<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
LETTER TO THE SHAREHOLDERS April 30, 1997
Two World Trade Center, New York, New York 10048
DEAR SHAREHOLDER:
During the six-month period ended April 30, 1997, U.S. economic growth
accelerated, prompting the Federal Reserve Board to raise short-term interest
rates. As a result, the federal-funds rate was increased 25 basis points, to
5.50 percent. Although the current inflation environment remains favorable,
members of the Federal Open Market Committee are voicing concerns regarding
the continuing strength in employment and the possibility of increased
inflationary pressure in the near future.
Speculation about possible Federal Reserve action resulted in increased
volatility in U.S. bond markets during the period, with yields on 30-year
Treasuries fluctuating between 6.35 percent and 7.17 percent.
At the end of the period, the 30-year Treasury bond was yielding
6.96 percent, compared to 6.64 percent on October 31, 1996.
YIELD SPREADS NARROW IN THE HIGH-YIELD BOND SECTOR
Following the trend of the past 12 months, the high-yield market held up
relatively well for most of the period under review, despite a weak U.S.
Treasury market and the rise in long-term interest rates. Some weakening did
occur, however, as the first quarter of 1997 came to a close, due to the
Federal Reserve's action to increase the federal-funds rate. Although
high-yield bond prices were pushed lower, the market's attractive income
levels produced modest positive total returns for the high-yield sector.
Meanwhile, the favorable economic environment continued to strengthen the
high-yield market's overall credit quality, which provided support for
high-yield bond prices. Yield levels have declined somewhat over the past
year, narrowing the yield advantage over Treasuries.
MIXED PERFORMANCE ABROAD
The global fixed-income markets had a mixed performance during the six-month
period ended April 30, 1997. In Europe, such major bond markets as Germany
and France fluctuated in a wide range, reflecting the
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
LETTER TO THE SHAREHOLDERS April 30, 1997, continued
U.S. markets. However, as those countries continued to report declining
inflation, sluggish economic growth and high unemployment, interest rates
there declined. In the southern European countries of Italy, Spain and
Portugal, substantially higher volatility dominated trading in their foreign
exchange and bond markets as a result of mounting doubts about the prospect
for the European Monetary Union starting on time in January 1999 and the
chances of having Italy become a founding member. As these concerns
increased, Italian bonds and the lira, Italy's currency, were sold off in the
international marketplace. This volatile trading dominated the Italian and
neighboring markets for the better part of the period. In the dollar-bloc
countries of Australia and New Zealand, bond markets traded in line with
those of the United States.
In the foreign exchange markets, the U.S. dollar rose sharply versus the yen
and the Deutsche mark, exhibiting strength unseen since the early 1980s. The
persistent weakness of the yen reflected not only expectations of higher U.S.
interest rates but also severe weakness in Japan's economy and its low
interest rates. Regarding the mark, Germany's fiscal and monetary policy mix
associated with qualifying for EMU, did help to keep interest rates low, but
it also acted as a big negative factor on its currency. These elements
combined with higher U.S. interest rates to drive the mark down to levels not
seen since early 1994. Elsewhere, the U.S. dollar was mostly stable against
the Australian dollar and the New Zealand dollar but it fluctuated in a
two-percent range against the Canadian dollar.
PERFORMANCE AND PORTFOLIO STRATEGY
Against this backdrop, Dean Witter Diversified Income Trust produced a total
return of -0.03 percent for the six-month period ended April 30, 1997. This
compares to a return of 1.74 percent for the Lehman Brothers Mutual Fund
Government/Corporate Intermediate Bond Index and a return of 2.43 percent for
the Lipper General Bond Fund Index. During the period under review, the Fund
continued to distribute dividends from net investment income at a rate of
$0.06 per share per month. For the entire six-month period, the Fund paid
dividends totaling $0.55 per share, including an extra income dividend of
$0.19 per share, paid on December 31, 1996.
As of April 30, 1997, the Fund's net assets exceeded $828 million. The Fund's
portfolio was 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.
Long-Term High-Yield Corporate Bond Component. As the economy has continued
to expand over the past few years, we have tended to concentrate on B-rated
issues. In a growing economy one can find undervalued "upgrade" candidates in
this sector of the market that provide attractive yields as well as
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
LETTER TO THE SHAREHOLDERS April 30, 1997, continued
appreciation potential. We therefore continue to feel that many of these
issues are very attractive long-term investments. However, given today's
higher interest rate environment and a potentially slowing economy down the
road, we have taken some defensive steps. Over the past six to nine months,
we have upgraded the portfolio by increasing our allocation in the
higher-quality end of the market (BB-rated issues or higher) from 10 percent
to 20 percent. We have also sold many of our heavily cyclical positions and
are now focused mainly on the more predictable recession-resistant or growth
sectors of the economy. These are areas that would tend to hold up well in an
economic slowdown. In certain of these sectors, such as media and
telecommunications, we expect to see continued consolidation, which should
bode well for most industry participants, including many of the portfolio's
current holdings.
Overall, we continue our primary focus on discounted B-rated investments
yielding 10 percent or higher, which we feel possess appreciation potential
as well as an attractive yield. In addition, while we are not expecting a
recession in 1997, we have begun to take a more defensive approach in case of
any economic slowing down the road as a result of today's higher interest
rate environment.
Intermediate-Term U.S. Government Bond Component. With the rise in interest
rates over the past six months, current-coupon 30-year pass-through
mortgage-backed securities rose from 7.00 percent in October 1996 to 7.50
percent in April 1997. Over this period, these securities substantially
outperformed similar-maturity Treasury issues. Accordingly, as cash flows
permitted, the Fund purchased current-coupon mortgages at attractive levels,
enhancing its potential for income and total return.
As of April 30, 1997, this sector was primarily comprised of mortgage-backed
securities issued by the Federal National Mortgage Association (FNMA),
Government National Mortgage Association (GNMA) and Federal Home Loan
Mortgage Corporation (FHLMC) with 6.00 percent to 8.50 percent coupons.
Short-Term Global Bond Component. Amid increased volatility in the global
markets, we are following a strategy of hedging the currency risks associated
with investments in Europe. This tactic has resulted in the Fund's being
effectively protected against a decline in values in European currencies.
Additionally, the Fund's global securities have been invested in short-term
bonds spread out among the major markets in Europe and to a lesser extent,
the dollar-bloc countries of Australia, New Zealand and Canada. The short
maturity of these investments, which averaged about 1.5 years, minimized the
Fund's exposure to fluctuations in interest-rate markets.
Going forward, we anticipate a continuation of the strategy of
diversification in global markets with an emphasis on markets that exhibit
improving inflation outlooks and fiscal discipline. In this regard we believe
there are outstanding values in sectors of the bond markets in Europe, given
the central banks' credible anti-inflation monetary policies and the
prospects of fiscal restraint and improving inflation both here and abroad.
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
LETTER TO THE SHAREHOLDERS April 30, 1997, continued
We appreciate your support of Dean Witter Diversified Income Trust and look
forward to continuing to serve your investment needs and objectives.
Very truly yours,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1997 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GOVERNMENT & CORPORATE BONDS (95.4%)
AUSTRALIA (a)(3.0%)
Government Obligations
Au$ 23,211 Queensland Treasury Corp. ...................................... 8.00 % 05/14/97 $18,136,327
7,300 Queensland Treasury Corp. ...................................... 12.00 05/15/97 5,709,520
995 Queensland Treasury Corp. ....................................... 8.00 07/14/99 798,915
-----------
TOTAL AUSTRALIA ...................................................................... 24,644,762
-----------
AUSTRIA (a)(4.8%)
Government Obligation
ATS 451,250 Republic of Austria ............................................ 7.00 02/14/00 39,769,994
-----------
CANADA (a)(1.2%)
Government Obligations
Ca$ 5,675 Canada Treasury Bond ........................................... 10.75 03/15/98 4,288,635
7,150 Canada Treasury Bond ........................................... 8.00 11/01/98 5,364,930
-----------
TOTAL CANADA ......................................................................... 9,653,565
-----------
DENMARK (a)(3.6%)
Government Obligation
DKr 183,277 Denmark Treasury Note .......................................... 9.00 11/15/98 29,810,416
-----------
FRANCE (1.3%)
Government Obligation
FRF 58,080 France Treasury Note ............................................ 7.75 04/12/00 10,961,548
-----------
GERMANY (a)(2.2%)
Financial (0.4%)
5,590 Suedwestdeutsche Landesbank Capital Markets ..................... 6.875 10/06/98 3,371,772
-----------
Government Obligations (1.8%)
DEM 6,450 Bundes Obligation .............................................. 6.875 02/24/99 3,937,855
17,750 Bundes Obligation .............................................. 7.00 01/13/00 11,055,275
-----------
14,993,130
-----------
TOTAL GERMANY ........................................................................ 18,364,902
-----------
IRELAND (a)(0.7%)
Government Obligation
IEP 3,850 Ireland Treasury Bond .......................................... 9.75 06/01/98 5,991,871
-----------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1997 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
ITALY (a)(3.0%)
Finance (0.0%)
900,000 Credit Suisse Finance Gibraltar ............................... 11.625% 05/27/97 $ 527,632
-----------
Government Obligation (3.0%)
ITL 40,425 M Italy Treasury Bond ........................................... 9.50 02/01/99 24,673,434
-----------
TOTAL ITALY .......................................................................... 25,201,066
-----------
NETHERLANDS (0.2%)
Banks
ITL 1,450 M Bank Nederlandse Gemeenten .................................... 12.00 06/18/97 852,275
390,000 Rabobank Nederland ............................................. 11.50 09/30/97 231,491
160,000 Rabobank Nederland ............................................. 11.00 02/01/98 96,028
-----------
TOTAL NETHERLANDS ..................................................................... 1,179,794
-----------
NEW ZEALAND (1.0%)
Government Obligations
NZ$ 9,500 New Zealand Treasury Bond (a) .................................. 10.00 07/15/97 6,618,880
2,220 New Zealand Treasury Bond ...................................... 8.00 07/15/98 1,548,680
-----------
TOTAL NEW ZEALAND ..................................................................... 8,167,560
-----------
PORTUGAL (2.8%)
Government Obligations
PTE 157,000 Portugal Treasury Bond ......................................... 11.625 02/23/98 944,080
1,693 M Portugal Treasury Bond (a) ..................................... 8.375 01/23/99 10,154,099
1,965 M Portugal Treasury Bond (a) ..................................... 8.50 03/23/99 11,868,102
-----------
TOTAL PORTUGAL ........................................................................ 22,966,281
-----------
SPAIN (a)(3.5%)
Government Obligations
ESP 1,016 M Spain Treasury Bond ........................................... 11.45 08/30/98 7,477,523
2,009 M Spain Treasury Bond ........................................... 9.90 10/31/98 14,605,526
990,000 Spain Treasury Bond ........................................... 9.40 04/30/99 7,274,702
-----------
TOTAL SPAIN ........................................................................... 29,357,751
-----------
SWEDEN (a)(3.1%)
Government Obligation
SEK 180,800 Sweden Treasury Bond .......................................... 11.00 01/21/99 25,287,670
-----------
UNITED KINGDOM (a)(1.6%)
Government Obligation
pounds
sterl-
ing 7,435 United Kingdom Treasury Bond ................................... 15.50 09/30/98 13,452,140
-----------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1997 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
UNITED STATES (63.4%)
Aerospace (0.4%)
$ 3,000 Sabreliner Corp. (Series B) ..................................... 12.50 % 04/15/03 $ 2,940,000
-----------
Broadcast Media (1.5%)
7,000 Capstar Broadcasting Partners-144A* ............................. 12.75 ++ 02/01/09 3,902,500
4,000 Paxson Communications Corp. ..................................... 11.625 10/01/02 4,230,000
4,000 Spanish Broadcasting System, Inc. ............................... 7.50 06/15/02 4,290,000
-----------
12,422,500
-----------
Business Services (1.4%)
11,000 Anacomp, Inc.-144A* ............................................. 10.875 04/01/04 10,821,250
1,250 Xerox Credit Corp. ............................................. 15.00 06/10/97 1,261,325
-----------
12,082,575
-----------
Cable & Telecommunications (9.6%)
2,236 Adelphia Communications Corp.
(Series B) ..................................................... 9.50 + 02/15/04 1,967,379
2,200 Adelphia Communications, Inc.-144A* ............................. 9.875 03/01/07 2,068,000
5,675 Advanced Radio Telecommunication (Units)++ ..................... 14.00 02/15/07 6,001,313
7,050 American Communications Services, Inc. .......................... 13.00 ++ 11/01/05 3,736,500
750 American Communications Services, Inc. .......................... 12.75 ++ 04/01/06 369,375
5,500 Australis Media Ltd (Units)++ ................................... 15.75 ++ 05/15/03 3,437,500
3,700 Echostar Satellite Broadcasting ................................. 13.125++ 03/15/04 2,682,500
5,113 Falcon Holdings Group L.P.
(Series B) ..................................................... 11.00 + 09/15/03 4,537,604
3,850 Frontiervision, Inc. ............................................ 11.00 10/15/06 3,859,625
9,000 Hyperion Telecommunication, Inc. (Series B) ..................... 13.00 ++ 04/15/03 4,770,000
21,000 In-Flight Phone Corp. (Series B) ............................... 14.00 ++ 05/15/02 1,995,000
5,000 Intermedia Communications, Inc. ................................ 12.50 ++ 05/15/06 3,250,000
3,000 IXC Communications, Inc. (Series B) ............................. 12.50 10/01/05 3,300,000
5,700 Mobile Telecommunication Technologies Corp. ..................... 13.50 12/15/02 5,600,250
9,250 Nextel Communications ........................................... 9.75 ++ 08/15/04 6,717,813
3,350 Nextlink Communications ......................................... 12.50 04/15/06 3,417,000
5,800 Orbcomm Global LP/Capital ....................................... 14.00 08/15/04 5,945,000
6,700 Paging Network, Inc. ............................................ 10.125 08/01/07 6,046,750
4,000 Peoples Telephone Co., Inc. ..................................... 12.25 07/15/02 4,160,000
5,250 USA Mobile Communications Holdings, Inc. ....................... 14.00 11/01/04 5,381,250
-----------
79,242,859
-----------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1997 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
Computer Equipment (1.0%)
$ 2,500 IBM Credit Corp. ............................................... 15.00 % 03/04/98 $ 2,678,750
2,300 Unisys Corp. ................................................... 15.00 07/01/97 2,328,750
3,275 Unisys Corp. (Conv.) ............................................ 8.25 03/15/06 3,688,469
-----------
8,695,969
-----------
Consumer Products (0.4%)
2,500 J.B. Williams Holdings, Inc. .................................... 12.00 03/01/04 2,550,000
1,000 Pen-Tab Industries Inc. -144A* .................................. 10.875 02/01/07 1,005,000
-----------
3,555,000
-----------
Container (0.1%)
1,000 Packaging Resources, Inc. -144A* ................................ 13.00 + 06/30/03 900,000
-----------
Electrical & Alarm Systems (0.6%)
4,980 Mosler, Inc. ................................................... 11.00 04/15/03 4,681,200
-----------
Entertainment/Gaming & Lodging (4.9%)
2,850 Argosy Gaming Co. ............................................... 13.25 06/01/04 2,593,500
12,455 Cobblestone Holdings, Inc. ..................................... 0.00 06/01/04 5,293,375
4,400 Fitzgeralds Gaming Corp. (Units)++ .............................. 13.00 12/31/02 3,520,000
4,400 Lady Luck Gaming Finance Corp. ................................. 11.875 03/01/01 4,317,500
7,920 Motels of America, Inc. (Series B) .............................. 12.00 04/15/04 6,969,600
4,000 Players International, Inc. .................................... 10.875 04/15/05 4,165,000
1,500 Plitt Theaters, Inc. (Canada) ................................... 10.875 06/15/04 1,509,375
4,000 President Riverboat Casinos, Inc. .............................. 13.00 09/15/01 3,370,000
2,800 Stuart Entertainment, Inc. (Series B) ........................... 12.50 11/15/04 2,464,000
3,000 Trump Atlantic City Association/Funding ......................... 11.25 05/01/06 2,910,000
3,800 Trump Castle Funding, Inc. ..................................... 11.75 11/15/03 3,249,000
-----------
40,361,350
-----------
Financial (0.9%)
2,500 Household Finance Corp. ........................................ 15.00 09/25/97 2,588,575
2,750 Olympic Financial Ltd. (Units)++ ............................... 11.50 03/15/07 2,640,000
2,500 Toyota Motor Credit Corp. ....................................... 15.00 09/26/97 2,589,675
-----------
7,818,250
-----------
Foods & Beverages (2.2%)
6,100 Envirodyne Industries, Inc. .................................... 10.25 12/01/01 5,978,000
2,500 Fleming Companies, Inc. ........................................ 10.625 12/15/01 2,525,000
4,500 Specialty Foods Acquisition Corp. (Series B) .................... 11.25 08/15/03 4,050,000
12,125 Specialty Foods Acquisition Corp. (Series B) .................... 13.00 ++ 08/15/05 5,759,375
-----------
18,312,375
-----------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1997 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
HealthCare (1.6%)
$ 6,300 Unilab Corp. .................................................... 11.00 % 04/01/06 $ 4,851,000
6,350 Unison Healthcare -144A* ........................................ 12.25 11/01/06 5,334,000
2,800 Urohealth Systems, Inc. (Units)++ 144A* ......................... 12.50 04/01/04 2,828,000
-----------
13,013,000
-----------
Manufacturing (0.8%)
4,000 Exide Electronics Group, Inc.
(Series B) ..................................................... 11.50 03/15/06 4,230,000
2,500 John Deere Capital Corp. ....................................... 15.00 02/24/98 2,673,650
-----------
6,903,650
-----------
Manufacturing-Diversified (1.4%)
3,000 Interlake Corp. ................................................. 12.125 03/01/02 3,146,250
2,800 J.B. Poindexter & Co., Inc. .................................... 12.50 05/15/04 2,786,000
2,815 Jordan Industries, Inc. ........................................ 10.375 08/01/03 2,772,775
4,825 Jordan Industries, Inc. -144A* .................................. 11.75 ++ 04/01/09 2,726,125
-----------
11,431,150
-----------
Publishing (0.3%)
2,500 United States Banknote Corp.
(Series B) ..................................................... 10.375 06/01/02 2,475,000
-----------
Restaurants (1.2%)
28 American Restaurant Group Holdings, Inc. ....................... 13.00 09/15/98 26,039
6,000 American Restaurant Group Holdings, Inc. ....................... 14.00 ++ 12/15/05 2,535,000
9,500 Boston Chicken, Inc. (Conv.) .................................... 0.00 06/01/15 2,315,625
4,600 FRD Acquisition Corp. (Series B) ................................ 12.50 07/15/04 4,801,250
-----------
9,677,914
-----------
Retail (0.9%)
3,350 Apparel Ventures, Inc. (Series B) ............................... 12.25 12/31/00 2,730,250
10,450 County Seat Stores Co. (b) ...................................... 12.00 10/01/02 4,545,750
-----------
7,276,000
-----------
Retail-Food Chains (1.0%)
3,750 Big V Supermarkets, Inc. ........................................ 11.00 02/15/04 3,656,250
2,500 Pathmark Stores, Inc. ........................................... 11.625 06/15/02 2,462,500
2,500 Pathmark Stores, Inc. ........................................... 9.625 05/01/03 2,325,000
-----------
8,443,750
-----------
Textiles-Apparel Manufacturers (0.7%)
3,000 Reeves Industries, Inc. ......................................... 11.00 07/15/02 2,546,250
4,500 U.S. Leather, Inc. .............................................. 10.25 07/31/03 3,285,000
-----------
5,831,250
-----------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1997 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
U.S. Government & Agency Obligations (32.5%)
$ 3,408 Federal Home Loan Mortgage 10/01/24-
Corp. (0.4%) .................................................... 8.00 % 06/01/25 $ 3,457,062
-----------
Federal National Mortgage Assoc. (a)(14.8%)
3,808 ................................................................. 6.00 02/01/11-
03/01/11 3,624,279
21,751 ................................................................. 6.50 10/01/08-
02/01/24 20,916,609
39,365 ................................................................. 7.00 08/01/08-
03/01/27 38,184,071
21,898 ................................................................. 7.50 02/01/22-
01/01/27 21,726,592
13,437 ................................................................. 8.00 09/01/01-
06/01/26 13,653,599
20,535 ................................................................. 8.50 07/01/17-
05/01/25 21,182,622
6,000 Principal Strip ................................................. 0.00 02/12/04-
02/01/05 3,566,010
-----------
122,853,782
-----------
Government National Mortgage Assoc. (a) (12.1%)
25,308 ................................................................. 6.50 11/20/23-
03/15/27 23,762,852
25,105 ................................................................. 7.00 12/15/22-
10/15/26 24,258,084
41,425 ................................................................. 7.50 05/15/17-
11/15/26 41,059,439
7,773 ................................................................. 8.00 01/15/22-
10/15/24 7,880,013
3,361 ................................................................. 8.50 08/15/22-
12/15/24 3,470,897
-----------
100,431,285
-----------
32,000 Resolution Funding Corp. (a)(2.3%) .............................. 0.00 10/15/04-
07/15/05 18,669,360
-----------
U.S. Treasury Notes (a)(2.6%)
3,000 ................................................................. 4.75 09/30/98-
10/31/98 2,941,990
500 ................................................................. 5.50 11/15/98 495,200
2,000 ................................................................. 5.75 10/31/00 1,955,100
4,000 ................................................................. 5.875 11/30/01 3,892,960
2,000 ................................................................. 6.25 08/31/00 1,987,900
5,000 ................................................................. 8.50 05/15/97 5,006,250
5,000 ................................................................. 8.625 08/15/97 5,044,700
-----------
21,324,100
-----------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1997 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
$ 2,500 U.S. Treasury Strip (a)(0.3%) ................................... 0.00% 05/15/97 $ 2,495,050
-----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS ............................................ 269,230,639
-----------
TOTAL UNITED STATES ................................................................... 525,294,431
-----------
TOTAL GOVERNMENT & CORPORATE BONDS
(Identified Cost $824,929,689) ........................................................ 790,103,751
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
- -----------
<S> <C> <C>
COMMON STOCKS (c)(1.1%)
Entertainment/Gaming & Lodging (0.1%)
12,455 Cobblestone Holdings, Inc.-144A* ................................ 249,100
2,000 Motels of America, Inc.-144A* ................................... 40,000
---------
289,100
---------
Foods & Beverages (0.0%)
198,750 Specialty Foods Acquisition Corp.-144A* ......................... 198,750
---------
Healthcare (0.2%)
430,000 Unigene Laboratories, Inc. ...................................... 1,343,750
---------
Manufacturing-Diversified (0.6%)
198,000 Thermadyne Holdings Corp. (d) ................................... 5,172,750
---------
Restaurants (0.0%)
6,000 American Restaurant Group Holdings, Inc.-144A* .................. 6,000
---------
Textiles (0.2%)
230,000 Ithaca Industries, Inc. ......................................... 1,840,000
---------
TOTAL COMMON STOCKS
(Identified Cost $7,164,097) ................................... 8,850,350
---------
PREFERRED STOCKS (0.2%)
Bank (0.0%)
7,500 BBC Capital-$2.375 .............................................. 188,438
---------
Entertainment/Gaming & Lodging (c)(0.2%)
80,000 Fitzgeralds Gaming Corp. (Units)++ ............................. 1,820,000
---------
TOTAL PREFERRED STOCKS
(Identified Cost $2,187,500) .................................... 2,008,438
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1997 (unaudited) continued
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
WARRANTS (c)(0.1%)
Aerospace (0.0%)
1,000 Sabreliner Corp. (Restricted)-144A* ...................................... 04/15/03 $ 10,000
--------
Cable & Telecommunications (0.1%)
9,000 Hyperion Telecommunication, Inc.
(Series B)-144A* ........................................................ 04/01/01 270,000
--------
Containers (0.0%)
2,000 Crown Packaging Holdings, Ltd. (Canada)-144A* ............................ 11/01/03 20
--------
Electronics (0.0%)
4,000 Exide Electronics Group, Inc.-144A* ...................................... 03/15/06 100,000
--------
Entertainment/Gaming & Lodging (0.0%)
2,899 Fitzgeralds Gaming Corp. ................................................ 12/19/98 2,899
3,500 Fitzgeralds South Inc.-144A* ............................................. 03/15/99 35
--------
2,934
--------
Manufacturing (0.0%)
49,000 Uniroyal Technology Corp. ................................................ 06/01/03 49,000
--------
Retail (0.0%)
1,500 County Seat Holdings Co. ................................................ 10/15/98 15
--------
TOTAL WARRANTS
(Identified Cost $397,047) ......................................................... 431,969
--------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
------------- -------- ----------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS (1.1%)
TIME DEPOSITS (e)(0.1%)
ITALY (0.0%)
Banks-Commercial
ITL 255,613 Bankers Trust ................................................... 6.625 % 05/06/97 149,481
---------
UNITED KINGDOM (0.1%)
Banks-Commercial
pounds
sterling 579 Bankers Trust ................................................... 5.8125 05/07/97 939,762
---------
TOTAL TIME DEPOSITS
(Identified Cost $1,092,598) ......................................................... 1,089,243
---------
GOVERNMENT AGENCY OBLIGATION (f) (0.9%)
UNITED STATES
$ 7,650 Federal Home Loan Mortgage Corp.
(Amortized Cost $7,650,000) ..................................... 5.40 05/01/97 7,650,000
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT (0.1%)
$ 673 The Bank of New York (dated 4/30/97; proceeds 673,039;
collateralized by
$407,122 Student Loan Mortgage Assoc. 4.80% due 08/02/99 valued
at $412,121 and $261,440 U.S. Treasury Bond 8.25% due 07/15/98
valued at $274,274)(Identified Cost $672,936) .................. 5.50% 05/01/97 $672,936
-----------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $9,415,534) ........................................................ 9,412,179
-----------
TOTAL INVESTMENTS
(Identified Cost $844,093,867) (g) ....................................... 97.9% 810,806,687
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES .......................... 2.1 17,658,351
------ ------------
NET ASSETS .............................................................. 100.0% $828,465,038
====== ============
</TABLE>
- --------------
M In millions.
* Resale is restricted to qualified institutional investors.
++ Consists of one or more class of securities traded together as a
unit; stocks and 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) Some or all of these securities are segregated in connection with
open forward foreign currency contracts and securities purchased on a
forward commitment basis.
(b) Non-income producing security; issuer in default.
(c) Non-income producing securities.
(d) Acquired through exchange offer.
(e) Subject to withdrawal restrictions until maturity.
(f) Security was purchased on a discount basis. The interest rate shown
has been adjusted to reflect a money market equivalent yield.
(g) The aggregate cost for federal income tax purposes approximates
identified cost. The aggregate gross unrealized appreciation is
$10,736,823 and the aggregate gross unrealized depreciation is
$44,024,003, resulting in net unrealized depreciation of $33,287,180.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
PORTFOLIO OF INVESTMENTS April 30, 1997 (unaudited) continued
FORWARD FOREIGN CURRENCY CONTRACTS OPEN AT APRIL 30, 1997:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS IN EXCHANGE DELIVERY APPRECIATION
TO DELIVER FOR DATE (DEPRECIATION)
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 5,497,361 FFr32,023,229 05/02/97 $ (5,939)
$ 5,497,361 FFr32,023,229 05/02/97 (5,939)
ESP 93,060,000 $ 638,929 05/05/97 1,095
BEF 1,298,997,000 $ 39,285,807 07/23/97 2,623,324
DEM 9,120,000 $ 6,099,518 07/29/97 798,719
DEM 19,452,509 $ 11,685,996 08/18/97 360,908
NLG 23,040,000 $ 12,309,994 08/26/97 393,262
NLG 24,345,000 $ 14,205,275 09/23/97 1,578,464
NLG 11,643,500 $ 6,726,070 10/14/97 662,192
NLG 22,853,000 $ 12,116,730 12/17/97 278,843
DEM 9,500,000 $ 5,660,827 04/30/98 11,995
DEM 9,500,000 $ 5,660,827 04/30/98 11,995
----------
Net unrealized appreciation.................... $6,708,919
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1997 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $844,093,867) ......... $810,806,687
Unrealized appreciation on open forward
foreign currency contracts ............. 6,720,797
Cash (including $1,094,535 in foreign
currency) .............................. 2,165,065
Receivable for:
Interest .............................. 14,558,470
Compensated forward foreign currency
contracts ............................ 8,414,730
Shares of beneficial interest sold ... 2,205,130
Investments sold ...................... 1,310,627
Prepaid expenses and other assets ...... 80,435
------------
TOTAL ASSETS .......................... 846,261,941
------------
LIABILITIES:
Unrealized depreciation on open forward
foreign currency contracts ............. 11,878
Payable for:
Investments purchased ................. 14,137,470
Compensated forward foreign currency
contracts ............................ 1,236,064
Dividends to shareholders ............. 822,418
Plan of distribution fee .............. 576,394
Shares of beneficial interest
repurchased .......................... 574,906
Investment management fee ............. 271,244
Accrued expenses and other payables .... 166,529
------------
TOTAL LIABILITIES ..................... 17,796,903
------------
NET ASSETS:
Paid-in-capital ......................... 876,160,252
Net unrealized depreciation ............. (26,891,994)
Dividends in excess of net investment
income ................................. (1,646,370)
Accumulated net realized loss ........... (19,156,850)
------------
NET ASSETS ............................ $828,465,038
============
NET ASSET VALUE PER SHARE,
89,723,592 shares outstanding
(unlimited shares authorized of $.01
par value) ............................. $ 9.23
============
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended April 30, 1997 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME (net of $78,100 foreign
withholding tax) ........................ $ 36,597,702
------------
EXPENSES
Plan of distribution fee ................. 3,356,648
Investment management fee ................ 1,579,599
Transfer agent fees and expenses ........ 224,833
Custodian fees ........................... 166,435
Registration fees ........................ 56,846
Professional fees ........................ 37,072
Shareholder reports and notices .......... 32,660
Organizational expenses .................. 13,232
Trustees' fees and expenses .............. 9,057
Other .................................... 8,731
------------
TOTAL EXPENSES ......................... 5,485,113
------------
NET INVESTMENT INCOME .................. 31,112,589
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments ............................ (19,968,012)
Foreign exchange transactions .......... 8,390,965
------------
NET LOSS ............................... (11,577,047)
------------
Net change in unrealized depreciation on:
Investments ............................ (24,593,910)
Translation of forward foreign currency
contracts, other assets and
liabilities denominated in foreign
currencies ............................ 4,763,132
------------
NET DEPRECIATION ....................... (19,830,778)
------------
NET LOSS ............................... (31,407,825)
------------
NET DECREASE ............................. $ (295,236)
============
</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, 1997 OCTOBER 31, 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................. $ 31,112,589 $ 53,062,338
Net realized gain (loss) .............................. (11,577,047) 4,908,105
Net change in unrealized depreciation ................. (19,830,778) (59,346)
------------ ------------
NET INCREASE (DECREASE) ............................. (295,236) 57,911,097
Dividends from net investment income .................. (45,578,483) (47,280,275)
Net increase from transactions in shares of beneficial
interest ............................................. 128,757,855 192,406,387
------------ ------------
NET INCREASE ........................................ 82,884,136 203,037,209
NET ASSETS:
Beginning of period ................................... 745,580,902 542,543,693
------------ ------------
END OF PERIOD
(Including dividends in excess of net investment
income of $1,646,370 and undistributed net
investment income of $12,819,524, respectively) .... $828,465,038 $745,580,902
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1997 (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's primary investment
objective is to provide a high level of current income and, as a secondary
objective, seeks to maximize total return, but only when consistent with its
primary objective. The Fund was organized as a Massachusetts business trust
on December 20, 1991 and commenced operations on April 9, 1992.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at
its latest sale price on that exchange prior to the time when assets are
valued; 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, including circumstances under which it is determined by
Dean Witter InterCapital Inc. (the "Investment Manager") that sale or bid
prices are not reflective of a security's market value, 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; (4) certain
portfolio securities may be valued by an outside pricing service approved by
the Trustees. The pricing service may utilize 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 (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.
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1997 (unaudited) continued
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 foreign
currency 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 currency 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
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1997 (unaudited) continued
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 reimbursed for the full amount
thereof. Such expenses had been deferred and were fully amortized on the
straight-line method from the commencement of operations through April 8,
1997.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the 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 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. ("DWR"), an affiliate of the Investment Manager and
Distributor, and others who engage in or support distribution of the Fund's
shares or who service shareholder accounts, including overhead and telephone
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1997 (unaudited) continued
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 utilize fees paid
pursuant to the Plan to compensate DWR and other selected broker-dealers for
their opportunity costs in advancing such amounts, which compensation would
be in the form of a carrying charge on any unreimbursed distribution
expenses.
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.
Although there is no legal obligation for the Fund to pay expenses incurred
in excess of payments made to the Distributor under the Plan and the proceeds
of contingent deferred sales charges paid by investors upon redemption of
shares, if for any reason the Plan is terminated, the Trustees will consider
at that time the manner in which to treat such expenses. The Distributor has
advised the Fund that such excess amounts, including carrying charges,
totaled $11,878,198 at April 30, 1997.
The Distributor has informed the Fund that for the six months ended April 30,
1997, it received approximately $681,000 in contingent deferred sales charges
from certain redemptions of the Fund's shares.
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, 1997
aggregated $376,094,854 and $247,049,352, respectively. Included in the
aforementioned are purchases and sales of U.S. Government securities of
$76,420,648 and $47,291,040, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At April 30, 1997, the Fund had
transfer agent fees and expenses payable of approximately $25,000.
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 six
months ended April 30, 1997 included in Trustees' fees and expenses in the
Statement of Operations amounted to $2,950. At April 30, 1997, the Fund had
an accrued pension liability of $30,261 which is included in accrued expenses
in the Statement of Assets and Liabilities.
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1997 (unaudited) continued
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, 1997 OCTOBER 31, 1996
------------------------------ ------------------------------
(UNAUDITED)
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Sold 26,936,468 $ 256,155,636 36,480,365 $ 353,997,564
Reinvestment of dividends 2,083,797 19,731,263 2,052,285 19,859,631
---------- ------------- ---------- -------------
29,020,265 275,886,899 38,532,650 373,857,195
Repurchased (15,525,197) (147,129,044) (18,707,218) (181,450,808)
---------- ------------- ---------- -------------
Net increase 13,495,068 $ 128,757,855 19,825,432 $ 192,406,387
========== ============= ========== =============
</TABLE>
6. FEDERAL INCOME TAX STATUS
At October 31, 1996, the Fund had a net capital loss carryover of
approximately $9,067,000, to offset future capital gains to the extent
provided by regulations available through October 31 of the following years:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- -------------------------------------------------------------------------------
2002 2003 2004
---- ---- ----
<S> <C> <C>
$3,024 $3,677 $2,366
====== ====== ======
</TABLE>
As of October 31, 1996, 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.
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.
<PAGE>
DEAN WITTER DIVERSIFIED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS April 30, 1997 (unaudited) continued
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 instruments").
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.
At April 30, 1997, there were outstanding forward contracts used to
facilitate settlement of foreign currency denominated portfolio transactions
and manage foreign currency exposure.
At April 30, 1997, the Fund's cash balance consisted principally of interest
bearing deposits with Chase Manhattan Bank N.A., the Fund's custodian.
<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 FOR THE YEAR ENDED OCTOBER 31 APRIL 9, 1992*
MONTHS ENDED --------------------------------------- THROUGH
APRIL 30, 1997 1996 1995 1994 1993 OCTOBER 31, 1992
- ----------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $ 9.78 $ 9.62 $ 9.37 $10.20 $10.01 $10.00
------ ------ ------ ------ ------ ------
Net investment income................... 0.36 0.78 0.77 0.74 0.77 0.37
Net realized and unrealized gain
(loss)................................. (0.36) 0.10 0.20 (0.80) 0.20 --
------ ------ ------ ------ ------ ------
Total from investment operations ....... 0.00 0.88 0.97 (0.06) 0.97 0.37
------ ------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income.................. (0.55) (0.72) (0.72) (0.64) (0.73) (0.36)
Net realized gain...................... -- -- -- (0.01) (0.05) --
Paid-in-capital........................ -- -- -- (0.12) -- --
------ ------ ------ ------ ------ ------
Total dividends and distributions ...... (0.55) (0.72) (0.72) (0.77) (0.78) (0.36)
------ ------ ------ ------ ------ ------
Net asset value, end of period.......... $ 9.23 $ 9.78 $ 9.62 $ 9.37 $10.20 $10.01
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN+................ (0.03)%(1) 9.49% 10.76% (0.69)% 10.00% 3.73%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 1.39%(2) 1.42% 1.44% 1.51% 1.58%(4) 0.85%(2)(3)
Net investment income................... 7.88%(2) 8.38% 8.30% 7.91% 7.92%(4) 7.86%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $828,465 $745,581 $542,544 $407,038 $167,137 $55,297
Portfolio turnover rate................. 33%(1) 82% 87% 60% 117% 37%(1)
</TABLE>
- --------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge. Calculated based on
the net asset value as of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all expenses that were assumed or waived by the
Investment Manager, the 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 annualized expense and net investment income
ratios would have been 1.66% and 7.84%, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
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, 1997
