<PAGE>
DEAN WITTER BALANCED INCOME FUND
Two World Trade Center, New York, New York 10048
LETTER TO THE SHAREHOLDERS January 31, 1998
DEAR SHAREHOLDER:
During the twelve-month period ended January 31, 1998, the U.S. economy
exhibited healthy growth with declining inflation. Periodically during the
second half of the year, the Federal Reserve Board expressed concern over the
probable rise of inflationary pressures, due to the combined strength of the
economy and strong employment growth. However, the much-heralded rise in
inflation did not materialize and the Federal Reserve Board left interest
rates unchanged.
A STRONG YEAR FOR THE EQUITY MARKETS
Overall, the stock market was very generous to investors in 1997. However, in
August the Dow Jones industrials appeared to have peaked, at 8,340.
Bellwether multinational corporations such as Coca-Cola began to lead
earnings estimates downward for the first time in many years, on the basis of
slower growth and the impact of currency turmoil in Asia. The Nasdaq
Composite and Mid-Cap indexes peaked in early October, while the Standard &
Poor's 500 Composite Stock Price Index (S&P 500) topped out in early December
as uncertainty grew regarding earnings outlooks. Despite a flat to down
fourth quarter for the various indexes, the stock market increased by more
than 20 percent for three years in a row, for the first time ever. As
year-end approached, historically defensive sectors such as consumer goods
and utilities outperformed the overall market while cyclical stocks lagged.
As the summer came to a close, the situation in Asia induced an investor
"flight to quality." As a result, demand for U.S. Treasury securities and the
U.S. dollar increased. With many Southeast Asian economies in turmoil, 1998
may see the United States inherit the deflationary (declining price) aspect
of those markets. This would be likely to benefit the disinflationary
(slowing in the rate of price increases) trend here.
INTEREST RATES DECLINE
Real interest rates (market interest rates less inflation) in the United
States remain above their historical norms. A realization of this situation
by
<PAGE>
DEAN WITTER BALANCED INCOME FUND
LETTER TO THE SHAREHOLDERS January 31, 1998, continued
investors, combined with the probability of a surplus in the U.S. budget
(leading to a reduction in the issuance of U.S. Treasury securities in 1998),
could cause interest rates to continue to decline in the months to come.
Mortgages posted very solid returns and outperformed other fixed-income
sectors, such as Treasuries and corporates, on a similar-duration basis.
Despite a 50-basis-point rally in the 30-year Treasury bond and 50 basis
points of flattening in Treasury issues' yield curve in the fourth quarter,
spreads ended tighter in comparison to the prior year. For the first three
quarters of 1997, spread movements in the mortgage market were driven
primarily by a decline in volatility and a benign view regarding prepayment
risk. However, the fourth-quarter Treasury rally increased the concerns of
prepayment risk.
PERFORMANCE
For the fiscal year ended January 31, 1998, Dean Witter Balanced Income
Fund's Class C shares posted a total return of 14.42 percent. During the same
period, the S&P 500 Index produced a total return of 26.84 percent, while the
Lehman Brothers Government/Corporate Bond Index (Lehman Index) and the Lipper
Income Funds Index (Lipper Index) returned 11.17 percent and 16.47 percent,
respectively. Since their inception on July 28, 1997, through January 31,
1998, the Fund's Class A, B and D shares had total returns of 4.60 percent,
4.19 percent and 4.79 percent, respectively. Performance of the Fund's four
share classes varies because of differing charges and expenses.
The accompanying chart illustrates the performance of a $10,000 investment in
the Fund's Class C shares from inception through the fiscal year ended
January 31, 1998, versus the performance of similar hypothetical investments
in the S&P 500, the Lehman Index and the Lipper Index.
PORTFOLIO
At the end of the fiscal year, the Fund's net assets exceeded $65.3 million,
with allocation targets of 65 percent in fixed-income securities and 35
percent in equities. Within the Fund's fixed-income component, new positions
in mortgages, Treasuries, agencies and zero-coupon securities were added,
while in the equity component, one new common stock position, Unicom Corp.,
was initiated, while the Fund's position in Pacific Gas & Electric Corp. was
sold. At fiscal year-end, approximately 71 percent of the fixed-income
component was invested in mortgage-backed securities, 18 percent in U.S.
agency obligations, 10 percent in U.S. Treasuries and 1 percent in money
market instruments.
<PAGE>
DEAN WITTER BALANCED INCOME FUND
LETTER TO THE SHAREHOLDERS January 31, 1998, continued
LOOKING AHEAD
Going forward, moderate economic activity combined with low inflation should
provide a favorable environment for the Fund.
We appreciate your support of Dean Witter Balanced Income Fund and look
forward to continuing to serve your investment needs and objectives.
Very truly yours,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE>
DEAN WITTER BALANCED INCOME FUND
FUND PERFORMANCE January 31, 1998
[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND
ACCURATE DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR
THE PURPOSE OF EDGAR FILING.]
GROWTH OF $10,000 CLASS C SHARES
($ IN THOUSANDS)
Date Total S&P 500 (4) LEHMAN IX(5) LIPPER IX (6)
---- ----- ----------- ------------ -------------
March 28, 1995 $10,000 $10,000 $10,000 $10,000
January 31, 1996 $11,693 $12,912 $11,429 $11,928
January 31, 1997 $12,608 $16,312 $11,702 $13,369
January 31, 1998 $14,426(3) $20,691 $13,009 $15,570
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR CLASS
A, CLASS B, AND CLASS D SHARES WILL VARY FROM THE PERFORMANCE OF CLASS C
SHARES SHOWN ABOVE DUE TO DIFFERENCES IN CHARGES AND EXPENSES. AVERAGE ANNUAL
TOTAL RETURNS##
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS C SHARES*
- --------------------------------------------------
PERIOD ENDED 1/31/98
- ------------------------
<S> <C> <C>
1 Year 14.42%(1) 13.42%(2)
From Inception (3/28/95) 13.73%(1) 13.73%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES+
- --------------------------------------------------
PERIOD ENDED 1/31/98
- ------------------------
<S> <C> <C>
From Inception (7/28/97) 4.19%(1) (0.80)%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES**
- --------------------------------------------------
PERIOD ENDED 1/31/98
- ------------------------
<S> <C> <C>
From Inception (7/28/97) 4.60%(1) (0.89)%(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS D SHARES++
- ------------------------------------------------
PERIOD ENDED 1/31/98
- ------------------------
<S> <C>
From Inception (7/28/97) 4.79%(1)
</TABLE>
<PAGE>
- ------------
(1) Figure shown assumes reinvestment of all distributions and does not
reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction
of the maximum applicable sales charge. See the Fund's current
prospectus for complete details on fees and sales charges.
(3) Closing value assuming a complete redemption on January 31, 1998.
(4) The Standard and Poor's 500 Composite Stock Price Index (S&P 500) is a
broad-based index, the performance of which is based on the average
performance of 500 widely held common stocks. The Index does not include
any expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
(5) The Lehman Brothers Government/Corporate Bond Index tracks the
performance of government and corporate obligations, including U.S.
government agency and U.S. Treasury securities and corporate and yankee
bonds with maturities of one to ten years. The performance of the Index
does not include any expenses, fees or charges. The Index is unmanaged
and should not be considered an investment.
(6) The Lipper Income Funds Index is an equally-weighted performance index
of the largest qualifying funds (based on net assets) in the Lipper
Income 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 10 funds represented in
this Index.
* The maximum contingent deferred sales charge for Class C shares is 1%
for shares redeemed within one year of purchase.
** The maximum front-end sales charge for Class A shares is 5.25%.
+ The maximum contingent deferred sales charge (CDSC) for Class B shares
is 5%. The CDSC declines to 0% after six years.
++ Class D shares have no sales charge.
## For periods of less than one year, the Fund quotes its total return on a
non-annualized basis.
<PAGE>
DEAN WITTER BALANCED INCOME FUND
PORTFOLIO OF INVESTMENTS January 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (34.9%)
Aerospace & Defense (1.4%)
17,800 Raytheon Co. (Class B) ......................................... $ 927,825
-------------
Aluminum (1.5%)
12,600 Aluminum Co. of America ........................................ 962,325
-------------
Automotive (2.9%)
19,000 Ford Motor Co. ................................................. 969,000
15,500 General Motors Corp. ........................................... 898,031
-------------
1,867,031
-------------
Banking (2.9%)
16,800 Banc One Corp. ................................................. 938,700
13,300 BankAmerica Corp. .............................................. 945,131
-------------
1,883,831
-------------
Beverages - Soft Drinks (1.5%)
25,000 PepsiCo Inc. ................................................... 901,562
2,100 Tricon Global Restaurants, Inc.* ................................ 57,225
-------------
958,787
-------------
Chemicals (1.4%)
15,700 Du Pont (E.I.) de Nemours & Co., Inc. .......................... 889,013
-------------
Computer Equipment (1.4%)
9,000 International Business Machines Corp. .......................... 888,187
-------------
Conglomerates (1.5%)
23,500 Tenneco, Inc. .................................................. 953,219
-------------
Drugs & Healthcare (1.4%)
9,300 Bristol-Myers Squibb Co. ....................................... 927,094
-------------
Electric - Major (1.4%)
11,900 General Electric Co. ........................................... 922,250
-------------
Foods (1.3%)
28,000 ConAgra, Inc. .................................................. 885,500
-------------
Machinery - Agricultural (1.4%)
17,300 Deere & Co. .................................................... 912,575
-------------
Natural Gas (1.3%)
21,300 ENRON Corp. .................................................... 882,619
-------------
Oil -Domestic (1.3%)
11,800 Atlantic Richfield Co. ......................................... 877,625
-------------
Paper & Forest Products (1.4%)
18,800 Weyerhaeuser Co. ............................................... 936,475
-------------
Railroads (1.4%)
17,000 CSX Corp. ...................................................... 901,000
-------------
Retail (1.4%)
12,800 Dayton-Hudson Corp. ............................................ 920,800
-------------
Retail - Department Stores (1.4%)
17,200 May Department Stores Co. ...................................... 904,075
-------------
Steel (1.3%)
27,000 Timken Co. ..................................................... $ 870,750
-------------
Telecommunications (1.4%)
15,100 Sprint Corp. ................................................... 896,562
-------------
Tobacco (1.3%)
14,100 Fortune Brands, Inc. ........................................... 539,325
14,100 Gallaher Group PLC (ADR)(United Kingdom) ....................... 326,063
-------------
865,388
-------------
Utilities -Electric (2.7%)
22,500 GPU, Inc. ...................................................... 884,531
28,500 Unicom Corp. ................................................... 883,500
-------------
1,768,031
-------------
TOTAL COMMON STOCKS
(Identified Cost $17,916,331) .................................. 22,800,962
-------------
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- -----------
<S> <C> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (17.9%)
Federal Farm Credit Banks
$ 900 5.92% due 12/29/04 ............................................ 908,937
Federal Home Loan Banks
2,000 0.00% due 07/02/12 ............................................ 669,360
200 5.53% due 01/15/03 ............................................ 199,422
------------
868,782
------------
Federal National Mortgage Assoc.
1,000 6.55% due 11/21/07 ............................................ 1,013,220
500 6.75% due 07/30/07 ............................................ 511,040
------------
1,524,260
------------
Resolution Funding Corp.
(Coupon Strips)
2,500 0.00% due 04/15/04 ............................................ 1,769,525
1,000 0.00% due 01/15/06 ............................................ 639,680
3,000 0.00% due 01/15/08 ............................................ 1,703,040
------------
4,112,245
------------
U.S. Treasury Notes
500 5.75% due 11/30/02 ............................................ 506,930
1,300 5.875% due 06/30/00 ........................................... 1,315,392
700 5.875% due 09/30/02 ........................................... 712,880
500 6.875% due 03/31/00 ........................................... 515,270
200 7.125% due 02/29/00 ........................................... 206,852
------------
3,257,324
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER BALANCED INCOME FUND
PORTFOLIO OF INVESTMENTS January 31, 1998, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Strip
$1,500 0.00% due 11/15/04 ............................................ $ 1,033,830
-------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Identified Cost $11,382,117) .................................. 11,705,378
-------------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES (45.9%)
Federal National Mortgage
Assoc.
1,760 6.00% due 10/01/00 ............................................ 1,757,998
883 6.00% due 02/01/11 ............................................ 875,406
1,681 6.50% due 03/01/11-05/01/11 ................................... 1,692,511
2,865 7.00% due 07/01/11-07/01/12 ................................... 2,921,776
4,745 7.00% due 08/01/25-11/01/27 ................................... 4,811,257
5,993 7.50% due 08/01/23-05/01/27 ................................... 6,161,810
1,496 8.00% due 05/01/24-07/01/26 ................................... 1,552,542
-------------
19,773,300
-------------
Government National Mortgage Assoc. I
1,751 7.00% due 09/15/23-8/15/25 .................................... 1,777,928
3,798 7.50% due 08/15/25-10/15/26 ................................... 3,910,572
1,614 8.00% due 06/15/26-07/15/26 ................................... 1,676,559
-------------
7,365,059
-------------
Government National Mortgage Assoc. II
2,851 7.00% due 02/20/26-06/20/27 ................................... 2,885,975
-------------
TOTAL U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES
(Identified Cost $29,322,580) .................................. $30,024,334
-------------
SHORT-TERM INVESTMENT (0.6%)
REPURCHASE AGREEMENT
$ 373 The Bank of New York 5.375% due 02/02/98 (dated 01/30/98;
proceeds $373,063)(a) (Identified Cost $372,896) ............... 372,896
-------------
TOTAL INVESTMENTS
(Identified Cost $58,993,924)(b) .................................... 99.3% 64,903,570
OTHER ASSETS IN EXCESS OF
LIABILITIES ......................................................... 0.7 433,348
--------
NET ASSETS .......................................................... 100.0% $65,336,918
======== ============
</TABLE>
- ------------
ADR American Depository Receipt.
* Non-income producing security.
(a) Collateralized by $369,756 U.S. Treasury Note 6.75% due 05/31/99
valued at $380,353.
(b) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$5,928,777 and the aggregate gross unrealized depreciation is
$19,131, resulting in net unrealized appreciation of $5,909,646.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER BALANCED INCOME FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $58,993,924)............ $64,903,570
Receivable for:
Shares of beneficial interest sold .... 249,050
Interest................................ 237,716
Investments sold........................ 73,114
Dividends .............................. 49,518
Deferred organizational expenses ........ 73,176
Prepaid expenses and other assets ....... 35,006
-------------
TOTAL ASSETS ........................... 65,621,150
-------------
LIABILITIES:
Payable for:
Shares of beneficial interest
repurchased............................ 143,200
Plan of distribution fee ............... 53,906
Investment management fee .............. 32,661
Accrued expenses ......................... 54,465
-------------
TOTAL LIABILITIES ...................... 284,232
-------------
NET ASSETS.............................. $65,336,918
=============
COMPOSITION OF NET ASSETS:
Paid-in-capital........................... $58,702,373
Net unrealized appreciation .............. 5,909,646
Accumulated undistributed net investment
income................................... 223,345
Accumulated undistributed net realized
gain..................................... 501,554
-------------
NET ASSETS.............................. $65,336,918
=============
CLASS A SHARES:
Net Assets................................ $903,267
Shares Outstanding (unlimited authorized,
$.01 par value) ......................... 72,765
NET ASSET VALUE PER SHARE .............. $ 12.41
=============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 5.54% of net
asset value)........................... $ 13.10
=============
CLASS B SHARES:
Net Assets................................ $34,020,873
Shares Outstanding (unlimited authorized,
$.01 par value) ......................... 2,742,492
NET ASSET VALUE PER SHARE .............. $ 12.41
=============
CLASS C SHARES:
Net Assets................................ $30,402,286
Shares Outstanding (unlimited authorized,
$.01 par value) ......................... 2,450,731
NET ASSET VALUE PER SHARE .............. $ 12.41
=============
CLASS D SHARES:
Net Assets................................ $10,492
Shares Outstanding (unlimited authorized,
$.01 par value) ......................... 845
NET ASSET VALUE PER SHARE .............. $ 12.42
=============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended January 31, 1998*
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest .................................. $2,522,055
Dividends (net of $1,701 foreign
withholding tax) ......................... 502,073
------------
TOTAL INCOME ............................ 3,024,128
------------
EXPENSES
Plan of distribution fee (Class A shares) 810
Plan of distribution fee (Class B shares) 156,996
Plan of distribution fee (Class C shares) . 398,651
Investment management fee.................. 338,530
Registration fees ......................... 75,271
Professional fees ......................... 58,148
Transfer agent fees and expenses........... 44,463
Shareholder reports and notices ........... 40,524
Organizational expenses ................... 34,013
Custodian fees ............................ 17,398
Trustees' fees and expenses................ 14,474
Other ..................................... 2,597
------------
TOTAL EXPENSES .......................... 1,181,875
------------
NET INVESTMENT INCOME.................... 1,842,253
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain.......................... 2,080,032
Net change in unrealized appreciation .... 3,537,079
------------
NET GAIN ................................ 5,617,111
------------
NET INCREASE .............................. $7,459,364
============
</TABLE>
- ------------
* Class A, Class B and Class D shares were issued
July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER BALANCED INCOME FUND
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JANUARY 31, 1998* JANUARY 31, 1997
- ------------------------------------------------------ ----------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................. $ 1,842,253 $ 1,405,395
Net realized gain...................................... 2,080,032 1,379,439
Net change in unrealized appreciation ................. 3,537,079 524,495
----------------- ----------------
NET INCREASE ........................................ 7,459,364 3,309,329
----------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A shares ...................................... (12,978) --
Class B shares ...................................... (536,334) --
Class C shares ...................................... (1,293,004) (1,398,284)
Class D shares ...................................... (219) --
Net realized gain
Class A shares ...................................... (16,524) --
Class B shares ...................................... (810,058) --
Class C shares ...................................... (1,161,126) (1,001,490)
Class D shares ...................................... (259) --
----------------- ----------------
TOTAL DIVIDENDS AND DISTRIBUTIONS ................... (3,830,502) (2,399,774)
----------------- ----------------
Net increase from transactions in shares of beneficial
interest ............................................. 13,424,115 16,122,042
----------------- ----------------
NET INCREASE ........................................ 17,052,977 17,031,597
NET ASSETS:
Beginning of period ................................... 48,283,941 31,252,344
----------------- ----------------
END OF PERIOD
(Including undistributed net investment income of
$223,345 and $182,960, respectively) ................ $65,336,918 $48,283,941
================= ================
</TABLE>
- ------------
* Class A, Class B and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER BALANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Balanced Income Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is to
provide current income and moderate capital growth. The Fund seeks to achieve
its objective by investing in investment grade fixed income securities and,
to a lesser extent, common stock of companies which have a record of paying
dividends and have the potential for increasing dividends and securities
convertible into common stock. The Fund was organized as a Massachusetts
business trust on November 23, 1994 and commenced operations on March 28,
1995. On July 28, 1997, the Fund commenced offering three additional classes
of shares, with the then current shares, other than shares which were acquired
in exchange for shares of Funds for which Dean Witter InterCapital Inc. serves
as Investment Manager ("Dean Witter Funds") offered with either a front-end
sales charge or a contingent deferred sales charge ("CDSC") and shares
acquired through reinvestment of dividends and distributions thereon,
designated Class C shares. Shares held prior to July 28, 1997 which were
acquired in exchange for shares of a Dean Witter Fund sold with a front-end
sales charge, including shares acquired through reinvestment of dividends and
distributions thereon, have been designated Class A shares and shares held
prior to July 28, 1997 which were acquired in exchange for shares of a Dean
Witter Fund sold with a CDSC, including shares acquired through reinvestment
of dividends and distributions thereon, have been designated Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some
Class A shares, and most Class B shares and Class C shares are subject to a
contingent deferred sales charge imposed on shares redeemed within one year,
six years and one year, respectively. Class D shares are not subject to a
sales charge. Additionally, Class A shares, Class B shares and Class C shares
incur distribution expenses.
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) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at
its latest sale price on that exchange prior to the time when assets are
valued; if there were no sales that day, the security is valued at the latest
bid price (in cases where securities are traded on more than one exchange,
the securities are valued on the exchange
<PAGE>
DEAN WITTER BALANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998, continued
designated as the primary market pursuant to procedures adopted by the
Trustees); (2) all other 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; (3) when market quotations are not
readily available, including circumstances under which it is determined by
Dean Witter InterCapital Inc. (the "Investment Manager") that sale or 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 debt 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); (4) 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 securities valued
by such pricing service; and (5) short-term debt securities having a maturity
date of more than sixty days at 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.
Dividend income and other distributions are recorded on the ex-dividend date.
Interest income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are
allocated to each class of shares based upon the relative net asset value on
the date such items are recognized. Distribution fees are charged directly to
the respective class.
D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the ex-dividend 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
<PAGE>
DEAN WITTER BALANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998, continued
considered temporary or permanent in nature. To the extent these differences
are permanent in nature, such amounts are reclassified within the capital
accounts based on their federal tax-basis treatment; temporary differences do
not require reclassification. Dividends and distributions which exceed net
investment income and net realized capital gains for financial reporting
purposes but not for tax purposes are reported as dividends in excess of net
investment income or distributions in excess of net realized capital gains.
To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of
paid-in-capital.
F. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $170,000 of which
approximately $136,000 have been reimbursed. The balance has been absorbed by
the Investment Manager. 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 0.60% 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.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted
a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The
Plan provides that the Fund will pay the Distributor a fee which is accrued
daily and paid monthly at the following annual rates: (i) Class A - up to
0.25% of the average daily net assets of Class A; (ii) Class B - 1.0% of the
average daily net assets of Class B; and (iii) Class C - up to 1.0% of the
average daily net assets of Class C. In the case of Class A shares, amounts
paid under the Plan are paid to the Distributor for services provided. In the
case of Class B and Class C shares, amounts paid under the Plan are paid to
the Distributor for services provided and the expenses borne by it and others
in the distribution of the shares of these Classes, including the payment of
commissions for sales of these
<PAGE>
DEAN WITTER BALANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998, continued
Classes and incentive compensation to, and expenses of, the account
executives of Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Investment Manager and Distributor, and others who engage in or support
distribution of the shares or who service shareholder accounts, including
overhead and telephone expenses; printing and distribution of prospectuses
and reports used in connection with the offering of these shares to other
than current shareholders; and preparation, printing and distribution of
sales literature and advertising materials. In addition, the Distributor may
utilize fees paid pursuant to the Plan, in the case of Class B shares, to
compensate DWR and other selected broker-dealers for their opportunity costs
in advancing such amounts, which compensation would be in the form of a
carrying charge on any unreimbursed expenses.
In the case of Class B shares, provided that the Plan continues in effect,
any cumulative expenses incurred by the Distributor but not yet recovered may
be recovered through the payment of future distribution fees from the Fund
pursuant to the Plan and contingent deferred sales charges paid by investors
upon redemption of Class B shares. Although there is no legal obligation for
the Fund to pay expenses incurred in excess of payments made to the
Distributor under the Plan and the proceeds of contingent deferred sales
charges paid by investors upon redemption of shares, if for any reason the
Plan is terminated, the Trustees will consider at that time the manner in
which to treat such expenses. The Distributor has advised the Fund that such
excess amounts, including carrying charges, totaled $281,128 at January 31,
1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant
to the Plan in any calendar year in excess of 0.25% or 1.0% of the average
daily net assets of Class A or Class C, respectively, will not be reimbursed
by the Fund through payments in any subsequent year, except that expenses
representing a gross sales credit to account executives may be reimbursed in
the subsequent calendar year. For the period ended January 31, 1998, the
distribution fee was accrued for Class A shares and Class C shares at the
annual rate of 0.25% and 0.99%, respectively.
The Distributor has informed the Fund that for the period ended January 31,
1998, it received contingent deferred sales charges from certain redemptions
of the Fund's Class B shares and Class C shares of $20,147 and $1,693,
respectively and received $14,036 in front-end sales charges from sales of
the Fund's Class A shares. The respective shareholders pay such charges which
are not an expense of the Fund.
4. 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 January 31,
1998 aggregated $22,299,890 and $11,359,396, respectively. Included in the
aforementioned are purchases and sales/prepayments of U.S. Government
securities of $13,902,484 and $4,692,211, respectively.
<PAGE>
DEAN WITTER BALANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998, continued
For the year ended January 31, 1998, the Fund incurred brokerage commissions
of $9,287 with DWR for portfolio transactions executed on behalf of the Fund.
At January 31, 1998, the Fund's receivable for investments sold included
unsettled trades with DWR of $73,114.
For the period May 31, 1997 through January 31, 1998, the Fund incurred
brokerage commissions of $195 with Morgan Stanley & Co., Inc., an affiliate
of the Investment Manager since May 31, 1997, for portfolio transactions
executed on behalf of the Fund.
Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At January 31, 1998, the Fund had
transfer agent fees and expenses payable of approximately $900.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
JANUARY 31, 1998+ JANUARY 31, 1997
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold ........................................ 65,442 $ 811,302 -- --
Reinvestment of dividends and distributions . 1,562 19,338
Redeemed..................................... (30,968) (392,193)
------------- -------------- ------------- --------------
Net increase -Class A........................ 36,036 438,447
------------- -------------- ------------- --------------
CLASS B SHARES*
Sold ........................................ 833,271 10,407,565 -- --
Reinvestment of dividends and distributions 64,208 794,863
Redeemed .................................... (564,931) (7,045,845) -- --
------------- -------------- ------------- --------------
Net increase -Class B ....................... 332,548 4,156,583 -- --
------------- -------------- ------------- --------------
CLASS C SHARES
Sold ........................................ 1,852,659 22,297,952 3,385,851 $ 38,558,587
Reinvestment of dividends and distributions 173,390 2,105,205 172,485 1,958,907
Redeemed .................................... (1,300,934) (15,584,565) (2,142,627) (24,395,452)
------------- -------------- ------------- --------------
Net increase -Class C........................ 725,115 8,818,592 1,415,709 16,122,042
------------- -------------- ------------- --------------
CLASS D SHARES*
Sold ........................................ 806 10,015 -- --
Reinvestment of dividends and distributions 39 478 -- --
------------- -------------- ------------- --------------
Net increase -Class D ....................... 845 10,493
------------- -------------- ------------- --------------
Net increase in Fund ........................ 1,094,544 $ 13,424,115 1,415,709 $ 16,122,042
============= ============== ============= ==============
</TABLE>
- ------------
+ On July 28, 1997, 36,729 shares representing $456,174 were transferred
to Class A and 2,409,944 shares representing $29,931,505 were
transferred to Class B.
* For the period July 28, 1997 (issue date) through January 31, 1998.
<PAGE>
DEAN WITTER BALANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS January 31, 1998, continued
6. FEDERAL INCOME TAX STATUS
As of January 31, 1998, the Fund had permanent book/tax differences
attributable to nondeductible organizational expenses. To reflect
reclassifications arising from these differences, paid-in-capital was charged
and accumulated undistributed net investment income was credited $40,667.
<PAGE>
DEAN WITTER BALANCED INCOME 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 FOR THE YEAR MARCH 28, 1995*
ENDED ENDED THROUGH
JANUARY 31, 1998**++ JANUARY 31, 1997 JANUARY 31, 1996
- ---------------------------------------- -------------------- ---------------- ----------------
<S> <C> <C> <C>
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $ 11.57 $ 11.34 $10.00
------------------- ---------------- ----------------
Net investment income.................... 0.42 0.36 0.38
Net realized and unrealized gain ....... 1.23 0.50 1.30
------------------- ---------------- ----------------
Total from investment operations ........ 1.65 0.86 1.68
------------------- ---------------- ----------------
Less dividends and distributions from:
Net investment income .................. (0.40) (0.38) (0.33)
Net realized gain ...................... (0.41) (0.25) (0.01)
------------------- ---------------- ----------------
Total dividends and distributions ...... (0.81) (0.63) (0.34)
------------------- ---------------- ----------------
Net asset value, end of period........... $ 12.41 $ 11.57 $11.34
=================== ================ ================
TOTAL INVESTMENT RETURN+ ................ 14.42% 7.82% 16.93%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................. 2.07% 1.88% (3) -- %(2)(3)
Net investment income.................... 3.30% 3.49% (3) 5.27%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $30,402 $48,284 $31,252
Portfolio turnover rate.................. 21% 21% 3%(1)
Average commission rate paid............. $0.0535 $0.0515 --
</TABLE>
- ------------
* Commencement of operations.
** Prior to July 28, 1997, the fund issued one class of shares. All shares
of the Fund held prior to that date, other than shares which were
acquired in exchange for shares of Funds for which Dean Witter
InterCapital Inc. serves as Investment Manager ("Dean Witter Funds")
offered with either a front-end sales charge or a contingent deferred
sales charge ("CDSC") and shares acquired through renivestment of
dividends and distributions thereon, have been designated Class C
shares. Shares held prior to July 28, 1997 which were acquired in
exchange for shares of a Dean Witter Fund sold with a front-end sales
charge, including shares acquired through reinvestment of dividends and
distributions thereon, have been designated Class A shares and shares
held prior to July 28, 1997 which were acquired in exchange for shares
of a Dean Witter Fund sold with a CDSC, including shares acquired
through reinvestment of dividends and distributions thereon, have been
designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Investment Manager had not reimbursed expenses and waived the
management fee, the annualized expense and net investment income ratios
would have been 2.19% and 3.18%, respectively, for the year ended
January 31, 1997 and 2.69% and 2.58%, respectively, for the period
ended January 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER BALANCED INCOME FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
JANUARY 31,
1998++
- ---------------------------------------- -----------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $12.42
-----------------
Net investment income ................... 0.25
Net realized and unrealized gain ....... 0.32
-----------------
Total from investment operations ....... 0.57
-----------------
Less dividends and distributions from:
Net investment income .................. (0.26)
Net realized gain ...................... (0.32)
-----------------
Total dividends and distributions ...... (0.58)
-----------------
Net asset value, end of period .......... $12.41
=================
TOTAL INVESTMENT RETURN+ ................ 4.60%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 1.43%(2)
Net investment income ................... 3.92%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $903
Portfolio turnover rate ................. 21%
Average commission rate paid ............ $0.0535
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $12.42
-----------------
Net investment income ................... 0.20
Net realized and unrealized gain ....... 0.33
-----------------
Total from investment operations ....... 0.53
-----------------
Less dividends and distributions from:
Net investment income .................. (0.22)
Net realized gain ...................... (0.32)
-----------------
Total dividends and distributions ...... (0.54)
-----------------
Net asset value, end of period .......... $12.41
=================
TOTAL INVESTMENT RETURN+ ................ 4.19%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................ 2.16%(2)
Net investment income ................... 3.15%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $34,021
Portfolio turnover rate ................. 21%
Average commission rate paid ............ $0.0535
</TABLE>
- ------------
* The date shares were first issued. Shareholders who held shares of
the Fund prior to July 28, 1997 (the date the Fund converted to a
multiple class share structure) should refer to the Financial Highlights
of Class C to obtain the historical per share data and ratio information
of their shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER BALANCED INCOME FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
JANUARY 31, 1998++
- ---------------------------------------- ------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $12.42
-----------------
Net investment income ................... 0.26
Net realized and unrealized gain ....... 0.33
-----------------
Total from investment operations ....... 0.59
-----------------
Less dividends and distributions from:
Net investment income .................. (0.27)
Net realized gain ...................... (0.32)
-----------------
Total dividends and distributions ...... (0.59)
-----------------
Net asset value, end of period .......... $12.42
=================
TOTAL INVESTMENT RETURN+ ................ 4.79%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................. 1.16%(2)
Net investment income ................... 4.15%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $10
Portfolio turnover rate ................. 21%
Average commission rate paid ............ $0.0535
</TABLE>
- ------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER BALANCED INCOME FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER BALANCED INCOME 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
Balanced Income Fund (the "Fund") at January 31, 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 periods presented, 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 January 31, 1998 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
March 10, 1998
<PAGE>
DEAN WITTER BALANCED INCOME FUND
FEDERAL TAX NOTICE (unaudited)
1998 FEDERAL TAX NOTICE
For the year ended January 31, 1998, the Fund paid to shareholders the
following per share amounts from long-term capital gains. These distributions
are taxable as 28% rate gains or 20% rate gains, as indicated below:
<TABLE>
<CAPTION>
PER SHARE
-----------------------------------------
CLASS A CLASS B CLASS C CLASS D
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Portion of long-term capital gains taxable as:
28% rate gain ................................ $0.10 $0.10 $0.19 $0.10
20% rate gain ................................ 0.21 0.21 0.21 0.21
--------- --------- --------- ---------
Total long-term capital gains ................. $0.31 $0.31 $0.40 $0.31
========= ========= ========= =========
</TABLE>
For the year ended January 31, 1998, 24.80% of the income dividends qualified
for the dividends received deduction available to corporations.
<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
Paul D. Vance
Vice President
Rajesh K. Gupta
Vice President
Thomas P. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
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
BALANCED
INCOME FUND
[Graphic]
ANNUAL REPORT
JANUARY 31, 1998
