<PAGE> 1
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST Two World Trade Center, New York, New
York 10048
LETTER TO THE SHAREHOLDERS December 31, 1998
DEAR SHAREHOLDER:
We are pleased to present the semiannual report on the operations of Active
Assets Government Securities Trust for the six-month period ended December 31,
1998.
As of December 31, 1998, Active Assets Government Securities Trust had net
assets in excess of $847 million, up 23 percent from a year earlier. The average
life of the Trust's portfolio was 58 days and its annualized net investment
income for the six-month period ended December 31, 1998 was 4.76 percent, while
its 30-day moving average yield for December was 4.54 percent.
MARKET OVERVIEW
Rates available from money market securities were generally stable during July,
August and September. The Federal Open Market Committee made three
25-basis-point (one-quarter of a percentage point) cuts in its target rate for
federal funds in late September, mid-October and mid-November. These rate
reductions generally led yields on money market instruments to decline by 75
basis points during the final three months of 1998. The steps taken by the Fed
were motivated by a need to stabilize financial markets following major shocks
to global markets from Russia's summer currency and debt crisis and from a huge
leverage trap that nearly resulted in the collapse of a large hedge fund,
Long-Term Capital Management.
By the end of the period under review, global economies had begun to stabilize.
The powerful U.S. economy continued to be blessed by substantial economic
expansion, with only moderate inflation and low levels of unemployment.
PORTFOLIO COMPOSITION AND STRUCTURE
On December 31, 1998, approximately 99 percent of the Trust's portfolio
consisted of federal agency obligations, with the remaining 1 percent invested
in U.S. Treasury bills. At the end of the period under review,
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ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
LETTER TO THE SHAREHOLDERS December 31, 1998, continued
approximately 89 percent of the Trust's holdings were due to mature in less than
four months. Consequently, the portfolio is well positioned for stability of
value with a very high degree of liquidity. We always try to operate the Trust
in a conservative manner without the use of derivatives or structured notes that
might fluctuate excessively with changing interest rates. As always, the Trust
serves as a useful investment for liquidity, preservation of capital and a yield
that reflects prevailing money market conditions.
LOOKING AHEAD
At this time we anticipate a slight moderation in the pace of economic activity
during the first half of 1999, with no major adverse surprises in the rate of
inflation. The investment yields available to the Trust early in 1999 are likely
to be somewhat lower than the averages achieved during the second half of 1998.
We appreciate your ongoing support of Active Assets Government Securities 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
2
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ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS December 31, 1998 (unaudited)
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL DESCRIPTION YIELD
AMOUNT IN AND ON DATE OF
THOUSANDS MATURITY DATES PURCHASE VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C>
U.S. GOVERNMENT AGENCIES (99.4%)
$ 78,356 Federal Farm Credit Bank
01/04/99 - 06/16/99....................... 4.50 - 5.53% $ 77,485,533
418,728 Federal Home Loan Banks
01/04/99 - 05/26/99....................... 4.72 - 5.52 415,734,138
200,677 Federal Home Loan Mortgage Corp.
01/25/99 - 04/13/99....................... 4.71 - 5.33 199,208,409
139,000 Federal National Mortgage Assoc.
01/26/99 - 05/05/99....................... 4.88 - 5.50 137,695,016
12,000 Tennessee Valley Authority
01/26/99.................................. 4.96 11,959,000
------------
TOTAL U.S. GOVERNMENT AGENCIES
(Amortized Cost $842,082,096)............................ 842,082,096
------------
U.S. GOVERNMENT OBLIGATION (0.7%)
6,000 U.S. Treasury Bill
03/04/99 (Amortized Cost $5,947,145)...... 5.36 5,947,145
------------
TOTAL INVESTMENTS
(Amortized Cost $848,029,241) (a).................. 100.1% 848,029,241
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS...... (0.1) (479,513)
---- ------------
NET ASSETS......................................... 100.0% $847,549,728
==== ============
</TABLE>
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<TABLE>
<C> <S>
(a) Cost is the same for federal income tax purposes.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
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ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998 (unaudited)
ASSETS:
Investments in securities, at value
(amortized cost $848,029,241).............................. $848,029,241
Cash........................................................ 18,182
Prepaid expenses and other assets........................... 58,385
-----------
TOTAL ASSETS............................................ 848,105,808
-----------
LIABILITIES:
Payable for:
Investment management fee............................... 343,086
Plan of distribution fee................................ 74,503
Shares of beneficial interest repurchased............... 10,534
Accrued expenses and other payables......................... 127,957
-----------
TOTAL LIABILITIES....................................... 556,080
-----------
NET ASSETS.............................................. $847,549,728
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $847,549,417
Accumulated undistributed net investment income............. 311
-----------
NET ASSETS.............................................. $847,549,728
===========
NET ASSET VALUE PER SHARE,
847,549,417 shares outstanding
(unlimited shares authorized of $.01 par value)............ $1.00
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
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ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended December 31, 1998 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $22,338,479
----------
EXPENSES
Investment management fee................................... 1,936,011
Plan of distribution fee.................................... 415,701
Registration fees........................................... 63,914
Transfer agent fees and expenses............................ 55,781
Shareholder reports and notices............................. 33,744
Professional fees........................................... 24,290
Custodian fees.............................................. 24,251
Trustees' fees and expenses................................. 9,244
Other....................................................... 8,138
----------
TOTAL EXPENSES.......................................... 2,571,074
----------
NET INVESTMENT INCOME................................... 19,767,405
NET REALIZED GAIN....................................... 36,800
----------
NET INCREASE................................................ $19,804,205
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
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ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR
FOR THE SIX ENDED
MONTHS ENDED JUNE 30,
DECEMBER 31, 1998 1998
- ---------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $19,767,405 $34,376,188
Net realized gain.................................... 36,800 --
----------- -----------
NET INCREASE..................................... 19,804,205 34,376,188
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................ (19,767,156) (34,376,623)
Net realized gain.................................... (36,800) --
----------- -----------
TOTAL DIVIDENDS AND DISTRIBUTIONS................ (19,803,956) (34,376,623)
----------- -----------
Net increase from transactions in shares of
beneficial
interest............................................ 148,572,415 78,528,472
----------- -----------
NET INCREASE..................................... 148,572,664 78,528,037
NET ASSETS:
Beginning of period.................................. 698,977,064 620,449,027
----------- -----------
END OF PERIOD
(Including undistributed net investment income of
$311 and $62, respectively)...................... $847,549,728 $698,977,064
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
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ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS December 31, 1998 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Active Assets Government Securities Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Trust's investment objectives are
high current income, preservation of capital and liquidity. The Trust was
organized as a Massachusetts business trust on March 30, 1981 and commenced
operations on July 7, 1981.
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 -- Portfolio securities are valued at amortized
cost, which approximates market value.
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.
The Trust amortizes premiums and accretes discounts over the life of the
respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Trust records dividends
and distributions to shareholders as of the close of each business day.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Morgan Stanley Dean Witter
Advisors Inc. (the "Investment Manager"), the Trust pays the Investment Manager
a management fee, accrued daily and payable monthly, by applying the following
annual rates to the net assets of the Trust determined as of the close of each
business day: 0.50% to the portion of daily net assets not exceeding $500
million; 0.425% to the portion of daily net assets exceeding $500 million but
not exceeding $750 million; 0.375% to the portion of daily net assets exceeding
$750 million but not exceeding $1 billion; 0.35% to the
7
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ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS December 31, 1998 (unaudited) continued
portion of daily net assets exceeding $1 billion but not exceeding $1.5 billion;
0.325% to the portion of daily net assets exceeding $1.5 billion but not
exceeding $2 billion; 0.30% to the portion of daily net assets exceeding $2
billion but not exceeding $2.5 billion; 0.275% to the portion of daily net
assets exceeding $2.5 billion but not exceeding $3 billion; and 0.25% to the
portion of daily net assets exceeding $3 billion.
Under the terms of the Agreement, in addition to managing the Trust's
investments, the Investment Manager maintains certain of the Trust'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 Trust 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 Trust.
3. PLAN OF DISTRIBUTION
Morgan Stanley Dean Witter Distributors Inc. (the "Distributor"), an affiliate
of the Investment Manager, is the distributor of the Trust's shares and, in
accordance with a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under
the Act, finances certain expenses in connection therewith.
Under the Plan, the Distributor bears the expense of all promotional and
distribution related activities on behalf of the Trust, except for expenses that
the Trustees determine to reimburse, as described below. The following
activities and services may be provided by the Distributor under the Plan: (1)
compensation to sales representatives of Dean Witter Reynolds Inc., an affiliate
of the Investment Manager and Distributor and other broker-dealers; (2) sales
incentives and bonuses to sales representatives and to marketing personnel in
connection with promoting sales of the Trust's shares; (3) expenses incurred in
connection with promoting sales of the Trust's shares; (4) preparing and
distributing sales literature; and (5) providing advertising and promotional
activities, including direct mail solicitation and television, radio, newspaper,
magazine and other media advertisements.
The Trust is authorized to reimburse the Distributor for specific expenses the
Distributor incurs or plans to incur in promoting the distribution of the
Trust's shares. The amount of each monthly reimbursement payment may in no event
exceed an amount equal to a payment at the annual rate of 0.15% of the Trust's
average daily net assets during the month. Expenses incurred by the Distributor
pursuant to the Plan in any fiscal year will not be reimbursed by the Trust
through payments accrued
8
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ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS December 31, 1998 (unaudited) continued
in any subsequent fiscal year. For the six months ended December 31, 1998, the
distribution fee was accrued at the annual rate of 0.10%.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales/maturities of portfolio securities
for the six months ended December 31, 1998 aggregated $5,269,130,663 and
$5,141,642,923, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Trust's transfer agent. At December 31, 1998, the Trust had
transfer agent fees and expenses payable of approximately $1,700.
The Trust has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Trust 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 December 31, 1998
included in Trustees' fees and expenses in the Statement of Operations amounted
to $3,016. At December 31, 1998, the Trust had an accrued pension liability of
$51,038 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest, at $1.00 per share, were as
follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
DECEMBER 31, 1998 JUNE 30, 1998
----------------- --------------
(unaudited)
<S> <C> <C>
Shares sold................................................. 1,317,554,600 2,429,444,279
Shares issued in reinvestment of dividends and
distributions.............................................. 19,791,731 34,349,876
-------------- --------------
1,337,346,331 2,463,794,155
Shares repurchased.......................................... (1,188,773,916) (2,385,265,683)
-------------- --------------
Net increase in shares outstanding.......................... 148,572,415 78,528,472
============== ==============
</TABLE>
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ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR ENDED JUNE 30,
MONTHS ENDED ----------------------------------------------------
DECEMBER 31, 1998 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ ------
Net income from investment operations.................. 0.024 0.049 0.048 0.049 0.048 0.027
Less dividends from net investment income.............. (0.024) (0.049) (0.048) (0.049) (0.048) (0.027)
------ ------ ------ ------ ------ ------
Net asset value, end of period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ======
TOTAL RETURN........................................... 2.43%(1) 5.05% 4.92% 5.03% 4.92% 2.76%
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................... 0.62%(2) 0.63% 0.64% 0.65% 0.67% 0.66%
Net investment income.................................. 4.76%(2) 4.93% 4.78% 4.93% 4.84% 2.72%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions................. $848 $699 $620 $571 $542 $472
</TABLE>
- ---------------------
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
10
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(This Page Intentionally Left Blank)
<PAGE> 12
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
Jonathan R. Page
Vice President
Thomas F. Caloia
Treasurer
Transfer Agent
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311
Independent Accountants
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
Investment Manager
- --------------------------------------------------------------------------------
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
The financial statements included herein have been taken from
the records of the Trust 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
Trust. For more detailed information about the Trust, its officers
and trustees, fees, expenses and other pertinent information, please see the
prospectus of the Trust.
This report is not authorized for distribution to prospective investors
in the Trust unless preceded or accompanied by an effective prospectus.
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A C T I V E
................
A S S E T S(R)
................
A C C O U N T
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ACTIVE ASSETS
GOVERNMENT
SECURITIES TRUST
Semiannual Report
December 31, 1998
