<PAGE> 1
DEAN WITTER SHORT-TERM BOND FUND Two World Trade Center, New York, New York
10048
LETTER TO THE SHAREHOLDERS October 31, 1997
DEAR SHAREHOLDER:
As the six-month period under review began, the likelihood of an increase in the
federal funds rate diminished and the economy appeared to soften. Although this
moderation was brief, the renewed exuberance in the economy and the tight labor
markets that ensued only briefly overshadowed the lack of inflation that seemed
to become entrenched in the economic environment. Domestic fixed-income markets
were further aided by currency and economic turmoil in Asia and Latin America,
which served to highlight the "safe haven" that U.S. markets, particularly
Treasuries, afforded. As a result, for the six-month period ended October 31,
1997, yields on two- and five-year Treasuries fell 72 and 85 basis points (0.72
and 0.85 percent) to 5.68 percent and 5.72 percent, respectively.
PERFORMANCE
Dean Witter Short-Term Bond Fund's net assets grew from $42 million to $69
million during the period under review. Most of this increase was attributable
to net subscriptions during the prior three months as uncertainty and volatility
began to plague the capital markets.
The Fund returned 4.06 percent versus 3.82 percent for the Lipper Analytical
Services Short Investment Grade Debt Funds Index. Over the same period,
six-month Treasury bills returned 2.60 percent. The Fund's ability to achieve
returns well in excess of money market rates was primarily due to the decline in
interest rates and secondly to the higher yields available for longer-dated
securities.
PORTFOLIO
The Fund experienced net redemptions as interest rates began falling in May and
June. To meet cash needs, the Fund's temporary reserves were reduced and
one-month Treasuries and four-year corporates were sold in combination to
maintain the average maturity and duration of the Fund at their April 30, 1997
marks of 1.66 years and 1.48 years, respectively. Cash
<PAGE> 2
DEAN WITTER SHORT-TERM BOND FUND
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
flows turned positive in July just as interest rates plummeted, with two- and
three-year Treasuries falling 33 and 43 basis points in yield to 5.72 percent
and 5.78 percent, respectively. Given the dramatic dip in rates and the reduced
incentive for extending maturities, new inflows were confined primarily to
six-month Treasuries, which had remained close to their prior month's level. As
a result, the Fund's average maturity and duration declined to 1.47 years and
1.24 years, respectively.
With yields modestly higher during much of the last three months of the period,
additional funds from net new subscriptions were invested throughout the
Treasury, agency, mortgage and corporate sectors, with an emphasis on two- to
three-year maturities. Their lengthening impact on the Fund's average maturity
was offset somewhat by a higher cash position that climbed to just over 10
percent of investable assets on October 31.
During this period, widening corporate spreads versus Treasuries increased the
attractiveness of these securities, and a number of new credits were added to
the portfolio, including AT&T Capital Corp., Illinois Power Co., Ford Credit
Corp., GATX Corp., MedPartners Inc., Finova Corp., SuperValu Inc. and Salomon
Brothers Inc. No corporate bonds were purchased with maturities beyond December
2000.
For the six-month period ended October 31, 1997, the Fund paid a dividend of
$0.35. Monthly dividends may vary from month to month, depending on the income
earned by the Fund. The Fund will continue to strive to provide the highest
level of current income consistent with the preservation of capital.
CORPORATE SECURITIES SECTOR
At the end of the period, the Fund held 31 investment-grade corporate issues,
with an average maturity of 2.04 years and average duration of 1.84 years. The
average quality rating was Baa1. The largest sector increase was finance, which
represented nearly 36 percent of the investment-grade holdings on October 31, up
from 12.7 percent on April 30. Industrial holdings declined the most, to 34
percent from just over 46 percent at the end of April.
GLOBAL SECTOR
During the past six months, the Fund's investments continued to be restricted to
U.S.-dollar-denominated investments. Significantly lower investment yields in
Canada and a weakness in the Canadian dollar versus the U.S. dollar forced the
Fund to refrain from adding Canadian investments. We will continue to avoid
exposure to the Mexican peso, due to its continuing volatility.
<PAGE> 3
DEAN WITTER SHORT-TERM BOND FUND
LETTER TO THE SHAREHOLDERS October 31, 1997, continued
U.S. GOVERNMENT/MORTGAGE SECTOR
During the past six months the decline in interest rates, combined with the
recent inflow of funds, has afforded us the opportunity to add
balloon-mortgage-backed securities, U.S. Treasuries and federal agency issues.
In the current market environment, and as market conditions warrant, this sector
of the Fund will continue to pursue a diversified strategy when making new
investments, by purchasing securities that enhance both the Fund's current yield
and its total return potential. On October 31, 1997, this sector of the Fund was
30 percent invested in mortgage-backed securities issued by the Federal Home
Loan Mortgage Corporation (FHLMC) and the Federal National Mortgage Corporation
(FNMA), 33 percent in U.S. Treasuries and the remaining 37 percent in U.S.
agencies.
LOOKING AHEAD
As we enter the final quarter of 1997, it appears that the economy will remain
vibrant and inflation will remain contained. However, potential crosscurrents
that are both inflationary and deflationary make the direction of future
monetary policy uncertain. The financial and currency crises in Asia create the
potential for deflationary shocks to our economy as imports cheapen and our
export markets shrink. And volatility in the U.S. stock market is attesting to
concerns arising over the possible repercussions of weakened Asian markets on
our own markets at home. Against this deflationary scenario, U.S. labor markets
are stronger than ever -- unemployment fell to 4.7 percent in October -- and
consumers appear to be gearing up for a generous Holiday season. Such an
environment has historically been conducive to rising inflation. Currently,
however, neither force is providing sufficient impetus for a change in monetary
policy. Before taking any action the Federal Reserve Board will most likely
monitor both situations for signs of either force achieving dominance in our
economy.
Given the uncertainty of the times, the Fund will continue to operate within its
current maturity and asset allocation strategy. We appreciate your continued
support of Dean Witter Short-Term Bond Fund and look forward to continuing to
serve your investment needs.
Very truly yours,
/S/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 4
DEAN WITTER SHORT-TERM BOND FUND
RESULTS OF SPECIAL MEETING (unaudited)
* * *
On May 21, 1997, a special meeting of the Fund's shareholders was held to vote
on four separate matters, the results of which were as follows:
(1) APPROVAL OF A NEW INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE FUND AND DEAN
WITTER INTERCAPITAL INC. IN CONNECTION WITH THE MERGER OF MORGAN STANLEY
GROUP INC. WITH DEAN WITTER, DISCOVER & CO.:
<TABLE>
<S> <C>
For....................................................................... 2,281,505
Against................................................................... 80,670
Abstain................................................................... 245,613
</TABLE>
(2) ELECTION OF TRUSTEES:
<TABLE>
<S> <C>
Michael Bozic
For..................... 2,374,485
Withheld................ 233,303
Charles A. Fiumefreddo
For..................... 2,372,197
Withheld................ 235,591
Edwin J. Garn
For..................... 2,374,485
Withheld................ 233,303
John R. Haire
For..................... 2,374,857
Withheld................ 232,931
Wayne E. Hedien
For..................... 2,374,009
Withheld................ 233,779
Dr. Manuel H. Johnson
For..................... 2,374,009
Withheld................ 233,779
Michael E. Nugent
For..................... 2,374,857
Withheld................ 232,931
Philip J. Purcell
For..................... 2,374,857
Withheld................ 232,931
John L. Schroeder
For..................... 2,374,857
Withheld................ 232,931
</TABLE>
(3) APPROVAL OF A NEW INVESTMENT POLICY WITH RESPECT TO INVESTMENTS IN CERTAIN
OTHER INVESTMENT COMPANIES:
<TABLE>
<S> <C>
For........................................................................... 2,208,918
Against....................................................................... 119,121
Abstain....................................................................... 279,749
</TABLE>
(4) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS THE FUND'S
INDEPENDENT ACCOUNTANTS:
<TABLE>
<S> <C>
For........................................................................... 2,352,707
Against....................................................................... 25,795
Abstain....................................................................... 229,286
</TABLE>
<PAGE> 5
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS October 31, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (48.7%)
Auto - Rentals (1.5%)
$ 1,000 Hertz Corp........................... 9.50 % 05/15/98 $ 1,019,770
-----------
Automotive - Finance (2.9%)
2,000 Ford Motor Credit Corp............... 6.375 10/06/00 2,015,900
-----------
Bank Holding Companies (0.7%)
500 Chase Manhattan Corp. ............... 7.50 12/01/97 500,695
-----------
Banks - International (1.4%)
1,000 Kansallis-Osake Pankki (Finland)..... 6.125 05/15/98 1,000,790
-----------
Brokerage (4.4%)
1,000 Lehman Brothers Holdings, Inc........ 7.625 07/15/99 1,023,590
2,000 Salomon Brothers Inc................. 6.50 03/01/00 2,011,900
-----------
3,035,490
-----------
Cable & Telecommunications (3.1%)
1,105 New American Holdings, Inc........... 7.50 03/01/00 1,131,045
1,000 Telecommunications, Inc.............. 7.375 02/15/00 1,022,530
-----------
2,153,575
-----------
Finance - Leasing (4.4%)
1,000 AT&T Capital Corp.................... 6.65 04/30/99 1,009,420
1,000 Comdisco Inc......................... 6.50 06/15/00 1,008,890
1,000 Finova Capital Corp.................. 6.25 08/15/00 1,002,070
-----------
3,020,380
-----------
Financial (3.0%)
1,000 Fletcher Challenge Financial Inc..... 9.80 06/15/98 1,024,380
1,065 International Lease Finance Corp..... 5.75 07/01/98 1,065,735
-----------
2,090,115
-----------
Financial Services (0.8%)
500 Golden West Financial Corp........... 7.875 01/15/02 529,090
-----------
Foreign Government Agency (4.2%)
1,000 Bank of China........................ 6.75 03/15/99 998,660
2,000 Korea Development Bank............... 6.25 05/01/00 1,922,340
-----------
2,921,000
-----------
Gas Transmission (1.5%)
1,000 The Williams Companies, Inc.......... 7.50 09/15/99 1,025,910
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS October 31, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Healthcare (2.9%)
$ 2,000 MedPartners Inc...................... 6.875% 09/01/00 $ 2,004,700
-----------
Photography (1.5%)
1,000 Polaroid Corp........................ 8.00 03/15/99 1,026,760
-----------
Retail - Food Chains (3.7%)
500 Great Atlantic & Pacific Tea Co.,
Inc.................................. 9.125 01/15/98 503,225
2,000 Supervalu, Inc....................... 7.25 07/15/99 2,041,420
-----------
2,544,645
-----------
Transportation (2.0%)
300 AMR Corp............................. 8.10 11/01/98 306,525
1,000 Union Pac Corp....................... 7.375 05/15/01 1,033,760
-----------
1,340,285
-----------
Transportation - Shipping (2.9%)
2,000 Gatx Capital Corp.................... 6.50 11/01/00 2,011,620
-----------
Utilities - Electric (7.8%)
500 Commonwealth Edison Co............... 6.50 04/15/00 504,150
511 Commonwealth Edison Co............... 7.625 02/15/03 518,031
1,000 Connecticut Light & Power Co......... 7.25 07/01/99 1,000,620
370 Consumers Energy Co.................. 8.875 11/15/99 388,667
1,000 Illinois Power Co.................... 5.625 04/15/00 989,390
1,000 Ohio Edison Co....................... 6.875 09/15/99 1,012,090
500 Pacific Gas & Electric Co............ 5.75 12/01/98 499,755
490 System Energy Resources Inc.......... 7.625 04/01/99 499,501
-----------
5,412,204
-----------
TOTAL CORPORATE BONDS (Identified Cost $33,851,722)............ 33,652,929
-----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS
(47.9%)
Mortgage Pass-Through Securities (13.9%)
1,664 Federal Home Loan Mortgage Corp. 06/01/98 -
PC Gold.............................. 6.00 11/01/01 1,655,314
6,065 Federal Home Loan Mortgage Corp. 04/01/98 -
PC Gold.............................. 6.50 09/01/02 6,100,767
1,868 Federal National Mortgage Assoc...... 6.00 10/01/00 1,844,982
-----------
9,601,063
-----------
U.S. Government Agencies (18.8%)
3,000 Federal Farm Credit Bank............. 6.16 11/06/00 2,998,710
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS October 31, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 2,000 Federal Home Loan Bank............... 5.95% 11/12/98 $ 2,002,640
1,000 Federal Home Loan Mortgage Corp...... 6.125 11/26/99 1,000,450
7,000 Federal National Mortgage Assoc...... 5.94 - 6.22 11/06/98 -
12/15/00 7,021,860
-----------
13,023,660
-----------
U.S. Government Obligations (15.2%)
3,500 U.S. Treasury Note................... 7.375 11/15/97 3,501,365
4,000 U.S. Treasury Note................... 7.250 02/15/98 4,018,640
1,000 U.S. Treasury Note................... 6.00 09/30/98 1,004,030
1,000 U.S. Treasury Note................... 5.875 08/31/99 1,003,930
1,000 U.S. Treasury Note................... 5.75 09/30/99 1,002,340
-----------
10,530,305
-----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Identified Cost $33,112,179).................................. 33,155,028
-----------
SHORT-TERM INVESTMENTS (11.2%)
U.S. GOVERNMENT AGENCIES (a) (11.0%)
7,600 Federal Home Loan Mortgage Corp. 5.45 - 5.65 11/03/97 -
(Amortized Cost $7,593,714).......... 11/12/97 7,593,714
-----------
REPURCHASE AGREEMENT (0.2%)
137 The Bank of New York (dated 10/31/97;
proceeds $136,711) (b)
(Identified Cost $136,649)........... 5.50 11/03/97 136,649
-----------
TOTAL SHORT-TERM INVESTMENTS (Identified Cost $7,730,363)...... 7,730,363
-----------
TOTAL INVESTMENTS (Identified Cost $74,694,264) (c)..... 107.8% 74,538,320
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS.......... (7.8) (5,391,171)
---- -----------
NET ASSETS.............................................. 100.0% $69,147,149
===== ===========
</TABLE>
- ---------------------
<TABLE>
<S> <C>
PC Participation Certificate.
(a) Securities were purchased on a discount basis. The interest rates shown have
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $136,086 U.S. Treasury Note 6.00% due 07/31/02 valued at
$139,382.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $241,716 and the aggregate
gross unrealized depreciation is $397,660, resulting in net unrealized
depreciation of $155,944.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1997 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $74,694,264)......................................... $74,538,320
Cash................................................................... 432
Receivable for:
Interest........................................................... 956,030
Shares of beneficial interest sold................................. 755,665
Deferred organizational expenses....................................... 41,331
Receivable from affiliate.............................................. 132,297
Prepaid expenses and other assets...................................... 18,098
-----------
TOTAL ASSETS....................................................... 76,442,173
-----------
LIABILITIES:
Payable for:
Investments purchased.............................................. 7,000,000
Shares of beneficial interest repurchased.......................... 219,341
Dividends to shareholders.......................................... 25,273
Accrued expenses and other payables.................................... 50,410
-----------
TOTAL LIABILITIES.................................................. 7,295,024
-----------
NET ASSETS......................................................... $69,147,149
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital........................................................ $70,726,658
Net unrealized depreciation............................................ (155,944)
Accumulated undistributed net investment income........................ 62
Accumulated net realized loss.......................................... (1,423,627)
-----------
NET ASSETS......................................................... $69,147,149
===========
NET ASSET VALUE PER SHARE,
7,258,836 shares outstanding
(unlimited shares authorized of $.01 par value)....................... $9.53
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended October 31, 1997 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME......................................................... $1,445,884
----------
EXPENSES
Investment management fee............................................... 148,913
Professional fees....................................................... 29,078
Shareholder reports and notices......................................... 23,742
Registration fees....................................................... 23,409
Organizational expenses................................................. 17,441
Transfer agent fees and expenses........................................ 11,217
Trustees' fees and expenses............................................. 6,302
Other................................................................... 6,441
----------
TOTAL EXPENSES...................................................... 266,543
Less: amounts waived/reimbursed......................................... (266,543)
----------
NET EXPENSES........................................................ --
----------
NET INVESTMENT INCOME............................................... 1,445,884
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss....................................................... (263,344)
Net change in unrealized depreciation................................... 465,603
----------
NET GAIN............................................................ 202,259
----------
NET INCREASE............................................................ $1,648,143
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
OCTOBER 31, 1997 APRIL 30, 1997
- ---------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................. $ 1,445,884 $ 2,333,799
Net realized loss...................................... (263,344) (230,430)
Net change in unrealized depreciation.................. 465,603 (27,367)
----------- -----------
NET INCREASE....................................... 1,648,143 2,076,002
Dividends from net investment income................... (1,501,998) (2,254,744)
Net increase from transactions in shares of beneficial
interest.............................................. 26,748,925 9,252,602
----------- -----------
NET INCREASE....................................... 26,895,070 9,073,860
NET ASSETS:
Beginning of period.................................... 42,252,079 33,178,219
----------- -----------
END OF PERIOD
(Including undistributed net investment income of
$62 and $56,176, respectively)..................... $69,147,149 $42,252,079
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS October 31, 1997 (unaudited)
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, including circumstances under which it is
determined by Dean Witter InterCapital Inc. (the "Investment Manager") that sale
and bid prices are not reflective of a security's market value, portfolio
securities are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Trustees
(valuation of 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 may utilize 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 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 are accreted over the life of the respective securities. Interest
income is accrued daily.
<PAGE> 12
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS October 31, 1997 (unaudited) continued
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the 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.
E. ORGANIZATIONAL EXPENSES -- 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.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.70% 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.
For the period January 1, 1997 through December 31, 1997, the Investment Manager
is waiving its compensation and assuming all operating expenses without
limitation.
<PAGE> 13
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS October 31, 1997 (unaudited) continued
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 six months ended October
31, 1997 were $36,520,638 and $12,823,516, respectively. Included in the
aforementioned are purchases and sales/prepayments of U.S. Government securities
of $19,907,840 and $6,784,930, respectively.
Dean Witter Trust FSB, 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 SIX FOR THE YEAR
MONTHS ENDED ENDED
OCTOBER 31, 1997 APRIL 30, 1997
--------------------------- ---------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold.......................................................... 5,596,483 $ 53,269,279 5,655,876 $ 53,856,789
Reinvestment of dividends..................................... 115,331 1,097,588 187,178 1,780,724
---------- ----------- ---------- -----------
5,711,814 54,366,867 5,843,054 55,637,513
Repurchased................................................... (2,902,477) (27,617,942) (4,870,750) (46,384,911)
---------- ----------- ---------- -----------
Net increase.................................................. 2,809,337 $ 26,748,925 972,304 $ 9,252,602
========== ============ ========== ============
</TABLE>
5. FEDERAL INCOME TAX STATUS
At April 30, 1997, the Fund had a net capital loss carryover of approximately
$1,065,000, to offset future capital gains to the extent provided by regulations
available through April 30 of the following years:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- -------------------------
2003 2004 2005
- ----- ----- -----
<S> <C> <C>
$378 $501 $186
==== ==== ====
</TABLE>
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 losses of approximately $96,000 during fiscal 1997.
As of April 30, 1997, the Fund had temporary book/tax differences primarily
attributable to post-October losses.
<PAGE> 14
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 SIX FOR THE YEAR ENDED APRIL 30
MONTHS ENDED -----------------------------------
OCTOBER 31, 1997 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............. $ 9.50 $ 9.54 $ 9.46
------ ------ ------
Net investment income............................. 0.34 0.61 0.63
Net realized and unrealized gain (loss)........... 0.04 (0.06) 0.05
------ ------ ------
Total from investment operations.................. 0.39 0.55 0.68
------ ------ ------
Less dividends and distributions from:
Net investment income.......................... (0.35) (0.59) (0.45)
Paid-in-capital................................ -- -- (0.15)
------ ------ ------
Total dividends and distributions................. (0.35) (0.59) (0.60)
------ ------ ------
Net asset value, end of period.................... $ 9.53 $ 9.50 $ 9.54
====== ====== ======
TOTAL INVESTMENT RETURN+.......................... 4.06%(1) 5.88% 7.33%
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................................... -- (3) 0.64%(3) 0.37%(3)
Net investment income............................. 6.80%(2)(3) 6.25%(3) 6.54%(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........... $69,147 $42,252 $33,178
Portfolio turnover rate........................... 31%(1) 67% 64%
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED APRIL 30 JANUARY 10, 1994*
----------------------------------- THROUGH
1995 APRIL 30, 1994
- -----------------------------------------------------------------------------------------------------------------------
(unaudited)
<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 gain (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.......................................... -- (3) -- (3)
Net investment income............................. 7.64%(3) 6.36%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........... $29,818 $43,403
Portfolio turnover rate........................... 74% 9%(1)
</TABLE>
- ---------------------
* Commencement of operations.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all expenses that were assumed or waived by the
Investment Manager, the annualized expense and net investment income ratios
would have been 1.25% and 5.54%, respectively, for the period ended October
31, 1997, 1.30% and 5.59%, respectively, for the year ended April 30, 1997,
1.29% and 5.61%, respectively, for the year ended April 30, 1996, 1.08% and
6.56%, respectively, for the year ended April 30, 1995 and 1.55% and 4.81%,
respectively, for the period ended April 30, 1994.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 15
(This Page Intentionally Left Blank)
<PAGE> 16
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Peter M. Avelar
Vice President
Rajesh K. Gupta
Vice President
Rochelle G. Siegel
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust FSB
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
The financial statements included herein have been taken from the records of
the Fund without examination by the independent accountants and accordingly
they do not express an opinion thereon.
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
[PHOTO]
SEMI-ANNUAL REPORT
OCTOBER 31, 1997
