<PAGE> 1
DEAN WITTER GOVERNMENT INCOME TRUST
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- --------------------------------------------------------------------------------
Several weeks after the close of Dean Witter Government Income Trust's
fiscal year-end on September 30, 1993, interest rates fell to 20-year lows.
Within a few months, however, in early 1994, interest rates began to rise as
signs of substantial economic strength and heightened inflationary fears became
apparent. At the same time, consumer spending increased as mortgage refinancings
generated increased income. This scenario induced the Federal Reserve Board to
change its stance on monetary policy by twice raising the federal-funds rate,
the interest rate banks charge each other for overnight loans, by 25 basis
points. These "preemptive" strikes one on February 4, the second on March 22,
brought the federal-funds rate from 3.00 percent to 3.50 percent. These actions
represented the first time in several years the central bank had acted on
short-term interest rates. The markets reacted immediately, with both stock and
bond prices tumbling. By March 31, interest rates on intermediate-and long-term
U.S. Treasury securities were higher by 1.00 to 1.50 percentage points compared
to September 30, 1993 levels. U.S. Treasury bonds due in 30 years ended March
yielding 7.09 percent versus 6.03 percent six months earlier.
As of March 31, 1994, the Trust's net assets in excess of $518 million, and
its net asset value per share was $8.97, down from $9.54 on September 30, 1993.
For the six-month period ended March 31, 1994, the Trust's total return, based
on a closing New York Stock Exchange (NYSE) share price of $8.125, was 1.37
percent. For the trailing 12 months, the Trust's total return was -2.88 percent,
also based on its closing NYSE share price.
Over the past two years, we have continued our efforts to provide an
attractive level of current income by implementing several changes to the
Trust's portfolio composition. The dividend level was increased in April, 1993
to $0.06 per share and remained stable for a year despite a continuing decline
in interest rates. The Trust was able to continue to provide this level of
income by maintaining a defensive position in high-coupon and short-term U.S.
Treasury notes. It has been our ongoing intent, however, to reduce this position
over the long-term and reinvest proceeds in current-coupon, mortgage-backed
securities, as conditions warrant. As a result of this portfolio change, as well
as the change in the direction of interest rates, on March 29, 1994, the Board
of Trustees declared a new monthly dividend of $0.05 per share, down one cent
per share a month from the previous level. This new dividend rate will begin
with the April 22, 1994, payment to shareholders of record on April 8, 1994. In
addition, the Trust has declared the following dividends:
<TABLE>
<CAPTION>
AMOUNT RECORD DATE PAYABLE DATE
- ------ ------------ -------------
<C> <S> <C>
$.050 May 6, 1994 May 20, 1994
$.050 June 10, 1994 June 24, 1994
</TABLE>
Although this dividend rate is lower, the Trust's current return in today's
low inflation environment remains attractive. The new dividend rate, when
annualized, provides a current yield of 7.38 percent, based on the Trust's
closing $8.125 per share New York Stock Exchange market price (on March 31,
1994).
For the balance of 1994, we expect the economy to slow from the rapid pace
of 1993's fourth quarter. This should occur as the 1993 tax hike and higher
interest rates take their toll. The general
<PAGE> 2
concern over health care reform, however, the issue is finally resolved and its
effect on U.S. industry should also contribute to this scenario. Inflation,
however, should remain subdued at approximately 3 percent, enabling the Trust to
continue to provide an attractive income stream and total return.
At their meeting on January 28, 1994, the Trustees amended the investment
policies of the Trust to permit investments in adjustable-rate mortgages
obligations ("ARMS"), collateralized mortgage obligations ("CMOS") and dollar
rolls. ARMS are pass-through mortgage securities collateralized by mortgages
with adjustable rather than fixed rates. CMOS are debt obligations
collateralized by mortgage loans or mortgage pass-through securities. A dollar
roll entails selling securities for delivery in the current month and
simultaneously contracting to repurchase substantially similar (same type and
coupon) securities on a specified future date. A description of ARMS, CMOS and
dollar rolls, and the risks relating to such investments, is set forth following
the Financial Statements in this report.
We would again like to remind shareholders that the Trustees have approved
a procedure whereby the Trust, when appropriate, may attempt to reduce or
eliminate a market value discount from net asset value by repurchasing shares in
the open market or in privately negotiated transactions at a price not above
market value, if any, or net asset value, whichever is lower at the time of
purchase.
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 March 31, 1994 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Coupon Maturity
(in thousands) Rates Dates Value
- ------------------------------------------- ------- ----------------- ------------
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (29.0%)
U.S. TREASURY STRIPS (1.6%)
$10,000.................. 0.00% 5/15/97 $ 8,361,596
------------
U.S. TREASURY NOTES (27.4%)
10,000.................. 4.375 8/15/96 9,770,313
50,000.................. 4.375 11/15/96 48,601,563
10,000.................. 4.75 8/31/98 9,470,313
10,000.................. 4.75 9/30/98 9,464,063
59,000.................. 8.50 9/30/94 60,272,186
4,500.................. 13.125 5/15/94 4,545,703
------------
142,124,141
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $154,912,430)........................................ 150,485,737
------------
U.S. GOVERNMENT AGENCIES (71.9%)
PRINCIPAL STRIPPED
FEDERAL NATIONAL MORTGAGE ASSOC. (6.9%)
42,280.................. 0.00 12/20/01- 3/ 9/02 35,446,781
------------
MORTGAGE PASS-THROUGH CERTIFICATES (65.0%)
FEDERAL HOME LOAN MORTGAGE CORP. (17.6%)
11,219.................. 9.50 12/ 1/18- 2/ 1/19 11,825,756
43,543.................. 10.00 7/ 1/09- 4/ 1/20 46,917,169
29,750.................. 10.50 8/ 1/14- 5/ 1/19 32,315,690
------------
91,058,615
------------
FEDERAL NATIONAL MORTGAGE ASSOC. (39.9%)
29,717.................. 6.00 12/ 1/08-12/20/23 28,018,012
20,000.................. 6.50 * 19,350,000
44,333.................. 6.50 9/15/23-12/ 1/23 41,146,739
10,000.................. 7.00 * 9,531,250
38,260.................. 7.00 6/ 1/23-11/ 1/23 36,693,762
32,298.................. 7.50 1/ 1/22- 3/ 1/23 31,873,850
30,160.................. 8.00 8/ 1/17- 5/ 1/22 30,499,138
2,979.................. 9.00 9/ 1/16- 7/ 1/23 3,125,961
6,217.................. 9.50 6/ 1/18- 1/ 1/21 6,622,951
------------
206,861,663
------------
GOVERNMENT NATIONAL MORTGAGE ASSOC. (7.5%)
8,904.................. 7.50 12/15/22- 1/15/23 8,751,407
20,127.................. 8.00 11/15/15-12/15/21 20,316,090
6,435.................. 9.00 4/15/17- 7/15/21 6,744,206
3,014.................. 9.50 8/15/18- 8/15/20 3,198,228
------------
39,009,931
------------
TOTAL U.S. GOVERNMENT AGENCIES
(IDENTIFIED COST $372,520,561)........................................ 372,376,990
------------
</TABLE>
<PAGE> 4
DEAN WITTER GOVERNMENT INCOME TRUST
PORTFOLIO OF INVESTMENTS March 31, 1994 (unaudited) (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Coupon Maturity
(in thousands) Rates Dates Value
- ------------------------------------------- ------- ----------------- ------------
<S> <C> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATION (0.4%)
Federal National Mortgage Assoc. 1994-59 P
$2,000
(IDENTIFIED COST $1,969,375)......... 5.00% 8/ 1/20 $ 1,963,414
------------
SHORT-TERM INVESTMENTS (3.0%)
COMMERCIAL PAPER (2.6%)(a)
AUTOMOTIVE: FINANCE
Ford Motor Credit Co.
13,700
(AMORTIZED COST $13,695,998)......... 3.40-3.58 4/ 4/94 13,695,998
------------
</TABLE>
<TABLE>
<S> <C> <C>
REPURCHASE AGREEMENT (0.4%)
The Bank of New York (dated 3/31/94, proceeds $2,105,270;
collateralized by $2,211,609 U.S. Treasury Notes, 6.25% due
2/15/03 valued at $2,147,166) (Identified Cost $2,105,065)
2,105................... 3.50 4/ 1/94 2,105,065
------------
TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST $15,801,063).................. 15,801,063
------------
TOTAL INVESTMENTS (IDENTIFIED COST $545,203,429)(b)................ 104.3 %
540,627,204
LIABILITIES IN EXCESS OF OTHER ASSETS............................... (4.3)
(22,532,007)
----- ------------
NET ASSETS......................................................... 100.0 %
$518,095,197
----- ------------
----- ------------
</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
$545,957,334; the aggregate gross unrealized appreciation is $7,218,063 and
the aggregate gross unrealized depreciation is $12,548,193, resulting in net
unrealized depreciation of $5,330,130.
See Notes to Financial Statements
<PAGE> 5
DEAN WITTER GOVERNMENT INCOME TRUST
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1994 (unaudited)
- -------------------------------------------
ASSETS:
Investments in securities, at value
(identified cost $545,203,429) (Note
1)....................................... $ 540,627,204
Receivable for:
Principal paydowns....................... 4,015,722
Interest................................. 3,976,882
Prepaid expenses........................... 10,284
-------------
TOTAL ASSETS....................... 548,630,092
-------------
LIABILITIES:
Payable for:
Investments purchased.................... 30,062,500
Investment management fee (Note 2)....... 294,391
Accrued expenses and other payables (Note
3)....................................... 178,004
-------------
TOTAL LIABILITIES.................. 30,534,895
-------------
NET ASSETS:
Paid-in-capital............................ 551,297,382
Accumulated net realized loss on
investments.............................. (30,772,301)
Net unrealized depreciation on
investments.............................. (4,576,225)
Accumulated undistributed net investment
income................................... 2,146,341
-------------
NET ASSETS......................... $ 518,095,197
-------------
-------------
NET ASSET VALUE PER SHARE,
57,782,500 shares outstanding (unlimited
shares authorized of $.01 par value)..... $8.97
-----
-----
STATEMENT OF OPERATIONS For the six months
ended March 31, 1994 (unaudited)
- -------------------------------------------
INVESTMENT INCOME:
INTEREST INCOME............................ $ 20,313,465
-------------
EXPENSES
Investment management fee (Note 2)....... 1,618,095
Transfer agent fees and expenses......... 149,974
Custodian fees........................... 36,807
Professional fees........................ 25,311
Shareholder reports and notices (Note
3)..................................... 20,259
Trustees' fees and expenses (Note 3)..... 16,051
Registration fees........................ 11,280
Other.................................... 2,135
-------------
TOTAL EXPENSES......................... 1,879,912
-------------
NET INVESTMENT INCOME................ 18,433,553
-------------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS (Note 1):
Net realized loss on investments......... (7,321,504)
Net change in unrealized appreciation on
investments............................ (19,796,128)
-------------
NET LOSS ON INVESTMENTS................ (27,117,632)
-------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS.................... $ (8,684,079)
-------------
-------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
six months ended For the
March 31, 1994 year ended
(unaudited) September 30, 1993
----------------- -------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................................................. $ 18,433,553 $ 47,577,461
Net realized loss on investments...................................... (7,321,504) (7,039,470)
Net change in unrealized appreciation on investments.................. (19,796,128) (9,866,767)
----------------- -------------------
Net (decrease) increase in net assets resulting from operations..... (8,684,079) 30,671,224
Net dividends to shareholders from investment income.................... (24,561,404) (40,761,090)
Net decrease from transactions in shares of beneficial interest (Note
5).................................................................... (318,714) -0-
----------------- -------------------
Total decrease...................................................... (33,564,197) (10,089,866)
NET ASSETS:
Beginning of period..................................................... 551,659,394 561,749,260
----------------- -------------------
END OF PERIOD (including undistributed net investment income of
$2,146,341 and $8,274,192, respectively).............................. $ 518,095,197 $ 551,659,394
----------------- -------------------
----------------- -------------------
</TABLE>
See Notes to Financial Statements
<PAGE> 6
DEAN WITTER GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (unaudited)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- Dean Witter Government Income Trust
(the "Trust") is registered under the Investment Company Act of 1940, as amended
(the "Act"), 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 last sale price on
that exchange (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 bid price; (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 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); and (4) short-term debt securities with
remaining maturities of 60 days or less at time of purchase are valued at
amortized cost; other short-term securities are valued on a mark-to-market
basis until such time as they reach a remaining maturity of 60 days,
whereupon they are valued at amortized cost using their value on the 61st
day. 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). In computing
net investment income, the Trust does not amortize premiums or accrue
discounts on fixed income securities in the portfolio, except those
original issue discounts for which amortization is required for federal
income tax purposes. Interest income is accrued daily. Additionally, with
respect to market discount on bonds issued after July 18, 1984, and all
bonds purchased after April 30, 1993, a portion of any capital gain
realized upon disposition is recharacterized as investment income. Realized
gains and losses on security transactions are determined on the identified
cost method.
C. 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.
D. 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 that 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.
E. 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.
2. INVESTMENT MANAGEMENT AGREEMENT -- Pursuant to an Investment Management
Agreement (the "Agreement") with Dean Witter InterCapital Inc., the Trust pays
the Investment Manager a management
<PAGE> 7
DEAN WITTER GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- --------------------------------------------------------------------------------
fee calculated at the rate of 0.60% per annum of the average weekly net assets
of the Trust, payable monthly. Under the Agreement, the Investment Manager
provides investment advice, administrative services, office space and pays all
officers and employees of the Trust.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES -- The cost of
purchases and the proceeds from sales/prepayments of portfolio securities,
excluding short-term investments, for the six months ended March 31, 1994
aggregated $210,594,774 and $238,961,430, respectively.
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 six months ended March 31, 1994 included in Trustees' fees and expenses in
the Statement of Operations amounted to $4,577. At March 31, 1994 the Trust had
an accrued pension liability of $40,820 which is included in accrued expenses in
the Statement of Assets and Liabilities.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Trust's transfer agent. At March 31, 1994, the Trust had transfer agent fees and
expenses payable of approximately $8,900.
Bowne & Co., Inc., is an affiliate of the Trust by virtue of a common Trust
Trustee and Director of Bowne & Co., Inc. During the six months ended March 31,
1994, the Trust paid Bowne & Co., Inc. approximately $6,700 for printing of
shareholders reports.
4. FEDERAL INCOME TAX STATUS -- At September 30, 1993, the Trust had net
capital loss carryovers of approximately $14,991,000 of which $9,740,000 will be
available through September 30, 1997, $5,061,000 will be available through
September 30, 1998, and $190,000 will be available through September 30, 1999 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 $7,703,000 during fiscal 1993. During the six months ended March
31, 1994, the Trust incurred additional net capital losses of approximately
$7,322,000. As of September 30, 1993, the Trust had temporary book/tax
differences primarily attributable to Post-October losses and realized capital
loss deferrals on wash sales.
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 6.96%)*........................... (36,300) (363) (318,351)
---------- -------- ------------
Balance, March 31, 1994.............................. 57,782,500 $577,825 $550,719,557
---------- -------- ------------
---------- -------- ------------
</TABLE>
- ---------------
*The Trustees have voted to retire the shares repurchased.
6. DIVIDENDS -- On March 29, 1994, the Trust declared the following dividends
from net investment income --
<TABLE>
<CAPTION>
Amount per Record Payable
Share Date Date
- ----------- --------------- ---------------
<S> <C> <C>
$.050 April 8, 1994 April 22, 1994
$.050 May 6, 1994 May 20, 1994
$.050 June 10, 1994 June 24, 1994
</TABLE>
<PAGE> 8
DEAN WITTER GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- --------------------------------------------------------------------------------
7. SELECTED QUARTERLY FINANCIAL DATA --
<TABLE>
<CAPTION>
Quarters Ended**
----------------------------------
3/31/94 12/31/94
---------------- ---------------
Per Per
Total Share Total Share
-------- ----- ------- -----
<S> <C> <C> <C> <C>
Total investment income.................................................... $ 9,698 $.17 $10,615 $.18
Net investment income...................................................... 8,784 .15 9,649 .17
Net realized and unrealized loss
on investments........................................................... (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.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
For the six
months ended For the year ended September 30,
March 31, 1994 ----------------------------------------------------
(unaudited) 1993 1992 1991 1990 1989
-------------- -------- -------- -------- -------- --------
<S> <C> <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 $ 9.43
-------------- -------- -------- -------- -------- --------
Net investment income............ 0.32 0.81 0.78 0.83 0.84 0.85
Net realized and unrealized gain
(loss) on investments.......... (0.47) (0.29) 0.00 0.39 0.04 0.01
-------------- -------- -------- -------- -------- --------
Total from investment operations... (0.15) 0.52 0.78 1.22 0.88 0.86
-------------- -------- -------- -------- -------- --------
Less dividends from net investment
income........................... (0.42) (0.70) (0.76) (0.84) (0.87) (0.98)
-------------- -------- -------- -------- -------- --------
Net asset value, end of period..... $ 8.97 $ 9.54 $ 9.72 $ 9.70 $ 9.32 $ 9.31
-------------- -------- -------- -------- -------- --------
-------------- -------- -------- -------- -------- --------
Market value, end of period........ $ 8.125 $ 9.125 $ 9.25 $ 9.38 $ 8.75 $ 8.88
-------------- -------- -------- -------- -------- --------
-------------- -------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN+............. 1.37%(1) 6.51% 8.85% 17.28% 8.65% 6.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period (in
thousands)....................... $518,095 $551,659 $561,749 $561,318 $538,889 $538,798
Ratio of expenses to average net
assets........................... .70%(2) .70% .72% .72% .76% .74%
Ratio of net investment income to
average net assets............... 6.84%(2) 8.54% 8.06% 8.81% 9.01% 9.12%
Portfolio turnover rate............ 38%(2) 132% 70% 10% 20% 64%
</TABLE>
- ---------------
+ 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.
(1) Not Annualized.
(2) Annualized.
See Notes to Financial Statements
- --------------------------------------------------------------------------------
The financial statements included herein have been taken from the records of the
Trust without examination by the independent accountants and accordingly they do
not express an opinion thereon.
<PAGE> 9
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,
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DEAN WITTER GOVERNMENT INCOME TRUST
REVISED INVESTMENT POLICIES (continued)
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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.
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DEAN WITTER GOVERNMENT INCOME TRUST
REVISED INVESTMENT POLICIES (continued)
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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.
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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
LEGAL COUNSEL
Sheldon Curtis
Two World Trade Center
New York, New York 10048
INDEPENDENT ACCOUNTANTS
Price Waterhouse
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
Semiannual Report
March 31, 1994
