<PAGE> 1
DEAN WITTER INTERMEDIATE INCOME SECURITIES Two World Trade Center,
New York,New York 10048
LETTER TO THE SHAREHOLDERS February 28, 1998
DEAR SHAREHOLDER:
Over the past six months, interest rates trended lower and inflation remained
benign, even slowing, despite a robust economy and tight labor markets. Turmoil
in the Asian financial markets brought with it a flight to quality in U.S.
government securities amid concerns that demand for U.S. products would slow,
eventually weakening the U.S. economy. This combination of factors pushed
interest rates on intermediate- and longer-term maturities down far more than on
shorter-term Treasuries.
The markets anticipated continued low interest rates throughout 1998 due to the
potential for a balanced federal budget and fallout from the financial
disruptions in Asia. Yet as 1998 began, the outlook for Asia appeared to
brighten and economic activity continued at a rapid pace, reducing the
probability of lower interest rates in the near term. As a result, interest
rates began to retrace their recent path, rising by 25 to 35 basis points by the
end of February. On February 27, 1998, five-year Treasuries yielded 5.58 percent
while ten-year notes yielded 5.63 percent, still down 64 and 72 basis points,
respectively, from where they were in September.
PERFORMANCE AND PORTFOLIO
For the six-month period ended February 28, 1998, the Fund's Class A, B, C, and
D shares had total returns of 4.17 percent, 3.73 percent, 3.49 percent and 4.17
percent, respectively versus 4.60 and 4.94 percent for the Lehman Intermediate
Government/Corporate Bond Index (which tracks U.S. government and corporate
bonds with maturities of one to ten years) and the Lipper Intermediate
Investment Grade Debt Index. For the six months ended February 28, 1998, the
Lehman Intermediate Corporate Bond Index returned 4.72 percent. Performance of
the Fund's four share classes varies because of differing sales charges and
expenses.
The Fund's performance was aided by modest maturity extensions that allowed it
to benefit to an extent from the decline in interest rates. However, performance
was negatively affected by Korean debt
<PAGE> 2
DEAN WITTER INTERMEDIATE INCOME SECURITIES
LETTER TO THE SHAREHOLDERS February 28, 1998, continued
investments which the Fund purchased before the Korean currency suddenly lost
value in November-December. While these securities have since appreciated
significantly from their year-end lows, they remain substantially below their
purchase price. We believe that our investments in Korean debt may have a
positive impact on performance in 1998, continuing to improve in price over the
coming months as Korea seeks solutions to its economic problems.
With credit risk heightened by Asia's potential impact on the U.S. economy, the
Fund increased its U.S. Government and Agency obligations allocation from 14
percent of invested assets to nearly 17 percent. The Fund reduced its
allocations to industrials and lower-rated utilities while marginally increasing
its bank and finance holdings. In an attempt to protect the portfolio from
possible future credit risk, the Fund reduced its exposure to BBB-rated
corporates in favor of higher-rated corporates and Treasuries. On February 28,
1998, approximately 31 percent of the invested portion of the portfolio was
rated Baa by Moody's and BBB by Standard & Poor's, compared to just over 36
percent on August 29, 1997. At the end of the period, the average maturity of
the Fund, including cash reserves, was 5.37 years, the average duration (a
measure of a portfolio's sensitivity to interest-rate changes) was 4.09 years
and the average quality rating was A3.
LOOKING AHEAD
In the near term we believe that corporate yields are likely to remain volatile.
This has been seen in recent months as investor concerns about future earnings
have pushed yields on BBB-rated corporates higher and widened the yield
differentials between these bonds and comparable maturity Treasuries by as much
as 0.5 percentage points. The near-record supply of new corporate debt appears
to have further contributed to yield pressures on many corporate bonds.
As 1998 progresses, we expect that yield differentials between shorter- and
longer-maturity securities may return to their historical norms, with investors
adjusting to a stable interest-rate environment within a healthy economy.
We appreciate your ongoing support of Dean Witter Intermediate Income Securities
and look forward to continuing to serve your investment needs.
Very truly yours,
/S/ CHARLES A. FIUMEFREDDO
CHARLES A. FIUMEFREDDO
Chairman of the Board
<PAGE> 3
DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS February 28, 1998 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (81.6)
Automobile - Rentals (2.1%)
$ 3,250 Hertz Corp. ......................... 6.00 % 01/15/03 $ 3,219,092
-----------
Automotive - Finance (3.3%)
4,975 General Motors Acceptance Corp. ..... 8.40 10/15/99 5,156,985
-----------
Bank Holding Companies (6.6%)
4,900 Citicorp. ........................... 7.75 06/15/06 5,322,576
4,975 Star Bank N.A. ...................... 6.375 03/01/04 4,990,373
-----------
10,312,949
-----------
Banks (13.6%)
4,000 Bank One Corp. ...................... 7.60 05/01/07 4,344,534
3,000 Banque Nationale De Paris (France)... 7.20 01/15/07 3,093,900
3,000 Capital One Bank..................... 6.375 02/15/03 2,972,670
5,045 Shawmut Bank Connecticut, N.A. ...... 8.625 02/15/05 5,675,221
5,000 Societe Generale N.A. Inc. .......... 7.40 06/01/06 5,211,450
-----------
21,297,775
-----------
Brokerage (4.0%)
6,200 Salomon, Inc. ....................... 6.50 03/01/00 6,234,782
-----------
Cable & Telecommunications (2.6%)
4,000 News American Holdings, Inc. ........ 7.50 03/01/00 4,098,600
-----------
Chemicals (1.3%)
2,000 Millennium America, Inc. ............ 7.00 11/15/06 2,016,040
-----------
Chemicals - Specialty (1.3%)
2,000 W. R. Grace & Co. ................... 7.40 02/01/00 2,048,420
-----------
Computers (1.2%)
1,900 Oracle Corp. ........................ 6.91 02/15/07 1,933,611
-----------
Financial (4.6%)
2,000 Ikon Capital Inc. ................... 6.73 06/15/01 2,035,120
5,037 Nac Re Corp. ........................ 8.00 06/15/99 5,159,399
-----------
7,194,519
-----------
Foreign Government (3.3%)
5,250 Israel (State of).................... 6.375 12/15/05 5,138,438
-----------
Funeral Services (1.9%)
3,000 Stewart Enterprises, Inc. ........... 6.70 12/01/03 3,036,270
-----------
Healthcare (1.2%)
2,000 Columbia/HCA Healthcare Corp. ....... 7.15 03/30/04 1,916,040
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 4
DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS February 28, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Leisure (1.8%)
$ 2,900 Mirage Resorts, Inc. ................ 6.75 % 02/01/08 $ 2,864,098
-----------
Oil & Gas (1.3%)
2,000 Williams Companies, Inc. - 144A*..... 5.95 02/15/00 1,991,200
-----------
Oil Integrated - International (3.3%)
5,000 Societe Nationale Elf Aquitaine
(France)............................. 7.75 05/01/99 5,108,200
-----------
Oil Refineries (2.0%)
3,000 Tosco Corp. ......................... 7.625 05/15/06 3,195,450
-----------
Paper & Forest Products (5.9%)
4,000 Donohue Forest Products (Canada)..... 7.625 05/15/07 4,283,360
4,949 Noranda Forest, Inc. (Canada)........ 6.875 11/15/05 4,952,860
-----------
9,236,220
-----------
Retail Stores (1.9%)
3,000 TJX Companies, Inc. ................. 6.625 06/15/00 3,026,700
-----------
Semiconductor Equipment (2.9%)
4,500 Applied Materials, Inc. ............. 6.75 10/15/07 4,539,465
-----------
Steel & Iron (2.2%)
4,000 Pohang Iron & Steel Co. (South
Korea)............................... 7.125 11/01/06 3,354,640
-----------
Telecommunications (1.4%)
2,000 WorldCom, Inc. ...................... 7.75 04/01/07 2,158,720
-----------
Textiles (1.9%)
2,975 Burlington Industries, Inc. ......... 7.25 09/15/05 3,033,161
-----------
Utilities - Electric (10.0%)
2,000 Arizona Public Service Co. .......... 7.625 06/15/99 2,038,260
2,000 Commonwealth Edison Co. ............. 7.50 01/01/01 2,013,500
5,000 DR Investments (England) - 144A*..... 7.45 05/15/07 5,340,750
3,000 System Energy Resources, Inc. ....... 7.71 08/01/01 3,109,230
3,000 Western Resources, Inc. ............. 6.875 08/01/04 3,066,000
-----------
15,567,740
-----------
TOTAL CORPORATE BONDS
(Identified Cost $126,467,445)............................ 127,679,115
-----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS (16.4%)
1,000 Federal Home Loan Banks.............. 6.25 08/07/00 1,003,080
111 Federal Home Loan Mortgage Corp. .... 8.50 12/01/01 112,818
80 Federal Home Loan Mortgage Corp. .... 8.50 01/01/02 80,795
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 5
DEAN WITTER INTERMEDIATE INCOME SECURITIES
PORTFOLIO OF INVESTMENTS February 28, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 235 Federal Home Loan Mortgage Corp. .... 8.50 % 07/01/02 $ 238,653
126 Federal Home Loan Mortgage Corp. .... 9.00 08/01/02 129,132
3,230 Federal National Mortgage Assoc. .... 5.30 03/11/98 3,229,774
1,000 Federal National Mortgage Assoc. .... 6.00 12/15/00 1,000,180
36 Federal National Mortgage Assoc. .... 8.50 12/01/01 37,437
2,000 Federal National Mortgage Assoc. .... 7.55 06/10/04 2,036,220
2,000 Federal National Mortgage Assoc. .... 7.73 08/26/04 2,047,160
2,340 Private Export Funding Corp. ........ 6.86 04/30/04 2,414,880
4,000 U.S. Treasury Note................... 6.25 03/31/99 4,030,280
1,000 U.S. Treasury Note................... 6.375 05/15/00 1,016,390
2,000 U.S. Treasury Note................... 5.75 10/31/00 2,008,780
1,000 U.S. Treasury Note................... 6.625 06/30/01 1,030,690
2,000 U.S. Treasury Note................... 5.875 09/30/02 2,019,680
3,000 U.S. Treasury Note................... 6.50 05/15/05 3,146,460
-----------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Identified Cost $25,231,640)............................. 25,582,409
-----------
SHORT-TERM INVESTMENT (0.6%)
REPURCHASE AGREEMENT
954 The Bank of New York (dated 02/27/98;
proceeds $954,714) (a)
(Identified Cost $954,282).......... 5.438 03/02/98 954,282
-----------
TOTAL INVESTMENTS
(Identified Cost $152,653,367) (b)................. 98.6% 154,215,806
OTHER ASSETS IN EXCESS OF LIABILITIES............... 1.4 2,115,374
----- -----------
NET ASSETS........................................ 100.0% $156,331,180
===== ============
</TABLE>
- ---------------------
* Resale is restricted to qualified institutional investors.
(a) Collateralized by $111,907 Federal Home Loan Banks 7.35% due 09/19/11
valued at $128,933, $775,000 Federal National Mortgage Assoc. 0.00% due
03/17/98 valued at $772,742 and $72,363 Federal National Mortgage Assoc.
0.00% due 04/28/98 valued at $71,692.
(b) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate gross unrealized appreciation is $2,938,296 and the
aggregate gross unrealized depreciation is $1,375,857, resulting in net
unrealized appreciation of $1,562,439.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1998 (unaudited)
ASSETS:
Investments in securities, at value
(identified cost $152,653,367)............................. $154,215,806
Receivable for:
Investments sold........................................ 4,213,284
Interest................................................ 2,851,210
Shares of beneficial interest sold...................... 81,018
Principal paydowns...................................... 11,775
Prepaid expenses and other assets........................... 28,017
------------
TOTAL ASSETS............................................ 161,401,110
------------
LIABILITIES:
Payable for:
Investments purchased................................... 4,135,708
Shares of beneficial interest repurchased............... 608,202
Plan of distribution fee................................ 104,822
Investment management fee............................... 77,011
Dividends and distributions to shareholders............. 46,162
Accrued expenses and other payables......................... 98,025
------------
TOTAL LIABILITIES....................................... 5,069,930
------------
NET ASSETS.............................................. $156,331,180
============
COMPOSITION OF NET ASSETS:
Paid-in-capital............................................. $164,974,378
Net unrealized appreciation................................. 1,562,439
Accumulated undistributed net investment income............. 24,796
Accumulated net realized loss............................... (10,230,433)
------------
NET ASSETS.............................................. $156,331,180
============
CLASS A SHARES:
Net Assets.................................................. $1,041,360
Shares Outstanding (unlimited authorized, $.01 par value)... 107,356
NET ASSET VALUE PER SHARE............................... $9.70
============
MAXIMUM OFFERING PRICE PER SHARE,
(net asset value plus 4.44% of net asset value)........ $10.13
============
CLASS B SHARES:
Net Assets.................................................. $149,306,757
Shares Outstanding (unlimited authorized, $.01 par value)... 15,400,533
NET ASSET VALUE PER SHARE............................... $9.69
============
CLASS C SHARES:
Net Assets.................................................. $221,502
Shares Outstanding (unlimited authorized, $.01 par value)... 22,853
NET ASSET VALUE PER SHARE............................... $9.69
============
CLASS D SHARES:
Net Assets.................................................. $5,761,561
Shares Outstanding (unlimited authorized, $.01 par value)... 594,380
NET ASSET VALUE PER SHARE............................... $9.69
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL STATEMENTS, continued
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the six months ended February 28, 1998 (unaudited)
NET INVESTMENT INCOME:
INTEREST INCOME............................................. $5,772,405
----------
EXPENSES
Plan of distribution fee (Class A shares)................... 1,174
Plan of distribution fee (Class B shares)................... 669,497
Plan of distribution fee (Class C shares)................... 656
Investment management fee................................... 493,708
Transfer agent fees and expenses............................ 86,564
Registration fees........................................... 72,177
Shareholder reports and notices............................. 32,029
Professional fees........................................... 23,222
Custodian fees.............................................. 10,914
Trustees' fees and expenses................................. 9,316
Other....................................................... 4,346
----------
TOTAL EXPENSES.......................................... 1,403,603
----------
NET INVESTMENT INCOME................................... 4,368,802
----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain........................................... 984,364
Net change in unrealized appreciation....................... 791,872
----------
NET GAIN................................................ 1,776,236
----------
NET INCREASE................................................ $6,145,038
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL STATEMENTS, continued
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 28, 1998 AUGUST 31, 1997*
- ------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................... $ 4,368,802 $ 10,272,537
Net realized gain (loss)............................ 984,364 (2,567,762)
Net change in unrealized
appreciation/depreciation.......................... 791,872 6,828,218
------------ ------------
NET INCREASE.................................... 6,145,038 14,532,993
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME:
Class A shares...................................... (31,749) (58)
Class B shares...................................... (4,181,668) (10,229,881)
Class C shares...................................... (3,917) (83)
Class D shares...................................... (179,034) (25,048)
------------ ------------
TOTAL DIVIDENDS................................. (4,396,368) (10,255,070)
------------ ------------
Net decrease from transactions in shares of
beneficial interest................................ (15,150,035) (43,456,259)
------------ ------------
NET DECREASE.................................... (13,401,365) (39,178,336)
NET ASSETS:
Beginning of period................................. 169,732,545 208,910,881
------------ ------------
END OF PERIOD
(Including undistributed net investment income
of $24,796 and $52,362, respectively)........... $156,331,180 $169,732,545
============ ============
</TABLE>
- ---------------------
* Class A, Class C and Class D shares were issued July 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS February 28, 1998 (unaudited)
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. On July 28, 1997, the Fund commenced offering three additional
classes of shares, with the then current shares, other than shares held by
certain employee benefit plans established by Dean Witter Reynolds Inc. and its
affiliate, SPS Transaction Services, Inc., designated as Class B shares. Shares
held by those employee benefit plans prior to July 28, 1997 have been designated
Class D shares.
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, 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;
(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 Dean Witter InterCapital Inc (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
(valuation of debt securities for which market quotations are not readily
available may be based upon current market prices of securities which are
comparable in coupon, rating and maturity or an appropriate matrix utilizing
similar factors); (4) certain portfolio securities may be valued by an outside
pricing service approved by the Trustees. The pricing service may utilize a
matrix system incorporating security quality, maturity and coupon as the
evaluation model
<PAGE> 10
DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS February 28, 1998 (unaudited) continued
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.
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 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.
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 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
<PAGE> 11
DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS February 28, 1998 (unaudited) continued
close of each business day: 0.60% of the portion of the daily net assets not
exceeding $500 million; 0.50% of the portion of daily net assets exceeding $500
million but not exceeding $750 million; 0.40% of the portion of the daily net
assets exceeding $750 million but not exceeding $1 billion; and 0.30% of the
portion of the 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. The Plan
provides that the Fund will 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 -- 0.85% of the lesser of :
(a) the average daily aggregate gross sales of the Class B shares since the
inception of the Fund (not including reinvestment of dividend or capital gain
distributions) less the average daily aggregate net asset value of the Class B
shares redeemed since the Fund's inception upon which a contingent deferred
sales charge had been imposed or waived; (b) 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 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 these
Classes 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 others who engage in or support distribution of the 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 these shares to other than current shareholders; and
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 DWR 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
<PAGE> 12
DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS February 28, 1998 (unaudited) continued
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 Trustees 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 $5,489,316 at
February 28, 1998.
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 account executives may be reimbursed in the subsequent
calendar year. For the six months ended February 28, 1998, the distribution fee
was accrued for Class A shares and Class C shares at the annual rate of 0.25%
and 0.85%, respectively.
The Distributor has informed the Fund that for the six months ended February 28,
1998, it received contingent deferred sales charges from certain redemptions of
the Fund's Class B shares and Class C shares of $97,349 and $481, respectively
and received $8,370 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 six months ended February 28, 1998, aggregated
$76,623,172 and $89,271,543, respectively. Included in the aforementioned are
purchases and sales of U.S. Government securities of $29,175,281 and
$26,229,813, respectively.
Dean Witter Trust FSB, an affiliate of the Investment Manager and Distributor,
is the Fund's transfer agent. At February 28, 1998, the Fund had transfer agent
fees and expenses payable of approximately $3,350.
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. Aggregate pension costs for the six months ended February 28, 1998
included in Trustees' fees and expenses in the Statement of Operations amounted
to $1,822. At February 28, 1998, the Fund had an accrued pension liability of
$49,096 which is included in accrued expenses in the Statement of Assets and
Liabilities.
<PAGE> 13
DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS February 28, 1998 (unaudited) continued
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
FEBRUARY 28, 1998 AUGUST 31, 1997+*
------------------------- ---------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
CLASS A SHARES
Sold........................................................ 88,676 $ 859,449 193,347 $ 1,854,318
Reinvestment of dividends................................... 855 8,270 5 54
Redeemed.................................................... (175,527) (1,697,377) -- --
---------- ------------ ----------- -------------
Net increase (decrease) - Class A........................... (85,996) (829,658) 193,352 1,854,372
---------- ------------ ----------- -------------
CLASS B SHARES
Sold........................................................ 7,803,699 75,617,265 8,499,296 80,974,547
Reinvestment of dividends................................... 229,703 2,221,684 587,192 5,604,585
Redeemed.................................................... (9,618,209) (93,158,822) (13,839,797) (131,962,423)
---------- ------------ ----------- -------------
Net decrease - Class B...................................... (1,584,807) (15,319,873) (4,753,309) (45,383,291)
---------- ------------ ----------- -------------
CLASS C SHARES
Sold........................................................ 29,269 282,730 3,993 38,561
Reinvestment of dividends................................... 322 3,110 6 56
Redeemed.................................................... (10,737) (103,838) -- --
---------- ------------ ----------- -------------
Net increase - Class C...................................... 18,854 182,002 3,999 38,617
---------- ------------ ----------- -------------
CLASS D SHARES
Sold........................................................ 286,140 2,760,341 10,611 102,479
Reinvestment of dividends................................... 16,933 163,785 2,476 23,704
Redeemed.................................................... (217,534) (2,106,632) (9,547) (92,140)
---------- ------------ ----------- -------------
Net increase - Class D...................................... 85,539 817,494 3,540 34,043
---------- ------------ ----------- -------------
Net decrease in Fund........................................ (1,566,410) $(15,150,035) (4,552,418) $ (43,456,259)
========== ============ =========== =============
</TABLE>
- ---------------------
+ On July 28, 1997, 505,301 shares representing $4,891,310 were transferred to
Class D.
* For Class A, C, and D shares, for the period July 28, 1997 (issue date)
through August 31, 1997.
6. FEDERAL INCOME TAX STATUS
At August 31, 1997, the Fund had a net capital loss carryover of approximately
$9,320,000,000, 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:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
----------------------
2003 2004 2005
------ ---- ------
<S> <C> <C>
$6,656 $313 $2,351
====== ==== ======
</TABLE>
<PAGE> 14
DEAN WITTER INTERMEDIATE INCOME SECURITIES
NOTES TO FINANCIAL STATEMENTS February 28, 1998 (unaudited) continued
Capital losses incurred after October 31 ("post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $1,877,000 during fiscal 1997.
As of August 31, 1997, the Fund had temporary book/tax differences primarily
attributable to post-October losses.
<PAGE> 15
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 SIX FOR THE YEAR ENDED AUGUST 31
MONTHS ENDED ----------------------------------------------------
FEBRUARY 28, 1998++ 1997*++ 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
CLASS B SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................. $ 9.59 $ 9.39 $ 9.69 $ 9.51 $10.26 $10.05
------ ------ ------ ------ ------ ------
Net investment income................................ 0.25 0.53 0.55 0.59 0.58 0.62
Net realized and unrealized gain (loss).............. 0.11 0.20 (0.30) 0.19 (0.73) 0.20
------ ------ ------ ------ ------ ------
Total from investment operations..................... 0.36 0.73 0.25 0.78 (0.15) 0.82
------ ------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income............................. (0.26) (0.53) (0.55) (0.59) (0.56) (0.61)
Net realized gain................................. -- -- -- (0.01) (0.04) --
------ ------ ------ ------ ------ ------
Total dividends and distributions.................... (0.26) (0.53) (0.55) (0.60) (0.60) (0.61)
------ ------ ------ ------ ------ ------
Net asset value, end of period....................... $ 9.69 $ 9.59 $ 9.39 $ 9.69 $ 9.51 $10.26
====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN+............................. 3.73%(1) 7.93% 2.58% 8.56% (1.50)% 8.43%
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................. 1.74%(2) 1.65% 1.62% 1.63% 1.63% 1.62%
Net investment income................................ 5.28%(2) 5.52% 5.69% 6.23% 5.80% 6.12%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands.............. $149,307 $162,959 $208,911 $232,752 $245,750 $254,431
Portfolio turnover rate.............................. 48%(1) 98% 115% 114% 122% 132%
</TABLE>
- ---------------------
* Prior to July 28, 1997, the Fund issued one class of shares. All shares of
the Fund held prior to that date, other than shares held by certain employee
benefit plans established by Dean Witter Reynolds Inc. and its affiliate,
SPS Transaction Services, Inc., have been designated as Class B shares.
Shares held by those employee benefit plans prior to July 28, 1997 have been
designated Class D shares.
++ 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.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 16
DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JULY 28, 1997*
MONTHS ENDED THROUGH
FEBRUARY 28, 1998++ AUGUST 31, 1997++
- ---------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS A SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 9.59 $ 9.68
------ ------
Net investment income....................................... 0.29 0.06
Net realized and unrealized gain (loss)..................... 0.11 (0.10)
------ ------
Total from investment operations............................ 0.40 (0.04)
------ ------
Less dividends from net investment income................... (0.29) (0.05)
------ ------
Net asset value, end of period.............................. $ 9.70 $ 9.59
====== ======
TOTAL INVESTMENT RETURN+.................................... 4.17%(1) (0.46)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.14%(2) 2.18%(2)
Net investment income....................................... 5.86%(2) 6.10%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $1,041 $1,855
Portfolio turnover rate..................................... 48%(1) 98%
CLASS C SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 9.61 $ 9.68
------ ------
Net investment income....................................... 0.24 0.04
Net realized and unrealized gain (loss)..................... 0.09 (0.07)
------ ------
Total from investment operations............................ 0.33 (0.03)
------ ------
Less dividends from net investment income................... (0.25) (0.04)
------ ------
Net asset value, end of period.............................. $ 9.69 $ 9.61
====== ======
TOTAL INVESTMENT RETURN+.................................... 3.49%(1) (0.31)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 1.66%(2) 2.02%(2)
Net investment income....................................... 5.11%(2) 4.22%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $222 $38
Portfolio turnover rate..................................... 48%(1) 98%
</TABLE>
- ---------------------
* 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.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 17
DEAN WITTER INTERMEDIATE INCOME SECURITIES
FINANCIAL HIGHLIGHTS, continued
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JULY 28, 1997*
MONTHS ENDED THROUGH
FEBRUARY 28, 1998++ AUGUST 31, 1997++
- ---------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
CLASS D SHARES
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 9.59 $ 9.68
------ ------
Net investment income....................................... 0.29 0.05
Net realized and unrealized gain (loss)..................... 0.11 (0.09)
------ ------
Total from investment operations............................ 0.40 (0.04)
------ ------
Less dividends from net investment income................... (0.30) (0.05)
------ ------
Net asset value, end of period.............................. $ 9.69 $ 9.59
====== ======
TOTAL INVESTMENT RETURN+.................................... 4.17%(1) (0.44)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses.................................................... 0.88%(2) 1.11%(2)
Net investment income....................................... 6.13%(2) 5.91%(2)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands..................... $5,762 $4,880
Portfolio turnover rate..................................... 48%(1) 98%
</TABLE>
- ---------------------
* The date shares were first issued.
++ 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) Not annualized.
(2) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 18
(This Page Intentionally Left Blank)
<PAGE> 19
(This Page Intentionally Left Blank)
<PAGE> 20
TRUSTEES
- ----------------------------
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
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
Barry Fink
Vice President, Secretary and General Counsel
Rochelle G. Siegel
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
- ----------------------------
Dean Witter Trust FSB
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
The financial statements included herein have been taken from the records of the
Fund without examination by the independent accountants and accordingly they
do not express an opinion thereon.
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.
DEAN WITTER
INTERMEDIATE
INCOME
SECURITIES
[PHOTO]
Semiannual Report
February 28, 1998
