<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES TWO WORLD TRADE CENTER, NEW YORK,
NEW YORK 10048
LETTER TO THE SHAREHOLDERS AUGUST 31, 1996
DEAR SHAREHOLDER:
Interest rates were extremely volatile over the past twelve months, with yields
on U.S. intermediate-term Treasury securities falling nearly 0.75 percentage
points from August 31, 1995 through the end of the calendar year, only to rise
1.2 to 1.3 percentage points through the first eight months of 1996. On August
31, 1996, two-year U.S. Treasury notes yielded 6.34 percent and five-year notes
yielded 6.72 percent -- an increase of 0.50 and 0.66 percentage points,
respectively, from one year earlier.
Signs of a slowing economy, hopes for Congressional passage of a balanced-budget
resolution and reduced inflationary expectations laid a foundation for lower
interest rates into early 1996. At that time, the market chose to overlook a
standstill on budgetary legislation and an absence of reliable economic data
resulting from a temporary, partial government shutdown. However, in February
returning government employees reported a stronger economy than had previously
been believed. Most notably, employment was surprisingly healthy, with 700,000
new jobs reportedly created in January. As the year progressed, evidence
continued to point to a robust economy, which ultimately grew 4.8 percent in the
second quarter. Although inflation was still not an immediate threat, some
concern was evident as a result of wage increases and renewed pressure on some
sensitive commodity prices, including oil and lumber. The Federal Reserve Board
lowered interest rates through January 1996 but by the end of August
expectations for an increase in short-term rates had surfaced.
PERFORMANCE AND PORTFOLIO
For the fiscal year ended August 31, 1996, the Fund returned 2.58 percent, while
intermediate-term (five- to ten-year maturities) investment-grade corporate
bonds, as measured by the Lehman Brothers Intermediate Investment Grade Debt
Index, returned 3.73 percent, and intermediate-term (one- to ten-year
maturities) government and corporate bonds, as measured by the Lehman Brothers
Intermediate Government/Corporate Bond Index, returned 4.44 percent. The Fund's
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
LETTER TO THE SHAREHOLDERS AUGUST 31, 1996, CONTINUED
performance was hindered by rising interest rates in 1996. Early in the Fund's
fiscal year, performance was also affected by the Fund's holdings in Kmart and
Niagara Mohawk Power Corp., when the credit rating services downgraded the debt
of these companies. However, Kmart's financial outlook has improved, boosting
market prices for the company's bonds and enabling us to ultimately reduce the
Fund's commitment to this credit.
[GRAPHIC]
On August 31, 1996, the Fund's net
assets exceeded $208 million. During the
fiscal year, income dividends of $0.55
per share were distributed. At the
conclusion of the period under review,
the Fund's average maturity, including
temporary cash reserves, was 5.61 years
and its average duration was 3.91 years.
(Duration measures a bond fund's
sensitivity to interest-rate moves. A
fund's duration, when multiplied by the
percentage-point rise or fall in
interest rates, provides a rough
estimate of the probable resulting
percentage change to a fund's
principal.) Temporary reserves accounted
for 4.8 percent of investable assets and
securities with maturities of less than
one year accounted for 15 percent.
[GRAPHIC]
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,
1996, versus the performance of similar
hypothetical investments in the issues
that comprise the Lehman Brothers
Intermediate Investment Grade Debt Index
and the Lehman Brothers Intermediate
Government/Corporate Bond Index.
[GRAPHIC]
During the second half of the fiscal
year, a stronger economy and higher
interest rates created an environment
characterized by improved credit
perceptions for industrial companies and
a shortage of new fixed-income
securities issued by these companies.
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
LETTER TO THE SHAREHOLDERS AUGUST 31, 1996, CONTINUED
As a result, yields in this sector became less attractive relative to those in
finance and Yankee bonds (dollar-denominated bonds issued in the United States
by foreign entities). Because of this shift in relative value, we reduced the
Fund's commitment to industrials to 23 percent of the invested portion of the
portfolio from 34 percent a year earlier, while increasing investments in
finance and Yankees to 19 percent and 21 percent from 14 percent and 12 percent,
respectively. We continued to favor A-rated credits, with those rated below A
representing 23 percent of the invested portion of the portfolio, down from
nearly 27 percent a year ago. On August 31, 1996, 67 percent of the portfolio
was comprised of corporate bonds and 33 percent was government bonds. Over the
past six months, because of maturing debt and calls, some high-coupon bonds were
replaced with newer issues having lower coupons, thus reducing the portfolio's
average coupon to 7.16 percent. However, we anticipate that interest rates will
continue to rise through the end of 1996, which will result in a higher average
coupon for the Fund.
LOOKING AHEAD
In recent months, economic reports have been almost as volatile as interest
rates, but their trends suggest continued above-average growth. Despite some
signs of slackening consumer and business demand early in the third quarter,
recent indications -- most notably new factory orders and payroll reports --
suggest that the economy is losing relatively little steam. While inflation has
not been a threat to date, signs point to a possible increase later this year
and into 1997. Wages are increasing slightly faster than in the past few years;
oil prices are staying high, going into a period of traditionally strong demand;
consumer confidence is at historically high levels; and the housing and
automobile markets, while not accelerating, are maintaining impressive levels.
Given this environment, it is likely that interest rates will rise later this
year, spurred by the Federal Reserve Board, which may raise short-term rates
before year-end.
We appreciate your ongoing support of Dean Witter Intermediate Income Securities
and look forward to continuing to serve your investment needs.
Very truly yours,
[SIGNATURE]
CHARLES A. FIUMEFREDDO
CHAIRMAN OF THE BOARD
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS AUGUST 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (70.1%)
AEROSPACE & DEFENSE (1.9%)
$ 4,000 Lockheed Martin Corp.......................... 6.625% 06/15/98 $ 4,004,120
---------------
AUTOMOBILE - RENTALS (1.3%)
2,900 Hertz Corp.................................... 6.00 01/15/03 2,699,088
---------------
AUTOMOTIVE (2.1%)
4,300 Chrysler Corp................................. 10.40 08/01/99 4,451,575
---------------
AUTOMOTIVE - FINANCE (5.7%)
7,000 Ford Motor Credit Co.......................... 6.25 11/08/00 6,785,170
4,975 General Motors Acceptance Corp................ 8.40 10/15/99 5,169,722
---------------
11,954,892
---------------
BANK HOLDING COMPANIES (5.6%)
5,000 BankAmerica Corp.............................. 6.20 02/15/06 4,522,950
2,474 First Chicago Corp............................ 7.625 01/15/03 2,504,974
4,975 Star Bank N.A................................. 6.375 03/01/04 4,646,302
---------------
11,674,226
---------------
BANKS (4.0%)
5,000 Shawmut Bank Connecticut, N.A................. 8.625 02/15/05 5,303,450
3,000 Societe Generale - N.Y........................ 7.40 06/01/06 2,951,610
---------------
8,255,060
---------------
BANKS - INTERNATIONAL (4.0%)
3,400 ABN-AMRO Bank NV (Netherlands)................ 7.55 06/28/06 3,400,544
5,000 Santander Financial Issuances
(Cayman Islands).............................. 7.75 05/15/05 5,025,650
---------------
8,426,194
---------------
BROKERAGE (4.7%)
2,100 Bear Stearns Companies, Inc................... 6.75 08/15/00 2,071,566
3,000 Lehman Brothers Holdings, Inc................. 5.75 11/15/98 2,919,810
5,000 Morgan Stanley Group, Inc..................... 5.625 03/01/99 4,866,750
---------------
9,858,126
---------------
CABLE & TELECOMMUNICATIONS (2.1%)
5,000 Tele-Communications, Inc...................... 6.875 02/15/06 4,427,300
---------------
ELECTRONICS - SEMICONDUCTORS/COMPONENTS (3.4%)
3,000 Applied Materials Inc......................... 8.00 09/01/04 3,072,570
4,000 Texas Instruments, Inc........................ 6.875 07/15/00 3,980,520
---------------
7,053,090
---------------
FINANCE (7.6%)
3,000 Fireman's Fund Mortgage Corp.................. 8.875 10/15/01 3,153,720
7,250 Golden West Financial Corp.................... 10.25 05/15/97 7,453,666
5,000 Household Finance Corp........................ 7.65 05/15/07 5,004,450
---------------
15,611,836
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS AUGUST 31, 1996, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FOREIGN GOVERNMENT (5.7%)
$ 5,250 Israel (State of)............................. 6.375% 12/15/05 $ 4,792,095
5,000 Quebec (Province of) (Canada)................. 6.50 01/17/06 4,630,750
2,450 Republic of Indonesia......................... 7.75 08/01/06 2,404,185
---------------
11,827,030
---------------
HEALTHCARE (2.3%)
4,975 Columbia/HCA Healthcare Corp.................. 6.87 09/15/03 4,847,590
---------------
INDUSTRIALS (1.8%)
3,900 Comdisco, Inc................................. 5.75 02/15/01 3,687,879
---------------
LEISURE (1.5%)
3,000 Royal Caribbean Cruises, Ltd. (Liberia)....... 8.25 04/01/05 3,076,320
---------------
OIL COMPANY (0.9%)
2,000 Lasmo (U.S.A.) Inc............................ 7.125 06/01/03 1,951,660
---------------
OIL INTEGRATED - INTERNATIONAL (2.4%)
5,000 Societe Nationale Elf Aquitaine (France)...... 7.75 05/01/99 5,110,750
---------------
PAPER & FOREST PRODUCTS (3.2%)
2,000 Fletcher Challenge Capital (Canada)........... 7.75 06/20/06 1,997,560
4,900 Noranda Forest, Inc. (Canada)................. 6.875 11/15/05 4,616,241
---------------
6,613,801
---------------
RETAIL STORES (2.2%)
2,000 Kmart Corp.................................... 8.125 12/01/06 1,700,000
3,000 TJX Companies Inc............................. 6.625 06/15/00 2,926,290
---------------
4,626,290
---------------
TEXTILES (1.3%)
2,975 Burlington Industries, Inc.................... 7.25 09/15/05 2,810,542
---------------
UTILITIES - ELECTRIC (6.4%)
5,000 Chilgener S.A. (Chile)........................ 6.50 01/15/06 4,582,400
2,000 Commonwealth Edison Co........................ 7.50 01/01/01 1,988,820
2,000 Connecticut Light & Power Co.................. 7.875 06/01/01 1,995,220
500 Consolidated Edison Co. of New York, Inc...... 5.90 12/15/96 500,340
1,500 Niagara Mohawk Power Corp..................... 8.00 06/01/04 1,369,665
3,000 System Energy Resources, Inc.................. 7.71 08/01/01 2,993,970
---------------
13,430,415
---------------
TOTAL CORPORATE BONDS
(IDENTIFIED COST $152,021,731)....................................... 146,397,784
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS AUGUST 31, 1996, CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT & AGENCIES OBLIGATIONS (22.1%)
$ 2,000 Federal Home Loan Mortgage Corp............... 6.35 % 06/24/98 $ 1,994,940
1,000 Federal Home Loan Mortgage Corp............... 6.07 11/20/98 989,400
2,200 Federal Home Loan Mortgage Corp............... 6.905 06/11/99 2,200,066
190 Federal Home Loan Mortgage Corp............... 8.50 12/01/01 193,276
140 Federal Home Loan Mortgage Corp............... 8.50 01/01/02 142,325
474 Federal Home Loan Mortgage Corp............... 8.50 07/01/02 482,420
206 Federal Home Loan Mortgage Corp............... 9.00 08/01/02 212,272
1,700 Federal Home Loan Mortgage Corp............... 7.05 03/24/04 1,650,530
3,230 Federal National Mortgage Assoc............... 5.30 03/11/98 3,179,709
49 Federal National Mortgage Assoc............... 8.50 12/01/01 50,275
2,000 Federal National Mortgage Assoc............... 7.55 06/10/04 1,989,340
2,000 Federal National Mortgage Assoc............... 7.73 08/26/04 2,004,660
2,880 Private Export Funding Corp................... 6.86 04/30/04 2,873,520
12,600 U.S. Treasury Note............................ 6.75 02/28/97 12,668,544
5,000 U.S. Treasury Note............................ 5.125 04/30/98 4,910,950
5,000 U.S. Treasury Note............................ 6.75 06/30/99 5,029,650
1,300 U.S. Treasury Note............................ 5.75 10/31/00 1,255,930
3,500 U.S. Treasury Note............................ 5.75 08/15/03 3,287,935
1,000 U.S. Treasury Note............................ 7.00 07/15/06 1,003,760
---------------
TOTAL U.S. GOVERNMENT & AGENCIES OBLIGATIONS
(IDENTIFIED COST $46,553,206)........................................ 46,119,502
---------------
SHORT-TERM INVESTMENTS (4.6%)
U.S. GOVERNMENT AGENCY (a) (1.5%)
3,140 Federal National Mortgage Assoc............... 5.23 09/06/96 3,137,719
---------------
REPURCHASE AGREEMENT (3.1%)
6,496 The Bank of New York (dated 08/30/96; proceeds
$6,499,359; collateralized by $3,638,403
Federal Home Loan Banks 6.19% due 07/10/98
valued at $3,664,778 and $2,919,796 U.S.
Treasury Note 6.875% due 07/31/99 valued at
$2,960,796) (Identified Cost $6,495,660)...... 5.125 09/03/96 6,495,660
---------------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $9,633,379)......................................... 9,633,379
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS AUGUST 31, 1996, CONTINUED
<TABLE>
<CAPTION>
VALUE
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $208,208,316) (B).......... 96.8% $202,150,665
OTHER ASSETS IN EXCESS OF LIABILITIES....... 3.2 6,760,216
----- ------------
NET ASSETS.................................. 100.0% $208,910,881
----- ------------
----- ------------
<FN>
- ---------------------
* Non-income producing security.
(a) Security was purchased on a discount basis. The interest rate shown has
been adjusted to reflect a money market equivalent yield.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation was $354,493 and the
aggregate gross unrealized depreciation was $6,412,144, resulting in net
unrealized depreciation of $6,057,651.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1996
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $208,208,316)............................ $202,150,665
Receivable for:
Shares of beneficial interest sold...................... 3,642,981
Interest................................................ 3,630,048
Principal paydowns...................................... 25,314
Prepaid expenses............................................ 15,174
------------
TOTAL ASSETS........................................... 209,464,182
------------
LIABILITIES:
Payable for:
Plan of distribution fee................................ 149,125
Shares of beneficial interest repurchased............... 111,121
Investment management fee............................... 105,265
Dividends to shareholders............................... 58,478
Accrued expenses and other payables......................... 129,312
------------
TOTAL LIABILITIES...................................... 553,301
------------
NET ASSETS:
Paid-in-capital............................................. 223,580,672
Net unrealized depreciation................................. (6,057,651)
Accumulated undistributed net investment income............. 34,895
Accumulated net realized loss............................... (8,647,035)
------------
NET ASSETS............................................. $208,910,881
------------
------------
NET ASSET VALUE PER SHARE,
22,243,950 SHARES OUTSTANDING (UNLIMITED SHARES AUTHORIZED
OF $.01 PAR VALUE)........................................
$9.39
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $16,288,370
-----------
EXPENSES
Plan of distribution fee.................................... 1,894,592
Investment management fee................................... 1,337,360
Transfer agent fees and expenses............................ 178,366
Professional fees........................................... 62,554
Shareholder reports and notices............................. 51,684
Registration fees........................................... 33,905
Custodian fees.............................................. 18,911
Trustees' fees and expenses................................. 15,419
Other....................................................... 11,016
-----------
TOTAL EXPENSES......................................... 3,603,807
-----------
NET INVESTMENT INCOME.................................. 12,684,563
-----------
NET REALIZED AND UNREALIZED LOSS:
Net realized loss........................................... (788,498)
Net change in unrealized depreciation....................... (6,023,150)
-----------
NET LOSS............................................... (6,811,648)
-----------
NET INCREASE................................................ $ 5,872,915
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, 1996 AUGUST 31, 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 12,684,563 $ 14,431,429
Net realized loss........................................... (788,498) (2,372,243)
Net change in unrealized depreciation....................... (6,023,150) 6,706,091
--------------- ---------------
NET INCREASE........................................... 5,872,915 18,765,277
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income....................................... (12,688,795) (14,398,478)
Net realized gain........................................... -- (307,913)
--------------- ---------------
TOTAL.................................................. (12,688,795) (14,706,391)
--------------- ---------------
Net decrease from transactions in shares of beneficial
interest.................................................. (17,024,823) (17,057,209)
--------------- ---------------
TOTAL DECREASE......................................... (23,840,703) (12,998,323)
NET ASSETS:
Beginning of period......................................... 232,751,584 245,749,907
--------------- ---------------
END OF PERIOD
(INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF
$34,895 AND $39,127, RESPECTIVELY)...................... $ 208,910,881 $ 232,751,584
--------------- ---------------
--------------- ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1996
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's investment objective is high
current income consistent with safety of principal. The Fund was organized as a
Massachusetts business trust on September 1, 1988 and commenced operations on
May 3, 1989.
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 portfolio security listed or traded
on the New York or American Stock Exchange or other domestic or foreign exchange
or quoted by NASDAQ is valued at its latest sale price on that exchange or
quotation service prior to the time assets are valued; if there were no sales
that day, the security is valued at the latest bid price (in cases where a
security is traded on more than one exchange, the security is valued on the
exchange designated as the primary market pursuant to procedures adopted by the
Trustees); (2) all other portfolio securities for which over-the-counter market
quotations are readily available are valued at the latest available bid price;
(3) when market quotations are not readily available, including circumstances
under which it is determined by the Investment Manager that sale and 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 Trustees; (4) certain portfolio
securities may be valued by an outside pricing service approved by the Trustees.
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, 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.
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1996, CONTINUED
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined on the identified cost method.
Discounts are accreted over the life of the respective securities. Interest
income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends and
distributions to its shareholders on the 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.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Dean Witter InterCapital
Inc. (the "Investment Manager"), 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: 0.60% to 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
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1996, CONTINUED
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 dividend 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. ("DWR"), an affiliate of the
Investment Manager and Distributor, and other employees or selected
broker-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.
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.
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 Trustees will consider at that
time the manner in which to treat such expenses. The Distributor has advised the
Fund that such excess amounts, included carrying charges, totaled $6,167,490 at
August 31, 1996.
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1996, CONTINUED
The Distributor has informed the Fund that for the year ended August 31, 1996,
it received approximately $364,000 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, 1996, aggregated
$233,693,397 and $250,311,088, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $80,005,553 and
$66,339,993, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At August 31, 1996, the Fund had
transfer agent fees and expenses payable of approximately $16,000.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees 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. At August 31, 1996, the Fund had an accrued pension liability of
$49,061 which is included in accrued expenses in the Statement of Assets and
Liabilities.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
AUGUST 31, 1996 AUGUST 31, 1995
---------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold............................................................. 5,122,000 $ 49,165,458 4,829,143 $ 45,425,471
Reinvestment of dividends and distributions...................... 725,423 6,970,644 845,190 8,195,495
----------- -------------- ----------- ------------
5,847,423 56,136,102 5,674,333 53,620,966
Repurchased...................................................... (7,617,219) (73,160,925) (7,500,636) (70,678,175)
----------- -------------- ----------- ------------
Net decrease..................................................... (1,769,796) $ (17,024,823) (1,826,303) $(17,057,209)
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
</TABLE>
6. FEDERAL INCOME TAX STATUS
At August 31, 1996, the Fund had a net capital loss carryover of approximately
$6,966,000 of which $6,656,000 will be available through August 31, 2003 and
$310,000 will be available through August 31, 2004 to offset future capital
gains to the extent provided by regulations. Capital losses incurred after
October 31 ("post-October losses") within the taxable year are deemed to arise
on the
<PAGE>
DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS AUGUST 31, 1996, CONTINUED
first business day of the Fund's next taxable year. The Fund incurred and will
elect to defer net capital losses of approximately $1,681,000 during fiscal
1996. As of August 31, 1996, the Fund had temporary book/tax differences
primarily attributable to post-October losses.
<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
MAY 3,
1989*
FOR THE YEAR ENDED AUGUST 31 THROUGH
--------------------------------------------------------------------------- AUGUST
1996 1995 1994 1993 1992 1991 1990 31, 1989
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value,
beginning of period............... $ 9.69 $ 9.51 $ 10.26 $ 10.05 $ 9.59 $ 9.42 $ 9.98 $ 10.00
--------- --------- --------- --------- --------- --------- --------- ---------
Net investment income.............. 0.55 0.59 0.58 0.62 0.70 0.79 0.86 0.28
Net realized and unrealized gain
(loss)............................ (0.30) 0.19 (0.73) 0.20 0.46 0.17 (0.55) (0.02)
--------- --------- --------- --------- --------- --------- --------- ---------
Total from investment operations... 0.25 0.78 (0.15) 0.82 1.16 0.96 0.31 0.26
--------- --------- --------- --------- --------- --------- --------- ---------
Less dividends and distributions
from:
Net investment income........... (0.55) (0.59) (0.56) (0.61) (0.70) (0.79) (0.86) (0.28)
Net realized gain............... -- (0.01) (0.04) -- -- -- (0.01) --
--------- --------- --------- --------- --------- --------- --------- ---------
Total dividends and
distributions..................... (0.55) (0.60) (0.60) (0.61) (0.70) (0.79) (0.87) (0.28)
--------- --------- --------- --------- --------- --------- --------- ---------
Net asset value, end of period..... $ 9.39 $ 9.69 $ 9.51 $ 10.26 $ 10.05 $ 9.59 $ 9.42 $ 9.98
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
TOTAL INVESTMENT RETURN+........... 2.58% 8.56% (1.50)% 8.43% 12.58% 10.78% 3.22% 2.57%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses........................... 1.62% 1.63% 1.63% 1.62% 1.69% 1.69% 1.75% 1.42%(2)(3)
Net investment income.............. 5.69% 6.23% 5.80% 6.12% 7.11% 8.49% 8.78% 8.18%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in
thousands......................... $208,911 $232,752 $245,750 $254,431 $187,285 $115,204 $114,086 $69,946
Portfolio turnover rate............ 115% 114% 122% 132% 93% 150% 135% 30%(1)
<FN>
- ---------------------
* Commencement of operations.
+ 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) If the Fund had borne all the expenses that were assumed or waived by the
Investment Manager, the above expense and net investment income ratios
would have been 2.15% and 7.44%, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<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, 1996, 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 seven 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 at August 31, 1996 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
OCTOBER 11, 1996
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo DEAN WITTER
Edwin J. Garn INTERMEDIATE
John R. Haire INCOME
Dr. Manuel H. Johnson SECURITIES
Michael E. Nugent
Phillip J. Purcell [GRAPHIC]
John L. Schroeder
ANNUAL REPORT
AUGUST 31, 1996
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
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
- -------------------------------------------------------------------------------
DATE TOTAL LEHMAN INTMDT LEHMAN INTMDT
INV. GRADE DEBT IX GOVT/CORP BOND IX
- -------------------------------------------------------------------------------
May 3, 1989 $10,000 $10,000 $10,000
- -------------------------------------------------------------------------------
August 31, 1989 $10,257 $10,375 $10,327
- -------------------------------------------------------------------------------
August 31, 1990 $10,587 $11,047 $11,161
- -------------------------------------------------------------------------------
August 31, 1991 $11,729 $12,621 $12,589
- -------------------------------------------------------------------------------
August 31, 1992 $13,205 $14,686 $14,241
- -------------------------------------------------------------------------------
August 31, 1993 $14,318 $16,706 $15,556
- -------------------------------------------------------------------------------
August 31, 1994 $14,103 $16,382 $15,505
- -------------------------------------------------------------------------------
August 31, 1995 $15,310 $18,552 $16,973
- -------------------------------------------------------------------------------
August 31, 1996 $15,705 (3) $19,244 $17,726
- -------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 5 YEARS LIFE OF FUND
---------------------------------------
2.58 (1) 6.01 (1) 6.35 (1)
---------------------------------------
-2.27 (2) 5.70 (2) 6.35 (2)
---------------------------------------
-------------------------------------------------------------------------
___ Fund ___ LEHMAN Intmdt Inv Gr Ix (4) ___ LEHMAN Intmt G/C Ix (5)
-------------------------------------------------------------------------
Past performance is not predictive of future returns.
- ---------------------
(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-0%).
See the Fund's current prospectus for complete details on
fees and sales charges.
(3) Closing value assuming a complete redemption on August 31, 1996.
(4) The Lehman Brothers Intermediate Investment Grade Debt Index
measures the performance of 5-to 10- year investment-grade
corporate debt securities. The index does not include any
expenses, fees or charges. The index is unmanaged and should not
be considered an investment.
(5) The Lehman Brothers Intermediate Government/Corporate Bond
Index tracks the performance of government and corporate
obligations, including U.S. government agency and U.S. treasury
securities and corporate and yankee bonds, with maturities of
one to ten years. The index is unmanaged and should not be
considered an investment.
