<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST TWO WORLD TRADE CENTER, NEW
LETTER TO THE SHAREHOLDERS APRIL 30, 1998 YORK, NEW YORK 10048
DEAR SHAREHOLDER:
During the six months ended April 30, 1998, the economy exhibited healthy growth
and benign inflation. The Federal Reserve Board expressed concern over the
possibility of a resurgence in inflation due to the continued strength of the
economy and employment growth, but this did not materialize, and as a result the
Fed left rates unchanged.
Interest rates on long-term Treasuries during the six-month period under review
were volatile, with rates on 30-year Treasuries ranging in yield between 5.69
percent and 6.25 percent. At the end of the period, the 30-year Treasury bond
was yielding 5.95 percent compared to 6.15 percent six months before.
FUND PERFORMANCE
The Fund's performance was enhanced by the generally lower interest rate
environment. For the six-month period ended April 30, 1998, the Fund's Class A,
B, C and D shares had total returns of 3.24 percent, 3.25 percent, 3.12 percent
and 3.68 percent, respectively, versus 3.56 percent for the Lehman Brothers
General U.S. Government Index and 3.04 percent for the Lipper General U.S.
Government Funds Index. The performance of the Fund's four share classes varies,
because of differing expenses. On April 30, 1998, Dean Witter Federal Securities
Trust had net assets in excess of $602 million.
THE PORTFOLIO
In response to the positive economic environment and low inflationary outlook,
the Fund's average duration was increased to its current level of approximately
5.8 years.
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 portfolio were invested in U.S. Treasury bonds with seven-
to 20-year maturities and an additional one percent in U.S. Treasury notes in
the one-to seven-year range.
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
LETTER TO THE SHAREHOLDERS APRIL 30, 1998, CONTINUED
Approximately 23 percent of the Fund's portfolio were invested in
mortgage-backed securities issued primarily by the Government National Mortgage
Association (GNMA). Eight percent of the portfolio was invested in U.S.
government agency obligations. The balance of the Fund 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, and
an incremental yield incentive over U.S. Treasury securities of similar
maturities.
LOOKING AHEAD
During the winter of 1997-98, the turmoil in the Southeast Asian financial
markets brought an investor flight to quality in U.S. Treasuries and the U.S.
dollar. Should the crisis in Southeast Asia continue through 1998, we believe
that the deflationary trend of that area's economies could be beneficial to
holding inflation in check in the United States, although there can be no
assurance what the outcome will be.
We expect that the U.S. economy is likely to maintain a healthy, albeit slowing
pace for the remainder of the year. However, should inordinately strong economic
growth give rise to inflationary pressures, the Federal Reserve may need to
reassess its current monetary policy.
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
2
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
PORTFOLIO OF INVESTMENTS APRIL 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL DESCRIPTION
AMOUNT IN AND COUPON
THOUSANDS MATURITY DATE RATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS (74.9%)
U.S. Government Agencies (8.2%)
$ 10,000 Federal Farm Credit Bank 12/20/04........................................ 6.55% $ 10,034,500
12,000 Federal Home Loan Banks 07/02/12......................................... 0.00 4,050,840
4,400 Federal National Mortgage Assoc. 09/25/07................................ 6.85 4,434,716
5,000 Federal National Mortgage Assoc. 12/24/07................................ 6.48 4,997,400
42,000 Resolution Funding Strip 04/15/05 - 10/15/07............................. 0.00 25,983,370
-------------
49,500,826
-------------
U.S. Treasury Bonds (65.8%)
20,000 11/15/15................................................................. 9.875 28,332,600
22,000 11/15/12................................................................. 10.375 29,086,640
188,600 08/15/13................................................................. 12.00 276,200,928
41,000 11/15/11................................................................. 14.00 63,176,900
-------------
396,797,068
-------------
U.S. Treasury Notes (0.4%)
2,500 05/31/98................................................................. 6.00 2,501,050
-------------
U.S. Treasury Strip (0.5%)
5,000 02/15/07................................................................. 0.00 3,006,200
-------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $419,726,561)..................................................... 451,805,144
-------------
MORTGAGE-BACKED SECURITIES (22.7%)
Federal Home Loan Mortgage Corp. (5.2%)
19,607 10/01/10 - 02/01/20...................................................... 9.50 20,850,375
7,923 09/01/15 - 10/01/19...................................................... 10.00 8,547,374
1,822 01/01/16 - 10/01/18...................................................... 10.50 1,992,600
-------------
31,390,349
-------------
Federal National Mortgage Assoc. (6.4%)
15,746 10/01/23 - 12/01/23...................................................... 6.50 15,583,877
3,860 06/01/26 - 12/01/26...................................................... 7.50 3,960,197
10,913 05/01/24 - 06/01/25...................................................... 8.00 11,308,130
5,657 01/01/22 - 04/01/25...................................................... 8.50 5,910,113
1,349 09/01/16 - 05/01/20...................................................... 9.50 1,441,814
176 03/01/16 - 02/01/18...................................................... 9.75 189,573
-------------
38,393,704
-------------
Government National Mortgage Assoc. (11.1%)
29,390 12/15/22 - 05/15/24...................................................... 7.00 29,739,010
22,691 06/15/17 - 10/15/26...................................................... 7.50 23,300,786
12,076 10/15/19 - 10/15/24...................................................... 8.50 12,733,160
916 05/15/16 - 11/15/20...................................................... 10.00 1,000,781
201 09/15/18................................................................. 11.00 222,188
-------------
66,995,925
-------------
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $132,325,110)..................................................... 136,779,978
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
PORTFOLIO OF INVESTMENTS APRIL 30, 1998 (UNAUDITED) CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL DESCRIPTION
AMOUNT IN AND COUPON
THOUSANDS MATURITY DATE RATE VALUE
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS (0.7%)
U.S. GOVERNMENT OBLIGATION (a) (0.5%)
$ 3,000 U.S. Treasury Bill 11/12/98*
(IDENTIFIED COST $2,914,566)........................................... 5.258% $ 2,917,260
-------------
REPURCHASE AGREEMENT (0.2)%
986 The Bank of New York due 05/01/98 (dated 04/30/98; proceeds $985,985) (b)
(IDENTIFIED COST $985,834)............................................. 5.50 985,834
-------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $3,900,400)....................................................... 3,903,094
-------------
TOTAL INVESTMENTS
(IDENTIFIED COST $555,952,071)..................................................... $ 592,488,216
-------------
-------------
<CAPTION>
DESCRIPTION,
NUMBER OF EXPIRATION DATE,
CONTRACTS AND STRIKE PRICE
- --------- -------------------------------------------------------------------------
WRITTEN OPTIONS (C)
<C> <S> <C> <C>
Put options on Treasury bond futures
100 June/1998/116...................................................................... $(3,125)
100 June/1998/117...................................................................... (6,250)
100 June/1998/118...................................................................... (15,625)
-------------
TOTAL WRITTEN OPTIONS (PREMIUMS RECEIVED $87,213).................................. $(25,000)**
-------------
-------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $555,952,071) (D)........................................................ 98.3% $592,488,216
TOTAL WRITTEN OPTIONS OUTSTANDING......................................................... (0.0) (25,000)
OTHER ASSETS IN EXCESS OF LIABILITIES..................................................... 1.7 10,508,146
------ -------------
NET ASSETS................................................................................ 100.0% $602,971,362
------ -------------
------ -------------
</TABLE>
- ---------------------
* Some of these securities are segregated in connection with written options.
** The market value of U.S. Treasury securities pledged to cover written
options on futures contracts is $2,917,260.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) Collateralized by $873,785 U.S. Treasury Note 7.875% due 11/15/04 valued at
$1,005,551.
(c) Options expire one month prior to the expiration date indicated for the
Treasury bond futures.
(d) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $37,634,364 and the
aggregate gross unrealized depreciation is $1,098,219 resulting in net
unrealized appreciation of $36,536,145.
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $555,952,071).............................................................. $592,488,216
Receivable for:
Interest.................................................................................. 10,872,066
Principal paydowns........................................................................ 724,546
Shares of beneficial interest sold........................................................ 678,134
Prepaid expenses and other assets............................................................. 85,809
------------
TOTAL ASSETS............................................................................. 604,848,771
------------
LIABILITIES:
Written call options outstanding, at value (premiums received $87,213)........................ 25,000
Payable for:
Shares of beneficial interest repurchased................................................. 762,490
Plan of distribution fee.................................................................. 422,034
Investment management fee................................................................. 274,187
Dividends to shareholders................................................................. 208,852
Options purchased......................................................................... 18,789
Accrued expenses and other payables........................................................... 166,057
------------
TOTAL LIABILITIES........................................................................ 1,877,409
------------
NET ASSETS............................................................................... $602,971,362
------------
------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................... $619,668,344
Net unrealized appreciation................................................................... 36,598,358
Accumulated net realized loss................................................................. (53,295,340)
------------
NET ASSETS............................................................................... $602,971,362
------------
------------
CLASS A SHARES:
Net Assets.................................................................................... $2,506,784
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 265,951
NET ASSET VALUE PER SHARE................................................................ $9.43
------------
------------
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 4.44% OF NET ASSET VALUE)........................................ $9.85
------------
------------
CLASS B SHARES:
Net Assets.................................................................................... $596,485,392
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 63,663,763
NET ASSET VALUE PER SHARE................................................................ $9.37
------------
------------
CLASS C SHARES:
Net Assets.................................................................................... $3,142,113
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 332,699
NET ASSET VALUE PER SHARE................................................................ $9.44
------------
------------
CLASS D SHARES:
Net Assets.................................................................................... $837,073
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 89,599
NET ASSET VALUE PER SHARE................................................................ $9.34
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME................................................................................ $23,825,684
-----------
EXPENSES
Plan of distribution fee (Class A shares)...................................................... 2,375
Plan of distribution fee (Class B shares)...................................................... 2,590,371
Plan of distribution fee (Class C shares)...................................................... 7,598
Investment management fee...................................................................... 1,687,978
Transfer agent fees and expenses............................................................... 273,387
Custodian fees................................................................................. 44,735
Professional fees.............................................................................. 39,313
Shareholder reports and notices................................................................ 37,205
Registration fees.............................................................................. 31,100
Trustees' fees and expenses.................................................................... 8,849
Other.......................................................................................... 7,126
-----------
TOTAL EXPENSES............................................................................ 4,730,037
-----------
NET INVESTMENT INCOME..................................................................... 19,095,647
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
Investments................................................................................ (164,203)
Futures contracts.......................................................................... (755,304)
Options written............................................................................ 910,661
-----------
NET LOSS.................................................................................. (8,846)
-----------
NET CHANGE IN UNREALIZED APPRECIATION..................................................... 560,619
-----------
NET GAIN.................................................................................. 551,773
-----------
NET INCREASE................................................................................... $19,647,420
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
APRIL 30, OCTOBER 31,
1998 1997*
- -------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................... $ 19,095,647 $ 42,168,046
Net realized gain (loss)............................ (8,846) 690,276
Net change in unrealized appreciation............... 560,619 5,646,142
------------ ----------------
NET INCREASE................................... 19,647,420 48,504,464
------------ ----------------
DIVIDENDS TO SHAREHOLDERS FROM
NET INVESTMENT INCOME
Class A shares...................................... (72,074) (28,596)
Class B shares...................................... (18,956,031) (42,134,728)
Class C shares...................................... (54,361) (4,477)
Class D shares...................................... (13,181) (245)
------------ ----------------
TOTAL DIVIDENDS................................ (19,095,647) (42,168,046)
------------ ----------------
Net decrease from transactions in shares of
beneficial interest............................... (23,470,625) (100,380,918)
------------ ----------------
NET DECREASE................................... (22,918,852) (94,044,500)
------------ ----------------
NET ASSETS:
Beginning of period................................. 625,890,214 719,934,714
------------ ----------------
END OF PERIOD.................................. $602,971,362 $ 625,890,214
------------ ----------------
------------ ----------------
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998 (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. On July 28, 1997, the Fund commenced offering three additional classes of
shares, with the then current shares designated as Class B shares.
The Fund offers Class A shares, Class B shares, Class C shares and Class D
shares. The four classes are substantially the same except that most Class A
shares are subject to a sales charge imposed at the time of purchase, some Class
A shares, and most Class B shares and Class C shares are subject to a contingent
deferred sales charge imposed on shares redeemed within one year, six years and
one year, respectively. Class D shares are not subject to a sales charge.
Additionally, Class A shares, Class B shares and Class C shares incur
distribution expenses.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) all portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (2) 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
8
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998 (UNAUDITED) CONTINUED
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than
distribution fees), and realized and unrealized gains and losses are allocated
to each class of shares based upon the relative net asset value on the date such
items are recognized. Distribution fees are charged directly to the respective
class.
D. 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)
Options 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
9
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998 (UNAUDITED) CONTINUED
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.
E. 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.
F. 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
10
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998 (UNAUDITED) CONTINUED
$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. The Plan
provides that the Fund will pay the Distributor a fee which is accrued daily and
paid monthly at the following annual rates: (i) Class A -- up to 0.25% of the
average daily net assets of Class A; (ii) Class B -- 0.85% of the lesser of: (a)
the average daily aggregate gross sales of the Class B shares since the
inception of the Fund (not including reinvestment of dividend or capital gain
distributions) less the average daily aggregate net asset value of the Class B
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or waived; or (b) the average daily net assets of
Class B; and (iii) Class C -- up to 0.85% of the average daily net assets of
Class C. In the case of Class A shares, amounts paid under the Plan are paid to
the Distributor for services provided. In the case of Class B and Class C
shares, amounts paid under the Plan are paid to the Distributor for services
provided and the expenses borne by it and others in the distribution of the
shares of these Classes, including the payment of commissions for sales of these
Classes and incentive compensation to, and expenses of, 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 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 these 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, in the case of Class B shares,
11
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998 (UNAUDITED) CONTINUED
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 expenses.
In the case of Class B shares, provided that the Plan continues in effect, any
cumulative expenses incurred by the Distributor but not yet recovered may be
recovered through the payment of future distribution fees from the Fund pursuant
to the Plan and contingent deferred sales charges paid by investors upon
redemption of Class B shares. Although there is no legal obligation for the Fund
to pay expenses incurred in excess of payments made to the Distributor under the
Plan and the proceeds of contingent deferred sales charges paid by investors
upon redemption of shares, if for any reason the Plan is terminated, the
Trustees will consider at that time the manner in which to treat such expenses.
The Distributor has advised the Fund that such excess amounts, including
carrying charges, totaled $23,299,942 at April 30, 1998.
In the case of Class A shares and Class C shares, expenses incurred pursuant to
the Plan in any calendar year in excess of 0.25% or 0.85% of the average daily
net assets of Class A or Class C, respectively, will not be reimbursed by the
Fund through payments in any subsequent year, except that expenses representing
a gross sales credit to account executives may be reimbursed in the subsequent
calendar year. For the six months ended April 30, 1998, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.22% and
0.85%, respectively.
The Distributor has informed the Fund that for the six months ended April 30,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class A shares, Class B shares and Class C shares of $9,617, $325,805
and $107, respectively and received $9,464 in front-end sales charges from sales
of the Fund's Class A shares. The respective shareholders pay such charges which
are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
Purchases and sales/prepayments of portfolio securities, excluding short-term
investments, for the six months ended April 30, 1998 were $37,557,599 and
$41,515,838, respectively.
12
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998 (UNAUDITED) CONTINUED
Transactions in written options for the six months ended April 30, 1998 were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUMS
--------- -----------
<S> <C> <C>
Option contracts written, outstanding at beginning of the
period.......................................................... 200 $ 95,642
Options written.................................................. 5,950 3,055,068
Options closed................................................... (5,200) (2,882,505)
Options exercised................................................ (250) (118,896)
Options expired.................................................. (400) (62,096)
--------- -----------
Option contracts written, outstanding at end of the period....... 300 $ 87,213
--------- -----------
--------- -----------
</TABLE>
For the six months ended April 30, 1998, the Fund incurred brokerage commissions
with DWR for transactions executed and for clearing options and futures
transactions, on behalf of the Fund in the amount of $450 and 4,339,
respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At April 30, 1998, the Fund had
transfer agent fees and expenses payable of approximately $7,800.
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, 1998
included in Trustees' fees and expenses in the Statement of Operations amounted
to $2,048. At April 30, 1998, the Fund had an accrued pension liability of
$49,131 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. FEDERAL INCOME TAX STATUS
At October 31, 1997, the Fund had a net capital loss carryover of approximately
$42,534,000, 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>
AMOUNT IN THOUSANDS
- --------------------------------------------
1998 2000 2002 2004
- --------- --------- ----------- ---------
<S> <C> <C> <C>
$ 6,866 $ 3,854 $ 31,124 $ 690
- --------- --------- ----------- ---------
- --------- --------- ----------- ---------
</TABLE>
At October 31, 1997, the Fund was required for Federal income tax purposes to
defer approximately $10,411,000 of realized losses on certain closed options and
futures contracts.
As of October 31, 1997, the Fund had temporary book/tax differences primarily
attributable to capital loss deferrals on straddles.
13
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
NOTES TO FINANCIAL STATEMENTS APRIL 30, 1998 (UNAUDITED) CONTINUED
6. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
APRIL 30, 1998 FOR THE YEAR
------------------------- ENDED
OCTOBER 31, 1997*
(UNAUDITED) ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold........................................................ 155,770 $ 1,468,198 227,350 $ 2,100,734
Reinvestment of dividends................................... 6,502 61,347 2,813 26,335
Redeemed.................................................... (113,458) (1,072,133) (13,026) (121,600)
---------- ------------ ----------- -------------
Net increase - Class A...................................... 48,814 457,412 217,137 2,005,469
---------- ------------ ----------- -------------
CLASS B SHARES
Sold........................................................ 2,731,379 25,719,828 5,820,412 53,293,625
Reinvestment of dividends................................... 1,097,381 10,287,792 2,488,705 22,774,438
Redeemed.................................................... (6,708,205) (63,137,383) (19,576,326) (179,236,735)
---------- ------------ ----------- -------------
Net decrease - Class B...................................... (2,879,445) (27,129,763) (11,267,209) (103,168,672)
---------- ------------ ----------- -------------
CLASS C SHARES
Sold........................................................ 253,936 2,408,201 80,710 753,751
Reinvestment of dividends................................... 3,926 37,057 270 2,532
Redeemed.................................................... (1,521) (14,507) (4,622) (42,939)
---------- ------------ ----------- -------------
Net increase - Class C...................................... 256,341 2,430,751 76,358 713,344
---------- ------------ ----------- -------------
CLASS D SHARES
Sold........................................................ 87,003 816,460 7,413 68,718
Reinvestment of dividends................................... 1,168 10,906 24 233
Redeemed.................................................... (6,009) (56,391) -- --
---------- ------------ ----------- -------------
Net increase - Class D...................................... 82,162 770,975 7,437 68,941
---------- ------------ ----------- -------------
Net decrease in Fund........................................ (2,492,128) $(23,470,625) (10,966,277) $(100,380,918)
---------- ------------ ----------- -------------
---------- ------------ ----------- -------------
</TABLE>
- ---------------------
* For Class A, C, and D, for the period July 28, 1997 (issue date) through
October 31, 1997.
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, 1998, the Fund had outstanding written options on interest rate
futures.
14
<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 SIX
MONTHS ENDED FOR THE YEAR ENDED OCTOBER 31,
APRIL 30, --------------------------------------------------
1998++ 1997*++ 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 9.36 $ 9.25 $ 9.49 $ 8.74 $10.03 $ 9.57
------ ------ ------ ------ ------ ------
Net investment income.............. 0.29 0.59 0.59 0.59 0.60 0.65
Net realized and unrealized gain
(loss)............................ 0.01 0.11 (0.25) 0.75 (1.28) 0.46
------ ------ ------ ------ ------ ------
Total from investment operations... 0.30 0.70 0.34 1.34 (0.68) 1.11
------ ------ ------ ------ ------ ------
Less dividends from net investment
income............................ (0.29) (0.59) (0.58) (0.59) (0.61) (0.65)
------ ------ ------ ------ ------ ------
Net asset value, end of period..... $ 9.37 $ 9.36 $ 9.25 $ 9.49 $ 8.74 $10.03
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL INVESTMENT RETURN+........... 3.25%(1) 7.89% 3.79% 15.89% (6.92)% 12.03%
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 1.54%(2) 1.53% 1.53% 1.52% 1.52% 1.50%
Net investment income.............. 6.22%(2) 6.41% 6.31% 6.53% 6.56% 6.59%
SUPPLEMENTAL DATA:
Net assets, end of period, in
millions.......................... $596 $623 $720 $829 $841 $1,128
Portfolio turnover rate............ 6%(1) 12% 10% 7% 18% 7%
</TABLE>
- ---------------------
* Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that date have been designated Class B shares.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ 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.
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JULY 28, 1997*
MONTHS ENDED THROUGH OCTOBER
APRIL 30, 1998++ 31, 1997++
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(UNAUDITED)
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 9.45 $ 9.26
------ ------
Net investment income................................................. 0.32 0.16
Net realized and unrealized gain (loss)............................... (0.02) 0.19
------ ------
Total from investment operations...................................... 0.30 0.35
------ ------
Less dividends from net investment income............................. (0.32) (0.16)
------ ------
Net asset value, end of period........................................ $ 9.43 $ 9.45
------ ------
------ ------
TOTAL INVESTMENT RETURN+.............................................. 3.24%(1) 3.78%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.90%(2) 0.92%(2)
Net investment income................................................. 6.74%(2) 6.60%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $2,507 $2,051
Portfolio turnover rate............................................... 6%(1) 12%
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 9.44 $ 9.26
------ ------
Net investment income................................................. 0.29 0.15
Net realized and unrealized gain...................................... -- 0.18
------ ------
Total from investment operations...................................... 0.29 0.33
------ ------
Less dividends from net investment income............................. (0.29) (0.15)
------ ------
Net asset value, end of period........................................ $ 9.44 $ 9.44
------ ------
------ ------
TOTAL INVESTMENT RETURN+.............................................. 3.12%(1) 3.54%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.53%(2) 1.52%(2)
Net investment income................................................. 6.08%(2) 5.86%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $3,142 $721
Portfolio turnover rate............................................... 6%(1) 12%
</TABLE>
- ---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ 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.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
DEAN WITTER FEDERAL SECURITIES TRUST
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
FOR THE SIX THROUGH
MONTHS ENDED OCTOBER 31,
APRIL 30, 1998++ 1997++
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
(UNAUDITED)
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 9.33 $ 9.26
------ ------
Net investment income................................................. 0.33 0.17
Net realized and unrealized gain...................................... 0.01 0.07
------ ------
Total from investment operations...................................... 0.34 0.24
------ ------
Less dividends from net investment income............................. (0.33) (0.17)
------ ------
Net asset value, end of period........................................ $ 9.34 $ 9.33
------ ------
------ ------
TOTAL INVESTMENT RETURN+.............................................. 3.68%(1) 2.62%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.67%(2) 0.63%(2)
Net investment income................................................. 6.85%(2) 6.40%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $837 $69
Portfolio turnover rate............................................... 6%(1) 12%
</TABLE>
- ---------------------
* The date shares were first issued.
++ The per share amounts were computed using an average number of shares
outstanding during the period.
+ Calculated based on the net asset value as of the last business day of the
period.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Rajesh K. Gupta
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
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
[PHOTO]
SEMIANNUAL REPORT
APRIL 30, 1998