<PAGE> 1
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC. Two World Trade Center
LETTER TO THE SHAREHOLDERS March 31, 2000 New York, New York 10048
DEAR SHAREHOLDER:
During the six-month period ended March 31, 2000, interest rates primarily rose
as the U.S. economy displayed considerable vigor and the unemployment rate fell
to a low of 4 percent. Y2K concerns early in the period gradually abated, giving
way to escalating business and consumer spending that culminated in a
fourth-quarter 1999 GDP rate of 7.4 percent and projections for a strong first
quarter in 2000. The ongoing technological revolution allowed productivity to
soar and wages and salaries to outpace the still relatively tame inflation rate.
In this environment, the Federal Reserve Board remained vigilant, fighting the
threat of inflation by raising the federal funds rate to 6.00 percent and
intimating that further increases were to come. While long-term U.S. Treasury
yields rose, the upward pressure was alleviated by expectations for a decrease
in new Treasury note and bond sales because of the Treasury's burgeoning tax
receipts and attendant growing budget surplus. On March 31, 2000, yields for
five- and 30-year Treasuries were 6.32 percent and 5.84 percent, respectively,
compared to 5.76 percent and 6.05 percent on September 30, 1999.
Corporate yields were less affected by supply factors than by stock market
volatility and a general tiering of the market that valued liquidity at a
particularly high premium. A flight to both quality and liquidity sent investors
rushing for the safety of Treasuries. As a result, yield differentials between
the two types of securities widened to near-historic levels, causing corporates
to underperform Treasuries significantly.
PERFORMANCE
For the six-month period ended March 31, 2000, Morgan Stanley Dean Witter Income
Securities produced a total return of 2.34 percent, based on a change in net
asset value (NAV) and reinvestment of distributions. Based on a change in the
Fund's market price on the New York Stock
<PAGE> 2
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
LETTER TO THE SHAREHOLDERS March 31, 2000, continued
Exchange (NYSE) and reinvestment of distributions, the Fund's total return for
the period was -3.96 percent.
The Fund's return was reflective of the sharp rise in interest rates for
corporate bonds over the period and the impact of rising rates on longer
maturities. Throughout the period corporates represented more than 90 percent of
the Fund's portfolio holdings. Among the Fund's best performing investments were
its Yankee issues that on March 31 comprised slightly more than 10 percent of
investable assets, up from 9.9 percent on September 30, 1999. Despite tumultuous
markets, the Fund's investments in State of Israel, Republic of Korea, Dresdner
Funding, Teleglobe and United Utilities all rose in market price from the end of
the prior period. Several new credits purchased with proceeds from maturing
Treasury notes also rose in value from their acquisition dates. These included
Bank of Tokyo Mitsubishi, Sempra Energy, Service Corp., Liberty Media, and
Vodafone Airtouch.
PORTFOLIO STRATEGY
The Fund's managers made no changes to the callable portion of the portfolio,
which still comprises slightly less than 50 percent of the value of the Fund's
investments. During the period, the portfolio's duration extended from 6.69
years to 7.48 years as expected maturities on callable holdings lengthened and
maturing Treasury debt was reinvested, primarily in 10- and 30-year
higher-yielding corporate bonds. On March 31, 2000 the portfolio's average
maturity, adjusted for likely calls, was 16.53 years. Corporate bonds made up
96.76 percent of the Fund's holdings with U.S. government securities accounting
for 3.15 percent. Less than 0.1 percent was held in money markets. The portfolio
was diversified among 66 issues with an average coupon of 8.27 percent and an
average quality rating of BBB. The largest increases in asset allocation were to
Yankees and utilities, offsetting reductions to Treasuries.
LOOKING AHEAD
Despite efforts by the Fed to subdue economic growth by raising short-term
interest rates, domestic production and consumer demand remain robust. Ongoing
tight labor markets, insatiable consumer demand, and surging rates of
productivity all suggest that further rate increases may be in store.
Until such time as interest rates check corporate profits and individuals' stock
market gains, we can expect yields for fixed-income securities to rise. Given
this investment environment, the Fund will look to take advantage of exceptional
yield opportunities among corporates as cash becomes available from maturing
debt. Should interim volatility serve to reduce yield differentials between
corporate and U.S. government issues, we will look to once again increase the
Fund's allocation to Treasuries.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
LETTER TO THE SHAREHOLDERS March 31, 2000, continued
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, 283,900 shares of the Fund were purchased on the New York Stock
Exchange over the six-month period ended March 31, 2000.
We appreciate your ongoing support of Morgan Stanley Dean Witter Income
Securities 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.
RESULTS OF ANNUAL MEETING (UNAUDITED)
* * *
On December 21, 1999, an annual meeting of the Fund's shareholders was held for
the purpose of voting on two separate matters, the results of which were as
follows:
(1) ELECTION OF DIRECTORS:
<TABLE>
<S> <C>
Michael Bozic
For..................... 9,524,687
Withheld................ 146,495
Charles A. Fiumefreddo
For..................... 9,525,213
Withheld................ 145,969
Edwin J. Garn
For..................... 9,516,764
Withheld................ 154,418
Wayne E. Hedien
For..................... 9,529,025
Withheld................ 142,157
Manuel H. Johnson
For..................... 9,529,186
Withheld................ 141,996
Michael E. Nugent
For..................... 9,529,366
Withheld................ 141,186
Philip J. Purcell
For..................... 9,529,053
Withheld................ 142,129
John L. Schroeder
For..................... 9,523,305
Withheld................ 147,877
</TABLE>
(2) RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE FUND'S
INDEPENDENT ACCOUNTANTS:
<TABLE>
<S> <C>
For..................................................... 9,460,319
Against................................................. 62,067
Abstain................................................. 148,796
</TABLE>
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (94.7%)
Aerospace (2.6%)
$5,000 Northrop Grumman Corp................ 9.375% 10/15/24 $ 5,071,900
-----------
Airlines (2.6%)
5,000 Delta Air Lines, Inc................. 9.30 01/02/10 5,147,250
-----------
Cable Television (4.8%)
2,000 Liberty Media Group - 144A*.......... 8.25 02/01/30 1,961,540
7,450 Tele-Communications, Inc............. 8.75 02/15/23 7,540,592
-----------
9,502,132
-----------
Cellular Telephone (1.0%)
2,000 Vodafone Airtouch PLC - 144A* (United
Kingdom)............................ 7.875 02/15/30 2,020,120
-----------
Construction/Agricultural
Equipment/Trucks (0.9%)
2,000 Cummins Engine Co., Inc.............. 7.125 03/01/28 1,718,160
-----------
Department Stores (4.1%)
5,597 May Department Stores Co............. 8.30 07/15/26 5,586,646
2,800 Neiman Marcus Group Inc.............. 7.125 06/01/28 2,399,152
-----------
7,985,798
-----------
Discount Chains (4.3%)
5,800 Dayton Hudson Corp................... 8.50 12/01/22 5,877,662
2,500 Kmart Corp........................... 9.35 01/02/20 2,529,600
-----------
8,407,262
-----------
Diversified Commercial Services
(1.2%)
2,350 Ikon Office Solutions, Inc........... 6.75 12/01/25 1,678,464
1,000 Ikon Office Solutions, Inc........... 7.30 11/01/27 757,380
-----------
2,435,844
-----------
Diversified Financial Services (1.4%)
3,000 Conseco, Inc......................... 6.80 06/15/05 2,714,460
-----------
Electric Utilities (9.3%)
1,000 Cleveland Electric Illuminating Co.
(Series B).......................... 9.50 05/15/05 1,020,860
4,500 Commonwealth Edison Co............... 8.375 02/15/23 4,568,085
3,000 Gulf States Utilities Co............. 8.94 01/01/22 3,046,830
2,000 Louisiana Power & Light Co........... 8.75 03/01/26 2,025,120
5,000 Niagara Mohawk Power Corp............ 8.75 04/01/22 4,892,550
3,000 United Utilities Corp. (United
Kingdom)............................. 6.875 08/15/28 2,557,110
-----------
18,110,555
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Electronic Production Equipment
(2.1%)
$4,500 Applied Materials, Inc............... 7.125% 10/15/17 $ 4,218,210
-----------
Finance Companies (2.6%)
2,250 Capital One Financial Corp........... 7.125 08/01/08 2,048,220
1,000 Ford Capital BV (Netherlands)........ 9.50 07/01/01 1,023,920
2,000 John Deere Capital Corp.............. 8.625 08/01/19 2,009,680
-----------
5,081,820
-----------
Food Chains (0.9%)
2,000 Kroger Co. - 144A*................... 7.70 06/01/29 1,853,120
-----------
Foreign Government Obligations (1.9%)
3,000 Israel (State of).................... 7.25 12/15/28 2,693,970
1,000 Republic of Korea (South Korea)...... 8.875 04/15/08 1,055,520
-----------
3,749,490
-----------
Forest Products (5.1%)
6,000 Georgia Pacific Co................... 9.625 03/15/22 6,299,100
4,000 Noranda Forest, Inc. (Canada)........ 6.875 11/15/05 3,812,000
-----------
10,111,100
-----------
Home Building (0.5%)
2,000 Oakwood Homes Corp................... 8.125 03/01/09 1,040,000
-----------
Hospital/Nursing Management (0.4%)
1,000 Columbia/HCA Healthcare Corp......... 7.19 11/15/15 815,510
-----------
International Banks (2.0%)
1,000 Bank of Tokyo-Mitsubishi (Japan)..... 8.40 04/15/10 1,013,320
3,000 Dresdner Funding Trust I - 144A*..... 8.151 06/30/31 2,867,580
-----------
3,880,900
-----------
Life Insurance (1.8%)
3,500 American General Corp................ 9.625 07/15/00 3,524,395
-----------
Major Banks (4.2%)
6,000 Continental Bank N.A................. 12.50 04/01/01 6,298,860
2,000 First National Bank of Boston........ 8.00 09/15/04 2,031,820
-----------
8,330,680
-----------
Major Chemicals (1.4%)
3,200 Millennium America, Inc.............. 7.625 11/15/26 2,686,560
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Major U.S. Telecommunications (6.2%)
$7,000 AT&T Corp............................ 8.625% 12/01/31 $ 7,113,260
2,000 Sprint Capital Corp.................. 6.875 11/15/28 1,796,380
2,000 U.S. West Capital Funding, Inc....... 6.875 07/15/28 1,778,300
1,500 WorldCom, Inc........................ 6.95 08/15/28 1,379,610
-----------
12,067,550
-----------
Managed Health Care (0.8%)
2,000 MedPartners, Inc..................... 7.375 10/01/06 1,620,000
-----------
Media Conglomerates (5.6%)
3,000 News America Holdings, Inc........... 7.25 05/18/18 2,687,640
2,900 News America Holdings, Inc........... 7.75 02/01/24 2,713,588
3,000 Time Warner Entertainment Co......... 9.625 05/01/02 3,125,700
2,500 Time Warner Entertainment Co......... 8.375 07/15/33 2,570,850
-----------
11,097,778
-----------
Motor Vehicles (3.9%)
2,600 Ford Motor Co........................ 8.875 11/15/22 2,743,208
5,000 General Motors Corp.................. 8.10 06/15/24 4,902,800
-----------
7,646,008
-----------
Multi-Line Insurance (1.7%)
4,000 Provident Companies Inc.............. 7.25 03/15/28 3,411,040
-----------
Natural Gas (0.5%)
1,000 Sempra Energy Corp................... 7.95 03/01/10 1,015,130
-----------
Oil & Gas Production (2.6%)
5,200 Lasmo (USA), Inc..................... 8.375 06/01/23 5,146,440
-----------
Oil Refining/Marketing (0.5%)
1,000 Panhandle Eastern Corp............... 8.625 04/15/25 1,047,540
-----------
Oilfield Services/Equipment (1.3%)
3,000 Petro Geo-Services ASA (Norway)...... 7.125 03/30/28 2,625,570
-----------
Other Consumer Services (0.7%)
1,500 Service Corp. International.......... 6.375 10/01/00 1,410,000
-----------
Other Metals/Minerals (1.1%)
2,250 Cyprus Amax Minerals Co.............. 8.375 02/01/23 2,100,825
-----------
Other Specialty Stores (1.0%)
2,000 Staples, Inc......................... 7.125 08/15/07 1,926,680
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Other Telecommunications (1.9%)
$2,000 Frontier Corp........................ 7.25 % 05/15/04 $ 1,828,580
2,000 Teleglobe, Inc. (Canada)............. 7.20 07/20/09 1,928,580
-----------
3,757,160
-----------
Packaged Foods (1.3%)
3,000 Borden, Inc.......................... 9.20 03/15/21 2,643,210
-----------
Paper (1.3%)
3,000 Abitibi-Consolidated Inc. (Canada)... 7.50 04/01/28 2,617,200
-----------
Railroads (4.0%)
3,500 Burlington Northern Santa Fe......... 6.875 12/01/27 3,089,660
4,975 Union Pacific Corp................... 7.875 02/01/23 4,712,867
-----------
7,802,527
-----------
Specialty Chemicals (3.0%)
5,000 Equistar Chemical LP................. 7.55 02/15/26 4,035,650
2,000 Great Lakes Chemical Corp............ 7.00 07/15/09 1,920,020
-----------
5,955,670
-----------
Tools/Hardware (2.2%)
5,000 Toro Co.............................. 7.80 06/15/27 4,332,450
-----------
TOTAL CORPORATE BONDS
(Identified Cost $197,946,173)............................ 186,628,044
-----------
U.S. GOVERNMENT OBLIGATIONS (3.1%)
3,000 U.S. Treasury Note................... 8.50 11/15/00 3,039,090
3,000 U.S. Treasury Note................... 7.75 02/15/01 3,034,080
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Identified Cost $6,230,468).............................. 6,073,170
-----------
SHORT-TERM INVESTMENT (0.1%)
REPURCHASE AGREEMENT
167 The Bank of New York (dated 03/31/00;
proceeds $166,972) (a)
(Identified Cost $166,944).......... 6.063 04/03/00 166,944
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE> 9
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS March 31, 2000 (unaudited) continued
<TABLE>
<CAPTION>
VALUE
----------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TOTAL INVESTMENTS
(Identified Cost $204,343,585) (b).................. 97.9% $192,868,158
OTHER ASSETS IN EXCESS OF LIABILITIES............ 2.1 4,195,714
----- -----------
NET ASSETS....................................... 100.0% $197,063,872
===== ===========
</TABLE>
---------------------
* Resale is restricted to qualified institutional investors.
(a) Collateralized by $168,667 U.S. Treasury Note 5.875% due 11/30/01 valued at
$170,283.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $1,152,420 and the
aggregate gross depreciation is $12,627,847, resulting in net unrealized
depreciation of $11,475,427.
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 10
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2000 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $204,343,585)............................. $192,868,158
Interest receivable......................................... 4,476,016
Prepaid expenses and other assets........................... 23,319
------------
TOTAL ASSETS............................................ 197,367,493
------------
LIABILITIES:
Payable for:
Capital stock repurchased............................... 102,291
Investment management fee............................... 94,472
Accrued expenses and other payables......................... 106,858
------------
TOTAL LIABILITIES....................................... 303,621
------------
NET ASSETS.............................................. $197,063,872
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $220,012,781
Net unrealized depreciation................................. (11,475,427)
Accumulated undistributed net investment income............. 953,440
Accumulated net realized loss............................... (12,426,922)
------------
NET ASSETS.............................................. $197,063,872
============
NET ASSET VALUE PER SHARE,
11,525,518 shares outstanding
(15,000,000 shares authorized of $.01 par value)........... $17.10
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 11
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended March 31, 2000 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $ 8,427,247
-----------
EXPENSES
Investment management fee................................... 502,852
Transfer agent fees and expenses............................ 60,887
Professional fees........................................... 30,440
Shareholder reports and notices............................. 23,112
Registration fees........................................... 9,003
Custodian fees.............................................. 7,570
Directors' fees and expenses................................ 6,794
Other....................................................... 4,895
-----------
TOTAL EXPENSES.......................................... 645,553
-----------
NET INVESTMENT INCOME................................... 7,781,694
-----------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss........................................... (689,296)
Net change in unrealized depreciation....................... (4,408,132)
-----------
NET LOSS................................................ (5,097,428)
-----------
NET INCREASE................................................ $ 2,684,266
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX
MONTHS ENDED FOR THE YEAR
MARCH 31, ENDED
2000 SEPTEMBER 30, 1999
--------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................. $ 7,781,694 $ 15,895,578
Net realized gain (loss)........................... (689,296) 456,987
Net change in unrealized depreciation.............. (4,408,132) (18,837,392)
------------ ------------
NET INCREASE (DECREASE)........................ 2,684,266 (2,484,827)
Dividends from net investment income............... (7,994,703) (15,632,701)
Decrease from capital stock transactions........... (4,407,497) (683,300)
------------ ------------
NET DECREASE................................... (9,717,934) (18,800,828)
NET ASSETS:
Beginning of period................................ 206,781,806 225,582,634
------------ ------------
END OF PERIOD
(Including undistributed net investment income
of $953,440 and $1,166,449, respectively)...... $197,063,872 $206,781,806
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS March 31, 2000 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Income Securities Inc. (the "Fund") 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
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS March 31, 2000 (unaudited) 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.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended March 31, 2000 aggregated
$17,043,881 and $20,259,934,
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS March 31, 2000 (unaudited) continued
respectively. Included in the aforementioned are purchases and sales of U.S.
Government securities of $5,569,375 and $12,245,359, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Fund's transfer agent. At March 31, 2000, the Fund had transfer agent fees
and expenses payable of approximately $4,000.
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 six months ended March 31, 2000
included in Directors' fees and expenses in the Statement of Operations amounted
to $2,921. At March 31, 2000, the Fund had an accrued pension liability of
$52,432 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, 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
Treasury shares purchased and retired (weighted average
discount 9.02%)*........................................... (283,900) (2,839) (4,404,658)
---------- -------- ------------
Balance, March 31, 2000..................................... 11,525,518 $115,253 $219,897,528
========== ======== ============
</TABLE>
---------------------
* The Directors have voted to retire the shares purchased.
5. DIVIDENDS
On March 28, 2000, the Fund declared the following dividends from net investment
income:
<TABLE>
<CAPTION>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
--------- ------------- --------------
<S> <C> <C>
$0.11 April 7, 2000 April 20, 2000
$0.11 May 5, 2000 May 19, 2000
$0.11 June 9, 2000 June 23, 2000
</TABLE>
15
<PAGE> 16
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS March 31, 2000 (unaudited) continued
6. FEDERAL INCOME TAX STATUS
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>
16
<PAGE> 17
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 SIX FOR THE YEAR ENDED SEPTEMBER 30,
MONTHS ENDED -----------------------------------------------------
MARCH 31, 2000* 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA:
Net asset value, beginning of period................... $17.51 $19.04 $18.40 $ 17.42 $ 18.02 $16.93
------ ------ ------ ------- ------- ------
Income (loss) from investment operations:
Net investment income................................. 0.64 1.34 1.35 1.37 1.41 1.51
Net realized and unrealized gain (loss)............... (0.43) (1.55) 0.60 0.91 (0.64) 1.08
------ ------ ------ ------- ------- ------
Total income (loss) from investment operations......... 0.21 (0.21) 1.95 2.28 0.77 2.59
------ ------ ------ ------- ------- ------
Less dividends and distributions from:
Net investment income................................. (0.66) (1.32) (1.32) (1.32) (1.14) (1.49)
Paid-in-capital....................................... -- -- -- -- (0.24) (0.01)
------ ------ ------ ------- ------- ------
Total dividends and distributions...................... (0.66) (1.32) (1.32) (1.32) (1.38) (1.50)
------ ------ ------ ------- ------- ------
Anti-dilutive effect of acquiring treasury shares...... 0.04 -- 0.01 0.02 0.01 --
------ ------ ------ ------- ------- ------
Net asset value, end of period......................... $17.10 $17.51 $19.04 $ 18.40 $ 17.42 $18.02
====== ====== ====== ======= ======= ======
Market value, end of period............................ $15.00 $16.31 $17.75 $16.688 $15.875 $16.25
====== ====== ====== ======= ======= ======
TOTAL RETURN+.......................................... (3.96)%(1) (1.04)% 14.75% 14.06% 6.39% 5.24%
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................... 0.64 %(2) 0.66% 0.65% 0.65% 0.65% 0.69%
Net investment income.................................. 7.74 %(2) 7.39% 7.19% 7.69% 8.03% 8.75%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands................ $197,064 $206,782 $225,583 $219,759 $210,675 $219,892
Portfolio turnover rate................................ 9 %(1) 38% 42% 63% 88% 50%
</TABLE>
---------------------
* The per share amounts were computed using an average number of shares
outstanding during the period.
+ Total return is based upon the current market value on the last day of each
period reported. Dividends and distributions are assumed to be reinvested at
the prices obtained under the Fund's dividend reinvestment plan. Total
return does not reflect brokerage commissions.
(1) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE> 18
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<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
The financial statements included herein have been taken from the records of the
Fund without examination by the independent accountants and accordingly they
do not express an opinion thereon.
MORGAN STANLEY
DEAN WITTER
INCOME
SECURITIES INC.
Semiannual Report
March 31, 2000
