<PAGE> 1
INTERCAPITAL INCOME SECURITIES, INC.
Two World Trade Center
New York, New York 10048
DEAR SHAREHOLDER:
- --------------------------------------------------------------------------------
The fiscal year ended September 30, 1994 began on a positive note with the
bond markets benefiting from lower interest rates. However, by the second half
of the period, questions concerning the strength of the economy, the future
direction of interest rates, inflation prospects and possible Federal Reserve
Board actions began to impact bond-market performance.
RISING INTEREST RATES
After growing by 7 percent over the last three months of 1993, the U.S.
economy continued to exhibit signs of strength during the first half of 1994. On
February 4, 1994, the Federal Reserve Board initiated the first in a series of
five interest rate increases, taking the federal-funds rate, the interest rate
banks charge each other for overnight loans, from 3.00 percent to 4.75 percent
by late August. The central bank's policy shift also affected the discount rate,
the rate the Federal Reserve Board charges member banks for loans, which rose
from 3.00 percent to 4.00 percent. These actions were prompted by a surge in
economic growth and heightened inflationary fears. Despite an improvement in
employment, increases in personal income and a higher rate of capacity usage by
factories and mines, inflationary pressure remained subdued through August.
As the summer unfolded, the Federal Reserve Board's monetary policy
appeared to be having an impact as potential inflationary pressures began to
wane. However, by September, sentiment on the inflation front shifted, with the
most recent Producer Price Index report showing a much larger increase than in
prior months. Labor markets also appeared to be gaining strength as weekly
jobless claims declined and sporadic evidence of shortages for skilled labor
materialized. The stronger labor picture sparked concern over future potential
pressure on wages -- a major contributor to higher prices. By September 30,
1994, interest rates on short-and intermediate-term U.S. Treasury securities
were more than 2.25 percentage points higher compared to interest rate levels 12
months ago, the five-year rate was yielding 7.28 percent and the benchmark
30-year bond had recorded its worst 12-month performance in 67 years.
Against this backdrop, InterCapital Income Securities, Inc. provided a
total return for the fiscal year ended September 30, 1994 of -14.12 percent,
based on a $16.875 closing market price per share on the New York Stock Exchange
(NYSE). Based on a net asset value (NAV) of $16.93 per share on September 30,
1994, the Fund's total return for the 12-month period was -3.63 percent. This
compares to a decline of 4.14 percent for the Lehman Government/Corporate Bond
Index for the same period. During the twelve-month period, the Fund distributed
$1.62 per share. At the close of the period the Fund's net assets exceeded $206
million.
A SHIFT IN INVESTMENT STRATEGY
At the end of the reporting period, the Fund's average maturity was 18
years and the average duration was 6.22 years, reflective of the high coupons on
many of the securities held in the portfolio. Corporate bonds comprised 80
percent of the portfolio, U.S. government securities represented
<PAGE> 2
19 percent and the remaining 1 percent invested in money markets. The portfolio
was diversified among 58 issues with an average coupon of 9.87 percent and an
average quality rating of A3.
In response to the most recent rise in interest rates, the Fund took the
opportunity to reinvest funds from called and maturing securities in
higher-yielding, 30-year, "A-rated" corporates callable within two years. These
bonds sell at substantial discounts to their call prices and have
yields-to-maturity in excess of 9 percent. Throughout the fiscal year, the Fund
focused on upgrading the quality of its portfolio with the majority of new
purchases rated "A" or better by Standard & Poor's or Moody's. Swaps were
executed with lower-rated securities were exchanged for higher-quality
securities with virtually no reduction in yield, and in some cases an increase
in yield.
On September 30, the Fund maintained approximately 60 percent of its
holdings in bonds with maturities of more than 10 years, while maturities of 5
to 10 years accounted for an additional 15 percent of the Fund's assets.
Approximately 25 percent of the portfolio is expected to mature or be called
within the next 12 months, providing management with flexibility to maneuver in
a higher-interest rate environment.
LOOKING AHEAD
As long as the economy continues to show signs of strength, further
interest rate hikes remain a possibility. With this scenario in mind, we will
continue to look to investments with more defensive characteristics, including
higher-coupon, callable bonds. While recent signs of potential increases in
inflation make further interest rate tightening likely before year end, we
believe much of the rate increase for the current interest rate cycle is behind
us. Although 1994 will likely end without inflationary expectations subsiding,
we expect 1995 to be a friendlier year to the fixed-income markets.
We appreciate your support of InterCapital Income Securities, Inc. and look
forward to continuing to serve your investment needs.
Very truly yours,
(Signature)
Charles A. Fiumefreddo
Chairman of the Board
<PAGE> 3
INTERCAPITAL INCOME SECURITIES, INC.
PORTFOLIO OF INVESTMENTS September 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- ---------- ------ -------- ------------
<C> <S> <C> <C> <C>
CORPORATE BONDS -- UTILITIES (23.1%)
ELECTRIC (17.3%)
$ 3,000 Alabama Power Co. ........................................... 7.30 % 11/ 1/23 $ 2,537,550
2,000 CTC Mansfield Funding Corp. ................................. 11.125 9/30/16 1,880,000
5,000 Cleveland Electric Illuminating Co. ......................... 9.00 7/ 1/23 4,131,650
4,325 Commonwealth Edison Co. ..................................... 8.875 10/ 1/21 4,038,728
2,000 Commonwealth Edison Co. ..................................... 8.625 2/ 1/22 1,862,240
389 Georgia Power Co. ........................................... 9.23 12/ 1/19 389,937
1,000 Long Island Lighting Co. .................................... 8.90 7/15/19 806,550
6,000 Long Island Lighting Co. .................................... 9.625 7/ 1/24 5,460,420
1,000 Northern States Power Co. ................................... 9.375 6/ 1/20 1,021,590
4,000 Southern California Edison Co. .............................. 9.25 12/ 1/22 3,993,960
2,500 Texas Utilities Electric Co. ................................ 9.875 11/ 1/19 2,677,475
3,000 Texas Utilities Electric Co. ................................ 8.50 8/ 1/24 2,823,330
4,300 United Illuminating Co. ..................................... 10.24 1/ 2/20 4,143,996
------------
35,767,426
------------
GAS (1.7%)
3,600 Southwest Gas Corp. ......................................... 9.375 2/ 1/17 3,454,200
------------
TELEPHONE (4.1%)
1,000 Alltel Corp. ................................................ 9.50 3/ 1/21 1,027,080
1,000 GTE South.................................................... 9.375 6/15/30 1,013,840
6,000 Northwestern Bell Telephone Co. ............................. 9.125 12/ 1/30 6,383,220
------------
8,424,140
------------
TOTAL CORPORATE BONDS -- UTILITIES
(IDENTIFIED COST $51,666,617)..................................................... 47,645,766
------------
CORPORATE BONDS (55.1%)
AIRLINES (5.6%)
5,000 Delta Airlines, Inc. ........................................ 9.30 1/ 2/10 4,664,100
3,000 Delta Airlines, Inc. ........................................ 10.125 5/15/10 2,976,690
4,300 United Airlines, Inc. ....................................... 9.35 4/ 7/16 3,840,373
------------
11,481,163
------------
BANK (3.5%)
6,000 Continental Bank, N.A. ...................................... 12.50 4/ 1/01 7,275,240
------------
BANKS -- INTERNATIONAL (2.7%)
4,000 BCH Cayman Island, Ltd. ..................................... 8.25 6/15/04 3,843,640
2,000 Bank of China................................................ 8.25 3/15/14 1,752,480
------------
5,596,120
------------
BANK HOLDING COMPANY (0.8%)
1,571 Citicorp..................................................... 10.75 12/15/15 1,706,986
------------
BROKERAGES (3.0%)
2,000 Lehman Brothers Holdings, Inc. .............................. 12.50 10/15/94 2,074,960
3,000 Morgan Stanley Group, Inc. .................................. 7.25 10/15/23 2,453,310
2,000 Paine Webber Group, Inc. .................................... 7.625 2/15/14 1,729,660
------------
6,257,930
------------
COMPUTER EQUIPMENT (0.5%)
1,000 Unisys Corp. ................................................ 13.50 7/ 1/97 1,100,000
------------
</TABLE>
<PAGE> 4
INTERCAPITAL INCOME SECURITIES, INC.
PORTFOLIO OF INVESTMENTS September 30, 1994 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in Coupon Maturity
thousands) Rate Date Value
- ---------- ------ -------- ------------
<C> <S> <C> <C> <C>
ENTERTAINMENT, GAMING & LODGING (1.6%)
$ 2,964 Host Marriott Corp. ......................................... 11.00 % 5/ 1/07 $ 2,964,000
446 Trump Castle Funding, Inc. .................................. 11.75 11/15/03 256,163
95 Trump Castle Funding, Inc. .................................. 7.00+ 11/15/05 85,068
------------
3,305,231
------------
FOREIGN GOVERNMENT AGENCIES (4.2%)
4,400 Italy Republic............................................... 6.875 9/27/23 3,485,372
6,000 Quebec Province.............................................. 7.50 7/15/23 5,087,280
------------
8,572,652
------------
FOREST & PAPER PRODUCTS (2.8%)
5,000 Georgia Pacific Corp. ....................................... 9.625 3/15/22 5,098,050
685 Stone Container Corp. ....................................... 11.50 9/ 1/99 674,725
------------
5,772,775
------------
INDUSTRIALS (6.1%)
5,000 AT&T Corp. .................................................. 8.625 12/01/31 4,918,150
5,000 Columbia Healthcare Group.................................... 7.50 12/15/23 4,210,400
2,850 K Mart Corp. ................................................ 13.50 1/ 1/09 3,374,543
------------
12,503,093
------------
INSURANCE & FINANCIAL SERVICES (1.6%)
3,000 Penn Central Corp. .......................................... 10.875 5/ 1/11 3,299,670
------------
MANUFACTURING (5.3%)
875 Formica Corp. ............................................... 14.00 10/ 1/99 912,188
6,500 RJR Nabisco, Inc. ........................................... 8.75 8/15/05 5,905,705
2,000 Weirton Steel Corp. ......................................... 10.875 10/15/99 2,025,000
2,400 Westinghouse Electric Corp. ................................. 7.875 9/ 1/23 2,028,840
------------
10,871,733
------------
METALS & MINING (1.0%)
2,000 Inco, Ltd. .................................................. 9.60 6/15/22 1,979,780
------------
OIL RELATED (10.5%)
5,200 Lasmo (USA), Inc. ........................................... 8.375 6/ 1/23 4,638,712
2,000 Occidental Petroleum Co. .................................... 9.625 7/ 1/99 2,076,900
7,240 Occidental Petroleum Co. .................................... 11.75 3/15/11 8,010,408
5,000 Phillips Petroleum Co. ...................................... 8.49 1/ 1/23 4,703,800
3,100 Tennessee Gas & Power Co. ................................... 6.00 12/15/11 2,332,533
------------
21,762,353
------------
TELECOMMUNICATIONS (3.5%)
4,000 Telecommunications, Inc. .................................... 9.25 1/15/23 3,799,280
4,000 Time Warner Entertainment Co. ............................... 8.375 7/15/33 3,389,600
------------
7,188,880
------------
TRANSPORTATION (2.4%)
5,000 Ryder Systems, Inc. ......................................... 9.375 1/15/98 5,050,650
------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $118,341,539)................................ 113,724,256
------------
</TABLE>
<PAGE> 5
INTERCAPITAL INCOME SECURITIES, INC.
PORTFOLIO OF INVESTMENTS September 30, 1994 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount (in
thousands)/ Coupon Maturity
Shares Rate Date Value
- ---------- ------ -------- ------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCIES & OBLIGATIONS (18.5%)
$ 1,000 Federal National Mortgage Association Multi-Currency(b)...... 12.95 % 3/ 9/95 $ 382,500
2,500 Federal National Mortgage Association Multi-Currency(b)...... 13.05 6/ 7/95 650,000
19,500 Federal National Mortgage Association........................ 11.15 6/12/95 20,185,547
3,800 U.S. Treasury Note........................................... 11.625 11/15/94 3,827,906
11,790 U.S. Treasury Note........................................... 12.625 5/15/95 12,303,970
1,000 U.S. Treasury Bond........................................... 7.125 2/15/23 907,500
------------
TOTAL U.S. GOVERNMENT AGENCIES & OBLIGATIONS
(IDENTIFIED COST $42,427,631)..................................................... 38,257,423
------------
COMMON STOCKS(0.1%)
HOTELS
6,016 Host Marriott Corp.(a) ............................................................. 59,408
6,016 Marriott International, Inc. ....................................................... 173,712
------------
TOTAL COMMON STOCKS (IDENTIFIED COST $201,536)...................................... 233,120
------------
REPURCHASE AGREEMENT (0.5%)
1,156 The Bank of New York 5.00% due 10/3/94 (dated 9/30/94;
proceeds $1,156,595; collateralized by $1,209,334 U.S. Treasury
Note 7.50% due 11/15/16 valued at $1,179,235) (Identified
Cost $1,156,113).................................................................. 1,156,113
------------
TOTAL INVESTMENTS (IDENTIFIED COST $213,793,436)(C).................... 97.3% 201,016,678
OTHER ASSETS IN EXCESS OF LIABILITIES.................................. 2.7 5,508,824
-------- ------------
NET ASSETS............................................................. 100.0% $206,525,502
======== ============
</TABLE>
- ---------------
+ Payment-in-kind security.
(a) Non-income producing.
(b) Principal Exchange Rate Linked security; principal repayment is linked to
specified foreign currency exchange rates.
(c) The aggregate cost for federal income tax purposes is $213,841,077; the
aggregate gross unrealized appreciation is $3,340,585 and the aggregate
gross unrealized depreciation is $16,164,984 resulting in net unrealized
depreciation of $12,824,399.
See Notes to Financial Statements
<PAGE> 6
INTERCAPITAL INCOME SECURITIES, INC.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1994
- -------------------------------------------
ASSETS:
Investments in securities, at value
(identified cost $213,793,436)(Note 1)... $ 201,016,678
Receivable for:
Interest................................. 5,728,360
Investments sold......................... 5,096,563
Prepaid expenses and other assets.......... 9,966
-------------
TOTAL ASSETS....................... 211,851,567
-------------
LIABILITIES:
Payable for investments purchased.......... 5,076,646
Investment management fee payable (Note
2)....................................... 99,775
Accrued expenses (Note 3).................. 149,644
-------------
TOTAL LIABILITIES.................. 5,326,065
-------------
NET ASSETS:
Paid-in-capital............................ 242,285,882
Accumulated net realized loss on
investments.............................. (22,938,198)
Net unrealized depreciation on
investments.............................. (12,776,758)
Distributions in excess of net investment
income................................... (45,424)
-------------
NET ASSETS......................... $ 206,525,502
=============
NET ASSET VALUE PER SHARE,
12,200,518 shares outstanding
(15,000,000 shares authorized of $.01 par
value).................................. $16.93
-----
-----
STATEMENT OF OPERATIONS For the year
ended September 30, 1994
- -------------------------------------------
INVESTMENT INCOME:
INTEREST INCOME........................... $ 21,356,862
-------------
EXPENSES
Investment management fee (Note 2)....... 1,102,842
Transfer agent fees and expenses (Note
3)..................................... 200,528
Professional fees........................ 63,686
Shareholder reports and notices.......... 45,302
Directors' fees and expenses (Note 3).... 34,010
Registration fees........................ 23,433
Custodian fees........................... 21,197
Other.................................... 15,568
-------------
TOTAL EXPENSES......................... 1,506,566
-------------
NET INVESTMENT INCOME................ 19,850,296
-------------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS (NOTE 1):
Net realized loss on investments......... (5,373,942)
Net change in unrealized appreciation on
investments............................ (21,289,097)
-------------
NET LOSS ON INVESTMENTS................ (26,663,039)
-------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS.................... $ (6,812,743)
=============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
year ended year ended
September 30, 1994 September 30, 1993
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income.................................................. $ 19,850,296 $ 20,618,704
Net realized gain (loss) on investments................................ (5,373,942) 3,273,273
Net change in unrealized appreciation (depreciation) on investments.... (21,289,097) 1,283,966
--------------- ---------------
Net increase (decrease) in net assets resulting from operations.... (6,812,743) 25,175,943
Dividends to shareholders from net investment income..................... (19,764,839) (20,496,870)
--------------- ---------------
Total increase (decrease).......................................... (26,577,582) 4,679,073
NET ASSETS:
Beginning of period...................................................... 233,103,084 228,424,011
--------------- ---------------
END OF PERIOD (including distributions in excess of net investment income
of $45,424 and undistributed net investment income of $735,513,
respectively)........................................................... $206,525,502 $233,103,084
=============== ===============
</TABLE>
See Notes to Financial Statements
<PAGE> 7
INTERCAPITAL INCOME SECURITIES, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND ACCOUNTING POLICIES -- InterCapital Income Securities, Inc.
(the "Fund") is registered under the Investment Company Act of 1940, as amended,
as a diversified, closed-end management investment company. The Fund commenced
operations on April 6, 1973.
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 Directors (valuation of debt securities for which market quotations are
not readily available may be based upon current market prices of securities
which are comparable in coupon, rating and maturity or an appropriate
matrix utilizing similar factors); (4) certain of the Fund's portfolio
securities may be valued by an outside pricing service approved by the
Directors. 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 Directors.
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.
E. Dividends and Distributions to Shareholders -- The Fund records
dividends and distributions to its shareholders on the ex-dividend date.
The amount of dividends and distributions from net investment income and
net realized capital gains are determined in accordance with federal income
<PAGE> 8
INTERCAPITAL INCOME SECURITIES, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
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 its Investment Manager a monthly management fee by applying the annual
rate of 0.50% to the Fund's average weekly net assets.
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. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES -- The cost of
purchases and proceeds from sales of portfolio securities, excluding short-term
investments, for the year-end September 30, 1994 aggregated $175,871,634 and
$179,806,272, respectively, including purchases and sales of U.S. Government
Securities of $51,121,103 and $64,613,375, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager, is the
Fund's transfer agent. At September 30, 1994, the Fund had transfer agent fees
and expenses payable of approximately $28,000.
On April 1, 1991, the Fund established an unfunded noncontributory defined
benefit pension plan covering all independent Directors of the Fund who will
have served as an independent Director for at least five years at the time of
retirement. Benefits under this plan are based on years of service and
compensation during the last five years of service. Aggregate pension costs for
the year ended September 30, 1994, included in Directors' fees and expenses in
the Statement of Operations amounted to $9,180. At September 30, 1994, the Fund
had an accrued pension liability of $44,992 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
Director of Bowne & Co., Inc. During the year ended September 30, 1994, the Fund
paid Bowne & Co., Inc. $4,643 for printing of shareholder reports.
4. CAPITAL STOCK -- No transactions in capital stock occurred.
<TABLE>
<CAPTION>
Par Value Capital Paid
of in Excess of
Shares Shares Par Value
----------- --------- -------------
<S> <C> <C> <C>
Balance, September 30, 1992...................... 12,200,518 $ 122,003 $ 263,862,071
Reclassification due to permanent book/tax
differences.................................... -0- -0- (20,612,513)
----------- --------- -------------
Balance, September 30, 1993...................... 12,200,518 122,003 243,249,558
Reclassification due to permanent book/tax
differences.................................... -0- -0- (1,085,679)
----------- --------- -------------
Balance, September 30, 1994...................... 12,200,518 $ 122,003 $ 242,163,879
========== ========= =============
</TABLE>
<PAGE> 9
INTERCAPITAL INCOME SECURITIES, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
5. DIVIDENDS -- On September 27, 1994, the Fund declared the following
dividends from net investment income --
<TABLE>
<CAPTION>
Amount Record Payable
per Share Date Date
- --------- ------------------ ------------------
<C> <S> <S>
$ .13 October 7, 1994 October 21, 1994
$ .13 November 11, 1994 November 25, 1994
$ .13 December 9, 1994 December 23, 1994
</TABLE>
6. FEDERAL INCOME TAX STATUS -- During the year ended September 30, 1994, the
Fund utilized approximately $2,805,000 of its net capital loss carryovers. At
September 30, 1994, the Fund had net capital loss carryovers of approximately
$16,534,000 of which $782,000 will be available through September 30, 1998,
$13,382,000 will be available through September 30, 1999 and $2,370,000 will be
available through September 30, 2000 to offset future capital gains to the
extent provided by regulations. 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 $6,436,000 during such period
in fiscal 1994. To the extent that these carryover losses are used to offset
future capital gains, it is probable that the gains so offset will not be
distributed to shareholders.
As of September 30, 1994, the Fund had temporary book/tax differences
primarily attributable to post-October loss deferrals and permanent book/tax
differences primarily attributable to expired capital loss carryovers and
foreign currency losses. To reflect cumulative reclassifications arising from
permanent book/tax differences as of September 30, 1993, paid-in-capital was
charged $20,612,513, distributions in excess of net investment income was
credited $329,952 and accumulated net realized loss on investments was credited
$20,282,561. To reflect reclassifications arising from permanent book/tax
differences for the year ended September 30, 1994 distributions in excess of net
investment income was charged $866,394, paid-in-capital was charged $1,085,679
and accumulated net realized loss on investments was credited $1,952,073.
7. SELECTED QUARTERLY FINANCIAL DATA -- (unaudited)
<TABLE>
<CAPTION>
Quarters Ended*
----------------------------------------------------------------------------
9/30/94 6/30/94 3/31/94 12/31/93
--------------- ----------------- ------------------ -----------------
Per Per Per Per
Total Share Total Share Total Share Total Share
-------- ---- -------- ------ --------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income......... $ 5,302 $.43 $ 5,239 $ .43 $ 5,346 $ .44 $ 5,470 $ .45
Net investment income........... 4,922 .40 4,831 .39 4,975 .41 5,122 .42
Net realized and unrealized loss
on investments................ (3,992) (.32) (7,806) (.64) (10,422) (.85) (4,443) (.37)
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended*
----------------------------------------------------------------------------
9/30/93 6/30/93 3/31/93 12/31/92
--------------- ----------------- ------------------ -----------------
Per Per Per Per
Total Share Total Share Total Share Total Share
-------- ---- -------- ------ --------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment income......... $ 5,664 $.46 $ 5,313 $ .44 $ 5,521 $ .45 $ 5,616 $ .46
Net investment income........... 5,319 .44 4,950 .40 5,128 .42 5,222 .43
Net realized and unrealized gain
(loss) on investments......... 1,999 .17 1,961 .16 5,520 .45 (4,923) (.40)
</TABLE>
- ---------------
* Totals expressed in thousands of dollars.
<PAGE> 10
INTERCAPITAL INCOME SECURITIES, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected ratios and per share data for a share of capital stock outstanding
throughout each period:
<TABLE>
<CAPTION>
For the year ended September 30,
---------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $ 19.11 $ 18.72 $ 18.03 $ 16.97 $ 18.83
--------- --------- --------- --------- ---------
Net investment income............................. 1.62 1.69 1.79 1.94 2.03
Net realized and unrealized gain (loss) on
investments..................................... (2.18) .38 .79 .96 (1.79)
--------- --------- --------- --------- ---------
Total from investment operations.................... (.56) 2.07 2.58 2.90 .24
Dividends from net investment income................ (1.62) (1.68) (1.89) (1.84) (2.10)
--------- --------- --------- --------- ---------
Net asset value, end of period...................... $ 16.93 $ 19.11 $ 18.72 $ 18.03 $ 16.97
======== ======== ======== ======== ========
Market value, end of period......................... $ 16.875 $ 21.375 $ 22.25 $ 20.50 $ 20.00
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN+............................ (14.12)% 2.97% 19.91% 13.40% 5.31%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)............ $ 206,526 $ 233,103 $ 228,424 $ 218,524 $ 199,519
Ratio of expenses to average net assets............. .68% .66% .69% .72% .72%
Ratio of net investment income to average net
assets............................................ 9.02% 9.04% 9.69% 11.11% 11.23%
Portfolio turnover rate............................. 82% 85% 61% 56% 61%
</TABLE>
- ---------------
+ Total investment return is based upon the current market value on the last day
of each period reported. Dividends and distributions are assumed to be
reinvested at the prices obtained under the Fund's dividend reinvestment plan.
Total investment return does not reflect sales charges or brokerage
commissions.
See Notes to Financial Statements
<PAGE> 11
INTERCAPITAL INCOME SECURITIES, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of InterCapital Income Securities,
Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of InterCapital Income Securities,
Inc. (the "Fund") at September 30, 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, 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
September 30, 1994 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
October 17, 1994
<PAGE> 12
BOARD OF DIRECTORS
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. Siegal
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
INTERCAPITAL
INCOME
SECURITIES,
INC.
Annual Report
September 30, 1994
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 213,793,436
<INVESTMENTS-AT-VALUE> 201,016,678
<RECEIVABLES> 10,824,923
<ASSETS-OTHER> 9,966
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 211,851,567
<PAYABLE-FOR-SECURITIES> 5,076,646
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 249,419
<TOTAL-LIABILITIES> 5,326,065
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 242,285,882
<SHARES-COMMON-STOCK> 12,200,518
<SHARES-COMMON-PRIOR> 12,200,518
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (45,424)
<ACCUMULATED-NET-GAINS> (22,938,198)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (12,776,758)
<NET-ASSETS> 206,525,502
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21,356,862
<OTHER-INCOME> 0
<EXPENSES-NET> 1,506,566
<NET-INVESTMENT-INCOME> 19,850,296
<REALIZED-GAINS-CURRENT> (5,373,942)
<APPREC-INCREASE-CURRENT> (21,289,097)
<NET-CHANGE-FROM-OPS> (6,812,743)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (19,764,839)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (26,577,582)
<ACCUMULATED-NII-PRIOR> 405,561
<ACCUMULATED-GAINS-PRIOR> (39,798,890)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,102,842
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,506,566
<AVERAGE-NET-ASSETS> 219,964,055
<PER-SHARE-NAV-BEGIN> 19.11
<PER-SHARE-NII> 1.62
<PER-SHARE-GAIN-APPREC> (2.18)
<PER-SHARE-DIVIDEND> (1.62)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.93
<EXPENSE-RATIO> .68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
