MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES, N-30D, 1998-10-29

MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
N-30D, 1998-10-29

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<PAGE>

MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME TWO WORLD TRADE CENTER,
SECURITIES NEW YORK, NEW YORK 10048
LETTER TO THE SHAREHOLDERS AUGUST 31, 1998

DEAR SHAREHOLDER:

Fixed-income markets, particularly in the government bond sector, performed
strongly during the past twelve months, bolstered largely by ongoing solid
economic news in the United States. Foreign concerns played a key factor
impacting the corporate bond market late in the period. By the end of August
ongoing concerns about Asia's woes spreading to Russia and Latin America,
combined with the stock market's "correctional" move, caused even issues with
little or no foreign exposure to experience a rise in yields. At the same time,
the Asian crises ignited a flight to quality investments, namely U.S.
securities. Rates on 5- to 10-year U.S. Treasuries fell over the same timeframe.
On August 31, 1998, 5-year and 10-year Treasuries yielded 4.79 percent and 4.97
percent respectively, lower by 1.43 and 1.37 percentage points, respectively,
from their levels one year earlier.

PERFORMANCE AND PORTFOLIO

For the year ended August 31, 1998, Morgan Stanley Dean Witter Intermediate
Income Securities' Class B shares produced a total return of 6.53 percent.
During the same period, intermediate government and corporate bonds as measured
by the Lehman Intermediate Government/ Corporate Bond Index, returned 8.98
percent. This index tracks both U.S. government and corporate bonds due from one
to ten years. For the period under review, the Lehman Brothers Intermediate
Corporate Bond Index returned 8.23 percent compared to 9.27 percent for the
Lehman Intermediate Government Bond Index. The Lipper Intermediate
Investment-Grade Debt Funds Index return over the period was 9.50 percent. The
Fund's A, C and D shares returned 7.30 percent, 6.39 percent and 7.43 percent,
respectively. PERFORMANCE OF THE FUND'S FOUR SHARE CLASSES VARIES BECAUSE OF
DIFFERING EXPENSES. The accompanying chart illustrates the performance of the
Fund versus the Lehman Brothers Intermediate Investment Grade Debt Index, the
Lehman Brothers Intermediate Government/Corporate Bond Index and the Lipper
Intermediate Investment-Grade Debt Funds Index.

<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
LETTER TO THE SHAREHOLDERS AUGUST 31, 1998, CONTINUED

The Fund's performance was reflective of the fall in the level of interest rates
as measured by yields of U.S. Treasuries. Returns were further impacted by the
widening yield spread between corporate securities and government issues
throughout the period. The Fund's commitments to corporate bonds, especially
those rated at or below A, constrained performance. The Fund traditionally
focuses on A and BBB rated bonds due to their good current income and their
potential for credit improvement over time. On August 31, 1998, 84.5 percent of
corporate holdings were rated A or BBB by Moody's or Standard & Poor's, two
major rating services. The portfolio's average credit rating was A3.

Over the period, the Fund's corporate bond allocation was gradually reduced
through April to represent 76 percent of net assets. However, as interest rates
fell and corporate yields became continually more attractive versus Treasuries,
the allocation was increased during the remaining four months to stand at 81
percent. Commitments for the twelve month period were lowered for utilities and
yankees, while investments in other sectors were held close to earlier levels.

Over the period, the Fund continued to reduce, at a profit, its Asian debt
holdings to less than half of its peak position in these securities.
Nonetheless, the sole remainder of these investments, Korean-based Pohang Iron
and Steel, continued to exert negative pressure on overall performance. This
investment accounted for 1.6 percent of net assets as of August 31, 1998.

Cash infusion into the Fund spiked in the latter half of August -- a time of
plummeting Treasury yields and general market disarray. After keeping cash
reserves at a minimum throughout most of the period, the Fund's cash position
accumulated to 7.8 percent by August 31. This slighter higher cash position
decreased the Fund's overall duration, or sensitivity to changes in interest
rates. On August 31, 1998, the Fund's duration was 3.87 years, down from 4.05
years on August 31, 1997.

LOOKING AHEAD

Currently, a flight from equities is serving to erode the market capitalizations
of major corporations. Accompanying their decline will be a drop in individuals'
net worth and presumably their desire to spend, translating into a reduction in
consumer spending. Should stock prices continue to retreat and consumers
retrench, a temporary economic slowdown will result. Such a reversal of fortunes
is likely to weigh on the Fed's monetary policy, with the probability increasing
for a rate decrease.

Due to the impact on corporate balance sheets of reduced market capitalization,
corporate bonds may not participate to the extent of Treasuries in any rally
brought about by a lowering of the Federal

2
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
LETTER TO THE SHAREHOLDERS AUGUST 31, 1998, CONTINUED

Funds rate. It is even possible for corporate bonds to continue to fall in price
and rise in yield, presenting investors with exciting opportunities. Starting
the period with a slightly increased cash level, the portfolio is well
positioned to take advantage of any such opportunities. The Fund intends to
concentrate on higher quality credits to minimize further downside risk to
principal of any additional fall-out from international events.

We appreciate your ongoing support of Morgan Stanley Dean Witter Intermediate
Income Securities and look forward to continuing to serve your investment needs.

Very truly yours,

[CHARLES A. FIUMEFREDDO]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD

3
<PAGE>

MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME
SECURITIES
FUND PERFORMANCE AUGUST 31, 1998

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
Growth of $10,000 -- Class B
Shares
($ in Thousands)
Lehman Int. Inv. Grade Lehman Int. Gov/Corp
Fund Debt(4) Bond(5) Lipper(6)
<S> <C> <C> <C> <C>
May-1989 $10,000 $10,000 $10,000 $10,000
August-1989 $10,257 $10,375 $10,327 $10,294
August-1990 $10,587 $11,047 $11,161 $10,848
August-1991 $11,728 $12,621 $12,589 $12,158
August-1992 $13,204 $14,686 $14,241 $13,832
August-1993 $14,318 $16,706 $15,556 $15,322
August-1994 $14,103 $16,382 $15,505 $15,046
August-1995 $15,310 $18,552 $16,973 $16,581
August-1996 $15,705 $19,244 $17,726 $17,234
August-1997 $16,950 $21,346 $19,223 $18,886
August-1998 $18,056(3) $23,232 $20,949 $20,680
</TABLE>

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR CLASS
A, CLASS C, AND CLASS D SHARES WILL VARY FROM THE PERFORMANCE OF CLASS B
SHARES SHOWN ABOVE DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS*
- ----------------------------------------------------------------------------------------------------
CLASS B SHARES** CLASS A SHARES+
- ----------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 6.53%(1) 1.53%(2) 1 Year 7.30%(1) 2.74%(2)
5 Years 4.75(1) 4.43(2) Since Inception (7/28/97) 6.21(1) 2.07(2)
Since Inception (5/3/89) 6.54(1) 6.54(2)
</TABLE>

<TABLE>
<CAPTION>
CLASS C SHARES++ CLASS D SHARES#
- ----------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 6.39%(1) 5.39%(2) 1 Year 7.43%(1)
Since Inception (7/28/97) 5.53(1) 5.53(2) Since Inception (7/28/97) 6.35(1)
</TABLE>

- ------------------------
(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 Intermediate Investment Grade Debt Index measures the
performance of 5 to 10 years investment-grade corporate debt securities.
The Index does not include any expenses, fees or charges. The Index is
unmanaged and should not be considered an investment.
(5) The Lehman Brothers Intermediate Government/Corporate Bond Index tracks the
performance of government and corporate debt obligations, including US
government agency and US Treasury securities and corporate and yankee
bonds, with maturities of one to ten years. The Index is unmanaged and
should not be considered an investment.
(6) The Lipper Intermediate Investment Grade Debt Funds Index is an
equally-weighted performance index of the largest qualifying funds (based
on net assets) in the Lipper Intermediate Investment Grade Debt 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 CDSC for Class B is 5.0%. The CDSC declines to 0% after six
years.
+ The maximum front-end sales charge for Class A is 4.25%.
++ The maximum CDSC for Class C shares is 1% for shares redeemed within one year
of purchase.
# Class D shares have no sales charge.

4
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (81.2%)
AEROSPACE (1.8%)
$ 2,850 Raytheon Co.................................................................... 6.30% 08/15/00 $ 2,877,104
------------
AUTOMOBILE - RENTALS (2.0%)
3,250 Hertz Corp. ................................................................... 6.00 01/15/03 3,264,885
------------
AUTOMOTIVE - FINANCE (3.2%)
4,975 General Motors Acceptance Corp. ............................................... 8.40 10/15/99 5,120,320
------------
BANK HOLDING COMPANIES (3.2%)
4,975 Star Bank N.A. ................................................................ 6.375 03/01/04 5,077,037
------------
CABLE & TELECOMMUNICATIONS (2.6%)
4,000 Time Warner Entertainment...................................................... 7.25 09/01/08 4,164,840
------------
CASINO/GAMBLING (1.8%)
2,900 Mirage Resorts, Inc............................................................ 6.75 02/01/08 2,823,556
------------
CELLULAR TELEPHONE (0.8%)
1,260 AirTouch Communications, Inc. ................................................. 7.125 07/15/01 1,312,366
------------
COMPUTER SOFTWARE (1.2%)
1,900 Oracle Corp. .................................................................. 6.91 02/15/07 1,963,346
------------
DISCOUNT CHAINS (1.9%)
3,000 TJX Companies, Inc............................................................. 6.625 06/15/00 3,011,550
------------
FINANCE & BROKERAGE (6.3%)
2,500 Donaldson Lufkin & Jenrette Inc................................................ 6.11 05/15/01 2,517,175
1,500 Merrill Lynch & Co., Inc. ..................................................... 6.00 01/15/01 1,509,480
3,200 Salomon, Inc................................................................... 6.50 03/01/00 3,238,272
3,000 Salomon Smith Barney Holdings.................................................. 6.25 06/15/05 3,024,840
------------
10,289,767
------------
FINANCE COMPANIES (1.2%)
2,000 Ikon Capital Inc. ............................................................. 6.73 06/15/01 1,987,240
------------
FOREIGN GOVERNMENT (1.6%)
2,450 Israel (State of).............................................................. 6.375 12/15/05 2,519,360
------------
FUNERAL SERVICES (1.9%)
3,000 Stewart Enterprises, Inc....................................................... 6.70 12/01/03 3,044,550
------------
INDUSTRIAL MACHINERY (2.0%)
3,000 Atlas Copco (Sweden) - 144A*................................................... 6.50 04/01/08 3,143,940
------------
MAJOR BANKS (12.8%)
3,900 Bank One Texas N.A............................................................. 6.25 02/15/08 3,908,619
2,500 Bankers Trust Corp............................................................. 6.70 10/01/07 2,535,725
3,000 Banque Nationale De Paris (France)............................................. 7.20 01/15/07 3,135,900
5,045 Shawmut Bank Connecticut, N.A.................................................. 8.625 02/15/05 5,777,130
5,000 Societe Generale N.A. Inc. (France) ........................................... 7.40 06/01/06 5,273,400
------------
20,630,774
------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998, CONTINUED

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MAJOR U.S. TELECOMMUNICATIONS (3.3%)
$ 2,000 US West Capital Funding Inc. .................................................. 6.375% 07/15/08 $ 2,005,020
3,000 WorldCom, Inc. ................................................................ 7.75 04/01/07 3,254,010
------------
5,259,030
------------
MEDIA CONGLOMERATES (1.2%)
2,000 News American Holdings, Inc. .................................................. 6.625 01/09/08 1,960,300
------------
MID-SIZED BANK (1.9%)
3,000 Capital One Bank............................................................... 6.375 02/15/03 3,057,510
------------
NATURAL GAS - DISTRIBUTION (1.3%)
2,000 Columbia Energy Group (Series A)............................................... 6.39 11/28/00 2,036,460
------------
NON-U.S. UTILITIES (4.3%)
2,000 Israel Electric Co., Ltd. - 144A*.............................................. 7.125 07/15/05 2,012,780
5,000 United Utilities Corp. (United Kingdom)........................................ 6.45 04/01/08 4,923,300
------------
6,936,080
------------
OIL INTEGRATED - INTERNATIONAL (3.1%)
5,000 Societe Nationale Elf Aquitaine (France)....................................... 7.75 05/01/99 5,067,200
------------
OIL PRODUCTION - DOMESTIC (1.2%)
2,000 Union Pacific Resource Group................................................... 6.50 05/15/05 1,930,200
------------
PAPER & FOREST PRODUCTS (3.1%)
4,949 Noranda Forest, Inc. (Canada).................................................. 6.875 11/15/05 4,917,029
------------
PROPERTY/CASUALTY INSURANCE (3.2%)
5,037 Nac Re Corp.................................................................... 8.00 06/15/99 5,127,162
------------
SEMICONDUCTOR EQUIPMENT (2.8%)
4,500 Applied Materials, Inc......................................................... 6.75 10/15/07 4,564,260
------------
SPECIALTY CHEMICALS (2.3%)
2,000 Lyondell Petrochemical Co...................................................... 6.50 02/15/06 1,840,420
2,000 Millennium America, Inc........................................................ 7.00 11/15/06 2,001,180
------------
3,841,600
------------
STEEL (1.6%)
4,000 Pohang Iron & Steel Co. (South Korea).......................................... 7.125 11/01/06 2,518,320
------------
TEXTILES (1.9%)
2,975 Burlington Industries, Inc..................................................... 7.25 09/15/05 3,105,781
------------
UTILITIES - ELECTRIC (5.7%)
2,000 Commonwealth Edison Co. ....................................................... 7.50 01/01/01 2,015,320
1,000 Niagara Mohawk Power Corp...................................................... 7.25 10/01/02 998,480
3,000 System Energy Resources, Inc. ................................................. 7.71 08/01/01 3,139,410
3,000 Western Resources, Inc. ....................................................... 6.875 08/01/04 3,103,350
------------
9,256,560
------------

TOTAL CORPORATE BONDS
(IDENTIFIED COST $130,430,368).................................................................... 130,808,127
------------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS AUGUST 31, 1998, CONTINUED

TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $19,014,420)..................................................................... 19,541,738
------------

SHORT-TERM INVESTMENT (a) (7.8%)
U.S. GOVERNMENT AGENCY
12,500 Federal Home Loan Mortgage Corp.
(IDENTIFIED COST $12,500,000)................................................ 5.70 09/01/98 12,500,000
------------
TOTAL INVESTMENTS
(IDENTIFIED COST $161,944,788) (B)..................................................... 101.1% 162,849,865

LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS......................................... (1.1) (1,694,605)
------- -------------

NET ASSETS............................................................................. 100.0% $ 161,155,260
------- -------------
------- -------------
</TABLE>

- ---------------------

* Resale is restricted to qualified institutional investors.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $3,256,500 and the
aggregate gross unrealized depreciation is $2,351,423, resulting in net
unrealized appreciation of $905,077.

SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1998

<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $161,944,788).............................................................. $162,849,865
Cash.......................................................................................... 42,242
Receivable for:
Interest.................................................................................. 2,614,273
Shares of beneficial interest sold........................................................ 153,538
Principal paydowns........................................................................ 14,050
Prepaid expenses and other assets............................................................. 49,489
------------
TOTAL ASSETS............................................................................. 165,723,457
------------
LIABILITIES:
Payable for:
Investments purchased..................................................................... 3,515,090
Shares of beneficial interest repurchased................................................. 679,398
Plan of distribution fee.................................................................. 107,419
Dividends and distributions to shareholders............................................... 87,548
Investment management fee................................................................. 80,172
Accrued expenses and other payables........................................................... 98,570
------------
TOTAL LIABILITIES........................................................................ 4,568,197
------------
NET ASSETS............................................................................... $161,155,260
------------
------------
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................................................... $169,681,311
Net unrealized appreciation................................................................... 905,077
Accumulated undistributed net investment income............................................... 15,315
Accumulated net realized loss................................................................. (9,446,443)
------------
NET ASSETS............................................................................... $161,155,260
------------
------------
CLASS A SHARES:
Net Assets.................................................................................... $3,456,826
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 356,015
NET ASSET VALUE PER SHARE................................................................ $9.71
------------
------------
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 4.44% OF NET
ASSET VALUE)............................................................................ $10.14
------------
------------
CLASS B SHARES:
Net Assets.................................................................................... $151,515,225
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 15,613,607
NET ASSET VALUE PER SHARE................................................................ $9.70
------------
------------
CLASS C SHARES:
Net Assets.................................................................................... $457,016
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 47,087
NET ASSET VALUE PER SHARE................................................................ $9.71
------------
------------
CLASS D SHARES:
Net Assets.................................................................................... $5,726,193
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)..................................... 590,213
NET ASSET VALUE PER SHARE................................................................ $9.70
------------
------------
</TABLE>

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1998

<TABLE>
<S> <C>
NET INVESTMENT INCOME:

INTEREST INCOME................................................................................ $11,087,299
-----------

EXPENSES
Plan of distribution fee (Class A shares)...................................................... 4,202
Plan of distribution fee (Class B shares)...................................................... 1,300,714
Plan of distribution fee (Class C shares)...................................................... 1,925
Investment management fee...................................................................... 964,411
Transfer agent fees and expenses............................................................... 166,274
Registration fees.............................................................................. 96,385
Shareholder reports and notices................................................................ 58,323
Professional fees.............................................................................. 45,394
Trustees' fees and expenses.................................................................... 21,090
Custodian fees................................................................................. 19,216
Other.......................................................................................... 6,257
-----------

TOTAL EXPENSES............................................................................ 2,684,191
-----------

NET INVESTMENT INCOME..................................................................... 8,403,108
-----------

NET REALIZED AND UNREALIZED GAIN:
Net realized gain.............................................................................. 1,768,354
Net change in unrealized appreciation.......................................................... 134,510
-----------

NET GAIN.................................................................................. 1,902,864
-----------

NET INCREASE................................................................................... $10,305,972
-----------
-----------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
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.................................................... $ 8,403,108 $ 10,272,537
Net realized gain (loss)................................................. 1,768,354 (2,567,762)
Net change in unrealized appreciation/depreciation....................... 134,510 6,828,218
--------------- ----------------

NET INCREASE........................................................ 10,305,972 14,532,993
--------------- ----------------

DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A shares........................................................... (100,388) (58)
Class B shares........................................................... (7,980,246) (10,229,881)
Class C shares........................................................... (11,414) (83)
Class D shares........................................................... (348,107) (25,048)
--------------- ----------------

TOTAL DIVIDENDS..................................................... (8,440,155) (10,255,070)
--------------- ----------------
Net decrease from transactions in shares of beneficial interest.......... (10,443,102) (43,456,259)
--------------- ----------------

NET DECREASE........................................................ (8,577,285) (39,178,336)

NET ASSETS:
Beginning of period...................................................... 169,732,545 208,910,881
--------------- ----------------

END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $15,315 AND
$52,362, RESPECTIVELY)............................................... $ 161,155,260 $ 169,732,545
--------------- ----------------
--------------- ----------------
</TABLE>

- ---------------------

* Class A, Class C and Class D shares were issued July 28, 1997.

SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998

1. ORGANIZATION AND ACCOUNTING POLICIES

Morgan Stanley Dean Witter Intermediate Income Securities (the "Fund"), formerly
Dean Witter Intermediate Income Securities, 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 high current
income consistent with safety of principal. The Fund was organized as a
Massachusetts business trust on September 1, 1988 and commenced operations on
May 3, 1989. On July 28, 1997, the Fund commenced offering three additional
classes of shares, with the then current shares, other than shares held by
certain employee benefit plans established by Dean Witter Reynolds Inc. and its
affiliate, SPS Transaction Services, Inc., designated as Class B shares. Shares
held by those employee benefit plans prior to July 28, 1997 have been designated
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;
(2) all other portfolio securities for which over-the-counter market quotations
are readily available are valued at the latest available bid price; (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 and 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

10
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998, CONTINUED

be based upon current market prices of securities which are comparable in
coupon, rating and maturity or an appropriate matrix utilizing similar factors);
(4) certain portfolio securities may be valued by an outside pricing service
approved by the Trustees. 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, 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 on 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.

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

11
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
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: 0.60% of the portion of daily net assets not exceeding
$500 million; 0.50% of the portion of daily net assets exceeding $500 million
but not exceeding $750 million; 0.40% of the portion of the daily net assets
exceeding $750 million but not exceeding $1 billion; and 0.30% of the portion of
the daily net assets exceeding $1 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 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 had been imposed or waived; (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

12
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998, CONTINUED

the payment of commissions for sales of these 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, 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
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 $5,232,570 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 B shares and Class C shares of $191,024, and $722, respectively and
received $12,907, 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.

13
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
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
$151,333,080 and $167,039,940, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $50,005,085 and
$56,430,499, respectively.

Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At August 31, 1998, the Fund had
transfer agent fees and expenses payable of approximately $880.

The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended August 31, 1998 included
in Trustees' fees and expenses in the Statement of Operations amounted to
$5,177. At August 31, 1998, the Fund had an accrued pension liability of $50,913
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
$9,446,000, 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>
AMOUNT IN THOUSANDS
- ------------------------------------------
2003 2004 2005 2006
- --------- --------- --------- ---------
<S> <C> <C> <C>
$ 6,656 $ 313 $ 2,351 $ 126
- --------- --------- --------- ---------
- --------- --------- --------- ---------
</TABLE>

14
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1998, CONTINUED

6. SHARES OF BENEFICIAL INTEREST

Transactions in shares of beneficial interest 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............................................................. 432,771 $ 4,200,291 193,347 $ 1,854,318
Reinvestment of dividends........................................ 6,280 60,968 5 54
Redeemed......................................................... (276,388) (2,677,083) -- --
----------- -------------- ----------- ------------
Net increase - Class A........................................... 162,663 1,584,176 193,352 1,854,372
----------- -------------- ----------- ------------

CLASS B SHARES
Sold............................................................. 19,728,435 191,353,800 8,499,296 80,974,547
Reinvestment of dividends........................................ 435,921 4,221,022 587,192 5,604,585
Redeemed......................................................... (21,536,089) (208,796,829) (13,839,797) (131,962,423)
----------- -------------- ----------- ------------
Net decrease - Class B........................................... (1,371,733) (13,222,007) (4,753,309) (45,383,291)
----------- -------------- ----------- ------------

CLASS C SHARES
Sold............................................................. 57,617 558,111 3,993 38,561
Reinvestment of dividends........................................ 842 8,164 6 56
Redeemed......................................................... ( 15,371) (148,714) -- --
----------- -------------- ----------- ------------
Net increase - Class C........................................... 43,088 417,561 3,999 38,617
----------- -------------- ----------- ------------

CLASS D SHARES
Sold............................................................. 339,652 3,280,027 10,611 102,479
Reinvestment of dividends........................................ 34,184 331,043 2,476 23,704
Redeemed......................................................... (292,464) (2,833,902) (9,547) (92,140)
----------- -------------- ----------- ------------
Net increase - Class D........................................... 81,372 777,168 3,540 34,043
----------- -------------- ----------- ------------
Net decrease in Fund............................................. (1,084,610) $ (10,443,102) (4,552,418) $(43,456,259)
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>

- ---------------------

+ On July 28, 1997, 505,301 shares representing $4,891,310 were transferred
to Class D.
* For Class A, C and D shares, for the period July 28, 1997 (issue date)
through August 31, 1997.

7. SUBSEQUENT EVENT

As of the close of business on September 11, 1998, the Fund acquired all the net
assets of Dean Witter Retirement Series -- Intermediate Income Securities Series
("Retirement Intermediate") pursuant to a plan of reorganization approved by the
shareholders of Retirement Intermediate on August 19, 1998. The acquisition was
accomplished by a tax-free exchange of 250,724 Class D shares of the Fund at a
net asset value of $9.74 per share for 247,422 shares of Retirement
Intermediate. The net assets of the Fund and Retirement Intermediate immediately
before the acquisition were $159,153,039, and $2,441,399, respectively,
including unrealized appreciation of $62,584 for Retirement Intermediate.
Immediately after the acquisition, the combined net assets of the Fund amounted
to $161,594,438.

15
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL HIGHLIGHTS

Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31
-------------------------------------------------
1998++ 1997*++ 1996 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning
of period.......... $ 9.59 $ 9.39 $ 9.69 $ 9.51 $ 10.26
-------- -------- -------- -------- ---------
Net investment
income............. 0.51 0.53 0.55 0.59 0.58
Net realized and
unrealized gain
(loss)............. 0.11 0.20 (0.30) 0.19 (0.73)
-------- -------- -------- -------- ---------
Total from
investment
operations......... 0.62 0.73 0.25 0.78 (0.15)
-------- -------- -------- -------- ---------
Less dividends and
distributions from:
Net investment
income........... (0.51) (0.53) (0.55) (0.59) (0.56)
Net realized
gain............. -- -- -- (0.01) (0.04)
-------- -------- -------- -------- ---------
Total dividends and
distributions...... (0.51) (0.53) (0.55) (0.60) (0.60)
-------- -------- -------- -------- ---------
Net asset value, end
of period.......... $ 9.70 $ 9.59 $ 9.39 $ 9.69 $ 9.51
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
TOTAL INVESTMENT
RETURN+............. 6.53% 7.93% 2.58% 8.56% (1.50)%
RATIOS TO AVERAGE
NET ASSETS:
Expenses............ 1.71%(4) 1.65% 1.62% 1.63% 1.63%
Net investment
income............. 5.19%(4) 5.52% 5.69% 6.23% 5.80%
SUPPLEMENTAL DATA:
Net assets, end of
period, in
thousands.......... $151,515 $162,959 $208,911 $232,752 $245,750
Portfolio turnover
rate............... 98% 98% 115% 114% 122%

<CAPTION>
FOR THE PERIOD
AUGUST 31,
1993 1992 1991 1990 1989
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning
of period.......... $ 10.05 $ 9.59 $ 9.42 $ 9.98 $ 10.00
-------- -------- -------- -------- ------
Net investment
income............. 0.62 0.70 0.79 0.86 0.28
Net realized and
unrealized gain
(loss)............. 0.20 0.46 0.17 (0.55) (0.02)
-------- -------- -------- -------- ------
Total from
investment
operations......... 0.82 1.16 0.96 0.31 0.26
-------- -------- -------- -------- ------
Less dividends and
distributions from:
Net investment
income........... (0.61) (0.70) (0.79) (0.86) (0.28)
Net realized
gain............. -- -- -- (0.01) --
-------- -------- -------- -------- ------
Total dividends and
distributions...... (0.61) (0.70) (0.79) (0.87) (0.28)
-------- -------- -------- -------- ------
Net asset value, end
of period.......... $ 10.26 $ 10.05 $ 9.59 $ 9.42 $ 9.98
-------- -------- -------- -------- ------
-------- -------- -------- -------- ------
TOTAL INVESTMENT
RETURN+............. 8.43% 12.58% 10.78% 3.22% 2.57%(1)
RATIOS TO AVERAGE
NET ASSETS:
Expenses............ 1.62% 1.69% 1.69% 1.75% 1.42%(2)(3)
Net investment
income............. 6.12% 7.11% 8.49% 8.78% 8.18%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of
period, in
thousands.......... $254,431 $187,285 $115,204 $114,086 $69,946
Portfolio turnover
rate............... 132% 93% 150% 135% 30%(1)
</TABLE>

- ---------------------

* Commencement of operations.
** Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that date, other than shares held by certain
employee benefit plans established by Dean Witter Reynolds Inc. and its
affiliate, SPS Transaction Services, Inc., have been designated as Class B
shares. Shares held by those employee benefit plans prior to July 28, 1997
have been designated Class D 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.
(3) If the Fund had borne all the expenses that were assumed or waived by the
Investment Manager, the above expense and net investment income ratios
would have been 2.15% and 7.44%, respectively.
(4) Reflects overall Fund ratios for investment income and non-class specific
expenses.

SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL HIGHLIGHTS, CONTINUED

<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 28, 1997*
FOR THE YEAR THROUGH
ENDED AUGUST 31,
AUGUST 31, 1998++ 1997++
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 9.59 $ 9.68
------ ------
Net investment income................................................. 0.56 0.06
Net realized and unrealized gain (loss)............................... 0.13 (0.10)
------ ------
Total from investment operations...................................... 0.69 (0.04)
------ ------
Less dividends from net investment income............................. (0.57) (0.05)
------ ------
Net asset value, end of period........................................ $ 9.71 $ 9.59
------ ------
------ ------
TOTAL INVESTMENT RETURN+.............................................. 7.30% (0.46)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.10%(3) 2.18%(2)
Net investment income................................................. 5.80%(3) 6.10%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $3,457 $1,855
Portfolio turnover rate............................................... 98% 98%

CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................................. $ 9.61 $ 9.68
------ ------
Net investment income................................................. 0.49 0.04
Net realized and unrealized gain (loss)............................... 0.11 (0.07)
------ ------
Total from investment operations...................................... 0.60 (0.03)
------ ------
Less dividends from net investment income............................. (0.50) (0.04)
------ ------
Net asset value, end of period........................................ $ 9.71 $ 9.61
------ ------
------ ------
TOTAL INVESTMENT RETURN+.............................................. 6.39% (0.31)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.71%(3) 2.02%(2)
Net investment income................................................. 5.19%(3) 4.22%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $457 $38
Portfolio turnover rate............................................... 98% 98%
</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
17
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL HIGHLIGHTS, CONTINUED

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 28, 1997*
ENDED THROUGH AUGUST
AUGUST 31, 1998++ 31, 1997++
- ----------------------------------------------------------------------------------------------------------

<S> <C> <C>
CLASS D SHARES

PER SHARE OPERATING PERFORMANCE:

Net asset value, beginning of period.................................. $ 9.59 $ 9.68
------ ------

Net investment income................................................. 0.59 0.05

Net realized and unrealized gain (loss)............................... 0.11 (0.09)
------ ------

Total from investment operations...................................... 0.70 (0.04)
------ ------

Less dividends from net investment income............................. (0.59) (0.05)
------ ------

Net asset value, end of period........................................ $ 9.70 $ 9.59
------ ------
------ ------

TOTAL INVESTMENT RETURN+.............................................. 7.43% (0.44)%(1)

RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.86%(3) 1.11%(2)

Net investment income................................................. 6.04%(3) 5.91%(2)

SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $5,726 $4,880

Portfolio turnover rate............................................... 98% 98%
</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.
(3) Reflects overall Fund ratios for investment income and non-class specific
expenses.

SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
REPORT OF INDEPENDENT ACCOUNTANTS

TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES

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
Intermediate Income Securities (the "Fund"), formerly Dean Witter Intermediate
Income Securities, 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