<PAGE>
Filed Pursuant to Rule 497(e)
Registration File No.: 33-44782
PROSPECTUS - FEBRUARY 26, 1999
MORGAN STANLEY DEAN WITTER
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DIVERSIFIED INCOME TRUST
A MUTUAL FUND WHOSE PRIMARY INVESTMENT OBJECTIVE IS A HIGH LEVEL OF CURRENT
INCOME; AS A SECONDARY OBJECTIVE, THE FUND SEEKS TO MAXIMIZE TOTAL RETURN BUT
ONLY TO THE EXTENT CONSISTENT WITH ITS PRIMARY OBJECTIVE
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>
The Fund Investment Objective......................... 1
Principal Investment Strategies.............. 1
Principal Risks.............................. 3
Past Performance............................. 6
Fees and Expenses............................ 7
Additional Investment Strategy Information... 8
Additional Risk Information.................. 9
Fund Management..............................11
Shareholder Information Pricing Fund Shares..........................12
How to Buy Shares............................12
How to Exchange Shares.......................14
How to Sell Shares...........................16
Distributions................................18
Tax Consequences.............................18
Share Class Arrangements.....................19
Financial Highlights .............................................27
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>
FUND CATEGORY
--------------
[ ] Growth
[ ] Growth and Income
[X] INCOME
[ ] Money Market
<PAGE>
THE FUND
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INVESTMENT OBJECTIVE
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Morgan Stanley Dean Witter Diversified Income Trust is a mutual fund
whose primary investment objective is a high level of current income.
As a secondary objective, the Fund seeks to maximize total return but
only to the extent consistent with its primary objective. There is no
guarantee that the Fund will achieve these objectives.
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PRINCIPAL INVESTMENT STRATEGIES
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The Fund will normally invest at least 65% of its assets in a
diversified portfolio of fixed-income securities. The Fund's
"Investment Manager," Morgan Stanley Dean Witter Advisors Inc.,
attempts to equally allocate approximately one-third of the Fund's
assets among three separate groups or market segments of fixed-income
securities. The Investment Manager will adjust the Fund's assets not
less than quarterly to reflect any changes in the relative values of
the securities in each group so that following the adjustment the
value of the investments in each group will be equal to the extent
practicable. The Investment Manager diversifies investments among the
groups in an effort to reduce overall portfolio risk -- a general
downturn in one group may be offset by a rise in another.
INCOME
An investment objective having the goal of selecting securities to pay out
income rather than rise in value.
The three groups of Fund investments include: (1) global short-term
securities; (2) mortgage-backed securities and U.S. Government
securities; and (3) high yield securities.
(1) Global Short-Term Securities. The securities in the first group
include:
o High quality fixed-income securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities or high quality
fixed-income securities issued or guaranteed by a foreign
government or supranational organization or any of their
instrumentalities or fixed-income securities issued by a
corporation, all of which are rated in one of the two highest bond
rating categories by either Standard & Poor's ("S&P") or Moody's
Investors Service ("Moody's") or, if unrated, are determined by the
Investment Manager to be of equivalent quality;
o Certificates of deposit and bankers' acceptances (a) issued or
guaranteed by, or time deposits maintained at, banks and (b) rated
in the two highest short-term rating categories by either S&P,
Moody's or Duff & Phelps or, if unrated, are determined by the
Investment Manager to be of high creditworthiness; and
o Commercial paper rated in the two highest short-term rating
categories by either S&P, Moody's or Duff & Phelps or, if unrated,
issued by U.S. or foreign companies having outstanding debt
securities rated A or higher by S&P or Moody's.
Each security in this first group will have a short-term maturity
remaining (three years or less) when the Fund purchases the
investment.
1
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The Investment Manager will actively manage the Fund's assets in this
group in accordance with a global market strategy which may also
include entering into forward foreign currency exchange contracts.
Consistent with this strategy, the Investment Manager intends to
allocate the Fund's investments among securities denominated in the
currencies of a number of foreign countries and, within each such
country, among different types of debt securities.
(2) Mortgage-Backed Securities and U.S. Government Securities. The
securities in the second group include:
o Fixed-rate and adjustable rate mortgage-backed securities that
are issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or by private issuers that are rated in the
highest bond rating category by Moody's or S&P or, if not rated,
are determined to be of comparable quality by the Investment
Manager;
o U.S. Treasury securities, such as bills, notes, bonds and zero
coupon securities (without restrictions as to remaining maturity at
time of purchase); and
o U.S. Government agency securities, such as discount notes,
medium-term notes, debentures and zero coupon securities (without
restrictions as to remaining maturity at time of purchase).
(3) High Yield Securities. The securities in the third group include
high yield, high risk fixed-income securities rated Baa or lower by
Moody's or BBB or lower by S&P or, if not rated, are determined by
the Investment Manager to be of comparable quality. Fixed-income
securities rated Ba or lower by Moody's or BB or lower by S&P are
considered speculative investments, commonly known as "junk bonds."
The securities in this group may include both convertible and
non-convertible debt securities and preferred stock. They also may
include "Rule 144A" securities, which are subject to resale
restrictions. The Fund does not have any minimum quality rating
standard for this group of investments. Thus, the Fund may invest in
fixed-income securities that may already be in default on payment of
interest or principal.
* * *
Fixed-income securities are debt securities and can take the
form of bonds, notes or commercial paper. 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.
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. In addition to the three groups of fixed-income securities,
the Fund may also invest in options and futures, forward currency
contracts, and common stock and warrants.
2
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PRINCIPAL RISKS
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The Fund's share price will fluctuate with changes in the market
value of the Fund's portfolio securities. The Fund's yield also 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. Principal risks of investing in the Fund are
associated with its fixed-income investments. All fixed-income
securities 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/or repay the
principal on its debt.
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.
HOW INTEREST RATES AFFECT BOND PRICES
<TABLE>
<CAPTION>
PRICE PER $1,000 OF A BOND IF INTEREST RATES:
---------------------------------------------
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 4.25% $967 $934 $1,038 $1,076
10 Years 4.75% $930 $867 $1,074 $1,155
30 Years 5.25% $865 $756 $1,166 $1,376
</TABLE>
Coupons reflect yields on Treasury securities as of December 31,
1998. The table is not representative of price changes for
mortgage-backed or asset-backed securities principally because of
prepayment risk, and it is not representative of high yield
securities. 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.
The Fund is not limited as to the maturities of the securities in
which it may invest, except for the global short-term securities.
Thus, a rise in the general level of interest rates may cause the
price of the Fund's portfolio securities to fall substantially.
3
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Foreign Securities. The Fund's investments in foreign securities
(including depository receipts) involve risks in addition to the
risks associated with domestic securities. One additional risk is
currency risk. While the price of Fund shares is quoted and
redemption proceeds are paid in U.S. dollars, the Fund generally
converts 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 political and economic
developments abroad, including expropriations, 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 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.
Many European countries have adopted or are in the process of
adopting a single European currency, referred to as the "euro." The
consequences of the euro conversion for foreign exchange rates,
interest rates and the value of European securities the Fund may
purchase are presently unclear. The consequences may adversely affect
the value and/or increase the volatility of securities held by the
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 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.
4
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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. Certain mortgage-backed securities may be more volatile
and less liquid than other traditional types of debt securities.
High Yield Securities. The Fund's investments in high yield
securities, commonly known as "junk bonds," pose significant risks.
The prices of high yield securities 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 Rule
144A securities could have the effect of increasing the level of Fund
illiquidity to the extent the Fund may be unable to find qualified
institutional buyers interested in purchasing the securities. In
addition, periods of economic uncertainty and change probably would
result in an increased volatility of market prices of high yield
securities and a corresponding volatility in the Fund's net asset
value.
Other Risks. The performance of the Fund also will depend on whether
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 the risks associated with its
options and futures, forward currency contracts, and common stock and
warrants investments. 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 any bank, governmental entity, or the FDIC.
5
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[GRAPHIC OMITTED]
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
Year Percentage
1992* 4.95%
1993 9.63%
1994 -1.31%
1995 12.71%
1996 8.36%
1997 6.04%
1998 2.48%
* For the period April 9, 1992 through December 31, 1992
ANNUAL TOTAL RETURNS
This chart shows how the performance of the Fund's Class B shares has varied
from year to year over the Life of the Fund.
The bar chart reflects the performance of Class B shares;
the performance of the other Classes will differ because the
Classes have different ongoing fees. The performance
information in the bar chart does not reflect the deduction
of sales charges; if these amounts were reflected, returns
would be less than shown.
During the periods shown in the bar chart, the highest return for a
calendar quarter was 4.34% (quarter ended March 31, 1993) and the lowest
return for a calendar quarter was -1.22% (quarter ended March 31, 1994).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIOD ENDED THE 1998 CALENDAR YEAR)
LIFE OF THE FUND
PAST 1 YEAR PAST 5 YEARS (SINCE 4/9/92)
----------- ------------ ----------------
<S> <C> <C> <C>
Class A -1.27% -- --
Class B(1) -2.29% 5.26% 6.29%(4)
Class C 1.55% -- --
Class D 3.35% -- --
Lehman Brothers Mutual Fund
Government/Corporate
Intermediate Bond Index(2) 8.44% 6.60% 7.36%(5)
Lipper Multi-Sector
Income Funds Average(3) 1.30% 6.11% 7.72%(5)
</TABLE>
- -----------
1 Prior to July 28, 1997, the Fund only issued Class B shares.
2 The Lehman Brothers Mutual Fund Government/Corporate Intermediate Bond Index
tracks the performance of government and corporate bonds, including U.S.
Government agency and U.S. treasury securities and corporate and yankee bonds
with maturities of 1 to 10 years. The performance of the index does not
include any expenses, fees or charges. The index is unmanaged and should not
be considered an investment.
3 The Lipper Multi-Sector Income Funds Average tracks the performance of the
funds which seek current income by allocating assets among several different
fixed-income securities sectors (with no more than 65% in any one sector
except for defensive purposes), including U.S. government and foreign
governments, with a significant portion of assets in securities rated below
investment grade, as reported by Lipper Analytical Services.
4 For the period April 9, 1992 to December 31, 1998.
5 For the period April 30, 1992 to December 31, 1998.
AVERAGE ANNUAL TOTAL RETURNS
This table compares the Fund's average annual returns with those of a broad
measure of market performance over time. The Fund's returns include the maximum
applicable sales charge for each Class and assume you sold your shares at the
end of each period.
6
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FEES AND EXPENSES
- -----------------------------
The Fund offers four Classes of shares: Classes A, B, C and D. Each
Class has a different combination of fees, expenses and other
features. The table below briefly describes the fees and expenses
that you may pay if you buy and hold shares of the Fund. The Fund
does not charge account or exchange fees. See the "Share Class
Arrangements" section for further fee and expense information.
SHAREHOLDER FEES
These fees are paid directly from your investment.
ANNUAL FUND
OPERATING EXPENSES
These expenses are deducted from the Fund's assets and are based on expenses
paid for the fiscal year ended October 31, 1998.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------- ------- ------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER FEES
Maximum sales charge (load) imposed on
purchases (as a percentage of offering price) 4.25%(1) None None None
Maximum deferred sales charge (load) (as a
percentage based on the lesser of the offering
price or net asset value at redemption) None(2) 5.00%3 1.00%(4) None
ANNUAL FUND OPERATING EXPENSES
Management fee 0.40% 0.40% 0.40% 0.40%
Distribution and service (12b-1) fees 0.24% 0.85% 0.85% None
Other expenses 0.13% 0.13% 0.13% 0.13%
Total annual Fund operating expenses 0.77% 1.38% 1.38% 0.53%
</TABLE>
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1 Reduced for purchases of $25,000 and over.
2 Investments that are not subject to any sales charge at the time of purchase
are subject to a contingent deferred sales charge ("CDSC") of 1.00% that will
be imposed on sales made within one year after purchase, except for certain
specific circumstances.
3 The CDSC is scaled down to 1.00% during the sixth year, reaching zero
thereafter. See "Share Class Arrangements" for a complete discussion of the
CDSC.
4 Only applicable to sales made within one year after purchase.
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 depending upon whether or not you sell
(redeem) your shares at the end of each period.
<TABLE>
<CAPTION>
IF YOU SOLD YOUR SHARES IF YOU HELD YOUR SHARES
----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
CLASS A $500 $661 $835 $1,339 $ 500 $661 $835 $1,339
CLASS B $640 $737 $955 $1,657 $ 140 $437 $755 $1,657
CLASS C $240 $437 $755 $1,657 $ 140 $437 $755 $1,657
CLASS D $54 $170 $296 $665 $ 54 $170 $296 $665
</TABLE>
7
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ADDITIONAL INVESTMENT STRATEGY INFORMATION
- ---------------------------------------------------------
This section provides additional information concerning the Fund's
principal investment strategies.
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.
The Fund may invest in mortgage pass-through securities that are
issued or guaranteed by the Government National Mortgage Association,
the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation. These securities are either direct obligations
of the U.S. Government, or the issuing agency/instrumentality has the
right to borrow from the U.S. Treasury to meet its obligations,
although the Treasury is not legally required to extend credit to the
agency/instrumentality.
Private mortgage pass-through securities also can be Fund
investments. They are issued by private originators of and investors
in mortgage loans, including savings and loan associations and
mortgage banks. Since private mortgage pass-through securities
typically are not guaranteed by an entity having the credit status of
a U.S. Government agency, the securities generally are structured
with one or more type of credit enhancement.
Options and Futures. The Fund may invest in put and call options with
respect to foreign currencies and futures on interest rate indexes.
Options and futures may be used to seek to protect against a decline
in securities or currency prices or an increase in prices of
securities or currencies that may be purchased.
Forward Currency Contracts. The Fund's investments also may include
forward currency contracts, which involve the purchase or sale of a
specific amount of foreign currency at the current price with
delivery at a specified future date. The Fund may use these contracts
to hedge against adverse price movements in its portfolio securities
and the currencies in which they are denominated. The Fund also 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 may engage in "anticipatory"
hedging transactions in which it purchases a specific amount of a
foreign currency in order to lock in the current exchange rate of a
currency in which a security that the Fund intends to purchase in the
future is denominated. The Fund may close out the anticipatory hedge
without purchasing the security.
8
<PAGE>
Common Stock and Warrants. The Fund may invest up to 20% of its
assets in common stocks. The Fund may acquire stock, among other
ways, directly or upon exercise of warrants attached to other
securities or included in a unit with fixed-income securities or
acquired upon conversions of fixed-income securities.
Defensive Investing. The Fund may take temporary "defensive"
positions in attempting to respond to adverse market conditions. The
Fund may invest any amount of its assets in cash or money market
instruments in a defensive posture when the Investment Manager
believes it is advisable to do so. Although taking a defensive
posture is designed to protect the Fund from an anticipated market
downturn, it could have the effect of reducing the benefit from any
upswing in the market.
Portfolio Turnover. Although the Fund does not usually engage in
substantial short-term trading, it may from time to time engage in
active trading of portfolio securities to pursue its principal
investment strategies. The portfolio turnover rate is not expected to
exceed 200% annually under normal circumstances. A high turnover rate
will increase Fund brokerage costs. It also may increase the Fund's
capital gains, which are passed along to Fund shareholders as
distributions. This, in turn, may increase your tax liability as a
Fund shareholder. See the sections on "Distributions" and "Tax
Consequences."
The percentage limitations relating to the composition of the Fund's
portfolio referenced in "Principal Investment Strategies" apply at
the time the Fund acquires an investment. Subsequent percentage
changes that result from market fluctuations or changes in assets
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.
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ADDITIONAL RISK INFORMATION
- ----------------------------------------
As discussed in the "Principal Risks" section, a principal risk of
investing in the Fund is associated with its fixed-income securities
investments. This section provides additional information regarding
the principal risks of investing in the Fund.
Options and Futures. If the Fund invests in options and/or futures,
its participation in these markets would subject the Fund's portfolio
to certain risks. The Investment Manager's predictions of movements
in the direction of the bond, currency or interest rate markets may
be inaccurate, and the adverse consequences to the Fund (e.g., a
reduction in the Fund's net asset value or a reduction in the amount
of income available for distribution) may leave the Fund in a worse
position than if these strategies were not used. Other risks inherent
in the use of options and futures include, for example, the possible
imperfect correlation between the price of options and futures
contracts and movements in the prices of the securities being hedged,
and the possible
9
<PAGE>
absence of a liquid secondary market for any particular instrument.
Certain options may be over-the-counter options, which are options
negotiated with dealers; there is no secondary market for these
investments.
Forward Currency Contracts. The Fund's participation in forward
currency contracts also involves risks. If the Investment Manager
employs a strategy that does not correlate well with the Fund's
investments or the currencies in which the investments are
denominated, currency contracts could result in a loss. The contracts
also may increase the Fund's volatility and may involve a significant
risk.
Common Stocks. The Fund's investment in common stocks involves risk.
In general, stock values fluctuate in response to activities specific
to the company as well asgeneral market, economic and political
conditions. Stock prices can fluctuate widely in response to these
factors.
Year 2000. The Fund could be adversely affected if the computer
systems necessary for the efficient operation of the Investment
Manager, the Fund's other service providers and the markets and
individual and governmental issuers in which the Fund invests do not
properly process and calculate date-related information from and
after January 1, 2000. While year 2000-related computer problems
could have a negative effect on the Fund, the Investment Manager and
affiliates are working hard to avoid any problems and to obtain
assurances from their service providers that they are taking similar
steps.
10
<PAGE>
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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,
New York 10048.
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, has more than $127 billion in assets under
management or administration as of January 31, 1999.
The Fund's portfolio is managed within the Investment Manager's
Taxable Income Group. Peter M. Avelar, Rajesh K. Gupta, Anne Pickrell
and Peter J. Seeley are the primary portfolio managers of the Fund,
Mr. Avelar and Mr. Gupta since its inception and Ms. Pickrell and Mr.
Seeley since February of 1998. Peter M. Avelar, a Senior Vice
President of the Investment Manager, has been managing portfolios
comprised of high yield fixed-income securities at the Investment
Manager for over five years. Rajesh K. Gupta, a Senior Vice President
of the Investment Manager, has been managing portfolios comprised of
government securities at the Investment Manager for over five years.
Ms. Pickrell has been a portfolio manager at the Investment Manager
for over five years. Prior to joining the Investment Manager in July
of 1994, Mr. Seeley was a portfolio manager at Nikko Capital
Management.
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 October 31, 1998, the Fund accrued total compensation to the
Investment Manager amounting to 0.40% of the Fund's average daily net
assets.
11
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SHAREHOLDER INFORMATION
[GRAPHIC OMITTED]
PRICING FUND SHARES
- -------------------------------
The price of Fund shares (excluding sales charges), called "net asset
value," is based on the value of the Fund's portfolio securities.
While the assets of each Class are invested in a single portfolio of
securities, the net asset value of each Class will differ because the
Classes have different ongoing distribution fees.
The net asset value 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. In addition,
if the Fund holds securities 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.
[GRAPHIC OMITTED]
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. Your Financial Advisor or other authorized
financial representative 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.
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 (800) THE-DEAN 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.deanwitter.com/funds
Because every investor has different immediate financial needs and
long-term investment goals, the Fund offers investors four Classes of
shares: Classes A, B, C and D. Class D shares are only offered to a
limited group of investors. Each Class of shares offers a distinct
structure of sales charges, distribution and service fees, and other
features that are designed to address a variety of needs. Your
12
<PAGE>
Financial Advisor or other authorized financial representative can
help you decide which Class may be most appropriate for you. When
purchasing Fund shares, you must specify which Class of shares you
wish to purchase.
When you buy Fund shares, the shares are purchased at the next share
price calculated (less any applicable front-end sales charge for
Class A shares) after we receive your investment order in proper
form. We reserve the right to reject any order for the purchase of
Fund shares.
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.
MINIMUM INVESTMENT AMOUNTS
- --------------------------
<TABLE>
<CAPTION>
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
(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, or (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.
Investment Options for Certain Institutional and Other Investors/Class
D Shares. To be eligible to purchase Class D shares, you must qualify
under one of the investor categories specified in the "Share Class
Arrangements" section of this Prospectus.
Three Day Settlement. Fund shares are sold through the Fund's
distributor, Morgan Stanley Dean Witter Distributors Inc., on a
normal three business day basis; that is, your payment for Fund
shares is due on the third business day (settlement day) after you
place a purchase order.
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:
o 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, the Class of shares you wish to purchase
and the investment amount (which would include any applicable
front-end sales charge). The letter must be signed by the account
owner(s).
13
<PAGE>
o Make out a check for the total amount payable to: Morgan Stanley
Dean Witter Diversified Income Trust.
o Mail the letter and check to Morgan Stanley Dean Witter Trust FSB
at P.O. Box 1040, Jersey City, NJ 07303.
[GRAPHIC OMITTED]
HOW TO EXCHANGE SHARES
- ------------------------------------
Permissible Fund Exchanges. You may exchange shares of any Class of
the Fund for the same Class of any other continuously offered
Multi-Class Fund, or for shares of a No-Load Fund, Money Market Fund
or Short-Term U.S. Treasury Trust, without the imposition of an
exchange fee. See the inside back cover of this Prospectus for each
Morgan Stanley Dean Witter Fund's designation as a Multi-Class Fund,
No-Load Fund or 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. For purposes of exchanges, shares of
FSC Funds (subject to a front-end sales charge) are treated as Class
A shares of a Multi-Class Fund.
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
objective(s), policies and investment minimums, and should be read
before investment.
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. Certain services normally available to shareholders of Money
Market Funds, including the check writing privilege, are 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
14
<PAGE>
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 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.
Frequent Exchanges. A pattern of frequent exchanges may result in the
Fund limiting or prohibiting, at its discretion, additional purchases
and/or exchanges. The Fund will notify you in advance of limiting
your exchange privileges.
CDSC Calculations on Exchanges. See the "Share Class Arrangements"
section of this Prospectus for a further discussion of how applicable
contingent deferred sales charges (CDSCs) are calculated for shares
of one Morgan Stanley Dean Witter Fund that are exchanged for shares
of another.
For further information regarding exchange privileges, you should
contact your Morgan Stanley Dean Witter Financial Advisor or call
(800) 869-NEWS.
15
<PAGE>
[GRAPHIC OMITTED]
HOW TO SELL SHARES
- -------------------------------
You can sell some or all of your Fund shares at any time. If you sell
Class A, Class B or Class C shares, your net sale proceeds are
reduced by the amount of any applicable CDSC. 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 Witter Financial Advisor or
Financial Advisor other authorized financial representative.
--------------------------------------------------------------------------------------------
[GRAPHIC OMITTED]
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 instruction" that includes:
[GRAPHIC OMITTED] o your account number;
o the dollar amount or the number of shares you wish to sell;
o the Class of shares you wish to sell; and
o the signature of each owner as it appears on the account.
--------------------------------------------------------------------------------------------
If you are requesting payment to anyone other than the 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 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,
New Jersey 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 Family of Funds has a total
Withdrawal Plan market value of at least $10,000, you may elect to withdraw amounts of $25 or more,
[GRAPHIC OMITTED] 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.
--------------------------------------------------------------------------------------------
SYSTEMATIC
Withdrawl Plan
This plan allows you to withdraw money automatically from your Fund account at
regular intervals. Contact your Morgan Stanley Dean Witter Financial Advisor or
other authorized financial representative for more details.
--------------------------------------------------------------------------------------------
Amounts withdrawn are subject to any applicable CDSC. A CDSC may be waived
under certain circumstances. See the Class B waiver categories listed in the "Share Class
Arrangements" section of this Prospectus.
--------------------------------------------------------------------------------------------
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>
16
<PAGE>
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, payment of the sale proceeds may be
delayed for the minimum time needed to verify that the check has been
honored (not more than fifteen days from the time we receive the
check).
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.
Reinstatement Privilege. If you sell Fund shares and have not
previously exercised the reinstatement privilege, you may, within 35
days after the date of sale, invest any portion of the proceeds in
the same Class of Fund shares at their net asset value and receive a
pro rata credit for any CDSC paid in connection with the 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.
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.
Margin Accounts. Certain restrictions may apply to Fund shares
pledged in margin accounts with Dean Witter Reynolds or another
authorized broker-dealer of Fund shares. If you hold Fund shares in
this manner, please contact your Morgan Stanley Dean Witter Financial
Advisor or other authorized financial representative for more
details.
17
<PAGE>
[GRAPHIC OMITTED]
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 and income from stocks.
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."
TARGETED DIVIDENDS(SM)
You may select to have your Fund distributions automatically invested in other
Classes of Fund shares or Classes of another Morgan Stanley Dean Witter Fund
that you own. Contact your Morgan Stanley Dean Witter Financial Advisor for
further information about this service.
The Fund declares income dividends separately for each Class.
Distributions paid on Class A and Class D shares usually will be
higher than for Class B and Class C because distribution fees that
Class B and Class C pay are higher. Normally, income dividends are
distributed monthly and capital gains are distributed annually 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
same Class 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.
[GRAPHIC OMITTED]
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.
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:
o The Fund makes distributions; and
o 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
18
<PAGE>
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 full 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.
[GRAPHIC OMITTED]
SHARE CLASS ARRANGEMENTS
- -------------------------------------
The Fund offers several Classes of shares having different
distribution arrangements designed to provide you with different
purchase options according to your investment needs. Your Morgan
Stanley Dean Witter Financial Advisor or other authorized financial
representative can help you decide which Class may be appropriate for
you.
The general public is offered three Classes: Class A shares, Class B
shares and Class C shares, which differ principally in terms of sales
charges and ongoing expenses. A fourth Class, Class D shares, is
offered only to a limited category of investors. Shares that you
acquire through reinvested distributions will not be subject to any
front-end sales charge or CDSC -- contingent deferred sales charge.
Sales personnel may receive different compensation for selling each
Class of shares. The sales charges applicable to each Class provide
for the distribution financing of shares of that Class.
19
<PAGE>
The chart below compares the sales charge and annual 12b-1 fee
applicable to each Class:
<TABLE>
<CAPTION>
CLASS SALES CHARGE ANNUAL 12B-1FEE
- ----- ------------ ---------------
<S> <C> <C>
A Maximum 4.25% initial sales charge reduced for purchase of $25,000 or more;
shares sold without an initial sales charge are generally subject to a 1.0% CDSC
during the first year 0.25%
B Maximum 5.0% CDSC during the first year decreasing to 0% after six years 0.85%
C 1.0% CDSC during the first year 0.85%
D None None
</TABLE>
CLASS A SHARES
Class A shares are sold at net asset value plus an initial sales
charge of up to 4.25%. The initial sales charge is reduced for
purchases of $25,000 or more according to the schedule below.
Investments of $1 million or more are not subject to an initial sales
charge, but are generally subject to a contingent deferred sales
charge, or CDSC, of 1.0% on sales made within one year after the last
day of the month of purchase. The CDSC will be assessed in the same
manner and with the same CDSC waivers as with Class B shares. Class A
shares are also subject to a distribution (12b-1) fee of up to 0.25%
of the average daily net assets of the Class.
The offering price of Class A shares includes a sales charge
(expressed as a percentage of the offering price) on a single
transaction as shown in the following table:
<TABLE>
<CAPTION>
FRONT-END SALES CHARGE OR FSC
An initial sales charge you pay when purchasing Class A shares that is based on
a percentage of the offering price. The percentage declines based upon the
dollar value of Class A shares you purchase. We offer three ways to reduce your
Class A sales charges -- the Combined Purchase Privilege, Right of Accumulation
and Letter of Intent.
FRONT-END SALES CHARGE
----------------------------------------------
AMOUNT OF PERCENTAGE OF PUBLIC APPROXIMATE PERCENTAGE
SINGLE TRANSACTION OFFERING PRICE OF AMOUNT INVESTED
- ------------------ -------------------- ----------------------
<S> <C> <C>
Less than $25,000 4.25% 4.44%
$25,000 but less than $50,000 4.00% 4.17%
$50,000 but less than $100,000 3.50% 3.63%
$100,000 but less than $250,000 2.75% 2.83%
$250,000 but less than $1 million 1.75% 1.78%
$1 million and over 0 0
</TABLE>
20
<PAGE>
The reduced sales charge schedule is applicable to purchases of Class
A shares in a single transaction by:
o A single account (including an individual, trust or fiduciary
account).
o Family member accounts (limited to husband, wife and children
under the age of 21).
o Pension, profit sharing or other employee benefit plans of
companies and their affiliates.
o Tax-exempt organizations.
o Groups organized for a purpose other than to buy mutual fund
shares.
Combined Purchase Privilege. You also will have the benefit of
reduced sales charges by combining purchases of Class A shares of the
Fund in a single transaction with purchases of Class A shares of
other Multi-Class Funds and shares of FSC Funds.
Right of Accumulation. You also may benefit from a reduction of sales
charges if the cumulative net asset value of Class A shares of the
Fund purchased in a single transaction, together with shares of other
Funds you currently own which were previously purchased at a price
including a front-end sales charge (including shares acquired through
reinvestment of distributions), amounts to $25,000 or more. Also, if
you have a cumulative net asset value of all your Class A and Class D
shares equal to at least $5 million (or $25 million for certain
employee benefit plans), you are eligible to purchase Class D shares
of any Fund subject to the Fund's minimum initial investment
requirement.
You must notify your Morgan Stanley Dean Witter Financial Advisor or
other authorized financial representative (or Morgan Stanley Dean
Witter Trust FSB if you purchase directly through the Fund), at the
time a purchase order is placed, that the purchase qualifies for the
reduced charge under the Right of Accumulation. Similar notification
must be made in writing when an order is placed by mail. The reduced
sales charge will not be granted if: (i) notification is not
furnished at the time of the order; or (ii) a review of the records
of Dean Witter Reynolds or other authorized dealer of Fund shares or
the Fund's transfer agent does not confirm your represented holdings.
Letter of Intent. The schedule of reduced sales charges for larger
purchases also will be available to you if you enter into a written
"letter of intent." A letter of intent provides for the purchase of
Class A shares of the Fund or other Multi-Class Funds and/or shares
of FSC Funds within a thirteen-month period. The initial purchase
under a letter of intent must be at least 5% of the stated investment
goal. To determine the applicable sales charge reduction, you may
also include: (1) the cost of shares of other Morgan Stanley Dean
Witter Funds which were previously purchased at a price including a
front-end sales charge during the 90-day period prior to the
distributor receiving the letter of intent, and (2) the cost of
shares of other Funds you currently own acquired in exchange for
shares of Funds purchased during that period at a price including a
front-end sales charge. You can obtain a letter of intent by
contacting your Morgan Stanley Dean Witter Financial Advisor or other
authorized financial
21
<PAGE>
representative, or by calling (800) 869-NEWS. If you do not achieve
the stated investment goal within the thirteen-month period, you are
required to pay the difference between the sales charges otherwise
applicable and sales charges actually paid.
Other Front-End Sales Charge Waivers. In addition to investments of
$1 million or more, your purchase of Class A shares is not subject to
a front-end sales charge (or a CDSC upon sale) if your account
qualifies under one of the following categories:
o A trust for which Morgan Stanley Dean Witter Trust FSB provides
discretionary trustee services.
o Persons participating in a fee-based investment program (subject
to all of its terms and conditions, including mandatory sale or
transfer restrictions on termination) approved by the Fund's
distributor pursuant to which they pay an asset-based fee for
investment advisory, administrative and/or brokerage services.
o Employer-sponsored employee benefit plans, whether or not
qualified under the Internal Revenue Code, for which Morgan Stanley
Dean Witter Trust FSB serves as trustee or Dean Witter Reynolds'
Retirement Plan Services serves as recordkeeper under a written
Recordkeeping Services Agreement ("MSDW Eligible Plans") which have
at least 200 eligible employees.
o An MSDW Eligible Plan whose Class B shares have converted to
Class A shares, regardless of the plan's asset size or number of
eligible employees.
o A client of a Morgan Stanley Dean Witter Financial Advisor who
joined us from another investment firm within six months prior to
the date of purchase of Fund shares, and you used the proceeds from
the sale of shares of a proprietary mutual fund of that Financial
Advisor's previous firm that imposed either a front-end or deferred
sales charge to purchase Class A shares, provided that: (1) you
sold the shares not more than 60 days prior to the purchase of fund
shares, and (2) the sale proceeds were maintained in the interim in
cash or a money market fund.
CLASS B SHARES
Class B shares are offered at net asset value with no initial
sales charge but are subject to a contingent deferred sales charge,
or CDSC, as set forth in the table below. For the purpose of
calculating the CDSC, shares are deemed to have been purchased on the
last day of the month during which they were purchased.
CONTINGENT DEFERRED SALES CHARGE OR CDSC
A fee you pay when you sell shares of certain Morgan Stanley Dean Witter Funds
purchased without an initial sales charge. This fee declines the longer you hold
your shares as set forth in the table.
<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE
YEAR SINCE PURCHASE PAYMENT MADE OF AMOUNT REDEEMED
- -------------------------------- --------------------
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
<PAGE>
Each time you place an order to sell or exchange shares, shares with
no CDSC will be sold or exchanged first, then shares with the lowest
CDSC will be sold or exchanged next. For any shares subject to a
CDSC, the CDSC will be assessed on an amount equal to the lesser of
the current market value or the cost of the shares being sold.
CDSC Waivers. A CDSC, if otherwise applicable, will be waived in the
case of:
o Sales of shares held at the time you die or become disabled
(within the definition in Section 72(m)(7) of the Internal Revenue
Code which relates to the ability to engage in gainful employment),
if the shares are: (i) registered either in your name (not a trust)
or in the names of you and your spouse as joint tenants with right
of survivorship; or (ii) held in a qualified corporate or
self-employed retirement plan, IRA or 403(b) Custodial Account,
provided in either case that the sale is requested within one year
of your death or initial determination of disability.
o Sales in connection with the following retirement plan
"distributions":
(i) lump-sum or other distributions from a qualified corporate or
self-employed retirement plan following retirement (or, in the case
of a "key employee" of a "top heavy" plan, following attainment of
age 59 1 /2); (ii) distributions from an IRA or 403(b) Custodial
Account following attainment of age 59 1 /2; or (iii) a tax-free
return of an excess IRA contribution (a "distribution" does not
include a direct transfer of IRA, 403(b) Custodial Account or
retirement plan assets to a successor custodian or trustee).
o Sales of shares held for you as a participant in an MSDW Eligible
Plan.
o Sales of shares in connection with the Systematic Withdrawal Plan
of up to 12% annually of the value of each Fund from which plan
sales are made. The percentage is determined on the date you
establish the Systematic Withdrawal Plan and based on the next
calculated share price. You may have this CDSC waiver applied in
amounts up to 1% per month, 3% per quarter, 6% semi-annually or 12%
annually. Shares with no CDSC will be sold first, followed by those
with the lowest CDSC. As such, the waiver benefit will be reduced
by the amount of your shares that are not subject to a CDSC. If you
suspend your participation in the plan, you may later resume plan
payments without requiring a new determination of the account value
for the 12% CDSC waiver.
All waivers will be granted only following the Distributor receiving
confirmation of your entitlement. If you believe you are eligible for
a CDSC waiver, please contact your Financial Advisor or call (800)
869-NEWS.
Distribution Fee. Class B shares are also subject to an annual 12b-1
fee of 0.85% of the lesser of: (a) the average daily aggregate gross
purchases by all shareholders of the Fund's Class B shares since the
inception of the Fund (not including reinvestments of dividends or
capital gains distributions), less the average daily aggregate net
asset value of the Fund's Class B shares sold by all shareholders
since the Fund's inception upon which a CDSC has been imposed or
waived, or (b) the average daily net assets of Class B.
23
<PAGE>
Conversion Feature. After ten (10) years, Class B shares will convert
automatically to Class A shares of the Fund with no initial sales
charge. The ten year period runs from the last day of the month in
which the shares were purchased, or in the case of Class B shares
acquired through an exchange, from the last day of the month in which
the original Class B shares were purchased; the shares will convert
to Class A shares based on their relative net asset values in the
month following the ten year period. At the same time, an equal
proportion of Class B shares acquired through automatically
reinvested distributions will convert to Class A shares on the same
basis. (Class B shares held before May 1, 1997, however, will convert
to Class A shares in May 2007.)
In the case of Class B shares held in an MSDW Eligible Plan, the plan
is treated as a single investor and all Class B shares will convert
to Class A shares on the conversion date of the Class B shares of a
Morgan Stanley Dean Witter Fund purchased by that plan.
Currently, the Class B share conversion is not a taxable event; the
conversion feature may be cancelled if it is deemed a taxable event
in the future by the Internal Revenue Service.
If you exchange your Class B shares for shares of a Money Market
Fund, No-Load Fund or Short-Term U.S. Treasury Trust, the holding
period for conversion is frozen as of the last day of the month of
the exchange and resumes on the last day of the month you exchange
back into Class B shares.
Exchanging Shares Subject to a CDSC. There are special considerations
when you exchange Fund shares that are subject to a CDSC. When
determining the length of time you held the shares and the
corresponding CDSC rate, any period (starting at the end of the
month) during which you held shares of a fund that does not charge a
CDSC will not be counted. Thus, in effect the "holding period" for
purposes of calculating the CDSC is frozen upon exchanging into a
fund that does not charge a CDSC.
For example, if you held Class B shares of the Fund for one year,
exchanged to Class B of another Morgan Stanley Dean Witter
Multi-Class Fund for another year, then sold your shares, a CDSC rate
of 4% would be imposed on the shares based on a two year holding
period -- one year for each Fund. However, if you had exchanged the
shares of the Fund for a Money Market Fund (which does not charge a
CDSC) instead of the Multi-Class Fund, then sold your shares, a CDSC
rate of 5% would be imposed on the shares based on a one year holding
period. The one year in the Money Market Fund would not be counted.
Nevertheless, if shares subject to a CDSC are exchanged for a Fund
that does not charge a CDSC, you will receive a credit when you sell
the shares equal to the distribution (12b-1) fees, if any, you paid
on those shares while in that Fund up to the amount of any applicable
CDSC.
24
<PAGE>
In addition, shares that are exchanged into or from a Morgan Stanley
Dean Witter Fund subject to a higher CDSC rate will be subject to the
higher rate, even if the shares are re-exchanged into a Fund with a
lower CDSC rate.
CLASS C SHARES
Class C shares are sold at net asset value with no initial sales
charge but are subject to a CDSC of 1.0% on sales made within one
year after the
last day of the month of purchase. The CDSC will be assessed in the
same manner and with the same CDSC waivers as with Class B shares.
Distribution Fee. Class C shares are subject to an annual
distribution (12b-1) fee of 0.85% of the average daily net assets of
that Class. The Class C shares' distribution fee may cause that Class
to have higher expenses and pay lower dividends than Class A or Class
D shares. Unlike Class B shares, Class C shares have no conversion
feature and, accordingly, an investor that purchases Class C shares
may be subject to distribution (12b-1) fees applicable to Class C
shares for an indefinite period.
CLASS D SHARES
Class D shares are offered without any sales charge on purchases
or sales and without any distribution (12b-1) fee. Class D shares
are offered only to investors meeting an initial investment minimum
of $5 million ($25 million for certain MSDW Eligible Plans) and the
following investor categories:
o Investors participating in the Investment Manager's mutual fund
asset allocation program (subject to all of its terms and
conditions, including mandatory sale or transfer restrictions on
termination) pursuant to which they pay an asset-based fee.
o Persons participating in a fee-based investment program (subject
to all of its terms and conditions, including mandatory sale or
transfer restrictions on termination) approved by the Fund's
distributor pursuant to which they pay an asset-based fee for
investment advisory, administrative and/or brokerage services.
o Employee benefit plans maintained by Morgan Stanley Dean Witter &
Co. or any of its subsidiaries for the benefit of certain employees
of Morgan Stanley Dean Witter & Co. and its subsidiaries.
o Certain unit investment trusts sponsored by Dean Witter Reynolds.
o Certain other open-end investment companies whose shares are
distributed by the Fund's distributor.
o Investors who were shareholders of the Dean Witter Retirement
Series on September 11, 1998 for additional purchases for their
former Dean Witter Retirement Series accounts.
Meeting Class D Eligibility Minimums. To meet the $5 million ($25
million for MSDW Eligible Plans) initial investment to qualify to
purchase Class D shares you may combine: (1) purchases in a single
transaction of Class D shares of the Fund and other Morgan Stanley
Dean Witter Multi-Class Funds and/or (2) previous purchases of Class
A and Class D shares of Multi-Class Funds and shares of FSC Funds you
currently own, along with shares of Morgan Stanley Dean Witter Funds
you currently own that you acquired in exchange for those shares.
25
<PAGE>
No Sales Charges for Reinvested Cash Distributions. If you receive a
cash payment representing an income dividend or capital gain and you
reinvest that amount in the applicable Class of shares by returning
the check within 30 days of the payment date, the purchased shares
would not be subject to an initial sales charge or CDSC.
PLAN OF DISTRIBUTION (RULE 12B-1 FEES)
The Fund has adopted a Plan of Distribution in accordance with Rule
12b-1 under the Investment Company Act of 1940 with respect to the
distribution of Class A, Class B and Class C shares. The Plan allows
the Fund to pay distribution fees for the sale and distribution of
these shares. It also allows the Fund to pay for services to
shareholders of Class A, Class B and Class C shares. Because these
fees are paid out of the Fund's assets on an ongoing basis, over time
these fees will increase the cost of your investment in these Classes
and may cost you more than paying other types of sales charges.
26
<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, whose report,
along with the Fund's financial statements, is included in the annual report,
which is available upon request.
CLASS B
- -------
<TABLE>
<CAPTION>
Years ended October 31 1998++ 1997*++ 1996 1995 1994
- ---------------------- ------ ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $ 9.46 $ 9.78 $ 9.62 $ 9.37 $ 10.20
- ------------------------------------------- ---------- ------- ------- ------- -------
Income (loss) from investment operations
Net investment income 0.68 0.74 0.78 0.77 0.74
Net realized and unrealized gain (loss) (0.46) (0.15) 0.10 0.20 ( 0.80)
---------- -------- ------- ------- -------
Total income (loss) from investment
operations 0.22 0.59 0.88 0.97 ( 0.06)
- ------------------------------------------- ---------- -------- ------- ------- -------
Less dividends and distributions from
Net investment income (0.65) (0.91) (0.72) (0.72) ( 0.64)
Net realized gain -- -- -- -- ( 0.01)
Paid-in-capital (0.02) -- -- -- ( 0.12)
---------- -------- -------- -------- -------
Total dividends and distributions (0.67) (0.91) (0.72) (0.72) ( 0.77)
- ------------------------------------------- ---------- -------- -------- -------- -------
Net asset value, end of period 9.01 9.46 9.78 9.62 9.37
- ------------------------------------------- ---------- -------- -------- -------- -------
TOTAL RETURN+ 2.23% 6.46% 9.49% 10.76% ( 0.69)%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.38%(1) 1.40% 1.42% 1.44% 1.51%
Net investment income 7.33%(1) 7.90% 8.38% 8.30% 7.91%
SUPPLEMENTAL DATA
Net assets, end of period, in thousands $1,024,021 $915,899 $745,581 $542,544 $407,038
Portfolio turnover rate 130% 104% 82% 87% 60%
</TABLE>
- ----------
* Prior to July 28, 1997, the Fund issued one class of shares. All shares
of the Fund held prior to that date have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
(1) Reflects overall Fund ratios for investment income and non-class specific
expenses.
27
<PAGE>
CLASS A++
- ---------
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED FOR THE PERIOD JULY 28, 1997*
SELECTED PER-SHARE DATA OCTOBER 31, 1998 THROUGH OCTOBER 31, 1997
- ----------------------- ---------------- -----------------------------
<S> <C> <C>
Net asset value, beginning of period $ 9.46 $ 9.40
- ------------------------------------------- -------- --------
Income from investment operations
Net investment income 0.74 0.22
Net realized and unrealized gain (loss) (0.46) 0.04
-------- --------
Total income from investment operations 0.28 0.26
- ------------------------------------------- -------- --------
Less dividends and distributions from
Net investment income (0.70) (0.20)
Paid-in-capital (0.03) --
-------- --------
Total dividends and distributions (0.73) (0.20)
- ------------------------------------------- -------- --------
Net asset value, end of period 9.01 9.46
- ------------------------------------------- -------- --------
TOTAL RETURN+ 2.86% 2.74%(1)
RATIOS TO AVERAGE NET ASSETS
Expenses 0.77%(3) 0.85%(2)
Net investment income 7.94%(3) 8.98%(2)
SUPPLEMENTAL DATA
Net assets, end of period, in thousands $ 15,130 $ 4,933
Portfolio turnover rate 130% 104%
</TABLE>
- --------
* The date shares were first issued.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
28
<PAGE>
CLASS C++
- ---------
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED FOR THE PERIOD JULY 28, 1997*
SELECTED PER-SHARE DATA OCTOBER 31, 1998 THROUGH OCTOBER 31, 1997
- ----------------------- ---------------- -----------------------------
<S> <C> <C>
Net asset value, beginning of period $ 9.45 $ 9.40
- ------------------------------------------- ---------- ----------
Income from investment operations
Net investment income 0.68 0.20
Net realized and unrealized gain (loss) (0.46) 0.04
---------- ----------
Total income from investment operations 0.22 0.24
- ------------------------------------------- ---------- ----------
Less dividends and distributions from
Net investment income (0.65) (0.19)
Paid-in-capital (0.02) --
---------- ----------
Total dividends and distributions (0.67) (0.19)
- ------------------------------------------- ---------- ----------
Net asset value, end of period 9.00 9.45
- ------------------------------------------- ---------- ----------
TOTAL RETURN+ 2.26% 2.52%(1)
RATIOS TO AVERAGE NET ASSETS
Expenses 1.38%(3) 1.44%(2)
Net investment income 7.33%(3) 8.17%(2)
SUPPLEMENTAL DATA
Net assets, end of period, in thousands $ 15,659 $ 3,773
Portfolio turnover rate 130% 104%
</TABLE>
- -----------
* The date shares were first issued.
+ Does not reflect the deduction of sales charge. Calculated based on the
net asset value as of the last business day of the period.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
29
<PAGE>
CLASS D++
- ---------
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED FOR THE PERIOD JULY 28, 1997*
SELECTED PER-SHARE DATA OCTOBER 31, 1998 THROUGH OCTOBER 31, 1997
- ----------------------- ---------------- -----------------------------
<S> <C> <C>
Net asset value, beginning of period $ 9.45 $ 9.40
- ------------------------------------------- ---------- ----------
Income from investment operations
Net investment income 0.76 0.23
Net realized and unrealized gain (loss) (0.46) 0.02
---------- ----------
Total income from investment operations 0.30 0.25
- ------------------------------------------- ---------- ----------
Less dividends and distributions from
Net investment income (0.72) (0.20)
Paid-in-capital (0.03) --
---------- ----------
Total dividends and distributions (0.75) (0.20)
- ------------------------------------------- ---------- ----------
Net asset value, end of period 9.00 9.45
- ------------------------------------------- ---------- ----------
TOTAL RETURN+ 3.21% 2.69%(1)
RATIOS TO AVERAGE NET ASSETS
Expenses 0.53%(3) 0.59%(2)
Net investment income 8.18%(3) 9.26%(2)
SUPPLEMENTAL DATA
Net assets, end of period, in thousands $ 740 $ 99
Portfolio turnover rate 130% 104%
</TABLE>
- ----------
* The date shares were first issued.
+ Calculated based on the net asset value as of the last business day of
the period.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
30
<PAGE>
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<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
Equity Fund
Growth Fund
Market Leader Trust
Mid-Cap Growth Fund
Special Value Fund
Value Fund
THEME FUNDS
Financial Services Trust
Health Sciences Trust
Information Fund
Natural Resource Development Securities
Precious Metals and Minerals Trust
GLOBAL/INTERNATIONAL FUNDS
Competitive Edge Fund - "Best Ideas" Portfolio
European Growth Fund
Fund of Funds - International Portfolio
Global Dividend Growth Securities
International SmallCap Fund
Japan Fund
Pacific Growth Fund
- --------------------------------------------------------------------------------
GROWTH & INCOME FUNDS
Balanced Growth Fund
Balanced Income Fund
Convertible Securities Trust
Dividend Growth Securities
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
Value/Added Market Series/Equity Portfolio
THEME FUNDS
Global Utilities Fund
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
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 front 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
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 - FEBRUARY 26, 1999
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.DEANWITTER.COM/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 (800) SEC-0330. Reports and
other information about the Fund are available on the SEC's Internet site
(www.sec.gov), and copies of this information may be obtained, upon payment of
a duplicating fee, by writing the Public Reference Section of the SEC,
Washington, DC 20549-6009.
TICKER SYMBOLS:
Class A: DINAX Class C: DINCX
- ------------------------------- -------------------------------
Class B: DINBX Class D: DINDX
- ------------------------------- -------------------------------
(MORGAN STANLEY DEAN WITTER DIVERSIFIED INCOME TRUST; INVESTMENT COMPANY ACT
FILE NO. 811-6515)
Morgan Stanley Dean Witter
DIVERSIFIED INCOME TRUST
[GRAPHIC OMITTED]
A MUTUAL FUND WHOSE PRIMARY INVESTMENT OBJECTIVE IS A HIGH LEVEL OF CURRENT
INCOME; AS A SECONDARY OBJECTIVE, THE FUND SEEKS TO MAXIMIZE TOTAL RETURN BUT
ONLY TO THE EXTENT CONSISTENT WITH ITS PRIMARY OBJECTIVE
