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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.
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CONTENTS
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<S> <C>
The Fund Investment Objective .............................. 1
Principal Investment Strategies.................... 1
Principal Risks.................................... 2
Past Performance................................... 5
Fees and Expenses.................................. 6
Additional Investment Strategy Information......... 7
Additional Risk Information........................ 8
Fund Management.................................... 10
Shareholder Information Pricing Fund Shares................................ 11
How to Buy Shares.................................. 11
How to Exchange Shares............................. 13
How to Sell Shares................................. 15
Distributions...................................... 16
Tax Consequences................................... 17
Share Class Arrangements........................... 17
Financial Highlights ................................................... 24
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
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[ ] Growth
[ ] Growth and Income
[X] INCOME
[ ] Money Market
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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.
[OPEN SIDEBAR]
INCOME
An investment objective having the goal of selecting securities to pay out
income rather than rise in value.
[CLOSE SIDEBAR]
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.
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.
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(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.
[GRAPHIC OMITTED]
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
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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
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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.
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.
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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.
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
4
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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.
[GRAPHIC OMITTED]
PAST PERFORMANCE
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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.
[OPEN SIDEBAR]
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.
[CLOSE SIDEBAR]
ANNUAL TOTAL RETURNS -- CALENDAR YEARS
[CHART OMITTED]
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).
[OPEN SIDEBAR]
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.
[CLOSE SIDEBAR]
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIOD ENDED THE 1998 CALENDAR YEAR)
<TABLE>
<CAPTION>
LIFE OF THE FUND
PAST 1 YEAR PAST 5 YEARS (SINCE 4/9/92)
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<S> <C> <C> <C>
Class A -1.27% -- --
Class B1 -2.29% 5.26% 6.29%4
Class C 1.55% -- --
Class D 3.35% -- --
Lehman Brothers Mutual Fund
Government/Corporate Intermediate
Bond Index2 8.44% 6.60% 7.36%5
Lipper Multi-Sector
Income Funds Average3 1.30% 6.11% 7.72%5
</TABLE>
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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.
5
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[GRAPHIC OMITTED]
FEES AND EXPENSES
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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.
[OPEN SIDEBAR]
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.
[CLOSE SIDEBAR]
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
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<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) None2 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>
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>
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[GRAPHIC OMITTED]
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.
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.
7
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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.
[GRAPHIC OMITTED]
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
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 as
8
<PAGE>
general 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.
9
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[GRAPHIC OMITTED]
FUND MANAGEMENT
- ---------------------------------------------
[OPEN SIDEBAR]
MORGAN STANLEY DEAN WITTER ADVISORS INC.
The Investment Manager is widely recognized as a leader in the mutual fund
industry and together with Morgan Stanley Dean Witter Services Company Inc.,
its wholly-owned subsidiary, has more than $127 billion in assets under
management or administration as of January 31, 1999.
[CLOSE SIDEBAR]
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.
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.
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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
- -----------------------------------------------
[OPEN SIDEBAR]
CONTACTING A FINANCIAL ADVISOR
If you are new to the Morgan Stanley Dean Witter Family of Funds and would like
to contact a Financial Advisor, call (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
[CLOSE SIDEBAR]
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.
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 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.
11
<PAGE>
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
EasyInvestSM (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.
[OPEN SIDEBAR]
EASYINVESTSM
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.
[CLOSE SIDEBAR]
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).
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.
12
<PAGE>
[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 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.
13
<PAGE>
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.
14
<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>
<S> <C>
OPTIONS PROCEDURES
- -------------------- -----------------------------------------------------------------------------------
Contact Your To sell your shares, simply call your Morgan Stanley Dean Witter Financial Advisor
Financial Advisor or 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
Withdrawal Plan total market value of at least $10,000, you may elect to withdraw amounts of $25
[GRAPHIC OMITTED] or more, or in any whole percentage of a Fund's balance (provided the amount is at
least $25), on a monthly, quarterly, semi-annual or annual basis, from any Fund
with a balance of at least $1,000. Each time you add a Fund to the plan, you must
meet the plan requirements.
-----------------------------------------------------------------------------------
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>
[OPEN SIDEBAR]
SYSTEMATIC WITHDRAWAL 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.
[CLOSE SIDEBAR]
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).
15
<PAGE>
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.
[GRAPHIC OMITTED]
DISTRIBUTIONS
- ----------------------------------------
[OPEN SIDEBAR]
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.
[CLOSE SIDEBAR]
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."
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.
16
<PAGE>
[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 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.
17
<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:
[OPEN SIDEBAR]
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.
[CLOSE SIDEBAR]
<TABLE>
<CAPTION>
FRONT-END SALES CHARGE
-----------------------------------------------
PERCENTAGE OF APPROXIMATE PERCENTAGE
AMOUNT OF SINGLE TRANSACTION PUBLIC 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>
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.
18
<PAGE>
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 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
19
<PAGE>
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.
[OPEN SIDEBAR]
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.
[CLOSE SIDEBAR]
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PAYMENT MADE CDSC AS A PERCENTAGE 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>
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 5912);
(ii) distributions from an IRA or 403(b) Custodial Account following
attainment of age 5912; or (iii) a tax-free return of
20
<PAGE>
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.
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.
21
<PAGE>
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.
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.
22
<PAGE>
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.
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.
23
<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.
24
<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>
CLASS C++
<TABLE>
<CAPTION>
SELECTED PER-SHARE DATA
<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.
25
<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.
26
<PAGE>
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<PAGE>
NOTES
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28
<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>
MORGAN STANLEY DEAN WITTER
DIVERSIFIED INCOME TRUST
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.
[OPEN SIDEBAR]
TICKER SYMBOLS:
Class A: DINAX
- ------------------
Class B: DINBX
- ------------------
Class C: DINCX
- ------------------
Class D: DINDX
- ------------------
[CLOSE SIDEBAR]
(MORGAN STANLEY DEAN WITTER DIVERSIFIED INCOME TRUST; INVESTMENT COMPANY ACT
FILE NO. 811-6515)
