<PAGE> 1
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC. Two World Trade Center
LETTER TO THE SHAREHOLDERS September 30, 1999 New York, New York 10048
DEAR SHAREHOLDER:
During the twelve-month period ended September 30, 1999, the 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 thirty-year Treasury bonds
fell below 5 percent, and corporate liquidity all but evaporated. The Federal
Reserve, having already reduced the federal-funds rate by 25 basis points in
September, moved twice more to reduce the rate to 4.75 percent. This action
shored up confidence in corporate bonds. As economic growth surged, interest
rates began to rise once again.
In the fourth quarter of 1998 and the first quarter of 1999 the domestic economy
grew by 6.1 percent and 4.3 percent, respectively. Although growth slowed to 1.6
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 the
labor markets, fears of recession were once again preempted by inflation
concerns. Commodity prices climbed, wage settlements rose and consumer demand
proceeded unabated, yet inflation remained tame. Against this backdrop, the Fed
reversed monetary policy in the summer with 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 1999,
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 September 30, interest
rates for 10-year Treasuries yielded 5.88 percent while those maturing in 30
years yielded 6.05 percent.
<PAGE> 2
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
LETTER TO THE SHAREHOLDERS September 30, 1999, continued
PERFORMANCE
During the fiscal year ended September 30, 1999, Morgan Stanley Dean Witter
Income Securities Inc. produced a total return of -0.97 percent, based on a
change in net asset value (NAV) and reinvestment of dividends. Based on a change
in the Fund's market price on the New York Stock Exchange (NYSE) and
reinvestment of dividends, the Fund's total return for the fiscal year was -1.04
percent. For the same period, the Lehman Brothers Government/Corporate Bond
Index posted a return of -1.62 percent.
The Fund's performance over the fiscal year reflected the impact of rising
interest rates and the Fund's emphasis on longer-maturity investments. The Fund
benefited from its emphasis on Baa-rated securities, which on September 30, 1999
accounted for slightly more than 52 percent of the Fund's investments. According
to Lehman Brothers, these issues were the best investment-grade corporate bond
performers for the period, with a total return of -0.72 percent, compared to
- -1.95 percent for A-rated issues and -2.29 percent for AAA-rated issues.
PORTFOLIO STRATEGY
On September 30, 1999, corporate bonds accounted for 91.0 percent of the Fund's
investable assets with 6.2 percent in U.S. Treasuries and the remainder in
money-market instruments. The portfolio was diversified among 65 issues with an
average coupon of 8.31 percent and an average quality rating of BBB. On
September 30, 1999, the portfolio's average maturity, adjusted for likely calls,
was 14.24 years.
The combination of higher interest rates and wider spreads available during the
first six months of the period prompted the Fund to reduce its exposure to U.S.
Treasuries and increase its average duration through purchasing corporate bonds
with maturities of 10 to 30 years. The Fund further extended its duration by
tendering $6.7 million Pacific Telephone bonds callable in 2001 and reinvesting
the proceeds in corporate bonds maturing from 2002 to 2008 at substantially
higher yields. Then, as yield differentials among corporate bonds of different
credit ratings narrowed and liquidity improved, commodity-based credits regained
favor among investors. Within this environment, $11.25 million par value of the
Fund's oil and mining bonds, callable in 2003, were sold with the proceeds
reinvested in noncallable investment-grade issues with comparable final
maturities. We believe such transactions add greater assurance to the Fund's
ability to maintain its current dividend. On September 30, 1999, callable bonds
accounted for 40 percent of the portfolio's holdings, down from 49 percent on
September 30, 1998. For the twelve-month period, the largest increases in
allocation were to the bank, finance and Yankee sectors, while the Fund's
exposure to electrics and telephones was reduced.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
LETTER TO THE SHAREHOLDERS September 30, 1999, continued
Among the Fund's Yankee holdings, debt of Korea-based entities performed
particularly well, with the market value for some bonds rising by more than 30
percent from their year-earlier levels. Half the position was sold during the
period to take profits and purchase debt issued by the state of Israel. At the
end of the period under review the Fund's average duration was 6.69 years,
compared to 5.72 years a year earlier. The Fund's current longer maturity
reflects not only extension transactions but also the impact of higher interest
rates on the calculation of likely holding periods for the Fund's callable
bonds.
LOOKING AHEAD
Despite a 0.50 percentage-point increase in the federal-funds rate and a 1.0 to
1.5 percentage-point increase in yields on 10- to 30-year Treasuries, future
rate hikes cannot be ruled out. A robust domestic economy, tight labor markets,
higher commodity prices and resurgence in economic growth in Asia and Europe
suggest higher yields may be in the offing. However, offsetting these potential
precursors of inflation, the absence of pressure on consumer prices and the lack
of pricing power for business suggest that further monetary adjustments may not
be necessary. Given this investment climate, the markets will likely react to
financial data releases by adjusting for increased or decreased probabilities of
an official interest-rate move, creating 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.
We would like to remind you that the Directors have approved a procedure whereby
the Fund may, when appropriate, repurchase shares in the open market or in
privately negotiated transactions at a price not above market value or net asset
value, whichever is lower at the time of purchase. In accordance with this
procedure, 40,800 shares of the Fund were purchased on the New York Stock
Exchange over the twelve-month period ended September 30, 1999.
We thank you for your ongoing support of Morgan Stanley Dean Witter Income
Securities Inc. and look forward to continuing to serve your investment needs.
<TABLE>
<S> <C>
Very truly yours,
/s/ CHARLES A. FIUMEFREDDO /s/ MITCHELL M. MERIN
CHARLES A. FIUMEFREDDO MITCHELL M. MERIN
Chairman of the Board President
</TABLE>
3
<PAGE> 4
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS September 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (91.0%)
Aerospace (2.6%)
$5,000 Northrop Grumman Corp. .............. 9.375% 10/15/24 $ 5,324,400
-----------
Airlines (2.6%)
5,000 Delta Air Lines, Inc. ............... 9.30 01/02/10 5,462,300
-----------
Cable Television (3.9%)
7,450 Tele-Communications, Inc. ........... 8.75 02/15/23 7,967,477
-----------
Construction/Agricultural
Equipment/Trucks (0.9%)
2,000 Cummins Engine Co., Inc. ............ 7.125 03/01/28 1,767,840
-----------
Department Stores (4.0%)
5,597 May Department Stores Co. ........... 8.30 07/15/26 5,753,492
2,800 Neiman Marcus Group Inc. ............ 7.125 06/01/28 2,474,108
-----------
8,227,600
-----------
Discount Chains (4.2%)
5,800 Dayton Hudson Corp. ................. 8.50 12/01/22 6,082,170
2,500 Kmart Corp. ......................... 9.35 01/02/20 2,600,975
-----------
8,683,145
-----------
Electric Utilities (9.0%)
1,000 Cleveland Electric Illuminating Co.
(Series B)........................... 9.50 05/15/05 1,041,010
4,500 Commonwealth Edison Corp. ........... 8.375 02/15/23 4,542,030
3,000 Gulf States Utilities Co. ........... 8.94 01/01/22 3,101,880
2,000 Louisiana Power & Light Co. ......... 8.75 03/01/26 2,069,880
5,000 Niagara Mohawk Power Corp. .......... 8.75 04/01/22 5,133,349
3,000 United Utilities Corp. (United
Kingdom)............................. 6.875 08/15/28 2,538,840
-----------
18,426,989
-----------
Electronic Production Equipment
(2.0%)
4,500 Applied Materials, Inc. ............. 7.125 10/15/17 4,195,170
-----------
Finance Companies (2.6%)
2,250 Capital One Financial Corp. ......... 7.125 08/01/08 2,087,415
1,000 Ford Capital BV (Netherlands)........ 9.50 07/01/01 1,050,380
2,000 John Deere Capital Corp. ............ 8.625 08/01/19 2,127,580
-----------
5,265,375
-----------
Food Chains (0.9%)
2,000 Kroger Co. - 144A*................... 7.70 06/01/29 1,933,820
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS September 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Foreign Government Obligations (1.8%)
$3,000 Israel (State of).................... 7.25 % 12/15/28 $ 2,660,550
1,000 Republic of Korea.................... 8.875 04/15/08 1,035,010
-----------
3,695,560
-----------
Forest Products (5.0%)
6,000 Georgia Pacific Co. ................. 9.625 03/15/22 6,477,180
4,000 Noranda Forest, Inc. (Canada)........ 6.875 11/15/05 3,832,600
-----------
10,309,780
-----------
Home Building (0.8%)
2,000 Oakwood Homes Corp. ................. 8.13 03/01/09 1,689,180
-----------
Hospital/Nursing Management (0.4%)
1,000 Columbia/HCA Healthcare Corp. ....... 7.19 11/15/15 788,360
-----------
International Banks (1.4%)
3,000 Dresdner Funding Trust I-144A*....... 8.151 06/30/31 2,812,230
-----------
Life Insurance (3.1%)
3,500 American General Corp. .............. 9.625 07/15/00 3,586,940
3,000 Conseco, Inc. ....................... 6.80 06/15/05 2,752,560
-----------
6,339,500
-----------
Major Banks (4.1%)
6,000 Continental Bank N.A. ............... 12.50 04/01/01 6,499,440
2,000 First National Bank of Boston........ 8.00 09/15/04 2,065,220
-----------
8,564,660
-----------
Major Chemicals (1.3%)
3,200 Millennium America, Inc. ............ 7.625 11/15/26 2,732,288
-----------
Major U.S. Telecommunications (6.0%)
7,000 AT&T Corp. .......................... 8.625 12/01/31 7,464,100
2,000 Sprint Capital Corp. ................ 6.875 11/15/28 1,825,920
2,000 U.S. West Capital Funding, Inc. ..... 6.875 07/15/28 1,771,720
1,500 WorldCom, Inc. ...................... 6.95 08/15/28 1,400,895
-----------
12,462,635
-----------
Managed Health Care (0.8%)
2,000 MedPartners, Inc. ................... 7.375 10/01/06 1,700,000
-----------
Media Conglomerates (5.5%)
3,000 News America Holdings, Inc. ......... 7.25 05/18/18 2,812,920
2,900 News America Holdings, Inc. ......... 7.75 02/01/24 2,738,992
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS September 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$3,000 Time Warner Entertainment Co. ....... 9.625% 05/01/02 $ 3,192,510
2,500 Time Warner Entertainment Co. ....... 8.375 07/15/33 2,669,175
-----------
11,413,597
-----------
Motor Vehicles (3.8%)
2,600 Ford Motor Co. ...................... 8.875 11/15/22 2,788,682
5,000 General Motors Corp. ................ 8.10 06/15/24 5,008,450
-----------
7,797,132
-----------
Multi-Line Insurance (1.8%)
4,000 Provident Companies Inc. ............ 7.25 03/15/28 3,651,600
-----------
Oil & Gas Production (3.9%)
5,200 Lasmo (USA), Inc. ................... 8.375 06/01/23 5,024,448
3,000 Occidental Petroleum Corp. .......... 8.45 02/15/29 3,136,560
-----------
8,161,008
-----------
Oil Refining/Marketing (0.7%)
1,000 Panhandle Eastern Corp. ............. 8.625 04/15/25 1,036,120
500 Pennzoil - Quaker State.............. 7.375 04/01/29 460,465
-----------
1,496,585
-----------
Oilfield Services/Equipment (1.3%)
3,000 Petro Geo-Sevices.................... 7.125 03/30/28 2,645,400
-----------
Other Metals/Minerals (1.0%)
2,250 Cyprus Amax Minerals Co. ............ 8.375 02/01/23 2,074,073
-----------
Other Specialty Stores (0.9%)
2,000 Staples, Inc. ....................... 7.125 08/15/07 1,945,040
-----------
Other Telecommunications (0.9%)
2,000 Fontier Corp. ....................... 7.25 05/15/04 1,904,320
-----------
Packaged Foods (1.3%)
3,000 Borden, Inc. ........................ 9.20 03/15/21 2,766,540
-----------
Paper (1.3%)
3,000 Abitibi-Consolidated Inc. (Canada)... 7.50 04/01/28 2,650,410
-----------
Railroads (3.8%)
3,500 Burlington Northern Santa Fe......... 6.875 12/01/27 3,149,965
4,975 Union Pacific Corp. ................. 7.875 02/01/23 4,791,074
-----------
7,941,039
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS September 30, 1999, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Specialty Chemicals (3.0%)
$5,000 Equistar Chemical LP................. 7.55 % 02/15/26 $ 4,143,000
2,000 Great Lakes Chemical................. 7.00 07/15/09 1,959,180
-----------
6,102,180
-----------
Steel/Iron Ore (0.3%)
590 Weirton Steel Corp. ................. 10.875 10/15/99 587,050
-----------
Telecommunications (0.9%)
2,000 Teleglobe, Inc. ..................... 7.70 07/20/29 1,887,020
-----------
Tools/Hardware (2.1%)
5,000 Toro Co. ............................ 7.80 06/15/27 4,440,000
-----------
Wholesale Distributor (1.1%)
2,000 Ikon Office Solutions, Inc. ......... 6.75 12/01/25 1,489,540
1,000 Ikon Office Solutions, Inc. ......... 7.30 11/01/27 790,840
-----------
2,280,380
-----------
TOTAL CORPORATE BONDS
(Identified Cost $194,753,791)............................ 188,091,683
-----------
U.S. GOVERNMENT OBLIGATIONS (6.2%)
1,000 U.S. Treasury Bond................... 5.25 02/15/29 874,340
7,825 U.S. Treasury Note................... 8.50 02/15/00 7,920,309
4,000 U.S. Treasury Note................... 8.50 11/15/00 4,127,640
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Identified Cost $13,327,476)............................. 12,922,289
-----------
SHORT-TERM INVESTMENT (0.7%)
REPURCHASE AGREEMENT
1,523 The Bank of New York (dated 09/30/99;
proceeds $1,523,055) (a)
(Identified Cost $1,522,843)......... 5.00 10/01/99 1,522,843
-----------
TOTAL INVESTMENTS
(Identified Cost $209,604,110) (b)............... 97.9%
202,536,815
OTHER ASSETS IN EXCESS OF LIABILITIES.............. 2.1
4,244,991
----- -----------
NET ASSETS....................................... 100.0% $206,781,806
===== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS September 30, 1999, continued
- ---------------------
* Resale is restricted to qualified institutional investors.
(a) Collateralized by $187,211 U.S. Treasury Note 6.50% due at 05/15/15 valued
at $196,162 and $3,830,791 Financial Corporation Strips 0.00% due 05/30/14
valued at $1,357,747.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $2,579,521 and the
aggregate gross unrealized depreciation is $9,646,816, resulting in net
unrealized depreciation of $7,067,295.
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
ASSETS:
Investments in securities, at value
(identified cost $209,604,110)............................. $202,536,815
Interest receivable......................................... 4,518,591
Prepaid expenses and other assets........................... 5,698
-----------
TOTAL ASSETS............................................ 207,061,104
-----------
LIABILITIES:
Payable for:
Investment management fee............................... 96,613
Capital stock repurchased............................... 47,525
Accrued expenses and other payables......................... 135,160
-----------
TOTAL LIABILITIES....................................... 279,298
-----------
NET ASSETS.............................................. $206,781,806
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $224,420,278
Net unrealized depreciation................................. (7,067,295)
Accumulated undistributed net investment income............. 1,166,449
Accumulated net realized loss............................... (11,737,626)
-----------
NET ASSETS.............................................. $206,781,806
===========
NET ASSET VALUE PER SHARE,
11,809,418 shares outstanding
(15,000,000 shares authorized of $.01 par value)........... $17.51
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the year ended September 30, 1999
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 17,305,220
------------
EXPENSES
Investment management fee................................... 1,078,790
Transfer agent fees and expenses............................ 153,444
Professional fees........................................... 60,907
Shareholder reports and notices............................. 36,147
Registration fees........................................... 31,580
Directors' fees and expenses................................ 21,786
Custodian fees.............................................. 16,840
Other....................................................... 10,148
------------
TOTAL EXPENSES.......................................... 1,409,642
------------
NET INVESTMENT INCOME................................... 15,895,578
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain........................................... 456,987
Net change in unrealized appreciation....................... (18,837,392)
------------
NET LOSS................................................ (18,380,405)
------------
NET DECREASE................................................ $ (2,484,827)
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................ $ 15,895,578 $ 16,028,564
Net realized gain................................ 456,987 3,695,308
Net change in unrealized appreciation............ (18,837,392) 3,397,794
------------ ------------
NET INCREASE (DECREASE)...................... (2,484,827) 23,121,666
Dividends from net investment income............. (15,632,701) (15,708,371)
Net decrease from capital stock transactions..... (683,300) (1,589,247)
------------ ------------
NET INCREASE (DECREASE)...................... (18,800,828) 5,824,048
NET ASSETS:
Beginning of period.............................. 225,582,634 219,758,586
------------ ------------
END OF PERIOD
(Including undistributed net investment
income of $1,166,449 and $903,572,
respectively)................................ $206,781,806 $225,582,634
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS September 30, 1999
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Income Securities Inc. (the "Fund"), formerly
InterCapital Income Securities Inc., is registered under the Investment Company
Act of 1940, as amended, as a diversified, closed-end management investment
company. The Fund's primary investment objective is to provide as high a level
of current income as is consistent with prudent investment and, as a secondary
objective, capital appreciation. The Fund commenced operations on April 6, 1973.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the
New York, American or other domestic or foreign stock exchange is valued at its
latest sale price on that exchange prior to the time when assets are valued; if
there were no sales that day, the security is valued at the latest bid price (in
cases where securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market pursuant to procedures
adopted by the Directors); (2) all other portfolio securities for which
over-the-counter market quotations are readily available are valued at the
latest available bid price prior to the time of valuation; (3) when market
quotations are not readily available, including circumstances under which it is
determined by Morgan Stanley Dean Witter Advisors Inc. (the "Investment
Manager") that sale or bid prices are not reflective of a security's market
value, portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of the
Directors (valuation of debt securities for which market quotations are not
readily available may be based upon current market prices of securities which
are comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors); (4) certain portfolio securities may be valued by an outside
pricing service approved by the Directors. The pricing service may utilize a
matrix system incorporating security quality, maturity and coupon as the
evaluation model parameters, and/or research and evaluations by its staff,
including review of broker-dealer market price quotations, if available, in
determining what it believes is the fair valuation of the portfolio securities
valued by such pricing service; and (5) short-term debt securities having a
maturity date of more than sixty days at time of purchase are valued on a
mark-to-market basis until sixty days prior to maturity and thereafter at
amortized cost
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS September 30, 1999, continued
based on their value on the 61st day. Short-term debt securities having a
maturity date of sixty days or less at the time of purchase are valued at
amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. 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.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued weekly and payable monthly, by applying the
annual rate of 0.50% to the Fund's weekly net assets.
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
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS September 30, 1999, continued
Investment Manager also bears the cost of telephone services, heat, light, power
and other utilities provided to the Fund.
3. 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 September 30, 1999 aggregated
$80,327,910 and $81,983,417, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $25,354,911 and
$29,662,422, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Fund's transfer agent. At September 30, 1999, the Fund had transfer agent
fees and expenses payable of approximately $8,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Directors of the Fund who will have served as independent
Directors for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended September 30, 1999
included in Directors' fees and expenses in the Statement of Operations amounted
to $5,839. At September 30, 1999, the Fund had an accrued pension liability of
$52,006 which is included in accrued expenses in the Statement of Assets and
Liabilities.
4. CAPITAL STOCK
<TABLE>
<CAPTION>
CAPITAL
PAID IN
PAR VALUE EXCESS OF
SHARES OF SHARES PAR VALUE
---------- --------- ------------
<S> <C> <C> <C>
Balance, September 30, 1997................................. 11,942,418 $119,422 $235,360,007
Treasury shares purchased and retired (weighted average
discount 7.77%)*........................................... (92,200) (922) (1,588,325)
Reclassification due to permanent book/tax differences...... -- -- (776)
---------- -------- ------------
Balance, September 30, 1998................................. 11,850,218 $118,500 $233,770,906
Treasury shares purchased and retired (weighted average
discount 5.32%)*........................................... (40,800) (408) (682,892)
Reclassification due to permanent book/tax differences...... -- -- (8,785,828)
---------- -------- ------------
Balance, September 30, 1999................................. 11,809,418 $118,092 $224,302,186
========== ======== ============
</TABLE>
- ---------------------
* The Directors have voted to retire the shares purchased.
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS September 30, 1999, continued
5. DIVIDENDS
On September 28, 1999, the Fund declared the following dividends from net
investment income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- --------- ----------------- ------------------
<S> <C> <C>
$0.11 October 8, 1999 October 22, 1999
$0.11 November 5, 1999 November 19, 1999
$0.11 December 3, 1999 December 17, 1999
</TABLE>
6. FEDERAL INCOME TAX STATUS
During the year ended September 30, 1999, the Fund utilized approximately
$432,000 of its net capital loss carryover. At September 30, 1999, the Fund had
a net capital loss carryover of approximately $11,738,000 to offset future
capital gains to the extent provided by regulations available through September
30 of the following years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
- -------------------------------------------
2000 2003 2004
------ -------- --------
<S> <C> <C>
$2,391 $6,713 $2,634
====== ====== ======
</TABLE>
As of September 30, 1999, the Fund had permanent book/tax differences
attributable to an expired capital loss carryover. To reflect reclassifications
arising from these differences, paid-in-capital was charged and accumulated net
realized loss was credited $8,785,828.
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period........................ $19.04 $18.40 $ 17.42 $ 18.02 $16.93
------ ------ ------- ------- ------
Income (loss) from investment operations:
Net investment income...................................... 1.34 1.35 1.37 1.41 1.51
Net realized and unrealized gain (loss).................... (1.55) 0.60 0.91 (0.64) 1.08
------ ------ ------- ------- ------
Total income (loss) from investment operations.............. (0.21) 1.95 2.28 0.77 2.59
------ ------ ------- ------- ------
Less dividends and distributions from:
Net investment income...................................... (1.32) (1.32) (1.32) (1.14) (1.49)
Paid-in-capital............................................ -- -- -- (0.24) (0.01)
------ ------ ------- ------- ------
Total dividends and distributions........................... (1.32) (1.32) (1.32) (1.38) (1.50)
------ ------ ------- ------- ------
Anti-dilutive effect of acquiring treasury shares........... -- 0.01 0.02 0.01 --
------ ------ ------- ------- ------
Net asset value, end of period.............................. $17.51 $19.04 $ 18.40 $ 17.42 $18.02
====== ====== ======= ======= ======
Market value, end of period................................. $16.31 $17.75 $16.688 $15.875 $16.25
====== ====== ======= ======= ======
TOTAL RETURN+............................................... (1.04)% 14.75% 14.06% 6.39% 5.24%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.66% 0.65% 0.65% 0.65% 0.69%
Net investment income....................................... 7.39% 7.19% 7.69% 8.03% 8.75%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $206,782 $225,583 $219,759 $210,675 $219,892
Portfolio turnover rate..................................... 38% 42% 63% 88% 50%
</TABLE>
- ---------------------
+ Total return is based upon the current market value on the last day of each
period reported. Dividends are assumed to be reinvested at the prices
obtained under the Fund's dividend reinvestment plan. Total return does not
reflect brokerage commissions.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter Income
Securities Inc. (the "Fund"), formerly InterCapital Income Securities Inc., at
September 30, 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 five years in the period then ended, 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 September 30, 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
November 10, 1999
17
<PAGE> 18
(This Page Intentionally Left Blank)
<PAGE> 19
(This Page Intentionally Left Blank)
<PAGE> 20
BOARD OF DIRECTORS
- ----------------------------------
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
MORGAN STANLEY
DEAN WITTER
Income
Securities Inc.
Annual Report
September 30, 1999
