<PAGE>
DEAN WITTER SHORT-TERM BOND FUND TWO WORLD TRADE CENTER, NEW YORK, NEW YORK
10048
LETTER TO THE SHAREHOLDERS APRIL 30, 1997
DEAR SHAREHOLDER:
During the twelve months ended April 30, 1997, the economy expanded, slowed and
rapidly expanded again while interest rates on U.S. Treasuries with maturities
ranging from one to five years fluctuated as much as a full percentage point.
Much of this interest-rate volatility was the result of changing expectations in
regard to the likelihood of the Federal Reserve Board's raising the
federal-funds rate to deter future inflationary acceleration.
In this environment, the bond market experienced a good deal of volatility.
Following a seemingly robust second quarter in 1996, bond yields rose
dramatically. However, evidence of a slowdown in the third quarter sparked a
rally that, by November, sent yields to their lowest levels in twelve months.
Then, as the year came to an end, concerns over inflationary pressures from a
tight labor market combined with rising wage gains and increased capital
spending pushed rates higher once again.
In early 1997, reports showed that fourth-quarter 1996 GDP had been almost 4
percent, and high consumer confidence was translating into strong retail sales
and a firm housing market. It was not surprising, then, that Federal Reserve
Board Chairman Alan Greenspan began preparing market participants for a rate
hike, citing not only the consumer and business sectors, but the exuberance of
the stock market as well.
On March 25, the federal-funds rate was finally raised 25 basis points, to 5.5
percent. By mid-April, interest rates rose to their highest levels of the Fund's
fiscal year, with two-year Treasury yields cresting at 6.54 percent and
five-year Treasuries reaching 6.85 percent in anticipation of further upward
moves by the Fed. By the end of the month, despite news of a 5.6 percent GDP for
the first quarter of 1997, inflation concerns abated once more due to a milder
increase in labor costs. This caused interest rates to fall approximately 30
basis points from their peaks earlier in the month. Two- and five-year
Treasuries ended April 1997 yielding 6.27 and 6.57 percent, respectively, up
less than 25 basis points from twelve months earlier.
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
LETTER TO THE SHAREHOLDERS APRIL 30, 1997, CONTINUED
PERFORMANCE
For the fiscal year ended April 30, 1997, the Fund produced a total return of
5.88 percent versus 6.01 percent for the Lipper Short Investment Grade Debt Fund
Index. During the same period, the Lehman Brothers Short (one to five year)
Investment Grade Debt Index returned 6.72 percent and six-month Treasuries
returned 5.64 percent. The accompanying chart compares the performance of the
Fund versus the performances of the Lipper Short Investment Grade Debt Index and
the Lehman Index.
[GRAPHIC]
The Fund's ability to achieve returns
in excess of those for Treasury bills
despite rising yields was attributable
to the higher interest rates available
on issues with maturities of one to
three years and the reduced impact of
changes in interest rates on these
securities as time progressed.
Commitments to corporates and
mortgage-backed securities also
bolstered portfolio returns.
PORTFOLIO
[GRAPHIC]
During the period under review, the
Fund's average maturity ranged from a
maximum of 2.11 years on May 31, 1996,
to a minimum of 1.66 years on March 31,
1997. Net subscriptions through the
first six months of the fiscal year
enabled the Fund to gradually shorten
its maturity as two- to three-year
yields reached their nadir for the
period. Beginning in December, rising
interest rates and two subsequent
months of share redemptions resulted in
the Fund's average maturity lengthening
once again as cash positions were
reduced to satisfy liquidity
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
LETTER TO THE SHAREHOLDERS APRIL 30, 1997, CONTINUED
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Growth of $10,000
($ in Thousands)
Fund Lehman(3) Lipper(4)
<S> <C> <C> <C>
January 10, 1994 $10,000 $10,000 $10,000
April 30, 1994 $ 9,799 $ 9,831 $ 9,894
April 30, 1995 $ 10,265 $ 10,526 $ 10,351
April 30, 1996 $ 11,018 $ 11,391 $ 11,072
April 30, 1997 $11,666(2) $ 12,158 $ 11,738
Average Annual Total Return
(Fund)
Life of
1 Year Fund
0.0588(1) 0.0478(1)
</TABLE>
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, 1997.
(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.
(4) The Lipper Short Investment Grade Debt Funds Index is an equally-weighted
performance index of the largest qualifying funds (based on net assets) in
the Lipper Short Investment Grade Debt Funds objective. The Index, which is
adjusted for capital gains distributions and income dividends, is unmanaged
and should not be considered an investment. There are currently 30 funds
represented in this Index.
needs. As 1997 progressed, a federal-funds increase became more inevitable and
sizable new subscriptions were primarily invested defensively in U.S. Treasuries
with maturities of less than one year and in cash equivalents. Due to this
activity, the Fund's average maturity declined to its lowest point of the
period, 1.66 years, where it remained through the end of April.
Because of the Fund's higher coupon bonds maturing in 1996 and the inability to
replace their income stream, the Fund's monthly dividend was reduced in January
from approximately $0.050 to $0.044. Beginning in May 1997, the monthly dividend
will vary from month to month, depending on the income earned by the Fund.
During the fiscal year, assets grew by slightly more than 28 percent, mostly
from new subscriptions. These new monies were primarily invested in Treasuries
and mortgages, causing their percentage allocation of the portfolio to increase
and the percentage of the portfolio invested in corporates to decline. At
period-end, U.S. government securities and mortgages accounted for 24.9 percent
and 17.5 percent, respectively, of net assets, up from 16.4 percent and 13.2
percent on April 30, 1996. Corporates accounted for 50.0 percent of investments,
down from 63.0 percent on April 30, 1996. Temporary reserves were slightly more
than 7 percent of investable assets, up 1.3 percentage points from one year ago.
During the fiscal year, the Fund did not own any foreign securities.
CORPORATE SECURITIES
Due to the extremely limited incremental yields available on one- to five-year
corporates through most of the period, new purchases served primarily to replace
maturing debt as attractive opportunities arose. We focused on two- to
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
LETTER TO THE SHAREHOLDERS APRIL 30, 1997, CONTINUED
three-year maturities, where yields of at least 40 basis points over
comparable-maturity Treasuries could be obtained. Corporate purchases included
all sectors but finance. Allocations to industrials and Yankee bonds
(dollar-denominated bonds issued in the United States by foreign entities) were
increased, while commitments to utilities and finance were reduced. The average
quality rating of the corporate bond portfolio remained unchanged at BBB+.
U.S. GOVERNMENT SECURITIES SECTOR
In early 1997, in light of the economy's continued strength, we began to reduce
this sector's average maturity and corresponding interest-rate sensitivity by
replacing several longer-dated Treasury securities with shorter-term
investments. The Fund's exposure to five-year mortgage-backed balloon securities
remained unchanged. As the economy moderates in future months we may, as
conditions warrant, reestablish some of our longer-dated Treasury positions and
add to the mortgage-backed position in order to enhance both the Fund's current
yield and total return potential.
As of April 30, 1997, 41 percent of this sector was invested in mortgage-backed
securities issued by the Federal Home Loan Mortgage Corporation (FHLMC), 48
percent in U.S. Treasury securities and 11 percent in U.S. Agency securities.
LOOKING AHEAD
While the exact timing of any Federal Reserve Board moves to further raise
interest rates remains uncertain, such an event is likely to occur over the
course of 1997. Although the rate increase in March was clearly portrayed as a
preemptive strike against inflation, future moves may depend upon having harder
evidence of inflation actually emerging.
As of now, the economy appears quite robust, with labor markets continuing to
tighten, consumers continuing to spend and the manufacturing sector appearing
vigorous. Although inflation remains subdued, concern on the part of the Fed
remains that strains on the means of production and increasing demand for goods
and services could combine to ignite inflation at any time. Thus, future
increases in interest rates will likely depend upon the Fed's tolerance of
above-trend-line economic growth without the appearance of higher inflation. In
reaction to this environment, the Fund will continue to be managed
conservatively until such time as concern regarding rising interest rates
abates.
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,
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
LETTER TO THE SHAREHOLDERS APRIL 30, 1997, CONTINUED
[SIGNATURE]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (49.6%)
AUTOMOBILE (2.4%)
$ 1,000 Chrysler Corp................................. 10.40 % 08/01/99 $ 1,009,400
--------------
AUTO RENTALS (2.4%)
1,000 Hertz Corp.................................... 9.50 05/15/98 1,032,660
--------------
BANK HOLDING COMPANIES (1.2%)
500 Chase Manhattan Corp.......................... 7.50 12/01/97 504,615
--------------
BANKS - INTERNATIONAL (4.7%)
1,000 ABN-AMRO Bank, NV (Netherlands)............... 6.625 10/31/01 986,700
1,000 Kansallis-Osake Pankki (Finland).............. 6.125 05/15/98 997,480
--------------
1,984,180
--------------
BROKERAGE (2.4%)
1,000 Lehman Brothers Holdings, Inc................. 7.625 07/15/99 1,016,390
--------------
CABLE & TELECOMMUNICATIONS (4.8%)
1,000 News America Holdings, Inc.................... 7.50 03/01/00 1,015,490
1,000 Telecommunications, Inc....................... 7.375 02/15/00 1,001,800
--------------
2,017,290
--------------
COMPUTERS (1.2%)
500 Unisys Corp................................... 15.00+ 07/01/97 506,250
--------------
FINANCIAL (5.0%)
1,000 Fletcher Challenge Financial Inc.............. 9.80 06/15/98 1,037,630
1,065 International Lease Finance Corp.............. 5.75 07/01/98 1,059,664
--------------
2,097,294
--------------
FINANCIAL SERVICES (1.2%)
500 Golden West Financial Corp.................... 7.875 01/15/02 515,970
--------------
FOREIGN GOVERNMENT AGENCY (2.4%)
1,000 Bank of China................................. 6.75 03/15/99 1,000,460
--------------
GAS TRANSMISSION (2.4%)
1,000 The Williams Companies, Inc................... 7.50 09/15/99 1,015,820
--------------
HOTELS (1.2%)
500 MGM Grand Hotels Corp......................... 12.00 05/01/02 526,650
--------------
PHOTOGRAPHY (2.4%)
1,000 Polaroid Corp................................. 8.00 03/15/99 1,022,490
--------------
RETAIL - FOOD CHAINS (1.2%)
500 Great Atlantic & Pacific Tea Co., Inc......... 9.125 01/15/98 509,320
--------------
RETAIL STORES (2.4%)
1,000 Penney J. C. & Co. Inc........................ 6.95 04/01/00 1,002,860
--------------
TRANSPORTATION (3.1%)
300 AMR Corp...................................... 8.10 11/01/98 306,642
1,000 Union Pacific Corp............................ 7.375 05/15/01 1,012,300
--------------
1,318,942
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UTILITIES - ELECTRIC (9.2%)
$ 500 Commonwealth Edison Co........................ 6.50 % 04/15/00 $ 494,555
511 Commonwealth Edison Co........................ 7.625 02/15/03 513,857
1,000 Connecticut Light & Power Co.................. 7.25 07/01/99 995,260
370 Consumers Energy Co........................... 8.875 11/15/99 386,369
1,000 Ohio Edison Co................................ 6.875 09/15/99 998,750
500 Pacific Gas & Electric Co..................... 5.75 12/01/98 494,225
--------------
3,883,016
--------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $21,450,125)......................................... 20,963,607
--------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (42.4%)
MORTGAGE PASS-THROUGH SECURITIES (17.5%)
1,867 Federal Home Loan Mortgage Corp.
PC Gold..................................... 6.00 06/01/98-
11/01/01 1,820,871
5,622 Federal Home Loan Mortgage Corp.
PC Gold..................................... 6.50 04/01/98-
10/01/01 5,562,076
--------------
7,382,947
--------------
U.S. GOVERNMENT AGENCY (4.7%)
2,000 Federal National Mortgage Assoc............... 5.94 11/06/98 1,991,420
--------------
U.S. GOVERNMENT OBLIGATIONS (20.2%)
5,000 U.S. Treasury Note............................ 8.50 07/15/97 5,030,550
500 U.S. Treasury Note............................ 5.75 09/30/97 500,175
1,000 U.S. Treasury Note............................ 8.75 10/15/97 1,013,670
1,000 U.S. Treasury Note............................ 6.00 09/30/98 998,520
1,000 U.S. Treasury Note............................ 5.875 10/31/98 995,850
--------------
8,538,765
--------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $18,048,161)......................................... 17,913,132
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1997, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT (a) (7.1%)
U.S. GOVERNMENT AGENCY
$ 3,000 Student Loan Marketing Assoc. (Amortized Cost
$3,000,000)................................. 5.28 % 05/01/97 $ 3,000,000
--------------
TOTAL INVESTMENTS
(IDENTIFIED COST $42,498,286) (B).......................... 99.1 % 41,876,739
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES............. 0.9 375,340
------ -----------
NET ASSETS................................................. 100.0 % $42,252,079
------ -----------
------ -----------
<FN>
- ---------------------
PC Participation Certificate.
+ Adjustable rate. Rate shown is the rate in effect at April 30, 1997.
(a) Security was purchased on a discount basis. The interest rate shown has
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 is $36,612 and the
aggregate gross unrealized depreciation is $658,159, resulting in net
unrealized depreciation of $621,547.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $42,498,286)............................. $41,876,739
Cash........................................................ 42,097
Receivable for:
Interest................................................ 671,116
Shares of beneficial interest sold...................... 74,625
Deferred organizational expenses............................ 58,772
Receivable from affiliate................................... 70,442
Prepaid expenses and other assets........................... 24,253
-----------
TOTAL ASSETS........................................... 42,818,044
-----------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased............... 498,382
Dividends to shareholders............................... 17,920
Accrued expenses and other payables......................... 49,663
-----------
TOTAL LIABILITIES...................................... 565,965
-----------
NET ASSETS:
Paid-in-capital............................................. 43,977,733
Net unrealized depreciation................................. (621,547)
Accumulated undistributed net investment income............. 56,176
Accumulated net realized loss............................... (1,160,283)
-----------
NET ASSETS............................................. $42,252,079
-----------
-----------
NET ASSET VALUE PER SHARE,
4,449,499 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$9.50
-----------
-----------
</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, 1997
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $2,571,492
----------
EXPENSES
Investment management fee................................... 261,509
Professional fees........................................... 60,332
Shareholder reports and notices............................. 45,277
Organizational expenses..................................... 34,600
Registration fees........................................... 25,442
Transfer agent fees and expenses............................ 23,608
Trustees' fees and expenses................................. 15,528
Custodian fees.............................................. 12,226
Other....................................................... 5,314
----------
TOTAL EXPENSES......................................... 483,836
LESS: AMOUNTS WAIVED/REIMBURSED........................ (246,143)
----------
NET EXPENSES........................................... 237,693
----------
NET INVESTMENT INCOME.................................. 2,333,799
----------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss........................................... (230,430)
Net change in unrealized depreciation....................... (27,367)
----------
NET LOSS............................................... (257,797)
----------
NET INCREASE................................................ $2,076,002
----------
----------
</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, 1997 APRIL 30, 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 2,333,799 $ 2,192,172
Net realized loss........................................... (230,430) (183,101)
Net change in unrealized depreciation....................... (27,367) 181,886
-------------- --------------
NET INCREASE........................................... 2,076,002 2,190,957
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income....................................... (2,254,744) (1,542,863)
Paid-in-capital............................................. -- (535,880)
-------------- --------------
TOTAL.................................................. (2,254,744) (2,078,743)
-------------- --------------
Net increase from transactions in shares of beneficial
interest.................................................. 9,252,602 3,248,168
-------------- --------------
NET INCREASE........................................... 9,073,860 3,360,382
NET ASSETS:
Beginning of period......................................... 33,178,219 29,817,837
-------------- --------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$56,176 AND DIVIDENDS IN EXCESS OF NET INVESTMENT INCOME
OF $22,879, RESPECTIVELY)............................... $ 42,252,079 $ 33,178,219
-------------- --------------
-------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1997
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>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1997, 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, 1996 through December 31, 1996, the Investment Manager
waived its fee and reimbursed expenses to the extent they exceeded 1.0% of daily
net assets. 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>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1997, 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 year ended April 30, 1997
were $31,689,314 and $23,373,669, respectively. Included in the aforementioned
are purchases and sales/prepayments of U.S. Government securities of $23,018,353
and $15,787,199, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the Fund's
transfer agent. At April 30, 1997, the Fund had transfer agent fees and expenses
payable of approximately $3,700.
4. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
APRIL 30, 1997 APRIL 30, 1996
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold............................................................. 5,655,876 $ 53,856,789 3,883,280 $ 37,471,765
Reinvestment of dividends and distributions...................... 187,178 1,780,724 169,292 1,631,756
----------- -------------- ----------- ------------
5,843,054 55,637,513 4,052,572 39,103,521
Repurchased...................................................... (4,870,750) (46,384,911) (3,726,543) (35,855,353)
----------- -------------- ----------- ------------
Net increase..................................................... 972,304 $ 9,252,602 326,029 $ 3,248,168
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</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, which is available through April 30 of the following years:
<TABLE>
<CAPTION>
(AMOUNTs IN THOUSANDS)
- -------------------------------
2003 2004 2005
- --------- --------- ---------
<S> <C> <C>
$ 378 $ 501 $ 186
- --------- --------- ---------
- --------- --------- ---------
</TABLE>
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 $96,000 during fiscal 1997.
As of April 30, 1997, the Fund had temporary book/tax differences primarily
attributable to post-October 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
PERIOD
JANUARY
10, 1994*
FOR THE YEAR ENDED APRIL 30, THROUGH
------------------------------- APRIL 30,
1997 1996 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.............. 0.61 0.63 0.77 0.21
Net realized and unrealized gain
(loss)............................ (0.06) 0.05 (0.33) (0.40)
--------- --------- --------- ---------
Total from investment operations... 0.55 0.68 0.44 (0.19)
--------- --------- --------- ---------
Less dividends and distributions
from:
Net investment income........... (0.59) (0.45) (0.59) (0.19)
Paid-in-capital................. -- (0.15) (0.01) --
--------- --------- --------- ---------
Total dividends and
distributions..................... (0.59) (0.60) (0.60) (0.19)
--------- --------- --------- ---------
Net asset value, end of period..... $ 9.50 $ 9.54 $ 9.46 $ 9.62
--------- --------- --------- ---------
--------- --------- --------- ---------
TOTAL INVESTMENT RETURN............ 5.88% 7.33% 4.76% (2.01)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 0.64%(3) 0.37%(3) -- %(3) -- %(2)(3)
Net investment income.............. 6.25%(3) 6.54%(3) 7.64%(3) 6.36%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $42,252 $33,178 $29,818 $43,403
Portfolio turnover rate............ 67% 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 annualized expense and net investment income ratios
would have been 1.55% and 4.81%, respectively, for the period ended April
30, 1994, 1.08% and 6.56%, respectively, for the year ended April 30, 1995,
1.29% and 5.61%, respectively, for the year ended April 30, 1996 and 1.30%
and 5.59%, respectively, for the year ended April 30, 1997.
</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, 1997, 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 three years in the
period 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, 1997 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 9, 1997
<PAGE>
- --------------------------------------------------------------------------------
DEAN WITTER
SHORT-TERM
BOND FUND
[GRAPHIC]
ANNUAL REPORT
APRIL 30, 1997
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
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 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.
