<PAGE>
DEAN WITTER SHORT-TERM BOND FUND TWO WORLD TRADE CENTER, NEW YORK, NEW YORK
10048
LETTER TO THE SHAREHOLDERS OCTOBER 31, 1996
DEAR SHAREHOLDER:
The six-month period ended October 31, 1996 was a volatile time for the
fixed-income markets. In the spring and early summer, two-year Treasuries rose
nearly 40 basis points to 6.43 percent as a result of strong economic growth and
the belief that the Federal Reserve Board would raise interest rates to cool an
overheating economy. However, from mid-July through early August, they plummeted
by as much as 50 basis points following indications that the recent growth surge
might be short-lived. This brief rally came to an end by the first week of
September as reports showing renewed economic vigor rekindled fears of a more
restrictive Federal Reserve Board policy. Most recently, reports showing a
subdued economy, a slowdown in the growth of the labor force, and the continued
absence of inflationary signs have pushed interest rates erratically lower -- to
their lowest levels in over six months. Overall, from April 30 to October 31,
1996, two-year Treasury yields declined 30 basis points to 5.73 percent and
five-year Treasury yields declined 34 basis points to 6.07 percent. Three- and
six-month Treasuries were essentially unchanged over the period.
PERFORMANCE AND PORTFOLIO
For the six-month period ended October 31, 1996, Dean Witter Short-Term Bond
Fund posted a total return of 3.48 percent. During the same period, the Lehman
Brothers Short (one- to five-year) Investment Grade Debt Index returned 4.50
percent, the average short investment grade debt fund, as measured by Lipper
Analytical Services, returned 3.52 percent, and six-month Treasuries returned
2.90 percent. The Fund's net assets grew by nearly $11 million or approximately
33 percent. Most of this increase is attributable to new and existing
shareholders making contributions beginning in August in response to growing
expectations that the Federal Reserve Board would not raise short-term rates in
the near future.
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
LETTER TO THE SHAREHOLDERS OCTOBER 31, 1996, CONTINUED
Early during the period under review, the Fund reacted to the rise in interest
rates by keeping temporary reserves to a minimum and average maturity slightly
more than two years. Beginning in August, interest rate volatility prompted the
Fund to build cash reserves to slightly more than 10 percent of investable
assets. During the autumn rally, with interest rates falling and no sense of
easing by the Federal Reserve Board, the Fund reduced its average maturity and
duration to 1.84 years and 1.64 years, respectively by October 31. Despite the
Fund's adoption of this slightly more conservative strategy, the Fund has
retained its current monthly dividend of approximately $0.05 per share.
Adjusted for pending transactions, the Fund maintained approximately 48 percent
of holdings in investment-grade corporate bonds, 25 percent in U.S. government
bonds, 15 percent in mortgage-backed securities, 10 percent in money market
instruments, and 4 percent in non-investment-grade corporate bonds, as of
October 31, 1996. With little new issue supply and extremely narrow interest
rate differentials between two- to five-year investment-grade corporate bonds
and comparable maturity Treasuries, the Fund did not increase exposure to
investment-grade corporate bonds. The Fund replaced maturing bonds in this
sector with the debt of Fletcher Challenge Financial Inc. During the past six
months, the Fund increased commitments, as a percent of this asset class, to
Yankee bonds (dollar-denominated bonds issued in the United States by foreign
entities) and reduced its commitments to industrials and finance. The Fund's
investment-grade corporate holdings had an average rating of "Baa-1" by Moody's
Investors Service, Inc. with an average maturity of 2.15 years.
During the past six months, the rise and subsequent fall of interest rates has
afforded the Fund the opportunity to increase holdings to both five-year balloon
mortgage-backed securities and to U.S. Treasuries. In the current environment,
and as market conditions warrant, we will continue to pursue a diversified
strategy by purchasing mortgage-backed securities and U.S. Treasuries which
enhance both the Fund's current yield and total return potential. As of October
31, 1996, the Fund's U.S. government/mortgage-backed sector consisted of 37
percent mortgage-backed securities issued by the Federal Home Loan Mortgage
Corporation (FHLMC), 19 percent U.S. Treasuries and the remaining 44 percent
U.S. agency strips.
During the period under review, the Fund's investments were restricted to U.S.
dollar-denominated investments. Significantly lower investment yields in Canada
combined with the recent strength of the Canadian dollar versus the U.S. dollar
caused us to refrain from adding Canadian investments. We continue to avoid
exposure to the Mexican peso due to its extreme volatility.
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
LETTER TO THE SHAREHOLDERS OCTOBER 31, 1996, CONTINUED
LOOKING AHEAD
As we enter the final quarter of 1996, the economy appears to be growing
moderately with low unemployment and no evidence of inflationary pressure. In
this environment, it is unlikely that the Federal Reserve Board will change its
current monetary policy. After the second quarter's GDP of nearly 5 percent in
which both business and consumers participated, the third quarter's more subdued
2.2 percent growth rate was fueled primarily by capital investment where
consumers played a minor role.
However, going into the fourth quarter of 1996, it is believed that consumers
are well primed to increase spending. Consumer debt recently declined for the
first time in three years while personal savings soared to 5.7 percent of total
income and personal income grew by 0.6 percent over each of the past two months.
After a sluggish holiday season last year, the currently high consumer
confidence level could lead to more spending this year and produce a more robust
fourth quarter than anticipated.
While it is unlikely that the Federal Reserve Board will modify policy before
year end, they will be sensitive to any excesses that could lead to future
pricing pressures. Low unemployment, continued capital spending by business and
a strong consumer sector could lead the Federal Reserve Board to become
concerned and to raise rates in 1997. We will continue to monitor the consumer
as well as other facets of the economy for signs of potential interest rate
pressures in either direction.
We appreciate your support of Dean Witter Short-Term Bond Fund and look forward
to continuing to serve your investment needs.
Very truly yours,
[SIGNATURE]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (46.3%)
AUTOMOTIVE - FINANCE (2.3%)
$ 1,000 General Motors Acceptance Corp................ 7.75 % 04/15/97 $ 1,009,440
--------------
BANK HOLDING COMPANIES (3.4%)
1,000 Bankers Trust New York Corp................... 7.25 11/01/96 999,840
500 Chase Manhattan Corp.......................... 7.50 12/01/97 508,665
--------------
1,508,505
--------------
BANKS (2.3%)
1,000 ABN Amro Bank, N.V. (Netherlands)............. 6.625 10/31/01 1,007,140
--------------
BANKS - INTERNATIONAL (2.3%)
1,000 Kansallis-Osake Pankki (Finland).............. 6.125 05/15/98 1,001,490
--------------
BROKERAGE (2.3%)
1,000 Lehman Brothers Holdings, Inc................. 7.625 07/15/99 1,027,760
--------------
COMPUTER EQUIPMENT (1.2%)
500 Unisys Corp................................... 15.00+ 07/01/97 528,750
--------------
FINANCIAL (5.9%)
500 Allstate Corp................................. 5.875 06/15/98 499,165
1,000 Fletcher Challenge Financial Inc.............. 9.80 06/15/98 1,057,730
1,065 International Lease Finance Corp.............. 5.75 07/01/98 1,062,508
--------------
2,619,403
--------------
FINANCIAL SERVICES (1.2%)
500 Golden West Financial Corp.................... 7.875 01/15/02 526,755
--------------
FOOD DISTRIBUTION (1.2%)
500 Great Atlantic & Pacific Tea Co., Inc......... 9.125 01/15/98 516,025
--------------
FOREIGN GOVERNMENT AGENCY (2.3%)
1,000 Bank of China................................. 6.75 03/15/99 1,006,020
--------------
INDUSTRIALS (10.1%)
1,000 Chrysler Corp................................. 10.40 08/01/99 1,032,630
850 Comdisco, Inc................................. 9.75 01/15/97 856,791
1,000 Hertz Corp.................................... 9.50 05/15/98 1,050,900
500 MGM Grand Hotels Inc.......................... 12.00 05/01/02 540,000
1,000 Telecommunications, Inc....................... 7.375 02/15/00 1,000,210
--------------
4,480,531
--------------
TRANSPORTATION (3.0%)
300 AMR Corp...................................... 8.10 11/01/98 310,509
1,000 Union Pacific Corp............................ 7.375 05/15/01 1,031,420
--------------
1,341,929
--------------
UTILITIES - ELECTRIC (8.8%)
500 Commonwealth Edison Co........................ 6.50 04/15/00 499,040
529 Commonwealth Edison Co........................ 7.625 02/15/03 537,480
500 Consolidated Edison Co. of N.Y., Inc.......... 5.90 12/15/96 500,205
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 370 Consumers Power Co............................ 8.875% 11/15/99 $ 393,647
500 Long Island Lighting Co....................... 6.25 07/15/01 472,340
1,000 Ohio Edison Co................................ 6.875 09/15/99 1,003,260
500 Pacific Gas & Electric Co..................... 5.75 12/01/98 495,605
--------------
3,901,577
--------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $20,855,353)......................................... 20,475,325
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (36.1%)
MORTGAGE-BACKED SECURITIES (13.4%)
06/01/98-
918 Federal Home Loan Mortgage Corp. PC Gold...... 6.00 07/01/98 906,792
04/01/98-
5,029 Federal Home Loan Mortgage Corp. PC Gold...... 6.50 10/01/01 5,037,240
--------------
5,944,032
--------------
U.S. GOVERNMENT OBLIGATIONS (16.0%)
08/31/97-
2,000 U.S. Treasury Note............................ 6.00 08/15/99 2,006,670
09/30/97-
1,000 U.S. Treasury Note............................ 5.75 10/31/98 1,002,370
3,000 U.S. Treasury Note............................ 5.875 11/15/99 3,005,790
1,000 U.S. Treasury Note............................ 7.125 02/29/00 1,034,770
--------------
7,049,600
--------------
U.S. GOVERNMENT AGENCIES (6.7%)
2,000 Federal National Mortgage Assoc. Principal
Strip......................................... 7.56++ 12/20/01 1,985,440
1,000 Resolution Funding Corp....................... 0.00 04/15/97 976,520
--------------
2,961,960
--------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $15,883,849)......................................... 15,955,592
--------------
SHORT-TERM INVESTMENTS (15.5%)
U.S. GOVERNMENT AGENCIES (13.2%) (a)
820 Federal Home Loan Banks................. 5.20 11/06/96 819,408
11/01/96-
3,050 Federal Home Loan Mortgage Corp......... 5.18-5.53 11/13/96 3,045,683
2,000 Federal National Mortgage Assoc......... 5.19 11/11/96 1,994,810
--------------
TOTAL U.S. GOVERNMENT AGENCIES
(AMORTIZED COST $5,859,901).......................................... 5,859,901
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT (2.3%)
$ 1,005 The Bank of New York (dated 10/31/96; proceeds
$1,005,234; collateralized by $1,092,111
Federal Home Loan Mortgage Corp, PC Gold 8.50 %
due 04/01/26 valued at $1,024,186) (Identified
Cost $1,005,084)............................... 5.375% 11/01/96 $ 1,005,084
--------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $6,864,985).......................................... 6,864,985
--------------
TOTAL INVESTMENTS
(IDENTIFIED COST $43,604,188) (B)............ 97.9% 43,295,902
OTHER ASSETS IN EXCESS OF LIABILITIES........ 2.1 910,278
----- -----------
NET ASSETS................................... 100.0% $44,206,180
----- -----------
----- -----------
<FN>
- ---------------------
PC Participation Certificate
+ Adjustable rate. Rate shown is the rate in effect at October 31, 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 $403,745 and the
aggregate gross unrealized depreciation was $712,031, resulting in net
unrealized depreciation of $308,286.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $43,604,188)............................. $43,295,902
Receivable for:
Shares of beneficial interest sold...................... 3,945,165
Interest................................................ 520,989
Deferred organizational expenses............................ 75,929
Prepaid expenses and other assets........................... 36,557
-----------
TOTAL ASSETS........................................... 47,874,542
-----------
LIABILITIES:
Payable for:
Investments purchased................................... 3,538,797
Shares of beneficial interest repurchased............... 56,381
Dividends to shareholders............................... 13,728
Investment management fee............................... 11,778
Accrued expenses and other payables......................... 47,678
-----------
TOTAL LIABILITIES...................................... 3,668,362
-----------
NET ASSETS:
Paid-in-capital............................................. 45,671,259
Net unrealized depreciation................................. (308,286)
Distributions in excess of net investment income............ (92,120)
Accumulated net realized loss............................... (1,064,673)
-----------
NET ASSETS............................................. $44,206,180
-----------
-----------
NET ASSET VALUE PER SHARE,
4,625,009 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$9.56
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $1,124,795
----------
EXPENSES
Investment management fee................................... 115,294
Professional fees........................................... 34,589
Shareholder reports and notices............................. 25,767
Organizational expenses..................................... 17,443
Transfer agent fees and expenses............................ 11,644
Trustees' fees and expenses................................. 8,576
Custodian fees.............................................. 5,524
Registration fees........................................... 2,497
Other....................................................... 3,227
----------
TOTAL EXPENSES BEFORE AMOUNTS WAIVED/REIMBURSED........ 224,561
LESS: AMOUNTS WAIVED/REIMBURSED........................ (59,897)
----------
TOTAL EXPENSES AFTER AMOUNTS WAIVED/REIMBURSED......... 164,664
----------
NET INVESTMENT INCOME.................................. 960,131
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss........................................... (134,820)
Net change in unrealized depreciation....................... 285,894
----------
NET GAIN............................................... 151,074
----------
NET INCREASE................................................ $1,111,205
----------
----------
</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 SIX
MONTHS ENDED FOR THE YEAR
OCTOBER 31, 1996 ENDED
(UNAUDITED) APRIL 30, 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 960,131 $ 2,192,172
Net realized loss........................................... (134,820) (183,101)
Net change in unrealized depreciation....................... 285,894 181,886
---------------- --------------
NET INCREASE........................................... 1,111,205 2,190,957
---------------- --------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income....................................... (1,029,372) (1,542,863)
Paid-in-Capital............................................. -- (535,880)
---------------- --------------
TOTAL.................................................. (1,029,372) (2,078,743)
---------------- --------------
Net increase from transactions in shares of beneficial
interest.................................................. 10,946,128 3,248,168
---------------- --------------
NET INCREASE........................................... 11,027,961 3,360,382
NET ASSETS:
Beginning of period......................................... 33,178,219 29,817,837
---------------- --------------
END OF PERIOD
(INCLUDING DISTRIBUTIONS IN EXCESS OF NET INVESTMENT
INCOME OF $92,120 AND $22,879, RESPECTIVELY)............ $44,206,180 $ 33,178,219
---------------- --------------
---------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 (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 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 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 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>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 (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 -- 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.
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.
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996 (UNAUDITED) CONTINUED
For the period January 1, 1996 through December 31, 1996, the Investment Manager
is waiving the management fee and reimbursing expenses to the extent they exceed
1.0% 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 of portfolio securities, excluding
short-term investments, for the six months ended October 31, 1996 were
$10,533,106 and $5,037,941, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $6,946,406 and $493,672,
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 SIX FOR THE YEAR
MONTHS ENDED ENDED
OCTOBER 31, 1996 APRIL 30, 1996
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sold............................................................. 2,446,625 $ 23,300,634 3,883,280 $ 37,471,765
Reinvestment of dividends........................................ 86,092 818,871 169,292 1,631,756
----------- -------------- ----------- ------------
2,532,717 24,119,505 4,052,572 39,103,521
Repurchased...................................................... (1,384,903) (13,173,377) (3,726,543) (35,855,353)
----------- -------------- ----------- ------------
Net increase..................................................... 1,147,814 $ 10,946,128 326,029 $ 3,248,168
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</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 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 $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.
<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 SIX FOR THE PERIOD
MONTHS ENDED FOR THE YEAR FOR THE YEAR JANUARY 10, 1994*
OCTOBER 31, 1996 ENDED APRIL ENDED APRIL THROUGH APRIL 30,
(UNAUDITED) 30, 1996 30, 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............. $ 9.54 $ 9.46 $9.62 $10.00
----- ----- ----- ------
Net investment income............................. 0.29 0.63 0.77 0.21
Net realized and unrealized gain (loss)........... 0.03 0.05 (0.33) (0.40)
----- ----- ----- ------
Total from investment operations.................. 0.32 0.68 0.44 (0.19)
----- ----- ----- ------
Less dividends and distributions from:
Net investment income.......................... (0.30) (0.45) (0.59) (0.19)
Paid-in-capital................................ -- (0.15) (0.01) --
----- ----- ----- ------
Total dividends and distributions................. (0.30) (0.60) (0.60) (0.19)
----- ----- ----- ------
Net asset value, end of period.................... $ 9.56 $ 9.54 $9.46 $9.62
----- ----- ----- ------
----- ----- ----- ------
TOTAL INVESTMENT RETURN+.......................... 3.48%(1) 7.33% 4.76% (2.01)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................................... 1.00%(2)(3) 0.37%(3) -- (3) -- (2)(3)
Net investment income............................. 5.83%(2)(3) 6.54%(3) 7.64%(3) 6.36%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands........... $44,206 $33,178 $29,818 $43,403
Portfolio turnover rate........................... 17%(1) 64% 74% 9%(1)
<FN>
- ---------------------
* 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 above annualized expense and net investment income
ratios for the period ended October 31, 1996, the year ended April 30, 1996
and April 30, 1995 and the period ended April 30, 1994, would have been
1.36% and 5.47%, 1.29% and 5.61%, 1.08% and 6.56%, and 1.55% and 4.81%,
respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
