-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HQf+A62zJ64gq9LaVtC3v9cBgUPmFumMW6pYxL5PTkWT+tY6ww+awPungczUANqY 7sF4bmOQnF/yjMGqhZ6efw== 0000912057-99-003493.txt : 19991105 0000912057-99-003493.hdr.sgml : 19991105 ACCESSION NUMBER: 0000912057-99-003493 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990831 FILED AS OF DATE: 19991104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC CENTRAL INDEX KEY: 0000311847 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 132988937 STATE OF INCORPORATION: MD FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-02932 FILM NUMBER: 99741219 BUSINESS ADDRESS: STREET 1: TWO WORLD TRADE CTR CITY: NEW YORK STATE: NY ZIP: 10048 BUSINESS PHONE: 2123922550 MAIL ADDRESS: STREET 1: TWO WORLD TRADE CENTER CITY: NEW YORK STATE: NY ZIP: 10048 FORMER COMPANY: FORMER CONFORMED NAME: WITTER DEAN HIGH YIELD SECURITIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: INTERCAPITAL HIGH YIELD SECURITIES INC DATE OF NAME CHANGE: 19830308 N-30D 1 N-30D MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES TWO WORLD TRADE CENTER, INC. NEW YORK, NEW YORK 10048 LETTER TO THE SHAREHOLDERS AUGUST 31, 1999
DEAR SHAREHOLDER: The twelve-month period ended August 31, 1999 has been a difficult one for the high-yield bond market, beginning with the fixed-income market's dramatic flight to quality during the second half of 1998. In response to concerns about the rapidly escalating foreign-market crisis and its potential effect on the U.S. economy, investors sought the relative safety of U.S. government securities over more economically sensitive investments such as equities and high-yield bonds. This action resulted in a sharp correction in the high-yield bond market during the second half of 1998. High-yield bond prices declined as much as 15 percent and yields rose from approximately 9 percent to the 12-percent range. The high-yield market also experienced its own flight to quality during late 1998, with the middle tier of the market (B-rated issues) significantly underperforming the upper tier (BB-rated issues), due to investors' severe risk aversion. As we enter the second half of 1999, the high-yield market has yet to rebound from its woes of late last year. Fears about the foreign-market crisis have now been replaced by concerns over potential inflation and ongoing credit-tightening actions by the Federal Reserve Board. These concerns drove interest rates sharply higher during the first half of 1999, resulting in a very weak fixed-income market environment. While the high-yield market held up better than most other fixed-income markets during the first half of 1999, it clearly remains quite weak, due to the depressed bond market environment that exists today. As a result, as we enter the second half of 1999, high-yield market yields are approaching their highest and most attractive levels in nearly a decade, providing an unusually large yield advantage over U.S. Treasuries. PERFORMANCE During the twelve-month period ended August 31, 1999, Morgan Stanley Dean Witter High Yield Securities' Class A and D shares produced returns of 1.47 percent and 1.67 percent, respectively. The MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. LETTER TO THE SHAREHOLDERS AUGUST 31, 1999, CONTINUED Fund underperformed the Lipper High Yield Bond Funds Index and the Credit Suisse First Boston High Yield Index, which returned 5.44 percent and 4.74 percent, respectively. For the same period, the Fund's Class B and C shares had total returns of 0.92 percent and 0.99 percent, respectively. The performance of the Fund's four share classes varies because of differing expenses. (Total return figures shown assume the reinvestment of all distributions and do not reflect the deduction of any applicable sales charges.) The Fund's underperformance relative to its benchmarks can be attributed to its significant, long-term core position in the B-rated sector of the market, which was sharply affected by the high-yield market's correction in the second half of 1998. While over the long term the B-rated sector has provided very good total returns for high-yield investors, combining both an attractive level of income with appreciation potential, this tier of the market has clearly underperformed over the past year, as investors' more-recent aversion to risk has taken its toll on the market. PORTFOLIO STRATEGY During the fiscal year, the Fund maintained a position in the more defensive, higher-quality end of the high-yield market, which held up well in the period's volatile environment. Despite these defensive holdings, however, the Fund's more significant, long-term core position in the B-rated sector of the market was sharply affected by the recent market correction, as bond prices declined sharply and yields rose dramatically. In terms of investment strategy, we continue to concentrate on industry sectors that have historically proven to be more predictable, recession resistant and/or growth oriented, such as cable television, cellular communications, food and beverages, media, supermarkets and telecommunications. We believe that these industry groups are poised to perform well over the next year. We also expect to see continued consolidation and merger activity within these industries, which should result in improved credit quality for many of the industries' players. We continue to focus primarily on domestic companies, given the favorable outlook for sustained growth in the U.S. economy, and are avoiding the emerging foreign high-yield markets at this time, because of the higher degree of uncertainty and volatility associated with many of these markets over the past few years. LOOKING AHEAD Despite the high-yield market's weakness over the past year, we consider today's substantially higher, more attractive yields and significantly discounted bond prices an excellent investment opportunity, particularly given the relatively low interest-rate environment and the favorable outlook for the economy. Assuming a soft landing in the economy with growth continuing into next year, we 2 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. LETTER TO THE SHAREHOLDERS AUGUST 31, 1999, CONTINUED would expect the high-yield market to recover, following the lead of the equity markets, which have rebounded sharply over the past nine months. Should this scenario materialize and high-yield bond prices recover, the Fund would participate not only in today's exceptionally high income levels but could potentially provide a degree of capital appreciation as well. Although the B-rated segment of the market has not been a good investment performer over the past year, we are confident that its attractive yield and appreciation potential remains intact for long-term high-yield investors. On May 1, 1999, Mitchell M. Merin was named President of the Morgan Stanley Dean Witter Funds. Mr. Merin is the President and Chief Operating Officer of Asset Management for Morgan Stanley Dean Witter & Co. and President, Chief Executive Officer and Director of Morgan Stanley Dean Witter Advisors Inc. He also serves as Chairman, Chief Executive Officer and Director of Morgan Stanley Dean Witter Distributors Inc. and Morgan Stanley Dean Witter Trust FSB. We thank you for your continued support of Morgan Stanley Dean Witter High Yield Securities and look forward to continuing to serve your investment needs. Very truly yours, [SIGNATURE] [SIGNATURE] CHARLES A. FIUMEFREDDO MITCHELL M. MERIN CHAIRMAN OF THE BOARD PRESIDENT
3 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. FUND PERFORMANCE AUGUST 31, 1999
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
GROWTH OF $10,000 -- CLASS A AND D SHARES ($ IN THOUSANDS) CREDIT SUISSE TOTAL CLASS A TOTAL CLASS D FIRST BOSTON (4) LIPPER (5) 8/31/89 $9,575 $10,000 $10,000 $10,000 8/31/90 $7,328 $7,672 $9,639 $9,084 8/31/91 $7,650 $8,030 $11,922 $10,834 8/31/92 $10,338 $10,878 $14,594 $13,452 8/31/93 $12,611 $13,302 $16,897 $15,652 8/31/94 $12,696 $13,426 $17,505 $16,057 8/31/95 $14,182 $15,034 $19,818 $17,910 8/31/96 $15,713 $16,698 $21,829 $19,813 8/31/97 $18,028 $19,205 $25,196 $22,895 8/31/98 $18,100 $19,326 $25,564 $23,201 8/31/99 $18,366(3) $19,649(3) $26,776 $24,463
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RETURNS. PERFORMANCE FOR CLASS B AND CLASS C SHARES WILL VARY FROM THE PERFORMANCE OF CLASS A AND CLASS D SHARES SHOWN ABOVE DUE TO DIFFERENCES IN SALES CHARGES AND EXPENSES.
AVERAGE ANNUAL TOTAL RETURNS ------------------------------------------------------------------------------------------------------------------------------ CLASS A SHARES* CLASS B SHARES+ -------------------------------------------------------- --------------------------------------------------------------- PERIOD ENDED (8/31/99) PERIOD ENDED (8/31/99) --------------------------------- ---------------------------------------- 1 Year 1.47%(1) (2.84)%(2) 1 Year 0.92%(1) (3.55)%(2) 5 Years 7.66 (1) 6.73 (2) Since Inception 0.63 (1) (0.53 ) (2) 10 Years 6.73 (1) 6.27 (2) CLASS C SHARES++ CLASS D SHARES++ -------------------------------------------------------- --------------------------------------------------------------- PERIOD ENDED (8/31/99) PERIOD ENDED (8/31/99) --------------------------------- ---------------------------------------- 1 Year %(1) 0.99 %(2) 0.09 1 Year %(1) 1.67 Since Inception 0.60 (1) 0.60 (2) 5 Years 7.91 (1) 10 Years 6.99 (1)
- ------------------------ PRIOR TO JULY 28, 1997 THE FUND OFFERED ONLY ONE CLASS OF SHARES. BECAUSE THE DISTRIBUTION ARRANGEMENT FOR CLASS A MOST CLOSELY RESEMBLED THE DISTRIBUTION ARRANGEMENT APPLICABLE PRIOR TO THE IMPLEMENTATION OF MULTIPLE CLASSES (I.E., CLASS A IS SOLD WITH A FRONT-END SALES CHARGE), HISTORICAL PERFORMANCE INFORMATION HAS BEEN RESTATED TO REFLECT THE ACTUAL MAXIMUM SALES CHARGE APPLICABLE TO CLASS A (I.E., 4.25%) AS COMPARED TO THE 5.50% SALES CHARGE IN EFFECT PRIOR TO JULY 28, 1997. IN ADDITION, CLASS A SHARES ARE NOW SUBJECT TO AN ONGOING 12B-1 FEE WHICH IS REFLECTED IN THE RESTATED PERFORMANCE FOR THAT CLASS. BECAUSE ALL SHARES OF THE FUND HELD PRIOR TO JULY 28, 1997 WERE DESIGNATED CLASS D SHARES, THE FUND'S HISTORICAL PERFORMANCE HAS BEEN RESTATED TO REFLECT THE ABSENCE OF ANY SALES CHARGE. (1) Figure shown assumes reinvestment of all distributions and does not reflect the deduction of any sales charges. (2) Figure shown assumes reinvestment of all distributions and the deduction of the maximum applicable sales charge. See the Fund's current prospectus for complete details on fees and sales charges. (3) Closing value assuming a complete redemption on August 31, 1999. (4) The Credit Suisse First Boston High Yield Index (CSFB HY) is a trader priced portfolio constructed to mirror the public high yield debt market. The index has several modules representing different sectors of the high yield market including a cash paying module, a zerofix module, a pay-in-kind module, and a defaulted module. The Index is divided into other categories including industry, rating, seniority, liquidity, market value, security price range, yield range and other sector divisions There are a total of 250 sectors which are followed by the Index. The Index does not include any expenses, fees, or charges. The Index is unmanaged and should not be considered an investment. (5) The Lipper High Yield Bond Funds Index is an equally-weighted performance index of the largest qualifying funds (based on net assets) in the Lipper High Current Yield Funds objective. The Index, which is adjusted for capital gains distributions and income dividends, is unmanaged and should not be considered an investment. There are currently 30 funds represented in this index. * The maximum front-end sales charge for Class A is 4.25%. + The maximum CDSC for Class B is 5.0%. The CDSC declines to 0% after six years. ++ The maximum CDSC for Class C shares is 1% for shares redeemed within one year of purchase. ++ Class D shares have no sales charge. 4 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. PORTFOLIO OF INVESTMENTS AUGUST 31, 1999 PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------------- CORPORATE BONDS (96.4%) ADVERTISING (0.4%) $ 10,000 Interep National Radio Sales Inc............................................. 10.00% 07/01/08 $ 10,250,000 -------------- AEROSPACE (0.4%) 12,500 Sabreliner Corp. - 144A*..................................................... 11.00 06/15/08 9,000,000 -------------- BEVERAGES - NON-ALCOHOLIC (0.3%) 10,000 Sparkling Spring Water (Canada).............................................. 11.50 11/15/07 8,075,000 -------------- BOOKS/MAGAZINES (0.6%) 4,500 American Media Operations, Inc. - 144A*...................................... 10.25 05/01/09 4,353,750 8,500 Perry Judds.................................................................. 10.625 12/15/07 7,905,000 2,000 Phoenix Color Corp........................................................... 10.375 02/01/09 1,920,000 -------------- 14,178,750 -------------- BROADCAST/MEDIA (0.4%) 10,000 Tri-State Outdoor Media Group................................................ 11.00 05/15/08 10,000,000 -------------- BROADCASTING (3.0%) 15,000 Capstar Broadcasting Partners, Inc........................................... 12.75++ 02/01/09 12,750,000 6,000 Cumulus Media Inc............................................................ 10.375 07/01/08 6,195,000 15,500 Paxson Communications Corp................................................... 11.625 10/01/02 16,042,500 20,749 Spanish Broadcasting System, Inc............................................. 12.50 06/15/02 23,135,135 14,000 STC Broadcasting, Inc........................................................ 11.00 03/15/07 14,070,000 -------------- 72,192,635 -------------- CABLE TELEVISION (4.9%) 30,500 21st Century Telecom Group, Inc.............................................. 12.25++ 02/15/08 13,115,000 50,687 Australis Holdings Ltd. (Australia) (a)...................................... 15.00++ 11/01/02 760,305 4,404 Australis Media Ltd. - 144A* (Australia) (a)................................. 0.00 11/01/00 512,891 3,000 Classic Cable Inc. - 144A*................................................... 9.875 08/01/08 3,015,000 16,000 Diva Systems Corp............................................................ 12.625++ 03/01/08 3,520,000 13,955 FrontierVision Operating Partners, L.P....................................... 11.00 10/15/06 14,862,075 10,000 James Cable Partners L.P. (Series B)......................................... 10.75 08/15/04 10,150,000 23,800 Knology Holdings Inc......................................................... 11.875++ 10/15/07 12,852,000 15,000 Ono Finance PLC (United Kingdom) - 144A* (Units)++........................... 13.00 05/01/09 15,900,000 41,750 Optel Inc. (Series B)........................................................ 11.50 07/01/08 27,555,000 16,000 Rifkin Acquisition Partners L.P.............................................. 11.125 01/15/06 17,520,000 -------------- 119,762,271 -------------- CASINO/GAMBLING (2.1%) 22,000 Aladdin Gaming Capital Corp. (Series B)...................................... 13.50++ 03/01/10 8,800,000 20,500 Fitzgeralds Gaming Corp. (Series B) (b)...................................... 12.25 12/15/04 11,070,000
SEE NOTES TO FINANCIAL STATEMENTS 5 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. PORTFOLIO OF INVESTMENTS AUGUST 31, 1999, CONTINUED PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 20,100 Lady Luck Gaming Finance Corp................................................ 11.875% 03/01/01 $ 20,301,000 12,300 Riviera Holdings Corp........................................................ 10.00 08/15/04 10,885,500 -------------- 51,056,500 -------------- CELLULAR TELEPHONE (6.9%) 28,000 American Cellular Corp....................................................... 10.50 05/15/08 28,980,000 6,000 Centennial Cellular - 144A*.................................................. 10.75 12/15/08 6,210,000 42,531 Clearnet Communications Inc. (Canada)........................................ 14.75++ 12/15/05 39,766,485 14,500 Dobson/Sygnet Communications................................................. 12.25 12/15/08 15,225,000 20,130 Dolphin Telecom PLC (United Kingdom)......................................... 11.50++ 06/01/08 8,454,600 28,300 Dolphin Telecom PLC - 144A* (United Kingdom)................................. 14.00++ 05/15/09 11,886,000 20,000 Nextel Communications, Inc................................................... 10.65++ 09/15/07 14,750,000 17,000 Nextel Partners, Inc. - 144A*................................................ 14.00++ 02/01/09 10,200,000 24,700 Tritel PCS Inc. - 144A*...................................................... 12.75++ 05/15/09 13,955,500 26,099 Triton PCS, Inc.............................................................. 11.00++ 05/01/08 17,877,815 -------------- 167,305,400 -------------- CONSTRUCTION/AGRICULTURAL EQUIPMENT/TRUCKS (0.5%) 13,350 J.B. Poindexter & Co., Inc................................................... 12.50 05/15/04 12,549,000 -------------- CONSUMER ELECTRONICS/APPLIANCES (1.2%) 84,930 International Semi-Tech Microelectronics, Inc. (Canada) (a).................. 11.50++ 08/15/03 5,095,800 10,000 Salton Inc................................................................... 10.75 12/15/05 10,350,000 13,000 Windmere-Durable Holdings, Inc............................................... 10.00 07/31/08 12,675,000 -------------- 28,120,800 -------------- CONSUMER SPECIALTIES (1.2%) 35,000 Samsonite Corp............................................................... 10.75 06/15/08 30,100,000 -------------- CONSUMER/BUSINESS SERVICES (5.3%) 28,000 Anacomp, Inc. (Series B)..................................................... 10.875 04/01/04 28,280,000 5,900 Anacomp, Inc. (Series D)..................................................... 10.875 04/01/04 5,959,000 39,250 CEX Holdings, Inc. (Series B)................................................ 9.625 06/01/08 39,642,500 13,000 Comforce Operating, Inc...................................................... 12.00 12/01/07 10,400,000 10,000 Entex Information Services, Inc.............................................. 12.50 08/01/06 6,500,000 23,500 MDC Communications Corp. (Canada)............................................ 10.50 12/01/06 23,441,250 15,200 Muzak LLC - 144A*............................................................ 9.875 03/15/09 14,972,000 -------------- 129,194,750 -------------- CONTAINERS/PACKAGING (3.3%) 11,900 Berry Plastics Corp.......................................................... 12.25 04/15/04 12,019,000 12,700 Berry Plastics Corp. - 144A*................................................. 11.00 07/15/07 12,573,000 27,081 Envirodyne Industries, Inc................................................... 10.25 12/01/01 22,071,015
SEE NOTES TO FINANCIAL STATEMENTS 6 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. PORTFOLIO OF INVESTMENTS AUGUST 31, 1999, CONTINUED PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 9,500 Impac Group, Inc. (Series B)................................................. 10.125% 03/15/08 $ 8,550,000 10,000 LLS Corp. - 144A*............................................................ 11.625 08/01/09 9,950,000 14,715 Packaging Resources, Inc..................................................... 11.625 05/01/03 14,862,150 -------------- 80,025,165 -------------- CONTRACT DRILLING (0.9%) 34,000 Northern Offshore ASA (Series B) (Norway).................................... 10.00 05/15/05 20,740,000 -------------- DIVERSIFIED ELECTRONIC PRODUCTS (0.9%) 15,450 High Voltage Engineering, Inc................................................ 10.50 08/15/04 14,368,500 8,000 Telecommunication Techniques Co.............................................. 9.75 05/15/08 7,600,000 -------------- 21,968,500 -------------- DIVERSIFIED MANUFACTURING (3.2%) 17,500 Eagle-Picher Industries, Inc................................................. 9.375 03/01/08 16,100,000 6,200 Jordan Industries, Inc. (Series D)........................................... 10.375 08/01/07 5,983,000 20,000 Jordan Industries, Inc. (Series B)........................................... 10.375 08/01/07 19,600,000 57,338 Jordan Industries, Inc. (Series B)........................................... 11.75++ 04/01/09 37,269,700 -------------- 78,952,700 -------------- DRUGSTORE CHAINS (0.4%) 10,000 Community Distributors....................................................... 10.25 10/15/04 8,800,000 -------------- ELECTRONIC DATA PROCESSING (0.9%) 5,875 Unisys Corp.................................................................. 11.75 10/15/04 6,477,187 15,000 Unisys Corp. (Series B)...................................................... 12.00 04/15/03 16,200,000 -------------- 22,677,187 -------------- ELECTRONIC DISTRIBUTORS (0.4%) 20,000 CHS Electronics, Inc......................................................... 9.875 04/15/05 9,000,000 -------------- ENGINEERING & CONSTRUCTION (0.4%) 10,000 Metromedia Fiber Network (Series B).......................................... 10.00 11/15/08 9,850,000 -------------- ENTERTAINMENT & LEISURE (0.6%) 20,850 AMF Bowling Worldwide Inc. (Series B)........................................ 10.875 03/15/06 15,220,500 -------------- FOOD CHAINS (1.3%) 9,185 Eagle Food Centers, Inc...................................................... 8.625 04/15/00 8,542,050 16,500 Pueblo Xtra International, Inc............................................... 9.50 08/01/03 14,850,000 9,748 Pueblo Xtra International, Inc. (Series C)................................... 9.50 08/01/03 8,773,200 -------------- 32,165,250 -------------- FOOD DISTRIBUTORS (2.5%) 14,921 Fleming Companies, Inc....................................................... 10.625 12/15/01 15,294,025 9,965 Fleming Companies, Inc. (Series B)........................................... 10.50 12/01/04 9,392,012 28,275 Fleming Companies, Inc. (Series B)........................................... 10.625 07/31/07 26,295,750
SEE NOTES TO FINANCIAL STATEMENTS 7 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. PORTFOLIO OF INVESTMENTS AUGUST 31, 1999, CONTINUED PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------------- $ 10,000 Volume Services America - 144A*.............................................. 11.25% 03/01/09 $ 10,600,000 -------------- 61,581,787 -------------- HOTELS/RESORTS (1.6%) 13,000 Epic Resorts LLC (Series B).................................................. 13.00 06/15/05 11,440,000 16,000 Motels of America, Inc. (Series B)........................................... 12.00 04/15/04 9,280,000 24,035 Resort At Summerlin (Series B)............................................... 13.00 12/15/07 19,227,936 -------------- 39,947,936 -------------- INDUSTRIAL SPECIALTIES (2.0%) 9,075 Cabot Safety Corp............................................................ 12.50 07/15/05 9,642,187 13,500 Indesco International........................................................ 9.75 04/15/08 7,830,000 21,963 International Wire Group, Inc................................................ 11.75 06/01/05 22,457,168 10,500 Outsourcing Services Group, Inc. (Series B).................................. 10.875 03/01/06 9,975,000 -------------- 49,904,355 -------------- INTERNET SERVICES (1.3%) 13,300 Cybernet Internet Services - 144A* (Units)++................................. 14.00 07/01/09 13,300,000 8,000 Psinet Inc. - 144A*.......................................................... 11.00 08/01/09 7,960,000 3,120 Verio Inc.................................................................... 10.375 04/01/05 3,104,400 8,000 Verio Inc.................................................................... 11.25 12/01/08 8,200,000 -------------- 32,564,400 -------------- MEDIA CONGLOMERATES (2.3%) 55,000 Walt Disney Co............................................................... 13.50 03/10/00 57,196,700 -------------- MEDICAL SPECIALTIES (1.2%) 25,715 MEDIQ Inc./PRN Life Support.................................................. 11.00 06/01/08 20,057,700 10,000 Universal Hospital Services, Inc............................................. 10.25 03/01/08 7,700,000 3,000 Universal Hospital Services, Inc............................................. 10.25 03/01/08 2,190,000 -------------- 29,947,700 -------------- MEDICAL/NURSING SERVICES (0.2%) 7,500 Pediatric Services of America, Inc. (Series A)............................... 10.00 04/15/08 3,825,000 -------------- MILITARY/GOV'T/TECHNICAL (0.5%) 15,000 Loral Space & Communications Ltd............................................. 9.50 01/15/06 13,200,000 -------------- OFFICE EQUIPMENT/SUPPLIES (0.7%) 22,000 Mosler, Inc.................................................................. 11.00 04/15/03 17,600,000 -------------- OIL REFINING/MARKETING (0.6%) 53,800 Transamerican Refining Corp. (Series B) (a)(b)............................... 16.00 06/30/03 14,526,000 -------------- OIL/GAS TRANSMISSION (0.7%) 16,000 Petro Stopping Centers L.P................................................... 10.50 02/01/07 16,160,000 --------------
SEE NOTES TO FINANCIAL STATEMENTS 8 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. PORTFOLIO OF INVESTMENTS AUGUST 31, 1999, CONTINUED PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------------- OTHER TELECOMMUNICATIONS (10.9%) $ 11,500 Birch Telecom Inc. (Units)++................................................. 14.00% 06/15/08 $ 11,500,000 23,950 DTI Holdings Inc. - (Series B)............................................... 12.50++ 03/01/08 9,580,000 19,250 Esprit Telecom Group PLC (United Kingdom).................................... 10.875 06/15/08 19,635,000 12,585 Esprit Telecom Group PLC (United Kingdom).................................... 11.50 12/15/07 13,182,788 30,000 Facilicom International, Inc. (Series B)..................................... 10.50 01/15/08 25,500,000 47,000 Firstworld Communications, Inc............................................... 13.00++ 04/15/08 24,910,000 20,750 Globenet Comm Group Ltd. - 144A* (Bermuda)................................... 13.00 07/15/07 20,231,250 15,000 Pac-West Telecomm Inc. - 144A*............................................... 13.50 02/01/09 15,225,000 3,000 Primus Telecomm Group........................................................ 11.75 08/01/04 2,940,000 7,000 Primus Telecomm Group........................................................ 11.25 01/15/09 6,685,000 32,900 Primus Telecommunication Group, Inc. (Series B).............................. 9.875 05/15/08 28,952,000 2,000 RSL Communications PLC (United Kingdom)...................................... 9.125 03/01/08 1,710,000 9,000 RSL Communications PLC (United Kingdom)...................................... 10.50 11/15/08 8,460,000 3,000 RSL Communications PLC - 144A* (United Kingdom).............................. 9.875 11/15/09 2,640,000 15,000 Tele1 Europe BV - 144A* (Netherlands) (Units)++.............................. 13.00 05/15/09 15,900,000 12,000 Versatel Telecom BV (Netherlands)............................................ 13.25 05/15/08 12,120,000 24,500 Versatel Telecom BV (Netherlands)............................................ 13.25 05/15/08 24,745,000 5,200 Viatel Inc................................................................... 11.25 04/15/08 5,096,000 4,500 Viatel Inc. - 144A*.......................................................... 11.50 03/15/09 4,477,500 11,500 Worldwide Fiber Inc. - 144A* (Canada)........................................ 12.00 08/01/09 11,500,000 -------------- 264,989,538 -------------- PACKAGE GOODS/COSMETICS (0.4%) 11,000 J.B. Williams Holdings, Inc.................................................. 12.00 03/01/04 11,000,000 -------------- PRINTING/FORMS (0.5%) 13,000 Premier Graphics Inc......................................................... 11.50 12/01/05 11,830,000 -------------- RENTAL/LEASING COMPANIES (0.4%) 9,000 Neff Corp.................................................................... 10.25 06/01/08 9,000,000 -------------- RESTAURANTS (3.9%) 141,992 American Restaurant Group Holdings, Inc. - 144A* (c)......................... 0.00 12/15/05 46,857,360 34,207 FRD Acquisition Corp. (Series B)............................................. 12.50 07/15/04 30,786,300 20,000 Friendly Ice Cream Corp...................................................... 10.50 12/01/07 18,300,000 -------------- 95,943,660 --------------
SEE NOTES TO FINANCIAL STATEMENTS 9 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. PORTFOLIO OF INVESTMENTS AUGUST 31, 1999, CONTINUED PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------------- RETAIL - SPECIALTY (1.0%) $ 9,000 Mrs. Fields Holdings Co. - 144A* (Units)++................................... 14.00++% 12/01/05 $ 4,455,000 1,000 National Wine & Spirits...................................................... 10.125 01/15/09 1,010,000 18,225 Pantry, Inc.................................................................. 10.25 10/15/07 18,133,875 -------------- 23,598,875 -------------- SERVICES TO THE HEALTH INDUSTRY (0.8%) 16,975 Unilab Corp.................................................................. 11.00 04/01/06 18,502,750 -------------- SPECIALTY CHEMICALS (0.9%) 15,000 Lyondell Chemical Co. (Series B)............................................. 9.875 05/01/07 15,225,000 6,000 Octel Developments PLC (United Kingdom)...................................... 10.00 05/01/06 6,120,000 -------------- 21,345,000 -------------- SPECIALTY FOODS/CANDY (1.1%) 200,598 SFAC New Holdings Inc. - 144A* (c)........................................... 13.00 06/15/09 26,077,695 -------------- TELECOMMUNICATIONS (12.9%) 15,000 Caprock Communications Corp. (Series B)...................................... 12.00 07/15/08 15,000,000 15,000 Caprock Communications Corp. - 144A*......................................... 11.50 05/01/09 14,962,500 20,000 Covad Communications Group, Inc.............................................. 12.50 02/15/09 19,500,000 50,875 e. spire Communications, Inc................................................. 13.75 07/15/07 44,770,000 26,700 Focal Communications Corp. (Series B)........................................ 12.125++ 02/15/08 14,952,000 28,250 GST Equipment Funding, Inc................................................... 13.25 05/01/07 29,662,500 23,750 GST Telecommunications, Inc. - 144A*......................................... 10.50++ 05/01/08 13,537,500 21,800 Hyperion Telecommunication, Inc. (Series B).................................. 13.00++ 04/15/03 18,175,750 23,000 Hyperion Telecommunication, Inc. (Series B).................................. 12.25 09/01/04 23,977,500 56,800 In-Flight Phone Corp. (Series B) (a)(b)...................................... 14.00++ 05/15/02 4,828,000 26,500 Level 3 Communications, Inc.................................................. 9.125 05/01/08 24,645,000 8,500 NextLink Communications, Inc................................................. 12.50 04/15/06 9,052,500 17,500 NextLink Communications, Inc................................................. 9.00 03/15/08 16,406,250 12,500 NextLink Communications, Inc................................................. 10.75 11/15/08 12,625,000 9,000 NextLink Communications, Inc................................................. 10.75 06/01/09 9,090,000 14,965 Rhythms Netconnections (Series B)............................................ 13.50++ 05/15/08 7,632,150 27,850 Rhythms Netconnections - 144A*............................................... 12.75 04/15/09 25,343,500 11,300 Talton Holdings, Inc (Series B).............................................. 11.00 06/30/07 10,396,000 -------------- 314,556,150 --------------
SEE NOTES TO FINANCIAL STATEMENTS 10 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. PORTFOLIO OF INVESTMENTS AUGUST 31, 1999, CONTINUED PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE VALUE - -------------------------------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS EQUIPMENT (0.9%) $ 10,500 FWT, Inc. (a)(b)............................................................. 9.875% 11/15/07 $ 945,000 17,100 SBA Communications Corp...................................................... 12.00++ 03/01/08 9,747,000 3,500 Spectrasite Holdings, Inc. - 144A*........................................... 11.25++ 04/15/09 1,750,000 18,500 Spectrasite Holdings, Inc. - 144A*........................................... 12.00++ 07/15/08 10,360,000 -------------- 22,802,000 -------------- WIRELESS COMMUNICATIONS (9.6%) 13,500 Advanced Radio Telecom Corp.................................................. 14.00 02/15/07 11,880,000 10,650 AMSC Acquisition Co., Inc. (Series B)........................................ 12.25 04/01/08 7,881,000 9,000 Arch Communications, Inc..................................................... 12.75 07/01/07 7,470,000 7,200 Arch Escrow Corp. - 144A*.................................................... 13.75 04/15/08 6,120,000 65,300 CellNet Data Systems Inc..................................................... 14.00++ 10/01/07 27,426,000 11,875 Globalstar LP/Capital Corp................................................... 11.375 02/15/04 7,837,500 1,585 Globalstar LP/Capital Corp................................................... 11.25 06/15/04 1,069,875 24,610 Globalstar LP/Capital Corp................................................... 10.75 11/01/04 16,242,600 7,500 Globalstar LP/Capital Corp................................................... 11.50 06/01/05 5,025,000 16,739 Orbcomm Global LP/Capital Corp. (Series B)................................... 14.00 08/15/04 15,734,660 3,610 Paging Network, Inc.......................................................... 8.875 02/01/06 2,021,600 31,180 Paging Network, Inc.......................................................... 10.125 08/01/07 18,396,200 20,220 Paging Network, Inc.......................................................... 10.00 10/15/08 11,727,600 20,230 USA Mobile Communications Holdings, Inc...................................... 9.50 02/01/04 16,588,600 18,800 USA Mobile Communications Holdings, Inc...................................... 14.00 11/01/04 17,860,000 69,500 WinStar Communications, Inc.................................................. 14.00++ 10/15/05 59,770,000 1,500 Winstar Equipment Corp....................................................... 12.50 03/15/04 1,552,500 -------------- 234,603,135 -------------- TOTAL CORPORATE BONDS (IDENTIFIED COST $2,734,416,983)............................................................... 2,351,887,089 --------------
NUMBER OF SHARES - --------- COMMON STOCKS (d) (0.6%) CASINO/GAMBLING (0.0%) 207,312 Fitzgeralds Gaming Corp.............................................................. 2,073 -------------- CELLULAR TELEPHONE (0.0%) 1 Price Communications Corp............................................................ -- -------------- CLOTHING/SHOE/ACCESSORY STORES (0.0%) 2,621,192 County Seat, Inc. (c)................................................................ 23,613 --------------
SEE NOTES TO FINANCIAL STATEMENTS 11 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. PORTFOLIO OF INVESTMENTS AUGUST 31, 1999, CONTINUED NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------------------------- HOTELS/RESORTS (0.1%) 7,500 Motels of America, Inc. - 144A*...................................................... $ 7,500 981,277 Premier Holdings Inc. (c)*........................................................... 3,311,810 781,421 Vagabond Inns, Inc. (Class D) (d).................................................... 781 -------------- 3,320,091 -------------- MEDICAL/NURSING SERVICES (0.0%) 1,151,324 Raintree Healthcare Corp. (c)........................................................ 1,295,240 -------------- MOTOR VEHICLES (0.0%) 709 Northern Holdings Industrial Corp. (c)*.............................................. -- -------------- RESTAURANTS (0.0%) 38,057 American Restaurant Group Holdings, Inc. - 144A*..................................... 9,514 -------------- SERVICES TO THE HEALTH INDUSTRY (0.4%) 1,692,700 Unilab Corp.......................................................................... 9,204,056 -------------- SPECIALTY FOODS/CANDY (0.0%) 10,908 SFAC New Holdings Inc. (c)........................................................... 109 574,725 Specialty Foods Acquisition Corp. - 144A*............................................ 5,747 -------------- 5,856 -------------- TEXTILES (0.1%) 1,754,730 U.S. Leather, Inc. (c)............................................................... 1,974,071 -------------- TOTAL COMMON STOCKS (IDENTIFIED COST $130,620,028)....................................................... 15,834,514 -------------- PREFERRED STOCKS (0.2%) OIL REFINING/MARKETING (0.0%) 94,432 Transcontinental Refining Corp.* (Conv.) (Class B)................................... 5,666 51,938 Transcontinental Refining Corp.* (Conv.) (Class C)................................... 2,908 136,926 Transcontinental Refining Corp.* (Conv.) (Class D)................................... 7,257 283,295 Transcontinental Refining Corp.* (Conv.) (Class E)................................... 17,848 -------------- 33,679 -------------- RESTAURANTS (0.2%) 3,920 American Restaurant Group Holdings, Inc. (Series B).................................. 3,920,000 -------------- TOTAL PREFERRED STOCKS (IDENTIFIED COST $3,953,644)......................................................... 3,953,679 --------------
SEE NOTES TO FINANCIAL STATEMENTS 12 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. PORTFOLIO OF INVESTMENTS AUGUST 31, 1999, CONTINUED NUMBER OF EXPIRATION WARRANTS DATE VALUE - ---------------------------------------------------------------------------------------------------------------- WARRANTS (d) (0.4%) AEROSPACE (0.0%) 9,000 Sabreliner Corp. - 144A*............................ 04/15/03 $ 90,000 -------------- CABLE TELEVISION (0.0%) 48,000 Diva Systems Corp. - 144A*.......................... 03/01/08 384,000 -------------- CASINO/GAMBLING (0.0%) 220,000 Aladdin Gaming, Inc. - 144A*........................ 03/01/10 2,200 -------------- HOTELS/RESORTS (0.0%) 13,000 Epic Resorts LLC - 144A*............................ 06/15/05 130 20,000 Resort At Summerlin - 144A*......................... 12/15/07 200 -------------- 330 -------------- OIL REFINING/MARKETING (0.0%) 33,800 Transamerican Refining Corp. - 144A*................ 06/30/03 338 20,000 Transamerican Refining Corp. - 144A*................ 06/30/03 200 -------------- 538 -------------- OTHER TELECOMMUNICATIONS (0.4%) 11,500 Birch Telecom Inc. - 144A*.......................... 06/15/08 632,500 119,750 DTI Holdings Inc. - 144A*........................... 03/01/08 1,198 47,000 Firstworld Communications, Inc. - 144A*............. 04/15/08 3,290,000 36,500 Versatel Telecom - 144A* (Netherlands).............. 05/15/08 5,840,035 -------------- 9,763,733 -------------- RESTAURANTS (0.0%) 3,500 American Restaurant Group Holdings, Inc. - 144A*.... 08/15/00 -- -------------- WIRELESS COMMUNICATIONS (0.0%) 8,750 American Mobile Satellite Corp. - 144A*............. 04/01/08 306,250 -------------- TOTAL WARRANTS (IDENTIFIED COST $442,261)...................................... 10,547,051 --------------
PRINCIPAL AMOUNT IN COUPON MATURITY THOUSANDS RATE DATE - --------- ---- -------- SHORT-TERM INVESTMENT (0.2%) REPURCHASE AGREEMENT $ 4,159 The Bank of New York (dated 08/31/99; proceeds $4,159,228) (e) (IDENTIFIED COST $4,158,593)........................................ 5.50% 09/01/99 4,158,593 --------------
SEE NOTES TO FINANCIAL STATEMENTS 13 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. PORTFOLIO OF INVESTMENTS AUGUST 31, 1999, CONTINUED VALUE - ----------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS (IDENTIFIED COST $2,873,591,509) (F).................................................... 97.8% $ 2,386,380,926 OTHER ASSETS IN EXCESS OF LIABILITIES................................................... 2.2 52,328,739 ----- --------------- NET ASSETS.............................................................................. 100.0% $ 2,438,709,665 ----- --------------- ----- ---------------
- --------------------- * Resale is restricted to qualified institutional investors. ++ Currently a zero coupon bond and will pay interest at the rate shown at a future specified date. ++ Consists of one or more classes of securities traded together as a unit; bonds with attached warrants. (a) Issuer in bankruptcy. (b) Non-income producing security; bond in default. (c) Acquired through exchange offer. (d) Non-income producing securities. (e) Collateralized by $588,209 U.S. Treasury Bond 10.75% due 05/15/03 valued at $696,926 and $3,405,529 U.S. Treasury Note 6.50% due 10/15/06 valued at $3,544,839. (f) The aggregate cost for federal income tax purposes approximates identified cost. The aggregate gross unrealized appreciation is $60,333,756 and the aggregate gross unrealized depreciation is $547,544,339, resulting in net unrealized depreciation of $487,210,583. SEE NOTES TO FINANCIAL STATEMENTS 14 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 1999 ASSETS: Investments in securities, at value (identified cost $2,873,591,509)..................... $2,386,380,926 Receivable for: Interest........................................... 55,166,804 Capital stock sold................................. 3,232,346 Prepaid expenses and other assets...................... 118,817 -------------- TOTAL ASSETS...................................... 2,444,898,893 -------------- LIABILITIES: Payable for: Capital stock repurchased.......................... 3,679,177 Plan of distribution fee........................... 1,367,329 Investment management fee.......................... 833,738 Accrued expenses and other payables.................... 308,984 -------------- TOTAL LIABILITIES................................. 6,189,228 -------------- NET ASSETS........................................ $2,438,709,665 ============== COMPOSITION OF NET ASSETS: Paid-in-capital........................................ $3,537,023,263 Net unrealized depreciation............................ (487,210,583) Accumulated undistributed net investment income........ 10,091,362 Accumulated net realized loss.......................... (621,194,377) -------------- NET ASSETS........................................ $2,438,709,665 ============== CLASS A SHARES: Net Assets............................................. $68,667,017 Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)............................................... 12,457,364 NET ASSET VALUE PER SHARE......................... $5.51 ============== MAXIMUM OFFERING PRICE PER SHARE (NET ASSET VALUE PLUS 4.44% OF NET ASSET VALUE)..................................... $5.75 ============== CLASS B SHARES: Net Assets............................................. $1,927,186,239 Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)............................................... 350,377,934 NET ASSET VALUE PER SHARE......................... $5.50 ============== CLASS C SHARES: Net Assets............................................. $109,142,441 Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)............................................... 19,820,677 NET ASSET VALUE PER SHARE......................... $5.51 ============== CLASS D SHARES: Net Assets............................................. $333,713,968 Shares Outstanding (500,000,000 AUTHORIZED, $.01 PAR VALUE)............................................... 60,544,350 NET ASSET VALUE PER SHARE......................... $5.51 ==============
STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1999 NET INVESTMENT INCOME: INTEREST INCOME......................................... $ 316,592,070 ------------- EXPENSES Plan of distribution fee (Class A shares)............... 119,114 Plan of distribution fee (Class B shares)............... 14,241,771 Plan of distribution fee (Class C shares)............... 749,384 Investment management fee............................... 9,355,335 Transfer agent fees and expenses........................ 1,774,066 Registration fees....................................... 285,879 Shareholder reports and notices......................... 132,278 Professional fees....................................... 112,675 Custodian fees.......................................... 108,591 Directors' fees and expenses............................ 18,503 Other................................................... 42,799 ------------- TOTAL EXPENSES..................................... 26,940,395 ------------- NET INVESTMENT INCOME.............................. 289,651,675 ------------- NET REALIZED AND UNREALIZED LOSS: Net realized loss....................................... (65,548,410) Net change in unrealized depreciation................... (193,563,887) ------------- NET LOSS........................................... (259,112,297) ------------- NET INCREASE............................................ $ 30,539,378 =============
SEE NOTES TO FINANCIAL STATEMENTS 15 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. FINANCIAL STATEMENTS, CONTINUED STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR FOR THE YEAR ENDED ENDED AUGUST 31, AUGUST 31, 1999 1998 - ---------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS: OPERATIONS: Net investment income.......................... $ 289,651,675 $ 214,852,678 Net realized loss.............................. (65,548,410) (27,425,899) Net change in unrealized depreciation.......... (193,563,887) (230,215,151) -------------- -------------- NET INCREASE (DECREASE)................... 30,539,378 (42,788,372) -------------- -------------- DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME Class A shares................................. (7,768,308) (2,263,130) Class B shares................................. (229,484,007) (152,306,144) Class C shares................................. (10,585,900) (3,375,190) Class D shares................................. (47,045,091) (49,344,880) -------------- -------------- TOTAL DIVIDENDS........................... (294,883,306) (207,289,344) -------------- -------------- Net increase from capital stock transactions... 454,019,292 1,997,043,217 -------------- -------------- NET INCREASE.............................. 189,675,364 1,746,965,501 NET ASSETS: Beginning of period............................ 2,249,034,301 502,068,800 -------------- -------------- END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $10,091,362 AND $15,318,425, RESPECTIVELY).............................. $2,438,709,665 $2,249,034,301 ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS 16 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1999 1. ORGANIZATION AND ACCOUNTING POLICIES Morgan Stanley Dean Witter High Yield Securities Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The Fund's primary investment objective is to earn a high level of current income and, as a secondary objective, capital appreciation, but only when consistent with its primary objective. The Fund was incorporated in Maryland on June 14, 1979 and commenced operations on September 26, 1979. On July 28, 1997, the Fund converted to a multiple class share structure. The Fund offers Class A shares, Class B shares, Class C shares and Class D shares. The four classes are substantially the same except that most Class A shares are subject to a sales charge imposed at the time of purchase and some Class A shares, and most Class B shares and Class C shares are subject to a contingent deferred sales charge imposed on shares redeemed within one year, six years and one year, respectively. Class D shares are not subject to a sales charge. Additionally, Class A shares, Class B shares and Class C shares incur distribution expenses. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. The following is a summary of significant accounting policies: A. VALUATION OF INVESTMENTS -- (1) an equity security listed or traded on the New York, American or other domestic or foreign stock exchange is valued at its latest sale price on that exchange prior to the time when assets are valued; if there were no sales that day, the security is valued at the latest bid price (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 17 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1999, CONTINUED 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. 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. Dividend income and other distributions are recorded on the ex-dividend date. Discounts are accreted over the life of the respective securities. Interest income is accrued daily except where collection is not expected. C. MULTIPLE CLASS ALLOCATIONS -- Investment income, expenses (other than distribution fees), and realized and unrealized gains and losses are allocated to each class of shares based upon the relative net asset value on the date such items are recognized. Distribution fees are charged directly to the respective class. D. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and distributions to its shareholders on the record date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. Dividends and distributions which exceed net investment income and net realized capital gains for financial reporting purposes but not for tax purposes are reported as dividends in excess of net investment 18 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1999, CONTINUED income or distributions in excess of net realized capital gains. To the extent they exceed net investment income and net realized capital gains for tax purposes, they are reported as distributions of paid-in-capital. 2. INVESTMENT MANAGEMENT AGREEMENT Pursuant to an Investment Management Agreement, the Fund pays the Investment Manager a management fee, calculated daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined as of the close of each business day: 0.50% to the portion of daily net assets not exceeding $500 million; 0.425% to the portion of daily net assets exceeding $500 million but not exceeding $750 million; 0.375% to the portion of daily net assets exceeding $750 million but not exceeding $1 billion; 0.35% to the portion of daily net assets exceeding $1 billion but not exceeding $2 billion; 0.325% to the portion of daily net assets exceeding $2 billion but not exceeding $3 billion; and 0.30% to the portion of daily net assets exceeding $3 billion. Under the terms of the Agreement, in addition to managing the Fund's investments, the Investment Manager maintains certain of the Fund's books and records and furnishes, at its own expense, office space, facilities, equipment, clerical, bookkeeping and certain legal services and pays the salaries of all personnel, including officers of the Fund who are employees of the Investment Manager. The Investment Manager also bears the cost of telephone services, heat, light, power and other utilities provided to the Fund. 3. PLAN OF DISTRIBUTION Shares of the Fund are distributed by Morgan Stanley Dean Witter Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager. The Fund has adopted a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act. The Plan provides that the Fund pay the Distributor a fee which is accrued daily and paid monthly at the following annual rates: (i) Class A -- up to 0.25% of the average daily net assets of Class A; (ii) Class B -- 0.75% of the average daily net assets of Class B; and (iii) Class C -- up to 0.85% of the average daily net assets of Class C. In the case of Class A shares, amounts paid under the Plan are paid to the Distributor for services provided. In the case of Class B and Class C shares, amounts paid under the Plan are paid to the Distributor for (1) services provided and the expenses borne by it and others in the distribution of the shares of these Classes, including the payment of commissions for sales of theses Classes and incentive compensation to, and expenses of, Morgan Stanley Dean Witter Financial Advisors and others who engage in or support distribution of the shares or who service shareholder accounts, 19 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1999, CONTINUED including overhead and telephone expenses; (2) printing and distribution of prospectuses and reports used in connection with the offering of these shares to other than current shareholders; and (3) preparation, printing and distribution of sales literature and advertising materials. In addition, the Distributor may utilize fees paid pursuant to the Plan, in the case of Class B shares, to compensate Dean Witter Reynolds Inc. ("DWR"), an affiliate of the Investment Manager and Distributor, and other selected broker-dealers for their opportunity costs in advancing such amounts, which compensation would be in the form of a carrying charge on any unreimbursed expenses. In the case of Class B shares, provided that the Plan continues in effect, any cumulative expenses incurred by the Distributor but not yet recovered may be recovered through the payment of future distribution fees from the Fund pursuant to the Plan and contingent deferred sales charges paid by investors upon redemption of Class B shares. Although there is no legal obligation for the Fund to pay expenses incurred in excess of payments made to the Distributor under the Plan and the proceeds of contingent deferred sales charges paid by investors upon redemption of shares, if for any reason the Plan is terminated, the Directors will consider at that time the manner in which to treat such expenses. The Distributor has advised the Fund that such excess amounts, including carrying charges, totaled $57,928,595 at August 31, 1999. In the case of Class A shares and Class C shares, expenses incurred pursuant to the Plan in any calendar year in excess of 0.25% or 0.85% of the average daily net assets of Class A or Class C, respectively, will not be reimbursed by the Fund through payments in any subsequent year, except that expenses representing a gross sales credit to Morgan Stanley Dean Witter Financial Advisors or other selected broker-dealer representatives may be reimbursed in the subsequent calendar year. For the year ended August 31, 1999, the distribution fee was accrued for Class A shares and Class C shares at the annual rate of 0.19% and 0.85%, respectively. The Distributor has informed the Fund that for the year ended August 31, 1999, it received contingent deferred sales charges from certain redemptions of the Fund's Class A shares, Class B shares and Class C shares of $52,049, $4,084,168 and $88,261, respectively and received $465,568 in front-end sales charges from sales of the Fund's Class A shares. The respective shareholders pay such charges which are not an expense of the Fund. 4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES The cost of purchases and proceeds from sales of portfolio securities, excluding short-term investments, for the year ended August 31, 1999, aggregated $1,216,189,733 and $847,527,788, respectively. 20 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1999, CONTINUED Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager and Distributor, is the Fund's transfer agent. At August 31, 1999, the Fund had transfer agent fees and expenses payable of approximately $20,000. 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 August 31, 1999 included in Directors' fees and expenses in the Statement of Operations amounted to $5,869. At August 31, 1999, the Fund had an accrued pension liability of $52,863 which is included in accrued expenses in the Statement of Assets and Liabilities. 5. FEDERAL INCOME TAX STATUS At August 31, 1999, the Fund had a net capital loss carryover of approximately $544,681,000, which may be used to offset future capital gains to the extent provided by regulations, which is available through August 31 of the following years:
AMOUNTS IN THOUSANDS - ------------------------------------------------------------------------------------- 2000 2001 2002 2003 2004 2005 2006 2007 - -------- -------- -------- -------- -------- -------- -------- -------- $182,201 $45,084 $166,660 $50,599 $23,296 $39,319 $12,603 $24,919 ======== ======= ======== ======= ======= ======= ======= =======
Due to the Fund's acquisition of Dean Witter High Income Securities, utilization of this carryover is subject to limitations imposed by the Internal Revenue Code and Treasury Regulations, significantly reducing the total carryover available. 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 $64,990,000 during fiscal 1999. At August 31, 1999, the Fund had temporary book/tax differences primarily attributable to post-October losses, capital loss deferrals on wash sales and interest on bonds in default and permanent book/tax differences primarily atributable to an expired capital loss carryover. To reflect reclassifications arising from the permanent differences, paid-in-capital was charged $293,129,483, accumulated net realized loss was credited $293,124,915 and accumulated undistributed net investment income was credited $4,568. 21 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1999, CONTINUED 6. CAPITAL STOCK Transactions in capital stock were as follows:
FOR THE YEAR FOR THE YEAR ENDED ENDED AUGUST 31, 1999 AUGUST 31, 1998 ---------------------------- ---------------------------- SHARES AMOUNT SHARES AMOUNT ------------ ------------- ----------- -------------- CLASS A SHARES Sold.............................................. 14,286,295 $ 83,691,711 6,202,135 $ 41,894,662 Reinvestment of dividends......................... 663,857 3,835,707 157,371 1,048,292 Redeemed.......................................... (7,475,634) (43,226,489) (1,669,303) (10,859,033) ------------ ------------- ----------- -------------- Net increase - Class A............................ 7,474,518 44,300,929 4,690,203 32,083,921 ------------ ------------- ----------- -------------- CLASS B SHARES.................................... Sold.............................................. 158,254,779 925,430,936 138,948,772 936,076,158 Reinvestment of dividends......................... 14,916,788 86,253,971 8,546,591 57,074,799 Shares issued in connection with the acquisition of Dean Witter High Income Securities............ -- -- 214,915,122 1,469,485,599 Redeemed.......................................... (109,357,421) (637,513,069) (78,167,748) (520,016,664) ------------ ------------- ----------- -------------- Net increase - Class B............................ 63,814,146 374,171,838 284,242,737 1,942,619,892 ------------ ------------- ----------- -------------- CLASS C SHARES Sold.............................................. 20,141,052 117,563,491 11,809,001 79,632,646 Reinvestment of dividends......................... 965,180 5,575,865 275,586 1,835,966 Redeemed.......................................... (10,489,731) (60,989,647) (3,646,560) (24,328,636) ------------ ------------- ----------- -------------- Net increase - Class C............................ 10,616,501 62,149,709 8,438,027 57,139,976 ------------ ------------- ----------- -------------- CLASS D SHARES Sold.............................................. 13,701,316 80,018,104 2,051,764 13,876,135 Reinvestment of dividends......................... 4,485,925 26,008,989 3,963,509 26,652,063 Redeemed.......................................... (22,704,747) (132,630,277) (11,183,022) (75,328,770) ------------ ------------- ----------- -------------- Net decrease - Class D............................ (4,517,506) (26,603,184) (5,167,749) (34,800,572) ------------ ------------- ----------- -------------- Net increase in Fund.............................. 77,387,659 $ 454,019,292 292,203,218 $1,997,043,217 ============ ============= =========== ==============
7. ACQUISITION OF DEAN WITTER HIGH INCOME SECURITIES As of the close of business on November 7, 1997, the Fund acquired all the net assets of Dean Witter High Income Securities ("High Income") pursuant to a plan of reorganization approved by the shareholders of High Income on October 24, 1997. The acquisition was accomplished by a tax-free exchange of 214,915,122 Class B shares of the Fund at a net asset value of $6.84 per share for 147,149,092 shares of High Income. The net assets immediately before the acquisition were $552,658,205 for the Fund and $1,469,485,599 for High Income, including unrealized appreciation of $43,052,745. Immediately after the acquisition, the combined net assets of the Fund amounted to $2,022,143,804. 22 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. FINANCIAL HIGHLIGHTS Selected ratios and per share data for a share of capital stock outstanding throughout each period:
FOR THE PERIOD FOR THE YEAR FOR THE YEAR JULY 28, 1997* ENDED ENDED THROUGH AUGUST 31, 1999 AUGUST 31, 1998 AUGUST 31, 1997 - ----------------------------------------------------------------------------------------------------------------- CLASS A SHARES++ SELECTED PER SHARE DATA: Net asset value, beginning of period........................ $ 6.16 $ 6.82 $ 6.83 ------- ------ ------ Income (loss) from investment operations: Net investment income.................................... 0.72 0.76 0.07 Net realized and unrealized loss......................... (0.63) (0.71) (0.03) ------- ------ ------ Total income from investment operations..................... 0.09 0.05 0.04 ------- ------ ------ Less dividends from net investment income................... (0.74) (0.71) (0.05) ------- ------ ------ Net asset value, end of period.............................. $ 5.51 $ 6.16 $ 6.82 ======= ====== ====== TOTAL RETURN+............................................... 1.47% 0.40% 0.65%(1) RATIOS TO AVERAGE NET ASSETS: Expenses.................................................... 0.68%(3) 0.75%(3) 0.93%(2) Net investment income....................................... 12.42%(3) 11.30%(3) 11.80%(2) SUPPLEMENTAL DATA: Net assets, end of period, in thousands..................... $68,667 $30,678 $1,996 Portfolio turnover rate..................................... 36% 66% 113%
- --------------------- * The date shares were first issued. ++ The per share amounts were computed using an average number of shares outstanding during the period. + Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. (1) Not annualized. (2) Annualized. (3) Reflects overall Fund ratios for investment income and non-class specific expenses.
SEE NOTES TO FINANCIAL STATEMENTS 23 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. FINANCIAL HIGHLIGHTS, CONTINUED
FOR THE PERIOD FOR THE YEAR FOR THE YEAR JULY 28, 1997* ENDED ENDED THROUGH AUGUST 31, 1999 AUGUST 31, 1998 AUGUST 31, 1997 - ----------------------------------------------------------------------------------------------------------------- CLASS B SHARES++ SELECTED PER SHARE DATA: Net asset value, beginning of period........................ $ 6.15 $ 6.82 $ 6.83 ---------- ---------- ------- Income (loss) from investment operations: Net investment income.................................... 0.69 0.73 0.07 Net realized and unrealized loss......................... (0.64) (0.72) (0.03) ---------- ---------- ------- Total income from investment operations..................... 0.05 0.01 0.04 ---------- ---------- ------- Less dividends from net investment income................... (0.70) (0.68) (0.05) ---------- ---------- ------- Net asset value, end of period.............................. $ 5.50 $ 6.15 $ 6.82 ========== ========== ======= TOTAL RETURN+............................................... 0.92% (0.23)% 0.62%(1) RATIOS TO AVERAGE NET ASSETS: Expenses.................................................... 1.24%(3) 1.25 %(3) 1.42%(2) Net investment income....................................... 11.86%(3) 10.80 %(3) 11.28%(2) SUPPLEMENTAL DATA: Net assets, end of period, in thousands..................... $1,927,186 $1,761,147 $15,828 Portfolio turnover rate..................................... 36% 66 % 113%
- --------------------- * The date shares were first issued. ++ The per share amounts were computed using an average number of shares outstanding during the period. + Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. (1) Not annualized. (2) Annualized. (3) Reflects overall Fund ratios for investment income and non-class specific expenses.
SEE NOTES TO FINANCIAL STATEMENTS 24 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. FINANCIAL HIGHLIGHTS, CONTINUED
FOR THE PERIOD FOR THE YEAR FOR THE YEAR JULY 28, 1997* ENDED ENDED THROUGH AUGUST 31, 1999 AUGUST 31, 1998 AUGUST 31, 1997 - ----------------------------------------------------------------------------------------------------------------- CLASS C SHARES++ SELECTED PER SHARE DATA: Net asset value, beginning of period........................ $ 6.15 $ 6.82 $ 6.83 -------- ------- ------ Income (loss) from investment operations: Net investment income.................................... 0.68 0.72 0.07 Net realized and unrealized loss......................... (0.62) (0.72) (0.03) -------- ------- ------ Total income from investment operations..................... 0.06 -- 0.04 -------- ------- ------ Less dividends from net investment income................... (0.70) (0.67) (0.05) -------- ------- ------ Net asset value, end of period.............................. $ 5.51 $ 6.15 $ 6.82 ======== ======= ====== TOTAL RETURN+............................................... 0.99% (0.34)% 0.62%(1) RATIOS TO AVERAGE NET ASSETS: Expenses.................................................... 1.34%(3) 1.36 %(3) 1.52%(2) Net investment income....................................... 11.76%(3) 10.69 %(3) 11.18%(2) SUPPLEMENTAL DATA: Net assets, end of period, in thousands $109,142 $56,626 $5,225 Portfolio turnover rate..................................... 36% 66 % 113%
- --------------------- * The date shares were first issued. ++ The per share amounts were computed using an average number of shares outstanding during the period. + Does not reflect the deduction of sales charge. Calculated based on the net asset value as of the last business day of the period. (1) Not annualized. (2) Annualized. (3) Reflects overall Fund ratios for investment income and non-class specific expenses.
SEE NOTES TO FINANCIAL STATEMENTS 25 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. FINANCIAL HIGHLIGHTS, CONTINUED
FOR THE YEAR ENDED AUGUST 31 ---------------------------------------------------------------- 1999++ 1998++ 1997* 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- CLASS D SHARES SELECTED PER SHARE DATA: Net asset value, beginning of period....................... $ 6.16 $ 6.82 $ 6.71 $ 6.77 $ 6.83 -------- -------- -------- -------- -------- Income (loss) from investment operations: Net investment income................................... 0.74 0.78 0.79 0.83 0.80 Net realized and unrealized gain (loss)................. (0.64) (0.71) 0.15 (0.12) (0.06) -------- -------- -------- -------- -------- Total income from investment operations.................... 0.10 0.07 0.94 0.71 0.74 -------- -------- -------- -------- -------- Less dividends from net investment income.................. (0.75) (0.73) (0.83) (0.77) (0.80) -------- -------- -------- -------- -------- Net asset value, end of period............................. $ 5.51 $ 6.16 $ 6.82 $ 6.71 $ 6.77 ======== ======== ======== ======== ======== TOTAL RETURN+.............................................. 1.67% 0.63% 15.01% 11.07% 11.98% RATIOS TO AVERAGE NET ASSETS: Expenses................................................... 0.49%(1) 0.51%(1) 0.68% 0.66% 0.79% Net investment income...................................... 12.61%(1) 11.54%(1) 11.78% 12.27% 12.06% SUPPLEMENTAL DATA: Net assets, end of period, in thousands.................... $333,714 $400,582 $479,020 $460,203 $455,445 Portfolio turnover rate.................................... 36% 66% 113% 49% 74%
- --------------------- * Prior to July 28, 1997, the Fund issued one class of shares. All shares of the Fund held prior to that date have been designated Class D shares. ++ The per share amounts were computed using an average number of shares outstanding during the period. + Calculated based on the net asset value as of the last business day of the period. (1) Reflects overall Fund ratios for investment income and non-class specific expenses.
SEE NOTES TO FINANCIAL STATEMENTS 26 MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES INC. REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF MORGAN STANLEY DEAN WITTER HIGH YIELD 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 High Yield Securities Inc. (the "Fund") at August 31, 1999, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 1999 by correspondence with the custodian, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP 1177 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10036 OCTOBER 8, 1999 27 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 MORGAN STANLEY President DEAN WITTER HIGH YIELD Barry Fink SECURITIES Vice President, Secretary and General Counsel Peter M. Avelar [Graphic] Vice President Thomas F. Caloia ANNUAL REPORT Treasurer AUGUST 31, 1999 TRANSFER AGENT Morgan Stanley Dean Witter Trust FSB Harborside Financial Center - Plaza Two Jersey City, New Jersey 07311 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036 INVESTMENT MANAGER Morgan Stanley Dean Witter Advisors Inc. Two World Trade Center New York, New York 10048 This report is submitted for the general information of shareholders of the Fund. For more detailed information about the Fund, its officers and directrs, fees, expenses and other pertinent information, please see the prospectus of the Fund. This report is not authorized for distribution to prospectus investors in the Fund unless preceeded or accompanied by an effective prospectus. Read the prospectus carefully before investing. -----END PRIVACY-ENHANCED MESSAGE-----