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ACTIVE ASSETS GOVERNMENT SECURITIES TRUST Two World Trade Center
LETTER TO THE SHAREHOLDERS December 31, 1999 New York, New York 10048
DEAR SHAREHOLDER:
As of December 31, 1999, Active Assets Government Securities Trust had net
assets of approximately $991 million, up 17 percent from a year earlier. The
average life of the Trust's portfolio was 72 days and its annualized net
investment income for the six-month period ended December 31, 1999 was 4.67
percent, while its annualized 30-day moving average yield for December was 5.03
percent.
MARKET OVERVIEW
During the six-month period ended December 31, 1999, the U.S. economy continued
on its path of strength propelled by low inflation and unemployment and
accelerated workforce productivity coupled with a recovery in many overseas
economies. With renewed strength in the world economy and the threat of domestic
inflation looming, the Federal Reserve Board raised the federal funds target
rate in three steps from 4.75 percent to 5.50 percent between June and November.
These actions effectively reversed the three rate reductions the Fed had
implemented in the second half of 1998.
Investment rates available from money-market securities were higher during the
second half of 1999 than in the first half. Accordingly, the net yield provided
by the Trust generally followed an upward trend from late June to December as
the Fed raised the intended federal funds rate.
PORTFOLIO COMPOSITION AND STRUCTURE
On December 31, 1999, approximately 95 percent of the Trust's portfolio was
invested in federal agency discount notes, 1 percent in a U.S. Treasury
obligation and the remaining 4 percent in a repurchase agreement. At the end of
the fiscal period, approximately 73 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. As always, we try
to operate the Trust in a conservative manner without the use of derivatives or
structured notes
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ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
LETTER TO THE SHAREHOLDERS December 31, 1999, continued
that might fluctuate excessively with changing interest rates. We believe that
the Trust continues to serve as a useful investment for liquidity, preservation
of capital and a yield that reflects prevailing money-market conditions.
LOOKING AHEAD
While we anticipate some moderation in the pace of economic activity during the
year ahead, we believe that the economy's growth rate could remain stronger than
the Fed believes desirable for the long run. As a result, future meetings of the
Fed's Open Market Committee may result in further upward adjustments for
short-term interest rates.
We appreciate your ongoing support of Active Assets Government Securities Trust
and look forward to continuing to serve your investment needs.
<TABLE>
<S> <C>
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
</TABLE>
2
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ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS December 31, 1999 (unaudited)
<TABLE>
<CAPTION>
ANNUALIZED
PRINCIPAL DESCRIPTION YIELD
AMOUNT IN AND ON DATE OF
THOUSANDS MATURITY DATE PURCHASE VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C>
U.S. GOVERNMENT AGENCIES (94.9%)
$ 79,000 Federal Farm Credit Bank
01/19/00 - 06/07/00......................... 4.95 - 5.92% $ 77,904,379
499,000 Federal Home Loan Banks
01/06/00 - 06/14/00......................... 4.97 - 5.89 493,301,171
190,335 Federal Home Loan Mortgage Corp.
01/14/00 - 03/23/00......................... 5.36 - 5.85 189,275,347
168,500 Federal National Mortgage Assoc.
01/18/00 - 06/29/00......................... 5.46 - 6.02 165,910,886
15,000 Tennessee Valley Authority
02/24/00.................................... 5.61 14,875,575
------------
TOTAL U.S. GOVERNMENT AGENCIES
(Amortized Cost $941,267,358)............................. 941,267,358
------------
U.S. GOVERNMENT OBLIGATION (0.7%)
7,000 U.S. Treasury Bill
03/02/00 (Amortized Cost $6,941,406)........ 5.06 6,941,406
------------
REPURCHASE AGREEMENT (4.4%)
43,325 The Banc of America Securities LLC 3.15% due
01/03/00 (dated 12/31/99; proceeds
$43,336,373) (a) (Identified Cost
$43,325,000)................................ 43,325,000
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS
(Amortized Cost $991,533,764)(b)............ 100.0% 991,533,764
LIABILITIES IN EXCESS OF CASH AND OTHER
ASSETS...................................... 0.0 (336,488)
----- ------------
NET ASSETS.................................. 100.0% $991,197,276
===== ============
</TABLE>
- ---------------------
(a) Collateralized by $40,681,469 Federal National Mortgage Assoc.
5.50% - 9.00% due 08/01/02 - 12/01/29 valued at $27,742,875; and
$18,208,436 Federal National Mortgage Corp. 5.50% - 7.00% due
01/01/06 - 12/01/29 valued at $16,448,626.
(b) Cost is the same for federal income tax purposes.
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, 1999 (unaudited)
ASSETS:
Investments in securities, at value
(amortized cost $991,533,764)............................... $991,533,764
Cash........................................................ 4,293
Interest receivable......................................... 155,049
Prepaid expenses and other assets........................... 82,773
-----------
TOTAL ASSETS............................................ 991,775,879
-----------
LIABILITIES:
Payable for:
Investment management fee............................... 389,287
Plan of distribution fee................................ 87,068
Shares of beneficial interest repurchased............... 8,568
Accrued expenses and other payables......................... 93,680
-----------
TOTAL LIABILITIES....................................... 578,603
-----------
NET ASSETS.............................................. $991,197,276
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $991,196,257
Accumulated undistributed net investment income............. 1,019
-----------
NET ASSETS.............................................. $991,197,276
===========
NET ASSET VALUE PER SHARE,
991,196,257 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, 1999 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $26,049,115
-----------
EXPENSES
Investment management fee................................... 2,230,081
Plan of distribution fee.................................... 484,464
Transfer agent fees and expenses............................ 55,897
Professional fees........................................... 38,334
Registration fees........................................... 29,333
Custodian fees.............................................. 28,170
Shareholder reports and notices............................. 22,418
Trustees' fees and expenses................................. 8,618
Other....................................................... 4,244
-----------
TOTAL EXPENSES.......................................... 2,901,559
-----------
NET INVESTMENT INCOME................................... 23,147,556
NET REALIZED GAIN....................................... 10,409
-----------
NET INCREASE................................................ $23,157,965
===========
</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, 1999 1999
- ---------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $ 23,147,556 $ 40,897,926
Net realized gain.................................... 10,409 36,800
------------ ------------
NET INCREASE..................................... 23,157,965 40,934,726
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................ (23,146,965) (40,897,560)
Net realized gain.................................... (10,409) (36,800)
------------ ------------
TOTAL DIVIDENDS AND DISTRIBUTIONS................ (23,157,374) (40,934,360)
------------ ------------
Net increase (decrease) from transactions in shares
of beneficial interest.............................. (4,250,858) 296,470,113
------------ ------------
NET INCREASE (DECREASE).......................... (4,250,267) 296,470,479
NET ASSETS:
Beginning of period.................................. 995,447,543 698,977,064
------------ ------------
END OF PERIOD
(Including undistributed net investment income of
$1,019 and $428, respectively)................... $991,197,276 $995,447,543
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
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ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS December 31, 1999 (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%
7
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ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS December 31, 1999 (unaudited) continued
to the portion of daily net assets exceeding $750 million but not exceeding $1
billion; 0.35% to the 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
8
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ACTIVE ASSETS GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS December 31, 1999 (unaudited) continued
pursuant to the Plan in any fiscal year will not be reimbursed by the Trust
through payments accrued in any subsequent fiscal year. For the six months ended
December 31, 1999, 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, 1999 aggregated $6,986,675,209 and
$7,015,702,573, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Trust's transfer agent. At December 31, 1999, the Trust had
transfer agent fees and expenses payable of approximately $300.
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, 1999
included in Trustees' fees and expenses in the Statement of Operations amounted
to $3,003. At December 31, 1999, the Trust had an accrued pension liability of
$52,582 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, 1999 JUNE 30, 1999
----------------- --------------
(unaudited)
<S> <C> <C>
Shares sold................................................. 1,616,914,341 3,141,395,012
Shares issued in reinvestment of dividends and
distributions.............................................. 23,138,603 40,910,486
-------------- --------------
1,640,052,944 3,182,305,498
Shares repurchased.......................................... (1,644,303,802) (2,885,835,385)
-------------- --------------
Net increase (decrease) in shares outstanding............... (4,250,858) 296,470,113
============== ==============
</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, 1999 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
(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 0.045 0.049 0.048 0.049 0.048
Less dividends from net investment income.............. (0.024) (0.045) (0.049) (0.048) (0.049) (0.048)
------ ------ ------ ------ ------ ------
Net asset value, end of period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ======
TOTAL RETURN........................................... 2.38%(1) 4.64% 5.05% 4.92% 5.03% 4.92%
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................... 0.58%(2) 0.61% 0.63% 0.64% 0.65% 0.67%
Net investment income.................................. 4.67%(2) 4.50% 4.93% 4.78% 4.93% 4.84%
SUPPLEMENTAL DATA:
Net assets, end of period, in millions................. $991 $995 $699 $620 $571 $542
</TABLE>
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(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
10
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(This Page Intentionally Left Blank)
11
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TRUSTEES
- ----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
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
Mitchell M. Merin
President
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. Read the
prospectus carefully before investing.
ACTIVE
ASSETS(R)
ACCOUNT
ACTIVE ASSETS
GOVERNMENT
SECURITIES TRUST
Semiannual Report
December 31, 1999
