MORGAN STANLEY DEAN WITTER SHORT TERM BOND FUND, 485BPOS, 2000-06-23

MORGAN STANLEY DEAN WITTER SHORT TERM BOND FUND
485BPOS, 2000-06-23

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 2000

FILE NOS.: 33-50857

811-7117

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------

FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 /X/
POST-EFFECTIVE AMENDMENT NO. 7 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
AMENDMENT NO. 8 /X/
-------------------

MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND

(A MASSACHUSETTS BUSINESS TRUST)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-1600

BARRY FINK, ESQ.
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(NAME AND ADDRESS OF AGENT FOR SERVICE)

------------------------

COPY TO:
STUART M. STRAUSS, ESQ.
MAYER, BROWN & PLATT
1675 BROADWAY
NEW YORK, NEW YORK 10019

----------------

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:

As soon as practicable after this Post-Effective Amendment becomes effective.

IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)

___ immediately upon filing pursuant to paragraph (b)

_X_ on June 23, 2000 pursuant to paragraph (b)

___ 60 days after filing pursuant to paragraph (a)

___ on (date) pursuant to paragraph (a) of rule 485.

AMENDING THE PROSPECTUS AND UPDATING FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

PROSPECTUS - JUNE 23, 2000

Morgan Stanley Dean Witter
SHORT-TERM BOND FUND

[COVER PHOTO]

A MUTUAL FUND THAT SEEKS TO
PROVIDE A HIGH LEVEL OF CURRENT INCOME,
CONSISTENT WITH THE PRESERVATION OF CAPITAL

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon
the adequacy of this Prospectus. Any representation to the contrary is a
criminal offense.
<PAGE>
CONTENTS

<TABLE>
<S> <C> <C>
The Fund Investment Objective.................................. 1
Principal Investment Strategies....................... 1
Principal Risks....................................... 2
Past Performance...................................... 3
Fees and Expenses..................................... 4
Additional Investment Strategy Information............ 5
Additional Risk Information........................... 5
Fund Management....................................... 7

Shareholder Information Pricing Fund Shares................................... 8
How to Buy Shares..................................... 8
How to Exchange Shares................................ 9
How to Sell Shares.................................... 11
Distributions......................................... 13
Tax Consequences...................................... 13

Financial Highlights ...................................................... 15

Our Family of Funds ...................................................... Inside Back Cover

THIS PROSPECTUS CONTAINS IMPORTANT INFORMATION ABOUT THE FUND. PLEASE READ
IT CAREFULLY AND KEEP IT FOR FUTURE REFERENCE.
</TABLE>
<PAGE>
[Sidebar]
INCOME
AN INVESTMENT OBJECTIVE HAVING THE GOAL OF SELECTING SECURITIES TO PAY OUT
INCOME RATHER THAN RISE IN PRICE.
[End Sidebar]

THE FUND

[ICON] INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------
Morgan Stanley Dean Witter Short-Term Bond Fund seeks to provide a
high level of current income, consistent with the preservation of
capital.

[ICON] PRINCIPAL INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
The Fund will normally invest at least 65% of its total assets in
bonds issued or guaranteed as to principal and interest by the U.S.
government, its agencies or instrumentalities (including zero coupon
securities), and investment grade corporate and other types of bonds.
In selecting portfolio investments to purchase or sell, the
"Investment Manager," Morgan Stanley Dean Witter Advisors Inc.,
considers both domestic and international economic developments,
interest rate trends and other factors and seeks to maintain an
overall weighted average maturity for the Fund of three years or
less.

MORTGAGE-BACKED SECURITIES. Certain of the U.S. government securities
in which the Fund may invest are mortgage-backed securities. One type
of mortgage-backed security, in which the Fund may invest, is a
mortgage pass-through security. These securities represent a
participation interest in a pool of residential mortgage loans
originated by U.S. governmental or private lenders such as banks.
They differ from conventional debt securities, which provide for
periodic payment of interest in fixed amounts and principal payments
at maturity or on specified call dates. Mortgage pass-through
securities provide for monthly payments that are a "pass-through" of
the monthly interest and principal payments made by the individual
borrowers on the pooled mortgage loans. Mortgage pass-through
securities may be collateralized by mortgages with fixed rates of
interest or adjustable rates.

Bonds are fixed-income debt securities. The issuer of the debt
security borrows money from the investor who buys the security. Most
debt securities pay either fixed or adjustable rates of interest at
regular intervals until they mature, at which point investors get
their principal back. The Fund's fixed-income investments may include
zero coupon securities, which are purchased at a discount and accrue
interest, but make no payments until maturity.

In addition, the Fund may invest in foreign, asset-backed and
restricted securities and "junk bonds."

In pursuing the Fund's investment objective, the Investment Manager
has considerable leeway in deciding which investments it buys, holds
or sells on a day-to-day basis -- and which trading strategies it
uses. For example, the Investment Manager in its discretion may
determine to use some permitted trading strategies while not using
others.

1
<PAGE>
[ICON] PRINCIPAL RISKS
--------------------------------------------------------------------------------

There is no assurance that the Fund will achieve its investment
objective. The Fund's share price and yield will fluctuate with
changes in the market value of the Fund's portfolio securities. The
Fund's yield will vary based on the yield of the Fund's portfolio
securities. Neither the value nor the yield of the U.S. government
securities that the Fund invests in (or the value or yield of the
Fund's shares) is guaranteed by the U.S. government. When you sell
Fund shares, they may be worth less than what you paid for them and,
accordingly, you can lose money investing in this Fund.

FIXED-INCOME SECURITIES. All fixed-income securities, such as bonds,
are subject to two types of risk: credit risk and interest rate risk.
Credit risk refers to the possibility that the issuer of a security
will be unable to make interest payments and repay the principal on
its debt. Certain of the Fund's investments may have speculative
characteristics.

Interest rate risk refers to fluctuations in the value of a
fixed-income security resulting from changes in the general level of
interest rates. When the general level of interest rates goes up, the
prices of most fixed-income securities go down. When the general
level of interest rates goes down, the prices of most fixed-income
securities go up. (Zero coupon securities are typically subject to
greater price fluctuations than comparable securities that pay
interest.) As merely illustrative of the relationship between fixed-
income securities and interest rates, the following table shows how
interest rates affect bond prices.

<TABLE>
<CAPTION>
PRICE PER $1,000 OF A BOND IF
INTEREST RATES:
------------------------------
HOW INTEREST RATES AFFECT BOND PRICES INCREASE DECREASE
-------------------------------------- -------------- --------------
BOND MATURITY COUPON 1% 2% 1% 2%
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------
1 year N/A $1,000 $1,000 $1,000 $1,000
----------------------------------------------------------------------
5 years 5.875% $951 $920 $1,038 $1,054
----------------------------------------------------------------------
10 years 6.00% $910 $853 $1,038 $1,110
----------------------------------------------------------------------
30 years 6.125% $841 $748 $1,093 $1,264
----------------------------------------------------------------------
</TABLE>

Coupons reflect yields on Treasury securities as of December 31,
1999. The table is not representative of price changes for
mortgage-backed securities principally because of prepayments. In
addition, the table is an illustration and does not represent
expected yields or share price changes of any Morgan Stanley Dean
Witter mutual fund.

MORTGAGE-BACKED SECURITIES. Mortgage-backed securities in which the
Fund may invest have different risk characteristics than traditional
debt securities. Although generally the value of fixed-income
securities increases during periods of falling interest rates and
decreases during periods of rising interest rates, this is not always
the case with mortgage-backed securities.

This is due to the fact that principal on underlying mortgages may be
prepaid at any time, as well as other factors. Generally, prepayments
will increase during a period of

2
<PAGE>

[Sidebar]
ANNUAL TOTAL RETURNS
THIS CHART SHOWS HOW THE PERFORMANCE OF THE FUND'S SHARES HAS VARIED FROM YEAR
TO YEAR OVER THE PAST 5 CALENDAR YEARS.

[End Sidebar]

falling interest rates and decrease during a period of rising
interest rates. The rate of prepayments also may be influenced by
economic and other factors. Prepayment risk includes the possibility
that, as interest rates fall, securities with stated interest rates
may have the principal prepaid earlier than expected, requiring the
Fund to invest the proceeds at generally lower interest rates.

Investments in mortgage-backed securities are made based upon, among
other things, expectations regarding the rate of prepayments on
underlying mortgage pools. Rates of prepayment, faster or slower than
expected by the Investment Manager, could reduce the Fund's yield,
increase the volatility of the Fund and/or cause a decline in net
asset value. Mortgage-backed securities, especially privately issued
mortgage-backed securities, are more volatile and less liquid than
other traditional types of securities.

OTHER RISKS. The performance of the Fund also will depend on whether
or not the Investment Manager is successful in pursuing the Fund's
investment strategy. The Fund is also subject to other risks from its
permissible investments including risks associated with investments
in foreign, asset-backed and restricted securities and "junk bonds."
For more information about these risks, see the "Additional Risk
Information" section.

Shares of the Fund are not bank deposits and are not guaranteed or
insured by the FDIC or any other government agency.

[ICON] PAST PERFORMANCE
--------------------------------------------------------------------------------
The bar chart and table below provide some indication of the risks of
investing in the Fund. The Fund's past performance does not indicate
how the Fund will perform in the future.

ANNUAL TOTAL RETURNS - CALENDAR YEARS

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Year-to-date total return as of March 31, 2000 was 0.81%.

During the periods shown in the bar chart, the highest return for a
calendar quarter was 3.73% (quarter ended June 30, 1995) and the
lowest return for a calendar quarter was 0.27% (quarter ended
March 31, 1996).

3
<PAGE>

[Sidebar]
AVERAGE ANNUAL
TOTAL RETURNS
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS WITH THOSE OF A
BROAD MEASURE OF MARKET PERFORMANCE OVER TIME.

ANNUAL FUND
OPERATING EXPENSES
THESE EXPENSES ARE DEDUCTED FROM THE FUND'S ASSETS AND ARE BASED ON EXPENSES
PAID FOR THE FISCAL YEAR ENDED APRIL 30, 2000.

[End Sidebar]

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (AS OF DECEMBER 31, 1999)
---------------------------------------------------------------------------------
LIFE OF FUND
PAST 1 YEAR PAST 5 YEARS (SINCE 1/10/94)
<S> <C> <C> <C>
---------------------------------------------------------------------------------
Short-Term Bond Fund 2.73% 6.46% 5.07%
---------------------------------------------------------------------------------
Lehman Brothers Mutual Fund Short
(1-5) Investment Grade Debt
Index(1) 2.49% 7.30% 5.89%(2)
---------------------------------------------------------------------------------
</TABLE>

1 The Lehman Brothers Mutual Fund Short (1-5) Investment Grade Debt Index
measures all investment-grade corporate debt securities with maturities of
one to five years. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
2 For the Period January 31, 1994 to December 31, 1999.

[ICON] FEES AND EXPENSES

--------------------------------------------------------------------------------

The table below briefly describes the fees and expenses that you may
pay if you buy and hold shares of the Fund. The Fund is a no-load
fund. The Fund does not charge account or exchange fees.

<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES
----------------------------------------------------------------------
Management fee 0.70%*
----------------------------------------------------------------------
Distribution and service (12b-1) fees None
----------------------------------------------------------------------
Other expenses 0.20%*
----------------------------------------------------------------------
Total annual Fund operating expenses 0.90%*
----------------------------------------------------------------------
</TABLE>

* During the fiscal year ended April 30, 2000, the Investment Manager waived
its compensation and assumed operating expenses (except brokerage fees)
without limitation to the extent such compensation and expenses exceeded
0.80% of the Fund's daily net assets on an annualized basis. The Investment
Manager will continue to assume all operating expenses (except brokerage
fees) and waive its compensation to the extent they exceed 0.80% of the
Fund's daily net assets, on an annualized basis, until December 31, 2000.
For the fiscal year ended April 30, 2000, taking the waiver of expenses
into account, the actual management fee was 0.60% of the Fund's daily net
assets and the actual other expenses were 0.20% of the Fund's daily net
assets.

EXAMPLE
This example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Fund, your
investment has a 5% return each year, and the Fund's operating
expenses remain the same. Although your actual costs may be higher or
lower, the tables below show your costs at the end of each period
based on these assumptions.

<TABLE>
<CAPTION>
EXPENSES OVER TIME
---------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
---------------------------------------------------------
$92 $287 $498 $1,108
---------------------------------------------------------
</TABLE>

4
<PAGE>
[ICON] ADDITIONAL INVESTMENT STRATEGY INFORMATION
--------------------------------------------------------------------------------
This section provides additional information relating to the Fund's
principal investment strategies.

FOREIGN SECURITIES. The Fund may invest up to 25% of its total assets
in investment grade fixed-income securities issued by foreign
governments or corporations.

ASSET-BACKED SECURITIES. The Fund may invest in asset-backed
securities. The securitization techniques used to develop
mortgage-backed securities are also applied to a broad range of other
assets. Various types of assets, primarily automobile and credit card
receivables and home equity loans, are being securitized in
pass-through structures similar to the mortgage pass-through
structures.

RESTRICTED SECURITIES AND JUNK BONDS. The Fund's investments may also
include "Rule 144A" fixed-income securities, which are subject to
resale restrictions. Up to 5% of the Fund's assets may be invested in
fixed-income securities rated lower than investment grade, or if
unrated of comparable quality as determined by the Investment Manager
(commonly known as "junk bonds").

The percentage limitations relating to the composition of the Fund's
portfolio apply at the time the Fund acquires an investment and refer
to the Fund's net assets, unless otherwise noted. Subsequent
percentage changes that result from market fluctuations will not
require the Fund to sell any portfolio security. The Fund may change
its principal investment strategies without shareholder approval;
however, you would be notified of any changes.

[ICON] ADDITIONAL RISK INFORMATION
--------------------------------------------------------------------------------
This section provides additional information relating to the
principal risks of investing in the Fund.

FOREIGN SECURITIES. The Fund's investments in foreign securities
involve risks in addition to the risks associated with domestic
securities. One additional risk may be currency risk. While the price
of Fund shares is quoted in U.S. dollars, the Fund generally may
convert U.S. dollars to a foreign market's local currency to purchase
a security in that market. If the value of that local currency falls
relative to the U.S. dollar, the U.S. dollar value of the foreign
security will decrease. This is true even if the foreign security's
local price remains unchanged.

Foreign securities also have risks related to economic and political
developments abroad, including expropriation, confiscatory taxation,
exchange control regulation, limitations on the use or transfer of
Fund assets, and any effects of foreign social, economic or political
instability. Foreign companies, in general, are not subject to the
regulatory requirements of U.S. companies and, as such, there may be
less publicly

5
<PAGE>
available information about these companies. Moreover, foreign
accounting, auditing and financial reporting standards generally are
different from those applicable to U.S. companies. Finally, in the
event of a default of any foreign debt obligations, it may be more
difficult for the Fund to obtain or enforce a judgment against the
issuers of the securities.

Securities of foreign issuers may be less liquid than comparable
securities of U.S. issuers and, as such, their price changes may be
more volatile. Furthermore, foreign exchanges and broker-dealers are
generally subject to less government and exchange scrutiny and
regulation than their U.S. counterparts. In addition, differences in
clearance and settlement procedures in foreign markets may occasion
delays in settlements of the Fund's trades effected in those markets.

ASSET-BACKED SECURITIES. Asset-backed securities have risk
characteristics similar to mortgage-backed securities. Like
mortgage-backed securities, they generally decrease in value as a
result of interest rate increases, but may benefit less than other
fixed-income securities from declining interest rates, principally
because of prepayments. Also, as in the case of mortgage-backed
securities, prepayments generally increase during a period of
declining interest rates although other factors, such as changes in
credit use and payment patterns, may also influence prepayment rates.
Asset-backed securities also involve the risk that various federal
and state consumer laws and other legal and economic factors may
result in the collateral backing the securities being insufficient to
support payment on the securities.

RESTRICTED SECURITIES AND JUNK BONDS. The Fund's investments in junk
bonds pose significant risks. The prices of junk bonds are likely to
be more sensitive to adverse economic changes or individual corporate
developments than higher rated securities. During an economic
downturn or substantial period of rising interest rates, junk bond
issuers and, in particular, highly leveraged issuers may experience
financial stress that would adversely affect their ability to service
their principal and interest payment obligations, to meet their
projected business goals or to obtain additional financing. In the
event of a default, the Fund may incur additional expenses to seek
recovery. The secondary market for junk bonds may be less liquid than
the markets for higher quality securities and, as such, may have an
adverse effect on the market prices of certain securities. Many junk
bonds are issued as Rule 144A securities. Rule 144A securities could
have the effect of increasing the level of Fund illiquidity to the
extent a Fund may be unable to find qualified institutional buyers
interested in purchasing the securities. The illiquidity of the
market may also adversely affect the ability of the Fund's Trustees
to arrive at a fair value for certain junk bonds at certain times and
could make it difficult for the Fund to sell certain securities.

6
<PAGE>

[Sidebar]
MORGAN STANLEY DEAN WITTER ADVISORS INC.
THE INVESTMENT MANAGER IS WIDELY RECOGNIZED AS A LEADER IN THE MUTUAL FUND
INDUSTRY AND TOGETHER WITH MORGAN STANLEY DEAN WITTER SERVICES COMPANY INC., ITS
WHOLLY-OWNED SUBSIDIARY, HAD APPROXIMATELY $150 BILLION IN ASSETS UNDER
MANAGEMENT AS OF MAY 31, 2000.

[End Sidebar]

[ICON] FUND MANAGEMENT

--------------------------------------------------------------------------------

The Fund has retained the Investment Manager -- Morgan Stanley Dean
Witter Advisors Inc. -- to provide administrative services, manage
its business affairs and invest its assets, including the placing of
orders for the purchase and sale of portfolio securities. The
Investment Manager is a wholly-owned subsidiary of Morgan Stanley
Dean Witter & Co., a preeminent global financial services firm that
maintains leading market positions in each of its three primary
businesses: securities, asset management and credit services. Its
main business office is located at Two World Trade Center, New York,
NY 10048.

The Fund's portfolio is managed within the Investment Manager's
Taxable Income Group. Rochelle G. Siegel, Senior Vice President of
the Investment Manager and a member of the Corporate Bond Group, is
the primary portfolio manager of the Fund. Ms. Siegel has been a
portfolio manager with the Investment Manager for over five years.

The Fund pays the Investment Manager a monthly management fee as full
compensation for the services and facilities furnished to the Fund,
and for Fund expenses assumed by the Investment Manager. The fee is
based on the Fund's average daily net assets. For the fiscal year
ended April 30, 2000, the Fund paid total compensation to the
Investment Manager amounting to 0.60% of the Fund's average daily net
assets. This amount reflects the waiver of fees and assumption of
expenses. The Investment Manager has undertaken through December 31,
2000, to continue to assume operating expenses of the Fund (except
brokerage fees) and waive its compensation to the extent they exceed
0.80% of the Fund's daily net assets on an annualized basis.

7
<PAGE>

[Sidebar]
CONTACTING A
FINANCIAL ADVISOR
IF YOU ARE NEW TO THE MORGAN STANLEY DEAN WITTER FAMILY OF FUNDS AND WOULD LIKE
TO CONTACT A FINANCIAL ADVISOR, CALL (877)937-MSDW (TOLL-FREE) FOR THE TELEPHONE
NUMBER OF THE MORGAN STANLEY DEAN WITTER OFFICE NEAREST YOU. YOU MAY ALSO ACCESS
OUR OFFICE LOCATOR ON OUR INTERNET SITE AT: www.msdw.com/individual/funds

[End Sidebar]

SHAREHOLDER INFORMATION

[ICON] PRICING FUND SHARES
--------------------------------------------------------------------------------
The price of Fund shares, called "net asset value," is based on the
value of the Fund's portfolio securities.

The net asset value per share of the Fund is determined once daily at
4:00 p.m. Eastern time on each day that the New York Stock Exchange
is open (or, on days when the New York Stock Exchange closes prior to
4:00 p.m., at such earlier time). Shares will not be priced on days
that the New York Stock Exchange is closed.

The value of the Fund's portfolio securities is based on the
securities' market price when available. When a market price is not
readily available, including circumstances under which the Investment
Manager determines that a security's market price is not accurate, a
portfolio security is valued at its fair value, as determined under
procedures established by the Fund's Board of Trustees. In these
cases, the Fund's net asset value will reflect certain portfolio
securities' fair value rather than their market price. With respect
to securities that are primarily listed on foreign exchanges, the
value of the Fund's portfolio securities may change on days when you
will not be able to purchase or sell your shares.

An exception to the Fund's general policy of using market prices
concerns its short-term debt portfolio securities. Debt securities
with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost. However, if the cost does
not reflect the securities' market value, these securities will be
valued at their fair value.

[ICON] HOW TO BUY SHARES
--------------------------------------------------------------------------------
You may open a new account to buy Fund shares or buy additional Fund
shares for an existing account by contacting your Morgan Stanley Dean
Witter Financial Advisor or other authorized financial
representative. Your Financial Advisor will assist you, step-
by-step, with the procedures to invest in the Fund. You may also
purchase shares directly by calling the Fund's transfer agent and
requesting an application.

When you buy Fund shares, the shares are purchased at the next share
price calculated after we receive your purchase order. Your payment
is due on the third business day after you place your purchase order.
We reserve the right to reject any order for the purchase of Fund
shares.

8
<PAGE>
[Sidebar]
EASYINVEST-SM-
A PURCHASE PLAN THAT ALLOWS YOU TO TRANSFER MONEY AUTOMATICALLY FROM YOUR
CHECKING OR SAVINGS ACCOUNT OR FROM A MONEY MARKET FUND ON A SEMI-MONTHLY,
MONTHLY OR QUARTERLY BASIS. CONTACT YOUR MORGAN STANLEY DEAN WITTER FINANCIAL
ADVISOR FOR FURTHER INFORMATION ABOUT THIS SERVICE.
[End Sidebar]

<TABLE>
<CAPTION>
MINIMUM INVESTMENT AMOUNTS
---------------------------------------------------------------------------------------------
MINIMUM INVESTMENT
-------------------
INVESTMENT OPTIONS INITIAL ADDITIONAL
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------
Regular Accounts $1,000 $100
---------------------------------------------------------------------------------------------
Individual Retirement Accounts: Regular IRAs $1,000 $100
Education IRAs $ 500 $100
---------------------------------------------------------------------------------------------
EASYINVEST-SM-
(Automatically from your checking
or savings account or Money Market
Fund) $100* $100*
---------------------------------------------------------------------------------------------
</TABLE>

* Provided your schedule of investments totals $1,000 in twelve months.

There is no minimum investment amount if you purchase Fund shares
through: (1) the Investment Manager's mutual fund asset allocation
plan, (2) a program, approved by the Fund's distributor, in which you
pay an asset-based fee for advisory, administrative and/ or brokerage
services, or (3) employer-sponsored employee benefit plan accounts.

SUBSEQUENT INVESTMENTS SENT DIRECTLY TO THE FUND. In addition to
buying additional Fund shares for an existing account by contacting
your Morgan Stanley Dean Witter Financial Advisor, you may send a
check directly to the Fund. To buy additional shares in this manner:

- Write a "letter of instruction" to the Fund specifying the name(s)
on the account, the account number, the social security or tax
identification number, and the investment amount. The letter must
be signed by the account owner(s).

- Make out a check for the total amount payable to: Morgan Stanley
Dean Witter Short-Term Bond Fund.

- Mail the letter and check to Morgan Stanley Dean Witter Trust FSB
at P.O. Box 1040, Jersey City, NJ 07303.

PLAN OF DISTRIBUTION The Fund has adopted a Plan of Distribution in
accordance with Rule 12b-1 under the Investment Company Act of 1940.
The Plan allows the Fund's distributor to use its own assets or those
of its affiliates, including the Investment Manager to pay distribution
fees for the sale and distribution of Fund shares.

[ICON] HOW TO EXCHANGE SHARES
--------------------------------------------------------------------------------

PERMISSIBLE FUND EXCHANGES. You may exchange shares of the Fund for
shares of other continuously offered Morgan Stanley Dean Witter Funds
if the Fund shares were acquired in an exchange of shares initially
purchased in a Multi-Class Fund or an FSC Fund (subject to a
front-end sales charge). In that case, the shares may be subsequently

9
<PAGE>

re-exchanged for shares of the same Class of any Multi-Class Fund or
FSC Fund or for shares of another No-Load Fund, a Money Market Fund,
North American Government Income Trust or Short-Term U.S. Treasury
Trust. Of course, if an exchange is not permitted, you may sell
shares of the Fund and buy another fund's shares with the proceeds.

See the inside back cover of this PROSPECTUS for each Morgan Stanley
Dean Witter Fund's designation as a Multi-Class Fund, FSC Fund,
No-Load Fund or a Money Market Fund. If a Morgan Stanley Dean Witter
Fund is not listed, consult the inside back cover of that fund's
prospectus for its designation.

Exchanges may be made after shares of the Fund acquired by purchase
have been held for thirty days. There is no waiting period for
exchanges of shares acquired by exchange or dividend reinvestment.
The current prospectus for each fund describes its investment
objectives, policies and investment minimums, and should be read
before investment. Since exchanges are available only into
continuously offered Morgan Stanley Dean Witter Funds, exchanges are
not available into any new Morgan Stanley Dean Witter Fund during its
initial offering period, or when shares of a particular Morgan
Stanley Dean Witter Fund are not being offered for purchase.

EXCHANGE PROCEDURES. You can process an exchange by contacting your
Morgan Stanley Dean Witter Financial Advisor or other authorized
financial representative. Otherwise, you must forward an exchange
privilege authorization form to the Fund's transfer agent - Morgan
Stanley Dean Witter Trust FSB - and then write the transfer agent or
call (800) 869-NEWS to place an exchange order. You can obtain an
exchange privilege authorization form by contacting your Financial
Advisor or other authorized financial representative, or by calling
(800) 869-NEWS. If you hold share certificates, no exchanges may be
processed until we have received all applicable share certificates.

An exchange to any Morgan Stanley Dean Witter Fund (except a Money
Market Fund) is made on the basis of the next calculated net asset
values of the funds involved after the exchange instructions are
accepted. When exchanging into a Money Market Fund, the Fund's shares
are sold at their next calculated net asset value and the Money
Market Fund's shares are purchased at their net asset value on the
following business day.

The Fund may terminate or revise the exchange privilege upon required
notice. The check writing privilege is not available for Money Market
Fund shares you acquire in an exchange.

TELEPHONE EXCHANGES. For your protection when calling Morgan Stanley
Dean Witter Trust FSB, we will employ reasonable procedures to
confirm that exchange instructions communicated over the telephone
are genuine. These procedures may include requiring various forms of
personal identification such as name, mailing address, social
security or other tax identification number. Telephone instructions
also may be recorded.

Telephone instructions will be accepted if received by the Fund's
transfer agent between 9:00 a.m. and 4:00 p.m. Eastern time on any
day the New York Stock Exchange is open

10
<PAGE>
for business. During periods of drastic economic or market changes,
it is possible that the telephone exchange procedures may be
difficult to implement, although this has not been the case with the
Fund in the past.

MARGIN ACCOUNTS. If you have pledged your Fund shares in a margin
account, contact your Morgan Stanley Dean Witter Financial Advisor or
other authorized financial representative regarding restrictions on
the exchange of such shares.

TAX CONSIDERATIONS OF EXCHANGES. If you exchange shares of the Fund
for shares of another Morgan Stanley Dean Witter Fund there are
important tax considerations. For tax purposes, the exchange out of
the Fund is considered a sale of Fund shares - and the exchange into
the other fund is considered a purchase. As a result, you may realize
a capital gain or loss.

You should review the "Tax Consequences" section and consult your own
tax professional about the tax consequences of an exchange.

LIMITATIONS ON EXCHANGES. Certain patterns of past exchanges and/or
purchase or sale transactions involving the Fund or other Morgan
Stanley Dean Witter Funds may result in the Fund limiting or
prohibiting, at its discretion, additional purchases and/or
exchanges. Determinations in this regard may be made based on the
frequency or dollar amount of the previous exchanges or purchase or
sale transactions. You will be notified in advance of limitations on
your exchange privileges.

For further information regarding exchange privileges, you should
contact your Morgan Stanley Dean Witter Financial Advisor or call
(800) 869-NEWS.

[ICON] HOW TO SELL SHARES
--------------------------------------------------------------------------------

You can sell some or all of your Fund shares at any time. Your shares
will be sold at the next price calculated after we receive your order
to sell as described below.

<TABLE>
<CAPTION>
OPTIONS PROCEDURES
<S> <C>
--------------------------------------------------------------------------------
Contact your To sell your shares, simply call your Morgan Stanley Dean
Financial Advisor Witter Financial Advisor or other authorized financial
[ICON] representative.
------------------------------------------------------------
Payment will be sent to the address to which the account is
registered or deposited in your brokerage account.
--------------------------------------------------------------------------------
By Letter You can also sell your shares by writing a "letter of
[ICON] instruction" that includes:
- your account number;
- the dollar amount or the number of shares you wish to
sell; and
- the signature of each owner as it appears on the account.
------------------------------------------------------------
</TABLE>

11
<PAGE>

<TABLE>
<CAPTION>
OPTIONS PROCEDURES
--------------------------------------------------------------------------------
<S> <C>
By Letter, If you are requesting payment to anyone other than the
continued registered owner(s) or that payment be sent to any address
other than the address of the registered owner(s) or
pre-designated bank account, you will need a signature
guarantee. You can generally obtain a signature guarantee
from an eligible guarantor acceptable to Morgan Stanley Dean
Witter Trust FSB. (You should contact Morgan Stanley Dean
Witter Trust FSB at (800) 869-NEWS for a determination as to
whether a particular institution is an eligible guarantor.)
A notary public CANNOT provide a signature guarantee.
Additional documentation may be required for shares held by
a corporation, partnership, trustee or executor.
------------------------------------------------------------
Mail the letter to Morgan Stanley Dean Witter Trust FSB at
P.O. Box 983, Jersey City, NJ 07303. If you hold share
certificates, you must return the certificates, along with
the letter and any required additional documentation.
------------------------------------------------------------
A check will be mailed to the name(s) and address in which
the account is registered, or otherwise according to your
instructions.
--------------------------------------------------------------------------------
Systematic If your investment in all of the Morgan Stanley Dean Witter
Withdrawal Plan Family of Funds has a total market value of at least
[ICON] $10,000, you may elect to withdraw amounts of $25 or more,
or in any whole percentage of a fund's balance (provided the
amount is at least $25), on a monthly, quarterly,
semi-annual or annual basis, from any fund with a balance of
at least $1,000. Each time you add a fund to the plan, you
must meet the plan requirements.
------------------------------------------------------------
To sign up for the Systematic Withdrawal Plan, contact your
Morgan Stanley Dean Witter Financial Advisor or call
(800) 869-NEWS. You may terminate or suspend your plan at
any time. Please remember that withdrawals from the plan are
sales of shares, not Fund "distributions," and ultimately
may exhaust your account balance. The Fund may terminate or
revise the plan at any time.
--------------------------------------------------------------------------------
</TABLE>

PAYMENT FOR SOLD SHARES. After we receive your complete instructions
to sell as described above, a check will be mailed to you within
seven days, although we will attempt to make payment within one
business day. Payment may also be sent to your brokerage account.

Payment may be postponed or the right to sell your shares suspended
under unusual circumstances. If you request to sell shares that were
recently purchased by check, your sale will not be effected until it
has been verified that the check has been honored.

TAX CONSIDERATIONS. Normally, your sale of Fund shares is subject to
federal and state income tax. You should review the "Tax
Consequences" section of this PROSPECTUS and consult your own tax
professional about the tax consequences of a sale.

INVOLUNTARY SALES. The Fund reserves the right, on sixty days'
notice, to sell the shares of any shareholder (other than shares held
in an IRA or 403(b) Custodial Account) whose shares, due to sales by
the shareholder, have a value below $100, or in the case of an
account opened through EASYINVEST -SM-, if after 12 months the
shareholder has invested less than $1,000 in the account.

12
<PAGE>
[Sidebar]
TARGETED DIVIDENDS-SM-
YOU MAY SELECT TO HAVE YOUR FUND DISTRIBUTIONS AUTOMATICALLY INVESTED IN ANOTHER
MORGAN STANLEY DEAN WITTER FUND THAT YOU OWN. CONTACT YOUR MORGAN STANLEY DEAN
WITTER FINANCIAL ADVISOR FOR FURTHER INFORMATION ABOUT THIS SERVICE.
[End Sidebar]

However, before the Fund sells your shares in this manner, we will
notify you and allow you sixty days to make an additional investment
in an amount that will increase the value of your account to at least
the required amount before the sale is processed. No CDSC will be
imposed on any involuntary sale.

[ICON] DISTRIBUTIONS
--------------------------------------------------------------------------------
The Fund passes substantially all of its earnings from income and
capital gains along to its investors as "distributions." The Fund
earns interest from fixed-income investments. These amounts are
passed along to Fund shareholders as "income dividend distributions."
The Fund realizes capital gains whenever it sells securities for a
higher price than it paid for them. These amounts may be passed along
as "capital gain distributions."

Normally, income dividends are declared on each day the New York
Stock Exchange is open for business, and are distributed to
shareholders monthly. Capital gains, if any, are usually distributed
in December. The Fund, however, may retain and reinvest any long-
term capital gains. The Fund may at times make payments from sources
other than income or capital gains that represent a return of a
portion of your investment.

Distributions are reinvested automatically in additional shares of
the Fund and automatically credited to your account, unless you
request in writing that all distributions be paid in cash. If you
elect the cash option, the Fund will mail a check to you no later
than seven business days after the distribution is declared. No
interest will accrue on uncashed checks. If you wish to change how
your distributions are paid, your request should be received by the
Fund's transfer agent, Morgan Stanley Dean Witter Trust FSB, at least
five business days prior to the record date of the distributions.

[ICON] TAX CONSEQUENCES
--------------------------------------------------------------------------------
As with any investment, you should consider how your Fund investment
will be taxed. The tax information in this PROSPECTUS is provided as
general information. You should consult your own tax professional
about the tax consequences of an investment in the Fund.

13
<PAGE>
Unless your investment in the Fund is through a tax-deferred
retirement account, such as a 401(k) plan or IRA, you need to be
aware of the possible tax consequences when:

- The Fund makes distributions; and

- You sell Fund shares, including an exchange to another Morgan
Stanley Dean Witter Fund.

TAXES ON DISTRIBUTIONS. Your distributions are normally subject to
federal and state income tax when they are paid, whether you take
them in cash or reinvest them in Fund shares. A distribution also may
be subject to local income tax. Any income dividend distributions and
any short-term capital gain distributions are taxable to you as
ordinary income. Any long-term capital gain distributions are taxable
as long-term capital gains, no matter how long you have owned shares
in the Fund.

Every January, you will be sent a statement (IRS Form 1099-DIV)
showing the taxable distributions paid to you in the previous year.
The statement provides information on your dividends and capital
gains for tax purposes.

TAXES ON SALES. Your sale of Fund shares normally is subject to
federal and state income tax and may result in a taxable gain or loss
to you. A sale also may be subject to local income tax. Your exchange
of Fund shares for shares of another Morgan Stanley Dean Witter Fund
is treated for tax purposes like a sale of your original shares and a
purchase of your new shares. Thus, the exchange may, like a sale,
result in a taxable gain or loss to you and will give you a new tax
basis for your new shares.

When you open your Fund account, you should provide your social
security or tax identification number on your investment application.
By providing this information, you will avoid being subject to a
federal backup withholding tax of 31% on taxable distributions and
redemption proceeds. Any withheld amount would be sent to the IRS as
an advance tax payment.

14
<PAGE>
FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 fiscal years of the Fund. Certain
information reflects financial results for a single Fund share throughout each
year. The total returns in the table represent the rate an investor would have
earned or lost on an investment in the Fund (assuming reinvestment of all
dividends and distributions).

This information has been audited by PricewaterhouseCoopers, LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the annual report, which is available upon request.

<TABLE>
<CAPTION>
FUND SHARES
----------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED APRIL 30 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING PERFORMANCE:
----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.49 $9.49 $9.50 $9.54 $9.46
----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.51 0.56 0.65 0.61 0.63
Net realized and unrealized gain (loss) (0.29) -- -- (0.06) 0.05
-------- -------- -------- ------- -------
Total income from investment operations 0.22 0.56 0.65 0.55 0.68
----------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.51) (0.56) (0.66) (0.59) (0.45)
Paid-in-capital -- -- -- -- (0.15)
-------- -------- -------- ------- -------
Total dividends and distributions (0.51) (0.56) (0.66) (0.59) (0.60)
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.20 $9.49 $9.49 $9.50 $9.54
----------------------------------------------------------------------------------------------------------------------------

TOTAL RETURN+ 2.36% 6.00% 7.02% 5.88% 7.33%
----------------------------------------------------------------------------------------------------------------------------

RATIOS TO AVERAGE NET ASSETS:(1)
----------------------------------------------------------------------------------------------------------------------------
Expenses 0.80% 0.31% -- 0.64% 0.37%
----------------------------------------------------------------------------------------------------------------------------
Net investment income 5.43% 5.68% 6.52% 6.25% 6.54%
----------------------------------------------------------------------------------------------------------------------------

SUPPLEMENTAL DATA:
----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period, in thousands $118,694 $186,442 $107,699 $42,252 $33,178
----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 71% 58% 55% 67% 64%
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

+ Calculated based on the net asset value as of the last business day of the
period.
(1) 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 0.90% and 5.33%, respectively, for the year ended April 30,
2000; 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; and 1.29% and 5.61%,
respectively, for the year ended April 30, 1996.

15
<PAGE>
NOTES

----------------------------------------------------------

16
<PAGE>
MORGAN STANLEY DEAN WITTER
FAMILY OF FUNDS

The Morgan Stanley Dean Witter Family of Funds offers
investors a wide range of investment choices. Come on
in and meet the family!

--------------------------------------------------------------------------------
GROWTH FUNDS
---------------------------------

GROWTH FUNDS
Aggressive Equity Fund
American Opportunities Fund
Capital Growth Securities

Developing Growth Securities

Growth Fund
Market Leader Trust
Mid-Cap Equity Trust

Next Generation Trust

Small Cap Growth Fund
Special Value Fund

Tax-Managed Growth Fund

21st Century Trend Fund

THEME FUNDS
Financial Services Trust
Health Sciences Trust
Information Fund

Natural Resource Development Securities

GLOBAL/INTERNATIONAL FUNDS
Competitive Edge Fund - "Best Ideas"
Portfolio
European Growth Fund
Fund of Funds - International Portfolio
International Fund
International SmallCap Fund
Japan Fund
Latin American Growth Fund
Pacific Growth Fund

--------------------------------------------------------------------------------

GROWTH & INCOME FUNDS

---------------------------------
Balanced Growth Fund
Balanced Income Fund
Convertible Securities Trust
Dividend Growth Securities

Equity Fund

Fund of Funds - Domestic Portfolio
Income Builder Fund
Mid-Cap Dividend Growth Securities
S&P 500 Index Fund
S&P 500 Select Fund
Strategist Fund
Total Market Index Fund
Total Return Trust

Value Fund

Value-Added Market Series/Equity Portfolio

THEME FUNDS

Real Estate Fund
Utilities Fund

GLOBAL FUNDS
Global Dividend Growth Securities

Global Utilities Fund

--------------------------------------------------------------------------------
INCOME FUNDS
---------------------------------

GOVERNMENT INCOME FUNDS
Federal Securities Trust
Short-Term U.S. Treasury Trust
U.S. Government Securities Trust

DIVERSIFIED INCOME FUNDS
Diversified Income Trust

CORPORATE INCOME FUNDS
High Yield Securities
Intermediate Income Securities
Short-Term Bond Fund (NL)

GLOBAL INCOME FUNDS
North American Government Income Trust
World Wide Income Trust

TAX-FREE INCOME FUNDS
California Tax-Free Income Fund
Hawaii Municipal Trust (FSC)
Limited Term Municipal Trust (NL)
Multi-State Municipal Series Trust (FSC)
New York Tax-Free Income Fund
Tax-Exempt Securities Trust

--------------------------------------------------------------------------------
MONEY MARKET FUNDS
---------------------------------

TAXABLE MONEY MARKET FUNDS
Liquid Asset Fund (MM)
U.S. Government Money Market Trust (MM)

TAX-FREE MONEY MARKET FUNDS
California Tax-Free Daily Income Trust (MM)
New York Municipal Money Market Trust (MM)
Tax-Free Daily Income Trust (MM)

There may be funds created after this PROSPECTUS was published. Please consult
the inside back cover of a new fund's prospectus for its designation, e.g.,
Multi-Class Fund or Money Market Fund.

Unless otherwise noted, each listed Morgan Stanley Dean Witter Fund, except for
North American Government Income Trust and Short-Term U.S. Treasury Trust, is a
Multi-Class Fund. A Multi-Class Fund is a mutual fund offering multiple Classes
of shares. The other types of funds are: NL - No-Load (Mutual) Fund; MM - Money
Market Fund; FSC - A mutual fund sold with a front-end sales charge and a
distribution (12b-1) fee.
<PAGE>

PROSPECTUS - JUNE 23, 2000

Additional information about the Fund's investments is available in the Fund's
ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS. In the Fund's ANNUAL REPORT, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year. The
Fund's STATEMENT OF ADDITIONAL INFORMATION also provides additional information
about the Fund. The STATEMENT OF ADDITIONAL INFORMATION is incorporated herein
by reference (legally is part of this PROSPECTUS). For a free copy of any of
these documents, to request other information about the Fund, or to make
shareholder inquiries, please call:

(800) 869-NEWS

You also may obtain information about the Fund by calling your Morgan Stanley
Dean Witter Financial Advisor or by visiting our Internet site at:

www.msdw.com/individual/funds

Information about the Fund (including the STATEMENT OF ADDITIONAL INFORMATION)
can be viewed and copied at the Securities and Exchange Commission's Public
Reference Room in Washington, DC. Information about the Reference Room's
operations may be obtained by calling the SEC at (202) 942-8090. Reports and
other information about the Fund are available on the EDGAR Database on the
SEC's Internet site (www.sec.gov), and copies of this information may be
obtained, after paying a duplicating fee, by electronic request at the following
E-mail address: [email protected], or by writing the Public Reference Section
of the SEC, Washington, DC 20549-0102.

TICKER SYMBOL:
DWSBX
---------------------
Morgan Stanley Dean Witter
SHORT-TERM BOND FUND

[BACK COVER PHOTO]

A MUTUAL FUND
THAT SEEKS TO PROVIDE
A HIGH LEVEL OF CURRENT
INCOME, CONSISTENT WITH THE
PRESERVATION OF CAPITAL

(THE FUND'S INVESTMENT COMPANY ACT FILE NO. IS 811-7117)
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION MORGAN
JUNE 23, 2000 STANLEY
DEAN WITTER
SHORT-TERM
BOND FUND

--------------------------------------------------------------------------------

This STATEMENT OF ADDITIONAL INFORMATION is not a PROSPECTUS. The PROSPECTUS
dated June 23, 2000 for the Morgan Stanley Dean Witter Short-Term Bond Fund may
be obtained without charge from the Fund at its address or telephone number
listed below or from Dean Witter Reynolds at any of its branch offices.

Morgan Stanley Dean Witter
Short-Term Bond Fund
Two World Trade Center
New York, New York 10048
(800) 869-NEWS
<PAGE>
TABLE OF CONTENTS
--------------------------------------------------------------------------------

<TABLE>
<S> <C>
I. Fund History............................................. 4

II. Description of the Fund and Its Investments and Risks... 4

A. Classification......................................... 4

B. Investment Strategies and Risks........................ 4

C. Fund Policies/Investment Restrictions.................. 14

III. Management of the Fund................................. 15

A. Board of Trustees...................................... 15

B. Management Information................................. 16

C. Compensation........................................... 20

IV. Control Persons and Principal Holders of Securities..... 22

V. Investment Management and Other Services................. 22

A. Investment Manager..................................... 22

B. Principal Underwriter.................................. 23

C. Services Provided by the Investment Manager............ 23

D. Dealer Reallowances.................................... 24

E. Rule 12b-1 Plan........................................ 24

F. Other Service Providers................................ 25

G. Codes of Ethics........................................ 25

VI. Brokerage Allocation and Other Practices................ 26

A. Brokerage Transactions................................. 26

B. Commissions............................................ 26

C. Brokerage Selection.................................... 27

D. Directed Brokerage..................................... 27

E. Regular Broker-Dealers................................. 28

VII. Capital Stock and Other Securities..................... 28

VIII. Purchase, Redemption and Pricing of Shares............ 28

A. Purchase/Redemption of Shares.......................... 28

B. Offering Price......................................... 29

IX. Taxation of the Fund and Shareholders................... 30

X. Underwriters............................................. 32

XI. Calculation of Performance Data......................... 32

XII. Financial Statements................................... 33
</TABLE>

2
<PAGE>
GLOSSARY OF SELECTED DEFINED TERMS
--------------------------------------------------------------------------------

The terms defined in this glossary are frequently used in this STATEMENT OF
ADDITIONAL INFORMATION (other terms used occasionally are defined in the text of
the document).

"CUSTODIAN"--The Bank of New York.

"DEAN WITTER REYNOLDS"--Dean Witter Reynolds Inc., a wholly-owned broker-dealer
subsidiary of MSDW.

"DISTRIBUTOR"--Morgan Stanley Dean Witter Distributors Inc., a wholly-owned
broker-dealer subsidiary of MSDW.

"FINANCIAL ADVISORS"--Morgan Stanley Dean Witter authorized financial services
representatives.

"FUND"--Morgan Stanley Dean Witter Short-Term Bond Fund, a registered open-end
investment company.

"INDEPENDENT TRUSTEES"--Trustees who are not "interested persons" (as defined by
the Investment Company Act) of the Fund.

"INVESTMENT MANAGER"--Morgan Stanley Dean Witter Advisors Inc., a wholly-owned
investment advisor subsidiary of MSDW.

"MORGAN STANLEY & CO."--Morgan Stanley & Co. Incorporated, a wholly-owned
broker-dealer subsidiary of MSDW.

"MORGAN STANLEY DEAN WITTER FUNDS"--Registered investment companies (i) for
which the Investment Manager serves as the investment advisor; and (ii) that
hold themselves out to investors as related companies for investment and
investor services.

"MSDW"--Morgan Stanley Dean Witter & Co., a preeminent global financial services
firm.

"MSDW SERVICES COMPANY"--Morgan Stanley Dean Witter Services Company Inc., a
wholly-owned fund services subsidiary of the Investment Manager.

"TRANSFER AGENT"--Morgan Stanley Dean Witter Trust FSB, a wholly-owned transfer
agent subsidiary of MSDW.

"TRUSTEES"--The Board of Trustees of the Fund.

3
<PAGE>
I. FUND HISTORY
--------------------------------------------------------------------------------

The Fund was organized as a Massachusetts business trust, under a
Declaration of Trust, on October 22, 1993, with the name Dean Witter Short-Term
Bond Fund. Effective June 22, 1998, the Fund's name was changed to Morgan
Stanley Dean Witter Short-Term Bond Fund.

II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
--------------------------------------------------------------------------------

A. CLASSIFICATION

The Fund is an open-end, diversified management investment company whose
investment objective is to provide investors with a high level of current
income, consistent with the preservation of capital.

B. INVESTMENT STRATEGIES AND RISKS

The following discussion of the Fund's investment strategies and risks
should be read with the sections of the Fund's PROSPECTUS titled "Principal
Investment Strategies," "Principal Risks," "Additional Investment Strategy
Information" and "Additional Risk Information."

COLLATERALIZED MORTGAGE OBLIGATIONS. The Fund may invest in
CMOs --collateralized mortgage obligations. CMOs are debt obligations
collateralized by mortgage loans or mortgage pass-through securities
(collectively "Mortgage Assets"). Payments of principal and interest on the
Mortgage Assets and any reinvestment income are used to make payments on the
CMOs. CMOs are issued in multiple classes. Each class has a specific fixed or
floating coupon rate and a stated maturity or final distribution date. The
principal and interest on the Mortgage Assets may be allocated among the classes
in a number of different ways. Certain classes will, as a result of the
collection, have more predictable cash flows than others. As a general matter,
the more predictable the cash flow, the lower the yield relative to other
Mortgage Assets. The less predictable the cash flow, the higher the yield and
the greater the risk. The Fund may invest in any class of CMO.

Certain mortgage-backed securities in which the Fund may invest (e.g.,
certain classes of CMOs) may increase or decrease in value substantially with
changes in interest rates and/or the rate of prepayment. In addition, if the
collateral securing CMOs or any third party guarantees are insufficient to make
payments, the Fund could sustain a loss.

STRIPPED MORTGAGE-BACKED SECURITIES. In addition, the Fund may invest up to
15% of its net assets in stripped mortgage-backed securities, which are usually
structured in two classes. One class entitles the holder to receive all or most
of the interest but little or none of the principal of a pool of Mortgage Assets
(the interest-only or "IO" Class), while the other class entitles the holder to
receive all or most of the principal but little or none of the interest (the
principal-only or "PO" Class). IOs tend to decrease in value substantially if
interest rates decline and prepayment rates become more rapid. POs tend to
decrease in value substantially if interest rates increase and the rate of
prepayment decreases.

INVERSE FLOATERS. The Fund may invest up to 10% of its assets in inverse
floaters. An inverse floater has a coupon rate that moves in the direction
opposite to that of a designated interest rate index. Like most other
fixed-income securities, the value of inverse floaters will decrease as interest
rates increase. They are more volatile, however, than most other fixed-income
securities because the coupon rate on an inverse floater typically changes at a
multiple of the change in the relevant index rate. Thus, any rise in the index
rate (as a consequence of an increase in interest rates) causes a
correspondingly greater drop in the coupon rate of an inverse floater while a
drop in the index rate causes a correspondingly greater increase in the coupon
of an inverse floater. Some inverse floaters may also increase or decrease
substantially because of changes in the rate of prepayments.

CONVERTIBLE SECURITIES. The Fund may invest in fixed-income securities
which are convertible into common stock. Convertible securities rank senior to
common stocks in a corporation's capital structure and, therefore, entail less
risk than the corporation's common stock. The value of a convertible security

4
<PAGE>
is a function of its "investment value" (its value as if it did not have a
conversion privilege), and its "conversion value" (the security's worth if it
were to be exchanged for the underlying security, at market value, pursuant to
its conversion privilege).

To the extent that a convertible security's investment value is greater than
its conversion value, its price will be primarily a reflection of such
investment value and its price will be likely to increase when interest rates
fall and decrease when interest rates rise, as with a fixed-income security (the
credit standing of the issuer and other factors may also have an effect on the
convertible security's value). If the conversion value exceeds the investment
value, the price of the convertible security will rise above its investment
value and, in addition, will sell at some premium over its conversion value.
(This premium represents the price investors are willing to pay for the
privilege of purchasing a fixed-income security with a possibility of capital
appreciation due to the conversion privilege.) At such times the price of the
convertible security will tend to fluctuate directly with the price of the
underlying equity security. Convertible securities may be purchased by the Fund
at varying price levels above their investment values and/or their conversion
values in keeping with the Fund's objective.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The Fund may enter into
forward foreign currency exchange contracts ("forward contracts") as a hedge
against fluctuations in future foreign exchange rates. The Fund may conduct its
foreign currency exchange transactions either on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
entering into forward contracts to purchase or sell foreign currencies. A
forward contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded in the interbank market conducted directly between
currency traders (usually large, commercial and investment banks) and their
customers. Forward contracts only will be entered into with United States banks
and their foreign branches, insurance companies and other dealers whose assets
total $1 billion or more, or foreign banks whose assets total $1 billion or
more. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.

The Fund may enter into forward contracts under various circumstances. The
typical use of a forward contract is to "lock in" the price of a security in
U.S. dollars or some other foreign currency which the Fund is holding in its
portfolio. By entering into a forward contract for the purchase or sale, for a
fixed amount of dollars or other currency, of the amount of foreign currency
involved in the underlying security transactions, the Fund may be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar or other currency which is being used for
the security purchase and the foreign currency in which the security is
denominated during the period between the date on which the security is
purchased or sold and the date on which payment is made or received.

The Investment Manager also may from time to time utilize forward contracts
to hedge a foreign security held in the portfolio or a security which pays out
principal tied to an exchange rate between the U.S. dollar and a foreign
currency, against a decline in value of the applicable foreign currency. They
also may be used to lock in the current exchange rate of the currency in which
those securities anticipated to be purchased are denominated. At times, the Fund
may enter into "cross-currency" hedging transactions involving currencies other
than those in which securities are held or proposed to be purchased are
denominated.

The Fund will not enter into forward currency contracts or maintain a net
exposure to these contracts where the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's portfolio securities.

Although the Fund values its assets daily in terms of U.S. dollars, it does
not intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will, however, do so from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the spread
between the prices at

5
<PAGE>
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the Fund at one rate, while offering a lesser rate
of exchange should the Fund desire to resell that currency to the dealer.

The Fund may be limited in its ability to enter into hedging transactions
involving forward contracts by the Internal Revenue Code requirements relating
to qualification as a regulated investment company.

Forward currency contracts may limit gains on portfolio securities that
could otherwise be realized had they not been utilized and could result in
losses. The contracts also may increase the Fund's volatility and may involve a
significant amount of risk relative to the investment of cash.

OPTION AND FUTURES TRANSACTIONS. The Fund may engage in transactions in
listed and OTC options. Listed options are issued or guaranteed by the exchange
on which they are traded or by a clearing corporation such as the Options
Clearing Corporation ("OCC"). Ownership of a listed call option gives the Fund
the right to buy from the OCC (in the U.S.) or other clearing corporation or
exchange, the underlying security or currency covered by the option at the
stated exercise price (the price per unit of the underlying security) by filing
an exercise notice prior to the expiration date of the option. The writer
(seller) of the option would then have the obligation to sell to the OCC (in the
U.S.) or other clearing corporation or exchange, the underlying security or
currency at that exercise price prior to the expiration date of the option,
regardless of its then current market price. Ownership of a listed put option
would give the Fund the right to sell the underlying security or currency to the
OCC (in the U.S.) or other clearing corporation or exchange, at the stated
exercise price. Upon notice of exercise of the put option, the writer of the put
would have the obligation to purchase the underlying security or currency from
the OCC (in the U.S.) or other clearing corporation or exchange, at the exercise
price.

COVERED CALL WRITING. The Fund is permitted to write covered call options
on portfolio securities and on the U.S. dollar and foreign currencies in which
they are denominated, without limit.

The Fund will receive from the purchaser, in return for a call it has
written, a "premium;" i.e., the price of the option. Receipt of these premiums
may better enable the Fund to earn a higher level of current income than it
would earn from holding the underlying securities (or currencies) alone.
Moreover, the premium received will offset a portion of the potential loss
incurred by the Fund if the securities (or currencies) underlying the option
decline in value.

The Fund may be required, at any time during the option period, to deliver
the underlying security (or currency) against payment of the exercise price on
any calls it has written. This obligation is terminated upon the expiration of
the option period or at such earlier time when the writer effects a closing
purchase transaction. A closing purchase transaction is accomplished by
purchasing an option of the same series as the option previously written.
However, once the Fund has been assigned an exercise notice, the Fund will be
unable to effect a closing purchase transaction.

A call option is "covered" if the Fund owns the underlying security subject
to the option or has an absolute and immediate right to acquire that security
without additional cash consideration (or for additional consideration (in cash,
Treasury bills or other liquid portfolio securities) held in a segregated
account on the Fund's books) upon conversion or exchange of other securities
held in its portfolio. A call option is also covered if the Fund holds a call on
the same security as the call written where the exercise price of the call held
is (i) equal to or less than the exercise price of the call written or (ii)
greater than the exercise price of the call written if the difference is
maintained by the Fund in cash, Treasury bills or other liquid portfolio
securities in a segregated account on the Fund's books.

Options written by the Fund normally have expiration dates of from up to
eighteen months from the date written. The exercise price of a call option may
be below, equal to or above the current market value of the underlying security
at the time the option is written.

COVERED PUT WRITING. A writer of a covered put option incurs an obligation
to buy the security underlying the option from the purchaser of the put, at the
option's exercise price at any time during the option period, at the purchaser's
election. Through the writing of a put option, the Fund would receive

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income from the premium paid by purchasers. The potential gain on a covered put
option is limited to the premium received on the option (less the commissions
paid on the transaction). During the option period, the Fund may be required, at
any time, to make payment of the exercise price against delivery of the
underlying security (or currency). A put option is "covered" if the Fund
maintains cash, Treasury bills or other liquid portfolio securities with a value
equal to the exercise price in a segregated account on the Fund's books, or
holds a put on the same security as the put written where the exercise price of
the put held is equal to or greater than the exercise price of the put written.
The aggregate value of the obligations underlying puts may not exceed 50% of the
Fund's assets. The operation of and limitations on covered put options in other
respects are substantially identical to those of call options.

PURCHASING CALL AND PUT OPTIONS. The Fund may purchase listed and OTC call
and put options in amounts equaling up to 5% of its total assets. The purchase
of a call option would enable the Fund, in return for the premium paid to lock
in a purchase price for a security or currency during the term of the option.
The purchase of a put option would enable the Fund, in return for a premium
paid, to lock in a price at which it may sell a security or currency during the
term of the option.

OPTIONS ON FOREIGN CURRENCIES. The Fund may purchase and write options on
foreign currencies for purposes similar to those involved with investing in
forward foreign currency exchange contracts.

OTC OPTIONS. OTC options are purchased from or sold (written) to dealers or
financial institutions which have entered into direct agreements with the Fund.
With OTC options, such variables as expiration date, exercise price and premium
will be agreed upon between the Fund and the transacting dealer, without the
intermediation of a third party such as the OCC. The Fund will engage in OTC
option transactions only with member banks of the Federal Reserve Bank System or
primary dealers in U.S. Government securities or with affiliates of such banks
or dealers.

RISKS OF OPTIONS TRANSACTIONS. The successful use of options depends on the
ability of the Investment Manager to forecast correctly interest rates, currency
exchange rates and/or market movements. If the market value of the portfolio
securities (or the currencies in which they are denominated) upon which call
options have been written increases, the Fund may receive a lower total return
from the portion of its portfolio upon which calls have been written than it
would have had such calls not been written. During the option period, the
covered call writer has, in return for the premium on the option, given up the
opportunity for capital appreciation above the exercise price should the market
price of the underlying security (or the value of its denominated currency)
increase, but has retained the risk of loss should the price of the underlying
security (or the value of its denominated currency) decline. The covered put
writer also retains the risk of loss should the market value of the underlying
security decline below the exercise price of the option less the premium
received on the sale of the option. In both cases, the writer has no control
over the time when it may be required to fulfill its obligation as a writer of
the option. Prior to exercise or expiration, an option position can only be
terminated by entering into a closing purchase or sale transaction. Once an
option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and
must deliver or receive the underlying securities at the exercise price.

The Fund's ability to close out its position as a writer of an option is
dependent upon the existence of a liquid secondary market on option exchanges.
There is no assurance that such a market will exist, particularly in the case of
OTC options.

In the event of the bankruptcy of a broker through which the Fund engages in
transactions in options, the Fund could experience delays and/or losses in
liquidating open positions purchased or sold through the broker and/or incur a
loss of all or part of its margin deposits with the broker. In the case of OTC
options, if the transacting dealer fails to make or take delivery of the
securities underlying an option it has written, in accordance with the terms of
that option, due to insolvency or otherwise, the Fund would lose the premium
paid for the option as well as any anticipated benefit of the transaction.

Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security which may be
written by a single investor, whether acting alone or in concert with others
(regardless of whether such options are written on the same or different

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exchanges or are held or written on one or more accounts or through one or more
brokers). An exchange may order the liquidation of positions found to be in
violation of these limits and it may impose other sanctions or restrictions.
These position limits may restrict the number of listed options which the Fund
may write.

The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the option markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the option markets.

The markets in foreign currency options are relatively new and the Fund's
ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market. There can be no assurance that a
liquid secondary market will exist for a particular option at any specific time.

The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and have no relationship to the investment merits of a foreign security. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.

There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information available is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e., less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. options markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that are not reflected in the options market.

FUTURES CONTRACTS. The Fund may purchase and sell interest rate and index
futures contracts that are traded on U.S. and foreign commodity exchanges on
such underlying securities as U.S. Treasury bonds, notes, bills and GNMA
Certificates and/or any foreign government fixed-income security and on such
indexes of U.S. and foreign securities as may exist or come into existence.

A futures contract purchaser incurs an obligation to take delivery of a
specified amount of the obligation underlying the contract at a specified time
in the future for a specified price. A seller of a futures contract incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price. The purchase of a futures
contract enables the Fund, during the term of the contract, to lock in a price
at which it may purchase a security and protect against a rise in prices pending
purchase of portfolio securities. The sale of a futures contract enables the
Fund to lock in a price at which it may sell a security and protect against
declines in the value of portfolio securities.

Although most futures contracts call for actual delivery or acceptance of
securities, the contracts usually are closed out before the settlement date
without the making or taking of delivery. Index futures contracts provide for
the delivery of an amount of cash equal to a specified dollar amount times the
difference between the index value at the open or close of the last trading day
of the contract and the futures contract price. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of the specific type of security and the same delivery date. If the sale
price exceeds the offsetting purchase price, the seller would be paid the
difference and would realize a gain. If the offsetting purchase price exceeds
the sale price, the seller would pay the difference and would realize a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same aggregate amount of the specific type of security and
the same delivery date. If the offsetting

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<PAGE>
sale price exceeds the purchase price, the purchaser would realize a gain,
whereas if the purchase price exceeds the offsetting sale price, the purchaser
would realize a loss. There is no assurance that the Fund will be able to enter
into a closing transaction.

MARGIN. If the Fund enters into a futures contract, it is initially
required to deposit an "initial margin" of cash or U.S. Government securities or
other liquid portfolio securities ranging from approximately 2% to 5% of the
contract amount. Initial margin requirements are established by the exchanges on
which futures contracts trade and may, from time to time, change. In addition,
brokers may establish margin deposit requirements in excess of those required by
the exchanges.

Initial margin in futures transactions is different from margin in
securities transactions in that initial margin does not involve the borrowing of
funds by a broker's client but is, rather, a good faith deposit on the futures
contract which will be returned to the Fund upon the proper termination of the
futures contract. The margin deposits made are marked to market daily and the
Fund may be required to make subsequent deposits of cash or U.S. Government
securities, called "variation margin," which are reflective of price
fluctuations in the futures contract.

OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put
options on futures contracts and enter into closing transactions with respect to
such options to terminate an existing position. An option on a futures contract
gives the purchaser the right (in return for the premium paid), and the writer
the obligation, to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put) at a specified
exercise price at any time during the term of the option. Upon exercise of the
option, the delivery of the futures position by the writer of the option to the
holder of the option is accompanied by delivery of the accumulated balance in
the writer's futures margin account, which represents the amount by which the
market price of the futures contract at the time of exercise exceeds, in the
case of a call, or is less than, in the case of a put, the exercise price of the
option on the futures contract.

The writer of an option on a futures contract is required to deposit initial
and variation margin pursuant to requirements similar to those applicable to
futures contracts. Premiums received from the writing of an option on a futures
contract are included in initial margin deposits.

LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may not
enter into futures contracts or purchase related options thereon if, immediately
thereafter, the amount committed to margin plus the amount paid for premiums for
unexpired options on futures contracts exceeds 5% of the value of the Fund's
total assets, after taking into account unrealized gains and unrealized losses
on such contracts it has entered into, provided, however, that in the case of an
option that is in-the-money (the exercise price of the call (put) option is less
(more) than the market price of the underlying security) at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%.
However, there is no overall limitation on the percentage of the Fund's net
assets which may be subject to a hedge position.

RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. The prices
of securities and indexes subject to futures contracts (and thereby the futures
contract prices) may correlate imperfectly with the behavior of the cash prices
of the Fund's portfolio securities. Also, prices of futures contracts may not
move in tandem with the changes in prevailing interest rates, market movements
and/or currency exchange rates against which the Fund seeks a hedge. A
correlation may also be distorted (a) temporarily, by short-term traders'
seeking to profit from the difference between a contract or security price
objective and their cost of borrowed funds; (b) by investors in futures
contracts electing to close out their contracts through offsetting transactions
rather than meet margin deposit requirements; (c) by investors in futures
contracts opting to make or take delivery of underlying securities rather than
engage in closing transactions, thereby reducing liquidity of the futures
market; and (d) temporarily, by speculators who view the deposit requirements in
the futures markets as less onerous than margin requirements in the cash market.
Due to the possibility of price distortion in the futures market and because of
the possible imperfect correlation between movements in the prices of securities
and movements in the prices of futures contracts, a correct forecast of interest
rate and/or market movement trends by the Investment Manager may still not
result in a successful hedging transaction.

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<PAGE>

There is no assurance that a liquid secondary market will exist for futures
contracts and related options in which the Fund may invest. In the event a
liquid market does not exist, it may not be possible to close out a futures
position and, in the event of adverse price movements, the Fund would continue
to be required to make daily cash payments of variation margin. The absence of a
liquid market in futures contracts might cause the Fund to make or take delivery
of the underlying securities at a time when it may be disadvantageous to do so.

Exchanges also limit the amount by which the price of a futures contract may
move on any day. If the price moves equal the daily limit on successive days,
then it may prove impossible to liquidate a futures position until the daily
limit moves have ceased. In the event of adverse price movements, the Fund would
continue to be required to make daily cash payments of variation margin on open
futures positions. In these situations, if the Fund has insufficient cash, it
may have to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. In addition, the
Fund may be required to take or make delivery of the instruments underlying
interest rate futures contracts it holds at a time when it is disadvantageous to
do so. The inability to close out options and futures positions could also have
an adverse impact on the Fund's ability to effectively hedge its portfolio.

Futures contracts and options thereon which are purchased or sold on foreign
commodities exchanges may have greater price volatility than their U.S.
counterparts. Furthermore, foreign commodities exchanges may be less regulated
and under less governmental scrutiny than U.S. exchanges. Brokerage commissions,
clearing costs and other transaction costs may be higher on foreign exchanges.
Greater margin requirements may limit the Fund's ability to enter into certain
commodity transactions on foreign exchanges. Moreover, differences in clearance
and delivery requirements on foreign exchanges may occasion delays in the
settlement of the Fund's transactions effected on foreign exchanges.

In the event of the bankruptcy of a broker through which the Fund engages in
transactions in futures or options thereon, the Fund could experience delays
and/or losses in liquidating open positions purchased or sold through the broker
and/or incur a loss of all or part of its margin deposits with the broker.

If the Fund maintains a short position in a futures contract or has sold a
call option in a futures contract, it will cover this position by holding, in a
segregated account maintained on the books of the Fund, cash, U.S. government
securities or other liquid portfolio securities equal in value (when added to
any initial or variation margin on deposit) to the market value of the
securities underlying the futures contract or the exercise price of the option.
Such a position may also be covered by owning the securities underlying the
futures contract (in the case of a stock index futures contract a portfolio of
securities substantially replicating the relevant index), or by holding a call
option permitting the Fund to purchase the same contract at a price no higher
than the price at which the short position was established.

In addition, if the Fund holds a long position in a futures contract or has
sold a put option on a futures contract, it will hold cash, U.S. government
securities or other liquid portfolio securities equal to the purchase price of
the contract or the exercise price of the put option (less the amount of initial
or variation margin on deposit) in a segregated account maintained on the books
of the Fund. Alternatively, the Fund could cover its long position by purchasing
a put option on the same futures contract with an exercise price as high or
higher than the price of the contract held by the Fund.

MONEY MARKET SECURITIES. In addition to the short term fixed-income
securities in which the Fund may otherwise invest, the Fund may invest in
various money market securities for cash management purposes or when assuming a
temporary defensive position, which among others may include commercial paper,
bank acceptances, bank obligations, corporate debt securities, certificates of
deposit, U.S. Government securities, obligations of savings institutions and
repurchase agreements. Such securities are limited to:

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U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed as to
principal and interest by the United States Government or its agencies (such as
the Export-Import Bank of the United States, Federal Housing Administration and
Government National Mortgage Association) or its instrumentalities (such as the
Federal Home Loan Bank), including Treasury bills, notes and bonds;

BANK OBLIGATIONS. Obligations (including certificates of deposit, time
deposits and bankers' acceptances) of banks subject to regulation by the U.S.
Government and having total assets of $1 billion or more, and instruments
secured by such obligations, not including obligations of foreign branches of
domestic banks except to the extent below;

EURODOLLAR CERTIFICATES OF DEPOSIT. Eurodollar certificates of deposit
issued by foreign branches of domestic banks having total assets of $1 billion
or more;

OBLIGATIONS OF SAVINGS INSTITUTIONS. Certificates of deposit of savings
banks and savings and loan associations, having total assets of $1 billion or
more;

FULLY INSURED CERTIFICATES OF DEPOSIT. Certificates of deposits of banks
and savings institutions, having total assets of less than $1 billion, if the
principal amount of the obligation is federally insured by the Bank Insurance
Fund or the Savings Association Insurance Fund (each of which is administered by
the FDIC), limited to $100,000 principal amount per certificate and to 10% or
less of the Fund's total assets in all such obligations and in all illiquid
assets, in the aggregate;

COMMERCIAL PAPER. Commercial paper rated within the two highest grades by
Standard & Poor's Corporation ("S&P") or the two highest grades by Moody's
Investors Service, Inc. ("Moody's") or, if not rated, issued by a company having
an outstanding debt issue rated at least AA by S&P or Aa by Moody's; and

REPURCHASE AGREEMENTS. The Fund may invest in repurchase agreements. When
cash may be available for only a few days, it may be invested by the Fund in
repurchase agreements until such time as it may otherwise be invested or used
for payments of obligations of the Fund. These agreements, which may be viewed
as a type of secured lending by the Fund, typically involve the acquisition by
the Fund of debt securities from a selling financial institution such as a bank,
savings and loan association or broker-dealer. The agreement provides that the
Fund will sell back to the institution, and that the institution will
repurchase, the underlying security serving as collateral at a specified price
and at a fixed time in the future, usually not more than seven days from the
date of purchase. The collateral will be marked-to-market daily to determine
that the value of the collateral, as specified in the agreement, does not
decrease below the purchase price plus accrued interest. If such decrease
occurs, additional collateral will be requested and, when received, added to the
account to maintain full collateralization. The Fund will accrue interest from
the institution until the time when the repurchase is to occur. Although this
date is deemed by the Fund to be the maturity date of a repurchase agreement,
the maturities of securities subject to repurchase agreements are not subject to
any limits.

While repurchase agreements involve certain risks not associated with direct
investments in debt securities, the Fund follows procedures designed to minimize
such risks. These procedures include effecting repurchase transactions only with
large, well-capitalized and well-established financial institutions whose
financial condition will be continually monitored by the Investment Manager
subject to procedures established by the Trustees. In addition, as described
above, the value of the collateral underlying the repurchase agreement will be
at least equal to the repurchase price, including any accrued interest earned on
the repurchase agreement. In the event of a default or bankruptcy by a selling
financial institution, the Fund will seek to liquidate such collateral. However,
the exercising of the Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a
default of the obligation to repurchase were less than the repurchase price, the
Fund could suffer a loss. It is the current policy of the Fund not to invest in
repurchase agreements that do not mature within seven days if any such
investment, together with any other illiquid assets held by the Fund, amounts to
more than 15% of its net assets.

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<PAGE>

ZERO COUPON TREASURY SECURITIES. A portion of the U.S. Government
securities purchased by the Fund may be "zero coupon" Treasury securities. These
are U.S. Treasury bills, notes and bonds which have been stripped of their
unmatured interest coupons and receipts or which are certificates representing
interests in such stripped debt obligations and coupons. Such securities are
purchased at a discount from their face amount, giving the purchaser the right
to receive their full value at maturity. A zero coupon security pays no interest
to its holder during its life. Its value to an investor consists of the
difference between its face value at the time of maturity and the price for
which it was acquired, which is generally an amount significantly less than its
face value (sometimes referred to as a "deep discount" price).

The interest earned on such securities is, implicitly, automatically
compounded and paid out at maturity. While such compounding at a constant rate
eliminates the risk of receiving lower yields upon reinvestment of interest if
prevailing interest rates decline, the owner of a zero coupon security will be
unable to participate in higher yields upon reinvestment of interest received if
prevailing interest rates rise. For this reason, zero coupon securities are
subject to substantially greater market price fluctuations during periods of
changing prevailing interest rates than are comparable debt securities which
make current distributions of interest. Current federal tax law requires that a
holder (such as the Fund) of a zero coupon security accrue a portion of the
discount at which the security was purchased as income each year even though the
Fund receives no interest payments in cash on the security during the year.

INVESTMENT COMPANIES. Any Fund investment in an investment company is
subject to the underlying risk of that investment company's portfolio
securities. For example, if the investment company held common stocks, the Fund
also would be exposed to the risk of investing in common stocks. As a
shareholder in an investment company, the Fund would bear its ratable share of
that entity's expenses, including its advisory and administration fees. At the
same time, the Fund would continue to pay its own investment management fees and
other expenses. As a result, the Fund and its shareholders, in effect, will be
absorbing duplicate levels of fees with respect to investments in other
investment companies.

REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. The Fund may use reverse
repurchase agreements and dollar rolls as part of its investment strategy.
Reverse repurchase agreements and dollar rolls are speculative techniques
involving leverage and are considered borrowings by the Fund.

Reverse repurchase agreements involve sales by the Fund of assets
concurrently with an agreement by the Fund to repurchase the same assets at a
later date at a fixed price. Reverse repurchase agreements involve the risk that
the market value of the securities the Fund is obligated to purchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase agreement files for bankruptcy or becomes
insolvent, the Fund's use of the proceeds of the agreement may be restricted
pending a determination by the other party, or its trustee or receiver, whether
to enforce the Fund's obligation to repurchase the securities.

Dollar rolls involve the Fund selling securities for delivery in the current
month and simultaneously contracting to repurchase substantially similar (same
type and coupon) securities on a specified future date. During the roll period,
the Fund will forgo principal and interest paid on the securities. The Fund is
compensated by the difference between the current sales price and the lower
forward price for the future purchase (often referred to as the "drop") as well
as by the interest earned on the cash proceeds of the initial sale.

LENDING PORTFOLIO SECURITIES. The Fund may lend its portfolio securities to
brokers, dealers and other financial institutions, provided that the loans are
callable at any time by the Fund, and are at all times secured by cash or cash
equivalents, which are maintained in a segregated account pursuant to applicable
regulations and that are equal to at least 100% of the market value, determined
daily, of the loaned securities. The advantage of these loans is that the Fund
continues to receive the income on the loaned securities while at the same time
earning interest on the cash amounts deposited as collateral, which will be
invested in short-term obligations. The Fund will not lend more than 10% of the
value of its total assets.

As with any extensions of credit, there are risks of delay in recovery and,
in some cases, even loss of rights in the collateral should the borrower of the
securities fail financially. However, these loans of

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portfolio securities will only be made to firms deemed by the Fund's management
to be creditworthy and when the income which can be earned from such loans
justifies the attendant risks. Upon termination of the loan, the borrower is
required to return the securities to the Fund. Any gain or loss in the market
price during the loan period would inure to the Fund.

When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of the rights
if the matters involved would have a material effect on the Fund's investment in
the loaned securities. The Fund will pay reasonable finder's, administrative and
custodial fees in connection with a loan of its securities.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time the Fund may purchase securities on a when-issued or delayed
delivery basis or may purchase or sell securities on a forward commitment basis.
When these transactions are negotiated, the price is fixed at the time of the
commitment, but delivery and payment can take place a month or more after the
date of commitment. While the Fund will only purchase securities on a
when-issued, delayed delivery or forward commitment basis with the intention of
acquiring the securities, the Fund may sell the securities before the settlement
date, if it is deemed advisable. The securities so purchased or sold are subject
to market fluctuation and no interest or dividends accrue to the purchaser prior
to the settlement date.

At the time the Fund makes the commitment to purchase or sell securities on
a when-issued, delayed delivery or forward commitment basis, it will record the
transaction and thereafter reflect the value, each day, of such security
purchased, or if a sale, the proceeds to be received, in determining its net
asset value. At the time of delivery of the securities, their value may be more
or less than the purchase or sale price. An increase in the percentage of the
Fund's assets committed to the purchase of securities on a when-issued, delayed
delivery or forward commitment basis may increase the volatility of its net
asset value. The Fund will also establish a segregated account on the Fund's
books in which it will continually maintain cash or cash equivalents or other
liquid portfolio securities equal in value to commitments to purchase securities
on a when-issued, delayed delivery or forward commitment basis.

WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security depends
upon the occurrence of a subsequent event, such as approval of a merger,
corporate reorganization or debt restructuring. The commitment for the purchase
of any such security will not be recognized in the portfolio of the Fund until
the Investment Manager determines that issuance of the security is probable. At
that time, the Fund will record the transaction and, in determining its net
asset value, will reflect the value of the security daily. At that time, the
Fund will also establish a segregated account on the Fund's books in which it
will maintain cash or cash equivalents or other liquid portfolio securities
equal in value to recognized commitments for such securities.

With respect to 75% of the Fund's total assets, the value of the Fund's
commitments to purchase the securities of any one issuer, together with the
value of all securities of such issuer owned by the Fund, may not exceed 5% of
the value of the Fund's total assets at the time the initial commitment to
purchase such securities is made. An increase in the percentage of the Fund's
net assets committed to the purchase of securities on a "when, as and if issued"
basis may increase the volatility of its net asset value. The Fund may also sell
securities on a "when, as and if issued" basis provided that the issuance of the
security will result automatically from the exchange or conversion of a security
owned by the Fund at the time of sale.

PRIVATE PLACEMENTS. The Fund may invest up to 15% of its net assets in
securities which are subject to restrictions on resale because they have not
been registered under the Securities Act of 1933 (the "Securities Act"), or
which are otherwise not readily marketable. (Securities eligible for resale
pursuant to Rule 144A under the Securities Act, and determined to be liquid
pursuant to the procedures discussed in the following paragraph, are not subject
to the foregoing restriction.) These securities are generally referred to as
private placements or restricted securities. Limitations on the resale of these

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securities may have an adverse effect on their marketability, and may prevent
the Fund from disposing of them promptly at reasonable prices. The Fund may have
to bear the expense of registering the securities for resale and the risk of
substantial delays in effecting the registration.

Rule 144A permits the Fund to sell restricted securities to qualified
institutional buyers without limitation. The Investment Manager, pursuant to
procedures adopted by the Trustees, will make a determination as to the
liquidity of each restricted security purchased by the Fund. If a restricted
security is determined to be "liquid," the security will not be included within
the category "illiquid securities," which may not exceed 15% of the Fund's net
assets. However, investing in Rule 144A securities could have the effect of
increasing the level of Fund illiquidity to the extent the Fund, at a particular
point in time, may be unable to find qualified institutional buyers interested
in purchasing such securities.

WARRANTS AND SUBSCRIPTION RIGHTS. The Fund may acquire warrants and
subscription rights attached to other securities. A warrant is, in effect, an
option to purchase equity securities at a specific price, generally valid for a
specific period of time, and has no voting rights, pays no dividends and has no
rights with respect to the corporation issuing it.

A subscription right is a privilege granted to existing shareholders of a
corporation to subscribe to shares of a new issue of common stock before it is
offered to the public. A subscription right normally has a life of two to four
weeks and a subscription price lower than the current market value of the common
stock.

C. FUND POLICIES/INVESTMENT RESTRICTIONS

The investment objectives, policies and restrictions listed below have been
adopted by the Fund as fundamental policies. Under the Investment Company Act of
1940 (the "Investment Company Act"), a fundamental policy may not be changed
without the vote of a majority of the outstanding voting securities of the Fund.
The Investment Company Act defines a majority as the lesser of (a) 67% or more
of the shares present at a meeting of shareholders, if the holders of 50% of the
outstanding shares of the Fund are present or represented by proxy; or (b) more
than 50% of the outstanding shares of the Fund. For purposes of the following
restrictions: (i) all percentage limitations apply immediately after a purchase
or initial investment; and (ii) any subsequent change in any applicable
percentage resulting from market fluctuations or other changes in total or net
assets does not require elimination of any security from the portfolio.

The Fund will:

1. Seek to provide a high level of current income, consistent with the
preservation of capital.

The Fund may not:

1. As to 75% of its total assets, invest more than 5% of the value of
its total assets in the securities of any one issuer (other than obligations
issued, or guaranteed by, the United States government, its agencies or
instrumentalities).

2. As to 75% of its total assets, purchase more than 10% of all
outstanding voting securities or any class of securities of any one issuer.

3. Invest 25% or more of the value of its total assets in securities
of issuers in any one industry. This restriction does not apply to
obligations issued or guaranteed by the United States government or its
agencies or instrumentalities.

4. Invest more than 5% of the value of its total assets in securities
of issuers having a record, together with predecessors, of less then three
years of continuous operation. This restriction shall not apply to
mortgage-backed securities or asset-backed securities or to any obligation
of the United States government, its agencies or instrumentalities.

5. Purchase or sell real estate or interests therein, although the
Fund may purchase securities of issuers which engage in real estate
operations and securities secured by real estate or interests therein.

14
<PAGE>
6. Purchase oil, gas or other mineral leases, rights or royalty
contracts or exploration or development programs, except that the Fund may
invest in the securities of companies which operate, invest in, or sponsor
such programs.

7. With the exception of reverse repurchase agreements and dollar
rolls, borrow money, except that the Fund may borrow from a bank for
temporary or emergency purposes in amounts not exceeding 5% (taken at the
lower of cost or current value) of its total assets (not including the
amount borrowed).

8. Pledge its assets or assign or otherwise encumber them except to
secure permitted borrowings. For the purpose of this restriction, collateral
arrangements with respect to the writing of options and collateral
arrangements with respect to initial or variation margin for futures are not
deemed to be pledges of assets.

9. Issue senior securities as defined in the Investment Company Act,
except insofar as the Fund may be deemed to have issued a senior security by
reason of (a) entering into any repurchase or reverse repurchase agreement
or dollar roll; (b) purchasing any securities on a when-issued or delayed
delivery basis; (c) purchasing or selling futures contracts, forward foreign
exchange contracts or options; (d) borrowing money; or (e) lending portfolio
securities.

10. Make loans of money or securities, except: (a) by the purchase of
publicly distributed debt obligations in which the Fund may invest
consistent with its investment objectives and policies; (b) by investment in
repurchase agreements; or (c) by lending portfolio securities.

11. Make short sales of securities.

12. Purchase securities on margin, except for such short-term loans as
are necessary for the clearance of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options thereon is not considered the purchase
of a security on margin.

13. Engage in the underwriting of securities, except insofar as the
Fund may be deemed an underwriter under the Securities Act in disposing of a
portfolio security.

14. Invest for purposes of exercising control or management of any
other issuer.

15. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets or in accordance with the provisions of Section 12(d) of the
Investment Company Act and any Rules promulgated thereunder.

16. Purchase or sell commodities or commodities contracts except that
the Fund may purchase or sell futures contracts or options on futures.

Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially all
of its assets in another investment company having substantially the same
investment objective and policies as the Fund.

III. MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------

A. BOARD OF TRUSTEES

The Board of Trustees of the Fund oversees the management of the Fund but
does not itself manage the Fund. The Trustees review various services provided
by or under the direction of the Investment Manager to ensure that the Fund's
general investment policies and programs are properly carried out. The Trustees
also conduct their review to ensure that administrative services are provided to
the Fund in a satisfactory manner.

Under state law, the duties of the Trustees are generally characterized as a
duty of loyalty and a duty of care. The duty of loyalty requires a Trustee to
exercise his or her powers in the interest of the Fund and not the Trustee's own
interest or the interest of another person or organization. A Trustee satisfies
his or her duty of care by acting in good faith with the care of an ordinarily
prudent person and in a manner the Trustee reasonably believes to be in the best
interest of the Fund and its shareholders.

15
<PAGE>
B. MANAGEMENT INFORMATION

TRUSTEES AND OFFICERS. The Board of the Fund consists of nine
(9) Trustees. These same individuals also serve as directors or trustees for all
of the Morgan Stanley Dean Witter Funds. Six Trustees (67% of the total number)
have no affiliation or business connection with the Investment Manager or any of
its affiliated persons and do not own any stock or other securities issued by
the Investment Manager's parent company, MSDW. These are the "non-interested" or
"independent" Trustees. The other three Trustees (the "MANAGEMENT TRUSTEES") are
affiliated with the Investment Manager.

The Trustees and executive officers of the Fund, their principal business
occupations during the last five years and their affiliations, if any, with the
Investment Manager, and with the Morgan Stanley Dean Witter Funds (there were 93
such Funds as of the calendar year ended December 31, 1999), are shown below.

<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
--------------------------------------------- -----------------------------------------------
<S> <C>
Michael Bozic (59) .......................... Vice Chairman of Kmart Corporation (since
Trustee December 1998); Director or Trustee of the
c/o Kmart Corporation Morgan Stanley Dean Witter Funds; formerly
3100 West Big Beaver Road Chairman and Chief Executive Officer of Levitz
Troy, Michigan Furniture Corporation (November 1995-November
1998) and President and Chief Executive Officer
of Hills Department Stores (May 1991-July
1995); formerly variously Chairman, Chief
Executive Officer, President and Chief
Operating Officer (1987-1991) of the Sears
Merchandise Group of Sears, Roebuck and Co.;
Director of Weirton Steel Corporation.

Charles A. Fiumefreddo* (67) ................ Chairman, Director or Trustee and Chief
Chairman of the Board, Executive Officer of the Morgan Stanley Dean
Chief Executive Officer and Trustee Witter Funds; formerly Chairman, Chief
Two World Trade Center Executive Officer and Director of the
New York, New York Investment Manager, the Distributor and MSDW
Services Company; Executive Vice President and
Director of Dean Witter Reynolds; Chairman and
Director of the Transfer Agent; formerly
Director and/or officer of various MSDW
subsidiaries (until June 1998).

Edwin J. Garn (67) .......................... Director or Trustee of the Morgan Stanley Dean
Trustee Witter Funds; formerly United States Senator
c/o Summit Ventures LLC (R-Utah) (1974-1992) and Chairman, Senate
1 Utah Center Banking Committee (1980-1986); formerly Mayor
201 S. Main Center of Salt Lake City, Utah (1971-1974); formerly
Salt Lake City, Utah Astronaut, Space Shuttle Discovery
(April 12-19, 1985); Vice Chairman, Huntsman
Corporation (chemical company); Director of
Franklin Covey (time management systems), BMW
Bank of North America, Inc. (industrial loan
corporation), United Space Alliance (joint
venture between Lockheed Martin and the Boeing
Company) and Nuskin Asia Pacific (multilevel
marketing); member of the Utah Regional
Advisory Board of Pacific Corp.; member of the
board of various civic and charitable
organizations.
</TABLE>

16
<PAGE>

<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
--------------------------------------------- -----------------------------------------------
<S> <C>
Wayne E. Hedien (66) ........................ Retired; Director or Trustee of the Morgan
Trustee Stanley Dean Witter Funds; Director of The PMI
c/o Mayer, Brown & Platt Group, Inc. (private mortgage insurance);
Counsel to the Independent Trustees Trustee and Vice Chairman of The Field Museum
1675 Broadway of Natural History; formerly associated with
New York, New York the Allstate Companies (1966-1994), most
recently as Chairman of The Allstate
Corporation (March 1993-December 1994) and
Chairman and Chief Executive Officer of its
wholly-owned subsidiary, Allstate Insurance
Company (July 1989-December 1994); director of
various other business and charitable
organizations.

James F. Higgins* (52) ...................... Chairman of the Private Client Group of MSDW
Trustee (since May 1999); Director of the Transfer
Two World Trade Center Agent and Dean Witter Realty Inc.; Director or
New York, New York Trustee of various Morgan Stanley Dean Witter
Funds (since June 2000); previously President
and Chief Operating Officer of Individual
Securities of MSDW (February 1997-May 1999),
President and Chief Operating Officer of Dean
Witter Securities of MSDW (1995-February 1997),
and President and Chief Operating Officer of
Dean Witter Financial (1989-1995) and Director
(1985-1997) of Dean Witter Reynolds.

Dr. Manuel H. Johnson (51) .................. Senior Partner, Johnson Smick
Trustee International, Inc., a consulting firm;
c/o Johnson Smick International, Inc. Co-Chairman and a founder of the Group of Seven
1133 Connecticut Avenue, N.W. Council (G7C), an international economic
Washington, D.C. commission; Chairman of the Audit Committee and
Director or Trustee of the Morgan Stanley Dean
Witter Funds; Director of Greenwich Capital
Markets, Inc. (broker-dealer), Independence
Standards Board (private sector organization
governing independence of auditors) and
NVR, Inc. (home construction); Chairman and
Trustee of the Financial Accounting Foundation
(oversight organization of the Financial
Accounting Standards Board); formerly Vice
Chairman of the Board of Governors of the
Federal Reserve System and Assistant Secretary
of the U.S. Treasury.

Michael E. Nugent (64) ...................... General Partner, Triumph Capital, L.P., a
Trustee private investment partnership; Chairman of the
c/o Triumph Capital, L.P. Insurance Committee and Director or Trustee of
237 Park Avenue the Morgan Stanley Dean Witter Funds; formerly
New York, New York Vice President, Bankers Trust Company and BT
Capital Corporation (1984-1988); director of
various business organizations.
</TABLE>

17
<PAGE>

<TABLE>
<CAPTION>
NAME, AGE, POSITION WITH FUND AND ADDRESS PRINCIPAL OCCUPATIONS DURING LAST FIVE YEARS
--------------------------------------------- -----------------------------------------------
<S> <C>
Philip J. Purcell* (56) ..................... Chairman of the Board of Directors and Chief
Trustee Executive Officer of MSDW, Dean Witter Reynolds
1585 Broadway and Novus Credit Services Inc.; Director of the
New York, New York Distributor; Director or Trustee of the Morgan
Stanley Dean Witter Funds; Director of American
Airlines, Inc. and its parent company, AMR
Corporation; Director and/or officer of various
MSDW subsidiaries.

John L. Schroeder (69) ...................... Retired; Chairman of the Derivatives Committee
Trustee and Director or Trustee of the Morgan Stanley
c/o Mayer, Brown & Platt Dean Witter Funds; Director of Citizens
Counsel to the Independent Trustees Utilities Company (telecommunications, gas,
1675 Broadway electric and water utilities company); formerly
New York, New York Executive Vice President and Chief Investment
Officer of the Home Insurance Company (August
1991-September 1995).

Mitchell M. Merin (46) ...................... President and Chief Operating Officer of Asset
President Management of MSDW (since December 1998);
Two World Trade Center President and Director (since April 1997) and
New York, New York Chief Executive Officer (since June 1998) of
the Investment Manager and MSDW Services
Company; Chairman, Chief Executive Officer and
Director of the Distributor (since June 1998);
Chairman and Chief Executive Officer (since
June 1998) and Director (since January 1998) of
the Transfer Agent; Director of various MSDW
subsidiaries; President of the Morgan Stanley
Dean Witter Funds (since May 1999); Trustee of
various Van Kampen investment companies (since
December 1999); previously Chief Strategic
Officer of the Investment Manager and MSDW
Services Company and Executive Vice President
of the Distributor (April 1997 - June 1998),
Vice President of the Morgan Stanley Dean
Witter Funds (May 1997 - April 1999), and
Executive Vice President of Dean Witter,
Discover & Co.

Barry Fink (45) ............................. General Counsel of Asset Management of MSDW
Vice President, (since May 2000); Executive Vice President
Secretary and General Counsel (since December 1999) and Secretary and General
Two World Trade Center Counsel (since February 1997) and Director
New York, New York (since July 1998) of the Investment Manager and
MSDW Services Company; Vice President,
Secretary and General Counsel of the Morgan
Stanley Dean Witter Funds (since February
1997); Vice President and Secretary of the
Distributor; previously, Senior Vice President
(March 1997-December 1999), First Vice
President, Assistant Secretary and Assistant
General Counsel of the Investment Manager and
MSDW Services Company.
</TABLE>

18
<PAGE>

Thomas F. Caloia (54) ....................... First Vice President and Assistant Treasurer of
Treasurer the Investment Manager, the Distributor and
Two World Trade Center MSDW Services Company; Treasurer of the Morgan
New York, New York Stanley Dean Witter Funds.
</TABLE>

------------------------

* Denotes Trustees who are "interested persons" of the Fund as defined by the
Investment Company Act.

In addition, RONALD E. ROBISON, Executive Vice President, Chief
Administrative Officer and Director of the Investment Manager and MSDW Services
Company, ROBERT S. GIAMBRONE, Senior Vice President of the Investment Manager,
MSDW Services Company, the Distributor and the Transfer Agent and Director of
the Transfer Agent, JOSEPH J. MCALINDEN, Executive Vice President and Chief
Investment Officer of the Investment Manager and Director of the Transfer Agent,
PETER M. AVELAR, Director of the High Yield Group and Senior Vice President of
the Investment Manager, JONATHAN PAGE, Director of the Money Market Group and
Senior Vice President of the Investment Manager, JAMES F. WILLISON, Director of
the Tax-Exempt Fixed-Income Group and Senior Vice President of the Investment
Manager, and KEVIN HURLEY, Senior Vice President of the Investment Manager, are
Vice Presidents of the Fund.

In addition, MARILYN K. CRANNEY, TODD LEBO, LOU ANNE D. MCINNIS, CARSTEN
OTTO and RUTH ROSSI, First Vice Presidents and Assistant General Counsels of the
Investment Manager and MSDW Services Company, and NATASHA KASSIAN, Assistant
Vice President and Assistant General Counsel of the Investment Manager and MSDW
Services Company, are Assistant Secretaries of the Fund.

INDEPENDENT DIRECTORS/TRUSTEES AND THE COMMITTEES. Law and regulation
establish both general guidelines and specific duties for the independent
directors/trustees. The Morgan Stanley Dean Witter Funds seek as independent
directors/trustees individuals of distinction and experience in business and
finance, government service or academia; these are people whose advice and
counsel are in demand by others and for whom there is often competition. To
accept a position on the Funds' boards, such individuals may reject other
attractive assignments because the Funds make substantial demands on their time.
All of the independent directors/trustees serve as members of the Audit
Committee. In addition, three of the directors/trustees, including two
independent directors/trustees, serve as members of the Derivatives Committee
and the Insurance Committee.

The independent directors/trustees are charged with recommending to the full
board approval of management, advisory and administration contracts, Rule 12b-1
plans and distribution and underwriting agreements; continually reviewing Fund
performance; checking on the pricing of portfolio securities, brokerage
commissions, transfer agent costs and performance, and trading among Funds in
the same complex; and approving fidelity bond and related insurance coverage and
allocations, as well as other matters that arise from time to time. The
independent directors/trustees are required to select and nominate individuals
to fill any independent director/trustee vacancy on the board of any Fund that
has a Rule 12b-1 plan of distribution. Most of the Morgan Stanley Dean Witter
Funds have a Rule 12b-1 plan.

The Audit Committee is charged with recommending to the full board the
engagement or discharge of the Fund's independent accountants; directing
investigations into matters within the scope of the independent accountants'
duties, including the power to retain outside specialists; reviewing with the
independent accountants the audit plan and results of the auditing engagement;
approving professional services provided by the independent accountants and
other accounting firms prior to the performance of the services; reviewing the
independence of the independent accountants; considering the range of audit and
non-audit fees; reviewing the adequacy of the Fund's system of internal
controls; and preparing and submitting Committee meeting minutes to the full
board.

19
<PAGE>

The board of each Fund has a Derivatives Committee to approve parameters for
and monitor the activities of the Fund with respect to derivative investments,
if any, made by the Fund.

Finally, the board of each Fund has formed an Insurance Committee to review
and monitor the insurance coverage maintained by the Fund.

ADVANTAGES OF HAVING SAME INDIVIDUALS AS INDEPENDENT DIRECTORS/TRUSTEES FOR
ALL MORGAN STANLEY DEAN WITTER FUNDS. The independent directors/trustees and
the Funds' management believe that having the same independent
directors/trustees for each of the Morgan Stanley Dean Witter Funds avoids the
duplication of effort that would arise from having different groups of
individuals serving as independent directors/trustees for each of the Funds or
even of sub-groups of Funds. They believe that having the same individuals serve
as independent directors/trustees of all the Funds tends to increase their
knowledge and expertise regarding matters which affect the Fund complex
generally and enhances their ability to negotiate on behalf of each Fund with
the Fund's service providers. This arrangement also precludes the possibility of
separate groups of independent directors/trustees arriving at conflicting
decisions regarding operations and management of the Funds and avoids the cost
and confusion that would likely ensue. Finally, having the same independent
directors/trustees serve on all Fund boards enhances the ability of each Fund to
obtain, at modest cost to each separate Fund, the services of independent
directors/trustees of the caliber, experience and business acumen of the
individuals who serve as independent directors/trustees of the Morgan Stanley
Dean Witter Funds.

TRUSTEE AND OFFICER INDEMNIFICATION. The Fund's Declaration of Trust
provides that no Trustee, officer, employee or agent of the Fund is liable to
the Fund or to a shareholder, nor is any Trustee, officer, employee or agent
liable to any third persons in connection with the affairs of the Fund, except
as such liability may arise from his/her or its own bad faith, willful
misfeasance, gross negligence or reckless disregard of his/her or its duties. It
also provides that all third persons shall look solely to the Fund property for
satisfaction of claims arising in connection with the affairs of the Fund. With
the exceptions stated, the Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Fund.

C. COMPENSATION

The Fund pays each Independent Trustee an annual fee of $800 plus a per
meeting fee of $50 for meetings of the Board of Trustees, the Independent
Trustees or Committees of the Board of Trustees attended by the Trustee (the
Fund pays the Chairman of the Audit Committee an additional annual fee of $750,
and the Chairmen of the Derivatives and Insurance Committees additional annual
fees of $500). If a Board meeting and a meeting of the Independent Trustees or a
Committee meeting, or a meeting of the Independent Trustees and/or more than one
Committee meeting, take place on a single day, the Trustees are paid a single
meeting fee by the Fund. The Fund also reimburses such Trustees for travel and
other out-of-pocket expenses incurred by them in connection with attending such
meetings. Trustees and officers of the Fund who are or have been employed by the
Investment Manager or an affiliated company receive no compensation or expense
reimbursement from the Fund for their services as Trustee.

The following table illustrates the compensation that the Fund paid to its
Independent Trustees for the fiscal year ended April 30, 2000.

FUND COMPENSATION

<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
NAME OF INDEPENDENT TRUSTEE FROM THE FUND
--------------------------- --------------
<S> <C>
Michael Bozic................................................. $1,550
Edwin J. Garn................................................. 1,550
Wayne E. Hedien............................................... 1,550
Dr. Manuel H. Johnson......................................... 2,425
Michael E. Nugent............................................. 2,133
John L. Schroeder............................................. 2,083
</TABLE>

20
<PAGE>

The following table illustrates the compensation paid to the Fund's
Independent Trustees for the calendar year ended December 31, 1999 for services
to the 93 Morgan Stanley Dean Witter Funds that were in operation at
December 31, 1999.

CASH COMPENSATION FROM MORGAN STANLEY DEAN WITTER FUNDS

<TABLE>
<CAPTION>
TOTAL CASH
COMPENSATION
FOR SERVICES
TO
93 MORGAN
STANLEY DEAN
NAME OF INDEPENDENT TRUSTEE WITTER FUNDS
--------------------------- ------------
<S> <C>
Michael Bozic.............. $134,600
Edwin J. Garn.............. 138,700
Wayne E. Hedien............ 138,700
Dr. Manuel H. Johnson...... 208,638
Michael E. Nugent.......... 193,324
John L. Schroeder.......... 193,324
</TABLE>

As of the date of this STATEMENT OF ADDITIONAL INFORMATION, 55 of the Morgan
Stanley Dean Witter Funds, not including the Fund, have adopted a retirement
program under which an independent director/trustee who retires after serving
for at least five years (or such lesser period as may be determined by the
Board) as an independent director/trustee of any Morgan Stanley Dean Witter Fund
that has adopted the retirement program (each such fund referred to as an
"Adopting Fund" and each such director/trustee referred to as an "Eligible
Trustee") is entitled to retirement payments upon reaching the eligible
retirement age (normally, after attaining age 72). Annual payments are based
upon length of service.

Currently, upon retirement, each Eligible Trustee is entitled to receive
from the Adopting Fund, commencing as of his or her retirement date and
continuing for the remainder of his or her life, an annual retirement benefit
(the "Regular Benefit") equal to 30.22% of his or her Eligible Compensation plus
0.5036667% of such Eligible Compensation for each full month of service as an
independent director/ trustee of any Adopting Fund in excess of five years up to
a maximum of 60.44% after ten years of service. The foregoing percentages may be
changed by the Board.(1) "Eligible Compensation" is one-fifth of the total
compensation earned by such Eligible Trustee for service to the Adopting Fund in
the five year period prior to the date of the Eligible Trustee's retirement.
Benefits under the retirement program are accrued as expenses on the books of
the Adopting Funds. Such benefits are not secured or funded by the Adopting
Funds.

------------------------
(1) An Eligible Trustee may elect alternative payments of his or her retirement
benefits based upon the combined life expectancy of the Eligible Trustee and
his or her spouse on the date of such Eligible Trustee's retirement. In
addition, the Eligible Trustee may elect that the surviving spouse's
periodic payment of benefits will be equal to a lower percentage of the
periodic amount when both spouses were alive. The amount estimated to be
payable under this method, through the remainder of the later of the lives
of the Eligible Trustee and spouse, will be the actuarial equivalent of the
Regular Benefit.

21
<PAGE>

The following table illustrates the retirement benefits accrued to the
Fund's Independent Trustees by the 55 Morgan Stanley Dean Witter Funds (not
including the Fund) for the fiscal year ended December 31, 1999, and the
estimated retirement benefits for the Independent Trustees, to commence upon
their retirement, from the 55 Morgan Stanley Dean Witter Funds as of
December 31, 1999.

RETIREMENT BENEFITS FROM ALL MORGAN STANLEY DEAN WITTER FUNDS

<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ANNUAL
CREDITED RETIREMENT BENEFITS BENEFITS
YEARS ESTIMATED ACCRUED AS UPON RETIREMENT
OF SERVICE AT PERCENTAGE OF EXPENSES FROM ALL
RETIREMENT ELIGIBLE BY ALL ADOPTING
NAME OF INDEPENDENT TRUSTEE (MAXIMUM 10) COMPENSATION ADOPTING FUNDS FUNDS(1)
--------------------------- -------------- -------------- ------------------- ----------------
<S> <C> <C> <C> <C>
Michael Bozic................... 10 60.44% $ 20,933 $ 50,588
Edwin J. Garn................... 10 60.44 31,737 50,675
Wayne E. Hedien................. 9 51.37 39,566 43,000
Dr. Manuel H. Johnson........... 10 60.44 13,129 75,520
Michael E. Nugent............... 10 60.44 23,175 67,209
John L. Schroeder............... 8 50.37 41,558 52,994
</TABLE>

------------------------

(1) Based on current levels of compensation. Amount of annual benefits also
varies depending on the Trustee's elections described in Footnote (1) on
page 21 of this Statement of Additional Information.

IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

--------------------------------------------------------------------------------

The following owned 5% or more of the outstanding shares of the Fund as of
June 13, 2000: Seafarers Pension Plan, ATTN: Lou Delma, dated 7/1/50, 5201 Auth
Way, Camp Springs, MD 20746-4211 - 8.771% and Mitteldorf Family Trust, Harriet
Mitteldorf Trustee, c/o Mike Tinkler U/A 10/30, 33 Beverly Ave., Lansdowne, PA
19050-2705 - 5.517%.

As of the date of this STATEMENT OF ADDITIONAL INFORMATION, the aggregate
number of shares of beneficial interest of the Fund owned by the Fund's officers
and Trustees as a group was less than 1% of the Fund's shares of beneficial
interest outstanding.

V. INVESTMENT MANAGEMENT AND OTHER SERVICES
--------------------------------------------------------------------------------

A. INVESTMENT MANAGER

The Investment Manager to the Fund is Morgan Stanley Dean Witter Advisors
Inc., a Delaware corporation, whose address is Two World Trade Center, New York,
NY 10048. The Investment Manager is a wholly-owned subsidiary of MSDW, a
Delaware corporation. MSDW is a preeminent global financial services firm that
maintains leading market positions in each of its three primary businesses:
securities, asset management and credit services.

Pursuant to an Investment Management Agreement (the "Management Agreement")
with the Investment Manager, the Fund has retained the Investment Manager to
provide administrative services and manage the investment of the Fund's assets,
including the placing of orders for the purchase and sale of portfolio
securities. The Fund pays the Investment Manager monthly compensation calculated
daily by applying the annual rate of 0.70% to the net assets of the Fund
determined as of the close of each business day. The Investment Manager had
undertaken from January 1, 1997 through December 31, 1998 to assume all
operating expenses (except for any brokerage fees) and to waive its compensation
without limitation. The Investment Manager also had undertaken from January 1,
1999 through December 31, 1999 and has continued to undertake from January 1,
2000 through December 31, 2000 to assume operating expenses (except for any
brokerage fees) and to waive its compensation to the extent such expenses and
compensation exceed 0.80% of the Fund's daily net assets on an annualized basis.
Taking these waivers and assumptions of expenses into account, for the fiscal
years ended April 30, 1998, 1999 and 2000, the fees payable under the Management
Agreement amounted to $0, $416,586 and $920,686.

22
<PAGE>
The Investment Manager has retained its wholly-owned subsidiary, MSDW
Services Company, to perform administrative services for the Fund.

B. PRINCIPAL UNDERWRITER

The Fund's principal underwriter is the Distributor (which has the same
address as the Investment Manager). In this capacity, the Fund's shares are
distributed by the Distributor. The Distributor has entered into a selected
dealer agreement with Dean Witter Reynolds, which through its own sales
organization sells shares of the Fund. In addition, the Distributor may enter
into similar agreements with other selected broker-dealers. The Distributor, a
Delaware corporation, is a wholly-owned subsidiary of MSDW.

The Distributor bears all expenses it may incur in providing services under
the Distribution Agreement. These expenses include the payment of commissions
for sales of the Fund's shares and incentive compensation to Financial Advisors,
the cost of educational and/or business-related trips, and educational and/or
promotional and business-related expenses. The Distributor also pays certain
expenses in connection with the distribution of the Fund's shares, including the
costs of preparing, printing and distributing advertising or promotional
materials, and the costs of printing and distributing prospectuses and
supplements thereto used in connection with the offering and sale of the Fund's
shares. The Fund bears the costs of initial typesetting, printing and
distribution of prospectuses and supplements thereto to shareholders. The Fund
also bears the costs of registering the Fund and its shares under federal and
state securities laws and pays filing fees in accordance with state securities
laws.

The Fund and the Distributor have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act. Under the
Distribution Agreement, the Distributor uses its best efforts in rendering
services to the Fund, but in the absence of willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations, the Distributor is
not liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for any losses sustained by the
Fund or its shareholders.

C. SERVICES PROVIDED BY THE INVESTMENT MANAGER

The Investment Manager manages the investment of the Fund's assets,
including the placing of orders for the purchase and sale of portfolio
securities. The Investment Manager obtains and evaluates the information and
advice relating to the economy, securities markets, and specific securities as
it considers necessary or useful to continuously manage the assets of the Fund
in a manner consistent with its investment objective.

Under the terms of the Management 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, the office space, facilities,
equipment, clerical help, bookkeeping and certain legal services as the Fund may
reasonably require in the conduct of its business, including the preparation of
prospectuses, proxy statements and reports required to be filed with federal and
state securities commissions (except insofar as the participation or assistance
of independent accountants and attorneys is, in the opinion of the Investment
Manager, necessary or desirable). In addition, the Investment Manager 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
service, heat, light, power and other utilities provided to the Fund.

Expenses not expressly assumed by the Investment Manager under the
Management Agreement or by the Distributor, will be paid by the Fund. Such
expenses include, but are not limited to: expenses of the Plan of Distribution
pursuant to Rule 12b-1; charges and expenses of any registrar, custodian, stock
transfer and dividend disbursing agent; brokerage commissions; taxes; engraving
and printing share certificates; registration costs of the Fund and its shares
under federal and state securities laws; the cost and expense of printing,
including typesetting, and distributing prospectuses of the Fund and supplements
thereto to the Fund's shareholders; all expenses of shareholders' and Trustees'
meetings and of preparing, printing and mailing of proxy statements and reports
to shareholders; fees and travel expenses of Trustees or members of any advisory
board or committee who are not employees of the Investment Manager or any
corporate affiliate of the Investment Manager; all expenses incident to any

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dividend, withdrawal or redemption options; charges and expenses of any outside
service used for pricing of the Fund's shares; fees and expenses of legal
counsel, including counsel to the Trustees who are not interested persons of the
Fund or of the Investment Manager (not including compensation or expenses of
attorneys who are employees of the Investment Manager); fees and expenses of the
Fund's independent accountants; membership dues of industry associations;
interest on Fund borrowings; postage; insurance premiums on property or
personnel (including officers and Trustees) of the Fund which inure to its
benefit; extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification relating thereto); and
all other costs of the Fund's operation.

The Management Agreement provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Investment Manager is not liable to the Fund or any
of its investors for any act or omission by the Investment Manager or for any
losses sustained by the Fund or its investors.

The Management Agreement will remain in effect from year to year, provided
continuance of the Management Agreement is approved at least annually by the
vote of the holders of a majority, as defined in the Investment Company Act, of
the outstanding shares of the Fund, or by the Trustees; provided that in either
event such continuance is approved annually by the vote of a majority of the
Trustees, including a majority of the Independent Trustees.

D. DEALER REALLOWANCES

Upon notice to selected broker-dealers, the Distributor may reallow up to
the full applicable front-end sales charge during periods specified in such
notice. During periods when 90% or more of the sales charge is reallowed, such
selected broker-dealers may be deemed to be underwriters as that term is defined
in the Securities Act.

E. RULE 12b-1 PLAN

The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act (the "Plan") pursuant to which the Distributor or any of
its affiliates, including the Investment Manager, is authorized to utilize their
own resources to finance certain activities in connection with the distribution
of the Fund's shares.

The Investment Manager will pay a retention fee to Morgan Stanley Dean
Witter Financial Advisors at an annual rate of 0.05% of the value of shares of
the Fund sold after January 1, 2000 and held for at least one year. Shares
purchased through the reinvestment of dividends will be eligible for a retention
fee, provided that such dividends were earned on shares otherwise eligible for a
retention fee payment. Shares owned in variable annuities, closed-end fund
shares and shares held in 401(k) plans where the Transfer Agent or Dean Witter
Reynolds' Retirement Plan Services is either recordkeeper or trustee are not
eligible for a retention fee.

For the first year only, the retention fee will be paid on any shares of the
Fund sold after January 1, 2000 and held by shareholders on December 31, 2000.

The retention fees are paid by the Investment Manager from its own assets,
which may include profits from investment management fees payable under the
Investment Management Agreement, as well as from borrowed funds.

Under the Plan, the Distributor uses its best efforts in rendering services
to the Fund, but in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations, the Distributor is not
liable to the Fund or any of its shareholders for any error of judgment or
mistake of law or for any act or omission or for any losses sustained by the
Fund or its shareholders.

Under the Plan, the Distributor provides the Fund, for review by the
Trustees, and the Trustees review, promptly after the end of each calendar
quarter, a written report regarding the distribution expenses incurred on behalf
of the Fund during such calendar quarter, which report includes (1) an
itemization of the types of expenses and the purposes therefore; (2) the amounts
of such expenses; and (3) a description of the benefits derived by the Fund. In
the Trustees' quarterly review of the Plan they consider its continued
appropriateness and the level of compensation provided therein.

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No interested person of the Fund nor any Independent Trustee has any direct
financial interest in the operation of the Plan except to the extent that the
Distributor, the Investment Manager, Dean Witter Reynolds, MSDW Services Company
or certain of their employees may be deemed to have such an interest as a result
of benefits derived from the successful operation of the Plan or as a result of
receiving a portion of the amounts expended thereunder by the Fund.

On an annual basis, the Trustees, including a majority of the Independent
Trustees, consider whether the Plan should be continued. Prior to approving the
last continuation of the Plan, the Trustees requested and received from the
Distributor and reviewed all the information which they deemed necessary to
arrive at an informed determination. In making their determination to continue
the Plan, the Trustees considered: (1) the Fund's experience under the Plan and
whether such experience indicates that the Plan is operating as anticipated;
(2) the benefits the Fund had obtained, was obtaining and would be likely to
obtain under the Plan, including to enable the Fund to continue to grow and
avoid a pattern of net redemptions which, in turn, are essential for effective
investment management; and without the compensation to individual brokers and
the reimbursement of distribution and account maintenance expenses of Dean
Witter Reynolds's branch offices made possible by the Plan, Dean Witter Reynolds
could not establish and maintain an effective system for distribution, servicing
of Fund shareholders and maintenance of shareholder accounts; and (3) what
services had been provided and were continuing to be provided under the Plan to
the Fund and its shareholders. Based upon their review, the Trustees, including
each of the Independent Trustees, determined that continuation of the Plan would
be in the best interest of the Fund and would have a reasonable likelihood of
continuing to benefit the Fund and its shareholders. In the Trustees' quarterly
review of the Plan, they will consider its continued appropriateness and the
level of compensation provided therein.

F. OTHER SERVICE PROVIDERS

(1) TRANSFER AGENT/DIVIDEND-PAYING AGENT

Morgan Stanley Dean Witter Trust FSB is the Transfer Agent for the Fund's
shares and the Dividend Disbursing Agent for payment of dividends and
distributions on Fund shares and Agent for shareholders under various investment
plans. The principal business address of the Transfer Agent is Harborside
Financial Center, Plaza Two, Jersey City, NJ 07311.

(2) CUSTODIAN AND INDEPENDENT ACCOUNTANTS

The Bank of New York, 100 Church Street, New York, NY 10007 is the Custodian
of the Fund's assets. Any of the Fund's cash balances with the Custodian in
excess of $100,000 are unprotected by federal deposit insurance. These balances
may, at times, be substantial.

PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, NY 10036
serves as the independent accountants of the Fund. The independent accountants
are responsible for auditing the annual financial statements of the Fund.

(3) AFFILIATED PERSONS

The Transfer Agent is an affiliate of the Investment Manager, and of the
Distributor. As Transfer Agent and Dividend Disbursing Agent, the Transfer
Agent's responsibilities include maintaining shareholder accounts, disbursing
cash dividends and reinvesting dividends, processing account registration
changes, handling purchase and redemption transactions, mailing prospectuses and
reports, mailing and tabulating proxies, processing share certificate
transactions, and maintaining shareholder records and lists. For these services,
the Transfer Agent receives a per shareholder account fee from the Fund and is
reimbursed for its out-of-pocket expenses in connection with such services.

G. CODES OF ETHICS

The Fund, the Investment Manager and the Distributor have each adopted a
Code of Ethics pursuant to Rule 17j-1 under the Investment Company Act. The
Codes of Ethics are designed to detect and prevent improper personal trading.
The Codes of Ethics permit personnel subject to the Codes to

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invest in securities, including securities that may be purchased, sold or held
by the Fund, subject to a number of restrictions and controls including
prohibitions against purchases of securities in an Initial Public Offering and a
preclearance requirement with respect to personal securities transactions.

VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
--------------------------------------------------------------------------------

A. BROKERAGE TRANSACTIONS

Subject to the general supervision of the Trustees, the Investment Manager
is responsible for decisions to buy and sell securities for the Fund, the
selection of brokers and dealers to effect the transactions, and the negotiation
of brokerage commissions, if any. The Fund expects that the primary market for
the securities in which it intends to invest will generally be the
over-the-counter market. Securities are generally traded in the over-the-counter
market on a "net" basis with dealers acting as principal for their own accounts
without a stated commission, although the price of the security usually includes
a profit to the dealer. The Fund also expects that securities will be purchased
at times in underwritten offerings where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or discount.
Options and futures transactions will usually be effected through a broker and a
commission will be charged. On occasion, the Fund may also purchase certain
money market instruments directly from an issuer, in which case no commissions
or discounts are paid.

For the fiscal years ended April 30, 1998, 1999 and 2000, the Fund paid no
brokerage commissions.

B. COMMISSIONS

Pursuant to an order of the SEC, the Fund may effect principal transactions
in certain money market instruments with Dean Witter Reynolds. The Fund will
limit its transactions with Dean Witter Reynolds to U.S. Government and
government agency securities, bank money instruments (i.e., certificates of
deposit and bankers' acceptances) and commercial paper. The transactions will be
effected with Dean Witter Reynolds only when the price available from Dean
Witter Reynolds is better than that available from other dealers.

During the fiscal years ended April 30, 1998, 1999 and 2000, the Fund did
not effect any principal transactions with Dean Witter Reynolds.

Brokerage transactions in securities listed on exchanges or admitted to
unlisted trading privileges may be effected through Dean Witter Reynolds, Morgan
Stanley & Co. and other affiliated brokers and dealers. In order for an
affiliated broker or dealer to effect any portfolio transactions on an exchange
for the Fund, the commissions, fees or other remuneration received by the
affiliated broker or dealer must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
an exchange during a comparable period of time. This standard would allow the
affiliated broker or dealer to receive no more than the remuneration which would
be expected to be received by an unaffiliated broker in a commensurate
arm's-length transaction. Furthermore, the Trustees, including the Independent
Trustees, have adopted procedures which are reasonably designed to provide that
any commissions, fees or other remuneration paid to an affiliated broker or
dealer are consistent with the foregoing standard. The Fund does not reduce the
management fee it pays to the Investment Manager by any amount of the brokerage
commissions it may pay to an affiliated broker or dealer.

During the fiscal years ended April 30, 1998, 1999 and 2000, the Fund paid
no brokerage commissions to Dean Witter Reynolds. During the period June 1, 1997
through April 30, 1998, and during the fiscal years ended April 30, 1999 and
2000, the Fund paid no brokerage commissions to Morgan Stanley & Co., which
broker-dealer became an affiliate of the Investment Manager on May 31, 1997 upon
consummation of the merger of Dean Witter, Discover & Co. with Morgan Stanley
Group Inc.

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<PAGE>
C. BROKERAGE SELECTION

The policy of the Fund regarding purchases and sales of securities for its
portfolio is that primary consideration will be given to obtaining the most
favorable prices and efficient executions of transactions.

The Fund anticipates that certain of its transactions involving foreign
securities will be effected on foreign securities exchanges. Fixed commissions
on such transactions are generally higher than negotiated commissions on
domestic transactions. There is also generally less government supervision and
regulation of foreign securities exchanges and brokers than in the United
States.

In seeking to implement the Fund's policies, the Investment Manager effects
transactions with those brokers and dealers who the Investment Manager believes
provide the most favorable prices and are capable of providing efficient
executions. If the Investment Manager believes the prices and executions are
obtainable from more than one broker or dealer, it may give consideration to
placing portfolio transactions with those brokers and dealers who also furnish
research and other services to the Fund or the Investment Manager. The services
may include, but are not limited to, any one or more of the following:
information as to the availability of securities for purchase or sale;
statistical or factual information or opinions pertaining to investment; wire
services; and appraisals or evaluations of portfolio securities. The information
and services received by the Investment Manager from brokers and dealers may be
of benefit to the Investment Manager in the management of accounts of some of
its other clients and may not in all cases benefit the Fund directly.

The information and services received by the Investment Manager from brokers
and dealers may be of benefit to the Investment Manager in the management of
accounts of some of its other clients and may not in all cases benefit the Fund
directly. While the receipt of such information and services is useful in
varying degrees and would generally reduce the amount of research or services
otherwise performed by the Investment Manager and thereby reduce its expenses,
it is of indeterminable value and the Fund does not reduce the management fee it
pays to the Investment Manager by any amount that may be attributable to the
value of such services.

Subject to the principle of obtaining best price and execution, the
Investment Manager may consider a broker-dealer's sales of shares of the Fund as
a factor in selecting from among those broker-dealers qualified to provide
comparable prices and execution on the Fund's portfolio transactions. The Fund
does not, however, require a broker-dealer to sell shares of the Fund in order
for it to be considered to execute portfolio transactions, and will not enter
into any arrangement whereby a specific amount or percentage of the Fund's
transactions will be directed to a broker which sells shares of the Fund to
customers. The Trustees review, periodically, the allocation of brokerage orders
to monitor the operation of these policies.

The Investment Manager currently serves as investment manager to a number of
clients, including other investment companies, and may in the future act as
investment manager or advisor to others. It is the practice of the Investment
Manager to cause purchase and sale transactions to be allocated among the Fund
and others whose assets it manages in such manner as it deems equitable. In
making such allocations among the Fund and other client accounts, various
factors may be considered, including the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and the opinions of the persons responsible for managing the
portfolios of the Fund and other client accounts. In the case of certain initial
and secondary public offerings, the Investment Manager utilizes a pro rata
allocation process based on the size of the Morgan Stanley Dean Witter Funds
involved and the number of shares available from the public offering.

D. DIRECTED BROKERAGE

During the fiscal year ended April 30, 2000, the Fund did not pay any
brokerage commissions in connection with transactions because of research
services provided.

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<PAGE>
E. REGULAR BROKER-DEALERS

During the fiscal year ended April 30, 2000, the Fund purchased Bonds issued
by Lehman Brothers Inc., Banc of America Securities LLC, and Salomon Brothers
Inc., which issuers were among the ten brokers or the ten dealers that executed
transactions for or with the Fund in the largest dollar amounts during the year.
At April 30, 2000, the Fund held a Bond issued by Lehman Brothers Holdings Inc.
with a market value of $1,940,900.

VII. CAPITAL STOCK AND OTHER SECURITIES
--------------------------------------------------------------------------------

The shareholders of the Fund are entitled to a full vote for each full share
of beneficial interest held. The Fund is authorized to issue an unlimited number
of shares of beneficial interest. All shares of beneficial interest of the Fund
are of $0.01 par value and are equal as to earnings, assets and voting
privileges.

The Fund's Declaration of Trust permits the Trustees to authorize the
creation of additional series of shares (the proceeds of which would be invested
in separate, independently managed portfolios) and additional Classes of shares
within any series. The Trustees have not presently authorized any such
additional series or Classes of shares other than as set forth in the
PROSPECTUS.

The Fund is not required to hold annual meetings of shareholders and in
ordinary circumstances the Fund does not intend to hold such meetings. The
Trustees may call special meetings of shareholders for action by shareholder
vote as may be required by the Investment Company Act or the Declaration of
Trust. Under certain circumstances, the Trustees may be removed by action of the
Trustees. In addition, under certain circumstances, the shareholders may call a
meeting to remove Trustees and the Fund is required to provide assistance in
communicating with shareholders about such a meeting. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees.

Under Massachusetts law, shareholders of a business trust may, under certain
limited circumstances, be held personally liable as partners for the obligations
of the Fund. However, the Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Fund, requires that notice
of such Fund obligations include such disclaimer, and provides for
indemnification out of the Fund's property for any shareholder held personally
liable for the obligations of the Fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Fund itself would be unable to meet its obligations.
Given the above limitations on shareholder personal liability, and the nature of
the Fund's assets and operations, the possibility of the Fund being unable to
meet its obligations is remote and thus, in the opinion of Massachusetts counsel
to the Fund, the risk to Fund shareholders of personal liability is remote.

The Trustees themselves have the power to alter the number and the terms of
office of the Trustees (as provided for in the Declaration of Trust), and they
may at any time lengthen or shorten their own terms or make their terms of
unlimited duration and appoint their own successors, provided that always at
least a majority of the Trustees has been elected by the shareholders of the
Fund.

VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
--------------------------------------------------------------------------------

A. PURCHASE/REDEMPTION OF SHARES

Information concerning how Fund shares are offered to the public (and how
they are redeemed and exchanged) is provided in the Fund's PROSPECTUS.

TRANSFER AGENT AS AGENT. With respect to the redemption or repurchase of
Fund shares, the application of proceeds to the purchase of new shares in the
Fund or any other Morgan Stanley Dean

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<PAGE>
Witter Funds and the general administration of the exchange privilege, the
Transfer Agent acts as agent for the Distributor and for the shareholder's
authorized broker-dealer, if any, in the performance of such functions. With
respect to exchanges, redemptions or repurchases, the Transfer Agent shall be
liable for its own negligence and not for the default or negligence of its
correspondents or for losses in transit. The Fund shall not be liable for any
default or negligence of the Transfer Agent, the Distributor or any authorized
broker-dealer.

The Distributor and any authorized broker-dealer have appointed the Transfer
Agent to act as their agent in connection with the application of proceeds of
any redemption of Fund shares to the purchase of shares of any other Morgan
Stanley Dean Witter Fund and the general administration of the exchange
privilege. No commission or discounts will be paid to the Distributor or any
authorized broker-dealer for any transaction pursuant to the exchange privilege.

B. OFFERING PRICE

The price of Fund shares, called "net asset value," is based on the value of
the Fund's portfolio securities.

In the calculation of the Fund's net asset value: (1) an equity portfolio
security listed or traded on the New York or American Stock Exchange or other
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 a security is traded on more than
one exchange, the security is valued on the exchange designated as the primary
market pursuant to procedures adopted by the Trustees); and (2) all other
portfolio securities for which over-the-counter market quotations are readily
available are valued at the latest bid price. When market quotations are not
readily available, including circumstances under which it is determined by 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 Fund's Trustees. For valuation purposes, quotations of foreign portfolio
securities, other assets and liabilities and forward contracts stated in foreign
currency are translated into U.S. dollar equivalents at the prevailing market
rates prior to the close of the New York Stock Exchange.

Short-term debt securities with remaining maturities of sixty days or less
at the time of purchase are valued at amortized cost, unless the Trustees
determine such does not reflect the securities' market value, in which case
these securities will be valued at their fair value as determined by the
Trustees.

Certain of the Fund's portfolio securities may be valued by an outside
pricing service approved by the Fund's Trustees. The pricing service may utilize
a matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research evaluations by its staff, including
review of broker-dealer market price quotations in determining what it believes
is the fair valuation of the portfolio securities valued by such pricing
service.

Listed options on debt securities are valued at the latest sale price on the
exchange on which they are listed unless no sales of such options have taken
place that day, in which case they will be valued at the mean between their
latest bid and asked prices. Unlisted options on debt securities and all options
on equity securities are valued at the mean between their latest bid and asked
prices. Futures are valued at the latest sale price on the commodities exchange
on which they trade unless the Trustees determine such price does not reflect
their market value, in which case they will be valued at their fair value as
determined in good faith under procedures established by and under the
supervision of the Trustees.

Generally, trading in foreign securities, as well as corporate bonds, U.S.
Government securities and money market instruments, is substantially completed
each day at various times prior to the close of the New York Stock Exchange. The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of the New York Stock Exchange.
Occasionally, events which may affect the values of such securities and such
exchange rates may occur between the times at which they are determined and the
close of the New York Stock Exchange and will therefore not be reflected in the

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<PAGE>
computation of the Fund's net asset value. If events that may affect the value
of such securities occur during such period, then these securities may be valued
at their fair value as determined in good faith under procedures established by
and under the supervision of the Trustees.

IX. TAXATION OF THE FUND AND SHAREHOLDERS
--------------------------------------------------------------------------------

The Fund generally will make two basic types of distributions: ordinary
dividends and long-term capital gain distributions. These two types of
distributions are reported differently on a shareholder's income tax return and
they are also subject to different rates of tax. The tax treatment of the
investment activities of the Fund will affect the amount and timing and
character of the distributions made by the Fund. Tax issues relating to the Fund
are not generally a consideration for shareholders such as tax-exempt entities
and tax-advantaged retirement vehicles such as an IRA or 401(k) plan.
Shareholders are urged to consult their own tax professionals regarding specific
questions as to federal, state or local taxes.

INVESTMENT COMPANY TAXATION. The Fund intends to remain qualified as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986. As such, the Fund will not be subject to federal income tax on its net
investment income and capital gains, if any, to the extent that it distributes
such income and capital gains to its shareholders.

The Fund generally intends to distribute sufficient income and gains so that
the Fund will not pay corporate income tax on its earnings. The Fund also
generally intends to distribute to its shareholders in each calendar year a
sufficient amount of ordinary income and capital gains to avoid the imposition
of a 4% excise tax. However, the Fund may instead determine to retain all or
part of any net long-term capital gains in any year for reinvestment. In such
event, the Fund will pay federal income tax (and possibly excise tax) on such
retained gains.

Gains or losses on sales of securities by the Fund will be long-term capital
gains or losses if the securities have a tax holding period of more than one
year. Gains or losses on the sale of securities with a tax holding period of one
year or less will be short-term gains or losses.

Gains or losses on the Fund's transactions in listed non-equity options,
futures and options on futures generally are treated as 60% long-term and 40%
short-term. When the Fund engages in options and futures transactions, various
tax rules may accelerate or defer recognition of certain gains and losses,
change the character of certain gains or losses, or alter the holding period of
other investments held by the Fund. The application of these rules would
therefore also affect the amount, timing and character of distributions made by
the Fund.

The Fund's foreign currency gains or losses from forward contracts, futures
contracts that are not "regulated futures contracts," and unlisted options, and
certain other foreign currency gains or losses derived with respect to
fixed-income securities, are treated as ordinary income or loss. In general,
such foreign currency gains or losses will increase or decrease the amount of
the Fund's income available to be distributed to shareholders as ordinary
income, rather than increasing or decreasing the amount of the Fund's net
capital gain. Additionally, if such foreign currency losses exceed other
ordinary income during a taxable year, the Fund would not be able to make
ordinary income distributions for the year.

Under certain tax rules, the Fund may be required to accrue a portion of any
discount at which certain securities are purchased as income each year even
though the Fund receives no payments in cash on the security during the year. In
addition, if the Fund invests in an equity security of a non-U.S. corporation
classified as a "passive foreign investment company" for U.S. tax purposes, the
application of certain technical tax provisions applying to investments in such
companies may result in the Fund being required to accrue income in respect of
the security without any receipt of cash attributable to such income. To the
extent that the Fund invests in such securities, it would be required to pay out
such accrued discount as an income distribution in each year in order to avoid
taxation at the Fund level. Such distributions will be made from the available
cash of the Fund or by liquidation of portfolio securities if necessary. If a
distribution of cash necessitates the liquidation of portfolio securities, the
Investment

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<PAGE>

Manager will select which securities to sell. The Fund may realize a gain or
loss from such sales. In the event the Fund realizes net capital gains from such
transactions, its shareholders may receive a larger capital gain distribution,
if any, than they would in the absence of such transactions.

TAXATION OF DIVIDENDS AND DISTRIBUTIONS. Shareholders normally will have to
pay federal income taxes, and any state and/or local income taxes, on the
dividends and other distributions they receive from the Fund. Such dividends and
distributions, to the extent that they are derived from net investment income or
short-term capital gains, are taxable to the shareholder as ordinary income
regardless of whether the shareholder receives such payments in additional
shares or in cash.

Distributions of net long-term capital gains, if any, are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
held the Fund's shares and regardless of whether the distribution is received in
additional shares or in cash. The maximum tax rate on long-term capital gains
realized by non-corporate shareholders is 20%.

Shareholders are generally taxed on any ordinary dividend or capital gain
distributions from the Fund in the year they are actually distributed. However,
if any such dividends or distributions are declared in October, November or
December and paid in January then such amounts will be treated for tax purposes
as received by the shareholders on December 31, to shareholders of record of
such month.

Shareholders who are not citizens or residents of the United States and
certain foreign entities may be subject to withholding of U.S. tax on
distributions by the Fund of investment income and short-term capital gains.

After the end of each calendar year, shareholders will be sent information
on their dividends and capital gain distributions for tax purposes, including
the portion taxable as ordinary income and the portion taxable as long-term
capital gains.

PURCHASES AND REDEMPTIONS AND EXCHANGES OF FUND SHARES. Any dividend or
capital gains distribution received by a shareholder from any investment company
will have the effect of reducing the net asset value of the shareholder's stock
in that company by the exact amount of the dividend or capital gains
distribution. Furthermore, such dividends and capital gains distributions are
subject to federal income taxes. If the net asset value of the shares should be
reduced below a shareholder's cost as a result of the payment of dividends or
the distribution of realized long-term capital gains, such payment or
distribution would be in part a return of the shareholder's investment but
nonetheless would be taxable to the shareholder. Therefore, an investor should
consider the tax implications of purchasing Fund shares immediately prior to a
distribution record date.

In general, a sale of shares results in capital gain or loss, and for
individual shareholders, is taxable at a federal rate dependent upon the length
of time the shares were held. A redemption of a shareholder's Fund shares is
normally treated as a sale for tax purposes. Fund shares held for a period of
one year or less will, for tax purposes, generally result in short-term gains or
losses and those held for more than one year generally result in long-term gain
or loss. Under current law, the maximum tax rate on long-term capital gains
realized by non-corporate shareholders is 20%. Any loss realized by shareholders
upon a sale or redemption of shares within six months of the date of their
purchase will be treated as a long-term capital loss to the extent of any
distributions of net long-term capital gains with respect to such shares during
the six-month period.

Gain or loss on the sale or redemption of shares in the Fund is measured by
the difference between the amount received and the tax basis of the shares.
Shareholders should keep records of investments made (including shares acquired
through reinvestment of dividends and distributions) so they can compute the tax
basis of their shares. Under certain circumstances a shareholder may compute and
use an average cost basis in determining the gain or loss on the sale or
redemption of shares.

31
<PAGE>
Exchanges of Fund shares for shares of another fund, including shares of
other Morgan Stanley Dean Witter Funds, are also subject to similar tax
treatment. Such an exchange is treated for tax purposes as a sale of the
original shares in the first fund, followed by the purchase of shares in the
second fund.

If a shareholder realizes a loss on the redemption or exchange of a fund's
shares and reinvests in that fund's shares within 30 days before or after the
redemption or exchange, the transactions may be subject to the "wash sale"
rules, resulting in a postponement of the recognition of such loss for tax
purposes.

X. UNDERWRITERS
--------------------------------------------------------------------------------

The Fund's shares are offered to the public on a continuous basis. The
Distributor, as the principal underwriter of the shares, has certain obligations
under the Distribution Agreement concerning the distribution of the shares.
These obligations and the compensation the Distributor receives are described
above in the sections titled "Principal Underwriter" and "Rule 12b-1 Plan."

XI. CALCULATION OF PERFORMANCE DATA
--------------------------------------------------------------------------------

From time to time, the Fund may quote its "yield" and/or "total return" in
advertisements and sales literature. Yield is calculated for any 30-day period
as follows: the amount of interest income for each security in the Fund's
portfolio is determined in accordance with regulatory requirements; the total
for the entire portfolio constitutes the Fund's gross income for the period.
Expenses accrued during the period are subtracted to arrive at "net investment
income." The resulting amount is divided by the product of the maximum offering
price per share on the last day of the period multiplied by the average number
of shares outstanding during the period that were entitled to dividends. This
amount is added to 1 and raised to the sixth power. 1 is then subtracted from
the result and the difference is multiplied by 2 to arrive at the annualized
yield. Based on this calculation, the Fund's annualized yield for the 30-day
period ended April 30, 2000 with a waiver of fees was 7.33%. Based on this
calculation, the Fund's annualized yield for the 30-day period ended April 30,
2000 without a waiver of fees would have been 7.31%.

The Fund's "average annual total return" represents an annualization of the
Fund's total return over a particular period and is computed by finding the
annual percentage rate which will result in the ending redeemable value of a
hypothetical $1,000 investment made at the beginning of a one, five or ten year
period, or for the period from the date of commencement of operations, if
shorter than any of the foregoing. For the purpose of this calculation, it is
assumed that all dividends and distributions are reinvested. The formula for
computing the average annual total return involves a percentage obtained by
dividing the ending redeemable value by the amount of the initial investment,
taking a root of the quotient (where the root is equivalent to the number of
years in the period) and subtracting 1 from the result. The average annual total
returns for the one year, five year and life of the Fund (commencing
January 10, 1994) for the periods ended April 30, 2000 were 2.36%, 5.70% and
4.93%, respectively. Without the waiver of fees and assumption of expenses by
the Investment Manager, the average annual total return for the one year, five
year and life of the Fund for the periods ended April 30, 2000 were 2.14%, 5.26%
and 4.48%, respectively.

In addition, the Fund may advertise its total return over different periods
of time by means of aggregate, average, year-by-year or other types of total
return figures.

In addition, the Fund may compute its aggregate total return for specified
periods by determining the aggregate percentage rate which will result in the
ending value of a hypothetical $1,000 investment made at the beginning of the
period. For the purpose of this calculation, it is assumed that all dividends
and distributions are reinvested. The formula for computing aggregate total
return involves a percentage

32
<PAGE>

obtained by dividing the ending value by the initial $1,000 investment and
subtracting 1 from the result. Based on the this calculation, the total returns
for the one year, five year and life of the Fund periods ended April 30, 2000,
were 2.36%, 31.96% and 35.46%, respectively.

The Fund may also advertise the growth of hypothetical investments of
$10,000, $50,000 and $100,000 of shares of the Fund by adding 1 to the Fund's
aggregate total return to date (expressed as a decimal and multiplying by
$10,000, $50,000 and $100,000 as the case may be. Investments of $10,000,
$50,000 and $100,000 in the Fund at inception would have grown to $13,546,
$67,730 and $135,460, respectively, at April 30, 2000.

The Fund from time to time may also advertise its performance relative to
certain performance rankings and indexes compiled by recognized organizations.

XII. FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

EXPERTS. The financial statements of the Fund for the fiscal year ended
April 30, 2000 included in this STATEMENT OF ADDITIONAL INFORMATION and
incorporated by reference in the PROSPECTUS have been so included and
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

* * * * *

This STATEMENT OF ADDITIONAL INFORMATION and the PROSPECTUS do not contain
all of the information set forth in the REGISTRATION STATEMENT the Fund has
filed with the SEC. The complete REGISTRATION STATEMENT may be obtained from the
SEC.

33
<PAGE>
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 2000

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (55.4%)
CABLE TELEVISION (2.3%)
$ 1,000 Century Communications
Corp..................... 9.75 % 02/15/02 $ 997,500
1,000 Cox Enterprises Inc. -
144A*.................... 6.625 06/14/02 968,430
800 Rogers Cablesystems,
Ltd...................... 9.625 08/01/02 810,000
------------
2,775,930
------------
CASINO/GAMBLING (0.8%)
1,000 Circus Circus
Enterprises, Inc......... 9.25 12/01/05 965,000
------------
CELLULAR TELEPHONE (1.7%)
2,000 AirTouch
Communications, Inc...... 7.125 07/15/01 1,992,940
------------
DEPARTMENT STORES (2.4%)
3,000 Dillard's Inc.............. 5.79 11/15/01 2,847,030
------------
DIVERSIFIED FINANCIAL SERVICES (1.1%)
2,000 Conseco, Inc............... 6.40 06/15/01 1,340,000
------------
DRUGSTORE CHAINS (1.3%)
2,000 Rite Aid Corp. - 144A*..... 6.00 12/15/00 1,590,000
------------
ELECTRIC UTILITIES (6.6%)
1,000 Cinergy Corp............... 6.125 04/15/04 934,810
1,000 Consolidated Edison Co. New
York, Inc................ 7.375 09/15/00 1,001,400
3,000 CSW Investments - 144A*
(United Kingdom)......... 6.95 08/01/01 2,977,680
972 Niagara Mohawk Power Co.... 7.125 07/01/01 964,716
2,000 Texas Utilities Electric
Co....................... 8.125 02/01/02 2,008,880
------------
7,887,486
------------
ENVIRONMENTAL SERVICES (1.9%)
2,370 USA Waste
Services, Inc............ 6.125 07/15/01 2,264,962
------------
FINANCE COMPANIES (9.3%)
1,000 Associates Corp. of North
America.................. 6.70 05/29/01 992,320
2,000 Bombardier Capital Inc. -
144A* (Canada)........... 6.00 01/15/02 1,941,720
2,000 Commercial Credit
Group, Inc............... 8.25 11/01/01 2,022,320
1,100 Daimlerchrysler North
America Holding.......... 6.46 12/07/01 1,084,039
2,000 Ford Motor Credit Corp..... 7.25 01/15/03 1,979,280
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
34
<PAGE>
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 2000, CONTINUED

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 2,000 General Motors Acceptance
Corp..................... 6.375% 12/01/01 $ 1,973,140
1,000 IBM Credit Corp............ 7.00 01/28/02 992,080
------------
10,984,899
------------
FOOD CHAINS (1.7%)
2,000 Kroger Co.................. 6.00 07/01/00 1,997,780
------------
INVESTMENT BANKERS/BROKERS/SERVICES (1.6%)
2,000 Lehman Brothers
Holdings, Inc............ 6.50 10/01/02 1,940,900
------------
MAJOR BANKS (0.9%)
1,000 Republic New York Corp..... 8.25 11/01/01 1,010,040
------------
MAJOR U.S. TELECOMMUNICATIONS (2.4%)
1,000 AT&T Corp.................. 5.625 03/15/04 938,200
2,000 Sprint Capital Corp........ 5.875 05/01/04 1,879,600
------------
2,817,800
------------
MEDIA CONGLOMERATES (1.7%)
2,000 News American
Holdings, Inc............ 7.45 06/01/00 2,001,600
------------
MID-SIZED BANKS (1.7%)
2,000 Long Island Savings Bank... 6.20 04/02/01 1,971,800
------------
MILITARY/GOV'T/TECHNICAL (1.7%)
2,000 Raytheon Co................ 7.90 03/01/03 1,985,080
------------
MULTI-SECTOR COMPANIES (2.1%)
2,600 Brascan Ltd. (Canada)...... 7.375 10/01/02 2,536,300
------------
OIL & GAS PRODUCTION (0.8%)
1,000 Occidental Petroleum
Corp..................... 8.50 11/09/01 1,007,720
------------
OIL REFINING/MARKETING (1.7%)
2,000 Tosco Corp................. 7.00 07/15/00 2,000,700
------------
OIL/GAS TRANSMISSION (1.7%)
2,000 Columbia Energy Group
(Series A)............... 6.39 11/28/00 1,990,140
------------
OTHER CONSUMER SERVICES (1.6%)
2,000 Service Corp.
International............ 6.375 10/01/00 1,950,000
------------
OTHER TELECOMMUNICATIONS (1.7%)
2,000 US West Capital
Funding, Inc............. 6.875 08/15/01 1,984,180
------------
RAILROADS (1.0%)
1,200 Union Pac Corp............. 7.375 05/15/01 1,196,628
------------
RENTAL/LEASING COMPANIES (4.4%)
1,270 Comdisco, Inc.............. 6.50 06/15/00 1,269,454
2,000 Comdisco, Inc.............. 6.13 08/01/01 1,957,280
2,000 Gatx Capital Corp.......... 6.50 11/01/00 1,988,080
------------
5,214,814
------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
35
<PAGE>
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 2000, CONTINUED

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SAVINGS & LOAN ASSOCIATIONS (1.3%)
$ 1,500 Golden West Financial
Corp..................... 7.875% 01/15/02 $ 1,502,295
------------

TOTAL CORPORATE BONDS
(IDENTIFIED COST $68,587,279)................................. 65,756,024
------------

ASSET BACKED SECURITIES (3.3%)
UTILITIES
California
Infrastructure & Economic
Development Bank
2,000 Special Purpose Trust
SCE-1 Class A-3........ 6.17 03/25/03 1,997,160
2,000 Special Purpose Trust
PG&E-1 Class A-5....... 6.25 06/25/04 1,970,460
------------

TOTAL ASSET BACKED SECURITIES
(IDENTIFIED COST $4,046,602).................................. 3,967,620
------------

U.S. GOVERNMENT & AGENCIES OBLIGATIONS (36.6%)
MORTGAGE PASS-THROUGH SECURITIES (10.2%)
2,774 Federal Home Loan Mortgage
Corp. PC Gold............ 5.50 04/01/03 2,596,947
5,371 Federal Home Loan Mortgage 11/01/01-
Corp. PC Gold............ 6.00 09/01/03 5,155,821
2,039 Federal Home Loan Mortgage
Corp. PC Gold............ 6.50 07/01/00 1,989,486
2,511 Federal National Mortgage
Assoc.................... 6.00 10/01/00 2,389,209
------------
12,131,463
------------
U.S. GOVERNMENT AGENCIES & OBLIGATIONS (26.4%)
8,600 Federal Home Loan Banks.... 6.00- 11/15/01-
6.75 02/15/02 8,532,480
1,000 Federal Home Loan Mortgage
Corp..................... 5.865 07/16/01 986,040
5,500 Federal National Mortgage 5.81- 08/27/01-
Assoc.................... 6.625 07/17/02 5,420,390
4,000 Federal National Mortgage
Assoc. Strips............ 0.00 08/15/01 3,644,000
2,000 Tennessee Valley Authority
Strips................... 0.00 05/01/02 1,746,220
11,000 U.S. Treasury Notes........ 6.25- 04/30/01 -
6.625 08/15/02 10,950,340
------------
31,279,470
------------

TOTAL U.S. GOVERNMENT & AGENCIES OBLIGATIONS
(IDENTIFIED COST $44,241,015)................................. 43,410,933
------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
36
<PAGE>
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS APRIL 30, 2000, CONTINUED

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT (2.8%)
REPURCHASE AGREEMENT
$ 3,358 The Bank of New York (dated
04/28/00; proceeds
$3,359,605) (a)
(IDENTIFIED COST
$3,357,978).............. 5.813% 05/01/00 $ 3,357,978
------------
</TABLE>

<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $120,232,874) (B)............................... 98.1% 116,492,555

OTHER ASSETS IN EXCESS OF LIABILITIES............................ 1.9 2,201,598
----- -------------

NET ASSETS....................................................... 100.0% $ 118,694,153
----- -------------
----- -------------
</TABLE>

---------------------

* Resale is restricted to qualified institutional investors.
(a) Collateralized by $3,489,069 U.S. Treasury Bill 5.75% due 08/17/00 valued
at $3,427,795.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $420 and the aggregate
gross unrealized depreciation is $3,740,739, resulting in net unrealized
depreciation of $3,740,319.

SEE NOTES TO FINANCIAL STATEMENTS
37
<PAGE>
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2000

<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $120,232,874)......................... $116,492,555
Receivable for:
Interest............................................. 2,046,092
Shares of beneficial interest sold................... 361,765
Prepaid expenses and other assets........................ 35,473
------------

TOTAL ASSETS........................................ 118,935,885
------------

LIABILITIES:
Payable for:
Dividends to shareholders............................ 75,583
Investment management fee............................ 68,082
Shares of beneficial interest repurchased............ 42,772
Accrued expenses and other payables...................... 55,295
------------

TOTAL LIABILITIES................................... 241,732
------------

NET ASSETS.......................................... $118,694,153
============

COMPOSITION OF NET ASSETS:
Paid-in-capital.......................................... $126,048,389
Net unrealized depreciation.............................. (3,740,319)
Accumulated undistributed net investment income.......... 15,610
Accumulated net realized loss............................ (3,629,527)
------------

NET ASSETS.......................................... $118,694,153
============

NET ASSET VALUE PER SHARE,
12,907,210 SHARES OUTSTANDING
(UNLIMITED SHARES AUTHORIZED OF $.01 PAR VALUE)........ $9.20
============
</TABLE>

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 2000

<TABLE>
<S> <C>
NET INVESTMENT INCOME:

INTEREST INCOME............................................ $ 9,603,498
-----------

EXPENSES
Investment management fee.................................. 1,076,475
Professional fees.......................................... 74,179
Transfer agent fees and expenses........................... 72,666
Shareholder reports and notices............................ 64,548
Registration fees.......................................... 61,020
Custodian fees............................................. 14,772
Trustees' fees and expenses................................ 13,350
Other...................................................... 9,036
-----------

TOTAL EXPENSES........................................ 1,386,046
Less: amounts waived/reimbursed............................ (155,789)
-----------
NET EXPENSES.......................................... 1,230,257
-----------

NET INVESTMENT INCOME................................. 8,373,241
-----------

NET REALIZED AND UNREALIZED LOSS:
Net realized loss.......................................... (1,637,726)
Net change in unrealized depreciation...................... (3,269,690)
-----------

NET LOSS.............................................. (4,907,416)
-----------

NET INCREASE............................................... $ 3,465,825
===========
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
38
<PAGE>
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL STATEMENTS, CONTINUED

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
APRIL 30, 2000 APRIL 30, 1999
-------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:

OPERATIONS:
Net investment income............................. $ 8,373,241 $ 9,831,844
Net realized loss................................. (1,637,726) (415,018)
Net change in unrealized depreciation............. (3,269,690) (202,190)
------------ ------------

NET INCREASE................................. 3,465,825 9,214,636

Dividends from net investment income.............. (8,353,039) (9,831,922)

Net increase (decrease) from transactions in
shares of beneficial interest................... (62,860,227) 79,359,646
------------ ------------

NET INCREASE (DECREASE)...................... (67,747,441) 78,742,360

NET ASSETS:
Beginning of period............................... 186,441,594 107,699,234
------------ ------------

END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME
OF $15,610 AND $0, RESPECTIVELY.)............. $118,694,153 $186,441,594
============ ============
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
39
<PAGE>
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS APRIL 30, 2000

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.

40
<PAGE>
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS APRIL 30, 2000, CONTINUED

B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.

C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.

D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends in excess
of net investment income or distributions in excess of net realized capital
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of paid-in-capital.

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.

For the period May 1, 1999 through December 31, 2000, the Investment Manager has
agreed to waive its fee and reimburse expenses to the extent they exceed 0.80%
of the daily net assets of the Fund.

41
<PAGE>
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS APRIL 30, 2000, CONTINUED

3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES

The cost of purchases and proceeds from sales/prepayments of portfolio
securities, excluding short-term investments, for the year ended April 30, 2000
were $106,320,759 and $165,876,116, respectively. Included in the aforementioned
are purchases and sales/prepayments of U.S. Government securities of $78,688,052
and $109,443,795, respectively.

Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Fund's transfer agent.

4. SHARES OF BENEFICIAL INTEREST

Transactions in shares of beneficial interest were as follows:

<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
APRIL 30, 2000 APRIL 30, 1999
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold................................................ 54,714,865 $ 510,668,353 63,700,556 $ 606,779,742
Reinvestment of dividends........................... 667,268 6,222,631 796,095 7,583,175
----------- ------------- ----------- -------------
55,382,133 516,890,984 64,496,651 614,362,917
Repurchased......................................... (62,125,924) (579,751,211) (56,192,124) (535,003,271)
----------- ------------- ----------- -------------
Net increase (decrease)............................. (6,743,791) $ (62,860,227) 8,304,527 $ 79,359,646
=========== ============= =========== =============
</TABLE>

5. FEDERAL INCOME TAX STATUS

At April 30, 2000, the Fund had a net capital loss carryover of approximately
$2,482,000 which may be used to offset future capital gains to the extent
provided by regulations, which is available through April 30 of the following
years:

<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
-----------------------------------------------------------
2003 2004 2005 2006 2007 2008
---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$378 $501 $186 $359 $509 $549
==== ==== ==== ==== ==== ====
</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 $1,148,000 during fiscal 2000.

As of April 30, 2000, the Fund had temporary book/tax differences primarily
attributable to post-October losses and permanent book/tax differences
attributable to gains on paydowns. To reflect reclassifications arising from the
permanent differences, accumulated undistributed net investment income was
charged and accumulated net realized loss was credited $4,592.

42
<PAGE>
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 YEAR ENDED APRIL 30,
----------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------
<S> <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
-------- -------- -------- ------- -------

Income (loss) from investment operations:
Net investment income.................................... 0.51 0.56 0.65 0.61 0.63
Net realized and unrealized gain (loss).................. (0.29) -- -- (0.06) 0.05
-------- -------- -------- ------- -------

Total income from investment operations..................... 0.22 0.56 0.65 0.55 0.68
-------- -------- -------- ------- -------

Less dividends and distributions from:
Net investment income.................................... (0.51) (0.56) (0.66) (0.59) (0.45)
Paid-in-capital.......................................... -- -- -- -- (0.15)
-------- -------- -------- ------- -------

Total dividends and distributions........................... (0.51) (0.56) (0.66) (0.59) (0.60)
-------- -------- -------- ------- -------

Net asset value, end of period.............................. $ 9.20 $ 9.49 $ 9.49 $ 9.50 $ 9.54
======== ======== ======== ======= =======

TOTAL RETURN+............................................... 2.36% 6.00% 7.02% 5.88% 7.33%

RATIOS TO AVERAGE NET ASSETS (1):
Expenses.................................................... 0.80% 0.31% -- 0.64% 0.37%

Net investment income....................................... 5.43% 5.68% 6.52% 6.25% 6.54%

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $118,694 $186,442 $107,699 $42,252 $33,178

Portfolio turnover rate..................................... 71% 58% 55% 67% 64%
</TABLE>

---------------------

<TABLE>
<C> <S>
+ Calculated based on the net asset value as of the last
business day of the period.
(1) 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 0.90% and
5.33%, respectively, for the year ended April 30, 2000;
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; and 1.29% and 5.61%,
respectively, for the year ended April 30, 1996.
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
43
<PAGE>

<TABLE>
<S> <C>
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND
FUND
REPORT OF INDEPENDENT ACCOUNTANTS
</TABLE>

TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter
Short-Term Bond Fund (the "Fund") at April 30, 2000, 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 five years in the period then ended, in conformity with accounting
principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at April 30,
2000 by correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.

PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
MAY 12, 2000

44
<PAGE>

MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND

PART C OTHER INFORMATION

Item 23. Exhibits
-------- -----------------------------------------------------------------

1. Declaration of Trust of the Registrant, dated October 21, 1993,
is incorporated by reference to Exhibit 1 of Post-Effective
Amendment No. 5 to the Registration Statement on Form N-1A, filed
on June 30, 1998.

1(a). Amendment to the Declaration of Trust of the Registrant dated
June 22, 1998, is incorporated by reference to Exhibit 1 of
Post-Effective Amendment No. 5 to the Registration Statement on
Form N-1A, filed on June 30, 1998.

2. Amended and Restated By-Laws of the Registrant, dated May 1, 1999
is incorporated by reference to Exhibit 2 of Post-Effective
Amendment No. 6 to the Registration Statement on Form N-1A, filed
on June 24, 1999.

3. Not Applicable.

4. Amended Investment Management Agreement is incorporated by
reference to Exhibit 5 of Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A, filed on June 30, 1998.

5(a). Amended Distribution Agreement between Morgan Stanley Dean Witter
Advisors Inc. and Morgan Stanley Dean Witter Services Company is
incorporated by reference to Exhibit 6 of Post-Effective
Amendment No. 5 to the Registration Statement on Form N-1A, filed
on June 30, 1998.

5(b). Selected Dealer Agreement between the Registrant and Dean Witter
Distributors Inc. is incorporated by reference to Exhibit 6(b) of
Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A, filed on December 9, 1993.

5(c). Omnibus Selected Dealer Agreement is incorporated by reference to
Exhibit 5(c) of Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A, filed on June 24, 1999.

6. Not Applicable

7(a). Custody Agreement between the Registrant and The Bank of New York
is incorporated by reference to Exhibit 8(a) of Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A, filed
on December 9, 1993.

7(b). Amendment to the Custody Agreement, dated April 17, 1996, is
incorporated by reference to Exhibit 8 of Post-Effective
Amendment No. 3 to the Registration Statement on Form N-1A, filed
on June 21, 1996.

8(a). Amended and Restated Transfer Agency and Services Agreement is
incorporated by reference to Exhibit 8 of Post-Effective
Amendment No. 5 to the Registration Statement on Form N-1A, filed
on June 30, 1998.

1
<PAGE>

8(b). Amended Services Agreement is incorporated by reference to
Exhibit 9 of Post-Effective Amendment No. 5 to the Registration
Statement on Form N-1A, filed on June 30, 1998.

9(a). Opinion of Sheldon Curtis, Esq., dated December 8, 1993 is
incorporated by reference to Exhibit 10 of Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A, filed
on December 9, 1993.

9(b). Opinion of Lane Altman & Owens, LLP, Massachusetts Counsel, dated
December 8, 1993 is incorporated by reference to Exhibit 10 (a)
of Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A, filed on December 9, 1993.

10. Consent of Independent Accountants, filed herein.

11. Not Applicable.

12. Not Applicable.

13. Amended and Restated Plan of Distribution pursuant to Rule 12b-1
is incorporated by reference to Exhibit 15 of Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A, filed
on December 9, 1993.

14. Not Applicable.

16(a). Codes of Ethics of Morgan Stanley Dean Witter Advisers Inc.,
Morgan Stanley Dean Witter Services Company Inc. and Morgan
Stanley Dean Witter Distributors Inc., filed herein.

16(b). Code of Ethics of Morgan Stanley Dean Witter Funds, filed herein.

Other Powers of Attorney of Trustees are incorporated by reference to
Exhibit (Other) of Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A, filed on March 17, 1994 and
Exhibit (Other) of Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A and filed herein.

Item 24. PERSONS CONTROLLED by or Under Common Control with the Fund.

None

Item 25. INDEMNIFICATION.

Pursuant to Section 5.3 of the Registrant's Declaration of Trust and under
Section 4.8 of the Registrant's By-Laws, the indemnification of the Registrant's
trustees, officers, employees and agents is permitted if it is determined that
they acted under the belief that their actions were in or not opposed to the
best interest of the Registrant, and, with respect to any criminal proceeding,
they had reasonable cause to believe their conduct was not unlawful. In
addition, indemnification is permitted only if it is determined that the actions
in question did not render them liable by reason of willful misfeasance, bad
faith or gross negligence in the performance of their duties or by reason of
reckless disregard of their obligations and duties to the Registrant. Trustees,
officers, employees and agents will be indemnified for the expense of litigation
if it is

2
<PAGE>

determined that they are entitled to indemnification against any liability
established in such litigation. The Registrant may also advance money for these
expenses provided that they give their undertakings to repay the Registrant
unless their conduct is later determined to permit indemnification.

Pursuant to Section 5.2 of the Registrant's Declaration of Trust and
paragraph 8 of the Registrant's Investment Management Agreement, neither the
Investment Manager nor any trustee, officer, employee or agent of the Registrant
shall be liable for any action or failure to act, except in the case of bad
faith, willful misfeasance, gross negligence or reckless disregard of duties to
the Registrant.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer, or controlling person of the Registrant
in connection with the successful defense of any action, suit or proceeding) is
asserted against the Registrant by such trustee, officer or controlling person
in connection with the shares being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act, and will
be governed by the final adjudication of such issue.

The Registrant hereby undertakes that it will apply the indemnification
provision of its by-laws in a manner consistent with Release 11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940, so
long as the interpretation of Sections 17(h) and 17(i) of such Act remains in
effect.

Registrant, in conjunction with the Investment Manager, Registrant's
Trustees, and other registered investment management companies managed by the
Investment Manager, maintains insurance on behalf of any person who is or was a
Trustee, officer, employee, or agent of Registrant, or who is or was serving at
the request of Registrant as a trustee, director, officer, employee or agent of
another trust or corporation, against any liability asserted against him and
incurred by him or arising out of his position. However, in no event will
Registrant maintain insurance to indemnify any such person for any act for which
Registrant itself is not permitted to indemnify him.

Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR

See "The Fund and Its Management" in the Prospectus regarding the business
of the investment advisor. The following information is given regarding officers
of Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors"). MSDW Advisors is
a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co.

The term "Morgan Stanley Dean Witter Funds" refers to the following
registered investment companies:

Closed-End Investment Companies
-------------------------------
(1) Morgan Stanley Dean Witter California Insured Municipal Income Trust
(2) Morgan Stanley Dean Witter California Quality Municipal Securities

3
<PAGE>

(3) Morgan Stanley Dean Witter Government Income Trust
(4) Morgan Stanley Dean Witter High Income Advantage Trust
(5) Morgan Stanley Dean Witter High Income Advantage Trust II
(6) Morgan Stanley Dean Witter High Income Advantage Trust III
(7) Morgan Stanley Dean Witter Income Securities Inc.
(8) Morgan Stanley Dean Witter Insured California Municipal Securities
(9) Morgan Stanley Dean Witter Insured Municipal Bond Trust
(10) Morgan Stanley Dean Witter Insured Municipal Income Trust
(11) Morgan Stanley Dean Witter Insured Municipal Securities
(12) Morgan Stanley Dean Witter Insured Municipal Trust
(13) Morgan Stanley Dean Witter Municipal Income Opportunities Trust
(14) Morgan Stanley Dean Witter Municipal Income Opportunities Trust II
(15) Morgan Stanley Dean Witter Municipal Income Opportunities Trust III
(16) Morgan Stanley Dean Witter Municipal Income Trust
(17) Morgan Stanley Dean Witter Municipal Income Trust II
(18) Morgan Stanley Dean Witter Municipal Income Trust III
(19) Morgan Stanley Dean Witter Municipal Premium Income Trust
(20) Morgan Stanley Dean Witter New York Quality Municipal Securities
(21) Morgan Stanley Dean Witter Prime Income Trust
(22) Morgan Stanley Dean Witter Quality Municipal Income Trust
(23) Morgan Stanley Dean Witter Quality Municipal Investment Trust
(24) Morgan Stanley Dean Witter Quality Municipal Securities

Open-End Investment Companies
-----------------------------
(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Institutional Money Trust
(4) Active Assets Money Trust
(5) Active Assets Premier Money Trust
(6) Active Assets Tax-Free Trust
(7) Morgan Stanley Dean Witter 21st Century Trend Fund
(8) Morgan Stanley Dean Witter Aggressive Equity Fund
(9) Morgan Stanley Dean Witter American Opportunities Fund
(10) Morgan Stanley Dean Witter Balanced Growth Fund
(11) Morgan Stanley Dean Witter Balanced Income Fund
(12) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(13) Morgan Stanley Dean Witter California Tax-Free Income Fund
(14) Morgan Stanley Dean Witter Capital Growth Securities
(15) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS PORTFOLIO"
(16) Morgan Stanley Dean Witter Convertible Securities Trust
(17) Morgan Stanley Dean Witter Developing Growth Securities Trust
(18) Morgan Stanley Dean Witter Diversified Income Trust
(19) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(20) Morgan Stanley Dean Witter Equity Fund
(21) Morgan Stanley Dean Witter European Growth Fund Inc.
(22) Morgan Stanley Dean Witter Federal Securities Trust
(23) Morgan Stanley Dean Witter Financial Services Trust
(24) Morgan Stanley Dean Witter Fund of Funds
(25) Morgan Stanley Dean Witter Global Dividend Growth Securities
(26) Morgan Stanley Dean Witter Global Utilities Fund
(27) Morgan Stanley Dean Witter Growth Fund

4
<PAGE>

(28) Morgan Stanley Dean Witter Hawaii Municipal Trust
(29) Morgan Stanley Dean Witter Health Sciences Trust
(30) Morgan Stanley Dean Witter High Yield Securities Inc.
(31) Morgan Stanley Dean Witter Income Builder Fund
(32) Morgan Stanley Dean Witter Information Fund
(33) Morgan Stanley Dean Witter Intermediate Income Securities
(34) Morgan Stanley Dean Witter International Fund
(35) Morgan Stanley Dean Witter International SmallCap Fund
(36) Morgan Stanley Dean Witter Japan Fund
(37) Morgan Stanley Dean Witter Latin American Growth Fund
(38) Morgan Stanley Dean Witter Limited Term Municipal Trust
(39) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(40) Morgan Stanley Dean Witter Market Leader Trust
(41) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(42) Morgan Stanley Dean Witter Mid-Cap Equity Trust
(43) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(44) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(45) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(46) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(47) Morgan Stanley Dean Witter Next Generation Trust
(48) Morgan Stanley Dean Witter North American Government Income Trust
(49) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(50) Morgan Stanley Dean Witter Real Estate Fund
(51) Morgan Stanley Dean Witter S&P 500 Index Fund
(52) Morgan Stanley Dean Witter S&P 500 Select Fund
(53) Morgan Stanley Dean Witter Select Dimensions Investment Series
(54) Morgan Stanley Dean Witter Select Municipal Reinvestment Fund
(55) Morgan Stanley Dean Witter Short-Term Bond Fund
(56) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(57) Morgan Stanley Dean Witter Small Cap Growth Fund
(58) Morgan Stanley Dean Witter Special Value Fund
(59) Morgan Stanley Dean Witter Strategist Fund
(60) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(61) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(62) Morgan Stanley Dean Witter Tax-Managed Growth Fund
(63) Morgan Stanley Dean Witter Total Market Index Fund
(64) Morgan Stanley Dean Witter Total Return Trust
(65) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(66) Morgan Stanley Dean Witter U.S. Government Securities Trust
(67) Morgan Stanley Dean Witter Utilities Fund
(68) Morgan Stanley Dean Witter Value-Added Market Series
(69) Morgan Stanley Dean Witter Value Fund
(70) Morgan Stanley Dean Witter Variable Investment Series
(71) Morgan Stanley Dean Witter World Wide Income Trust

5
<PAGE>

<TABLE>
<CAPTION>
NAME AND POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION, VOCATION
MORGAN STANLEY DEAN OR EMPLOYMENT, INCLUDING NAME, PRINCIPAL ADDRESS
WITTER ADVISORS INC. AND NATURE OF CONNECTION
----------------------------- --------------------------------------------------------------------
<S> <C>
Mitchell M. Merin President and Chief Operating Officer of Asset
President, Chief Management of Morgan Stanley Dean Witter & Co.
Executive Officer and ("MSDW); Chairman, Chief Executive Officer and Director
Director of Morgan Stanley Dean Witter Distributors Inc. ("MSDW
Distributors") and Morgan Stanley Dean Witter Trust FSB ("MSDW
Trust"); President, Chief Executive Officer and Director of Morgan
Stanley Dean Witter Services Company Inc. ("MSDW Services");
President of the Morgan Stanley Dean Witter Funds; Executive Vice
President and Director of Dean Witter Reynolds Inc. ("DWR");
Director of various MSDW subsidiaries; Trustee of various Van
Kampen investment companies.

Barry Fink General Counsel of Asset Management of MSDW;
Executive Vice President, Executive Vice President, Secretary, General Counsel
Secretary, General Counsel and Director of MSDW Services; Vice President and
and Director Secretary of MSDW Distributors; Vice President, Secretary and
General Counsel of the Morgan Stanley Dean Witter Funds.

Joseph J. McAlinden Vice President of the Morgan Stanley Dean Witter Funds;
Executive Vice President Director of MSDW Trust.
and Chief Investment
Officer

Ronald E. Robison Executive Vice President, Chief Administrative Officer
Executive Vice President, and Director of MSDW Services; Vice President of the
Chief Administrative Morgan Stanley Dean Witter Funds.
Officer and Director

Edward C. Oelsner, III
Executive Vice President

Joseph R. Arcieri Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Peter M. Avelar Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the High
Yield Group

Mark Bavoso Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
</TABLE>

6
<PAGE>

Rosalie Clough
Senior Vice President
and Director of Marketing

Richard Felegy
Senior Vice President

Sheila A. Finnerty Vice President of Morgan Stanley Dean Witter Prime
Senior Vice President Income Trust.

Edward F. Gaylor Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Robert S. Giambrone Senior Vice President of MSDW Services, MSDW
Senior Vice President Distributors and MSDW
Trust and Director of MSDW Trust;
Vice President of the Morgan Stanley
Dean Witter Funds.

Rajesh K. Gupta Vice President of various Morgan Stanley Dean Witter
Senior Vice President, Funds.
Director of the Taxable
Fixed Income Group and
Chief Administrative Officer -
Investments

Kenton J. Hinchliffe Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Kevin Hurley Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Jenny Beth Jones Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Michelle Kaufman Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

John B. Kemp, III President of MSDW Distributors.
Senior Vice President

Anita H. Kolleeny Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of Sector
Rotation
</TABLE>

7
<PAGE>

Ira N. Ross Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Guy G. Rutherfurd, Jr. Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the Growth
Group

Rochelle G. Siegel Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

James Solloway
Senior Vice President

Katherine H. Stromberg Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.

Paul D. Vance Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the Growth
and Income Group

Elizabeth A. Vetell
Senior Vice President
and Director of Shareholder
Communication

James F. Willison Vice President of various Morgan Stanley Dean Witter
Senior Vice President Funds.
and Director of the
Tax-Exempt Fixed
Income Group

Raymond A. Basile
First Vice President

Thomas F. Caloia First Vice President and Assistant Treasurer of
First Vice President MSDW Services; Assistant Treasurer of MSDW
and Assistant Distributors; Treasurer and Chief Financial and Accounting
Treasurer Officer of the Morgan Stanley Dean Witter Funds.
</TABLE>

8
<PAGE>

Marilyn K. Cranney Assistant Secretary of DWR; First Vice President and
First Vice President Assistant Secretary of MSDW Services; Assistant
and Assistant Secretary Secretary of MSDW Distributors and the Morgan Stanley Dean Witter
Funds.

Salvatore DeSteno First Vice President of MSDW Services.
First Vice President

Peter W. Gurman
First Vice President

Michael Interrante First Vice President and Controller of MSDW Services;
First Vice President Assistant Treasurer of MSDW Distributors; First Vice
and Controller President and Treasurer of MSDW Trust.

David Johnson
First Vice President

Stanley Kapica
First Vice President

Douglas J. Ketterer
First Vice President

Todd Lebo First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors
and Assistant Secretary the Morgan Stanley Dean Witter Funds.

Lou Anne D. McInnis First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors and
Assistant Secretary the Morgan Stanley Dean Witter Funds.

Carsten Otto First Vice President and Assistant Secretary of MSDW
First Vice President Services; Assistant Secretary of MSDW Distributors and
and Assistant Secretary the Morgan Stanley Dean Witter Funds.

Carl F. Sadler
First Vice President

Ruth Rossi First Vice President and Assistant Secretary of MSDW
First Vice President and Services; Assistant Secretary of MSDW Distributors and
Assistant Secretary the Morgan Stanley Dean Witter Funds.
</TABLE>

9
<PAGE>

Robert Abreu
Vice President

Dale Albright
Vice President

Joan G. Allman
Vice President

Andrew Arbenz Vice President of Morgan Stanley Dean Witter Global
Vice President Utilities Fund.

Armon Bar-Tur Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Maurice Bendrihem
Vice President and
Assistant Controller

Thomas A. Bergeron
Vice President

Philip Bernstein
Vice President

Dale Boettcher
Vice President

Michelina Calandrella
Vice President

Ronald Caldwell
Vice President

Joseph Cardwell
Vice President

Liam Carroll
Vice President

Philip Casparius
Vice President
</TABLE>

10
<PAGE>

Aaron Clark Vice President of Morgan Stanley Dean Witter Market
Vice President Leader Trust

William Connerly
Vice President

Virginia Connors
Vice President

Michael J. Davey
Vice President

David Dineen Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

June Ewers
Vice President

Jeffrey D. Geffen Vice President of Morgan Stanley Dean Witter U.S.
Vice President Government Securities Trust

Sandra Gelpieryn
Vice President

Charmaine George
Vice President

Michael Geringer
Vice President

Gail Gerrity Burke
Vice President

Peter Gewirtz
Vice President

Mina Gitsevich
Vice President

Ellen Gold
Vice President

Stephen Greenhut
Vice President
</TABLE>

11
<PAGE>

Trey Hancock
Vice President

Laury A. Haskamp
Vice President

Matthew T. Haynes Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Peter Hermann Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

David T. Hoffman
Vice President

Thomas G. Hudson II
Vice President

Linda Jones
Vice President

Norman Jones
Vice President

Kevin Jung Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Carol Espejo-Kane
Vice President

Nancy Karole Kennedy
Vice President

Paula LaCosta Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Kimberly LaHart
Vice President

Thomas Lawlor
Vice President

Lester Lay
Vice President.
</TABLE>

12
<PAGE>

Cameron J. Livingstone
Vice President

Nancy Login
Vice President

Sharon Loguercio
Vice President

Stephanie Lovinger
Vice President

Steven MacNamara
Vice President

Catherine Maniscalco Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Peter R. McDowell
Vice President

Albert McGarity
Vice President

Teresa McRoberts Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Mark Mitchell
Vice President

Julie Morrone Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Mary Beth Mueller
Vice President

David Myers Vice President of Morgan Stanley Dean Witter Natural
Vice President Resource Development Securities Inc.

James Nash
Vice President
</TABLE>

13
<PAGE>

Hilary A. O'Neill
Vice President

Mori Paulsen
Vice President

Anne Pickrell
Vice President

Reginald Rigaud
Vice President

Frances Roman
Vice President

Dawn Rorke
Vice President

John Roscoe Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Hugh Rose
Vice President

Robert Rossetti Vice President of Morgan Stanley Dean Witter Competitive
Vice President Edge Fund.

Sally Sancimino Vice President of various Morgan Stanley Dean Witter
Vice President Funds.

Deborah Santaniello
Vice President

Patrice Saunders
Vice President

Howard A. Schloss Vice President of Morgan Stanley Dean Witter Federal
Vice President Securities Trust.

Alison M. Sharkey
Vice President

Peter J. Seeley Vice President of various Morgan Stanley Dean Witter
Vice President Funds.
</TABLE>

<PAGE>

Herbert Simm
Vice President

Martha Slezak
Vice President

Otha Smith
Vice President

Stuart Smith
Vice President

Robert Stearns
Vice President

Naomi Stein
Vice President

William Stevens
Vice President

Michael Strayhorn
Vice President

Marybeth Swisher
Vice President

Michael Thayer
Vice President

Bradford Thomas
Vice President

Barbara Toich
Vice President

Robert Vanden Assem
Vice President

Frank Vindigni
Vice President

David Walsh
Vice President
</TABLE>

15
<PAGE>

John Wong
Vice President
</TABLE>

The principal address of MSDW Advisors, MSDW Services, MSDW Distributors,
DWR, and the Morgan Stanley Dean Witter Funds is Two World Trade Center, New
York, New York 10048. The principal address of MSDW is 1585 Broadway, New York,
New York 10036. The principal address of MSDW Trust is 2 Harborside Financial
Center, Jersey City, New Jersey 07311.

Item 27. PRINCIPAL UNDERWRITERS

(a) Morgan Stanley Dean Witter Distributors Inc. ("MSDW Distributors"), a
Delaware corporation, is the principal underwriter of the Registrant. MSDW
Distributors is also the principal underwriter of the following investment
companies:

(1) Active Assets California Tax-Free Trust
(2) Active Assets Government Securities Trust
(3) Active Assets Institutional Money Trust
(4) Active Assets Money Trust
(5) Active Assets Premier Money Trust
(6) Active Assets Tax-Free Trust
(7) Morgan Stanley Dean Witter 21st Century Trend Fund
(8) Morgan Stanley Dean Witter Aggressive Equity Fund
(9) Morgan Stanley Dean Witter American Opportunities Fund
(10) Morgan Stanley Dean Witter Balanced Growth Fund
(11) Morgan Stanley Dean Witter Balanced Income Fund
(12) Morgan Stanley Dean Witter California Tax-Free Daily Income Trust
(13) Morgan Stanley Dean Witter California Tax-Free Income Fund
(14) Morgan Stanley Dean Witter Capital Growth Securities
(15) Morgan Stanley Dean Witter Competitive Edge Fund, "BEST IDEAS PORTFOLIO"
(16) Morgan Stanley Dean Witter Convertible Securities Trust
(17) Morgan Stanley Dean Witter Developing Growth Securities Trust
(18) Morgan Stanley Dean Witter Diversified Income Trust
(19) Morgan Stanley Dean Witter Dividend Growth Securities Inc.
(20) Morgan Stanley Dean Witter Equity Fund
(21) Morgan Stanley Dean Witter European Growth Fund Inc.
(22) Morgan Stanley Dean Witter Federal Securities Trust
(23) Morgan Stanley Dean Witter Financial Services Trust
(24) Morgan Stanley Dean Witter Fund of Funds
(25) Morgan Stanley Dean Witter Global Dividend Growth Securities
(26) Morgan Stanley Dean Witter Global Utilities Fund
(27) Morgan Stanley Dean Witter Growth Fund
(28) Morgan Stanley Dean Witter Hawaii Municipal Trust
(29) Morgan Stanley Dean Witter Health Sciences Trust

16
<PAGE>

(30) Morgan Stanley Dean Witter High Yield Securities Inc.
(31) Morgan Stanley Dean Witter Income Builder Fund
(32) Morgan Stanley Dean Witter Information Fund
(33) Morgan Stanley Dean Witter Intermediate Income Securities
(34) Morgan Stanley Dean Witter International Fund
(35) Morgan Stanley Dean Witter International SmallCap Fund
(36) Morgan Stanley Dean Witter Japan Fund
(37) Morgan Stanley Dean Witter Latin American Growth Fund
(38) Morgan Stanley Dean Witter Limited Term Municipal Trust
(39) Morgan Stanley Dean Witter Liquid Asset Fund Inc.
(40) Morgan Stanley Dean Witter Market Leader Trust
(41) Morgan Stanley Dean Witter Mid-Cap Dividend Growth Securities
(42) Morgan Stanley Dean Witter Mid-Cap Equity Trust
(43) Morgan Stanley Dean Witter Multi-State Municipal Series Trust
(44) Morgan Stanley Dean Witter Natural Resource Development Securities Inc.
(45) Morgan Stanley Dean Witter New York Municipal Money Market Trust
(46) Morgan Stanley Dean Witter New York Tax-Free Income Fund
(47) Morgan Stanley Dean Witter Next Generation Trust
(48) Morgan Stanley Dean Witter North American Government Income Trust
(49) Morgan Stanley Dean Witter Pacific Growth Fund Inc.
(50) Morgan Stanley Dean Witter Prime Income Trust
(51) Morgan Stanley Dean Witter Real Estate Fund
(52) Morgan Stanley Dean Witter S&P 500 Index Fund
(53) Morgan Stanley Dean Witter S&P 500 Select Fund
(54) Morgan Stanley Dean Witter Short-Term Bond Fund
(55) Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust
(56) Morgan Stanley Dean Witter Small Cap Growth Fund
(57) Morgan Stanley Dean Witter Special Value Fund
(58) Morgan Stanley Dean Witter Strategist Fund
(59) Morgan Stanley Dean Witter Tax-Exempt Securities Trust
(60) Morgan Stanley Dean Witter Tax-Free Daily Income Trust
(61) Morgan Stanley Dean Witter Tax-Managed Growth Fund
(62) Morgan Stanley Dean Witter Total Market Index Fund
(63) Morgan Stanley Dean Witter Total Return Trust
(64) Morgan Stanley Dean Witter U.S. Government Money Market Trust
(65) Morgan Stanley Dean Witter U.S. Government Securities Trust
(66) Morgan Stanley Dean Witter Utilities Fund
(67) Morgan Stanley Dean Witter Value-Added Market Series
(68) Morgan Stanley Dean Witter Value Fund
(69) Morgan Stanley Dean Witter Variable Investment Series
(70) Morgan Stanley Dean Witter World Wide Income Trust

(b) The following information is given regarding directors and officers of MSDW
Distributors not listed in Item 26 above. The principal address of MSDW
Distributors is Two World Trade Center, New York, New York 10048. Other than
Messrs. Higgins and Purcell, who are Trustees of the Registrant, none of the
following persons has any position or office with the Registrant.

17
<PAGE>

Name Positions and Office with MSDW Distributors
---- -------------------------------------------

James F. Higgins Director

Philip J. Purcell Director

John Schaeffer Director

Charles Vadala Senior Vice President and Financial Principal.

Item 28. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained by the Investment Manager at its offices, except records relating to
holders of shares issued by the Registrant, which are maintained by the
Registrant's Transfer Agent, at its place of business as shown in the
prospectus.

Item 29. MANAGEMENT SERVICES

Registrant is not a party to any such management-related service contract.

Item 30. UNDERTAKINGS

Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.

18
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York on the 23rd day of June, 2000.

MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND

By /s/Barry Fink
--------------------------------
Barry Fink
Vice President and Secretary

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 7 has been signed below by the following persons in
the capacities and on the dates indicated.

Signatures Title Date
---------- ----- ----

(1) Principal Executive Officer Chief Executive Officer,
Trustee and Chairman
By /s/Charles A. Fiumefreddo 06/23/00
--------------------------------
Charles A. Fiumefreddo

(2) Principal Financial Officer Treasurer and Principal
Accounting Officer

By /s/Thomas F. Caloia 06/23/00
--------------------------------
Thomas F. Caloia

(3) Majority of the Trustees

Charles A. Fiumefreddo (Chairman)
Philip J. Purcell

By /s/Barry Fink 06/23/00
--------------------------------
Barry Fink
Attorney-in-Fact

Michael Bozic Manuel H. Johnson
Edwin J. Garn Michael E. Nugent
Wayne E. Hedien John L. Schroeder

By /s/David M. Butowsky 06/23/00
--------------------------------
David M. Butowsky
Attorney-in-Fact
<PAGE>

MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND

EXHIBIT INDEX

10. Consent of Independent Accountants.

16(a). Code of Ethics of Morgan Stanley Dean Witter Advisors Inc.,
Morgan Stanley Dean Witter Services Company Inc. and
Morgan Stanley Dean Witter Distributors Inc.

16(b). Code of Ethics of the Morgan Stanley Dean Witter Funds.

Other Power of Attorney of Trustees, filed herein.