<PAGE>
DEAN WITTER SHORT-TERM BOND FUND TWO WORLD TRADE CENTER, NEW
LETTER TO THE SHAREHOLDERS APRIL 30, 1998 YORK, NEW YORK 10048
DEAR SHAREHOLDER:
During the twelve months ended April 30, 1998, despite vigorous economic growth
on the one hand and periodic concerns over higher interest rates on the other,
the Federal Reserve Board held monetary policy steady, as inflationary
expectations declined and interest rates trended lower. For the period under
review, yields on two-year and five-year Treasuries fell 71 and 93 basis points
to 5.57 percent and 5.64 percent, respectively, with most of the rally occurring
during the first six months of the fiscal period. Corporate bonds also
benefitted from the decline in rates as well as a strong stock market and
increased merger activity, while credit concerns over exposure to the Asian
financial markets moderated.
PERFORMANCE
For the fiscal year ended April 30, 1998, the Fund produced a total return of
7.02 percent versus 6.47 percent for the Lipper Short Investment Grade Debt Fund
Index. During the same period, the Lehman Brothers Mutual Fund Short (one- to
five-year) Investment Grade Debt Index returned 8.18 percent and six-month
Treasuries returned 5.26 percent. The accompanying chart compares the
performance of the Fund versus the performances of the Lipper Index and the
Lehman Index.
The Fund's ability to achieve a total return of 7.02 percent was primarily due
to the decline in interest rates over the period. Commitments to higher-yielding
fixed-income market sectors other than Treasuries, and longer-dated securities
also bolstered portfolio returns.
PORTFOLIO
At the start of the fiscal year, April 30, 1997, the Fund's average maturity was
1.7 years and it had an average duration of 1.5 years. In July, 1997, with the
decline in interest rates, two- and three-year Treasuries fell 33 and 43 basis
points in yield, to 5.72 percent and 5.78 percent, respectively. With the
dramatic dip in rates and the reduced incentive for extending maturities, new
flows were invested primarily in
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
LETTER TO THE SHAREHOLDERS APRIL 30, 1998, CONTINUED
six-month Treasuries, which had remained close to their prior month's level. The
Fund's average maturity and duration declined in July to period lows of 1.47
years and 1.24 years respectively.
With yields modestly higher during much of August, September and October,
additional subscriptions were invested across Treasury, agency, mortgage and
corporate sectors, with the emphasis on two- to three-year maturities. As
interest rates resumed their decline in late October, the Fund adopted a longer
average maturity strategy, offsetting some of the extension impact of additional
three-year purchases with a somewhat higher cash reserve.
During the fiscal year, assets grew by more than $60 million, or approximately
140 percent. This increase was primarily attributable to the steady inflow of
net subscriptions. At period-end, the Fund was invested 45 percent in corporate
bonds, 27.9 percent in U.S. Treasuries and U.S. agency securities, 15.7 percent
in mortgage-backed securities and 11.4 percent in temporary reserves. During the
fiscal year the Fund did not own any foreign securities.
For the twelve months ended April 30, 1998, the Fund paid a dividend of
approximately $0.66. With the lower interest rate environment, new investments
are being purchased at lower yields than one year ago, and it is possible that
we will be unable to reinvest proceeds from maturing securities at their prior
yields. As a result, no assurances can be made that last year's dividend will be
repeated in the coming year. We will, however, endeavor to return a dividend to
our shareholders that is competitive with respect to the market environment and
commensurate with stability of principal.
CORPORATE SECURITIES SECTOR
On April 30, 1998, the Fund held 35 investment-grade corporate issues, which had
an average maturity of 2.05 years and an average duration of 1.82 years.
Purchases to the finance sector were increased and represented nearly 32 percent
of the
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-1994 $10,000 $10,000 $10,000
April-1994 $9,799 $9,831 $9,894
April-1995 $10,265 $10,526 $10,351
April-1996 $11,018 $11,391 $11,072
April-1997 $11,666 $12,158 $11,738
April-1998 $12,484 $13,153 $12,498
Average Annual Total Re-
turns
Life of
1 Year Fund
7.02%(1) 5.29%(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, 1998.
(3) The Lehman Brothers Mutual Fund Short (1-5) Investment Grade Debt Fund 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 Fund Index is an equally-weighted
performance index of the largest qualifying funds (based on net assets) in
the Lipper Short Investment Grade Debt Fund 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.
2
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
LETTER TO THE SHAREHOLDERS APRIL 30, 1998, CONTINUED
investment-grade holdings on April 30, 1998, up from 12.7 percent on April 30,
1997. Allocations to Yankee bonds (dollar-denominated bonds issued in the U.S.
by foreign entities) were decreased from 19.7 percent to 2.4 percent. The
average quality rating of the corporate bond portfolio was Baa1.
During the period under review, a number of new corporates with two- to
three-year final maturities were added to the portfolio. These purchases were
made in response to the attractive yield differentials between corporate
securities and comparable maturity Treasuries. Corporate purchases throughout
the year were diversified among all sectors and included debt of Illinois Power,
Southern California Edison, Air Touch, Norfolk Southern, Occidental Petroleum,
Ford Credit, GATX Capital, Republic National Bank, Long Island Savings, Korea
Development Bank and CSW Investments. The Fund has not purchased any new
corporates with maturities beyond January 2002.
U.S. GOVERNMENT SECURITIES SECTOR
Early in the period, as cash flow permitted we added high-coupon, short-term
Treasuries to cushion the effects of interest-rate volatility. As the year
progressed, the Fund added 6 percent and 6.5 percent five- and seven-year
mortgage-backed balloon securities, along with callable and non-callable
agencies ranging from one to three years, to further enhance the yield.
As of April 30, 1998, 30 percent of this sector was invested in mortgage-backed
securities, 48 percent in U.S. agency securities, six percent in U.S. Treasuries
and 16 percent in cash equivalents.
LOOKING AHEAD
As we enter the second quarter of 1998, the economy appears vibrant, inflation
seems contained and we expect a period of relatively stable interest rates for
the next several months. In the absence of inflation, despite the expanding
economy and high consumer confidence, the Federal Reserve Board seems to be
locked into a neutral monetary policy position as it awaits possible
repercussions to our economy from the Asian recession.
The Federal Reserve Board has made it clear that in the months ahead, should
signs of inflation appear, it will not hesitate to raise interest rates. We
believe the Fed will pay special attention to the value of the U.S. dollar on
foreign exchange markets, because its relative strength over the past year has
also helped to keep inflation in check through ensuing lower commodity prices
and import prices.
Recently, the Treasury announced a restructuring of its annual debt financing.
The new strategy calls for the elimination of Treasuries with three-year
maturities. While the Fund has not been emphasizing Treasuries in its portfolio,
we have been purchasing other three-year securities. The
3
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
LETTER TO THE SHAREHOLDERS APRIL 30, 1998, CONTINUED
reduced future supply of securities with this maturity may have a positive
impact on our other holdings with these maturities, but the ability to purchase
additional such investments may become more difficult. Given the anticipated
stability of interest rates, 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
4
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (45.0%)
AUTO - RENTALS (1.9%)
$ 1,000 Hertz Corp............................................................ 9.50% 05/15/98 $ 1,001,100
1,000 Hertz Corp............................................................ 7.375 06/15/01 1,032,360
------------
2,033,460
------------
AUTOMOTIVE - FINANCE (3.8%)
2,000 Ford Motor Credit Corp................................................ 6.375 10/06/00 2,017,780
2,000 General Motors Acceptance Corp........................................ 7.125 05/01/01 2,056,320
------------
4,074,100
------------
BANKS - INTERNATIONAL (0.9%)
1,000 Kansallis-Osake Pankki (Finland)...................................... 6.125 05/15/98 1,000,160
------------
BANKS - REGIONAL (2.8%)
2,000 Long Island Savings Bank.............................................. 6.20 04/02/01 1,999,580
1,000 Republic New York Corp................................................ 8.25 11/01/01 1,067,700
------------
3,067,280
------------
BROKERAGE (2.8%)
1,000 Lehman Brothers Holdings, Inc......................................... 7.625 07/15/99 1,018,860
2,000 Salomon, Inc.......................................................... 6.50 03/01/00 2,017,060
------------
3,035,920
------------
CABLE & TELECOMMUNICATIONS (5.9%)
2,000 Airtouch Communications Inc........................................... 7.125 07/15/01 2,051,280
1,000 Century Communications Corp........................................... 9.75 02/15/02 1,063,750
1,375 News American Holdings, Inc........................................... 7.50 03/01/00 1,407,024
800 Rogers Cablesystems, Ltd.............................................. 9.625 08/01/02 849,000
1,000 Telecommunications, Inc............................................... 7.375 02/15/00 1,020,980
------------
6,392,034
------------
COMPUTER SERVICES (1.2%)
1,270 Comdisco, Inc......................................................... 6.50 06/15/00 1,278,827
------------
FINANCIAL (2.9%)
1,000 AT&T Capital Corp..................................................... 6.65 04/30/99 1,005,330
1,000 Fletcher Challenge Financial Inc...................................... 9.80 06/15/98 1,004,650
1,065 International Lease Finance Corp...................................... 5.75 07/01/98 1,065,426
------------
3,075,406
------------
FINANCIAL SERVICES (1.5%)
1,500 Golden West Financial Corp............................................ 7.875 01/15/02 1,582,110
------------
FOOD SERVICES (1.9%)
2,000 Supervalu, Inc........................................................ 7.25 07/15/99 2,031,740
------------
FOREIGN GOVERNMENT AGENCY (1.8%)
2,000 Korea Development Bank................................................ 6.25 05/01/00 1,909,660
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GAS TRANSMISSION (1.9%)
$ 2,000 The Williams Companies, Inc........................................... 7.50% 09/15/99 $ 2,039,080
------------
INSURANCE (1.0%)
1,000 NAC Re Corp........................................................... 8.00 06/15/99 1,021,530
------------
OIL INTEGRATED - DOMESTIC (1.0%)
1,000 Occidental Petroleum Corp............................................. 8.50 11/09/01 1,069,370
------------
PHOTOGRAPHY (0.9%)
1,000 Polaroid Corp......................................................... 8.00 03/15/99 1,019,000
------------
RAILROADS (2.9%)
2,000 Norfolk Southern Corp................................................. 6.875 05/01/01 2,044,920
1,000 Union Pac Corp........................................................ 7.375 05/15/01 1,027,520
------------
3,072,440
------------
TRANSPORTATION (0.2%)
300 AMR Corp.............................................................. 8.10 11/01/98 303,246
------------
TRANSPORTATION - SHIPPING (1.9%)
2,000 GATX Capital Corp..................................................... 6.50 11/01/00 2,013,860
------------
UTILITIES - ELECTRIC (7.8%)
1,500 Commonwealth Edison Co................................................ 6.50 04/15/00 1,511,730
493 Commonwealth Edison Co................................................ 7.625 02/15/03 500,454
370 Consumers Energy Co................................................... 8.875 11/15/99 385,096
2,000 CSW Investments-144A*................................................. 6.95 08/01/01 2,042,340
1,000 Illinois Power Co..................................................... 5.625 04/15/00 992,900
1,000 Ohio Edison Co........................................................ 6.875 09/15/99 1,010,450
500 Pacific Gas & Electric Co............................................. 5.75 12/01/98 500,195
1,490 System Energy Resources Inc........................................... 7.625 04/01/99 1,510,145
------------
8,453,310
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $48,798,585)........................................................................ 48,472,533
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (43.6%)
ASSET-BACKED SECURITY (1.9%)
2,000 California Infrastructure & Economic Development Bank Special
Purpose Trust SCE-1 Class A-3....................................... 6.17 03/25/03 2,010,080
------------
MORTGAGE PASS-THROUGH SECURITIES (13.8%)
2,000 Federal Home Loan Mortgage Corp. PC Gold.............................. 6.00 (a) 1,994,375
4,244 Federal Home Loan Mortgage Corp. PC Gold.............................. 6.00 06/01/98-04/01/03 4,232,003
5,022 Federal Home Loan Mortgage Corp. PC Gold.............................. 6.50 10/01/98-09/01/02 5,051,658
3,641 Federal National Mortgage Assoc....................................... 6.00 10/01/00-07/01/01 3,614,025
------------
14,892,061
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCIES (25.1%)
$ 4,000 Federal Farm Credit Banks............................................. 6.11-6.16% 11/06/00-12/18/00 $ 4,006,210
11,000 Federal Home Loan Banks............................................... 5.45-6.25 12/22/99-12/04/00 10,994,140
2,000 Federal Home Loan Mortgage Corp....................................... 5.97 03/02/01 1,997,240
10,000 Federal National Mortgage Assoc....................................... 5.44-6.22 07/23/99-02/02/01 10,008,080
------------
27,005,670
------------
U.S. GOVERNMENT OBLIGATIONS (2.8%)
1,000 U.S. Treasury Note+................................................... 6.00 09/30/98 1,002,190
1,000 U.S. Treasury Note+................................................... 5.875 08/31/99 1,004,440
1,000 U.S. Treasury Note+................................................... 5.75 09/30/99 1,002,990
------------
3,009,620
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $46,859,818)........................................................................ 46,917,431
------------
SHORT-TERM INVESTMENTS (8.8%)
U.S. GOVERNMENT AGENCY (b) (8.3%)
9,000 Federal Home Loan Mortgage Corp.
(AMORTIZED COST $9,000,000)......................................... 5.45 05/01/98 9,000,000
------------
REPURCHASE AGREEMENT (0.5%)
510 The Bank of New York (dated 04/30/98; proceeds $510,772) (c)
(IDENTIFIED COST $510,694).......................................... 5.50 05/01/98 510,694
------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $9,510,694)......................................................................... 9,510,694
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $105,169,097) (D)................................................................... 97.4 % 104,900,658
OTHER ASSETS IN EXCESS OF LIABILITIES................................................................ 2.6 2,798,576
------ -------------
NET ASSETS........................................................................................... 100.0 % $ 107,699,234
------ -------------
------ -------------
</TABLE>
- ---------------------
* Resale is restricted to qualified institutional investors.
+ Securities segregated as collateral for security purchased on a forward
commitment basis.
PC Participation Certificate.
(a) Security purchased on a forward commitment basis with an approximate
principal amount and no definite maturity date. The actual principal amount
and maturity date will be determined upon settlement.
(b) Security was purchased on a discount basis. The interest rate shown has been
adjusted to reflect a money market equivalent yield.
(c) Collateralized by $520,332 Federal National Mortgage Association 6.07% due
04/24/03 valued at $520,908.
(d) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $243,729 and the
aggregate gross unrealized depreciation is $512,168, resulting in net
unrealized depreciation of $268,439.
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $105,169,097).............................................................. $104,900,658
Receivable for:
Shares of beneficial interest sold........................................................ 5,887,690
Interest.................................................................................. 1,488,536
Deferred organizational expenses.............................................................. 24,174
Receivable from affiliate..................................................................... 101,634
Prepaid expenses and other assets............................................................. 11,881
------------
TOTAL ASSETS............................................................................. 112,414,573
------------
LIABILITIES:
Payable for:
Investments purchased..................................................................... 4,043,859
Shares of beneficial interest repurchased................................................. 595,589
Dividends to shareholders................................................................. 36,418
Accrued expenses and other payables........................................................... 39,473
------------
TOTAL LIABILITIES........................................................................ 4,715,339
------------
NET ASSETS............................................................................... $107,699,234
------------
------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................... $109,548,970
Net unrealized depreciation................................................................... (268,439)
Accumulated undistributed net investment income............................................... 78
Accumulated net realized loss................................................................. (1,581,375)
------------
NET ASSETS............................................................................... $107,699,234
------------
------------
NET ASSET VALUE PER SHARE,
11,346,474 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED OF $.01 PAR VALUE)............... $9.49
------------
------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1998
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME................................................................................. $4,134,905
----------
EXPENSES
Investment management fee....................................................................... 443,693
Registration fees............................................................................... 57,682
Professional fees............................................................................... 56,073
Shareholder reports and notices................................................................. 41,518
Organizational expenses......................................................................... 34,598
Transfer agent fees and expenses................................................................ 33,115
Custodian fees.................................................................................. 14,108
Trustees' fees and expenses..................................................................... 11,968
Other........................................................................................... 4,943
----------
TOTAL EXPENSES............................................................................. 697,698
Less: amounts waived/reimbursed................................................................. (697,698)
----------
NET EXPENSES............................................................................... --
----------
NET INVESTMENT INCOME...................................................................... 4,134,905
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss............................................................................... (421,092)
Net change in unrealized depreciation........................................................... 353,108
----------
NET LOSS................................................................................... (67,984)
----------
NET INCREASE.................................................................................... $4,066,921
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<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, APRIL 30,
1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................................................... $ 4,134,905 $ 2,333,799
Net realized loss............................................................... (421,092) (230,430)
Net change in unrealized depreciation........................................... 353,108 (27,367)
------------ ------------
NET INCREASE............................................................... 4,066,921 2,076,002
Dividends from net investment income............................................ (4,191,003) (2,254,744)
Net increase from transactions in shares of beneficial interest................. 65,571,237 9,252,602
------------ ------------
NET INCREASE............................................................... 65,447,155 9,073,860
NET ASSETS:
Beginning of period............................................................. 42,252,079 33,178,219
------------ ------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $78 AND $56,176,
RESPECTIVELY)............................................................... $107,699,234 $ 42,252,079
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998
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 evaluations 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.
10
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998, CONTINUED
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.
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
11
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998, CONTINUED
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, 1998, the Investment Manager
is waiving its compensation and assuming all operating expenses without
limitation.
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, 1998
were $89,499,911 and $32,924,944, respectively. Included in the aforementioned
are purchases and sales\prepayments of U.S. Government securities of $49,903,973
and $20,958,107, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Fund's transfer agent. At April 30, 1998, the Fund had transfer agent fees
and expenses payable of approximately $2,300.
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, 1998 APRIL 30, 1997
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold............................................................. 15,691,994 $ 149,203,263 5,655,876 $ 53,856,789
Reinvestment of dividends........................................ 323,662 3,075,757 187,178 1,780,724
----------- -------------- ----------- ------------
16,015,656 152,279,020 5,843,054 55,637,513
Repurchased...................................................... (9,118,681) (86,707,783) (4,870,750) (46,384,911)
----------- -------------- ----------- ------------
Net increase..................................................... 6,896,975 $ 65,571,237 972,304 $ 9,252,602
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
12
<PAGE>
DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998, CONTINUED
5. FEDERAL INCOME TAX STATUS
At April 30, 1998, the Fund had a net capital loss carryover of approximately
$1,424,000, to offset future capital gains to the extent provided by regulations
available through April 30 of the following years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
- ------------------------------------------
2003 2004 2005 2006
- --------- --------- --------- ---------
<S> <C> <C> <C>
$ 378 $ 501 $ 186 $ 359
- --------- --------- --------- ---------
- --------- --------- --------- ---------
</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 $158,000 during fiscal 1998.
As of April 30, 1998, the Fund had temporary book/tax differences primarily
attributable to post-October losses.
13
<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
FOR THE YEAR ENDED APRIL 30, JANUARY 10,
--------------------------------------------------------------- 1994* THROUGH
1998 1997 1996 1995 APRIL 30, 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 9.50 $ 9.54 $ 9.46 $ 9.62 $ 10.00
------ ---------- ---------- ------ ------
Net investment income................... 0.65 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........ 0.65 0.55 0.68 0.44 (0.19)
------ ---------- ---------- ------ ------
Less dividends and distributions from:
Net investment income................ (0.66) (0.59) (0.45) (0.59) (0.19)
Paid-in-capital...................... -- -- (0.15) (0.01) --
------ ---------- ---------- ------ ------
Total dividends and distributions....... (0.66) (0.59) (0.60) (0.60) (0.19)
------ ---------- ---------- ------ ------
Net asset value, end of period.......... $ 9.49 $ 9.50 $ 9.54 $ 9.46 $ 9.62
------ ---------- ---------- ------ ------
------ ---------- ---------- ------ ------
TOTAL INVESTMENT RETURN+................ 7.02% 5.88% 7.33% 4.76% (2.01)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ -- (3) 0.64%(3) 0.37%(3) -- (3) -- (2)(3)
Net investment income................... 6.52%(3) 6.25%(3) 6.54%(3) 7.64%(3) 6.36%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $107,699 $42,252 $33,178 $29,818 $43,403
Portfolio turnover rate................. %55 %67 %64 %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 1.10% and 5.42%, respectively, for the year ended April 30,
1998, 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
14
<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, 1998, 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 four 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, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
JUNE 9, 1998
15
<PAGE>
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
Morgan Stanley 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
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]
ANNUAL REPORT
APRIL 30, 1998