<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust Two World Trade Center,
Letter to the Shareholders October 31, 1999 New York, New York 10048
DEAR SHAREHOLDER:
During the fiscal year ended October 31, 1999, the performance of the
investment-grade global markets was disappointing. In contrast to the prior
fiscal year, when U.S. Treasury bond yields reached their lowest levels in
decades, the two-year Treasury note yield rose by 167 basis points. Prices in
many European bond markets reached new highs during the first half of the fiscal
year but eventually succumbed to accelerating economic growth. By the end of
October, yields on two-year German government bonds had risen by more than 65
basis points for the year. Moreover, the continuing strength of the U.S. dollar
relative to most other investment-grade currencies resulted in currency losses
for most non-dollar-denominated investments.
The U.S. and other high-grade government markets had been prime beneficiaries of
the flight to quality during the period through early October 1998. As normalcy
returned to the global financial markets and economic growth reaccelerated,
market participants sold their bonds, partly to seek higher returns from
equities but also out of fear that faster economic growth would cause inflation
to pick up. This anxiety was accentuated by rising prices for oil and industrial
commodities as the year progressed. This environment turned out to be especially
favorable for the U.S. dollar and the Japanese yen, at the expense of
investments denominated in other currencies.
DOMESTIC BOND MARKET OVERVIEW
During the 12-month period ended October 31, 1999, the U.S. economy continued
its path of strength and vigor, propelled by a rising stock market, low
unemployment, consumer confidence and increased liquidity provided by the
Federal Reserve Board. Prior to the start of the fiscal year, in the fall of
1998 the Fed reduced the federal-funds rate in three steps, from 5.5 percent to
4.75 percent, which diminished concerns about illiquidity arising from
international banks' exposure to Asia and Russia. As 1999 began, interest rates
started their steady climb while investors
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Letter to the Shareholders October 31, 1999, continued
displayed renewed confidence and appeared less risk averse. Then, with renewed
strength in the world economy and the threat of domestic inflation looming, the
Federal Reserve raised the federal-funds rate twice in the summer, to 5.25
percent.
Interest rates on long-term Treasuries were highly volatile over the course of
the past 12 months, with 30-year Treasuries ranging in yield between 4.96
percent and 6.38 percent. On October 31, 1999, the 30-year Treasury bond was
yielding 6.16 percent, compared to 5.16 percent a year earlier.
HIGH-YIELD MARKET OVERVIEW
The period under review was a difficult one for the high-yield bond market,
beginning with the fixed-income market's dramatic flight to quality during the
second half of 1998. In response to concerns about the rapidly escalating
foreign-market crisis and its potential effect on the U.S. economy, investors
sought the relative safety of U.S. government securities over more economically
sensitive investments such as equities and high-yield bonds. This movement
resulted in a sharp correction in the high-yield bond market, where prices
declined as much as 15 percent and yields rose from approximately 9 percent to
the 12-percent range. The high-yield market also experienced its own flight to
quality during late 1998, with the middle tier of the market (B-rated issues)
significantly underperforming the upper level (BB-rated issues), as a result of
investors' severe risk aversion.
As 1999 draws to a close, the high-yield market has yet to rebound from its woes
of late last year. Fears then about the foreign-market crisis have now been
replaced by concerns over potential inflation and ongoing credit-tightening
actions by the Federal Reserve. While the high-yield market held up better than
most other fixed-income markets during the first ten months of 1999, it clearly
remains quite weak, because of the depressed bond market environment that exists
today. As a result, yields on lower-rated corporate bonds are approaching their
highest and most attractive levels in nearly a decade, providing a significant
yield advantage over Treasuries.
PERFORMANCE
For the 12-month period ended October 31, 1999, Morgan Stanley Dean Witter
Diversified Income Trust's Class B shares posted a total return of -2.14
percent, compared to 0.99 percent for the Lehman Brothers Government/Corporate
Intermediate Bond Index and 3.54 percent for the Lipper Multi-Sector Income
Funds Average. For the same period, the Fund's Class A, C and D shares had total
returns of -1.61 percent, -2.25 percent and -1.42 percent, respectively. The
performance of the Fund's four share classes varies because of differing
expenses. (The total return figures shown assume the reinvestment of all
distributions and do not reflect the deduction of any applicable sales charges.)
The accompanying chart compares the Fund's performance to that of the Lipper and
Lehman indexes.
2
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Letter to the Shareholders October 31, 1999, continued
The Fund's underperformance relative to its Lipper peer group was primarily
reflective of the fact that most of the funds in this Lipper category include
emerging-market investments, which rebounded sharply during the period under
review. Emerging-market investments are not currently within the Fund's global
short-term bond component's investment mandate.
PORTFOLIO
As of October 31, 1999, the Fund's portfolio was divided equally among
high-quality shorter-term global securities, intermediate-term U.S. government
and agency mortgage-backed securities and long-term, lower-rated,
higher-yielding corporate bonds.
Global short-term securities component. Throughout the fiscal year, the Fund's
global short-term securities component continued its strategy of seeking the
best-performing markets within its upper investment-grade mandate while
maintaining attractive income levels. Its limited-duration exposure proved
helpful in a rising-interest-rate environment. As mandated in the prospectus,
all the securities in this portion of the Fund had maturities of less than three
years. As the fiscal year progressed, the component's average maturity was
shortened to well below two years. While this component had moderately
overweighted European currency exposure, it received some benefit from investing
in the relatively better performing Norwegian and Danish bond and currency
markets. Toward the end of the fiscal year, we built up investments in the
Eurozone market to 27 percent of the component's net assets, with the
expectation that this sector would enjoy improving performance in the months
ahead. As of October 31, 1999, the other key non-U.S. allocations were Denmark
(15 percent of the component's net assets), Norway (15 percent) and the United
Kingdom (13 percent).
In the months ahead, we anticipate a more favorable environment for the markets
within this Fund's investment mandate. We believe the factors that have been so
adverse for non-U.S. currencies are likely to become more benign during the
coming months. The European economies have been accelerating, whereas the U.S.
economy seems to have peaked. More recently, the European stock and bond markets
have been outperforming the U.S. markets. Thus, the magnetic attraction of the
U.S. economy for global funds is likely to weaken at a time when the United
States still needs to fund its outsized $300 billion current-account deficit.
U.S. government/mortgage component. During this fiscal year we increased the
U.S. government/mortgage component's weightings in mortgage-backed and agency
securities. Investors' preference for higher-yielding securities, as well as a
continued lack of new issuance, caused mortgages to outperform other U.S.
government securities during the period under review. This strategy has again
proven successful thus far in 1999 as the Fund's increased weighting in the
mortgage sector has mitigated a substantial amount of
3
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Letter to the Shareholders October 31, 1999, continued
the volatility experienced by the fixed-income markets during this year. On
October 31, 1999, the U.S. government/mortgage component was comprised of 75
percent mortgage-backed securities issued by the Federal National Mortgage
Association (FNMA), Government National Mortgage Association (GNMA) and the
Federal Home Loan Mortgage Corp. (FHLMC), with 6.0 percent to 8.5 percent
coupons, 7 percent in U.S. Treasuries and the balance in U.S. agency securities.
Long-term high-yield securities component. The high-yield, high-risk component
maintained a position in the more defensive, higher-quality end of the
high-yield market, which held up well in this period's volatile environment.
Despite these defensive holdings, however, the component's more significant,
long-term core position in the B-rated sector has been adversely affected by the
past year's weak market environment. In terms of investment strategy we continue
to concentrate on industry sectors that have historically proven to be more
predictable, recession resistant or growth oriented, such as cable television,
cellular, food and beverages, media, supermarkets and telecommunications. We
believe that these industry groups are poised to perform well over the next
year. We also expect to see continued consolidation and merger activity within
these industries, which should result in improved credit quality for many of the
industries' players. We continue to focus primarily on domestic companies, given
the favorable outlook for sustained growth in the U.S. economy, and are avoiding
the emerging high-yield international markets at this time because of the higher
degree of uncertainty and volatility associated with many of these markets over
the past few years.
LOOKING AHEAD
We believe the U.S. economy will continue to grow in the months ahead as low
unemployment and increased productivity will likely continue to confound the
tried-and-true economic models. If the domestic economy shows continued strength
along with increasing inflationary pressures, the Federal Reserve may need to
continue its path of tighter monetary policy. The Fund will continue to monitor
market conditions and look for attractive investment opportunities as they
become available.
We appreciate your ongoing support of Morgan Stanley Dean Witter Diversified
Income Trust and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
- -------------------------- ---------------------
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
4
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Fund Performance October 31, 1999
GROWTH OF $10,000 - CLASS B ($ IN THOUSANDS)
LEHMAN GOVT./CORP LIPPER MULTI-SECTOR
TOTAL INTERMEDIATE INDEX INC. FUNDS AVERAGE
April 9, 1992 $10,000 $10,000 $10,000
October 31, 1992 $10,373 $10,620 $10,388
October 31, 1993 $11,410 $11,676 $12,048
October 31, 1994 $11,332 $11,450 $11,700
October 31, 1995 $12,551 $12,886 $13,110
October 31, 1996 $13,742 $13,635 $14,751
October 31, 1997 $14,629 $14,656 $16,225
October 31, 1998 $14,955 $15,993 $16,156
October 31, 1999 $14,635 (3) $16,150 $16,728
--- FUND ---LEHMAN (4) ---LIPPER (5)
Past performance is not predictive of future returns. Performance for Class A,
Class C, and Class D shares will vary from the performance of Class B shares
shown above due to differences in sales charges and expenses.
Average Annual Total Returns
- --------------------------------------------------------------------------------
Class B Shares*
- ------------------------------------------------------
Period Ended 10/31/99
- ---------------------
1 year (2.14)%(1) (6.67)%(2)
5 years 5.25 %(1) 4.96 %(2)
From Inception (4/09/92) 5.17 %(1) 5.17 %(2)
Class C Shares++
- ------------------------------------------------------
Period Ended 10/31/99
- ---------------------
1 year (2.25)%(1) (3.16)%(2)
From Inception (7/28/97) 1.09 %(1) 1.09 %(2)
Class A Shares+
- ------------------------------------------------------
Period ended 10/31/99
- ---------------------
1 year (1.61)%(1) (5.79)%(2)
From Inception (7/28/97) 1.74 %(1) (0.19)%(2)
Class D Shares+++
- ------------------------------------------------------
Period Ended 10/31/99
- ---------------------
1 year (1.42)%(1)
From Inception (7/28/97) 1.96 %(1)
- -------------------
(1) Figure shown assumes reinvestment of all distributions and does not
reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction
of the maximum applicable sales charge. See the Fund's current prospectus
for complete details on fees and sales charges.
(3) Closing value assuming a complete redemption on October 31, 1999.
(4) The Lehman Brothers 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.
(5) 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, Inc..
* The maximum contingent deferred sales charge (CDSC) for Class B shares is
5.0%. The CDSC declines to 0% after six years.
+ The maximum front-end sales charge for Class A is 4.25%.
++ The maximum CDSC for Class C shares is 1% for shares redeemed within one
year of purchase.
+++ Class D shares have no sales charge.
5
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Portfolio of Investments October 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------- ----------- ---------- ------------
<S> <C> <C> <C>
GOVERNMENT & CORPORATE BONDS (93.4%)
FOREIGN (24.1%)
AUSTRALIA (1.3%)
Cable Television (0.0%)
$ 12,468 Australis Holdings Property Ltd. (a)...... 15.00++% 11/01/02 $ 249,360
90 Australis Media Ltd. (a) ................. 15.75++ 05/15/03 451
4,700 Australis Media Ltd. (Units)+++(a) ....... 15.75++ 05/15/03 23,500
------------
273,311
------------
Government Obligation (1.3%)
AUD 18,200 Queensland Treasury Corp. ................ 8.00 08/14/01 11,968,851
------------
TOTAL AUSTRALIA ....................................................... 12,242,162
------------
BERMUDA (0.2%)
Other Telecommunications
$ 1,800 Globenet Comm Group Ltd. -
144A* .................................. 13.00 07/15/07 1,804,500
------------
CANADA (1.4%)
Beverages - Non-Alcoholic (0.5%)
5,500 Sparkling Spring Water ................... 11.50 11/15/07 4,400,000
------------
Cellular Telephone (0.2%)
1,800 Clearnet Communications Inc. ............. 14.75++ 12/15/05 1,710,000
------------
Consumer Electronics/Appliances (0.1%)
12,061 International Semi-Tech
Microelectronics (a) ................... 11.50++ 08/15/03 603,050
------------
Consumer/Business Services (0.2%)
1,800 MDC Communication Corp. .................. 10.50 12/01/06 1,746,000
------------
Government & Agencies (0.2%)
GBP 1,141 Ontario (Province of) .................... 11.125 02/14/01 1,972,978
------------
Other Telecommunications (0.2%)
$ 1,800 Worldwide Fiber Inc. - 144A* ............. 12.00 08/01/09 1,800,000
------------
TOTAL CANADA .......................................................... 12,232,028
------------
DENMARK (4.9%)
Government Obligation
DKK 290,000 Kingdom of Denmark (b) ................... 8.00 11/15/01 43,977,416
------------
GERMANY (4.3%)
Government Obligations
EUR 18,250 Germany (Republic of) .................... 4.50 08/19/02 19,377,326
18,300 Germany (Republic of) .................... 4.50 05/17/02 19,441,993
------------
38,819,319
------------
NETHERLANDS (1.9%)
Government Obligation (1.7%)
13,500 Netherlands Government Bond .............. 8.50 03/15/01 15,091,326
------------
</TABLE>
See Notes to Financial Statements
6
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Portfolio of Investments October 31, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------- ---------- ---------- -----------
<S> <C> <C> <C>
Other Telecommunications (0.2%)
$ 1,800 Versatel Telecom ........................ 13.25 % 05/15/08 $ 1,800,000
-----------
TOTAL NETHERLANDS .................................................. 16,891,326
-----------
NEW ZEALAND (1.5%)
Extra Governmental Institutions - Banking
NZD 27,000 International Bank for
Reconstruction & Development (b)....... 7.25 04/09/01 13,821,464
-----------
NORWAY (4.8%)
Contract Drilling (0.3%)
$ 4,600 Northern Offshore ASA ................... 10.00 05/15/05 2,806,000
-----------
Government Obligation (4.5%)
NOK 311,800 Norway Government Bond (b) .............. 7.00 05/31/01 40,503,802
-----------
TOTAL NORWAY ....................................................... 43,309,802
-----------
UNITED KINGDOM (3.8%)
Cellular Telephone (0.2%)
$ 3,500 Dolphin Telecom PLC - 144A* ............. 14.00++ 05/15/09 1,382,500
-----------
Government Obligation (2.4%)
GBP 13,200 U.K. Treasury Bond ...................... 7.00 06/07/02 22,080,564
-----------
International Banks (1.0%)
5,600 Abbey National Treasury Service (b)...... 7.125 03/14/01 9,270,090
-----------
Other Telecommunications (0.2%)
$ 1,800 Esprit Telecom Group PLC ................ 10.875 06/15/08 1,818,000
-----------
TOTAL UNITED KINGDOM ............................................... 34,551,154
-----------
TOTAL FOREIGN (Identified Cost $242,445,538)........................ 217,649,171
-----------
UNITED STATES (69.3%)
CORPORATE BONDS (30.0%)
Advertising (0.4%)
3,200 Interep National Radio Sales ............ 10.00 07/01/08 3,176,000
-----------
Aerospace (0.2%)
2,700 Sabreliner Corp. - 144A* ................ 11.00 06/15/08 1,849,500
-----------
Broadcast/Media (1.2%)
5,000 Spanish Broadcasting System ............. 12.50 06/15/02 5,700,000
4,800 Tri-State Outdoor Media Group,
Inc. .................................. 11.00 05/15/08 4,704,000
-----------
10,404,000
-----------
Cable Television (0.8%)
5,600 21st Century Telecom Group, Inc.......... 12.25++ 02/15/08 2,520,000
575 James Cable Partners L.P. ............... 10.75 08/15/04 573,563
3,000 Knology Holdings Inc. ................... 11.875++ 10/15/07 1,680,000
3,700 Optel, Inc. (a) ......................... 13.00 02/15/05 1,221,000
4,500 Optel, Inc. (Series B) (a) .............. 11.50 07/01/08 1,485,000
-----------
7,479,563
-----------
</TABLE>
See Notes to Financial Statements
7
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Portfolio of Investments October 31, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------- ------------ ---------- -------------
<S> <C> <C> <C>
Casino/Gambling (1.1%)
$ 12,740 Aladdin Gaming Holdings/Capital
Corp. LLC ................................. 13.50++% 03/01/10 $ 4,968,600
8,900 Fitzgeralds Gaming Corp.
(Series B) (c) ............................ 12.25 12/15/04 4,895,000
------------
9,863,600
------------
Cellular Telephone (1.3%)
1,800 American Cellular Corp. ..................... 10.50 05/15/08 1,935,000
1,800 Dobson/Sygnet Communications ................ 12.25 12/15/08 1,930,500
7,300 McCaw International Ltd. .................... 13.00++ 04/15/07 4,567,975
3,000 Tritel PCS Inc. - 144A* ..................... 12.75++ 05/15/09 1,807,500
2,200 Triton Communications LLC ................... 11.00++ 05/01/08 1,518,000
------------
11,758,975
------------
Construction/Agricultural
Equipment/Trucks (0.3%)
2,800 J.B. Poindexter & Co., Inc. ................. 12.50 05/15/04 2,632,000
------------
Consumer Electronics/Appliances (0.3%)
2,700 Windmere-Durable Holdings, Inc. ............. 10.00 07/31/08 2,565,000
------------
Consumer Specialties (0.5%)
5,800 Samsonite Corp. ............................. 10.75 06/15/08 4,814,000
------------
Consumer/Business Services (1.2%)
1,200 Anacomp, Inc. (Series B) .................... 10.875 04/01/04 1,188,000
600 Anacomp, Inc. (Series D) .................... 10.875 04/01/04 594,000
6,750 Comforce Operating, Inc. .................... 12.00 12/01/07 4,725,000
7,600 Entex Information Services, Inc. ............ 12.50 08/01/06 4,180,000
------------
10,687,000
------------
Containers/Packaging (1.0%)
5,650 Envirodyne Industries, Inc. ................. 10.25 12/01/01 4,237,500
1,800 Impac Group Inc. (Series B) ................. 10.125 03/15/08 1,620,000
3,500 Packaging Resources, Inc. ................... 11.625 05/01/03 3,500,000
------------
9,357,500
------------
Diversified Electronic Products (0.3%)
2,700 High Voltage Engineering, Inc. .............. 10.50 08/15/04 2,484,000
------------
Diversified Financial Services (0.8%)
GBP 4,200 General Electric Capital Corp. (b) .......... 6.625 03/16/01 6,906,887
------------
Diversified Manufacturing (0.5%)
$ 1,800 Eagle-Picher Industries, Inc. ............... 9.375 03/01/08 1,530,000
2,588 Jordan Industries, Inc. (Series B) .......... 11.75++ 04/01/09 1,682,200
1,800 Jordan Industries, Inc. ..................... 10.375 08/01/07 1,656,000
------------
4,868,200
------------
Electronic Distributors (0.1%)
5,600 CHS Electronics, Inc. ....................... 9.875 04/15/05 448,000
------------
</TABLE>
See Notes to Financial Statements
8
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Portfolio of Investments October 31, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------- ----------- ---------- -------------
<S> <C> <C> <C>
Food Chains (0.8%)
$ 2,250 Big V Supermarkets, Inc.
(Series B) ........................... 11.00% 02/15/04 $ 2,266,875
1,000 Eagle Food Centers, Inc. ............... 8.625 04/15/00 900,000
5,000 Pueblo Xtra International, Inc.
(Series C) ........................... 9.50 08/01/03 3,750,000
------------
6,916,875
------------
Food Distributors (0.4%)
2,700 Fleming Companies, Inc. (Series B)...... 10.625 07/31/07 2,416,500
1,800 Volume Services of America Inc. ........ 11.25 03/01/09 1,773,000
------------
4,189,500
------------
Hotels/Resorts (0.8%)
2,700 Epic Resorts LLC (Series B) ............ 13.00 06/15/05 2,295,000
6,231 Motels of America, Inc. (Series B)...... 12.00 04/15/04 2,617,020
3,904 Resort At Summerlin .................... 13.00 12/15/07 2,733,003
------------
7,645,023
------------
Industrial Specialties (0.6%)
3,200 International Wire Group, Inc.
(Series B) ........................... 11.75 06/01/05 3,288,000
2,250 Outsourcing Services Group, Inc.
(Series B) ........................... 10.875 03/01/06 1,980,000
------------
5,268,000
------------
Major Banks (0.2%)
GBP 1,000 Morgan Guaranty Trust Corp. ............ 7.375 12/28/01 1,642,913
------------
Media Conglomerates (1.1%)
$ 9,800 Walt Disney Co. ........................ 13.50 03/10/00 10,065,482
------------
Medical Specialties (0.6%)
5,100 Mediq Inc./PRN Life Support
Services Inc. ....................... 11.00 06/01/08 1,683,000
5,400 Universal Hospital Services, Inc. ..... 10.25 03/01/08 3,780,000
------------
5,463,000
------------
Medical/Nursing Services (0.4%)
5,250 Pediatric Services of America, Inc.
(Series A) ........................... 10.00 04/15/08 3,255,000
------------
Military/Gov't/Technical (0.2%)
1,800 Loral Space & Communications
Ltd. ................................. 9.50 01/15/06 1,440,000
------------
Office Equipment/Supplies (0.4%)
4,230 Mosler, Inc. ........................... 11.00 04/15/03 3,341,700
------------
Oil Refining/Marketing (0.1%)
6,700 Transamerican Refining
Corp. (a) (c) ........................ 16.00 06/30/03 938,000
------------
</TABLE>
See Notes to Financial Statements
9
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Portfolio of Investments October 31, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------------- --------------- ---------- ---------------
<S> <C> <C> <C>
Other Telecommunications (3.9%)
$ 6,500 Birch Telecom Inc. ........................ 14.00 % 06/15/08 $ 6,435,000
3,000 DTI Holdings Inc. (Series B) .............. 12.50++ 03/01/08 1,080,000
6,400 Facilicom International, Inc.
(Series B) .............................. 10.50 01/15/08 5,760,000
16,300 Firstworld Communications, Inc. ........... 13.00++ 04/15/08 8,313,000
28,500 In-Flight Phone Corp.
(Series B) (a) (c) ...................... 14.00 05/15/02 3,135,000
2,700 Pac-West Telecommunications
Group, Inc. ............................. 13.50 02/01/09 2,747,250
3,500 Primus Telecommunications Group,
Inc. .................................... 11.75 08/01/04 3,430,000
2,700 Primus Telecommunications Group,
Inc. .................................... 9.875 05/15/08 2,376,000
1,800 Viatel, Inc. .............................. 11.25 04/15/08 1,710,000
------------
34,986,250
------------
Package Goods/Cosmetics (0.3%)
2,500 J.B. Williams Holdings, Inc. .............. 12.00 03/01/04 2,500,000
------------
Printing/Forms (0.3%)
2,700 Premier Graphics Inc. ..................... 11.50 12/01/05 2,457,000
------------
Restaurants (2.3%)
48,756 American Restaurant Group
Holdings, Inc. - 144A* (d) .............. 0.00 12/15/05 16,577,006
5,200 FRD Acquisition Corp. (Series B) .......... 12.50 07/15/04 2,964,000
1,800 Friendly Ice Cream Corp. .................. 10.50 12/01/07 1,530,000
------------
21,071,006
------------
Retail - Specialty (0.2%)
1,800 Pantry, Inc. .............................. 10.25 10/15/07 1,728,000
------------
Services to the Health Industry (0.2%)
1,800 Unilab Corp. .............................. 11.00 04/01/06 2,007,000
------------
Specialty Foods/Candy (0.7%)
44,552 SFAC New Holdings Inc. (d) ................ 13.00++ 06/15/09 6,682,757
------------
Telecommunications (2.8%)
1,800 CapRock Communications Corp.
(Series B) .............................. 12.00 07/15/08 1,773,000
3,600 Covad Communications Group,
Inc. .................................... 12.50 02/15/09 3,528,000
5,400 e. Spire Communications, Inc. ............. 13.75 07/15/07 4,644,000
2,700 Focal Communications Corp.
(Series B) .............................. 12.125++ 02/15/08 1,566,000
1,800 GST Equipment Funding ..................... 13.25 05/01/07 1,800,000
1,800 Hyperion Telecommunication, Inc.
(Series B) .............................. 12.25 09/01/04 1,912,500
1,800 Level 3 Communications, Inc. .............. 9.125 05/01/08 1,678,500
1,800 NextLink Communications LLC ............... 12.50 04/15/06 1,917,000
</TABLE>
See Notes to Financial Statements
10
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Portfolio of Investments October 31, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------- ----------- ----------- -----------
<S> <C> <C> <C>
$ 5,400 Rhythms Netconnections - 144A*......... 12.75 % 04/15/09 $ 4,833,000
3,000 Talton Holdings, Inc. (Series B) ...... 11.00 06/30/07 2,700,000
-----------
26,352,000
-----------
Telecommunications Equipment (0.1%)
10,500 FWT, Inc. (a) (c) ..................... 9.875 11/15/07 840,000
-----------
Wireless Communications (3.6%)
11,300 Advanced Radio Telecom Corp. .......... 14.00 02/15/07 9,944,000
900 Arch Escrow Corp. ..................... 13.75 04/15/08 657,000
21,800 CellNet Data Systems Inc. ............. 14.00++ 10/01/07 4,360,000
750 Globalstar LP/Capital Corp. ........... 11.375 02/15/04 405,000
1,000 Globalstar LP/Capital Corp. ........... 10.75 11/01/04 530,000
1,850 Globalstar LP/Capital Corp. ........... 11.50 06/01/05 1,017,500
3,500 Orbcomm Global LP/Capital Corp. 14.00 08/15/04 2,870,000
4,600 Paging Network, Inc. .................. 10.125 08/01/07 1,426,000
8,300 Paging Network, Inc. .................. 10.00 10/15/08 2,573,000
5,850 USA Mobile Communications
Holdings, Inc. ...................... 14.00 11/01/04 5,177,250
3,250 Winstar Equipment Corp. ............... 12.50 03/15/04 3,347,500
-----------
32,307,250
-----------
TOTAL CORPORATE BONDS
(Identified Cost $359,780,295)..................................... 270,390,981
-----------
MORTGAGE-BACKED SECURITIES (25.5%)
Federal Home Loan Mortgage Corp. (0.3%)
1,989 ...................................... 7.00 04/01/04 1,986,937
826 ...................................... 8.00 10/01/24 843,333
-----------
2,830,270
-----------
Federal National Mortgage Assoc. (12.7%)
37,828 ...................................... 6.00 02/01/11-
11/01/28 36,108,134
35,767 ...................................... 6.50 11/01/08-
12/01/23 34,593,914
23,008 ...................................... 7.00 10/01/08-
04/01/17 22,601,969
10,199 ...................................... 7.50 12/01/22 10,218,596
3,771 ...................................... 8.00 10/01/01-
06/01/22 3,840,219
6,598 ...................................... 8.50 07/01/17 6,826,545
-----------
114,189,377
-----------
Government National Mortgage Assoc. (12.5%)
22,953 ...................................... 6.00 10/15/23 21,289,294
39,182 ...................................... 6.50 11/20/23-
05/15/24 37,407,754
25,511 ...................................... 7.00 12/15/22-
02/20/26 24,986,001
</TABLE>
See Notes to Financial Statements
11
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Portfolio of Investments October 31, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------- ------------ ------------ --------------
<S> <C> <C> <C>
$ 23,837 ....................................... 7.50 % 05/15/17-
07/20/25 $23,881,679
3,935 ....................................... 8.00 08/15/22 4,019,754
1,365 ....................................... 8.50 08/15/22 1,418,819
-----------
113,003,301
-----------
TOTAL MORTGAGE-BACKED SECURITIES
(Identified Cost $234,666,947)................................... 230,022,948
-----------
U.S. GOVERNMENT AGENCIES & OBLIGATIONS (13.8%)
Federal Home Loan Banks (b) (1.5%)
5,000 ....................................... 0.00 07/02/12 1,831,400
5,000 ....................................... 6.37 09/25/07 4,892,600
5,000 ....................................... 6.385 10/23/07 4,896,550
2,000 ....................................... 5.45 01/12/09 1,816,940
-----------
13,437,490
-----------
10,000 Federal Home Loan Mortgage
Corp. (1.0%) ........................ 0.00 08/15/02 8,394,400
-----------
Federal National Mortgage Assoc. (b) (2.1%)
NZD 28,230 ....................................... 7.00 09/26/00 14,397,070
$ 6,000 Principal Strips ...................... 0.00 02/12/04-
02/01/05 4,326,610
-----------
18,723,680
-----------
13,475 Financing Corp. (1.0%) ................ 0.00 03/07/05-
04/06/06 9,175,901
-----------
3,000 Freddie Mac (0.3%) .................... 5.75 04/15/08 2,813,850
-----------
22,232 Resolution Funding Corp. (1.7%) ....... 0.00 04/15/05-
10/15/07 15,270,473
-----------
2,320 Tennessee Valley Authority (0.2%)...... 0.00 01/15/03 1,880,801
-----------
U.S. Treasury Notes (b) (6.0%)
7,500 ....................................... 5.625 02/15/06-
05/15/08 7,262,425
13,000 ....................................... 6.125 08/15/07 12,957,620
32,000 ....................................... 6.25 01/31/02 32,270,400
2,000 ....................................... 6.375 09/30/01 2,020,000
-----------
54,510,445
-----------
TOTAL U.S. GOVERNMENT AGENCIES & OBLIGATIONS
(Identified Cost $127,696,191)................................... 124,207,040
-----------
TOTAL UNITED STATES (Identified Cost $722,143,433)............... 624,620,969
-----------
TOTAL GOVERNMENT & CORPORATE BONDS
(Identified Cost $964,588,971)................................... 842,270,140
-----------
</TABLE>
See Notes to Financial Statements
12
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Portfolio of Investments October 31, 1999, continued
NUMBE OF
SHARES VALUE
- ----------- -----------
COMMON STOCKS (e) (0.2%)
Casino/Gambling (0.0%)
10,773 Fitzgerald Gaming Corp. (Class D)* ................... $ 11
----------
Cellular Telephone (0.0%)
1 Price Communications Corp. ........................... 22
----------
Clothing/Shoe/Accessory Stores (0.0%)
1,310,596 County Seat Stores, Inc. (d) ......................... 11,795
----------
Hotels/Resorts (0.0%)
2,000 Motels of America, Inc. - 144A* ...................... 500
Medical/Nursing Services (0.2%) ----------
512,862 Raintree Healthcare Corp. (d) ........................ 1,384,727
----------
Restaurants (0.0%)
6,000 American Restaurant Group Holdings, Inc. - 144A* ..... 1,500
----------
Specialty Foods/Candy (0.0%)
2,423 SFAC New Holdings Inc. (d)* .......................... 606
198,750 Specialty Foods Acquisition Corp. - 144A* ............ 49,688
----------
50,294
----------
Textiles (0.0%)
298,462 United States Leather, Inc. (d) ...................... 373,077
----------
TOTAL COMMON STOCKS
(Identified Cost $18,740,864)......................... 1,821,926
----------
CONVERTIBLE PREFERRED STOCKS (0.2%)
Oil & Gas Production (0.0%)
1,273 XCL Ltd.+ - 144A* .................................... 2,547
5,000 XCL Ltd.+++ (Units) + - 144A* ........................ 10,000
----------
12,547
----------
Oil Refining/Marketing (0.0%)
11,760 TCR Holding Corp. (Class B) (Non-Voting) ............. 117
6,468 TCR Holding Corp. (Class C) (Non-Voting) ............. 65
17,052 TCR Holding Corp. (Class D) (Non-Voting) ............. 171
35,280 TCR Holding Corp. (Class E) (Non-Voting) ............. 353
----------
706
----------
Restaurants (0.2%)
1,780 American Restaurant Group Holdings, Inc. (Non-Conv.)+ 1,602,000
----------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Identified Cost $2,785,241).......................... 1,615,253
----------
See Notes to Financial Statements
13
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Portfolio of Investments October 31, 1999, continued
<TABLE>
<CAPTION>
NUMBE OF EXPIRATION
WARRANTS DATE VALUE
- -------- --------- -----------
<S> <C> <C> <C> <C>
WARRANTS (e) (0.2%)
Aerospace (0.0%)
1,000 Sabreliner Corp. - 144A* ................................ 04/15/03 $ 10,000
-----------
Broadcasting (0.0%)
4,000 UIH Australia/Pacific Inc. .............................. 05/15/06 100,000
-----------
Casino/Gambling (0.0%)
68,000 Aladdin Gaming Enterprises, Inc. - 144A*................. 03/01/10 680
-----------
Cellular Telephone (0.0%)
5,300 McCaw International Ltd. - 144A* ........................ 04/15/07 13,250
-----------
Hotels/Resorts (0.0%)
2,700 Epic Resorts LLC/Capital - 144A* ........................ 06/15/05 27
3,250 Resort At Summerlin - 144A* ............................. 12/15/07 32
-----------
59
-----------
Oil Refining/Marketing (0.0%)
6,700 Transamerican Refining Corp. - 144A*..................... 06/30/03 7
-----------
Other Telecommunications (0.2%)
6,500 Birch Telecom Inc. - 144A* .............................. 06/15/08 357,500
15,000 DTI Holdings Inc. - 144A* ............................... 03/01/08 150
16,300 Firstworld Communications, Inc. - 144A*.................. 04/15/08 1,141,000
2,800 Versatel Telecom - 144A* (Netherlands)................... 05/15/08 406,000
-----------
1,904,650
-----------
Restaurants (0.0%)
1,500 American Restaurant Group Holdings, Inc.
- 144A* ............................................... 08/15/08 15
-----------
TOTAL WARRANTS
(Identified Cost $31,714).......................................... 2,028,661
-----------
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- ------------ ------------ ----------
SHORT-TERM INVESTMENTS (4.3%)
UNITED STATES
TIME DEPOSITS (f) (3.7%)
EUR 25,811 Chase Manhattan Bank ................. 2.45 % 11/03/99 27,219,884
NOK 26,605 Chase Manhattan Bank ................. 5.25 11/03/99 3,399,272
CHF 5,075 Chase Manhattan Bank ................. 1.00 11/03/99 3,335,409
------------
TOTAL TIME DEPOSITS
(Identified Cost $34,492,340)................................. 33,954,565
------------
REPURCHASE AGREEMENT (0.6%)
$ 5,097 The Bank of New York (dated
10/29/99; proceeds $5,099,029) (g)
(Identified Cost $5,096,825)........ 5.188 11/01/99 5,096,825
------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $39,589,165)................................. 39,051,390
------------
</TABLE>
See Notes to Financial Statements
14
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Portfolio of Investments October 31, 1999, continued
VALUE
------------
TOTAL INVESTMENTS
(Identified Cost $1,025,735,955)(h)..... 98.3% $886,787,370
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES ............................ 1.7 15,090,282
----- ------------
NET ASSETS ............................. 100.0% $901,877,652
===== ============
- ------------------
* Resale is restricted to qualified institutional investors.
+++ Consists of one or more class of securities traded together as a unit;
stocks or bonds with attached warrants.
+ Payment-in-kind security.
++ Currently a zero coupon bond and will pay interest at the rate shown at
a future date.
(a) Issuer in bankruptcy.
(b) Some or all of these securities are segregated in connection with open
forward foreign currency contracts and securities purchased on a forward
commitment basis.
(c) Non-income producing security; bond in default.
(d) Acquired through exchange offer.
(e) Non-income producing securities.
(f) Subject to withdrawal restrictions until maturity.
(g) Collateralized by $4,360,413 U.S. Treasury Bond 8.125% due 08/15/19
valued at $5,198,762.
(h) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$7,114,719 and the aggregate gross unrealized depreciation is
$146,063,304, resulting in net unrealized depreciation of $138,948,585.
See Notes to Financial Statements
15
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Portfolio of Investments October 31, 1999, continued
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT OCTOBER 31, 1999:
CONTRACTS IN EXCHANGE DELIVERY UNREALIZED
TO DELIVER FOR DATE APPRECIATION
- -------------------- ------------- ---------- -------------
GBP 4,574,700 $ 7,650,271 11/26/99 $129,037
AUD 19,122,000 $12,448,422 11/29/99 278,608
EUR 14,084,351 $14,929,412 11/29/99 43,755
NZD 9,891,134 $ 5,097,495 11/29/99 85,360
NZD 30,572,032 $15,770,888 11/29/99 279,123
--------
Total unrealized appreciation ............... $815,883
========
Currency Abbreviations:
- -----------------------
AUD Australian Dollar.
GBP British Pound.
DKK Danish Krone.
EUR Euro.
NZD New Zealand Dollar.
NOK Norwegian Krone.
CHF Swiss Franc.
See Notes to Financial Statements
16
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities, at value
(identified cost $1,025,735,955)........................................ $ 886,787,370
Unrealized appreciation on open forward foreign currency contracts ....... 815,883
Cash (including $15,793 in foreign currency).............................. 19,405,341
Receivable for:
Interest .............................................................. 18,604,011
Shares of beneficial interest sold .................................... 692,513
Investments sold ...................................................... 550,000
Prepaid expenses and other assets ........................................ 80,119
--------------
TOTAL ASSETS .......................................................... 926,935,237
--------------
LIABILITIES :
Payable for:
Investments purchased ................................................. 23,232,402
Shares of beneficial interest repurchased ............................. 678,004
Plan of distribution fee .............................................. 648,710
Investment management fee ............................................. 312,375
Accrued expenses and other payables ...................................... 186,094
--------------
TOTAL LIABILITIES ..................................................... 25,057,585
--------------
NET ASSETS ............................................................ $ 901,877,652
==============
COMPOSITION OF NET ASSETS :
Paid-in-capital .......................................................... $1,066,716,329
Net unrealized depreciation .............................................. (138,213,933)
Dividends in excess of net investment income ............................. (2,194,141)
Accumulated net realized loss ............................................ (24,430,603)
--------------
NET ASSETS ............................................................ $ 901,877,652
==============
CLASS A SHARES:
Net Assets ............................................................... $21,828,073
Shares Outstanding (unlimited authorized, $.01 par value)................. 2,676,009
NET ASSET VALUE PER SHARE ............................................. $8.16
=====
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 4.44% of net asset value) ....................... $8.52
=====
CLASS B SHARES:
Net Assets ............................................................... $859,553,262
Shares Outstanding (unlimited authorized, $.01 par value)................. 105,352,476
NET ASSET VALUE PER SHARE ............................................. $8.16
=====
CLASS C SHARES:
Net Assets ............................................................... $19,450,430
Shares Outstanding (unlimited authorized, $.01 par value)................. 2,387,310
NET ASSET VALUE PER SHARE ............................................. $8.15
=====
CLASS D SHARES:
Net Assets ............................................................... $1,045,887
Shares Outstanding (unlimited authorized, $.01 par value)................. 128,252
NET ASSET VALUE PER SHARE ............................................. $8.15
=====
</TABLE>
See Notes to Financial Statements
17
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Financial Statements, continued
STATEMENT OF OPERATIONS
For the year ended October 31, 1999
<TABLE>
<CAPTION>
NET INVESTMENT INCOME:
<S> <C>
INTEREST INCOME ...................................................... $ 94,077,232
------------
EXPENSES
Plan of distribution fee (Class A shares) ............................ 38,350
Plan of distribution fee (Class B shares) ............................ 8,277,812
Plan of distribution fee (Class C shares) ............................ 164,809
Investment management fee ............................................ 4,056,513
Transfer agent fees and expenses ..................................... 701,621
Custodian fees ....................................................... 273,617
Registration fees .................................................... 115,501
Shareholder reports and notices ...................................... 114,012
Professional fees .................................................... 113,437
Trustees' fees and expenses .......................................... 16,958
Other ................................................................ 20,341
------------
TOTAL EXPENSES .................................................... 13,892,971
------------
NET INVESTMENT INCOME ............................................. 80,184,261
------------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss on:
Investments ....................................................... (14,070,175)
Foreign exchange transactions ..................................... (4,382,219)
------------
NET LOSS .......................................................... (18,452,394)
------------
Net change in unrealized appreciation/depreciation on:
Investments ....................................................... (84,770,503)
Translation of forward foreign currency contracts, other assets and
liabilities denominated in foreign currencies ................... 1,394,160
------------
NET DEPRECIATION .................................................. (83,376,343)
------------
NET LOSS .......................................................... (101,828,737)
------------
NET DECREASE ......................................................... $(21,644,476)
============
</TABLE>
See Notes to Financial Statements
18
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Financial Statements, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
------------------ -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income .................................... $ 80,184,261 $ 74,016,906
Net realized loss ........................................ (18,452,394) (8,648,510)
Net change in unrealized depreciation .................... (83,376,343) (43,833,349)
-------------- --------------
NET INCREASE (DECREASE) ............................... (21,644,476) 21,535,047
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A shares ........................................ (1,474,948) (841,473)
Class B shares ........................................ (64,975,880) (68,434,466)
Class C shares ........................................ (1,307,832) (726,141)
Class D shares ........................................ (67,347) (29,053)
Paid-in-capital:
Class A shares ........................................ (204,223) (31,733)
Class B shares ........................................ (8,996,654) (2,580,756)
Class C shares ........................................ (181,085) (27,384)
Class D shares ........................................ (9,325) (1,096)
-------------- --------------
TOTAL DIVIDENDS AND DISTRIBUTIONS ..................... (77,217,294) (72,672,102)
-------------- --------------
Net increase (decrease) from transactions in shares of
beneficial interest .................................... (54,811,256) 181,982,946
-------------- --------------
NET INCREASE (DECREASE) ............................... (153,673,026) 130,845,891
NET ASSETS:
Beginning of period ...................................... 1,055,550,678 924,704,787
-------------- --------------
END OF PERIOD
(Including dividends in excess of net investment
income of $2,194,141 and $1,230,297, respectively)..... $ 901,877,652 $1,055,550,678
============== ==============
</TABLE>
See Notes to Financial Statements
19
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Notes to Financial Statements October 31, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Diversified Income Trust (the "Fund") is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
diversified, open-end management investment company. The Fund's primary
investment objective is to provide a high level of current income and, as a
secondary objective, seeks to maximize total return, but only when consistent
with its primary objective. The Fund was organized as a Massachusetts business
trust on December 20, 1991 and commenced operations on April 9, 1992. On July
28, 1997, the Fund converted to a multiple class share structure.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase and some
Class A shares, and most Class B shares and Class C shares, are subject to a
contingent deferred sales charge imposed on shares redeemed within one year, six
years and one year, respectively. Class D shares are not subject to a sales
charge. Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS - (1) an equity security listed or traded on the New
York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (in
cases where securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market by the Trustees); (2)
all other portfolio securities for which over-the-counter market quotations are
readily available are valued at the latest available bid price prior to the time
of valuation; (3) when market quotations are not readily available, including
circumstances under which it is determined by Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Manager") that sale or bid prices are not
reflective of a security's market value, portfolio securities are valued at
their fair value as determined in good faith under procedures established by and
under the general supervision of the Trustees; (4) certain portfolio securities
may be valued by an outside pricing service approved by the Trustees. The
pricing service may utilize a matrix system incorporating security quality,
maturity and coupon as the evaluation model parameters, and/or research and
evaluations by its staff, including review of broker-dealer market price
quotations, if available, in determining what it believes is the fair valuation
of the portfolio securities valued by such pricing service; and (5) short-term
debt securities having a
20
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Notes to Financial Statements October 31, 1999, continued
maturity date of more than sixty days at time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost based on their value on the 61st day. Short-term debt securities
having a maturity date of sixty days or less at the time of purchase are valued
at amortized cost.
B. ACCOUNTING FOR INVESTMENTS - Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS - Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. FOREIGN CURRENCY TRANSLATION - The books and records of the Fund are
maintained in U.S. dollars as follows: (1) the foreign currency market value of
investment securities, other assets and liabilities and forward foreign currency
contracts are translated at the exchange rates prevailing at the end of the
period; and (2) purchases, sales, income and expenses are translated at the
exchange rates prevailing on the respective dates of such transactions. The
resultant exchange gains and losses are included in the Statement of Operations
as realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a reduction
of ordinary income for federal income tax purposes. The Fund does not isolate
that portion of the results of operations arising as a result of changes in the
foreign exchange rates from the changes in the market prices of the securities.
E. FORWARD FOREIGN CURRENCY CONTRACTS - The Fund may enter into forward foreign
currency contracts which are valued daily at the appropriate exchange rates. The
resultant unrealized exchange gains and losses are included in the Statement of
Operations as unrealized foreign currency gain or loss. The Fund records
realized gains or losses on delivery of the currency or at the time the forward
contract is extinguished (compensated) by entering into a closing transaction
prior to delivery.
F. FEDERAL INCOME TAX STATUS - It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
G. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - The Fund records dividends and
distributions to its shareholders on the record date. The amount of dividends
and distributions from net investment income and net realized capital gains are
determined in accordance with federal income tax regulations which may
21
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Notes to Financial Statements October 31, 1999, continued
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.40% to the net assets of the Fund determined as of the close of
each business day.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors
Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has
adopted a Plan of Distribution (the "Plan"), pursuant to Rule 12b-1 under the
Act. The Plan provides that the Fund will pay the Distributor a fee which is
accrued daily and paid monthly at the following annual rates: (i) Class A - up
to 0.25% of the average daily net assets of Class A; (ii) Class B - 0.85% of the
lesser of: (a) the average daily aggregate gross sales of the Class B shares
since inception of the Fund (not including reinvestment of dividend or capital
gain distributions) less the average net asset value of the Class B shares
redeemed since the Fund's inception upon which a contingent deferred sales
charge has been imposed or waived; or (b) the average daily net assets of Class
B; and (iii) Class C - up to 0.85% of the average daily net assets of Class C.
In the case of Class A shares, amounts paid under the Plan are paid to the
Distributor for services provided. In the case of Class B and Class C shares,
amounts paid under the Plan are paid to the Distributor for (1) services
provided and the expenses borne by it and others in the distribution of the
shares of these
22
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Notes to Financial Statements October 31, 1999, continued
Classes, including the payment of commissions for sales of these Classes and
incentive compensation to, and expenses of, Morgan Stanley Dean Witter Financial
Advisors and others who engage in or support distribution of the shares or who
service shareholder accounts, including overhead and telephone expenses; (2)
printing and distribution of prospectuses and reports used in connection with
the offering of these shares to other than current shareholders; and (3)
preparation, printing and distribution of sales literature and advertising
materials. In addition, the Distributor may utilize fees paid pursuant to the
Plan, in the case of Class B shares, to compensate Dean Witter Reynolds Inc.
("DWR"), an affiliate of the Investment Manager and Distributor, and other
selected broker-dealers for their opportunity costs in advancing such amounts,
which compensation would be in the form of a carrying charge on any unreimbursed
expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $15,033,265 at October 31, 1999.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 0.85% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the year ended October 31, 1999, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.19% and
0.85%, respectively.
The Distributor has informed the Fund that for the year ended October 31, 1999,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class A shares, Class B shares and Class C shares of $9,748, $1,855,516
and $18,712 , respectively and received $59,153 in front-end sales charges from
sales of the Fund's Class A shares. The respective shareholders pay such charges
which are not an expense of the Fund.
23
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Notes to Financial Statements October 31, 1999, continued
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended October 31, 1999 aggregated
$687,350,486 and $791,809,606, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $160,588,132 and
$226,307,765, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At October 31, 1999, the Fund had
transfer agent fees and expenses payable of approximately $1,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended October 31, 1999 included
in Trustees' fees and expenses in the Statement of Operations amounted to
$5,065. At October 31, 1999, the Fund had an accrued pension liability of
$39,248 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. FEDERAL INCOME TAX STATUS
At October 31, 1999, the Fund had a net capital loss carryover of approximately
$24,281,000, which may be used to offset future capital gains to the extent
provided by regulations, which is available through October 31 of the following
years:
AMOUNTS IN THOUSANDS
- -----------------------------------------------------------------------
2002 2003 2004 2005 2006 2007
- ----------- --------- --------- --------- --------- ---------
$3,024 $3,677 $2,482 $7,131 $3,233 $4,734
====== ====== ====== ====== ====== ======
As of October 31, 1999, the Fund had temporary book/tax differences primarily
attributable to the mark-to-market of open forward foreign currency exchange
contracts and compensated forward foreign currency exchange contracts, capital
loss deferrals on wash sales and interest on bonds in default and permanent
book/tax differences attributable to foreign currency losses. To reflect
reclassifications arising from the permanent differences, dividends in excess of
net investment income was charged and accumulated net realized loss was credited
$13,322,098.
24
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Notes to Financial Statements October 31, 1999, continued
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
-------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold ................................................ 2,848,419 $ 24,256,392 1,401,139 $ 13,091,543
Reinvestment of dividends and distributions ......... 65,553 563,411 27,410 253,604
Redeemed ............................................ (1,917,929) (16,068,227) (270,021) (2,522,912)
---------- -------------- --------- --------------
Net increase - Class A .............................. 996,043 8,751,576 1,158,528 10,822,235
---------- -------------- --------- --------------
CLASS B SHARES
Sold ................................................ 46,504,109 405,026,436 62,883,534 586,332,969
Reinvestment of dividends and distributions ......... 3,786,566 32,666,180 3,352,666 31,127,964
Redeemed ............................................ (58,638,989) (507,410,583) (49,343,181) (459,483,799)
----------- -------------- ----------- --------------
Net increase (decrease) - Class B ................... (8,348,314) (69,717,967) 16,893,019 157,977,134
----------- -------------- ----------- --------------
CLASS C SHARES
Sold ................................................ 1,432,185 12,480,926 1,498,137 13,967,448
Reinvestment of dividends and distributions ......... 94,887 815,013 46,283 427,613
Redeemed ............................................ (880,512) (7,540,173) (202,794) (1,873,959)
----------- -------------- ----------- --------------
Net increase - Class C .............................. 646,560 5,755,766 1,341,626 12,521,102
----------- -------------- ----------- --------------
CLASS D SHARES
Sold ................................................ 82,581 708,190 76,565 707,582
Reinvestment of dividends and distributions ......... 5,374 46,101 1,631 15,003
Redeemed ............................................ (41,881) (354,922) (6,535) (60,110)
----------- -------------- ----------- --------------
Net increase - Class D .............................. 46,074 399,369 71,661 662,475
----------- -------------- ----------- --------------
Net increase (decrease) in Fund ..................... (6,659,637) $ (54,811,256) 19,464,834 $ 181,982,946
=========== ============== =========== ==============
</TABLE>
7. PURPOSE OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward contracts")
to facilitate settlement of foreign currency denominated portfolio transactions
or to manage its foreign currency exposure or to sell, for a fixed amount of
U.S. dollars or other currency, the amount of foreign currency approximating the
value of some or all of its holdings denominated in such foreign currency or an
amount of foreign currency other than the currency in which the securities to be
hedged are denominated approximating the value of some or all of its holdings to
be hedged. Additionally, when the Investment Manager anticipates purchasing
securities at some time in the future, the Fund may enter into a forward
contract to purchase an amount of currency equal to some or all the value of the
anticipated purchase for a fixed amount of U.S. dollars or other currency.
25
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Notes to Financial Statements October 31, 1999, continued
To hedge against adverse interest rate, foreign currency and market risks, the
Fund may enter into written options on interest rate futures and interest rate
futures contracts ("derivative investments").
Forward contracts and derivative instruments involve elements of market risk in
excess of the amount reflected in the Statement of Assets and Liabilities. The
Fund bears the risk of an unfavorable change in the foreign exchange rates
underlying the forward contracts. Risks may also arise upon entering into these
contracts from the potential inability of the counterparties to meet the terms
of their contracts.
At October 31, 1999, there were outstanding forward contracts used to facilitate
settlement of foreign currency denominated portfolio transactions and manage
foreign currency exposure.
26
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Financial Highlights
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31, 1997
------------------ ------------------ -----------------
<S> <C> <C> <C>
CLASS A SHARES +++
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $ 9.01 $ 9.46 $ 9.40
-------- -------- --------
Income (loss) from investment operations:
Net investment income ................................. 0.74 0.74 0.22
Net realized and unrealized gain (loss) ............... (0.87) (0.46) 0.04
-------- -------- --------
Total income (loss) from investment operations ......... (0.13) 0.28 0.26
-------- -------- --------
Less dividends and distributions from:
Net investment income ................................. (0.63) (0.70) (0.20)
Paid-in-capital ....................................... (0.09) (0.03) -
-------- -------- --------
Total dividends and distributions ...................... (0.72) (0.73) (0.20)
-------- -------- --------
Net asset value, end of period ......................... $ 8.16 $ 9.01 $ 9.46
======== ======== ========
TOTAL RETURN+ ......................................... (1.61)% 2.86% 2.74%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 0.72 %(3) 0.77%(3) 0.85%(2)
Net investment income .................................. 8.56 %(3) 7.94%(3) 8.98%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $21,828 $15,130 $4,933
Portfolio turnover rate ................................ 71 % 130% 104%
</TABLE>
- -------------
* The date shares were first issued.
+++ 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) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
See Notes to Financial Statements
27
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31
--------------------------------------------------------------------------
1999+++ 1998+++ 1997*+++ 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $ 9.01 $ 9.46 $ 9.78 $ 9.62 $ 9.37
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income ................................. 0.68 0.68 0.74 0.78 0.77
Net realized and unrealized gain (loss) ............... (0.87) (0.46) (0.15) 0.10 0.20
------- ------- ------- ------- -------
Total income (loss) from investment operations ......... (0.19) 0.22 0.59 0.88 0.97
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income ................................. (0.58) (0.65) (0.91) (0.72) (0.72)
Paid-in-capital ....................................... (0.08) (0.02) - - -
Total dividends and distributions ...................... (0.66) (0.67) (0.91) (0.72) (0.72)
------- ------- ------- ------- -------
Net asset value, end of period ......................... $ 8.16 $ 9.01 $ 9.46 $ 9.78 $ 9.62
======= ======= ======= ======= =======
TOTAL RETURN+ .......................................... (2.14)% 2.23% 6.46% 9.49% 10.76%
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 1.38 %(1) 1.38%(1) 1.40% 1.42% 1.44%
Net investment income .................................. 7.90 %(1) 7.33%(1) 7.90% 8.38% 8.30%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $ 859,553 $1,024,021 $915,899 $745,581 $542,544
Portfolio turnover rate ................................ 71 % 130% 104% 82% 87%
</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.
See Notes to Financial Statements
28
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31, 1997
------------------ ------------------ -----------------
<S> <C> <C> <C>
CLASS C SHARES+++
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $ 9.00 $ 9.45 $ 9.40
------- ------- -------
Income (loss) from investment operations:
Net investment income ................................. 0.68 0.68 0.20
Net realized and unrealized gain (loss) ............... (0.87) (0.46) 0.04
------- ------- -------
Total income (loss) from investment operations ......... (0.19) 0.22 0.24
------- ------- -------
Less dividends and distributions from:
Net investment income ................................. (0.58) (0.65) (0.19)
Paid-in-capital ....................................... (0.08) (0.02) -
------- ------- -------
Total dividends and distributions ...................... (0.66) (0.67) (0.19)
------- ------- -------
Net asset value, end of period ......................... $ 8.15 $ 9.00 $ 9.45
======= ======= =======
TOTAL RETURN+ .......................................... (2.25)% 2.26% 2.52%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 1.38 %(3) 1.38%(3) 1.44%(2)
Net investment income .................................. 7.90 %(3) 7.33%(3) 8.17%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $19,450 $15,659 $3,773
Portfolio turnover rate ................................ 71 % 130% 104%
</TABLE>
- --------------
* The date shares were first issued.
+++ 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) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
See Notes to Financial Statements
29
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Financial Highlights, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31, 1997
------------------ ------------------ -----------------
<S> <C> <C> <C>
CLASS D SHARES+++
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $ 9.00 $ 9.45 $ 9.40
------- ------- -------
Income (loss) from investment operations:
Net investment income ................................. 0.76 0.76 0.23
Net realized and unrealized gain (loss) ............... (0.88) (0.46) 0.02
------- ------- -------
Total income (loss) from investment operations ......... (0.12) 0.30 0.25
------- ------- -------
Less dividends and distributions from:
Net investment income ................................. (0.64) (0.72) (0.20)
Paid-in-capital ....................................... (0.09) (0.03) -
------- ------- -------
Total dividends and distributions ...................... (0.73) (0.75) (0.20)
------- ------- -------
Net asset value, end of period ......................... $ 8.15 $ 9.00 $ 9.45
======= ======= =======
TOTAL RETURN+ ......................................... (1.42)% 3.21% 2.69%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................................... 0.53 %(3) 0.53%(3) 0.59%(2)
Net investment income .................................. 8.75 %(3) 8.18%(3) 9.26%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $1,046 $740 $99
Portfolio turnover rate ................................ 71 % 130% 104%
</TABLE>
- --------------
* The date shares were first issued.
+++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
See Notes to Financial Statements
30
<PAGE>
Morgan Stanley Dean Witter Diversified Income Trust
Report of Independent Accountants
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER DIVERSIFIED INCOME TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter
Diversified Income Trust (the "Fund") at October 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1999 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
December 20, 1999
31
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
Peter M. Avelar
Vice President
Rajesh K. Gupta
Vice President
Peter J. Seeley
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of
the Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus. Read the
prospectus carefully before investing.
MORGAN STANLEY
DEAN WITTER
DIVERSIFIED
INCOME TRUST
ANNUAL REPORT
OCTOBER 31, 1999
