<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST Two World Trade Center, New York, New
York 10048
LETTER TO THE SHAREHOLDERS October 31, 1995
DEAR SHAREHOLDER:
After suffering sharp declines during most of 1994 as interest rates rose
significantly, the U.S. fixed-income markets began to show signs of life in
the fourth quarter of 1994 and started to rebound during the first quarter of
1995.
The bond market rally continued through the second and third quarters of
1995, with yields on intermediate- and long-term bonds declining to levels
last seen before the Federal Reserve Board began its restrictive monetary
policy in February 1994. As of October 31, 1995, the yield on the 30-year
U.S. Treasury bond was 6.33 percent, compared to 7.97 percent a year ago.
Much of the bond market's strength during 1995 can be attributed to the
continued slowdown in the pace of economic activity, as housing starts,
automobile sales and retail sales have all declined. In addition, despite
today's relatively low unemployment level and the volatility of the
commodities markets, inflation has stabilized below three percent. Recent
economic data supports the perception that the Federal Reserve has
successfully orchestrated a "soft landing," whereby the U.S. economy is
growing quickly enough to avoid recession, yet not so rapidly that
inflationary pressure becomes a major issue.
Outside of the United States, European bonds turned in a mixed performance in
the first half of the fiscal year, supported on the one hand by the U.S. bond
rally, but undermined on the other hand by political and budget issues.
However, in the second half, these markets rallied as these issues were
addressed in a more decisive fashion by the affected countries and by the
community of European countries as a whole. Also aiding this rally was the
lowering of interest rates in Germany in response to slowing economic growth
and improving inflation reports. As a result, yields on three-year German and
Italian bonds declined by 2.3 percent and 2.2 percent, respectively, from the
highs seen earlier in the year.
In the foreign exchange markets, the U.S. dollar plummeted to new historical
lows against the Japanese yen and the German mark during the
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1995, continued
first six months of the fiscal year, mainly due to the ongoing trade dispute
between the U.S. and Japan. In the second half of the year, however, the U.S.
currency regained some of its composure thanks to aggressive and concerted
intervention by the U.S., Germany and Japan, and the U.S.-Japan agreement on
auto parts, and subsequently, the unveiling of the Japanese deregulatory
package combined with two reductions of the Japanese Official Discount Rate.
For the twelve-month period, the dollar depreciated by 6.5 percent against
the German mark, while appreciating by 5.3 percent against the Japanese yen.
Overall, the U.S. dollar lost 2.3 percent on a trade-weighted basis.
The high-yield market has had a strong 1995 thus far, benefiting from the
rally in the Treasury market, which has driven long-term interest rates
significantly lower, as well as from the continued strength in corporate
earnings. As is typical in a decelerating economic environment however, high
yield bonds have lagged the 1995 rally in Treasuries a bit, as concerns over
the severity of the economic slowdown have offset some of the benefit of
lower interest rates.
PERFORMANCE AND PORTFOLIO
DEAN WITTER DIVERSIFIED INCOME TRUST
GROWTH OF $10,000
LEHMAN GOVERNMENT/CORPORATE INTERMEDIATE
DATE INDEX TOTAL
April 9, 1992 $10,000 $10,000
October 31, 1992 $10,373 $10,620
October 31, 1993 $11,410 $11,679
October 31, 1994 $11,050 $11,454
October 31, 1995 $12,358 $12,888
(3)
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR LIFE OF FUND
10.76 (1) 6.59 (1)
5.76 (2) 6.13 (2)
Fund Lehman (4)
Past performance is not predictive of future returns.
________________________________________
(1) Figure shown assumes reinvestment of all distributions and does
not reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the
deduction of the maximum applicable contingent deferred sales
charge (CDSC) (1 Year-5%, since inception-2%). See the Fund's
current prospectus for complete details on fees and sales
charges.
(3) Closing value after the deduction of a 2% CDSC, assuming a
complete redemption on October 31, 1995.
(4) The Lehman Brothers Mutual Fund Government/Corporate
Intermediate Bond Index tracks the performance of government
and corporate bonds, including U.S. Government agency and U.S.
Treasury securities and corporate and yankee bonds with
maturities of 1 to 10 years. Unlike the fund, the index does
not include any expenses, fees or charges. The Index is
unmanaged and should not be considered an investment.
Against this backdrop, Dean Witter Diversified Income Trust produced a total
return of 10.76 percent for the twelve months ended October 31, 1995,
compared to a return of 12.54 percent for the Lehman Brothers Mutual Fund
Government/Corporate Intermediate Bond Index (the Index) and a return of
12.09 percent for the Lehman Brothers Mutual Fund Short World Multimarket
Index. The accompanying chart illustrates the growth of a $10,000 investment
in the Fund from inception (April 9, 1992) versus the performance of a
similar investment in the issues that comprise the Lehman Brothers Mutual
Fund Government/Corporate Intermediate Bond Index.
As of October 31, 1995, the Fund's net assets exceeded $542 million. Assets
were divided equally among shorter-term global securities, U.S. government
and
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1995, continued
agency-backed securities and higher-yielding corporate bonds. During the
fiscal year, the Fund's dividends totaled approximately $0.72 per share.
SHORT-TERM GLOBAL SECTOR
The investment strategy of the portfolio's global sector in this market
environment was to increase its allocation to the Italian, Spanish and
Swedish markets in the second half of the year, taking advantage of higher
yields and rising bond prices in these markets. As of October 31, 1995, 13
percent of the global sector's assets were in North America, 67 percent were
in Europe and 20 percent in the Pacific Basin countries. These investment
positions consisted of government securities of varying maturities up to
three years. The average maturity of the global sector averaged about 1.5
years during the fiscal year. Some of the currency risks of these investments
were not hedged back into the dollar as the U.S. currency declined in value.
U.S. GOVERNMENT/MORTGAGE SECTOR
With the decline in interest rates during the fiscal year, current coupon
mortgage-backed securities have gone from 8.5 percent in November 1994 to 7.0
percent in October 1995. Periodically, when the mortgage market lagged the
U.S. Treasury market rally, current coupon mortgages were purchased at
attractive levels, enhancing the portfolio's U.S. government/mortgage sector
prospects for capital appreciation and current income.
As of October 31, 1995, 89 percent of this sector was invested in
mortgage-backed securities issued by the Federal National Mortgage
Association (FNMA), the Government National Mortgage Association (GNMA), and
the Federal Home Loan Mortgage Corp. (FHLMC) with 6.5 percent to 8.5 percent
coupons, 4 percent in U.S. Treasuries and the remaining 7 percent invested in
FNMA and Treasury strips.
HIGH-YIELD SECTOR
The investment strategy of the Fund's high-yield sector entering 1995 was to
capitalize on the opportunity created by the 1994 market correction by
positioning the portfolio for an eventual rebound in the high-yield bond
market. Despite the fact that corporate credit quality remained strong, the
1994 market correction pushed the yields on many B-rated issues 300-400 basis
points higher (to the 13-14 percent range) and caused bond prices in some
cases to decline by as much as 15-20 percent. In light of these
opportunities, the high-yield sector significantly increased its emphasis on
discounted issues (primarily B-rated) during the latter part of 1994 and
early part of 1995. This renewed focus on discounted issues has helped to
boost 1995's returns to date and should provide more long-term capital
appreciation
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
LETTER TO THE SHAREHOLDERS October 31, 1995, continued
potential for the Fund in the future. While the Fund's portfolio is currently
still positioned for further upside in the high-yield market, it does
maintain a sizable position in various defensive securities, in order to
provide the flexibility needed to take advantage of any interim opportunities
that may arise.
LOOKING AHEAD
Going forward, we expect the economy to maintain a slow-to-moderate pace for
the remainder of 1995. Despite a 25 basis point cut in the federal-funds rate
in mid-1995, we believe that the Federal Reserve will want to see a sustained
confirmation of weak economic trends before taking further action. Inflation
should continue to remain subdued, albeit at a modestly higher level than
1994, at approximately three percent. Outside the U.S., accommodative
monetary policies by the other major countries should bode well for the
global bonds. Also, the substantial progress in budgetary discipline that has
been seen in Europe, especially in Italy, Spain and Sweden should lead to
strong performance by these international bond markets.
We appreciate your ongoing support of Dean Witter Diversified Income Trust
and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GOVERNMENT & CORPORATE BONDS (95.1%)
AUSTRALIA (1.6%)
Government Obligations
Au$ 7,600 New South Wales Treasury Corp. (g) ............................. 8.50 % 03/01/96 $ 5,787,569
3,700 Queensland Treasury Corp. (g) .................................. 8.00 05/14/97 2,820,436
--------------
TOTAL AUSTRALIA ....................................................................... 8,608,005
--------------
CANADA (4.0%)
Government Obligations
Ca$ 5,730 Canada Treasury Bond (g) ....................................... 10.25 03/01/96 4,322,886
5,100 Canada Treasury Bond (g) ....................................... 9.25 05/01/96 3,854,810
14,930 Canada Treasury Bond (g) ....................................... 9.25 10/01/96 11,412,612
2,100 Ontario Province (g) ........................................... 10.00 09/30/96 1,599,002
--------------
TOTAL CANADA .......................................................................... 21,189,310
--------------
DENMARK (4.4%)
Government Obligations
DKr 85,000 Denmark Treasury Note (g) ...................................... 9.00 11/15/96 16,065,934
41,150 Denmark Treasury Note (g) ...................................... 9.00 11/15/98 8,056,658
--------------
TOTAL DENMARK ......................................................................... 24,122,592
--------------
GERMANY (4.9%)
Finance (0.8%)
DEM 6,000 Deutsche Finance BV ............................................ 6.25 04/08/97 4,380,959
--------------
Government Obligation (4.1%)
30,000 Bundes Obligation (g) .......................................... 8.375 01/20/97 22,363,055
--------------
TOTAL GERMANY ......................................................................... 26,744,014
--------------
ITALY (3.2%)
Government Obligation
ITL 27,785 M Italy Treasury Bond (g) ........................................ 10.50 04/15/98 17,305,337
--------------
NEW ZEALAND (4.6%)
Government Obligations
NZ$ 10,200 New Zealand Treasury Bond (g) .................................. 9.00 11/15/96 6,799,844
9,500 New Zealand Treasury Bond (g) .................................. 10.00 07/15/97 6,504,503
17,115 New Zealand Treasury Bond (g) .................................. 8.00 07/15/98 11,468,375
--------------
TOTAL NEW ZEALAND ..................................................................... 24,772,722
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SPAIN (3.1%)
Government Obligations
ESP 1,060 M Spain Treasury Bond (g) ........................................ 7.30 % 07/30/97 $ 8,335,712
1,016 M Spain Treasury Bond (g) ........................................ 11.45 08/30/98 8,570,391
--------------
TOTAL SPAIN ........................................................................... 16,906,103
--------------
SWEDEN (4.9%)
Government Obligation
SEK 172,300 Sweden Treasury Bond ........................................... 10.75 01/23/97 26,552,895
--------------
UNITED STATES (64.4%)
Aerospace (0.8%)
$ 4,750 Sabreliner Corp. (Series B) .................................... 12.50 04/15/03 4,465,000
--------------
Airlines (1.5%)
9,000 GPA Delaware, Inc. ............................................. 8.75 12/15/98 8,055,000
--------------
Automotive (0.8%)
3,500 Am General Corp. ............................................... 12.875 05/01/02 3,500,000
2,000 Envirotest Systems, Inc. ....................................... 9.625 04/01/03 1,240,000
--------------
4,740,000
--------------
Cable & Telecommunications (3.9%)
4,342 Adelphia Communications Corp. (Series B) ....................... 9.50 + 02/15/04 3,604,070
7,400 AT&T Capital Corp. ............................................. 15.00 05/05/97 8,322,005
11,500 In-Flight Phone Corp. (Units)++ - 144A** 14.00 ++ 05/15/02 5,175,000
4,000 Paxson Communications - 144A** ................................. 11.625 10/01/02 3,930,000
--------------
21,031,075
--------------
Computer Equipment (1.7%)
3,000 IBM Credit Corp. ............................................... 15.00 06/13/96 3,160,920
6,050 Unisys Corp. ................................................... 13.50 07/01/97 6,155,875
--------------
9,316,795
--------------
Consumer Products (0.5%)
2,500 J.B. Williams Holdings, Inc. ................................... 12.00 03/01/04 2,525,000
--------------
Containers (0.8%)
8,000 Ivex Holdings Corp. (Series B) ................................. 13.25 ++ 03/15/05 4,540,000
--------------
Electrical & Alarm Systems (0.8%)
5,000 Mosler, Inc. ................................................... 11.00 04/15/03 4,150,000
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Entertainment/Gaming & Lodging (3.7%)
$ 3,500 Fitzgeralds Gaming Corp. - 144A** .............................. 14.25 *% 03/15/96 $ 2,800,000
4,000 GNF Corporation (Series B) ..................................... 10.625 04/01/03 3,510,000
3,500 Motels of America, Inc. (Series B) ............................. 12.00 04/15/04 3,526,250
2,250 Santa Fe Hotel Inc. ............................................ 11.00 12/15/00 1,620,000
2,500 Six Flags Theme Parks Corp. - 144A** ........................... 12.25 ++ 06/15/05 1,968,750
14,291 Spectravision, Inc. (c) ........................................ 11.65 12/01/02 1,411,236
3,000 Trump Castle Funding, Inc. ..................................... 11.75 11/15/03 2,415,000
3,000 Trump Taj Mahal (Series A) ..................................... 11.35 11/15/99 2,565,000
--------------
19,816,236
--------------
Foods & Beverages (4.3%)
7,400 Envirodyne Industries, Inc. .................................... 10.25 12/01/01 5,772,000
3,000 PepsiCo Inc. ................................................... 15.00 06/14/96 3,160,500
3,000 SC International Services, Inc. ................................ 13.00 10/01/05 3,060,000
7,500 Seven Up/RC Bottling Co. Southern California, Inc. (d) ......... 11.50 08/01/99 3,293,835
16,750 Specialty Foods Acquisition Corp. (Series B) ................... 13.00 ++ 08/15/05 7,956,250
--------------
23,242,585
--------------
Manufacturing (2.0%)
5,000 Alpine Group, Inc. - 144A** .................................... 12.25 07/15/03 4,762,500
2,000 Berry Plastics Corp. ........................................... 12.25 04/15/04 2,110,000
4,000 Uniroyal Technology Corp. ...................................... 11.75 06/01/03 3,800,000
--------------
10,672,500
--------------
Manufacturing - Diversified (2.5%)
3,000 Foamex L.P. .................................................... 11.875 10/01/04 3,030,000
4,000 Interlake Corp. ................................................ 12.125 03/01/02 3,780,000
2,500 J.B. Poindexter & Co., Inc. .................................... 12.50 05/15/04 2,337,500
7,000 Jordan Industries, Inc. ........................................ 11.75 ++ 08/01/05 4,235,000
--------------
13,382,500
--------------
Oil & Gas (1.2%)
4,000 Deeptech International, Inc. ................................... 12.00 12/15/00 3,520,000
3,500 Empire Gas Corp. ............................................... 7.00 07/15/04 2,975,000
--------------
6,495,000
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Publishing (2.1%)
$ 6,000 Affiliated Newspapers Investments, Inc. ........................ 13.25 ++% 07/01/06 $ 3,480,000
3,800 BFP Holdings, Inc. (Series B) .................................. 13.50 ++ 04/15/04 3,002,000
2,500 Garden State Newspapers, Inc. .................................. 12.00 07/01/04 2,506,250
4,000 United States Banknote Corp. (Series B) ........................ 11.625 08/01/02 2,600,000
--------------
11,588,250
--------------
Restaurants (3.6%)
3,950 American Restaurant Group ...................................... 12.00 09/15/98 2,923,000
6,000 American Restaurant Group Holdings, Inc. ....................... 14.00 ++ 12/15/05 2,805,000
5,000 Carrols Corp. .................................................. 11.50 08/15/03 5,012,500
10,950 Flagstar Corp. ................................................. 11.25 11/01/04 7,884,000
1,000 Starbucks Corp. (Conv.) ........................................ 4.25 11/01/02 1,002,500
--------------
19,627,000
--------------
Retail (0.8%)
2,330 Cort Furniture Rental Corp. .................................... 12.00 09/01/00 2,458,150
2,000 County Seat Stores Co. ......................................... 12.00 10/01/02 1,800,000
--------------
4,258,150
--------------
Textiles - Apparel Manufacturers (1.3%)
6,083 JPS Textile Group, Inc. ........................................ 10.85 06/01/99 5,535,184
2,000 U.S. Leather, Inc. ............................................. 10.25 07/31/03 1,640,000
--------------
7,175,184
--------------
U.S. Government & Agencies Obligations (32.1%)
4,649 10/01/24-
Federal Home Loan Mortgage Corp (0.9%) ......................... 8.00 05/01/25 4,760,377
--------------
Federal National Mortgage Assoc. (22.1%)
11,000 12/20/01-
Principal Strip ................................................ 0.00 02/01/05 8,017,030
20,972 ................................................................. 6.50 10/01/08-
02/01/24 20,613,063
24,272 ................................................................. 7.00 08/01/08-
06/01/24 24,100,578
5,000 ................................................................. 7.00 *** 4,953,125
17,996 ................................................................. 7.50 02/01/22-
07/01/25 18,170,553
5,000 ................................................................. 7.50 *** 5,048,438
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$10,661 ................................................................. 8.00% 09/01/01-
06/01/22 $ 10,909,448
26,979 ................................................................. 8.50 07/01/17-
05/01/25 27,932,159
--------------
119,744,394
--------------
Government National Mortgage Assoc. (7.2%)
4,841 ................................................................. 6.50 11/20/23-
02/20/24 4,680,739
3,851 ................................................................. 7.00 12/15/22-
03/15/24 3,820,846
15,915 ................................................................. 7.50 04/15/22-
07/20/25 16,069,421
9,266 ................................................................. 8.00 01/15/22-
10/15/24 9,526,951
4,752 ................................................................. 8.50 08/15/22-
12/15/24 4,943,746
--------------
39,041,703
--------------
U.S. Treasury Notes (1.2%) (g)
1,000 ................................................................. 4.75 09/30/98 974,219
2,000 ................................................................. 4.75 10/31/98 1,946,563
2,000 ................................................................. 6.25 08/31/00 2,033,750
2,000 ................................................................. 5.75 10/31/00 1,994,375
--------------
6,948,907
--------------
U.S. Treasury Strip (0.7%) (g)
4,000 ................................................................. 0.00 05/15/97 3,673,143
--------------
TOTAL U.S. GOVERNMENT & AGENCIES OBLIGATIONS .......................................... 174,168,524
--------------
TOTAL UNITED STATES ................................................................... 349,248,799
--------------
TOTAL GOVERNMENT & CORPORATE BONDS
(Identified Cost $523,727,000) ........................................................ 515,449,777
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (a) (1.8%)
Building & Construction (0.8%)
128,500 USG Corp. (b) .......................................................................... $3,742,562
--------------
Consumer Products (0.1%)
37,700 Thermoscan, Inc. (Class B) - 144A** .................................................... 597,922
--------------
Entertainment/Gaming & Lodging (0.0%)
2,000 Motels of America, Inc. - 144A** ....................................................... 176,000
--------------
Foods & Beverages (0.1%)
198,750 Specialty Foods Acquisition Corp. - 144A** ............................................. 596,250
--------------
Manufacturing - Diversified (0.5%)
353,500 Interlake Corp. ........................................................................ 707,000
125,000 Thermadyne Holdings Corp. (b) .......................................................... 2,125,000
--------------
2,832,000
--------------
Publishing (0.2%)
6,000 Affiliated Newspapers Investments, Inc. (Class B) ...................................... 180,000
30,400 BFP Holdings, Inc. (Class D) - 144A** .................................................. 1,124,800
--------------
1,304,800
--------------
Restaurants (0.0%)
6,000 American Restaurant Group Holdings, Inc. - 144A** ...................................... 90,000
--------------
Retail (0.1%)
7,333 Finlay Enterprises Inc. (Class A) ...................................................... 100,829
101,000 Thrifty Payless Holdings, Inc. (Class C) ............................................... 416,625
--------------
517,454
--------------
TOTAL COMMON STOCKS
(Identified Cost $7,657,545) ........................................................... 9,856,988
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- ---------------------------------------------------------------------------------------- ------------ --------------
<S> <C> <C> <C>
WARRANTS (a) (0.1%)
Aerospace (0.0%)
1,000 Sabreliner Corp. (Restricted) - 144A** ................................... 04/15/03 $ 10,000
--------------
Containers (0.0%)
2,000 Crown Packaging Holdings, Ltd. (Canada) - 144A** ......................... 11/01/03 110,000
--------------
Entertainment/Gaming & Lodging (0.0%) ....................................
9,500 Fitzgeralds Gaming Corp. - 144A** ........................................ 03/15/99 95,000
--------------
Manufacturing (0.0%)
3,500 BPC Holdings Corp. ....................................................... 04/15/04 43,750
40,000 Uniroyal Technology Corp. ................................................ 06/01/03 100,000
--------------
143,750
--------------
Oil & Gas (0.0%)
3,450 Empire Gas Corp. ......................................................... 07/15/04 34,500
--------------
Retail (0.1%)
2,000 County Seat Holdings Co. ................................................. 10/15/98 45,000
109,890 New Cort Holdings Corp. .................................................. 09/01/98 219,780
--------------
264,780
--------------
Retail - Food Chains (0.0%)
16,278 Grand Union Co. (Series 1) (b) ........................................... 06/16/00 16,278
32,558 Grand Union Co. (Series 2) (b) ........................................... 06/16/00 16,279
--------------
32,557
--------------
TOTAL WARRANTS
(Identified Cost $417,808) ............................................................ 690,587
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS (4.4%)
IRELAND (1.2%)
Government Obligation
IEP 4,187 Irish Exchequer Note (e) ....................................... 7.36 % 01/05/96 6,707,507
--------------
TIME DEPOSITS (f) (1.4%)
ITALY (0.8%)
Banking - International
ITL 5,433 M Bank of New York ............................................... 10.375 11/03/95 3,417,211
1,276 M Bankers Trust .................................................. 10.50 11/03/95 802,750
--------------
TOTAL ITALY ........................................................................ 4,219,961
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SWEDEN (0.6%)
Banking - International
SEK 19,898 Bankers Trust .................................................. 8.50 % 11/03/95 $ 3,002,754
--------------
TOTAL TIME DEPOSITS ................................................................ 7,222,715
--------------
UNITED STATES (1.8%)
U.S. GOVERNMENT AGENCY (1.1%)
$ 5,900 Student Loan Marketing Association (e) ......................... 5.82 11/01/95 5,900,000
--------------
REPURCHASE AGREEMENT (0.7%)
4,105 The Bank of New York (dated 10/31/95; proceeds $4,105,578;
collateralized by $4,697,518 Federal National Mortgage Assoc.
7.50%
due 04/25/19 valued at $4,386,512) (Identified Cost $4,104,915) 5.8125 11/01/95 4,104,915
--------------
TOTAL UNITED STATES ................................................................ 10,004,915
--------------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $23,305,716) ...................................................... 23,935,137
--------------
TOTAL INVESTMENTS
(Identified Cost $555,108,069) (h) ...................................... 101.4% 549,932,489
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS .......................... (1.4) (7,388,796)
--------------
NET ASSETS .............................................................. 100.0% $542,543,693
==============
</TABLE>
- ------------
M In millions.
* Adjustable rate. Rate shown is the rate in effect at October 31, 1995.
** Resale is restricted to qualified institutional investors.
*** Security 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.
++ Consists of one or more class of securities traded together as a unit;
generally
bonds with attached stocks/warrants.
+ Payment-in-kind security.
++ Currently a zero coupon bond and will pay interest at the rate shown at
a future
specified date.
(a) Non-income producing security.
(b) Acquired through exchange offer.
(c) Non-income producing security, issuer in bankruptcy.
(d) Non-income producing security, issuer in default.
(e) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield. The
money market equivalent yield for the Irish Exchequer Note does not
reflect the effect of exchange rates.
(f) Subject to withdrawal restrictions until maturity.
(g) Some or all of these securities are segregated in connection with open
forward foreign currency contracts and securities purchased on a
forward commitment basis.
(h) The aggregate cost for federal income tax purposes is $555,406,174; the
aggregate gross unrealized appreciation is $16,639,031 and the
aggregate gross unrealized depreciation is $22,112,716, resulting in
net unrealized depreciation of $5,473,685.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS October 31, 1995, continued
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT OCTOBER 31, 1995:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS IN EXCHANGE DELIVERY APPRECIATION/
TO DELIVER FOR DATE (DEPRECIATION)
- -------------- ------------- ---------- ---------------
<S> <C> <C> <C>
CAD 10,000,000 $ 7,340,527 11/07/95 $ (102,550)
CAD 14,000,000 $10,218,978 11/27/95 (209,047)
DEM 34,500,000 $23,955,006 11/24/95 (459,023)
DEM 17,141,320 $11,630,696 05/29/96 (523,110)
DEM 3,550,000 $ 2,531,194 06/14/96 23,662
DEM 3,770,000 $ 2,688,057 06/14/96 22,111
DEM 22,070,000 $14,933,351 09/11/96 (720,907)
---------------
Net unrealized depreciation .......... $(1,968,864)
===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $555,108,069) ...................................... $549,932,489
Cash (including $1,041,582 in foreign currency) ...................... 3,090,858
Unrealized appreciation on open forward foreign currency contracts .. 45,773
Receivable for:
Interest ........................................................... 13,268,294
Investments sold ................................................... 3,627,891
Compensated forward foreign currency contracts ..................... 1,926,935
Shares of beneficial interest sold ................................. 1,497,495
Foreign withholding taxes reclaimed ................................ 176,339
Deferred organizational expenses ..................................... 43,421
Prepaid expenses ..................................................... 16,464
--------------
TOTAL ASSETS ....................................................... 573,625,959
--------------
LIABILITIES:
Unrealized depreciation on open forward foreign currency contracts .. 2,014,637
Payable for:
Investments purchased .............................................. 23,173,636
Compensated forward foreign currency contracts ..................... 4,194,384
Dividends to shareholders .......................................... 624,807
Plan of distribution fee ........................................... 400,663
Shares of beneficial interest repurchased .......................... 316,256
Investment management fee .......................................... 188,547
Accrued expenses ..................................................... 169,336
--------------
TOTAL LIABILITIES .................................................. 31,082,266
--------------
NET ASSETS:
Paid-in-capital ...................................................... 554,996,010
Net unrealized depreciation .......................................... (7,001,870)
Accumulated undistributed net investment income ...................... 3,816,429
Accumulated net realized loss ........................................ (9,266,876)
--------------
NET ASSETS ........................................................ $542,543,693
==============
NET ASSET VALUE PER SHARE,
56,403,092 shares outstanding (unlimited shares authorized of $.01
par
value) .............................................................. $ 9.62
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the year ended October 31, 1995
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME (net of $84,313 foreign withholding tax) ........... $45,680,948
-------------
EXPENSES
Plan of distribution fee ............................................ 3,986,348
Investment management fee ........................................... 1,875,972
Transfer agent fees and expenses .................................... 320,255
Custodian fees ...................................................... 264,505
Registration fees ................................................... 99,308
Professional fees ................................................... 82,363
Shareholder reports and notices ..................................... 67,456
Organizational expenses ............................................. 30,186
Trustees' fees and expenses ......................................... 24,096
Other ............................................................... 13,018
-------------
TOTAL EXPENSES .................................................... 6,763,507
-------------
NET INVESTMENT INCOME ............................................. 38,917,441
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments ....................................................... 1,692,051
Foreign exchange transactions ..................................... (8,346,086)
-------------
TOTAL LOSS ........................................................ (6,654,035)
-------------
Net change in unrealized depreciation on:
Investments ....................................................... 15,637,492
Translation of forward foreign currency contracts, other assets
and liabilities denominated in foreign currencies ................. (12,571)
-------------
TOTAL APPRECIATION ................................................ 15,624,921
-------------
NET GAIN .......................................................... 8,970,886
-------------
NET INCREASE ........................................................ $47,888,327
=============
</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 YEAR FOR THE YEAR
ENDED OCTOBER ENDED OCTOBER
31, 1995 31, 1994
- -------------------------------------------------- ---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ............................. $ 38,917,441 $ 24,862,000
Net realized loss ................................. (6,654,035) (7,411,360)
Net change in unrealized depreciation ............. 15,624,921 (22,174,645)
---------------- ----------------
NET INCREASE (DECREASE) ......................... 47,888,327 (4,724,005)
---------------- ----------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ............................. (35,658,766) (20,310,107)
Net realized gain ................................. -- (281,210)
Paid-in-capital ................................... -- (3,939,838)
---------------- ----------------
TOTAL ........................................... (35,658,766) (24,531,155)
---------------- ----------------
Net increase from transactions in shares of
beneficial interest .............................. 123,275,734 269,156,860
---------------- ----------------
TOTAL INCREASE .................................. 135,505,295 239,901,700
NET ASSETS:
Beginning of period ............................... 407,038,398 167,136,698
---------------- ----------------
END OF PERIOD
(including undistributed net investment income
of $3,816,429 and $998,743, respectively) ...... $542,543,693 $407,038,398
================ ================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1995
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) 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; (2) 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); (3)
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; and (4) 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.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined by the identified cost
method. Discounts are accreted over the life of the respective securities.
Interest income is accrued daily.
C. 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
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued
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 gain/loss on foreign exchange
transactions. 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 which have been fully reimbursed. 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.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays 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>
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1995, 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, 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 gain
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
Reynolds Inc., 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.
The Distributor has informed the Fund that for the year ended October 31,
1995, it received approximately $1,026,000 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.
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended October 31, 1995 were as
follows:
<TABLE>
<CAPTION>
PURCHASES SALES
-------------- ---------------
<S> <C> <C>
Corporate Bonds .......................... $182,730,323 $140,009,322
Foreign Government Bonds ................. 232,912,308 180,505,501
U.S. Government and Agencies Obligations 91,636,094 58,230,151
</TABLE>
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At October 31, 1995, the Fund had
transfer agent fees and expenses payable of approximately $35,000.
The Fund has an unfunded noncontributory defined benefit pension plan
covering all independent Trustees of the Fund who will have served as
independent Trustees for at least five years at the time of retirement.
Benefits under this plan are based on years of service and compensation
during the last five years of service. Aggregate pension costs for the year
ended October 31, 1995 included in Trustees' fees and expenses in the
Statement of Operations amounted to $7,393. At October 31, 1995, the Fund had
an accrued pension liability of $16,578 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 YEAR ENDED FOR THE YEAR ENDED
OCTOBER 31, 1995 OCTOBER 31, 1994
----------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sold ........................................ 21,219,776 $201,648,052 36,245,110 $358,205,287
Reinvestment of dividends and distributions 1,592,451 15,089,111 1,119,356 10,865,837
------------- -------------- -------------- --------------
22,812,227 216,737,163 37,364,466 369,071,124
Repurchased ................................. (9,852,773) (93,461,429) (10,300,421) (99,914,264)
------------- -------------- -------------- --------------
Net increase ................................ 12,959,454 $123,275,734 27,064,045 $269,156,860
============= ============== ============== ==============
</TABLE>
6. FEDERAL INCOME TAX STATUS
At October 31, 1995, the Fund had a net capital loss carryover of
approximately $6,701,000 of which $3,024,000 will be available through
October 31, 2002 and $3,677,000 will be available through October 31, 2003 to
offset future capital gains to the extent provided by regulations.
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS October 31, 1995, continued
As of October 31, 1995, the Fund had temporary book/tax differences primarily
attributable to the mark-to-market of open forward foreign currency exchange
contracts and compensated forward foreign currency exchange contracts and
permanent book/tax differences primarily attributable to foreign currency
losses. To reflect reclassifications arising from permanent book/tax
differences for the year ended
October 31, 1995, paid-in-capital was charged $76,727, undistributed net
investment income was charged $440,989 and accumulated net realized loss was
credited $517,716.
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 October 31, 1995, there were no outstanding forward contracts other than
those used to manage foreign currency exposure associated with some of the
Fund's foreign currency denominated holdings.
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 YEAR ENDED OCTOBER 31 APRIL 9, 1992*
---------------------------------- THROUGH
1995 1994 1993 OCTOBER 31, 1992
- --------------------------------------- ---------- ---------- ---------- -------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .. $ 9.37 $10.20 $10.01 $10.00
---------- ---------- ---------- ----------------
Net investment income .................. 0.77 0.74 0.77 0.37
Net realized and unrealized gain (loss) 0.20 (0.80) 0.20 --
---------- ---------- ---------- ----------------
Total from investment operations ...... 0.97 (0.06) 0.97 0.37
---------- ---------- ---------- ----------------
Less dividends and distributions from:
Net investment income ................. (0.72) (0.64) (0.73) (0.36)
Net realized gain ..................... -- (0.01) (0.05) --
Paid-in-capital ....................... -- (0.12) -- --
---------- ---------- ---------- ----------------
Total dividends and distributions ..... (0.72) (0.77) (0.78) (0.36)
---------- ---------- ---------- ----------------
Net asset value, end of period ......... $ 9.62 $ 9.37 $10.20 $10.01
========== ========== ========== ================
TOTAL INVESTMENT RETURN+ ............... 10.76% (0.69)% 10.00% 3.73%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ............................... 1.44% 1.51% 1.58%(4) 0.85%(2)(3)
Net investment income .................. 8.30% 7.91% 7.92%(4) 7.86%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands $542,544 $407,038 $167,137 $55,297
Portfolio turnover rate ................ 87% 60% 117% 37%(1)
</TABLE>
- ------------
* 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 expense and net
investment income ratios would have been 1.66% and 7.84%, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER DIVERSIFIED INCOME TRUST
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Dean Witter
Diversified Income Trust (the "Fund") at October 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
of the three years in the period then ended and for the period April 9, 1992
(commencement of operations) through October 31, 1992, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at October
31, 1995 by correspondence with the custodians and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
December 12, 1995
<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
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
ANNUAL REPORT
OCTOBER 31, 1995
