<PAGE> 1
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND Two World Trade Center
LETTER TO THE SHAREHOLDERS October 31, 1999 New York, New York 10048
DEAR SHAREHOLDER:
During the six-month period ended October 31, 1999, fixed-income markets labored
under the clouds of potential inflation and rising interest rates. With both the
domestic and international economies recovering from the prior year's
turbulence, having benefited from the ensuing low interest-rate environment,
labor markets strengthened, commodity prices climbed, wage settlements rose and
consumer demand proceeded unabated, fueled by rising stock markets.
Although the economy appeared to be cooling early in the fiscal period, a pickup
in economic activity in the July-to-September time frame led the gross domestic
product (GDP) to record more than 5 percent annualized growth for the quarter.
In this environment, the Federal Reserve Board reversed two-thirds of the
federal-funds rate cuts initiated during 1998's period of turmoil, raising the
rate back to 5.25 percent. Then, following the close of the fiscal year, the Fed
again raised the federal-funds rate by 25 basis points, to 5.50 percent.
At the end of October, two- and five-year U.S. Treasury notes yielded 5.78
percent and 5.94 percent, respectively, approximately 0.75 percentage point
higher than six months earlier. While interest rates rose steadily through June,
Treasury yields subsequently settled into a broad trading range as new supplies
of these securities diminished. In contrast, new issuance for agencies and
corporates reached record levels in the third quarter as issuers chose to
complete most of their yearly financing before the Y2K specter could take hold
in the last few months of 1999. As a result, yields for these securities rose
substantially more than those for Treasuries.
PERFORMANCE
For the six-month period ended October 31, 1999, Morgan Stanley Dean Witter
Short-Term Bond Fund returned 0.87 percent compared with 1.25 percent for the
Lipper Short Investment-Grade Debt Funds Index and 0.98 percent for the Lehman
Brothers Mutual Fund Short (one- to five-year) Investment Grade Debt Index.
<PAGE> 2
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
LETTER TO THE SHAREHOLDERS October 31, 1999, continued
The Fund's performance during the period was hindered by rising interest rates
as well as its emphasis on corporate and agency issues, which underperformed
Treasuries. Among corporate holdings, the decline in market value for the Fund's
holding of Rite Aid was a negative contributor to this sector's performance. On
October 31, this holding represented 1.2 percent of the Fund's net assets.
PORTFOLIO STRATEGY
On October 31, 1999, approximately 56.9 percent of the Fund's portfolio was
invested in corporate securities, 28.9 percent in U.S. agencies, 9.3 percent in
mortgage-backed securities and 0.7 percent in U.S. Treasuries. The remaining 4.2
percent was held in cash and cash equivalents. After regaining favor in the
first five months of 1999, corporate liquidity again declined, expanding yield
differentials to Treasuries and making the trading of these securities difficult
for all but the largest, most liquid issues. Agencies, though still liquid, saw
their prices come under pressure from the record new issuances.
To meet same-day cash outflows, which on many days equaled 5 percent or more of
the Fund's market value, Treasuries and agencies became the primary sales
vehicles. To prevent the Fund from becoming too overweighted in corporates,
issues were sold when attractive bids could be found with proceeds reinvested in
Treasury securities of comparable maturity. During the period, agencies declined
as a percent of investable assets, from 31.4 percent to 27.3 percent, while
corporates rose to 62.1 percent from 54.3 percent.
With interest rates rising, the Fund continued to modestly reduce the average
maturity of its non-money-market holdings, from 1.93 years on April 30 to 1.79
years on October 31. As a result of its reduced cash holdings on October 29, the
Fund's average maturity, including cash reserves, declined only marginally, to
1.79 years from 1.83 years. Within the corporate sector the average maturity was
reduced to 1.68 years from 1.94 years six months earlier. Names added to the
portfolio included Associates Corp. of North America, Commercial Credit, Cox
Enterprise, Tosco, TRW and U.S. West Capital Funding. These investments had an
average maturity from time of purchase of 1.93 years and an average quality
rating of A3.
As of October 31, 1999, 74.4 percent of the Fund's U.S. government component was
invested in U.S. agency securities, 23.8 percent in mortgage-backed securities
and 1.8 percent in U.S. Treasuries. With agencies presenting attractive yield
and liquidity characteristics versus other government sectors, the Fund
continued to emphasize these securities among its government holdings. During
the period under review, the Fund's investments were restricted to
U.S.-dollar-denominated securities. The Fund currently anticipates continuing
this investment strategy, because it holds a constructive outlook for the U.S.
dollar against most other world currencies.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
LETTER TO THE SHAREHOLDERS October 31, 1999, continued
LOOKING AHEAD
Despite a 0.50 percentage point increase in the federal-funds rate and a 0.75
percentage point increase on yields on two- and five-year Treasuries, future
rate hikes cannot be ruled out. A robust domestic and international economy,
tight labor markets, higher commodity prices and recent increases in the
Producer Price and Consumer Price indexes suggest that higher yields may be in
the offing. However, offsetting these potential precursors of inflation,
continued gains in productivity and the limited pricing power that business has
suggest that the Fed might not consider further monetary adjustments necessary.
Given this climate, we believe that the markets will likely react to individual
financial data releases by adjusting for increased or decreased probabilities of
an official interest-rate move, thus creating interim volatility for bond
prices. Unless a preponderance of data suggest the need for further action by
the Federal Reserve on interest rates, we will look, when possible, to take
advantage of any market swings to modestly adjust the portfolio's average
maturity and credit profile accordingly.
We appreciate your ongoing support of Morgan Stanley Dean Witter Short-Term Bond
Fund and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
FUND PERFORMANCE October 31, 1999
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- -----------------------------------
<S> <C>
Since Inception (1/10/94) 5.10(1)
1 Year 2.70(1)
5 Years 6.00(1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS.
- ---------------------
(1) Figure shown assumes reinvestment of all distributions. There is no sales
charge.
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS October 31, 1999 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (56.9%)
Auto Parts: O.E.M. (1.3%)
$ 2,000 TRW Inc. ............................ 6.45 % 06/15/01 $ 1,985,800
-----------
Cable Television (3.3%)
1,000 Century Communications Corp. ........ 9.75 02/15/02 1,012,500
2,000 Cox Communications, Inc. ............ 6.375 06/15/00 2,002,080
1,000 Cox Enterprises Inc. - 144A*......... 6.625 06/14/02 990,600
800 Rogers Cablesystems, Ltd. ........... 9.625 08/01/02 826,000
-----------
4,831,180
-----------
Casino/Gambling (0.7%)
1,000 Circus Circus Enterprises, Inc. ..... 9.25 12/01/05 1,000,000
-----------
Cellular Telephone (1.4%)
2,000 AirTouch Communications, Inc. ....... 7.125 07/15/01 2,016,420
-----------
Department Stores (2.0%)
3,000 Dillard's Inc........................ 5.79 11/15/01 2,910,000
-----------
Diversified Financial Services (2.8%)
2,000 Commercial Credit Group, Inc. ....... 8.25 11/01/01 2,060,540
2,100 General Motors Acceptance Corp. ..... 6.875 07/15/01 2,106,972
-----------
4,167,512
-----------
Diversified Manufacturing (1.5%)
2,290 Tyco International Group SA
(Luxemburg)......................... 6.125 06/15/01 2,258,742
-----------
Drugstore Chains (1.2%)
2,000 Rite Aid Corp. - 144A*............... 5.50 12/15/00 1,700,000
-----------
Electric Utilities (7.9%)
1,000 Cinergy Corp. - 144A*................ 6.125 04/15/04 952,000
1,500 Commonwealth Edison Co. ............. 6.50 04/15/00 1,501,965
1,000 Consolidated Edison Co. New York,
Inc. ................................ 7.375 09/15/00 1,009,290
370 Consumers Energy Co. ................ 8.875 11/15/99 370,352
3,000 CSW Investments - 144A* (United
Kingdom)............................ 6.95 08/01/01 3,009,390
1,000 Detroit Edison Co. .................. 5.93 02/01/01 994,400
1,000 Illinois Power Co. .................. 5.625 04/15/00 996,740
756 Niagara Mohawk Power Co. ............ 7.125 07/01/01 756,793
2,000 Texas Utilities Electric Co. ........ 8.125 02/01/02 2,048,080
-----------
11,639,010
-----------
Environmental Services (1.5%)
2,370 USA Waste Services, Inc. ............ 6.125 07/15/01 2,229,269
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS October 31, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Finance Companies (3.4%)
$ 1,000 Associates Corp. of North America.... 6.70 % 05/29/01 $ 1,002,570
2,000 AT&T Capital Co. .................... 6.25 05/15/01 1,985,000
2,000 Bombardier Capital Inc. - 144A*
(Canada)............................ 6.00 01/15/02 1,958,120
-----------
4,945,690
-----------
Food Chains (1.3%)
2,000 Kroger Co. .......................... 6.00 07/01/00 1,994,720
-----------
Investment Bankers/Brokers/Services (2.7%)
2,000 Donaldson, Lufkin & Jenrette, Inc. .. 5.875 04/01/02 1,948,280
2,000 Lehman Brothers Holdings, Inc. ...... 6.00 02/26/01 1,977,040
-----------
3,925,320
-----------
Life Insurance (1.3%)
2,000 Conseco, Inc. ....................... 6.40 06/15/01 1,947,560
-----------
Major Banks (2.1%)
1,000 Republic New York Corp. ............. 8.25 11/01/01 1,026,530
2,000 Wells Fargo & Co. ................... 6.875 05/10/01 2,008,620
-----------
3,035,150
-----------
Major U.S. Telecommunications (1.9%)
1,000 AT&T Corp. .......................... 5.625 03/15/04 957,000
2,000 Sprint Capital Corp. ................ 5.875 05/01/04 1,917,700
-----------
2,874,700
-----------
Media Conglomerates (1.4%)
2,000 News American Holdings, Inc. ........ 7.45 06/01/00 2,008,720
-----------
Mid-Sized Banks (1.3%)
2,000 Long Island Savings Bank............. 6.20 04/02/01 1,976,100
-----------
Military/Gov't/Technical (1.3%)
2,000 Raytheon Co. ........................ 6.30 08/15/00 1,996,080
-----------
Multi-Sector Companies (1.7%)
2,600 Brascan Ltd. ........................ 7.375 10/01/02 2,552,602
-----------
Oil & Gas Production (0.7%)
1,000 Occidental Petroleum Corp. .......... 8.50 11/09/01 1,026,370
-----------
Oil/Gas Transmission (2.6%)
2,000 Columbia Energy Group (Series A)..... 6.39 11/28/00 1,995,660
2,000 Williams Companies, Inc. - 144A*..... 5.95 02/15/00 1,995,380
-----------
3,991,040
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS October 31, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Oil Refining/Marketing (1.4%)
$ 2,000 Tosco Corp. ......................... 7.00 % 07/15/00 $ 2,006,340
-----------
Oilfield Services/Equipment (1.0%)
1,500 Petroleum Geo-Services ASA
(Norway)............................ 6.25 11/19/03 1,443,615
-----------
Other Consumer Services (1.3%)
2,000 Service Corp. International.......... 6.375 10/01/00 1,860,000
-----------
Other Telecommunications (1.4%)
2,000 US West Capital Funding,
Inc. - 144A*........................ 6.875 08/15/01 2,001,320
-----------
Railroads (2.0%)
2,000 Norfolk Southern Corp. .............. 6.875 05/01/01 2,002,620
1,000 Union Pac Corp. ..................... 7.375 05/15/01 1,006,520
-----------
3,009,140
-----------
Rental/Leasing Companies (3.5%)
1,270 Comdisco, Inc. ...................... 6.50 06/15/00 1,268,476
2,000 Comdisco, Inc. ...................... 6.13 08/01/01 1,957,340
2,000 Gatx Capital Corp. .................. 6.50 11/01/00 1,991,280
-----------
5,217,096
-----------
Savings & Loan Associations (1.0%)
1,500 Golden West Financial Corp. ......... 7.875 01/15/02 1,527,990
-----------
TOTAL CORPORATE BONDS
(Identified Cost $86,148,764).................................. 84,077,486
-----------
ASSET BACKED SECURITIES (2.7%)
Utilities
California Infrastructure & Economic
Development Bank
2,000 Special Purpose Trust SCE - 1
Class A - 3........................ 6.17 03/25/03 1,999,960
2,000 Special Purpose Trust PG&E - 1
Class A - 5........................ 6.25 06/25/04 1,987,720
-----------
TOTAL ASSET BACKED SECURITIES
(Identified Cost $4,046,602)................................... 3,987,680
-----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (36.2%)
Mortgage Pass-Through Securities (9.3%)
2,820 Federal Home Loan Mortgage Corp.
PC Gold............................. 5.50 04/01/03 2,682,897
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS October 31, 1999 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 5,854 Federal Home Loan Mortgage Corp. PC
Gold................................ 6.00 % 09/01/01-
09/01/03 $ 5,715,885
2,235 Federal Home Loan Mortgage Corp. PC
Gold................................ 6.50 07/01/00 2,211,782
3,165 Federal National Mortgage Assoc. .... 6.00 10/01/00 3,062,491
------------
13,673,055
------------
U.S. Government Agency & Obligations (26.9%)
12,025 Federal Home Loan Banks.............. 4.66- 01/21/00-
5.875 01/22/02 11,813,090
3,000 Federal Home Loan Mortgage Corp. .... 5.04- 07/16/01-
5.865 10/29/01 2,937,670
13,500 Federal National Mortgage Assoc. .... 5.21- 09/01/00-
6.31 07/17/02 13,314,885
6,000 Federal National Mortgage Assoc.
Strips.............................. 0.00 08/15/01-
02/01/02 5,324,520
4,000 Resolution Funding Corp. Strips...... 0.00 10/15/01 3,562,320
2,000 Tennessee Valley Authority Strips.... 0.00 05/01/02 1,709,000
1,000 U.S. Treasury Note................... 6.375 08/15/02 1,009,810
------------
39,671,295
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Identified Cost $54,368,389)..................................... 53,344,350
------------
SHORT-TERM INVESTMENT (3.0%)
4,467 REPURCHASE AGREEMENT
The Bank of New York
(dated 11/01/99; proceeds $4,468,891) (a)
(Identified Cost $4,466,960)......... 5.188 11/01/99 4,466,960
------------
TOTAL INVESTMENTS
(Identified Cost $149,030,715) (b)........................ 98.8% 145,876,476
OTHER ASSETS IN EXCESS OF LIABILITIES...................... 1.2 1,816,659
----- ------------
NET ASSETS............................................... 100.0% $147,693,135
===== ============
</TABLE>
- ---------------------
* Resale is restricted to qualified institutional investors.
(a) Collateralized by $2,871,068 U.S. Treasury Bond 11.25% due 02/15/15 valued
at $4,249,344 and $262,131 U.S. Treasury Bond 7.875% due 02/15/21 valued at
$306,956.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $24,975 and the
aggregate gross unrealized depreciation is $3,179,214, resulting in net
unrealized depreciation of $3,154,239.
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $149,030,715)............................. $145,876,476
Receivable for:
Interest................................................ 2,257,926
Shares of beneficial interest sold...................... 71,590
Receivable from affiliate................................... 57,355
Prepaid expenses and other assets........................... 7,947
------------
TOTAL ASSETS............................................ 148,271,294
------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased............... 339,580
Dividends to shareholders............................... 87,474
Investment management fee............................... 85,773
Accrued expenses and other payables......................... 65,332
------------
TOTAL LIABILITIES....................................... 578,159
------------
NET ASSETS.............................................. $147,693,135
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $153,333,587
Net unrealized depreciation................................. (3,154,239)
Accumulated net realized loss............................... (2,486,213)
------------
NET ASSETS.............................................. $147,693,135
============
NET ASSET VALUE PER SHARE,
15,847,934 shares outstanding
(unlimited shares authorized of $.01 par value)............ $9.32
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended October 31, 1999 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $5,339,950
----------
EXPENSES
Investment management fee................................... 608,407
Registration fees........................................... 56,379
Shareholder reports and notices............................. 45,887
Transfer agent fees and expenses............................ 40,773
Professional fees........................................... 36,397
Trustees' fees and expenses................................. 6,980
Custodian fees.............................................. 6,686
Other....................................................... 5,506
----------
TOTAL EXPENSES.......................................... 807,015
Less: amounts waived/reimbursed............................. (111,694)
----------
NET EXPENSES............................................ 695,321
----------
NET INVESTMENT INCOME................................... 4,644,629
----------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss........................................... (489,820)
Net change in unrealized depreciation....................... (2,683,610)
----------
NET LOSS................................................ (3,173,430)
----------
NET INCREASE................................................ $1,471,199
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
OCTOBER 31, 1999 APRIL 30, 1999
- ------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $ 4,644,629 $ 9,831,844
Net realized loss.................................... (489,820) (415,018)
Net change in unrealized depreciation................ (2,683,610) (202,190)
------------ ------------
NET INCREASE..................................... 1,471,199 9,214,636
Dividends from net investment income................. (4,644,629) (9,831,922)
Net increase (decrease) from transactions in shares
of beneficial interest.............................. (35,575,029) 79,359,646
------------ ------------
NET INCREASE (DECREASE).......................... (38,748,459) 78,742,360
NET ASSETS:
Beginning of period.................................. 186,441,594 107,699,234
------------ ------------
END OF PERIOD.................................... $147,693,135 $186,441,594
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS October 31, 1999 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Short-Term Bond Fund (the "Fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's investment objective is to provide a
high level of current income consistent with the preservation of capital. The
Fund seeks to achieve its objective by investing in a diversified portfolio of
short-term fixed income securities. The Fund was organized as a Massachusetts
business trust on October 22, 1993 and commenced operations on January 10, 1994.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) all portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (2) when market
quotations are not readily available, including circumstances under which it is
determined by Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager"), that sale and bid prices are not reflective of a security's market
value, portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Trustees (valuation of securities for which market quotations are not readily
available may be based upon current market prices of securities which are
comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors); (3) certain portfolio securities may be valued by an outside
pricing service approved by the Trustees. The pricing service may utilize a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, if available, in
determining what it believes is the fair valuation of the portfolio securities
valued by such pricing service; and (4) short-term debt securities having a
maturity date of more than sixty days at the time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.
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
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS October 31, 1999 (unaudited) continued
the identified cost method. Discounts are accreted over the life of the
respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.70% to the net assets of the Fund determined as of the close of
each business day.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
For the period May 1, 1999 through December 31, 2000, the Investment Manager
will continue to waive its fee and reimburse expenses to the extent they exceed
0.80% of the daily net assets of the Fund. At October 31, 1999, included in the
Statement of Assets and Liabilities is a receivable from affiliate which
represents expense reimbursements due to the Fund.
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS October 31, 1999 (unaudited) continued
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales/prepayments of portfolio
securities, excluding short-term investments, for the six months ended October
31, 1999 were $42,185,141, and $74,950,931, respectively. Included in the
aforementioned are purchases and sales/prepayments of U.S. Government securities
of $24,995,230 and $46,427,864, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Fund's transfer agent. At October 31, 1999, the Fund had transfer agent fees
and expenses payable of approximately $3,000.
4. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
OCTOBER 31, 1999 APRIL 30, 1999
-------------------------- ---------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Sold...................................................... 29,620,208 $278,254,963 63,700,556 $606,779,742
Reinvestment of dividends................................. 375,279 3,517,378 796,095 7,583,175
---------- ------------ ---------- ------------
29,995,487 281,772,341 64,496,651 614,362,917
Repurchased............................................... (33,798,554) (317,347,370) (56,192,124) (535,003,271)
---------- ------------ ---------- ------------
Net increase (decrease)................................... (3,803,067) $(35,575,029) 8,304,527 $ 79,359,646
========== ============ ========== ============
</TABLE>
5. FEDERAL INCOME TAX STATUS
At April 30, 1999, the Fund had a net capital loss carryover of approximately
$1,935,000, to offset future capital gains to the extent provided by regulations
available through April 30 of the following years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
- -------------------------------
2003 2004 2005 2006 2007
- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
$378 $501 $186 $359 $511
==== ==== ==== ==== ====
</TABLE>
Capital losses incurred after October 31 ("post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $61,000 during fiscal 1999.
As of April 30, 1999, the Fund had temporary book/tax differences primarily
attributable to post-October losses.
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR ENDED APRIL 30,
MONTHS ENDED ----------------------------------------------------
OCTOBER 31, 1999 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period................ $ 9.49 $ 9.49 $ 9.50 $9.54 $9.46 $9.62
------ ------ ------ ----- ----- -----
Income (loss) from investment operations:
Net investment income.............................. 0.25 0.56 0.65 0.61 0.63 0.77
Net realized and unrealized gain (loss)............ (0.17) -- -- (0.06) 0.05 (0.33)
------ ------ ------ ----- ----- -----
Total income from investment operations............. 0.08 0.56 0.65 0.55 0.68 0.44
------ ------ ------ ----- ----- -----
Less dividends and distributions from:
Net investment income.............................. (0.25) (0.56) (0.66) (0.59) (0.45) (0.59)
Paid-in-capital.................................... -- -- -- -- (0.15) (0.01)
------ ------ ------ ----- ----- -----
Total dividends and distributions................... (0.25) (0.56) (0.66) (0.59) (0.60) (0.60)
------ ------ ------ ----- ----- -----
Net asset value, end of period...................... $ 9.32 $ 9.49 $ 9.49 $9.50 $9.54 $9.46
====== ====== ====== ===== ===== =====
TOTAL RETURN+....................................... 0.87%(1) 6.00% 7.02% 5.88% 7.33% 4.76%
RATIOS TO AVERAGE NET ASSETS (3):
Expenses............................................ 0.80%(2) 0.31% -- 0.64% 0.37% --
Net investment income............................... 5.34%(2) 5.68% 6.52% 6.25% 6.54% 7.64%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............. $147,693 $186,442 $107,699 $42,252 $33,178 $29,818
Portfolio turnover rate............................. 23%(1) 58% 55% 67% 64% 74%
</TABLE>
- ---------------------
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all expenses that were assumed or waived by the
Investment Manager, the annualized expense and net investment income ratios
would have been 0.93% and 5.20%, respectively, for the six months ended
October 31, 1999; 0.88% and 5.11%, respectively, for the year ended April
30, 1999; 1.10% and 5.42%, respectively, for the year ended April 30, 1998;
1.30% and 5.59%, respectively, for the year ended April 30, 1997; 1.29% and
5.61%, respectively, for the year ended April 30, 1996; and 1.08% and
6.56%, respectively, for the year ended April 30, 1995.
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE> 16
TRUSTEES
- ----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
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
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
Peter M. Avelar
Vice President
Rajesh K. Gupta
Vice President
Rochelle G. Siegel
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
- ----------------------------------
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
- ----------------------------------
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
The financial statements included herein have been taken from the records of the
Fund without examination by the independent accountants and accordingly they
do not express an opinion thereon.
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. Read the
prospectus carefully before investing.
MORGAN STANLEY
DEAN WITTER
SHORT-TERM
BOND FUND
Semiannual Report
October 31, 1999
