<PAGE> 1
DEAN WITTER DIVERSIFIED INCOME TRUST
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- - - - - --------------------------------------------------------------------------------
Since our last report dated October 31, 1993, interest rates have risen
dramatically, as strong economic growth in the fourth quarter of 1993 raised
concerns about inflation. This scenario induced the Federal Reserve Board to
tighten monetary policy by raising the federal-funds rate -- the interest rate
that banks charge each other for overnight loans -- from 3.00 percent to 3.75
percent in three separate moves between early February and April. Although this
action was presented as a series of "preemptive" strikes against potential
inflationary pressure, the fixed-income markets interpreted the moves as the
beginning of a trend toward higher interest rates. (Subsequent to the period
under review, the Federal Reserve Board initiated another round of tightening
with a 50 basis point increase in both the federal-funds rate and the discount
rate -- the interest rate the Federal Reserve charges member banks for loans.)
Over the six-month period ended April 30, 1994, the yield on the 10-year U.S.
Treasury note increased from 5.43 percent to 7.04 percent, while the 30-year
U.S. Treasury bond's yield increased from 5.97 percent to 7.31 percent. This
sharp rise in interest rates has battered the fixed-income markets and caused
most of the other financial markets to correct as well.
Despite the extremely difficult market environment for fixed-income
investments, Dean Witter Diversified Income Trust only declined by 0.59 percent
for the six-month period ended April 30, 1994. For the same period, the Lehman
Brothers Government/Corporate Intermediate Bond Index declined by 2.80 percent.
Although the Trust's recent performance is disappointing, we are pleased that
the Trust generally has been able to protect shareholder value during such a
difficult period. The Trust's diversification among different fixed-income
markets with varying maturities has been a major factor in offsetting some of
the weakness associated with rising U.S. interest rates.
For the six-month period under review, the Trust distributed dividends
totaling approximately $0.41 per share, including an extra income dividend of
$0.0313 per share and short-and long-term capital gains distributions of $0.0097
and $0.0049 all paid on December 31, 1993. As of April 30, 1994 the Trust had
net assets in excess of $333 million.
SHORT-TERM GLOBAL SECTOR
Over the past six months, the Trust has maintained its strategy of
investing its short-term assets globally, i.e. outside the United States. As a
result, 16.4 percent of the Trust's assets was invested in the European markets
and about 13.4 percent was divided between Canada, Australia and New Zealand.
The average maturity of these investments at the end of the six-month period was
1.5 to 2.0 years. Some positions have been selectively hedged to protect their
principal values against local currency fluctuations versus the U.S. dollar.
This hedging strategy has also minimized volatility in the Trust's net asset
value as a result of currency gains or losses.
This strategy has served the Trust well during the last six months as
short-term interest rates outside the U.S. were stable to lower. Conversely,
short-and long-term interest rates in the U.S. and longer-term rates in the
overseas market rose sharply causing sharp price declines. The U.S. dollar has
also been volatile, although its closing value was little changed from levels
seen at the beginning of the period.
<PAGE> 2
Going forward, the Trust will continue its strategy of investing one-third
of its assets in shorter-term bonds of countries other than the U.S. because of
their more attractive yields and low price volatility. In an effort to preserve
the Trust's net asset value, the currency risks associated with these
investments will continue to be selectively hedged.
U.S. GOVERNMENT/MORTGAGE SECTOR
With the rise in interest rates over the past six months, yields on
current-coupon mortgage-backed securities have moved from a low of 6.5 percent
in November to 8.0 percent in April. Rising interest rates affected
mortgage-backed securities to the same degree as the U.S. Treasury market.
Recognizing this market environment, the Trust purchased current-coupon
mortgages when they were available at or below face value. This is because these
situations afford the highest return available at the time of purchase.
As of April 30, 1994, this third of the Trust was well diversified, with
9.6 percent invested in U.S. Treasury securities; 25.7 percent in
mortgage-backed securities issued by the Federal National Mortgage Association
(FNMA) and the Government National Mortgage Association (GNMA) with coupons of
between 6.0 and 7.5 percent; and the remaining 1.2 percent invested in FNMA
strips.
Until market conditions warrant a more aggressive approach, this sector of
the Trust will continue to pursue a defensive strategy when making new
investments.
HIGH-YIELD SECTOR
The high-yield bond market was very rewarding for investors in 1993.
Benefiting from the general decline in interest rates that characterized the
first 10 months of the year, as well as the continued improvement in corporate
credit quality, the high-yield market ended the year as one of the fixed-income
market's top performers. What's more, 1993 marked the third successive year of
excellent returns for this market.
However, the sharp rise in interest rates during the early months of 1994
has resulted in a correction throughout the financial markets, including the
high-yield sector. Despite the weaker market environment, high-yield bonds have
still been one of the better-performing asset classes during the first four
months of 1994. The market's higher yields and sensitivity to the economy's
underlying strength have helped to cushion the negative impact of rising
interest rates. In addition, the Trust's defensive positioning in late February
helped to preserve shareholder value. Entering March, the Trust's high-yield
sector held the majority of its assets in very defensive, high-coupon issues
including Alco Health Service Corp., Aztar Mortgage Funding Inc., American
Standard Inc. and Fort Howard Corp., all of which held up well during March and
April.
LOOKING AHEAD
Short-Term Global
We anticipate maintaining the global portion's current strategy of
diversifying assets among different global markets, with an emphasis on
short-term bonds. This strategy seeks to take advantage of the relative
stability of the bond markets outside the United States. At the same time, this
approach should help the overall Trust benefit once global bonds return to
normal in response to positive economic fundamentals.
<PAGE> 3
U.S. Government/Mortgage
For the balance of 1994 we expect the economy to continue to slow vis-a-vis
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 concern over health care
reform and its effect on U.S. industry should also contribute to this scenario.
Although the markets have reacted negatively to heightened concerns over new
inflationary pressure, we believe 1994 will be a year of stable inflation of
approximately three percent.
High-Yield
For the near-term, we remain cautious given the sharp rise in interest
rates and the recent weakness seen in all of the financial markets. Over the
next 12 to 18 months, however, we are optimistic about the prospects for the
high-yield bond market, based on our expectations for continued growth in the
economy and further improvements in corporate credit quality. We expect more
high-yield issuers to either tap the equity markets in order to pay down debt or
refinance their existing high-coupon debt at lower rates. If the economy
continues to recover and high-yield issuers work toward strengthening their
balance sheets, the attractive yields available today should provide investors
not only with a healthy yield advantage over alternative fixed-income products,
but also with an excellent opportunity for further capital appreciation in the
event interest rates decline.
We appreciate your ongoing support of Dean Witter Diversified Income Trust,
and look forward to continuing to serve your investment needs.
Sincerely,
Charles A. Fiumefreddo
Chairman of the Board
<PAGE> 4
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1994 (unaudited)
- - - - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- - - - - -------------- ------- -------- ------------
<S> <C> <C> <C> <C> <C>
CURRENCY DENOMINATED BONDS (90.9%)
AUSTRALIA (5.3%)
GOVERNMENT OBLIGATIONS (5.3%)
Au$ 5,600 New South Wales Treasury Bond............................. 8.50 % 3/ 1/96 $ 4,107,389
2,450 New South Wales Treasury Bond............................. 12.50 4/ 1/97 1,968,740
1,400 Treasury Corp of Victoria................................. 12.00 10/22/95 1,075,870
13,885 Western Australia Treasury Corp. ......................... 10.00 1/15/97 10,498,808
------------
TOTAL AUSTRALIA................................................................... 17,650,807
------------
BELGIUM (1.3%)
GOVERNMENT OBLIGATION (1.3%)
BFr 141,000 Government of Belgium Treasury Bond....................... 6.25 11/25/96 4,170,000
------------
CANADA (4.5%)
GOVERNMENT OBLIGATIONS (4.5%)
Ca$ 5,730 Government of Canada Treasury Bond........................ 10.25 3/ 1/96 4,348,938
14,300 Government of Canada Treasury Bond........................ 9.25 10/ 1/96 10,739,723
------------
TOTAL CANADA...................................................................... 15,088,661
------------
DENMARK (1.7%)
GOVERNMENT OBLIGATIONS (1.7%)
DKr 31,700 Government of Denmark Treasury Note....................... 9.75 2/10/95 5,034,161
4,522 Government of Denmark Treasury Note....................... 9.25 8/10/95 725,121
------------
TOTAL DENMARK..................................................................... 5,759,282
------------
FINLAND (1.1%)
GOVERNMENT OBLIGATION (1.1%)
FMk 18,000 Government of Finland Treasury Note....................... 11.00 6/15/95 3,556,130
------------
FRANCE (2.0%)
GOVERNMENT OBLIGATION (2.0%)
FFr 35,074 Government of France Treasury Bond........................ 9.80 1/30/96 6,621,981
------------
GERMANY (2.1%)
GOVERNMENT OBLIGATIONS (2.1%)
DEM 3,230 Bundes Schatzweisungen.................................... 8.875 7/20/95 2,039,422
4,200 Government of Germany Bundes Obligation................... 8.625 2/20/96 2,682,745
3,800 Government of Germany Bundes Obligation................... 8.500 9/20/96 2,447,555
------------
TOTAL GERMANY..................................................................... 7,169,722
------------
ITALY (2.3%)
GOVERNMENT OBLIGATIONS (2.3%)
ITL 4,590,000 Government of Italy Treasury Bond......................... 12.00 1/ 1/96 3,045,926
7,400,000 Government of Italy Treasury Bond......................... 9.00 10/ 1/96 4,716,752
------------
TOTAL ITALY....................................................................... 7,762,678
------------
NEW ZEALAND (3.6%)
GOVERNMENT OBLIGATIONS (3.6%)
NZ$ 3,732 Government of New Zealand Treasury Bond................... 10.00 2/15/95 2,205,696
16,914 Government of New Zealand Treasury Bond................... 8.00 11/15/95 9,901,169
------------
TOTAL NEW ZEALAND................................................................. 12,106,865
------------
SPAIN (2.4%)
GOVERNMENT OBLIGATION (2.4%)
ESP 972,000 Government of Spain Treasury Note......................... 13.45 4/15/96 7,905,697
------------
</TABLE>
<PAGE> 5
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1994 (unaudited) (continued)
- - - - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- - - - - -------------- ------- -------- ------------
<S> <C> <C> <C> <C> <C>
SWEDEN (1.5%)
GOVERNMENT OBLIGATIONS (1.5%)
SKr 20,600 Government of Sweden Treasury Bond........................ 11.50 % 9/ 1/95 $ 2,829,255
14,400 Government of Sweden Treasury Bond........................ 10.75 1/23/97 2,020,651
------------
TOTAL SWEDEN...................................................................... 4,849,906
------------
UNITED KINGDOM (2.0%)
GOVERNMENT OBLIGATIONS (2.0%)
Pound 1,700 United Kingdom Treasury Gilt.............................. 12.75 11/15/95 2,836,254
2,209 United Kingdom Treasury Gilt.............................. 13.25 5/15/96 3,787,417
------------
TOTAL UNITED KINGDOM.............................................................. 6,623,671
------------
UNITED STATES (61.1%)
AEROSPACE (1.3%)
US$ 5,000 GPA Del, Inc. ............................................ 8.75 12/15/98 4,175,000
------------
AUTOMOTIVE (1.4%)
5,000 Envirotest Systems Corp. ................................. 9.625 4/ 1/03 4,650,000
------------
BUILDING & CONSTRUCTION (1.3%)
4,055 American Standard, Inc. .................................. 14.25 6/30/03 4,186,787
------------
CABLE & TELECOMMUNICATIONS (0.9%)
3,000 Marcus Cable Co. ......................................... 11.875 10/ 1/05 2,970,000
------------
COMPUTER EQUIPMENT (1.3%)
4,050 Unisys Corp. ............................................. 13.50 * 7/ 1/97 4,455,000
------------
CONSUMER PRODUCTS (0.5%)
4,000 Revlon Worldwide Corp. (Series B)......................... 0.00 3/15/98 1,760,000
------------
CONTAINERS (0.8%)
4,000 Ivex Holdings Corp. (Series B)............................ 13.25 ++ 3/15/05 1,920,000
1,000 Silgan Holdings, Inc. .................................... 13.25 ++ 12/15/02 760,000
------------
2,680,000
------------
ELECTRICAL & ALARM SYSTEMS (0.5%)
2,000 Mosler, Inc. (Series A)................................... 11.00 4/15/03 1,800,000
------------
ENTERTAINMENT, GAMING & LODGING (6.0%)
1,000 Belle Casinos, Inc. -- 144A(b)............................ 12.00 10/15/00 900,000
4,000 Hollywood Casino Corp. (Series B)......................... 14.00 4/ 1/98 4,500,000
2,000 Motels of America Inc. -- 144A(b)......................... 12.00 4/15/04 2,010,000
4,000 SPI Holding, Inc. ........................................ 11.65 12/ 1/02 3,600,000
2,000 Treasure Bay Gaming & Resorts, Inc. -- 144A(b)............ 12.25 11/15/00 1,860,000
4,000 Trump Castle Funding, Inc. ............................... 11.75 11/15/03 3,375,000
4,125 Trump Plaza Holding Assoc. ............................... 12.50 + 6/15/03 3,712,500
------------
19,957,500
------------
FOOD & BEVERAGE (0.6%)
4,000 Specialty Foods Aquisition Corp. (Series B)............... 13.00 ++ 8/15/05 1,920,000
------------
FOREST & PAPER PRODUCTS (2.4%)
3,000 Container Corp. .......................................... 14.00 12/ 1/01 3,292,500
400 Container Corp. .......................................... 15.50 ++ 12/ 1/04 799,000
3,000 Fort Howard Corp. ........................................ 14.125 ++ 11/ 1/04 3,770,000
------------
7,861,500
------------
</TABLE>
<PAGE> 6
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1994 (unaudited) (continued)
- - - - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- - - - - -------------- ------- -------- ------------
<S> <C> <C> <C> <C> <C>
INDUSTRIALS (0.6%)
US$ 2,000 U.S. Banknote -- 144A(b).................................. 11.625 % 8/ 1/02 $ 1,975,000
------------
MANUFACTURING (0.9%)
2,000 Berry Plastics Corp. ..................................... 12.25 4/15/04 2,025,000
1,000 Uniroyal Technology Corp. ................................ 11.75 6/ 1/03 960,000
------------
2,985,000
------------
MANUFACTURING -- DIVERSIFIED INDUSTRIES (2.2%)
4,000 Interlake Corp. .......................................... 12.125 3/ 1/02 3,780,000
4,000 MS Essex Holdings, Inc. .................................. 16.00 ++ 5/15/04 3,560,000
------------
7,340,000
------------
OIL & GAS (2.4%)
4,000 Deeptech International, Inc. ............................. 12.00 12/15/00 3,820,000
4,000 Presidio Oil Co. (Series B)............................... 13.925 *** 7/15/02 4,050,000
------------
7,870,000
------------
PUBLISHING (0.6%)
3,800 Big Flower Press, Inc. -- 144A(b)......................... 13.50 ++ 4/15/04 2,014,000
------------
RESTAURANTS (2.0%)
4,000 American Restaurant Group Holdings, Inc. -- 144A(b)....... 14.00 ++ 12/15/05 1,880,000
1,000 Carrols Corp. ............................................ 11.50 8/15/03 962,500
4,000 Flagstar Corp. ........................................... 11.25 11/ 1/04 3,840,000
------------
6,682,500
------------
RETAIL (1.2%)
2,000 Cort Furniture Rental Corp. .............................. 12.00 9/ 1/00 1,970,000
2,000 County Seat Stores, Inc. (Units).......................... 12.00 10/ 1/01 1,940,000
------------
3,910,000
------------
RETAIL -- FOOD CHAINS (1.3%)
4,000 Food 4 Less Holdings, Inc. ............................... 15.25 ++ 12/15/04 2,720,000
15,000 Grand Union Capital Corp. (Series A)...................... 0.00 1/15/07 1,725,000
------------
4,445,000
------------
RETAIL -- DRUG STORES (1.2%)
4,000 Thrifty Payless Holdings, Inc. (Units).................... 12.25 4/15/04 4,080,000
------------
TEXTILES (1.2%)
4,001 JPS Textiles Group, Inc. ................................. 10.85 6/ 1/99 3,980,617
------------
TRANSPORTATION (0.6%)
4,000 Transtar Holdings (Series A) -- 144A(b)................... 13.375 ++ 12/15/03 1,960,000
------------
</TABLE>
<PAGE> 7
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1994 (unaudited) (continued)
- - - - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- - - - - -------------- ------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCIES (26.9%)
FEDERAL NATIONAL MORTGAGE ASSOC.
US$ 5,000 (Principal Stripped)................................ 4.84 % 12/20/01 $ 4,101,563
23,060 .................................................... 6.50 4/ 1/09-2/ 1/24 21,597,786
26,181 .................................................... 7.00 8/ 1/08-1/ 1/24 24,804,220
14,451 .................................................... 7.50 2/ 1/22-2/ 1/23 14,045,036
2,181 .................................................... 8.00 6/ 1/22 2,174,924
------------
66,723,529
------------
GOVERNMENT NATIONAL MORTGAGE ASSOC.
5,068 .................................................... 6.50 11/20/23-2/20/24 4,562,545
4,060 .................................................... 7.00 12/15/22-3/15/24 3,804,919
10,000 .................................................... 7.50 ** 9,637,501
5,000 .................................................... 8.00 ** 4,976,563
------------
22,981,528
------------
U.S. GOVERNMENT OBLIGATIONS (3.0%)
U.S. TREASURY STRIPS
4,000 .................................................... 4.80 5/15/97 3,313,678
------------
U.S. TREASURY NOTES
2,000 .................................................... 3.875 8/31/95 1,962,812
2,000 .................................................... 3.875 10/31/95 1,955,625
1,000 .................................................... 4.75 9/30/98 931,875
2,000 .................................................... 4.75 10/31/98 1,858,437
------------
6,708,749
------------
TOTAL UNITED STATES.................................................................. 203,385,388
------------
TOTAL BONDS (IDENTIFIED COST $313,166,258)...........................................
$302,650,788
------------
</TABLE>
<TABLE>
<CAPTION>
Number of
Shares
- - - - - --------------
<S> <C> <C> <C> <C> <C>
COMMON STOCK(A) (0.0%)
RESTAURANT (0.0%)
4,000 American Restaurant Group Holdings, Inc. -- 144A(b)
(Identified Cost $200,212)........................................................... $ 200,000
------------
</TABLE>
<PAGE> 8
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1994 (unaudited) (continued)
- - - - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Expiration
Warrants Date Value
- - - - - -------------- -------- ------------
<S> <C> <C> <C> <C> <C>
WARRANTS(A) (0.0%)
CONTAINERS (0.0%)
2,000 Crown Packaging Holdings, Ltd. -- 144A(b)................. 10/15/03 $ 70,000
------------
ENTERTAINMENT, GAMING & LODGING (0.0%)
1,000 Belle Casinos, Inc. -- 144A............................... 10/15/00 80,000
10,000 Treasure Bay Gaming & Resorts, Inc. -- 144A............... 11/15/00 60,000
------------
140,000
------------
MANUFACTURING (0.0%)
10,000 Uniroyal Technology Corp.................................. 6/ 1/03 27,500
------------
RETAIL (0.0%)
68,000 New Cort Holdings Corp. .................................. 9/ 1/00 82,500
------------
TOTAL WARRANTS
(IDENTIFIED COST $296,010)........................................................ 320,000
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date
- - - - - -------------- ------- --------
<S> <C> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS (14.9%)
JAPAN (3.0%)
BANKING -- INTERNATIONAL (3.0%)
Yen 1,003,418 Chase Manhattan Bank Time Deposit (Identified Cost
$9,520,389)............................................... 2.168% 5/ 6/94 9,934,830
------------
PORTUGAL (1.9%)
BANKING -- INTERNATIONAL (1.9%)
PTE 1,066,557 Chase Manhattan Bank Time Deposit (Identified Cost
$6,209,375)............................................... 11.50 5/ 6/94 6,303,529
------------
UNITED STATES (9.6%)
GOVERNMENT AGENCY(c) (3.0%)
US$ 9,950 Federal Home Loan Mortgage Corp. ......................... 3.501 5/ 2/94 9,948,065
------------
GOVERNMENT OBLIGATIONS (6.6%)
7,000 United States Treasury Bills.............................. 3.43 12/15/94 6,804,906
5,000 United States Treasury Note............................... 6.75 8/15/94 5,064,063
4,000 United States Treasury Note............................... 12.625 8/15/94 5,119,531
5,000 United States Treasury Note............................... 13.625 5/15/94 5,015,625
------------
22,004,125
------------
TOTAL UNITED STATES (IDENTIFIED COST $32,339,866)................................. 31,952,190
------------
</TABLE>
<PAGE> 9
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1994 (unaudited) (continued)
- - - - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- - - - - -------------- ------- -------- ------------
<S> <C> <C> <C> <C> <C>
REPURCHASE AGREEMENT (0.4%)
US$ 1,244 The Bank of New York (dated 4/29/94;
proceeds $1,243,900; collateralized by $1,219,541
U.S. Treasury Note 7.25% due 8/31/98 valued at $1,288,776)
(IDENTIFIED COST $1,243,900).............................. 3.625 % 5/2/94 $ 1,243,900
------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $49,313,530).....................................................
49,434,449
------------
TOTAL INVESTMENTS
(IDENTIFIED COST $362,976,010)(D).................................... 105.8% 352,605,237
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS.......................
(5.8) (19,514,759)
------ ------------
NET ASSETS...........................................................
100.0% $333,090,478
------ ------------
------ ------------
</TABLE>
- - - - - ---------------
* Adjustable rate. Rate shown is the rate in effect at April 30, 1994.
** 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.
*** Floating rate. Coupon is linked to the Gas Index. Rate shown is the rate in
effect at April 30, 1994.
+ Payment in kind security.
++ Currently zero coupon under terms of the initial offering.
(a) Non-income producing.
(b) Resale is restricted to qualified institutional investors.
(c) Security was purchased on a discount basis. The interest rate shown has been
adjusted to reflect a bond equivalent yield.
(d) The aggregate cost for federal income tax purposes is $363,003,666; the
aggregate gross unrealized appreciation is $2,151,326 and the aggregate
gross unrealized depreciation is $12,549,755 resulting in net unrealized
depreciation of $10,398,429.
FORWARD CONTRACTS FOR THE SALE OF FOREIGN CURRENCY AT APRIL 30, 1994:
<TABLE>
<CAPTION>
Contracts In Exchange Delivery Unrealized
to Deliver for Date Depreciaton
- - - - - -------------------- ---------------- -------- ------------
<S> <C> <C> <C>
BFr 71,152,278 US$ 1,974,806 6/23/94 $ (118,447)
BFr 72,700,000 US$ 1,977,424 7/28/94 (154,664)
DKr 23,880,000 US$ 3,457,112 5/ 9/94 (236,169)
DKr 10,000,000 US$ 1,452,433 5/26/94 (91,082)
DEM 11,800,000 US$ 6,714,847 5/ 5/94 (449,041)
DEM 10,000,000 US$ 5,713,633 5/25/94 (352,734)
DEM 2,300,000 US$ 1,303,707 5/26/94 (91,488)
DEM 2,000,000 US$ 1,155,735 6/30/94 (59,598)
DEM 26,000,000 US$ 15,483,564 11/ 2/94 (237,319)
FFr 24,297,000 US$ 4,051,188 5/ 9/94 (251,801)
FFr 1,700,000 US$ 283,447 5/18/94 (17,541)
Y 1,000,000,000 US$ 9,786,651 5/ 6/94 (114,339)
NKr 15,180,000 US$ 2,009,265 5/31/94 (113,861)
------------
Net Unrealized
Depreciation................ $(2,288,084)
=============
</TABLE>
See Notes to Financial Statements
<PAGE> 10
DEAN WITTER DIVERSIFIED INCOME TRUST
FINANCIAL STATEMENTS
- - - - - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1994 (unaudited)
- - - - - -------------------------------------------
ASSETS:
Investments in securities, at value
(identified cost $362,976,010) (Note
1)....................................... $ 352,605,237
Cash (including $4,281,636 in foreign
currency)................................ 4,281,968
Receivable for:
Interest................................. 6,165,791
Shares of beneficial interest sold....... 2,822,453
Compensated foreign currency contracts... 262,714
Deferred organizational expense (Note 1)... 88,824
Prepaid expenses........................... 36,900
-------------
TOTAL ASSETS....................... 366,263,887
-------------
LIABILITIES:
Net depreciation on forward foreign
currency contracts....................... 2,288,084
Payable for:
Investments purchased.................... 28,169,647
Compensated foreign currency contracts... 1,397,427
Shares of beneficial interest
repurchased............................ 472,623
Dividends to shareholders................ 370,606
Plan of distribution fee (Note 3)........ 225,711
Investment management fee (Note 2)....... 106,217
Accrued expenses (Note 4).................. 143,094
-------------
TOTAL LIABILITIES.................. 33,173,409
-------------
NET ASSETS:
Paid-in-capital............................ 346,400,441
Accumulated net realized loss.............. (1,097,788)
Net unrealized depreciation................ (12,542,842)
Accumulated undistributed net investment
income................................... 330,667
-------------
NET ASSETS......................... $ 333,090,478
=============
NET ASSET VALUE PER SHARE,
34,183,485 shares outstanding (unlimited
authorized shares of $.01 par value)..... $9.74
-----
-----
STATEMENT OF OPERATIONS For the six months
ended April 30, 1994 (unaudited)
- - - - - -------------------------------------------
INVESTMENT INCOME:
INTEREST (net of $39,603 in foreign
withholding tax)......................... $ 11,067,707
-------------
EXPENSES
Plan of distribution fee (Note 3)........ 1,027,056
Investment management fee (Note 2)....... 483,321
Registration fees........................ 142,460
Custodian fees........................... 63,926
Transfer agent fees...................... 49,139
Professional fees........................ 41,147
Shareholder reports and notices.......... 21,982
Trustees' fees & expenses................ 17,266
Organizational expenses (Note 1)......... 14,971
Other.................................... 5,277
-------------
TOTAL EXPENSES......................... 1,866,545
-------------
NET INVESTMENT INCOME................ 9,201,162
-------------
NET REALIZED AND UNREALIZED LOSS (NOTE 1):
Net realized loss on:
Investment............................. (198,895)
Foreign exchange transactions.......... (871,242)
-------------
(1,070,137)
-------------
Net change in unrealized appreciation or
depreciation on:
Investments............................ (9,938,595)
Translation of foreign exchange forward
contracts, other assets and
liabilities denominated in foreign
currencies........................... (2,152,101)
-------------
(12,090,696)
-------------
NET LOSS............................... (13,160,833)
-------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS.................... $ (3,959,671)
=============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- - - - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the six
months ended For the
April 30, 1994 year ended
(unaudited) October 31, 1993
-------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.......................................................... $ 9,201,162 $ 8,252,954
Net realized gain (loss)....................................................... (1,070,137 ) 875,012
Net change in unrealized appreciation or depreciation.......................... (12,090,696 ) (18,134)
-------------- ----------------
Net increase (decrease) in net assets resulting from operations............ (3,959,671 ) 9,109,832
-------------- ----------------
Dividends and distributions to shareholders from:
Net investment income.......................................................... (9,625,799 ) (7,590,502)
Net realized gain.............................................................. (281,210 ) (339,284)
-------------- ----------------
(9,907,009 ) (7,929,786)
-------------- ----------------
Net increase from transactions in shares of benefical interest (Note 5).......... 179,820,460 110,659,806
-------------- ----------------
Total increase............................................................. 165,953,780 111,839,852
NET ASSETS:
Beginning of period.............................................................. 167,136,698 55,296,846
-------------- ----------------
END OF PERIOD (including undistributed net investment income of $330,667 and
$755,304, respectively)......................................................... $ 333,090,478 $ 167,136,698
============= ================
</TABLE>
See Notes to Financial Statements
<PAGE> 11
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (unaudited)
- - - - - --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- 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. It was
organized on December 20, 1991 as a Massachusetts business trust and commenced
operations on April 9, 1992.
The following is a summary of significant accounting policies:
A. Valuation of Investments -- (1) an equity portfolio security listed or
traded on the New York or American Stock Exchange 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 (4:00 p.m. New York time); if
there were no sales that day, the security is valued at the latest
available 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, 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) certain of the Fund's portfolio securities may be valued by
an outside pricing service approved by the Fund's Trustees. The pricing
service utilizes 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, in determining what it believes is the fair valuation of the
portfolio securities valued by such pricing service; and (5) short-term
debt securities with remaining maturities of 60 days or less at the time of
purchase are valued at amortized cost; other short-term debt securities are
valued on a mark-to-market basis until such time as they reach a remaining
maturity of 60 days, whereupon they will be 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 Fund 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. Additionally, with respect to market discount on
bonds, a portion of any capital gain realized upon disposition may be
recharacterized as investment income. Realized gains and losses on security
transactions are determined on the identified cost method. Interest income
is accrued daily except where collection is not expected.
C. 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
contracts stated in foreign currencies are translated at the exchange rates
at the end of the period; and (2) purchases, sales, income and expenses are
translated at the rate of exchange 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 net foreign exchange
<PAGE> 12
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- - - - - --------------------------------------------------------------------------------
gains/losses included in realized and unrealized gain/loss in the Statement
of Operations 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.
D. Forward Foreign Currency Exchange Contracts -- The Fund may enter into
forward foreign currency contracts as a hedge against fluctuations in
future foreign exchange rates. All forward contracts are valued daily at
the appropriate exchange rates and any resulting unrealized currency gains
or losses are reflected in the Fund's accounts. The Fund records realized
gains or losses on delivery of the currency or at the time the forward
contract is extinguished (compensated) by entry into a closing transaction
prior to delivery.
E. 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.
F. Dividends and Distributions to Shareholders -- The Fund 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
reclassifications. 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.
G. Organizational Expenses -- The Fund's Investment Manager paid the
organizational expenses of the Fund in the amount of approximately
$151,000. Organizational expenses were reimbursed by the Fund for the full
amount exclusive of any amounts assumed by the Investment Manager. The Fund
has deferred and is amortizing the organizational expenses on the
straight-line method over a period not to exceed five years from the
commencement of operations.
H. Repurchase Agreements -- The Fund's custodian takes possession on behalf
of the Fund of the collateral pledged for investments in repurchase
agreements. It is the policy of the Fund 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 Fund
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 "Investment
Manager"), the Fund pays its 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.
<PAGE> 13
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- - - - - --------------------------------------------------------------------------------
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 office space and 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 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, pursuant to which the Fund pays the Distributor compensation
accrued daily and payable monthly at the annual rate of 0.85% of the lesser of:
(a) the average daily aggregate gross sales of the Fund's shares since the
inception of the Fund (not including reinvestments of dividends or capital gains
distributions), less the average daily aggregate net asset value of the Fund's
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or upon which such charge has been waived; or (b)
the Fund's average daily net assets. Amounts paid under the Plan are paid to the
Distributor to compensate it for the services it provides and the expenses borne
by it and others in the distribution of the Fund's shares, including the payment
of commissions for sales of the Fund's shares and incentive compensation to and
expenses of the account executives of Dean Witter Reynolds Inc., an affiliate of
the Investment Manager, and other employees or selected dealers who engage in or
support distribution of the Fund's shares or who service shareholder accounts,
including overhead and telephone expenses; printing and distribution of
prospectuses and reports used in connection with the offering of the Fund's
shares; and preparation, printing and distribution of sales literature and
advertising materials. In addition, the Distributor may be compensated under the
Plan for its opportunity costs in advancing such amounts, which compensation
would be in the form of a carrying charge on any unreimbursed expenses.
Provided that the Plan continues in effect, any cumulative expenses
incurred by the Distributor, but not yet recovered, may be recovered through
future distribution fees from the Fund and contingent deferred sales charges
from the Fund's shareholders.
The Distributor has informed the Fund that for the six months ended April
30, 1994, it received approximately $240,000 in contingent deferred sales
charges from certain redemptions of the Fund's shares. The Fund's shareholders
pay such charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES -- The cost of
purchases and the proceeds from sales of portfolio securities for the six months
ended April 30, 1994, excluding short-term investments, were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------ -----------
<S> <C> <C>
Corporate Bonds.................................................. $107,743,778 $56,188,383
Foreign Government Obligations................................... 52,387,564 4,262,772
U.S. Government Agencies and Obligations......................... 71,121,995 7,109,195
</TABLE>
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At April 30, 1994, the Fund had
transfer agent fees and expenses payable of $24,000.
On January 1, 1994, the Fund established 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
<PAGE> 14
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
- - - - - --------------------------------------------------------------------------------
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 April 30, 1994, included in Trustees'
fees and expenses in the Statement of Operations, amounted to $5,131. At April
30, 1994, the Fund had an accrued pension liability of $5,131 which is included
in accrued expenses in the Statement of Assets and Liabilities.
5. SHARES OF BENEFICIAL INTEREST -- Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
For the six
months ended For the year ended
April 30, 1994 October 31, 1993
--------------------------- ---------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold............................... 21,183,540 $213,583,047 13,123,934 $133,844,244
Reinvestment of dividends and
distributions.................... 435,203 4,356,185 395,578 4,018,772
---------- ------------ ---------- ------------
21,618,743 217,939,232 13,519,512 137,863,016
Repurchased........................ (3,814,851) (38,118,772) (2,665,659) (27,203,210)
---------- ------------ ---------- ------------
Net increase....................... 17,803,892 $179,820,460 10,853,853 $110,659,806
========== ============= ========== =============
</TABLE>
6. FEDERAL INCOME TAX STATUS -- As of October 31, 1993, the Fund had temporary
book/tax differences primarily attributable to dividend payable and compensated
forward foreign currency exchange contracts and permanent book/tax differences
primarily attributable to foreign currency gains. To reflect reclassifications
arising from permanent book/tax differences as of October 31, 1993, accumulated
net realized gain was charged and accumulated undistributed net investment
income was credited $89,258.
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK -- At April 30, 1994, the
Fund had outstanding forward foreign currency exchange contracts ("forward
contracts") as a hedge against changes in future foreign exchange rates. Forward
contracts 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 rate underlying the forward contract.
<PAGE> 15
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 six For the period
months ended For the year April 9, 1992*
April 30, 1994 ended through
(unaudited) -- October 31, 1993 October 31, 1992
---------------- ----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........ $ 10.20 $ 10.01 $ 10.00
----------- ------------ ------------
Investment income - net.................. 0.36 0.77 0.37
Realized and unrealized gain - net....... (0.41) 0.20 -0-
----------- ------------ ------------
Total from investment operations............ (0.05) 0.97 0.37
----------- ------------ ------------
Less dividends and distributions:
Dividends from net investment income..... (0.39) (0.73) (0.36)
Distributions to shareholders from net
realized gains on investments.......... (0.02) (0.05) -0-
----------- ------------ ------------
Total dividends and distributions........... (0.41) (0.78) (0.36)
----------- ------------ ------------
Net asset value,
end of period............................ $ 9.74 $ 10.20 $ 10.01
=========== ============= =============
TOTAL INVESTMENT RETURN+...................... (0.59)%(1) 10.00% 3.73%(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)........................... $333,090 $167,137 $ 55,297
Ratio of expenses to average net assets..... 1.54%(2) 1.58%(4) 0.85%(2)(3)
Ratio of net investment income to average
net assets............................... 7.61%(2) 7.92%(4) 7.86%(2)(3)
Portfolio turnover rate..................... 103% 117% 37%
</TABLE>
- - - - - ---------------
* Date of commencement of operations.
+ Does not reflect the deduction of sales load.
(1) Not annualized.
(2) Annualized.
(3) If the fund had borne all expenses that were assumed or waived by the
Investment Manager, the above annualized expense ratio would have been 2.08%
and the above annualized investment income - net ratio would have been
6.63%.
(4) If the fund had borne all expenses that were assumed or waived by the
Investment Manager (Note 2), the above annualized expense ratio would have
been 1.66% and the above annualized investment income - net ratio would have
been 7.84%.
See Notes to Financial Statements
<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
Peter M. Avelar
Vice President
Rajesh K. Gupta
Vice President
Vinh Q. Tran
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
The financial statements included herein have been taken from the records of
the Fund without examination by the independent accountants and accordingly
they do not express an opinion thereon.
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.
DEAN WITTER
DIVERSIFIED
INCOME TRUST
[PHOTO]
SEMIANNUAL REPORT
APRIL 30, 1994
<PAGE> 17
APPENDIX TO ELECTRONIC FORMAT DOCUMENT
The back cover of the Semiannual Report in the printed version contains
a picture of the Capitol Bldg., American Flag and Steel Mill.
