<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
TWO WORLD TRADE CENTER, NEW YORK, NEW YORK 10048
LETTER TO SHAREHOLDERS
DEAR SHAREHOLDER:
After rising sharply during much of 1994, interest rates peaked shortly after
our last report dated October 31, 1994. Following a succession of rate hikes
by the Federal Reserve Board, investors began to perceive that the central
bank's tighter monetary policy would slow the economy and successfully
contain inflation. This was evident in the markets' favorable reaction to the
Federal Reserve's November 1994 and February 1995 interest rate increases.
Since reaching their peak in November, interest rates have continued to
decline during the first four months of 1995, as the fixed-income markets
reacted positively to signs of a slowing economy and no inflationary threat.
During the current rally, bond prices recouped more than half of their
previous declines.
PERFORMANCE RESULTS
Against this backdrop, Dean Witter Diversified Income Trust posted a total
return of 5.48 percent during the six months ended April 30, 1995. During the
same period, the Lehman Brothers Government/Corporate Intermediate Bond Index
posted a return of 5.57 percent. The Trust paid distributions totaling $0.36
per share during the reporting period. As of April 30, 1995, the Trust's net
assets totaled $470 million. Assets were divided equally among shorter-term
global securities (principally U.S. and foreign government securities),
intermediate-term U.S. government and agency mortgage-backed securities and
longer-term, higher yielding corporate bonds.
SHORT-TERM GLOBAL SECTOR
Over the past six months, short-term foreign-currency denominated securities
have been highly rewarding to investors. As the U.S. dollar declined against
most foreign currencies (such as the German mark and the New Zealand dollar),
the Trust's investments in these markets have benefited from the increased
values of these currencies and/or their higher yields. As of the end of
April, 1995, the Trust had 15 percent of its assets in the European markets,
concentrated in maturities of 1.5 to 2.0 years.
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
LETTER TO SHAREHOLDERS, continued
Another 15 percent of the Trust's assets were in the three dollar-block
countries (Canada, Australia and New Zealand), taking advantage of their high
yields and stable, to rising, currency values against the U.S. dollar. The
average maturity of these investments was about one year, as the short-term
rates of the dollar-block nations have been higher than their longer-term
rates.
Looking ahead, we anticipate maintaining the existing strategy of investing
one-third of the Trust's assets in the global markets, with an emphasis on
short-term bonds in the 1.5 to 2.0 years of maturity. This strategy should
benefit from the relative stability of the major bond markets outside of the
United States as well as from the stable-to-rising currency values of these
markets.
U.S. GOVERNMENT/MORTGAGE SECTOR
With the decline in interest rates over the past few months, current coupon
mortgage-backed securities have gone from 8.5 percent in November 1994, to
7.5 percent in April 1995. Declining interest rates have affected
mortgage-backed securities to a similar degree as the U.S. Treasury
securities market. Recognizing this market environment, and as opportunities
presented themselves, the Trust purchased current coupon mortgages, as they
afforded the portfolio with an attractive combination of income and total
return potential at the time of purchase.
As of April 30, 1995, this sector of the Trust was diversified with 18
percent in U.S. Treasury securities, 79 percent in mortgage-backed securities
issued by the Federal National Mortgage Association (FNMA) with 6.5 percent
to 8.5 percent coupons; the Government National Mortgage Association (GNMA)
with 6.5 percent to 8.5 percent coupons; and the Federal Home Loan Mortgage
Corp. (FHLMC) with an 8.0 percent coupon. The remaining 3 percent of this
sector was invested in FNMA stripped coupon securities.
As market conditions warrant we will continue to diversify this sector of the
Trust with intermediate-term treasuries and mortgage-backed securities.
HIGH YIELD SECTOR
Following a weak 1994, the high yield bond market has rebounded in early
1995, along with most other fixed-income markets. The decline in interest
rates has increased the yield advantage provided by high yield issues. This
has attracted more investors to the high yield market and has created more
value for shareholders. Also providing fundamental support to the market is
the fact that credit quality in the marketplace remains solid, reflecting the
strong economy, improved corporate earnings picture and the spruced up
balance sheets of many high-yield issuers.
The Trust continues to favor B-rated issues which, despite the fact that
corporate credit quality in most cases remains strong, can be purchased at 13
percent yield levels and at significant discounts to par (face)
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
LETTER TO SHAREHOLDERS, continued
value. The Trust increased its emphasis on discounted B-rated issues, which
possess more upside opportunity for the Trust when the high-yield market
rebounds.
Overall, the Trust's high yield sector entered 1995 positioned for a recovery
in the market, though it still retained a sizeable holding in various
defensive securities, such as short-duration U.S. Treasury securities, in
order to provide the portfolio flexibility needed to take advantage of
opportunities as they arise.
LOOKING AHEAD
For the balance of 1995, we expect economic growth to continue to moderate
vis-a-vis the rapid pace of 1994's fourth quarter, as evidenced by the
slowing of the economy in 1995's first quarter. This should occur as the
interest rate increases by the Federal Reserve in 1994 take their toll in
1995. Inflation should continue to remain subdued, albeit at a modestly
higher level than 1994, likely 3.00 percent to 3.50 percent. The Trust's
extensive diversification across different sectors of the fixed-income
markets with varying maturities should continue to allow the Trust to
generate an attractive level of income, while reducing the volatility
associated with any one market.
We appreciate your continued support of Dean Witter Diversified Income Trust
and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ Charles A. Fiumefredo
-----------------------------
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1995 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON
THOUSANDS RATE MATURITY DATE VALUE
- --------------- ---------------------------------- ---------- ----------------- ---------------
<C> <C> <S> <C> <C> <C>
GOVERNMENT & CORPORATE BONDS (89.4%)
AUSTRALIA (1.2%)
Government Obligation
Au$ 7,600 New South Wales Treasury Corp. (f) 8.50% 03/01/96 $ 5,455,195
---------------
CANADA (4.4%)
Government Obligations
Ca$ 5,730 Canada Treasury Bond (f) .......... 10.25 03/01/96 4,300,667
5,100 Canada Treasury Bond (f) .......... 9.25 05/01/96 3,810,906
14,930 Canada Treasury Bond (f) .......... 9.25 10/01/96 11,214,553
2,100 Ontario Province (f) .............. 10.00 09/30/96 1,580,494
---------------
TOTAL CANADA ..................................................... 20,906,620
---------------
DENMARK (3.4%)
Government Obligation
DKr 85,000 Denmark Treasury Note (f) ......... 9.00 11/15/96 16,015,625
---------------
GERMANY (5.8%)
Government Obligations
DEM 30,000 Bundes Obligation (f) ............. 8.375 01/20/97 22,696,970
6,000 Deutsche Finance BV ............... 6.25 04/08/97 4,403,463
---------------
TOTAL GERMANY .................................................... 27,100,433
---------------
NEW ZEALAND (5.3%)
Government Obligations
NZ$ 21,814 New Zealand Treasury Bond (f) .... 8.00 11/15/95 14,582,273
10,200 New Zealand Treasury Bond (f) .... 9.00 11/15/96 6,912,750
4,800 New Zealand Treasury Bond (f) .... 10.00 07/15/97 3,340,347
---------------
TOTAL NEW ZEALAND ................................................ 24,835,370
---------------
UNITED KINGDOM (2.5%)
Government Obligations
pounds
ster. 4,700 United Kingdom Treasury Gilt (f) . 12.75 11/15/95 7,803,394
2,209 United Kingdom Treasury Gilt (f) . 13.25 05/15/96 3,767,098
---------------
TOTAL UNITED KINGDOM ............................................. 11,570,492
---------------
UNITED STATES (66.8%)
Airlines (1.2%)
US$ 7,000 GPA Delaware, Inc. ................ 8.75 12/15/98 5,565,000
---------------
Automotive (1.2%)
8,000 Envirotest Systems, Inc ........... 9.625 04/01/03 5,780,000
---------------
Beverages - Soft Drinks (1.0%)
Seven Up/RC Bottling Co. Southern
5,500 California, Inc. .................. 11.50 08/01/99 4,963,750
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1995 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON
THOUSANDS RATE MATURITY DATE VALUE
- --------------- ---------------------------------- ---------- ----------------- ---------------
<C> <C> <S> <C> <C> <C>
Cable & Telecommunications (0.5%)
Adelphia Communications Corp.
US$ 3,000 (Series B) ........................ 9.50%+ 02/15/04 $ 2,340,000
---------------
Computer Equipment (1.2%)
5,050 Unisys Corp. ...................... 13.50 07/01/97 5,555,000
---------------
Consumer Products (1.1%)
2,500 J.B. Williams Holdings, Inc. . ... 12.00* 03/01/04 2,412,500
Thermoscan, Inc. (Units)++ - 144A
2,900 (c) ............................... 13.438* 08/15/01 3,059,500
---------------
5,472,000
---------------
Containers (1.8%)
6,500 Ivex Holdings Corp. (Series B) ... 13.25++ 03/15/05 3,510,000
5,500 Silgan Holdings, Inc. ............. 13.25++ 12/15/02 4,977,500
---------------
8,487,500
---------------
Electrical & Alarm Systems (0.8%)
5,000 Mosler, Inc. ...................... 11.00 04/15/03 3,900,000
---------------
Entertainment/Gaming & Lodging (4.1%)
Fitzgeralds Gaming Corp. - 144A
2,500 (c) ............................... 13.75* 03/15/96 1,525,000
4,000 Motels of America, Inc. (Series B) 12.00 04/15/04 4,000,000
13,441 Spectravision, Inc. . ............. 11.65+ 12/01/02 1,612,920
4,000 Trump Castle Funding, Inc. ........ 11.75 11/15/03 2,480,000
10,228 Trump Plaza Holding Assoc. ........ 12.50+ 06/15/03 9,819,327
---------------
19,437,247
---------------
Foods & Beverages (2.4%)
6,400 Envirodyne Industries, Inc. . .... 10.25 12/01/01 5,312,000
Specialty Foods Aquisition Corp.
11,000 (Series B) ........................ 13.00++ 08/15/05 5,830,000
---------------
11,142,000
---------------
Industrials (1.2%)
5,500 Am General Corp. .................. 12.875 05/01/02 5,472,500
---------------
Manufacturing (1.7%)
3,500 Berry Plastics Corp. .............. 12.25 04/15/04 3,473,750
2,300 MS Essex Holdings Inc. ............ 16.00++ 05/15/04 2,300,000
2,500 Uniroyal Technology Corp. ......... 11.75 06/01/03 2,175,000
---------------
7,948,750
---------------
Manufacturing - Diversified (2.0%)
3,000 Interlake Corp. ................... 12.125 03/01/02 3,015,000
2,500 J.B. Poindexter & Co., Inc. ...... 12.50 05/15/04 2,400,000
2,500 Jordan Industries, Inc. . ......... 10.375 08/01/03 2,350,000
2,500 Jordan Industries, Inc. ........... 11.75++ 08/01/05 1,475,000
---------------
9,240,000
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1995 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON
THOUSANDS RATE MATURITY DATE VALUE
- --------------- ---------------------------------- ---------- ----------------- ---------------
<C> <C> <S> <C> <C> <C>
Oil & Gas (2.1%)
US$ 4,000 Deeptech International, Inc. ..... 12.00% 12/15/00 $ 3,480,000
2,500 Empire Gas Corp. .................. 7.00 07/15/04 1,750,000
8,225 Presidio Oil Co. (Series B) ...... 13.30*** 07/15/02 4,856,451
---------------
10,086,451
---------------
Publishing (2.3%)
Affiliated Newspapers Investments,
5,000 Inc. .............................. 13.25++ 07/01/06 2,750,000
3,800 BFP Holdings, Inc. (Series B) .... 13.50++ 04/15/04 2,432,000
2,500 Garden State Newspapers, Inc. .... 12.00 07/01/04 2,500,000
2,000 United States Banknote Corp. ..... 10.375 06/01/02 1,540,000
2,000 United States Banknote Corp. ..... 11.625 08/01/02 1,500,000
---------------
10,722,000
---------------
Restaurants (2.5%)
American Restaurant Group
6,000 Holdings, Inc. .................... 14.00++ 12/15/05 2,940,000
5,000 Carrols Corp. ..................... 11.50 08/15/03 4,743,750
5,000 Flagstar Corp. .................... 11.25 11/01/04 4,081,250
---------------
11,765,000
---------------
Retail (1.1%)
3,330 Cort Furniture Rental Corp. ...... 12.00 09/01/00 3,230,100
2,000 County Seat Stores Co. ............ 12.00 10/01/01 1,947,500
---------------
5,177,600
---------------
Retail - Food Chains (0.8%)
Food 4 Less Holdings, Inc. (Series
4,000 B) ................................ 15.25++ 12/15/04 3,160,000
Grand Union Capital Corp. (Series
18,000 A) (b) ............................ 15.00++ 07/15/04 225,000
Grand Union Capital Corp. (Series
45,750 A) (b) ............................ 0.00 01/15/07 285,938
---------------
3,670,938
---------------
Textiles (1.1%)
6,083 JPS Textile Group, Inc. ........... 10.85 06/01/99 5,139,814
---------------
U.S. Government & Agencies Obligations (36.7%)
Federal Home Loan Mortgage Corp (1.1%)
5,000 8.00 ** 4,978,125
---------------
Federal National Mortgage Assoc. (21.9%)
5,000 Principal Strip ................... 0.00 12/20/01 4,396,094
21,803 ................. ................. 6.50 10/01/08-02/01/24 20,589,121
25,071 ................. ................. 7.00 08/01/08-06/01/24 23,938,673
13,491 ................. ................. 7.50 02/01/22-02/01/23 13,174,722
11,831 ................. ................. 8.00 09/01/01-06/01/22 11,980,698
28,681 ................. ................. 8.50 07/01/17-05/01/25 29,120,172
---------------
103,199,480
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1995 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON
THOUSANDS RATE MATURITY DATE VALUE
- --------------- ---------------------------------- ---------- ----------------- ---------------
<C> <C> <S> <C> <C> <C>
Government National Mortgage Assoc. (7.0%)
US$ 4,960 ................. ................. 6.50% 11/20/23-02/20/24 $ 4,516,266
3,893 ................. ................. 7.00 12/15/22-03/15/24 3,684,224
9,942 ................. ................. 7.50 04/15/22-07/15/24 9,692,980
9,742 ................. ................. 8.00 01/15/22-10/15/24 9,735,976
5,068 ................. ................. 8.50 08/15/22-12/15/24 5,168,179
---------------
32,797,625
---------------
U.S. Treasury Strips (0.7%)
4,000 ................. ................. 0.00 05/15/97 3,499,372
---------------
U.S. Treasury Notes (6.0%)
2,000 ................. ................. 3.875 08/31/95 1,985,625
2,000 ................. ................. 3.875 10/31/95 1,977,500
6,000 ................. ................. 11.50 11/15/95 6,182,813
15,000 ................. ................. 7.25 02/15/98 15,206,250
1,000 ................. ................. 4.75 09/30/98 938,438
2,000 ................. ................. 4.75 10/31/98 1,874,063
---------------
28,164,689
---------------
TOTAL U.S. GOVERNMENT & AGENCIES OBLIGATIONS ..................... 172,639,291
---------------
TOTAL UNITED STATES .............................................. 314,504,841
---------------
TOTAL GOVERNMENT & CORPORATE BONDS (Identified Cost $432,995,032) 420,388,576
---------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------------------------------------------- --------------
<C> <S> <C>
COMMON STOCKS (a) (1.1%)
Building & Construction (0.5%)
88,500 USG Corp. ........................................... 2,090,812
--------------
Entertainment/Gaming & Lodging (0.0%)
2,000 Motels of America, Inc. - 144A (c) .................. 180,000
--------------
Foods & Beverages (0.1%)
165,000 Specialty Foods Acquisition Corp. - 144A (c) ....... 453,750
--------------
Manufacturing - Diversified (0.2%)
375,000 Interlake Corp. ..................................... 1,078,125
--------------
Publishing (0.2%)
5,000 Affiliated Newspapers Investments, Inc. (Class B) .. 150,000
30,400 BFP Holdings, Inc. (Class D) - 144A (c) ............. 912,000
--------------
1,062,000
--------------
Restaurants (0.0%)
6,000 American Restaurant Group Holdings, Inc. - 144A (c) 96,000
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1995 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------- ---------------------------------------------------- --------------
<C> <S> <C>
Retail (0.1%)
7,333 Finlay Enterprises (Class A) ........................ $ 102,666
76,000 Thrifty Payless Holdings, Inc. (Class C) ............ 361,000
--------------
463,666
--------------
TOTAL COMMON STOCKS
(Identified Cost $3,981,277) ........................ 5,424,353
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- ----------- ----------------------------------------- ------------ --------------
<C> <S> <C> <C>
WARRANTS (a) (0.1%)
Containers (0.0%)
2,000 Crown Packaging Holdings, Ltd - 144A (c) 11/01/03 110,000
--------------
Entertainment/Gaming & Lodging (0.0%)
2,500 Fitzgeralds Gaming Corp. - 144A (c) ..... 03/15/99 25,000
--------------
Manufacturing (0.0%)
3,500 BPC Holdings Corp. ....................... 04/15/04 43,750
25,000 Uniroyal Technology Corp. ................ 06/01/03 37,500
--------------
81,250
--------------
Oil & Gas (0.0%)
3,450 Empire Gas Corp. ......................... 07/15/04 34,500
--------------
Retail (0.1%)
2,000 County Seat Holdings Co .................. 10/01/01 60,000
109,890 New Cort Holdings Corp. .................. 09/01/00 219,780
--------------
279,780
--------------
TOTAL WARRANTS
(Identified Cost $286,080) ............................. 530,530
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------- ---------------------------------- -------- ---------- --------------
<C> <C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS (8.2%)
AUSTRALIA (4.0%)
Government Obligation
Au$ 26,150 Australia Treasury Bill (d) ...... 8.70% 05/24/95 18,915,352
--------------
GERMANY (1.4%)
Banking - International
DEM 9,016 Bank of New York Time Deposit (e) 4.375 05/10/95 6,504,690
--------------
IRELAND (1.4%)
Government Obligation
IEP 4,187 Irish Exchequer Note (d) .......... 7.36 01/05/96 6,517,838
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1995 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------- ---------------------------------- -------- ---------- --------------
<C> <C> <S> <C> <C> <C>
UNITED STATES (1.4%)
REPURCHASE AGREEMENT
US$ 6,814 The Bank of New York (dated
04/28/95; proceeds $6,817,482,
collateralized by $5,868,822 U.S.
Treasury Note 5.875% due 02/15/04
valued at $5,477,024 and
$1,508,640 Federal Mortgage
Acceptance Corp. 8.14% due 5/20/04
valued at $1,589,817) (Identified
Cost $6,814,040) .................. 6.06% 05/01/95 $ 6,814,040
--------------
TOTAL SHORT-TERM INVESTMENTS (Identified Cost
$39,821,041) ............................................ 38,751,920
--------------
TOTAL INVESTMENTS (Identified Cost
$477,083,430) (g) ........................... 98.8% 465,095,379
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES ................................. 1.2 5,796,979
--------------
NET ASSETS .................................. 100.0% $470,892,358
==============
<FN>
- ------------
* Adjustable rate. Rate shown is the rate in effect at April 30, 1995.
** 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.
*** Base interest rate is 13.25%, additional interest, if any, is linked to
the Gas Index. Rate shown is the rate in effect at April 30, 1995.
++ Consists of more than one class of securities traded together as a unit;
generally bonds with attached stocks/warrants.
+ Payment-in-kind securities.
++ Currently zero coupon under terms of the initial offering.
(a) Non-income producing.
(b) Non-income producing, issuer in bankruptcy.
(c) Resale is restricted to qualified institutional investors.
(d) Securities purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(e) Subject to withdrawal restrictions until maturity.
(f) Some or all of these securities are segregated in connection with open
forward foreign currency contracts and securities purchased on a forward
commitment basis.
(g) The aggregate cost for federal income tax purposes is $477,110,930; the
aggregate gross unrealized appreciation is $15,478,661 and the aggregate
gross unrealized depreciation is $27,494,212, resulting in net unrealized
depreciation of $12,015,551.
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT APRIL 30, 1995:
<TABLE>
<CAPTION>
CONTRACTS TO IN EXCHANGE DELIVERY UNREALIZED
DELIVER FOR DATE APPRECIATION
- --------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
FFr 35,329,628 US$ 7,245,216 05/03/95 $62,207
US$ 6,500,000 DEM 9,015,500 05/03/95 4,690
Unrealized appreciation ............. $66,897
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $477,083,430) ....................................... $465,095,379
Unrealized appreciation on forward
foreign currency contracts ........................................... 66,897
Cash (including $2,857,780 in foreign currency) ....................... 2,857,777
Receivable for:
Investments sold .................................................... 15,028,599
Interest ............................................................ 8,112,959
Shares of beneficial interest sold .................................. 2,344,355
Compensated forward foreign currency contracts ...................... 1,618,229
Deferred organizational expenses ...................................... 58,639
Prepaid expenses ...................................................... 38,384
--------------
TOTAL ASSETS ........................................................ 495,221,218
--------------
LIABILITIES :
Payable for:
Investments purchased ............................................... 19,134,491
Compensated forward foreign currency contracts ...................... 3,398,736
Shares of beneficial interest repurchased ........................... 565,826
Dividends to shareholders ........................................... 557,223
Plan of distribution fee ............................................ 323,393
Investment management fee ........................................... 152,185
Accrued expenses and other payables ................................... 197,006
--------------
TOTAL LIABILITIES ................................................... 24,328,860
--------------
NET ASSETS :
Paid-in-capital ....................................................... 488,214,779
Net unrealized depreciation ........................................... (11,850,485)
Accumulated undistributed net investment income ....................... 2,712,907
Accumulated net realized loss ......................................... (8,184,843)
--------------
NET ASSETS .......................................................... $470,892,358
==============
NET ASSET VALUE PER SHARE,
49,470,458 shares outstanding (unlimited authorized shares of $.01
par value) ........................................................... $9.52
========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the six months ended April 30, 1995 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME (net of $21,319 foreign withholding tax) .. $21,371,239
-------------
EXPENSES:
Plan of distribution fee ................................... 1,803,604
Investment management fee .................................. 848,788
Transfer agent fees and expenses ........................... 137,220
Custodian fees ............................................. 134,530
Registration fees .......................................... 66,865
Professional fees .......................................... 38,139
Shareholder reports and notices ............................ 32,738
Trustees' fees and expenses ................................ 15,248
Organizational expenses .................................... 14,969
Other ...................................................... 9,415
-------------
TOTAL EXPENSES ........................................... 3,101,516
-------------
NET INVESTMENT INCOME .................................... 18,269,723
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss on:
Investments .............................................. (518,492)
Foreign exchange transactions ............................ (4,535,794)
-------------
TOTAL LOSS ............................................... (5,054,286)
-------------
Net change in unrealized appreciation/depreciation on:
Investments .............................................. 8,825,021
Translation of forward foreign currency contracts, other
assets and liabilities denominated in foreign currencies 1,951,285
-------------
TOTAL APPRECIATION ....................................... 10,776,306
-------------
NET GAIN ................................................. 5,722,020
-------------
NET INCREASE ............................................... $23,991,743
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
APRIL 30, 1995 OCTOBER 31, 1994
- ------------------------------------------------------ -------------- ----------------
<S> <C> <C>
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................. $ 18,269,723 $ 24,862,000
Net realized loss ..................................... (5,054,286) (7,411,360)
Net change in unrealized appreciation/depreciation ... 10,776,306 (22,174,645)
-------------- ----------------
NET INCREASE (DECREASE) ............................. 23,991,743 (4,724,005)
-------------- ----------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................. (16,555,559) (20,310,107)
Net realized gain ..................................... -- (281,210)
Paid-in-capital ....................................... -- (3,939,838)
-------------- ----------------
TOTAL ............................................... (16,555,559) (24,531,155)
-------------- ----------------
Net increase from transactions in shares of beneficial
interest ............................................. 56,417,776 269,156,860
-------------- ----------------
TOTAL INCREASE ...................................... 63,853,960 239,901,700
NET ASSETS:
Beginning of period ................................... 407,038,398 167,136,698
-------------- ----------------
END OF PERIOD
(Including undistributed net investment income of
$2,712,907 and $998,743, respectively) .............. $470,892,358 $407,038,398
============== ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1995 (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. The Fund was organized as a
Massachusetts business trust on December 20, 1991 and commenced operations on
April 9, 1992.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity 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. 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 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, if available, in determining what it believes is the fair
valuation of the portfolio securities valued by such pricing service; (5)
short-term debt securities having a maturity date of more than sixty days at
time of purchase are valued on a mark-to-market basis until sixty days prior
to maturity and thereafter at amortized cost based on their value on the 61st
day. Short-term debt securities having a maturity date of sixty days or less
at the time of purchase are valued at amortized cost; and (6) 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 by the identified cost
method. Discounts on securities purchased are amortized over the life of the
respective securities. Interest income is accrued daily.
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1995 (unaudited) continued
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
are translated at the exchange rates prevailing at the end of the period; and
(2) purchases, sales, income and expenses are translated at the exchange
rates prevailing on the respective dates of such transactions. The resultant
exchange gains and losses are included in the Statement of Operations as
realized and unrealized gain/loss on foreign exchange transactions. Pursuant
to U.S. Federal income tax regulations, certain foreign exchange gains/losses
included in realized and unrealized gain/loss are included in or are a
reduction of ordinary income for federal income tax purposes. The Fund does
not isolate that portion of the results of operations arising as a result of
changes in the foreign exchange rates from the changes in the market prices
of the securities.
D. FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund may enter into forward
foreign currency contracts which are valued daily at the appropriate exchange
rates. The resultant unrealized exchange gains and losses are included in the
Statement of Operations as unrealized foreign currencies gain or loss. The
Fund records realized gains or losses on delivery of the currency or at the
time the forward contract is extinguished (compensated) by entering into a
closing transaction prior to delivery.
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 record date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends
and distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as dividends in excess of net investment income or distributions in excess of
net realized capital gains. To the extent they exceed net investment income
and net realized capital gains for tax purposes, they are reported as
distributions of paid-in-capital.
G. ORGANIZATIONAL EXPENSES -- Dean Witter InterCapital Inc. (the "Investment
Manager") paid the organizational expenses of the Fund in the amount of
approximately $151,000. Such expenses have been deferred and are being
amortized on the straight-line method over a period not to exceed five years
from the commencement of operations.
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1995 (unaudited) continued
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, 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.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities,
equipment, clerical, bookkeeping and certain legal services and pays the
salaries of all personnel, including officers of the Fund who are employees
of the Investment Manager. The Investment Manager also bears the cost of
telephone services, heat, light, power and other utilities provided to the
Fund.
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by 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 an 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 reinvestment of dividend 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 provided 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 account executives of Dean Witter
Reynold Inc.'s, an affiliate of the Investment Manager and Distributor, and
other employees and selected broker-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 to other than current shareholders 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 incurred by the Distributor.
Provided that the Plan continues in effect, any cumulative expenses incurred
but not yet recovered may be recovered through future distribution fees from
the Fund and contingent deferred sales charges from the Fund's shareholders.
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1995 (unaudited) continued
The Distributor has informed the Fund that for the six months ended April 30,
1995, it received approximately $574,000 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 proceeds from sales of portfolio securities,
excluding short-term investments, for the six months ended April 30, 1995
were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------- -------------
<S> <C> <C>
Corporate Bonds ......................... $80,826,636 $65,481,948
Foreign Government Bonds ................ 54,513,400 58,363,688
U.S. Government and Agencies Obligations 58,648,193 23,563,750
</TABLE>
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At April 30, 1995, the Fund had
transfer agent fees and expenses payable of approximately $14,000.
The Fund adopted an unfunded noncontributory defined benefit pension plan
covering all independent Trustees of the Fund who will have served as
independent Trustees for at least five years at the time of retirement.
Benefits under this plan are based on years of service and compensation
during the last five years of service. Aggregate pension costs for the six
months ended April 30, 1995, included in Trustees' fees and expenses in the
Statement of Operations amounted to $5,852. At April 30, 1995, the Fund had
an accrued pension liability of $18,253 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 FOR THE YEAR
MONTHS ENDED ENDED
APRIL 30, 1995 OCTOBER 31, 1994
----------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sold ....................................... 10,466,832 $ 97,889,161 36,245,110 $358,205,287
Reinvestment of dividends and distributions 751,009 7,002,892 1,119,356 10,865,837
------------- -------------- -------------- --------------
11,217,841 104,892,053 37,364,466 369,071,124
Repurchased ................................ (5,191,021) (48,474,277) (10,300,421) (99,914,264)
------------- -------------- -------------- --------------
Net increase ............................... 6,026,820 $ 56,417,776 27,064,045 $269,156,860
============= ============== ============== ==============
</TABLE>
6. FEDERAL INCOME TAX STATUS
At October 31, 1994, the Fund had net capital loss carryovers of
approximately $3,103,000 which will be available through October 31, 2002 to
offset future capital gains to the extent provided by regulations.
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1995 (unaudited) continued
At October 31, 1994, the Fund had temporary book/tax differences primarily
attributable mark-to-market of open forward foreign currency contracts and
compensated forward foreign currency contracts and permanent book/tax
differences primarily attributable to foreign currency losses.
7. PURPOSE OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Fund may enter into forward foreign currency contracts ("forward
contracts") to facilitate settlement of foreign currency denominated
portfolio transactions or to manage its foreign currency exposure or to sell,
for a fixed amount of U.S. dollars or other currency, the amount of foreign
currency approximating the value of some or all of its holdings denominated
in such foreign currency or an amount of foreign currency other than the
currency in which the securities to be hedged are denominated approximating
the value of some or all of its holdings to be hedged. Additionally, when the
Investment Manager anticipates purchasing securities at some time in the
future, the Fund may enter into a forward contract to purchase an amount of
currency equal to some or all the value of the anticipated purchase for a
fixed amount of U.S. dollars or other currency.
To hedge against adverse interest rate, foreign currency and market risks,
the Fund may enter into written options on interest rate futures and interest
rate futures contracts ("derivative investments").
At April 30, 1995, there were no outstanding forward contracts other than
those used to manage foreign currency exposure associated with anticipated
portfolio transactions of foreign currency denominated securities.
These derivative instruments involve elements of market risk in excess of the
amount reflected in the Statement of Assets and Liabilities. The Fund bears
the risk of an unfavorable change in the foreign exchange rates underlying
the forward contracts. Risks may also arise upon entering into these
contracts from the potential inability of the counterparties to meet the
terms of their contracts.
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX MONTHS FOR THE YEAR FOR THE YEAR APRIL 9, 1992*
ENDED APRIL 30, ENDED ENDED THROUGH
1995 OCTOBER 31, 1994 OCTOBER 31, 1993 OCTOBER 31, 1992
- -------------------------------------------- ------------------ -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
(unaudited)
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ....... $ 9.37 $ 10.20 $ 10.01 $ 10.00
------------------ -------------------- -------------------- --------------------
Net investment income ....................... 0.39 0.74 0.77 0.37
Net realized and unrealized gain (loss) .... 0.12 (0.80) 0.20 --
------------------ -------------------- -------------------- --------------------
Total from investment operations ............ 0.51 (0.06) 0.97 0.37
------------------ -------------------- -------------------- --------------------
Less dividends and distributions from:
Net investment income ...................... (0.36) (0.64) (0.73) (0.36)
Net realized gain .......................... -- (0.01) (0.05) --
Paid-in-capital ............................ -- (0.12) -- --
------------------ -------------------- -------------------- --------------------
Total dividends and distributions ........... (0.36) (0.77) (0.78) (0.36)
------------------ -------------------- -------------------- --------------------
Net asset value, end of period .............. $ 9.52 $ 9.37 $ 10.20 $ 10.01
================== ==================== ==================== ====================
TOTAL INVESTMENT RETURN+..................... 5.48%(1) (0.69)% 10.00% 3.73%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................... 1.46%(2) 1.51% 1.58%(4) 0.85%(2)(3)
Net investment income ....................... 8.55%(2) 7.91% 7.92%(4) 7.86%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .... $470,892 $407,038 $167,137 $55,297
Portfolio turnover rate ..................... 38%(1) 60% 117% 37%(1)
<FN>
- -----------
* Commencement of operations.
+ Does not reflect the deduction of sales charge.
(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 and net investment
income ratios would have been 2.08% and 6.63%, respectively.
(4) If the Fund had borne all expenses that were assumed or waived by the
Investment Manager, the above annualized expense and net investment
income ratios would have been 1.66% and 7.84%, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
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
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
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
SEMIANNUAL REPORT
APRIL 30, 1995
