<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST TWO WORLD TRADE CENTER, NEW YORK, NEW YORK
10048
LETTER TO THE SHAREHOLDERS APRIL 30, 1997
DEAR SHAREHOLDER:
During the six months ended April 30, 1997, the economy accelerated, moving from
moderately strong to very strong growth. In March, evidence of an overwhelmingly
robust economy prompted the Federal Reserve Board to raise the federal-funds
rate 25 basis points, to 5.50 percent. Although inflation is currently benign,
members of the Federal Open Market Committee voiced concerns regarding
continuing strength in employment and the probable increase of inflationary
pressures in the near future.
During the period under review, long-term Treasury yields were highly volatile,
with rates on 30-year Treasuries ranging between 6.35 percent and 7.17 percent.
At the end of the period, the 30-year Treasury bond was yielding 6.96 percent
compared to 6.64 percent six months before.
FUND PERFORMANCE
On April 30, 1997, Dean Witter Federal Securities Trust had net assets in excess
of $637 million. The Fund's total return for the six-month period was 0.79
percent versus 1.32 percent for the Lehman Brothers General U.S. Government
Index and 1.25 percent for the Lipper General U.S. Government Funds Index. The
Fund's return included income distributions totaling approximately $0.29 per
share and a change in net asset value from $9.25 per share on October 31, 1996,
to $9.03 per share on April 30, 1997. The income level provided by the Fund
remains competitive.
The Fund's performance for the six-month period reflected the volatility of the
markets and the higher interest rate environment. In response to the 1997
increase in rates, the Fund's average duration was reduced to its current level
of approximately 5.3 years.
THE PORTFOLIO
The majority of the portfolio's assets continue to be invested in notes and
bonds maturing in seven to 20 years. At the end of the period under review, 65
percent of the Fund's assets were invested in
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
LETTER TO THE SHAREHOLDERS APRIL 30, 1997, CONTINUED
U.S. Treasury bonds with seven- to 20-year maturities and 8 percent were in U.S.
Treasury bonds in the one- to seven-year range. Approximately 26 percent of the
Fund's net assets were invested in mortgage-backed securities issued primarily
by the Government National Mortgage Association (GNMA). The remaining 1 percent
consisted of short-term money market investments.
In the months to come, as conditions warrant, income from securities and
proceeds from sales or maturing issues may be invested in mortgage-backed
securities, which we believe continue to offer significant long-term value, an
incremental yield incentive over U.S. Treasury securities of similar maturities
and the potential for capital appreciation.
LOOKING AHEAD
For the balance of 1997, we expect that the U.S. economy will moderate from its
current strong pace. Before taking any further action to slow the economy, the
Federal Reserve Board is likely to look for sustained confirmation of a strong
economy and rising inflationary pressures.
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 APRIL 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL DESCRIPTION
AMOUNT IN AND COUPON
THOUSANDS MATURITY DATE RATE VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (72.0%)
U.S. Treasury Bonds (60.4%)
$ 20,000 11/15/15.................................................... 9.875% $ 25,904,200
22,000 11/15/12.................................................... 10.375 27,648,500
189,600 08/15/13.................................................... 12.00+ 264,232,248
45,000 11/15/11.................................................... 14.00 67,336,200
---------------
385,121,148
---------------
U.S. Treasury Notes (7.5%)
10,000 01/31/99.................................................... 5.00 9,801,200
31,000 05/31/97.................................................... 6.75 31,028,520
7,000 11/15/97.................................................... 7.375 7,056,420
---------------
47,886,140
---------------
U.S. Treasury Strips (4.1%)
20,000 11/15/06.................................................... 0.00 10,497,600
30,000 02/15/07.................................................... 0.00 15,442,200
---------------
25,939,800
---------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $447,649,364)......................................... 458,947,088
---------------
MORTGAGE-BACKED SECURITIES (25.7%)
Federal Home Loan Mortgage Corp. (6.4%)
24,487 10/01/10 - 02/01/20......................................... 9.50 26,185,465
10,845 09/01/15 - 10/01/19......................................... 10.00 11,784,208
2,388 01/01/16 - 10/01/18......................................... 10.50 2,630,337
---------------
40,600,010
---------------
Federal National Mortgage Assoc. (7.5%)
17,043 10/01/23 - 12/01/23......................................... 6.50 16,068,590
4,913 06/01/26 - 12/01/26......................................... 7.50 4,874,348
15,677 05/01/24 - 06/01/25......................................... 8.00 15,872,588
8,353 01/01/22 - 04/01/25......................................... 8.50 8,616,820
1,812 09/01/16 - 05/01/20......................................... 9.50 1,946,893
187 03/01/16 - 02/01/18......................................... 9.75 202,813
---------------
47,582,052
---------------
Government National Mortgage Assoc. (11.8%)
32,930 12/15/22 - 05/15/24......................................... 7.00 31,839,543
25,474 06/15/17 - 10/15/26......................................... 7.50 25,258,594
16,096 10/15/19 - 10/15/24......................................... 8.50 16,624,447
1,151 05/15/16 - 11/15/20......................................... 10.00 1,262,862
277 09/15/18.................................................... 11.00 308,028
---------------
75,293,474
---------------
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $161,650,055)......................................... 163,475,536
---------------
SHORT-TERM INVESTMENTS (0.6%)
U.S. GOVERNMENT OBLIGATION (a) (0.4%)
3,000 U.S. Treasury Bill 05/15/97 (Amortized Cost $2,993,992)..... 5.15 2,993,992
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
PORTFOLIO OF INVESTMENTS APRIL 30, 1997 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL DESCRIPTION
AMOUNT IN AND COUPON
THOUSANDS MATURITY DATE RATE VALUE
- -----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
REPURCHASE AGREEMENT (0.2%)
$ 1,111 The Bank of New York due 05/01/97 (dated 04/30/97; proceeds
$1,111,618; collateralized by $1,119,420 Student Loan
Marketing Assoc. 0.00% due 08/02/99 valued at $1,133,677)
(Identified Cost $1,111,448).............................. 5.50% $ 1,111,448
---------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $4,105,440)........................................... 4,105,440
---------------
TOTAL INVESTMENTS
(IDENTIFIED COST $613,404,859)......................................... 626,528,064
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
DESCRIPTION,
NUMBER OF EXPIRATION DATE
CONTRACTS AND STRIKE PRICE
- ----------- ----------------
<C> <S> <C> <C>
WRITTEN OPTIONS (b) (0.1%)
Call options on Treasury bond futures
100 June/1997/109.......................................................... (93,750)
550 June/1997/110.......................................................... (257,813)
300 September/1997/112..................................................... (290,625)
---------------
(Premiums Received $448,923)........................................... (642,188)*
---------------
---------------
TOTAL INVESTMENTS
(IDENTIFIED COST $613,404,859) (C).......... 98.3 % 626,528,064
TOTAL WRITTEN OPTIONS OUTSTANDING........... (0.1) (642,188)
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES................................. 1.8 11,510,745
----- ------------
NET ASSETS.................................. 100.0 % $637,396,621
----- ------------
----- ------------
- ---------------------
* The market value of U.S. Treasury securities pledged to cover written
options on futures and open futures contracts is $90,585,950.
+ Some or all of these securities are segregated in connection with open
written options.
(a) Security was purchased on a discount basis.The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) Options expire one month prior to the expiration date indicated for the
Treasury bond futures.
(c) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $18,519,107 and the
aggregate gross unrealized depreciation is $5,745,746, resulting in net
unrealized appreciation of $12,773,361.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $613,404,859)............................ $626,528,064
Cash........................................................ 157,380
Receivable for:
Interest................................................ 12,215,466
Investments sold........................................ 4,987,500
Principal paydowns...................................... 554,275
Shares of beneficial interest sold...................... 457,364
Written options......................................... 80,633
Prepaid expenses and other assets........................... 67,269
------------
TOTAL ASSETS........................................... 645,047,951
------------
LIABILITIES:
Written call options outstanding, at value(premiums received
$448,923)................................................. 642,188
Payable for:
Investments purchased................................... 5,013,281
Shares of beneficial interest repurchased............... 841,326
Plan of distribution fee................................ 445,513
Investment management fee............................... 288,273
Dividends to shareholders............................... 231,143
Accrued expenses and other payables......................... 189,606
------------
TOTAL LIABILITIES...................................... 7,651,330
------------
NET ASSETS:
Paid-in-capital............................................. 692,302,097
Net unrealized appreciation................................. 12,929,940
Accumulated net realized loss............................... (67,835,416)
------------
NET ASSETS............................................. $637,396,621
------------
------------
NET ASSET VALUE PER SHARE,
70,555,768 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$9.03
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 26,950,692
------------
EXPENSES
Plan of distribution fee.................................... 2,881,040
Investment management fee................................... 1,864,202
Transfer agent fees and expenses............................ 284,618
Custodian fees.............................................. 44,733
Professional fees........................................... 38,437
Shareholder reports and notices............................. 29,529
Registration fees........................................... 18,611
Trustees' fees and expenses................................. 7,429
Other....................................................... 13,406
------------
TOTAL EXPENSES......................................... 5,182,005
------------
NET INVESTMENT INCOME.................................. 21,768,687
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments............................................. 1,241,327
Futures contracts....................................... (755,981)
Options written......................................... 684,422
------------
NET GAIN............................................... 1,169,768
NET CHANGE IN UNREALIZED APPRECIATION.................. (17,461,657)
------------
NET LOSS............................................... (16,291,889)
------------
NET INCREASE................................................ $ 5,476,798
------------
------------
</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 SIX
MONTHS ENDED FOR THE YEAR
APRIL 30, 1997 ENDED
(UNAUDITED) OCTOBER 31, 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 21,768,687 $ 48,692,397
Net realized gain........................................... 1,169,768 5,776,103
Net change in unrealized appreciation....................... (17,461,657) (27,386,862)
----------------- ----------------
NET INCREASE........................................... 5,476,798 27,081,638
Dividends from net investment income........................ (21,768,687) (48,174,964)
Net decrease from transactions in shares of beneficial
interest.................................................. (66,246,204) (88,216,435)
----------------- ----------------
NET DECREASE........................................... (82,538,093) (109,309,761)
NET ASSETS:
Beginning of period......................................... 719,934,714 829,244,475
----------------- ----------------
END OF PERIOD.......................................... $637,396,621 $ 719,934,714
----------------- ----------------
----------------- ----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1997 (UNAUDITED)
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's investment objective is to
earn a high level of current income. The Fund commenced operations on March 31,
1987.
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) 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
are 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, including circumstances under which it is determined by Dean Witter
InterCapital Inc. (the "Investment Manager") that the 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 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.
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1997 (UNAUDITED) CONTINUED
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 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)
Option on futures contracts: The Fund is required to deposit cash, U.S.
Government securities or other liquid portfolio 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; (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, U.S. Government securities or
other liquid portfolio 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.
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1997 (UNAUDITED) CONTINUED
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 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 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
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1997 (UNAUDITED) CONTINUED
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. ("DWR"), an affiliate of the Investment Manager and
Distributor, and others 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 utilize fees paid
pursuant to the Plan to compensate DWR 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 distribution expenses.
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.
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 the investors upon redemption of
shares, if for any reason the Plan is terminated, the Trustees will consider at
the time the manner in which to treat such expenses. The Distributor has advised
the Fund that such excess amounts, including carrying charges, totaled
$25,995,060 at April 30, 1997.
The Distributor has informed the Fund that for the six months ended April 30,
1997, it received approximately $275,000 in contingent deferred sales charges
from certain redemptions of the Fund's shares.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
Purchases and sales/prepayments of portfolio securities, excluding short-term
investments, for the six months ended April 30, 1997 were $40,778,206 and
$123,983,824, respectively.
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1997 (UNAUDITED) CONTINUED
Transactions in written options for the six months ended April 30, 1997 were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUMS
--------- -----------
<S> <C> <C>
Option contracts written, outstanding at beginning
of the period.................................... 397 $ 319,426
Options written................................... 5,400 3,233,005
Options closed.................................... (4,252) (2,583,710)
Options exercised................................. (595) (519,798)
--------- -----------
Option contracts written, outstanding at end of
the period....................................... 950 $ 448,923
--------- -----------
--------- -----------
</TABLE>
For the six months ended April 30, 1997, the Fund incurred $11,350 and $27,034
in brokerage commissions for transactions executed and for clearing options and
futures transactions, respectively, with DWR on behalf of the Fund.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At April 30, 1997, the Fund had
transfer agent fees and expenses payable of approximately $60,000.
The Fund has 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 six months ended April 30, 1997
included in Trustees' fees and expenses in the Statement of Operations amounted
to $1,168. At April 30, 1997, the Fund had an accrued pension liability of
$48,650 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 SIX
MONTHS ENDED
APRIL 30, 1997 FOR THE YEAR
-------------------------- ENDED
OCTOBER 31, 1996
(UNAUDITED) --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold.............................................. 3,233,202 $ 29,614,724 7,874,713 $ 73,758,124
Reinvestment of dividends......................... 1,286,978 11,731,012 2,866,940 26,598,740
----------- ------------- ----------- -------------
4,520,180 41,345,736 10,741,653 100,356,864
Repurchased....................................... (11,774,829) (107,591,940) (20,297,114) (188,573,299)
----------- ------------- ----------- -------------
Net decrease...................................... (7,254,649) $ (66,246,204) (9,555,461) $ (88,216,435)
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1997 (UNAUDITED) CONTINUED
6. FEDERAL INCOME TAX STATUS
At October 31, 1996, the Fund had a net capital loss carryover of approximately
$58,206,000, 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
- ---------------------------------------------------------
1997 1998 2000 2002 2004
- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C>
$15,672 $ 6,866 $ 3,854 $ 31,124 $ 690
- ----------- --------- --------- ----------- ---------
- ----------- --------- --------- ----------- ---------
</TABLE>
At October 31, 1996, the Fund was required for Federal income tax purposes to
defer approximately $10,449,000 of realized losses on certain closed options and
futures contracts.
As of October 31, 1996, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on 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 April 30, 1997, the Fund had outstanding written options on interest rate
futures used to manage interest rate and market exposure on portfolio positions
or anticipated positions in U.S. Government securities. At April 30, 1997, the
Fund had no outstanding interest rate futures.
<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 YEAR ENDED OCTOBER 31
-----------------------------------------------
FOR THE SIX 1996 1995 1994 1993 1992
MONTHS ENDED
APRIL 30, 1997
(UNAUDITED)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value,
beginning of
period............. $ 9.25 $ 9.49 $ 8.74 $ 10.03 $ 9.57 $ 9.46
------ ------- ------- ------- ------- -------
Net investment
income............. 0.29 0.59 0.59 0.60 0.65 0.68
Net realized and
unrealized gain
(loss)............. (0.22) (0.25) 0.75 (1.28) 0.46 0.11
------ ------- ------- ------- ------- -------
Total from
investment
operations......... 0.07 0.34 1.34 (0.68) 1.11 0.79
------ ------- ------- ------- ------- -------
Less dividends from
net investment
income............. (0.29) (0.58) (0.59) (0.61) (0.65) (0.68)
------ ------- ------- ------- ------- -------
Net asset value, end
of period.......... $ 9.03 $ 9.25 $ 9.49 $ 8.74 $ 10.03 $ 9.57
------ ------- ------- ------- ------- -------
------ ------- ------- ------- ------- -------
TOTAL INVESTMENT
RETURN+............. 0.79%(1) 3.79% 15.89% (6.92)% 12.03% 8.56%
RATIOS TO AVERAGE
NET ASSETS:
Expenses............ 1.53%(2) 1.53% 1.52% 1.52% 1.50% 1.48%
Net investment
income............. 6.42%(2) 6.31% 6.53% 6.56% 6.59% 7.18%
SUPPLEMENTAL DATA:
Net assets, end of
period, in
millions........... $637 $720 $829 $841 $1,128 $1,171
Portfolio turnover
rate............... 6%(1) 10% 7% 18% 7% 6%
- ---------------------
+ 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.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
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
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
The financial statements included herein have been taken from the records
of the Fund without examination by the independent accountants and
accordingly they do not express an opinion thereon.
This report is submitted for the general information of shareholders of the
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
SEMIANNUAL REPORT
APRIL 30, 1997
