<PAGE> 1
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC. Two World Trade Center
LETTER TO THE SHAREHOLDERS September 30, 2000 New York, New York 10048
DEAR SHAREHOLDER:
Over the 12-month period ended September 30, 2000, the U.S. economy overcame Y2K
concerns, rising interest rates, soaring oil prices and tight labor markets to
produce four quarters of better than 5 percent growth. In large part this
accomplishment was the result of the ongoing technological revolution that
enabled productivity to soar and wages and salaries to outpace inflation.
As the economy gathered momentum, worries that its strength could worsen
inflation prompted the Federal Reserve Board to raise the federal funds rate to
6.5 percent by late spring. During the period of rising short-term rates, yields
on intermediate U.S. Treasuries surged nearly 1 percentage point. However, in
the following months indications of a slowing economy encouraged investors to
push longer-term interest rates lower. Five-year Treasury yields rose to 6.81
percent in mid May before falling nearly one percentage point from this level by
the end of September. Longer maturities peaked in yield in January because of a
reduction in the issuance of such Treasury debt in response to the burgeoning
budget surplus. On September 30, 2000, 10-year and 30-year Treasuries were
yielding 5.80 percent and 5.88 percent, respectively, below where they were one
year earlier.
Corporate markets did not fare as well, with yields remaining high as a result
of investors' increased sensitivity to potential credit erosion from reduced
earnings projections and a slowing economy. The retail sector was hit
particularly hard by a series of disappointing monthly sales figures, and the
financial services sector was periodically battered by liquidity concerns at
certain institutions.
PERFORMANCE
For the 12-month period ended September 30, 2000, Morgan Stanley Dean Witter
Income Securities produced a total return of 4.61 percent based on a change in
net asset value 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 September 30, 2000, continued
Exchange and reinvestment of distributions, the Fund's total return for the
period was 7.17 percent. For the same period, the Lehman Brothers U.S.
Government/Credit Index returned 6.74 percent.*
The Fund's performance reflected 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; corporates with maturities longer than 10 years accounted
for nearly 70 percent of its investments on September 30, 2000. Also hindering
the Fund's return somewhat was the underperformance of bonds rated A and lower,
because the Fund invests primarily in bonds with quality ratings of A and BBB.
Among the Fund's best-performing holdings for the period were Columbia/HCA,
Cyprus Amax and Med Partners. New acquisitions Household Finance, Conagra and
Conoco also contributed positively to the Fund's performance.
PORTFOLIO STRATEGY
During the second half of the period the Fund took opportunities to reduce the
callable portion of its portfolio, with the proceeds deployed into more liquid
noncallable corporate bonds of comparable quality. Toward the end of September,
as yield spreads between corporates and Treasuries shrank, we added GNMAs to the
portfolio because of their limited credit-risk characteristics. On September 30,
2000, the portfolio's duration was 7.73 years, extended from 6.69 years one year
earlier, and its average maturity, adjusted for likely calls, was 17.37 years.
Corporate bonds accounted for 92.3 percent of the Fund's holdings, with 5.2
percent in U.S. government securities and the remainder in money markets. The
portfolio was diversified among 70 issues with an average coupon of 8.18 percent
and an average quality rating of BBB1. The largest increases in asset allocation
during the fiscal year were to industrials and mortgages, offsetting reductions
to utilities, financials and Treasuries.
LOOKING AHEAD
Signs of slowing growth and moderating inflation have been evident in the most
recent economic releases. Housing and auto sales remain at healthy levels,
though they have subsided somewhat since the first quarter of 2000. And thanks
to productivity improvements, inflation remains contained, despite a tight but
possibly loosening labor force. Such an environment could pave the way for an
economic soft landing with stable interest rates for the foreseeable future.
However, the equity markets have recently been reacting adversely to earnings
warnings, sending prices of corporate bonds lower and
---------------------
*The Lehman Brothers U.S. Government/Credit Index (formerly the Lehman Brothers
Government/Corporate Index) tracks the performance of government and corporate
obligations, including U.S. government agency and Treasury securities and
corporate and Yankee bonds. The Index does not include any expenses, fees or
charges. The Index is unmanaged and should not be considered an investment.
2
<PAGE> 3
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
LETTER TO THE SHAREHOLDERS September 30, 2000, continued
endangering future spending as consumers become concerned about potential
declines in the value of their investments. Barring the continuation of this
trend, the major determinants of interest rates for 2001 are likely to be the
effect of surging energy prices on consumer and business spending and the
implementation of fiscal policy by a new administration. Over the coming months
we plan to be vigilant in monitoring the effects of these factors.
We would again like to remind shareholders that the Trustees have approved a
procedure whereby the Trust 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, 393,600 shares of the Trust were purchased on the NYSE over
the 12-month period ended September 30, 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.
PORTFOLIO OF INVESTMENTS September 30, 2000
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (92.3%)
Aerospace (2.7%)
$ 5,000 Northrop Grumman Corp. .............. 9.375% 10/15/24 $ 5,174,100
-----------
Airlines (2.7%)
5,000 Delta Air Lines, Inc. ............... 9.30 01/02/10 5,167,450
-----------
Auto Parts: O.E.M. (0.5%)
1,000 Visteon Corp. ....................... 8.25 08/01/10 1,001,580
-----------
Cable/Satellite TV (3.9%)
7,450 Tele-Communications, Inc. ........... 8.75 02/15/23 7,486,878
-----------
Chemicals: Major Diversified (1.3%)
3,200 Millennium America, Inc. ............ 7.625 11/15/26 2,509,152
-----------
Chemicals: Specialty (3.2%)
5,000 Equistar Chemical LP................. 7.55 02/15/26 4,153,150
2,000 Great Lakes Chemical Corp. .......... 7.00 07/15/09 1,922,120
-----------
6,075,270
-----------
Department Stores (4.5%)
1,000 Federated Department Stores.......... 8.50 06/01/10 1,000,240
5,597 May Department Stores Co. ........... 8.30 07/15/26 5,308,195
2,800 Neiman Marcus Group Inc. ............ 7.125 06/01/28 2,304,120
-----------
8,612,555
-----------
Discount Chains (4.1%)
5,800 Dayton Hudson Corp. ................. 8.50 12/01/22 5,875,806
2,500 Kmart Corp. ......................... 9.35 01/02/20 2,095,375
-----------
7,971,181
-----------
Electric Utilities (6.8%)
1,000 Cleveland Electric Illuminating Co.
(Series B).......................... 9.50 05/15/05 1,025,890
4,500 Commonwealth Edison Co. ............. 8.375 02/15/23 4,502,609
3,000 Gulf States Utilities Co. ........... 8.94 01/01/22 2,997,150
2,000 Louisiana Power & Light Co. ......... 8.75 03/01/26 2,044,600
3,000 United Utilities Corp. (United
Kingdom)............................ 6.875 08/15/28 2,424,330
-----------
12,994,579
-----------
Electronic Production Equipment
(2.2%)
4,500 Applied Materials, Inc. ............. 7.125 10/15/17 4,209,165
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 5
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS September 30, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Finance/Rental/Leasing (2.7%)
$ 2,250 Capital One Financial Corp. ......... 7.125% 08/01/08 $ 2,095,583
1,000 Ford Capital BV (Netherlands)........ 9.50 07/01/01 1,018,420
2,000 Household Finance Corp. ............. 8.00 07/15/10 2,063,420
-----------
5,177,423
-----------
Financial Conglomerates (2.1%)
3,000 Conseco, Inc. ....................... 6.80 06/15/05 1,980,000
2,000 John Deere Capital Corp. ............ 8.625 08/01/19 1,983,460
-----------
3,963,460
-----------
Food Retail (1.0%)
2,000 Kroger Co. .......................... 7.70 06/01/29 1,847,240
-----------
Food: Major Diversified (1.3%)
3,000 Borden, Inc. ........................ 9.20 03/15/21 2,493,360
-----------
Food: Meat/Fish/Dairy (1.1%)
2,000 ConAgra, Inc. ....................... 8.25 09/15/30 2,020,500
-----------
Foreign Government Obligations (1.9%)
3,000 Israel (State of).................... 7.25 12/15/28 2,656,050
1,000 Republic of Korea (South Korea)...... 8.875 04/15/08 1,045,660
-----------
3,701,710
-----------
Forest Products (2.1%)
4,160 Noranda Forest, Inc. (Canada)........ 6.875 11/15/05 4,007,619
-----------
Gas Distributors (1.0%)
2,000 Sempra Energy Corp. ................. 7.95 03/01/10 2,005,860
-----------
Home Building (0.3%)
2,000 Oakwood Homes Corp. ................. 8.125 03/01/09 640,000
-----------
Hospital/Nursing Management (0.4%)
1,000 Columbia/HCA Healthcare Corp. ....... 7.19 11/15/15 844,830
-----------
Integrated Oil Companies (1.0%)
2,000 Conoco Inc. ......................... 6.35 04/15/09 1,894,960
-----------
Major Banks (6.2%)
1,000 Bank of Tokyo-Mitsubishi (Japan)..... 8.40 04/15/10 1,015,370
6,000 Continental Bank N.A. ............... 12.50 04/01/01 6,155,760
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 6
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS September 30, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 3,000 Dresdner Funding Trust I -- 144A*.... 8.151% 06/30/31 $ 2,673,630
2,000 First National Bank of Boston........ 8.00 09/15/04 2,048,280
-----------
11,893,040
-----------
Major Telecommunications (4.8%)
1,000 AT&T Corp. .......................... 8.625 12/01/31 1,013,690
5,000 Deutsche Telekom International
Finance (Germany)................... 8.25 06/15/30 5,176,750
2,000 Sprint Capital Corp. ................ 6.875 11/15/28 1,720,480
1,500 WorldCom, Inc. ...................... 6.95 08/15/28 1,357,680
-----------
9,268,600
-----------
Managed Health Care (0.9%)
2,000 MedPartners, Inc. ................... 7.375 10/01/06 1,720,000
-----------
Media Conglomerates (5.7%)
3,000 News America Holdings, Inc. ......... 7.25 05/18/18 2,683,320
3,000 News America Holdings, Inc. ......... 7.75 12/01/45 2,658,510
3,000 Time Warner Entertainment Co. ....... 9.625 05/01/02 3,110,670
2,500 Time Warner Entertainment Co. ....... 8.375 07/15/33 2,572,950
-----------
11,025,450
-----------
Miscellaneous Commercial Services
(1.3%)
2,350 Ikon Office Solutions, Inc. ......... 6.75 12/01/25 1,694,538
1,000 Ikon Office Solutions, Inc. ......... 7.30 11/01/27 768,640
-----------
2,463,178
-----------
Motor Vehicles (3.9%)
2,600 Ford Motor Co. ...................... 8.875 11/15/22 2,691,442
5,000 General Motors Corp. ................ 8.10 06/15/24 4,872,100
-----------
7,563,542
-----------
Movies/Entertainment (1.0%)
2,000 Liberty Media Group.................. 8.25 02/01/30 1,865,380
-----------
Multi-Line Insurance (1.7%)
4,000 Provident Companies Inc. ............ 7.25 03/15/28 3,201,360
-----------
Oil & Gas Production (2.6%)
5,200 Lasmo (USA), Inc. ................... 8.375 06/01/23 5,014,308
-----------
Oil Refining/Marketing (0.6%)
1,000 Panhandle Eastern Corp. ............. 8.625 04/15/25 1,076,010
-----------
Oilfield Services/Equipment (1.3%)
3,000 Petro Geo-Services ASA (Norway)...... 7.125 03/30/28 2,586,630
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 7
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS September 30, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Other Metals/Minerals (1.1%)
$ 2,250 Cyprus Amax Minerals Co. ............ 8.375% 02/01/23 $ 2,128,028
-----------
Pulp & Paper (4.5%)
3,000 Abitibi-Consolidated Inc. (Canada)... 7.50 04/01/28 2,588,070
6,000 Georgia Pacific Co. ................. 9.625 03/15/22 6,096,540
-----------
8,684,610
-----------
Railroads (4.0%)
3,500 Burlington Northern Santa Fe......... 6.875 12/01/27 3,001,880
4,975 Union Pacific Corp. ................. 7.875 02/01/23 4,629,088
-----------
7,630,968
-----------
Specialty Stores (1.0%)
2,000 Staples, Inc. ....................... 7.125 08/15/07 1,927,620
-----------
Specialty Telecommunications (1.9%)
2,000 Frontier Corp. ...................... 7.25 05/15/04 1,875,900
2,000 U.S. West Capital Funding, Inc. ..... 6.875 07/15/28 1,750,740
-----------
3,626,640
-----------
Tools/Hardware (2.2%)
5,000 Toro Co. ............................ 7.80 06/15/27 4,282,000
-----------
Trucks/Construction/Farm Machinery (0.8%)
2,000 Cummins Engine Co., Inc. ............ 7.125 03/01/28 1,624,240
-----------
TOTAL CORPORATE BONDS
(Cost $190,791,132)....................................... 177,380,476
-----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (5.2%)
2,000 Government National Mortgage
Assoc. II........................... 7.00 12/20/30 1,958,750
1,000 U.S. Treasury Bond................... 6.125 08/15/29 1,021,470
3,000 U.S. Treasury Note................... 8.50 11/15/00 3,007,380
3,000 U.S. Treasury Note................... 7.75 02/15/01 3,014,190
1,000 U.S. Treasury Note................... 6.125 08/15/07 1,010,750
-----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $10,194,062)........................................ 10,012,540
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 8
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
PORTFOLIO OF INVESTMENTS September 30, 2000, continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENT (1.9%)
REPURCHASE AGREEMENT
$ 3,652 The Bank of New York (dated 09/29/00;
proceeds $3,654,366) (a)
(Cost $3,652,464)................... 6.25% 10/02/00 $ 3,652,464
------------
TOTAL INVESTMENTS
(Cost $204,637,658) (b)....................... 99.4% 191,045,480
OTHER ASSETS IN EXCESS OF LIABILITIES......... 0.6 1,085,309
----- ------------
NET ASSETS.................................... 100.0% $192,130,789
===== ============
</TABLE>
---------------------
* Resale is restricted to qualified institutional investors.
(a) Collateralized by $3,638,721 Federal Home Loan Mortgage Corp. 6.875% due
01/15/05 valued at $3,725,516.
(b) The aggregate cost for federal income tax purposes approximates the
aggregate cost for book purposes. The aggregate gross unrealized
appreciation is $1,546,213 and the aggregate gross unrealized depreciation
is $15,138,391, resulting in net unrealized depreciation of $13,592,178.
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, 2000
ASSETS:
Investments in securities, at value
(cost $204,637,658)........................................ $191,045,480
Interest receivable......................................... 4,264,748
Prepaid expenses and other assets........................... 12,563
------------
TOTAL ASSETS............................................ 195,322,791
------------
LIABILITIES:
Payable for:
Investments purchased................................... 2,976,966
Investment management fee............................... 94,880
Accrued expenses and other payables......................... 120,156
------------
TOTAL LIABILITIES....................................... 3,192,002
------------
NET ASSETS.............................................. $192,130,789
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $215,926,933
Net unrealized depreciation................................. (13,592,178)
Accumulated undistributed net investment income............. 1,035,240
Accumulated net realized loss............................... (11,239,206)
------------
NET ASSETS.............................................. $192,130,789
============
NET ASSET VALUE PER SHARE,
11,415,818 shares outstanding
(15,000,000 shares authorized of $.01 par value)........... $16.83
============
</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, 2000
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $16,690,233
-----------
EXPENSES
Investment management fee................................... 982,863
Transfer agent fees and expenses............................ 124,640
Professional fees........................................... 58,522
Shareholder reports and notices............................. 44,729
Registration fees........................................... 19,071
Directors' fees and expenses................................ 15,746
Custodian fees.............................................. 14,068
Other....................................................... 7,617
-----------
TOTAL EXPENSES.......................................... 1,267,256
-----------
NET INVESTMENT INCOME................................... 15,422,977
-----------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss........................................... (1,889,424)
Net change in unrealized depreciation....................... (6,524,883)
-----------
NET LOSS................................................ (8,414,307)
-----------
NET INCREASE................................................ $ 7,008,670
===========
</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, 2000 SEPTEMBER 30, 1999
<CAPTION>
------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................ $ 15,422,977 $ 15,895,578
Net realized gain (loss)......................... (1,889,424) 456,987
Net change in unrealized depreciation............ (6,524,883) (18,837,392)
----------- -----------
NET INCREASE (DECREASE)...................... 7,008,670 (2,484,827)
Dividends from net investment income............. (15,554,186) (15,632,701)
Decrease from capital stock transactions......... (6,105,501) (683,300)
----------- -----------
NET DECREASE................................. (14,651,017) (18,800,828)
NET ASSETS:
Beginning of period.............................. 206,781,806 225,582,634
----------- -----------
END OF PERIOD
(Including undistributed net investment
income of $1,035,240 and $1,166,449,
respectively)................................ $192,130,789 $206,781,806
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE> 12
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS September 30, 2000
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 or American Stock Exchange, NASDAQ, or other exchange is valued at its
latest sale price, 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; (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 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.
12
<PAGE> 13
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS September 30, 2000, continued
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 tax purposes 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 year ended September 30, 2000 aggregated
$53,709,429 and $58,946,951, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $21,878,584 and
$22,782,078, respectively.
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager, is
the Fund's transfer agent.
13
<PAGE> 14
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS September 30, 2000, continued
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, 2000
included in Directors' fees and expenses in the Statement of Operations amounted
to $5,841. At September 30, 2000, the Fund had an accrued pension liability of
$52,858 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 8.45%)*........................................... (393,600) (3,936) (6,101,565)
Reclassification due to permanent book/tax differences...... -- -- (2,387,844)
---------- -------- ------------
Balance, September 30, 2000................................. 11,415,818 $114,156 $215,812,777
========== ======== ============
</TABLE>
---------------------
* The Directors have voted to retire the shares purchased.
5. DIVIDENDS
On September 26, 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 October 6, 2000 October 20, 2000
$0.11 November 3, 2000 November 17, 2000
$0.11 December 8, 2000 December 22, 2000
</TABLE>
6. FEDERAL INCOME TAX STATUS
During the year ended September 30, 2000, the Fund utilized approximately $3,000
of its net capital loss carryover. At September 30, 2000, the Fund had a net
capital loss carryover of approximately $9,347,000 of which $6,713,000 will be
available through September 30, 2003 and $2,634,000 will be available through
September 30, 2004 to offset future capital gains to the extent provided by
regulations.
14
<PAGE> 15
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
NOTES TO FINANCIAL STATEMENTS September 30, 2000, continued
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 $1,889,000 during fiscal 2000.
As of September 30, 2000, the Fund had temporary book/tax differences primarily
attributable to post-October losses and permanent book/tax differences
attributable to an expired net capital loss carryover. To reflect
reclassifications arising from the permanent differences, paid-in-capital was
charged and accumulated net realized loss was credited $2,387,844.
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
----------------------------------------------------
2000* 1999 1998 1997 1996
<S> <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
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income...................................... 1.33 1.34 1.35 1.37 1.41
Net realized and unrealized gain (loss).................... (0.72) (1.55) 0.60 0.91 (0.64)
-------- -------- -------- -------- --------
Total income (loss) from investment operations.............. 0.61 (0.21) 1.95 2.28 0.77
-------- -------- -------- -------- --------
Less dividends and distributions from:
Net investment income...................................... (1.34) (1.32) (1.32) (1.32) (1.14)
Paid-in-capital............................................ -- -- -- -- (0.24)
-------- -------- -------- -------- --------
Total dividends and distributions........................... (1.34) (1.32) (1.32) (1.32) (1.38)
-------- -------- -------- -------- --------
Anti-dilutive effect of acquiring treasury shares........... 0.05 -- 0.01 0.02 0.01
-------- -------- -------- -------- --------
Net asset value, end of period.............................. $ 16.83 $ 17.51 $ 19.04 $ 18.40 $ 17.42
======== ======== ======== ======== ========
Market value, end of period................................. $ 16.06 $ 16.31 $ 17.75 $ 16.688 $ 15.875
======== ======== ======== ======== ========
TOTAL RETURN+............................................... 7.17% (1.04)% 14.75% 14.06% 6.39%
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.65% 0.66% 0.65% 0.65% 0.65%
Net investment income....................................... 7.89% 7.39% 7.19% 7.69% 8.03%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $192,131 $206,782 $225,583 $219,759 $210,675
Portfolio turnover rate..................................... 26% 38% 42% 63% 88%
</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.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE> 17
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Dean Witter Income Securities Inc. (the "Fund"), including the portfolio
of investments, as of September 30, 2000, and the related statements of
operations and changes in net assets, and the financial highlights for the year
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The statement of changes in net assets for the year ended September 30,
1999 and the financial highlights for each of the respective stated periods
ended September 30, 1999 were audited by other independent accountants whose
report, dated November 10, 1999, expressed an unqualified opinion on that
statement and the financial highlights.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 2000, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Morgan
Stanley Dean Witter Income Securities Inc. as of September 30, 2000, the results
of its operations, the changes in its net assets, and the financial highlights
for the year then ended, in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
New York, New York
November 8, 2000
2000 FEDERAL TAX NOTICE (unaudited)
Of the Fund's ordinary income dividends paid during the fiscal
year ended September 30, 2000, 4.32% was attributable to
qualifying Federal obligations. Please consult your tax
advisor to determine if any portion of the dividends you
received is exempt from state income tax.
17
<PAGE> 18
MORGAN STANLEY DEAN WITTER INCOME SECURITIES INC.
CHANGE IN INDEPENDENT ACCOUNTANTS
On July 1, 2000 PricewaterhouseCoopers LLP resigned as independent accountants
of the Fund.
The reports of PricewaterhouseCoopers LLP on the financial statements of the
Fund for the past two fiscal years contained no adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principle.
In connection with its audits for the two most recent fiscal years and through
July 1, 2000, there have been no disagreements with PricewaterhouseCoopers LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of PricewaterhouseCoopers LLP would have caused them to make
reference thereto in their report on the financial statements for such years.
The Fund, with the approval of its Board of Directors and its Audit Committee,
engaged Deloitte & Touche LLP as its new independent accountants as of July 1,
2000.
18
<PAGE> 19
(This Page Intentionally Left Blank)
<PAGE> 20
DIRECTORS
----------------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
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
----------------------------------
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
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, 2000
