<PAGE>
MORGAN STANLEY DEAN WITTER U.S. GOVERNMENT TWO WORLD TRADE CENTER,
SECURITIES TRUST NEW YORK, NEW YORK 10048
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998
DEAR SHAREHOLDER:
The domestic economy continued to expand throughout calendar year 1998 as
employment grew, income levels climbed and the consumer remained resilient.
Despite strong economic growth, inflation did not materialize, due largely to
the continued turmoil in the Asian and emerging-market economies. Accordingly,
the Federal Reserve Board left interest rates unchanged until late September. At
that time, in order to ensure continued U.S. economic growth, members of the
Federal Open Market Committee voted to reduce short-term interest rates. The Fed
repeated this action in mid-October, and again in mid-November.
Against this backdrop, interest rates on intermediate-term U.S. Treasury
securities were highly volatile. During 1998 the yield on five-year notes ranged
between 3.97 percent and 5.79 percent. On December 31, 1998, the yield on the
five-year note was 4.54 percent, substantially lower than the 5.71 percent of a
year ago.
PERFORMANCE
For the twelve-month period ended December 31, 1998, Morgan Stanley Dean Witter
U.S. Government Securities Trust Class B produced a total return of 7.27
percent, compared to returns of 7.85 percent for the Lipper General U.S.
Government Fund Index and 9.85 percent for the Lehman Brothers General U.S.
Government Funds Index. During the same period, the Fund's Class A, C and D
shares had total returns of 7.70 percent, 7.14 percent and 7.72 percent,
respectively. The performance of the Fund's four share classes varies because of
differing expenses. The accompanying chart compares the performance of the
Fund's Class B shares versus the Lipper and Lehman indexes.
The Fund underperformed its benchmark indexes primarily because of its
overweighted position in mortgage-backed securities, which underperformed
duration-equivalent U.S. Treasury securities during the period. However, we
believe that, despite their recent underperformance, mortgage-backed securities
continue to offer both long-term value and, in the current investment
environment, an incremental yield incentive over U.S. Treasury securities having
comparable maturities. In addition, mortgage-backed securities offer the
long-term total return potential.
<PAGE>
MORGAN STANLEY DEAN WITTER U.S. GOVERNMENT SECURITIES TRUST
LETTER TO THE SHAREHOLDERS DECEMBER 31, 1998, CONTINUED
THE PORTFOLIO
On December 31, 1998, Morgan Stanley Dean Witter U.S. Government Securities
Trust had net assets in excess of $5 billion. The Fund's portfolio was comprised
of mortgage-backed securities issued by the Government National Mortgage
Association (66 percent), U.S. Treasury securities (25 percent) and securities
issued by Resolution Funding Corporation (9 percent). At the end of its fiscal
year, the Fund's duration was approximately 4.2 years.
LOOKING AHEAD
We believe that the current inflation environment remains favorable. The
deflationary trend of Asian and emerging-market economies is likely to help keep
domestic inflation in check well into 1999. Furthermore, we believe it is
possible that the central bank will again lower interest rates in 1999, as
continued world economic turmoil curtails the economic growth of our Latin
American neighbors. However, should our economy show signs of inordinately
strong growth, coupled with unacceptably high levels of inflation, the Federal
Reserve may need to reassess its current stance on monetary policy. Accordingly,
adjustments to the Fund's maturity and portfolio composition will be made as
conditions warrant and attractive opportunities become available.
We appreciate your ongoing support of Morgan Stanley Dean Witter U.S. Government
Securities Trust and look forward to continuing to serve your investment
objectives in the months and years to come.
Very truly yours,
/s/ Charles A. Fiumefreddo
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
2
<PAGE>
MORGAN STANLEY DEAN WITTER U.S. GOVERNMENT
SECURITIES TRUST
FUND PERFORMANCE DECEMBER 31, 1998
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000 CLASS B SHARES
($ in Thousands)
FUND LEHMAN(4) LIPPER(5)
<S> <C> <C> <C>
December 31, 1988 $10,000 $10,000 $10,000
December 31, 1989 $11,110 $11,423 $11,241
December 31, 1990 $12,053 $12,419 $12,143
December 31, 1991 $13,431 $14,322 $13,919
December 31, 1992 $14,204 $15,357 $14,768
December 31, 1993 $15,217 $16,994 $15,997
December 31, 1994 $14,683 $16,420 $15,238
December 31, 1995 $17,141 $19,431 $17,820
December 31, 1996 $17,682 $19,969 $18,205
December 31, 1997 $19,195 $21,885 $19,865
December 31, 1998 $20,591(3) $24,038 $21,423
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR CLASS
A, CLASS C, AND CLASS D SHARES WILL VARY FROM THE PERFORMANCE OF CLASS B
SHARES SHOWN ABOVE DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
- ----------------------------------------------------------------------------------------------------
CLASS B SHARES* CLASS A SHARES+
- ----------------------------------------------- -----------------------------------------------
PERIOD ENDED 12/31/98 PERIOD ENDED 12/31/98
- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
1 Year 7.27%(1) 2.27%(2) 1 Year 7.70%(1) 3.13%(2)
5 Years 6.24(1) 5.92(2) From Inception (7/28/97) 7.91(1) 4.67(2)
10 Years 7.49(1) 7.49(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES++ CLASS D SHARES#
- ----------------------------------------------- -----------------------------------------------
PERIOD ENDED 12/31/98 PERIOD ENDED 12/31/98
- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
1 Year 7.14%(1) 6.14%(2) 1 Year 7.72%(1)
From Inception (7/28/97) 7.98(1) 7.98(2) From Inception (7/28/97) 8.20(1)
</TABLE>
- ------------------------
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable sales charge. See the Fund's current prospectus for
complete details on fees and sales charges.
(3) Closing value assuming a complete redemption on December 31, 1998.
(4) The Lehman Brothers General U.S. Government Index is a broad-based measure
of all U.S. Government and U.S. Treasury securities. The Index does not
include any expenses, fees or charges. The Index is unmanaged and should
not be considered an investment.
(5) The Lipper General U.S. Government Funds Index is an equally-weighted
performance index of the largest-qualifying funds (based on net assets) in
the Lipper General U.S. Government Funds objective. The Index, which is
adjusted for capital gains distributions and income dividends, is unmanaged
and should not be considered an investment. There are currently 30 funds
represented in this Index.
* The maximum CDSC for Class B is 5.0%. The CDSC declines to 0% after six
years.
+ The maximum front-end sales charge for Class A is 4.25%.
++ The maximum CDSC for Class C shares is 1% for shares redeemed within one
year of purchase.
# Class D shares have no sales charge.
3
<PAGE>
MORGAN STANLEY DEAN WITTER U.S. GOVERNMENT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL DESCRIPTION
AMOUNT IN AND COUPON
THOUSANDS MATURITY DATE RATE VALUE
- ------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
MORTGAGE-BACKED SECURITIES (66.4%)
Government National Mortgage Assoc. I (65.5%)
$ 25,250 12/15/28............................................................... 6.00% $ 25,029,060
50,000 *...................................................................... 6.00 49,515,625
286,158 12/15/22............................................................... 6.50 288,930,055
1,387,277 11/15/17............................................................... 7.00 1,418,923,770
641,620 11/15/02 - 10/15/16.................................................... 7.50 661,470,131
222,525 10/15/16 - 01/15/20.................................................... 8.00 231,147,703
223,063 07/15/06 - 01/15/20.................................................... 8.50 236,446,536
164,570 07/15/16 - 01/15/20.................................................... 9.00 175,575,138
107,705 07/15/13 - 04/15/18.................................................... 9.50 116,220,299
119,848 12/15/10 - 09/15/16.................................................... 10.00 130,821,592
349 10/15/13............................................................... 12.50 398,484
--------------
3,334,478,393
--------------
Government National Mortgage Assoc. II (0.8%)
38,984 01/20/24............................................................... 6.50 39,117,792
775 03/20/26............................................................... 7.00 787,709
--------------
39,905,501
--------------
Government National Mortgage Assoc. GPM I (0.1%)
4,755 12/15/13 - 04/15/14.................................................... 12.25 5,493,884
--------------
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $3,262,739,029)............................................... 3,379,877,778
--------------
U.S. GOVERNMENT OBLIGATIONS (25.1%)
U.S. Treasury Notes (9.9%)
50,000 05/31/03............................................................... 5.50 51,625,000
75,000 08/15/07............................................................... 6.125 81,898,500
2,300 05/31/99............................................................... 6.25 2,314,858
60,000 02/15/07............................................................... 6.25 65,788,200
9,300 05/15/99............................................................... 6.375 9,357,474
4,000 07/15/99............................................................... 6.375 4,037,480
1,050 09/30/01............................................................... 6.375 1,096,841
104,800 05/31/99............................................................... 6.75 105,665,648
47,300 04/15/99............................................................... 7.00 47,609,815
133,000 02/15/99............................................................... 8.875 133,615,790
--------------
503,009,606
--------------
U.S. Treasury Principal Strips (15.2%)
13,000 05/15/03............................................................... 0.00 10,606,180
123,000 02/15/04**............................................................. 0.00 96,946,140
380,000 05/15/04............................................................... 0.00 295,514,600
385,000 08/15/04............................................................... 0.00 295,499,050
75,000 11/15/04............................................................... 0.00 56,878,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
MORGAN STANLEY DEAN WITTER U.S. GOVERNMENT SECURITIES TRUST
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL DESCRIPTION
AMOUNT IN AND COUPON
THOUSANDS MATURITY DATE RATE VALUE
- ------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
$ 26,000 02/15/05............................................................... 0.00% $ 19,424,860
--------------
774,869,330
--------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $1,139,814,676)............................................... 1,277,878,936
--------------
U.S. GOVERNMENT AGENCIES (9.3%)
Resolution Funding Corp. Zero Coupon Strips
33,500 07/15/02............................................................... 0.00 28,216,380
5,049 10/15/02............................................................... 0.00 4,199,809
109,000 04/15/03............................................................... 0.00 88,671,500
55,000 07/15/03............................................................... 0.00 44,166,650
69,000 10/15/03............................................................... 0.00 54,736,320
89,882 01/15/04............................................................... 0.00 70,210,425
84,419 04/15/04............................................................... 0.00 65,247,445
68,000 07/15/04............................................................... 0.00 51,969,680
1,550 04/15/07............................................................... 0.00 1,025,046
18,000 07/15/07............................................................... 0.00 11,777,580
56,000 10/15/07............................................................... 0.00 36,279,600
30,000 10/15/08............................................................... 0.00 18,498,000
--------------
TOTAL U.S. GOVERNMENT AGENCIES
(IDENTIFIED COST $414,273,083)................................................. 474,998,435
--------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $4,816,826,788) (a)............................................... 100.8 % 5,132,755,149
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS..................................... (0.8) (40,551,430)
------ ---------------
NET ASSETS......................................................................... 100.0 % $ 5,092,203,719
------ ---------------
------ ---------------
</TABLE>
- ---------------------
GPM Graduated Payment Mortgage.
* Securities purchased on a forward commitment with an approximate principal
amount and no definite maturity date; the actual principal amount and
maturity date will be determined upon settlement.
** Some of these securities are segregated in connection with securities
purchased on a forward commitment basis.
(a) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $317,533,345 and the
aggregate gross unrealized depreciation is $1,604,984, resulting in net
unrealized appreciation of $315,928,361.
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER U.S. GOVERNMENT SECURITIES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $4,816,826,788)......................................................... $ 5,132,755,149
Cash....................................................................................... 157,341
Receivable for:
Interest............................................................................... 29,778,621
Shares of beneficial interest sold..................................................... 4,578,185
Prepaid expenses and other assets.......................................................... 80,247
---------------
TOTAL ASSETS.......................................................................... 5,167,349,543
---------------
LIABILITIES:
Payable for:
Investments purchased.................................................................. 49,253,125
Dividends to shareholders.............................................................. 13,553,786
Shares of beneficial interest repurchased.............................................. 6,857,566
Plan of distribution fee............................................................... 3,210,499
Investment management fee.............................................................. 1,878,762
Accrued expenses and other payables........................................................ 392,086
---------------
TOTAL LIABILITIES..................................................................... 75,145,824
---------------
NET ASSETS............................................................................ $ 5,092,203,719
---------------
---------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................ $ 5,694,016,539
Net unrealized appreciation................................................................ 315,928,361
Accumulated net realized loss.............................................................. (917,741,181)
---------------
NET ASSETS............................................................................ $ 5,092,203,719
---------------
---------------
CLASS A SHARES:
Net Assets................................................................................. $58,537,905
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE).................................. 6,376,543
NET ASSET VALUE PER SHARE............................................................. $9.18
---------------
---------------
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 4.44% OF NET ASSET VALUE)..................................... $9.59
---------------
---------------
CLASS B SHARES:
Net Assets................................................................................. $4,996,187,325
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE).................................. 543,307,518
NET ASSET VALUE PER SHARE............................................................. $9.20
---------------
---------------
CLASS C SHARES:
Net Assets................................................................................. $17,086,723
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE).................................. 1,846,174
NET ASSET VALUE PER SHARE............................................................. $9.26
---------------
---------------
CLASS D SHARES:
Net Assets................................................................................. $20,391,766
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE).................................. 2,221,111
NET ASSET VALUE PER SHARE............................................................. $9.18
---------------
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER U.S. GOVERNMENT SECURITIES TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................................................... $376,887,864
------------
EXPENSES
Plan of distribution fee (Class A shares)..................................................... 91,004
Plan of distribution fee (Class B shares)..................................................... 38,748,945
Plan of distribution fee (Class C shares)..................................................... 77,373
Investment management fee..................................................................... 22,607,800
Transfer agent fees and expenses.............................................................. 3,542,838
Custodian fees................................................................................ 845,103
Shareholder reports and notices............................................................... 185,084
Professional fees............................................................................. 67,077
Registration fees ............................................................................ 61,315
Trustees' fees and expenses................................................................... 19,706
Other......................................................................................... 65,053
------------
TOTAL EXPENSES........................................................................... 66,311,298
------------
NET INVESTMENT INCOME.................................................................... 310,576,566
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss............................................................................. (2,384,102)
Net change in unrealized appreciation......................................................... 54,569,658
------------
NET GAIN................................................................................. 52,185,556
------------
NET INCREASE.................................................................................. $362,762,122
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER U.S. GOVERNMENT SECURITIES TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997*
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................................................ $ 310,576,566 $ 363,800,467
Net realized loss.................................................................... (2,384,102) (3,836,410)
Net change in unrealized appreciation................................................ 54,569,658 118,550,225
-------------------- ---------------------
NET INCREASE.................................................................... 362,762,122 478,514,282
-------------------- ---------------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares....................................................................... (2,396,071) (342,413)
Class B shares....................................................................... (306,635,357) (363,065,315)
Class C shares....................................................................... (600,619) (61,336)
Class D shares....................................................................... (944,519) (326,681)
-------------------- ---------------------
TOTAL DIVIDENDS................................................................. (310,576,566) (363,795,745)
-------------------- ---------------------
Net decrease from transactions in shares of beneficial interest...................... (425,398,131) (1,098,840,399)
-------------------- ---------------------
NET DECREASE.................................................................... (373,212,575) (984,121,862)
NET ASSETS:
Beginning of period.................................................................. 5,465,416,294 6,449,538,156
-------------------- ---------------------
END OF PERIOD................................................................... $ 5,092,203,719 $ 5,465,416,294
-------------------- ---------------------
-------------------- ---------------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July, 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER U.S. GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter U.S. Government Securities Trust (the "Fund"),
formerly Dean Witter U.S. Government Securities Trust, 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 high
current income consistent with safety of principal. The Fund seeks to achieve
its objective by investing in obligations issued or guaranteed by the U.S.
Government or its instrumentalities. The Fund was organized as a Massachusetts
business trust on September 29, 1983 and commenced operations on June 29, 1984.
On July 28, 1997, the Fund commenced offering three additional classes of
shares, with the then current shares, other then shares held by certain employee
benefit plans established by Dean Witter Reynolds Inc. and its affiliate, SPS
Transaction Services, Inc., designated as Class B shares. Shares held by those
employee benefit plans prior to July 28, 1997 have been designated Class D
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 and 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) all portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (2) when market
quotations are not readily available, including circumstances under which it is
determined by Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager"), formerly Dean Witter InterCapital Inc., 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
9
<PAGE>
MORGAN STANLEY DEAN WITTER U.S. GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
similar factors); and (3) 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; (4) short-term debt securities having a maturity date of
more than sixty days at time of purchase are valued on a mark-to-market basis
until sixty days prior to maturity and thereafter at amortized cost based on
their value on the 61st day. Short-term debt securities having a maturity date
of sixty days or less at the time of purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- 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 such
items are recognized. Distribution fees are charged directly to the respective
class.
D. 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.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment
10
<PAGE>
MORGAN STANLEY DEAN WITTER U.S. GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
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.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with the Investment Manager, the
Fund pays the Investment Manager a management fee, accrued daily and payable
monthly, by applying the following annual rates to the Fund's net assets
determined at the close of each business day: 0.50% to the portion of daily net
assets not exceeding $1 billion; 0.475% to the portion of daily net assets
exceeding $1 billion but not exceeding $1.5 billion; 0.45% to the portion of
daily net assets exceeding $1.5 billion but not exceeding $2 billion; 0.425% to
the portion of daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.40% to the portion of daily net assets exceeding $2.5 billion but not
exceeding $5 billion; 0.375% to the portion of daily net assets exceeding $5
billion but not exceeding $7.5 billion; 0.35% to the portion of daily net assets
exceeding $7.5 billion but not exceeding $10 billion; 0.325% to the portion of
daily net assets exceeding $10 billion but not exceeding $12.5 billion; and
0.30% to the portion of daily net assets exceeding $12.5 billion.
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 Morgan Stanley 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 - up
to 0.25% of the average daily net assets of Class A; (ii) Class B - 0.75% (0.65%
on amounts over $10 billion) of the lesser of: (a) the average daily aggregate
gross sales of the Class B 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 Class B shares redeemed since the Fund's
11
<PAGE>
MORGAN STANLEY DEAN WITTER U.S. GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
inception upon which a contingent deferred sales charge has been imposed or
waived; or (b) the average daily net assets of Class B; and (iii) Class C - up
to 0.75% of the average daily net assets of Class C. In the case of Class A
shares, amounts paid under the 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 (1) 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, Morgan Stanley Dean Witter Financial Advisors and others who
engage in or support distribution of the shares or who service shareholder
accounts, including overhead and telephone expenses; (2) printing and
distribution of prospectuses and reports used in connection with the offering of
these shares to other than current shareholders; and (3) 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 Dean Witter Reynolds Inc. ("DWR"), an affiliate of the
Investment Manager and Distributor, 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.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $8,899,443 at December 31, 1998.
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 0.75% 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 Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the year ended December 31, 1998, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.24% and
0.75%, respectively.
12
<PAGE>
MORGAN STANLEY DEAN WITTER U.S. GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
The Distributor has informed the Fund that for the year ended December 31, 1998
it received contingent deferred sales charges from certain redemptions of the
Fund's Class A shares, Class B shares and Class C shares of $9,698, $3,058,326
and $19,701, respectively and received $64,425 in front-end sales charges from
sales of the Fund's Class A shares. The respective shareholders pay such charges
which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The costs of purchases and proceeds from sales/prepayments of portfolio
securities, excluding short-term investments, for the year ended December 31,
1998 were $717,875,107 and $1,347,282,631, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At December 31, 1998, the Fund had
transfer agent fees and expenses payable of approximately $96,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended December 31, 1998
included in Trustees' fees and expenses in the Statement of Operations amounted
to $6,216. At December 31, 1998, the Fund had an accrued pension liability of
$52,503 included in accrued expenses in the Statement of Assets and Liabilities.
5. ACQUISITION OF DEAN WITTER RETIREMENT SERIES -- U.S. GOVERNMENT SECURITIES
SERIES
As of the close of business on September 11, 1998, the Fund acquired all the net
assets of Dean Witter Retirement Series - U.S. Government Securities Series
("Retirement U.S. Government") pursuant to a plan of reorganization (the "Plan")
approved by the shareholders of Retirement U.S. Government on August 19, 1998.
The acquisition was accomplished by a tax-free exchange of 986,985 Class D
shares of the Fund at a net asset value of $9.21 per share for 899,123 shares of
Retirement U.S. Government. The net assets of the Fund and Retirement U.S.
Government immediately before the acquisition were $5,193,431,112 and
$9,087,435, respectively, including unrealized appreciation of $322,808 for
Retirement U.S. Government. Immediately after the acquisition, the combined net
assets of the Fund amounted to $5,202,518,547.
13
<PAGE>
MORGAN STANLEY DEAN WITTER U.S. GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997+*
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold.............................................. 4,837,972 $ 44,356,004 2,724,542 $ 24,540,441
Reinvestment of dividends......................... 145,211 1,330,450 7,949 72,059
Redeemed.......................................... (898,895) (8,228,417) (440,236) (3,982,964)
------------ --------------- ------------ ---------------
Net increase - Class A............................ 4,084,288 37,458,037 2,292,255 20,629,536
------------ --------------- ------------ ---------------
CLASS B SHARES
Sold.............................................. 103,474,883 948,990,970 67,708,563 606,120,050
Reinvestment of dividends......................... 17,451,085 159,732,499 20,782,743 185,683,576
Redeemed.......................................... (173,896,303) (1,593,120,481) (214,633,493) (1,917,929,811)
------------ --------------- ------------ ---------------
Net decrease - Class B............................ (52,970,335) (484,397,012) (126,142,187) (1,126,126,185)
------------ --------------- ------------ ---------------
CLASS C SHARES
Sold.............................................. 4,818,849 44,609,503 552,334 5,029,381
Reinvestment of dividends......................... 41,862 386,582 4,930 45,056
Redeemed.......................................... (3,492,672) (32,338,148) (79,129) (724,422)
------------ --------------- ------------ ---------------
Net increase - Class C............................ 1,368,039 12,657,937 478,135 4,350,015
------------ --------------- ------------ ---------------
CLASS D SHARES
Sold.............................................. 1,554,909 14,290,193 324,174 2,938,529
Reinvestment of dividends......................... 97,395 892,667 34,780 314,925
Acquisition of Dean Witter Retirement Series -
U.S. Government Securities Trust Series 986,985 9,087,435 -- --
Redeemed.......................................... (1,666,314) (15,387,388) (104,962) (947,219)
------------ --------------- ------------ ---------------
Net increase - Class D............................ 972,975 8,882,907 253,992 2,306,235
------------ --------------- ------------ ---------------
Net decrease in Fund.............................. (46,545,033) $ (425,398,131) (123,117,805) $(1,098,840,399)
------------ --------------- ------------ ---------------
------------ --------------- ------------ ---------------
</TABLE>
- ---------------------
+ On July 28, 1997, 994,144 shares representing $8,977,118 were transferred
to Class D.
* For Class A, C and D shares, for the period July 28, 1997 (issue date)
through December 31, 1997.
14
<PAGE>
MORGAN STANLEY DEAN WITTER U.S. GOVERNMENT SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998, CONTINUED
7. FEDERAL INCOME TAX STATUS
At December 31, 1998, the Fund had a net capital loss carryover of approximately
$916,574,000, which may be used to offset future capital gains to the extent
provided by regulations which is available through December 31 of the following
years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
- --------------------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004 2005 2006
- ------------- ------------- ------------- ------------- ------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 261,525 $ 154,964 $ 263,492 $ 118,056 $ 63,667 $ 49,153 $ 3,006 $ 2,711
- ------------- ------------- ------------- ------------- ------------- ----------- ----------- ---------
- ------------- ------------- ------------- ------------- ------------- ----------- ----------- ---------
</TABLE>
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $1,048,000 during fiscal 1998.
At December 31, 1998, the Fund had temporary book/tax differences primarily
attributable to post-October losses and permanent book/tax differences
attributable to an expired capital loss carryover. To reflect reclassifications
arising from the permanent differences, paid-in-capital was charged and
accumulated net realized loss was credited $108,730,990.
15
<PAGE>
MORGAN STANLEY DEAN WITTER U.S. 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 YEAR ENDED DECEMBER 31
------------------------------------------------------
1998 1997* 1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of
period....................... $ 9.10 $ 8.92 $ 9.21 $ 8.41 $ 9.31
------- ------- ------- ------- -------
Income (loss) from investment
operations:
Net investment income...... 0.54 0.56 0.56 0.57 0.58
Net realized and unrealized
gain (loss)................ 0.10 0.18 (0.29) 0.80 (0.90)
------- ------- ------- ------- -------
Total income (loss) from
investment operations........ 0.64 0.74 0.27 1.37 (0.32)
------- ------- ------- ------- -------
Less dividends from net
investment income............ (0.54) (0.56) (0.56) (0.57) (0.58)
------- ------- ------- ------- -------
Net asset value, end of
period....................... $ 9.20 $ 9.10 $ 8.92 $ 9.21 $ 8.41
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN+................. 7.27% 8.56% 3.16% 16.74% (3.51)%
RATIOS TO AVERAGE NET ASSETS:
Expenses...................... 1.27%(1) 1.26% 1.25% 1.24% 1.22%
Net investment income......... 5.94%(1) 6.22% 6.28% 6.44% 6.57%
SUPPLEMENTAL DATA:
Net assets, end of period, in
millions..................... $4,996 $5,429 $6,450 $7,955 $8,211
Portfolio turnover rate....... 14% 4% 8% 14% 26%
</TABLE>
- ---------------------
* 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 held by certain
employee benefit plans established by Dean Witter Reynolds Inc. and its
affiliate, SPS Transaction Services, Inc., have been designated Class B
shares. Shares held by those employee benefit plans prior to July 28, 1997
have been designated Class D shares.
+ 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) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
MORGAN STANLEY DEAN WITTER U.S. GOVERNMENT SECURITIES TRUST
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period...... $ 9.09 $ 9.03
------ ------
Income from investment operations:
Net investment income.................. 0.59 0.25
Net realized and unrealized gain....... 0.09 0.06
------ ------
Total income from investment operations... 0.68 0.31
------ ------
Less dividends from net investment
income................................... (0.59) (0.25)
------ ------
Net asset value, end of period............ $ 9.18 $ 9.09
------ ------
------ ------
TOTAL RETURN+............................. 7.70% 3.50%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................. 0.76%(3) 0.77%(2)
Net investment income..................... 6.45%(3) 6.57%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands... $58,538 $20,841
Portfolio turnover rate................... 14% 4%
</TABLE>
<TABLE>
<S> <C> <C>
CLASS C SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period...... $ 9.17 $ 9.03
------ ------
Income from investment operations:
Net investment income.................. 0.55 0.23
Net realized and unrealized gain....... 0.09 0.14
------ ------
Total income from investment operations... 0.64 0.37
------ ------
Less dividends from net investment
income................................... (0.55) (0.23)
------ ------
Net asset value, end of period............ $ 9.26 $ 9.17
------ ------
------ ------
TOTAL RETURN+............................. 7.14% 4.14%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................. 1.27%(3) 1.25%(2)
Net investment income..................... 5.94%(3) 5.81%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands... $17,087 $4,385
Portfolio turnover rate................... 14% 4%
</TABLE>
- ---------------------
* The date shares were first issued.
+ 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) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
MORGAN STANLEY DEAN WITTER U.S. GOVERNMENT SECURITIES TRUST
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
CLASS D SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period.... $ 9.11 $ 9.03
------ ------
Income from investment operations:
Net investment income................ 0.61 0.27
Net realized and unrealized gain..... 0.07 0.08
------ ------
Total income from investment
operations............................. 0.68 0.35
------ ------
Less dividends from net investment
income................................. (0.61) (0.27)
------ ------
Net asset value, end of period.......... $ 9.18 $ 9.11
------ ------
------ ------
TOTAL RETURN+........................... 7.72% 3.87%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 0.52%(3) 0.52%(2)
Net investment income................... 6.69%(3) 6.91%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands.............................. $20,392 $11,367
Portfolio turnover rate................. 14% 4%
</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 B to
obtain the historical per share data and ratio information of their shares.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
MORGAN STANLEY DEAN WITTER U.S. GOVERNMENT
SECURITIES TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER U.S. GOVERNMENT SECURITIES TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter U.S.
Government Securities Trust (the "Fund"), formerly Dean Witter U.S. Government
Securities Trust, at December 31, 1998, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
FEBRUARY 8, 1999
19
<PAGE>
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
Rajesh K. Gupta
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
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.
MORGAN STANLEY
DEAN WITTER
U.S. GOVERNMENT
SECURITIES TRUST
[GRAPHIC]
ANNUAL REPORT
DECEMBER 31, 1998
