees, or any such
committee, as the case may be, by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at the meeting.

   SECTION 4.4. QUORUM, VOTING AND ADJOURNMENT OF MEETINGS. At all meetings
of the Trustees, a majority of the Trustees shall be requisite to and shall
constitute a quorum for the transaction of business. If a quorum is present,
the affirmative vote of a majority of the Trustees present shall be the act
of the Trustees, unless the concurrence of a greater proportion is expressly
required for such action by law, the Declaration or these By-Laws. If at any
meeting of the Trustees there be less than a quorum present, the Trustees
present thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall have been
obtained.

   SECTION 4.5. ACTION BY TRUSTEES WITHOUT MEETING. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at
any meeting of the Trustees may be taken without a meeting if a consent in
writing setting forth the action shall be signed by all of the Trustees
entitled to vote upon the action and such written consent is filed with the
minutes of proceedings of the Trustees.

   SECTION 4.6. EXPENSES AND FEES. Each Trustee may be allowed expenses, if
any, for attendance at each regular or special meeting of the Trustees, and
each Trustee who is not an officer or employee of the Trust or of its
investment manager or underwriter or of any corporate affiliate of any of
said persons shall receive for services rendered as a Trustee of the Trust
such compensation as may be fixed by the Trustees. Nothing herein contained
shall be construed to preclude any Trustee from serving the Trust in any
other capacity and receiving compensation therefor.

   SECTION 4.7.  EXECUTION OF INSTRUMENTS AND DOCUMENTS AND SIGNING OF CHECKS
AND OTHER OBLIGATIONS AND TRANSFERS. All instruments, documents and other
papers shall be executed in the name and on behalf of the Trust and all
checks, notes, drafts and other obligations for the payment of money by the
Trust shall be signed, and all transfer of securities standing in the name of
the Trust shall be executed, by the Chairman, the President, any Vice
President or the Treasurer or by any one or more officers or agents of the
Trust as shall be designated for that purpose by vote of the Trustees;
notwithstanding the above, nothing in this Section 4.7 shall be deemed to
preclude the electronic authorization, by designated persons, of the Trust's
Custodian (as described herein in Section 9.1) to transfer assets of the
Trust, as provided for herein in Section 9.1.

   SECTION 4.8. INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AND
AGENTS. (a) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Trust) by
reason of the fact that he is or was a Trustee, officer, employee, or agent
of the Trust. The indemnification shall be against expenses, including
attorneys' fees, judgments, fines, and amounts paid in settlement, actually
and reasonably incurred by him in connection with the action, suit, or
proceeding, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Trust, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the Trust, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.

                                3

<PAGE>

   (b) The Trust shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or on behalf of the Trust to obtain a judgment or decree in its
favor by reason of the fact that he is or was a Trustee, officer, employee,
or agent of the Trust. The indemnification shall be against expenses,
including attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Trust; except that no indemnification shall be
made in respect of any claim, issue, or matter as to which the person has
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the Trust, except to the extent that the court in which the
action or suit was brought, or a court of equity in the county in which the
Trust has its principal office, determines upon application that, despite the
adjudication of liability but in view of all circumstances of the case, the
person is fairly and reasonably entitled to indemnity for those expenses
which the court shall deem proper, provided such Trustee, officer, employee
or agent is not adjudged to be liable by reason of his willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office.

   (c) To the extent that a Trustee, officer, employee, or agent of the Trust
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in subsection (a) or (b) or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred by him in
connection therewith.

   (d) (1) Unless a court orders otherwise, any indemnification under
subsections (a) or (b) of this section may be made by the Trust only as
authorized in the specific case after a determination that indemnification of
the Trustee, officer, employee, or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) or (b).

      (2) The determination shall be made:

         (i) By the Trustees, by a majority vote of a quorum which consists
    of Trustees who were not parties to the action, suit or proceeding; or

        (ii) If the required quorum is not obtainable, or if a quorum of
    disinterested Trustees so directs, by independent legal counsel in a
    written opinion; or

       (iii) By the Shareholders.

       (3) Notwithstanding any provision of this Section 4.8, no person
    shall be entitled to indemnification for any liability, whether or not
    there is an adjudication of liability, arising by reason of willful
    misfeasance, bad faith, gross negligence, or reckless disregard of duties
    as described in Section 17(h) and (i) of the Investment Company Act of
    1940 ("disabling conduct"). A person shall be deemed not liable by reason
    of disabling conduct if, either:

         (i) a final decision on the merits is made by a court or other body
    before whom the proceeding was brought that the person to be indemnified
    ("indemnitee") was not liable by reason of disabling conduct; or

        (ii) in the absence of such a decision, a reasonable determination,
    based upon a review of the facts, that the indemnitee was not liable by
    reason of disabling conduct, is made by either--

            (A) a majority of a quorum of Trustees who are neither
         "interested persons" of the Trust, as defined in Section 2(a)(19) of
         the Investment Company Act of 1940, nor parties to the action, suit
         or proceeding, or

            (B) an independent legal counsel in a written opinion.

   (e) Expenses, including attorneys' fees, incurred by a Trustee, officer,
employee or agent of the Trust in defending a civil or criminal action, suit
or proceeding may be paid by the Trust in advance of the final disposition
thereof if:

          (1) authorized in the specific case by the Trustees; and

          (2) the Trust receives an undertaking by or on behalf of the
    Trustee, officer, employee or agent of the Trust to repay the advance if
    it is not ultimately determined that such person is entitled to be
    indemnified by the Trust; and

                                4

<PAGE>

          (3) either, (i) such person provides a security for his
    undertaking, or

             (ii) the Trust is insured against losses by reason of any lawful
         advances, or

            (iii) a determination, based on a review of readily available
         facts, that there is reason to believe that such person ultimately
         will be found entitled to indemnification, is made by either--

                (A) a majority of a quorum which consists of Trustees who are
             neither "interested persons" of the Trust, as defined in Section
             2(a)(19) of the 1940 Act, nor parties to the action, suit or
             proceeding, or

                (B) an independent legal counsel in a written opinion.

   (f) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which a person may be entitled under any
by-law, agreement, vote of Shareholders or disinterested Trustees or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding the office, and shall continue as to a person
who has ceased to be a Trustee, officer, employee, or agent and inure to the
benefit of the heirs, executors and administrators of such person; provided
that no person may satisfy any right of indemnity or reimbursement granted
herein or to which he may be otherwise entitled except out of the property of
the Trust, and no Shareholder shall be personally liable with respect to any
claim for indemnity or reimbursement or otherwise.

   (g) The Trust may purchase and maintain insurance on behalf of any person
who is or was a Trustee, officer, employee, or agent of the Trust, against
any liability asserted against him and incurred by him in any such capacity,
or arising out of his status as such. However, in no event will the Trust
purchase insurance to indemnify any officer or Trustee against liability for
any act for which the Trust itself is not permitted to indemnify him.

   (h) Nothing contained in this Section shall be construed to protect any
Trustee or officer of the Trust against any liability to the Trust or to its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.

                                  ARTICLE V
                                  COMMITTEES

   SECTION 5.1. EXECUTIVE AND OTHER COMMITTEES. The Trustees, by resolution
adopted by a majority of the Trustees, may designate an Executive Committee
and/or committees, each committee to consist of two (2) or more of the
Trustees of the Trust and may delegate to such committees, in the intervals
between meetings of the Trustees, any or all of the powers of the Trustees in
the management of the business and affairs of the Trust. In the absence of
any member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a Trustee to act in
place of such absent member. Each such committee shall keep a record of its
proceedings.

   The Executive Committee and any other committee shall fix its own rules or
procedure, but the presence of at least fifty percent (50%) of the members of
the whole committee shall in each case be necessary to constitute a quorum of
the committee and the affirmative vote of the majority of the members of the
committee present at the meeting shall be necessary to take action.

   All actions of the Executive Committee shall be reported to the Trustees
at the meeting thereof next succeeding to the taking of such action.

   SECTION 5.2. ADVISORY COMMITTEE. The Trustees may appoint an advisory
committee which shall be composed of persons who do not serve the Trust in
any other capacity and which shall have advisory functions with respect to
the investments of the Trust but which shall have no power to determine that
any security or other investment shall be purchased, sold or otherwise
disposed of by the Trust. The number of persons constituting any such
advisory committee shall be determined from time to time by the Trustees. The
members of any such advisory committee may receive compensation for their
services and may be allowed such fees and expenses for the attendance at
meetings as the Trustees may from time to time determine to be appropriate.

                                5

<PAGE>

   SECTION 5.3. COMMITTEE ACTION WITHOUT MEETING. The provisions of these
By-Laws covering notices and meetings to the contrary notwithstanding, and
except as required by law, any action required or permitted to be taken at
any meeting of any Committee of the Trustees appointed pursuant to Section
5.1 of these By-Laws may be taken without a meeting if a consent in writing
setting forth the action shall be signed by all members of the Committee
entitled to vote upon the action and such written consent is filed with the
records of the proceedings of the Committee.

                                  ARTICLE VI
                                   OFFICERS

   SECTION 6.1. EXECUTIVE OFFICERS. The executive officers of the Trust shall
be a Chairman, a President, one or more Vice Presidents, a Secretary and a
Treasurer. The Chairman shall be selected from among the Trustees but none of
the other executive officers need be a Trustee. Two or more offices, except
those of President and any Vice President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more
than one capacity. The executive officers of the Trust shall be elected
annually by the Trustees and each executive officer so elected shall hold
office until his successor is elected and has qualified.

   SECTION 6.2. OTHER OFFICERS AND AGENTS. The Trustees may also elect one or
more Assistant Vice Presidents, Assistant Secretaries and Assistant
Treasurers and may elect, or may delegate to the President the power to
appoint, such other officers and agents as the Trustees shall at any time or
from time to time deem advisable.

   SECTION 6.3. TERM AND REMOVAL AND VACANCIES. Each officer of the Trust
shall hold office until his successor is elected and has qualified. Any
officer or agent of the Trust may be removed by the Trustees whenever, in
their judgment, the best interests of the Trust will be served thereby, but
such removal shall be without prejudice to the contractual rights, if any, of
the person so removed.

   SECTION 6.4. COMPENSATION OF OFFICERS. The compensation of officers and
agents of the Trust shall be fixed by the Trustees, or by the Chairman to the
extent provided by the Trustees with respect to officers appointed by the
Chairman.

   SECTION 6.5. POWER AND DUTIES. All officers and agents of the Trust, as
between themselves and the Trust, shall have such authority and perform such
duties in the management of the Trust as may be provided in or pursuant to
these By-Laws, or to the extent not so provided, as may be prescribed by the
Trustees; provided, that no rights of any third party shall be affected or
impaired by any such By-Law or resolution of the Trustees unless he has
knowledge thereof.

   SECTION 6.6. THE CHAIRMAN. The Chairman shall preside at all meetings of
the Shareholders and of the Trustees, shall be a signatory on all Annual and
Semi-Annual Reports as may be sent to shareholders, and he shall perform such
other duties as the Trustees may from time to time prescribe.

   SECTION 6.7. THE PRESIDENT. (a) The President shall be the chief executive
officer of the Trust; he shall have general and active management of the
business of the Trust, shall see that all orders and resolutions of the
Trustees are carried into effect, and, in connection therewith, shall be
authorized to delegate to one or more Vice Presidents such of his powers and
duties at such times and in such manner as he may deem advisable.

   (b) In the absence of the Chairman, the President shall preside at all
meetings of the shareholders and the Board of Trustees; and he shall perform
such other duties as the Board of Trustees may from time to time prescribe.

   SECTION 6.8. THE VICE PRESIDENTS. The Vice Presidents shall be of such
number and shall have such titles as may be determined from time to time by
the Trustees. The Vice President, or, if there be more than one, the Vice
Presidents in the order of their seniority as may be determined from time to
time by the Trustees or the President, shall, in the absence or disability of
the President, exercise the powers and perform the duties of the President,
and he or they shall perform such other duties as the Trustees or the
President may from time to time prescribe.

                                6

<PAGE>

   SECTION 6.9. THE ASSISTANT VICE PRESIDENTS. The Assistant Vice President,
or, if there be more than one, the Assistant Vice Presidents, shall perform
such duties and have such powers as may be assigned them from time to time by
the Trustees or the President.

   SECTION 6.10. THE SECRETARY. The Secretary shall attend all meetings of
the Trustees and all meetings of the Shareholders and record all the
proceedings of the meetings of the Shareholders and of the Trustees in a book
to be kept for that purpose, and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the Shareholders and special meetings of the Trustees, and shall
perform such other duties and have such powers as the Trustees, or the
President, may from time to time prescribe. He shall keep in safe custody the
seal of the Trust and affix or cause the same to be affixed to any instrument
requiring it, and, when so affixed, it shall be attested by his signature or
by the signature of an Assistant Secretary.

   SECTION 6.11. THE ASSISTANT SECRETARIES. The Assistant Secretary, or, if
there be more than one, the Assistant Secretaries in the order determined by
the Trustees or the President, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and
shall perform such duties and have such other powers as the Trustees or the
President may from time to time prescribe.

   SECTION 6.12. THE TREASURER. The Treasurer shall be the chief financial
officer of the Trust. He shall keep or cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the Trust, and
he shall render to the Trustees and the President, whenever any of them
require it, an account of his transactions as Treasurer and of the financial
condition of the Trust; and he shall perform such other duties as the
Trustees, or the President, may from time to time prescribe.

   SECTION 6.13. THE ASSISTANT TREASURERS. The Assistant Treasurer, or, if
there shall be more than one, the Assistant Treasurers in the order
determined by the Trustees or the President, shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of
the Treasurer and shall perform such other duties and have such other powers
as the Trustees, or the President, may from time to time prescribe.

   SECTION 6.14. DELEGATION OF DUTIES. Whenever an officer is absent or
disabled, or whenever for any reason the Trustees may deem it desirable, the
Trustees may delegate the powers and duties of an officer or officers to any
other officer or officers or to any Trustee or Trustees.

                                 ARTICLE VII
                         DIVIDENDS AND DISTRIBUTIONS

   Subject to any applicable provisions of law and the Declaration, dividends
and distributions upon the Shares may be declared at such intervals as the
Trustees may determine, in cash, in securities or other property, or in
Shares, from any sources permitted by law, all as the Trustees shall from
time to time determine.

   Inasmuch as the computation of net income and net profits from the sales
of securities or other properties for federal income tax purposes may vary
from the computation thereof on the records of the Trust, the Trustees shall
have power, in their discretion, to distribute as income dividends and as
capital gain distributions, respectively, amounts sufficient to enable the
Trust to avoid or reduce liability for federal income taxes.

                                 ARTICLE VIII
                            CERTIFICATES OF SHARES

   SECTION 8.1. CERTIFICATES OF SHARES. Certificates for Shares of each
series or class of Shares shall be in such form and of such design as the
Trustees shall approve, subject to the right of the Trustees to change such
form and design at any time or from time to time, and shall be entered in the
records of the Trust as they are issued. Each such certificate shall bear a
distinguishing number; shall exhibit the holder's name and certify the number
of full Shares owned by such holder; shall be signed by or in the name of

                                7

<PAGE>

the Trust by the President, or a Vice President, and countersigned by the
Secretary or an Assistant Secretary or the Treasurer and an Assistant
Treasurer of the Trust; shall be sealed with the seal; and shall contain such
recitals as may be required by law. Where any certificate is signed by a
Transfer Agent or by a Registrar, the signature of such officers and the seal
may be facsimile, printed or engraved. The Trust may, at its option,
determine not to issue a certificate or certificates to evidence Shares owned
of record by any Shareholder.

   In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall appear on, any such certificate or certificates
shall cease to be such officer or officers of the Trust, whether because of
death, resignation or otherwise, before such certificate or certificates
shall have been delivered by the Trust, such certificate or certificates
shall, nevertheless, be adopted by the Trust and be issued and delivered as
though the person or persons who signed such certificate or certificates or
whose facsimile signature or signatures shall appear therein had not ceased
to be such officer or officers of the Trust.

   No certificate shall be issued for any share until such share is fully
paid.

   SECTION 8.2. LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. The
Trustees may direct a new certificate or certificates to be issued in place
of any certificate or certificates theretofore issued by the Trust alleged to
have been lost, stolen or destroyed, upon satisfactory proof of such loss,
theft, or destruction; and the Trustees may, in their discretion, require the
owner of the lost, stolen or destroyed certificate, or his legal
representative, to give to the Trust and to such Registrar, Transfer Agent
and/or Transfer Clerk as may be authorized or required to countersign such
new certificate or certificates, a bond in such sum and of such type as they
may direct, and with such surety or sureties, as they may direct, as
indemnity against any claim that may be against them or any of them on
account of or in connection with the alleged loss, theft or destruction of
any such certificate.

                                  ARTICLE IX
                                  CUSTODIAN

   SECTION 9.1. APPOINTMENT AND DUTIES. The Trust shall at times employ a
bank or trust company having capital, surplus and undivided profits of at
least five million dollars ($5,000,000) as custodian with authority as its
agent, but subject to such restrictions, limitations and other requirements,
if any, as may be contained in these By-Laws and the 1940 Act:

       (1) to receive and hold the securities owned by the Trust and deliver
    the same upon written or electronically transmitted order;

       (2) to receive and receipt for any moneys due to the Trust and
    deposit the same in its own banking department or elsewhere as the
    Trustees may direct;

       (3) to disburse such funds upon orders or vouchers;

all upon such basis of compensation as may be agreed upon between the
Trustees and the custodian. If so directed by a Majority Shareholder Vote,
the custodian shall deliver and pay over all property of the Trust held by it
as specified in such vote.

   The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of
the custodian and upon such terms and conditions as may be agreed upon
between the custodian and such sub-custodian and approved by the Trustees.

   SECTION 9.2. CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct
the custodian to deposit all or any part of the securities owned by the Trust
in a system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or
series of any issuer deposited within the system are treated as fungible and
may be transferred or pledged by bookkeeping entry without physical delivery
of such securities, provided that all such deposits shall be subject to
withdrawal only upon the order of the Trust.

                                8

<PAGE>

                                  ARTICLE X
                               WAIVER OF NOTICE

   Whenever any notice of the time, place or purpose of any meeting of
Shareholders, Trustees, or of any committee is required to be given in
accordance with law or under the provisions of the Declaration or these
By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to such notice and filed with the records of the meeting, whether
before or after the holding thereof, or actual attendance at the meeting of
shareholders, Trustees or committee, as the case may be, in person, shall be
deemed equivalent to the giving of such notice to such person.

                                  ARTICLE XI
                                MISCELLANEOUS

   SECTION 11.1. LOCATION OF BOOKS AND RECORDS. The books and records of the
Trust may be kept outside the Commonwealth of Massachusetts at such place or
places as the Trustees may from time to time determine, except as otherwise
required by law.

   SECTION 11.2. RECORD DATE. The Trustees may fix in advance a date as the
record date for the purpose of determining Shareholders entitled to notice
of, or to vote at, any meeting of Shareholders, or Shareholders entitled to
receive payment of any dividend or the allotment of any rights, or in order
to make a determination of Shareholders for any other proper purpose. Such
date, in any case, shall be not more than ninety (90) days, and in case of a
meeting of Shareholders not less than ten (10) days, prior to the date on
which particular action requiring such determination of Shareholders is to be
taken. In lieu of fixing a record date the Trustees may provide that the
transfer books shall be closed for a stated period but not to exceed, in any
case, twenty (20) days. If the transfer books are closed for the purpose of
determining Shareholders entitled to notice of a vote at a meeting of
Shareholders, such books shall be closed for at least ten (10) days
immediately preceding such meeting.

   SECTION 11.3. SEAL. The Trustees shall adopt a seal, which shall be in
such form and shall have such inscription thereon as the Trustees may from
time to time provide. The seal of the Trust may be affixed to any document,
and the seal and its attestation may be lithographed, engraved or otherwise
printed on any document with the same force and effect as if it had been
imprinted and attested manually in the same manner and with the same effect
as if done by a Massachusetts business corporation under Massachusetts law.

   SECTION 11.4. FISCAL YEAR. The fiscal year of the Trust shall end on such
date as the Trustees may by resolution specify, and the Trustees may by
resolution change such date for future fiscal years at any time and from time
to time.

   SECTION 11.5. ORDERS FOR PAYMENT OF MONEY. All orders or instructions for
the payment of money of the Trust, and all notes or other evidences of
indebtedness issued in the name of the Trust, shall be signed by such officer
or officers or such other person or persons as the Trustees may from time to
time designate, or as may be specified in or pursuant to the agreement
between the Trust and the bank or trust company appointed as Custodian of the
securities and funds of the Trust.

                                 ARTICLE XII
                     COMPLIANCE WITH FEDERAL REGULATIONS

   The Trustees are hereby empowered to take such action as they may deem to
be necessary, desirable or appropriate so that the Trust is or shall be in
compliance with any federal or state statute, rule or regulation with which
compliance by the Trust is required.

                                9

<PAGE>

                                 ARTICLE XIII
                                  AMENDMENTS

   These By-Laws may be amended, altered, or repealed, or new By-Laws may be
adopted, (a) by a Majority Shareholder Vote, or (b) by the Trustees;
provided, however, that no By-Law may be amended, adopted or repealed by the
Trustees if such amendment, adoption or repeal requires, pursuant to law, the
Declaration, or these By-Laws, a vote of the Shareholders. The Trustees shall
in no event adopt By-Laws which are in conflict with the Declaration, and any
apparent inconsistency shall be construed in favor of the related provisions
in the Declaration.

                                 ARTICLE XIV
                             DECLARATION OF TRUST

   The Declaration of Trust establishing Dean Witter Short-Term Bond Fund,
dated October 21, 1993, a copy of which is on file in the office of the
Secretary of the Commonwealth of Massachusetts, provides that the name Dean
Witter Short-Term Bond Fund refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no
Trustee, Shareholder, officer, employee or agent of Dean Witter Short-Term
Bond Fund shall be held to any personal liability, nor shall resort be had to
their private property for the satisfaction of any obligation or claim or
otherwise, in connection with the affairs of said Dean Witter Short-Term Bond
Fund, but the Trust Estate only shall be liable.

                               10



<PAGE>



                               SERVICES AGREEMENT

   AGREEMENT made as of the 17th day of April, 1995 by and between Dean
Witter InterCapital Inc., a Delaware corporation (herein referred to as
"InterCapital"), and Dean Witter Services Company Inc., a Delaware
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
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.




                                        1

<PAGE>

   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, 1995, 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 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 written agreement executed by each of the parties hereto.


                                        2

<PAGE>


   11. This Agreement may be assigned by either party with the written
consent of the other party.

   12. 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 APRIL 17, 1995

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 Balanced Growth Fund
  7.      Dean Witter Balanced Income Fund
  8.      Dean Witter California Tax-Free Daily Income Trust
  9.      Dean Witter California Tax-Free Income Fund
 10.      Dean Witter Capital Growth Securities
 11.      Dean Witter Convertible Securities Trust
 12.      Dean Witter Developing Growth Securities Trust
 13.      Dean Witter Diversified Income Trust
 14.      Dean Witter Dividend Growth Securities Inc.
 15.      Dean Witter European Growth Fund Inc.
 16.      Dean Witter Federal Securities Trust
 17.      Dean Witter Global Asset Allocation Fund
 18.      Dean Witter Global Dividend Growth Securities
 19.      Dean Witter Global Short-Term Income Fund Inc.
 20.      Dean Witter Global Utilities Fund
 21.      Dean Witter Health Sciences Trust
 22.      Dean Witter High Income Securities
 23.      Dean Witter High Yield Securities Inc.
 24.      Dean Witter Intermediate Income Securities
 25.      Dean Witter International Small Cap Fund
 26.      Dean Witter Limited Term Municipal Trust
 27.      Dean Witter Liquid Asset Fund Inc.
 28.      Dean Witter Managed Assets Trust
 29.      Dean Witter Mid-Cap Growth Fund
 30.      Dean Witter Multi-State Municipal Series Trust
 31.      Dean Witter National Municipal Trust
 32.      Dean Witter Natural Resource Development Securities Inc.
 33.      Dean Witter New York Municipal Money Market Trust
 34.      Dean Witter New York Tax-Free Income Fund
 35.      Dean Witter Pacific Growth Fund Inc.
 36.      Dean Witter Precious Metals and Minerals Trust
 37.      Dean Witter Premier Income Trust
 38.      Dean Witter Retirement Series
 39.      Dean Witter Select Dimensions Series
 40.      Dean Witter Select Municipal Reinvestment Fund
 41.      Dean Witter Short-Term Bond Fund
 42.      Dean Witter Short-Term U.S. Treasury Trust
 43.      Dean Witter Strategist Fund
 44.      Dean Witter Tax-Exempt Securities Trust
 45.      Dean Witter Tax-Free Daily Income Trust
 46.      Dean Witter U.S. Government Money Market Trust
 47.      Dean Witter U.S. Government Securities Trust
 48.      Dean Witter Utilities Fund
 49.      Dean Witter Value-Added Market Series
 50.      Dean Witter Variable Investment Series
 51.      Dean Witter World Wide Income Trust
 52.      Dean Witter World Wide Investment Trust
CLOSED-END FUNDS
 53.      High Income Advantage Trust
 54.      High Income Advantage Trust II
 55.      High Income Advantage Trust III
 56.      InterCapital Income Securities Inc.
 57.      Dean Witter Government Income Trust
 58.      InterCapital Insured Municipal Bond Trust
 59.      InterCapital Insured Municipal Trust
 60.      InterCapital Insured Municipal Income Trust
 61.      InterCapital California Insured Municipal Income Trust
 62.      InterCapital Insured Municipal Securities
 63.      InterCapital Insured California Municipal Securities
 64.      InterCapital Quality Municipal Investment Trust
 65.      InterCapital Quality Municipal Income Trust
 66.      InterCapital Quality Municipal Securities
 67.      InterCapital California Quality Municipal Securities
 68.      InterCapital New York Quality Municipal Securities


                                        4

<PAGE>

                                                                      SCHEDULE B

                        DEAN WITTER SERVICES COMPANY INC.
                 SCHEDULE OF ADMINISTRATIVE FEES--APRIL 17, 1995

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

FIXED INCOME FUNDS

Dean Witter Balanced Income Fund        0.60% to the net assets.

Dean Witter California Tax-Free         0.055% of the portion of daily net
 Income Fund                            assets not exceeding $500 million;
                                        0.0525% of the portion exceeding $500
                                        million but not exceeding $750 million;
                                        0.050% of the portion exceeding $750
                                        million but not exceeding $1 billion;
                                        and 0.0475% of the portion of the daily
                                        net assets exceeding $1 billion.

Dean Witter Convertible Securities      0.060% of the portion of the daily net
 Securities Trust                       assets not exceeding $750 million; .055%
                                        of the portion of the daily net assets
                                        exceeding $750 million but not exceeding
                                        $1 billion; 0.050% of the portion of the
                                        daily net assets of the exceeding $1
                                        billion but not exceeding $1.5 billion;
                                        0.0475% of the portion of the daily net
                                        assets exceeding $1.5 billion but not
                                        exceeding $2 billion; 0.045% of the
                                        portion of the daily net assets
                                        exceeding $2 billion but not exceeding
                                        $3 billion; and 0.0425% of the portion
                                        of the daily net assets exceeding $3
                                        billion.

Dean Witter Diversified                 0.040% of the net assets.
 Income Trust

Dean Witter Federal Securities Trust    0.055% of the portion of the daily net
                                        assets not exceeding $1 billion; 0.0525%
                                        of the portion of the daily net assets
                                        exceeding $1 billion but not exceeding
                                        $1.5 billion; 0.050% of the portion of
                                        the daily net assets exceeding $1.5
                                        billion but not exceeding $2 billion;
                                        0.0475% of the portion of the daily net
                                        assets exceeding $2 billion but not
                                        exceeding $2.5 billion; 0.045% of the
                                        portion of daily net assets exceeding
                                        $2.5 billion but not exceeding $5
                                        billion; 0.0425% of the portion of the
                                        daily net assets exceeding $5 billion
                                        but not exceeding $7.5 billion; 0.040%
                                        of the portion of the daily net assets
                                        exceeding $7.5 billion but not exceeding
                                        $10 billion; 0.0375% of the portion of
                                        the daily net assets exceeding $10
                                        billion but not exceeding $12.5 billion;
                                        and 0.035% of the portion of the daily
                                        net assets exceeding $12.5 billion.

Dean Witter Global Short-Term           0.055% of the portion of the daily net
 Income Fund                            assets not exceeding $500 million; and
                                        0.050% of the portion of the daily net
                                        assets exceeding $500 million.

Dean Witter High Income                 0.050% to the net assets.
 Securities

Dean Witter High Yield                  0.050% of the portion of the daily net
 Securities Inc.                        assets not exceeding $500 million;
                                        0.0425% of the portion of the daily net
                                        assets exceeding $500 million but not
                                        exceeding $750 million; 0.0375% of the
                                        portion of the daily net assets
                                        exceeding $750 million but not exceeding
                                        $1 billion; 0.035% of the portion of


                                       B-1

<PAGE>

                                        the daily net assets exceeding $1
                                        billion but not exceeding $2 billion;
                                        0.0325% of the portion of the daily net
                                        assets exceeding $2 billion but not
                                        exceeding $3 billion; and 0.030% of the
                                        portion of daily net assets exceeding $3
                                        billion.

Dean Witter Intermediate                0.060% of the portion of the daily net
 Income Securities                      assets not exceeding $500 million;
                                        0.050% of the portion of the daily net
                                        assets exceeding $500 million but not
                                        exceeding $750 million; 0.040% of the
                                        portion of the daily net assets
                                        exceeding $750 million but not exceeding
                                        $1 billion; and 0.030% of the portion of
                                        the daily net assets exceeding $1
                                        billion.

Dean Witter Limited Term                0.050% to the net assets.
 Municipal Trust

Dean Witter Multi-State Municipal       0.035% to the net assets.
 Series Trust (10)

Dean Witter National                    0.035% to the net assets.
 Municipal Trust

Dean Witter New York Tax-Free           0.055% to the net assets not exceeding
 Income Fund                            $500 million and 0.0525% of the net
                                        assets exceeding $500 million.

Dean Witter Premier                     0.050% to the net assets.
 Income Trust

Dean Witter Retirement Series           0.065% to the net assets.
 Intermediate Income

Dean Witter Retirement Series           0.065% to the net assets.
 U.S. Government Securities Trust

Dean Witter Select Dimensions           0.65% to the net assets.
 Series-North American Government
 Securities Portfolio

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

Dean Witter Short-Term U.S.             0.035% to the net assets.
 Treasury Trust

Dean Witter Tax-Exempt                  0.050% of the portion of the daily net
 Securities Trust                       assets not exceeding $500 million;
                                        0.0425% of the portion of the daily net
                                        assets exceeding $500 million but not
                                        exceeding $750 million; 0.0375% of the
                                        portion of the daily net assets
                                        exceeding $750 million but not exceeding
                                        $1 billion; and 0.035% of the portion of
                                        the daily net assets exceeding $1
                                        billion but not exceeding $1.25 billion;
                                        .0325% of the portion of the daily net
                                        assets exceeding $1.25 billion.

Dean Witter U.S. Government             0.050% of the portion of such daily net
 Securities Trust                       assets not exceeding $1 billion; 0.0475%
                                        of the portion of such daily net assets
                                        exceeding $1 billion but not exceeding
                                        $1.5 billion; 0.045% of the portion of
                                        such daily net assets exceeding $1.5
                                        billion but not exceeding $2 billion;
                                        0.0425% of the portion of such daily net
                                        assets exceeding $2 billion but not
                                        exceeding $2.5 billion; 0.040% of that
                                        portion of such daily net assets
                                        exceeding $2.5 billion but not exceeding
                                        $5 billion; 0.0375% of that portion


                                       B-2

<PAGE>

                                        of such daily net assets exceeding $5
                                        billion but not exceeding $7.5 billion;
                                        0.035% of that portion of such daily net
                                        assets exceeding $7.5 billion but not
                                        exceeding $10 billion; 0.0325% of that
                                        portion of such daily net assets
                                        exceeding $10 billion but not exceeding
                                        $12.5 billion; and 0.030% of that
                                        portion of such daily net assets
                                        exceeding $12.5 billion.

Dean Witter Variable Investment         0.050% to the net assets.
 Series-High Yield

Dean Witter Variable Investment         0.050% to the net assets.
 Series-Quality Income

Dean Witter World Wide Income           0.075% of the daily net assets up to
 Trust                                  $250 million; 0.060% of the portion of
                                        the daily net assets exceeding $250
                                        million but not exceeding $500 million;
                                        0.050% of the portion of the daily net
                                        assets of the exceeding $500 million but
                                        not exceeding $750 milliion; 0.040% of
                                        the portion of the daily net assets
                                        exceeding $750 million but not exceeding
                                        $1 billion; and 0.030% of the daily net
                                        assets exceeding $1 billion.

Dean Witter Select Municipal            0.050% to the net assets.
 Reinvestment Fund


EQUITY FUNDS

Dean Witter American Value              0.0625% of the portion of the daily net
 Fund                                   assets not exceeding $250 million and
                                        0.050% of the portion of the daily net
                                        assets exceeding $250 million.

Dean Witter Balanced Growth Fund        0.60% to the net assets.

Dean Witter Capital Growth              0.065% to the portion of daily net
 Securities                             assets not exceeding $500 million;
                                        0.055% of the portion exceeding $500
                                        million but not exceeding $1 billion;
                                        0.050% of the portion exceeding $1
                                        billion but not exceeding $1.5 billion;
                                        and 0.0475% of the net assets exceeding
                                        $1.5 billion.

Dean Witter Developing Growth           0.050% of the portion of daily net
 Securities Trust                       assets not exceeding $500 million; and
                                        0.0475% of the portion of daily net
                                        assets exceeding $500 million.

Dean Witter Dividend Growth             0.0625% of the portion of the daily net
 Securities Inc.                        assets not exceeding $250 million;
                                        0.050% of the portion exceeding $250
                                        million but not exceeding $1 billion;
                                        0.0475% of the portion of daily net
                                        assets exceeding $1 billion but not
                                        exceeding $2 billion; 0.045% of the
                                        portion of daily net assets exceeding $2
                                        billion but not exceeding $3 billion;
                                        0.0425% of the portion of daily net
                                        assets exceeding $3 billion but not
                                        exceeding $4 billion; 0.040% of the
                                        portion of daily net assets exceeding $4
                                        billion but not exceeding $5 billion;
                                        0.0375% of the portion of the daily net
                                        assets exceeding $5 billion but not
                                        exceeding $6 billion; 0.035% of the
                                        portion of the daily net assets
                                        exceeding $6 billion but not exceeding
                                        $8 billion; and 0.0325% of the portion
                                        of the daily net assets exceeding $8
                                        billion.


                                       B-3

<PAGE>

Dean Witter European Growth             0.060% of the portion of daily net
 Fund Inc.                              assets not exceeding $500 million; and
                                        0.057% of the portion of daily net
                                        assets exceeding $500 million.

Dean Witter Global Asset Allocation     1.0% to the net assets.
 Fund

Dean Witter Global Dividend             0.075% to the net assets.
 Growth Securities

Dean Witter Global Utilities Fund       0.065% to the net assets.

Dean Witter Health Sciences Trust       0.10% to the net assets.

Dean Witter International               0.075% to the net assets.
 Small Cap Fund

Dean Witter Managed Assets Trust        0.060% to the daily net assets not
                                        exceeding $500 million and 0.055% to the
                                        daily net assets exceeding $500 million.

Dean Witter Mid-Cap Growth Fund         0.75% to the net assets.

Dean Witter Natural Resource            0.0625% of the portion of the daily net
 Development Securities Inc.            assets not exceeding $250 million and
                                        0.050% of the portion of the daily net
                                        assets exceeding $250 million.

Dean Witter Pacific Growth              0.060% of the portion of daily net
 Fund Inc.                              assets not exceeding $1 billion; and
                                        0.057% of the portion of daily net
                                        assets exceeding $1 billion.

Dean Witter Precious Metals             0.080% to the net assets.
 and Minerals Trust

Dean Witter Retirement Series           0.085% to the net assets.
 American Value

Dean Witter Retirement Series           0.085% to the net assets.
 Capital Growth

Dean Witter Retirement Series           0.075% to the net assets.
 Dividend Growth

Dean Witter Retirement Series           0.10% to the net assets.
 Global Equity

Dean Witter Retirement Series           0.065% to the net assets.
 Intermediate Income Securities

Dean Witter Retirement Series           0.050% to the net assets.
 Liquid Asset

Dean Witter Retirement Series           0.085% to the net assets.
 Strategist

Dean Witter Retirement Series           0.050% to the net assets.
 U.S. Government Money Market

Dean Witter Retirement Series           0.065% to the net assets.
 U.S. Government Securities

Dean Witter Retirement Series           0.075% to the net assets.
 Utilities


                                       B-4

<PAGE>

Dean Witter Retirement Series           0.050% to the net assets.
 Value Added

Dean Witter Select Dimensions Series-
 American Value Portfolio               0.625% to the net assets.
 Balanced Portfolio                     0.75% to the net assets.
 Core Equity Portfolio                  0.85% to the net assets.
 Developing Growth Portfolio            0.50% to the net assets.
 Diversified Income Portfolio           0.40% to the net assets.
 Dividend Growth Portfolio              0.625% to the net assets.
 Emerging Markets Portfolio             1.25% to the net assets.
 Global Equity Portfolio                1.0% to the net assets.
 Utilities Portfolio                    0.65% to the net assets.
 Value-Added Market Portfolio           0.50% to the net assets.

Dean Witter Strategist Fund             0.060% of the portion of daily net
                                        assets not exceeding $500 million;
                                        0.055% of the portion of the daily net
                                        assets exceeding $500 million but not
                                        exceeding $1 billion; and 0.050% of the
                                        portion of the daily net assets
                                        exceeding $1 billion.

Dean Witter Utilities Fund              0.065% of the portion of daily net
                                        assets not exceeding $500 million;
                                        0.055% of the portion exceeding $500
                                        million but not exceeding $1 billion;
                                        0.0525% of the portion exceeding $1
                                        billion but not exceeding $1.5 billion;
                                        0.050% of the portion exceeding $1.5
                                        billion but not exceeding $2.5 billion;
                                        0.0475% of the portion exceeding $2.5
                                        billion but not exceeding $3.5 billion;
                                        0.045% of the portion of the daily net
                                        assets exceeding $3.5 but not exceeding
                                        $5 billion; and 0.0425% of the portion
                                        of daily net assets exceeding $5
                                        billion.

Dean Witter Value-Added Market          0.050% of the portion of daily net
 Series                                 assets not exceeding $500 million; and
                                        0.45% of the portion of daily net assets
                                        exceeding $500 million.

Dean Witter Variable Investment         0.065% to the net assets.
 Series-Capital Growth

Dean Witter Variable Investment         0.0625% of the portion of daily net
 Series-Dividend Growth                 assets not exceeding $500 million; and
                                        0.050% of the portion of daily net
                                        assets exceeding $500 million.

Dean Witter Variable Investment         0.050% to the net assets.
 Series-Equity

Dean Witter Variable Investment         0.060% to the net assets.
 Series-European Growth

Dean Witter Variable Investment         0.050% to the net assets.
 Series-Managed

Dean Witter Variable Investment         0.065% of the portion of daily net
 Series-Utilities                       assets exceeding $500 million and 0.055%
                                        of the portion of daily net assets
                                        exceeding $500 million.

Dean Witter World Wide                  0.055% of the portion of daily net
 Investment Trust                       assets not exceeding $500 million; and
                                        0.05225% of the portion of daily net
                                        assets exceeding $500 million.


                                       B-5

<PAGE>

MONEY MARKET FUNDS

Active Assets Account (4)               0.050% of the portion of the daily net
                                        assets not exceeding $500 million;
                                        0.0425% of the portion of the daily net
                                        assets exceeding $500 million but not
                                        exceeding $750 million; 0.0375% of the
                                        portion of the daily net assets
                                        exceeding $750 million but not exceeding
                                        $1 billion; 0.035% of the portion of the
                                        daily net assets exceeding $1 billion
                                        but not exceeding $1.5 billion; 0.0325%
                                        of the portion of the daily net assets
                                        exceeding $1.5 billion but not exceeding
                                        $2 billion; 0.030% of the portion of the
                                        daily net assets exceeding $2 billion
                                        but not exceeding $2.5 billion; 0.0275%
                                        of the portion of the daily net assets
                                        exceeding $2.5 billion but not exceeding
                                        $3 billion; and 0.025% of the portion of
                                        the daily net assets exceeding $3
                                        billion.

Dean Witter California Tax-Free         0.050% of the portion of the daily net
 Daily Income Trust                     assets not exceeding $500 million;
                                        0.0425% of the portion of the daily net
                                        assets exceeding $500 million but not
                                        exceeding $750 million; 0.0375% of the
                                        portion of the daily net assets
                                        exceeding $750 million but not exceeding
                                        $1 billion; 0.035% of the portion of the
                                        daily net assets exceeding $1 billion
                                        but not exceeding $1.5 billion; 0.0325%
                                        of the portion of the daily net assets
                                        exceeding $1.5 billion but not exceeding
                                        $2 billion; 0.030% of the portion of the
                                        daily net assets exceeding $2 billion
                                        but not exceeding $2.5 billion; 0.0275%
                                        of the portion of the daily net assets
                                        exceeding $2.5 billion but not exceeding
                                        $3 billion; and 0.025% of the portion of
                                        the daily net assets exceeding $3
                                        billion.

Dean Witter Liquid Asset                0.050% of the portion of the daily net
 Fund Inc.                              assets not exceeding $500 million;
                                        0.0425% of the portion of the daily net
                                        assets exceeding $500 million but not
                                        exceeding $750 million; 0.0375% of the
                                        portion of the daily net assets
                                        exceeding $750 million but not exceeding
                                        $1 billion; 0.035% of the portion of the
                                        daily net assets exceeding $1 billion
                                        but not exceeding $1.35 billion; 0.0325%
                                        of the portion of the daily net assets
                                        exceeding $1.35 billion but not
                                        exceeding $1.75 billion; 0.030% of the
                                        portion of the daily net assets
                                        exceeding $1.75 billion but not
                                        exceeding $2.15 billion; 0.0275% of the
                                        portion of the daily net assets
                                        exceeding $2.15 billion but not
                                        exceeding $2.5 billion; 0.025% of the
                                        portion of the daily net assets
                                        exceeding $2.5 billion but not exceeding
                                        $15 billion; 0.0249% of the portion of
                                        the daily net assets exceeding $15
                                        billion but not exceeding $17.5 billion;
                                        and 0.0248% of the portion of the daily
                                        net assets exceeding $17.5 billion.

Dean Witter New York Municipal          0.050% of the portion of the daily net
 Money Market Trust                     assets not exceeding $500 million;
                                        0.0425% of the portion of the daily net
                                        assets exceeding $500 million but not
                                        exceeding $750 million; 0.0375% of the
                                        portion of the daily net assets
                                        exceeding $750 million but not exceeding
                                        $1 billion; 0.035% of the portion of the
                                        daily net assets exceeding $1 billion
                                        but not exceeding $1.5 billion; 0.0325%
                                        of the portion of the daily net assets
                                        exceeding $1.5 billion but not exceeding
                                        $2 billion; 0.030% of the portion of the
                                        daily net assets exceeding $2 bil-


                                       B-6

<PAGE>

                                        lion but not exceeding $2.5 billion;
                                        0.0275% of the portion of the daily net
                                        assets exceeding $2.5 billion but not
                                        exceeding $3 billion; and 0.025% of the
                                        portion of the daily net assets
                                        exceeding $3 billion.

Dean Witter Retirement Series           0.050% of the net assets.
 Liquid Assets

Dean Witter Retirement Series           0.050% of the net assets.
 U.S. Government Money Market

Dean Witter Select Dimensions Series-   0.50% to the net assets.
 Money Market Portfolio

Dean Witter Tax-Free Daily              0.050% of the portion of the daily net
 Income Trust                           assets not exceeding $500 million;
                                        0.0425% of the portion of the daily net
                                        assets exceeding $500 million but not
                                        exceeding $750 million; 0.0375% of the
                                        portion of the daily net assets
                                        exceeding $750 million but not exceeding
                                        $1 billion; 0.035% of the portion of the
                                        daily net assets exceeding $1 billion
                                        but not exceeding $1.5 billion; 0.0325%
                                        of the portion of the daily net assets
                                        exceeding $1.5 billion but not exceeding
                                        $2 billion; 0.030% of the portion of the
                                        daily net assets exceeding $2 billion
                                        but not exceeding $2.5 billion; 0.0275%
                                        of the portion of the daily net assets
                                        exceeding $2.5 billion but not exceeding
                                        $3 billion; and 0.025% of the portion of
                                        the daily net assets exceeding $3
                                        billion.

Dean Witter U.S. Government             0.050% of the portion of the daily net
 Money Market Trust                     assets not exceeding $500 million;
                                        0.0425% of the portion of the daily net
                                        assets exceeding $500 million but not
                                        exceeding $750 million; 0.0375% of the
                                        portion of the daily net assets
                                        exceeding $750 million but not exceeding
                                        $1 billion; 0.035% of the portion of the
                                        daily net assets exceeding $1 billion
                                        but not exceeding $1.5 billion; 0.0325%
                                        of the portion of the daily net assets
                                        exceeding $1.5 billion but not exceeding
                                        $2 billion; 0.030% of the portion of the
                                        daily net assets exceeding $2 billion
                                        but not exceeding $2.5 billion; 0.0275%
                                        of the portion of the daily net assets
                                        exceeding $2.5 billion but not exceeding
                                        $3 billion; and 0.025% of the portion of
                                        the daily net assets exceeding $3
                                        billion.

Dean Witter Variable Investment         0.050% to the net assets.
 Series-Money Market


   Monthly compensation calculated weekly by applying the following annual
rates to the weekly net assets.

CLOSED-END FUNDS

Dean Witter Government Income           0.060% to the average weekly net
 Trust                                  assets.

High Income Advantage Trust             0.075% of the portion of the average
                                        weekly net assets not exceeding $250
                                        million; 0.060% of the portion of
                                        average weekly net assets exceeding $250
                                        million and not exceeding $500 million;
                                        0.050% of the portion of average weekly
                                        net assets exceeding $500 million and
                                        not exceeding $750 million; 0.040% of
                                        the portion of average weekly net assets
                                        exceeding


                                       B-7

<PAGE>

                                        $750 million and not exceeding $1
                                        billion; and 0.030% of the portion of
                                        average weekly net assets exceeding $1
                                        billion.

High Income Advantage Trust II          0.075% of the portion of the average
                                        weekly net assets not exceeding $250
                                        million; 0.060% of the portion of
                                        average weekly net assets exceeding $250
                                        million and not exceeding $500 million;
                                        0.050% of the portion of average weekly
                                        net assets exceeding $500 million and
                                        not exceeding $750 million; 0.040% of
                                        the portion of average weekly net assets
                                        exceeding $750 million and not exceeding
                                        $1 billion; and 0.030% of the portion of
                                        average weekly net assets exceeding $1
                                        billion.

High Income Advantage Trust III         0.075% of the portion of the average
                                        weekly net assets not exceeding $250
                                        million; 0.060% of the portion of
                                        average weekly net assets exceeding $250
                                        million and not exceeding $500 million;
                                        0.050% of the portion of average weekly
                                        net assets exceeding $500 million and
                                        not exceeding $750 million; 0.040% of
                                        the portion of the average weekly net
                                        assets exceeding $750 million and not
                                        exceeding $1 billion; and 0.030% of the
                                        portion of average weekly net assets
                                        exceeding $1 billion.

InterCapital Income Securities Inc.     0.050% to the average weekly net assets.

InterCapital Insured Municipal          0.035% to the average weekly net assets.
 Bond Trust

InterCapital Insured Municipal          0.035% to the average weekly net assets.
 Trust

InterCapital Insured Municipal          0.035% to the average weekly net assets.
 Income Trust

InterCapital California Insured         0.035% to the average weekly net assets.
 Municipal Income Trust

InterCapital Quality Municipal          0.035% to the average weekly net assets.
 Investment Trust

InterCapital New York Quality           0.035% to the average weekly net assets.
 Municipal Securities

InterCapital Quality Municipal          0.035% to the average weekly net assets.
 Income Trust

InterCapital Quality Municipal          0.035% to the average weekly net assets.
 Securities

InterCapital California Quality         0.035% to the average weekly net assets.
 Municipal Securities

InterCapital Insured Municipal          0.035% to the average weekly net assets.
 Securities

InterCapital Insured California         0.035% to the average weekly net assets.
 Municipal Securities


                                       B-8


<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. 2 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
June 8, 1995, relating to the financial statements and financial highlights
of 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.



/s/ Price Waterhouse LLP
Price Waterhouse LLP


1177 Avenue of the Americas
New York, New York  10036
June 27, 1995


<PAGE>

                                                                   EXHIBIT 99.16


               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 |          EV            |
                    t  =    |    \  |     -------------      |  - 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-95            RETURN - TR           YEARS - n            COMPOUND RETURN - t
- -------------    -----------           -----------           -----------------    -------------------------------
<S>              <C>                   <C>                   <C>                  <C>
 30-Apr-94        $1,047.60                  4.76%                     1.0000                       4.76%

 10-Jan-94        $1,026.50                  2.65%                     1.3005                       2.03%

</TABLE>

(C) AVERAGE ANNUAL TOTAL RETURNS (STANDARIZED 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-95            YEARS - n             COMPOUND RETURN - t
- -------------    -----------           -----------           -------------------------
<S>              <C>                   <C>                   <C>
 30-Apr-94        $1,033.90                1.0000                        3.39%

 10-Jan-94        $1,005.90                1.3005                        0.45%

</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             2.65               $10,265                     $51,325                   $102,650

</TABLE>

<PAGE>

                       DEAN WITTER SHORT - TERM BOND FUND

                   SCHEDULE OF COMPUTATION OF YIELD QUOTATION
                                    04/30/95

                                WITHOUT EXPENSES

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



WHERE:   a = Dividends and interest earned during th
         b = Expenses accrued for the period
         c = The average daily number of shares outs
             during the period that were entitled
             dividends
         d = The maximum offering price per share on
             day of the period


                                                         6
YIELD = 2 { [ ((172674.77-0) /3148047.982 X 9.420000) +1]-1}

                               =       7.09%



<PAGE>

                       DEAN WITTER SHORT - TERM BOND FUND

                   SCHEDULE OF COMPUTATION OF YIELD QUOTATION
                                    04/30/95

                                  WITH EXPENSES

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



WHERE:   a = Dividends and interest earned during th
         b = Expenses accrued for the period
         c = The average daily number of shares outs
             during the period that were entitled
             dividends
         d = The maximum offering price per share on
             day of the period


                                                          6
YIELD = 2 { [ ((172674.77-36,688.87) /3,148047.982 X9.420000) +1]-1}

                               =       5.57%



<TABLE> <S> <C>

<PAGE>
<ARTICLE> 6
       
<S>                             <C>
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          APR-30-1995
<PERIOD-END>                               APR-30-1995
<INVESTMENTS-AT-COST>                       30,055,788
<INVESTMENTS-AT-VALUE>                      29,279,722
<RECEIVABLES>                                  568,529
<ASSETS-OTHER>                                 218,800
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                              30,067,051
<PAYABLE-FOR-SECURITIES>                             0
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                      249,214
<TOTAL-LIABILITIES>                            249,214
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                    32,012,843
<SHARES-COMMON-STOCK>                                0
<SHARES-COMMON-PRIOR>                                0
<ACCUMULATED-NII-CURRENT>                            0
<OVERDISTRIBUTION-NII>                        (10,352)
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