<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD TWO WORLD TRADE CENTER,
SECURITIES INC. NEW YORK, NEW YORK 10048
LETTER TO THE SHAREHOLDERS AUGUST 31, 1998
DEAR SHAREHOLDER:
Optimism over the likelihood of continued economic growth in the United States,
along with a favorable interest-rate environment, combined to create a solid
start to the twelve-month period ended August 31, 1998. More recently, however,
concerns over the foreign market crisis and its effect on the U.S. economy and
corporate earnings have been surfacing, resulting in a sharp mid-year 1998
market correction. Though corporate credit quality remains strong, these
concerns have resulted in a flight to quality in the financial markets, with
investors favoring highly rated U.S. government securities over other asset
classes such as equities or high-yield bonds. As a result, for the full fiscal
year the high-yield bond sector underperformed the lower-yielding,
higher-quality sectors of the fixed-income markets.
PERFORMANCE
During the twelve-month period ended August 31, 1998, Morgan Stanley Dean Witter
High Yield Securities' Class A and D shares produced returns of 0.40 percent and
0.63 percent, respectively. The Fund slightly underperformed the Lipper High
Yield Bond Funds Index and the Credit Suisse First Boston High Yield Index,
which returned 1.36 percent and 1.46 percent, respectively. During the same
period, the Lehman Brothers High Yield Index returned 3.22 percent (Lehman
Index). For the fiscal year, the Fund's Class B and C shares had total returns
of -0.23 percent and -0.34 percent, respectively. THE PERFORMANCE OF THE FUND'S
FOUR SHARE CLASSES VARIES BECAUSE OF DIFFERING EXPENSES. The accompanying chart
compares the performance of the Fund's Class A and D shares versus the Lipper,
First Boston and Lehman indexes.
PORTFOLIO STRATEGY
We have maintained a relatively conservative posture over the past 12 months in
light of the market's declining yield levels during the past few years and the
increasing likelihood of a market correction. As a
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC.
LETTER TO THE SHAREHOLDERS AUGUST 31, 1998, CONTINUED
result, we have maintained a core position in the shorter-term, higher-quality
end of the fixed-income markets (BB-rated issues or higher), which has held up
well in this increasingly volatile market environment. In addition, we continue
to concentrate on sectors of the economy that historically have proven more
predictable, recession resistant and growth oriented such as food and beverages,
healthcare, telecommunications, media and cable television. We believe that
these groups are positioned to outperform the more cyclical areas of the economy
over the next year, given the slowing of many of the world's markets.
Consistent with our now more cautious posture, we have continued to avoid the
foreign emerging high-yield markets. This defensive approach is expected to
provide important portfolio flexibility as we work to take advantage of today's
more attractive market yields and lower price levels.
LOOKING AHEAD
Despite the current volatility, our one- to two-year outlook for the high-yield
market is positive, given our expectations for continued U.S. economic growth
and a favorable interest-rate environment. If domestic economic growth continues
and interest rates remain low, we would expect general investor sentiment in the
financial markets to improve gradually, with the high-yield market rebounding
from today's depressed levels.
We thank you for your continued support of Morgan Stanley Dean Witter High Yield
Securities and look forward to continuing to serve your investment needs.
Very truly yours,
[SIGNATURE]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
2
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD
SECURITIES INC.
FUND PERFORMANCE AUGUST 31, 1998
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Growth of $10,000 -- Class A and D
Shares
($ in Thousands)
Class A Class D Lehman(4) CSFB HY(5) Lipper(6)
<S> <C> <C> <C> <C> <C>
August 1988 $9,575 $10,000 $10,000 $10,000 $10,000
August 1989 $9,683 $10,139 $10,885 $10,898 $10,740
August 1990 $7,410 $7,778 $10,367 $10,505 $9,757
August 1991 $7,737 $8,141 $12,919 $12,772 $11,636
August 1992 $10,455 $11,029 $15,664 $15,905 $14,447
August 1993 $12,754 $13,487 $17,982 $18,413 $16,810
August 1994 $12,840 $13,612 $18,573 $19,079 $17,246
August 1995 $14,343 $15,243 $21,147 $21,599 $19,236
August 1996 $15,891 $16,930 $23,187 $23,790 $21,279
August 1997 $18,232 $19,471 $26,659 $27,461 $24,590
August 1998 $18,305(3) $19,594(3) $27,517 $27,862 $24,926
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR CLASS
B AND CLASS C SHARES WILL VARY FROM THE PERFORMANCE OF CLASS A AND CLASS D
SHARES SHOWN ABOVE DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS*
- ----------------------------------------------------------------------------------------------------
CLASS A SHARES** CLASS B SHARES+
- ----------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 0.40%(1) -3.87%(2) 1 Year -0.23%(1) -4.73%(2)
5 Years 7.49(1) 6.57(2) Since Inception 0.36(1) -2.94(2)
10 Years 6.69(1) 6.23(2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES++ CLASS D SHARES#
- ----------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year -0.34%(1) -1.24%(2) 1 Year 0.63%(1)
Since Inception 0.25(1) 0.25(2) 5 Years 7.76(1)
10 Years 6.96(1)
</TABLE>
- ------------------------
PRIOR TO JULY 28, 1997 THE FUND OFFERED ONLY ONE CLASS OF SHARES. BECAUSE THE
DISTRIBUTION ARRANGEMENT FOR CLASS A MOST CLOSELY RESEMBLED THE DISTRIBUTION
ARRANGEMENT APPLICABLE PRIOR TO THE IMPLEMENTATION OF MULTIPLE CLASSES (I.E.,
CLASS A IS SOLD WITH A FRONT-END SALES CHARGE), HISTORICAL PERFORMANCE
INFORMATION HAS BEEN RESTATED TO REFLECT THE ACTUAL MAXIMUM SALES CHARGE
APPLICABLE TO CLASS A (I.E., 4.25%) AS COMPARED TO THE 5.50% SALES CHARGE IN
EFFECT PRIOR TO JULY 28, 1997. IN ADDITION, CLASS A SHARES ARE NOW SUBJECT TO
AN ONGOING 12B-1 FEE WHICH IS REFLECTED IN THE RESTATED PERFORMANCE FOR THAT
CLASS.
BECAUSE ALL SHARES OF THE FUND HELD PRIOR TO JULY 28, 1997 WERE DESIGNATED
CLASS D SHARES, THE FUND'S HISTORICAL PERFORMANCE HAS BEEN RESTATED TO
REFLECT THE ABSENCE OF ANY SALES CHARGE.
(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 sales charge. See the Fund's current prospectus for
complete details on fees and sales charges.
(3) Closing value assuming a complete redemption on August 31, 1998.
(4) The Lehman Brothers High Yield Index tracks the performance of all below
investment-grade securities which have at least $100 million in outstanding
issuance, are greater than one year to maturity and are issued in fixed
rate U.S. dollar denominations. The Index does not include any expenses,
fees or charges. The Index is unmanaged and should not be considered an
investment.
(5) The Credit Suisse First Boston High Yield Index (CSFB HY) is a trader
priced portfolio constructed to mirror the public high yield debt market.
The Index has several modules representing different sectors of the high
yield market including a cash paying module, a zerofix module, a
pay-in-kind module, and a defaulted module. The Index is divided into other
categories including industry, rating, seniority, liquidity, market value,
security price range, yield range and other sector divisions. There are a
total of 250 sectors which are followed by the Index. The Index does not
include any expenses, fees, or charges. The Index is unmanaged and should
not be considered an investment.
(6) The Lipper High Yield Bond Funds Index is an equally-weighted performance
index of the largest qualifying funds (based on net assets) in the Lipper
High Current Yield 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.
* For periods of less than one year, the fund quotes its total return on a
non-annualized basis.
** The maximum front-end sales charge for Class A is 4.25%.
+ The maximum CDSC for Class B is 5.0%. The CDSC declines to 0% after six
years.
++ The maximum CDSC for Class C shares is 1% for shares redeemed within one year
of purchase.
# Class D shares have no sales charge.
3
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (95.7%)
AEROSPACE (0.5%)
$ 12,500 Sabreliner Corp. - 144A*.................................................... 11.00% 06/15/08 $ 12,062,500
--------------
BROADCAST MEDIA (4.2%)
15,000 Capstar Broadcasting Partners............................................... 12.75++ 02/01/09 11,250,000
6,000 Cumulus Media Inc........................................................... 10.375 07/01/08 5,880,000
10,000 Interep National Radio Sales - 144A*........................................ 10.00 07/01/08 9,650,000
20,500 Paxson Communications Corp.................................................. 11.625 10/01/02 20,090,000
20,749 Spanish Broadcasting System, Inc............................................ 12.50 06/15/02 22,823,900
14,000 STC Broadcasting, Inc....................................................... 11.00 03/15/07 14,420,000
10,000 Tri-State Outdoor Media Group, Inc. - 144A*................................. 11.00 05/15/08 9,700,000
--------------
93,813,900
--------------
BUSINESS SERVICES (3.4%)
28,000 Anacomp, Inc. (Series B).................................................... 10.875 04/01/04 28,280,000
5,900 Anacomp, Inc. (Series C) - 144A*............................................ 10.875 04/01/04 5,959,000
7,000 CEX Holdings Inc. - 144A*................................................... 9.625 06/01/08 6,405,000
13,000 Comforce Operating, Inc..................................................... 12.00 12/01/07 13,260,000
10,000 Entex Information Services, Inc. - 144A*.................................... 12.50 08/01/06 9,700,000
11,700 Xerox Credit Corp........................................................... 15.00 10/07/98 11,798,631
--------------
75,402,631
--------------
CABLE/CELLULAR (7.9%)
28,000 American Cellular Corp. - 144A*............................................. 10.50 05/15/08 25,760,000
33,500 Australis Holdings Ltd. (Australia) (a)..................................... 15.00++ 11/01/02 2,680,000
4,404 Australis Media Ltd. - 144A* (Australia) (a)................................ 0.00 11/01/00 3,203,919
14,750 Charter Communication South East L.P. (Series B)............................ 11.25 03/15/06 15,635,000
3,000 Classic Cable Inc. - 144A*.................................................. 9.875 08/01/08 2,955,000
30,031 Clearnet Communications Inc. (Canada)....................................... 14.75++ 12/15/05 23,649,412
19,000 FrontierVision Operating Partners, L.P...................................... 11.00 10/15/06 20,520,000
10,000 James Cable Partners L.P. (Series B)........................................ 10.75 08/15/04 10,300,000
20,000 Nextel Communications, Inc.................................................. 10.65++ 09/15/07 12,000,000
35,000 Price Communication Cellular Holdings....................................... 11.25+ 08/15/08 31,500,000
16,000 Rifkin Acquisition Partners L.P............................................. 11.125 01/15/06 16,960,000
24,800 Triton Communications LLC - 144A*........................................... 11.00++ 05/01/08 11,656,000
--------------
176,819,331
--------------
CHEMICALS (0.3%)
6,000 Octel Developments PLC - 144A* (United Kingdom)............................. 10.00 05/01/06 5,880,000
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMPUTERS - EQUIPMENT (4.8%)
$ 11,500 Advanced Micro Devices, Inc................................................. 11.00% 08/01/03 $ 11,270,000
20,000 CHS Electronics, Inc........................................................ 9.875 04/15/05 18,600,000
46,700 IBM Credit Corp............................................................. 15.00 02/02/99 48,507,290
8,175 Unisys Corp................................................................. 11.75 10/15/04 9,278,625
18,000 Unisys Corp. (Series B)..................................................... 12.00 04/15/03 20,070,000
--------------
107,725,915
--------------
CONSUMER PRODUCTS (1.5%)
11,000 J.B. Williams Holdings, Inc................................................. 12.00 03/01/04 11,000,000
29,500 Samsonite Corp. - 144A*..................................................... 10.75 06/15/08 22,125,000
1,000 Windmere-Durable Holdings, Inc.............................................. 10.00 07/31/08 960,000
--------------
34,085,000
--------------
CONTAINERS (1.6%)
8,000 Impac Group Inc. - 144A*.................................................... 10.125 03/15/08 7,680,000
12,500 Mail-Well Corp.............................................................. 10.50 02/15/04 13,000,000
14,725 Packaging Resources, Inc.................................................... 11.625 05/01/03 14,356,875
--------------
35,036,875
--------------
DRUG STORE CHAIN (0.4%)
10,000 Community Distributors...................................................... 10.25 10/15/04 9,150,000
--------------
ELECTRICAL & ALARM SYSTEMS (0.9%)
22,000 Mosler, Inc................................................................. 11.00 04/15/03 19,360,000
--------------
ENTERTAINMENT/GAMING & LODGING (8.3%)
22,000 Aladdin Gaming Holdings/Capital Corp. LLC................................... 13.50++ 03/01/10 7,920,000
20,850 AMF Bowling Worldwide Inc. (Series B)....................................... 10.875 03/15/06 19,807,500
20,075 Argosy Gaming Co. LLC....................................................... 13.25 06/01/04 21,480,250
13,000 Epic Resorts LLC - 144A*.................................................... 13.00 06/15/05 12,959,440
20,500 Fitzgeralds Gaming Corp. (Series B)......................................... 12.25 12/15/04 14,350,000
25,500 Lady Luck Gaming Finance Corp............................................... 11.875 03/01/01 25,755,000
16,000 Motels of America, Inc. (Series B).......................................... 12.00 04/15/04 14,400,000
13,250 Premier Cruises Ltd. - 144A*................................................ 11.00 03/15/08 9,076,250
21,192 Resort At Summerlin......................................................... 13.00+ 12/15/07 21,933,368
12,300 Riviera Holdings Corp....................................................... 10.00 08/15/04 10,824,000
12,906 Stuart Entertainment, Inc. (Series B)....................................... 12.50 11/15/04 6,969,240
21,300 Walt Disney Co.............................................................. 15.00 12/14/98 21,880,851
--------------
187,355,899
--------------
FINANCE (2.3%)
50,750 General Electric Capital Corp............................................... 15.00 01/21/99 52,596,285
--------------
FOODS & BEVERAGES (8.8%)
27,081 Envirodyne Industries, Inc.................................................. 10.25 12/01/01 25,997,760
15,221 Fleming Companies, Inc...................................................... 10.625 12/15/01 15,373,210
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 3,500 Fleming Companies, Inc...................................................... 10.50% 12/01/04 $ 3,535,000
3,500 Fleming Companies, Inc...................................................... 10.625 07/31/07 3,570,000
51,500 General Mills, Inc.......................................................... 15.00 01/29/99 53,517,770
50,000 Pepsico, Inc................................................................ 15.00 08/06/99 54,535,000
10,000 Sparkling Spring Water (Canada)............................................. 11.50 11/15/07 9,700,000
109,075 Specialty Foods Acquisition Corp. (Series B)................................ 13.00++ 08/15/05 32,722,500
--------------
198,951,240
--------------
HEALTHCARE (2.8%)
5,000 Mediq /PRN Life Support Services, Inc. - 144A*.............................. 11.00 06/01/08 4,800,000
7,500 Pediatric Services of America, Inc. (Series A).............................. 10.00 04/15/08 4,575,000
16,975 Unilab Corp................................................................. 11.00 04/01/06 17,484,250
16,500 Unison Healthcare Corp. - 144A* (b)......................................... 12.25 11/01/06 8,208,750
7,000 Universal Hospital Services, Inc. - 144A*................................... 10.25 03/01/08 6,755,000
30,000 Vencor, Inc................................................................. 9.875 05/01/05 21,300,000
--------------
63,123,000
--------------
MANUFACTURING (3.1%)
11,900 Berry Plastics Corp......................................................... 12.25 04/15/04 12,316,500
9,075 Cabot Safety Corp........................................................... 12.50 07/15/05 9,982,500
5,000 Indesco International Inc. - 144A*.......................................... 9.75 04/15/08 4,450,000
71,930 International Semi-Tech Microelectronics, Inc. (Canada)..................... 11.50++ 08/15/03 15,824,600
15,500 International Wire Group, Inc............................................... 11.75 06/01/05 16,120,000
10,500 Outsourcing Services Group, Inc. - 144A*.................................... 10.875 03/01/06 10,290,000
--------------
68,983,600
--------------
MANUFACTURING - DIVERSIFIED INDUSTRIES (5.8%)
7,500 Eagle-Picher Industries, Inc................................................ 9.375 03/01/08 7,125,000
11,250 High Voltage Engineering, Inc............................................... 10.50 08/15/04 10,912,500
15,870 Interlake Corp.............................................................. 12.00 11/15/01 16,504,800
18,400 Interlake Corp.............................................................. 12.125 03/01/02 18,975,000
13,350 J.B. Poindexter & Co., Inc.................................................. 12.50 05/15/04 12,282,000
20,000 Jordan Industries, Inc. (Series B).......................................... 10.375 08/01/07 19,800,000
57,338 Jordan Industries, Inc. (Series B).......................................... 11.75++ 04/01/09 36,696,320
8,000 Telecommunication Techniques LLC - 144A*.................................... 9.75 05/15/08 7,280,000
--------------
129,575,620
--------------
OIL & GAS (5.1%)
17,000 Northern Offshore ASA - 144A*............................................... 10.00 05/15/05 14,535,000
16,000 Petro Stopping Centers L.P.................................................. 10.50 02/01/07 16,320,000
39,700 Texaco Capital LLC.......................................................... 15.00 01/13/99 41,016,452
23,800 Transamerican Refining Corp. (Series A) (Units) ++ - 144A*.................. 16.00 06/30/03 23,800,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 20,000 Transamerican Refining Corp. (Series C) (Units) ++ - 144A*.................. 16.00% 06/30/03 $ 20,000,000
--------------
115,671,452
--------------
PUBLISHING (2.2%)
14,950 American Media Operations, Inc.............................................. 11.625 11/15/04 15,249,000
7,500 MDC Communications Corp..................................................... 10.50 12/01/06 7,500,000
7,500 Perry Judds................................................................. 10.625 12/15/07 7,500,000
21,000 United States Banknote Corp................................................. 10.375 06/01/02 19,950,000
--------------
50,199,000
--------------
RESTAURANTS (5.5%)
141,992 American Restaurant Group Holdings, Inc. - 144A* (c)........................ 0.00 12/15/05 35,852,980
6,000 Ameriking, Inc.............................................................. 10.75 12/01/06 5,970,000
11,621 Carrols Corp................................................................ 11.50 08/15/03 12,143,945
34,207 FRD Acquisition Corp. (Series B)............................................ 12.50 07/15/04 34,035,965
15,500 Friendly Ice Cream Corp..................................................... 10.50 12/01/07 13,640,000
5,000 Perkins Family Restaurants, L.P............................................. 10.125 12/15/07 5,175,000
25,000 Planet Hollywood International, Inc......................................... 12.00 04/01/05 17,375,000
--------------
124,192,890
--------------
RETAIL - FOOD CHAINS (2.6%)
9,185 Eagle Food Centers, Inc..................................................... 8.625 04/15/00 8,542,050
9,000 Mrs. Fields Holdings Co. (Units) ++ - 144A*................................. 14.00++ 12/01/05 5,130,000
10,000 Mrs. Fields Original........................................................ 10.125 12/01/04 9,800,000
14,125 Pantry, Inc................................................................. 10.25 10/15/07 13,701,250
14,500 Pueblo Xtra International, Inc.............................................. 9.50 08/01/03 13,811,250
8,748 Pueblo Xtra International, Inc. (Series C).................................. 9.50 08/01/03 8,332,470
--------------
59,317,020
--------------
TELECOMMUNICATION EQUIPMENT (0.3%)
10,500 FWT, Inc.................................................................... 9.875 11/15/07 6,720,000
--------------
TELECOMMUNICATIONS (19.0%)
30,500 21st Century Telecom Group, Inc............................................. 12.25++ 02/15/08 14,640,000
13,500 Advanced Radio Telecommunication............................................ 14.00 02/15/07 14,175,000
9,000 Arch Communications Group, Inc. - 144A*..................................... 12.75 07/01/07 8,910,000
11,500 Birch Telecom Inc. - 144A* (Units) ++....................................... 14.00 06/15/08 11,155,000
12,000 CapRock Communications Corp. - 144A*........................................ 12.00 07/15/08 11,400,000
50,300 CellNet Data Systems Inc.................................................... 14.00++ 10/01/07 21,629,000
32,625 e. Spire Communications, Inc................................................ 13.75 07/15/07 32,951,250
17,750 Esprit Telecom Group PLC - 144A* (United Kingdom)........................... 10.875 06/15/08 16,685,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 30,000 Facilicom International (Series B).......................................... 10.50% 01/15/08 $ 27,000,000
47,000 Firstworld Communications, Inc. (Units) ++ - 144A*.......................... 13.00++ 04/15/08 15,040,000
20,000 Focal Communications - 144A*................................................ 12.125++ 02/15/08 10,800,000
20,400 GST Equipment Funding, Inc.................................................. 13.25 05/01/07 22,032,000
13,800 Hyperion Telecommunication, Inc. (Series A)................................. 13.00++ 04/15/03 9,108,000
23,000 Hyperion Telecommunication, Inc. (Series B)................................. 12.25 09/01/04 22,080,000
56,800 In-Flight Phone Corp. (Series B) (d)........................................ 14.00 05/15/02 5,964,000
30,000 Level 3 Communications, Inc................................................. 9.125 05/01/08 26,925,000
8,500 NextLink Communications, Inc................................................ 12.50 04/15/06 9,095,000
15,000 Optel, Inc. - 144A*......................................................... 11.50 07/01/08 13,350,000
19,750 Paging Network, Inc......................................................... 10.125 08/01/07 19,058,750
5,000 Paging Network, Inc......................................................... 10.00 10/15/08 4,800,000
15,050 Peoples Telephone Co., Inc.................................................. 12.25 07/15/02 17,476,813
18,000 Primus Telecommunication Group, Inc. (Series B)............................. 9.875 05/15/08 16,200,000
11,000 Talton Holdings, Inc (Series B)............................................. 11.00 06/30/07 11,000,000
20,230 USA Mobile Communications Holdings, Inc..................................... 9.50 02/01/04 18,207,000
18,800 USA Mobile Communications Holdings, Inc..................................... 14.00 11/01/04 20,116,000
12,000 Versatel Telecom - 144A* (Netherlands)...................................... 13.25 05/15/08 11,760,000
22,000 Winstar Communications, Inc................................................. 14.00++ 10/15/05 16,830,000
--------------
428,387,813
--------------
TRANSPORTATION (0.7%)
17,500 Alpha Shipping PLC (United Kingdom)......................................... 9.50 02/15/08 14,875,000
--------------
WIRELESS COMMUNICATION (3.7%)
19,950 Echostar DBS Corp........................................................... 12.50 07/01/02 21,246,750
6,500 Globalstar L.P./Capital Corp................................................ 11.50 06/01/05 5,005,000
11,875 Globalstar L.P./Capital Corp................................................ 11.375 02/15/04 9,618,750
1,585 Globalstar L.P./Capital Corp................................................ 11.25 06/15/04 1,283,850
20,800 Globalstar L.P./Capital Corp................................................ 10.75 11/01/04 16,224,000
47,465 TCI Satellite Entertainment Corp............................................ 12.25++ 02/15/07 29,665,625
--------------
83,043,975
--------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $2,371,594,227)............................................................... 2,152,328,946
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCKS (e) (1.1%)
AUTOMOTIVE (0.0%)
709 Northern Holdings Industrial Corp. (c)*........................................... --
--------------
ENTERTAINMENT/GAMING & LODGING (0.0%)
7,500 Motels of America, Inc. - 144A*................................................... 412,500
781,421 Vagabond Inns, Inc. (Class D) (d)................................................. 781
--------------
413,281
--------------
FOODS & BEVERAGES (0.0%)
574,725 Specialty Foods Acquisition Corp. - 144A*......................................... 574,725
--------------
HEALTHCARE (0.1%)
1,606,000 Unilab Corp....................................................................... 2,810,500
--------------
RESTAURANTS (0.0%)
38,057 American Restaurant Group Holdings, Inc. - 144A*.................................. 381
--------------
RETAIL (0.6%)
2,779,700 County Seat Stores, Inc. (c) (f).................................................. 12,297,393
--------------
TEXTILES (0.4%)
1,754,730 U.S. Leather, Inc. (c)............................................................ 8,982,463
--------------
TOTAL COMMON STOCKS
(IDENTIFIED COST $99,876,695)..................................................... 25,078,743
--------------
PREFERRED STOCK (0.2%)
RESTAURANTS (0.2%)
3,500 American Restaurant Group Holdings, Inc. - 144A* (IDENTIFIED COST $3,499,965)..... 3,605,000
--------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE
- ------------ ----------
<C> <S> <C> <C>
WARRANTS (e) (0.1%)
AEROSPACE (0.0%)
9,000 Sabreliner Corp. - 144A*.............................................. 04/15/03 450,000
--------------
ENTERTAINMENT/GAMING & LODGING (0.1%)
220,000 Aladdin Gaming Enterprises, Inc. - 144A*.............................. 03/01/10 2,200
13,000 Epic Resorts LLC - 144A*.............................................. 06/15/05 130
207,312 Fitzgeralds Gaming Corp............................................... 12/19/98 933,009
7,000 Fitzgeralds South Inc. - 144A*........................................ 03/15/99 --
20,000 Resort At Summerlin - 144A*........................................... 12/15/07 200
--------------
935,539
--------------
RESTAURANTS (0.0%)
3,500 American Restaurant Group Holdings, Inc. - 144A*...................... 08/15/00 --
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC.
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998, CONTINUED
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION
WARRANTS DATE VALUE
- ----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
TELECOMMUNICATIONS (0.0%)
12,000 Versatel Telecom - 144A* (Netherlands)................................ 05/15/08 $ 120,000
--------------
TOTAL WARRANTS
(IDENTIFIED COST $1,194,037)...................................................... 1,505,539
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE
- ------------ ---------- --------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT (0.2%)
REPURCHASE AGREEMENT
$ 5,318 The Bank of New York
(dated 08/31/98;
proceeds $5,318,474) (g)
(IDENTIFED COST $5,318,474)................................ 5.75% 09/01/98 5,318,474
--------------
</TABLE>
<TABLE>
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $2,481,483,398) (H).................................................... 97.3 % 2,187,836,702
OTHER ASSETS IN EXCESS OF LIABILITIES................................................... 2.7 61,197,599
------ ---------------
NET ASSETS.............................................................................. 100.0 % $ 2,249,034,301
------ ---------------
------ ---------------
</TABLE>
- ---------------------
* Resale is restricted to qualified institutional investors.
+ Payment-in-kind security.
++ Currently a zero coupon bond and will pay interest at the rate shown at a
future specified date.
++ Consists of one or more classes of securities traded together as a unit;
bonds with attached warrants.
(a) Issuer in bankruptcy.
(b) Non-income producing security; bond in default.
(c) Acquired through exchange offer.
(d) Non-income producing security; issuer in bankruptcy.
(e) Non-income producing securities.
(f) Includes 997,289 shares which are due from the issuer pursuant to a
reorganization.
(g) Collateralized by $4,462,625 Federal National Mortgage Assoc. 6.59% due
09/17/07 valued at $4,941,936 and $483,647 U.S. Treasury Note 3.375% due
01/15/07 valued at $482,907.
(h) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $35,185,627 and the
aggregate gross unrealized depreciation is $328,832,323, resulting in net
unrealized depreciation of $293,646,696.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $2,481,483,398).......................................................... $2,187,836,702
Receivable for:
Interest................................................................................ 56,175,500
Investments sold........................................................................ 36,690,422
Capital stock sold...................................................................... 4,917,055
Prepaid expenses and other assets........................................................... 105,696
--------------
TOTAL ASSETS........................................................................... 2,285,725,375
--------------
LIABILITIES:
Payable for:
Capital stock repurchased............................................................... 21,635,406
Investments purchased................................................................... 9,296,418
Dividends and distributions to shareholders............................................. 3,370,887
Plan of distribution fee................................................................ 1,260,397
Investment management fee............................................................... 795,601
Accrued expenses and other payables......................................................... 332,365
--------------
TOTAL LIABILITIES...................................................................... 36,691,074
--------------
NET ASSETS............................................................................. $2,249,034,301
--------------
--------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................. $3,376,133,454
Net unrealized depreciation................................................................. (293,646,696)
Accumulated undistributed net investment income............................................. 15,318,425
Accumulated net realized loss............................................................... (848,770,882)
--------------
NET ASSETS............................................................................. $2,249,034,301
--------------
--------------
CLASS A SHARES:
Net Assets.................................................................................. $ 30,678,260
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)................................. 4,982,846
NET ASSET VALUE PER SHARE.............................................................. $6.16
--------------
--------------
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 5.54% OF NET
ASSET VALUE).......................................................................... $6.50
--------------
--------------
CLASS B SHARES:
Net Assets.................................................................................. $1,761,147,361
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)................................. 286,563,788
NET ASSET VALUE PER SHARE.............................................................. $6.15
--------------
--------------
CLASS C SHARES:
Net Assets.................................................................................. $ 56,626,183
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)................................. 9,204,176
NET ASSET VALUE PER SHARE.............................................................. $6.15
--------------
--------------
CLASS D SHARES:
Net Assets.................................................................................. $ 400,582,497
Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)................................. 65,061,856
NET ASSET VALUE PER SHARE.............................................................. $6.16
--------------
--------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1998
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INCOME
Interest..................................................................................... $ 235,784,092
Dividends.................................................................................... 40,625
-------------
TOTAL INCOME............................................................................ 235,824,717
-------------
EXPENSES
Plan of distribution fee (Class A shares).................................................... 51,000
Plan of distribution fee (Class B shares).................................................... 10,737,221
Plan of distribution fee (Class C shares).................................................... 281,533
Investment management fee.................................................................... 7,756,546
Transfer agent fees and expenses............................................................. 1,467,047
Registration fees............................................................................ 320,679
Shareholder reports and notices.............................................................. 120,895
Custodian fees............................................................................... 119,918
Professional fees............................................................................ 71,645
Directors' fees and expenses................................................................. 18,793
Other........................................................................................ 26,762
-------------
TOTAL EXPENSES.......................................................................... 20,972,039
-------------
NET INVESTMENT INCOME................................................................... 214,852,678
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss............................................................................ (27,425,899)
Net change in unrealized appreciation........................................................ (230,215,151)
-------------
NET LOSS................................................................................ (257,641,050)
-------------
NET DECREASE................................................................................. $ (42,788,372)
-------------
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC.
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, 1998 AUGUST 31, 1997*
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................................ $ 214,852,678 $ 55,526,474
Net realized loss.................................................... (27,425,899) (39,986,189)
Net change in unrealized appreciation................................ (230,215,151) 50,139,683
--------------- --------------------
NET INCREASE (DECREASE)......................................... (42,788,372) 65,679,968
--------------- --------------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares....................................................... (2,263,130) (12,761)
Class B shares....................................................... (152,306,144) (95,764)
Class C shares....................................................... (3,375,190) (32,881)
Class D shares....................................................... (49,344,880) (57,967,266)
--------------- --------------------
TOTAL DIVIDENDS................................................. (207,289,344) (58,108,672)
--------------- --------------------
Net increase from capital stock transactions......................... 1,997,043,217 34,294,665
--------------- --------------------
NET INCREASE.................................................... 1,746,965,501 41,865,961
NET ASSETS:
Beginning of period.................................................. 502,068,800 460,202,839
--------------- --------------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $15,318,425 AND
$7,755,090, RESPECTIVELY)........................................ $ 2,249,034,301 $ 502,068,800
--------------- --------------------
--------------- --------------------
</TABLE>
- ---------------------
* Class A, Class B and Class C shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter High Yield Securities Inc. (the "Fund"), formerly
Dean Witter High Yield Securities Inc., is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Fund's primary investment objective is to earn a high
level of current income and, as a secondary objective, capital appreciation, but
only when consistent with its primary objective. The Fund was incorporated in
Maryland on June 14, 1979 and commenced operations on September 26, 1979. On
July 28, 1997, the Fund commenced offering three additional classes of shares,
with the then current shares designated as Class D 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 and 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) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (in
cases where securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Directors); (2) all other 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; (3) when market
quotations are not readily available, including circumstances under which it is
determined by Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager"), formerly Dean Witter InterCapital Inc., that 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 Directors (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
13
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998, CONTINUED
maturity or an appropriate matrix utilizing similar factors); (4) certain
portfolio securities may be valued by an outside pricing service approved by the
Directors. The pricing service may utilize a matrix system incorporating
security quality, maturity and coupon as the evaluation model parameters, and/or
research and evaluations by its staff, including review of broker-dealer market
price quotations, if available, in determining what it believes is the fair
valuation of the portfolio securities valued by such pricing service; and (5)
short-term debt securities having a maturity date of more than sixty days at
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.
Dividend income and other distributions are recorded on the ex-dividend date.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily except where collection is not expected.
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. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the record 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
14
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998, CONTINUED
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, the Fund pays the Investment
Manager a management fee, calculated daily and payable monthly, by applying the
following annual rates to the net assets of the Fund determined as of the close
of each business day: 0.50% to the portion of daily net assets not exceeding
$500 million; 0.425% to the portion of daily net assets exceeding $500 million
but not exceeding $750 million; 0.375% to the portion of daily net assets
exceeding $750 million but not exceeding $1 billion; 0.35% to the portion of
daily net assets exceeding $1 billion but not exceeding $2 billion; 0.325% to
the portion of daily net assets exceeding $2 billion but not exceeding $3
billion; and 0.30% to the portion of daily net assets exceeding $3 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 Morgan Stanley 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 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 -- 0.75% of 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 theses Classes and incentive compensation to, and
expenses of, Morgan Stanley Dean Witter Financial Advisors and others who engage
in or support distribution of the shares or who service shareholder accounts,
15
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998, CONTINUED
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, to
compensate Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment
Manager and Distributor, 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
Directors 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 $50,323,518 at August 31, 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 Morgan Stanley Dean Witter Financial Advisors or other
selected broker-dealer representatives may be reimbursed in the subsequent
calendar year. For the year ended August 31, 1998, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.24% and
0.85%, respectively.
The Distributor has informed the Fund that for the year ended August 31, 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 $4,765, $2,485,044
and $62,533, respectively and received $542,700 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.
16
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998, CONTINUED
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended August 31, 1998, aggregated
$1,766,431,143 and $1,187,859,454, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Fund's transfer agent. At August 31, 1998, the Fund had transfer agent fees
and expenses payable of approximately $20,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Directors of the Fund who will have served as independent
Directors 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 August 31, 1998 included
in Directors' fees and expenses in the Statement of Operations amounted to
$5,160. At August 31, 1998, the Fund had an accrued pension liability of $50,924
which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. FEDERAL INCOME TAX STATUS
At August 31, 1998, the Fund had a net capital loss carryover of approximately
$812,887,000, which may be used to offset future capital gains to the extent
provided by regulations, which is available through August 31 of the following
years:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- ------------------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004 2005 2006
- ------------- ------------- ----------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 293,125 $ 182,201 $ 45,084 $ 166,660 $ 50,599 $ 23,296 $ 39,319 $ 12,603
</TABLE>
Due to the Fund's acquisition of Dean Witter High Income Securities, utilization
of this carryover is subject to limitations imposed by the Internal Revenue Code
and Treasury Regulations, significantly reducing the total carryover available.
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $24,854,000 during fiscal 1998.
At August 31, 1998, the Fund had temporary book/tax differences primarily
attributable to post-October losses and capital loss deferrals on wash sales and
permanent book/tax differences primarily attributable to an expired capital loss
carryover. To reflect reclassifications arising from the
17
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998, CONTINUED
permanent differences, paid-in-capital was charged $83,011,249, accumulated net
realized loss was credited $82,382,928 and accumulated undistributed net
investment net investment income was credited $628,321.
6. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, 1998 AUGUST 31, 1997*
---------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
------------ -------------- ----------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold............................................................. 6,202,135 $ 41,894,662 292,513 $ 1,999,324
Reinvestment of dividends........................................ 157,371 1,048,292 553 3,764
Redeemed......................................................... (1,669,303) (10,859,033) (423) (2,907)
------------ -------------- ----------- ------------
Net increase - Class A........................................... 4,690,203 32,083,921 292,643 2,000,181
------------ -------------- ----------- ------------
CLASS B SHARES
Sold............................................................. 138,948,772 936,076,158 2,516,637 17,204,073
Reinvestment of dividends........................................ 8,546,591 57,074,799 6,503 44,221
Shares issued in connection with the acquisition of Dean Witter
High Income Securities.......................................... 214,915,122 1,469,485,599 -- --
Redeemed......................................................... (78,167,748) (520,016,664) (202,089) (1,383,116)
------------ -------------- ----------- ------------
Net increase - Class B........................................... 284,242,737 1,942,619,892 2,321,051 15,865,178
------------ -------------- ----------- ------------
CLASS C SHARES
Sold............................................................. 11,809,001 79,632,646 766,860 5,242,777
Reinvestment of dividends........................................ 275,586 1,835,966 2,742 18,649
Redeemed......................................................... (3,646,560) (24,328,636) (3,453) (23,617)
------------ -------------- ----------- ------------
Net increase - Class C........................................... 8,438,027 57,139,976 766,149 5,237,809
------------ -------------- ----------- ------------
CLASS D SHARES
Sold............................................................. 2,051,764 13,876,135 7,619,881 51,079,158
Reinvestment of dividends........................................ 3,963,509 26,652,063 4,584,033 30,556,953
Redeemed......................................................... (11,183,022) (75,328,770) (10,516,313) (70,444,614)
------------ -------------- ----------- ------------
Net increase (decrease) - Class D................................ (5,167,749) (34,800,572) 1,687,601 11,191,497
------------ -------------- ----------- ------------
Net increase in Fund............................................. 292,203,218 $1,997,043,217 5,067,444 $ 34,294,665
------------ -------------- ----------- ------------
------------ -------------- ----------- ------------
</TABLE>
- ---------------------
* For Class A, B and C shares, for the period July 28 (issue date) through
August 31, 1997.
18
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998, CONTINUED
7. ACQUISITION OF DEAN WITTER HIGH INCOME SECURITIES
As of the close of business on November 7, 1997, the Fund acquired all the net
assets of Dean Witter High Income Securities ("High Income") pursuant to a plan
of reorganization approved by the shareholders of High Income on October 24,
1997. The acquisition was accomplished by a tax-free exchange of 214,915,122
Class B shares of the Fund at a net asset value of $6.84 per share for
147,149,092 shares of High Income. The net assets immediately before the
acquisition were $552,658,205 for the Fund and $1,469,485,599 for High Income,
including unrealized appreciation of $43,052,745. Immediately after the
acquisition, the combined net assets of the Fund amounted to $2,022,143,804.
19
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC.
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31
---------------------------------------------------------------------------------------------------
1998++ 1997* 1996 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS D SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period..... $ 6.82 $ 6.71 $ 6.77 $ 6.83 $ 7.58 $ 7.23 $ 5.92 $ 6.78 $ 10.40
---------- -------- -------- -------- -------- -------- -------- -------- ---------
Net investment income.... 0.78 0.79 0.83 0.80 0.79 0.89 0.95 0.94 1.48
Net realized and
unrealized gain
(loss).................. (0.71) 0.15 (0.12) (0.06) (0.68) 0.54 1.04 (0.86) (3.78)
---------- -------- -------- -------- -------- -------- -------- -------- ---------
Total from investment
operations.............. 0.07 0.94 0.71 0.74 0.11 1.43 1.99 0.08 (2.30)
---------- -------- -------- -------- -------- -------- -------- -------- ---------
Less dividends and
distributions from:
Net investment
income................ (0.73) (0.83) (0.77) (0.80) (0.86) (1.08) (0.68) (0.94) (1.32)
Paid-in-capital....... -- -- -- -- -- -- -- -- --
---------- -------- -------- -------- -------- -------- -------- -------- ---------
Total dividends and
distributions........... (0.73) (0.83) (0.77) (0.80) (0.86) (1.08) (0.68) (0.94) (1.32)
---------- -------- -------- -------- -------- -------- -------- -------- ---------
Net asset value, end of
period.................. $ 6.16 $ 6.82 $ 6.71 $ 6.77 $ 6.83 $ 7.58 $ 7.23 $ 5.92 $ 6.78
---------- -------- -------- -------- -------- -------- -------- -------- ---------
---------- -------- -------- -------- -------- -------- -------- -------- ---------
TOTAL INVESTMENT
RETURN+.................. 0.63% 15.01% 11.07% 11.98% 0.93% 22.29% 35.46% 4.67% (23.28)%
RATIOS TO AVERAGE NET
ASSETS:
Expenses................. 0.51%(1) 0.68% 0.66% 0.79% 0.69% 0.67% 0.77% 0.87% 0.60%
Net investment income.... 11.54%(1) 11.78% 12.27% 12.06% 10.40% 12.14% 13.96% 16.47% 17.67%
SUPPLEMENTAL DATA:
Net assets, end of
period, in millions..... $401 $479 $460 $455 $478 $540 $512 $436 $690
Portfolio turnover
rate.................... 66% 113% 49% 74% 127% 173% 113% 93% 21%
<CAPTION>
1989
- --------------------------------------------
<S> <C>
CLASS D SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period..... $ 11.99
--------
Net investment income.... 1.67
Net realized and
unrealized gain
(loss).................. (1.48)
--------
Total from investment
operations.............. 0.19
--------
Less dividends and
distributions from:
Net investment
income................ (1.75)
Paid-in-capital....... (0.03)
--------
Total dividends and
distributions........... (1.78)
--------
Net asset value, end of
period.................. $ 10.40
--------
--------
TOTAL INVESTMENT
RETURN+.................. 1.39%
RATIOS TO AVERAGE NET
ASSETS:
Expenses................. 0.49%
Net investment income.... 14.61%
SUPPLEMENTAL DATA:
Net assets, end of
period, in millions..... $1,794
Portfolio turnover
rate.................... 55%
</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 D shares.
++ 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) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC.
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
AUGUST 31, 1998++ AUGUST 31, 1997++
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 6.82 $ 6.83
------ ------
Net investment income................................................. 0.76 0.07
Net realized and unrealized loss...................................... (0.71) (0.03)
------ ------
Total from investment operations...................................... 0.05 0.04
------ ------
Less dividends from net investment income............................. (0.71) (0.05)
------ ------
Net asset value, end of period........................................ $ 6.16 $ 6.82
------ ------
------ ------
TOTAL INVESTMENT RETURN+.............................................. 0.40% 0.65%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.75%(3) 0.93%(2)
Net investment income................................................. 11.30%(3) 11.80%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $30,678 $1,996
Portfolio turnover rate............................................... 66% 113%
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 6.82 $ 6.83
------ ------
Net investment income................................................. 0.73 0.07
Net realized and unrealized loss...................................... (0.72 ) (0.03 )
------ ------
Total from investment operations...................................... 0.01 0.04
------ ------
Less dividends from net investment income............................. (0.68 ) (0.05 )
------ ------
Net asset value, end of period........................................ $ 6.15 $ 6.82
------ ------
------ ------
TOTAL INVESTMENT RETURN+.............................................. (0.23 )% 0.62%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.25%(3) 1.42%(2)
Net investment income................................................. 10.80%(3) 11.28%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $1,761,147 $15,828
Portfolio turnover rate............................................... 66% 113%
</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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC.
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH
AUGUST 31, 1998++ AUGUST 31, 1998++
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 6.82 $ 6.83
------ ------
Net investment income................................................. 0.72 0.07
Net realized and unrealized loss...................................... (0.72) (0.03)
------ ------
Total from investment operations...................................... 0.00 0.04
------ ------
Less dividends from net investment income............................. (0.67) (0.05)
------ ------
Net asset value, end of period........................................ $ 6.15 $ 6.82
------ ------
------ ------
TOTAL INVESTMENT RETURN+.............................................. (0.34)% 0.62%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.36%(3) 1.52%(2)
Net investment income................................................. 10.69%(3) 11.18%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $56,626 $5,225
Portfolio turnover rate............................................... 66% 113%
</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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
22
<PAGE>
MORGAN STANLEY DEAN WITTER HIGH YIELD
SECURITIES INC.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC.
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 Morgan Stanley Dean Witter High
Yield Securities Inc. (the "Fund"), formerly Dean Witter High Yield Securities
Inc., at August 31, 1998, 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 periods presented, 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 August 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
OCTOBER 9, 1998
23
<PAGE>
BOARD OF DIRECTORS
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
Peter M. Avelar
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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors 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 directors,
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.
MORGAN STANLEY
DEAN WITTER
HIGH YIELD
SECURITIES
[GRAPHIC]
ANNUAL REPORT
AUGUST 31, 1998
