<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM TWO WORLD TRADE CENTER, NEW
INCOME FUND INC. YORK, NEW YORK 10048
LETTER TO THE SHAREHOLDERS OCTOBER 31, 1998
DEAR SHAREHOLDER:
The twelve-month period ended October 31, 1998, was a historic year for the
global bond markets. During the first half of this period, Asian economic
problems portended slower world economic growth and created a global preference
for U.S.-dollar-denominated assets. This preference permitted yields to decline
and bond prices to rise in most high-grade bond markets and caused continued
strengthening of the U.S. dollar. After a market consolidation through the
spring, during which market participants increasingly came to doubt whether the
Asian crisis would have any lasting effect, the crisis spread. Fears grew of an
implosion in the Japanese economy, a virtual collapse potentially in the Russian
economy, contagion effects in most developing economies, and a consensus that
even the United States and western Europe's economies would suffer a major
slowdown. As a result, equity prices in most of the world's markets fell.
GLOBAL BOND MARKET OVERVIEW
During the period under review, U.S. and German government bond markets were
exceptionally strong. These markets peaked when hedge funds, which had hedged
their exposures to lesser credits by selling short against the U.S. and German
markets, were forced out of their positions. This movement caused an explosion
in yield spreads of other fixed-income securities relative to U.S. and German
government bonds, accompanied by well-publicized problems among some hedge
funds. Consequently, these two markets soared while other high-quality markets
lagged and lesser-quality markets fell and, in some cases, plunged. During this
period the U.S. dollar fell, because it was perceived to be exposed to the risks
affecting its Latin American and Canadian trading partners, and it was thought
that the Federal Reserve Board would be forced to cut short-term rates
aggressively.
The yields on three-year U.S. Treasury notes fell to 4.36 percent by October 31,
1998, from 5.68 percent a year earlier. At the height
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
LETTER TO THE SHAREHOLDERS OCTOBER 31, 1998, CONTINUED
of the flight to quality in early October the yield fell to a record low of
below 4 percent. Similarly, yields on three-year German government bonds fell
from 4.58 percent to 3.50 percent. In Japan, bond yields fell close to zero.
In the months ahead we expect a period of greater normalcy (e.g., consolidating
interest and exchange rates), allowing the spreads in high-grade securities to
narrow relative to comparable U.S. and German government securities. We also
expect this period to be followed by a renewed decline in global bond yields and
in the U.S. dollar as the domestic economy slows and unresolved emerging market
problems result in an additional disinflationary impulse affecting the global
economy.
CURRENCY MARKET OVERVIEW
The transition from a flight into U.S.-dollar-denominated assets to an
international shift away from them appears to have marked the end of a
three-year rise in the value of the dollar relative to other major currencies.
Against the deutsche mark, for example, the dollar rose from 1.73 at the end of
October 1997 to around 1.89 before dropping to below 1.60 in October 1998. While
all of the major currency exchange rates exhibited roughly similar performance
patterns, there were some crucial differences in the underlying forces affecting
these exchange rates. In the case of the deutsche mark and other major European
currencies, exchange rates appeared to be driven by classical forces such as
interest-rate differentials and the relative strength of the U.S. and European
economies. For the Japanese yen, a growing flight of capital from Japan gave way
to repatriation of it as Japanese investors became skeptical of the
international financial outlook. Other major currencies (Australian, New Zealand
and Canadian dollars and the Scandinavian currencies) were more affected by
international commodity prices, since their economies tend to be resource based.
PERFORMANCE
For the twelve-month period ended October 31, 1998, Morgan Stanley Dean Witter
Global Short-Term Income Fund posted a total return of 7.39 percent compared to
4.25 percent for the Lipper Short World Multi-Market Income Funds Average (which
includes funds invested in emerging market debt that have below-investment-grade
credit ratings) and 9.67 percent for the Lehman Brothers Mutual Fund Short World
Multimarket Index. The accompanying chart compares the performance of the Fund
with that of the Lehman index and the Lipper average.
2
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
LETTER TO THE SHAREHOLDERS OCTOBER 31, 1998, CONTINUED
PORTFOLIO STRATEGY
The evolving international situation required several strategic adjustments in
the Fund's portfolio as the fiscal year progressed. Early in the year, the
Fund's investments were largely focused on U.S. fixed-income securities. Then,
as concerns about the Asian crisis waned, it became appropriate to shift
attention to the European markets, including the United Kingdom, Italy, Spain
and Denmark, and New Zealand, which had high yields. As it appeared that the
Asian crisis was spreading, the Fund's assets were concentrated in the U.S. and
German government markets for safety and price appreciation. Finally, toward the
end of the fiscal year it became apparent that we could expect at least a
temporary respite in the international situation, at which point investments
were shifted to high-grade sectors that had lagged during the surge in the U.S.
and German bond markets. These sectors included New Zealand dollar-denominated
securities issued by the U.S. government agency FNMA with yields ranging up to 8
percent, AA-rated banks with yields up to 160 basis points more than comparable
United Kingdom bonds and Greek government bonds with yields above 9 percent. As
the fiscal year came to a close, each of these spreads had contracted somewhat
relative to their government benchmarks.
The Fund also shifted from its policy of hedging most of its currency exposures
during the early part of the fiscal year (in order to protect it from declines
in the values of these currencies relative to the U.S. dollar) to one of
unhedging most of
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000
($ in Thousands)
Average Annual Total Re-
turns*
<S> <C> <C> <C>
Since
1 Year 5 Years Inception
7.39%(1) 6.70%(1) 6.18%(1)
4.39%(2) 6.70%(2) 6.18%(2)
FUND LEHMAN(4) LIPPER (5)
November-1990 $10,000 $10,000 $10,000
October-1991 $10,749 $10,780 $10,697
October-1992 $11,154 $11,971 $11,028
October-1993 $11,680 $12,762 $11,743
October-1994 $11,756 $13,449 $11,647
October-1995 $12,728 $15,047 $11,887
October-1996 $14,339 $16,034 $12,868
October-1997 $15,038 $16,237 $13,484
October-1998 $16,150(3) $17,807 $14,057
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
(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 October 31, 1998.
3
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
LETTER TO THE SHAREHOLDERS OCTOBER 31, 1998, CONTINUED
(4) The Lehman Brothers Mutual Fund Short World Multimarket Index measures the
performance of all debt instruments of the United States and 12 Lehman
major countries denominated in dollars with maturities of one to five
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.
(5) The Lipper Short World Multi-Market Income Funds Average tracks the
performance of funds which primarily invest in non U.S. dollar and U.S.
dollar debt instruments and, by policy, keep a dollar weighted average
maturity of less than 5 years, as reported by Lipper Analytical Services.
* The maximum contingent deferred sales charge (CDSC) is 3.0%. The CDSC
declines to 0% after three years.
4
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
LETTER TO THE SHAREHOLDERS OCTOBER 31, 1998, CONTINUED
its European investments. We believe this strategy will enable the Fund to
better capture currency gains if the U.S. dollar declines.
LOOKING AHEAD
On October 28, 1998, the Board of Directors of Morgan Stanley Dean Witter Global
Short-Term Income Fund voted to recommend to shareholders a plan of
reorganization whereby the Fund would be merged into Morgan Stanley Dean Witter
World Wide Income Trust. This plan is subject to the consent of Morgan Stanley
Dean Witter Global Short-Term Income Fund's shareholders at a special meeting
scheduled for February, 1999. If the merger is approved, Morgan Stanley Dean
Witter Global Short-Term Income Fund's assets would be combined with those of
Morgan Stanley Dean Witter World Wide Income Trust. The Fund's shareholders
would become shareholders of Morgan Stanley Dean Witter World Wide Income Trust,
receiving Class A shares of that fund equal to the value of their holdings in
Morgan Stanley Dean Witter Global Short-Term Income Fund.
A proxy statement formally detailing this proposal, including the reasons for
the Directors' action, and information concerning Morgan Stanley Dean Witter
World Wide Income Trust will be distributed to shareholders of the Fund in
December.
In light of the proposed reorganization, the Fund suspended all new sales of
its shares after the close of business on October 28, 1998. The Fund will
continue to operate until the implementation of the reorganization, if
approved by shareholders. In addition, shareholders' rights to redeem any or
all of their Fund shares at any time will not be affected by the suspension of
new sales. Also, after the close of business on October 28, 1998, the Fund
stopped making payments to Morgan Stanley Dean Witter Distributors Inc., the
Fund's distributor, according to its Plan of Distribution under Rule 12b-1.
Very truly yours,
[SIGNATURE]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
5
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GOVERNMENT & CORPORATE BONDS (87.3%)
DENMARK (5.2%)
GOVERNMENT OBLIGATIONS
DKK 5,000 Kingdom of Denmark+.......................................................... 9.00% 11/15/00 $ 870,077
8,000 Kingdom of Denmark........................................................... 8.00 03/15/06 1,535,026
-----------
TOTAL DENMARK................................................................................... 2,405,103
-----------
GERMANY (14.0%)
GOVERNMENT OBLIGATION (11.8%)
DEM 8,650 German Government Bond+...................................................... 5.00 08/20/01 5,441,239
-----------
SMALLER BANKS (2.2%)
GBP 300 Bayerische Hypotheken Bank+.................................................. 6.75 12/30/99 502,570
300 Bayerische VereinsBank+...................................................... 7.50 12/27/00 514,079
-----------
1,016,649
-----------
TOTAL GERMANY................................................................................... 6,457,888
-----------
GREECE (5.9%)
GOVERNMENT OBLIGATION
GRD 750,000 Greece Government Bond....................................................... 8.70 04/08/05 2,701,067
-----------
ITALY (5.1%)
GOVERNMENT OBLIGATION
ITL 3,500,000 Italy Treasury Bond.......................................................... 10.50 07/15/00 2,375,719
-----------
LUXEMBOURG (5.4%)
EXTRA GOVERNMENTAL INSTITUTIONS - BANKS
ECU 2,000 European Investment Bank+.................................................... 6.00 04/04/01 2,496,864
-----------
NEW ZEALAND (5.8%)
EXTRA GOVERNMENTAL INSTITUTIONS - BANKS
NZD 5,000 International Bank for Reconstruction & Development+......................... 7.00 09/18/00 2,697,990
-----------
NORWAY (2.0%)
GOVERNMENT OBLIGATION
NOK 6,000 Norway Government Bond....................................................... 9.50 10/31/02 935,932
-----------
SPAIN (8.6%)
GOVERNMENT OBLIGATION
ESP 500,000 Spain Treasury Bond+......................................................... 12.25 03/25/00 3,964,746
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UNITED KINGDOM (8.4%)
MAJOR BANKS (2.0%)
GBP 500 Union Bank of Switzerland.................................................... 8.00% 01/08/07 $ 908,800
-----------
SMALLER BANKS (6.4%)
900 Halifax PLC+................................................................. 8.375 12/15/99 1,532,448
750 Lloyds TSB Group PLC+........................................................ 8.50 03/29/06 1,442,295
-----------
2,974,743
-----------
TOTAL UNITED KINGDOM............................................................................ 3,883,543
-----------
UNITED STATES (26.9%)
MAJOR BANKS (3.9%)
GBP 1,000 Morgan Guaranty Trust Co.+................................................... 7.75 12/30/03 1,769,539
-----------
GOVERNMENT AGENCIES & OBLIGATIONS (23.0%)
NZD 4,500 Federal National Mortgage Assoc.+............................................ 7.00 09/26/00 2,426,979
3,000 Federal National Mortgage Assoc.+............................................ 7.25 06/20/02 1,651,700
$ 5,000 U.S. Treasury Bond *+........................................................ 13.125 05/15/01 6,047,000
500 U.S. Treasury Note+.......................................................... 9.125 05/15/99 512,065
-----------
10,637,744
-----------
TOTAL UNITED STATES............................................................................. 12,407,283
-----------
TOTAL GOVERNMENT & CORPORATE BONDS
(IDENTIFIED COST $39,152,649)................................................................... 40,326,135
-----------
SHORT-TERM INVESTMENTS (14.7%)
UNITED STATES
TIME DEPOSITS (a) (14.3%)
MAJOR BANKS
GRD 761,645 Bankers Trust................................................................ 11.20 11/05/98 2,710,479
DEM 2,326 Chase Manhattan Bank......................................................... 3.50 11/05/98 1,407,090
$ 2,500 Republic National Bank....................................................... 4.875 11/02/98 2,500,000
-----------
TOTAL TIME DEPOSITS
(IDENTIFIED COST $6,446,140).................................................................... 6,617,569
-----------
GOVERNMENT AGENCY (b) (0.4%)
200 Federal Home Loan Mortgage Corp. (AMORTIZED COST $199,970)................... 5.42 11/02/98 199,970
-----------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $6,646,110).................................................................... 6,817,539
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $45,798,759) (c).......................................................... 102.0 % $ 47,143,674
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS............................................. (2.0) (937,479)
------ ------------
NET ASSETS................................................................................. 100.0 % $ 46,206,195
------ ------------
------ ------------
</TABLE>
- ---------------------
+ Some or all of these securities are segregated in connection with open
forward foreign currency contracts.
* The market value of securities pledged to cover margin requirements for
open futures contracts is $8,500.
(a) Subject to withdrawal restrictions until maturity.
(b) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $1,460,929 and the
aggregate gross unrealized depreciation is $116,014, resulting in net
unrealized appreciation of $1,344,915.
FUTURES CONTRACTS OPEN AT OCTOBER 31, 1998:
<TABLE>
<CAPTION>
UNDERLYING
FACE
NUMBER OF DESCRIPTION, DELIVERY MONTH, AMOUNT UNREALIZED
CONTRACTS AND YEAR AT VALUE LOSS
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
10 U.S. Treasury Note December/1998 $1,146,406 ($6,406)
-------- -------
-------- -------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1998, CONTINUED
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT OCTOBER 31, 1998:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS IN DELIVERY APPRECIATION
TO DELIVER EXCHANGE FOR DATE (DEPRECIATION)
- -------------------------------------------------------------------
<S> <C> <C> <C>
GBP 1,200,000 $ 1,996,320 11/09/98 $ (12,560)
GBP 563,000 $ 959,071 11/16/98 16,939
NZD 3,200,000 $ 1,574,400 11/30/98 (119,723)
NZD 6,200,000 $ 3,300,136 12/02/98 17,608
DEM 1,966,000 $ 1,204,841 12/03/98 13,673
GBP 1,100,000 $ 1,839,200 12/07/98 425
NOK 6,800,000 $ 917,060 12/07/98 (11,056)
GBP 1,090,000 $ 1,822,306 12/08/98 327
NZD 2,100,000 $ 1,105,629 12/09/98 (6,391)
NZD 900,000 $ 473,850 12/09/98 (2,730)
$ 1,204,275 CHF 1,600,000 12/15/98 (15,032)
DEM 4,543,000 $ 2,759,438 12/15/98 5,303
--------------
Net unrealized depreciation.................. $ (113,217)
--------------
--------------
</TABLE>
CURRENCY ABBREVIATIONS:
<TABLE>
<S> <C>
GBP British Pound.
DKK Danish Krone.
DEM German Deutschemark.
GRD Greek Drachma.
ITL Italian Lira.
ECU European Currency Unit.
NZD New Zealand Dollar.
NOK Norwegian Krone.
ESP Spanish Peseta.
CHF Swiss Franc.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $45,798,759)................................................................ $47,143,674
Unrealized appreciation on open forward foreign currency contracts............................. 54,275
Cash........................................................................................... 14,833
Receivable for:
Interest................................................................................... 1,525,971
Compensated forward foreign currency contracts............................................. 15,251
Prepaid expenses and other assets.............................................................. 36,383
-----------
TOTAL ASSETS.............................................................................. 48,790,387
-----------
LIABILITIES:
Unrealized depreciation on open forward foreign currency contracts............................. 167,492
Payable for:
Investments purchased...................................................................... 1,270,988
Capital stock repurchased.................................................................. 474,839
Compensated forward foreign currency contracts............................................. 463,264
Plan of distribution fee................................................................... 28,296
Investment management fee.................................................................. 22,890
Dividends to shareholders.................................................................. 22,589
Variation margin........................................................................... 6,875
Accrued expenses and other payables............................................................ 126,959
-----------
TOTAL LIABILITIES......................................................................... 2,584,192
-----------
NET ASSETS................................................................................ $46,206,195
-----------
-----------
COMPOSITION OF NET ASSETS:
Paid-in-capital................................................................................ $52,292,963
Net unrealized appreciation.................................................................... 1,229,765
Accumulated undistributed net investment income................................................ 54,408
Accumulated net realized loss.................................................................. (7,370,941)
-----------
NET ASSETS................................................................................ $46,206,195
-----------
-----------
NET ASSET VALUE PER SHARE,
5,158,582 SHARES OUTSTANDING (500,000,000 SHARES AUTHORIZED OF $.01 PAR VALUE)............... $8.96
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME................................................................................. $4,142,260
----------
EXPENSES
Plan of distribution fee........................................................................ 393,364
Investment management fee....................................................................... 290,606
Professional fees............................................................................... 72,079
Transfer agent fees and expenses................................................................ 71,658
Registration fees............................................................................... 48,696
Shareholder reports and notices................................................................. 47,054
Custodian fees.................................................................................. 20,725
Directors' fees and expenses.................................................................... 16,490
Other........................................................................................... 11,252
----------
TOTAL EXPENSES............................................................................. 971,924
----------
NET INVESTMENT INCOME...................................................................... 3,170,336
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments................................................................................. (271,026)
Futures contracts........................................................................... 242,948
Foreign exchange transactions............................................................... (504,636)
----------
NET LOSS................................................................................... (532,714)
----------
Net change in unrealized appreciation/depreciation on:
Investments................................................................................. 937,504
Futures contracts........................................................................... (6,406)
Translation of forward foreign currency contracts, other assets and liabilities denominated
in foreign currencies..................................................................... (72,298)
----------
NET APPRECIATION........................................................................... 858,800
----------
NET GAIN................................................................................... 326,086
----------
NET INCREASE.................................................................................... $3,496,422
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................................................ $ 3,170,336 $ 4,132,653
Net realized loss.................................................................... (532,714) (14,226)
Net change in unrealized appreciation................................................ 858,800 (939,280)
----------------- -----------------
NET INCREASE.................................................................... 3,496,422 3,179,147
Dividends from net investment income................................................. (3,004,055) (8,518,932)
Net decrease from capital stock transactions......................................... (15,663,860) (13,908,008)
----------------- -----------------
NET DECREASE.................................................................... (15,171,493) (19,247,793)
NET ASSETS:
Beginning of period.................................................................. 61,377,688 80,625,481
----------------- -----------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $54,408 AND DIVIDENDS IN EXCESS
OF NET INVESTMENT INCOME OF $453,928, RESPECTIVELY).............................. $46,206,195 $61,377,688
----------------- -----------------
----------------- -----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Global Short-Term Income Fund Inc. (the "Fund"),
formerly Dean Witter Global Short-Term Income Fund Inc., is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a non-diversified,
open-end management investment company. The Fund's investment objective is to
achieve as high a level of current income as is consistent with prudent
investment risk. The Fund was incorporated in Maryland on August 2, 1990 and
commenced operations on November 1, 1990.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect 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) futures contracts
are valued at the latest sale price on the commodities exchange on which they
trade unless the Directors determine that such price does not reflect their
market value, in which case they will be valued at fair value as determined by
the Directors; (3) when market quotations are not readily available, including
circumstances under which it is determined by Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Manager"), formerly Dean Witter InterCapital
Inc., 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
Directors (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 Directors. 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.
12
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 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. FUTURES CONTRACTS -- A futures contract is an agreement between two parties
to buy and sell financial instruments at a set price on a future date. Upon
entering into such a contract, the Fund is required to pledge to the broker
cash, U.S. Government securities or other liquid portfolio securities equal to
the minimum initial margin requirements of the applicable futures exchange.
Pursuant to the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in the value of the contract
which is known as variation margin. Such receipts or payments are recorded by
the Fund as unrealized gains or losses. Upon closing of the contract, the Fund
realizes a gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
D. FOREIGN CURRENCY TRANSLATION -- The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward foreign currency
contracts are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the
exchange rates prevailing on the respective dates of such transactions. The
resultant exchange gains and losses are included in the Statement of Operations
as realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a reduction
of ordinary income for federal income tax purposes. The Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the changes in the market prices of the securities.
E. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The Fund may enter into
forward foreign currency contracts which are valued daily at the appropriate
exchange rates. The resultant unrealized exchange gains and losses are included
in the Statement of Operations as unrealized foreign currency gain or loss. The
Fund records realized gains or losses on delivery of the currency or at the time
the forward contract is extinguished (compensated) by entering into a closing
transaction prior to delivery.
F. 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.
13
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998, CONTINUED
G. 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.
2. PLAN OF REORGANIZATION
On October 29, 1998, the Board of Directors of the Fund and the Trustees of
Morgan Stanley Dean Witter World Wide Income Trust ("World Wide Income")
approved a reorganization plan ("the Plan") whereby the Fund would be merged
into World Wide Income. The Plan is subject to the consent of the Fund's
shareholders. If approved, the assets of the Fund would be combined with the
assets of World Wide Income and shareholders of the Fund would become Class A
shareholders of World Wide Income, receiving Class A shares of World Wide Income
equal to the value of their holdings in the Fund. In connection with the
proposed merger, the Directors agreed to suspend the sale of the Fund's shares,
excluding the reinvestment of dividends by shareholders who had elected that
option, effective October 29, 1998. As a result of this suspension, the
Directors also determined that the payment of the plan of distribution fees
would be terminated.
3. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with the Investment Manager, the
Fund pays the Investment Manager a management fee, accrued daily and payable
monthly, by applying the following annual rates to the net assets of the Fund
determined as of the close of each business day: 0.55% to the portion of the
daily net assets not exceeding $500 million and 0.50% to the portion of the
daily net assets exceeding $500 million.
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
14
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 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.
4. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley 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
pursuant to which the Fund pays the Distributor compensation, accrued daily and
payable monthly, at an annual rate of 0.75% of the lesser of: (a) the average
daily aggregate gross sales of the Fund's shares since the Fund's inception (not
including reinvestment of dividend or capital gains distributions) less the
average daily aggregate net asset value of the Fund's shares redeemed since the
Fund's inception upon which a contingent deferred sales charge has been imposed
or upon which such charge has been waived; or (b) the Fund's average daily net
assets. As discussed in Note 2, effective October 29, 1998 in connection with
the proposed reorganization, the Fund ceased making payments under the Plan.
Amounts paid under the Plan are paid to the Distributor to compensate it for the
services provided and the expenses borne by it and others in the distribution of
the Fund's shares, including the payment of commissions for sales of the Fund's
shares and incentive compensation to, and expenses of, Morgan Stanley Dean
Witter Financial Advisors and others who engage in or support distribution of
the Fund's 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 the Fund's 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 to compensate Dean Witter Reynolds Inc. ("DWR"), an
affiliate of the Investment Manager and Distributor, 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
distribution expenses.
Provided that the Plan continues in effect, any cumulative expenses incurred but
not yet recovered may be recovered through future distribution fees from the
Fund and contingent deferred sales charges from the Fund's shareholders.
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 Directors will
15
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998, CONTINUED
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 $7,825,403 at October 31, 1998. The Directors have determined
that the Fund would not be liable for such excess amounts.
The Distributor has informed the Fund that for the year ended October 31, 1998,
it received $18,201 in contingent deferred sales charges from certain
redemptions of the Fund's shares.
5. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended October 31, 1998 aggregated
$157,970,692 and $163,514,372, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $71,961,197 and
$78,972,165, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At October 31, 1998, the Fund had
transfer agent fees and expenses payable of approximately $1,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Directors of the Fund who will have served as independent
Directors for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended October 31, 1998 included
in Directors' fees and expenses in the Statement of Operations amounted to
$2,945. At October 31, 1998, the Fund had an accrued pension liability of
$46,578 which is included in accrued expenses in the Statement of Assets and
Liabilities.
6. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1998 OCTOBER 31, 1997
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold............................................................. 12,910,301 $ 112,839,530 18,695,388 $166,394,203
Reinvestment of dividends........................................ 205,482 1,790,295 566,141 5,089,726
----------- -------------- ----------- ------------
13,115,783 114,629,825 19,261,529 171,483,929
Repurchased...................................................... (14,918,238) (130,293,685) (20,837,578) (185,391,937)
----------- -------------- ----------- ------------
Net decrease..................................................... (1,802,455) $ (15,663,860) (1,576,049) $(13,908,008)
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
16
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1998, CONTINUED
7. FEDERAL INCOME TAX STATUS
At October 31, 1998, the Fund had a net capital loss carryover of approximately
$7,416,000, which may be used to offset future capital gains to the extent
provided by regulations, which is available through October 31 of the following
years:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- -----------------------------------------------------
2001 2002 2003 2005 2006
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
$ 741 $ 4,853 $ 1,162 $ 214 $ 446
- --------- --------- --------- --------- ---------
- --------- --------- --------- --------- ---------
</TABLE>
As of October 31, 1998, the Fund had temporary book/tax differences primarily
attributable to the mark-to-market of open forward foreign currency exchange
contracts and compensated forward foreign currency exchange contracts and
permanent book/tax differencees attributable to foreign currency gains. To
reflect reclassifications arising from the permanent differences, accumulated
net realized loss was charged and accumulated undistributed net invesment income
was credited $342,055.
8. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward contracts")
to facilitate settlement of foreign currency denominated portfolio transactions
or to manage its foreign currency exposure or to sell, for a fixed amount of
U.S. dollars or other currency, the amount of foreign currency approximating the
value of some or all of its holdings denominated in such foreign currency or an
amount of foreign currency other than the currency in which the securities to be
hedged are denominated approximating the value of some or all of its holdings to
be hedged. Additionally, when the Investment Manager anticipates purchasing
securities at some time in the future, the Fund may enter into a forward
contract to purchase an amount of currency equal to some or all the value of the
anticipated purchase for a fixed amount of U.S. dollars or other currency.
To hedge against adverse interest rate, foreign currency and market risks, the
Fund may enter into forward written options on interest rate futures and
interest rate futures contracts ("derivative investments").
Forward contracts and derivative instruments involve elements of market risk in
excess of the amount reflected in the Statement of Assets and Liabilities. The
Fund bears the risk of an unfavorable change in the foreign exchange rates
underlying the forward contracts. Risks may also arise upon entering into these
contracts from the potential inability of the counterparties to meet the terms
of their contracts.
At October 31, 1998, there were outstanding forward contracts used to facilitate
settlement of foreign currency denominated portfolio transactions and to manage
foreign currency exposure.
At October 31, 1998, the Fund held a concentration of investments in securities
of issuers in the banking industry representing 40.0% of the Fund's net assets.
17
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31
-------------------------------------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 8.82 $ 9.44 $ 8.89 $ 8.73 $ 9.23
----------- ----------- ----------- ------ ------
Net investment
income.......... 0.51 0.52 0.61 0.54 0.72
Net realized and
unrealized gain
(loss).......... 0.13 (0.08) 0.48 0.16 (0.66)
----------- ----------- ----------- ------ ------
Total from
investment
operations...... 0.64 0.44 1.09 0.70 0.06
----------- ----------- ----------- ------ ------
Less dividends
and
distributions
from:
Net investment
income........ (0.50) (1.06) (0.54) (0.44) (0.13)
Paid-in-capital... -- -- -- (0.10) (0.43)
----------- ----------- ----------- ------ ------
Total dividends
and
distributions... (0.50) (1.06) (0.54) (0.54) (0.56)
----------- ----------- ----------- ------ ------
Net asset value,
end of period... $ 8.96 $ 8.82 $ 9.44 $ 8.89 $ 8.73
----------- ----------- ----------- ------ ------
----------- ----------- ----------- ------ ------
TOTAL INVESTMENT
RETURN+.......... 7.39% 4.88% 12.66% 8.27% 0.65%
RATIOS TO AVERAGE
NET ASSETS:
Expenses......... 1.84% 1.79% 1.66% 1.68% 1.63%
Net investment
income.......... 6.00% 5.85% 6.57% 6.17% 6.35%
SUPPLEMENTAL DATA:
Net assets, end
of period, in
thousands....... $46,206 $61,378 $80,625 $106,939 $170,117
Portfolio
turnover rate... 356% 264% 138% 188% 123%
</TABLE>
- ---------------------
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM
INCOME FUND INC.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF MORGAN STANLEY DEAN WITTER GLOBAL SHORT-TERM INCOME FUND INC.
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 Morgan Stanley Dean Witter Global
Short-Term Income Fund Inc. (the "Fund"), formerly Dean Witter Global Short-Term
Income Fund Inc., at October 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 October
31, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
As described in Note 2 to the financial statements, the Board of Directors of
the Fund approved a reorganization plan, subject to shareholder approval,
whereby the Fund will be merged into Morgan Stanley Dean Witter World Wide
Income Trust.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
NOVEMBER 20, 1998
19
<PAGE>
DIRECTORS
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
Rajesh K. Gupta
Vice President
Anne Pickrell
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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors 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
directors, 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.
MORGAN STANLEY
DEAN WITTER
GLOBAL SHORT-TERM
INCOME FUND
[GRAPHIC]
ANNUAL REPORT
OCTOBER 31, 1998
