<PAGE> 1
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND Two World Trade Center
LETTER TO THE SHAREHOLDERS October 31, 2000 New York, New York 10048
DEAR SHAREHOLDER:
The U.S. economy continued its unprecedented expansion during the six-month
period ended October 31, 2000. Real personal consumption accelerated and
unemployment reached a 30-year low. As the period began, fears that an
overheating economy would cause inflation to worsen prompted the Federal Reserve
Board to raise the federal funds rate to 6.50 percent.
Aided by soaring energy prices, efforts to curb the rapid rate of growth began
to yield results by late spring. The stock markets cooled and business and
consumer spending moderated. With the economy settling into a more sustainable
growth pattern, investors' expectations of further slowing helped drive interest
rates lower. On October 31, 2000, 2- and 5-year U.S. Treasury notes yielded 5.92
percent and 5.81 percent, respectively, down by nearly 0.75 percentage points
from their end-of-April levels.
Corporate market liquidity improved somewhat from earlier in the year, with
performance among shorter maturities aided by historically high incremental
yields versus Treasuries. While some credit-suspect issues rose in value as
their companies' cash flows improved, others fared poorly, succumbing to
investor concerns about credit erosion potentially resulting from lowered
earnings projections.
PERFORMANCE
For the six-month period ended October 31, 2000, Morgan Stanley Dean Witter
Short-Term Bond Fund returned 4.38 percent compared to 4.92 percent for the
Lehman Brothers U.S. Credit Index (1-5 Year).* The Fund's performance during the
period was driven by falling interest rates and by market gains for
lower-quality holdings that saw their liquidity
---------------------
*The Lehman Brothers U.S. Credit Index (1-5 Year) (formerly Lehman Brothers
Mutual Fund Short (1-5) Investment Grade Debt Index) includes U.S. corporate
and specified foreign debentures and secured notes 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.
<PAGE> 2
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
LETTER TO THE SHAREHOLDERS October 31, 2000, continued
and credit profiles improve. The Fund's underperformance relative to its
benchmark can be attributed partly to our decision not to extend the Fund's
duration significantly before interest rates began to drop, because we preferred
to maintain a higher dividend level instead of locking in the lower yields that
would result from the negatively sloped yield curve. The Fund benefited from
higher market prices for several new issues purchased during the period with
proceeds from maturing investments and shorter-dated Treasuries. Also providing
above-market returns were the Fund's mortgage-backed positions, which were
buoyed by sizeable principal prepayments and high absolute yields.
PORTFOLIO STRATEGY
Mindful of the unattractive yields available from most government securities, we
increased the Fund's allocation to corporate bonds during the period. On October
31, 2000, the Fund was invested approximately 63 percent in corporate bonds, 20
percent in U.S. government agency securities, 10 percent in mortgage-backed
securities, 6 percent in Treasuries and 1 percent in cash and cash equivalents.
Within the corporate sector, purchases were focused on utilities and
industrials, emphasizing issues with maturities of two to three years.
On October 31, the Fund held 38 investment-grade corporate issues with an
average coupon of 6.95 percent. The Fund's average maturity, including cash
reserves, declined from 1.55 years to 1.48 years during the period. The average
quality rating for the portfolio was A2 at the end of October.
LOOKING AHEAD
Signs of slowing growth and moderating inflation have been evident in the most
recent economic releases. Housing and auto sales remain at healthy levels,
though they have subsided somewhat since the first quarter of 2000. And due to
productivity improvements, inflation remains contained, despite a tight but
possibly loosening labor force. Such an environment could pave the way for an
economic soft landing with stable interest rates for the foreseeable future.
However, the equity markets have recently been reacting adversely to earnings
warnings, sending prices of corporate bonds lower and endangering future
spending as consumers become concerned about potential declines in the value of
their investments. Barring the continuation of this trend, the major
determinants of interest rates for 2001 are likely to be the effect of surging
energy prices on consumer and business spending and the implementation of fiscal
policy by a new administration.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
LETTER TO THE SHAREHOLDERS October 31, 2000, continued
Over the coming months we plan to be vigilant in monitoring the effects from
Congressional activity, the cost of energy and the impact of equity prices on
business and the consumer. We anticipate that in the near term the Fund will
continue to maintain a defensive maturity and duration strategy with a focus on
providing an attractive dividend yield.
We appreciate your ongoing support of Morgan Stanley Dean Witter Short-Term Bond
Fund and look forward to continuing to serve your investment needs.
<TABLE>
<S> <C>
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
</TABLE>
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
FUND PERFORMANCE October 31, 2000
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
-----------------------------------
<S> <C>
1 Year 5.92%(1)
5 Years 5.52%(1)
Since Inception (1/10/94) 5.22%(1)
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE. WHEN YOU SELL FUND SHARES, THEY MAY BE WORTH
LESS THAN THEIR ORIGINAL COST.
---------------------
(1) Figure shown assumes reinvestment of all distributions.
There is no sales charge.
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS October 31, 2000 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (62.5%)
Aerospace & Defense (1.8%)
$ 2,000 Bombardier Capital Inc. - 144A*
(Canada)............................. 6.00 % 01/15/02 $ 1,968,160
-----------
Broadcasting (1.8%)
2,000 Clear Channel Communications
Corp. ............................... 7.25 09/15/03 1,988,500
-----------
Cable Television (2.6%)
1,000 Century Communications Corp. ........ 9.75 02/15/02 990,000
1,000 Cox Enterprises Inc. - 144A*......... 6.625 06/14/02 989,610
800 Rogers Cablesystems, Ltd. ........... 9.625 08/01/02 812,000
-----------
2,791,610
-----------
Casino/Gaming (0.9%)
1,000 Circus Circus Enterprises, Inc. ..... 9.25 12/01/05 985,000
-----------
Computer Processing Hardware (1.8%)
2,000 Compaq Computer Corp. ............... 7.45 08/01/02 2,008,060
-----------
Department Stores (3.5%)
3,000 Dillard's Inc. ...................... 5.79 11/15/01 2,762,280
1,000 Federated Department Stores, Inc. ... 8.50 06/15/03 998,770
-----------
3,761,050
-----------
Drugstore Chains (0.9%)
1,000 Rite Aid Corp. - 144A*............... 6.00 12/15/00 990,000
-----------
Electric Utilities (11.0%)
1,000 Dominion Resources Inc. ............. 7.60 07/15/03 1,009,720
1,000 Cinergy Corp. - 144A*................ 6.125 04/15/04 941,160
972 Niagara Mohawk Power Co. ............ 7.125 07/01/01 968,195
2,000 Pacific Gas & Electric Co. .......... 6.25 08/01/03 1,956,360
2,000 Public Service Electric & Gas Co. ... 7.19 09/16/02 2,011,180
3,000 CSW Investments - 144A* (United
Kingdom)............................ 6.95 08/01/01 2,991,360
2,000 Texas Utilities Electric Co. ........ 8.125 02/01/02 2,022,560
-----------
11,900,535
-----------
Electric Distributors (1.9%)
2,000 Arrow Electronics Inc. - 144A*....... 8.20 10/01/03 2,007,960
-----------
Environmental Services (2.1%)
2,370 USA Waste Services, Inc. ............ 6.125 07/15/01 2,325,420
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS October 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Finance/Retail/Leasing (4.4%)
$ 2,000 Comdisco, Inc. ...................... 6.13 % 08/01/01 $ 1,746,100
2,000 Gatx Capital Corp. .................. 6.50 11/01/00 1,999,540
2,370 IBM Credit Corp. .................... 7.00 01/28/02 1,000,440
-----------
4,746,080
-----------
Financial Conglomerates (5.4%)
2,600 Brascan Ltd. (Canada)................ 7.375 10/01/02 2,575,976
2,000 Conseco, Inc. ....................... 8.75 02/09/04 1,260,000
2,000 General Acceptance Corp. ............ 6.375 12/01/01 1,985,900
-----------
5,821,876
-----------
Food Retails (1.8%)
2,000 Kroger Co. .......................... 6.34 06/01/01 1,984,980
-----------
Food: Major Diversified (1.8%)
2,000 Unilever Capital Corp. .............. 6.75 11/01/03 1,991,480
-----------
Investment Bankers/Brokers/Services (1.8%)
2,000 Lehman Brothers Holdings, Inc. ...... 6.50 10/01/02 1,973,880
-----------
Major Banks (2.8%)
2,000 First Union Corp. ................... 8.00 11/15/02 2,038,300
1,000 Republic New York Corp. ............. 8.25 11/01/01 1,009,400
-----------
3,047,700
-----------
Major Telecommunications (3.6%)
2,000 AT & T Corp. ........................ 5.625 03/15/04 1,883,760
2,000 WorldCom, Inc. ...................... 7.875 05/15/03 2,033,900
-----------
3,917,660
-----------
Media Conglomerates (1.9%)
2,000 Paramount Communications, Inc. ...... 7.50 01/15/02 2,004,900
-----------
Oil/Gas Pipelines (1.9%)
2,000 Columbia Energy Group (Series A) .... 6.39 11/28/00 1,998,100
-----------
Oil & Gas Production (0.9%)
1,000 Occidental Petroleum Corp. .......... 8.50 11/09/01 1,009,920
-----------
Railroads (1.1%)
1,200 Union Pac Corp. ..................... 7.375 05/15/01 1,199,292
-----------
Savings Banks (3.2%)
1,500 Golden West Financial Corp. ......... 7.875 01/15/02 1,505,580
2,000 Long Island Savings Bank ............ 6.20 04/02/01 1,987,200
-----------
3,492,780
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS October 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Specialty Telecommunications (1.8%)
$ 2,000 US West Capital Funding, Inc. ....... 6.875 % 08/15/01 $ 1,990,640
-----------
Wireless Communications (1.8%)
2,000 AirTouch Communications, Inc. ....... 7.125 07/15/01 1,994,880
-----------
TOTAL CORPORATE BONDS
(Cost $69,228,984)........................................ 67,900,463
-----------
ASSET BACKED SECURITIES (2.8%)
Utilities
California Infrastructure & Economic
Development Bank
1,079 Special Purpose Trust SCE - 1
Class A-3.......................... 6.17 03/25/03 1,078,006
2,000 Special Purpose Trust PG&E - 1
Class A-5.......................... 6.25 06/25/04 1,989,460
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $3,126,411)......................................... 3,067,466
-----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (32.7%)
Mortgage Pass-Through Securities
(9.8%)
4,949 Federal Home Loan Mortgage Corp. PC 10/01/01-
Gold................................ 6.00 09/01/03 4,827,315
4,376 Federal Home Loan Mortgage Corp. 10/01/01-
PC Gold............................. 6.50 04/01/03 4,285,949
1,534 Federal National Mortgage Assoc. .... 6.00 04/01/01 1,486,250
-----------
10,599,514
-----------
U.S. Government & Agency Obligations (22.9%)
10,600 Federal Home Loan Banks.............. 6.00- 11/15/01-
6.75 05/01/02 10,613,577
1,000 Federal Home Loan Mortgage Corp. .... 5.865 07/16/01 993,030
5,500 Federal National Mortgage Assoc. .... 5.810- 08/27/01-
6.625 07/17/02 5,474,370
2,000 Tennessee Valley Authority Strips.... 0.00 05/01/02 1,815,980
6,000 U.S. Treasury Note................... 6.25- 05/31/01-
6.50 02/15/03 6,016,730
-----------
24,913,687
-----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $35,715,442)........................................
35,513,201
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
PORTFOLIO OF INVESTMENTS October 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT (1.3%)
REPURCHASE AGREEMENT
$ 1,447 The Bank of New York (dated 10/31/00;
proceeds $1,447,714) (a)
(Cost $1,447,455).................... 6.437 % 11/01/00 $ 1,447,455
------------
TOTAL INVESTMENTS
(Cost $109,518,292) (b).......................... 99.3% 107,928,585
OTHER ASSETS IN EXCESS OF LIABILITIES.............. 0.7 732,096
----- ------------
NET ASSETS....................................... 100.0% $108,660,681
===== ============
</TABLE>
---------------------
* Resale is restricted to qualified institutional investors.
(a) Collateralized by $1,448,791 U.S. Treasury Note 6.25% due 07/31/02 valued
at $1,476,408.
(b) The aggregate cost for federal income tax purposes approximates the
aggregate cost for book purposes. The aggregate gross unrealized
appreciation is $245,601 and the aggregate gross unrealized depreciation is
$1,835,308, resulting in net unrealized depreciation of $1,589,707.
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2000 (unaudited)
ASSETS:
Investments in securities, at value
(cost $109,518,292)..................... $107,928,585
Receivable for:
Interest............................. 1,895,771
Shares of beneficial interest sold... 390,752
Prepaid expenses and other assets........ 37,171
------------
TOTAL ASSETS......................... 110,252,279
------------
LIABILITIES:
Payable for:
Shares of beneficial interest
repurchased......................... 1,422,167
Dividends to shareholders............ 73,117
Investment management fee............ 57,444
Accrued expenses and other payables...... 38,870
------------
TOTAL LIABILITIES.................... 1,591,598
------------
NET ASSETS........................... $108,660,681
============
COMPOSITION OF NET ASSETS:
Paid-in-capital.......................... $114,572,742
Net unrealized depreciation.............. (1,589,707)
Accumulated undistributed net investment
income.................................. 259
Accumulated net realized loss............ (4,322,613)
------------
NET ASSETS........................... $108,660,681
============
NET ASSET VALUE PER SHARE,
11,661,634 shares outstanding
(unlimited shares authorized of $.01 par
value).................................. $9.32
============
</TABLE>
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended October 31, 2000 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME............................ $3,809,452
----------
EXPENSES
Investment management fee.................. 397,764
Professional fees.......................... 33,473
Transfer agent fees and expenses........... 28,456
Shareholder reports and notices............ 28,362
Registration fees.......................... 20,518
Trustees' fees and expenses................ 5,339
Custodian fees............................. 4,826
Other...................................... 3,127
----------
TOTAL EXPENSES......................... 521,865
Less: amounts waived/reimbursed............ (67,278)
----------
NET EXPENSES........................... 454,587
----------
NET INVESTMENT INCOME.................. 3,354,865
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss.......................... (693,086)
Net change in unrealized depreciation...... 2,150,612
----------
NET GAIN............................... 1,457,526
----------
NET INCREASE............................... $4,812,391
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR
FOR THE SIX ENDED
MONTHS ENDED APRIL 30,
OCTOBER 31, 2000 2000
---------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................. $ 3,354,865 $ 8,373,241
Net realized loss..................................... (693,086) (1,637,726)
Net change in unrealized depreciation................. 2,150,612 (3,269,690)
------------ ------------
NET INCREASE...................................... 4,812,391 3,465,825
Dividends from net investment income.................. (3,370,216) (8,353,039)
Net decrease from transactions in shares of beneficial
interest............................................. (11,475,647) (62,860,227)
------------ ------------
NET DECREASE...................................... (10,033,472) (67,747,441)
NET ASSETS:
Beginning of period................................... 118,694,153 186,441,594
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$259 and $15,610, respectively)................... $108,660,681 $118,694,153
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS October 31, 2000 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Short-Term Bond Fund (the "Fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's investment objective is to provide a
high level of current income consistent with the preservation of capital. The
Fund seeks to achieve its objective by investing in a diversified portfolio of
short-term fixed income securities. The Fund was organized as a Massachusetts
business trust on October 22, 1993 and commenced operations on January 10, 1994.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) all portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (2) when market
quotations are not readily available, including circumstances under which it is
determined by Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager") that sale and bid prices are not reflective of a security's market
value, portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Trustees (valuation of securities for which market quotations are not readily
available may be based upon current market prices of securities which are
comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors); (3) certain portfolio securities may be valued by an outside
pricing service approved by the Trustees. The pricing service may utilize a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, if available, in
determining what it believes is the fair valuation of the portfolio securities
valued by such pricing service; and (4) short-term debt securities having a
maturity date of more than sixty days at the time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS October 31, 2000 (unaudited) continued
the identified cost method. Discounts are accreted over the life of the
respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for tax purposes 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, 2001, 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. At October 31, 2000, included in the
Statement of Assets and Liabilities is a receivable from affiliate which
represents expense reimbursements due to the Fund.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales/prepayments of portfolio
securities, excluding short-term investments, for the six months ended October
31, 2000 were $57,072,746, and $64,232,836, respectively. Included in the
aforementioned are purchases and sales/prepayments of U.S. Government securities
of $26,947,956 and $30,621,756, respectively.
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
NOTES TO FINANCIAL STATEMENTS October 31, 2000 (unaudited) continued
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Fund's transfer agent. At October 31, 2000, the Fund had transfer agent fees
and expenses payable approximately $1,000.
4. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
OCTOBER 31, 2000 APRIL 30, 2000
-------------------------- --------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold...................................................... 14,849,548 $137,748,933 54,714,865 $510,668,353
Reinvestment of dividends................................. 260,127 2,416,217 667,268 6,222,631
---------- ------------ ---------- ------------
15,109,675 140,165,150 55,382,133 516,890,984
Repurchased............................................... (16,355,251) (151,640,797) (62,125,924) (579,751,211)
---------- ------------ ---------- ------------
Net decrease.............................................. (1,245,576) $(11,475,647) (6,743,791) $(62,860,227)
========== ============ ========== ============
</TABLE>
5. FEDERAL INCOME TAX STATUS
At April 30, 2000, the Fund had a net capital loss carryover of approximately
$2,482,000, to offset future capital gains to the extent provided by regulations
available through April 30 of the following years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
----------------------------------------------------------------------------
2003 2004 2005 2006 2007 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.
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR ENDED APRIL 30,
MONTHS ENDED ----------------------------------------------------
OCTOBER 31, 2000 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period................... $ 9.20 $ 9.49 $ 9.49 $ 9.50 $ 9.54 $ 9.46
------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income................................. 0.28 0.51 0.56 0.65 0.61 0.63
Net realized and unrealized gain (loss)............... 0.12 (0.29) -- -- (0.06) 0.05
------ ------ ------ ------ ------ ------
Total income from investment operations................ 0.40 0.22 0.56 0.65 0.55 0.68
------ ------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income................................. (0.28) (0.51) (0.56) (0.66) (0.59) (0.45)
Paid-in-capital....................................... -- -- -- -- -- (0.15)
------ ------ ------ ------ ------ ------
Total dividends and distributions...................... (0.28) (0.51) (0.56) (0.66) (0.59) (0.60)
------ ------ ------ ------ ------ ------
Net asset value, end of period......................... $ 9.32 $ 9.20 $ 9.49 $ 9.49 $ 9.50 $ 9.54
====== ====== ====== ====== ====== ======
TOTAL RETURN+.......................................... 4.38%(1) 2.36% 6.00% 7.02% 5.88% 7.33%
RATIOS TO AVERAGE NET ASSETS (3):
Expenses............................................... 0.80%(2) 0.80% 0.31% -- 0.64% 0.37%
Net investment income.................................. 5.90%(2) 5.43% 5.68% 6.52% 6.25% 6.54%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands................ $108,661 $118,694 $186,442 $107,699 $42,252 $33,178
Portfolio turnover rate................................ 53%(1) 71% 58% 55% 67% 64%
</TABLE>
---------------------
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all expenses that were assumed or waived by the
Investment Manager, the annualized expense and net investment income ratios
would have been 0.92% and 5.79%, respectively, for the six months ended
October 31, 2000; 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.
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER SHORT-TERM BOND FUND
CHANGE IN INDEPENDENT ACCOUNTANTS
On July 1, 2000 PricewaterhouseCoopers LLP resigned as independent accountants
of the Fund.
The reports of PricewaterhouseCoopers LLP on the financial statements of the
Fund for the past two fiscal years contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle.
In connection with its audits for the two most recent fiscal years and through
July 1, 2000, there have been no disagreements with PricewaterhouseCoopers LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of PricewaterhouseCoopers LLP would have caused them to make
reference thereto in their report on the financial statements for such years.
The Fund, with the approval of its Board of Trustees and its Audit Committee,
engaged Deloitte & Touche LLP as its new independent auditors as of July 1,
2000.
15
<PAGE> 16
TRUSTEES
----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
----------------------------------
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
Rochelle G. Siegel
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
----------------------------------
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT AUDITORS
----------------------------------
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT MANAGER
----------------------------------
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been taken from the records of the
Fund without examination by the independent auditors and accordingly they do not
express an opinion thereon.
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of
the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus. Read the
prospectus carefully before investing.
Morgan Stanley Dean Witter Distributors Inc., member NASD.
MORGAN STANLEY
DEAN WITTER
Short-Term
Bond Fund
Semiannual Report
October 31, 2000
