<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST TWO WORLD TRADE CENTER, NEW YORK, NEW YORK
10048
LETTER TO THE SHAREHOLDERS OCTOBER 31, 1995
DEAR SHAREHOLDER:
After suffering sharp declines during most of 1994 as interest rates rose
significantly, the fixed-income markets began to show signs of life in the
fourth quarter of 1994 and rallied sharply during the first quarter of 1995. By
the end of the first quarter, the yield on the 2-year U.S. Treasury note had
declined to 6.78 percent from 7.70 percent on December 31, 1994, while yield on
the 30-year U.S. Treasury bond had fallen to 7.43 percent from 7.88 percent.
The bond market continued to rally through the second and third quarters of
1995. Yields on intermediate- and long-term bonds declined to levels not seen
since before the Federal Reserve Board started to raise interest rates in
February 1994. As of October 31, 1995, the yield on the 30-year U.S. Treasury
bond was 6.33 percent. Much of the bond market's strength during 1995 can be
attributed to a continued slowdown in the pace of economic activity,
particularly in the housing, automobile and retail sectors. In addition, despite
today's relatively low unemployment level and the volatility of the commodities
market, inflation has stabilized below 3 percent. Recent economic data support
the perception that the central bank has successfully orchestrated a soft
landing whereby the U.S. economy is growing quickly enough to avoid recession,
yet not so rapidly that inflationary pressure becomes a major issue.
FUND PERFORMANCE
On October 31, 1995, Dean Witter Federal Securities Trust had net assets in
excess of $829 million. The Fund's total return for the fiscal year was 15.89
percent. This performance includes income distributions totaling approximately
$0.59 per share and a change in net asset value from $8.74 per share on October
31, 1994, to $9.49 per share on October 31, 1995.
The Fund's performance for the fiscal year was reflective of the sharply lower
interest rate environment. In response to this year's rally, the Fund's average
maturity was gradually extended as attractive
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
LETTER TO THE SHAREHOLDERS OCTOBER 31, 1995, CONTINUED
investment opportunities became available. This enabled the Fund to continue to
provide a competitive level of income as well as capital appreciation. On
October 31, 1995, the Fund's average maturity was approximately 9 years. The
accompanying chart illustrates the performance of a $10,000 investment in the
Fund from inception through the fiscal year ended October 31, 1995, versus the
performance of a similar hypothetical investment in the issues that comprise the
Lehman Brothers General U.S. Government Index.
THE PORTFOLIO
As of October 31, 1995, the majority of the portfolio continued to be
represented by notes and bonds maturing in 7 to 20 years. At the end of the
period, 3 percent of the Fund's net assets was invested in U.S. Treasury bonds
with 20-to-30 year maturities, 64 percent was in the 7- to 20-year range, and
1 percent was in the 1- to 7-year range.
Approximately 26 percent of the Fund's net
assets was invested in the mortgage-backed
securities issued primarily by the
Government National Mortgage Association
(GNMA). The balance of the portfolio
consisted of U.S. agency obligations (4
percent of net assets) and short-term money
market investments (1 percent). In the
months to come, as conditions warrant,
accrued income and the proceeds from sales
and/or maturities may be invested in
mortgage-backed securities, which we
believe continue to offer significant
long-term value as well as an incremental
yield incentive over U.S. Treasury
securities of similar maturities and the
potential for capital appreciation.
LOOKING AHEAD
We expect the U.S. economy to maintain a
slow to moderate pace for the remainder of
1995 and into the first quarter of 1996.
Despite a 25 basis point cut in the
federal-funds rate in mid-1995, we believe
that the Federal Reserve Board will want to
see a sustained confirmation of weak
economic trends before taking further
action, unless the legislators in
Washington put together a credible
deficit-reduction package. Inflation should
remain subdued going forward.
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
LETTER TO THE SHAREHOLDERS OCTOBER 31, 1995, CONTINUED
We appreciate your ongoing 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,
[SIGNATURE]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL DESCRIPTION
AMOUNT IN AND COUPON
THOUSANDS MATURITY DATE RATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS (72.1%)
$ 38,323 Federal National Mortgage Assoc. (4.3%)
Principal Strip 12/20/01 - 03/09/02..................... 7.56- $ 35,446,116
---------------
7.89++%
U.S. Treasury Bonds (66.6%)
20,000 11/15/15................................................ 9.875 27,781,250
22,000 11/15/12................................................ 10.375 29,528,125
225,600 08/15/13................................................ 12.00+ 337,836,000
25,000 08/15/14................................................ 12.50 39,125,000
73,000 11/15/11................................................ 14.00 118,020,469
---------------
552,290,844
---------------
U.S. Treasury Note (1.2%)
10,000 01/31/99................................................ 5.00 9,782,812
---------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $544,244,915)........................................ 597,519,772
---------------
MORTGAGE-BACKED SECURITIES (25.8%)
Federal Home Loan Mortgage Corp. (6.6%)
32,159 10/01/10 - 02/01/20..................................... 9.50 33,666,760
15,930 09/01/15 - 10/01/19..................................... 10.00 17,219,113
4,065 01/01/16 - 10/01/18..................................... 10.50 4,439,151
---------------
55,325,024
---------------
Federal National Mortgage Assoc. (7.1%)
18,898 10/01/23 - 12/01/23..................................... 6.50 18,324,956
5,000 *....................................................... 7.00 4,946,875
19,007 05/01/24 - 06/01/25..................................... 8.00 19,464,782
12,185 01/01/22 - 04/01/25..................................... 8.50 12,615,779
2,975 09/01/16 - 05/01/20..................................... 9.50 3,136,985
246 03/01/16 - 02/01/18..................................... 9.75 263,788
---------------
58,753,165
---------------
Government National Mortgage Assoc. (12.1%)
37,415 12/15/22 - 05/15/24..................................... 7.00 37,122,505
36,565 06/15/17 - 01/15/23..................................... 7.50 37,010,946
22,955 10/15/19 - 10/15/24..................................... 8.50 23,880,333
1,641 05/15/16 - 11/15/20..................................... 10.00 1,790,691
282 09/15/18................................................ 11.00 315,940
---------------
100,120,415
---------------
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $209,372,996)........................................ 214,198,604
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1995, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL DESCRIPTION
AMOUNT IN AND COUPON
THOUSANDS MATURITY DATE RATE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS (a) (1.1%)
U.S. GOVERNMENT & AGENCY OBLIGATIONS
$ 5,900 Federal Home Loan Mortgage Corp. 11/01/95............... 5.82% $ 5,900,000
3,000 U.S. Treasury Bill 12/07/95............................. 5.17 2,984,490
---------------
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $8,884,490)........................................... 8,884,490
---------------
TOTAL INVESTMENTS
(IDENTIFIED COST $762,502,401) (C).................................... $ 820,602,866
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
DESCRIPTION,
NUMBER OF EXPIRATION MONTH
CONTRACTS AND STRIKE PRICE VALUE
- ----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
WRITTEN OPTIONS (0.0%)
Call options on Treasury bond futures December/1995/118-119
600 (Premiums Received $330,674)..........................................
$ (326,563)**
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
DESCRIPTION,
NUMBER OF DELIVERY YEAR
CONTRACTS AND MONTH VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL FUTURES (b) (0.0%)
SHORT POSITIONS
161 U.S. Treasury bonds December/1995...................................... $ (45,281)
---------------
---------------
TOTAL INVESTMENTS
(IDENTIFIED COST $762,502,401) (C).......... 99.0% $820,602,866
TOTAL WRITTEN OPTIONS OUTSTANDING........... 0.0 (326,563)
TOTAL FINANCIAL FUTURES..................... (0.0) (45,281)
OTHER ASSETS IN EXCESS OF OTHER
LIABILITIES................................. 1.0 9,013,453
----- ------------
NET ASSETS.................................. 100.0% $829,244,475
----- ------------
----- ------------
<FN>
- ---------------------
* Securities purchased on a forward commitment with an approximate principle
amount and no definite maturity date, the actual principal amount and
maturity date will be determined upon settlement.
** The market value of U.S. Treasury securities pledged to cover written
options on futures and open futures contracts is $22,462,500.
+ Some or all of these securities are segregated in connection with open
written options.
++ Currently zero coupon bond and will pay interest at the rate shown at a
future specified date.
(a) Securities were purchased on a discount basis. The interest rates shown
have been adjusted to reflect a money market equivalent yield.
(b) Value represents variation margin on open futures contract at October 31,
1995. The market value of these futures contracts is $18,847,063 and the
unrealized depreciation is $326,117
(c) The aggregate cost of investments for federal income tax purposes is
$765,602,245; the aggregate gross unrealized appreciation is $59,225,896
and the aggregate gross unrealized depreciation is $4,225,275, resulting
in appreciation of $55,000,621.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $762,502,401)............................ $ 820,602,866
Receivable for:
Investments sold........................................ 110,937
Interest................................................ 15,047,866
Principal paydowns...................................... 1,108,951
Shares of beneficial interest sold...................... 371,323
Written options......................................... 30,633
Prepaid expenses and other assets........................... 46,732
-------------
TOTAL ASSETS........................................... 837,319,308
-------------
LIABILITIES:
Written call options outstanding, at value
(premiums received $330,674).............................. 326,563
Payable for:
Investments purchased................................... 4,916,354
Plan of distribution fee................................ 617,258
Dividends to shareholders............................... 548,423
Shares of beneficial interest repurchased............... 448,616
Investment management fee............................... 399,402
Variation margin........................................ 45,281
Payable to bank............................................. 552,437
Accrued expenses and other payables......................... 220,499
-------------
TOTAL LIABILITIES...................................... 8,074,833
-------------
NET ASSETS:
Paid-in-capital............................................. 873,904,427
Net unrealized appreciation................................. 57,778,459
Distributions in excess of net investment income............ (517,433)
Accumulated net realized loss............................... (101,920,978)
-------------
NET ASSETS............................................. $ 829,244,475
-------------
-------------
NET ASSET VALUE PER SHARE,
87,365,878 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$9.49
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 66,502,572
------------
EXPENSES
Plan of distribution fee.................................... 7,020,532
Investment management fee................................... 4,542,697
Transfer agent fees and expenses............................ 702,036
Shareholder reports and notices............................. 91,322
Custodian fees.............................................. 72,408
Professional fees........................................... 59,427
Registration fees........................................... 40,536
Trustees' fees and expenses................................. 27,018
Other....................................................... 10,592
------------
TOTAL EXPENSES......................................... 12,566,568
------------
NET INVESTMENT INCOME.................................. 53,936,004
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments............................................. (79,063)
Futures contracts....................................... (12,753,544)
Options written......................................... 1,758,392
------------
TOTAL LOSS............................................. (11,074,215)
Net change in unrealized depreciation....................... 79,255,121
------------
NET GAIN............................................... 68,180,906
------------
NET INCREASE................................................ $122,116,910
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1995 OCTOBER 31, 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 53,936,004 $ 64,333,610
Net realized gain (loss).................................... (11,074,215) 12,133,071
Net change in unrealized appreciation/depreciation.......... 79,255,121 (149,350,543)
---------------- ----------------
NET INCREASE (DECREASE)................................ 122,116,910 (72,883,862)
Dividends from net investment income........................ (53,936,003) (64,700,229)
Net decrease from transactions in shares of beneficial
interest.................................................. (79,663,066) (150,082,996)
---------------- ----------------
TOTAL DECREASE......................................... (11,482,159) (287,667,087)
NET ASSETS:
Beginning of period......................................... 840,726,634 1,128,393,721
---------------- ----------------
END OF PERIOD
(INCLUDING DISTRIBUTIONS IN EXCESS OF NET INVESTMENT
INCOME OF $517,433 AND $517,434, RESPECTIVELY).......... $829,244,475 $ 840,726,634
---------------- ----------------
---------------- ----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995
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 it 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); and (5) short-term debt securities having a maturity date of
more than sixty days at the 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. 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 as a liability which 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
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995, CONTINUED
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 which 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)
Options 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 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; and (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. 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
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995, CONTINUED
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 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 "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
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995, CONTINUED
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. ("DWR"), 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, 1995,
it received approximately $750,000 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 sales/prepayments of portfolio securities, excluding short-term
investments, for the year ended October 31, 1995 were $59,343,346 and
$139,243,860, respectively.
Transactions in written options for the year ended October 31, 1995 were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUMS
----------- -----------
<S> <C> <C>
Option contracts written, outstanding at beginning
of the period.................................... 100 $ 27,508
Options written................................... 14,143 8,024,396
Options closed.................................... (12,013 ) (6,961,271)
Options exercised................................. (1,630 ) (759,959)
----------- -----------
Option contracts written, outstanding at end of
the period....................................... 600 $ 330,674
----------- -----------
----------- -----------
</TABLE>
For the year ended October 31, 1995, the Fund incurred $9,495 and $80,741 in
brokerage commissions for transactions executed and for clearing options and
futures transactions, respectively, with DWR on behalf of the Fund.
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995, CONTINUED
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At October 31, 1995, the Fund had
transfer agent fees and expenses payable of approximately $66,000.
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 October 31, 1995 included
in Trustees' fees and expenses in the Statement of Operations, amounted to
$7,393. At October 31, 1995, the Fund had an accrued pension liability of
$53,847 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, 1995 OCTOBER 31, 1994
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold.............................................. 9,811,932 $ 88,420,535 10,119,372 $ 93,966,925
Reinvestment of dividends......................... 3,274,181 29,717,628 3,923,981 36,393,372
----------- ------------- ----------- -------------
13,086,113 118,138,163 14,043,353 130,360,297
Repurchased....................................... (21,931,274) (197,801,229) (30,316,610) (281,320,721)
Reclassification due to permanent book/tax
difference....................................... -- -- -- 877,428
----------- ------------- ----------- -------------
Net decrease...................................... (8,845,161) $ (79,663,066) (16,273,257) $(150,082,996)
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
6. FEDERAL INCOME TAX STATUS
During the year ended October 31, 1995, the Fund utilized approximately $896,000
of its net capital loss carryover.
At October 31, 1995, the Fund had an approximate net capital loss carryover of
$84,656,000, which may be used to offset future capital gains to the extent
provided by regulations, which is available through October 31 in the following
years:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- ------------------------------------------------------------------------
1996 1997 1998 2000 2002 TOTAL
- ----------- ----------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$27,140 $ 15,672 $ 6,866 $ 3,854 $ 31,124 $ 84,656
- ----------- ----------- --------- --------- ----------- -----------
- ----------- ----------- --------- --------- ----------- -----------
</TABLE>
At October 31, 1995, the Fund was required for Federal income tax purposes to
defer approximately $14,165,000 of realized losses on certain closed options and
futures contracts.
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995, CONTINUED
As of October 31, 1995, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on wash sales and straddles.
7. PURPOSES OF AND RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
To hedge against adverse interest rate and market risks on portfolio 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, the
Fund may enter into written options on interest rate futures and interest rate
futures contracts ("derivative instruments").
These derivative instruments involve elements of market risk in excess of the
amount reflected in the Statement of Assets and Liabilities. The Fund bears the
risk of an unfavorable change in the value of the underlying securities or
currencies.
At October 31, 1995, there were no outstanding written options on interest rate
futures and interest rate futures other than those used to manage interest rate
and market exposure on portfolio positions or anticipated positions in U.S.
Government securities.
<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
1995 1994 1993 1992 1991 1990 1989 1988 31, 1987
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period.......... $ 8.74 $ 10.03 $ 9.57 $ 9.46 $ 8.87 $ 9.27 $ 9.13 $ 9.27 $ 10.00
---------- --------- --------- ---------- --------- --------- ---------- --------- ----------
Net investment
income.......... 0.59 0.60 0.65 0.68 0.72 0.72 0.71 0.74 0.43
Net realized and
unrealized gain
(loss).......... 0.75 (1.28) 0.46 0.11 0.59 (0.40) 0.34 0.08 (0.58)
---------- --------- --------- ---------- --------- --------- ---------- --------- ----------
Total from
investment
operations...... 1.34 (0.68) 1.11 0.79 1.31 0.32 1.05 0.82 (0.15)
---------- --------- --------- ---------- --------- --------- ---------- --------- ----------
Less dividends
and
distributions
from:
Net investment
income........ (0.59) (0.61) (0.65) (0.68) (0.72) (0.72) (0.71) (0.74) (0.43)
Net realized
gain.......... -- -- -- -- -- -- -- -- (0.15)
Paid-in-capital... -- -- -- -- -- -- (0.20) (0.22) --
---------- --------- --------- ---------- --------- --------- ---------- --------- ----------
Total dividends
and
distributions... (0.59) (0.61) (0.65) (0.68) (0.72) (0.72) (0.91) (0.96) (0.58)
---------- --------- --------- ---------- --------- --------- ---------- --------- ----------
Net asset value,
end of period... $ 9.49 $ 8.74 $ 10.03 $ 9.57 $ 9.46 $ 8.87 $ 9.27 $ 9.13 $ 9.27
---------- --------- --------- ---------- --------- --------- ---------- --------- ----------
---------- --------- --------- ---------- --------- --------- ---------- --------- ----------
TOTAL INVESTMENT
RETURN+.......... 15.89% (6.92)% 12.03% 8.56% 15.26% 3.64% 12.32% 9.21% (1.47)%(1)
RATIOS TO AVERAGE
NET ASSETS:
Expenses......... 1.52% 1.52% 1.50% 1.48% 1.50% 1.54% 1.47% 1.50% 1.54%(2)
Net investment
income.......... 6.53% 6.56% 6.59% 7.18% 7.79% 7.92% 7.90% 8.04% 7.76%(2)
SUPPLEMENTAL DATA:
Net assets, end
of period, in
millions........ $829 $841 $1,128 $1,171 $1,252 $1,397 $1,824 $2,122 $2,067
Portfolio
turnover rate... 7% 18% 7% 6% -- %++ 5% 19% 44% 32%(1)
<FN>
- ---------------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge.
++ Less than 0.5%.
(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, 1995, 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 eight 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 at October 31, 1995 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
DECEMBER 7, 1995
<PAGE>
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Paul Kolton
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
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of the
Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
DEAN WITTER FEDERAL SECURITIES TRUST
[Graphic]
ANNUAL REPORT
OCTOBER 31, 1995
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
GROWTH OF $10,000
DATE 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 $17,675
October 31, 1995 $18,942 (3) $20,394
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 5 YEARS LIFE OF FUND
15.89 (1) 8.62 (1) 7.72 (1)
10.89 (2) 8.33 (2) 7.72 (2)
____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 reinvestment of all distributions and 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, 1995.
(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's total
return excludes fees and expenses. The Index is unmanaged and should not
be considered an investment.
