<PAGE>
DEAN WITTER SHORT-TERM BOND FUND TWO WORLD TRADE CENTER, NEW YORK, NEW YORK
10048
LETTER TO THE SHAREHOLDERS APRIL 30, 1996
DEAR SHAREHOLDER:
During most of the fiscal year ended April 30, 1996, three consecutive
reductions in the federal-funds rate of 25 basis points each (0.25 percentage
points) were largely responsible for a decline in short-term U.S. Treasury
yields. This decline in interest rates continued steadily through February,
aided by subdued inflation, an apparently slowing economy and mounting political
pressure for passage of balanced budget legislation. With further Federal
Reserve Board easing action anticipated, yields hit their lowest levels for the
one-year period in mid-February.
By March, however, investor expectations took a dramatic turn as balanced
budget hopes faded, political uncertainty arose, economic reports hinted at
stronger growth and expectations of lower interest rates vanished. By the end of
April, the possibility of higher interest rates for the remainder of 1996 became
cause for discussion as interest rates rose as much as 1.25 percentage points
from their mid-February lows. As a result, one-year U.S. Treasury bills were
yielding 5.61 percent on April 30, 1996, while three-year U.S. Treasuries were
yielding 6.18 percent.
PERFORMANCE
Against this backdrop, Dean Witter Short-Term Bond Fund produced a total return
of 7.33 percent for the twelve-month period ended April 30, 1996, compared to a
return of 6.47 percent for the average fund in the short-term corporate bond
fund category, as measured by Lipper Analytical Services, Inc. During the same
period, the Lehman Brothers Short (1 to 5) Investment Grade Debt Index (the
Index) posted a return of 8.22 percent. The accompanying chart illustrates the
growth of a $10,000 investment in the Fund from inception (January 10, 1994)
through the fiscal year ended April 30, 1996, to a hypothetical investment in
the Index.
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
LETTER TO THE SHAREHOLDERS APRIL 30, 1996, CONTINUED
The Fund's performance during the first half of the fiscal year was aided by a
modestly longer duration relative to many of its peers, an emphasis on
higher-yielding corporate bonds and mortgage-backed securities and relatively
low cash reserves. During the second half of the fiscal year, the Fund's
performance was aided by an increasing emphasis to higher-yielding corporate and
mortgage sectors versus U.S. Treasuries and agencies. When interest rates on
money markets were above those for short and intermediate maturity U.S.
Treasuries, cash reserves were maintained at levels ranging from 10 percent to
18 percent of investable assets. However, beginning in mid-February, as
short-term yields rose, cash reserves were gradually reduced to less than six
percent of investable assets on April 30, 1996, to capture the higher yields now
available on two- and three-year securities.
PORTFOLIO COMPOSITION
[GRAPHIC]
On April 30, 1996, the Fund's net
assets exceeded $33 million, with
approximately 59 percent of its
holdings invested in investment-grade
corporate bonds, 36 percent in U.S.
government agencies and obligations and
5 percent in non-investment grade
corporate bonds. During the fiscal
year, the Fund did not own any foreign
securities.
CORPORATE SECURITIES
[GRAPHIC]
During the past twelve months,
corporate additions focused on adding
to all sectors except banks. The Fund's
allocation to this sector was reduced
following a number of credit upgrades
and an accompanying reduction in
additional yield relative to comparable
maturity U.S. Treasuries. This change
in the relationship of the securities
to each other served to make these
securities less attractive than other
eligible securities. The average
quality rating
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
LETTER TO THE SHAREHOLDERS APRIL 30, 1996, CONTINUED
of the corporate-bond portfolio improved with the addition of one AAA-rated
issue and an increase in the percentage of bonds rated A or better by Standard &
Poor's Corporation or Moody's Investor Services to 61 percent, up from 48
percent, a year ago.
U.S. GOVERNMENT AND MORTGAGE-BACKED SECURITIES
Over the course of the fiscal year, the Fund increased its investment in
five-year mortgage-backed balloon securities and short-term U.S. Treasury
securities. However, as evidence of a strengthening economy emerged, the
strategy for this sector of the Fund was shifted to a more defensive stance.
Accordingly, some of the aforementioned purchases were sold to reduce this
sector's interest rate exposure.
As of April 30, 1996, this sector of the Fund was well diversified with 45
percent in mortgage-backed securities issued by the Federal Home Loan Mortgage
Corporation (FHLMC), 36 percent in U.S. Treasury securities and the remaining 19
percent invested in FNMA strips. As market conditions warrant, longer-term U.S.
Treasury securities and mortgage-backed investments may again be added in order
to enhance both the Fund's current yield and total return potential.
LOOKING AHEAD
While we do not expect monetary policy to ease and the federal-funds rate to be
lowered in the near term, neither do we ascribe much probability to a rise in
this rate during the current political season. After three months of improved
economic conditions and increasing inflationary expectations, the most recent
evidence suggests some moderation from that of the first quarter. Supporting
this view is the fact that almost no new jobs were reported created in April's
employment report and hours per week worked declined. More recently, April's
leading indicators declined and monthly retail sales, aided by a drop in auto
sales, registered negative growth. Not surprisingly, consumer debt grew for the
month at only about half of March's pace. While one month's growth patterns do
not signify a trend, they do underscore the erratic growth pattern the economy
is likely to demonstrate for the remainder of 1996. Even inflation, which was
viewed as a potential threat to the fixed-income markets in recent months, has
been drawing less concern recently as overall prices do not appear to be rising
much faster than in recent years. However, the possibility of more substantial
increases in employment compensation packages continues to be the major
inflation risk. Shortages of skilled labor and political pressure to return more
corporate profits to employees could contribute to higher production costs later
this year and may be passed on to the consumer in the form of higher prices.
Although rising commodity prices have not flowed through to consumers over the
past two years, at some point they may. Oil is of particular concern. Should it
remain above $20.00 per barrel for a few
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
LETTER TO THE SHAREHOLDERS APRIL 30, 1996, CONTINUED
more months, some additional inflation is expected. Given such a scenario,
short-term interest rates would be likely to rise. As always, we will continue
to monitor the situation and adjust the portfolio accordingly.
We appreciate your continued support of Dean Witter Short-Term Bond Fund and
look forward to serving your investment needs.
Very truly yours,
[SIGNATURE]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (63.0%)
AUTOMOTIVE - FINANCE (3.0%)
$ 1,000 General Motors Acceptance Corp................ 7.75 % 04/15/97 $ 1,015,870
--------------
BANK HOLDING COMPANIES (4.6%)
1,000 Bankers Trust New York Corp................... 7.25 11/01/96 1,007,710
500 Chase Manhattan Corp.......................... 7.50 12/01/97 509,505
--------------
1,517,215
--------------
BANKS - INTERNATIONAL (3.0%)
1,000 Kansallis-Osake Pankki (Finland).............. 6.125 05/15/98 992,190
--------------
BROKERAGE (3.1%)
1,000 Lehman Brothers Holdings, Inc................. 7.625 07/15/99 1,021,290
--------------
COMPUTER EQUIPMENT (1.6%)
500 Unisys Corp................................... 15.00+ 07/01/97 533,750
--------------
FINANCIAL (6.1%)
500 Allstate Corp................................. 5.875 06/15/98 494,490
500 General Electric Capital Corp................. 8.65 05/01/18 500,000
1,065 International Lease Finance Corp.............. 5.75 07/01/98 1,050,442
--------------
2,044,932
--------------
FINANCIAL SERVICES (1.6%)
500 Golden West Financial Corp.................... 7.875 01/15/02 519,430
--------------
FOOD DISTRIBUTION (1.6%)
500 Great Atlantic & Pacific Tea Co., Inc......... 9.125 01/15/98 518,585
--------------
FOREIGN GOVERNMENT (3.0%)
1,000 Bank of China................................. 6.75 03/15/99 994,250
--------------
INDUSTRIALS (18.0%)
1,000 Chrysler Corp................................. 10.40 08/01/99 1,046,630
850 Comdisco, Inc................................. 9.75 01/15/97 872,100
500 Grand Metropolitan Investment Corp............ 8.125 08/15/96 503,575
1,000 Hertz Corp.................................... 9.50 05/15/98 1,055,440
1,000 Sears, Roebuck & Co........................... 6.50 06/15/00 987,920
1,000 Time Warner, Inc.............................. 7.95 02/01/00 1,026,380
500 Xerox Corp.................................... 9.20 07/15/99 503,260
--------------
5,995,305
--------------
TRANSPORTATION (4.0%)
300 AMR Corp...................................... 8.10 11/01/98 309,450
1,000 Union Pacific Corp............................ 7.375 05/15/01 1,019,980
--------------
1,329,430
--------------
UTILITIES - ELECTRIC (13.4%)
500 Commonwealth Edison Co........................ 6.50 04/15/00 491,760
529 Commonwealth Edison Co........................ 7.625 02/15/03 535,480
500 Consolidated Edison Co. of N.Y., Inc.......... 5.90 12/15/96 500,340
370 Consumers Power Co............................ 8.875 11/15/99 391,915
500 Long Island Lighting Co....................... 6.25 07/15/01 460,030
1,000 Ohio Edison Co................................ 6.875 09/15/99 995,130
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1996, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 500 Pacific Gas & Electric Co..................... 5.75 % 12/01/98 $ 488,850
575 Public Service Co. of New Hampshire........... 8.875 05/15/96 575,454
--------------
4,438,959
--------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $21,491,276)......................................... 20,921,206
--------------
U.S. GOVERNMENT & AGENCIES OBLIGATIONS (29.6%)
MORTGAGE PASS-THROUGH SECURITIES (13.2%)
06/01/98-
981 Federal Home Loan Mortgage Corp. PC Gold...... 6.00 07/01/98 964,010
04/01/98-
3,430 Federal Home Loan Mortgage Corp. PC Gold...... 6.50 07/01/00 3,415,755
--------------
4,379,765
--------------
U.S. GOVERNMENT AGENCY (5.8%)
2,000 Federal National Mortgage Assoc. Principal
Strip......................................... 7.56++ 12/20/01 1,912,500
--------------
U.S. GOVERNMENT OBLIGATIONS (10.6%)
1,000 U.S. Treasury Note............................ 6.00 08/31/97 1,000,938
1,000 U.S. Treasury Note............................ 5.75 09/30/97 997,656
500 U.S. Treasury Note............................ 5.125 04/30/98 491,406
1,000 U.S. Treasury Note............................ 7.125 02/29/00 1,025,469
--------------
3,515,469
--------------
TOTAL U.S. GOVERNMENT & AGENCIES OBLIGATIONS
(IDENTIFIED COST $9,831,844).......................................... 9,807,734
--------------
SHORT-TERM INVESTMENTS (a) (5.7%)
U.S. GOVERNMENT AGENCIES
1,900 Federal Home Loan Mortgage Corp. (Amortized 05/01/96-
Cost $1,899,287).............................. 5.13-5.30 05/06/96 1,899,287
--------------
TOTAL INVESTMENTS
(IDENTIFIED COST $33,222,407) (B)............ 98.3% 32,628,227
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES.................................. 1.7 549,992
----- -----------
NET ASSETS................................... 100.0% $33,178,219
----- -----------
----- -----------
<FN>
- ---------------------
PC Participation Certificate.
+ Adjustable rate. Rate shown is the rate in effect at April 30, 1996.
++ Currently zero coupon bond and will pay interest at the rate shown at a
future specified date, unless called on that date.
(a) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation was $244,286 and the
aggregate gross unrealized depreciation was $838,466, resulting in net
unrealized depreciation of $594,180.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $33,222,407)............................. $32,628,227
Cash........................................................ 9,267
Receivable for:
Interest................................................ 552,655
Shares of beneficial interest sold...................... 50,552
Deferred organizational expenses............................ 93,372
Receivable from affiliate (Note 2).......................... 11,184
Prepaid expenses and other assets........................... 3,805
-----------
TOTAL ASSETS........................................... 33,349,062
-----------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased............... 100,591
Dividends to shareholders............................... 22,879
Accrued expenses and other payables......................... 47,373
-----------
TOTAL LIABILITIES...................................... 170,843
-----------
NET ASSETS:
Paid-in-capital............................................. 34,725,131
Net unrealized depreciation................................. (594,180)
Distributions in excess of net investment income............ (22,879)
Accumulated net realized loss............................... (929,853)
-----------
NET ASSETS............................................. $33,178,219
-----------
-----------
NET ASSET VALUE PER SHARE,
3,477,195 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$9.54
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1996
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $2,315,699
----------
EXPENSES
Investment management fee................................... 234,741
Professional fees........................................... 51,795
Shareholder reports and notices............................. 49,036
Organizational expenses..................................... 34,697
Transfer agent fees and expenses............................ 21,204
Trustees' fees and expenses................................. 20,233
Custodian fees.............................................. 15,031
Registration fees........................................... 2,190
Other....................................................... 4,982
----------
TOTAL EXPENSES BEFORE AMOUNTS WAIVED/REIMBURSED........ 433,909
LESS: AMOUNTS WAIVED/ASSUMED........................... (310,382)
----------
TOTAL EXPENSES AFTER AMOUNTS WAIVED/REIMBURSED......... 123,527
----------
NET INVESTMENT INCOME.................................. 2,192,172
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................................... (183,101)
Net change in unrealized depreciation....................... 181,886
----------
NET LOSS............................................... (1,215)
----------
NET INCREASE................................................ $2,190,957
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
APRIL 30, 1996 APRIL 30, 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 2,192,172 $ 2,882,945
Net realized loss........................................... (183,101) (2,020,148)
Net change in unrealized depreciation....................... 181,886 738,462
-------------- --------------
NET INCREASE........................................... 2,190,957 1,601,259
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income....................................... (1,542,863) (2,314,420)
Paid-in-capital............................................. (535,880) (46,360)
-------------- --------------
TOTAL.................................................. (2,078,743) (2,360,780)
-------------- --------------
Net increase (decrease) from transactions in shares of
beneficial interest....................................... 3,248,168 (12,825,279)
-------------- --------------
TOTAL INCREASE (DECREASE).............................. 3,360,382 (13,584,800)
NET ASSETS:
Beginning of period......................................... 29,817,837 43,402,637
-------------- --------------
END OF PERIOD
(INCLUDING DISTRIBUTIONS IN EXCESS OF NET INVESTMENT
INCOME OF $22,879 AND $10,352, RESPECTIVELY)............ $ 33,178,219 $ 29,817,837
-------------- --------------
-------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1996
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's 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. The Fund was organized as a Massachusetts business
trust on October 22, 1993 and commenced operations on January 10, 1994.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates. The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) 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) 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); (3) certain 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; and (4) short-term
debt securities having a maturity date of more than sixty days at the time of
purchased 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 are accreted over the life of the respective securities. Interest
income is accrued daily.
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1996, CONTINUED
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 rate
prevailing on the respective dates of such transactions. The resultant exchange
gains and losses are included in the Statement of Operations. 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 record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require 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 -- Dean Witter InterCapital Inc. (the "Investment
Manager") paid the organizational expenses of the Fund in the amount of
approximately $173,000 which has been reimbursed, exclusive of any amounts
assumed. 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.
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1996, CONTINUED
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays 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 reimburse the Fund for all expenses
(except for any brokerage fees and a portion of the organizational expenses) and
waive the compensation (the "management fee") provided for in the Agreement
until December 31, 1995. At April 30, 1996, included in the Statement of Assets
and Liabilities are receivables from affiliate which represent expense
reimbursements due the Fund. For the period January 1, 1996 through December 31,
1996, the Investment Manager will continue to waive the management fee and
reimburse expenses to the extent they exceed 1.00% of daily net assets or until
such time as the Fund has $50 million of net assets, whichever occurs first.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales/prepayments of portfolio
securities, excluding short-term investments, for the year ended April 30, 1996
were $23,150,897 and $18,800,532, respectively. Included in the aforementioned
are purchases and sales of U.S. Government securities of $10,953,035 and
$10,895,409, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the Fund's
transfer agent.
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1996, CONTINUED
4. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
APRIL 30, 1996 APRIL 30, 1995
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold............................................................. 3,883,280 $ 37,471,765 1,807,698 $ 17,153,744
Reinvestment of dividends........................................ 169,292 1,631,756 215,629 2,044,701
----------- -------------- ----------- ------------
4,052,572 39,103,521 2,023,327 19,198,445
Repurchased...................................................... (3,726,543) (35,855,353) (3,382,816) (32,023,724)
----------- -------------- ----------- ------------
Net increase (decrease).......................................... 326,029 $ 3,248,168 (1,359,489) $(12,825,279)
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
5. FEDERAL INCOME TAX STATUS
At April 30, 1996, the Fund had a net capital loss carryover of approximately
$879,000 of which $378,000 will be available through April 30, 2003 and $501,000
will be available through April 30, 2004 to offset future capital gains to the
extent provided by regulations. To the extent that this carryover loss is used
to offset future capital gains, it is probable that the gains so offset will not
be distributed to shareholders.
Capital losses incurred after October 31 ("post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $51,000 during fiscal 1996. As of April 30, 1996 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, 1996, distributions in excess of net investment income was
charged and accumulated net realized loss was credited $661,836.
<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 FOR THE YEAR 1994*
ENDED ENDED THROUGH
APRIL 30, 1996 APRIL 30, 1995 APRIL 30, 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 9.46 $ 9.62 $10.00
------ ------ ------
Net investment income.............. 0.63 0.77 0.21
Net realized and unrealized gain
(loss)............................ 0.05 (0.33) (0.40)
------ ------ ------
Total from investment operations... 0.68 0.44 (0.19)
------ ------ ------
Less dividends and distributions
from:
Net investment income........... (0.45) (0.59) (0.19)
Paid-in-capital................. (0.15) (0.01) --
------ ------ ------
Total dividends and
distributions..................... (0.60) (0.60) (0.19)
------ ------ ------
Net asset value, end of period..... $ 9.54 $ 9.46 $ 9.62
------ ------ ------
------ ------ ------
TOTAL INVESTMENT RETURN............ 7.33% 4.76% (2.01)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 0.37%(5) -- %(4) -- %(2)(3)
Net investment income.............. 6.54%(5) 7.64%(4) 6.36%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $33,178 $29,818 $43,403
Portfolio turnover rate............ 64% 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 annualized expense and net investment income
ratios would have been 1.08% and 6.56%, respectively.
(5) If the Fund had borne all expenses that were reimbursed or waived by the
Investment Manager, the above expense and net investment income ratios
would have been 1.29% and 5.61%, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<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, 1996, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the two years 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 at April
30, 1996 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 7, 1996
<PAGE>
TRUSTEES
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
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of the
Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
DEAN WITTER SHORT-TERM BOND FUND
[Graphic]
ANNUAL REPORT
- --------------
APRIL 30, 1996
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
GROWTH OF $10,000
LEHMAN MUTUAL FUND
SHORT(1-5) INV. GRADE
DATE TOTAL DEBT INDEX
---------------------------------------------------------------
---------------------------------------------------------------
January 10, 1994 $10,000 $10,000
---------------------------------------------------------------
April 30, 1994 $ 9,799 $ 9,831
---------------------------------------------------------------
April 30, 1995 $10,265 $10,526
---------------------------------------------------------------
April 30, 1996 $11,018 (2) $11,391
---------------------------------------------------------------
---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR LIFE OF FUND
------------------- ---------------------
------------------- ---------------------
7.33 (1) 4.30 (1)
------------------- ---------------------
------------------- ---------------------
----------------------------------------------
----------------------------------------------
_______Fund ________Lehman (3)
----------------------------------------------
----------------------------------------------
Past performance is not predictive of future returns.
________________________________________
(1) Figure shown assumes reinvestment of all distributions.
There is no sales charge.
(2) Closing value assuming a complete redemption on April 30,
1996.
(3) The Lehman Brothers Mutual Fund Short (1-5) Investment Grade
Debt Index measures all investment-grade corporate debt
securities with maturities of one to five years. The Index
does not include any expenses, fees or charges. The Index
is unmanaged and should not be considered an investment.
