<PAGE> 1
DEAN WITTER GOVERNMENT INCOME TRUST
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- --------------------------------------------------------------------------------
At the beginning of Dean Witter Government Income Trust's fiscal year, the
five-year U.S. Treasury note was yielding 4.77 percent. Over the course of the
next 12 months, interest rates rose significantly from historical lows in
September and October 1993 on signs of economic strength and heightened
inflationary fears. Simultaneously, consumer spending increased as 1993's
mortgage refinancings generated increased disposable income. Retail, home and
automobile sales also rose rapidly in conjunction with higher levels of
employment.
This scenario induced the Federal Reserve Board to forego its accommodative
monetary policy. In early February of this year the central bank initiated a
series of interest-rate increases that brought the federal-funds rate - the
interest rate banks charge each other for overnight loans - from 3.00 percent to
4.75 percent. The Federal Reserve Board's policy shift also affected the
discount rate - the rate the Federal Reserve charges member banks for
loans - which rose from 3.00 percent to 4.00 percent. These increases
represented the first time in several years the central bank had acted to raise
short-term interest rates. Although these moves were presented as a series of
"pre-emptive" strikes in the war against potential inflationary pressure, the
markets correctly interpreted this change in policy as the beginning of a trend
toward higher interest rates. The bond market reacted immediately to these
moves, with bond prices tumbling. By September 30, 1994, interest rates on
short-and intermediate-term U.S. Treasury securities were more than 2.25
percentage points higher compared to interest rate levels just 12 months ago,
the five-year note was yielding 7.28 percent and the benchmark 30-year U.S.
Treasury bond had recorded its worst 12-month performance in 67 years.
PERFORMANCE AND PORTFOLIO STRUCTURE
For the 12-month period ended September 30, 1994, the Trust paid
shareholders income dividends totaling $0.73 per share, including an extra
income dividend of approximately $0.07 per share paid on December 23, 1993. For
this period, despite the sharply higher interest rate environment and difficult
investment conditions, the Trust experienced a decline of 5.97 percent, based on
a closing New York Stock Exchange (NYSE) share price of $7.875 per share, and
including reinvestment of all distributions. As of September 30, 1994, net asset
value per share was $8.69, down from $9.54 on September 30, 1993. At the end of
the fiscal year, the Trust's net assets exceeded $486 million.
In April 1993, the Trust's monthly dividend was increased to $0.06 per
share, a level kept stable through the maintenance of defensive positions in
high-coupon and short-term U.S. Treasury notes. As interest rates increased in
1994, however, we began to reduce these positions, reinvesting the proceeds in
current-coupon, mortgage-backed securities. To better reflect this portfolio
strategy, as well as the overall state of the market, on March 29, 1994 the
Board of Trustees declared a new monthly dividend of $0.05 per share. This new
dividend rate began with the April 22, 1994, payment to shareholders of
<PAGE> 2
record on April 8, 1994. Most recently, on September 27, 1994, the Trust
declared the following dividends:
<TABLE>
<CAPTION>
AMOUNT RECORD DATE PAYABLE DATE
-------------- ------------------ ------------------
<C> <S> <C>
$.05 October 7, 1994 October 21, 1994
$.05 November 11, 1994 November 25, 1994
$.05 December 9, 1994 December 23, 1994
</TABLE>
This dividend rate and the Trust's current return in today's
low-to-moderate inflation environment remain competitive. As of September 30,
1994, this dividend rate, when annualized, provides a current yield of 7.62
percent, based on the Trust's closing price on the New York Stock Exchange of
$7.875 per share.
In November 1993, as the decline in interest rates moderated, the Trust's
average maturity was reduced to a more defensive posture. In concert with the
rising in interest rates in 1994, the Trust's average maturity is gradually
being extended as attractive investment opportunities become available. This
enables the Trust to continue to provide a competitive source of income and
potential capital appreciation for our shareholders.
LOOKING AHEAD
For the balance of 1994 and into early 1995, we expect the economy to slow
vis-a-vis the rapid pace of 1994's first half. This should occur as higher
interest rates take their toll. Although the markets have reacted negatively to
concerns regarding inflationary pressure, we believe inflation will stabilize
between 3.00 and 4.00 percent in 1995. This would enable the Trust to continue
to provide an attractive income stream and a competitive total return.
We would again like to remind shareholders that the Trustees have approved
a procedure whereby the Trust, when appropriate, may repurchase shares in the
open market or in privately negotiated transactions at a price not above market
value or net asset value, whichever is lower at the time of purchase. In
accordance with the procedure, 1,832,400 shares of the Trust were purchased on
the New York Stock Exchange during the fiscal period.
We appreciate your support of Dean Witter Government Income Trust and look
forward to continuing to serve your investment objectives in the months and
years to come.
Very truly yours,
Charles A. Fiumefreddo
Chairman of the Board
<PAGE> 3
DEAN WITTER GOVERNMENT INCOME TRUST
PORTFOLIO OF INVESTMENTS September 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Coupon Maturity
(in thousands) Rate Dates Value
- ------------------------------------------- ------ ----------------- ------------
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (26.4%)
U.S. TREASURY STRIPS (1.7%)
$10,000................. 0.00% 5/15/97 $ 8,381,586
------------
U.S. TREASURY NOTES (24.7%)
10,000................. 4.375 8/15/96 9,626,563
50,000................. 4.375 11/15/96 47,773,437
10,000................. 4.75 8/31/98 9,200,000
10,000................. 4.75 9/30/98 9,184,375
44,000................. 8.625 1/15/95 44,385,000
------------
120,169,375
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $133,096,642)......................................... 128,550,961
------------
U.S. GOVERNMENT AGENCIES (80.4%)
PRINCIPAL STRIPPED (7.2%)
FEDERAL NATIONAL MORTGAGE ASSOC. (7.2%)
(IDENTIFIED COST $38,367,102)
42,280.................. 0.00 12/20/01 - 3/ 9/02 34,843,200
------------
MORTGAGE PASS-THROUGH SECURITIES (73.2%)
FEDERAL HOME LOAN MORTGAGE CORP. (15.0%)
9,408.................. 9.50 12/ 1/18 - 2/ 1/19 9,757,661
35,653.................. 10.00 7/ 1/09 - 8/ 1/20 37,670,031
24,100.................. 10.50 8/ 1/14 - 5/ 1/19 25,757,101
------------
73,184,793
------------
FEDERAL NATIONAL MORTGAGE ASSOC. (41.0%)
28,731.................. 6.00 12/ 1/08 - 1/ 1/09 26,136,073
63,545.................. 6.50 5/ 1/07 -12/ 1/23 57,405,577
47,508.................. 7.00 6/ 1/23 - 6/ 1/24 43,648,184
30,513.................. 7.50 1/ 1/22 - 3/ 1/23 28,911,065
26,816.................. 8.00 8/ 1/17 - 5/ 1/22 26,128,945
9,800.................. 8.50 9/ 1/24 9,803,064
2,489.................. 9.00 9/ 1/13 - 7/ 1/23 2,551,556
4,924.................. 9.50 6/ 1/18 - 1/ 1/21 5,157,476
------------
199,741,940
------------
GOVERNMENT NATIONAL MORTGAGE ASSOC. (17.2%)
8,588.................. 7.50 12/15/22 - 1/15/23 8,067,685
18,591.................. 8.00 11/15/15 -12/15/21 18,033,354
9,768.................. 8.50 5/15/16 - 8/15/24 9,752,922
40,000.................. 8.50 * 39,812,500
5,294.................. 9.00 4/15/17 - 7/15/21 5,429,415
2,296.................. 9.50 8/15/18 - 8/15/20 2,410,365
------------
83,506,241
------------
TOTAL MORTGAGE PASS-THROUGH SECURITIES
(IDENTIFIED COST $366,836,041)......................................... 356,432,974
------------
TOTAL U.S. GOVERNMENT AGENCIES
(IDENTIFIED COST $405,203,143)......................................... 391,276,174
------------
</TABLE>
<PAGE> 4
DEAN WITTER GOVERNMENT INCOME TRUST
PORTFOLIO OF INVESTMENTS September 30, 1994 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Coupon Maturity
(in thousands) Rate Dates Value
- ------------------------------------------- ------ ----------------- ------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENT (0.5%)
COMMERCIAL PAPER (a)(0.5%)
FINANCE: DIVERSIFIED
General Electric Credit Co.
(AMORTIZED COST $2,399,387)
$2,400................... 4.60% 10/ 3/94 $ 2,399,387
------------
TOTAL INVESTMENTS (IDENTIFIED COST $540,699,172)(B)...................... 107.3% 522,226,522
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS........................... (7.3) (35,592,693)
------ ------------
NET ASSETS............................................................... 100.0% $486,633,829
===== ============
</TABLE>
- ---------------
* Securities purchased on a forward commitment basis with an approximate
principal amount and no definite maturity date, the actual principal amount
and maturity date will be determined upon settlement.
(a) Commercial paper was purchased on a discount basis. The rate shown reflects
the bond equivalent interest rate.
(b) The aggregate cost of investments for federal income tax purposes is
$541,453,078; the aggregate gross unrealized appreciation is $1,904,346 and
the aggregate gross unrealized depreciation is $21,130,902, resulting in net
unrealized depreciation of $19,226,556.
See Notes to Financial Statements
<PAGE> 5
DEAN WITTER GOVERNMENT INCOME TRUST
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1994
- -----------------------------------------
ASSETS:
Investments in securities, at value
(identified cost $540,699,172)
(Note 1)............................... $ 522,226,522
Cash..................................... 30,084
Receivable for:
Principal paydowns..................... 1,280,346
Interest............................... 4,659,408
Prepaid expenses......................... 7,656
-------------
TOTAL ASSETS..................... 528,204,016
-------------
LIABILITIES:
Payable for:
Investments purchased.................. 40,182,639
Shares of beneficial interest
repurchased.......................... 885,360
Investment management fee (Note 2)..... 284,157
Accrued expenses and other payables
(Note 3)............................... 218,031
-------------
TOTAL LIABILITIES................ 41,570,187
-------------
NET ASSETS:
Paid-in-capital.......................... 537,101,803
Net unrealized depreciation on
investments............................ (18,472,650)
Accumulated net realized loss............ (33,684,582)
Accumulated undistributed net investment
income................................. 1,689,258
-------------
NET ASSETS....................... $ 486,633,829
=============
NET ASSET VALUE PER SHARE, 55,986,400
shares outstanding (unlimited shares
authorized of $.01 par value).......... $8.69
=====
STATEMENT OF OPERATIONS For the year
ended September 30, 1994
- -----------------------------------------
INVESTMENT INCOME:
INTEREST INCOME......................... $ 38,751,997
-------------
EXPENSES
Investment management fee (Note 2)..... 3,131,392
Transfer agent fees and expenses
(Note 3)............................... 307,222
Custodian fees......................... 72,285
Professional fees...................... 61,339
Trustees' fees and expenses (Note 3)... 31,172
Shareholder reports and notices
(Note 3)............................... 30,823
Registration fees...................... 5,448
Other.................................. 8,447
-------------
TOTAL EXPENSES....................... 3,648,128
-------------
NET INVESTMENT INCOME.............. 35,103,869
-------------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS (Note 1):
Net realized loss on investments....... (10,233,785)
Net change in unrealized apprecia-
tion/depreciation on investments..... (33,692,553)
-------------
NET LOSS ON INVESTMENTS.............. (43,926,338)
-------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS........ $ (8,822,469)
=============
</TABLE>
See Notes to Financial Statements
<PAGE> 6
DEAN WITTER GOVERNMENT INCOME TRUST
FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
year ended year ended
September 30, 1994 September 30, 1993
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................................................. $ 35,103,869 $ 47,577,461
Net realized loss on investments...................................... (10,233,785) (7,039,470)
Net change in unrealized appreciation/depreciation on investments..... (33,692,553) (9,866,767)
------------------ ------------------
Net increase (decrease) in net assets resulting from operations..... (8,822,469) 30,671,224
Net dividends to shareholders from investment income.................... (41,688,803) (40,761,090)
Net decrease from transactions in shares of beneficial interest (Note
5).................................................................... (14,514,293) -0-
------------------ ------------------
Total decrease...................................................... (65,025,565) (10,089,866)
NET ASSETS:
Beginning of period..................................................... 551,659,394 561,749,260
------------------ ------------------
END OF PERIOD (including undistributed net investment income of
$1,689,258 and $8,274,192, respectively).............................. $486,633,829 $551,659,394
================== ==================
</TABLE>
See Notes to Financial Statements
<PAGE> 7
DEAN WITTER GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- Dean Witter Government Income Trust
(the "Trust") is registered under the Investment Company Act of 1940, as
amended, as a diversified, closed-end management investment company. The Trust
commenced operations on February 29, 1988.
The following is a summary of significant accounting policies:
A. Valuation of Investments -- (1) a portfolio security listed or traded on
the New York or American 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); (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,
portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of
the Trustees (valuation of debt securities for which market quotations are
not readily available may be based upon current market prices of securities
which are comparable in coupon, rating and maturity or an appropriate
matrix utilizing similar factors); (4) short-term debt securities having a
maturity date of more than sixty days are valued on a mark-to-market basis,
that is, at prices based on market quotations for securities of a similar
type, yield, quality and maturity, until sixty days prior to maturity and
thereafter at amortized cost using their value on the sixty-first day.
Short-term debt securities having a maturity date of sixty days or less at
the time of purchase are valued at amortized cost; and (5) all other
securities and other assets are valued at their fair value as determined in
good faith under procedures established by and under the supervision of the
Trustees.
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 on the identified cost
method. The Trust does not amortize premiums on securities. Discounts on
securities purchased are amortized over the life of the respective
securities.
C. Repurchase Agreements -- The Trust's custodian takes possession on
behalf of the Trust of the collateral pledged for investments in repurchase
agreements. It is the policy of the Trust to value the underlying
collateral daily on a mark-to-market basis to determine that the value,
including accrued interest, is at least equal to the repurchase price plus
accrued interest. In the event of default of the obligation to repurchase,
the Trust has the right to liquidate the collateral and apply the proceeds
in satisfaction of the obligation.
D. Federal Income Tax Status -- It is the Trust'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.
E. Dividends and Distributions to Shareholders -- The Trust records
dividends and distributions to its shareholders on the ex-dividend date.
The amount of dividends and distributions from net investment income and
net realized capital gains are determined in accordance with federal income
tax regulations which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in
nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions which exceed net investment
income and net realized capital gains for financial
<PAGE> 8
DEAN WITTER GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
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 with Dean Witter InterCapital Inc. (the "Investment Manager"), the
Trust pays its Investment Manager a monthly management fee by applying the
annual rate of 0.60% to the Trust's average weekly net assets.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Manager maintains certain of the Trust'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 Trust 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 Trust.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES -- The cost of
purchases and the proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended September 30, 1994 aggregated
$315,378,467 and $333,574,536, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At September 30, 1994, the Trust had transfer agent fees
and expenses payable of approximately $25,900.
On April 1, 1991, the Trust established an unfunded noncontributory defined
benefit pension plan covering all independent Trustees of the Trust who will
have served as an independent Trustee 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 September 30, 1994, included in Trustees' fees and expenses in
the Statement of Operations amounted to $9,180. At September 30, 1994, the Trust
had an accrued pension liability of $45,136 which is included in accrued
expenses in the Statement of Assets and Liabilities.
Bowne & Co., Inc. is an affiliate of the Trust by virtue of a common
Trustee and Director of Bowne & Co., Inc. For the year ended September 30, 1994,
the Trust paid Bowne & Co., Inc. approximately $12,800 for printing of
shareholder reports.
4. FEDERAL INCOME TAX STATUS -- At September 30, 1994, the Trust had net
capital loss carryovers of approximately $23,292,000 of which $9,742,000 will be
available through September 30, 1997, $5,061,000 will be available through
September 30, 1998, $190,000 will be available through September 30, 1999 and
$8,299,000 will be available through September 30, 2002 to the extent provided
by regulations to offset future capital gains. To the extent that these capital
loss carryovers are used to offset future capital gains, it is probable that the
gains so offset will not be distributed to shareholders. Any net capital loss
incurred after October 31 ("Post-October losses") within the taxable year is
deemed to arise on the first day of the Trust's next taxable year.
The Trust incurred and will elect to defer net capital losses of
approximately $9,638,000 during fiscal 1994. As of September 30, 1994, the Trust
had temporary book/tax differences primarily attributable to capital loss
carryovers.
<PAGE> 9
DEAN WITTER GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
5. SHARES OF BENEFICIAL INTEREST -- Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
Par Value Paid in
of Excess of
Shares Shares Par Value
------------ --------- -------------
<S> <C> <C> <C>
Balance, September 30, 1992, September 30, 1993..... 57,818,800 $ 578,188 $ 551,037,908
Treasury shares purchased and retired
(weighted average discount 9.932%)*............... (1,832,400) (18,324) (14,495,969)
------------ --------- -------------
Balance, September 30, 1994......................... 55,986,400 $ 559,864 $ 536,541,939
============ ========= =============
</TABLE>
- ---------------
* The Trustees have voted to retire the shares repurchased.
6. DIVIDENDS -- On September 27, 1994, the Trust declared the following
dividends from net investment income payable to Shareholders of record
subsequent to September 30, 1994:
<TABLE>
<CAPTION>
Amount Record Payable
per Share Date Date
- ----------- --------- ----------
<S> <C> <C>
$.05 10/07/94 10/21/94
$.05 11/11/94 11/25/94
$.05 12/09/94 12/23/94
</TABLE>
7. SELECTED QUARTERLY FINANCIAL DATA -- (unaudited)
<TABLE>
<CAPTION>
Quarters Ended**
-------------------------------------------------------------------------------
9/30/94 6/30/94 3/31/94 12/31/93
----------------- ------------------ ------------------ -----------------
Per Per Per Per
Total Share Total Share Total Share Total Share
-------- ------ --------- ------ --------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income....... $ 9,158 $ .16 $ 9,281 $ .16 $ 9,698 $ .17 $ 10,615 $ .18
Net investment income......... 8,336 .15 8,335 .15 8,784 .15 9,649 .17
Net realized and unrealized
loss on investments......... (4,684) (.07) (12,124) (.20) (20,191) (.35) (6,927) (.12)
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended**
---------------------------------------------------------------------------
9/30/93 6/30/93 3/31/93 12/31/92
----------------- ----------------- --------------- -----------------
Per Per Per Per
Total Share Total Share Total Share Total Share
-------- ------ -------- ------ -------- ---- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income.......... $ 12,813 $ .22 $ 13,132 $ .23 $ 12,769 $.22 $ 12,764 $ .22
Net investment income............ 11,833 .20 12,149 .21 11,785 .20 11,810 .20
Net realized and unrealized gain
(loss) on investments.......... (6,097) (.11) (3,012) (.05) 516 .01 (8,313) (.14)
</TABLE>
- ---------------
** Total expressed in thousands of dollars, except for per share amounts.
<PAGE> 10
DEAN WITTER GOVERNMENT INCOME TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
For the year ended September 30,
----------------------------------------------------------
1994+ 1993 1992 1991 1990
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..... $ 9.54 $ 9.72 $ 9.70 $ 9.32 $ 9.31
--------- --------- --------- --------- ---------
Net investment income.................... 0.62 0.81 0.78 0.83 0.84
Net realized and unrealized gain (loss)
on investments......................... (0.74) (0.29) 0.00 0.39 0.04
--------- --------- --------- --------- ---------
Total from investment operations......... (0.12) 0.52 0.78 1.22 0.88
--------- --------- --------- --------- ---------
Less dividends from net investment
income................................. (0.73) (0.70) (0.76) (0.84) (0.87)
--------- --------- --------- --------- ---------
Net asset value,
end of period.......................... $ 8.69 $ 9.54 $ 9.72 $ 9.70 $ 9.32
========= ========= ========= ========= =========
Market value, end of period.............. $ 7.875 $ 9.125 $ 9.25 $ 9.38 $ 8.75
========= ========= ========= ========= =========
TOTAL INVESTMENT RETURN ++............... (5.97)% 6.51% 8.85% 17.28% 8.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period
(in thousands)......................... $ 486,634 $ 551,659 $ 561,749 $ 561,318 $ 538,889
Ratio of expenses to average net
assets................................. .70% .70% .72% .72% .76%
Ratio of net investment income to average
net assets............................. 6.73% 8.54% 8.06% 8.81% 9.01%
Portfolio turnover rate.................. 59% 132% 70% 10% 20%
</TABLE>
- ---------------
+ The per share amounts were computed using an average number of shares
outstanding during the period.
++ Total investment return is based upon the current market value on the first
day of each period reported. Dividends and distributions are assumed to be
reinvested at the prices obtained under the Trust's reinvestment plan. Total
investment return does not reflect sales charges or brokerage commissions.
See Notes to Financial Statements
<PAGE> 11
DEAN WITTER GOVERNMENT INCOME TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of Dean Witter Government 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 Dean Witter Government Income Trust
(the "Trust") at September 30, 1994, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust'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
September 30, 1994 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
October 18, 1994
<PAGE> 12
DEAN WITTER GOVERNMENT INCOME TRUST
REVISED INVESTMENT POLICIES
- --------------------------------------------------------------------------------
The Trust will invest in mortgage pass-through securities representing
participation interests in pools of residential mortgage loans originated by
United States governmental or private lenders such as banks, broker-dealers and
financing corporations and guaranteed, to the extent provided in such
securities, by the United States Government or one of its agencies or
instrumentalities. Such securities, which are ownership interests in the
underlying mortgage loans, differ from conventional debt securities, which
provide for periodic payment of interest in fixed amounts (usually
semi-annually) 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 (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees paid to the guarantor of such securities and the servicer of the
underlying mortgage loans.
The mortgage pass-through securities in which the Trust may invest include
those issued or guaranteed by GNMA, FNMA and FHLMC. GNMA certificates are direct
obligations of the U.S. Government and, as such, are backed by the "full faith
and credit" of the United States. FNMA is a federally chartered, privately owned
corporation and FHLMC is a corporate instrumentality of the United States. FNMA
and FHLMC certificates are not backed by the full faith and credit of the United
States, but the issuing agency or instrumentality has the right to borrow, to
meet its obligations, from an existing line of credit with the U.S. Treasury.
The U.S. Treasury has no legal obligation to provide such line of credit and may
choose not to do so.
Certificates for mortgage-backed securities evidence an interest in a
specific pool of mortgages. These certificates are, in most cases, "modified
pass-through" instruments, wherein the issuing agency guarantees the payment of
principal and interest on mortgages underlying the certificates, whether or not
such amounts are collected by the issuer on the underlying mortgages.
Adjustable Rate Mortgage Securities. The Trust may also invest in
adjustable rate mortgage securities ("ARMs"), which are pass-through mortgage
securities collateralized by mortgages with adjustable rather than fixed rates.
ARMs eligible for inclusion in a mortgage pool generally provide for a fixed
initial mortgage interest rate for either the first three, six, twelve or
thirteen scheduled monthly payments. Thereafter, the interest rates are subject
to periodic adjustment based on charges to a designated benchmark index.
ARMs contain maximum and minimum rates beyond which the mortgage interest
rate may not vary over the lifetime of the security. In addition, certain ARMs
provide for additional limitations on the maximum amount by which the mortgage
interest rate may adjust for any single adjustment period. Alternatively,
certain ARMs contain limitations on changes in the required monthly payment. In
the event that a monthly payment is not sufficient to pay the interest accruing
on an ARM, any such excess interest is added to the principal balance of the
mortgage loan, which is repaid through future monthly payments. If the monthly
payment for such an instrument exceeds the sum of the interest accrued at the
applicable mortgage interest rate and the principal payment required at such
point to amortize the outstanding principal balance over the remaining term of
the loan, the excess is utilized to reduce the then outstanding principal
balance of the ARM.
Private Mortgage Pass-Through Securities. Private mortgage pass-through
securities are structured similarly to the GNMA, FNMA and FHLMC mortgage
pass-through securities and are issued by originators of and investors in
mortgage loans, including savings and loan associations, mortgage banks,
<PAGE> 13
DEAN WITTER GOVERNMENT INCOME TRUST
REVISED INVESTMENT POLICIES (continued)
- --------------------------------------------------------------------------------
commercial banks, investment banks and special purpose subsidiaries of the
foregoing. These securities usually are backed by a pool of conventional fixed
rate or adjustable rate mortgage loans. Since private mortgage pass-through
securities typically are not guaranteed by an entity having the credit status of
GNMA, FNMA and FHLMC, such securities generally are structured with one or more
types of credit enhancement.
Collateralized Mortgage Obligations and Multiclass Pass-Through
Securities. Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities. Typically,
CMOs are collateralized by GNMA, FNMA or FHLMC certificates, but also may be
collateralized by whole loans or private mortgage pass-through securities (such
collateral collectively hereinafter referred to as "Mortgage Assets").
Multiclass pass-through securities are equity interests in a trust composed of
Mortgage Assets. Payments of principal of and interest on the Mortgage Assets,
and any reinvestment income thereon, provide the funds to pay debt service on
the CMOs or make scheduled distributions on the multiclass pass-through
securities. CMOs may be issued by agencies or instrumentalities of the United
States Government, or by private originators of, or investors in, mortgage
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose subsidiaries of the foregoing. The
issuer of a series of CMOs may elect to be treated as a Real Estate Mortgage
Investment Conduit ("REMIC"). REMICs include governmental and/or private
entities that issue a fixed pool of mortgages secured by an interest in real
property. REMICs are similar to CMOs in that they issue multiple classes of
securities, but unlike CMOs, which are required to be structured as debt
securities, REMICs may be structured as indirect ownership interests in the
underlying assets of the REMICs themselves. However, there are no effects on the
Trust from investing in CMOs issued by entities that have elected to be treated
as REMICs, and all future references to CMOs shall also be deemed to include
REMICs. The Trust may invest without limitation in CMOs.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often referred to as a "tranche", is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates. Interest is paid or accrues on all classes of the CMOs on a monthly,
quarterly or semi-annual basis. Certain CMOs may have variable or floating
interest rates and others may be stripped (securities which provide only the
principal or interest feature of the underlying security).
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of a CMO series in a number of different ways. Generally,
the purpose of the allocation of the cash flow of a CMO to the various classes
is to obtain a more predictable cash flow to the individual tranches than exists
with the underlying collateral of the CMO. As a general rule, the more
predictable the cash flow is on a CMO tranche, the lower the anticipated yield
will be on that tranche at the time of issuance relative to prevailing market
yields on mortgage-backed securities. As part of the process of creating more
predictable cash flows on most of the tranches in a series of CMOs, one or more
tranches generally must be created that absorb most of the volatility in the
cash flows on the underlying mortgage loans. The yields on these tranches are
generally higher than prevailing market yields on mortgage-backed securities
with similar maturities. As a result of the uncertainty of the cash flows of
these tranches, the market prices of and yield on these tranches generally are
more volatile.
<PAGE> 14
DEAN WITTER GOVERNMENT INCOME TRUST
REVISED INVESTMENT POLICIES (continued)
- --------------------------------------------------------------------------------
The Trust also may invest in, among other things, parallel pay CMOs and
Planned Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured
to provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date. PAC Bonds always are
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes.
Dollar Rolls. The Trust may use dollar rolls as part of its investment
strategy. The Trust may enter into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type and coupon) securities on a
specified future date. During the roll period, the Trust foregoes principal and
interest paid on the securities. The Trust is compensated by the difference
between the current sales price and the lower forward price for the future
purchase (often referred to as the "drop") as well as by the interest earned on
the cash proceeds of the initial sale.
At the time the Trust enters into a dollar roll, it may establish a
segregated account with its custodian bank in which it will maintain cash, U.S.
Government securities or other liquid high grade debt obligations equal in value
to its obligations with respect to dollar rolls. Dollar rolls involve the risk
that the market value of the securities the Trust is obligated to repurchase
under the agreement may decline below the repurchase price. In the event the
buyer of securities under a dollar roll files for bankruptcy or becomes
insolvent, the Trust's use of proceeds of the agreement may be restricted
pending a determination by the other party, or its trustees or receiver, whether
to enforce the Trust's obligation to repurchase the securities and the Trust's
use of the proceeds of the dollar roll may also effectively be restricted
pending such decision. Dollar rolls is a speculative technique involving
leverage, and is considered a borrowing by the Trust if the Trust does not
establish and maintain a segregated account (as described above). Under the
requirements of the Act, the Trust is required to maintain an asset coverage
(including the proceeds of the borrowings) of at least 300% of all borrowings.
The Trust may not establish a segregated account when the Adviser believes it is
not in the best interests of the Trust to do so. In this case, such dollar rolls
will be considered borrowings subject to the asset coverage described above.
<PAGE> 15
(This Page Intentionally Left Blank)
<PAGE> 16
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. John E. Jeuck
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
Edward R. Telling
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
Rajesh K. Gupta
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
DEAN WITTER
GOVERNMENT
INCOME TRUST
Annual Report
September 30, 1994
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<ARTICLE> 6
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 540,699,172
<INVESTMENTS-AT-VALUE> 522,226,522
<RECEIVABLES> 5,939,754
<ASSETS-OTHER> 37,740
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 528,204,016
<PAYABLE-FOR-SECURITIES> 40,182,639
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<OTHER-ITEMS-LIABILITIES> 1,387,548
<TOTAL-LIABILITIES> 41,570,187
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<PAID-IN-CAPITAL-COMMON> 537,101,803
<SHARES-COMMON-STOCK> 0
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<NET-ASSETS> 486,633,829
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<REALIZED-GAINS-CURRENT> (10,233,785)
<APPREC-INCREASE-CURRENT> (33,692,553)
<NET-CHANGE-FROM-OPS> (8,622,469)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (41,688,803)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 14,514,293
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<NET-CHANGE-IN-ASSETS> (65,025,565)
<ACCUMULATED-NII-PRIOR> 47,577,461
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