<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME TWO WORLD TRADE CENTER,
SECURITIES NEW YORK, NEW YORK 10048
LETTER TO THE SHAREHOLDERS AUGUST 31, 1999
DEAR SHAREHOLDER:
During the twelve-month period ended August 31, 1999, fixed-income markets were
subject to highly volatile shifts in interest rates. As the period began,
economic turmoil abroad and the near collapse of a major hedge fund created an
ongoing investor flight to quality that was directed toward U.S. Treasuries. The
effect was to lower U.S. Treasury yields dramatically while causing corporate
yields to rise. Interest rates for intermediate-term Treasuries fell below those
for short-term Treasuries, and corporate liquidity all but evaporated. In
response, the Federal Reserve Board moved in three steps to reduce the
federal-funds rate to 4.75 percent. This rate reduction shored up confidence in
corporate bonds once again, and interest rates began to rise as economic growth
surged.
In the fourth quarter of 1998 and the first quarter of 1999 the economy grew by
6.1 percent and 4.3 percent, respectively. Although growth slowed to 1.8 percent
in the second quarter of 1999, key indicators suggested that the third quarter
would see increased growth. Given the robust economy and strength in labor
markets, fears of recession were once again preempted by inflation concerns.
Commodity prices climbed, wage settlements rose and consumer demand seemed
unabated, yet inflation remained tame. In this environment the rise in interest
rates that began in the last months of 1998 escalated sharply during the new
year, propelled by a reversal in Fed monetary policy and a two-step increase in
the federal funds rate to 5.25 percent.
As the economy maintained its resilience in the first few months of the new
calendar year, corporate bonds regained much of the market value they had lost
in the earlier flight to quality. However, beginning in May, steadily rising
interest rates and record new corporate bond issuance combined to reduce demand
for corporate bonds. With interest rates remaining in an upward trend,
Treasuries again became the investment of choice among fixed-income investors.
By August 31, interest rates for intermediate Treasuries were approximately one
percentage point above their levels one year earlier.
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
LETTER TO THE SHAREHOLDERS AUGUST 31, 1999, CONTINUED
PERFORMANCE
For the twelve-month period ended August 31, 1999, Morgan Stanley Dean Witter
Intermediate Income Securities' Class B shares posted a total return of 0.92
percent compared to 0.44 percent for the Lipper Intermediate Investment-Grade
Debt Funds Index and 2.20 percent for the Lehman Intermediate
Government/Corporate Bond Index. The Fund's Class A, C and D shares returned
1.39 percent, 0.91 percent and 1.79 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 and Lipper
indexes. (Total return figures shown assume the reinvestment of all
distributions and do not reflect the deduction of any applicable sales charges).
The Fund's return during the fiscal year was reflective of the rise in interest
rates and the impact of erratic liquidity conditions for corporate bonds. Yankee
bonds (dollar-denominated bonds issued in the U.S. by foreign entities), oil and
chemical industry holdings added the greatest value to the portfolio.
Additionally, holdings of Niagara Mohawk and AT&T Capital provided sizeable
positive contributions to the Fund's performance as a result of positive credit
news. By far the largest single contributor to performance was the Fund's
investment in Korean Yankee bonds, which appreciated by more than 50 percent.
Hindering overall performance were the Fund's telecommunications holdings,
battered by uncertainty regarding the increasingly competitive environment.
Disappointing earnings news negatively affected the market value of Oakwood
Homes and Stewart Enterprises. Burlington Industries also lost market value upon
news of earnings declines and was downgraded to noninvestment-grade status. The
Fund's performance was further constrained by steady redemptions throughout the
period that prevented participation in many of the new highly attractive
corporate offerings.
PORTFOLIO STRATEGY
During the fiscal year, the Fund took advantage of periods of corporate
illiquidity to add quality issues at attractively priced levels. In the first
half of the period, the Fund's management viewed cable, telephone, oil drilling,
finance and equipment leasing as industries offering value and added them to the
portfolio. During the same six months, we sold the Fund's positions in Yankee
banks, because we believed them to be overvalued. As liquidity improved over the
next few months, and the complexion of the economy brightened, value shifted to
other industries. During the second half
2
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
LETTER TO THE SHAREHOLDERS AUGUST 31, 1999, CONTINUED
of the period, an abundance of new corporate issues and further flights to
quality provided additional opportunities to purchase attractively priced
corporate bonds. As a result, the Fund's allocation to corporates increased from
76 percent of net assets to 84 percent during the fiscal year.
Rising interest rates prompted the Fund to maintain a conservative duration.
Although the portfolio's average duration extended from 4.18 years to 4.36 years
during the fiscal year, much of this extension was attributable to maturing
investments and the need to reinvest proceeds in intermediate securities.
Many of the attractive yield opportunities occurred among BBB-rated credits. The
purchase of these new securities as well as maturing higher-rated debt led to
the portion of the portfolio rated BBB increasing from 30.6 percent to 38.8
percent of net assets during the period. With confidence returning to the
corporate market and the amount of new offerings abating, it is expected that
the current wide yield differentials between credits should narrow and the
higher-yielding credits will outperform. On August 31, 1999, the portfolio's
average quality rating was A3.
LOOKING AHEAD
After the recent increase in the federal funds rate and a 1.3 percentage point
increase in the yield on five- and ten-year Treasuries, the direction of the
next meaningful move in interest rates is uncertain. While a robust economy,
tight labor markets, and a resurgence in economic growth in Asia and Europe
suggest that higher yields may be in the offing, the continued absence of
inflation and pricing power for business suggest that no near-term monetary
adjustments will be necessary. Given this climate, it is likely that the markets
will react to financial data releases by adjusting for the likelihood of an
official interest-rate move, creating some interim volatility for bond prices.
Unless a preponderance of data suggests the need for further action by the Fed,
we will look to take advantage of these swings when possible to modestly adjust
the portfolio's duration and credit profile accordingly.
On May 1, 1999, Mitchell M. Merin was named President of the Morgan Stanley Dean
Witter Funds. Mr. Merin is the President and Chief Operating Officer of Asset
Management for Morgan Stanley Dean Witter & Co. and President, Chief Executive
Officer and Director of Morgan Stanley Dean Witter Advisors Inc., the Fund's
investment manager. He also serves as Chairman, Chief Executive Officer and
Director of the Fund's distributor and transfer agent.
3
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
LETTER TO THE SHAREHOLDERS AUGUST 31, 1999, CONTINUED
We appreciate your ongoing support of Morgan Stanley Dean Witter Intermediate
Income Securities and look forward to continuing to serve your investment
objectives.
Very truly yours,
/s/ Charles A. Fiumefreddo /s/ Mitchell M. Merin
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
CHAIRMAN OF THE BOARD PRESIDENT
4
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME
SECURITIES
FUND PERFORMANCE AUGUST 31, 1999
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH OF $10,000 - CLASS B SHARES
($ IN THOUSANDS)
<S> <C> <C> <C>
LEHMAN INT. GOV/
FUND CORP BOND(4) LIPPER(5)
August 31, 1989 $10,000 $10,000 $10,000
August 31, 1990 $10,322 $10,807 $10,538
August 31, 1991 $11,434 $12,190 $11,811
August 31, 1992 $12,873 $13,789 $13,437
August 31, 1993 $13,959 $15,063 $14,885
August 31, 1994 $13,749 $15,013 $14,617
August 31, 1995 $14,926 $16,435 $16,108
August 31, 1996 $15,311 $17,165 $16,742
August 31, 1997 $16,525 $18,613 $18,347
August 31, 1998 $17,603 $20,285 $20,090
August 31, 1999 $17,766(3) $20,731 $20,179
</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* CLASS A+
--------------------------------------------------- ---------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 0.92%(1) (3.87)%(2) 1 Year 1.39%(1) (2.92)%(2)
Since Inception
5 Years 5.26 (1) 4.94 (2) (7/28/1997) 3.88 (1) 1.74 (2)
10 Years 5.92 (1) 5.92 (2)
</TABLE>
<TABLE>
<CAPTION>
CLASS C++ CLASS D++
--------------------------------------------------- ---------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 0.91%(1) (0.05)%(2) 1 Year 1.79%(1)
Since Inception Since Inception
(7/28/1997) 3.30 (1) 3.30 (2) (7/28/1997) 4.14 (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, 1999.
(4) 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.
(5) 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.
* 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.
5
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS AUGUST 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS (82.5%)
ACCIDENT & HEALTH INSURANCE (1.4%)
$ 2,000 Aflac Inc.................................................................... 6.50% 04/15/09 $ 1,879,480
------------
CABLE TELEVISION (2.1%)
2,000 British Sky Broadcasting Ltd. (United Kingdom)............................... 7.30 10/15/06 1,882,140
1,000 Cox Enterprises Inc. - 144A*................................................. 6.625 06/14/02 990,280
------------
2,872,420
------------
CASINO/GAMBLING (2.0%)
3,000 Mirage Resorts, Inc.......................................................... 6.75 02/01/08 2,724,720
------------
CELLULAR TELEPHONE (1.1%)
1,475 AirTouch Communications, Inc................................................. 7.125 07/15/01 1,486,903
------------
CLOTHING/SHOE/ACCESSORY STORES (2.3%)
3,000 TJX Companies, Inc........................................................... 6.625 06/15/00 3,009,600
------------
COMPUTER SOFTWARE (1.4%)
2,000 Oracle Corp.................................................................. 6.91 02/15/07 1,914,300
------------
E.D.P. SERVICES (1.5%)
2,000 Ceridian Corp. - 144A*....................................................... 7.25 06/01/04 1,969,440
------------
ELECTRIC UTILITIES (11.9%)
2,500 Israel Electric Co., Ltd. - 144A*............................................ 7.75 03/01/09 2,429,175
1,000 Niagara Mohawk Power Corp.................................................... 7.25 10/01/02 998,250
2,000 Public Service Co. of Colorado............................................... 6.875 07/15/09 1,922,460
3,000 System Energy Resources, Inc................................................. 7.71 08/01/01 3,057,750
5,000 United Utilities Corp. (United Kingdom)...................................... 6.45 04/01/08 4,558,400
3,000 Western Resources, Inc....................................................... 6.875 08/01/04 2,951,250
------------
15,917,285
------------
ELECTRONIC DATA PROCESSING (0.7%)
1,000 Sun Microsystems Inc......................................................... 7.50 08/15/06 994,210
------------
ELECTRONIC PRODUCTION EQUIPMENT (3.0%)
4,185 Applied Materials, Inc....................................................... 6.75 10/15/07 3,999,981
------------
FINANCE COMPANIES (6.5%)
2,000 Ford Motor Credit Co......................................................... 6.70 07/16/04 1,970,360
1,000 General Motors Acceptance Corp............................................... 8.40 10/15/99 1,003,000
4,000 General Motors Acceptance Corp............................................... 5.75 11/10/03 3,812,040
2,000 Sears Roebuck Acceptance Corp................................................ 6.25 05/01/09 1,825,640
------------
8,611,040
------------
FOREST PRODUCTS (3.6%)
5,049 Noranda Forest, Inc. (Canada)................................................ 6.875 11/15/05 4,797,964
------------
HOME BUILDING (1.3%)
2,000 Oakwood Homes Corp........................................................... 8.125 03/01/09 1,684,500
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS AUGUST 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
INDUSTRIAL MACHINERY/COMPONENTS (2.1%)
$ 3,000 Atlas Copco (Sweden) - 144A*................................................. 6.50% 04/01/08 $ 2,833,290
------------
INVESTMENT BANKERS/BROKERS/SERVICES (3.3%)
2,500 Donaldson, Lufkin & Jenrette, Inc............................................ 6.11 05/15/01 2,473,000
1,000 Lehman Brothers Holdings, Inc................................................ 7.00 05/15/03 986,460
1,000 Paine Webber Group, Inc...................................................... 6.375 05/15/04 959,550
------------
4,419,010
------------
MAJOR BANKS (11.8%)
2,000 Bank of America Corp......................................................... 6.625 06/15/04 1,968,700
2,000 Bank One Texas N.A........................................................... 6.25 02/15/08 1,857,900
1,000 Bankers Trust Corp........................................................... 6.70 10/01/07 950,080
3,000 Citicorp..................................................................... 6.375 11/15/08 2,799,870
3,000 Morgan (J.P.) & Co., Inc. (Series A)......................................... 6.00 01/15/09 2,722,350
5,145 Shamut National Bank N.A..................................................... 8.625 02/15/05 5,436,258
------------
15,735,158
------------
MAJOR CHEMICALS (1.5%)
2,100 Millennium America, Inc...................................................... 7.00 11/15/06 1,960,875
------------
MAJOR U.S. TELECOMMUNICATIONS (2.1%)
2,000 AT&T Corp.................................................................... 6.00 03/15/09 1,847,480
1,000 Sprint Capital Corp.......................................................... 6.375 05/01/09 928,400
------------
2,775,880
------------
MID-SIZED BANKS (3.6%)
3,000 Capital One Bank............................................................. 6.375 02/15/03 2,901,870
2,000 Star Bank N.A................................................................ 6.375 03/01/04 1,940,320
------------
4,842,190
------------
MILITARY/GOV'T/TECHNICAL (2.1%)
2,850 Raytheon Co.................................................................. 6.30 08/15/00 2,848,946
------------
OIL & GAS PRODUCTION (1.4%)
2,000 Union Pacific Resource Group Inc............................................. 6.50 05/15/05 1,882,800
------------
OILFIELD SERVICES/EQUIPMENT (2.9%)
2,000 Columbia Energy Group (Series A)............................................. 6.39 11/28/00 2,001,500
2,000 Petro Geo-Services ASA (Norway).............................................. 6.625 03/30/08 1,856,700
------------
3,858,200
------------
OTHER CONSUMER SERVICES (2.1%)
3,000 Stewart Enterprises, Inc..................................................... 6.70 12/01/03 2,854,950
------------
OTHER TELECOMMUNICATIONS (4.9%)
2,000 Frontier Corp................................................................ 7.25 05/15/04 1,947,740
2,000 Teleglobe Inc. (Canadian).................................................... 7.20 07/20/09 1,877,660
3,000 US West Capital Funding Inc.................................................. 6.375 07/15/08 2,759,370
------------
6,584,770
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS AUGUST 31, 1999, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- --------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RENTAL/LEASING COMPANIES (2.4%)
$ 3,350 Hertz Corp................................................................... 6.00 01/15/03 $ 3,240,924
------------
TEXTILES (2.0%)
3,000 Burlington Industries, Inc................................................... 7.25 09/15/05 2,614,860
------------
WHOLESALE DISTRIBUTORS (1.5%)
2,000 IKON Capital Inc............................................................. 6.73 06/15/01 1,965,940
------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $114,728,728)................................................................. 110,279,636
------------
FOREIGN GOVERNMENT OBLIGATION (3.1%)
4,000 Republic of Korea (South Korea)
(IDENTIFIED COST $4,206,000)................................................. 8.875 04/15/08 4,130,320
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (9.8%)
46 Federal Home Loan Mortgage Corp.............................................. 8.50 12/01/01 47,211
34 Federal Home Loan Mortgage Corp.............................................. 8.50 01/01/02 34,584
118 Federal Home Loan Mortgage Corp.............................................. 8.50 07/01/02 117,685
57 Federal Home Loan Mortgage Corp.............................................. 9.00 08/01/02 57,983
1,500 Federal National Mortgage Assoc.............................................. 5.90 06/18/01 1,487,115
20 Federal National Mortgage Assoc.............................................. 8.50 12/01/01 20,793
4,000 Federal National Mortgage Assoc.............................................. 5.125 02/13/04 3,773,720
1,800 Private Export Funding Corp.................................................. 6.86 04/30/04 1,826,550
2,300 U.S. Treasury Note........................................................... 6.25 05/31/00 2,312,627
1,450 U.S. Treasury Note........................................................... 6.25 01/31/02 1,464,340
1,000 U.S. Treasury Note........................................................... 5.25 08/15/03 976,760
1,000 U.S. Treasury Note........................................................... 5.625 02/15/06 974,810
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(IDENTIFIED COST $13,267,074).................................................................. 13,094,178
------------
SHORT-TERM INVESTMENT (4.9%)
REPURCHASE AGREEMENT
6,496 The Bank of New York (dated 08/31/99; proceeds $6,496,882) (a) (IDENTIFIED
COST $6,495,890)........................................................... 5.50 09/01/99 6,495,890
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS AUGUST 31, 1999, CONTINUED
<TABLE>
<CAPTION>
VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $138,697,692) (b)........................................................ 100.3% $ 134,000,024
LIABILITIES IN EXCESS OF OTHER ASSETS..................................................... (0.3) (348,461)
----- -------------
NET ASSETS................................................................................ 100.0% $ 133,651,563
----- -------------
----- -------------
</TABLE>
- ---------------------
* Resale is restricted to qualified institutional investors.
(a) Collateralized by $3,018,277 U.S. Treasury Note 5.50% due 04/15/00 valued
at $3,082,283 and $3,437,778 U.S. Treasury Note 6.125% due 09/30/00 valued
at $3,543,525.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $283,241 and the
aggregate gross unrealized depreciation is $4,980,909, resulting in net
unrealized depreciation of $4,697,668.
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $138,697,692)............................ $134,000,024
Receivable for:
Interest................................................ 2,166,187
Shares of beneficial interest sold...................... 142,975
Principal paydowns...................................... 10,840
Prepaid expenses and other assets........................... 47,752
------------
TOTAL ASSETS........................................... 136,367,778
------------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased............... 2,363,925
Plan of distribution fee................................ 93,108
Dividends and distributions to shareholders............. 75,976
Investment management fee............................... 71,326
Accrued expenses and other payables......................... 111,880
------------
TOTAL LIABILITIES...................................... 2,716,215
------------
NET ASSETS............................................. $133,651,563
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $148,143,089
Net unrealized depreciation................................. (4,697,668)
Accumulated undistributed net investment income............. 993
Accumulated net realized loss............................... (9,794,851)
------------
NET ASSETS............................................. $133,651,563
============
CLASS A SHARES:
Net Assets.................................................. $ 3,556,638
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 382,570
NET ASSET VALUE PER SHARE.............................. $9.30
============
MAXIMUM OFFERING PRICE PER SHARE,
(NET ASSET VALUE PLUS 4.44% OF NET ASSET VALUE)....... $9.71
============
CLASS B SHARES:
Net Assets.................................................. $120,843,469
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 12,983,135
NET ASSET VALUE PER SHARE.............................. $9.31
============
CLASS C SHARES:
Net Assets.................................................. $ 1,758,888
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 188,661
NET ASSET VALUE PER SHARE.............................. $9.32
============
CLASS D SHARES:
Net Assets.................................................. $ 7,492,568
Shares Outstanding (UNLIMITED AUTHORIZED, $.01 PAR VALUE)... 805,019
NET ASSET VALUE PER SHARE.............................. $9.31
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1999
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $10,126,683
-----------
EXPENSES
Plan of distribution fee (Class A shares)................... 6,748
Plan of distribution fee (Class B shares)................... 1,161,944
Plan of distribution fee (Class C shares)................... 11,479
Investment management fee................................... 899,873
Transfer agent fees and expenses............................ 175,449
Registration fees........................................... 96,695
Professional fees........................................... 67,345
Shareholder reports and notices............................. 57,394
Trustees' fees and expenses................................. 17,900
Custodian fees.............................................. 15,886
Other....................................................... 11,954
-----------
TOTAL EXPENSES......................................... 2,522,667
-----------
NET INVESTMENT INCOME.................................. 7,604,016
-----------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss........................................... (274,339)
Net change in unrealized appreciation....................... (5,665,329)
-----------
NET LOSS............................................... (5,939,668)
-----------
NET INCREASE................................................ $ 1,664,348
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<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, AUGUST 31,
1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................. $ 7,604,016 $ 8,403,108
Net realized gain (loss).......................... (274,339) 1,768,354
Net change in unrealized appreciation............. (5,665,329) 134,510
------------ ------------
NET INCREASE................................. 1,664,348 10,305,972
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME:
Class A shares.................................... (218,762) (100,388)
Class B shares.................................... (6,857,509) (7,980,246)
Class C shares.................................... (67,287) (11,414)
Class D shares.................................... (474,780) (348,107)
------------ ------------
TOTAL DIVIDENDS.............................. (7,618,338) (8,440,155)
------------ ------------
Net decrease from transactions in shares of
beneficial interest............................. (21,549,707) (10,443,102)
------------ ------------
NET DECREASE................................. (27,503,697) (8,577,285)
NET ASSETS:
Beginning of period............................... 161,155,260 169,732,545
------------ ------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME
OF $993 AND $15,315, RESPECTIVELY)............ $133,651,563 $161,155,260
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Intermediate Income Securities (the "Fund") is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
a diversified, open-end management investment company. The Fund's investment
objective is 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 converted to a
multiple class share structure.
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") 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 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
13
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1999, CONTINUED
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 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.
14
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1999, CONTINUED
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 asset 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; or (b) the average daily net
assets of Class B; and (iii) Class C - up to 0.85% of the average daily net
assets of Class C. In the case of Class A shares, amounts paid under the Plan
are paid to the Distributor for services provided. In the case of Class B and
Class C shares, amounts paid under the plan are paid to the Distributor for (1)
services provided and the expenses borne by it and others in the distribution of
the shares of these Classes, including the payment of commissions for sales of
these Classes and incentive compensation to, and expenses of, 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; (2) printing and distribution of prospectuses and reports
used in connection with the
15
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1999, CONTINUED
offering of these shares to other than current shareholders; and
(3) 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 $5,006,773 at August 31, 1999.
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, 1999, the distribution fee was
accrued for Class A shares and Class C shares at the annual rate of 0.18% and
0.85%, respectively.
The Distributor has informed the Fund that for the year ended August 31, 1999,
it received contingent deferred sales charges from certain redemptions of the
Fund's Class A shares, Class B shares and Class C shares of $2,997, $168,879,
and $670, respectively and received $11,247, in front-end sales charges from
sales of the Fund's Class A shares. The respective shareholders pay such charges
which are not an expense of the Fund.
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended August 31, 1999, aggregated
$142,509,209 and $162,917,897, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $43,025,359 and
$49,802,980, respectively.
16
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1999, CONTINUED
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At August 31, 1999, the Fund had
transfer agent fees and expenses payable of approximately $5,100.
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, 1999 included
in Trustees' fees and expenses in the Statement of Operations amounted to
$5,790. At August 31, 1999, the Fund had an accrued pension liability of $52,861
which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. FEDERAL INCOME TAX STATUS
During the year ended August 31, 1999, the Fund utilized approximately $553,000
of its net capital loss carryover. At August 31, 1999, the Fund had a net
capital loss carryover of approximately $8,967,000 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>
$6,103 $313 $2,351 $200
====== ==== ====== ====
</TABLE>
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 $827,000 during fiscal 1999.
At August 31, 1999, the Fund had temporary book/tax differences primarily
attributable to post-October losses.
6. FUND ACQUISITION
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
17
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1999, CONTINUED
$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.
7. 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, 1999 AUGUST 31, 1998
-------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold............................................... 364,951 $ 3,556,044 432,771 $ 4,200,291
Reinvestment of dividends.......................... 20,532 197,937 6,280 60,968
Redeemed........................................... (358,928) (3,471,507) (276,388) (2,677,083)
----------- ------------ ------------ -------------
Net increase - Class A............................. 26,555 282,474 162,663 1,584,176
----------- ------------ ------------ -------------
CLASS B SHARES
Sold............................................... 20,031,737 194,361,889 19,728,435 191,353,800
Reinvestment of dividends.......................... 396,884 3,831,712 435,921 4,221,022
Redeemed........................................... (23,059,093) (223,519,294) (21,536,089) (208,796,829)
----------- ------------ ------------ -------------
Net decrease - Class B............................. (2,630,472) (25,325,693) (1,371,733) (13,222,007)
----------- ------------ ------------ -------------
CLASS C SHARES
Sold 175,120 1,695,278 57,617 558,111
Reinvestment of dividends.......................... 6,052 58,156 842 8,164
Redeemed........................................... (39,598) (379,949) (15,371) (148,714)
----------- ------------ ------------ -------------
Net increase - Class C............................. 141,574 1,373,485 43,088 417,561
----------- ------------ ------------ -------------
CLASS D SHARES
Sold............................................... 243,390 2,355,047 339,652 3,280,027
Reinvestment of dividends.......................... 48,914 471,734 34,184 331,043
Acquisition of Dean Witter Retirement Series --
Intermediate Income Securities Series............. 250,724 2,441,399 -- --
Redeemed........................................... (328,222) (3,148,153) (292,464) (2,833,902)
----------- ------------ ------------ -------------
Net increase - Class D............................. 214,806 2,120,027 81,372 777,168
----------- ------------ ------------ -------------
Net decrease in Fund............................... (2,247,537) $(21,549,707) (1,084,610) $ (10,443,102)
=========== ============ ============ =============
</TABLE>
18
<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 PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
AUGUST 31, 1999 AUGUST 31, 1998 AUGUST 31, 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of
period............................ $9.71 $9.59 $9.68
-------- -------- --------
Income (loss) from investment
operations:
Net investment income........... 0.55 0.56 0.06
Net realized and unrealized gain
(loss).......................... (0.41) 0.13 (0.10)
-------- -------- --------
Total income (loss) from investment
operations........................ 0.14 0.69 (0.04)
-------- -------- --------
Less dividends from net investment
income............................ (0.55) (0.57) (0.05)
-------- -------- --------
Net asset value, end of period..... $9.30 $9.71 $9.59
======== ======== ========
TOTAL RETURN+...................... 1.39% 7.30% (0.46)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 1.08%(3) 1.10%(3) 2.18 %(2)
Net investment income.............. 5.67%(3) 5.80%(3) 6.10 %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $3,557 $3,457 $1,855
Portfolio turnover rate............ 99% 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
19
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AUGUST 31
---------------------------------------------------------------------
1999++ 1998++ 1997*++ 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
SELECTED PER SHARE DATA:
Net asset value, beginning of period... $9.70 $9.59 $9.39 $9.69 $9.51
-------- ------------ --------- --------- ---------
Income (loss) from investment
operations:
Net investment income............... 0.49 0.51 0.53 0.55 0.59
Net realized and unrealized gain
(loss).............................. (0.39) 0.11 0.20 (0.30) 0.19
-------- ------------ --------- --------- ---------
Total income from investment
operations............................ 0.10 0.62 0.73 0.25 0.78
-------- ------------ --------- --------- ---------
Less dividends and distributions from:
Net investment income............... (0.49) (0.51) (0.53) (0.55) (0.59)
Net realized gain................... -- -- -- -- (0.01)
-------- ------------ --------- --------- ---------
Total dividends and distributions...... (0.49) (0.51) (0.53) (0.55) (0.60)
-------- ------------ --------- --------- ---------
Net asset value, end of period......... $9.31 $9.70 $9.59 $9.39 $9.69
======== ============ ========= ========= =========
TOTAL RETURN+.......................... 0.92% 6.53% 7.93% 2.58% 8.56%
RATIOS TO AVERAGE NET ASSETS:
Expenses............................... 1.75%(1) 1.71%(1) 1.65% 1.62% 1.63%
Net investment income.................. 5.00%(1) 5.19%(1) 5.52% 5.69% 6.23%
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands............................. $120,843 $151,515 $162,959 $208,911 $232,752
Portfolio turnover rate................ 99% 98% 98% 115% 114%
</TABLE>
- ---------------------
* 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. 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) Reflects overall Fund ratios for investment income and non-class specific
expenses.
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
AUGUST 31, 1999 AUGUST 31, 1998 AUGUST 31, 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS C SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period.................................. $9.71 $9.61 $9.68
------- ------- -------
Income (loss) from investment operations:
Net investment income.............................................. 0.49 0.49 0.04
Net realized and unrealized gain (loss)............................ (0.39) 0.11 (0.07)
------- ------- -------
Total income (loss) from investment operations........................ 0.10 0.60 (0.03)
------- ------- -------
Less dividends from net investment income............................. (0.49) (0.50) (0.04)
------- ------- -------
Net asset value, end of period........................................ $9.32 $9.71 $9.61
======= ======= =======
TOTAL RETURN+......................................................... 0.91% 6.39% (0.31)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 1.75%(3) 1.71%(3) 2.02 %(2)
Net investment income................................................. 5.00%(3) 5.19%(3) 4.22 %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $1,759 $457 $38
Portfolio turnover rate............................................... 99% 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
21
<PAGE>
MORGAN STANLEY DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL HIGHLIGHTS, CONTINUED
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JULY 28, 1997*
ENDED ENDED THROUGH
AUGUST 31, 1999 AUGUST 31, 1998 AUGUST 31, 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS D SHARES++
SELECTED PER SHARE DATA:
Net asset value, beginning of period.................................. $9.70 $9.59 $9.68
------- ------- -------
Income (loss) from investment operations:
Net investment income.............................................. 0.57 0.59 0.05
Net realized and unrealized gain (loss)............................ (0.39) 0.11 (0.09)
------- ------- -------
Total income (loss) from investment operations........................ 0.18 0.70 (0.04)
------- ------- -------
Less dividends from net investment income............................. (0.57) (0.59) (0.05)
------- ------- -------
Net asset value, end of period........................................ $9.31 $9.70 $9.59
======= ======= =======
TOTAL RETURN+......................................................... 1.79% 7.43% (0.44)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.............................................................. 0.90%(3) 0.86%(3) 1.11 %(2)
Net investment income................................................. 5.85%(3) 6.04%(3) 5.91 %(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands............................... $7,493 $5,726 $4,880
Portfolio turnover rate............................................... 99% 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
22
<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") at August 31, 1999, 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, 1999 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
OCTOBER 8, 1999
23
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
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
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
Rochelle G. Siegel
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
trustees, fees, expenses and other pertinent information, please see the
prospectus of the Fund.
This report is not authorized for distribution to prospective investors in
the Fund unless preceded or accompanied by an effective prospectus. Read the
prospectus carefully before investing.
MORGAN STANLEY
DEAN WITTER
INTERMEDIATE
INCOME SECURITIES
[PHOTO]
ANNUAL REPORT
AUGUST 31, 1999