<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- --------------------------------------------------------------------------------
When Dean Witter Federal Securities Trust's fiscal year began on November 1,
1993, the benchmark 30-year U.S. Treasury bond was yielding 5.97 percent.
Consumer spending during 1994 increased significantly as 1993's mortgage
refinancings generated increased disposable income. Retail, home and auto sales
rose rapidly in conjunction with higher levels of employment.
This scenario induced the Federal Reserve Board to forego an accommodative
monetary policy that was aimed at triggering economic growth. In early February
1994 the Central Bank initiated a series of interest rate increases that brought
the federal funds rate - the interest rate banks charge each other for overnight
loans - from 3.00 percent to 4.75 percent by the end of the fiscal year. The
Federal Reserve Board's policy shift also affected the discount rate - the rate
the Federal Reserve charges member banks for loans - which rose from 3.00
percent to 4.00 percent. These increases represented the first time in several
years the Central Bank had acted to raise short-term interest rates. Although
these moves were presented as
"pre-emptive" strikes in a war against
potential inflationary pressure, the
markets interpreted this change in policy
as the beginning of a trend toward higher
interest rates. The bond market reacted
immediately to the increase in interest
rates, with prices tumbling.
By October 1994, interest rates on
short-and intermediate-term U.S. Treasury
securities were more than 2.25 percentage
points higher compared to the historical
lows posted at the start of the Fund's
fiscal year, and by the end of the fiscal
year the bond market had recorded its
worst 12-month performance in 67 years. On
October 31, 1994, the 30-year U.S.
Treasury bond was yielding 7.98 percent.
PERFORMANCE AND PORTFOLIO STRUCTURE
On October 31, 1994, the Fund had net
assets in excess of $840 million. The
Fund's total return for the fiscal year
ended October 31, 1994 was -6.92 percent.
This does not include the deduction of any
sales charges, but does include income
distributions totaling approximately $0.61
per share and a change in net asset value
from $10.03 per share on October 29, 1993
(the final business day of the month) to
$8.74 per share on October 31, 1994.
The Fund's performance for the fiscal
year was reflective of the sharply higher
interest rate environment and difficult
investment conditions in general, despite
a relatively conservative portfolio
maturity structure. In response to the
fixed-income market's volatility, the Fund
has been focusing on securities with
shorter maturities.
<PAGE>
For example, the portfolio's allocation to U.S. Treasury bonds maturing in 20 to
30 years has decreased from 13 percent to 3 percent of net assets since our last
report to shareholders on April 30, 1994. As of October 31, 1994, the majority
of the portfolio continued to be represented by notes and bonds maturing in 7 to
20 years. Over the fiscal year, the Fund's portfolio has evolved as follows:
<TABLE>
<CAPTION>
APRIL 30,
SECURITY OCTOBER 31, 1993 1994 OCTOBER 31, 1994
- ----------------------------------------- ---------------- ------------- ----------------
<S> <C> <C> <C>
U.S. TREASURY:
20-30 years............................ 12% 13% 3%
7-20 years............................. 60 60 66
1-7 years.............................. 3 4 5
Mortgage pass-throughs (primarily
GNMAs).................................. 18 22 22
Short-term investments................... 7 1 4
---------------- ------------- ----------------
100% 100% 100%
</TABLE>
The accompanying chart illustrates the performance of a $10,000 investment
in the Fund from inception (March 31, 1987) through the fiscal year ended
October 31, 1994, versus the performance of a similar hypothetical investment in
the issues that comprise the Lehman Brothers Mutual Fund General U.S. Government
Index.
LOOKING AHEAD
On November 15, 1994, following the close of the fiscal year, the Federal
Reserve Board moved on interest rates a sixth time, raising the federal-funds
and discount rates 75 basis points to 5.50 percent and 4.75 percent,
respectively. In early 1995, we expect the economy to slow vis-a-vis the rapid
pace experienced in 1994. This should occur as higher interest rates take their
toll. Although the markets have reacted negatively to concerns regarding
inflationary pressure, we believe inflation will stabilize between three and
four percent in 1995. In the coming year, the Fund's average maturity may be
gradually extended as attractive investment opportunities become available. This
would enable the Fund to continue to provide an attractive income stream and a
competitive total return.
We appreciate your support of Dean Witter Federal Securities Trust and look
forward to continuing to serve your investment objectives in the months and
years to come.
Very truly yours,
Charles A. Fiumefreddo
CHAIRMAN OF THE BOARD
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATES VALUE
- ----------- ---------- ------------------- ---------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (70.1%)
U.S. TREASURY BONDS (65.4%)
$ 20,000 .......................................................... 9.875% 11/15/15 $ 23,553,125
22,000 .......................................................... 10.375 11/15/12 26,039,063
225,600 .......................................................... 12.00+ 8/15/13 298,602,750
30,000 .......................................................... 12.50 8/15/14 41,325,000
15,000 .......................................................... 13.25 5/15/14 21,581,250
95,000 .......................................................... 14.00 11/15/11 138,685,156
---------------
549,786,344
---------------
U.S. TREASURY NOTES (4.4%)
15,000 .......................................................... 4.75 2/15/97 14,313,281
25,000 .......................................................... 5.00 1/31/99 22,847,656
---------------
37,160,937
---------------
U.S. TREASURY BILL (A) (0.3%)
3,000 .......................................................... 4.51 11/10/94 2,996,617
---------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $603,999,821)........................................................... 589,943,898
---------------
U.S. GOVERNMENT AGENCIES (26.4%)
FEDERAL NATIONAL MORTGAGE ASSOC. (3.8%)
PRINCIPAL STRIPS (3.8%)
(Identified Cost $34,964,351)
38,323 .......................................................... 0.00 12/20/01- 3/ 9/02 31,559,177
---------------
MORTGAGE PASS-THROUGH SECURITIES (22.6%)
FEDERAL HOME LOAN MORTGAGE CORP. (7.8%)
38,183 .......................................................... 9.50 10/ 1/10- 2/ 1/20 39,483,460
19,851 .......................................................... 10.00 9/ 1/15-10/ 1/19 20,905,603
4,767 .......................................................... 10.50 1/ 1/16-10/ 1/18 5,078,000
---------------
65,467,063
---------------
FEDERAL NATIONAL MORTGAGE ASSOC. (3.0%)
19,551 .......................................................... 6.50 10/ 1/23-12/ 1/23 17,248,082
3,981 .......................................................... 8.50 1/ 1/22- 3/ 1/22 3,947,892
3,576 .......................................................... 9.50 9/ 1/16- 5/ 1/20 3,730,391
255 .......................................................... 9.75 3/ 1/16- 2/ 1/18 268,534
---------------
25,194,899
---------------
GOVERNMENT NATIONAL MORTGAGE ASSOC. (11.8%)
39,117 .......................................................... 7.00 1/15/23- 5/15/24 35,058,800
39,628 .......................................................... 7.50 6/15/17- 1/15/23 36,791,708
25,107 .......................................................... 8.50 10/15/19-10/15/24 24,793,503
2,120 .......................................................... 10.00 5/15/16-11/15/20 2,270,822
479 .......................................................... 11.00 9/15/18 528,428
---------------
99,443,261
---------------
TOTAL MORTGAGE PASS-THROUGH SECURITIES
(IDENTIFIED COST $196,490,673)........................................................... 190,105,223
---------------
TOTAL U.S. GOVERNMENT AGENCIES
(IDENTIFIED COST $231,455,024)........................................................... 221,664,400
---------------
SHORT-TERM INVESTMENTS (0.8%)
U.S. GOVERNMENT AGENCY (A) (0.8%)
(Amortized Cost $6,400,000)
6,400 Federal National Mortgage Assoc........................... 4.75 11/01/94 6,400,000
---------------
<PAGE>
</TABLE>
DEAN WITTER FEDERAL SECURITIES TRUST
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN
THOUSANDS) VALUE
- ----------- -------------------
REPURCHASE AGREEMENT (0.0%)
<C> <S> <C> <C> <C>
The Bank of New York 4.8125% due 11/01/94 (dated 10/31/94; proceeds $219,253;
collateralized by $5,031 U.S. Treasury Bond 10.375% due 11/15/12 valued at
$6,183 and by $211,989 U.S. Treasury Note 7.50% due 2/28/96 valued at
$ 219 $217,425) (Identified Cost $219,224)...................................................
$ 219,224
---------------
TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST $6,619,224)................................ 6,619,224
---------------
TOTAL INVESTMENTS (IDENTIFIED COST $842,074,069) (B)..................................... $ 818,227,522
---------------
---------------
<CAPTION>
EXPIRATION
NUMBER OF MONTH/STRIKE
CONTRACTS PRICE
- ----------- ------------
<C> <S> <C> <C> <C>
WRITTEN OPTIONS OUTSTANDING (0.00%)*
CALL OPTIONS ON TREASURY BOND FUTURES (0.00%)
100 (Premiums Received $27,508)................................................ Dec/100 $ 28,125 *
---------------
---------------
<CAPTION>
DELIVERY
YEAR/MONTH
------------
<C> <S> <C> <C> <C>
FINANCIAL FUTURES (C) (0.00%)*
SHORT POSITION
930 U.S. TREASURY BONDS........................................................ 1994/Dec $ 34,805
---------------
---------------
TOTAL INVESTMENTS (IDENTIFIED COST $842,074,069) (B)....................... 97.3% 818,227,522
TOTAL WRITTEN OPTIONS OUTSTANDING.......................................... 0.0 (28,125)
TOTAL VARIATION MARGIN ON FINANCIAL FUTURES................................ 0.0 (34,805)
OTHER ASSETS IN EXCESS OF LIABILITIES...................................... 2.7 22,562,042
---------- -------------
NET ASSETS................................................................. 100.0% $$840,726,634
---------- -------------
---------- -------------
<FN>
- ----------------
* NON-INCOME PRODUCING SECURITY.
** THE MARKET VALUE OF U.S. TREASURY SECURITIES PLEDGED TO COVER WRITTEN
OPTIONS OF FUTURES CONTRACTS IS $19,853,906.
+ SOME OR ALL OF THESE SECURITIES ARE HELD IN CONNECTION WITH OPEN
OPTIONS WRITTEN. SEE PORTFOLIO OF WRITTEN OPTIONS.
(A) SECURITY WAS PURCHASED ON A DISCOUNT BASIS. THE RATE SHOWN REFLECTS A
BOND EQUIVALENT INTEREST RATE.
(B) THE AGGREGATE COST OF INVESTMENTS FOR FEDERAL INCOME TAX PURPOSES IS
$845,186,413; THE AGGREGATE GROSS UNREALIZED APPRECIATION IS $1,102,952
AND THE AGGREGATE GROSS UNREALIZED DEPRECIATION IS $28,061,843,
RESULTING IN NET UNREALIZED DEPRECIATION OF $26,958,891.
(C) VALUE REPRESENTS VARIATION MARGIN ON OPEN FUTURES CONTRACTS AT OCTOBER
31, 1994. THE MARKET VALUE OF THE FUTURES CONTRACTS IS $91,459,688 AND
THE UNREALIZED APPRECIATION OF THESE CONTRACTS IS $2,370,502.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $842,074,069) (Note
1)...................................... $ 818,227,522
Receivable for:
Interest................................ 17,889,743
Investments sold........................ 7,028,193
Principal paydowns...................... 858,723
Shares of beneficial interest sold...... 289,653
Written options......................... 27,508
Prepaid expenses and other assets......... 41,576
-------------
TOTAL ASSETS...................... 844,362,918
-------------
LIABILITIES:
Written call options outstanding, at
value(premiums received $27,508) (Note
1)...................................... 28,125
Payable for:
Shares of beneficial interest
repurchased........................... 1,672,118
Dividends to shareholders............... 640,234
Plan of distribution fee (Note 3)....... 617,579
Investment management fee (Note 2)...... 399,610
Variation margin (Note 4)............... 34,805
Accrued expenses and other payables (Note
4)...................................... 243,813
-------------
TOTAL LIABILITIES................. 3,636,284
-------------
NET ASSETS:
Paid-in-capital........................... 953,567,493
Net unrealized depreciation............... (21,476,662)
Accumulated net realized loss............. (90,846,763)
Distributions in excess of net investment
income.................................. (517,434)
-------------
NET ASSETS........................ $ 840,726,634
-------------
-------------
NET ASSET VALUE PER SHARE, 96,211,039
shares outstanding (unlimited shares
authorized of $.01 par value)...........
$8.74
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME:
INTEREST INCOME........................ $ 79,276,458
--------------
EXPENSES
Plan of distribution fee (Note 3).... 8,336,418
Investment management fee (Note 2)... 5,387,156
Transfer agent fees and expenses..... 850,891
Shareholder reports and notices...... 97,592
Professional fees.................... 76,854
Custodian fees....................... 73,020
Registration fees.................... 70,662
Trustees' fees and expenses (Note
4)................................. 34,020
Other................................ 16,235
--------------
TOTAL EXPENSES................... 14,942,848
--------------
NET INVESTMENT INCOME.......... 64,333,610
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (Note 1):
Net realized gain (loss) on:
Investments........................ (6,827,188)
Futures contracts.................. 16,874,475
Options written.................... 2,085,784
Net change in unrealized appreciation
on investments..................... (149,350,543)
--------------
NET LOSS ON INVESTMENTS.......... (137,217,472)
--------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS.... $ (72,883,862)
--------------
--------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
OCTOBER 31, 1994 OCTOBER 31, 1993
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income................................................. $ 64,333,610 $ 76,148,935
Net realized gain (loss) on investments............................... 12,133,071 (29,752,910)
Net change in unrealized appreciation on investments.................. (149,350,543) 84,572,343
------------------ ------------------
Net increase (decrease) in net assets resulting from operations... (72,883,862) 130,968,368
------------------ ------------------
Dividends to shareholders from net investment income.................... (64,700,229) (75,986,599)
------------------ ------------------
Net decrease from transactions in shares of beneficial interest (Note
5)..................................................................... (150,082,996) (97,826,746)
------------------ ------------------
Total decrease.................................................... (287,667,087) (42,844,977)
NET ASSETS:
Beginning of period..................................................... 1,128,393,721 1,171,238,698
------------------ ------------------
END OF PERIOD (including distributions in excess of net investment
income of $517,434 and $150,815, respectively)......................... $ 840,726,634 $ 1,128,393,721
------------------ ------------------
------------------ ------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES--Dean Witter Federal Securities Trust
(the "Fund") is registered under the Investment Company Act of 1940, as amended
(the "Act"), as a diversified, open-end management investment company. The Fund
commenced operations on March 31, 1987.
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) listed
options are valued at the latest sale price on the exchange on which they
are listed unless no sales of such options have taken place that day, in
which case they will be valued at the mean between their latest bid and
asked price; (3) futures contracts are valued at the latest sale price as of
the close of the commodities exchange on which they trade unless the
Trustees determine that such price does not reflect their market value, in
which case they will be valued at fair value as determined by the Trustees;
(4) when market quotations are not readily available, 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); (5) short-term debt securities having a maturity date of more than
sixty days 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-time securities having a maturity date of sixty days or less at
the time of purchase are valued at amortized cost; and (6) the value of
other assets will be at their fair value as determined in good faith under
procedures established by and under the general supervision of the Trustees.
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 on the identified cost
method. Discounts on securities purchased are accreted over the life of the
respective securities. The Fund does not amortize premiums on securities
purchased. Interest income is accrued daily.
C. OPTIONS AND FUTURES--(1) Written options on debt obligations: When the
Fund writes a call or put option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities. The amount of
the liability is subsequently marked-to-market to reflect the current market
value. If a written option either expires or the Fund enters into a closing
purchase transaction, the Fund realizes a gain or loss without regard to any
unrealized gain or loss on the underlying security and the liability related
to such option is extinguished. If a written call option is exercised, the
Fund realizes a gain or loss from the sale of the underlying security and
the proceeds from such sale are increased by the premium originally
received. If a written put option is exercised, the amount of the premium
originally received reduces the cost of the security which the Fund
purchases upon exercise of the option; (2) Purchased options on debt
obligations: When the Fund purchases a call or put option, the premium paid
is recorded as an investment and is subsequently marked-to-market to reflect
the current market value. If a purchased option expires, the Fund will
realize a loss to the extent of the premium paid. If the Fund enters into a
closing sale transaction, a gain or loss is realized for the difference
between the proceeds from the sale and the cost of the option. If a put
option is exercised, the cost of the security sold upon exercise will be
increased by the premium originally paid. If a call option is exercised, the
cost of the security purchased upon exercise will be increased by the
premium originally paid; (3) Option on futures contracts: The Fund is
required to deposit U.S. Government securities as "initial margin" and
"variation margin" with respect to written call and put options on futures
contracts. If a written option expires, the Fund realizes a gain. If a
written call or put option is exercised, the premium received will decrease
or increase the unrealized
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
loss or gain on the futures contract. If the Fund enters into a closing
purchase transaction, the Fund realizes a gain or loss without regard to any
unrealized gain or loss on the underlying futures contract and the liability
related to such option is extinguished; (4) Futures contracts: A futures
contract is an agreement between two parties to buy and sell financial
instruments at a set price on a future date. Upon entering into such a
contract, the Fund is required to pledge to the broker cash or U.S.
Government securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Fund agrees
to receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments known as
"variation margin" are recorded by the Fund as unrealized gains or losses.
Upon closing of the contract, the Fund realizes a gain or loss equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed.
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 ex-dividend 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.
The "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.
2. INVESTMENT MANAGEMENT AGREEMENT--Pursuant to an Investment Management
Agreement with Dean Witter InterCapital Inc. (the "Investment Manager"), the
Fund pays its 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: 0.55% to the portion of daily net
assets not exceeding $1 billion; 0.525% to the portion of daily net assets
exceeding $1 billion but not exceeding $1.5 billion; 0.50% to the portion of
daily net assets exceeding $1.5 billion but not exceeding $2 billion; 0.475% to
the portion of daily net assets exceeding $2 billion but not exceeding $2.5
billion; 0.45% to the portion of daily net assets exceeding $2.5 billion but not
exceeding $5 billion; 0.425% to the portion of daily net assets exceeding $5
billion but not exceeding $7.5 billion; 0.40% to the portion of daily net assets
exceeding $7.5 billion but not exceeding $10 billion; 0.375% to the portion of
daily net assets exceeding $10 billion but not exceeding $12.5 billion; and
0.35% 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 Dean Witter
Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager.
The Fund has adopted a Plan of Distribution (the
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
"Plan") pursuant to Rule 12b-1 under the Act, pursuant to which the Fund pays
the Distributor compensation accrued daily and payable monthly at an annual rate
of 0.85% of the lesser of: (a) the average daily aggregate gross sales of the
Fund's shares since the Fund's inception (not including reinvestment of dividend
or capital gain distributions), less the average daily aggregate net asset value
of the Fund's shares redeemed since the Fund's inception upon which a contingent
deferred sales charge has been imposed or upon which such charge has been
waived; or (b) the Fund's average daily net assets. Amounts paid under the Plan
are paid to the Distributor to compensate it for the services provided and the
expenses borne by it and others in the distribution of the Fund's shares,
including the payment of commissions for sales of the Fund's shares and
incentive compensation to and expenses of the account executives of Dean Witter
Reynolds Inc., an affiliate of the Investment Manager and Distributor, and other
employees or selected broker-dealers who engage in or support distribution of
the Fund's 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 the Fund's shares to other than current
shareholders and preparation, printing and distribution of sales literature and
advertising materials. In addition, the Distributor may be compensated under the
Plan for its opportunity costs in advancing such amounts which compensation
would be in the form of a carrying charge on any unreimbursed expenses incurred
by the Distributor.
Provided that the Plan continues in effect, any cumulative expenses incurred
by the Distributor, but not yet recovered, may be recovered through future
distribution fees from the Fund and contingent deferred sales charges from the
Fund's shareholders.
The Distributor has informed the Fund that for the year ended October 31,
1994, it received approximately $822,000 in contingent deferred sales charges
from certain redemptions of the Fund's shares. The Fund's shareholders pay such
charges which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES--Purchases and
proceeds from sales/ prepayments of portfolio securities, excluding short-term
investments, for the year ended October 31, 1994 were $170,305,413 and
$303,592,962, respectively.
Transactions in written options for the year ended October 31, 1994 were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUMS
----------- -----------
<S> <C> <C>
Option contracts written, outstanding at beginning of year................... 200 $ 83,137
Options written.............................................................. 12,600 5,651,060
Options closed............................................................... (11,852) (5,463,040)
Options exercised............................................................ (409) (107,798)
Options expired.............................................................. (439) (135,851)
----------- -----------
Option contracts written, outstanding at end of year......................... 100 $ 27,508
----------- -----------
----------- -----------
</TABLE>
For the year ended October 31, 1994, the Fund incurred $10,971 and $81,776
in brokerage commissions for transactions executed and for clearing options and
futures transactions, respectively, with Dean Witter Reynolds Inc., on behalf of
the Fund.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At October 31, 1994, the Fund had
transfer agent fees and expenses payable of approximately $82,000.
At October 31, 1994, the Fund had payables for variation margin on futures
contracts from Dean Witter Reynolds Inc. in the amount of $34,805.
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
On April 1, 1991, the Fund established an unfunded noncontributory defined
benefit pension plan covering all independent Trustees of the Fund who will have
served as an independent Trustee 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 October 31, 1994, included in Trustees' fees and expenses in the
Statement of Operations, amounted to $34,020. At October 31, 1994, the Fund had
an accrued pension liability of $47,866 which is included in accrued expenses in
the Statement of Assets and Liabilities.
5. SHARES OF BENEFICIAL INTEREST--Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
OCTOBER 31, 1994 OCTOBER 31, 1993
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold......................................... 10,119,372 $ 93,966,925 11,777,136 $ 116,032,284
Reinvestment of dividends.................... 3,923,981 36,393,372 4,374,510 43,009,775
----------- ------------- ----------- -------------
14,043,353 130,360,297 16,151,646 159,042,059
Repurchases.................................. (30,316,610) (281,320,721) (26,099,762) (256,868,805)
Reclassification due to permanent book/tax
difference.................................. -- 877,428 -- --
----------- ------------- ----------- -------------
Net decrease................................. (16,273,257) $(150,082,996) (9,948,116) $ (97,826,746)
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
6. FEDERAL INCOME TAX STATUS--At October 31, 1994, the Fund had approximate net
capital loss carryovers which may be used to offset future capital gains to the
extent provided by regulations which are available through October 31 in the
following years:
<TABLE>
<CAPTION>
1996 1997 1998 2000 2002 TOTAL
- ---------------------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$28,036,000 $15,672,000 $6,866,000 $3,854,000 $31,125,000 $85,553,000
- ---------------------- ----------- ---------- ---------- ----------- -----------
- ---------------------- ----------- ---------- ---------- ----------- -----------
</TABLE>
At October 31, 1994, the Fund was required for Federal income tax purposes
to defer approximately $2,182,000 of realized losses on certain closed options
and futures contracts.
As of October 31, 1994, the Fund had temporary book/tax differences
primarily attributable to capital loss deferrals on wash sales and straddles and
permanent book/tax differences primarily attributable to dividend
redesignations. To reflect cumulative reclassifications arising from permanent
book/tax differences as of October 31, 1993, paid-in-capital was credited
$877,428, accumulated net realized loss on investments was charged $359,996 and
distributions in excess of net investment income was charged $517,432.
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK--As of October 31, 1994,
the Fund had outstanding written options on interest rate futures and interest
rate futures contracts to hedge positions or anticipated positions in U.S.
Government securities, or in the case of written options, to close out long or
short positions in futures contracts. Written options and futures contracts
involve elements of market risk in excess of the amounts reflected in the
Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable
change in the price of interest rate futures contracts, an unfavorable change in
interest rates and the absence of a liquid secondary market. As of October 31,
1994, written options had a value of $28,125 and the variation margin on futures
contracts was $34,805.
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE
PERIOD
MARCH 31,
1987*
FOR THE YEAR ENDED OCTOBER 31, THROUGH
--------------------------------------------------------------------- OCTOBER 31,
1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value,
beginning of period.... $ 10.03 $ 9.57 $ 9.46 $ 8.87 $ 9.27 $ 9.13 $ 9.27 $ 10.00
------- ------- ------- ------- ------- ------- ------- -------------
Net investment income.... 0.60 0.65 0.68 0.72 0.72 0.71 0.74 0.43
Net realized and
unrealized gain (loss)
on investments......... (1.28) 0.46 0.11 0.59 (0.40) 0.34 0.08 (0.58)
------- ------- ------- ------- ------- ------- ------- -------------
Total from investment
operations............. (0.68) 1.11 0.79 1.31 0.32 1.05 0.82 (0.15)
------- ------- ------- ------- ------- ------- ------- -------------
Less dividends and
distributions from:
Net investment income.... (0.61) (0.65) (0.68) (0.72) (0.72) (0.71) (0.74) (0.43)
Paid-in-capital.......... -- -- -- -- -- (0.20) (0.22) (0.15)
------- ------- ------- ------- ------- ------- ------- -------------
Total dividends and
distributions.......... (0.61) (0.65) (0.68) (0.72) (0.72) (0.91) (0.96) (0.58)
------- ------- ------- ------- ------- ------- ------- -------------
Net asset value, end of
period................. $ 8.74 $ 10.03 $ 9.57 $ 9.46 $ 8.87 $ 9.27 $ 9.13 $ 9.27
------- ------- ------- ------- ------- ------- ------- -------------
------- ------- ------- ------- ------- ------- ------- -------------
Total Investment
Return+................ (6.92)% 12.03% 8.56% 15.26% 3.64% 12.32% 9.21% (1.47)%(1)
Ratios/Supplemental Data:
Net assets, end of period
(in millions).......... $ 841 $ 1,128 $ 1,171 $ 1,252 $ 1,397 $ 1,824 $ 2,122 $2,067
Ratios to average net
assets:
Expenses............... 1.52% 1.50% 1.48% 1.50% 1.54% 1.47% 1.50% 1.54%(2)
Net investment
income................ 6.56% 6.59% 7.18% 7.79% 7.92% 7.90% 8.04% 7.76%(2)
Portfolio turnover
rate................... 18% 7% 6% 0% 5% 19% 44% 32 %(1)
<FN>
- ------------------
* COMMENCEMENT OF OPERATIONS.
+ DOES NOT REFLECT THE DEDUCTION OF SALES LOAD.
(1) NOT ANNUALIZED.
(2) ANNUALIZED.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Dean Witter Federal Securities Trust
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of Dean Witter Federal 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 Dean Witter Federal Securities
Trust (the "Fund") at October 31, 1994, 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 seven years in
the period then ended and for the period March 31, 1987 (commencement of
operations) through October 31, 1987, 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 owned at October 31, 1994 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
New York, New York
December 12, 1994
<PAGE>
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo DEAN WITTER
Edwin J. Garn
John R. Haire FEDERAL
Dr. Manuel H. Johnson
Paul Kolton SECURITIES TRUST
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
Rajesh K. Gupta
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
LOGO
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.
ANNUAL REPORT
OCTOBER 31, 1994
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
GROWTH OF $10,000
($ IN THOUSANDS)
<TABLE>
<S> <C> <C>
TOTAL LEHMAN
March 31, 1987 $10,000 $10,000
October 31, 1987 $ 9,853 $ 9,933
October 31, 1988 $10,761 $10,899
October 31, 1989 $12,087 $12,210
October 31, 1990 $12,527 $12,934
October 31, 1991 $14,439 $14,823
October 31, 1992 $15,674 $16,354
October 31, 1993 $17,560 $18,502
October 31, 1994 $16,345 (3) $17,675
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<S> <C> <C>
1 YEAR 5 YEARS LIFE OF FUND
-6.92 (1) 6.22 (1) 6.69
-11.28 (2) 5.92 (2) 6.69
</TABLE>
Fund Lehman (4)
----- -----
Past performance is not predictive of future returns.
- ----------------------------------
(1) Figure shown assumes reinvestment of all distributions and does not
reflect the deduction of any sales charges.
(2) Figure shown assumes the deduction of the maximum applicable contingent
deferred sales charge (CDSC) (1 year - 5%, 5 years - 2%, since
inception - 0%). See the Fund's current prospectus for complete
details on fees and sales charges.
(3) Closing value assuming a complete redemption on October 31, 1994.
(4) The Lehman Brothers Mutual Fund General U.S. Government Index is a broad-
based, unmanaged measure of all U.S. Government and U.S. Treasury
securities. The Index's total return excludes fees and expenses.
