<PAGE> 1
DEAN WITTER BALANCED INCOME FUND Two World Trade Center, New York, New York
10048
LETTER TO THE SHAREHOLDERS July 31, 1997
DEAR SHAREHOLDER:
The economy started 1997 off nicely with employment expanding, income climbing
and consumer confidence rising. Concern over inflation, however, was heightened
when the Federal Reserve Board chairman hinted that a preemptive move against
rising pressure on prices might be necessary. This concern permeated the bond
markets during January and February, resulting in lackluster performance.
As anticipated, the central bank voted to raise the federal-funds rate by 25
basis points at its March 25, 1997 meeting. Although this move initially sent
stocks and bonds lower, many economists applauded the Fed's action, which was
viewed as a strike against any increase in inflation before it could occur, thus
prolonging the current economic expansion. By the end of March, the 30-year U.S.
Treasury bond rose above the important 7 percent level for the first time since
September 1996.
While it first appeared as if the Federal Reserve was poised for a number of
further rate increases, a slight cooling of economic data and subdued inflation
during the second quarter, as well as progress toward a balanced budget
agreement, have argued against a quick succession of tightening moves. As a
result, interest rates actually declined during the second quarter of 1997.
Although the current inflation environment remains favorable, members of the
Federal Open Market Committee have voiced concerns regarding the continuing
strength in employment and the probable rise of inflationary pressures in the
near future.
PERFORMANCE AND PORTFOLIO
As of July 28, 1997, the Fund began offering four classes of shares: A, B, C and
D, each with its own sales charge and distribution fee structure. Fund shares
held prior to July 28 (other than shares which were acquired in exchange for
shares of Dean Witter Funds offered with a front-end sales charge or a
contingent deferred sales charge (CDSC) and shares acquired through the
reinvestment of dividends and distributions) have been designated Class C
shares. Shares held prior to July 28, 1997, which were acquired in exchange for
shares of a Dean Witter Fund sold with a front-end sales charge, including
shares acquired through the
<PAGE> 2
DEAN WITTER BALANCED INCOME FUND
LETTER TO THE SHAREHOLDERS July 31, 1997, continued
reinvestment of dividends and distributions, have been designated Class A
shares, and shares held prior to July 28, 1997, which were acquired in exchange
for shares of Dean Witter Funds sold with a CDSC, including shares acquired
through the reinvestment of dividends and distributions, have been designated
Class B shares. A revised prospectus, which includes complete details regarding
the Fund's conversion to multiple classes of shares, was mailed to shareholders
in mid-summer.
For the six-month period ended July 31, 1997, the Fund's Class C shares produced
a total return of 10.98 percent compared to 22.50 percent for the Standard &
Poor's 500 Composite Stock Price Index (S&P 500), 5.76 percent for the Lehman
Brothers Government/Corporate Bond Index and 11.99 percent for the Lipper Income
Funds Index. During the period under review, the Fund's net assets grew from $48
million to $59 million.
The Fund's asset mix during the period was 35 percent equities and 65 percent
fixed income. In the equity portion of the portfolio, one position was
initiated -- Unicom Corp -- and one -- Pacific Gas & Electric -- eliminated.
The fixed-income portion of the Fund was invested as follows: 71 percent
mortgage-backed securities, 14 percent U.S. Treasuries, 12 percent U.S. agency
obligations and 3 percent money market instruments. During the period under
review, as cash flows permitted, we purchased current coupon mortgages at
attractive prices, enhancing the Fund's prospects for higher total returns.
During this time, mortgage-backed securities continued to outperform
comparable-maturity Treasuries.
LOOKING AHEAD
We believe that the current environment of low inflation combined with strong
corporate profits should continue for the foreseeable future and will provide a
favorable environment for the Fund. We appreciate your ongoing support of Dean
Witter Balanced Income Fund 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> 3
DEAN WITTER BALANCED INCOME FUND
RESULTS OF SPECIAL MEETING (unaudited)
* * *
On May 21, 1997, a special meeting of shareholders of Dean Witter Balanced
Income Fund was held for the purpose of voting on four separate matters, the
results of which are as follows:
(1) APPROVAL OF A NEW INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE FUND AND DEAN
WITTER INTERCAPITAL INC., IN CONNECTION WITH THE MERGER OF MORGAN STANLEY
GROUP INC. WITH DEAN WITTER, DISCOVER & CO.:
<TABLE>
<S> <C>
For....................................................................... 2,288,741
Against................................................................... 52,612
Abstain................................................................... 443,203
</TABLE>
(2) ELECTION OF TRUSTEES:
<TABLE>
<S> <C>
Michael Bozic
For..................... 2,511,909
Withheld................ 272,647
Charles A. Fiumefreddo
For..................... 2,507,408
Withheld................ 277,148
Edwin J. Garn
For..................... 2,511,761
Withheld................ 272,795
John R. Haire
For..................... 2,506,609
Withheld................ 277,947
Wayne E. Hedien
For..................... 2,511,909
Withheld................ 272,647
Dr. Manuel H. Johnson
For..................... 2,511,909
Withheld................ 272,647
Michael E. Nugent
For..................... 2,511,909
Withheld................ 272,647
Philip J. Purcell
For..................... 2,511,909
Withheld................ 272,647
John L. Schroeder
For..................... 2,511,909
Withheld................ 272,647
</TABLE>
(3) APPROVAL OF A NEW INVESTMENT POLICY WITH RESPECT TO INVESTMENTS IN CERTAIN
OTHER INVESTMENT COMPANIES:
<TABLE>
<S> <C>
For....................................................................... 2,176,941
Against................................................................... 83,772
Abstain................................................................... 523,843
</TABLE>
(4) RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP AS THE FUND'S
INDEPENDENT ACCOUNTANTS:
<TABLE>
<S> <C>
For....................................................................... 2,307,284
Against................................................................... 16,955
Abstain................................................................... 460,317
</TABLE>
<PAGE> 4
DEAN WITTER BALANCED INCOME FUND
PORTFOLIO OF INVESTMENTS July 31, 1997 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (35.1%)
Aerospace & Defense (1.4%)
14,800 Raytheon Co................... $ 826,950
-----------
Aluminum (1.4%)
9,600 Aluminum Co. of America....... 849,600
-----------
Automotive (2.8%)
19,600 Ford Motor Co................. 801,150
13,900 General Motors Corp........... 860,062
-----------
1,661,212
-----------
Banking (2.8%)
15,100 Banc One Corp................. 847,487
11,200 BankAmerica Corp.............. 845,600
-----------
1,693,087
-----------
Beverages - Soft Drinks (1.5%)
22,500 PepsiCo Inc................... 862,031
-----------
Chemicals (1.4%)
12,500 Du Pont (E.I.) de Nemours &
Co., Inc..................... 836,719
-----------
Computer Equipment (1.4%)
7,900 International Business
Machines Corp................ 835,425
-----------
Conglomerates (1.4%)
17,600 Tenneco, Inc.................. 820,600
-----------
Drugs & Healthcare (1.3%)
9,900 Bristol-Myers Squibb Co....... 776,531
-----------
Electric - Major (1.3%)
11,300 General Electric Co........... 793,119
-----------
Foods (1.4%)
12,000 ConAgra, Inc.................. 843,750
-----------
Machinery - Agricultural (1.4%)
14,700 Deere & Co.................... 836,063
-----------
Natural Gas (1.4%)
22,000 Enron Corp.................... 834,625
-----------
Oil - Domestic (1.5%)
11,800 Atlantic Richfield Co......... 882,788
-----------
Paper & Forest Products (1.4%)
13,700 Weyerhaeuser Co............... 852,825
-----------
Railroads (1.5%)
14,000 CSX Corp...................... 864,500
-----------
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------
<C> <S> <C>
Retail (1.4%)
13,200 Dayton-Hudson Corp............ $ 853,050
-----------
Retail - Department Stores
(1.4%)
14,800 May Department Stores Co...... 826,950
-----------
Steel (1.4%)
23,000 Timken Co..................... 809,313
-----------
Telecommunications (1.4%)
17,200 Sprint Corporation............ 851,400
-----------
Tobacco (1.3%)
14,100 Fortune Brands, Inc........... 499,669
14,100 Gallaher Group PLC (ADR)
(United Kingdom)*............ 252,919
-----------
752,588
-----------
Utilities - Electric (2.9%)
24,000 General Public Utilities
Corp......................... 832,500
38,500 Unicom Corp................... 873,468
-----------
1,705,968
-----------
TOTAL COMMON STOCKS
(Identified Cost
$15,221,261)................. 20,869,094
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
- ---------
<C> <S> <C>
U.S. GOVERNMENT & AGENCY
OBLIGATIONS (63.4%)
$2,000 Federal Home Loan Banks
0.00% due 07/02/12........... 638,820
Federal National Mortgage
Assoc.
933 6.00% due 02/01/11........... 913,728
1,764 6.50% due
03/01/11 - 05/01/11.......... 1,754,840
5,797 7.00% due
07/01/11 - 12/01/26.......... 5,821,220
1,000 7.00%**...................... 998,125
6,402 7.50% due
08/01/23 - 05/01/27.......... 6,506,132
1,729 8.00% due
05/01/24 - 07/01/26.......... 1,782,078
Government National Mortgage
Assoc. I
1,813 7.00% due
09/15/23 - 08/15/25.......... 1,815,006
3,897 7.50% due
08/15/25 - 10/15/26.......... 3,965,414
1,863 8.00% due
06/15/26 - 07/15/26.......... 1,923,327
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
DEAN WITTER BALANCED INCOME FUND
PORTFOLIO OF INVESTMENTS July 31, 1997 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- -----------------------------------------------------------
<C> <S> <C>
Government National Mortgage
Assoc. II
$ 1,947 7.00% due 02/20/26........... $ 1,942,447
1,000 7.00%**...................... 997,500
Resolution Funding Corp.
(Coupon Strips)
5,500 0.00% due
04/15/04 - 01/15/08.......... 3,235,885
U.S. Treasury Strips
1,000 0.00% due 11/15/97........... 984,440
2,500 0.00% due 11/15/04........... 1,616,950
1,000 0.00% due 02/15/07........... 559,010
U.S. Treasury Notes
1,500 5.875% due 06/30/00.......... 1,503,975
500 6.875% due 03/31/00.......... 513,425
200 7.125% due 02/29/00.......... 206,420
-----------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS
(Identified Cost
$37,190,932)................. 37,678,742
-----------
SHORT-TERM INVESTMENTS (3.8%)
U.S. GOVERNMENT AGENCY (a) (1.7%)
1,000 Federal Home Loan Mortgage
Corp. 5.38% due 08/07/97
(Amortized Cost $999,103).... 999,103
-----------
REPURCHASE AGREEMENT (2.1%)
1,250 The Bank of New York 5.75% due
08/01/97 (dated 07/31/97;
proceeds $1,250,017) (b)
(Identified Cost
$1,249,817).................. 1,249,817
-----------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $2,248,920)... 2,248,920
-----------
<CAPTION>
VALUE
- -----------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $54,661,113) (c)... 102.3% $60,796,756
LIABILITIES)IN EXCESS OF
OTHER ASSETS........................ (2.3) (1,342,110)
----- -----------
NET ASSETS.......................... 100.0% $59,454,646
===== ===========
</TABLE>
- ---------------------
<TABLE>
<C> <S>
ADR American Depository Receipt.
* Non-income producing security.
** Security was purchased on a forward commitment
basis with an approximate principal amount and no
definite maturity date; the actual principal
amount and maturity date will be determined upon
settlement.
(a) Security was purchased on a discount basis. The
interest rate shown has been adjusted to reflect
a money market equivalent yield.
(b) Collateralized by $500,000 Federal Farm Credit
Bank Note 7.51% due 02/13/98 valued at $522,865,
$455,425 Federal National Mortgage Assoc. Medium
Term Note 7.00% due 05/29/01 valued at $464,993
and $271,605 U.S. Treasury Note 6.625% due
05/15/07 valued at $286,956.
(c) The aggregate cost for federal income tax
purposes approximates identified cost. The
aggregate gross unrealized appreciation is
$6,201,453 and the aggregate gross unrealized
depreciation is $65,810, resulting in net
unrealized appreciation of $6,135,643.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
DEAN WITTER BALANCED INCOME FUND
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1997 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $54,661,113)............ $60,796,756
Receivable for:
Investments sold....................... 294,287
Shares of beneficial interest sold..... 233,186
Interest............................... 189,694
Dividends.............................. 48,688
Deferred organizational expenses.......... 90,321
Prepaid expenses and other assets......... 50,166
-----------
TOTAL ASSETS........................... 61,703,098
-----------
LIABILITIES:
Payable for:
Investments purchased.................. 2,037,210
Shares of beneficial interest
repurchased........................... 98,431
Plan of distribution fee............... 49,146
Investment management fee.............. 29,500
Accrued expenses and other payables....... 34,165
-----------
TOTAL LIABILITIES...................... 2,248,452
-----------
NET ASSETS............................. $59,454,646
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital........................... $52,122,164
Net unrealized appreciation............... 6,135,643
Accumulated undistributed net investment
income................................... 284,198
Accumulated undistributed net realized
gain..................................... 912,641
-----------
NET ASSETS............................. $59,454,646
===========
CLASS A SHARES:
Net Assets................................ $471,300
Shares Outstanding (unlimited authorized,
$.01 par value).......................... 37,535
NET ASSET VALUE PER SHARE.............. $12.56
======
MAXIMUM OFFERING PRICE PER SHARE
(net asset value plus 5.54% of net
asset value).......................... $13.26
======
CLASS B SHARES:
Net Assets................................ $29,874,370
Shares Outstanding (unlimited authorized,
$.01 par value).......................... 2,379,356
NET ASSET VALUE PER SHARE.............. $12.56
======
CLASS C SHARES:
Net Assets................................ $29,098,852
Shares Outstanding (unlimited authorized,
$.01 par value).......................... 2,317,835
NET ASSET VALUE PER SHARE.............. $12.55
======
CLASS D SHARES:
Net Assets................................ $10,124
Shares Outstanding (unlimited authorized,
$.01 par value).......................... 806
NET ASSET VALUE PER SHARE.............. $12.56
======
STATEMENT OF OPERATIONS
For the six months ended July 31, 1997*
(unaudited)
NET INVESTMENT INCOME:
INCOME
Interest.................................. $ 1,172,583
Dividends................................. 245,838
-----------
TOTAL INCOME........................... 1,418,421
-----------
EXPENSES
Plan of distribution fee (Class B
Shares).................................. 1,637
Plan of distribution fee (Class C
Shares).................................. 251,086
Investment management fee................. 154,814
Professional fees......................... 27,385
Registration fees......................... 20,845
Shareholder reports and notices........... 18,057
Transfer agent fees and expenses.......... 17,160
Organizational expenses................... 16,868
Trustees' fees and expenses............... 6,708
Other..................................... 9,322
-----------
TOTAL EXPENSES......................... 523,882
-----------
NET INVESTMENT INCOME.................. 894,539
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain......................... 924,767
Net change in unrealized appreciation..... 3,763,076
-----------
NET GAIN............................... 4,687,843
-----------
NET INCREASE.............................. $ 5,582,382
===========
</TABLE>
- ---------------
* Class A, Class B and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
DEAN WITTER BALANCED INCOME FUND
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX
MONTHS ENDED FOR THE YEAR
JULY 31, ENDED
1997* JANUARY 31, 1997
- -------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................. $ 894,539 $ 1,405,395
Net realized gain..................................... 924,767 1,379,439
Net change in unrealized appreciation................. 3,763,076 524,495
----------- ------------
NET INCREASE...................................... 5,582,382 3,309,329
----------- ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class C shares.................................... (793,301) (1,398,284)
Net realized gain
Class C shares.................................... (421,615) (1,001,490)
----------- ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS................. (1,214,916) (2,399,774)
----------- ------------
Net increase from transactions in shares of beneficial
interest............................................. 6,803,239 16,122,042
----------- ------------
NET INCREASE...................................... 11,170,705 17,031,597
NET ASSETS:
Beginning of period................................... 48,283,941 31,252,344
----------- ------------
END OF PERIOD
(Including undistributed net investment income of
$284,198 and $182,960, respectively).............. $59,454,646 $ 48,283,941
=========== ============
</TABLE>
- ---------------
* Class A, Class B and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
DEAN WITTER BALANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS July 31, 1997 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Dean Witter Balanced Income Fund (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 investment objective is to provide
current income and moderate capital growth. The Fund seeks to achieve its
objective by investing in investment grade fixed income securities and, to a
lesser extent, common stock of companies which have a record of paying dividends
and have the potential for increasing dividends and securities convertible into
common stock. The Fund was organized as a Massachusetts business trust on
November 23, 1994 and commenced operations on March 28, 1995. On July 28, 1997,
the Fund commenced offering three additional classes of shares, with the then
current shares, other than shares which were acquired in exchange for shares of
Funds for which Dean Witter InterCapital Inc. serves as Investment Manager
("Dean Witter Funds") offered with either a front-end sales charge or a
contingent deferred sales charge ("CDSC") and shares acquired through
reinvestment of dividends and distributions thereon, have been designated as
Class C shares. Shares held prior to July 28, 1997 which were acquired in
exchange for shares of a Dean Witter Fund sold with a front-end sales charge,
including shares acquired through reinvestment of dividends and distributions
thereon, have been designated Class A shares and shares held prior to July 28,
1997 which were acquired in exchange for shares of a Dean Witter Fund sold with
a CDSC, including shares acquired through reinvestment of dividends and
distributions thereon, have been designated Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some Class
A shares, and most Class B shares and Class C shares are subject to a contingent
deferred sales charge imposed on shares redeemed within one year, six years and
one year, respectively. Class D shares are not subject to a sales charge.
Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
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
<PAGE> 9
DEAN WITTER BALANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS July 31, 1997 (unaudited) continued
price (in cases where securities are traded on more than one exchange; the
securities are valued on the exchange designated as the primary market pursuant
to procedures adopted 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
(valuation of debt securities for which market quotations are not readily
available may be based upon current market prices of securities which are
comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors); (4) certain 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 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.
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. Dividend
income and other distributions are recorded on the ex-dividend date. Interest
income is accrued daily.
Investment income, expenses (other than distribution fees), and realized and
unrealized gains and losses are allocated to each class of shares based upon the
relative net asset value on the date the income is earned or expenses and
realized and unrealized gains and losses are incurred. Distribution fees are
charged directly to the respective class.
C. 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.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment
<PAGE> 10
DEAN WITTER BALANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS July 31, 1997 (unaudited) continued
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.
E. ORGANIZATIONAL EXPENSES -- The Investment Manager paid the organizational
expenses of the Fund in the amount of approximately $170,000 of which
approximately $136,000 have been 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 the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.60% 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. The plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A -- 0.25% of the average
daily net assets of Class A; (ii) Class B -- 1.0% of the average daily net
assets of Class B; and (iii) Class C -- 1.0% of the average daily net assets of
Class C. In the case of Class A shares, amounts paid under the
<PAGE> 11
DEAN WITTER BALANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS July 31, 1997 (unaudited) continued
Plan are paid to the Distributor for services provided. In the case of Class B
and Class C shares, amounts paid under the Plan are paid to the Distributor for
services provided and the expenses borne by it and others in the distribution of
the shares of these Classes, including the payment of commissions for sales of
these Classes and incentive compensation to, and expenses of, the 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
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 these 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, in the case of Class B shares, 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
expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. 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.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 1.0% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to account executives may be reimbursed in the subsequent
calendar year. For the period ended July 31, 1997, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.25% and
0.98%, respectively.
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 July 31, 1997 aggregated
$10,210,865 and $4,143,109, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $6,561,971 and $701,440,
respectively.
<PAGE> 12
DEAN WITTER BALANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS July 31, 1997 (unaudited) continued
For the six months ended July 31, 1997, the Fund incurred brokerage commissions
of $3,873 with DWR for portfolio transactions executed on behalf of the Fund. At
July 31, 1997, the Fund's payable for investments purchased and receivable for
investments sold included unsettled trades with DWR of $52,745 and $155,841,
respectively.
5. SHARES OF BENEFICIAL INTEREST+
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR
JULY 31, 1997 ENDED
-------------------------- JANUARY 31, 1997
(unaudited) ---------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES*
Sold........................................................... 806 $ 10,014 -- --
--------- ------------ ---------- ------------
CLASS B SHARES*
Sold........................................................... 9,171 114,906 -- --
Redeemed....................................................... (39,759) (495,865) -- --
--------- ------------ ---------- ------------
Net decrease -- Class B........................................ (30,588) (380,959) -- --
--------- ------------ ---------- ------------
CLASS C SHARES
Sold........................................................... 1,417,253 16,864,880 3,385,851 $ 38,558,587
Reinvestment of dividends and distributions.................... 82,138 975,187 172,485 1,958,907
Redeemed....................................................... (907,172) (10,675,897) (2,142,627) (24,395,452)
--------- ------------ ---------- ------------
Net increase -- Class C........................................ 592,219 7,164,170 1,415,709 16,122,042
--------- ------------ ---------- ------------
CLASS D SHARES*
Sold........................................................... 806 10,014 -- --
--------- ------------ ---------- ------------
Net increase in Fund........................................... 563,243 $ 6,803,239 1,415,709 $ 16,122,042
========= ============ ========== ============
</TABLE>
- ---------------------
+ On July 28, 1997, 36,729 shares representing $456,174 were transferred to
Class A and 2,409,944 shares representing $29,931,505 were transferred to
Class B.
* For the period July 28, 1997 (issued date) through July 31, 1997.
<PAGE> 13
DEAN WITTER BALANCED INCOME FUND
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED FOR THE YEAR MARCH 28, 1995*
JULY 31, ENDED THROUGH
1997** JANUARY 31, 1997 JANUARY 31, 1996
- --------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................................ $ 11.57 $ 11.34 $ 10.00
------- ------- -------
Net investment income............................................... 0.22 0.36 0.38
Net realized and unrealized gain.................................... 1.03 0.50 1.30
------- ------- -------
Total from investment operations.................................... 1.25 0.86 1.68
------- ------- -------
Less dividends and distributions from:
Net investment income.............................................. (0.18) (0.38) (0.33)
Net realized gain.................................................. (0.09) (0.25) (0.01)
------- ------- -------
Total dividends and distributions................................... (0.27) (0.63) (0.34)
------- ------- -------
Net asset value, end of period...................................... $ 12.55 $ 11.57 $ 11.34
======= ======= =======
TOTAL INVESTMENT RETURN+............................................ 10.98%(1) 7.82% 16.93%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................................ 2.03%(2) 1.88%(3) --%(2)(3)
Net investment income............................................... 3.43%(2) 3.49%(3) 5.27%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................. $29,099 $48,284 $31,252
Portfolio turnover rate............................................. 8%(1) 21% 3%(1)
Average commission rate paid........................................ $0.0550 $0.0515 --
</TABLE>
- ---------------------
* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that date, other than shares which were acquired in
exchange for shares of Funds for which Dean Witter InterCapital Inc. serves
as Investment Manager ("Dean Witter Funds") offered with either a front-end
sales charge or a contingent deferred sales charge ("CDSC") and shares
acquired through reinvestment of dividends and distributions thereon, have
been designated Class C shares. Shares held prior to July 28, 1997 which
were acquired in exchange for shares of a Dean Witter Fund sold with a
front-end sales charge, including shares acquired through reinvestment of
dividends and distributions thereon, have been designated Class A shares and
shares held prior to July 28, 1997 which were acquired in exchange for
shares of a Dean Witter Fund sold with a CDSC, including shares acquired
through reinvestment of dividends and distributions thereon, have been
designated Class B shares.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value of the last business day of the period.
(1) Not annualized.
(2) Annualized.
(3) If the Investment Manager had not reimbursed expenses and waived the
management fee, the annualized expense and net investment income ratios
would have been 2.69% and 2.58%, respectively, for the period ended January
31, 1996, and 2.19% and 3.18%, respectively, for the year ended January 31,
1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 14
DEAN WITTER BALANCED INCOME FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28,1997*
THROUGH
JULY 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................................................................ $ 12.42
-------
Net investment income....................................................................................... 0.01
Net realized and unrealized gain............................................................................ 0.13
-------
Total from investment operations............................................................................ 0.14
-------
Net asset value, end of period.............................................................................. $ 12.56
=======
TOTAL INVESTMENT RETURN+.................................................................................... 1.13%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................................................................... 1.23%(2)
Net investment income....................................................................................... 6.53%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................................................................... $ 471
Portfolio turnover rate..................................................................................... 8%(1)
Average commission rate paid................................................................................ $0.0550
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................................................................ $ 12.42
-------
Net investment income....................................................................................... 0.01
Net realized and unrealized gain............................................................................ 0.13
-------
Total from investment operations............................................................................ 0.14
-------
Net asset value, end of period.............................................................................. $ 12.56
=======
TOTAL INVESTMENT RETURN+.................................................................................... 1.13%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................................................................... 1.98%(2)
Net investment income....................................................................................... 5.78%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................................................................... $29,874
Portfolio turnover rate..................................................................................... 8%(1)
Average commission rate paid................................................................................ $0.0550
</TABLE>
- ---------------------
* The date shares were first issued. Shareholders who held shares of the Fund
prior to July 28, 1997 (the date the Fund converted to a multiple class
share structure) should refer to the Financial Highlights of Class C to
obtain the historical per share data and ratio information of their shares.
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value of the last business day of the period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 15
DEAN WITTER BALANCED INCOME FUND
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
THROUGH
JULY 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................................................................ $ 12.42
-------
Net investment income....................................................................................... 0.01
Net realized and unrealized gain............................................................................ 0.13
-------
Total from investment operations............................................................................ 0.14
-------
Net asset value, end of period.............................................................................. $ 12.56
=======
TOTAL INVESTMENT RETURN+.................................................................................... 1.13%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................................................................... 0.98%(2)
Net investment income....................................................................................... 6.80%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................................................................... $ 10
Portfolio turnover rate..................................................................................... 8%(1)
Average commission rate paid................................................................................ $0.0550
</TABLE>
- ---------------------
* The date shares were first issued.
+ Calculated based on the net asset value of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 16
Trustees
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
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
Paul D. Vance
Vice President
Rajesh F. Gupta
Vice President
Thomas F. Caloia
Treasurer
Transfer Agent
Dean Witter Trust FSB
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
Balanced
Income Fund
[PHOTO]
Semiannual Report
July 31, 1997
