<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST TWO WORLD TRADE CENTER, NEW YORK, NEW YORK
10048
LETTER TO THE SHAREHOLDERS OCTOBER 31, 1996
DEAR SHAREHOLDER:
During the twelve-month period ended October 31, 1996, interest rates on U.S.
Treasury securities were highly volatile. In late 1995, rates declined as data
supported the perception that the economy had indeed slowed. This perception,
however, quickly reversed itself in early 1996 when consumer demand, rebates and
incentives by auto dealers, and low mortgage rates drove retail sales and
housing starts sharply higher. As a result of continued inventory liquidation
and strong employment data, interest rates rose causing considerable concern
about a quickly rebounding economy and a possible inflation surge. Then, by
early September 1996, interest rates began to decline as evidence of a
moderating economy and the unlikelihood of the Federal Reserve Board taking
overt action to slow the economy became apparent. On October 31, 1996, the
thirty-year Treasury bond yielded 6.64 percent compared to 6.33 percent twelve
months ago.
PERFORMANCE
On October 31, 1996, Dean Witter Federal Securities Trust had net assets in
excess of $719 million. The Fund's total return for the twelve month period was
3.79 percent. This performance includes income distributions totaling
approximately $0.58 per share and a change in net asset value from $9.49 per
share on October 31, 1995, to $9.25 per share on October 31, 1996. The Fund's
performance for the twelve-month period reflected the volatility of the market
and the generally higher interest rate environment in 1996. The accompanying
chart illustrates the performance of a $10,000 investment in the Fund from
inception through the fiscal year ended October 31, 1996, versus the performance
of hypothetical investments in the issues that comprise the unmanaged Lehman
Brothers General U.S. Government and the Lipper General U.S. Government Funds
Indexes.
THE PORTFOLIO
As of October 31, 1996, approximately 64 percent of the portfolio was invested
in U.S. Treasury notes and bonds maturing in seven to twenty
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
LETTER TO THE SHAREHOLDERS OCTOBER 31, 1996, CONTINUED
years and approximately 4 percent was invested in the one- to seven-year range.
Approximately 25 percent of the Fund's portfolio was invested in mortgage-backed
securities issued primarily by the Government National Mortgage Association
(GNMA). The balance of the portfolio consisted of U.S. agency obligations (6
percent) and short-term money market investments (1 percent). The
Fund's average maturity was maintained at
approximately eight years. 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, an incremental yield incentive
over U.S. Treasury securities of similar
maturities and the potential for higher
total returns.
LOOKING AHEAD
We expect the U.S. economy to maintain a
slow to moderate pace for the fourth
quarter of 1996 and into 1997. Before
taking overt action to slow the economy,
the Federal Reserve Board is likely to look
for sustained confirmation of rising
inflation and a stronger economy. We
believe that inflation will remain subdued,
albeit at a slightly higher level than
1996.
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, 1996
<TABLE>
<CAPTION>
PRINCIPAL DESCRIPTION
AMOUNT IN AND COUPON
THOUSANDS MATURITY DATE RATE VALUE
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS (72.7%)
$ 38,323 Federal National Mortgage Assoc. (5.2%)
Principal Strips 12/20/01 - 03/09/02................... 7.56-
7.89++% $ 37,816,609
-------------
U.S. Treasury Bonds (61.7%)
20,000 11/15/15............................................... 9.875 26,790,800
22,000 11/15/12............................................... 10.375 28,517,940
221,600 08/15/13............................................... 12.00+ 319,192,640
45,000 11/15/11............................................... 14.00 69,775,200
-------------
444,276,580
-------------
U.S. Treasury Notes (4.3%)
10,000 01/31/99............................................... 5.00 9,834,700
21,000 02/28/97............................................... 6.75 21,097,020
-------------
30,931,720
-------------
U.S. Treasury Strips (1.5%)
20,000 11/15/06............................................... 0.00 10,479,800
-------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $495,284,570)................................. 523,504,709
-------------
MORTGAGE-BACKED SECURITIES (25.2%)
Federal Home Loan Mortgage Corp. (6.2%)
26,315 10/01/10 - 02/01/20.................................... 9.50 28,173,048
11,965 09/01/15 - 10/01/19.................................... 10.00 12,997,494
2,817 01/01/16 - 10/01/18.................................... 10.50 3,102,038
-------------
44,272,580
-------------
Federal National Mortgage Assoc. (7.0%)
17,465 10/01/23 - 12/01/23.................................... 6.50 16,712,351
5,000 *...................................................... 7.50 5,000,000
16,399 05/01/24 - 06/01/25.................................... 8.00 16,732,324
9,154 01/01/22 - 04/01/25.................................... 8.50 9,465,813
2,089 09/01/16 - 05/01/20.................................... 9.50 2,247,811
193 03/01/16 - 02/01/18.................................... 9.75 208,871
-------------
50,367,170
-------------
Government National Mortgage Assoc. (12.0%)
34,573 12/15/22 - 05/15/24.................................... 7.00 33,913,556
32,378 06/15/17 - 10/15/26.................................... 7.50 32,479,613
17,789 10/15/19 - 10/15/24.................................... 8.50 18,467,127
1,232 05/15/16 - 11/15/20.................................... 10.00 1,350,733
279 09/15/18............................................... 11.00 311,491
-------------
86,522,520
-------------
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $177,658,116)................................. 181,162,270
-------------
SHORT-TERM INVESTMENTS (a) (0.9%)
U.S. GOVERNMENT & AGENCY OBLIGATIONS
3,650 Federal Home Loan Mortgage Corp. 11/01/96.............. 5.53 3,650,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL DESCRIPTION
AMOUNT IN AND COUPON
THOUSANDS MATURITY DATE RATE VALUE
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
$ 3,000 U.S. Treasury Bill 12/05/96............................ 4.86% $ 2,986,244
-------------
TOTAL SHORT-TERM INVESTMENTS
(AMORTIZED COST $6,636,244).................................... 6,636,244
-------------
TOTAL INVESTMENTS
(IDENTIFIED COST $679,578,930)................................. 711,303,223
-------------
-------------
</TABLE>
<TABLE>
<CAPTION>
DESCRIPTION,
NUMBER OF EXPIRATION DATE
CONTRACTS AND STRIKE PRICE VALUE
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
WRITTEN OPTIONS (b) (0.2%)
Call options on Treasury bond futures
395 December/1996/110.............................................. (1,252,890)
2 March/1997/118................................................. (1,469)
-------------
(Premiums Received $319,426)................................... (1,254,359)**
-------------
-------------
</TABLE>
<TABLE>
<CAPTION>
DESCRIPTION,
NUMBER OF DELIVERY YEAR
CONTRACTS AND MONTH VALUE
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C>
FINANCIAL FUTURES (C) (0.0%)
SHORT POSITIONS
100 U.S. Treasury Bonds December/1996.............................. (40,625)**
-------------
-------------
TOTAL INVESTMENTS
(IDENTIFIED COST $679,578,930) (D)................................. 98.8% 711,303,223
TOTAL WRITTEN OPTIONS OUTSTANDING.................................. (0.2) (1,254,359)
TOTAL FINANCIAL FUTURES............................................ (0.0) (40,625)
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES..................... 1.4 9,926,475
------- -------------
NET ASSETS......................................................... 100.0% $ 719,934,714
------- -------------
------- -------------
<FN>
- ---------------------
* Securities purchased on a forward commitment basis with an approximate
principal 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 $93,626,000.
+ 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) Options expire one month prior to the expiration date indicated for the
Treasury bond futures.
(c) Value represents variation margin on open futures contract at October 31,
1996. The market value of these futures contracts is $11,300,000 and the
unrealized depreciation is $397,762.
(d) The aggregate cost of investments for federal income tax purposes is
$679,928,774. The aggregate gross unrealized appreciation was $33,629,125
and the aggregate gross unrealized depreciation was $2,254,676, resulting
in net unrealized appreciation of $31,374,449.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $679,578,930)............................ $711,303,223
Cash........................................................ 44,345
Receivable for:
Interest................................................ 12,392,805
Shares of beneficial interest sold...................... 3,868,924
Principal paydowns...................................... 575,991
Written options......................................... 1,519
Prepaid expenses and other assets........................... 35,498
------------
TOTAL ASSETS........................................... 728,222,305
------------
LIABILITIES:
Written call options outstanding, at value
(premiums received $319,426).............................. 1,254,359
Payable for:
Investments purchased................................... 5,005,729
Shares of beneficial interest repurchased............... 680,892
Plan of distribution fee................................ 514,618
Investment management fee............................... 332,988
Dividends to shareholders............................... 232,333
Variation margin........................................ 40,625
Accrued expenses and other payables......................... 226,047
------------
TOTAL LIABILITIES...................................... 8,287,591
------------
NET ASSETS:
Paid-in-capital............................................. 758,548,301
Net unrealized appreciation................................. 30,391,597
Accumulated net realized loss............................... (69,005,184)
------------
NET ASSETS............................................. $719,934,714
------------
------------
NET ASSET VALUE PER SHARE,
77,810,417 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$9.25
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1996
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 60,470,091
------------
EXPENSES
Plan of distribution fee.................................... 6,554,450
Investment management fee................................... 4,241,115
Transfer agent fees and expenses............................ 646,969
Custodian fees.............................................. 88,907
Professional fees........................................... 82,493
Shareholder reports and notices............................. 76,674
Registration fees........................................... 56,660
Trustees' fees and expenses................................. 13,024
Other....................................................... 17,402
------------
TOTAL EXPENSES......................................... 11,777,694
------------
NET INVESTMENT INCOME.................................. 48,692,397
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments............................................. 3,976,396
Futures contracts....................................... (810,600)
Options written......................................... 2,610,307
------------
NET GAIN............................................... 5,776,103
Net change in unrealized appreciation....................... (27,386,862)
------------
NET LOSS............................................... (21,610,759)
------------
NET INCREASE................................................ $ 27,081,638
------------
------------
</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, 1996 OCTOBER 31, 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 48,692,397 $ 53,936,004
Net realized gain (loss).................................... 5,776,103 (11,074,215)
Net change in unrealized appreciation/depreciation.......... (27,386,862) 79,255,121
---------------- ----------------
NET INCREASE........................................... 27,081,638 122,116,910
Dividends from net investment income........................ (48,174,964) (53,936,003)
Net decrease from transactions in shares of beneficial
interest.................................................. (88,216,435) (79,663,066)
---------------- ----------------
NET DECREASE........................................... (109,309,761) (11,482,159)
NET ASSETS:
Beginning of period......................................... 829,244,475 840,726,634
---------------- ----------------
END OF PERIOD
(INCLUDING DISTRIBUTIONS IN EXCESS OF NET INVESTMENT
INCOME OF $0 AND $517,433, RESPECTIVELY)................ $ 719,934,714 $829,244,475
---------------- ----------------
---------------- ----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996
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
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, including circumstances under which it is determined by the
Investment Manager that the sale or bid prices are not reflective of a
securities 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.
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
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996, CONTINUED
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) Options on futures contracts: The Fund is
required to deposit 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 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.
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996, 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 Dean Witter InterCapital
Inc. (the "Investment Manager"), the Fund pays the Investment Manager a
management fee, accrued daily and payable monthly, by applying the following
annual rates to the Fund's net assets determined at the close of each business
day: 0.55% 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.
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996, CONTINUED
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 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.
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
that time the manner in which to treat such expenses. The Distributor has
advised the Fund that such excess amounts, including carrying charges, totaled
$27,489,031 at October 31, 1996.
The Distributor has informed the Fund that for the year ended October 31, 1996,
it received approximately $641,000 in contingent deferred sales charges from
certain redemptions of the Fund's shares.
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996, CONTINUED
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
Purchases and sales/prepayments of portfolio securities, excluding short-term
investments, for the year ended October 31, 1996 were $70,321,976 and
$178,385,209, respectively.
Transactions in written options for the year ended October 31, 1996 were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUMS
--------- -----------
<S> <C> <C>
Option contracts written, outstanding at beginning
of the period.................................... 600 $ 330,674
Options written................................... 15,220 9,801,255
Options closed.................................... (13,823) (8,855,465)
Options exercised................................. (1,100) (811,684)
Options expired................................... (500) (145,354)
--------- -----------
Option contracts written, outstanding at end of
the period....................................... 397 $ 319,426
--------- -----------
--------- -----------
</TABLE>
For the year ended October 31, 1996, the Fund incurred $8,477 and $69,669 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 October 31, 1996, the Fund had
transfer agent fees and expenses payable of approximately $62,000.
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, 1996 included
in Trustees' fees and expenses in the Statement of Operations amounted to
$1,285. At October 31, 1996, the Fund had an accrued pension liability of
$49,062 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 FOR THE YEAR
ENDED ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold.............................................. 7,874,713 $ 73,758,124 9,811,932 $ 88,420,535
Reinvestment of dividends......................... 2,866,940 26,598,740 3,274,181 29,717,628
----------- ------------- ----------- -------------
10,741,653 100,356,864 13,086,113 118,138,163
Repurchased....................................... (20,297,114) (188,573,299) (21,931,274) (197,801,229)
----------- ------------- ----------- -------------
Net decrease...................................... (9,555,461) $ (88,216,435) (8,845,161) $ (79,663,066)
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1996, CONTINUED
6. FEDERAL INCOME TAX STATUS
At October 31, 1996, the Fund had an approximate net capital loss carryover of
$58,206,000, which may be used to offset future capital gains to the extent
provided by regulations, which is available through October 31 of the following
years:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- ----------------------------------------------------------------------
1997 1998 2000 2002 2004 TOTAL
- ----------- --------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
$15,672 $ 6,866 $ 3,854 $ 31,124 $ 690 $ 58,206
- ----------- --------- --------- ----------- --------- -----------
- ----------- --------- --------- ----------- --------- -----------
</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.
At October 31, 1996, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on straddles and permanent book/tax
differences attributable to an expired capital loss carryover. To reflect
reclassifications arising from permanent book/tax differences for the year ended
October 31, 1996, paid-in-capital was charged and accumulated net realized loss
was credited $27,139,691.
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, 1996, the Fund had outstanding written options on interest rate
futures and interest rate futures 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
FOR THE YEAR ENDED OCTOBER 31 MARCH 31, 1987*
--------------------------------------------------------------------------------------- THROUGH
1996 1995 1994 1993 1992 1991 1990 1989 1988 OCTOBER 31, 1987
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period............. $ 9.49 $ 8.74 $ 10.03 $ 9.57 $ 9.46 $ 8.87 $ 9.27 $ 9.13 $ 9.27 $10.00
------- ------- ------- ------- ------- ------- ------- ------- ------- ------
Net investment
income............. 0.59 0.59 0.60 0.65 0.68 0.72 0.72 0.71 0.74 0.43
Net realized and
unrealized gain
(loss)............. (0.25) 0.75 (1.28) 0.46 0.11 0.59 (0.40) 0.34 0.08 (0.58)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------
Total from
investment
operations......... 0.34 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........... (0.58) (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 dividend and
distributions...... (0.58) (0.59) (0.61) (0.65) (0.68) (0.72) (0.72) (0.91) (0.96) (0.58)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------
Net asset value, end
of period.......... $ 9.25 $ 9.49 $ 8.74 $ 10.03 $ 9.57 $ 9.46 $ 8.87 $ 9.27 $ 9.13 $ 9.27
------- ------- ------- ------- ------- ------- ------- ------- ------- ------
------- ------- ------- ------- ------- ------- ------- ------- ------- ------
TOTAL INVESTMENT
RETURN+............. 3.79% 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............ 1.53% 1.52% 1.52% 1.50% 1.48% 1.50% 1.54% 1.47% 1.50% 1.54%(2)
Net investment
income............. 6.31% 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........... $720 $829 $841 $1,128 $1,171 $1,252 $1,397 $1,824 $2,122 $2,067
Portfolio turnover
rate............... 10% 7% 18% 7% 6% -- %++ 5% 19% 44% 32%(1)
<FN>
- ---------------------
+ Does not reflect the deduction of sales charge. Calculated based on the net
asset value as of the last business day of the period.
++ 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, 1996, 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 nine 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, 1996 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 13, 1996
<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
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
ANNUAL REPORT
OCTOBER 31, 1996
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
GROWTH OF $10,000
DATE TOTAL LEHMAN LIPPER IX
- ----------------------------------------------------------------------
March 31, 1987 $10,000 $10,000 $10,000
October 31, 1987 $ 9,853 $ 9,933 $ 9,729
October 31, 1988 $10,761 $10,899 $10,702
October 31, 1989 $12,087 $12,210 $11,768
October 31, 1990 $12,527 $12,935 $12,354
October 31, 1991 $14,439 $14,827 $14,159
October 31, 1992 $15,674 $16,356 $15,389
October 31, 1993 $17,560 $18,502 $17,036
October 31, 1994 $16,345 $17,673 $16,066
October 31, 1995 $18,942 $20,393 $18,351
October 31, 1996 $19,661 (3) $21,435 $19,129
- ----------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 5 YEARS LIFE OF FUND
---------------------------------------
3.79 (1) 6.37 (1) 7.31 (1)
-1.08 (2) 6.06 (2) 7.31 (2)
---------------------------------------
-----------------------------------------------------
Fund Lehman (4) Lipper IX (5)
------ ------ ------
-----------------------------------------------------
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, 1996.
(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 does not include fees, expenses or charges. The Index is unmanaged
and should not be considered an investment.
(5) The Lipper General U.S. Government Funds Index is an equally-weighted
performance index of the largest-qualifying funds (based on net assets) in
the Lipper General U.S. Government Funds objective. The Index, which is
adjusted for capital gains distributions and income dividends, is unmanaged
and should not be considered an investment. There are currently 30 funds
represented in this Index.
