<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- --------------------------------------------------------------------------------
Over the last 12 months, interest rates on intermediate-term U.S. Treasury
securities rose by 1.75 to 2.25 percentage points, sending bond prices
plummeting. Most of this increase occurred after February 4, 1994, when the
Federal Reserve Board initiated a series of short-term interest rate increases
that brought the federal-funds rate--the rate commercial banks charge each other
for overnight loans-- to 4.75 percent from 3.00 percent. This action was
prompted by a surge in economic growth that was perceived as a precursor to
higher inflation. After growing by seven percent over the last three months of
1993, the U.S. economy continued to exhibit signs of strength, growing by more
than three percent in the first and second quarters of 1994. Despite an
improvement in labor market conditions, increases in personal income and a
higher rate of capacity usage by factories and mines, inflationary pressure
remained subdued through August, as measured by the Producer Price Index
(changes in wholesale prices) and the Consumer Price Index (changes in consumer
prices, also known as the cost of living).
As the summer unfolded, the
Federal Reserve Board's monetary
policy appeared to be having an impact
as potential inflationary pressures
began to wane. In September, sentiment
on the inflation front again shifted
with the most recent Producer Price
Index report showing a much larger 0.7
percent increase than seen in prior
months.
PERFORMANCE
For the 12 months ended August 31,
1994, intermediate government
securities declined 0.27
percent, compared to a decline of 0.55
percent for intermediate corporate
bonds. During the same period, the
Fund declined 1.50 percent, while the
Lehman Intermediate Investment Grade
Debt Index declined -1.94 percent.
(This index tracks both U.S.
governments and corporate bonds
maturing in 10 years and less.) The
Fund's performance over the fiscal
year was reflective of the extreme
rise in interest rates seen in 1994,
despite its relatively conservative
maturity structure. In reaction to the
turbulent fixed-income market, the
Fund focused on securities with
shorter-term maturities, as well as
improving the portfolio's average
credit quality. New purchases
emphasized issues maturing in five
years and less. Sales centered on
lower-rated industrial issues and
utility bonds, with proceeds
reinvested in higher-quality U.S.
governments and yankee issues.
(Yankees are bonds issued by
<PAGE>
foreign entities in the United States and denominated in U.S. dollars.) The
accompanying chart illustrates the performance of a $10,000 investment in the
Fund from inception (May 3, 1989) through the fiscal year ended August 31, 1994,
versus the performance of a similar hypothetical investment in the issues that
comprise the Lehman Brothers Intermediate Investment Grade Debt Index.
On August 31, 1994, the average maturity was 4.80 years and the average
duration was 3.60 years. Corporate bonds comprised 75 percent of the portfolio
with U.S. government securities representing 25 percent. The portfolio was
diversified among 70 issues with an average coupon of 7.86 percent and an
average quality rating of A1. On August 31, 1994, the Fund's net asset value per
share was $9.51. Net assets exceeded $245 million. Distributions during the
fiscal year totalled approximately $0.60 per share including capital gains $0.04
per share.
LOOKING AHEAD
As long as the economy stays strong and further interest rate hikes remain a
possibility, we will continue our conservative portfolio management strategy.
Over the past several months, the additional yield available from longer-term
securities has declined, providing less incentive for extending maturities.
However, yields will not rise forever, and at some point the total return
potential of longer-term investments will improve. While a few signs of
potential increases in inflation make some further interest rate tightening
likely before year end, most of the rate increase for the current cycle is
probably behind us. As the year progresses and inflation-related anxiety
subsides, we expect to see positive rates of return from the Fund. In that
scenario, we would expect interest rates to begin falling sometime in 1995.
We appreciate your support of Dean Witter Intermediate Income Securities and
look forward to continuing to serve your investment needs.
Very truly yours,
Charles A. Fiumefreddo
CHAIRMAN OF THE BOARD
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- --------- -------------
<C> <S> <C> <C> <C>
BONDS (96.2%)
CORPORATE BONDS (71.9%)
AUTOMOTIVE FINANCE (5.9%)
$ 6,000 Ford Capital BV.......................................................... 9.375% 5/15/01 $ 6,553,260
1,000 Ford Holdings, Inc....................................................... 9.25 7/15/97 1,056,090
4,500 General Motors Acceptance Corp........................................... 8.40 10/15/99 4,677,165
2,050 General Motors Corp...................................................... 7.625 2/15/97 2,083,395
-------------
14,369,910
-------------
BANK HOLDING COMPANIES (5.4%)
3,000 BankAmerica Corp......................................................... 7.20 9/15/02 2,907,840
4,000 Bankers Trust NY Corp.................................................... 7.50 1/15/02 3,978,520
2,000 Chase Manhattan Bank..................................................... 7.50 12/ 1/97 2,024,060
4,000 First Chicago Corp....................................................... 9.875 7/ 1/99 4,369,840
-------------
13,280,260
-------------
BANKS (1.9%)
5,000 Chemical Banking Corp.................................................... 7.00 6/ 1/05 4,660,600
-------------
BANKS - INTERNATIONAL (7.6%)
3,750 African Development Bank................................................. 7.75 12/15/01 3,810,975
4,985 Bank of China............................................................ 6.75 3/15/99 4,816,906
3,000 BCH Cayman Islands, Ltd.................................................. 8.25 6/15/04 2,968,080
3,300 Kansalis-Osake Pankki.................................................... 6.375 8/15/00 3,096,390
4,000 Union Bank Finland....................................................... 5.25 6/15/96 3,924,440
-------------
18,616,791
-------------
BROKERAGE (4.3%)
2,000 Bear Stearns Cos., Inc................................................... 6.75 4/15/03 1,834,860
3,000 Lehman Brothers Holdings, Inc............................................ 9.875 10/15/00 3,294,990
6,000 Paine Webber Group, Inc.................................................. 6.68 2/10/04 5,398,440
-------------
10,528,290
-------------
ENTERTAINMENT, GAMING & LODGING (0.2%)
479 Trump Castle Funding, Inc................................................ 11.75 11/15/03 289,946
102 Trump Castle Funding, Inc................................................ 7.00 + 11/15/05 59,993
-------------
349,939
-------------
FINANCE (6.4%)
7,015 General Electric Capital Corp............................................ 8.65 5/ 1/18 7,262,209
5,000 Golden West Financial Corp............................................... 10.25 5/15/97 5,397,500
3,000 Transamerica Finance Corp................................................ 6.80 3/15/99 2,943,210
-------------
15,602,919
-------------
FOOD & BEVERAGES (7.8%)
5,000 Coca-Cola Enterprises.................................................... 6.50 11/15/97 4,950,900
5,490 Grand Metropolitan Investment Corp....................................... 8.125 8/15/96 5,641,085
4,000 Phillip Morris Companies, Inc............................................ 7.50 3/15/97 4,046,520
5,300 RJR Nabisco, Inc......................................................... 8.625 12/ 1/02 4,876,000
-------------
19,514,505
-------------
</TABLE>
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS AUGUST 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- --------- -------------
<C> <S> <C> <C> <C>
FOREIGN GOVERNMENT AGENCY (2.1%)
$ 5,000 Hydro-Quebec............................................................. 8.05% 7/ 7/24 $ 5,089,050
-------------
HEALTHCARE (1.0%)
2,600 Columbia Healthcare Corp................................................. 7.15 3/30/04 2,460,925
-------------
INDUSTRIALS (1.9%)
2,300 Chrysler Corp............................................................ 10.40 8/ 1/99 2,510,725
2,000 Comdisco, Inc............................................................ 8.95 5/15/95 2,039,120
-------------
4,549,845
-------------
INSURANCE (1.2%)
3,050 Continental Corp......................................................... 7.25 3/ 1/03 2,915,770
-------------
MANUFACTURING - INTERNATIONAL (1.6%)
4,000 Matsushita Electric Industrial, Ltd...................................... 7.25 8/ 1/02 3,915,680
-------------
NATURAL GAS (1.0%)
2,500 Panhandle Eastern Pipeline Co............................................ 9.875 10/15/96 2,559,400
-------------
OIL RELATED (2.1%)
5,000 Occidental Petroleum Corp................................................ 9.625 7/ 1/99 5,215,100
-------------
OIL RELATED - INTERNATIONAL (2.1%)
5,000 Societe Nationale Elf Aquitaine.......................................... 7.75 5/ 1/99 5,086,500
-------------
PHARMACEUTICAL - INTERNATIONAL (2.0%)
5,000 Rhone Poulenc SA......................................................... 7.75 1/15/02 5,018,900
-------------
PHOTOGRAPHY (2.4%)
5,000 Eastman Kodak Co......................................................... 9.125 3/ 1/98 5,082,450
890 Eastman Kodak Co......................................................... 10.00 6/15/01 934,616
-------------
6,017,066
-------------
TELECOMMUNICATIONS (2.1%)
3,470 Tele Communications, Inc................................................. 7.375 2/15/00 3,377,802
2,000 Tele Communications, Inc................................................. 7.25 8/ 1/05 1,814,620
-------------
5,192,422
-------------
TRANSPORTATION (1.4%)
3,380 Ryder Systems, Inc....................................................... 9.375 1/15/98 3,432,796
-------------
UTILITIES - ELECTRIC (11.5%)
4,000 Arizona Public Service Co................................................ 10.25 2/15/00 4,189,520
500 Consolidated Edison Co................................................... 5.90 12/15/96 494,250
3,000 Long Island Lighting Co.................................................. 7.30 7/15/99 2,778,210
2,000 Long Island Lighting Co.................................................. 8.625 4/15/04 1,982,020
4,000 Ohio Edison Company First Mortgage....................................... 7.375 9/15/02 3,801,880
5,000 Pacific Gas & Electric Co................................................ 6.25 3/ 1/04 4,499,650
5,000 Public Service Co. of New Hampshire...................................... 9.17 5/15/98 5,158,200
2,600 Southern California Edison Co............................................ 5.60 12/15/98 2,444,883
3,000 Texas Utilities Electric Co.............................................. 7.125 6/ 1/97 3,014,160
-------------
28,362,773
-------------
176,739,441
TOTAL CORPORATE BONDS (IDENTIFIED COST $181,482,073) ......................................................
-------------
</TABLE>
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS AUGUST 31, 1994 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (IN COUPON MATURITY
THOUSANDS) RATE DATE VALUE
- ----------- ---------- --------- -------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCIES & OBLIGATIONS (24.3%)
$ 1,000 Federal Farm Credit Bank................................................. 6.81% 5/19/97 $ 1,005,000
2,500 Federal Home Loan Mortgage Corp.......................................... 5.65 6/20/96 2,487,500
346 Federal Home Loan Mortgage Corp.......................................... 8.50 12/ 1/01 352,546
249 Federal Home Loan Mortgage Corp.......................................... 8.50 1/ 1/02 254,077
830 Federal Home Loan Mortgage Corp.......................................... 8.50 7/ 1/02 846,304
363 Federal Home Loan Mortgage Corp.......................................... 9.00 8/ 1/02 374,234
1,700 Federal Home Loan Mortgage Corp.......................................... 7.05 3/24/04 1,619,250
3,230 Federal National Mortgage Association.................................... 5.30 3/11/98 3,076,575
381 Federal National Mortgage Association.................................... 9.80 12/10/98 386,016
85 Federal National Mortgage Association.................................... 8.50 12/ 1/01 87,843
2,500 Federal National Mortgage Association.................................... 6.90 3/10/04 2,356,250
3,200 Federal National Mortgage Association.................................... 7.55 6/10/04 3,140,000
3,000 Private Export Funding Corp.............................................. 6.86 4/30/04 2,958,750
8,600 U.S. Treasury Note....................................................... 5.875 5/15/95 8,629,563
5,000 U.S. Treasury Note....................................................... 11.50 11/15/95 5,334,375
7,600 U.S. Treasury Note....................................................... 8.875 2/15/96 7,911,125
3,000 U.S. Treasury Note....................................................... 7.375 5/15/96 3,064,688
11,600 U.S. Treasury Note....................................................... 6.75 2/28/97 11,717,813
2,000 U.S. Treasury Note....................................................... 5.125 4/30/98 1,905,313
2,250 U.S. Treasury Note....................................................... 7.50 11/15/01 2,311,523
-------------
59,818,745
TOTAL U.S. GOVERNMENT AGENCIES & OBLIGATIONS (IDENTIFIED COST $61,816,705) ..................................
-------------
236,558,186
TOTAL BONDS (IDENTIFIED COST $243,298,778) ..................................................................
-------------
SHORT-TERM INVESTMENTS (2.0%)
U.S. GOVERNMENT AGENCY (A) (1.8%)
4,400 Federal Home Loan Mortgage Corp. 4.70% due 9/1/94 (Amortized Cost
$4,400,000) .................................................................................. 4,400,000
-------------
REPURCHASE AGREEMENT (0.2%)
426 The Bank of New York 4.625% due 9/1/94 (dated 8/31/94; proceeds $426,064;
collateralized by $425,223 U.S. Treasury Note 7.25% 5/15/04 valued at
$434,585) (Identified Cost $426,064).......................................................... 426,064
-------------
4,826,064
TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST $4,826,064) ...................................................
-------------
TOTAL INVESTMENTS (IDENTIFIED COST $248,124,842) (B) ............................................ 98.2% 241,384,250
OTHER ASSETS IN EXCESS OF LIABILITIES ........................................................... 1.8 4,365,657
---------- -------------
NET ASSETS ...................................................................................... 100.0% $ 245,749,907
---------- -------------
---------- -------------
<FN>
- ---------------
+ Payment-in-kind security.
(a) U.S. Government Agency was purchased on a discount basis. The interest rate
shown has been adjusted to reflect a bond equivalent yield.
(b) The aggregate cost for federal income tax purposes is $248,204,139; the
aggregate gross unrealized appreciation is $1,302,939 and the aggregate
gross unrealized depreciation is $8,122,828 resulting in net unrealized
depreciation of $6,819,889.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $248,124,842) (Note
1)...................................... $ 241,384,250
Receivable for:
Interest................................ 4,657,989
Shares of beneficial interest sold...... 436,685
Principal paydowns...................... 38,416
Prepaid expenses and other assets......... 11,806
-------------
TOTAL ASSETS...................... 246,529,146
-------------
LIABILITIES:
Payable for:
Shares of beneficial interest
repurchased........................... 258,295
Plan of distribution fee (Note 3)....... 188,303
Investment management fee (Note 2)...... 132,919
Dividends to shareholders............... 79,303
Accrued expenses (Note 4)................. 120,419
-------------
TOTAL LIABILITIES................. 779,239
-------------
NET ASSETS:
Paid-in-capital........................... 257,662,704
Accumulated undistributed net investment
income.................................. 6,176
Accumulated net realized loss on
investments............................. (5,178,381)
Net unrealized depreciation on
investments............................. (6,740,592)
-------------
NET ASSETS........................ $ 245,749,907
-------------
-------------
NET ASSET VALUE PER SHARE, 25,840,049
shares outstanding (unlimited shares
authorized of $.01 par value)...........
$9.51
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED
AUGUST 31, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME:
INTEREST INCOME..................... $ 18,849,955
-----------------
EXPENSES
Plan of distribution fee (Note
3).............................. 2,156,800
Investment Management fee (Note
2).............................. 1,522,447
Transfer agent fees and expenses
(Note 4)........................ 194,410
Professional fees................. 56,949
Shareholder reports and notices
(Note 4)........................ 56,854
Registration fees................. 44,478
Custodian fees.................... 38,959
Trustees' fees and expenses (Note
4).............................. 33,493
Organizational expenses (Note
1).............................. 11,014
Other............................. 17,544
-----------------
TOTAL EXPENSES................ 4,132,948
-----------------
NET INVESTMENT INCOME....... 14,717,007
-----------------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS (Note 1):
Net realized loss on
investments..................... (5,288,443)
Net change in unrealized
appreciation on investments..... (13,667,486)
-----------------
NET LOSS ON INVESTMENTS....... (18,955,929)
-----------------
NET DECREASE IN NET ASSETS
RESULTING FROM
OPERATIONS................ $ (4,238,922)
-----------------
-----------------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1994 AUGUST 31, 1993
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income...................................................... $ 14,717,007 $ 13,433,405
Net realized gain (loss) on investments.................................... (5,288,443) 4,550,512
Net change in unrealized appreciation or depreciation on investments....... (13,667,486) 468,423
--------------- ---------------
Net increase (decrease) in net assets resulting from operations........ (4,238,922) 18,452,340
--------------- ---------------
Dividends and distributions to shareholders from:
Net investment income........................................................ (14,239,594) (13,060,483)
Net realized gain on investments............................................. (1,050,020) -0-
--------------- ---------------
Total dividends and distributions...................................... (15,289,614) (13,060,483)
--------------- ---------------
Net increase from transactions in shares of beneficial interest (Note 5)..... 10,847,274 61,754,344
--------------- ---------------
Total increase (decrease).............................................. (8,681,262) 67,146,201
NET ASSETS:
Beginning of period.......................................................... 254,431,169 187,284,968
--------------- ---------------
END OF PERIOD (including undistributed net investment income of $6,176 and
$103,304, respectively)..................................................... $ 245,749,907 $ 254,431,169
--------------- ---------------
--------------- ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES--Dean Witter Intermediate Income
Securities (the "Fund") is registered under the Investment Company Act of 1940,
as amended (the "Act"), as a diversified, open-end management investment
company. The Fund was organized as a Massachusetts business trust on September
1, 1988 and commenced operations on May 3, 1989.
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 is valued at its latest sale price on
that exchange prior to the time when assets are valued (if there were no
sales that day, the security is valued at the latest bid price); (2) all
other portfolio securities for which over-the-counter market quotations are
readily available are valued at the latest available bid price prior to the
time of valuation; (3) when market quotations are not readily available,
portfolio securities are valued at their fair value as determined in good
faith under procedures established by and under the general supervision of
the Trustees (valuation of debt securities for which market quotations are
not readily available may be based upon current market prices of securities
which are comparable in coupon, rating and maturity or an appropriate matrix
utilizing similar factors); (4) certain of the Fund's portfolio securities
may be valued by an outside pricing service approved by the Trustees. The
pricing service utilizes 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, in determining what it believes is the fair valuation of the
portfolio securities value by such pricing service; (5) short-term debt
securities having a maturity date of more than sixty days are valued on a
mark-to-market basis, that is, at prices based on market quotations for
securities of a similar type, yield, quality and maturity, until sixty days
prior to maturity and thereafter at amortized cost using 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; and (6) all other
securities and other assets are valued at their fair value as determined in
good faith under procedures established by and under the supervision of the
Trustees.
B. ACCOUNTING FOR INVESTMENTS--Security transactions are accounted for on
the trade date (date the order to buy or sell is executed). Realized gains
and losses on security transactions are determined on the identified cost
method. Dividend income is recognized on the ex-dividend date. Interest
income is recognized on an accrual basis. Discounts on securities purchased
are amortized over the life of the respective securities. The Fund does not
amortize premiums on securities purchased.
C. REPURCHASE AGREEMENTS--The Fund's custodian takes possession on behalf
of the Fund of the collateral pledged for investments in repurchase
agreements. It is the policy of the Fund to value the underlying collateral
daily on a mark-to-market basis to determine that the value, including
accrued interest, is at least equal to the repurchase price plus accrued
interest. In the event of default of the obligation to repurchase, the Fund
has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation.
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.
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS--The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized
capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such
amounts are reclassified within the capital accounts based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions which exceed net investment income and net
realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distributions in excess of net realized capital gains. To the extent they
exceed net investment income and net realized capital gains for tax
purposes, they are reported as distributions of paid-in-capital.
F. ORGANIZATIONAL EXPENSES--The Fund's Investment Manager paid
organizational expenses of the Fund in the amount of $129,000 which were
fully amortized as of May 3, 1994.
2. INVESTMENT MANAGEMENT AGREEMENT--Pursuant to an Investment Management
Agreement with Dean Witter InterCapital Inc. (the "Investment Manager"), the
Fund pays its Investment Manager a monthly management fee, calculated daily, by
applying the following annual rates to the net assets of the Fund determined as
of the close of each business day: 0.60% of the portion of daily net assets not
exceeding $500 million; 0.50% to the portion of daily net assets exceeding $500
million but not exceeding $750 million; 0.40% to the portion of daily net assets
exceeding $750 million but not exceeding $1 billion; and 0.30% to the portion of
daily net assets exceeding $1 billion.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services, heat,
light, power and other utilities provided to the Fund.
3. PLAN OF DISTRIBUTION--Shares of the Fund are distributed by 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 pursuant to which the Fund pays the Distributor compensation
accrued daily and payable monthly at an annual rate of 0.85% of the lesser of:
(a) the average daily aggregate gross sales of the Fund's shares since the
Fund's inception (not including reinvestment of dividends or capital gain
distributions), less the average daily aggregate net asset value of the Fund's
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge has been imposed or upon which such charge has been waived; or (b)
the Fund's average daily net assets. Amounts paid under the Plan are paid to the
Distributor to compensate it for the services provided and the expenses borne by
it and others in the distribution of the Fund's shares, including the payment of
commissions for sales of the Fund's shares and incentive compensation to and
expenses of the account executives of Dean Witter Reynolds Inc., an affiliate of
the Investment Manager, and other employees or selected dealers who engage in or
support distribution of the Fund's shares or who service shareholder accounts,
including overhead and telephone expenses, printing and distribution of
prospectuses and reports used in connection with the offering of the Fund's
shares to other than current shareholders and preparation, printing and
distribution of sales literature and advertising materials. In addition, the
Distributor may be compensated under the Plan for its opportunity costs in
advancing such amounts, which compensation would be in the form of a carrying
charge on any unreimbursed expenses incurred by the Distributor.
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Provided that the Plan continues in effect, any cumulative expenses incurred
but not yet recovered, may be recovered through future distribution fees from
the Fund and contingent deferred sales charges from the Fund's shareholders.
The Distributor has informed the Fund that for the year ended August 31,
1994, it received approximately $567,000 in contingent deferred sales charges
from certain redemptions of the Fund's shares. The Fund's 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, 1994 aggregated $311,785,076 and
$298,021,828, respectively, including purchases and sales of U.S. Government
agencies and obligations of $116,723,648 and $81,816,295, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At August 31, 1994, the Fund had
transfer agent fees and expenses payable of approximately $17,000.
On April 1, 1991, the Fund established an unfunded noncontributory defined
benefit pension plan covering all independent Trustees of the Fund who will have
served as an independent Trustee 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, 1994, included in Trustees' fees and expenses in the
Statement of Operations, amounted to $9,517. At August 31, 1994, the Fund had an
accrued pension liability of $44,492 which is included in accrued expenses in
the Statement of Assets and Liabilities.
Bowne & Co., Inc. is an affiliate of the Fund by virtue of a common Fund
Trustee and Director of Bowne & Co., Inc. During the year ended August 31, 1994,
the Fund paid Bowne & Co., Inc. $7,030 for printing of shareholder reports.
5. SHARES OF BENEFICIAL INTEREST--Transactions in shares of beneficial interest
were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
AUGUST 31, 1994 AUGUST 31, 1993
------------------------ -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
Sold............................................ 7,997,562 $ 79,234,382 11,085,474 $ 111,077,050
Reinvestment of dividends and distributions..... 803,966 7,889,222 668,818 6,705,955
---------- ------------ ---------- -------------
8,801,528 87,123,604 11,754,292 117,783,005
Repurchased..................................... (7,753,698) (76,276,330) (5,590,708) (56,028,661)
---------- ------------ ---------- -------------
Net increase (decrease)......................... 1,047,830 $ 10,847,274 6,163,584 $ 61,754,344
---------- ------------ ---------- -------------
---------- ------------ ---------- -------------
</TABLE>
6. FEDERAL INCOME TAX STATUS--Any net 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 such net capital losses of approximately $5,421,000 during such period
in fiscal 1994. At August 31, 1994 the Fund had temporary book/tax differences
primarily attributable to post-October losses and permanent book/tax differences
primarily attributable to foreign currency losses. To reflect cumulative
reclassifications arising from permanent book/tax differences as of August 31,
1993, accumulated undistributed net investment income was charged and
accumulated net realized loss on investments was credited $323,446. To reflect
reclassifications arising from permanent book/tax differences for the year ended
August 31, 1994, accumulated undistributed net investment income was charged and
accumulated net realized loss on investments was credited $574,541.
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED AUGUST 31, MAY 3, 1989*
-------------------------------------------------------------- THROUGH
1994 1993 1992 1991 1990 AUGUST 31, 1989
---------- ---------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 10.26 $ 10.05 $ 9.59 $ 9.42 $ 9.98 $ 10.00
---------- ---------- ---------- ----- ----- -------
Net investment income................... 0.58 0.62 0.70 0.79 0.86 0.28
Net realized and unrealized gain (loss)
on investments......................... (0.73) 0.20 0.46 0.17 (0.55) (0.02)
---------- ---------- ---------- ----- ----- -------
Total from investment operations........ (0.15) 0.82 1.16 0.96 0.31 0.26
---------- ---------- ---------- ----- ----- -------
Less dividends and distributions:
Dividends from net investment
income............................... (0.56) (0.61) (0.70) (0.79) (0.86) (0.28)
Distributions from net realized gains
on investments....................... (0.04) -0- -0- -0- (0.01) -0-
---------- ---------- ---------- ----- ----- -------
Total dividends and distributions..... (0.60) (0.61) (0.70) (0.79) (0.87) (0.28)
---------- ---------- ---------- ----- ----- -------
Net asset value, end of period.......... $ 9.51 $ 10.26 $ 10.05 $ 9.59 $ 9.42 $ 9.98
---------- ---------- ---------- ----- ----- -------
---------- ---------- ---------- ----- ----- -------
TOTAL INVESTMENT RETURN+................ (1.50)% 8.43% 12.58% 10.78% 3.22% 2.57%(2)
---------- ---------- ---------- ----- ----- -------
---------- ---------- ---------- ----- ----- -------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)............................. $245,750 $254,431 $187,285 $115,204 $114,086 $69,946
Ratio of expenses to average net
assets................................. 1.63% 1.62% 1.69% 1.69% 1.75% 1.42%(1)(3)
Ratio of net investment income to
average net assets..................... 5.80% 6.12% 7.11% 8.49% 8.78% 8.18%(1)(3)
Portfolio turnover rate................. 122% 132% 93% 150% 135% 30%
<FN>
- ---------------
* COMMENCEMENT OF OPERATIONS.
+ DOES NOT REFLECT THE DEDUCTION OF SALES LOAD.
(1) ANNUALIZED.
(2) NOT ANNUALIZED.
(3) IF THE FUND HAD BORNE ALL THE EXPENSES THAT WERE ASSUMED OR WAIVED BY THE
INVESTMENT MANAGER, THE ABOVE EXPENSE RATIO WOULD HAVE BEEN 2.15% AND THE
ABOVE NET INVESTMENT INCOME RATIO WOULD HAVE BEEN 7.44%.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
1994 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended August 31, 1994, the Fund paid to shareholders
$0.022806 per share from long-term capital gains.
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of Dean Witter Intermediate Income Securities
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dean Witter Intermediate Income
Securities (the "Fund") at August 31, 1994, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the five years in
the period then ended and for the period May 3, 1989 (commencement of
operations) through August 31, 1989, 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 owned at August 31, 1994 by correspondence with the
custodian provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
October 12, 1994
<PAGE>
DEAN WITTER
INTERMEDIATE
INCOME
SECURITIES
[Photo]
ANNUAL REPORT
AUGUST 31, 1994
TRUSTEES
Jack F. Bennett
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. John E. Jeuck
Dr. Manuel H. Johnson
Paul Kolton
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
Edward R. Telling
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Secretary and General Counsel
Rochelle G. Siegel
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
LEGAL COUNSEL
Sheldon Curtis
Two World Trade Center
New York, New York 10048
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
This report is submitted for the general information of shareholders of the
Fund. For more detailed information about the Fund, its officers and trustees,
fees, expenses and other pertinent information, please see the prospectus of the
Fund.
This report is not authorized for distribution to prospective investors in the
Fund unless preceded or accompanied by an effective prospectus.
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
GROWTH OF $10,000
($ IN THOUSANDS)
<TABLE>
<CAPTION>
DATE TOTAL LEHMAN INTERMEDIATE
INVESTMENT GRADE DEBT INDEX
- -----------------------------------------------------------------------
<S> <C> <C>
May 3, 1989 $10,000 $10,000
- -----------------------------------------------------------------------
August 31, 1989 $10,257 $10,375
- -----------------------------------------------------------------------
August 31, 1990 $10,587 $11,047
- -----------------------------------------------------------------------
August 31, 1991 $11,729 $12,621
- -----------------------------------------------------------------------
August 31, 1992 $13,205 $14,686
- -----------------------------------------------------------------------
August 31, 1993 $14,318 $16,706
- -----------------------------------------------------------------------
August 31, 1994 $14,008(3) $16,382
- -----------------------------------------------------------------------
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 5 YEARS LIFE OF FUND
----------------------------------------
<S> <C> <C>
-1.50(1) 6.57(1) 6.67(1)
----------------------------------------
-6.14(2) 6.28(2) 6.53(2)
----------------------------------------
----------------------------------
_____ Fund _____ LEHMAN(4)
----------------------------------
Past performance is not predictive of future returns.
<FN>
___________________________________________
(1) Figure shown assumes reinvestment of all distributions and does not reflect
the deduction of sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction of
the maximum applicable contingent deferred sales charge (CDSC) (1 year-5%,
5 years-2%, since inception-1%). See the Fund's current prospectus for
complete details on fees and sales charges.
(3) Closing value after the deduction of a 1% CDSC, assuming a complete
redemption on August 31, 1994.
(4) The Lehman Brothers Intermediate Investment Grade Debt Index is an
unmanaged index of 5- to 10- year investment-grade corporate debt
securities.
</TABLE>